UNITED
STATES
SECURITIES
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
|
T
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
fiscal year ended December 31, 2008.
or
*
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ______________ to ______________.
Commission file number:
000-23601
PATHFINDER
BANCORP, INC.
(Exact name
of registrant as specified in its charter)
Federal
16-
1540137
(State or
other jurisdiction
of
(I.R.S. Employer
incorporation
or
organization)
Identification No.)
214
West First Street
Oswego,
NY
13126
(Address
of principal executive
offices) (Zip Code)
Registrant's
telephone number, including area code:
(315)
343-0057
Securities
registered pursuant to Section 12(b) of the Act:
Title of each
class
Name of each exchange on
which registered
Common
Stock, $0.01 par
value The NASDAQ Stock
Market LLC
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES
*
NO
T
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES
*
NO
T
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 days. YES
T
NO
*
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
*
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
*
Accelerated
filer
*
Non-accelerated
filer
*
Smaller
reporting company
T
(Do not
check if a smaller reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES
*
NO
T
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the last sale price
on June 30, 2008, as reported by the Nasdaq Capital Market, was approximately
$5.8 million.
As of
March 13, 2009, there were 2,972,119 shares issued and 2,484,832 shares
outstanding of the Registrant’s Common Stock.
DOCUMENTS
INCORPORATED BY REFERENCE:
(1) Proxy
Statement for the 2009 Annual Meeting of Stockholders of the Registrant (Part
III).
(2) Annual Report to Stockholders
(Part II and IV).
TABLE
OF CONTENTS
FORM 10-K
ANNUAL REPORT
FOR THE
YEAR ENDED
DECEMBER
31, 2008
PATHFINDER
BANCORP, INC.
Page
PART
I
Item
1. Business
1
Item
1A. Risk
Factors
11
Item
1B. Unresolved
Staff
Comments
14
Item
2. Properties 15
Item
3. Legal
Proceedings
15
Item
4. Submission
of Matters to a Vote of Security
Holders 15
PART
II
Item
5. Market
for Registrant's Common Equity, Related Stockholder Matters and
Issuer 16
Purchases of Equity
Securities
Item
6. Selected
Financial
Data
17
Item
7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
18
Item
7A.
Quantitative and Qualitative Disclosures About Market
Risk
34
Item
8. Financial
Statements and Supplementary
Data 35
Item
9. Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure 71
Item
9A(T). Controls and
Procedures 71
Item
9B. Other
Information 71
PART
III
Item
10. Directors,
Executive Officers and Corporate
Governance
72
Item
11. Executive
Compensation
72
Item
12. Security
Ownership of Certain Beneficial Owners and Management and
Related 72
Stockholder Matters
Item
13. Certain
Relationships and Related Transactions, and Director
Independence 72
Item
14. Principal
Accountant Fees and
Services 72
PART
IV
Item
15. Exhibits
and Financial Statement
Schedules 73
PART
I
FORWARD-LOOKING
STATEMENTS
When used in this Annual
Report the words or phrases “will likely result”, “are expected to”, “will
continue”, “is anticipated”, “estimate”, ”project” or similar expression are
intended to identify “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties.
By identifying these
forward-looking statements for you in this manner, the Company is alerting you
to the possibility that its actual results and financial condition may differ,
possibly materially, from the anticipated results and financial condition
indicated in these forward-looking statements. Important factors that could
cause the Company’s actual results and financial condition to differ from those
indicated in the forward-looking statements include, among others, those
discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form
10-K. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The Company wishes to advise readers that the factors listed
above could affect the Company’s financial performance and could cause the
Company’s actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements. Additionally, all statements in this document, including
forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new
information or future events.
SIGNIFICANT
REGULATORY DEVELOPMENTS
The
Company is engaged in the financial services industry. This industry
has undergone, and will most likely further undergo, significant regulatory
developments. Significant regulatory developments as of the date of
this report are described in the “Regulation and Supervision” section
below. The regulatory landscape changes nearly daily and readers are
cautioned not to rely solely on the disclosures contained herein.
ITE
M 1: BUSINESS
GENERAL
Pathfinder
Bancorp, Inc.
Pathfinder
Bancorp, Inc. (the "Company") is a Federally chartered mid-tier holding company
headquartered in Oswego, New York. The primary business of the
Company is its investment in Pathfinder Bank (the "Bank"). The
Company is majority owned by Pathfinder Bancorp, M.H.C., a federally-chartered
mutual holding company (the "Mutual Holding Company"). At
December 31, 2008, the Mutual Holding Company held 1,583,239 shares of the
Company’s common stock (“Common Stock”) and the public held 901,593 shares of
Common Stock (the "Minority shareholders"). At December 31, 2008,
Pathfinder Bancorp, Inc. had total assets of $352.8 million, total deposits of
$269.4 million and shareholders' equity of $19.5 million.
The
Company's executive office is located at 214 West First Street, Oswego, New York
and the telephone number at that address is (315) 343-0057.
Pathfinder
Bank
The Bank
is a New York-chartered savings bank headquartered in Oswego, New
York. The Bank operates from its main office as well as six branch
offices located in its market area consisting of Oswego County and the
contiguous counties. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank was chartered as a
New York savings bank in 1859 as Oswego City Savings Bank. The Bank
is a customer-oriented institution dedicated to providing mortgage loans and
other traditional financial services to its customers. The Bank is
committed to meeting the financial needs of its customers in Oswego County, New
York, and the contiguous counties.
The Bank
is primarily engaged in the business of attracting deposits from the general
public in the Bank's market area, and investing such deposits, together with
other sources of funds, in loans secured by one- to four-family residential real
estate and commercial real estate. At December 31, 2008, $190.4
million, or 76% of the Bank's total loan portfolio consisted
of loans
secured by real estate, of which $135.3 million, or 71%, were loans secured by
one- to four-family residences and $55.1 million, or 29%, were secured by
commercial real estate. Additionally, $24.4 million, or 10%, of total
loans, were secured by second liens on residential properties that are
classified as consumer loans. The Bank also originates commercial and
consumer loans that totaled $30.7 million and $3.5 million, respectively, or
14%, of the Bank's total loan portfolio at December 31, 2008. The
Bank invests a portion of its assets in securities issued by the United States
Government and its agencies and sponsored enterprises, state and municipal
obligations, corporate debt securities, mutual funds, and equity
securities. The Bank also invests in mortgage-backed securities
primarily issued or guaranteed by United States Government sponsored
enterprises. The Bank's principal sources of funds are deposits,
principal and interest payments on loans and borrowings from correspondent
financial institutions. The principal source of income is interest on
loans and investment securities. The Bank's principal expenses are
interest paid on deposits, and employee compensation and benefits.
Pathfinder
Bank formed a New York state chartered limited purpose commercial bank
subsidiary, Pathfinder Commercial Bank, in October of
2002. Pathfinder Commercial Bank was established to serve the
depository needs of public entities in its market area.
In April
1999, the Bank established Pathfinder REIT, Inc., a New York corporation, as the
Bank's wholly-owned real estate investment trust subsidiary. At
December 31, 2008, Pathfinder REIT, Inc. held $21.7 million in mortgages and
mortgage related assets. All disclosures in this Form 10-K relating
to the Bank's loans and investments include loans and investments that are held
by Pathfinder REIT, Inc.
The Bank
also has 100% ownership in Whispering Oaks Development Corp., a New York
corporation, which is retained in case the need to operate or develop foreclosed
real estate emerges. This subsidiary is currently
inactive.
In
addition, the Company has a non-consolidated Delaware statutory trust
subsidiary, Pathfinder Statutory Trust II, of which 100% of the common equity is
owned by the Company. Pathfinder Statutory Trust II was formed in
connection with the issuance of trust preferred securities.
Employees
As of
December 31, 2008, the Bank had 89 full-time employees and 18 part-time
employees. The employees are not represented by a collective
bargaining unit and we consider our relationship with our employees to be
good.
MARKET
AREA AND COMPETITION
The
economy in the Bank's market area is manufacturing-oriented and is also
significantly dependent upon the State University of New York College at
Oswego. The major manufacturing employers in the Bank's market area
are Entergy Nuclear Northeast, Novelis, Constellation, NRG and
Huhtamaki. The Bank is the largest depository institution
headquartered in Oswego County. However, the Bank encounters
competition from a variety of sources. The Bank's business and
operating results are significantly affected by the general economic conditions
prevalent in its market areas.
The Bank
encounters strong competition both in attracting deposits and in originating
real estate loans and other loans. Its most direct competition for
deposits has historically come from commercial banks, savings banks, savings
associations and credit unions in its market area. Competition for
loans comes from such financial institutions as well as mortgage banking
companies. The Bank competes for deposits by offering depositors a
high level of personal service and a wide range of competitively priced
financial services. The Bank competes for real estate loans primarily
through the interest rates and loan fees it charges and advertising, as well as
by originating and holding in its portfolio mortgage loans which do
not
necessarily conform to secondary market underwriting standards. The
recent turmoil in the residential mortgage sector of the United States economy
has caused certain competitors to be less effective in the market
place. While Central New York did not experience the level of
speculative lending and borrowing in residential real estate that has deeply
impacted other regions on a national basis, certain mortgage brokers and finance
companies are either no longer operating, or have limited aggressive lending
practices. Additionally, as certain money centers and large regional
banks grapple with current economic conditions and the related credit crisis,
their ability to compete as effectively has been muted. Management
believes that these conditions have created a window of reduced competition for
residential loans, and to a lesser extent, commercial real estate
loans.
REGULATION
AND SUPERVISION
General
The Bank
is a New York-chartered stock savings bank and its deposit accounts are insured
up to applicable limits by the FDIC through the Deposit Insurance
Fund (“DIF ”). The Bank is subject to extensive regulation by the New
York State Banking Department (the “Department”), as its chartering agency, and
by the FDIC, as its deposit insurer and primary federal
regulator. The Bank is required to file reports with, and is
periodically examined by, the FDIC and the Superintendent of the Department
concerning its activities and financial condition and must obtain regulatory
approvals prior to entering into certain transactions, including, but not
limited to, mergers with or acquisitions of other banking
institutions. The Bank is a member of the Federal Home Loan Bank of
New York (“FHLBNY”) and is subject to certain regulations by the Federal Home
Loan Bank System. The Company and the Mutual Holding Company are
federally chartered. Consequently, they are subject to regulations of
the Office of Thrift Supervision ("OTS") as savings and loan holding
companies. Any change in such regulations, whether by the Department,
the FDIC, or the OTS could have a material adverse impact on the Bank, the
Company or the Mutual Holding Company.
Regulatory
requirements applicable to the Bank, the Company and the Mutual Holding Company
are referred to below or elsewhere herein.
Recent
Regulatory Developments
In
response to the financial crises affecting the banking system and financial
markets and going concern threats to investment banks and other financial
institutions, on October 3, 2008, the Emergency Economic Stabilization Act of
2008 (the “EESA”) was signed into law. EESA provides, among other
things, for a Troubled Assets Relief Program (“TARP”), under which the U.S.
Department of the Treasury has the authority to purchase up to $700 billion of
securities and certain other financial instruments from financial institutions
for the purpose of stabilizing and providing liquidity to the U.S. financial
markets.
On
October 14, 2008, the Treasury Department announced a Capital Purchase Program
(“CPP”) under the TARP pursuant to which it would acquire equity investments,
usually preferred stock, in banks and thrifts and their holding
companies. Participating financial institutions also were required to
adopt the Treasury Department’s standards for executive compensation and
corporate governance for the period during which the department holds equity
issued under the CPP. We have filed an application to receive an
investment of up to approximately $7 million under the CPP. However,
Treasury has not yet provided the terms for CPP participation by companies in
the mutual holding company form of organization. Accordingly, we have
not yet determined whether or not we will accept a CPP investment, or the amount
of such investment, if our application is approved. When the terms
for CPP participation by companies in the mutual holding company structure are
announced by Treasury, we will evaluate whether to pursue participation in the
program.
On
February 10, 2009, Treasury announced its Capital Assistance Program (“CAP”)
under which Treasury will make capital available to financial institutions
through Treasury’s purchase of cumulative mandatorily convertible preferred
stock. The preferred shares will mandatorily convert to common stock after seven
years. Prior to that time, the preferred shares are convertible in whole or in
part at the option of the institution, subject to the approval of the
institution’s primary federal regulator. Institutions that have
received an investment
from
Treasury under the CPP may use proceeds from the CAP to redeem preferred shares
issued in the CPP, effectively exchanging the preferred stock sold under the CPP
for CAP
convertible
preferred stock. As with the CPP, Treasury has not yet provided the
terms for CAP participation by companies in the mutual holding company
structure. Accordingly, we have not yet determined whether we will
apply for or accept a CAP investment. When the terms for CAP
participation by companies in the mutual holding company structure are announced
by Treasury, we will evaluate whether to pursue participation in the
program.
On
December 22, 2008, the FDIC published a final rule that raises the current
deposit insurance assessment rates uniformly for all institutions by 7 basis
points (to a range from 12 to 50 basis points) effective for the first quarter
of 2009. On February 27, 2009, the FDIC also issued a final rule that
revises the way the FDIC calculates federal deposit insurance assessment rates
beginning in the second quarter of 2009. Under the new rule, the
total base assessment rate will range from 7 to 77.5 basis points of the
institution’s deposits, depending on the risk category of the institution and
the institution’s levels of unsecured debt, secured liabilities, and brokered
deposits. Additionally, the FDIC issued an interim rule that would
impose a special 20 basis points assessment on June 30, 2009, which would be
collected on September 30, 2009. However, the FDIC has indicated a willingness
to decrease the special assessment to 10 basis points under certain
circumstances concerning the overall financial health of the insurance fund.
Special assessments of 10 and 20 basis points would result in additional expense
of approximately $300,000 to $600,000, respectively. The interim rule also
allows for additional special assessments.
On
October 14, 2008, the FDIC announced the Temporary Liquidity Guarantee Program
(“TLGP”). This program has two components. One guarantees newly
issued senior unsecured debt of the participating organizations, up to certain
limits established for each institution, issued between October 14, 2008 and
June 30, 2009. The other component of the program provides full FDIC insurance
coverage for non-interest bearing transaction deposit accounts, regardless of
dollar amount, until December 31, 2009. An annualized 10 basis point assessment
on balances in noninterest-bearing transaction accounts that exceed the existing
deposit insurance limit of $250,000 will be assessed on a quarterly basis to
insured depository institutions participating in this component of the
TLGP. The Company has chosen to participate in both components of the
TLGP. The additional expense related to this coverage is not expected
to be significant for Pathfinder Bank.
The
American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as
the economic stimulus or economic recovery package, was signed into law on
February 17, 2009, by President Obama. ARRA includes a wide variety
of programs intended to stimulate the economy and provide for extensive
infrastructure, energy, health, and education needs. In addition,
ARRA imposes certain new executive compensation and corporate expenditure limits
on all current and future TARP recipients until the recipient has repaid the
Treasury, which is now permitted under ARRA without penalty and without the need
to raise new capital, subject to the Treasury’s consultation with the
recipient’s appropriate regulatory agency.
New York State Banking Law and FDIC
Regulation
The Bank
derives its lending, investment and other authority primarily from the
applicable provisions of New York State Banking Law and the regulations of the
Department, as limited by FDIC regulations. In particular, the applicable
provisions of New York State Banking Law and regulations governing the
investment authority and activities of an FDIC insured state-chartered savings
bank have been substantially limited by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and the FDIC regulations issued
pursuant thereto. Under these laws and regulations, savings banks,
including the Bank, may invest in real estate mortgages, consumer and commercial
loans, certain types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and agencies,
certain types of corporate equity securities and certain other
assets. New York State chartered savings banks may also invest in
subsidiaries under their service corporation investment authority. A
savings bank may use this power to invest in corporations that engage in various
activities authorized for savings banks, plus any additional activities, which
may be authorized by the Banking Board. Under FDICIA and the FDIC’s
implementation of regulations, the Bank’s investment and service corporation
activities are limited to activities permissible for a national bank unless the
FDIC otherwise permits it.
The FDIC and the Superintendent
have broad enforcement authority over the Bank. Under this
authority, the FDIC and the Superintendent have the ability to issue formal or
informal orders to correct violations of laws or unsafe or unsound banking
practices.
FDIC
Insurance on Deposits
The Bank
is a member of the DIF, which is administered by the FDIC. Deposits
are insured up to applicable limits by the FDIC and such insurance is backed by
the full faith and credit of the U.S. Government.
The
Federal Deposit Insurance Reform Act of 2005 was signed into law on February 8,
2006, and gives the FDIC increased flexibility in assessing premiums on banks
and savings associations, including the Bank, to pay for deposit insurance and
in managing its deposit insurance reserves. The reform legislation
provided a credit to all insured institutions, based on the amount of their
insured deposits at year-end 1996, to offset the premiums that they may be
assessed; combined the BIF and SAIF to form a single Deposit Insurance Fund;
increased deposit insurance to $250,000 for Individual Retirement Accounts; and
authorized inflation-based increases in deposit insurance on other accounts
every 5 years. In 2008, Congress has temporarily extended the $250,000 insurance
limit to all other depositor accounts through December 31, 2009.
The
credit provided by the 2005 Act is determined based on the assessment base of
the institution as of December
31, 1996 as
compared with the combined aggregate assessment base of all eligible
institutions as of that date. Those institutions having credits could use them
to offset up to 100% of the 2007 DIF assessment, and if not completely used in
2007, may apply the remaining credits to not more than 90% of each of the
aggregate 2008, 2009 and 2010 DIF assessments. Pathfinder Bank offset 90% of its
DIF assessments with available one-time assessment credits for the first two
quarters of 2008 and took the remaining balance of the credit against the third
quarter assessment. For the first nine months of 2008, credits utilized to
offset amounts assessed for Pathfinder Bank totaled $76,000. Fourth quarter 2008
assessments for Pathfinder Bank, which will be assessed in March 2009 and will
not be offset by credits, are estimated to be approximately
$45,000.
See the
discussion of recent regulatory developments relating to the FDIC and its
anticipated impact on the Company discussed above under the caption
“
Recent Regulatory
Developments
”
.
Regulatory
Capital Requirements
The FDIC
has adopted risk-based capital guidelines to which the Bank is subject. The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations. The Bank is required to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted assets. The ratio of
such regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's "risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These
guidelines divide a savings bank's capital into two tiers. The first tier ("Tier
I") includes common equity, retained earnings, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and other intangible assets
(except mortgage servicing rights and purchased credit card relationships
subject to certain limitations). Supplementary ("Tier II") capital includes,
among other items, cumulative perpetual and long-term limited-life preferred
stock, mandatory convertible securities, certain hybrid capital instruments,
term subordinated debt and the allowance for loan and lease losses, subject to
certain limitations, less required deductions. Savings banks are required to
maintain a total risk-based capital ratio of at least 8%, and a Tier I risk
based capital level of at least 4%.
In
addition, the FDIC has established regulations prescribing a minimum Tier I
leverage ratio (Tier I capital to adjusted total assets as specified in the
regulations). These regulations provide for a minimum Tier I leverage
ratio of 3% for banks that meet certain specified criteria, including that they
have the highest examination rating and are not experiencing or
anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis
points. The FDIC and the other federal banking regulators have
proposed amendments to their minimum capital regulations to provide that the
minimum leverage capital ratio for a depository institution that has been
assigned the highest composite rating of 1 under the Uniform Financial
Institutions Rating System will be 3% and that the minimum leverage capital
ratio for any other depository institution will be 4% unless a higher leverage
capital ratio is warranted by the particular circumstances or risk profile of
the depository institution. The FDIC may, however, set higher
leverage and risk-based capital requirements on individual institutions when
particular circumstances warrant. Savings banks experiencing or anticipating
significant growth are expected to maintain capital ratios, including tangible
capital positions, well above the minimum levels.
Limitations
on Dividends and Other Capital Distributions
The FDIC
has the authority to use its enforcement powers to prohibit a savings bank from
paying dividends if, in its opinion, the payment of dividends would constitute
an unsafe or unsound practice. Federal law also prohibits the payment
of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. New York law
also restricts the Bank from declaring a dividend that would reduce its capital
below the amount that is required to be maintained by state law and
regulation. The Company is also subject to the OTS capital
distribution rules by virtue of being an OTS regulated savings and loan holding
company.
Prompt
Corrective Action
The
federal banking agencies have promulgated regulations to implement the system of
prompt corrective action required by federal law. Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10% or more, has a Tier I risk-based capital ratio of 6%
or more, has a Tier I leverage capital ratio of 5% or more and is not subject to
any written capital order or directive; (ii) "adequately capitalized" if it has
a total risk based capital ratio of 8% or more, a Tier I risk-based capital
ratio of 4% or more and a Tier I leverage capital ratio of 4% or more (3% under
certain circumstances) and does not meet the definition of "well capitalized";
(iii) "undercapitalized" if it has a total risk-based capital ratio that is
less
than
8%, a Tier I risk-based capital ratio that is less than 4% or a Tier I leverage
capital ratio that is less than 4% (3% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6%, a Tier I risk-based capital ratio that is less than 3% or a
Tier I leverage capital ratio that is less than 3%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2%. Federal law and regulations also specify
circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution to comply with supervisory actions as if it were in the
next lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
The Bank
currently meets the criteria to be classified as a "well capitalized" savings
institution.
Transactions
With Affiliates and Insiders
Under
current federal law, transactions between depository institutions and their
affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and
its implementing regulations. An affiliate of a savings bank is any company or
entity that controls, is controlled by, or is under common control with the
savings bank, other than a subsidiary of the savings bank. In a holding company
context, at a minimum, the parent holding company of a savings bank, and any
companies that are controlled by such parent holding company, are affiliates of
the savings bank. Generally, Section 23A limits the extent to which the savings
bank or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such savings bank's capital stock and
surplus and contains an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus. The term
"covered transaction" includes the making of loans or other extensions of credit
to an affiliate; the purchase of assets from an affiliate, the purchase of, or
an investment in, the securities of an affiliate; the acceptance of securities
of an affiliate as collateral for a loan or extension of credit to any person;
or issuance of a guarantee,
acceptance,
or letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further,
Section 22(h) of the Federal Reserve Act and its implementing regulations
restrict a savings bank with respect to loans to directors, executive officers,
and principal stockholders. Under Section 22(h), loans to directors, executive
officers and stockholders who control, directly or indirectly, 10% or more of
voting securities of a savings bank and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total unimpaired capital and
unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive officers, and
stockholders who control 10% or more of voting securities of a stock savings
bank, and their respective related interests, unless such loan is approved in
advance by a majority of the board of directors of the savings bank. Any
"interested" director may not participate in the voting. Further, pursuant to
Section 22(h), loans to directors, executive officers and principal stockholders
must generally be made on terms substantially the same as offered in comparable
transactions to other persons. Section 22(g) of the Federal Reserve Act places
additional limitations on loans to executive officers.
Federal
Holding Company Regulation
General
.
The Company and
the Mutual Holding Company are nondiversified savings and loan holding companies
within the meaning of the Home Owners' Loan Act. The Company and the
Mutual Holding Company are registered with the OTS and are subject to OTS
regulations, examinations, supervision and reporting requirements. As
such, the OTS has enforcement authority over the Company and the Mutual Holding
Company, and their non-savings institution subsidiaries. Among other
things, this authority permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings
institution.
Permitted
Activities
.
Under OTS
regulation and policy, a mutual holding company and a federally chartered
mid-tier holding company, such as the Company, may engage in the following
activities: (i) investing in the stock of a savings association;
(ii) acquiring a mutual association through the merger of such association
into a savings association subsidiary of such holding company or an interim
savings association subsidiary of such holding company; (iii) merging with
or acquiring another holding company, one of whose subsidiaries is a savings
association; (iv) investing in a corporation, the capital stock of which is
available for purchase by a savings association under federal law or under the
law of any state where the subsidiary savings association or associations share
their home offices; (v) furnishing or performing management services for a
savings association subsidiary of such company; (vi) holding, managing or
liquidating assets owned or acquired from a savings subsidiary of such company;
(vii) holding or managing properties used or occupied by a savings
association subsidiary of such company; (viii) acting as trustee under
deeds of trust; (ix) any other activity (A) that the Federal Reserve
Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956,
unless the Director of the OTS, by regulation, prohibits or limits any such
activity for savings and loan holding companies; or (B) in which multiple
savings and loan holding companies were authorized (by regulation) to directly
engage on March 5, 1987; (x) any activity permissible for financial holding
companies under Section 4(k) of the Bank Holding Company Act, including
securities and insurance underwriting; and (xi) purchasing, holding, or
disposing of stock acquired in connection with a qualified stock issuance if the
purchase of such stock by such savings and loan holding company is approved by
the Director. If a mutual holding company acquires or merges with
another holding company, the holding company acquired or the holding company
resulting from such merger or acquisition may only invest in assets and engage
in activities listed in (i) through (xi) above, and has a period of
two years to cease any nonconforming activities and divest of any nonconforming
investments.
The Home
Owners' Loan Act prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
association or holding company thereof, without prior written approval of the
OTS. It also prohibits the acquisition or retention of, with certain
exceptions, more than 5% of a nonsubsidiary savings
association,
a nonsubsidiary holding company, or a nonsubsidiary company engaged in
activities other than those permitted by the Home Owners' Loan Act; or acquiring
or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire
savings associations, the OTS must consider the financial and managerial
resources, future prospects of the company and association involved, the effect
of the acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.
The OTS
is prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings associations in more than
one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and
(ii) the acquisition of a savings institution in another state if the laws
of the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit
interstate savings and loan holding company acquisitions.
Waivers of
Dividends by Mutual Holding Company
.
OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its receipt of dividends from the Company. The OTS may object to such
waivers.
Conversion of the
Mutual Holding Company to Stock Form
.
OTS regulations
permit the Mutual Holding Company to convert from the mutual form of
organization to the capital stock form of organization (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion
Transaction will occur, and the Board of Directors has no current intention or
plan to undertake a Conversion Transaction. In a Conversion
Transaction a new holding company would be formed as the successor to the
Company (the "New Holding Company"), the Mutual Holding Company's corporate
existence would end, and certain depositors of the Bank would receive the right
to subscribe for additional shares of the New Holding Company. In a
Conversion Transaction, each share of common stock held by stockholders other
than the Mutual Holding Company ("Minority Stockholders") would be automatically
converted into a number of shares of common stock of the New Holding Company
determined pursuant to an exchange ratio that ensures that Minority Stockholders
own the same percentage of common stock in the New Holding Company as they owned
in the Company immediately prior to the Conversion Transaction. Under
OTS regulations, Minority Stockholders would not be diluted because of any
dividends waived by the Mutual Holding Company (and waived dividends would not
be considered in determining an appropriate exchange ratio), in the event the
Mutual Holding Company converts to stock form. The total number of
shares held by Minority Stockholders after a Conversion Transaction also would
be increased by any purchases by Minority Stockholders in the stock offering
conducted as part of the Conversion Transaction.
Federal
Securities Law
The
common stock of the Company is registered with the SEC under the Securities
Exchange Act of 1934, as amended (“Exchange Act”). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.
The
Company Common Stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public
information requirements, each affiliate of the Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal
Reserve System
The
Federal Reserve Board requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, money management and NOW checking
accounts). At December 31, 2008, the Bank was in compliance with
these reserve requirements.
Federal Community Reinvestment
Regulation
Under the
Community Reinvestment Act, as amended (the "CRA"), as implemented by FDIC
regulations, a savings bank has a continuing and affirmative obligation,
consistent with its safe and sound operation, to help meet the credit needs of
its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
CRA. The CRA requires the FDIC, in connection with its examination of
a savings institution, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by such institution. The CRA requires the FDIC
to provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system. The Bank's latest CRA rating
was "satisfactory."
New
York State Community Reinvestment Regulation
The Bank
is subject to provisions of the New York State Banking Law which impose
continuing and affirmative obligations upon banking institutions organized in
New York State to serve the credit needs of its local community ("NYCRA") which
are substantially similar to those imposed by the CRA. Pursuant to
the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA
reports with the Department. The NYCRA requires the Department to
make a biennial written assessment of a bank's compliance with the NYCRA,
utilizing a four-tiered rating system and make such assessment available to the
public. The NYCRA also requires the Superintendent to consider a
bank's NYCRA rating when reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases and the establishment of branch
offices or automated teller machines, and provides that such assessment may
serve as a basis for the denial of any such application.
The
Bank's NYCRA rating as of its latest examination was
"satisfactory."
The
USA PATRIOT Act
The USA
PATRIOT Act (“the PATRIOT Act”) was signed into law on October 26,
2001. The PATRIOT Act gives the federal government new powers to
address terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing and broadened anti-money
laundering requirements. The PATRIOT Act also requires the federal
banking agencies to take into consideration the effectiveness of controls
designed to combat money laundering activities in determining whether to approve
a merger or other acquisition application of a member
institution. Accordingly, if the Company were to engage in a merger
or other acquisitions, its controls designed to combat money laundering would be
considered as part of the application process. The Company and the
Bank have established policies, procedures and systems designed to comply with
these regulations.
Sarbanes-Oxley
Act of 2002
The
Sarbanes-Oxley Act of 2002 (“Sarbanes Oxley”) was signed into law on July 30,
2002. Sarbanes-Oxley is a law that addresses, among other issues,
corporate governance, auditing and accounting, executive compensation, and
enhanced and timely disclosure of corporate information. As directed
by Section 302(a) of Sarbanes-Oxley, the Company’s Chief Executive Officer and
Chief Financial Officer are each required to certify that the company’s
quarterly and annual reports do not contain any untrue statement of a material
fact. The rules have several requirements, including having these
officers certify that: they are responsible for establishing, maintaining and
regularly evaluating the effectiveness of our internal controls; they have made
certain disclosures to our auditors and the audit committee of the Board of
Directors about our internal controls; and they have included information in our
quarterly and annual reports about their evaluation and whether there have been
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the
evaluation. Recently revised dates for compliance with Section 404
have given non-accelerated filers some relief by extending the date for
compliance with auditor attestation requirements to the year ending December 31,
2009. We have existing policies, procedures and systems designed to
comply with these regulations, and are further enhancing and documenting such
policies, procedures and systems to ensure continued compliance with these
regulations.
Emergency Economic Stabilization
Act of 2008
The
Emergency Economic Stabilization Act of 2008 ("EESA") was enacted on
October 3, 2008. EESA enables the federal government, under terms and
conditions to be developed by the Secretary of the Treasury, to insure troubled
assets, including mortgage-backed securities, and collect premiums from
participating financial institutions. EESA includes, among other provisions:
(a) the $700 billion Troubled Assets Relief Program ("TARP"), under
which the Secretary of the Treasury is authorized to purchase, insure, hold, and
sell a wide variety of financial instruments, particularly those that are based
on or related to residential or commercial mortgages originated or issued on or
before March 14, 2008; and (b) an increase in the amount of deposit
insurance provided by the FDIC.
Under the
TARP, the United States Department of Treasury authorized a voluntary Capital
Purchase Program to purchase up to $250 billion of senior preferred shares
of qualifying financial institutions that elected to participate by
November 14, 2008. The board of directors and management analyzed the
potential merits of participating in the Capital Purchase Program (“CPP”) of the
Treasury Department’s TARP. It is the general view of the board and
management that in the present national economic risk environment, enhancing the
Company’s capital ratios is both prudent, given the current climate, and
potentially opportunistic as we move into the next business
cycle. Additionally, any increase to capital will continue to support
the Company’s lending activities to individuals, families, and businesses in our
community. In November, Pathfinder Bancorp, M.H.C., the mutual
holding company parent of Pathfinder Bancorp, Inc. filed its original
application requesting CPP funds. Management is currently awaiting a
response from the treasury relating to its application. Treasury has
yet to provide a term sheet for mutually chartered
companies. Companies participating in the CPP were required to adopt
certain standards relating to executive compensation. The terms of the CPP also
limit certain uses of capital by the issuer, including with respect to
repurchases of securities and increases in dividends.
See the
discussion of recent regulatory developments relating to the
Emergency Economic
Stabilization Act of 2008
and the economic recovery package discussed
above under the caption
“
Recent Regulatory
Developments
”
.
The
Company maintains an Internet website located at
www.pathfinderbank.com
on which, among other things, the Company makes available, free of charge,
various reports that it files with or furnishes to the Securities and Exchange
Commission, including its Annual Report on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K. The Company has also made
available on its website its Audit Committee Charter, Compensation Committee
Charter, Governance Guidelines (which serve as the Nominating / Governance
Committee’s charter) and Code of Ethics. These reports are made
available as soon as reasonably practicable after these reports are filed with
or furnished to the Securities and Exchange Commission.
The
Company's Annual Report on Form 10-K may be accessed on the Company's website at
www.pathfinderbank.com
/annualmeeting
.
FEDERAL
AND STATE TAXATION
Federal
Taxation
The
following discussion of federal taxation is intended only to summarize certain
pertinent federal income tax matters and is not a comprehensive description of
the tax rules applicable to the Company or the Bank.
Bad Debt
Reserves
.
Prior to the Tax
Reform Act of 1996 (“the 1996 Act”), the Bank was permitted to establish a
reserve for bad debts and to make annual additions to the
reserve. These additions could, within specified formula limits, be
deducted in arriving at the Bank's taxable income. As a result of the
1996 Act, the Bank must use the small bank experience method in computing its
bad debt deduction.
Taxable
Distributions and Recapture
. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional
tests. New
federal legislation eliminated these thrift related recapture
rules. However, under current law, pre-1988 reserves remain subject
to recapture should the Bank cease to retain a bank or thrift charter or make
certain non-dividend distributions.
Minimum
Tax
. The Internal Revenue Code imposes an alternative
minimum tax ("AMT") at a rate of 20% on a base of regular taxable income plus
certain tax preferences ("alternative minimum taxable income" or
"AMTI"). The AMT is payable to the extent such AMTI is in excess of
an exemption amount. Net operating losses can offset no more than 90%
of AMTI. Certain payments of alternative minimum tax may be used as
credits against regular tax liabilities in future years.
Net Operating
Loss Carryovers
. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years.
Neither
the Internal Revenue Service or New York State have examined our federal or
state tax returns within the past 5 years.
State
Taxation
New York
Taxation
. The Bank is subject to the New York State Franchise
Tax on Banking Corporations in an annual amount equal to the greater of
(i) 7.1% of the Bank's "entire net income" allocable to New York State
during the taxable year, or (ii) the applicable alternative minimum
tax. The alternative minimum tax is generally the greater of
(a) 0.01% of the value of the Bank's assets allocable to New York State
with certain modifications, (b) 3% of the Bank's "alternative entire net
income" allocable to New York State, or (c) $250. Entire net
income is similar to federal taxable income, subject to certain modifications
and alternative entire net income is equal to entire net income without certain
modifications. Net operating losses arising in the current period can
be carried forward to the succeeding 20 taxable years.
ITEM
1A: RISK FACTORS
The
material risks and uncertainties that management believes affect the Company are
described below. The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties that management is
not aware of or that management currently deems immaterial may also impair the
Company’s business operations. This report is qualified in its entirety by these
risk factors. If any of the following risks actually occur, the Company’s
financial condition and results of operations could be materially and adversely
affected.
Changes
in Interest Rates Can Have an Adverse Effect on Profitability
The
Company’s earnings and cash flows are largely dependent upon its net interest
income. Net interest income is the difference between interest income earned on
interest earning assets such as loans and investment securities and interest
expense paid on interest bearing liabilities such as deposits and borrowed
funds. Interest rates are highly sensitive to many factors that are beyond the
Company’s control, including general economic conditions, competition, and
policies of various governmental and regulatory agencies and, in particular, the
Board of Governors of the Federal Reserve System. Changes in monetary policy,
including changes in interest rates, could influence not only the interest the
Company receives on loans and investment securities and the amount of interest
it pays on deposits and borrowings, but such changes could also affect
(i) the Company’s ability to originate loans and obtain deposits,
(ii) the fair value of the Company’s financial assets and liabilities, and
(iii) the average duration of the Company’s assets and liabilities. If the
interest rates paid on deposits and other borrowings increase at a faster rate
than the interest rates received on loans and other investments, the Company’s
net interest income, and therefore earnings, could be adversely affected.
Earnings could also be adversely affected if the interest rates received on
loans and other investments fall more quickly than the interest rates paid on
deposits and other borrowings.
Although
management believes it has implemented effective asset and liability management
strategies to reduce the potential effects of changes in interest rates on the
Company’s results of operations, any substantial, unexpected, prolonged change
in market interest rates could have a material adverse effect on the Company’s
financial condition and results of operations.
The Company’s Increased Emphasis on
Commercial Business and Real Estate Lending May Expose It To Increased Lending
Risks.
At
December 31, 2008, the Company’s loan portfolio consisted of $55.1 million, or
22% of commercial real estate loans, and $30.7 million, or 12% of commercial
business loans. The Company intends to increase its emphasis on these
types of loans. These types of loans generally expose a lender to
greater risk of non-payment and loss than one- to four-family residential
mortgage loans because repayment of the loans often depends on the successful
operation of the property, and the income stream of the
borrowers. Such loans typically involve larger loan balances to
single borrowers or groups of related borrowers compared to one- to four-family
residential mortgage loans. Commercial business loans expose the
Company to additional risks since they typically are made on the basis of the
borrower’s ability to make repayments from the cash flow of the borrower’s
business and are secured by non-real estate collateral that may depreciate over
time. In addition, since such loans generally entail greater risk
than one- to four-family residential mortgage loans, the Company may need to
increase its allowance for loan losses in the future to account for the likely
increase in probable incurred credit losses associated with the growth of such
loans.
Continued
or Further Declines in the Value of Certain Investment Securities Could Require
Write-Downs, Which Would Reduce the Company’s Earnings.
During
2008, the Company recorded losses from other-than-temporary impairment on
investment securities totaling $1.6 million, net of the related tax benefits of
$659,000. At December 31, 2008, gross unrealized losses in the Company’s
investment portfolio equaled approximately $2.4 million relating to securities
with an aggregate fair value of $72.1 million. There can be no
assurance that future factors or combinations of factors will not cause the
Company to conclude in one or more future reporting periods that an unrealized
loss that exists with respect to any of its securities constitutes an impairment
that is other than temporary.
If
the Company’s Investment in the Federal Home Loan Bank of New York is Classified
as Other-Than-Temporarily Impaired or as Permanently Impaired, Its Earnings and
Stockholders’ Equity Could Decrease
The
Company owns common stock of the Federal Home Loan Bank of New York (FHLB-NY).
The Company holds the FHLB-NY common stock to qualify for membership in the
Federal Home Loan Bank System and to be eligible to borrow funds under the
FHLB-NY’s advance program. The aggregate cost and fair value of our FHLB-NY
common stock as of December 31, 2008 was $2.5 million based on its par value.
There is no market for our FHLB-NY common stock.
Recent
published reports indicate that certain member banks of the Federal Home Loan
Bank System may be subject to accounting rules and asset quality risks that
could result in materially lower regulatory capital levels. In an extreme
situation, it is possible that the capitalization of a Federal Home Loan Bank,
including the FHLB-NY, could be substantially diminished or reduced to zero.
Consequently, the Company believes that there is a risk that our investment in
FHLB-NY common stock could be deemed other-than-temporarily impaired at some
time in the future, and if this occurs, it would cause our earnings and
stockholders’ equity to decrease by the after-tax amount of the impairment
charge.
Allowance
For Loan Losses May Be Insufficient
The
Company’s loan customers may not repay their loans according to their terms and
the collateral securing the payment of these loans may be insufficient to assure
repayment. The Company may experience significant loan losses, which would have
a material adverse effect on earnings. Management makes various assumptions and
judgments about the collectibility of the loan portfolio, including the
creditworthiness of borrowers and the value of the real estate and other assets
serving as collateral for the repayment of loans.
The
Company maintains an allowance for loan losses in an attempt to cover any loan
losses inherent in the portfolio. In determining the size of the allowance,
management relies on an analysis of the loan portfolio based on historical loss
experience, volume and types of loans, trends in classification, volume and
trends in delinquencies and non-accruals, national and local economic conditions
and other pertinent information. If those assumptions are incorrect, the
allowance may not be sufficient to cover future loan losses and adjustments may
be necessary to allow for different economic conditions or adverse developments
in the loan portfolio. In addition, regulatory agencies review the
Company’s allowance for loan losses and may require additions to the allowance
based on their judgment about information available to them at the time of their
examination. An increase in the Company’s allowance for loan losses would reduce
its earnings.
Extensive
Regulation and Supervision
The
Company, primarily through its principal subsidiaries, Pathfinder Bank and
Pathfinder Commercial Bank, and certain non-bank subsidiaries, is subject to
extensive federal and state regulation and supervision. Banking regulations are
primarily intended to protect depositors’ funds, federal deposit insurance funds
and the banking system as a whole, not shareholders. These regulations affect
the Company’s lending practices, capital structure, investment practices,
dividend policy and growth, among other things. The Company is also subject to a
number of federal laws, which, among other things, require it to lend to various
sectors of the economy and population, and establish and maintain comprehensive
programs relating to anti-money laundering and customer identification. Congress
and federal regulatory agencies continually review banking laws, regulations and
policies for possible changes and have been increasingly active in the current
economic environment. Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of statutes, regulations
or policies, could affect the Company in substantial and unpredictable ways.
Such changes could subject the Company to additional costs, limit the types of
financial services and products it may offer and/or increase the ability of
non-banks to offer competing financial services and products, among other
things. Failure to comply with laws, regulations or policies could result in
sanctions by regulatory agencies, civil money penalties and/or reputation
damage, which could have a material adverse effect on the Company’s business,
financial condition and results of operations. The Company’s compliance with
certain of these laws will be considered by banking regulators when reviewing
bank merger and bank holding company acquisitions. While the Company has
policies and procedures designed to prevent any such violations, there can be no
assurance that such violations will not occur. See the “Regulation and
Supervision” section in Item 1, “Business” and Note 17 to the
consolidated financial statements included in Item 8, “Financial Statements
and Supplementary Data”, which are located elsewhere in this
report.
Local
Market Economies
The
Company’s business is concentrated in Oswego and parts of Onondaga counties of
New York State. The economy in the Company’s market area is
manufacturing-oriented and dependent on the State University of New York College
at Oswego. As a result, its financial condition, results of
operations and cash flows are subject to changes if there are changes in the
economic conditions in these areas. Throughout 2008 and into the current year,
there have been considerable concerns about the deepening economic downturn in
both national and international markets; the level and volatility of energy
prices; a weakened housing market; the troubled state of financial and credit
markets; Federal Reserve positioning of monetary policy; rising private sector
layoffs and unemployment, which caused consumer spending to slow; the underlying
impact on businesses’ operations and abilities to repay loans as consumer
spending slowed; continued stagnant population growth in upstate New York; and
continued slowing of automobile sales. Late in 2008, the U.S economy was
identified as having been in recession since the fourth quarter of 2007.
However, given that all of the Company’s loans are to customers in upstate New
York, which is a traditionally slower growth or stagnant region of New York, the
impact of deteriorating national market conditions was not as pronounced on
borrowers in this region as compared with other areas of the country. Therefore,
despite the conditions, as previously described, the Company has not experienced
severe credit issues through 2008. A prolonged period of economic recession or
other adverse economic conditions in one or both of these counties could have a
negative impact on the Company. The Company can provide no assurance that
conditions in its market area economies will not deteriorate in the future and
that such deterioration would not have a material adverse effect on the
Company.
Competition in the Financial
Services Industry
The
Company faces substantial competition in all areas of its operations from a
variety of different competitors, many of which are larger and may have more
financial resources. The Company competes with other providers of financial
services such as other bank holding companies, commercial and savings banks,
savings and loan associations, credit unions, money market and mutual funds,
mortgage companies, asset managers, insurance companies and a growing list of
other local, regional and national institutions which offer financial services.
If the Company is unable to compete effectively, it will lose market share and
income generated from loans, deposits, and other financial products will
decline.
Loss
of Executive Officers or Other Key Personnel
Our
success depends, to a great extent, upon the services of our executive
officers. The unexpected loss of these individuals could have an
adverse effect on our operations. From time to time, we also need to
recruit personnel to fill vacant positions for experienced lending officers and
branch staff. Competition for qualified personnel in the banking
industry is significant, and there is no assurance that we will continue to be
successful in attracting, recruiting and retaining the necessary skilled
managerial, sales and technical personnel for the successful operation of our
existing lending, operations, accounting and administrative functions or to
support the needs of our organization resulting from future
growth. Our inability to hire or retain key personnel could have an
adverse effect on the Company’s results of operations.
The
Company’s Expenses Will Increase As A Result Of Increases in FDIC Insurance
Premiums.
On
December 22, 2008, the FDIC published a final rule raising the current deposit
insurance assessment rates uniformly for all institutions by seven basis points
(to a range from 12 to 50 basis points) for the first quarter of 2009. On
February 27, 2009, the FDIC issued a final rule changing the way that the FDIC
calculates federal deposit insurance assessment rates beginning in the second
quarter of 2009. Additionally, the FDIC issued an interim rule that would impose
a special 20 basis points assessment on June 30, 2009, which would be collected
on September 30, 2009. For more information on FDIC assessments, see “Regulation
and Supervision—FDIC Insurance on Deposits”.
Future
Legislative or Regulatory Actions Responding to Perceived Financial and Market
Problems Could Impair the Company’s Rights Against Borrowers.
There
have been proposals made by members of Congress and others that would reduce the
amount distressed borrowers are otherwise contractually obligated to pay under
their mortgage loans and limit an institution’s ability to foreclose on mortgage
collateral. Were proposals such as these, or other proposals limiting the
Company’s rights as a creditor, to be implemented, the Company could experience
increased credit losses or increased expense in pursuing its remedies as a
creditor.
ITEM
1B: UNRESOLVED STAFF COMMENTS
None
ITEM 2: PROPERTIES
The Bank
conducts its business through its main office located in Oswego, New York, and
six branch offices located in Oswego County. The following table sets
forth certain information concerning the main office and each branch office of
the Bank at December 31, 2008. The aggregate net book value of
the Bank's premises and equipment was $7.5 million at December 31,
2008. For additional information regarding the Bank's properties, see
Notes 7 and 15 to the Consolidated Financial Statements.
|
LOCATION
|
OPENING
DATE
|
OWNED/LEASED
|
|
Main
Office
214
West First Street
Oswego,
New York 13126
|
1874
|
Owned
|
|
Plaza
Branch
Route
104, Ames Plaza
Oswego,
New York 13126
|
1989
|
Owned
(1)
|
|
Mexico
Branch
Norman
& Main Streets
Mexico,
New York 13114
|
1978
|
Owned
|
|
Oswego
East Branch
34
East Bridge Street
Oswego,
New York 13126
|
1994
|
Owned
|
|
Lacona
Branch
1897
Harwood Drive
Lacona,
New York 13083
|
2002
|
Owned
|
|
Fulton
Branch
5
West First Street South
Fulton,
New York 13069
Central
Square Branch
3025
East Ave
Central
Square, New York 13036
|
2003
2005
|
Owned
(2)
Owned
|
|
(1)
|
The
building is owned; the underlying land is leased with an annual rent of
$21,000
|
|
(2)
|
The
building is owned; the underlying land is leased with an annual rent of
$30,000
|
ITEM
3: LEGAL PROCEEDINGS
There are
various claims and lawsuits to which the Company is periodically involved
incident to the Company's business. In the opinion of management,
such claims and lawsuits in the aggregate are not expected to have a material
adverse impact on the Company's consolidated financial condition and results of
operations
.
ITEM
4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted during the fourth quarter of fiscal 2008 to a vote of the
Company’s shareholders.
PART II
ITEM
5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Pathfinder
Bancorp, Inc.'s common stock currently trades on the Nasdaq Capital Market under
the symbol "PBHC". There were 367 shareholders of record as of March
11, 2009. The following table sets forth the high and low closing bid
prices and dividends paid per share of common stock for the periods
indicated:
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
Quarter
Ended:
|
|
High
|
|
|
Low
|
|
|
Paid
|
|
|
December
31, 2008
|
|
|
$13.500
|
|
|
|
$6.000
|
|
|
|
$0.1025
|
|
|
September
30, 2008
|
|
|
10.250
|
|
|
|
6.890
|
|
|
|
0.1025
|
|
|
June
30, 2008
|
|
|
11.250
|
|
|
|
7.000
|
|
|
|
0.1025
|
|
|
March
31, 2008
|
|
|
16.550
|
|
|
|
9.720
|
|
|
|
0.1025
|
|
|
December
31, 2007
|
|
|
$10.880
|
|
|
|
$9.070
|
|
|
|
$0.1025
|
|
|
September
30, 2007
|
|
|
12.390
|
|
|
|
9.350
|
|
|
|
0.1025
|
|
|
June
30, 2007
|
|
|
13.250
|
|
|
|
11.930
|
|
|
|
0.1025
|
|
|
March
31, 2007
|
|
|
14.000
|
|
|
|
12.780
|
|
|
|
0.1025
|
|
Dividends
and Dividend History
The
Company has historically paid regular quarterly cash dividends on its common
stock, and the Board of Directors presently intends to continue the payment of
regular quarterly cash dividends, subject to the need for those funds for debt
service and other purposes. Payment of dividends on the common stock
is subject to determination and declaration by the Board of Directors and will
depend upon a number of factors, including capital requirements, regulatory
limitations on the payment of dividends, Pathfinder Bank and its subsidiaries
results of operations and financial condition, tax considerations, and general
economic conditions.
Given
deteriorating economic conditions, the Company’s focus is on the retention and
growth of capital, and it is, therefore, unlikely to replicate the historical
dividend payout in 2009.
The Company's mutual holding company,
Pathfinder Bancorp, M.H.C., may elect to waive or receive dividends each
time the Company declares a dividend. The election to waive the
dividend receipt requires prior non-objection of the OTS. Pathfinder
Bancorp, M.H.C. elected to waive its dividend for the quarter ended June 30,
2008, receiving dividends for the other three quarters. During 2009,
Pathfinder Bancorp, M.H.C. expects to waive two quarterly dividends, however the
OTS has not yet issued its non-objection letter thereto.
If the
Company chooses to participate in the Treasury’s CPP program, its ability to pay
dividends to its stockholders may be restricted.
ITEM 6: SELECTED FINANCIAL
DATA
Pathfinder
Bancorp, Inc. (“the Company”) is the parent company of Pathfinder Bank and
Pathfinder Statutory
Trust
I. Pathfinder Bank has three operating subsidiaries – Pathfinder
Commercial Bank, Pathfinder REIT, Inc., and Whispering Oaks Development
Corp.
The
following selected consolidated financial data sets forth certain financial
highlights of the Company and should be read in conjunction with the
consolidated financial statements and related notes, and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this annual report on Form
10-K.
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Year
End (
In
thousands
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$352,760
|
|
|
|
$320,691
|
|
|
|
$301,382
|
|
|
|
$296,948
|
|
|
|
$302,037
|
|
|
Loans
receivable, net
|
|
|
247,400
|
|
|
|
221,046
|
|
|
|
201,713
|
|
|
|
187,889
|
|
|
|
185,125
|
|
|
Deposits
|
|
|
269,438
|
|
|
|
251,085
|
|
|
|
245,585
|
|
|
|
236,377
|
|
|
|
236,672
|
|
|
Shareholders’
Equity
|
|
|
19,495
|
|
|
|
21,704
|
|
|
|
20,850
|
|
|
|
20,928
|
|
|
|
21,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year (
In
thousands
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
$10,675
|
|
|
|
$8,667
|
|
|
|
$8,346
|
|
|
|
$8,742
|
|
|
|
$8,905
|
|
|
Noninterest
income
|
|
|
551
|
|
|
|
3,042
|
|
|
|
2,615
|
|
|
|
2,040
|
|
|
|
3,047
|
|
|
Noninterest
expense
|
|
|
9,935
|
|
|
|
9,838
|
|
|
|
9,668
|
|
|
|
10,060
|
|
|
|
9,307
|
|
|
Net
income
|
|
|
368
|
|
|
|
1,122
|
|
|
|
1,028
|
|
|
|
462
|
|
|
|
1,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (basic)
|
|
|
$0.15
|
|
|
|
$0.45
|
|
|
|
$0.42
|
|
|
|
$0.19
|
|
|
|
$0.58
|
|
|
Book
value
|
|
|
8.04
|
|
|
|
8.74
|
|
|
|
8.45
|
|
|
|
8.50
|
|
|
|
8.91
|
|
|
Tangible
book value (a)
|
|
|
6.50
|
|
|
|
7.19
|
|
|
|
6.82
|
|
|
|
6.77
|
|
|
|
7.04
|
|
|
Cash
dividends declared
|
|
|
0.41
|
|
|
|
0.41
|
|
|
|
0.41
|
|
|
|
0.41
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.11
|
%
|
|
|
0.36
|
%
|
|
|
0.34
|
%
|
|
|
0.15
|
%
|
|
|
0.47
|
%
|
|
Return
on average equity
|
|
|
1.70
|
|
|
|
5.27
|
|
|
|
4.86
|
|
|
|
2.16
|
|
|
|
6.45
|
|
|
Return
on average tangible equity (a)
|
|
|
2.07
|
|
|
|
6.47
|
|
|
|
6.04
|
|
|
|
2.72
|
|
|
|
8.17
|
|
|
Average
equity to average assets
|
|
|
6.32
|
|
|
|
6.82
|
|
|
|
7.03
|
|
|
|
6.95
|
|
|
|
7.29
|
|
|
Dividend
payout ratio (b)
|
|
|
232.61
|
|
|
|
62.03
|
|
|
|
66.73
|
|
|
|
147.84
|
|
|
|
47.54
|
|
|
Allowance
for loan losses to loans receivable
|
|
|
0.99
|
|
|
|
0.76
|
|
|
|
0.74
|
|
|
|
0.89
|
|
|
|
0.98
|
|
|
Net
interest rate spread
|
|
|
3.22
|
|
|
|
2.81
|
|
|
|
2.92
|
|
|
|
3.07
|
|
|
|
3.22
|
|
|
Noninterest
income to average assets
|
|
|
0.16
|
|
|
|
0.98
|
|
|
|
0.87
|
|
|
|
0.66
|
|
|
|
1.02
|
|
|
Noninterest
expense to average assets
|
|
|
2.91
|
|
|
|
3.15
|
|
|
|
3.21
|
|
|
|
3.28
|
|
|
|
3.12
|
|
|
Efficiency
ratio (c)
|
|
|
73.02
|
|
|
|
85.89
|
|
|
|
88.71
|
|
|
|
89.16
|
|
|
|
84.21
|
|
|
(a)
|
Tangible
equity excludes intangible assets.
|
|
(b)
|
The
dividend payout ratio is calculated using dividends declared and not
waived by the Company’s mutual holding company parent, Pathfinder Bancorp,
M.H.C., divided by net income.
|
|
(c)
|
The efficiency ratio is
calculated as noninterest expense divided by the sum of taxable-equivalent
net interest income and noninterest income excluding net (losses) gains on
sales and impairment of investment securities and net (losses) gains on
sales of loans and foreclosed real estate.
|
ITEM
7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
Throughout
Management’s Discussion and Analysis (“MD&A”) the term, “the Company”,
refers to the consolidated entity of Pathfinder Bancorp,
Inc. Pathfinder Bank and Pathfinder Statutory Trust II are wholly
owned subsidiaries of Pathfinder Bancorp, Inc., however, Pathfinder Statutory
Trust II is not consolidated for reporting purposes (see Note 10 of the
consolidated financial statements). Pathfinder Commercial Bank,
Pathfinder REIT, Inc. and Whispering Oaks Development Corp. are wholly owned
subsidiaries of Pathfinder Bank. At December 31, 2008, Pathfinder
Bancorp, M.H.C, the Company’s mutual holding company parent, whose activities
are not included in the consolidated financial statements or the MD&A, held
63.7% of the Company’s outstanding common stock and the public held
36.3%.
This
Annual Report contains supplemental financial information determined by methods
other than in accordance with Accounting Principles Generally Accepted in the
United States of America (“GAAP”). The Company’s management believes
that such non-GAAP financial measures are useful to management and investors as
it enhances their ability to evaluate and compare the Company’s operating
results from period to period in a meaningful manner, as operating results
excluding other than temporary impairment charges on its investment security
holdings are essential in understanding the financial performance of the
Company, and is more representative of the basis that management utilizes to
monitor financial performance. Readers are cautioned that non-GAAP
measures should not be considered as an alternative to any measure of
performance as promulgated under GAAP, and should consider the impairment
charges recorded during 2008 in assessing the Company’s
performance. Non-GAAP measures have limitations as analytical tools,
and investors should not consider them in isolation or as a substitute for
analyzing the Company’s performance under GAAP, nor are they necessarily
comparable to non-GAAP measures presented by other companies.
The
Company's business strategy is to operate as a well-capitalized, profitable and
independent community bank dedicated to providing value-added products and
services to our customers. Generally, the Company has sought to
implement this strategy by emphasizing retail deposits as its primary source of
funds and maintaining a substantial part of its assets in locally-originated
residential first mortgage loans, loans to business enterprises operating in its
markets, and in investment securities. Specifically, the Company's
business strategy incorporates the following elements: (i) operating as an
independent community-oriented financial institution; (ii) maintaining capital
in excess of regulatory requirements; (iii) emphasizing investment in
one-to-four family residential mortgage loans, loans to small businesses and
investment securities; and (iv) maintaining a strong retail deposit
base.
The
Company's net income is primarily dependent on its net interest income, which is
the difference between interest income earned on its investments in mortgage and
other loans, investment securities and other assets, and its cost of funds
consisting of interest paid on deposits and borrowings. The Company's
net income also is affected by its provision for loan losses, as well as by the
amount of noninterest income, including income from fees, service charges and
servicing rights, net gains and losses on sales of securities, loans and
foreclosed real estate, and noninterest expense such as employee compensation
and benefits, occupancy and equipment costs, data processing costs and income
taxes. Earnings of the Company also are affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities, of
which these events are beyond the control of the Company. In
particular, the general level of market rates tends to be highly
cyclical.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
The
Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States and follow
practices within the banking industry. Application of these
principles requires management to make estimates, assumptions and judgments that
affect the amounts reported in the financial statements and accompanying
notes. These estimates, assumptions and judgments are based on
information available as of the date of the financial statements; accordingly,
as this information
changes,
the financial statements could reflect different estimates, assumptions and
judgments. Certain policies inherently have a greater reliance on the
use of estimates, assumptions and judgments and as such have a greater
possibility of producing results that could be materially different than
originally reported. Estimates, assumptions and judgments are
necessary when assets and liabilities are required to be recorded at fair value
or when an asset or liability needs to be recorded contingent upon a future
event. Carrying assets and liabilities at fair value inherently
results in more financial statement volatility. The fair values and
information used to record valuation adjustments for certain assets and
liabilities are based on quoted market prices or are provided by other
third-party sources, when available. When third party information is
not available, valuation adjustments are estimated in good faith by
management.
The most
significant accounting policies followed by the Company are presented in Note 1
to the consolidated financial statements. These policies, along with
the disclosures presented in the other financial statement notes and in this
discussion, provide information on how significant assets and liabilities are
valued in the consolidated financial statements and how those values are
determined. Based on the valuation techniques used and the
sensitivity of financial statement amounts to the methods, assumptions and
estimates underlying those amounts, management has identified the allowance for
loan losses, deferred income taxes, pension obligations, the evaluation of
goodwill for impairment, the evaluation of investment securities for other than
temporary impairment and the estimation of fair values for accounting and
disclosure purposes to be the accounting areas that require the most subjective
and complex judgments, and as such, could be the most subject to revision as new
information becomes available.
The
allowance for loan losses represents management's estimate of probable loan
losses inherent in the loan portfolio. Determining the amount of the allowance
for loan losses is considered a critical accounting estimate because it requires
significant judgment and the use of estimates related to the amount and timing
of expected future cash flows on impaired loans, estimated losses on pools of
homogeneous loans based on historical loss experience, and consideration of
current economic trends and conditions, all of which may be susceptible to
significant change. The loan portfolio also represents the largest
asset type on the consolidated statement of condition. Note 1 to the
consolidated financial statements describes the methodology used to determine
the allowance for loan losses, and a discussion of the factors driving changes
in the amount of the allowance for loan losses is included in this
report.
Deferred
income tax assets and liabilities are determined using the liability
method. Under this method, the net deferred tax asset or liability is
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases as well as net operating and capital loss carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates applied 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 tax expense in the period that includes the enactment
date. To the extent that current available evidence about the future
raises doubt about the likelihood of a deferred tax asset being realized, a
valuation allowance is established. The judgment about the level of
future taxable income, including that which is considered capital, is inherently
subjective and is reviewed on a continual basis as regulatory and business
factors change. A valuation allowance of $540,000 was established
during the year ended December 31, 2008, as management believes it may not
generate sufficient capital gains to offset its capital loss carry
forward. The Company’s effective tax rate differs from the statutory
rate due to non-taxable investment securities, and bank owned life insurance
offset by the valuation allowance established on a portion of the capital loss
carry
forwards.
Pension
and post-retirement benefit plan liabilities and expenses are based upon
actuarial assumptions of future events, including fair value of plan assets,
interest rates, rate of future compensation increases and the length of time the
Company will have to provide those benefits. The assumptions used by management
are discussed in Note 11 to the consolidated financial statements.
As a
result of deteriorating economic conditions in the financial markets, which
impacted the trading value of the Company’s common stock, management engaged an
independent third party to test the Company’s goodwill for impairment as of
December 31, 2008. Testing was performed by utilizing a three-step
valuation approach which is described in Note 8 to the consolidated financial
statements.
The
Company carries all of its investments at fair value with any unrealized gains
or losses reported net of tax as an adjustment to shareholders' equity, except
for security impairment losses, which are charged to earnings. The
Company's ability to fully realize the value of its investments in various
securities, including corporate debt securities, is dependent on the underlying
creditworthiness of the issuing organization. In evaluating the
security portfolio for other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain its investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value. Based on management's assessments during the
year ended December 31, 2008, the Company recorded other than temporary
impairment charges of $ 2,253,000, including an $875,000 charge on a $1,000,000
holding in a senior unsecured note issued by Lehman Brothers Holdings Inc.,
which filed a Chapter 11 Bankruptcy petition on September 15,
2008, the AMF Large Cap Equity Fund in the amount of $690,000,
$269,000 in the AMF Ultra Short Mortgage Fund, $67,000 in the Financial
Institutions Fund and $10,000 on a stock investment in The Phoenix
Companies. In addition to the impairment charges, the Company’s
available for sale investment portfolio at December 31, 2008 includes unrealized
losses of $2.4 million. See Note 3 to the consolidated financial
statements for further discussion of the unrealized
losses. Management continually analyzes the portfolio to determine if
further impairment has occurred that may be deemed as
other-than-temporary. Further charges are possible depending on
future economic conditions.
