New York | 6712 | 16-1237038 | ||
(State or other jurisdiction | (Primary Standard Industrial | (I.R.S. Employer | ||
of incorporation or organization) | Classification Code Number) | Identification Number) |
Copies to: | ||||
Clifford S. Weber, Esq. | George S. Deptula, Esq. | |||
Hinman, Howard & Kattell, LLP | Hiscock & Barclay, LLP | |||
106 Corporate Park Drive, Suite 317 White Plains, NY 10604 | One Park Place, 300 South State Street Syracuse, New York 13202 | |||
Phone: (914) 694-4102 | Phone: (315) 425-2725 |
Large accelerated filer | o | Accelerated filer | o | |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | x |
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | o | |
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) | o |
Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share | Proposed maximum aggregate offering price | Amount of registration fee |
Common Stock, $0.01 par value per share | 1, 011,539 shares (1) | N/A | $27,759,958 (2) | $3, 222.93 (3)(4) |
Information contained herein is subject to completion or amendment. A registration statement relating to the shares of Chemung Financial Corporation common stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. |
Sincerely, | |
/s/ Ronald M. Bentley | |
Ronald M. Bentley | |
President and Chief Executive Officer |
/s/ Eugene M. Sneeringer, Jr. | |
Eugene M. Sneeringer, Jr. | |
Chairman of the Board |
BY ORDER OF THE BOARD OF DIRECTORS | |
/s/ Jane H. Adamy | |
February 23, 2011 | Jane H. Adamy |
Elmira, New York | Corporate Secretary |
BY ORDER OF THE BOARD OF DIRECTORS | ||
February 23, 2011 | /s/ Eugene M. Sneeringer, Jr. | |
Albany, New York | Eugene M. Sneeringer, Jr. | |
Chairman of the Board |
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Chemung Financial Corporation | Fort Orange Financial Corp. |
One Chemung Canal Plaza | 1375 Washington Avenue |
P.O. Box 1522 | Albany, New York 12206 |
Elmira, New York 14902 | (518) 434-1212 |
(607) 737-3746 | www.capitalbank.com |
www.chemungcanal.com |
Chemung Financial Corporation | |
One Chemung Canal Plaza | |
P.O. Box 1522 | |
Elmira, New York 14902 | |
(607) 737-3711 |
Fort Orange Financial Corp. | |
1375 Washington Avenue | |
Albany, New York 12206 | |
(518) 434-1212 |
Closing Price | Chemung Financial | Fort Orange | ||||||
October 14, 2010 | $ | 21.50 | $ | 4.55 | ||||
February 9, 2011 | $ | 24.25 | $ | 7. 50 |
● | submitting written notice of revocation to Steven J. Owens, Executive Vice President and Chief Financial Officer, at 1375 Washington Avenue, Albany, New York 12206 by the time the special meeting begins; | |
● | submitting a new vote via telephone or the internet before the Fort Orange special meeting; | |
● | submitting a properly executed proxy bearing a later date before the special meeting; or | |
● | voting in person at the Fort Orange special meeting; however, simply attending the special meeting without voting will not revoke an earlier proxy. |
● | submitting written notice of revocation to Jane H. Adamy, Corporate Secretary of Chemung Financial, at One Chemung Canal Plaza, P.O. Box 1522, Elmira, New York 14902, by the time the special meeting begins; | |
● | submitting a new vote by telephone or on the internet before the Chemung Financial special meeting; or | |
● | submitting a properly executed proxy bearing a later date before the Chemung Financial special meeting; or | |
● | voting in person at the Chemung Financial special meeting; however, simply attending the special meeting without voting will not revoke an earlier proxy. |
● | $7.50 in cash, without interest, which we refer to as Cash Consideration; | |
● | 0.3571 of a share of Chemung Financial common stock, which we refer to as Stock Consideration (subject to a downward adjustment and other factors as described below); or | |
● | a mix of Cash Consideration and Stock Consideration, with the Cash Consideration for 25% of such shareholder’s shares of Fort Orange common stock and the Stock Consideration for 75% of such shareholder’s shares of Fort Orange common stock. |
● | the board’s understanding of the presentations of Chemung Financial’s management and financial advisor regarding Fort Orange’s business, operations, management, financial condition, asset quality, earnings and prospects; | |
● | the board’s view that the Merger is consistent with Chemung Financial’s strategic growth plan. | |
● | The Board’s judgment that the Capital District is a growing market, having demographic characteristics that are well-suited to Chemung Financials products, services and community banking business model; | |
● | the results of management’s due diligence investigation of Fort Orange and the reputation, business practices and experience of Fort Orange and its management, including their belief that Fort Orange is a financially healthy, well run bank holding company that is deeply committed to its customers, employees, and the communities that it serves; | |
● | the board’s view of potential synergies resulting from a combination of Chemung Financial and Fort Orange and the growth prospects of Fort Orange; |
● | the board’s view that the combined company will have the potential to realize a stronger competitive position and improved long-term operating and financial results, including revenue and earning enhancements; | |
● | the review by Chemung Financial’s board of directors with its legal and financial advisors of the structure of the Merger and the financial and other terms of the Merger Agreement; and | |
● | the financial information and analyses presented by Sandler O’Neill in its opinion that was delivered to the Chemung Financial board which is included as Appendix F to this joint proxy statement/prospectus and described under “Opinion of Chemung Financial’s Financial Advisor” beginning on page 53. SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. |
● | the board’s understanding of the presentations of Fort Orange’s management and financial advisor regarding each of Fort Orange’s and Chemung Financial’s business, operations, management, financial condition, asset quality, earnings and prospects; | |
● | the results of Fort Orange’s due diligence investigation of Chemung Financial and the reputation, business practices and experience of Chemung Financial and its management, including experience related to integration of acquired businesses; | |
● | management’s view that the Merger will allow for enhanced opportunities for Fort Orange’s clients and customers, and management’s view that the lack of geographic overlap between the two companies will minimize the impact of the Merger on Fort Orange’s employees; | |
● | Chemung Financial’s commitment to continue a significant presence in Albany, New York, including its intention to retain the “Capital Bank” name; | |
● | Chemung Financial’s agreement to appoint two Fort Orange or Capital Bank directors to the boards of Chemung Financial and Chemung Canal and to establish an advisory board comprised of the remaining Fort Orange and Capital Bank directors (other than Peter D. Cureau and the two directors appointed to the Chemung Financial and Chemung Canal boards) in order to provide continuity and leadership in Fort Orange’s local markets; | |
● | the board’s knowledge of the current and prospective environment in which Fort Orange operates, including national and local economic conditions, the competitive environment, the trend toward consolidation in the financial services industry and the likely effect of these factors on Fort Orange’s potential growth, development, productivity, profitability and strategic options; |
● | the board’s view that the size of the institution and related economies of scale, as well as diversification of product offerings, beyond the level it believed to be reasonably achievable on an independent basis was becoming increasingly important to continued success in the current financial services environment; | |
● | the review by the Fort Orange board of directors with its legal and financial advisors of the structure of the Merger and the financial and other terms of the Merger Agreement, including the adequacy of the merger consideration, not only in relation to the current market price of Fort Orange common stock, but also in relation to the historical, present and anticipated future operating results and financial position of Fort Orange; | |
● | the fact that the combined value of the Cash Consideration and Stock Consideration, based on the closing price of Chemung Financial common stock on October 14, 2010, of $7.63 for each share of Fort Orange common stock represented a 67.7% premium over the closing price of Fort Orange common stock of $4.55 on October 14, 2010, and a premium of approximately 64% over Fort Orange’s 52-week average closing price on October 14, 2010, the last trading day before Fort Orange and Chemung Financial announced that they had entered into the Merger Agreement; | |
● | Chemung Financial’s current quarterly dividend rate of $0.25 per share, as compared to the fact that Fort Orange has never paid a cash dividend; | |
● | the fact that Fort Orange shareholders will receive predominantly shares of Chemung Financial common stock in the Merger, which would allow Fort Orange shareholders to participate in a significant portion of the future performance of the combined Fort Orange and Chemung Financial businesses and synergies resulting from the Merger, and the value to Fort Orange shareholders represented by that consideration; | |
● | the board’s conclusion that Chemung Financial’s earnings and prospects make it more likely that the combined company will have superior future earnings and prospects compared to Fort Orange’s earnings and prospects on an independent basis; | |
● | Fort Orange’s right to terminate the Merger Agreement if: (i) at the Effective Time, the Closing Price is less than $17.85 per share, and (ii) during the period between October 15, 2010 and the Effective Time, the per share price of Chemung Financial’s common stock shall have underperformed an index consisting of a weighted-average of the per share common stock prices of the common stock of certain publicly traded banks headquartered in New York and Pennsylvania with total assets between $500 million and $4 billion. For purposes of this comparison, “underperformed” means that the per share price of Chemung Financial common stock declined by more than an additional 20% over the performance of the index during such period; | |
● | the likelihood that the Merger will be completed, including the likelihood that the regulatory and shareholder approvals needed to complete the Merger will be obtained in a timely fashion; and | |
● | the financial information and analyses presented by FinPro to the Fort Orange board of directors, and FinPro’s opinion to the Fort Orange board of directors to the effect that, as of the date of such opinion, based upon and subject to the factors and assumptions set forth in such opinion, the consideration in the proposed Merger was fair from a financial point of view to holders of Fort Orange common stock. A copy of the FinPro written opinion that was delivered to the Fort Orange board is included as Appendix E to this joint proxy statement/prospectus and described under “Opinion of Fort Orange’s Financial Advisor” beginning on page 45. SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. |
The Fort Orange board also considered potential risks relating to the Merger, including the following: | ||
● | the challenges associated with seeking the regulatory approvals required to complete the Merger in a timely manner; | |
● | the potential for diversion of management and employee attention, and for employee attrition, during the period prior to the completion of the Merger and the potential effect on Fort Orange’s business and relations with customers, service providers and other stakeholders, whether or not the Merger is completed; | |
● | the requirement that Fort Orange conduct its business in the ordinary course and the other restrictions on the conduct of Fort Orange’s business prior to completion of the Merger, which may delay or prevent Fort Orange from undertaking business opportunities that may arise pending completion of the Merger; | |
● | the risk that potential benefits and synergies sought in the Merger may not be realized or may not be realized within the expected time period, and the risks associated with the integration of Fort Orange and Chemung Financial; | |
● | the fact that because the Stock Consideration in the Merger is a fixed exchange ratio of shares of Chemung Financial common stock to Fort Orange common stock (subject to certain potential adjustments as specified in the Merger Agreement), Fort Orange shareholders could be adversely affected by a decrease in the trading price of Chemung Financial common stock during the pendency of the Merger; | |
● | the fact that the exchange ratio could be adjusted downward if the Closing Price of Chemung Financial common stock exceeds $25.20 per share prior to the Effective Time; | |
● | the fact that the Merger consideration could be reduced if the asset quality of Fort Orange’s loans deteriorates prior to the closing date; | |
● | the fact that certain provisions of the Merger Agreement prohibit Fort Orange from soliciting, and limit its ability to respond to, proposals for alternative transactions; | |
● | the requirement that Fort Orange submit the Merger Agreement to its shareholders even if its board of directors withdraws its recommendation; | |
● | the fact that if Fort Orange or Chemung Financial terminates the Merger Agreement because Fort Orange accepts an alternative acquisition proposal, Fort Orange is obligated to pay to Chemung Financial a termination fee in an amount equal to 2.5% of the merger consideration (presently estimated at $725,000), which may deter others from proposing an alternative transaction that may be more advantageous to Fort Orange shareholders; and | |
● | the risks described in the section entitled “Risk Factors” beginning on page 20. |
● | the Merger Agreement and the exhibits thereto; | |
● | historic changes in the market for bank stocks; | |
● | trends and changes in the financial condition and results from operations of Fort Orange and Chemung Financial beginning with the 2005 fiscal year end; | |
● | the most recent annual report to shareholders of Fort Orange and Chemung Financial; | |
● | the most recent earnings releases for Fort Orange; | |
● | the most recent 10-K of Chemung Financial; | |
● | the quarterly reports on Form 10-Q of Chemung Financial; and | |
● | the most recent audited financial statements of Fort Orange and Chemung Financial. |
At or for the Twelve Months ended June 30, 2010, unless noted | Fort Orange | Comparable Group Median | Chemung Financial | |||||||||
Balance Sheet Data: | ||||||||||||
Total Assets | $ | 271 million | $ | 464 million | $ | 1 billion | ||||||
Loans to Deposits | 93.05 | % | 78.43 | % | 70.72 | % | ||||||
Loans to Assets | 71.04 | % | 64.12 | % | 58.22 | % | ||||||
Deposits to Assets | 77.17 | % | 83.16 | % | 83.16 | % | ||||||
Borrowings to Assets | 14.03 | % | 4.89 | % | 6.52 | % | ||||||
Capitalization: | ||||||||||||
Equity to Assets | 8.20 | % | 10.39 | % | 9.48 | % | ||||||
Tangible Equity to Tangible Assets | 8.20 | % | 10.39 | % | 8.11 | % | ||||||
Equity + Reserves to Assets | 9.29 | % | 11.47 | % | 9.17 | % | ||||||
Asset Quality: | ||||||||||||
Nonperforming Loans to Loans | 0.80 | % | 1.83 | % | 2.00 | % | ||||||
Reserves to Nonperforming Loans | 189.96 | % | 70.35 | % | 88.68 | % | ||||||
Nonperforming Assets to Assets | 0.57 | % | 1.44 | % | 1.26 | % | ||||||
Reserves to Loans | 1.52 | % | 1.57 | % | 1.77 | % | ||||||
Reserves to Nonperforming Assets plus + Loans 90 Days Past Due | 189.96 | % | 67.57 | % | 82.44 | % | ||||||
Profitability – Trailing 12 Months: | ||||||||||||
Return on Average Assets | 0.39 | % | 0.61 | % | 0.75 | % | ||||||
Return on Average Equity | 5.03 | % | 6.07 | % | 8.14 | % | ||||||
Net Interest Margin | 3.22 | % | 3.77 | % | 3.88 | % | ||||||
Noninterest Income to Ave. Assets | 0.08 | % | 0.66 | % | 1.78 | % | ||||||
Noninterest Expense to Ave. Assets | 2.09 | % | 3.06 | % | 3.87 | % | ||||||
Efficiency Ratio | 66.26 | % | 69.77 | % | 70.80 | % | ||||||
Growth Rates: | ||||||||||||
Assets – 12 Months | 6.58 | % | 6.23 | % | 5.29 | % | ||||||
Loans – 12 Months | -3.13 | % | 4.24 | % | -4.55 | % | ||||||
Deposits – 12 Months | 8.21 | % | 11.23 | % | 6.76 | % | ||||||
Earnings per Share – 12 Months | 66.67 | % | 22.15 | % | 14.12 | % | ||||||
Market Pricing Multiples on 10/12/10: | ||||||||||||
Price to Trailing Earnings per Share | 15.17 | x | 10.65 | x | 10.64 | x | ||||||
Price to Trailing Core* Earnings per Share | 23.58 | x | 12.27 | x | 9.09 | x | ||||||
Price to Book Per Share | 75.95 | % | 84.06 | % | 79.74 | % | ||||||
Price to Tangible Book Per Share | 75.95 | % | 89.35 | % | 94.58 | % | ||||||
Dividend Yield | 0.00 | % | 2.09 | % | 4.65 | % |
● | All Regional – All Mid Atlantic and New England bank and thrift mergers (27 deals) | |
● | Regional, Credit and Bank Acquirer – All Mid Atlantic and New England bank and thrift mergers where the target had non-performing assets to assets ratio less than 5% and where the acquirer was a bank or thrift (12 deals) |
Price to Last Twelve Months’ Earnings per Share | Price to Last Twelve Months’ Core* Earnings per Share | Price to Tangible Book Value Per Share | Franchise Premium to Core Deposits | Premium to One Month Prior Stock Price | |||||||||||
Multiples of Merger Consideration | 25.4 | x | 40.2 | x | 127.4 | % | 4.5 | % | 64.2 | % | |||||
All Regional | |||||||||||||||
Median | 22.7 | x | 25.7 | x | 105.0 | % | 3.0 | % | 106.8 | % | |||||
Minimum | 19.3 | x | 20.0 | x | 50.3 | % | 0.2 | % | 22.9 | % | |||||
Maximum | 26.0 | x | 28.8 | x | 200.2 | % | 13.6 | % | 168.3 | % | |||||
Regional, Credit and Bank Acquirer | |||||||||||||||
Median | 20.8 | x | 26.8 | x | 119.1 | % | 3.0 | % | 110.9 | % | |||||
Minimum | 19.3 | x | 20.0 | x | 82.6 | % | 1.8 | % | 22.9 | % | |||||
Maximum | 26.0 | x | 28.8 | x | 200.2 | % | 13.6 | % | 168.3 | % |
Investment Value of Fort Orange Shares Stand Alone | |||||||||||||||||||
Price to EPS Terminal Value Range | |||||||||||||||||||
10.0x | 15.0x | 20.0x | 25.0x | ||||||||||||||||
15.0 | % | $ | 2.64 | $ | 3.96 | $ | 5.28 | $ | 6.60 | ||||||||||
14.0 | % | $ | 2.76 | $ | 4.14 | $ | 5.52 | $ | 6.90 | ||||||||||
Discount Rate | 13.0 | % | $ | 2.89 | $ | 4.33 | $ | 5.77 | $ | 7.22 | |||||||||
12.0 | % | $ | 3.02 | $ | 4.53 | $ | 6.04 | $ | 7.55 | ||||||||||
11.0 | % | $ | 3.16 | $ | 4.74 | $ | 6.33 | $ | 7.91 |
At or for the twelve months ended June 30, 2010, except as noted | Fort Orange | Chemung Financial | ||||
Market Capitalization at October 12, 2010 | 18.2 | % | 81.8 | % | ||
Assets | 21.3 | % | 78.7 | % | ||
Loans, net | 24.9 | % | 75.1 | % | ||
Core Deposits (non-maturity) | 19.7 | % | 80.3 | % | ||
Deposits | 20.1 | % | 79.9 | % | ||
Common Equity | 19.0 | % | 81.0 | % | ||
Common Tangible Equity | 21.8 | % | 78.2 | % | ||
Net Income for Trailing Twelve Months | 12.9 | % | 87.1 | % | ||
Projected 2011 Core Net Income | 17.3 | % | 82.7 | % | ||
Net Income for Trailing Twelve Months, with Cost Savings | 25.6 | % | 74.4 | % | ||
Projected 2011 Core Net Income, with Cost Savings | 30.0 | % | 70.0 | % | ||
Resulting Ownership | 21.1 | % | 78.9 | % | ||
Resulting Ownership if consideration was 100% stock | 27.3 | % | 72.7 | % |
Note: | Fort Orange’s projected earnings for 2011 were provided by Fort Orange. Chemung Financial’s projected earnings for 2011 were prepared by FinPro based upon data provided by Chemung Financial management. |
● | Agreement with Mr. Cureau. Fort Orange and Capital Bank have entered into an agreement with Mr. Cureau dated October 20, 2010, as amended December 28, 2010, pursuant to which, among other things: |
- | Mr. Cureau’s employment terminated on December 31, 2010, at which time he ceased to be the President and Chief Executive Officer; | ||
- | Mr. Cureau will continue to serve as a member of the board of directors of Fort Orange and Capital Bank until completion of the Merger; | ||
- | A severance payment of $375,000 will be made unrestricted Mr. Cureau at the Effective Time; | ||
- | Mr. Cureau will receive, at the Effective Time, a stock award equal to all prior unvested restricted stock grants made to him during his employment that lapsed upon his termination of employment. This stock award shall be subject to the merger consideration; | ||
- | Mr. Cureau will be entitled to a portion (as outlined in the agreement) of any settlement or recovery related to a pending insurance claim of Capital Bank; | ||
- | On completion of the Merger, all of Mr. Cureau’s unexercised stock options (whether vested or not) shall lapse and in lieu of any rights with respect to such options, Mr. Cureau shall receive a cash payment equal to the amount he would have received had these options been exercisable on the same basis as all other stock options held by officers and directors of Fort Orange. The stock award that lapsed upon his termination of employment shall be subject to the merger consideration; | ||
- | Mr. Cureau shall receive a performance bonus for 2010 of $25,000 and separation expenses of $10,000, no later than 30 days following his separation date; and | ||
- | Mr. Cureau shall provide Fort Orange and Capital Bank with a release from any and all claims which he had or may have related to his employment. | ||
- | Mr. Cureau’s compensation and benefits are limited to a maximum 2.99 times his then base salary, as defined in Section 280G(b) of the Internal Revenue Code and thus avoids the imposition of taxes on Chemung Financial and Mr. Cureau other than ordinary taxes. |
● | Agreement with Mr. Owens. Mr. Owens is a party to an employment agreement originally executed on July 7, 2010, as amended on December 17, 2010 and effective January 1, 2011, with Capital Bank for a two-year period, subject to renewal for successive one-year periods unless either party notifies the other in writing within 90-days prior to the expiration of the term that the agreement will not be extended (the “Employment Agreement”). The Employment Agreement provides that if Mr. Owens is terminated following completion of the Merger without “Cause”, or by Mr. Owens for “Good Reason”, Mr. Owens will be entitled to certain compensation and benefits. “Good Reason” is defined as the occurrence of any of the following without Mr. Owens’ consent: (1) a material diminution in Mr. Owens’ base compensation; (2) a material diminution in Mr. Owens’ authority, duties, or responsibilities; (3) a material diminution in the budget over which Mr. Owens retains authority; (4) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Mr. Owens is required to report, including a requirement that Mr. Owens is required to report to a corporate officer or employee instead of reporting directly to the board of directors of Chemung Financial, as the surviving entity; (5) a material change in the geographic location of Mr. Owens’ office; or (6) any action or inaction that constitutes a material breach by the surviving entity of the Agreement then in effect. Under the terms of the Employment Agreemen t, termination of employment by Chemung Financial, as the surviving entity, or by Mr. Owens for Good Reason, following the Merger, will entitle Mr. Owens to (1) a cash payment of two times his then current base salary; (2) an amount equal to the employer-provided matching contribution under Capital Bank’s 401(k) Plan that would have been made if Mr. Owens had continued his employment for two years beyond the termination date; (3) all medical, prescription, dental and life insurances for Mr. Owens and his family for two years after the termination date; (4) the expense of outplacement services up to a maximum of $5,000.00; (5) the continuance of all insurance and other indemnification provisions that are in effect on the date of termination with respect to his acts and omissions while an officer or director of Capital Bank. The Employment Agreement limits the compensation and benefits payable to Mr. Owens upon completion of the Merger to a maximum 2.99 times his then base salary, as defined in Section 280G(b) of the Internal Revenue Code and thus avoids the imposition of taxes on Chemung Financial and Mr. Owens other than ordinary taxes. Employment Agreement caps the compensation and benefits payable to Mr. Owens upon completion of the Merger to a maximum of 2.99 times his then base salary, as defined in Section 280G(b) of the Internal Revenue Code and thus avoids the imposition of taxes on Chemung Financial and Mr. Owens other than ordinary taxes. The Employment Agreement also provides that Chemung Financial will engage Mr. Owens as a consultant for two years following termination for a fee of $7,500 per year. | |
● | Change in Control Agreements with other employees. Two additional employees have change in control severance agreements with Capital Bank that provide for a payment equal to either 75% or 100% of the amount of their then respective current base salary if Chemung Financial terminates the employee’s employment “without cause” or if the employee terminates employment for “good reason” (as those terms are defined in the respective change in control agreements) within twelve months of the completion of the Merger. |
● | Fort Orange Stock Options. The Fort Orange stock options granted to executive officers in 2008 vest ratably at 10% per year over a ten year period beginning on the one year anniversary of the date of grant. Under the terms of the Merger Agreement, at the Effective Time, all outstanding Fort Orange stock options that have not yet vested will immediately vest in full and each holder of a Fort Orange stock option will receive cash in an aggregate amount equal to the product of (i) the number of shares of Fort Orange common stock subject to unexercised Fort Orange options, and (ii) the difference, if any, between (x) the sum of: (1) 75% of the product of the exchange ratio and the Closing Pri ce, and (2) 25% of $7.50, and (y) the applicable exercise price per share under the Fort Orange options. At the time of the execution of the Merger Agreement, Fort Orange’s directors and executive officers (as a group) held vested and unvested stock options to acquire an aggregate of 128,712 shares of Fort Orange common stock. Assuming the Merger were to occur on April 8, 2011, Fort Orange’s current and former executive officers will hold unvested options to purchase 95,916 shares of Fort Orange common stock that will automatically vest on that date. All options held by Fort Orange directors as of February 9, 2011 were fully vested. | |
● | Fort Orange Restricted Stock Awards. The Fort Orange Restricted Stock Awards granted to executive officers in 2008 are scheduled to vest ratably at 10% per year over a ten year period beginning on the one year anniversary of the date of grant. Under the terms of the Merger Agreement, at the Effective Time, all outstanding unvested restricted stock awards shall vest and be free of any restrictions and be exchanged for the merger consideration. Assuming the Merger occurs on April 8, 2011, Fort Orange’s current and former executive officers (as a group) will hold 29,547 shares of unvested restricted stock that will automatically vest. |
Executive Officer | Value of Options | Value of Restricted Stock | ||||||
Peter D. Cureau (1) | $ | 125,614 | (2) | $ | 132,300 | (3) | ||
Steven J. Owens | 43,353 | (4) | 89,303 | (5) |
● | Non-Employee Directors’ Stock Units. At the Effective Time, all rights of non-employee directors of Fort Orange to convert stock units awarded to them shall vest and be free of any restrictions and shall be converted to shares of Fort Orange common stock which shall then be exchanged for the merger consideration. On the date of the Merger Agreement, non-employee directors held the right to convert their stock units into an aggregate of 3,183 common shares of Fort Orange stock. | |
● | Appointment as Directors of Chemung Financial or Chemung Canal. The Merger Agreement provides that two current directors of Fort Orange or Capital Bank will be appointed as directors of Chemung Financial and Chemung Canal when the Merger is completed; | |
● | Appointment to Regional Advisory Board. The Merger Agreement provides that effective as of the completion of the Merger, Chemung Financial will invite the current Fort Orange and Capital Bank directors (other than Peter D. Cureau and the two elected to the Chemung Financial and Chemung Canal boards) to a regional advisory board, the function of which will be to advise Chemung Financial and Chemung Canal with respect to operations and opportunities in Capital Bank’s former market area and beyond, and to facilitate the maintenance and development of customer relationships. The advisory board shall meet on a schedule and receive per meeting compensation to be determined by Chemung Financial. | |
● | Indemnification and Insurance. The Merger Agreement contains provisions establishing the rights of Fort Orange and Capital Bank officers and directors to indemnification and directors’ and officers’ liability insurance. (See the next two sections for a more detailed explanation of these rights). |
(1) | the Merger Agreement; | |
(2) | certain publicly available financial statements and other historical financial information of Chemung Financial that Sandler O’Neill deemed relevant; |
(3) | certain publicly available financial statements and other historical financial information of Fort Orange that Sandler O’Neill deemed relevant; | |
(4) | internal financial projections for Chemung Financial for the years ending December 31, 2010 through 2013 and an estimated growth and performance rate for the years thereafter in each case as provided by, and reviewed with, senior management of Chemung Financial; | |
(5) | internal financial projections for Fort Orange for the year ending December 31, 2010 as provided by senior management of Fort Orange and as adjusted by senior management of Chemung Financial and a long-term estimated growth rate for the years thereafter as provided by the senior management of Chemung Financial; | |
(6) | the pro forma financial impact of the Merger on Chemung Financial, based on assumptions relating to transaction expenses, purchase accounting adjustments and cost savings determined by the senior management of Chemung Financial; | |
(7) | the publicly reported historical price and trading activity for Chemung Financial’s and Fort Orange’s common stock, including a comparison of certain financial and stock market information for Chemung Financial and Fort Orange and similar publicly available information for certain other companies the securities of which are publicly traded; | |
(8) | the financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available; | |
(9) | the current market environment generally and the banking environment in particular; and | |
(10) | such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant. |
Transaction Multiples | |||
Transaction price/Book value | 128 | % | |
Transaction price/Tangible book value | 128 | % | |
Transaction price/Last twelve months earnings per share | 25.4 | x | |
Core Deposit Premium (1) | 4.5 | % | |
Premium to market (2) | 68 | % |
Ballston Spa Bancorp, Inc. | Kinderhook Bank Corp. |
Bank of Akron | Lyons Bancorp, Inc. |
ES Bancshares, Inc. | Orange County Bancorp, Inc. |
First National Bank of Groton | Solvay Bank Corporation |
Glenville Bank Holding Company, Inc. | Steuben Trust Corporation |
Greater Hudson Bank, National Association |
Comparable Group Analysis | ||||||||
Fort Orange | Comparable Group | |||||||
Financial Corp. | Median Result | |||||||
Total Assets (in millions) | $ | 271 | $ | 350 | ||||
Tangible Common Equity / Tangible Assets | 8.20 | % | 9.26 | % | ||||
Total Risk Based Capital Ratio | 12.17 | % | 16.15 | % | ||||
Core Return on Average Assets | 0.25 | % | 0.84 | % | ||||
Core Return on Average Equity | 3.25 | % | 8.44 | % | ||||
Net Interest Margin | 3.22 | % | 4.17 | % | ||||
Efficiency Ratio | 66.3 | % | 71.9 | % | ||||
Non-performing Assets / Assets | 0.57 | % | 0.72 | % | ||||
Net Charge-Offs / Average Loans | (0.01 | %) | 0.04 | % | ||||
Market Capitalization (in millions) | $ | 17 | $ | 21 | ||||
Price / LTM EPS | 15.2 | x | 10.5 | x | ||||
Price / LTM Core EPS | 14.0 | x | 10.0 | x | ||||
Price / Tangible Book Value | 76 | % | 95 | % |
Alliance Financial Corporation | Financial Institutions, Inc. |
Arrow Financial Corporation | Penns Woods Bancorp, Inc. |
Canandaigua National Corporation | Penseco Financial Services Corporation |
Citizens & Northern Corporation | Tompkins Financial Corporation |
Fidelity D & D Bancorp, Inc. | Wilber Corporation |
Comparable Group Analysis | ||||||||
Chemung Financial | Comparable Group Median Result | |||||||
Total Assets (in millions) | $ | 1,001 | $ | 1,398 | ||||
Tangible Common Equity / Tangible Assets | 8.11 | % | 7.63 | % | ||||
Total Risk Based Capital Ratio | 13.92 | % | 14.02 | % | ||||
Core Return on Average Assets | 0.87 | % | 1.13 | % | ||||
Core Return on Average Equity | 9.52 | % | 10.67 | % | ||||
Net Interest Margin | 3.88 | % | 3.86 | % | ||||
Efficiency Ratio | 70.8 | % | 60.8 | % | ||||
Non-performing Assets / Assets | 1.26 | % | 0.97 | % | ||||
Net Charge-Offs / Average Loans | 0.06 | % | 0.22 | % | ||||
Market Capitalization (in millions) | $ | 76 | $ | 149 | ||||
Price / LTM EPS | 10.6 | x | 12.4 | x | ||||
Price / LTM Core EPS | 9.1 | x | 12.1 | x | ||||
Price / Tangible Book Value | 95 | % | 153 | % |
Fort Orange Three-Year Common Stock Performance | ||||||
Beginning Index Value October 13, 2007 | Ending Index Value October 13, 2010 | |||||
