SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from ___________________ to ___________________
Commission File Number: 000-25101
ONEIDA FINANCIAL CORP.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
Federal 16-1561678
- -------------------------------------------------------------- ---------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
182 Main Street, Oneida, New York 13421-1676
- -------------------------------------------------------------- ---------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(315) 363-2000
----------------------------------------
(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file reports) and (2) has been subject to such requirements for the
past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES NO X
--- ---
As of June 30, 2004, there were issued and outstanding 7,488,007 shares of
the Registrant's Common Stock. The aggregate market value of the 3,178,257
shares of voting stock held by non-affiliates of the Registrant, was $32,767,830
as computed by reference to the last sales price on June 30, 2004 ($10.31), as
reported by the NASDAQ National Market.
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Stockholders for the fiscal year ended
December 31, 2004 (Parts II and IV).
2. Proxy Statement for the 2005 Annual Meeting of Stockholders (Parts I and
III).
TABLE OF CONTENTS
ITEM 1. BUSINESS.............................................................1
ITEM 2. PROPERTIES..........................................................36
ITEM 3. LEGAL PROCEEDINGS...................................................37
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................37
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...................38
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA...............................38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE............................................39
ITEM 9A. CONTROLS AND PROCEDURES.............................................40
ITEM 9B. OTHER INFORMATION...................................................41
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT............................41
ITEM 11. EXECUTIVE COMPENSATION..............................................41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.....................................41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................41
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................41
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..........................41
PART I
ITEM 1. BUSINESS
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Oneida Financial Corp.
Oneida Financial Corp. (the "Company") was organized in September 1998,
for the purpose of acquiring all of the capital stock of The Oneida Savings Bank
(the "Bank") upon completion of the Bank's reorganization into the two-tier form
of mutual holding company ownership. The Company is majority-owned by Oneida
Financial, MHC, a Federally chartered mutual holding company (the "Mutual
Holding Company"). The Company and the Mutual Holding Company are each subject
to regulation by the Office of Thrift Supervision ("OTS"). The Company's assets
consist primarily of its ownership in the shares of the Bank's common stock.
At December 31, 2004 the Company had consolidated assets and consolidated
stockholders' equity of $422.6 million and $52.6 million, respectively. Through
the Bank, the Company has deposits totaling $301.6 million. All disclosures and
financial information is presented on a consolidated basis.
The Company's executive office is located at the main office of the Bank,
at 182 Main Street, Oneida, New York 13421-1676. The Company's telephone number
is (315) 363-2000.
The Oneida Savings Bank
The Bank was organized in 1866 as a New York-chartered mutual savings
bank. The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the FDIC, up to the maximum amount permitted by law. The Bank is
a community bank engaged primarily in the business of accepting deposits from
customers through its main office and seven full service branch offices and
using those deposits, together with funds generated from operations and
borrowings to make one- to four-family residential and commercial real estate
loans, commercial business loans, consumer loans and to invest in
mortgage-backed and other securities. The Bank also sells insurance and other
commercial services and products through Bailey & Haskell Associates, Inc., its
insurance agency subsidiary.
At December 31, 2004, $146.7 million, or 68.6%, of the Bank's loans were
secured by real estate, of which $81.6 million, or 38.2%, of the Bank's loans
were secured by one-to four-family residential real estate, $44.7 million, or
20.9%, of the Bank's loans were secured by commercial real estate, and $20.3
million, or 9.5%, of the Bank's loans were home equity loans. Consumer loans
totaled $36.5 million, or 17.0% of the Bank's loans, at December 31, 2004. The
Bank also originates commercial business loans which totaled $30.7 million, or
14.4%, of loans at December 31, 2004. The Bank's investment securities and
mortgage-backed securities portfolios totaled $109.7 million and $44.4 million,
respectively, at December 31, 2004.
In April 1999, the Bank established Oneida Preferred Funding Corp. as the
Bank's wholly owned real estate investment trust subsidiary. At December 31,
2004 Oneida Preferred Funding Corp. held $41.2 million in mortgage and mortgage
related assets. All disclosures in the Form 10-K relating to the Bank's loans
and investments include loans and investments that are held by Oneida Preferred
Funding Corp.
In October 2000, the Bank acquired Bailey & Haskell Associates, Inc.,
which is a wholly owned insurance and financial services subsidiary. Since the
acquisition of Bailey & Haskell Associates, Inc. the Bank has acquired four
insurance agencies, all of which have been merged into Bailey & Haskell
Associates, Inc.
1
On May 31, 2002, the Bank completed its acquisition of SBC Financial
Corporation ("SBC"), the holding company of State Bank of Chittenango
("Chittenango"); a New York State chartered commercial bank. The two banking
offices of Chittenango became banking offices of the Bank. The Bank has retained
Chittenango as a special purpose commercial bank subsidiary of the Bank.
Chittenango is permitted to accept municipal deposit accounts from the various
municipalities, school districts and other public sources, a source of funds not
available to the Bank under New York law. The Bank paid $11.9 million or $102.60
in cash for each of the 116,079 shares of SBC common stock. Assets acquired as a
result of the acquisition totaled $66.5 million and resulted in additional
goodwill of $5.6 million and a core deposit intangible of approximately $1.2
million. At December 31, 2004, no impairment adjustment has been made to
goodwill or other intangibles that were created in the transaction.
The Bank's main office is located at 182 Main Street, Oneida, New York
13421-1676. The Bank's telephone number is (315) 363-2000.
Market Area
The Bank is a community-based savings institution that offers a variety of
financial products and services. The Bank's primary lending area is Madison
county, New York and surrounding counties, and most of the Bank's deposit
customers reside in Madison county and surrounding counties. The City of Oneida
is located approximately 30 miles from Syracuse and 20 miles from Utica. The
Bank's market area is characterized as rural, although the local economy is also
affected by economic conditions in Syracuse and Utica, New York. The average
household income of persons residing in Oneida and Madison counties was below
that of New York State and the United States.
The Bank competes with commercial banks, savings banks and credit unions
for deposits and loans. In addition to the financial institutions operating in
Madison and Oneida counties, the Bank competes with a number of mortgage bankers
for the origination of loans. The largest employers in the Bank's market area
are Oneida Healthcare and related medical community and The Oneida Indian Nation
of New York.
Lending Activities
General. The principal lending activity of the Bank has been the
origination, for retention in its portfolio, of adjustable rate mortgage ("ARM")
loans collateralized by one-to four-family residential real estate located
within its primary market area. In the current low interest rate environment,
borrowers have shown a preference for fixed-rate loans. Consequently, in recent
periods the Bank has originated fixed-rate one-to four-family loans for resale
in the secondary market, without recourse and on a servicing retained basis. In
order to complement the Bank's traditional emphasis of one-to four-family
residential real estate lending, management has sought to increase the number of
higher yielding commercial real estate loans, consumer loans and commercial
business loans. To a limited extent, the Bank will originate loans secured by
multi-family properties. The Bank does not view multi-family lending as a
significant aspect of its business.
2
Loan Portfolio Composition. Set forth below is selected information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for allowance for loan losses) as of the dates
indicated.
At December 31,
----------------------------------------------------------------------------------------
2004 2003 2002 2001
------------------- ------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Real Estate Loans:
- ------------------
One- to four-family ......... $ 81,621 38.2% $ 79,910 39.4% $ 85,581 42.8% $ 76,477 44.3%
Multi-family ................ 2,154 1.0 2,378 1.2 1,983 1.0 1,003 0.6
Home equity ................. 20,309 9.5 17,001 8.4 15,149 7.6 11,077 6.4
Commercial real estate ...... 42,566 19.9 35,806 17.6 30,096 15.0 23,517 13.6
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate loans ... 146,650 68.6 135,095 66.6 132,809 66.4 112,074 64.9
-------- -------- -------- -------- -------- -------- -------- --------
Consumer Loans:
- ---------------
Automobile loans ........... 32,059 15.0 30,042 14.8 28,857 14.4 29,569 17.1
Mobile home ................ 177 0.1 205 0.1 280 0.1 381 0.2
Personal loans ............. 2,910 1.4 4,326 2.1 6,842 3.4 2,691 1.6
Other consumer loans ....... 1,361 0.5 1,549 0.8 1,442 0.8 1,465 0.9
-------- -------- -------- -------- -------- -------- -------- --------
Total consumer loans ...... 36,507 17.0 36,122 17.8 37,421 18.7 34,106 19.8
Commercial business loans ...... 30,704 14.4 31,494 15.6 29,775 14.9 26,385 15.3
-------- -------- -------- -------- -------- -------- -------- --------
Total consumer and commercial
business loans ............ 67,211 31.4 67,616 33.4 67,196 33.6 60,491 35.1
-------- -------- -------- -------- -------- -------- -------- --------
Total loans ............... $213,861 100.00% $202,711 100.00% $200,005 100.00% $172,565 100.00%
======== ======== ======== ======== ======== ======== ======== ========
Less:
- -----
Allowance for losses ........ 1,982 2,115 2,109 1,672
-------- -------- -------- --------
Total loans receivable, net . $211,879 $200,596 $197,896 $170,893
======== ======== ======== ========
At December 31,
----------------------
2000
----------------------
Amount Percent
--------- ----------
(Dollars in thousands)
Real Estate Loans:
- -----------------
One- to four-family ......... $ 84,386 50.7%
Multi-family ................ 1,134 0.7
Home equity ................. 10,940 6.6
Commercial real estate ...... 18,742 11.3
-------- --------
Total real estate loans ... 115,202 69.3
-------- --------
Consumer Loans:
- --------------
Automobile loans ........... 25,818 15.5
Mobile home ................ 526 0.4
Personal loans ............. 3,450 2.1
Other consumer loans ....... 1,432 0.8
-------- --------
Total consumer loans ...... 31,226 18.8
Commercial business loans ...... 19,865 11.9
-------- --------
Total consumer and commercial
business loans ............ 51,091 30.7
-------- --------
Total loans ............... $166,293 100.00%
======== ========
Less:
- -----
Allowance for losses ........ 1,632
--------
Total loans receivable, net . $164,661
========
3
The following table sets forth the composition of the Bank's loan
portfolio by fixed and adjustable rates at the dates indicated.
At December 31,
----------------------------------------------------------------------------------------
2004 2003 2002 2001
------------------- ------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
FIXED-RATE LOANS:
Real Estate Loans:
- ------------------
One- to four-family ........... $ 31,201 14.6% $ 29,197 14.4% $ 27,848 13.9% $ 21,370 12.4%
Multi-family .................. -- -- -- -- -- -- -- --
Home equity ................... 9,274 4.3 10,543 5.2 10,423 5.2 6,634 3.8
Commercial real estate ........ 6,299 2.9 4,174 2.0 1,799 0.9 1,248 0.7
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate loans ..... 46,774 21.8 43,914 21.6 40,070 20.0 29,252 16.9
Consumer Loans:
- ---------------
Total consumer loans .......... 35,695 16.6 35,211 17.4 36,704 18.4 33,371 19.4
Commercial business loans:
- --------------------------
Total commercial loans ........ 14,118 6.6 13,981 7.0 12,172 6.1 13,765 8.0
-------- -------- -------- -------- -------- -------- -------- --------
Total fixed-rate loans ........ 96,587 45.0 93,106 46.0 88,946 44.5 76,388 44.3
-------- -------- -------- -------- -------- -------- -------- --------
ADJUSTABLE RATE LOANS:
Real Estate Loans:
- ------------------
One- to four-family ........... $ 50,420 23.6% $ 50,713 25.0% $ 57,733 28.9% $ 55,107 31.9%
Multi-family .................. 2,154 1.0 2,378 1.2 1,983 1.0 1,003 0.6
Home equity ................... 11,035 5.2 6,458 3.2 4,726 2.4 4,443 2.6
Commercial real estate ........ 36,267 17.0 31,632 15.6 28,297 14.1 22,269 12.9
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate loans ..... 99,876 46.8 91,181 45.0 92,739 46.4 82,822 48.0
Consumer Loans:
- ---------------
Total consumer loans .......... 812 0.4 911 0.4 717 0.3 735 0.4
Commercial business loans:
- --------------------------
Total commercial business loans 16,586 7.8 17,513 8.6 17,603 8.8 12,620 7.3
-------- -------- -------- -------- -------- -------- -------- --------
Total adjustable-rate loans ... 117,274 55.0 109,605 54.0 111,059 55.5 96,177 55.7
-------- -------- -------- -------- -------- -------- -------- --------
Total loans ................... $213,861 100.00% $202,711 100.00% $200,005 100.00% $172,565 100.00%
======== ======== ======== ======== ======== ======== ======== ========
Less:
- -----
Allowance for loan losses ..... 1,982 2,115 2,109 1,672
-------- -------- -------- --------
Total loans receivable, net ...... $211,879 $200,596 $197,896 $170,893
======== ======== ======== ========
At December 31,
----------------------
2000
----------------------
Amount Percent
--------- ----------
(Dollars in thousands)
FIXED-RATE LOANS:
Real Estate Loans:
One- to four-family ........... $ 17,485 10.5%
Multi-family .................. -- --
Home equity ................... 6,211 3.7
Commercial real estate ........ 775 0.5
-------- --------
Total real estate loans ..... 24,471 14.7
Consumer Loans:
Total consumer loans .......... 30,745 18.5
Commercial business loans:
Total commercial loans ........ 12,965 7.8
-------- --------
Total fixed-rate loans ........ 68,181 41.0
-------- --------
ADJUSTABLE RATE LOANS:
Real Estate Loans:
One- to four-family ........... $ 66,901 40.2%
Multi-family .................. 1,134 0.7
Home equity ................... 4,729 2.9
Commercial real estate ........ 17,967 10.8
-------- --------
Total real estate loans ..... 90,731 54.6
Consumer Loans:
Total consumer loans .......... 481 0.3
Commercial business loans:
Total commercial business loans 6,900 4.1
-------- --------
Total adjustable-rate loans ... 98,112 59.0
-------- --------
Total loans ................... $166,293 100.00%
======== ========
Less:
Allowance for loan losses ..... 1,632
--------
Total loans receivable, net ...... $164,661
========
4
One-to four-family Residential Loans. The Bank's primary lending activity
is the origination of one- to four-family residential mortgage loans secured by
property located in the Bank's primary lending area. Generally, one- to
four-family residential mortgage loans are made in amounts up to 80% of the
lesser of the appraised value or purchase price of the property. However, the
Bank will originate one- to four-family loans with loan-to-value ratios of up to
97%, provided the borrower obtains private mortgage insurance. Generally,
fixed-rate loans are originated for terms of up to 30 years. One- to four-family
fixed-rate loans are offered with a monthly payment feature.
