[COVER]
1995
Annual
Report
[LOGO-ONBANCorp, Inc.]
Financial Highlights
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
($ in Millions Except Share Data) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 44.7 2.7 61.4 41.2 26.7
Net Operating Income (A) 44.7 2.7 58.0 41.2 26.7
Return on Average Shareholders' Equity 11.7% .7% 16.4% 13.9% 11.6%
Return on Average Assets .71% .04% 1.19% 1.21% .90%
- ----------------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
Operating Income (Loss) Fully Diluted (A) $ 2.75 (.15) 3.71 2.86 2.04
Net Income (Loss) Fully Diluted 2.75 (.15) 3.93 2.86 2.04
Dividends Declared 1.14 1.03 .69 .45 .31
Book Value 24.11 20.82 25.77 20.87 18.24
Book Value, Excluding Net Unrealized Holding
Gain (Loss) on Securities 25.51 24.08 25.27 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Commercial Loans $ 561 428 386 398 98
Consumer Loans 596 524 517 567 380
Residential Real Estate Loans 1,130 1,026 816 991 950
Allowance for Loan Losses (35) (34) (33) (32) (13)
Loans, Net 2,254 1,949 1,681 1,910 1,408
Securities 2,742 3,891 3,628 2,283 1,717
Total Earning Assets 5,171 5,902 5,514 4,416 3,268
Total Assets 5,567 6,723 5,772 4,724 3,407
Deposits 3,808 3,793 3,006 3,024 2,046
Shareholders' Equity 389 363 431 334 239
- ----------------------------------------------------------------------------------------------------------------------------
Equity to Assets Ratio 7.0% 5.4% 7.5% 7.1% 7.0%
Total Capital to Risk Assets 15.1% 13.4% 18.3% 15.8% 17.7%
Common Shares Outstanding (000) 13,517.6 14,050.3 13,979.9 12,649.0 12,811.3
Loan Quality Ratios:
% Net Loans Charged Off to Average Loans .28% .35% .47% .14% .15%
% Non-performing Assets to Total Assets .60% .53% .79% 1.21% 1.13%
% Loan Loss Allowance to Non-performing Loans 119.0% 113.5% 95.5% 80.6% 41.7%
Efficiency Ratio (B) 58.7% 51.9% 51.6% 44.5% 51.2%
(A) Net income before cumulative effect of accounting change.
(B) Excludes effect of securities transactions.
Description Of Business
- -------------------------------------------------------------------------------
ONBANCorp Inc. is a Delaware chartered bank holding company headquartered in
Syracuse, New York. It operates three wholly owned subsidiaries, OnBank & Trust
Co. and OnBank in Upstate New York, and Franklin First Savings Bank in
Wilkes-Barre, Pennsylvania. Financial services are offered through 122
locations, including 11 specialized lending offices and 26 electronic ATM
locations at the rest stops on the New York State Thruway. Bank subsidiaries
provide investment and insurance services. Mutual funds and annuities are also
available through Liberty Securities Corporation.
ONBANCorp Common Stock is traded Over The Counter and is listed by NASDAQ-NMS
using the symbol "ONBK". At year end, 1995, there were approximately 12,100
holders of record of ONBANCorp common stock.
- -------------------------------------------------------------------------------
Quarterly Closing Sales Prices
1995 1994
Quarter High Low Close High Low Close
Fourth 33.63 29.13 33.38 28.75 21.75 22.50
Third 34.13 28.00 32.50 30.75 26.00 26.75
Second 28.63 25.00 28.38 33.25 29.50 29.75
First 26.50 21.63 25.50 35.00 29.50 30.50
Table of Contents
Management Message 2
First Quarter 3
Second Quarter 4
Third Quarter 5
Fourth Quarter 6
Five Years as a Bank Holding Company 7
Commercial Business Banking Services 8
Trust and Investment Services 11
Consumer Banking Services 14
Residential Real Estate Lending 16
EDP Systems & Operations 18
Community & Civic Support 20
Financial Reports 21
Directors and Senior Officers 52
Your Company's accelerated emphasis on developing core banking business showed
very positive results.
To Our Shareholders, Customers and Friends:
ONBANCorp 1995 Net Income of $44.7 million was the second highest in your
Company's history, and compared to $2.7 million for the prior year. Earnings per
common share (EPS) were $2.84 on a primary common share basis and $2.75 on a
fully diluted basis. In view of improved performance and the outlook for
continued improvement, your Directors in December 1995 again declared an
increase in the Dividend Per Common Share (DPS) to $.30 per quarter or $1.20
annually, up from the prior annual DPS rate of $1.12. This is the seventh
successive year for increased dividends.
Corporate strategy was revised in 1995 to further accelerate our focus on
core banking and significantly diminish investments in securities backed by
Government sponsored enterprises or mortgage-backed securities. Recent
accounting rules have resulted in more volatile financial statements for banks
by requiring changing market valuation for selected interest-earning asset
investments but not allowing market valuation of deposits or other
interest-sensitive liabilities whose marketable values also change as market
rates change. Our strategy to reduce the proportions of investment securities
and borrowings in the balance sheet is specifically designed to adjust to these
challenges to asset and liability management and to mitigate risk inherent in
changing market rates. Securities have been reduced by $1.9 billion from their
$4.6 billion peak in late 1994.
[GRAPH]
Dividend Per Common Share (DPS) $ Annually
`89 0.14
`90 0.22
`91 0.31
`92 0.45
`93 0.69
`94 1.03
1995 1.14
2
Management Message
Your Company's accelerated emphasis on developing core banking business
showed very positive results in many key areas during fiscal 1995 despite a
sluggish economy. Perhaps the most significant cause of strong results in
community banking is the aggressive level of effort put forth by our experienced
local banking professionals. Highlights of their year-over-year performance
include continued strong growth in commercial and municipal business, increased
trust services, increased portfolios of consumer and residential loans, upgraded
information systems, continued disciplined control of asset quality and
non-interest expenses, and significantly fewer investment securities. A brief
recap of the year's four quarters follows.
First Quarter
ONBANCorp's first quarter of 1995 started the recovery from a
disappointing prior year which had been adversely impacted from investments and
associated new accounting rules. Corporate strategy was adjusted to focus on
accelerating core lending and banking business development, reducing investments
in government and agency backed securities, and also concentrating on mitigating
the impact of rising deposit and funding costs in the aftermath of the Federal
Reserve's pattern of significant increases in rates during the later quarters of
1994 and early 1995. The 1995 first quarter ended with $9.9 million net income
compared to $2.7 million for the entire prior year.
[PHOTO]
3
[PHOTO]
OnBank commercial loans have provided working capital for many local businesses.
Emphasis on local banking relationships
$560 million in commercial
Second Quarter
The positive trend in core banking continued in the second quarter. Gross
loans in portfolio had increased by $385 million at June 30, 1995, over the
previous year balance at June 30. Continued emphasis on developing local banking
relationships with small and middle sized businesses resulted in a 27% increase
to more than $480 million in commercial loan balances. In the Trust Division,
assets under management increased 29% by mid-year 1995 compared to twelve months
earlier. Senior commercial banking and trust executive talent recently added in
Rochester, New York, and the Pennsylvania banking subsidiary,
bolstered efforts to develop new business. A senior operations and systems
executive with extensive multibank and outsourcing data processing experience
was added to our lead bank management team. Portfolios of consumer and
residential mortgage loans also witnessed increases despite the continued soft
economy. Since consumer deposits had a weighted average contract maturity to
repricing of slightly less than one year, interest margin pressure persisted
through the first half year following the Fed's interest rate spike in the last
half of the previous year. Total securities at June 30, 1995, were $547 million
lower than securities balances at June 30 of the prior year, and $167 million of
borrowed funds had been paid down. Second quarter 1995 earnings of $10.1 million
exceeded the $9.9 million earned in the first quarter.
[IMAGE-BROCHURES]
4
Management Message
resulted in a 31% increase to more than
loan balances.
Third Quarter
Earnings for the third quarter further improved to $12.7 million. By
September 30, 1995, commercial and construction loans in portfolio had increased
to $543 million and represented 24% of the total loan portfolio. Consumer loans
and auto leasing showed a portfolio increase of 13%, up more than $66 million
over the prior year consumer credit portfolio at September 30, 1994. Fee revenue
from Trust and investment services had increased by $100,000 for the first nine
months compared to the equivalent prior year period. Year-to-date Trust fee
revenue exceeded $2 million through the third quarter. Asset quality and expense
control remained very sound. The third quarter marked the completion of a major
overhaul of our customer information delivery systems. Data processing
applications were upgraded, streamlined and standardized under the cooperative
guidance of bank management and our outsourcing vendor's systems management
team. In Pennsylvania, the Franklin First subsidiary bank completed all major
systems conversions on time as planned in the third quarter. ONBANCorp's
streamlined customer delivery systems are extremely competitive with larger
institutions, and are now more economically efficient. Expanded electronic
banking services including our network of OnBank 24-Hour ATMs located at each
rest stop on the New York Thruway, as well as the "Pathway to Prosperity" mutual
funds access through our Trust organization, were in full operation for
customers.
[PHOTO]
Fayetteville, New York, main branch.
[GRAPH]
1995 Earnings (Net Income) $ In Millions
First Quarter $9.9
Second Quarter $10.1
Third Quarter $12.7
Fourth Quarter $12.0
5
[PHOTO]
Joseph W. Balz Retiring ONBANCorp Director
Your team of local community banking
as a diversified regional
Fourth Quarter
Early in the 1995 fourth quarter, authorities announced another temporary
change to the controversial FAS 115 Financial Accounting Standard which deals
with marking to market the valuation of investment securities. This accounting
standard initially became effective for fiscal 1994. It was adjusted in part in
August, 1994, and then was "temporarily suspended" from November 15, 1995,
through December 31, 1995. An end result of the latest FAS 115 action was to
allow financial institutions a one-time opportunity to sell securities which
previously were required to be "held to maturity" in the securities portfolio.
Given our strategy to downsize securities, ONBANCorp positioned itself and sold
more securities during this window, bringing full year reductions of $1.15
billion in securities and $1.0 billion in borrowed funds. This restructuring was
completed while maintaining nearly $12 million in fourth quarter profits.
In December we announced an agreement, subject to regulatory approvals, to
sell three small branches whose average deposits slightly exceeded $15 million.
Sale of these branches should further improve efficiency. The quarterly common
stock dividend was increased to $.30 from $.28 per share. Very sound December
31, 1995, Capital levels of 7% of Assets and 15% of Risk Adjusted Assets
concluded the year well in excess of all regulatory requirements.
Director Joseph W. Balz, our friend and distinguished ONBANCorp Board
member who served us for more than 26 years, has reached retirement age and is
scheduled to be succeeded on the Board by Peter J. O'Donnell, Jr., President of
Pine Tree Management Corporation. Following a respected career as Vice
President, Treasurer and Board member of Kings College, Joseph Balz served on
the Board of the Franklin First banking organization before it merged with
ONBANCorp in 1993. We are thankful for his astute guidance and accomplishments
in positioning your bank in the community.
6
Management Message
professionals have greatly strengthened ONBANCorp
banking competitor.
Five Years as a Bank Holding Company
Although the banking organization had its origins in the 1850's, the
first full year your organization operated as a registered commercial bank
holding company was 1990. Your team of local community banking professionals
have caused a major transformation of your organization from a savings
institution to a full service regional commercial banking competitor over the
recent five years. The following summary highlights changes in ONBANCorp's
corporate banking performance, as originally reported,
from 1990 to 1995:
[IMAGE-COVER] [IMAGE-COVER]
1990 1995 Improvement/Change
- ------------------------------------------------------------------------------------------------------------------
Assets $ 1.9 billion $ 5.6 billion Assets nearly tripled
Earnings $15.0 million $ 44.7 million Yearly Earnings nearly tripled
Shareholders' Equity $ 128 million $ 389 million Shareholders' Equity tripled
Deposits $ 1.2 billion $ 3.8 billion Deposits tripled
Loan Portfolio:---------------------------------------------------------------------------------------------------
Commercial $ 21 million = 2% $ 561 million = 24% Commercial loans 25 times greater
Consumer $ 244 million 26% $ 596 million 26% Consumer loans more than doubled
Residential $ 682 million 72% $1,130 million 50% Residential mortgage loans up 66%
---------------------------------------------
Total Loans $ 947 million = 100% $2,287 million = 100% Total Loan Portfolio up 141% with
improved mix
Loan Quality:-----------------------------------------------------------------------------------------------------
% Net Loans
Charged Off 0.06% 0.28% Loans Charged Off continue well below 1%
% Loss Allowance to
Non-Performing Loans 23% 119% Loan Loss Allowance Coverage more than
four times greater
% Non-Performing Assets 0.8% 0.6% Continued very low non-performers
Efficiency Ratio 54% 59% Sound Efficiency Ratio remains under 60%
Return on Equity 12.5% 11.8% Annual ROE off slightly
Earnings Per Share $1.97 $2.75 Yearly EPS up nearly 40%
- ------------------------------------------------------------------------------------------------------------------
Dividends Per Share $ .22 $1.14 Dividends four times greater
- ------------------------------------------------------------------------------------------------------------------
7
Commercial Banking with OnBank & Trust enabled Alaskan Oil Inc. of Syracuse to
strengthen and expand its three core businesses: a chain of convenience stores,
fuel delivery to airlines at Hancock Field and the delivery of home heating oil.
[LOGO-ALASKAN OIL INC.] [PHOTO]
These increases suggest that ONBANCorp banks co
competitors who are now headquartered outside
Commercial Business Banking Services
The corporate plan to aggressively develop banking business with small and
mid-sized companies in our region has shown dramatic results over the past year
and five-year periods. Our market niche is focused on small and mid-sized
businesses in the Upstate New York and Northeastern Pennsylvania markets. In
less than five years since December 1990, your banks have become the primary
relationship banker to small and mid-sized businesses in our core market
surrounding metropolitan Syracuse and are showing significant improvements in
the Scranton/Wilkes-Barre market area, as well as developing stronger presence
in both the metropolitan Albany and Rochester markets. Implementing the strategy
to become the preferred local business banker to small and mid-sized businesses
began in earnest at the beginning of 1990. We started with two banking
professionals who had long-term experience and skills in commercial banking.
While overall staffing levels have decreased, we have increased our corps of
experienced commercial bankers. This has been accomplished by hiring business
bankers who were previously trained by the larger banking competitors in our
region. As the large banks consolidated and centralized their lending operations
to far-off cities out of the territory, ONBANCorp has expanded its local lending
operations and talent within the region. The results are dramatic. Our
commercial loans to local businesses were a modest $21 million as originally
reported in December 1990. They now exceed $560 million. While approximately
$230 million of commercial loans were acquired at the end of 1992 with the
purchase of two banks, the vast majority of commercial lending business has been
developed since that time by our banks' lenders. This was accomplished through
aggressive local business solicitation efforts by a corps of seasoned business
bankers. The most recent one-year increase in commercial loans was more than
$133 million, a growth of 31%.
8
Commercial Business
Banking Services
ntinue to gain significant local market share versus large banking
the local market.
[GRAPHS]
Commercial & Municipal Deposits ($ Millions) Commercial Loans ($ Millions)
Dec 1990 $14 Dec 1990 $21
Dec 1991 $37 Dec 1991 $37
Dec 1992 $280 Dec 1992 $343
Dec 1993 $495 Dec 1993 $386
Dec 1994 $640 Dec 1994 $428
Dec 1995 $748 Dec 1995 $561
More importantly, commercial loan growth dramatically increased in the last
five years during a period in which our core markets' growth has been anything
but robust. These increases suggest ONBANCorp banks continue to gain significant
local market share versus large banking competitors who are now headquartered
outside the local market.
Deposits from commercial and municipal customers in our region have also
dramatically increased. Starting with a mere $14 million in commercial deposits
at December 1990, commercial and municipal deposits now approximate nearly $750
million. These deposits have increased by a magnitude of 52 times since the end
of 1990, and have predominantly come from newly developed customer banking
relationships. This growth is also a tribute to the initiative of our talented
business banking professionals. The increase in these deposits in 1995
approximates 17%.
[PHOTO]
Rome, New York, office.
9
[PHOTO]
U.S. Small Business Administration District Director B.J. Paprocki
presents prestigious award to R. J. Bennett, Bank CEO.
[IMAGE-PLACARD]
The bank and its chief executive officer were
award from the U.S. Small Business
A key element of our commercial banking development is the fee income
derived from maintaining a full range of banking services with business
customers. Commercial banking fees have grown to approximately $4 million
annually. Commercial banking fee income was virtually non-existent five years
ago. A full array of banking services is now available including: business loans
and lines of credit, a wide range of depository services, cash management,
domestic and international letters of credit, electronically assisted direct
deposit and wire transfer services, special services tailored for small
businesses, computer-assisted services for payroll, accounts payable and credit
card payment processing, as well as Keogh, retirement accounts and 401(k)
programs for small businesses.
OnBank & Trust Co. is a "Preferred SBA Lender" for Small Business
Administration guaranteed loans. This facilitates very quick turnaround for loan
applications. Computerized loan underwriting systems operate quickly and
efficiently. A small business can apply for and receive loan decisions in a
matter of a few days. The bank also works with the major local supplier of power
to businesses under an arrangement in which loans for repairs or refurbishments
are quickly financed to help businesses become more energy efficient. The bank
also helps small business borrowers save money with discounted loan rates
facilitated through the New York State Excelsior Linked Deposit Program. This
program enables small businesses to save 2% on interest costs over a period of
two years. OnBank & Trust Co. has provided more than 60% of the Excelsior Linked
Deposits Program loans in central New York. The bank and its chief executive
officer were very fortunate to receive a prestigious award from the U.S. Small
Business Administration as the "Small Business Advocate of the Year" in Central
New York.
