-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GpKUnXo5DFfZKJiROltrldwRinZfVfKNTH4asE00Hfi6WSanQnvN94pjcEvuPs4r u3j0e2T1OkwjrHlwkbkSUw== 0000941157-97-000022.txt : 19970328 0000941157-97-000022.hdr.sgml : 19970328 ACCESSION NUMBER: 0000941157-97-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB ROCHESTER CORP CENTRAL INDEX KEY: 0000745087 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 161231984 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13423 FILM NUMBER: 97564446 BUSINESS ADDRESS: STREET 1: 35 STATE ST CITY: ROCHESTER STATE: NY ZIP: 14614 BUSINESS PHONE: 7165463300 MAIL ADDRESS: STREET 1: 35 STATE STREET CITY: ROCHESTER STATE: NY ZIP: 14614 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 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 0-13423 ------- FNB ROCHESTER CORP. ----------------------------------------------------- (Exact name of registrant as specified in its charter) New York 16-1231984 ---------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 35 State Street, Rochester, New York 14614 ---------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (716) 546-3300 -------------- Securities registered pursuant to Section 12 (b) of the Act: None None ------------------------- -------------------------- (Title of Each Class) (Name of Each Exchange on Which Registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value Per Share --------------------------------------- (Title of Each Class) 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 ____X____ NO ________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ The aggregate market value of the 2,534,117 shares of Common Stock-Voting held by non-affiliates of the registrant at March 20, 1997 (based on the average of high and low prices on March 20, 1997) was $35,636,020. Solely for the purposes of this calculation, all persons who are directors and executive officers of the Registrant and all persons who are believed by the Registrant to be beneficial owners of more than 5% of its outstanding common stock have been deemed to be affiliates. Number of shares of Common Stock outstanding as of the close of business on March 20,1997 was 3,574,424. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in the following parts of this report; Parts I and II - - the Registrant's 1996 Annual Report to Shareholders; Part III -- the Registrant's definitive proxy statement as filed or to be filed with the Securities and Exchange Commission and as used in connection with the solicitation of proxies for the Registrant's annual meeting of shareholders to be held on May 27, 1997. Part I Item 1. Business General FNB Rochester Corp. (the "Company") is a bank holding company. First National Bank of Rochester ("First National" or the "Bank") is its only subsidiary. The Company was organized under the New York Business Corporation Law and commenced operations on September 10, 1984. At December 31, 1996, the Company had consolidated assets and deposits of $437.9 million and $404.8 million, respectively. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). Until April 1, 1994, the Company also owned Atlanta National Bank ("Atlanta") in Atlanta, NY. Atlanta was sold to Bath National Bank. The Bank was established in 1965, in Rochester, New York as a national bank. It provides a full range of commercial banking, trust, and consumer banking services to businesses and individuals. Market Area The Company's business is conducted from its corporate headquarters located in the Powers Building at the corner of State and Main Streets in downtown Rochester, New York. The Bank's fifteen banking offices are located in Monroe, Chemung, Erie, and Onondaga Counties in New York State. The Bank sold its Odessa office in Schuyler County in 1996 and its Shop City office in Onondaga County in 1994, but still provides services in Onondaga County through its Downtown Syracuse office. The Bank expanded into the metropolitan Buffalo area in 1993 with the addition of a loan production office to serve business and professional customers in a suburban section of Erie County. In August 1994, the Buffalo office became a full service branch. Both the Buffalo and Downtown Syracuse banking offices focus their sales and service efforts on business and professional customers. The Bank considers its primary service and market area to be the City of Rochester and surrounding towns, which have a total population of approximately 1 million. Rochester, located in the western part of New York State on the south shore of Lake Ontario, is the third largest city in New York State. Greater Rochester has a diversified manufacturing base. Four national firms with significant manufacturing facilities and other major business operations in the Greater Rochester area are Eastman Kodak Company, Xerox Corporation, Bausch & Lomb Inc. and General Motors Corporation. Rochester is the home of the corporate headquarters of both Eastman Kodak and Bausch & Lomb. Other institutions that add stability to the area's employment include the University of Rochester, Rochester Institute of Technology, eight other institutions of higher education, and seven large hospitals. Although primarily agricultural and residential in nature, the surrounding communities served by the Company also have office, commercial, educational, retail, and light industrial facilities. Businesses in these communities constitute an important part of the Bank's customer base. Banking Services First National's services are provided through thirteen full- service community banking offices, twelve of which have drive-up facilities, plus the Buffalo and Syracuse offices. Automated teller machines (ATM's) are located at the eleven Monroe County banking offices, and customers may use ATM's throughout the United States and abroad through ATM networks. The Bank opened its newest banking office in Monroe County (Town of Perinton) in March 1996. Three new Monroe County banking offices were opened in 1995. The Bank is engaged in general commercial banking, providing a wide range of loan and deposit services. As of December 31, 1996, the Bank had approximately 42,100 deposit accounts and 11,300 loans outstanding. The Bank offers a wide range of retail services, including installment loans, credit cards, checking accounts, savings accounts, money market accounts, and various types of time-deposit instruments. Mortgage lending activities include commercial, industrial, and residential loans secured by real estate. Commercial lending activities include originating secured and unsecured loans and lines of credit and providing cash management and accounts receivable financing services to a variety of businesses. The Bank also operates a merchant credit card program. The Bank's installment loan department makes direct auto, home equity, home improvement, and personal loans to individuals. The Bank offers safe deposit box services at twelve of the banking offices. The Trust & Investment Division of First National was expanded in 1993. The Trust & Investment Division at First National Bank acts as executor and/or trustee and provides administration, record-keeping, and professional portfolio management for individuals, corporations, institutions, and not-for-profits. Assets under management increased $23.9 million, or 58.6%, from $40.7 million at year end 1995 to $64.6 million at year end 1996, through product offerings such as 401(k) plans, investment management, corporate and cash management services, mutual funds, annuities, and traditional trust and record-keeping services. The Trust & Investment Division has established various strategic alliances with service partners to reduce costs, provide better and more efficient services, obtain access to other markets and enhance its capabilities and product offerings. As with any major business expansion, this is a long-term commitment on the part of the Bank. Employees At December 31, 1996, the Company had 241 employees of whom 46 worked on a part-time basis. None of the employees are covered by a collective bargaining agreement. The Company considers its relations with its employees to be good. Competition The Bank is one of approximately fourteen commercial and savings institutions competing for deposits and loans in Monroe County. Approximately nine commercial and savings institutions compete in Chemung County. The Bank considers its business to be highly competitive in its service areas. Many of the competitors are larger than First National in terms of number of offices, assets, and resources, and many have higher lending limits than First National. The primary competition for the Trust & Investment Division comes from investment advisory and brokerage firms, as well as other bank trust departments in the Bank's primary market area. In recent years, non-bank financial institutions such as credit unions, money market funds, stock brokerage firms, insurance companies, and mortgage banking firms have been an increased source of competition. Non-bank financial institutions continue to be subject to less regulation than commercial banks in certain areas. Supervision and Regulation As a bank holding company, the Company is subject to the Bank Holding Company Act of 1956, as amended (the "Act"), and is required to file annual reports and such additional information as may be required by the Federal Reserve Board (the "FRB") pursuant to the Act. The FRB has the authority to examine the Company and its subsidiaries. The Act and regulations thereunder limit, with certain exceptions, the business which a bank holding company may engage in, directly or indirectly through subsidiaries, to banking, managing or controlling banks, furnishing or performing services for banks controlled by the Company, and services incident thereto. In addition, the Act and regulations thereunder require the prior approval of the FRB for the acquisition of a bank or bank holding company if thereafter the bank holding company will, directly or indirectly, control more than 5% of the voting stock of such bank or bank holding company, or substantially all the assets of such bank or bank holding company. Among the activities permitted to bank holding companies is the ownership of shares of any company which engages in activities that the FRB determines to be so closely related to banking, managing, or controlling banks as to be a proper incident thereto. The FRB has determined a number of activities to be closely related to banking, and has proposed others for consideration. Such activities include leasing real or personal property under certain conditions; operating as a mortgage financing or factoring company; servicing loans and other extensions of credit; acting as a fiduciary; acting as an investment or financial advisor under certain conditions; acting as an insurance agent or broker principally in connection with the extension of credit by the bank holding company or any subsidiary; acting as underwriter for credit life insurance and credit accident and health insurance that is directly related to extension of credit by the bank holding company or any subsidiary; providing bookkeeping or data processing services for the bank holding company, its affiliates, other financial institutions and others, with certain limitations; making certain equity and debt investments in community rehabilitation and development corporations; and providing certain kinds of management consulting advice to unaffiliated banks. The Federal Reserve Act imposes restrictions on extensions of credit by subsidiary banks of a bank holding company to the bank holding company or any of its subsidiaries, or investments in the stock or other securities of the holding company, and on the use of such stock or securities as collateral for loans to any borrower. Further, under the FRB's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services. From time to time the FRB may adopt further regulations pursuant to the Act. The Company cannot predict whether any further regulations will be adopted or how such regulations will affect the consolidated operating results or business of the Company. The primary supervisory authority of the Bank is the Office of the Comptroller of the Currency (the " OCC"), which regularly examines such risk areas as capital adequacy, reserves, loans, investments, management practices, and other aspects of the Bank's' operations. In addition to these regular examinations, the Bank must furnish quarterly and annual reports to the OCC. The OCC has the authority to issue cease-and-desist orders to prevent a bank from engaging in an unsafe or an unsound practice or violating the law in conducting its business. The Bank is also a member of the Federal Reserve System, and as such, is subject to certain laws and regulations administered by the FRB. As a member of the Federal Reserve System, the Bank is required to maintain non-interest bearing reserves against certain accounts. The amount of reserves required to be maintained is established by regulations of the FRB and is subject to adjustment from time to time. The Bank's deposits are insured by the Bank Insurance Fund (BIF) of the FDIC up to a maximum of $100,000 per insured deposit account, subject to the rules and regulations of the FDIC. For this protection, the Banks pay a quarterly statutory assessment. The policies of regulatory authorities have had a significant effect on the operating results of commercial banks in the past, and are expected to do so in the future. An important function of the Federal Reserve System is to regulate aggregate national credit and money supply through such means as open market dealings in securities, establishment of the discount rate on bank borrowing, changes in reserve requirements against bank deposits, and limitations on the deposits on which a bank may pay interest. Policies of these agencies may be influenced by many factors including inflation, unemployment, short-term and long- term changes in the international trade balance, and fiscal policies of the United States Government. Supervision, regulation, or examination of the Company by bank regulatory agencies is not intended for the protection of the Company's shareholders. Loans made by the Bank are also subject to numerous other federal and state laws and regulations, including the Truth in Lending Act, the Community Reinvestment Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The United States Congress has periodically considered and adopted legislation that has resulted in deregulation of both banks and other financial institutions. Congress has adopted further legislation to modify or eliminate geographic restrictions on banks and bank holding companies, and could modify or eliminate current prohibitions against banks engaging in one or more non-banking activities. Such legislative changes could place the Bank in more direct competition with other financial institutions including mutual funds, securities brokerage firms, insurance companies, and investment banking firms. The effect of any such legislation on the business of the Bank cannot be predicted. Statistical data required to be disclosed by bank holding companies is included under the caption Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report to Shareholders for the year ended December 31, 1996. Item 2. Properties The Bank operates fifteen banking offices. Eight of the banking offices are owned (five are on leased land), six are leased, and one is rented on a month to month basis. The Bank also owns the building at 35 State Street, Rochester, New York and leases additional office space in the adjacent Powers Building. The leases are long-term and non-cancelable and expire at various dates from 2000 through 2016 with optional renewal terms of five to ten years and rent escalation clauses. Some of the leases also provide for contingency rent to be paid annually based upon increases in deposits or the cost of living. The properties are as follows:
Owned(O) Leased(L) Leased Lease Location Principal Use Land(LL) Exp Date ________ _____________ ________ ________ 35 State St., Rochester, NY Bank Office Space O Powers Building, Four Corners Banking Office L 12/31/09 Rochester, NY Bank Office Space 1 E. Main St., Rochester, NY Partially subleased L 08/31/01 3140 Monroe Ave., Rochester, NY Pittsford Banking Office O 2147 W. Ridge Rd., Rochester, NY Greece Banking Office O Hard & Ridge Rd., Webster, NY Webster Banking Office O 1000 E. Ridge Rd., Rochester, NY Irondequoit Banking Office LL 11/30/02 28 N. Main St., Honeoye Falls, NY Honeoye Falls Banking Office L 01/31/11 3333 W. Henrietta Rd., Rochester, NY Henrietta Banking Office L 01/07/16 Warren & Washington Sts., Syracuse, NY Syracuse Banking Office L 05/31/05 Miracle Mile, Elmira, NY Horseheads Banking Office LL 06/30/03 Broadway & Pennsylvania Ave., Elmira, NY Southport Banking Office L 02/28/00 Snyder Square, Amherst, NY Buffalo Banking Office L Monthly 214 W. Commercial St., E. Rochester, NY E. Rochester Banking Office L 02/28/03 3175 Chili Ave., Rochester, NY Chili Banking Office LL 09/09/15 Penfield Rd. & Rt. 250, Rochester, NY Penfield Banking Office LL 12/24/15 Pittsford/Palmyra Rd. & Rt. 250 Perinton Banking Office LL 03/31/16 Rochester, NY
The Banking Offices in the above table range in size from approximately 2,000 square feet to 4,500 square feet. The Bank took occupancy of 36,000 square feet in the Powers Building during 1994 and vacated two floors (approximately 9,800 square feet) in the Wilder Building at 1 E. Main Street, consolidating all operations including the banking office into the Powers Building and the adjacent 35 State Street Building. These consolidated facilities have increased efficiency and are strategically located in downtown Rochester. The space in the Wilder Building that the Bank continues to lease is approximately 4,700 square feet and of that space 2,700 square feet is subleased. Item 3. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of 1996, no matter was submitted to a vote of Company's shareholders. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Dividends Paid and Market Prices of Registrant's Stock The following table displays the range of bid price quotations for the Company's common stock for the years ended December 31, 1996 and December 31, 1995. The Company declared a $.05 per share dividend on common stock in December 1996 payable January 31, 1997 to shareholders of record January 15, 1997. No dividends were paid on common stock in 1995. The Company's common stock trades on the over-the-counter market and is quoted on the NASDAQ National Market System under the symbol FNBR. Price Quotations: Price Quotations Bid Price (low-high) ____________________ 1996 ____ First quarter $ 9.38 - 10.00 Second quarter 9.00 - 10.25 Third quarter 8.63 - 10.38 Fourth quarter 10.13 - 13.13 _____ _____ $ 8.63 - 13.13 ===== ===== 1995 ____ First quarter $ 5.25 - 6.25 Second quarter 5.75 - 7.88 Third quarter 7.38 - 9.50 Fourth quarter 7.88 - 9.75 _____ -___ $ 5.25 - 9.75 ===== ===== The above prices were furnished by NASDAQ, and such quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commissions. The prices may not reflect actual transactions. At the close of business on March 20, 1997, the Company had approximately 789 shareholders of record. Item 6. Selected Financial Data The financial information included under the caption "Five-year Summary of Selected Financial Information" in the Company's Annual Report to Shareholders for the year ended December 31, 1996, submitted herewith as an exhibit, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report to Shareholders for the year ended December 31, 1996, submitted herewith as an exhibit, is incorporated herein by reference. Item 8. Consolidated Financial Statements and Supplementary Data The consolidated statements of financial condition of FNB Rochester Corp. and Subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996 together with the related notes and the report of KPMG Peat Marwick LLP, independent auditors, dated January 28, 1997, and the information under the caption "Quarterly Financial Information" (unaudited), all contained in the Company's 1996 Annual Report to Shareholders, submitted herewith as an exhibit, are incorporated herein by reference. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information in response to this item is incorporated herein by reference to the information under the caption "Nominees for Election as Directors" and "Executive Officers" presented in the Company's definitive proxy statement filed or to be filed pursuant to Regulation 14A and used in connection with the Company's 1997 annual meeting of shareholders to be held on or about May 27, 1997. Item 11. Executive Compensation. The information in response to this item is incorporated herein by reference to the information under the caption "Executive Compensation" presented in the Company's definitive proxy statement filed or to be filed pursuant to Regulation 14A in connection with the Company's 1997 annual meeting of shareholders to be held on or about May 27, 1997, provided, however, that information appearing under the captions "Compensation Committee Report on Executive Compensation" and "Share Performance Graph" is not incorporated herein and should not be deemed included in this document for any purpose. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information in response to this item is incorporated herein by reference to the information under the caption "Beneficial Ownership of the Company's Stock by Certain Persons and Management" presented in the Company's definitive proxy statement filed or to be filed pursuant to Regulation 14A and used in connection with the Company's 1997 annual meeting of shareholders to be held on or about May 27, 1997. Item 13. Certain Relationships and Related Transactions. The information in response to this item is incorporated herein by reference to the information under the captions "Certain Relationships and Related Party Transactions" and "Compensation Committee Interlocks and Insider Participation" presented in the Company's definitive proxy statement filed or to be filed pursuant to Regulation 14A and used in connection with the Company's 1997 annual meeting of shareholders to be held on or about May 27, 1997. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: (1.0) Consolidated Financial Statements are contained in the Company's 1996 Annual Report to Shareholders which, as indicated below, is included as Exhibit 13 of this report. Page - Independent Auditors' Report 119 - Consolidated Statements of Financial Condition as of December 31, 1996 and 1995 120 - Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994 121 - Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1995, and 1994 123 - Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994 124 - Notes to Consolidated Financial Statements 126 (2.0) Schedules Schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the consolidated financial statements or notes thereto. (3.0) Exhibits Exhibit Incorporation by Reference or page in sequential numbering where exhibit may be found: (3.1) Certificate of Exhibits 4.2-4.5 to Incorporation, of the Registration Statement Registrant, as amended No. 33-7244, filed July 22, 1986 (3.2) Amendment to Exhibit 3 to Form 10-Q Certificate of for period ended Incorporation of June 30, 1992 Registrant dated August 6, 1992 (3.3) By-laws of the Exhibit 3.3 to Annual Registrant, as Report on Form 10-K amended. for the year ended December 31, 1992 (10.1) 1992 Stock Option Appendix A to Proxy Plan (as amended May 28, Statement dated April 24, 1996)* 1996 for Annual Meeting of Shareholders held May 28, 1996 (10.2) 1995 Non-employee Appendix B to Proxy Director Stock Option Statement dated April 24, Plan* 1996 for Annual Meeting of Shareholders held May 28, 1996 (10.3) Employment Exhibit 1 to Form 8-K Agreement dated June filed June 23, 1992 8, 1992 between the Registrant and R. Carlos Carballada* (10.4) Extension of Exhibit 10.1 to Form 10-Q Employment Agreement for period ended June 30, between the Registrant 1996 and R. Carlos Carballada* (10.5) Change of Control Exhibit 10.4 to Annual Employment Agreement Report on Form 10-K for among the Registrant, the year ended December First National and R. 31, 1995 Carlos Carballada* (10.6) Form of Change of Exhibit 10.5 to Annual Control Employment Report to Form 10-K for Agreement between First the year ended December National and each 31, 1995 Executive Officer other than R. Carlos Carballada* (10.7) Form of Stock Exhibit 4.2 to Form S-8 Option Agreement pursuant Registration Statement to 1992 Stock Option Plan No. 333-15325, filed between the Registrant November 1, 1996 and each Executive Officer* (10.8) Form of Stock Exhibit 4.4 to Form S-8 Option Agreement pursuant Registration Statement to 1995 Non-employee No. 333-15325, filed Director Stock Option November 1, 1996 Plan between the Registrant and each outside Director of the Registrant* (10.9) 401(k) Stock Exhibit 4.5 to Form S-8 Purchase Plan* Registration Statement No. 333-15325, filed November 1, 1996 (10.10) Employee Stock Exhibit 4.6 to Form S-8 Purchase Plan* Registration Statement No. 333-15325, filed November 1, 1996 (10.11) Loan agreements Exhibit 10.14 and 10.15 between First National to Form 8 filed April 22, and Executive Square 1992 Associates, related to Estate of Fred B. Kravetz (10.12) Loan agreement Exhibit 10.17 to Form 8 between First National filed April 22, 1992 and Prioneer Daycare Company, related to Michael J. Falcone (10.13) Loan agreements Exhibit 10.19 to Form 8 between First National filed April 22, 1992 and Carl R. Reynolds (10.14) Line of Credit Exhibit 10.17 to Annual agreements between First Report on Form 10-K for National and JML Optical year ended December 31, Industries, Inc., related 1993 to Joseph M. Lobozzo II (10.15) Loan agreements Exhibit 10.13 to Annual between First National Report on Form 10-K for and Joseph M. Lobozzo II year ended December 31, 1994 (10.16) Loan modification Exhibit 10.15 to Annual agreements between First Report on form 10-K for National and Executive year ended December 31, Square Associates, 1994 related to Estate of Fred B. Kravetz (10.17) Loan Exhibit 10.16 to Annual modification agreements Report on form 10-K for between First National year ended December 31, and Pioneer Daycare 1994 Company, related to Michael J. Falcone (10.18) Residential Exhibit 10.1 to Form 10-Q Mortgage Loan Agreement for period ended June 30, between Stacy C. Campbell 1995 and First National (10.19) Lease Agreement Exhibit 10.2 to Form 10-Q between Southtown Plaza for period ended June 30, Associates, related to 1995 William Levine, and First National (10.20) Residential Exhibit 10.1 to Form 10-Q Mortgage Loan Agreements for period ended between Russell Family September 30, 1995 Associates, related to H. Bruce Russell, and First National (10.21) Commercial Loan Exhibit 10.2 to Form 10-Q Agreements between Estate for period ended of Fred B. Kravetz and September 30, 1995 First National (10.22) Commercial Line Exhibit 10.3 to Form 10-Q of Credit Agreement for period ended between GLC Outsourcing September 30, 1995 Services, Inc., related to James D. Ryan, and First National (10.23) Commercial Loan Page 19 Agreements between Estate of Fred B. Kravetz and First National (10.24) Commercial Loan Page 43 Agreements between Deal Road Associates, L.P., related to Estate of Fred B. Kravetz, and First National (10.25) Commercial Line Page 66 of Credit Agreements between Lauri Kuskin and First National (10.26) Commercial Loan Page 73 Agreements between Fred Kravetz and William Levine Partners, related to the Estate of Fred B. Kravitz and to William Levine, and First National (11) Statement of Computation of Page 91 Earnings per share (13) Annual Report to Page 92 Shareholders for the year ended December 31, 1996 (21) Subsidiaries Page 151 (23) Consent of KPMG Page 152 Peat Marwick LLP (27) Financial Data Page 153 Schedule * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report pursuant to Item 14 (c). (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FNB ROCHESTER CORP. March 25, 1997 By: s/ R. Carlos Carballada R. Carlos Carballada, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date _________ _____ ____ (i) Principal Executive Officer: President and Chief March 25, 1997 Executive Officer s/ R. Carlos Carballada (R. Carlos Carballada) (ii) Principal Accounting and Senior Vice President March 25, 1997 Financial Officer: and Chief Financial Officer s/ Stacy C. Campbell (Stacy C. Campbell) (iii) Directors: s/ R. Carlos Carballada Director March 25, 1997 (R. Carlos Carballada) s/Michael J. Falcone Director March 25, 1997 (Michael J. Falcone) s/Gayle C. Johnston Director March 25, 1997 (Gayle C. Johnston) s/ Joseph M. Lobozzo II Director March 25, 1997 (Joseph M. Lobozzo II) s/ Francis T. Lombardi Director March 25, 1997 (Francis T. Lombardi) s/ Carl R. Reynolds Director March 25, 1997 (Carl R. Reynolds) s/ James D. Ryan Director March 25, 1997 (James D. Ryan) s/H. Bruce Russell Director March 25, 1997 (H. Bruce Russell) s/Linda Cornell Weinstein Director March 25, 1997 (Linda Cornell Weinstein)
INDEX OF EXHIBITS Exhibit Incorporation by Reference or page in sequential numbering where exhibit may be found: (3.1) Certificate of Exhibits 4.2-4.5 to Incorporation, of the Registration Statement Registrant, as amended No. 33-7244, filed July 22, 1986 (3.2) Amendment to Exhibit 3 to Form 10-Q Certificate of for period ended Incorporation of June 30, 1992 Registrant dated August 6, 1992 (3.3) By-laws of the Exhibit 3.3 to Annual Registrant, as Report on Form 10-K amended. for the year ended December 31, 1992 (10.1) 1992 Stock Option Appendix A to Proxy Plan (as amended May 28, Statement dated April 24, 1996) 1996 for Annual Meeting of Shareholders held May 28, 1996 (10.2) 1995 Non-employee Appendix B to Proxy Director Stock Option Statement dated April 24, Plan 1996 for Annual Meeting of Shareholders held May 28, 1996 (10.3) Employment Exhibit 1 to Form 8-K Agreement dated June filed June 23, 1992 8, 1992 between the Registrant and R. Carlos Carballada (10.4) Extension of Exhibit 10.1 to Form 10-Q Employment Agreement for period ended June 30, between the Registrant 1996 and R. Carlos Carballada (10.5) Change of Control Exhibit 10.4 to Annual Employment Agreement Report on Form 10-K for among the Registrant, the year ended December First National and R. 31, 1995 Carlos Carballada (10.6) Form of Change of Exhibit 10.5 to Annual Control Employment Report to Form 10-K for Agreement between First the year ended December National and each 31, 1995 Executive Officer other than R. Carlos Carballada (10.7) Form of Stock Exhibit 4.2 to Form S-8 Option Agreement pursuant Registration Statement to 1992 Stock Option Plan No. 333-15325, filed between the Registrant November 1, 1996 and each Executive Officer (10.8) Form of Stock Exhibit 4.4 to Form S-8 Option Agreement pursuant Registration Statement to 1995 Non-employee No. 333-15325, filed Director Stock Option November 1, 1996 Plan between the Registrant and each outside Director of the Registrant (10.9) 401(k) Stock Exhibit 4.5 to Form S-8 Purchase Plan Registration Statement No. 333-15325, filed November 1, 1996 (10.10) Employee Stock Exhibit 4.6 to Form S-8 Purchase Plan Registration Statement No. 333-15325, filed November 1, 1996 (10.11) Loan agreements Exhibit 10.14 and 10.15 between First National to Form 8 filed April 22, and Executive Square 1992 Associates, related to Estate of Fred B. Kravetz (10.12) Loan agreement Exhibit 10.17 to Form 8 between First National filed April 22, 1992 and Prioneer Daycare Company, related to Michael J. Falcone (10.13) Loan agreements Exhibit 10.19 to Form 8 between First National filed April 22, 1992 and Carl R. Reynolds (10.14) Line of Credit Exhibit 10.17 to Annual agreements between First Report on Form 10-K for National and JML Optical year ended December 31, Industries, Inc., related 1993 to Joseph M. Lobozzo II (10.15) Loan agreements Exhibit 10.13 to Annual between First National Report on Form 10-K for and Joseph M. Lobozzo II year ended December 31, 1994 (10.16) Loan modification Exhibit 10.15 to Annual agreements between First Report on form 10-K for National and Executive year ended December 31, Square Associates, 1994 related to Estate of Fred B. Kravetz (10.17) Loan Exhibit 10.16 to Annual modification agreements Report on form 10-K for between First National year ended December 31, and Pioneer Daycare 1994 Company, related to Michael J. Falcone (10.18) Residential Exhibit 10.1 to Form 10-Q Mortgage Loan Agreement for period ended June 30, between Stacy C. Campbell 1995 and First National (10.19) Lease Agreement Exhibit 10.2 to Form 10-Q between Southtown Plaza for period ended June 30, Associates, related to 1995 William Levine, and First National (10.20) Residential Exhibit 10.1 to Form 10-Q Mortgage Loan Agreements for period ended between Russell Family September 30, 1995 Associates, related to H. Bruce Russell, and First National (10.21) Commercial Loan Exhibit 10.2 to Form 10-Q Agreements between Estate for period ended of Fred B. Kravetz and September 30, 1995 First National (10.22) Commercial Line Exhibit 10.3 to Form 10-Q of Credit Agreement for period ended between GLC Outsourcing September 30, 1995 Services, Inc., related to James D. Ryan, and First National (10.23) Commercial Loan Page 19 Agreements between Estate of Fred B. Kravetz and First National (10.24) Commercial Loan Page 43 Agreements between Deal Road Associates, L.P., related to Estate of Fred B. Kravetz, and First National (10.25) Commercial Line Page 66 of Credit Agreements between Lauri Kuskin and First National (10.26) Commercial Loan Page 73 Agreements between Fred Kravetz and William Levine Partners, related to the Estate of Fred B. Kravitz and to William Levine, and First National (11) Statement of Computation of Page 91 Earnings per share (13) Annual Report to Page 92 Shareholders for the year ended December 31, 1996 (21) Subsidiaries Page 151 (23) Consent of KPMG Page 152 Peat Marwick LLP (27) Financial Data Page 153 Schedule EX-10.23 2 [EXHIBIT 10.23] RESTATED MORTGAGE NOTE $575,000.00 Rochester, New York FOR VALUE RECEIVED, the undersigned, THE ESTATE OF FRED B. KRAVETZ, with an office c/o Kravetz Realty, Inc., with an office at 150 Linden Oaks Drive, Suite C, Rochester, New York 14625 (hereinafter called "Borrower"), promises to pay FIRST NATIONAL BANK OF ROCHESTER, a national banking association, or order, (hereinafter called "Lender") at its principal office at 35 State Street, Rochester, New York, or at such other place as may be designated in writing by the holder of this Restated Mortgage Note ("Mortgage Note" or "Note"), the sum of FIVE HUNDRED SEVENTY-FIVE THOUSAND and 00/100 DOLLARS ($575,000.00), in lawful money of the United States, or so much as may be advanced, referred to as "principal sum", with interest thereon to be computed from the date hereof, or of each advance, at the rate of eight and three quarters percent (8.75%) per annum. Interest only on the unpaid principal sum, from the date of this Note to December 31, 1996 shall be due and payable the date of this Note. Commencing on the first day of February 1997, installments of principal and interest shall be paid in the sum of $5,746.83 based upon an amortization period of fifteen (15) years, and a like amount on the first day of each and every month thereafter until the principal sum and interest are fully paid; said monthly payments to be applied first to the payment of accrued interest at the above rate and the balance to be applied to the reduction of the principal sum. The entire principal sum evidenced hereby, if not sooner paid, shall be due and payable on January 1, 2002. The rate of interest set forth herein shall continue in effect until all sums owed Lender are paid in full. The rate of interest shall not exceed that permitted by applicable Federal and New York State law. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. If for any reason whatsoever this Note is prepaid in part or in full within one (1) year from the date hereof, a prepayment fee of five percent (5.0%) of the original amount of the principal sum will be charged. Beginning with the second loan year, the prepayment fee shall be reduced by one percent (1.0%) each year. A loan year begins on the date this Mortgage Note is executed and on each anniversary thereof. In the event any payment due hereunder shall remain unpaid for more than ten days, the holder hereof may collect a late charge in the amount of $50.00 or 6.0% of said payment, whichever is greater, to cover its extra handling expense. If this Note is referred to attorneys for collection, all parties now or hereafter personally liable for the indebtedness hereby evidenced, jointly and severally agree to pay, the principal and interest due, all costs and expenses, including reasonable attorneys' fees, incurred by the holder hereof, with or without the institution of an action or proceeding. The rate of interest hereunder shall increase to three percent (3.0%) above the rate of interest then applicable to this Note upon the maturity date of this Note or upon an event of default under this Note or the Mortgage securing the Note. This Note is secured by a Mortgage and Consolidation Agreement ("Mortgage") of even date herewith on property known as 1059 Lake Avenue and 4-6 Eldorado Place, City of Rochester, Monroe County, New York ("Property"). In the event the Debt Service Coverage Ratio ("DSCR"), as defined below, for the Property at any time is less than 1.0 ("Minimum DSCR"), as reasonably determined by the Lender, the Lender may, by written notice to Mortgagor, require a payment toward principal within thirty (30) days of such notice so as to achieve the Minimum DSCR, with failure to make such principal payment to bring a default under the Mortgage. In such event, the applicable prepayment fee shall not be collected by Lender, and the monthly payment of principal and interest shall be recalculated based upon the reduced principal sum and the remaining amortization period. DSCR shall mean Net Income (as defined below) divided by annual payments of principal and interest pursuant to this Note. Net Operating Income shall mean annual rental income available after payment of annual real estate taxes, utilities, management fees, repairs, maintenance, property insurance, reasonable salaries, reasonable administrative expenses, and other normal operating expenses, exclusive of depreciation amortization and interest expense. This Note is being delivered solely for the purpose of modifying, amending and restating the terms of the notes which are secured by the Mortgage. This Note does not create a new or additional indebtedness or obligation other than the principal indebtedness or obligation secured by or which under any contingency may be secured by the Mortgage. It is hereby expressly agreed, that the principal sum secured by this Note shall become due at the option of the holder thereof on the happening of any default or event by which under the terms of the Mortgage, the principal sum may or shall become due and payable; also, that all of the covenants, conditions and agreements contained in the Mortgage are hereby made part of this instrument. Presentment for payment, notice of dishonor, protest and notice of protest are hereby waived. This Note shall be governed by and construed in accordance with the laws of the State of New York. In the event any one or more of the provisions of the Note shall for any reason be invalid, illegal or unenforceable in whole or in part, then only such provision or provisions shall be deemed to be null and void and of no force or effect, but shall not affect any other provision of the Note. This Note may not be changed or terminated orally. Signed and sealed as of the 3rd day of December, 1996. ESTATE OF FRED B. KRAVETZ By:s/Laurie Kuskin Laurie Kuskin, Executrix STATE OF NEW JERSEY) COUNTY OF MONMOUTH ) SS: On this 27th day of November, 1996, before me, the subscriber, personally appeared LAURIE KUSKIN, Executrix of the Last Will and Testament of FRED B. KRAVETZ, to me personally known and known to me to be the same person described in and who executed the within Instrument, and she acknowledged to me that she executed the same as such Executrix. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 MORTGAGE WITH CONSOLIDATION AGREEMENT This Mortgage, made as of the 3rd day of December, 1996 between THE ESTATE OF FRED B. KRAVETZ, with an office c/o Kravetz Realty, Inc., 150 Linden Oaks Drive, Suite C, Rochester, New York 14625 (herein called the "Mortgagor"), and FIRST NATIONAL BANK OF ROCHESTER, a national banking association with its principal office at 35 State Street, Rochester, Monroe County, New York, (herein called the "Mortgagee"). W I T N E S S E T H, to secure the payment of an indebtedness in the sum of FIFTY-TWO THOUSAND ONE HUNDRED FORTY ONE AND 79/100 DOLLARS ($52,141.79) lawful money of the United States (or so much as may be advanced) to be paid with interest thereon to be computed from the date hereof, to be paid according to a certain bond, note, or obligation bearing even date herewith ("Note"), the Mortgagor hereby mortgages to the Mortgagee the premises described in Schedule "A" attached hereto and made a part hereof (herein called the "Mortgaged Premises" or "Premises"). TOGETHER with all the right, title and interest of the Mortgagor in and to any and all unearned premiums accrued, accruing or to accrue under any and all insurance policies now or hereafter obtained by the Mortgagor on the Mortgaged Premises, TOGETHER with the appurtenances and all the estate and rights of the Mortgagor in and to said Premises, TOGETHER with all and singular the tenements, hereditaments, and appurtenances belonging or in any way appertaining to said Premises, and the reversion and reversions, remainder and remainders, rents, issues and profits thereof. TOGETHER with and including any and all strips and gores of land adjoining or abutting said Premises, TOGETHER with all right, title, and interest of the Mortgagor in and to the land lying in the bed of any street, road, avenue or alley, open or proposed, in front of, running through or adjoining said Premises, TOGETHER with all buildings, structures, and improvements now or at any time hereafter erected, constructed or situated upon the Premises, and apparatus, fixtures, chattels, and articles of personal property now or hereafter attached to or used in connection with said Premises, including but not limited to furnaces, boilers, oil boilers, radiators and piping, coal stokers, plumbing and bathroom fixtures, refrigeration, air- conditioning and sprinkler systems, wash-tubs, sinks, gas and electric fixtures, stoves, ranges, awnings, screens, window shades, elevators, motors , dynamos, refrigerators, kitchen cabinets, incinerators, plants and shrubbery and all other equipment and machinery, appliances, fittings and fixtures of every kind in or used in the operation of the buildings standing on said Premises, together with any and all replacements thereof and additions thereto, TOGETHER with all awards heretofore and hereafter made to the Mortgagor for taking by eminent domain the whole or any part of said Premises or any easement therein, including any awards for changes of grade of streets, which said awards are hereby assigned to the Mortgagee, who is hereby authorized to collect and receive the proceeds of such awards and to give proper receipts and acquittances therefor, and to apply the same toward the payment of the mortgage debt, except as otherwise provided in this Mortgage, notwithstanding the fact that the amount owing thereof may not then be due and payable; and the Mortgagor hereby agrees, upon request, to make, execute and deliver any and all assignments and other instruments sufficient for the purpose or assigning said awards to the Mortgagee, free, clear, and discharged of any encumbrances of any kind or nature whatsoever, The Mortgagor covenants with the Mortgagee that: PAY INDEBTEDNESS. The Mortgagor will pay the indebtedness secured hereby with interest thereon as herein provided and according to the Note, and if default shall be made in the payment of part thereof, the Mortgagee shall have power to sell the Mortgaged Premises according to law. INSURANCE. The Mortgagor will keep the buildings on the Premises and the fixtures and articles of personal property covered by the Mortgage insured against loss by fire and other hazards, casualties and contingencies, including flood insurance if required by law, regulation or Mortgagee, for the benefit of the Mortgagee in an amount not less than the unpaid principal balance due hereunder. The fire insurance policy as required hereby shall contain the usual extended coverage endorsement and shall provide for twenty (20) days written notice to Mortgagee prior to cancellation. Mortgagor will maintain liability insurance in minimum amounts of $1,000,000.00 per occurrence for bodily injury and $100,000.00 for property damage. In addition thereto the Mortgagor within thirty (30) days after notice and demand will keep the Premises insured against any other hazard that may reasonably be required by law, regulation or Mortgagee. The Mortgagor will assign and deliver said policies to the Mortgagee and the Mortgagor will reimburse the Mortgagee for any premiums paid for the insurance made by the Mortgagee on the Mortgagor's default in so insuring the buildings or in so assigning and delivering the policies. All the provisions of this paragraph or of any other provisions of the Mortgage pertaining to fire insurance or any other additional insurance which may be required hereunder shall be construed in accordance with Section 254 Subdivision 4 of the New York Real Property Law. Notwithstanding the provisions of the aforesaid Section 254, Subdivision 4, the Mortgagor consents that the Mortgagee may without qualification or limitation by virtue of said section, retain and apply the proceeds of any such insurance in satisfaction or reduction of the Mortgage, or it may at its election pay the same, either in whole or in part, to the Mortgagor or its successors or assigns for the repair or replacement of the buildings or of the insured articles of personal property or for any other purpose or object reasonably satisfactory to the holder of the Mortgage, and if the Mortgagee shall receive and retain such insurance money, the lien of the Mortgage shall be affected only by a reduction of the amount of such lien by the amount of such insurance money received and retained by the Mortgagee. Notwithstanding the foregoing election available to Mortgagee, the proceeds of such insurance shall be made available to Mortgagor if, at the time such proceeds are delivered to Mortgagee, there is no uncured default under the Note or this Mortgage and the loan to value ratio (i.e. the then unpaid principal balance pursuant to the Note divided by the value of the Premises as reasonably determined by Mortgagee) shall not be more than 75%. Mortgagee shall disburse such proceeds to Mortgagor upon completion of work and invoices therefor approved by Mortgagee, and any excess proceeds shall be utilized to reduce the unpaid principal sum secured by this Mortgage. ALTERATIONS, DEMOLITION OR REMOVAL. No building, fixtures or personal property covered by the Mortgage shall be removed, demolished, or substantially altered without the prior written consent of the Mortgagee. WASTE, MAINTENANCE AND REPAIRS. The Mortgagor will not commit any waste on the Premises or make any change in the use of the Premises which will in any way increase any ordinary fire or other hazard arising out of construction or operation. The Mortgagor will keep and maintain or cause to be kept and maintained all buildings and other improvements now or at any time hereafter erected upon or constituting any portion of the Mortgaged Premises, and the sidewalks and curbs abutting the same, in good order and condition and in a rentable and tenantable state or repair, and will make or cause to be made, as and when the same shall become necessary, all structural and non- structural exterior and interior, ordinary and extraordinary, foreseen and unforeseen repairs, renewals, and replacements necessary to that end. In the event that the Mortgaged Premises shall be damaged or destroyed in whole or in part, by fire or any other casualty, or in the event of a taking of a portion of the Mortgaged Premises as a result of any exercise of the power of eminent domain, the Mortgagor shall promptly restore, replace, rebuild or alter the same as nearly as possible to the condition they were in immediately prior to such fire, other casualty or taking, provided the proceeds of the condemnation or any insurance policy are made available to Mortgagor. Although damage to or destruction of the Mortgaged Premises, or any portion thereof, shall not of itself constitute a default hereunder, the failure of the Mortgagor to restore, replace, rebuild, or alter the same, as hereinabove provided, shall constitute a default hereunder. The Mortgagor covenants that it will give to the Mortgagee prompt written notice of any damage or injury to the Mortgaged Premises and will give like notice to the Mortgagee of the commencement of any condemnation proceeding affecting the whole or any portion of Mortgaged Premises. The Mortgagor shall have the right, at any time and from time to time, to remove and dispose of building service equipment which may have become obsolete or unfit for use or which is no longer useful in the operation of the building now or hereafter constituting a portion of the Mortgaged Premises. The Mortgagor agrees promptly to replace with other building service equipment, free of superior title, liens or claims, not necessarily of the same character but of at least equal usefulness and quality, any such building service equipment so removed or disposed of, except that, if by reason of technological or other developments in the operation and maintenance of buildings of the general character of the building constituting a portion of the Mortgaged Premises, no replacement of the building service equipment so removed or disposed of is necessary or desirable in the proper operation or maintenance of said building, the Mortgagor shall not be required to replace the same. TAXES, ASSESSMENTS, ETC. The Mortgagor will pay all taxes, assessments, insurance premiums, sewer rents, or water rates, and in default thereof, the Mortgagee may pay the same. Any sums so advanced by the Mortgagee shall bear interest at the maximum legal rate of interest at the time of such advance or at the highest rate of interest set forth herein or in the Note, whichever is greater, and any such sum and the interest thereon shall be a lien on said Premises, prior to any right, or title to, interest in or claim upon said Premises, or accruing subsequent to the lien of the Mortgage and shall be deemed secured hereby. Upon written request from Mortgagee, Mortgagor shall deliver to Mortgagee receipted tax bills showing payment of all taxes on the Premises within the applicable grace period. ESTOPPEL STATEMENT. The Mortgagor within ten (10) days upon request in person or within twenty (20) days upon request by mail will furnish a written statement duly acknowledged of the amount due on the Mortgage and whether any offsets or defenses exist against the Note and Mortgage. MORTGAGEE MAY CURE MORTGAGOR'S DEFAULTS. The Mortgagor covenants and agrees with the Mortgagee that the holder of the Mortgage may cure any default of Mortgagor on the Mortgage or any prior or subsequent mortgage, including payment of any installments of principal and interest or part thereof, and that all costs and expenses, including reasonable attorneys' fees together with interest thereon at the highest legal rate of interest at the time of such default or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is the greater, paid by the Mortgagee in so curing said default, shall be repaid by the Mortgagor to the Mortgagee on demand and the same shall be deemed to be secured by the Mortgage and to be collectible in like manner as the principal sum. WARRANTY OF TITLE. The Mortgagor warrants the title to the Premises and will execute any further assurance of the