UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31,1999
0-24739
Commission File Number
CNY Financial Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 16-1557490
(State or other jurisdiction of (I.R.S. Employment Identification No.)
incorporation or organization)
ONE NORTH MAIN STREET
CORTLAND, NEW YORK 13045
(Address of principal executive offices)
(607) 756-5643
Registrant's telephone number, including area code
COMMON STOCK, $0.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day. [X] Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was approximately $70.8 million as of February
11, 2000. As of February 11, 2000, the registrant had 4,601,373 shares of Common
Stock outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. Business................................................... 1
ITEM 2. Properties................................................. 13
ITEM 3. Legal Proceedings.......................................... 13
ITEM 4. Submission of Matters to Vote of Security Holders.......... 13
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 14
ITEM 6. Selected Financial Data.................................... 14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 16
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.. 22
ITEM 8. Financial Statements and Supplementary Data................ 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 49
PART III
ITEM 10. Directors and Executive Officers of the Registrant......... 49
ITEM 11. Executive Compensation..................................... 51
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 54
ITEM 13. Certain Relationships and Related Transactions............. 55
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 55
Signatures ........................................................... 57
2
PART I
ITEM 1. BUSINESS
CNY Financial Corporation, a Delaware corporation incorporated in 1998
(the "Company") is a bank holding company headquartered in Cortland, New York
with total assets of over $287 million at December 31, 1999. Through its wholly
owned subsidiary, Cortland Savings Bank, which was founded in 1866 (the "Bank"),
the Company engages in full service community banking. The Bank is also
headquartered in Cortland, New York, and has three full service offices in
Cortland County, and loan production offices in Ithaca, Tompkins County, and
Liverpool, Onondaga County.
The Company provides community banking services primarily to individuals
and small-to-medium-sized businesses, in Cortland County and the neighboring
counties. These services include traditional checking, NOW, money market,
savings and time deposit accounts. The Company offers home equity, home
mortgage, commercial real estate, commercial and consumer loans, safe deposit
facilities and other services specially tailored to meet the needs of customers
in its target markets.
The Company commenced operations on October 6, 1998, when the Bank
converted from a state chartered mutual savings bank to a state chartered stock
savings bank. References to the business activities, financial condition and
operations of the Company prior to October 6, 1998 refer to the Bank, while
references to the Company on or after that date refer to both the Company and
the Bank as consolidated, unless the context indicates otherwise.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, including the accompanying notes, which
appear in Item 8 of this Form 10-K.
On December 28, 1999, the Company signed a definitive agreement with
Niagara Bancorp, Inc. under which Niagara Bancorp, Inc. will acquire all of the
outstanding shares of the Company for $18.75 per share. Cortland Savings Bank
will become a wholly-owned subsidiary of Niagara Bancorp, Inc. This transaction
is expected to close during the second quarter of 2000.
INVESTMENT ACTIVITIES
GENERAL. The investment policy of the Company, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide satisfactory yields, while maintaining adequate
liquidity, a balance of high quality, diversified investments, and minimal risk.
The investment policy is implemented by the President and the Chief Financial
Officer. The Company is assisted in its investment decisions by an independent
nationally recognized investment advisory firm. All securities purchases and
sales must be approved by at least two executive officers and are reported to
the Board of Directors each month. The Company generally classifies its new
securities investments as available-for-sale in order to maintain flexibility in
satisfying future investment and lending requirements.
The following table sets forth certain information with respect to the
Company's securities portfolio.
AT DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE: (Dollars in thousands)
U.S. Treasury securities $ 3,016 $ 3,021 $ 8,041 $ 8,136 $ 15,045 $ 15,141
U.S. Government agencies 11,453 11,225 4,996 5,028 996 1,005
Corporate debt obligations 20,553 20,328 27,649 27,822 13,819 13,861
State and municipal sub-divisions 1,865 1,804 917 927 -- --
Mortgage-backed securities 58,684 56,437 42,801 43,041 12,144 12,211
- ------------------------------------------------------------------------------------------------------------
Total debt securities 95,571 92,815 84,404 84,954 42,004 42,218
Equity securities 2,827 4,745 2,072 3,483 1,192 1,922
- ------------------------------------------------------------------------------------------------------------
Total available-for-sale 98,398 97,560 86,476 88,437 43,196 44,140
- ------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
U.S. Government agencies 1,000 989 1,505 1,507 1,992 1,995
Corporate debt obligations 1,853 1,850 2,858 2,878 1,854 1,870
State and municipal sub-divisions 742 737 747 764 425 430
Mortgage-backed securities 3,508 3,450 5,208 5,255 8,279 8,274
- ------------------------------------------------------------------------------------------------------------
Total held-to-maturity 7,103 7,026 10,318 10,404 12,550 12,569
- ------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES $105,501 $104,586 $ 96,794 $ 98,841 $ 55,746 $ 56,709
============================================================================================================
3
DEBT SECURITIES. The carrying value of the Company's debt securities
totaled $99.9 million at December 31, 1999. It is the policy of the Company to
invest in debt securities issued by the United States Government, its agencies,
municipalities and corporations. The Company purchases only investment grade
debt securities for its investment portfolio and at December 31, 1999, none of
its debt securities were in default or otherwise classified. The Company seeks
to balance its debt securities purchases between U.S. government and related
securities which are virtually risk-free but which have lower yields and
corporate debt securities which offer higher yields. Corporate debt securities
present greater risks than U.S. Government securities because of the increased
possibility that the corporate obligor, compared to the U.S. government, will
default. To control risks, the Company limits its investment in corporate debt
securities to those rated in the three highest grades by a nationally recognized
rating organization.
The Company also invests in mortgage-backed securities. Mortgage-backed
securities generally have higher yields than other debt securities because of
their longer terms and the uncertainties associated with the timing of mortgage
repayments. In addition, mortgage-backed securities are more liquid than
individual mortgage loans and may be used to collateralize borrowings of the
Company. However, these securities generally yield less than the loans that
underlie them because of the cost of payment guarantees or credit enhancements
that reduce credit risk.
While mortgage-backed securities carry a reduced credit risk as compared
to loans, such securities remain subject to the risk that a fluctuating interest
rate environment, along with other factors such as the geographic distribution
of the underlying mortgage loans, may alter the prepayment rate of such mortgage
loans and so affect both the prepayment speed, and value, of such securities.
The Company began an investment program in 1999 to increase the Company's
investment in mortgage-backed securities. The purchases were funded through
Federal Home Loan Bank of New York borrowings and a reduction in short-term
investments. The amortized cost of mortgage-backed securities was $62.2 million
at December 31, 1999, compared with $48.0 million at the end of 1998. One effect
of this program has been a lengthening of the stated maturity of the Company's
investment portfolio as shown in the table below.
Debt securities are generally purchased with a remaining term to maturity
of two to three years, with the exception of mortgage-backed securities, which
have amortization schedules as long as thirty years and municipal bonds with
maturity dates as great as 10 years. At December 31, 1999, more than 95.0% of
the carrying value of the Company's debt securities, excluding mortgage-backed
securities, had remaining terms to maturity of five years or less.
SECURITIES, MATURITIES AND YIELDS. The following table sets forth
contractual maturities and the weighted average yields of the Company's debt
securities portfolio at December 31, 1999 and the comparable total at December
31, 1998.
MORE THAN TEN
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS YEARS TOTAL DEBT SECURITIES
---------------------------------------------------------------------------------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury securities $ 3,007 6.22% $ 14 5.25% $ -- --% $ -- --% $ 3,021 6.21%
U.S. Government agencies 500 6.19% 11,725 5.94% -- --% -- --% 12,225 5.95%
Corporate debt 8,334 5.95% 13,847 5.98% -- --% -- --% 22,181 5.97%
State and municipal
subdivisions 176 4.14% 358 4.50% 2,012 4.39% -- --% 2,546 4.39%
Mortgage-backed securities 252 6.99% 1,233 6.22% 3,723 6.17% 54,737 6.40% 59,945 6.39%
- -------------------------------------------------------------------------------------------------------------------------------
Total 1999 $ 12,269 $ 27,177 $ 5,735 $ 54,737 $ 99,918
===============================================================================================================================
Total 1998 $ 20,139 $ 28,660 $ 5,799 $ 40,674 $ 95,272
===============================================================================================================================
Expected maturities may differ from actual maturities because issuers may
have the right to call or prepay obligations with or without prepayment
penalties.
EQUITY SECURITIES. The Company and Bank invest a limited amount of their
assets in corporate equity securities. These investments are made to diversify
the Company's investments and provide opportunities for capital appreciation as
well as dividend income. All equity securities are classified as
available-for-sale. The Company does not regularly trade such securities and
generally does not purchase them for the purpose of near term sale. Equity
securities had a fair value of $4.7 million at December 31, 1999.
SECURITIES OF A SINGLE ISSUER. There were no securities of any singe
issuer, other than the U.S. Treasury or U.S. government sponsored entities,
which had a book value in excess of ten percent of stockholders' equity at
December 31, 1999.
4
LENDING ACTIVITIES
The loan portfolio is the largest category of the Company's interest
earning assets.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Company's loan portfolio in dollar amounts and in percentages
at the dates indicated.
AT DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Real estate loans:
Residential $104,494 61.76% $101,885 62.96% $ 97,303 61.66% $ 96,097 59.73% $ 95,854 59.57%
Construction 1,790 1.06 145 0.09 316 0.20 528 0.33 155 0.10
Home equity 6,520 3.85 6,804 4.20 5,924 3.75 5,882 3.66 6,344 3.94
Commercial mortgages 31,864 18.83 29,224 18.06 30,867 19.56 35,119 21.83 35,165 21.86
- -------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 144,668 85.50 138,058 85.31 134,410 85.17 137,626 85.55 137,518 85.47
- -------------------------------------------------------------------------------------------------------------------------------
Other loans:
Guaranteed student loans 741 0.44 1,016 0.63 1,507 0.96 1,552 0.96 1,747 1.09
Property improvement
loans 661 0.39 709 0.44 907 0.57 1,031 0.64 916 0.57
Automobile loans 12,641 7.47 10,854 6.71 8,902 5.64 6,378 3.96 5,510 3.42
Other consumer loans 4,208 2.49 4,597 2.84 5,031 3.19 6,289 3.91 6,174 3.84
Commercial loans 6,278 3.71 6,588 4.07 7,049 4.47 8,020 4.98 9,023 5.61
- -------------------------------------------------------------------------------------------------------------------------------
Total other loans 24,529 14.50 23,764 14.69 23,396 14.83 23,270 14.45 23,370 14.53
- -------------------------------------------------------------------------------------------------------------------------------
Total loans 169,197 100.00% 161,822 100.00% 157,806 100.00% 160,896 100.00% 160,888 100.00%
Less:
Deferred loan fees, net 110 121 241 333 379
Allowance for loan losses 2,430 2,494 2,143 1,952 2,002
- -------------------------------------------------------------------------------------------------------------------------------
Total loans, net $166,657 $159,207 $155,422 $158,611 $158,507
===============================================================================================================================
RESIDENTIAL MORTGAGE LOANS. The Company offers both adjustable-rate and
fixed-rate mortgage loans. The relative proportion of fixed versus adjustable
mortgage loans originated by the Company depends principally upon customer
preferences, which are generally driven by general economic and interest rate
conditions and the pricing offered by the Company's competitors. In recent
years, with relatively low mortgage interest rates, customer preference has
favored fixed-rate mortgage loans. The adjustable-rate loans generally carry
annual or triennial interest rate caps and life-of-the-loan ceilings which limit
interest rate adjustments.
Generally, credit risks on adjustable-rate loans are somewhat greater
than on fixed-rate loans primarily because, as interest rates rise, so do
borrowers' payments, increasing the potential for default. The Company offers
teaser rate loans with low initial interest rates that are not based upon the
index plus the margin for determining future rate adjustments; however, the
Company judges the borrower's ability to repay based on the payment due at an
interest rate 2% higher than the initial rate.
In addition to verifying income and assets of borrowers, the Company
obtains independent appraisals on all residential first mortgage loans and
attorney's opinions of title are required at closing. The Company generally uses
title opinions rather than title insurance on residential mortgage loans, but
has not experienced losses due to its reliance on title opinions instead of
title insurance. Private mortgage insurance is required on most loans with a
loan to value ratio in excess of 80%. Real estate tax escrows are generally
required on residential mortgage loans with loan to value ratios in excess of
80%.
Adjustable-rate mortgage loans originated in recent years have interest
rates that adjust annually or every three years based on the one or three year
Treasury bill index, plus 3%. Interest rate adjustments are generally limited to
2% per year for one-year adjustable loans and 3% per adjustment for three-year
adjustable loans. There is normally a lifetime maximum interest rate adjustment,
measured from the initial interest rate, of 6%.
5
Fixed-rate residential mortgage loans generally have terms of 10 to 30
years. Although fixed-rate mortgage loans may adversely affect the Company's net
interest income in periods of rising interest rates, the Company originates such
loans to satisfy customer demand. Such loans are generally originated at initial
interest rates which exceed the fully indexed rate on adjustable-rate mortgage
loans offered at the same time. Therefore, during periods of level interest
rates, they tend to provide higher yields than adjustable loans. Fixed-rate
residential mortgage loans originated by the Company generally include
due-on-sale clauses which permit the Company to demand payment in full if the
borrower sells the property without the Company's consent. Due-on-sale clauses
are an important means of adjusting the rates of the Company's fixed-rate
mortgage loan portfolio, and the Company has generally exercised its rights
under these clauses.
HOME EQUITY LOANS. The Company offers a home equity line of credit
secured by a residential one-to-four family mortgage, usually a second lien.
These loans have adjustable rates of interest and generally provide for an
initial advance period of ten years, during which the borrower pays interest
only and can borrower, repay, and re-borrow the principal balance. The Company
also offers home equity loans which are fully advanced at closing and repayable
in monthly principal and interest installments over a period not to exceed 10
years. The maximum loan to value ratio, including prior liens, is 80% for lines
of credit and 85% for regular amortizing home equity loans.
COMMERCIAL MORTGAGE LOANS. The Company originates commercial mortgage
loans secured by office buildings, retail establishments, multi-family
residential real estate and other types of commercial property. Substantially
all of the properties are located in the Company's market area or in nearby
areas of Central New York State.
The Company makes commercial mortgage loans with loan to value ratios up
to 75%, terms up to five years, and amortization periods up to 20 years. Most of
the Company's recent fixed-rate commercial mortgage loans mature after five
years, which allows the Company to adjust the interest rate after five years if
appropriate.
For commercial mortgage loans, the Company generally requires a debt
service coverage ratio of at least 120% and the personal guarantee of the
principals of the borrower. The Company also requires an appraisal by an
independent appraiser. Title insurance is required for loans in excess of
$500,000. Attorneys' opinions of title are used instead of title insurance for
smaller commercial mortgage loans, but the Company has not experienced losses as
a result of not having title insurance.
Loans secured by commercial properties generally involve a greater degree
of risk than one-to-four family residential mortgage loans. Because payments on
such loans are often dependent on successful operation or management of the
properties, repayment may be subject, to a greater extent, to adverse conditions
in the real estate market or the economy. The Company seeks to minimize these
risks through its underwriting policies. The Company evaluates the
qualifications and financial condition of the borrower, including credit
history, profitability and expertise, as well as the value and condition of the
underlying property. The factors considered by the Company include net operating
income; the debt coverage ratio (the ratio of cash net income to debt service);
and the loan to value ratio. When evaluating the borrower, the Company considers
the resources and income level of the borrower, the borrower's experience in
owning or managing similar property and the Company's lending experience with
the borrower. The Company's policy requires borrowers to present evidence of the
ability to repay the loan without having to resort to the sale of the mortgaged
property.
AUTOMOBILE LOANS. In recent years, the Company has exerted efforts to
increase its level of automobile loans in order to provide improved yields,
increase the interest rate sensitivity of its assets and expand its customer
base. Automobile loans are originated both through direct contact between the
Company and the borrower and through automobile dealers who refer the borrowers
to the Company. The Company conducts its own analysis of the creditworthiness of
borrowers referred to it by dealers before approving any automobile loan. The
dealer loans are represented by installment sales contracts between the dealer
and the purchaser which are immediately assigned to the Company. The dealers
receive fees from the Company for the referrals.
6
The Company offers automobile loans for both new and used cars. The
loans have fixed rates with maturities not more than five and a half years. Loan
amounts generally equal 85% of the purchase price of the car. These loans tend
to present greater risks of loss than mortgage loans because the collateral is
rapidly depreciable and easier to conceal. Therefore, the Company evaluates the
credit and repayment ability of the borrower as well as the value of the
collateral in determining whether to approve a loan.
OTHER CONSUMER LOANS. The Company also makes short-term fixed rate
consumer loans, either unsecured or secured by savings accounts or other
consumer assets, as well as adjustable-rate revolving credit card loans and
overdraft checking loans. The fixed-rate loans generally have terms of not more
than five years and have interest rates higher than mortgage loans. The shorter
terms to maturity or adjustable rates are helpful in managing the Company's
interest rate risk. Applications for these loans are evaluated based upon the
borrowers' ability to repay and, if applicable, the value of the collateral.
Collateral value, except for loans secured by bank deposits or marketable
securities, is a secondary consideration because personal property collateral
generally rapidly depreciates in value, is difficult to repossess, and rarely
generates close to full value at a forced sales.
COMMERCIAL LOANS. The Company makes commercial loans to businesses for
automobile dealer floor plan financing, working capital, machinery and equipment
purchases, expansion, and other business purposes. These loans generally have
higher yields than mortgage loans, with maturities that generally are not more
than seven years. Working capital lines of credit tend to provide for one-year
terms with annual reviews.
Commercial loans tend to present greater risks than mortgage loans
because the collateral, if any, tends to be rapidly depreciable, difficult to
sell at full value and easier to conceal. In order to limit these risks, the
Company evaluates these loans based upon the borrower's ability to repay the
loan from ongoing operations. The Company considers the business history of the
borrower and perceived stability of the business as important factors when
considering applications for such loans. Occasionally, the borrower provides
commercial or residential real estate collateral for such loans, in which case
the value of the collateral may be a significant factor in the loan approval
process.
LOAN MATURITIES
The following table sets forth the contractual maturities of commercial
and real estate construction loans outstanding at December 31, 1999. Also set
forth are the amounts of such loans due after one year, classified according to
sensitivity to changes in interest rates.
MATURITY
--------------------------------------------------------------------------------
DUE IN ONE DUE AFTER ONE YEAR
YEAR OR LESS THROUGH FIVE YEARS DUE AFTER FIVE YEARS TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
FLOATING FLOATING
FIXED RATE FIXED RATE
----------------------------------------------------
(In thousands)
Commercial and real estate construction loans $ 4,230 $ 2,404 $ -- $ 1,434 $ -- $ 8,068
===============================================================================================================================
ASSET QUALITY
NON-PERFORMING LOANS. Non-performing loans include: (1) loans accounted
for on a non-accrual basis; (2) accruing loans contractually past due ninety
days or more as to interest or principal payments; (3) loans whose terms have
been renegotiated to provide a reduction or deferral of interest or principal
because of a deterioration in the financial position of the borrower.