10
Trust & Investment
Services
fortunate to receive the "Small Business Advocate of the Year"
Administration.
Trust and Investment Services
Growth in the market value of assets under management at the bank Trust
Divisions in Upstate New York and Pennsylvania increased from less than $620
million in the prior year to more than $680 million by year end 1995. This
represented a 10% increase in Trust assets. Trust revenues also increased 11% to
approximately $2.7 million. When we effectively started offering Trust services
three years ago on January 1, 1993, assets under management were $551 million.
The Trust operation has a history tracing back more than 65 years and the Trust
Division of OnBank & Trust Co. has become a very reliable local investment
resource for successful individuals and families in upstate New York. Trust
services and advice are completely customized, always personalized to specific
customer needs, and provided with complete confidentiality to place the interest
of the customer first.
We support our internal Trust experience and discipline with
multi-dimensional research including extensive economic data and analytical
information from internal sources as well as from sources that include large and
well respected investment advisors. In addition to our own resources, Trust
professionals have direct access to such sources as Northern Trust Investment
Advisors, Wellington Management, SEI Financial Services, Federated Investors,
Value Line and others. Trust professionals at ONBANCorp are not sales commission
agents and, therefore, do not carry any bias for investing in funds or managing
assets that may be prescribed by a parent investment brokerage or similar firm.
[PHOTO]
Trust Services help assure a legacy of education and security for generations to
come.
11
[PHOTO]
Retirement planning is an important Trust Service.
Our Trust professionals enjoy a unique
Among predominant sources of Trust fee income in 1995 were: Trust, Custody
and Estate Services, Employee Retirement Benefit Plans Administration, and
Investment Management services. There are many types of Trust arrangements
available in which an individual or institution like our Trust Division holds
assets or property for the benefit and use of others, i.e. the beneficiaries.
Trust arrangements are established in the strictest confidence, and operate with
specific instructions for determining how the investment or property will be
used or how it will be distributed. Testamentary Trusts can be established by
your will. Living Trusts, also referred to as "inter vivos," can take effect
during your lifetime, and typically are used to transfer liquid assets under tax
beneficial arrangements. Trusts can be revocable or irrevocable. A fundamental
advantage of Trust and fiduciary services is that the grantor directs and
controls the desired activities.
One of the fastest growth areas of Trust services is the management of
employee retirement and benefit plans. There are many types of retirement
programs and plans which are available from the Trust professionals in our
metropolitan offices in Syracuse, Albany, Rochester and Wilkes-Barre. Trust
professionals work very closely with small and mid-size businesses to determine
what type of retirement plan or plans may be best for the employer and
employees. Custom retirement plans and a number of IRS-approved prototype plans
are available. Among the more popular plans are:
o 401(k) Salary Deferral Plan -- A 401(k) Plan allows the employer and
employees to save additional funds for retirement. Plan participants may
elect to defer receiving a portion of their salaries in favor of
deferring the income and tax by placing funds in a qualified retirement
plan. Such plans allow the business to make a matching contribution in a
very flexible fashion.
12
Trust & Investment
Services
market competitive position.
o Profit Sharing Plan -- A Profit Sharing Plan allows employers the
flexibility to contribute or not to contribute based upon profitability.
All qualifying contributions made by the business make this plan tax
deductible.
o Keogh Plan -- Keogh plans are designed especially for self-employed
individuals who wish to make tax deductible contributions for their own
benefit or for the benefit of eligible employees. Earnings on these
contributions grow on a tax-deferred basis and help accumulate savings
for retirement.
Through the use of sophisticated computer processes, Trust professionals
offer direct access to a wide variety of investment funds through the "Pathway
to Prosperity" service. "Pathway to Prosperity" investment funds and asset
allocation services are proving to be exceptionally helpful planning tools for
individuals whose net worth is $50,000 or more. Our Trust professionals enjoy a
very unique market competitive position. Most competitors with Trust operations
are focused only on the very large account. Many competitors are involved in
carrying expensive overhead costs for headquarters, resources and equipment that
are located in distant cities. This, in turn, discourages the active serving of
Trust customers whose net worth is less than millions of dollars. Key
fundamentals of our Trust services are: keep the Trust professionals local, keep
Trust services up to date and stay directly responsive to customers at the local
level.
[IMAGE-BROCHURES]
13
[PHOTO]
Upgraded branch,
Fayetteville, New York
[IMAGE-SERVICE AREA]
We continually look for ways to build cust
We are convinced that first-class cu
Consumer Banking Services
Significant growth was witnessed in 1995 consumer banking services.
Consumer loans increased by 14% and now approximate $600 million. Consumer
lending increased by nearly $72 million. Primary growth areas were financing of
automobile leases which showed particularly strong growth in Northeastern
Pennsylvania, and financing manufactured homes. Our banks' array of consumer
loans and leases ranges from Home Equity secured loans for home improvement and
personal needs to student loans and a variety of personal loans. To further
improve our capacity to deliver fast, personalized loan service to customers, we
improved the automation of loan applications and loan documentation. Upgraded
computer software helps to dramatically speed the process of customer loan
application and review. A new computer-assisted loan documentation system
produces customer loan documents through laser printers located in bank
branches.
New York subsidiaries improved the OnBank ATM network at mid-year 1995 by
installing state of the art 24-hour ATMs at every rest stop on the New York
Thruway from Westchester County through the Buffalo and Niagara Falls area. This
roadway travels directly through our core New York territory. These ATMs have
already accommodated more than one-half million banking transactions for
customers' convenience. Another service enhanced in 1995 was a banking card to
directly access customer deposit accounts for purchases. The new "MasterMoney"
card improves the customer's access to deposit accounts for ATM transactions and
retail purchases, a service which was initially introduced to Upstate New York
in 1977 through a debit card by our OnBank subsidiary.
14
Consumer Banking
Services
omized services around the needs of our local customers.
stomers deserve first-class banking facilities.
Today, both customers and non-customers who have a MasterCard, MasterMoney
card, VISA card, or any debit or bank credit card that is approved for use on
major ATM networks throughout the USA and Canada, can use our automated
services. Among networks facilitating the service are CIRRUS, PLUS, NYCE, MAC
and JEANIE. ONBANCorp's electronically assisted banking transactions continue to
remain state of the art. Fee income for electronically assisted banking services
to consumers increased approximately 24% in 1995. Fees received for services
such as credit card payments received at retail establishments and processed by
our bank for merchants, agent credit card fees, MasterMoney interchange fees,
and ATM fees for non-customers who use OnBank ATMs, now exceed $3.3 million
annually.
ONBANCorp banks continue to focus on niche marketing for specific customer
segments. One primary market segment is citizens aged 55 or better. "ONYX Club"
services offered by subsidiary banks provide customized services to more than
50,000 customers who have achieved the age of 55 or better. These customized
banking services are provided at reduced fees or at no fee, and range from
personalized checking, specialized retirement accounts, deposits, travelers
checks, money orders, direct deposit of social security and other pension
checks, and a variety of informational services and travel-related activities
for retirees. We continually look for ways to build customized services around
the needs of our local customers. We are convinced that first-class customers
deserve first-class banking facilities. The year 1995 continued our program of
periodically improving banking offices. Among refurbished or new banking offices
were Pennsylvania offices in Old Forge, Kingston and Dallas, as well as upgraded
New York offices in Fayetteville and Syracuse.
[PHOTO]
[PHOTO]
Kingston, Pennsylvania, new branch office.
15
[PHOTO]
To stay ahead of the competition, we made sig
customer delivery systems by expanding
Residential Real Estate Lending
Residential loans in portfolio increased 10% or $104 million over the prior
year ended December 31, 1994. While 1995 mortgage originations decreased by
approximately one-third in our primary markets, mortgage yields increased
compared to the previous year. Improved yields, together with added focus on
core lending activity, meant a larger portion of the nearly $254 million annual
production was placed into portfolio instead of being packaged into
mortgage-backed securities for sale to mortgage market investors. Mortgages
serviced now include $1.13 billion in our "on balance sheet" portfolio and $1.15
billion serviced for investors "off balance sheet" for a combined $2.28 billion.
Despite fierce competition from nearly 60 lenders, our lead bank remained
the top mortgage lender in our primary market county. Approximately two-thirds
of 1995 residential mortgage production in our key market was produced by less
than two dozen banks. But approximately one-third of the mortgage originations
were generated by a growing population of nearly 40 less regulated credit unions
and mortgage companies. To stay ahead of the competition, significant
improvements were made to already efficient mortgage delivery systems by
expanding our computer technology. Virtually all mortgage technology
enhancements were focused on more rapid approval of loan applications for the
residential borrower, or more cost-efficient loan underwriting and processing.
Among the most beneficial mortgage processing improvements are the following:
o Faster mortgage loan pre-qualifying -- The "Mortgage Connection"
computerized system allows prospective borrowers to prequalify
themselves via telephone and initiates instant sales leads to our
mortgage originators.
16
Residential Real
Estate Lending
nificant improvements to already efficient mortgage
upon our computer technology.
o Faster mortgage loan origination -- Laptop computers were deployed with
selected lenders to both speed the mortgage loan application process and
to help sell other banking services.
o Faster mortgage loan approval -- An agreement was signed with the
Federal Home Loan Mortgage Corporation (FHLMC) to install the "Loan
Prospector" computerized loan approval system to reduce processing and
loan underwriting time for the customer. It is anticipated that this
system may reduce the "approval" time for some applications to a matter
of minutes, and facilitate the mortgage loan "closing" time for some
customers to within two weeks.
o Streamlined mortgage loan servicing -- By mid-year 1995, all mortgages
in ONBANCorp banks were converted to computer accounting and processing
through our central service facility operated by Alltel/Systematics. A
mortgage industry standard, the "CPI Mortgage System," reputed to be
processing more than 33% of the mortgages in the United States, now
assures a higher level of efficiency for servicing customers' mortgage
loans.
In light of improvements in information systems, and changes in Financial
Accounting Standards that will add further complexity and expense to the initial
year a mortgage loan is booked, actions were taken in 1995 to close selected low
production volume regional mortgage lending offices. The Saratoga regional
lending office was consolidated into our Albany branch network. The Pittsburgh
regional lending office was closed. The Scranton-area regional mortgage lending
office was folded into the Franklin First subsidiary, and the Rochester, New
York, regional mortgage lending office will be integrated to add commercial
lending activities in that region. These efficiencies should be fully recognized
in the coming year.
[PHOTO]
Expanded computer technology has improved already efficient mortgage delivery
systems.
17
[IMAGE-MAP]
All 122 offices and New York State Thruway ATMs are linked through the
Syracuse Customer Support Center.
Financial information delivery systems must be highly
EDP Systems and Operations
ONBANCorp's outsourcing of data processing, using our Syracuse customer
support and service center, continues to work very efficiently in delivery of
customer information. Thanks to extensive efforts at the Franklin First
subsidiary in Pennsylvania, the systems for electronic delivery for all
Pennsylvania operations were fully integrated as planned in the middle of 1995.
This completed the process for upgrading all customer information systems
applications within the Corporation's banks. Now that the customer base is
coordinated throughout all offices, ONBANCorp is prepared for interstate
banking. In the interstate banking environment, which has already been legally
approved by Pennsylvania and hopefully will soon be approved by the State of New
York, a customer of any ONBANCorp subsidiary bank will have access through any
branch office and will have the ability to conduct all deposit and loan
transactions at any branch office within the company. As previously described in
this report, central processing has already allowed our banks to significantly
streamline practices for taking loan applications, and has broadened the base of
24-hour ATMs, expanded into point-of-sale debit card transactions through use of
the "MasterMoney" card, and placed your company's systems in an extremely
competitive position relative to any banking competitor. The technical
coordination of both the New York customer base and the Pennsylvania customer
base, which now includes nearly 750,000 customer deposit and loan accounts,
involves routine processing of more than five and one-half million transactions
each month on behalf of customers.
Another significant systems upgrade in 1995 involved processing and
monitoring investment securities activity. Upgraded investment systems now allow
automation of mark-to-market
18
EDP Systems and
Operations
automated to effectively compete.
pricing on securities, simulation, and shock testing for dramatic changes in
market rates or shifts in the yield curve. These sophisticated methodologies are
targeted at expanded monitoring and controls on securities to mitigate both
market risk and interest rate risk.
ONBANCorp's systems plans and priorities recognize that financial
information delivery systems must be highly automated to effectively compete for
the business and personal customer as events rapidly evolve toward interstate
banking, interaction by computer networking, and the emergence of highly
sophisticated computers used in assisting the delivery of financial services by
banks and non-bank competitors. The year 1995 marked completion of the upgrades
for information systems supporting the major aspects of our business. Completed
upgrades included: new trust information and accounting systems, standardized
loan and deposit systems, and investment securities systems. To ensure that our
systems stay ahead of the competition, we have employed a senior executive, who
has extensive experience in both internal processing and outsourcing throughout
the nation, to be responsible for Systems and Operations. This added the
necessary management talent to guide our future information technology and
management control systems.
It is with considerable gratitude to our operations and systems
professionals throughout the company that we report your company is extremely
well positioned to compete with small and large financial institutions in the
electronic delivery of customer information for the future. Customer information
delivery systems are operating much more economically, as planned, and with
better quality. We move forward with very competitive systems and operations to
support a more diversified base of banking customers.
[PHOTO]
Customers use AnswerLine Plus to access current account details, new and
existing loan information, and interest rates.
19
[PHOTO]
In "Building Tomorrows," members of the Boys & Girls Club rebuild and restore a
foreclosed home donated by OnBank.
[PHOTO]
The Bank remains firmly committed to the future
of the community.
Community and Civic Support
To improve the quality of life in the communities we serve, ONBANCorp, its
subsidiaries, directors and employees contribute to and take leadership roles in
many civic endeavors. We continue a long tradition of reaching out to low-income
households and small businesses, serving as a member of inner city housing
partnerships and affordable loan and banking services programs, reinvesting in
the community and addressing the needs of the young and elderly. Programs like
OnBank's "World in the Square" and Big Brother/Big Sister are visible examples,
but there are many other programs and agencies that have benefited from our
volunteer involvement. They include many hospital boards, Adopt-a-School
programs, the Boy Scouts, the Boys & Girls Club, the F.M. Kirby Center, Junior
Achievement, Literacy Volunteers, the Make-a-Wish Foundation, the March of
Dimes, the Northeast Pennsylvania Philharmonic, the Red Cross, the Salvation
Army, Success by Six, St. Vincent de Paul Soup Kitchen, Syracuse Stage, the
Syracuse Symphony Orchestra, the United Way, the Urban League and many more.
We note with considerable pride that your banking organization is the
product of the collective performance of nearly 1,400 employees. This dedicated
team of employees strives to provide top quality service to our banking
customers and is the real steward for ONBANCorp shareholders. We remain fully
committed to building a high performance regional financial organization which
improves shareholder value and is worthy of your continued support.
Sincerely,
/s/ Robert J. Bennett
Robert J. Bennett
Chairman, President & Chief Executive Officer
20
Table of Contents
Selected Financial Data 22
Management's Discussion and Analysis 23
Management's Statement of Responsibility 33
Independent Auditors' Report 33
Consolidated Balance Sheets 34
Consolidated Statements of Income 35
Consolidated Statements of Changes in
Shareholders' Equity 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 39
ONBANCorp Banking Subsidiaries
at December 31, 1995 ($000)
Mortgage- Short-term
Net Backed & Other
Assets Loans Securities Investments Deposits Equity
---------------------------------------------------------------------------------------
OnBank & Trust Co. $3,493,305 1,295,785 1,487,413 426,964 2,639,592 230,649
OnBank 613,422 216,708 313,587 12,129 211,976 32,187
Franklin First SB 1,499,628 741,914 570,860 107,223 966,011 110,848
21
Selected Financial Data
=======================================================================================================================
(In Thousands Except Share Data) Year Ended December 31,
1995 1994 1993 1992 1991
Balance Sheet Data at Period End
=======================================================================================================================
Securities $2,741,843 3,890,687 3,627,804 2,283,058 1,716,571
Net loans 2,254,407 1,949,197 1,680,721 1,909,864 1,407,931
Total assets 5,567,059 6,723,305 5,772,280 4,724,021 3,406,591
Deposits 3,808,273 3,793,343 3,005,999 3,023,901 2,045,560
Repurchase agreements 361,617 1,058,316 1,251,050 640,594 737,196
Other borrowings 903,370 1,158,772 1,022,947 642,911 333,701
Shareholders' equity 388,766 362,936 430,638 334,466 238,848
Operations Data
- -----------------------------------------------------------------------------------------------------------------------
Interest income $ 431,459 388,275 327,622 253,649 254,787
Interest expense 278,944 224,646 171,055 141,353 174,504
Net interest income 152,515 163,629 156,567 112,296 80,283
Provision for loan losses 6,790 7,638 10,297 5,900 4,460
Other operating income (loss) 29,301 (52,689) 46,066 23,073 18,603
Other operating expenses 103,462 99,890 98,666 58,783 49,816
Income taxes 26,887 708 35,707 29,532 17,876
Cumulative effect of accounting change(1) -- -- 3,400 -- --
Net income 44,677 2,704 61,363 41,154 26,734
Per Common Share Data
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) fully diluted $ 2.75 (.15) 3.93 2.86 2.04
Dividends declared 1.14 1.03 .69 .45 .31
Book value 24.11 20.82 25.77 20.87 18.24
=======================================================================================================================
(1) Reflects the effect of the adoption of the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
22
Management's Discussion and
Analysis
Overview
ONBANCorp, Inc.'s ("ONBANCorp" or "the Company") results of operations are
dependent upon the results of operations of its three wholly owned subsidiaries;
OnBank & Trust Co., OnBank and Franklin First Savings Bank ("Franklin"),
collectively (the "Banks"). On August 31, 1993 ONBANCorp acquired through merger
the $1.3 billion Franklin First Financial Corp. headquartered in Wilkes-Barre,
Pennsylvania. This merger was accounted for using the pooling of interests
method and, therefore, prior period results have been restated. During June of
1994 OnBank & Trust Co. acquired nine branches with $.3 billion in deposits in
the Rochester metropolitan area and accounted for the acquisition using the
purchase method.