The Bank originates both adjustable rate and fixed-rate one- to
four-family loans. The interest rate on ARM loans is indexed to the one year
Treasury bill rate. The Bank's ARM loans currently provide for maximum rate
adjustments of 200 basis points per year and 600 basis points over the term of
the loan. The Bank offers ARM loans with initial interest rates that are below
market, referred to as "teaser rates." Residential ARM loans amortize over a
maximum term of up to 30 years. ARM loans are offered with both monthly and
bi-weekly payment features. ARM loans are originated for retention in the Bank's
portfolio.
As a result of the lower interest rate environment during the past year, a
greater percentage of the Bank's one- to four-family loan originations consisted
of fixed-rate one- to four-family mortgage loans. The Bank originates and
generally sells its fixed-rate one- to four-family loans on a servicing retained
basis without recourse to the Bank. At December 31, 2004, loans serviced by the
Bank for others totaled $95.2 million. During the year ended December 31, 2004
and December 31, 2003, the Bank sold $18.6 million and $50.2 million,
respectively in fixed-rate one- to four-family loans. As of December 31, 2004
the Bank had $2.9 million of mortgage loan forward sale commitments to hedge
interest rate risk on certain committed originated loans. The fair value of
these commitments is not material.
ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks. As interest rates
increase, the underlying required periodic payments by the borrower increase,
thus increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment permitted
by the terms of the ARM loans, and therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At December 31,
2004, 23.6% of the Bank's loan portfolio consisted of one- to four-family
residential loans with adjustable interest rates.
All one- to four-family residential mortgage loans originated by the Bank
include "due-on-sale" clauses, which give the Bank the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
At December 31, 2004, approximately $81.6 million, or 38.2% of the Bank's
loan portfolio, consisted of one- to four-family residential loans.
Approximately $128,000 of such loans (representing three loans) were included in
nonperforming loans as of that date.
Home Equity Loans. The Bank offers home equity loans that are secured by
the borrower's primary residence. The Bank offers a home equity line of credit
under which the borrower is permitted to draw on the home equity line of credit
during the first ten years after it is originated and repay the outstanding
balance over a term not to exceed 25 years from the date the line of credit is
originated. The interest rates on home equity lines of credit are fixed for the
first year and adjust monthly thereafter at a margin over the prime interest
rate. The Bank also offers a home equity product providing for a fixed-rate of
interest. Both adjustable rate and fixed-rate home equity loans are underwritten
under the same criteria that the Bank uses to underwrite one- to four-family
fixed-rate loans. Fixed-rate home equity
5
loans are originated with terms up to ten years. Home equity loans may be
underwritten with a loan to value ratio of 85% when combined with the principal
balance of the existing mortgage loan. The maximum amount of a home equity loan
may not exceed $250,000 unless approved by the Board of Directors. The Bank
appraises the property securing the loan at the time of the loan application
(but not thereafter) in order to determine the value of the property securing
the home equity loans. At December 31, 2004, the outstanding balances of home
equity loans totaled $20.3 million, or 9.5% of the Bank's loan portfolio.
Approximately $31,000 of such loans (representing two loans) were included in
nonperforming loans as of that date.
Commercial Real Estate Loans. At December 31, 2004, $44.7 million, or
20.9% of the total loan portfolio consisted of commercial real estate loans.
Commercial real estate loans are secured by office buildings, mixed-use
properties, religious facilities and other commercial properties. The Bank
originates adjustable rate commercial mortgage loans with terms of up to 20
years. The maximum loan-to-value ratio of commercial real estate loans is 80%.
At December 31, 2004, the largest commercial real estate loan had a principal
balance of $1.6 million and was secured by a hotel and other assets. This loan
is performing in accordance with its terms. As of December 31, 2004, there were
two commercial real estate loans included in nonperforming loans which
approximated $436,000.
In underwriting commercial real estate loans, the Bank reviews the
expected net operating income generated by the real estate to ensure that it is
at least 110% of the amount of the monthly debt service; the age and condition
of the collateral; the financial resources and income level of the borrower; and
the borrower's business experience. Personal guarantees are routinely obtained
from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than one- to
four-family residential loans and involve a greater degree of risk. Commercial
mortgage loans often involve large loan balances to single borrowers or groups
of related borrowers. Payments on these loans depend to a large degree on the
results of operations and management of the properties or underlying businesses,
and may be affected to a greater extent by adverse conditions in the real estate
market or the economy in general. Accordingly, the nature of commercial real
estate loans makes them more difficult for Bank management to monitor and
evaluate.
Consumer Lending. At December 31, 2004, consumer loans totaled $36.5
million, or 17.0% of the total loan portfolio. The Bank's consumer loans consist
of automobile loans, mobile home loans, secured personal loans (secured by
bonds, equity securities or other readily marketable collateral), and other
consumer loans (consisting of passbook loans, unsecured home improvement loans
and recreational vehicle loans). Consumer loans are originated with terms to
maturity of three to seven years. The Bank has sought to increase its level of
consumer loans primarily through increased automobile lending. The Bank
participates in a number of indirect automobile lending programs with local
automobile dealerships. All indirect automobile loans must satisfy the Bank's
underwriting criteria for automobile loans originated directly by the Bank to
the borrower and must be approved by one of the Bank's lending officers. At
December 31, 2004, loans secured by automobiles totaled $32.1 million, of which
$27.3 million were originated through the Bank's indirect automobile lending
program. The Bank has also sought to increase its level of automobile loans
directly to borrowers by increasing its marketing efforts with existing
customers. Automobile loans generally do not have terms exceeding five years.
The Bank does not provide financing for leased automobiles.
Consumer loans generally have shorter terms and higher interest rates than
one- to four-family mortgage loans. In addition, consumer loans expand the
products and services offered by the Bank to better meet the financial services
needs of its customers. Consumer loans generally involve greater credit risk
than residential mortgage loans because of the difference in the underlying
collateral. Repossessed
6
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance because of the greater likelihood of
damage to, loss of or depreciation in the underlying collateral. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower beyond obtaining a deficiency judgment. In addition, consumer loan
collections depend on the borrower's personal financial stability. Furthermore,
the application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount that can be recovered on
such loans.
The Bank's underwriting procedures for consumer loans include an
assessment of the applicant's credit history and the ability to meet existing
and proposed debt obligations. Although the applicant's creditworthiness is the
primary consideration, the underwriting process also includes a comparison of
the value of the security to the proposed loan amount. The Bank underwrites its
consumer loans internally, which the Bank believes limits its exposure to credit
risks associated with loans underwritten or purchased from brokers and other
external sources. At December 31, 2004, there were no consumer loans included in
nonperforming loans as of that date.
Commercial Business Loans. The Bank also originates commercial business loans.
Commercial business loans are originated with terms of up to seven years, at
fixed rates of interest except for lines of credit which have variable rates of
interest. Commercial business loans are originated to persons with a prior
relationship with the Bank or referrals from persons with a prior relationship
with the Bank. The decision to grant a commercial business loan depends
primarily on the creditworthiness and cash flow of the borrower (and any
guarantors) and secondarily on the value of and ability to liquidate the
collateral which generally consists of receivables, inventory and equipment. The
Bank generally requires annual financial statements and tax returns from its
commercial business borrowers and personal guarantees from the commercial
business borrowers. The Bank also generally requires an appraisal of any real
estate that secures the commercial business loan. At December 31, 2004, the Bank
had $30.7 million of commercial business loans which represented 14.4% of the
total loan portfolio. On such date, the largest commercial business lending
relationship totaled $1.6 million, which was secured by business assets of a
not-for-profit corporation. At December 31, 2004, unsecured commercial business
loans totaled $4.2 million.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Real estate
lending is generally considered to be collateral based, with loan amounts based
on predetermined loan to collateral values and liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business assets, the liquidation of collateral in the event
of a borrower default is often an insufficient source of repayment because
equipment and other business assets may be obsolete or of limited use, among
other things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors), while
liquidation of collateral is a secondary and often insufficient source of
repayment. At December 31, 2004, there were no commercial business loans
included in nonperforming loans as of that date.
7
Loan Maturity Schedule. The following table sets forth certain information
as of December 31, 2004, regarding the amount of loans maturing in the Bank's
portfolio. Demand loans having no stated schedule of repayment and no stated
maturity and overdrafts are reported as due in one year or less. All loans are
included in the period in which the final contractual repayment is due.
Ten
One Three Five Through Beyond
Through Through Through Twenty- Twenty-
Within One Three Five Ten Five Five
Year Years Years Years Years Years Total
---------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Real estate loans:
One- to four-family....... $ 1,888 $ 885 $ 2,004 $ 10,096 $ 47,516 $ 19,232 $ 81,621
Home equity............... 247 2,129 2,333 15,219 284 97 20,309
Commercial real estate.... 3,038 527 1,629 10,885 28,641 -- 44,720
-------- -------- -------- -------- -------- -------- --------
Total real estate loans. 5,173 3,541 5,966 36,200 76,441 19,329 140,650
Consumer and other loans..... 1,308 10,363 19,870 4,549 227 190 36,507
Commercial business loans.... 13,063 5,586 6,743 4,494 813 5 30,704
-------- -------- -------- -------- -------- -------- --------
Total loans............. $ 19,544 $ 19,490 $ 32,579 $ 45,243 $ 77,481 $ 19,524 $213,861
======== ======== ======== ======== ======== ======== ========
Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth
at December 31, 2004, the dollar amount of all fixed-rate and adjustable-rate
loans due after December 31, 2005. Adjustable- and floating-rate loans are
included based on contractual maturities.
Due After December 31, 2004
-----------------------------------------------
Fixed Adjustable Total
------------ ------------ ------------
(Dollars in thousands)
Real estate loans
One- to four-family................. $ 29,403 $ 50,330 $ 79,733
Home equity......................... 9,199 10,863 20,062
Commercial real estate.............. 4,574 37,108 41,682
------------ ------------ ------------
Total real estate loans........... 43,176 98,301 141,477
Consumer and other loans............... 34,795 404 35,199
Commercial business loans.............. 11,193 6,448 17,641
------------ ------------ ------------
Total loans....................... $ 89,164 $ 105,153 $ 194,317
============ ============ ============
8
Loan Origination, Sales and Repayments. The following table sets forth the
loan origination, sales and repayment activities of the Bank for the periods
indicated. The Bank did not purchase any loans during the periods presented
except for those purchased as part of the acquisition of SBC.