title to the Premises as Mortgagee may require. LIEN LAW COVENANT. The Mortgagor will, in compliance with Section 13 of the New York Lien Law, receive the advances secured hereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvements before using any part of the total of the same for any other purpose. ESCROW FOR TAXES/INSURANCE. The Mortgagee may request at any time after a default by Mortgagor in payment when due of property taxes and/or insurance premiums on the Mortgaged Premises that, in addition to the monthly payments of principal and interest, the Mortgagor will pay monthly to the Mortgagee on or before the first day of each and every calendar month, until the Note is fully paid, a sum equal to one-twelfth of the known or estimated yearly taxes, assessments, liens and charges levied or to be levied against the Mortgaged Premises and/or premiums for insurance held or required by Mortgagee. The Mortgagee shall hold such payments in trust without obligation to pay interest thereon, except such interest as may be made mandatory by law or regulation, to pay such taxes, assessments, liens, charges and insurance premiums within a reasonable time after they become due. If the total of payments made by the Mortgagor for taxes, assessments, liens, charges and insurance premiums shall exceed the amount of payments actually made by the Mortgagee, such excess shall be credited by the Mortgagee on subsequent payments to be made by the Mortgagor or refunded upon payment in full of the Note. If the total of payments made by the Mortgagor for taxes, assessments, liens, charges and insurance premiums shall not be sufficient to pay therefor, then the Mortgagor shall pay to the Mortgagee any amount necessary to make up the deficiency on or before the date when such amounts shall be due. LATE CHARGES. If any payment required to be made under the Mortgage or the note or the obligations secured by the Mortgage shall be overdue in excess of 10 days, a late charge of $.06 of each $1.00 so overdue or $50.00, whichever is greater, will be paid by the Mortgagor for the purpose of defraying the expenses incident to handling such delinquent payments. LEASES. Pursuant to the provisions of Section 291-f of the New York Real Property Law, the Mortgagor, except for residential leases with a term not exceeding one (1) year, shall not (a) amend, cancel, abridge, terminate, or otherwise modify any lease of said Premises or of any part thereof, or (b) accept prepayment of rent or installments of rent for more than one month in advance, without the written consent of the Mortgagee and in the event of any default under the terms of this paragraph the whole of said principal sum shall become due immediately upon the happening thereof at the option of the Mortgagee. In addition thereto, except for residential leases with a term not exceeding one (1) year, (a) the Mortgagor shall not make any new lease or lease renewal or extension (other than those the Mortgagor as landlord may be required to grant by the terms of an existing lease) without the prior written consent of the Mortgagee and (b) the Mortgagor shall furnish to the Mortgagee, within thirty (30) days after a request by the Mortgagee to do so, a written statement containing the names of all lessees of the Premises, the terms of their respective leases, the space occupied and the rentals payable thereunder. FINANCIAL STATEMENTS. The Mortgagor will furnish the Mortgagee with copies of its signed Federal Tax returns as they are timely filed, but not later than 120 days after the end of Mortgagor's fiscal year. Any guarantor(s) of payment of the indebtedness also shall provide Mortgagee with copies of their signed Federal Tax Returns as they are timely filed and with annual personal financial statements on forms provided by Mortgagee. The Mortgagee shall have the right to examine the financial records covering the operation of the Premises at least once a year or as often as the Mortgagee may require if the Mortgagor be in default. PREPAYMENT FEE. If for any reason whatsoever the indebtedness secured by the Mortgage is prepaid in part or in full within one (1) year from the date hereof, a prepayment fee of five percent (5.0%) of the original amount of the consolidated principal sum will be charged. Beginning with the second loan year, the prepayment fee shall be reduced by one percent (1.0%) each year. A loan year begins on the date the Mortgage is executed and on each anniversary thereof. The amount of such prepayment consideration shall be added to and secured by the Note and Mortgage and shall be recoverable by the Mortgagee in the same manner as the principal balance hereof, and in addition thereto, in any action brought either on the Note or for the foreclosure of the Mortgage. ACCELERATION OF PRINCIPAL ON TRANSFER, ETC. The principal sum with interest thereon shall become immediately due and payable, upon the voluntary or involuntary conveyance or transfer by operation of law or otherwise of all or any part of the Mortgaged Premises, or any interest or estate therein, including testate or intestate succession and conveyance by land contract. Acceptance of payments by the Mortgagee subsequent to any such conveyance, transfer, or encumbering shall not be deemed a waiver of any of the Mortgagee's rights. If the Mortgagor is a corporation, the sale, assignment, transfer, or other disposition of any stock by any party owning ten (10%) percent or more of the stock, of any corporation owning all or any part of the Mortgaged Premises or any other similar significant change in ownership of such stock or in the relative distribution thereof, by any method or means, whether by increased capitalization, merger with another corporation, corporate or other amendments, issuance of additional or new stock, reclassification of stock or otherwise shall be deemed a conveyance or transfer within the meaning of this provision. If the Mortgagor is a partnership, a sale or transfer by operation of law or otherwise of any partners' interest in the partnership or a change in the identity or composition of the partners of the Mortgagor shall be deemed a conveyance or transfer within the meaning of this provision. Notwithstanding the foregoing, transfers of interests in the Premises to Gary and/or Laurie Kuskin or their children, or to trusts or other entities controlled by Gary Kuskin and/or Laurie Kuskin, shall be permitted without the Mortgagee's consent provided that (a) notice of transfer is given to Mortgagee; (b) such transferee assumes the indebtedness evidenced by this Mortgage; and (c) such transfer shall not affect the liability of any guarantor. ACCELERATION OF PRINCIPAL ON DEFAULT, ETC. The whole of the principal sum and interest shall become due at the option of the Mortgagee, after (a) default in the payment of any installment of principal or of interest for thirty (30) days; or, (b) default in the payment of any tax, water rate, assessment, insurance premiums, or sewer rent for thirty (30) days after notice and demand or default after notice and demand either in assigning and delivering the policies insuring the buildings against any casualty or in reimbursing the Mortgagee for premiums paid on such insurance, as herein provided; or (c) default upon request in furnishing a statement of the amount due and whether any offsets or defenses exist against the mortgage debt, as provided herein in the Section entitled "Estoppel Statement"; or (d) failure to exhibit to the Mortgagee, within ten (10) days after demand, receipts showing payment of all taxes, water rates, sewer rents and assessments; or (e) the actual or alteration, demolition or removal of any building on the Premises without the written consent of the Mortgagee; or (f) the assignment of the rents of the Premises or any part thereof without the written consent of the Mortgagee; or (g) the buildings on said Premises are not maintained in reasonably good repair; or (h) failure to comply with any requirement or order or notice of violation of law or ordinance issued by any governmental department claiming jurisdiction over the Premises within two (2) months from the issuance thereof unless such requirement, order or notice is being lawfully challenged by Mortgagor and there is no risk of forfeiture of any of Mortgagor's rights in the Premises; or (i) refusal of two or more fire insurance companies lawfully doing business in the State of New York to issue policies insuring the buildings on the premises; or (j) the removal, demolition or destruction in whole or in part of any of the fixtures, chattels or articles of personal property covered hereby, unless the same are promptly replaced by similar fixtures, chattels and articles of personal property at least in quality and condition to those replaced, free from security interests or other encumbrances thereon and free from any reservation of title thereof; or (k) thirty (30) days notice to the Mortgagor, in the event of the passage of any law deducting from the value of land for the purposes of taxation any lien thereon, or changing in any way the laws for the taxation of mortgages or debts secured thereby for state or local purposes; or (1) the Mortgagor fails to keep, observe and perform any of the other covenants, conditions or agreements contained in the Mortgage; or (m) use of said Premises for any unlawful purpose or public or private nuisance; or (n) the Mortgagor commits or permits waste; or (o) any default under any mortgage or other lien on the Premises or any default under any other note, loan agreement or other instrument evidencing Mortgagor's indebtedness to Mortgagee; or (p) the Note becomes non-recourse to the Mortgagor. NOTICES. Notice and demand to or request upon the Mortgagor may be oral or in writing and, if in writing, may be served in person or by mail. APPOINTMENT OF RECEIVER. The Mortgagee, in any action to foreclose the Mortgage, shall be entitled, without notice or demand and without regard to the adequacy of any security for the indebtedness hereby or the solvency or insolvency of any person liable for the payment thereof, to the appointment of a receiver of the rents, issues and profits of the Mortgaged Premises. SALE IN ONE PARCEL. In case of a foreclosure sale, said Premises, or so much thereof as may be affected by the Mortgage, may be sold in one parcel, any provision of law to the contrary notwithstanding. ASSIGNMENT OF RENTS. The Mortgagor hereby absolutely and unconditionally assigns, transfers and conveys to the Mortgagee the rents, issues, and profits of the Premises as further security for the payment of the Note, it being the intention of Mortgagor and Mortgagee that this assignment be treated and construed as an absolute assignment and not an assignment for additional security only. The Mortgagor further grants to the Mortgagee the right to enter upon and to take possession of the Premises for the purpose of collecting the same and to let the Premises or any part thereof, and to apply the rents, issues and profits, after payment of all necessary charges and expenses, on account of the Note. This assignment and grant shall continue in effect until the Note is paid. The Mortgagee hereby waives the right to enter upon and to take possession of the Premises for the purpose of collecting the rents, issues, and profits, and the Mortgagor shall be entitled to collect and receive the rents, issues and profits as trustee for the benefit of Mortgagee and Mortgagor until default under any of the covenants, conditions, or agreements contained in the Mortgage; Mortgagor agrees to use such rents, issues and profits in payment of principal and interest and in payment of taxes, assessments, sewer rents, water rates, and carrying charges against the Premises, but such right of the Mortgagor may be revoked by the Mortgagee upon any default, on five (5) days written notice. The Mortgagor will not, without the written consent of the Mortgagee, receive or collect rent from any tenant of the Premises or any part thereof for a period of more than one month in advance, and in the event of any default under the Mortgage will pay monthly in advance to the Mortgagee, or to any receiver appointed to collect the rents, issues and profits, the fair and reasonable rental value for the use and occupation of the Premises or of such part thereof as may be in the possession of the Mortgagor, and upon default in any such payment will vacate and surrender the possession of the Premises to the Mortgagee or to such receiver, and in default thereof may be evicted by summary proceedings. Mortgagor shall and does hereby agree to indemnify and hold Mortgagee and its representatives harmless of and from any and all liability, loss of damage which Mortgagor or its representatives may or might incur under or by reason of (a) any tenant of the Premises, (b) this Mortgage, (c) any action taken by Mortgagee or its representatives hereunder, unless constituting willful misconduct, or (d) claims and demands which may be asserted against Mortgagee or its representatives by reason of any alleged obligations or undertakings on its or their part to perform or discharge any of the terms, covenants or agreements contained in any lease affecting the Premises. This Mortgage shall not operate to place upon Mortgagee any responsibility for the management, operation or maintenance of the Premises, and the execution of this Mortgage by Mortgagor shall constitute conclusive evidence that all responsibility for the management, operation and maintenance of the Premises is, shall be and shall remain that of Mortgagor, in the absence of the taking of actual possession of the Premises by Mortgagee. The provisions of the foregoing indemnification obligation shall survive the assignment or repayment of the Note, the assignment, satisfaction, foreclosure or other termination of this Mortgage and the sale or other transfer or conveyance of the Premises. SECURITY AGREEMENT. The Mortgage constitutes a security agreement under the Uniform Commercial Code and creates a security interest in all fixtures and equipment and other personal property (and the proceeds thereof) now or hereafter affixed to or constituting a portion of the Premises. Mortgagor shall execute, deliver, file and refile any financing statement, continuation statements, or other security agreements Mortgagee may require from time to time to confirm the lien of the Mortgage with respect to such property. ANTI-MARSHALLING. The Mortgagee may resort for the payment of any indebtedness, liability, or obligation secured hereby to its several securities therefor, in such order and manner as it may see fit, and the Mortgagee may maintain an action to foreclose the Mortgage notwithstanding the pendency of any action to recover any part of the indebtedness secured hereby, or the recovery of any judgment in such action. The Mortgagee shall not be required during the pendency of any action to foreclose the Mortgage, to obtain leave of any court in order to commence or maintain any other action to recover any part of the indebtedness secured hereby. The Mortgagee shall also have the right in the event of default under the Mortgage or the obligation secured hereby to proceed against any or all interests of the Mortgagor and the Mortgagor agrees that the Mortgagee shall have the right to elect in writing not to cut off any interest that any Mortgagor might have and in the event that Mortgagee shall so elect, Mortgagor agrees that all of its duties and obligations as to such interest shall continue. COMPLIANCE WITH LAWS, ETC. The Mortgagor will comply with, or cause compliance with, all present and future laws, ordinances, rules, regulations, zoning and other requirements of all governmental authorities whatsoever having jurisdiction of or with respect to the Mortgaged Premises or any portion thereof or the use or occupation thereof; provided, however, that the Mortgagor may postpone such compliance if and so long as the validity or legality of any such governmental requirement shall be contested by the Mortgagor, with diligence and in good faith, by appropriate legal proceedings. COMPLIANCE WITH ZONING, ETC. The Mortgagor covenants: (a) that the buildings and improvements now on the Mortgaged Premises are in full compliance with all applicable zoning codes, ordinances and regulations and deed restrictions, if any; and (b) that such compliance is based solely upon Mortgagor's ownership of such Premises, and not upon title to or interest in any other Premises; and (c) buildings or improvements hereafter constructed on such Premises shall be in compliance as in (a) and (b) hereof provided, shall lie wholly within the boundaries of such Premises and, shall be independent and self-contained operating units (except for utility lines and conduits coming directly to the Premises from a public road or from a private road an easement over which for the maintenance of such utilities is covered by the lien hereof.) LEGAL EXPENSES. If any action or proceeding be commenced (except an action to foreclose the Mortgage or to collect the debt secured thereby), to which action or proceeding the Mortgagee is made a party, or in which it becomes necessary to defend or uphold the lien of the Mortgage, all sums paid by the Mortgagee for the expense of any litigation to prosecute or defend the rights and lien created by the Mortgage (including counsel fees), shall be paid by the Mortgagor, together with interest thereon at the legal rate of interest at the time of said payment or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is greater, and any such sum and interest thereon shall be a lien on said Premises, prior to any right, or title to, interest in or claim upon said Premises attaching or accruing subsequent to the lien of the Mortgage, and shall be deemed to be secured by the Mortgage. If the Mortgage is referred to attorneys for collection or foreclosure, the Mortgagor shall pay all sums, including attorneys' fees, incurred by the Mortgagee, together with all statutory costs, disbursements, and allowances, with or without the institution of an action or proceeding. All such sums with interest thereon at the rate set forth herein shall be deemed to be secured by the Mortgage and collectible out of the Mortgaged Premises. CONDEMNATION AWARD. In the event of a condemnation award for a portion of the Premises payable to Mortgagee and Mortgagor, Mortgagee shall make the proceeds of such award available to Mortgagor if, at the time such proceeds are delivered to Mortgagee, there is no uncured default under the Note or this Mortgage and the loan to value ratio (i.e. the then unpaid principal balance pursuant to the Note divided by the value of the Premises as reasonably determined by Mortgagee) shall not be more than 75%. Mortgagee shall disburse such proceeds to Mortgagor upon completion of work and invoices therefor approved by Mortgagee, and any excess proceeds shall be utilized to reduce the unpaid principal sum secured by this Mortgage. INTEREST ON CONDEMNATION AWARD. In the event of condemnation, or taking by eminent domain, the Mortgagee shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest on the entire unpaid principal sum at the rate herein provided; the Mortgagor does hereby assign to the Mortgagee so much of the balance of the award payable by the condemning authority as is required to pay such total interest. INTEREST IN THE EVENT OF DEFAULT. If default be made in the payment of the said indebtedness when due, pursuant to the terms hereof, the Mortgagee shall be entitled to receive interest on the entire unpaid principal sum at the legal rate of interest at the time of such default or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is the greater, to be computed from the due date and until the actual receipt and collection of the entire indebtedness. This charge shall be added to and shall be deemed secured by the Mortgage. The within clause, however, shall not be construed as an agreement or privilege to extend the Mortgage, nor as a waiver of any other right or remedy accruing to the Mortgagee by reason of any such default. RENT/BUSINESS INTERRUPTION INSURANCE. The Mortgagor will keep the buildings and improvements now erected or hereafter to be erected on the Mortgaged Premises and all personal property and fixtures covered by the Mortgage insured for the benefit of the Mortgagee against loss of rents or business income, as the case may be, by reason of fire or other casualties and in such amounts as may from time to time be reasonably required by the Mortgagee and in companies reasonably satisfactory to the Mortgagee, and will assign and deliver to the Mortgagee such policies of insurance. NO SECONDARY FINANCING. The Mortgagor will not, without the Mortgagee's prior written consent, mortgage (including the so- called "wrap-around mortgage"), pledge, assign, grant a security interest in, cause any lien or encumbrance to attach to or any levy to be made on the Mortgaged Premises except for (a) taxes and assessments not yet delinquent and (b) any mortgage, pledge, security interest, assignment or other encumbrance to the Mortgagee. BANKRUPTCY. Upon the making of an assignment for the benefit of creditors by, or upon the filing of a petition in bankruptcy by or against the Mortgagor, or any person or corporation who is the guarantor hereof or whose indebtedness is secured hereby, or upon the application for the appointment of a receiver of the property of the Mortgagor or any such person or corporation, or of the property of any person or corporation which may become and be owner of the Mortgaged Premises, or upon any act of insolvency or bankruptcy of the Mortgagor or any such person or corporation or of any such subsequent owner, or upon the legal incapacity of the Mortgagor or any such person or corporation or owner, or any of them, the whole of said indebtedness of every kind or nature held by the Mortgagee and now or hereafter secured hereby shall immediately become due and payable with interest thereon, and Mortgagor and any guarantor(s) hereby waive presentment, demand of payment, protest, notice of non-payment, and/or protest of any instrument on which the Mortgagor or such guarantors are or may become liable now or hereafter secured hereby, and the Mortgagor expressly agrees that the Mortgagee may release or extend the time of any party liable on any such obligation without notice and without affecting his obligation thereon or under this instrument. LIENS. The Premises shall be kept free and clear from any liens and/or encumbrances of any type and description after the date hereof. Upon the recording of any lien or encumbrance, and the same not having been cleared or bonded of record within thirty (30) days after filing thereof, the entire debt secured hereby shall immediately become due and payable. RIGHT TO INSPECT. The Mortgagee and any persons authorized by Mortgagee shall have the right to enter and inspect the Mortgaged Premises at all reasonable times during usual business hours. WAIVER. No waiver by the Mortgagee of the breach of any of the covenants contained in the Note, the Mortgage, or other loan document, or failure of the Mortgagee to exercise any option given to it, shall be deemed to be a waiver of any other breach of the same or any other covenant, or of its rights thereafter to exercise any such option. MODIFICATION. No change, amendment, modification, cancellation or discharge hereof, or any part hereof, shall be valid unless in writing and signed by the parties hereto or their respective successors and assigns. COVENANTS SHALL RUN WITH THE LAND, ETC. The covenants contained in the Mortgage shall run with the land and bind the Mortgagor, the heirs, personal representatives, successors and assigns of the Mortgagor and all subsequent owners, encumbrancers, tenants and subtenants of the Premises, and shall enure to the benefit of the Mortgagee, the personal representatives, successors and assigns of the Mortgagee and all subsequent holders of the Mortgage. CONSOLIDATION/SPREADING AGREEMENT. The Mortgage is consolidated with prior existing mortgages according to Schedule B attached hereto and made a part hereof. ENVIRONMENTAL REPRESENTATIONS, WARRANTIES AND COVENANTS. 1. Except as otherwise disclosed in the Phase I Assessment referenced in the Indemnification Agreement (as hereinafter defined), Mortgagor makes the following representations and warranties which shall survive the closing of this loan: A. Mortgagor is in compliance in all respects with all applicable federal, state and local laws, including, without limitation, those relating to toxic and hazardous substances and other environmental matters. B. No portion of the Premises is being used or has been used at any previous time, for the disposal, storage, treatment, processing or other handling of any hazardous or toxic substances. 2. Mortgagor agrees that Mortgagee or its agents or representatives may, at any reasonable time and at Mortgagor's expenses inspect Mortgagor's books and records and inspect and conduct any tests on the Property including taking soil samples in order to determine whether Mortgagor is in continuing compliance with all environmental laws and regulations. 3. If any environmental contamination is found on the property for which any removal or remedial action is required pursuant to law, ordinance, order, rule, regulation or governmental action, Mortgagor agrees that it will at its sole cost and expense remove or take such remedial action promptly and to Mortgagee's satisfaction. 4. Mortgagor agrees to defend, indemnify and hold harmless Mortgagee, its employees, agents, officers and directors from and against any claims, actions, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses) of whatever kind or nature known or unknown contingent or otherwise arising out of or in any way related to: A. The past or present disposal, release or threatened release of any hazardous or toxic substances on the Premises; B. Any personal injury (including wrongful death or property damage, real or personal) arising out of or related to such hazardous or toxic substances; C. Any lawsuit brought or threatened, settlement reached or government order given relating to such hazardous or toxic substances; and/or D. Any violation of any law, order, regulation, requirement, or demand of any government authority, or any policies or requirements of Mortgagee, which are based upon or in any way related to such hazardous or toxic substances. 5. Mortgagor knows of no on-site or off-site locations where hazardous or toxic substances from the operation of the facility on the Premises have been stored, treated, recycled or disposed of. 6. Mortgagor agrees that it will conduct no excavations at the Premises unless it gives Mortgagee ten days' notice of its intention to do so. Mortgagor further agrees that it will not commence such excavation until Mortgagee has had the opportunity to sample and test at the excavation location if Mortgagee so desires. Should the testing results disclose the presence of hazardous or toxic substances which require removal and/or remedy under any environmental laws or regulations, the suspension of excavation activity at such location shall continue until the hazardous or toxic substances are removed and/or remedied to Mortgagee's reasonable satisfaction. Mortgagor shall pay for any and all reasonable costs for any such testing and removal and/or remedy conducted pursuant to this paragraph. 7. Unless waived in writing by Mortgagee, the breach of any of the covenants and warranties contained in this section shall be an event of default under the Mortgage. 8. For purposes of this section, "hazardous and toxic substances" includes, without limit, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the New York State Environmental Conservation Law, the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant thereto. The provisions of this section shall be in addition to any other obligations and liabilities Mortgagor may have to Mortgagee at common law, and shall survive the transactions contemplated herein. Mortgagee may, at its option, require Mortgagor to carry adequate insurance, if available at a reasonable cost, to fulfill Mortgagor's obligations under this paragraph. Mortgagor's failure to obtain insurance within 30 days after being requested to do so by Mortgagee, shall constitute an event of default hereunder. 9. When the terms and provisions contained in the foregoing Paragraphs 1-8 in any way conflict with the terms and provisions contained in a certain Environmental Compliance and Indemnification Agreement of even date herewith ("Indemnification Agreement"), the terms and provisions contained in the Indemnification Agreement shall prevail, and, in the event of any overlapping terms, covenants and conditions, insofar as possible, the terms, covenants and conditions contained herein and in the Indemnification Agreement shall both be applicable. TAX ON NOTE. That in the event that hereafter it is claimed by any governmental agency that any tax or other governmental charge or imposition is due, unpaid and payable by the Mortgagor or the Mortgagee upon the Note (other than a tax on the interest receivable by the Mortgagee thereunder), the Mortgagor will upon sixty (60) days prior written notice either (a) pay such tax and within a reasonable time thereafter deliver to the Mortgagee satisfactory proof of payment thereof or (b) deposit with the Mortgagee the amount of such claimed tax, together with interest and penalties thereon, pending an application for a review of the claim for such tax, and within a reasonable time, deliver to the Mortgagee either (i) evidence satisfactory to the Mortgagee that such claim of taxability has been withdrawn or defeated in which event any such deposit shall be returned to the Mortgagor or (ii) a direction from the Mortgagor to the Mortgagee to pay the same out of the deposit above mentioned, any excess due over the amount of said deposit to be paid by the Mortgagor directly to the taxing authority and any excess of such deposit over such payment by the Mortgagee to be returned promptly to the Mortgagor. Upon the failure of the Mortgagor to comply with the provisions of this Article, the whole of said principal sum and interest secured by the Mortgage shall at the option of the Mortgagee become due and payable. If liability for such tax is asserted against the Mortgagee, the Mortgagee will give to the Mortgagor prompt notice of such claim, and the Mortgagor, upon complying with the provisions of this Article, shall have full right and authority to contest such claim of taxability. COMPLIANCE WITH ARTICLE 31-B OF NEW YORK STATE TAX LAW. The Mortgagor will keep true and complete records pertaining to its acquisition of title to the Premises, all subsequent transfers of any interests in the Premises or any part thereof and all changes in the controlling interest (by way of changes in stock ownership, capital, profits, beneficial interest or otherwise) in the Mortgagor or any related entity which may hereafter own the Premises, including, but not limited to, a copy of the contract of sale, title report, deed, closing statement, transferor's affidavit, questionnaire or return, statement of tentative assessment and any other notices or determinations of tax received from the New York State Department of Taxation and Finance, transferor's supplemental return, the date and cost of all "capital improvements" made to the Premises or any part thereof and evidence of the payment of any real property transfer gains tax imposed by reason of Article 31-B of the New York State Tax Law and the filing of all reports and any other information or documentation required by the New York State Department of Taxation and Finance by reason of said Article or any regulations promulgated thereunder. All such records shall be made available to Mortgagee for inspection from time to time upon its request. If any real property transfer gains tax shall be due and payable upon the conveyance of the Premises pursuant to a judicial sale in any action, suit or proceeding brought to foreclose the Mortgage or deed in lieu of foreclosure, the Mortgagor will, at Mortgagee's request, (a) provide Mortgagee with a copy of all such records and will prepare, execute, deliver and file any affidavits, records questionnaires, returns or supplemental returns required of the Mortgagor, as transferor, including, but not limited to, a statement in affidavit form as to the "original purchase price" of the Premises and the cost of all "capital improvements" made to the Premises or any part thereof by the Mortgagor or any related entity and the date or dates on which such improvements were made and (b) pay or cause to be paid any real property transfer gains tax, together with interest and penalties thereon, which may be due and payable by reason of such conveyance. The Mortgagor hereby irrevocably appoints Mortgagee its agent and attorney-in-fact (which appointment shall be deemed to be an agency coupled with an interest), with full power of substitution in the Premises, to prepare, execute, deliver and file on its behalf any and all affidavits, questionnaires, returns and supplemental returns which the Mortgagor, as transferor, has failed or refused to execute and deliver to Mortgagee within 10 days after notice and request therefor by Mortgagee. In the event that the Mortgagor fails to pay any such tax, interest and penalties within 20 days after notice and demand for payment is given by Mortgagee, Mortgagee is hereby authorized to pay the same, and the amount thereof so paid by Mortgagee, together with all costs and expenses incurred by Mortgagee in connection with such payment, including, but not limited to, reasonable attorneys' fees and disbursements and interest on all such amounts, costs and expenses at the rate of one percent (1%) in excess of the rate specified in the Note, but in no event in excess of the maximum interest rate permitted by law, shall be paid by the Mortgagor to Mortgagee on demand. Until paid by the Mortgagor, all such amounts, costs and expenses, together with interest thereon, shall be secured by the Mortgage and may be added to the judgment in any suit brought by Mortgagee against the Mortgagor hereon. The foregoing shall not be applicable if the aforesaid Article 31-B does not pertain to the Premises. CONSTRUCTION. The word "Mortgagor" shall be construed as if it read "Mortgagors" and the "Mortgagee" shall be construed as if it read "Mortgagees" whenever the sense of the Mortgage so requires. This Mortgage shall be governed by and construed in accordance with the laws of the State of New York. CONFLICT WITH OTHER LOAN AGREEMENTS. Mortgagor represents and warrants to Mortgagee that the execution and delivery of this Mortgage and all related documents and the performance of any term, covenant, or condition herein provided in any agreement or instrument executed in connection therewith, have been duly authorized on behalf of the Mortgagor by all proper and necessary action, and are not in conflict with, or result in any breach of, or constitute a default under or violate: A. Any of the terms, conditions, or provisions of any agreement, lease or other instrument to which Mortgagor is a party or subject to; or, B. Any law, regulation, order, writ, injunction or decree to which Mortgagor is subject or any rules or regulations of any administrative agency which have jurisdiction over Mortgagor or over any property of Mortgagor that would have a material adverse affect on Mortgagor's business or financial condition. SEVERABILITY. In the event any one or more of the provisions of the Mortgage or the Note shall for any reason be invalid, illegal or unenforceable in whole or in part, then only such provision or provisions shall be deemed to be null and void and of no force or effect, but shall not affect any other provision of the Mortgage or the Note. ASSIGNMENT OF MORTGAGE. Upon Mortgagee's receipt of payment in full of the indebtedness evidenced by the Note and Mortgage and receipt of a $200.00 assignment processing fee to Mortgagee, Mortgagee covenants to assign the Mortgage to any new lender selected by Mortgagor on the following conditions: A. The Assignment shall be in accordance with Section 275 of the Real Property Law and in a form reasonably acceptable to Mortgagee and such new lender, suitable for recording in the Monroe County Clerk's Office, but without any representation or warranty by, or recourse to, Mortgagee. B. The Note shall be endorsed, without recourse, as reasonably requested by such new lender. C. The Note, Mortgage and Assignment shall be delivered to such new lender. IN WITNESS WHEREOF, the Mortgage has been duly executed by the Mortgagor and Mortgagee, the day and year first above written. ESTATE OF FRED B. KRAVETZ By: s/Laurie Kuskin Laurie Kuskin, Executrix FIRST NATIONAL BANK OF ROCHESTER By: s/Dorian C. Chapman Dorian C. Chapman Vice President STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) SS: On this 27th day of November, 1996, before me, the subscriber, personally appeared LAURIE KUSKIN, Executrix of the Last Will and Testament of FRED B. KRAVETZ, to me personally known and known to me to be the same person described in and who executed the within Instrument, and she acknowledged to me that she executed the same as such Executrix. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 STATE OF NEW YORK) COUNTY OF MONROE ) On this 4th day of December, 1996, before me, the subscriber, personally appeared DORIAN C. CHAPMAN, to me known, who, being by me duly sworn, did depose and say that he resides in Rochester, New York, that he is the Vice President of FIRST NATIONAL BANK OF ROCHESTER, the corporation described in, and which executed the within Instrument, and that he signed his name thereto by order of the Board of Directors. s/Samuel O. Tilton Notary Public SCHEDULE A Description of Mortgaged Premises - omitted in this exhibit. SCHEDULE B CONSOLIDATION/SPREADING AGREEMENT The Mortgage is hereby consolidated, combined and made equal and coordinate in lien without priority of one over the other with certain note(s) and mortgage(s) owned and held by the Mortgagee herein and made, executed and acknowledged by the then owners of the Mortgaged Premises and described as follows in attached Schedule C: The above described mortgage(s), which may be valid liens on only a portion of the Mortgaged Premises, are hereby modified so that the liens thereof shall be spread over the whole of the Mortgaged Premises. The above described mortgage(s) and the Mortgage shall constitute in law but one first mortgage and a single lien upon the Mortgaged Premises for the total sum of FIVE HUNDRED SEVENTY- FIVE THOUSAND and 00/100 Dollars ($575,000.00) which the Mortgagor does hereby assume, agree and bind itself to pay to the Mortgagee with interest thereon to be computed from the date hereof, or of each advance, at the rate of interest set forth in a certain Restated Mortgage Note ("Restated Note") executed by Mortgagor on even date herewith and the terms of the above- described mortgage(s) and the Mortgage and the notes which they secure, are coordinated and consolidated and extended so that the total mortgage indebtedness shall become due and payable with interest in accordance with the Restated Note. The terms, covenants and conditions of the Mortgage containing these consolidation provisions are hereby incorporated in and made the terms, covenants and conditions of the notes and mortgages consolidated herewith and of the Restated Note to the same effect as though originally incorporated therein, and the same shall apply to the full amount of the mortgage debt as consolidated hereby. When the terms and provisions contained herein in any way conflict with the terms and provisions contained in the notes and mortgages consolidated herewith, and of the Restated Note, the terms and provisions herein contained shall prevail, and, in the event of any overlapping terms, covenants and conditions, insofar as possible, the terms, covenants and conditions contained herein and in the notes and mortgages consolidated herewith and the Restated Note shall both be applicable. The said notes and mortgages shall otherwise remain in full force and effect and as modified by this Agreement, the notes and mortgages are hereby ratified and confirmed. If the instruments which are being consolidated herewith are bonds and mortgages, then whenever the words "Note" or "Notes" appear herein, the same shall be construed to mean "bond" or "bonds". SCHEDULE C Mortgages Being Consolidated 1. Mortgage made by FRED B. KRAVETZ and RICHARD J. CHIARENZA to HALE MANOR, INC. in the original principal amount of $1,100,000.00, dated August 6, 1987 and recorded August 10, 1987 in the Monroe County Clerk's Office in Liber 8334 of Mortgages, at page 230. The above mortgage was assigned by HALE MANOR, INC. to KARL H. KITTELBERGER, KARL W. KITTELBERGER, STEVEN KITTELBERGER, JAMES KITTELBERGER, BRYAN KITTELBERGER and SCOTT KITTELBERGER, by an assignment dated August 6, 1992 and recorded September 1, 1992 in the Monroe County Clerk's Office in Liber 926 of Assignments of Mortgages, page 495. The above mortgage was assigned by SCOTT KITTELBERGER to KARL H. KITTELBERGER, KARL W. KITTELBERGER, STEVEN KITTELBERGER, JAMES KITTELBERGER and BRYAN KITTELBERGER, by an assignment dated October 12, 1988 and recorded September 1, 1992 in the Monroe County Clerk's Office in Liber 926 of Assignments of Mortgages, page 498. The above mortgage was assigned by JAMES KITTELBERGER to FLEET BANK OF NEW YORK N.A., by an assignment dated August 31, 1992 and recorded September 1, 1992 in the Monroe County Clerk's Office in Liber 926 of Assignments of Mortgages, page 501. The above mortgage was assigned by STEVEN KITTELBERGER to FLEET BANK OF NEW YORK N.A., by an assignment dated August 31, 1992 and recorded September 1, 1992 in the Monroe County Clerk's Office in Liber 926 of Assignments of Mortgages, page 504. The above mortgage was assigned by KARL H. KITTELBERGER, KARL W. KITTELBERGER and BRYAN KITTELBERGER to FLEET BANK OF NEW YORK N.A., by an assignment dated August 29, 1992 and recorded September 1, 1992 in the Monroe County Clerk's Office in Liber 926 of Assignments of Mortgages, page 507. The above mortgage was modified by a Mortgage Modification, Extension, Spreading & Security Agreement made by and between FRED B. KRAVETZ and FLEET BANK OF NEW YORK, N.A., dated September 1, 1992 and recorded September 1, 1992 in Liber 11119 of Mortgages, page 518. The unpaid principal balance on the above mortgage is $522,858.21. CONTINUING UNLIMITED GUARANTY In consideration of any extension of credit by FIRST NATIONAL BANK OF ROCHESTER, (hereinafter called "Bank") to the ESTATE OF FRED B. KRAVETZ, L.P., (hereinafter called "Customer"), either alone or with one or more persons, the undersigned does hereby (jointly and severally if the undersigned be more than one person) guarantee the full and prompt payment to said Bank, when due, whether accelerated or not, of any and all indebtedness, liabilities and obligations of every nature and kind, whether heretofore or hereafter arising of Customer to Bank, including but not limited to all currently existing indebtedness of Company to Bank, and all indebtedness of Company to Bank hereafter incurred, all of which is referred to herein as the "Indebtedness". 1. The undersigned further (jointly and severally, if the undersigned be more than one person) agree(s) to pay all costs, expenses and reasonable attorney's fees at any time paid or incurred by the Bank in endeavoring to collect the Indebtedness or any part thereof and in and about the enforcement of this instrument. 2. This instrument is and is intended to be a continuing guaranty for the Indebtedness (irrespective of the aggregate amount thereof, or changes in the same from time to time) to the extent above specified, independent of and in addition to any other guaranty, endorsement or security held by Bank therefor, and without right of subrogation on the part of the undersigned until the Indebtedness is paid in full. The undersigned acknowledge that this guaranty does not modify or terminate any previous guaranties executed and delivered to Bank by the undersigned or either of them, which guaranties, if any, remain in full force and effect. This guaranty shall remain in full force and effect until the Bank or its successors or assigns, shall actually receive written notice of its discontinuance or notice of the death of the undersigned and all of the Indebtedness contracted for or created before the receiving of such notice, and any extensions or renewals thereof whether made before or after the receipt of such notice, together with interest accrued thereon, shall be paid in full. In the event of the discontinuance of this guaranty as to any of the undersigned because of receipt by the Bank of notice of death or notice of discontinuance, this guaranty shall, notwithstanding, still continue and remain in full force against the survivor or survivors of the undersigned until discontinued as to them in the same manner. In the event all of the Indebtedness shall at any time, or from time to time, be satisfied, this guaranty shall, nevertheless, continue in full force and effect as to any such Indebtedness contracted for or incurred thereafter, from time to time, before receipt by Bank of written notice of discontinuance or written notice of death of the undersigned. 3. If any default shall be made in the payment of any or all of the Indebtedness, the undersigned hereby (jointly and severally, if the undersigned be more than one person) agree(s) to pay the same without requiring protest or notice of non-payment or notice of default to the undersigned, to the Customer, or to any other person, without proof of demand and without requiring the Bank to resort first to the Customer or to any other guaranty, security or collateral which it may have or hold. The undersigned hereby waives demands of protest and notice of non-payment and protest to the undersigned, to the Customer, or to any other person; notice of acceptance hereof or assent hereto by Bank; and notice that any Indebtedness has been incurred by the Customer to Bank, and notice in the change of the terms of payment of any of the Indebtedness, including but not limited to a change in the interest rate on any or all of the Indebtedness. 4. Upon default being made in the payment of any of the Indebtedness, the undersigned authorize(s) and empowers the Bank, in addition to its other remedies, to charge any account of the undersigned, and if the undersigned be more than one person, any account of any or all of the undersigned with the full amount then due on this guaranty and to sell, at any broker's board or at a public or private sale, (with such notice, if any, referred under the Uniform Commercial Code, to the undersigned,) any property of the undersigned (or any of them) in the possession or custody of the Bank and to apply the proceeds thereof to any balance due on this guaranty. Upon any such sale the Bank may itself purchase the whole or any part of any property sold free from any right of redemption which is expressly waived and released. 5. The undersigned also further agree(s) that the Bank shall have the irrevocable right, in its sole discretion, with or without notice to the undersigned, either before or after the institution of bankruptcy or other legal proceedings by or against the undersigned or any of them, or before or after receipt of written notice of the death of the undersigned, or any of them, or written notice of discontinuance of any of the undersigned's liability hereunder from any of the undersigned, to extend the time given for the payment of the Indebtedness or any part thereof. Bank may accept one or more renewal notes for the Indebtedness which shall be considered not as new obligations but as extensions of the obligations renewed, and no such extensions shall discharge or in any manner affect the liability of the undersigned, or the liability of the estate or estates of either or any of the undersigned under this guaranty. 6. The liability of the undersigned hereunder shall not be affected or impaired by any acceptance by the Bank of security for payment of the Indebtedness, or any part thereof, or by any disposition of or failure, neglect or omission on the part of the Bank to realize upon any such security or any security at any time held by or left with the Bank for any or all of the Indebtedness, or upon which a lien may exist therefor, may be exchanged, withdrawn or surrendered from time to time or otherwise dealt with by the Bank without notice to or assent from the undersigned, to the same extent as though this guaranty had not been given. Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on the Indebtedness, or any part thereof, and may apply the same upon principal or interest or fees or expense as it sees fit. The undersigned hereby (jointly and severally) agree(s) and consent(s) that the Bank shall have the right to make any agreement with the Customer or with any party to or any one liable for the payment of all or any of the Indebtedness or interested therein, for the compounding, compromise, discharge or release thereof, in whole or in part, for any modification or alteration of any of the terms thereof, including but not limited to, a change in the interest rate, or of any contract between the Bank and the Customer or any other party without notice to or assent from the undersigned. The Bank shall also have the right to discharge or release one or more of the undersigned from any obligation hereunder, in whole or in part, without in any way releasing, impairing or affecting its rights against the other or others of the undersigned. 7. This guaranty is absolute and unconditional and shall not be affected by any act or thing whatsoever, except the payment in full of the Indebtedness hereby secured. This is a guaranty of payment and not collection. The failure of any other person to sign this guaranty shall not release or affect the liability of any signer hereof. This guaranty has been unconditionally delivered to Bank by each of the persons who have signed it. 8. If a claim is made upon Bank at any time for repayment or recovery of any amount of the Indebtedness, or other value received by Bank from any source, in payment of or on account of any of the Indebtedness, and Bank repays or otherwise becomes liable for all or any part of such claim by reason of (a) any judgment, decree, or order of any court or administrative body, or (b) any settlement or compromise of such claim or claims, the undersigned shall remain liable to Bank hereunder for the amount so repaid or for which Bank is otherwise liable, to the same extent as if any such amounts had not been received by Bank, notwithstanding any return or destruction of the original of this guaranty, or termination hereof or cancellation of any note, bond or other obligation which evidences all or a portion of the Indebtedness. 9. The undersigned unconditionally agrees that he will not assert, and he does hereby waive, any right he may have against Customer for indemnity, subrogation, reimbursement, contribution, or any other claim to Customer's assets, thereby relinquishing any right he may have to be a creditor of Customer. 10. This document is the final expression of this guaranty of the undersigned in favor of Bank, and is the complete and exclusive statement of the terms of this guaranty. No course of prior dealings between the undersigned and Bank, nor any usage of trade, nor any parol or extrinsic evidence of any nature or kind, shall be used or be relevant to supplement, explain or modify this guaranty. 11. All payments of principal or interest made on the Indebtedness by the Customer to the Bank shall be deemed to have been made as agent for the undersigned for the purpose of tolling or renewing the Statute of Limitations. 12. This guaranty and every part hereof shall be binding (jointly and severally) upon the undersigned and the heirs, legal representatives, successors and assigns of the undersigned, and shall inure to the benefit of the Bank, its successors and assigns. 