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: March 31, 1997 Commission File No.: 0-18011
ONBANCorp, Inc.
---------------
(Exact name of registrant as specified in its charter)
Delaware 16-1345830
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 South Salina Street, Syracuse, New York 13202
-------------------------------------------------
(Address of principal executive office and Zip Code)
(315) 424-4400
---------------
(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_____
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 13,287,346
- --------------------------------------- -----------
(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
March 31, 1997, December 31, 1996, and March 31, 1996.......... 3
Condensed Consolidated Statements of Income
for the Three Months ended March 31, 1997 and 1996............. 4
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the Three Months ended March 31, 1997 and 1996...... 5
Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1997 and 1996............. 6
Notes to Condensed Consolidated Financial Statements............ 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 10--16
PART II. OTHER INFORMATION.............................................. 17
Signatures.............................................................. 18
3
ONBANCorp, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
- --------------------------------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 111,334 169,740 134,722
Federal funds sold and other 9,561 12,253 14,337
Securities:
Trading 1,705 1,727 1,790
Available for sale 1,023,283 925,340 879,797
Held to maturity, fair value of $1,617,716 at March 31, 1997,
$1,702,201 at December 31, 1996, and $1,796,455 at March 31, 1996 1,613,242 1,683,908 1,775,035
- --------------------------------------------------------------------------------------------------------------------------
Total securities 2,638,230 2,610,975 2,656,622
- --------------------------------------------------------------------------------------------------------------------------
Loans:
Portfolio, net of premium and discount 2,481,262 2,448,474 2,307,775
Allowance for loan losses (38,491) (37,840) (35,793)
- --------------------------------------------------------------------------------------------------------------------------
Net loans 2,442,771 2,410,634 2,271,982
- --------------------------------------------------------------------------------------------------------------------------
Loans available for sale 57,216 38,759 43,046
Premises and equipment, net 62,181 62,557 65,718
Due from brokers 35,182 - 117,551
Other assets 113,686 112,959 116,073
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,470,161 5,417,877 5,420,051
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing 340,325 356,171 296,662
Interest bearing:
Savings, NOW and money market 1,213,085 1,214,823 1,318,362
Time deposits less than $100,000 1,628,821 1,646,576 1,631,504
Time deposits $100,000 and greater 689,563 604,336 519,100
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 3,871,794 3,821,906 3,765,628
- --------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 309,459 254,471 354,330
Other borrowings 723,182 874,917 804,205
Due to brokers 109,368 40,724 33,450
Other liabilities 64,681 65,808 71,048
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,078,484 5,057,826 5,028,661
- --------------------------------------------------------------------------------------------------------------------------
Capital trust securities 60,000 - -
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, par value $1.00 per share; 10,000,000 shares authorized;
Series B 6.75% Cummulative Convertible; par value $1.00 per share;
10,000,000 shares authorized; issued at outstanding; none at March 31,
1997; 2,342,052 at December 31, 1996; 2,515,700 at March 31, 1996; - 2,342 2,516
Common stock, par value $1.00 per share; 56,000,000 shares authorized;
shares issued; March 31, 1997 - 14,292,924; December 31, 1996- 14,293 14,139 14,104
14,139,475; March 31, 1996 - 14,104,320
Additional paid-in capital 98,596 156,465 155,899
Retained earnings 284,228 276,767 260,122
Net unrealized holding loss on securities, net of deferred taxes (22,828) (20,169) (22,883)
Treasury Stock, at cost, 1,005,578 shares at March 31, 1997,
1,994,143 at December 31, 1996, 577,900 at March 31, 1996. (42,462) (65,343) (18,068)
Guarantee of ESOP indebtedness (150) (150) (300)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 331,677 360,051 391,390
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,470,161 5,417,877 5,420,051
- --------------------------------------------------------------------------------------------------------------------------
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
ended March 31,
1997 1996
- --------------------------------------------------------------------------------
Interest income:
Loans $51,011 48,478
Securities 40,990 45,370
Federal funds sold and other 627 979
- -------------------------------------------------------------------------------
Total interest income 92,628 94,827
- -------------------------------------------------------------------------------
Interest expense:
Deposits 39,537 38,962
Borrowings:
Repurchase agreements 4,786 5,543
Other 10,018 12,440
