_______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1996 COMMISSION FILE NO.: 0-18011
ONBANCorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 16-1345830
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 South Salina Street, Syracuse, New York 13202
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(Address of principal executive office and Zip Code)
(315) 424-4400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share 12,332,811
- ---------------------------------------- -----------
(Title of Class) (Shares Outstanding)
_______________________________________________________________________________
This report contains 20 pages
2
ONBANCorp, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996, December 31, 1995, and
September 30, 1995.......................... 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months ended
September 30, 1996 and 1995 ................. 4
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the Nine Months ended
September 30, 1996 and 1995.................. 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1996
and 1995..................................... 6
Notes to Condensed Consolidated Financial
Statements................................... 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........ 11 - 17
PART II. OTHER INFORMATION............................. 18
Signatures.............................................. 19
3
ONBANCorp, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
- ------------------------------------------------------------------------------------------------------
September 30, December 31, September 30,
1996 1995 1995
- ------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 166,598 150,621 131,022
Federal funds sold and other 13,390 134,623 29,378
Securities:
Trading 1,727 1,790 5,606
Available for sale 828,454 978,361 698,158
Held to maturity, fair value of $1,688,049
at September 30, 1996, $1,797,286 at
December 31, 1995 and $3,278,955
at September 30, 1995 1,678,030 1,761,692 3,245,923
- ------------------------------------------------------------------------------------------------------
Total securities 2,508,211 2,741,843 3,949,687
- ------------------------------------------------------------------------------------------------------
Loans:
Portfolio, net of premium and discount 2,386,956 2,288,990 2,222,974
Allowance for loan losses (38,541) (34,583) (35,146)
Net loans 2,348,415 2,254,407 2,187,828
Loans available for sale 90,333 40,137 42,812
Premises and equipment, net 62,845 66,549 66,114
Due from brokers 56,299 65,205 25
Other assets 112,502 113,674 138,332
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $5,358,593 5,567,059 6,545,198
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing 345,146 320,140 303,478
Interest bearing:
Savings, NOW and money market 1,245,875 1,291,952 1,331,844
Time deposits less than $100,000 1,659,425 1,671,027 1,738,991
Time deposits $100,000 and greater 578,163 525,154 451,527
Total deposits 3,828,609 3,808,273 3,825,840
Repurchase agreements 257,670 361,617 867,823
Other borrowings 809,760 903,370 1,291,560
Due to brokers 35,692 43,951 93,660
Other liabilities 67,179 61,082 84,481
- ------------------------------------------------------------------------------------------------------
Total liabilities 4,998,910 5,178,293 6,163,364
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Shareholders' equity:
Preferred stock, Series B 6.75% Cummulative
Convertible; par value $1.00 per share;
10,000,000 shares authorized; issued and
outstanding: 2,479,415 at September 30, 1996;
2,515,700 at December 31, 1995; 2,608,800
at September 30, 1995; aggregate liquidation
value $61,985 at September 30, 1996 2,479 2,516 2,609
Common stock, par value $1.00 per share;
56,000,000 shares authorized; shares issued:
September 30, 1996 - 14,130,011; December 31, 1995 - 14,130 14,095 14,085
14,095,499; September 30, 1995 - 14,084,991
Additional paid-in capital 155,345 155,748 157,993
Retained earnings 269,431 253,727 246,868
Net unrealized holding loss on securities, net of
deferred taxes (23,854) (18,952) (33,045)
Treasury stock, at cost, 1,797,200 shares at
September 30, 1996, 577,900 at December 31, 1995,
216,300 at September 30, 1995 (57,698) (18,068) (6,376)
Guarantee of ESOP indebtedness (150) (300) (300)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 359,683 388,766 381,834
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,358,593 5,567,059 6,545,198
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
4
ONBANCorp, Inc.