Fort Orange | 100.0 | % | 67.8 | % | ||
S&P Bank Index | 100.0 | 35.3 | ||||
NASDAQ Bank Index | 100.0 | 55.2 |
Chemung Financial Three-Year Common Stock Performance | ||||||
Beginning Index Value October 13, 2007 | Ending Index Value October 13, 2010 | |||||
Chemung Financial | 100.0 | % | 77.1 | % | ||
S&P Bank Index | 100.0 | 35.3 | ||||
NASDAQ Bank Index | 100.0 | 55.2 |
Earnings Per Share Multiples | |||||||||||||||||||
(Value shown is $ per share) | |||||||||||||||||||
Discount Rate | 10.0 | x | 12.5 | x | 15.0 | x | 17.5 | x | 20.0 | x | 22.5 | x | |||||||
11.0 | % | 5.69 | 7.11 | 8.53 | 9.95 | 11.37 | 12.79 | ||||||||||||
12.0 | % | 5.44 | 6.80 | 8.15 | 9.51 | 10.87 | 12.23 | ||||||||||||
13.0 | % | 5.20 | 6.50 | 7.80 | 9.10 | 10.40 | 11.70 | ||||||||||||
14.0 | % | 4.98 | 6.22 | 7.46 | 8.71 | 9.95 | 11.20 | ||||||||||||
15.0 | % | 4.76 | 5.95 | 7.14 | 8.34 | 9.53 | 10.72 | ||||||||||||
16.0 | % | 4.56 | 5.70 | 6.84 | 7.98 | 9.12 | 10.26 | ||||||||||||
17.0 | % | 4.37 | 5.46 | 6.55 | 7.65 | 8.74 | 9.83 |
Tangible Book Value Per Share Multiples | |||||||||||||||||||
(Value shown is $ per share) | |||||||||||||||||||
Discount Rate | 75 | % | 95 | % | 115 | % | 135 | % | 155 | % | 175 | % | |||||||
11.0 | % | 4.15 | 5.26 | 6.36 | 7.47 | 8.58 | 9.68 | ||||||||||||
12.0 | % | 3.97 | 5.03 | 6.09 | 7.14 | 8.20 | 9.26 | ||||||||||||
13.0 | % | 3.80 | 4.81 | 5.82 | 6.83 | 7.85 | 8.86 | ||||||||||||
14.0 | % | 3.63 | 4.60 | 5.57 | 6.54 | 7.51 | 8.48 | ||||||||||||
15.0 | % | 3.48 | 4.40 | 5.33 | 6.26 | 7.19 | 8.11 | ||||||||||||
16.0 | % | 3.33 | 4.22 | 5.11 | 5.99 | 6.88 | 7.77 | ||||||||||||
17.0 | % | 3.19 | 4.04 | 4.89 | 5.74 | 6.59 | 7.44 |
Earnings Per Share Multiples | |||||||||||||||||||
(Value shown is $ per share) | |||||||||||||||||||
EPS Projection Change from Base Case | 10.0 | x | 12.5 | x | 15.0 | x | 17.5 | x | 20.0 | x | 22.5 | x | |||||||
(25.0 | %) | 3.59 | 4.49 | 5.39 | 6.29 | 7.19 | 8.08 | ||||||||||||
(20.0 | %) | 3.83 | 4.79 | 5.75 | 6.71 | 7.66 | 8.62 | ||||||||||||
(15.0 | %) | 4.07 | 5.09 | 6.11 | 7.13 | 8.14 | 9.16 | ||||||||||||
(10.0 | %) | 4.31 | 5.39 | 6.47 | 7.54 | 8.62 | 9.70 | ||||||||||||
(5.0 | %) | 4.55 | 5.69 | 6.83 | 7.96 | 9.10 | 10.24 | ||||||||||||
0.0 | % | 4.79 | 5.99 | 7.19 | 8.38 | 9.58 | 10.78 | ||||||||||||
5.0 | % | 5.03 | 6.29 | 7.54 | 8.80 | 10.06 | 11.32 | ||||||||||||
10.0 | % | 5.27 | 6.59 | 7.90 | 9.22 | 10.54 | 11.86 | ||||||||||||
15.0 | % | 5.51 | 6.89 | 8.26 | 9.64 | 11.02 | 12.39 | ||||||||||||
20.0 | % | 5.75 | 7.19 | 8.62 | 10.06 | 11.50 | 12.93 | ||||||||||||
25.0 | % | 5.99 | 7.48 | 8.98 | 10.48 | 11.98 | 13.47 |
Earnings Per Share Multiples | |||||||||||||||||||
(Value shown is $ per share) | |||||||||||||||||||
Discount Rate | 10.0 | x | 11.0 | x | 12.0 | x | 13.0 | x | 14.0 | x | 15.0 | x | |||||||
11.0 | % | 16.83 | 18.15 | 19.47 | 20.79 | 22.11 | 23.44 | ||||||||||||
12.0 | % | 16.16 | 17.42 | 18.69 | 19.95 | 21.21 | 22.48 | ||||||||||||
13.0 | % | 15.52 | 16.73 | 17.94 | 19.15 | 20.36 | 21.57 | ||||||||||||
14.0 | % | 14.92 | 16.08 | 17.23 | 18.39 | 19.55 | 20.70 | ||||||||||||
15.0 | % | 14.35 | 15.45 | 16.56 | 17.67 | 18.78 | 19.88 | ||||||||||||
16.0 | % | 13.80 | 14.86 | 15.92 | 16.98 | 18.04 | 19.10 | ||||||||||||
17.0 | % | 13.28 | 14.30 | 15.31 | 16.33 | 17.35 | 18.36 |
Tangible Book Value Per Share Multiples | |||||||||||||||||||
(Value shown is $ per share) | |||||||||||||||||||
Discount Rate | 100 | % | 120 | % | 140 | % | 160 | % | 180 | % | 200 | % | |||||||
11.0 | % | 21.13 | 24.62 | 28.11 | 31.60 | 35.08 | 38.57 | ||||||||||||
12.0 | % | 20.28 | 23.61 | 26.95 | 30.28 | 33.62 | 36.95 | ||||||||||||
13.0 | % | 19.47 | 22.66 | 25.84 | 29.03 | 32.22 | 35.41 | ||||||||||||
14.0 | % | 18.69 | 21.75 | 24.80 | 27.85 | 30.90 | 33.95 | ||||||||||||
15.0 | % | 17.96 | 20.88 | 23.80 | 26.73 | 29.65 | 32.57 | ||||||||||||
16.0 | % | 17.26 | 20.06 | 22.86 | 25.66 | 28.46 | 31.25 | ||||||||||||
17.0 | % | 16.60 | 19.28 | 21.96 | 24.64 | 27.32 | 30.00 |
Earnings Per Share Multiples | |||||||||||||||||||
(Value shown is $ per share) | |||||||||||||||||||
EPS Projection Change from Base Case | 10.0 | x | 11.0 | x | 12.0 | x | 13.0 | x | 14.0 | x | 15.0 | x | |||||||
(25.0 | %) | 11.63 | 12.47 | 13.31 | 14.14 | 14.98 | 15.81 | ||||||||||||
(20.0 | %) | 12.19 | 13.08 | 13.97 | 14.86 | 15.76 | 16.65 | ||||||||||||
(15.0 | %) | 12.75 | 13.70 | 14.64 | 15.59 | 16.54 | 17.48 | ||||||||||||
(10.0 | %) | 13.31 | 14.31 | 15.31 | 16.31 | 17.32 | 18.32 | ||||||||||||
(5.0 | %) | 13.86 | 14.92 | 15.98 | 17.04 | 18.09 | 19.15 | ||||||||||||
0.0 | % | 14.42 | 15.53 | 16.65 | 17.76 | 18.87 | 19.99 | ||||||||||||
5.0 | % | 14.98 | 16.15 | 17.32 | 18.48 | 19.65 | 20.82 | ||||||||||||
10.0 | % | 15.53 | 16.76 | 17.98 | 19.21 | 20.43 | 21.66 | ||||||||||||
15.0 | % | 16.09 | 17.37 | 18.65 | 19.93 | 21.21 | 22.49 | ||||||||||||
20.0 | % | 16.65 | 17.98 | 19.32 | 20.66 | 21.99 | 23.33 | ||||||||||||
25.0 | % | 17.20 | 18.60 | 19.99 | 21.38 | 22.77 | 24.16 |
Comparable Transaction Multiples | ||||||
Fort Orange /Chemung Financial | Comparable Transactions | |||||
Transaction price/Book value | 128 | % | 147 | % | ||
Transaction price/Tangible book value | 128 | % | 153 | % | ||
Transaction price/Last twelve months earnings per share | 25.4 | x | 23.4 | x | ||
Core Deposit Premium | 4.5 | % | 5.4 | % | ||
Premium to market | 68 | % | 54 | % |
GAAP Basis Accretion / (Dilution) (1) | ||||
2011 Estimated EPS | $ | 0.18 | ||
2012 Estimated EPS �� | $ | 0.25 | ||
2013 Estimated EPS | $ | 0.21 |
a. | change any provision of its certificate of incorporation or bylaws; | |
b. | change its number of authorized or issued shares of common stock or preferred stock or issue or grant any option, warrant, call, commitment, subscription, right or agreement of any character relating to its authorized or issued capital stock or any securities convertible into shares of such stock, or split, combine or reclassify any shares of capital stock, or declare, set aside or pay any dividend or other distribution in respect of capital stock, or redeem or otherwise acquire any shares of its common stock; | |
c. | grant any severance or termination pay (other than pursuant to its current policies, written agreements or practices) to, or enter into or amend any employment agreement with, or increase the compensation of, any employee, officer or director, except for routine periodic increases, individually and in the aggregate, in accordance with past practice or hire any employee other than the hiring of at-will employees at an annual rate of salary not to exceed $50,000 to fill vacancies that may arise from time to time in the ordinary course of business; |
d. | merge or consolidate (or merge or consolidate Capital Bank) with any other corporation or depository institution, sell or lease all or any substantial portion of its or Capital Bank’s assets or business, make any substantial business or asset acquisition other than in connection with the collection of any loan or credit arrangement between Capital Bank and any other parties, enter into a purchase and assumption transaction with respect to deposits and liabilities, or file an application for a certificate of authority to establish a new branch office; | |
e. | sell, gift, transfer, hypothecate, pledge, encumber or otherwise dispose of its common stock or preferred stock or the common stock of Capital Bank or any of its or Capital Bank’s respective assets, properties or businesses (other than in connection with deposits, repurchase agreements, acceptances, “treasury tax and loan” accounts established in the ordinary course of business and transactions in “federal funds”) other than in the ordinary course of business consistent with past practice, or modify in any material way the manner in which it or Capital Bank has heretofore conducted business or enter into any new line of business, incur or guaranty any indebtedness for borrowed money except in the ordinary course of business consistent with past practice; | |
f. | take any action which would result in any of its representations and warranties in the Merger Agreement becoming untrue as of any date after the date hereof or in any of the conditions set forth in Article VII of the Merger Agreement not being satisfied; | |
g. | waive, release, grant or transfer any rights of value or modify or change in any material respect any existing agreement to which it or Capital Bank is a party, other than in the ordinary course of business, consistent with past practice; | |
h. | implement any pension, retirement, profit sharing, bonus, welfare benefit or similar plan or arrangement that was not in effect on the date of the Merger Agreement, or amend any existing plan or arrangement except to the extent such amendments do not result in an increase in cost or as are required under applicable law; | |
i. | compromise, extend or restructure any loan with an unpaid principal balance exceeding $250,000 without Chemung Financial’s consent, provided, that with respect to such compromise, extension or restructure, Chemung Financial shall inform Fort Orange of its consent or objection within five (5) business days after Fort Orange’s request for such consent. Should Chemung Financial fail to respond to such request within such time, it shall be deemed to have granted its consent to such request; | |
j. | sell, exchange or otherwise dispose of any investment securities prior to scheduled maturity or loans that are held for sale; | |
k. | purchase any security for its investment portfolio not rated “A” or higher by either Standard & Poor’s Corporation or Moody’s Investor Services, Inc.; | |
l. | except as consistent with past practice, make any loan or other credit facility commitment (including without limitation, lines of credit and letters of credit) to any affiliate, or compromise, extend, renew or modify any such commitment outstanding; | |
m. | except as consistent with past practice, enter into, renew, extend or modify any other transaction with any affiliate; | |
n. | enter into any interest rate swap or similar commitment, derivative security, collateralized debt obligation or any other commitment, agreement or arrangement which is not consistent with past practice and which increases its or Capital Bank’s credit or interest rate risk over the levels existing on October 14, 2010; | |
o. | change its accounting method, practice or principles of accounting except as may be required by GAAP or by a regulatory authority; |
p. | except for accepting deposits and selling certificates of deposit in the ordinary course of business, enter into any contract for an amount in excess of $25,000; | |
q. | make any capital expenditure in excess of $25,000; | |
r. | enter into any new line of business; | |
s. | take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in the Merger Agreement being or becoming untrue or materially misleading or in any of the conditions to the Merger not being satisfied, or in a violation of any provision of the Merger Agreement or the bank merger agreement, except, in every case, as may be required by applicable laws; or | |
t. | agree to do any of the foregoing. |
a. | the due organization, valid existence, and good standing of each of Fort Orange and Chemung Financial and their respective subsidiaries; | |
b. | description of the capitalization of each of Fort Orange and Chemung Financial and the valid issuance of their capital stock, and related matters; | |
c. | ownership of the securities of each of Fort Orange’s and Chemung Financial’s respective subsidiaries and other investments; | |
d. | requisite corporate power and authority of each of Fort Orange and Chemung Financial and their subsidiaries to execute, deliver and perform the Merger Agreement and all related transactions, and to conduct their respective businesses and own their respective properties and assets; | |
e. | the absence of any required regulatory filings or governmental consents with certain exceptions, and the absence of any conflicts with and violations of law and various documents, contracts and agreements; | |
f. | the absence, since December 31, 2009, of events or circumstances that have had or are reasonably likely to have a materially adverse effect on either Fort Orange or Chemung Financial; | |
g. | the absence of adverse material litigation against either Fort Orange or Chemung Financial or any of their respective subsidiaries or to which Fort Orange, Chemung Financial or any of their respective subsidiaries is a party; | |
h. | the absence of regulatory orders or investigations of either Fort Orange or Chemung Financial or any of their subsidiaries; | |
i. | compliance with all applicable laws and regulations by each of Fort Orange and Chemung Financial and its respective subsidiaries; | |
j. | the accuracy and completeness of the statements of fact made in filings with governmental entities in connection with the Merger Agreement; |
k. | receipt of a written opinion by each of Fort Orange and Chemung Financial from their respective financial advisors in relation to the fairness of the merger consideration; | |
l. | the filing of tax returns, payment of taxes and other tax matters; | |
m. | compliance with applicable environmental laws; | |
n. | accurate maintenance of each of Fort Orange’s and Chemung Financial’s and their respective subsidiaries’ books and records; | |
o. | proper filing of reports and statements required to be filed with the parties’ regulators, and the compliance of such reports with applicable rules and regulations; | |
p. | adequacy of reserves and other allowance for losses; | |
q. | absence of any reason to believe that any conditions exist that would reasonably be expected to prevent the Merger from qualifying as a reorganization; | |
r. | good and marketable title to all assets; and | |
s. | compliance with the Bank Secrecy Act and related laws and regulations. | |
In addition to the above, Fort Orange represented and warranted as to the following: | ||
a. | maintenance of adequate insurance coverage; | |
b. | the absence of certain off-balance sheet liabilities; | |
c. | validity, enforceability and absence of breach under certain material contracts; | |
d. | validity, enforceability and absence of breach under, and compliance with, prudent business practices and applicable laws and regulations of certain derivative contracts and transactions; | |
e. | compliance of Fort Orange’s benefit plans with applicable law; | |
f. | labor and employee benefit matters; | |
g. | compliance of the Merger Agreement and the Merger with applicable “business combination; and similar anti-takeover laws; | |
h. | absence of intellectual property infringements or violations; | |
i. | absence of impediments under the securities laws and regulations with regard to the activities of broker-dealers of the company or its subsidiaries; | |
j | existence of effective internal controls over financial reporting; | |
k. | certain fiduciary commitments and duties; | |
l. | the composition of Fort Orange’s loan portfolios; | |
m. | absence of certain transactions with affiliates; | |
n. | absence of any fees payable by Fort Orange or any of its subsidiaries to brokers, finders or financial advisors, other than Fin Pro, in connection with the Merger; | |
o. | adequacy of security measures with regards to Fort Orange’s information technology systems and absence of any viruses, Trojan horses, worms other hardware or software components that permit unauthorized access, disablement or erasure of data by any third party; |
p. | absence of any agreements with, or obligations to or claims by officers, directors, employees or certain other persons for indemnification other than as set forth in the disclosure schedule to the Merger Agreement; and | |
q. | the execution and delivery by Fort Orange’s directors of certain voting and non-competition agreements, as described elsewhere in this joint proxy statement/prospectus. |
● | sufficiency of funds as of the Effective Time to pay the aggregate Cash Consideration required in connection with the Merger; and | |
● | compliance of reports and financial statements filed by Chemung Financial with the SEC relating to relevant securities laws and regulations and the accuracy of such reports and financial statements. |
i. | all action required to be taken by or on the part of Chemung Financial, Chemung Canal, Fort Orange and Capital Bank to authorize the execution, delivery and performance of the Merger Agreement and bank plan of merger and the transactions contemplated by the Merger Agreement shall have been duly and validly taken and Fort Orange and Chemung Financial shall have received evidence of such authorizations; | |
ii. | all obligations of Chemung Financial and Fort Orange under the Merger Agreement shall have been performed and complied with in all material respects prior to the Effective Time, and representations and warranties made by both parties shall be true and correct in all material respects as of the closing of the Merger, except under limited circumstances, including where the facts which cause the representation or warranty to not be true would not constitute a material adverse effect on Chemung Financial’s and Chemung Canal’s or Fort Orange’s and Capital Bank’s assets, business, financial condition or results of operations; | |
iii | the receipt of all regulatory approvals necessary to complete the transactions contemplated by the Merger Agreement and the bank plan of merger, and the expiration or termination, as applicable, of all applicable notices and statutory waiting periods and absence of any requirement that would restrict Chemung Financial in its operations or have a material adverse effect on Chemung Financial following completion of the Merger; | |
iv. | absence of any order, decree or injunction of a governmental entity which enjoins or prohibits the consummation of the Merger or the bank merger; | |
v. | effectiveness of Chemung Financial’s registration statement of which this joint proxy statement/prospectus is a part and absence of any stop order suspending its effectiveness or initiation of proceedings for that purpose that have not been withdrawn; | |
vi. | receipt by Chemung Financial and Fort Orange of legal opinions from their respective counsels in form and substance satisfactory to each other; | |
vii. | approval of the Merger by the shareholders of both Fort Orange and Chemung Financial; | |
viii. | execution and delivery of the Voting Agreement by Mr. Cureau shall have been obtained; | |
ix. | execution and delivery of the settlement and release agreement, in form satisfactory to Chemung Financial, by Fort Orange and Capital Bank, on the one hand, and Mr. Cureau, on the other hand; | |
x. | there shall be a valid enforceable lease for Capital Bank’s Wolf Road branch providing for a lease term up to and including December 31, 2011, with two (2) one-year renewal options at an annual rent amount satisfactory to Chemung Financial, and Chemung Financial shall have received an estoppel certificate executed by the landlord for each of Capital Bank’s branch offices; | |
xi. | Chemung Financial shall have provided to Fort Orange satisfactory evidence of insurance coverage for the directors and officers of Fort Orange and Capital Bank, as required by the Merger Agreement; and | |
xii. | approval of the shares of Chemung Financial common stock to be issued as the Stock Consideration in the Merger for quotation on the OTCBB. |
● | would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States; or | |
● | would substantially lessen competition in any part of the United States, or tend to create a monopoly or result in a restraint of trade, unless the Federal Reserve finds that the anti-competitive effects of the transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served. |
● | the financial and managerial resources and future prospects of both companies and their respective subsidiary bank; | |
● | the convenience and needs of the communities to be served; | |
● | applicable overall capital and safety and soundness standards; | |
● | the effectiveness of both companies in combating money laundering activities; and | |
● | each company’s regulatory status, including legal and regulatory compliance. |
● | Fort Orange receives an unsolicited bona fide acquisition proposal from a person other than Chemung Financial; | |
● | the Fort Orange board of directors concludes in good faith (1) that such acquisition proposal constitutes a superior competing proposal or would reasonably be likely to result in a superior competing proposal and (2) that, after considering the advice of outside counsel, failure to take such actions would result in a violation of the directors’ fiduciary duties under Delaware law; and Fort Orange has notified Chemung Financial of its receipt of such proposal, Fort Orange may, and may permit its subsidiaries and its subsidiaries’ representatives to, provide confidential information and participate in negotiations or discussions with respect to such superior competing proposal (subject to the entry into a confidentiality agreement substantially similar to its confidentiality agreement with Chemung Financial). A superi or competing proposal means a bona fide written acquisition proposal to acquire in any manner 50% or more of the voting power in, or all or substantially all of the business, assets or deposits of, Fort Orange, that the Fort Orange board of directors concludes in good faith to be more favorable from a financial point of view to its shareholders than the Merger (1) after receiving the advice of its financial advisor, (2) after taking into account the likelihood of completion of such transaction on the terms set forth therein (as compared to, and with due regard for, the terms in the Merger Agreement) and (3) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal and any other relevant factors permitted under applicable law. |
● | by mutual agreement of Chemung Financial and Fort Orange; | |
● | upon 15 days’ written notice by the non-breaching party, if there has occurred and is continuing a breach by the other party of any representation, warranty or covenant and such breach cannot be or has not been cured within 15 days after the giving of written notice to the breaching party of such breach; | |
● | by Chemung Financial or Fort Orange, if the other party (1) fails to hold its special meeting within the time frame specified in the Merger Agreement; or (2) submits the Merger Agreement to its shareholders without a recommendation for approval or makes an adverse recommendation, | |
● | by Fort Orange, in order to enter into an agreement with respect to a Superior Competing Proposal (as defined in the Merger Agreement) or by Chemung Financial, in the event that Fort Orange enters into such an agreement; | |
● | by either party, if the Merger has not closed by the close of business on October 31, 2011 (or December 31, 2011 if required governmental approvals have not been received by that date), unless the party seeking to terminate the Merger Agreement caused or materially contributed to the failure of the Merger to occur before such date; | |
● | by either party, if a required governmental approval is denied by final, non-appealable action, unless the party seeking to terminate the Merger Agreement failed to comply with the Merger Agreement and such failure caused or materially contributed to such action; |
● | by Fort Orange if: (i) at the Effective Time, the Closing Price is less than $17.85 per share; and (ii) during the period between October 15, 2010 and the Effective Time the per share price of Chemung Financial stock shall have underperformed the Index by 20%, The term “underperformed” means that the per share price shall have declined by more than an additional 20% over the performance of an index of the stock prices of the common stock of the publicity traded banks headquartered in New York and Pennsylvania with total assets between $500 million and $4 billion during such period. For example, if the Index declined 15% during the period, Chemung Financial Stock must have declined by more than 35% to constitute underperformance; or | |
● | by Chemung Financial if, at the end of the month immediately preceding the closing, the Fort Orange Delinquent Loans (as defined in the Merger Agreement) are $10.5 million or greater. |
● | a citizen or resident of the United States; | |
● | a corporation or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any State or the District of Columbia; | |
● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or | |
● | a trust, the substantial decisions of which are controlled by one or more U.S. persons and which is subject to the primary supervision of a U.S. court, or a trust that validly has elected under applicable Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes. |
Year Ending December 31, 2011 | High | Low | Dividends Per Share | |||||||||
First quarter (through February 9, 2011) | $ | 7. 50 | $ | 7. 00 | — | |||||||
Year Ending December 31, 2010 | High | Low | Dividends Per Share | |||||||||
Fourth quarter | $ | 7.75 | $ | 4.49 | — | |||||||
Third quarter | $ | 5.00 | $ | 4.40 | — | |||||||
Second quarter | $ | 6.00 | $ | 5.00 | — | |||||||
First quarter | $ | 5.10 | $ | 3.43 | — |
Year Ending December 31, 2009 | High | Low | Dividends Per Share | |||||||||
Fourth quarter | $ | 4.48 | $ | 3.81 | — | |||||||
Third quarter | $ | 5.00 | $ | 4.43 | — | |||||||
Second quarter | $ | 4.77 | $ | 4.29 | — | |||||||
First quarter | $ | 5.24 | $ | 2.38 | — |
Year Ending December 31, 2008 | High | Low | Dividends Per Share | |||||||||
Fourth quarter | $ | 5.24 | $ | 3.33 | — | |||||||
Third quarter | $ | 5.48 | $ | 4.81 | — | |||||||
Second quarter | $ | 8.16 | $ | 5.15 | — | |||||||
First quarter | $ | 6.58 | $ | 5.44 | — |
Year Ending December 31, 2011 | High | Low | Dividends Per Share | |||||||||
First quarter (through February 9, 2011) | $ | 24. 25 | $ | 2 1.77 | $ | 0.25 | ||||||
Year Ending December 31, 2010 | High | Low | Dividends Per Share | |||||||||
Fourth quarter | $ | 24.00 | $ | 20.50 | $ | 0.25 | ||||||
Third quarter | $ | 22.00 | $ | 20.15 | $ | 0.25 | ||||||
Second quarter | $ | 21.55 | $ | 19.90 | $ | 0.25 | ||||||
First quarter | $ | 21.40 | $ | 19.65 | $ | 0.25 |
Year Ending December 31, 2009 | High | Low | Dividends Per Share | |||||||||
Fourth quarter | $ | 23.00 | $ | 19.55 | $ | 0.25 | ||||||
Third quarter | $ | 21.25 | $ | 18.75 | $ | 0.25 | ||||||
Second quarter | $ | 23.00 | $ | 17.25 | $ | 0.25 | ||||||
First quarter | $ | 22.00 | $ | 15.00 | $ | 0.25 |
Year Ending December 31, 2008 | High | Low | Dividends Per Share | |||||||||
Fourth quarter | $ | 25.10 | $ | 19.55 | $ | 0.25 | ||||||
Third quarter | $ | 26.30 | $ | 22.15 | $ | 0.25 | ||||||
Second quarter | $ | 28.25 | $ | 25.50 | $ | 0.25 | ||||||
First quarter | $ | 28.25 | $ | 24.35 | $ | 0.25 |
(Unaudited) | ||||||||||||||||||||||||||||
As of or for the Nine Months | As of or for the Years | |||||||||||||||||||||||||||
Ended September 30, | Ended December 31, | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||
(Dollar amounts in thousands, except per share data) | ||||||||||||||||||||||||||||
Summarized balance sheet data: | ||||||||||||||||||||||||||||
Total assets | $ | 972,700 | $ | 968,638 | $ | 975,919 | $ | 838,318 | $ | 788,874 | $ | 739,050 | $ | 718,039 | ||||||||||||||
Loans, net of deferred fees and costs, and unearned income | 590,519 | 605,219 | 595,853 | 565,185 | 539,522 | 477,664 | 418,685 | |||||||||||||||||||||
Investment securities | 253,967 | 236,308 | 243,143 | 199,694 | 169,801 | 191,696 | 241,566 | |||||||||||||||||||||
Federal Home Loan Bank and Federal Reserve Bank stock | 3,339 | 3,281 | 3,281 | 3,155 | 5,902 | 3,605 | 5,356 | |||||||||||||||||||||
Deposits | 803,511 | 794,019 | 801,063 | 656,909 | 572,600 | 585,092 | 524,937 | |||||||||||||||||||||
Securities sold under agreements to repurchase | 43,766 | 55,061 | 54,263 | 63,413 | 31,212 | 35,024 | 60,856 | |||||||||||||||||||||
Federal Home Loan Bank advances | 20,000 | 20,000 | 20,000 | 20,000 | 82,400 | 27,900 | 40,800 | |||||||||||||||||||||
Stockholders’ equity | 97,293 | 87,004 | 90,086 | 83,007 | 88,115 | 82,298 | 81,178 | |||||||||||||||||||||
Summarized earnings data: | ||||||||||||||||||||||||||||
Net interest income | $ | 25,972 | $ | 24,516 | $ | 33,155 | $ | 30,668 | $ | 25,936 | $ | 24,546 | $ | 24,737 | ||||||||||||||
Provision for loan losses | 1,125 | 2,075 | 2,450 | 1,450 | 1,255 | 125 | 1,300 | |||||||||||||||||||||
Net interest income after provision for loan losses | 24,847 | 22,441 | 30,705 | 29,218 | 24,681 | 24,421 | 23,437 | |||||||||||||||||||||
Other operating income: | ||||||||||||||||||||||||||||
Trust and investment services income | 6,257 | 5,999 | 8,089 | 6,834 | 6,345 | 4,901 | 5,095 | |||||||||||||||||||||
Securities gains, net | 451 | 556 | 785 | 589 | 10 | 27 | 6 | |||||||||||||||||||||
Trust preferred impairment | (393 | ) | (1,380 | ) | (2,242 | ) | (803 | ) | — | — | — | |||||||||||||||||
Net gains on sales of loans held for sale | 166 | 197 | 259 | 114 | 98 | 103 | 107 | |||||||||||||||||||||
Other income | 6,426 | 6,572 | 8,819 | 10,404 | 10,176 | 9,281 | 7,806 | |||||||||||||||||||||
Total other operating income | 12,907 | 11,944 | 15,710 | 17,138 | 16,629 | 14,312 | 13,014 | |||||||||||||||||||||
Other operating expenses | 27,543 | 29,000 | 39,321 | 33,968 | 30,521 | 29,523 | 27,315 |
(Unaudited) | ||||||||||||||||||||||||||||
As of or for the Nine Months | As of or for the Years | |||||||||||||||||||||||||||
Ended September 30, | Ended December 31, | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||
(Dollar amounts in thousands, except per share data) | ||||||||||||||||||||||||||||
Income before income taxes | 10,211 | 5,385 | 7,094 | 12,388 | 10,789 | 9,210 | 9,136 | |||||||||||||||||||||
Income taxes | 3,157 | 1,440 | 1,861 | 4,034 | 3,530 | 2,621 | 2,546 | |||||||||||||||||||||
Net income | $ | 7,054 | $ | 3,945 | $ | 5,233 | $ | 8,354 | $ | 7,259 | $ | 6,589 | $ | 6,590 | ||||||||||||||
Selected per share data on shares of common stock | ||||||||||||||||||||||||||||
Net income per share | $ | 1.96 | $ | 1.10 | $ | 1.45 | $ | 2.32 | $ | 2.02 | $ | 1.81 | $ | 1.79 | ||||||||||||||
Dividends declared | $ | 0.75 | $ | 0.75 | $ | 1.00 | $ | 1.00 | $ | 0.97 | $ | 0.96 | $ | 0.96 | ||||||||||||||
Tangible book value | $ | 22.92 | $ | 19.82 | $ | 20.64 | $ | 18.96 | $ | 22.50 | $ | 22.09 | $ | 21.35 | ||||||||||||||
Market price | $ | 21.25 | $ | 20.20 | $ | 21.25 | $ | 20.40 | $ | 27.25 | $ | 32.90 | $ | 30.25 | ||||||||||||||
Average shares outstanding | 3,605 | 3,602 | 3,603 | 3,594 | 3,595 | 3,642 | 3,689 | |||||||||||||||||||||
Selected financial ratios and other data: | ||||||||||||||||||||||||||||
Return on average assets | 0.95 | % | 0.58 | % | 0.56 | % | 1.00 | % | 0.95 | % | 0.91 | % | 0.92 | % | ||||||||||||||
Return on average tier 1 equity (1) | 12.12 | % | 7.05 | % | 6.97 | % | 11.45 | % | 9.53 | % | 8.60 | % | 8.83 | % | ||||||||||||||
Dividend yield | 4.71 | % | 4.95 | % | 4.71 | % | 4.90 | % | 3.67 | % | 2.92 | % | 3.17 | % | ||||||||||||||
Dividend payout ratio | 37.42 | % | 66.96 | % | 67.30 | % | 42.07 | % | 47.02 | % | 51.94 | % | 52.68 | % | ||||||||||||||
Total capital to risk adjusted assets | 14.27 | % | 12.94 | % | 13.22 | % | 13.58 | % | 15.78 | % | 17.11 | % | 18.06 | % | ||||||||||||||
Tier 1 capital to risk adjusted assets | 12.68 | % | 11.36 | % | 11.61 | % | 11.97 | % | 13.84 | % | 15.12 | % | 16.02 | % | ||||||||||||||
Tier 1 leverage ratio | 8.29 | % | 7.91 | % | 7.89 | % | 8.94 | % | 10.14 | % | 10.80 | % | 10.71 | % | ||||||||||||||
Loans to deposits | 73.49 | % | 76.22 | % | 74.38 | % | 86.04 | % | 94.22 | % | 81.64 | % | 79.76 | % | ||||||||||||||
Allowance for loan losses to total loans | 1.64 | % | 1.68 | % | 1.67 | % | 1.61 | % | 1.57 | % | 1.67 | % | 2.34 | % | ||||||||||||||
Allowance for loan losses to non-performing loans | 86.57 | % | 78.48 | % | 72.20 | % | 200.40 | % | 236.58 | % | 221.15 | % | 106.97 | % | ||||||||||||||
Non-performing loans to total loans | 1.89 | % | 2.14 | % | 2.32 | % | 0.80 | % | 0.66 | % | 0.76 | % | 2.18 | % | ||||||||||||||
Net interest rate spread | 3.53 | % | 3.50 | % | 3.49 | % | 3.46 | % | 2.88 | % | 2.88 | % | 3.17 | % | ||||||||||||||
Net interest margin | 3.82 | % | 3.91 | % | 3.89 | % | 4.05 | % | 3.71 | % | 3.69 | % | 3.74 | % | ||||||||||||||
Efficiency ratio (2) | 69.24 | % | 77.33 | % | 78.40 | % | 68.11 | % | 70.03 | % | 74.77 | % | 71.09 | % |
(1) | Average Tier 1 Equity is average shareholders’ equity less average goodwill and intangible assets and average accumulated other comprehensive income/loss. |
(2) | Efficiency ratio is operating expenses adjusted for amortization of intangible assets and stock donations divided by net interest income plus other operating income adjusted for non-taxable gains on stock donations. |
(Unaudited) | ||||||||||||||||||||||||||||
As of or for the Nine Months | As of or for the Years Ended | |||||||||||||||||||||||||||
Ended September 30, | December 31, | |||||||||||||||||||||||||||
2010 (1) | 2009 (1) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||
(Dollar amounts in thousands, except per share data) | ||||||||||||||||||||||||||||
Selected financial condition data: | ||||||||||||||||||||||||||||
Total assets | $ | 270,872 | $ | 267,258 | $ | 286,668 | $ | 248,645 | $ | 230,601 | $ | 195,990 | $ | 155,884 | ||||||||||||||
Loans and leases, net | 186,487 | 193,227 | 196,462 | 209,502 | 185,043 | 164,306 | 116,201 | |||||||||||||||||||||
Securities available for sale | 34,051 | 26,447 | 24,903 | 25,813 | 20,394 | 25,339 | 33,047 | |||||||||||||||||||||