Year Ended December 31,
-----------------------------
2004 2003 2002
-------- -------- -------
(Dollars in thousands)
Originations by Type:
- ---------------------
Adjustable Rate:
Real estate:
One- to four-family .............. $ 7,585 $ 5,733 $ 6,540
Home equity ...................... 6,695 6,570 2,857
Commercial and real estate ....... 10,581 8,873 7,977
-------- -------- -------
Total real estate loans .......... 24,861 21,176 17,374
Consumer loans ................... 687 1,336 969
Commercial business loans ........ 9,304 6,532 4,270
-------- -------- -------
Total adjustable rate loans .. $ 34,852 $ 29,044 $22,613
-------- -------- -------
Fixed-Rate:
Real estate:
One- to four-family .............. $ 30,946 $ 63,031 $36,989
Home equity ...................... 2,381 2,564 3,551
Commercial and real estate ....... 1.966 1,890 1,172
-------- -------- -------
Total real estate loans .......... 35,293 67,485 41,712
Consumer loans ................... 20,833 20,641 19,085
Commercial business loans ........ 17,703 17,127 13,568
-------- -------- -------
Total fixed rate loans ....... $ 73,829 $105,253 $74,365
-------- -------- -------
Total loans originated .................. $108,681 $134,297 $96,978
-------- -------- -------
Purchased Adjustable Rate:
- --------------------------
Real estate:
One- to four-family .............. $ -- $ -- $ 4,143
Home equity ...................... -- -- 354
Commercial and real estate ....... -- -- 1,940
-------- -------- -------
Total real estate loans .......... -- -- 6,437
Consumer loans ................... -- -- 10
Commercial business loans ........ -- -- 3,964
-------- -------- -------
Total adjustable rate loans .. $ -- $ -- $10,411
-------- -------- -------
Fixed-Rate:
Real estate:
One- to four-family .............. $ -- $ -- $ 8,080
Home equity ...................... -- -- 2,595
Commercial and real estate ....... -- -- --
-------- -------- -------
Total real estate loans .......... -- -- 10,675
Consumer loans ................... -- -- 6,582
Commercial business loans ........ -- -- --
-------- -------- -------
Total fixed rate loans ....... $ -- $ -- $17,257
-------- -------- -------
Total loans purchased ................... $ -- $ -- $27,668
-------- -------- -------
Sales:
- ------
Real estate:
One- to four-family .............. $ 18,596 $ 50,222 $32,408
Consumer loans ................... -- -- 542
-------- -------- -------
Total loans sold ........................ $ 18,596 $ 50,222 $32,950
Repayments:
- -----------
Real estate:
One- to four-family .............. $ 18,224 $ 24,213 $14,240
Home equity ...................... 5,768 7,282 5,285
Commercial and real estate ....... 6,011 4,658 3,530
-------- -------- -------
Total real estate loans ...... 30,003 36,153 23,055
Consumer loans ..................... 21,135 23,276 22,789
Commercial business loans .......... 27,797 21,940 18,412
-------- -------- -------
Total repayments ............. $ 78,935 $ 81,369 $64,256
-------- -------- -------
Total reductions ............. $ 97,531 $131,591 $97,206
-------- -------- -------
Net increases .................... $ 11,150 $ 2,706 $27,440
======== ======== =======
9
Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. Loan officers
generally have the authority to originate mortgage loans, consumer loans and
commercial business loans up to amounts established for each lending officer.
All residential loans over $500,000 must be approved by the Bank Loan Committee
(consisting of two persons; the President and/or Executive Vice President in
charge of credit administration and either one of two senior lending officers
appointed to this committee). All loan relationships in excess of $500,000 and
up to $750,000 (exclusive of residential mortgages and home equity loans secured
by a lien on the borrower's primary residence) must be approved by the Bank Loan
Committee. All lending relationships in excess of $750,000 up to $1.5 million
(exclusive of residential mortgages and home equity loans secured by a lien on
the borrower's primary residence) must be approved by the Executive Committee of
the Board of Directors. All lending relationships in excess of $1.5 million must
be approved by the Board of Directors.
The Board annually approves independent appraisers used by the Bank. The
Bank requires an environmental site assessment to be performed by an independent
professional for all non-residential mortgage loans. It is the Bank's policy to
require hazard insurance on all mortgage loans and title insurance on fixed-rate
one- to four-family loans.
Loan Origination Fees and Other Income. In addition to interest earned on
loans, the Bank receives loan origination fees. Such fees and costs vary with
the volume and type of loans and commitments made and purchased, principal
repayments and competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other fees,
service charges and other income that consist primarily of deposit transaction
account service charges and late charges.
Loans-to-One Borrower. Savings banks are subject to the same loans-to-one
borrower limits as those applicable to national banks, which under current
regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis, and an additional amount equal to
10% of unimpaired net worth if the loan is secured by readily marketable
collateral (generally, financial instruments and bullion, but not real estate).
The Bank's policy provides that loans to one borrower (or related borrowers)
should not exceed 15% of the Bank's capital.
At December 31, 2004, the largest aggregate amount loaned by the Bank to
one borrower consisted of a commercial real estate loan and a commercial line of
credit to a real estate holding company with an outstanding balance totaling
$3.2 million. Of this amount, $3.1 million consisted of commercial real estate
loans secured by property. At December 31, 2004 this lending relationship was
performing in accordance with its terms.
Delinquencies and Classified Assets
Collection Procedures. A computer generated late notice is sent when a
loan's grace period ends. After the late notice has been mailed, accounts are
assigned to collectors for follow-up to determine reasons for delinquency and
explore payment options. Generally, loans that are 30 days delinquent will
receive a default notice from the Bank. With respect to consumer loans, the Bank
will commence efforts to repossess the collateral after the loan becomes 45 days
delinquent. Loans secured by real estate that are delinquent over 60 days are
turned over to the Bank's Management Asset Manager. Generally, after 90 days the
Bank will commence legal action.
10
Loans Past Due and Nonperforming Assets. Loans are reviewed on a regular
basis and are placed on non-accrual status when, in the opinion of management,
the collection of additional interest is doubtful. Loans are placed on
non-accrual status when either principal or interest is 90 days or more past
due. Interest accrued and unpaid at the time a loan is placed on a non-accrual
status is reversed from interest income. At December 31, 2004, the Bank had
nonperforming loans of $595,000 and a ratio of nonperforming loans to total
loans of 0.28%. At December 31, 2004, the Bank's ratio of nonperforming assets
to total assets was 0.14%.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as Other Real Estate ("REO") until such time as it is
sold. When real estate is acquired through foreclosure or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the value of the property is less than the loan, less any related specific
loan loss provisions, the difference is charged against the allowance for loan
losses. Any subsequent write-down of REO is charged against earnings. At
December 31, 2004 and 2003, REO was $0 and $115,000 respectively.
The following table sets forth delinquencies in the Bank's loan portfolio
as of December 31, 2004. When a loan is delinquent 90 days or more, the Bank
fully reverses all interest accrued and ceases to accrue interest thereafter.
Loans Delinquent for:
------------------------------------------------------------------
60-89 Days 90 Days or More Total delinquent Loans
------------------- ------------------- ----------------------
Number Amount Number Amount Number Amount
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
One- to four-family .. -- $ -- 3 $ 128 3 $ 128
Home equity .......... 1 19 1 12 2 31
Commercial real estate -- -- 1 83 1 83
Consumer ............. 1 -- -- -- 1 --
Commercial business .. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total .............. 2 $ 19 5 $ 223 7 $ 242
======== ======== ======== ======== ======== ========
11
Nonaccrual Loans and Nonperforming Assets. The following table sets forth
information regarding nonaccrual loans and other nonperforming assets.
At December 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Non-accruing loans:
One- to four-family ................................... $ 128 $ 114 $ 49 $ 139 $ 112
Multi-family .......................................... -- -- -- -- --
Commercial real estate ................................ 436 -- -- 69 75
Construction and land ................................. -- -- -- -- --
Consumer .............................................. 31 11 -- --
Commercial business ................................... -- 22 -- -- --
---------- ---------- ---------- ---------- ----------
Total ............................................... 595 147 49 208 187
---------- ---------- ---------- ---------- ----------
Accruing loans delinquent more than 90 days:
One- to four-family ................................... -- -- -- -- --
Multi-family .......................................... -- -- -- -- --
Commercial real estate ................................ -- -- -- -- --
Construction and land ................................. -- -- -- -- --
Consumer .............................................. -- 34 -- -- --
Commercial business ................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total ............................................... -- 34 -- -- --
---------- ---------- ---------- ---------- ----------
Total nonperforming loans ................................ $ 595 $ 181 $ 49 $ 208 $ 187
========== ========== ========== ========== ==========
Foreclosed assets:
One- to four-family ................................... $ -- $ -- $ -- $ 77 $ 55
Multi-family .......................................... -- -- -- -- --
Commercial real estate ................................ -- 115 -- -- --
Construction and land ................................. -- -- -- -- --
Consumer .............................................. -- -- -- -- --
Commercial business ................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total ............................................... -- 115 -- 77 55
========== ========== ========== ========== ==========
Total nonperforming loans as a percentage of total loans . 0.28% 0.09% 0.02% 0.01% 0.01%
========== ========== ========== ========== ==========
Total nonperforming assets ............................... $ 595 $ 296 $ 49 $ 285 $ 242
========== ========== ========== ========== ==========
Total nonperforming assets as a percentage of total assets 0.14% 0.07% 0.01% 0.08% 0.08%
========== ========== ========== ========== ==========
During the years ended December 31, 2004 and 2003, respectively, gross
interest income of $33,800 and $7,000 would have been recorded on nonaccruing
loans under their original terms, if the loans had been current throughout the
period. No interest income was recorded on nonaccruing loans during the years
ended December 31, 2004 and 2003.
Classification of Assets. On the basis of management's review of its
assets, at December 31, 2004, the Bank had classified a total of $1.8 million of
loans as follows:
At December 31,
------------------------------------------
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
(Dollars in Thousands)
Special mention ...... $ 533 $2,000 $ -- $ 792 $ --
Substandard .......... 1,124 1,376 1,661 1,214 1,750
Doubtful assets ...... 53 -- 143 -- --
Loss assets .......... -- -- -- -- --
Impaired assets ...... 79 700 734 -- --
------ ------ ------ ------ ------
Total ........... $1,789 $4,076 $2,536 $2,006 $1,750
====== ====== ====== ====== ======
12
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio and current economic conditions. The allowance is
established based upon management's evaluation of the probable and estimable
losses in the loan portfolio, the composition of the loan portfolio and other
quantitative and qualitative factors. Management's evaluation of the adequacy of
the allowance is based on the Bank's past loan loss experience, known and
inherent risks in the portfolio, adverse circumstances that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and an analysis of the levels and trends of delinquencies, charge-offs, and the
risk rating of the various loan categories. Such evaluation also includes a
review of all loans on which full collectibility may not be reasonably assured,
considering among other matters, the estimated net realizable value or the fair
value of the underlying collateral, economic conditions, historical loan loss
experience, geographic concentrations and other factors that warrant recognition
in providing for an adequate loan loss allowance. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and valuation of real
estate owned. Such agencies may require the Bank to recognize additions to the
allowance based on their judgment about information available to them at the
time of their examination. At December 31, 2004, the total allowance was $2.0
million, which amounted to 0.94% of loans, net and 333.1% of nonperforming
loans. Management considers whether the allowance should be adjusted to protect
against risks in the loan portfolio. Management evaluates the adequacy of the
allowance and determines the appropriate level of provision for loan losses by
applying a range of estimated loss percentages for each category of performing
loans not designated as problem loans to determine an additional component of
the allowance to protect against unascertainable risks inherent in any portfolio
of performing loans. Management monitors and modifies the level of the allowance
for loan losses in order to maintain it at a level which it considers adequate
to provide for potential loan losses. For the years ended December 31, 2004 and
2003, the Bank had charge-offs of $698,000 and $725,000, respectively, against
this allowance.
The Bank evaluates the adequacy of the allowance for loan losses and
determines the appropriate level of provisions for loan losses by applying a
range of estimated loss percentages to each category of performing loans and
classified loans. The allowance adjustment is based upon the net change in each
portfolio category, as well as adjustment related to impaired loans, since the
prior quarter. A loan is considered impaired, based on current information and
events, if it is probable that the Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. The measurement of impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are measured
for impairment based on the estimated fair value of the collateral securing the
loan. Management believes the current method of determining the adequacy of the
allowance is prudent in light of the Bank's intention to continue to diversify
its lending operations through the increased origination of consumer loans,
commercial business loans and commercial real estate loans.
13
Analysis of the Allowance For Loan Losses. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
December 31,
-------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
(Dollars in thousands)
Balance at beginning of period ............... $ 2,115 $ 2,109 $ 1,672 $ 1,632 $ 1,523
Charge-offs:
One- to four-family ....................... -- 13 19 8 7
Commercial real estate .................... -- -- -- 25 --
Construction and land ..................... -- -- -- -- --
Consumer .................................. 415 509 382 294 260
Commercial business ....................... 283 203 406 176 44
------- ------- ------- ------- -------
Total ..................................... 698 725 807 503 311
------- ------- ------- ------- -------
Recoveries:
One- to four-family ....................... 2 -- 34 1 3
Commercial real estate .................... -- -- -- -- --
Construction and land ..................... -- -- -- -- --
Consumer .................................. 102 95 62 50 66
Commercial business ....................... 11 106 23 12 6
------- ------- ------- ------- -------
Total ..................................... 115 201 119 63 75
------- ------- ------- ------- -------
Net charge-offs .............................. (583) (524) (688) (440) (236)
Addition of allowance ........................ -- -- 961 -- --
Additions charged to operations .............. 450 530 164 480 345
------- ------- ------- ------- -------
Balance at end of period ..................... $ 1,982 $ 2,115 $ 2,109 $ 1,672 $ 1,632
======= ======= ======= ======= =======
Allowance for loan losses as a percentage of
total loans receivable, net .................. 0.94% 1.05% 1.07% 0.98% 0.99%
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans .... 0.28% 0.26% 0.37% 0.26% 0.15%
======= ======= ======= ======= =======
14
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the allowance for loan losses by loan category for the periods
indicated.