Condensed Consolidated Statements of Income
(In Thousands, Except Share Data)
- -----------------------------------------------------------------------------------------------------------------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ 51,146 47,794 148,755 135,507
Securities 41,359 64,055 127,972 184,692
Federal funds sold and other 746 621 2,382 1,892
- -----------------------------------------------------------------------------------------------------------------
Total interest income 93,251 112,470 279,109 322,091
- -----------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 38,295 39,902 114,152 115,749
Borrowings:
Repurchase agreements 4,304 13,906 14,803 40,248
Other 12,189 19,848 36,487 52,318
- -----------------------------------------------------------------------------------------------------------------
Total interest expense 54,788 73,656 165,442 208,315
- -----------------------------------------------------------------------------------------------------------------
Net interest income 38,463 38,814 113,667 113,776
Provision for loan losses 1,950 1,610 5,850 4,990
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Net interest income after provision for loan losses 36,513 37,204 107,817 108,786
- -----------------------------------------------------------------------------------------------------------------
Other operating income:
Mortgage banking 854 1,247 2,670 2,441
Service charges 4,884 3,881 13,727 11,385
Net gain on securities transactions 3,096 104 5,733 2,874
Other 1,541 1,307 5,751 3,761
- -----------------------------------------------------------------------------------------------------------------
Total other operating income 10,375 6,539 27,881 20,461
- -----------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 10,490 10,219 31,688 30,424
Building, occupancy and equipment 4,481 4,112 13,724 13,227
Deposit insurance premiums 7,956 602 9,340 4,944
Contracted data processing 2,731 2,475 8,056 7,248
Legal and financial services 811 697 2,713 2,470
Other 6,163 5,913 19,514 18,191
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Total other operating expenses 32,632 24,018 85,035 76,504
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 14,256 19,725 50,663 52,743
Income taxes 6,966 7,059 20,146 20,016
- -----------------------------------------------------------------------------------------------------------------
Net income $ 7,290 12,666 30,517 32,727
- -----------------------------------------------------------------------------------------------------------------
Income per common share:
Primary $ 0.49 0.82 2.06 2.06
Fully diluted 0.49 0.78 2.00 2.00
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
5
ONBANCorp, Inc.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In Thousands, Except Share Data)
- --------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Additional Holding Guarantee of
Preferred Common Paid-in Retained Loss on ESOP
Stock Stock Capital Earnings Securities Treasury Indebtedness Total
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 2,818 14,050 162,960 229,374 (45,816) 0 (450) 362,936
Net income 0 0 0 32,727 0 0 0 32,727
Stock issued under:
Stock Option Plans 0 18 158 0 0 0 0 176
Employee Stock Purchase Plan 0 17 354 0 0 0 0 371
Cash dividends declared:
Preferred ($1.27 per share) 0 0 0 (3,460) 0 0 0 (3,460)
Common ($.84 per share) 0 0 0 (11,773) 0 0 0 (11,773)
Preferred stock repurchase (209) 0 (5,479) 0 0 0 0 (5,688)
Treasury stock purchase 0 0 0 0 (6,376) 0 0 (6,376)
Employee Stock Ownership Plan
loan repayment 0 0 0 0 0 0 150 150
Change in net unrealized holding loss
on securities, net of income tax effect
of $8,514 0 0 0 0 12,771 0 0 12,771
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Balance at September 30, 1995 $ 2,609 14,085 157,993 246,868 (33,045) (6,376) (300) 381,834
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 2,516 14,095 155,748 253,727 (18,952) (18,068) (300) 388,766
Net income 0 0 0 30,517 0 0 0 30,517
Stock issued under:
Stock Option Plans 0 21 143 0 0 0 0 164
Employee Stock Purchase Plan 0 14 380 0 0 0 0 394
Cash dividends declared:
Preferred ($1.27 per share) 0 0 0 (3,167) 0 0 0 (3,167)
Common ($.90 per share) 0 0 0 (11,646) 0 0 0 (11,646)
Treasury stock purchase 0 0 0 0 0 (39,630) 0 (39,630)
Preferred stock repurchase (37) 0 (926) 0 0 0 0 (963)
Employee Stock Ownership Plan loan repayment 0 0 0 0 0 0 150 150
Change in net unrealized holding loss
on securities, net of income tax effect
of ($3,269) 0 0 0 0 (4,902) 0 0 (4,902)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 2,479 14,130 155,345 269,431 (23,854) (57,698) (150) 359,683
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
6
ONBANCorp, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
- --------------------------------------------------------------------------------------
For the Nine Months
Ended September 30,
1996 1995
- --------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (6,224) 95,003
- --------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 510,947 768,274
Proceeds from sales of securities held to maturity 4,089 0
Proceeds from maturities of and principal collected
on securities available for sale 153,230 249,300
Proceeds from maturities of and principal collected
on securities held to maturity 524,524 540,122
Purchases of securities available for sale (476,822) (498,216)
Purchases of securities held to maturity (480,182) (752,584)
Net change in loans (117,359) (254,776)
Net payment made for sale of branches (19,820) 0
Purchases of premises and equipment (3,116) (9,382)
Proceeds from sale of building 250 0
Other 4,060 4,910
- --------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 99,801 47,648
- --------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposit accounts excluding
time deposits (8,511) (116,597)
Net increase in time deposits 62,530 149,094
Net decrease in repurchase agreements (103,947) (294,606)
Net increase (decrease) in other borrowings 43,382 (28,436)
Advances from Federal Home Loan Bank 266,717 895,064
Repayment of advances from Federal Home Loan Bank (401,907) (732,021)
Repayments of collateralized mortgage obligations (1,802) (1,819)
Net proceeds from issuance of common stock 558 547
Purchase of treasury stock (39,630) (6,376)
Repurchase of preferred stock (963) (5,688)
Cash dividends paid on common stock (12,077) (11,822)
Cash dividends paid on preferred stock (3,183) (3,555)
- --------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (198,833) (156,215)
- --------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (105,256) (13,564)
Cash and cash equivalents at beginning of period 285,244 173,964
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $179,988 160,400
- --------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Interest 166,554 204,135
Income taxes 17,624 19,480
Securitization of mortgage loans 44,083 10,518
Mortgage loans transferred to other
real estate owned 4,140 3,370
- --------------------------------------------------------------------------------------
See accompaning notes to condensed consolidated financial statements.