Securities held to maturity | 9,057 | 2,944 | 2,719 | 3,586 | — | — | — | |||||||||||||||||||||
Deposits | 210,179 | 200,511 | 222,258 | 187,601 | 181,975 | 169,585 | 139,416 | |||||||||||||||||||||
Borrowings | 36,522 | 43,758 | 41,437 | 38,504 | 26,852 | 8,369 | — | |||||||||||||||||||||
Stockholders’ equity | 22,641 | 21,468 | 21,530 | 20,863 | 20,034 | 16,211 | 15,391 | |||||||||||||||||||||
Common shares outstanding (period end) (2) | 3,701,064 | 3,703,417 | 3,703,615 | 3,714,317 | 3,726,315 | 2,929,556 | 2,917,859 | |||||||||||||||||||||
Selected operations data: | ||||||||||||||||||||||||||||
Interest income | $ | 10,136 | $ | 9,617 | $ | 12,918 | $ | 13,047 | $ | 13,414 | $ | 10,678 | $ | 7,420 | ||||||||||||||
Interest expense | 3,239 | 4,150 | 5,435 | 6,456 | 7,505 | 5,682 | 3,300 | |||||||||||||||||||||
Net interest income | 6,897 | 5,467 | 7,483 | 6,591 | 5,909 | 4,996 | 4,120 | |||||||||||||||||||||
Provision for loan losses | 1,250 | 885 | 1,405 | 455 | 250 | 150 | 55 | |||||||||||||||||||||
Net interest income after provision for loan losses | 5,647 | 4,582 | 6,078 | 6,136 | 5,659 | 4,846 | 4,065 | |||||||||||||||||||||
Non-interest income | 441 | 617 | 916 | 168 | 129 | 374 | 172 | |||||||||||||||||||||
Non-interest expenses | 4,573 | 4,321 | 5,710 | 5,286 | 4,811 | 4,201 | 3,595 | |||||||||||||||||||||
Income before income taxes | 1,515 | 878 | 1,284 | 1,018 | 977 | 1,019 | 642 | |||||||||||||||||||||
Income taxes | 585 | 353 | 514 | 408 | 377 | 444 | 277 | |||||||||||||||||||||
Net income | 930 | 525 | 770 | 610 | 600 | 575 | 365 | |||||||||||||||||||||
Dividends on convertible preferred stock | — | — | — | — | (5 | ) | (59 | ) | (269 | ) | ||||||||||||||||||
Income attributable to common shares | $ | 930 | $ | 525 | $ | 770 | $ | 610 | $ | 595 | $ | 516 | $ | 96 | ||||||||||||||
Stock and related per share data (2): | ||||||||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||
Basic | $ | 0.25 | $ | 0.14 | $ | 0.21 | $ | 0.16 | $ | 0.18 | $ | 0.17 | $ | 0.06 | ||||||||||||||
Diluted | $ | 0.25 | $ | 0.14 | $ | 0.21 | $ | 0.16 | $ | 0.18 | $ | 0.17 | $ | 0.06 | ||||||||||||||
Cash dividends on common stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Book value per common share | $ | 6.11 | $ | 5.79 | $ | 5.80 | $ | 5.61 | $ | 5.37 | $ | 4.82 | $ | 4.56 | ||||||||||||||
Market price of common stock: | ||||||||||||||||||||||||||||
High (during period) | $ | 6.00 | $ | 5.24 | $ | 5.24 | $ | 8.16 | $ | 8.62 | $ | 9.07 | $ | 7.26 | ||||||||||||||
Low (during period) | $ | 3.43 | $ | 2.38 | $ | 2.38 | $ | 3.33 | $ | 5.90 | $ | 6.80 | $ | 5.22 | ||||||||||||||
Close (period end) | $ | 4.47 | $ | 4.43 | $ | 4.48 | $ | 4.52 | $ | 6.35 | $ | 8.12 | $ | 6.58 | ||||||||||||||
Selected financial ratios and other data: | ||||||||||||||||||||||||||||
Performance ratios (3): | ||||||||||||||||||||||||||||
Return on average assets | 0.44 | % | 0.27 | % | 0.29 | % | 0.26 | % | 0.29 | % | 0.32 | % | 0.25 | % | ||||||||||||||
Return on average equity | 5.59 | % | 3.30 | % | 3.61 | % | 3.00 | % | 3.54 | % | 3.66 | % | 3.19 | % |
(Unaudited) | ||||||||||||||||||||||||||||
As of or for the Nine Months | As of or for the Years Ended | |||||||||||||||||||||||||||
Ended September 30, | December 31, | |||||||||||||||||||||||||||
2010 (1) | 2009 (1) | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||
(Dollar amounts in thousands, except per share data) | ||||||||||||||||||||||||||||
Net interest rate spread (tax-equivalent) | 3.16 | % | 2.51 | % | 2.57 | % | 2.33 | % | 2.18 | % | 2.17 | % | 2.44 | % | ||||||||||||||
Net interest margin (tax-equivalent) | 3.42 | % | 2.90 | % | 2.93 | % | 2.88 | % | 2.86 | % | 2.85 | % | 2.93 | % | ||||||||||||||
Efficiency ratio (4) | 63.94 | % | 75.03 | % | 72.91 | % | 78.30 | % | 79.68 | % | 80.00 | % | 84.31 | % | ||||||||||||||
Dividend payout ratio (common stock related) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||||
Capital ratios: | ||||||||||||||||||||||||||||
Total risk-based capital (5) | 12.68 | % | 11.94 | % | 11.88 | % | 11.02 | % | 10.26 | % | 11.20 | % | 14.53 | % | ||||||||||||||
Tier 1 risk-based capital (5) | 11.43 | % | 10.87 | % | 10.81 | % | 10.06 | % | 9.32 | % | 10.22 | % | 13.30 | % | ||||||||||||||
Leverage ratio (5) | 7.89 | % | 7.74 | % | 7.62 | % | 8.41 | % | 7.61 | % | 8.16 | % | 9.75 | % | ||||||||||||||
Ratio of stockholders’ equity to total assets | 8.36 | % | 8.03 | % | 7.51 | % | 8.39 | % | 8.69 | % | 8.27 | % | 9.87 | % | ||||||||||||||
Asset quality ratios: | ||||||||||||||||||||||||||||
Total non-performing loans | $ | 2,503 | $ | 1,964 | $ | 1,445 | $ | 1,657 | $ | 1,619 | $ | 734 | $ | 668 | ||||||||||||||
Other non-performing assets | — | — | — | — | — | — | — | |||||||||||||||||||||
Allowance for loan losses | 3,151 | 2,075 | 2,113 | 1,930 | 1,715 | 1,510 | 1,397 | |||||||||||||||||||||
Net loan charge-offs (recoveries) | 211 | 740 | 1,223 | 240 | 45 | 37 | (19 | ) | ||||||||||||||||||||
Total non-performing loans to total loans | 1.32 | % | 1.01 | % | 0.73 | % | 0.78 | % | 0.87 | % | 0.44 | % | 0.57 | % | ||||||||||||||
Allowance for loan losses to non-performing loans | 125.89 | % | 105.65 | % | 146.23 | % | 116.48 | % | 105.93 | % | 205.72 | % | 209.13 | % | ||||||||||||||
Allowance for loan losses to total loans | 1.66 | % | 1.06 | % | 1.06 | % | 0.91 | % | 0.92 | % | 0.91 | % | 1.19 | % | ||||||||||||||
Net charge-offs (recoveries) to average loans | 0.14 | % | 0.49 | % | 0.61 | % | 0.13 | % | 0.03 | % | 0.03 | % | (0.02 | %) | ||||||||||||||
Other data: | ||||||||||||||||||||||||||||
Number of branch offices | 5 | 5 | 5 | 5 | 5 | 4 | 3 | |||||||||||||||||||||
Full-time equivalent employees | 40 | 40 | 38 | 37 | 37 | 31 | 22 |
(1) | Annualized where appropriate. |
(2) | All share and per share information has been retroactively adjusted for the 5% stock dividends in May 2010 and May 2008. |
(3) | Computed using daily averages. |
(4) | The efficiency ratio represents the ratio of non-interest expenses, excluding any significant non-recurring expenses, to the sum of net interest income and non-interest income, excluding net gains or losses on the sale of securities and any significant non-recurring income. The efficiency ratio is not a financial measurement required by GAAP. However, the efficiency ratio is used by Fort Orange management in its assessment of financial performance specifically as it relates to non-interest expense control and Fort Orange management believes such information is useful to investors in evaluating company performance. |
(5) | Ratio presented for Capital Bank & Trust Company. |
Interest Rate Sensitivity Analysis | ||||||
Immediate Shock in Interest Rates | Percentage Change in | |||||
(in basis points): | Net Interest Income | |||||
- | 100 | (4.5 | %) | |||
+ | 100 | 3.0 | % | |||
+ | 200 | 6.0 | % | |||
+ | 300 | 8.8 | % | |||
+ | 400 | 10.8 | % |
Nine Months Ended September 30, 2010 | Nine Months Ended September 30, 2009 | |||||||||||||||||||||
Average Balance | Interest Income /Expense | Average Yield /Rate | Average Balance | Interest Income /Expense | Average Yield /Rate | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||
Securities available for sale and securities held to maturity: | ||||||||||||||||||||||
Taxable | $ | 36,585 | $ | 935 | 3.41 | % | $ | 28,728 | $ | 1,003 | 4.66 | % | ||||||||||
Tax-exempt | 1,559 | 41 | 3.51 | — | — | — | ||||||||||||||||
Total securities | 38,144 | 976 | 3.41 | 28,728 | 1,003 | 4.66 | ||||||||||||||||
Loans: | ||||||||||||||||||||||
Commercial, commercial real estate and construction | 155,483 | 7,364 | 6.25 | 156,489 | 6,612 | 5.57 | ||||||||||||||||
Residential real estate | 31,109 | 1,173 | 5.03 | 37,572 | 1,455 | 5.16 | ||||||||||||||||
Home equity and consumer | 7,448 | 197 | 3.53 | 6,995 | 179 | 3.41 | ||||||||||||||||
Total loans | 194,040 | 8,734 | 6.00 | 201,056 | 8,246 | 5.47 | ||||||||||||||||
Federal Home Loan Bank stock | 2,081 | 73 | 4.69 | 1,802 | 53 | 3.93 | ||||||||||||||||
Short-term investments | 35,368 | 366 | 1.38 | 20,217 | 315 | 2.08 | ||||||||||||||||
Total earning assets | 269,633 | 10,149 | 5.00 | 251,803 | 9,617 | 5.07 | ||||||||||||||||
Cash and due from banks | 8,758 | 5,048 | ||||||||||||||||||||
Allowance for loan losses | (2,697 | ) | (2,052 | ) | ||||||||||||||||||
Other assets | 5,241 | 3,544 | ||||||||||||||||||||
Total assets | $ | 280,935 | $ | 258,343 | ||||||||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||
NOW accounts | $ | 33,791 | $ | 229 | 0.91 | % | $ | 22,541 | $ | 230 | 1.36 | % | ||||||||||
Money market accounts | 9,803 | 68 | 0.93 | 7,949 | 55 | 0.93 | ||||||||||||||||
Savings accounts | 68,292 | 514 | 1.01 | 59,869 | 722 | 1.61 | ||||||||||||||||
Time deposits | 77,577 | 1,527 | 2.63 | 86,230 | 2,278 | 3.53 | ||||||||||||||||
Total interest-bearing deposits | 189,463 | 2,338 | 1.65 | 176,589 | 3,285 | 2.49 | ||||||||||||||||
Short-term borrowings | 10,779 | 32 | 0.39 | 6,731 | 18 | 0.35 | ||||||||||||||||
Long-term borrowings | 33,775 | 869 | 3.39 | 32,524 | 847 | 3.43 | ||||||||||||||||
Total interest-bearing liabilities | 234,017 | 3,239 | 1.84 | 215,844 | 4,150 | 2.56 | ||||||||||||||||
Demand deposits | 23,038 | 19,500 | ||||||||||||||||||||
Other liabilities | 1,694 | 1,773 | ||||||||||||||||||||
Total liabilities | 258,749 | 237,117 | ||||||||||||||||||||
Stockholders’ equity | 22,186 | 21,226 | ||||||||||||||||||||
Total liabilities and equity | $ | 280,935 | $ | 258,343 | ||||||||||||||||||
Net interest income – tax-equivalent | 6,910 | 5,467 | ||||||||||||||||||||
Less: tax-equivalent adjustment | (13 | ) | — | |||||||||||||||||||
Net interest income, as reported | $ | 6,897 | $ | 5,467 | ||||||||||||||||||
Net interest spread | 3.16 | % | 2.51 | % | ||||||||||||||||||
Net interest margin | 3.42 | % | 2.90 | % |
Nine Months Ended September 30, 2010 vs. 2009 | ||||||||||||
Increase (Decrease) Due to | Total Increase/ | |||||||||||
Volume | Rate | (Decrease) | ||||||||||
Earnings assets: | (Dollars in thousands) | |||||||||||
Securities | $ | 278 | $ | (305 | ) | $ | (27 | ) | ||||
Loans | (276 | ) | 764 | 488 | ||||||||
Federal Home Loan Bank stock | 9 | 11 | 20 | |||||||||
Short-term investments | 181 | (130 | ) | 51 | ||||||||
Total earning assets | 192 | 340 | 532 | |||||||||
Interest-bearing liabilities: | ||||||||||||
NOW accounts | 91 | (92 | ) | (1 | ) | |||||||
Money market accounts | 13 | — | 13 | |||||||||
Savings accounts | 90 | (298 | ) | (208 | ) | |||||||
Time deposits | (212 | ) | (539 | ) | (751 | ) | ||||||
Short-term borrowings | 12 | 2 | 14 | |||||||||
Long-term borrowings | 32 | (10 | ) | 22 | ||||||||
Total interest-bearing liabilities | 26 | (937 | ) | (911 | ) | |||||||
Net interest income – tax-equivalent | $ | 166 | $ | 1,277 | $ | 1,433 |
At December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
U.S. agency securities | $ | — | $ | — | $ | 1,249 | $ | 1,265 | $ | 5,807 | $ | 5,803 | ||||||||||||
Agency mortgage-backed securities | 10,300 | 10,536 | 16,605 | 16,975 | 7,995 | 8,018 | ||||||||||||||||||
Agency collateralized mortgage obligations | 10,738 | 10,856 | 5,646 | 5,777 | 4,303 | 4,351 | ||||||||||||||||||
Private collateralized mortgage obligations | 1,273 | 1,247 | 1,883 | 7,796 | 2,263 | 2,222 | ||||||||||||||||||
Corporate debt securities | — | — | — | — | — | — | ||||||||||||||||||
SBA guaranteed loan pools | 2,278 | 2,264 | — | — | — | — | ||||||||||||||||||
Total | $ | 24,589 | $ | 24,903 | $ | 25,383 | $ | 25,813 | $ | 20,368 | $ | 20,394 | ||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
U.S. agency securities | $ | 1,540 | $ | 1,598 | $ | 2,045 | $ | 2,077 | $ | — | $ | — | ||||||||||||
Agency collateralized mortgage obligations | 1,179 | 1,200 | 1,541 | 1,537 | — | — | ||||||||||||||||||
Municipal securities | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 2,719 | $ | 2,798 | $ | 3,586 | $ | 3,614 | $ | — | $ | — |
At December 31, 2009 | One Year or Less | More Than One Year to Five Years | More Than Five Years to Ten Years | More Than Ten Years | Total | ||||||||||||||||||||||||||||||
(Dollars in thousands) | Carrying Value | Weighted- Average Yield | Carrying Value | Weighted- Average Yield | Carrying Value | Weighted- Average Yield | Carrying Value | Weighted- Average Yield | Carrying Value | Weighted- Average Yield | |||||||||||||||||||||||||
Securities available for sale: | |||||||||||||||||||||||||||||||||||
Agency mortgage-backed securities | $ | 380 | 3.89 | % | $ | 385 | 3.85 | % | $ | — | — | $ | 9,771 | 4.23 | % | $ | 10,536 | 4.21 | % | ||||||||||||||||
Agency collateralized mortgage obligations | — | — | — | — | 1,356 | 4.44 | % | 9,500 | 4.37 | % | 10,856 | 4.38 | % | ||||||||||||||||||||||
Private collateralized mortgage obligations | — | — | — | — | 323 | 4.47 | % | 924 | 4.58 | % | 1,247 | 4.55 | % | ||||||||||||||||||||||
SBA guaranteed loan pools | — | — | — | — | — | — | 2,264 | 0.82 | % | 2,264 | 0.82 | % | |||||||||||||||||||||||
Total | $ | 380 | 3.89 | % | $ | 385 | 3.85 | % | $ | 1,679 | 4.45 | % | $ | 22,459 | 3.96 | % | $ | 24,903 | 3.99 | % | |||||||||||||||
Securities held to maturity: | |||||||||||||||||||||||||||||||||||
U.S. agency securities | $ | — | — | $ | 1,540 | 3.85 | % | $ | — | — | $ | — | — | $ | 1,540 | 3.85 | % | ||||||||||||||||||
Agency collateralized mortgage obligations | — | — | 484 | 3.82 | % | — | — | 695 | 3.60 | % | 1,179 | 3.69 | % | ||||||||||||||||||||||
Total | $ | — | — | $ | 2,024 | 3.84 | % | $ | — | — | $ | 695 | 3.60 | % | $ | 2,719 | 3.78 | % |
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | ||||||||||||||||||||||||||||||
Commercial | $ | 69,003 | 34.8 | % | $ | 75,294 | 35.5 | % | $ | 63,667 | 34.1 | % | $ | 55,305 | 33.3 | % | $ | 40,314 | 34.2 | % | ||||||||||||||||||||
Commercial real estate | 59,011 | 29.8 | % | 43,704 | 20.7 | % | 38,473 | 20.6 | % | 37,182 | 22.4 | % | 34,796 | 29.6 | % | |||||||||||||||||||||||||
Construction and land | 28,063 | 14.1 | % | 44,777 | 21.2 | % | 41,422 | 22.2 | % | 30,273 | 18.3 | % | 14,526 | 12.4 | % | |||||||||||||||||||||||||
Residential real estate | 34,993 | 17.6 | % | 41,473 | 19.6 | % | 37,999 | 20.3 | % | 38,927 | 23.5 | % | 24,647 | 21.0 | % |
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | ||||||||||||||||||||||||||||||
Home equity | 7,223 | 3.6 | % | 5,825 | 2.8 | % | 4,905 | 2.6 | % | 3,798 | 2.3 | % | 3,069 | 2.6 | % | |||||||||||||||||||||||||
Consumer | 282 | 0.1 | % | 359 | 0.2 | % | 292 | 0.2 | % | 331 | 0.2 | % | 246 | 0.2 | % | |||||||||||||||||||||||||
Total loans receivable | 198,575 | 100.0 | % | 211,432 | 100.0 | % | 186,758 | 100.0 | % | 165,816 | 100.0 | % | 117,598 | 100.0 | % | |||||||||||||||||||||||||
Allowance for loan losses | (2,113 | ) | (1,930 | ) | (1,715 | ) | (1,510 | ) | (1,397 | ) | ||||||||||||||||||||||||||||||
Net loans receivable | $ | 196,462 | $ | 209,502 | $ | 185,043 | $ | 164,306 | $ | 116,201 |
At December 31, 2009 | ||||||||||||||||||||
(Dollars in thousands) | One Year or Less | More Than One Year to Five Years | More Than Five Years | Net Deferred Costs (Fees) | Total | |||||||||||||||
Commercial | $ | 27,404 | $ | 25,170 | $ | 16,494 | $ | (65 | ) | $ | 69,003 | |||||||||
Commercial real estate | 10,256 | 21,403 | 27,470 | (118 | ) | 59,011 | ||||||||||||||
Construction and land | 22,800 | 3,622 | 1,672 | (31 | ) | 28,063 | ||||||||||||||
Residential real estate | — | — | 34,790 | 203 | 34,993 | |||||||||||||||
Home equity | — | 522 | 6,586 | 115 | 7,223 | |||||||||||||||
Consumer | 99 | 182 | — | 1 | 282 | |||||||||||||||
Total | $ | 60,559 | $ | 50,899 | $ | 87,012 | $ | 105 | $ | 198,575 |
(Dollars in thousands) | Fixed Rates | Floating or Adjustable Rates | Total | |||||||||
Commercial | $ | 24,617 | $ | 17,047 | $ | 41,664 | ||||||
Commercial real estate | 34,204 | 14,669 | 48,873 | |||||||||
Construction and land | 3,524 | 1,770 | 5,294 | |||||||||
Residential real estate | 16,125 | 18,665 | 34,790 | |||||||||
Home equity | 245 | 6,863 | 7,108 | |||||||||
Consumer | 135 | 47 | 182 | |||||||||
Total | $ | 78,850 | $ | 59,061 | $ | 137,911 |
At December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Non-accrual loans | $ | 1,445 | $ | 787 | $ | 765 | $ | 734 | $ | 668 | ||||||||||
Loans 90 days or more past due and still accruing | — | 870 | 854 | — | — | |||||||||||||||
Troubled debt restructurings | — | — | — | — | — | |||||||||||||||
Total non-performing loans | 1,445 | 1,657 | 1,619 | 734 | 668 | |||||||||||||||
Other real estate owned | — | — | — | — | — | |||||||||||||||
Total non-performing assets | $ | 1,445 | $ | 1,657 | $ | 1,619 | $ | 734 | $ | 668 | ||||||||||
Non-performing loans as a percentage of total loans | 0.73 | % | 0.78 | % | 0.87 | % | 0.44 | % | 0.57 | % | ||||||||||
Non-performing assets as a percentage of total assets | 0.50 | % | 0.67 | % | 0.70 | % | 0.37 | % | 0.43 | % |
For the Years Ended December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Balance at beginning of year | $ | 1,930 | $ | 1,715 | $ | 1,510 | $ | 1,397 | $ | 1,323 | ||||||||||
Provision for loan losses | 1,405 | 455 | 250 | 150 | 55 | |||||||||||||||
Charge-offs: | ||||||||||||||||||||
Commercial | 1,281 | 300 | 128 | 30 | 212 | |||||||||||||||
Commercial real estate | — | — | — | 35 | 7 | |||||||||||||||
Home equity | — | — | — | 47 | — | |||||||||||||||
Consumer | — | — | — | 20 | 38 | |||||||||||||||
Total charge-offs | 1,281 | 300 | 128 | 132 | 257 | |||||||||||||||
Recoveries: | ||||||||||||||||||||
Commercial | 58 | 31 | 73 | 90 | 216 | |||||||||||||||
Commercial real estate | — | — | — | 3 | — | |||||||||||||||
Home equity | — | 28 | 6 | — | 44 | |||||||||||||||
Consumer | 1 | 1 | 4 | 2 | 16 | |||||||||||||||
Total recoveries | 59 | 60 | 83 | 95 | 276 | |||||||||||||||
Net charge-offs (recoveries) | 1,222 | 240 | 45 | 37 | (19 | ) | ||||||||||||||
Balance at end of year | $ | 2,113 | $ | 1,930 | $ | 1,715 | $ | 1,510 | $ | 1,397 | ||||||||||
Total loans | $ | 198,575 | $ | 211,432 | $ | 186,758 | $ | 165,816 | $ | 117,598 | ||||||||||
Allowance for loan losses as a percentage of total loans | 1.06 | % | 0.91 | % | 0.92 | % | 0.91 | % | 1.19 | % | ||||||||||
Allowance for loan losses as a percentage of non-performing loans | 146.2 | % | 116.5 | % | 105.9 | % | 205.7 | % | 209.1 | % | ||||||||||
Ratio of net charge-offs (recoveries) to average loans outstanding during the year | 0.61 | % | 0.13 | % | 0.03 | % | 0.03 | % | (0.02 | %) |
At December 31, | |||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount of Allowance for Loan Losses | Percent of Loans in Each Category to Total Loans | Amount of Allowance for Loan Losses | Percent of Loans in Each Category to Total Loans | Amount of Allowance for Loan Losses | Percent of Loans in Each Category to Total Loans | Amount of Allowance for Loan Losses | Percent of Loans in Each Category to Total Loans | Amount of Allowance for Loan Losses | Percent of Loans in Each Category to Total Loans | |||||||||||||||||||||||||||
Commercial, commercial real estate and construction and land loans | $ | 1,472 | 78.7 | % | $ | 1,466 | 77.4 | % | $ | 1,321 | 76.9 | % | $ | 1,125 | 74.0 | % | $ | 976 | 76.2 | % | |||||||||||||||||
Residential real estate | 308 | 17.6 | % | 231 | 19.6 | % | 224 | 20.3 | % | 196 | 23.5 | % | 122 | 21.0 | % | ||||||||||||||||||||||
Home equity | 220 | 3.6 | % | 161 | 2.8 | % | 118 | 2.6 | % | 95 | 2.3 | % | 55 | 2.6 | % | ||||||||||||||||||||||
Consumer | 17 | 0.1 | % | 33 | 0.2 | % | 24 | 0.2 | % | 39 | 0.2 | % | 31 | 0.2 | % | ||||||||||||||||||||||
Total | 2,017 | 100.0 | % | 1,891 | 100.0 | % | 1,687 | 100.0 | % | 1,455 | 100.0 | % | 1,184 | 100.0 | % | ||||||||||||||||||||||
Unallocated | 96 | 39 | 28 | 55 | 213 | ||||||||||||||||||||||||||||||||
Total allowance for loan losses | $ | 2,113 | $ | 1,930 | $ | 1,715 | $ | 1,510 | $ | 1,397 |
For the Year Ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
Balance | Rate | Balance | Rate | Balance | Rate | |||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Demand deposits | $ | 20,057 | — | % | $ | 18,207 | — | % | $ | 16,565 | — | % | ||||||||||||
NOW accounts | 24,997 | 1.27 | % | 16,302 | 2.30 | % | 11,348 | 2.47 | % | |||||||||||||||
Money market accounts | 8,712 | 1.01 | % | 11,694 | 1.97 | % | 15,760 | 3.74 | % | |||||||||||||||
Savings accounts | 61,211 | 1.52 | % | 59,609 | 2.84 | % | 66,493 | 4.02 | % | |||||||||||||||
Time deposits | 85,137 | 3.44 | % | 70,100 | 4.24 | % | 70,368 | 4.95 | % | |||||||||||||||
Total | $ | 200,114 | 2.13 | % | $ | 175,912 | 3.00 | % | $ | 180,534 | 3.89 | % |
Maturity period: | ($ in thousands) | |||
Three months or less | $ | 10,703 | ||
Over three months through six months | 5,948 | |||
Over six months through twelve months | 14,910 | |||
Over twelve months | 18,755 | |||
Total | $ | 50,316 |
At or For the Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
($ in thousands) | ||||||||||||
Short-Term Lines of Credit: | ||||||||||||
Balance at end of year | $ | — | $ | 5,840 | $ | 3,000 | ||||||
Maximum month-end balance | 5,800 | 13,320 | 6,560 | |||||||||
Average balance during the year | 1,279 | 2,400 | 799 | |||||||||
Weighted-average interest rate at end of year | — | 0.44 | % | 4.11 | % | |||||||
Weighted-average interest rate during the year | 0.47 | % | 1.82 | % | 5.45 | % | ||||||
Repurchase Agreements: | ||||||||||||
Balance at end of year | $ | 5,761 | $ | 4,007 | $ | 2,989 | ||||||
Maximum month-end balance | 5,761 | 6,182 | 4,246 | |||||||||
Average balance during the year | 4,187 | 2,960 | 1,761 | |||||||||
Weighted-average interest rate at end of year | 0.33 | % | 0.34 | % | 3.27 | % | ||||||
Weighted-average interest rate during the year | 0.31 | % | 1.45 | % | 3.75 | % |
Immediate Shock in Interest Rates (in basis points): | Percentage Change in Net Interest Income | ||
– | 100 | (5.0)% | |
+ | 100 | 2.7% | |
+ | 200 | 5.5% | |
+ | 300 | 7.6% | |
+ | 400 | 4.7% |
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||||||||
Average Balance | Interest Income/ Expense | Average Yield/ Rate | Average Balance | Interest Income/ Expense | Average Yield/ Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||
Securities available for sale and securities held to maturity: | ||||||||||||||||||||||||
Taxable | $ | 28,150 | $ | 1,283 | 4.56 | % | $ | 24,917 | $ | 1,244 | 4.99 | % | ||||||||||||
Loans: | ||||||||||||||||||||||||
Commercial, commercial real estate and construction | 155,530 | 8,910 | 5.65 | 144,891 | 8,896 | 6.06 | ||||||||||||||||||
Residential real estate | 37,205 | 1,921 | 5.16 | 38,304 | 2,067 | 5.40 | ||||||||||||||||||
Home equity and consumer | 7,127 | 247 | 3.47 | 5,381 | 269 | 5.00 | ||||||||||||||||||
Total loans | 199,862 | 11,078 | 5.54 | 188,576 | 11,232 | 5.96 | ||||||||||||||||||
Federal Home Loan Bank stock | 1,822 | 80 | 4.39 | 1,704 | 93 | 5.46 | ||||||||||||||||||
Short-term investments | 25,845 | 477 | 1.85 | 13,844 | 478 | 3.45 | ||||||||||||||||||
Total earning assets | �� | 255,679 | 12,918 | 5.03 | 229,041 | 13,047 | 5.66 | |||||||||||||||||
Cash and due from banks | 6,120 | 3,227 | ||||||||||||||||||||||
Allowance for loan losses | (2,069 | ) | (1,790 | ) | ||||||||||||||||||||
Other assets | 3,606 | 3,183 | ||||||||||||||||||||||
Total assets | $ | 263,336 | $ | 233,661 | ||||||||||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||||
NOW accounts | $ | 24,997 | $ | 318 | 1.27 | % | $ | 16,302 | $ | 375 | 2.30 | % | ||||||||||||
Money market accounts | 8,712 | 88 | 1.01 | 11,694 | 230 | 1.97 | ||||||||||||||||||
Savings accounts | 61,211 | 929 | 1.52 | 59,609 | 1,692 | 2.84 | ||||||||||||||||||
Time deposits | 85,137 | 2,925 | 3.44 | 70,100 | 2,973 | 4.24 | ||||||||||||||||||
Total interest-bearing liabilities | 180,057 | 4,260 | 2.37 | 157,705 | 5,270 | 3.34 | ||||||||||||||||||
Short-term borrowings | 6,782 | 23 | 0.33 | 5,360 | 87 | 1.60 | ||||||||||||||||||
Long-term borrowings | 33,322 | 1,152 | 3.41 | 30,407 | 1,099 | 3.56 | ||||||||||||||||||
Total interest-bearing liabilities | 220,161 | 5,435 | 2.46 | 193,472 | 6,456 | 3.33 | ||||||||||||||||||
Demand deposits | 20,057 | 18,207 | ||||||||||||||||||||||
Other liabilities | 1,768 | 1,664 | ||||||||||||||||||||||
Total liabilities | 241,986 | 213,343 | ||||||||||||||||||||||
Stockholders’ equity | 21,350 | 20,318 | ||||||||||||||||||||||
Total liabilities and equity | $ | 263,336 | $ | 233,661 | ||||||||||||||||||||
Net interest income | $ | 7,483 | $ | 6,591 | ||||||||||||||||||||
Net interest spread | 2.57 | % | 2.33 | % | ||||||||||||||||||||
Net interest margin | 2.93 | % | 2.88 | % |
Year Ended December 31, 2009 vs 2008 | ||||||||||||
Increase (Decrease) Due to | Total Increase/ (Decrease) | |||||||||||
Volume | Rate | |||||||||||
(Dollars in thousands) | ||||||||||||
Earning assets: | ||||||||||||
Securities | $ | 152 | $ | (113 | ) | $ | 39 | |||||
Loans | 642 | (796 | ) | (154 | ) | |||||||
Federal Home Loan Bank stock | 6 | (19 | ) | (13 | ) | |||||||
Short-term investments | 288 | (289 | ) | (1 | ) | |||||||
Total earning assets | 1,088 | (1,217 | ) | (129 | ) | |||||||
Interest-bearing liabilities: | ||||||||||||
NOW accounts | 152 | (209 | ) | (57 | ) | |||||||
Money market accounts | (49 | ) | (93 | ) | (142 | ) | ||||||
Savings accounts | 44 | (807 | ) | (763 | ) | |||||||
Time deposits | 571 | (619 | ) | (48 | ) | |||||||
Short-term borrowings | 18 | (82 | ) | (64 | ) | |||||||
Long-term borrowings | 101 | (48 | ) | 53 | ||||||||
Total interest-bearing liabilities | 837 | (1,858 | ) | (1,021 | ) | |||||||
Net interest income | $ | 251 | $ | 641 | $ | 892 |
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September 30, 2010 | December 31, 2009 | |||||||
($ in thousands, except per share data) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 3,512 | $ | 7,542 | ||||
Money market investments | 2,000 | 2,000 | ||||||
Interest-bearing deposits at other banks | 29,265 | 46,702 | ||||||
Total cash and cash equivalents | 34,777 | 56,244 | ||||||
Securities available for sale, at fair value | 34,051 | 24,903 | ||||||
Securities held to maturity (approximate fair value of $9,214 in 2010 and $2,798 in 2009) | 9,057 | 2,719 | ||||||
Federal Home Loan Bank of New York (“FHLB”) stock, at cost | 1,697 | 1,883 | ||||||
Loans receivable | 189,638 | 198,575 | ||||||
Allowance for loan losses | (3,151 | ) | (2,113 | ) | ||||
Net loans receivable | 186,487 | 196,462 | ||||||
Premises and equipment, net | 955 | 875 | ||||||
Accrued interest receivable | 1,255 | 1,041 | ||||||
Deferred taxes | 997 | 654 | ||||||
Other assets | 1,596 | 1,887 | ||||||
Total assets | $ | 270,872 | $ | 286,668 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Demand | $ | 23,217 | $ | 23,177 | ||||
NOW accounts | 30,419 | 42,743 | ||||||
Money market accounts | 12,056 | 12,074 | ||||||
Savings accounts | 69,743 | 64,074 | ||||||
Time deposits ($100,000 or more) | 46,859 | 50,316 | ||||||
Other time deposits | 27,885 | 29,874 | ||||||
Total deposits | 210,179 | 222,258 | ||||||
Borrowings | 36,522 | 41,437 | ||||||
Accrued interest payable | 329 | 522 | ||||||
Other liabilities | 1,201 | 921 | ||||||
Total liabilities | 248,231 | 265,138 | ||||||
Commitments and contingent liabilities | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock: Par value – $0.10; Authorized shares – 1,000,000; Issued and outstanding shares – None | — | — | ||||||
Common stock: Par value – $0.10; Authorized shares – 10,000,000; Issued shares – 3,742,303 in 2010 and 3,564,242 in 2009 | 375 | 357 | ||||||
Additional paid-in capital | 22,354 | 22,362 | ||||||
Accumulated deficit | (281 | ) | (1,211 | ) | ||||
Treasury stock, at cost (41,239 shares in 2010 and 36,989 shares in 2009) | (205 | ) | (196 | ) | ||||
Directors’ deferred stock units (5,516 units in 2010 and 5,485 units in 2009) | 26 | 25 | ||||||
Accumulated other comprehensive income | 372 | 193 | ||||||
Total stockholders’ equity | 22,641 | 21,530 | ||||||
Total liabilities and stockholders’ equity | $ | 270,872 | $ | 286,668 |
2010 | 2009 | |||||||
($ in thousands, except per share data) | ||||||||
Interest, dividend and fee income: | ||||||||
Loans: | ||||||||
Commercial, commercial real estate and construction | $ | 7,364 | $ | 6,612 | ||||
Residential real estate | 1,173 | 1,455 | ||||||
Home equity and consumer | 197 | 179 | ||||||
Total interest and fees on loans | 8,734 | 8,246 | ||||||
Securities available for sale | 660 | 916 | ||||||
Securities held to maturity | 303 | 87 | ||||||
Federal Home Loan Bank of New York stock | 73 | 53 | ||||||
Money market investments | 333 | 309 | ||||||
Interest-bearing deposits at other banks | 33 | 6 | ||||||
Total interest, dividend and fee income | 10,136 | 9,617 | ||||||
Interest expense: | ||||||||
Deposits | 2,338 | 3,285 | ||||||
Borrowings | 901 | 865 | ||||||
Total interest expense | 3,239 | 4,150 | ||||||
Net interest income | 6,897 | 5,467 | ||||||
Provision for loan losses | 1,250 | 885 | ||||||
Net interest income after provision for loan losses | 5,647 | 4,582 | ||||||
Non-interest income: | ||||||||
Service charges on deposit accounts | 88 | 82 | ||||||
Gain on sale of securities | 280 | 360 | ||||||
Net gain on lease termination and disposal of premises and equipment | — | 121 | ||||||
Other income | 73 | 54 | ||||||
Total non-interest income | 441 | 617 | ||||||
Non-interest expenses: | ||||||||
Salaries and benefits | 2,325 | 2,241 | ||||||
Occupancy expense | 522 | 447 | ||||||
Equipment expense | 225 | 234 | ||||||
Information technology | 245 | 173 | ||||||
Audit, tax preparation and loan review fees | 128 | 132 | ||||||
Consulting and legal fees | 201 | 175 | ||||||
FDIC deposit insurance premiums and assessments | 259 | 352 | ||||||
Other expenses | 668 | 567 | ||||||
Total non-interest expenses | 4,573 | 4,321 | ||||||
Income before taxes | 1,515 | 878 | ||||||
Income tax expense | 585 | 353 | ||||||
Net income | $ | 930 | $ | 525 | ||||
Earnings per common share: | ||||||||
Basic | $ | 0.25 | $ | 0.14 | ||||
Diluted | $ | 0.25 | $ | 0.14 |
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Directors’ Deferred Stock Units | Accumulated Other Comprehensive Income | Total | Comprehensive Income | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2008 | $ | 356 | $ | 22,310 | $ | (1,981 | ) | $ | (115 | ) | $ | 36 | $ | 257 | $ | 20,863 | ||||||||||||||||
Net income | — | — | 525 | — | — | — | 525 | $ | 525 | |||||||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||
Increase in net unrealized holding gains on securities available for sale (pre-tax $585) | — | — | — | — | — | 356 | 356 | 356 | ||||||||||||||||||||||||
Reclassification adjustment for net gains on sales of securities available for sale (pre-tax $360) | — | — | — | — | — | (221 | ) | (221 | ) | (221 | ) | |||||||||||||||||||||
Other comprehensive income, net of tax | 135 | |||||||||||||||||||||||||||||||
Comprehensive income | $ | 660 | ||||||||||||||||||||||||||||||
Expense related to directors’ deferred stock units | — | — | — | — | 20 | — | 20 | |||||||||||||||||||||||||
Distribution of directors’ deferred stock units (6,630 shares) | — | (1 | ) | — | 37 | (36 | ) | — | — | |||||||||||||||||||||||
Vesting of employee stock awards (8,637 shares) | 1 | (8 | ) | — | 6 | — | — | (1 | ) | |||||||||||||||||||||||
Expense related to options and employee stock awards | — | 52 | — | — | — | — | 52 | |||||||||||||||||||||||||
Purchase of treasure stock (25,648 shares) | — | — | — | (126 | ) | — | — | (126 | ) | |||||||||||||||||||||||
Balance at September 30, 2009 | $ | 357 | 22,353 | $ | (1,456 | ) | $ | (198 | ) | $ | 20 | $ | 392 | $ | 21,468 | |||||||||||||||||
Balance at December 31, 2009 | $ | 357 | $ | 22,362 | $ | (1,211 | ) | $ | (196 | ) | $ | 25 | $ | 193 | $ | 21,530 | ||||||||||||||||
Net income | — | — | 930 | — | — | — | 930 | $ | 930 | |||||||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||
Increase in net unrealized holding gains on securities available for sale (pre-tax $573) | — | — | — | — | — | 351 | 351 | 351 | ||||||||||||||||||||||||
Reclassification adjustment for net gains on sales of securities available for sale (pre-tax $280) | — | — | — | — | — | (172 | ) | (172 | ) | (172 | ) | |||||||||||||||||||||
Other comprehensive income, net of tax | 179 | |||||||||||||||||||||||||||||||
Comprehensive income | $ | 1,109 | ||||||||||||||||||||||||||||||
Expense related to directors’ deferred stock units | — | — | — | — | 26 | — | 26 | |||||||||||||||||||||||||
Distribution of directors’ deferred stock units (5,757 shares) | — | (4 | ) | — | 29 | (25 | ) | — | — | |||||||||||||||||||||||
Vesting of employee stock awards (6,668 shares) | — | (35 | ) | — | 35 | — | — | — | ||||||||||||||||||||||||
Expense related to options and employee stock awards | — | 49 | — | — | — | — | 49 | |||||||||||||||||||||||||
Distribution of 5% stock dividend (178,061 shares; 1,768 treasury shares) | 18 | (18 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Purchases of treasure stock (14,907 shares) | — | — | — | (73 | ) | — | — | (73 | ) | |||||||||||||||||||||||
Balance at September 30, 2010 | $ | 375 | $ | 22,354 | $ | (281 | ) | $ | (205 | ) | $ | 26 | $ | 372 | $ | 22,641 |
2010 | 2009 | |||||||
Cash flows from operating activities | ($ in thousands) | |||||||
Net income | $ | 930 | $ | 525 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 1,250 | 885 | ||||||
Depreciation and amortization expense on premises and equipment | 172 | 167 | ||||||
Deferred tax benefit | (456 | ) | (299 | ) | ||||
Gain on sale of securities | (280 | ) | (360 | ) | ||||
Net loss (gain) on lease termination and disposal of premises and equipment | 27 | (121 | ) | |||||
Net amortization of premiums and discounts on securities | 180 | 51 | ||||||
Expense related to stock-based compensation | 75 | 72 | ||||||
Net (increase) decrease in accrued interest receivable | (214 | ) | 48 | �� | ||||
Net decrease in other assets | 291 | 36 | ||||||