At December 31,
---------------------------------------------------------------------------------
2004 2003
-------------------------------------- ---------------------------------------
Percent Percent
of Loans of Loans
Amount of Loan in Each Amount of Loan In Each
Loan Loss Amounts Category to Loan Loss Amounts Category
Allowance by Category Total Loans Allowances by Category Total Loans
--------- ----------- ----------- ---------- ----------- -----------
(Dollars in thousands)
Residential mortgages $ 334 $ 101,930 47.66% $ 330 $ 96,611 47.81%
Commercial real estate 304 44,720 20.91 353 38,184 18.84
Consumer ............. 677 36,507 17.07 675 36,122 17.82
Commercial business .. 644 30,704 14.36 743 31,494 15.53
Unallocated .......... 23 -- -- 14 -- --
--------- --------- --------- --------- --------- ---------
Total ....... $ 1.982 $ 213,861 100.00% $ 2,115 $ 202,711 100.00%
========= ========= ========= ========= ========= =========
At December 31,
--------------------------------------
2002
--------------------------------------
Percent
of Loans
Amount of Loan In Each
Loan Loss Amounts Category to
Allowance by Category Total Loans
--------- ----------- -----------
(Dollars in thousands)
Residential mortgages $ 459 $ 100,730 50.36%
Commercial real estate 409 32,079 16.04
Consumer ............. 538 37,421 18.71
Commercial business .. 687 29,775 14.89
Unallocated .......... 16 -- --
--------- --------- ---------
Total ....... $ 2,109 $ 200,005 100.00%
========= ========= =========
At December 31,
----------------------------------------------------------------------------
2001 2000
------------------------------------- ------------------------------------
Percent Percent
of Loans of Loans
Amount of Loan in each Amount of Loan in Each
Loan Loss Amounts Category to Loan Loss Amounts Category to
Allowance by Category Total Loans Allowance by Category Total Loans
--------- ----------- ----------- --------- ----------- -----------
(Dollars in thousands)
Residential mortgages ... $ 382 $ 87,554 50.74% $ 487 $ 95,326 57.32%
Commercial real estate .. 366 24,520 14.21 280 19,876 11.95
Consumer ................ 437 34,106 19.76 422 31,226 18.78
Commercial business ..... 487 26,385 15.29 434 19,865 11.95
Unallocated ............. -- -- -- 9 -- --
-------- -------- -------- -------- -------- --------
Total .......... $ 1,672 $172,565 100.00% $ 1,632 $166,293 100.00%
======== ======== ======== ======== ======== ========
15
Securities Investment Activities
The securities investment policy is established by the Board of Directors
of the Bank. This policy dictates that investment decisions will be made based
on the safety of the investment, the Bank's liquidity needs, potential returns,
cash flow targets and desired risk parameters. In pursuing these objectives,
management considers the ability of an investment to provide earnings consistent
with factors of quality, maturity, marketability and risk diversification.
The Bank's current policies generally limit security investments to U.S.
Government and agency securities, tax-exempt bonds, public utilities debt
obligations, corporate debt obligations and corporate equity securities. In
addition, the Bank's policy permits investments in mortgage related securities,
including securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie
Mae. In the past, the Bank invested in privately issued collateralized mortgage
obligations ("CMOs"), but has only invested in agency issued CMOs in recent
years. The Bank's investment strategy is to increase overall investment
securities yields while managing interest rate risk. The Bank will only invest
in securities rated as investment grade by a nationally recognized investment
rating agency. The Bank does not engage in any hedging transactions, such as
interest rate swaps or caps.
Investment Securities. At December 31, 2004, the Bank had $109.7 million,
or 26.0% of total assets, invested in investment securities, which consisted
primarily of U.S. Government obligations, tax-exempt securities, corporate
obligations, a mutual fund and equity investments in corporate and FHLB stock.
The corporate debt obligations reported includes trust preferred investments
with a book value of $2.5 million and an estimated market value of $2.8 million
at December 31, 2004. SFAS No. 115 requires the Bank to designate its securities
as held to maturity, available for sale or trading, depending on the Bank's
ability and intent regarding its investments. The Bank does not have a trading
portfolio. Investment securities are classified as available for sale. At
December 31, 2004, the Bank's investment securities portfolio had a weighted
average remaining life expectancy of 8.92 years.
16
Investment Securities. The following table sets forth certain information
regarding the investment securities and other interest earning assets as of the
dates indicated.
At December 31,
-------------------------------------------------------------------------------
2004 2003 2002
--------- --------- --------- --------- --------- ---------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
Investment securities available for sale:
Federal agency securities ............ $ 38,835 $ 38,213 $ 45,840 $ 45,500 $ 48,594 $ 49,507
Corporate debt securities ............ 21,767 22,194 31,175 31,736 42,751 42,250
Tax exempt bonds ..................... 30,743 31,168 25,496 26,109 12,642 12,962
Public utilities ..................... -- -- -- -- -- --
Equity securities .................... 14,720 14,898 15,020 15,334 15,020 14,852
--------- --------- --------- --------- --------- ---------
Subtotal ......................... 106,065 106,473 117,531 118,679 119,007 119,571
FHLB stock ........................... 3,257 3,257 3,370 3,370 3,685 3,685
--------- --------- --------- --------- --------- ---------
Total ............................ $ 109,322 $ 109,730 $ 120,901 $ 122,049 $ 122,692 $ 123,256
========= ========= ========= ========= ========= =========
Average remaining life of investment
securities ........................... 8.92 years 7.51 years 6.07 years
Other interest earning assets:
Interest-bearing deposits with banks . 986 986 1,340 1,340 2,092 2,092
Federal funds sold ................... 3,180 3,180 -- -- 2,400 2,400
--------- --------- --------- --------- --------- ---------
Total loans ...................... $ 4,166 $ 4,166 $ 1,340 $ 1,340 $ 4,492 $ 4,492
========= ========= ========= ========= ========= =========
At December 31,
---------------------------------------------------
2001 2000
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
(Dollars in thousands)
Investment securities available for sale:
Federal agency securities ............ $ 25,035 $ 25,238 $ 47,795 $ 47,686
Corporate debt securities ............ 31,663 30,286 17,189 16,541
Tax exempt bonds ..................... 3,480 3,498 2,569 2,542
Public utilities ..................... 200 201 200 199
Equity securities .................... 14,944 15,337 19,806 19,878
--------- --------- --------- ---------
Subtotal ......................... 75,322 74,560 87,559 86,846
FHLB stock ........................... 3,830 3,830 3,950 3,950
--------- --------- --------- ---------
Total ............................ $ 79,152 $ 78,390 $ 91,509 $ 90,796
========= ========= ========= =========
Average remaining life of investment
securities ........................... 7.32 years 6.40 years
Other interest earning assets:
Interest-bearing deposits with banks . 4,909 4,909 297 297
Federal funds sold ................... 9,900 9,900 1,600 1,600
--------- --------- --------- ---------
Total loans ...................... $ 14,809 $ 14,809 $ 1,897 $ 1,897
========= ========= ========= =========
17
Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, cost, market value and weighted average yields for the
Bank's investment portfolio at December 31, 2004.
December 31, 2004
---------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total
--------- --------- --------- --------- ---------
Carrying Carrying Carrying Carrying Carrying
Value Value Value Value Value
--------- --------- --------- --------- ---------
(Dollars in Thousands)
Federal agency securities ...... $ 602 $ 14,785 $ 8,188 $ 14,638 $ 38,213
Corporate debt securities ...... -- 2,769 969 18,456 22,194
Tax exempt bonds ............... 1,298 3,566 19,614 6,690 31,168
Equity securities .............. -- -- -- 14,898 14,898
--------- --------- --------- --------- ---------
Total securities ............. $ 1,900 $ 21,120 $ 28,771 $ 54,682 $ 106,473
========= ========= ========= ========= =========
Weighted average yield (1) ........ 2.89% 3.83% 3.85% 5.25% 4.54%
- -------------------------
(1) Weighted average yield has not been adjusted to reflect tax equivalent
adjustments.
Mortgage-Backed Securities. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower the Bank's credit risk as a result of the
guarantees provided by Freddie Mac, Fannie Mae, and Ginnie Mae; and (iii)
increase liquidity. At December 31, 2004, the amortized cost of mortgage-backed
securities totaled $44.5 million or 10.5% of total assets, all of which were
classified as available for sale. The mortgage-backed securities portfolio had
coupon rates ranging from 2.25% to 8.50%, a weighted average yield of 4.24% and
a weighted average life (including payment assumption) of 5.69 years at December
31, 2004. The estimated fair value of the Bank's mortgage-backed securities at
December 31, 2004 was $44.4 million which was $120,000 lower than the amortized
cost of $44.5 million.
Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying mortgages. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-related securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including Fannie Mae,
Freddie Mac and Ginnie Mae) pool and resell the participation interests in the
form of securities to investors, such as the Bank, and guarantee the payment of
principal and interest to these investors. Mortgage-backed securities generally
yield less than the loans that underlie such securities because of the cost of
payment guarantees and credit enhancements. In addition, mortgage-related
securities are usually more liquid than individual mortgage loans and may be
used to collateralize certain liabilities and obligations of the Bank.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. Management reviews prepayment estimates periodically
to ensure that prepayment assumptions are reasonable considering the underlying
collateral for the securities at issue and current interest rates and to
determine the yield and estimated maturity of the Bank's mortgage-backed
securities portfolio. Of the Bank's $44.5 million mortgage-backed securities
portfolio at December 31, 2004, $700,000 with a weighted average yield of 4.39%
had contractual maturities within five years, $1.9 million with a weighted
average yield of 4.16% had contractual maturities of five to ten years and $41.9
million with a weighted average yield of 4.24% had contractual maturities of
over ten years. However, the actual maturity of a mortgage-backed security may
be less than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security
18
and may result in a loss of any premiums paid and thereby reduce the net yield
on such securities. Although prepayments of underlying mortgages depend on many
factors, the difference between the interest rates on the underlying mortgages
and the prevailing mortgage interest rates generally is the most significant
determinant of the rate of prepayments. During periods of declining mortgage
interest rates, refinancing generally increases and accelerates the prepayment
of the underlying mortgages and the related security. Under such circumstances,
the Bank may be subject to reinvestment risk because, to the extent that the
Bank's mortgage related securities prepay faster than anticipated, the Bank may
not be able to reinvest the proceeds of such repayments and prepayments at a
comparable rate of return. Conversely, in a rising interest rate environment
prepayments may decline, thereby extending the estimated life of the security
and depriving the Bank of the ability to reinvest cash flows at the increased
rates of interest.
19
Mortgage-Backed Securities. Set forth below is information relating to the
Bank's mortgage-backed securities for the periods indicated.
December 31,
-------------------------------------------------------------------------------
2004 2003 2002
----------------------- ----------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
Mortgage-backed securities available for sale:
GinnieMae .................................. $ 416 $ 444 $ 1,504 $ 1,588 $ 4,256 $ 4,448
FannieMae .................................. 14,819 14,674 21,863 21,979 12,628 13,074
FreddieMac ................................. 19,706 19,672 22,795 22,934 18,914 19,369
CMOs ....................................... 9,151 9,182 4,961 4,723 2,127 2,116
Small business administration .............. 405 405 565 564 713 712
--------- --------- --------- --------- --------- ---------
Total .................................. $ 44,497 $ 44,378 $ 51,688 $ 51,788 $ 38,638 $ 39,719
========= ========= ========= ========= ========= =========
December 31,
---------------------------------------------------
2001 2000
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
(Dollars in thousands)
Mortgage-backed securities available for sale:
GinnieMae .................................. $ 14,661 $ 14,875 $ 13,349 $ 13,457
FannieMae .................................. 16,105 16,244 13,336 13,211
FreddieMac ................................. 19,395 19,528 13,793 13,754
CMOs ....................................... 2,140 2,156 50 51
Small business administration .............. 883 883 -- --
--------- --------- --------- ---------
Total .................................. $ 53,184 $ 53,686 $ 40,528 $ 40,473
========= ========= ========= =========
20
Sources of Funds
General. The primary sources of the Bank's funds for use in lending,
investing and for other general purposes are deposits, repayments and
prepayments of loans and securities, proceeds from sales of loans and
securities, proceeds from maturing securities and cash flows from operations.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings,
interest-bearing demand accounts, noninterest-bearing checking accounts, money
market accounts and certificates of deposit. The Bank also offers IRAs and other
qualified plan accounts. The Bank has a commercial bank subsidiary which is
permitted to accept municipal deposit accounts from various municipalities,
school districts and other public sources. Through our special purpose
subsidiary at December 31, 2004 the Bank held $8.5 million in municipal
deposits.