7
The following table provides certain information on the Company's
non-performing loans at the dates indicated.
AT DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
NON-ACCRUAL LOANS: (1)
Residential mortgages $ 539 $ 667 $2,010 $1,069 $ 772
Commercial mortgages -- 167 1,235 1,416 421
- -----------------------------------------------------------------------------------------------------------
Total real estate loans 539 834 3,245 2,485 1,193
Commercial loans 57 71 331 790 739
Other loans 7 15 209 358 62
- -----------------------------------------------------------------------------------------------------------
Total non-accrual loans 603 920 3,785 3,633 1,994
Accruing loans past due 90 days or more:
Residential mortgages -- -- 2 1 --
Commercial mortgages -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total real estate loans -- -- 2 1 --
Commercial loans -- 11 -- -- --
Other loans 6 4 7 33 --
- -----------------------------------------------------------------------------------------------------------
Total loans past due 90 days or more and still
accruing 6 15 9 34 --
- -----------------------------------------------------------------------------------------------------------
Total non-performing loans 609 935 3,794 3,667 1,994
Real estate owned 309 260 964 563 374
- -----------------------------------------------------------------------------------------------------------
Total non-performing assets $ 918 $1,195 $4,758 $4,230 $2,368
===========================================================================================================
Non-performing loans as a percent of total loans 0.36% 0.58% 2.37% 2.28% 1.24%
Non-performing assets as a percent of total assets 0.32% 0.42% 2.04% 1.78% 1.00%
===========================================================================================================
(1) Non-accrual loans at December 31, 1997 include $2.3 million of non-accrual
loans held for sale. These loans were sold during the first quarter of 1998,
representing the largest component of the decline in non-accrual loans.
At December 31, 1999 there were no loans other than those included in the
table with regard to which management had information about possible credit
problems of the borrower that caused management to seriously doubt the ability
of the borrower to comply with present loan repayment terms.
DELINQUENCY PROCEDURES. When a borrower fails to make a required payment
on a loan, the Company attempts to cause the deficiency to be cured by
contacting the borrower. Late notices are sent when a payment is more than 15
days past due and a late charge is generally assessed at that time. The Company
attempts to contact personally any borrower who is more than 20 days past due.
All loans past due 90 days or more are added to a watch list and an employee of
the Company contacts the borrower on a regular basis to seek to cure the
delinquency. If a mortgage loan becomes past due from 90 to 120 days, the
Company refers the matter to an attorney, who first seeks to obtain payment
without litigation and, if unsuccessful, generally commences a foreclosure
action or other appropriate legal action to collect the loan. A foreclosure
action, if the default is not cured, generally leads to a judicial sale of the
mortgaged real estate.
If an automobile loan becomes 60 days past due, the Company seeks to
repossess the collateral. If the default is not cured, then upon repossession
the Company sells the automobile as soon as practicable through a local
automobile auction. When other types of non-mortgage loans become past due, the
Company takes measures to cure defaults through contacts with the borrower and
takes appropriate action, depending upon the nature of the borrower and the
collateral, to obtain repayment of the loan.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at
a level considered adequate to provide for potential losses. The level of the
allowance is based upon management's periodic and comprehensive evaluation of
the loan portfolio, as well as current and projected economic conditions.
Reports of examination furnished by state and federal banking authorities are
also considered by management in this regard. These evaluations by management in
assessing the adequacy of the allowance include consideration of past loan loss
experience, changes in the composition of the loan portfolio, the volume and
condition of loans outstanding and current market and economic conditions.
8
The analysis of the adequacy of the allowance is reported to and reviewed
by the Loan Committee of the Board of Directors of the Bank monthly. Management
believes it uses a reasonable and prudent methodology to measure the inherent
risk in the current portfolio, and hence assess the adequacy of the allowance
for loan losses. However, any such assessment is speculative and future
adjustments may be necessary if economic conditions or the Company's actual
experience differ substantially from the assumptions upon which the evaluation
of the allowance was based. Moreover, future additions to the allowance may be
necessary based on changes in economic and real estate market conditions, new
information regarding existing loans, identification of additional problem loans
and other factors, both within and outside of management's control.
Loans are charged to the allowance for loan losses when deemed
uncollectible by management, unless sufficient collateral exists to repay the
loan.
Set forth in the following table is an analysis of the allowance for loan
losses.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Allowance for loan losses, beginning of year $ 2,494 $ 2,143 $ 1,952 $ 2,002 $ 1,752
Provision for loan loss 100 325 3,300 1,380 600
- --------------------------------------------------------------------------------------------------------------
Charge-offs:
Real estate 145 16 2,484 264 478
Commercial -- 52 395 898 31
Other 135 112 400 551 96
- --------------------------------------------------------------------------------------------------------------
Total charge-offs 280 180 3,279 1,713 605
Recoveries:
Real estate 20 96 9 24 161
Commercial 17 40 61 190 --
Other 79 70 100 69 94
- --------------------------------------------------------------------------------------------------------------
Total recoveries 116 206 170 283 255
- --------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) 164 (26) 3,109 1,430 350
- --------------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of year $ 2,430 $ 2,494 $ 2,143 $ 1,952 $ 2,002
==============================================================================================================
Allowance for loan losses as a
percent of total loans 1.44% 1.54% 1.34% 1.22% 1.25%
Allowance for loan losses as a
percent of non-performing loans 399.01% 266.74% 56.48% 53.23% 100.40%
Ratio of net charge-offs (recoveries)
to average loans outstanding 0.10% (0.02)% 1.97% 0.90% 0.22%
==============================================================================================================
The following table presents the allocation of the allowance for loan losses.
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
LOANS LOANS LOANS LOANS LOANS
TO TO TO TO TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
ALLOWANCE FOR LOAN
LOSSES ALLOCATED TO:
Residential mortgages $ 1,276 62.82% $ 1,187 67.25% $ 661 65.61% $ 389 63.72% $ 112 63.61%
Commercial mortgages 503 18.83 617 18.06 638 19.56 818 21.83 753 21.86
Commercial loans 296 3.71 279 4.07 183 4.47 478 4.98 961 5.61
Other loans 355 14.64 411 10.62 192 10.36 267 9.47 176 8.92
Unallocated -- -- -- -- 469 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total allowance $ 2,430 100.00% $ 2,494 100.00% $ 2,143 100.00% $ 1,952 100.00% $ 2,002 100.00%
==============================================================================================================================
9
SOURCES OF FUNDS
GENERAL. The Company's primary source of funds is deposits. In addition,
the Company derives funds for loans and investments from loan and security
repayments and prepayments, borrowings, and revenues from operations. Scheduled
payments on loans and securities are a relatively stable source of funds, while
savings inflows and outflows and loan and securities prepayments are
significantly influenced by general interest rates and money market conditions.
DEPOSITS. The Company offers several types of deposit programs to its
customers, including passbook and statement savings accounts, NOW accounts,
money market deposit accounts, checking accounts and certificates of deposit.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. The Company's deposits are obtained predominantly from its Cortland
County market area. The Company relies primarily on customer service and
long-standing relationships with customers to attract and retain these deposits;
however, market interest rates and rates offered by competing financial
institutions significantly affect the Company's ability to attract and retain
deposits. The Company does not use brokers to obtain deposits and has no
brokered deposits.
The Company prices its deposit offerings based upon market and
competitive conditions in its market area. Pricing determinations are made
weekly by a committee of senior officers. The Company seeks to price its deposit
offerings to be competitive with other institutions in its market area.
The following table sets forth the maturities of certificates of deposit
and other time deposits of $100,000 or more at December 31, 1999.
December 31, 1999
-------------------------------------------------------------------
(Dollars in thousands)
Maturing within three months $ 1,491
After three but within six months 2,293
After six but within twelve months 3,277
After twelve months 6,940
-------------------------------------------------------------------
Total $ 14,001
===================================================================
BORROWINGS. The Company maintains an available overnight line of credit
with the Federal Home Loan Bank of New York (FHLB) for use in the event of
unanticipated funding needs which cannot be satisfied from other sources.
Additionally, the Company may borrow term advances for the FHLB. The Company had
$19.2 million of borrowings from the FHLB at December 31, 1999, compared with
$1.0 million at the end of 1998. This $18.2 million increase is primarily
attributed to the mortgage-backed securities investment program previously
discussed as well as general cash flow requirements.
SUPERVISION AND REGULATION
Federal and state laws and the regulations of federal and state bank
regulatory agencies have substantial effects on the Company and the Bank. The
following is a brief summary of laws and regulations material to the Company and
the Bank. Any change in applicable laws or regulations may have a material
adverse effect on the business of the Company and the Bank.
BANK HOLDING COMPANY REGULATION. The Company is a bank holding company
subject to supervision by the Federal Reserve. The Federal Reserve has the
authority to examine the Company and may also examine the Bank.
A bank holding company, such as the Company or Niagara Bancorp, Inc.,
must obtain prior Federal Reserve approval to acquire direct or indirect
ownership or control of more than 5% of the voting stock of any other bank
holding company. Therefore, Niagara Bancorp must obtain Federal Reserve approval
before it acquires the Company. In addition, any company, person or group acting
in concert that is not already a bank holding company may be required to obtain
prior approval of the Federal Reserve before acquiring 10% or more of the stock
of the Company. New York State law similarly requires approval from the New York
State Banking Board. These approval requirements could discourage other
companies, persons or groups from attempting to acquire the Company in
competition to the currently pending transaction with Niagara Bancorp.
The Federal Reserve requires that bank holding companies maintain minimum
capital levels. The Company's capital ratios substantially exceed Federal
Reserve requirements. At December 31, 1999, the Company had a ratio of total
capital to risk-weighted assets of 42.81% compared to a Federal Reserve minimum
10
requirement of 8%, at least 4% of which must be core capital. The Company also
had a ratio of core capital to total average assets (the "leverage ratio") of
23.91%, compared to a minimum requirement of from 4% to 6%. Substantially all of
the Company's capital is core capital.
TRANSACTIONS WITH AFFILIATES. Federal and state laws and regulations
restrict transactions between a bank and its holding company or other
affiliates, such as loans, purchases of assets, and payments of fees or other
distributions. In general, these restrictions limit the amount of transactions
between an institution and the affiliate, as well as the aggregate amount of
transactions between an institution and all of its affiliates. Transactions with
affiliates must generally be on terms comparable to those for transactions with
unaffiliated entities.
DIVIDEND LIMITATIONS. Federal Reserve policy provides that a bank holding
company should not pay dividends unless (i) the bank holding company's net
income over the prior year is sufficient to fully fund the dividends and (ii)
the prospective rate of earnings retention appears consistent with the capital
needs, asset quality and overall financial condition of the bank holding company
and its subsidiaries. Under Delaware law, the Company may not pay dividends to
its stockholders if, after giving effect to the dividend, the Company would not
be able to pay its debts as they become due.
Under the New York Banking Law, the Bank may pay dividends out of its net
profits unless there is an impairment of capital. The Bank may not declare
dividends in any year which exceed its total net profits of that year combined
with its retained net profits of the preceding two years, subject to certain
adjustments, without the approval of the New York Superintendent of Banks.
Furthermore, the Bank may not declare a dividend which would cause it to fail to
meet its capital requirements and may not declare a dividend that would cause
its capital to decline below the liquidation account created when the Bank
converted from a mutual to a stock institution.
The Company and the Bank have satisfied these rules regarding dividend
payments.
The FDIC and the New York Superintendent of Banks may prohibit the Bank
from paying dividends if, in either of their opinions, the payment of dividends
would constitute an unsafe or unsound practice. Dividends are also prohibited if
the payment would cause the Bank to be undercapitalized.
BANK REGULATIONS. The Bank is subject to extensive regulation,
examination, and supervision by the New York State Banking Department and the
FDIC. The Bank's deposit accounts are insured up to applicable limits by the
Bank Insurance Fund of the FDIC. The Bank must get regulatory approvals before
entering into certain transactions, such as mergers with other banks. The
Banking Department and the FDIC conduct periodic examinations of the Bank to
determine the safety and soundness of the Bank and whether the Bank is complying
with regulatory requirements.
BUSINESS ACTIVITIES. The Bank derives its lending, investment and other
authority primarily from the New York Banking Law and the regulations of the
Superintendent of Banks and the New York State Banking Board, as limited by FDIC
regulations and other federal laws and regulations. The Bank may make
investments and engage in activities only as permitted under specific laws and
regulations which grant powers to the Bank. The Bank may invest in real estate
mortgages, consumer and commercial loans, certain types of debt securities,
including certain corporate debt securities and obligations of federal, state
and local government agencies, certain types of corporate equity securities and
certain other assets. The Bank may invest up to 7.5% of its assets in certain
corporate stock and may also invest up to 7.5% of its assets in certain mutual
fund securities. Investment in stock of a single corporation is limited to the
lesser of 2% of the outstanding stock of such corporation or 1% of the Bank's
assets, except as set forth below. In order to qualify for investment by the
Bank, the equity securities must meet certain tests of financial performance.
The Bank may also make investments not otherwise permitted under the Banking
Law. This authority permits investments in otherwise impermissible investments
of up to 1% of the Bank's assets in any single investment, subject to certain
restrictions, and to an aggregate limit for all such investments of up to 5% of
assets.
Under FDIC regulations, the Bank generally may not directly or indirectly
acquire or retain any equity investment that is not permissible for a national
bank. In addition, the Bank may not directly or indirectly through a subsidiary,
engage as "principal" in any activity that is not permissible for a national
bank unless the FDIC has determined that such activities would pose no risk to
the applicable FDIC insurance fund and the Bank is in compliance with applicable
regulatory capital requirements.
Savings bank life insurance activities are permitted if (i) the FDIC does
not decide that such activities pose a significant risk to the applicable
deposit insurance fund, (ii) the insurance underwriting is conducted through a
division of the Bank that meets the definition of a separate department under
FDIC regulations and (iii) the Bank discloses to purchasers of life insurance
policies and other products that they are not insured by the FDIC, among other
things.
11
Also excluded from the prohibition on making investments not permitted
for national banks are certain investments in common and preferred stock listed
on a national securities exchange and in shares of an investment company
registered under the Investment Company Act of 1940, as amended. The Bank's
total investment in such securities may not exceed 100% of the Tier 1 capital as
calculated under FDIC regulations. The Bank qualifies for this exclusion and has
used its authority to invest in corporate equity securities. The authority to
continue these investments may terminate if the FDIC determines that the
investments pose a safety and soundness risk to the Bank or if the Bank converts
its charter or undergoes a change in control.
LOANS TO ONE BORROWER. Generally, the Bank may not make non-mortgage
loans for commercial, corporate or business purposes (including lease financing)
to a single borrower, in an aggregate amount in excess of 15% of the Bank's
stockholders' equity, plus an additional 10% of the Bank's stockholders' equity
if such amount is secured by certain types of readily marketable collateral. The
Bank currently complies with these limits.
CAPITAL REQUIREMENTS. The FDIC regulates the capital adequacy of the
Bank. At December 31, 1999, the Bank's leverage capital ratio was 22.43%
compared to a minimum requirement of from 4% to 5%. At December 31, 1999, the
Bank's total risk-based capital ratio was 39.29%, compared to a minimum
requirement of 8%, at least 4% of which must be core capital. Substantially all
of the Bank's capital is core capital.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act, the Bank
must, consistent with its safe and sound operation, help meet the credit needs
of its entire community, including low and moderate income neighborhoods. There
are no specific lending requirements or programs nor does the law limit the
Bank's discretion to develop products and services that it believes are best
suited to its particular community. The FDIC periodically assesses the Bank's
record of meeting the credit needs of its community and must take such record
into account in its evaluation of certain applications made by the Bank. The
Bank received a satisfactory rating from the FDIC at its last examination under
the Community Reinvestment Act.
The New York Banking Law imposes similar community reinvestment
obligations on the Bank. The Bank received a satisfactory rating from the New
York Banking Department at its last state community reinvestment examination.
STANDARDS FOR SAFETY AND SOUNDNESS. The Federal Reserve and the FDIC,
together with the other federal bank regulatory agencies, have established
guidelines relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines also cover asset
quality and earnings evaluation and monitoring. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder. The FDIC has various enforcement powers if
the Bank violates these guidelines. If non-compliance continues, the FDIC may
proceed as in the case of an undercapitalized bank under the "prompt corrective
action" requirements described below. The FDIC may also seek judicial
enforcement and civil money penalties. The FDIC has not asserted any material
violations of these guidelines by the Bank.
PROMPT CORRECTIVE ACTION. Institutions that are not adequately capitalized may
be subject to a variety of supervisory actions including, but not limited to,
restrictions on growth, investment activities, capital distributions and
affiliate transactions. They must submit a capital restoration plan which, to be
accepted by the regulators, must be guaranteed in part by any company having
control of the institution (such as the Company). Federal banking agencies have
indicated that, in regulating bank holding companies, the agencies may take
appropriate action at the holding company level based on their assessment of the
effectiveness of supervisory actions imposed upon subsidiary insured depository
institutions pursuant to the prompt corrective action rules. The capital ratios
of the Company and the Bank are such that the prompt corrective action
requirements have not had any effect on either of them.
FORWARD-LOOKING STATEMENTS
In this Form 10-K, the Company, when discussing the future, may use words
like "will probably result", "are expected to", "may cause", "is anticipated",
"estimate", "project", or similar words. These words represent forward-looking
statements. In addition, any analysis of the adequacy of the allowance for loan
losses or the interest rate sensitivity of the Company's assets and liabilities,
represent attempts to predict future events and circumstances and also represent
forward-looking statements.
Many factors could cause future results to differ from what is
anticipated in the forward-looking statements. For example, future financial
results could be affected by (i) deterioration in local, regional, national or
global economic conditions which could cause an increase in loan delinquencies,
12
a decrease in property values, or a change in the housing turnover rate; (ii)
changes in market interest rates or changes in the speed at which market
interest rates change; (iii) changes in laws and regulations affecting the
financial service industry; (iv) changes in competition and (v) changes in
consumer preferences.
Please do not place unjustified or excessive reliance on any
forward-looking statements. They speak only as of the date made and are not
guarantees, promises or assurances of what will happen in the future. Remember
that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to be materially different from what has been
anticipated or projected.
PERSONNEL
At December 31, 1999, the Company employed 98 full-time equivalent
employees. The employees are not represented by a collective bargaining unit,
and the Company considers its relationship with its employees to be good.