ONBANCorp's major market areas serve metropolitan populations across New York
State and Northeastern Pennsylvania. The Upstate New York Region from
Westchester County to the Great Lakes of Ontario and Erie, has a population
approximating seven million. This exceeds the populations of forty individual
states including the neighboring states of Connecticut and Massachusetts. The
Wilkes-Barre/Scranton area of Northeastern Pennsylvania has strikingly similar
characteristics to Syracuse, Rochester, Albany and Buffalo, namely, large
populations, a wide variety of industries, good transportation, many colleges
and numerous small businesses. The size and diversity of the markets served tend
to inhibit any radical changes in economic growth, unemployment or real estate
values. The economy of the area, therefore, tends to follow the national trends.
These large target markets offer considerable potential in the small business
and household sectors to broaden ONBANCorp's base of banking services.
Corporate strategy was revised in 1995 to further accelerate the focus on core
banking and to significantly diminish investments in securities. Recent
accounting rule changes relating to investment securities have resulted in more
volatile financial statements for companies like ONBANCorp who are in the midst
of transitioning from the thrift profile of 1990 to the regional banking company
profile of 1995. During the intervening years capital has been leveraged in the
form of financing transactions. These transactions have generally involved
short-term market rate borrowings, such as repurchase agreements, funding assets
such as Treasuries and mortgage-backed securities. The intended short term
nature of the financing transactions along with the minimal credit risk
associated with these assets (generally U.S. Government or mortgage-backed
securities) which were classified as available for sale, would have provided the
opportunity to increase return on equity ("ROE") and earnings per share ("EPS")
as well as adjust the balance sheet as more traditional banking relationships
were added. However, rapidly rising interest rates in 1994 had an adverse effect
on this strategy.
In connection with the implementation of Statement of Financial Accounting
Standards (FAS) No. 115 at December 31, 1993, securities, principally
mortgage-backed, with an amortized cost of $2.3 billion were transferred to the
available for sale portfolio. In 1994, the regulatory policy was revised to
require transfer of securities to available for sale only in cases where the
safety and soundness of an institution is an issue. In view of the policy
revision, in 1994, the Company transferred securities with a fair value of $1.27
billion from available for sale to held to maturity. These transfers had the
practical effect of limiting the potential capital erosion which could have
occurred if interest rates rose dramatically and these securities had remained
classified as available for sale.
As of November 15, 1995 certain provisions of FAS 115 were temporarily suspended
and a "Window of Opportunity" was created. All companies subject to FAS 115 were
permitted a one-time opportunity to reallocate securities previously classified
as held to maturity into the available for sale category without calling into
question the Company's intent to hold the remaining securities to maturity.
ONBANCorp availed itself of this opportunity and transferred approximately $1.54
billion in securities from held to maturity to available for sale. Following
this move the Company sold approximately $1.2 billion of its available for sale
securities and used the proceeds to pay down borrowings and fund future loan
growth. This late year "window" enabled the Company to shrink the absolute
levels of securities and borrowings. The yield on assets sold was approximately
the same as the cost of the borrowings repaid, therefore, net interest income
was not adversely affected. Prepayment fees related to the prepayment of
borrowings were more than offset by gains on securities sold. The future
implications of these actions will not materially affect net
23
Management's Discussion and
Analysis (Continued)
income, however, the net interest margin should increase because net interest
income (the numerator) should remain approximately the same while the average
earning assets (the denominator) will significantly diminish by approximately $1
billion. The increase in net interest margin effect will begin in early 1996
since many of the transactions did not settle until December of 1995. Total
securities have declined by $1.15 billion to $2.74 billion at December 31, 1995
from $3.89 billion at December 31, 1994 and on a percentage basis represent 49%
and 58% of total assets on those respective dates.
At December 31, 1995 total assets were $5.6 billion, earning assets were $5.2
billion, deposits $3.8 billion including $.4 billion of brokered time deposits
and shareholders' equity was $388.8 million net of $19.0 million of net
unrealized holding loss on securities pursuant to FAS 115. It is expected that
the majority of this unrealized holding loss will be amortized back into capital
over the next two to three years.
Net income for 1995 was $44.7 million or $2.75 per common share on a fully
diluted basis. Net interest income of $152.5 million is 6.8% lower than the
prior year primarily as a result of interest rates on interest bearing
liabilities rising more than the rates on interest earning assets. The 1995 net
interest margin of 2.55% was 0.13% lower than 1994's and is expected to increase
in 1996 as a result of the substantial net interest income neutral downsizing
which occurred at year end 1995. Full year 1995 operating expenses increased by
$3.6 million or 3.6% and represent an efficient 1.64% of average assets or a
58.7% efficiency ratio, both measures are considered very efficient within the
banking industry.
Asset quality remains very sound as measured by the 0.60% ratio of
non-performing loans ($29.0 million) plus other non-performing assets ($4.4
million) to total assets ($5.567 billion) at December 31, 1995. The coverage
ratio of the allowance for loan losses to non-performing loans has increased to
119% at year end.
At December 31, 1995 the book value per common share of $24.11 represented a
15.8% increase from the $20.82 at December 31, 1994. This increase was the
combined result of net income per common share less dividends and the
improvement of unrealized market depreciation associated with FAS 115. As
announced in March of 1995, as part of its capital management plan, the Company
repurchased 301,800 shares of Cumulative Convertible Preferred Stock and 577,900
shares of Common stock during 1995. This repurchase generally has the effect of
improving earnings per share (EPS) and return on average equity (ROE).
Net Interest Income
The most significant impact on the Company's net interest income between periods
is derived from the interaction of changes in the volume of and rates earned or
paid on interest earning assets and interest bearing liabilities. The volume of
earning dollars in loans and investments, compared to the volume of interest
bearing liabilities represented by deposits and borrowings, combined with the
spread, produces the changes in the net interest income between periods. The
tables on pages 25 and 26 of this report show the relative contribution of
changes in average volume and average interest rates on changes in net interest
income for the periods indicated.
Average interest earning assets decreased to $5.99 billion in 1995 from $6.09
billion in 1994 which had increased from $4.88 billion in 1993. Average interest
bearing liabilities decreased to $5.57 billion in 1995 from $5.66 billion in
1994 which had increased from $4.49 billion in 1993. The yield on average
earning assets was 7.20% in 1995 up from 6.37% in 1994 which was down from 6.71%
in 1993. The increase in yield from 1994 to 1995 primarily related to the
increased volume of average loans at a 0.27% higher yield than in 1994 as well
as the reinvestment in late 1994 and early 1995 of the net proceeds of the
securities repositioning which occurred in December of 1994 at approximately 175
basis point improvement in yield. The decrease in yield from 1993 to 1994 was
caused by the declines in loan yields, primarily residential, from 8.80% in 1993
to 8.40% in 1994. Residential loan prepayment activity occurred at historically
high levels during the declining interest-rate environment of 1993 while at the
same time new residential loan originations were at record levels for the
Company. The "mix" of new loans during 1993 was comprised almost totally of
fixed rate loans which were securitized and sold with servicing retained. During
1994 the mix of new loans includes a substantial increase in adjustable rate
mortgage loans ("ARMS") versus fixed rate loans, however, the volume of new
loans was significantly reduced because of the decreased
24
Management's Discussion and
Analysis (Continued)
This table sets forth for the indicated years ended December 31, the average
daily balances of the Company's major asset and liability items and the interest
earned or paid thereon expressed in dollars and weighted average rates.
===================================================================================================================================
1995 1994 1993
Average Yield/ Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Interest earning assets (1)
Securities $3,819,923 244,078 6.39% 4,237,331 233,530 5.51% 2,878,746 155,267 5.39%
Loans 2,129,445 184,591 8.67% 1,824,207 153,247 8.40% 1,929,724 169,827 8.80%
Federal funds sold and other 42,801 2,790 6.52% 33,434 1,498 4.48% 76,325 2,528 3.31%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 5,992,169 431,459 7.20% 6,094,972 388,275 6.37% 4,884,795 327,622 6.71%
Non-interest earning assets 327,291 302,981 290,890
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $6,319,460 6,397,953 5,175,685
- -----------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities
Savings deposits 804,737 22,931 2.85% 691,470 18,044 2.61% 622,885 17,548 2.82%
Time deposits 2,170,492 121,124 5.58% 1,723,534 76,415 4.43% 1,392,085 60,539 4.35%
Money market accounts, NOW
accounts,and escrow deposits 552,626 13,360 2.42% 782,802 18,208 2.33% 781,271 19,729 2.53%
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 3,527,855 157,415 4.46% 3,197,806 112,667 3.52% 2,796,241 97,816 3.50%
Repurchase agreements 856,327 51,306 5.99% 1,403,327 58,720 4.18% 892,391 32,151 3.60%
Other borrowings 1,189,981 70,223 5.90% 1,061,655 53,259 5.02% 803,370 41,088 5.11%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 5,574,163 278,944 5.00% 5,662,788 224,646 3.97% 4,492,002 171,055 3.81%
Non-interest bearing deposits 298,464 284,797 241,544
Non-interest bearing liabilities 66,447 55,308 68,437
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,939,074 6,002,893 4,801,983
Shareholders' equity 380,386 395,060 373,702
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,319,460 6,397,953 5,175,685
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 152,515 163,629 156,567
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.20% 2.40% 2.90%
Net interest margin (2) 2.55% 2.68% 3.21%
Average interest earning assets to average
interest bearing liabilities 1.07X 1.08X 1.09X
Average equity to average assets ratio 6.02% 6.17% 7.22%
===================================================================================================================================
(1) Nonaccruing loans, which are immaterial, have been included in interest
earning assets.
(2) Computed by dividing net interest income by total average interest earning
assets.
25
Management's Discussion and
Analysis (Continued)
The following table presents changes in interest income and interest expense
attributable to: changes in volume (change in average balance or volume
multiplied by prior year rate), changes in rate (change in rate multiplied by
prior year volume), and the net change in net interest income. The net change
attributable to the combined impact of volume and rate has been allocated
proportionately to the absolute dollar amounts of the change in each.
=======================================================================================================================
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Increase (Decrease)
(Dollars in Thousands) Volume Rate Net Volume Rate Net
- -----------------------------------------------------------------------------------------------------------------------
Interest earning assets
Securities $(24,243) 34,791 10,548 75,187 3,076 78,263
Loans 26,293 5,051 31,344 (9,195) (7,385) (16,580)
Federal funds sold and other 492 800 1,292 (1,728) 698 (1,030)
- -----------------------------------------------------------------------------------------------------------------------
Total change in income from
interest earning assets 2,542 40,642 43,184 64,264 (3,611) 60,653
- -----------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities
Savings deposits 3,130 1,757 4,887 1,857 (1,361) 496
Time deposits 22,343 22,366 44,709 14,738 1,138 15,876
Money market accounts, NOW accounts,
and escrow deposits (5,531) 683 (4,848) 39 (1,560) (1,521)
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 19,942 24,806 44,748 16,634 (1,783) 14,851
Borrowings:
Repurchase agreements (27,578) 20,164 (7,414) 20,734 5,835 26,569
Other borrowings 6,923 10,041 16,964 12,910 (739) 12,171
- -----------------------------------------------------------------------------------------------------------------------
Total change in expense of interest
bearing liabilities (713) 55,011 54,298 50,278 3,313 53,591
- -----------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 3,255 (14,369) (11,114) 13,986 (6,924) 7,062
=======================================================================================================================
refinancing activity in 1994. The initial yield on the ARMS was generally less
than the yield on the loans which they were replacing which contributed to the
continuing decline in the yield on the residential loan portfolio. Periodic
annual and lifetime caps on ARMS inhibit these loans from repricing to market
rates during a one year time frame when interest rates rise as rapidly as they
did during 1994. The yield on securities increased to 5.51% for 1994. A
combination of managed growth, increased prepayment rates on mortgage-backed
securities and the direction and speed with which the interest-rate environment
has changed during the past three years directly affected the yields on
securities. The changing interest-rate environment of the past three years has
had a similar effect on various components of interest bearing liabilities.
Deposit costs for savings deposits and interest bearing transaction accounts
have remained relatively stable, however, the cost of time deposits has steadily
increased from 4.35% to 4.43% to 5.58% for 1993, 1994 and 1995, respectively.
These increased costs are primarily a function of increased competition from
money market funds and others, as well as, the change in time deposit mix which
includes increasing and more expensive deposits from municipalities and retail
brokers. The cost of repurchase agreements is directly related to their maturity
and market interest rates which declined in 1995 following a significant
increase in 1994 from 1993. The increase in cost to 5.99% in 1995 from 4.18% in
1994 relates primarily to the selective lengthening in maturities of these
liabilities during the first half of 1995 to the one and two year category, in
order to offset the shortening duration of assets and
26
Management's Discussion and
Analysis (Continued)
maintain a reasonable duration balance between interest earning assets and
interest bearing liabilities. The cost of other borrowings increased to 5.90%
from 5.02% for the same reasons as repurchase agreements. During 1994 and 1993
most repurchase agreements had short-term maturities and the cost was directly
related to short-term interest rates which rose sharply in 1994. Other
borrowings which were not as short term in maturity as repurchase agreements,
decreased by .09% to 5.02% for 1994 compared with 1993.
The effect of the growth in average earning loans and the associated increased
yields has offset the decline in the average volume of securities and average
total assets from 1994 to 1995. The increase in yield from the reinvestment of
the late 1994 repositioning of securities and the decline in the rate of
amortization of mortgage-backed securities premiums related to slower
prepayments in 1995 have combined to increase interest income to $431.5 million
in 1995 from $388.3 million in 1994. The effect of the growth in average
interest earning assets more than offset the decline in yield of .34% for 1994
to 6.37% from 1993's 6.71%. Despite a drop in average interest bearing
liabilities to $5.57 billion in 1995 from $5.66 billion in 1994, which had
increased from $4.49 billion in 1993, the cost of funds and interest expense has
increased to 5.00% and $278.9 million, 3.97% and $224.6 million and 3.81% and
$171.1 million for 1995, 1994 and 1993, respectively. The combined effects of
the changes in average balances and yield/rates is that net interest income
decreased by $11.1 million in 1995 from 1994 of which $3.3 million was the
result of interest income increasing more than interest expense as a function of
volume. The increase in yields on earning assets and the greater increase in
rates on average interest bearing liabilities had a $14.4 million negative
impact. For 1994 compared with 1993 net interest income increased by $7.1
million of which $14.0 million was the result of interest income increasing more
than interest expense as a function of volume. The decline in yields on earning
assets and increase in rates on average interest bearing liabilities had a $6.9
million negative impact.
Market rates of interest have fluctuated significantly during the past three
years. Rates rose dramatically during 1994 and the yield curve flattened. Rates
then declined substantially during 1995, however, the yield curve remained
essentially flat. During this period as the Company was continuing its
transition to a commercial bank, the volume of short term financing transactions
was significant and, therefore, the net interest margin declined from 3.21% in
1993 to 2.68% in 1994 to 2.55% in 1995. As the short term financing transactions
are being replaced by more traditional retail and commercial banking assets and
liabilities both currently and in the future, it is reasonable to expect that
the net interest margin will increase from the levels of both 1994 and 1995. The
flattening of the yield curve, especially in the shorter zero to five year
sector and the speed with which overall interest rates increased during 1994 are
the factors which most affected the Company's interest rate risk profile during
the fourth quarter. The Company had absorbed the effects of increasing rates
during the first nine months of 1994 and, in fact, had record net interest
income of $42.6 million in the third quarter of 1994. Rising interest rates in
October, November and early December of 1994 had a negative impact on both net
interest margin and net interest income, as well as a negative impact on the
mark-to-market valuation of the available for sale securities portfolio and,
therefore, capital. This combination of events created a situation wherein if
interest rates, and especially short-term interest rates, were to continue to
increase from their mid-December levels, the net interest margin, net interest
income and mark-to-market capital reductions related to FAS 115 all would have
worsened. Given this rapidly changing situation, the Company made the decision
to reduce its exposure which resulted in approximately $80 million pretax losses
related to the available for sale portfolio.