Net decrease in accrued interest payable | (193 | ) | (210 | ) | ||||
Net increase in other liabilities | 280 | 55 | ||||||
Net cash provided by operating activities | 2,062 | 849 | ||||||
Cash flows from investing activities | ||||||||
Purchases of securities available for sale | (21,654 | ) | (16,420 | ) | ||||
Proceeds from sales of securities available for sale | 8,672 | 9,543 | ||||||
Proceeds from maturities and calls of securities available for sale | 750 | 1,250 | ||||||
Proceeds from principal paydowns on securities available for sale | 3,517 | 5,572 | ||||||
Purchases of securities held to maturity | (17,200 | ) | (533 | ) | ||||
Proceeds from maturities and calls of securities held to maturity | 10,000 | — | ||||||
Proceeds from principal paydowns on securities held to maturity | 821 | 1,130 | ||||||
Purchases of Federal Home Loan Bank of New York stock | (3,640 | ) | (2,722 | ) | ||||
Redemptions of Federal Home Loan Bank of New York stock | 3,826 | 2,715 | ||||||
Purchases of residential real estate loans | (700 | ) | (6,333 | ) | ||||
Net loans repaid by customers | 9,425 | 21,723 | ||||||
Purchases of premises and equipment | (279 | ) | (273 | ) | ||||
Proceeds from lease termination and sales of premises and equipment | — | 450 | ||||||
Net cash (used in) provided by investing activities | (6,462 | ) | 16,102 | |||||
Cash flows from financing activities | ||||||||
Net (decrease) increase in deposits | (12,079 | ) | 12,910 | |||||
Net (decrease) increase in overnight lines of credit and other short-term borrowings | (538 | ) | 362 | |||||
Proceeds from FHLB long-term borrowings | — | 7,000 | ||||||
Principal repayments of FHLB long-term borrowings | (4,377 | ) | (2,109 | ) | ||||
Purchases of treasury stock | (73 | ) | (126 | ) | ||||
Tax impact related to stock-based compensation | — | (1 | ) | |||||
Net cash (used in) provided by financing activities | (17,067 | ) | 18,036 | |||||
Net (decrease) increase in cash and cash equivalents | (21,467 | ) | 34,987 | |||||
Cash and cash equivalents at beginning of period | 56,244 | 4,883 | ||||||
Cash and cash equivalents at end of period | $ | 34,777 | $ | 39,870 | ||||
Supplemental cash flow information | ||||||||
Interest paid | $ | 3,432 | $ | 4,360 | ||||
Income taxes paid | $ | 1,006 | $ | 528 | ||||
Supplemental disclosure of non-cash investing and financing activities | ||||||||
Distribution of stock for directors’ deferred stock units | $ | 25 | $ | 36 |
(1) | Organization |
Fort Orange Financial Corp. (the “Holding Company”) was formed as a Delaware corporation on March 8, 2006 to serve as the bank holding company for Capital Bank & Trust Company (the “Bank”). Effective December 1, 2006, after receiving the required regulatory approvals from the New York State Banking Department (the “Banking Department”) and the Federal Reserve Bank of New York (the “FRB”), the Bank completed its reorganization into the holding company structure and became a wholly-owned subsidiary of Fort Orange Financial Corp. Each issued and outstanding share of common stock and preferred stock of the Bank was automatically converted into one share of common stock or preferred stock, respectively, of Fort Orange Financial Corp. | |
The Bank is a New York State-chartered financial institution that engages in commercial banking activities primarily in Albany and Saratoga counties and surrounding areas of New York State. The Bank’s primary customers are small to mid-size businesses, professionals, such as doctors, attorneys and accountants, and high net worth individuals. The Bank’s principal lending products are commercial real estate loans, construction and land loans, commercial loans, lines of credit and leases, residential real estate loans, home equity loans and lines of credit, and consumer installment loans and lines of credit. Deposit products include demand deposits, money market accounts, savings accounts and time deposits. The Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC& #8221;) and the Banking Department. The Holding Company is regulated by the FRB. | |
(2) | Basis of Presentation |
The accompanying unaudited consolidated interim financial statements of Fort Orange Financial Corp. and subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform with the current year’s presentation. The se reclassifications, if any, did not have a material effect on the operating results or financial position of the Company. The financial position and operating results of the Company as of and for the nine months ended September 30, 2010, are not necessarily indicative of the financial position and results of operations that may be expected in the future and should be read in conjunction with the Company’s annual audited consolidated financial statements contained in this joint proxy statement / prospectus. | |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. | |
The Company has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2010, for items that should potentially be recognized or disclosed in these unaudited consolidated interim financial statements. The evaluation was conducted through the date these financial statements were issued. |
(3) | Stock Dividend |
On April 8, 2010, the Company declared a 5% common stock dividend, which was distributed on May 14, 2010, to stockholders of record as of April 30, 2010. If the Company had accumulated profits (retained earnings), the Company would have transferred the fair market value of the shares issued from retained earnings to common stock and additional paid-in capital. Since the Company had an accumulated deficit at the date of the stock dividend, the par value of the shares issued was transferred from additional paid-in capital to common stock. All share and per share information has been retroactively adjusted to give effect to this stock dividend. | |
(4) | Earnings Per Share |
Basic earnings per share is calculated by dividing net income less dividends on convertible preferred stock (if any) by the weighted-average number of common shares outstanding during the period, including the stock units awarded under the Company’s Stock Unit Plan for non-employee directors, which are considered to be contingently issuable shares. | |
Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as convertible preferred stock, stock options and restricted stock) were issued or became vested during the reporting period. | |
The following table sets forth certain information regarding the calculation of basic and diluted earnings per share for the nine months ended September 30. All share and per share information has been retroactively adjusted to give effect to the 5% common stock dividend distributed on May 14, 2010. |
2010 | 2009 | |||||||
(In thousands, except per share data) | ||||||||
Net income | $ | 930 | $ | 525 | ||||
Weighted-average common shares outstanding, including stock units awarded under the Stock Unit Plan | 3,710 | 3,717 | ||||||
Dilutive effect of outstanding stock options and stock awards | 2 | 1 | ||||||
Weighted-average common shares outstanding, assuming dilution | 3,712 | 3,718 | ||||||
Basic earnings per common share | $ | 0.25 | $ | 0.14 | ||||
Diluted earnings per common share | $ | 0.25 | $ | 0.14 |
As of September 30, 2010, there were 285,711 stock options outstanding with a weighted-average exercise price of $5.70 that were excluded from the computation of diluted earnings per common share as their impact was anti-dilutive. At that same date, there were also 51,043 nonvested stock awards outstanding with a weighted-average grant date fair value of $5.90 that were excluded from the computation of diluted earnings per common share as their impact was anti-dilutive. |
(5) | Comprehensive Income |
Comprehensive income represents the sum of net income and items of other comprehensive income/loss, which are reported directly in stockholders’ equity, net of tax, such as the change in the net unrealized gain or loss on securities available for sale. Accumulated other comprehensive income, which is a component of stockholders’ equity, represents the net unrealized gain or loss on securities available for sale, net of tax. |
(6) | Securities |
The amortized cost, gross unrealized gains and losses and approximate fair value of securities at September 30, 2010 and December 31, 2009 are as follows: |
September 30, 2010 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Approximate Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Available for Sale: | ||||||||||||||||
U.S. agency securities | $ | 9,389 | $ | 133 | $ | — | $ | 9,522 | ||||||||
Agency mortgage-backed securities (1) | 8,273 | 134 | — | 8,407 | ||||||||||||
Agency collateralized mortgage obligations (1) | 9,222 | 253 | (3 | ) | 9,472 | |||||||||||
Private collateralized mortgage obligations (1) | 954 | 26 | — | 980 | ||||||||||||
Corporate debt securities | 2,923 | 84 | (1 | ) | 3,006 | |||||||||||
SBA guaranteed loan pools | 2,683 | 1 | (20 | ) | 2,664 | |||||||||||
Total securities available for sale | $ | 33,444 | $ | 631 | $ | (24 | ) | $ | 34,051 | |||||||
Held to Maturity: | ||||||||||||||||
U.S. agency securities | $ | 4,218 | $ | 109 | $ | — | $ | 4,327 | ||||||||
Agency collateralized mortgage obligations (1) | 649 | 11 | — | 660 | ||||||||||||
Municipal securities | 4,190 | 54 | (17 | ) | 4,227 | |||||||||||
Total securities held to maturity | $ | 9,057 | $ | 174 | $ | (17 | ) | $ | 9,214 |
December 31, 2009 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Approximate Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Available for Sale: | ||||||||||||||||
Agency mortgage-backed securities (1) | $ | 10,300 | $ | 246 | $ | (10 | ) | $ | 10,536 | |||||||
Agency collateralized mortgage obligations (1) | 10,738 | 159 | (41 | ) | 10,856 | |||||||||||
Private collateralized mortgage obligations (1) | 1,273 | — | (26 | ) | 1,247 | |||||||||||
SBA guaranteed loan pools | 2,278 | — | (14 | ) | 2,264 | |||||||||||
Total securities available for sale | $ | 24,589 | $ | 405 | $ | (91 | ) | $ | 24,903 | |||||||
Held to Maturity: | ||||||||||||||||
U.S. agency securities | $ | 1,540 | $ | 58 | $ | — | $ | 1,598 | ||||||||
Agency collateralized mortgage obligations (1) | 1,179 | 21 | — | 1,200 | ||||||||||||
Total securities held to maturity | $ | 2,719 | $ | 79 | $ | — | $ | 2,798 |
The following table sets forth information with regard to securities with unrealized losses at September 30, 2010 and December 31, 2009, segregated according to the length of time the securities had been in a continuous unrealized loss position as of that date: |
September 30, 2010 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Security category | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||
Agency collateralized mortgage obligations | $ | 1,052 | $ | (3 | ) | $ | — | $ | — | $ | 1,052 | $ | (3 | ) | ||||||||||
Corporate debt securities | 249 | (1 | ) | — | — | 249 | (1 | ) | ||||||||||||||||
SBA guaranteed loan pools | 2,059 | (20 | ) | — | — | 2,059 | (20 | ) | ||||||||||||||||
Held to Maturity: | ||||||||||||||||||||||||
Municipal securities | 938 | (17 | ) | — | — | 938 | (17 | ) | ||||||||||||||||
Total | $ | 4,298 | $ | (41 | ) | $ | — | $ | — | $ | 4,298 | $ | (41 | ) |
December 31, 2009 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Security category | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||
Agency mortgage-backed securities | $ | 1,025 | $ | (10 | ) | $ | — | $ | — | $ | 1,025 | $ | (10 | ) | ||||||||||
Agency collateralized mortgage obligations | 2,967 | (41 | ) | — | — | 2,967 | (41 | ) | ||||||||||||||||
Private collateralized mortgage obligations | 781 | (9 | ) | 466 | (17 | ) | 1,247 | (26 | ) | |||||||||||||||
SBA guaranteed loan pools | 2,264 | (14 | ) | — | — | 2,264 | (14 | ) | ||||||||||||||||
Total | $ | 7,037 | $ | (74 | ) | $ | 466 | $ | (17 | ) | $ | 7,503 | $ | (91 | ) |
At September 30, 2010, the unrealized losses on the Company’s securities were caused primarily by changes in market interest rates and widening of sector spreads between the date the respective securities were purchased and September 30, 2010. The unrealized losses relate to eight individual securities, all of which have investment grade credit ratings from nationally recognized rating agencies (defined as bearing a credit quality rating of “Baa” or higher from Moody’s or “BBB” or higher from Standard and Poor’s). Because the unrealized losses are related primarily to changes in market interest rates and widening of sector spreads and are not necessarily related to the underlying credit quality of the issuers of the securities, coupled with the fact that the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell t he securities before recovery of their amortized cost bases, which may be maturity, the Company does not consider any of these securities to be other-than-temporarily impaired at September 30, 2010. |
Shown below are the amortized cost and approximate fair value of debt securities as of September 30, 2010, by contractual maturity (excluding mortgage-backed securities, collateralized mortgage obligations and SBA guaranteed loan pools). Actual maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without prepayment penalties. In addition, issuers of certain securities may have the right to call obligations without prepayment penalties. |
Available for Sale | Held to Maturity | |||||||||||||||
Amortized Cost | Approximate Fair Value | Amortized Cost | Approximate Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Due in one year or less | $ | — | $ | — | $ | — | $ | — | ||||||||
Due after one through five years | 6,291 | 6,415 | 2,272 | 2,354 | ||||||||||||
Due after five through ten years | 6,021 | 6,113 | 5,033 | 5,065 | ||||||||||||
Due after ten years | — | — | 1,103 | 1,135 | ||||||||||||
Total | $ | 12,312 | $ | 12,528 | $ | 8,408 | $ | 8,554 |
The Company received $8.7 million and $9.5 million in proceeds from the sale of securities available for sale during the nine months ended September 30, 2010 and 2009, respectively, realizing gross gains of $280,000 and $360,000. There were no losses in either nine month period during 2010 or 2009. | ||
(7) | Fair Value Measurements and Fair Value of Financial Instruments | |
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company adopted the guidance in the Fair Value Measurements and Disclosures topic of FASB ASC effective January 1, 2008. This guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. The guidance provides a consistent definition of fair value, which focuses on the exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume an d level of activity for the asset or liability, a change in the valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. Fair value measurements are not adjusted for transaction costs. The adoption of the guidance in the Fair Value Measurements and Disclosures topic of FASB ASC had no impact on the amounts reported in the consolidated financial statements. The primary effect of adopting this guidance was to expand the required disclosures pertaining to the methods used to determine fair values. |
The guidance in the Fair Value Measurements and Disclosures topic of FASB ASC establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below: | |
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; | |
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; | |
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. | |
The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement: |
Balance | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
($ in thousands) | ||||||||||||||||
At September 30, 2010: | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available for sale | $ | 34,051 | $ | — | $ | 34,051 | $ | — | ||||||||
At December 31, 2009: | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available for sale | $ | 24,903 | $ | — | $ | 24,903 | $ | — |
Fair values for securities are based on quoted market prices or dealer quotes, where available. Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments with similar characteristics. When necessary, the Company utilizes “matrix” pricing from a third party vendor to determine fair values. Matrix prices are indicative values computed primarily or exclusively using computerized models based on inputs such as Treasury yields, swap rates, spreads, prepayment projections and other assumptions believed to be applicable to the classes of securities being valued. | |
The fair value guidance also requires disclosure of assets and liabilities measured and recorded at fair value on a nonrecurring basis. In accordance with the provisions of the impaired loan guidance, the Company had impaired loans with a carrying value of approximately $1.5 million and $468,000 at September 30, 2010 and December 31, 2009, respectively, for which the allocated allowance for loan losses was approximately $164,000 and $185,000, respectively. The Company generally uses the fair value of the underlying collateral to estimate the allowance for loan losses allocated to impaired loans. Fair value is generally determined based upon independent third party appraisals of the collateral, or discounted cash flows based upon the expected proceeds. Based on the valuation techniques used, the fair value measurements for impaired loans are classified as Level 3. |
The Company also has the option to measure eligible financial assets, financial liabilities and Company commitments at fair value (i.e., the “fair value option”), on an instrument-by-instrument basis, that are not otherwise permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Company commitment. Subsequent changes in fair value must be recorded in earnings. There are also presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The fair value option does not affect any existing accounti ng literature that requires certain assets and liabilities to be carried at fair value and does not eliminate disclosure requirements included in other accounting standards. As of September 30, 2010 and December 31, 2009, the Company had not elected the fair value option for any eligible items. |
The Company is also required to disclose estimated fair values for its financial instruments. The definition of a financial instrument includes many of the assets and liabilities recognized in the Company’s consolidated balance sheet, as well as certain off-balance sheet items. | |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected net cash flows, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantl y affect the estimates. | |
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the disclosed estimates of fair value. | |
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: | |
Short-Term Financial Instruments | |
The fair value of certain financial instruments is estimated to approximate their carrying value because the remaining term to maturity or period to repricing of the financial instrument is less than 90 days. Such financial instruments include cash and cash equivalents, accrued interest receivable and accrued interest payable. |
Securities Available for Sale and Securities Held to Maturity | |
Securities available for sale and securities held to maturity are financial instruments that are usually traded in broad markets. Fair values for securities are based on quoted market prices or dealer quotes, where available. Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments with similar characteristics. When necessary, the Company utilizes “matrix” pricing from a third party vendor to determine fair values. Matrix prices are indicative values computed primarily or exclusively using computerized models based on observable inputs such as Treasury yields, swap rates, spreads, prepayment projections and other assumptions believed to be applicable to the classes of securities being valued. | |
Federal Home Loan Bank of New York Stock | |
The fair value of Federal Home Loan Bank of New York stock is equal to its carrying amount (cost) since there is no readily available market value and the stock cannot be sold, but can be redeemed by the Federal Home Loan Bank of New York at cost. | |
Loans | |
For performing variable rate loans that reprice frequently, fair value is assumed to equal the carrying amount. Fair values for performing fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms. | |
Estimated fair value for non-performing loans is based on estimated cash flows discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. |
Deposits | |
The estimated fair value of deposits with no stated maturity, such as non-interest-bearing deposits, NOW accounts, money market accounts and savings accounts, is regarded to be the amount payable on demand (carrying value). The estimated fair value of time deposit accounts is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared with the cost of borrowing funds in the market. | |
Borrowings | |
The carrying amounts of repurchase agreements and other short-term borrowings approximate their fair values. Fair values for long-term borrowings (such as Federal Home Loan Bank of New York advances) are estimated using a discounted cash flow approach based on current market rates for similar borrowings. | |
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates contained herein are not necessarily indicative of the amounts the Company could have realized in an actual sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. |
The carrying amounts and estimated fair values of financial assets and liabilities as of September 30, 2010 and December 31, 2009 were as follows: |
September 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 34,777 | $ | 34,777 | $ | 56,244 | $ | 56,244 | ||||||||
Securities available for sale | 34,051 | 34,051 | 24,903 | 24,903 | ||||||||||||
Securities held to maturity | 9,057 | 9,214 | 2,719 | 2,798 | ||||||||||||
Federal Home Loan Bank of New York stock | 1,697 | 1,697 | 1,883 | 1,883 | ||||||||||||
Net loans receivable | 186,487 | 198,038 | 196,462 | 205,302 | ||||||||||||
Accrued interest receivable | 1,255 | 1,255 | 1,041 | 1,041 | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits: | ||||||||||||||||
Demand, NOW, money market and savings accounts | 135,435 | 135,435 | 142,068 | 142,068 | ||||||||||||
Time deposits | 74,744 | 76,604 | 80,190 | 81,913 | ||||||||||||
Borrowings | 36,522 | 38,340 | 41,437 | 43,087 | ||||||||||||
Accrued interest payable | 329 | 329 | 522 | 522 |
The fair value of commitments to extend credit, unused lines of credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate commitments to extend credit and unused lines of credit, fair value also considers the difference between current levels of interest rates and the committed rates. Based upon the insignificant estimated fair values of commitments to extend credit, unused lines of credit and standby letters of credit, there are no significant unrealized gains or losses associated with these financial instruments. |
(8) | Guarantees |
The Bank does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee payment on behalf of a customer and/or guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit totaled approximately $597,000 at September 30, 2010 and $961,000 at December 31, 2009 and represent the maximum potential future payments the Company could be required to make. Typically, these instrument s have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios will generally range from 50% for movable assets, such as inventory, to 100% for liquid assets, such as deposit accounts. The fair value of the Company’s standby letters of credit at September 30, 2010 and December 31, 2009 was insignificant. |
(9) | Definitive Merger Agreement |
On October 14, 2010, Fort Orange Financial Corp. entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Chemung Financial Corporation (“CFC”), parent company of Chemung Canal Trust Company (“Chemung Canal”). Under the terms of the Merger Agreement, CFC will acquire the Company for approximately $29.3 million, based upon CFC’s closing stock price on October 14, 2010. | |
The Merger Agreement provides that each issued and outstanding share of the Company’s common stock will be converted into the right to receive, at the election of the shareholder, (i) 0.3571 shares of CFC common stock, (ii) cash equal to $7.50 per share, or (iii) a combination of stock for 75% of the shareholder’s Fort Orange stock and cash for 25% of the shareholder’s Fort Orange stock, subject to proration procedures detailed in the Merger Agreement, which provide that the aggregate consideration paid by CFC will be CFC common stock for 75% of the aggregate Fort Orange common stock and cash for 25% of the aggregate Fort Orange common stock. The merger consideration may be adjusted downward based on certain assets quality indicators of the Company specified in the Merger Agreement and also if the stock price of CFC rises to more than $25.20 per share. | |
Completion of the transaction is subject to receipt of all necessary federal and state regulatory approvals, approval of the Company’s and CFC’s shareholders, and satisfaction of other customary closing conditions stated in the Merger Agreement. The merger is expected to be completed in the first quarter of 2011. | |
CFC, headquartered in Elmira, New York, was incorporated in 1985 as the parent holding company of Chemung Canal, a full-service community bank with full trust powers. Chemung Canal, which was established in 1833, currently operates through 23 full-service offices in Chemung, Broome, Schuyler, Steuben, Tioga and Tompkins counties in New York, as well as in Bradford County, PA. CFC has total assets of approximately $1.0 billion. |
(10) | Recent Accounting Pronouncements |
ASU 2010-20, Receivables: Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (Topic 310), was issued in July 2010. This update is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The amendments in this update affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value. The update requires an entity to disclose: 1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; 2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and 3) the changes and reasons for those changes in the allowance for credit losses. For non-public entities, such as the Company, the disclosures are effective for annual reporting periods ending on or after December 15, 2011. Implementing the guidance in this update will have a significant effect on the disclosures in our annual financial statements. |
ASU 2010-18, Receivables: Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset (Topic 310), was issued in April 2010. As a result of the amendments in this update, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors. The amendments in this update do not require an entity to make additional disclosures. The amendments in this update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application was permitted. Upon initial adoption of the guidance in this update, an entity may make a one-time election to terminate accounting for loans as a pool under Subtopic 310-30. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration. The adoption of this guidance did not have a material impact on the Company’s financial posi tion or results of operations. |
2009 | 2008 | |||||||
($ in thousands, except per share data) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 7,542 | $ | 871 | ||||
Money market investments | 2,000 | 1,007 | ||||||
Interest-bearing deposits at other banks | 46,702 | 3,005 | ||||||
Total cash and cash equivalents | 56,244 | 4,883 | ||||||
Securities available for sale, at fair value | 24,903 | 25,813 | ||||||
Securities held to maturity (approximate fair value of $2,798 in 2009 and $3,614 in 2008) | 2,719 | 3,586 | ||||||
Federal Home Loan Bank of New York (“FHLB”) stock, at cost | 1,883 | 1,780 | ||||||
Loans receivable | 198,575 | 211,432 | ||||||
Allowance for loan losses | (2,113 | ) | (1,930 | ) | ||||
Net loans receivable | 196,462 | 209,502 | ||||||
Premises and equipment, net | 875 | 1,131 | ||||||
Accrued interest receivable | 1,041 | 1,028 | ||||||
Deferred taxes | 654 | 393 | ||||||
Other assets | 1,887 | 529 | ||||||
Total assets | $ | 286,668 | $ | 248,645 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Demand | $ | 23,177 | $ | 18,565 | ||||
NOW accounts | 42,743 | 20,192 | ||||||
Money market accounts | 12,074 | 6,878 | ||||||
Savings accounts | 64,074 | 53,750 | ||||||
Time deposits ($100,000 or more) | 50,316 | 60,718 | ||||||
Other time deposits | 29,874 | 27,498 | ||||||
Total deposits | 222,258 | 187,601 | ||||||
Borrowings | 41,437 | 38,504 | ||||||
Accrued interest payable | 522 | 652 | ||||||
Other liabilities | 921 | 1,025 | ||||||
Total liabilities | 265,138 | 227,782 | ||||||
Commitments and contingent liabilities (note 13) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock: Par value – $0.10; Authorized shares – 1,000,000; Issued and outstanding shares – None | — | — | ||||||
Common stock: Par value – $0.10; Authorized shares – 10,000,000; Issued shares – 3,564,242 in 2009 and 3,556,655 in 2008 | 357 | 356 | ||||||
Additional paid-in capital | 22,362 | 22,310 | ||||||
Accumulated deficit | (1,211 | ) | (1,981 | ) | ||||
Treasury stock, at cost (36,989 shares in 2009 and 19,210 shares in 2008) | (196 | ) | (115 | ) | ||||
Directors’ deferred stock units (5,485 units in 2009 and 6,630 units in 2008) | 25 | 36 | ||||||
Accumulated other comprehensive income | 193 | 257 | ||||||
Total stockholders’ equity | 21,530 | 20,863 | ||||||
Total liabilities and stockholders’ equity | $ | 286,668 | $ | 248,645 |
2009 | 2008 | |||||||
($ in thousands, except per share data) | ||||||||
Interest, dividend and fee income: | ||||||||
Loans: | ||||||||
Commercial, commercial real estate and construction | $ | 8,910 | $ | 8,896 | ||||
Residential real estate | 1,921 | 2,067 | ||||||
Home equity and consumer | 247 | 269 | ||||||
Total interest and fees on loans | 11,078 | 11,232 | ||||||
Securities available for sale | 1,169 | 1,243 | ||||||
Securities held to maturity | 114 | 1 | ||||||
Federal Home Loan Bank of New York stock | 80 | 93 | ||||||
Federal funds sold | — | 24 | ||||||
Money market investments | 463 | 450 | ||||||
Interest-bearing deposits at other banks | 14 | 4 | ||||||
Total interest, dividend and fee income | 12,918 | 13,047 | ||||||
Interest expense: | ||||||||
Deposits | 4,260 | 5,270 | ||||||
Borrowings | 1,175 | 1,186 | ||||||
Total interest expense | 5,435 | 6,456 | ||||||
Net interest income | 7,483 | 6,591 | ||||||
Provision for loan losses | 1,405 | 455 | ||||||
Net interest income after provision for loan losses | 6,078 | 6,136 | ||||||
Non-interest income: | ||||||||
Service charges on deposit accounts | 110 | 94 | ||||||
Gain on sale of securities | 607 | 8 | ||||||
Net gain on lease termination and disposal of premises and equipment | 121 | — | ||||||
Other income | 78 | 66 | ||||||
Total non-interest income | 916 | 168 | ||||||
Non-interest expenses: | ||||||||
Salaries and benefits | 2,954 | 2,800 | ||||||
Occupancy expense | 592 | 633 | ||||||
Equipment expense | 310 | 301 | ||||||
Information technology | 251 | 199 | ||||||
Audit, tax preparation and loan review fees | 175 | 172 | ||||||
Consulting and legal fees | 234 | 279 | ||||||
FDIC deposit insurance premiums and assessments | 432 | 140 | ||||||
Other expenses | 762 | 762 | ||||||
Total non-interest expenses | 5,710 | 5,286 | ||||||
Income before taxes | 1,284 | 1,018 | ||||||
Income tax expense | 514 | 408 | ||||||
Net income | $ | 770 | $ | 610 | ||||
Earnings per common share: | ||||||||
Basic | $ | 0.22 | $ | 0.17 | ||||
Diluted | $ | 0.22 | $ | 0.17 |
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Directors’ Deferred Stock Units | Accumulated Other Comprehensive Income | Total | Comprehensive Income | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2007 | $ | 338 | $ | 22,214 | $ | (2,591 | ) | $ | — | $ | 57 | $ | 16 | $ | 20,034 | |||||||||||||||||
Net income | — | — | 610 | — | — | — | 610 | $ | 610 | |||||||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||
Increase in net unrealized holding gains on securities available for sale (pre-tax $412) | — | — | — | — | — | 246 | 246 | 246 | ||||||||||||||||||||||||
Reclassification adjustment for net gains on sales of securities available for sale (pre-tax $8) | — | — | — | — | — | (5 | ) | (5 | ) | (5 | ) | |||||||||||||||||||||
Other comprehensive income, net of tax | 241 | |||||||||||||||||||||||||||||||
Comprehensive income | $ | 851 | ||||||||||||||||||||||||||||||
Expense related to directors’ deferred stock units | — | — | — | — | 36 | — | 36 | |||||||||||||||||||||||||
Distribution of directors’ deferred stock units (7,040 shares) | 1 | 53 | — | 3 | (57 | ) | — | — | ||||||||||||||||||||||||
Vesting of employee stock awards (1,000 shares) | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Expense related to options and employee stock awards | — | 60 | — | — | — | — | 60 | |||||||||||||||||||||||||
Distribution of 5% stock dividend (169,236 shares; 388 treasury shares) | 17 | (17 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Purchases of treasury stock (19,322 shares) | — | — | — | (118 | ) | — | — | (118 | ) | |||||||||||||||||||||||
Balance at December 31, 2008 | $ | 356 | $ | 22,310 | $ | (1,981 | ) | $ | (115 | ) | $ | 36 | $ | 257 | $ | 20,863 | ||||||||||||||||
Net income | — | — | 770 | — | — | — | 770 | $ | 770 | |||||||||||||||||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||||||||||||||||||
Increase in net unrealized holding gains on securities available for sale (pre-tax $491) | — | — | — | — | — | 308 | 308 | 308 | ||||||||||||||||||||||||
Reclassification adjustment for net gains on sales of securities available for sale (pre-tax $607) | — | — | — | — | — | (372 | ) | (372 | ) | (372 | ) | |||||||||||||||||||||