COMPETITION
The Company's principal competitors for deposits are other savings banks,
savings and loan associations, commercial banks and credit unions in the
Company's market area, as well as money market mutual funds, insurance companies
and securities brokerage firms, many of which are substantially larger in size
than the Company. The Company's competition for loans comes principally from
savings banks, savings and loan associations, commercial banks, mortgage
bankers, finance companies and other institutional lenders. Some of the
institutions which compete with the Company have much greater financial and
marketing resources than the Company. The Company's principal methods of
competition include loan and deposit pricing, maintaining close ties with its
local community, advertising and marketing programs and the types of services
provided.
ITEM 2. PROPERTIES
The Company conducts its business through its headquarters in the City of
Cortland, a nearby drive-up facility, and two branches in adjacent communities
in Cortland County. The Company also has representative offices in Ithaca and
Liverpool for the origination of loans. The Company believes that these
properties are adequate for current needs. The following table sets forth
certain information regarding the Company's deposit-taking and loan production
offices at December 31, 1999.
DATE OWNED/ NET BOOK
LOCATION ACQUIRED LEASED VALUE
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands)
One North Main Street, Cortland, NY 13045
and nearby drive through facility at 29-31 North Main Street Various Owned $ 843
12 South Main Street, Homer, NY 13077 Various Owned $ 922
860 Route 13, Cortlandville, NY 13045 Various Owned $ 475
200 East Buffalo Street, Ithaca, NY 14850 1998 Leased None
290 Elwood Davis Rd, Liverpool, NY 13088 1999 Leased None
===============================================================================================================================
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are from time to time parties in various routine
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against the Company or the Bank
which, if determined adversely, would materially adversely affect the
consolidated financial position or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the Nasdaq National Market System
under the symbol "CNYF". At December 31, 1999, there were 4,601,373 shares of
CNY Financial Corporation common stock issued and outstanding, and there were
approximately 1,500 holders of record. The table below shows the high and low
bid price on the common stock and cash dividends per share declared during the
last two years. The share prices shown do not represent actual transactions and
do not include retail markups, markdowns or commissions.
Bid
------------------------------ Dividends
High Low Per Share
-------------------------------------------------
1998:
----
October 6 - December 31 (1) $ 10.19 $ 8.88 $ --
1999 quarter ended:
------------------
March 31 12.13 9.88 0.04
June 30 12.06 11.25 0.05
September 30 15.63 11.88 0.08
December 31 $ 17.94 $ 13.94 $ 0.10
-------------------------------------------------------------------------------------------
(1) The Company's common stock began trading on October 6, 1998.
The stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc.
The Company did not engage in the sale of any securities which were not
registered under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
DECEMBER 31,
--------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA: 1999 1998 1997 1996 1995
--------------------------------------------------------------------------
(In thousands, except share data)
Total assets $ 287,445 $ 281,186 $ 233,729 $ 238,100 $ 235,681
Loans receivable, net 166,657 159,207 155,422 158,611 158,507
Allowance for loan losses 2,430 2,494 2,143 1,952 2,002
Loans held-for-sale - - 2,541 -- --
Securities available-for-sale 97,560 88,437 44,140 45,594 41,777
Securities held-to-maturity 7,103 10,318 12,550 11,757 11,188
Cash & cash equivalents 6,272 14,536 8,079 12,536 14,176
Real estate owned 309 260 964 563 374
Deposits 195,470 196,014 199,770 204,640 203,110
Borrowings 19,200 1,000 -- -- --
Total stockholders' equity $ 67,700 $ 79,070 $ 30,740 $ 30,345 $ 29,030
Book value per share(1) $ 15.43 $ 15.06 N/A N/A N/A
Book value per share, excluding
unallocated ESOP shares(2) $ 16.99 $ 16.38 N/A N/A N/A
(CONTINUED ON NEXT PAGE)
14
(CONTINUED FROM PREVIOUS PAGE)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------- --------------
SELECTED OPERATIONS DATA: 1999 1998 1997 1996 1995
----------------------------------------------------------- --------------
(In thousands, except share data)
Interest income $ 19,770 $ 18,003 $ 17,667 $ 17,787 $ 17,811
Interest expense 7,607 7,986 8,328 8,758 8,613
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,163 10,017 9,339 9,029 9,198
Provision for loan losses 100 325 3,300 1,380 600
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,063 9,692 6,039 7,649 8,598
Other non-interest income 1,078 1,583 889 770 671
- ---------------------------------------------------------------------------------------------------------------------------------
10,985 11,275 6,928 8,419 9,269
Other non-interest expense 7,874 8,326 6,872 6,201 5,945
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,267 2,949 56 2,218 3,324
Income tax expense (benefit) 2,295 1,270 (16) 853 1,400
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,972 $ 1,679 $ 72 $ 1,365 $ 1,924
Basic earnings per share(3) $ 0.67 $ -- N/A N/A N/A
Diluted earnings per share(3) $ 0.66 $ -- N/A N/A N/A
=================================================================================================================================
Diluted earnings per share, excluding contribution
to Foundation(4) $ 0.66 $ 0.13 N/A N/A N/A
=================================================================================================================================
Weighted average diluted shares outstanding 4,496,584 4,928,044 N/A N/A N/A
=================================================================================================================================
SELECTED FINANCIAL RATIOS AND OTHER DATA: AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
PERFORMANCE RATIOS:
Return on average assets 1.04% 0.64% 0.03% 0.58% 0.82%
Return on average assets, excluding
contribution to Foundation(4) 1.04% 0.87% 0.03% 0.58% 0.82%
Return on average equity 3.96% 3.21% 0.23% 4.64% 6.85%
Return on average equity, excluding
contribution to Foundation(4) 3.96% 4.38% 0.23% 4.64% 6.85%
Net interest rate spread 3.36% 3.52% 3.58% 3.48% 3.70%
Net interest margin 4.46% 4.28% 4.17% 4.02% 4.18%
Efficiency ratio 59.57% 72.00% 67.49% 63.38% 60.34%
Efficiency ratio, excluding
contribution to Foundation(4) 59.57% 63.15% 67.49% 63.38% 60.34%
STOCKHOLDERS' EQUITY AND ASSET QUALITY RATIOS:
Average equity to average total assets 26.31% 19.86% 13.04% 12.40% 12.00%
Total equity to assets end of period 23.55% 28.12% 13.15% 12.74% 12.32%
Non-performing assets to total assets 0.32% 0.42% 2.04% 1.78% 1.00%
Non-performing loans to total loans 0.36% 0.58% 2.37% 2.28% 1.24%
Allowance for loan losses to total loans 1.44% 1.54% 1.34% 1.22% 1.25%
Allowance for loan losses to non-performing loans 399.01% 266.74% 56.48% 53.23% 100.40%
OTHER DATA:
Full service offices 3 3 3 3 3
Full-time equivalent employees 98 91 93 95 96
=============================================================================================================================
(1)Book value per share is equal to total stockholders' equity divided by the
common shares outstanding at December 31.
(2)Equal to stockholders' equity divided by common shares outstanding, less
unallocated ESOP shares.
(3)Earnings per share for 1998 calculated on earnings from date of conversion
(October 6, 1998) to December 31, 1998.
(4)Excludes contribution expense to the Cortland Savings Foundation of
$1,023,000, or $614,000 after taxes in 1998.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of CNY Financial Corporation, including the
accompanying notes, appearing elsewhere in this Form 10-K.
GENERAL
The Company's principal business is conducted by its wholly-owned
subsidiary, Cortland Savings Bank (the "Bank") and consists of full service
community banking. The Bank's results of operations depend principally on its
net interest income, which is the difference between the income earned on its
loans and securities and its cost of funds, principally interest paid on
deposits. Net interest income is dependent on the amounts and yields of interest
earning assets as compared to the amounts of and rates on interest bearing
liabilities. Net interest income is sensitive to changes in market rates of
interest and the Company's asset/liability management procedures in coping with
such changes. Results of operations are also affected by the provision for loan
losses, the volume of non-performing assets and the levels of non-interest
income, and non-interest expense.
Sources of non-interest income include categories such as deposit account
fees and other service charges, gains on the sale of securities and fees for
banking services such as safe deposit boxes. The largest category of
non-interest expense is compensation and benefits expense. Other principal
categories of non-interest expense are occupancy expense and real estate owned
expense, which represents expenses in connection with real estate acquired in
foreclosure or in satisfaction of a debt owed to the Company.
The Company commenced operations on October 6, 1998, when the Bank
converted from a state chartered mutual savings bank to a state chartered stock
savings bank (the "Conversion"). On that date, the Company sold 5,251,629 shares
of common stock in its initial public offering and received $50.3 million of net
proceeds from the sale, which have been invested primarily into mortgage-backed
securities and investment grade corporate bonds. The shares sold included
428,532 shares purchased by the Company's Employee Stock Ownership Plan (ESOP),
which purchase was funded by a loan from the Company. The Company contributed an
additional 105,033 shares to the Cortland Savings Foundation as part of the
Conversion and an expense of $1.0 million, or approximately $614,000 after
taxes, was recorded in October 1998 due to this donation. References to the
business activities, financial condition and operations of the Company prior to
October 6, 1998 refer to the Bank, while references to the Company on or after
that date refer to both the Company and the Bank as consolidated, unless the
context indicates otherwise.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND DECEMBER 31, 1998
Total assets at December 31, 1999 were $287.4 million, compared to $281.2
million at December 31, 1998. The primary cause of the $6.3 million increase was
increased investing and lending activity by the Company.
The Company repositioned a portion of its invested funds in 1999 to take
advantage of higher rates available by extending the average maturity of
investments. The Company also expanded its investment program to enhance net
interest income. The Company concentrated its new securities investments in
mortgage-backed securities which tend to have higher yields than government and
corporate debt securities. The mortgage-backed securities had contractual terms
to maturity of 15 to 30 years, and were funded by a reduction in cash and
short-term investments of $8.3 million and an increase in borrowings.
Net loans were $166.7 million at December 31, 1999, an increase of $7.5
million from the end of 1998. This growth occurred as the Company maintained its
emphasis in residential lending and increased its level of loan originations.
Loan closings, including undisbursed funds and refinancings, totaled $41.3
million in 1999, an increase of 4.8% from the 1998 total of $39.4 million.
Total deposits were $195.5 million at the end of 1999, compared to $196.0
million at December 31, 1998. This $544,000 reduction is attributed to a $3.9
million reduction in certificates of deposit and a $711,000 decline in savings
accounts, partially offset by a $1.3 million increase in demand accounts and a
$2.8 million increase in money market accounts. During 1999, management chose to
reduce the Company's reliance on higher cost certificates of deposit and
actively promote the Company's checking account and money market products.
16
Borrowings were $19.2 million and $1.0 million at December 31, 1999 and
1998, respectively. This $18.2 million increase was required to fund the growth
in assets, and the stock repurchases discussed in the following paragraph.
Stockholders' equity was $67.7 million on December 31, 1999 compared to
$79.1 million at the end of 1998. The primary contributor to this $11.4 million
decline was completion of the Company's share repurchase programs. 649,664
shares of the Company's common stock were purchased during 1999 at an aggregate
price of $9.4 million. Additionally, the Company repurchased 214,266 shares in
May 1999 at a price of $12.00 per share to be used for grants under the
Company's Personnel Recognition and Retention Plan. As of December 31, 1999, a
total of 181,278 shares have been granted to participants in this plan.
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
The following table sets forth the average daily balances, net interest
income and expense and average yields and rates for the Company's earning assets
and interest bearing liabilities for the indicated periods. No tax-equivalent
adjustments were made.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
INTEREST BALANCE COST INTEREST BALANCE COST INTEREST BALANCE COST
---------------------------------------------------------------------------------------------
(Dollars in thousands)
Loans(1) $ 13,183 $161,371 8.17% $13,420 $156,649 8.57% $13,582 $157,713 8.61%
Securities(2) 6,429 107,571 5.98% 4,016 66,228 6.06% 3,769 60,226 6.26%
Other short-term investments 158 3,615 4.37% 567 11,387 4.98% 316 6,019 5.25%
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 19,770 272,557 7.25% 18,003 234,264 7.68% 17,667 223,958 7.89%
Non-interest-earning assets 12,697 29,141 12,254
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $285,254 $263,405 $236,212
===============================================================================================================================
Savings accounts(3) 1,517 $ 63,853 2.38% 1,851 $ 66,709 2.77% 1,936 $ 64,576 3.00%
Money market accounts 256 9,211 2.78% 220 8,176 2.69% 243 8,643 2.81%
NOW accounts 133 10,747 1.24% 167 10,015 1.67% 166 9,457 1.76%
Certificates of deposit 5,140 102,470 5.02% 5,723 106,860 5.36% 5,983 110,728 5.40%
Borrowings 561 9,237 6.07% 25 430 5.81% -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,607 195,518 3.89% 7,986 192,190 4.16% 8,328 193,404 4.31%
Non-interest-bearing liabilities 14,684 18,900 12,002
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 210,202 211,090 205,406
Stockholders' equity 75,052 52,315 30,806
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $285,254 $263,405 $236,212
===============================================================================================================================
Net interest income/spread $ 12,163 3.36% $10,017 3.53% $ 9,339 3.58%
Net earning assets/net
interest margin $ 77,039 4.46% $ 42,074 4.28% $ 30,554 4.17%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.39x 1.22x 1.16x
- ---------------------------------
(1) Average balances include loans held-for-sale and nonaccrual loans, net of
the allowance for loan losses. Interest is recognized on nonaccrual loans
only as and when received.
(2) Securities are included at amortized cost, with net unrealized gains or
losses on securities available-for-sale included as a component of
non-earning assets. Securities include Federal Home Loan Bank stock.
(3) Includes advance payments for taxes and insurance (mortgage escrow
deposits).
17
CHANGES IN INTEREST INCOME AND EXPENSE
One method of analyzing net interest income is to consider how changes in
average balances and average rates from one period to the next affect net
interest income. The following table shows the dollar amount of changes in
interest income and expense by major categories of interest earning assets and
interest bearing liabilities attributable to changes in volume or rate or both,
for the periods indicated.
Volume variances are computed using the change in volume multiplied by
the previous year's rate. Rate variances are computed using the changes in rate
multiplied by the previous year's volume. The change in interest due to both
rate and volume has been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
---------------------------------------------------------------------
INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL VOLUME RATE TOTAL
---------------------------------------------------------------------
(In thousands)
INTEREST-EARNING ASSETS:
Loans $ 398 $ (635) $ (237) $ (91) $ (71) $ (162)
Securities 2,472 (59) 2,413 367 (120) 247
Other short-term investments (347) (62) (409) 268 (17) 251
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 2,523 $ (756) $ 1,767 $ 544 $ (208) $ 336
====================================================================================================================
INTEREST-BEARING LIABILITIES:
Savings accounts $ (76) $ (258) $ (334) $ 62 $ (147) (85)
Money market accounts 29 7 36 (13) (10) (23)
NOW accounts 11 (45) (34) 9 (8) 1
Certificates of deposit (229) (354) (583) (207) (53) (260)
Borrowings 535 1 536 25 -- 25
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 270 $ (649) $ (379) $ (124) $ (218) $ (342)
====================================================================================================================
Net change in net interest income $ 2,253 $ (107) $ 2,146 $ 668 $ 10 $ 678
====================================================================================================================
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998
GENERAL. Net income for 1999 was $3.0 million compared to net income of
$1.7 million in 1998. The primary reason for the improvement was an increase in
net interest income of $2.1 million and a $452,000 decrease in other operating
expenses. These improvements were partially offset by a $505,000 reduction in
non-interest income and a $1.0 million increase in income tax expense
NET INTEREST INCOME. Net interest income increased by $2.1 million or
24.5% from 1998 to 1999. This improvement occurred primarily due to a $38.3
million increase in average total earning assets as a result of the Company's
stock offering on October 6, 1998, offset partially by a reduction in the
average rate earned on assets of 43 basis points. The reduction in rate is
attributable to an increase in securities as a percentage of total earning
assets and a reduction in the rate earned on loans due to competitive pressures
and market interest rates in general. Securities increased as the Company
invested the proceeds of its stock offering in such investments pending
redeployment in loans as appropriate opportunities arise and due to the
investment program previously discussed. Loans generally have higher yields than
the Company's other investments.
The Company also experienced a decline in the cost of interest-bearing
liabilities to 3.89% in 1999 compared to 4.16% in 1998. The decline in market
interest rates at the end of 1998 allowed the Company to reduce its savings and
NOW account pricing while remaining competitive in its market. Furthermore, the
infusion of capital from the Company's conversion allowed the Company to be more
conservative in pricing its certificates of deposit. The investment of the
additional capital resulted in an increase in average net earning assets of
$35.0 million in 1999, which resulted in an improvement in the Company's net
interest margin to 4.46% in 1999, compared to 4.28% in 1998.
18
PROVISION FOR LOAN LOSSES. The provision for loan losses results from
management's analysis of the adequacy of the Company's allowance for loan
losses. If management determines that an increase in the allowance is warranted,
then the increase is accomplished through a provision for loan losses, which is
charged as an expense on the Company's consolidated income statement. The
provision for loan losses was $100,000 for the year ended December 31, 1999
compared to $325,000 in 1998. A lower provision was appropriate in 1999 due to
the Company's improved asset quality.
NON-INTEREST INCOME. The Company's primary source of recurring
non-interest income is service charges, principally on deposit accounts. Service
charges increased by $117,000 in 1999 versus 1998, which increase related
primarily to the implementation of ATM surcharges and increased debit card usage
by the Company's customers.
The Company began surcharging non-Bank customers for using its ATMs in
April 1999. A total of $61,000 of income was recognized for this service during
the year. Additionally, through a customer awareness campaign, debit card usage
increased, resulting in a $44,000 improvement in income from this product.
During 1998, the Company also received $658,000 in settlement of its
insurance claim related to an officer defalcation which was discovered in 1996.
The settlement brought this matter to a close.
NON-INTEREST EXPENSE. Non-interest expense decreased $452,000 from 1998
to 1999. The primary reasons for the decrease were a $415,000 decrease in
salaries and employee benefits and the $1.0 million contribution to the Cortland
Savings Foundation in 1998. Partially reducing the impact of these items was
$315,000 of expenses incurred related to the announced merger with Niagara
Bancorp, Inc. These merger expenses are not tax deductible, and thus net income
was reduced by that amount.
The decrease in salaries and employee benefits included a $516,000
reduction of expense related to the termination of the Company's defined benefit
pension plan, versus an expense of $377,000 in 1998. This reduction was
partially offset by increased expense of the Company's ESOP and stock grant
plan, increased medical claims of $85,000 and normal merit increases.
The fluctuation in the impact of the defined benefit plan termination
between 1998 and 1999 was caused by the settlement gain on the termination of
the plan in 1999 of $394,000 combined with a $122,000 reduction in the actual
contribution to the Company's 401(k) plan in 1999 from the estimate recorded in
1998.
