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 31,1998
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 $54.2 million as of March 17,
1998. As of March 17, 1998, the registrant had 5,088,829 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Stockholders' Report for the year ended
December 31,1998, are incorporated by reference into Part II hereof and portions
of the Proxy Statement for the registrant's Annual Meeting of Stockholders to be
held on April 28, 1999, are incorporated by reference into Part III hereof.
TABLE OF CONTENTS
PART I
ITEM 1. Business........................................................ 1-12
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.................... ........................ 13
ITEM 6. Selected Financial Data........................................... 13
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.... ........................ 13
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk......... 14
ITEM 8. Financial Statements and Supplementary Data....................... 14
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..... ....................... 14
PART III
ITEM 10. Directors and Executive Officers of the Registrant................ 14
ITEM 11. Executive Compensation............................................ 14
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.... 14
ITEM 13. Certain Relationships and Related Transactions.................... 14
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................................. 15
Signatures ............................................................... 16
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 $281 million at December 31, 1998. 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 a loan production office in Ithaca, Tompkins 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 the Company's 1998 Annual Report, included as an exhibit to this
Form 10-K.
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 the purchases 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,
----------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE: (Dollars in thousands)
U.S. Treasury securities $ 8,041 $ 8,136 $ 15,045 $ 15,141 $ 14,497 $ 14,550
U.S. Government agencies 4,996 5,028 996 1,005 4,988 4,993
Corporate debt obligations 27,649 27,822 13,819 13,861 13,233 13,252
State and municipal sub-divisions 917 927 - - - -
Mortgage-backed securities 42,801 43,041 12,144 12,211 11,833 11,722
- -----------------------------------------------------------------------------------------------------------------
Total debt securities 84,404 84,954 42,004 42,218 44,551 44,517
Equity securities 2,072 3,483 1,192 1,922 628 1,077
- -----------------------------------------------------------------------------------------------------------------
Total available-for-sale 86,476 88,437 43,196 44,140 45,179 45,594
- -----------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
U.S. Government agencies 1,505 1,507 1,992 1,995 - -
Corporate debt obligations 2,858 2,878 1,854 1,870 - -
State and municipal sub-divisions 747 764 425 430 858 867
Mortgage-backed securities 5,208 5,255 8,279 8,274 10,899 10,766
- -----------------------------------------------------------------------------------------------------------------
Total held-to-maturity 10,318 10,404 12,550 12,569 11,757 11,633
- -----------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES $ 96,794 $ 98,841 $ 55,746 $ 56,709 $ 56,936 $ 57,227
=================================================================================================================
1
DEBT SECURITIES. The Company's debt securities totaled $95.3 million at
December 31, 1998. 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, 1998, 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.
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. At
December 31, 1998, more than 97.5% of the carrying value of the Company's debt
securities, excluding mortgage-backed securities, had remaining terms to
maturity of five years or less.
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 $3.5 million at December 31, 1998. The Bank
intends to invest approximately an additional $50,000 per month in equity
securities.
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, 1998.
SECURITIES, MATURITIES AND YIELDS. The following table sets forth
maturities and the weighted average yields of the Company's securities portfolio
at December 31, 1998.
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN 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 $ 5,066 6.17% $ 3,069 6.33% $ -- --% $ -- --% $ 8,135 6.25%
--
U.S. Government agencies 1,001 6.55% 5,533 5.90% -- --% -- --% 6,534 6.23%
Corporate debt 13,512 5.65% 17,168 6.01% -- --% -- --% 30,680 6.10%
State and municipal
subdivisions -- --% 486 4.25% 1,188 4.25% -- --% 1,674 4.28%
Mortgage-backed securities 560 6.38% 2,404 7.07% 4,611 7.31% 40,674 6.80% 48,249 6.89%
- ---------------------------------------------------------------------------------------------------------------------------------
Total $20,139 $ 28,660 $ 5,799 $ 40,674 $ 95,272
=================================================================================================================================
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without
prepayment penalties.