Other comprehensive loss, net of tax | (64 | ) | ||||||||||||||||||||||||||||||
Comprehensive income | $ | 706 | ||||||||||||||||||||||||||||||
Expense related to directors’ deferred stock units | — | — | — | — | 25 | — | 25 | |||||||||||||||||||||||||
Distribution of directors’ deferred stock units (6,630 shares) | — | (1 | ) | — | 37 | (36 | ) | — | — | |||||||||||||||||||||||
Vesting of employee stock awards (9,826 shares) | 1 | (15 | ) | — | 12 | — | — | (2 | ) | |||||||||||||||||||||||
Expense related to options and employee stock awards | — | 68 | — | — | — | — | 68 | |||||||||||||||||||||||||
Purchases of treasury stock (26,648 shares) | — | — | — | (130 | ) | — | — | (130 | ) | |||||||||||||||||||||||
Balance at December 31, 2009 | $ | 357 | $ | 22,362 | $ | (1,211 | ) | $ | (196 | ) | $ | 25 | $ | 193 | $ | 21,530 |
2009 | 2008 | |||||||
Cash flows from operating activities | ($ in thousands) | |||||||
Net income | $ | 770 | $ | 610 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 1,405 | 455 | ||||||
Depreciation and amortization expense on premises and equipment | 220 | 238 | ||||||
Deferred tax benefit | (210 | ) | (150 | ) | ||||
Gain on sale of securities | (607 | ) | (8 | ) | ||||
Net (gain) loss on lease termination and disposal of premises and equipment | (121 | ) | 7 | |||||
Net amortization of premiums and discounts on securities | 91 | — | ||||||
Expense related to stock-based compensation | 93 | 96 | ||||||
Net (increase) decrease in accrued interest receivable | (13 | ) | 154 | |||||
Net increase in other assets | (1,358 | ) | (14 | ) | ||||
Net (decrease) increase in accrued interest payable | (130 | ) | 51 | |||||
Net decrease in other liabilities | (104 | ) | (114 | ) | ||||
Net cash provided by operating activities | 36 | 1,325 | ||||||
Cash flows from investing activities | ||||||||
Purchases of securities available for sale | (22,057 | ) | (13,713 | ) | ||||
Proceeds from sales of securities available for sale | 15,312 | 1,004 | ||||||
Proceeds from maturities and calls of securities available for sale | 1,250 | 4,562 | ||||||
Proceeds from principal paydowns on securities available for sale | 6,859 | 3,139 | ||||||
Purchases of securities held to maturity | (533 | ) | (3,586 | ) | ||||
Proceeds from principal paydowns on securities held to maturity | 1,347 | — | ||||||
Purchases of Federal Home Loan Bank of New York stock | (2,824 | ) | (7,526 | ) | ||||
Redemptions of Federal Home Loan Bank of New York stock | 2,721 | 7,044 | ||||||
Purchases of residential real estate loans | (6,783 | ) | (8,585 | ) | ||||
Net loans repaid by (made to) customers | 18,418 | (16,329 | ) | |||||
Purchases of premises and equipment | (293 | ) | (142 | ) | ||||
Proceeds from lease termination and sales of premises and equipment | 450 | — | ||||||
Net cash provided by (used in) investing activities | 13,867 | (34,132 | ) | |||||
Cash flows from financing activities | ||||||||
Net increase in deposits | 34,657 | 5,626 | ||||||
Net (decrease) increase in overnight lines of credit and other short-term borrowings | (4,086 | ) | 3,858 | |||||
Proceeds from FHLB long-term borrowings | 9,250 | 9,000 | ||||||
Principal repayments of FHLB long-term borrowings | (2,231 | ) | (1,206 | ) | ||||
Purchases of treasury stock | (130 | ) | (118 | ) | ||||
Tax impact related to stock-based compensation | (2 | ) | — | |||||
Net cash provided by financing activities | 37,458 | 17,160 | ||||||
Net increase (decrease) in cash and cash equivalents | 51,361 | (15,647 | ) | |||||
Cash and cash equivalents at beginning of year | 4,883 | 20,530 | ||||||
Cash and cash equivalents at end of year | $ | 56,244 | $ | 4,883 | ||||
Supplemental cash flow information | ||||||||
Interest paid | $ | 5,565 | $ | 6,405 | ||||
Income taxes paid | $ | 870 | $ | 421 | ||||
Supplemental disclosure of non-cash investing and financing activities | ||||||||
Distribution of stock for directors’ deferred stock units | $ | 36 | $ | 57 | ||||
(1) | Summary of Significant Accounting Policies |
The accounting and reporting policies of Fort Orange Financial Corp. and subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America and reporting practices generally followed by the banking industry. The more significant policies are described below. | |
Organization and Principles of Consolidation | |
Fort Orange Financial Corp. (the “Holding Company”) was formed as a Delaware corporation on March 8, 2006 to serve as the bank holding company for Capital Bank & Trust Company (the “Bank”). Effective December 1, 2006, after receiving the required regulatory approvals from the New York State Banking Department (the “Banking Department”) and the Federal Reserve Bank of New York (the “FRB”), the Bank completed its reorganization into the holding company structure and became a wholly-owned subsidiary of Fort Orange Financial Corp. (the “Reorganization”). Each issued and outstanding share of common stock and preferred stock of the Bank was automatically converted into one share of common stock or preferred stock, respectively, of Fort Orange Financial Corp. | |
The Bank is a New York State-chartered financial institution that engages in commercial banking activities primarily in Albany and Saratoga counties and surrounding areas of New York State. The Bank’s primary customers are small to mid-size businesses, professionals, such as doctors, attorneys and accountants, and high net worth individuals. The Bank’s principal lending products are commercial real estate loans, construction and land loans, commercial loans, lines of credit and leases, residential real estate loans, home equity loans and lines of credit, and consumer installment loans and lines of credit. Deposit products include demand deposits, money market accounts, savings accounts and time deposits. The Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC& #8221;) and the Banking Department. The Holding Company is regulated by the FRB. | |
The consolidated financial statements include the accounts of the Holding Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. | |
Basis of Presentation | |
The Company utilizes the accrual method of accounting for financial reporting purposes. Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation. Such reclassifications had no impact on net income. | |
Use of Estimates | |
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. | |
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the evaluation of other-than-temporary impairment of securities, and the valuation of deferred tax assets. |
Cash and Cash Equivalents | |
For purposes of the consolidated statements of cash flows, cash and cash equivalents consists of cash on hand, due from banks, federal funds sold, short-term investments with an original maturity of 90 days or less (including money market investments), and interest-bearing deposits at other banks. | |
Securities | |
Management determines the appropriate classification of securities at the time of purchase. If management has the positive intent and ability to hold debt securities to maturity, they are classified as securities held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using an effective interest method. If securities are purchased for the purpose of selling them in the near term, they are classified as trading securities and are reported at fair value with unrealized holding gains and losses reflected in current earnings. All other debt and marketable equity securities are classified as securities available for sale and are reported at fair value, with net unrealized gains or losses reported, net of income taxes, in accumulated other comprehensive income or loss. At December 31, 2009 and 2008, and during the years then ended, the Company did not hold any securities considered to be trading securities. |
Gains or losses on the disposition of securities are based on the net proceeds received and the adjusted carrying amount of the securities sold using the specific identification method. Declines in the fair value of available for sale and held to maturity securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, which may be maturity. | |
Federal Home Loan Bank of New York Stock | |
As a member of the Federal Home Loan Bank of New York (the “FHLB”), the Company is required to hold stock in the FHLB according to predetermined formulas set by the FHLB. FHLB stock is carried at cost since it has no readily available market value. The stock cannot be sold, but can be redeemed by the FHLB at cost. Dividends on FHLB stock are recorded when declared by the FHLB. | |
Loans | |
Loans are carried at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and the allowance for loan losses. Nonrefundable loan fees and direct loan origination costs are deferred and amortized over the estimated life of the loan as an adjustment to the yield. | |
Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of principal and/or interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. The Company generally does not accrue interest on loans that are 90 days or more past due for the payment of principal and/or interest unless active collection efforts and/or the value of the collateral, if any, indicate that full recovery is probable. Payments received on non-accrual loans are generally applied to reduce the unpaid principal balance, however, interest on non-accrual loans may also be recognized as payments are received. Loans are returned to accrual status when all contract ual principal and interest payments are brought current and future payments are reasonably assured. |
Loans are considered impaired when it is probable that the borrower will not repay the loan according to the original contractual terms of the loan agreement, or when a loan (of any loan type) is restructured in a troubled debt restructuring. Smaller balance, homogeneous loans that are collectively evaluated for impairment, such as residential real estate loans, home equity loans and lines of credit, and consumer loans and lines of credit, are specifically excluded from classification as impaired loans unless such loans are restructured in a troubled debt restructuring. The balance of impaired loans is generally the same as the balance of commercial, commercial real estate and construction loans on non-accrual status. The allowance for loan losses related to impaired loans is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain loans where repayment of the loan is expected to be provided solely by the underlying collateral (collateral dependent loans). | |
Allowance for Loan Losses | |
The allowance for loan losses is increased through a provision for loan losses charged to operations. Loans, or portions thereof, are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for loan losses when received. | |
The allowance is an amount that management believes will be necessary to absorb probable losses on existing loans. Management’s evaluation of the allowance for loan losses is performed on a periodic basis. Historical loss rates are applied to existing loans with similar characteristics. The historical loss rates used to establish the allowance may be adjusted to reflect management’s current assessment of various factors. The impact of economic conditions on the creditworthiness of the borrowers is considered, as well as changes in the experience, ability and depth of lending management and staff, changes in the composition and volume of the loan portfolio, trends in the volume of past due, non-accrual and classified loans, as well as other external factors, such as competition, legal developments and regulatory guidelines. |
Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, Federal and state bank regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination, which may not be currently available to management. | |
Premises and Equipment | |
Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the related leases, including any probable renewals, or the estimated useful lives of the assets. |
Foreclosed Real Estate and Repossessed Property | |
Foreclosed real estate, comprised of real estate acquired through foreclosure and in-substance foreclosures, and repossessed property are recorded at the fair value of the asset acquired less estimated disposal costs. A loan is categorized as an in-substance foreclosure when the Company has taken possession of the collateral, regardless of whether formal foreclosure proceedings have taken place. At the time of foreclosure or repossession, or when foreclosure occurs in-substance, the excess, if any, of the recorded investment in the loan over the fair value of the property received is charged to the allowance for loan losses. Subsequent declines in the value of foreclosed and repossessed property and net operating expenses are charged directly to other operating expenses. Properties are reapprais ed, as considered necessary by management, and written down to the fair value less the estimated cost to sell the property, if necessary. | |
Income Taxes | |
The Company accounts for income taxes in accordance with the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized subject to management’s judgment that those assets will more likely than not be realized. A valuation allowance is recognized if, based on an analysis of available evidence, management believes that all or a portion of the deferred tax assets will not be realized. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense/benefit. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest and penalties related to income taxes, if any, are recognized as a component of income tax expense. | |
On January 1, 2009, the Company adopted accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of reserves to maintain for uncertain tax positions. The impact of the adoption of this guidance was not significant. | |
Transfers of Financial Assets | |
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. |
Repurchase Agreements | |
The Company may enter into sales of securities under agreements to repurchase (“repurchase agreements”). The Company transfers the underlying securities to a third party custodian’s account that explicitly recognizes the Company’s interest in the securities. Provided the Company maintains effective control over the transferred securities, the repurchase agreements are accounted for as borrowings. The obligations to repurchase securities sold are reflected as a liability within borrowings in the consolidated balance sheet, while the securities underlying the agreements continue to be carried in the Company’s securities portfolios. |
Stock-Based Compensation | |
The Company has several stock-based compensation plans, which are more fully described in Note 10. The Company has also adopted a Stock Unit Plan for non-employee directors. Under the Stock Unit Plan, non-employee directors are awarded “stock units” for attendance at board and committee meetings. The stock units earned are immediately vested and can only be forfeited if the director is terminated for “cause” (as defined in the plan). Each stock unit is equivalent to one share of common stock; there is no option for a cash payment. The shares of stock earned in each calendar year are distributed to the directors in the subsequent calendar year. | |
The Company follows the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification TM (“ASC”) section 718 (FASB ASC 718) in accounting for stock-based compensation. FASB ASC 718 requires an entity to recognize the expense of employee services received in share-based payment transactions and measure the expense based on the grant date fair value of the award. The expense is recognized over the period during which an employee is required to provide service in exchange for the award. Stock-based employee compensation expense is included in salaries and benefits in the consolidated statements of income, while stock-b ased compensation expense related to directors is included in other expenses. | |
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model using assumptions concerning expected volatility, expected dividend yield, expected term and a risk-free interest rate. Because the Company’s stock options have characteristics significantly different from those of traded options for which the Black-Scholes model was developed, and because changes in the subjective input assumptions can materially affect the fair value estimates, the existing model, in management’s opinion, does not necessarily provide a reliable single measure of the fair value of its stock options. | |
In determining the assumption for expected volatility, management considers both the historical volatility of the Company’s stock, which is very thinly traded, as well as various published indices for publicly-traded financial institutions similar in size to the Company. The expected dividend yield is estimated based on the current dividend yield of the Company’s stock, adjusted for any anticipated future changes over the expected term of the options. Historical option exercise and employee termination activity is used to estimate the expected term of the options granted and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for bonds approximating the expected term of the opt ion at the grant date. | |
The following weighted-average assumptions were used for stock options granted during the year ended December 31, 2008 (no stock options were granted during 2009): expected volatility of 20.0%; no dividend yield; expected term of 7.4 years; and risk-free interest rate of 3.01%. The weighted-average fair value at the grant date for the options granted during 2008 was $1.64. | |
The fair value of restricted (or nonvested) shares awarded, measured as of the grant date, is recognized and amortized on a straight-line basis to compensation expense over the vesting period of the awards, with the offsetting credit to additional paid-in capital. | |
The fair value of the stock units earned by the directors, measured as of the date of the meeting, is recorded as compensation expense, as the stock units are immediately vested and can only be forfeited if the director is terminated for “cause” (as defined in the plan). |
Stock Dividend | |
On April 29, 2008, the Company declared a 5% common stock dividend, which was distributed on May 30, 2008, to stockholders of record as of May 16, 2008. If the Company had accumulated profits (retained earnings), the Company would have transferred the fair market value of the shares issued from retained earnings to common stock and additional paid-in capital. Since the Company had an accumulated deficit at the date of the stock dividend, the par value of the shares issued was transferred from additional paid-in capital to common stock. | |
Earnings Per Share | |
Basic earnings per share is calculated by dividing net income less dividends on convertible preferred stock (if any) by the weighted-average number of common shares outstanding during the period, including the stock units awarded under the Stock Unit Plan, which are considered to be contingently issuable shares. | |
Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as convertible preferred stock, stock options and restricted stock) were issued or became vested during the reporting period. | |
All share and per share information has been retroactively adjusted to give effect to the 5% common stock dividend distributed in May 2008. | |
Financial Instruments | |
In the normal course of business, the Company is a party to certain financial instruments with off-balance sheet risk, such as commitments to extend credit, unadvanced construction loans, unused lines of credit and standby letters of credit. The Company’s policy is to record such instruments when funded. | |
Comprehensive Income/Loss | |
Comprehensive income/loss represents the sum of net income and items of other comprehensive income/loss, which are reported directly in stockholders’ equity, net of tax, such as the change in the net unrealized gain or loss on securities available for sale. Accumulated other comprehensive income/loss, which is a component of stockholders’ equity, represents the net unrealized gain or loss on securities available for sale, net of tax. | |
Advertising | |
Advertising costs are expensed as incurred and totaled approximately $53,000 and $43,000 for the years ended December 31, 2009 and 2008, respectively. | |
Segment Reporting | |
The overwhelming majority of the Company’s operations are in the banking industry and include providing to its customers traditional banking services. The Company operates primarily in Albany and Saratoga counties and surrounding areas of New York State. Management makes operating decisions and assesses performance based on an ongoing review of its banking operations, which constitute the Company’s only reportable segment. | |
Subsequent Events | |
The Company has evaluated subsequent events through February 27, 2010, which is the date the consolidated financial statements were available to be issued. |
(2) | Preferred Stock |
As of December 31, 2009, the Company had 1,000,000 shares of authorized preferred stock that may be issued by the Board of Directors from time to time in one or more series, with each series having the rights and privileges determined by the Board of Directors in their best judgment. There was no preferred stock outstanding during 2009 or 2008. |
(3) | Earnings Per Share |
The following table sets forth certain information regarding the calculation of basic and diluted earnings per share for the years ended December 31. All share and per share amounts have been retroactively adjusted to give effect to the 5% common stock dividend distributed in May 2008. |
2009 | 2008 | |||||||
($ in thousands, except per share data) | ||||||||
Net income | $ | 770 | $ | 610 | ||||
Weighted-average common shares outstanding, including stock units awarded under the Stock Unit Plan | 3,538 | 3,549 | ||||||
Dilutive effect of outstanding stock options and stock awards | 1 | 3 | ||||||
Weighted-average common shares outstanding, assuming dilution | 3,539 | 3,552 | ||||||
Basic earnings per common share | $ | 0.22 | $ | 0.17 | ||||
Diluted earnings per common share | $ | 0.22 | $ | 0.17 |
As of December 31, 2009, there were 276,909 stock options outstanding with a weighted-average exercise price of $5.98 that were excluded from the computation of diluted earnings per common share as the impact was anti-dilutive. At that same date, there were also 55,282 nonvested stock awards outstanding with a weighted-average grant date fair value of $6.19 that were excluded from the computation of diluted earnings per common share as the impact was anti-dilutive. |
(4) | Securities |
The amortized cost, gross unrealized gains and losses and approximate fair value of securities at December 31, 2009 and 2008 are as follows: |
2009 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Approximate Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Available for Sale: | ||||||||||||||||
Agency mortgage-backed securities (1) | $ | 10,300 | $ | 246 | $ | (10 | ) | $ | 10,536 | |||||||
Agency collateralized mortgage obligations (1) | 10,738 | 159 | (41 | ) | 10,856 | |||||||||||
Private collateralized mortgage obligations (1) | 1,273 | — | (26 | ) | 1,247 | |||||||||||
SBA guaranteed loan pools | 2,278 | — | (14 | ) | 2,264 | |||||||||||
Total securities available for sale | $ | 24,589 | $ | 405 | $ | (91 | ) | $ | 24,903 | |||||||
Held to Maturity: | ||||||||||||||||
U.S. agency securities | $ | 1,540 | $ | 58 | $ | — | $ | 1,598 | ||||||||
Agency collateralized mortgage obligations (1) | 1,179 | 21 | — | 1,200 | ||||||||||||
Total securities held to maturity | $ | 2,719 | $ | 79 | $ | — | $ | 2,798 |
2008 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Approximate Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Available for Sale: | ||||||||||||||||
U.S. agency securities | $ | 1,249 | $ | 16 | $ | — | $ | 1,265 | ||||||||
Agency mortgage-backed securities (1) | 16,605 | 373 | (3 | ) | 16,975 | |||||||||||
Agency collateralized mortgage obligations (1) | 5,646 | 131 | — | 5,777 | ||||||||||||
Private collateralized mortgage obligations (1) | 1,883 | — | (87 | ) | 1,796 | |||||||||||
Total securities available for sale | $ | 25,383 | $ | 520 | $ | (90 | ) | $ | 25,813 | |||||||
Held to Maturity: | ||||||||||||||||
U.S. agency securities | $ | 2,045 | $ | 32 | $ | — | $ | 2,077 | ||||||||
Agency collateralized mortgage obligations (1) | 1,541 | 2 | (6 | ) | 1,537 | |||||||||||
Total securities held to maturity | $ | 3,586 | $ | 34 | $ | (6 | ) | $ | 3,614 |
The following table sets forth information with regard to securities with unrealized losses at December 31, 2009 and 2008, segregated according to the length of time the securities had been in a continuous unrealized loss position as of that date: |
2009 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Security category | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||
Agency mortgage- backed securities | $ | 1,025 | $ | (10 | ) | $ | — | $ | — | $ | 1,025 | $ | (10 | ) | ||||||||||
Agency collateralized mortgage obligations | 2,967 | (41 | ) | — | — | 2,967 | (41 | ) | ||||||||||||||||
Private collateralized mortgage obligations | 781 | (9 | ) | 466 | (17 | ) | 1,247 | (26 | ) | |||||||||||||||
SBA guaranteed loan pools | 2,264 | (14 | ) | — | — | 2,264 | (14 | ) | ||||||||||||||||
Total | $ | 7,037 | $ | (74 | ) | $ | 466 | $ | (17 | ) | $ | 7,503 | $ | (91 | ) |
2008 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Security category | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||
Agency mortgage-backed securities | $ | 785 | $ | (3 | ) | $ | — | $ | — | $ | 785 | $ | (3 | ) | ||||||||||
Private collateralized mortgage obligations | 1,531 | (85 | ) | 265 | (2 | ) | 1,796 | (87 | ) | |||||||||||||||
Held to Maturity: | ||||||||||||||||||||||||
Agency mortgage-backed securities | 737 | (6 | ) | — | — | 737 | (6 | ) | ||||||||||||||||
Total | $ | 3,053 | $ | (94 | ) | $ | 265 | $ | (2 | ) | $ | 3,318 | $ | (96 | ) |
At December 31, 2009, the unrealized losses on the Company’s securities were caused primarily by changes in market interest rates and widening of sector spreads between the date the respective securities were purchased and December 31, 2009. The unrealized losses relate to eleven individual securities, all of which have the highest available credit rating from nationally recognized rating agencies. Because the unrealized losses are related primarily to changes in market interest rates and widening of sector spreads and are not necessarily related to the underlying credit quality of the issuers of the securities, coupled with the fact that the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortiz ed cost bases, which may be maturity, the Company does not consider any of these securities to be other-than-temporarily impaired at December 31, 2009. |
Shown below are the amortized cost and approximate fair value of debt securities as of December 31, 2009, by contractual maturity (excluding mortgage-backed securities, collateralized mortgage obligations and SBA guaranteed loan pools). Actual maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without prepayment penalties. In addition, issuers of certain securities may have the right to call obligations without prepayment penalties. |
Available for Sale | Held to Maturity | |||||||||||||||
Amortized Cost | Approximate Fair Value | Amortized Cost | Approximate Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Due in one year or less | $ | — | $ | — | $ | — | $ | — | ||||||||
Due after one through five years | — | — | 1,540 | 1,598 | ||||||||||||
Due after five through ten years | — | — | — | — | ||||||||||||
Due after ten years | — | — | — | — | ||||||||||||
Total | $ | — | $ | — | $ | 1,540 | $ | 1,598 |
The Company received $15.3 million and $1.0 million in proceeds from the sale of securities available for sale during the years ended December 31, 2009 and 2008, respectively, realizing gains of $607,000 and $8,000. There were no losses in either 2009 or 2008. | |
Securities with a carrying value of $26.1 million and $29.4 million at December 31, 2009 and 2008, respectively, were pledged to secure public deposits, outstanding or available borrowings, and for other purposes as required by law. |
(5) | Loans |
A summary of net loans as of December 31 is as follows: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Commercial | $ | 69,003 | $ | 75,294 | ||||
Commercial real estate | 59,011 | 43,704 | ||||||
Construction and land | 28,063 | 44,777 | ||||||
Residential real estate | 34,993 | 41,473 | ||||||
Home equity | 7,223 | 5,825 | ||||||
Consumer | 282 | 359 | ||||||
Total loans | 198,575 | 211,432 | ||||||
Allowance for loan losses | (2,113 | ) | (1,930 | ) | ||||
Net loans | $ | 196,462 | $ | 209,502 |
For purposes of the table above, commercial real estate loans include those loans secured by real estate collateral where less than 50% of the underlying property securing the loan is owner-occupied. If a loan is secured by real estate collateral but the underlying property securing the loan is 50% or more owner-occupied, the loan is classified as a commercial loan. | |
Included in the loan balances in the table above were $105,000 and $175,000 of unamortized net deferred loan origination costs at December 31, 2009 and 2008, respectively. | |
At December 31, 2009, approximately $24.4 million of residential real estate loans and approximately $29.3 million of commercial real estate and commercial loans were pledged as collateral for outstanding or available FHLB borrowings. | |
Changes in the allowance for loan losses during the years ended December 31 were as follows: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Allowance at beginning of year | $ | 1,930 | $ | 1,715 | ||||
Provision for loan losses | 1,405 | 455 | ||||||
Loans charged-off | (1,281 | ) | (300 | ) | ||||
Recoveries of loans charged-off | 59 | 60 | ||||||
Allowance at end of year | $ | 2,113 | $ | 1,930 |
Total non-performing loans at December 31, 2009 and 2008 consisted solely of loans in non-accrual status and amounted to approximately $1.4 million and $787,000, respectively. At December 31, 2008, there were also loans totaling $870,000 that were greater than 90 days past due and still accruing interest (none at December 31, 2009). At both December 31, 2009 and 2008, there were no material commitments to extend further credit to borrowers with non-performing loans. | |
Contractual interest on the non-accrual loans noted above of approximately $90,000 and $64,000, was not recognized in interest income during the years ended December 31, 2009 and 2008, respectively. The amount of interest on the non-accrual loans noted above that was collected and recognized in interest income during the years ended December 31, 2009 and 2008, was not significant. | |
At December 31, 2009 and 2008, the recorded investment in loans that are considered to be impaired totaled approximately $468,000 and $597,000, respectively, for which the allocated allowance for loan losses was approximately $185,000 at December 31, 2009, and approximately $241,000 at December 31, 2008. There were no impaired loans at December 31, 2009 or 2008 that did not require an allocation of the allowance for loan losses. The average recorded investment in impaired loans during the years ended December 31, 2009 and 2008 was approximately $1.6 million and $899,000, respectively. The interest income accrued on those impaired loans or recognized using the cash basis of income recognition was not significant for the years ended December 31, 2009 or 2008. |
At December 31, 2009 and 2008, outstanding loans to directors, executive officers or their affiliates totaled $4.6 million and $4.3 million, respectively. During 2009, new loans or advances to such related parties amounted to $7.7 million and repayments amounted to $7.4 million. Loans made by the Company to directors, executive officers or their affiliates were made in the ordinary course of business, on substantially the same terms, including interest rates and collateralization, as those prevailing at the time for comparable transactions with other persons or entities. See also Notes 7 and 12 for additional related party disclosures. |
(6) | Premises and Equipment |
A summary of premises and equipment at December 31 is as follows: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Leasehold improvements | $ | 914 | $ | 1,141 | ||||
Furniture and equipment | 951 | 987 | ||||||
Data processing equipment, including software | 1,316 | 1,302 | ||||||
Total | 3,181 | 3,430 | ||||||
Accumulated depreciation and amortization | (2,306 | ) | (2,299 | ) | ||||
Premises and equipment, net | $ | 875 | $ | 1,131 |
Depreciation and amortization expense was $220,000 and $238,000 for the years ended December 31, 2009 and 2008, respectively. | |
(7) | Deposits |
A summary of time deposit maturities at December 31, 2009 is as follows: |
$100,000 and Over | Other Time Deposits | |||||||
($ in thousands) | ||||||||
Years ending December 31: | ||||||||
2010 | $ | 31,561 | $ | 17,523 | ||||
2011 | 9,270 | 6,567 | ||||||
2012 | 1,995 | 2,080 | ||||||
2013 | 3,939 | 810 | ||||||
2014 | 3,351 | 2,894 | ||||||
Thereafter | 200 | — | ||||||
Totals | $ | 50,316 | $ | 29,874 |
At December 31, 2009, deposits from directors, executive officers or their affiliates totaled approximately $10.9 million. Deposits with directors, executive officers or their affiliates were accepted in the ordinary course of business, on substantially the same terms, including interest rates, as those prevailing at the time for comparable transactions with other persons or entities. See also Notes 5 and 12 for additional related party disclosures. | |