7
ONBANCorp, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements and related
notes should be read in conjunction with the consolidated financial
statements and related notes thereto included in the Company's Form 10-K for
the year ended December 31, 1995.
The condensed consolidated financial statements included herein reflect
all adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position at September 30, 1996 and 1995 and the results of operations for the
three and nine months ended September 30, 1996 and 1995.
Certain reclassifications have been made to prior period amounts for
consistency in reporting.
(2) LOANS
The Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 114 ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as
amended by SFAS No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN --
INCOME AND DISCLOSURE. These statements prescribe recognition criteria for
loan impairment, generally related to commercial type loans, and measurement
methods for certain impaired loans and all loans whose terms are modified in
troubled debt restructuring subsequent to the adoption of these statements.
A loan is considered impaired when it is probable that the borrower will be
unable to repay the loan according to the original contractual terms of the
loan agreement.
As of January 1, 1995, the Company has adopted the provisions of SFAS
No. 114 and SFAS No. 118 and has provided the required disclosures. The
effect of adoption was not material to the consolidated financial statements.
As of January 1, 1995, all of the Company's in-substance foreclosed assets
were reclassified into impaired loan status as required by SFAS No. 114. For
all prior periods presented, all amounts related to in-substance
foreclosures have also been reclassified. These reclassifications did not
impact the Company's consolidated financial condition or results of
operations.
As a result of the adoption of SFAS No. 114, the allowance for possible
loan losses related to impaired loans that are identified for evaluation in
accordance with SFAS No. 114 is based on the present value of expected cash
flows discounted at the loan's initial effective interest rate, except that
as a practical expedient, impairment may be measured at the loan's observable
market price, or the fair value of the collateral for certain loans where
repayment of the loan is expected to be provided solely by the underlying
collateral (collateral dependent loans). The Company's impaired loans are
generally collateral dependent. The Company considers estimated costs to
sell, on a discounted basis, when determining the fair value of collateral in
the measurement of impairment if those costs are expected to reduce the cash
flows available to repay or otherwise satisfy the loans. Prior to the
adoption of SFAS No. 114 and 118, the allowance for possible loan losses
related to these loans was based on estimated undiscounted cash flows or the
fair value of the collateral, less estimated costs to sell for collateral
dependent loans.
At September 30, 1996, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled $9.1 million. Included
in this amount is $7.8 million of impaired loans for which the related
allowance for credit losses is $4.1 million. In addition, included in the
total impaired loans at September 30, 1996 is $1.3 million of impaired loans
that as a result of the adequacy of collateral values do not have an
allowance for credit losses determined in accordance with SFAS No. 114. The
average recorded investments in impaired loans during the nine months ended
September 30, 1996 was approximately $9.6 million.
8
Impaired loans generally are included in non-performing loans, as
non-accrual loans. Commercial type loans past due greater than 90 days and
still accruing are generally not considered to be impaired as the Company
expects to collect all amounts due, including interest accrued at the
contractual interest rate for the delinquent period.
For the nine months ended September 30, 1996, the Company recognized
interest income on those impaired loans of $278 thousand using the cash basis
method of income recognition.
Potential problem loans at September 30, 1996 amounted to $18.1 million.
Potential problem loans are defined as loans which are not included with
past due and non-accrual loans discussed above, but about which management,
through normal internal credit review procedures, has information about
possible credit problems which may result in the borrower's inability to
comply with the present loan repayment terms. Of the $18.1 million in
potential problem loans, $4.1 million are considered impaired under SFAS No.
114. There have been no loans classified for regulatory purposes as loss,
doubtful, or substandard that are not included above or which caused
management to have serious doubts as to the ability of the borrower to comply
with repayment terms. In addition, there were no material commitments to
lend additional funds to borrowers whose loans were classified as
non-performing.
(3) SECURITIES
The following table sets forth securities available for sale as of
September 30, 1996.
- -------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 4,493 4 77 4,420
U.S. Government agencies 64,994 7 1,770 63,231
Mortgage-backed securities 712,307 4,253 2,256 714,304
- -------------------------------------------------------------------------------
Total debt securities 781,794 4,264 4,103 781,955
Equity securities:
Common 13 - - 13
Federal Home Loan Bank 46,486 - - 46,486
- -------------------------------------------------------------------------------
Total equity securities 46,499 - - 46,499
- -------------------------------------------------------------------------------
$828,293 4,264 4,103 828,454
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The following table sets forth securities held to maturity as of
September 30, 1996.