- --------------------------------------------------------------------------------
Total interest expense 54,341 56,945
- --------------------------------------------------------------------------------
Net interest income 32,287 37,882
Provision for loan losses 1,796 1,950
- --------------------------------------------------------------------------------
Net interest income after provision for loan
losses 36,491 35,932
- --------------------------------------------------------------------------------
Other operating income:
Mortgage banking 1,047 793
Service charges 5,140 4,328
Net gain on securities 2,085 1,893
Other 1,527 1,500
- -------------------------------------------------------------------------------
Total other operating income 9,799 8,514
- --------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 10,263 10,512
Building, occupancy and equipment 4,857 4,735
Deposit insurance premiums 259 705
Contracted data processing 2,771 2,625
Legal and financial services 1,133 951
Capital trust securities dividend 850 -
Other 6,822 6,685
- --------------------------------------------------------------------------------
Total other operating expenses 26,955 26,213
- --------------------------------------------------------------------------------
Income before taxes 19,335 18,233
Income taxes 7,187 6,667
- --------------------------------------------------------------------------------
Net income $12,148 11,566
- --------------------------------------------------------------------------------
Income per common share:
Primary $ 0.88 0.77
Fully diluted 0.87 0.74
- --------------------------------------------------------------------------------
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 Treasury ESOP
Stock Stock Capital Earnings Securities Stock Indebtedness Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 2,516 14,095 155,748 253,727 (18,952) (18,068) (300) 388,766
Net income - - - 11,566 - - - 11,566
Stock issued under
Stock Option Plans - 4 34 - - - - 38
Employee Stock Purchase Plan - 5 117 - - - - 122
Cash dividends declared:
Preferred ($.42 per share) - - - (1,060) - - - (1,060)
Common ($.30 per share) - - - (4,111) - - - (4,111)
Changes in net unrealized holding loss
on securities, net of income tax effect
of ($2,519) - - - - (3,931) - - (3,931)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $ 2,516 14,104 155,899 260,122 (22,883) (18,068) (300) 391,390
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 2,342 14,139 152,465 276,767 (20,169) (65,343) (150) 360,051
Net income - - - 12,148 - - - 12,148
Stock issued under
Stock Option Plans - 150 1,991 - - - - 2,141
Tax benefits related to
stock options - - 1,549 - - - - 1,549
Employee Stock Purchase Plan - 4 129 - - - 133
Cash dividends declared
Common ($.34 per share) - - - (4,687) - - - (4,687)
Treasury stock purchase - - - - - (36,075) - (36,075)
Preferred stock redemption (36) - (888) - - - - (924)
Preferred stock conversion (2,306) - (56,650) - - 58,956 - -
Changes in net unrealized holding
loss on securities, net of income
tax effect of ($1,725) - - - - (2,659) - - (2,659)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ - 14,293 98,596 284,228 (22,828) (42,462) (150) 331,677
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
6
ONBANCorp, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
For the Three Months
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (1,599) 19,591
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 89,549 172,590
Proceeds from maturities of and principal collected on securities available for sale 50,399 56,855
Proceeds from maturities of and principal collected on securities held to maturity 123,577 198,718
Purchases of securities available for sale (200,973) (181,024)
Purchases of securities held to maturity (68,297) (227,859)
Net change in loans (36,444) (21,925)
Purchases of premises and equipment (1,167) (772)
Other 1,257 1,669
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (42,099) (1,748)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts excluding time deposits (17,584) 2,932
Net increase (decrease) in time deposits 67,472 (45,577)
Net increase (decrease) in repurchase agreements 54,988 (7,287)
Net increase (decrease) in other borrowings (9,300) 25,700
Advances from Federal Home Loan Bank 22,230 631
Repayment of advances from Federal Home Loan Bank (164,031) (125,029)
Repayments of collateralized mortgage obligations (634) (467)
Issuance of Capital Trust Securities 60,000 -
Net proceeds from issuance of common stock 2,274 160
Purchase of treasury stock (26,780) -
Repurchase of preferred stock (924) -
Cash dividends paid on common stock (4,123) (4,029)
Cash dividends paid on preferred stock (988) (1,062)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (17,400) (154,028)
- ---------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (61,098) (136,185)
Cash and cash equivalents at beginning of period 181,993 285,244
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 120,895 149,059
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest 54,428 56,324
Income taxes 234 1,410
Non-cash investing and financing activities:
Securitization of mortgage loans - 17,512
Mortgage loans transferred to other real estate owned 1,480 1,359
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying 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, 1996.