(8) | Borrowings |
The following is a summary of borrowings at December 31: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
FHLB overnight line of credit (variable rate) | $ | — | $ | 5,840 | ||||
Repurchase agreements (variable rate) | 5,761 | 4,007 | ||||||
FHLB advances (fixed rate) | 35,676 | 28,657 | ||||||
Total borrowings | $ | 41,437 | $ | 38,504 |
The following table sets forth certain information with respect to short-term lines of credit and repurchase agreements at and for the years indicated: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Short-Term Lines of Credit | ||||||||
Balance at end of year | $ | — | $ | 5,840 | ||||
Maximum month-end balance | 5,800 | 13,320 | ||||||
Average balance during the year | 1,279 | 2,400 | ||||||
Weighted-average interest rate at end of year | — | 0.44 | % | |||||
Weighted-average interest rate during the year | 0.47 | % | 1.82 | % | ||||
Repurchase Agreements | ||||||||
Balance at end of year | $ | 5,761 | $ | 4,007 | ||||
Maximum month-end balance | 5,761 | 6,182 | ||||||
Average balance during the year | 4,187 | 2,960 | ||||||
Weighted-average interest rate at end of year | 0.33 | % | 0.34 | % | ||||
Weighted-average interest rate during the year | 0.31 | % | 1.45 | % |
At December 31, 2009, the fair value of securities pledged under repurchase agreements totaled $9.7 million. | |
Certain of the Company’s FHLB advances at December 31, 2009 are callable by the FHLB at one or more dates in the future. If an advance is called by the FHLB, the Company has the option to replace the called advance with a new advance at market terms or to repay the advance. The following table sets forth the contractual maturities of all FHLB advances and the amounts callable at the next call date for the callable FHLB advances at December 31, 2009: |
Contractual Maturity | Weighted- Average Rate | Next Call Date | Weighted- Average Rate | |||||||||||||
($ in thousands) | ||||||||||||||||
Years ending December 31: | ||||||||||||||||
2010 | $ | 4,464 | 2.20 | % | $ | 14,000 | 3.45 | % | ||||||||
2011 | 5,462 | 3.97 | 1,000 | 2.90 | ||||||||||||
2012 | 7,250 | 3.51 | — | — | ||||||||||||
2013 | 3,750 | 3.06 | — | — | ||||||||||||
2014 | 5,750 | 3.63 | — | — | ||||||||||||
Thereafter | 9,000 | 3.38 | — | — | ||||||||||||
Total fixed rate FHLB advances | $ | 35,676 | 3.35 | % | $ | 15,000 | 3.41 | % |
At December 31, 2009, the Bank had available short-term lines of credit of $50.0 million with the FHLB, subject to the amount of available collateral. At December 31, 2009, there were no amounts outstanding against these lines of credit with the FHLB. All borrowings with the FHLB, including short-term lines of credit and longer-term advances, must be collateralized by securities, qualifying loans and/or FHLB stock under a blanket pledge agreement with the FHLB. Based on the amount of specific collateral pledged, the Bank could have borrowed a maximum of $48.2 million from the FHLB as of December 31, 2009, of which $35.7 million was outstanding. | |
The Bank also has a $3.0 million unsecured line of credit available with a correspondent financial institution. The Holding Company has a $5.0 million secured line of credit available with a different financial institution. The Holding Company’s line of credit is collateralized by its ownership in the Bank’s stock. There were no advances outstanding on either of these lines of credit at December 31, 2009. | |
(9) | Regulatory Matters |
Regulations require banks to maintain a minimum leverage ratio of Tier 1 capital to total adjusted quarterly average assets of 4.0%, and minimum ratios of Tier 1 capital and total capital to risk-weighted assets of 4.0% and 8.0%, respectively. |
Under their prompt corrective action regulations, regulatory authorities are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution’s financial statements. The regulations establish a framework for the classification of banks into five categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a Tier 1 capital ratio of at least 5.0% (based on total adjusted quarterly average assets); a Tier 1 risk-based capital ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%. | |
The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulatory authorities about capital components, risk weightings and other factors. | |
As of December 31, 2009 and 2008, the Bank met the capital adequacy requirements noted above. Further, as of December 31, 2009, the Bank was categorized as a well-capitalized institution under the prompt corrective action regulations. | |
The following is a summary of actual capital amounts and ratios as of December 31, 2009 and 2008 for the Bank, compared to the standard requirements for minimum capital adequacy and for classification as well-capitalized. |
Required Amounts and Ratios | |||||||||||||||||||||
Actual Capital | Minimum Capital Adequacy | Classification as Well-Capitalized | |||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||
($ in thousands) | |||||||||||||||||||||
As of December 31, 2009: | |||||||||||||||||||||
Tier 1 Capital (to Average | |||||||||||||||||||||
Adjusted Total Assets) | $ | 21,156 | 7.62 | % | $ | 11,099 | 4.00 | % | $ | 13,874 | 5.00 | % | |||||||||
Tier 1 Capital (to Risk- Weighted Assets) | 21,156 | 10.81 | % | 7,832 | 4.00 | % | 11,748 | 6.00 | % | ||||||||||||
Total Capital (to Risk- Weighted Assets) | 23,269 | 11.88 | % | 15,664 | 8.00 | % | 19,580 | 10.00 | % | ||||||||||||
As of December 31, 2008: | |||||||||||||||||||||
Tier 1 Capital (to Average Adjusted Total Assets) | $ | 20,302 | 8.41 | % | $ | 9,658 | 4.00 | % | $ | 12,072 | 5.00 | % | |||||||||
Tier 1 Capital (to Risk- Weighted Assets) | 20,302 | 10.06 | % | 8,072 | 4.00 | % | 12,108 | 6.00 | % | ||||||||||||
Total Capital (to Risk-Weighted Assets) | 22,232 | 11.02 | % | 16,144 | 8.00 | % | 20,180 | 10.00 | % |
The ability of the Bank to pay dividends to the Holding Company is subject to various restrictions. Under New York State Banking Law, dividends may be declared and paid only from the Bank’s net profits, as defined. The approval of the Superintendent of Banks of the State of New York (the “Superintendent”) is required if the total of all dividends declared in any year will exceed the net profit for that year plus the retained net profits of the preceding two years. As of December 31, 2009, the Bank could have paid approximately $2.2 million in dividends to the Holding Company without the prior approval of the Superintendent. | |
In February 2006, the Federal Reserve Board (the “Board”) approved a final rule that expands the definition of a small bank holding company (“SBHC”) under the Board’s Small Bank Holding Company Policy Statement (the “Policy Statement”) and the Board’s leverage and risk-based capital guidelines for bank holding companies. In its revisions to the Policy Statement, the Board raised the SBHC asset size threshold from $150 million to $500 million and amended the related qualitative criteria for determining eligibility as a SBHC for the purposes of the Policy Statement and the capital guidelines. The Policy Statement permits debt levels at SBHCs that are higher than what would typically be permitted for larger bank holding companies. Because SBHCs may, consistent w ith the Policy Statement, operate at a level of leverage that generally is inconsistent with the capital guidelines, the capital guidelines provide an exemption for SBHCs. Based on the eligibility criteria specified in the Policy Statement, management believes that the Holding Company currently qualifies as a SBHC and is exempt from the regulatory capital requirements administered by the federal banking agencies. |
(10) | Stock-Based Compensation and Employee Benefit Plans |
Stock-Based Compensation | |
As of December 31, 2009, the Company has the following stock-based compensation plans which have been approved by the stockholders: the Fort Orange Financial Corp. 2007 Stock-Based Incentive Plan (the “FOFC 2007 Plan”); the 1996 Stock Option Plan for Key Employees (the “1996 Employee Plan”); the 1997 Stock Option Plan for Key Employees (the “1997 Employee Plan”); the 1996 Stock Option Plan for Non-Employee Directors (the “1996 Director Plan”); and the Stock Unit Plan for non-employee directors (the “Stock Unit Plan”) (collectively, the “Stock Compensation Plans”). | |
The total compensation cost that was charged against income for the Stock Compensation Plans was approximately $93,000 and $96,000 for the years ended December 31, 2009 and 2008, respectively. The total income tax benefit recognized in the consolidated statements of income for stock-based compensation arrangements was approximately $24,000 and $28,000 for the years ended December 31, 2009 and 2008, respectively. | |
As of December 31, 2009, there were 61,357 shares of authorized common stock reserved for issuance under the 1996 Employee Plan, the 1997 Employee Plan, and the 1996 Director Plan. The Company also has the alternative to fund option exercises under these plans with treasury stock. As of December 31, 2009, there were no shares available for future grant under these three plans. All options granted under these plans were non-qualified stock options. Each option entitles the holder to purchase one share of common stock at an exercise price equal to the estimated fair market value on the date of grant. Options expire ten years following the date of grant. The vesting provisions for options granted under the 1996 Employee Plan and the 1997 Employee Plan were determined by a comm ittee of the Board of Directors at the date of grant. The options granted under the 1996 Director Plan vest over a three year period (40% after year one, 33% after year two, and 27% after year three). | |
Under the FOFC 2007 Plan, 315,000 shares of authorized common stock are reserved for issuance upon the exercise of stock options or the vesting of restricted stock (“stock awards”) (of the 315,000 shares available, no more than 105,000 may be granted in the form of stock awards). The Company also has the alternative to fund the FOFC 2007 Plan with treasury stock. As of December 31, 2009, the Company had 23,704 shares available for future grant under the FOFC 2007 Plan. Options under the FOFC 2007 Plan may be either non-qualified stock options or incentive stock options. Each option entitles the holder to purchase one share of common stock at an exercise price greater than or equal to the estimated fair market value on the date of grant. Options expire no later than ten yea rs following the date of grant. The vesting provisions for options and stock awards granted under the FOFC 2007 Plan are determined by a committee of the Board of Directors at the date of grant. | |
The vesting of all stock options and stock awards is immediately accelerated in the event of a change-in-control of the Company, as defined in the respective plans. | |
The primary objective of the Stock Compensation Plans is to enhance the Company’s ability to attract and retain highly qualified officers, employees and directors, by providing such persons with stronger incentives to continue to serve the Company and to improve the business results and earnings of the Company. |
A summary of option activity under the Stock Compensation Plans as of December 31, 2009, and changes during the year then ended, is presented below: |
Options | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term in Years | Aggregate Intrinsic Value ($ in 000s) | ||||||||||||
Outstanding at December 31, 2008 | 308,251 | $ | 5.98 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited, cancelled or expired | (31,342 | ) | 5.96 | |||||||||||||
Outstanding at December 31, 2009 | 276,909 | $ | 5.98 | 7.5 | $ | — | ||||||||||
Exercisable at December 31, 2009 | 84,523 | $ | 5.70 | 5.5 | $ | — |
There were no options exercised during either 2009 or 2008. The total remaining unrecognized compensation cost related to nonvested stock options at December 31, 2009 was approximately $310,000 (subject to actual forfeitures), which will be recognized over a weighted-average period of approximately 4.1 years. | |
A summary of restricted stock activity as of December 31, 2009, and changes during the year then ended, is presented below: |
Weighted- Average Grant Date | ||||||||
Restricted Stock | Shares | Fair Value | ||||||
Nonvested at December 31, 2008 | 79,800 | $ | 5.84 | |||||
Granted | — | — | ||||||
Vested | (9,826 | ) | 6.00 | |||||
Forfeited or cancelled | (4,006 | ) | 5.51 | |||||
Nonvested at December 31, 2009 | 65,968 | $ | 5.84 |
The total fair value of restricted shares that vested during 2009 and 2008 was $45,000 and $7,000, respectively (calculated as of the vesting date). The total remaining unrecognized compensation cost related to nonvested stock awards at December 31, 2009 was approximately $372,000 (subject to actual forfeitures), which will be recognized over a weighted-average period of approximately 4.0 years. | |
During the years ended December 31, 2009 and 2008, 5,485 and 6,630 shares, respectively, were earned by directors under the Stock Unit Plan. The weighted-average fair value of the shares earned during the years ended December 31, 2009 and 2008 was $4.52 and $5.47, respectively. As of December 31, 2009, there were 5,485 shares that had been earned under the Stock Unit Plan, but not yet distributed. | |
401(k) Plan | |
The Company sponsors a defined contribution 401(k) plan covering substantially all employees meeting certain eligibility requirements. During 2009 and 2008, the Company matched 100% of an eligible employee’s pre-tax contributions up to a maximum contribution by the Company of 4% of the employee’s annual salary. The amount of 401(k) contribution expense was approximately $65,000 in each of the years ended December 31, 2009 and 2008, respectively. |
(11) | Income Taxes |
The components of income tax expense for the years ended December 31 are as follows: |
2009 | 2008 | |||||||
Current tax expense: | ($ in thousands) | |||||||
Federal | $ | 584 | $ | 453 | ||||
State | 140 | 105 | ||||||
Deferred tax benefit | (210 | ) | (150 | ) | ||||
Total income tax expense | $ | 514 | $ | 408 |
The following is a reconciliation of the expected income tax expense and the actual income tax expense for the years ended December 31. The expected income tax expense has been computed by applying the statutory federal tax rate of 34% to income before taxes: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Tax expense at statutory rates | $ | 437 | $ | 346 | ||||
State taxes, net of federal benefit | 62 | 51 | ||||||
Other | 15 | 11 | ||||||
Actual income tax expense | $ | 514 | $ | 408 |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Deferred tax assets: | ||||||||
Allowance for loan losses | $ | 660 | $ | 381 | ||||
Compensation agreements | 51 | 63 | ||||||
Depreciation | 16 | 79 | ||||||
Other | 48 | 43 | ||||||
Total deferred tax assets | 775 | 566 |
Deferred tax liabilities: | ||||||||
Bond discount accretion | — | (1 | ) | |||||
Net unrealized gains on securities available for sale | (121 | ) | (172 | ) | ||||
Total deferred tax liabilities | (121 | ) | (173 | ) | ||||
Net deferred tax asset at end of year | $ | 654 | $ | 393 |
Based on anticipated future taxable income, management believes it is more likely than not that the Company will realize its net deferred tax assets. | |
The Company files income tax returns in the U.S. federal jurisdiction and in New York State. With few exceptions, the Company is no longer subject to U.S. federal and New York State examinations by tax authorities for years before 2006. On February 9, 2010, the Company received notice from the Internal Revenue Service that they would be examining the Company’s 2007 and 2008 U.S. federal income tax returns. |
(12) | Related Party Transactions |
The Company has had, and may be expected to have in the future, transactions with directors, their immediate families and affiliated companies in which they are principals (commonly referred to as “related parties”). The Company believes that the transactions with the related parties have been conducted on market terms. A summary of non-loan/deposit transactions with related parties during the years ended December 31 is as follows: |
2009 | 2008 | |||||||
($ in thousands) | ||||||||
Occupancy-related | $ | 360 | $ | 212 | ||||
Advertising and public relations | $ | 17 | $ | 17 | ||||
Legal services | $ | 46 | $ | 34 |
In addition, during 2009 and 2008, the Company purchased approximately $3.0 million and $7.0 million, respectively, of loans secured by residential real estate from a mortgage banker in which a director of the Company has an ownership interest. The Company believes the loan purchases were conducted on market terms and conditions. See also Notes 5 and 7 regarding loans to and deposits with related parties. | |
(13) | Commitments and Contingent Liabilities |
Off-Balance Sheet Financing and Concentrations of Credit | |
The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include the Company’s commitments to extend credit and unused lines of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. | |
The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit and unused lines of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. | |
Unless otherwise noted, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. | |
Contract amounts of financial instruments that represent credit risk as of December 31 are as follows: |
2009 | ||||||||||||
Fixed | Variable | Total | ||||||||||
($ in thousands) | ||||||||||||
Commitments to extend credit | $ | 4,702 | $ | 1,320 | $ | 6,022 | ||||||
Commitments to purchase loans | — | 83 | 83 | |||||||||
Unadvanced construction and land loans | 928 | 7,557 | 8,485 | |||||||||
Unused lines of credit | 964 | 28,558 | 29,522 | |||||||||
Standby letters of credit | 961 | — | 961 | |||||||||
Total | $ | 7,555 | $ | 37,518 | $ | 45,073 |
2008 | ||||||||||||
Fixed | Variable | Total | ||||||||||
($ in thousands) | ||||||||||||
Commitments to extend credit | $ | 3,288 | $ | — | $ | 3,288 | ||||||
Commitments to purchase loans | 133 | — | 133 | |||||||||
Unadvanced construction and land loans | — | 12,387 | 12,387 | |||||||||
Unused lines of credit | 635 | 26,516 | 27,151 | |||||||||
Standby letters of credit | 280 | — | 280 | |||||||||
Total | $ | 4,336 | $ | 38,903 | $ | 43,239 |
Commitments to extend credit, unadvanced construction and land loans and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral, if any, required by the Company upon the extension of credit is based on management’s credit evaluation of the customer. |
The Company enters into commitments to purchase residential real estate loans in the normal course of business. These commitments are contingent on a review of the loan files by Company personnel to ensure that the loans meet pre-designated underwriting criteria. | |
Commitments to extend credit and unused lines of credit may be written on a fixed-rate basis exposing the Company to interest rate risk given the possibility that market rates may change between commitment and actual extension of credit. | |
Standby letters of credit are conditional commitments issued by the Company to guarantee payment on behalf of a customer and/or guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under the standby letters of credit represent the maximum potential future payments the Company could be required to make. Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwr iting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios will generally range from 50% for movable assets, such as inventory, to 100% for liquid assets, such as deposit accounts. The fair value of the Company’s standby letters of credit at December 31, 2009 and 2008 was insignificant. | |
Concentrations of Credit | |
The Company conducts the majority of its business in Albany and Saratoga counties and surrounding areas of New York State. A substantial portion of its debtors’ ability to honor their loan contracts is dependent upon economic conditions in these areas. | |
Leases | |
The Company leases its branch locations and administrative offices under non-cancelable operating leases. In addition, periodically the Company may lease certain automobiles and office equipment. Total lease payments were $400,000 and $406,000 for the years ended December 31, 2009 and 2008, respectively. The future minimum payments by year and in the aggregate under non-cancelable operating leases as of December 31, 2009 are as follows: |
Years ending December 31: | ($ in thousands) | |||
2010 | $ | 435 | ||
2011 | 307 | |||
2012 | 269 | |||
2013 | 248 | |||
2014 | 227 | |||
Thereafter | 400 | |||
Total | $ | 1,886 |
Reserve Requirement | |
The Company is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank. The amount of this reserve requirement was approximately $994,000 at December 31, 2009. | |
Contingent Liabilities | |
In the ordinary course of business, there may be various legal proceedings pending against the Company. Based on consultation with outside counsel, management believes that the aggregate exposure, if any, arising from such litigation would not have a material adverse effect on the Company’s consolidated financial statements. |
(14) | Fair Value Measurements and Fair Value of Financial Instruments |
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company adopted the guidance in the Fair Value Measurements and Disclosures topic of FASB ASC effective January 1, 2008. This guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. The guidance provides a consistent definition of fair value, which focuses on the exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significan t decrease in the volume and level of activity for the asset or liability, a change in the valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. Fair value measurements are not adjusted for transaction costs. The adoption of the guidance in the Fair Value Measurements and Disclosures topic of FASB ASC had no impact on the amounts reported in the consolidated financial statements. The primary effect of adopting this guidance was to expand the required disclosures pertaining to the methods used to determine fair va lues. | |
The guidance in the Fair Value Measurements and Disclosures topic of FASB ASC establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below: | |
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; | |
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; | |
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). | |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. | |
The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement: |
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Balance | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
($ in thousands) | ||||||||||||||||
At December 31, 2009: | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available for sale | $ | 24,903 | $ | — | $ | 24,903 | $ | — | ||||||||
At December 31, 2008: | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available for sale | $ | 25,813 | $ | — | $ | 25,813 | $ | — |
Fair values for securities are based on quoted market prices or dealer quotes, where available. Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments with similar characteristics. When necessary, the Company utilizes “matrix” pricing from a third party vendor to determine fair values. Matrix prices are indicative values computed primarily or exclusively using computerized models based on inputs such as Treasury yields, swap rates, spreads, prepayment projections and other assumptions believed to be applicable to the classes of securities being valued. | |
The fair value guidance also requires disclosure of assets and liabilities measured and recorded at fair value on a nonrecurring basis. In accordance with the provisions of the impaired loan guidance, the Company had impaired loans with a carrying value of approximately $468,000 and $597,000 at December 31, 2009 and 2008, respectively, for which the allocated allowance for loan losses was approximately $185,000 and $241,000, respectively. The Company generally uses the fair value of the underlying collateral to estimate the allowance for loan losses allocated to impaired loans. Fair value is generally determined based upon independent third party appraisals of the collateral, or discounted cash flows based upon the expected proceeds. Based on the valuation techniques used, the fair value measure ments for impaired loans are classified as Level 3. | |
The Company also has the option to measure eligible financial assets, financial liabilities and Company commitments at fair value (i.e., the “fair value option”), on an instrument-by-instrument basis, that are not otherwise permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Company commitment. Subsequent changes in fair value must be recorded in earnings. There are also presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The fair value option does not affect any existing accounti ng literature that requires certain assets and liabilities to be carried at fair value and does not eliminate disclosure requirements included in other accounting standards. As of December 31, 2009 and 2008, the Company had not elected the fair value option for any eligible items. | |
The Company is also required to disclose estimated fair values for its financial instruments. The definition of a financial instrument includes many of the assets and liabilities recognized in the Company’s consolidated balance sheet, as well as certain off-balance sheet items. | |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected net cash flows, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantl y affect the estimates. | |
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the disclosed estimates of fair value. | |
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: | |
Short-Term Financial Instruments | |
The fair value of certain financial instruments is estimated to approximate their carrying value because the remaining term to maturity or period to repricing of the financial instrument is less than 90 days. Such financial instruments include cash and cash equivalents, accrued interest receivable and accrued interest payable. |
Securities Available for Sale and Securities Held to Maturity | |
Securities available for sale and securities held to maturity are financial instruments that are usually traded in broad markets. Fair values for securities are based on quoted market prices or dealer quotes, where available. Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments with similar characteristics. When necessary, the Company utilizes “matrix” pricing from a third party vendor to determine fair values. Matrix prices are indicative values computed primarily or exclusively using computerized models based on observable inputs such as Treasury yields, swap rates, spreads, prepayment projections and other assumptions believed to be applicable to the classes of securities being valued. | |
Federal Home Loan Bank of New York Stock | |
The fair value of Federal Home Loan Bank of New York stock is equal to its carrying amount (cost) since there is no readily available market value and the stock cannot be sold, but can be redeemed by the Federal Home Loan Bank of New York at cost. | |
Loans | |
For performing variable rate loans that reprice frequently, fair value is assumed to equal the carrying amount. Fair values for performing fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms. | |
Estimated fair value for non-performing loans is based on estimated cash flows discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. | |
Deposits | |
The estimated fair value of deposits with no stated maturity, such as non-interest-bearing deposits, NOW accounts, money market accounts and savings accounts, is regarded to be the amount payable on demand (carrying value). The estimated fair value of time deposit accounts is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared with the cost of borrowing funds in the market. | |
Borrowings | |
The carrying amounts of repurchase agreements and other short-term borrowings approximate their fair values. Fair values for long-term borrowings (such as Federal Home Loan Bank of New York advances) are estimated using a discounted cash flow approach based on current market rates for similar borrowings. | |
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates contained herein are not necessarily indicative of the amounts the Company could have realized in an actual sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end. |
The carrying amounts and estimated fair values of financial assets and liabilities as of December 31 were as follows: |
2009 | 2008 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
($ in thousands) | ||||||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 56,244 | $ | 56,244 | $ | 4,883 | $ | 4,883 | ||||||||
Securities available for sale | 24,903 | 24,903 | 25,813 | 25,813 | ||||||||||||
Securities held to maturity | 2,719 | 2,798 | 3,586 | 3,614 | ||||||||||||
Federal Home Loan Bank of New York stock | 1,883 | 1,883 | 1,780 | 1,780 | ||||||||||||
Net loans receivable | 196,462 | 205,302 | 209,502 | 220,772 | ||||||||||||
Accrued interest receivable | 1,041 | 1,041 | 1,028 | 1,028 | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits: | ||||||||||||||||
Demand, NOW, money market and savings accounts | 142,068 | 142,068 | 99,385 | 99,385 | ||||||||||||
Time deposits | 80,190 | 81,913 | 88,216 | 90,696 | ||||||||||||
Borrowings | 41,437 | 43,087 | 38,504 | 40,691 | ||||||||||||
Accrued interest payable | 522 | 522 | 652 | 652 |
The fair value of commitments to extend credit, unused lines of credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate commitments to extend credit and unused lines of credit, fair value also considers the difference between current levels of interest rates and the committed rates. Based upon the estimated fair value of commitments to extend credit, unused lines of credit and standby letters of credit, there are no significant unrealized gains or losses associated with these financial instruments. | |
(15) | Partial Sale of Insurance Claim |
In December 2006, the Company sold an undivided interest in a pending fidelity bond insurance claim to an unrelated third party (the “Purchaser”) for $250,000, which was included in non-interest income in the 2006 consolidated statement of income. To the extent that the Company receives any funds as a result of the claim or the related lawsuit against the insurance carrier, the Purchaser will receive the first $250,000, plus interest at an annualized rate of 8%. If the Company receives in excess of $1.0 million as a result of the claim or the related lawsuit, the Purchaser is entitled to an additional payment based on a pre-determined formula. If the Company receives no funds as a result of the claim or the related lawsuit, it has no obligation to the Purchaser. All costs and expense s incurred by the Company in pursuing the claim and the related lawsuit are to be paid by the Company, without offset or deduction from any amounts due to the Purchaser. As of December 31, 2009, the claim remains outstanding. |
Historical | |||||||||||||||||||||
Chemung Financial Corporation & Subsidiaries | Fort Orange Financial Corp. & Subsidiaries | Combined Historical | Pro Forma Adjustments | Combined Pro Forma | |||||||||||||||||
Assets | |||||||||||||||||||||
Cash and due from financial institutions | $ | 22,243 | $ | 3,512 | $ | 25,755 | $ | $ | 25,755 | ||||||||||||
Interest-bearing deposits in other financial institutions | 50,873 | 31,265 | 82,138 | (723 | ) | (A) | 73,776 | ||||||||||||||
— | — | — | (7,618 | ) | (B) | — | |||||||||||||||
Total cash and cash equivalents | 73,116 | 34,777 | 107,893 | (8,341 | ) | 99,552 | |||||||||||||||
Securities available for sale, at estimated fair value | 245,939 | 34,051 | 279,990 | 279,990 | |||||||||||||||||
Securities held to maturity | 8,028 | 9,057 | 17,085 | 17,085 | |||||||||||||||||
Federal Home Loan Bank and Federal Reserve Bank Stock | 3,339 | 1,697 | 5,036 | 5,036 | |||||||||||||||||
Loans, net of deferred origination fees and costs and unearned income | 590,519 | 189,638 | 780,157 | 4,448 | (C) | 784,605 | |||||||||||||||
Allowance for loan losses | (9,660 | ) | (3,151 | ) | (12,811 | ) | 3,151 | (C) | (9,660 | ) | |||||||||||
Loans, net | 580,859 | 186,487 | 767,346 | 7,599 | 774,945 | ||||||||||||||||
Loans held for sale | 586 | — | 586 | 586 | |||||||||||||||||
Premises and equipment | 24,059 | 955 | 25,014 | 25,014 | |||||||||||||||||
Goodwill | 9,872 | — | 9,872 | 3,157 | (D) | 13,029 | |||||||||||||||
Other intangible assets | 4,836 | — | 4,836 | 3,290 | (E) | 8,126 | |||||||||||||||
Bank owned life insurance | 2,514 | — | 2,514 | 2,514 | |||||||||||||||||
Other assets | 19,552 | 3,848 | 23,400 | (2,410 | ) | (F) | 20,990 | ||||||||||||||
Total assets | $ | 972,700 | $ | 270,872 | $ | 1,243,572 | $ | 3,295 | $ | 1,246,867 | |||||||||||
Liabilities and Shareholders’ Equity | |||||||||||||||||||||
Deposits: | |||||||||||||||||||||
Non-interest bearing | $ | 190,125 | $ | 23,217 | $ | 213,342 | $ | $ | 213,342 | ||||||||||||
Interest bearing | 613,386 | 186,962 | 800,348 | 2,150 | (G) | 802,498 | |||||||||||||||
Total deposits | 803,511 | 210,179 | 1,013,690 | 2,150 | 1,015,840 | ||||||||||||||||
Securities sold under agreements to repurchase | 43,766 | 13,723 | 57,489 | 57,489 | |||||||||||||||||
Federal Home Loan Bank term advances | 20,000 | 22,799 | 42,799 | 2,509 | (H) | 45,308 | |||||||||||||||
Accrued interest payable | 894 | 329 | 1,223 | 1,223 | |||||||||||||||||
Dividends payable | 878 | — | 878 | 878 | |||||||||||||||||
Other liabilities | 6,358 | 1,201 | 7,559 | — | 7,559 | ||||||||||||||||
Total liabilities | 875,407 | 248,231 | 1,123,638 | 4,659 | 1,128,297 |
Historical | |||||||||||||||||||||
Chemung Financial Corporation & Subsidiaries | Fort Orange Financial Corp. & Subsidiaries | Combined Historical | Pro Forma Adjustments | Combined Pro Forma | |||||||||||||||||
Shareholders’ Equity | |||||||||||||||||||||
Common stock | 43 | 375 | 418 | (365 | ) | (I) | 53 | ||||||||||||||
Additional paid-in capital | 22,830 | 22,380 | 45,210 | (688 | ) | (I) | 44,522 | ||||||||||||||
Retained earnings | 92,241 | (281 | ) | 91,960 | 281 | (I) | 91,816 | ||||||||||||||
(425 | ) | (A) | |||||||||||||||||||
Treasury stock | (20,121 | ) | (205 | ) | (20,326 | ) | 205 | (I) | (20,121 | ) | |||||||||||
Accumulated other comprehensive income (loss) | 2,300 | 372 | 2,672 | (372 | ) | (I) | 2,300 | ||||||||||||||
Total shareholders’ equity | 97,293 | 22,641 | 119,934 | (1,364 | ) | 118,570 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 972,700 | $ | 270,872 | $ | 1,243,572 | $ | 3,295 | $ | 1,246,867 | |||||||||||
Per Share Data: | �� | ||||||||||||||||||||
Book value per common share | $ | 27.01 | $ | 6.11 | $ | 25.70 | |||||||||||||||
Tangible book value per common share | $ | 22.92 | $ | 6.11 | $ | 21.11 | |||||||||||||||
Historical | |||||||||||||||||||||
Chemung Financial Corporation & Subsidiaries | Fort Orange Financial Corp. & Subsidiaries | Combined Historical | Pro Forma Adjustments | Combined Pro Forma | |||||||||||||||||
Interest income | $ | 32,394 | $ | 10,136 | $ | 42,530 | $ | (814 | ) | (C) | $ | 41,716 | |||||||||
Interest expense | 6,421 | 3,239 | 9,660 | (806 | ) | (G) | 8,358 | ||||||||||||||
— | — | — | (627 | ) | (H) | — | |||||||||||||||
— | — | 131 | (J) | — | |||||||||||||||||
Net interest income | 25,973 | 6,897 | 32,870 | 488 | 33,358 | ||||||||||||||||
Provision for loan losses | 1,125 | 1,250 | 2,375 | — | 2,375 | ||||||||||||||||
Net interest income after provision for loan losses | 24,848 | 5,647 | 30,495 | 488 | 30,983 | ||||||||||||||||
Noninterest income | 12,907 | 441 | 13,348 | — | 13,348 | ||||||||||||||||
Noninterest expense | 27,544 | 4,573 | 32,117 | 449 | (E) | 32,566 | |||||||||||||||
Income before income taxes | 10,211 | 1,515 | 11,726 | 39 | 11,765 | ||||||||||||||||
Income tax expense | 3,157 | 585 | 3,742 | 15 | 3,757 | ||||||||||||||||
Net income | $ | 7,054 | $ | 930 | $ | 7,984 | $ | 24 | $ | 8,008 | |||||||||||
Pro forma earnings per share: | |||||||||||||||||||||
Basic | $ | 1.96 | $ | 0.25 | $ | 1.74 | |||||||||||||||
Diluted | $ | 1.96 | $ | 0.25 | $ | 1.74 | |||||||||||||||
Weighted average number of shares outstanding | |||||||||||||||||||||
Basic | 3,604,502 | 3,710,131 | 1,009,391 | 4,613,893 | |||||||||||||||||
Diluted | 3,604,502 | 3,711,607 | 1,009,391 | 4,613,893 | |||||||||||||||||
Dividends per common share | $ | 0.75 | $ | — | $ | 0.75 |
Historical | |||||||||||||||||||||
Chemung Financial Corporation & Subsidiaries | Fort Orange Financial Corp. & Subsidiaries | Combined Historical | Pro Forma Adjustments | Combined Pro Forma | |||||||||||||||||
Interest income | $ | 44,490 | $ | 12,918 | $ | 57,408 | $ | (1,085 | ) | (C) | $ | 56,323 | |||||||||
Interest expense | 11,335 | 5,435 | 16,770 | (1,075 | ) | (G) | 15,034 | ||||||||||||||
— | — | — | (836 | ) | (H) | — | |||||||||||||||
— | — | — | 175 | (J) | — | ||||||||||||||||
Net interest income | 33,155 | 7,483 | 40,638 | 651 | 41,289 | ||||||||||||||||
Provision for loan losses | 2,450 | 1,405 | 3,855 | — | 3,855 | ||||||||||||||||
Net interest income after provision for loan losses | 30,705 | 6,078 | 36,783 | 651 | 37,434 | ||||||||||||||||
Noninterest income | 15,709 | 916 | 16,625 | — | 16,625 | ||||||||||||||||
Noninterest expense | 39,321 | 5,710 | 45,031 | 598 | (E) | 45,629 | |||||||||||||||
Income before income taxes | 7,093 | 1,284 | 8,377 | 53 | 8,430 | ||||||||||||||||
Income tax expense | 1,860 | 514 | 2,374 | 21 | 2,395 | ||||||||||||||||
Net income | $ | 5,233 | $ | 770 | $ | 6,003 | $ | 32 | $ | 6,035 | |||||||||||
Pro forma earnings per share: | |||||||||||||||||||||
Basic | $ | 1.45 | $ | 0.21 | $ | 1.31 | |||||||||||||||
Diluted | $ | 1.45 | $ | 0.21 | $ | 1.31 | |||||||||||||||
Weighted average number of shares outstanding | |||||||||||||||||||||
Basic | 3,603,129 | 3,714,709 | 1,009,391 | 4,612,520 | |||||||||||||||||
Diluted | 3,603,129 | 3,715,643 | 1,009,391 | 4,612,520 | |||||||||||||||||
Dividends per common share | $ | 1.00 | $ | — | $ | $ 1.00 |
(Dollar amounts in thousands, except per share data) | September 30, 2010 | |||||||||||
Purchase Price Consideration - Common Stock | ||||||||||||
Total Fort Orange shares outstanding | 3,701,064 | |||||||||||
Directors’ deferred stock units | 5,516 | |||||||||||
Restricted stock shares (vest with change in control) | 62,265 | |||||||||||
Total Fort Orange shares | 3,768,845 | |||||||||||
Percentage of cash consideration | 25 | % | ||||||||||
Fort Orange shares exchanged for cash | 942,211 | |||||||||||
Purchase price per Fort Orange common share | $ | 7.50 | ||||||||||
Purchase price assigned to shares exchanged for cash | $ | 7,067 | ||||||||||
Total Fort Orange shares | 3,768,845 | |||||||||||
Percentage of stock consideration | 75 | % | ||||||||||
Fort Orange shares exchanged for stock | 2,826,634 | |||||||||||
Exchange ratio | 0.3571 | |||||||||||
Chemung Financial shares to be issued to Fort Orange shareholders | 1,009,391 | |||||||||||
Purchase price per Chemung Financial common share | $ | 21.50 | ||||||||||
21,702 | ||||||||||||
Total Fort Orange stock options to be settled for cash | 285,711 | |||||||||||
Purchase price per Fort Orange common share | $ | 7.63 | ||||||||||
Weighted average exercise price | $ | 5.70 | ||||||||||
Difference | $ | 1.93 | ||||||||||
Total payout related to outstanding stock options | 551 | |||||||||||
Total purchase price | $ | 29,320 | ||||||||||
Net Assets Acquired: | ||||||||||||
Fort Orange shareholders' equity | 22,641 | |||||||||||
Less: Fort Orange's goodwill and core deposit intangible | — | |||||||||||
22,641 | ||||||||||||
Fort Orange transaction expenses prior to closing | (298 | ) | ||||||||||
Estimated adjustments to reflect assets acquired at fair value: | ||||||||||||
Loans | 4,448 | |||||||||||
Allowance for loan losses | 3,151 | |||||||||||
Other intangible assets | 3,290 | |||||||||||
Deferred tax assets | (2,410 | ) | ||||||||||
Estimated adjustments to reflect liabilities acquired at fair value: | ||||||||||||
Time deposits | (2,150 | ) | ||||||||||
Borrowings | (2,509 | ) | ||||||||||
26,163 | ||||||||||||
Goodwill resulting from merger | $ | 3,157 |
Reconcilement of Pro Forma Shares Outstanding | ||||
Total Fort Orange shares | 3,768,845 | |||
Percentage of stock consideration | 75 | % | ||
Fort Orange shares exchanged for stock | 2,826,634 | |||
Exchange ratio | 0.3571 | |||
Chemung Financial shares to be issued to Fort Orange shareholders | 1,009,391 | |||
Chemung Financial shares outstanding | 3,602,635 | |||
Pro Forma Chemung Financial shares outstanding | 4,612,026 | |||
Pro Forma % ownership by Fort Orange | 22 | % | ||
Pro Forma % ownership by Chemung Financial | 78 | % |
● | Adjustment of $4.448 million to reflect fair values of loans based on current interest rates of similar loans and on the credit quality of the loan portfolio. The credit quality component was based on an analysis of the loan portfolio to identify loans which evidenced deterioration of credit quality since origination and which it was determined that it was probable, at acquisition, that the collection of all contractually required payments receivable would not be possible. The portion of the adjustment based on current interest rates will be recognized using a level yield method over the estimated life of the loans of seven years. This adjustment is expected to decrease pro forma pre-tax interest income by $1.085 million in the first full year following consummation. | |
● | Adjustment of $3.151 million to reflect the removal of the allowance for loan losses in connection with applying acquisition accounting under AS 805. |
As of/For the Nine Months Ended September 30, 2010 | As of/For the Year Ended December 31, 2009 | |||||||
Earning per common share: | ||||||||
Basic | ||||||||
Chemung Financial historical | $ | 1.96 | $ | 1.45 | ||||
Fort Orange historical | 0.25 | 0.21 | ||||||
Pro forma combined | 1.74 | 1.31 | ||||||
Pro forma equivalent of one Fort Orange common share | 0.62 | 0.47 | ||||||
Diluted | ||||||||
Chemung Financial historical | $ | 1.96 | $ | 1.45 | ||||
Fort Orange historical | 0.25 | 0.21 | ||||||
Pro forma combined | 1.74 | 1.31 | ||||||
Pro forma equivalent of one Fort Orange common share | 0.62 | 0.47 | ||||||
Cash Dividends declared per common share: | ||||||||
Chemung Financial historical | $ | 0.75 | $ | 1.00 | ||||
Fort Orange historical | — | — | ||||||
Pro forma combined | 0.75 | 1.00 | ||||||
Pro forma equivalent of one Fort Orange common share | 0.27 | 0.36 | ||||||
Shareholders’ equity per common share: | ||||||||
Chemung Financial historical | $ | 27.01 | $ | 24.97 | ||||
Fort Orange historical | 6.11 | 5.80 | ||||||
Pro forma combined | 25.70 | 23.83 | ||||||
Pro forma equivalent of one Fort Orange common share | 9.18 | 8.51 |
● | prior to the stockholder becoming an interested stockholder, the board of directors approves the business combination or the transaction in which the stockholder became an interested shareholder; |
● | upon the completion of the transaction in which the shareholder became an interested stockholder, the interested stockholder owns at least 85% of the voting stock of the corporation other than shares held by directors who are also officers and certain employee stock plans; or | |
● | the business combination is approved by the board of directors and by the affirmative vote of two-thirds of the outstanding voting stock not owned by the interested stockholder at a meeting. |
● | with respect to the sale, lease or exchange of all or substantially all of the assets of the corporation; | |
● | with respect to a merger or consolidation by a corporation the shares of which either are listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or are held of record by more than 2,000 holders, if the terms of the merger or consolidation allow the shareholders to receive only shares of the surviving corporation or shares of any other corporation that either are listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or are held of record by more than 2,000 holders, plus cash in lieu of fractional shares; or |
● | to shareholders of the corporation surviving a merger if no vote of the shareholders of the surviving corporation is required to approve the merger and if some other conditions are met. |
● | provisions fixing the number, qualifications, retirement age or other restrictions with respect to directors; | |
● | provisions regarding the removal of directors or the filling of vacancies on the board; | |
● | provisions regarding the classes and terms of election of directors; | |
● | provisions regarding corporate action without a meeting, committees and compensation of directors; | |
● | provisions regarding interested directors; or | |
● | provisions regarding restrictions on business combination or similar material transaction with affiliated shareholders. |
Amount and Nature of Beneficial Ownership | |||||||||||||||
Name of Beneficial Owner | Shares Owned Directly and Indirectly (1) | Options Exercisable Within 60 Days (2) | Director Units Earned (3) | Total Beneficial Ownership | Percent of Class (4) | ||||||||||
Directors | |||||||||||||||
Larry H. Becker (5) | 167,657 | 826 | 914 | 169, 397 | 4.57 | % | |||||||||
Peter D. Cureau | 179,994 | 29,215 | 50 | 209, 259 | 5.61 | % | |||||||||
Paul G. Kasselman | 198,129 | 826 | 703 | 199, 658 | 5.39 | % | |||||||||
Raymond J. Kinley, Jr. | 40,720 | — | 751 | 41, 471 | 1.12 | % | |||||||||
Eugene M. Sneeringer, Jr.(6) | 149,679 | 826 | 1,332 | 151, 837 | 4.10 | % | |||||||||
Edward P. Swyer | 180,141 | — | 713 | 180, 854 | 4.88 | % | |||||||||
Edward J. Trombly (7) (8) | 44,934 | — | 485 | 45, 419 | 1.23 | % | |||||||||
Francis H. Trombly, Jr., Chairman Emeritus (8) | 204,803 | — | 433 | 205,2 36 | 5.54 | % | |||||||||
Named Executive Officers | |||||||||||||||
Steven J. Owens | 42,584 | 30,318 | — | 72,902 | 1. 9 5 | % | |||||||||
All Directors, including the Chairman Emeritus , and Executive Officers as a group (9 persons) | 1,208,641 | 62,011 | 5,381 | 1,276,033 | 33. 85 | % |
(1) | Includes shares for which the named person has (i) sole voting and investment power or (ii) shared voting and investment power with a spouse. This information has been provided by the directors and executive officers. |
(2) | Represents shares of stock that can be acquired upon the exercise of stock options within the 60 day period after February 9, 2011. |
(3) | Represents shares of stock that have been earned by the non-executive directors for board service, but have not yet been issued and distributed to the respective directors. |
(4) | Assumes the exercise of outstanding options issued to each director and executive officer, and the inclusion of any director units earned but not yet distributed. |
(5) | Includes 139,550 shares beneficially owned by Mr. Becker that are held in the name of two other entities of which Mr. Becker is a 50% owner. |
(6) | Includes 26,581 shares owned by Mr. Sneeringer’s spouse and 3,307 shares owned by Mr. Sneeringer’s adult child, as to which Mr. Sneeringer disclaims beneficial ownership. |
(7) | Includes 31,500 shares held in a personal trust for which Mr. Trombly is the sole trustee. |
(8) | Francis H. Trombly, Jr. and Edward J. Trombly are brothers. Mr. Francis H. Trombly, Jr., as Chairman Emeritus, attends most board meetings and receives director units as compensation for his attendance, but does not have the ability to vote |
Name and Principal Position | Year | Salary (1) | Bonus (1) | Stock Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value (4) | All Other Compensation (5) | Total | ||||||||||||||||||||||
Ronald M. Bentley | ||||||||||||||||||||||||||||||
President & Chief Executive Officer | 2010 | $ | 376,077 | $ | 95,000 | $ | 71,531 | (2) | $ | 18,850 | $ | 64,260 | $ | 21,515 | $ | 647,233 | ||||||||||||||
John R. Battersby Jr. | ||||||||||||||||||||||||||||||
Executive Vice President CFO & Treasurer | 2010 | $ | 154,327 | $ | 35,000 | $ | 20,000 | (3) | $ | 83,776 | $ | 17,318 | $ | 310,421 | ||||||||||||||||
James E. Corey III | ||||||||||||||||||||||||||||||
Executive Vice President | 2010 | $ | 166,923 | $ | 30,000 | $ | 99,541 | $ | 6,862 | $ | 303,236 | |||||||||||||||||||
Melinda A. Sartori | ||||||||||||||||||||||||||||||
Executive Vice President | 2010 | $ | 149,183 | $ | 25,000 | $ | 15,000 | (3) | $ | 47,623 | $ | 13,906 | $ | 250,712 | ||||||||||||||||
Richard G. Carr | ||||||||||||||||||||||||||||||
Senior Vice President | 2010 | $ | 130,154 | $ | 30,000 | $ | 15,000 | (3) | $ | 39,382 | $ | 15,846 | $ | 230,745 |
(1) | The amounts shown for salary and bonus represent amounts earned in 2010. |
(2) | The awards to Mr. Bentley were fully vested upon grant and reflect the grant date fair value computed in accordance with FASB ASC Topic 718. The 2010 stock awards granted to Mr. Bentley include director fees in the amount of $16,531. See the table below captioned “Grants of Plan-Based Awards.” |
(3) | The amounts shown for Mr. Battersby, Mrs. Sartori and Mr. Carr represent shares granted under the Restricted Stock Plan, effective June 16, 2010, and reflect the grant date fair value computed in accordance with FASB ASC Topic 718. Twenty percent of the restricted stock awarded vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date. |
(4) | The amounts shown represent the aggregate change, from December 31, 2009 to December 31, 2010, in the present value of the named executive officers’ accumulated pension benefit from the Chemung Canal Trust Company Pension Plan and, for Mr. Bentley, from the Chemung Canal Trust Company Executive Supplemental Retirement Plan. |
(5) | Amounts shown include matching contributions made by Chemung Canal to the 401(k) Plan, dividends paid on restricted stock and perquisites, such as car and club memberships. The NEOs participate in certain group health, life, disability and medical reimbursement plans, not disclosed in the Summary Compensation Table, that are generally available to salaried employees and do not discriminate in scope, terms and operation. See the table below captioned “All Other Compensation Table.” |
Name | 401(k) Match | Dividends on Restricted Stock | Automobile | Club Memberships | Total | |||||||||||||||
Ronald M. Bentley | $ | 7,350 | $ | 2,350 | $ | 11,815 | $ | 21,515 | ||||||||||||
John R. Battersby Jr. | $ | 6,003 | $ | 236 | $ | 3,287 | $ | 7,792 | $ | 17,318 | ||||||||||
James E. Corey III | $ | 6,180 | $ | 682 | $ | 6,862 | ||||||||||||||
Melinda A. Sartori | $ | 5,470 | $ | 177 | $ | 898 | $ | 13,729 | $ | 13,906 | ||||||||||
Richard G. Carr | $ | 4,969 | $ | 177 | $ | 15,672 | $ | 15,849 |
Name | Grant Date | All Other Stock Awards: Number of Shares of Stock | Full Grant Date Fair Value of Stock Awards | |||||||
Ronald M. Bentley | 01/15/10 | 741 | (1) | $ | 16,531 | |||||
02/03/11 | 2,392 | (2) | $ | 55,000 | ||||||
John R. Battersby Jr | 12/15/10 | 942 | $ | 20,000 | (3) | |||||
Melinda A. Sartori | 12/15/10 | 706 | $ | 15,000 | (3) | |||||
Richard G. Carr | 12/15/10 | 706 | $ | 15,000 | (3) |
(1) | Based on services as a member of the Chemung Financial Board of Directors during 2010. Under this arrangement an award was made to Mr. Bentley in an amount equal to the average base compensation received by non-employee directors of such board of directors during 2010. |
(2) | This grant was awarded to Mr. Bentley as part of a year-end bonus of $150,000, paid $95,000 in cash and $55,000 in Chemung Financial stock. |
(3) | These amounts represent the market value of $21.25, the closing price for Chemung Financial’s common stock on December 15, 2010. |
Name | Year | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested (2) | ||||||
John R. Battersby Jr. | 2010 | 942 | (1) | $ | 20,000 | ||||
Melinda A. Sartori | 2010 | 706 | (1) | $ | 15,000 | ||||
Richard G. Carr | 2010 | 706 | (1) | $ | 15,000 |
(1) | The shares will vest ratably over five years with 20% vested as of December 15, 2011; 40% vested as of December 15, 2012; 60% vested as of December 15, 013; 80% vested as of December 15, 2014; and 100% vested as of December 15, 2015. |
(2) | These amounts represent the market value of $21.25, the closing price for Chemung Financial’s common stock on December 15, 2010. |
Director | Fees Earned or Paid in Cash | Number of Shares Awarded (1) | Market Value of Shares | Total Award | ||||||||||||
Robert E. Agan | $ | 15,700 | 704 | $ | 15,700 | $ | 31,400 | |||||||||
David J. Dalrymple | $ | 19,500 | 874 | $ | 19,500 | $ | 39,000 | |||||||||
Robert H. Dalrymple | $ | 15,900 | 713 | $ | 15,900 | $ | 31,800 | |||||||||
Clover M. Drinkwater | $ | 14,800 | 664 | $ | 14,800 | $ | 29,600 | |||||||||
William D. Eggers | $ | 18,600 | 834 | $ | 18,600 | $ | 37,200 | |||||||||
Stephen M. Lounsberry III | $ | 18,450 | 827 | $ | 18,450 | $ | 36,900 | |||||||||
Thomas K. Meier | $ | 15,000 | 673 | $ | 15,000 | $ | 30,000 | |||||||||
Ralph H. Meyer | $ | 19,150 | 859 | $ | 19,150 | $ | 38,300 | |||||||||
John F. Potter | $ | 15,850 | 711 | $ | 15,850 | $ | 31,700 | |||||||||
Robert L. Storch | $ | 14,500 | 650 | $ | 14,500 | $ | 29,000 | |||||||||
Charles M. Streeter Jr. | $ | 15,750 | 706 | $ | 15,750 | $ | 31,500 | |||||||||
Richard W. Swan | $ | 16,900 | 758 | $ | 16,900 | $ | 33,800 | |||||||||
Jan P. Updegraff | $ | 14,800 | 664 | $ | 14,800 | $ | 29,600 |
(1) | Grant Date as of December 31, 2010 |
Amount and Nature of Beneficial Ownership | |||||||||||||||
Name of Beneficial Owner | Shares Owned Directly and Indirectly | Options Exercisable Within 60 Days | Director Units Earned | Total Beneficial Ownership | Percent of Class | ||||||||||
Chemung Canal Trust Company | |||||||||||||||
One Chemung Canal Plaza Elmira, NY 14901 | 405,954 | — | — | 405,954 | 1 | 11. 39 | % | ||||||||
Chemung Canal Trust | |||||||||||||||
Company | |||||||||||||||
Profit-Sharing, Savings and Investment Plan | |||||||||||||||
One Chemung Canal Plaza Elmira, NY 14901 | 188,826 | — | — | 188,826 | 2 | 5. 30 | % |
1 | Held by Chemung Canal in various fiduciary capacities, either alone or with others. Includes 25,865 shares held with sole voting and dispositive powers and 380,089 shares held with shared voting power. There are 244, 695 shares held with shared dispositive powers. Shares held in a co-fiduciary capacity by Chemung Canal are voted by the co-fiduciary in the same manner as if the co-fiduciary were the sole fiduciary. Shares held by the Chemung Canal as sole trustee will be voted by Chemung Canal only if the trust instrument provides for voting of the shares at the direction of the grantor or a beneficiary and Chemung Canal actually receives voting instructions. |
2 | The Plan participants instruct Chemung Canal, as trustee, how to vote these shares. If a participant fails to instruct the voting of the shares, Chemung Canal votes these shares in the same proportion as it votes all of the shares for which it receives voting instructions. Plan participants have dispositive power over these shares subject to certain restrictions. |
Shares Owned | Percentage of Class | ||||||
Directors: | |||||||
Robert E. Agan | 33,878 | * | |||||
Ronald M. Bentley | 13,800 | * | |||||
David J. Dalrymple | 350,874 | 3, 5 | 9.84 | % | |||
Robert H. Dalrymple | 285,722 | 4, 5 | 8.01 | % | |||
Clover M. Drinkwater | 7,174 | * | |||||
William D. Eggers | 8, 048 | * | |||||
Stephen M. Lounsberry, III | 14,473 | 6 | * | ||||
Thomas K. Meier | 13,668 | 6 | * | ||||
Ralph H. Meyer | 2,400 | 6 | * | ||||
John F. Potter | 37,406 | 6, 7 | 1. 05 | % | |||
Robert L. Storch | 1,048 | * | |||||
Charles M. Streeter, Jr. | 15,678 | * | |||||
Richard W. Swan | 84,259 | 8 | 2. 36 | % | |||
Jan P. Updegraff | 9,002 | 9 | * | ||||
Named Executive Officers: | |||||||
John R. Battersby, Jr. | 9,295 | 10 | * | ||||
James E. Corey III | 5,214 | 11 | * | ||||
Melinda A. Sartori | 4,243 | 11 | * | ||||
Richard G. Carr | 4,375 | 11 | * | ||||
Directors and executive officers as a group (26 persons) | 955,810 | 12 | 26.81 | % |
* | Less than 1% based upon 3, 565,610 outstanding as of February 9, 2011. |
3 | Includes 6,915 shares held directly; 9,450 shares held in trust over which Mr. Dalrymple has voting and dispositive powers; 307,720 shares held by the Dalrymple Family Limited Partnership of which David J. Dalrymple and his spouse are general partners; and 33 1/3% of the 59,416 shares held by Dalrymple Holding Corporation, of which David J. Dalrymple is an officer, director and 33 1/3% shareholder. |
4 | Includes 241,675 shares held directly; 8,854 shares held in trust over which Mr. Dalrymple has voting and dispositive powers; and 33 1/3% of the 59,416 shares held by Dalrymple Holding Corporation of which Robert H. Dalrymple is an officer, director and 33 1/3% shareholder. Includes 8,704 shares held by Mr. Dalrymple’s spouse as to which he disclaims beneficial ownership. |
5 | Includes for both David J. Dalrymple and Robert H. Dalrymple 6,983 shares which represent in the aggregate 46.2% of the 30,230 shares held by Susquehanna Supply Company, a corporation in which each of David and Robert Dalrymple has a 23.1% ownership interest. |
6 | Excludes shares that Messrs. Lounsberry (11,215), Meier (5,653), Meyer (19,404) and Potter (22,514) have had credited to their accounts in memorandum unit form under the Company’s Deferred Directors Fee Plan. The deferred fees held in memorandum unit form will be paid solely in shares of the Company’s common stock pursuant to the terms of the Plan and the election of the Plan participants. Shares held in memorandum unit form under the Plan have no voting rights. |
7 | Includes 7,361 shares held by Mr. Potter’s spouse, as to which he disclaims beneficial ownership. |
8 | Includes 11,700 shares owned by Swan & Sons-Morss Co., Inc. of which Mr. Swan is a director, and 33,255 shares held in four trusts over which Mr. Swan has voting and dispositive power. Includes 4,316 shares held in trust for the benefit of Mr. Swan, as income beneficiary, and 4,474 shares held by Mr. Swan’s spouse, as to both of which Mr. Swan disclaims beneficial ownership. |
9 | Includes 2,697 shares owned by Mr. Updegraff’s spouse, as to which he disclaims beneficial ownership. |
10 | Includes 4,399 shares owned by Mr. Battersby’s spouse, as to which he disclaims beneficial ownership. |
11 | Includes all shares of common stock of the Company held for the benefit of each executive officer by the Bank, as trustee of the Bank’s Profit Sharing, Savings and Investment Plan. Messrs. Battersby, Carr, Corey, and Mrs. Sartori have an interest in 3,954, 3,020, 3,214 and 3,537 shares, respectively. |
12 | Includes 27,815 shares owned by spouses of certain officers and directors of which such officers and directors disclaim beneficial ownership. |
● | Annual Report on Form 10-K for the year ended December 31, 2009, as filed March 15, 2010; | |
● | Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 (filed May 10, 2010); June 30, 2010 (filed August 9, 2010) and September 30, 2010 (filed November 9, 2010); | |
● | Current Reports on Form 8-K filed February 2, 2010, April 29, 2010, May 11, 2010, July 12, 2010 (Form 8-K/A), July 26, 2010, October 20, 2010, October 26, 2010, October 28, 2010, November 23, 2010 , December 27, 2010 and February 3, 2011 (other than the portions of those documents not deemed to be filed); and | |
● | Form 14-A Definitive Proxy dated March 30, 2010; and | |
● | The description of Chemung Financial common stock set forth in the registration statement on Form 8-A filed pursuant to Section 12 of the Exchange Act, including any amendment or report filed with the SEC for the purpose of updating this description. |
● | general economic conditions in the areas in which Chemung Financial and Fort Orange operates including volatility and disruption in national and international financial markets; | |
● | Chemung Financial’s and Fort Orange’s businesses may not be combined successfully, or such combination may take longer to accomplish than expected; | |
● | delays or difficulties in the integration by Chemung Financial of recently acquired businesses; | |
● | the growth opportunities and cost savings from the Merger may not be fully realized or may take longer to realize than expected; | |
● | the risk that the Merger Agreement may be terminated in certain circumstances which would require Fort Orange to pay Chemung Financial a termination fee equal to 2.5% of the merger consideration; | |
● | operating costs, customer losses and business disruption following the Merger, including adverse effects of relationships with employees, may be greater than expected; | |
● | governmental approvals of the Merger may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the Merger; | |
● | adverse governmental or regulatory policies may be enacted; | |
● | the interest rate environment may change, causing margins to compress and adversely affecting net interest income; | |
● | the risks associated with continued diversification of assets and adverse changes to credit quality; | |
● | competition from other financial services companies in our markets; and |
● | the risk that the continuing economic slowdown could adversely affect credit quality and loan originations. |
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Chemung Financial Corporation | |
One Chemung Canal Plaza | |
Elmira, New York 14902-1522 | |
Attention: Ronald M. Bentley, President & CEO | |
Phone: (607) 737-3900 | |
Fax: (607) 735-2050 | |
Email: rbentley@chemungcanal.com |
Hinman, Howard & Kattell, LLP | |
106 Corporate Park Drive, Suite 317 | |
White Plains, New York 10604 | |
Attention: Clifford S. Weber, Esq. | |
Phone: (914) 694-4102 | |
Fax: (914) 694-4510 | |
Email: cweber@hhk.com |
Capital Bank & Trust Company | |
1375 Washington Avenue | |
Albany, New York 12206 | |
Attention: Eugene M. Sneeringer, Jr., Chairman | |
Phone: (518) 434-3166 | |
Fax: (518) 434-9997 | |
Email: esneeringer@smprtitle.com |
Hiscock & Barclay, LLP | |
One Park Place | |
300 South State Street | |
Syracuse, New York 13202 | |
Attention: George S. Deptula, Esq. | |
Phone: (315) 425-2725 | |
Fax: (315) 425-8545 | |
Email: gdeptula@hblaw.com |
CHEMUNG FINANCIAL CORPORATION | ||
By: | /s/ Ronald M. Bentley | |
Ronald M. Bentley | ||
President and Chief Executive Officer | ||
FORT ORANGE FINANCIAL CORP. | ||
By: | /s/ Peter D. Cureau | |
Peter D. Cureau | ||
President and Chief Executive Officer |
(a) | As determined on the Closing Date, if the Closing Price is $25.20 or less and if the FOFC Delinquent Loans at the end of the month immediately preceding the Closing are: (i) less than $6.5 million, the Exchange Ratio shall be 0.3571 and the cash component of the Merger Consideration shall be $7.50; (ii) $6.5 million or greater, but less than $8.5 million, the Exchange Ratio shall be 0.3524 and the cash component of the Merger Consideration shall be $7.40; (iii) $8.5 million or greater, but less than $10.5 million, the Exchange Ratio shall be 0.3476 and the cash component of the Merger Consideration shall be $7.30; or (iv) $10.5 million or greater, CFC may at its election (A) terminate this Agreement pursuant to Section 6.1(h); or (B) proceed with the transaction in which event the Exchange Ratio shall be 0.3429 and the cash component o f the Merger Consideration shall be $7.20. | |
(b) | As determined on the Closing Date, if the Closing Price is greater than $25.20 and if the FOFC Delinquent Loans at the end of the month immediately preceding the Closing are: (i) less than $6.5 million, the Exchange Ratio shall be 100% of the Exchange Ratio as adjusted pursuant to paragraph (b) of the definition of Exchange Ratio in Article I of this Agreement (the “Adjusted Exchange Ratio”) and the cash component of the Merger consideration shall be $7.50; (ii) $6.5 million or greater, but less than $8.5 million, the Exchange Ratio shall be 98.67% of the Adjusted Exchange Ratio and the cash component of the Merger Consideration shall be $7.40; (iii) $8.5 million or greater, but less than $10.5 million, the Exchange Ratio shall be 97.34% of the Adjusted Exchange Ratio and the cash component of the Merger Consideration shall be $7.30; or (iv) $10.5 million or greater, CFC may at its election (A) terminate this Agreement pursuant to Section 6.1(h); or (B) proceed with the transaction in which event the Exchange Ratio shall be 96.02% of the Adjusted Exchange Ratio and the cash component of the Merger Consideration shall be $7.20.” |
CHEMUNG FINANCIAL CORPORATION | ||
By: | /s/ Ronald M. Bentley | |
Ronald M. Bentley | ||
President and Chief Executive Officer | ||
FORT ORANGE FINANCIAL CORP. | ||
By: | /s/ Peter D. Cureau | |
Peter D. Cureau | ||
President and Chief Executive Officer |
/s/ Peter Cureau | Date October 14, 2010 | |
Peter Cureau |
Shares | ||
Cureau | 179,994 | |
Total | 179,994 |
/s/ | Larry H. Becker | Date October 14, 2010 | |
Larry H. Becker | |||
/s/ | Paul G. Kasselman | Date October 14, 2010 | |
Paul G. Kasselman | |||
/s/ | Raymond J. Kinley, Jr. | Date October 14, 2010 | |
Raymond J. Kinley, Jr. | |||
/s/ | Eugene M. Sneeringer, Jr. | Date October 14, 2010 | |
Eugene M. Sneeringer, Jr. | |||
/s/ | Edward P. Swyer | Date October 14, 2010 | |
Edward P. Swyer | |||
/s/ | Edward J. Trombly | Date October 14, 2010 | |
Edward J. Trombly |
Director | Shares | ||
Larry H. Becker | 167,657 | ||
Paul G. Kasselman | 198,129 | ||
Raymond J. Kinley, Jr. | 40,720 | ||
Eugene M. Sneeringer, Jr. | 149,679 | ||
Edward P. Swyer | 180,141 | ||
Edward J. Trombly | 44,934 | ||
Total | 781,260 |
AGREEMENT
Recovery Amount (defined below) | Payment to Executive | |
Less than $1 million | 10% of Recovery Amount | |
Between $1 million and $1.49 million | 12.5% of Recovery Amount | |
$1.49 million or more | 15% of Recovery Amount |
EXECUTIVE: | ||
/s/ Peter D. Cureau | ||
Peter D. Cureau | ||
BANK: | ||
CAPITAL BANK & TRUST | ||
COMPANY | ||
By: | /s/ Eugene M. Sneeringer, Jr | |
Name: Eugene M. Sneeringer, Jr. | ||
Title: Chairman of the Board | ||
PARENT: | ||
FORT ORANGE FINANCIAL CORP. | ||
By: | /s/ Eugene M. Sneeringer, Jr | |
Name: Eugene M. Sneeringer, Jr. | ||
Title: Chairman of the Board |
/s/ Peter D. Cureau | ||
Peter D. Cureau | ||
CAPITAL BANK & TRUST COMPANY | ||
By: | /s/ Eugene M. Sneeringer, Jr. | |
Name: Eugene M. Sneeringer, Jr. | ||
Title: Chairman of the Board | ||
FORT ORANGE FINANCIAL CORP. | ||
By: | /s/ Eugene M. Sneeringer, Jr | |
Name: Eugene M. Sneeringer, Jr. | ||
Title: Chairman of the Board |
Fairness Opinion as October 14, 2010 | Page: 2 |
● | the Agreement, the exhibits, and the Disclosure Schedules thereto; | |
● | historic changes in the market for bank stocks; | |
● | trends and changes in the financial condition and results from operations of FOFC and CFC beginning with the 2005 fiscal year end; | |
● | the most recent annual report to stockholders of FOFC and CFC; | |
● | the most recent earnings releases for FOFC; | |
● | the most recent 10-K of CFC; | |
● | the quarterly reports on Form 10-Q of CFC; and | |
● | the most recent audited financial statements of FOFC and CFC. |
Respectfully Submitted, | |
FinPro, Inc. | |
Liberty Corner, New Jersey |
+ Sandler O’Neill + Partners, L.P. | + www.SANDLERONEILL.com |
919 Third Avenue, 6th Floor, New York, NY 10022 | |
T: (212) 466-7700 F: (212) 466-7711 |
Very truly yours, | |
Certificate of Merger
Of
Fort Orange Financial Corp.
And
Chemung Financial Corporation
Into
Chemung Financial Corporation
Under Section 904 of the Business Corporation Law
The undersigned Ronald M. Bentley, President and CEO of Chemung Financial Corporation, and Peter D. Cureau, President and CEO of Fort Orange Financial Corp., hereby certify that:
FIRST: The names of the constituent corporations to the merger are Fort Orange Financial Corp., a Delaware business corporation and Chemung Financial Corporation, a New York business corporation. The surviving constituent corporation is Chemung Financial Corporation.
SECOND: Fort Orange Financial Corp. has one class of common stock entitled to vote, 10,000,000 shares of which are authorized, 3,742,303 shares of which are issued and 3,702,312 shares of which are outstanding, and one class of preferred stock, 1,000,000 of which are authorized and none of which are issued. Chemung Financial Corporation has one class of common stock entitled to vote, 10,000,000 shares of which are authorized, 4,300,134 shares of which are issued and 3,512,925 shares of which are outstanding.
THIRD: Chemung Financial Corporation’s certificate of incorporation was filed by the New York Department of State on January 2, 1985. Fort Orange Financial Corp.’s certificate of incorporation was filed with the Delaware Secretary of State on March 8, 2006. No application for authority to do business in the State of New York of Fort Orange Financial Corp. was filed by the New York Department of State.
FOURTH: No amendment or change in the certificate of incorporation of the surviving corporation is to be effected by such merger.
FIFTH: The merger was authorized by the board of directors of each corporation, followed by approval of the shareholders of Chemung Financial Corporation entitled to vote thereon at a special meeting held for that purpose on _____ and by approval of the shareholders of Fort Orange Financial Corp. entitled to vote thereon at a special meeting held for that purpose on _____.
IN WITNESS WHEREOF, each of the constituent corporations has caused this certificate to be signed by its President & CEO on ________________.
CHEMUNG FINANCIAL CORPORATION | ||
By: | ||
Name: Ronald M. Bentley | ||
Title: President & CEO | ||
FORT ORANGE FINANCIAL CORP. | ||
By: | ||
Name: Peter D. Cureau | ||
Title: President & CEO |
Certificate of Merger
Of
Fort Orange Financial Corp.
Into
Chemung Financial Corporation
Under Section 252 of the Delaware General Corporation Law
It is hereby certified that:
FIRST: The names of the constituent corporations to the merger are Fort Orange Financial Corp., a Delaware business corporation and Chemung Financial Corporation, a New York business corporation.
SECOND: The Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations pursuant to subsection (c) of Section 252 of the Delaware General Corporation Law.
THIRD: The name of the surviving constituent corporation is Chemung Financial Corporation.
FOURTH: The certificate of incorporation of the surviving corporation shall be its certificate of incorporation.
FIFTH: The executed Agreement and Plan of Merger is on file at One Chemung Canal Plaza, Elmira, New York 14901, an office of the surviving corporation.
SIXTH: A copy of the Agreement and Plan of Merger will be furnished by the surviving corporation on request, without cost, to any stockholder of any constituent corporation.
SEVENTH: The surviving corporation agrees that it may be served with process in the State of Delaware in any proceeding for enforcement of any obligation of any constituent corporation of the State of Delaware, as well as enforcement of any obligation of the surviving corporation arising from this merger, including any suit or other proceeding to enforce the rights of any stockholders as determined in appraisal proceedings pursuant to the provisions of Section 262 of the Delaware General Corporation Law, and irrevocably appoints the Secretary of State of Delaware as its agent to accept services of process in any such suit or proceeding. The Secretary of State shall mail any such process to the surviving corporation at One Chemung Canal Plaza, Elmira, New York 14901.
IN WITNESS WHEREOF, said surviving corporation has caused this certificate to be signed by an authorized officer on ________________.
CHEMUNG FINANCIAL CORPORATION | ||
By: | ||
Name: Ronald M. Bentley | ||
Title: President & CEO |
BANK PLAN OF MERGER
THIS PLAN OF MERGER ("Plan of Merger") dated as of October 14, 2010, is made and entered by and between Chemung Canal Trust Company, a New York chartered commercial bank (“Chemung Bank”) and Capital Bank & Trust Company, a New York chartered commercial bank ("Capital Bank").
Recitals
WHEREAS, Capital Bank is a wholly-owned subsidiary of Fort Orange Financial Corp, a Delaware corporation ("FOFC"), and has authorized capital stock consisting of i) 3,500,000 shares of common stock, par value $4.00 per share ("Capital Bank Common Stock"), of which at the date hereof 2,656,370 shares are issued and outstanding; and ii) 300,000 shares of preferred stock, par value $25.00 per share, none of which are outstanding; and
WHEREAS, Chemung Bank is a wholly-owned subsidiary of Chemung Financial Corporation, a New York corporation ("CFC") and has authorized capital stock of 700,000 shares of common stock, par value $15.00 per share ("Chemung Bank Common Stock"), of which at the date hereof 431,498 shares are issued and outstanding; and
WHEREAS, the respective Boards of Directors of Capital Bank and Chemung Bank deem the merger of Capital Bank with and into Chemung Bank, pursuant to the terms and conditions set forth or referred to herein, to be desirable and in the best interests of the respective banks and their respective stockholders and have adopted resolutions approving this Plan of Merger; and
WHEREAS, the respective Boards of Directors of CFC and FOFC have approved an Agreement and Plan of Merger dated as of October14, 2010 (the "Parent Merger Agreement"), pursuant to which FOFC will be merged with and into CFC;
NOW THEREFORE, in consideration of the mutual promises, representations and covenants herein contained, Capital Bank and Chemung Canal Bank, intending to be legally bound hereby, agree:
ARTICLE I
THE MERGER
Subject to the terms and conditions of this Plan of Merger and in accordance with the applicable law, at the Effective Time (as that term is defined in Article V hereof): i) Capital Bank shall merge with and into Chemung Bank; ii) the separate existence of Capital Bank shall cease; iii) and Chemung Bank shall be the surviving corporation (such transaction referred to herein as the "Merger" and Chemung Bank, as the surviving corporation in the Merger, referred to herein as the "Surviving Bank").
ARTICLE II
CHARTER AND BY-LAWS
On and after the Effective Time, the charter and by-laws of Chemung Bank, as in effect immediately prior to the Effective Time shall automatically be and remain the charter and by-laws of Chemung Bank, as the Surviving Bank, until thereafter altered, amended or repealed.
I-1
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1Board of Directors
On and after the Effective Time, the Board of Directors of Chemung Bank as the Surviving Bank, shall consist of those persons holding such office immediately prior to the Effective Time except for such other directors of Capital Bank as shall be designated as a director of the Surviving Bank as Chemung Bank shall designate in its sole discretion. Each such director shall hold office until his or her successor is elected and qualified or otherwise in accordance with the charter and by-laws of the Surviving Bank.
3.2Officers
On and after the Effective Time, the officers of Chemung Bank duly elected and holding office immediately prior to such Effective Time shall be the officers of Chemung Bank as the Surviving Bank, except for such officers of Capital Bank as shall be designated as officers of the Surviving Bank as Chemung Bank shall designate in its sole discretion.
ARTICLE IV
CONVERSION OF SHARES
4.1Chemung Bank Stock
Each share of Chemung Bank Common Stock issued and outstanding immediately prior to the Effective Time shall, on and after the Effective Time, continue to be issued and outstanding as a share of common stock of the Surviving Bank.
4.2Capital Bank Stock
Each share of Capital Bank Common Stock issued and outstanding immediately prior to the Effective Time shall, on the Effective Time, be cancelled, and no cash, stock or other property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE TIME OF THE MERGER
Subject to the terms and upon satisfaction of all requirements of law and the conditions specified in this Plan of Merger and in the Parent Merger Agreement, including without limitation receipt of the approval of the Board of Governors of the Federal Reserve System and the New York Banking Department, the Merger shall become effective, and the Effective Time of the Merger (the "Effective Time") shall occur, at such time and date as the parties hereto shall agree, but the Effective Time shall not occur prior to the Effective Time of the merger of FOFC with and into CFC, as provided in the Parent Merger Agreement.
ARTICLE VI
EFFECT OF THE MERGER
On the Effective Time: i) the separate existence of Capital Bank shall cease; ii) the principal and branch offices of Capital Bank shall become authorized branch offices of the Surviving Bank; and iii) all of the property (real, personal and mixed), rights, powers, duties and obligations of Capital Bank shall be taken and deemed to be transferred to and vested in the Surviving Bank, without further act or deed, as provided by applicable laws and regulations.
I-2
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Capital Bank and Chemung Bank to effect the Merger shall be subject to the satisfaction, unless duly waived by the party permitted to do so, of the conditions precedent set forth in the Agreement.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any termination of the Agreement in accordance with its terms; provided, however, that any such termination of this Plan of Merger shall not relieve any party hereto from liability on account of a breach by such party of any of the terms hereof or thereof.
ARTICLE IX
MISCELLANEOUS
10.1Notices
Any notice or other communication required or permitted under this Plan of Merger shall be given, and shall be effective, in accordance with the provisions of the Agreement.
10.2Captions
The headings of the several Articles herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Plan of Merger.
10.3Counterparts
This Plan of Merger may be executed in several counterparts, each of which shall be deemed the original, but all of which together shall constitute one and the same instrument.
10. 4Governing Law
This Plan of Merger shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflict of laws principles thereof.
10.5Amendment
The respective Boards of Directors of the parties hereto may amend this Plan of Merger at any time prior to consummation of the Merger, by a duly authorized written instrument.
[Signature page follows]
IN WITNESS WHEREOF, each party has caused this Plan of Merger to be executed on its behalf by its duly authorized officers, all as of the day and year first written above.
CHEMUNG CANAL TRUST COMPANY | ||
By: | /s/ Ronald M. Bentley | |
Ronald M. Bentley | ||
President & Chief Executive Officer | ||
CAPITAL BANK & TRUST COMPANY | ||
By: | /s/ Peter D. Cureau | |
Peter D. Cureau | ||
President & Chief Executive Officer |
SCHEDULE 1
to Plan of Merger
between
Chemung Canal Trust Company
And
Capital Bank & Trust Company
The Capital Bank & Trust offices that will be retained as branches by Chemung Canal Trust Company in the Merger are:
Albany
145 Wolf Road
Albany, NY 12205
Clifton Park
7 Southside Dr.
Clifton Park, NY 12065
Latham
594 Loudon Road
Latham, NY 12110
Slingerlands
1365 New Scotland Road
Slingerlands, NY 12159
(a) | Exhibits |
2.1 | Agreement and Plan of Merger by and between Chemung Financial Corporation and Fort Orange Financial Corp. dated as of October 14, 2010 (included as Appendix A1 to the joint proxy statement/prospectus contained in this Registration Statement ) , and certain exhibits thereto which are included as Exhibit 2.2, 99.7, 99.8, 99.9, 99.11 and 99.12 to this joint proxy statement/prospectus contained in this Registration Statement. Three exhibits are omitted : (i) a Confidentiality Agreement between Chemung Financial and Fort Orange dated September 8, 2010; (ii) an index showing the average per share common stock prices of the common stock of publicly traded banks headquartered in New York and Pennsylvania with total assets between $500 million and $4 bill ion; and (iii) a form of estoppel certificate signed by the landlord for each of Capital Bank’s branch offices. The schedules to the Agreement and Plan of Merger which have been omitted pursuant to Item 601(b)(2) of Regulation S-K are: (i) outstanding options for Fort Orange common stock; (ii) articles of incorporation and bylaws of Fort Orange; (iii) organization certificate and bylaws of Capital Bank; (iv) a tax sharing agreement dated December 1, 2006 by and between Capital Bank and Fort Orange; (v) real property leases to which Fort Orange or Capital Bank is a party; (vi) a complete list of fixed assets at September 30, 2010; (vii) schedule of insurance policies maintained by Fort Orange and Capital Bank; (viii) list of Regulation O loans at September 30, 2010; (ix) list of pledged securities a t September 30, 2010; (x) list of investment securities held by Fort Orange; (xi) list of Capital Bank brokered deposits at September 30, 2010; (xii) a change in control severance agreement dated October 9, 2008 between Capital Bank and each of Melissa L. Clement and John T. Kite (both non-executive officers); (xiii) Capital Bank Stock Unit Plan for Non-Employee Directors, as amended on March 12, 2002; (xiv) Capital Bank 1996 Stock Option Plans for New Employees Directors and for Key Employees; (xv) Capital Bank 1997 Stock Option Plan; (xvi) Fort Orange 2007 Stock-Based Incentive Plan; Capital Bank Profit Sharing and 401(K) Plan as amended; (xvii) Capital Bank Profit Sharing and 401(K) Plan and Cafeteria Plan; (xviii) Special Bonus Agreement dated November 30, 2006 relative to a pending Fidelity bond claim; (xix) settlement agreement and release between William Hazlett and Capital Bank dated October 3, 2001. Other sche dules omitted include a network service agreement, internet banking agreement, payment services agreement and a website hosting agreement. Chemung Financial agrees to furnish copies of such omitted exhibits and schedules to the Securities and Exchange Commission upon request. |
2.2 | First Amendment dated December 28, 2010 to Agreement and Plan of Merger by and between Chemung Financial Corporation and Fort Orange Financial Corp. dated as of October 14, 2010 (included as Appendix A2 to the joint proxy statement/prospectus contained in this Registration Statement). |
3.1 | Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-K for the year ended December 31, 2007 and filed with the SEC on March 13, 2008). |
3.2 | Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988, (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2007 and filed with the SEC on March 13, 2008). |
3.3 | Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998, (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the SEC on March 15, 2006. |
3.4 | Amended and Restated Bylaws of Chemung Financial Corporation, as amended to October 21, 2009 (incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended September 30, 2009 and filed with the SEC on November 9, 2009). |
4.1 | Specimen Stock Certificate of Chemung Financial Corporation (as incorporated by reference to Exhibit 4.1 to Registrant’s Form 10-K for the year ended December 31, 2002 and filed with the SEC on March 24, 2003). |
5.1 | Opinion of Hinman, Howard & Kattell, LLP as to the legality of the securities being issued . * |
8.1 | Opinion of Hiscock & Barclay, LLP as to tax matters * |
23.1 | Consent of Crowe Horwath LLP * |
23. 2 | Consent of ParenteBeard LLC * |
23. 3 | Consent of Hinman, Howard & Kattell, LLP (included in Exhibit 5.1) |
23.4 | Consent of Hiscock & Barclay, LLP (included in Exhibit 8.1) |
24.1 | Power of Attorney of Directors and Officers of Chemung Financial Corporation* * |
99.1 | Form of Proxy Card of Chemung Financial Corporation * * |
99.2 | Form of Proxy Card of Fort Orange Financial Corp. * * |
99.3 | Fairness Opinion of FinPro, Inc. (included as Appendix E to the joint proxy statement/prospectus contained in this Registration Statement). |
99.4 | Fairness Opinion of Sandler O’Neill & Partners, L.P. (included as Appendix F to this joint proxy statement/prospectus contained in this Registration Statement). |
99.5 | Consent of FinPro, Inc. * |
99.6 | Consent of Sandler O’Neill & Partners, L.P. * |
99.7 | Voting Agreement executed by Peter D. Cureau dated as of October 14, 2010 (included as Appendix B to the joint proxy statement/prospectus contained in this Registration Statement). |
99.8 | Voting and Non-Competition Agreement executed by Fort Orange Financial Corp. directors (other than Peter D. Cureau (included as Appendix C to the joint proxy statement/prospectus contained in this Registration Statement )with Exhibit A thereto. |
99.9 | Agreement by Peter D. Cureau dated as of October 20, 2010 and First Amendment to the Agreement by Peter D. Cureau dated December 28, 2010 (included as Appendix D to the joint proxy statement/prospectus contained in this Registration Statement). |
99.10 | Executive Employment Agreement between Capital Bank & Trust Company and Steven J. Owens, with First Amendment thereto both dated as of January 1, 2011 . * |
99.11 | Articles of Merger which includes the Delaware Certificate of Merger of Fort Orange into Chemung Financial and New York Certificate of Merger of Fort Orange and Chemung Financial into Chemung Financial (included as Appendix H to the joint proxy statement / prospectus contained in this Registration Statement). |
99.12 | Bank Plan of Merger dated as of October 14, 2010 by and between Chemung Canal Trust Company and Capital Bank & Trust Company (included as Appendix I to the joint proxy statement / prospectus contained in this Registration Statement). |
* | Previously filed. |
** | Filed herewith. |
CHEMUNG FINANCIAL CORPORATION | ||
By: | /s/ Ronald M. Bentley | |
Ronald M. Bentley | ||
President and Chief Executive Officer |
Signatures | Title | Date | ||
/s/ Ronald M. Bentley | President, Chief Executive Officer and Director (Principal Executive Officer) | February 11 , 2011 | ||
Ronald M. Bentley | ||||
/s/ John R. Battersby, Jr. | Chief Financial Officer Treasurer (Principal Financial and Accounting Officer) | February 11 , 2011 | ||
John R. Battersby, Jr. | ||||
* | ||||
Robert E. Agan | Director | February 11 , 2011 | ||
* | ||||
Ronald H. Dalrymple | Director | February 11 , 2011 | ||
* | ||||
David J. Dalrymple | Director | February 11 , 2011 | ||
* | ||||
Clover M. Drinkwater | Director | February 11 , 2011 | ||
* | ||||
William D. Eggers | Director | February 11 , 2011 | ||
* | ||||
Stephen M. Lounsberry III | Director | February 11 , 2011 | ||
* | ||||
Thomas K. Meier | Director | February 11 , 2011 | ||
* | ||||
Ralph H. Meyer | Director | February 11 , 2011 | ||
* | ||||
John F. Potter | Director | February 11 , 2011 |
Signatures | Title | Date |
* | ||||
Robert L. Storch | Director | February 11 , 2011 | ||
* | ||||
Charles M. Streeter, Jr. | Director | February 11 , 2011 | ||
* | ||||
Richard W. Swan | Director | February 11 , 2011 | ||
* | ||||
Jan P. Updegraff | Director | February 11 , 2011 |
* | /s/ Ronald M. Bentley | Director | February 11 , 2011 | ||
Ronald M. Bentley | |||||
Attorney-in-fact |
Number | Description |
2.1 | Agreement and Plan of Merger by and between Chemung Financial Corporation and Fort Orange Financial Corp. dated as of October 14, 2010 (included as Appendix A1 to the joint proxy statement/prospectus contained in this Registration Statement ), and certain exhibits thereto which are included as Exhibit 2.2, 99.7, 99.8, 99.9, 99.11 and 99.12 to this joint proxy statement/prospectus contained in this Registration Statement. Three exhibits are omitted : (i) a Confidentiality Agreement between Chemung Financial and Fort Orange dated September 8, 2010; (ii) an index showing the average per share common stock prices of the common stock of publicly traded banks headquartered in New York and Pennsylvania with total assets between $500 million and $4 billion; an d (iii) a form of estoppel certificate signed by the landlord for each of Capital Bank’s branch offices. The schedules to the Agreement and Plan of Merger which have been omitted pursuant to Item 601(b)(2) of Regulation S-K are: (i) outstanding options for Fort Orange common stock; (ii) articles of incorporation and bylaws of Fort Orange; (iii) organization certificate and bylaws of Capital Bank; (iv) a tax sharing agreement dated December 1, 2006 by and between Capital Bank and Fort Orange; (v) real property leases to which Fort Orange or Capital Bank is a party; (vi) a complete list of fixed assets at September 30, 2010; (vii) schedule of insurance policies maintained by Fort Orange and Capital Bank; (viii) list of Regulation O loans at September 30, 2010; (ix) list of pledged securities at Sep tember 30, 2010; (x) list of investment securities held by Fort Orange; (xi) list of Capital Bank brokered deposits at September 30, 2010; (xii) a change in control severance agreement dated October 9, 2008 between Capital Bank and each of Melissa L. Clement and John T. Kite (both non-executive officers); (xiii) Capital Bank Stock Unit Plan for Non-Employee Directors, as amended on March 12, 2002; (xiv) Capital Bank 1996 Stock Option Plans for New Employees Directors and for Key Employees; (xv) Capital Bank 1997 Stock Option Plan; (xvi) Fort Orange 2007 Stock-Based Incentive Plan; Capital Bank Profit Sharing and 401(K) Plan as amended; (xvii) Capital Bank Profit Sharing and 401(K) Plan and Cafeteria Plan; (xviii) a certain Special Bonus Agreement dated November 30, 2006 relative to a pending Fidelity bond claim; (xix) settlement agreement and release between William Hazlett and Capital Bank dated October 3, 2001. Other schedules omitted include a network service agreement, internet banking agreement, payment services agreement and a website hosting agreement. Chemung Financial agrees to furnish copies of such omitted exhibits and schedules to the Securities and Exchange Commission upon request. |
2.2 | First Amendment dated December 28, 2010 to Agreement and Plan of Merger by and between Chemung Financial Corporation and Fort Orange Financial Corp. dated as of October 14, 2010 (included as Appendix A2 to the joint proxy statement/prospectus contained in this Registration Statement). |
3.1 | Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-K for the year ended December 31, 2007 and filed with the SEC on March 13, 2008). |
3.2 | Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988, (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2007 and filed with the SEC on March 13, 2008). |
3.3 | Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998, (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the SEC on March 15, 2006. |
3.4 | Amended and Restated Bylaws of Chemung Financial Corporation, as amended to October 21, 2009 (incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended September 30, 2009 and filed with the SEC on November 9, 2009). |
4.1 | Specimen Stock Certificate of Chemung Financial Corporation (as incorporated by reference to Exhibit 4.1 to Registrant’s Form 10-K for the year ended December 31, 2002 and filed with the SEC on March 24, 2003). |
5.1 | Opinion of Hinman, Howard & Kattell, LLP as to the legality of the securities being issued * (to be filed by amendment) * * |
8.1 | Opinion of Hiscock & Barclay, LLP as to tax matters * * |
23.1 | Consent of Crowe Horwath LLP * |
23. 2 | Consent of ParenteBeard LLC * |
23. 3 | Consent of Hinman, Howard & Kattell, LLP (included in Exhibit 5.1) |
23.4 | Consent of Hiscock & Barclay, LLP (included in Exhibit 8.1) |
24.1 | Power of Attorney of Directors and Officers of Chemung Financial Corporation* * |
99.1 | Form of Proxy Card of Chemung Financial Corporation * * |
99.2 | Form of Proxy Card of Fort Orange Financial Corp. * * |
99.3 | Fairness Opinion of FinPro, Inc. (included as Appendix E to the joint proxy statement/prospectus contained in this Registration Statement). |
99.4 | Fairness Opinion of Sandler O’Neill & Partners, L.P. (included as Appendix F to this joint proxy statement/prospectus contained in this Registration Statement). |
99.5 | Consent of FinPro, Inc. * |
99.6 | Consent of Sandler O’Neill & Partners, L.P. * |
99.7 | Voting Agreement executed by Peter D. Cureau dated as of October 14, 2010 (included as Appendix B to the joint proxy statement/prospectus contained in this Registration Statement ) with Exhibit A thereto. |
99.8 | Voting and Non-Competition Agreement executed by Fort Orange Financial Corp. directors (other than Peter D. Cureau (included as Appendix C to the joint proxy statement/prospectus contained in this Registration Statement ) with Exhibit A thereto. |
99.9 | Agreement by Peter D. Cureau dated as of October 20, 2010 and First Amendment to the Agreement by Peter D. Cureau dated December 28, 2010 (included as Appendix D to the joint proxy statement/prospectus contained in this Registration Statement). |
99.10 | Executive Employment Agreement between Capital Bank & Trust Company and Steven J. Owens, with First Amendment thereto both dated as of January 1, 2011 .* |
99.11 | Articles of Merger which include the Delaware Certificate of Merger of Fort Orange into Chemung Financial and New York Certificate of Merger of Fort Orange and Chemung Financial into Chemung Financial (included as Appendix H to the joint proxy statement / prospectus contained in this Registration Statement). |
99.12 | Bank Plan of Merger dated as of October 14, 2010 by and between Chemung Canal Trust Company and Capital Bank & Trust Company (included as Appendix I to the joint proxy statement / prospectus contained in this Registration Statement). |
* | Previously filed. |
** | Filed herewith. |