13. This instrument cannot be changed or modified or discharged in whole or in part, orally, and shall be governed by New York law. Any litigation involving this guaranty shall, at Bank's option, be tried only in a court of competent jurisdiction located in Monroe County, New York. 14. All obligations of the undersigned under this guaranty are joint and several. IN WITNESS WHEREOF the undersigned has signed and sealed this instrument at Ocean County, New Jersey, as of the 3rd day of December, 1996 s/Gary Kuskin (L.S.) Gary Kuskin STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) SS: On this 27th day of November, 1996, before me personally appeared GARY KUSKIN, to me personally known and known to me to be the same person described in and who executed the within Guaranty, and he duly acknowledged to me that he executed the same. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 CONTINUING UNLIMITED GUARANTY In consideration of any extension of credit by FIRST NATIONAL BANK OF ROCHESTER, (hereinafter called "Bank") to the ESTATE OF FRED B. KRAVETZ, (hereinafter called "Customer"), either alone or with one or more persons, the undersigned does hereby (jointly and severally if the undersigned be more than one person) guarantee the full and prompt payment to said Bank, when due, whether accelerated or not, of any and all indebtedness, liabilities and obligations of every nature and kind, whether heretofore or hereafter arising of Customer to Bank, including but not limited to all currently existing indebtedness of Company to Bank, and all indebtedness of Company to Bank hereafter incurred, all of which is referred to herein as the "Indebtedness". 1. The undersigned further (jointly and severally, if the undersigned be more than one person) agree(s) to pay all costs, expenses and reasonable attorney's fees at any time paid or incurred by the Bank in endeavoring to collect the Indebtedness or any part thereof and in and about the enforcement of this instrument. 2. This instrument is and is intended to be a continuing guaranty for the Indebtedness (irrespective of the aggregate amount thereof, or changes in the same from time to time) to the extent above specified, independent of and in addition to any other guaranty, endorsement or security held by Bank therefor, and without right of subrogation on the part of the undersigned until the Indebtedness is paid in full. The undersigned acknowledge that this guaranty does not modify or terminate any previous guaranties executed and delivered to Bank by the undersigned or either of them, which guaranties, if any, remain in full force and effect. This guaranty shall remain in full force and effect until the Bank or its successors or assigns, shall actually receive written notice of its discontinuance or notice of the death of the undersigned and all of the Indebtedness contracted for or created before the receiving of such notice, and any extensions or renewals thereof whether made before or after the receipt of such notice, together with interest accrued thereon, shall be paid in full. In the event of the discontinuance of this guaranty as to any of the undersigned because of receipt by the Bank of notice of death or notice of discontinuance, this guaranty shall, notwithstanding, still continue and remain in full force against the survivor or survivors of the undersigned until discontinued as to them in the same manner. In the event all of the Indebtedness shall at any time, or from time to time, be satisfied, this guaranty shall, nevertheless, continue in full force and effect as to any such Indebtedness contracted for or incurred thereafter, from time to time, before receipt by Bank of written notice of discontinuance or written notice of death of the undersigned. 3. If any default shall be made in the payment of any or all of the Indebtedness, the undersigned hereby (jointly and severally, if the undersigned be more than one person) agree(s) to pay the same without requiring protest or notice of non-payment or notice of default to the undersigned, to the Customer, or to any other person, without proof of demand and without requiring the Bank to resort first to the Customer or to any other guaranty, security or collateral which it may have or hold. The undersigned hereby waives demands of protest and notice of non-payment and protest to the undersigned, to the Customer, or to any other person; notice of acceptance hereof or assent hereto by Bank; and notice that any Indebtedness has been incurred by the Customer to Bank, and notice in the change of the terms of payment of any of the Indebtedness, including but not limited to a change in the interest rate on any or all of the Indebtedness. 4. Upon default being made in the payment of any of the Indebtedness, the undersigned authorize(s) and empowers the Bank, in addition to its other remedies, to charge any account of the undersigned, and if the undersigned be more than one person, any account of any or all of the undersigned with the full amount then due on this guaranty and to sell, at any broker's board or at a public or private sale, (with such notice, if any, referred under the Uniform Commercial Code, to the undersigned,) any property of the undersigned (or any of them) in the possession or custody of the Bank and to apply the proceeds thereof to any balance due on this guaranty. Upon any such sale the Bank may itself purchase the whole or any part of any property sold free from any right of redemption which is expressly waived and released. 5. The undersigned also further agree(s) that the Bank shall have the irrevocable right, in its sole discretion, with or without notice to the undersigned, either before or after the institution of bankruptcy or other legal proceedings by or against the undersigned or any of them, or before or after receipt of written notice of the death of the undersigned, or any of them, or written notice of discontinuance of any of the undersigned's liability hereunder from any of the undersigned, to extend the time given for the payment of the Indebtedness or any part thereof. Bank may accept one or more renewal notes for the Indebtedness which shall be considered not as new obligations but as extensions of the obligations renewed, and no such extensions shall discharge or in any manner affect the liability of the undersigned, or the liability of the estate or estates of either or any of the undersigned under this guaranty. 6. The liability of the undersigned hereunder shall not be affected or impaired by any acceptance by the Bank of security for payment of the Indebtedness, or any part thereof, or by any disposition of or failure, neglect or omission on the part of the Bank to realize upon any such security or any security at any time held by or left with the Bank for any or all of the Indebtedness, or upon which a lien may exist therefor, may be exchanged, withdrawn or surrendered from time to time or otherwise dealt with by the Bank without notice to or assent from the undersigned, to the same extent as though this guaranty had not been given. Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on the Indebtedness, or any part thereof, and may apply the same upon principal or interest or fees or expense as it sees fit. The undersigned hereby (jointly and severally) agree(s) and consent(s) that the Bank shall have the right to make any agreement with the Customer or with any party to or any one liable for the payment of all or any of the Indebtedness or interested therein, for the compounding, compromise, discharge or release thereof, in whole or in part, for any modification or alteration of any of the terms thereof, including but not limited to, a change in the interest rate, or of any contract between the Bank and the Customer or any other party without notice to or assent from the undersigned. The Bank shall also have the right to discharge or release one or more of the undersigned from any obligation hereunder, in whole or in part, without in any way releasing, impairing or affecting its rights against the other or others of the undersigned. 7. This guaranty is absolute and unconditional and shall not be affected by any act or thing whatsoever, except the payment in full of the Indebtedness hereby secured. This is a guaranty of payment and not collection. The failure of any other person to sign this guaranty shall not release or affect the liability of any signer hereof. This guaranty has been unconditionally delivered to Bank by each of the persons who have signed it. 8. If a claim is made upon Bank at any time for repayment or recovery of any amount of the Indebtedness, or other value received by Bank from any source, in payment of or on account of any of the Indebtedness, and Bank repays or otherwise becomes liable for all or any part of such claim by reason of (a) any judgment, decree, or order of any court or administrative body, or (b) any settlement or compromise of such claim or claims, the undersigned shall remain liable to Bank hereunder for the amount so repaid or for which Bank is otherwise liable, to the same extent as if any such amounts had not been received by Bank, notwithstanding any return or destruction of the original of this guaranty, or termination hereof or cancellation of any note, bond or other obligation which evidences all or a portion of the Indebtedness. 9. The undersigned unconditionally agrees that he will not assert, and he does hereby waive, any right he may have against Customer for indemnity, subrogation, reimbursement, contribution, or any other claim to Customer's assets, thereby relinquishing any right he may have to be a creditor of Customer. 10. This document is the final expression of this guaranty of the undersigned in favor of Bank, and is the complete and exclusive statement of the terms of this guaranty. No course of prior dealings between the undersigned and Bank, nor any usage of trade, nor any parol or extrinsic evidence of any nature or kind, shall be used or be relevant to supplement, explain or modify this guaranty. 11. All payments of principal or interest made on the Indebtedness by the Customer to the Bank shall be deemed to have been made as agent for the undersigned for the purpose of tolling or renewing the Statute of Limitations. 12. This guaranty and every part hereof shall be binding (jointly and severally) upon the undersigned and the heirs, legal representatives, successors and assigns of the undersigned, and shall inure to the benefit of the Bank, its successors and assigns. 13. This instrument cannot be changed or modified or discharged in whole or in part, orally, and shall be governed by New York law. Any litigation involving this guaranty shall, at Bank's option, be tried only in a court of competent jurisdiction located in Monroe County, New York. 14. All obligations of the undersigned under this guaranty are joint and several. IN WITNESS WHEREOF the undersigned has signed and sealed this instrument at Ocean County, New Jersey, as of the 3rd day of December, 1996 s/Laurie Kuskin (L.S.) Laurie Kuskin STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) SS: On this 27th day of November, 1996, before me personally appeared LAURIE KUSKIN, to me personally known and known to me to be the same person described in and who executed the within Guaranty, and she duly acknowledged to me that she executed the same. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 EX-10.24 3 [EXHIBIT 10.24] RESTATED MORTGAGE NOTE $400,000.00 Rochester, New York FOR VALUE RECEIVED, the undersigned, DEAL ROAD ASSOCIATES, L.P., with an office c/o Kravetz Realty, Inc., 150 Linden Oaks Drive, Suite C, Rochester, New York 14625 (hereinafter called "Borrower"), promises to pay FIRST NATIONAL BANK OF ROCHESTER, a national banking association, or order, (hereinafter called "Lender") at its principal office at 35 State Street, Rochester, New York, or at such other place as may be designated in writing by the holder of this Restated Mortgage Note ("Mortgage Note" or "Note"), the sum of FOUR HUNDRED THOUSAND and 00/100 DOLLARS ($400,000.00), in lawful money of the United States, or so much as may be advanced, referred to as "principal sum", with interest thereon to be computed from the date hereof, or of each advance, at the rate of eight and three quarters percent (8.75%) per annum. Interest only on the unpaid principal sum, from the date of this Note to December 31, 1996 shall be due and payable the date of this Note. Commencing on the first day of February, 1997, installments of principal and interest shall be paid in the sum of $3,997.79 based upon an amortization period of fifteen (15) years, and a like amount on the first day of each and every month thereafter until the principal sum and interest are fully paid; said monthly payments to be applied first to the payment of accrued interest at the above rate and the balance to be applied to the reduction of the principal sum. The entire principal sum evidenced hereby, if not sooner paid, shall be due and payable on January 1, 2002. The rate of interest set forth herein shall continue in effect until all sums owed Lender are paid in full. The rate of interest shall not exceed that permitted by applicable Federal and New York State law. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. If for any reason whatsoever this Note is prepaid in part or in full within one (1) year from the date hereof, a prepayment fee of five percent (5.0%) of the original amount of the principal sum will be charged. Beginning with the second loan year, the prepayment fee shall be reduced by one percent (1.0%) each year. A loan year begins on the date this Mortgage Note is executed and on each anniversary thereof. In the event any payment due hereunder shall remain unpaid for more than ten days, the holder hereof may collect a late charge in the amount of $50.00 or 6.0% of said payment, whichever is greater, to cover its extra handling expense. If this Note is referred to attorneys for collection, all parties now or hereafter personally liable for the indebtedness hereby evidenced, jointly and severally agree to pay, the principal and interest due, all costs and expenses, including reasonable attorneys' fees, incurred by the holder hereof, with or without the institution of an action or proceeding. The rate of interest hereunder shall increase to three percent (3.0%) above the rate of interest then applicable to this Note upon the maturity date of this Note or upon an event of default under this Note or the Mortgage securing the Note. This Note is secured by a Mortgage and Consolidation Agreement ("Mortgage") of even date herewith on property known as 520 Panorama Trail, Penfield, Monroe County, New York ("Property"). In the event the Debt Service Coverage Ratio ("DSCR"), as defined below, for the Property at any time is less than 1.0 ("Minimum DSCR"), as reasonably determined by the Lender, the Lender may, by written notice to Mortgagor, require a payment toward principal so as to achieve the Minimum DSCR. In such event, the applicable prepayment fee shall not be collected by Lender, and the monthly payment of principal and interest shall be recalculated based upon the reduced principal sum and the remaining amortization period. DSCR shall mean Net Income (as defined below) divided by annual payments of principal and interest pursuant to this Note. Net Operating Income shall mean annual rental income available after payment of annual real estate taxes, utilities, management fees, repairs, maintenance, property insurance, reasonable salaries, reasonable administrative expenses, and other normal operating expenses, exclusive of depreciation amortization and interest expense. This Note is being delivered solely for the purpose of modifying, amending and restating the terms of the notes which are secured by the Mortgage. This Note does not create a new or additional indebtedness or obligation other than the principal indebtedness or obligation secured by or which under any contingency may be secured by the Mortgage. It is hereby expressly agreed, that the principal sum secured by this Note shall become due at the option of the holder thereof on the happening of any default or event by which under the terms of the Mortgage, the principal sum may or shall become due and payable; also, that all of the covenants, conditions and agreements contained in the Mortgage are hereby made part of this instrument. Presentment for payment, notice of dishonor, protest and notice of protest are hereby waived. This Note shall be governed by and construed in accordance with the laws of the State of New York. In the event any one or more of the provisions of the Note shall for any reason be invalid, illegal or unenforceable in whole or in part, then only such provision or provisions shall be deemed to be null and void and of no force or effect, but shall not affect any other provision of the Note. This Note may not be changed or terminated orally. Signed and sealed as of the 3rd day of December, 1996. DEAL ROAD ASSOCIATES, L.P. BY: KUSKIN ADVISORS, INC. GENERAL PARTNER BY: s/Laurie Kuskin Laurie Kuskin, President STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) ss: On this 27th day of November, 1996, before me personally came Laurie Kuskin, to me known and known to me to be the President of Kuskin Advisors, Inc. the general partner of Deal Road Associates, L.P., the partnership described in, and which executed the foregoing instrument, and who acknowledged that she executed the foregoing Instrument for and on behalf of said partnership. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 MORTGAGE WITH CONSOLIDATION AGREEMENT This Mortgage, made as of the 3rd day of December, 1996 between DEAL ROAD ASSOCIATES, L.P., with an office c/o Kravetz Realty, Inc., 150 Linden Oaks Drive, Suite C, Rochester, New York 14625 (herein called the "Mortgagor"), and FIRST NATIONAL BANK OF ROCHESTER, a national banking association with its principal office at 35 State Street, Rochester, Monroe County, New York, (herein called the "Mortgagee"). W I T N E S S E T H, to secure the payment of an indebtedness in the sum of TWO HUNDRED FIFTY-FOUR THOUSAND NINETY-TWO AND 76/100 DOLLARS ($254,092.76) lawful money of the United States (or so much as may be advanced) to be paid with interest thereon to be computed from the date hereof, to be paid according to a certain bond, note, or obligation bearing even date herewith ("Note"), the Mortgagor hereby mortgages to the Mortgagee the premises described in Schedule "A" attached hereto and made a part hereof (herein called the "Mortgaged Premises" or "Premises"). TOGETHER with all the right, title and interest of the Mortgagor in and to any and all unearned premiums accrued, accruing or to accrue under any and all insurance policies now or hereafter obtained by the Mortgagor on the Mortgaged Premises, TOGETHER with the appurtenances and all the estate and rights of the Mortgagor in and to said Premises, TOGETHER with all and singular the tenements, hereditaments, and appurtenances belonging or in any way appertaining to said Premises, and the reversion and reversions, remainder and remainders, rents, issues and profits thereof. TOGETHER with and including any and all strips and gores of land adjoining or abutting said Premises, TOGETHER with all right, title, and interest of the Mortgagor in and to the land lying in the bed of any street, road, avenue or alley, open or proposed, in front of, running through or adjoining said Premises, TOGETHER with all buildings, structures, and improvements now or at any time hereafter erected, constructed or situated upon the Premises, and apparatus, fixtures, chattels, and articles of personal property now or hereafter attached to or used in connection with said Premises, including but not limited to furnaces, boilers, oil boilers, radiators and piping, coal stokers, plumbing and bathroom fixtures, refrigeration, air- conditioning and sprinkler systems, wash-tubs, sinks, gas and electric fixtures, stoves, ranges, awnings, screens, window shades, elevators, motors, dynamos, refrigerators, kitchen cabinets, incinerators, plants and shrubbery and all other equipment and machinery, appliances, fittings and fixtures of every kind in or used in the operation of the buildings standing on said Premises, together with any and all replacements thereof and additions thereto, TOGETHER with all awards heretofore and hereafter made to the Mortgagor for taking by eminent domain the whole or any part of said Premises or any easement therein, including any awards for changes of grade of streets, which said awards are hereby assigned to the Mortgagee, who is hereby authorized to collect and receive the proceeds of such awards and to give proper receipts and acquittances therefor, and to apply the same toward the payment of the mortgage debt, except as otherwise provided in this Mortgage, notwithstanding the fact that the amount owing thereof may not then be due and payable; and the Mortgagor hereby agrees, upon request, to make, execute and deliver any and all assignments and other instruments sufficient for the purpose or assigning said awards to the Mortgagee, free, clear, and discharged of any encumbrances of any kind or nature whatsoever, The Mortgagor covenants with the Mortgagee that: PAY INDEBTEDNESS. The Mortgagor will pay the indebtedness secured hereby with interest thereon as herein provided and according to the Note, and if default shall be made in the payment of part thereof, the Mortgagee shall have power to sell the Mortgaged Premises according to law. INSURANCE. The Mortgagor will keep the buildings on the Premises and the fixtures and articles of personal property covered by the Mortgage insured against loss by fire and other hazards, casualties and contingencies, including flood insurance if required by law, regulation or Mortgagee, for the benefit of the Mortgagee in an amount not less than the unpaid principal balance due hereunder. The fire insurance policy as required hereby shall contain the usual extended coverage endorsement and shall provide for twenty (20) days written notice to Mortgagee prior to cancellation. Mortgagor will maintain liability insurance in minimum amounts of $1,000,000.00 per occurrence for bodily injury and $100,000.00 for property damage. In addition thereto the Mortgagor within thirty (30) days after notice and demand will keep the Premises insured against any other hazard that may reasonably be required by law, regulation or Mortgagee. The Mortgagor will assign and deliver said policies to the Mortgagee and the Mortgagor will reimburse the Mortgagee for any premiums paid for the insurance made by the Mortgagee on the Mortgagor's default in so insuring the buildings or in so assigning and delivering the policies. All the provisions of this paragraph or of any other provisions of the Mortgage pertaining to fire insurance or any other additional insurance which may be required hereunder shall be construed in accordance with Section 254 Subdivision 4 of the New York Real Property Law. Notwithstanding the provisions of the aforesaid Section 254, Subdivision 4, the Mortgagor consents that the Mortgagee may without qualification or limitation by virtue of said section, retain and apply the proceeds of any such insurance in satisfaction or reduction of the Mortgage, or it may at its election pay the same, either in whole or in part, to the Mortgagor or its successors or assigns for the repair or replacement of the buildings or of the insured articles of personal property or for any other purpose or object reasonably satisfactory to the holder of the Mortgage, and if the Mortgagee shall receive and retain such insurance money, the lien of the Mortgage shall be affected only by a reduction of the amount of such lien by the amount of such insurance money received and retained by the Mortgagee. Notwithstanding the foregoing election available to Mortgagee, the proceeds of such insurance shall be made available to Mortgagor if, at the time such proceeds are delivered to Mortgagee, there is no uncured default under the Note or this Mortgage and the loan to value ratio (i.e. the then unpaid principal balance pursuant to the Note divided by the value of the Premises as reasonably determined by Mortgagee) shall not be more than 75%. Mortgagee shall disburse such proceeds to Mortgagor upon completion of work and invoices therefor approved by Mortgagee, and any excess proceeds shall be utilized to reduce the unpaid principal sum secured by this Mortgage. ALTERATIONS, DEMOLITION OR REMOVAL. No building, fixtures or personal property covered by the Mortgage shall be removed, demolished, or substantially altered without the prior written consent of the Mortgagee. WASTE, MAINTENANCE AND REPAIRS. The Mortgagor will not commit any waste on the Premises or make any change in the use of the Premises which will in any way increase any ordinary fire or other hazard arising out of construction or operation. The Mortgagor will keep and maintain or cause to be kept and maintained all buildings and other improvements now or at any time hereafter erected upon or constituting any portion of the Mortgaged Premises, and the sidewalks and curbs abutting the same, in good order and condition and in a rentable and tenantable state or repair, and will make or cause to be made, as and when the same shall become necessary, all structural and non- structural exterior and interior, ordinary and extraordinary, foreseen and unforeseen repairs, renewals, and replacements necessary to that end. In the event that the Mortgaged Premises shall be damaged or destroyed in whole or in part, by fire or any other casualty, or in the event of a taking of a portion of the Mortgaged Premises as a result of any exercise of the power of eminent domain, the Mortgagor shall promptly restore, replace, rebuild or alter the same as nearly as possible to the condition they were in immediately prior to such fire, other casualty or taking, provided the proceeds of the condemnation or any insurance policy are made available to Mortgagor. Although damage to or destruction of the Mortgaged Premises, or any portion thereof, shall not of itself constitute a default hereunder, the failure of the Mortgagor to restore, replace, rebuild, or alter the same, as hereinabove provided, shall constitute a default hereunder. The Mortgagor covenants that it will give to the Mortgagee prompt written notice of any damage or injury to the Mortgaged Premises and will give like notice to the Mortgagee of the commencement of any condemnation proceeding affecting the whole or any portion of Mortgaged Premises. The Mortgagor shall have the right, at any time and from time to time, to remove and dispose of building service equipment which may have become obsolete or unfit for use or which is no longer useful in the operation of the building now or hereafter constituting a portion of the Mortgaged Premises. The Mortgagor agrees promptly to replace with other building service equipment, free of superior title, liens or claims, not necessarily of the same character but of at least equal usefulness and quality, any such building service equipment so removed or disposed of, except that, if by reason of technological or other developments in the operation and maintenance of buildings of the general character of the building constituting a portion of the Mortgaged Premises, no replacement of the building service equipment so removed or disposed of is necessary or desirable in the proper operation or maintenance of said building, the Mortgagor shall not be required to replace the same. TAXES, ASSESSMENTS, ETC. The Mortgagor will pay all taxes, assessments, insurance premiums, sewer rents, or water rates, and in default thereof, the Mortgagee may pay the same. Any sums so advanced by the Mortgagee shall bear interest at the maximum legal rate of interest at the time of such advance or at the highest rate of interest set forth herein or in the Note, whichever is greater, and any such sum and the interest thereon shall be a lien on said Premises, prior to any right, or title to, interest in or claim upon said Premises, or accruing subsequent to the lien of the Mortgage and shall be deemed secured hereby. Upon written request from Mortgagee, Mortgagor shall deliver to Mortgagee receipted tax bills showing payment of all taxes on the Premises within the applicable grace period. ESTOPPEL STATEMENT. The Mortgagor within ten (10) days upon request in person or within twenty (20) days upon request by mail will furnish a written statement duly acknowledged of the amount due on the Mortgage and whether any offsets or defenses exist against the Note and Mortgage. MORTGAGEE MAY CURE MORTGAGOR'S DEFAULTS. The Mortgagor covenants and agrees with the Mortgagee that the holder of the Mortgage may cure any default of Mortgagor on the Mortgage or any prior or subsequent mortgage, including payment of any installments of principal and interest or part thereof, and that all costs and expenses, including reasonable attorneys' fees together with interest thereon at the highest legal rate of interest at the time of such default or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is the greater, paid by the Mortgagee in so curing said default, shall be repaid by the Mortgagor to the Mortgagee on demand and the same shall be deemed to be secured by the Mortgage and to be collectible in like manner as the principal sum. WARRANTY OF TITLE. The Mortgagor warrants the title to the Premises and will execute any further assurance of the title to the Premises as Mortgagee may require. LIEN LAW COVENANT. The Mortgagor will, in compliance with Section 13 of the New York Lien Law, receive the advances secured hereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvements before using any part of the total of the same for any other purpose. ESCROW FOR TAXES/INSURANCE. The Mortgagee may request at any time after a default by Mortgagor in payment when due of property taxes and/or insurance premiums on the Mortgaged Premises that, in addition to the monthly payments of principal and interest, the Mortgagor will pay monthly to the Mortgagee on or before the first day of each and every calendar month, until the Note is fully paid, a sum equal to one-twelfth of the known or estimated yearly taxes, assessments, liens and charges levied or to be levied against the Mortgaged Premises and/or premiums for insurance held or required by Mortgagee. The Mortgagee shall hold such payments in trust without obligation to pay interest thereon, except such interest as may be made mandatory by law or regulation, to pay such taxes, assessments, liens, charges and insurance premiums within a reasonable time after they become due. If the total of payments made by the Mortgagor for taxes, assessments, liens, charges and insurance premiums shall exceed the amount of payments actually made by the Mortgagee, such excess shall be credited by the Mortgagee on subsequent payments to be made by the Mortgagor or refunded upon payment in full of the Note. If the total of payments made by the Mortgagor for taxes, assessments, liens, charges and insurance premiums shall not be sufficient to pay therefor, then the Mortgagor shall pay to the Mortgagee any amount necessary to make up the deficiency on or before the date when such amounts shall be due. LATE CHARGES. If any payment required to be made under the Mortgage or the note or the obligations secured by the Mortgage shall be overdue in excess of 10 days, a late charge of $.06 of each $1.00 so overdue or $50.00, whichever is greater, will be paid by the Mortgagor for the purpose of defraying the expenses incident to handling such delinquent payments. LEASES. Pursuant to the provisions of Section 291-f of the New York Real Property Law, the Mortgagor, except for residential leases with a term not exceeding one (1) year, shall not (a) amend, cancel, abridge, terminate, or otherwise modify any lease of said Premises or of any part thereof, or (b) accept prepayment of rent or installments of rent for more than one month in advance, without the written consent of the Mortgagee and in the event of any default under the terms of this paragraph the whole of said principal sum shall become due immediately upon the happening thereof at the option of the Mortgagee. In addition thereto, except for residential leases with a term not exceeding one (1) year, (a) the Mortgagor shall not make any new lease or lease renewal or extension (other than those the Mortgagor as landlord may be required to grant by the terms of an existing lease) without the prior written consent of the Mortgagee and (b) the Mortgagor shall furnish to the Mortgagee, within thirty (30) days after a request by the Mortgagee to do so, a written statement containing the names of all lessees of the Premises, the terms of their respective leases, the space occupied and the rentals payable thereunder. FINANCIAL STATEMENTS. The Mortgagor will furnish the Mortgagee with copies of its signed Federal Tax returns as they are timely filed, but not later than 120 days after the end of Mortgagor's fiscal year. Any guarantor(s) of payment of the indebtedness also shall provide Mortgagee with copies of their signed Federal Tax Returns as they are timely filed and with annual personal financial statements on forms provided by Mortgagee. The Mortgagee shall have the right to examine the financial records covering the operation of the Premises at least once a year or as often as the Mortgagee may require if the Mortgagor be in default. PREPAYMENT FEE. If for any reason whatsoever the indebtedness secured by the Mortgage is prepaid in part or in full within one (1) year from the date hereof, a prepayment fee of five percent (5.0%) of the original amount of the consolidated principal sum will be charged. Beginning with the second loan year, the prepayment fee shall be reduced by one percent (1.0%) each year. A loan year begins on the date the Mortgage is executed and on each anniversary thereof. The amount of such prepayment consideration shall be added to and secured by the Note and Mortgage and shall be recoverable by the Mortgagee in the same manner as the principal balance hereof, and in addition thereto, in any action brought either on the Note or for the foreclosure of the Mortgage. ACCELERATION OF PRINCIPAL ON TRANSFER, ETC. The principal sum with interest thereon shall become immediately due and payable, upon the voluntary or involuntary conveyance or transfer by operation of law or otherwise of all or any part of the Mortgaged Premises, or any interest or estate therein, including testate or intestate succession and conveyance by land contract. Acceptance of payments by the Mortgagee subsequent to any such conveyance, transfer, or encumbering shall not be deemed a waiver of any of the Mortgagee's rights. If the Mortgagor is a corporation, the sale, assignment, transfer, or other disposition of any stock by any party owning ten (10%) percent or more of the stock, of any corporation owning all or any part of the Mortgaged Premises or any other similar significant change in ownership of such stock or in the relative distribution thereof, by any method or means, whether by increased capitalization, merger with another corporation, corporate or other amendments, issuance of additional or new stock, reclassification of stock or otherwise shall be deemed a conveyance or transfer within the meaning of this provision. If the Mortgagor is a partnership, a sale or transfer by operation of law or otherwise of any partners' interest in the partnership or a change in the identity or composition of the partners of the Mortgagor shall be deemed a conveyance or transfer within the meaning of this provision. ACCELERATION OF PRINCIPAL ON DEFAULT, ETC. The whole of the principal sum and interest shall become due at the option of the Mortgagee, after (a) default in the payment of any installment of principal or of interest for thirty (30) days; or, (b) default in the payment of any tax, water rate, assessment, insurance premiums, or sewer rent for thirty (30) days after notice and demand or default after notice and demand either in assigning and delivering the policies insuring the buildings against any casualty or in reimbursing the Mortgagee for premiums paid on such insurance, as herein provided; or (c) default upon request in furnishing a statement of the amount due and whether any offsets or defenses exist against the mortgage debt, as provided herein in the Section entitled "Estoppel Statement"; or (d) failure to exhibit to the Mortgagee, within ten (10) days after demand, receipts showing payment of all taxes, water rates, sewer rents and assessments; or (e) the actual or alteration, demolition or removal of any building on the Premises without the written consent of the Mortgagee; or (f) the assignment of the rents of the Premises or any part thereof without the written consent of the Mortgagee; or (g) the buildings on said Premises are not maintained in reasonably good repair; or (h) failure to comply with any requirement or order or notice of violation of law or ordinance issued by any governmental department claiming jurisdiction over the Premises within two (2) months from the issuance thereof unless such requirement, order or notice is being lawfully challenged by Mortgagor and there is no risk of forfeiture of any of Mortgagor's rights in the Premises; or (i) refusal of two or more fire insurance companies lawfully doing business in the State of New York to issue policies insuring the buildings on the premises; or (j) the removal, demolition or destruction in whole or in part of any of the fixtures, chattels or articles of personal property covered hereby, unless the same are promptly replaced by similar fixtures, chattels and articles of personal property at least in quality and condition to those replaced, free from security interests or other encumbrances thereon and free from any reservation of title thereof; or (k) thirty (30) days notice to the Mortgagor, in the event of the passage of any law deducting from the value of land for the purposes of taxation any lien thereon, or changing in any way the laws for the taxation of mortgages or debts secured thereby for state or local purposes; or (1) the Mortgagor fails to keep, observe and perform any of the other covenants, conditions or agreements contained in the Mortgage; or (m) use of said Premises for any unlawful purpose or public or private nuisance; or (n) the Mortgagor commits or permits waste; or (o) any default under any mortgage or other lien on the Premises or any default under any other note, loan agreement or other instrument evidencing Mortgagor's indebtedness to Mortgagee; or (p) the Note becomes non-recourse to the Mortgagor. NOTICES. Notice and demand to or request upon the Mortgagor may be oral or in writing and, if in writing, may be served in person or by mail. APPOINTMENT OF RECEIVER. The Mortgagee, in any action to foreclose the Mortgage, shall be entitled, without notice or demand and without regard to the adequacy of any security for the indebtedness hereby or the solvency or insolvency of any person liable for the payment thereof, to the appointment of a receiver of the rents, issues and profits of the Mortgaged Premises. SALE IN ONE PARCEL. In case of a foreclosure sale, said Premises, or so much thereof as may be affected by the Mortgage, may be sold in one parcel, any provision of law to the contrary notwithstanding. ASSIGNMENT OF RENTS. The Mortgagor hereby absolutely and unconditionally assigns, transfers and conveys to the Mortgagee the rents, issues, and profits of the Premises as further security for the payment of the Note, it being the intention of Mortgagor and Mortgagee that this assignment be treated and construed as an absolute assignment and not an assignment for additional security only. The Mortgagor further grants to the Mortgagee the right to enter upon and to take possession of the Premises for the purpose of collecting the same and to let the Premises or any part thereof, and to apply the rents, issues and profits, after payment of all necessary charges and expenses, on account of the Note. This assignment and grant shall continue in effect until the Note is paid. The Mortgagee hereby waives the right to enter upon and to take possession of the Premises for the purpose of collecting the rents, issues, and profits, and the Mortgagor shall be entitled to collect and receive the rents, issues and profits as trustee for the benefit of Mortgagee and Mortgagor until default under any of the covenants, conditions, or agreements contained in the Mortgage; Mortgagor agrees to use such rents, issues and profits in payment of principal and interest and in payment of taxes, assessments, sewer rents, water rates, and carrying charges against the Premises, but such right of the Mortgagor may be revoked by the Mortgagee upon any default, on five (5) days written notice. The Mortgagor will not, without the written consent of the Mortgagee, receive or collect rent from any tenant of the Premises or any part thereof for a period of more than one month in advance, and in the event of any default under the Mortgage will pay monthly in advance to the Mortgagee, or to any receiver appointed to collect the rents, issues and profits, the fair and reasonable rental value for the use and occupation of the Premises or of such part thereof as may be in the possession of the Mortgagor, and upon default in any such payment will vacate and surrender the possession of the Premises to the Mortgagee or to such receiver, and in default thereof may be evicted by summary proceedings. Mortgagor shall and does hereby agree to indemnify and hold Mortgagee and its representatives harmless of and from any and all liability, loss of damage which Mortgagor or its representatives may or might incur under or by reason of (a) any tenant of the Premises, (b) this Mortgage, (c) any action taken by Mortgagee or its representatives hereunder, unless constituting willful misconduct, or (d) claims and demands which may be asserted against Mortgagee or its representatives by reason of any alleged obligations or undertakings on its or their part to perform or discharge any of the terms, covenants or agreements contained in any lease affecting the Premises. This Mortgage shall not operate to place upon Mortgagee any responsibility for the management, operation or maintenance of the Premises, and the execution of this Mortgage by Mortgagor shall constitute conclusive evidence that all responsibility for the management, operation and maintenance of the Premises is, shall be and shall remain that of Mortgagor, in the absence of the taking of actual possession of the Premises by Mortgagee. The provisions of the foregoing indemnification obligation shall survive the assignment or repayment of the Note, the assignment, satisfaction, foreclosure or other termination of this Mortgage and the sale or other transfer or conveyance of the Premises. SECURITY AGREEMENT. The Mortgage constitutes a security agreement under the Uniform Commercial Code and creates a security interest in all fixtures and equipment and other personal property (and the proceeds thereof) now or hereafter affixed to or constituting a portion of the Premises. Mortgagor shall execute, deliver, file and refile any financing statement, continuation statements, or other security agreements Mortgagee may require from time to time to confirm the lien of the Mortgage with respect to such property. ANTI-MARSHALLING. The Mortgagee may resort for the payment of any indebtedness, liability, or obligation secured hereby to its several securities therefor, in such order and manner as it may see fit, and the Mortgagee may maintain an action to foreclose the Mortgage notwithstanding the pendency of any action to recover any part of the indebtedness secured hereby, or the recovery of any judgment in such action. The Mortgagee shall not be required during the pendency of any action to foreclose the Mortgage, to obtain leave of any court in order to commence or maintain any other action to recover any part of the indebtedness secured hereby. The Mortgagee shall also have the right in the event of default under the Mortgage or the obligation secured hereby to proceed against any or all interests of the Mortgagor and the Mortgagor agrees that the Mortgagee shall have the right to elect in writing not to cut off any interest that any Mortgagor might have and in the event that Mortgagee shall so elect, Mortgagor agrees that all of its duties and obligations as to such interest shall continue. COMPLIANCE WITH LAWS, ETC. The Mortgagor will comply with, or cause compliance with, all present and future laws, ordinances, rules, regulations, zoning and other requirements of all governmental authorities whatsoever having jurisdiction of or with respect to the Mortgaged Premises or any portion thereof or the use or occupation thereof; provided, however, that the Mortgagor may postpone such compliance if and so long as the validity or legality of any such governmental requirement shall be contested by the Mortgagor, with diligence and in good faith, by appropriate legal proceedings. COMPLIANCE WITH ZONING, ETC. The Mortgagor covenants: (a) that the buildings and improvements now on the Mortgaged Premises are in full compliance with all applicable zoning codes, ordinances and regulations and deed restrictions, if any; and (b) that such compliance is based solely upon Mortgagor's ownership of such Premises, and not upon title to or interest in any other Premises; and (c) buildings or improvements hereafter constructed on such Premises shall be in compliance as in (a) and (b) hereof provided, shall lie wholly within the boundaries of such Premises and, shall be independent and self-contained operating units (except for utility lines and conduits coming directly to the Premises from a public road or from a private road an easement over which for the maintenance of such utilities is covered by the lien hereof.) LEGAL EXPENSES. If any action or proceeding be commenced (except an action to foreclose the Mortgage or to collect the debt secured thereby), to which action or proceeding the Mortgagee is made a party, or in which it becomes necessary to defend or uphold the lien of the Mortgage, all sums paid by the Mortgagee for the expense of any litigation to prosecute or defend the rights and lien created by the Mortgage (including counsel fees), shall be paid by the Mortgagor, together with interest thereon at the legal rate of interest at the time of said payment or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is greater, and any such sum and interest thereon shall be a lien on said Premises, prior to any right, or title to, interest in or claim upon said Premises attaching or accruing subsequent to the lien of the Mortgage, and shall be deemed to be secured by the Mortgage. If the Mortgage is referred to attorneys for collection or foreclosure, the Mortgagor shall pay all sums, including attorneys' fees, incurred by the Mortgagee, together with all statutory costs, disbursements, and allowances, with or without the institution of an action or proceeding. All such sums with interest thereon at the rate set forth herein shall be deemed to be secured by the Mortgage and collectible out of the Mortgaged Premises. CONDEMNATION AWARD. In the event of a condemnation award for a portion of the Premises payable to Mortgagee and Mortgagor, Mortgagee shall make the proceeds of such award available to Mortgagor if, at the time such proceeds are delivered to Mortgagee, there is no uncured default under the Note or this Mortgage and the loan to value ratio (i.e. the then unpaid principal balance pursuant to the Note divided by the value of the Premises as reasonably determined by Mortgagee) shall not be more than 75%. Mortgagee shall disburse such proceeds to Mortgagor upon completion of work and invoices therefor approved by Mortgagee, and any excess proceeds shall be utilized to reduce the unpaid principal sum secured by this Mortgage. INTEREST ON CONDEMNATION AWARD. In the event of condemnation, or taking by eminent domain, the Mortgagee shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest on the entire unpaid principal sum at the rate herein provided; the Mortgagor does hereby assign to the Mortgagee so much of the balance of the award payable by the condemning authority as is required to pay such total interest. INTEREST IN THE EVENT OF DEFAULT. If default be made in the payment of the said indebtedness when due, pursuant to the terms hereof, the Mortgagee shall be entitled to receive interest on the entire unpaid principal sum at the legal rate of interest at the time of such default or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is the greater, to be computed from the due date and until the actual receipt and collection of the entire indebtedness. This charge shall be added to and shall be deemed secured by the Mortgage. The within clause, however, shall not be construed as an agreement or privilege to extend the Mortgage, nor as a waiver of any other right or remedy accruing to the Mortgagee by reason of any such default. RENT/BUSINESS INTERRUPTION INSURANCE. The Mortgagor will keep the buildings and improvements now erected or hereafter to be erected on the Mortgaged Premises and all personal property and fixtures covered by the Mortgage insured for the benefit of the Mortgagee against loss of rents or business income, as the case may be, by reason of fire or other casualties and in such amounts as may from time to time be reasonably required by the Mortgagee and in companies reasonably satisfactory to the Mortgagee, and will assign and deliver to the Mortgagee such policies of insurance. NO SECONDARY FINANCING. The Mortgagor will not, without the Mortgagee's prior written consent, mortgage (including the so- called "wrap-around mortgage"), pledge, assign, grant a security interest in, cause any lien or encumbrance to attach to or any levy to be made on the Mortgaged Premises except for (a) taxes and assessments not yet delinquent and (b) any mortgage, pledge, security interest, assignment or other encumbrance to the Mortgagee. BANKRUPTCY. Upon the making of an assignment for the benefit of creditors by, or upon the filing of a petition in bankruptcy by or against the Mortgagor, or any person or corporation who is the guarantor hereof or whose indebtedness is secured hereby, or upon the application for the appointment of a receiver of the property of the Mortgagor or any such person or corporation, or of the property of any person or corporation which may become and be owner of the Mortgaged Premises, or upon any act of insolvency or bankruptcy of the Mortgagor or any such person or corporation or of any such subsequent owner, or upon the legal incapacity of the Mortgagor or any such person or corporation or owner, or any of them, the whole of said indebtedness of every kind or nature held by the Mortgagee and now or hereafter secured hereby shall immediately become due and payable with interest thereon, and Mortgagor and any guarantor(s) hereby waive presentment, demand of payment, protest, notice of non-payment, and/or protest of any instrument on which the Mortgagor or such guarantors are or may become liable now or hereafter secured hereby, and the Mortgagor expressly agrees that the Mortgagee may release or extend the time of any party liable on any such obligation without notice and without affecting his obligation thereon or under this instrument. LIENS. The Premises shall be kept free and clear from any liens and/or encumbrances of any type and description after the date hereof. Upon the recording of any lien or encumbrance, and the same not having been cleared or bonded of record within thirty (30) days after filing thereof, the entire debt secured hereby shall immediately become due and payable. RIGHT TO INSPECT. The Mortgagee and any persons authorized by Mortgagee shall have the right to enter and inspect the Mortgaged Premises at all reasonable times during usual business hours. WAIVER. No waiver by the Mortgagee of the breach of any of the covenants contained in the Note, the Mortgage, or other loan document, or failure of the Mortgagee to exercise any option given to it, shall be deemed to be a waiver of any other breach of the same or any other covenant, or of its rights thereafter to exercise any such option. MODIFICATION. No change, amendment, modification, cancellation or discharge hereof, or any part hereof, shall be valid unless in writing and signed by the parties hereto or their respective successors and assigns. COVENANTS SHALL RUN WITH THE LAND, ETC. The covenants contained in the Mortgage shall run with the land and bind the Mortgagor, the heirs, personal representatives, successors and assigns of the Mortgagor and all subsequent owners, encumbrancers, tenants and subtenants of the Premises, and shall enure to the benefit of the Mortgagee, the personal representatives, successors and assigns of the Mortgagee and all subsequent holders of the Mortgage. PARTNERSHIP MORTGAGOR. The Mortgagor, if a partnership, covenants that it is duly formed and validly existing under the laws of the State of New York, and that execution of the Mortgage and related instruments is authorized by the partnership agreement and/or all partners. CONSOLIDATION/SPREADING AGREEMENT. The Mortgage is consolidated with prior existing mortgages according to Schedule B attached hereto and made a part hereof. ENVIRONMENTAL REPRESENTATIONS, WARRANTIES AND COVENANTS. 