Expense related to the allocation of ESOP shares was $279,000 for the
year ended December 31, 1999, compared with $51,000 in 1998. The primary cause
of this $228,000 increase was a full year of allocation in 1999 versus one
quarter in 1998. The higher average per share price of the Company's common
stock in 1999 versus 1998 also contributed to this increase.
Shareholders of the Company approved the Personnel Recognition and
Retention Plan ("PRRP") of the Company in April 1999 and stock grants were made
to officers and directors of the Company under this plan. Expense of $288,000
was recorded in 1999 for this plan, and there was no such expense in 1998.
During the fourth quarter of 1998, the Company donated 105,033 share of
its common stock to the Cortland Savings Foundation, a charitable foundation
created in connection with the Conversion. The donation resulted in a pre-tax
$1.0 million financial statement expense during 1998.
Professional fees increased by $213,000 from 1998 to 1999, due to a
variety of matters, including the establishment of a real estate investment
trust in 1999.
The Company recorded net expense of $83,000 from its real estate owned in
1999 compared with net revenue of $72,000 in 1998. This $155,000 increase in
expense occurred because the Company recorded a gain of $209,000 on the sale of
one property in 1998 which gain exceeded the aggregate other expenses incurred
on real estate owned during that year.
Other non-interest expense increased $412,000 from 1998 to 1999,
reflecting increased costs associated with being a publicly-traded company for a
full year in 1999 versus less than one quarter in 1998. Adding to the increase
in other expense was a $51,000 increase in the costs of upgrading personal
computers in 1999, and a $55,000 increase in the costs associated with ATM and
debit cards due to higher volume levels as previously discussed. Furthermore,
the Company experienced a $74,000 increase in foreclosure expenses as the number
of actions increased compared with 1998. This increased activity did not,
19
however, result in an increase in the level of other real estate owned because
the Company aggressively worked to manage its level of nonperforming assets.
INCOME TAXES. Income tax expense increased $1.0 million from 1998 to
1999, primarily reflecting the improved earnings of the Company.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997
GENERAL. Net income for 1998 was $1.7 million compared to net income of
$72,000 in 1997. The primary reason for the improvement was the reduction in the
costs incurred to resolve the Company's problem assets, including a $3.0 million
reduction in the provision for loan losses and a $572,000 reduction in the
expense of real estate owned. Also affecting the improvement in net income was
an improvement in net interest income of $678,000, a $694,000 increase in other
operating income and a $1.5 million increase in other operating expenses.
During the fourth quarter of 1997, the Company decided that its
non-performing loans were creating too great a strain on management resources
and the work necessary to collect those assets was diverting management from its
core goal of running the Company in a profitable manner. Therefore, in order to
improve overall asset quality and free management from less productive tasks
associated with the resolution of problem loans, the Company decided to seek to
sell a substantial portion of its non-performing loans to a single unrelated
purchaser which was completed in the first quarter of 1998. The decision to sell
the loans resulted in a $1.7 million charge against the allowance for loan
losses.
NET INTEREST INCOME. Net interest income increased by $678,000 or 7.3%
form 1997 to 1998. This improvement occurred primarily due to a $10.3 million
increase in average total earning assets as a result of the Company's stock
offering on October 6, 1998, offset partially by a reduction in the average rate
earned on assets of 21 basis points. The reduction in rate is attributable to an
increase in securities and other short-term investments and the overall decline
in market interest rates.
The Company also experienced a decline in the cost of interest-bearing
liabilities to 4.16% in 1998 compared to 4.31% in 1997. The decline in market
interest rates allowed the Company to reduce its deposit pricing while remaining
competitive in its market. The infusion of capital from the Company's
conversion, and related increase in average net earning assets of $11.5 million
in 1998, resulted in an improvement in the Company's net interest margin to
4.28% for 1998, compared to 4.17% in 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $325,000 for
the year ended December 31, 1998 compared to $3.3 million in 1997. A lower
provision was appropriate in 1998 due to the significant improvement in the
Company's asset quality. Despite the decrease in the provision, the allowance
for loan losses increased from $2.1 million at year-end 1997 to $2.5 million at
year-end 1998, when it represented 1.54% of total loans.
NON-INTEREST INCOME. The Company's primary source of recurring
non-interest income is service charges, principally on deposit accounts. Service
charges increased by $87,000 in 1998 versus 1997, which increase related
primarily to fee changes on products and an increase in loan-related fees.
During 1998, the Company also received $658,000 from the insurance claim
settlement previously discussed.
NON-INTEREST EXPENSES. Non-interest expense increased $1.4 million from
1997 to 1998. The primary reasons for the increase were a $918,000 increase in
salaries and employee benefits and a $1.0 million contribution to the Cortland
Savings Foundation. The increase in salaries and employee benefits included a
$377,000 expense related to the termination of the Company's defined benefit
pension plan, $113,000 of severance expense for employee terminations, increased
medical claims of $82,000, $51,000 of expense related to the Company's ESOP,
representing ESOP expense for approximately one quarter of the year, and normal
merit increases.
The $377,000 expense related to the termination of the Company's defined
benefit plan represents the estimated plan curtailment expense of $35,000
combined with an estimated expense of $437,000 for the Company's commitment to
contribute 25% of the excess of plan assets over the cost of annuities to be
purchased at the time of settlement of the plan (expected to be in 1999) to the
Company's 401(k) plan. These amounts are partially offset by the $95,000 benefit
of the pension plan prior to termination.
20
Professional fees increased by $257,000 from 1997 to 1998, reflecting
$210,000 of expenses related to the Company's unsuccessful attempt to acquire
another financial institution during the fourth quarter of 1998.
Directors' fees increased $189,000, primarily the effect of a $150,000
retirement benefit for three retired directors in 1998.
The Company recorded net revenues of $72,000 from its real estate owned
in 1998 compared with a net expense of $500,000 in 1997. This improvement
occurred as the level of real estate owned declined significantly during 1998 as
the Company continued its efforts to resolve and reduce non-performing assets.
The Company recorded a gain of $209,000 on the sale of one property, which gain
exceeded the aggregate other expenses incurred on real estate owned.
INCOME TAXES. Income tax expense increased $1.3 million from 1997 to
1998, reflecting the improved earnings of the Company, as well as a $80,000
excise tax recorded for the termination of the defined benefit plan.
LIQUIDITY AND CAPITAL
The Company's primary sources of funds are deposits, borrowings, and
payments received on loans and securities. While scheduled payments on loans and
securities, either installment payments or payments at maturity, are relatively
predictable sources of funds, deposit outflows and loan prepayments can
fluctuate and are influenced by market interest rates, economic conditions and
competition.
The Company's primary investing activities are the origination of loans
and the purchase of securities. The Company's loans, net, after payments and
charge-offs, increased by $7.5 million during 1999 and $4.1 million during 1998,
and decreased by $3.1 million during 1997. Securities, excluding the effect of
unrealized gains and losses, increased by $8.7 million in 1999 and $41.0 million
during 1998 and decreased by $1.2 million during 1997.
In general, the Company invests available funds in securities, federal
funds sold and short-term investments pending the investment of those funds in
loans. Generally, the regular flow of deposits and loan repayments, along with
payments on and maturities of securities, provides sufficient funds to fund new
loan originations. The Company can also regulate the level of deposits, and
hence the flow of funds, by adjusting the rates it offers on deposits,
especially certificates of deposit. Federal funds sold and other short-term
investments are transitory and also provide available funds when needed for
other purposes. Furthermore, as part of its management of the loan origination
process, the Company tracks the progress of loan applications and commitments so
that the volume and timing of new securities purchases can be adjusted as funds
are needed for other purposes. Finally, the Bank has available lines of credit
and borrowing capabilities to provide additional funds if the need arises. At
December 31, 1999, the Company had available lines of credit and borrowing
capabilities with the Federal Home Loan Bank of New York of $27.3 million.
At December 31, 1999, the Company and the Bank substantially exceeded all
regulatory capital requirements of the Federal Reserve Board of Governors and
the FDIC applicable to them. Compliance with minimum capital requirements does
not currently have a material affect on the Bank or the Company. The Bank was
classified as "well capitalized" at December 31, 1999 under FDIC regulations.
IMPACT OF INFLATION AND CHANGING PRICES
The Company prepares its financial statements and other financial
disclosures according to Generally Accepted Accounting Principles, which in most
cases require the measurement of financial condition and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. Inflation can
increase operating costs and affect the value of collateral for loans in
general, and real estate collateral in particular. Unlike industrial companies,
nearly all of the Company's assets and liabilities are monetary in nature. As a
result, interest rates have a greater impact on net income than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods and services.
However, interest rates generally increase during periods when the rate of
inflation is increasing and decrease during periods of decreasing inflation.
Periods of high inflation are ordinarily accompanied by high interest rates,
which could have a negative effect on net income.
21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
As a continuing part of its financial strategy, the Company attempts to
manage the impact of fluctuations in market interest rates on its net interest
income. This effort entails providing a reasonable balance between interest rate
risk, credit risk, liquidity risk and maintenance of yield. Asset/liability
management policies are established and monitored by management in conjunction
with the Board of Directors of the Bank, subject to general oversight by CNY
Financial Corporation's Board of Directors. The policies establish guidelines
for acceptable limits on the sensitivity of the market value of assets and
liabilities to changes in interest rates.
The Company's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.
The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as calculated as of
December 31, 1999.
AMOUNTS ESTIMATED TO MATURE OR REPRICE WITHIN
---------------------------------------------------------------------------------------------
LESS THAN
THREE 3 - 6 6 MONTHS 1 - 2 3 - 5 OVER 5
MONTHS MONTHS TO 1 YEAR YEARS YEARS YEARS TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Short-term investments $ 221 $ -- $ -- $ -- $ -- $ -- $ 221
Securities, including FHLB stock 3,082 7,864 8,593 18,290 39,123 29,348 106,300
Loans 13,672 8,636 13,207 18,762 45,237 67,143 166,657
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 16,975 16,500 21,800 37,052 84,360 96,491 273,178
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts, including escrow 1,493 2,986 4,479 8,958 26,873 17,915 62,704
Money market accounts 360 719 1,079 2,158 6,473 -- 10,789
NOW accounts 370 740 1,110 2,220 6,661 -- 11,101
Certificates of deposit 9,114 18,983 29,408 24,400 18,533 -- 100,438
Borrowings 1,200 2,000 8,000 1,000 7,000 -- 19,200
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 12,537 25,428 44,076 38,736 65,540 17,915 204,232
Interest sensitivity gap $ 4,438 $ (8,928) $(22,276) $ (1,684) $18,820 78,576 $ 68,946
===============================================================================================================================
Cumulative interest sensitivity
gap $ 4,438 $ (4,490) $(26,766) $ (28,450) $(9,630) $ 68,946
===============================================================================================================================
Ratio of cumulative gap to total
interest-earning assets 1.62% (1.64%) (9.80%) (10.41%) (3.53%) 25.24%
===============================================================================================================================
Ratio of interest-earnings assets
to interest-bearing
liabilities 135.40% 64.89% 49.46% 95.65% 128.72% 538.60% 133.76%
===============================================================================================================================
While the gap position illustrated above is a useful tool that management
can assess for general positioning of the Company's balance sheet, management
uses an additional measurement tool to evaluate its asset/liability sensitivity
which determines exposure to changes in interest rates by estimating the
percentage change in net interest income due to changes in rates over a one-year
time horizon. Management measures the estimated percentage change assuming an
instantaneous permanent parallel shift in the yield curve of 100 and 200 basis
points, both upward and downward. The model uses an option-based pricing
approach to estimate the sensitivity of mortgage loans. The most significant
embedded option in these types of assets is the borrower's optional right to
prepay the loan. The model uses various prepayment assumptions depending upon
the type of mortgage instrument (residential mortgages, commercial mortgages,
mortgage-backed securities, etc.). Prepayment rates for mortgage instruments
ranged from 1% to 39% CPR (Constant Repayment Rate) as of December 31, 1999. For
administered rate core deposits (e.g. NOW and savings accounts), the model
utilizes interest rate floors equal to 100 basis points below their current
levels.
22
Utilizing this measurement concept, the estimated interest rate risk of
the Company, expressed as a percentage change in net interest income over a
one-year time horizon due to changes in interest rates, at December 31, 1999,
was as follows:
BASIS POINT CHANGE
------------------------------------------------
+200 +100 -100 -200
------------------------------------------------
Estimated percentage change in net interest income due to an immediate
change in interest rates over a one-year time horizon............. (3.55%) (1.09%) 3.87% 3.95%
------------------------------------------------
Actual results may differ from these estimates due to the inherent
uncertainty of the assumptions, including the timing, magnitude and frequency of
rate changes, customer buying patterns, economic conditions, and management
strategies.
The Company does not currently engage in trading activities or use
instruments such as swaps, collars or floors to control interest rate risk. Even
though such activities may be permitted with the approval of the Board of
Directors, the Company does not intend to engage in such activities in the
immediate future.
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit activities. Other types of market risk, such
as foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of the Company's business activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors and Stockholders
CNY Financial Corporation
We have audited the accompanying consolidated balance sheets of CNY
Financial Corporation and subsidiary as of December 31, 1999 and 1998
and the related consolidated statements of income, stockholders' equity
and comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 1999. 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 consolidated 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 CNY
Financial Corporation and subsidiary at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
------------------
Syracuse, New York
January 14, 2000
23
CNY Financial Corporation and Subsidiary
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share data)
1999 1998
- ------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 6,051 $ 4,432
Interest-bearing balances at financial institutions 221 6,104
Federal funds sold -- 4,000
Securities available-for-sale, at fair value 97,560 88,437
Securities held-to-maturity (fair value of $7,026 in 1999 and
$10,404 in 1998) 7,103 10,318
Loans, net of deferred fees 169,087 161,701
Less allowance for loan losses 2,430 2,494
- ------------------------------------------------------------------------------------------------
Net loans 166,657 159,207
Premises and equipment, net 3,084 3,243
Federal Home Loan Bank stock, at cost 1,637 1,303
Other assets 5,132 4,142
- ------------------------------------------------------------------------------------------------
$ 287,445 $ 281,186
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing demand accounts $ 12,033 $ 10,780
Savings accounts 61,109 61,820
Certificates of deposit 100,438 104,317
Money market accounts 10,789 7,975
NOW accounts 11,101 11,122
- ------------------------------------------------------------------------------------------------
Total deposits 195,470 196,014
Advance payments by borrowers for property taxes and insurance 1,595 1,450
Borrowings 19,200 1,000
Other liabilities 3,480 3,652
- ------------------------------------------------------------------------------------------------
Total liabilities 219,745 202,116
- ------------------------------------------------------------------------------------------------
Commitments and contingencies (note 13)
Stockholders' equity
Common Stock, $0.01 par value, 20,000,000 shares authorized,
5,356,662 shares issued 54 54
Additional paid-in capital 51,353 51,289
Retained earnings, substantially restricted 33,554 31,848
Accumulated other comprehensive income (loss) (503) 1,178
Treasury stock, at cost 788,277 shares in 1999 and 105,625
in 1998 (10,908) (1,067)
Unallocated shares of Employer Stock Ownership Plan (ESOP),
401,749 shares in 1999 and 423,175 in 1998 (4,017) (4,232)
Unearned common stock for PRRP (1,833) --
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 67,700 79,070
- ------------------------------------------------------------------------------------------------
$ 287,445 $ 281,186
================================================================================================
See accompanying notes to consolidated financial statements
24
CNY Financial Corporation and Subsidiary
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except share data)
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
Interest income
Loans $ 13,183 $ 13,420 $ 13,582
Securities 6,429 4,016 3,769
Other short-term investments 158 567 316
- --------------------------------------------------------------------------------------------------------
Total interest income 19,770 18,003 17,667
Interest expense
Deposits 7,046 7,961 8,328
Borrowings 561 25 --
- --------------------------------------------------------------------------------------------------------
Total interest expense 7,607 7,986 8,328
- --------------------------------------------------------------------------------------------------------
Net interest income 12,163 10,017 9,339
Provision for loan losses 100 325 3,300
- --------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,063 9,692 6,039
Non-interest income
Service charges 840 723 636
Net gain on sale of securities 23 6 46
Gain on loan sales -- 30 --
Insurance proceeds -- 658 --
Other 215 166 207
- --------------------------------------------------------------------------------------------------------
Total non-interest income 1,078 1,583 889
Non-interest expense
Salaries and employee benefits 3,431 3,846 2,928
Building, occupancy and equipment 822 905 981
Postage and supplies 337 349 323
Professional fees 738 525 361
Directors fees 297 311 122
Real estate owned 83 (72) 500
Contribution to charitable foundation -- 1,023 --
Merger related expenses 315 -- --
Other 1,851 1,439 1,657
- --------------------------------------------------------------------------------------------------------
Total non-interest expenses 7,874 8,326 6,872
- --------------------------------------------------------------------------------------------------------
Income before income tax expense (benefit) 5,267 2,949 56
Income tax expense (benefit) 2,295 1,270 (16)
Net income $ 2,972 $ 1,679 $ 72
========================================================================================================
Earnings per share (for 1998 calculated using post
conversion net income) (see note 2)
Basic $ 0.67 $ -- N/A
Diluted $ 0.66 $ -- N/A
Weighted average diluted shares outstanding 4,496,584 4,928,044 N/A
========================================================================================================
See accompanying notes to consolidated financial statements
25
CNY Financial Corporation and Subsidiary
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except share data)
Accumulated Unearned
Additional Other Unallocated Common
Common Paid-in Retained Comprehensive Treasury ESOP Stock
Stock Capital Earnings Income Stock Shares For PRRP Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ -- $ -- $ 30,097 $ 248 $ -- $ -- $ -- $ 30,345
Comprehensive income:
Other comprehensive income -- -- -- 323 -- -- -- 323
Net income -- -- 72 -- -- -- -- 72
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- 72 323 -- -- -- 395
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- -- 30,169 571 -- -- -- 30,740
Net proceeds from issuance of 5,251,629
shares of common stock 53 50,294 -- -- -- -- -- 50,347
Common stock acquired by ESOP
(428,532 shares) -- -- -- -- -- (4,285) -- (4,285)
Charitable contribution of common stock
to Cortland Savings Foundation
(105,033 shares) 1 997 -- -- -- -- -- 998
Treasury stock purchased (105,625 shares) -- -- -- -- (1,067) -- -- (1,067)
ESOP shares released for allocation
(5,357 shares) -- (2) -- -- -- 53 -- 51
Comprehensive income:
Other comprehensive income -- -- -- 607 -- -- -- 607
Net income -- -- 1,679 -- -- -- -- 1,679
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- 1,679 607 -- -- -- 2,286
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 54 51,289 31,848 1,178 (1,067) (4,232) -- 79,070
- ---------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (863,930 shares) -- -- -- -- (12,016) -- -- (12,016)
ESOP shares released for allocation
(21,426 shares) -- 64 -- -- -- 215 -- 279
Stock awarded under Personal Recognition and
Retention Plan (PRRP) (181,278 shares) -- -- (54) -- 2,175 -- (2,121) --
Expense of PRRP -- -- -- -- -- -- 288 288
Dividend payments ($0.27 per share) -- -- (1,212) -- -- -- -- (1,212)
Comprehensive income:
Other comprehensive loss -- -- -- (1,681) -- -- -- (1,681)
Net income -- -- 2,972 -- -- -- -- 2,972
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- 2,972 (1,681) -- -- -- 1,291
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 54 $ 51,353 $ 33,554 $ (503) $(10,908) (4,017) $ (1,833) $67,700
=================================================================================================================================
See accompanying notes to consolidated financial statements.