As a combined result of the significant decline in rates from December 31, 1994
to December 31, 1995, the late 1995 transfer of securities and scheduled
amortization, the net unrealized holding loss on available for sale securities,
net of deferred taxes, decreased by $26.9 million which had the effect of
increasing shareholders' equity by that amount. By contrast the net difference
between the carrying value and fair value related to held to maturity securities
improved by $154.2 million to a positive $35.6 million and had no impact on
shareholders' equity. Future price volatility of both the available for sale
portfolio and the held to maturity portfolio will be a function of their
relative effective durations which were 2.15 years and 2.46 years, respectively.
From a credit quality perspective the portfolios are comprised of
27
Management's Discussion and
Analysis (Continued)
primarily government sponsored agencies and/or AAA rated securities.
Provision for Loan Losses and Asset Quality
The provision for loan losses decreased to $6.8 million in 1995 from $7.6
million in 1994 and $10.3 million in 1993. The pattern of net chargeoffs was
similar to the provision with $6.0 million in 1995 down from $6.6 million in
1994 which was down from $9.3 million in 1993. The lower provision for loan
losses in 1994 and 1995 reflect the decreased volume of non-performing loans in
each of those years, however, they were sufficient to provide for a simultaneous
increase in the ratio of the allowance for loan losses to non-performing loans
of 95.5% , 113.5% and 119.0% at December 31, 1993, 1994 and 1995, respectively.
This increased coverage ratio also reflects the increased emphasis on commercial
lending and the inherently higher risk factors associated with this type of
lending.
The adequacy of the allowance for loan losses is assessed based upon
management's periodic evaluation considering past loan loss experience, known
and inherent risks in the portfolio, adverse situations which may affect the
borrowers' ability to repay, the estimated value of underlying collateral, if
any, and current and prospective economic conditions. The allowance to ending
loans of 1.51% at December 31, 1995 was down slightly from 1.70% at December 31,
1994 and 1.72% at December 31, 1993. As the allowance for loan losses has
increased to $34.6 million at year end 1995 from $33.8 million and $32.7
million, respectively for year end 1994 and 1993, non-performing loans have
decreased over the same periods to 1.24% of total loans at December 31, 1995
from 1.50% and 1.81% at year end 1994 and 1993, respectively. The provision over
the past three years has accommodated the net chargeoffs while at the same time
gradually increasing the overall allowance for loan losses and the coverage
ratio of non-performing loans to the extent that ratio has exceeded 100% or
total coverage as of December 31, 1995 and 1994.
Other real estate owned ("OREO") has decreased to $4.0 million at December 31,
1995 from $5.4 million and $10.7 million at year end 1994 and 1993,
respectively. This decrease reflects the results of management's ongoing effort
to reduce these non-earning assets to a minimal level. In evaluating the overall
credit risk in the balance sheet, the ratio of non-performing assets
(non-performing loans plus OREO and repossessed assets) to total assets was .60%
at December 31, 1995 up slightly as a result of the lower overall asset base
from .53% at year end 1994 which was down from .79% at year end 1993. These
percentages imply a relatively low credit risk profile for the Company compared
with commercial banking peers.
Other Operating Income
Other operating income, which is generated by service charges, mortgage banking
activities, net gain (loss) on securities transactions and other sources,
increased $82.0 million to $29.3 million in 1995 from a loss of $52.7 million in
1994 which had decreased by $98.8 million from $46.1 million in 1993. Service
charges increased $.9 million in both 1995 and 1994 to $15.6 million and $14.7
million, respectively, up from $13.8 million in 1993. These increases primarily
reflect the Company's long-term strategy which is to continue to increase the
Company's banking activities in the Central New York State market along with the
Albany, Rochester and Scranton/Wilkes Barre markets which the Company serves.
The Company's mortgage banking revenue consists of servicing income, gains and
losses on the sale of loans originated for sale, gains on the sale of mortgage
servicing rights and the amortization of loan servicing rights. Gains and losses
on the sale of mortgage-backed securities created from loans originated by the
Company are considered a mortgage banking activity as distinguished from the
gains or losses arising from the sale of such securities purchased and available
for sale. Residential mortgage loans are originated to meet consumer demand
which has predominantly been for long-term fixed rate mortgage loans in the
Banks' New York and Pennsylvania market areas. In 1994 the market for
residential mortgage loans diminished substantially as a result of the higher
rates and the associated decline in refinancings. Residential mortgage loan
originations decreased to $254 million in 1995 from $389 million in 1994 from
$609 million in 1993. The mix also changed in 1995 to predominantly fixed rate,
however, because of the absolute level of rates and the overall duration
characteristics of the balance sheet the Company retained most of the loans
originated in portfolio. In 1994 a change in consumer preference, influenced
mainly by the rising interest rate scenario, occurred to the extent that
approxi-
28
Management's Discussion and
Analysis (Continued)
mately 37% of the residential real estate loans originated were ARMS. Based upon
this change in mix, and the overall interest rate risk in the balance sheet at
the time, the Banks retained almost all of the last three quarters of 1994's
production in the portfolio. The vast majority of 1993's originations have been
sold in the secondary market as either whole loans or mortgage-backed securities
to help balance the Banks' interest rate sensitivity. Such sales generate income
(or loss) at the time of sale, produce future servicing income and provide funds
for additional lending and other purposes. Typically, loans are sold with the
Banks retaining responsibility for collecting and remitting loan payments,
inspecting properties, making certain insurance and tax payments on behalf of
borrowers and otherwise servicing the loans, and receiving a fee for performing
these services. Under their sales agreements, the Banks pay the purchaser an
agreed yield on the loans sold. The discounted value of the difference between
the contractual interest rates of the loans or mortgage-backed securities and
the rate to be paid to investors, net of a normal servicing fee and including
the effects of estimated prepayments, is an adjustment of the sale price of the
loans or mortgage-backed securities. Mortgage banking income declined $2.7
million to $3.1 million in 1995 from 1994 due to the $3.5 million gain on sale
of mortgage servicing in 1994. The $6.2 million decline from $12.1 million in
1993 was primarily caused by the decrease in refinancing activity associated
with increasing market interest rates in 1994 and the decision to keep certain
fixed rate loans along with ARM's in the portfolio in 1994. These factors
contributed substantially to the decrease in gain on sale of loans.
The Banks capitalized excess mortgage servicing fees of $.7 million in 1995,
$1.8 million in 1994 and $3.8 million in 1993. The Company recognized $1.9
million of amortization of these assets in 1995, down from $3.2 million in 1994
which was down from $4.8 million in 1993. In order to recognize the effect of
the high levels of prepayments in 1993, the Company accelerated the writedown of
these assets by $.2 million. As a result of the sale of servicing rights during
1994 the Company reduced the asset by $1.7 million and recognized income
amounting to $3.5 million. Loans serviced for others totaled approximately
$1.147 billion, $1.223 billion and $1.466 billion at December 31, 1995, 1994 and
1993, respectively. The combined capitalized excess mortgage servicing fees and
purchased mortgage servicing rights at December 31 were $7.1 million in 1995,
$8.4 million in 1994 and $11.5 million in 1993. When expressed as a percentage
of the serviced loan portfolio these balances are .6%, .7% and .8%,
respectively.
Income from other sources decreased $1.1 million in 1995 to $5.1 million from
$6.2 million in 1994 which was increased $.6 million from 1993.
Other Operating Expenses
Total operating expenses increased $3.6 million or 3.6% to $103.5 million for
1995 over 1994 and $1.2 million or 1.2% to $99.9 million for 1994 over 1993.
Salaries and employee benefits declined $.4 million to $40.4 million in 1995
from $40.8 million in 1994 which had declined $4.1 million from $44.9 million in
1993. The 1995 decline represented primarily continued efficiencies associated
with the significant decline in 1994 related to the decision to enter into a
data processing facilities management contract under which many OnBank employees
were hired by the vendor. Also contributing is $2.7 million of charges related
to an early retirement program in 1993. Employment levels have declined slightly
during 1995.
Building, occupancy and equipment expense has remained relatively constant in
1995 at $17.9 million compared with $17.7 million in 1994. The slight increase
is primarily related to increased depreciation and rent. The $17.7 million in
1994 represented a decrease of $.8 million from the $18.5 million in 1993
primarily as a result of consolidations of branches and other efficiencies
realized in conjunction with the December 31, 1992 acquisition of two commercial
banks. During the second half of 1993 four overlapping branches were closed,
however, the full effect of these closings was not realized until 1994.
FDIC deposit insurance premiums decreased $1.4 million in 1995 as the result of
the decrease in deposit insurance rates on that portion of the Company's
deposits which are BIF insured. These deposits did not incur an insurance
expense for the last seven months of 1995 and are not expected to incur any
insurance charge in 1996. However, those deposits which remain SAIF insured,
which include all of the Franklin deposits and the deposits related to the June
1994 acquisition of nine
29
Management's Discussion and
Analysis (Continued)
branches in the Rochester area, are expected to continue to accrue insurance
assessments at the rate of $.23 per hundred dollars of deposits until the
current SAIF recapitalization issue is resolved. Under pending federal
legislation, a one-time expense will be incurred which will be calculated on the
Company's SAIF deposits on March 31, 1995. For example, a pre-tax
recapitalization charge of .75% to .80% per hundred dollars of deposits would
equate to approximately $7.0 to $7.4 million if it were based upon March 31,
1995 deposit balances. It is still undetermined what level of charges might
occur or if there will be discounts applied to these deposit balances. FDIC
deposit insurance premiums increased $.3 million in 1994 over the $7.0 million
in 1993 due to the increase in deposits related to the Rochester branch
acquisition as well as other internally generated deposit growth. Since the
premium for FDIC deposit insurance remained constant for 1994 and 1993 the
increase its totally related to volume increases.
Contracted data processing expense increased $2.8 million in 1995 to $9.7
million and represents the first full year of expense related to the data
processing facilities management contract. Contracted data processing of $6.9
million in 1994 represents the one half year expense related to the contract
combined with the costs associated with the Rochester acquisition with the
increase being $6.1 million from the $.8 million in 1993. The majority of major
systems conversions were completed during 1995 and the Company is now operating
under similar systems for all of its operations. This situation should provide
for future efficiencies in almost all aspects of the Company's operations.
Legal and financial services expenses increased by $.1 million to $3.3 million
in 1995 from $3.2 million in 1994 which was a decrease of $1.2 million from the
$4.4 million in 1993. The levels of expense in 1995 are generally in line with
those of 1994. The $4.4 million expense in 1993 was inflated with one-time
expenses associated with the acquisition activity and increased legal fees
associated with the disposition of non-performing assets.
Other expenses increased $2.3 million to $26.3 million in 1995 from $24.0
million in 1994. Approximately $1.5 million of the increase consists of a full
year's goodwill amortization related to the Rochester acquisition compared with
seven months of amortization in 1994. Additionally, $1.7 million of prepayment
penalties related to the late 1995 downsizing are also included. Other expenses
increased $.9 million in 1994 from $23.1 million in 1993 with all of the
increase being related to the amortization of $2.1 million of goodwill related
to the Rochester acquisition in 1994.
When measured as a ratio of other operating expenses to average assets the
ratios of 1.6%, 1.6% and 1.9% for 1995, 1994 and 1993, respectively, are all
under our 2.0% high performance target and most recently include the increased
expenses associated with becoming a commercial bank, adding trust services and
continuing to pay for the ever increasing regulatory burden.
The provision for income taxes as a percentage of pre-tax income was 37.6%,
20.8% and 38.1% for 1995, 1994 and 1993, respectively. The 1995 percentage is
more representative of the levels of tax burden which the Company incurs. The
abnormally low effective tax rate in 1994 is due to a significant increase in
the proportion of tax exempt income to total pre-tax income in 1994. The Company
adopted Statement 109 as of January 1, 1993 and recognized $3.4 million in the
first quarter of 1993 representing the cumulative effect of the change in
accounting for income taxes.
Dividends
Payment of dividends by ONBANCorp on its common and preferred stock is subject
to various regulatory and tax restrictions. ONBANCorp is regulated by the
Federal Reserve Board and as such is subject to its regulations and guidelines
with respect to payment of dividends, including its Policy Statement of Cash
Dividends Not Fully Covered by Earnings. Since substantially all of the funds
available for the payment of dividends were derived from OnBank, OnBank & Trust
Co. and Franklin, future dividends will depend upon the earnings of the Banks,
their financial condition, their need for funds, applicable governmental
policies and regulations and such other matters as the Board of Directors of the
respective Banks deem appropriate. Under New York State Banking Law, dividends
may be declared and paid only out of the net profits of the Banks. The approval
of the Superintendent of the New York State Banking Department of Banking is
required if the total of all dividends declared in any calendar year will exceed
net profits for that year plus the retained net profits
30
Management's Discussion and
Analysis (Continued)
of the preceding two years, less any required transfer to surplus. Under federal
law, no insured depository institution may make any capital distribution,
including the payment of a dividend, that would result in the institution
failing to meet its minimum capital requirements.
Liquidity
The objective of liquidity management at ONBANCorp is to ensure the ability to
access funding which enables each Bank to efficiently satisfy the cash flow
requirements of depositors and borrowers and allow ONBANCorp to meet its cash
needs. Liquidity is managed at ONBANCorp by monitoring funds availability from a
number of primary sources.
The first, largest and most reliable source of short-term balance sheet
liquidity is represented by the $1.0 billion in securities which have been
classified as trading or available for sale. The securities are carried at fair
value and could be liquidated very quickly as evidenced by the sales in both
late 1994 and late 1995 of in excess of $1.0 billion in available for sale
securities either to reduce the duration and increase the yield of the portfolio
or to shrink the Company as part of the overall interest rate risk management
activities. Other sources of funds consist of deposits, cash flows from ongoing
operations and borrowings.
ONBANCorp's growth and overall profitability and financial strength have made
available numerous external funding sources. The Company enters into financing
transactions using repurchase agreements, which are collateralized by U.S.
Treasury and mortgage-backed securities, as an additional funding source.
Transactions are generally less than two years in maturity and at year end 1995
these repurchase agreements amounted to $362 million compared to $1,058 million
at year end 1994. The significant decrease reflects the Company's downsizing at
year end 1995 in conjunction with the FAS 115 "Window" and the currently low
relative net interest margin on these transactions associated with the flat
yield curve environment.
At year end 1995 the Banks' approved commitments to extend credit amounted to
$38.0 million. Further information is in notes (17) and (18) of Notes to
Consolidated Financial Statements. ONBANCorp's liquidity should be sufficient to
meet normal transaction requirements and flexible enough to take advantage of
market opportunities and to react to other liquidity needs.
Shareholders' Equity and Capital Adequacy
ONBANCorp's ratio of shareholders' equity of $388.8 million to total assets of
$5.6 billion at December 31, 1995 was 7.0%. The ratio increased from 5.4% at
December 31, 1994 when shareholders' equity was $362.9 million and total assets
were $6.7 billion. The increase in shareholders' equity represents the net
income less dividends declared plus the improvement in the net after tax
unrealized holding loss on securities. Additionally, as a result of the
repurchase of common and preferred stock during 1995 shareholders' equity was
reduced by $26.1 million. Stock repurchase programs have been and could continue
to be capital management tools of the Company.
Total capital to risk adjusted assets was 15.1% and 13.4% as of December 31,
1995 and 1994, respectively. The Company and the Banks are considered well
capitalized and in compliance with Federal Reserve Board and FDIC capital
requirements as of both of the above dates.
Recently Issued Accounting Standards
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 122, Accounting for Mortgage Servicing
Rights, an amendment to SFAS No. 65, Accounting for Certain Mortgage Banking
Activities (Statement 122). Statement 122 requires a mortgage banking enterprise
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securtizes those loans with servicing
rights retained to allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans based on their relative fair values. Statement
122 will be prospectively adopted and is effective for the Company's fiscal year
beginning January 1, 1996. The expected impact on the consolidated financial
statements in 1996 will not be material based on the Company's expected sale of
loans with servicing retained during 1996.
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long Lived Assets and for Long-Lived Assets to Be Disposed of (Statement 121).
The statement requires that long-lived assets and certain identifiable
intangibles to be held and used by a company be reviewed for impairment whenever
events or changes in circum-
31
Management's Discussion and
Analysis (Continued)
stances indicate the carrying amount of the asset may not be recoverable. In
performing the review for recoverability, companies are required to estimate the
future cash flows expected to result from the use of the asset and its eventual
disposition. Under Statement 121, an impairment loss is recognized if the sum of
the undiscounted future cash flows is less than the carrying amount of the
asset. The Statement also establishes standards for recording an impairment loss
for certain assets that are subject to disposal. Excluded from the scope of the
statement are financial instruments, mortgage and other loan servicing rights,
deposit intangibles and deferred tax assets. The Company will prospectively
adopt Statement 121 effective January 1, 1996, and the expected impact on the
Company's consolidated financial statements is not material.
The Company maintains compensation plans which provide for grants of stock
options to officers. The Company currently follows Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (Opinion 25) in
accounting for its plans. In October 1995, the FASB issued SFAS No. 123,
Accounting for Stock-Based Compensation (Statement 123) which encourages, but
does not require, companies to use a fair value based method of accounting for
stock-based employee compensation plans. Under this method, compensation cost is
measured as of the date stock awards are granted based on the fair value rather
than the intrinsic value of the award, and such cost is recognized over the
service period, which is usually the vesting period. If a company elects to
continue using the intrinsic value based method under Opinion 25, pro forma
disclosures of net income and net income per share are required, as if the fair
value based method had been applied. Under the intrinsic value based method
presently utilized by the Company, compensation cost is the excess, if any, of
the quoted market price of the stock as of the grant date over the amount
employees must pay to acquire it, or over the price established for determining
appreciation. Under the Company's compensation policies, there is no such excess
on the dates of grant. Statement 123 is effective on January 1, 1996 and the
Company will continue to account for its compensation plans in accordance with
Opinion 25.