The estimation of fair value is significant to several of our
assets, including investment securities available for sale, intangible assets
and foreclosed real estate, as well as the value of loan collateral when valuing
loans. These are all recorded at either fair value or the lower of cost or fair
value. Fair values are determined based on third party sources, when available.
Furthermore, accounting principles generally accepted in the United States
require disclosure of the fair value of financial instruments as a part of the
notes to the consolidated financial statements. Fair values may be influenced by
a number of factors, including market interest rates, prepayment speeds,
discount rates and the shape of yield curves.
Fair
values for securities available for sale are obtained from an independent third
party pricing service. Where available, fair values are based on
quoted prices on a nationally recognized securities exchange. If
quoted prices are not available, fair values are measured using quoted market
prices for similar benchmark securities. Management made no
adjustments to the fair value quotes that were provided by the pricing
source. Note 18 in the consolidated financial statements provides
additional information on how we determine fair values. The fair values of
foreclosed real estate and the underlying collateral value of impaired loans are
typically determined based on appraisals by third parties, less estimated costs
to sell. If necessary, appraisals are updated to reflect changes in market
conditions.
EXECUTIVE
SUMMARY
Total
deposits for the Company increased 7%, to $269.4 million at December 31, 2008,
while the average balance of deposits increased $10.0 million to $265.8 million
at December 31, 2008. The Company will continue to focus on building
market share in the Central Square and Fulton markets where the existing
Pathfinder Bank share of the market is 20% or less. In all other
market areas, Pathfinder Bank currently has the majority of the current deposit
market share. Pathfinder seeks to continue to develop core deposit relationships
in all markets through the acquisition of demand deposit
relationships. Efforts will also be focused on the expansion of
commercial deposit relationships with the Bank’s existing commercial lending
relationships.
Total
assets increased 10.0%, primarily in the loan and investment security
portfolios. The loan portfolio increased 12% with net growth in all
loan categories. The Company expects to concentrate on continued commercial
mortgage and commercial loan portfolio growth
during
2009. The ratio of non-performing assets to total assets was 0.75% at December
31, 2008 compared to 0.77% in the prior year. Although this ratio has
remained relatively stable, there was a decrease in asset quality of the loan
portfolio. Non-performing loans increased $732,000, primarily due to
commercial loan relationships. This decrease in loan quality was
offset by the reduction of foreclosed real estate of $530,000.
Net
income for 2008 was $368,000, or $0.15 per share, as compared to $1.1 million,
or $0.45 per share, in 2007. The decline in income was
primarily the result of the Company recording impairment charges on investment
security holdings totaling $1.6 million, net of the related tax benefits of
$659,000.
Core earnings, which
represent earnings exclusive of investment portfolio other-than-temporary
impairment losses, resulted in net income of $2 million or $0.79 per diluted
share for the year ended December 31, 2008.
The
following table reconciles the Company’s 2008 net income to core earnings,
including per share figures.
|
|
|
For
the year ended
|
|
|
|
|
December
31, 2008
|
|
|
Net
Income
|
|
|
$
368,000
|
|
|
Other
than temporary impairment charge - investments
|
|
|
2,253,000
|
|
|
Related
tax benefit
|
|
|
(659,000
|
) *
|
|
Core
earnings
|
|
|
$1,962,000
|
|
|
Diluted
earnings per share
|
|
|
$0.15
|
|
|
Other
than temporary impairment charge, net of tax, per share
|
|
|
0.64
|
|
|
Core
earnings, diluted earnings per share
|
|
|
$0.79
|
|
|
|
|
|
|
|
|
*Net
of a deferred tax asset valuation reserve of $242,000 for the year ended
December 31, 2008.
|
|
RESULTS
OF OPERATIONS
Net
income for 2008 was $368,000, a decrease of $754,000, or 67%, compared to net
income of $1.1 million for 2007. Basic and diluted earnings per share
decreased to $0.15 per share for the year ended December 31, 2008 from $0.45 per
share, for the year ended December 31, 2007. Return on average equity
decreased to 1.70% in 2008 from 5.27% in 2007. All of these declines
in performance were primarily the result of the impairment charges described
above.
Net
interest income, on a tax equivalent basis, increased $2 million, or 22%,
resulting from both volume increases in all loan categories and total investment
securities and significant rate decreases applied to all interest-earning
liabilities. The provision for loan losses for the year ended
December 31, 2008 increased $455,000, reflecting the increased inherent risk
within the expanding
commercial
lending activities, the
overall growth in the total loan portfolio and general weakening of economic
conditions. The Company experienced an 82% decrease in noninterest
income. Noninterest income increased 6%, exclusive of securities
gains and losses, primarily attributable to increased cash surrender values of
bank-owned life insurance, an increase in issued Visa Debit cards and increased
usage from the existing customer base and increased loan servicing fees related
to collateral discharges and new rate lock fees on loans that did not close.
Noninterest expense increased only 1% due to increases in personnel expense,
building occupancy, and other operating expenses, partially offset by a
reduction in amortization of intangibles.
Net
Interest Income
Net
interest income is the Company's primary source of operating income for payment
of operating expenses and providing for possible loan losses. It is
the amount by which interest earned on interest-earning deposits, loans and
investment securities, exceeds the interest paid on deposits and borrowed
money. Changes in net interest income and the net interest margin
ratio result from the interaction between the volume and composition of earning
assets and interest-bearing liabilities, and their respective yields and funding
costs.
Net
interest income, on a tax-equivalent basis, increased $2 million, or 22%, to
$10.8 million for the year ended December 31, 2008, as compared to $8.8 million
for the year ended December 31, 2007. The Company's net interest
margin for 2008 increased to 3.43% from 3.07% in 2007. The increase
in net interest income is attributable to an increase in the average balance of
interest earning assets, combined with increased yields on interest earning
assets and a decrease in the cost of interest-bearing
liabilities. The average balance of interest-earning assets increased
$28.2 million, or 10%, during 2008 and the average balance of interest-bearing
liabilities increased by $26.2 million, or 10%. The increase in the
average balance of interest earning assets primarily resulted from a $22.7
million increase in the average balance of the loan portfolio and a $7.7 million
increase in the average balance of the security investment portfolio, offset by
a $2.2 million reduction in the average balance of interest earning deposits.
The increase in the average balance of interest-bearing liabilities primarily
resulted from a $7.3 million, or 3%, increase in the average balance of
deposits, combined with a $18.9 million, or 60%, increase in the average balance
of borrowed funds. Interest income, on a tax-equivalent basis,
increased $1.0 million, or 6%, during 2008, as the decrease in yield on interest
earning assets to 5.87% in 2008 from 6.08% in 2007 was offset by the 10%
increase in volume. Interest expense on deposits decreased $1.2
million, or 18%, as the cost of deposits dropped 60 basis points to 2.36% in
2008 from 2.96% in 2007. Interest expense on borrowings increased
$273,000, or 16%, during 2008 as the increase in the average balance of borrowed
funds by 60% was partially offset by a decrease in the cost of borrowed funds to
4.00% in 2008 from 5.52% in 2007.
Average
Balances and Rates
The
following table sets forth information concerning average interest-earning
assets and interest-bearing liabilities and the yields and rates thereon.
Interest income and resultant yield information in the table is on a fully
tax-equivalent basis using marginal federal income tax rates of 34%. Averages
are computed on the daily average balance for each month in the period divided
by the number of days in the period. Yields and amounts earned include loan
fees. Non-accrual loans have been included in interest-earning assets for
purposes of these calculations.
|
|
|
For
the Years Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
|
Yield
/
|
|
|
Average
|
|
|
|
|
|
Yield
/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
(Dollars
in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans residential
|
|
|
$130,702
|
|
|
|
$7,527
|
|
|
|
5.76
|
%
|
|
|
$120,079
|
|
|
|
$6,945
|
|
|
|
5.78
|
%
|
|
|
$119,417
|
|
|
|
$6,876
|
|
|
|
5.76
|
%
|
|
Real
estate loans commercial
|
|
|
49,040
|
|
|
|
3,620
|
|
|
|
7.38
|
%
|
|
|
43,573
|
|
|
|
3,309
|
|
|
|
7.59
|
%
|
|
|
35,076
|
|
|
|
2,705
|
|
|
|
7.71
|
%
|
|
Commercial
loans
|
|
|
27,033
|
|
|
|
1,751
|
|
|
|
6.48
|
%
|
|
|
23,710
|
|
|
|
1,976
|
|
|
|
8.33
|
%
|
|
|
19,961
|
|
|
|
1,574
|
|
|
|
7.88
|
%
|
|
Consumer
loans
|
|
|
26,291
|
|
|
|
1,915
|
|
|
|
7.28
|
%
|
|
|
23,011
|
|
|
|
1,894
|
|
|
|
8.23
|
%
|
|
|
20,153
|
|
|
|
1,641
|
|
|
|
8.14
|
%
|
|
Taxable
investment securities
|
|
|
74,105
|
|
|
|
3,365
|
|
|
|
4.54
|
%
|
|
|
66,230
|
|
|
|
2,881
|
|
|
|
4.35
|
%
|
|
|
66,788
|
|
|
|
2,658
|
|
|
|
3.97
|
%
|
|
Tax-exempt
investment securities
|
|
|
5,252
|
|
|
|
255
|
|
|
|
4.86
|
%
|
|
|
5,446
|
|
|
|
258
|
|
|
|
4.74
|
%
|
|
|
10,240
|
|
|
|
481
|
|
|
|
4.70
|
%
|
|
Interest-earning
deposits
|
|
|
2,851
|
|
|
|
61
|
|
|
|
2.14
|
%
|
|
|
5,050
|
|
|
|
211
|
|
|
|
4.18
|
%
|
|
|
1,779
|
|
|
|
91
|
|
|
|
5.12
|
%
|
|
Total
interest-earning assets
|
|
|
315,274
|
|
|
|
18,494
|
|
|
|
5.87
|
%
|
|
|
287,099
|
|
|
|
17,474
|
|
|
|
6.08
|
%
|
|
|
273,414
|
|
|
|
16,026
|
|
|
|
5.86
|
%
|
|
Noninterest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
30,274
|
|
|
|
|
|
|
|
|
|
|
|
27,774
|
|
|
|
|
|
|
|
|
|
|
|
31,600
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(2,006
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,583
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,661
|
)
|
|
|
|
|
|
|
|
|
|
Net
unrealized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
available for sale securities
|
|
|
(1,690
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,372
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,142
|
)
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$341,852
|
|
|
|
|
|
|
|
|
|
|
|
$311,918
|
|
|
|
|
|
|
|
|
|
|
|
$301,211
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
|
$23,762
|
|
|
|
95
|
|
|
|
0.40
|
%
|
|
|
$22,235
|
|
|
|
113
|
|
|
|
0.51
|
%
|
|
|
$21,094
|
|
|
|
102
|
|
|
|
0.48
|
%
|
|
Money
management accounts
|
|
|
10,574
|
|
|
|
52
|
|
|
|
0.49
|
%
|
|
|
11,348
|
|
|
|
89
|
|
|
|
0.78
|
%
|
|
|
13,318
|
|
|
|
110
|
|
|
|
0.83
|
%
|
|
MMDA
accounts
|
|
|
29,181
|
|
|
|
570
|
|
|
|
1.95
|
%
|
|
|
23,682
|
|
|
|
937
|
|
|
|
3.96
|
%
|
|
|
20,608
|
|
|
|
786
|
|
|
|
3.81
|
%
|
|
Savings
and club accounts
|
|
|
52,482
|
|
|
|
168
|
|
|
|
0.32
|
%
|
|
|
53,359
|
|
|
|
279
|
|
|
|
0.52
|
%
|
|
|
58,997
|
|
|
|
266
|
|
|
|
0.45
|
%
|
|
Time
deposits
|
|
|
124,267
|
|
|
|
4,777
|
|
|
|
3.84
|
%
|
|
|
122,333
|
|
|
|
5,483
|
|
|
|
4.48
|
%
|
|
|
103,596
|
|
|
|
4,203
|
|
|
|
4.06
|
%
|
|
Junior
subordinated debentures
|
|
|
5,155
|
|
|
|
257
|
|
|
|
4.99
|
%
|
|
|
6,454
|
|
|
|
511
|
|
|
|
7.81
|
%
|
|
|
5,155
|
|
|
|
448
|
|
|
|
8.57
|
%
|
|
Borrowings
|
|
|
45,239
|
|
|
|
1,756
|
|
|
|
3.88
|
%
|
|
|
25,063
|
|
|
|
1,230
|
|
|
|
4.91
|
%
|
|
|
33,589
|
|
|
|
1,608
|
|
|
|
4.79
|
%
|
|
Total
interest-bearing liabilities
|
|
|
290,660
|
|
|
|
7,675
|
|
|
|
2.64
|
%
|
|
|
264,474
|
|
|
|
8,642
|
|
|
|
3.27
|
%
|
|
|
256,357
|
|
|
|
7,523
|
|
|
|
2.93
|
%
|
|
Noninterest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
25,493
|
|
|
|
|
|
|
|
|
|
|
|
22,828
|
|
|
|
|
|
|
|
|
|
|
|
20,745
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
4,088
|
|
|
|
|
|
|
|
|
|
|
|
3,338
|
|
|
|
|
|
|
|
|
|
|
|
2,943
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
320,241
|
|
|
|
|
|
|
|
|
|
|
|
290,640
|
|
|
|
|
|
|
|
|
|
|
|
280,045
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
21,611
|
|
|
|
|
|
|
|
|
|
|
|
21,278
|
|
|
|
|
|
|
|
|
|
|
|
21,166
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities & shareholders' equity
|
|
|
$341,852
|
|
|
|
|
|
|
|
|
|
|
|
$311,918
|
|
|
|
|
|
|
|
|
|
|
|
$301,211
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
|
$10,819
|
|
|
|
|
|
|
|
|
|
|
|
$8,832
|
|
|
|
|
|
|
|
|
|
|
|
$8,503
|
|
|
|
|
|
|
Net
interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.22
|
%
|
|
|
|
|
|
|
|
|
|
|
2.81
|
%
|
|
|
|
|
|
|
|
|
|
|
2.93
|
%
|
|
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
3.43
|
%
|
|
|
|
|
|
|
|
|
|
|
3.07
|
%
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
|
Ratio
of average interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
108.47
|
%
|
|
|
|
|
|
|
|
|
|
|
108.55
|
%
|
|
|
|
|
|
|
|
|
|
|
106.65
|
%
|
Interest Income
Changes
in interest income result from changes in the average balances of loans and
securities and the related yields on those balances. Interest income
on a tax-equivalent basis increased $1.0 million, or 5.8%. Average
loans increased 10.8% in 2008, with yields decreasing 35 basis points to 6.36%.
The Company's average residential mortgage loan portfolio increased $10.6
million, or 8.8%, when comparing 2008 to 2007. The average yield on
the residential mortgage loan portfolio decreased 2 basis points to 5.76% in
2008 from 5.78% in 2007. The average balance of commercial real estate loans
increased $5.5 million, or 12.5%, while the yield decreased to 7.38% in 2008
from 7.59% in 2007. Average commercial loans increased 14.0% and the
tax-equivalent yield decreased to 6.48% in 2008 compared to 8.33%, in
2007. The average balance of consumer loans increased $3.3 million,
or 14.3% when compared to 2007. The average yield decreased 95 basis points, to
7.28% from 8.23% in 2007.
Interest
income on investment securities increased 15.3% from 2007, resulting from an
increase in the average balance of investment securities (taxable and
tax-exempt) of $7.7 million, or 10.7%, to $79.4 million in 2008 from $71.7
million in 2007. The average yield increased 18 basis points to 4.56%
in 2008 from 4.38% in 2007.
Interest
Expense
Changes
in interest expense result from changes in the average balances of deposits and
borrowings and the related interest costs on those balances. Interest
expense decreased $967,000, or 11.2%, in 2008, when compared to
2007. The decrease in the cost of funds resulted from a decrease in
the average cost of interest-bearing liabilities of 63 basis points, to 2.64% in
2008 from 3.27% in 2007, partially offset by a $26.2 million increase in the
average balance of interest-bearing liabilities during 2008. The
average cost of deposits decreased 60 basis points to 2.36% during 2008 from
2.96% for 2007. The average balance of deposits increased $7.3
million to $240.3 million in 2008 from $233 million in 2007. The
increase in the average balance of deposits primarily resulted from a $5.5
million, or 23.2%, increase in the average balance of MMDA accounts and a $1.9
million, or 1.6%, increase in the average balance of time
deposits. The cost of junior subordinated debentures decreased 282
basis points, decreasing interest expense by $254,000, due to the new
subordinated debentures rate of 3-month LIBOR plus 1.65% for 2008 versus 3 month
LIBOR plus 3.45% for 2007. The average balance of borrowed funds
increased $20.2 million to $45.2 million at 2008 from $25 million at
2007. The average cost of borrowed funds decreased 103 basis points,
to 3.88% in 2008 from 4.91% in 2007.
Rate/Volume
Analysis
Net
interest income can also be analyzed in terms of the impact of changing interest
rates on interest-earning assets and interest-bearing liabilities and changes in
the volume or amount of these assets and liabilities. The following table
represents the extent to which changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have affected
the Company’s interest income and interest expense during the periods indicated.
Information is provided in each category with respect to: (i) changes
attributable to changes in volume (change in volume multiplied by prior rate);
(ii) changes attributable to changes in rate (changes in rate multiplied by
prior volume); and (iii) total increase or decrease. Changes
attributable to both rate and volume have been allocated ratably.
|
|
|
For
the Years Ended December 31,
|
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
|
|
|
Increase/(Decrease) Due to
|
|
|
Increase/(Decrease) Due to
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
|
Increase
|
|
|
(In
thousands)
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
Interest
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans residential
|
|
|
$606
|
|
|
|
$(24
|
)
|
|
|
$582
|
|
|
|
$42
|
|
|
|
$27
|
|
|
|
$69
|
|
|
Real
estate loans commercial
|
|
|
405
|
|
|
|
(94
|
)
|
|
|
311
|
|
|
|
647
|
|
|
|
(43
|
)
|
|
|
604
|
|
|
Commercial
loans
|
|
|
252
|
|
|
|
(477
|
)
|
|
|
(225
|
)
|
|
|
310
|
|
|
|
92
|
|
|
|
402
|
|
|
Consumer
loans
|
|
|
253
|
|
|
|
(232
|
)
|
|
|
21
|
|
|
|
235
|
|
|
|
18
|
|
|
|
253
|
|
|
Taxable
investment securities
|
|
|
344
|
|
|
|
140
|
|
|
|
484
|
|
|
|
(24
|
)
|
|
|
231
|
|
|
|
207
|
|
|
Tax-exempt
investment securities
|
|
|
(9
|
)
|
|
|
6
|
|
|
|
(3
|
)
|
|
|
(227
|
)
|
|
|
4
|
|
|
|
(223
|
)
|
|
Interest-earning
deposits
|
|
|
(71
|
)
|
|
|
(79
|
)
|
|
|
(150
|
)
|
|
|
140
|
|
|
|
(20
|
)
|
|
|
120
|
|
|
Total
interest income
|
|
|
1,780
|
|
|
|
(760
|
)
|
|
|
1,020
|
|
|
|
1,123
|
|
|
|
309
|
|
|
|
1,432
|
|
|
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
|
7
|
|
|
|
(25
|
)
|
|
|
(18
|
)
|
|
|
5
|
|
|
|
6
|
|
|
|
11
|
|
|
Money
management accounts
|
|
|
(6
|
)
|
|
|
(31
|
)
|
|
|
(37
|
)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
(21
|
)
|
|
MMDA
accounts
|
|
|
184
|
|
|
|
(551
|
)
|
|
|
(367
|
)
|
|
|
119
|
|
|
|
32
|
|
|
|
151
|
|
|
Savings
and club accounts
|
|
|
(5
|
)
|
|
|
(106
|
)
|
|
|
(111
|
)
|
|
|
(26
|
)
|
|
|
39
|
|
|
|
13
|
|
|
Time
deposits
|
|
|
86
|
|
|
|
(792
|
)
|
|
|
(706
|
)
|
|
|
831
|
|
|
|
450
|
|
|
|
1,281
|
|
|
Junior
subordinated debentures
|
|
|
(90
|
)
|
|
|
(164
|
)
|
|
|
(254
|
)
|
|
|
105
|
|
|
|
(42
|
)
|
|
|
63
|
|
|
Borrowings
|
|
|
828
|
|
|
|
(302
|
)
|
|
|
526
|
|
|
|
(418
|
)
|
|
|
39
|
|
|
|
(379
|
)
|
|
Total
interest expense
|
|
|
1,004
|
|
|
|
(1,971
|
)
|
|
|
(967
|
)
|
|
|
601
|
|
|
|
518
|
|
|
|
1,119
|
|
|
Net
change in net interest income
|
|
|
$776
|
|
|
|
$1,211
|
|
|
|
$1,987
|
|
|
|
$522
|
|
|
|
$(209
|
)
|
|
|
$313
|
|
Provision
for Loan Losses
The
provision for loan losses increased $455,000 to $820,000 for the year ended
December 31, 2008, as compared to the prior year. The increased
provision is reflective of a growing loan portfolio that is also more heavily
weighted to commercial term and commercial real estate loans, which have higher
inherent risk characteristics than a traditional consumer real estate portfolio,
as well as a general weakening in economic conditions, resulting in increased
levels of non-performing loans. Specifically, commercial and commercial real
estate loans on non-accrual increased $934,000 to $1.5 million at December 31,
2008, as compared to $521,000 at the end of the prior year. The
current level of non-performing assets does not fall significantly outside of
the Bank’s historic trend levels, however, the generally weak economic
conditions nationally, and the current strain on consumer discretionary income
have caused management to carefully monitor and react to these trends by
increasing the provision for loan losses, maintaining the Company’s strict loan
underwriting standards and carefully monitor the performance of the loan
portfolio.
Noninterest Income
The
Company's noninterest income is primarily comprised of fees on deposit account
balances and transactions, loan servicing, commissions, and net gains or losses
on securities, loans and foreclosed real estate.
The following table sets forth
certain information on noninterest income for the years
indicated.
|
|
|
For the Years Ended December 31,
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Service
charges on deposit accounts
|
|
|
$1,492
|
|
|
|
$1,474
|
|
|
Earnings
on bank owned life insurance
|
|
|
293
|
|
|
|
225
|
|
|
Loan
servicing fees
|
|
|
281
|
|
|
|
250
|
|
|
Debit
card interchange fees
|
|
|
275
|
|
|
|
246
|
|
|
Other
charges, commissions and fees
|
|
|
445
|
|
|
|
427
|
|
|
Core
noninterest income
|
|
|
2,786
|
|
|
|
2,622
|
|
|
Net
(losses) gains on sales and impairment of investment
securities
|
|
|
(2,191
|
)
|
|
|
378
|
|
|
Net
(losses) gains on sales of loans and foreclosed real
estate
|
|
|
(44
|
)
|
|
|
42
|
|
|
Total
noninterest income
|
|
|
$551
|
|
|
|
$3,042
|
|
Noninterest
income in 2008 decreased 82%, when compared to 2007, as a result of a 6%
increase in core noninterest income offset by net losses on sales and impairment
of investment securities and net losses on sales of loans and foreclosed real
estate. Earnings on bank owned life insurance increased 30% based on the growth
in the cash surrender values of the insurance policies. Loan
servicing fees increased 12% due to new loan charges for the discharge of
collateral and rate lock fees (recorded as income when a loan does not close),
which were implemented in late 2007 and early 2008. The growth in interchange
fees is due to an increase in issued Visa Debit cards and an increase in their
usage. Other charges, commissions and fees increased primarily due to
foreign ATM usage fees. Total noninterest income was significantly
impacted by net losses on investment securities as a result of recording other
than temporary impairment charges of $2,253,000 as discussed
previously. Net losses on the sale of loans/foreclosed real estate is
due to the sale of six properties at a loss and the write down in value of two
properties held in foreclosed real estate.
Noninterest
Expense
The
following table sets forth certain information on noninterest expense for the
years indicated.
|
|
|
For the Years Ended December 31,
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Salaries
and employee benefits
|
|
|
$5,172
|
|
|
|
$5,094
|
|
|
Building
occupancy
|
|
|
1,322
|
|
|
|
1,254
|
|
|
Data
processing
|
|
|
1,330
|
|
|
|
1,333
|
|
|
Professional
and other services
|
|
|
771
|
|
|
|
769
|
|
|
Amortization
of intangible assets
|
|
|
-
|
|
|
|
182
|
|
|
Other
operating
|
|
|
1,340
|
|
|
|
1,206
|
|
|
Total
noninterest expense
|
|
|
$9,935
|
|
|
|
$9,838
|
|
Noninterest
expenses increased $97,000, or 1%, for the year ended December 31, 2008 when
compared to 2007. Salaries and employee benefits increased 2% in 2008
primarily due to normal salary merit increases and incentive
compensation. A 5% increase in building occupancy expense was due to
depreciation expenses and equipment maintenance. The increase in
other expenses was primarily due to expenses related to foreclosed real
estate. These increases were offset by a decrease in amortization
expense of $182,000, as core deposit intangibles from a 2002 branch acquisition
became fully amortized in October 2007
.
Income
Tax Expense
In 2008,
the Company reported income tax expense of $103,000 compared with $384,000 in
2007. The effective tax rate decreased to 22% in 2008 compared to a
tax rate of 25% in 2007. The decrease in income tax expense resulted
primarily from lower pretax income of $1 million. The Company has
reduced its tax rate from the statutory rate primarily through the ownership of
tax-exempt investment securities, bank owned life insurance and other tax saving
strategies. See Note 13 to the consolidated financial statements for
the reconciliation of the statutory tax rate to the effective tax
rate.
CHANGES
IN FINANCIAL CONDITION
Investment
Securities
The
investment portfolio represents 22% of the Company’s earning assets and is
designed to generate a favorable rate of return consistent with safety of
principal while assisting the Company in meeting its liquidity needs and
interest rate risk strategies. All of the Company’s investments are
classified as available for sale. The Company invests in securities
consisting primarily of mortgage-backed securities, securities issued by United
States Government agencies and sponsored enterprises, state and municipal
obligations, mutual funds, equity securities, investment grade corporate debt
instruments, and common stock issued by the Federal Home Loan Bank of New York
(FHLBNY). By investing in these types of assets, the Company reduces
the credit risk of its asset base, but must accept lower yields than would
typically be available on loan products. Our mortgage backed
securities portfolio is comprised predominantly of pass-through securities
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and does not, to our
knowledge, include any securities backed by sub-prime or other high-risk
mortgages.
At
December 31, 2008, there were two securities that exceeded 10% of consolidated
shareholders’ equity. These securities were the AMF Large Cap Equity
Fund, with a carrying value and fair value of approximately $2,192,000 and
$1,734,000, respectively and the AMF Ultra Short Mortgage Fund, with a carrying
value of $2,804,000 and a fair value of $2,517,000 as of December 31,
2008. See Note 3 to the consolidated financial statements for further
discussion of these two securities.
Investment
securities increased $7.5 million to $74.7 million at December 31, 2008 from
$67.1 million at December 31, 2007. The increase in investment
securities was primarily attributable to the investment of excess liquidity into
corporate and mortgage-backed securities during the first two fiscal quarters of
2008.
The
following table sets forth the carrying value of the Company's investment
portfolio at December 31:
|
|
|
At December 31,
|
|
|
(In
Thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
US
treasury and agencies
|
|
|
$9,126
|
|
|
|
$18,672
|
|
|
|
$19,966
|
|
|
State
and political subdivisions
|
|
|
5,020
|
|
|
|
5,342
|
|
|
|
5,870
|
|
|
Corporate
|
|
|
12,181
|
|
|
|
6,392
|
|
|
|
5,575
|
|
|
Other
|
|
|
2,100
|
|
|
|
-
|
|
|
|
-
|
|
|
Mortgage-backed
|
|
|
39,478
|
|
|
|
28,615
|
|
|
|
25,481
|
|
|
Equity
securities and FHLB stock
|
|
|
3,044
|
|
|
|
2,706
|
|
|
|
2,406
|
|
|
Mutual
funds
|
|
|
4,996
|
|
|
|
6,514
|
|
|
|
6,336
|
|
|
|
|
|
$75,945
|
|
|
|
$68,241
|
|
|
|
$65,634
|
|
|
Unrealized
loss on available for sale portfolio
|
|
|
(1,258
|
)
|
|
|
(1,103
|
)
|
|
|
(1,415
|
)
|
|
Total
investments in securities
|
|
|
$74,687
|
|
|
|
$67,138
|
|
|
|
$64,219
|
|
The
following table sets forth the scheduled maturities, amortized cost, fair values
and average yields for the Company's investment securities at December 31,
2008. Yield is calculated on the amortized cost to maturity and adjusted to a
fully tax-equivalent basis.
|
|
One Year or Less
|
One to Five Years
|
Five to Ten Years
|
|
|
|
Annualized
|
|
Annualized
|
|
Annualized
|
|
|
|
Amortized
|
Weighted
|
Amortized
|
Weighted
|
Amortized
|
Weighted
|
|
|
(Dollars
in thousands)
|
Cost
|
Average
Yield
|
Cost
|
Average
Yield
|
Cost
|
Average
Yield
|
|
|
Debt
investment securities:
|
|
|
|
|
|
|
|
|
US
Treasury and agencies
|
$1,530
|
2.71%
|
$3,582
|
5.04%
|
$3,014
|
4.78%
|
|
|
State
and political subdivisions
|
547
|
3.65%
|
1,858
|
3.55%
|
1,472
|
3.94%
|
|
|
Corporate
|
-
|
-
|
4,169
|
5.62%
|
3,994
|
5.52%
|
|
|
Other
|
-
|
-
|
2,100
|
4.74%
|
-
|
-
|
|
|
Total
|
2,077
|
2.96%
|
11,709
|
4.96%
|
8,480
|
4.98%
|
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
432
|
4.20%
|
4,964
|
4.16%
|
6,285
|
4.79%
|
|
|
Total
|
432
|
4.20%
|
4,964
|
4.16%
|
6,285
|
4.79%
|
|
|
Other
non-maturity investments:
|
|
|
|
|
|
|
|
|
Mutual
funds
|
4,996
|
4.25%
|
-
|
-
|
-
|
-
|
|
|
Equity
securities and FHLB stock
|
3,044
|
4.69%
|
-
|
-
|
-
|
-
|
|
|
Total
|
8,040
|
4.42%
|
-
|
-
|
-
|
-
|
|
|
Total
investment securities
|
$10,549
|
4.12%
|
$16,673
|
4.72%
|
$14,765
|
4.90%
|
|
|
|
|
|
Total
|
|
|
|
More
Than Ten Years
|
|
Investment
Securities
|
|
|
|
|
Annualized
|
|
|
Annualized
|
|
|
Amortized
|
Weighted
|
Amortized
|
Fair
|
Weighted
|
|
(Dollars
in thousands)
|
Cost
|
Average
Yield
|
Cost
|
Value
|
Average
Yield
|
|
Debt
investment securities:
|
|
|
|
|
|
|
US
Treasury and agencies
|
$1,000
|
5.20%
|
$9,126
|
$9,469
|
4.94%
|
|
State
and political subdivisions
|
1,143
|
3.75%
|
5,020
|
4,973
|
3.72%
|
|
Corporate
|
4,018
|
4.01%
|
12,181
|
10,826
|
5.06%
|
|
Other
|
-
|
-
|
2,100
|
2,100
|
4.74%
|
|
Total
|
6,161
|
4.15%
|
28,427
|
27,368
|
4.75%
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
Mortgage-backed
|
27,797
|
5.10%
|
39,478
|
40,030
|
4.92%
|
|
Total
|
27,797
|
5.10%
|
39,478
|
40,030
|
4.92%
|
|
Other
non-maturity investments:
|
|
|
|
|
|
|
Mutual
funds
|
-
|
-
|
4,996
|
4,251
|
4.25%
|
|
Equity
securities and FHLB stock
|
-
|
-
|
3,044
|
3,038
|
4.69%
|
|
Total
|
-
|
-
|
8,040
|
7,289
|
4.42%
|
|
Total
investment securities
|
$33,958
|
4.93%
|
$75,945
|
$74,687
|
4.81%
|
The above noted yield information does not give
effect to changes in fair value that are reflected in accumulated other
comprehensive loss in consolidated shareholders’ equity.
Loans
Receivable
Loans
receivable represent 75% of the Company’s earning assets and account for the
greatest portion of total interest income. The Company emphasizes
residential real estate financing and anticipates a continued commitment to
financing the purchase or improvement of residential real estate in its market
area. The Company also extends credit to businesses within its
marketplace secured by commercial real estate, equipment, inventories and
accounts receivable. It is anticipated that small business lending in
the form of mortgages, term loans, leases, and lines of credit will provide the
most opportunity for balance sheet and revenue growth over the near
term. Commercial and municipal loans comprise 12% of the total loan
portfolio. At December 31, 2008, 77% of the Company’s total loan
portfolio consisted of loans secured by real estate, and 22% of the total
consisted of commercial real estate loans.
|
|
|
December
31,
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Residential
real estate (1)
|
|
|
$136,218
|
|
|
|
$126,666
|
|
|
|
$118,494
|
|
|
|
$119,707
|
|
|
|
$123,898
|
|
|
Commercial
real estate
|
|
|
55,061
|
|
|
|
45,490
|
|
|
|
40,501
|
|
|
|
31,845
|
|
|
|
29,874
|
|
|
Commercial
and municipal loans
|
|
|
30,685
|
|
|
|
25,288
|
|
|
|
23,001
|
|
|
|
18,334
|
|
|
|
16,834
|
|
|
Consumer
loans
|
|
|
27,908
|
|
|
|
25,305
|
|
|
|
21,213
|
|
|
|
19,682
|
|
|
|
18,505
|
|
|
Total
loans receivable
|
|
|
$249,872
|
|
|
|
$222,749
|
|
|
|
$203,209
|
|
|
|
$189,568
|
|
|
|
$189,111
|
|
(1)
Includes loans held for sale. (None at December 31, 2008 and 2007.)
The
following table shows the amount of loans outstanding as of December 31, 2008
which, based on remaining scheduled repayments of principal, are due in the
periods indicated. Demand loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as one year or
less. Adjustable and floating rate loans are included in the period
on which interest rates are next scheduled to adjust rather than the period in
which they contractually mature, and fixed rate loans are included in the period
in which the final contractual repayment is due.
|
|
|
Due
Under
|
|
|
Due
1-5
|
|
|
Due
Over
|
|
|
|
|
|
(In
thousands)
|
|
One
Year
|
|
|
Years
|
|
|
Five
Years
|
|
|
Total
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
|
$12,322
|
|
|
|
$35,132
|
|
|
|
$7,607
|
|
|
|
$55,061
|
|
|
Residential
real estate
|
|
|
11,661
|
|
|
|
38,088
|
|
|
|
86,469
|
|
|
|
136,218
|
|
|
|
|
|
23,983
|
|
|
|
73,220
|
|
|
|
94,076
|
|
|
|
191,279
|
|
|
Commercial
and municipal loans
|
|
|
17,964
|
|
|
|
10,540
|
|
|
|
2,181
|
|
|
|
30,685
|
|
|
Consumer
|
|
|
11,105
|
|
|
|
4,468
|
|
|
|
12,335
|
|
|
|
27,908
|
|
|
Total
loans
|
|
|
$53,052
|
|
|
|
$88,228
|
|
|
|
$108,592
|
|
|
|
$249,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
$3,451
|
|
|
|
$12,519
|
|
|
|
$100,397
|
|
|
|
$116,367
|
|
|
Variable
|
|
|
49,601
|
|
|
|
75,709
|
|
|
|
8,195
|
|
|
|
133,505
|
|
|
Total
loans
|
|
|
$53,052
|
|
|
|
$88,228
|
|
|
|
$108,592
|
|
|
|
$249,872
|
|
Total loans receivable
increased 12% when compared to the prior year.
Residential
real estate loans increased $9.6 million, or 8%, during 2008. The
residential real estate portfolio consists of 64% fixed-rate mortgages and 36%
adjustable-rate mortgages. The increase in the residential real
estate portfolio is principally due to an increase in 30-year fixed rate
mortgages of $13 million and a $7 million increase in 15-year fixed rate
mortgages, offset by a decrease in the 5/1 and 7/1 adjustable rate mortgage
portfolio. The increase in the fixed rate mortgage portfolio resulted
from a decrease in the lending rate set by the Federal Reserve Bank to historic
lows. The Company does not originate sub-prime, Alt-A, negative
amortizing or other higher risk structured residential mortgages.
Commercial
real estate loans increased $9.6 million, or 21%, from the prior year as new
loan products and relationships were added to the portfolio.
Commercial
loans, including loans to municipalities, increased 21% over the prior year to
$30.7 million at December 31, 2008. The increase in commercial loans
was primarily the result of new lending relationships with an expanding
commercial customer base. The Company has continued its efforts to
transform its more traditional thrift balance sheet, which emphasized
residential real estate lending, to a more diversified balance sheet, which
includes a greater proportion of commercial lending products.
Consumer
loans, which include second mortgage loans, home equity lines of credit, direct
installment and revolving credit loans, increased 10% to $27.9 million at
December 31, 2008. The increase resulted from an increase in home
equity lines of credit. The Company has promoted its home equity
products by offering the customer loans with no closing costs at competitive
market rates.
Non-performing
Loans and Assets
The
following table represents information concerning the aggregate amount of
non-performing assets:
|
|
|
December
31,
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate and commercial
|
|
|
$1,455
|
|
|
|
$521
|
|
|
|
$481
|
|
|
|
$757
|
|
|
|
$776
|
|
|
Consumer
|
|
|
254
|
|
|
|
150
|
|
|
|
125
|
|
|
|
89
|
|
|
|
122
|
|
|
Residential
real estate
|
|
|
614
|
|
|
|
920
|
|
|
|
566
|
|
|
|
834
|
|
|
|
953
|
|
|
Total
nonaccrual loans
|
|
|
2,323
|
|
|
|
1,591
|
|
|
|
1,172
|
|
|
|
1,680
|
|
|
|
1,851
|
|
|
Total
non-performing loans
|
|
|
2,323
|
|
|
|
1,591
|
|
|
|
1,172
|
|
|
|
1,680
|
|
|
|
1,851
|
|
|
Foreclosed
real estate
|
|
|
335
|
|
|
|
865
|
|
|
|
471
|
|
|
|
743
|
|
|
|
798
|
|
|
Total
non-performing assets
|
|
|
$2,658
|
|
|
|
$2,456
|
|
|
|
$1,643
|
|
|
|
$2,423
|
|
|
|
$2,649
|
|
|
Non-performing
loans to total loans
|
|
|
0.93
|
%
|
|
|
0.71
|
%
|
|
|
0.57
|
%
|
|
|
0.89
|
%
|
|
|
0.98
|
%
|
|
Non-performing
assets to total assets
|
|
|
0.75
|
%
|
|
|
0.77
|
%
|
|
|
0.54
|
%
|
|
|
0.82
|
%
|
|
|
0.88
|
%
|
|
Interest
income that would have been recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
the original terms of the loans
|
|
|
$131
|
|
|
|
$71
|
|
|
|
$53
|
|
|
|
$34
|
|
|
|
$64
|
|
The asset
quality of the Company has remained relatively unchanged when compared to the
prior year. Total non-performing assets (non-performing loans and
foreclosed real estate) at December 31, 2008 were 0.75% of total assets as
compared to 0.77% of total assets at December 31, 2007. Total
non-performing loans (past due 90 days or more) increased $732,000, or 46%,
during 2008. The increase in non-performing loans is primarily the
result of increased commercial loan delinquencies. Approximately 63%
of the Company’s non-performing loans at December 31, 2008 are commercial real
estate and commercial loans.
The increase in
non-performing loans is primarily comprised of a number of smaller commercial
lending relationships. Management believes the financial strength of
the individual borrowers, combined with the related value of any underlying
collateral, will not result in any significant loss beyond currently established
reserves.
The increase is being driven by general economic
conditions in the market area. Total delinquent loans (those 30 days or more
delinquent) as a percentage of total loans were 2.16% at December 31, 2008 as
compared to 2.40% at December 31, 2007. Approximately 63% of the
Company’s non-performing loans at December 31, 2008 are secured by real estate
with loss potential expected to be manageable within the allocated
reserves.
The
Company generally places a loan on nonaccrual status and ceases accruing
interest when loan payment performance is deemed unsatisfactory and the loan is
past due 90 days or more. The Company considers a loan impaired when,
based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan.
The
measurement of impaired loans is generally based upon the present value of
future cash flows discounted at the historical effective interest rate, except
that all collateral-dependent loans are measured for impairment based on fair
value of the collateral. The Company used the fair value of
collateral to measure impairment on commercial and commercial real estate
loans. At December 31, 2008 and 2007, the Company had $2.4 million
and $1.7 million in loans, which were deemed to be impaired, having valuation
allowances of $141,000 and $152,000, respectively.
Management
has identified additional potential problem loans totaling $4.1 million as of
December 31, 2008. These loans have been internally classified as substandard or
lower, yet are not currently considered past due or in nonaccrual status.
Management has identified potential credit problems which may result in the
borrower not being able to comply with the current loan repayment terms and
which may result in it being included in subsequent past due reporting.
Management believes that the current allowance for loan losses is adequate to
cover probable credit losses in the current loan portfolio.
Allowance
for Loan Losses
The
allowance for loan losses is a reserve established through charges to expense in
the form of a provision for loan losses and reduced by loan charge-offs net of
recoveries. The allowance for loan losses represents the amount
available for probable credit losses in the Company’s loan portfolio as
estimated by management. The Company maintains an allowance for loan
losses based upon a monthly evaluation of known and inherent risks in the loan
portfolio, which includes a review of the balances and composition of the loan
portfolio as well as analyzing the level of delinquencies in each segment of the
loan portfolio. The Company uses a general allocation method for the
residential real estate and consumer loan pools based upon a methodology that
uses loss factors applied to loan balances and reflects actual loss experience,
delinquency trends and current economic conditions. The Company
reviews individually commercial real estate and commercial loans greater than
$150,000 that are not accruing interest and that are risk rated under the
Company’s risk rating system as special mention, substandard, doubtful or loss
to determine if the loans require an impairment reserve. If
impairment is noted, the Company establishes a specific reserve
allocation. The specific allocation is determined based on the most
recent valuation of the loan’s collateral and the customer’s ability to
pay. For all other commercial real estate and commercial loans, the
Company uses the general allocation method that establishes a reserve for each
risk-rating category. The general allocation method for commercial
real estate and commercial loans considers the same factors that are considered
when evaluating residential real estate and consumer loan pools. The
allowance for loan losses reflects management’s best estimate of probable loan
losses at December 31, 2008.
The
allowance for loan losses was $2.5 million at December 31, 2008, a 45% increase
from December 31, 2007. The allowance for loan losses as a percentage
of total loans increased to 0.99% at December 31, 2008 from 0.76% in the prior
year. Net loan charge-offs were $51,000 during 2008 as compared to
$158,000 in 2007. The majority of the current year charge-off
activity is the result of the write off of small consumer and commercial
relationships.
The
following table sets forth the allocation of allowance for loan losses by loan
category for the periods indicated. The allocation of the allowance
by category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
%
Gross
|
|
|
|
|
|
%
Gross
|
|
|
|
|
|
%
Gross
|
|
|
|
|
|
%
Gross
|
|
|
|
|
|
%
Gross
|
|
|
(Dollars
in thousands)
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Commercial
real estate and loans
|
|
|
$1,412
|
|
|
|
34.3
|
%
|
|
|
$956
|
|
|
|
31.8
|
%
|
|
|
$985
|
|
|
|
31.3
|
%
|
|
|
$1,282
|
|
|
|
26.5
|
%
|
|
|
$1,483
|
|
|
|
24.7
|
%
|
|
Consumer
loans
|
|
|
381
|
|
|
|
11.2
|
%
|
|
|
283
|
|
|
|
11.3
|
%
|
|
|
339
|
|
|
|
10.4
|
%
|
|
|
289
|
|
|
|
10.4
|
%
|
|
|
270
|
|
|
|
9.8
|
%
|
|
Residential
real estate
|
|
|
679
|
|
|
|
54.5
|
%
|
|
|
464
|
|
|
|
56.9
|
%
|
|
|
172
|
|
|
|
58.3
|
%
|
|
|
108
|
|
|
|
63.1
|
%
|
|
|
74
|
|
|
|
65.5
|
%
|
|
Total
|
|
|
$2,472
|
|
|
|
100.0
|
%
|
|
|
$1,703
|
|
|
|
100.0
|
%
|
|
|
$1,496
|
|
|
|
100.0
|
%
|
|
|
$1,679
|
|
|
|
100.0
|
%
|
|
|
$1,827
|
|
|
|
100.0
|
%
|
The following table sets forth the roll forward of
the allowance for loan losses for the periods indicated, and related
ratios:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance
at beginning of year
|
|
|
$1,703
|
|
|
|
$1,496
|
|
|
|
$1,679
|
|
|
|
$1,827
|
|
|
|
$1,715
|
|
|
Provisions
charged to operating expenses
|
|
|
820
|
|
|
|
365
|
|
|
|
23
|
|
|
|
311
|
|
|
|
738
|
|
|
Recoveries
of loans previously charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate and loans
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
|
|
41
|
|
|
Consumer
|
|
|
30
|
|
|
|
27
|
|
|
|
18
|
|
|
|
14
|
|
|
|
20
|
|
|
Residential
real estate
|
|
|
-
|
|
|
|
23
|
|
|
|
4
|
|
|
|
10
|
|
|
|
-
|
|
|
Total
recoveries
|
|
|
47
|
|
|
|
50
|
|
|
|
22
|
|
|
|
49
|
|
|
|
61
|
|
|
Loans
charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate and loans
|
|
|
(46
|
)
|
|
|
(85
|
)
|
|
|
(114
|
)
|
|
|
(284
|
)
|
|
|
(439
|
)
|
|
Consumer
|
|
|
(52
|
)
|
|
|
(77
|
)
|
|
|
(89
|
)
|
|
|
(137
|
)
|
|
|
(126
|
)
|
|
Residential
real estate
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
(25
|
)
|
|
|
(87
|
)
|
|
|
(122
|
)
|
|
Total
charged-off
|
|
|
(98
|
)
|
|
|
(208
|
)
|
|
|
(228
|
)
|
|
|
(508
|
)
|
|
|
(687
|
)
|
|
Net
charge-offs
|
|
|
(51
|
)
|
|
|
(158
|
)
|
|
|
(206
|
)
|
|
|
(459
|
)
|
|
|
(626
|
)
|
|
Balance
at end of year
|
|
|
$2,472
|
|
|
|
$1,703
|
|
|
|
$1,496
|
|
|
|
$1,679
|
|
|
|
$1,827
|
|
|
Net
charge-offs to average loans outstanding
|
|
|
0.02
|
%
|
|
|
0.08
|
%
|
|
|
0.11
|
%
|
|
|
0.24
|
%
|
|
|
0.33
|
%
|
|
Allowance
for loan losses to year-end loans
|
|
|
0.99
|
%
|
|
|
0.76
|
%
|
|
|
0.74
|
%
|
|
|
0.89
|
%
|
|
|
0.98
|
%
|
Deposits
The
Company’s deposit base is drawn from seven full-service offices in its market
area. The deposit base consists of demand deposits, money management
and money market deposit accounts, savings and time deposits. During 2008, 85%
of the Company's average deposit base of $265.8 million consisted of core
deposits. Core deposits are considered to be more stable and provide
the Company with a lower cost source of funds. The Company will
continue to emphasize retail core deposits by maintaining its network of full
service offices and providing depositors with a full range of deposit product
offerings. Pathfinder Commercial Bank will seek business growth by
focusing on its local identification and service
excellence. Pathfinder Commercial Bank had an average balance of
$30.8 million in municipal deposits in 2008, primarily concentrated in money
market deposit accounts.
Average
deposits increased $10.0 million, or 4%, when compared to 2007. The
increase in average deposits primarily related to a $2.1 million increase in the
average balance of municipal deposits and a $7.9 million increase in retail
deposits.
The
Company's average deposit mix in 2008, as compared to 2007, reflected increases
in demand deposits, MMDA and time deposits with small shifts from savings and
money market accounts to higher interest bearing products. The
Company's average demand deposits, both interest and noninterest bearing
accounts, represented 19% of total average deposits for 2008 and 18% for
2007. The Company's MMDA accounts, which grew 23% in 2008,
represented 11% of total deposits for 2008 and 9% for 2007. The Company’s time
deposit accounts, although higher than the previous year, represented 47% of
total deposits versus 48% for the same period in 2007. The Company promotes its
MMDA and time deposit accounts by offering competitive rates to retain existing
and attract new customers.
At
December 31, 2008, time deposits in excess of $100,000 totaled $40.7 million, or
31%, of time deposits and 15% of total deposits. At December 31,
2007, these deposits totaled $33.0 million, or 28% of time deposits and 13% of
total deposits.
The following table indicates
the amount of the Company's certificates of deposit of $100,000 or more by time
remaining until maturity as of December 31, 2008:
|
(Dollars
in thousands)
|
|
|
|
|
Remaining
Maturity:
|
|
|
|
|
Three
months or less
|
|
|
$8,698
|
|
|
Three
through six months
|
|
|
11,573
|
|
|
Six
through twelve months
|
|
|
10,738
|
|
|
Over
twelve months
|
|
|
9,722
|
|
|
Total
|
|
|
$40,731
|
|
Borrowings
Short-term
borrowings are comprised primarily of advances and overnight borrowing at the
FHLBNY. There were $17.6 million in short-term borrowings outstanding
at December 31, 2008. At December 31, 2007, there were $18.4 million
in short-term borrowings outstanding.
The
following table represents information regarding short-term borrowings during
2008, 2007 and 2006:
|
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Maximum
outstanding at any month end
|
|
|
$23,795
|
|
|
|
$18,400
|
|
|
|
$15,000
|
|
|
Average
amount outstanding during the year
|
|
|
14,151
|
|
|
|
4,528
|
|
|
|
5,321
|
|
|
Average
interest rate during the year
|
|
|
2.85
|
%
|
|
|
5.05
|
%
|
|
|
4.99
|
%
|
At
December 31, 2008, the weighted average interest rate associated with the
Company’s short-term borrowings was approximately 1.09%.
Long-term
borrowed funds consist of advances and repurchase agreements from the FHLBNY,
Citi Group repurchase agreements and junior subordinated
debentures. Long-term borrowed funds and junior subordinated
debentures totaled $39.6 million at December 31, 2008 as compared to $25.2
million at December 31, 2007.
Capital
Shareholders’
equity decreased $2.2 million to $19.5 million at December 31,
2008. The Company added $368,000 to retained earnings through net
income, which was offset by cash dividends returned to its shareholders of
$856,000 and a $48,000 adjustment taken directly to retained earnings
representing the cumulative change in accounting principle upon the change in
the retirement plan measurement date under SFAS No. 158. Accumulated other
comprehensive loss increased $1.7 million to $3.1 million at December 31, 2008,
resulting primarily from losses on retirement plan assets due to significant
decreases in the market value of the underlying plan assets, net of tax
benefits. Unrealized holding losses on securities, net of tax, also
resulted in an increase in accumulated other comprehensive loss of
$392,000.
The
Company’s mutual holding company parent, Pathfinder Bancorp, M.H.C., waived its
right to receive the dividend for the quarter ended June 30,
2008. The dividend waiver anticipated for the quarter ended December
31, 2008, in the amount of $162,000, was not granted by the OTS and therefore
was accrued at December 31, 2008 and paid to the Company’s mutual holding
company parent in 2009.
Risk-based
capital provides the basis for which all banks are evaluated in terms of capital
adequacy. Capital adequacy is evaluated primarily by the use of
ratios which measure capital against total assets, as well as against total
assets that are weighted based on defined risk characteristics. The
Company’s goal is to maintain a strong capital position, consistent with the
risk profile of its subsidiary banks that supports growth and expansion
activities while at the same time exceeding regulatory standards. At
December 31, 2008, Pathfinder Bank exceeded all regulatory required minimum
capital ratios and met the regulatory definition of a “well-capitalized”
institution, i.e. a leverage capital ratio exceeding 5%, a Tier 1 risk-based
capital ratio exceeding 6% and a total risk-based capital ratio exceeding
10%. See Note 17 in the accompanying consolidated financial
statements for Pathfinder Bank’s capital ratios.
LIQUIDITY
Liquidity
management involves the Company’s ability to generate cash or otherwise obtain
funds at reasonable rates to support asset growth, meet deposit withdrawals,
maintain reserve requirements, and otherwise operate the Company on an ongoing
basis. The Company's primary sources of funds are deposits, borrowed
funds, amortization and prepayment of loans and maturities of investment
securities and other short-term investments, and earnings and funds provided
from operations. While scheduled principal repayments on loans are a
relatively predictable source of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. The Company manages the pricing of deposits to maintain
a desired deposit balance. In addition, the Company invests excess
funds in short-term interest-earning and other assets, which provide liquidity
to meet lending requirements.
The
Company's liquidity has been enhanced by its membership in the FHLBNY, whose
competitive advance programs and lines of credit provide the Company with a
safe, reliable and convenient source of funds. A significant decrease
in deposits in the future could result in the Company having to seek other
sources of funds for liquidity purposes. Such sources could include,
but are not limited to, additional borrowings, trust preferred security
offerings, brokered deposits, negotiated time deposits, the sale of
“available-for-sale” investment securities, the sale of securitized loans, or
the sale of whole loans. Such actions could result in higher interest
expense costs and/or losses on the sale of
securities or
loans.
The Asset
Liability Management Committee (ALCO) of the Company is responsible for
implementing the policies and guidelines for the maintenance of prudent levels
of liquidity. As of December 31, 2008, the Company is in compliance
with its policy guidelines with regard to liquidity.
Despite
the fact that the junior subordinated note was not contractually due until 2032,
we called the note in June 2007 and replaced it with a newly originated junior
subordinated note with a lower carrying cost. In addition, the Company, in the
conduct of ordinary business operations, routinely enters into contracts for
services. These contracts may require payment for services to be
provided in the future and may also contain penalty clauses for the early
termination of the contract. Management is not aware of any
additional commitments or contingent liabilities, which may have a material
adverse impact on the liquidity or capital resources of the
Company.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company is also 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 include commitments to extend
credit and standby letters of credit. At December 31, 2008, the
Company had $26.1 million in outstanding commitments to extend credit and
standby letters of credit. See Note 15 in the accompanying
consolidated financial statements.
ITEM
7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated
by reference to the discussion contained in Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” under
the captions “Liquidity” and “Capital”.
ITEM
8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
to Consolidated Financial Statements
Pathfinder Bancorp,
Inc.
Page
Management’s
Report On Internal Control Over Financial
Reporting
36
Report of
Independent Registered Public Accounting
Firm
37
Consolidated
Statements of Condition – December 31, 2008 and
2007
38
Consolidated
Statements of Income – Years ended December 31, 2008 and
2007
39
Consolidated
Statements of Changes in Shareholders’ Equity – Years ended December 31, 2008
and
2007
40
Consolidated
Statements of Cash Flows – Years ended December 31, 2008 and
2007 41
Notes to
Consolidated Financial
Statements
42
MANAGEMENT'S
REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate. The Company’s internal control over
financial reporting is a process designed under the supervision of the Company’s
principal executive officer and principal financial officer to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for external reporting
purposes in accordance with United States generally accepted accounting
principles.
Under the
supervision and with the participation of management, including the Company’s
principal executive officer and principal financial officer, the Company
conducted an evaluation of the effectiveness of its internal control over
financial reporting based on the framework in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its evaluation under that framework, management
concluded that the Company’s internal control over financial reporting was
effective as of December 31, 2008. In addition, based on our assessment,
management has determined that there were no material weaknesses in the
Company’s internal controls over financial reporting.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
W. Schneider
|
|
|
|
James
A. Dowd
|
|
|
|
President &
Chief Executive Officer
|
|
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
Oswego,
New York
March 27,
2009
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders
Pathfinder
Bancorp, Inc.