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 March 31, 1997 and 1996 and the results of operations for the three
months ended March 31, 1997 and 1996.
Certain reclassifications have been made to prior period amounts for
consistency in reporting.
(2) LOANS
Impaired loans were $7.5 million and $11.4 million at March 31, 1997 and
1996, respectively. Included in these amounts are $1.8 million and $9.8 million
of impaired loans for which the related allowance for loan losses is $.3 million
and $1.6 million at March 31, 1997 and 1996, respectively. In addition, included
in the total impaired loans is $5.7 million and $3.6 million of impaired loans
that, as a result of the adequacy of collateral values and cash flow analysis do
not have a specific impairment reserve at March 31, 1997 and 1996, respectively.
The average recorded investments in impaired loans during the three months ended
March 31, 1997 and 1996 was approximately $7.2 million and $10.7 million,
respectively.
For the three months ended March 31, 1997 and 1996, the Company recognized
interest income on those impaired loans of $137 thousand and $133 thousand,
respectively using the cash basis method of income recognition.
8
(3) SECURITIES
The following table sets forth securities available for sale as of March 31, 1997:
---------------------------------------------------------------------------------
Gross Unrealized Fair
Amortized ----------------
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 39,059 5 243 38,821
U.S. Government agencies 114,992 -- 3,807 111,185
Corporate and other 33,689 35 67 33,657
Mortgage-backed securities 778,944 4,173 1,651 781,466
----------------------------------------------------------------------------
Total debt securities 966,684 4,213 5,768 965,129
Equity securities:
Common 13 -- -- 13
Preferred 14,112 54 51 14,115
Federal Home Loan Bank 44,026 -- -- 44,026
----------------------------------------------------------------------------
Total equity securities 58,151 54 51 58,154
----------------------------------------------------------------------------
$1,024,835 4,267 5,819 1,023,283
----------------------------------------------------------------------------
The following table sets forth securities held to maturity as of March 31, 1997:
----------------------------------------------------------------------------
Gross Unrealized Fair
Amortized ----------------
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------
Debt securities:
U.S. Government obligations $ 14,978 11 24 14,965
U.S. Government agencies 135,470 -- 7,927 127,543
State and municipal 65,345 994 91 66,248
Corporate and other 488 6 -- 494
Mortgage-backed securities 1,433,454 3,999 28,987 1,408,466
------------------------------------------------------------------------------
Total debt securities 1,649,735 5,010 37,029 1,617,716
Unamortized holding loss on
securities transferred (36,493)
------------------------------------------------------------------------------
$1,613,242
------------------------------------------------------------------------------
In view of a regulatory policy revision in 1994, the Company transferred
securities with a fair value of $1.265 billion and a net unrealized holding
loss of $71.6 million at date of transfer from available for sale to held to
maturity. At March 31, 1997, the remaining unamortized loss on US Government
agency securities was $8,123,000 and mortgage-backed securities was
$28,370,000.
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
9
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.
(4) CAPITAL TRUST SECURITIES
In February 1997, the Company, through a subsidiary Trust formed for the
sole purpose of issuing capital securities, issued $60,000,000, 9.25% Capital
Securities due February 1, 2027. Proceeds of this issue will primarily be used
to fund the 1,400,000 common share repurchase announced in January 1997. In
October of 1996 the Federal Reserve Board approved Tier I capital treatment for
this type of capital securities which provides the Company with a method of
funding Tier I capital that is tax deductible. The proceeds to the Trust are
lent to the holding company as long-term junior subordinated debentures that are
subordinated to all holding company debt but senior to all common stock. The
securities may be called at a premium, in whole or in part, on or after February
1, 2007 and provisions are included which provide for the temporary deferral of
interest payments for a period of up to five years.