- -------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 29,563 220 55 29,728
U.S. Government agencies 159,489 - 9,376 150,113
State and municipal 65,429 1,132 92 66,469
Corporate and other 392 7 - 399
Mortgage-backed securities 1,463,078 4,188 25,926 1,441,340
- -------------------------------------------------------------------------------
Total debt securities 1,717,951 5,547 35,449 1,688,049
Unamortized holding loss on
securities transferred (39,921)
- -------------------------------------------------------------------------------
$1,678,030
- -------------------------------------------------------------------------------
9
The difference between the amortized cost and the fair value of both the
available for sale and the held to maturity categories of securities
represents the change in value related to interest rate fluctuations which
occurred following the purchase of these securities. These differences will
disappear as the assets prepay or mature and are considered to be temporary
in nature. There is minimal credit risk associated with the portfolio given
its secured nature. Approximately one-third of the total portfolio is
available for sale, and therefore, a relatively instantaneous source of
liquidity. The held to maturity portfolio also provides ongoing liquidity
given the amortizing nature of the securities. The major uncertainty
relative to this portfolio which is predominantly mortgage-backed securities,
is prepayment risk. Accelerating or decelerating prepayments affect the cash
flows and hence the yield on these securities. These factors are taken into
consideration when the assets are acquired and are periodically monitored.
Pursuant to SFAS No. 115, the Company sold $4.3 million held to maturity
security at a loss of $41 thousand during the third quarter of 1996, due to a
significant deterioration in the issuer's creditworthiness.
(4) SHAREHOLDERS' EQUITY
In 1995 the Company repurchased and retired 301,800 shares of Series "B"
Cumulative Convertible Preferred Stock at a cost of $8.360 million and
repurchased 577,900 shares of Common Stock at a cost of $18.068 million. In
1996, the Company repurchased and retired 35,860 shares of Series "B"
Cumulative Convertible Preferred Stock at a cost of $.963 million and
repurchased 1,219,300 shares of Common Stock at a cost of $39.630 million.
In addition, the Company intends to continue to acquire up to an additional
302,765 fully diluted shares, both common and preferred, as market conditions
permit.
(5) OTHER ACCOUNTING ISSUES
On January 1, 1996, the Company adopted SFAS No. 122, Accounting for
Mortgage Servicing Rights on a prospective basis. SFAS No. 122 requires the
Company to recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired, and also requires the
Company to assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. The adoption of SFAS 122 has
increased mortgage banking income by $650 thousand for the nine months ended
September 30, 1996.
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation which encourages, but does not require, companies to
use a fair value based method of determining compensation cost for grants of
stock options under stock-based employee compensation plans. As permitted by
SFAS No. 123, the Company elected to continue accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25
("APB 25"). Under APB 25, no compensation cost is recorded as options are
granted by the Company at a purchase price not less than the fair market
value of the common stock on the date of the grant. Companies electing to
continue accounting under the provisions of APB 25 are required to present
pro forma disclosures of net income and net income per share for each period
in which a complete set of financial statements are presented.
On September 28, 1996, the Financial Accounting Standards Board issued
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment 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. The Company will prospectively adopt SFAS No. 125 effective
January 1, 1997, and the expected impact on the Company's consolidated
financial statements is not material.
10
ONBANCorp, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
ONBANCorp, Inc.'s ("ONBANCorp" or "the Company") results of operations
are dependent upon the results of operations of its wholly owned subsidiary
banks: OnBank & Trust Co., Franklin First Savings Bank and OnBank ("the
Banks").
Third quarter net income was $7.3 million compared to $12.7 million for
the 1995 third quarter and first nine months net income was $30.5 million
compared to $32.7 million for the prior year period. Like many U.S. banks,
these earnings were significantly impacted by one-time thrift industry
related charges, which were federally mandated in the quarter ended September
30, 1996. The one-time charges were a $7.3 million SAIF deposit insurance
premium and a $1.9 million tax on thrift bad debt reserves, which were
partially offset by September 1996 securities gains of $3.1 million. The
effect of these items was a reduction of net income of $5.1 million or $.35
per share. Fully diluted net income per common share was $.49 compared to
$.78 for the 1995 third quarter and $2.00 for the first nine months of 1996
and 1995. Return on Average Equity (ROE) was 7.8% and 10.7% for the three and
nine months ended September 30, 1996 compared to 13.1% and 11.6% for the
respective prior year periods. Return on Average Assets (ROA) was .55% and
.76% for the three and nine months ended September 30, 1996 compared to .78%
and .69% for the respective prior year periods. As adjusted for net one-time
charges of $5.1 million, ROE was 13.3% and 12.5% for the three and nine
months ended September 30, 1996 and ROA was .94% and .89% for the respective
periods.
Book value per common share was $24.14 at September 30, 1996, $24.11 at
December 31, 1995, and $22.83 at September 30, 1995. A regular dividend of
$.30 per common share was declared for the third quarter of 1996 and paid on
October 1, 1996. Regular dividends of $.90 per common share have been
declared during the first nine months of 1996.