1. Except as otherwise disclosed in the Phase I Assessment referenced in the Indemnification Agreement (as hereinafter defined), Mortgagor makes the following representations and warranties which shall survive the closing of this loan: A. Mortgagor is in compliance in all respects with all applicable federal, state and local laws, including, without limitation, those relating to toxic and hazardous substances and other environmental matters. B. No portion of the Premises is being used or has been used at any previous time, for the disposal, storage, treatment, processing or other handling of any hazardous or toxic substances. 2. Mortgagor agrees that Mortgagee or its agents or representatives may, at any reasonable time and at Mortgagor's expenses inspect Mortgagor's books and records and inspect and conduct any tests on the Property including taking soil samples in order to determine whether Mortgagor is in continuing compliance with all environmental laws and regulations. 3. If any environmental contamination is found on the property for which any removal or remedial action is required pursuant to law, ordinance, order, rule, regulation or governmental action, Mortgagor agrees that it will at its sole cost and expense remove or take such remedial action promptly and to Mortgagee's satisfaction. 4. Mortgagor agrees to defend, indemnify and hold harmless Mortgagee, its employees, agents, officers and directors from and against any claims, actions, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses) of whatever kind or nature known or unknown contingent or otherwise arising out of or in any way related to: A. The past or present disposal, release or threatened release of any hazardous or toxic substances on the Premises; B. Any personal injury (including wrongful death or property damage, real or personal) arising out of or related to such hazardous or toxic substances; C. Any lawsuit brought or threatened, settlement reached or government order given relating to such hazardous or toxic substances; and/or D. Any violation of any law, order, regulation, requirement, or demand of any government authority, or any policies or requirements of Mortgagee, which are based upon or in any way related to such hazardous or toxic substances. 5. Mortgagor knows of no on-site or off-site locations where hazardous or toxic substances from the operation of the facility on the Premises have been stored, treated, recycled or disposed of. 6. Mortgagor agrees that it will conduct no excavations at the Premises unless it gives Mortgagee ten days' notice of its intention to do so. Mortgagor further agrees that it will not commence such excavation until Mortgagee has had the opportunity to sample and test at the excavation location if Mortgagee so desires. Should the testing results disclose the presence of hazardous or toxic substances which require removal and/or remedy under any environmental laws or regulations, the suspension of excavation activity at such location shall continue until the hazardous or toxic substances are removed and/or remedied to Mortgagee's reasonable satisfaction. Mortgagor shall pay for any and all reasonable costs for any such testing and removal and/or remedy conducted pursuant to this paragraph. 7. Unless waived in writing by Mortgagee, the breach of any of the covenants and warranties contained in this section shall be an event of default under the Mortgage. 8. For purposes of this section, "hazardous and toxic substances" includes, without limit, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the New York State Environmental Conservation Law, the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant thereto. The provisions of this section shall be in addition to any other obligations and liabilities Mortgagor may have to Mortgagee at common law, and shall survive the transactions contemplated herein. Mortgagee may, at its option, require Mortgagor to carry adequate insurance, if available at a reasonable cost, to fulfill Mortgagor's obligations under this paragraph. Mortgagor's failure to obtain insurance within 30 days after being requested to do so by Mortgagee, shall constitute an event of default hereunder. 9. When the terms and provisions contained in the foregoing Paragraphs 1-8 in any way conflict with the terms and provisions contained in a certain Environmental Compliance and Indemnification Agreement of even date herewith ("Indemnification Agreement"), the terms and provisions contained in the Indemnification Agreement shall prevail, and, in the event of any overlapping terms, covenants and conditions, insofar as possible, the terms, covenants and conditions contained herein and in the Indemnification Agreement shall both be applicable. TAX ON NOTE. That in the event that hereafter it is claimed by any governmental agency that any tax or other governmental charge or imposition is due, unpaid and payable by the Mortgagor or the Mortgagee upon the Note (other than a tax on the interest receivable by the Mortgagee thereunder), the Mortgagor will upon sixty (60) days prior written notice either (a) pay such tax and within a reasonable time thereafter deliver to the Mortgagee satisfactory proof of payment thereof or (b) deposit with the Mortgagee the amount of such claimed tax, together with interest and penalties thereon, pending an application for a review of the claim for such tax, and within a reasonable time, deliver to the Mortgagee either (i) evidence satisfactory to the Mortgagee that such claim of taxability has been withdrawn or defeated in which event any such deposit shall be returned to the Mortgagor or (ii) a direction from the Mortgagor to the Mortgagee to pay the same out of the deposit above mentioned, any excess due over the amount of said deposit to be paid by the Mortgagor directly to the taxing authority and any excess of such deposit over such payment by the Mortgagee to be returned promptly to the Mortgagor. Upon the failure of the Mortgagor to comply with the provisions of this Article, the whole of said principal sum and interest secured by the Mortgage shall at the option of the Mortgagee become due and payable. If liability for such tax is asserted against the Mortgagee, the Mortgagee will give to the Mortgagor prompt notice of such claim, and the Mortgagor, upon complying with the provisions of this Article, shall have full right and authority to contest such claim of taxability. COMPLIANCE WITH ARTICLE 31-B OF NEW YORK STATE TAX LAW. The Mortgagor will keep true and complete records pertaining to its acquisition of title to the Premises, all subsequent transfers of any interests in the Premises or any part thereof and all changes in the controlling interest (by way of changes in stock ownership, capital, profits, beneficial interest or otherwise) in the Mortgagor or any related entity which may hereafter own the Premises, including, but not limited to, a copy of the contract of sale, title report, deed, closing statement, transferor's affidavit, questionnaire or return, statement of tentative assessment and any other notices or determinations of tax received from the New York State Department of Taxation and Finance, transferor's supplemental return, the date and cost of all "capital improvements" made to the Premises or any part thereof and evidence of the payment of any real property transfer gains tax imposed by reason of Article 31-B of the New York State Tax Law and the filing of all reports and any other information or documentation required by the New York State Department of Taxation and Finance by reason of said Article or any regulations promulgated thereunder. All such records shall be made available to Mortgagee for inspection from time to time upon its request. If any real property transfer gains tax shall be due and payable upon the conveyance of the Premises pursuant to a judicial sale in any action, suit or proceeding brought to foreclose the Mortgage or deed in lieu of foreclosure, the Mortgagor will, at Mortgagee's request, (a) provide Mortgagee with a copy of all such records and will prepare, execute, deliver and file any affidavits, records questionnaires, returns or supplemental returns required of the Mortgagor, as transferor, including, but not limited to, a statement in affidavit form as to the "original purchase price" of the Premises and the cost of all "capital improvements" made to the Premises or any part thereof by the Mortgagor or any related entity and the date or dates on which such improvements were made and (b) pay or cause to be paid any real property transfer gains tax, together with interest and penalties thereon, which may be due and payable by reason of such conveyance. The Mortgagor hereby irrevocably appoints Mortgagee its agent and attorney-in-fact (which appointment shall be deemed to be an agency coupled with an interest), with full power of substitution in the Premises, to prepare, execute, deliver and file on its behalf any and all affidavits, questionnaires, returns and supplemental returns which the Mortgagor, as transferor, has failed or refused to execute and deliver to Mortgagee within 10 days after notice and request therefor by Mortgagee. In the event that the Mortgagor fails to pay any such tax, interest and penalties within 20 days after notice and demand for payment is given by Mortgagee, Mortgagee is hereby authorized to pay the same, and the amount thereof so paid by Mortgagee, together with all costs and expenses incurred by Mortgagee in connection with such payment, including, but not limited to, reasonable attorneys' fees and disbursements and interest on all such amounts, costs and expenses at the rate of one percent (1%) in excess of the rate specified in the Note, but in no event in excess of the maximum interest rate permitted by law, shall be paid by the Mortgagor to Mortgagee on demand. Until paid by the Mortgagor, all such amounts, costs and expenses, together with interest thereon, shall be secured by the Mortgage and may be added to the judgment in any suit brought by Mortgagee against the Mortgagor hereon. The foregoing shall not be applicable if the aforesaid Article 31-B does not pertain to the Premises. CONSTRUCTION. The word "Mortgagor" shall be construed as if it read "Mortgagors" and the "Mortgagee" shall be construed as if it read "Mortgagees" whenever the sense of the Mortgage so requires. This Mortgage shall be governed by and construed in accordance with the laws of the State of New York. CONFLICT WITH OTHER LOAN AGREEMENTS. Mortgagor represents and warrants to Mortgagee that the execution and delivery of this Mortgage and all related documents and the performance of any term, covenant, or condition herein provided in any agreement or instrument executed in connection therewith, have been duly authorized on behalf of the Mortgagor by all proper and necessary action, and are not in conflict with, or result in any breach of, or constitute a default under or violate: A. Any of the terms, conditions, or provisions of any agreement, lease or other instrument to which Mortgagor is a party or subject to; or, B. Any law, regulation, order, writ, injunction or decree to which Mortgagor is subject or any rules or regulations of any administrative agency which have jurisdiction over Mortgagor or over any property of Mortgagor that would have a material adverse affect on Mortgagor's business or financial condition. SEVERABILITY. In the event any one or more of the provisions of the Mortgage or the Note shall for any reason be invalid, illegal or unenforceable in whole or in part, then only such provision or provisions shall be deemed to be null and void and of no force or effect, but shall not affect any other provision of the Mortgage or the Note. ASSIGNMENT OF MORTGAGE. Upon Mortgagee's receipt of payment in full of the indebtedness evidenced by the Note and Mortgage and receipt of a $200.00 assignment processing fee to Mortgagee, Mortgagee covenants to assign the Mortgage to any new lender selected by Mortgagor on the following conditions: A. The Assignment shall be in accordance with Section 275 of the Real Property Law and in a form reasonably acceptable to Mortgagee and such new lender, suitable for recording in the Monroe County Clerk's Office, but without any representation or warranty by, or recourse to, Mortgagee. B. The Note shall be endorsed, without recourse, as reasonably requested by such new lender. C. The Note, Mortgage and Assignment shall be delivered to such new lender. IN WITNESS WHEREOF, the Mortgage has been duly executed by the Mortgagor and Mortgagee, the day and year first above written. DEAL ROAD ASSOCIATES, L.P. BY: KUSKIN ADVISORS, INC. GENERAL PARTNER By:s/Laurie Kuskin Laurie Kuskin, President FIRST NATIONAL BANK OF ROCHESTER By:s/Dorian C. Chapman Dorian C. Chapman Vice President STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) ss: On this 27th day of November, 1996, before me personally came LAURIE KUSKIN, to me known and known to me to be the President of KUSKIN ADVISORS, INC. the general partner of Deal Road Associates, L.P., the partnership described in, and which executed the foregoing instrument, and who acknowledged that she executed the foregoing Instrument for and on behalf of said partnership. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 STATE OF NEW YORK) COUNTY OF MONROE ) SS: On this 4th day of December, 1996, before me, the subscriber, personally appeared DORIAN C. CHAPMAN, to me known, who, being by me duly sworn, did depose and say that he resides in Rochester, New York, that he is the Vice President of FIRST NATIONAL BANK OF ROCHESTER, the corporation described in, and which executed the within Instrument, and that he signed his name thereto by order of the Board of Directors. s/Samuel O. Tilton Notary Public Notary Public State of New York Qualified in Monroe County Commission Expires June 30, 1997 SCHEDULE A Description of Mortgaged Premises is omitted from this exhibit. SCHEDULE B CONSOLIDATION/SPREADING AGREEMENT The Mortgage is hereby consolidated, combined and made equal and coordinate in lien without priority of one over the other with certain note(s) and mortgage(s) owned and held by the Mortgagee herein and made, executed and acknowledged by the then owners of the Mortgaged Premises and described in attached Schedule C with an unpaid principal balance of $145,907.24. The above described mortgage(s), which may be valid liens on only a portion of the Mortgaged Premises, are hereby modified so that the liens thereof shall be spread over the whole of the Mortgaged Premises. The above described mortgage(s) and the Mortgage shall constitute in law but one first mortgage and a single lien upon the Mortgaged Premises for the total sum of FOUR HUNDRED THOUSAND and 00/100 DOLLARS ($400,000.00) which the Mortgagor does hereby assume, agree and bind itself to pay to the Mortgagee with interest thereon to be computed from the date hereof, or of each advance, at the rate of interest set forth in a certain Restated Mortgage Note ("Restated Note") executed by Mortgagor on even date herewith and the terms of the above-described mortgage(s) and the Mortgage and the notes which they secure, are coordinated and consolidated and extended so that the total mortgage indebtedness shall become due and payable with interest in accordance with the Restated Note. The terms, covenants and conditions of the Mortgage containing these consolidation provisions are hereby incorporated in and made the terms, covenants and conditions of the notes and mortgages consolidated herewith and of the Restated Note to the same effect as though originally incorporated therein, and the same shall apply to the full amount of the mortgage debt as consolidated hereby. When the terms and provisions contained herein in any way conflict with the terms and provisions contained in the notes and mortgages consolidated herewith, and of the Restated Note, the terms and provisions herein contained shall prevail, and, in the event of any overlapping terms, covenants and conditions, insofar as possible, the terms, covenants and conditions contained herein and in the notes and mortgages consolidated herewith and the Restated Note shall both be applicable. The said notes and mortgages shall otherwise remain in full force and effect and as modified by this Agreement, the notes and mortgages are hereby ratified and confirmed. If the instruments which are being consolidated herewith are bonds and mortgages, then whenever the words "Note" or "Notes" appear herein, the same shall be construed to mean "bond" or "bonds". CONTINUING UNLIMITED GUARANTY In consideration of any extension of credit by FIRST NATIONAL BANK OF ROCHESTER, (hereinafter called "Bank") to DEAL ROAD ASSOCIATES, L.P., (hereinafter called "Customer"), either alone or with one or more persons, the undersigned does hereby (jointly and severally if the undersigned be more than one person) guarantee the full and prompt payment to said Bank, when due, whether accelerated or not, of any and all indebtedness, liabilities and obligations of every nature and kind, whether heretofore or hereafter arising of Customer to Bank, including but not limited to all currently existing indebtedness of Company to Bank, and all indebtedness of Company to Bank hereafter incurred, all of which is referred to herein as the "Indebtedness". 1. The undersigned further (jointly and severally, if the undersigned be more than one person) agree(s) to pay all costs, expenses and reasonable attorney's fees at any time paid or incurred by the Bank in endeavoring to collect the Indebtedness or any part thereof and in and about the enforcement of this instrument. 2. This instrument is and is intended to be a continuing guaranty for the Indebtedness (irrespective of the aggregate amount thereof, or changes in the same from time to time) to the extent above specified, independent of and in addition to any other guaranty, endorsement or security held by Bank therefor, and without right of subrogation on the part of the undersigned until the Indebtedness is paid in full. The undersigned acknowledge that this guaranty does not modify or terminate any previous guaranties executed and delivered to Bank by the undersigned or either of them, which guaranties, if any, remain in full force and effect. This guaranty shall remain in full force and effect until the Bank or its successors or assigns, shall actually receive written notice of its discontinuance or notice of the death of the undersigned and all of the Indebtedness contracted for or created before the receiving of such notice, and any extensions or renewals thereof whether made before or after the receipt of such notice, together with interest accrued thereon, shall be paid in full. In the event of the discontinuance of this guaranty as to any of the undersigned because of receipt by the Bank of notice of death or notice of discontinuance, this guaranty shall, notwithstanding, still continue and remain in full force against the survivor or survivors of the undersigned until discontinued as to them in the same manner. In the event all of the Indebtedness shall at any time, or from time to time, be satisfied, this guaranty shall, nevertheless, continue in full force and effect as to any such Indebtedness contracted for or incurred thereafter, from time to time, before receipt by Bank of written notice of discontinuance or written notice of death of the undersigned. 3. If any default shall be made in the payment of any or all of the Indebtedness, the undersigned hereby (jointly and severally, if the undersigned be more than one person) agree(s) to pay the same without requiring protest or notice of non-payment or notice of default to the undersigned, to the Customer, or to any other person, without proof of demand and without requiring the Bank to resort first to the Customer or to any other guaranty, security or collateral which it may have or hold. The undersigned hereby waives demands of protest and notice of non-payment and protest to the undersigned, to the Customer, or to any other person; notice of acceptance hereof or assent hereto by Bank; and notice that any Indebtedness has been incurred by the Customer to Bank, and notice in the change of the terms of payment of any of the Indebtedness, including but not limited to a change in the interest rate on any or all of the Indebtedness. 4. Upon default being made in the payment of any of the Indebtedness, the undersigned authorize(s) and empowers the Bank, in addition to its other remedies, to charge any account of the undersigned, and if the undersigned be more than one person, any account of any or all of the undersigned with the full amount then due on this guaranty and to sell, at any broker's board or at a public or private sale, (with such notice, if any, referred under the Uniform Commercial Code, to the undersigned,) any property of the undersigned (or any of them) in the possession or custody of the Bank and to apply the proceeds thereof to any balance due on this guaranty. Upon any such sale the Bank may itself purchase the whole or any part of any property sold free from any right of redemption which is expressly waived and released. 5. The undersigned also further agree(s) that the Bank shall have the irrevocable right, in its sole discretion, with or without notice to the undersigned, either before or after the institution of bankruptcy or other legal proceedings by or against the undersigned or any of them, or before or after receipt of written notice of the death of the undersigned, or any of them, or written notice of discontinuance of any of the undersigned's liability hereunder from any of the undersigned, to extend the time given for the payment of the Indebtedness or any part thereof. Bank may accept one or more renewal notes for the Indebtedness which shall be considered not as new obligations but as extensions of the obligations renewed, and no such extensions shall discharge or in any manner affect the liability of the undersigned, or the liability of the estate or estates of either or any of the undersigned under this guaranty. 6. The liability of the undersigned hereunder shall not be affected or impaired by any acceptance by the Bank of security for payment of the Indebtedness, or any part thereof, or by any disposition of or failure, neglect or omission on the part of the Bank to realize upon any such security or any security at any time held by or left with the Bank for any or all of the Indebtedness, or upon which a lien may exist therefor, may be exchanged, withdrawn or surrendered from time to time or otherwise dealt with by the Bank without notice to or assent from the undersigned, to the same extent as though this guaranty had not been given. Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on the Indebtedness, or any part thereof, and may apply the same upon principal or interest or fees or expense as it sees fit. The undersigned hereby (jointly and severally) agree(s) and consent(s) that the Bank shall have the right to make any agreement with the Customer or with any party to or any one liable for the payment of all or any of the Indebtedness or interested therein, for the compounding, compromise, discharge or release thereof, in whole or in part, for any modification or alteration of any of the terms thereof, including but not limited to, a change in the interest rate, or of any contract between the Bank and the Customer or any other party without notice to or assent from the undersigned. The Bank shall also have the right to discharge or release one or more of the undersigned from any obligation hereunder, in whole or in part, without in any way releasing, impairing or affecting its rights against the other or others of the undersigned. 7. This guaranty is absolute and unconditional and shall not be affected by any act or thing whatsoever, except the payment in full of the Indebtedness hereby secured. This is a guaranty of payment and not collection. The failure of any other person to sign this guaranty shall not release or affect the liability of any signer hereof. This guaranty has been unconditionally delivered to Bank by each of the persons who have signed it. 8. If a claim is made upon Bank at any time for repayment or recovery of any amount of the Indebtedness, or other value received by Bank from any source, in payment of or on account of any of the Indebtedness, and Bank repays or otherwise becomes liable for all or any part of such claim by reason of (a) any judgment, decree, or order of any court or administrative body, or (b) any settlement or compromise of such claim or claims, the undersigned shall remain liable to Bank hereunder for the amount so repaid or for which Bank is otherwise liable, to the same extent as if any such amounts had not been received by Bank, notwithstanding any return or destruction of the original of this guaranty, or termination hereof or cancellation of any note, bond or other obligation which evidences all or a portion of the Indebtedness. 9. The undersigned unconditionally agrees that he will not assert, and he does hereby waive, any right he may have against Customer for indemnity, subrogation, reimbursement, contribution, or any other claim to Customer's assets, thereby relinquishing any right he may have to be a creditor of Customer. 10. This document is the final expression of this guaranty of the undersigned in favor of Bank, and is the complete and exclusive statement of the terms of this guaranty. No course of prior dealings between the undersigned and Bank, nor any usage of trade, nor any parol or extrinsic evidence of any nature or kind, shall be used or be relevant to supplement, explain or modify this guaranty. 11. All payments of principal or interest made on the Indebtedness by the Customer to the Bank shall be deemed to have been made as agent for the undersigned for the purpose of tolling or renewing the Statute of Limitations. 12. This guaranty and every part hereof shall be binding (jointly and severally) upon the undersigned and the heirs, legal representatives, successors and assigns of the undersigned, and shall inure to the benefit of the Bank, its successors and assigns. 13. This instrument cannot be changed or modified or discharged in whole or in part, orally, and shall be governed by New York law. Any litigation involving this guaranty shall, at Bank's option, be tried only in a court of competent jurisdiction located in Monroe County, New York. 14. All obligations of the undersigned under this guaranty are joint and several. IN WITNESS WHEREOF the undersigned has signed and sealed this instrument at Ocean, New Jersey, as of the 3rd day of December, 1996 s/Laurie Kuskin (L.S.) Laurie Kuskin STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) SS: On this 27th day of November, 1996, before me personally appeared LAURIE KUSKIN, to me personally known and known to me to be the same person described in and who executed the within Guaranty, and he duly acknowledged to me that he executed the same. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 CONTINUING UNLIMITED GUARANTY In consideration of any extension of credit by FIRST NATIONAL BANK OF ROCHESTER, (hereinafter called "Bank") to DEAL ROAD ASSOCIATES, L.P., (hereinafter called "Customer"), either alone or with one or more persons, the undersigned does hereby (jointly and severally if the undersigned be more than one person) guarantee the full and prompt payment to said Bank, when due, whether accelerated or not, of any and all indebtedness, liabilities and obligations of every nature and kind, whether heretofore or hereafter arising of Customer to Bank, including but not limited to all currently existing indebtedness of Company to Bank, and all indebtedness of Company to Bank hereafter incurred, all of which is referred to herein as the "Indebtedness". 1. The undersigned further (jointly and severally, if the undersigned be more than one person) agree(s) to pay all costs, expenses and reasonable attorney's fees at any time paid or incurred by the Bank in endeavoring to collect the Indebtedness or any part thereof and in and about the enforcement of this instrument. 2. This instrument is and is intended to be a continuing guaranty for the Indebtedness (irrespective of the aggregate amount thereof, or changes in the same from time to time) to the extent above specified, independent of and in addition to any other guaranty, endorsement or security held by Bank therefor, and without right of subrogation on the part of the undersigned until the Indebtedness is paid in full. The undersigned acknowledge that this guaranty does not modify or terminate any previous guaranties executed and delivered to Bank by the undersigned or either of them, which guaranties, if any, remain in full force and effect. This guaranty shall remain in full force and effect until the Bank or its successors or assigns, shall actually receive written notice of its discontinuance or notice of the death of the undersigned and all of the Indebtedness contracted for or created before the receiving of such notice, and any extensions or renewals thereof whether made before or after the receipt of such notice, together with interest accrued thereon, shall be paid in full. In the event of the discontinuance of this guaranty as to any of the undersigned because of receipt by the Bank of notice of death or notice of discontinuance, this guaranty shall, notwithstanding, still continue and remain in full force against the survivor or survivors of the undersigned until discontinued as to them in the same manner. In the event all of the Indebtedness shall at any time, or from time to time, be satisfied, this guaranty shall, nevertheless, continue in full force and effect as to any such Indebtedness contracted for or incurred thereafter, from time to time, before receipt by Bank of written notice of discontinuance or written notice of death of the undersigned. 3. If any default shall be made in the payment of any or all of the Indebtedness, the undersigned hereby (jointly and severally, if the undersigned be more than one person) agree(s) to pay the same without requiring protest or notice of non-payment or notice of default to the undersigned, to the Customer, or to any other person, without proof of demand and without requiring the Bank to resort first to the Customer or to any other guaranty, security or collateral which it may have or hold. The undersigned hereby waives demands of protest and notice of non-payment and protest to the undersigned, to the Customer, or to any other person; notice of acceptance hereof or assent hereto by Bank; and notice that any Indebtedness has been incurred by the Customer to Bank, and notice in the change of the terms of payment of any of the Indebtedness, including but not limited to a change in the interest rate on any or all of the Indebtedness. 4. Upon default being made in the payment of any of the Indebtedness, the undersigned authorize(s) and empowers the Bank, in addition to its other remedies, to charge any account of the undersigned, and if the undersigned be more than one person, any account of any or all of the undersigned with the full amount then due on this guaranty and to sell, at any broker's board or at a public or private sale, (with such notice, if any, referred under the Uniform Commercial Code, to the undersigned,) any property of the undersigned (or any of them) in the possession or custody of the Bank and to apply the proceeds thereof to any balance due on this guaranty. Upon any such sale the Bank may itself purchase the whole or any part of any property sold free from any right of redemption which is expressly waived and released. 5. The undersigned also further agree(s) that the Bank shall have the irrevocable right, in its sole discretion, with or without notice to the undersigned, either before or after the institution of bankruptcy or other legal proceedings by or against the undersigned or any of them, or before or after receipt of written notice of the death of the undersigned, or any of them, or written notice of discontinuance of any of the undersigned's liability hereunder from any of the undersigned, to extend the time given for the payment of the Indebtedness or any part thereof. Bank may accept one or more renewal notes for the Indebtedness which shall be considered not as new obligations but as extensions of the obligations renewed, and no such extensions shall discharge or in any manner affect the liability of the undersigned, or the liability of the estate or estates of either or any of the undersigned under this guaranty. 6. The liability of the undersigned hereunder shall not be affected or impaired by any acceptance by the Bank of security for payment of the Indebtedness, or any part thereof, or by any disposition of or failure, neglect or omission on the part of the Bank to realize upon any such security or any security at any time held by or left with the Bank for any or all of the Indebtedness, or upon which a lien may exist therefor, may be exchanged, withdrawn or surrendered from time to time or otherwise dealt with by the Bank without notice to or assent from the undersigned, to the same extent as though this guaranty had not been given. Bank shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on the Indebtedness, or any part thereof, and may apply the same upon principal or interest or fees or expense as it sees fit. The undersigned hereby (jointly and severally) agree(s) and consent(s) that the Bank shall have the right to make any agreement with the Customer or with any party to or any one liable for the payment of all or any of the Indebtedness or interested therein, for the compounding, compromise, discharge or release thereof, in whole or in part, for any modification or alteration of any of the terms thereof, including but not limited to, a change in the interest rate, or of any contract between the Bank and the Customer or any other party without notice to or assent from the undersigned. The Bank shall also have the right to discharge or release one or more of the undersigned from any obligation hereunder, in whole or in part, without in any way releasing, impairing or affecting its rights against the other or others of the undersigned. 7. This guaranty is absolute and unconditional and shall not be affected by any act or thing whatsoever, except the payment in full of the Indebtedness hereby secured. This is a guaranty of payment and not collection. The failure of any other person to sign this guaranty shall not release or affect the liability of any signer hereof. This guaranty has been unconditionally delivered to Bank by each of the persons who have signed it. 8. If a claim is made upon Bank at any time for repayment or recovery of any amount of the Indebtedness, or other value received by Bank from any source, in payment of or on account of any of the Indebtedness, and Bank repays or otherwise becomes liable for all or any part of such claim by reason of (a) any judgment, decree, or order of any court or administrative body, or (b) any settlement or compromise of such claim or claims, the undersigned shall remain liable to Bank hereunder for the amount so repaid or for which Bank is otherwise liable, to the same extent as if any such amounts had not been received by Bank, notwithstanding any return or destruction of the original of this guaranty, or termination hereof or cancellation of any note, bond or other obligation which evidences all or a portion of the Indebtedness. 9. The undersigned unconditionally agrees that he will not assert, and he does hereby waive, any right he may have against Customer for indemnity, subrogation, reimbursement, contribution, or any other claim to Customer's assets, thereby relinquishing any right he may have to be a creditor of Customer. 10. This document is the final expression of this guaranty of the undersigned in favor of Bank, and is the complete and exclusive statement of the terms of this guaranty. No course of prior dealings between the undersigned and Bank, nor any usage of trade, nor any parol or extrinsic evidence of any nature or kind, shall be used or be relevant to supplement, explain or modify this guaranty. 11. All payments of principal or interest made on the Indebtedness by the Customer to the Bank shall be deemed to have been made as agent for the undersigned for the purpose of tolling or renewing the Statute of Limitations. 12. This guaranty and every part hereof shall be binding (jointly and severally) upon the undersigned and the heirs, legal representatives, successors and assigns of the undersigned, and shall inure to the benefit of the Bank, its successors and assigns. 13. This instrument cannot be changed or modified or discharged in whole or in part, orally, and shall be governed by New York law. Any litigation involving this guaranty shall, at Bank's option, be tried only in a court of competent jurisdiction located in Monroe County, New York. 14. All obligations of the undersigned under this guaranty are joint and several. IN WITNESS WHEREOF the undersigned has signed and sealed this instrument at Belmar, New Jersey, as of the 3rd day of December, 1996 s/Gary Kuskin (L.S.) Gary Kuskin STATE OF NEW JERSEY ) COUNTY OF MONMOUTH ) SS: On this 27th day of November, 1996, before me personally appeared GARY KUSKIN, to me personally known and known to me to be the same person described in and who executed the within Guaranty, and he duly acknowledged to me that he executed the same. s/Deborah A. Maretzky Notary Public Notary Public State of New Jersey Qualified in Ocean County Commission Expires October 28, 1999 EX-10.25 4 [EXHIBIT 10.25] FIRST NATIONAL BANK OF ROCHESTER 35 State Street COMMERCIAL LINE OF CREDIT NOTE Rochester, New York 14614 Account Name: Laurie Kuskin Dated: November 20, 1996 Maximum Credit Amount: One hundred fifty thousand and no/100 DOLLARS ($150,000.00) FOR VALUE RECEIVED, the undersigned (individually a "Borrower") (if more than one, jointly and severally) promises to pay to the order of FIRST NATIONAL BANK OF ROCHESTER, a national banking association having its chief executive office at 35 State Street, Rochester, New York 14614, ("Bank") at any of the banking offices of the Bank in lawful money of the United States and in immediately available funds, the outstanding principal sum on the line of credit made available to the Borrower pursuant to the terms and conditions hereof (the "Credit) plus interest on such principal sum in accordance with the terms and conditions set forth in the following paragraphs. (Check or "X" / / spaces where applicable.) 1. Obtaining Advances on Credit. The Borrower may obtain advances on the Credit in multiples of the lesser of (a) $1,000.00 or (b) the unused balance of the Maximum Credit Amount indicated above (the "Maximum Credit") by making written or oral requests for such advances to Bank through any of its authorized Commercial Lending Officers. The decision to make such an advance or to refuse to make such an advance shall be subject to the discretion of Bank. Such requests may be made by the Borrower, by any authorized agent of the Borrower (including any partner or officer of the Borrower) or by any other person designated by Borrower as a person having authority to authorize an advance under this Note. Bank shall be entitled to rely upon the request of any person it in good faith believes to be authorized by Borrower to borrow under this Note and Bank shall not be liable to Borrower as a result of making or failing to make any advance hereunder. Advances on the Credit will be deposited by Bank to a demand deposit account of Borrower with Bank. Bank reserves the right, at its sole discretion, to make advances on the Credit to cover either overdrafts by Borrower on a deposit account with Bank or any drawings by Borrower against uncollected funds in a deposit account with Bank. 2. Statement of Balance Due. Bank shall provide periodic statements to Borrower describing, as of the effective date of such statement, the outstanding principal balance, the interest owing, any other charges owing and the advances and payments made during the period covered by the statement. The Bank's records shall be presumptive evidence of the balances owing with respect to the Credit. 3. _X_ Out of Debt Period. During each twelve-month period that the Credit is available to Borrower, there shall be at least one thirty-day period when Borrower is not indebted to Bank pursuant to the Credit. 4. Interest Rate; Interest Payments. Borrower shall pay interest on the outstanding principal sum of the Credit from and including the date of this Note to but not including the date such sum is paid in full (including each day on which Bank is closed) at a variable rate per year that shall on each day be 0.50% above the rate per year in effect such day as that designated by Bank as the prime rate of interest of Bank, with such interest to be calculated on the basis of a 360-day year for the actual number of days of each year. Notwithstanding the foregoing, the rate of interest per year on and after maturity of the outstanding principal balance, because of Bank's demand for immediate payment in full of such outstanding principal balance, shall on each day be 3% per year above the rate described in the preceding sentence. Interest will be billed to Borrower / X / monthly / / quarterly on the outstanding principal sum. Notwithstanding the generality of the foregoing, in no event shall interest be payable at a rate in excess of the maximum rate permitted by applicable law. / / The interest rate applicable to this Note is further affected by the Compensating Balance Addendum made applicable hereto. 5. Credit Facility Fees. The Credit shall be subject to the following fees (as checked or marked with "X"): / / Except with respect to any out of debt period required by Section 3 hereof, Borrower shall pay to Bank when billed therefor a non-usage fee based upon the Maximum Credit that was available but was not in use by Borrower. The fee shall be payable in arrears and shall be in an amount equal to ____% of the average daily amount of the available but unused credit. 3 / / Borrower shall pay an annual facility fee equal to ___% of the Maximum Credit upon execution of this Note and annually hereafter as long as the Credit is available. If Bank exercises its termination rights under Section 10 hereof, Borrower shall be entitled to a pro-rata refund of the annual facility fee described in this paragraph based upon the amount of time that the Credit was unavailable to Borrower. 6. Late Charges. Borrower shall pay a late charge equal to 6% of the amount of any scheduled payment with respect to each payment not received by Bank on or before the 10th day after it is due. 7. Application of Payments; Charging Deposit Accounts for Payments. All payments received by Bank shall be applied on the date received first to late charges, if any, second to accrued interest and third to Principal. Borrower agrees that Bank may, at its option and in addition to the right of offset, charge any demand deposit account of Borrower at Bank for any amount that has become due and owing to Bank hereunder. 8. Use of Proceeds. Borrower represents and warrants to Bank that the advances to be made hereunder shall be used solely for business or commercial purposes. 9. Financial Information. Borrower agrees to provide Bank, promptly upon Bank's request, with (a) periodic financial statements in form satisfactory to Bank, (b) copies of federal and state income tax returns and (c) all other financial information requested by Bank from time to time. 9. Termination of Credit. Borrower may terminate its rights to take advances under the Credit at any time by giving written notice to Bank of its desire to do so. Notice should be directed to the "Commercial Lending Department" at the address above or at any other address provided to Borrower by Bank for the purposes of such notices. The Credit shall become unavailable after Bank has received such notice and has had a reasonable time to act thereon. The Credit may be terminated by Bank at any time for any or no reason without prior notice to Borrower. The Credit is also subject to Bank's continuing rights of modification, restriction or suspension, provided, however, that Bank may not modify the interest rate applicable to outstanding balances or other fees or charges except as specified in this Note. Termination of the Credit shall not affect the Borrower's obligation to pay the outstanding balance under the Credit and all interest and other applicable charges. 10. Demand Obligation; Demands for Payment. All amounts owing pursuant to this Note but not yet paid shall, without any notice, demand, presentment or protest of any kind (each of which is waived by Borrower), automatically become immediately due if Borrower commences or has commenced against it any bankruptcy or insolvency proceeding. This Note is payable "ON DEMAND" and Bank may demand immediate payment in full of all amounts owing hereunder in its sole discretion. Without limiting Bank's rights as described in the previous sentence, all amounts owing pursuant to this Note but not yet paid may become immediately due at the sole option of Bank if (a) any amount owing pursuant to this Note is not paid when due, (b) Borrower or any guarantor or endorser of this Note (a "Guarantor") is dissolved, dies or becomes incompetent or insolvent (however such insolvency is evidenced), (c) any Guarantor commences or has commenced against it any bankruptcy or insolvency proceeding, (d) Bank in good faith deems itself insecure with respect to any amount owing pursuant to this Note or is of the opinion that any guaranty, endorsement, collateral or other security now or hereafter securing the payment of or otherwise applicable to any amount owing pursuant to this Note is not sufficient or has declined or may decline in value, (e) there occurs or exists any event or condition of default for purposes of any mortgage, security agreement, collateral assignment agreement or other agreement now or hereafter in effect between Bank and any Borrower or (f) there occurs or exists any event or condition of default for purposes of any mortgage, security agreement, collateral assignment agreement, guaranty or other agreement that secures or applies to the payment of any amount owing pursuant to this Note and that is now or hereafter in effect between Bank and any person or entity other than any Borrower. Borrower waives any and all rights to any notice, demand, presentment for payment, notice of protest and protest with respect to this Note. 11. Collection Expenses. Borrower shall pay all costs and expenses incurred by Bank in endeavoring to collect any amount owing pursuant to this Note or to otherwise protect its rights with respect to this Note (including, but not limited to, reasonable attorneys' fees for legal advice, litigation or other representation of Bank). 12. New York Law; Consent to Jurisdiction and Venue; Waiver of Trial by Jury. This Note shall be governed by and interpreted and enforced in accordance with the internal law of the State of New York, without regard to principles of conflict of laws. Borrower consents to the jurisdiction of the courts of the State of New York and agrees that any court located in the county in which Bank has its chief executive office shall be the proper forum for any action or proceeding between Borrower and Bank unless either (a) Bank in its sole discretion chooses another forum or (b) applicable law requires another forum. BORROWER AND BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN THEM BASED UPON, ARISING OUT OF, OR IN ANY WAY CONNECTED TO, THIS NOTE. s/ Laurie Kuskin ______________________ Laurie Kuskin STATE OF NEW YORK) COUNTY OF MONROE) SS.: On November 20, 1996, before me personally came Laurie Kuskin to me known to be the individual described in, and who executed the foregoing instrument, and she acknowledged that she executed the same. s/ Elizabeth E. Mogray ___________________________ Notary Public FIRST NATIONAL BANK OF ROCHESTER 35 State Street CONTINUING UNLIMITED GUARANTY Rochester, New York 14614 Borrower: Laurie Kuskin Dated: November 20, 1996 In consideration of all loans, advances, credit or other financial accommodations previously extended or to be extended or continued from time to time by FIRST NATIONAL BANK OF ROCHESTER, a national banking association having its chief executive office at 35 State Street, Rochester, New York 14614 ("Bank") to, or on the guarantee, endorsement or other assurance of, the person or entity identified above as "Borrower," the undersigned ("Guarantor") does hereby agree and make this Guaranty as follows: 1. Definition of Certain Terms. As used in this Guaranty: (a) "Obligations" shall mean and include all indebtedness, liabilities and obligations for the payment of money (including, but not limited to, any obligation to pay principal, interest, costs, expenses and attorneys' fees) of Borrower to Bank and whether direct or indirect, absolute or contingent, now existing or hereafter arising and any and all extensions, renewals and modifications thereof; (b) "Collateral" shall mean all property, real, personal (including both tangible and intangible personal property) and mixed, wherever located, now owned or hereafter acquired, upon which there has been conveyed or will be conveyed a security interest, pledge or mortgage to secure the payment of the Obligations; (c) "guarantor" shall mean any maker, drawer, acceptor, endorser, guarantor, surety, accommodation party or other person liable upon or for any of the Obligations in any capacity whatsoever including, but not limited to, Guarantor; and (d) "Event of Default" shall mean (i) any event or condition of default under any agreement between Bank and Borrower governing or relating to any of the Obligations including, but not limited to, a failure to make payment when due, and (ii) any other event, occurrence or condition that results in the Obligations, or any part of the Obligations, being immediately, or at the sole option of Bank, due and payable by Borrower to Bank. 2. Unconditional Guaranty of Payment. Guarantor does hereby unconditionally guarantee the punctual payment to Bank when due, whether at a stated maturity, by acceleration or otherwise, of each and all of the Obligations, without any limitation as to amount, strictly in accordance with all the terms and provisions of the Obligations and subject to all rights of Bank arising from or relating to the Obligations. The duty, liability and obligation of Guarantor pursuant to this Guaranty shall not be diminished, altered, terminated or changed in any respect, notwithstanding any law, regulation, decree, action, proceeding, equitable doctrine or other circumstance that would or might otherwise diminish, alter, terminate, void or change the liability or obligation of Borrower, any other guarantor or any other entity or person to pay any or all of the Obligations. Any payments required to be made pursuant to this Guaranty shall be made in United States dollars in immediately available funds at such place and time as shall be designated by Bank. 3. Continuing Agreement. This Guaranty is a continuing agreement and applies to all present and future Obligations, notwithstanding that at any particular time all of the Obligations then outstanding shall have been paid in full. This Guaranty shall be construed at all times to be a guaranty of payment and not a guaranty of collection. 4. Guarantor's Indemnification of Bank. Guarantor agrees to indemnify Bank and its employees, agents, officers and directors and hold the same harmless from all claims, demands, penalties, fines, obligations and liabilities claimed or asserted by any other party, whether contingent or otherwise, and against all losses and expenses (including, but not limited to, fees of attorneys and other consultants, court costs and litigation expenses) in any way suffered, incurred, or paid by Bank or by any of its employees, agents, officers and directors, as a result of or in any way arising out of, following, or consequential to, Bank's transactions and relationships with either or both of Borrower and Guarantor, whether with respect to the Obligations or otherwise, and including, but not limited to, environmental matters. 5. Certain Rights of Bank. Bank, in its sole discretion and without notice to or further assent from Guarantor at any time or from time to time, either before or after the occurrence of an Event of Default, and without diminishing, altering, terminating or changing in any respect the liability and obligation of Guarantor pursuant to this Guaranty, may: (a) increase or decrease the amount of, extend, change, or amend the time, manner, place, amount or terms of payment of any or all of the Obligations or any other terms or provisions governing the Obligations, including those relating to any guarantor or Collateral; (b) exchange, release, surrender, substitute or sell any Collateral, or fail unintentionally or otherwise to perfect its interest or create a valid security interest in any of the Collateral; (c) waive, fail to exercise or delay in exercising any right or remedy granted to Bank by any agreement or by law with respect to Borrower, any of the Obligations, any guarantor or any of the Collateral; (d) release, agree not to sue, settle or compromise with Borrower, any guarantor or any other entity or person who is otherwise obligated to pay any or all of the Obligations; (e) subordinate the payment of any or all of the Obligations to the payment of any other debt owed by Borrower to any other entity or person; (f) sell or purchase all or any part of the Collateral at any public or private sale, and after deduction of all expenses incurred therefor, including attorneys' fees, apply the proceeds to the Obligations in such manner as it deems appropriate; (g) apply any payments or proceeds relating to the Obligations in such manner as it deems appropriate; or (h) act or refuse to act in any other manner which might constitute a legal or equitable discharge or defense of a guarantor. 6. Financial Information. Guarantor agrees to provide Bank, promptly upon Bank's request, with (a) periodic financial statements in form satisfactory to Bank, (b) copies of federal and state income tax returns and (c) all other financial information requested by Bank from time to time. 7. Bank's Rights Upon Event of Default. Upon the occurrence of any Event of Default, or at any time thereafter, any or all of the Obligations, at the sole option of Bank, shall immediately become due and payable in full, together with interest and all costs and expenses of enforcing this Guaranty or any of the Obligations, including court costs and reasonable attorneys' fees. In such circumstances, the liability of Guarantor to Bank shall be absolute, and it shall not constitute a defense, counterclaim, set-off or recoupment thereto that Bank has not made any demand or instituted any action or proceeding against Borrower or against any other party who may be liable for all or any of the Obligations or that Bank has not validly taken or perfected a security interest in the Collateral or has not or has improperly foreclosed upon the Collateral or any part of it, nor shall Bank be required to perform any of the above acts against Borrower, any guarantor or the Collateral as a condition to enforcing its rights against Guarantor in accordance with the terms of this Guaranty. 8. Right of Offset; Security Interest. In addition to the rights that Bank has under applicable law (including, but not limited to, the right of offset) and the other rights granted to Bank pursuant to this Guaranty or the Obligations, Guarantor hereby grants Bank a lien upon and security interest in any and all of Guarantor's money, deposits or other property in the possession, custody or control of Bank. Upon the occurrence of an Event of Default, in addition to any other rights of Bank, Bank may, in its sole discretion and without prior notice to Guarantor, set-off or sell the same at any public or private sale and apply the proceeds thereof to the Obligations in such manner and order as Bank deems appropriate. 9. Persons or Entities Bound. If this Guaranty is executed by two or more persons or entities or if two or more persons or entities execute agreements similar to this Guaranty covering the Obligations, they shall be jointly and severally liable, and all provisions of this Guaranty shall apply to each and all of them. The termination of this Guaranty or similar agreement as to one or more of such persons or entities shall not terminate this Guaranty or similar agreement as to any remaining persons or entities. This Guaranty shall be binding upon the heirs, executors, trustees, transferees, administrators, assigns and successors of Guarantor and shall inure to the benefit of and be enforceable by Bank, its successors, transferees and assigns. 10. Reinstatement of Guarantor's Liability. In the event any payment or recovery is received by Bank with respect to the Obligations during the time that this Guaranty is effective and such payment or recovery is subsequently invalidated, declared fraudulent or preferential or otherwise set aside under the terms of any federal or state law or equitable doctrine, then the liability of Guarantor shall be reinstated and Guarantor shall be responsible for the amount of such payment or recovery to Bank under the terms of this Guaranty together with any and all interest and other charges related thereto and related to any proceeding seeking to set aside or invalidate such payment or recovery, including attorneys' fees, notwithstanding the fact that this Guaranty was terminated voluntarily or by law at the time that the payment or recovery was set aside or invalidated as described above. 11. Waiver of Subrogation and Similar Rights. Until the Obligations are finally and irrevocably paid in full, Guarantor irrevocably waives each and every right of subrogation, indemnity, contribution and reimbursement and each and every similar right that Guarantor would have against either or both of Borrower and any other guarantor of the Obligations because of any payment by Guarantor of any portion of the Obligations or because of the provision by Guarantor of any collateral security for such Obligations. To the extent that any of the foregoing rights survive such waiver, Guarantor assigns such rights to Bank as collateral security for payment of the Obligations. 12. New York Law; Consent to Jurisdiction and Venue; Waiver of Trial by Jury. This Guaranty shall be governed by and interpreted and enforced in accordance with the internal law of the State of New York, without regard to principles of conflict of laws. Guarantor consents to the jurisdiction of the courts of the State of New York and agrees that any court located in the county in which Bank has its chief executive office shall be the proper forum for any action or proceeding between them unless either (a) Bank in its sole discretion chooses another forum or (b) applicable law requires another forum. Guarantor also waives the right to assert in any such action or proceeding any unrelated offsets or counterclaims which it may otherwise have or claim to have. GUARANTOR AND BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN THEM BASED UPON, ARISING OUT OF, OR IN ANY WAY CONNECTED TO, THIS GUARANTY, THE OBLIGATIONS OR ANY TRANSACTION CONTEMPLATED HEREBY. 13. Certain Consents and Waivers; Miscellaneous Provisions. (a) Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Guaranty in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. (b) This Guaranty constitutes the final, complete and exclusive agreement between Bank and Guarantor with respect to the guarantee by Guarantor of the Obligations. (c) No delay by Bank in exercising any right hereunder, or under any of the Obligations, shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude other or further exercises thereof or the exercise of any other right. No waiver, amendment, modification or release of this Guaranty or any provision of this Guaranty or of any of the Obligations shall be enforceable against Bank unless it is in a writing signed by an officer of Bank and expressly referring to this Guaranty. (d) Any termination of this Guaranty shall not be effective until Bank has had reasonable time to act on written notice of such termination that has been actually received by Bank by mail or personal delivery directed to "Commercial Banking Division" at the address of Bank indicated at the beginning of this Guaranty or at such other address as Bank may hereafter specify in writing for purposes hereof. Any such termination shall not affect any existing Obligations owed by Borrower or any extensions or continuations thereof. Furthermore, any such termination shall not affect the indemnification provisions set forth in Section 4 of this Guaranty with respect to any acts (including omissions) or occurrences that took place or are alleged by anyone to have taken place prior to the effective date of the termination hereof determined in accordance with the first sentence of this subsection. Guarantor's liability with respect to all such existing Obligations and with respect to such prior acts or occurrences shall continue under the terms of this Guaranty subsequent to any termination. It is further agreed in the case where Guarantor is a natural person that any termination based upon the death of Guarantor shall likewise not become effective until the time that Bank received such notice of Guarantor's death and had a reasonable time to act thereon. (e) All rights granted Bank pursuant to this Guaranty shall be cumulative and shall be in addition to those granted or available to Bank with respect to the Obligations, any other guaranty agreement and under applicable law and nothing herein shall be construed as limiting any such other right. (f) Guarantor represents and warrants that the execution, delivery and performance of this Guaranty does not and will not contravene any law, agreement, charter, by-law or undertaking to which it is a party or by which it may in any way be bound. (g) Guarantor waives notice of presentment, dishonor and protest of any or all of the Obligations and of this Guaranty, and furthermore waives promptness in the commencement of any action relating to this Guaranty or the Obligations and in the giving of notice or making of demand upon it or upon any other entity or person. (h) Words of the neuter gender may mean and include correlative words of the masculine and feminine gender as appropriate and vice versa. Words noting the singular number shall mean and include the plural number as appropriate and vice versa. (i) The headings used in this Guaranty are for convenience only and are not of substantive effect. s\ Gary Kuskin ___________________________ Gary Kuskin STATE OF NEW YORK) COUNTY OF MONROE) SS.: On November 20, 1996, before me personally came Gary Kuskin to me known to be the individual described in, and who executed the foregoing instrument, and he acknowledged that he executed the same. s/ Elizabeth E. Mogray ________________________ Notary Public EX-10.26 5 [EXHIBIT 10.26] MORTGAGE NOTE $450,000.00 Avon, Colorado FOR VALUE RECEIVED, the undersigned, FRED KRAVETZ AND WILLIAM LEVINE PARTNERS, a New York general partnership, with an office c/o Kravetz Realty, Inc., 150 Linden Oaks Drive, Suite C, Rochester, New York 14625 (hereinafter called "Borrower"), promises to pay FIRST NATIONAL BANK OF ROCHESTER, a national banking association, or order, (hereinafter called "Lender") at its principal office at 35 State Street, Rochester, New York, or at such other place as may be designated in writing by the holder of this Restated Mortgage Note ("Mortgage Note" or "Note"), the sum of FOUR HUNDRED FIFTY THOUSAND and 00/100 DOLLARS ($450,000.00), in lawful money of the United States, or so much as may be advanced, referred to as "principal sum", with interest thereon to be computed from the date hereof, or of each advance, at the rate of eight and three quarters percent (8.75%) per annum. Interest only on the unpaid principal sum, from the date of this Note to December 31, 1996 shall be due and payable the date of this Note. Commencing on the first day of February, 1997, installments of principal and interest shall be paid in the sum of $4,497.52 based upon an amortization period of fifteen (15) years, and a like amount on the first day of each and every month thereafter until the principal sum and interest are fully paid; said monthly payments to be applied first to the payment of accrued interest at the above rate and the balance to be applied to the reduction of the principal sum. The entire principal sum evidenced hereby, if not sooner paid, shall be due and payable on January 1, 2002. The rate of interest set forth herein shall continue in effect until all sums owed Lender are paid in full. The rate of interest shall not exceed that permitted by applicable Federal and New York State law. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. If for any reason whatsoever this Note is prepaid in part or in full within one (1) year from the date hereof, a prepayment fee of five percent (5.0%) of the original amount of the principal sum will be charged. Beginning with the second loan year, the prepayment fee shall be reduced by one percent (1.0%) each year. A loan year begins on the date this Mortgage Note is executed and on each anniversary thereof. In the event any payment due hereunder shall remain unpaid for more than ten days, the holder hereof may collect a late charge in the amount of $50.00 or 6.0% of said payment, whichever is greater, to cover its extra handling expense. If this Note is referred to attorneys for collection, all parties now or hereafter personally liable for the indebtedness hereby evidenced, jointly and severally agree to pay, the principal and interest due, all costs and expenses, including reasonable attorneys' fees, incurred by the holder hereof, with or without the institution of an action or proceeding. The rate of interest hereunder shall increase to three percent (3.0%) above the rate of interest then applicable to this Note upon the maturity date of this Note or upon an event of default under this Note or the Mortgage securing the Note. This Note is secured by a Mortgage ("Mortgage") of even date herewith on property known as 1968 Ridge Road, West Seneca, Erie County, New York ("Property"). In the event the Debt Service Coverage Ratio ("DSCR"), as defined below, for the Property at any time is less than 1.2 ("Minimum DSCR"), as reasonably determined by the Lender, the Lender may, by written notice to Mortgagor, require a payment toward principal so as to achieve the Minimum DSCR. In such event, the applicable prepayment fee shall not be collected by Lender, and the monthly payment of principal and interest shall be recalculated based upon the reduced principal sum and the remaining amortization period. DSCR shall mean Net Operating Income (as defined below) divided by annual payments of principal and interest pursuant to this Note. Net Operating Income shall mean annual rental income available after payment of annual real estate taxes, utilities, management fees, repairs, maintenance, property insurance, reasonable salaries, reasonable administrative expenses, and other normal operating expenses, exclusive of depreciation amortization and interest expense. It is hereby expressly agreed, that the principal sum secured by this Note shall become due at the option of the holder thereof on the happening of any default or event by which under the terms of the Mortgage, the principal sum may or shall become due and payable; also, that all of the covenants, conditions and agreements contained in the Mortgage are hereby made part of this instrument. Presentment for payment, notice of dishonor, protest and notice of protest are hereby waived. This Note shall be governed by and construed in accordance with the laws of the State of New York. In the event any one or more of the provisions of the Note shall for any reason be invalid, illegal or unenforceable in whole or in part, then only such provision or provisions shall be deemed to be null and void and of no force or effect, but shall not affect any other provision of the Note. Neither the Lender nor its successors, or assigns, nor any other person, shall have any claim to proceed personally against the partners of the Borrower, or any assignee, successor, heir or representative of any of the partners, for any deficiency or any other sum owing by virtue of this Note and the Lender will waive and release such personal liability and agrees to look solely to the Borrower's partnership assets including, without limitation, the Property (but excluding the assets of any partner of Borrower separate and apart from such partner's interest in Borrower) for any sums due with respect to this Note; provided, however, that nothing herein shall be deemed to be a release or impairment of the debt or of the lien therefor upon the Property or shall preclude Lender from foreclosing the lien of the Mortgage or otherwise enforcing any and all of its rights under and by virtue of the Mortgage, and provided further, that Borrower, and any assignee, successor, heir or representative or any of the foregoing, shall remain liable with respect to funds or property constituting part of the Property coming into its/his/her possession or control which, by the provisions hereof of the Note or the Mortgage it/he/she was not entitled to receive or retain or which it/he/she has distributed in violation of such provisions. This Note may not be changed or terminated orally. Signed and sealed as of the 30th day of December, 1996. FRED KRAVETZ AND WILLIAM LEVINE PARTNERS BY: s/ Gary Kuskin _____________________________________ Gary Kuskin Chief Executive Officer STATE OF COLORADO ) COUNTY OF EAGLE ) ss: On this 26th day of December, 1996, before me personally came Gary Kuskin, to me known and known to me to be the Chief Executive Officer of FRED KRAVETZ AND WILLIAM LEVINE PARTNERS the partnership described in, and which executed the foregoing instrument, and who acknowledged that he executed the foregoing Instrument for and on behalf of said partnership. s/_____________________________ Notary Public Notary Public State of Colorado Qualified in Eagle County Commission Expires 10/27, 1997 MORTGAGE This Mortgage, made as of the 30th day of December, 1996 between FRED KRAVETZ AND WILLIAM LEVINE PARTNERS, a New York general partnership, with an office c/o Kravetz Realty, Inc., 150 Linden Oaks Drive, Suite C, Rochester, New York 14625 (herein called the "Mortgagor"), and FIRST NATIONAL BANK OF ROCHESTER, a national banking association with its principal office at 35 State Street, Rochester, Monroe County, New York, (herein called the "Mortgagee"). W I T N E S S E T H, to secure the payment of an indebtedness in the sum of FOUR HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($450,000.00) lawful money of the United States (or so much as may be advanced) to be paid with interest thereon to be computed from the date hereof, to be paid according to a certain bond, note, or obligation bearing even date herewith ("Note"), the Mortgagor hereby mortgages to the Mortgagee the premises described in Schedule "A" attached hereto and made a part hereof (herein called the "Mortgaged Premises" or "Premises"). TOGETHER with all the right, title and interest of the Mortgagor in and to any and all unearned premiums accrued, accruing or to accrue under any and all insurance policies now or hereafter obtained by the Mortgagor on the Mortgaged Premises, TOGETHER with the appurtenances and all the estate and rights of the Mortgagor in and to said Premises, TOGETHER with all and singular the tenements, hereditaments, and appurtenances belonging or in any way appertaining to said Premises, and the reversion and reversions, remainder and remainders, rents, issues and profits thereof. TOGETHER with and including any and all strips and gores of land adjoining or abutting said Premises, TOGETHER with all right, title, and interest of the Mortgagor in and to the land lying in the bed of any street, road, avenue or alley, open or proposed, in front of, running through or adjoining said Premises, TOGETHER with all buildings, structures, and improvements now or at any time hereafter erected, constructed or situated upon the Premises, and apparatus, fixtures, chattels, and articles of personal property now or hereafter attached to or used in connection with said Premises, including but not limited to furnaces, boilers, oil boilers, radiators and piping, coal stokers, plumbing and bathroom fixtures, refrigeration, air- conditioning and sprinkler systems, wash-tubs, sinks, gas and electric fixtures, stoves, ranges, awnings, screens, window shades, elevators, motors, dynamos, refrigerators, kitchen cabinets, incinerators, plants and shrubbery and all other equipment and machinery, appliances, fittings and fixtures of every kind in or used in the operation of the buildings standing on said Premises, together with any and all replacements thereof and additions thereto, TOGETHER with all awards heretofore and hereafter made to the Mortgagor for taking by eminent domain the whole or any part of said Premises or any easement therein, including any awards for changes of grade of streets, which said awards are hereby assigned to the Mortgagee, who is hereby authorized to collect and receive the proceeds of such awards and to give proper receipts and acquittances therefor, and to apply the same toward the payment of the mortgage debt, except as otherwise provided in this Mortgage, notwithstanding the fact that the amount owing thereof may not then be due and payable; and the Mortgagor hereby agrees, upon request, to make, execute and deliver any and all assignments and other instruments sufficient for the purpose or assigning said awards to the Mortgagee, free, clear, and discharged of any encumbrances of any kind or nature whatsoever, The Mortgagor covenants with the Mortgagee that: PAY INDEBTEDNESS. The Mortgagor will pay the indebtedness secured hereby with interest thereon as herein provided and according to the Note, and if default shall be made in the payment of part thereof, the Mortgagee shall have power to sell the Mortgaged Premises according to law. INSURANCE. The Mortgagor will keep the buildings on the Premises and the fixtures and articles of personal property covered by the Mortgage insured against loss by fire and other hazards, casualties and contingencies, including flood insurance if required by law, regulation or Mortgagee, for the benefit of the Mortgagee in an amount not less than the unpaid principal balance due hereunder. The fire insurance policy as required hereby shall contain the usual extended coverage endorsement and shall provide for twenty (20) days written notice to Mortgagee prior to cancellation. Mortgagor will maintain liability insurance in minimum amounts of $1,000,000.00 per occurrence for bodily injury and $100,000.00 for property damage. In addition thereto the Mortgagor within thirty (30) days after notice and demand will keep the Premises insured against any other hazard that may reasonably be required by law, regulation or Mortgagee. The Mortgagor will assign and deliver said policies to the Mortgagee and the Mortgagor will reimburse the Mortgagee for any premiums paid for the insurance made by the Mortgagee on the Mortgagor's default in so insuring the buildings or in so assigning and delivering the policies. All the provisions of this paragraph or of any other provisions of the Mortgage pertaining to fire insurance or any other additional insurance which may be required hereunder shall be construed in accordance with Section 254 Subdivision 4 of the New York Real Property Law. Notwithstanding the provisions of the aforesaid Section 254, Subdivision 4, the Mortgagor consents that the Mortgagee may without qualification or limitation by virtue of said section, retain and apply the proceeds of any such insurance in satisfaction or reduction of the Mortgage, or it may at its election pay the same, either in whole or in part, to the Mortgagor or its successors or assigns for the repair or replacement of the buildings or of the insured articles of personal property or for any other purpose or object reasonably satisfactory to the holder of the Mortgage, and if the Mortgagee shall receive and retain such insurance money, the lien of the Mortgage shall be affected only by a reduction of the amount of such lien by the amount of such insurance money received and retained by the Mortgagee. Notwithstanding the foregoing election available to Mortgagee, the proceeds of such insurance shall be made available to Mortgagor if, at the time such proceeds are delivered to Mortgagee, there is no uncured default under the Note or this Mortgage and the loan to value ratio (i.e. the then unpaid principal balance pursuant to the Note divided by the value of the Premises as reasonably determined by Mortgagee) shall not be more than 75%. Mortgagee shall disburse such proceeds to Mortgagor upon completion of work and invoices therefor approved by Mortgagee, and any excess proceeds shall be utilized to reduce the unpaid principal sum secured by this Mortgage. ALTERATIONS, DEMOLITION OR REMOVAL. No building, fixtures or personal property covered by the Mortgage shall be removed, demolished, or substantially altered without the prior written consent of the Mortgagee. WASTE, MAINTENANCE AND REPAIRS. The Mortgagor will not commit any waste on the Premises or make any change in the use of the Premises which will in any way increase any ordinary fire or other hazard arising out of construction or operation. The Mortgagor will keep and maintain or cause to be kept and maintained all buildings and other improvements now or at any time hereafter erected upon or constituting any portion of the Mortgaged Premises, and the sidewalks and curbs abutting the same, in good order and condition and in a rentable and tenantable state or repair, and will make or cause to be made, as and when the same shall become necessary, all structural and non- structural exterior and interior, ordinary and extraordinary, foreseen and unforeseen repairs, renewals, and replacements necessary to that end. In the event that the Mortgaged Premises shall be damaged or destroyed in whole or in part, by fire or any other casualty, or in the event of a taking of a portion of the Mortgaged Premises as a result of any exercise of the power of eminent domain, the Mortgagor shall promptly restore, replace, rebuild or alter the same as nearly as possible to the condition they were in immediately prior to such fire, other casualty or taking, provided the proceeds of the condemnation or any insurance policy are made available to Mortgagor. Although damage to or destruction of the Mortgaged Premises, or any portion thereof, shall not of itself constitute a default hereunder, the failure of the Mortgagor to restore, replace, rebuild, or alter the same, as hereinabove provided, shall constitute a default hereunder. The Mortgagor covenants that it will give to the Mortgagee prompt written notice of any damage or injury to the Mortgaged Premises and will give like notice to the Mortgagee of the commencement of any condemnation proceeding affecting the whole or any portion of Mortgaged Premises. The Mortgagor shall have the right, at any time and from time to time, to remove and dispose of building service equipment which may have become obsolete or unfit for use or which is no longer useful in the operation of the building now or hereafter constituting a portion of the Mortgaged Premises. The Mortgagor agrees promptly to replace with other building service equipment, free of superior title, liens or claims, not necessarily of the same character but of at least equal usefulness and quality, any such building service equipment so removed or disposed of, except that, if by reason of technological or other developments in the operation and maintenance of buildings of the general character of the building constituting a portion of the Mortgaged Premises, no replacement of the building service equipment so removed or disposed of is necessary or desirable in the proper operation or maintenance of said building, the Mortgagor shall not be required to replace the same. TAXES, ASSESSMENTS, ETC. The Mortgagor will pay all taxes, assessments, insurance premiums, sewer rents, or water rates, and in default thereof, the Mortgagee may pay the same. Any sums so advanced by the Mortgagee shall bear interest at the maximum legal rate of interest at the time of such advance or at the highest rate of interest set forth herein or in the Note, whichever is greater, and any such sum and the interest thereon shall be a lien on said Premises, prior to any right, or title to, interest in or claim upon said Premises, or accruing subsequent to the lien of the Mortgage and shall be deemed secured hereby. Upon written request from Mortgagee, Mortgagor shall deliver to Mortgagee receipted tax bills showing payment of all taxes on the Premises within the applicable grace period. ESTOPPEL STATEMENT. The Mortgagor within ten (10) days upon request in person or within twenty (20) days upon request by mail will furnish a written statement duly acknowledged of the amount due on the Mortgage and whether any offsets or defenses exist against the Note and Mortgage. MORTGAGEE MAY CURE MORTGAGOR'S DEFAULTS. The Mortgagor covenants and agrees with the Mortgagee that the holder of the Mortgage may cure any default of Mortgagor on the Mortgage or any prior or subsequent mortgage, including payment of any installments of principal and interest or part thereof, and that all costs and expenses, including reasonable attorneys' fees together with interest thereon at the highest legal rate of interest at the time of such default or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is the greater, paid by the Mortgagee in so curing said default, shall be repaid by the Mortgagor to the Mortgagee on demand and the same shall be deemed to be secured by the Mortgage and to be collectible in like manner as the principal sum. WARRANTY OF TITLE. The Mortgagor warrants the title to the Premises and will execute any further assurance of the title to the Premises as Mortgagee may require. LIEN LAW COVENANT. The Mortgagor will, in compliance with Section 13 of the New York Lien Law, receive the advances secured hereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvements before using any part of the total of the same for any other purpose. ESCROW FOR TAXES/INSURANCE. The Mortgagee may request at any time after a default by Mortgagor in payment when due of property taxes and/or insurance premiums on the Mortgaged Premises that, in addition to the monthly payments of principal and interest, the Mortgagor will pay monthly to the Mortgagee on or before the first day of each and every calendar month, until the Note is fully paid, a sum equal to one-twelfth of the known or estimated yearly taxes, assessments, liens and charges levied or to be levied against the Mortgaged Premises and/or premiums for insurance held or required by Mortgagee. The Mortgagee shall hold such payments in trust without obligation to pay interest thereon, except such interest as may be made mandatory by law or regulation, to pay such taxes, assessments, liens, charges and insurance premiums within a reasonable time after they become due. If the total of payments made by the Mortgagor for taxes, assessments, liens, charges and insurance premiums shall exceed the amount of payments actually made by the Mortgagee, such excess shall be credited by the Mortgagee on subsequent payments to be made by the Mortgagor or refunded upon payment in full of the Note. If the total of payments made by the Mortgagor for taxes, assessments, liens, charges and insurance premiums shall not be sufficient to pay therefor, then the Mortgagor shall pay to the Mortgagee any amount necessary to make up the deficiency on or before the date when such amounts shall be due. LATE CHARGES. If any payment required to be made under the Mortgage or the note or the obligations secured by the Mortgage shall be overdue in excess of 10 days, a late charge of $.06 of each $1.00 so overdue or $50.00, whichever is greater, will be paid by the Mortgagor for the purpose of defraying the expenses incident to handling such delinquent payments. LEASES. Pursuant to the provisions of Section 291-f of the New York Real Property Law, the Mortgagor, except for residential leases with a term not exceeding one (1) year, shall not (a) amend, cancel, abridge, terminate, or otherwise modify any lease of said Premises or of any part thereof, or (b) accept prepayment of rent or installments of rent for more than one month in advance, without the written consent of the Mortgagee and in the event of any default under the terms of this paragraph the whole of said principal sum shall become due immediately upon the happening thereof at the option of the Mortgagee. In addition thereto, except for residential leases with a term not exceeding one (1) year, (a) the Mortgagor shall not make any new lease or lease renewal or extension (other than those the Mortgagor as landlord may be required to grant by the terms of an existing lease) without the prior written consent of the Mortgagee and (b) the Mortgagor shall furnish to the Mortgagee, within thirty (30) days after a request by the Mortgagee to do so, a written statement containing the names of all lessees of the Premises, the terms of their respective leases, the space occupied and the rentals payable thereunder. FINANCIAL STATEMENTS. The Mortgagor will furnish the Mortgagee annually with financial statements compiled by a certified Public Accountant acceptable to Mortgagee not later than 120 days after the end of Mortgagor's fiscal year. The Mortgagee shall have the right to examine the financial records covering the operation of the Premises at least once a year or as often as the Mortgagee may require if the Mortgagor be in default. PREPAYMENT FEE. If for any reason whatsoever the indebtedness secured by the Mortgage is prepaid in part or in full within one (1) year from the date hereof, a prepayment fee of five percent (5.0%) of the original amount of the consolidated principal sum will be charged. Beginning with the second loan year, the prepayment fee shall be reduced by one percent (1.0%) each year. A loan year begins on the date the Mortgage is executed and on each anniversary thereof. The amount of such prepayment consideration shall be added to and secured by the Note and Mortgage and shall be recoverable by the Mortgagee in the same manner as the principal balance hereof, and in addition thereto, in any action brought either on the Note or for the foreclosure of the Mortgage. ACCELERATION OF PRINCIPAL ON TRANSFER, ETC. The principal sum with interest thereon shall become immediately due and payable, upon the voluntary or involuntary conveyance or transfer by operation of law or otherwise of all or any part of the Mortgaged Premises, or any interest or estate therein, including testate or intestate succession and conveyance by land contract. Acceptance of payments by the Mortgagee subsequent to any such conveyance, transfer, or encumbering shall not be deemed a waiver of any of the Mortgagee's rights. If the Mortgagor is a corporation, the sale, assignment, transfer, or other disposition of any stock by any party owning ten (10%) percent or more of the stock, of any corporation owning all or any part of the Mortgaged Premises or any other similar significant change in ownership of such stock or in the relative distribution thereof, by any method or means, whether by increased capitalization, merger with another corporation, corporate or other amendments, issuance of additional or new stock, reclassification of stock or otherwise shall be deemed a conveyance or transfer within the meaning of this provision. If the Mortgagor is a partnership, a sale or transfer by operation of law or otherwise of any partners' interest in the partnership or a change in the identity or composition of the partners of the Mortgagor shall be deemed a conveyance or transfer within the meaning of this provision. Notwithstanding the foregoing, the following conveyances shall be permitted: A. Conveyance of the Premises to (1) an entity that is beneficially owned by any lineal descendant of Fred B. Kravetz and/or William Levine; or (2) a spouse of such lineal descendant; or (3) a trust or other entity in which one or more of the foregoing persons owns the entire beneficial interest provided the new owner executes the deed to assume the obligations of the Mortgagor under the Note and this Mortgage. B. Conversion of the Mortgagor from a New York General Partnership to a New York Limited Liability Company and/or conveyance of the Premises to such Limited Liability Company, provided such Limited Liability Company executes an Assumption Agreement and/or the deed whereby the Limited Liability Company assumes the obligations of the Mortgagor under the Note and this Mortgage. ACCELERATION OF PRINCIPAL ON DEFAULT, ETC. The whole of the principal sum and interest shall become due at the option of the Mortgagee, after (a) default in the payment of any installment of principal or of interest for thirty (30) days; or, (b) default in the payment of any tax, water rate, assessment, insurance premiums, or sewer rent for thirty (30) days after notice and demand or default after notice and demand either in assigning and delivering the policies insuring the buildings against any casualty or in reimbursing the Mortgagee for premiums paid on such insurance, as herein provided; or (c) default upon request in furnishing a statement of the amount due and whether any offsets or defenses exist against the mortgage debt, as provided herein in the Section entitled "Estoppel Statement"; or (d) failure to exhibit to the Mortgagee, within ten (10) days after demand, receipts showing payment of all taxes, water rates, sewer rents and assessments; or (e) the actual or alteration, demolition or removal of any building on the Premises without the written consent of the Mortgagee; or (f) the assignment of the rents of the Premises or any part thereof without the written consent of the Mortgagee; or (g) the buildings on said Premises are not maintained in reasonably good repair; or (h) failure to comply with any requirement or order or notice of violation of law or ordinance issued by any governmental department claiming jurisdiction over the Premises within two (2) months from the issuance thereof unless such requirement, order or notice is being lawfully challenged by Mortgagor and there is no risk of forfeiture of any of Mortgagor's rights in the Premises; or (i) refusal of two or more fire insurance companies lawfully doing business in the State of New York to issue policies insuring the buildings on the premises; or (j) the removal, demolition or destruction in whole or in part of any of the fixtures, chattels or articles of personal property covered hereby, unless the same are promptly replaced by similar fixtures, chattels and articles of personal property at least in quality and condition to those replaced, free from security interests or other encumbrances thereon and free from any reservation of title thereof; or (k) thirty (30) days notice to the Mortgagor, in the event of the passage of any law deducting from the value of land for the purposes of taxation any lien thereon, or changing in any way the laws for the taxation of mortgages or debts secured thereby for state or local purposes; or (1) the Mortgagor fails to keep, observe and perform any of the other covenants, conditions or agreements contained in the Mortgage; or (m) use of said Premises for any unlawful purpose or public or private nuisance; or (n) the Mortgagor commits or permits waste; or (o) any default under any mortgage or other lien on the Premises or any default under any other note, loan agreement or other instrument evidencing Mortgagor's indebtedness to Mortgagee; or (p) the Note becomes non-recourse to the Mortgagor. NOTICES. Notice and demand to or request upon the Mortgagor may be oral or in writing and, if in writing, may be served in person or by mail. APPOINTMENT OF RECEIVER. The Mortgagee, in any action to foreclose the Mortgage, shall be entitled, without notice or demand and without regard to the adequacy of any security for the indebtedness hereby or the solvency or insolvency of any person liable for the payment thereof, to the appointment of a receiver of the rents, issues and profits of the Mortgaged Premises. SALE IN ONE PARCEL. In case of a foreclosure sale, said Premises, or so much thereof as may be affected by the Mortgage, may be sold in one parcel, any provision of law to the contrary notwithstanding. ASSIGNMENT OF RENTS. The Mortgagor hereby absolutely and unconditionally assigns, transfers and conveys to the Mortgagee the rents, issues, and profits of the Premises as further security for the payment of the Note, it being the intention of Mortgagor and Mortgagee that this assignment be treated and construed as an absolute assignment and not an assignment for additional security only. The Mortgagor further grants to the Mortgagee the right to enter upon and to take possession of the Premises for the purpose of collecting the same and to let the Premises or any part thereof, and to apply the rents, issues and profits, after payment of all necessary charges and expenses, on account of the Note. This assignment and grant shall continue in effect until the Note is paid. The Mortgagee hereby waives the right to enter upon and to take possession of the Premises for the purpose of collecting the rents, issues, and profits, and the Mortgagor shall be entitled to collect and receive the rents, issues and profits as trustee for the benefit of Mortgagee and Mortgagor until default under any of the covenants, conditions, or agreements contained in the Mortgage; Mortgagor agrees to use such rents, issues and profits in payment of principal and interest and in payment of taxes, assessments, sewer rents, water rates, and carrying charges against the Premises, but such right of the Mortgagor may be revoked by the Mortgagee upon any default, on five (5) days written notice. The Mortgagor will not, without the written consent of the Mortgagee, receive or collect rent from any tenant of the Premises or any part thereof for a period of more than one month in advance, and in the event of any default under the Mortgage will pay monthly in advance to the Mortgagee, or to any receiver appointed to collect the rents, issues and profits, the fair and reasonable rental value for the use and occupation of the Premises or of such part thereof as may be in the possession of the Mortgagor, and upon default in any such payment will vacate and surrender the possession of the Premises to the Mortgagee or to such receiver, and in default thereof may be evicted by summary proceedings. Mortgagor shall and does hereby agree to indemnify and hold Mortgagee and its representatives harmless of and from any and all liability, loss of damage which Mortgagor or its representatives may or might incur under or by reason of (a) any tenant of the Premises, (b) this Mortgage, (c) any action taken by Mortgagee or its representatives hereunder, unless constituting willful misconduct, or (d) claims and demands which may be asserted against Mortgagee or its representatives by reason of any alleged obligations or undertakings on its or their part to perform or discharge any of the terms, covenants or agreements contained in any lease affecting the Premises. This Mortgage shall not operate to place upon Mortgagee any responsibility for the management, operation or maintenance of the Premises, and the execution of this Mortgage by Mortgagor shall constitute conclusive evidence that all responsibility for the management, operation and maintenance of the Premises is, shall be and shall remain that of Mortgagor, in the absence of the taking of actual possession of the Premises by Mortgagee. The provisions of the foregoing indemnification obligation shall survive the assignment or repayment of the Note, the assignment, satisfaction, foreclosure or other termination of this Mortgage and the sale or other transfer or conveyance of the Premises. SECURITY AGREEMENT. The Mortgage constitutes a security agreement under the Uniform Commercial Code and creates a security interest in all fixtures and equipment and other personal property (and the proceeds thereof) now or hereafter affixed to or constituting a portion of the Premises. Mortgagor shall execute, deliver, file and refile any financing statement, continuation statements, or other security agreements Mortgagee may require from time to time to confirm the lien of the Mortgage with respect to such property. ANTI-MARSHALLING. The Mortgagee may resort for the payment of any indebtedness, liability, or obligation secured hereby to its several securities therefor, in such order and manner as it may see fit, and the Mortgagee may maintain an action to foreclose the Mortgage notwithstanding the pendency of any action to recover any part of the indebtedness secured hereby, or the recovery of any judgment in such action. The Mortgagee shall not be required during the pendency of any action to foreclose the Mortgage, to obtain leave of any court in order to commence or maintain any other action to recover any part of the indebtedness secured hereby. The Mortgagee shall also have the right in the event of default under the Mortgage or the obligation secured hereby to proceed against any or all interests of the Mortgagor and the Mortgagor agrees that the Mortgagee shall have the right to elect in writing not to cut off any interest that any Mortgagor might have and in the event that Mortgagee shall so elect, Mortgagor agrees that all of its duties and obligations as to such interest shall continue. COMPLIANCE WITH LAWS, ETC. The Mortgagor will comply with, or cause compliance with, all present and future laws, ordinances, rules, regulations, zoning and other requirements of all governmental authorities whatsoever having jurisdiction of or with respect to the Mortgaged Premises or any portion thereof or the use or occupation thereof; provided, however, that the Mortgagor may postpone such compliance if and so long as the validity or legality of any such governmental requirement shall be contested by the Mortgagor, with diligence and in good faith, by appropriate legal proceedings. COMPLIANCE WITH ZONING, ETC. The Mortgagor covenants: (a) that the buildings and improvements now on the Mortgaged Premises are in full compliance with all applicable zoning codes, ordinances and regulations and deed restrictions, if any; and (b) that such compliance is based solely upon Mortgagor's ownership of such Premises, and not upon title to or interest in any other Premises; and (c) buildings or improvements hereafter constructed on such Premises shall be in compliance as in (a) and (b) hereof provided, shall lie wholly within the boundaries of such Premises and, shall be independent and self-contained operating units (except for utility lines and conduits coming directly to the Premises from a public road or from a private road an easement over which for the maintenance of such utilities is covered by the lien hereof.) LEGAL EXPENSES. If any action or proceeding be commenced (except an action to foreclose the Mortgage or to collect the debt secured thereby), to which action or proceeding the Mortgagee is made a party, or in which it becomes necessary to defend or uphold the lien of the Mortgage, all sums paid by the Mortgagee for the expense of any litigation to prosecute or defend the rights and lien created by the Mortgage (including counsel fees), shall be paid by the Mortgagor, together with interest thereon at the legal rate of interest at the time of said payment or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is greater, and any such sum and interest thereon shall be a lien on said Premises, prior to any right, or title to, interest in or claim upon said Premises attaching or accruing subsequent to the lien of the Mortgage, and shall be deemed to be secured by the Mortgage. If the Mortgage is referred to attorneys for collection or foreclosure, the Mortgagor shall pay all sums, including attorneys' fees, incurred by the Mortgagee, together with all statutory costs, disbursements, and allowances, with or without the institution of an action or proceeding. All such sums with interest thereon at the rate set forth herein shall be deemed to be secured by the Mortgage and collectible out of the Mortgaged Premises. CONDEMNATION AWARD. In the event of a condemnation award for a portion of the Premises payable to Mortgagee and Mortgagor, Mortgagee shall make the proceeds of such award available to Mortgagor if, at the time such proceeds are delivered to Mortgagee, there is no uncured default under the Note or this Mortgage and the loan to value ratio (i.e. the then unpaid principal balance pursuant to the Note divided by the value of the Premises as reasonably determined by Mortgagee) shall not be more than 75%. Mortgagee shall disburse such proceeds to Mortgagor upon completion of work and invoices therefor approved by Mortgagee, and any excess proceeds shall be utilized to reduce the unpaid principal sum secured by this Mortgage. INTEREST ON CONDEMNATION AWARD. In the event of condemnation, or taking by eminent domain, the Mortgagee shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest on the entire unpaid principal sum at the rate herein provided; the Mortgagor does hereby assign to the Mortgagee so much of the balance of the award payable by the condemning authority as is required to pay such total interest. INTEREST IN THE EVENT OF DEFAULT. If default be made in the payment of the said indebtedness when due, pursuant to the terms hereof, the Mortgagee shall be entitled to receive interest on the entire unpaid principal sum at the legal rate of interest at the time of such default or at the highest rate of interest set forth herein or in the Note secured by the Mortgage, whichever is the greater, to be computed from the due date and until the actual receipt and collection of the entire indebtedness. This charge shall be added to and shall be deemed secured by the Mortgage. The within clause, however, shall not be construed as an agreement or privilege to extend the Mortgage, nor as a waiver of any other right or remedy accruing to the Mortgagee by reason of any such default. RENT/BUSINESS INTERRUPTION INSURANCE. The Mortgagor will keep the buildings and improvements now erected or hereafter to be erected on the Mortgaged Premises and all personal property and fixtures covered by the Mortgage insured for the benefit of the Mortgagee against loss of rents or business income, as the case may be, by reason of fire or other casualties and in such amounts as may from time to time be reasonably required by the Mortgagee and in companies reasonably satisfactory to the Mortgagee, and will assign and deliver to the Mortgagee such policies of insurance. NO SECONDARY FINANCING. The Mortgagor will not, without the Mortgagee's prior written consent, mortgage (including the so- called "wrap-around mortgage"), pledge, assign, grant a security interest in, cause any lien or encumbrance to attach to or any levy to be made on the Mortgaged Premises except for (a) taxes and assessments not yet delinquent and (b) any mortgage, pledge, security interest, assignment or other encumbrance to the Mortgagee. ADDITIONAL INDEBTEDNESS. The Mortgagor may not incur or become legally obligated to pay additional indebtedness in excess of $1,000,000.00 above the total of (1) the indebtedness secured by this Mortgage and (2) any other indebtedness existing on the date of this Mortgage and previously disclosed to the Mortgagee. BANKRUPTCY. Upon the making of an assignment for the benefit of creditors by, or upon the filing of a petition in bankruptcy by or against the Mortgagor, or any person or corporation who is the guarantor hereof or whose indebtedness is secured hereby, or upon the application for the appointment of a receiver of the property of the Mortgagor or any such person or corporation, or of the property of any person or corporation which may become and be owner of the Mortgaged Premises, or upon any act of insolvency or bankruptcy of the Mortgagor or any such person or corporation or of any such subsequent owner, or upon the legal incapacity of the Mortgagor or any such person or corporation or owner, or any of them, the whole of said indebtedness of every kind or nature held by the Mortgagee and now or hereafter secured hereby shall immediately become due and payable with interest thereon, and Mortgagor and any guarantor(s) hereby waive presentment, demand of payment, protest, notice of non-payment, and/or protest of any instrument on which the Mortgagor or such guarantors are or may become liable now or hereafter secured hereby, and the Mortgagor expressly agrees that the Mortgagee may release or extend the time of any party liable on any such obligation without notice and without affecting his obligation thereon or under this instrument. LIENS. The Premises shall be kept free and clear from any liens and/or encumbrances of any type and description after the date hereof. Upon the recording of any lien or encumbrance, and the same not having been cleared or bonded of record within thirty (30) days after filing thereof, the entire debt secured hereby shall immediately become due and payable. RIGHT TO INSPECT. The Mortgagee and any persons authorized by Mortgagee shall have the right to enter and inspect the Mortgaged Premises at all reasonable times during usual business hours. WAIVER. No waiver by the Mortgagee of the breach of any of the covenants contained in the Note, the Mortgage, or other loan document, or failure of the Mortgagee to exercise any option given to it, shall be deemed to be a waiver of any other breach of the same or any other covenant, or of its rights thereafter to exercise any such option. MODIFICATION. No change, amendment, modification, cancellation or discharge hereof, or any part hereof, shall be valid unless in writing and signed by the parties hereto or their respective successors and assigns. COVENANTS SHALL RUN WITH THE LAND, ETC. The covenants contained in the Mortgage shall run with the land and bind the Mortgagor, the heirs, personal representatives, successors and assigns of the Mortgagor and all subsequent owners, encumbrancers, tenants and subtenants of the Premises, and shall enure to the benefit of the Mortgagee, the personal representatives, successors and assigns of the Mortgagee and all subsequent holders of the Mortgage. PARTNERSHIP MORTGAGOR. The Mortgagor, if a partnership, covenants that it is duly formed and validly existing under the laws of the State of New York, and that execution of the Mortgage and related instruments is authorized by the partnership agreement and/or all partners. ENVIRONMENTAL REPRESENTATIONS, WARRANTIES AND COVENANTS. 1. Except as otherwise disclosed in the Phase I Assessment referenced in the Indemnification Agreement (as hereinafter defined), Mortgagor makes the following representations and warranties which shall survive the closing of this loan: A. Mortgagor is in compliance in all respects with all applicable federal, state and local laws, including, without limitation, those relating to toxic and hazardous substances and other environmental matters. B. No portion of the Premises is being used or has been used at any previous time, for the disposal, storage, treatment, processing or other handling of any hazardous or toxic substances. 2. Mortgagor agrees that Mortgagee or its agents or representatives may, at any reasonable time and at Mortgagor's expenses inspect Mortgagor's books and records and inspect and conduct any tests on the Property including taking soil samples in order to determine whether Mortgagor is in continuing compliance with all environmental laws and regulations. 3. If any environmental contamination is found on the property for which any removal or remedial action is required pursuant to law, ordinance, order, rule, regulation or governmental action, Mortgagor agrees that it will at its sole cost and expense remove or take such remedial action promptly and to Mortgagee's satisfaction. 4. Mortgagor agrees to defend, indemnify and hold harmless Mortgagee, its employees, agents, officers and directors from and against any claims, actions, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses) of whatever kind or nature known or unknown contingent or otherwise arising out of or in any way related to: A. The past or present disposal, release or threatened release of any hazardous or toxic substances on the Premises; B. Any personal injury (including wrongful death or property damage, real or personal) arising out of or related to such hazardous or toxic substances; C. Any lawsuit brought or threatened, settlement reached or government order given relating to such hazardous or toxic substances; and/or D. Any violation of any law, order, regulation, requirement, or demand of any government authority, or any policies or requirements of Mortgagee, which are based upon or in any way related to such hazardous or toxic substances. 5. Mortgagor knows of no on-site or off-site locations where hazardous or toxic substances from the operation of the facility on the Premises have been stored, treated, recycled or disposed of. 6. Mortgagor agrees that it will conduct no excavations at the Premises unless it gives Mortgagee ten days' notice of its intention to do so. Mortgagor further agrees that it will not commence such excavation until Mortgagee has had the opportunity to sample and test at the excavation location if Mortgagee so desires. Should the testing results disclose the presence of hazardous or toxic substances which require removal and/or remedy under any environmental laws or regulations, the suspension of excavation activity at such location shall continue until the hazardous or toxic substances are removed and/or remedied to Mortgagee's reasonable satisfaction. Mortgagor shall pay for any and all reasonable costs for any such testing and removal and/or remedy conducted pursuant to this paragraph. 7. Unless waived in writing by Mortgagee, the breach of any of the covenants and warranties contained in this section shall be an event of default under the Mortgage. 8. For purposes of this section, "hazardous and toxic substances" includes, without limit, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the New York State Environmental Conservation Law, the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant thereto. The provisions of this section shall be in addition to any other obligations and liabilities Mortgagor may have to Mortgagee at common law, and shall survive the transactions contemplated herein. Mortgagee may, at its option, require Mortgagor to carry adequate insurance, if available at a reasonable cost, to fulfill Mortgagor's obligations under this paragraph. Mortgagor's failure to obtain insurance within 30 days after being requested to do so by Mortgagee, shall constitute an event of default hereunder. 9. When the terms and provisions contained in the foregoing Paragraphs 1-8 in any way conflict with the terms and provisions contained in a certain Environmental Compliance and Indemnification Agreement of even date herewith ("Indemnification Agreement"), the terms and provisions contained in the Indemnification Agreement shall prevail, and, in the event of any overlapping terms, covenants and conditions, insofar as possible, the terms, covenants and conditions contained herein and in the Indemnification Agreement shall both be applicable. TAX ON NOTE. That in the event that hereafter it is claimed by any governmental agency that any tax or other governmental charge or imposition is due, unpaid and payable by the Mortgagor or the Mortgagee upon the Note (other than a tax on the interest receivable by the Mortgagee thereunder), the Mortgagor will upon sixty (60) days prior written notice either (a) pay such tax and within a reasonable time thereafter deliver to the Mortgagee satisfactory proof of payment thereof or (b) deposit with the Mortgagee the amount of such claimed tax, together with interest and penalties thereon, pending an application for a review of the claim for such tax, and within a reasonable time, deliver to the Mortgagee either (i) evidence satisfactory to the Mortgagee that such claim of taxability has been withdrawn or defeated in which event any such deposit shall be returned to the Mortgagor or (ii) a direction from the Mortgagor to the Mortgagee to pay the same out of the deposit above mentioned, any excess due over the amount of said deposit to be paid by the Mortgagor directly to the taxing authority and any excess of such deposit over such payment by the Mortgagee to be returned promptly to the Mortgagor. Upon the failure of the Mortgagor to comply with the provisions of this Article, the whole of said principal sum and interest secured by the Mortgage shall at the option of the Mortgagee become due and payable. If liability for such tax is asserted against the Mortgagee, the Mortgagee will give to the Mortgagor prompt notice of such claim, and the Mortgagor, upon complying with the provisions of this Article, shall have full right and authority to contest such claim of taxability. COMPLIANCE WITH ARTICLE 31-B OF NEW YORK STATE TAX LAW. The Mortgagor will keep true and complete records pertaining to its acquisition of title to the Premises, all subsequent transfers of any interests in the Premises or any part thereof and all changes in the controlling interest (by way of changes in stock ownership, capital, profits, beneficial interest or otherwise) in the Mortgagor or any related entity which may hereafter own the Premises, including, but not limited to, a copy of the contract of sale, title report, deed, closing statement, transferor's affidavit, questionnaire or return, statement of tentative assessment and any other notices or determinations of tax received from the New York State Department of Taxation and Finance, transferor's supplemental return, the date and cost of all "capital improvements" made to the Premises or any part thereof and evidence of the payment of any real property transfer gains tax imposed by reason of Article 31-B of the New York State Tax Law and the filing of all reports and any other information or documentation required by the New York State Department of Taxation and Finance by reason of said Article or any regulations promulgated thereunder. All such records shall be made available to Mortgagee for inspection from time to time upon its request. If any real property transfer gains tax shall be due and payable upon the conveyance of the Premises pursuant to a judicial sale in any action, suit or proceeding brought to foreclose the Mortgage or deed in lieu of foreclosure, the Mortgagor will, at Mortgagee's request, (a) provide Mortgagee with a copy of all such records and will prepare, execute, deliver and file any affidavits, records questionnaires, returns or supplemental returns required of the Mortgagor, as transferor, including, but not limited to, a statement in affidavit form as to the "original purchase price" of the Premises and the cost of all "capital improvements" made to the Premises or any part thereof by the Mortgagor or any related entity and the date or dates on which such improvements were made and (b) pay or cause to be paid any real property transfer gains tax, together with interest and penalties thereon, which may be due and payable by reason of such conveyance. The Mortgagor hereby irrevocably appoints Mortgagee its agent and attorney-in-fact (which appointment shall be deemed to be an agency coupled with an interest), with full power of substitution in the Premises, to prepare, execute, deliver and file on its behalf any and all affidavits, questionnaires, returns and supplemental returns which the Mortgagor, as transferor, has failed or refused to execute and deliver to Mortgagee within 10 days after notice and request therefor by Mortgagee. In the event that the Mortgagor fails to pay any such tax, interest and penalties within 20 days after notice and demand for payment is given by Mortgagee, Mortgagee is hereby authorized to pay the same, and the amount thereof so paid by Mortgagee, together with all costs and expenses incurred by Mortgagee in connection with such payment, including, but not limited to, reasonable attorneys' fees and disbursements and interest on all such amounts, costs and expenses at the rate of one percent (1%) in excess of the rate specified in the Note, but in no event in excess of the maximum interest rate permitted by law, shall be paid by the Mortgagor to Mortgagee on demand. Until paid by the Mortgagor, all such amounts, costs and expenses, together with interest thereon, shall be secured by the Mortgage and may be added to the judgment in any suit brought by Mortgagee against the Mortgagor hereon. The foregoing shall not be applicable if the aforesaid Article 31-B does not pertain to the Premises. CONSTRUCTION. The word "Mortgagor" shall be construed as if it read "Mortgagors" and the "Mortgagee" shall be construed as if it read "Mortgagees" whenever the sense of the Mortgage so requires. This Mortgage shall be governed by and construed in accordance with the laws of the State of New York. CONFLICT WITH OTHER LOAN AGREEMENTS. Mortgagor represents and warrants to Mortgagee that the execution and delivery of this Mortgage and all related documents and the performance of any term, covenant, or condition herein provided in any agreement or instrument executed in connection therewith, have been duly authorized on behalf of the Mortgagor by all proper and necessary action, and are not in conflict with, or result in any breach of, or constitute a default under or violate: A. Any of the terms, conditions, or provisions of any agreement, lease or other instrument to which Mortgagor is a party or subject to; or, B. Any law, regulation, order, writ, injunction or decree to which Mortgagor is subject or any rules or regulations of any administrative agency which have jurisdiction over Mortgagor or over any property of Mortgagor that would have a material adverse affect on Mortgagor's business or financial condition; or C. Mortgagor's Partnership Agreement. SEVERABILITY. In the event any one or more of the provisions of the Mortgage or the Note shall for any reason be invalid, illegal or unenforceable in whole or in part, then only such provision or provisions shall be deemed to be null and void and of no force or effect, but shall not affect any other provision of the Mortgage or the Note. ASSIGNMENT OF MORTGAGE. Upon Mortgagee's receipt of payment in full of the indebtedness evidenced by the Note and Mortgage and receipt of a $200.00 assignment processing fee to Mortgagee, Mortgagee covenants to assign the Mortgage to any new lender selected by Mortgagor on the following conditions: A. The Assignment shall be in accordance with Section 275 of the Real Property Law and in a form reasonably acceptable to Mortgagee and such new lender, suitable for recording in the Monroe County Clerk's Office, but without any representation or warranty by, or recourse to, Mortgagee. B. The Note shall be endorsed, without recourse, as reasonably requested by such new lender. C. The Note, Mortgage and Assignment shall be delivered to such new lender. NON-RECOURSE. Neither the Mortgagee nor its successors, or assigns, nor any other person, shall have any claim to proceed personally against the partners of the Mortgagor, or any assignee, successor, heir or representative of any of the partners, for any deficiency or any other sum owing by virtue of the Mortgage, or the Note secured hereby and the Mortgagee will waive and release such personal liability and agrees to look solely to the Mortgagor's partnership assets including, without limitation, the Mortgaged Premises (but excluding the assets of any partner of Mortgagor separate and apart from such partner's interest in Mortgagor) for any sums due with respect to the Mortgage and the Note; provided, however, that nothing herein shall be deemed to be a release or impairment of the debt or of the lien therefor upon the Mortgaged Premises or shall preclude Mortgagee from foreclosing the lien of the Mortgage or otherwise enforcing any and all of its rights under and by virtue of the Mortgage, and provided further, that Mortgagor, and any assignee, successor, heir or representative or any of the foregoing, shall remain liable with respect to funds or property constituting part of the Mortgaged Premises coming into its/his/her possession or control which, by the provisions hereof or of the Note it/he/she has not entitled to receive or retain or which it/he/she has distributed in violation of such provisions. IN WITNESS WHEREOF, the Mortgage has been duly executed by the Mortgagor, the day and year first above written. FRED KRAVETZ AND WILLIAM LEVINE PARTNERS By: s/Gary Kuskin ___________________________________ Gary Kuskin Chief Executive Officer STATE OF COLORADO ) COUNTY OF EAGLE ) ss: On this 26th day of December, 1996, before me personally came Gary Kuskin, to me known and known to me to be the Chief Executive Officer of FRED KRAVETZ AND WILLIAM LEVINE PARTNERS the partnership described in, and which executed the foregoing instrument, and who acknowledged that he executed the foregoing Instrument for and on behalf of said partnership. s/ ___________________________________ Notary Public Notary Public State of Colorado Qualified in Eagle County Commission Expires 10/27, 1997 SCHEDULE A Description of Mortgaged Premises omitted in this Exhibit. EX-11 6 [EXHIBIT 11] FNB Rochester Corp. Computations of Earnings Per Common Share
Year Ended December 31 1996 1995 1994 (in thousands except per share amounts) Net income $4,133 $2,854 $1,937 Net income applicable to common stock $4,133 $2,854 $1,937 Weighted average common shares and equivalents outstanding Primary 3,570 3,569 3,311 Net income per common share Primary $ 1.16 $ 0.80 $ 0.58 _____ _____ _____
EX-13 7 [EXHIBIT 13] FNB Rochester Corp. and Subsidiaries The 1996 Annual Report Contents of the 1996 Annual Report Company Profile . . . . . . . . . . . . . . . . . . . . . . . __ Financial Highlights . . . . . . . . . . . . . . . . . . . . __ Five-Year Summary of Selected Financial Information . . . . . __ Quarterly Financial Information (unaudited) . . . . . . . . . __ Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . __ Independent Auditors' Report . . . . . . . . . . . . . . . . __ Consolidated Financial Statements . . . . . . . . . . . . . . __ Notes to Consolidated Financial Statements . . . . . . . . . __ Corporate Directory . . . . . . . . . . . . . . . . . . . . . ___ THE COMPANY FNB Rochester Corp. (the "Company") is a bank holding company. First National Bank of Rochester ("First National" or the "Bank") is its only subsidiary. The Company was organized under the New York Business Corporation Law and commenced operations on September 10, 1984. The Bank was established in 1965, in Rochester, New York as a national bank. The Bank comprises the most significant portion of the Company at year-end 1996. Until April 1, 1994, the Company also owned Atlanta National Bank ("Atlanta") in Atlanta, NY. The Company's principal sources of income are dividends from the Bank and interest from deposits. The Bank is a full-service, community oriented, commercial bank offering a wide range of commercial and consumer loans, deposit and other banking services to individuals, businesses, and municipalities. In 1993, the Bank expanded its Trust & Investment Division. The Trust & Investment Division's product offerings include 401(k) plans, investment management, corporate and cash management services, mutual funds, annuities, and traditional trust and record-keeping services. The Company's business is conducted from its corporate headquarters located in the Powers Building at the corner of State and Main Streets in downtown Rochester, New York. The Bank's fifteen banking offices are located in Monroe, Chemung, Erie, and Onondaga counties in New York State. The Bank considers its primary service and marketing area to be the City of Rochester and surrounding towns which have a total population of approximately one million. Rochester, located in the western part of New York State on the south shore of Lake Ontario, is the third largest city in New York State and is a significant operating location for a number of major corporations, including Eastman Kodak Company, Bausch & Lomb Inc., General Motors Corporation, and Xerox Corporation. First National's services are provided through thirteen full- service community banking offices, twelve of which have drive-up facilities, plus the Buffalo and Syracuse offices which primarily provide services to business and professional customers. Automated teller machines (ATM's) are located at the eleven Monroe County banking offices and customers may use ATM's throughout the United States and abroad through ATM networks. The Bank is the only locally owned and managed commercial bank operating in Monroe County. It is subject to intense competition from international and super-regional commercial banks, savings institutions, credit unions, and other financial institutions (including brokerage and investment advisory firms) for all types of deposits, loans, investment, and trust accounts. FNB ROCHESTER CORP. AND SUBSIDIARIES Financial Highlights
1996 1995 (in thousands, except share data and ratios) For the Year Net interest income $ 18,686 $ 16,985 Provision for loan losses - - Non-interest income 3,807 2,640 Non-interest expenses 16,650 15,577 Income tax expense 1,710 1,194 Net income 4,133 2,854 Net income per common share $ 1.16 $ 0.80 At year end Total assets $437,898 $391,320 Total loans, net of deferred loan costs (fees) 303,660 254,003 Allowance for loan losses 5,696 5,776 Securities held-to-maturity 29,532 31,780 Securities available-for-sale, at fair value 72,318 73,527 Total deposits 404,771 357,875 Total shareholders' equity $ 29,231 $ 25,846 Operating ratios Net income as a percent of: Average total assets 1.00 0.78 Average common shareholders' equity 15.21 12.17 Net interest margin (as a percent) 4.79 4.92 Allowance for loan losses as a percent of year-end loans 1.88 2.27 Net charge-offs as a percent of average loans outstanding during the year 0.03 0.29
Five-Year Summary of Selected Financial Information This table represents a summary of selected components of the Company's consolidated statements of financial condition and consolidated statements of operations for each of the years in the five-year period ended December 31, 1996. All information concerning the Company should be read in conjunction with consolidated financial statements and related notes included elsewhere herein.
(In thousands, except share data and ratios) 1996 1995 1994 1993 1992 Statement of operations information Interest income $32,245 $29,235 $23,012 $21,278 $22,770 Interest expense 13,559 12,250 7,950 8,326 10,252 _______ _______ _______ _______ _______ Net interest income 18,686 16,985 15,062 12,952 12,518 Provision for loan losses (recovery) - - (43) 74 3,244 Non- interest income 3,807 2,640 2,785 3,313 3,101 Non-interest expenses 16,650 15,577 16,236 15,296 13,738 _______ _______ _______ _______ _______ Income (loss) before income taxes 5,843 4,048 1,654 895 (1,363) Income tax expense (benefit) 1,710 1,194 (283) 330 1,311 _______ _______ _______ _______ _______ Net income (loss) $ 4,133 $ 2,854 $ 1,937 $ 565 $(2,674) ======= ======= ======= ======= ======= Period end balance sheet information Securities held-to- maturity $29,532 $31,780 $52,997 $53,691 $68,265 Securities available-for-sale at fair value 72,318 73,527 48,942 50,427 18,165 Total loans, net of deferred loan costs (fees) 303,660 254,003 202,437 170,513 161,915 Allowance for loan losses 5,696 5,776 6,452 6,823 6,560 Total assets 437,898 391,320 329,262 306,480 295,661 Deposits: Non-interest bearing demand 56,111 46,061 37,887 35,269 34,493 Savings, NOW, and money market 144,720 144,326 146,464 162,925 170,305 Certificates of deposit 203,940 167,488 111,030 85,100 68,736 Total deposits 404,771 357,875 295,381 283,294 273,534 Short-term borrowing 786 4,986 9,875 - 1,148 Long-term debt 210 - - 7,185 7,150 Total shareholders' equity 29,231 25,846 21,360 13,678 12,390 Per common share data Net income (loss): Primary $ 1.16 $ 0.80 $ 0.58 $ 0.28 $ (1.34) Fully diluted 1.16 0.80 0.58 0.28 (1.34) Cash dividends 0.05 - - - - Book value 8.19 7.24 5.99 6.83 6.19
Operating ratios: 1996 1995 1994 1993 1992 Net income (loss) as a percent of: Average total assets 1.00% 0.78% .62% .19% (.89)% Average common shareholders' equity 15.21 12.17 10.15 4.36 (18.48) Net interest margin 4.79 4.92 5.10 4.57 4.53 Interest rate spread 4.19 4.34 4.69 4.23 4.13 Non-performing assets ratio (1) .69 .67 1.77 5.60 9.23 Allowance for loan losses as a percent of period-end loans 1.88 2.27 3.19 4.00 4.05 Net (charge-offs) recoveries as a percent of average loans (0.03) (0.29) (0.19) .11 (1.65) Total equity as a percent of total assets at period end 8.19 6.60 6.49 4.46 4.19 Cash dividend on common stock payout ratio .05 - - - -
Notes: (1) Non-performing assets (non-accrual loans, loans past due 90 days or more, and real estate acquired by foreclosure) divided by total loans and real estate acquired by foreclosure.
Quarterly Financial Information (Unaudited) (In thousands, except share data) Provi- sion Income Income Net for Before per Interest Interest Loan Income Net Common Income Income Losses Taxes Income Share ________ ________ ______ ______ ______ ______ 1996 ____ First quarter $7,587 $4,451 - $1,067 $ 768 $0.21 Second quarter 7,937 4,657 - 1,393 1,003 0.28 Third quarter 8,316 4,837 - 1,575 1,115 0.31 Fourth quarter $8,405 $4,741 - $1,808 $1,247 $0.34 1995 ____ First quarter $6,684 $4,014 - $ 800 $ 501 $0.14 Second quarter 7,265 4,167 - 1,096 792 0.22 Third quarter 7,552 4,350 - 1,168 816 0.23 Fourth quarter $7,734 $4,454 - $ 984 $ 745 $0.21
Included in the fourth quarter of 1996 is a pretax gain of $621,000 from the sale of the Odessa Office. Because common share equivalents (stock options) were used in the calculation of the first quarter 1996 earnings, the sum of the quarterly amounts does not equal the full year amount. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this document that do not relate to present or historical conditions are "forward looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and of Section 21F of the Securities Exchange Act of 1934, as amended. Additional oral or written forward looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities Exchange Commission. Such forward looking statements involve risks and uncertainties which could cause results or outcomes to differ materially from those expressed in such forward looking statements. Among the important factors on which such statements are based are assumptions concerning the business environment in those counties in New York State where the Bank operates, changes in interest rates, changes in the banking industry in general and particularly in the competitive environment in which the Bank operates, and changes in inflation. Overview The Company's growth and expansion continued in 1996. Much of the growth has been as a result of the four new banking offices that were opened in Monroe County in 1995 and 1996. Two existing facilities were also replaced with new "customer friendly" facilities. The Company continues to emphasize a high level of customer service, establishing total financial service relationships with customers, and providing convenience through extended hours and location. The new banking offices were opened with modern technology, on-line teller automation, as well as new automated teller machines. On-line teller systems have been installed in all other banking offices during 1996 as well. With the use of new technology and more efficient systems, the Company has been able to continue to expand with only a minimal increase in the number of employees. Net income increased $1,279,000, or 44.8%, in 1996. While the net interest margin declined somewhat in 1996, it still compares favorably with the Company's peer group. Net income was also enhanced by a gain on the sale of the Odessa banking office, reduction in Federal Deposit Insurance expense and an increase in service charges on deposit accounts. The Company funded its increased loan demand primarily through its deposit base. This was accomplished by the Company increasing its market share of deposits in Monroe County. To help increase loan volume the Company originated more fixed rate commercial loans than in previous years and, because commercial loan demand was not sufficient to offset the increases in the deposit base, a larger portion of 15 year residential mortgages originated by the Company were retained in the portfolio rather than being sold. This provided a better return than investment portfolio alternatives. Growth objectives are expected to be achieved in 1997 by continuing to increase the Company's deposit base, continuing to make high-quality loans, and using the available-for-sale securities portfolio and short term borrowings to provide liquidity or improve margins. In order to accomplish its growth objectives, the Company must continue to increase its market share. The addition of the four new banking offices 1995 and 1996 should help the Company attain its goals, and the Company continues to explore new banking office opportunities. As anticipated, much of the growth in deposits in 1996 has been in certificates of deposit. Demand deposits have also experienced significant growth in 1996 while savings and money market accounts have only experienced minor growth and NOW deposits have declined. With a lower rate environment depositors are placing their funds in certificates of deposit or other investments rather than leaving them in interest bearing demand or money market accounts, which may make it increasingly difficult to maintain the current net interest margin. Increases in net income are expected to come through increased loan volume and by controlling overhead expenses. RESULTS OF OPERATIONS Net Interest Income The following table reflects the net interest margin and interest rate spread for the years shown. Average amounts are based upon average daily balances. No tax equivalent adjustments have been made because they are not considered material.
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST MARGIN Years Ended December 31, (in thousands) 1996 Assets: Amount Paid or Aver- Average Earned age Amount (1) Rate _______ _______ ______ Interest-earning assets: Interest-bearing 1,090 59 5.41 deposits with other financial institutions Federal funds sold 4,773 254 5.32 Securities: (2) Taxable 97,835 6,420 6.56 Tax Exempt 2,730 122 4.47 Net loans (1) 283,958 25,390 8.94 Non-interest earning 23,930 assets ----- Total assets 414,316 ======= Total earning $390,386 $32,245 8.26% assets ======= ====== ===== Liabilities and Shareholders' Equity: Interest bearing $143,890 3,093 2.15 liabilities Savings, NOW, and money market deposits Certificates of deposit 187,426 10,348 5.52 Long-term debt 193 19 10.00 Other interest bearing liabilities 1,790 99 5.53 Non-interest bearing liabilities and shareholders' 81,017 equity ______ Total liabilities and Shareholders' equity 414,316 _______ Total interest bearing liabilities 333,299 13,559 4.07% ======= ====== ===== Interest rate spread 4.19% ===== Total earning- assets/ Net interest $390,386 $18,686 4.79% margin ======== ======= ===== Assets 1995 Amount Paid or Aver- Average Earned age Amount (1) Rate _______ ______ ____ Interest-earning assets: Interest-bearing 1,086 60 5.52 deposits with other financial institutions Federal funds sold 8,820 515 5.84 Securities: (2) Taxable 103,753 6,751 6.51 Tax Exempt 2,104 99 4.71 Net loans (1) 229,331 21,810 9.51 Non-interest earning 18,992 - - assets _____ Total assets 364,086 ======= Total earning $345,094 $29,235 8.47% assets ====== ====== ===== Liabilities and Shareholders' Equity: Interest bearing 142,807 3,379 2.37 liabilities Savings, NOW, and money market deposits Certificates of deposit 147,401 8,473 5.75 Long-term debt - - - Other interest bearing liabilities 6,476 398 6.15 Non-interest bearing liabilities and shareholders' 67,402 equity ______ Total liabilities and 364,086 Shareholders' _______ equity Total interest 296,684 12,20 4.13% bearing ======= ===== ===== liabilities Interest rate spread 4.34% ===== Total earning- assets/ Net interest $345,094 $16,985 4.92% margin ======= ======= ===== Assets 1994 Amount Paid or Aver- Average Earned age Amount (1) Rate _______ ______ ____ Interest-earning assets: Interest-bearing 1,075 43 4.00 deposits with other financial institutions Federal funds sold 10,942 478 4.37 Securities: (2) Taxable 95,362 5,835 6.12 Tax Exempt 1,653 98 5.93 Net loans (1) 186,229 16,558 8.89 Non-interest earning 17,894 - - assets ___ _ _ Total assets 313,155 ======= Total earning $295,261 $23,012 7.79% assets ====== ====== ===== Liabilities and Shareholders' Equity: Interest bearing 151,664 3,216 2.12 liabilities Savings, NOW, and money market deposits Certificates of deposit 101,441 4,531 4.47 Long-term debt 1,192 123 10.00 Other interest bearing liabilities 1,735 80 4.61 Non-interest bearing liabilities and shareholders' 57,123 equity ______ Total liabilities and Shareholders' 313,155 equity ------- Total interest bearing liabilities 256,032 7,950 3.10% ======= ===== ===== Interest rate 4.69% spread ===== Total earning- assets/ Net interest 295,261 $15,062 5.10% margin ======= ====== =====
Notes: (1) Non-accrual loans have been included in the average balances. (2) Securities available-for-sale are included at fair value. Net interest income, the difference between interest income and interest expense increased $1,701,000, or 10%, from 1995 which had an increase of $1,923,000, or 12.8%, over 1994's net interest income. Average earning assets increased $45,292,000, or 13.1%, from 1995 to 1996 and increased $49,883,000, or 16.9%, from 1994 to 1995. Loans represent the majority of the Company's interest-earning assets. The significant increases in interest income noted in both 1996 and 1995 were primarily due to loan volume increases, particularly in commercial real estate, conventional commercial loans, and residential mortgage loans as well as some increase from interest rate increases. Average net loan balances increased $54,627,000 from 1995 to 1996, while they increased $43,102,000 from 1994 to 1995. The loan volume increases in 1995 and 1996 are related to increased sales efforts and emphasis on making new loans. The average rate earned on loans in 1996 was 8.94% compared to 9.51% in 1995 and 8.89% in 1994. Average Federal Funds Sold decreased $4,047,000 and average securities declined $5,918,000 from 1995 to 1996. These funds were used to fund higher-yielding loans which helped to lessen the decline in net interest margin. Interest expense is a function of the volume of, and rates paid for, interest-bearing liabilities. Interest expense increased in 1996 primarily because of an increase in average interest bearing liabilities. While rates have declined somewhat since 1995, the deposit increases have been primarily in the higher rate certificates of deposit. The interest spread is the difference between average rates earned on assets and paid on interest-bearing sources of funds. Interest spread declined in 1996 to 4.19% from 4.34% in 1995 and 4.69% in 1994. The interest margin, which is the difference between interest income and interest expense divided by average interest-earning assets was 4.79% in 1996, 4.92% in 1995, and 5.10% in 1994. The decline in both the spread and the margin from 1995 is primarily due to the deposit mix with its greater emphasis on higher interest rate certificates of deposit and the increase in the residential mortgage portfolio. Residential mortgages typically have a much lower interest rate than other types of loans. In order to maintain interest spreads, during 1996 the Bank adjusted its portfolios of loans and securities available-for-sale toward longer maturities. Loan volume is expected to continue to increase, with funding provided by an increase in deposits, short term borrowings, and run-off of the securities portfolio. However, in order to attract the additional deposits to fund loan activity in a highly competitive environment, it is anticipated that, as in 1996, the increase in deposits will come primarily from higher interest- bearing accounts. This may cause further declines in both the net interest spread and margin. The following table sets forth the dollar volume of increase (decrease) in interest income and interest expense resulting from changes in the volume of earning assets and interest-bearing liabilities, and from changes in rates. Volume changes are computed by multiplying the volume difference by the prior year's rate. Rate changes are computed by multiplying the rate difference by the prior year's balance. The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the dollar amounts of the change in each. VOLUME AND RATE VARIANCES
1996 Compared to 1995 _____________________ Increase/Decrease Due to Change In Total Average Average Increase Balance Rate (Decrease) _______ ____ __________ (in thousands) thousands) Federal fund $(219) $(43) $(262) sold and interest-bearing deposits Taxable (383) 52 (331) securities Tax-exempt 28 (5) 23 securities Loans, net 4,783 (1,203) 3,580 _____ _____ _____ Interest income 4,209 (1,199) 3,010 _____ ______ _____ Savings, NOW, and money market 26 (312) (286) Certificates of 2,199 (324) 1,875 deposit Other interest- bearing liabilities and (115) (165) (280) long-term debt ____ ____ ____ Interest expense 2,110 (801) 1,309 _____ _____ _____ Net interest $2,099 $(398) $1,701 income ===== ===== ===== 1995 Compared to 1994 _____________________ Increase/Decrease Due to Change In Total Average Average Increase Balance Rate (Decrease) _______ ____ __________ Federal fund $ (58) $112 $54 sold and interest-bearing deposits Taxable 532 384 916 securities Tax-exempt 4 (3) 1 securities Loans, net 4,037 1,215 5,252 _____ _____ _____ Interest income 4,515 1,708 6,223 _____ _____ _____ Savings, NOW, and money market (166) 329 163 Certificates of 2,414 1,528 3,942 deposit Other interest- bearing liabilities and 222 (27) 195 long-term debt ___ ___ ___ Interest expense 2,470 1,830 4,300 ----- ----- ---- Net interest 2,045 $(122) $1,923 income ===== ===== =====
Non-interest Income Non-interest income is comprised of service charges, trust fees, credit card fees, loan servicing fees, and gains on sales of securities, mortgages, and other assets. The following table sets forth certain information on non-interest income for the years indicated: NON-INTEREST INCOME
December 31, 1996 1995 1994 (in thousands) Service charges on deposit $1,547 $1,209 $1,219 accounts Credit card fees 740 648 532 Gain on sale of 65 40 11 mortgages Gain (loss) on sale of (45) 33 - securities available-for-sale Loan servicing fees 263 283 319 Gains on sale of subsidiary & 621 - 380 banking offices Other operating 616 427 324 income Total operating $3,807 $2,640 $2,785 income
Non-interest income increased $1,167,000, or 44.2%, from 1996 to 1995, while 1995 non-interest income decreased 5.2% from 1994. 1996 non-interest income included a $621,000 gain on the sale of the Odessa banking office. Without the gain, 1996 would have reflected an increase of $546,000, or 20.7%, in non-interest income. Service charges on deposit accounts showed considerable improvement in 1996 with an increase of $338,000, or 28%, over 1995 resulting primarily from increased volumes and a change in the method in which some service charges are assessed. Credit card fees increased 14.2% in 1996 and 21.8% in 1995 due to larger volume in merchant accounts. A large portion of fifteen year mortgages originated in both 1996 and 1995 were retained in portfolio, resulting in a decline in loan servicing fees as loans in the servicing portfolio were prepaid and not replaced with new loans. The $189,000, or 44.3%, increase in other operating income was the result of an increase in trust commissions and fees and various other miscellaneous income and fees. The Company continues to explore new ways to increase non- interest income and to monitor fees and service charges. Non-interest Expense Non-interest expense, or overhead, consists of salaries and benefits, occupancy, insurance, and other operating costs. The following table sets forth certain information on operating expenses for the years indicated:
NON-INTEREST EXPENSE Year Ended December 31, 1996 1995 1994 (in thousands) Occupancy 3,448 2,812 2,871 Marketing and public 489 624 776 Office supplies, postage 637 576 542 Processing fees 1,018 979 902 FDIC assessments 2 350 657 Net cost of operation of 2 (14) 311 Legal 190 267 397 Other 1,637 1,745 1,805 Total operating (non- $16,650 $15,577 $16,236
Non-interest expense for 1996 increased $1,073,000, or 6.9%, from 1995 when it decreased $659,000, or 4.1%, from 1994. Both years benefited from significant declines in FDIC assessments. The increase in 1996 is primarily due to the growth of the Company. Much of the increase has been attributable to the salaries and benefit and occupancy expenses associated with the new banking offices. The decrease in non-interest expense in 1995 resulted primarily from decreases in net cost of operation of other real estate, FDIC assessments, marketing and public relations expenses, and legal costs. Salaries and benefits are the largest component of non-interest expense. The Bank operates in a metropolitan market unlike most community banks of similar size, and its cost for personnel tends to exceed that of typical community banks. Salaries and benefits increased $989,000, or 12%, from 1995, and $263,000, or 3.3%, from 1994 to 1995. The increases in 1996 and 1995 were in both salaries and benefits. The Company opened three new offices in 1995 and was able to lessen the impact to salary and benefit expense by a redeployment of personnel. A portion of each of the 1996 and 1995 increases were caused by the cost associated with extended banking hours. The 1996 increase also resulted from the addition of personnel in both the trust and lending divisions, staff required for the new banking office opened in March 1996 and normal salary increases and promotions. Benefits increased primarily because of additional pension, profit sharing and education costs. Occupancy expense, the other significant non-interest expense, increased $636,000, or 22.6%, from 1995 as the Company began to realize the full expense effect of the new offices. Occupancy expense is expected to continue to increase as the Bank expands its service delivery network with new community banking offices and additional technology to increase productivity and customer service. An eight-year building lease for the new Community Banking Office in East Rochester was signed in March 1995 and 20- year ground leases for the new Chili and Penfield Offices were also signed in 1995. The Perinton Office, which opened in March 1996, has a ground lease of 20 years. In addition, a 20 year building lease was signed for a replacement location for the Henrietta Community Banking Office. This office was opened at the new location in January of 1996. The total annual lease cost for all of these locations is approximately $313,000. Building and equipment depreciation expense has increased due to these new offices. The Chili and Penfield Offices were not opened until the latter part of 1995, the Perinton Office was opened in early 1996 and the Greece Office was razed and a new banking office constructed on the site in 1996. The full annual expense effect of the offices constructed in 1996 will not be realized until 1997 and beyond. As in 1995, technological improvements continued in 1996. All banking offices are now upgraded to new teller automation, a cash management system is in place, and the Bank is in the process of evaluating information technology processing alternatives. Marketing expense declined $135,000, or 21.6%, from 1995 to 1996 and $152,000, or 19.6%, from 1994 to 1995. The Bank continued radio, television, and newspaper advertising in 1996. Marketing efforts were focused on the annual "Money Sale" and image enhancement and customer awareness of the Bank as well as extended business hours. Also, as part of its sales efforts, the Company has continued with its interdivisional sales teams which conduct sales "blitzes" throughout the year. Federal Deposit Insurance Corporation (FDIC) assessment fees dropped significantly in 1996 resulting in a decline of $348,000, or 99.4%, from 1995 and it is anticipated that assessment fees will be somewhat higher in 1997. FDIC assessment fees decreased due to a decline in the assessment rate. These fees are a function of the insurance rate and the deposit base. Income Taxes The Company and the Bank file a consolidated tax return. The provision for 1996 income taxes was $1,710,000, compared to $1,194,000 in 1995 and a benefit of $283,000 in 1994. The Company's effective tax rates were 29%, 29% and (17)% for 1996, 1995 and 1994 respectively. The 1994 benefit was primarily the result of the tax effect of the disposition of certain nonperforming loans and other real estate. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realization of deductible temporary differences depends on the Company having sufficient taxable income within the carryback period permitted by the tax law to allow for utilization of the deductible amounts. A valuation allowance has been established for the portion of the Company's net deductible temporary differences which are not expected to be realized within a twelve month carryforward period. Income tax expense was affected in 1996 and 1995 by reductions in the valuation allowance of $660,000 and $412,000 respectively due to the generation of sufficient taxable income to provide for the deduction of temporary differences. At December 31, 1996, the Company had a net deferred tax asset of $423,000 as compared to a net deferred tax liability of $52,000 at December 31, 1995. The 1996 deferred tax asset is attributable principally to the difference between book and tax allowance for loan losses. ANALYSIS OF FINANCIAL CONDITION Securities Portfolio The primary purposes of the securities portfolio are to produce interest income and provide liquidity. Investments in securities are made to maintain liquidity through structured maturities, to provide collateral to secure local municipal deposits, to manage risk by diversifying credit risk and positioning the balance sheet for interest rate sensitivity, to support local communities, and to meet tax planning strategies. The total securities portfolio decreased $3,457,000, or 3.3% from December 31, 1995 to December 31, 1996 and increased $3,368,000 in 1995 from 1994. On November 15, 1995, the Financial Accounting Standards Board (FASB) published a special report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. This guidance included a provision that allowed institutions a one-time opportunity to reclassify (at fair value) held-to-maturity securities without calling into question their intent to hold other debt securities to maturity in the future. Under this provision the Bank transferred securities with an amortized cost of $34,539,000 (fair value $35,312,000) from held-to-maturity to available-for-sale. This reclassification will allow the Bank to better respond to changes in market interest rates and manage interest rate risk or provide liquidity for increases in loan demand or deposit withdrawals. The available-for-sale portfolio includes short-term Treasuries, equities, and other mortgage-backed securities not classified as held-to-maturity. During 1996 the Bank continued to classify most of its purchases of securities as available-for-sale. Unrealized gains on available-for-sale securities reported in equity at December 31, 1996 amounted to $268,000, net of taxes, as compared to unrealized gains of $850,000, net of taxes, at December 31, 1995. At December 31, 1996, 50.6% of the Bank's securities had maturities of five years or less, while 66.3% had maturities of five years or less at the end of 1995. The decline in maturities of five years or less was caused by the Bank increasing its mortgage backed securities by approximately $12.3 million. The average life of the Bank's amortizing securities such as mortgage pools and SBA pools at December 31, 1996 is five years. The majority of the securities portfolio consists of U.S. Treasury Notes and sequential pay mortgage-backed securities issued by U.S. government agencies. Since 1994 the Company has been decreasing its available-for-sale holdings of short-term treasuries and replacing them with medium term U.S. government agencies and longer-term variable and fixed rate mortgage-backed securities. This has helped the Company to maintain its interest margin while incurring only moderate additional interest rate risk. The following tables summarize the Company's carrying value of securities available-for-sale and the carrying value of securities held-to-maturity, and their maturities and weighted average yields at December 31, 1996, 1995, and 1994. CARRYING VALUE OF SECURITIES AVAILABLE-FOR-SALE December 31, 1996 1995 1994 (in thousands) U.S. Treasury $23,576 $44,123 $31,852 U.S. Government agency 9,967 5,698 2,889 Mortgage-backed 38,775 23,706 14,151 Other securities - - 50 Total $72,318 $73,527 $48,942 Notes: (1) The above figures are stated at fair value. At December 31, 1996, the available-for-sale portfolio had net unrealized gains of $447,000, at December 31, 1995, net unrealized gains of $1,426,000, and at December 31, 1994, net unrealized losses of $781,000. Totals exclude Federal Reserve Bank stock and Federal Home Loan Bank stock of $1,516,000, $1,299,000 and $342,000 at December 31, 1996, 1996 and 1994, respectively. Carrying Value of Securities Held-to-Maturity December 31, ____________ 1996 1995 1994 ____ ____ ____ (in thousands) U.S. Treasury $8,108 $7,145 $23,895 U.S. Government agency 5,293 6,359 6,996 Mortgage-backed 12,909 15,509 20,047 securities Obligations of state and 2,872 2,417 1,734 municipal subdivisions Other 350 350 325 _____ _____ _____ Total $29,532 $31,780 $52,997 ======= ======= =======
MATURITIES AND WEIGHTED YIELD OF SECURITIES AVAILABLE-FOR-SALE (in thousands) After One Year Within But Within One Year Five Years ________ __________ Amount Yield Amount Yield ______ _____ ______ _____ U.S. Treasury $8,114 6.47% $15,462 6.86% U.S. Government - - 2,245 6.18 agency Mortgage-backed 268 7.00 - - securities (1) ____ _____ _____ ______ Total $8,382 6.54% $17,707 6.85% ====== ===== ====== ===== After Five Years But Within After Ten Years Ten Years _________ _________ Amount Yield Amount Yield Total ______ _____ ______ _____ ----- U.S. Treasury - -% - -% $23,576 U.S. Government 5,003 7.60 2,719 7.48 9,967 agency Mortgage-backed 116 7.00 38,391 7.58 38,775 securities (1) --- ---- ------ ---- ------ Total $5,119 7.57% $41,110 7.20% $72,318 ===== ===== ====== ===== ======
Notes: (1) Mortgage-backed securities are reported at final maturity notwithstanding the fact that amortization is received regularly on some securities substantially reducing the effective maturities.