(5) SHAREHOLDERS' EQUITY
In January 1997, the Company completed its previously announced Series "B"
Cumulative Convertible Preferred Stock redemption, which resulted in the
redemption of 35,514 shares at a cost of $.924 million and the remaining
2,306,538 shares being converted to 1,799,096 shares of Common Stock issued from
treasury stock. In 1997, the Company also repurchased 798,300 shares of Common
Stock at a cost of $35.528 million. In addition, the Company intends to continue
to acquire up to an additional 601,700 common shares, as market conditions
permit.
(6) OTHER ACCOUNTING ISSUES
Effective January 1, 1997 the Company adopted Statement of Financial
Accounting Standards (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. In December 1996, the Financial Accounting Standards Board (FASB)
deferred for one year the effective date of SFAS No. 125 as it relates to
transfers of financial assets and secured borrowings and collateral. The
adoption of SFAS No. 125 has not had a material impact on the Company's
consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. SFAS No.
128 establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. All prior period EPS
will be restated after the effective date of this statement. Management does not
believe the adoption of SFAS No. 128 will have a material impact on its
financial condition or results of operation.
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.and Franklin First Savings Bank ("the Banks"). On January 1,
1997 OnBank & Trust Co. and OnBank merged, thereby creating a single banking
entity in New York State.
First quarter net income was $12.1 million compared to $11.6 million for
the 1996 first quarter. Fully diluted net income per common share was $.87
compared to $.74 for the 1996 first quarter. Return on Average Equity (ROE)
was 13.7% for the three months ended March 31, 1997 compared to 12.0% for the
respective prior year period. Return on Average Assets (ROA) was .93% for the
three months ended March 31, 1997 compared to .85% for the respective prior
year period.
Book value per common share was $24.96 at March 31, 1997, $24.82 at December
31, 1996, and $24.29 at March 31, 1996. A regular dividend of $.34 per common
share was declared for the first quarter of 1997 and paid on April 1, 1997.
NET INTEREST INCOME
Increasing core business activity has been a significant influence in year
over year performance improvements. During the one year period ended March 31,
1997, commercial loans have increased by $80 million or 14% to $663 million and
consumer loans increased by $166 million or 28% to $768 million. During the last
year the residential mortgage loan portfolio has decreased by $67 million to
$1,056 million despite the fact that $173 million new loans were originated. To
manage overall interest rate risk in a relatively low yield market rate
environment, $111 million of residential mortgage loans were securitized or
sold, thereby, moderating loan portfolio growth. Total assets increased slightly
by $50 million or 1% to $5.5 billion.
Net interest income was $38.3 million for the three month period ended March
31, 1997, compared to the $37.9 million recorded in the respective prior year
period. Average loans of $2.444 billion for the first three months of 1997 were
$150 million or 7% improved over the first three months of 1996 as a result of
the Company's continuing focus on expanding loan generation. The yield on these
average loans declined by 4 basis points to 8.46% for the first three months of
1997 compared to the 8.50% for the prior year period. The volume of average
securities for the first three months of 1997 declined to $2.528 billion or by
$265 million compared to the prior year period. The yield on these securities
increased by 5 basis points to 6.58% as a combined result of reinvestment and
the scheduled repricing of certain adjustable-rate securities. Average interest
earning assets of $5.013 billion were $150 million less for the first three
months of 1997 than for the first three months of 1996 due to the decline in
securities. The yield on total earning assets increased by 10 basis points to
7.49% for the three months of 1997 compared to the first three months of 1996
reflecting the increased proportion of loans to overall earning assets. The
Company intends to continue its efforts to increase its core lending business as
a percentage of overall earning assets.
The average balance of savings deposits decreased by $82 million to $680
million for the first three months of 1997 compared to the prior year period.
The cost of these deposits also decreased by 14 basis points to 2.54% for the
first three months of 1997 compared to the prior year period. Average time
deposits increased $118 million to $2.319 billion for the first three months of
1997 compared to the first three months of 1996. The costs of these deposits
decreased by 10 basis points to 5.54% for the first three months ended March 31,
1997 compared to the prior year period. The increase in time deposits was the
11
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)
increased $6 million to $538 million and the cost increased 41 basis points to
2.69% when comparing the first three months of 1997 to the first three months of
1996. Average total interest bearing deposits increased by $42 million to $3.538
billion for the first three months of 1997 compared to the first three months of
1996.