Oswego,
New York
We have
audited the accompanying consolidated statements of condition of Pathfinder
Bancorp, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of income, changes in shareholders’ equity and cash
flows for the years then ended. Pathfinder Bancorp, Inc.’s management
is responsible for these consolidated financial statements. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, 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 consolidated financial position of Pathfinder
Bancorp, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ BEARD MILLER COMPANY
LLP
Beard
Miller Company LLP
Syracuse,
New York
March 27,
2009
|
|
|
|
CONS
OLIDATED
STATEMENTS OF CONDITION
|
|
|
|
|
|
|
|
December
31,
|
|
|
(In
thousands, except share data)
|
|
2008
|
|
|
2007
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
$7,365
|
|
|
|
$9,908
|
|
|
Interest
earning deposits
|
|
|
313
|
|
|
|
305
|
|
|
Total
cash and cash equivalents
|
|
|
7,678
|
|
|
|
10,213
|
|
|
Investment
securities, at fair value
|
|
|
72,138
|
|
|
|
65,010
|
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
2,549
|
|
|
|
2,128
|
|
|
Loans
|
|
|
249,872
|
|
|
|
222,749
|
|
|
Less:
Allowance for loan losses
|
|
|
2,472
|
|
|
|
1,703
|
|
|
Loans
receivable, net
|
|
|
247,400
|
|
|
|
221,046
|
|
|
Premises
and equipment, net
|
|
|
7,450
|
|
|
|
7,807
|
|
|
Accrued
interest receivable
|
|
|
1,678
|
|
|
|
1,673
|
|
|
Foreclosed
real estate
|
|
|
335
|
|
|
|
865
|
|
|
Goodwill
|
|
|
3,840
|
|
|
|
3,840
|
|
|
Bank
owned life insurance
|
|
|
6,731
|
|
|
|
6,437
|
|
|
Other
assets
|
|
|
2,961
|
|
|
|
1,672
|
|
|
Total
assets
|
|
|
$352,760
|
|
|
|
$320,691
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
:
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
|
$243,288
|
|
|
|
$228,319
|
|
|
Noninterest-bearing
|
|
|
26,150
|
|
|
|
22,766
|
|
|
Total
deposits
|
|
|
269,438
|
|
|
|
251,085
|
|
|
Short-term
borrowings
|
|
|
17,575
|
|
|
|
18,400
|
|
|
Long-term
borrowings
|
|
|
34,400
|
|
|
|
20,010
|
|
|
Junior
subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
Other
liabilities
|
|
|
6,697
|
|
|
|
4,337
|
|
|
Total
liabilities
|
|
|
333,265
|
|
|
|
298,987
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, authorized shares 1,000,000; no shares issued or
outstanding
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01; authorized 10,000,000 shares;
|
|
|
|
|
|
|
|
|
|
2,972,119
and 2,971,019 shares issued and 2,484,832 and 2,483,732
shares
|
|
|
|
|
|
|
|
|
|
outstanding,
respectively
|
|
|
30
|
|
|
|
30
|
|
|
Additional
paid in capital
|
|
|
7,909
|
|
|
|
7,899
|
|
|
Retained
earnings
|
|
|
21,198
|
|
|
|
21,734
|
|
|
Accumulated
other comprehensive loss
|
|
|
(3,140
|
)
|
|
|
(1,457
|
)
|
|
Treasury
stock, at cost; 487,287 shares
|
|
|
(6,502
|
)
|
|
|
(6,502
|
)
|
|
Total
shareholders' equity
|
|
|
19,495
|
|
|
|
21,704
|
|
|
Total
liabilities and shareholders' equity
|
|
|
$352,760
|
|
|
|
$320,691
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
(In
thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
Loans,
including fees
|
|
|
$14,756
|
|
|
|
$14,047
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2,956
|
|
|
|
2,529
|
|
|
Tax-exempt
|
|
|
171
|
|
|
|
170
|
|
|
Dividends
|
|
|
406
|
|
|
|
352
|
|
|
Federal
funds sold and interest earning deposits
|
|
|
61
|
|
|
|
211
|
|
|
Total
interest income
|
|
|
18,350
|
|
|
|
17,309
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
5,661
|
|
|
|
6,901
|
|
|
Interest
on short-term borrowings
|
|
|
403
|
|
|
|
229
|
|
|
Interest
on long-term borrowings
|
|
|
1,611
|
|
|
|
1,512
|
|
|
Total
interest expense
|
|
|
7,675
|
|
|
|
8,642
|
|
|
Net
interest income
|
|
|
10,675
|
|
|
|
8,667
|
|
|
Provision
for loan losses
|
|
|
820
|
|
|
|
365
|
|
|
Net
interest income after provision for loan losses
|
|
|
9,855
|
|
|
|
8,302
|
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
1,492
|
|
|
|
1,474
|
|
|
Earnings
on bank owned life insurance
|
|
|
293
|
|
|
|
225
|
|
|
Loan
servicing fees
|
|
|
281
|
|
|
|
250
|
|
|
Net
(losses) gains on sales and impairment of investment
securities
|
|
|
(2,191
|
)
|
|
|
378
|
|
|
Net
(losses) gains on sales of loans and foreclosed real
estate
|
|
|
(44
|
)
|
|
|
42
|
|
|
Debit
card interchange fees
|
|
|
275
|
|
|
|
246
|
|
|
Other
charges, commissions & fees
|
|
|
445
|
|
|
|
427
|
|
|
Total
noninterest income
|
|
|
551
|
|
|
|
3,042
|
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
5,172
|
|
|
|
5,094
|
|
|
Building
occupancy
|
|
|
1,322
|
|
|
|
1,254
|
|
|
Data
processing expenses
|
|
|
1,330
|
|
|
|
1,333
|
|
|
Professional
and other services
|
|
|
771
|
|
|
|
769
|
|
|
Amortization
of intangible asset
|
|
|
-
|
|
|
|
182
|
|
|
Other
expenses
|
|
|
1,340
|
|
|
|
1,206
|
|
|
Total
noninterest expenses
|
|
|
9,935
|
|
|
|
9,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
471
|
|
|
|
1,506
|
|
|
Provision
for income taxes
|
|
|
103
|
|
|
|
384
|
|
|
Net
income
|
|
|
$368
|
|
|
|
$1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic
|
|
|
$0.15
|
|
|
|
$0.45
|
|
|
Earnings
per share - diluted
|
|
|
$0.15
|
|
|
|
$0.45
|
|
|
Dividends
per share
|
|
|
$0.41
|
|
|
|
$0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
Common
Stock Issued
|
Paid
in
|
Retained
|
Comprehensive
|
Treasury
|
|
|
(In
thousands, except share data)
|
Shares
|
Amount
|
Capital
|
Earnings
|
Loss
|
Stock
|
Total
|
|
Balance,
January 1, 2007
|
2,953,619
|
$29
|
$7,786
|
$21,307
|
$(1,770)
|
$(6,502)
|
$20,850
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
1,122
|
|
|
1,122
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on securities
|
|
|
|
|
|
|
|
|
available
for sale (net of $125 tax expense)
|
|
|
|
|
188
|
|
188
|
|
Retirement
plan net gains not recognized in
|
|
|
|
|
|
|
|
|
plan
expenses (net of $83 tax expense)
|
|
|
|
|
125
|
|
125
|
|
Total
Comprehensive income
|
|
|
|
|
|
|
1,435
|
|
Stock
options exercised
|
17,400
|
1
|
113
|
|
|
|
114
|
|
Dividends
declared ($0.41 per share)
|
|
|
|
(695)
|
|
|
(695)
|
|
Balance,
December 31, 2007
|
2,971,019
|
30
|
7,899
|
21,734
|
(1,457)
|
(6,502)
|
21,704
|
|
Cumulative
effect of a change in accounting
|
|
|
|
|
|
|
|
|
principle
upon the change in defined
|
|
|
|
|
|
|
|
|
benefit
retirement plans' measurement date
|
|
|
|
|
|
|
|
|
under
SFAS 158 (net of $8 tax expense)
|
|
|
|
(48)
|
13
|
|
(35)
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
368
|
|
|
368
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
Unrealized
holding losses on securities
|
|
|
|
|
|
|
|
|
available
for sale (including $237 tax expense)
|
|
|
|
|
(392)
|
|
(392)
|
|
Retirement
plan net losses not recognized in
|
|
|
|
|
|
|
|
|
plan
expenses (net of $869 tax benefit)
|
|
|
|
|
(1,304)
|
|
(1,304)
|
|
Total
Comprehensive loss
|
|
|
|
|
|
|
(1,328)
|
|
Stock
options exercised
|
1,100
|
|
10
|
|
|
|
10
|
|
Dividends
declared ($0.41 per share)
|
|
|
|
(856)
|
|
|
(856)
|
|
Balance,
December 31, 2008
|
2,972,119
|
$30
|
$7,909
|
$21,198
|
$(3,140)
|
$(6,502)
|
$19,495
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
Years Ended December 31,
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
income
|
|
|
$368
|
|
|
|
$1,122
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
820
|
|
|
|
365
|
|
|
Deferred
income tax benefit
|
|
|
(388
|
)
|
|
|
(48
|
)
|
|
Proceeds
from sales of loans
|
|
|
174
|
|
|
|
3,000
|
|
|
Originations
of loans held-for-sale
|
|
|
(172
|
)
|
|
|
(2,973
|
)
|
|
Realized
losses (gains) on sales of:
|
|
|
|
|
|
|
|
|
|
Foreclosed
real estate
|
|
|
46
|
|
|
|
(15
|
)
|
|
Loans
|
|
|
(2
|
)
|
|
|
(27
|
)
|
|
Available-for-sale
investment securities
|
|
|
(62
|
)
|
|
|
(378
|
)
|
|
Impairment
write-down on available-for-sale securities
|
|
|
2,253
|
|
|
|
-
|
|
|
Depreciation
|
|
|
698
|
|
|
|
734
|
|
|
Amortization
of intangible asset
|
|
|
-
|
|
|
|
181
|
|
|
Amortization
of deferred financing costs
|
|
|
-
|
|
|
|
15
|
|
|
Amortization
of mortgage servicing rights
|
|
|
28
|
|
|
|
46
|
|
|
Earnings
on bank owned life insurance
|
|
|
(293
|
)
|
|
|
(225
|
)
|
|
Net
amortization of premiums and discounts on investment
securities
|
|
|
112
|
|
|
|
144
|
|
|
(Increase)
decrease in accrued interest receivable
|
|
|
(5
|
)
|
|
|
21
|
|
|
Net
change in other assets and liabilities
|
|
|
(299
|
)
|
|
|
962
|
|
|
Net
cash provided by operating activities
|
|
|
3,278
|
|
|
|
2,924
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase
of investment securities available-for-sale
|
|
|
(31,756
|
)
|
|
|
(23,503
|
)
|
|
Net
purchases of Federal Home Loan Bank stock
|
|
|
(421
|
)
|
|
|
(549
|
)
|
|
Proceeds
from maturities and principal reductions of investment securities
available-for-sale
|
|
|
18,633
|
|
|
|
18,951
|
|
|
Proceeds
from sale of:
|
|
|
|
|
|
|
|
|
|
Available-for-sale
investment securities
|
|
|
3,531
|
|
|
|
2,728
|
|
|
Real
estate acquired through foreclosure
|
|
|
979
|
|
|
|
276
|
|
|
Premises
and equipment
|
|
|
-
|
|
|
|
34
|
|
|
Net
increase in loans
|
|
|
(27,672
|
)
|
|
|
(20,362
|
)
|
|
Purchase
of premises and equipment
|
|
|
(341
|
)
|
|
|
(978
|
)
|
|
Net
cash used in investing activities
|
|
|
(37,047
|
)
|
|
|
(23,403
|
)
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
increase in demand deposits, NOW accounts, savings accounts, money market
deposit accounts,
|
|
|
|
|
|
|
|
|
|
MMDA
accounts and escrow deposits
|
|
|
6,003
|
|
|
|
5,368
|
|
|
Net
increase in time deposits
|
|
|
12,350
|
|
|
|
132
|
|
|
Net
(repayments on) proceeds from short-term borrowings
|
|
|
(825
|
)
|
|
|
18,400
|
|
|
Payments
on long-term borrowings
|
|
|
(11,610
|
)
|
|
|
(11,350
|
)
|
|
Proceeds
from long-term borrowings
|
|
|
26,000
|
|
|
|
5,000
|
|
|
Proceeds
from trust preferred obligation
|
|
|
-
|
|
|
|
5,155
|
|
|
Payments
on trust preferred obligation
|
|
|
-
|
|
|
|
(5,155
|
)
|
|
Proceeds
from exercise of stock options
|
|
|
10
|
|
|
|
114
|
|
|
Cash
dividends paid
|
|
|
(694
|
)
|
|
|
(695
|
)
|
|
Net
cash provided by financing activities
|
|
|
31,234
|
|
|
|
16,969
|
|
|
Decrease
in cash and cash equivalents
|
|
|
(2,535
|
)
|
|
|
(3,510
|
)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
10,213
|
|
|
|
13,723
|
|
|
Cash
and cash equivalents at end of period
|
|
|
$7,678
|
|
|
|
$10,213
|
|
|
CASH
PAID DURING THE PERIOD FOR:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
$7,714
|
|
|
|
$8,553
|
|
|
Income
Taxes
|
|
|
162
|
|
|
|
185
|
|
|
NON-CASH
INVESTING ACTIVITY
|
|
|
|
|
|
|
|
|
|
Transfer
of loans to foreclosed real estate
|
|
|
498
|
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
The
accompanying consolidated financial statements include the accounts of
Pathfinder Bancorp, Inc. (the “Company”) and its wholly owned subsidiary,
Pathfinder Bank (the “Bank”). The Bank has three wholly owned operating
subsidiaries, Pathfinder Commercial Bank, Whispering Oaks Development Corp. and
Pathfinder REIT, Inc. All inter-company accounts and activity have been
eliminated in consolidation. The Company has seven offices located in
Oswego County. The Company is primarily engaged in the business of
attracting deposits from the general public in the Company’s market area, and
investing such deposits, together with other sources of funds, in loans secured
by one-to-four family residential real estate, commercial real estate, business
assets and in investment securities.
Pathfinder
Bancorp, M.H.C., (the “Holding Company”) a mutual holding company whose activity
is not included in the accompanying financial statements, owns approximately
63.7% of the outstanding common stock of the Company. Salaries,
employee benefits and rent approximating $167,000 and $144,000 were allocated
from the Company to the Holding Company during 2008 and 2007,
respectively. As of December 31, 2008, the Bank had a loan receivable
from the Holding Company of $1,075,000.
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Management has identified the allowance for loan losses,
deferred income taxes, pension obligations, the evaluation of goodwill for
impairment and the evaluation of investment securities for other than temporary
impairment to be the accounting areas that require the most subjective and
complex judgments, and as such, could be the most subject to revision as new
information becomes available.
The
Company is subject to the regulations of various governmental
agencies. The Company also undergoes periodic examinations by the
regulatory agencies which may subject it to further changes with respect to
asset valuations, amounts of required loss allowances, and operating
restrictions resulting from the regulators' judgments based on information
available to them at the time of their examinations.
Significant
Group Concentrations of Credit Risk
Most of
the Company’s activities are with customers located primarily in Oswego and
parts of Onondaga counties of New York State. Note 3 discusses the
types of securities that the Company invests in. Note 4 discusses the
types of lending that the Company engages in. The Company does not
have any significant concentrations to any one industry or
customer.
Advertising
The
Company follows the policy of charging the costs of advertising to expense as
incurred. Advertising costs included in other operating expenses were
$264,000 and $297,000 for the years ended December 31, 2008 and 2007,
respectively.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand, amounts due from banks and
interest-bearing deposits (with original maturity of three months or
less).
Investment
Securities
The
Company classifies investment securities as
available-for-sale. Available-for-sale securities are reported at
fair value, with net unrealized gains and losses reflected as a separate
component of shareholders’ equity, net of the applicable income tax effect. None
of the Company’s investment securities have been classified as trading or
held-to-maturity.
Gains or
losses on investment security transactions are based on the amortized cost of
the specific securities sold. Premiums and discounts on securities
are amortized and accreted into income using the interest method over the period
to maturity.
The
Company monitors investment securities for impairment on a quarterly
basis. Declines in the fair value of investment securities below cost
that are deemed to be other-than-temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses,
management considers (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
Federal
Home Loan Bank Stock
Federal
law requires a member institution of the Federal Home Loan Bank (“FHLB”) system
to hold stock of its district FHLB according to a predetermined
formula. The stock is carried at cost.
Mortgage
Loans Held-for-Sale
Mortgage
loans held-for-sale are carried at the lower of cost or fair
value. Fair value is determined in the aggregate. There
were no forward commitments outstanding as of December 31, 2008 and
2007.
Transfers
of Financial Assets
Transfers
of financial assets, including sales of loans and loan participations, are
accounted for as sales when control over the assets has been
surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
Loans
The
Company grants mortgage, commercial and consumer loans to
customers. Loans that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off, generally are stated at
unpaid principal balances, less the allowance for loan losses and plus net
deferred loan origination costs. The ability of the Company’s debtors to honor
their contracts is dependent upon the real estate and general economic
conditions in the market area. Interest income is generally
recognized when income is earned using the interest method. Nonrefundable loan
fees received and related direct origination costs incurred are deferred and
amortized over the life of the loan using the interest method, resulting in a
constant effective yield over the loan term. Deferred fees are recognized into
income and deferred costs are charged to income immediately upon prepayment of
the related loan.
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to
earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance. The Company periodically evaluates the adequacy of the
allowance for loan losses in order to maintain the allowance at a level that is
sufficient to absorb probable and estimable credit losses.
The
allowance consists of specific, general and unallocated
components. It includes amounts specifically allocated to impaired
loans. A loan is considered impaired, based on current information
and events, if it is probable the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Specific reserves are
established based on the fair value of underlying collateral or discounted cash
flows, as appropriate, when those values are lower than the carrying value of
the loan. The allowance is also comprised of general reserves, which
are established by applying loss factors to the aggregate balance of major loan
categories or pools of smaller balance homogeneous loans. The loss
factors are determined by management based on an evaluation of historical loss
experience, delinquency trends, volume and type of lending conducted, and the
impact of current economic conditions in the market area. An
unallocated component of the allowance may be maintained to cover uncertainties
that could affect management’s estimate of probable losses. The
unallocated component reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and
general losses in the portfolio. While management uses the best
information available to make evaluations, future adjustments to the allowance
may be necessary if conditions differ substantially from the assumptions used in
making the evaluation.
Income
Recognition on Impaired and Non-accrual Loans
Loans,
including impaired loans, are generally classified as non-accrual if they are
past due as to maturity or payment of principal or interest for a period of more
than 90 days. When a loan is classified as non-accrual and the future
collectibility of the recorded loan balance is doubtful, collections of interest
and principal are generally applied as a reduction to principal
outstanding.
When
future collectibility of the recorded loan balance is expected, interest income
may be recognized on a cash basis. In the case where a non-accrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.
Off-Balance
Sheet Credit Related Financial Instruments
In the
ordinary course of business, the Company has entered into commitments to extend
credit, including commitments under standby letters of credit. Such
financial instruments are recorded when they are funded.
Premises
and Equipment
Premises
and equipment are stated at cost, less accumulated depreciation. Depreciation is
computed on a straight-line basis over the estimated useful lives of the related
assets, ranging up to 40 years for premises and 10 years for equipment.
Maintenance and repairs are charged to operating expenses as
incurred. The asset cost and accumulated depreciation are removed
from the accounts for assets sold or retired and any resulting gain or loss is
included in the determination of income.
Foreclosed
Real Estate
Properties
acquired through foreclosure, or by deed in lieu of foreclosure, are recorded at
their fair value less estimated disposal costs. Fair value is determined based
on a current appraisal and inspection. Costs incurred in connection
with preparing the foreclosed real estate for disposition are capitalized to the
extent that they enhance the overall fair value of the property. Write downs of,
and expenses related to, foreclosed real estate holdings are included in
noninterest expense and were $133,000 and $98,000 in 2008 and 2007,
respectively.
Intangible
Assets
Intangible
assets represent core deposit intangibles and goodwill arising from
acquisitions. Core deposit intangibles represent the premium the
Company has paid for deposits acquired in excess of the cost incurred had the
funds been purchased in the capital markets. Core deposit intangibles
were amortized on a straight-line basis over a period of five
years. As of October 2007, all core deposit intangibles are fully
amortized. Goodwill represents the excess cost of an acquisition over
the fair value of the net assets acquired. Goodwill is not amortized
but is evaluated annually for impairment.
Mortgage
Servicing Rights
Originated
mortgage servicing rights are recorded at their fair value at the time of
transfer and are amortized in proportion to and over the period of estimated net
servicing income or loss. The carrying value of the originated
mortgage servicing rights is periodically evaluated for impairment.
Stock-Based
Compensation
Compensation
costs related to share-based payment transactions are recognized based on the
grant-date fair value of the stock-based compensation issued. Compensation costs
are recognized over the period that an employee provides service in exchange for
the award. No options were granted during 2008 or 2007, and all
outstanding options were fully vested on January 1, 2006 and, accordingly, there
was no impact on the Company’s results of operations for the periods
presented.
Retirement
Benefits
The
Company has established tax qualified retirement plans covering substantially
all full-time employees and certain part-time employees. Pension
expense under these plans is charged to current operations and consists of
several components of net pension cost based on various actuarial assumptions
regarding future experience under the plans.
In 2006,
the Company adopted SFAS 158, which required the recognition of the underfunded
status of pension and other postretirement benefit plans on the consolidated
statements of condition. Under SFAS 158, gains and losses, prior
service costs and credits, and any remaining transition amounts under SFAS 87
and SFAS 106 that have not yet been recognized through net periodic benefit cost
are recognized in accumulated other comprehensive loss, net of tax effects,
until they are amortized as a component of net periodic cost. On
January 1, 2008, the Company recorded a charge to retained earnings,
representing the cumulative effect adjustment upon adopting the measurement date
transition rule for the Company’s pension plan and postretirement benefit
plan. In accordance with SFAS 158 measurement date provisions, plan
assets and obligations are to be measured as of the date of the employer’s
Statement of Condition. The Company previously measured its pension
and postretirement plans as of October 1 of each year.
In
addition, the Company has unfunded deferred compensation and supplemental
executive retirement plans for selected current and former employees and
officers that provide benefits that cannot be paid from a qualified retirement
plan due to Internal Revenue Code restrictions. These plans are nonqualified
under the Internal Revenue Code, and assets used to fund benefit payments are
not segregated from other assets of the Company, therefore, in general, a
participant's or beneficiary's claim to benefits under these plans is as a
general creditor.
Income
Taxes
Provisions
for income taxes are based on taxes currently payable or refundable and deferred
income taxes on temporary differences between the tax basis of assets and
liabilities and their reported amounts in the consolidated financial statements.
Deferred tax assets and liabilities are reported in the consolidated financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled.
Earnings
per Share
Basic
earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding throughout each year. Diluted
earnings per share gives effect to weighted average shares that would be
outstanding assuming the exercise of issued stock options using the treasury
stock method.
Other
Comprehensive (Loss) Income
Accounting
principles generally accepted in the United States of America, require that
recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, and unrecognized
gains and losses, prior service costs and transition assets or obligations for
defined benefit pension and post-retirement plans are reported as a separate
component of the shareholders’ equity section of the consolidated statements of
condition, such items, along with net income, are components of comprehensive
(loss) income.
The
components of other comprehensive (loss) income and related tax effect at and
for the years ended December 31, are as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Unrealized
holding (losses) gains on securities available for sale:
|
|
|
|
|
|
|
|
Unrealized
holding (losses) gains arising during the year
|
|
|
$(2,346
|
)
|
|
|
$690
|
|
|
Reclassification
adjustment for losses (gains) included in net income
|
|
|
2,191
|
|
|
|
(378
|
)
|
|
Net
unrealized (losses) gains on securities available for sale
|
|
|
(155
|
)
|
|
|
312
|
|
|
Defined
benefit pension and post retirement plans:
|
|
|
|
|
|
|
|
|
|
Additional
plan (losses) gains
|
|
|
(2,257
|
)
|
|
|
103
|
|
|
Reclassification
adjustment for amortization of benefit plans'
|
|
|
|
|
|
|
|
|
|
net
loss and transition obligation recognized in net
|
|
|
|
|
|
|
|
|
|
periodic
expense
|
|
|
84
|
|
|
|
105
|
|
|
Net
change in defined benefit plan assets and obligations
|
|
|
(2,173
|
)
|
|
|
208
|
|
|
Other
comprehensive (loss) income before tax
|
|
|
(2,328
|
)
|
|
|
520
|
|
|
Tax
effect
|
|
|
632
|
|
|
|
(207
|
)
|
|
Other
comprehensive (loss) income
|
|
|
$(1,696
|
)
|
|
|
$313
|
|
The
components of accumulated other comprehensive loss, net of related tax effects,
at December 31, are as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Unrealized
losses on securities available for sale
|
|
|
|
|
|
|
|
(net
of tax benefit 2008 - $205; 2007 - $441)
|
|
|
$(1,053
|
)
|
|
|
$(661
|
)
|
|
Net
pension losses
|
|
|
|
|
|
|
|
|
|
(net
of tax benefit 2008 - $1352; 2007 - $495)
|
|
|
(2,027
|
)
|
|
|
(742
|
)
|
|
Net
post-retirement losses and transition obligation
|
|
|
|
|
|
|
|
|
|
(net
of tax benefit 2008 - $40; 2007 - $36)
|
|
|
(60
|
)
|
|
|
(54
|
)
|
|
|
|
|
$(3,140
|
)
|
|
|
$(1,457
|
)
|
Reclassifications
Certain
amounts in the 2007 consolidated financial statements have been reclassified to
conform to the current year presentation. These reclassifications had
no effect on net income as previously reported.
NOTE
2: NEW ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued Statement No. 141 (R),
Business Combinations
(SFAS
141R). This Statement establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. The Statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. The
guidance will become effective for the Company January 1, 2009. This
pronouncement will impact the Company’s accounting for business combinations
completed beginning January 1, 2009.
Staff
Accounting Bulletin No. 109 (SAB 109), "Written Loan Commitments Recorded at
Fair Value Through Earnings" expresses the views of the staff regarding written
loan commitments that are accounted for at fair value through earnings under
generally accepted accounting principles. To make the staff's views consistent
with current authoritative accounting guidance, the SAB revises and rescinds
portions of SAB No. 105, "Application of Accounting Principles to Loan
Commitments." Specifically, the SAB revises the SEC staff's views on
incorporating expected net future cash flows related to loan servicing
activities in the fair value measurement of a written loan commitment. The SAB
retains the staff's views on incorporating expected net future cash flows
related to internally-developed intangible assets in the fair value measurement
of a written loan commitment. The staff expects registrants to apply the views
in Question 1 of SAB 109 on a prospective basis to derivative loan commitments
issued or modified in fiscal quarters beginning after December 15, 2007. The
adoption of SAB 109 did not have a material impact on the Company’s financial
statements.
In
February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions.” This FSP addresses the issue of whether or not these transactions
should be viewed as two separate transactions or as one "linked" transaction.
The FSP includes a "rebuttable presumption" that presumes linkage of the two
transactions unless the presumption can be overcome by meeting certain criteria.
The FSP will be effective for fiscal years beginning after November 15, 2008 and
will apply only to original transfers made after that date; early adoption will
not be allowed. The Company is currently evaluating the potential impact the new
pronouncement will have on its consolidated financial statements.
In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible
Assets
(SFAS 142). The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141R and other GAAP. This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is
prohibited. The Company does not expect this pronouncement will have
a material impact on its consolidated financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”, (SFAS 162). The purpose of SFAS 162 is to
improve financial reporting by providing a consistent framework for determining
what accounting principles should be applied when preparing GAAP financial
statements. The FASB believes that issuing the GAAP hierarchy as a
FASB standard, recategorizing the existing GAAP hierarchy into two levels of
accounting literature (authoritative and non-authoritative), and elevating the
conceptual framework within the GAAP hierarchy are key objectives of achieving
the FASB’s goal of improving the quality of accounting standards and the
standard-setting process. SFAS 162 is effective 60 days following the
SEC’s approval of Public Company Accounting Oversight Board (“PCAOB”) amendment
to AU Section 411. The Company’s adoption of SFAS 162 is not expected
to have a material impact on its consolidated financial condition or results of
operations.
In
October 2008, the FASB issued FSP SFAS No. 157-3,
“
Determining the Fair Value
of a Financial Asset When The Market for That Asset Is Not
Active” (FSP 157-3), to clarify the application of the
provisions of SFAS 157 in an inactive market and how an entity would
determine fair value in an inactive market. FSP 157-3 is
effective immediately and applied to our 2008 consolidated financial
statements. The application of the provisions of FSP 157-3 did
not materially affect our results of operations or financial
condition.
In
November 2008, the SEC released a proposed roadmap regarding the potential use
by U.S. issuers of financial statements prepared in accordance with
International Financial Reporting Standards (IFRS). IFRS is a comprehensive
series of accounting standards published by the International Accounting
Standards Board (“IASB”). Under the proposed roadmap, the Company may be
required to prepare financial statements in accordance with IFRS as early as
2014. The SEC will make a determination in 2011 regarding the mandatory adoption
of IFRS. The Company is currently assessing the impact that this potential
change would have on its consolidated financial statements, and it will continue
to monitor the development of the potential implementation of IFRS.
In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets”. This FSP amends SFAS 132(R),
“Employers’ Disclosures about Pensions and Other Postretirement Benefits”, to
provide guidance on an employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan. The disclosures about
plan assets required by this FSP shall be provided for fiscal years ending after
December 15, 2009. The Company is currently reviewing the effect this
new pronouncement will have on its consolidated financial
statements.
NOTE
3: INVESTMENT SECURITIES – AVAILABLE-FOR-SALE
The
amortized cost and estimated fair value of investment securities are summarized
as follows:
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond
investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Treasury and agencies
|
|
|
$9,126
|
|
|
|
$342
|
|
|
|
$-
|
|
|
|
$9,468
|
|
|
State
and political subdivisions
|
|
|
5,020
|
|
|
|
23
|
|
|
|
(70
|
)
|
|
|
4,973
|
|
|
Corporate
|
|
|
12,181
|
|
|
|
117
|
|
|
|
(1,472
|
)
|
|
|
10,826
|
|
|
Mortgage-backed
|
|
|
39,478
|
|
|
|
707
|
|
|
|
(155
|
)
|
|
|
40,030
|
|
|
Total
|
|
|
65,805
|
|
|
|
1,189
|
|
|
|
(1,697
|
)
|
|
|
65,297
|
|
|
Equity
and other investments
|
|
|
7,591
|
|
|
|
-
|
|
|
|
(750
|
)
|
|
|
6,841
|
|
|
Total
investment securities
|
|
|
$73,396
|
|
|
|
$1,189
|
|
|
|
$(2,447
|
)
|
|
|
$72,138
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond
investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Treasury and agencies
|
|
|
$18,672
|
|
|
|
$27
|
|
|
|
$(53
|
)
|
|
|
$18,646
|
|
|
State
and political subdivisions
|
|
|
5,342
|
|
|
|
5
|
|
|
|
(20
|
)
|
|
|
5,327
|
|
|
Corporate
|
|
|
6,392
|
|
|
|
1
|
|
|
|
(366
|
)
|
|
|
6,027
|
|
|
Mortgage-backed
|
|
|
28,615
|
|
|
|
87
|
|
|
|
(325
|
)
|
|
|
28,377
|
|
|
Total
|
|
|
59,021
|
|
|
|
120
|
|
|
|
(764
|
)
|
|
|
58,377
|
|
|
Equity
and other investments
|
|
|
7,092
|
|
|
|
14
|
|
|
|
(473
|
)
|
|
|
6,633
|
|
|
Total
investment securities
|
|
|
$66,113
|
|
|
|
$134
|
|
|
|
$(1,237
|
)
|
|
|
$65,010
|
|
Gross
gains of $85,000 and $385,000 for 2008 and 2007, respectively and gross losses
of $23,000 and $7,000 for 2008 and 2007, respectively were realized on sales of
available for sale securities.
Investment
securities with a carrying value of approximately $37,815,000 at December 31,
2008 were pledged to collateralize certain deposit and borrowing
arrangements.
The
amortized cost and estimated fair value of debt investments at December 31, 2008
by contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
|
$2,077
|
|
|
|
$2,091
|
|
|
Due
after one year through five years
|
|
|
13,535
|
|
|
|
13,192
|
|
|
Due
after five years through ten years
|
|
|
4,554
|
|
|
|
4,469
|
|
|
Due
after ten years
|
|
|
6,161
|
|
|
|
5,515
|
|
|
Mortgage-backed
securities
|
|
|
39,478
|
|
|
|
40,030
|
|
|
Totals
|
|
|
$65,805
|
|
|
|
$65,297
|
|
The
Company’s investment securities’ gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, is as follows:
|
|
|
December 31, 2008
|
|
|
|
|
Less
than Twelve Months
|
|
|
Twelve
Months or More
|
|
|
Total
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and political subdivisions
|
|
|
$(70
|
)
|
|
|
$2,134
|
|
|
|
$-
|
|
|
|
$-
|
|
|
|
$(70
|
)
|
|
|
$2,134
|
|
|
Corporate
|
|
|
(327
|
)
|
|
|
5,349
|
|
|
|
(1,145
|
)
|
|
|
2,805
|
|
|
|
(1,472
|
)
|
|
|
8,154
|
|
|
Mortgage-backed
|
|
|
(150
|
)
|
|
|
7,491
|
|
|
|
(5
|
)
|
|
|
734
|
|
|
|
(155
|
)
|
|
|
8,225
|
|
|
Equity
and other investments
|
|
|
(744
|
)
|
|
|
4,251
|
|
|
|
(6
|
)
|
|
|
21
|
|
|
|
(750
|
)
|
|
|
4,272
|
|
|
|
|
|
$(1,291
|
)
|
|
|
$19,225
|
|
|
|
$(1,156
|
)
|
|
|
$3,560
|
|
|
|
$(2,447
|
)
|
|
|
$22,785
|
|
|
|
|
December
31, 2007
|
|
|
|
|
Less
than Twelve Months
|
|
|
Twelve
Months or More
|
|
|
Total
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Treasury and agencies
|
|
|
$(1
|
)
|
|
|
$1,004
|
|
|
|
$(52
|
)
|
|
|
$10,599
|
|
|
|
$(53
|
)
|
|
|
$11,603
|
|
|
State
and political subdivisions
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
3,362
|
|
|
|
(20
|
)
|
|
|
3,362
|
|
|
Corporate
|
|
|
(94
|
)
|
|
|
885
|
|
|
|
(272
|
)
|
|
|
3,692
|
|
|
|
(366
|
)
|
|
|
4,577
|
|
|
Mortgage-backed
|
|
|
(16
|
)
|
|
|
4,973
|
|
|
|
(309
|
)
|
|
|
17,169
|
|
|
|
(325
|
)
|
|
|
22,142
|
|
|
Equity
and other investments
|
|
|
(2
|
)
|
|
|
12
|
|
|
|
(471
|
)
|
|
|
6,043
|
|
|
|
(473
|
)
|
|
|
6,055
|
|
|
|
|
|
$(113
|
)
|
|
|
$6,874
|
|
|
|
$(1,124
|
)
|
|
|
$40,865
|
|
|
|
$(1,237
|
)
|
|
|
$47,739
|
|
The
Company reviews its securities portfolio for potential impairment issues at
least quarterly. During the year 2008, the Company recorded other
than temporary impairment charges on: a $1,000,000 holding in a senior unsecured
note issued by Lehman Brothers Holdings Inc., which filed a Chapter 11
Bankruptcy petition on September 15, 2008, in the amount of $875,000, the AMF
Large Cap Equity Fund in the amount of $690,000, $269,000 in the AMF Ultra Short
Mortgage Fund, $67,000 in the Financial Institutions Fund and $10,000 on a stock
investment in The Phoenix Companies. No impairment losses were recorded during
2007.
At
December 31, 2008, 5 state and political subdivision securities had unrealized
losses. During January 2009, the Company sold the majority of its
state and political subdivision portfolio. Only 5 holdings, all of
which have final maturity dates within the next 12 months, were not
liquidated. The portfolio was sold to take advantage of historically
high pricing levels, while generating liquidity to fund loan portfolio
growth. Only one of the 5 securities that were in unrealized loss
positions at December 31 was actually sold at a loss. The loss
totaled $5,500, or 1.2%, of the security’s carrying value. The total
sale of these holdings resulted in an overall gain recognized by the Company of
$85,000. Management has the intent and ability to hold the remaining
short-term positions to maturity.
At
December 31, 2008, 12 corporate securities were in unrealized loss
positions. The two securities in the largest unrealized loss position
represent trust-preferred issuances from large money center financial
institutions. The JP Morgan Chase floating rate trust-preferred
security has a carrying value of $984,000 and a fair value of $525,000. The Bank
of America floating rate trust-preferred security has a carrying value of
$979,000 and a fair value of $678,000. The securities are rated A1
and A2 by Moody’s. The securities are both floating rate notes that
adjust quarterly to LIBOR. These securities reflect net unrealized
losses due to the fact that current similar issuances are being originated at
much higher spreads to LIBOR, as the market currently demands a greater pricing
premium for the associated risk in the current economic
environment. Management has performed a detailed credit analysis on
the underlying companies and has concluded that each issue is not credit
impaired. Due to the fact that each security has in excess of 18
years until final maturity, and management has determined that there is no
related credit impairment, the associated pricing risk is managed similar to
long-term, low yielding, 15 and 30 year fixed rate residential mortgages carried
in the Company’s loan portfolio. The risk is managed through the
Company’s extensive interest rate risk management
procedures. Management has the intent and ability to hold these
securities to maturity or market price recovery, thus, the securities are not
deemed to be other-than-temporarily impaired.
The next
group of 8 corporate securities represent fixed rate notes with varying yields
and maturities. The unrealized loss positions principally relate to
changes in interest rates subsequent to the security acquisition date, as well
as a greater amount of credit spread currently being priced into similar
security offerings. All eight securities are currently A rated or
better by Moody’s and S & P. Management has performed a detailed
credit review on each security issuer and determined that none of the issues are
credit impaired. Management has the intent and ability to hold these
securities to maturity or market price recovery, thus, the securities are not
deemed to be other-than- temporarily impaired.
The final
two corporate securities in unrealized loss positions are a senior unsecured
bond issued by Lehman Brothers, which was written down to its market value at
September 30, 2008, and a senior unsecured fixed rate bond issued by CIT
Group. Management has obtained current pricing quotes on its Lehman
holding. Based on the quotes, management deems the current carrying
value of the bond to be appropriate. The CIT Group bond, with a
carrying value of $996,000, matures in February 2010 and carries a rating of
Baa2 from Moody’s. The bond’s fair value at December 31, 2008 was
$861,000 and had improved 25% when compared to its historic low, which was
experienced during the third quarter of 2008. The bond
valuation has continued to improve through February 2009. CIT Group
has strengthened its balance sheet by exchanging old debt for cash and
subordinated notes due in 2018, as well as by raising additional
capital. Management has performed a detailed credit review of the
issuer and continues to stay apprised of issues impacting this holding and
currently feels that the security is not other than temporarily
impaired. Management has the intent and ability to hold this security
to maturity.
At
December 31, 2008, 33 mortgage-backed securities have unrealized
losses. The unrealized losses relate primarily to securities issued
by FNMA, FHLMC and GNMA and are currently rated AAA by Moody’s Investor Services
(‘Moody’s”) and Standards and Poor (“S & P”). These unrealized
losses relate principally to changes in interest rates subsequent to the
acquisition of the specific securities. None of the securities in
this category had an unrealized loss that exceeded 10%, and the vast majority
had unrealized losses under 1%, or $1,000. The Company has the intent
and ability to hold the individual securities to maturity or market price
recovery.
At
December 31, 2008, 4 holdings, classified as equity and other investments, had
unrealized net losses. Two of the individual holdings had losses of
approximately $7,000 in total at December 31, 2008. One of the two
remaining holdings, the AMF Ultra Short Mortgage Fund (“the Fund”), represents
an investment in a mutual fund backed by short-duration adjustable rate
mortgage-backed security products. At September 30, 2008, the Company
recorded other-than-temporary impairment charges totaling $612,000, or 18%, of
the Fund’s carrying value, to the stated NAV. At December 31, 2008,
the carrying value of the Company’s remaining investment in the AMF Ultra Short
Mortgage Fund was $2,804,000. The fair value was $2,517,000. The
Fund’s value decline is a result of both the weakness in the trading market of
the underlying securities and the deterioration in the credit quality of a
portion of the Fund’s private label mortgage-backed security
holdings. The Company’s ability to reduce its investment position in
the Fund is limited by the Fund instituting its in-kind redemption
provisions. In particular, the Fund is limiting cash redemptions to
$250,000 every 90 days, with any excess redemption paid by transferring
underlying assets (in-kind) held by the Fund. The Company requested,
and received, an initial $250,000 cash redemption in April 2008; two additional
partial redemptions would have been available to the Company during fiscal year
2008. Management decided to forgo taking additional partial
redemptions as a reflection of its intent and ability to hold the Fund until its
value improves.
The
current Fund value is not a compilation of the daily trading prices of the
underlying securities, but rather is derived from matrix pricing in an illiquid
market, thus it is more reflective of liquidation pricing than of the Fund’s
true fair value. Fund cash flows have been uninterrupted, as no
individual security has experienced a default of contractual principal or
interest payments. The Fund continues to reinvest excess cash flows into
short-term federal agency backed mortgage-backed securities, thus improving the
overall risk profile of the Fund. During 2008, the Fund composition has shifted
from 75% private label holdings and 25% agency holdings to 50% private label and
50% federal agency holdings. In addition, a detailed review of the
Funds holdings at December 31, 2008, indicates that only 14.6% of the Fund
holdings are rated below the Company’s definition of investment grade, (A rated
or better by Moody’s or S & P).
Many of
the Government’s initiative to reinvigorate the economy and improve asset
valuations are just beginning to take effect. Significant
improvements in market conditions should be realized in the near
term. Management has displayed the intent and ability to hold this
security until its value improves. Given all these facts, it is
management’s opinion that the current carrying value of the Fund is reasonable
and that additional adjustments to the Fund’s carrying value are not necessary
at this time.
The last
holding in an unrealized loss position at December 31, 2008, is the Company’s
investment in the AMF Large Cap Equity Institutional Fund, (“the Fund”), a
mutual fund consisting of investment grade, dividend paying common stocks of
large capitalization companies (companies with market capitalization in excess
of $5 billion). Management recorded an other-than-temporary
impairment charge of $690,000, or 23.9%, of the Funds value, as of September 30,
2008. At December 31, 2008, the carrying value of the Company’s
remaining
investment
in the AMF Large Cap Equity Institutional Fund was $2,192,000. The
fair value was $1,734,000. Management believes that the underlying investment
grade securities represent equity positions in well-managed companies with a
diverse cross section of various industries. Management has performed
a review of each underlying holding comprising the Fund. The review
and analysis indicates that there are no individually impaired holdings and
there is no indication that the profitability of the individual companies is
impaired beyond the current economic cycle. The Fund value is highly
correlated to the overall stock market performance and management believes that
the market will return to previous valuation levels over the next economic
cycle. Many of the Government’s initiatives to reinvigorate the
economy are just beginning to take effect and significant improvements in
overall market conditions should be realized in the near
term. Management has the intent and ability to hold this security
until its value improves. As such, the recent decline in market value
since September 30, 2008 is not considered to be
other-than-temporary.
NOTE
4: LOANS
Major
classifications of loans at December 31, are as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Real
estate mortgages:
|
|
|
|
|
|
|
|
Residential
|
|
|
$132,825
|
|
|
|
$122,045
|
|
|
Construction
|
|
|
2,508
|
|
|
|
3,776
|
|
|
Commercial
|
|
|
55,061
|
|
|
|
45,490
|
|
|
|
|
|
190,394
|
|
|
|
171,311
|
|
|
Other
loans:
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
3,516
|
|
|
|
3,926
|
|
|
Home
Equity/Second Mortgage
|
|
|
24,392
|
|
|
|
21,379
|
|
|
Lease
financing
|
|
|
2,308
|
|
|
|
777
|
|
|
Commercial
|
|
|
25,215
|
|
|
|
20,576
|
|
|
Municipal
loans
|
|
|
3,162
|
|
|
|
3,935
|
|
|
|
|
|
58,593
|
|
|
|
50,593
|
|
|
Total
loans
|
|
|
248,987
|
|
|
|
221,904
|
|
|
Net
deferred loan costs
|
|
|
885
|
|
|
|
845
|
|
|
Less
allowance for loan losses
|
|
|
(2,472
|
)
|
|
|
(1,703
|
)
|
|
Loans
receivable, net
|
|
|
$247,400
|
|
|
|
$221,046
|
|
The
Company grants mortgage and consumer loans to customers throughout Oswego and
parts of Onondaga counties. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors’ abilities to honor their
contracts is dependent upon the counties’ employment and economic
conditions.
The
following represents the activity associated with loans to executive officers
and directors and their affiliated entities during the year ended December 31,
2008:
|
(In
thousands)
|
|
|
|
|
Balance
at Beginning of year
|
|
|
$3,835
|
|
|
Originations
|
|
|
2,940
|
|
|
Principal
payments
|
|
|
(323
|
)
|
|
Balance
at end of year
|
|
|
$6,452
|
|
NOTE
5: ALLOWANCE FOR LOAN LOSSES
Changes
in the allowance for loan losses for the years ended December 31, are summarized
as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Balance
at beginning of year
|
|
|
$1,703
|
|
|
|
$1,496
|
|
|
Recoveries
credited:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
17
|
|
|
|
-
|
|
|
Mortgage
|
|
|
-
|
|
|
|
23
|
|
|
Consumer
|
|
|
30
|
|
|
|
27
|
|
|
Total
recoveries
|
|
|
47
|
|
|
|
50
|
|
|
Loans
charged-off:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(46
|
)
|
|
|
(85
|
)
|
|
Mortgage
|
|
|
-
|
|
|
|
(46
|
)
|
|
Consumer
|
|
|
(52
|
)
|
|
|
(77
|
)
|
|
Total
charged-off
|
|
|
(98
|
)
|
|
|
(208
|
)
|
|
Net
charge-offs
|
|
|
(51
|
)
|
|
|
(158
|
)
|
|
Provision
for loan losses
|
|
|
820
|
|
|
|
365
|
|
|
Balance
at end of year
|
|
|
$2,472
|
|
|
|
$1,703
|
|
|
Ratio
of net charge-offs to average loans outstanding
|
|
|
0.02
|
%
|
|
|
0.08
|
%
|
The
following is a summary of information pertaining to impaired loans for the years
ended December 31:
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Impaired
loans without a valuation allowance
|
|
|
$2,020
|
|
|
|
$1,312
|
|
|
Impaired
loans with a valuation allowance
|
|
|
436
|
|
|
|
409
|
|
|
Total
impaired loans
|
|
|
$2,456
|
|
|
|
$1,721
|
|
|
Valuation
allowance related to impaired loans
|
|
|
$
141
|
|
|
|
$
152
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
investment in impaired loans
|
|
|
$2,252
|
|
|
|
$1,749
|
|
|
Interest
income recognized on impaired loans
|
|
|
$
176
|
|
|
|
$
92
|
|
|
Interest
income recognized on a cash basis on
|
|
|
|
|
|
|
|
|
|
impaired
loans
|
|
|
$
-
|
|
|
|
$
-
|
|
The
amount of loans on which the Company has ceased accruing interest aggregated
approximately $2,323,000 and $1,591,000 at December 31, 2008 and 2007,
respectively. There were no loans past due ninety days or more and
still accruing interest at December 31, 2008 or 2007.
NOTE
6: SERVICING
Loans
serviced for others are not included in the accompanying consolidated statements
of condition. The unpaid principal balances of mortgage and other
loans serviced for others were $46,095,000 and $50,409,000 at December 31, 2008
and 2007, respectively.
The
balance of capitalized servicing rights included in other assets at December 31,
2008 and 2007, was $15,000 and $43,000, respectively.
The
following summarizes mortgage-servicing rights capitalized and
amortized:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Mortgage
servicing rights capitalized
|
|
|
$
-
|
|
|
|
$24
|
|
|
Mortgage
servicing rights amortized
|
|
|
$28
|
|
|
|
$46
|
|
NOTE
7: PREMISES AND EQUIPMENT
A summary
of premises and equipment at December 31, is as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
|
$1,226
|
|
|
|
$1,226
|
|
|
Buildings
|
|
|
7,007
|
|
|
|
6,963
|
|
|
Furniture,
fixtures and equipment
|
|
|
7,090
|
|
|
|
6,861
|
|
|
Construction
in progress
|
|
|
134
|
|
|
|
66
|
|
|
|
|
|
15,457
|
|
|
|
15,116
|
|
|
Less:
Accumulated depreciation
|
|
|
8,007
|
|
|
|
7,309
|
|
|
|
|
|
$7,450
|
|
|
|
$7,807
|
|
NOTE
8: GOODWILL AND INTANGIBLE ASSETS
A summary
of goodwill and other intangible assets at December 31, is as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
(In
thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Goodwill
|
|
|
$3,840
|
|
|
|
$
-
|
|
|
|
$3,840
|
|
|
|
$
-
|
|
|
Core
deposit intangibles
|
|
|
1,111
|
|
|
|
(1,111
|
)
|
|
|
1,111
|
|
|
|
(1,111
|
)
|
Core
deposit intangibles became fully amortized in October 2007. Amortization of
goodwill and core deposit intangibles is deductible for tax
purposes.
As a
result of deteriorating economic conditions in the financial markets, which
impacted the trading value of the Company’s common stock, management engaged an
independent third party to test the Company’s goodwill for impairment pursuant
to SFAS No. 142, “Goodwill and Other Intangible Assets”. Management
considers the Company, which includes all banking operations on a consolidated
basis, as the “reporting unit” under SFAS 142 for the purpose of testing for
goodwill impairment. Testing was performed by utilizing a three-step
valuation approach using a measurement date of December 31, 2008:
|
(1)
|
The
estimated fair value of the Company as of the measurement date was
determined utilizing three valuation methodologies including the
Comparable Transactions approach, the Control Premium approach and the
Discounted Cash Flow approach. All approaches were considered
in the final estimate of fair value, with the results of the approaches
weighted based upon their level within the SFAS No.157 hierarchy and
management’s comfort level with each approach. In the final determination,
the greatest emphasis was placed on approaches utilizing primarily Level 2
inputs (the Comparable Transaction and Control Premium approaches), and
less weight was placed on the Discounted Cash Flow approach due to the
number of Level 3 inputs that were
utilized.
|
|
(2)
|
The
amount of goodwill that would be generated if the Company were to be sold
at a price equal to its estimated fair value was
calculated.
|
|
(3)
|
A
comparison of the estimated fair value of goodwill, determined in steps
(1) and (2) above, to the current carrying value of goodwill on the
Company’s books as of the measurement date was
performed.
|
As a
result of the above steps, it was determined that the estimated fair value of
goodwill exceeded the Company’s carrying value, and thus there was no goodwill
impairment at December 31, 2008.
NOTE
9: DEPOSITS
A summary
of deposits at December 31, is as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Savings
accounts
|
|
|
$49,550
|
|
|
|
$50,789
|
|
|
Time
accounts
|
|
|
91,223
|
|
|
|
86,588
|
|
|
Time
accounts over $100,000
|
|
|
40,731
|
|
|
|
33,016
|
|
|
Money
management accounts
|
|
|
10,300
|
|
|
|
9,657
|
|
|
MMDA
accounts
|
|
|
27,594
|
|
|
|
24,882
|
|
|
Demand
deposit interest-bearing
|
|
|
20,916
|
|
|
|
20,467
|
|
|
Demand
deposit noninterest-bearing
|
|
|
26,150
|
|
|
|
22,766
|
|
|
Mortgage
escrow funds
|
|
|
2,974
|
|
|
|
2,920
|
|
|
|
|
|
$269,438
|
|
|
|
$251,085
|
|
At
December 31, 2008, the scheduled maturities of time deposits are as
follows:
|
(In
thousands)
|
|
|
|
|
Year
of Maturity:
|
|
|
|
|
2009
|
|
|
$93,251
|
|
|
2010
|
|
|
19,410
|
|
|
2011
|
|
|
7,475
|
|
|
2012
|
|
|
6,526
|
|
|
2013
|
|
|
1,681
|
|
|
Thereafter
|
|
|
3,611
|
|
|
|
|
|
$131,954
|
|
NOTE
10: BORROWED FUNDS
The
composition of borrowings (excluding junior subordinated debentures) at December
31, is as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Short-term:
|
|
|
|
|
|
|
|
FHLB
Advances
|
|
|
$4,000
|
|
|
|
$9,000
|
|
|
Overnight
Line of Credit with FHLB
|
|
|
13,575
|
|
|
|
9,400
|
|
|
Total
short-term borrowings
|
|
|
$17,575
|
|
|
|
$18,400
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
FHLB
repurchase agreements
|
|
|
$2,400
|
|
|
|
$2,400
|
|
|
FHLB
advances
|
|
|
27,000
|
|
|
|
17,610
|
|
|
Citi
Group repurchase agreements
|
|
|
5,000
|
|
|
|
-
|
|
|
Total
long-term borrowings
|
|
|
$34,400
|
|
|
|
$20,010
|
|
The
principal balances, interest rates and maturities of the above fixed rate
borrowings at December 31, 2008 is as follows:
|
Term
|
|
Principal
|
|
|
Rates
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Short-term
advances with FHLB
|
|
|
$17,575
|
|
|
|
0.46%-3.95
|
%
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements with FHLB (due in 2009)
|
|
|
$2,400
|
|
|
|
5.56%-5.76
|
%
|
|
Repurchase
agreements with Citi Group (due in 2013)
|
|
|
5,000
|
|
|
|
2.95
|
%
|
|
Advances
with FHLB
|
|
|
|
|
|
|
|
|
|
due
within 1 years
|
|
|
3,000
|
|
|
|
4.03%-6.00
|
%
|
|
due
within 2 years
|
|
|
12,000
|
|
|
|
2.42%-4.39
|
%
|
|
due
within 3 years
|
|
|
5,000
|
|
|
|
4.02%-4.19
|
%
|
|
due
within 4 years
|
|
|
3,000
|
|
|
|
4.91
|
%
|
|
due
within 5 years
|
|
|
4,000
|
|
|
|
4.46%-4.53
|
%
|
|
Total
advances with FHLB
|
|
|
27,000
|
|
|
|
|
|
|
Total
long-term borrowings
|
|
|
$34,400
|
|
|
|
|
|
The
repurchase agreements with the Federal Home Loan Bank ("FHLB") and Citi Group
are collateralized by certain investment securities having a carrying value of
$8,260,000 at December 31, 2008. The collateral is under the
Company’s control. The overnight line of credit agreement with the
FHLB is used for liquidity purposes. Interest on this line is
determined at the time of borrowing. The average rate paid on the
overnight line during 2008 approximated 1.61%. At December 31, 2008,
$20,103,000 was available under the overnight line. As a companion to
the overnight line with the FHLB, the Company also has access to a One-Month
Overnight Repricing Line of Credit. This allows the Company to borrow
funds for a term of one month, which reprice daily over the term, thus freeing
up the overnight line for daily liquidity needs. The Company has
$33,678,000 available under this facility, yet has never accessed the one-month
overnight repricing line. In addition to the overnight line of credit program,
the Company also has access to the FHLB’s Term Advance Program under which it
can borrow at various terms and interest rates. Residential mortgage
loans with a carrying value of $77,471,000 and FHLB stock with a carrying value
of $2,549,000 have been pledged by the Company under a blanket collateral
agreement to secure the Company’s line of credit and term
borrowings. The total outstanding indebtedness under all three
borrowing facilities with the FHLB can not exceed the total value of the assets
pledged under the blanket collateral agreement. The Company also
maintains a $5,000,000 line of credit with a correspondent
bank. Interest on the line is determined at the time of
borrowing. The Company did not draw on the line during
2008. In order to utilize the line, the Company is required to secure
the outstanding balance with marketable investment securities.
The
Company has a non-consolidated subsidiary trust, Pathfinder Statutory Trust II,
of which 100% of the common equity is owned by the Company. The Trust
issued $5,000,000 of 30 year floating rate Company-obligated pooled capital
securities of Pathfinder Statutory Trust II. The Company borrowed the
proceeds of the capital securities from its subsidiary by issuing floating rate
junior subordinated deferrable interest debentures having substantially similar
terms. The capital securities mature in 2037 and are treated as Tier
1 capital by the Federal Deposit Insurance Corporation and the Office of Thrift
Supervision. The capital securities of the trust are a pooled trust
preferred fund of Preferred Term Securities VI, Ltd. and are tied to the 3-month
LIBOR plus 1.65% (3.65% at December 31, 2008) with a five-year call
provision. The Company guarantees all of these
securities.
The
Company's equity interest in the trust subsidiary of $155,000 is reported in
"Other assets". For regulatory reporting purposes, the Federal
Reserve Board has indicated that the preferred securities will continue to
qualify as Tier 1 Capital subject to previously specified limitations, until
further notice. If regulators make a determination that Trust Preferred
Securities can no longer be considered in regulatory capital, the securities
become callable and the Company may redeem them.
The
Company retired its original trust preferred issuance of $5,000,000 during June
2007, at its earliest call date. The original issuance of pooled
capital securities were tied to the 3-month LIBOR plus 3.45%. The
proceeds from the new issuance of Pathfinder Statutory Trust II were used to
retire the original issuance of Pathfinder Statutory Trust I.
NOTE 11: EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
AND SUPPLEMENTAL RETIREMENT PLANS
The
Company has a noncontributory defined benefit pension plan covering
substantially all employees. The plan provides defined benefits based on years
of service and final average salary. In addition, the Company provides certain
health and life insurance benefits for eligible retired
employees. The healthcare plan is contributory with participants’
contributions adjusted annually; the life insurance plan is
noncontributory. Employees with less than 14 years of service as of
January 1, 1995, are not eligible for the health and life insurance retirement
benefits.
On
January 1, 2008, the Company recorded a $48,000 charge to retained earnings,
representing the cumulative effect adjustment upon adopting the measurement date
transition rule for the Company’s pension plan and postretirement benefit
plan. In accordance with SFAS 158,
Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans
, measurement date
provisions, plan assets and obligations are to be measured as of the employer’s
balance sheet date. The Company previously measured its pension and
postretirement plans as of October 1 of each year. As a result of the
measurement date provisions, the Company increased its retirement plan
liabilities with a corresponding charge to retained earnings, representing the
net periodic benefit cost for the period between the October 1, 2007 measurement
date and January 1, 2008.
The
following tables set forth the changes in the plans’ benefit obligations, fair
value of plan assets and the plans’ funded status as of December
31:
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Change
in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligations at beginning of year
|
|
|
$4,843
|
|
|
|
$4,439
|
|
|
|
$335
|
|
|
|
$346
|
|
|
Adjustment
for measurement date change
|
|
|
132
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
Service
cost
|
|
|
214
|
|
|
|
196
|
|
|
|
3
|
|
|
|
3
|
|
|
Interest
cost
|
|
|
316
|
|
|
|
273
|
|
|
|
21
|
|
|
|
21
|
|
|
Actuarial
loss (gain)
|
|
|
174
|
|
|
|
83
|
|
|
|
32
|
|
|
|
(13
|
)
|
|
Benefits
paid
|
|
|
(186
|
)
|
|
|
(148
|
)
|
|
|
(28
|
)
|
|
|
(22
|
)
|
|
Benefit
obligations at end of year
|
|
|
5,493
|
|
|
|
4,843
|
|
|
|
369
|
|
|
|
335
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
|
4,977
|
|
|
|
4,338
|
|
|
|
-
|
|
|
|
-
|
|
|
Actual
return on plan assets
|
|
|
(1,493
|
)
|
|
|
565
|
|
|
|
-
|
|
|
|
-
|
|
|
Benefits
paid
|
|
|
(186
|
)
|
|
|
(148
|
)
|
|
|
(28
|
)
|
|
|
(22
|
)
|
|
Employer
contributions
|
|
|
163
|
|
|
|
222
|
|
|
|
28
|
|
|
|
22
|
|
|
Fair
value of plan assets at end of year
|
|
|
3,461
|
|
|
|
4,977
|
|
|
|
-
|
|
|
|
-
|
|
|
Funded
Status - (liability) asset
|
|
|
$(2,032
|
)
|
|
|
$134
|
|
|
|
$(369
|
)
|
|
|
$(335
|
)
|
Amounts
recognized in accumulated other comprehensive loss as of December
31,
|
(In
thousands)
|
|
|
2008
|
2007
|
|
Unrecognized
transition obligation
|
|
|
$
56
|
$ 79
|
|
Net
loss
|
|
|
3,423
|
1,248
|
|
|
|
|
3,479
|
1,327
|
|
Tax
Effect
|
|
|
1,392
|
531
|
|
|
|
|
$
2,087
|
$ 796
|
The
accumulated benefit obligation for the defined benefit pension plan was
$4,537,000 and $3,953,000 at December 31, 2008 and 2007,
respectively. The postretirement plan had an accumulated benefit
obligation of $369,000 and $335,000 at December 31, 2008 and 2007,
respectively.
The
significant assumptions used in determining the benefit obligations as of
December 31, 2008 and 2007 are as follows:
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Weighted
average discount rate
|
|
|
6.13
|
%
|
|
|
6.63
|
%
|
|
|
6.13
|
%
|
|
|
6.63
|
%
|
|
Rate
of increase in future compensation levels
|
|
|
3.50
|
%
|
|
|
4.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Assumed
health care cost trend rates have a significant effect on the amounts reported
for the postretirement health care plan. The annual rates of
increase in the per capita cost of covered medical and prescription drug
benefits for year-end calculations were assumed to be 9.00% and 7.75%,
respectively. The rates were assumed to decrease gradually to 5.00%
in 2013 and remain at that level thereafter. A one-percentage point
change in the health care cost trend rates would have the following
effects:
|
|
|
1
Percentage
|
|
|
1
Percentage
|
|
|
|
|
Point
|
|
|
Point
|
|
|
(In
thousands)
|
|
Increase
|
|
|
Decrease
|
|
|
Effect
on total of service and interest
|
|
|
|
|
|
|
|
cost
components
|
|
|
$1
|
|
|
|
$(1
|
)
|
|
Effect
on post retirement benefit obligation
|
|
|
10
|
|
|
|
(9
|
)
|
The
composition of the net periodic benefit plan cost for the years ended December
31, 2008 and 2007 is as follows:
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
|
$214
|
|
|
|
$196
|
|
|
|
$
3
|
|
|
|
$
3
|
|
|
Interest
cost
|
|
|
316
|
|
|
|
273
|
|
|
|
21
|
|
|
|
21
|
|
|
Amortization
of transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
18
|
|
|
Amortization
of net losses
|
|
|
66
|
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
Expected
return on plan assets
|
|
|
(447
|
)
|
|
|
(392
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Net
periodic benefit plan cost
|
|
|
$149
|
|
|
|
$164
|
|
|
|
$42
|
|
|
|
$42
|
|
The
significant assumptions used in determining the net periodic benefit plan cost
for years ended December 31 were as follows:
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Weighted
average discount rate
|
|
|
6.63
|
%
|
|
|
6.25
|
%
|
|
|
6.63
|
%
|
|
|
6.25
|
%
|
|
Expected
long term rate of return on plan assets
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Rate
of increase in future compensation levels
|
|
|
4.00
|
%
|
|
|
3.00
|
%
|
|
|
-
|
|
|
|
-
|
|
The
long-term rate-of-return-on-assets assumption was set based on historical
returns earned by equities and fixed income securities, adjusted to reflect
expectations of future returns as applied to the plan’s target allocation of
asset classes. Equities and fixed income securities were assumed to
earn real rates of return in the ranges of 5-9.0% and 2-6.0%,
respectively. The long-term inflation rate was estimated to be
3.0%. When these overall return expectations are applied to the
plan’s target allocation, the expected rate of return was determined to be 9.0%,
which is roughly the midpoint of the range of expected return.
The
expected long-term rate of return for 2009 has been decreased to 8.0% to reflect
current economic conditions and expected returns. The estimated net
actuarial loss that will be amortized from accumulated other comprehensive loss
into net periodic benefit plan cost during 2009 is $261,000. The
estimated amortization of the unrecognized transition obligation in 2009 is
$18,000. Based on these factors, and a lower expected rate of return
on plan assets, the expected net periodic benefit plan cost for 2009 is
estimated at $593,000. The negative impact on earnings resulting from
the projected increase in costs in 2009 is the result of increased amortization
of net pension losses and lower expected return on plan assets, both primarily
due to the decrease in value of plan assets in the defined benefit pension
plan.
The
Company’s pension plan weighted-average asset allocations at December 31, 2008,
and October 1, 2007, the plan measurement dates, by asset category are as
follows:
|
Asset
Category
|
|
2008
|
|
|
2007
|
|
|
Equity
securities
|
|
|
59
|
%
|
|
|
70
|
%
|
|
Debt
securities
|
|
|
41
|
%
|
|
|
30
|
%
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
Plan
assets are invested in diversified investment funds of the RSI Retirement Trust
(the “Trust”), a series of no-load private placement funds. The
investment funds include equity funds and bond funds, each with its own
investment objectives, investment strategies and risks, as detailed in the
Private Placement Memorandum. The Trust has been given discretion by
the Plan Sponsor to determine the appropriate strategic asset allocation versus
plan liabilities, as governed by the Trust’s Statement of Investment Objectives
and Guidelines (the “Guidelines”).
The
long-term investment objective is to be invested 65% in equity securities
(equity mutual funds) and 35% in debt securities (bond mutual
funds). If the plan is underfunded under the Guidelines, the bond
fund portion will be temporarily increased to 50% in order to lessen asset value
volatility. When the plan is no longer underfunded, the bond fund
portion will be decreased back to 35%. Asset rebalancing is scheduled
when the investment mix varies more than 10% from the target (i.e., a 20% target
range).
The
investment goal is to achieve investment results that will contribute to the
proper funding of the pension plan by exceeding the rate of inflation over the
long-term. In addition, investment managers for the Trust are
expected to provide above average performance when compared to their peer
managers. Performance volatility is also
monitored. Risk/volatility is further managed by the distinct
investment objectives of each of the Trust funds and the diversification within
each fund.
Due to
recent changes in pension funding law and sharp declines in asset fair values, a
good estimate of expected contributions for the fiscal year ending December 31,
2009 cannot be determined at this time.
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid.
|
Years
ending December 31:
|
|
|
|
|
(In
thousands)
|
|
|
|
|
2009
|
|
|
$
173
|
|
|
2010
|
|
|
177
|
|
|
2011
|
|
|
184
|
|
|
2012
|
|
|
196
|
|
|
2013
|
|
|
211
|
|
|
Years
2014 - 2018
|
|
|
$1,391
|
|
The
Company also offers a 401(k) plan to its employees. Contributions to
this plan by the Company were $116,000 and $148,000 for 2008 and 2007,
respectively.
The
Company maintains optional deferred compensation plans for its directors, and
certain executive officers, whereby fees and income normally received are
deferred and paid by the Company based upon a payment schedule commencing at age
65 and continuing monthly for 10 years. Directors must serve on the board for a
minimum of 5 years to be eligible for the Plan. At December 31, 2008 and 2007,
other liabilities include approximately $1,741,000 and $1,660,000, respectively,
relating to deferred compensation. Deferred compensation expense for the years
ended December 31, 2008 and 2007 amounted to approximately $225,000 and
$212,000, respectively.
The
Company has a supplemental executive retirement plan for the benefit of certain
executive officers. At December 31, 2008 and 2007, other liabilities
included approximately $333,000 and $366,000 accrued under this plan.
Compensation expense includes approximately $49,000 relating to the supplemental
executive retirement plan for both 2008 and 2007.
To fund
the benefits under these plans, the Company is the owner of single premium life
insurance policies on participants in the non-qualified retirement
plans. At December 31, 2008 and 2007, the cash surrender values of
these policies were $6,731,000 and $6,437,000, respectively.
NOTE
12:
STOCK BASED COMPENSATION PLANS
In
February 1997, the Board of Directors approved a stock option plan and granted
options thereunder with an exercise price equal to the market value of the
Company’s shares at the date of grant. Under the Stock Option Plan,
up to 132,249 options had been authorized for grant of incentive stock options
and nonqualified stock options, of which none remain at December 31,
2008. The options granted have a 10-year term with one-third vesting
upon the grant date and the remaining vesting and becoming exercisable ratably
over a 2-year period.
Activity
in the Stock Option Plan is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Options
|
|
|
Average
|
|
|
Shares
|
|
|
(Shares
in thousands)
|
|
Outstanding
|
|
|
Exercise
Price
|
|
|
Exercisable
|
|
|
Outstanding
at January 1, 2007
|
|
|
37
|
|
|
|
$7.53
|
|
|
|
37
|
|
|
Exercised
|
|
|
(17
|
)
|
|
|
6.60
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
20
|
|
|
|
8.34
|
|
|
|
20
|
|
|
Exercised
|
|
|
(1
|
)
|
|
|
8.34
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
19
|
|
|
|
8.34
|
|
|
|
19
|
|
The
aggregate intrinsic value of a stock option represents the total pre-tax
intrinsic value (the amount by which the current market value of the underlying
stock exceeds the exercise price of the option) that would have been received by
the option holders had all option holders exercised their options on December
31, 2008. The intrinsic value changes based on fluctuations in the
market value of the Company’s stock. At December 31, 2008, the market
value of the Company’s stock was less than the stock option price, and
therefore, the outstanding and exercisable stock options had no aggregate
intrinsic value.
The stock
options exercised during 2008 had no intrinsic value.