NET INTEREST INCOME
Increasing core business activity has been a significant influence in
year over year performance improvements. During the one year period ended
September 30, 1996, commercial loans have increased by $98 million or 18% to
$646 million and consumer loans increased by $107 million or 18% to $688
million. During the last year the residential mortgage loan portfolio has
decreased slightly by $43 million to $1,053 million despite the fact that
$214 million new loans were originated. To manage overall interest rate risk
in a relatively low yield market rate environment, $104 million of these
originations were securitized or sold, thereby, moderating loan portfolio
growth. Total assets declined by $1.2 billion or 18% to $5.4 billion as a
result of selling securities and paying down borrowings during the last
quarter of 1995 and first half of 1996. This decreased "wholesale" activity
coupled with the increased "core banking" business have been primary factors
affecting the increased net interest margin.
Net interest income was $38.5 million and $113.7 million for the three
and nine month periods ended September 30, 1996, compared to the $38.8
million and $113.8 million recorded in the respective prior year periods.
Average loans of $2.344 billion for the first nine months of 1996 were $254
million or 12% improved over the first nine months of 1995 as a result of
the Company s continuing focus on expanding loan generation. The yield on
these average loans declined by .19% to 8.48% for the first nine months of
1996 compared to the 8.67% for the prior year period. The volume of average
securities for the first nine months of 1996 declined to $2.636 billion or
by $1.260 billion compared to the prior year period. The yield on these
securities increased by .14% to 6.48% as a combined result of the
reinvestment of part of the proceeds from the sale of securities during the
fourth quarter 1995, repositioning and the scheduled repricing of certain
adjustable-rate securities. Average securities decreased by more than the
increase in average loans, therefore, average interest earning assets of
$5.037 billion were $988 million less for the first nine months of 1996 than
for the first nine months of 1995. The yield on total earning assets
increased by .25% to 7.40% for the nine months of 1996 compared to the first
nine months of 1995. The Company intends to continue its efforts to increase
its core lending business as a percentage of overall earning assets.
11
The average balance of savings deposits decreased by $69 million to $747
million for the first nine months of 1996 compared to the prior year period.
The cost of these deposits also decreased by .22% to 2.62% for the first nine
months of 1996 compared to the prior year period. Average time deposits
increased $35 million to $2.171 billion for the first nine months of 1996
compared to the first nine months of 1995. The costs of these deposits also
increased by .03% to 5.56% for the first nine months ended September 30,
1996 compared to the prior year period. The increase in time deposits was
the result of increases in retail and municipal certificates of deposit being
greater than the decrease in retail brokered certificates of deposit.
Average interest bearing transaction accounts (Money market, NOW and escrow
deposits) decreased $31 million to $529 million and the cost decreased .09%
to 2.32% when comparing the first nine months of 1996 to the first nine
months of 1995. The decrease in these accounts is mainly attributable to
consumer preference for higher yielding certificates of deposit, as well as,
alternative investments such as stocks and bonds. Average total interest
bearing deposits decreased by $65 million to $3.447 billion for the first
nine months of 1996 compared to the first nine months of 1995. Also
contributing in an indirect manner to the decrease in interest bearing
deposits was the increase of $20 million in non-interest bearing deposits.
The Banks intend to continue to emphasize increasing the balances in
non-interest bearing deposits.
Total average borrowings (including repurchase agreements) of $1.123
billion for the first nine months of 1996 are $974 million or 46% less than
the $2.097 billion for the first nine months of 1995 reflecting the Company's
strategy to reduce borrowings. The selective lengthening in maturities of
borrowings during 1995 affected the costs of the borrowings with repurchase
agreements increasing by .30% to 6.27% and other borrowings increasing .18%
to 6.03% when comparing the first nine months of 1996 to the first nine
months of 1995. The essentially flat slope of the yield curve in 1995
provided the opportunity for extending liabilities and thereby helping to
protect against rising interest rates, however, the offset is that the
Company's net interest income will not benefit as much from declining
interest rates. As a result of the decreased volume of higher cost
borrowings, the cost of total interest bearing liabilities decreased by .13%
to 4.84% for the first nine months of 1996 compared to the first nine months
of 1995.
The effect of the increase in yield on earning assets of .25% and the
decrease in cost of interest bearing liabilities of .13% resulted in the net
interest spread increasing from 2.18% to 2.56% for the first nine months of
1996 compared to the first nine months of 1995. The effects of average
interest bearing liabilities decreasing by more than interest earning assets
resulted in the net interest margin, which is affected by the relative
average balances of interest earning assets and interest bearing liabilities,
increasing by .49% to 3.01% for the first nine months of 1996 compared to
the first nine months of 1995.
12
This table sets forth for the nine months ended September 30, the
average daily balances of the Company s major asset and liability items and
the interest earned or paid thereon expressed in dollars and weighted average
rates.
- -------------------------------------------------------------------------------------------------------------
1996 1995
(Dollars in Thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------
Interest earning assets(1)
Loans $ 2,343,832 148,755 8.48% 2,089,412 135,507 8.67%
Securities 2,636,402 127,972 6.48% 3,896,597 184,692 6.34%
Federal funds sold and other 56,611 2,382 5.62% 39,107 1,892 6.47%
- -------------------------------------------------------------------------------------------------------------
Total interest earning assets 5,036,845 279,109 7.40% 6,025,116 322,091 7.15%
- -------------------------------------------------------------------------------------------------------------
Non-interest earning assets 292,110 325,438
- -------------------------------------------------------------------------------------------------------------
Total assets $ 5,328,955 6,350,554
Interest bearing liabilities
Savings deposits 747,085 14,635 2.62% 816,324 17,354 2.84%
Time deposits 2,171,029 90,344 5.56% 2,135,704 88,281 5.53%
Money market accounts, NOW accounts,
and escrow deposits 529,091 9,173 2.32% 560,318 10,114 2.41%
- -------------------------------------------------------------------------------------------------------------
Total Deposits 3,447,205 114,152 4.42% 3,512,346 115,749 4.41%
Repurchase agreements 315,342 14,803 6.27% 901,011 40,248 5.97%
Other borrowings 807,750 36,487 6.03% 1,196,067 52,318 5.85%
- -------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 4,570,297 165,442 4.84% 5,609,424 208,315 4.97%
Non-interest bearing deposits 316,446 296,354
Non-interest bearing liabilities 61,055 66,654
- -------------------------------------------------------------------------------------------------------------
Total liabilities 4,947,798 5,972,432
Shareholders' equity 381,157 378,122
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 5,328,955 6,350,554
Net interest income $ 113,667 113,776
- -------------------------------------------------------------------------------------------------------------
Interest rate spread 2.56% 2.18%
Net interest margin(2) 3.01% 2.52%
Total interest earning assets to total interest
bearing liabilities 1.10X 1.07X
Average equity to average assets 7.15% 5.95%
- -------------------------------------------------------------------------------------------------------------
(1) Nonaccruing loans, which are immaterial, have been included in interest
earning assets.
(2) Computed by dividing net interest income by total interest earning assets.
13
The following table presents changes in interest income and interest
expense attributable to: changes in volume (changes in average balance or
volume multiplied by prior year rate), changes in rate (changes in rate
multiplied by prior year volume), and the net change. The net change
attributable to the combined impact of volume and rate has been allocated
proportionately to the absolute dollar amount of the change in each.
- ------------------------------------------------------------------------------
1996 Compared to 1995
Increase (Decrease)
(Dollars in Thousands) Volume Rate Net
- -------------------------------------------------------------------------------
INTEREST EARNING ASSETS
Loans $ 16,265 -3,017 13,248
Securities -60,741 4,021 -56,720
Federal funds sold and other 764 -274 490
- -------------------------------------------------------------------------------
Total change in income from interest
earning assets -43,712 730 -42,982
- -------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES
Savings deposits -1,421 -1,298 -2,719
Time deposits 1,553 510 2,063
Money market accounts, NOW accounts,
and escrow deposits -563 -378 -941
- -------------------------------------------------------------------------------
Total change in interest expense on
deposits -431 -1,166 -1,597
- -------------------------------------------------------------------------------
Repurchase agreements -27,376 1,931 -25,445
Other borrowings -17,405 1,574 -15,831
- -------------------------------------------------------------------------------
Total change in expense from interest
bearing liabilities -45,212 2,339 -42,873
- -------------------------------------------------------------------------------
Net interest income $ 1,500 -1,609 -109
- -------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES. Management's evaluation of the adequacy of
the allowance takes into consideration the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations
which may affect the borrower's ability to repay, overall portfolio quality,
and current and prospective economic conditions.
Non-performing loans plus other real estate owned represented .63% of
total assets at September 30, 1996. The Company's provision for loan losses
of $2.0 million and $5.9 million for the three and nine month periods ended
September 30, 1996 increased from the $1.6 million and $5.0 million recorded
in the respective prior year periods. These provisions reflect the increase
in overall loan portfolio. The coverage ratio of allowance for loan losses to
non-performing loans increased from 119% at December 31, 1995 to 133% at
September 30, 1996. The allowance as a percent of gross loans was 1.6% at
September 30, 1996. The ratio of delinquent loans as a percentage of gross
loans was 1.2% at September 30, 1996. Loan quality remains strong at
ONBANCorp.
14
The following table sets forth the activity in the allowance for loan
losses for the periods indicated:
September 30, --------------December 31,------------
(Dollars in Thousands) 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------
Beginning balance $34,583 33,775 32,717 31,722 13,064 10,937
Charge-offs
Mortgage loans 1,322 3,749 3,706 748 1,623 1,687
Commercial loans 186 1,437 1,746 7,303 8 6
Other loans 1,894 2,405 2,686 3,684 639 726
- ---------------------------------------------------------------------------------------------
Total charge-offs 3,402 7,591 8,138 11,735 2,270 2,419
- ---------------------------------------------------------------------------------------------
Recoveries
Mortgage loans 877 630 236 1 30 0
Commercial loans 260 352 598 1,341 9 0
Other loans 373 627 724 1,091 93 86
- ---------------------------------------------------------------------------------------------
Total recoveries 1,510 1,609 1,558 2,433 132 86
- ---------------------------------------------------------------------------------------------
Net charge-offs 1,892 5,982 6,580 9,302 2,138 2,333
- ---------------------------------------------------------------------------------------------
Provision for loan losses 5,850 6,790 7,638 10,297 5,900 4,460
Allowance of combined banks 0 0 0 0 14,896 0
- ---------------------------------------------------------------------------------------------
Ending balance $38,541 34,583 33,775 32,717 31,722 13,064
- ---------------------------------------------------------------------------------------------
Ratio of net charge-offs to average 0.08% 0.28% 0.35% 0.47% 0.14% 0.15%
loans outstanding
- ---------------------------------------------------------------------------------------------
The following table sets forth the allocation of the allowance for loan
losses:
September 30, --------------December 31,------------
(Dollars in Thousands) 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------
Mortgage loans $17,839 15,629 17,374 17,313 15,237 9,122
Mortgage loans to total loans 56.66% 59.36% 59.74% 60.89% 61.32% 72.22%
Construction loans $1,101 1,060 340 340 150 0
Construction loans to total loans 1.64% 2.30% 1.58% 1.64% 1.64% 1.21%
Commercial loans $12,170 11,801 10,676 10,856 10,774 1,067
Commercial loans to total loans 13.02% 11.68% 11.32% 9.53% 9.54% 1.72%
Other loans $7,431 6,093 5,385 4,208 5,561 2,875
Other loans to total loans 28.68% 26.66% 27.36% 27.94% 27.50% 24.85%
- ---------------------------------------------------------------------------------------------
Total allowance for loan losses $38,541 34,583 33,775 32,717 31,722 13,064
- ---------------------------------------------------------------------------------------------
The loan loss allowance allocation provided does not necessarily
represent the total amount which may or may not be available for actual
future losses in any one or more of the categories.
15
The following table sets forth information with respect to loans
delinquent for 90 days or more, restructured loans and other nonperforming
assets:
September 30, /---------------------December 31,----------------------/
(Dollars in Thousands) 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
Delinquent mortgage loans:
Conventional $ 11,214 12,340 12,691 11,436 13,275 10,940
FHA and VA 678 705 612 905 1,155 1,055
Multi-family and commercial 9,452 9,063 8,591 7,546 7,864 3,735
- -------------------------------------------------------------------------------------------------------------------
Total delinquent mortgage loans 21,344 22,108 21,894 19,887 22,294 15,730
- -------------------------------------------------------------------------------------------------------------------
As a percentage of gross mortgage loans 1.5% 1.5% 1.8% 1.7% 1.7% 1.4%
- -------------------------------------------------------------------------------------------------------------------
Delinquent commercial loans $ 5,265 4,387 5,593 6,655 9,782 357
- -------------------------------------------------------------------------------------------------------------------
As a percentage of gross commercial loans 1.6% 1.6% 2.5% 3.6% 4.9% 1.4%
- -------------------------------------------------------------------------------------------------------------------
Delinquent other loans:
Home equity $ 730 738 720 414 528 389
Guaranteed student 233 183 157 97 902 5,829
Loans to individuals 1,352 1,542 1,396 1,651 1,815 1,033
- -------------------------------------------------------------------------------------------------------------------
Total delinquent other loans $ 2,315 2,463 2,273 2,162 3,245 7,251
- -------------------------------------------------------------------------------------------------------------------
As a percentage of gross other loans 0.3% 0.4% 0.4% 0.4% 0.6% 1.9%
- -------------------------------------------------------------------------------------------------------------------
Delinquent loans as a percentage of
gross loans 1.2% 1.2% 1.5% 1.5% 1.7% 1.5%
- -------------------------------------------------------------------------------------------------------------------
Non-performing loans:
Non-accrual loans $ 22,018 23,580 22,525 25,381 30,236 14,999
Accruing loans delinquent 90 days
or more 2,438 2,586 2,386 3,323 5,085 8,339
Restructured loans 4,468 2,792 4,849 5,559 4,053 7,991
- -------------------------------------------------------------------------------------------------------------------
Total non-performing loans 28,924 28,958 29,760 34,263 39,374 31,329
Other non-performing assets:
Other real estate owned 4,217 4,019 5,431 10,719 17,332 6,893
Repossessed assets 680 441 335 666 327 210
- -------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 33,821 33,418 35,526 45,648 57,033 38,432
- -------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage
of non-performing loans 133.25% 119.42% 113.49% 95.49% 80.57% 41.70%
Non-performing assets as a percentage of
total assets 0.63% 0.60% 0.53% 0.79% 1.21% 1.13%
- -------------------------------------------------------------------------------------------------------------------
16
OTHER OPERATING INCOME
Other operating income, which is generated by mortgage banking
activities, service charges, security transactions and miscellaneous other
sources, increased by $3.8 million and $7.4 million for the three and nine
month periods ended September 30, 1996 compared to the respective prior year
periods.
Mortgage banking income decreased by $.4 million and increased by $.2
million for the three and nine month periods ended September 30, 1996
compared to the respective prior year periods. Adoption of Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" in 1996 increased mortgage banking income by $.7 million year to
date. The volume of loans serviced for others decreased from $1.147 billion
at September 30, 1995 to $1.082 billion at September 30, 1996.
Service charges increased $1.0 million or 26% and $2.3 million or 21%
for the three and nine month periods ended September 30, 1996 compared to
the respective prior year periods. Increasing volumes of commercial banking
business and consumer electronic banking services are primarily responsible
for these increases. The Company intends to continue to emphasize the growth
of "core" commercial banking in the form of deposit growth and electronic
fee generated business. For example, OnBank & Trust Co. became the sole
provider of ATM's at New York State Thruway Service Areas during the second
half of 1995.
Gains on the sale of securities increased by $3.0 million and $2.9
million in the three and nine month periods ended September 30, 1996
compared to the respective prior year periods. Gains of $3.1 million in
September 1996 were taken to partially offset one-time government mandated
charges.
Other income of $5.8 million for the nine months ended September 30,
1996 includes non-recurring items of a $2.9 million gain on sale of three
small branches and a $1.3 million loss on sale of a building.
Continuing to increase other operating income in the future is a
strategic goal of the Company. The primary sources of the increases are
targeted in the retail and commercial banking areas along with electronic
banking.
OTHER OPERATING EXPENSES
Third quarter and nine month operating expenses are $8.6 and $8.5 million
more than the prior year periods. A one-time FDIC insurance premium of $7.3
million during the third quarter of 1996 and $.5 million of one-time borrowing
prepayment penalties account for the majority of the increase. Increases in
other expense items relate generally to increased business activity. An
efficiency ratio of 57% for the first nine months of 1996, excluding the one-
time insurance premium, reflects ongoing control of other operating expenses.
DIVIDENDS
Payments of dividends by ONBANCorp on its common and preferred stock is
subject to various regulatory and tax restrictions. During the three and
nine month periods ended September 30, 1996, the Company declared dividends
of $.30 and $.90 per common share respectively, amounting to $3.6 million and
$11.6 million respectively. For the same periods the Company declared
dividends of $.42 and $1.27 per preferred share respectively, amounting to
$1.0 million and $3.2 million, respectively. These dividends were paid in
April, July and October of 1996 to appropriate shareholders of record.
17
LIQUIDITY
ONBANCorp's liquidity should be sufficient to meet normal transaction
requirements and flexible enough to take advantage of market opportunities
and to react to other liquidity needs. Net cash used by operating activities
amounted to $6 million for the first nine months of 1996 compared to the $95
million provided by operating activities for the prior year period.
Investing activities provided $100 million with proceeds from sales,
maturities and principal collected on securities exceeding purchases of
securities by $118 million, partially offset by the funding of loans and
branch sale. The major use of financing activity funds was to reduce advances
from Federal Home Loan Bank and repurchase agreements, with total uses of
cash from financing activities totaling $199 million. Cash and cash
equivalents of $180 million at September 30, 1996 were $20 million less than
at September 30, 1995.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
The equity to asset ratio was 6.7% on September 30, 1996 as measured by
shareholders' equity of $360 million and assets of $5.359 billion.
ONBANCorp's capital ratios exceed all regulatory requirements, including the
Company's total risk adjusted capital ratio of 14.0% which significantly
exceeds the regulatory requirement of 8.0%. The current share repurchase
program is expected to continue during the fourth quarter and will result in
fewer shares of common stock outstanding at December 31, 1996 than at
September 30, 1996. It is currently expected that the current share
repurchase program will be completed prior to year-end 1996.
18
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part of
this quarterly report on Form 10-Q.
No. Exhibit
--- --------
11 Computation of Per Share Earnings
27 Selected Financial Data
(b) Reports on Form 8-K
None
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONBANCorp, INC.
/s/ Robert J. Bennett
________________________________
DATE: November 8, 1996 Robert J. Bennett
Chairman, President
and Chief Executive Officer
/s/ Robert J. Berger
________________________________
DATE: November 8, 1996 Robert J. Berger
Senior Vice President, Treasurer
and Chief Financial Officer