MATURITIES AND WEIGHTED YIELD OF SECURITIES HELD-TO-MATURITY (in thousands) After Five After One Year Years But Within But Within After Within Five Years Ten Years Ten Years One Year __________ __________ _________ ________ Amount Yield Amount Yield Amount Yield Amount Yield Total ______ _____ ______ _____ ______ _____ ______ _____ _____ < U.S.Treasury $ - -% $8,108 5.72% $ -% - -% $8,108 - U.S. Government - - 5,000 5.63 - - 293 6.38 5,293 agency Mortgage-backed - - 9,586 8.59 - - 3,323 7.54 12,909 securities (1) Obligations of 2,048 3.96 426 5.30 83 4.46 315 5.77 state and municipal subdivisions Other - - 300 8.33 50 7.93 - - 350 _____ ____ ____ _____ ____ _____ ____ _____ _____ Total $2,048 3.96% $23,420 6.94% $133 5.69% $3,931 7.38% $29,532 ====== ===== ======= ===== ==== ===== ====== ===== ====== Notes: (1) See note (1) above.
Loan Portfolio The loan portfolio increased $49,657,000, or 19.5%, from 1995 to 1996. This compares to an increase from 1994 to 1995 of $51,566,000, or 25.5%. The growth in both 1996 and 1995 was the result of a planned business development program soliciting small businesses and professionals. Of the total 1996 year-end loan portfolio, $212,267,000, or 70%, is secured by either commercial or residential real estate. Loans totaling $1.1 million were sold with the Odessa Banking Office in November 1996. The majority of the Company's loans continue to be commercial. These loans increased $22,076,000, or 13.3%, from 1995. The largest portion of the increase is in commercial real estate loans. At year-end 1996, 57.3% of commercial loans were secured by commercial real estate. Of the commercial real estate securing those loans, 57.2% was owner occupied. Through expanded sales efforts, the Bank expects to continue to grow commercial loans, although at a somewhat slower rate. Competition for high quality loans is intense. The Bank is establishing itself in the small to medium-size business and professional markets which appear to be under served. While its primary market is Monroe County, the Business and Professional Banking Division has established a presence in the Syracuse and Buffalo markets with offices in Downtown Syracuse and in metropolitan Buffalo. Furthermore, the Bank has access to the Elmira area through its two community banking offices. Residential mortgage loans increased $21,374,000, or 42.8%, from 1995 to 1996. This increase is primarily attributable to the Bank's decision to hold 15-year mortgages in its portfolio, rather than sell them to the Federal Home Loan Mortgage Corp (FHLMC). With lower interest rates in the early part of 1996, the Bank experienced increased refinancing activity, and much of that was directed into 15-year fixed rate mortgages. It is expected that the Bank may continue to hold a portion of its 15- year originations in portfolio rather than selling them. When commercial and consumer loan demand is not sufficient to offset deposit increases management looks to the shorter term maturity and variable rate residential mortgages to fill that need. Consumer loans increased 17.5% from $19,711,000 in 1995 to $23,153,000 in 1996. Much of the growth in consumer loans is attributable to an annual "money sale" which was held late in the first quarter and early second quarter. Consumer loans increased $3,268,000 from 1994 to 1995 as the result of a similar "money sale". Home equity loans increased from 1995 to 1996 by $2,524,000 and decreased by $1,813,000 from 1994 to 1995. While home equity loans are attractive to borrowers who have equity in their homes, demand for them is influenced by the refinance market. In the lower rate environment, many homeowners are choosing to refinance their mortgages causing the repayment of home equity lines. Types of Loans
December 31, 1996 1995 1994 1993 1992 ____ ____ ____ ____ ____ (in thousands) Commercial $187,721 $165,645 $134,529 $111,444 $102,533 Residential 71,263 49,889 31,080 26,769 23,770 mortgage Home equity 21,297 18,773 20,586 21,559 23,743 Other consumer 23,153 19,711 16,443 10,695 11,893 ______ _______ _______ ______ ______ Total 303,434 254,018 202,638 170,467 161,939 Net deferred loan 226 (15) (201) 46 (24) costs (fees) Allowance for loan (5,696) (5,776) (6,452) (6,823) (6,560) losses _______ _______ _______ _______ _______ Loans, net $297,964 $248,227 $195,985 $163,690 $155,355 ======= ======= ======= ======= ========
MATURITY DISTRIBUTION OF LOANS AT DECEMBER 31, 1996 Maturity One Year or Less One to Five Years Five Years Five Years or more Total __________ __________ __________ ______ (in thousands) Commercial $21,855 $74,890 $90,884 $187,629 Residential mortgage 3,514 13,454 54,265 71,233 Home equity 820 5,052 15,535 21,407 Consumer, net 1,338 18,301 3,752 23,391 _____ ______ ______ _______ Total loans $27,527 $111,697 $164,436 $303,660 ======= ======== ======== ======= Floating/adjustable Interest rate 64,577 89,317 Fixed or predetermined Interest rates 47,120 75,119 ______ ______ $111,697 $164,436 ======= =======
It is the policy of the Bank to place loans, except consumer and residential mortgage loans, on non-accrual status when payment of principal or interest becomes 90 days delinquent or when, in management's judgment, the collection of principal or interest appears uncertain. Any interest income accrued during the reporting period, but not received at the time the loan is placed on non-accrual status, is reversed in the reporting period to the extent considered uncollectible. Interest accrued in prior years, the collection of which appears uncertain, is charged off. Interest on loans categorized as non-accrual may be recognized as income when the payments are received or applied as a reduction to principal. Installment loans are not ordinarily placed on non-accrual status. Installment loans past due 120 days are generally charged off. At that time, all previously accrued or uncollected interest is reversed and charged against current earnings. Residential mortgage and home equity loans are placed on non-accrual status when they become 180 days past-due. The following table summarizes the Company's non-performing assets at the dates indicated: NON-PERFORMING ASSETS
December 31, 1996 1995 1994 1993 1992 ____ ____ ____ ____ ____ (in thousands) Loans in non-accrual $1,419 $1,665 $3,290 $7,929 $11,753 status Loans past due 90 days 645 45 196 1,295 848 or more and still _____ _____ _____ _____ ______ accruing Total non-performing 2,064 1,710 3,486 9,224 12,601 loans Real estate acquired by 45 - 100 345 2,576 foreclosure _____ _____ ______ _____ ______ Total non-performing $2,109 $1,710 $3,586 $9,569 $15,177 assets ====== ====== ====== ====== ======= Non-performing assets 0.69% 0.67% 1.77% 5.60% 9.23% as a % of total ====== ====== ====== ====== ====== loans and real estate acquired by foreclosure
Total non-performing assets increased slightly in 1996 after decreasing each year since their peak in September 1992. The long term decrease was the result of management's efforts to reduce these assets. Non-performing assets increased $399,000, or 23.3%, from 1995 to 1996 with the increase being primarily in residential mortgage loans. Of the $6.0 million decrease from 1993 to 1994, $2.5 million was the result of the sale and liquidation of non-performing assets during the fourth quarter of 1994. Loans in non-accrual status decreased $246,000 from 1995 to 1996, and $1,625,000 from 1994 to 1995, declines of 14.8% and 49.4%, respectively. Of the $1,419,000 in non-accrual loans, $1,363,000 are secured by real estate. Non-performing assets represent .69% of total loans and real estate acquired by foreclosure at the end of 1996 compared to .67% in 1995 and 1.77% in 1994. Provision and Allowance for Loan Losses The allowance for loan loss is available to absorb charge-offs from any loan category and is restored by charges to income or recoveries of loans previously charged off. Management undertakes a quarterly analysis to assess the adequacy of the allowance taking into account non-performing and delinquent loans, internally criticized loans, historical trends, economic factors, and overall credit administration. Based on this analysis, the allowance is considered adequate at December 31, 1996 to absorb anticipated losses. Management believes that the inherent risk in the current portfolio has already been provided for, and because of credit standards that First National has implemented, new loans are expected to be of high quality. However, should the market or the economy change significantly, some provision could be required in 1997. The following table summarizes the changes in the allowance for loan losses for 1992 through 1996:
SUMMARY OF LOAN LOSS ALLOWANCE December 31 1996 1995 1994 1993 1992 ____ ____ ____ ____ ____ (in thousands) Total Loans $303,660 $254,003 $202,437 $168,619 $161,846 outstanding at ======== ======== ======== ======== ======== year-end, net of costs (fees) and unearned discounts Daily average 283,958 229,331 186,229 167,234 187,501 amount of net ======== ======= ======== ======= ======= loans outstanding Balance at 5,776 6,452 6,823 6,560 6,412 beginning of year Provisions - - (43) 74 3,244 charged to operating expense (recovery) Reclassification - - 210 of impairment reserves Allowance of - - (177) - - subsidiary sold 5,776 6,452 6,813 6,634 9,656 _____ ______ _____ _____ ______ Loans charged off: Commercial, (407) (840) (990) (346) (3,024) financial and agricultural Real estate (14) (46) (124) (40) (188) mortgage Installment (137) (147) (244) (309) (451) _____ _____ _____ _____ _____ Total charge- (558) (1,033) (1,358) (695) (3,663) offs _____ ______ ______ _____ ______ Recoveries of loans previously charged off: Commercial, 407 267 867 610 356 financial and agricultural Real estate - - - 85 - mortgage Installment 71 90 130 189 211 ___ ___ ___ ___ ___ 478 357 997 884 567 ___ ___ ___ ___ ___ Net (charge-offs) (80) (676) (361) 189 (3,096) recoveries ____ _____ _____ ___ ______ Balance at end of $5,696 $5,776 $6,452 $6,823 $6,560 year ===== ===== ===== ===== ===== Net (charge-offs) (0.03)% (0.29)% (0.19)% .11% (1.65)% recoveries as a percent of average loans outstanding during the year Allowance for 1.88% 2.27% 3.19% 4.05% 4.05% loan losses as a percent of year- end loans
The lack of provision in 1996 and 1995 as well as the decrease in provision in 1994 and 1993 is the result of reductions in the level of criticized and non-performing loans, and increased collection efforts resulting in significant recoveries. The recovery of provision recorded in 1994 was the result of reversing an excess allowance at Atlanta just prior to the time of its sale. At December 31, 1996, the Bank's internally criticized loans were $14,084,000 as compared to $19,055,000 at December 31, 1995 and $17,022,000 at December 31, 1994. Internally criticized loans declined $4,971,000, or 26.1% from 1995 and while 1995 internally criticized loans increased somewhat over 1994, as a percent of total loans there was a decline. Internally criticized loans as a percent of total loans were 4.6%, 7.5%, and 8.4% for the years ended 1996, 1995 and 1994, respectively. Below is an allocation of the allowance for loan losses and the percentage of loans in each category to total loans. In addition to an allocation for specific problem loans, each category includes a portion of the unallocated allowance for loan losses based on loans outstanding, credit risks, and historical charge- offs. Notwithstanding the following allocation, the entire allowance for loan losses is available to absorb charge-offs in any category of loans.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES December 31, 1996 1995 1994 ____ ____ ____ Allowance % (1) Allowance %(1) Allowance % (1) _________ _____ _________ ____ _________ _____ (in thousands) Commercial, $3,925 61.9% $4,275 5.2% $5,384 66.4% financial & agricultural Real estate, 998 23.5 706 19.6 294 15.3 residental mortgage Home equity 79 7.0 208 7.4 220 10.2 Installment, 694 7.6 587 7.8 554 8.1 net Total $5,696 100.0% $5,776 100.0% $6,452 100.0% ====== ====== ====== ====== ====== ====== 1993 1992 ____ ____ Allowance % (1) Allowance % (1) _________ _____ _________ _____ (in thousands) Commercial, financial & agricultural $5,957 65.4 $5,616 63.3% Real estate, residential mortgage 153 15.7 162 14.7 Home equity 180 12.6 219 14.7 Installment, net 533 6.3 563 7.3 ____ ____ ____ ____ Total $6,823 100.0% $6,560 100.0% ===== ====== ====== ======
Notes: (1) Percentage of loans in each category to total loans Deposits The fundamental source of funds to support lending activities continues to be the Company's deposit base, which consists of demand deposits, certificates of deposit, savings, and money market accounts. The ability of management to attract and retain depositors is key to sustaining the Company's growth. The emphasis continues to be on a high level of customer service and cross-selling of products and services. Total deposits increased $46,896,000, or 13.1%, from 1995, while average deposits per banking office have increased from $22,879,000 at December 31, 1994 to $23,609,000 at December 31, 1995 and to $26,574,000 at December 31, 1996. The December 31, 1996 average includes the four new Banking Offices that were opened in 1995 and 1996. Total deposits increased $62,494,000, or 21.2%, from 1994 to 1995. These increases occurred in spite of a generally declining deposit base in the Monroe County area. The Odessa Banking Office which was sold in November 1996 had a deposit base of $9.6 million at time of sale. Most of the deposit growth occurred in certificates of deposit, which increased $36,452,000 from $167,488,000 in 1995 to $203,940,000 in 1996. Certificates of deposit over $100,000 increased $877,000, or 1.4%, while certificates under $100,000 increased $35,575,000, or 33.6%, from 1995 to 1996. The Bank has experienced increases in non-interest bearing demand deposits due in large part to accounts established with new loan relationships, accounts associated with the new banking offices, and increased public fund relationships. Non-interest bearing accounts increased $10.1 million, or 21.8%, over 1995 and for the period ended December 31, 1995 the increase was $8.2 million, or 21.6%, over 1994. The Company has been taking a number of steps to better position itself to compete in a market which is experiencing disintermediation and movement from low-interest bearing accounts into certificates of deposit. The addition of the three new community banking offices in 1995 and the fourth in 1996 and replacement of two existing offices has significantly improved the Company's retail outlets and has extended services to areas that it previously could not service effectively. Furthermore, the extension of automation to the banking office network has also helped to improve service delivery. The sale of the Odessa banking office has helped the Company to better allocate its resources in its primary marketing areas. The following tables summarize the daily average deposits of the Company for the years 1996, 1995, and 1994, categories in which those deposits were held in 1996 and 1995, and the maturity distribution of certificates of deposit and public funds of $100,000 or more for the year-end December 31, 1996.
DAILY AVERAGE DEPOSITS For Years _________ 1996 1995 1994 ____ ____ ____ Amount Rate Amount Rate Amount Rate ______ ____ ______ ____ ______ ____ (in thousands) Non-interest bearing $50,114 $40,647 $36,094 demand Interest-bearing demand 62,820 1.14% 64,452 1.50% 69,810 1.67% Savings, and money 81,070 2.93% 78,863 3.06% 81,854 2.51% market Certificates of deposit 187,426 5.52% 147,401 5.75% 101,441 4.47% _______ _____ _______ _____ _______ _____ Total deposits $381,430 3.52% $330,855 3.58% $289,199 2.68% ======== ===== ======== ===== ======= =====
PERIOD END DEPOSITS For Years 1996 1995 ____ ____ (in thousands) Deposit category: Non-interest-bearing $56,111 $46,061 demand Interest-bearing demand 63,702 67,639 Savings 37,900 38,929 Money market 43,118 37,758 CDs less than $100,000 140,105 105,392 CDs greater than $100,000 33,152 26,105 Public funds less than 1,399 537 $100,000 Public funds greater than 29,284 35,454 $100,000 ______ ______ Total $404,771 $357,875 ======= ========
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSITS AND PUBLIC FUNDS GREATER THAN $100,000 December 31, 1996 Maturity range (in thousands) less than 3 months $28,682 3 to 6 months 6,734 6 to 12 months 22,218 12 months or more 4,802 Total $62,436 Securities with an amortized cost of $52,427,000 at December 31, 1996 were pledged as collateral for municipal deposits and short- term borrowing. Short-Term Borrowings The following table describes the Company's short-term borrowings at the dates indicated: December 31, 1996 1995 1994 ____ ____ ____ (In thousands) Securities sold under agreements to repurchase - $4,538 $9,075 Other short-term 786 448 800 borrowing ___ ____ _____ $786 $4,986 $9,875 Total ==== ===== ===== The Bank had no securities sold under agreements to repurchase at December 31, 1996. The maximum amount outstanding at any one month-end and average amount for securities sold under agreements to repurchase were $4,348,000 and $704,000, respectively for 1996 and $9,075,000 and $5,817,000, respectively for 1995 and $9,075,000 and $1,169,000, respectively for 1994. Interest expense averaged 5.82% for 1996, 6.17% for 1995 and 4.79% for 1994. An increasing deposit base has lessened the need for short-term borrowing. The other short-term borrowing represents the Bank's Note Option as a Treasury, Tax, and Loan Depository for Federal Tax Deposits. Securities with a carrying value of $1,970,000 at December 31, 1996 are held under the control of the Federal Reserve Bank of New York to secure Federal Tax Deposits in amounts in excess of FDIC insurance limits. Capital Resources Total shareholders' equity increased $3,385,000 from 1995. This increase is primarily due to the net income for 1995 of $4,133,000 less dividends paid on common stock of $179,000. The fair value of securities available-for-sale declined $582,000 from 1995. Under SFAS 115, which was adopted in 1993, the net unrealized gain or loss on securities held in the available-for- sale portfolio is recorded in equity, net of taxes. In 1995, this resulted in an increase in shareholder's equity of $1,631,000 from the period ended December 31, 1994. The SFAS 115 adjustment is not considered in computing regulatory capital. Both the Federal Reserve Board and the Office of the Comptroller of the Currency have issued risk-based capital guidelines which went into full effect December 31, 1992. The Company presently is deemed well-capitalized under these guidelines. The numerator of risk-based capital ratios for bank holding companies includes Tier I capital, consisting of common shareholders' equity and qualifying cumulative and noncumulative preferred stock; and Tier II capital, consisting of a menu of internationally accepted items, including preferred stock, reserve for loan losses, and certain subordinated and term-debt capital. The denominator, or asset portion, of the risk-based ratio aggregates generic classes of balance sheet and off-balance sheet exposures, each weighted by one of four factors ranging from 0% to 100%, based on relative risk of the exposure class. This ratio assesses both the capital adequacy of the Company and the risk profiles of the Bank. The prompt corrective action regulations of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) established specific capital categories based on an institution's capital ratios. To be considered "adequately capitalized" a bank must generally have a Leverage Ratio of at least 4%, a Tier I Risk-Based Capital Ratio of at least 4%, and a total Risk-Based Capital Ratio of 8%. At December 31, 1996, the Leverage, Tier-I Risk-Based Capital, and Total Risk-Based Capital Ratios of the Company and the Bank were as follows:
CAPITAL RATIOS Tier-I Total Leverage Risk-Based Risk-Based Capital Capital Capital Ratio Ratio Ratio ________ _______ _______ FNB Rochester Corp. 6.7% 10.0% 11.2% First National Bank of Rochester 6.6% 9.8% 11.0% Regulatory guidelines: Well capitalized 5.0% 6.0% 10.0% Adequately capitalized 4.0% 4.0% 8.0%
Maintaining adequate capital ratios is a clearly defined objective of management. A number of steps have been taken by management to monitor capital adequacy. This effort becomes particularly important in light of the growth expectations for the Bank. An early warning system is part of the Company's business planning process. In addition to carefully monitoring performance and its impact on capital ratios, management re- forecasts the Company's balance sheet, income statement, and measures of capital adequacy at least quarterly. Furthermore, each year the entire business plan is revised to reflect actual results and project another year into the future. These measures serve to alert management to potential capital adequacy problems so that appropriate action could be formulated and addressed in advance. After a four year suspension, the Company declared a common stock cash dividend in December 1996. The suspension was based on the belief of the Company's Board of Directors that until capital was sufficient to sustain the anticipated growth, earnings should be retained in the Company to support that growth. Liquidity Liquidity measures the ability to meet maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund operations, and to provide for customers' credit needs. Management carefully monitors its liquidity position and seeks to maintain adequate liquidity to meet its needs. All internal liquidity measures exceed minimum levels established by the Bank. The fundamental source of liquidity will continue to be core deposits. Available sources of asset liquidity include short-term investments, loan repayments, and securities held in the available-for-sale portfolio. Additionally, the Company has the ability to pledge securities to secure short-term borrowings. In the first quarter of 1995, it became a member of the Federal Home Loan Bank which provides additional source of funding if needed. At December 31, 1996, the Bank had an available line of $39.1 million secured by residential mortgages. The Bank entered into agreements in 1994 through which it could obtain funds for short-term liquidity needs by selling securities under agreements to repurchase. These agreements have allowed the bank to keep a smaller portion of its assets in Federal Funds Sold and provide a higher return without the necessity of selling securities from the available-for-sale portfolio in times of liquidity need. Securities under agreements to repurchase were only used in the first two months of 1996. The majority of the Company's assets are held by the Bank. Dividends and cash advances to the Company from the Bank are subject to standard regulatory constraints. Based on an analysis of projected expenses and cash flows, management believes that the Company has sufficient cash to meet its anticipated cash obligations. Asset Liability Management An objective of the Company's asset/liability management policy is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. The Asset/Liability Management Committee is responsible for managing interest rate risks. The Company uses a variety of methods to manage its interest rate risk and does not rely solely on one method. One such method used to manage interest rate risk involves the measurement of interest rate gap. Interest rate gap is the amount by which a bank's rate sensitive assets differ from its rate sensitive liabilities. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities, indicating that a greater volume of assets than liabilities will reprice during a given period. Theoretically, this mismatch will enhance earnings in a rising rate environment and inhibit earnings when rates decline. Conversely, when rate sensitive liabilities exceed rate sensitive assets, the gap is negative, indicating that a greater volume of liabilities than assets will reprice during the period. Theoretically, in this case, a rising rate environment will inhibit earnings and declining rates will enhance earnings. The Rate Sensitivity Schedule that follows illustrates the measurement of interest rate gap at December 31, 1996.
RATE SENSITIVITY SCHEDULE Over One One Day Over Three Over Six Year to Over to Three Months to Months to Five Five Months Six Months One Year Years Years Total ________ ________ _________ _________ _____ _____ (in thousands) Interest Earning Assets: _______________________ Loans: Commercial $120,183 $3,258 $6,046 $46,720 $11,916 $188,123 Residential 2,475 1,350 3,665 25,709 41,572 74,771 mortgage Home equity 21,407 - - - 157 21,564 Consumer 1,931 1,812 3,305 11,990 164 19,202 Total loans 145,996 6,420 13,016 84,419 53,809 303,660 Investment 10,283 7,701 22,291 45,383 17,708 103,366 securities Interest 2,571 - - 50 - 2,621 bearing deposits in Banks and federal funds sold Total interest- $158,850 $14,121 $35,307 $129,852 $71,517 $409,647 earning assets ======== ======= ======= ======== ======= ======== Interest-bearing liabilities: Savings $144,720 $ $ $ $ $144,720 deposits - - - - Time deposits 28,682 6,734 22,218 4,802 - 62,436 $100M & over Other time 11,210 22,018 70,347 37,724 205 141,504 deposits Short-term borrowings and 786 - - 210 - 996 long-term debt Total interest-bearing Liabilities $185,398 $28,752 $92,565 $42,736 $205 $349,656 ======= ====== ====== ====== ==== ======== Net interest $(26,548) $(14,631) $(57,258) $87,116 $71,312 $59,991 rate ========= ======== ========= ======= ====== ======= sensitivity gap Cumulative gap $(26,548) $(41,179) $(98,437) $(11,321) $59,991 ========= ========= ========= ========= ======= Cumulative gap 0.86 0.81 0.68 0.97 1.17 ratio (1) ==== ==== ==== ==== ==== Cumulative gap as a % of Total assets (6.06)% (9.40)% (22.48)% (2.59)% 13.70% ======= ======= ======== ======= ======
Notes: (1) Cumulative total interest-earning assets divided by cumulative total interest-bearing liabilities. As measured by the cumulative sensitivity gap at December 31, 1996, the maturity and repricing of the Company's interest earning assets and interest bearing liabilities showed a negative gap in the one year period. NOW, savings and money market deposits are assigned to one day to three months repricing and while these deposits can be repriced in that time period they may react very differently to various interest rate scenarios. Management does not believe this rate sensitivity schedule accurately reflects the true interest rate risk of the Company because changes in interest rates do not affect all categories of assets and liabilities equally as implied by this schedule. On a quarterly basis, sensitivity to changes in interest rates is also measured using a simulation model. The model estimates changes in net interest income and net income under a variety of possible interest rate scenarios. By performing these simulations and comparing them to established policy limits, management has an opportunity to plan for changes in the asset/liability mix, or to take other steps that may be necessary to lessen interest rate risk. Based on management's assumptions built into the simulation model and the current mix of the Company's assets and liabilities, managements's assessment is that the Company's net interest income would not be largely affected by changes in interest rates, but should a prolonged decline in rates occur, there would most likely be a decline in net interest income. These simulations are based on numerous assumptions regarding the timing and extent of repricing characteristics. Actual results may differ significantly. Impact of Inflation The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles, consistently applied. These principles require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effect of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services. Management believes that it needs to manage the rates, liquidity, and interest sensitivity of the assets and liabilities to help generate an acceptable return. New Accounting Pronouncements SFAS Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (Statement) was issued in June 1996 and is applicable to all entities, both public and non-public. This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on a consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. The financial-components approach focuses on the assets and liabilities that exist after the transfer. Many of these assets and liabilities are components of financial assets that existed prior to the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with a pledge of collateral. The Statement is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996, and is to be applied prospectively. Management has determined that the adoption of this Statement will not have a material impact on the Company's operating results. Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of an option's grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of the grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. In May 1995, the FASB issued Statement No. 122 entitled Accounting for Mortgage Servicing Rights. The statement requires that the cost of originating mortgage loans originated or purchased with a definite plan to sell the loans and retain the servicing rights, be allocated between the loans and servicing rights based on their estimated fair values at the time of the purchase or origination. The statement also requires that capitalized loan servicing rights be stratified based on predominant risk characteristics of the underlying loans for the purpose of evaluating impairment. An allowance is established in the event the recorded value of an individual stratum exceeds the fair value of the right. Based upon management's analysis of the Company's salable, mortgage loan origination volume, management has determined the right to service the loans is not material and therefore has assigned no financial statement value. In March 1995, the FASB issued Statement No. 121 entitled Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of. The statement requires that long-lived assets and certain identifiable intangibles to be held and used by a company be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. In performing the review for recoverability, companies are required to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Under Statement 121, an impairment loss is recognized if the sum of the undiscounted future cash flows is less than the carrying amount of the asset. The statement also establishes standards for recording an impairment loss for certain assets that are subject to disposal. Excluded from the scope of the statement are financial instruments, mortgage and other loan servicing rights, deposit intangibles and deferred tax assets. The impact to the Company in 1996 was not material. Independent Auditors' Report The Board of Directors and Shareholders FNB Rochester Corp.: We have audited the consolidated statements of financial condition of FNB Rochester Corp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FNB Rochester Corp. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. January 28, 1997 Rochester, New York FNB ROCHESTER CORP. AND SUBSIDIARIES Consolidated Statements of Financial Condition December 31, 1996 and 1995 (in thousands, except share data)
1996 1995 ---- ---- Assets: Cash and due from banks $20,060 $18,662 Interest bearing deposits with 1,121 1,061 other banks Federal funds sold 1,500 5,200 Securities available-for-sale, at 72,318 73,527 fair value Securities held-to-maturity (fair value of $29,305 in 1996 and 29,532 31,780 $31,952 in 1995) Loans, net of allowance of $5,696 in 1996 and $5,776 in 1995 297,964 248,227 Premises and equipment 9,152 7,255 Accrued interest receivable 3,242 3,579 FHLB and FRB stock 1,516 1,299 Other assets 1,493 730 ----- --- Total assets $437,898 $391,320 ======= ======= Liabilities and shareholders' equity Deposits: Demand: Non interest bearing $56,111 $46,061 Interest bearing-NOW 63,702 67,639 Savings and money market 81,018 76,687 Certificates of deposit 203,940 167,488 ------- ------- Total deposits 404,771 357,875 Securities sold under agreement to - 4,538 repurchase Other short-term borrowing 786 448 Accrued interest payable and other liabilities 2,900 2,613 Long-term debt 210 - --- - Total liabilities 408,667 365,474 ------- ------- Shareholders' equity: Common Stock, $1 par value; authorized 5,000,000 shares; issued and outstanding 3,571,063 in 3,571 3,569 1996 and 3,568,963 in 1995. Additional paid in capital 13,035 13,024 Undivided profits 12,357 8,403 Net unrealized gain on securities available-for-sale, net of taxes 268 850 --- --- 29,231 25,846 ------ ------ Total liabilities and shareholders' equity $437,898 $391,320 ======= =======
See accompanying notes to Consolidated Financial Statements. FNB ROCHESTER CORP. AND SUBSIDIARIES Consolidated Statements of Operations Years Ended December 31, 1996, 1995, 1994 (in thousands, except per share data)
1996 1995 1994 Interest income: Interest and fees on loans $25,390 $21,810 $16,558 Securities: Taxable 6,420 6,751 5,835 Tax-exempt 122 99 98 --- -- -- 6,542 6,850 5,933 Interest on federal funds sold and deposits with banks 313 575 521 --- --- --- Total interest income 32,245 29,235 23,012 ------ ------ ------ Interest expense: Savings, NOW and money market accounts 3,093 3,379 3,216 Certificates of deposit 10,348 8,473 4,531 Short-term borrowings 99 398 80 Long-term debt 19 - 123 -- - --- Total interest expense 13,559 12,250 7,950 ------ ------ ----- Net interest income 18,686 16,985 15,062 Provision for loan losses (recovery) - - (43) - - --- Net interest income after provision for loan losses 18,686 16,985 15,105 ------ ------ ------ Non-interest income: Service charges on deposit accounts 1,547 1,209 1,219 Credit card fees 740 648 532 Gain on sale of mortgages 65 40 11 Gain (loss) on sale of securities (45) 33 - available-for-sale Loan servicing fees 263 283 319 Gains on sale of subsidiary & banking 621 - 380 offices Other operating income 616 427 324 --- --- --- Total non-interest income $3,807 $2,640 $2,785 ----- ----- ----- (Continued)
FNB ROCHESTER CORP. AND SUBSIDIARIES Consolidated Statements of Operations continued Years Ended December 31, 1996, 1995, and 1994 (in thousands, except for per share data)
1996 1995 1994 ---- ---- ---- Non-interest expense: Salaries and employee benefits $9,227 $8,238 $7,975 Occupancy 3,448 2,812 2,871 Marketing and public relations 489 624 776 Office supplies, printing and 637 576 542 postage Processing fees 1,018 979 902 F.D.I.C. assessments 2 350 657 Net cost of operation of other real 2 (14) 311 estate Legal 190 267 397 Other 1,637 1,745 1,805 ----- ----- ----- Total non-interest expense 16,650 15,577 16,236 ------ ------ ------ Income before income taxes 5,843 4,048 1,654 Income tax expense (benefit) 1,710 1,194 (283) ----- ----- ---- Net income $4,133 $2,854 $1,937 ===== ===== ===== Net income per common share - $1.16 $0.80 $0.58 primary ==== ==== ====
See accompanying notes to Consolidated Financial Statements. FNB ROCHESTER CORP. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity Years Ended December 31, 1996, 1995 and 1994 (in thousands except per share data)
Net Unrealized Gain (Loss) Additional Un- Securities Common Paid in divided Available- Stock Capital Profits For-Sale Total ------ ---------- ------- ---------- ----- Balance at December 31, $2,003 $7,340 $3,612 $723 $ 13,678 1993 Net income - - 1,937 - 1,937 Subordinated capital notes converted to 1,566 5,683 - - 7,249 common stock Change in fair value of securities - - - (1,504) (1,504) available-for-sale, net - - - ----- of taxes of $503 ----- Balance at December 31, $3,569 $13,023 $5,549 $(781) $21,360 1994 Net income - - 2,854 - $2,854 Option shares issued - 1 - - 1 Change in fair value of securities available- - - - 1,631 1,631 for-sale, net of taxes - - - ----- of $576 ---- Balance at December 31, $3,569 $13,024 $8,403 $850 $25,846 1995 Net income - - 4,133 - 4,133 Common stock cash dividend - $.05 per - - (179) - (179) share Option shares issued 2 11 - - 13 Change in fair value of securities available- - - - (582) (582) for-sale, net of taxes --- of $397 --- Balance at December 31, $3,571 $13,035 $12,357 $268 $29,231 1996 ===== ====== ====== === ======
See accompanying notes to Consolidated Financial Statements. FNB ROCHESTER CORP AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 (in thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $4,133 $2,854 $1,937 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses (recovery) - - (43) Depreciation and amortization 1,449 1,208 1,004 Amortization of goodwill 79 238 248 Deferred income taxes (78) 301 (637) (Gain) loss on sales of securities available-for-sale 45 (33) - Gain on sale of subsidiary and (621) - (380) banking offices (Increase) decrease in mortgage loans held for sale, net 550 (880) 3,127 Increase (decrease) in accrued 331 (420) (488) interest receivable (Increase) decrease in other assets (465) 127 1,760 Increase in accrued interest payable and other liabilities 175 555 300 --- --- --- Net cash provided by operating activities 5,598 3,950 6,828 ----- ----- ----- Cash flow from investing activities: (Increase) decrease in interest- bearing deposits - 77 (2) Securities available-for-sale: Purchase of securities (29,987) (17,272) (15,464) Proceeds from maturities 19,857 17,483 8,668 Proceeds from sales 10,097 11,027 5,815 Securities held-to-maturity: Purchase of securities (2,891) (15,545) (10,854) Proceeds from maturities 5,139 2,223 7,839 Loan origination and principal (51,375) (51,362) (45,252) collection, net Payment made for sale of subsidiary (7,855) - (16,774) and banking offices (3,377) (3,545) (2,238) Capital expenditures, net - - (360) Decrease in other assets - - --- Net cash used by investing $(60,392) $(56,914) $(68,622) activities ------ ------ ------
FNB ROCHESTER CORP AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued Years ended December 31, 1996, 1995 and 1994 (in thousands)
1996 1995 1994 ---- ---- ---- Cash flows from financing activities: Net increase in demand, savings NOW, and money market accounts $16,125 $6,036 $814 Certificates of deposit 40,404 56,458 41,803 accepted and repaid, net Increase (decrease) in short- (4,200) (4,889) 9,875 term borrowings Increase in long-term debt 210 - Exercise of option to purchase 13 1 - common stock -- - - Net cash provided by financing 52,552 57,606 52,492 activities ------ ------ ------ Increase (decrease) in cash and cash (2,242) 4,642 (9,302) equivalents Cash and cash equivalents at beginning of 23,923 19,281 28,583 year ------ ------ ------ Cash and cash equivalents at $21,681 $23,923 $19,281 end of year ====== ====== ====== Supplemental disclosure of non-cash investing and financing activities: Additions to other real estate acquired through foreclosure, or deed in lieu of foreclosure, net of loans to $45 - - facilitate sale and writedowns Transfer of securities from held-to- maturity to - $34,539 - securities available-for-sale Conversion of subordinated notes to common stock - - $7,249
The Company paid cash during 1996, 1995, and 1994 for income taxes and interest as follows (in thousands):
1996 1995 1994 ---- ---- ---- Interest $13,553 $11,949 $8,036 Income 1,335 910 555 taxes
See accompanying notes to Consolidated Financial Statements FNB Rochester Corp. and Subsidiaries Notes to Consolidated Financial Statements December 31, 1996, 1995, and 1994 (1) Summary of Significant Accounting Policies Business FNB Rochester Corp. (the Company) provides a full range of banking and trust services to individual and corporate customers. The Company generates interest income by accepting deposits and investing those deposits, together with funds from borrowings and ongoing operations in a variety of loans and investment securities. The most significant source of revenue for the Company is net interest income - the difference between interest income earned on loans and investments and interest expense incurred on deposits and borrowings. The Company, operating primarily in western New York, is headquartered in Rochester, New York, the third largest city in the state. The Company is subject to competition from other financial institutions. The Company is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. Basis of Presentation The Company operates as a bank holding company. In 1996 its only subsidiary was First National Bank of Rochester (First National). Prior to its sale on April 1, 1994, the Company also owned Atlanta National Bank (Atlanta). The consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries, First National and Atlanta (through its sale date), (the Banks). All material intercompany accounts and transactions have been eliminated. The financial statements have been prepared in conformity with generally accepted accounting principles and conform with predominate practices within the banking industry. In preparing these financial statements, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Securities Securities are classified into three categories: held-to- maturity, trading and available-for-sale. The Company classifies its debt securities as either available-for-sale or held-to- maturity, as the Company does not hold any securities considered to be trading. Held-to-maturity securities are those that the Company has the ability and intent to hold until maturity. Available-for-sale securities are recorded at fair value. Held- to-maturity securities are recorded at amortized cost. Unrealized holding gains and losses, net of related taxes, on available-for-sale securities are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. A decline in the fair value of any security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new basis for the security. Premiums and discounts are amortized or accredited over the life of the related held-to-maturity security as an adjustment to yield using the interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities sold are determined using the specific identification method. The Company's investments in Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) are required by law and are carried at cost in the consolidated statement of condition. The Company's disposition of these securities is restricted by agreements with the FHLB and FRB. Loans Loans are stated at the principal amount outstanding, net of deferred loan origination fees and costs which are accrued to income based on the interest method. The Company originates some residential mortgage loans with the intent to sell. These loans are carried at the lower of aggregate cost or fair value as determined by outstanding commitments from investors or, in the absence of such commitments, the current investor yield requirements calculated on an aggregate basis. The accrual of interest on commercial loans is discontinued and previously accrued interest is reversed when the loans become 90 days delinquent or earlier if, in management's judgment, the collection of principal and interest is uncertain. Recognition of interest income on non-accrual loans does not resume until management considers principal and interest collectible. Installment loans are generally charged-off upon becoming 120 days past due. Residential mortgage loans are reduced to the fair value of the underlying collateral, as applicable, upon becoming 180 days past due. Fair value is the amount that would reasonably be anticipated in a current sale in which the buyer and seller are each acting prudently, knowledgeably, and under no necessity to buy or sell. The Company services residential mortgage loans for the Federal Home Loan Mortgage Corporation (Freddie Mac), and earns servicing fees, which are recognized when payments are received, based upon the outstanding principal balance of the loans. The cost of originating these loans is attributed to the loans and is considered in the calculation of the gain or loss on sale of the loans. Due to their immateriality, the right to service the loans is assigned no financial statement value. Allowance for Loan Losses The Company provides for loan losses by a charge to current operations to bring the allowance to an appropriate level considering the character of the loan portfolio, economic conditions, analysis of specific loans, and historical loss experience. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Impairment losses are included in the reserve for loan losses through a charge to the provision for loan losses. Management considers a loan to be impaired if, based on current information, it is probable that the Company will be unable to collect all scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price of the fair value of collateral if the loan is collateral dependent. Management excludes large groups of smaller balance homogeneous loans such as residential mortgages and consumer loans which are collectively evaluated. When a loan is impaired and the future repayment of the recorded balance is doubtful, interest payments received are applied to principal and no interest income is recognized. If the recorded loan balance is expected to be paid, interest income is recognized on a cash basis. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is provided over the lesser of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of the Company's premises and equipment are as follows: Buildings and improvements 5 - 40 years Furniture, fixtures, and equipment 3 - 7 years Leasehold improvements 3 - 20 years Vehicles 2 - 5 years Other Real Estate Owned Real estate acquired through foreclosure or deed in lieu of foreclosure is carried at the lower of the cost or fair value less estimated costs to dispose. Fair value is determined on an asset by asset basis, primarily through independent third party appraisals. Adjustments to the carrying values of such properties resulting from subsequent declines in fair value are charged to operations in the period in which the declines occur. These adjustments, the net expense of operating other real estate owned and gains and losses on disposition of other real estate owned are included in net cost of operation of other real estate expense. Other real estate owned is included in other assets on the accompanying consolidated statements of financial condition. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Stock Option Plan Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of an option's grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of the grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Pension Plan First National sponsors a non-contributory defined benefit pension plan covering substantially all of its employees. Benefits are based upon years of service and the employee's average compensation. Average compensation is determined by the average of the highest five consecutive years of service. The cost of this plan is being funded currently. First National's policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts, subject to IRS limitations, as the Bank may determine to be appropriate from time to time. Trust Department Income Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated statements of financial condition, since such assets are not assets of the Company. Fee income is recognized on the cash method. At December 31, 1996 the market value of the assets under management was $64,585,000. Per Share Data Per share data is based upon the weighted average number of common shares and equivalents (stock options) outstanding during each year. Fully diluted per share data is not presented as potentially dilutive securities dilute earnings per share by less than 3 percent or are antidilutive. The weighted average number of shares and equivalents outstanding during 1996, 1995 and 1994 amounted to 3,570,159; 3,568,759 and 3,311,234, respectively. Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash on hand, unrestricted amounts due from banks, and federal funds sold. (2) Securities On November 15, 1995, the Financial Accounting Standards Board (FASB) published a special report A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. This guidance included a provision that allowed institutions a one-time opportunity to reclassify (at fair value) held-to-maturity securities without calling into question their intent to hold other debt securities to maturity in the future. Under this provision the Company transferred securities with an amortized cost of $34,539,000 (fair value $35,312,000) from held-to-maturity to available-for-sale in December 1995. The aggregate amortized cost and fair value of securities available-for-sale and securities held-to-maturity at December 31, 1996 and 1995 follows (in thousands):
1996 1995 ____ ____ Amortized Fair Amortized Fair Cost Value Cost Value ----- ----- ------- ----- Securities available-for-sale: U.S. Treasury $23,286 $23,576 $43,199 $44,123 U.S. Government agency 10,003 9,967 5,690 5,698 Mortgage-backed 38,582 38,775 23,212 23,706 securities ------ ------ ------ ------ Total 71,871 72,318 72,101 73,527 ====== ====== ====== ====== Securities held-to-maturity: U.S. Treasury 8,108 8,024 7,145 7,234 U.S. Government agency 5,293 5,222 6,359 6,343 Mortgage-backed 12,909 12,834 15,509 15,591 securities Obligations of state and municipal 2,872 2,875 2,417 2,434 subdivisions Other securities 350 350 350 350 Total $29,532 $29,305 $31,780 $31,952 ====== ====== ====== ======
Securities with an amortized cost of $52,427,000 and $77,991,000 at December 31, 1996 and 1995, respectively were pledged as collateral for municipal deposits and to secure short term borrowings. Gross unrealized gains and losses on securities available-for- sale and securities held-to-maturity at December 31, 1996 and 1995 follows (in thousands):
1996 1995 ____ ____ Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses ---- ------ ----- ------ Securities available- for-sale: U.S. Treasury $290 $ - $933 $9 U.S. Government 53 89 28 19 agency Mortgage-backed 426 233 498 5 securities --- --- --- - Total $769 $322 $1,459 $33 === === ===== == Securities held-to-maturity: U.S. Treasury $31 $115 $89 $ - U.S. Government agency - 71 19 35 obligations Mortgage-backed 76 151 144 62 securities Obligations of state and municipal 11 8 24 7 subdivisions -- - -- - Total $118 $345 $276 $104 === === === ===
The amortized cost of securities by contractual years to maturity as of December 31, 1996 are as follows (in thousands):
10 Years Under 1 1 to 5 5 to 10 and Year Years Years Over Total ---- ---- ----- ---- ----- Securities available- for-sale U.S. Treasury $8,071 $15,215 $ - $ - $23,286 U.S. Government agency - 2,270 4,990 2,743 10,003 obligations Mortgage-backed 269 - 116 38,197 38,582 securities --- - --- ------ ------ Total $8,340 $17,485 $5,106 $40,940 $71,871 ===== ====== ===== ====== ====== Securities held-to- maturity U.S. Treasury $ - $8,108 $ - $ - $8,108 U.S. Government agency - 5,000 - 293 5,293 obligations Mortgage backed - 9,586 - 3,323 12,909 securities Obligations of state and municipal subdivisions 2,048 426 83 315 2,872 Other securities - 300 50 - 350 - --- -- - --- Total $2,048 $23,420 $133 $3,931 $29,532 ===== ====== === ===== ======
The fair value of securities by contractual years to maturity as of December 31, 1996 are as follows (in thousands):
Under 1 1 to 5 5 to 10 10 Years Year Years Years and Over Total ---- ----- ----- ------- ----- Securities available- for-sale U.S. Treasury $8,114 $15,462 $ - $ - $23,576 U.S. Government - 2,245 5,003 2,719 9,967 agency obligations Mortgage-backed 268 - 116 38,391 38,775 securities --- - --- ------ ------ Total $8,382 $17,707 $5,119 $41,110 $72,318 ===== ====== ===== ====== ====== Securities held-to- maturity U.S. Treasury $ - $8,024 $ - $ - $8,024 U.S. Government - 4,929 - 293 5,222 agency obligations Mortgage backed - 9,445 - 3,389 12,834 securities Obligations of state and municipal subdivisions 2,048 432 81 314 2,875 Other securities - 300 50 - 350 - --- -- - --- Total $2,048 $23,130 $131 $3,996 $29,305 ===== ====== === ===== ======
The following table presents the total proceeds from sales of securities available-for-sale for 1996, 1995 and 1994 and the gross realized gains and losses (in thousands):
1996 1995 1994 ---- ---- ---- Proceeds from sales $10,097 $11,027 $5,815 ------ ------ ===== Gains 2 72 5 Losses (47) (39) (5) --- --- --- Net $(45) $33 $ - ==== == =
(3) Loans The major classifications of loans at December 31, 1996 and 1995 follow (in thousands):
1996 1995 ---- ---- Commercial $187,721 $165,645 Residential 70,933 49,009 mortgage Residential mortgage loans 330 880 held for sale Home equity 21,297 18,773 Other consumer 23,153 19,711 ------ ------ Total 303,434 254,018 Net deferred loan costs (fees) 226 (15) Allowance for loan losses (5,696) (5,776) ------ ------ Loans, net $297,964 $248,227 ======= =======
Interest and fees on loans follow (in thousands):
Years Ended December 31, ----------------------- 1996 1995 1994 ----- ---- ---- Commercial $16,988 $15,200 $11,391 Residential 4,578 3,009 2,275 mortgage Home equity 1,887 1,976 1,667 Other consumer 1,937 1,325 1,225 ----- ----- ----- $25,390 $21,810 $16,558 ====== ====== ======
The Company considers its primary service and marketing area to be the New York State city of Rochester and its surrounding towns. The Company also has two full service banking offices in the Elmira area and offices, in both Syracuse and Buffalo, which provide services primarily to professional and business customers. Substantially all of the Company's outstanding loans are with borrowers living or doing business within these areas. The Company's concentrations of credit risk are disclosed in the above loan classifications. Other than general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower. Loans serviced for others amounting to $104,494,000 and $107,642,000 at December 31, 1996 and 1995, respectively are not included in the consolidated financial statements. Custodial accounts held by First National for these loans amounted to $2,182,000 and $2,309,000 at December 31, 1996 and 1995, respectively. The Company has an available line of credit with the FHLB of New York, which at December 31, 1996 amounted to approximately $39,152,000. The amount available under the line varies according to a formula which considers the amount of FHLB stock held by the Company, the Company's FHLB borrowings outstanding, the Company's total assets, and the net worth of the FHLB of New York. At December 31, 1996, the Company pledged residential mortgages with a carrying value of $57,885,000 as collateral for this line of credit. (4) Allowance for Loan Losses A summary of the changes in the allowance for loan losses follows (in thousands):
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Balance at beginning of year $5,776 $6,452 $6,823 Provision (recovery) charged - - (43) to operating expense Reclassification of impairment - - 210 reserves Allowance of subsidiary sold - - (177) - - --- 5,776 6,452 6,813 ----- ----- ----- Loans charged off Commercial (407) (840) (990) Residential mortgage (14) (46) (124) Home equity (5) - (31) Other consumer (132) (147) (213) ---- ---- ---- Total loans charged off (558) (1,033) (1,358) ---- ------ ------ Recoveries of loans charged off Commercial 407 267 867 Residential mortgage - - - Home equity 3 6 7 Other consumer 68 84 123 -- -- --- Total recoveries of loans 478 357 997 charged off --- --- --- Balance at end $5,696 $5,776 $6,452 of year ===== ===== =====
The principal balance of loans not accruing interest totaled $1,419,000 and $1,665,000 at December 31, 1996 and 1995 respectively. The effect of non-accrual loans on interest income for the years ended December 31, 1996, 1995, and 1994 was $48,000, $67,000 and $88,000 respectively. Other real estate owned amounted to $45,000 at December 31, 1996 and there was no other real estate owned at December 31, 1995. At December 31, 1996 and 1995, the recorded investment in loans that are considered to be impaired totaled $2,337,000, and $245,000, respectively, and the impairment allowance associated with these loans is $38,000 for 1996. There is no impairment allowance associated with the 1995 recorded investment. The average recorded investments in impaired loans during the twelve months ended December 31, 1996 and 1995 was approximately $913,000 and $1,150,000, respectively. For the twelve months ended December 31, 1996, the Company recognized $77,000 interest income on the impaired loans and $35,000 was recognized on impaired loans in 1995. (5) Premises and Equipment A summary of premises and equipment follows (in thousands):
December 31, ----------- 1996 1995 ---- ---- Land $587 $378 Building and improvements 2,098 1,659 Furniture, fixtures, 8,739 7,242 equipment and vehicles Leasehold 5,199 4,490 improvements ----- ----- 16,623 13,769 Less accumulated depreciation 7,471 6,514 and amortization 7,471 6,514 ----- ----- Premises and equipment, net $9,152 $7,255 ===== =====
Depreciation and amortization expense for the years ended December 31, 1996, 1995 and 1994 was $1,449,000, $1,208,000 and $982,000, respectively. (6) Certificates of Deposit Certificates of deposit of $100,000 or more amounted to $62,436,000 at December 31, 1996 and $61,559,000 at December 31, 1995. Interest expense on certificates of deposit of $100,000 or more was $3,225,000 in 1996, $2,457,000 in 1995 and $719,000 in 1994. At December 31, 1996, the scheduled maturities of all certificates of deposits are as follows (in thousands): Year Amount ---- ------ 1997 $161,209 1998 24,045 1999 9,418 2000 5,654 2001 and 3,614 thereafter Total $203,940 ======= (7) Securities Sold Under Agreements to Repurchase The Company had short term borrowings of $786,000 and $4,986,000 at December 31, 1996 and 1995 respectively. The December 31, 1995 balance included $4,538,000 of securities sold under agreement to repurchase, with a maturity date of January 29, 1996 and a rate of 5.85%. There were no securities sold under agreement to repurchase at December 31, 1996. The maximum amount outstanding at any one month-end and average amount for securities sold under agreements to repurchase were $4,348,000 and $704,000 respectively for 1996 and $9,075,000 and $5,817,000 respectively for 1995. Interest expense averaged 5.82% for 1996, 6.17% for 1995 and 4.79% for 1994. (8) Subordinated Capital Notes On March 2, 1994, the 10% subordinated capital notes were converted to common stock of the Company, increasing the Company's common shares outstanding by 1,566,325 and equity by $7,249,000. Interest expense on the subordinated capital notes amounted to $123,000 for 1994. (9) Income Taxes Total income taxes for the years ended December 31, 1996, 1995 and 1994 were allocated as follows (in thousands):
1996 1995 1994 ---- ---- ---- Income from operations $1,710 $1,194 $(283) Stockholders' equity, change in unrealized gain (loss) on securities available-for-sale (397) 576 (503) $1,313 $1,770 $(786) ===== ===== =====
For the years ended December 31, 1996, 1993 and 1994, income tax expense (benefit) attributable to income from operations consists of (in thousands):
1996 1995 1994 ---- ---- ---- Current: Federal $1,648 $892 $353 State 140 1 1 --- - - 1,788 893 354 ----- --- --- Deferred: Federal (335) 301 (637) State 257 - - --- - - (78) 301 (637) --- --- ---- $1,710 $1,194 $(283) ===== ===== ====
The reconciliation of the statutory federal income tax rate with the actual effective tax rate follows:
1996 1995 1994 ---- ---- ---- Statutory rate 34.0% 34.0% 34.0% Increases (decreases) attributable to: Change in the beginning of the year valuation allowance for deferred tax assets allocated to income tax expense (11.0) (10.0) (59.0) State taxes, net of federal benefit 5.0 1.0 1.0 Other items, net 1.0 4.0 7.0 --- --- --- 29.0% 29.0% (17.0)% ===== ===== ======
The significant components of deferred tax expense (benefit) attributable to income from continuing operations at December 31, 1996 and 1995 are as follows:
1996 1995 1994 ---- ---- ---- Deferred tax expense $582 $713 $354 (benefit) Increase (decrease) in valuation allowance for (660) (412) (991) deferred tax assets Net deferred tax expense $(78) $301 $(637) (benefit) ==== === ====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996, and 1995 are presented below (in thousands):
1996 1995 ---- ---- Deferred tax assets: Allowance for loan losses - $2,284 $2,333 financial statements Interest on non accrual loans 111 109 Premises and equipment- principally due to 88 141 depreciation Mortgage recording tax credit - 257 carry forwards Reserve for abandoned 121 151 lease Accrued salaries and 109 119 benefits Other 44 151 -- --- Gross deferred assets 2,757 3,261 Less valuation (1,245) (1,905) allowance ------ ------ Net deferred tax 1,512 1,356 assets ---- ----- Deferred tax liabilities: Allowance for loan (722) (750) losses - tax Net unrealized gain on securities available- (179) (576) for-sale Bond discount (97) (82) Net deferred loan origination (91) - costs Total gross deferred (1,089) (1,408) liabilities ------ ------ Net deferred tax $423 $(52) asset (liability) === ===
The net change in the total valuation allowance for the years ended December 31, 1996, 1995 and 1994 were decreases of $660,000, $730,000 and $673,000 respectively. Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carryback period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income, and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance of $1,245,000 at December 31, 1996. (10) Shareholders' Equity On December 17, 1996, the Company declared a dividend of $.05 per share for payment January 31, 1997 to shareholders' of record January 15, 1997. No dividends were declared or paid in 1995 or 1994 by the Company. Payment of dividends by First National to the Company is limited or restricted in certain circumstances. According to federal banking law, the approval of the Office of the Comptroller of the Currency (OCC) is required for the declaration of dividends by a bank in any year in which the dividend declared will exceed the total of net income for that year plus any retained income for the preceding two years. Dividends approximating $8,757,000 are available from First National at December 31, 1996 without the approval of the OCC. (11) Stock Option Plans The Company has two stock option plans. A plan adopted in 1992 (amended May 28, 1996) for employees, authorizes grants of options to purchase up to 325,000 shares of its authorized but unissued common stock. The second plan is a 1995 Non-employee Director Stock Option Plan which was approved by shareholders on May 28, 1996 and authorizes grants of options to purchase up to 25,000 shares of its authorized but unissued common stock. Stock options are granted with an exercise price equal to the stock's fair market value at the date of the grant. All stock options have ten year terms and, with the exception of a 1992 grant of options for 75,000 shares, all stock options vest at 50% per year and become fully vested after two years. The 1992 grant vests at 20% per year and is fully vested after five years. The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted- average assumptions used for grants in 1996: dividend yield of .14 percent, risk-free interest rate of 6.1 percent, expected volatility of 40 percent, and an expected lives of 8.8 years. For accounting purposes there were no option grants in 1995 as the Company's 1995 option grants were subject to shareholder approval in 1996 and were therefore required to be included with the 1996 option grants. Had the Company determined compensation cost based on the fair value at the grant date for its options under SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: Year ended December 31 (net income in thousands) 1996 ---- Net As reported $4,133 income Pro forma 3,831 Primary As reported 1.16 Per Pro forma $1.07 share Pro forma net income and earnings per share reflect only options granted in 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period and compensation cost for options granted prior to January 1, 1996 is not considered. A summary of the status of the Company's two fixed stock option plans as of December 31, 1996, 1995 and 1994 and changes during the years ended on those dates is presented below:
1996 1995 1994 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning 223,100 6.59 225,000 6.59 172,00 6.59 of year 0 Granted 98,750 8.88 - - 53,000 5.69 Exercised 2,100 6.01 250 5.69 - - Forfeited 900 7.15 1,650 5.96 - - --- ----- - Outstanding 318,850 7.28 223,100 6.59 225,00 6.59 at end of ======= ======= 0 year ====== = Options exercisable 244,350 167,150 93,500 at year end Weighted- average fair value of options granted during the 5.11 - n/a year
The following table summarizes information about fixed stock options outstanding at December 31, 1996
Options Options Outstanding Exercisable Weighted- Avg Weighted- Weighted- Range of Number Remaining Avg Number Avg Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/31/96 Life Price at 12/31/96 Price -------- ----------- ----------- --------- ----------- -------- $5.63 - 8.32 298,100 6.8 $6.95 244,350 $6.74 9.75 - 12.75 20,750 9.9 12.39 - - ------------- ------ ----- - - $5.63 - 12.75 318,850 7.0 $7.30 244,350 $6.74 ============= ======= === ======= ====
(12) Leases The Company leases certain buildings and office space under operating lease arrangements. Rent expense under these arrangements amounted to $1,110,000 in 1996, $776,000 in 1995 and $1,051,000 in 1994. Included in rent expense for 1994 is an accrual for abandoned lease property amounting to $448,000. Real estate taxes, insurance, maintenance, and other operating expenses associated with the buildings and office space are generally paid by the Company. A summary of non-cancelable long- term operating lease commitments as of December 31, 1996 follows (in thousands): Year Ending December 31, Year Amount ---- ------ 1997 $965 1998 965 1999 1,006 2000 1,017 2001 1,047 After 2001 10,533 ------ Total $15,533 ====== (13) Commitments and Contingencies In the normal course of business there are various outstanding commitments to extend credit which are not reflected in the accompanying consolidated financial statements. Because many commitments and almost all letters of credit expire without being funded in whole or in part, the contract amounts are not estimates of actual future cash flows. Loan commitments have off-balance sheet credit risk, because only origination fees are recognized in the balance sheet, until the commitments are fulfilled or expire. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and collateral or other security is of no value. The Company's policy generally requires customers to provide collateral, usually in the form of customers' operating assets or property, prior to the disbursement of approved loans. The contract amounts of these commitments at December 31, 1996 and 1995 are set forth in the table below (in thousands):
1996 1995 ---- ---- Fixed Rate Variable Rate Fixed Rate Variable Rate ---------- ------------- ---------- ------------- Commercial - 3,189 - 2,503 letters of credit Commercial lines 12,535 64,346 789 38,168 of credit Other loan 7,546 9,313 8,226 27,484 commitments
For substantially all commercial lines of credit, First National evaluates each customer's creditworthiness annually. Since many of the line of credit commitments are never drawn upon, the total commitment amounts do not necessarily represent future cash flows. Other loan commitments include lines of credit for home equity loans, overdraft protection, and credit cards as well as commitments to extend new loans. First National is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of such reserve balances for the year ended December 31, 1996 and 1995 was approximately $557,000 and $81,000. Interest bearing deposits with other banks are substantially restricted by balance agreements. Because the Bank's business involves the deposit, collection, and transfer of checks and similar negotiable instruments and the collection of loans and enforcement of security interests, mortgages, and other liens, the Bank is plaintiff or defendant in various legal proceedings which may be considered as arising in the ordinary course of business. In the opinion of management, after consultation with counsel handling all such litigation, there are no legal proceedings now pending by or against the Bank or the Company, the outcome of which are expected to have a material effect on their businesses, business properties, or financial condition. (14) Employee Benefit Plans The following table sets forth (in thousands) the defined benefit plan's actuarially determined funded status and amounts recognized in the Company's consolidated financial statements:
December 31 ----------- 1996 1995 ---- ---- Actuarial present value of accumulated benefit obligation, including vested benefits of $416 and $558 $376 $262 === === Actuarial present value of projected benefit obligation for service 1,022 726 rendered to date Less plan assets at fair value - primarily listed common stock, U.S. Government and agency securities, 757 475 and collective funds --- --- Projected benefit obligation in excess 265 251 of plan assets Unrecognized net gain (loss) from past experience different from that assumed and effects of changes (19) (120) in assumptions Unrecognized prior service cost 5 5 - - Accrued pension cost included in other $251 $136 liabilities === ===
Net pension cost included the following components (in thousands):
Years Ended December 31 --------- 1996 1995 1994 ---- ---- ---- Service cost-benefits earned $368 $250 $311 during the period Interest cost on projected 54 24 8 benefit obligation Actual return on plan assets (21) (9) 19 Net amortization and deferral (16) (20) (24) --- ---- --- Net periodic pension cost $385 $245 $314 === === ===
Assumptions used in determining pension data for 1996, 1995, and 1994 are as follows:
1996 1995 1994 ---- ---- ---- Discount rate for benefit 8.00% 7.50% 8.00% obligations Rate of increase in 5.00% 5.00% 4.00% compensation levels Expected long-term rate of 8.50% 8.50% 8.50% return on assets
First National sponsors a 401(k) plan covering substantially all employees. First National matched eligible employee contributions to the 401(k) plan up to a maximum 1.5 percent of eligible compensation. Expense for the 401(k) amounted to $66,000 in 1996, $54,000 in 1995, and $52,000 in 1994. (15) Loans to Directors, Officers and Shareholders owning more than 5% of Voting Stock A summary of the changes in outstanding loans to members of the Board of Directors, officers of the Company and shareholders owning more than 5% of voting stock, or their interests, follows (in thousands):
Years ended December 31, ------------ 1996 1995 ---- ---- Balance of loans outstanding $5,591 $3,354 at beginning of year New loans and increases in 80 2,401 existing loans Loan principal repayments (844) (164) Balance at end of year $4,827 $5,591 ===== =====
Loans to directors, officers and shareholders owning more than 5% of voting stock are believed to have been made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated parties. (16) Condensed Financial Information - Parent Company Only The following presents the financial condition of the Parent Company (FNB Rochester Corp.) as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years ended December 31, 1996, 1995, and 1994: Condensed Statements of Financial Condition (in thousands)
1996 1995 ---- ---- Assets Cash and cash equivalents $644 $494 Investment (at equity) in 28,802 25,388 subsidiary Other assets 1 3 - - Total assets $29,447 $25,885 ====== ====== Liabilities and shareholders' equity Accrued interest payable and $216 $39 other liabilities Total liabilities 216 39 --- -- Shareholders' equity 29,231 25,846 ------ ------ Total liabilities and $29,447 $25,885 shareholders' equity ====== ======
Statement of Operations (in thousands)
Years ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- Income: Dividends from subsidiary $200 $ $ - - Gain on sale of subsidiary - - 191 Interest and other 19 20 16 -- -- -- Total income 219 20 207 Expense: Interest on long-term debt - - 123 109 122 181 Other --- --- --- Total expense 109 122 304 --- --- --- (Income) loss before taxes and equity in undistributed income of 110 (102) (97) subsidiary Income tax benefit (26) (40) (95) Income (loss) before undistributed income of subsidiary 136 (62) (2) Equity in undistributed income of subsidiary 3,997 2,916 1,939 Net income $4,133 $2,854 $1,937 ===== ===== =====
Statement of Cash Flows (in thousands)
Years ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $4,133 $2,854 $1,937 Adjustment to reconcile net income to Cash (used) provided by operating activities: Equity in undistributed income of subsidiary (3,997) (2,916) (1,939) Depreciation and amortization - - 27 Gain on sale of subsidiary - - (191) (Increase) decrease in other assets 3 1 (4) Increase (decrease) in accrued interest payable and other liabilities (2) 4 (207) --- - ---- Net cash (used) provided by 137 (57) (377) operating --- --- ---- activities Cash flows from investing activities: Capital contributed to subsidiary - - (1,400) ------ Proceeds from sale of subsidiary - - 1,772 ----- Net cash provided by investing activities - - 372 --- Cash flows from financing activities: Exercise of options to purchase 13 1 - common stock -- - - Net cash provided by financing activities 13 1 - Increase (decrease) in cash and cash equivalents 150 (56) (5) Cash and cash equivalents at 494 550 555 beginning of year --- --- --- Cash and cash equivalents at end of $644 $494 $550 year === === ===
The Parent Company paid cash during 1996, 1995, and 1994 for income taxes and interest as follows (in thousands) :
1996 1995 1994 ---- ---- ---- Interest - - 304 Income taxes 1,335 910 555
(17) Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) First National is subject to capital adequacy requirements of the Federal Deposit Insurance Corporation. The FDICIA established capital levels for which insured institutions are categorized as (in declining order) well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. Under the FDICIA, a well capitalized institution must generally have a risk-based capital ratio of at least 10 percent, a Tier 1 risk-based ratio of at least 6 percent and a Tier 1 leverage ratio of at least 5 percent. As of December 31, 1996, First National is a well capitalized institution under the definitions. First National is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could cause regulators to initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on First National's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First National must meet specific capital guidelines that involve quantitative measures of First National's assets, liabilities, and certain off-balance- sheet items as calculated under regulatory accounting practices. First National's capital amounts and classification 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 First National to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined). Management believes, as of December 31, 1996, that First National meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from the Federal Deposit Insurance Corporation categorized First National as (well capitalized) under the regulatory framework for prompt corrective action. To be categorized as (well capitalized) First National must maintain minimum total risk-based, Tier I risk- based, Tier I leverage ratios set forth in the table. There are no conditions or events since that notification that management believes have changed First National's category. First National's actual capital amounts and ratios are presented in the following table (in thousands). There was no deduction from capital for interest-rate risk.
To Be Well Capitalized Under Prompt For Capital Corrective Actual Adequacy Action ______ -------- ------ Purposes Provisions -------- ----------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 1996 Total Capital (to Risk Weighted $32,135 11.0% $23,296 8.0% $29,120 10.0% Assets) Tier I Capital (to Risk Weighted $28,469 9.8% $11,648 4.0% $11,648 6.0% Assets) Tier I Capital (to Average $28,469 6.6% $17,400 4.0% $21,750 5.0% Assets) As of December 31, 1995 Total Capital (to Risk Weighted $27,588 10.9% $20,242 8.0% $25,302 10.0% Assets) Tier I Capital (to Risk Weighted $24,393 9.6% $10,121 4.0% $15,181 6.0% Assets) Tier I Capital (to average $24,393 6.4% $15,261 4.0% $19,076 5.0% assets)
The Company's capital amounts and ratios as of December 31, 1996 and 1995 were not materially different from those of First National. (18) Fair Value of Financial Instruments The following fair value estimates, methods, and assumptions of each class of the Company's financial instruments were used to estimate the fair value. Interest Bearing Deposits with Banks and Federal Funds Sold For these short-term instruments that generally mature in less than 90 days or reprice on a daily basis, the carrying value approximates fair value. Securities Fair values for securities are based on quoted market prices or dealer quotes, where available. Variable rate securities that reprice frequently and have no significant credit risk have fair values based on carrying values. Loans The fair values of loans are generally estimated using discounted cash flow analyses applying interest rates currently being offered for loans with similar terms and credit quality and employing prepayment assumptions based on available industry information sources. Delinquent and non-accrual loans are valued using the discounted cash flow methods described above. Credit risk is a component of the discount rate used to value the loans. Delinquent and non- accrual loans are presumed to possess additional risk. Therefore, the discount rates used to value these non-performing loans reflect this additional risk. Deposits The fair values disclosed for demand deposits, savings accounts, and money market accounts are equal to their carrying values since these are liabilities that are payable on demand. The fair value of fixed rate certificates of deposit is calculated using a discounted cash flow analysis applying rates currently being offered on certificates to a schedule of weighted average expected monthly maturities on time deposits. Short-Term Borrowings Variable rate instruments reprice daily and therefore the carrying value approximates fair value. Fixed rate obligations are valued using a discounted cash flow approach employing a discount rate currently offered for similar instruments. Off-Balance Sheet The fair value of commitments to extend credit approximates the fees charged to make these commitments since rates and fees of the contracts approximate those currently charged to originate similar commitments. These commitments are included under loans and loan commitments.
1996 1995 ---- ---- (in thousands) Estimated Estimated Carrying Fair Carrying Fair Financial Assets: Amount Value(1) Amount Value(1) ------------------ ------ -------- ------ -------- Cash $20,060 $20,060 $18,662 $18,662 Interest bearing deposits 1,121 1,121 1,061 1,061 with banks Federal funds sold 1,500 1,500 5,200 5,200 Securities, including 103,366 103,139 106,606 106,778 FHLB and FRB Net loans and loan 297,964 304,634 248,227 256,369 commitments Financial Liabilities: ---------------------- Total deposits 404,771 406,114 357,875 358,638 Short-term borrowings and long-term debt 996 996 4,986 4,986
(1) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (19) Dispositions On November 18, 1996, First National sold its Odessa Office. The Office had deposits of $9,633,000 and loans of $1,133,000, and a gain of $621,000 was recognized as a result of the sale. The Company, on April 1, 1994, sold all of the outstanding shares of Atlanta (for its book value, plus a premium of $550,000). The Company realized $1,772,000 cash from the sale and a gain of $191,000. On December 31, 1993, Atlanta had $8,911,000 in loans, $13,833,000 of deposits and $15,017,000 in total assets. Net income for the year ended December 31, 1993 amounted to $222,000. On December 1, 1994, First National sold its Shop City Office with deposits of $16,433,000. First National recognized a gain of $189,000 as a result. CORPORATE DIRECTORY Directors of FNB Rochester Senior Officers of First Corp. and First National Bank National Bank of Rochester of Rochester R. Carlos Carballada R. Carlos Carballada President and Chief Executive President and Chief Executive Officer Officer Michael J. Falcone, Chairman Donald R. Aldred Real Estate Developer, Pioneer Sr. Vice President, Business & Group Professional Banking Gayle C. Johnston President, Thin film Robert B. Bantle Technology Division Bausch & Sr. Vice President, Community Lomb Banking Joseph M. Lobozzo II Stacy C. Campbell President & Chief Executive Sr. Vice President and Chief Officer JML Optical Financial Officer Industries, Inc. Francis T. Lombardi Barbara W. Fuge Vice President, Syracuse Tank Vice President, Risk & Mfg. Co. Management Carl R. Reynolds Attorney H. Bruce Russell Robert E. Gilbert Vice President, Financial & Sr. Vice President, Operations Administrative Division Eastman Kodak Company James D. Ryan Timothy P. Johnson President and Owner RYCO Vice President and Counsel Management, Inc. Property Management and Development Linda Cornell Weinstein Richard J. Long Executive Director, Vice President, Human Cornell/Weinstein Resources Family Foundation Theresa B. Mazzullo Sr. Vice President, Trust & Investment Officers of FNB Rochester Corp. R. Carlos Carballada President and Chief Executive Officer Stacy C. Campbell Sr. Vice President and Chief Financial Officer Mariann Joyal Corporate Secretary Timothy P. Johnson Assistant Corporate Secretary Vice Presidents of First National Bank of Rochester Bruce G. Austin William C. Lyons Vice President, Treasury & Vice President, Business & Planning Professional Lending - Buffalo Jeffrey W. Barker Carl J. Martel Vice President, Vice President, Henrietta Business & Professional Office Manager Banking Services Dorian C. Chapman Richard F. Medyn Vice President, Business & Vice President, Special Assets Professional Real Estate Lending Roger L. Cormier Robert S. Moore Vice President, Community Vice President, Business & Banking Professional Lending Anthony M. Costanza Thomas M. Pauly Vice President, Business & Vice President, Loan Review Professional Lending Melody A. Pursel Vice President, Residential Mortgages Gary L. Gayton David T. Reaske Vice President, Chili Office Vice President, Business & Manager Professional Lending - Syracuse Edward A. Slank Vice President, Business & Professional Lending - Syracuse Richard Steffen Vice President, Honeoye Falls Office Manager John C. Glerum Richard A. Szabat Vice President, Controller- Vice President, Business & Finance Professional Lending Dennis A. Heuser Robert Varrenti Vice President, Vice President, Information Business & Professional Services Banking James F. Jackson Vice President, Consumer Lending James F. Lynd Judith L. Willis Vice President, Penfield Vice President, Perinton Office Manager Office Manager Robert J. Lynough II Vice President, Southport Office Manager EX-21 8 [EXHIBIT 21] FNB ROCHESTER CORP. Subsidiaries of the Registrant The Registrant has one wholly owned subsidiary: First National Bank of Rochester First National Bank of Rochester was formed in 1965 under the National Bank Act. EX-23 9 [EXHIBIT 23] KPMG Peat Marwick LLP 600 Clinton Square Rochester, NY 14604 INDEPENDENT AUDITORS' CONSENT The Board of Directors FNB Rochester Corp.: We consent to incorporation by reference in the registration statements 33-65194 and 333-15325 on Form S-8 of FNB Rochester Corp. of our report dated January 28, 1997, relating to the consolidated statements of financial condition of FNB Rochester Corp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report has been incorporated by reference in the December 31, 1996 annual report on Form 10-K of FNB Rochester Corp. s/ KPMG Peat Marwick LLP Rochester, New York March 24, 1997 EX-27 10
9 1,000 YEAR DEC-31-1995 DEC-31-1995 18,662 1,061 5,200 0 73,527 31,780 31,952 254,003 5,776 391,320 357,875 4,986 2,613 0 0 0 3,569 22,277 391,320 21,810 6,850 575 29,235 11,852 12,250 16,985 0 33 15,577 4,048 2,854 0 0 2,854 80 80 4.92 1,665 45 0 0 6,452 1,033 357 5,776 5,776 0 0
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