At
December 31, 2008, the 18,850 options outstanding all had an exercise price of
$8.34 and an average remaining contractual life of 2.5 years.
NOTE 13:
INCOME
TAXES
The
provision for income tax expense (benefit) for the years ended December 31, is
as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Current
|
|
|
$491
|
|
|
|
$432
|
|
|
Deferred
|
|
|
(388
|
)
|
|
|
(48
|
)
|
|
|
|
|
$103
|
|
|
|
$384
|
|
The
provision for income taxes includes the following:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Federal
Income Tax
|
|
|
$191
|
|
|
|
$405
|
|
|
New
York State Franchise Tax
|
|
|
(88
|
)
|
|
|
(21
|
)
|
|
|
|
|
$103
|
|
|
|
$384
|
|
The
components of the net deferred tax asset, included in other assets as of
December 31, are as follows:
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
|
$802
|
|
|
|
$783
|
|
|
Allowance
for loan losses
|
|
|
956
|
|
|
|
659
|
|
|
Postretirement
benefits
|
|
|
144
|
|
|
|
129
|
|
|
Pension
liability
|
|
|
786
|
|
|
|
-
|
|
|
Mortgage
recording tax credit carryforward
|
|
|
417
|
|
|
|
408
|
|
|
Investment
securities
|
|
|
503
|
|
|
|
441
|
|
|
Other
|
|
|
841
|
|
|
|
94
|
|
|
|
|
|
4,449
|
|
|
|
2,514
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Pension
asset
|
|
|
-
|
|
|
|
(52
|
)
|
|
Depreciation
|
|
|
(475
|
)
|
|
|
(517
|
)
|
|
Accretion
|
|
|
(45
|
)
|
|
|
(57
|
)
|
|
Loan
origination fees
|
|
|
(349
|
)
|
|
|
(335
|
)
|
|
Intangible
assets
|
|
|
(841
|
)
|
|
|
(651
|
)
|
|
Prepaid
expenses
|
|
|
(177
|
)
|
|
|
(107
|
)
|
|
|
|
|
(1,887
|
)
|
|
|
(1,719
|
)
|
|
|
|
|
2,562
|
|
|
|
795
|
|
|
Less:
deferred tax asset valuation allowance
|
|
|
(540
|
)
|
|
|
-
|
|
|
Net
deferred tax asset
|
|
|
$2,022
|
|
|
|
$795
|
|
Realization
of deferred tax assets is dependent upon the generation of future taxable income
or the existence of sufficient taxable income within the carry back
period. A valuation allowance is provided when it is more likely than
not that some portion, or all 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 the projected future level of taxable income over
the periods in which the temporary differences comprising the deferred tax
assets will be deductible. The judgment about the level of future
taxable income is inherently subjective and is reviewed on a continual basis as
regulatory and business factors change. A valuation allowance of $540,000 was
established as of December 31, 2008, as management believes it may not generate
sufficient capital gains to offset its capital loss carry forward.
A
reconciliation of the federal statutory income tax rate to the effective income
tax rate for the years ended December 31, is as follows:
|
|
|
2008
|
|
|
2007
|
|
|
Federal
statutory income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
State
tax
|
|
|
(12.5
|
)
|
|
|
(0.9
|
)
|
|
Tax-exempt
interest income
|
|
|
(17.7
|
)
|
|
|
(6.1
|
)
|
|
Increase
in value of life insurance
|
|
|
(19.2
|
)
|
|
|
(5.1
|
)
|
|
Deferred
tax valuation allowance
|
|
|
45.2
|
|
|
|
-
|
|
|
Other
|
|
|
(7.9
|
)
|
|
|
3.6
|
|
|
Effective
income tax rate
|
|
|
21.9
|
%
|
|
|
25.5
|
%
|
The
adoption of FIN 48 at January 1, 2007 did not have an impact on the Company’s
consolidated financial statements. At December 31, 2008 and 2007, the
Company did not have any uncertain tax positions. The Company’s
policy is to recognize interest and penalties on unrecognized tax benefits, if
any, in income tax expense in the Consolidated Statements of
Income. The tax years subject to examination by the taxing
authorities are the years ended December 31, 2008, 2007, 2006, and
2005.
NOTE 14:
EARNINGS
PER SHARE
The
following is a reconciliation of basic to diluted earnings per share for the
years ended December 31:
|
(In
thousands, except per share data)
|
|
Earnings
|
|
|
Shares
|
|
|
EPS
|
|
|
2008
Net Income
|
|
|
$368
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
368
|
|
|
|
2,484
|
|
|
|
$0.15
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
Diluted
EPS
|
|
|
$368
|
|
|
|
2,485
|
|
|
|
$0.15
|
|
|
2007
Net Income
|
|
|
$1,122
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
1,122
|
|
|
|
2,483
|
|
|
|
$0.45
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
Diluted
EPS
|
|
|
$1,122
|
|
|
|
2,487
|
|
|
|
$0.45
|
|
NOTE 15:
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 include commitments to extend credit and standby letters
of credit. Such commitments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated statement of
condition. The contractual amount of those commitments to extend credit reflects
the extent of involvement the Company has in this particular class of financial
instrument. The Company’s exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
is represented by the contractual amount of the instrument. The
Company uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
At
December 31, 2008 and 2007, the following financial instruments were outstanding
whose contract amounts represent credit risk:
|
|
|
Contract
Amount
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
Commitments
to grant loans
|
|
|
$8,723
|
|
|
|
$9,677
|
|
|
Unfunded
commitments under lines of credit
|
|
|
15,710
|
|
|
|
17,912
|
|
|
Standby
letters of credit
|
|
|
1,639
|
|
|
|
1,744
|
|
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 commitment amounts 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 credit
evaluation of the counter party. Collateral held varies but may include
residential real estate and income-producing commercial
properties. Loan commitments outstanding at December 31, 2008 with
fixed interest rates amounted to approximately $6.1 million. Loan commitments,
including unused lines of credit, outstanding at December 31, 2008 with variable
interest rates amounted to approximately $20.0 million. These
outstanding loan commitments carry current market rates.
Unfunded
commitments under standby letters of credit, revolving credit lines and
overdraft protection agreements are commitments for possible future extensions
of credit to existing customers. These lines of credit usually do not
contain a specified maturity date and may not be drawn upon to the total extent
to which the Company is committed.
Outstanding
letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The
majority of these standby letters of credit expire within the next twelve
months. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending other loan
commitments. The Bank requires collateral supporting these letters of
credit as deemed necessary. Management believes that the proceeds
obtained through a liquidation of such collateral would be sufficient to cover
the maximum potential amount of future payments required under the corresponding
guarantees. The amount of the liability as of December 31, 2008 and
2007 for guarantees under standby letters of credit issued is not
material.
The
Company leases land and leasehold improvements under agreements that expire in
various years with renewal options over the next 30 years. Rental
expense, included in building occupancy expense, amounted to $66,000 and $63,000
in 2008 and 2007, respectively. In October 2002, the Company entered
into a land lease with one of its directors on an arms-length basis. In January
2006, the Company entered into a lease with Pathfinder Bancorp, MHC for the use
of a training facility. This lease was also executed on an
arms-length basis. The rent expense paid to the related parties
during 2008 and 2007 was $45,000 and $43,000, respectively. Approximate minimum
rental commitments for noncancelable operating leases are as
follows:
|
Years
Ending December 31:
|
|
|
|
|
(In
thousands)
|
|
|
|
|
2009
|
|
|
$66
|
|
|
2010
|
|
|
66
|
|
|
2011
|
|
|
52
|
|
|
2012
|
|
|
43
|
|
|
2013
|
|
|
21
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
minimum lease payments
|
|
|
$248
|
|
NOTE 16:
DIVIDENDS
AND RESTRICTIONS
The Board
of Directors of Pathfinder Bancorp, M.H.C., determines whether the Holding
Company will waive or receive dividends declared by the Company each time the
Company declares a dividend, which is expected to be on a quarterly basis. The
Holding Company may elect to receive dividends and utilize such funds to pay
expenses or for other allowable purposes. The Office of Thrift Supervision
(“OTS”) has indicated that (i) the Holding Company shall provide the OTS
annually with written notice of its intent to waive its dividends prior to the
proposed date of the dividend and the OTS shall have the authority to approve or
deny any dividend waiver request; (ii) if a waiver is granted, dividends waived
by the Holding Company will be excluded from the Company’s capital accounts for
purposes of calculating dividend payments to minority
shareholders. During 2008, the Company paid or accrued dividends
totaling $487,000 to the Holding Company. For the second quarter ended June 30,
2008, the Holding Company waived the right to receive its portion of the cash
dividends declared on June 24, 2008, which totaled $163,000. During
2007, the Holding Company waived dividends totaling $325,000.
The
Company's ability to pay dividends to its shareholders is largely dependent on
the Bank's ability to pay dividends to the Company. In addition to
state law requirements and the capital requirements discussed in Note 17,
federal statutes, regulations and policies limit the circumstances under which
the Bank may pay dividends. The amount of retained earnings legally
available under these regulations approximated $1,971,000 as of December 31,
2008. Dividends paid by the Bank to the Company would be prohibited
if the effect thereof would cause the Bank’s capital to be reduced below
applicable minimum capital requirements.
NOTE 17:
REGULATORY
MATTERS
The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of its assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain amounts and ratios (set forth in the table below) of total and Tier
1 capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2008, that the Bank meets all capital adequacy
requirements to which it is subject.
As of
December 31, 2008, the Bank’s most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as “well-capitalized”, under the
regulatory framework for prompt corrective action. To be categorized
as “well-capitalized”, the Bank must maintain total risk based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the tables below. There
are no conditions or events since that notification that management believes
have changed the Bank’s category.
The
Bank’s actual capital amounts and ratios as of December 31, 2008 and 2007 are
also presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be "Well-
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Capitalized"
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
Under Prompt
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Corrective Provisions
|
|
|
(Dollars
in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
As
of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Core Capital (to Risk-Weighted Assets)
|
|
|
$25,625
|
|
|
|
10.8
|
%
|
|
|
$18,944
|
|
|
|
8.0
|
%
|
|
|
$23,680
|
|
|
|
10.0
|
%
|
|
Tier
1 Capital (to Risk-Weighted Assets)
|
|
|
$23,152
|
|
|
|
9.8
|
%
|
|
|
$9,472
|
|
|
|
4.0
|
%
|
|
|
$14,208
|
|
|
|
6.0
|
%
|
|
Tier
1 Capital (to Average Assets)
|
|
|
$23,152
|
|
|
|
6.8
|
%
|
|
|
$13,702
|
|
|
|
4.0
|
%
|
|
|
$17,128
|
|
|
|
5.0
|
%
|
|
As
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Core Capital (to Risk-Weighted Assets)
|
|
|
$25,447
|
|
|
|
12.2
|
%
|
|
|
$16,648
|
|
|
|
8.0
|
%
|
|
|
$20,810
|
|
|
|
10.0
|
%
|
|
Tier
1 Capital (to Risk-Weighted Assets)
|
|
|
$23,744
|
|
|
|
11.4
|
%
|
|
|
$8,324
|
|
|
|
4.0
|
%
|
|
|
$12,486
|
|
|
|
6.0
|
%
|
|
Tier
1 Capital (to Average Assets)
|
|
|
$23,744
|
|
|
|
7.7
|
%
|
|
|
$12,437
|
|
|
|
4.0
|
%
|
|
|
$15,548
|
|
|
|
5.0
|
%
|
The Bank
is required to maintain average balances on hand or with the Federal Reserve
Bank. At December 31, 2008 and 2007, these reserve balances amounted
to $2,306,000 and $2,130,000, respectively.
NOTE
18:
FAIR VALUE
MEASUREMENTS
In
September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
,
(“SFAS 157”) which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements.
SFAS 157 applies to other accounting pronouncements that require or permit
fair value measurements. SFAS 157 establishes a fair value hierarchy about the
assumptions used to measure fair value and clarifies assumptions about risk and
the effect of a restriction on the sale or use of an asset. The
standard
became
effective for the Company January 1, 2008, including interim
periods. In February 2008, the FASB issued FASB Staff Position (FSP)
No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP
delays the effective date of FAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value on a recurring basis (at least annually) to January 1,
2009. This delay relates to non-financial assets and liabilities that
are not measured at fair value on an ongoing basis, but are subject to fair
value adjustments in certain circumstances (for example, when there is evidence
of impairment). The Company has delayed its disclosure requirements
of non-financial assets and liabilities. Certain assets, such as
foreclosed real estate, with write-downs subsequent to foreclosure, are carried
at fair value at the statement of condition date for which the Company has not
yet adopted the provisions of SFAS 157.
In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for that Asset is Not Active” (FSP 157-3), to
clarify the application of the provisions of SFAS 157 in an inactive market and
how an entity would determine fair value in an inactive market. FSP
157-3 was effective immediately and applied to our 2008 consolidated financial
statements. The application of the provisions of FSP 157-3 did not
materially affect our results of operations or financial condition as of and for
the year ended December 31, 2008.
SFAS 157
specifies a hierarchy of valuation techniques based on whether the inputs to
those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs
reflect our market assumptions. In accordance with SFAS 157, these two types of
inputs have created the following fair value hierarchy:
|
·
|
Level
1 – Quoted prices (unadjusted) for identical assets or liabilities in
active markets that the entity has the ability to access as of the
measurement date.
|
|
·
|
Level
2 – Quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are not active; and model-derived valuations in which all significant
inputs and significant value drivers are observable in active
markets.
|
|
·
|
Level
3 – Model derived valuations in which one or more significant inputs or
significant value drivers are
unobservable.
|
An
asset’s or liability’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.
The
Company used the following methods and significant assumptions to estimate fair
value:
Investment
securities: The fair values of securities available for sale are
obtained from an independent third party and are based on quoted prices on
nationally recognized exchange (Level 1), where available. If quoted
prices are not available, fair values are measured by utilizing matrix pricing,
which is a mathematical technique used widely in the industry to value debt
securities without relying exclusively on quoted prices for specific securities
but rather by relying on the securities’ relationship to other benchmark quoted
securities (Level 2). Management made no adjustment to the fair value
quotes that were received from the independent third party pricing
service.
Impaired
loans: Impaired loans are those that are accounted for under SFAS 114,
Accounting by Creditors for
Impairment of a Loan
, in which the Company has measured impairment
generally based on the fair value of the loan’s collateral. Fair
value is generally determined based upon independent third party appraisals of
the properties, or discounted cash flows based upon expected
proceeds. These assets are included as Level 3 fair values, based
upon the lowest level of input that is significant to the fair value
measurements. The fair value consists of loan balances less their
valuation allowances as determined under SFAS 114.
Financial
assets measured at fair value on a recurring basis, are summarized
below:
|
|
|
Fair Value Measurements,
Using
|
|
|
|
Quoted
Prices
|
Significant
|
Significant
|
|
|
|
In
Active Markets
|
Other
Observable
|
Unobservable
|
|
|
|
For
Identical Assets
|
Inputs
|
Inputs
|
|
(In
thousands)
|
December
31, 2008
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|
Investment
securities available for sale:
|
$72,138
|
$ 1,918
|
$70,220
|
$ -
|
Financial
assets measured at fair value on a nonrecurring basis, are summarized
below:
|
|
|
Fair Value Measurements,
Using
|
|
|
|
Quoted
Prices
|
Significant
|
Significant
|
|
|
|
In
Active Markets
|
Other
Observable
|
Unobservable
|
|
|
|
For
Identical Assets
|
Inputs
|
Inputs
|
|
(In
thousands)
|
December
31, 2008
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|
Impaired
loans:
|
$295
|
$ -
|
$ -
|
$295
|
Impaired
loans are recorded net of a valuation allowance of $141,000. There
was no additional provision for loan losses resulting from loan impairment
during the year ended December 31, 2008.
NOTE 19:
FAIR
VALUES OF FINANCIAL INSTRUMENTS
SFAS No.
107,
Disclosure About Fair
Value of Financial Instruments,
requires disclosure of fair value
information of financial instruments, whether or not recognized in the
consolidated statement of condition, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument.
Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured as of
their respective year-ends, and have not been re-evaluated or updated for
purposes of these financial statements subsequent to those respective
dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year-end.
The
following information should not be interpreted as an estimate of the fair value
of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities. Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Company’s disclosures and those of other
companies may not be meaningful. The Company, in estimating its fair
value disclosures for financial instruments, used the following methods and
assumptions:
Cash and cash equivalents
–
the carrying amounts approximate fair value.
Investment securities
– the
fair values of securities available for sale are obtained from an independent
third party and are based on quoted prices on nationally recognized exchange
(Level 1), where available. If quoted prices are not available, fair
values are measured by utilizing matrix pricing, which is a mathematical
technique used widely in the industry to value debt securities without relying
exclusively on quoted prices for specific securities but rather by relying on
the securities’ relationship to other benchmark quoted securities (Level
2). Management made no adjustment to the fair value quotes that were
received from the independent third party pricing service.
Loans and mortgage loans
held-for-sale
– the fair values of portfolio loans, including commercial
and commercial real estate loans are estimated using an option adjusted
discounted cash flow model that discounts future cash flows using recent market
interest rates, market volatility and credit spread assumptions.
Federal Home Loan Bank Stock
–
the carrying amount approximates fair value.
Mortgage servicing rights
-
the carrying amount approximates fair value.
Accrued interest receivable and
payable
– the carrying amounts approximate fair values.
Deposit liabilities
– The fair
values disclosed for demand deposits (e.g., interest-bearing and
noninterest-bearing checking, passbook savings and certain types of money
management 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 deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered in the market on
certificates of deposits to a schedule of aggregated expected monthly maturities
on time deposits.
Borrowings
– Fixed/variable
term “bullet” structures are valued using a replacement cost of funds
approach. These borrowings are discounted to the FHLBNY advance
curve. Option structured borrowings fair values are determined by the
FHLB for borrowings that include a call or conversion option. If
market pricing is not available from this source, current market indications
from the FHLBNY are obtained and the borrowings are discounted to the FHLBNY
advance curve less an appropriate spread to adjust for the option.
Junior subordinated debentures
– Current economic conditions have rendered the market for this liability
inactive. As such, we are unable to determine a good estimate of fair
value. Since the rate paid on the debentures held is lower than what
would be required to secure an interest in the same debt at year end, and we are
unable to obtain a current fair value, we have disclosed that the carrying value
approximates the fair value.
Off-balance sheet instruments
– Fair values for the Company’s off-balance sheet instruments 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
carrying amounts and fair values of the Company’s financial instruments as of
December 31 are presented in the following table:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
(Dollars
in thousands)
|
|
Amounts
|
|
|
Fair
Values
|
|
|
Amounts
|
|
|
Fair
Values
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$7,678
|
|
|
|
$7,678
|
|
|
|
$10,213
|
|
|
|
$10,213
|
|
|
Investment
securities
|
|
|
72,138
|
|
|
|
72,138
|
|
|
|
65,010
|
|
|
|
65,010
|
|
|
Net
loans
|
|
|
247,400
|
|
|
|
250,020
|
|
|
|
221,046
|
|
|
|
224,397
|
|
|
Federal
Home Loan Bank stock
|
|
|
2,549
|
|
|
|
2,549
|
|
|
|
2,128
|
|
|
|
2,128
|
|
|
Accrued
interest receivable
|
|
|
1,678
|
|
|
|
1,678
|
|
|
|
1,673
|
|
|
|
1,673
|
|
|
Mortgage
servicing rights
|
|
|
15
|
|
|
|
15
|
|
|
|
43
|
|
|
|
43
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
$269,438
|
|
|
|
$272,207
|
|
|
|
$251,085
|
|
|
|
$251,655
|
|
|
Borrowed
funds
|
|
|
51,975
|
|
|
|
53,777
|
|
|
|
38,410
|
|
|
|
38,192
|
|
|
Junior
subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
Accrued
interest payable
|
|
|
211
|
|
|
|
211
|
|
|
|
250
|
|
|
|
250
|
|
|
Off-balance
sheet instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
|
$
-
|
|
|
|
$
-
|
|
|
|
$
-
|
|
|
|
$
-
|
|
|
Commitments
to extend credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NOTE 20:
PARENT
COMPANY – FINANCIAL INFORMATION
The
following represents the condensed financial information of Pathfinder Bancorp,
Inc. as of and for the years ended December 31:
|
Statements
of Condition
|
|
2008
|
|
|
2007
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash
|
|
|
$10
|
|
|
|
$178
|
|
|
Investments
|
|
|
18
|
|
|
|
20
|
|
|
Investment
in bank subsidiary
|
|
|
24,603
|
|
|
|
26,587
|
|
|
Investment
in non-bank subsidiary
|
|
|
155
|
|
|
|
155
|
|
|
Other
assets
|
|
|
149
|
|
|
|
16
|
|
|
Total
assets
|
|
|
$24,935
|
|
|
|
$26,956
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities
|
|
|
285
|
|
|
|
97
|
|
|
Junior
subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
Shareholders'
equity
|
|
|
19,495
|
|
|
|
21,704
|
|
|
Total
liabilities and shareholders' equity
|
|
|
$24,935
|
|
|
|
$26,956
|
|
|
Statements
of Income
|
|
2008
|
|
|
2007
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
Dividends
from bank subsidiary
|
|
|
$900
|
|
|
|
$900
|
|
|
Dividends
from non-bank subsidiary
|
|
|
7
|
|
|
|
15
|
|
|
Dividends
on other investments
|
|
|
-
|
|
|
|
70
|
|
|
Total
income
|
|
|
907
|
|
|
|
985
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
257
|
|
|
|
511
|
|
|
Operating
|
|
|
126
|
|
|
|
93
|
|
|
Total
expenses
|
|
|
383
|
|
|
|
604
|
|
|
Income
before taxes and (excess of) equity in undistributed
|
|
|
|
|
|
|
|
|
|
net
income of subsidiaries
|
|
|
524
|
|
|
|
381
|
|
|
Tax
benefit (expense)
|
|
|
100
|
|
|
|
(2
|
)
|
|
Income
before (excess of) equity in undistributed net income
|
|
|
|
|
|
|
|
|
|
of
subsidiaries
|
|
|
624
|
|
|
|
379
|
|
|
(Excess
of) equity in undistributed net income of subsidiaries
|
|
|
(256
|
)
|
|
|
743
|
|
|
Net
income
|
|
|
$368
|
|
|
|
$1,122
|
|
|
Statements
of Cash Flows
|
|
2008
|
|
|
2007
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
Net
Income
|
|
|
$368
|
|
|
|
$1,122
|
|
|
Excess
of (equity in) undistributed loss of subsidiaries
|
|
|
256
|
|
|
|
(743
|
)
|
|
Amortization
of deferred financing costs
|
|
|
-
|
|
|
|
15
|
|
|
Other
operating activities
|
|
|
(108
|
)
|
|
|
265
|
|
|
Net
cash provided by operating activities
|
|
|
516
|
|
|
|
659
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
Investment
in unconsolidated subsidiary trust
|
|
|
-
|
|
|
|
(155
|
)
|
|
Liquidation
of unconsolidated subsidiary trust
|
|
|
-
|
|
|
|
155
|
|
|
Net
cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
10
|
|
|
|
114
|
|
|
Proceeds
from issuance of subordinated debt
|
|
|
-
|
|
|
|
5,155
|
|
|
Redemption
of subordinated debt
|
|
|
-
|
|
|
|
(5,155
|
)
|
|
Cash
dividends
|
|
|
(694
|
)
|
|
|
(695
|
)
|
|
Net
cash used in financing activities
|
|
|
(684
|
)
|
|
|
(581
|
)
|
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(168
|
)
|
|
|
78
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
178
|
|
|
|
100
|
|
|
Cash
and cash equivalents at end of year
|
|
|
$10
|
|
|
|
$178
|
|
ITEM
9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A(T): CONTROLS AND PROCEDURES
REPORT
OF MANAGEMENT’S RESPONSIBILITY
The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”). Based upon their evaluation, the principal executive officer
and principal financial officer concluded that, as of the end of the period
covered by this report, the Company’s disclosure controls and procedures were
effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s
report on internal control over financial reporting is contained in “Item 8 –
Financial Statements and Supplementary Data” in this annual report in Form
10-K.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM
9B: OTHER INFORMATION
None
PART
III
ITEM
10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE, COMPLIANCE WITH SECTIONS 16 (A) OF EXCHANGE ACT
|
(a)
|
Information
concerning the directors of the Company is incorporated by reference
hereunder in the Company's Proxy Materials for the Annual Meeting of
Stockholders.
|
|
(b)
|
Set
forth below is information concerning the Executive Officers of the
Company at December 31, 2008.
|
|
Name
|
Age
|
Positions
Held With the Company
|
|
Thomas
W. Schneider
|
47
|
President
and Chief Executive Officer
|
|
James
A. Dowd, CPA
|
41
|
Senior
Vice President, Chief Financial Officer
|
|
Edward
A. Mervine
|
52
|
Senior
Vice President, General Counsel
|
|
Melissa
A. Miller
|
51
|
Senior
Vice President, Chief Operating Officer
|
|
Ronald
Tascarella
|
50
|
Senior
Vice President, Chief Credit
Officer
|
ITEM
11: EXECUTIVE COMPENSATION
Information
with respect to management compensation and transactions required under this
item is incorporated by reference hereunder in the Company's Proxy Materials for
the Annual Meeting of Stockholders under the caption "Compensation
Committee".
ITEM
12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
information required by this item is incorporated by reference hereunder in the
Company’s Proxy Materials for the Annual Meeting of Stockholders under the
caption "Voting Securities and Principal Holders Thereof"
ITEM
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information required by this item is incorporated by reference hereunder in the
Company’s Proxy Materials for the Annual Meeting of Stockholders under the
caption "Transactions with Certain Related Persons”.
ITEM
14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this item is incorporated by reference hereunder in the
Company’s Proxy Materials for the Annual Meeting of Stockholders under the
caption "Audit and Related Fees".
PART
IV
ITEM
15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a)(1)
|
Financial
Statements - The Company’s consolidated financial statements, for the
years ended December 31, 2008 and 2007, together with the Report of
Independent Registered Public Accounting Firm are filed as part of this
Form 10-K report. See “Item 8: Financial Statements and
Supplementary Data.”
|
|
(a)(2)
|
Financial
Statement Schedules - All financial statement schedules have been omitted
as the required information is inapplicable or has been included in “Item
7: Management Discussion and Analysis.”
|
|
(b)
|
Exhibits
|
|
3.1
|
Certificate
of Incorporation of Pathfinder Bancorp, Inc. (Incorporated herein by
reference to the Company's Current Report on Form 8-K filed on June 25,
2001)
|
|
3.2
|
Bylaws
of Pathfinder Bancorp, Inc. (Incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q filed on August 15, 2005 and
November 28, 2007)
|
|
4
|
Form
of Stock Certificate of Pathfinder Bancorp, Inc. (Incorporated herein by
reference to the Company's Current Report on Form 8-K dated June 25,
2001)
|
|
10.1
|
Form
of Pathfinder Bank 1997 Stock Option Plan (Incorporated herein by
reference to the Company's S-8 file no. 333-53027)
|
|
10.2
|
Form
of Pathfinder Bank 1997 Recognition and Retention Plan (Incorporated by
reference to the Company's S-8 file no. 333-53027)
|
|
10.3
|
2003
Executive Deferred Compensation Plan (Incorporated herein by reference to
the Company’s Annual Report on Form 10-K for the year ended December 31,
2008 file no. 000-23601)
|
|
10.4
|
2003
Trustee Deferred Fee Plan (Incorporated herein by reference to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008
file no. 000-23601)
|
|
10.5
|
Employment
Agreement between the Bank and Thomas W. Schneider, President and Chief
Executive Officer (Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 2008 file no.
000-23601)
|
|
10.6
|
Employment
Agreement between the Bank and Edward A. Mervine, Vice President, General
Counsel and Secretary (Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 2008 file no.
000-23601)
|
|
10.7
10.8
|
Change
of Control Agreement between the Bank and Ronald Tascarella (Incorporated
by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008 file no. 000-23601)
Change
of Control Agreement between the Bank and James A. Dowd (Incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008 file no. 000-23601)
|
|
10.9
10.10
10.11
|
Change
of Control Agreement between the Bank and Melissa A. Miller (Incorporated
by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008 file no. 000-23601)
Executive
Supplemental Retirement Agreement between the Bank and Chris C. Gagas
(Incorporated by reference to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 file no. 000-23601)
Executive
Supplemental Retirement Agreement between the Bank and Thomas W. Schneider
(Incorporated by reference to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 file no. 000-23601
|
|
|
14
|
Code
of Ethics (Incorporated by reference to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2003)
|
|
|
|
|
|
|
21
|
Subsidiaries
of Company
|
|
|
23
|
Consent
of Beard Miller Company LLP
|
|
31.1
|
Rule
13a-14(a) / 15d-14(a) Certification of the Chief Executive
Officer
|
|
31.2
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial
Officer
|
32.1
Section 1350 Certification of the Chief Executive and Chief Financial
Officer
Signatures
|
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
Pathfinder
Bancorp, Inc.
|
|
Date:
|
March
27, 2009
|
By:
|
/s/
Thomas W. Schneider
Thomas
W. Schneider
President
and Chief Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange of 1934, this report has
been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
|
|
|
|
By:
|
/s/
Janette Resnick
Janette
Resnick, Chairman of the Board
|
|
|
|
Date:
|
March
27, 2009
|
|
|
|
|
|
|
By:
|
/s/
Thomas W. Schneider
Thomas
W. Schneider, President and Chief Executive Officer
|
By:
|
/s/
Chris R. Burritt
Chris
R. Burritt, Director
|
|
|
(Principal
Executive Officer)
|
|
|
|
Date:
|
March
27, 2009
|
Date:
|
March
27, 2009
|
|
By:
|
/s/
James A. Dowd
James
A. Dowd, Senior Vice President and Chief Financial Officer
|
By:
|
/s/
George P. Joyce
George
P. Joyce, Director
|
|
|
(Principal
Financial Officer)
|
|
|
|
Date:
|
March
27, 2009
|
Date:
|
March
27, 2009
|
|
By:
|
/s/
Shelley Tafel
Shelley
Tafel, Vice President and Controller
|
By:
|
/s/
Corte J. Spencer
Corte
J. Spencer, Director
|
|
|
(Principal
Accounting Officer)
|
|
|
|
Date:
|
March
27, 2009
|
Date:
|
March
27, 2009
|
|
By:
|
/s/
Bruce B. Manwaring
Bruce
E. Manwaring, Director
|
By:
|
/s/
Lloyd Stemple
Lloyd
Stemple, Director
|
|
Date:
|
March
27, 2009
|
Date:
|
March
27, 2009
|
|
|
|
|
|
|
By:
|
/s/
L. William Nelson, Jr.
L.
William Nelson, Jr., Director
|
|
|
|
Date:
|
March
27, 2009
|
|
|
|
|
|
|
|
|
By:
|
/s/
Steven W. Thomas
|
|
|
|
|
Steven
W. Thomas, Director
|
|
|
|
Date:
|
March
27, 2009
|
|
|
|
|
|
|
|
EXHIBIT
21: SUBSIDIARIES OF THE COMPANY
|
Company
|
Percent
Owned
|
Jurisdiction
or State
of
Incorporation
|
|
Pathfinder
Bank
|
100%
|
New
York
|
|
Pathfinder
Statutory Trust II
|
100%
|
Delaware
|
|
Pathfinder
Commercial Bank (1)
|
100%
|
New
York
|
|
Pathfinder
REIT, Inc. (1)
|
100%
|
New
York
|
|
Whispering
Oaks Development Corp. (1)
|
100%
|
New
York
|
(1)
Wholly owned subsidiary of Pathfinder Bank.
EXHIBIT
23: CONSENT OF BEARD MILLER COMPANY LLP
|
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
Pathfinder
Bancorp, Inc.
Oswego,
New York
|
|
|
We
hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-53027) of Pathfinder Bancorp, Inc. of our
report dated March 27, 2009, relating to the consolidated financial
statements, which appear in this Form 10-K.
|
|
Beard
Miller Company LLP
Syracuse,
New York
March
27, 2009
|
/s/
BEARD MILLER COMPANY LLP
|
EXHIBIT
31.1: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive
Officer
|
Certification
of Chief Executive Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
I,
Thomas W. Schneider, President and Chief Executive Officer, certify
that:
|
|
|
1.
I
have reviewed this Annual report on Form 10-K of Pathfinder Bancorp,
Inc.;
|
|
|
2.
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
(a)
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b)
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting, to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
|
(d)
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors:
|
|
|
|
(a)
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
|
March
27, 2009
|
/s/
Thomas W. Schneider
Thomas
W. Schneider
President
and Chief Executive Officer
|
|
EXHIBIT
31.2: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial
Officer
|
Certification
of Chief Financial Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
I, James
A. Dowd, Senior Vice President and Chief Financial Officer, certify
that:
|
|
1.
I
have reviewed this Annual report on Form 10-K of Pathfinder Bancorp,
Inc.;
|
|
|
2.
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
|
|
|
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
(a)
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b)
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting, to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
|
(d)
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors:
|
|
|
|
(a)
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
|
March
27, 2009
|
/s/
James A. Dowd
James
A. Dowd
Senior
Vice President and Chief Financial Officer
|
|
EXHIBIT
32.1 Section 1350 Certification of the Chief Executive and Chief
Financial Officer
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
Thomas
W. Schneider, President and Chief Executive Officer, and James A. Dowd,
Senior Vice President and Chief Financial Officer of Pathfinder Bancorp,
Inc. (the "Company"), each certify in his capacity as an officer of the
Company that he has reviewed the Annual Report of the Company on Form 10-K
for the year ended December 31, 2008 and that to the best of his
knowledge:
|
|
1.
the
report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
|
|
2.
the
information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
The
purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
March
27, 2009
|
/s/
Thomas W. Schneider
Thomas
W. Schneider
President
and Chief Executive Officer
|
|
March
27, 2009
|
/s/
James A. Dowd
James
A. Dowd
Senior
Vice President and Chief Financial
Officer
|
EXECUTIVE
DEFERRED
COMPENSATION
PLAN
PATHFINDER
BANK
EFFECTIVE
AS OF:
December
31, 2003
AMENDED
AND RESTATED:
January
1, 2005
AMENDED
AND RESTATED
EXECUTIVE
DEFERRED
COMPENSATION
PLAN
This
Amended and Restated Executive Deferred Compensation Plan (the “Plan”),
effective as of January 1, 2005, formalizes the understanding by and between
PATHFINDER BANK (the “Bank”), a state chartered stock savings bank, and certain
eligible Executives, hereinafter referred to as “Executive,” who shall be
approved by the Bank to participate and who shall elect to become a party to
this Executive Deferred Compensation Plan by execution of an Executive Deferred
Compensation Plan Deferral Agreement (“Deferral Agreement”) in a form provided
by the Bank. Pathfinder Bancorp, MHC, a Federal mutual holding
company, and Pathfinder Bancorp, Inc. (the “Holding Company”)
are parties to this Agreement for the sole purpose of guaranteeing
the Bank’s performance hereunder.
W
I T N E S S E T H :
WHEREAS
, the Executives are a
selected group of management employees; and
WHEREAS
, the Bank recognizes
the valuable services heretofore performed for it by such Executives and wishes
to encourage continued service of each; and
WHEREAS
, the Bank values the
efforts, abilities and accomplishments of such Executives and recognizes that
the Executives’ services substantially contribute to its continued growth and
profits in the future; and
WHEREAS
, Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), effective January 1,
2005, requires that certain types of deferred compensation arrangements must
comply with its terms or subject the recipients of such compensation to current
taxes and penalties; and
WHEREAS
, the Plan was
originally effective December 31, 2003; and
WHEREAS
, the Bank desires to
amend and restate the Plan, in order to conform the requirements set forth in
Code Section 409A and the final regulations thereunder, and for certain other
purposes; and
WHEREAS
, the Bank and the
Executives intend this Plan to be considered an unfunded arrangement, maintained
primarily to provide retirement income for such Executives, for tax purposes and
for purposes of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”); and
WHEREAS
, the Bank has adopted
this amended and restated Executive Plan which controls all issues relating to
the Deferred Compensation Benefits as described herein;
NOW, THEREFORE
, in
consideration of the mutual promises herein contained, the parties hereto agree
to the following terms and conditions:
SECTION
I
DEFINITIONS
When used
herein, the following words and phrases shall have the meanings below unless the
context clearly indicates otherwise:
1.1 “Bank”
means Pathfinder Bank and any successor thereto.
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1.2
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“Beneficiary”
means the person or persons (and their heirs) designated as Beneficiary in
the Executive’s Deferral Agreement to whom the deceased Executive’s
benefits are payable. If no Beneficiary is so designated, then
the Executive’s Spouse, if living, will be deemed the
Beneficiary. If the Executive’s Spouse is not living, then the
Children of the Executive will be deemed the Beneficiaries and will take
on a per stirpes basis. If there are no Children, then the
Estate of the Executive will be deemed the
Beneficiary.
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1.3
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“Benefit
Age” shall be the birthday on which the Executive becomes eligible to
receive benefits under the plan. Such birthday shall be
designated in the Executive’s Deferral
Agreement.
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1.4
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“Benefit
Eligibility Date” shall be the date on which a Executive is entitled to
receive his Deferred Compensation Benefit. It shall be the
first day of the month following the month in which the Executive attains
the Benefit Age designated in his Deferral
Agreement.
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1.5
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“Cause”
means personal dishonesty, willful misconduct, willful malfeasance, breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), or final
cease-and-desist order, material breach of any provision of this Plan, or
gross negligence in matters of material importance to the
Bank.
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1.6
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“Change
in Control” of the Bank or Holding Company means a change in control of a
nature that: (i) would be required to be reported in response to Item 5.01
of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the “Exchange Act”); or (ii) results in a Change in Control of the
Company within the meaning of the Home Owners’ Loan Act, as amended, and
applicable rules and regulations promulgated thereunder (collectively, the
“HOLA”) as in effect at the time of the Change in Control; or (iii)
without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any “person” (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company’s outstanding securities
except for any securities purchased by the Bank’s employee stock ownership
plan or trust; or (b) individuals who constitute the Board on the date
hereof (the “Incumbent Board”) cease for any reason to constitute at least
a majority thereof,
provided
that any
person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election by the
Company’s stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause
(b), considered as though he were a member of the Incumbent Board; or (c)
a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Company or similar transaction in
which the Company is not the surviving institution occurs; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result
of which the outstanding shares of the class of securities then subject to
the Plan are to be exchanged for or converted into cash or property or
securities not issued by the Company; or (e) a tender offer is made for
25% or more of the voting securities of the Company and the shareholders
owning beneficially or of record 25% or more of the outstanding securities
of the Company have tendered or offered to sell their shares pursuant to
such tender offer and such tendered shares have been accepted by the
tender offeror. Notwithstanding anything in this subsection (b)
to the contrary, a change in control shall not be deemed to have occurred
in the event of a conversion of the Company’s or the Bank’s mutual holding
company to stock form, or in connection with any reorganization used to
effect such a conversion.
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1.7
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“Children”
means the Executive’s children, both natural and adopted, determined at
the time payments are due the Children under this
Plan.
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1.8
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“Deferral
Period” means the period of months designated in the Executive’s Deferral
Agreement during which the Executive shall defer current
compensation. The Deferral Period shall commence on the date
designated in the Executive’s Deferral
Agreement.
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1.9
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“Deferred
Compensation Benefit” means the annuitized value (using the Interest
Factor) of the Executive’s Elective Contribution Account, measured as of
the Executive’s Benefit Age, payable in monthly installments throughout
the Payout Period and commencing on the Executive’s Benefit Eligibility
Date.
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1.10
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“Disability
Benefit” means the monthly benefit payable to the Executive if the
Executive becomes Disabled.
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1.11
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“Effective
Date” of this Plan was originally December 31, 2003, however, the
effective date of this amended and restated Plan is January 1,
2005.
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1.12
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“Elective
Contribution” shall refer to any bookkeeping entry required to record a
Executive’s voluntary monthly pre-tax deferral of compensation which shall
be made in accordance with the Executive’s Deferral
Agreement.
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1.13
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“Elective
Contribution Account” shall be represented by the bookkeeping entries
required to record a Executive’s Elective Contributions plus accrued
interest calculated with the Interest Factor, earned to date on such
amounts. However, neither the existence of such bookkeeping
entries nor the Elective Contribution Account itself shall be deemed to
create either a trust of any kind, or a fiduciary relationship between the
Bank and the Executive or any
Beneficiary.
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1.14 “Estate”
means the estate of the Executive.
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1.15
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“Interest
Factor” means either the Pre-Retirement Interest Factor or the
Post-Retirement Interest Factor, as
applicable.
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1.16
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“Payout
Period” means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal monthly
installments commencing on the first day of the first month following the
occurrence of the event which triggers distribution and continuing for a
period of one-hundred twenty (120) months, as designated in the
Executive’s Deferral Agreement.
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1.17
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“Plan
Year” shall mean the twelve (12) month period from January 1 to December
31 of each year.
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1.18
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“Post-Retirement
Interest Factor” means a rate applicable to annuitize the Elective
Contribution Account of a Executive in connection with installment
distributions made following a Executive’s retirement or other termination
of employment. Unless changed pursuant to a written resolution
of the Board of Executives, the Post-Retirement Interest Factor shall be
seven percent (7%) per annum.
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1.19
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“Pre-Retirement
Interest Factor” means a rate applied to accruals credited to a
Executive’s Elective Contribution Account prior to the Executive’s
retirement or other termination of employment. Unless changed
pursuant to a written resolution of the Board of Executives, the
Pre-Retirement Interest Factor shall be a rate equivalent to the prime
interest rate as published in the
Wall Street
Journal
each January 1, plus three percent (3%). For the
initial Plan Year, the Pre-Retirement Interest Factor shall be seven
percent (7%). The Pre-Retirement Interest Factor shall be
calculated each January 1 during the Deferral Period, and such rate shall
be the applicable Pre-Retirement Interest Factor for the Plan Year for
which it is calculated.
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1.20
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“Projected
Deferral” is an estimate, determined upon execution of a Deferral
Agreement, of the total amount of compensation to be deferred by the
Executive during his Deferral Period (excluding any interest accrued on
such deferrals), and so designated in the Executive’s Deferral
Agreement.
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1.21
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“Spouse”
means the individual to whom the Executive is legally married at the time
of the Executive’s death.
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1.22
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“Survivor’s
Benefit” means if the Bank has obtained insurance on the life of the
Executive, an annual amount payable to the Beneficiary in monthly
installments throughout the Payout Period, equal to the amount designated
in the Executive’s Deferral Agreement. If the Bank has not
obtained insurance on the life of the Executive, the Survivor’s Benefit
shall be equal to the accrued benefit in the Executive’s Elective
Contribution Account as of the Executive’s date of death, annuitized
(using the Post-Retirement Interest Factor) and payable in monthly
installments throughout the Payout
Period.
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SECTION
II
ESTABLISHMENT
OF RABBI TRUST
The Bank
shall establish a rabbi trust into which the Bank shall contribute assets which
shall be held therein, pursuant to the agreement which establishes such rabbi
trust. The contributed assets shall be subject to the claims of the Bank’s
creditors in the event of the Bank’s “Insolvency” as defined in the agreement
which establishes such rabbi trust, until the contributed assets are paid to the
Executive and his Beneficiary(ies) in such manner and at such times as specified
in this Plan. It is the intention of the Bank to make a contribution or
contributions to the rabbi trust to provide the Bank with a source of funds to
assist it in meeting the liabilities of this Plan. The rabbi trust and any
assets held therein shall conform to the terms of the rabbi trust agreement
which has been established in conjunction with this Plan. Any contribution(s) to
the rabbi trust shall be made in accordance with the rabbi trust agreement. The
amount and timing of such contribution(s) shall be specified in the agreement
which establishes such rabbi trust.
SECTION
III
DEFERRED
COMPENSATION
Commencing
on the Effective Date and continuing through the end of the Deferral Period, the
Executive and the Bank agree that the Executive may defer into his Elective
Contribution Account on a monthly basis a percentage or dollar amount of such
Executive’s compensation up to Seven Hundred Fifty Dollars ($750.00) which the
Executive would otherwise be entitled to receive from the Bank for each month of
the Deferral Period. The total deferral during the term of the
Deferral Period shall not exceed the Executive’s Projected Deferral, without
Board of Executive approval. The specific amount of the Executive’s
monthly deferred compensation shall be designated in the Executive’s Deferral
Agreement and shall apply only to compensation attributable to services not yet
performed.
SECTION
IV
ADJUSTMENT
OF DEFERRAL AMOUNT
Deferral
of the specific amount of compensation designated in the Executive’s Deferral
Agreement shall continue in effect pursuant to the terms of this Plan unless and
until the Executive amends his Deferral Agreement by filing with the
Administrator a Notice of Adjustment of Deferral Amount (Exhibit C of the
Deferral Agreement). A Notice of Adjustment of Deferral Amount shall
be effective if filed with the Administrator at least thirty (30) days prior to
any January 1
st
during
the Executive’s Deferral Period. Such Notice of Adjustment of
Deferral Amount shall be effective commencing with the January 1
st
following its filing and shall be applicable only to compensation attributable
to services not yet performed by the Executive.
SECTION
V
RETIREMENT
BENEFIT
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5.1
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Retirement
Benefit
. Subject to Subsection 6.1 of this Plan, the
Bank agrees to pay the Executive the Deferred Compensation Benefit
commencing on the Executive’s Benefit Eligibility Date. Such
payments will be made over the term of the Payout Period. In
the event of the Executive’s death after commencement of the Deferred
Compensation Benefit, but prior to completion of all such payments due and
owing hereunder, the Bank shall pay to the Executive’s Beneficiary a
continuation of the monthly installments for the number of months
remaining in the Payout Period.
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5.2
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Disability
Benefit
.
The Executive
shall be entitled to receive the Disability Benefit hereunder if the
Executive becomes Disabled. For purposes of this Subsection,
“Disability” or “Disabled” shall mean the Executive: (i) is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or can be expected to last for a continuous period of not less
than 12 months; (ii) is, by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than 3
months under an accident and health plan covering employees of the
Executive’s employer; or (iii) is determined to be totally disabled by the
Social Security Administration. The Disability Benefit shall
begin within thirty (30) days the Executive is determined to be
Disabled. The amount of the monthly benefit shall be the
annuitized value of the Executive’s Elective Contribution Account,
measured as of the date of the Disability determination and payable over
the Payout Period. The Post-Retirement Interest Factor shall be
used to annuitize the Elective Contribution Account. In the
event the Executive dies while receiving Disability Benefit payments
pursuant to this Subsection, or after becoming eligible for such payments
but before the actual commencement of such payments, his Beneficiary shall
be entitled to receive those benefits provided for in Subsection 6.1(a)
and the Disability Benefits provided for in this Subsection shall
terminate upon the Executive’s
death.
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5.3
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Voluntary or
Involuntary Termination
. If the Executive’s employment
with the Bank is voluntarily or involuntarily terminated (including
termination for Cause) prior to the attainment of his Benefit Eligibility
Date, the Executive’s death or Disability, then commencing on his Benefit
Eligibility Date, the Executive shall be entitled to the annuitized value
(using the Interest Factor) of his Elective Contribution Account
calculated as of his Benefit Eligibility Date, and payable over the Payout
Period.
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5.4
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Termination of
Employment Related to a Change in Control
. If a Change
in Control occurs, and thereafter the Executive’s employment is terminated
(either voluntarily or involuntarily) within thirty-six (36) months, the
Executive shall be entitled to receive his Deferred Compensation Benefit
calculated as if Executive had made all of his elective deferrals through
his Benefit Age. Such benefit shall be annuitized (using the
Interest Factor) and be payable commencing on such Executive’s Benefit
Eligibility Date in monthly installments throughout the Payout
Period. In the event the Executive dies at any time after
termination of employment, but prior to commencement of such
payments due and owing hereunder, the Bank or its successor, shall pay to
the Executive’s Beneficiary, the Survivor’s Benefit. In the
event the Executive dies at any time after commencement of such payments,
but prior to completion of all such payments due and owing hereunder, the
Bank or its successor shall pay to the Executive’s Beneficiary a
continuation of the monthly installments for the remainder of the Payout
Period.
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5.5
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Modification of
Benefit Age
. Notwithstanding anything in the Plan to the
contrary, an Executive who previously designated a Benefit Age in his or
her Deferral Agreement, may elect to change his or her Benefit Age by
filing with the Bank a Transition Year Election Form (attached hereto as
Exhibit D), provided that such election is made by the later of December
31, 2008. If the Executive elects to modify his Benefit Age
(“Modified Benefit Age”) and to commence receiving benefits hereunder
before attainment of his Benefit Age as set forth on his Deferral
Agreement, Executive shall be entitled to receive the value of his
Elective Contribution Account calculated as of the last day of the month
in which Executive attains his Modified Benefit Age, Such early benefit
shall be annuitized (using the Interest Factor) and be payable commencing
on the first day of the second month following Executive’s attaining his
Modified Benefit Age in monthly installments throughout the Payout
Period. In the event the Executive dies at any time after
designating his Modified Benefit Age, but prior to commencement
of such payments due and owing hereunder, the Bank or its
successor shall pay to the Executive’s Beneficiary the Survivor’s
Benefit. In the event the Executive dies at any time after
commencement of the benefit payments, but prior to completion of all such
payments due and owing hereunder, the Bank or its successor shall pay to
the Executive’s Beneficiary a continuation of the monthly installments for
the remainder of the Payout Period.
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SECTION
VI
DEATH
BENEFITS
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6.1
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Death Benefit Prior to
Commencement of Deferred Compensation Benefit
. In the
event of the Executive’s death prior to commencement of the Deferred
Compensation Benefit, the Bank shall pay the Executive’s Beneficiary a
monthly benefit for the Payout Period, commencing within thirty (30) days
of the Executive’s death. The amount of such monthly benefit
payments shall be determined as
follows:
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(a)
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(1)
In the event death occurs (i) while the Executive is receiving the
Disability Benefit provided for in Subsection 5.2, or (ii) after the
Executive has become eligible for such Disability Benefit payments but
before such payments have commenced, the Executive’s Beneficiary shall be
entitled to receive the Survivor’s Benefit for the number of months in the
Payout Period, reduced by the number of months Disability Benefit payments
were made to the Executive. In the event death occurs after the
Executive has received the Disability Benefit provided for in Subsection
5.2 for the
entire
Payout
Period, the Executive’s Beneficiary shall not be entitled to the
Survivor’s Benefit for any length of time. However, the lump
sum payment described in paragraph two (2) of this Subsection 6.1(a) if
approved by the Board of Executives, and the payment described in Section
6.2, shall still be applicable to such
Beneficiary.
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(2) If
(i) the total dollar amount of Disability Benefit payments received by the
Executive under Subsection 5.2 is less than the total dollar amount of payments
which would have been received had the Survivor’s Benefit been paid in lieu of
the Disability Benefit which was paid during the Executive’s life, and (ii)
Board of Director approval is obtained, the Bank shall pay the Executive’s
Beneficiary a lump sum payment for the difference. This lump sum payment shall
be made within thirty (30) days of the Executive’s death.
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(b)
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In
the event death occurs while the Executive is (i) in the employment of the
Bank, (ii) deferring compensation pursuant to Section II and (iii)
prior
to any
reduction or discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals reflected in the
Executive’s Deferral Agreement, the Executive’s Beneficiary shall be paid
the Survivor’s Benefit.
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(c)
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In
the event death occurs while the Executive is (i) in the employment of the
Bank, (ii) deferring compensation pursuant to Section II, and (iii)
after
any
reduction or discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals reflected in the
Executive’s Deferral Agreement, the Executive’s Beneficiary shall be paid
a reduced Survivor’s Benefit. The amount of such reduced Survivor’s
Benefit shall be determined by multiplying the monthly payment available
as a Survivor’s Benefit by a fraction, the numerator of which is equal to
the total compensation actually deferred by the Executive as of his death,
and the denominator of which is equal to the total amount of compensation
which would have been deferred as
of his death
,
if no reduction or discontinuance in the level of deferrals had occurred
at any time following execution of the Deferral Agreement and during the
Deferral Period.
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(d)
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In
the event the Executive completes
less than
One
Hundred Percent (100%) of his Projected Deferrals due to any voluntary or
involuntary termination, the Executive’s Beneficiary shall be paid a
reduced Survivor’s Benefit. The amount of such reduced Survivor’s Benefit
shall be determined by multiplying the monthly payment available as a
Survivor’s Benefit by a fraction, the numerator of which is equal to the
total compensation actually deferred by the Executive, and the denominator
of which is equal to the Executive’s Projected
Deferral.
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(e)
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In
the event the Executive completes One Hundred Percent (100%) of his
Projected Deferrals
prior
to any
voluntary or involuntary termination, and provided no payments have been
made pursuant to Subsection 5.2, the Executive’s Beneficiary shall be paid
the Survivor’s Benefit.
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6.2
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Additional Death
Benefit - Burial Expense
. In addition to the above-described death
benefits, upon the Executive’s death, the Executive’s Beneficiary shall be
entitled to receive a one-time lump sum death benefit in the amount of Ten
Thousand Dollars ($10,000.00). This benefit shall be provided specifically
for the purpose of providing payment for burial and/or funeral expenses of
the Executive. Such benefit shall be payable within thirty (30) days of
the Executive’s death.
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SECTION
VII
BENEFICIARY
DESIGNATION
The
Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Deferral Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit A to the Deferral
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Deferral Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
SECTION
VIII
EXECUTIVE’S
RIGHT TO ASSETS
The
rights of the Executive, any Beneficiary, or any other person claiming through
the Executive under this Plan, shall be solely those of an unsecured general
creditor of the Bank. The Executive, the Beneficiary, or any other
person claiming through the Executive, shall only have the right to receive from
the Bank those payments so specified under this Plan. The Executive agrees that
he, his Beneficiary, or any other person claiming through him shall have no
rights or interests whatsoever in any asset of the Bank, including any insurance
policies or contracts which the Bank may possess or obtain to informally fund
this Plan.
Any asset
used or acquired by the Bank in connection with the liabilities it has assumed
under this Plan, unless expressly provided herein, shall not be deemed to be
held under any trust for the benefit of the Executive or his Beneficiaries, nor
shall any asset be considered security for the performance of the obligations of
the Bank. Any such asset shall be and remain, a general, unpledged, and
unrestricted asset of the Bank.
SECTION
IX
RESTRICTIONS
UPON FUNDING
The Bank
shall have no obligation to set aside, earmark or entrust any fund or money with
which to pay its obligations under this Plan. The Executive, his Beneficiaries
or any successor in interest to him shall be and remain simply a general
unsecured creditor of the Bank in the same manner as any other creditor having a
general claim for matured and unpaid compensation. The Bank reserves the
absolute right in its sole discretion to either purchase assets to meet its
obligations undertaken by this Plan or to refrain from the same and to determine
the extent, nature, and method of any such asset purchases. Should the Bank
decide to purchase assets such as life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such assets at any time, in whole or in part. At no
time shall the Executive be deemed to have any lien, right, title or interest in
or to any specific investment or to any assets of the Bank. If the Bank elects
to invest in a life insurance, disability or annuity policy upon the life of the
Executive, then the Executive shall assist the Bank by freely submitting to a
physical examination and by supplying such additional information necessary to
obtain such insurance or annuities.
SECTION
X
ALIENABILITY
AND ASSIGNMENT PROHIBITION
Neither
the Executive nor any Beneficiary under this Plan shall have any power or right
to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable hereunder, nor shall
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance owed by the Executive or his
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Executive or any Beneficiary attempts
assignment, communication, hypothecation, transfer or disposal of the benefits
hereunder, the Bank’s liabilities shall forthwith cease and
terminate.
SECTION
XI
ERISA
PROVISIONS
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11.1
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Named Fiduciary and
Administrator
. The Bank shall be the Named Fiduciary and
Administrator (the “Administrator”) of this Plan. As Administrator, the
Bank shall be responsible for the management, control and administration
of the Plan as established herein. The Administrator may delegate to
others certain aspects of the management and operational responsibilities
of the Plan, including the employment of advisors and the delegation of
ministerial duties to qualified
individuals.
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11.2
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Claims Procedure and
Arbitration
. In the event that benefits under this Plan
are not paid to the Executive (or to his Beneficiary in the case of the
Executive’s death) and such claimants feel they are entitled to receive
such benefits, then a written claim must be made to the Administrator
within sixty (60) days from the date payments are refused. The
Administrator shall review the written claim and, if the claim is denied,
in whole or in part, they shall provide in writing, within ninety (90)
days of receipt of such claim, their specific reasons for such denial,
reference to the provisions of this Plan or the Deferral Agreement upon
which the denial is based, and any additional material or information
necessary to perfect the claim. Such writing by the Administrator shall
further indicate the additional steps which must be undertaken by
claimants if an additional review of the claim denial is
desired.
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If
claimants desire a second review, they shall notify the Administrator in writing
within sixty (60) days of the first claim denial. Claimants may review this
Plan, the Deferral Agreement or any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include reference to
specific provisions of this Plan or the Deferral Agreement upon which the
decision is based.
If
claimants continue to dispute the benefit denial based upon completed
performance of this Plan and the Deferral Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute to
mediation, administered by the American Arbitration Association (“AAA”) (or a
mediator selected by the parties) in accordance with the AAA’s Commercial
Mediation Rules. If mediation is not successful in resolving the dispute, it
shall be settled by arbitration administered by the AAA under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof.
SECTION
XII
MISCELLANEOUS
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12.1
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No Guarantee of
Employment
. Nothing contained herein will confer upon
the Executive the right to be retained in the service of the Bank nor
limit the right of the Bank to discharge or otherwise deal with the
Executive without regard to the existence of the
Plan. Notwithstanding anything herein contained to the
contrary, any payment to the Executive by the Holding Company are subject
to and conditioned upon their compliance with Section 18(k) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations
promulgated thereunder in 12 C.F.R. Part
359.
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12.2
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State
Law
. The Plan is established under, and will be
construed according to, the laws of the state of New
York.
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12.3
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Severability and
Interpretation of Provisions
. In the event that any of
the provisions of this Plan or portion thereof, are held to be inoperative
or invalid by any court of competent jurisdiction, or in the event that
any legislation adopted by any government body having jurisdiction over
the Bank would be retroactively applied to invalidate this Plan or any
provision hereof or cause the benefits hereunder to be taxable, then: (1)
insofar as is reasonable, effect will be given to the intent manifested in
the provisions held invalid or inoperative, and (2) the validity and
enforceability of the remaining provisions will not be affected
thereby. In the event that the intent of any provision shall
need to be construed in any manner to avoid taxability, such construction
shall be made by the Plan Administrator in a manner that would manifest to
the maximum extent possible the original meaning of such
provisions.
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12.4
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Incapacity of
Recipient
. In the event the Executive is declared incompetent and a
conservator or other person legally charged with the care of his person or
Estate is appointed, any benefits under the Plan to which such Executive
is entitled shall be paid to such conservator or other person legally
charged with the care of his person or
Estate.
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12.5
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Unclaimed
Benefit
. The Executive shall keep the Bank informed of
his current address and the current address of his Beneficiaries. If the
location of the Executive is not made known to the Bank within three (3)
years after the date on which any payment of the Deferred Compensation
Benefit may first be made, payment may be made as though the Executive had
died at the end of the three (3) year
period.
|
|
12.6
|
Limitations on
Liability
. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Bank, or as a member of the Board of Trustees shall be personally
liable to the Executive or any other person for any claim, loss, liability
or expense incurred in connection with this
Plan.
|
|
12.7
|
Gender
. Whenever
in this Plan words are used in the masculine or neuter gender, they shall
be read and construed as in the masculine, feminine or neuter gender,
whenever they should so apply.
|
|
12.8
|
Effect on Other
Corporate Benefit Plans
. Nothing contained in this Plan
shall affect the right of the Executive to participate in or be covered by
any qualified or nonqualified pension, profit sharing, group, bonus
or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank’s existing or future compensation
structure.
|
|
12.9
|
Suicide
. Notwithstanding
anything to the contrary in this Plan, the benefits otherwise provided
herein shall not be payable if the Executive’s death results from suicide,
whether sane or insane, within twenty-six (26) months after the execution
of his Deferral Agreement. If the Executive dies during this twenty-six
(26) month period due to suicide, the balance of his Elective Contribution
Account will be paid to the Executive’s Beneficiary in a single payment.
Payment is to be made within thirty (30) days after the Executive’s death
is declared a suicide by competent legal
authority.
|
Credit
shall be given to the Bank for payments made prior to determination of
suicide.
|
12.10
|
Inurement
. This
Plan shall be binding upon and shall inure to the benefit of the Bank, its
successors and assigns, and the Executive, his successors, heirs,
executors, administrators, and
Beneficiaries.
|
|
12.11
|
Source of
Payments
. All payments provided in this Plan shall be
timely paid in cash or check from the general funds of the Bank or the
assets of the rabbi trust. The Holding Company guarantees payment and
provision of all amounts and benefits due to the Executives and, if such
amounts and benefits are not timely paid or provided by the Bank, or the
rabbi trust, such amounts and benefits shall be paid or provided by the
Holding Company.
|
|
12.12
|
Tax Withholding and
Code Section 409A Taxes
. Any distribution under this
Plan shall be reduced by the amount of any taxes required to be withheld
from such distribution. This Plan shall permit the acceleration
of the time or schedule of a payment to pay employment related taxes as
permitted under Treasury Regulation Section 1.409A-3(j) or to pay any
taxes that may become due at any time that the arrangement fails to meet
the requirements of Code Section 409A and the regulations and other
guidance promulgated thereunder. In the latter case, such
payments shall not exceed the amount required to be included in income as
the result of the failure to comply with the requirements of Code Section
409A.
|
|
12.13
|
Headings
. Headings
and sub-headings in this Plan are inserted for reference and convenience
only and shall not be deemed a part of this
Plan.
|
|
12.14
|
Acceleration of
Payments
. Except as specifically permitted herein or in
other sections of this Plan, no acceleration of the time or schedule of
any payment may be made hereunder. Notwithstanding the
foregoing, payments may be accelerated hereunder by the Bank, in
accordance with the provisions of Treasury Regulation Section
1.409A-3(j)(4) and any subsequent guidance issued by the United States
Treasury Department. Accordingly, payments may be accelerated,
in accordance with requirements and conditions of the Treasury Regulations
(or subsequent guidance) in the following circumstances: (i) as a result
of certain domestic relations orders; (ii) in compliance with ethics
agreements with the Federal government; (iii) in compliance with ethics
laws or conflicts of interest laws; (iv) in limited cash-outs (but not in
excess of the limit under Code Section 402(g)(1)(B)); (v) in the case of
certain distributions to avoid a non-allocation year under Code Section
409(p); (vi) to apply certain offsets in satisfaction of a debt of the
Executive to the Employer; (vii) in satisfaction of certain bona fide
disputes between the Executive and the Employer; or (viii) for any other
purpose set forth in the Treasury Regulations and subsequent
guidance.
|
SECTION
XIII
AMENDMENT/TERMINATION
|
13.1
|
Partial
Termination
. Notwithstanding anything herein contained
to the contrary, the Bank reserves the exclusive right to freeze or to
amend the Plan at any time with respect to compensation to be earned in
the future, provided that no amendment to the Plan shall be effective to
decrease or to restrict the amount accrued to the date of such
amendment.
|
|
13.2
|
Complete
Termination
. Subject to the requirements of Code Section
409A, in the event of complete termination of the Plan, the Plan shall
cease to operate and the Bank shall pay out to the Executive his or her
benefit as set forth below. Such complete termination of the
Plan shall occur only under the following circumstances and
conditions:
|
(a) The
Bank may terminate the Plan within 12 months of a corporate dissolution taxed
under Code Section 331, or with approval of a bankruptcy court pursuant to 11
U.S.C. §503(b)(1)(A), provided that the amounts deferred under the Plan are
included in the Executive’s gross income in the latest of (i) the calendar year
in which the Plan terminates; (ii) the calendar year in which the amount is no
longer subject to a substantial risk of forfeiture; or (iii) the first calendar
year in which the payment is administratively practicable.