32
Management's Statement of
Responsibility
Management is responsible for preparation of the consolidated financial
statements and related financial information contained in all sections of this
annual report, including the determination of amounts that must necessarily be
based on judgments and estimates. It is the belief of management that the
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and that the financial information
appearing throughout this annual report is consistent with the consolidated
financial statements.
Management depends upon the Company's system of internal accounting controls in
meeting its responsibility for reliable financial statements. This system is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorization and are
properly recorded.
The audit committee of the Board of Directors, composed solely of outside
directors, meets periodically and privately with ONBANCorp, Inc.'s management,
internal auditors and independent auditors, KPMG Peat Marwick LLP, to review
matters relating to the quality of financial reporting, internal accounting
control, and the nature, extent and results of audit efforts. The independent
auditors and internal auditors have unlimited access to the audit committee to
discuss all such matters. The financial statements have been audited by the
Company's independent auditors for the purpose of expressing an opinion on the
Company's consolidated financial statements.
/s/ Robert J. Bennett /s/ Robert J. Berger
Robert J. Bennett Robert J. Berger
Chairman, President & CEO Senior Vice President, Treasurer & CFO
Independent Auditors' Report
The Board of Directors and Shareholders
ONBANCorp, Inc.:
We have audited the accompanying consolidated balance sheets of ONBANCorp, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ONBANCorp, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.
114, Accounting by Creditors for Impariment of a Loan, as amended by SFAS No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures on January 1, 1995. The Company adopted the provisions of SFAS No.
109, Accounting for Income Taxes, effective January 1, 1993.
/s/ KPMG Peat Marwick LLP
Syracuse, New York
January 22, 1996
33
Consolidated Balance Sheets
======================================================================================================================
(In Thousands, Except Share Data) December 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 150,621 135,387
Federal funds sold and other 134,623 38,577
Securities:
Trading, at fair value 1,790 26,024
Available for sale, at fair value 978,361 710,767
Held to maturity, fair value of $ 1,797,286 in 1995
and $3,035,242 in 1994 1,761,692 3,153,896
- ----------------------------------------------------------------------------------------------------------------------
Total securities 2,741,843 3,890,687
- ----------------------------------------------------------------------------------------------------------------------
Loans, net of premium and discount 2,288,990 1,982,972
Allowance for loan losses (34,583) (33,775)
- ----------------------------------------------------------------------------------------------------------------------
Net loans 2,254,407 1,949,197
- ----------------------------------------------------------------------------------------------------------------------
Loans available for sale 40,137 23,687
Premises and equipment, net 66,549 60,973
Due from brokers 65,205 446,916
Other assets 113,674 177,881
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $5,567,059 6,723,305
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing 320,140 303,016
Interest bearing:
Savings, NOW and money market 1,291,952 1,448,903
Time deposits less than $100,000 1,671,027 1,565,708
Time deposits $100,000 and greater 525,154 475,716
- ----------------------------------------------------------------------------------------------------------------------
Total deposits 3,808,273 3,793,343
- ----------------------------------------------------------------------------------------------------------------------
Repurchase agreements 361,617 1,058,316
Other borrowings 903,370 1,158,772
Due to brokers 43,951 284,232
Other liabilities 61,082 65,706
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 5,178,293 6,360,369
- ----------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, Series B 6.75% Cumulative Convertible, par value $1.00 per share;
10,000,000 shares authorized; shares issued and outstanding:
1995 - 2,515,700; 1994 - 2,817,500: aggregate liquidation value $ 62,893 at
December 31, 1995 2,516 2,818
Common stock, par value $1.00 per share; 56,000,000 shares authorized;
shares issued: 1995 - 14,095,499; 1994 - 14,050,321 14,095 14,050
Additional paid-in capital 155,748 162,960
Retained earnings 253,727 229,374
Net unrealized holding loss on securities, net of deferred taxes (18,952) (45,816)
Treasury stock, at cost, 1995 - 577,900 shares (18,068) --
Guarantee of ESOP indebtedness (300) (450)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 388,766 362,936
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,567,059 6,723,305
======================================================================================================================
See accompanying notes to consolidated financial statements.
34
Consolidated Statements of
Income
=============================================================================================================================
(In Thousands, Except Per Share Data) Years Ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
Interest income:
Securities $244,078 233,530 155,267
Loans 184,591 153,247 169,827
Federal funds sold and other 2,790 1,498 2,528
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 431,459 388,275 327,622
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 157,415 112,667 97,816
Borrowings:
Repurchase agreements 51,306 58,720 32,151
Other 70,223 53,259 41,088
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 278,944 224,646 171,055
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 152,515 163,629 156,567
Provision for loan losses 6,790 7,638 10,297
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 145,725 155,991 146,270
- -----------------------------------------------------------------------------------------------------------------------------
Other operating income (loss):
Service charges 15,596 14,717 13,833
Mortgage banking 3,135 5,881 12,105
Net gain (loss) on securities transactions 5,457 (79,496) 14,525
Other 5,113 6,209 5,603
- -----------------------------------------------------------------------------------------------------------------------------
Total other operating income (loss) 29,301 (52,689) 46,066
- -----------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 40,383 40,789 44,857
Building, occupancy and equipment 17,907 17,739 18,450
Deposit insurance premiums 5,867 7,268 7,015
Contracted data processing 9,682 6,927 842
Legal and financial services 3,326 3,199 4,368
Other 26,297 23,968 23,134
- -----------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 103,462 99,890 98,666
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting change 71,564 3,412 93,670
Income taxes 26,887 708 35,707
- -----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 44,677 2,704 57,963
Cumulative effect of change in accounting for income taxes -- -- 3,400
- -----------------------------------------------------------------------------------------------------------------------------
Net income 44,677 2,704 61,363
Dividends on preferred stock 4,522 4,755 4,755
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shares $ 40,155 (2,051) 56,608
=============================================================================================================================
Earnings per common share:
Primary:
Income (loss) before cumulative effect of accounting change $ 2.84 (.15) 3.97
Cumulative effect of accounting change -- -- .25
Net income (loss) 2.84 (.15) 4.22
Fully diluted:
Income (loss) before cumulative effect of accounting change 2.75 (.15) 3.71
Cumulative effect of accounting change -- -- .22
Net income (loss) 2.75 (.15) 3.93
=============================================================================================================================
See accompanying notes to consolidated financial statements.
35
Consolidated Statements of
Changes in Shareholders'
Equity
Net
Unrealized Guarantee
Additional Holding of
Preferred Common Paid-in Retained Gain (Loss) Treasury ESOP
(In Thousands, Except Per Share Data) Stock Stock Capital Earnings on Securities Stock Indebtedness Total
===================================================================================================================================
Balance at December 31, 1992 $2,818 13,837 131,867 199,653 -- (12,959) (750) 334,466
Net income -- -- -- 61,363 -- -- -- 61,363
Stock issued under:
Stock option plans -- 130 490 -- -- -- -- 620
Tax benefit related to stock options -- -- 1,141 -- -- -- -- 1,141
Employee Stock Purchase Plan -- 13 395 -- -- -- -- 408
Common stock offering -- -- 27,740 -- -- 12,959 -- 40,699
Cash dividends declared:
Preferred ($1.69 per share) -- -- -- (4,755) -- -- -- (4,755)
Common ($.685 per share) -- -- -- (10,389) -- -- -- (10,389)
Employee Stock Ownership Plan
loan repayment -- -- -- -- -- -- 150 150
Change in net unrealized holding gain (loss) on
securities, net of taxes of $5,177 -- -- -- -- 6,935 -- -- 6,935
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $2,818 13,980 161,633 245,872 6,935 -- (600) 430,638
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 2,704 -- -- -- 2,704
Stock issued under:
Stock option plans -- 50 468 -- -- -- -- 518
Tax benefit related to stock options -- -- 374 -- -- -- -- 374
Employee Stock Purchase Plan -- 20 485 -- -- -- -- 505
Cash dividends declared:
Preferred ($1.69 per share) -- -- -- (4,755) -- -- -- (4,755)
Common ($1.03 per share) -- -- -- (14,447) -- -- -- (14,447)
Employee Stock Ownership Plan
loan repayment -- -- -- -- -- -- 150 150
Change in net unrealized holding gain(loss)
on securities, net of taxes of $ (35,721) -- -- -- -- (52,751) -- -- (52,751)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $2,818 14,050 162,960 229,374 (45,816) -- (450) 362,936
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 44,677 -- -- -- 44,677
Stock issued under:
Stock option plans -- 23 220 -- -- -- -- 243
Tax benefit related to stock options -- -- 148 -- -- -- -- 148
Employee Stock Purchase Plan -- 22 478 -- -- -- -- 500
Cash dividends declared:
Preferred ($1.69 per share) -- -- -- (4,522) -- -- -- (4,522)
Common ($1.14 per share) -- -- -- (15,802) -- -- -- (15,802)
Preferred stock redeemed (302) -- (8,058) -- -- -- -- (8,360)
Purchase of treasury stock -- -- -- -- -- (18,068) -- (18,068)
Employee Stock Ownership Plan
loan repayment -- -- -- -- -- -- 150 150
Change in net unrealized holding gain (loss) on
securities, net of taxes of $17,909 -- -- -- -- 26,864 -- -- 26,864
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $2,516 14,095 155,748 253,727 (18,952) (18,068) (300) 388,766
===================================================================================================================================
See accompanying notes to consolidated financial statements.
36
Consolidated Statements of
Cash Flows
==================================================================================================================
(In Thousands) Years Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 44,677 2,704 61,363
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and accretion of premiums, discounts and
net deferred fees (323) (11,627) 11,000
Depreciation and amortization 12,891 12,366 10,698
Provision for loan losses 6,790 7,638 10,297
Deferred income taxes (862) (4,700) (9,425)
Net gain on sale of loan servicing rights -- (3,451) --
Net losses (gains) on sale of securities (2,113) 81,544 (11,270)
Net decrease (increase) in trading securities 53,419 275,227 (46,578)
Net increase in loans available for sale (55,660) (71,342) (428,570)
Decrease (increase) in other assets 39,729 (32,650) 6,207
Increase (decrease) in other liabilities (1,482) 4,461 (17,280)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 97,066 260,170 (413,558)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 2,095,113 990,734 1,073,719
Proceeds from maturities of and principal collected on
securities available for sale 229,948 226,474 97,642
Proceeds from maturities of and principal collected on
securities held to maturity 640,609 703,036 996,964
Purchases of securities available for sale (669,896) (418,658) (1,651,238)
Purchases of securities held to maturity (865,026) (2,236,073) (1,446,520)
Loans made to customers, net of principal repayments (319,994) (272,509) 231,874
Purchases of premises and equipment (11,578) (9,496) (4,059)
Premium paid for deposits -- (24,884) --
Other 6,393 7,367 18,646
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $1,105,569 (1,034,009) (682,972)
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
37
Consolidated Statements of
Cash Flows (Continued)
========================================================================================================================
(In Thousands) Years Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts excluding time deposits $ (139,827) (114,749) 84,339
Net increase (decrease) in time deposits 154,757 629,146 (102,241)
Deposits of acquired branches -- 272,947 --
Net increase (decrease) in repurchase agreements (800,812) (88,621) 610,456
Net increase in other borrowings -- -- 4,942
Advances from Federal Home Loan Bank 964,886 617,619 607,500
Repayment of advances from Federal Home Loan Bank (1,217,684) (473,157) (221,000)
Repayments of collateralized mortgage obligations (2,604) (8,637) (11,406)
Net proceeds from issuance of common stock 743 1,023 41,727
Purchase of treasury stock (18,068) -- --
Redemption of preferred stock (8,360) -- --
Cash dividends paid on common stock (19,737) (13,890) (8,072)
Cash dividends paid on preferred stock (4,649) (4,755) (4,755)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (1,091,355) 816,926 1,001,490
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 111,280 43,087 (95,040)
Cash and cash equivalents at beginning of year 173,964 130,877 225,917
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 285,244 173,964 130,877
========================================================================================================================
Supplemental disclosure of cash-flow information:
Cash paid during the year for:
Interest $ 278,710 218,901 131,064
Income taxes 4,601 32,058 43,736
Non-cash investing and financing activities:
Securitization of mortgage loans 39,210 232,027 376,528
Transfer to other real estate owned 4,682 4,124 4,374
Change in net unrealized holding gain (loss) on securities 26,864 (52,751) 6,935
Securities purchased not settled 43,951 284,232 --
Securities sold not settled 65,205 551,029 --
Repurchase agreement transactions not settled -- 104,113 --
Transfers of securities to held to maturity -- 1,265,441 --
Transfer of securities to trading -- 12,621 --
Transfer of securities to available for sale 1,543,160 -- 2,321,875
========================================================================================================================
See accompanying notes to consolidated financial statements.
38
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
Business
- --------
ONBANCorp, Inc. (the Company) is a financial services company primarily in the
business of commercial and retail banking providing a wide range of banking,
fiduciary and financial services to corporate, institutional, municipal and
individual customers. The Company is subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory agencies.
The following summarizes the significant accounting policies of ONBANCorp, Inc.
and subsidiaries:
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of ONBANCorp, Inc.
and its wholly-owned subsidiaries, OnBank, OnBank & Trust Co. and Franklin First
Savings Bank (the Banks). All significant intercompany balances and transactions
are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. The preparation of the consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Securities
- ----------
The Company classifies its debt securities in one of three categories: trading,
available for sale, or held to maturity. Equity securities are classified as
either trading or available for sale. Trading securities are bought and held
principally for the purpose of selling them in the near term. Held to maturity
securities are those debt securities which the Company has the ability and
intent to hold until maturity. All other securities not included in trading or
held to maturity are classified as available for sale.
Trading and available for sale securities are recorded at fair value. Held to
maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported as a separate component of shareholders'
equity until realized. Realized gains and losses are included in earnings and
are derived using the specific identification method for determining the cost of
securities sold. Transfers of securities between categories are recorded at fair
value at the date of transfer. Unrealized holding gains and losses are
recognized in earnings for transfers into trading securities. The unrealized
holding gains or losses included in the separate component of equity for
securities transferred from available for sale to held to maturity are
maintained and amortized into earnings over the remaining life of the security
as an adjustment to yield in a manner consistent with the amortization or
accretion of premium or discount on the associated security.
A decline in the fair value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security. Premiums
and discounts are amortized or accreted over the life of the related security as
an adjustment to yield using the interest method. Dividend and interest income
are recognized when earned.
Loans
- -----
Loans are stated at the amount of unpaid principal plus unamortized premiums,
less net unamortized deferred fees and unearned discounts.
Loans available for sale generally include both mortgage and student loans
originated with the intent to sell and are carried at the lower of aggregate
cost or fair value.
Loan fees and certain direct loan costs are deferred. Premiums, discounts and
deferred fees on loans are accrued to income using the interest method.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrowers' financial condition precludes accrual.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is increased by provisions charged to operations
and decreased by charge-offs of loans, net of recoveries. Loans are charged off
when, following reasonable and prudent collections efforts, management
determines that ultimate success of the loan's collectibility is remote.
Charge-offs include the excess of a loan's carrying value over estimated fair
value of real estate received and transferred to real estate owned. Management's
periodic evaluation of the adequacy of the allowance considers the Banks' past
loan loss experience, known and inherent risks in the portfolio, adverse
situations which may affect the borrowers' ability to repay, estimated value of
underlying collateral, if any, and current and prospective economic conditions.
A substantial portion of the Banks' loans are secured by real estate in New York
State and Pennsylvania. Accordingly, the ultimate collectibility of a
substantial portion of the Banks' loan portfolio is susceptible to changes in
market conditions in these areas.
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 may be necessary based on changes in economic
conditions, particularly in New York and Pennsylvania. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowances for loan losses. Such agencies may
require the Banks to recognize additions to the allowances based on their
judgment of information available to them at the time of their examination.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan as
amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures on January 1, 1995. Management considers a
loan impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts of principal and interest
under the original terms of the loan agreement. Significant factors impacting
management's judgement in determining when a loan is impaired include an
evaluation of compliance with repayment program, condition of collateral,
deterioration in financial
39
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies (Continued)
strength of borrower or any case when the expected future cash payments may be
less than the recorded amount. Accordingly, the Company measures certain
impaired loans based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or at the loan's observable
market price or fair value of collateral if the loan is collateral dependent.
Management excludes large groups of smaller balance homogeneous loans such as
residential mortgages and consumer loans which are collectively evaluated.
Impairment losses are included in the allowance for loan losses through a charge
to the provision for loan losses. The Company recognizes interest income on
impaired loans using the cash basis of income recognition. Adoption of these
statements did not have a material impact on the Company's 1995 consolidated
financial statements.
Premises and Equipment
- ----------------------
Land is carried at cost and premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is calculated by the
straight-line method based on the estimated service lives of the respective
assets. Leasehold improvements are amortized by the straight-line method based
on the lesser of estimated useful life or term of the lease.
Other Real Estate Owned
- -----------------------
Real estate formally acquired in settlement of loans is recorded at the lower of
the carrying value of the loan or the fair value of the property actually
received. Write-downs from cost to fair value which are required at the time of
foreclosure are charged to the allowance for loan losses. Subsequent write-downs
to fair value, net of disposal costs, are charged to other expenses.