2
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,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------------------------
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 $101,885 62.96% $ 97,303 61.66% $ 96,097 59.73% $ 95,854 59.57% $ 92,942 60.12%
Construction 145 0.09 316 0.20 528 0.33 155 0.10 1,065 0.69
Home equity 6,804 4.20 5,924 3.75 5,882 3.66 6,344 3.94 7,085 4.58
Commercial mortgages 29,224 18.06 30,867 19.56 35,119 21.83 35,165 21.86 32,756 21.19
- ------------------------- -------- --------- -------- --------- --------- ---------- -------- --------- -------- ----------
Total real estate loans 138,058 85.31 134,410 85.17 137,626 85.55 137,518 85.47 133,848 86.58
- ------------------------- -------- --------- -------- --------- --------- ---------- -------- --------- -------- ----------
Other loans:
Guaranteed student loans 1,016 0.63 1,507 0.96 1,552 0.96 1,747 1.09 1,960 1.27
Property improvement
loans 709 0.44 907 0.57 1,031 0.64 916 0.57 822 0.53
Automobile loans 10,854 6.71 8,902 5.64 6,378 3.96 5,510 3.42 4,617 2.99
Other consumer loans 4,597 2.84 5,031 3.19 6,289 3.91 6,174 3.84 5,993 3.88
Commercial Loans 6,588 4.07 7,049 4.47 8,020 4.98 9,023 5.61 7,366 4.75
- ------------------------- -------- --------- -------- --------- --------- ---------- -------- --------- -------- ----------
Total other loans 23,764 14.69 23,396 14.83 23,270 14.45 23,370 14.53 20,758 13.42
- ------------------------- -------- --------- -------- --------- --------- ---------- -------- --------- -------- ----------
Total loans 161,822 100.00% 157,806 100.00% 160,896 100.00% 160,888 100.00% 154,606 100.00%
Less:
Deferred loan fees, net 121 241 333 379 378
Allowance for loan 2,494 2,143 1,952 2,002 1,752
losses
- ------------------------- -------- --------- -------- --------- --------- ---------- -------- --------- -------- ----------
Total loans, net $159,207 $155,422 $ 158,611 $158,507 $152,476
========================= ======== ========= ======== ========= ========= ========== ======== ========= ======== ==========
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. As the Company seeks to position itself to be able to sell
mortgage loans on the secondary market towards the middle of 1999, it will begin
to require title insurance on first lien residential mortgage loans it intends
to sell. 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%.
3
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%.
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 110% 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. Attorney's opinions of title are used instead of title insurance for
smaller commercial 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.
4
The Company offers automobile loans for both new and used cars. The
loans have fixed rates with maturities not more than five 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 a term 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 borrower's
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 sale.
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 maturities of commercial and real
estate construction loans outstanding at December 31, 1998. 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 $ 2,971 $ 1,918 $ -- $ 1,844 $ -- $ 6,733
===================================================================================================================
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.
5
The following table provides certain information on the Company's
non-performing loans at the dates indicated.
AT DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Non-accrual loans: (1)
Residential mortgages $ 667 $ 2,010 $ 1,069 $ 772 $ --
Commercial mortgages 167 1,235 1,416 421 1,295
- ----------------------------------------------------------------------------------------------------------------------------
Total real estate loans 834 3,245 2,485 1,193 1,295
Commercial loans 71 331 790 739 51
Other loans 15 209 358 62 --
- ----------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 920 3,785 3,633 1,994 1,346
Accruing loans past due 90 days or more:
Residential mortgages -- 2 1 -- 747
Commercial mortgages -- -- -- -- 310
- ----------------------------------------------------------------------------------------------------------------------------
Total real estate loans -- 2 1 -- 1,057
Commercial loans 11 -- -- -- 13
Other loans 4 7 33 -- 47
- ----------------------------------------------------------------------------------------------------------------------------
Total loans past due 90 days or more and still
accruing 15 9 34 -- 1,117
- ----------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 935 3,794 3,667 1,994 2,463
Real estate owned 260 964 563 374 572
- ----------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 1,195 $ 4,758 $ 4,230 $ 2,368 $ 3,035
=============================================================================================================================
Non-performing loans as a percent of total loans 0.58% 2.37% 2.28% 1.24% 1.60%
Non-performing assets as a percent of total assets 0.42% 2.04% 1.78% 1.00% 1.32%
=============================================================================================================================
(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, 1998 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 future 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.
6
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 project
potential future losses in the loan 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,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Allowance for loan losses, beginning
of year $ 2,143 $ 1,952 $ 2,002 $ 1,752 $ 1,620
Provision for loan loss 325 3,300 1,380 600 300
- ---------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Real estate 16 2,484 264 478 110
Commercial 52 395 898 31 21
Other 112 400 551 96 137
- ---------------------------------------------------------------------------------------------------------------------------
Total charge-offs 180 3,279 1,713 605 268
Recoveries:
Real estate 96 9 24 161 --
Commercial 40 61 190 -- --
Other 70 100 69 94 100
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 206 170 283 255 100
- ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (26) 3,109 1,430 350 168
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of year $ 2,494 $ 2,143 $ 1,952 $ 2,002 $ 1,752
===========================================================================================================================
Allowance for loan losses as a
percent of total loans 1.54% 1.34% 1.22% 1.25% 1.14%
Allowance for loan losses as a
percent of non-performing loans 266.74% 56.48% 53.23% 100.40% 71.13%
Ratio of net charge-offs (recoveries)
to average loans outstanding (0.02)% 1.97% 0.90% 0.22% 0.12%
===========================================================================================================================
The following table presents the allocation of the allowance for loan
losses.
AT DECEMBER 31,
------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
LOANS LOANS LOANS LOANS LOAN
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 $1,187 67.25% $ 661 65.61% $ 389 63.72% $ 112 63.61% $ 746 65.39%
Commercial mortgages 617 18.06 638 19.56 818 21.83 753 21.86 341 21.19
Commercial loans 279 4.07 183 4.47 478 4.98 961 5.61 331 4.75
Other loans 411 10.62 192 10.36 267 9.47 176 8.92 334 8.67
Unallocated -- -- 469 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total allowance $2,494 100.00% $2,143 100.00% $1,952 100.00% $2,002 100.00% $1,752 100.00%
==============================================================================================================================
7
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 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, 1998.
December 31, 1998
--------------------------------------------------------------------
(Dollars in thousands)
Maturing within three months $ 1,705
After three but within six months 1,528
After six but within twelve months 4,153
After twelve months 5,642
--------------------------------------------------------------------
Total $13,028
====================================================================
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
$1 million of borrowings from the FHLB at December 31, 1998.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. References under this heading to applicable statues or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of savings banks and bank holding
companies, including the Company and the Bank. However, management is not aware
of any current recommendations by any regulatory authority which, if
implemented, would have or would be reasonable likely to have a material adverse
effect on liquidity, capital resources or operations of the Company or the Bank.
BANK HOLDING COMPANY REGULATION: The Company is registered as a "bank
holding company" with the Federal Reserve and accordingly, is subject to
supervision by the Federal Reserve under the Bank Holding Company Act (the "BHC
Act"). The Company is required to file with the Federal Reserve periodic reports
and such additional information as the Federal Reserve may require pursuant to
the BHC Act. The Federal Reserve has the authority to examine the Company and
may also examine the Bank.
8
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHC Act prohibits a bank holding company
from acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. Under the BHC Act
and Federal Reserve regulations, the Company and the Bank are prohibited from
engaging in certain tie-in arrangements in connection with an extension of
credit, lease, sale of property, or furnishing of services.
Any person, including associates and affiliates of and groups acting in
concert with such person, who purchases or subscribes for ten percent or more of
any class of the Company's voting stock may be required to obtain prior approval
of the Federal Reserve under the BHC Act. Prior regulatory approval is also
required before acquiring the power to directly or indirectly direct the
management, operations or policies of the Company or the Bank. In addition, any
corporation, partnership, trust or organized group that acquires a controlling
interest in the Company or the Bank may have to obtain approval of the Federal
Reserve to become a bank holding company and thereafter be subject to regulation
as such. Furthermore, in order for the Company to acquire control of another
bank or bank holding company so that the Company owns, directly or indirectly,
two separate banks, the advance approval of the New York Banking Board would
generally also be required.
It is the policy of the Federal Reserve that the Company is expected to
act as a source of financial strength to the Bank and to commit resources to
support the Bank. The Federal Reserve takes the position that in implementing
this policy, it may require the Company to provide such support when the Company
otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risks. Under the Federal
Reserve's risk-based guidelines, capital is classified into two categories. For
bank holding companies, Tier 1 or "core" capital consists of common
shareholders' equity, perpetual preferred stock and trust preferred stock (both
subject to certain limitations) and minority interest in the common equity
accounts of consolidated subsidiaries, and is reduced by goodwill, certain other
intangible assets and certain investments in other corporations ("Tier 1
capital"). Tier 2 capital consists of the allowance for loan and lease losses
(subject to certain conditions and limitations), perpetual preferred stock (to
the extent not included in Tier 1 capital), "hybrid capital instruments,"
perpetual debt and mandatory convertible debt securities, and term subordinated
debt and intermediate-term preferred stock.
Under the Federal Reserve's capital guidelines, bank holding companies
are required to maintain a minimum ratio of qualifying capital to risk-weighted
assets of 8.0%, of which at least 4.0% must be in the form of Tier 1 capital.
The Federal Reserve also requires a minimum leverage ratio of Tier 1 capital to
total average assets of 4.0%, except that bank holding companies not rated in
the highest category under the regulatory rating system are required to maintain
a leverage ratio of 1.0% to 2.0% above such minimum. The 4.0% Tier 1 capital to
total average assets ratio constitutes the minimum leverage standard for bank
holding companies, and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations. In addition,
the Federal Reserve considers the Tier 1 leverage ratio in evaluating proposals
for expansion or new activities.
As of December 31, 1998, the Company had a Tier 1 capital to
risk-weighted assets ratio ("Tier 1 Ratio") of 47.42%, total capital to
risk-weighted assets ratio ("Tier 2 Ratio") of 48.91% and a Tier 1 capital to
total average assets ratio ("leverage ratio") of 29.57%.
TRANSACTIONS WITH AFFILIATES. Transactions between a bank and its
holding company or other affiliates are subject to various restrictions imposed
by state and federal regulatory agencies. Such transactions include loans and
other extensions of credit, purchases of securities and other assets, and
payments of fees or other distributions. In general, these restrictions limit
the amount of transactions between an institution and an affiliate of such
institution, as well as the aggregate amount of transactions between an
institution and all of its affiliates, and require transactions with affiliates
to be on terms comparable to those for transactions with unaffiliated entities.
DIVIDEND LIMITATIONS. As a holding company, the Company is primarily
dependent upon dividend distributions from the Bank and interest on investments
for its income. Federal statutes and regulations impose restrictions on the
payment of dividends by the Company and the Bank.
9
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.
Delaware law also places certain limitations on the ability of the
Company to pay dividends. For example, 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, a stock form savings bank may pay
dividends out of its net profits unless there is an impairment of capital. A
savings bank may not declare dividends in any year which exceed the total net
profits of that year combined with the bank's retained net profits of the
preceding two years, subject to certain adjustments, without the approval of the
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 in the conversion.
The FDIC and the Superintendent 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 file reports with the Banking
Department and the FDIC concerning its activities and financial condition, and
it 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. Additionally, instead of investing in securities as specifically
permitted in the Banking Law, the Bank may elect to invest under a prudent
person standard in a wider range of debt and equity securities. The Bank has not
exercised the right to invest under this prudent person standard. If the Bank
elects to utilize the "prudent person" standard, it will be unable to use the
other provisions of the Banking Law and regulations which permit specific
investments. New York State chartered savings banks may also exercise trust
powers upon approval of the Banking Board. The Bank has not sought such
approval.
At December 31, 1998, the Bank did not have any operating subsidiaries.
The Bank may invest in subsidiaries that engage in activities in which savings
banks may engage directly, plus any additional activities which may be
authorized by the Banking Board. Investment in the stock, capital notes and
debentures of all subsidiaries is limited to 3% of the Bank's assets, and such
investments, together with the Bank's loans to its subsidiaries, may not exceed
10% of the Bank's 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.
10
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.
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. The Bank, as a New York State chartered savings
bank, may make mortgage loans to any borrower or group of borrowers without
regard to mandatory maximum loan amount limits based upon capital or any other
measure imposed by law, except for general concepts of prudence and safety and
soundness. However, with certain exceptions, 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.
Similar limits apply to most other types of non-mortgage loans. The Bank
currently complies with these limits.
CAPITAL REQUIREMENTS. The FDIC regulates the capital adequacy of the
Bank. The FDIC requires that the highest rated banks maintain a leverage ratio
of at least 3.0%. All other banks subject to FDIC capital requirements must
maintain a leverage ratio of 4.0% to 5.0% or more. As of December 31, 1998, the
Bank's leverage capital ratio was 23.40%.
The Bank must also meet a risk-based capital standard. The risk-based
standard requires the Bank to maintain total capital (defined as Tier 1 and Tier
2 capital) to risk-weighted assets of at least 8% of which at least 4% must be
Tier 1 capital. In determining the amount of risk-weighted assets, all assets,
plus certain off-balance sheet assets, are multiplied by a risk-weight of 0% to
100%, based on the risks the FDIC believes are inherent in the type of asset. As
of December 31, 1998, the Bank maintained a 37.32% Tier 1 risk-based capital
ratio and a 38.82% total risk-based capital ratio.
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.
FDIC regulations provide that the Bank's performance under the
Community Reinvestment Act is evaluated based on its actual performance in
meeting community needs. In particular, the rating system focuses on three
tests: (a) a lending test, to evaluate the Bank's record of making loans in its
assessment areas; (b) an investment test, to evaluate the Bank's record of
investing in community development projects, affordable housing, and programs
benefiting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the Bank's delivery of banking services. 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 Banking Department makes an annual written
assessment of the Bank's compliance. The Banking Department considers the Bank's
state community reinvestment rating when reviewing an application to engage in
certain transactions, including mergers, asset purchases and the establishment
of branch offices or automated teller machines. The Bank received a satisfactory
rating from the Banking Department at its last state community reinvestment
examination.
11
STANDARDS FOR SAFETY AND SOUNDNESS. The Federal Reserve and the FDIC,
together with the other federal bank regulatory agencies, has prescribed
guidelines which establish minimum general standards 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 as well. 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. In addition, the FDIC may order an institution that has been given
notice by the FDIC that it is not satisfying any of such safety and soundness
standards to submit a compliance plan. If an institution then fails to submit an
acceptable plan or fails in an material respect to implement an accepted
compliance plan, the FDIC must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to which
an undercapitalized bank is subject under the "prompt corrective action"
requirements described below. If an institution fails to comply with such an
order, the FDIC may seek enforcement in judicial proceedings and civil money
penalties.
PROMPT CORRECTIVE ACTION. FDICIA requires the federal banking
regulators, including the Federal Reserve and the FDIC, to take prompt
corrective action with respect to depository institutions that fall below
certain capital standards. 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 and will be required to 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.
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,
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, 1998, the Company employed 91 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.
12
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 a representative office in
Ithaca for the originations of mortgage 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 offices at December
31, 1998.
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 $836
12 South Main Street, Homer, NY 13077 Various Owned $916
860 Route 13, Cortlandville, NY 13045 Various Owned $482
200 East Buffalo Street, Ithaca, NY 14850 1998 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
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required in response to this item is contained in the
Company's Annual Report under the captions "Stock Listing" and "Dividends" and
is incorporated herein by reference. 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
Information required in response to this item is contained in the
Annual Report to Stockholders under the caption "Selected Financial Highlights"
and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required in response to this item is contained in the
Company's Annual Report to Stockholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
is incorporated herein by reference. The discussion and analysis of financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and supplementary data contained in the
Company's Annual Report to Stockholders.
13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required in response to this item is contained in the
Company's Annual Report to Stockholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
is incorporated herein by reference. The discussion and analysis of financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and supplementary data contained in the
Company's Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the
Annual Report to Stockholders under the caption "Consolidated Financial
Statements," and is incorporated herein by reference.
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 information required in response to this item is contained in the
Company's definitive Proxy Statement (the "Proxy Statement") for its Annual
Meeting of Stockholders to be held April 28, 1999 under the caption "The Board
of Directors, Nominees and Executive Officers" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is contained in the
Company's Proxy Statement under the caption "Executive Officer Compensation" and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is incorporated by reference to the section "Principal
Owners of Our Common Stock" in the Proxy Statement for the Annual Meeting of
Stockholders to be held on April 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is contained in the
Proxy Statement under the caption "Transactions with Directors and Officers" and
is incorporated herein by reference.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1., 2. Financial Statements and Schedules
The Consolidated Financial Statements are incorporated by
reference to the following pages from the 1998 Annual Report
to Stockholders, attached hereto as Exhibit 13.1:
Page
----
Independent Auditor's Report 14
Consolidated Balance Sheets 15
Consolidated Statements of Income 16
Consolidated Statements of Stockholders' Equity
and Comprehensive Income 17
Consolidated Cash Flow Statements 18-19
Notes to Consolidated Financial Statements 20-37
No schedules are required to be filed with this report.
3.0 Exhibits
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).
3.2 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).
13.1 1998 Annual Report to Stockholders
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
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.
WESLEY D. STISSER MARCH 25, 1999
By: Wesley D. Stisser /s/ ---------------------------------------------------- -------------------
President & Chief Executive Officer (Dated)
STEVEN A. COVERT MARCH 25, 1999
Steven A. Covert /s/ ---------------------------------------------------- -------------------
Executive Vice President & Chief Financial Officer (Dated)
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.
JOSEPH H. COMPAGNI MARCH 25, 1999
Joseph H. Compagni /s/ ---------------------------------------------------- -------------------
Director (Dated)
PATRICK J.HAYES MARCH 25, 1999
Patrick J. Hayes /s/ ---------------------------------------------------- -------------------
Director (Dated)
ROBERT S. KASHDIN MARCH 25, 1999
Robert S. Kashdin /s/ ---------------------------------------------------- -------------------
Director (Dated)
HARVEY KAUFMAN MARCH 25, 1999
Harvey Kaufman /s/ ---------------------------------------------------- -------------------
Director (Dated)
DONALD P. REED MARCH 25, 1999
Donald P. Reed /s/ ---------------------------------------------------- -------------------
Director (Dated)
Lawrence Seidman ---------------------------------------------------- -------------------
Director (Dated)
TERRANCE D. STALDER MARCH 25, 1999
Terrance D. Stalder /s/ ---------------------------------------------------- -------------------
Director (Dated)
WESLEY D. STISSER MARCH 25, 1999
Wesley D. Stisser /s/ ---------------------------------------------------- -------------------
Director (Dated)
16
INDEX TO 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*
13.1 1998 Annual Report to Stockholders
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
*Previously filed.