Total average borrowings (including repurchase agreements) of $.975 billion
for the first three months of 1997 are $219 million or 18% less than the $1.195
billion for the first three months of 1996 reflecting the Company's strategy to
reduce borrowings. The essentially flat slope of the yield curve in 1996
provided the opportunity for extending liabilities and thereby helping to
protect against rising interest rates resulting in a 10 basis point increase in
the overall borrowing cost, 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 remained at 4.88% for the first three months of
1997 and 1996.
The effect of the increase in yield on earning assets of 10 basis points
resulted in the net interest spread increasing from 2.51% to 2.61% for the first
three months of 1997 compared to the first three months of 1996. 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 15 basis points to 3.10% for the first three months of 1997
compared to the first three months of 1996. Contributing to this improvement was
the increase of $34 million in average non-interest bearing deposits. The Banks
intend to continue to emphasize increasing the balances in non-interest bearing
deposits.
12
This table sets forth for the three months ended March 31, the average
daily balances of the Company's major asset and liability items and the
interest earned or paid thereon expresed in dollars and weighted average rates:
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996
Average Yield\ Average Yield
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Interst earning assets(1)
Loans $2,444,461 51,011 8.46% 2,294,739 48,478 8.50%
Securities 2,528,249 40,990 6.58% 2,793,364 45,370 6.53%
Federal funds sold and other 40,416 627 6.29% 74,774 979 5.27%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 5,013,126 92,628 7.49% 5,162,877 94,827 7.39%
Non-interest earning assets 297,604 281,110
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $5,310,730 5,443,987
- -----------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities
Savings deposits 680,430 4,257 2.54% 762,900 5,090 2.68%
Time deposits 2,319,470 31,708 5.54% 2,201,648 30,851 5.64%
Money market accounts, NOW accounts,
and escrow deposits 538,425 3,572 2.69% 532,263 3,021 2.28%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 3,538,325 39,537 4.53% 3,496,811 38,962 4.48%
Repurchase agreements 314,412 4,786 6.17% 354,004 5,543 6.30%
Other borrowings 660,906 10,018 6.15% 840,692 12,440 5.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 4,513,643 54,341 4.88% 4,691,507 56,945 4.88%
Non-interest bearing depositis 334,333 300,456
Non-interest bearing liabilities 65,670 62,976
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,913,646 5,054,939
Capital trust securities 37,333
Shareholders' equity 359,751 389,048
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,310,730 5,443,987
Net interest income $ 38,287 37,882
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.61% 2.51%
Net interest margin(2) 3.10% 2.95%
Total interest earning assets to total interest
bearing liabilities 1.11X 1.10X
Average equity to average assets 6.77% 7.15%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Nonaccruing loans, which are immaterial, have been included in interest
earning assets.
(2) Computed by dividing net interest income by total average 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.
------------------------------------------------------------------
1997 Compared to 1996
Increase (Decrease)
(Dollars in Thousands) Volume Rate Net
------------------------------------------------------------------
Interest earning assets
Loans $ 2,784 (251) 2,533
Securities (4,690) 310 (4,380)
Federal funds sold and other (512) 160 (352)
------------------------------------------------------------------
Total change in income from
interest earning assets (2,418) 219 (2,199)
------------------------------------------------------------------
Interest bearing liabilities
Savings deposits (562) (271) (833)
Time deposits 1,459 (602) 857
Money market accounts, NOW
accounts, and escrow deposits 34 517 551
------------------------------------------------------------------
Total change in interest
expense on deposits 931 (356) 575
Repurchase agreements (639) (118) (757)
Other borrowings (2,810) 388 (2,422)
------------------------------------------------------------------
Total change in expense from
interest bearing liabilities (2,518) (86) (2,604)
------------------------------------------------------------------
Net interest income $ 100 305 405
------------------------------------------------------------------
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 .59% of
total assets at March 31, 1997. The Company's provision for loan losses of
$1.8 million for the three month period ended March 31, 1997 decreased from
the $2.0 million in the prior year period. The coverage ratio of allowance
for loan losses to non-performing loans increased from 140% at December 31,
1996 to 142% at March 31, 1997. The allowance as a percent of gross loans
was 1.6% at March 31, 1997. The ratio of delinquent loans as a percentage of
gross loans was 1.1% at March 31, 1997. Loan quality remains strong at
ONBANCorp.