At December 31, 2004, deposits totaled $301.6 million. At December 31,
2004, the Bank had a total of $115.0 million in certificates of deposit, of
which $72.1 million had maturities of one year or less. Although the Bank has a
significant portion of its deposits in shorter term certificates of deposit,
management monitors activity on these accounts. Based on historical experience
and the Bank's current pricing strategy, management believes it will retain a
large portion of such accounts upon maturity. At December 31, 2004 certificates
of deposit with balances of $100,000 or more totaled $27.7 million.
The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates, internal pricing decisions and
competition. Deposits are obtained predominantly from the areas in which the
Bank's branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio and
print media and it generally does not solicit deposits from outside its market
area. While certificates of deposit in excess of $100,000 are accepted by the
Bank, and may be subject to preferential rates, the Bank does not actively
solicit such deposits as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.
The following table sets forth the deposit activities of the Bank for the
periods indicated.
Year Ended December 31,
-----------------------------------------------
2004 2003 2002
----------- ----------- -----------
(Dollars in thousands)
Opening balance .......................... $ 305,515 $ 291,779 $ 228,163
Deposits acquired in acquisition of SBC .. -- 60,146
Deposits ................................. 2,421,711 2,249,912 1,915,273
Withdrawals .............................. (2,429,555) (2,241,116) (1,918,344)
Interest credited ........................ 3,976 4,940 6,541
----------- ----------- -----------
Ending balance ........................... $ 301,647 $ 305,515 $ 291,779
----------- ----------- -----------
Net increase (decrease) .................. $ (3,868) $ 13,736 $ 63,616
=========== =========== ===========
Percent increase (decrease) .............. (1.27)% 4.71% 27.88%
=========== =========== ===========
21
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of December 31, 2004.
Maturity
-----------------------------------------------
3 Months Over 3 to 6 Over 6 to 12 Over 12
or Less Months Months Months Total
-------- ----------- ------------ -------- --------
(Dollars in thousands)
Certificates of deposit less than $100,000........ $ 20,551 $ 14,912 $20,735 $31,035 $ 87,233
Certificates of deposit of $100,000 or more....... 5,951 2,789 7,197 11,799 27,736
-------- -------- ------- ------- --------
Total of certificates of deposit.................. $ 26,502 $ 17,701 $27,932 $42,834 $114,969
======== ======== ======= ======= ========
The following tables set forth information, by various rate categories,
regarding the dollar balance of deposits by types of deposit for the periods
indicated.
December 31,
----------------------------------------------------------------------------
2004 2003 2002
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
Transactions and savings deposits:
Noninterest-bearing .............. $ 50,082 16.60% $ 46,644 16.25% $ 45,951 15.75%
Savings accounts ................. 70,252 23.29 69,177 22.64 64,946 22.26
Interest-bearing checking ........ 29,076 9.64 19,907 6.51 12,118 4.15
Money market accounts ............ 37,268 12.36 40,038 13.11 35,206 12.07
--------- --------- --------- --------- --------- ---------
Total ....................... 186,678 61.89 178,766 58.51 158,221 54.23
--------- --------- --------- --------- --------- ---------
Certificates of deposit:
Less than 2.00% .................. 53,686 17.80 59,380 19.44 26,014 8.91
2.00-3.99% ....................... 38,562 12.78 38,156 12.49 59,481 20.39
4.00-5.99% ....................... 15,147 5.02 20,187 6.61 35,309 12.10
6.00-7.99% ....................... 7,574 2.51 9,026 2.95 12,754 4.37
--------- --------- --------- --------- --------- ---------
Total certificates of deposit 114,969 38.11 126,749 41.49 133,558 45.77
--------- --------- --------- --------- --------- ---------
Total deposits ........... $ 301,647 100.00% $ 305,515 100.00% $ 291,779 100.00%
========= ========= ========= ========= ========= =========
The following table sets forth the amount and remaining maturities of the
Bank's certificates of deposit accounts at December 31, 2004.
Percent
<2.00% 2.00-3.99% 4.00-5.99% 6.00-7.99% Total of Total
--------- ---------- ---------- ---------- --------- ---------
(Dollars in thousands)
Certificate accounts maturing
- -----------------------------
in quarter ending:
- ------------------
March 31, 2005 .............. $ 20,335 $ 4,045 $ 383 $ 1,739 $ 26,502 23.05%
June 30, 2005 ............... 11,390 3,667 300 2,343 17,700 15.40
September 30, 2005 .......... 10,403 3,838 171 1,449 15,861 13.80
December 31, 2005 ........... 8,035 3,395 49 593 12,072 10.50
March 31, 2006 .............. 1,297 1,307 503 1,032 4,139 3.60
June 30, 2006 ............... 858 1,357 1,019 -- 3,234 2.81
September 30, 2006 .......... 176 2,757 1,405 -- 4,338 3.77
December 31, 2006 ........... 381 3,689 493 42 4,605 4.01
Thereafter .................. 811 14,507 10,824 376 26,518 23.07
--------- --------- --------- --------- --------- ---------
Total .................... $ 53,686 $ 38,562 $ 15,147 $ 7,574 $ 114,969 100.00%
========= ========= ========= ========= ========= =========
Percent of total ......... 46.70% 33.54% 13.17% 6.59% 100.00%
22
Borrowed Funds. Set forth below is a schedule detailing the Bank's
borrowings.
At December 31,
----------------------------------
2004 2003 2002
-------- -------- --------
(Dollars in thousands)
Short-term borrowings:
Overnight line of credit ............................................ $ -- $ 2,500 $ 2,000
Repurchase agreements - FHLB ........................................ -- -- xx
Term advances - FHLB .................................................. 13,500 13,500 16,500
Long-term borrowings:
Repurchase agreements - FHLB ........................................ 27,000 32,000 34,000
Term advances - FHLB ................................................ 23,900 19,400 21,000
-------- -------- --------
Total borrowings .................................................. $ 64,400 $ 67,400 $ 73,500
-------- -------- --------
Weighted Average interest cost of short-term borrowings during the year 1.34% 4.38% 4.63%
-------- -------- --------
Weighted Average interest cost of long-term borrowings during the year 4.64% 4.75% 4.89%
-------- -------- --------
Average Balance of borrowings outstanding during the year ............. $ 65,795 $ 68,757 $ 72,912
-------- -------- --------
Trust Activities. The Bank provides trust and investment services, acts as
executor or administrator of estates and as trustee or custodian for various
types of trusts. Trust services are offered through the Bank's Trust Department.
Services include fiduciary services for trusts and estates, money management and
custodial services. At December 31, 2004, the Bank maintained 494
trust/fiduciary accounts, with total assets of $101.5 million under management
as compared to 435 trust/fiduciary accounts with $79.9 million total assets at
December 31, 2003. Management anticipates that in the future the Trust
Department will become a more significant component of the Bank's business.
Limited Purpose Commercial Bank
In connection with the acquisition of SBC on May 31, 2002, the Bank holds
The State Bank of Chittenango as a limited purpose commercial bank. SBC is
permitted to accept municipal deposits from various municipalities, school
districts and other public sources; a source of funds not available to the Bank
under New York Law. At December 31, 2004, The State Bank of Chittenango held
$13.7 million in assets, consisting primarily of U.S. Government obligations and
mortgage-backed securities and $8.5 million in deposits.
Insurance Activities
On October 2, 2000, the Bank completed the acquisition of Bailey & Haskell
Associates, Inc., ("B&H"), an insurance agency located in Central New York
State. B&H has offices in Oneida, Canastota, Cazenovia, New Hartford and
Syracuse. B&H is a full-service insurance and financial services firm with over
90 employees providing services to over 19,000 customers. Adding B&H insurance
and financial services business has enabled the Bank to evolve from a
traditional depository institution into a full-service financial services
organization. B&H offers personal and commercial property insurance, life
insurance, pension plan services, mutual funds and annuity sales, and other
products and services. B&H represents many insurance companies including,
Travelers, CNA, Hartford, Progressive, Utica National, Chubb and many more. The
Bank acquired a number of brokerage agencies, notably Noyes and LaLonde, Inc.,
The Dunn Agency, Kennedy & Clarke, Inc., and MacDonald/Yando Agency, Inc. These
companies were merged into B&H.
Competition
Competition in the banking and financial services industry is intense. The
Bank competes with commercial banks, savings institutions, mortgage banking
firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of
these competitors have substantially greater resources and lending limits than
the
23
Bank and may offer certain services that the Bank does not or cannot provide.
Moreover, credit unions which offer substantially the same services as the Bank,
not subject to federal or state income taxation. Trends toward the consolidation
of the financial services industry, and the removal of restrictions on
interstate branching and banking powers may make it more difficult for smaller
institutions such as the Bank to compete effectively with large national and
regional banking institutions. The Bank's profitability depends upon its ability
to successfully compete in its market area.
Personnel
As of December 31, 2004, the Bank had 137 full-time employees and 10
part-time employees. The employees are not represented by a collective
bargaining unit. The Bank considers its relationship with its employees to be
good.
Regulation
General. The Bank is a New York-chartered stock savings bank and its
deposit accounts are insured up to applicable limits by the FDIC through its
Bank Insurance Fund. The Bank is subject to extensive regulation by the New York
State Banking Department (the "Department"), and by the FDIC. The Bank is
required to file reports with, and is periodically examined by, the FDIC and the
Department concerning its activities and financial condition and must obtain
regulatory approvals prior to entering into certain transactions, including, but
not limited to, mergers with or acquisitions of other banking institutions. The
Bank is a member of the FHLB of New York and is subject to certain regulations
by the Federal Home Loan Bank System. On July 18, 2001 the Company and the
Mutual Holding Company completed their conversion to federal charters.
Consequently, they are subject to regulations of the Office of Thrift
Supervision ("OTS") as savings and loan holding companies. Any change in such
regulations, whether by the Department, the FDIC, or the OTS could have a
material adverse impact on the Bank, the Company, or the Mutual Holding Company.
Regulatory requirements applicable to the Bank, the Company and the Mutual
Holding Company are referred to below or elsewhere herein.
New York Bank Regulation. The Bank derives its lending, investment and
other authority primarily from the applicable provisions of New York State
Banking Law and the regulations of the Department, as limited by FDIC
regulations. Under these laws and regulations, savings banks, including the
Bank, may invest in real estate mortgages, consumer and commercial loans,
certain types of debt securities, including certain corporate debt securities
and obligations of federal, state and local governments and agencies, certain
types of corporate equity securities and certain other assets. Under the
statutory authority for investing in equity securities, a savings bank may
invest up to 7.5% of its assets in corporate stock, with an overall limit of 5%
of its assets invested in common stock. Investment in the stock of a single
corporation is limited to the lesser of 2% of the outstanding stock of such
corporation or 1% of the savings bank's assets, except as set forth below. Such
equity securities must meet certain earnings ratios and other tests of financial
performance. A savings bank's lending powers are not subject to percentage of
assets limitations, although there are limits applicable to single borrowers. A
savings bank may also, pursuant to the "leeway" power, make investments not
otherwise permitted under the New York State Banking Law. This power permits
investments in otherwise impermissible investments of up to 1% of assets in any
single investment, subject to certain restrictions and to an aggregate limit for
all such investments of up to 5% of assets. Additionally, in lieu of investing
in such securities in accordance with and reliance upon the specific investment
authority set forth in the New York State Banking Law, savings banks are
authorized to elect to invest under a "prudent person" standard in a wider range
of investment securities as compared to the types of investments permissible
under such specific investment authority. However, in the event a savings bank
elects to utilize the "prudent person" standard, it will be unable to avail
itself of the other provisions of the New York State Banking Law and regulations
which
24
set forth specific investment authority. The Bank has not elected to conduct its
investment activities under the "prudent person" standard. A savings bank may
also exercise trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment authority. A savings bank may use
this power to invest in corporations that engage in various activities
authorized for savings banks, plus any additional activities which may be
authorized by the Banking Board. Investment by a savings bank in the stock,
capital notes and debentures of its service corporations is limited to 3% of the
bank's assets, and such investments, together with the bank's loans to its
service corporations, may not exceed 10% of the savings bank's assets.
Furthermore, New York banking regulations impose requirements on loans which a
bank may make to its executive officers and directors and to certain
corporations or partnerships in which such persons have equity interests. These
requirements include, but are not limited to, requirements that (i) certain
loans must be approved in advance by a majority of the entire board of directors
and the interested party must abstain from participating directly or indirectly
in the voting on such loan, (ii) the loan must be on terms that are not more
favorable than those offered to unaffiliated third parties, and (iii) the loan
must not involve more than a normal risk of repayment or present other
unfavorable features.
Under the New York State Banking Law, the Superintendent may issue an
order to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Superintendent to
discontinue such practices, such director, trustee or officer may be removed
from office after notice and an opportunity to be heard. The Bank does not know
of any past or current practice, condition or violation that might lead to any
proceeding by the Superintendent or the Department against the Bank or any of
its directors, trustees or officers.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member of
the BIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the U.S. Government. As insurer, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting
by FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings banks, after giving the Superintendent an
opportunity to take such action, and may terminate the deposit insurance if it
determines that the institution has engaged or is engaging in unsafe or unsound
practices or is in an unsafe or unsound condition.
The FDIC establishes deposit insurance premiums based upon the risks a
particular bank or savings association poses to its deposit insurance funds.
Under the risk-based deposit insurance assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending six months before the
assessment period, consisting of: (i) well capitalized; (ii) adequately
capitalized; or (iii) undercapitalized and one of three supervisory
subcategories within each capital group. With respect to the capital ratios,
institutions are classified as well capitalized or adequately capitalized using
ratios that are substantially similar to the prompt corrective action capital
ratios discussed above. Any institution that does not meet these two definitions
is deemed to be undercapitalized for this purpose. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information that
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
assessment rate depends on
25
the capital category and supervisory category to which it is assigned. Under the
final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessments rates for deposit
insurance currently range from 0 basis points to 27 basis points. The capital
and supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed. The Bank's rate of deposit insurance
assessments will depend upon the category and subcategory to which the Bank is
assigned by the FDIC. Any increase in insurance assessments could have an
adverse effect on the earnings of the Bank.
Regulatory Capital Requirements. The FDIC has adopted risk-based capital
guidelines to which the Bank is subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. The Bank is
required to maintain certain levels of regulatory capital in relation to
regulatory risk-weighted assets. The ratio of such regulatory capital to
regulatory risk-weighted assets is referred to as the Bank's "risk-based capital
ratio." Risk-based capital ratios are determined by allocating assets and
specified off-balance sheet items to four risk-weighted categories ranging from
0% to 100%, with higher levels of capital being required for the categories
perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of at least 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC may, however, set higher leverage and risk-based capital requirements on
individual institutions when particular circumstances warrant. Savings banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
Limitations on Dividends and Other Capital Distributions. The FDIC has the
authority to use its enforcement powers to prohibit a savings bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice. Federal law also prohibits the payment of dividends
by a bank that will result in the bank failing to meet its applicable capital
requirements on a pro forma basis. New York law also restricts the Bank from
declaring a dividend which would reduce its capital below (i) the amount
required to be maintained by state law and regulation, or (ii) the amount of the
Bank's liquidation account established in connection with the Reorganization.
Prompt Corrective Action. The federal banking agencies have promulgated
regulations to implement the system of prompt corrective action required by
federal law. Under the regulations, a bank shall be deemed to be (i) "well
capitalized" if it has total risk-based capital of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of
5.0% or more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or
more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage
26
capital ratio of 4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, a Tier I risk-based
capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is
less than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I
leverage capital ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Federal law and regulations also specify
circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution to comply with supervisory actions as if it were in the
next lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well
capitalized" savings institution.
Activities and Investments of Insured State-Chartered Banks Acting as
Principal. Federal law generally limits the activities and equity investments of
FDIC-insured state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. Under regulations dealing with equity
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things, (i) acquiring or retaining a majority interest in a
subsidiary, the activities of which are limited to those permissible for a
subsidiary of a national bank; (ii) investing as a limited partner in a
partnership the sole purpose of which is the direct or indirect investment in
the acquisition, rehabilitation, or new construction of a qualified housing
project, provided that such limited partnership investments may not exceed 2% of
the bank's total assets; (iii) acquiring up to 10% of the voting stock of a
company that solely provides or reinsures directors', trustees', and officers'
liability insurance coverage or bankers' blanket bond group insurance coverage
for insured depository institutions; and (iv) acquiring or retaining the voting
shares of a depository institution if certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the
foregoing limitation. For example, certain state-chartered banks, such as the
Bank, may continue to invest in common or preferred stock listed on a National
Securities Exchange or the National Market System of Nasdaq, and in the shares
of an investment company registered under the Investment Company Act of 1940, as
amended. As of December 31, 2004, the Bank had $14.9 million of securities
pursuant to this exception. As a savings bank, the Bank may also continue to
sell savings bank life insurance.
27
Transactions With Affiliates. Under current federal law, transactions
between depository institutions and their affiliates are governed by Sections
23A and 23B of the Federal Reserve Act and its implementing regulations. An
affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary of the savings bank. In a holding company context, at a minimum, the
parent holding company of a savings bank and any companies which are controlled
by such parent holding company are affiliates of the savings bank. Generally,
Section 23A limits the extent to which the savings bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to
10% of such savings bank's capital stock and surplus and contains an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus. The term "covered transaction" includes the
making of loans or other extensions of credit to an affiliate; the purchase of
assets from an affiliate, the purchase of, or an investment in, the securities
of an affiliate; the acceptance of securities of an affiliate as collateral for
a loan or extension of credit to any person; or issuance of a guarantee,
acceptance, or letter of credit on behalf of an affiliate. Section 23A also
establishes specific collateral requirements for loans or extensions of credit
to, or guarantees, acceptances on letters of credit issued on behalf of an
affiliate. Section 23B requires that covered transactions, and a broad list of
other specified transactions, be on terms substantially the same, or no less
favorable, to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act and its implementing
regulation restricts a savings bank with respect to loans to directors,
executive officers, principal stockholders, and their related interests. Under
Section 22(h), loans to directors, executive officers and stockholders who
control, directly or indirectly, 10% or more of voting securities of a savings
bank and certain related interests of any of the foregoing, may not exceed,
together with all other outstanding loans to such persons and affiliated
entities, the savings bank's total capital and surplus. Section 22(h) also
prohibits loans above amounts prescribed by the appropriate federal banking
agency to directors, executive officers, and stockholders who control 10% or
more of voting securities of a stock savings bank, and their respective related
interests, unless such loan is approved in advance by a majority of the
disinterested directors on the board of directors of the savings bank. Any
"interested" director may not participate in the voting. The loan amount (which
includes all other outstanding loans to such person) as to which such prior
board of director approval is required, is the greater of $25,000 or 5% of
capital and surplus or any loans over $500,000. Further, pursuant to Section
22(h), loans to directors, executive officers and principal stockholders must
generally be made on terms substantially the same as offered in comparable
transactions to other persons. Section 22(g) of the Federal Reserve Act places
additional limitations on loans to executive officers.
Federal Holding Company Regulation.
General. The Company and the Mutual Holding Company are nondiversified
mutual savings and loan holding companies within the meaning of the Home Owners'
Loan Act. As such, the Company and the Mutual Holding Company are registered
with the OTS and are subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Company and the Mutual Holding Company, and their subsidiaries. Among other
things, this authority permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings institution.
Permitted Activities. Under OTS regulation and policy, a mutual holding
company and a federally chartered mid-tier holding company such as the Company
may engage in the following activities: (i) investing in the stock of a savings
association; (ii) acquiring a mutual association through the merger of such
association into a savings association subsidiary of such holding company or an
interim savings association subsidiary of such holding company; (iii) merging
with or acquiring another holding company, one of whose subsidiaries is a
savings association; (iv) investing in a corporation, the
28
capital stock of which is available for purchase by a savings association under
federal law or under the law of any state where the subsidiary savings
association or associations share their home offices; (v) furnishing or
performing management services for a savings association subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings association subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director of the OTS, by regulation, prohibits or limits any such activity for
savings and loan holding companies; or (B) in which multiple savings and loan
holding companies were authorized (by regulation) to directly engage on March 5,
1987; (x) any activity permissible for financial holding companies under Section
4(k) of the Bank Holding Company Act, including securities and insurance
underwriting; and (xi) purchasing, holding, or disposing of stock acquired in
connection with a qualified stock issuance if the purchase of such stock by such
savings and loan holding company is approved by the Director of OTS. If a mutual
holding company acquires or merges with another holding company, the holding
company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed in (i)
through (xi) above, and has a period of two years to cease any nonconforming
activities and divest of any nonconforming investments.
The Home Owners' Loan Act prohibits a savings and loan holding company,
directly or indirectly, or through one or more subsidiaries, from acquiring
another savings association or holding company thereof, without prior written
approval of the OTS. It also prohibits the acquisition or retention of, with
certain exceptions, more than 5% of a nonsubsidiary savings association, a
nonsubsidiary holding company, or a nonsubsidiary company engaged in activities
other than those permitted by the Home Owners' Loan Act; or acquiring or
retaining control of an institution that is not federally insured. In evaluating
applications by holding companies to acquire savings association, the OTS must
consider the financial and managerial resources, future prospects of the company
and association involved, the effect of the acquisition on the risk to the
insurance fund, the convenience and needs of the community and competitive
factors.
The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings association in more than one state, subject to two
exceptions: (i) the approval of interstate supervisory acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
Waivers of Dividends by Mutual Holding Company. Office of Thrift
Supervision regulations require the Mutual Holding Company to notify the OTS of
any proposed waiver of its receipt of dividends from the Company. The OTS
reviews dividend waiver notices on a case-by-case basis, and, in general, does
not object to any such waiver if: (i) the mutual holding company's board of
directors determines that such waiver is consistent with such directors'
fiduciary duties to the mutual holding company's members; (ii) for as long as
the savings association subsidiary is controlled by the mutual holding company,
the dollar amount of dividends waived by the mutual holding company are
considered as a restriction on the retained earnings of the savings association,
which restriction, if material, is disclosed in the public financial statements
of the savings association as a note to the financial statements; (iii) the
amount of any dividend waived by the mutual holding company is available for
declaration as a dividend solely to the mutual holding company, and, in
accordance with SFAS 5, where the savings association determines that the
payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability; and (iv) the amount of any
waived dividend is considered as having been paid by the savings association in
evaluating any proposed dividend under OTS capital distribution regulations. The
Mutual Holding Company intends to continue to waive dividends paid by the
Company. Under OTS
29
regulations, the Company's public stockholders would not be diluted because of
any dividends waived by the Mutual Holding Company (and waived dividends would
not be considered in determining an appropriate exchange ratio) in the event the
Mutual Holding Company converts to stock form.
Conversion of the Mutual Holding Company to Stock Form. OTS regulations
permit the Mutual Holding Company to convert from the mutual form of
organization to the capital stock form of organization (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will occur, and the Board of Directors has no current intention or plan to
undertake a Conversion Transaction. In a Conversion Transaction a new holding
company would be formed as the successor to the Company (the "New Holding
Company"), the Mutual Holding Company's corporate existence would end, and
certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction, each
share of common stock held by stockholders other than the Mutual Holding Company
("Minority Stockholders") would be automatically converted into a number of
shares of common stock of the New Holding Company determined pursuant to an
exchange ratio that ensures that Minority Stockholders own the same percentage
of common stock in the New Holding Company as they owned in the Company
immediately prior to the Conversion Transaction. Under OTS regulations, Minority
Stockholders would not be diluted because of any dividends waived by the Mutual
Holding Company (and waived dividends would not be considered in determining an
appropriate exchange ratio), in the event the Mutual Holding Company converts to
stock form. The total number of shares held by Minority Stockholders after a
Conversion Transaction also would be increased by any purchases by Minority
Stockholders in the stock offering conducted as part of the Conversion
Transaction.
New York State Bank Holding Company Regulation. In addition to the federal
regulation, a holding company controlling a state chartered savings bank
organized or doing business in New York State also may be subject to regulation
under the New York State Banking Law. The term "bank holding company," for the
purposes of the New York State Banking Law, is defined generally to include any
person, company or trust that directly or indirectly either controls the
election of a majority of the directors or owns, controls or holds with power to
vote more than 10% of the voting stock of a bank holding company or, if the
Company is a banking institution, another banking institution, or 10% or more of
the voting stock of each of two or more banking institutions. In general, a bank
holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
the New York State Banking Law. Under New York State Banking Law, the prior
approval of the Banking Board is required before: (1) any action is taken that
causes any company to become a bank holding company; (2) any action is taken
that causes any banking institution to become or be merged or consolidated with
a subsidiary of a bank holding company; (3) any bank holding company acquires
direct or indirect ownership or control of more than 5% of the voting stock of a
banking institution; (4) any bank holding company or subsidiary thereof acquires
all or substantially all of the assets of a banking institution; or (5) any
action is taken that causes any bank holding company to merge or consolidate
with another bank holding company. Additionally, certain restrictions apply to
New York State bank holding companies regarding the acquisition of banking
institutions which have been chartered five years or less and are located in
smaller communities. Officers, directors and employees of New York State bank
holding companies are subject to limitations regarding their affiliation with
securities underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries.
Bank holding companies that wish to engage in expanded activities but do
not wish to become financial holding companies may elect to establish "financial
subsidiaries," which are subsidiaries of national banks with expanded powers.
The Act permits financial subsidiaries to engage in the same types of activities
permissible for nonbank subsidiaries of financial holding companies, with the
exception of merchant banking, insurance underwriting and real estate investment
and development. Merchant banking may be permitted after a five-year waiting
period under certain regulatory circumstances.
30
The USA PATRIOT Act
The USA PATRIOT Act gives the federal government powers to address
terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing and broadened anti-money
laundering requirements. Title III of the USA PATRIOT Act amended the Bank
Secrecy Act to encourage information sharing among bank regulatory agencies and
law enforcement bodies. Moreover, certain provisions of Title III impose
affirmative obligations on a broad range of financial institutions, including
banks, savings associations, brokers, dealers, credit unions, money transfer
agents and parties registered under the Commodity Exchange Act.
Among other requirements, Title III of the USA PATRIOT Act imposes the
following requirements with respect to financial institutions:
o Pursuant to Section 352, all financial institutions must establish
anti-money laundering programs that include, at a minimum: (i)
internal policies, procedures, and controls; (ii) specific
designation of an anti-money laundering compliance officer; (iii)
ongoing employee training programs; and (iv) an independent audit
function to test the anti-money laundering program.
o Section 326 authorizes the Secretary of the Department of Treasury,
in conjunction with other bank regulators, to issue regulations that
provide for minimum standards with respect to customer
identification at the time new accounts are opened. On July 23,
2002, the Office of Thrift Supervision and the other federal bank
regulators jointly issued proposed rules to implement Section 326.
The proposed rules require financial institutions to establish a
program specifying procedures for obtaining identifying information
from customers seeking to open new accounts. This identifying
information would be essentially the same information currently
obtained by most financial institutions for individual customers.
o Section 312 requires financial institutions that establish,
maintain, administer, or manage private banking accounts or
correspondence accounts in the United States for non-United States
persons or their representatives (including foreign individuals
visiting the United States) to establish appropriate, specific, and,
where necessary, enhanced due diligence policies, procedures, and
controls designed to detect and report money laundering.
o Effective December 25, 2001, financial institutions are prohibited
from establishing, maintaining, administering or managing
correspondent accounts for foreign shell banks (foreign banks that
do not have a physical presence in any country), and will be subject
to certain record keeping obligations with respect to correspondent
accounts of foreign banks.
o Bank regulators are directed to consider a holding company's
effectiveness in combating money laundering when ruling on Federal
Reserve Act and Bank Merger Act applications.
Sarbanes-Oxley Act of 2002
On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of
2002 ("Sarbanes-Oxley"), which implemented legislative reforms intended to
address corporate and accounting fraud. In addition to the establishment of a
new accounting oversight board that will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, Sarbanes-Oxley places certain restrictions on the scope of services
that may be provided by accounting
31
firms to their public company audit clients. Any non-audit services being
provided to a public company audit client will require preapproval by the
company's audit committee. In addition, Sarbanes-Oxley makes certain changes to
the requirements for audit partner rotation after a period of time.
Sarbanes-Oxley requires chief executive officers and chief financial officers,
or their equivalent, to certify to the accuracy of periodic reports filed with
the Securities and Exchange Commission, subject to civil and criminal penalties
if they knowingly or willingly violate this certification requirement. The
Company's Chief Executive Officer and Chief Financial Officer have signed
certifications to this Form 10-K as required by Sarbanes-Oxley. In addition,
under Sarbanes-Oxley, counsel will be required to report evidence of a material
violation of the securities laws or a breach of fiduciary duty by a company to
its chief executive officer or its chief legal officer, and, if such officer
does not appropriately respond, to report such evidence to the audit committee
or other similar committee of the board of directors or the board itself.
Under Sarbanes-Oxley, longer prison terms will apply to corporate
executives who violate federal securities laws; the period during which certain
types of suits can be brought against a company or its officers is extended; and
bonuses issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from trading the company's
securities during retirement plan "blackout" periods, and loans to company
executives (other than loans by financial institutions permitted by federal
rules and regulations) are restricted. In addition, a provision directs that
civil penalties levied by the Securities and Exchange Commission as a result of
any judicial or administrative action under Sarbanes-Oxley be deposited to a
fund for the benefit of harmed investors. The Federal Accounts for Investor
Restitution provision also requires the Securities and Exchange Commission to
develop methods of improving collection rates. The legislation accelerates the
time frame for disclosures by public companies, as they must immediately
disclose any material changes in their financial condition or operations.
Directors and executive officers must also provide information for most changes
in ownership in a company's securities within two business days of the change.
Sarbanes-Oxley also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term is defined by the Securities and Exchange Commission) and if not,
why not. Under Sarbanes-Oxley, a company's registered public accounting firm is
prohibited from performing statutorily mandated audit services for a company if
such company's chief executive officer, chief financial officer, comptroller,
chief accounting officer or any person serving in equivalent positions had been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. Sarbanes-Oxley also
prohibits any officer or director of a company or any other person acting under
their direction from taking any action to fraudulently influence, coerce,
manipulate or mislead any independent accountant engaged in the audit of the
company's financial statements for the purpose of rendering the financial
statements materially misleading. Sarbanes-Oxley also requires the Securities
and Exchange Commission to prescribe rules requiring inclusion of any internal
control report and assessment by management in the annual report to
shareholders. Sarbanes-Oxley requires the company's registered public accounting
firm that issues the audit report to attest to and report on management's
assessment of the company's internal controls.
Although the Company has incurred some additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations,
management does not expect that such compliance will have a material impact on
our results of operations or financial condition.
32
Federal Securities Law. The Common Stock of the Company is registered with
the SEC under the Exchange Act. The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
The Company Common Stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain noninterest-bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 2004, the Bank was in compliance with these
reserve requirements.
Federal Regulation. Under the Community Reinvestment Act, as amended (the
"CRA"), and its implementing regulations, a savings bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA requires the FDIC to provide a written evaluation
of an institution's CRA performance utilizing a four-tiered descriptive rating
system. The Bank's latest CRA rating was "outstanding."
New York State Regulation. The Bank is also subject to provisions of the
New York State Banking Law which imposes continuing and affirmative obligations
upon banking institutions organized in New York State to serve the credit needs
of its local community ("NYCRA") which are substantially similar to those
imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA
report and copies of all federal CRA reports with the Department. The NYCRA
requires the Department to make a biennial written assessment of a bank's
compliance with the NYCRA, utilizing a four-tiered rating system and make such
assessment available to the public. The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's application to engage
in certain transactions, including mergers, asset purchases and the
establishment of branch offices or automated teller machines, and provides that
such assessment may serve as a basis for the denial of any such application.
The Bank's NYCRA rating as of its latest examination was "satisfactory."
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs, that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home financing.
33
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York. As of December 31, 2004, the Bank had $3.3 million of FHLB
stock. The dividend yield from FHLB stock was 3.05% at December 31, 2004. No
assurance can be given that the FHLB will pay any dividends in the future.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
Federal Taxation
General. The Mutual Holding Company, the Company and the Bank are subject
to federal income taxation in the same general manner as other corporations,
with some exceptions discussed below. The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to
the Bank.
Method of Accounting. For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its consolidated federal income tax
returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Corporate Dividends-Received Deduction. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. Because the Mutual Holding Company owns less
than 80% of the outstanding common stock of the Company it is not permitted to
file a consolidated federal income tax return with the Company and the Bank. The
corporate dividends-received deduction is 80% in the case of dividends received
from corporations with which a corporate recipient does not file a consolidated
return.
State Taxation
New York State Taxation. The Company and the Bank report income on a
combined calendar year basis to New York State. New York State Franchise Tax on
corporations is imposed in an amount equal to the greater of (a) 7.5% of "entire
net income" allocable to New York State (b) 3% of "alternative entire net
income" allocable to New York State (c) 0.01% of the average value of assets
allocable to New York State or (d) nominal minimum tax. Entire net income is
based on federal taxable income, subject to certain modifications. Alternative
entire net income is equal to entire net income without certain modifications.
34
The Bank's most recent IRS audit was relative to the Bank's 1993, 1994 and
1995 federal and state income tax returns. New York State Department of Taxation
recently completed their audit of the Company's state income tax returns for the
years of 1999, 2000 and 2001.
Executive Officers of the Registrant
Listed below is information, as of December 31, 2004, concerning the
Company's executive officers. There are no arrangements or understandings
between the Registrant and any of persons named below with respect to which he
or she was or is to be selected as an officer.
Name Age Position and Term
---- -------- --------------------------------------------------------------
Michael R. Kallet 55 President and Chief Executive Officer since 1990
Eric E. Stickels 44 Executive Vice President and Chief Financial Officer since 1998
Thomas H. Dixon 51 Executive Vice President and Chief Credit Officer since 1996
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2004 IS AVAILABLE FOR REVIEW ON OUR WEBSITE AT
WWW.ONEIDABANK.COM AND WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS UPON
WRITTEN OR TELEPHONIC REQUEST TO ERIC E. STICKELS, SECRETARY, ONEIDA FINANCIAL
CORP., 182 MAIN STREET, ONEIDA, NEW YORK 13421, OR CALL (315) 363-2000.
35
ITEM 2. PROPERTIES
- ------------------
The Bank conducts its business through its main office located in Oneida,
New York, and seven additional full service branch offices. The following table
sets forth certain information concerning Company property and equipment at
December 31, 2004. The aggregate net book value of the Company's premises and
equipment was $9.9 million at December 31, 2004. The insurance subsidiary
conducts its business through one owned and four leased facilities with lease
expirations not exceeding five years.
Original Date of Net Book Value
Year Lease of Property and Equipment
Location Acquired Expiration at December 31, 2004
-------- -------- ---------- --------------------
(Dollars in thousands)
Main Office:
182 Main Street 1889 N/A $1,985
Oneida, New York 13421
Branch Offices:
Camden Branch 1997 N/A 852
41 Harden Boulevard
Camden, New York 13316
Canastota Branch 1999 N/A 876
104 S. Peteboro St.
Canastota, New York 13032
Cazenovia Branch 1971 N/A 1,913
48 Albany Street
Cazenovia, New York 13035
Hamilton Branch 1976 N/A 224
35 Broad Street
Hamilton, New York 13346
Convenience Center 1988 N/A 252
585 Main Street
Oneida, New York 13421
Chittenango Branch 2002 N/A 833
101 Falls Boulevard
Chittenango, New York 13037
Bridgeport Branch 2002 November 2006 57
8786 State Route 31
Bridgeport, New York 13030
Mortgage Center
126 Lenox Avenue 1989 N/A 136
Oneida, New York 13421
Operations Center
169 Main Street 2001 N/A 1,166
Oneida, New York 13421
Bailey & Haskell Associates, Inc.
Various locations 2000 Various 1,366
(Headquarters)
169 Main Street
Oneida, New York 13421
Other Bank Property
102 S. Peterboro St. 2000 N/A 194
Canastota, New York 13032
36
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
Much of the Bank's market area is included in the 250,000-acre land claim
of the Oneida Indian Nation ("Oneidas"). The land claim area is held primarily
by private persons. Over 16 years ago, the United States Supreme Court ruled in
favor of the Oneidas in a lawsuit which management believes was intended to
encourage the State of New York to negotiate an equitable settlement in a land
dispute that has existed for 200 years.
In June 1998, the United States Justice Department intervened in the
action on behalf of the Oneidas against Madison County and Oneida County in New
York State. In September 1998, a United States District Court removed a stay of
litigation, having been in place since the late 1980's pending settlement
negotiations. In December 1998, both the Oneidas and the United States Justice
Department filed motions to amend the long outstanding claim against the State
of New York. The motions attempt to include in the claim, various named and
20,000 unnamed additional defendants, who own real property in parts of Madison
and Oneida counties, thereby including the additional defendants in the original
suit. The U.S. District Court granted the motions to add as a defendant the
State of New York, but denied the motions to add the private landowners. Neither
the Bank nor the Company is a named defendant in the motion. The Court further
rejected as not being viable the remedies of ejectment and/or of monetary
damages against private landowners. In January 2001, amended complaints were
served by the Oneidas and the United States, which seek to eject the Counties of
Madison and Oneida from lands owned by the counties, and the Oneidas also seek a
declaration that they have the right to possess all land within the land claim
area. In June 2001, the Court determined that certain land purchased by the
Oneidas in 1997 and 1998 are exempt from real estate taxes, accepting the
Oneidas argument that the acquired parcels lie within the boundaries of the
"reservation" established in 1794 by the Federal Government. The State of New
York, Counties of Madison and Oneida and the City of Sherrill have appealed the
Courts decision with a court date set for March 2002. In February 2002, a joint
statement was issued by the Oneidas, State of New York and the counties of
Madison and Oneida, indicating that the framework for a settlement had been
agreed upon subject to the approval by the State legislature and the Federal
Government. In July 2003, the United States Court of Appeals affirmed the
decision of the lower court against the City of Sherrill but appeals continue
relative to the decision against the Counties of Madison and Oneida. In January
2005 the United States Supreme Court heard the appeal brought forward by the
City of Sherrill against the Oneidas arguing that the acquisition of real
property by the Oneidas within the land claim area does not return the property
to sovereign status. Therefore, the City of Sherrill contends that the property
is subject to the payment of real property taxes or reverts to the ownership of
the taxing authority if assessed property taxes are not paid. The United States
Supreme Court is expected to file their decision on this case by June 2005.
To date neither the original claim nor the motion to amend has had an
adverse impact on the local economy or real property values. In addition, title
insurance companies continue to underwrite policies in the land claim area with
no change in premiums or underwriting standards. The Bank requires title
insurance on all residential real estate loans, excluding home equity loans.
Both the State of New York and the Oneidas have indicated in their respective
communications that individual landowners will not be adversely affected by the
ongoing litigation. The Company continues to monitor the situation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matters were submitted during the fourth quarter of the year ended
December 31, 2004 to a vote of securityholders.
37
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
- --------------------------------------------------------------------------------
For information concerning the market for the Company's common stock, the
section captioned "Stockholder Information" in the Company's Annual Report to
Stockholders for the Year Ended December 31, 2004 (the "Annual Report to
Stockholders") is incorporated herein by reference.
During the fourth quarter of 2004 the Company did not repurchased any
shares of its common stock.
Maximum Number of Shares that may
# of Shares Average Price Paid Total Shares still be purchased under the
Period Purchased Per Share Purchased repurchase program
- ------------------------- -------------- -------------------- -------------- ----------------------------------
Oct. 1 Oct. 31 --
-- -- --
Nov. 1 - Nov. 30 --
-- -- --
Dec. 1- Dec. 31 --
-- -- 250,000
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- ------------------------------------------------------
The "Selected Consolidated Financial and Other Data" section of the
Company's Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------------------------------------------------------------------
Interest Rate Risk. In recent years, the Bank has used the following
strategies to manage interest rate risk: (i) emphasizing the origination and
retention of residential monthly and bi-weekly adjustable-rate mortgage loans,
commercial adjustable-rate mortgage loans, other business purpose loans and
consumer loans consisting primarily of auto loans; (ii) selling substantially
all newly originated longer-term fixed-rate one- to four-family residential
mortgage loans into the secondary market without recourse and on a servicing
retained basis; and (iii) managing the Bank's investment activities in a prudent
manner in the context of overall balance sheet asset/liability management.
Investing in shorter-term securities will generally bear lower yields as
compared to longer-term investments, but will better position the Bank for
increases in market interest rates and better matches the maturities of the
Bank's certificate of deposit accounts. Certificates of deposit that mature in
one year or less, at December 31, 2004 totaled $72.1 million, or 22.8% of total
interest-bearing liabilities. The wholesale arbitrage strategy of investing
allows the Bank to invest in longer-term assets by hedging the additional
interest rate risk with liabilities of similar maturity or repricing
characteristics. Borrowed funds that mature in one year or less, at December 31,
2004 totaled $13.5 million, or 4.27% of total interest-bearing liabilities.
Management believes that this balanced approach to investing will reduce the
exposure to interest rate fluctuations will enhance long-term profitability.
38
Net Income and Portfolio Value Analysis. The Bank's interest rate
sensitivity is monitored by management through the use of a net income model and
a net portfolio value ("NPV") model which generates estimates of the change in
the Bank's net income and NPV over a range of interest rate scenarios. NPV is
the present value of expected cash flows from assets and liabilities. The model
assumes estimated loan prepayment rates; reinvestment rates. The following sets
forth the Bank's net income and NPV as of December 31, 2004.
Change in Net Interest Income Net Portfolio Value
Interest Rates ---------------------------------------------------------------------
In Basis Points Dollar Dollar Percent Dollar Dollar Percent
(Rate Shock) Amount Change Change Amount Change Change
------------ ---------------------------------------------------------------------
(Dollars in thousands)
+300 $13,920 $ (16) (0.1)% $54,317 $(13,941) (20.4)%
+200 $13,958 $ 23 0.2% $59,825 $ (8,433) (12.4)%
+100 $13,962 $ 26 0.2% $64,293 $ (3,965) (5.8)%
Static $13,936 $ -- --% $ -- $ -- --%
-100 $13,871 $ (64) (0.5)% $70,294 $ 2,037 3.0%
-200 $13,708 $ (227) (1.6)% $70,588 $ 2,330 3.4%
-300 $13,429 $ (507) (3.6)% $69,544 $ 1,287 1.9%
There are certain shortcomings inherent in the methodology used in the
above interest rate risk measurements. Modeling changes in net interest income
and NPV requires the making of certain assumptions, which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the net interest income and table assumes that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the table provides an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The financial statements identified in Item 15(a)(1) hereof are
incorporated by reference hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -----------------------------------------------------------------------------
On August 26, 2003, the Company's Audit Committee of the Board of
Directors approved a change in auditors. The Audit Committee approved the
engagement of Crowe Chizek and Company LLC to serve as the Company's independent
public accountants, effective immediately.
PwC performed audits of the consolidated financial statements for the one
year ended December 31, 2002. Their report did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the year ended December 31, 2002 and from December 31, 2002 through
the effective date of the PwC termination, there were no disagreements between
the Company and PwC on any matter of accounting principles or practice,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused PwC
to make reference to the subject matter of such disagreements in connection with
its reports on the financial statements for such years.
39
During the year ended December 31, 2002, and from December 31, 2002 until
the effective date of the dismissal of PwC, PwC did not advise the Company of
any of the following matters:
1. That the internal controls necessary for the Company to develop reliable
financial statements did not exist;
2. That information had come to PwC's attention that had lead it to no longer
be able to rely on management's representations, or that had made it
unwilling to be associated with the financial statements prepared by
management;
3. That there was a need to expand significantly the scope of the audit of
the Company, or that information had come to PwC's attention that if
further investigated: (i) may materially impact the fairness or
reliability of either a previously-issued audit report or underlying
financial statements, or the financial statements issued or to be issued
covering the fiscal periods subsequent to the date of the most recent
financial statement covered by an audit report (including information that
may prevent it from rendering an unqualified audit report on those
financial statements) or (ii) may cause it to be unwilling to rely on
management's representation or be associated with the Company's financial
statements and that, due to its dismissal, PwC did not so expand the scope
of its audit or conduct such further investigation;
4. That information had come to PwC's attention that it had concluded
materially impacted the fairness of reliability of either: (i) a
previously-issued audit report or the underlying financial statements or
(ii) the financial statements issued or to be issued covering the fiscal
period subsequent to the date of the most recent financial statements
covered by an audit report (including information that, unless resolved to
the accountant's satisfaction, would prevent it from rendering an
unqualified report on those financial statements), or that, due to its
dismissal, there were no such unresolved issues as of the date of its
dismissal.
The Company requested that PwC furnish a letter to the SEC indicating
whether it agreed with the above statements, and this letter is filed herewith
as Exhibit 16 to this Annual Report on Form 10-K.
During the year ended December 31, 2002, and from December 31, 2002
through the engagement of Crowe Chizek and Company LLC as the Company's
independent accountant, neither the Company nor anyone on its behalf had
consulted Crowe Chizek and Company LLC with respect to any accounting, auditing
or financial reporting issues involving the Company. In particular, there was no
discussion with the Company regarding the application of accounting principles
to a specified transaction, the type of audit opinion that might be rendered on
the financial statement, or any related item.
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end
of the fiscal year (the "Evaluation Date"). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely
alerting them to the material information relating to us (or our consolidated
subsidiaries) required to be included in our periodic SEC filings.
(b) Changes in internal controls.
40
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
ITEM 9B. OTHER INFORMATION
- --------------------------
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
- -------------------------------------------------
Information concerning Directors of the Company is incorporated by
reference from the Company's definitive Proxy Statement for the 2005 Annual
Meeting of Stockholders (the "Proxy Statement"), specifically the section
captioned "Proposal I--Election of Directors." In addition, see Item 1.
"Executive Officers of the Registrant" for information concerning the Company's
executive officers.
The Company has adopted a Code of Ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. The Code of
Ethics may be accessed on the Company's website at www.oneidabank.com.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
Information concerning executive compensation is incorporated by reference
from the Registrant's Proxy Statement, specifically the sections captioned
"Proposal I--Election of Directors--Executive Compensation," "--Directors'
Compensation," and "--Benefits."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
- -------------------------------------
Information concerning security ownership and equity compensation of
certain owners and management is incorporated by reference from the Company's
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Information concerning relationships and transactions is incorporated by
reference from the Company's Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- -----------------------------------------------
Information concerning principal accountant fees and services is
incorporated by reference from the Company's Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
- ---------------------------------------------------
The exhibits and financial statement schedules filed as a part of this
Form 10-K are as follows:
(a)(1) Financial Statements
41
o Report of Independent Registered Public Accounting Firm
o Consolidated Statements of Condition, December 31, 2004, 2003
and 2002
o Consolidated Statements of Income, Years Ended December 31,
2004, 2003 and 2002
o Consolidated Statements of Changes in Stockholders' Equity,
Years Ended December 31, 2004, 2003 and 2002
o Consolidated Statements of Cash Flows, Years Ended December
31, 2004, 2003 and 2002
o Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated
financial statements or related notes.
(a)(3) Exhibits
3.1 Certificate of Incorporation of Oneida Financial Corp.*
3.2 Bylaws of Oneida Financial Corp.*
4 Form of Stock Certificate**
10.1 Employee Stock Ownership Plan**
10.2 Stock Option Plan**
10.3 Recognition and Retention Plan**
13 Annual Report to Stockholders
14 Code of Ethics****
16 Letter regarding change in certifying accountant***
21 Subsidiaries of the Company
23.1 Consent of Independent Registered Public Accounting Firm -
Crowe Chizek and Company LLC
23.2a Consent of Independent Registered Public Accounting Firm -
PricewaterhouseCoopers LLP
23.2b Report of Independent Registered Publice Accounting Firm -
PricewaterhouseCoopers LLP
42
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
* Incorporated by reference to the Company's Current Report on Form 8-K filed on
July 20, 2001. (File No. 000-25101).
** Incorporated by reference to the Company's Registration Statement on Form S-1
filed on September 17, 1998. (File No. 333-63603).
*** Incorporated by reference to the Company's Current Report on Form 8-K, Item
4. Changes in Registrant's Certifying Accountant, filed on September 3, 2003.
**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2003.
(b) The exhibits listed under (a)(3) above are filed herewith.
(c) Not applicable.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONEIDA FINANCIAL CORP.
Date: March 29, 2005 By: /s/ Michael Kallet
-------------------------------------
Michael R. Kallet
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Michael Kallet By: /s/ Eric Stickels
----------------------------------------- -----------------------------------------------
Michael R. Kallet, President and Chief Eric E. Stickels, Executive Vice President and
Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: March 29, 2005 Date: March 29, 2005
By: /s/ Thomas Dixon By: /s/ Patricia Caprio
----------------------------------------- -----------------------------------------------
Thomas H. Dixon, Executive Vice President Patricia D. Director
Date: March 29, 2005 Date: March 29, 2005
By: /s/ Edward Clarke By: /s/ Marlene Denney
----------------------------------------- -----------------------------------------------
Edward J. Clarke, Director Marlene C. Denney, Director
Date: March 29, 2005 Date: March 29, 2005
By: /s/ John Haskell By: /s/ Rodney Kent
----------------------------------------- -----------------------------------------------
John E. Haskell, Director Rodney D. Kent, Director
Date: March 29, 2005 Date: March 29, 2005
By: /s/ William Matthews By: /s/ Michael Milmoe
----------------------------------------- -----------------------------------------------
William D. Matthews, Director Michael W. Milmoe, Director
Date: March 29, 2005 Date: March 29, 2005
By: /s/ Richard Myers By: /s/ Gerald Volk
----------------------------------------- ---------------------------------------------------
Richard B. Myers, Director Gerald N. Volk, Director
Date: March 29, 2005 Date: March 29, 2005
By: /s/ Frank White, Jr.
------------------------------------------
Frank O. White, Jr., Director
Date: March 29, 2005