26
CNY Financial Corporation and Subsidiary
Consolidated Cash Flow Statements
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
Cash flow from operating activity:
Net income $ 2,972 $ 1,679 $ 72
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 474 487 579
(Increase) decrease in accrued interest receivable 40 (306) 233
Provision for loan losses 100 325 3,300
Write-down of real estate owned 10 50 365
Net gains on sales of securities (23) (6) (46)
Nationar recovery -- -- (45)
Net gain on sale of real estate owned (7) (192) (11)
Net amortization of premiums and discounts (98) 55 104
Net gain on sale of loans held-for-sale -- (30) --
Proceeds from sale of loans held-for-sale -- 3,131 --
Increase in other liabilities 853 807 148
Deferred tax expense (benefit) 86 277 (869)
Decrease (increase) in other assets 51 1,032 (709)
Donation to charitable foundation -- 997 --
PRRP expense 288 -- --
ESOP shares released for allocation 279 51 --
Gain on curtailment of postretirement benefit plan (70) -- --
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,955 8,357 3,121
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans (7,816) (4,744) (3,746)
Proceeds from recovery of Nationar -- -- 45
Proceeds from sales of securities available-for-sale 6,108 2,006 3,121
Proceeds from maturities and principle reductions of
securities available-for-sale 53,297 18,337 18,040
Purchases of securities available-for-sale (71,686) (63,237) (19,237)
Purchase of securities held-to-maturity -- (2,484) (3,847)
Proceeds from maturities and principle reductions
of securities held-to-maturity 3,196 4,780 3,054
Proceeds from sale of real estate owned 214 920 340
Additions to premises and equipment (315) (283) (371)
Purchase of FHLB stock (334) (12) (63)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (17,336) (44,717) (2,664)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposits (544) (3,756) (4,870)
Net increase in Federal Home Loan Bank advances 18,200 1,000 --
Increase (decrease) in advance payments by borrowers for
property taxes and insurance 145 121 (44)
Net proceeds from issuance of common stock -- 50,347 --
Purchase of shares of common stock by ESOP -- (4,285) --
Par value of donation of stock to charitable foundation -- 1 --
Treasury stock purchases (12,472) (611) --
Dividends paid (1,212) -- --
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (4,117) 42,817 (4,914)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (8,264) 6,457 (4,457)
Cash and cash equivalents at beginning of year 14,536 8,079 12,536
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,272 $ 14,536 $ 8,079
=============================================================================================================
27
CNY Financial Corporation and Subsidiary
Consolidated Cash Flow Statements (Continued)
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing activities:
Purchases of securities available-for-sale not settled $ -- $ 499 $ --
Treasury stock purchases not settled -- 456 --
Transfer of loans held-to-maturity to loans held-for-sale -- 661 2,541
Transfer of loans held-for-sale to loans held-for-maturity -- 101 --
Additions to real estate owned 266 74 1,095
Cash paid during the year for:
Interest 7,568 7,991 8,321
Income taxes $ 1,854 $ 105 $ 1,125
=============================================================================================================
See accompanying notes to consolidated financial statements.
28
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(1) BUSINESS
CNY Financial Corporation (the "Company") is a registered bank holding
company, organized under the laws of Delaware and is the parent company
of Cortland Savings Bank and subsidiary (the "Bank"). The Company
commenced operations on October 6, 1998, when the Bank converted from a
state chartered mutual savings bank to a state chartered stock savings
bank (the "Conversion"). On that date, the Company sold 5,251,629 shares
of common stock in its initial public offering and received $50.3 million
of net proceeds from the sale. The shares sold included 428,532 shares
purchased by the Company's Employee Stock Ownership Plan (ESOP), which
was funded by a loan from the Company. The Company contributed an
additional 105,033 shares to the Cortland Savings Foundation as part of
the Conversion and an expense of $1.0 million or approximately $614,000
after taxes, was recorded in October 1998 due to this donation. The
Company operates solely in the financial services industry and includes
the provision of traditional community banking services primarily for
individuals and small- to medium-sized businesses concentrated in
Cortland County, New York and surrounding areas. The financial services
subsidiary of the Bank has been inactive since its formation in 1986. The
Company and its subsidiary financial institution are subject to the
regulations of certain Federal and State agencies and undergo periodic
examinations by those regulatory agencies.
On December 28, 1999, the Company signed a definitive agreement with
Niagara Bancorp, Inc. under which Niagara Bancorp, Inc. will acquire all
of the outstanding shares of the Company for $18.75 per share. Cortland
Savings Bank will become a wholly-owned subsidiary of Niagara Bancorp,
Inc. Included in non-interest expenses is $315,000 in merger related
expenses consisting primarily of the fees for the fairness opinion
delivered by the Company's investment banker. This transaction is
expected to close during the second quarter of 2000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. Certain prior year amounts
have been reclassified to conform to the current year's classifications.
A description of the significant accounting policies is presented below.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the balance sheet and revenues and expenses
for the period. Actual results could differ from those estimates.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include vault cash, amounts due from banks
and Federal funds sold which represent short-term highly liquid
investments.
(c) SECURITIES
The Company classifies its debt securities as either
available-for-sale or held-to-maturity as the Company does not hold
any securities considered to be trading. Equity securities are
classified as available-for-sale. Held-to-maturity securities are
those debt securities the Company has the ability and intent to hold
until maturity. All other debt securities are classified as
available-for-sale.
29
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(c) SECURITIES, CONTINUED
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost.
Unrealized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and
reported as a component of accumulated other comprehensive income in
stockholders' equity until realized.
A decline in the fair value of an available-for-sale or
held-to-maturity security that is deemed to be other than temporary
results in a charge to earnings resulting in the establishment of a
new cost basis for the security.
Purchases and sales are recorded on a trade date basis with
settlement occurring shortly thereafter. 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. Realized gains and losses on
securities are included in earnings and are calculated using the
specific identification method, for determining the cost of the
securities sold.
(d) LOANS
Loans are reported at the principal amount outstanding, net of
deferred fees. Fees and certain direct origination costs related to
lending activities are recognized as an adjustment of yield using
the interest method over the lives of the loans. The Company has the
ability and intent to hold its loans to maturity except for
education loans which are sold to a third party upon reaching
repayment status.
Interest on loans is accrued and included in income at contractual
rates applied to principal outstanding. The accrual of interest on
loans (including impaired loans) is generally discontinued and
previously accrued interest is reversed when loan payments are 90
days or more past due or when, by the judgment of management,
collectibility becomes uncertain. Subsequent recognition of income
occurs only to the extent that payment is received. Loans are
returned to an accrual status when both principal and interest are
current and the loan is determined to be performing in accordance
with the applicable loan terms.
(e) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses consists of the provision charged to
operations based upon past loan loss experience, management's
evaluation of the loan portfolio under current economic conditions
and such other factors that require current recognition in
estimating loan losses. Loan losses and recoveries of loans
previously written-off are charged or credited to the allowance as
incurred or realized, respectively.
The allowance for loan losses is maintained at a level believed by
management to be sufficient to absorb probable losses related to
loans outstanding as of the balance sheet date. Management uses
presently available information to recognize losses on loans;
however, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses and may
require the Company to recognize additions to the allowance based on
their judgment of information available to them at the time of their
examination.
30
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) ALLOWANCE FOR LOAN LOSSES, CONTINUED
The Company estimates losses on impaired loans based on the present
value of expected future cash flows (discounted at the loan's
effective interest rate) or the fair value of the underlying
collateral if the loan is collateral dependent. An impairment loss
exists if the recorded investment in a loan exceeds the value of the
loan as measured by the aforementioned methods. Impairment losses
are included as a component of the allowance for loan losses. A loan
is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms
of the loan agreement. Generally, all commercial mortgage loans and
commercial loans in a delinquent payment status (90 days or more
delinquent) are considered impaired. Residential mortgage loans,
consumer loans, home equity lines of credit and education loans are
evaluated collectively since they are homogenous and generally carry
smaller individual balances. The Company recognizes interest income
on impaired loans using the cash basis of income recognition. Cash
receipts on impaired loans are generally applied according to the
terms of the loan agreement, or as a reduction of principal, based
upon management judgment and the related factors discussed above.
(f) PREMISES AND EQUIPMENT
Land is carried at cost and buildings and improvements and furniture
and equipment are carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the
estimated useful lives of the assets (3-39 years for building and
improvements; 3-7 years for furniture and equipment.)
(g) REAL ESTATE OWNED
Real estate acquired in settlement of loans is carried at the lower
of the unpaid loan balance or fair value less estimated costs to
sell. Write-downs from the unpaid loan balance to fair value 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.
(h) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets 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.
(i) PENSION AND OTHER POSTRETIREMENT PLANS
The Company sponsors a defined benefit health care and life
insurance plan that provides postretirement benefits to current and
retired employees and certain eligible dependents who meet minimum
age and service requirements. The estimated costs of providing
benefits are accrued over the years the employees render services
necessary to earn those benefits.
The Company also maintained a non-contributory defined benefit
pension plan that covered substantially all employees, but
terminated the plan effective December 31, 1998. The benefits under
the pension plan were based on the employee's years of service and
compensation. The cost of this program was funded currently.
31
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(j) OTHER EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory Employee Stock Ownership
Plan (ESOP) covering substantially all employees. Allocations to
individual participant accounts are based on participant
compensation. The Company accounts for ESOP shares purchased in
accordance with Statement of Position No. 93-6, EMPLOYERS'
ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, as
shares are committed to be released to participants, the Company
reports compensation expense equal to the average market price of
the shares and the shares become outstanding for earnings per share
computations.
The Company's Personal Recognition and Retention Plan ("PRRP") is
accounted for in accordance with APB Opinion No. 25. The fair value
of the shares awarded, measured as of the grant date, is recognized
as unearned compensation (a component of stockholders' equity) and
amortized to compensation expense as the shares become vested.
(k) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's only financial instruments with off-balance sheet risk
are limited to commitments to extend credit and commitments under
unused lines of credit. The Company's policy is to record such
instruments when funded.
(l) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income
available to common shareholders by the weighted average number of
shares outstanding during the year. Stock options and unvested stock
grants are regarded as common stock equivalents and are considered
in earnings per share calculations if dilutive. Prior to the
conversion to a stock savings bank, earnings per share are not
applicable as the mutual savings bank had no shares outstanding.
After the conversion, earnings per share is determined from October
6, 1998, the date of conversion, to the end of the reporting period
based upon the weighted average number of shares outstanding for the
period. The income included in the computation is based on the
actual results of operations only for the post-conversion period.
Unallocated shares held by the Company's ESOP are not included in
the weighted average number of shares outstanding. The following
table summarizes the computation of earnings per share for the years
ended December 31:
1999 1998
------------------------------------------------------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Basic EPS
Net income $ 2,972 4,465 $ 0.67 $ 7 4,928 $ --
Effect of Dilutive
Securities
Options 9 --
Unearned stock grants 23 --
----------------------- ---------------------
Diluted EPS $ 2,972 4,497 $ 0.66 $ 7 4,928 $ --
=================================================================================================================
(m) COMPREHENSIVE INCOME
Comprehensive income represents net income and the net change in
unrealized gains or losses on securities available for sale, net of
taxes, and is presented in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income.
32
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(n) SEGMENT REPORTING
The Company's operations are solely in the financial services
industry and include the provision of traditional banking services.
The Company operates primarily in Cortland County and surrounding
areas in New York State. The Company has determined that it has no
reportable segments.
(3) SECURITIES
Securities are summarized as follows (in thousands):
December 31, 1999
-----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------------------------
Available-for-sale:
U.S. Government and sponsored
Enterprise securities $14,469 $ 5 $ 228 $14,246
Mortgage-backed securities 58,684 39 2,286 56,437
State and municipal sub-divisions 1,865 -- 61 1,804
Corporate debt securities 20,553 -- 225 20,328
----------------------------------------------------------------------------------
Total debt securities 95,571 44 2,800 92,815
Equity securities 2,827 2,066 148 4,745
----------------------------------------------------------------------------------
$98,398 $ 2,110 $ 2,948 $97,560
==================================================================================
Held-to-maturity:
U.S. Government and sponsored
Enterprise securities $ 1,000 $ -- $ 11 $ 989
Mortgage-backed securities 3,508 20 78 3,450
State and municipal sub-divisions 742 1 6 737
Corporate debt securities 1,853 -- 3 1,850
----------------------------------------------------------------------------------
$ 7,103 $ 21 $ 98 $ 7,026
==================================================================================
December 31, 1998
-----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------------------------
Available-for-sale:
U.S. Government and sponsored
Enterprise securities $13,037 $ 128 $ 1 $13,164
Mortgage-backed securities 42,801 265 25 43,041
State and municipal sub-divisions 917 10 -- 927
Corporate debt securities 27,649 178 5 27,822
----------------------------------------------------------------------------------
Total debt securities 84,404 581 31 84,954
Equity securities 2,072 1,470 59 3,483
----------------------------------------------------------------------------------
$86,476 $ 2,051 $ 90 $88,437
==================================================================================
Held-to-maturity:
U.S. Government and sponsored
Enterprise securities $ 1,505 $ 2 $ -- $ 1,507
Mortgage-backed securities 5,208 69 22 5,255
State and municipal sub-divisions 747 17 -- 764
Corporate debt securities 2,858 21 1 2,878
----------------------------------------------------------------------------------
$10,318 $ 109 $ 23 $ 10,404
==================================================================================
33
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(3) SECURITIES, CONTINUED
The following table presents the amortized cost and fair value of debt
securities at December 31, 1999, based on the earlier of call or maturity
date. Actual maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without
call or prepayment penalties. (in thousands):
Amortized Fair
Cost Value
--------------------------------------------------------------------------------------------------------
Available-for-sale
Due within one year $ 10,005 $ 9,989
Due after one year through five years 25,017 24,586
Due after five years through ten years 1,865 1,803
Due after ten years -- --
Mortgage-backed securities 58,684 56,437
--------------------------------------------------------------------------------------------------------
$ 95,571 $ 92,815
========================================================================================================
Held-to-maturity:
Due within one year $ 2,028 $ 2,025
Due after one year through five years 1,358 1,348
Due after five years through ten years 209 203
Due after ten years -- --
Mortgage-backed securities 3,508 3,450
--------------------------------------------------------------------------------------------------------
$ 7,103 $ 7,026
========================================================================================================
Gross gains of $41,000, $6,000 and $46,000 were realized on sales of
securities in 1999, 1998 and 1997, respectively. Gross losses of $18,000
were realized on sales of securities in 1999. There were no gross losses
in 1998 and 1997.
Securities carried at $30.4 million at December 31, 1999 were pledged for
borrowings and other purposes required by law. There were no securities
of a single issuer (other than the U.S. Government and sponsored
enterprises) that exceeded 10% of stockholders' equity at December 31,
1999 or 1998.
(4) LOANS
Loans are summarized as follows (in thousands):
December 31,
----------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------------
Mortgage loans:
Residential $ 105,407 $ 100,976
Commercial 31,864 29,224
Partially guaranteed by VA 246 337
Insured by FHA 631 717
--------------------------------------------------------------------------------------------------------
138,148 131,254
--------------------------------------------------------------------------------------------------------
Other loans:
Commercial 6,278 6,588
Automobile 12,641 10,854
Home equity line of credit 6,520 6,804
Property improvement 661 709
Guaranteed student 741 1,016
Other consumer 4,208 4,597
--------------------------------------------------------------------------------------------------------
31,049 30,568
--------------------------------------------------------------------------------------------------------
Total loans 169,197 161,822
--------------------------------------------------------------------------------------------------------
Less: Net deferred origination fees 110 121
--------------------------------------------------------------------------------------------------------
$ 169,087 $ 161,701
========================================================================================================
34
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(4) LOANS, CONTINUED
Changes in the allowance for loan losses are summarized as follows (in
thousands):
Years Ended
December 31,
-----------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
Balance at beginning of year $ 2,494 $ 2,143 $ 1,952
Provision charged to operations 100 325 3,300
Recoveries 116 206 170
Loans charged off (280) (180) (3,279)
-------------------------------------------------------------------------------------
Balance at end of year $ 2,430 $ 2,494 $ 2,143
=====================================================================================
At December 31, 1999 and 1998, impaired loans totaled $49,000 and
$736,000, respectively. At December 31, 1999, impaired loans included
$49,000 of loans for which the related allowance for loan losses was
$25,000. At December 31, 1998, impaired loans included $736,000 of loans
for which the related allowance for loan losses was $194,000. The average
recorded investment in impaired loans was $564,000, $1.1 million and $2.7
million during the years ended December 31, 1999, 1998 and 1997,
respectively. Interest income recognized on impaired loans was $7,000,
$147,000 and $290,000 during the years ended December 31, 1999, 1998 and
1997, respectively, all of which was recognized using the cash basis of
income recognition.
The principal balances of loans not accruing interest amounted to
approximately $603,000 and $920,000 at December 31, 1999 and 1998,
respectively. Interest income that would have been recorded if the
non-accruing loans had been performing in accordance with their original
terms was approximately $44,000, $115,000 and $402,000 during the years
ended December 31, 1999, 1998 and 1997, respectively.
In the ordinary course of business, the Company makes loans to directors,
officers and employees, as well as to other related parties on
substantially the same terms, including interest rate and collateral, as
those prevailing at the same time for comparable transactions with other
customers and do not involve more than normal risk of collectibility or
present other unfavorable features.
A summary of the changes in these outstanding loans is as follows (in
thousands):
Years End
December 31,
------------------------------
1999 1998
-------------------------------------------------------------------------
Balance at beginning of year $ 2,151 $ 2,207
New loans and increase in existing loans 731 521
Loan principal repayments (808) (577)
-------------------------------------------------------------------------
Balance at end of year $ 2,074 $ 2,151
=========================================================================
35
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(5) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
December 31,
-------------------------------
1999 1998
----------------------------------------------------------------------------------------
Land $ 886 $ 886
Buildings and furniture 2,978 2,901
Furniture and equipment 1,805 1,962
----------------------------------------------------------------------------------------
5,669 5,749
Less accumulated depreciation and amortization 2,585 2,506
----------------------------------------------------------------------------------------
$ 3,084 $ 3,243
========================================================================================
Depreciation and amortization expense amounted to $474,000, $487,000 and
$579,000 during the years ended December 31, 1999, 1998 and 1997,
respectively.
(6) DEPOSITS
At December 31, 1999 and 1998, the aggregate amounts of time deposits in
denominations of $100,000 or more were approximately $14.0 million and
$13.0 million, respectively.
Contractual maturities of certificates of deposit at December 31, are
summarized as follows (in thousands):
1999
------------------------------------------------------------------
Within one year $ 57,505
One through two years 24,400
Two through three years 9,612
Three through four years 6,439
Four through five years 2,482
Five years and over --
------------------------------------------------------------------
Total certificates of deposit $ 100,438
==================================================================
Interest expense on deposits is summarized as follows (in thousands):
Years Ended
December 31,
--------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------
Savings accounts $ 1,517 $ 1,861 $ 1,936
Certificates of deposit 5,140 5,713 5,983
Money market accounts 256 220 243
NOW accounts 133 167 166
-------------------------------------------------------------------------
$ 7,046 $ 7,961 $ 8,328
=========================================================================
(7) BORROWINGS
The Company is a member of the Federal Home Loan Bank (FHLB). As a
member, the Company is required to own capital stock in the FHLB and is
authorized to apply for advances from the FHLB.
36
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(7) BORROWINGS, CONTINUED
At December 31, 1999 and 1998, advances from the FHLB were as follows (in
thousands):
Advance Amount
-------------------------------
Maturity Date Interest Rate Fixed or Variable 1999 1998
----------------------------------------------------------------------------------------------------
1/03/00 5.60% Fixed $ 1,200 $ --
3/24/00 6.08% Fixed 2,000 --
9/20/00 5.92% Fixed 5,000 --
9/27/00 5.96% Fixed 3,000 --
6/25/01 5.99% Fixed 1,000 --
7/30/01 5.52% Fixed -- 1,000
6/17/02 6.23% Fixed 3,000 --
6/23/04 6.53% Fixed 4,000 --
----------------------------------------------------------------------------------------------------
Total $ 19,200 $ 1,000
====================================================================================================
Under terms of a blanket collateral agreement with the FHLB, these
outstanding balances are collateralized by certain qualifying assets not
otherwise pledged (primarily first mortgage loans). At December 31,1999
the Company may borrow up to an additional $27.3 million from the FHLB.
(8) INCOME TAXES
The components of income tax expense (benefit) attributable to income
from operations are (in thousands):
Years Ended
December 31,
----------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------
Current:
Federal $ 1,761 $ 799 $ 672
State 448 194 181
-------------------------------------------------------------------------
2,209 993 853
Deferred:
Federal 53 207 (698)
State 33 70 (171)
-------------------------------------------------------------------------
86 277 (869)
-------------------------------------------------------------------------
$ 2,295 $ 1,270 $ (16)
=========================================================================
Actual tax expense (benefit) attributable to income before income taxes
differed from "expected" tax expense (benefit), computed by applying the
U.S. Federal statutory tax rate of 34% to income before income tax as
follows (in thousands):
Years Ended
December 31,
---------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------------
Computed "expected" tax expense $ 1,791 $ 1,003 $ 19
Increase (decrease) in income taxes resulting from:
State taxes, net of Federal tax benefits 310 175 7
Non-taxable interest income (40) (21) (35)
Non-deductible merger expenses 107 -- --
Other non-deductible expenses 35 48 16
Pension termination excise tax 109 80 --
Other items, net (17) (15) (23)
----------------------------------------------------------------------------------------------------
$ 2,295 $ 1,270 $ (16)
====================================================================================================
37
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(8) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are (in
thousands):
December 31,
-------------------------------
1999 1998
----------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 946 $ 986
Net deferred loan fees 99 98
Postretirement benefit obligation 663 669
Deferred director fees 143 92
Foundation contribution carryforward 115 329
Personnel Recognition and Retention Plan vesting 112 --
Unrealized loss on securities, net 335 --
Other 36 56
----------------------------------------------------------------------------------------------------
Total gross deferred tax assets 2,449 2,230
----------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation on premises and equipment (115) (101)
Unrealized gains on securities, net -- (783)
Tax allowance for loan losses in excess of base year amount (43) (105)
Other (38) (20)
----------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (196) (1,009)
----------------------------------------------------------------------------------------------------
Net deferred tax assets $ 2,253 $ 1,221
====================================================================================================
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. Management
believes that no valuation allowance is necessary.
In accordance with SFAS No. 109, the Company has not recognized deferred
tax liabilities with respect to the Bank's Federal and state base-year
reserve of approximately $3.7 million at December 31, 1999, since the
Company does not expect that these amounts will become taxable in the
forseeable future. Under the tax laws, as amended, events that would
result in taxation of these reserves include redemptions of the Bank's
stock or certain excess distributions to the Company. The unrecognized
deferred tax liability at December 31, 1999 with respect to the base-year
reserve was approximately $1.4 million.
(9) PENSION AND OTHER POSTRETIREMENT PLANS
The following table presents changes in the Company's pension and
postretirement plans' accumulated benefit obligations and plan assets and
the plans' funded status reconciled with amounts recognized in the
Company's consolidated balance sheet at December 31. (in thousands):
38
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(9) PENSION AND OTHER POSTRETIREMENT PLANS, CONTINUED
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------
Change in benefit obligations:
Benefit obligation at beginning of year $ 4,075 $ 3,490 $ 1,890 $ 1,597
Service cost -- 84 47 42
Interest cost -- 244 121 108
Amendments -- 60 -- --
Curtailment -- (591) (264) --
Actuarial loss (gain) 610 938 (86) 238
Benefits paid (3,032) (150) (87) (95)
Settlement gain (394) -- -- --
Paid to Company (1,259) -- -- -
-------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ -- $ 4,075 $ 1,621 $ 1,890
=============================================================================================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,940 $ 5,083 $ -- $ --
Actual return on plan assets (649) 7 -- --
Employer contribution -- -- 87 95
Benefits paid (3,032) (150) (87) (95)
Paid to Company (1,259) -- -- --
-------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ -- $ 4,940 $ -- $ --
=============================================================================================================
Funded status $ -- $ 865 $ (1,621) $ (1,890)
Unrecognized net actuarial (gain) loss -- -- (50) 235
-------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ -- $ 865 $ (1,671) $ (1,655)
=============================================================================================================
Weighted average assumptions:
Discount rate N/A 5.00% 7.75% 6.50%
Expected return on plan assets N/A 7.00% --% --%
Rate of compensation increase N/A 4.00% 5.50% 4.50%
For measurement purposes, a 6.50% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The
rate was assumed to decrease gradually to 5.00% for 2003 and remain at
that level thereafter. A one-percentage point increase or decrease in
assumed health care cost trend rates does not have a material effect on
the benefit obligation.
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1997 1999 1998 1997
-------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost: (in thousands)
Service cost $ -- $ 84 $ 87 $ 47 $ 42 $ 37
Interest cost -- 244 242 121 108 107
Expected return on plan assets -- (391) (350) -- -- --
Recognized net actuarial gain (39) (32) -- -- -- --
Curtailment charge -- 35 -- (70) -- --
Settlement gain (394) -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (433) $ (60) $ (21) $ 98 $ 150 $ 144
=============================================================================================================
39
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(9) PENSION AND OTHER POSTRETIREMENT PLANS, CONTINUED
In 1998, the Company recorded a curtailment expense of $35,000 related to
the termination of its defined benefit pension plan. The settlement of
the plan's obligations was expected to occur in 1999 through the purchase
of annuities for the plan participants. In 1998, the Company also
committed to contribute 25% of the excess of the plan's assets over the
cost of purchasing annuities to the Company's 401(k) plan. An estimated
accrual of $437,000 was recorded related to this commitment.
During 1999, the Company recorded a settlement gain on the termination of
its defined benefit pension plan of $394,000, as well as a $122,000
reduction in the actual contribution to the Company's 401(k) from the
estimate recorded in 1998.
(10) STOCK OPTION PLAN
On April 28, 1999, the Company's shareholders approved the CNY Financial
Corporation Stock Option Plan ("Stock Option Plan"). The primary
objective of the Stock Option Plan is to provide officers and directors
with a proprietary interest in the Company and an incentive to encourage
such persons to remain with the Company.
Under the Stock Option Plan, 535,662 shares of authorized but unissued
common stock are reserved for issuance upon option exercises. The Company
also has the alternative to fund the Stock Option Plan with treasury
stock. Options under the plan may be either non-qualified stock options
or incentive stock options. Each option entitles the holder to purchase
one share of common stock at an exercise price equal to the fair market
value on the date of grant. On April 28, 1999, 280,690 options were
awarded at an exercise price of $11.50 per share and on September 8,
1999, 60,000 shares were awarded at an exercise price of $14.50 per
share. These options have a ten year term and vest at a rate of 20% per
year from the grant date.
A summary of the status of the Company's Stock Option Plan as of December
31, 1999 and changes during the year ended December 31, 1999 is presented
below:
Weighted-Average
Shares Exercise Price
-------------------------------------------------------------------------------------------------------------
OPTIONS
Outstanding at beginning of year -- $ --
Granted 340,690 12.03
Exercised -- --
Forfeited -- --
-------------------------------------------------------------------------------------------------------------
Outstanding at end of year 340,690 $ 12.03
=============================================================================================================
Exercisable at end of year -- N/A
=============================================================================================================
Estimated weighted-average fair value of options granted on December 31, 1999 $ 3.81
=============================================================================================================
The Company applies APB Option No. 25 and related Interpretations in
accounting for its Stock Option Plan. Accordingly, no compensation cost
has been recognized for its Stock Option Plan. SFAS No. 123 requires
companies not using a fair value based method of accounting for stock
options or similar plans, to provide pro forma disclosure of net income
and earnings per shares as if that method of accounting had been applied.
The fair value of each option grant is estimated on the dates of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December
31, 1999; dividend yield of 2.00%; expected volatility of 30.20%; risk
free interest rate of 6.70%; expected lives of five years.
40
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(10) STOCK OPTION PLAN, CONTINUED
Pro forma disclosures for the Company for the year ended December 31,
1999 utilizing the estimated fair value of the options granted and an
assumed 5% forfeiture rate are as follows:
Basic Diluted
Net Earnings Earnings
Income Per Share Per Share
-------------------------------------------------------------------------
(in thousands, except per share data)
As reported $ 2,972 $ 0.67 $ 0.66
Pro Forma $ 2,876 $ 0.64 $ 0.64
=========================================================================
Because the Company's stock options have characteristics significantly
different from those of traded options for which the Black-Scholes model
was developed, and because changes in the subjective input assumptions
can materially affect the fair value estimate, the existing models, in
management's option, do not necessarily provide a reliable single measure
of the fair value of its stock options. In addition, the effect on
reported net income and earnings per share for the year ended December
31, 1999 may not be representative of the effects on reported net income
or earnings per share for future years.
(11) PERSONNEL RECOGNITION AND RETENTION PLAN
The Company's shareholders also approved the CNY Financial Corporation
Personnel Recognition and Retention Plan ("PRRP") on April 28, 1999. The
purpose of the plan is to promote the long-term interests of the Company
and its shareholders by providing a stock-based compensation program to
attract and retain officers and directors.
During 1999, 181,278 shares were awarded under the PRRP. The shares vest
over a period of equal installments commencing one year from the date of
grant. The fair market value of the shares awarded under the plan was
$2.1 million at the grant date, and is being amortized to compensation
expense on a straight-line basis over the vesting periods of the
underlying shares. Compensation expense of $288,000 was recorded in 1999,
with the remaining unearned compensation cost of $1.8 million shown as a
reduction of stockholders' equity at December 31, 1999. The shares
awarded under the PRRP were transferred from treasury stock at cost with
the difference between the fair market value on the grant date and the
cost of the shares recorded as a reduction of retained earnings.
(12) OTHER EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) Savings Plan covering
substantially all employees. Employees are permitted to contribute up to
6% of base pay to the Savings Plan, subject to certain limitations. The
Company matches 50% of each employee contribution up to 6%.
Contributions to the defined contribution 401(k) Savings Plan were
approximately $44,000, $60,000 and $64,000 during the years ended
December 31, 1999, 1998 and 1997, respectively.
In connection with establishing the Employee Stock Ownership Plan (ESOP)
in 1998, the ESOP borrowed $4.3 million from the Company to purchase
428,532 common shares of the Company. The loan bears interest at 8.25%
and is payable in twenty equal annual installments. At December 31, 1999,
26,783 shares were released or committed to be released and 401,749
remained as unallocated shares. The fair value of the unallocated shares
on December 31, 1999 was $7.2 million. The Company recognized
compensation expense of $279,000 and $51,000 in 1999 and 1998,
respectively.
41
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(13) COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of commitments to extend
credit and involve, to varying degrees, elements of credit, market and
interest rate risk in excess of the amounts recognized in the
consolidated balance sheet. Credit risk represents the accounting loss
that would be recognized at the reporting date if obligated
counterparties failed completely to perform as contracted. Market risk
represents risk that future changes in market prices make financial
instruments less valuable.
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 some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's evaluation of
the customer's financial position. Collateral held varies, but may
include real estate, accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties. Substantially all
commitments to extend credit, if exercised, will represent loans secured
by real estate.
The Company was committed to originate fixed and adjustable rate
mortgages of approximately $7.3 million and $3.9 million at December 31,
1999 and 1998, respectively. Unused lines of credit, which includes home
equity, consumer, commercial and credit cards, amounted to $11.8 million
and $10.7 million at December 31, 1999 and 1998, respectively.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments is
represented by the contractual or notional amount of these instruments.
The Company uses the same credit policies in making commitments as it
does for on-balance sheet instruments. The Company controls its credit
risk through credit approvals, limits, and monitoring procedures.
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.
(14) CONCENTRATIONS OF CREDIT
A substantial portion of the Company's loans are mortgage and consumer
loans in Central New York State. Accordingly, the ultimate collectibility
of a substantial portion of the Company's loan portfolio is susceptible
to changes in market conditions in this area. A majority of the Company's
loan portfolio is secured by real estate.
The Company's concentrations of credit risk are disclosed in the schedule
of loan classifications. Other than general economic risks, management is
not aware of any material concentrations of credit risk to any industry
or individual borrower.
42
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(15) COMPREHENSIVE INCOME
The following summarizes the components of other comprehensive income (in
thousands):
Year Ended December 31,
----------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax:
Net unrealized holding gain (loss) on securities $(2,776) $ 1,023 $ 575
Reclassification adjustment for net gains realized on the sale of
securities (23) (6) (46)
-------------------------------------------------------------------------------------------------------------
Other comprehensive income, before tax (2,799) 1,017 529
Income tax expense (benefit) related to items of other comprehensive
income (1,118) 410 206
-------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax $(1,681) $ 607 $ 323
=============================================================================================================
(16) STOCKHOLDERS' EQUITY AND CAPITAL STANDARDS
The Company's ability to pay dividends is primarily dependent upon the
ability of its subsidiary bank to pay dividends to the Company. The
payment of dividends by the Bank is subject to continued compliance with
minimum regulatory capital requirements. In addition, regulatory approval
is generally required prior to the Bank declaring dividends in an amount
in excess of net income for that year plus net income retained in the
preceding two years.
The Company and the Bank are subject to various regulatory requirements
administered by the federal banking agencies and the Bank is further
regulated by the New York State Banking Department.
Under capital adequacy guidelines, the Company and Bank must meet
specific guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by the regulators that, if undertaken, could have
a direct material effect on the Company's and Bank's financial
statements.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), established capital levels for which insured institutions are
categorized as well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically
undercapitalized.
As of December 31, 1999 and 1998, the most recent notification from the
FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective actions. To be categorized as well
capitalized, the Bank must meet the minimum ratios as set forth in the
table. There have been no conditions or events since that notification
that management believes have changed the Bank's category. Management
believes, as of December 31, 1999, that the Company and Bank meet all
capital adequacy requirements to which they are subject.
43
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(16) STOCKHOLDERS' EQUITY AND CAPITAL STANDARDS, CONTINUED
The following is a summary of the Company's and Bank's actual capital
amounts and ratios compared to the regulatory minimum capital adequacy
requirements and the FDIC requirements for classification as a well
capitalized institution under prompt corrective action provisions
(dollars in thousands):
To be classified as
Minimum capital well capitalized under
adequacy prompt corrective
Actual requirements action provisions
------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------------------------------
At December 31, 1999:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Company $ 71,149 42.81% $ 13,295 =>8.00% N/A
Bank $ 64,415 39.29% $ 13,116 =>8.00% $ 16,394 => 10.00%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Company $ 68,204 41.04% $ 6,648 =>4.00% N/A
Bank $ 61,487 37.51% $ 6,558 =>4.00% $ 9,837 => 6.00%
TIER I CAPITAL (TO AVERAGE ASSETS):
Company $ 68,204 23.91% $ 11,410 =>4.00% N/A
Bank $ 61,487 22.43% $ 10,965 =>4.00% $ 13,706 => 5.00%
At December 31, 1998:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Company $ 80,333 48.91% $ 13,140 =>8.00% N/A
Bank $ 60,078 38.82% $ 12,381 =>8.00% $ 15,476 => 10.00%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Company $ 77,892 47.42% $ 6,571 =>4.00% N/A
Bank $ 57,751 37.32% $ 6,191 =>4.00% $ 9,286 => 6.00%
TIER I CAPITAL (TO AVERAGE ASSETS):
Company $ 77,892 29.57% $ 10,536 =>4.00% N/A
Bank $ 57,751 23.40% $ 9,873 =>4.00% $ 12,341 => 5.00%
In order to grant priority in the Conversion to the eligible depositors,
the Bank established a special account at the time of conversion in an
amount equal to its total net worth at September 30, 1998. In the event
of a future liquidation of the converted bank (and only in such event),
eligible account holders who continue to maintain accounts shall be
entitled to receive a distribution from the special account. The total
amount of the special account will be decreased (as the balances of
eligible accounts are reduced) on annual determination dates. No cash
dividends may be paid to the stockholders and no shares may be
repurchased by the Company if such actions would reduce the Bank's
stockholders' equity below the amount required for the special account.
At December 31, 1999, the amount remaining in this liquidation account
was $14.4 million.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
CASH AND CASH EQUIVALENTS: The fair values are considered to
approximate the carrying values, as reported on the consolidated
balance sheet.
SECURITIES: Fair values of securities are based on exchange quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of similar
instruments.
44
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
LOANS AND ACCRUED INTEREST RECEIVABLE: For variable rate loans that
reprice frequently and loans due on demand with no significant change
in credit risk, fair values are considered to approximate carrying
values. The fair values for certain mortgage loans (e.g., one-to-four
family residential) and other consumer loans are based on quoted
market prices of similar loans sold on the secondary market, adjusted
for differences in loan characteristics. The fair values for other
loans (e.g., commercial real estate and rental property mortgage
loans) are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms
to borrowers of similar credit rating. The carrying amount of accrued
interest approximates its fair value.
FHLB STOCK: The carrying value of this instrument, which is
redeemable at par, approximates fair value.
DEPOSITS: The fair values of demand deposits (interest and
non-interest checking), passbook, statement savings, club and money
market accounts are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposits and individual
retirement accounts are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
these products to a schedule of aggregated expected monthly
maturities on time deposits.
ADVANCE PAYMENTS BY BORROWERS FOR PROPERTY TAXES AND INSURANCE: The
fair value of advance payments by borrowers for property taxes and
insurance is, by definition, equal to the amount payable at the
reporting date (i.e., its carrying amount).
BORROWINGS: The fair value of term advances from the Federal Home
Loan Bank is estimated using discounted cash flow analysis based on
the Company's current incremental borrowing rate for similar
borrowing arrangements.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's
off-balance-sheet instruments (lines of credit and commitments to
fund loans) are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing. The fair value of these
financial instruments is immaterial and has therefore been excluded
from the table below.
The estimated carrying values and fair values of the Company's financial
instruments are as follows: (in thousands):
December 31,
-----------------------------------------------------------
1999 1998
-----------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 6,272 $ 6,272 $ 14,536 $ 14,536
Securities 104,663 104,586 98,755 98,841
Loans, net 166,657 165,478 159,207 166,435
FHLB stock 1,637 1,637 1,303 1,303
Accrued interest receivable 1,945 1,945 1,985 1,985
Financial liabilities:
Deposits:
Demand accounts 12,033 12,033 10,780 10,780
Savings accounts 61,109 61,109 61,820 61,820
Certificates of deposits 100,438 99,523 104,317 104,575
Money market accounts 10,789 10,789 7,975 7,975
NOW accounts 11,101 11,101 11,122 11,122
Advance payments by borrowers
for property taxes and
insurance 1,595 1,595 1,450 1,450
Borrowings $ 19,200 $ 19,153 $ 1,000 $ 997
=================================================================================================
45
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
(18) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are the condensed balance sheets as of December 31, 1999
and 1998 and statements of income and statements of cash flows for the
year ended December 31, 1999 and for the period from October 6, 1998 to
December 31, 1998 for CNY Financial Corporation (in thousands):
Condensed Balance Sheets 1999 1998
-------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 1,951 $ 11,929
Securities available-for-sale, at fair value 5,399 8,238
Investment in bank subsidiary 61,037 58,939
Other assets 368 712
-------------------------------------------------------------------------------
$ 68,755 $ 79,818
===============================================================================
Liabilities:
Other liabilities $ 1,055 $ 748
-------------------------------------------------------------------------------
Total liabilities 1,055 748
-------------------------------------------------------------------------------
Total stockholders' equity 67,700 79,070
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 68,755 $ 79,818
===============================================================================
Condensed Statements of Income 1999 1998
-------------------------------------------------------------------------------
Interest from securities available-for-sale $ 532 $ --
-------------------------------------------------------------------------------
Total operating income 532 --
Donation to charitable foundation -- (1,023)
Other operating expenses (1,536) (192)
-------------------------------------------------------------------------------
Total operating expenses (1,536) (1,215)
-------------------------------------------------------------------------------
Loss before undistributed income of subsidiary (1,004) (1,215)
Applicable income tax benefit (240) (485)
Equity in undistributed income of subsidiary bank 3,736 2,409
-------------------------------------------------------------------------------
Net income $ 2,972 $ 1,679
===============================================================================
(CONTINUED ON FOLLOWING PAGE)
46
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(18) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED
1999 1998
---------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows
Operating activities:
Net income $ 2,972 $ 1,679
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Equity in undistributed earnings of subsidiary bank (3,736) (2,409)
Decrease (increase) in other assets 372 (712)
Increase in other liabilities 763 292
ESOP shares released for allocation 279 51
Donation to charitable foundation -- 997
PRRP expense 288 --
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 938 (102)
Investing activities:
Purchase of securities available-for-sale (38,105) (33,421)
Proceeds from sales of securities available-for-sale 4,563 --
Proceeds from maturities of securities available-for-sale 36,310 --
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,768 (33,421)
Financing activities:
Par value of donation of stock to charitable foundation -- 1
Purchase of shares of common stock by ESOP -- (4,285)
Payments on ESOP loan --
Treasury stock purchases (12,472) (611)
Dividends (1,212) --
Net proceeds from issuance of common stock -- 50,347
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (13,684) 45,452
Net (decrease) increase in cash (9,978) 11,929
Cash at beginning of year 11,929 --
---------------------------------------------------------------------------------------------------------
Cash at December 31 $ 1,951 $ 11,929
=========================================================================================================
47
CNY Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
(19) UNAUDITED INTERIM FINANCIAL INFORMATION
The following table summarizes the Company's quarterly results for the
years ended December 31, 1999 and 1998 (in thousands, except share data):
1999
----------------------------------------------------------
First Second Third Fourth
-------------------------------------------------------------------------------------------------------------
Interest income $ 4,816 $ 4,861 $ 5,074 $ 5,019
Interest expense 1,792 1,822 1,966 2,027
-------------------------------------------------------------------------------------------------------------
Net interest income 3,024 3,039 3,108 2,992
Provision for loan losses 75 25 -- --
Total non-interest income 216 291 285 286
Total non-interest expenses 1,830 1,862 2,092 2,090
-------------------------------------------------------------------------------------------------------------
Income before income taxes 1,335 1,443 1,301 1,188
-------------------------------------------------------------------------------------------------------------
Net income $ 749 $ 893 $ 740 $ 590
=============================================================================================================
Net income per diluted common share $ 0.16 $ 0.19 $ 0.16 $ 0.14
=============================================================================================================
1998
----------------------------------------------------------
First Second Third Fourth
-------------------------------------------------------------------------------------------------------------
Interest income $ 4,311 $ 4,337 $ 4,442 $ 4,913
Interest expense 2,010 2,003 2,064 1,909
-------------------------------------------------------------------------------------------------------------
Net interest income 2,301 2,334 2,378 3,004
Provision for loan losses 75 75 100 75
Total non-interest income 245 278 817 243
Total non-interest expenses 1,645 1,693 1,953 3,035
-------------------------------------------------------------------------------------------------------------
Income before income taxes 826 844 1,142 137
-------------------------------------------------------------------------------------------------------------
Net income $ 493 $ 561 $ 566 $ 59(2)
=============================================================================================================
Net income per common share (1) (1) (1) $ --
=============================================================================================================
(1) Not applicable because the Company converted from mutual to stock
form of ownership in October 1998. Income per common share is
presented from October 6, 1998, the date of the conversion, based
upon the weighted average number of shares issued and outstanding
since that date. The income included in the computation is based on
the actual operating results only for the post-conversion period.
(2) The decrease in net income in the fourth quarter is related to the
stock contribution to the Cortland Savings Foundation of $614,000
after taxes.
Summation of the quarterly net income per diluted common share does not
necessarily equal the annual amount due to the averaging effect of the
number of shares throughout the year.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided regarding the directors of the
Company and executive officers of the Company who are not directors. There are
no arrangements or understandings by which any director was selected to serve as
such, except for the agreement with Mr. Seidman as discussed below. All of our
directors are also directors of the Bank. There are no family relationships
among directors and executive officers of the Company and the Bank.
JOSEPH H. COMPAGNI, age 57, has been a director of the Company since it
was formed in 1998. He has been a director of the Bank since 1990. Mr. Compagni
is President of Economy Paving Co., Inc., which constructs highways and bridges
in New York State. He is currently a director of the New York State Associated
General Contractors and has been a director of the Cortland Memorial Hospital,
the J.M. Murray Center, Cortland Family Health Network, Cortland Rotary Club and
Cortland YMCA. His term as a director of the Company expires in 2000.
PATRICK J. HAYES, M.D., age 50, has been a director of the Company since
it was formed in 1998. He has been a director of the Bank since 1995. Dr. Hayes
is a practicing physician in Cortland. He is a past president of the Cortland
Memorial Hospital Medical Staff and currently serves as Chief of Staff of the
Cortland Health Center. Dr. Hayes is a member of the Board of the Cortland
Memorial Hospital Foundation and a former director of the Cortland Memorial
Hospital. Dr. Hayes is a member of the Board of the American Lung Association of
Central New York, Inc. His term as a director expires in 2002.
ROBERT S. KASHDIN, CPA, age 56, has been a director of the Company since
it was formed in 1998. He has been a director of the Bank since 1995. Mr.
Kashdin has been a practicing certified public accountant for over 30 years and
is the present managing partner of the CPA firm of Port, Kashdin and McSherry
located in Cortland. Mr. Kashdin is a member of numerous community and
professional organizations including past chairman of the New York State Society
of CPA's Agri Business Committee and District Treasurer of Rotary District 7170.
He is a former Board member of the Jewish Homes of Central New York and the
United Way of Cortland County. His term as a director expires in 2002.
HARVEY KAUFMAN, age 64, has been Chairman of the Board of the Company
since it was formed in 1998. He has been Chairman of the Board of Directors of
the Bank since June of 1997. Mr. Kaufman retired as Superintendent of the
Cortland City School District in 1992 and currently provides administrative
consulting services in the field of education. He is a former Cortland City
Police Commissioner, past president of the Cortland County Chamber of Commerce,
past president of the New York State Association of Small City School Districts,
and was a member of the New York State Assembly Task Force on the Regents Action
Plan. Mr. Kaufman is also currently the Chairman of the J.M. Murray Center and
Cortland Memorial Hospital Services, a for profit affiliate of Cortland Memorial
Hospital. He is also a director of the Cortland Savings Foundation. His term as
a director of the Company expires in 2001.
DONALD P. REED, age 59, has been a director of the Company since it was
formed in 1998. He has been a director of the Bank since 1991. Mr. Reed is the
principal of Reed's Seeds, a business which sells crop seeds, farm seeds, farm
chemicals and fertilizer. He is also Chairman of the Board of Dryden Mutual
Insurance Company. Mr. Reed is a former director of Key Bank of Central New
York, formerly the Homer National Bank. His term as a director of the Company
expires in 2000.
LAWRENCE B. SEIDMAN, ESQ., age 52, has been a director of the Company and
Bank since 1999. Mr. Seidman is an attorney and the manager of Seidman &
Associates, L.L.C. and Seidman Associates II, L.L.C.; the President of Veteri
Place Corp., the sole General Partner of Seidman Investment Partnership, LP and
Seidman Investment Partnership II, LP, manager of Federal Holdings, L.L.C, and a
business consultant to certain corporations and individuals, including, but not
limited to, Kerrimatt, LP and Crown Associates, L.L.C. These entities are
generally engaged in investing in publicly-traded securities. Mr. Seidman is a
former director of Crestmont Financial Corporation, The Savings Bank of Rockland
County and Atlantic Gulf Corporation. On November 8, 1995, the acting director
of the Office of Thrift Supervision ("OTS") issued a Cease and Desist Order
against Mr. Seidman after finding that he recklessly engaged in unsafe and
unsound practices in the business of an insured institution. The order imposed
various restrictions on Mr. Seidman related to OTS matters and imposed
49
obligations on OTS-regulated institutions if Mr. Seidman becomes affiliated with
them. Neither the Company nor the Bank is regulated by the OTS.
The Company entered into an agreement with Mr. Seidman and certain
related individuals and entities (referred to the "Seidman Group") in connection
with Mr. Seidman becoming a member of the Board of Directors. The Agreement
provided that the size of the Boards of Directors of the Bank and the Company
each be increased by one person and each Board of Directors elected Mr. Seidman
as a director to fill the vacancies created by the increase in the number of
directors. The Seidman Group also agreed not to engage in any solicitation in
opposition to management or propose any other matters for a stockholder vote
prior to matters raised at the annual meeting in the year 2000. The Seidman
Group also agreed that, subject to the fiduciary duties of any plan trustee,
unallocated shares of stock owned by the ESOP and unallocated shares of the
PRRP, may be voted as described in those plans. Both plans generally provide
that unallocated shares will be voted in the same percentage as the vote cast by
the holders of allocated shares who exercise their right to direct the voting of
allocated shares. His term as a director expires in 2002.
TERRANCE D. STALDER, age 58, has been a director of the Company since it
was formed in 1998. He has been a director of the Bank since 1987. Mr. Stalder
is Associate Vice President for Finance and Management of the State University
of New York at Cortland, a public four-year college, and is responsible for
general business operations of the $48 million operating budget, including
billing and collections, payroll, purchasing, accounting, budgeting, and
internal control, with ongoing involvement in human resources and strategic
planning. He also serves on the Board of Directors of the Auxiliary Services
Corporation which provides food and college store services under contract. Mr.
Stalder is a past member of the Village of Homer Planning Board, the Board of
Trustees of the Cortland YMCA, and the Cortland Rotary Club. His term as a
director of the Company expires in 2001.
WESLEY D. STISSER, age 64, has served as the President of the Company
since 1998 and has served as President and Chief Executive Officer of the Bank
since 1983. Mr. Stisser has been with the Bank for 46 years. He is a graduate of
the Graduate School of Savings Banking at Brown University and the School for
Executive Development sponsored by the Community Bankers Association. An eagle
scout and recipient of the Silver Beaver Award B.S.A., Mr. Stisser is an active
member of numerous professional, civic and community service organizations. He
is presently a member of the SBLI USA Mutual Insurance Company of New York, Inc.
Board of Directors and is Chairman of the Cortland City Police Commission. He is
a former member of the Board of Directors for Cortland Memorial Hospital,
serving as its Chairman, and is a member of the SUNY Cortland College
Foundation. He is also a director of the Cortland Savings Foundation. His term
as a director of the Company expires in 2001.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Executive officers are elected for one year terms and serve at the
pleasure of the Board of Directors. Provided below is certain information
regarding the executive officers of the Company and the Bank who are not
directors.
STEVEN A. COVERT, CPA, age 38, joined the Bank in June 1998 and now
serves as an Executive Vice President and Chief Financial Officer of both the
Company and the Bank. From August 1995 to June 1998, he was Executive Vice
President and Chief Financial Officer of Success Bancshares, Inc., a bank
holding company in Chicago, Illinois. He was Senior Vice President and Chief
Financial Officer of Ithaca Bancorp, Inc., a savings and loan holding company in
Ithaca, New York, from July 1993 to December 1994. Mr. Covert has been a member
of various community organizations including the United Way and an organization
that provides food for the homeless.
F. MICHAEL STAPLETON, age 60, joined the Bank in June 1998 and now serves
as Executive Vice President and Chief Operating Officer. From February 1986
through April 1998, Mr. Stapleton was with OnBank and Trust Co., holding
positions of Senior Vice President and Regional President. He then continued
with Manufacturers and Traders Trust Company after it acquired OnBank. He is
Vice Chairman of the Loretto Foundation, which provides care for the elderly,
and is a director of Mercy Health and Rehabilitation Center, Finance Committee
Chairman of the Tioughnioga District Boy Scouts of America and a member of the
Cortland Rotary Club. Mr. Stapleton is also former Chairman of the Cayuga County
Economic Development Council, former director of the Industrial Development
Foundation of Auburn and Cayuga County, and former member of the Auburn
Industrial Development Authority, all of which are involved in fostering
economic development in Central New York.
KERRY D. MEEKER, age 47, joined the Bank in 1996 and serves as its Senior
Vice President and Senior Loan Officer. Prior to joining the Bank, he held the
position of Vice President and Chief Loan Officer of Oneida Savings Bank since
1989. He previously served as a Vice President and Commercial Loan Officer of
Marine Midland Bank and as a Senior Financial Analyst at Bankers Trust Company.
50
He is a member of the Rotary Club of Cortland; has served as President of the
Greater Oneida Chamber of Commerce, Inc., Treasurer of the Oneida Improvement
Committee, Inc., President of the Oneidas Club, President of the
Sherrill-Kenwood Community Chest, Inc., and is a past member of the Rotary Club
of Oneida.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Directors who are not also employees of the Company or the Bank or any of
their subsidiaries receive a fee of $500 for each Board of Directors meeting and
$400 for each committee meeting. The chair of each committee is entitled to an
additional fee of $100 per meeting. The Chairman of the Board of the Company
receives an annual retainer of $15,000 in addition to per meeting fees.
Directors are also eligible for participation in, and have received awards
under, the Stock Option Plan and the PRRP.
All of the directors of the Company are also directors of the Bank. Each
director of the Bank who is not an employee receives an annual retainer of
$3,000 plus a fee of $250 for each Board meeting and $400 for each committee
meeting. The Chairman of the Board of the Bank receives a $12,000 annual
retainer plus per meeting fees, except that no fees are paid to the Chairman of
the Board for attendance at a committee meeting in an ex officio capacity. The
chair of each committee receives an additional $100 per committee meeting. Per
meeting fees are paid only for actual attendance at a meeting but not for
attendance by conference telephone call.
EXECUTIVE OFFICER COMPENSATION
None of our officers receives compensation directly from the Company.
Their compensation is paid by the Bank.
The following table includes information about compensation paid to Mr.
Stisser, Mr. Covert and Mr. Stapleton, who were the only executive officers of
the Company or the Bank with total salary and bonus in excess of $100,000 in
1999.
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------
ANNUAL COMPENSATION
-------------------------------------------------------------------
AWARDS
---------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION(1) AWARD(S) OPTIONS COMPENSATION(2)
- --------------------------------------------------------------------------------------------------------------------------------
Wesley D. Stisser, President 1999 $171,635 $ 7,525 None $460,000 50,000 $ 43,273
and Chief Executive Officer 1998 $175,000 $ 7,087 None $ -- -- $ 11,656
1997 $167,890 None None $ -- -- $ 7,336
Steven A. Covert, Executive 1999 $110,827 $ 4,859 None $230,000 25,000 $ 26,608
Vice President and Chief 1998 $ 96,346(3) $ 7,599 None $ -- -- None
Financial Officer
F. Michael Stapleton, Executive 1999 $110,827 $ 4,859 None $287,500 25,000 $ 27,349
Vice President and Chief 1998 $ 63,462 $ 2,599 None $ -- -- None
Operating Officer
- --------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Stisser, Mr. Covert and Mr. Stapleton did not receive additional
benefits or perquisites totaling more than 10% salary and bonus.
(2) For Mr. Stisser, amount includes the Banks' matching contribution under its
401(k) Plan of $7,125 in 1997, $6,931 in 1998, and $5,000 in 1999; and life
insurance premium payments of $211 in 1997, $215 in 1998 and $160 in 1999.
For 1998 and 1999, the amount also includes $4,510 and $30,905 respectively,
representing Mr. Stisser's allocated share of contributions that the Bank
made to the ESOP to repay the principal balance of the loan used by the ESOP
to purchase stock of the Company. The 1999 amount also includes $7,208 in
dividends paid to Mr. Stisser on restricted stock awards.
For Mr. Covert, the 1999 amount includes $23,004 representing Mr. Covert's
ESOP allocation and $3,604 in dividends on restricted stock awards.
The amount for Mr. Stapleton includes $22,844 for ESOP allocation and $4,505
for restricted stock dividends.
(3) Includes a $35,000 one-time payment upon commencement of employment.
51
On April 28, 1999, the stockholders of CNY Financial Corporation approved
the Personnel Recognition and Retention Plan which provides for awards of
restricted stock to directors and officers and other employees of the Company.
The awards to directors became immediately effective upon the approval of the
plans and awards to officers and other employees are at the discretion of
committee of the Board of Directors. The awards vest annually over a five year
period beginning on the date of stockholder approval. Dividends on unvested
shares are paid to the award recipient.
The vesting of all shares accelerates in the event of a change in
control, retirement, death or disability. All awards under the plan will fully
vest upon stockholder approval of the proposed Agreement and Plan of Merger with
Niagara Bancorp, Inc.
The following table sets forth information regarding awards made under
the plan to the executive officers named in the above Summary Compensation
Table.
AGGREGATE RESTRICTED STOCK GRANTS
- --------------------------------------------------------------------------------
Restricted
Stock Holdings Value at
Name At 12/31/99 12/31/99
- --------------------------------------------------------------------------------
Wesley D. Stisser 40,000 $ 720,000
Steven A. Covert 20,000 $ 360,000
F. Michael Stapleton 25,000 $ 450,000
================================================================================
On April 28, 1999, the stockholders of CNY Financial Corporation approved
the Stock Option Plan which provides for grants of stock options to directors
and officers and other employees of the Company. The grants to directors became
immediately effective upon the approval of the plans and grants to officers and
other employees are at the discretion of a committee of the Board of Directors.
The grants vest annually over a five year period beginning on the date of
stockholder approval. The vesting of all options granted under the plan will
fully vest upon stockholder approval of the proposed Agreement and Plan of
Merger with Niagara Bancorp, Inc.
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------------
Number of Percent of total
securities options
underlying granted to Exercise
options employees in price Expiration Grant date
Name granted(#) fiscal year ($/Sh) date value $ (1)
- --------------------------------------------------------------------------------------------------------------------
Wesley D. Stisser 50,000 27.8% $11.50 4/28/09 $ 362,500
Steven A. Covert 25,000 13.9% $11.50 4/28/09 $ 181,250
F. Michael Stapleton 25,000 13.9% $11.50 4/28/09 $ 181,250
===================================================================================================================
(1) On December 28, 1999, the Company signed a definative agreement with Niagara
Bancorp, Inc. under which Niagara Bancorp, Inc. will acquire all the
outstanding shares of the Company for $18.75 per share. As such, this share
price was used to value the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUE
- -------------------------------------------------------------------------------------------------------------------------------
Number of Value of
securities underlying unexercised in-the-
Shares unexercised options money options
acquired Value at FY-end (#) at FY-end ($)
on exercise Realized ------------------------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
Wesley D. Stisser None N/A -- 50,000 $ -- $ 325,000
Steven A. Covert None N/A -- 25,000 $ -- $ 162,500
F. Michael Stapleton None N/A -- 25,000 $ -- $ 162,500
===============================================================================================================================
52
EMPLOYMENT CONTRACTS
In 1998, the Bank entered into employment contracts with Mr. Stisser, Mr.
Stapleton, Mr. Covert and Mr. Meeker. The contracts with Mr. Stisser and Mr.
Stapleton provide for three-year terms and the contracts with Mr. Covert and Mr.
Meeker provide for two-year terms. The current salaries under the four contracts
are $175,000 for Mr. Stisser, $116,000 for Mr. Stapleton, $116,000 for Mr.
Covert and $85,000 for Mr. Meeker, subject to such bonuses or increases as may
be approved by the Board of Directors. The contracts also provide that each
officer will participate in all other retirement and fringe benefit plans by the
Bank to employees generally, except that they are not entitled to participate in
the Employee Severance plan because their contracts separately address the
issues covered by the plan.
If the Bank terminates any of the executive officer's employment other
than for cause, he will be entitled to a lump sum payment. For Mr. Stisser, Mr.
Stapleton and Mr. Covert, the payment is generally equal to the greater of one
year's salary or salary for the unexpired term of the contract. Mr. Meeker, the
payment is generally equal to lesser of one year's salary or his salary for the
remainder of the term of the contract. All the contracts provide that the
payment will also be made if the officer resigns after material breach by the
Bank or after certain adverse changes in the terms and conditions of employment.
The contracts further provide that, subject to certain conditions, if
employment is terminated within six months after a change in control of the Bank
or the Company, or if the executive officer resigns after certain adverse
changes in terms and conditions of employment, the officer will be entitled to
receive a lump sum payment generally equal to 299% of the annual salary payable
to the officer prior to such termination, but in no event more than the maximum
amount which the Bank may pay without an excise tax being due under Section 280G
of the Internal Revenue Code. Under certain circumstances, the amount of the
payment to be made to some of the executive officers may be less. For purposes
of the contracts, a "change in control" will generally be deemed to occur when a
person or group acting together acquires beneficial ownership of 25% or more of
any class of equity security of the Company or Bank; upon stockholder approval
of a merger or consolidation unless certain conditions are met; upon a change of
the majority of the Board of Directors of the Company or the Bank; or upon
liquidation or sale of substantially all the assets of the Company or the Bank.
Under certain circumstances, severance benefits payable under the contracts are
reduced by the value of Stock Option Plan and PRRP awards which the officer
receives.
Mr. Stisser has waived his right to receive any payment upon change in
control in connection with the proposed transaction with Niagara Bancorp, Inc.
and he expects to retire when that transaction is consummated. Mr. Stapleton and
Mr. Meeker are expected to continue in the employ of Cortland Savings Bank after
consummation, so no change in control payment would be payable to them. Mr.
Covert's employment is expected to terminate on or about the consummation of the
Niagara Bancorp transaction and he will be paid a severance payment under his
contract of approximately $348,000.
PENSION PLAN. The Bank formerly maintained a defined benefit pension plan
for eligible employees. The Bank terminated the plan at the end of 1998. All
employees who were participants in the plan at that time automatically became
fully vested in their pension benefit. All pension benefit amounts under the
plan were frozen at September 30, 1998, based on compensation and years of
service with the Bank at that time. In general, each participant is entitled to
an annual retirement benefit equal to 2% of the participant's average annual
compensation multiplied by the participant's number of years of service, up to
30 years of service, with an offset for social security.
At the termination of the plan, Mr. Stisser chose a lump sum distribution
of his entire pension benefit and received approximately $1.0 million for his
more than 30 years of service (actually approximately 45 years of service) with
the Bank. Mr. Covert and Mr. Stapleton had no years of service under the plan
when it was terminated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Human Resources Committee of the Bank and the Company consist of
directors Compagni, Hayes, Kashdin and Reed. None of these individuals is or has
been an officer or employee of the Company or the Bank, nor has any other
director of the Company or the Bank other than Mr. Stisser. When the Board of
Directors function on matters pertaining specifically to the compensation of Mr.
Stisser, he does not participate in the deliberations or vote of the Board. See
Item 13 below regarding transactions between the Bank and certain directors.
53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information, to the best of the Company's
knowledge, about stock ownership by directors, executive officers and any person
or group the Company knows to beneficially own more than 5% of its outstanding
common stock. The information is as of February 11, 2000. Information about
persons or groups who own beneficially more than 5% of our common stock is based
on filings with the Securities and Exchange Commission on or before February 11,
2000.
Shares Beneficially Percent of total
owned shares
Beneficial Owner at February 11, 2000 (1) outstanding (2)
- ---------------- ----------------------- ---------------
CNY Financial Corporation Employee Stock Ownership Plan 401,696 (3) 8.62%
One North Main Street, Cortland, New York, 13045
Wesley D. Stisser, President and Chief Executive Officer 67,140 (4) 1.44%
Joseph H. Compagni, Director 39,355 (5) *
Patrick J. Hayes, M.D., Director 46,355 (6) 1.00%
Robert S. Kashdin, CPA., Director 27,355 (7) *
Harvey Kaufman, Director and Chairman of the Board 30,355 (8) *
Donald P. Reed, Director 26,355 (9) *
Lawrence B. Seidman, Esq., Director 463,882 (10) 9.96%
Terrance D. Stalder, Director 20,395 (11) *
Steven A. Covert, Executive Vice President and Chief Financial Officer 36,278 (12) *
Directors and Executive Officers of the Company and Executive
Officers of the Bank, as a group (11 persons) 834,171 (13) 17.91%
- ---------------------------------------------------------------------------
NOTES TO THE STOCK OWNERSHIP TABLE
(1) Amount includes shares held directly, as well as shares allocated to such
individuals under the CNY Financial Corporation ESOP, and other shares with
respect to which a person may be deemed to have sole voting or investment power.
The table also includes 7,142 shares awarded in April 1999 to each non-employee
director (except for Lawrence B. Seidman) pursuant to the PRRP. The table also
includes 3,213 options awarded to each of the ten non-employee directors, 10,000
options for Mr. Stisser, 5,000 options for Mr. Covert and 9,000 options for
other executive officers. These options, representing 20% of the options awarded
to such persons under the CNY Financial Corporation Stock Option Plan, will
become exercisable on April 28, 2000 and hence are includable in the table.
(2) Based upon 4,601,373 shares outstanding on February 11, 2000 plus 56,130
options exercisable on April 28 as described in note 1. An asterisk ("*") means
that the percentage is less than 1%.
(3) Excludes 26,836 shares allocated to ESOP participants. HSBC Bank, the
trustee of the ESOP, may be deemed to own beneficially the unallocated shares
held by the ESOP. Unallocated shares and allocated shares for which no voting
instructions are received are voted in the same proportion as allocated shares
voted by participants.
(4) Includes 40,000 unvested PRRP shares, 14,972 shares owned by Mr. Stisser
through the Company's 401(k) Plan; 500 shares in custodial accounts for the
benefit of his grandchildren; and 2,168 shares allocated to Mr. Stisser in the
CNY Financial Corporation ESOP.
(5) Includes 1,000 shares owned by a testamentary trust of which Mr. Compagni is
the trustee and his mother is a beneficiary.
(6) Includes 36,000 shares owned by Dr. Hayes' Individual Retirement Account.
(7) Includes 2,500 shares owned by Mr. Kashdin's Individual Retirement Account
and 1,000 shares owned by his wife.
(8) Includes 15,000 shares owned by Mr. Kaufman's Individual Retirement Account.
(9) Includes 3,100 shares owned by Mr. Reed's Individual Retirement Account. The
amount shown excludes 15,000 shares owned by Dryden Mutual Insurance Company.
Mr. Reed is the Chairman of the Board of Dryden Mutual Insurance Company but is
not an employee of it. He has no ownership interest in Dryden Mutual Insurance
except for a minuscule interest as a policy holder. Mr. Reed disclaims any
ownership interest in those shares and does not vote as a director of Dryden
Mutual on any matters related to the investment in or the voting of those
shares.
54
(10) The shares shown include all shares listed on a report filed under Section
13(d) of the Securities Exchange Act of 1934 by Lawrence B. Seidman, 100 Misty
Lane, Parsippany, New Jersey 07054, jointly with Seidman and Associates L.L.C.
("SAL"), Seidman and Associates II, L.L.C. ("SALII"), Seidman Investment
Partnership, L.P. ("SIP"); Seidman Investment Partnershp II, L.P. ("SIPII") (the
address of the last three named entities is 19 Veteri Place, Wayne, New Jersey
07470); Kerrimatt, L.P. ("Kerrimatt"), 80 Main Street, West Orange, New Jersey
07052; Federal Holdings L.L.C. ("Federal"), One Rockefeller Plaza, 31st Floor,
New York, NY 10020; The Benchmark Company, Inc. ("TBCI"), Benchmark Partners,
L.P. ("Partners"); Richard Witman; Lorraine DiPaolo (the address of the last two
named individuals and the previous two named entities is 750 Lexington Avenue,
New York, NY 10022); and Dennis Pollack, 47 Blueberry Drive, Woodcliff Lakes, NJ
07675. Not all of the shares shown are reported to be owned beneficially by Mr.
Seidman, but all are reported to be owned beneficially by the individuals and
entities filing the Schedule 13D as a group. According to the Schedule 13D, the
following is a breakdown of the ownership of the shares shown: (a) Mr. Seidman
has sole investment discretion and voting authority for 374,400 shares of the
Company owned by SAL, SALII, SIP, SIPII, Kerrimatt, Federal and various
individual clients of Mr. Seidman; (b) Mr. Whitman and Ms. DiPaola share the
investment discretion and voting authority for 72,400 shares of the Company
owned by TBCI and Partners, and each of them has sole investment discretion and
voting authority for an additional 1,000 shares each; (c) Mr. Pollack has the
sole investment discretion and voting authority over 11,869 shares owned by him.
(11) Includes 8,540 shares owned by Mr. Stalder's Individual Retirement Account.
(12) Includes 20,000 unvested PRRP shares. Also includes 1,278 shares allocated
to Mr. Covert in the CNY Financial Corporation ESOP.
(13) This total includes shares beneficially owned by all directors and
executive officers listed in the table plus two executive officers not
separately listed. The total also includes 45,000 unvested PRRP shares awarded
to the two executive officers of the Company and the Bank and 2,449 shares
allocated to those officers in the CNY Financial Corporation ESOP not separately
listed. The total also includes 86,269 shares reported in the Schedule 13D filed
by Mr. Seidman and others, over which other persons are reported to have
investment discretion and voting authority (see note 10).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The directors and executive officers of the Company maintain normal
deposit account relationships with the Bank in the ordinary course of business
on terms and conditions no more favorable than those available to the general
public. In the ordinary course of business, the Bank makes loans to directors,
officers and employees, as well as other related parties. All loans to directors
and executive officers and related parties are on substantially the same terms,
including interest rate and collateral, as those prevailing at the same time for
comparable loans to other customers and do not involve more than the normal risk
of collectibility or present other unfavorable features.
Directors Kaufman and Compagni are uncompensated volunteer members of the
Board of Directors of the J.M. Murray Center, a not-for-profit corporation
providing services to the developmentally disabled. The J.M. Murray Center has a
loan in which the Bank is a 50% participant with another local bank. The loan is
secured by a mortgage on a light manufacturing facility operated by the borrower
as a source of employment for the developmentally disabled.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
3.0 Exhibits
--------
2.1 Agreement and Plan of Berger, dated December 28, 1999
by and between CNY Financial Corporation, Niagara
Bancorp, Inc. and Niagara Merger Corp., including Stock
Option Agreement and letter voting agreement as
exhibited. (incorporated by reference to Exhibit 2.1 of
the Company's Form 8-K filing with the Securities and
Exchange Commission on January 6, 2000).
3.1 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the
Company's Form S-1 Registration Statement (No.
333-57259) filed with the Securities and Exchange
Commission on June 19, 1998).
55
3.2 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the
Company's Form S-1 Registration Statement (No.
333-57259) filed with the Securities and Exchange
Commission on June 19, 1998).
3.3 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Form S-1 Registration
Statement (No. 333-57259) filed with the Securities and
Exchange Commission on June 19, 1998).
10.1 Employment Agreement between Cortland Savings Bank and
Wesley D. Stisser (incorporated by reference to Exhibit
10.1 of the Company's Form S-1 Registration Statement
(No. 333-57259) filed with the Securities and Exchange
Commission on June 19, 1998).
10.2 Employment Agreement between Cortland Savings Bank and
F. Michael Stapleton (incorporated by reference to
Exhibit 10.2 of the Company's Form S-1 Registration
Statement (No. 333-57259) filed with the Securities and
Exchange Commission on June 19, 1998).
10.3 Employment Agreement between Cortland Savings Bank and
Steven A. Covert (incorporated by reference to Exhibit
10.3 of the Company's Form S-1 Registration Statement
(No. 333-57259) filed with the Securities and Exchange
Commission on June 19, 1998).
10.4 Employment Agreement between Cortland Savings Bank and
Kerry D. Meeker (incorporated by reference to Exhibit
10.4 of the Company's Form S-1 Registration Statement
(No. 333-57259) filed with the Securities and Exchange
Commission on June 19, 1998).
10.5 CNY Financial Corporation Stock Option Plan for
Directors, Officers and Employees.
10.6 CNY Financial Corporation Personnel Recognition and
Retention Plan for Directors, Officers and Employees.
10.7 Agreement with CIBC World Markets Corp. for investment
banking services.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG, LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and Exchange
Commission on January 6, 2000 announcing the merger agreement
with Niagara Bancorp, Inc.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CNY FINANCIAL CORP.
By: /s/ WESLEY D. STISSER 2/21/00
------------------------------------------------------- --------
Wesley D. Stisser (Dated)
President & Chief Executive Officer
/s/ STEVEN A. COVERT 2/21/00
------------------------------------------------------- --------
Steven A. Covert (Dated)
Executive Vice President & Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ JOSEPH H. COMPAGNI 2/21/00
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Joseph H. Compagni (Dated)
Director
/s/ PATRICK J. HAYES 2/21/00
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Patrick J. Hayes (Dated)
Director
/s/ ROBERT S. KASHDIN 2/21/00
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Robert S. Kashdin (Dated)
Director
/s/ Harvey Kaufman 2/21/00
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Harvey Kaufman (Dated)
Director
/s/ DONALD P. REED 2/21/00
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Donald P. Reed (Dated)
Director
/s/
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Lawrence Seidman (Dated)
Director
/s/ TERRANCE D. STALDER 2/21/00
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Terrance D. Stalder (Dated)
Director
/s/ Wesley D. Stisser 2/21/00
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Wesley D. Stisser (Dated)
Director
57
Index To Exhibits
2.1 Agreement and Plan of Merger, dated December 28, 1999 by and
between CNY Financial Corporation, Niagara Bancorp, Inc. and
Niagara Merger Corp., including Stock Option Agreement and letter
voting agreement as exhibits*
3.1 Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
10.1 Employment Agreement between Cortland Savings Bank and Wesley D.
Stisser*
10.2 Employment Agreement between Cortland Savings Bank and F. Michael
Stapleton*
10.3 Employment Agreement between Cortland Savings Bank and Steven A.
Covert*
10.4 Employment Agreement between Cortland Savings Bank and Kerry D.
Meeker*
10.5 CNY Financial Corporation Stock Option Plan for Directors, Officers
and Employees
10.6 CNY Financial Corporation Personnel Recognition and Retention Plan
for Directors, Officers and Employees
10.7 Agreement with CIBC World Markets Corp. for investment banking
services.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
*Previously filed.
58