14
The following table sets forth the activity in the allowance for loan
losses for the period indicated:
December 31,
March 31, --------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Beginning balance $37,840 34,583 33,775 32,717 31,722 13,064
Charge-offs
Mortgage loans 579 2,804 3,749 3,706 748 1,623
Commercial loans 196 1,136 1,437 1,746 7,303 8
Other loans 782 2,698 2,405 2,686 3,684 639
- ------------------------------------------------------------------------------------------------------
Total charge-offs 1,557 6,638 7,591 8,138 11,735 2,270
- ------------------------------------------------------------------------------------------------------
Recoveries
Mortgage loans 220 1,073 630 236 1 30
Commercial loans 49 514 352 598 1,341 9
Other loans 143 495 627 724 1,091 93
- ------------------------------------------------------------------------------------------------------
Total recoveries 412 2,082 1,609 1,558 2,433 132
- ------------------------------------------------------------------------------------------------------
Net charge-offs 1,145 4,556 5,982 6,580 9,302 2,138
- ------------------------------------------------------------------------------------------------------
Provision for loan losses 1,796 7,813 6,790 7,638 10,297 5,900
Allowance of combined banks -- -- -- -- -- 14,896
- ------------------------------------------------------------------------------------------------------
Ending balance $38,491 37,840 34,583 33,775 32,717 31,722
- ------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to
average loans outstanding 0.05% 0.19% 0.28% 0.35% 0.47% 0.14%
- ------------------------------------------------------------------------------------------------------
The following table sets forth the allocation of the allowance for loan
losses:
December 31,
March 31, --------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Mortgage loans $16,450 16,532 15,629 17,374 17,313 15,237
Mortgage loans to total loans 53.80% 54.14% 59.36% 59.74% 60.68% 60.93%
Construction loans $ 1,289 1,486 1,060 340 340 150
Construction loans to total
loans 1.81% 2.17% 2.30% 1.58% 1.64% 1.63%
Commercial loans $12,672 11,851 11,801 10,676 10,856 10,774
Commercial loans to total loans 13.06% 13.39% 11.98% 11.32% 9.84% 9.47%
Other loans $ 8,080 7,971 6,093 5,385 4,208 5,561
Other loans to total loans 31.33% 30.30% 26.36% 27.36% 27.84% 27.97%
- ------------------------------------------------------------------------------------------------------
Total allowance for loan
losses $38,491 37,840 34,583 33,775 32,717 31,722
- ------------------------------------------------------------------------------------------------------
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:
- -----------------------------------------------------------------------------------------------------------------------
December 31,
March 31, ------------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
Delinquent mortgage loans:
Conventional $ 12,203 11,743 12,340 12,691 11,436 13,275
FHA and VA 759 775 705 612 905 1,155
Multi family and commercial 7,490 7,891 9,063 8,591 7,546 7,864
- -----------------------------------------------------------------------------------------------------------------------
Total delinquent mortgage loans 20,452 20,409 22,108 21,894 19,887 22,294
- -----------------------------------------------------------------------------------------------------------------------
As a percentage of gross mortgage loans 1.5% 1.5% 1.5% 1.8% 1.7% 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Delinquent commercial loans $ 4,309 4,245 4,387 5,593 6,655 9,782
- -----------------------------------------------------------------------------------------------------------------------
As a percentage of gross commercial loans 1.3% 1.3% 1.6% 2.5% 3.6% 4.9%
- -----------------------------------------------------------------------------------------------------------------------
Delinquent other loans:
Home equity $ 583 599 738 720 414 528
Guaranteed student 259 222 183 157 97 902
Loans to individuals 1,532 1,602 1,542 1,396 1,651 1,815
- -----------------------------------------------------------------------------------------------------------------------
Total delinquent other loans $ 2,374 2,423 2,463 2,273 2,162 3,245
- -----------------------------------------------------------------------------------------------------------------------
As a percentage of gross other loans 0.3% 0.3% 0.4% 0.4% 0.4% 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Delinquent loans as a percentage of gross loans 1.1% 1.1% 1.2% 1.5% 1.5% 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Nonperforming loans:
Non-accrual loans $ 21,049 20,172 23,580 22,525 25,381 30,236
Accruing loans delinquent 90 days or more 2,226 2,464 2,586 2,386 3,323 5,085
Restructured loans 3,860 4,441 2,792 4,849 5,559 4,053
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans: 27,135 27,077 28,958 29,760 34,263 39,374
Other nonperforming assets:
Other real estate owned 4,350 4,054 4,019 5,431 10,719 17,332
Repossessed assets 667 732 441 335 666 327
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 32,152 31,863 33,418 35,526 45,648 57,033
- -----------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage of
nonperforming loans 141.85% 139.75% 119.42% 113.49% 95.49% 80.57%
Nonperforming assets as a percentage of total
assets 0.59% 0.59% 0.60% 0.53% 0.79% 1.21%
- -----------------------------------------------------------------------------------------------------------------------
Potential problem loans at March 31, 1997 amounted to $18.8 million
compared with $20.9 million at March 31, 1996. "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. 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.