(b) The
Bank may terminate the Plan within the 30 days preceding a Change in Control
(but not following a Change in Control), provided that the Plan shall only be
treated as terminated if all substantially similar arrangements sponsored by the
Bank are terminated so that the Executive and all executives under substantially
similar arrangements are required to receive all amounts of compensation
deferred under the terminated arrangements within 12 months of the date of the
termination of the arrangements. For these purposes, “Change in
Control” shall be defined in accordance with the Treasury Regulations under Code
Section 409A.
(c) The
Bank may terminate the Plan provided that (i) the termination and liquidation
does not occur proximate to a downturn in the financial health of the Bank, (ii)
all arrangements sponsored by the Bank that would be aggregated with this Plan
under Treasury Regulations Section 1.409A-1(c) if the Executive covered by this
Plan was also covered by any of those other arrangements are also terminated;
(iii) no payments other than payments that would be payable under the terms of
the arrangement if the termination had not occurred are made within 12 months of
the termination of the arrangement; (iv) all payments are made within 24 months
of the termination of the arrangements; and (v) the Bank does not adopt a new
arrangement that would be aggregated with any terminated arrangement under
Treasury Regulations Section 1.409A-1(c) if the Executive participated in both
arrangements, at any time within three years following the date of termination
of the arrangement.
SECTION
XIV
EXECUTION
|
14.1
|
This
Plan sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this
Plan.
|
|
14.2
|
This
Plan shall be executed in triplicate, each copy of which, when so executed
and delivered, shall be an original, but all three copies shall together
constitute one and the same
instrument.
|
[Signature
Page Follows]
IN WITNESS WHEREOF
, the Bank
has caused this Plan to be executed on the day and date first written
below.
PATHFINDER BANK
12/23/08 By:
/s/ Thomas W. Schneider
Date
Thomas W. Schneider,
President
and Chief Executive Officer
PATHFINDER BANCORP, INC.
12/23/08 By:
/s/ Thomas W. Schneider
Date
Thomas W. Schneider,
President and Chief Executive
Officer
PATHFINDER BANCORP, MHC
12/23/08 By:
/s/ Thomas W.
Schneider
Date
Thomas W. Schneider
President and Chief Executive
Officer
EXHIBIT
A
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
DEFERRAL
AGREEMENT
I, Thomas W. Schneider, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Amended and Restated Pathfinder Bank Executive
Deferred Compensation Plan (the “Plan”), effective January 1, 2005, as such Plan
may now exist or hereafter be amended or modified, and do further agree to the
terms and conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $417 of my monthly Compensation. Such deferrals
shall commence on January 1, 2004, and shall continue for a period of one
hundred twenty (120) months, known as the Deferral Period, and will result in a
Projected Deferral in the amount of $50,000. I understand that this
election to defer applies only to Compensation attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of
Compensation to be deferred or to discontinue deferrals altogether.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected Benefit Age of
70. Distribution will be made in installments over a period of one
hundred twenty (120) months.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $2,857
pursuant to section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
This Deferral Agreement shall become
effective upon execution (below) by both the Executive and a duly authorized
officer of the Bank.
Dated
this 23 day of December, 2008
/s/
Thomas W.
Schneider /s/
James A. Dowd
Executive
Duly
Authorized Officer of Pathfinder Bank
EXHIBIT
A
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
DEFERRAL
AGREEMENT
I, James A. Dowd, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Amended and Restated Pathfinder Bank Executive
Deferred Compensation Plan (the “Plan”), effective January 1, 2005, as such Plan
may now exist or hereafter be amended or modified, and do further agree to the
terms and conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $417 of my monthly Compensation. Such deferrals
shall commence on January 1, 2004, and shall continue for a period of one
hundred twenty (120) months, known as the Deferral Period, and will result in a
Projected Deferral in the amount of $50,000. I understand that this
election to defer applies only to Compensation attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of
Compensation to be deferred or to discontinue deferrals altogether.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected Benefit Age of
70. Distribution will be made in installments over a period of one
hundred twenty (120) months.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $4,394
pursuant to section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
This Deferral Agreement shall become
effective upon execution (below) by both the Executive and a duly authorized
officer of the Bank.
Dated
this 23 day of December, 2008
/s/ James
A.
Dowd /s/
Thomas W. Schneider
Executive
Duly
Authorized Officer of Pathfinder Bank
EXHIBIT
A
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
DEFERRAL
AGREEMENT
I, Melissa A. Miller, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Amended and Restated Pathfinder Bank Executive
Deferred Compensation Plan (the “Plan”), effective January 1, 2005, as such Plan
may now exist or hereafter be amended or modified, and do further agree to the
terms and conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $417 of my monthly Compensation. Such deferrals
shall commence on February 1, 2004, and shall continue for a period of one
hundred twenty (120) months, known as the Deferral Period, and will result in a
Projected Deferral in the amount of $50,000. I understand that this
election to defer applies only to Compensation attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of
Compensation to be deferred or to discontinue deferrals altogether.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected Benefit Age of
70. Distribution will be made in installments over a period of one
hundred twenty (120) months.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $2,174
pursuant to section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
This Deferral Agreement shall become
effective upon execution (below) by both the Executive and a duly authorized
officer of the Bank.
Dated
this 23 day of December, 2008
/s/
Melissa A.
Miller /s/
Thomas W. Schneider
Executive
Duly
Authorized Officer of Pathfinder Bank
EXHIBIT
B
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
BENEFICIARY
DESIGNATION
The Executive, under the terms of the
Amended and Restated Pathfinder Bank Executive Deferred Compensation Plan hereby
designates the following Beneficiary to receive any guaranteed payments or death
benefits* under such Plan, following his death:
PRIMARY
BENEFICIARY: Joy
Ann Schneider
|
SECONDARY
BENEFICIARY:
|
Thomas
J. Schneider, Matthew R. Schneider, James A. Schneider, equally per
stirpes
|
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation which may have been in
effect.
Such Beneficiary Designation is
revocable.
December
23,
2008 /s/
Thomas W. Schneider
|
·
|
I
understand and agree that no death benefit in excess of the deferrals made
by me (plus earnings thereon) will be paid unless Pathfinder Bank has
acquired insurance on my life and such insurance is in
place.
|
EXHIBIT
B
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
BENEFICIARY
DESIGNATION
The Executive, under the terms of the
Amended and Restated Pathfinder Bank Executive Deferred Compensation Plan hereby
designates the following Beneficiary to receive any guaranteed payments or death
benefits* under such Plan, following his death:
PRIMARY
BENEFICIARY: Nancy
J. Dowd (Mother)
|
SECONDARY
BENEFICIARY:
|
John
W. Dowd (Brother)
|
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation which may have been in
effect.
Such Beneficiary Designation is
revocable.
December
23,
2008
/s/
James A. Dowd
|
·
|
I
understand and agree that no death benefit in excess of the deferrals made
by me (plus earnings thereon) will be paid unless Pathfinder Bank has
acquired insurance on my life and such insurance is in
place.
|
EXHIBIT
B
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
BENEFICIARY
DESIGNATION
The Executive, under the terms of the
Amended and Restated Pathfinder Bank Executive Deferred Compensation Plan hereby
designates the following Beneficiary to receive any guaranteed payments or death
benefits* under such Plan, following his death:
PRIMARY
BENEFICIARY: Lisa
E. Dashnau
|
SECONDARY
BENEFICIARY:
|
Makayla
Dashnau (Mesec) and Maddison
Dashnau
|
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation which may have been in
effect.
Such Beneficiary Designation is
revocable.
December
23,
2008 /s/
Melissa A. Miller
|
·
|
I
understand and agree that no death benefit in excess of the deferrals made
by me (plus earnings thereon) will be paid unless Pathfinder Bank has
acquired insurance on my life and such insurance is in
place.
|
EXHIBIT
C
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DFERRED COMPENSATION PLAN
NOTICE
OF ADJUSTMENT OF DEFERRAL AMOUNT
|
TO:
|
Administrative
Committee, Executive Deferred Compensation
Plan
|
I hereby give notice of my election to
adjust the amount of my compensation deferral in accordance with my Deferral
Agreement, dated the ____ day of __________, 20__. This notice is
submitted fifteen (15) days prior to January 1st, and shall become effective
January 1st, as specified below.
Adjust
deferral as
of: January
1st, 20__
Previous
Deferral
Amount: ______
Percent (_____%) or $_____________ per month
New
Deferral
Amount:
______
Percent (_____%) or $
_____________ per month
(to discontinue deferral, enter $0)
_____________________ ______________________________
Date EXECUTIVE
_____________________ ______________________________
Date ACKNOWLEDGED
BY:_________________________________
TITLE:
_____________________________
EXHIBIT
D
AMENDED
AND RESTATED
PATHFINDER
BANK
EXECUTIVE
DEFERRED COMPENSATION PLAN
TRANSITION
ELECTION YEAR FORM
Instructions
: If you are a
participant in the Amended and Restated Pathfinder Bank Executive Deferred
Compensation Plan (the “Plan”), and you previously filed a distribution election
form with Pathfinder Bank (the “Bank”) in which you designated your Benefit Age
for when Deferred Compensation Benefits will commence under the Plan, you have a
limited period of time to use this Transition Year Election Form to elect to
change your previous designated Benefit Age.
Due
to IRS rules, individuals who participate in the Plan during 2008 must complete
this form no later than December 31, 2008. You may
not
use this form to
change your Benefit Age with respect to payments that are scheduled to be made
to you in 2008, or otherwise to cause payments to be made to you in
2008.
Print
Name
:
I am a
participant in the Amended and Restated Pathfinder Bank Executive Deferred
Compensation Plan, which was initially effective as of December 31, 2003, and
amended and restated effective January 1, 2005. Internal Revenue Code
Section 409A provides that I must affirmatively select my Benefit Age in
accordance with the Plan. I understand that I may not make
an election to cause payments to be made in 2008, or to change the time and form
of payment of benefits that are scheduled to begin in 2008.
Note
:
If you do not wish to change your
Benefit Age previously filed in your Deferral Agreement, then you do
not need to complete this Transition Year Election Form
.
I,
_____________________, hereby elect to modify my Benefit Age effective as of
this _____ day of _________________, 20__, and to begin receiving benefits under
the Amended and Restated Pathfinder Bank Executive Deferred Compensation Plan in
accordance with the terms and conditions set forth in Section 5.6
thereunder.
I hereby
acknowledge and agree that by modifying the elected Benefit Age set forth in my
Deferral Agreement (Exhibit A hereto), I will receive a reduced benefit equal to
the value of my Elective Contribution Account calculated as of the last day of
the month in which I attain my Modified Benefit Age. Such reduced
benefit shall be annuitized (using the Interest Factor) and be payable to me
commencing on the first day of the second month following the month in which I
attain my Modified Benefit Age, and shall be payable in one hundred twenty (120)
monthly installments throughout the Payout Period.
I hereby
elect a Modified Benefit Age of ____, which I will attain as of the ____ day of
__________________, 20__.
_______________________ _________________________________
Date Executive
AMENDED
AND RESTATED
TRUSTEE
DEFERRED
FEE
PLAN
PATHFINDER
BANK
AMENDED
AND RESTATED EFFECTIVE AS OF
January
1, 2005
AMENDED
AND RESTATED
TRUSTEE
DEFERRED
FEE
PLAN
This
Amended and Restated Trustee Deferred Fee Plan for Pathfinder Bank (the “Plan”)
updates and revises the Trustee Deferred Fee Plan (the “Original Plan) for
Pathfinder Bank (the “Bank”), which was originally effective as of January 31,
2003. This Plan formalizes the understanding by and between the Bank
and its trustees, which includes members of the board of directors of the Bank,
Pathfinder Bancorp, Inc., or Pathfinder Bancorp, MHC, herein after referred to
as “Trustee(s),” who shall be eligible to participate in this Plan, subject to
Bank approval, by execution of a Trustee Deferred Fee Plan Deferral Agreement
(“Deferral Agreement”) in the form provided by the Bank. The terms
and conditions of any Deferral Agreements entered into under the Original Plan
shall remain in full force and effect under this Plan. The Bank
has herein restated the Plan with the intention that the Plan shall at all times
satisfy Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”) and the regulations thereunder. Pathfinder Bancorp, MHC, a
Federal mutual holding company, and Pathfinder Bancorp, Inc. (the “Holding
Company”) are parties to this Agreement for the sole purpose of guaranteeing the
Bank’s performance hereunder.
W
I T N E S S E T H :
WHEREAS
, the Bank recognizes
the valuable services heretofore performed for it by its Trustees and wishes to
encourage continued service of each; and
WHEREAS
, the Bank values the
efforts, abilities and accomplishments of such Trustees and recognizes that the
Trustees’ services substantially contribute to its continued growth and profits
in the future; and
WHEREAS
, Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), effective January 1,
2005, requires that certain types of deferred compensation arrangements, such as
the Plan, comply with its terms or subject the recipients of such compensation
to current taxes and penalties; and
WHEREAS
, the Original Plan was
effective December 31, 2003; and
WHEREAS
, the Bank desires to
amend and restate the Original Plan, in order to comply with the requirements
set forth in Code Section 409A and the final regulations promulgated thereunder,
and for certain other purposes; and
WHEREAS
, the Bank and the
Trustees intend this Plan to be considered an unfunded
arrangement for tax purposes and for purposes of the Employee
Retirement Income Security Act of 1974, as amended; and
WHEREAS
, the Bank has adopted
this Plan which controls all issues relating to the Deferred Compensation
Benefits as described herein.
NOW, THEREFORE
, in
consideration of the mutual promises herein contained, the parties hereto agree
to the following terms and conditions:
SECTION
I
DEFINITIONS
When used
herein, the following words and phrases shall have the meanings below unless the
context clearly indicates otherwise:
1.1 “Bank”
means Pathfinder Bank and any successor thereto.
|
1.2
|
“Beneficiary”
means the person or persons (and their heirs) designated as Beneficiary in
the Trustee’s Deferral Agreement to whom the deceased Trustee’s benefits
are payable. If no Beneficiary is so designated, then the Trustee’s
Spouse, if living, will be deemed the Beneficiary. If the
Trustee’s Spouse is not living, then the Children of the Trustee will be
deemed the Beneficiaries and will take on a per stirpes
basis. If there are no Children, then the Estate of the Trustee
will be deemed the Beneficiary.
|
|
1.3
|
“Benefit
Age” shall be the birthday on which the Trustee becomes eligible to
receive benefits under the plan. Such birthday shall be designated in the
Trustee’s Deferral Agreement.
|
|
1.4
|
“Benefit
Eligibility Date” shall be the date on which a Trustee is entitled to
receive his Deferred Compensation Benefit. It shall be the
first day of the month following the month in which the Trustee attains
the Benefit Age designated in his Deferral
Agreement.
|
|
1.5
|
“Cause”
means personal dishonesty, willful misconduct, willful malfeasance, breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), or final
cease-and-desist order, material breach of any provision of this Plan, or
gross negligence in matters of material importance to the
Bank. The cessation of service of the Trustee shall not be
deemed to be for Cause unless and until the Trustee’s service is
terminated in accordance with any procedure or requirements of the Bank’s
Charter and Bylaws.
|
|
1.6
|
“Change
in Control” of the Bank or Holding Company means a change in control of a
nature that: (i) would be required to be reported in response to Item 5.01
of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the “Exchange Act”); or (ii) results in a Change in Control of the
Company within the meaning of the Home Owners’ Loan Act, as amended, and
applicable rules and regulations promulgated thereunder (collectively, the
“HOLA”) as in effect at the time of the Change in Control; or (iii)
without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any “person” (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company’s outstanding securities
except for any securities purchased by the Bank’s employee stock ownership
plan or trust; or (b) individuals who constitute the Board on the date
hereof (the “Incumbent Board”) cease for any reason to constitute at least
a majority thereof,
provided
that any
person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination
for election by the Company’s stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Company or similar
transaction in which the Company is not the surviving institution occurs;
or (d) a proxy statement soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted
into cash or property or securities not issued by the Company; or (e) a
tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more
of the outstanding securities of the Company have tendered or offered to
sell their shares pursuant to such tender offer and such tendered shares
have been accepted by the tender offeror. Notwithstanding
anything in this subsection (b) to the contrary, a change in control shall
not be deemed to have occurred in the event of a conversion of the
Company’s or the Bank’s mutual holding company to stock form, or in
connection with any reorganization used to effect such a
conversion.
|
|
1.7
|
“Children”
means the Trustee’s children, both natural and adopted, determined at the
time payments are due the Children under this
Plan.
|
|
1.8
|
“Deferral
Period” means the period of months designated in the Trustee’s Deferral
Agreement during which the Trustee shall defer current
fees. The Deferral Period shall commence on the date designated
in the Trustee’s Deferral
Agreement.
|
|
1.9
|
“Deferred
Compensation Benefit” means the annuitized value (using the Interest
Factor) of the Trustee’s Elective Contribution Account, measured as of the
Trustee’s Benefit Age, payable in monthly installments throughout the
Payout Period and commencing on the Trustee’s Benefit Eligibility
Date.
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|
1.10
|
“Disability
Benefit” means the monthly benefit payable to the Trustee following a
determination, in accordance with Subsection 5.2, that he is no longer
able, properly and satisfactorily, to perform his duties as a
Trustee.
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1.11
|
“Effective
Date” of the amended and restated Plan is January 1,
2005.
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1.12
|
“Elective
Contribution” shall refer to any bookkeeping entry required to record a
Trustee’s voluntary monthly pre-tax deferral of fees which shall be made
in accordance with the Trustee’s Deferral
Agreement.
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|
1.13
|
“Elective
Contribution Account” shall be represented by the bookkeeping entries
required to record a Trustee’s Elective Contributions plus accrued
interest calculated with the Interest Factor, earned to date on such
amounts. However, neither the existence of such bookkeeping
entries nor the Elective Contribution Account itself shall be deemed to
create either a trust of any kind, or a fiduciary relationship between the
Bank and the Trustee or any
Beneficiary.
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1.14 “Estate”
means the estate of the Trustee.
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1.15
|
“Interest
Factor” means either the Pre-Retirement Interest Factor or the
Post-Retirement Interest Factor, as
applicable.
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1.16
|
“Payout
Period” means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing on the first day of the first month
following the occurrence of the event which triggers distribution and
continuing for a period of one-hundred twenty (120) months, as designated
in the Trustee’s Deferral
Agreement.
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1.17
|
“Plan
Year” shall mean the twelve (12) month period from January 1 to December
31 of each year.
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1.18
|
“Post-Retirement
Interest Factor” means a rate applicable to annuitize the Elective
Contribution Account of a Trustee in connection with installment
distributions made following a Trustee’s retirement or other termination
of service. Unless changed pursuant to a written resolution of
the Board of Trustees, the Post-Retirement Interest Factor shall be seven
percent (7%) per annum.
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1.19
|
“Pre-Retirement
Interest Factor” means a rate applied to accruals credited to a Trustee’s
Elective Contribution Account prior to the Trustee’s retirement or other
termination of service. Unless changed pursuant to a written
resolution of the Board of Trustees, the Pre-Retirement Interest Factor
shall be a rate equivalent to the prime interest rate as published in the
Wall Street
Journal
each January 1, plus three percent (3%). For the
initial Plan Year, the Pre-Retirement Interest Factor shall be seven
percent (7%). The Pre-Retirement Interest Factor shall be
calculated each January 1 during the Deferral Period, and such rate shall
be the applicable Pre-Retirement Interest Factor for the Plan Year for
which it is calculated.
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1.20
|
“Projected
Deferral” is an estimate, determined upon execution of a Deferral
Agreement, of the total amount of compensation to be deferred by the
Trustee during his Deferral Period (excluding any interest accrued on such
deferrals), and so designated in the Trustee’s Deferral
Agreement.
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1.21
|
“Spouse”
means the individual to whom the Trustee is legally married at the time of
the Trustee’s death.
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1.22
|
“Survivor’s
Benefit” means if the Bank has obtained insurance on the life of the
Trustee, an annual amount payable to the Beneficiary in monthly
installments throughout the Payout Period, equal to the amount designated
in the Trustee’s Deferral Agreement. If the Bank has not
obtained insurance on the life of the Trustee, the Survivor’s Benefit
shall be equal to the accrued benefit in the Trustee’s Elective
Contribution Account as of the Trustee’s date of death, annuitized (using
the Post-Retirement Interest Factor) and payable in monthly installments
throughout the Payout Period.
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SECTION
II
ESTABLISHMENT
OF RABBI TRUST
The Bank
shall establish a rabbi trust into which the Bank shall contribute assets which
shall be held therein, pursuant to the agreement which establishes such rabbi
trust. The contributed assets shall be subject to the claims of the
Bank’s creditors in the event of the Bank’s “Insolvency” as defined in the
agreement which establishes such rabbi trust, until the contributed assets are
paid to the Trustee and his Beneficiary(ies) in such manner and at such times as
specified in this Plan. It is the intention of the Bank to make a
contribution or contributions to the rabbi trust to provide the Bank with a
source of funds to assist it in meeting the liabilities of this Plan. The rabbi
trust and any assets held therein shall conform to the terms of the rabbi trust
agreement which has been established in conjunction with this
Plan. Any contribution(s) to the rabbi trust shall be made in
accordance with the rabbi trust agreement. The amount and timing of
such contribution(s) shall be specified in the agreement which establishes such
rabbi trust.
SECTION
III
DEFERRED
COMPENSATION
Commencing
on the Effective Date and continuing through the end of the Deferral Period, the
Trustee and the Bank agree that the Trustee may defer into his Elective
Contribution Account on a monthly basis up to the lesser of (i) Seven Hundred
Fifty Dollars ($750.00), or (ii) One Hundred Percent (100%) of the monthly fees
which the Trustee would otherwise be entitled to receive from the Bank for each
month of the Deferral Period. The total deferral during the term of
the Deferral Period shall not exceed the Trustee’s Projected Deferral, without
Board of Trustee approval. The specific amount of the Trustee’s
monthly deferred compensation shall be designated in the Trustee’s Deferral
Agreement and shall apply only to compensation attributable to services not yet
performed.
SECTION
IV
ADJUSTMENT
OF DEFERRAL AMOUNT
Deferral
of the specific amount of fees designated in the Trustee’s Deferral Agreement
shall continue in effect pursuant to the terms of this Plan unless and until the
Trustee amends his Deferral Agreement by filing with the Administrator a Notice
of Adjustment of Deferral Amount (Exhibit B of the Deferral
Agreement). If the Bank increases the amount of fees and/or retainer
earned by the Trustee, the Trustee can include such additional amounts in his
monthly deferral, subject to the limits of Section III herein, provided approval
from the Board of Trustees is obtained, by filing a Notice of Adjustment of
Deferral Amount. A Notice of Adjustment of Deferral Amount shall be
effective if filed with the Administrator at least thirty (30) days prior to any
January 1
st
during
the Plan Year. Such Notice of Adjustment of Deferral Amount shall be
effective commencing with the January 1
st
following its filing and shall be applicable only to compensation attributable
to services not yet performed by the Trustee.
SECTION
V
RETIREMENT
BENEFIT
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5.1
|
Retirement
Benefit
. Subject to Subsection 6.1 of this Plan, the
Bank agrees to pay the Trustee the Deferred Compensation Benefit
commencing on the Trustee’s Benefit Eligibility Date. Such
payments will be made over the term of the Payout
Period. In the event of the Trustee’s death after commencement
of the Deferred Compensation Benefit, but prior to completion of all such
payments due and owing hereunder, the Bank shall pay to the Trustee’s
Beneficiary a continuation of the monthly installments for the number of
months remaining in the Payout
Period.
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5.2
|
Disability
Benefit
. If requested by the Trustee and approved by the
Board of Trustees, the Trustee shall be entitled to receive the Disability
Benefit hereunder, in any case in which it is determined by a duly
licensed independent physician selected by the Bank, that the Trustee is
Disabled. For purposes of this Subsection, “Disability” or
“Disabled” shall mean the Trustee: (i) is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
can be expected to last for a continuous period of not less than 12
months; (ii) is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than 3
months under an accident and health plan covering employees of the Bank;
or (iii) is determined to be totally disabled by the Social Security
Administration
.
If
the Trustee is determined to be Disabled, the Trustee shall begin
receiving the Disability Benefit in lieu of the Deferred Compensation
Benefit, which shall begin within thirty (30) days after the Trustee is
determined to be Disabled. The amount of the monthly
benefit shall be the annuitized value of the Trustee’s Elective
Contribution Account, measured as of the date of the Disability
determination and payable in monthly installments throughout the Payout
Period. The Post-Retirement Interest Factor shall be used to
annuitize the Elective Contribution Account. In the event the
Trustee dies while receiving Disability Benefit payments pursuant to this
Subsection, or after becoming eligible for such payments but before the
actual commencement of such payments, his Beneficiary shall be entitled to
receive those benefits provided for in Subsection 6.1(a) and the
Disability Benefits provided for in this Subsection shall terminate upon
the Trustee’s death. Notwithstanding the foregoing, the Trustee
shall have the right make one-time election in his or her Deferral
Agreement to receive the Deferred Compensation Benefit in lieu of the
Disability Benefit, where such benefit shall commence on the Director’s
Benefit Eligibility Date and shall be payable over the term of the Payout
Period.
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5.3
|
Removal For
Cause
. In the event the Trustee is removed for Cause at
any time prior to reaching his Benefit Age, he shall be entitled to
receive the balance of his Elective Contribution Account, measured as of
the date of removal. Such amount shall commence on the
Trustee’s Benefit Eligibility Date and shall be payable throughout the
Payout Period. All other benefits provided for the
Trustee or his Beneficiary under this Plan shall be forfeited and the Plan
shall become null and void with respect to such
Trustee.
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5.4
|
Voluntary or
Involuntary Termination Other Than for Cause
. If the
Trustee’s service with the Bank is voluntarily or involuntarily terminated
prior to the attainment of his Benefit Eligibility Date, for any reason
other than for Cause, the Trustee’s death or Disability, then commencing
on his Benefit Eligibility Date, the Trustee shall be entitled to the
annuitized value (using the Interest Factor) of his Elective Contribution
Account calculated as of his Benefit Eligibility Date, and payable over
the Payout Period.
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5.5
|
Termination of Service
Related to a Change in Control
. If a Change in Control
occurs, and thereafter the Trustee’s service is terminated (either
voluntarily or involuntarily) within thirty-six (36) months, the Trustee
shall be entitled to receive his Deferred Compensation Benefit calculated
as if the Trustee had made all of his elective deferrals through his
Benefit Age. Such benefit shall be annuitized (using the
Interest Factor) and be payable commencing on such Trustee’s Benefit
Eligibility Date in monthly installments throughout the Payout
Period. In the event the Trustee dies at any time after
termination of employment, but prior to commencement of such payments due
and owing hereunder, the Bank or its successor, shall pay to the Trustee’s
Beneficiary, the Survivor’s Benefit. In the event the Trustee
dies at any time after commencement of such payments, but prior to
completion of all such payments due and owing hereunder, the Bank or its
successor shall pay to the Trustee’s Beneficiary, continuation of the
monthly installments for the remainder of the Payout
Period.
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5.6
|
Modification of
Benefit Age
. Notwithstanding anything in the Plan to the
contrary, a Trustee who previously designated a Benefit Age in his or her
Deferral Agreement, may elect to change his or her Benefit Age by filing
with the Bank a Transition Year Election Form (attached hereto as Exhibit
D), provided that such election is made before December 31,
2008. If the Trustee elects to modify his Benefit Age
(“Modified Benefit Age”) and to commence receiving benefits hereunder
before attainment of his Benefit Age as set forth on his Deferral
Agreement, Trustee shall be entitled to receive the value of his Elective
Contribution Account calculated as of the last day of the month in which
Trustee attains his Modified Benefit Age. Such early benefit
shall be annuitized (using the Interest Factor) and be payable commencing
on the first day of the second month following Trustee’s attaining his
Modified Benefit Age in monthly installments throughout the Payout
Period. In the event the Trustee dies at any time after
designating his Modified Benefit Age, but prior to commencement of such
payments due and owing hereunder, the Bank or its successor shall pay to
the Trustee’s Beneficiary the Survivor’s Benefit. In the event
the Executive dies at any time after commencement of the benefit payments,
but prior to completion of all such payments due and owing hereunder, the
Bank or its successor shall pay to the Trustee’s Beneficiary a
continuation of the monthly installments for the remainder of the Payout
Period.
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5.7
|
Separation from
Service
. Notwithstanding anything in the Plan to the
contrary, all references to a voluntary or involuntary termination of
service shall mean a termination of the Trustee’s services to the Bank for
any reason. Whether a termination of service has occurred shall
be determined
in accordance with the
requirements of Section 409A of the Code for a “Separation from
Service”
based
on whether the facts and circumstances indicate that the Bank and the
Trustee reasonably anticipated that no further services would be performed
after a certain date or that the level of bona fide services the Trustee
would perform after such date would permanently decrease to no more than
forty-nine percent (49%) of the average level of bona fide services
performed over the immediately preceding thirty-six (36) month
period.
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SECTION
VI
DEATH
BENEFITS
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6.1
|
Death Benefit Prior to
Commencement of Deferred Compensation Benefit
. In the
event of the Trustee’s death prior to commencement of the Deferred
Compensation Benefit, the Bank shall pay the Trustee’s Beneficiary a
monthly benefit for the Payout Period, commencing within thirty (30) days
following the Trustee’s death. The amount of such monthly benefit payments
shall be determined as follows:
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|
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(a)
|
(1)
In the event death occurs (i) while the Trustee is receiving the
Disability Benefit provided for in Subsection 5.2, or (ii) after the
Trustee has become eligible for such Disability Benefit payments but
before such payments have commenced, the Trustee’s Beneficiary shall be
entitled to receive the Survivor’s Benefit for the number of months in the
Payout Period, reduced by the number of months Disability Benefit payments
were made to the Trustee. In the event death occurs after the
Trustee has received the Disability Benefit provided for in Subsection 5.2
for the
entire
Payout
Period, the Trustee’s Beneficiary shall not be entitled to the Survivor’s
Benefit for any length of time. However, the lump sum payment
described in paragraph two (2) of this Subsection 6.1 (a) if approved by
the Board of Trustees, and the payment described in Section 6.2, shall
still be applicable to such
Beneficiary.
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(2) If
(i) the total dollar amount of Disability Benefit payments received by the
Trustee under Subsection 5.2 is less than the total dollar amount of payments
which would have been received had the Survivor’s Benefit been paid in lieu of
the Disability Benefit which was paid during the Trustee’s life, and (ii) Board
of Trustee approval is obtained, the Bank shall pay the Trustee’s Beneficiary a
lump sum payment for the difference. This lump sum payment shall be
made within thirty (30) days following the Trustee’s death.
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(b)
|
In
the event death occurs while the Trustee is (i) in the service of the
Bank, (ii) deferring fees pursuant to Section II and (iii)
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prior
to any
reduction or discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals reflected in the
Trustee’s Deferral Agreement, the Trustee’s Beneficiary shall be paid the
Survivor’s Benefit.
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(c)
|
In
the event death occurs while the Trustee is (i) in the service of the
Bank, (ii) deferring fees pursuant to Section II, and (iii)
after
any
reduction or discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals reflected in the
Trustee’s Deferral Agreement, the Trustee’s Beneficiary shall be paid a
reduced Survivor’s Benefit. The amount of such reduced Survivor’s Benefit
shall be determined by multiplying the monthly payment available as a
Survivor’s Benefit by a fraction, the numerator of which is equal to the
total Board fees actually deferred by the Trustee as of his death, and the
denominator of which is equal to the total amount of Board fees which
would have been deferred as
of his death
,
if no reduction or discontinuance in the level of deferrals had occurred
at any time following execution of the Deferral Agreement and during the
Deferral Period.
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|
|
(d)
|
In
the event the Trustee completes
less than
One
Hundred Percent (100%) of his Projected Deferrals due to any voluntary or
involuntary termination other than removal for Cause, the Trustee’s
Beneficiary shall be paid a reduced Survivor’s Benefit. The
amount of such reduced Survivor’s Benefit shall be determined by
multiplying the monthly payment available as a Survivor’s Benefit by a
fraction, the numerator of which is equal to the total Board fees actually
deferred by the Trustee, and the denominator of which is equal to the
Trustee’s Projected Deferral.
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|
(e)
|
In
the event the Trustee completes One Hundred Percent (100%) of his
Projected Deferrals
prior
to any
voluntary or involuntary termination other than removal for Cause, and
provided no payments have been made pursuant to Subsection 5.2, the
Trustee’s Beneficiary shall be paid the Survivor’s
Benefit.
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6.2
|
Additional Death
Benefit - Burial Expense
. In addition to the above-described death
benefits, upon the Trustee’s death, the Trustee’s Beneficiary shall be
entitled to receive a one-time lump sum death benefit in the amount of Ten
Thousand Dollars ($10,000.00). This benefit shall be provided specifically
for the purpose of providing payment for burial and/or funeral expenses of
the Trustee. Such benefit shall be payable within thirty (30)
days of the Trustee’s death. The Trustee’s Beneficiary shall
not be entitled to such benefit if the Trustee is removed for Cause prior
to death, or if a similar lump sum death benefit is paid by the Bank to
the Beneficiary under another similar plan of the
Bank.
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SECTION
VII
BENEFICIARY
DESIGNATION
The
Trustee shall make an initial designation of primary and secondary Beneficiaries
upon execution of his Deferral Agreement and shall have the right to change such
designation, at any subsequent time, by submitting to the Administrator in
substantially the form attached as Exhibit A to the Deferral Agreement, a
written designation of primary and secondary Beneficiaries. Any Beneficiary
designation made subsequent to execution of the Deferral Agreement shall become
effective only when receipt thereof is acknowledged in writing by the
Administrator.
SECTION
VIII
TRUSTEE’S
RIGHT TO ASSETS
The
rights of the Trustee, any Beneficiary, or any other person claiming through the
Trustee under this Plan, shall be solely those of an unsecured general creditor
of the Bank. The Trustee, the Beneficiary, or any other person
claiming through the Trustee, shall only have the right to receive from the Bank
those payments so specified under this Plan. The Trustee agrees that
he, his Beneficiary, or any other person claiming through him shall have no
rights or interests whatsoever in any asset of the Bank, including any insurance
policies or contracts which the Bank may possess or obtain to informally fund
this Plan.
Any asset
used or acquired by the Bank in connection with the liabilities it has assumed
under this Plan, unless expressly provided herein, shall not be deemed to be
held under any trust for the benefit of the Trustee or his Beneficiaries, nor
shall any asset be considered security for the performance of the obligations of
the Bank. Any such asset shall be and remain, a general, unpledged,
and unrestricted asset of the Bank.
SECTION
IX
RESTRICTIONS
UPON FUNDING
The Bank
shall have no obligation to set aside, earmark or entrust any fund or money with
which to pay its obligations under this Plan. The Trustee, his
Beneficiaries or any successor in interest to him shall be and remain simply a
general unsecured creditor of the Bank in the same manner as any other creditor
having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Plan or to refrain from the same and to
determine the extent, nature, and method of any such asset
purchases. Should the Bank decide to purchase assets such as life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such assets at any time, in
whole or in part. At no time shall the Trustee be deemed to have any lien,
right, title or interest in or to any specific investment or to any assets of
the Bank. If the Bank elects to invest in a life insurance,
disability or annuity policy upon the life of the Trustee, then the Trustee
shall assist the Bank by freely submitting to a physical examination and by
supplying such additional information necessary to obtain such insurance or
annuities.
SECTION
X
ALIENABILITY
AND ASSIGNMENT PROHIBITION
Neither
the Trustee nor any Beneficiary under this Plan shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable hereunder, nor shall
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance owed by the Trustee or his
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Trustee or any Beneficiary
attempts assignment, communication, hypothecation, transfer or disposal of the
benefits hereunder, the Bank’s liabilities shall forthwith cease and
terminate.
SECTION
XI
ACT
PROVISIONS
|
11.1
|
Named Fiduciary and
Administrator
. The Bank shall be the Named Fiduciary and
Administrator (the “Administrator”) of this Plan. As Administrator, the
Bank shall be responsible for the management, control and administration
of the Plan as established herein. The Administrator may delegate to
others certain aspects of the management and operational responsibilities
of the Plan, including the employment of advisors and the delegation of
ministerial duties to qualified
individuals.
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|
11.2
|
Claims Procedure and
Arbitration
. In the event that benefits under this Plan are not
paid to the Trustee (or to his Beneficiary in the case of the Trustee’s
death) and such claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Administrator within sixty (60)
days from the date payments are refused. The Administrator
shall review the written claim and, if the claim is denied, in whole or in
part, they shall provide in writing, within ninety (90) days of receipt of
such claim, their specific reasons for such denial, reference to the
provisions of this Plan or the Deferral Agreement upon which the denial is
based, and any additional material or information necessary to perfect the
claim. Such writing by the Administrator shall further indicate
the additional steps which must be undertaken by claimants if an
additional review of the claim denial is
desired.
|
If
claimants desire a second review, they shall notify the Administrator in writing
within sixty (60) days of the first claim denial. Claimants may review this
Plan, the Deferral Agreement or any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its
sole discretion, the Administrator shall then review the second claim and
provide a written decision within sixty (60) days of receipt of such
claim. This decision shall state the specific reasons for the
decision and shall include reference to specific provisions of this Plan or the
Deferral Agreement upon which the decision is based.
If
claimants continue to dispute the benefit denial based upon completed
performance of this Plan and the Deferral Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute to
mediation, administered by the American Arbitration Association (“AAA”) (or a
mediator selected by the parties) in accordance with the AAA’s Commercial
Mediation Rules. If mediation is not successful in resolving the
dispute, it shall be settled by arbitration administered by the AAA under its
Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction
thereof.
SECTION
XII
MISCELLANEOUS
|
12.1
|
No Effect on
Trusteeship Rights
. Nothing contained herein will confer upon the
Trustee the right to be retained in the service of the Bank nor limit the
right of the Bank to discharge or otherwise deal with the Trustee without
regard to the existence of the Plan. Notwithstanding anything
herein contained to the contrary, any payment to the Trustee by the
Holding Company are subject to and conditioned upon their compliance with
Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part
359.
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|
12.2
|
State
Law
. The Plan is established under, and will be
construed according to, the laws of the state of New
York.
|
|
12.3
|
Severability and
Interpretation of Provisions
. In the event that any of
the provisions of this Plan or portion thereof, are held to be inoperative
or invalid by any court of competent jurisdiction, or in the event that
any legislation adopted by any government body having jurisdiction over
the Bank would be retroactively applied to invalidate this Plan or any
provision hereof or cause the benefits hereunder to be taxable, then: (i)
insofar as is reasonable, effect will be given to the intent manifested in
the provisions held invalid or inoperative, and (ii) the validity and
enforceability of the remaining provisions will not be affected
thereby. In the event that the intent of any provision shall
need to be construed in any manner to avoid taxability, such construction
shall be made by the Plan Administrator in a manner that would manifest to
the maximum extent possible the original meaning of such
provisions.
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|
12.4
|
Incapacity of
Recipient
. In the event the Trustee is declared incompetent and a
conservator or other person legally charged with the care of his person or
Estate is appointed, any benefits under the Plan to which such Trustee is
entitled shall be paid to such conservator or other person legally charged
with the care of his person or
Estate.
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|
12.5
|
Unclaimed
Benefit
. The Trustee shall keep the Bank informed of his
current address and the current address of his
Beneficiaries. If the location of the Trustee is not made known
to the Bank within three (3) years after the date on which any payment of
the Deferred Compensation Benefit may first be made, payment may be made
as though the Trustee had died at the end of the three (3) year
period.
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|
12.6
|
Limitations on
Liability
. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Bank, or as a member of the Board of Trustees shall be personally
liable to the Trustee or any other person for any claim, loss, liability
or expense incurred in connection with this
Plan.
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|
12.7
|
Gender
. Whenever
in this Plan words are used in the masculine or neuter gender, they shall
be read and construed as in the masculine, feminine or neuter gender,
whenever they should so apply.
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|
12.8
|
Effect on Other
Corporate Benefit Plans
. Nothing contained in this Plan
shall affect the right of the Trustee to participate in or be covered by
any qualified or nonqualified pension, profit sharing, group, bonus
or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank’s existing or future compensation
structure.
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|
12.9
|
Suicide
. Notwithstanding
anything to the contrary in this Plan, the benefits otherwise provided
herein shall not be payable if the Trustee’s death results from suicide,
whether sane or insane, within twenty-six (26) months after the execution
of his Deferral Agreement. If the Trustee dies during this twenty-six (26)
month period due to suicide, the balance of his Elective Contribution
Account will be paid to the Trustee’s Beneficiary in a single payment.
Payment is to be made within thirty (30) days after the Trustee’s death is
declared a suicide by competent legal
authority.
|
Credit
shall be given to the Bank for payments made prior to determination of
suicide.
|
12.10
|
Inurement
. This
Plan shall be binding upon and shall inure to the benefit of the Bank, its
successors and assigns, and the Trustee, his successors, heirs, executors,
administrators, and Beneficiaries.
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|
12.11
|
Source of
Payments
. All payments provided in this Plan shall be
timely paid in cash or check from the general funds of the Bank or the
assets of the rabbi trust. The Holding Company guarantees payment and
provision of all amounts and benefits due to the Trustees and, if such
amounts and benefits are not timely paid or provided by the Bank, or the
rabbi trust, such amounts and benefits shall be paid or provided by the
Holding Company.
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|
12.12
|
Code Section 409A
Taxes
. This Plan shall permit the acceleration of the
time or schedule of a payment to pay any taxes that may become due at any
time that this Plan fails to meet the requirements of Code Section 409A
and the regulations and other guidance promulgated
thereunder. Such payments shall not exceed the amount required
to be included in income as the result of the failure to comply with the
requirements of Code Section 409A.
|
|
|
12.13
Headings
. Headings
and sub-headings in this Plan are inserted for reference and convenience
only and shall not be deemed a part of this
Plan.
|
|
12.14
|
Acceleration of
Payments
. Except as specifically permitted herein or in
other sections of this Plan, no acceleration of the time or schedule of
any payment may be made hereunder. Notwithstanding the
foregoing, payments may be accelerated hereunder by the Bank, in
accordance with the provisions of Treasury Regulation Section
1.409A-3(j)(4) and any subsequent guidance issued by the United States
Treasury Department. Accordingly, payments may be accelerated,
in accordance with requirements and conditions of the Treasury Regulations
(or subsequent guidance) in the following circumstances: (i) as a result
of certain domestic relations orders; (ii) in compliance with ethics
agreements with the Federal government; (iii) in compliance with ethics
laws or conflicts of interest laws; (iv) in limited cash-outs (but not in
excess of the limit under Code Section 402(g)(1)(B)); (v) in the case of
certain distributions to avoid a non-allocation year under Code Section
409(p); (vi) to apply certain offsets in satisfaction of a debt of the
Trustee to the Bank; (vii) in satisfaction of certain bona fide disputes
between the Trustee and the Bank; or (viii) for any other purpose set
forth in the Treasury Regulations and subsequent
guidance.
|
SECTION
XIII
AMENDMENT/REVOCATION
|
13.1
|
Amendment
. Notwithstanding
anything herein contained to the contrary, the Bank reserves the exclusive
right to freeze or to amend the Plan at any time with respect to
compensation to be earned in the future, provided that no amendment to the
Plan shall be effective to decrease or to restrict the amount accrued to
the date of such amendment.
|
|
13.2
|
Complete
Revocation
. Subject to the requirements of Code Section
409A, in the event of complete termination of the Plan, the Plan shall
cease to operate and the Bank shall pay out to the Trustee his or her
benefit as if the Trustee had terminated employment as of the effective
date of the complete termination. Such complete termination of
the Plan shall occur only under the following circumstances and
conditions:
|
(a) The
Bank may terminate the Plan within twelve (12) months of a corporate dissolution
taxed under Code Section 331, or with approval of a bankruptcy court pursuant to
11 U.S.C. §503(b)(1)(A), provided that the amounts deferred under the Plan are
included in the Trustee’s gross income in the latest of (i) the calendar year in
which the Plan terminates; (ii) the calendar year in which the amount is no
longer subject to a substantial risk of forfeiture; or (iii) the first calendar
year in which the payment is administratively practicable.
(b) The
Bank may terminate the Plan within the thirty (30) days preceding a Change in
Control (but not following a Change in Control), provided that the Plan shall
only be treated as terminated if all substantially similar arrangements
sponsored by the Bank are terminated so that the Trustee and all trustees under
substantially similar arrangements are required to receive all amounts of
compensation deferred under the terminated arrangements within twelve (12)
months of the date of the termination of the arrangements. For these
purposes, “Change in Control” shall be defined in accordance with the Treasury
Regulations under Code Section 409A.
(c) The
Bank may terminate the Plan provided that (i) the termination and liquidation
does not occur proximate to a downturn in the financial health of the Bank;(ii)
all arrangements sponsored by the Bank that would be aggregated with this Plan
under Treasury Regulations Section 1.409A-1(c) if the Trustee covered by this
Plan was also covered by any of those other arrangements are also terminated;
(iii) no payments other than payments that would be payable under the terms of
the arrangement if the termination had not occurred are made within twelve (12)
months of the termination of the arrangement; (iv) all payments are made within
twenty-four (24) months of the termination of the arrangements; and (v) the Bank
does not adopt a new arrangement that would be aggregated with any terminated
arrangement under Treasury Regulations Section 1.409A-1(c) if the Trustee
participated in both arrangements, at any time within three years following the
date of termination of the arrangement.
SECTION
XIV
EXECUTION
|
14.1
|
This
Plan sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this
Plan.
|
|
14.2
|
This
Plan shall be executed in triplicate, each copy of which, when so executed
and delivered, shall be an original, but all three copies shall together
constitute one and the same
instrument.
|
[Signature
Page Follows]
IN WITNESS WHEREOF
, the Bank
has caused this Plan to be executed on the day and date first above
written.
PATHFINDER BANK
12/23/08
By: /s/:
Thomas W. Schneider
Date
Title: President
& C.E.O.
PATHFINDER BANCORP,
INC
.
12/23/08
By: /s/: Thomas
W. Schneider
Date
Title: President
& C.E.O.
PATHFINDER BANCORP, MHC
12/23/08
By: /s/:
Thomas W. Schneider
Date
Title: President
& C.E.O.
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, Lloyd Buddy Stemple, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2008 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $750.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2008, and shall continue for a period of
one hundred twenty (120) months, known as the Deferral Period, and will result
in a Projected Deferral in the amount of $90,000. I understand that
this election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $0
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
Lloyd A. Stemple
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, Bruce E. Manwaring, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2005 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $417.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2004, and shall continue for a period of
ninety-one (91) months, known as the Deferral Period, and will result in a
Projected Deferral in the amount of $37,917. I understand that this
election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $582
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
Bruce W. Manwaring
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, L. William Nelson, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2005 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $750.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2004, and shall continue for a period of
one hundred fourteen (114) months, known as the Deferral Period, and will result
in a Projected Deferral in the amount of $85,500. I understand that
this election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $1,413
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
L. William Nelson
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, George P. Joyce, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2005 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $750.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2004, and shall continue for a period of
one hundred twenty (120) months, known as the Deferral Period, and will result
in a Projected Deferral in the amount of $90,000. I understand that
this election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $2,457
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
George P. Joyce
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, Chris R. Burritt, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2004 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $750.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2004, and shall continue for a period of
one hundred twenty (120) months, known as the Deferral Period, and will result
in a Projected Deferral in the amount of $90,000. I understand that
this election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $2,858
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
Chris R. Burritt
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, Corte J. Spencer, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2005 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $750.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2004, and shall continue for a period of
one hundred four (104) months, known as the Deferral Period, and will result in
a Projected Deferral in the amount of $78,000. I understand that this
election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $1,248
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
Corte J. Spencer
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
A
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
DEFERRAL
AGREEMENT
I, Steven W. Thomas, and
PATHFINDER BANK
hereby agree
for good and valuable consideration, the value of which is hereby acknowledged,
that I shall participate in the Pathfinder Bank Amended and Restated Trustee
Deferred Fee Plan (the “Plan”), effective January 1, 2004 as such Plan may now
exist or hereafter be amended or modified, and do further agree to the terms and
conditions thereof.
I hereby elect to defer ________
Percent ( _____%) or $750.00 of my monthly Trustee Fees. Such
deferrals shall commence on January 1, 2004, and shall continue for a period of
one hundred twenty (120) months, known as the Deferral Period, and will result
in a Projected Deferral in the amount of $90,000. I understand that
this election to defer applies only to fees attributable to services not yet
performed.
I understand that my election to defer
shall continue in accordance with this Deferral Agreement until such time as I
submit a “
Notice of Adjustment
of Deferral
” (Exhibit C hereto) to the Administrator, at least thirty
(30) days prior to any January 1st during my Deferral Period. A
Notice of Adjustment of Deferral can be used to adjust the amount of Trustee
fees to be deferred or to discontinue deferrals altogether.
In general, I understand that my
designated Beneficiary may be entitled to a monthly Survivor’s Benefit of $5,356
pursuant to Section 6.1 of the Plan and subject to all relevant subsections of
the Plan.
I understand that I will be entitled to
a distribution of my deferrals upon attainment of my elected
Benefit Age of
70
. Distribution will be made in installments over a period of
one hundred twenty (120) months.
I understand that I am entitled to
review or obtain a copy of the Plan, at any time, and may do so by contacting
the Committee.
Pursuant to Section 5.2 of the Plan, in
the event of Disability, I hereby make a one-time election (which may not be
changed) to receive my Disability Benefit at the time of (check one) ___ my
Disability, or
X
my Benefit
Eligibility Date.
This Deferral Agreement shall become
effective upon execution (below) by both the Trustee and a duly authorized
officer of the Bank.
Dated this 23 day of December,
2008.
|
/s/:
Steven W. Thomas
|
/s/:
Thomas W. Schneider
|
|
Trustee
|
Duly
Authorized Officer of Pathfinder
Bank
|
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: Carol
Stemple
SECONDARY
BENEFICIARY Stephen
Stemple; Kristine Stemple per Stirpes
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: Lloyd A. Stemple
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: Ellen
K. Manwaring, Spouse
SECONDARY
BENEFICIARY Children
Doug, Derek, Mike, Karen per Stirpes
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: Bruce E. Manwaring
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: L.
Sue Nelson
SECONDARY
BENEFICIARY Aimee
Callen, Wendy Wheeler, John L. Nelson, equal
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: L. William Nelson
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: Christine
A. Joyce
SECONDARY
BENEFICIARY Children
equally per Stirpes
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: George Joyce
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: Susan
Burritt
SECONDARY
BENEFICIARY My
children Andrea Burritt, Danielle Burritt, Richard
Burritt, Jennifer White
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: Chris Burritt
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: Daughters
equally per Stirpes: Cathleen S. Dorr,
Mary
M. Spencer, Sara A. Spencer
SECONDARY
BENEFICIARY
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: Corte J. Spencer
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
B
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
BENEFICIARY
DESIGNATION
The Trustee, under the terms of the
Pathfinder Bank Amended and Restated Trustee Deferred Fee Plan hereby designates
the following Beneficiary to receive any guaranteed payments or death benefits*
under such Plan, following his death:
PRIMARY
BENEFICIARY: Marianne
Thomas
SECONDARY
BENEFICIARY Branden
& Evan Thomas equally, per stirpes
This Beneficiary Designation hereby
revokes any prior Beneficiary Designation that may have been in
effect.
Such Beneficiary Designation is
revocable.
DATE:
December 23, 2008
/s/: Steven W. Thomas
/s/ Thomas W. Schneider
DULY AUTHORIZED OFFICER
* I
understand and agree that no death benefit in excess of the deferrals made by me
(plus earnings thereon) will be paid unless Pathfinder Bank has acquired
insurance on my life and such insurance is in place.
EXHIBIT
C
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DFERRED FEE PLAN
NOTICE
OF ADJUSTMENT OF DEFERRAL
|
TO:
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Plan
Administrator, Amended and Restated Trustee Deferred Fee
Plan
|
I hereby give notice of my election to
adjust the amount of my Trustee Fee deferral in accordance with my Deferral
Agreement, dated the ____ day of __________, 20__. This notice is
submitted thirty (30) days prior to January 1st, and shall become effective
January 1st, as specified below.
Adjust
deferral as
of: January
1, 2008
Previous Deferral
Amount: _____
Percent (____%) or $750.00 per month
New Deferral
Amount: _____
Percent (____%) or $ 417.00 per month
(to discontinue deferral, enter
$0)
/s/ Corte
J. Spencer
TRUSTEE
12/23/08
DATE
PATHFINDER BANK
BY:_________________________________
TITLE:
_____________________________
____________________________________
DATE
EXHIBIT
D
PATHFINDER
BANK
AMENDED
AND RESTATED
TRUSTEE
DEFERRED FEE PLAN
TRANSITION
ELECTION YEAR FORM
Instructions
: If you are a
participant in the Amended and Restated Trustee Deferred Fee Plan (the “Plan”),
and you previously filed a Deferral Agreement with Pathfinder Bank (the “Bank”),
you have a limited period of time to use this Transition Year Election Form to
elect to change your previous distribution elections.
Due
to IRS rules, individuals who participate in the Plan during 2008 must complete
this form no later than December 31, 2008. You may
not
use this form to
change your distribution elections with respect to payments that are scheduled
to be made to you in 2008, or otherwise to cause payments to be made to you in
2008.
Print
Name
:
I hereby
elect to modify my Benefit Age effective as of this _____ day of
_________________, 20__, and to begin receiving benefits under the Pathfinder
Bank Trustee Deferred Fee Plan in accordance with the terms and conditions set
forth in Section 5.6 thereunder.
I hereby
acknowledge and agree that by modifying the elected Benefit Age set forth in my
Deferral Agreement (Exhibit A hereto), I will receive a reduced benefit equal to
the value of my Elective Contribution Account calculated as of the last day of
the month in which I attain my Modified Benefit Age. Such reduced
benefit shall be annuitized (using the Interest Factor) and be payable to me
commencing on the first day of the second month following the month in which I
attain my Modified Benefit Age, and shall be payable in one hundred twenty (120)
monthly installments throughout the Payout Period.
I hereby
elect a Modified Benefit Age of ____, which I will attain as of the ____ day of
__________________, 20___.
In
addition, pursuant to Section 5.2 of the Plan, in the event of Disability, I
hereby make a one-time election (which may not be changed) to receive my
Disability Benefit at the time of (check one) ___ my Disability, or ___ my
Benefit Eligibility Date.
DATE TRUSTEE
PATHFINDER
BANCORP, INC.
PATHFINDER
BANK
EMPLOYMENT
AGREEMENT
This Agreement is made effective as of
the 23rd day of December 2008, by and between Pathfinder Bank (the “Bank”), a
New York chartered stock savings bank, with its principal administrative office
at 214 West First Street, Oswego, New York 13126-2547, jointly with Pathfinder
Bancorp, Inc., the sole stockholder of the Bank, and Thomas W. Schneider (the
“Executive”). Any reference to “Company” herein shall mean Pathfinder
Bancorp, Inc. or any successor thereto. Any reference to “Employer”
herein shall mean both the Bank and the Company or successors
thereto.
WHEREAS,
the Executive and
Bank entered into an employment agreement dated on June 28, 2004 (the “Original
Agreement”), pursuant to which the Executive was employed as President and Chief
Executive Officer of the Employer; and
WHEREAS
, Section 409A of the
Internal Revenue Code (the “Code”), effective January 1, 2005, requires deferred
compensation arrangements, including those set forth in employment agreements,
to comply with its provisions and restrictions and limitations on payments of
deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder necessitate changes to the Original
Agreement; and
WHEREAS
, Executive has agreed
to such changes; and
WHEREAS
, the parties hereto
desire to set forth the terms of the revised Agreement and the continuing
employment relationship of the Bank and Executive.
NOW, THEREFORE
, in
consideration of the mutual covenants herein contained, and upon the other terms
and conditions hereinafter provided, the parties hereby agree as
follows:
1. POSITION
AND RESPONSIBILITIES
During the period of his employment
hereunder, Executive agrees to serve as President and Chief Executive Officer of
the Bank and as President and Chief Executive Officer of the
Company. During said period, Executive also agrees to serve, if
elected, as an officer and director of the Bank, the Company, and of any
subsidiary or affiliate of the Employer. Failure to reelect Executive
as President and Chief Executive Officer of the Bank and the Company without the
consent of the Executive during the term of this Agreement shall constitute a
breach of this Agreement.
2. TERMS
AND DUTIES
(a) The
period of Executive’s employment under this Agreement shall begin as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date
of this Agreement, and continuing at each anniversary date thereafter, the
Agreement shall renew for an additional year such that the remaining term shall
be three (3) years unless written notice is provided to Executive, at least ten
(10) days and not more than thirty (30) days prior to any such anniversary date,
that his employment shall cease at the end of thirty-six (36) months following
such anniversary date. Prior to each notice period for non-renewal,
the disinterested members of the Board of Directors of the Bank (“Board”) will
conduct a comprehensive performance evaluation and review of the Executive for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board’s meeting.
(b) During
the period of his employment hereunder, except for periods of absence occasioned
by illness, reasonable vacation periods, and reasonable leaves of absence,
Executive shall devote substantially all his business time, attention, skill,
and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Employer; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board’s judgment,
will not present any conflict of interest with the Bank, or materially affect
the performance of Executive’s duties pursuant to this Agreement.
(c) During
the period of his employment hereunder, if Executive’s term as a director of the
Bank or the Company expires, the Employer shall nominate Executive to be
re-elected to the Board of Directors of the Bank and the Company. If
re-elected by shareholders, Executive shall serve as director.
3. COMPENSATION
AND REIMBURSEMENT
(a) The
compensation specified under this Agreement shall constitute the salary and
benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $220,000 per year
(“Base Salary”). Such Base Salary shall be payable biweekly.
During the period of this Agreement, Executive’s Base Salary shall be reviewed
at least annually. Such review shall be conducted by a
Committee designated by the Board, and the Board may increase Executive’s Base
Salary. In addition to the Base Salary provided in this Section 3(a),
the Bank shall provide Executive at no cost to Executive with all such other
benefits as are provided uniformly to permanent full-time employees of the
Bank.
(b) The
Bank will provide Executive with employee benefit plans, arrangements and
perquisites substantially equivalent to those in which Executive was
participating or otherwise deriving benefit from immediately prior to the
beginning of the term of this Agreement, and the Bank will not, without
Executive’s prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive’s rights or benefits
thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans including but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Bank in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan of the Bank in which Executive
is eligible to participate. Nothing paid to the Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement.
(c) In
addition to the Base Salary provided for by paragraph (a) of this Section 3, the
Employer shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine.
(d) Compensation
and reimbursement to be paid pursuant to paragraphs (a), (b) and (c) of this
Section 3 shall be paid by the Bank and the Company, respectively on a pro rata
basis based upon the amount of service the Executive devotes to the Bank and
Company, respectively.
4. PAYMENTS
TO EXECUTIVE UPON AN EVENT OF TERMINATION
(a) The
provisions of this Section shall apply upon the occurrence of an Event of
Termination (as herein defined) during the Executive’s term of employment under
this Agreement. As used in this Agreement, an “Event of Termination”
shall mean and include any one or more of the following:
(i) the
termination by the Bank or the Company of Executive’s full-time employment
hereunder for any reason other than:
(A) Disability
or Retirement as defined in Section 6 below,
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(B)
|
a
Change in Control, as defined in Section 5(a) hereof,
or
|
(C) Termination
for Cause as defined in Section 7 hereof; or
(ii)
Executive’s resignation from the Bank’s or the Company’s employ, upon
any:
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|
(A)
|
failure
to elect or reelect or to appoint or reappoint Executive as President and
Chief Executive Officer,
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(B)
|
material
change in Executive’s function, duties, or responsibilities, which change
would cause Executive’s position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above,
|
|
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(C)
|
a
relocation of Executive’s principal place of employment by more than 30
miles from its location at the effective date of this Agreement, or a
material reduction in the benefits and perquisites to the Executive from
those being provided as of the effective date of this
Agreement,
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(D)
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liquidation
or dissolution of the Bank or Company other than liquidations or
dissolutions that are caused by reorganizations that do not affect the
status of Executive,
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|
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(E)
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failure
of the Employer to nominate Executive to be elected or re-elected as a
director of the Bank or the Company,
or
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(F) breach
of this Agreement by the Bank or the Company.
Upon the
occurrence of any event described in clauses (ii)(A), (B), (C),
(D), (E), or (F) above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon thirty (30)
days prior written notice given within a reasonable period of time not to exceed
ninety (90) days after the initial event giving rise to said right to
elect. Notwithstanding the preceding sentence, in the event of a
continuing breach of this Agreement by the Employer, the Executive, after giving
due notice within the prescribed time frame of an initial event specified above,
shall not waive any of his rights solely under this Agreement and this Section 4
by virtue of the fact that Executive has submitted his resignation but has
remained in the employment of the Employer and is engaged in good faith
discussions to resolve any occurrence of an event described in clauses (A), (B),
(C), (D), (E) and (F) above. The Bank shall have at least thirty (30) days to
remedy any condition set forth in clause (ii)(A) through (F), provided, however,
that the Employer shall be entitled to waive such period and make an immediate
payment hereunder.
(b) Upon
the occurrence of an Event of Termination, on the Date of Termination, as
defined in Section 8, the Bank shall pay Executive, or, in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to three
(3) times the sum of (i) Base Salary and (ii) the highest rate of bonus awarded
to the Executive during the prior three years,
provided
,
however
, that if the
Employer is not in compliance with its minimum capital requirements or if such
payments would cause the Employer’s capital to be reduced below its minimum
capital requirements, such payments shall be deferred until such time as the
Employer is in capital compliance. All amounts payable to Executive
shall be paid in a lump sum within thirty (30) days following the Date of
Termination, or if Executive is a Specified Employee (within the meaning of
Treasury Regulations §1.409A-1(i)), then to the extent necessary to avoid
penalties under Code Section 409A, such payment will be made on the first
business day of the seventh month following the Date of
Termination. Such payments shall not be reduced in the event the
Executive obtains other employment following termination of
employment.
(c) Notwithstanding
the provisions of Sections 4(a) and (b), and in the event that there has not
been a Change in Control as defined in Section 5(a) nor an Event of Termination,
as defined in Section 4(a), upon the voluntary termination by the Executive upon
giving sixty days notice to the Employer (which shall not be deemed to
constitute an “Event of Termination” as defined herein), the Employer, at the
discretion of the Board of Directors, shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a severance payment in an amount to be determined by the Board of
Directors at the time of such voluntary termination by the
Executive. Such severance payment shall not exceed three (3) times
the average of the three preceding years’ Base Salary, including bonuses and any
other cash compensation paid to the Executive during such years, and the amount
of any benefits received pursuant to any employee benefit plans, on behalf of
the Executive, maintained by the Employer during such years;
provided
,
however
, that if the
Employer is not in compliance with its minimum capital requirements or if such
payments would cause the Employer’s capital to be reduced below its minimum
capital requirements, such payments shall be deferred until such time as the
Employer is in capital compliance, and provided further, that in no event shall
total severance compensation from all sources exceed three times the Executive’s
Base Salary for the immediately preceding year. All amounts payable
to Executive shall be paid in a lump sum within thirty (30) days following the
Date of Termination, or if Executive is a Specified Employee (within the meaning
of Treasury Regulations §1.409A-1(i)), then to the extent necessary to avoid
penalties under Code Section 409A, such payment will be made on the first
business day of the seventh month following the Date of
Termination. Such payments shall not be reduced in the event the
Executive obtains other employment following termination of
employment.
(d) Upon
the occurrence of an Event of Termination, the Employer will cause to be
continued life insurance and non-taxable medical and dental coverage
substantially identical to the coverage maintained by the Employer for Executive
prior to his termination, provided that such benefits shall not be provided in
the event they should constitute an unsafe or unsound banking practice relating
to executive compensation and employment contracts pursuant to applicable
regulations, as is now or hereafter in effect. Such coverage shall cease
upon the expiration of the remaining term of this Agreement.
(e) Upon
the occurrence of an Event of Termination, Executive shall become fully vested
in and entitled to all benefits granted to him pursuant to any stock option plan
of the Bank or Company.
(f) Upon
the occurrence of an Event of Termination, Executive shall become fully vested
in and entitled to all benefits granted to him pursuant to any nonqualified
deferred compensation plan of the Bank or Company applicable to him, if
any.
(g) Upon
the occurrence of an Event of Termination, the Executive shall become fully
vested in and entitled to all benefits awarded to him under the Bank’s or the
Company’s recognition and retention plan or any restricted stock plan in
effect.
(h) For
purposes of Section 4, Event of Termination and voluntary termination of
employment shall be construed to require a “Separation from Service” as defined
in Code Section 409A and the Treasury Regulations promulgated thereunder,
provided, however, that the Bank and Executive reasonably anticipate that the
level of bona fide services Executive would perform after termination would
permanently decrease to a level that is less than 50% of the average level of
bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding 36-month period.
5. CHANGE
IN CONTROL
(a) No
benefit shall be payable under this Section 5 unless there shall have been a
Change in Control of the Bank or Company. For purposes of this
Agreement, a “Change in Control” of the Bank or Company shall mean a change in
control of a nature that (i) would be required to be reported in response to
Item 5.01 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners Loan Act, as amended, and
applicable rules and regulations promulgated thereunder, as in effect at the
time of the Change in Control (collectively, the “HOLA”); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of Company’s outstanding
securities except for any securities purchased by the Employer’s employee stock
ownership plan or trust; or (b) individuals who constitute the Company’s Board
of Directors on the date hereof (the “Incumbent Board”) cease for any reason to
constitute at least a majority thereof,
provided
that any person
becoming a trustee or director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company’s stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations or financial institutions, and as a result such proxy solicitation,
a plan of reorganization, merger consolidation or similar transaction involving
the Company is approved by the requisite vote of the Company’s stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror. Notwithstanding anything to the contrary
herein, a “Change in Control” of the Bank or the Company shall not be deemed to
have occurred in the event of a conversion of Pathfinder Bancorp, MHC to stock
holding company form.
(b) If
any of the events described in Section 5(a) hereof constituting a Change in
Control have occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f), (g) and (h) of this Section 5 upon his subsequent
termination of employment at any time during the term of this Agreement,
regardless of whether such termination results from (i) his resignation or
(ii) his dismissal upon the Change in Control.
(c) Upon
the occurrence of a Change in Control followed by the Executive’s termination of
employment, the Employer shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of the
payments due for the remaining term of the Agreement or 2.99 times the average
of the five preceding years’ Base Salary, including bonuses and any other cash
compensation paid to the Executive during such years, and the amount of any
contributions made to any employee benefit plans, on behalf of the Executive,
maintained by the Employer during such years (hereinafter referred to as
“Payment”). Such Payment shall be payable to Executive in a lump sum
within thirty (30) days following the Date of Termination, or if Executive is a
Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)),
then to the extent necessary to avoid penalties under Code Section 409A, such
Payment will be made on the first business day of the seventh month following
the Date of Termination.
(d) Upon
the occurrence of a Change in Control followed by the Executive’s termination of
employment, the Employer will cause to be continued life insurance and
non-taxable medical and dental coverage substantially identical to the coverage
maintained by the Employer for Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36)
months.
(e) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any stock option plan of
the Bank or Company.
(f) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any non-qualified
deferred compensation plan of the Bank or Company, applicable to him, if
any.
(g) Upon
the occurrence of a Change in Control the Executive shall become fully vested in
and entitled to all benefits awarded to him under the Bank’s or the Company’s
recognition and retention plan or any restricted stock plan in
effect.
(h) Notwithstanding
the preceding paragraphs of this Section 5, in the event that:
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(i)
|
the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the “Termination Benefits”) would be deemed to include an
“excess parachute payment” under Section 280G of the Code or any successor
thereto, and
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(ii)
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if
such Termination Benefits were reduced to an amount (the “Non-Triggering
Amount”), the value of which is one dollar ($1.00) less than an amount
equal to the total amount of payments permissible under Section 280G of
the Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.
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(i) Notwithstanding
the foregoing, there will be no reduction in the compensation otherwise payable
to Executive during any period during which Executive is incapable of performing
his duties hereunder by reason of temporary disability.
(j) Any
payments made to Executive pursuant to this Agreement or otherwise, are subject
to and conditioned upon their compliance with 12 U.S.C. § 1818(k) and any
applicable regulations promulgated thereunder.
(k) The
Executive shall not be entitled to immediately receive Payment pursuant to this
Section 5 if the Employer is not in compliance with its minimum capital
requirements or if such Payment would cause the Employer’s capital to be reduced
below its minimum capital requirements. In such event, Payment shall
be deferred until such times as the Employer is in capital compliance and
provided further, that in such event the Payment shall not exceed three times
the Executive’s Base Salary for the immediately preceding year.
(l) For
purposes of Section 5, termination of employment shall be construed to require a
“Separation from Service” as defined in Code Section 409A and the Treasury
Regulations promulgated thereunder, provided, however, that the Bank and
Executive reasonably anticipate that the level of bona fide services Executive
would perform after termination would permanently decrease to a level that is
less than 50% of the average level of bona fide services performed (whether as
an employee or an independent contractor) over the immediately preceding
36-month period.
6. TERMINATION
UPON RETIREMENT, DISABILITY, OR DEATH
(a) Termination
by the Employer of the Executive based on “Retirement” shall mean termination in
accordance with the Employer’s retirement policy or in accordance with any
retirement arrangement established with Executive’s consent with respect to
him. Upon termination of Executive upon Retirement, no amounts or
benefits shall be due to Executive under the Agreement, and Executive shall be
entitled to all benefits under any retirement plan of the Employer and other
plans to which Executive is a party.
(b) “Disability”
or “Disabled” shall be construed to comply with Code Section 409A and shall be
deemed to have occurred if: (i) Executive is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death, or last for a continuous
period of not less than 12 months; (ii) by reason of any medically determinable
physical or mental impairment that can be expected to result in death, or last
for continuous period of not less than 12 months, Executive is receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Employer; or (iii) Executive
is determined to be totally disabled by the Social Security
Administration. In the event Executive is determined to be Disabled,
the Employer may terminate this Agreement, provided that the Employer shall
continue to be obligated to pay the Executive his Base Salary for one year, and
provided further that any amounts actually paid to Executive pursuant to any
disability insurance or other similar such program which the Employer has
provided or may provide on behalf of its employees or pursuant to any workman’s
or social security disability program shall not reduce the compensation to be
paid to the Executive pursuant to this paragraph. Any payments
required hereunder shall be payable in monthly installments and shall commence
within thirty (30) days from the date Executive is determined to be
Disabled.
(c) In
the event of Executive’s death during the term of the Agreement, his estate,
legal representatives or named beneficiaries (as directed by Executive in
writing) shall be paid Executive’s Base Salary as defined in Paragraph 3(a) at
the rate in effect at the time of Executive’s death for the remaining term of
the Agreement, and the Employer will continue to provide medical,
dental and other benefits normally provided for an Executive’s family for such
remaining term.
7. TERMINATION
FOR CAUSE
The term “Termination for Cause” shall
mean termination because of the Executive’s personal dishonesty, incompetence,
willful misconduct, any breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this
Agreement. In determining incompetence, the acts or omissions shall
be measured against standards generally prevailing in the financial services
industry. For purposes of this paragraph, no act or failure to act on
the part of Executive shall be considered “willful” unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
the Executive’s action or omission was in the best interest of the
Employer. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Boards
of Directors of the Company and the Bank at a meeting of said Boards called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Boards), finding that in
the good faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in
detail. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
Any unexercised stock options granted to Executive under any stock option plan
of the Bank, the Company or any subsidiary or affiliate thereof, shall become
null and void effective upon Executive’s receipt of Notice of Termination for
Cause pursuant to Section 8 hereof, and shall not be exercisable by Executive at
any time subsequent to such Termination for Cause.
8. NOTICE
(a) Any
purported termination by the Employer or by Executive shall be communicated by
Notice of Termination to the other party hereto. For purposes of this
Agreement, a “Notice of Termination” shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive’s employment under the provision so
indicated.
(b) “Date
of Termination” shall mean the date specified in the Notice of Termination
(which, in the case of a Termination for Cause, shall not be less than thirty
(30) days from the date such Notice of Termination is given).
(c) If,
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, except upon the occurrence of a Change in
Control and voluntary termination by the Executive in which case the Date of
Termination shall be the date specified in the Notice, the Date of Termination
shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal having expired and no appeal having been perfected) and provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence. Notwithstanding
the pendency of any such dispute, the Employer will continue to pay Executive
his full compensation in effect when the notice giving rise to the dispute was
given (including, but not limited to, Base Salary) and continue Executive as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the dispute is finally
resolved in accordance with this Agreement, provided such dispute is resolved
within nine months after the Date of Termination specified in the Notice or
Termination; notwithstanding the foregoing no compensation or benefits shall be
paid to Executive in the event the Executive is Terminated for
Cause. In the event that such Termination for Cause is found to have
been wrongful or such dispute is otherwise decided in Executive’s favor, the
Executive shall be entitled to receive all compensation and benefits which
accrued for up to a period of nine months after the Termination for
Cause. If such dispute is not resolved within such nine-month period,
the Employer shall not be obligated, upon final resolution of such dispute, to
pay Executive compensation and other payments accruing more than nine months
from the Date of the Termination specified in the Notice of Termination.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION
OBLIGATIONS
(a) All
payments and benefits to Executive under this Agreement shall be subject to
Executive’s compliance with paragraph (b) of this Section 9 during the term of
this Agreement and for one (1) full year after the expiration or termination
hereof.
(b) Executive
shall, upon reasonable notice, furnish such information and assistance to the
Bank as may reasonably be required by the Bank in connection with any litigation
in which it or any of its subsidiaries or affiliates is, or may become, a
party.
10. NON-COMPETITION
(a) Upon
any termination of Executive’s employment hereunder pursuant to Section 4(c)
hereof, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Bank and/or the Company, its business and
property in the event of Executive’s breach of this Subsection 10(a) agree that
in the event of any such breach by Executive, the Bank and/or the Company will
be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive’s partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Nothing herein will be construed as prohibiting the Bank
and/or the Company from pursuing any other remedies available to the Bank and/or
the Company for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive
recognizes and acknowledges that the knowledge of the business activities and
plans for business activities of the Employer and affiliates thereof, as it may
exist from time to time, is a valuable, special and unique asset of the business
of the Employer. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Employer or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Employer, and Executive may disclose any information regarding
the Bank or the Company which is otherwise publicly available. In the
event of a breach or threatened breach by the Executive of the Provisions of
this Section 10, the Employer will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Employer or affiliates
thereof, or from rendering any services to any person, firm, corporation, other
entity to whom such knowledge, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein will be construed as
prohibiting the Employer from pursuing any other remedies available to the Bank
for such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE
OF PAYMENTS
All payments provided in this Agreement
shall be timely paid in cash or check from the general funds of the
Bank. The Company, however, guarantees payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Company.
12. EFFECT
ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
(a) This
Agreement contains the entire understanding between the parties hereto and
supersedes any prior employment agreement between the Employer or any
predecessor of the Employer and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
(b) In
the event that the provisions of this Agreement are in conflict with the
provisions of the Bank’s or the Company’s stock option plan, nonqualified
deferred compensation plan, or recognition and retention plan (or any such
restricted stock plan in effect) in which Executive participates, this Agreement
shall govern; provided further, however, that this Agreement shall not supersede
provisions that specifically received prior approval by vote of shareholders of
the Company.
13. NO
ATTACHMENT
(a) Except
as required by law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall be null, void, and of no
effect.
(b) This
Agreement shall be binding upon, and inure to the benefit of, Executive and the
Employer and their respective successors and assigns.
14. MODIFICATION
AND WAIVER
(a) This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No
term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED
PROVISIONS
(a) The
Employer may terminate the Executive’s employment at any time, but any
termination by the Employer, other than Termination for Cause, shall not
prejudice Executive’s right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 7 hereinabove.
(b) If
the Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Employer’s affairs by a notice served under
Section 8(e)(3) (12 U.S.C. §§ 1818(e)(3)) or 8(g) (12 U.S.C.
§ 1818(g)) of the Federal Deposit Insurance Act, as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, the
Employer’s obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in
the notice are dismissed, the Employer may in its discretion (i) pay the
Executive all or part of the compensation withheld while their Agreement
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If
the Executive is removed and/or permanently prohibited from participating in the
conduct of the Employer’s affairs by an order issued under Section 8(e) (12
U.S.C. §§ 1818(e)) or 8(g) (12 U.S.C. § 1818(g)) of the Federal
Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, all obligations of the Employer under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If
the Employer is in default as defined in Section 3(x) (12 U.S.C.
§ 1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, all
obligations of the Employer under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All
obligations of the Employer under this Agreement shall be terminated, except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the institution, (i) by the Federal Deposit Insurance
Corporation (“FDIC”), at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Employer under the authority contained in
Section 13(c) (12) U.S.C. § 1823(c)) of the Federal Deposit Insurance Act,
as amended by the Financial Institutions Reform, Recovery and Enforcement Act of
1989; or (ii) when the Employer is determined by the FDIC to be in an unsafe or
unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Notwithstanding
anything herein contained to the contrary, any payments to Executive by the
Bank, whether pursuant to this Agreement or otherwise, are subject to and
conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder
in 12 C.F.R. Part 359.
16. SEVERABILITY
If, for any reason, any provision of
this Agreement, or any part of any provision, is held invalid, such invalidity
shall not affect any other provision of this Agreement or any part of such
provision not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force and
effect.
17. HEADINGS
FOR REFERENCE ONLY
The headings of sections and paragraphs
herein are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this
Agreement.
18. GOVERNING
LAW
This Agreement shall be governed by the
laws of the State of New York, but only to the extent not superseded by federal
law.
19. ARBITRATION
Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator’s award in
any court having jurisdiction; provided, however, that Executive shall be
entitled to seek specific performance of his right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
20. PAYMENT
OF LEGAL FEES
All reasonable legal fees paid or
incurred by Executive pursuant to any dispute or question of interpretation
relating to this Agreement shall be paid or reimbursed by the Employer, provided
that the dispute or interpretation has been settled by Executive and the
Employer or resolved in the Executive’s favor, and that such reimbursement shall
occur no later than two and one-half months after the end of the calendar year
in which the dispute is settled or resolved in Executive’s favor.
21. INDEMNIFICATION
The Employer shall provide Executive
(including his heirs, executors and administrators) with coverage under a
standard directors’ and officers’ liability insurance policy at its expense, or
in lieu thereof, shall indemnify Executive (and his heirs, executors and
administrators) to the fullest extent permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Employer (whether or not
he continues to be a director or officer at the time of incurring such expenses
or liabilities), such expenses and liabilities to include, but not be limited
to, judgments, court costs and attorneys’ fees and the cost of reasonable
settlements (such settlements must be approved by the Boards of Directors of the
Employer). If such action, suit or proceeding is brought against
Executive in his capacity as an officer or director of the Employer, however,
such indemnification shall not extend to matters as to which Executive is
finally adjudged to be liable for willful misconduct in the performance of his
duties. No Indemnification shall be paid that would violate 12 U.S.C.
1828(k) or any regulations promulgated thereunder.
22. SUCCESSOR
TO THE EMPLOYER
The Employer shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank or the Company, expressly and unconditionally to assume and agree to
perform the Employer’s obligations under this Agreement, in the same manner and
to the same extent that the Employer would be required to perform if no such
succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF
, the
Employer has caused this Agreement to be executed and its seal to be affixed
hereunto by its duly authorized officer, and Executive has signed this
Agreement, on the day and date first above written.
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12/23/08
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By:
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/s/ Thomas W.
Schneider
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Date Thomas
W. Schneider
PATHFINDER BANCORP, INC.
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12/23/08
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By:
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/s/ Thomas W.
Schneider
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Date Thomas
W. Schneider
EXECUTIVE
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12/23/08
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By:
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/s/ Thomas W.
Schneider
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Date Thomas
W. Schneider
PATHFINDER
BANCORP, INC.
PATHFINDER
BANK
EMPLOYMENT
AGREEMENT
This
Agreement is made effective as of the 23
rd
day of
December 2008, by and between Pathfinder Bank (the “Bank”), a New York chartered
stock savings bank, with its principal administrative office at 214 West First
Street, Oswego, New York 13126-2547, jointly with Pathfinder Bancorp, Inc, the
sole stockholder of the Bank, and Edward A. Mervine (the “Executive”). Any
reference to “Company” herein shall mean Pathfinder Bancorp, Inc. or any
successor thereto. Any reference to “Employer” herein shall mean both the Bank
and the Company or any successors thereto.
WHEREAS,
the Executive and
Employer entered into an employment agreement dated on the February 9, 2004 (the
“Original Agreement”), pursuant to which the Executive was employed as
Vice-President and General Counsel of the Employer; and
WHEREAS
, Section 409A of the
Internal Revenue Code (the “Code”), effective January 1, 2005, requires deferred
compensation arrangements, including those set forth in employment agreements,
to comply with its provisions and restrictions and limitations on payments of
deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder necessitate changes to the Original
Agreement; and
WHEREAS
, Executive has agreed
to such changes; and
WHEREAS
, the parties hereto
desire to set forth the terms of the revised Agreement and the continuing
employment relationship of the Employer and Executive.
NOW, THEREFORE
, in
consideration of the mutual covenants herein contained, and upon the other terms
and conditions hereinafter provided, the parties hereby agree as
follows:
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1.POSITION
AND RESPONSIBILITIES
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During
the period of his employment hereunder, Executive agrees to serve as Senior
Vice-President and General Counsel of the Bank and as Vice-President and General
Counsel of the Company. During said period, Executive also agrees to serve, if
elected, as an officer and director of the Bank, the Company and of any
subsidiary or affiliate of the Employer. Failure to reelect Executive as Senior
Vice-President and General Counsel of the Bank and the Company without the
consent of the Executive during the term of this Agreement shall constitute a
breach of this Agreement.
(a) The
period of Executive’s employment under this Agreement shall begin as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement, and continuing at each anniversary date thereafter, the Agreement
shall renew for an additional year such that the remaining term shall be three
(3) years unless written notice is provided to Executive, at least ten (10) days
and not more than thirty (30) days prior to any such anniversary date, that his
employment shall cease at the end of thirty-six (36) months following such
anniversary date. Prior to each notice period for non-renewal, the disinterested
members of the Board of Directors of the Bank (“Board”) will conduct a
comprehensive performance evaluation and review of the Executive for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board’s meeting,
(b) During
the period of his employment hereunder, except for periods of absence occasioned
by illness, reasonable vacation periods, and reasonable leaves of absence,
Executive shall devote substantially all his business time, attention, skill,
and efforts to the faithful performance of his duties hereunder including
activities and services related to the legal needs of the Employer, provided
however that Executive hold any offices or positions in, companies or
organizations, which, in such Board’s judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive’s
duties pursuant to this Agreement. Moreover, the Executive may continue to
practice law independently of his employment provided (1) said practice does not
routinely require in excess of 10 hours per week of the executive’s time and (2)
does not present a conflict of interest to the Bank unless said conflict is
waived by the Bank or Employer.
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3.COMPENSATION
AND REIMBURSEMENT
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(a) The
compensation specified under this Agreement shall constitute the salary and
benefits paid for the duties described in Section 2(b). The Bank shall pay
Executive as compensation a salary of not less than $137,000 per year (“Base
Salary”). Such Base Salary shall be payable biweekly. During the
period of this Agreement, Executive’s Base Salary shall be reviewed at least
annually. Such review shall be conducted by a Committee designated by
the Board, and the Board may increase Executive’s Base Salary. In
addition to the Base Salary provided in this Section 3(a), the Bank shall
provide Executive at no cost to Executive with all such other benefits as are
provided uniformly to permanent full-time employees of the Bank.
(b) The
Bank will provide Executive with employee benefit plans, arrangements and
perquisites substantially equivalent to those in which Executive was
participating or otherwise deriving benefit from immediately prior to the
beginning of the term of this Agreement, and the Bank will not, without
Executive’s prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive’s rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate. Nothing paid
to the Executive under any such plan or arrangement will be deemed to be in lieu
of other compensation to which the Executive is entitled under this
Agreement.
(c) In
addition to the Base Salary provided for by paragraph (a) of this Section 3, the
Employer shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine.
(d) Compensation
and reimbursement to be paid pursuant to paragraphs (a), (b) and (c) of this
Section 3 shall be paid by the Bank and the Company, respectively, on a pro rata
basis based upon the amount of service the Executive devotes to the Bank and
Company, respectively.
4. PAYMENTS
TO EXECUTIVE UPON AN EVENT OF TERMINATION
(a) The
provisions of this Section shall apply upon the occurrence of an Event of
Termination (as herein defined) during the Executive’s term of employment under
this Agreement. As used in this Agreement, an “Event of Termination” shall mean
and include any one or more of the following:
(i) the
termination by the Bank or the Company of Executive’s full-time employment
hereunder for any reason other than:
(A) Disability
or Retirement as defined in Section 6 below,
(B) a
Change in Control, as defined in Section 5(a) hereof, or
(C) Termination
for Cause as defined in Section 7 hereof; or
(ii) Executive’s
resignation from the Bank’s or the Company’s employ, upon any:
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(A)
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failure
to elect or reelect or to appoint or reappoint Executive as Vice-President
and General Counsel,
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(B)
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material
change in Executive’s function, duties, or responsibilities, which change
would cause Executive’s position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above,
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(C)
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a
relocation of Executive’s principal place of employment by more than 30
miles from its location at the effective date of this Agreement, or a
material reduction in the benefits and perquisites to the Executive from
those being provided as of the effective date of this
Agreement,
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(D)
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liquidation
or dissolution of the Bank or Company other than liquidations or
dissolutions that are caused by reorganizations that do not affect the
status of Executive, or
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(E) breach
of this Agreement by the Bank.
Upon
the occurrence of any event described in clauses (ii)(A), (B). (C), (D), or (E),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon thirty (30) days prior written notice given
within a reasonable period of time not to exceed ninety (90) days after the
initial event giving rise to said right to elect. Notwithstanding the preceding
sentence, in the event of a continuing breach of this Agreement by the Employer,
the Executive, after giving due notice within the prescribed time frame of an
initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Employer and
is engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D), and (E) above. The Bank
shall have at least thirty (30) days to remedy any condition set forth in clause
(ii)(A) through (E), provided, however, that the Employer shall be entitled to
waive such period and make an immediate payment hereunder.
(b) Upon
the occurrence of an Event of Termination, on the Date of Termination, as
defined in Section 8, the Employer shall pay Executive, or, in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to three
(3) times the sum of (i) Base Salary and (ii) the highest rate of bonus awarded
to the Executive during the prior three years, provided, however, that if the
Employer is not in compliance with its minimum capital requirements or if such
payments would cause the Employer’s capital to be reduced below its minimum
capital requirements, such payments shall be deferred until such time as the
Employer is in capital compliance. All amounts payable to Executive
shall be paid in a lump sum within thirty (30) days following the Date of
Termination, or if Executive is a Specified Employee (within the meaning of
Treasury Regulations §1.409A-1(i)), then to the extent necessary to avoid
penalties under Code Section 409A, such payment will be made on the first
business day of the seventh month following the Date of Termination. Such
payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Notwithstanding
the provisions of Sections 4(a) and (b), and in the event that there has not
been a Change in Control as defined in Section 5(a) nor an Event of Termination,
as defined in Section 4(a), upon the voluntary termination by the Executive upon
giving sixty days notice to the Employer (which itself shall not be deemed to
constitute an “Event of Termination” as defined), the Employer, at the
discretion of the Board of Directors, shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a severance payment in an amount to be determined by the Board of
Directors at the time of such voluntary termination by the
Executive. Such severance payment shall not exceed three (3) times
the average of the three preceding years’ Base Salary, including bonuses and any
other cash compensation paid to the Executive during such years, and the amount
of any benefits received pursuant to any employee benefit plans, on behalf of
the Executive, maintained by the Employer during such years;
provided, however
,
that if the Employer is not in compliance with its minimum capital requirements
or if such payments would cause the Employer’s capital to be reduced below its
minimum capital requirements, such payments shall be deferred until such time as
the Employer is in capital compliance, and provided further, that in no event
shall total severance compensation from all sources exceed three times the
Executive’s Base Salary for the immediately preceding year. All
amounts payable to Executive shall be paid in a lump sum within thirty (30) days
following the Date of Termination, or if Executive is a Specified Employee
(within the meaning of Treasury Regulations §1.409A-1(i)), then to the extent
necessary to avoid penalties under Code Section 409A, such payment will be made
on the first business day of the seventh month following the Date of
Termination. Such payments shall not be reduced in the event the
Executive obtains other employment following termination of
employment.
(d) Upon
the occurrence of an Event of Termination, the Employer will cause to be
continued life insurance and non-taxable medical and dental coverage
substantially identical to the coverage maintained by the Employer for Executive
prior to his termination, provided that such benefits shall not be provided in
the event they should constitute an unsafe or unsound banking practice relating
to executive compensation and employment contracts pursuant to applicable
regulations, as is now or hereafter in effect. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.
(e) Upon
the occurrence of an Event of Termination, Executive shall become fully vested
in and entitled to all benefits granted to him pursuant to any stock option plan
of the Bank or Company.
(f) Upon
the occurrence of an Event of Termination, Executive shall become fully vested
in and entitled to all benefits granted to him pursuant to any nonqualified
deferred compensation plan of the Bank or Company applicable to him, if
any.
(g) Upon
the occurrence of an Event of Termination, the Executive shall become fully
vested in and entitled to all benefits awarded to him under the Bank’s or the
Company’s recognition and retention plan or any restricted stock plan in
effect.
(h) For
purposes of Section 4, Event of Termination and voluntary termination of
employment shall be construed to require a “Separation from Service” as defined
in Code Section 409A and the Treasury Regulations promulgated thereunder,
provided, however, that the Bank and Executive reasonably anticipate that the
level of bona fide services Executive would perform after termination would
permanently decrease to a level that is less than 50% of the average level of
bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding 36-month period.
(a) No
benefit shall be payable under this Section 5 unless there shall have been a
Change in Control of the Bank or Company. For purposes of this Agreement, a
“Change in Control” of the Bank or Company shall mean a change in control of a
nature that (i) would be required to be reported in response to Item 5.01 of the
current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Home Owners Loan Act, as amended, and applicable rules and regulations
promulgated thereunder, as in effect at the time of the Change in Control
(collectively, the “HOLA”): or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any “person” (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company’s outstanding securities except for any
securities purchased by the Employer’s employee stock ownership plan or trust;
or (b) individuals who constitute the Company’s Board of Directors on the date
hereof (the “Incumbent Board”) cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company’s stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction in which the Bank or
Company is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar transaction
with one or more corporations or financial institutions, and as a result such
proxy solicitation a plan of reorganization, merger consolidation or similar
transaction involving the Company is approved by the requisite vote of the
Company’s stockholders; or (e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror. Notwithstanding anything to the
contrary herein, a “Change in Control” of the Bank or the Company shall not be
deemed to have occurred in the event of a conversion of Pathfinder Bancorp, MHC
to stock holding company form.
(b) If
any of the events described in Section 5(a) hereof constituting a Change in
Control have occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f), (g) and (h) of this Section 5 upon his subsequent
termination of employment at any time during the term of this Agreement,
regardless of whether such termination results from (i) his resignation or (ii)
his dismissal upon the Change in Control.
(c) Upon
the occurrence of a Change in Control followed by the Executive’s termination of
employment, the Employer shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of the
payments due for the remaining term of the Agreement or 2.99 times the average
of the five preceding years’ Base Salary, including bonuses and any other cash
compensation paid to the Executive during such years, and the amount of any
contributions made to any employee benefit plans, on behalf of the Executive,
maintained by the Employer during such years, (hereinafter referred to as
“Payment”). Such Payment shall be payable to Executive in a lump sum
within thirty (30) days following the Date of Termination, or if Executive is a
Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)),
then to the extent necessary to avoid penalties under Code Section 409A, such
Payment will be made on the first business day of the seventh month following
the Date of Termination.
(d) Upon
the occurrence of a Change in Control followed by the Executive’s termination of
employment, the Employer will cause to be continued life insurance and
non-taxable medical and dental coverage substantially identical to the coverage
maintained by the Employer for Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of thirty-six (36)
months.
(e) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any stock option plan of
the Bank or Company.
(f) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any non-qualified
deferred compensation plan of the Bank or Company, applicable to him, if
any.
(g) Upon
the occurrence of a Change in Control, the Executive shall become fully vested
in and entitled to all benefits awarded to him under the Bank’s or the Company’s
Recognition and Retention Plan or any restricted stock plan in
effect.
(h) Notwithstanding
the preceding paragraphs of this Section 5, in the event that:
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(i)
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the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the “Termination Benefits”) would be deemed to include an
“excess parachute payment” under Section 280G of the Internal Revenue Code
or any successor thereto, and
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(ii)
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if
such Termination Benefits were reduced to an amount (the “Non-Triggering
Amount”), the value of which is one dollar ($1.00) less than an amount
equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.
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(i) Notwithstanding
the foregoing, there will be no reduction in the Payment otherwise payable to
Executive during any period during which Executive is incapable of performing
his duties hereunder by reason of temporary disability.
(j) Any
payments made to Executive by the Bank pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with 12 U.S.C. § 1818(k)
and any applicable regulations promulgated thereunder.
(k) The
Executive shall not be entitled to immediately receive Payment pursuant to this
Section 5 if the Employer is not in compliance with its minimum capital
requirements or if such Payment would cause the Employer’s capital to be reduced
below its minimum capital requirements. In such event, Payment shall be deferred
until such times as the Employer is in capital compliance and provided further,
that in such event the Payment shall not exceed three times the Executive’s Base
Salary for the immediately preceding year.
(l) For
purposes of Section 5, termination of employment shall be construed to require a
“Separation from Service” as defined in Code Section 409A and the Treasury
Regulations promulgated thereunder, provided, however, that the Bank and
Executive reasonably anticipate that the level of bona fide services Executive
would perform after termination would permanently decrease to a level that is
less than 50% of the average level of bona fide services performed (whether as
an employee or an independent contractor) over the immediately preceding
36-month period.
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6.TERMINATION
UPON RETIREMENT, DISABILITY, OR
DEATH
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(a) Termination
by the Employer of the Executive based on “Retirement” shall mean termination in
accordance with the Employer’s retirement policy or in accordance with any
retirement arrangement established with Executive’s consent with respect to him.
Upon termination of Executive upon Retirement, no amounts or benefits shall be
due to Executive under this Agreement, and Executive shall be entitled to all
benefits for which he is eligible under any retirement plan of the Employer and
other plans to which Executive is a party.
(b) “Disability”
or “Disabled” shall be construed to comply with Code Section 409A and shall be
deemed to have occurred if: (i) Executive is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death, or last for a continuous
period of not less than 12 months; (ii) by reason of any medically determinable
physical or mental impairment that can be expected to result in death, or last
for continuous period of not less than 12 months, Executive is receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Employer; or (iii) Executive
is determined to be totally disabled by the Social Security
Administration. In the event the Executive is determined to be
“Disabled,” the Employer may terminate this Agreement, provided that the
Employer shall continue to be obligated to pay the Executive his Base Salary for
one year and provided further that any amounts actually paid to Executive
pursuant to any disability insurance or other similar such program which the
Employer has provided or may provide on behalf of its employees or pursuant to
any workman’s or social security disability program shall not reduce the
compensation to be paid to the Executive pursuant to this
paragraph. Any payments required hereunder shall be payable in
monthly installments and shall commence within thirty (30) days from the date
Executive is determined to be Disabled.
(c) In
the event of Executive’s death during the term of the Agreement, his estate,
legal representatives or named beneficiaries (as directed by Executive in
writing) shall be paid Executive’s Base Salary as defined in Paragraph 3(a) at
the rate in effect at the time Executive’s death in accordance with regular
payroll practices for the remaining term of the Agreement, and the Employer will
continue to provide medical, dental, and other benefits normally provided
for an Executive’s family for such remaining term.
The term
“Termination for Cause” shall mean termination because of the Executive’s
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or omissions
shall be measured against standards generally prevailing in the savings
institutions industry. For purposes of this paragraph, no act or failure to act
on the part of Executive shall be considered “willful” unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Executive’s action or omission was in the best interest of the
Employer. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Boards of Directors of the Company and the
Bank at a meeting of said Boards called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Boards) finding that in the good faith opinion
of the Boards, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. Any unexercised stock options granted to Executive under
any stock option plan of the Bank, the Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive’s receipt of Notice
of Termination for Cause pursuant to Section 8 hereof, and shall not be
exercisable by Executive at any time subsequent to such Termination for
Cause.
(a) Any
purported termination by the Employer or by Executive shall be communicated by
Notice of Termination to the other party hereto. For purposes of this Agreement,
a “Notice of Termination” shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so
indicated.
(b) “Date
of Termination” shall mean the date specified in the Notice of Termination
(which, in the case of a Termination for Cause, shall not be less than thirty
(30) days from the date such Notice of Termination is given).
(c) If,
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, except upon the occurrence of a Change in
Control and voluntary termination by the Executive in which case the Date of
Termination shall be the date specified in the Notice, the Date of Termination
shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal having expired and no appeal having been perfected) and provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, the Employer will continue to pay Executive his
full compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue Executive as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the dispute is finally
resolved in accordance with this Agreement, provided such dispute is resolved
within nine months after the Date of Termination specified in the Notice or
Termination; notwithstanding the foregoing no compensation or benefits shall be
paid to Executive in the event the Executive is Terminated for Cause. In the
event that such Termination for Cause is found to have been wrongful or such
dispute is otherwise decided in Executive’s favor, the Executive shall be
entitled to receive all compensation and benefits which accrued for up to a
period of nine months after the Termination of Cause. If such dispute
is not resolved within such nine-month period, the Employer shall not be
obligated, upon final resolution of such dispute, to pay Executive compensation
and other payments accruing more than nine months from the Date of the
Termination specified in the Notice of Termination. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
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9.
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POST-TERMINATION
OBLIGATIONS
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(a) All
payments and benefits to Executive under this Agreement shall be subject to
Executive’s compliance with paragraph (b) of this Section 9 during the term of
this Agreement and for one (1) full year after the expiration or termination
hereof.
(b) Executive
shall, upon reasonable notice, furnish such information and assistance to the
Bank as may be reasonably be required by the Bank in connection with any
litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
(a) Upon
any termination of Executive’s employment hereunder pursuant to Section 4(c)
hereof, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Bank and/or the Company. The parties hereto, recognizing that irreparable
injury will result to the Bank and/or the Company, its business and property in
the event of Executive’s breach of this Subsection 10(a) agree that in the event
of any such breach by Executive, the Bank and/or the Company will be entitled,
in addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive’s partners, agents,
servants, employers, employees and all persons acting for or with
Executive. Nothing herein will be construed as prohibiting the Bank
and/or the Company from pursuing any other remedies available to the Bank and/or
the Company for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive
recognizes and acknowledges that the knowledge of the business activities and
plans for business activities of the Employer and affiliates thereof, as it may
exist from time to time, is a valuable, special and unique asset of the business
of the Employer. Executive will not, during or after the term of his employment,
disclose any knowledge of the past, present, planned or considered business
activities of the Employer or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Employer, and
Executive may disclose any information regarding the Bank or the Company which
is otherwise publicly available. In the event of a breach or threatened breach
by the Executive of the Provisions of this Section 10, the Employer will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Employer or affiliates thereof, or from rendering any services
to any person, firm, corporation, other entity to whom such knowledge, in whole
or in part, has been disclosed or is threatened to be disclosed. Nothing herein
will he construed as prohibiting the Employer from pursuing any other remedies
available to the Bank for such breach or threatened breach, including the
recovery of damages from Executive.
All
payments provided in this Agreement shall be timely paid in cash or check from
the general funds of the Bank. The Company, however, guarantees payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amounts and benefits due from the Bank are not timely paid or provided by the
Bank, such amounts and benefits shall be paid or provided by the
Company.
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12.
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EFFECT
ON PRIOR AGREEMENTS AND EXISTING BENEFITS
PLANS
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(a) This
Agreement contains the entire understanding between the parties hereto and
supersedes any prior employment agreement between the Employer or any
predecessor of the Employer and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
(b) In
the event that the provisions of this Agreement are in conflict with the
provisions of the Bank’s or the Company’s stock option plan, nonqualified
deferred compensation plan, or recognition and retention plan (or any such
restricted stock plan in effect) in which Executive participates, this Agreement
shall govern; provided further, however, that this Agreement shall not supercede
provisions that specifically received prior approval by vote of shareholders of
the Company.
(a) Except
as required by law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall he null, void, and of no
effect.
(b) This
Agreement shall be binding upon, and inure to the benefit of, Executive and the
Employer and their respective successors and assigns.
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14.
MODIFICATION AND WAIVER
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(a) This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No
term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
(a) The
Employer may terminate the Executive’s employment at any time, but any
termination by the Employer, other than Termination for Cause, shall not
prejudice Executive’s right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 7 hereinabove.
(b) If
the Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Employer’s affairs by a notice served under
Section 8(e)(3) (12 U.S.C. §1818(e)(3)) or 8(g) (12 U.S.C. §1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, or if the Executive is suspended from the
practice of law the Employer’s obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, or if the Executive’s suspension to
practice is reversed, the Employer may in its discretion (i) pay the Executive
all or part of the compensation withheld while their Agreement obligations were
suspended and (ii) reinstate (in whole or in part) any of the obligations which
were suspended.
(c) If
the Executive is removed and/or permanently prohibited from participating in the
conduct of the Employer’s affairs by an order issued under Section 8(c) (12
U.S.C. § 1818(e)) or 8(g) (12 U.S.C. § 1818(g)) of the Federal Deposit Insurance
Act, as amended by the Financial Institutions Reform Recovery and Enforcement
Act of 1989, or if the Executive is disbarred from the practice of law, all
obligations of the Employer under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(d) If
the Employer is in default as defined in Section 3(x) (12 U.S.C. § 1813(x)(1))
of the Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, all obligations of the Employer
under this Agreement shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting
parties.
(e) All
obligations of the Employer under this Agreement shall be terminated, except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the institution, (i) by the Federal Deposit Insurance
Corporation (“FDIC”), at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Employer under the authority contained in
Section 13(c) (12) U.S.C. §1823(e)) of the Federal Deposit Insurance Act, as
amended by the Financial Institutions Reform, Recovery and Enforcement Act of
1989; or (ii) when the Employer is determined by the FDIC to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Notwithstanding
anything herein contained to the contrary, any payments to Executive by the
Bank, whether pursuant to this Agreement or otherwise, are subject to and
conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder
in 12 C.F.R. Part 359.
If, for
any reason, any provision of this Agreement, or any part of any provision, is
held invalid, such invalidity shall not affect any other provision of this
Agreement or any part of such provision not held so invalid, and each such other
provision and part thereof shall to the full extent consistent with law continue
in full force and effect.
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17.
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HEADINGS
FOR REFERENCE ONLY
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The
headings of sections and paragraphs herein are included solely for convenience
of reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.
This
Agreement shall be governed by the laws of the State of New York, but only to
the extent not superseded by federal law.
Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
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20.
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PAYMENT
OF LEGAL FEES
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All
reasonable legal fees paid or incurred by Executive pursuant to any dispute or
question of interpretation relating to this Agreement shall be paid or
reimbursed by the Employer, provided that the dispute or interpretation has been
settled by Executive and the Employer or resolved in the Executive’s favor, and
that such reimbursement shall occur no later than two and one-half months after
the calendar year in which the dispute is settled or resolved in Executive’s
favor.
The
Employer shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors’ and officers’
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under federal law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Employer (whether or not he continues to be an officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys’ fees and
the cost of reasonable settlements (such settlements must be approved by the
Boards of Directors of the Employer). If such action, suit or proceeding is
brought against Executive in his capacity as an officer of the Employer,
however, such indemnification shall not extend to matters as to which Executive
is finally adjudged to be liable for willful misconduct in the performance of
his duties. No Indemnification shall be paid that would violate 12 U.S.C.
§1828(k) or any regulations promulgated thereunder.
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22.
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SUCCESSOR
TO THE EMPLOYER
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The
Employer shall require any successor or assignee, whether direct or indirect, by
purchase, merger, consolidation or otherwise, to all, or substantially all, the
business or assets of the Bank or the Company, expressly and unconditionally to
assume and agree to perform the Employer’s obligations under this Agreement, in
the same manner and to the same extent that the Employer would be required to
perform if no such succession or assignment had taken place.
SIGNATURES
IN
WITNESS WHEREOF, the Employer has caused this Agreement to be executed and its
seal to be affixed hereunto by its duly authorized officer, and Executive has
signed this Agreement on the day and date first above written.
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PATHFINDER
BANK
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Date
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Thomas
W. Schneider
President
and CEO
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PATHFINDER
BANCORP, INC.
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Date
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Thomas
W. Schneider
President
and CEO
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EXECUTIVE
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By:
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Date
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Edward
A. Mervine
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PATHFINDER
BANCORP, INC.
PATHFINDER
BANK
CHANGE
IN CONTROL AGREEMENT
This Agreement is made effective as of
the January 1, 2007, by and between Pathfinder Bank (the "Bank"), a New York
chartered stock savings bank, with its principal administrative office at 214
West First Street, Oswego, New York 13126-2547, jointly with Pathfinder Bancorp,
Inc, the sole stockholder of the Bank, and Ronald Tascarella (the
"Executive"). Any reference to "Company" herein shall mean Pathfinder
Bancorp, Inc. or any successor thereto. Any reference to "Employer" herein shall
mean both the Bank and the Company or any successors thereto.
WHEREAS
, the Employer and
Executive entered into a change in control agreement; and
WHEREAS
, Section 409A of the
Internal Revenue Code (“Code”), effective January 1, 2005, requires deferred
compensation arrangements, including those set forth in change in control
agreements, to comply with its provisions and restrictions and limitations on
payments of deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder in April of 2007 necessitate changes to
said change in control agreement; and
WHEREAS
, Executive has agreed
to such changes; and
WHEREAS
, the Employer believes
it is in the best interests to enter into a revised change in control agreement
(the “Agreement”) in order to provide Executive with certain benefits in the
event of a Change in Control of the Employer, as herein after defined, and
incorporate the changes required by the new tax laws.
NOW, THEREFORE
, in
consideration of the mutual covenants herein contained, and upon the other terms
and conditions hereinafter provided, the parties hereby agree as
follows:
1
.
CHANGE IN CONTROL
DEFINED
For purposes of this Agreement, a
"Change in Control" of the Bank or Company shall mean a Change in Control of a
nature that (i) would be required to be reported in response to Item 5.01 of the
current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Home Owners Loan Act, as amended, and applicable rules and regulations
promulgated there under, as in effect at the time of the Change in Control
(collectively, the “HOLA”); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Employer’s employee stock ownership plan or trust;
or (b) individuals who constitute the Company’s Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof,
provided
that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations or financial institutions, and as a result such proxy solicitation
a plan of reorganization, merger consolidation or similar transaction involving
the Company is approved by the requisite vote of the Company’s stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror. Notwithstanding anything to the contrary
herein, a “Change in Control” of the Bank or the Company shall not be deemed to
have occurred in the event of a conversion of Pathfinder Bancorp, MHC to stock
holding company form.
2.
BENEFITS DUE TO EXECUTIVE IN THE
EVENT OF CHANGE IN CONTROL
If any of the events described in
Section 1 hereof constituting a Change in Control have occurred, Executive shall
be entitled to the benefits provided in paragraphs (a), (b), (c), (d) and (e) of
this Section 2 upon his dismissal from employment within twelve (12) months of
the Change in Control (“Dismissal”). Notwithstanding any other provision of this
Agreement, a voluntary termination by the Executive shall not be deemed a
“Dismissal”, although the following actions by the employer shall be deemed a
“Dismissal”: (i) material change in Executive’s function, duties, or
responsibilities, which change would cause Executive’s position to become one of
lesser responsibility, importance or scope from the position and attributes
thereof; (ii) relocation of Executive’s principal place of employment
by more than 30 miles from its location at the effective date of this agreement;
or, (iii) a material reduction in the benefits and prerequisites to the
Executive from those being provided as of the effective date of this Agreement,
provided that Executive provides written notice to the Employer within ninety
(90) days of the initial existence of an event described in this paragraph and
the Employer has at least thirty (30) days to remedy such events described
paragraph unless the Employer decides to waive such period and make an immediate
payment hereunder.
(a) Upon
the occurrence of a Change in Control followed by the Executive's Dismissal, the
Employer shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to his most recent annual base
salary, including bonuses and any other cash compensation paid to the Executive
within the most recent twelve (12) month period. Such Payment shall
be made by the Employer on the Date of Dismissal. Notwithstanding the
foregoing, in the event the Executive is a Specified Employee (within the
meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to
avoid penalties under Code Section 409A, no payment shall be made to the
Executive prior to the first day of the seventh month following the Executive’s
Date of Dismissal in excess of the “permitted amount” under Code Section
409A. For these purposes, the “permitted amount” shall be an amount
that does not exceed two times the lesser of: (i) the sum of Executive’s
annualized compensation based upon the annual rate of pay for services provided
to the Employer for the calendar year preceding the year in which occurs the
Executive’s Date of Dismissal or (ii) the maximum amount that may be taken into
account under a tax-qualified plan pursuant to Code Section 401(a)(17) for the
calendar year in which occurs the Executive’s Date of
Dismissal. Payment of the “permitted amount” shall be made within
thirty days following the Executive’s Date of Dismissal. Any payment
in excess of the permitted amount shall be made to the Executive on the first
day of the seventh month following the Executive’s Date of
Dismissal.
(b) Upon
the occurrence of a Change in Control followed by the Executive's Dismissal of
employment, the Employer will cause to be continued life insurance and
non-taxable medical and dental coverage substantially identical to the coverage
maintained by the Employer for Executive prior to his
Dismissal. Such coverage and payments shall cease upon the
expiration of twelve (12) months.
(c) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any stock option plan of
the Bank or Company.
(d) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any nonqualified
deferred compensation plan of the Bank or Company, applicable to him, if
any.
(e) Upon
the occurrence of a Change in Control, the Executive shall become fully vested
in and entitled to all benefits awarded to him under the Bank's or the Company’s
recognition and retention plan or any restricted stock plan in
effect.
(f) Notwithstanding
the preceding paragraphs of this Section 2, in the event that:
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|
(i)
|
the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the Internal Revenue Code
or any successor thereto, and
|
|
|
(ii)
|
if
such Termination Benefits were reduced to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount
equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.
|
(g) Notwithstanding
the foregoing, there will be no reduction in the Payment otherwise payable to
Executive during any period during which Executive is incapable of performing
his duties hereunder by reason of disability.
(h) For
purposes of Section 2, a Dismissal shall be construed to require a “Separation
from Service” as defined in Code Section 409A and the Treasury Regulations
thereunder, provided, however, that the Employer and Executive reasonably
anticipate that the level of bona fide services Executive would perform after
termination would permanently decrease to a level that is less than 50% of the
average level of bona fide services performed (whether as an employee or an
independent contractor) over the immediately preceding 36-month
period.
The term
“Termination for Cause” shall mean termination because of the Executive's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
financial services industry. For purposes of this paragraph, no act
or failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Employer. Notwithstanding the foregoing, Executive
shall not be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Boards of
Directors of the Company and the Bank at a meeting of said Boards called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Boards), finding that in
the good faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in
detail. Notwithstanding any provision in paragraph 2, the Executive
shall not have the right to receive Termination Benefits for any period after
Termination for Cause.
4. NO
ATTACHMENT
(a) Except
as required by law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall be null, void, and of no
effect.
(b) This
Agreement shall be binding upon, and inure to the benefit of, Executive and the
Employer and their respective successors and assigns.
5. MODIFICATION
AND WAIVER
(a) This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No
term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
6. SEVERABILITY
If, for any reason, any provision of
this Agreement, or any part of any provision, is held invalid, such invalidity
shall not affect any other provision of this Agreement or any part of such
provision not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force and
effect.
7. EMPLOYMENT
AT WILL
Except for the limited benefits granted
herein, nothing in this Agreement shall be construed to create an employment
contract and the parties acknowledge that the Executive’s employment remains “at
will”.
8. AGREEMENT
TERM
The initial “Agreement Term” shall
begin on the date this agreement is executed and shall continue through December
31, 2008. As of December 31, 2008, and as of each December 31
st
thereafter, the agreement term shall extend automatically for one year unless
the Bank gives notice to the executive prior to the date of such extension that
the agreement term will not be extended. Notwithstanding the
foregoing, if a Change in Control occurs during the agreement term, the
agreement term shall continue through and terminate on the first anniversary of
the date on which the Change in Control occurs.
9. PROPRIETARY
INFORMATION
The
parties agree to the protection of the Bank’s proprietary information as
follows:
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(a)
|
Nondisclosure
of Confidential Information
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(i)
|
Access. The
Executive acknowledges that employment with the Bank necessarily involves
exposure to, familiarity with, and opportunity to learn highly sensitive,
confidential and proprietary information of the Bank and its subsidiaries,
which may include information about products and services, markets,
customers and prospective customers, vendors and suppliers, miscellaneous
business relationships, investment products, pricing, billing and
collection procedures, proprietary software and other intellectual
property, financial and accounting data, personnel and compensation, data
processing and communications, technical data, marketing strategies,
research and development of new or improved products and services, and
know-how regarding the business of the Bank and its products and services
(collectively referred to herein as “Confidential
Information”)
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(ii)
|
Valuable
Asset. The Executive further acknowledges that the Confidential
Information is a valuable, special, and unique asset of the Bank, such
that the unauthorized disclosure or use by persons or entities outside the
Bank would cause irreparable damage to the business of the
Bank. Accordingly, the Executive agrees that during and after
the Executive’s employment with the Bank, until the Confidential
Information becomes publicly known, the Executive shall not directly or
indirectly disclose to any person or entity, use for any purpose or permit
the exploitation, copying or summarizing of, any Confidential Information
of the Bank, except as specifically required in the proper performance of
his duties for the Bank.
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(iii)
|
Duties. The
Executive agrees to take all appropriate action, whether by instruction,
agreement or otherwise, to endure the protection, confidentiality and
security of the Confidential Information and to satisfy his obligations
under this Agreement. Prior to lecturing or publishing articles
which reference to Bank and its business, the Executive will provide to an
officer of the Bank a copy of the material to be presented for the Bank to
review and approve in order to ensure that no Confidential Information is
disclosed.
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(iv)
|
Confidential
Relationship. The Bank considers its Confidential Information
to constitute “trade secrets” which are protected from unauthorized
disclosure under applicable law. However, whether or not the
Confidential Information constitutes trade secrets, the Executive
acknowledges and agrees that the Confidential Information is protected
from unauthorized disclosure or use due to his covenants under this
Section 9 and his fiduciary duties as an executive of the
Bank.
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|
(v)
|
Return
of Documents. The Executive acknowledges and agrees that the
Confidential Information is and at all times shall remain the sole and
exclusive property of the Bank. Upon the termination of his
employment with the Bank or upon request by the Bank, the Executive will
promptly return to the Bank in good condition all documents, data and
records of any kind, whether in hardcopy or electronic form, which contain
any Confidential Information, including any and all copies thereof, as
well as all materials furnished to or acquired by the Executive during the
course of the Executive’s employment with the
Bank.
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|
(b)
|
Enforcement. For
purposes of this Section 9, the term “Bank” shall include the Bank and the
Company and all of their subsidiaries. Each such entity shall
be an intended third party beneficiary of this Agreement and shall have
the right to enforce the provisions of this Agreement against the
Executive individually or collectively with any one or more of the other
subsidiaries.
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|
(c)
|
Equitable
Relief. The Executive acknowledges and agreed that, by reason
of the sensitive nature of the Confidential Information of the Bank
referred to in this Agreement, in addition to recovery of damages and any
other legal relief to which the Bank may be entitled in the event of the
Executive’s violation of this Agreement, the Bank shall also be entitled
to equitable relief, including such injunctive relief as may be necessary
to protect the interests of the Bank in such Confidential Information and
as may be necessary to specifically enforce the Executive’s obligations
under this Agreement.
|
10. HEADINGS
FOR REFERENCE ONLY
The headings of sections and paragraphs
herein are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this
Agreement.
11. GOVERNING
LAW
This Agreement shall be governed by the
laws of the State of New York, but only to the extent not superseded by federal
law.
12. ARBITRATION
Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
13. SUCCESSOR
TO THE EMPLOYER
The Employer shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank or the Company, expressly and unconditionally to assume and agree to
perform the Employer's obligations under this Agreement, in the same manner and
to the same extent that the Employer would be required to perform if no such
succession or assignment had taken place.
14. REQUIRED
PROVISION
Notwithstanding
anything herein contained to the contrary, any payments to Executive by the
Bank, whether pursuant to this Agreement or otherwise, are subject to and
conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder
in 12 C.F.R. Part 359.
SIGNATURES
IN WITNESS WHEREOF
, the
Employer has caused this Agreement to be executed and its seal to be affixed
hereunto by its duly authorized officer, and Executive has signed this
Agreement, on the day and date first above written.
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|
12/23/08
|
By: /s/
Thomas W. Schneider
|
|
Date Thomas
W. Schneider
President and Chief Executive Officer
PATHFINDER BANCORP, INC.
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|
12/23/08
|
By: /s/
Thomas W. Schneider
|
|
Date Thomas
W. Schneider
President and Chief Executive Officer
EXECUTIVE
12/23/08
By: /s/
Ronald
Tascarella
Date
PATHFINDER
BANCORP, INC.
PATHFINDER
BANK
CHANGE
IN CONTROL AGREEMENT
This Agreement is made effective as of
the January 1, 2007, by and between Pathfinder Bank (the "Bank"), a New York
chartered stock savings bank, with its principal administrative office at 214
West First Street, Oswego, New York 13126-2547, jointly with Pathfinder Bancorp,
Inc, the sole stockholder of the Bank, and James A. Dowd (the
"Executive"). Any reference to "Company" herein shall mean Pathfinder
Bancorp, Inc. or any successor thereto. Any reference to "Employer" herein shall
mean both the Bank and the Company or any successors thereto.
WHEREAS
, the Employer and
Executive entered into a change in control agreement; and
WHEREAS
, Section 409A of the
Internal Revenue Code (“Code”), effective January 1, 2005, requires deferred
compensation arrangements, including those set forth in change in control
agreements, to comply with its provisions and restrictions and limitations on
payments of deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder in April of 2007 necessitate changes to
said change in control agreement; and
WHEREAS
, Executive has agreed
to such changes; and
WHEREAS
, the Employer believes
it is in the best interests to enter into a revised change in control agreement
(the “Agreement”) in order to provide Executive with certain benefits in the
event of a Change in Control of the Employer, as herein after defined, and
incorporate the changes required by the new tax laws.
NOW, THEREFORE
, in
consideration of the mutual covenants herein contained, and upon the other terms
and conditions hereinafter provided, the parties hereby agree as
follows:
1
.
CHANGE IN CONTROL
DEFINED
For purposes of this Agreement, a
"Change in Control" of the Bank or Company shall mean a Change in Control of a
nature that (i) would be required to be reported in response to Item 5.01 of the
current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Home Owners Loan Act, as amended, and applicable rules and regulations
promulgated there under, as in effect at the time of the Change in Control
(collectively, the “HOLA”); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Employer’s employee stock ownership plan or trust;
or (b) individuals who constitute the Company’s Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof,
provided
that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations or financial institutions, and as a result such proxy solicitation
a plan of reorganization, merger consolidation or similar transaction involving
the Company is approved by the requisite vote of the Company’s stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror. Notwithstanding anything to the contrary
herein, a “Change in Control” of the Bank or the Company shall not be deemed to
have occurred in the event of a conversion of Pathfinder Bancorp, MHC to stock
holding company form.
2.
BENEFITS DUE TO EXECUTIVE IN THE
EVENT OF CHANGE IN CONTROL
If any of
the events described in Section 1 hereof constituting a Change in Control have
occurred, Executive shall be entitled to the benefits provided in paragraphs
(a), (b), (c), (d) and (e) of this Section 2 upon his dismissal from employment
within twelve (12) months of the Change in Control (“Dismissal”).
Notwithstanding any other provision of this Agreement, a voluntary termination
by the Executive shall not be deemed a “Dismissal”, although the following
actions by the employer shall be deemed a “Dismissal”: (i) material change in
Executive’s function, duties, or responsibilities, which change would cause
Executive’s position to become one of lesser responsibility, importance or scope
from the position and attributes thereof; (ii) relocation of
Executive’s principal place of employment by more than 30 miles from its
location at the effective date of this agreement; or, (iii) a material reduction
in the benefits and prerequisites to the Executive from those being provided as
of the effective date of this Agreement, provided that Executive provides
written notice to the Employer within ninety (90) days of the initial existence
of an event described in this paragraph and the Employer has at least thirty
(30) days to remedy such events described paragraph unless the Employer decides
to waive such period and make an immediate payment hereunder.
(a) Upon
the occurrence of a Change in Control followed by the Executive's Dismissal, the
Employer shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to his most recent annual base
salary, including bonuses and any other cash compensation paid to the Executive
within the most recent twelve (12) month period. Such Payment shall
be made by the Employer on the Date of Dismissal. Notwithstanding the
foregoing, in the event the Executive is a Specified Employee (within the
meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to
avoid penalties under Code Section 409A, no payment shall be made to the
Executive prior to the first day of the seventh month following the Executive’s
Date of Dismissal in excess of the “permitted amount” under Code Section
409A. For these purposes, the “permitted amount” shall be an amount
that does not exceed two times the lesser of: (i) the sum of Executive’s
annualized compensation based upon the annual rate of pay for services provided
to the Employer for the calendar year preceding the year in which occurs the
Executive’s Date of Dismissal or (ii) the maximum amount that may be taken into
account under a tax-qualified plan pursuant to Code Section 401(a)(17) for the
calendar year in which occurs the Executive’s Date of
Dismissal. Payment of the “permitted amount” shall be made within
thirty days following the Executive’s Date of Dismissal. Any payment
in excess of the permitted amount shall be made to the Executive on the first
day of the seventh month following the Executive’s Date of
Dismissal.
(b) Upon
the occurrence of a Change in Control followed by the Executive's Dismissal of
employment, the Employer will cause to be continued life insurance and
non-taxable medical and dental coverage substantially identical to the coverage
maintained by the Employer for Executive prior to his
Dismissal. Such coverage and payments shall cease upon the
expiration of twelve (12) months.
(c) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any stock option plan of
the Bank or Company.
(d) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any nonqualified
deferred compensation plan of the Bank or Company, applicable to him, if
any.
(e) Upon
the occurrence of a Change in Control, the Executive shall become fully vested
in and entitled to all benefits awarded to him under the Bank's or the Company’s
recognition and retention plan or any restricted stock plan in
effect.
(f) Notwithstanding
the preceding paragraphs of this Section 2, in the event that:
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|
(i)
|
the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the Internal Revenue Code
or any successor thereto, and
|
|
|
(ii)
|
if
such Termination Benefits were reduced to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount
equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.
|
(g) Notwithstanding
the foregoing, there will be no reduction in the Payment otherwise payable to
Executive during any period during which Executive is incapable of performing
his duties hereunder by reason of disability.
(h) For
purposes of Section 2, a Dismissal shall be construed to require a “Separation
from Service” as defined in Code Section 409A and the Treasury Regulations
thereunder, provided, however, that the Employer and Executive reasonably
anticipate that the level of bona fide services Executive would perform after
termination would permanently decrease to a level that is less than 50% of the
average level of bona fide services performed (whether as an employee or an
independent contractor) over the immediately preceding 36-month
period.
The term
“Termination for Cause” shall mean termination because of the Executive's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
financial services industry. For purposes of this paragraph, no act
or failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Employer. Notwithstanding the foregoing, Executive
shall not be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Boards of
Directors of the Company and the Bank at a meeting of said Boards called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Boards), finding that in
the good faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in
detail. Notwithstanding any provision in paragraph 2, the Executive
shall not have the right to receive Termination Benefits for any period after
Termination for Cause.
4. NO
ATTACHMENT
(a) Except
as required by law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall be null, void, and of no
effect.
(b) This
Agreement shall be binding upon, and inure to the benefit of, Executive and the
Employer and their respective successors and assigns.
5. MODIFICATION
AND WAIVER
(a) This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No
term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
6. SEVERABILITY
If, for any reason, any provision of
this Agreement, or any part of any provision, is held invalid, such invalidity
shall not affect any other provision of this Agreement or any part of such
provision not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force and
effect.
7. EMPLOYMENT
AT WILL
Except for the limited benefits granted
herein, nothing in this Agreement shall be construed to create an employment
contract and the parties acknowledge that the Executive’s employment remains “at
will”.
8. AGREEMENT
TERM
The initial “Agreement Term” shall
begin on the date this agreement is executed and shall continue through December
31, 2008. As of December 31, 2008, and as of each December 31
st
thereafter, the agreement term shall extend automatically for one year unless
the Bank gives notice to the executive prior to the date of such extension that
the agreement term will not be extended. Notwithstanding the
foregoing, if a Change in Control occurs during the agreement term, the
agreement term shall continue through and terminate on the first anniversary of
the date on which the Change in Control occurs.
9. PROPRIETARY
INFORMATION
The
parties agree to the protection of the Bank’s proprietary information as
follows:
|
(a)
|
Nondisclosure
of Confidential Information
|
|
(i)
|
Access. The
Executive acknowledges that employment with the Bank necessarily involves
exposure to, familiarity with, and opportunity to learn highly sensitive,
confidential and proprietary information of the Bank and its subsidiaries,
which may include information about products and services, markets,
customers and prospective customers, vendors and suppliers, miscellaneous
business relationships, investment products, pricing, billing and
collection procedures, proprietary software and other intellectual
property, financial and accounting data, personnel and compensation, data
processing and communications, technical data, marketing strategies,
research and development of new or improved products and services, and
know-how regarding the business of the Bank and its products and services
(collectively referred to herein as “Confidential
Information”)
|
|
(ii)
|
Valuable
Asset. The Executive further acknowledges that the Confidential
Information is a valuable, special, and unique asset of the Bank, such
that the unauthorized disclosure or use by persons or entities outside the
Bank would cause irreparable damage to the business of the
Bank. Accordingly, the Executive agrees that during and after
the Executive’s employment with the Bank, until the Confidential
Information becomes publicly known, the Executive shall not directly or
indirectly disclose to any person or entity, use for any purpose or permit
the exploitation, copying or summarizing of, any Confidential Information
of the Bank, except as specifically required in the proper performance of
his duties for the Bank.
|
|
(iii)
|
Duties. The
Executive agrees to take all appropriate action, whether by instruction,
agreement or otherwise, to endure the protection, confidentiality and
security of the Confidential Information and to satisfy his obligations
under this Agreement. Prior to lecturing or publishing articles
which reference to Bank and its business, the Executive will provide to an
officer of the Bank a copy of the material to be presented for the Bank to
review and approve in order to ensure that no Confidential Information is
disclosed.
|
|
(iv)
|
Confidential
Relationship. The Bank considers its Confidential Information
to constitute “trade secrets” which are protected from unauthorized
disclosure under applicable law. However, whether or not the
Confidential Information constitutes trade secrets, the Executive
acknowledges and agrees that the Confidential Information is protected
from unauthorized disclosure or use due to his covenants under this
Section 9 and his fiduciary duties as an executive of the
Bank.
|
|
(v)
|
Return
of Documents. The Executive acknowledges and agrees that the
Confidential Information is and at all times shall remain the sole and
exclusive property of the Bank. Upon the termination of his
employment with the Bank or upon request by the Bank, the Executive will
promptly return to the Bank in good condition all documents, data and
records of any kind, whether in hardcopy or electronic form, which contain
any Confidential Information, including any and all copies thereof, as
well as all materials furnished to or acquired by the Executive during the
course of the Executive’s employment with the
Bank.
|
|
(b)
|
Enforcement. For
purposes of this Section 9, the term “Bank” shall include the Bank and the
Company and all of their subsidiaries. Each such entity shall
be an intended third party beneficiary of this Agreement and shall have
the right to enforce the provisions of this Agreement against the
Executive individually or collectively with any one or more of the other
subsidiaries.
|
|
(c)
|
Equitable
Relief. The Executive acknowledges and agreed that, by reason
of the sensitive nature of the Confidential Information of the Bank
referred to in this Agreement, in addition to recovery of damages and any
other legal relief to which the Bank may be entitled in the event of the
Executive’s violation of this Agreement, the Bank shall also be entitled
to equitable relief, including such injunctive relief as may be necessary
to protect the interests of the Bank in such Confidential Information and
as may be necessary to specifically enforce the Executive’s obligations
under this Agreement.
|
10. HEADINGS
FOR REFERENCE ONLY
The headings of sections and paragraphs
herein are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this
Agreement.
11. GOVERNING
LAW
This Agreement shall be governed by the
laws of the State of New York, but only to the extent not superseded by federal
law.
12. ARBITRATION
Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
13. SUCCESSOR
TO THE EMPLOYER
The Employer shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank or the Company, expressly and unconditionally to assume and agree to
perform the Employer's obligations under this Agreement, in the same manner and
to the same extent that the Employer would be required to perform if no such
succession or assignment had taken place.
14. REQUIRED
PROVISION
Notwithstanding
anything herein contained to the contrary, any payments to Executive by the
Bank, whether pursuant to this Agreement or otherwise, are subject to and
conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder
in 12 C.F.R. Part 359.
SIGNATURES
IN WITNESS WHEREOF
, the
Employer has caused this Agreement to be executed and its seal to be affixed
hereunto by its duly authorized officer, and Executive has signed this
Agreement, on the day and date first above written.
|
|
12/23/08
|
By: /s/
Thomas W. Schneider
|
|
Date Thomas
W. Schneider
President and Chief Executive Officer
PATHFINDER BANCORP, INC.
|
|
12/23/08
|
By: /s/
Thomas W. Schneider
|
|
Date Thomas
W. Schneider
President and Chief Executive Officer
EXECUTIVE
|
|
12/23/08
|
By: /s/
James A. Dowd
|
Date
PATHFINDER
BANCORP, INC.
PATHFINDER
BANK
CHANGE
IN CONTROL AGREEMENT
This Agreement is made effective as of
the January 1, 2007, by and between Pathfinder Bank (the "Bank"), a New York
chartered stock savings bank, with its principal administrative office at 214
West First Street, Oswego, New York 13126-2547, jointly with Pathfinder Bancorp,
Inc, the sole stockholder of the Bank, and Melissa A. Miller (the
"Executive"). Any reference to "Company" herein shall mean Pathfinder
Bancorp, Inc. or any successor thereto. Any reference to "Employer" herein shall
mean both the Bank and the Company or any successors thereto.
WHEREAS
, the Employer and
Executive entered into a change in control agreement; and
WHEREAS
, Section 409A of the
Internal Revenue Code (“Code”), effective January 1, 2005, requires deferred
compensation arrangements, including those set forth in change in control
agreements, to comply with its provisions and restrictions and limitations on
payments of deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder in April of 2007 necessitate changes to
said change in control agreement; and
WHEREAS
, Executive has agreed
to such changes; and
WHEREAS
, the Employer believes
it is in the best interests to enter into a revised change in control agreement
(the “Agreement”) in order to provide Executive with certain benefits in the
event of a Change in Control of the Employer, as herein after defined, and
incorporate the changes required by the new tax laws.
NOW, THEREFORE
, in
consideration of the mutual covenants herein contained, and upon the other terms
and conditions hereinafter provided, the parties hereby agree as
follows:
1
.
CHANGE IN CONTROL
DEFINED
For purposes of this Agreement, a
"Change in Control" of the Bank or Company shall mean a Change in Control of a
nature that (i) would be required to be reported in response to Item 5.01 of the
current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Home Owners Loan Act, as amended, and applicable rules and regulations
promulgated there under, as in effect at the time of the Change in Control
(collectively, the “HOLA”); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Employer’s employee stock ownership plan or trust;
or (b) individuals who constitute the Company’s Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof,
provided
that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations or financial institutions, and as a result such proxy solicitation
a plan of reorganization, merger consolidation or similar transaction involving
the Company is approved by the requisite vote of the Company’s stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror. Notwithstanding anything to the contrary
herein, a “Change in Control” of the Bank or the Company shall not be deemed to
have occurred in the event of a conversion of Pathfinder Bancorp, MHC to stock
holding company form.
2.
BENEFITS DUE TO EXECUTIVE IN THE
EVENT OF CHANGE IN CONTROL
If any of the events described in
Section 1 hereof constituting a Change in Control have occurred, Executive shall
be entitled to the benefits provided in paragraphs (a), (b), (c), (d) and (e) of
this Section 2 upon his dismissal from employment within twelve (12) months of
the Change in Control (“Dismissal”). Notwithstanding any other provision of this
Agreement, a voluntary termination by the Executive shall not be deemed a
“Dismissal”, although the following actions by the employer shall be deemed a
“Dismissal”: (i) material change in Executive’s function, duties, or
responsibilities, which change would cause Executive’s position to become one of
lesser responsibility, importance or scope from the position and attributes
thereof; (ii) relocation of Executive’s principal place of employment
by more than 30 miles from its location at the effective date of this agreement;
or, (iii) a material reduction in the benefits and prerequisites to the
Executive from those being provided as of the effective date of this Agreement,
provided that Executive provides written notice to the Employer within ninety
(90) days of the initial existence of an event described in this paragraph and
the Employer has at least thirty (30) days to remedy such events described
paragraph unless the Employer decides to waive such period and make an immediate
payment hereunder.
(a) Upon
the occurrence of a Change in Control followed by the Executive's Dismissal, the
Employer shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to his most recent annual base
salary, including bonuses and any other cash compensation paid to the Executive
within the most recent twelve (12) month period. Such Payment shall
be made by the Employer on the Date of Dismissal. Notwithstanding the
foregoing, in the event the Executive is a Specified Employee (within the
meaning of Treasury Regulations §1.409A-1(i)), then, to the extent necessary to
avoid penalties under Code Section 409A, no payment shall be made to the
Executive prior to the first day of the seventh month following the Executive’s
Date of Dismissal in excess of the “permitted amount” under Code Section
409A. For these purposes, the “permitted amount” shall be an amount
that does not exceed two times the lesser of: (i) the sum of Executive’s
annualized compensation based upon the annual rate of pay for services provided
to the Employer for the calendar year preceding the year in which occurs the
Executive’s Date of Dismissal or (ii) the maximum amount that may be taken into
account under a tax-qualified plan pursuant to Code Section 401(a)(17) for the
calendar year in which occurs the Executive’s Date of
Dismissal. Payment of the “permitted amount” shall be made within
thirty days following the Executive’s Date of Dismissal. Any payment
in excess of the permitted amount shall be made to the Executive on the first
day of the seventh month following the Executive’s Date of
Dismissal.
(b) Upon
the occurrence of a Change in Control followed by the Executive's Dismissal of
employment, the Employer will cause to be continued life insurance and
non-taxable medical and dental coverage substantially identical to the coverage
maintained by the Employer for Executive prior to his
Dismissal. Such coverage and payments shall cease upon the
expiration of twelve (12) months.
(c) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any stock option plan of
the Bank or Company.
(d) Upon
the occurrence of a Change in Control, Executive shall become fully vested in
and entitled to all benefits granted to him pursuant to any nonqualified
deferred compensation plan of the Bank or Company, applicable to him, if
any.
(e) Upon
the occurrence of a Change in Control, the Executive shall become fully vested
in and entitled to all benefits awarded to him under the Bank's or the Company’s
recognition and retention plan or any restricted stock plan in
effect.
(f) Notwithstanding
the preceding paragraphs of this Section 2, in the event that:
|
|
(i)
|
the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the Internal Revenue Code
or any successor thereto, and
|
|
|
(ii)
|
if
such Termination Benefits were reduced to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount
equal to the total amount of payments permissible under Section 280G of
the Internal Revenue Code or any successor thereto, then the Termination
Benefits to be paid to Executive shall be so reduced so as to be a
Non-Triggering Amount.
|
(g) Notwithstanding
the foregoing, there will be no reduction in the Payment otherwise payable to
Executive during any period during which Executive is incapable of performing
his duties hereunder by reason of disability.
(h) For
purposes of Section 2, a Dismissal shall be construed to require a “Separation
from Service” as defined in Code Section 409A and the Treasury Regulations
thereunder, provided, however, that the Employer and Executive reasonably
anticipate that the level of bona fide services Executive would perform after
termination would permanently decrease to a level that is less than 50% of the
average level of bona fide services performed (whether as an employee or an
independent contractor) over the immediately preceding 36-month
period.
The term
“Termination for Cause” shall mean termination because of the Executive's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
financial services industry. For purposes of this paragraph, no act
or failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Employer. Notwithstanding the foregoing, Executive
shall not be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Boards of
Directors of the Company and the Bank at a meeting of said Boards called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Boards), finding that in
the good faith opinion of the Boards, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in
detail. Notwithstanding any provision in paragraph 2, the Executive
shall not have the right to receive Termination Benefits for any period after
Termination for Cause.
4. NO
ATTACHMENT
(a) Except
as required by law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation, or to execution, attachment, levy, or similar
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall be null, void, and of no
effect.
(b) This
Agreement shall be binding upon, and inure to the benefit of, Executive and the
Employer and their respective successors and assigns.
5. MODIFICATION
AND WAIVER
(a) This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto.
(b) No
term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
6. SEVERABILITY
If, for any reason, any provision of
this Agreement, or any part of any provision, is held invalid, such invalidity
shall not affect any other provision of this Agreement or any part of such
provision not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force and
effect.
7. EMPLOYMENT
AT WILL
Except for the limited benefits granted
herein, nothing in this Agreement shall be construed to create an employment
contract and the parties acknowledge that the Executive’s employment remains “at
will”.
8. AGREEMENT
TERM
The initial “Agreement Term” shall
begin on the date this agreement is executed and shall continue through December
31, 2008. As of December 31, 2008, and as of each December 31
st
thereafter, the agreement term shall extend automatically for one year unless
the Bank gives notice to the executive prior to the date of such extension that
the agreement term will not be extended. Notwithstanding the
foregoing, if a Change in Control occurs during the agreement term, the
agreement term shall continue through and terminate on the first anniversary of
the date on which the Change in Control occurs.
9. PROPRIETARY
INFORMATION
The
parties agree to the protection of the Bank’s proprietary information as
follows:
|
(a)
|
Nondisclosure
of Confidential Information
|
|
(i)
|
Access. The
Executive acknowledges that employment with the Bank necessarily involves
exposure to, familiarity with, and opportunity to learn highly sensitive,
confidential and proprietary information of the Bank and its subsidiaries,
which may include information about products and services, markets,
customers and prospective customers, vendors and suppliers, miscellaneous
business relationships, investment products, pricing, billing and
collection procedures, proprietary software and other intellectual
property, financial and accounting data, personnel and compensation, data
processing and communications, technical data, marketing strategies,
research and development of new or improved products and services, and
know-how regarding the business of the Bank and its products and services
(collectively referred to herein as “Confidential
Information”)
|
|
(ii)
|
Valuable
Asset. The Executive further acknowledges that the Confidential
Information is a valuable, special, and unique asset of the Bank, such
that the unauthorized disclosure or use by persons or entities outside the
Bank would cause irreparable damage to the business of the
Bank. Accordingly, the Executive agrees that during and after
the Executive’s employment with the Bank, until the Confidential
Information becomes publicly known, the Executive shall not directly or
indirectly disclose to any person or entity, use for any purpose or permit
the exploitation, copying or summarizing of, any Confidential Information
of the Bank, except as specifically required in the proper performance of
his duties for the Bank.
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|
(iii)
|
Duties. The
Executive agrees to take all appropriate action, whether by instruction,
agreement or otherwise, to endure the protection, confidentiality and
security of the Confidential Information and to satisfy his obligations
under this Agreement. Prior to lecturing or publishing articles
which reference to Bank and its business, the Executive will provide to an
officer of the Bank a copy of the material to be presented for the Bank to
review and approve in order to ensure that no Confidential Information is
disclosed.
|
|
(iv)
|
Confidential
Relationship. The Bank considers its Confidential Information
to constitute “trade secrets” which are protected from unauthorized
disclosure under applicable law. However, whether or not the
Confidential Information constitutes trade secrets, the Executive
acknowledges and agrees that the Confidential Information is protected
from unauthorized disclosure or use due to his covenants under this
Section 9 and his fiduciary duties as an executive of the
Bank.
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|
(v)
|
Return
of Documents. The Executive acknowledges and agrees that the
Confidential Information is and at all times shall remain the sole and
exclusive property of the Bank. Upon the termination of his
employment with the Bank or upon request by the Bank, the Executive will
promptly return to the Bank in good condition all documents, data and
records of any kind, whether in hardcopy or electronic form, which contain
any Confidential Information, including any and all copies thereof, as
well as all materials furnished to or acquired by the Executive during the
course of the Executive’s employment with the
Bank.
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|
(b)
|
Enforcement. For
purposes of this Section 9, the term “Bank” shall include the Bank and the
Company and all of their subsidiaries. Each such entity shall
be an intended third party beneficiary of this Agreement and shall have
the right to enforce the provisions of this Agreement against the
Executive individually or collectively with any one or more of the other
subsidiaries.
|
|
(c)
|
Equitable
Relief. The Executive acknowledges and agreed that, by reason
of the sensitive nature of the Confidential Information of the Bank
referred to in this Agreement, in addition to recovery of damages and any
other legal relief to which the Bank may be entitled in the event of the
Executive’s violation of this Agreement, the Bank shall also be entitled
to equitable relief, including such injunctive relief as may be necessary
to protect the interests of the Bank in such Confidential Information and
as may be necessary to specifically enforce the Executive’s obligations
under this Agreement.
|
10. HEADINGS
FOR REFERENCE ONLY
The headings of sections and paragraphs
herein are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this
Agreement.
11. GOVERNING
LAW
This Agreement shall be governed by the
laws of the State of New York, but only to the extent not superseded by federal
law.
12. ARBITRATION
Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
13. SUCCESSOR
TO THE EMPLOYER
The Employer shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank or the Company, expressly and unconditionally to assume and agree to
perform the Employer's obligations under this Agreement, in the same manner and
to the same extent that the Employer would be required to perform if no such
succession or assignment had taken place.
14. REQUIRED
PROVISION
Notwithstanding
anything herein contained to the contrary, any payments to Executive by the
Bank, whether pursuant to this Agreement or otherwise, are subject to and
conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder
in 12 C.F.R. Part 359.
SIGNATURES
IN WITNESS WHEREOF
, the
Employer has caused this Agreement to be executed and its seal to be affixed
hereunto by its duly authorized officer, and Executive has signed this
Agreement, on the day and date first above written.
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|
12/23/08
|
By:
/s/ Thomas W. Schneider
|
|
Date
Thomas W. Schneider
President and Chief Executive Officer
PATHFINDER BANCORP, INC.
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|
12/23/08
|
By:
/s/ Thomas W. Schneider
|
|
Date Thomas
W. Schneider
President and Chief Executive Officer
EXECUTIVE
12/23/08
By:
/s/ Melissa A. Miller
Date
AMENDED
AND RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME
AGREEMENT
FOR
CHRIS
C. GAGAS
PATHFINDER
BANK
Amended
and Restated Effective January 1, 2005
Financial
Institution Consulting Corporation
700
Colonial Road, Suite 260
Memphis,
Tennessee 38117
WATS:
1-800-873-0089
FAX:
(901) 684-7411
(901)
684-7400
AMENDED
AND RESTATED
EXECUTIVE
SUPPLEMENTAL RETIREMENT
INCOME
AGREEMENT FOR CHRIS GAGAS
This
Amended and Restated Executive Supplemental Retirement Income Agreement (the
“Agreement”) updates and revises the Restated Executive Supplemental Retirement
Income Agreement (the “Original Agreement”) for Chris C. Gagas (the
“Executive”), which was originally effective as of September 1,
1998. The Bank has herein amended and restated the Agreement with the
intention that the Agreement shall at all times satisfy Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”) and the regulations
thereunder. Any reference herein to the “Holding Company” shall mean
Pathfinder Bancorp, Inc. and any reference herein to the “Mutual Holding
Company” shall mean Pathfinder Bancorp, M.H.C.
WITNESSETH:
WHEREAS,
the Executive and the
Bank entered into the Agreement dated as of September 1, 1998; and
WHEREAS
, Section 409A of the
Internal Revenue Code (the “Code”), effective January 1, 2005, requires deferred
compensation arrangements to comply with its provisions and restrictions and
limitations on payments of deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder necessitate changes to the Agreement;
and
WHEREAS
, the Executive has
agreed to such changes; and
WHEREAS
, the parties hereto
desire to set forth the terms of the amended and restated Agreement and the
continuing employment relationship of the Bank and the Executive;
and
WHEREAS
, the Bank and the
Executives intend this Agreement to be considered an unfunded arrangement,
maintained primarily to provide supplemental retirement income for such
Executives, members of a select group of management or highly compensated
employees of the Bank, for tax purposes and for purposes of the Employee
Retirement Income Security Act of 1974, as amended.
NOW, THEREFORE
, in
consideration of the premises and of the mutual promises herein contained, the
Bank and the Executive agree as follows:
SECTION
I
DEFINITIONS
When used
herein, the following words and phrases shall have the meanings below unless the
context clearly indicates otherwise:
|
1.1
|
“Accrued
Benefit Account” means that portion of the Supplemental Retirement Income
Benefit which is required to be expensed and accrued under generally
accepted accounting principles (GAAP) by any appropriate method which the
Bank’s Board of Directors may require in the exercise of its sole
discretion.
|
|
1.2
|
“Act”
means the Employee Retirement Income Security Act of 1974, as amended from
time to time.
|
|
1.3
|
“Administrator”
means the Bank.
|
|
1.4
|
“Bank”
means PATHFINDER BANK and any successor
thereto.
|
|
1.5
|
“Beneficiary”
means the person or persons (and their heirs) designated as Beneficiary in
Exhibit B of this Agreement to whom the deceased Executive’s benefits are
payable. If no Beneficiary is so designated, then the
Executive’s Spouse, if living, will be deemed the Beneficiary. If the
Executive’s Spouse is not living, then the Children of the Executive will
be deemed the Beneficiaries and will take on a per stirpes
basis. If there are no Children, then the Estate of the
Executive will be deemed the
Beneficiary.
|
|
1.6
|
“Benefit
Age” means the Executive’s seventieth (70th)
birthday. Notwithstanding the above, in the event of a Change
in Control, followed within thirty-six (36) months by the Executive’s
voluntary termination of employment on or after his sixty-second birthday
for one of the reasons set forth in Section 2.2 below, the Executive’s
termination shall not be considered a retirement for purposes of lowering
the Executive’s Benefit Age.
|
|
1.7
|
“Benefit
Eligibility Date” means the date on which the Executive is entitled to
receive maximum Supplemental Retirement Income Benefit available under
this plan. It shall be the first day of the month following the
month in which the Executive attains his Benefit
Age.
|
|
1.8
|
“Board
of Directors” means the board of directors of the
Bank.
|
|
1.9
|
“Cause”
means personal dishonesty, willful misconduct, willful malfeasance, breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, role, regulation
(other than traffic violations or similar offenses), or final
cease-and-desist order, material breach of any provision of this
Agreement, or gross negligence in matters of material importance to the
Bank.
|
|
1.10
|
“Change
in Control” shall mean and include the following with respect to the
Mutual Holding Company, the Bank, or the Holding
Company:
|
|
|
(i)
|
a
reorganization, merger, merger conversion, consolidation or sale of all or
substantially all of the assets of the Bank, the Mutual Holding Company or
the Holding Company, or a similar transaction in which the Bank, the
Mutual Holding Company or the Holding Company is not the resulting entity;
or
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|
|
(ii)
|
individuals
who constitute the board of directors of the Bank, the Mutual Holding
Company or the Holding Company on the date hereof (the “Incumbent Board”)
cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
was approved by the Holding Company’s nominating committee which is
comprised of members of the Incumbent Board, shall be, for purposes of
this clause (ii) considered as though he were a member of the Incumbent
Board.
|
Notwithstanding
the foregoing, a “Change in Control” of the Bank or the Holding Company shall
not be deemed to have occurred if the Mutual Holding Company ceases to own at
least 51% of all outstanding shares of stock of the Holding Company in
connection with a liquidation of the Mutual Holding Company into the Holding
Company or a conversion of the Mutual Holding Company from mutual to stock
form.
In
addition, “Change in Control” shall mean and include the following with respect
to the Bank or the Holding Company in the event that the Mutual Holding Company
converts to stock form or in the event that the Holding Company issues shares of
its common stock to stockholders other than the Mutual Holding
Company:
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|
(1)
|
a
change in control of a nature that would be required to be reported in
response to Item 5.01 of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (hereinafter the “Exchange Act”);
or
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|
|
(2)
|
an
acquisition of “control” as defined in the Home Owners Loan
Act, as amended, and applicable rules and regulations promulgated
thereunder, as in effect at the time of the Change in Control
(collectively, the “HOLA”), as determined by the Board of Directors of the
Bank or the Holding Company; or
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|
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(i)
|
any
“person” (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) or “group acting in concert” is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank representing Twenty Percent (20%) or more of the
combined voting power of the Bank’s or Holding Company’s outstanding
securities ordinarily having the right to vote at the elections of
directors, except for any stock purchased by the Bank’s Employee Stock
Ownership Plan and/or the trust under such plan;
or
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|
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(ii)
|
a
proxy statement is issued soliciting proxies from the stockholders of the
Holding Company by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger, or consolidation of the Holding Company with one or more
corporations as a result of which the outstanding shares of the class of
the Holding Company’s securities are exchanged for or converted into cash
or property or securities not issued by the Holding
Company.
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The term
“person” includes an individual, a group acting in concert, a corporation, a
partnership, an association, a joint venture, a pool, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities. The term “acquire” means obtaining ownership, control, power to vote
or sole power of disposition of stock, directly or indirectly or through one or
more transactions or subsidiaries, through purchase, assignment, transfer,
exchange, succession or other means, including (1) an increase in percentage
ownership resulting from a redemption, repurchase, reverse stock split or a
similar transaction involving other securities of the same class; and (2) the
acquisition of stock by a group of persons and/or companies acting in concert
which shall be deemed to occur upon the formation of such group, provided that
an investment advisor shall not be deemed to acquire the voting stock of its
advisee if the advisor (a) votes the stock only upon instruction from the
beneficial owner and (b) does not provide the beneficial owner with advice
concerning the voting of such stock. The term “security” includes
nontransferable subscription rights issued pursuant to a plan of conversion, as
well as a “security,” as defined in 15 U.S.C. §78c(2)(1); and the term “acting
in concert” means (1) knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (2) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. Further, acting in concert with any person or
company shall also be deemed to be acting in concert with any person or company
that is acting in concert with such other person or company.
Notwithstanding
the above definitions, the boards of directors of the Bank or the Holding
Company, in their absolute discretion, may make a finding that a Change in
Control of the Bank or the Holding Company has taken place without the
occurrence of any or all of the events enumerated above.
|
1.11
|
Children”
means the Executive’s children, both natural and adopted, then living at
the time payments are due the Children under this
Agreement.
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|
1.12
|
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
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|
1.13
|
“Disability
Benefit” means the benefit payable to the Executive following a
determination, in accordance with Section
VII.
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|
1.14
|
“Effective
Date” of this Agreement is January 1,
2005.
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|
1.15
|
“Estate”
means the estate of the Executive.
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|
1.16
|
“Interest
Factor” for purposes of the Accrued Benefit Account, shall be eight
percent (8%) per annum, compounded monthly, as set forth in Exhibit
A.
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1.17
|
“Payout
Period” means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing on the first day of the month following
the occurrence of the event which triggers distribution and continuing for
one hundred eighty (180) months. Should the Executive make a
Timely Election to receive a lump sum benefit payment, the Executive’s
Payout Period shall be deemed to be one (1)
month.
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|
1.18
|
“Plan
Year” shall mean the calendar year. However, “Plan Year” shall
mean September 1, 1998 through December 31, 1998, for the first Plan
Year.
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|
1.19
|
“Retirement
Age” means the Executive’s seventieth (70
th
)
birthday.
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|
1.20
|
“Spouse”
means the individual to whom the Executive is legally married at the time
of the Executive’s death.
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|
1.21
|
“Supplemental
Retirement Income Benefit” means an annual amount (
before
taking
into account federal and state income taxes), payable in monthly
installments throughout the Payout Period. The Supplemental
Retirement Income Benefit payable to the Executive is Sixty Thousand Six
Hundred and Eighty-six ($60,686) Dollars, as set forth in Exhibit
A.
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|
1.22
|
“Survivor’s
Benefit” means an annual amount payable to the Beneficiary in monthly
installments throughout the Payout Period, equal to the amount set forth
in Exhibit A and according to Subsection
2.5.
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|
1.23
|
“Timely
Election” means the Executive has made an election to change the form of
his benefit payment(s) by filing with the Administrator a Notice of
Election to Change Form of Payment (Exhibit C of this
Agreement). Such election must be made on or before December
31, 2008.
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SECTION
II
BENEFITS-GENERALLY
If the
Executive is in service with the Bank until reaching his Benefit Age, the
Executive shall be entitled to the Supplemental Retirement Income
Benefit. Such benefit shall commence on the Executive’s Benefit
Eligibility Date and shall be payable in equal monthly installments throughout
the Payout Period. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to completion of all such payments due and
owing hereunder, the Bank shall pay to the Executive’s Beneficiary a
continuation of the monthly installments for the remainder of the Payout
Period.
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2.2
|
Termination Following
a Change in Control
|
If a
Change in Control occurs, and within thirty-six (36) months following such
Change in Control, the Executive’s employment is either (i) involuntarily
terminated, or (ii) voluntarily terminated by the Executive after: (A) a
material change in the Executive’s function, duties, or responsibilities, which
change would cause the Executive’s position to become one of lesser
responsibility, importance, or scope from the position the Executive held at the
time of the Change in Control, (B) a relocation of the Executive’s principal
place of employment by more than thirty (30) miles from its location prior to
the Change in Control, or (C) a material reduction in the benefits and
perquisites to the Executive from those being provided at the time of the Change
in Control, the Executive shall be entitled to the full Supplemental Retirement
Income Benefit set forth in Exhibit A that Executive would have received had
Executive continued employment up through reaching his Benefit Eligibility Date,
regardless of the Executive’s actual age on date of termination. Such
benefit shall commence within thirty (30) days following the Executive reaching
his Benefit Age and shall be payable in equal monthly installments throughout
the Payout Period. Notwithstanding the foregoing, in the event the
Executive is a Specified Employee, as defined in Treasury Regulation Section
1.409A-1(i), the Supplemental Retirement Income Benefit shall commence upon the
later of: (i) the first day of the seventh month following the executive’s
termination of employment or (ii) the date on which the Executive attains his
Benefit Age. In the event that the Executive dies at any time after
termination of employment, but prior to commencement or completion of all such
payments due and owing hereunder, the Bank, or its successor, shall pay to the
Executive’s Beneficiary a continuation of the monthly installments for the
remainder of the Payout Period within thirty (30) days of Executive’s
death. For purposes of this Section 2.2, the Executive’s termination
of employment shall be construed to require a Separation from Service as defined
in Code Section 409A and the Treasury Regulations promulgated thereunder, such
that the Bank and Executive reasonably anticipate that the level of bona fide
services the Executive would perform after termination would permanently
decrease to a level that is less than 50% of the average level of bona fide
services performed (whether as an employee or an independent contractor) over
the immediately preceding 36-month period.
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2.3
|
Termination For
Cause
|
If the
Executive is terminated for Cause, all benefits under this Agreement shall be
forfeited and this Agreement shall become null and void.
|
2.4
|
Involuntary
Termination of Employment
|
If the
Executive’s employment with the Bank is involuntarily terminated for any reason,
including a termination due to Disability, but excluding termination for Cause,
or termination following a Change in Control within thirty-six (36) months
following such Change in Control, within thirty (30) days following such
involuntary termination of employment, the Executive (or his Beneficiary) shall
be entitled to the full Supplemental Retirement Income Benefit set forth in
Exhibit A that the Executive would have received had the Executive continued
employment up through reaching his Benefit Eligibility Date, regardless of the
Executive’s actual age at termination of employment. Such benefit
shall commence within thirty (30) days following the Executive reaching his
Benefit Age and shall be payable in monthly installments throughout the Payout
Period. In the event the Executive dies prior to commencement or
completion of all such payments due and owing hereunder, the Bank shall pay to
the Executive’s Beneficiary a continuation of the monthly installments for the
remainder of the Payout Period.
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2.5
|
Death During
Employment
|
If the
Executive dies while employed by the Bank, the Executive’s Beneficiary shall be
entitled to the Survivor’s Benefit. The Survivor’s Benefit shall
commence within thirty (30) days after the Executive’s death and shall be
payable in monthly installments throughout the Payout Period.
SECTION
III
RETIREMENT
BENEFIT
|
3.1
|
(a)
Normal form of
payment
.
|
If (i)
the Executive is employed with the Bank until reaching his Retirement Age, and
(ii) the Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 3.1(a) shall be controlling with respect to retirement
benefits.
The
Executive shall be entitled to the Supplemental Retirement Income
Benefit. Such benefit shall commence on the Executive’s Benefit
Eligibility Date and shall be payable in monthly installments throughout the
Payout Period. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to completion of all the payments due and
owing hereunder, the Bank shall pay to the Executive’s Beneficiary a
continuation of the monthly installments for the remainder of the Payout
Period.
(b)
Alternative payout
option
.
If (i)
the Executive is employed with the Bank until reaching his Retirement Age, and
(ii) the Executive has made a Timely Election to receive a lump sum benefit,
this Subsection 3.1(b) shall be controlling with respect to retirement
benefits.
The
balance of the amount represented by the Executive’s Accrued Benefit Account,
measured as of the Executive’s Benefit Age, shall be paid to the Executive in a
lump sum on his Benefit Eligibility Date. In the event the Executive
dies after becoming eligible for such payment (upon attainment of his Benefit
Age), but before the actual payment is made, his Beneficiary shall be entitled
to receive the lump sum benefit in accordance with this Subsection 3.1(b) within
thirty (30) days following the date of the Executive’s death.
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3.2
|
Additional Death
Benefit - Burial Expense
. In addition to the above-described
benefits, upon the Executive’s death, the Executive’s Beneficiary shall be
entitled to receive a one-time lump sum death benefit in the amount of Ten
Thousand Dollars ($10,000.00). This benefit shall be provided
specifically for the purpose of providing payment for burial and/or
funeral expenses of the Executive. Such benefit shall be payable within
thirty (30) days of the Executive’s death. The Executive’s
Beneficiary shall not be entitled to such benefit if the Executive is
removed for Cause prior to death. Notwithstanding anything in
this Section 3.2 to the contrary, if the Executive is also a participant
in any other Trustee Deferred Compensation Agreement or an Executive
Deferred Compensation Agreement under which an additional $10,000 death
benefit for burial expenses is being paid, no additional death benefit
shall be paid under this Section
3.2.
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SECTION
IV
PRE-RETIREMENT DEATH
BENEFIT
|
4.1
|
(a)
Normal form of
payment
.
|
If (i)
the Executive dies while employed by the Bank, and (ii) the Executive has not
made a Timely Election to receive a lump sum benefit, this Subsection 4.1(a)
shall be controlling with respect to pre-retirement death benefits.
The
balance of the amount represented by the Executive’s Accrued Benefit Account,
measured as of the Executive’s death shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable to the Executive’s
Beneficiary for the Payout Period. Such benefits shall commence
within thirty (30) days following the date of the Executive’s
death. The Executive’s Beneficiary may request to receive the
remainder of any unpaid monthly benefit payments due from the Accrued Benefit
Account in a lump sum payment. If a lump sum payment is requested by
the Beneficiary, the amount of such lump sum payment shall be equal to the
balance of the Executive’s Accrued Benefit Account. Payment in such
lump sum form shall be made only if the Executive’s Beneficiary (i) obtains
Board of Director approval, and (ii) notifies the Administrator in writing of
such election within ninety (90) days following the Executive’s
death. Such lump sum payment, if approved by the Board of Directors,
shall be payable within thirty (30) days following such Board of Director
approval.
(b)
Alternative payout
option
.
If (i)
the Executive dies while employed by the Bank, and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection 4.1(b) shall be
controlling with respect to pre-retirement death benefits.
The
balance of the amount represented by the Executive’s Accrued Benefit Count,
measured as of (i) the Executive’s death, and (ii) shall be paid to the
Executive’s Beneficiary in a lump sum within thirty (30) days following the date
of the Executive’s death.
SECTION
V
RENDERING OF CONSULTING
SERVICES
Beginning
September 1, 1999, until the Executive reaches Benefit Age, the Executive shall
render such reasonable business consulting, advisory and public relations
services as the Association’s Board of Directors may call upon the Executive to
provide. In no event shall such service exceed thirty (30) service
days per year. The Bank shall provide Executive with advance notice
sufficient to Executive of its desire to have such service
provided. In rendering these services, the Executive shall not be
considered an employee of the Bank, but shall act in the capacity of an
independent contractor. The Executive shall not be required to
perform these services during reasonable vacation periods or any periods of
illness or disability. Furthermore, the Executive shall be reimbursed
for all expenses incurred in performing such services.
This
service requirement shall not apply if Executive’s entitlement is limited to the
balance represented by the Accrued Benefit Account, pursuant to Section
VI.
SECTION
VI
BENEFIT(S) IN THE EVENT OF
TERMINATION OF SERVICE
PRIOR TO RETIREMENT
AGE
If the
Executive voluntarily terminates employment with the Bank before reaching his
Benefit Age, other than a voluntary termination following a Change in Control in
accordance with Subsection 2.2 hereof or for the purpose of rendering Consulting
Services pursuant to Section V, Executive’s Supplemental Retirement Benefit
shall be limited to the balance represented by the Accrued Benefit Account
spread out and payable over the Payout Period. Such payment shall
commence on the date in which the Executive reaches his Benefit Age and be
payable over the Payout Period, provided, however, the in the event the
Executive is a Specified Employee, as defined in Treasury Regulation Section
1.409A-1(i), such Supplemental Retirement Income Benefit shall commence upon the
later of: (i) the first day of the seventh month following the executive’s
termination of employment or (ii) the date on which the Executive attains his
Benefit Age. For purposes of this Section VI, the Executive’s
termination of employment shall be construed to require a Separation from
Service as defined in Code Section 409A and the Treasury Regulations promulgated
thereunder, such that the Bank and Executive reasonably anticipate that the
level of bona fide services the Executive would perform after termination would
permanently decrease to a level that is less than 50% of the average level of
bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding 36-month period.
SECTION
VII
DISABILITY
BENEFIT
If the
Executive’s service is terminated prior to Retirement Age due to a disability
which meets the criteria set forth below, the Executive shall receive the
Disability Benefit in lieu of the retirement benefit(s) available pursuant to
Section III (which is (are) not available prior to the Executive’s Benefit
Eligibility Date).
For
purposes of this Section “Disability” or “Disabled” shall mean the Executive:
(i) is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months; (ii) is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than 3 months under an accident
and health plan covering employees of the Executive’s employer; or (iii) is
determined to be totally disabled by the Social Security Administration.
In any instance in which
it is determined that the Executive is Disabled, the Executive shall be entitled
to the following lump sum benefit(s). The lump sum benefit(s) to
which the Executive is entitled shall be the balance represented by the Accrued
Benefit Account. The benefit(s) shall be paid within thirty (30) days
following the date the Executive is determined to be
Disabled. In the event the Executive dies after becoming
eligible for such payment(s) but before the actual payment(s) is (are) made, his
Beneficiary shall be entitled to receive the benefit(s) provided for in this
Section 7 within thirty (30) days following the Executive’s death.
SECTION
VIII
BENEFICIARY
DESIGNATION
The
Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of this Agreement and shall have the right to
change such designation, at any subsequent time, by submitting to the
Administrator, in substantially the form attached as Exhibit B to this
Agreement, a written designation of primary and secondary
Beneficiaries. Any Beneficiary designation made subsequent to
execution of this Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
SECTION
IX
NON-COMPETITION
|
9.1
|
Non-Competition During
Employment
.
|
In
consideration of the agreements of the Bank contained herein and of the payments
to be made by the Bank pursuant hereto, the Executive hereby agrees that, for as
long as he remains employed by the Bank, he will devote substantially all of his
time, skill, diligence and attention to the business of the Bank, and will not
actively engage, either directly or indirectly, in any business or other
activity which is, or may be deemed to be, in any way competitive with or
adverse to the best interests of the business of the Bank, unless the Executive
has the prior express written consent of the Bank.
|
9.2
|
Breach of
Non-Competition Clause
.
|
(a)
Continued Employment
Following Breach
.
In the
event (i) any material breach by the Executive of the agreements and covenants
described in Subsection 8.1 occurs, and (ii) the Executive continues employment
at the Bank following such breach, all benefits under this Agreement shall be
forfeited.
(b)
Termination of Employment
Following Breach
.
In the
event (i) any material breach by the Executive of the agreements and covenants
described in Subsection 9.2 occurs, and (ii) the Executive’s employment with the
Bank is terminated due to such breach, such termination shall be deemed to be
for Cause and the benefits under this Agreement shall be forfeited.
|
9.3
|
Non-Competition
Following Employment
.
|
Executive
further understands and agrees that, following Executive’s termination of
employment, the Bank’s obligation, if any, to make payments to the Executive
under this Agreement shall be conditioned on the Executive’s forbearance from
actively engaging, either directly or indirectly, in any business or other
activity which is, or may be deemed to be, in any way competitive with or
adverse to the best interests of the Bank, unless the Executive has the prior
written consent of the Bank. In the event of the Executive’s breach
of the covenants and agreements contained herein, further payments to the
Executive shall cease and be forfeited.
SECTION
X
EXECUTIVE’S RIGHT TO
ASSETS
The
rights of the Executive, any Beneficiary, or any other person claiming through
the Executive under this Agreement, shall be solely those of an unsecured
general creditor of the Bank. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right to
receive from the Bank those payments or amounts so specified under this
Agreement. The Executive agrees that he, his Beneficiary, or any
other person claiming through him shall have no rights or interests whatsoever
in any asset of the Bank, including any insurance policies or contracts which
the Bank may possess or obtain to informally fund this Agreement. Any
asset used or acquired by the Bank in connection with the liabilities it has
assumed under this Agreement shall not be deemed to be held under any trust for
the benefit of the Executive or his Beneficiaries, unless such asset is
contained in the rabbi trust described in Section XIII of this
Agreement. Any such asset shall be and remain, a general, unpledged
asset of the Bank in the event of the Bank’s insolvency.
SECTION
XI
RESTRICTIONS UPON
FUNDING
The Bank
shall have no obligation to set aside, earmark or entrust any fund or money with
which to pay its obligations under this Agreement. The Executive, his
Beneficiaries or any successor in interest to him shall be and remain simply a
general unsecured creditor of the Bank in the same manner as any other creditor
having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Agreement or to refrain from the same
and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to replace such assets from time to time
or to terminate its investment in such assets at any time, in whole or in
part. At no time shall the Executive be deemed to have any lien,
right, title or interest in or to any specific investment or to any assets of
the Bank. If the Bank elects to invest in a life insurance,
disability or annuity policy upon the life of the Executive, then the Executive
shall assist the Bank by freely submitting to a physical examination and by
supplying such additional information necessary to obtain such insurance or
annuities.
SECTION
XII
ACT
PROVISIONS
|
12.1
|
Named Fiduciary and
Administrator
. The Bank, as Administrator, shall be the Named
Fiduciary of this Agreement. As Administrator, the Bank shall
be responsible for the management, control and administration of the
Agreement as established herein. The Administrator may delegate
to others certain aspects of the management and operational
responsibilities of the Agreement, including the employment of advisors
and the delegation of ministerial duties to qualified
individuals.
|
|
12.2
|
Claims Procedure and
Arbitration
. In the event that benefits under this Agreement are
not paid to the Executive (or to his Beneficiary in the case of the
Executive’s death) and such claimants feel they are entitled to receive
such benefits, then a written claim must be made to the Administrator
within sixty (60) days from the date payments are refused. The
Administrator shall review the written claim and, if the claim is denied,
in whole or in part, it shall provide in writing, within ninety (90) days
of receipt of such claim, its specific reasons for such denial, reference
to the provisions of this Agreement upon which the denial is based, and
any additional material or information necessary to perfect the
claim. Such writing by the Administrator shall further indicate
the additional steps which must be undertaken by claimants if an
additional review of the claim denial is
desired.
|
If
claimants desire a second review, they shall notify the Administrator in writing
within sixty (60) days of the first claim denial. Claimants may
review this Agreement or any documents relating thereto and submit any issues
and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such
claim. This decision shall state the specific reasons for the
decision and shall include reference to specific provisions of this Agreement
upon which the decision is based.
If
claimants continue to dispute the benefit denial based upon completed
performance of this Agreement and the Joinder Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may submit the
dispute to mediation, administered by the American Arbitration Association
(“AAA”) (or a mediator selected by the parties) in accordance with the AAA’s
Commercial Mediation Rules. If mediation is not successful in
resolving the dispute, it shall be settled by arbitration administered by the
AAA under its Commercial Arbitration Rules, and judgment on the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
SECTION
XIII
MISCELLANEOUS
|
13.1
|
No Effect on
Employment Rights
. Nothing contained herein will confer upon the
Executive the right to be retained in the service of the Bank nor limit
the right of the Bank to discharge or otherwise deal with the Executive
without regard to the existence of the
Agreement.
|
|
13.2
|
State Law
. The
Agreement is established under, and will be construed according to, the
laws of the state of New York, to the extent such laws are not preempted
by the Act and valid regulations published
thereunder.
|
|
13.3
|
Severability
.
In the event that any of the provisions of this Agreement or portion
thereof, are held to be inoperative or invalid by any court of competent
jurisdiction, then: (i) insofar as is reasonable, effect will be given to
the intent manifested in the provisions held invalid or inoperative, and
(ii) the validity and enforceability of the remaining provisions will not
be affected thereby.
|
|
13.4
|
Incapacity of
Recipient
. In the event the Executive is declared incompetent and a
conservator or other person legally charged with the care of his person or
Estate is appointed, any benefits under the Agreement to which such
Executive is entitled shall be paid to such conservator or other person
legally charged with the care of his person or
Estate.
|
|
13.5
|
Unclaimed
Benefit
. The Executive shall keep the Bank informed of his current
address and the current address of his Beneficiaries. The Bank shall not
be obligated to search for the whereabouts of any person. If
the location of the Executive is not made known to the Bank as of the date
upon which any payment of any benefits from the Accrued Benefit Account
may first be made, the Bank shall delay payment of the Executive’s benefit
payment(s) until the location of the Executive is made known to the Bank;
however, the Bank shall only be obligated to hold such benefit payment(s)
for the Executive until the expiration of thirty-six (36)
months. Upon expiration of the thirty-six (36) month period,
the Bank may discharge its obligation by payment to the Executive’s
Beneficiary. If the location of the Executive’s Beneficiary is
not made known to the Bank by the end of an additional two (2) month
period following expiration of the thirty-six (36) month period, the Bank
may discharge its obligation by payment to the Executive’s
Estate. If there is no Estate in existence at such time or if
such fact cannot be determined by the Bank, the Executive and his
Beneficiary(ies) shall thereupon forfeit any rights provided for such
Executive and/or Beneficiary under this
Agreement.
|
|
13.6
|
Limitations on
Liability
. Notwithstanding any of the preceding provisions of the
Agreement, no individual acting as an employee or agent of the Bank, or as
a member of the Board of Directors shall be personally liable to the
Executive or any other person for any claim, loss, liability or expense
incurred in connection with the
Agreement.
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13.7
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Gender
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Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so
apply.
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13.8
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Effect on Other
Corporate Benefit Agreements
. Nothing contained in this Agreement
shall affect the right of the Executive to participate in or be covered by
any qualified or non-qualified pension, profit sharing, group, bonus or
other supplemental compensation or fringe benefit agreement constituting a
part of the Bank’s existing or future compensation
structure.
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13.9
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Suicide
.
Notwithstanding anything to the contrary in this Agreement, if the
Executive’s death results from suicide, whether sane or insane, within
twenty-six (26) months after execution of this Agreement, all benefits
under this Agreement shall be forfeited, and this Agreement shall become
null and void.
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13.10
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Inurement
. This
Agreement shall be binding upon and shall inure to the benefit of the
Bank, its successors and assigns, and the Executive, his successors,
heirs, executors, administrators, and
Beneficiaries.
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13.11
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Headings
.
Headings and sub-headings in this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this
Agreement.
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13.12
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Source of
Payments
. All payments provided in this Agreement shall be timely
paid in cash or check from the general funds of the Bank or the assets of
the rabbi trust.
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13.13
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Tax Withholding and
Code Section 409A Taxes
. Any distribution under this
Agreement shall be reduced by the amount of any taxes required to be
withheld from such distribution. This Agreement shall permit
the acceleration of the time or schedule of a payment to pay employment
related taxes as permitted under Treasury Regulation Section 1.409A-3(j)
or to pay any taxes that may become due at any time that the arrangement
fails to meet the requirements of Code Section 409A and the regulations
and other guidance promulgated thereunder. In the latter case,
such payments shall not exceed the amount required to be included in
income as the result of the failure to comply with the requirements of
Code Section 409A.
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13.14
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Acceleration of
Payments
. Except as specifically permitted herein or in other
sections of this Agreement, no acceleration of the time or schedule of any
payment may be made hereunder. Notwithstanding the foregoing,
payments may be accelerated hereunder by the Bank, in accordance with the
provisions of Treasury Regulation Section 1.409A-3(j)(4) and any
subsequent guidance issued by the United States Treasury
Department. Accordingly, payments may be accelerated, in
accordance with requirements and conditions of the Treasury Regulations
(or subsequent guidance) in the following circumstances: (i) as a result
of certain domestic relations orders; (ii) in compliance with ethics
agreements with the Federal government; (iii) in compliance with ethics
laws or conflicts of interest laws; (iv) in limited cash-outs (but not in
excess of the limit under Code Section 402(g)(1)(B)); (v) in the case of
certain distributions to avoid a non-allocation year under Code Section
409(p); (vi) to apply certain offsets in satisfaction of a debt of the
Executive to the Bank; (vii) in satisfaction of certain bona fide disputes
between the Executive and the Bank; or (viii) for any other purpose set
forth in the Treasury Regulations and subsequent
guidance.
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SECTION
XIV
ESTABLISHMENT OF RABBI
TRUST
The Bank
shall establish a rabbi trust into which the Bank shall contribute assets which
shall be held therein, subject to the claims of the Bank’s creditors in the
event of the Bank’s “Insolvency” as defined in the agreement which establishes
such rabbi trust, until the contributed assets are paid to the Executive and/or
his Beneficiary in such manner and at such times as specified in this
Agreement. It is the intention of the Bank that the contributions to
the rabbi trust shall provide the Bank with a source of funds to assist it in
meeting the liabilities of this Agreement. The rabbi trust and any
assets held therein shall conform to the terms of the rabbi trust agreement
which has been established in conjunction with the Agreement. To the
extent the language in this Agreement is modified by the language in the rabbi
trust agreement, the rabbi trust agreement shall supersede this
Agreement. Any contributions to the rabbi trust shall be made during
each Plan Year in accordance with the rabbi trust agreement. The
amount of such contribution(s) shall be equal to the full present value of all
benefit accruals under this Agreement, if any, less: (i) previous contributions
made on behalf of the Executive to the rabbi trust, and (ii) earnings to date on
all such previous contributions.
SECTION
XV
AMENDMENT/
TERMINATION
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15.1
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Amendment
. This
Agreement shall not be amended, modified or terminated at any time, in
whole or part, without the mutual written consent of the Executive and the
Bank, and such mutual consent shall be required even if the Executive is
no longer employed by the Bank.
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15.2
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Complete
Termination
. Subject to the requirements of Code Section
409A, in the event of complete termination of the Agreement, the Agreement
shall cease to operate and the Bank shall pay out to the Executive his
benefit as set forth below. Such complete termination of the
Agreement shall occur only under the following circumstances and
conditions:
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(a)
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The
Bank may terminate the Agreement within twelve (12) months of a corporate
dissolution taxed under Code Section 331, or with approval of a bankruptcy
court pursuant to 11 U.S.C. §503(b)(1)(A), provided that the amounts
deferred under the Agreement are included in the Executive’s gross income
in the latest of (i) the calendar year in which the Agreement terminates;
(ii) the calendar year in which the amount is no longer subject to a
substantial risk of forfeiture; or (iii) the first calendar year in which
the payment is administratively
practicable.
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(b)
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The
Bank may terminate the Agreement within the thirty (30) days preceding a
Change in Control (but not following a Change in Control), provided that
the Agreement shall only be treated as terminated if all substantially
similar arrangements sponsored by the Bank are terminated so that the
Executive and all executives under substantially similar arrangements are
required to receive all amounts of compensation deferred under the
terminated arrangements within twelve (12) months of the date of the
termination of the arrangements. For these purposes, “Change in
Control” shall be defined in accordance with the Treasury Regulations
under Code Section 409A.
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(c)
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The
Bank may terminate the Agreement provided that: (i) the termination and
liquidation does not occur proximate to a downturn in the financial health
of the Bank; (ii) all arrangements sponsored by the Bank that would be
aggregated with this Agreement under Treasury Regulations Section
1.409A-1(c) if the Executive covered by this Agreement was also covered by
any of those other arrangements are also terminated; (iii) no payments
other than payments that would be payable under the terms of the
arrangement if the termination had not occurred are made within twelve
(12) months of the termination of the arrangement; (iv) all payments are
made within twenty-four (24) months of the termination of the
arrangements; and (v) the Bank does not adopt a new arrangement that would
be aggregated with any terminated arrangement under Treasury Regulations
Section 1.409A-1(c) if the Executive participated in both arrangements, at
any time within three years following the date of termination of the
arrangement.
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SECTION
XVI
EXECUTION
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16.1
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This
Agreement sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this
Agreement.
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16.2
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This
Agreement shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies shall
together constitute one and the same
instrument.
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[Remainder
of page intentionally left blank]
IN WITNESS WHEREOF
, the Bank
and the Executive have caused this Agreement to be executed on the day and date
first above written.
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PATHFINDER
BANK
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By:
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DATE
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(Title)
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EXECUTIVE
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DATE
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RELATED
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
FOR
CHRIS C. GAGAS
CONDITIONS,
ASSUMPTIONS, AND SCHEDULE OF BENEFITS
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1.
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The
Interest Factor for purposes of the Accrued Benefit Account shall be eight
percent (8%) per annum, compounded
monthly.
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2.
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Benefit
Age shall be seventy (70).
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3.
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Supplemental
Retirement Income Benefit means an actuarially determined annual amount
equal to Sixty Thousand Six Hundred and Eight-Six Dollars ($60,686) at age
70.
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4.
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The
annual “Survivor’s Benefit” shall be
$60,686.00
,
subject to Subsection 2.5.
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Receipt
of the Supplemental Retirement Income Benefit (or the Survivor’s Benefit) shall
be subject to all provisions of this Agreement.
AMENDED
AND RESTATED
EXECUTIVE
SUPPLEMENTAL RETIREMENT
INCOME
AGREEMENT
BENEFICIARY
DESIGNATION
The
Executive, under the teams of the Amended and Restated Executive Supplemental
Retirement Income Agreement executed by the Bank, dated the 1st day of January,
2005, hereby designates the following Beneficiary(ies) to receive any guaranteed
payments or death benefits under such Agreement, following his
death:
PRIMARY
BENEFICIARY: Constance
Gagas
SECONDARY
BENEFICIARY: Anastasia, Charles, Gregory, Adam per
stirpes
This
Beneficiary Designation hereby revokes any prior Beneficiary Designation which
may have been in effect.
Such
Beneficiary Designation is revocable.
DATE:
December 23, 2008
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(WITNESS)
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EXECUTIVE
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(WITNESS)
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AMENDED
AND RESTATED
EXECUTIVE
SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
NOTICE
OF ELECTION TO CHANGE FORM OF PAYMENT
TO: Bank
Attention:
I hereby
give notice of my election to change the form of payment of my Supplemental
Retirement Income Benefit, as specified below.
I understand that such notice, in
order to be effective, must be submitted on or before December 31,
2008.
You may
not
use this election
form to change your form of your benefit with respect to payments that are
scheduled to be made to you in 2008, or otherwise cause payments to be made to
you in 2008.
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I
hereby elect to change the form of payment of my benefits from monthly
installments throughout my Payout Period to a lump sum benefit
payment.
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I
hereby elect to change the form of payment of my benefits from a lump sum
benefit payment to monthly installments throughout my Payout
Period. Such election hereby revokes my previous notice of
election to receive a lump sum form of benefit
payments.
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Executive
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Date
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Acknowledged
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By:
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Title:
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Date
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________________________________________
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AMENDED
AND RESTATED
SECOND
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME
AGREEMENT
FOR
THOMAS SCHNEIDER
PATHFINDER
BANK
Amended
and Restated Effective January 1, 2005
Financial
Institution Consulting Corporation
700
Colonial Road, Suite 260
Memphis,
Tennessee 38117
WATS:
1-800-873-0089
FAX:
(901) 684-7411
(901)
684-7400
AMENDED
AND RESTATED SECOND EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT FOR
THOMAS SCHNEIDER
This
Amended and Restated Executive Supplemental Retirement Income Agreement (the
“Agreement”) updates and revises the Restated Executive Supplemental Retirement
Income Agreement (the “Original Agreement”) for Thomas Schneider (the
“Executive”), which was originally effective as of September 1,
1998. The Bank has herein amended and restated the Agreement with the
intention that the Agreement shall at all times satisfy Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”) and the regulations
thereunder. Any reference herein to the “Holding Company” shall mean
Pathfinder Bancorp, Inc. and any reference herein to the “Mutual Holding
Company” shall mean Pathfinder Bancorp, M.H.C.
WITNESSETH:
WHEREAS
, the Executive is
employed by the Bank; and
WHEREAS
, the Bank and
Executive entered into the Second Executive Supplemental Retirement Income
Agreement for Thomas Schneider (the “Original Agreement”) on the 1
st
day of
September, 1998; and
WHEREAS
, Section 409A of the
Internal Revenue Code (the “Code”), effective January 1, 2005, requires deferred
compensation arrangements, including those set forth in deferred compensation
arrangements, to comply with its provisions and restrictions and
limitations on payments of deferred compensation; and
WHEREAS
, Code Section 409A and
the final regulations issued thereunder in April of 2007 necessitate changes to
the Original Agreement; and
WHEREAS
, the Bank believes it
is in the best interests of the Bank to amend and restate the Original Agreement
in order to reinforce and reward Executive for his service and dedication to the
continued success of the Bank and incorporate the changes required by the new
tax laws; and
WHEREAS
, the parties hereto
desire to set forth the terms of the amended and restated Agreement and the
continuing employment relationship of the Bank and Executive.
NOW, THEREFORE
, in
consideration of the premises and of the mutual promises herein contained, the
Bank and the Executive agree as follows:
SECTION
I
DEFINITIONS
When used
herein, the following words and phrases shall have the meanings below unless the
context clearly indicates otherwise:
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1.1
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“Accrued
Benefit Account” shall be represented by the bookkeeping entries required
to record the Executive’s (i) Phantom Contributions plus (ii) accrued
interest, equal to the Interest Factor, earned to-date on such amounts.
However, neither the existence of such bookkeeping entries nor the Accrued
Benefit Account itself shall be deemed to create either a trust of any
kind, or a fiduciary relationship between the Bank and the Executive or
any Beneficiary.
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1.2
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“Act”
means the Employee Retirement Income Security Act of 1974, as amended from
time to time.
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1.3
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“Administrator”
means the Bank.
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1.4
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“Bank”
means PATHFINDER BANK and any successor
thereto.
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1.5
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“Beneficiary”
means the person or persons (and their heirs) designated as Beneficiary in
Exhibit B of this Agreement to whom the deceased Executive’s benefits are
payable. If no Beneficiary is so designated, then the Executive’s Spouse,
if living, will be deemed the Beneficiary. If the Executive’s Spouse is
not living, than the Children of the Executive will be deemed the
Beneficiaries and will take on a per stirpes basis. If there are no
Children, then the Estate of the Executive will be deemed the
Beneficiary.
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1.6
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“Benefit
Age” means the Executive’s sixty-second (62nd) birthday. Notwithstanding
the above, the Executive may, in his sole discretion, elect to Separate
from Service on or after the Executive’s sixty-second (62nd) birthday and,
in such event, the Executive’s age on such date shall constitute his
“Benefit Age”; provided, however, that in the event of a Change in
Control, followed within thirty-six (36) months by the Executive’s
voluntary Separation from Service on or after his sixty-second birthday
for one of the reasons set forth in Section 2.1(b)(2)(ii) below, the
Executive’s termination shall not be considered a retirement for purposes
of lowering the Executive’s Benefit
Age.
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1.7
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“Benefit
Eligibility Date” means the date on which the Executive is entitled to
receive any benefit(s) pursuant to Section(s) III or V of this
Agreement. It shall be the first day of the month following the
month in which the Executive attains his Benefit
Age.
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1.8
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“Board
of Directors” means the board of directors of the
Bank.
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1.9
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“Cause”
means personal dishonesty, willful misconduct, willful malfeasance, breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, role, regulation
(other than traffic violations or similar offenses), or final
cease-and-desist order, material breach of any provision of this
Agreement, or gross negligence in matters of material importance to the
Bank.
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1.10
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“Change
in Control” shall mean and include the following with respect to the
Mutual Holding Company, the Bank, or the Holding
Company:
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(i)
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a
reorganization, merger, merger conversion, consolidation or sale of all or
substantially all of the assets of the Bank, the Mutual Holding Company or
the Holding Company, or a similar transaction in which the Bank, the
Mutual Holding Company or the Holding Company is not the resulting entity;
or
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(ii)
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individuals
who constitute the board of directors of the Bank, the Mutual Holding
Company or the Holding Company on the date hereof (the “Incumbent Board”)
cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
was approved by the Holding Company’s nominating committee which is
comprised of members of the Incumbent Board, shall be, for purposes of
this clause (ii) considered as though he were a member of the Incumbent
Board.
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Notwithstanding
the foregoing, a “Change in Control” of the Bank or the Holding Company shall
not be deemed to have occurred if the Mutual Holding Company ceases to own at
least 51% of all outstanding shares of stock of the Holding Company in
connection with a liquidation of the Mutual Holding Company into the Holding
Company or a conversion of the Mutual Holding Company from mutual to stock
form.
In
addition, “Change in Control” shall mean and include the following with respect
to the Bank or the Holding Company in the event that the Mutual Holding Company
converts to stock form or in the event that the Holding Company issues shares of
its common stock to stockholders other than the Mutual Holding
Company:
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(1)
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a
change in control of a nature that would be required to be reported in
response to Item 5.01 of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (hereinafter the “Exchange Act”);
or
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(2)
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an
acquisition of “control” as defined in the Home Owners Loan Act, as
amended, and applicable rules and regulations promulgated thereunder, as
in effect at the time of the Change in Control (collectively, the “HOLA”),
as determined by the Board of Directors of the Bank or the Holding
Company; or
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(i)
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any
“person” (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) or “group acting in concert” is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank representing Twenty Percent (20%) or more of the
combined voting power of the Bank’s or Holding Company’s outstanding
securities ordinarily having the right to vote at the elections of
directors, except for any stock purchased by the Bank’s Employee Stock
Ownership Plan and/or the trust under such plan;
or
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(ii)
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a
proxy statement is issued soliciting proxies from the stockholders of the
Holding Company by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger, or consolidation of the Holding Company with one or more
corporations as a result of which the outstanding shares of the class of
the Holding Company’s securities are exchanged for or converted into cash
or property or securities not issued by the Holding
Company.
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The term
“person” includes an individual, a group acting in concert, a corporation, a
partnership, an association, a joint venture, a pool, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities. The term “acquire” means obtaining ownership, control, power to vote
or sole power of disposition of stock, directly or indirectly or through one or
more transactions or subsidiaries, through purchase, assignment, transfer,
exchange, succession or other means, including (1) an increase in percentage
ownership resulting from a redemption, repurchase, reverse stock split or a
similar transaction involving other securities of the same class; and (2) the
acquisition of stock by a group of persons and/or companies acting in concert
which shall be deemed to occur upon the formation of such group, provided that
an investment advisor shall not be deemed to acquire the voting stock of its
advisee if the advisor (a) votes the stock only upon instruction from the
beneficial owner and (b) does not provide the beneficial owner with advice
concerning the voting of such stock. The term “security” includes
nontransferable subscription rights issued pursuant to a plan of conversion, as
well as a “security,” as defined in 15 U.S.C. §78c(2)(1); and the term “acting
in concert” means (1) knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (2) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. Further, acting in concert with any person or
company shall also be deemed to be acting in concert with any person or company
that is acting in concert with such other person or company.
Notwithstanding
the above definitions, the boards of directors of the Bank or the Holding
Company, in their absolute discretion, may make a finding that a Change in
Control of the Bank or the Holding Company has taken place without the
occurrence of any or all of the events enumerated above.
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1.11
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“Children”
means the Executive’s children, both natural and adopted, then living at
the time payments are due the Children under this
Agreement.
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1.12
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“Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
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1.13
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“Contribution(s)”
means those annual contributions which the Bank is required to make to the
Retirement Income Trust Fund on behalf of the Executive in accordance with
Subsection 2.1(a) and in the amounts set forth in Exhibit A of the
Agreement.
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1.14
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“Disability
Benefit” means the benefit payable to the Executive following a
determination, in accordance with Section 6, that he is no longer able,
properly and satisfactorily, to perform his duties at the
Bank.
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1.15
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“Effective
Date” of this restated Agreement shall be January 1,
2005.
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1.16
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“Estate”
means the estate of the Executive.
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1.17
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“Interest
Factor” means monthly compounding, discounting or annuitizing, as
applicable, at a rate set forth in Exhibit
A.
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1.18
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“Payout
Period” means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal monthly
installments commencing on the first day of the month following the
occurrence of the event which triggers distribution and continuing for
one-hundred and eighty (180) months. Should the Executive make a Timely
Election to receive a lump sum benefit payment, the Executive’s Payout
Period shall be deemed to be one (1)
month.
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1.19
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“Phantom
Contributions” means those annual Contributions which the Bank is no
longer required to make on behalf of the Executive to the Retirement
Income Trust Fund. Rather, once the Executive has exercised the withdrawal
rights provided for in Subsection 2.2, the Bank shall be required to
record the annual amounts set forth in Exhibit A of the Agreement in the
Executive’s Accrued Benefit Account, pursuant to Subsection
2.1.
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1.20
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“Plan
Year” shall mean the calendar year.
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1.21
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“Retirement
Age” means the Executive’s sixty-second (62nd) birthday provided, however,
that the Executive’s actual Separation from Service from full-time
employment may occur on or after the Executive attains age sixty-two (62)
or at any later date mutually agreed upon by the
parties.
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1.22
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“Retirement
Income Trust Fund” means the trust fund account established by the
Executive and into which annual Contributions will be made by the Bank on
behalf of the Executive pursuant to Subsection 2.1. The contractual rights
of the Bank and the Executive with respect to the Retirement Income Trust
Fund shall be outlined in a separate writing to be known as the Thomas
Schneider Grantor Trust agreement.
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1.23
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“Separation
from Service” means Executive’s retirement or other termination of
employment with the Bank within the meaning of Code Section
409A. No Separation from Service shall be deemed to occur due
to military leave, sick leave or other bona fide leave of absence if the
period of such leave does not exceed six months or, if longer, so long as
Executive’s right to reemployment is provided by law or
contract. If the leave exceeds six months and Executive’s right
to reemployment is not provided by law or by contract, then Executive
shall have a Separation from Service on the first date immediately
following such six-month period.
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Whether a Separation from Service has
occurred is determined based on whether thefacts and circumstances indicate that
the Bank and the Executive reasonablyanticipated reasonably anticipate that the
level of bona fide services the Executive would perform after termination would
permanently decrease to a level that is less than 50% of the average level of
bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding 36-month period.
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1.24
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“Spouse”
means the individual to whom the Executive is legally married at the time
of the Executive’s death.
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1.25
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“Supplemental
Retirement Income Benefit” means an annual amount (before taking into
account federal and state income taxes), payable in monthly installments
throughout the Payout Period. Such benefit is projected pursuant to the
Agreement for the purpose of determining the Contributions to be made to
the Retirement Income Trust Fund (or Phantom Contributions to be recorded
in the Accrued Benefit Account). The annual Contributions and Phantom
Contributions have been actuarially determined, using the assumptions set
forth in Exhibit A, in order to fund for the projected Supplemental
Retirement Income Benefit. The Supplemental Retirement Income Benefit for
which Contributions (or Phantom Contributions) are being made (or
recorded) is set forth in Exhibit
A.
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1.26
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“Timely
Election” means the Executive has made an election to change the form of
his benefit payment(s) on or before December 31, 2008 by filing with the
Administrator a Notice of Election to Change Form of Payment (Exhibit C of
this Agreement). In the case of benefits payable from the Accrued Benefit
Account, a Timely Election shall be made by filing with the Bank a
Transition Year Election Form (Exhibit D of this Agreement), provided that
such election is made on or before December 31, 2008. In the
case of benefits payable from the Retirement Income Trust Fund, such
election may be made at any time.
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SECTION
II
BENEFITS-GENERALLY
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2.1
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(a)
Retirement Income
Trust Fund and Accrued Benefit Account
. The Executive
shall establish the Thomas Schneider Grantor Trust into which the Bank
shall be required to make annual Contributions on the Executive’s behalf,
pursuant to Exhibit A and this Section II of the Agreement. A trustee
shall be selected by the Executive. The trustee shall maintain an account,
separate and distinct from the Executive’s personal contributions, which
account shall constitute the Retirement Income Trust Fund. The trustee
shall be charged with the responsibility of investing all contributed
funds. Distributions from the Retirement Income Trust Fund of the Thomas
Schneider Grantor Trust may be made by the trustee to the Executive, for
purposes of payment of any income or employment taxes due and owing on
Contributions by the Bank to the Retirement Income Trust Fund, if any, and
on any taxable earnings associated with such Contributions which the
Executive shall be required to pay from year to year, under applicable
law, prior to actual receipt of any benefit payments from the Retirement
Income Trust Fund. If the Executive exercises his withdrawal
rights pursuant to Subsection 2.2, the Bank’s obligation to make
Contributions to the Retirement Income Trust Fund shall cease and the
Bank’s obligation to record Phantom Contributions in the Accrued Benefit
Account shall immediately continence pursuant to Exhibit A and this
Section II of the Agreement. To the extent this Agreement is
inconsistent with the Thomas Schneider Grantor Trust Agreement, the Thomas
Schneider Grantor Trust Agreement shall supersede this
Agreement.
|
The
annual Contributions (or Phantom Contributions) required to be made by the Bank
to the Retirement Income Trust Fund (or recorded by the Bank in the Accrued
Benefit Account) have been actuarially determined and are set forth in Exhibit A
which is attached hereto and incorporated herein by reference. Contributions
shall be made by the Bank to the Retirement Income Trust Fund (i) within
seventy-five (75) days of establishment of such trust, and (ii) within the first
thirty (30) days of the beginning of each subsequent Plan Year, unless this
Section expressly provides otherwise. Phantom Contributions, if any, shall be
recorded in the Accrued Benefit Account within the first thirty (30) days of the
beginning of each applicable Plan Year, unless this Section expressly provides
otherwise. Phantom Contributions shall accrue interest at a rate equal to the
Interest Factor, during the Payout Period, until the balance of the Accrued
Benefit Account has been fully distributed. Interest on any Phantom Contribution
shall not commence until such Payout Period commences.
The
Administrator shall review the schedule of annual Contributions (or Phantom
Contributions) provided for in Exhibit A (i) within thirty (30) days prior to
the close of each Plan Year and (ii) if the Executive is employed by the Bank
until attaining Retirement Age, on or immediately before attainment of such
Retirement Age. Such review shall consist of an evaluation of the accuracy of
all assumptions used to establish the schedule of Contributions (or Phantom
Contributions). Provided that (i) the Executive has not exercised his
withdrawal rights pursuant to Subsection 2.2 and (ii) the investments contained
in the Retirement Income Trust Fund have been deemed reasonable by the Bank, the
Administrator shall prospectively amend or supplement the schedule of
Contributions provided for in Exhibit A should the Administrator determine
during any such review that an increase in or supplement to the schedule of
Contributions is necessary in order to adequately fund the Retirement Income
Trust Fund so as to provide an annual benefit (or to provide the lump sum
equivalent of such benefit, as applicable) equal to the Supplemental Retirement
Income Benefit, on an after-tax basis, commencing at Benefit Age and payable for
the duration of the Payout Period.
(b)
Withdrawal Rights Not
Exercised
.
(1)
Contributions Made
Annually
If the
Executive does not exercise any withdrawal rights pursuant to Subsection 2.2,
the annual Contributions to the Retirement Income Trust Fund shall continue each
year, unless this Subsection 2.1(b) specifically states otherwise, until the
earlier of (i) the last Plan Year that Contributions are required pursuant to
Exhibit A, or (ii) the Plan Year of the Executive’s termination of
employment.
(2)
Termination Following a
Change in Control
If the
Executive does not exercise his withdrawal rights pursuant to Subsection 2.2 and
a Change in Control occurs at the Bank, followed within thirty-six (36) months
by either (i) the Executive’s involuntary termination of employment, or (ii)
Executive’s voluntary termination of employment after: (A) a material change in
the Executive’s function, duties, or responsibilities, which change would cause
the Executive’s position to become one of lesser responsibility, importance, or
scope from the position the Executive held at the time of the Change in Control,
(B) a relocation of the Executive’s principal place of employment by more than
thirty (30) miles from its location prior to the Change in Control, or (C) a
material reduction in the benefits and perquisites to the Executive from those
being provided-at the time of the Change in Control, the Contribution set forth
on Schedule A shall continue to be required of the Bank. The Bank shall be
required to make an immediate lump sum contribution to the Retirement Income
Trust Fund equal to (i) the full Contribution required for the Plan Year in
which such termination occurs, if not yet made, plus (ii) the present value
(computed using a discount rate equal to the Interest Factor) of all remaining
Contributions to the Retirement Income Trust Fund; provided, however, in no
event shall the Contribution be less than an amount which is sufficient to
provide the Executive with after-tax benefits (assuming a constant tax rate
equal to the rate in effect as of the date of Executive’s termination) beginning
at his Benefit Age, equal in amount to that benefit which would have been
payable to the Executive if no secular trust had been implemented and the
benefit obligation had been accrued under APB Opinion No. 12, as amended by FAS
106.
(3)
Termination For
Cause
If the
Executive does not exercise his withdrawal rights pursuant to Subsection 2.2,
and is terminated for Cause pursuant to Subsection 5.2, no further
Contribution(s) to the Retirement Income Trust Fund shall be required of the
Bank, and if not yet made, no Contribution shall be required for the Plan Year
in which such termination for Cause occurs.
(4)
Involuntary Termination of
Employment
If the
Executive does not exercise his withdrawal rights pursuant to Subsection 2.2,
and the Executive’s employment with the Bank is involuntarily terminated for any
reason, including a termination due. to disability of the Executive but
excluding termination for Cause, or termination following a Change in Control
within twenty-four (24) months of such Change in Control, within thirty (30)
days of such involuntary termination of employment, the Bank shall be required
to make an immediate lump sum Contribution to the Executive’s Retirement Income
Trust Fund in an amount equal to the: (i) the full Contribution required for the
Plan Year in which such involuntary termination occurs, if not yet made, plus
(ii) the present value (computed using a discount rate equal to the Interest
Factor) of all remaining Contributions to the Retirement Income Trust Fund;
provided however, that, if necessary, an amount shall be contributed to the
Retirement Income Trust Fund which is sufficient to provide the Executive with
after tax benefits (assuming a constant tax rate equal to the rate in effect as
of the date of the Executive’s termination) beginning at his Benefit Age, equal
in amount to that benefit which would have been payable to the Executive if no
secular trust had been implemented and the benefit obligation had been accrued
under APB Opinion No. 12, as amended by FAS 106.
(5)
Death During
Employment
If the
Executive does not exercise any withdrawal rights pursuant to Subsection 2.2,
and dies while employed by the Bank, and if, following the Executive’s death,
the assets of the Retirement Income Trust Fund are insufficient to provide the
Supplemental Retirement Income Benefit to which the Executive is entitled, the
Bank shall be required to make a Contribution to the Retirement Income Trust
Fund equal to the sum of the remaining Contributions set forth on Exhibit A,
after taking into consideration any payments under any life insurance policies
that may have been obtained on the Executive’s life by the Retirement Income
Trust Fund. Such final contribution shall be payable in a lump sum to the
Retirement Income Trust Fund within thirty (30) days of the Executive’s
death.
(c)
Withdrawal Rights
Exercised
.
(1)
Phantom Contributions Made
Annually
If the
Executive exercises his withdrawal rights pursuant to Subsection 2.2, no further
Contributions to the Retirement Income Trust Fund shall be required of the Bank.
Thereafter, Phantom Contributions shall be recorded annually in the Executives
Accrued Benefit Account within thirty (30) days of the beginning of each Plan
Year, commencing with the first Plan Year following the Plan Year in which the
Executive exercises his withdrawal rights. Such Phantom Contributions shall
continue to be recorded annually, unless this Subsection 2.1(c) specifically
states otherwise, until the earlier of (i) the last Plan Year that Phantom
Contributions are required pursuant to Exhibit A, or (ii) the Plan Year of the
Executive’s termination of employment.
(2)
Termination Following a
Change in Control
If the
Executive exercises his withdrawal rights pursuant to Subsection 2.2, Phantom
Contributions shall commence in the Plan Year following the Plan Year in which
the Executive first exercises his withdrawal rights. If a Change in Control
occurs at the Bank, and within thirty-six (36) months of such Change in Control,
the Executive’s employment is either (i) involuntarily terminated, or (ii)
voluntarily terminated by the Executive after: (A) a material change in the
Executive’s function, duties, or responsibilities, which change would cause the
Executive’s position to become one of lesser responsibility, importance, or
scope from the position the Executive held at the time of the Change in Control,
(B) a relocation of the Executive’s principal place of employment by more than
thirty (30) miles from its location prior to the Change in Control, or (C) a
material reduction in the benefits and perquisites to the Executive from those
being provided at the time of the Change in Control, the Phantom Contribution
set forth below shall be required of the Bank. The Bank shall be required to
record a lump sum Phantom Contribution in the Accrued Benefit Account within ten
(10) days of the Executive’s termination of employment. The amount of such final
Phantom Contribution shall be actuarially determined based on the Phantom
Contribution required, at such time, in order to provide a benefit via this
Agreement equivalent to the Supplemental Retirement Income Benefit, on an
after-tax basis, commencing on the Executive’s Benefit Eligibility Date and
continuing for the duration of the Payout Period. (Such actuarial determination
shall reflect the fact that amounts shall be payable from both the Accrued
Benefit Account as well as the Retirement Income Trust Fund and shall also
reflect the amount and timing of any withdrawal(s) made by the Executive from
the Retirement Income Trust Fund pursuant to Subsection 2.2.)
(3)
Termination For
Cause
If the
Executive is terminated for Cause pursuant to Subsection 5.2, the entire balance
of the Executive’s Accrued Benefit Account at the time of such termination,
which shall include any Phantom Contributions which have been recorded plus
interest accrued on such Phantom Contributions, shall be forfeited.
(4)
Involuntary Termination of
Employment
If the
Executive exercises his withdrawal rights pursuant to Subsection 2.2, and the
Executive’s employment with the Bank is involuntarily terminated for any reason
including termination due to disability of the Executive, but excluding
termination for Cause, or termination following a Change in Control, within
thirty (30) days of such involuntary termination of employment, the Bank shall
be required to record a final Phantom Contribution in an amount equal to: (i)
the full Phantom Contribution required for the Plan Year in which such
involuntary termination occurs, if not yet made, plus (ii) the present value
(computed using a discount rate equal to the Interest Factor) of all remaining
Phantom Contributions.
(5)
Death During
Employment
If the
Executive exercises his withdrawal rights pursuant to Subsection 2.2, and dies
while employed by the Bank, Phantom Contributions included on Exhibit A shall be
required of the Bank. Such Phantom Contributions shall commence in the Plan Year
following the Plan Year in which the Executive exercises his withdrawal rights
and shall continue through the Plan Year in which the Executive dies. The Bank
shall also be required to record a final Phantom Contribution within thirty (30)
days of the Executive’s death. The amount of such final Phantom Contribution
shall be actuarially determined based on the Phantom Contribution required at
such time (if any), in order to provide a benefit via this Agreement equivalent
to the Supplemental Retirement Income Benefit commencing within thirty (30) days
of the date the Administrator receives notice of the Executive’s death and
continuing for the duration of the Payout Period. (Such actuarial determination
shall reflect the fact that amounts shall be payable from the Accrued Benefit
Account as well as the Retirement Income Trust Fund and shall also reflect the
amount and timing of any withdrawal(s) made by the Executive pursuant to
Subsection 2.2).
|
2.2
|
Withdrawals From
Retirement Income Trust
Fund
.
|
Exercise
of withdrawal rights by the Executive pursuant to the Thomas Schneider Grantor
Trust agreement shall terminate the Bank’s obligation to make any further
Contributions to the Retirement Income Trust Fund, and the Bank’s obligation to
record Phantom Contributions pursuant to Subsection 2.1(c) shall commence. For
purposes of this Subsection 2.2, “exercise of withdrawal rights” shall mean
those withdrawal rights to which the Executive is entitled under Article III of
the Thomas Schneider Grantor Trust Agreement and shall exclude any distributions
made by the trustee of the Retirement Income Trust Fund to the Executive for
purposes of payment of income taxes in accordance with Subsection 2.1 of this
Agreement and the tax reimbursement formula contained in the trust document, or
other trust expenses properly payable from the Thomas Schneider Grantor Trust
pursuant to the provisions of the trust document.
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2.3
|
Benefits Payable From
Retirement Income Trust
Fund
.
|
Notwithstanding
anything else to the contrary in this Agreement, in the event that the trustee
of the Retirement Income Trust Fund purchases a life insurance policy with the
Contributions to and, if applicable, earnings of the Trust, and such lift
insurance policy is intended to continue in force beyond the Payout Period for
the disability or retirement benefits payable from the Retirement Income Trust
Fund pursuant to this Agreement, then the trustee shall have discretion to
determine the portion of the cash value of such policy available for purposes of
annuitizing the Retirement Income Trust Fund (it being understood that for
purposes of this Section 2.3, “annuitizing” does not mean surrender of such
policy and annuitizing of the cash value received upon such surrender) to
provide the disability or retirement benefits payable under this Agreement,
after taking into consideration the amounts reasonably believed to be required
in order to maintain the cash value of such policy to continue such policy in
effect until the death of the Executive and payment of death benefits
thereunder.
SECTION
III
RETIREMENT
BENEFIT
|
3.1
|
(a)
Normal form of
payment
.
|
If (i)
the Executive is employed with the Bank until reaching his Retirement Age, and
(ii) the Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 3.1(a) shall be controlling with respect to retirement
benefits.
The
Retirement Income Trust Fund, measured as of the Executive’s Benefit Age, shall
be annuitized (using the Interest Factor) into monthly installments and shall be
payable for the Payout Period. Such benefit payments shall commence on the
Executive’s Benefit Eligibility Date. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is annuitized,
which is less than the rate of return used to annuitize the Retirement Income
Trust Fund, no additional contributions to the Retirement Income Trust Fund
shall be required by the Bank in order to fund the final benefit payment(s) and
make up for any shortage attributable to the less-than-expected rate of return.
Should Retirement Income Trust Fund assets actually earn a rate of return,
following the date such balance is annuitized, which is greater than the rate of
return used to annuitize the Retirement Income Trust Fund, the final benefit
payment to the Executive (or his Beneficiary) shall distribute the excess
amounts attributable to the greater-than expected rate of return. The Executive
may at anytime during the Payout Period request to receive the unpaid balance of
his Retirement Income Trust Fund in a lump sum payment. If such a lump sum
payment is requested by the Executive, payment of the balance of the Retirement
Income Trust Fund in such lump sum form shall be made only if the Executive
gives notice to both the Administrator and trustee in writing. Such lump sum
payment shall be payable within thirty (30) days of such notice. In the event
the Executive dies at any time after attaining his Benefit Age, but prior to
commencement or completion of all monthly payments due and owing hereunder, (i)
the trustee of the Retirement Income Trust Fund shall pay to the Executive’s
Beneficiary the monthly installments (or a continuation of such monthly
installments if they have already commenced) for the balance of months remaining
in the Payout Period, or (ii) the Executive’s Beneficiary may request to receive
the unpaid balance of the Executive’s Retirement Income Trust Fund in a lump sum
payment. If a lump sum payment is requested by the Beneficiary, payment of the
balance of the Retirement Income Trust Fund in such lump sum form shall be made
only if the Executive’s Beneficiary notifies both the Administrator and trustee
in writing of such election within ninety (90) days of the Executive’s death.
Such lump sum payment shall be payable within thirty (30) days of such
notice.
The
Executive’s Accrued Benefit Account (if applicable), measured as of the
Executive’s Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
benefit payments shall commence on the Executive’s Benefit Eligibility
Date. Notwithstanding the foregoing, in the event the Executive is a
Specified Employee (within the meaning of Treasury Regulations §1.409A-1(i)),
then, to the extent necessary to avoid penalties under Code Section 409A, any
payments of the Executive’s Accrued Benefit Account to which Executive is
entitled for the first six months following Separation from Service shall be
held and shall be paid to the Executive on the first day of the seventh month
following the Executive’s Benefit Age. In the event the Executive
dies at any time after attaining his Benefit Age, but prior to commencement or
completion of all the payments due and owing hereunder, (i) the Bank shall pay
to the Executive’s Beneficiary the same monthly installments (or a continuation
of such monthly installments if they have already commenced) for the balance of
months remaining in the Payout Period.
(b)
Alternative payout
option
.
If (i)
the Executive is employed with the Bank until reaching his Retirement Age, and
(ii) the Executive has made a Timely Election to receive a lump sum benefit,
this Subsection 3.1(b) shall be controlling with respect to retirement
benefits.
The
balance of the Retirement Income Trust Fund, measured as of the Executive’s
Benefit Age, shall be paid to the Executive in a lump sum on his Benefit
Eligibility Date. In the event the Executive dies after becoming eligible for
such payment (upon attainment of his Benefit Age), but before the actual payment
is made, his Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 3.1(b) within thirty (30) days of the date the
Administrator receives notice of the Executive’s death.
The
balance of the Executive’s Accrued Benefit Account (if applicable), measured as
of the Executive’s Benefit Age, shall be paid to the Executive in a lump sum on
his Benefit Eligibility Date. Notwithstanding the foregoing, in the
event Executive is a Specified Employee (within the meaning of Treasury
Regulations §1.409A-1(i)), and to the extent necessary to avoid penalties under
Code Section 409A, such payment of the balance of the Executive’s Accrued
Benefit Account shall be made to the Executive on the first day of the seventh
month following the Executive’s Benefit Age. In the event the
Executive dies after becoming eligible for such payment (upon attainment of his
Benefit Age), but before the actual payment is made, his Beneficiary shall be
entitled to receive the lump sum benefit in accordance with this Subsection
3.1(b) within thirty (30) days of the date the Administrator receives notice of
the Executive’s death.
|
3.2
|
Additional Death
Benefit - Burial Expense
. In addition to the above-described
benefits, upon the Executive’s death, the Executive’s Beneficiary shall be
entitled to receive a one-time lump sum death benefit in the amount of Ten
Thousand Dollars ($10,000.00). This benefit shall be provided specifically
for the purpose of providing payment for burial and/or funeral expenses of
the Executive. Such benefit shall be payable within thirty (30) days of
the Executive’s death. The Executive’s Beneficiary shall not be entitled
to such benefit if the Executive is removed for Cause prior to
death. Notwithstanding anything in this Section 3.2 to the
contrary, if the Executive is also a participant in any other Trustee
Deferred Compensation Agreement or an Executive Deferred Compensation
Agreement under which an additional $10,000 death benefit for burial
expenses is being paid, no additional death benefit shall be paid under
this Section 3.2.
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SECTION
IV
PRE-RETIREMENT DEATH
BENEFIT
|
4.1
|
(a)
Normal form of
payment
.
|
If (i)
the Executive dies while employed by the Bank, and (ii) the Executive has not
made a Timely Election to receive a lump sum benefit, this Subsection 4.1(a)
shall be controlling with respect to pre-retirement death benefits.
The
balance of the Executive’s Retirement Income Trust Fund, measured as of the
later of (i) the Executive’s death, or (ii) the date any final lump sum
Contribution is made pursuant to Subsection 2.1(b), shall be annuitized (using
the Interest Factor) into monthly installments and shall be payable for the
Payout Period. Such benefits shall commence within thirty (30) days of the date
of the Executive’s death. Should Retirement Income Trust Fund assets actually
earn a rate of return, following the date such balance is annuitized, which is
less than the rate of return used to annuitize the Retirement income Trust Fund,
no additional contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit payment(s) and make up
for any shortage attributable to the less-than-expected rate of return. Should
Retirement Income Trust Fund assets actually earn a rate of return, following
the date such balance is annuitized, which is greater than the rate of return
used to annuitize the Retirement Income Trust Fund, the final benefit payment to
the Executive’s Beneficiary shall distribute the excess amounts attributable to
the greater-than-expected rate of return. The Executive’s Beneficiary may
request to receive the unpaid balance of the Executive’s Retirement Income Trust
Fund in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, payment of the balance of the Retirement Income Trust Fund in such
lump sum form shall be made only if the Executive’s Beneficiary notifies both
the Administrator and trustee in writing of such election within ninety (90)
days of the Executive’s death. Such lump sum payment shall be made
within thirty (30) days of such notice.
The
Executive’s Accrued Benefit Account (if applicable), measured as of the later of
(i) the Executive’s death or (ii) the date any final lump sum Phantom
Contribution is recorded in the Accrued Benefit Account pursuant to Subsection
2.1(c), shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable to the Executive’s Beneficiary for the Payout
Period. Such benefit payments shall commence within thirty (30) days of the date
the Executive’s death, or if later, within thirty (30) days after any final lump
sum Phantom Contribution is recorded in the Accrued Benefit Account in
accordance with Subsection 2.1(c), provided that payment commences within two
and one-half months immediately following the taxable year of the Executive’s
death.
(b)
Alternative payout
option
.
If (i)
the Executive dies while employed by the Bank, and (ii) the Executive has made a
Timely Election to receive a lump sum benefit, this Subsection 4.1(b) shall be
controlling with respect to pre-retirement death benefits.
The
balance of the Executive’s Retirement Income Trust Fund, measured as of the
later of (i) the Executive’s death, or (ii) the date any final lump sum
Contribution is made pursuant to Subsection 2.1(b), shall be paid to the
Executive’s Beneficiary in a lump sum within thirty (30) days of the date of the
Executive’s death.
The
balance of the Executive’s Accrued Benefit Account (if applicable), measured as
of the later of (i) the Executive’s death, or (ii) the date any final Phantom
Contribution is recorded pursuant to Subsection 2.1(c), shall be paid to the
Executive’s Beneficiary in a lump sum within thirty (30) days of the date of the
Executive’s death.
SECTION
V
BENEFIT(S) IN THE EVENT OF
TERMINATION OF SERVICE
PRIOR TO RETIREMENT
AGE
|
5.1
|
Voluntary or
Involuntary Termination of Service Other Than for
Cause
. In the event the Executive’s service with the
Bank is voluntarily or involuntarily terminated prior to Retirement Age,
for any reason including a Change in Control, but excluding (i) any
disability related termination for which the Board of Directors has
approved early payment of benefits pursuant to Subsection 6.1, (ii) the
Executive’s pre-retirement death, which shall be covered in Section IV, or
(iii) termination for Cause, which shall be covered in Subsection 5.2, the
Executive (or his Beneficiary) shall be entitled to receive benefits in
accordance with this Subsection 5.1. Payments of benefits pursuant to this
Subsection 5.1 shall be made in accordance with Subsection 5.1 (a) or 5.1
(b) below, as applicable.
|
(a)
Normal form of
payment
.
(1)
Executive Lives Until
Benefit Age
If (i)
after such termination, the Executive lives until attaining his Benefit Age, and
(ii) the Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 5.1(a)(1) shall be controlling with respect to retirement
benefits.
The
Retirement Income Trust Fund, measured as of the Executive’s Benefit Age, shall
be annuitized (using the Interest Factor) into monthly installments and shall be
payable for the Payout Period. Such payments shall commence on the Executive’s
Benefit Eligibility Date. Should Retirement Income Trust Fund assets actually
earn a rate of return, following the date such balance is annuitized, which is
less than the rate of return used to annuitize the Retirement Income Trust Fund,
no additional contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit payment(s) and make up
for any shortage attributable to the less-than-expected rate of return. Should
Retirement Income Trust Fund assets actually earn a rate of return, following
the date such balance is annuitized, which is greater than the rate of return
used to annuitize the Retirement Income Trust Fund, the final benefit payment to
the Executive (or his Beneficiary) shall distribute the excess amounts
attributable to the greater-than-expected rate of return. The Executive may at
anytime during the Payout Period request to receive the unpaid balance of his
Retirement Income Trust Fund in a lump sum payment. If such a lump sum payment
is requested by the Executive, payment of the balance of the Retirement Income
Trust Fund in such lump sum form shall be made only if the Executive gives
notice to both the Administrator and trustee in writing. Such lump sum payment
shall be payable within thirty (30) days of such notice. In the event the
Executive dies at any time after attaining his Benefit Age, but prior to
commencement or completion of all monthly payments due and owing hereunder, (i)
the trustee of the Retirement Income Trust Fund shall pay to the Executive’s
Beneficiary the monthly installments (or a continuation of the monthly
installments if they have already commenced) for the balance of months remaining
in the Payout Period, or (ii) the Executive’s Beneficiary may request to receive
the unpaid balance of the Executive’s Retirement Income Trust Fund in a lump sum
payment. If a lump sum payment is requested by the Beneficiary, payment of the
balance of the Retirement Income Trust Fund in such lump sum form shall be made
only if the Executive’s Beneficiary notifies both the Administrator and trustee
in writing of such election within ninety (90) days of the Executive’s death.
Such lump sum payment shall be made within thirty (30) days of such
notice.
The
Executive’s Accrued Benefit Account (if applicable), measured as of the
Executive’s Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such benefit
payments shall commence on the Executive’s Benefit Eligibility Date. In the
event the Executive dies at any time after attaining his Benefit Age, but prior
to commencement or completion of all the payments due and owing hereunder, (i)
the Bank shall pay to the Executive’s Beneficiary the same monthly installments
(or a continuation of such monthly installments if they have already commenced)
for the balance of months remaining in the Payout Period.
(2)
Executive Dies Prior to
Benefit Age
If (i)
after such termination, the Executive dies prior to attaining his Benefit Age,
and (ii) the Executive has not made a Timely Election to receive a lump sum
benefit, this Subsection 5.1(a)(2) shall be controlling with respect to
retirement benefits. The Retirement Income Trust Fund, measured as of
the date of the Executive’s death, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such payments shall commence within thirty (30)
days of the Executive’s death. Should Retirement Income
Trust Fund assets actually earn a rate of return, following the date such
balance is annuitized, which is less than the rate of return used to annuitize
the Retirement Income Trust Fund, no additional contributions to the Retirement
Income Trust Fund shall be required by the Bank in order to fund the final
benefit payment(s) and make up for any shortage attributable to the
less-than-expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is annuitized,
which is greater than the rate of return used to annuitize the Retirement Income
Trust Fund, the final benefit payment to the Executive’s Beneficiary shall
distribute the excess amounts attributable to the greater than-expected rate of
return. The Executive’s Beneficiary may request to receive the unpaid balance of
the Executive’s Retirement Income Trust Fund in the form of a lump sum payment.
If a lump sum payment is requested by the Beneficiary, payment of the balance of
the Retirement Income Trust Fund in such lump sum form shall be made only if the
Executive’s Beneficiary notifies both the Administrator and trustee in writing
of such election within ninety (90) days of the Executive’s death. Such lump sum
payment shall be made within thirty (30) days of such notice.
The
Executive’s Accrued Benefit Account (if applicable), measured as of the date of
the Executive’s death, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
payments shall commence within thirty (30) days of the Executive’s
death.
(b)
Alternative Payout
Option
.
If (i)
after such termination, the Executive lives until attaining his Benefit Age, and
(ii) the Executive has made a Timely Election to receive a lump sum benefit,
this Subsection 5.1(b)(1) shall be controlling with respect to retirement
benefits.
The
balance of the Retirement Income Trust Fund, measured as of the Executive’s
Benefit Age, shall be paid to the Executive in a lump sum on his Benefit
Eligibility Date. In the event the Executive dies after becoming eligible for
such payment (upon attainment of his Benefit Age), but before the actual payment
is made, his Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 5.1(b)(1) within thirty (30) days of the date of
the Executive’s death.
The
balance of the Executive’s Accrued Benefit Account (if applicable), measured as
of the Executive’s Benefit Age, shall be paid to the Executive in a lump sum on
his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit Age), but
before the actual payment is made, his Beneficiary shall be entitled to receive
the lump sum benefit in accordance with this Subsection 5.1(b)(1) within thirty
(30) days of the date of the Executive’s death.
(2)
Executive Dies Prior to
Benefit Age
If (i)
after such termination, the Executive dies prior to attaining his Benefit Age,
and (ii) the Executive has made a Timely Election to receive a lump sum benefit,
this Subsection 5.1(b)(2) shall be controlling with respect to pre-retirement
death benefits.
The
balance of the Retirement Income Trust Fund, measured as of the date of the
Executive’s death, shall be paid to the Executive’s Beneficiary within thirty
(30) days of the date of the Executive’s death.
The
balance of the Executive’s Accrued Benefit Account (if applicable), measured as
of the date of the Executive’s death, shall be paid to the Executive’s
Beneficiary within thirty (30) days of the Executive’s death.
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5.2
|
Termination For
Cause
.
|
If the
Executive is terminated for Cause, all benefits under this Agreement, other than
those which can be paid from previous Contributions to the Retirement Income
Trust Fund (and earnings on such Contributions), shall be
forfeited. Furthermore, no further Contributions (or Phantom
Contributions, as applicable) shall be required of the Bank for the year in
which such termination for Cause occurs (if not yet made). The Executive shall
be entitled to receive a benefit in accordance with this Subsection
5.2. The balance of the Executive’s Retirement Income Trust Fund
shall be paid to the Executive in a lump sum on his Benefit Eligibility
Date. In the event the Executive dies prior to his Benefit
Eligibility Date, his Beneficiary shall be entitled to receive the balance of
the Executive’s Retirement Income Trust.
SECTION
VI
DISABILITY
BENEFIT
If the
Executive’s service is terminated prior to Retirement Age due to a disability
which meets the criteria set forth below, the Executive will receive the
Disability Benefit in lieu of the retirement benefit(s) available pursuant to
Section 5.1 (which is (are) not available prior to the Executive’s Benefit
Eligibility Date).
In any
instance in which (i) the Executive is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death, or last for a continuous
period of not less than 12 months; (ii) by reason of any medically determinable
physical or mental impairment that can be expected to result in death, or last
for continuous period of not less than 12 months, Executive is receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Bank; or (iii) the Executive
is determined to be totally disabled by the Social Security Administration., the
Executive shall be entitled to the following lump sum benefit(s). The lump sum
benefit(s) to which the Executive is entitled shall include: (i) the balance of
the Retirement Income Trust Fund, plus (ii) the balance of the Accrued Benefit
Account (if applicable). The benefit(s) shall be paid within thirty (30) days
following the date of the Executive is determined to be disabled. In the event
the Executive dies after becoming eligible for such payment(s) but before the
actual payment(s) is (are) made, his Beneficiary shall be entitled to receive
the benefit(s) provided for in this Section 6 within thirty (30) days of the
date the Administrator receives notice of the Executive’s death.
SECTION
VII
BENEFICIARY
DESIGNATION
The
Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of this Agreement and shall have the right to
change such designation, at any subsequent time, by submitting to (i) the
Administrator, and (ii) the trustee of the Retirement Income Trust Fund, in
substantially the form attached as Exhibit B to this Agreement, a written
designation of primary and secondary Beneficiaries. Any Beneficiary designation
made subsequent to execution of this Agreement shall become effective only when
receipt thereof is acknowledged in writing by the Administrator.
SECTION
VIII
NON-COMPETITION
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8.1
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Non-Competition During
Employment
.
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In
consideration of the agreements of the Bank contained herein and of the payments
to be made by the Bank pursuant hereto, the Executive hereby agrees that, for as
long as he remains employed by the Bank, he will devote substantially all of his
time, skill, diligence and attention to the business of the Bank, and will not
actively engage, either directly or indirectly, in any business or other
activity which is, or may be deemed to be, in any way competitive with or
adverse to the best interests of the business of the Bank, unless the Executive
has the prior express written consent of the Bank.
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8.2
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Breach of
Non-Competition Clause
.
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(a)
Continued Employment
Following Breach
.
In the
event (i) any material breach by the Executive of the agreements and covenants
described in Subsection 8.1 occurs, and (ii) the Executive continues employment
at the Bank following such breach, all further Contributions to the Retirement
Income Trust Fund (or Phantom Contributions recorded in the Accrued Benefit
Account) shall immediately cease, and all benefits under this Agreement, other
than those which can be paid from previous Contributions to the Retirement
Income Trust Fund (and earnings on such Contributions), shall be forfeited. The
Executive (or his Beneficiary) shall be entitled to receive a benefit from the
Retirement Income Trust Fund in accordance with Subpart (1) or (2) below, as
applicable.
(1)
Executive Lives Until
Benefit Age
If,
following such breach, the Executive lives until attaining his Benefit Age, he
shall be entitled to receive a benefit from the Retirement Income Trust Fund in
accordance with this Subsection 8.2(a)(1). The balance of the
Retirement Income Trust Fund, measured as of the Executive’s Benefit Age, shall
be paid to the Executive in a lump sum on his Benefit Eligibility
Date. In the event the Executive dies after attaining his Benefit Age
but before actual payment is made, his Beneficiary shall be entitled to receive
the lump sum benefit in accordance with this Subsection 8.2(a)(l) within thirty
(30) days of the date of the Executive’s death.
(2)
Executive Dies Prior to
Benefit Age
.
If,
following such breach, the Executive dies prior to attaining his Benefit Age,
his Beneficiary shall be entitled to receive a benefit from the Retirement
Income Trust Fund in accordance with this Subsection 8.2 (a)(2). The balance of
the Retirement Income Trust Fund, measured as of the date of the Executive’s
death, shall be paid to the Executive’s Beneficiary in a lump sum within thirty
(30) days of the date of the Executive’s death.
(b)
Termination of Employment
Following Breach
.
In the
event (i) any material breach by the Executive of the agreements and covenants
described in Subsection 8.1 occurs, and (ii) the Executive’s employment with the
Bank is terminated due to such breach, such termination shall be deemed to be
for Cause and the benefits payable to the Executive shall be paid in accordance
with Subsection 5.2 of this Agreement.
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8.3
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Non-Competition
Following Employment
.
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Executive
further understands and agrees that, following Executive’s termination of
employment, the Bank’s obligation, if any, to make payments to the Executive
from the Accrued Benefit Account shall be conditioned on the Executive’s
forbearance from actively engaging, either directly or indirectly in any
business or other activity which is, or may be deemed to be, in any way
competitive with or adverse to the best interests of the Bank, unless the
Executive has the prior written consent of the Bank. In the event of the
Executive’s breach of the covenants and agreements contained herein, further
payments to the Executive from the Accrued Benefit Account, if any, shall cease
and Executive’s rights to amounts credited to the Accrued Benefit Account shall
be forfeited.
SECTION
IX
EXECUTIVE’S RIGHT TO
ASSETS
The
rights of the Executive, any Beneficiary, or any other person claiming through
the Executive under this Agreement, shall be solely those of an unsecured
general creditor of the Bank. The Executive, the Beneficiary, or any other
person claiming through the Executive, shall only have the right to receive from
the Bank those payments or amounts so specified under this Agreement. The
Executive agrees that he, his Beneficiary, or any other person claiming through
him shall have no rights or interests whatsoever in any asset of the Bank,
including any insurance policies or contracts which the Bank may possess or
obtain to informally fund this Agreement. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Agreement shall not
be deemed to be held under any trust for the benefit of the Executive or his
Beneficiaries, unless such asset is contained in the rabbi trust described in
Section XII of this Agreement. Any such asset shall be and remain, a general,
unpledged asset of the Bank in the event of the Bank’s insolvency.
SECTION
X
RESTRICTIONS UPON
FUNDING
The Bank
shall have no obligation to set aside, earmark or entrust any fund or money with
which to pay its obligations under this Agreement, other than those
Contributions required to be made to the Retirement Income Trust Fund. The
Executive, his Beneficiaries or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Agreement or to refrain from
the same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life insurance,
mutual funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to replace such assets from time to time or to
terminate its investment in such assets at any time, in whole or in part. At no
time shall the Executive be deemed to have any lien, right, title or interest in
or to any specific investment or to any assets of the Bank. If the Bank elects
to invest in a life insurance, disability or annuity policy upon the life of the
Executive, then the Executive shall assist the Bank by freely submitting to a
physical examination and by supplying such additional information necessary to
obtain such insurance or annuities.
SECTION
XI
ACT
PROVISIONS
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11.1
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Named Fiduciary and
Administrator
. The Bank, as Administrator, shall be the Named
Fiduciary of this Agreement. As Administrator, the Bank shall be
responsible for the management, control and administration of the
Agreement as established herein. The Administrator may delegate to others
certain aspects of the management and operational responsibilities of the
Agreement, including the employment of advisors and the delegation of
ministerial duties to qualified
individuals.
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11.2
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Claims Procedure and
Arbitration
. In the event that benefits under this Agreement are
not paid to the Executive (or to his Beneficiary in the case of the
Executive’s death) and such claimants feel they are entitled to receive
such benefits, then a written claim must be made to the Administrator
within sixty (60) days from the date payments are refused. The
Administrator shall review the written claim and, if the claim is denied,
in whole or in part, it shall provide in writing, within ninety (90) days
of receipt of such claim, its specific reasons for such denial, reference
to the provisions of this Agreement upon which the denial is based, and
any additional material or information necessary to perfect the claim.
Such writing by the Administrator shall further indicate the additional
steps which must be undertaken by claimants if an additional review of the
claim denial is desired.
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If
claimants desire a second review, they shall notify the Administrator in writing
within sixty (60) days of the first claim denial. Claimants may review this
Agreement or any documents relating thereto and submit any issues and comments,
in writing, they may feel appropriate. In its sole discretion, the Administrator
shall then review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall state the specific
reasons for the decision and shall include reference to specific provisions of
this Agreement upon which the decision is based.
If
claimants continue to dispute the benefit denial based upon completed
performance of this Plan and the Joinder Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute to
mediation, administered by the American Arbitration Association (“AAA”) (or a
mediator selected by the parties) in accordance with the AAA’s Commercial
Mediation Rules. If mediation is not successful in resolving the dispute, it
shall be settled by arbitration administered by the AAA under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof.
SECTION
XII
MISCELLANEOUS
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12.1
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No Effect on
Employment Rights
. Nothing contained herein will confer upon the
Executive the right to be retained in the service of the Bank nor limit
the right of the Bank to discharge or otherwise deal with the Executive
without regard to the existence of the
Agreement.
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12.2
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State Law
. The
Agreement is established under, and will be construed according to, the
laws of the state of New York, to the extent such laws are not preempted
by the Act and valid regulations published
thereunder.
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12.3
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Severability
.
In the event that any of the provisions of this Agreement or portion
thereof, are held to be inoperative or invalid by any court of competent
jurisdiction, then: (1) insofar as is reasonable, effect will be given to
the intent manifested in the provisions held invalid or inoperative, and
(2) the validity and enforceability of the remaining provisions will not
be affected thereby.
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12.4
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Incapacity of
Recipient
. In the event the Executive is declared incompetent and a
conservator or other person legally charged with the care of his person or
Estate is appointed, any benefits under the Agreement to which such
Executive is entitled shall be paid to such conservator or other person
legally charged with the care of his person or
Estate.
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12.5
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Unclaimed
Benefit
. The Executive shall keep the Bank informed of his current
address and the current address of his Beneficiaries. The Bank shall not
be obligated to search for the whereabouts of any person. If the location
of the Executive is not made known to the Bank as of the date upon which
any payment of any benefits from the Accrued Benefit Account may first be
made, the Bank shall delay payment of the Executive’s benefit payment(s)
until the location of the Executive is made known to the Bank; however,
the Bank shall only be obligated to hold such benefit payment(s) for the
Executive until the expiration of thirty-six (36) months. Upon expiration
of the thirty-six (36) month period, the Bank may discharge its obligation
by payment to the Executive’s Beneficiary. If the location of the
Executive’s Beneficiary is not made known to the Bank by the end of an
additional two (2) month period following expiration of the thirty-six
(36) month period, the Bank may discharge its obligation by payment to the
Executive’s Estate. If there is no Estate in existence at such time or if
such fact cannot be determined by the Bank, the Executive and his
Beneficiary(ies) shall thereupon forfeit any rights to the balance, if
any, of the Executive’s Accrued Benefit Account provided for such
Executive and/or Beneficiary under this
Agreement.
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12.6
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Limitations on
Liability
. Notwithstanding any of the preceding provisions of the
Agreement, no individual acting as an employee or agent of the Bank, or as
a member of the Board of Directors shall be personally liable to the
Executive or any other person for any claim, loss, liability or expense
incurred in connection with the
Agreement.
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12.7
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Gender
.
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so
apply.
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12.8
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Effect on Other
Corporate Benefit Agreements
. Nothing contained in this Agreement
shall affect the right of the Executive to participate in or be covered by
any qualified or non-qualified pension, profit sharing, group, bonus or
other supplemental compensation or fringe benefit agreement constituting a
part of the Bank’s existing or future compensation
structure.
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12.9
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Suicide
.
Notwithstanding anything to the contrary in this Agreement, if the
Executive’s death results from suicide, whether sane or insane, within
twenty-six (26) months after September 1, 1998, all further Contributions
to the Retirement Income Trust Fund (or Phantom Contributions recorded in
the Accrued Benefit Account) shall thereupon cease, and no Contribution
(or Phantom Contribution) shall be made by the Bank to the Retirement
Income Trust Fund (or recorded in the Accrued Benefit Account) in the year
such death resulting from suicide occurs (if not yet made). All benefits
other than those available from previous Contributions to the Retirement
Income Trust Fund under this Agreement shall be forfeited, and this
Agreement shall become null and void. The balance of the Retirement Income
Trust Fund, measured as of the Executive’s date of death, shall be paid to
the Beneficiary within thirty (30) days of the date the Administrator
receives notice of the Executive’s
death.
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12.10
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Inurement
. This
Agreement shall be binding upon and shall inure to the benefit of the
Bank, its successors and assigns, and the Executive, his successors,
heirs, executors, administrators, and
Beneficiaries.
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12.11
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Headings
.
Headings and sub-headings in this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this
Agreement.
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12.12
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Establishment of a
Rabbi Trust
. The Bank shall establish a rabbi trust into which the
Bank shall contribute assets which shall be held therein, subject to the
claims of the Bank’s creditors in the event of the Bank’s “Insolvency” (as
defined in such rabbi trust agreement), until the contributed assets are
paid to the Executive and/or his Beneficiary in such manner and at such
times as specified in this Agreement. It is the intention of the Bank that
the contribution or contributions to the rabbi trust shall provide the
Bank with a source of funds to assist it in meeting the liabilities of
this Agreement.
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12.13
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Source of
Payments
. All payments provided in this Agreement shall be timely
paid in cash or check from the general funds of the Bank or the assets of
the rabbi trust, to the extent made from the Accrued Benefit
Account.
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12.14
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Tax Withholding and
Code Section 409A Taxes With Respect to the Accrued Benefit
Account
. Any distribution under this Agreement from the
Executive’s Accrued Benefit Account shall be reduced by the amount of any
taxes required to be withheld from such distribution. This
Agreement shall permit the acceleration of the time or schedule of a
payment to pay employment related taxes as permitted under Treasury
Regulation Section 1.409A-3(j) or to pay any taxes that may become due at
any time that the arrangement fails to meet the requirements of Code
Section 409A and the regulations and other guidance promulgated
thereunder. In the latter case, such payments shall not exceed
the amount required to be included in income as the result of the failure
to comply with the requirements of Code Section
409A.
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12.15
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Acceleration of
Payments from the Accrued Benefit Account
. Except as specifically
permitted herein or in other sections of this Agreement, no acceleration
of the time or schedule of any payment may be made hereunder from the
Executive’s Accrued Benefit Account. Notwithstanding the
foregoing, payments may be accelerated hereunder by the Bank, in
accordance with the provisions of Treasury Regulation Section
1.409A-3(j)(4) and any subsequent guidance issued by the United States
Treasury Department. Accordingly, payments may be accelerated,
in accordance with requirements and conditions of the Treasury Regulations
(or subsequent guidance) in the following circumstances: (i) as a result
of certain domestic relations orders; (ii) in compliance with ethics
agreements with the Federal government; (iii) in compliance with ethics
laws or conflicts of interest laws; (iv) in limited cash-outs (but not in
excess of the limit under Code Section 402(g)(1)(B)); (v) in the case of
certain distributions to avoid a non-allocation year under Code Section
409(p); (vi) to apply certain offsets in satisfaction of a debt of the
Executive to the Bank; (vii) in satisfaction of certain bona fide disputes
between the Executive and the Bank; or (viii) for any other purpose set
forth in the Treasury Regulations and subsequent
guidance.
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SECTION
XIII
AMENDMENT/PLAN
TERMINATION
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13.1
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Amendment or Plan
Termination
. This Agreement shall not be amended, modified or
terminated at any time, in whole or part, without the mutual written
consent of the Executive and the Bank, and such mutual consent shall be
required even if the Executive is no longer employed by the Bank. No
amendment, modification or termination of the Agreement by the Bank shall
directly or indirectly deprive the Executive of all or any portion of the
Executive’s Retirement Income Trust Fund (and Accrued Benefit Account, if
applicable) as of the effective date of the resolution amending or
terminating the Agreement.
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13.2
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Executive’s Right to
Payment Following Plan Termination
. In the event of a termination
of the Agreement, with respect to the Executive’s Retirement Income Trust
Fund, the Executive shall be entitled to the balance, if any, of his
Retirement Income Trust Fund. However, if such termination is
done in anticipation of or pursuant to a “Change in Control,” such
balance(s) shall include the final Contribution made (or recorded)
pursuant to Subsection 2.1(b)(2) (or 2.1(c)(2)). Payment of the
balance(s) of the Executive’s Retirement Income Trust Fund shall not be
dependent upon his continuation of employment with the Bank following the
termination date of the Agreement. Payment of the balance(s) of the
Executive’s Retirement Income Trust Fund shall be made in a lump sum
within thirty (30) days of the date of termination of the
Agreement. Notwithstanding the foregoing, in the event of a
termination of the Agreement, with respect to the Executive’s Accrued
Benefit Account (if applicable), the Agreement shall cease to operate and
the Bank shall pay out to the Executive the balance or his Accrued Benefit
Account only upon the following circumstances and
conditions:
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(a)
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The
Bank may terminate the Agreement within 12 months of a corporate
dissolution taxed under Code Section 331, or with approval of a bankruptcy
court pursuant to 11 U.S.C. §503(b)(1)(A), provided that the amounts
deferred under the Agreement are included in the Executive’s gross income
in the latest of (i) the calendar year in which the Agreement terminates;
(ii) the calendar year in which the amount is no longer subject to a
substantial risk of forfeiture; or (iii) the first calendar year in which
the payment is administratively
practicable.
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(b)
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The
Bank may terminate the Agreement within the 30 days preceding a Change in
Control (but not following a Change in Control), provided that the
Agreement shall only be treated as terminated if all substantially similar
arrangements sponsored by the Bank are terminated so that the Executive
and all executives under substantially similar arrangements are required
to receive all amounts of compensation deferred under the terminated
arrangements within 12 months of the date of the termination of the
arrangements. For these purposes, “Change in Control” shall be
defined in accordance with the Treasury Regulations under Code Section
409A.
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(c)
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The
Bank may terminate the Agreement provided that: (i) the termination and
liquidation does not occur proximate to a downturn in the financial health
of the Bank; (ii) all arrangements sponsored by the Bank that would be
aggregated with this Agreement under Treasury Regulations Section
1.409A-1(c) if the Executive covered by this Agreement was also covered by
any of those other arrangements are also terminated; (iii) no payments
other than payments that would be payable under the terms of the
arrangement if the termination had not occurred are made within 12 months
of the termination of the arrangement; (iv) all payments are made within
24 months of the termination of the arrangements; and (v) the Bank does
not adopt a new arrangement that would be aggregated with any terminated
arrangement under Treasury Regulations Section 1.409A-1(c) if the
Executive participated in both arrangements, at any time within three
years following the date of termination of the
arrangement.
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SECTION
XIV
EXECUTION
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14.1
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This
Agreement and the Thomas Schneider Grantor Trust Agreement set forth the
entire understanding of the parties hereto with respect to the
transactions contemplated hereby, and any previous agreements or
understandings between the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement and the Thomas
Schneider Grantor Trust Agreement.
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14.2
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This
Agreement shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies shall
together constitute one and the same
instrument.
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[Remainder
of page intentionally left blank]
IN WITNESS WHEREOF
, the Bank
and the Executive have caused this Agreement to be executed on the day and date
first above written.
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PATHFINDER
BANK:
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By:
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DATE
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(Title)
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:
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EXECUTIVE
:
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DATE
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Thomas
Schneider
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CONDITIONS,
ASSUMPTIONS,
AND
SCHEDULE
OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
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1.
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Interest
Factor - for purposes of
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a.
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the
Accrued Benefit Account - shall be
six percent
(6%)
per annum, compounded
monthly.
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b.
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the
Retirement Income Trust Fund - for purposes of annuitizing the balance of
the Retirement Income Trust Fund over the Payout Period, the trustee of
the Thomas Schneider Grantor Trust shall exercise discretion in selecting
the appropriate rate given the nature of the investments contained in the
Retirement Income Trust Fund and the expected return associated with the
investments. For these purposes, if the trustee of the Retirement Income
Trust Fund has purchased a life insurance policy, the trustee shall have
the discretion to determine the portion of the cash value of such policy
available for purposes of annuitizing the Retirement Income Trust Fund, in
accordance with Section 2.3 of the
Agreement.
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2.
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The
amount of the annual Contributions (or Phantom Contributions) to the
Retirement Income Trust Fund (or Accrued Benefit Account) has been based
on the annual incremental accounting accruals which would be required of
the Bank through the earlier of the Executive’s death or Retirement Age,
(i) pursuant to APB Opinion No. 12, as amended by FAS 106 and (ii)
assuming a discount rate equal to
six percent
(6%)
per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income
Benefit.
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3.
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Supplemental
Retirement Income Benefit means an actuarially determined annual amount
equal to
Seventy
One Thousand One Hundred Forty-nine Dollars ($71,149) at age 62 if paid
entirely from the Accrued Benefit Account or Forty Four Thousand Four
Hundred Eighty-nine Dollars ($44,489) at age 62
if paid from the
Retirement Income Trust Fund.
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The
Supplemental Retirement Income Benefit:
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·
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the
definition of Supplemental Retirement Income Benefit has been incorporated
into the Agreement for the sole purpose of actuarially establishing the
amount of annual Contributions (or Phantom Contributions) to the
Retirement Income Trust Fund (or Accrued Benefit Account). The amount of
any actual retirement, pre-retirement or disability benefit payable
pursuant to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement Income Trust
Fund (or Accrued Benefit Account) and (u) the actual investment experience
of such Contributions (or the monthly compounding rate of Phantom
Contributions).
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4.
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Schedule
of Annual Gross Contributions/Phantom
Contributions
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Plan Year
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Amount
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1998
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17,623
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1999
|
8,264
|
|
2000
|
9,217
|
|
2001
|
10,255
|
|
2002
|
11,387
|
|
2003
|
12,619
|
|
2004
|
13,960
|
|
2005
|
15,418
|
|
2006
|
17,003
|
|
2007
|
18,724
|
|
2008
|
20,594
|
|
2009
|
22,623
|
|
2010
|
24,823
|
|
2011
|
27,209
|
|
2012
|
29,796
|
|
2013
|
32,597
|
|
2014
|
36,631
|
|
2015
|
38,915
|
|
2016
|
42,469
|
|
2017
|
46,312
|
|
2018
|
50,469
|
|
2019
|
54,962
|
|
2020
|
59,817
|
|
2021
|
65,063
|
|
2022
|
61,064
|
AMENDED
AND RESTATED
SECOND
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME
AGREEMENT
BENEFICIARY
DESIGNATION
The
Executive, under the teams of the Executive Supplemental Retirement Income
Agreement executed by the Bank, dated the 1st day of January 2005, hereby
designates the following Beneficiary(ies) to receive any guaranteed payments or
death benefits under such Agreement, following his death:
PRIMARY
BENEFICIARY: Joy Ann Schneider
SECONDARY
BENEFICIARY: Thomas J. Schneider, Matthew R. Schneider, James A.
Schneider, per stirpes
This
Beneficiary Designation hereby revokes any prior Beneficiary Designation which
may have been in effect.
Such
Beneficiary Designation is revocable.
DATE:
December 23, 2008
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(WITNESS)
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EXECUTIVE
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(WITNESS)
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AMENDED
AND RESTATED
SECOND
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
NOTICE
OF ELECTION TO CHANGE FORM OF PAYMENT
TO: Bank
Attention:
I hereby
give notice of my election to change the form of payment of my Supplemental
Retirement Income Benefit from my Retirement Income Trust Fund, as specified
below.
I understand
that such notice, in order to be effective, must be submitted in accordance with
the time requirements described in my Executive Supplemental Retirement
Agreement. I understand that this form is not applicable to my
Accrued Benefit Account.
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I
hereby elect to change the form of payment of my benefits from monthly
installments throughout my Payout Period to a lump sum benefit
payment.
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I
hereby elect to change the form of payment of my benefits from a lump sum
benefit payment to monthly installments throughout my Payout
Period. Such election hereby revokes my previous notice of
election to receive a lump sum form of benefit
payments.
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Executive
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Date
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Acknowledged
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By:
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Title:
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Date:
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________________________________________
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AMENDED
AND RESTATED
SECOND
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
TRANSITION
YEAR ELECTION FORM
Instructions
: you
have a limited period of time to use this Transition Year Election Form to elect
to change the form of payment of your Supplemental Retirement Income Benefit
from your Accrued Benefit Account, as specified below.
Due
to IRS rules, you must complete this form no later than
December
31, 2008
. If you elect to change the form of payment of your
Supplemental Retirement Income Benefit from your Accrued Benefit Account, you
may
not
use
this election form to change the form of payment with respect to benefits that
are scheduled to be paid to you in 2008, or otherwise to cause your benefits to
be paid to you in 2008.
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I
hereby elect to change the form of payment of my benefits from my Accrued
Benefit Account from monthly installments throughout my Payout Period to a
lump sum benefit payment.
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|
|
|
I
hereby elect to change the form of payment of my benefits from my Accrued
Benefit Account from a lump sum benefit payment to monthly installments
throughout my Payout Period. Such election hereby revokes my
previous notice of election to receive a lump sum form of benefit
payments.
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Executive
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Date
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Acknowledged
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By:
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Title:
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Date: ________________________________________
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EXHIBIT
31.1: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive
Officer
|
Certification
of Chief Executive Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
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I,
Thomas W. Schneider, President and Chief Executive Officer, certify
that:
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1.
I
have reviewed this Annual report on Form 10-K of Pathfinder Bancorp,
Inc.;
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2.
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
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3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b)
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting, to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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(c)
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
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(d)
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
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5.
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors:
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(a)
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
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(b)
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
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|
March
27, 2009
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/s/
Thomas W. Schneider
Thomas
W. Schneider
President
and Chief Executive
Officer
|
EXHIBIT
31.2: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial
Officer
|
Certification
of Chief Financial Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
I, James
A. Dowd, Senior Vice President and Chief Financial Officer, certify
that:
|
|
1.
I
have reviewed this Annual report on Form 10-K of Pathfinder Bancorp,
Inc.;
|
|
|
2.
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
|
|
|
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
(a)
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b)
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting, to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
|
(d)
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors:
|
|
|
|
(a)
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
|
March
27, 2009
|
/s/
James A. Dowd
James
A. Dowd
Senior
Vice President and Chief Financial
Officer
|
EXHIBIT
32.1 Section 1350 Certification of the Chief Executive and Chief
Financial Officer
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
Thomas
W. Schneider, President and Chief Executive Officer, and James A. Dowd,
Senior Vice President and Chief Financial Officer of Pathfinder Bancorp,
Inc. (the "Company"), each certify in his capacity as an officer of the
Company that he has reviewed the Annual Report of the Company on Form 10-K
for the year ended December 31, 2008 and that to the best of his
knowledge:
|
|
1.
the
report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
|
|
2.
the
information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
The
purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
March
27, 2009
|
/s/
Thomas W. Schneider
Thomas
W. Schneider
President
and Chief Executive Officer
|
|
March
27, 2009
|
/s/
James A. Dowd
James
A. Dowd
Senior
Vice President and Chief Financial
Officer
|