Mortgage Banking Activities
- ---------------------------
Mortgage banking income includes gains and losses on the sale of loans
originated for sale, including mortgage-backed securities created with those
loans, gains on the sale of loan servicing rights, servicing income and
amortization of loan servicing rights. Gains or losses on sales of mortgages are
recorded equal to the difference between sales proceeds and the carrying value
of the loans after allowing for the recognition of a normal servicing fee. The
Company typically retains the servicing rights related to mortgages sold. Loan
servicing rights may also be purchased.
Loan servicing rights are amortized over the estimated lives of the loans
serviced using the interest method adjusted for prepayments. The Banks evaluate
the recoverability of loan servicing rights considering such factors as
estimated and historical prepayment rates, current economic conditions and other
portfolio characteristics and, if necessary, adjust the carrying value to
reflect net realizable value.
Trust Department
- ----------------
Assets held in a fiduciary or agency capacity for customers are not included in
the accompanying consolidated balance sheets, since such assets are not assets
of the Company.
Repurchase Agreements
- ---------------------
The Banks enter into sales of mortgage-backed securities under agreements to
repurchase certificates of the same agency bearing the identical contract
interest rate and similar remaining weighted average maturities as the original
certificates that result in approximately the same market yield (fixed coupon
dollar repurchase agreements). Fixed coupon dollar repurchase agreements are
treated as financings, and the obligations to repurchase securities sold are
reflected as a liability in the consolidated balance sheets. The dollar amount
of certificates underlying the agreements remains in the asset accounts. During
the period of the agreement, the certificates are delivered into the
counterparties' accounts maintained at the securities dealer. The dealer may
have sold, loaned, or otherwise disposed of such securities to other parties in
the normal course of their operations, and have agreed to return to the Banks
substantially identical securities at the maturities of the agreements.
The Banks also enter into sales of U.S. Treasury and mortgage-backed securities
under agreements to repurchase the same securities (fixed coupon repurchase
agreements). These agreements are also treated as financings and involve the
delivery of U.S. Treasury and mortgage-backed securities to the dealer.
Financial Instruments
- ---------------------
The Company holds derivative financial instruments such as put and call options
and interest rate swaps. The Company is not an issuer of any financial
instrument derivatives.
In conjunction with its trading activities, the Banks issue financial call and
put options, generally with contractual maturities of one month. Call options
are issued on the Banks' available for sale or trading securities and are
contracts allowing, but not requiring, the holder to buy a financial instrument
at a specified price during a specified time period. Put options are contracts
allowing, but not requiring, the holder to sell a financial instrument at a
specified price during a specified time period. As the issuers of options, the
Banks receive a premium, and then bear the risk of an unfavorable change in the
price of the financial instrument underlying the option. When a call option is
exercised, the fee collected is recorded as income. When a put option is
exercised, the fee collected is treated as an adjustment to the basis of the
underlying security. If fair value of the security is less than the option's
strike price minus the premium, then a loss is recognized. If an option expires
unexercised, the fee is recognized as income.
Interest rate swaps used in asset liability management activities to hedge
exposure to fluctuating interest rates are accounted for using the accrual
method.
Employee Benefit Plans
- ----------------------
The Company's pension plan is a noncontributory defined benefit plan which
covers eligible employees who have completed 1,000 hours of service, attained 21
years of age, and have one year of service. The projected unit credit method is
utilized for measuring net periodic pension costs over the employees' service
lives. The Company's funding policy is to contribute annually at least the
minimum required to meet the funding standards set forth under provisions of the
Employee Retirement Income Security Act of 1974.
The Company maintains an Employee Stock Purchase Plan which allows, subject to
certain limitations, eligible Company employees to purchase shares of ONBANCorp
common stock for 85% of the market value of such stock through payroll
deductions.
Federal Income Taxes
- --------------------
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109,
Accounting for Income Taxes and has reported the cumulative
40
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies (Continued)
effect of that change in the method of accounting for income taxes in the 1993
consolidated statement of income. 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.
Per Share Data
- --------------
Primary net income per share is based on the weighted average number of shares
outstanding and common stock equivalents assumed outstanding during the year.
Fully diluted shares outstanding includes the maximum dilutive effect of stock
issuable upon conversion of convertible preferred stock. Conversion was not
assumed for 1994 due to its anti-dilutive effect on the calculation of fully
diluted earnings per share.
Statements of Cash Flows
- ------------------------
For purposes of reporting cash flows, cash and cash equivalents includes cash,
amounts due from banks, federal funds sold and other short-term investments.
Reclassifications
- -----------------
Certain reclassifications have been made to prior period amounts to conform to
current year presentation.
(2) Acquisitions
On August 31, 1993, 6,012,085 common shares were issued by ONBANCorp, Inc. in
exchange for all the outstanding common shares of Franklin First Financial Corp.
("Franklin"), a savings and loan holding company and sole shareholder of
Franklin First Savings Bank, a Pennsylvania chartered savings bank. The merger
has been accounted for as a pooling-of-interests. Accordingly, the accounts of
Franklin have been combined with those of the Company for all periods presented.
On June 3, 1994, OnBank & Trust Co. acquired from the Resolution Trust
Corporation (RTC) $273 million of deposits at 9 Branches of Columbia Banking
Federal Savings Association, Rochester, New York. These branches were acquired
at a premium of $24.9 million, which is being amortized over seven years using
the straight line method.
(3) Federal Reserve Board Reserve Requirement
The Banks are subject to Federal Reserve Board regulations that require them to
maintain average cash reserves against their deposits (primarily demand and NOW
accounts). The regulations currently require that average reserves be maintained
against transactions accounts in the amount of 3% of the aggregate of such
accounts exceeding $4.3 million, plus 10% of the total in excess of $47.7
million. The reserve requirement at December 31, 1995 amounted to $47,798,000.
(4) Securities
In connection with the implementation of SFAS No. 115 at December 31, 1993,
securities, principally mortgage-backed, with an amortized cost of $2.3 billion
were transferred to the available for sale portfolio. A significant portion of
the transfer was made in view of a bank regulatory policy in effect at December
31, 1993 which could have required such securities to be classified as available
for sale if adverse market conditions developed. Thus, the Company could not
determine its ability to hold the securities and classify them as held to
maturity. In 1994, the regulatory policy was revised to require transfer of
securities to available for sale only in cases where the safety and soundness of
an institution is an issue. In view of the policy revision, in 1994, the Company
transferred securities with a fair value of $1.265 billion from available for
sale to held to maturity. The net unrealized holding loss of $71.6 million at
the date of transfer is being amortized into earnings over the remaining life of
the securities on the interest method.
In November 1995, the Financial Accounting Standards Board (FASB) published A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities (the Guide). Concurrent with the initial adoption
of the Guide, but no later than December 31, 1995, the Company was permitted to
reassess the appropriateness of the classifications of all securities held at
that time and implement reclassifications without calling into question the
intent of the Company to hold other debt securities to maturity in the future.
In November 1995, the Company transferred securities with a carrying value of
$1.543 billion and a fair value of $1.564 billion from the held to maturity
portfolio to the available for sale portfolio.
Securities held to maturity at December 31, 1995 are summarized as follows:
===============================================================================================
Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 25,051 97 73 25,075
U.S. Government agencies 209,539 13 7,589 201,963
State and municipal 74,351 1,570 23 75,898
Corporate and other 130 -- -- 130
Mortgage-backed securities 1,498,733 8,365 12,878 1,494,220
- -----------------------------------------------------------------------------------------------
Total debt securities 1,807,804 10,045 20,563 1,797,286
Unamortized holding loss on
securities transferred (46,112)
- -----------------------------------------------------------------------------------------------
$ 1,761,692
===============================================================================================
41
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(4) Securities (Continued)
Securities available for sale at December 31, 1995 are summarized as follows:
==============================================================================
Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 4,628 51 14 4,665
Corporate and other 294 -- -- 294
Mortgage-backed securities 894,418 15,497 1,010 908,905
- ------------------------------------------------------------------------------
Total debt securities 899,340 15,548 1,024 913,864
- ------------------------------------------------------------------------------
Equity Securities:
Common 13 -- -- 13
Federal Home Loan Bank Stock 64,484 -- -- 64,484
- ------------------------------------------------------------------------------
Total equity securities 64,497 -- -- 64,497
- ------------------------------------------------------------------------------
$963,837 15,548 1,024 978,361
==============================================================================
Securities in the trading account at December 31, 1995 consisted of equity
securities, and equity and mortgage-backed securites at December 31, 1994. The
change in net unrealized holding gain (loss) on trading securities included in
net gain (loss) on securities transactions is a gain of $2,434,000 in 1995, a
loss of $302,000 in 1994, and a gain of $1,056,000 in 1993. Included in net gain
(loss) on securities transactions for the year ended December 31, 1994 are
$2,712,000 of gross gains associated with the transfer of equity securities from
securities available for sale to trading securities.
The following table presents the carrying value and fair value of debt
securities at December 31, 1995, based on scheduled maturities. Actual
maturities can be expected to differ from scheduled maturities due to prepayment
or early call privileges of the issuer.
==============================================================================
Held to Maturity Available for Sale
Carrying Fair Amortized Fair
(In Thousands) Value Value Cost Value
- ------------------------------------------------------------------------------
1 year or less $ 58,101 58,601 294 294
1 year through 5 years 191,499 193,442 4,124 4,129
5 years through 10 years 47,774 49,625 482 514
After 10 years 1,363 1,398 22 22
- ------------------------------------------------------------------------------
298,737 303,066 4,922 4,959
Mortgage-backed securities 1,462,955 1,494,220 894,418 908,905
- ------------------------------------------------------------------------------
$1,761,692 1,797,286 899,340 913,864
==============================================================================
Securities held to maturity at December 31, 1994 are summarized as follows:
==============================================================================
Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 124,570 19 5,816 118,773
U.S. Government agencies 519,643 -- 42,300 477,343
State and municipal 98,372 248 1,564 97,056
Corporate and other 130 -- 9 121
Mortgage-backed securities 2,477,262 302 135,615 2,341,949
- ------------------------------------------------------------------------------
Total debt securities 3,219,977 569 185,304 3,035,242
Unamortized holding loss on
securities transferred (66,081)
- ------------------------------------------------------------------------------
$3,153,896
==============================================================================
Securities available for sale at December 31, 1994 are summarized as follows:
==============================================================================
Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 16,049 290 77 16,262
U.S. Government agencies 10,006 -- -- 10,006
Corporate and other 375 -- -- 375
Mortgage-backed securities 634,792 139 10,631 624,300
- ------------------------------------------------------------------------------
Total debt securities 661,222 429 10,708 650,943
- ------------------------------------------------------------------------------
Equity Securities:
Common 13 -- -- 13
Federal Home Loan Bank Stock 59,811 -- -- 59,811
- ------------------------------------------------------------------------------
Total equity securities 59,824 -- -- 59,824
- ------------------------------------------------------------------------------
$721,046 429 10,708 710,767
==============================================================================
Securities carried at $537,649,000 at December 31, 1995 were pledged for
municipal deposits.
The following table summarizes proceeds, gains and losses realized for
securities available for sale for the years ended December 31, 1995, 1994 and
1993:
==============================================================================
(In Thousands) Change in
Cash Securities Sold Net Realized Realized
Proceeds Not Settled Proceeds Gains Losses
- ------------------------------------------------------------------------------
1995 $2,095,113 (485,824) 1,609,289 13,700 10,662
1994 990,734 551,029 1,541,763 2,921 82,223
1993 1,073,719 -- 1,073,719 17,511 970
==============================================================================
(5) Loans
The composition of the loan portfolio at December 31 is summarized as follows:
==============================================================================
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Commercial $ 271,798 226,538
Commercial real estate 248,325 193,150
Commercial real estate construction 40,655 8,164
Residential real estate construction 12,969 23,478
Residential real estate 1,117,406 1,002,434
Consumer loans 595,652 524,022
- ------------------------------------------------------------------------------
2,286,805 1,977,786
Net deferred fees, discounts
and premiums 2,185 5,186
- ------------------------------------------------------------------------------
$2,288,990 1,982,972
==============================================================================
42
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(5) Loans (Continued)
The principal balances of loans not accruing interest amounted to approximately
$23,580,000 and $22,525,000 at December 31, 1995 and 1994, respectively. The
difference between the amount of interest income that would have been recorded
if these loans had been paid in accordance with their original terms and the
amount of interest income that was recorded in each of the years in the
three-year period ended December 31, 1995 was immaterial.
The Banks have entered into transactions with the Company's directors,
significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate amount of loans to such
related parties at December 31, 1995 was $5,369,000.
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Balance, beginning of year $ 33,775 32,717 31,722
Provision charged to operations 6,790 7,638 10,297
Loans charged-off (7,591) (8,138) (11,735)
Recoveries 1,609 1,558 2,433
- ------------------------------------------------------------------------------
Balance, end of year $ 34,583 33,775 32,717
==============================================================================
Impaired loans were $8,270,000 at December 31, 1995. Included in this amount is
$5,824,000 of impaired loans for which the related allowance for loan losses is
$2,362,000. In addition, included in the total impaired loans is $2,446,000 of
impaired loans that, as a result of the adequacy of collateral values, do not
have an allowance for loan losses. The average impaired loans for the year ended
December 31, 1995 was approximately $9,634,000. Loans with modified payment
terms were immaterial at December 31, 1995. The effect on interest income of
impaired loans was not material to the consolidated financial statements in
1995. The Company is not committed to lend additional funds to these borrowers.
The following table summarizes gross proceeds, gains and losses realized for
loans available for sale for the years ended December 31, 1995, 1994 and 1993:
==============================================================================
Gross Realized Realized
(In Thousands) Proceeds Gains Losses
- ------------------------------------------------------------------------------
1995 $ 35,370 301 117
1994 39,777 12 1,866
1993 157,560 3,891 463
==============================================================================
(6) Mortgage Banking Activities
Loans serviced for others totaled approximately $1,146,989,000, $1,222,840,000,
and $1,465,800,000 at December 31, 1995, 1994 and 1993, respectively.
Changes in the combined capitalized excess mortgage servicing fees and purchased
mortgage servicing rights are as follows:
==============================================================================
Years ended December 31
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Balance, beginning of year $ 8,350 11,545 12,695
Capitalized excess mortgage
servicing fees 671 1,765 3,832
Amortization (1,914) (3,213) (4,807)
Sale of servicing rights -- (1,747) --
Write-down for accelerated
prepayments -- -- (175)
- ------------------------------------------------------------------------------
Balance, end of year $ 7,107 8,350 11,545
==============================================================================
Mortgage banking income is summarized as follows:
==============================================================================
Years ended December 31
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Loan servicing fees received $ 5,062 6,087 6,398
Servicing rights amortization
and write downs (1,914) (3,213) (4,982)
Gain (loss) on sale:
Servicing -- 3,451 --
Loans (13) (444) 10,689
- ------------------------------------------------------------------------------
$ 3,135 5,881 12,105
==============================================================================
(7) Premises and Equipment
A summary of premises and equipment at December 31 is as follows:
==============================================================================
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Land $ 9,063 8,390
Buildings 61,504 52,898
Furniture, fixtures and equipment 27,481 25,194
Leasehold improvements 10,729 10,461
Construction in progress 673 3,685
- ------------------------------------------------------------------------------
109,450 100,628
Less accumulated depreciation and
amortization 42,901 39,655
- ------------------------------------------------------------------------------
$ 66,549 60,973
==============================================================================
Depreciation and amortization of premises and equipment included in building,
occupancy and equipment expense amounted to $6,271,000, $5,767,000, and
$5,094,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
43
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(8) Repurchase Agreements
Repurchase agreements amounted to $361,617,000, including accrued interest of
$2,340,000, at December 31, 1995. These agreements, with a weighted average
interest rate of 6.35%, were collateralized by securities with carrying values
aggregating $378,840,000 and fair values aggregating 386,658,000 at December 31,
1995. All repurchase agreements were over 90 days to maturity.
Information concerning borrowings under repurchase agreements for the years
ended December 31 is as follows:
==============================================================================
(Dollars In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Maximum month-end balance $ 929,332 1,505,624
Average balance 856,327 1,403,327
Weighted average interest rate 5.99% 4.18%
==============================================================================
Repurchase agreements amounted to $1,058,316,000, including accrued interest of
$11,236,000, at December 31, 1994. These agreements, with a weighted average
interest rate of 5.64%, were collateralized by securities with carrying values
aggregating $1,184,871,000 and fair values aggregating $1,130,921,000 at
December 31, 1994.
9) Other Borrowings
Other borrowings at December 31 are summarized as follows:
==============================================================================
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Federal Home Loan Bank $ 877,721 1,130,519
Collateralized mortgage obligations 13,649 16,253
Industrial Development Agency bond 12,000 12,000
- ------------------------------------------------------------------------------
$ 903,370 1,158,772
==============================================================================
Borrowings from the Federal Home Loan Bank (FHLB) as of December 31, are due as
follows:
==============================================================================
1995 1994
Amount Rate Amount Rate
- ------------------------------------------------------------------------------
(Dollars In Thousands)
1995 $ -- -- 772,000 3.91 to 7.95 %
1996 390,057 4.56 to 8.51 260,526 4.56 to 8.51
1997 382,000 5.23 to 7.95 67,000 5.28 to 7.95
1998 95,000 5.48 to 7.72 30,000 5.48 to 5.63
Thereafter 10,664 4.05 to 7.97 993 4.05 to 6.52
- ------------------------------------------------------------------------------
$877,721 1,130,519
==============================================================================
At December 31, 1995 and 1994, FHLB borrowings are collateralized by Federal
Home Loan Bank stock of $ 64,484,000 and $59,811,000, respectively, and U.S.
Government and mortgage-backed securities and mortgage loans with carrying
values approximating $ 1,174,772,000 and $1,551,018,000, respectively.
The Banks may borrow up to $150,000,000 from the Federal Home Loan Bank of New
York (FHLB) during any calendar month without FHLB Board approval. The aggregate
limit available without FHLB Board approval is 30% of assets.
In June, 1989, collateralized mortgage obligations (CMOs) of $51,600,000, were
issued by Franklin. Net proceeds were used to reduce existing short-term
borrowings and to fund mortgage commitments. In conjunction with the debt,
$55,800,000 in mortgage loans were securitized and converted into
mortgage-backed securities as collateral for the CMOs.
CMOs are summarized as follows:
==============================================================================
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Class A-3, 9.05% interest rate, maturing in 2015 $13,186 15,790
Class A-4, 7.80% interest rate, maturing in 2018 463 463
- ------------------------------------------------------------------------------
$13,649 16,253
==============================================================================
The anticipated aggregate principal payments on the CMOs during each of the five
years subsequent to December 31, 1995 are: 1996 - $2,064,000; 1997 - $2,064,000;
1998 - $2,064,000; 1999 - $1,032,000; 2000 - $1,032,000. Since the rate of
payment of principal of each class will depend on the rate of repayment
(including prepayments) of collateral, the actual maturity of any class could be
significantly earlier than its stated maturity.
The Company financed the expansion of its parking facility with the proceeds of
$12,000,000 of City of Syracuse Industrial Development Agency Civil Facility
Bonds. The obligation bears interest at a weekly variable rate, 5.15% at
December 31, 1995, and is payable in monthly installments. The bonds are subject
to a mandatory sinking fund redemption beginning in 1996 of $225,000 with a
final maturity of April 1, 2018. The bonds are secured by a letter of credit
which is collateralized by mortgage-backed securities having an unpaid principal
balance of $17,508,000 and a market value of $16,772,000 at December 31, 1995.
The Company enters into interest rate swaps which involve the exchange of fixed
and floating rate interest payment obligations without the exchange of
underlying principal obligations. These agreements have been utilized by the
Company to effectively convert variable-rate liabilities into fixed-rate
liabilities to more closely match the interest rate sensitivity of assets and
liabilities. Entering into interest rate swaps involves not only the risk of
default by the other party but also interest rate risk if positions are not
matched. The Company has swaps outstanding on $50,000,000 of FHLB borrowings at
December 31, 1995. The original terms to maturity of swaps ranged from one to
three years and the weighted average remaining term of the agreements was 1.8
years. Under the agreements, the Company pays interest at a fixed rate and
receives interest at rates that vary according to the London Interbank Offered
Rate. Interest payments are exchanged at three or six month intervals. At
December 31, 1995, the weighted average fixed interest rate the Company was
paying was 5.55%, and the weighted average variable interest rate the Company
was receiving was 5.91%. There were no swaps during 1994.
44
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(10) Income Taxes
As discussed in Note 1, the Company adopted Statement 109 as of January 1, 1993.
The cumulative effect of the accounting change of $3,400,000 is reported
separately in the consolidated statments of income for the year ended December
31, 1993.
Total income tax expense (benefit) was allocated as follows:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Income before income taxes and
cumulative effect of
accounting change $ 26,887 708 35,707
Paid-in capital, for stock options
exercised (148) (374) (1,141)
Shareholders' equity, for unrealized
gain (loss) on securities 17,909 (35,721) 5,177
- ------------------------------------------------------------------------------
$ 44,648 (35,387) 39,743
==============================================================================
Income tax expense (benefit) attributable to income from operations:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Current:
Federal $ 21,461 3,690 33,522
State 6,288 1,718 8,210
- ------------------------------------------------------------------------------
27,749 5,408 41,732
- ------------------------------------------------------------------------------
Deferred:
Federal (273) (3,329) (5,418)
State (589) (1,371) (607)
- ------------------------------------------------------------------------------
(862) (4,700) (6,025)
- ------------------------------------------------------------------------------
Total $ 26,887 708 35,707
==============================================================================
Income tax expense attributable to income before income taxes and cumulative
effect of accounting change differed from the amounts computed by applying the
U.S. Federal Statutory Income Tax rate to pre-tax income as follows:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Federal statutory rate 35% 34% 35%
Computed "expected" tax expense $ 25,047 1,160 32,784
State taxes, net of Federal benefit 3,704 229 4,942
Tax exempt income (1,037) (969) (1,159)
Other (827) 288 (860)
- ------------------------------------------------------------------------------
Actual income tax expense $ 26,887 708 35,707
==============================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994 follow:
==============================================================================
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Deferred tax assets:
Net unrealized holding loss on securities $12,635 30,544
Non-accrual interest 638 723
Deferred loan origination fees and expenses 2,405 2,327
Deferred compensation 934 964
Financial statement allowance for loan losses 13,080 12,480
Core deposit intangible assets 4,643 4,476
Other 2,146 605
- ------------------------------------------------------------------------------
Total deferred tax assets 36,481 52,119
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Leasing transactions 2,512 --
Loan servicing rights 1,293 1,373
Tax loan loss reserve in excess of base year reserve 2,863 2,327
Acquired loans 2,108 3,152
Prepaid deposit insurance -- 932
Other 1,321 904
- ------------------------------------------------------------------------------
Total deferred tax liabilities 10,097 8,688
- ------------------------------------------------------------------------------
Net deferred tax assets $26,384 43,431
==============================================================================
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable income
and projected future taxable income over the periods in which the temporary
differences comprising the deferred tax assets will be deductible. Based on its
assessment, management determined that no valuation allowance is necessary.
Included in retained earnings at December 31, 1995 is approximately $33,000,000
representing aggregate provisions for loan losses taken under the Internal
Revenue Code. Use of these reserves for purposes other than to absorb losses on
loans would result in taxable income to the Company.
45
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(11) Pension Plans
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated financial statements at December 31:
==============================================================================
In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $9,915 and $8,646 at
1995 and 1994, respectively $ 11,003 9,633
- ------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date 14,887 12,716
Plan assets at fair value, primarily listed
stocks and fixed income securities 16,477 13,103
- ------------------------------------------------------------------------------
Plan assets in excess of the projected
benefit obligation 1,590 387
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions 6 937
Unrecognized past service liability (1,447) (1,663)
Unrecognized net asset being amortized
over 12.5 years (359) (430)
- ------------------------------------------------------------------------------
Accrued pension cost included in
other liabilities $ (210) (769)
==============================================================================
Net periodic pension expense included the following components at December 31:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Service cost-benefits earned during the period 1,459 1,676 1,236
Interest cost on projected benefit obligation 1,005 816 751
Actual return on plan assets (2,728) 374 (1,323)
Net amortization and deferral 1,433 (1,560) 307
Early retirement costs -- -- 1,645
- ------------------------------------------------------------------------------
Net periodic pension expense $ 1,169 1,306 2,616
==============================================================================
The weighted-average discount rate and expected long-term rate of return on
pension plan assets were 7.5% and 8.5%, respectively, for 1995 and 8.25% and
8.5%, respectively, for 1994. The rate of increase of future compensation levels
used in determining the actuarial present value of the projected benefit
obligation was 5.5% for 1995 and was 6.0% for 1994.
(12) Incentive Savings Plan
The Company maintains an incentive savings 401(k) plan which is a defined
contribution plan providing for contributions to several trust funds by both the
Banks and their employees. Participants may contribute 1% to 15% of their
compensation subject to IRS limitations. The Banks make matching contributions
equal to 50% of participant contributions up to a limit of 3% of the
participant's base pay. Participants vest immediately in their own contributions
and over a period of five years in the Banks' contributions. Plan expense was
approximately $578,000, $564,000, and $445,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
13) Employee Stock Ownership Plan
All salaried and hourly employees of the Banks are eligible to participate in an
Employee Stock Ownership Plan (ESOP) upon attaining age 21 and completing a year
of service. Participants vest in the shares allocated to their accounts
depending on their length of service, with 100% vesting occurring after 6 years
of service. The ESOP is designed to invest in the Company's common stock and has
the authority to borrow funds from a third party to acquire such stock.
The ESOP has a term loan from a third party lender which bears interest at 89%
of the prime rate. The prime rate was 8.5% at December 31, 1995. The remaining
balance of the loan was $300,000 at December 31, 1995. Scheduled principal
payments are $150,000 per year through 1997.
As of December 31, 1995, the note is collateralized by mortgage-backed
securities with carrying values aggregating $736,000 with an aggregate market
value of $742,000 and by 39,100 shares of the Company's common stock owned by
the ESOP, which has a fair value of $1,305,000 and represents 100% of the
unallocated shares.
The Company has guaranteed the loan of the ESOP. Therefore, the loan balance is
reflected as a liability included in other liabilities with a corresponding
reduction in shareholders' equity.
ESOP expense approximates $150,000 in each of the years in the three year period
ending December 31, 1995.
(14) Stock Option Plans
Under the terms of the Stock Option and Appreciation Rights Plan (the Option
Plan), options to purchase up to 700,000 shares of common stock may be granted
to officers and employees of the Company and its subsidiaries. Options granted
may be nonqualified stock options or qualified stock options, which afford
favorable tax treatment to recipients upon compliance with certain restrictions
and do not normally result in tax deductions to the Company. The Option Plan
initially permitted the granting of tandem stock appreciation rights (SARS) in
respect to options which enable the recipient on exercise to elect payment in
cash based upon increases in market value of the stock from the date of grant.
Options granted are exercisable as determined by the Option Committee of the
Board of Directors, may have a term of up to ten years and are exercisable at a
price at least equal to the fair market value at the date of grant.
Under the terms of the Directors Stock Option Plan, as of the date of each
annual meeting, options to purchase 3,000 shares of the Company's common stock
are granted to non-employee directors who continue as a member of the Board and
have not previously been granted such options. The Directors Stock Option Plan
requires that options be granted at an exercise price at not less than fair
market value on the date of the grant. Options vest over three years and are
exercisable over a ten year period if the optionee continues to serve as a
director of the Company. Under the terms of the plan, 100,000 shares of common
stock were reserved for issuance upon the exercise of options granted.
Under Franklin's Stock Incentive Plan, non-qualified and qualified stock options
were granted to directors, officers and employees of Franklin. All options are
vested and are exercisable over a ten year period.
46
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(14) Stock Option Plans (Continued)
(The following table summarizes data concerning the Plans:
==============================================================================
Number Common Number Option
of Stock of Price
Shares Awards SARS Per Share
- ------------------------------------------------------------------------------
Balance at December 31,1992 540,922 66,176 110,200 $6.00 - 24.00
Granted 79,800 -- -- $34.50
Exercised (156,508) -- -- $6.00 - 24.00
Cancelled (3,911) (66,176) (31,100)
- ------------------------------------------------------------------------------
December 31,1993 460,303 -- 79,100 $6.00 - 34.50
- ------------------------------------------------------------------------------
Granted 111,500 -- -- $31.75 - 35.00
Exercised (50,177) -- -- $ 6.87 - 24.00
Cancelled (6,000) -- (7,100)
- ------------------------------------------------------------------------------
December 31, 1994 515,626 -- 72,000 $6.00 - 35.00
- ------------------------------------------------------------------------------
Granted 16,100 -- -- $22.88
Exercised (23,540) -- -- $6.00 - 24.00
Cancelled (16,994) -- (4,500)
- ------------------------------------------------------------------------------
December 31, 1995 491,192 -- 67,500 $6.00 - 35.00
- ------------------------------------------------------------------------------
Exercisable at
December 31, 1995 387,525
==============================================================================
(15) Shareholders' Equity
The Company's 6.75% Series B Cumulative Convertible Preferred Stock has a
liquidation preference of $25.00 per share. The stock is convertible at the
option of the holder at any time into approximately .779 shares of common stock,
except that, if the shares are called for redemption, the conversion right will
terminate at the close of business two business days next preceding the date
fixed for redemption. Shares may be redeemed at the option of ONBANCorp, in
whole or in part, at any time on or after July 1, 1996 at $26.013 per share and
at prices decreasing annually thereafter to $25.00 per share on and after July
1, 2002, plus dividends accrued and accumulated but unpaid to the redemption
date.
Under Federal Reserve Board and FDIC Regulations, the Company and the Banks are
required to maintain core capital of at least 4% of total assets. In addition,
the Federal Reserve Board and FDIC have implemented risk-based capital
requirements. Those regulations require that: (1) a Tier I capital to
risk-weighted assets be 4%; and (2) the total capital to risk-weighted assets
ratio be 8%.
At December 31, 1995, ONBANCorp and the Banks were in compliance with all
capital requirements.
(16) Dividends
The payment of dividends by the Banks to the Company, which in turn pays
dividends to its shareholders, is subject to the Banks being in compliance with
regulatory capital requirements.
Under New York State Banking law, dividends may be declared and paid only out of
net profits of the Banks. The approval of the Superintendent of the New York
State Department of Banking is required if the total of all dividends declared
in any calendar year will exceed net profits for that year plus the retained net
profits of the preceding two years. At December 31, 1995, the amount of
dividends which could be paid without prior approval was $29,996,000.
Under Pennsylvania Banking law, no dividend may be paid that would constitute an
unsafe or unsound practice or result in an institution failing to meet its
capital requirements.
17) Commitments and Contingencies
In the normal course of the Banks' business, there are various outstanding
commitments and contingent liabilities that have not been reflected in the
consolidated financial statements. In addition, in the normal course of
business, there are various outstanding legal proceedings. In the opinion of
management, the aggregate amount involved in such proceedings is not material to
the financial condition or results of operations of the Company.
At December 31, 1995, the Banks were obligated under noncancellable operating
leases. Building, occupancy and equipment expense includes rental expense of
$3,592,000, $3,532,000 and $3,448,000, for the years ended December 31, 1995,
1994 and 1993, respectively. The minimum rentals at December 31, 1995 under the
existing terms of these leases are as follows: $2,609,000 in 1996; $2,299,000 in
1997; $1,826,000 in 1998; $1,640,000 in 1999; $1,476,000 in 2,000 and $9,807,000
in later years.
At December 31, 1995 the Company was obligated under a contract with
Systematics, Inc. for on-site data processing management services. Future
contractual expenses are $8,366,000 in 1996, $8,038,000 in 1997, $7,875,000 in
1998 and $2,795,000 in 1999.
Under pending federal legislation, the Company may be required to participate in
a one-time recapitalization of the FDIC's Savings Association Insurance Fund
(SAIF). If enacted in its current form, the assessment is estimated to be
between 75 to 80 basis points of SAIF insured deposits held as of March 31,
1995. Based upon these rates the Company's pre-tax expense would be
approximately $6,961,000 to $7,426,000. The proposed legislation would also
repeal the bad debt reserve methods currently available to thrift institutions,
requiring the Company to recapture a portion of their existing tax bad debt
reserves. The aggregate potential Federal and state tax expense resulting from
recapture would be approximately $5,600,000. There is no assurance that this
pending legislation will be enacted into law, therefore, the FASB has stated
that the charge to earnings must be recorded in the period it is enacted.
Accordingly, the Company has made no accrual for this potential obligation.
(18) Financial Instruments with Off-Balance-Sheet Risk
The Banks are a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers and
to reduce exposure to fluctuations in interest rates. Those financial
instruments include commitments to extend credit, the serviced loan portfolio,
options written and forward purchase and sale contracts. Those instruments
involve, to varying degrees, elements of credit and market risk in excess of the
amount recognized in the consolidated statement of financial position. Credit
risk represents the accounting loss that would be recognized at the reporting
date if counterparties failed completely to perform as contracted. Unless noted
otherwise, the Banks do not require collateral or other security to support
off-balance-sheet financial instruments with credit risk. Market risk represents
the account-
47
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(18) Financial Instruments with Off-Balance-Sheet Risk (Continued)
ing loss that would be recognized at the reporting date if future changes in
market prices make a financial instrument less valuable.
The Banks' exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments for commitments to extend credit, forward
purchase contracts, and put options written is represented by the contractual
notional amount of those instruments. The Banks use the same credit policies to
evaluate the creditworthiness of counterparties to these transactions as it does
for on-balance-sheet instruments.
The Banks control their credit risk through credit approvals, limits, and
monitoring procedures. The Banks' credit risk with respect to mortgage servicing
losses results from unrecoverable advances of delinquent principal, interest and
tax payments made on behalf of mortgagors. To date, the Banks have not suffered
significant losses from their loan servicing activities.
Commitments to extend 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 many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's
creditworthiness on a case-by-case basis using the same criteria and credit
policies as it does for on-balance-sheet instruments. The credit risk amounts
are equal to the contractual amounts assuming that the amounts are fully
advanced and the collateral or other security is of no value. The amount of
collateral obtained by the Banks upon extension of credit is based on
management's credit evaluation of the counterparty. The type of collateral
varies but is primarily mortgages on real estate. The Banks have experienced
little difficulty in accessing collateral when required.
The Banks enter into forward contract commitments involving the delayed delivery
or purchase of mortgage-backed securities and loans. These forward contracts are
used to reduce the market risk associated with the underlying securities or
loans. Contractual terms of forward commitments specify the aggregate amount of
contract, the interest yield or prices at which securities or loans are to be
delivered, and the period covered. Credit and market risks arise from the
potential inability of counterparties to meet the terms of their contracts and
from movements in security and loan values, respectively.
Deferred fees from put options outstanding at December 31, 1995 and 1994
amounted to approximately $31,000 and $52,000, respectively, with average fair
values of $91,000 and $543,000 for the years ending December 31, 1995 and 1994,
respectively. The fair value of these options approximated the deferred fees
outstanding at December 31, 1995 and 1994. Net trading gains (losses) on
financial options included in gain (loss) on securities transactions totaled
$910,000, $(2,604,000), and $4,453,000 in 1995, 1994 and 1993, respectively.
A summary of the contract or notional amounts of the Banks' exposure to
off-balance-sheet risk, at December 31, excluding unused lines of credit of
approximately $237,646,000 as of December 31, 1995, follows:
==============================================================================
Contract or Notional
Amount
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Financial instruments whose contract
amount represents credit risk:
Commitments to extend credit $38,024 73,658
Standby letters of credit 42,496 36,899
Put options written 12,000 28,000
Financial instruments whose notional or
contract amounts exceed the amount of
credit risk:
Interest rate swaps 50,000 --
==============================================================================
(19) Concentrations of Credit Risk
Concentrations of credit risk (whether on or off balance sheet) arising from
financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counterparties have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Banks
do not have a significant exposure to any individual customer or counterparty. A
geographic concentration arises because the Banks operate only in Upstate New
York and Northeastern Pennsylvania.
The credit risk represents the maximum accounting loss that would be recognized
at the reporting date if counterparties failed completely to perform as
contracted and any collateral or security proved to be of no value. The Banks
have experienced little difficulty in accessing collateral when required.
(20) Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
(a) Cash and Cash Equivalents
- -----------------------------
For these short-term instruments that generally mature in ninety days or less,
the fair value approximates carrying value.
(b) Securities
- --------------
Fair values for securities and derivative instruments 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.
The carrying value of FHLB stock, which is redeemable at par, approximates fair
value.
(c) Loans
- ---------
Fair values for residential mortgage loans are based on quoted market prices of
similar loans sold in the secondary market, adjusted for differences in loan
characteristics. The fair values for commercial and consumer
48
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(20) Fair Values of Financial Instruments (Continued)
loans are estimated through discounted cash flow analyses using interest rates
currently being offered for loans with similar terms and credit quality.
The fair value of loans available for sale is based on quoted market prices.
Where quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Delinquent loans (not in foreclosure) are valued using the methods noted above.
While credit risk is a component of the discount rate used to value loans,
delinquent loans are presumed to possess additional risk. Therefore, the
calculated fair value of loans delinquent more than thirty days are reduced by
an allocated amount of the general allowance for loan losses.
(d) Due from Brokers
- --------------------
Due to the short term nature, the carrying value approximates fair value.
(e) Accrued Interest Receivable and Payable
- -------------------------------------------
For these short-term instruments, the carrying value approximates fair value.
(f) Deposits
- ------------
The fair values disclosed for demand deposits, savings accounts and money market
accounts are, by definition, equal to the amounts payable on demand at the
reporting date (i.e., their carrying values). The fair value of fixed maturity
time deposits is estimated using a discounted cash flow approach that applies
interest rates currently being offered to a schedule of aggregated expected
monthly maturities on time deposits.
(g) Repurchase Agreements
- -------------------------
For these short term instruments that mature in less than six months, the
carrying value approximates fair value. For those with maturities greater than
six months, the fair value is estimated using a discounted cash flow approach.
This approach applies the current incremental rates to such borrowings.
(h) Other Borrowings
- --------------------
The fair value of long term debt has been estimated using discounted cash flow
analyses that apply interest rates currently being offered for notes with
similar terms.
(i) Due to Brokers
- ------------------
Due to the short term nature, the carrying value approximates fair value.
(j) Commitments to Extend Credit and Letters of Credit
- ------------------------------------------------------
The fair value of commitments to extend credit are equal to the deferred fees
outstanding, as the contractual rates and fees approximate those currently
charged to originate similar commitments.
The estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 are as follows:
=====================================================================================
1995 1994
Carrying Fair Carrying Fair
(In Thousands) Amount Value Amount Value
- -------------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 285,244 285,244 173,964 173,964
Securities 2,741,843 2,777,437 3,890,687 3,772,033
Net loans (1) 2,294,544 2,379,369 1,972,884 1,940,126
Due from brokers 65,205 65,205 446,916 446,916
Accrued interest receivable 33,535 33,535 42,698 42,698
=====================================================================================
Financial liabilities:
Deposits:
Demand accounts, savings and
money market accounts 1,612,092 1,612,092 1,751,919 1,751,919
Time deposits 2,196,181 2,203,000 2,041,424 2,000,550
Repurchase agreements 361,617 364,866 1,058,316 1,053,663
Other borrowings 903,370 911,034 1,158,772 1,140,853
Due to brokers 43,951 43,951 284,232 284,232
Accrued interest payable 17,177 17,177 16,943 16,943
=====================================================================================
(1) Includes loans available for sale.
49
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(21) Parent Company Financial Information
The condensed balance sheets of ONBANCorp, Inc. at December 31 follow:
==============================================================================
(In Thousands) 1995 1994
- ------------------------------------------------------------------------------
Assets:
Cash $ 9,892 1,479
Due from subsidiary banks 5,328 4,820
Trading securities 1,790 15,999
Investment in subsidiary banks 373,683 345,129
Other assets 369 26,811
- ------------------------------------------------------------------------------
TOTAL ASSETS $391,062 394,238
- ------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Liabilities:
Due to subsidiary banks $ -- 25,896
Accounts payable,accrued dividends
& other liabilities 2,296 5,406
Total shareholders' equity 388,766 362,936
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $391,062 394,238
==============================================================================
The condensed statements of income for the years ended December 31, follows:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Income:
Net interest income $ 439 961 750
Gain on securities transactions 2,318 4,041 4,850
Other income -- -- 2,445
Dividends from subsidiary banks 43,000 11,000 8,200
- ------------------------------------------------------------------------------
Income before equity in
undistributed earnings
of subsidiary banks 45,757 16,002 16,245
Equity in undistributed
earnings (loss) of subsidiary banks 1,540 (10,283) 50,513
- ------------------------------------------------------------------------------
Total income 47,297 5,719 66,758
Operating expenses 2,417 1,959 3,853
- ------------------------------------------------------------------------------
Income before income taxes 44,880 3,760 62,905
Income taxes 203 1,056 1,542
- ------------------------------------------------------------------------------
Net income $44,677 2,704 61,363
==============================================================================
The condensed statements of cash flows for the years ended December 31, follow:
==============================================================================
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 44,677 2,704 61,363
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed (earnings) loss
of subsidiary banks (1,540) 10,283 (50,513)
Gain on securities transactions -- -- (4,850)
Net change in trading securities 14,209 (3,378) --
Other 1,138 (7,233) 3,914
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 58,484 2,376 9,914
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Net sales (purchases) of securities -- 23,000 (15,491)
Investment in subsidiaries -- (30,000) --
- ------------------------------------------------------------------------------
Net cash used by investing
activities -- (7,000) (15,491)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 743 1,023 41,727
Cash dividends paid on
common stock (19,737) (13,980) (8,072)
Cash dividends paid on
preferred stock (4,649) (4,755) (4,755)
Purchase of treasury stock (18,068) -- --
Redemption of preferred stock (8,360) -- --
- ------------------------------------------------------------------------------
Net cash provided (used) by
financing activities (50,071) (17,712) 28,900
- ------------------------------------------------------------------------------
Net increase (decrease) in cash 8,413 (22,336) 23,323
Cash and cash equivalents at beginning
of year 1,479 23,815 492
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 9,892 1,479 23,815
==============================================================================
Supplemental disclosure of non-cash investing activities:
Transfer of securities to trading $ -- 12,621 --
Change in net unrealized holding
gain (loss) on securities of subsidiaries 26,864 (50,963) 5,147
==============================================================================
50
Notes To Consolidated
Financial Statements
December 31, 1995, 1994 and 1993
(22) Selected Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31, 1995 and
1994 are as follows:
===============================================================================================================
Three Months Ended
(In Thousands Except Per Share Data) Mar. 31,1995 Jun. 30,1995 Sep. 30,1995 Dec. 31,1995
- ---------------------------------------------------------------------------------------------------------------
Total interest income $102,384 107,237 112,470 109,368
Total interest expense 64,985 69,674 73,656 70,629
- ---------------------------------------------------------------------------------------------------------------
Net interest income 37,399 37,563 38,814 38,739
Provision for loan losses 1,690 1,690 1,610 1,800
- ---------------------------------------------------------------------------------------------------------------
Net interest income
after provision for loan losses 35,709 35,873 37,204 36,939
Other operating income 6,735 7,187 6,539 8,840
Other operating expenses 26,166 26,320 24,018 26,958
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 16,278 16,740 19,725 18,821
Income taxes 6,353 6,604 7,059 6,871
- ---------------------------------------------------------------------------------------------------------------
Net income $ 9,925 10,136 12,666 11,950
- ---------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $ .62 .63 .82 .78
Fully Diluted $ .61 .62 .78 .75
===============================================================================================================
Three Months Ended
(In Thousands Except Per Share Data) Mar. 31,1994 Jun. 30,1994 Sep. 30,1994 Dec. 31,1994
- ---------------------------------------------------------------------------------------------------------------
Total interest income $ 86,370 94,231 101,529 106,145
Total interest expense 46,496 52,128 58,900 67,122
- ---------------------------------------------------------------------------------------------------------------
Net interest income 39,874 42,103 42,629 39,023
Provision for loan losses 2,609 2,009 1,510 1,510
- ---------------------------------------------------------------------------------------------------------------
Net interest income
after provision for loan losses 37,265 40,094 41,119 37,513
Other operating income (loss) (1) 5,915 6,132 9,343 (74,079)
Other operating expenses 22,289 24,457 26,316 26,828
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 20,891 21,769 24,146 (63,394)
Income taxes (credit) 8,026 8,393 9,291 (25,002)
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ 12,865 13,376 14,855 (38,392)
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .82 .86 .96 (2.82)
Fully Diluted $ .78 .82 .91 (2.82)
===============================================================================================================
(1) The other operating loss of $74,079,000 during the quarter ended December
31, 1994, includes an $80 million loss on the sale of $1.3 billion of
available for sale securities.
51
Board of Directors
Senior Officers
ONBANCorp Board of Directors
Robert J. Bennett
Chairman of the Board,
President &
Chief Executive Officer
William F. Allyn
President
Welch Allyn, Inc.
Chester D. Amond
President, Retired
Syracuse China Corporation
William J. Donlon
Chairman & Chief Executive
Officer, Retired
Niagara Mohawk Power Corporation
Russell A. King
Consulting Partner
King & King Architects, Inc.
Henry G. Lavarnway, Jr.
Private Investments
John D. Marsellus
Chairman
Marsellus Casket Company
J. Kemper Matt
President
Dupli Envelope & Graphics Corp.
Peter J. Meier
President
G.A. Braun, Inc.
Peter J. O'Donnell, Jr. *
President
Pine Tree Management Corporation
T. David Stapleton, Jr.
Attorney
Karpinski, Stapleton
& Fandrich, P. C.
William J. Umphred, Sr.
Senior Vice President
Retired
C-TEC Corporation
Thomas H. van Arsdale
President &
Chief Executive Officer
Franklin First Savings Bank
John L. Vensel
Chairman and Chief
Executive Officer
Crucible Materials Corp.
Joseph N. Walsh, Jr.
Vice President, Retired
NYNEX
* Director Nominee
ONBANCorp Senior Officers
Robert J. Bennett
Chairman, President & Chief
Executive Officer
Howard W. Sharp
Executive Vice President
David M. Dembowski
Secretary & Senior Vice President
Robert J. Berger
Senior Vice President, Treasurer
& Chief Financial Officer
William M. Le Beau
Senior Vice President
Loan & Asset Review
Sandra L. Yingling
Auditor
Thomas R. Delduchetto
Vice President
Human Resources
52
Investor Relations
I n v e s t o r R e l a t i o n s
Investor Relations:
ONBANCorp, Inc.
101 South Salina Street
PO Box 4983
Syracuse, NY 13221-4983
(315) 424-5995
Transfer Agent & Registrar:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
A n n u a l R e p o r t
ONBANCorp, Inc. is required to file an annual report with the SEC on Form 10-K
for the year ended December 31, 1995. Shareholders may obtain, free of charge, a
copy of such annual report, excluding exhibits, by writing to:
Mr. Robert J. Berger, Senior Vice President,
Treasurer & Chief Financial Officer
ONBANCorp, Inc.
101 South Salina Street
PO Box 4983
Syracuse, NY 13221-4983
M a r k e t M a k e r s (D e c e m b e r 1 9 9 5)
A. G. Edwards & Sons, Inc.
Bear, Stearns & Co. Inc.
Dean Witter Reynolds, Inc.
Donaldson, Lufkin & Jenrette
First Albany Corporation
Furman Selz Incorporated
Herzog, Heine, Geduld, Inc.
Huntleigh Securities Corp.
Keefe, Bruyette & Woods, Inc.
Kenny Securities Corp.
Merrill Lynch, Pierce, Fenner
& Smith, Inc.
Morgan Stanley & Co., Inc.
Neuberger & Berman
Oppenheimer & Co., Inc.
Paine Webber Inc.
Prudential Securities, Inc.
Ryan Beck & Co., Inc.
Sandler O'Neill & Partners
Sherwood Securities Corp.
Smith Barney Inc.
Sterne, Agee & Leach
Troster Singer Corp.
Tucker Anthony Incorporated
(MAIL CARD FRONT)
[BAR-LINES] ---------------
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
---------------
- ------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 1127 SYRACUSE NY
- ------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
ONBANCORP
INVESTOR RELATIONS
PO BOX 4983
SYRACUSE NY 13221-7997
[BAR-CODE]
(MAIL CARD BACK)
Automatic Dividend Reinvestment And Stock Purchase Plan
You may elect to have a portion of your dividend automatically reinvested in
ONBANCorp common stock with no brokerage fee. In addition, you may elect to
supplement your dividends with cash for additional purchases. Participation is
completely voluntary and you may withdraw at any time.
If you would like more information on our Dividend Reinvestment and Stock
Purchase Plan, please fill out and return this card.
Name
--------------------------------------------------------------------------
Address
-----------------------------------------------------------------------
City State Zip
-------------------------------------- -------- ---------------
Telephone
---------------------------------------------------------------------
Thank you!
(MAIL CARD FRONT)
[BAR-LINES] ---------------
| NO POSTAGE |
| NECESSARY |
| IF MAILED |
| IN THE |
|UNITED STATES|
---------------
- ------------------------------------------------
| BUSINESS REPLY MAIL |
| FIRST-CLASS MAIL PERMIT NO. 1127 SYRACUSE NY |
- ------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
ONBANCORP
INVESTOR RELATIONS
PO BOX 4983
SYRACUSE NY 13221-7997
[BAR-CODE]
(MAIL CARD BACK)
May we send you more information on any of the following
services? Please check all services that you would like
additional information on and return this card.
Commercial Banking Services
- ----- Small Business Services
- ----- International Banking
- ----- Commercial Leasing Options
- ----- Cash Management Services
- ----- Corporate Financing Options
- ----- Deposit Services
Trust and Investment Services
- ----- Investment Management
- ----- Trusts
- ----- Estate Planning
- ----- Employee Benefits Plans
- ----- Custody Service
- ----- "Pathways to Prosperity" Mutual Funds
- ----- Discount Brokerage Service
- ----- Charitable Giving
Retail Services
- ----- Checking
- ----- Savings/Certificates of Deposit
- ----- Personal Loans
- ----- VISA(R)/MasterCard(R)
- ----- Mortgage Loan
- ----- Home Equity Loan
- ----- Auto Loans/Leases
- ----- Other (Please Specify)
Name
--------------------------------------------------------------------------
Address
-----------------------------------------------------------------------
City State Zip
-------------------------------------- -------- ---------------
Telephone
---------------------------------------------------------------------
Thank you!
[LOGO-ONBANCorp, Inc.]
ONBANCorp, Inc.
Shareholder Relations
(315) 424-5995
(800) 311-5995
OnBank & Trust Co.*
Metro Syracuse Region
Syracuse, New York
(800) 283-4357
Capital Region
Albany, New York
(518) 426-6200
Rochester Region
Rochester, New York
(716) 442-6680
OnBank*
Syracuse, New York
(800) 283-4357
Franklin First
Savings Bank*
Wilkes-Barre, Pennsylvania
(800) 262-1210
Trust Services
(315) 442-1731 Syracuse
(518) 432-5580 Albany
(716) 442-8610 Rochester
(717) 821-8600 Wilkes-Barre
Investment Services
TradeStar Investments, Inc.
Discount Brokerage Service
(315) 424-4570
Liberty Securities Corporation
Mutual Funds & Annuities
(315) 424-4570 Syracuse
(518) 426-6222 Albany
(800) 223-8793 Wilkes-Barre
[LOGO-EQUAL HOUSING LENDER]
*Member FDIC