16
OTHER OPERATING INCOME
Other operating income, which is generated by mortgage banking activities,
service charges, security transactions and miscellaneous other sources,
increased by $1.3 million to $9.8 million for the three month period ended March
31, 1997 compared to the prior year period.
Mortgage banking income increased by $.3 million to $1.0 million for the
three month period ended March 31, 1997 compared to the prior year period. The
increase was due to slower prepayments on serviced mortgages and increased gains
on mortgages sold. The volume of loans serviced for others decreased from $1.130
billion at March 31, 1996 to $1.090 billion at March 31, 1997.
Service charges increased $.8 million or 19% to $5.1 million for the three
month period ended March 31, 1997 compared to the prior year period. 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.
Gains on the sale of securities increased by $.2 million to $2.1 million for
the three month period ended March 31, 1997 compared to the prior year period.
Continuing to increase other operating income 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
First quarter operating expenses increased $.7 million to $27.0 million.
Excluding the $.9 million capital trust securities dividend, operating expenses
actually declined as a result of declines salaries and benfits and deposit
insuance premiums. Excluding the capital trust securities dividend, an
efficiency ratio of 56.7% for the first three months of 1997 reflects ongoing
control of other operating expenses.
DIVIDENDS
Payments of dividends by ONBANCorp on its common stock is subject to various
regulatory and tax restrictions. During the three month period ended March 31,
1997, the Company declared dividends of $.34 per common share, amounting to $4.7
million. These dividends were paid in April 1997 to appropriate shareholders of
record.
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 $2 million for the first three months of 1997 compared to the $20
million provided by operating activities for the prior year period. Investing
activities used $42 million with purchases of securities nearly offsetting
proceeds from sales, maturities and principal collected on securities and $36
million net used to fund loan growth. The major use of financing activity funds
was to reduce advances from Federal Home Loan Bank, offset by the net increases
in time deposits and repurchase agreements and the issuance of Capital Trust
Securities, with total uses of cash from financing activities totaling $17
million. Cash and cash equivalents of $121 million at March 31, 1997 were $28
million less than at March 31, 1996.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
The equity to asset ratio was 6.1% on March 31, 1997 as measured by
shareholders' equity of $332 million and assets of $5.470 billion.
ONBANCorp's capital ratios exceed all regulatory requirements, including the
Company's regulatory capital leverage ratio of 7.4% and total risk adjusted
capital ratio of 14.3% each of which significantly exceeds the regulatory
targets of 5.0% and 10.0% , respectively, for "well capitalized"
institutions. The current share repurchase program is expected to continue
during the second quarter and will result in fewer shares of common stock
outstanding at June 30, 1997 than at March 31, 1997.
17
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
18
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: MAY 14, 1997 ------------------------------------------
ROBERT J. BENNETT
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
/s/ ROBERT J. BERGER
--------------------------------------------
DATE: MAY 14, 1997 ROBERT J. BERGER
SENIOR VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER