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: June 30, 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 12,793,974
- -------------------------------------- ----------
(Title of Class) (Shares Outstanding)
- -------------------------------------------------------------------------------
This report contains 19 pages
ONBANCorp, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997, December 31, 1996, and June 30, 1996 .................................................... 3
Condensed Consolidated Statements of Income
for the Three Months and Six Months ended June 30, 1997 and 1996 ....................................... 4
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the Six Months ended June 30, 1997 and 1996 ................................................. 5
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 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 .................................................................................. 10-17
PART II. OTHER INFORMATION ................................................................................................ 18
Signatures ................................................................................................................. 19
2
ONBANCorp, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
- ---------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 120,510 169,740 135,497
Federal funds sold and other 15,496 12,253 27,402
Securities:
Trading 1,993 1,727 1,708
Available for sale 936,677 925,340 857,101
Held to maturity, fair value of $1,526,207 at June 30, 1997,
$1,702,201 at December 31, 1996 and $1,711,183 at June 30, 1996 1,511,855 1,683,908 1,706,181
- ---------------------------------------------------------------------------------------------------------------------
Total securities 2,450,525 2,610,975 2,564,990
- ---------------------------------------------------------------------------------------------------------------------
Loans:
Portfolio, net of premium and discount 2,687,721 2,448,474 2,370,515
Allowance for loan losses (38,815) (37,840) (37,553)
- ---------------------------------------------------------------------------------------------------------------------
Net loans 2,648,906 2,410,634 2,332,962
- ---------------------------------------------------------------------------------------------------------------------
Loans available for sale 73,544 38,759 34,124
Premises and equipment, net 62,794 62,557 62,846
Due from brokers 14,201 --- 16,118
Other assets 118,720 112,959 116,091
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $5,504,696 5,417,877 5,290,030
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIabilities:
Deposits:
Non-interest bearing 366,377 356,171 321,347
Interest bearing:
Savings, NOW and money market 1,223,946 1,214,823 1,262,200
Time deposits less than $100,000 1,771,985 1,646,576 1,558.975
Time deposits $100,000 and greater 681,396 604,336 469,895
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 4,043,704 3,821,906 3,612,417
- ---------------------------------------------------------------------------------------------------------------------
Repurchase agreements 324,595 254,471 292,787
Other borrowings 682,492 874,917 898,724
Due to brokers 4,864 40,724 58.992
Other liabilities 71,865 65,808 55,898
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 5,127,520 5,057,826 4,918,818
- ---------------------------------------------------------------------------------------------------------------------
Capital trust securities 60,000 --- ---
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, par value $1.00 per share; Series B 6.75%
Convertible, 10,000,000 shares authorized; issued and
outstanding; none at June 30, 1997; 2,342,052 at December 31,
1996; 2,515,700 at June 30, 1996 --- 2,342 2,516
Common stock, par value $1.00 per share; 56,000,000 shares
authorized; shares issued: June 30, 1997 - 14,304,867;
December 31, 1996 - 14,139,475; June, 30 1996 - 14,116,356 14,305 14,139 14,116
Additional paid-in capital 98,889 152,465 156,083
Retained earnings 292,072 276,767 266,785
Net unrealized holding loss on securities, net of deferred taxes (20,857) (20,169) (25,500)
Treasury Stock, at cost, 1,510,893 shares at June 30, 1997,
1,994,143 at December 31, 1996; 1,330,100 at June 30, 1996 (67,083) (65,343) (42,488)
Guarantee of ESOP indebtedness (150) (150) (300)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 317,176 360,051 371,212
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,504,696 5,417,877 5,290,030
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
3
ONBANCorp, Inc.
Condensed Consolidated Statements of Income
(In Thousands, Except Share Data)
- -----------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
ended June 30, Ended June 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ 54,449 49,131 105,460 97,609
Securities 42,158 41,243 83,148 86,613
Federal funds sold and other 145 657 772 1,636
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 96,752 91,031 189,380 185,858
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 42,626 36,895 82,163 75,857
Borrowings:
Repurchase agreements 5,138 4,956 9,924 10,499
Other 9,767 11,858 19,785 24,298
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 57,531 53,709 111,872 110,654
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 39,221 37,322 77,508 75,204
Provision for loan losses 1,791 1,950 3,587 3,900
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 37,430 35,372 73,921 71,304
- -----------------------------------------------------------------------------------------------------------------------------------
Other operating income:
Mortgage banking 814 1,023 1,861 1,816
Service charges 5,199 4,515 10,339 8,843
Net gain on securities transactions 2,110 744 4,195 2,637
Other 1,436 2,710 2,963 4,210
- -----------------------------------------------------------------------------------------------------------------------------------
Total other operating income 9,559 8,992 19,358 17,506
- -----------------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 10,613 10,686 20,876 21,198
Building, occupancy and equipment 4,419 4,508 9,276 9,243
Deposit insurance premiums 263 679 522 1,384
Contracted data processing 2,871 2,700 5,642 5,325
Legal and financial services 1,107 951 2,240 1,902
Capital trust securities 1,397 --- 2,247 ---
Other 6,719 6,666 13,541 13,351
- -----------------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 27,389 26,190 54,344 52,403
- -----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 19,600 18,174 38,935 36,407
Income taxes 7,367 6,513 14,554 13,180
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 12,233 11,661 24,381 23,227
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Income per common share:
Primary $ 0.93 0.80 1.80 1.56
Fully diluted 0.92 0.76 1.79 1.50
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
4
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 -- -- -- 23,227 -- -- -- 23,227
Stock issued under
Stock Option Plans -- 11 75 -- -- -- -- 86
Employee Stock Purchase Plan -- 10 260 -- -- -- -- 270
Cash dividends declared:
Preferred ($.84 per share) -- -- -- (2,121) -- -- -- (2,121)
Common ($.60 per share) -- -- -- (8,048) -- -- -- (8,048)
Treasury stock purchases -- -- -- -- -- (24,420) -- (24,420)
Change in net unrealized holding loss
on securities, net of income tax effect
of ($4,406) -- -- -- -- (6,548) -- -- (6,548)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $ 2,516 14,116 156,083 266,785 (25,500) (42,488) (300) 371,212
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,342 14,139 152,465 276,767 (20,169) (65,343) (150) 360,051
Net income -- -- -- 24,381 -- -- -- 24,381
Stock issued under
Stock Option Plans -- 158 2,126 -- -- -- -- 2,284
Tax benefits related to stock options -- -- 1,549 -- -- -- -- 1,549
Employee Stock Purchase Plan -- 8 287 -- -- -- 295
Cash dividends declared:
Common ($.68 per share) -- -- -- (9,076) -- -- -- (9,076)
Treasury stock purchases -- -- -- -- -- (60,696) -- (60,696)
Preferred stock redemption (36) -- (888) -- -- -- -- (924)
Preferred stock conversion (2,306) -- (56,650) -- -- 58,956 -- --
Change in net unrealized holding loss
on securities, net of income tax
effect of ($411) -- -- -- -- (688) -- -- (688)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 -- 14,305 98,889 292,072 (20,857) (67,083) (150) 317,176
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
5
ONBANCorp, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (757) 27,322
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 352,250 415,561
Proceeds from maturities of and principal collected on securities available for sale 104,753 112,252
Proceeds from maturities of and principal collected on securities held to maturity 232,040 375,337
Purchases of securities available for sale (503,584) (325,630)
Purchases of securities held to maturity (76,827) (342,728)
Net change in loans (245,694) (97,584)
Net payment made for sale of branches --- (19,820)
Purchases of premises and equipment (3,332) (1,579)
Proceeds from sale of building --- 250
Other 2,642 2,933
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (137,752) 118,992
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts excluding time deposits 19,329 (15,985)
Net increase (decrease) in time deposits 202,469 (146,188)
Net increase (decrease) in repurchase agreements 70,124 (68,830)
Net increase (decrease) in other borrowings (64,340) 84,875
Advances from Federal Home Loan Bank 227,455 156,717
Repayment of advances from Federal Home Loan Bank (354,063) (245,059)
Repayments of collateralized mortgage obligations (1,477) (1,179)
Issuance of Capital Trust Securities 60,000 ---
Net proceeds from issuance of common stock 2,579 356
Purchase of treasury stock (58,832) (23,104)
Repurchase of preferred stock (924) ---
Cash dividends paid on common stock (8,810) (8,140)
Cash dividends paid on preferred stock (988) (2,122)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 92,522 (268,659)
- ------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (45,987) (122,345)
Cash and cash equivalents at beginning of period 181,993 285,244
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 136,006 162,899
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest 112,122 113,814
Income taxes 4,302 11,768
Non-cash investing and financing activities:
Securitization of mortgage loans 2,551 34,788
Mortgage loans transferred to other real estate owned 2,451 2,903
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
6
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 10K 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 June 30, 1997 and 1996 and the results of operations for the
three and six months ended June 30, 1997 and 1996.
Certain reclassifications have been made to prior period amounts for
consistency in reporting.
(2) Loans
Impaired loans were $6.3 million and $8.4 million at June 30, 1997 and
1996, respectively. Included in these amounts is $3.8 million and $7.1
million of impaired loans for which the related allowance for loan losses is
$1.9 million and $3.9 million at June 30, 1997 and 1996, respectively. In
addition, included in the total impaired loans is $2.5 million and $1.3
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
June 30, 1997 and 1996, respectively. The average recorded investments in
impaired loans during the six months ended June 30, 1997 and 1996 was
approximately $6.9 million and $9.8 million, respectively.
For the six months ended June 30, 1997 and 1996, the Company recognized
interest income on those impaired loans of $155 thousand and $222 thousand,
respectively using the cash basis method of income recognition.
7
(3) Securities
The following table sets forth securities available for sale as of
June 30, 1997:
- -------------------------------------------------------------------------
Amortized Gross Unrealized Fair
----------------
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
Debt Securities:
U.S. Government obligations $ 19,343 8 77 19,274
U.S. Government agencies 109,989 4 1,844 108,149
Corporate and other 22,830 182 179 22,833
Mortgage-backed securities 712,298 4,516 2,710 714,104
- -------------------------------------------------------------------------
Total debt securities 864,460 4,710 4,810 864,360
Equity securities:
Common 13 -- -- 13
Preferred 29,462 311 285 29,488
Federal Home Loan Bank 42,816 -- -- 42,816
- -------------------------------------------------------------------------
Total equity securities 72,291 311 285 72,317
- -------------------------------------------------------------------------
$ 936,751 5,021 5,095 936,677
- -------------------------------------------------------------------------
The following table sets forth securities held to maturity as of June 30, 1997:
- -------------------------------------------------------------------------
Amortized Gross Unrealized Fair
----------------
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
Debt Securities:
U.S. Government obligations $ 15,080 13 2 15,091
U.S. Government agencies 135,462 -- 7,378 128,084
State and municipal 65,607 1,114 22 66,699
Corporate and other 513 6 -- 519
Mortgage-backed securities 1,329,883 4,707 18,776 1,315,814
- -------------------------------------------------------------------------
Total debt securities 1,546,545 5,840 26,178 1,526,207
Unamortized holding loss on
securities transferred (34,690)
- -------------------------------------------------------------------------
$1,511,855
- -------------------------------------------------------------------------
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 June 30, 1997, the remaining unamortized loss on
US Government agency securities was $7.6 million and mortgage-backed
securities was $27.1 million.
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 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. Over 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.
8
(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 1 capital
treatment for this type of capital securities which provides the Company with
a method of funding Tier 1 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 1,304,000 shares
of Common Stock at a cost of $60.162 million. In addition, the Company
intends to continue to acquire up to an additional 96,000 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.
In June 1997, the FASB issued SFAS No. 129, DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE. SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure and is effective for
financial statements for periods ending after December 15, 1997. Adoption of
SFAS No. 129 is not expected to have an impact on the financial condition or
results of operation of the Company.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. The statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and other events
and circumstances from nonowner sources. The impact of adopting SFAS No. 130,
which is effective for the 1998, has not been determined.
In June 1997, the FASB also issued SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires
publicly-held companies to report financial and other information about key
revenue-producing segments of the entity for which such information is
available and is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial statements
would be provided. SFAS No. 131 is effective for the 1998 fiscal year. At the
present time, the impact of adoption has not been determined.
9
ONBANCorp, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Conditional 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.
Second quarter net income was $12.2 million compared to $11.7 million
for the 1996 second quarter and first six months net income was $24.4 million
compared to $23.2 million for the prior year period. Fully diluted net income
per common share was $.92 compared to $.76 for the 1996 second quarter and
1997 first six months fully diluted net income per common share was $1.79
compared to $1.50 for the prior year period. Return on average equity (ROE)
was 15.0% and 14.3% for the three and six month periods ended June 30, 1997
compared to 12.3% and 12.1% for the respective prior to year periods. Return
on Average Assets (ROA) was .90% and .91% for the three and six month periods
ended June 30, 1997 compared to .89% and .87% for the respective prior year
periods.
Book value per common share was $24.79 at June 30, 1997, $24.82 at
December 31, 1996 and $24.11 at June 30, 1996. A regular dividend of $.34 per
common share was declared for the second quarter of 1997 and paid on July 1,
1997. Regular dividends of $.68 per common share have been declared during
the first six months of 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
June 30, 1997, commercial loans have increased by $137 million or 22% to $752
million and consumer loans increased by $185 million or 29% to $825 million.
During the last year residential mortgage loans have increased slightly by $4
million to $1,119 million despite the fact that $272 million of loans were
originated or purchased were originated or purchased. To manage overall
interest rate risk in a relatively low yield market rate environment $104
million residential mortgage loans were securitized or sold, thereby,
moderating loan portfolio growth. Total assets increased by $214 million or
4.1% to $5.5 billion during the one year period ended June 30, 1997.
Net interest income was $39.2 million and $77.5 million for the three
and six month periods ended June 30, 1997, compared to the $37.3 million and
$75.2 million recorded in the respective prior year periods. Average loans of
$2.517 billion for the first six months of 1997 were $202 million or 9%
improved over the first six months of 1996 as a result of the Company's
continuing focus on expanding loan generation. The yield on these average
loans declined by 3 basis points to 8.45% for the first six months of 1997
compared to the 8.48% for the prior year period. The volume of average
securities for the first six months of 1997 declined to $2.556 billion or by
$148 million compared to the prior year period. The yield on these securities
increased by 12 basis points to 6.56% as a combined result of reinvestment
and the scheduled repricing of certain adjustable-rate securities. Average
earning assets of $5.098 billion were $17 million more for the first six
months of 1997 than for the first six months of 1996. The yield on total
earning assets increased by 13 basis points to 7.49% for the six months of
1997 compared to the first six 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 $80 million to $677
million for the first six months of 1997 compared to the prior year period.
The cost of these deposits also decreased by 14 basis points to 2.50% for
the first six months of 1997 compared to the prior year period. Average time
deposits increased $241 million to $2.405 billion for the first six months of
1997 compared to the first six months of 1996. The costs of these deposits
also increased by 2 basis points to 5.59% for the first six months ended June
30, 1997. The increase in time deposits was the result of increases in
commercial and municipal certificates of deposit and retail brokered
certificates of deposit being greater than the decrease in retail
certificates of deposit. Average interest bearing
10
transaction accounts (Money market, NOW and escrow deposits) increased $5
million to $534 million and the cost increased 42 basis points to 2.69% when
comparing the first six months of 1997 to the first six months of 1996.
Average total interest bearing deposits increased by $166 million to $3.616
billion for the first six months of 1997 compared to the first six months of
1996.
Total average borrowings (including repurchase agreements) of $.978
billion for the first six months of 1997 are $178 million or 15% less than
the $1.156 billion for the first six 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 selected liabilities and
thereby helping to protect against rising interest rates resulting in a 8
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 increased volume of higher cost
deposits, the cost of total interest bearing liabilities increased 8 basis
points to 4.91% for the first six months of 1997 compared to the first six
months of 1996.
The effect of the increase in yield on earning assets of 13 basis points
resulted in the net interest spread increasing from 2.53% to 2.58% for the
first six months of 1997 compared to the first six 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 9 basis points to 3.07% for the
first six months of 1997 compared to the first six months of 1996.
Contributing to this improvement was the increase of $31 million in average
non-interest bearing deposits. The Banks intend to continue to emphasize
increasing the balances in non-interest bearing deposits.
11
This table sets forth for the six months ended June 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.
1997 1996
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
- ---------------------- ----------- -------- ------ --------- -------- ------
Interest earning assets(1)
Loans $ 2,516,506 105,460 8.45% 2,315,235 97,609 8.48%
Securities 2,555,769 83,148 6.56% 2,703,789 86,613 6.44%
Federal funds sold and other 26,001 772 5.99% 62,425 1,636 5.27%
----------- -------- ------ --------- -------- ------
Total interest earning assets 5,098,276 189,380 7.49% 5,081,449 185,858 7.36%
Non-interest earning assets 295,322 278,967
----------- ---------
Total assets $ 5,393,598 5,360,416
----------- ---------
----------- ---------
Interest bearing liabilities
Savings deposits 676,862 8,375 2.50% 756,507 9,924 2.64%
Time deposits 2,405,062 66,664 5.59% 2,164,363 59,955 5.57%
Money market accounts, NOW accounts,
and escrow deposits 533,896 7,124 2.69% 528,645 5,978 2.27%
----------- -------- ------ --------- -------- ------
Total deposits 3,615,820 82,163 4.58% 3,449,515 75,857 4.42%
Repurchase agreements 331,107 9,924 6.04% 337,200 10,499 6.26%
Other borrowings 646,418 19,785 6.17% 818,988 24,298 5.97%
----------- -------- ------ --------- -------- ------
Total interest bearing liabilities 4,593,345 111,872 4.91% 4,605,703 110,664 4.83%
Non-interest bearing deposits 339,920 308,207
Non-interest bearing liabilities 67,727 61,049
----------- ---------
----------- ---------
Total liabilities 5,000,992 4,974,959
Capital trust securities 48,729 --
Shareholders' equity 343,877 385,457
----------- ---------
Total liabilities and shareholders' equity $ 5,393,598 5,360,416
Net interest income $ 77,508 75,204
----------- ---------
----------- ---------
Interest rate spread 2.58% 2.53%
Net interest margin(2) 3.07% 2.98%
Total interest earning assets to total interest
bearing liabilities 1.11X 1.10X
Average equity to average assets 6.38% 7.19%
(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.
12
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 (change in rate
multiplied by prior year volume), and the net change in net interest income.
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 $ 8,206 (355) 7,851
Securities (4,986) 1,521 (3,465)
Federal funds sold and other (1,061) 197 (864)
-------------------------------------------------------------------------
Total change in income from interest
-- earnings assets 2,159 1,363 3,522
-------------------------------------------------------------------------
Interest bearing liabilities
Savings deposits (1,030) (519) (1,549)
Time deposits 6,499 210 6,709
Money market accounts, NOW accounts,
and escrow deposits 58 1,088 1,146
-------------------------------------------------------------------------
Total change in interest expense on deposits 5,527 779 6,306
Repurchase agreements (195) (380) (575)
Other borrowings (5,295) 782 (4,513)
-------------------------------------------------------------------------
Total change in expense from interest
-- bearing liabilities 37 1,181 1,218
-------------------------------------------------------------------------
Net interest income $ 2,122 182 2,304
-------------------------------------------------------------------------
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 .77% of
total assets at June 30, 1997. During the second quarter of 1997, a $5.7
million mortgage loan became delinquent. Excluding the $5.6 million
guaranteed portion of this loan, the nonperforming asset ratio would have
been .67%. the Company's provision for loan losses of $1.8 million and $3.6
million for the three and six month periods ended June 30, 1997 decreased
from the $2.0 million and $3.9 million recorded in the respective prior year
periods. The coverage ratio of allowance for loan losses to nonperforming
loans decreased form 140% at year-end 1996 to 104% at June 30, 1997. The
allowance as a percent of gross loans was 1.4% at June 30, 1997. The ratio of
delinquent loans as a percentage of gross loans was 1.3% at June 30, 1997.
Loan quality remains strong at ONBANCorp.
13
The following table sets forth the activity in the allowance for loan
losses for the periods indicated:
(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 1,510 2,804 3,749 3,706 748 1,623
Commercial loans 205 1,136 1,437 1,746 7,303 8
Other loans 1,648 2,698 2,405 2,686 3,684 639
- -----------------------------------------------------------------------------------------------------------------------
Total charge-offs 3,363 6,638 7,591 8,138 11,735 2,270
- -----------------------------------------------------------------------------------------------------------------------
Recoveries
Mortgage loans 277 1,073 630 236 1 30
Commercial loans 185 514 352 598 1,341 9
Other loans 289 495 627 724 1,091 93
- -----------------------------------------------------------------------------------------------------------------------
Total recoveries 751 2,082 1,609 1,558 2,433 132
- -----------------------------------------------------------------------------------------------------------------------
Net charge-offs 2,612 4,556 5,982 6,580 9,302 2,138
- -----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 3,587 7,813 6,790 7,638 10,297 5,900
Allowance of combined banks -- -- -- -- -- 14,896
- -----------------------------------------------------------------------------------------------------------------------
Ending balance $ 38,815 37,840 34,583 33,775 32,717 31,722
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans
outstanding 0.10% 0.19% 0.28% 0.35% 0.47% 0.14%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
The following table sets forth the allocation of the allowance for loan
losses:
(Dollars in Thousands) 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
Mortgage loans $ 16,395 16,532 15,629 17,374 17,313 15,237
Mortgage loans to total loans 53.25% 54.14% 59.36% 59.74% 60.68% 60.93%
Construction loans $ 1,972 1,486 1,060 340 340 150
Construction loans to total loans 2.43% 2.17% 2.30% 1.58% 1.64% 1.63%
Commercial loans $ 12,236 11,851 11,801 10,676 10,856 10,774
Commercial loans to total loans 13.52% 13.39% 11.98% 11.32% 9.84% 9.47%
Other loans $ 8,212 7,971 6,093 5,385 4,208 5,561
Other loans to total loans 30.80% 30.30% 26.36% 27.36% 27.84% 27.97%
- -----------------------------------------------------------------------------------------------------------------------
Total allowance for loan losses $ 38,815 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 future
losses in any one or more of the categories.
14
The following table sets forth information with respect to loans
delinquent for 90 days or more, restructured loans and other nonperforming
assets:
December 31,
June 30, -------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993 1992
- --------------------- -------- ------- ------- ------- ------- -------
Delinquent mortgage loans:
Residential $ 12,492 12,518 13,045 13,303 12,341 14,430
Multi family and commercial 14,339 7,891 9,063 8,591 7,546 7,864
- -----------------------------------------------------------------------------------------------------------------------
Total delinquent mortgage loans 26,831 20,409 22,108 21,894 19,887 22,294
- -----------------------------------------------------------------------------------------------------------------------
As a percentage of gross mortgage loans 1.8% 1.5% 1.5% 1.8% 1.7% 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Delinquent commercial loans: $ 8,254 4,245 4,387 5,593 6,655 9,782
- -----------------------------------------------------------------------------------------------------------------------
As a percentage of gross commercial loans 2.2% 1.3% 1.6% 2.5% 3.6% 4.9%
- -----------------------------------------------------------------------------------------------------------------------
Delinquent other loans:
Home equity $ 382 599 738 720 414 528
Guaranteed student 281 222 183 157 97 902
Loans to individuals 1,554 1,602 1,542 1,396 1,651 1,815
- -----------------------------------------------------------------------------------------------------------------------
Total delinquent other loans $ 2,217 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.. 1.3% 1.1% 1.2% 1.5% 1.5% 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Nonperforming loans:
Non-accrual loans $ 21,864 20,172 23,580 22,525 25,381 30,236
Accruing loans delinquent 90 days or more 11,603 2,464 2,586 2,386 3,323 5,085
Restructured loans 3,835 4,441 2,792 4,849 5,559 4,053
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 37,302 27,077 28,958 29,760 34,263 39,374
Other nonperforming assets:
Other real estate owned 3,915 4,054 4,019 5,431 10,719 17,332
Repossessed assets 1,307 732 441 335 666 327
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 42,524 31,863 33,418 35,526 45,648 57,033
- -----------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage of non-
performing loans 104.06% 139.75% 119.42% 113.49% 95.49% 80.57%
Nonperforming assets as a percentage of total
assets 0.77% 0.59% 0.60% 0.53% 0.79% 1.21%
- -----------------------------------------------------------------------------------------------------------------------
Potential problem loans at June 30, 1997 amounted to $36.4 million compared
with $21.3 million at June 30, 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.
15
Other Operating Income
Other operating income, which is generated by mortgage banking
activities, service charges, security transactions and miscellaneous other
sources, increased by $.6 million and $1.9 million for the three and six
month periods ended June 30, 1997 compared to the respective prior year
periods.
Mortgage banking income decreased by $.2 million and increased slightly
for the three and six month periods ended June 30, 1997 compared to the
respective prior year periods. The volume of loans serviced for others
decreased from $1.104 billion at June 30, 1996 to $1.068 billion at June 30,
1997.
Service charges increased $.7 million or 15% and $1.5 million or 17% for
the three and six month periods ended June 30, 1997 compared to the
respective prior year periods. Increasing volumes of retail and commercial
banking business and consumer electronic banking services are primarily
responsible for these increases. The Company intends 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 $1.4 million and $1.6
million in the three and six month periods ended June 30, 1997 compared to
the respective prior year periods. Gains from the sale of trading securities
are primarily responsible for these increases.
Other income decreased by $1.3 million in the three and six month
periods ended June 30, 1997 compared to the respective prior year periods.
Included in the 1996 three and six month periods are 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
Second quarter and six month operating expenses increased $1.2 million
and $1.9 million from the comparative prior year periods. Excluding the
second quarter and six months $1.4 million and $2.2 million capital trust
securities expense, operating expenses actually declined as a result of
declines in salaries and benefits and deposit insurance premiums. Excluding
the capital trust securities expense, an efficiency ratio of 56.2% for the
first six 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 and six month
periods ended June 30, 1997 the Company declared dividends of $.34 and $.68
respectively, per common share amounting to $4.4 million and $9.1 million
respectively. These dividends were paid in April and July of 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
was $.8 million for the six months of 1997 compared to the $27.3 million net
cash provided the prior year period. Investing activities used $138 million
with proceeds from sales, maturities and principal collected on securities
exceeding purchases of securities by $109 million, offset by the funding of
loans exceeding sales, maturities and principal collected by $246 million.
The major use of financing activity funds was to reduce advances from Federal
Home Loan Bank and purchase treasury stock, with cash provided by the
increase in time deposits and the issuance of Capital Trust Securities, with
total cash provided from financing activities totaling $93 million. Cash and
cash equivalents of $136 million at June 30, 1997 were $27 million less than
at June 30, 1996.
16
Shareholders' Equity and Capital Adequacy
The equity to asset ratio was 5.71% on June 30, 1997 as measured by
shareholders' equity of $317 million and assets of $5.530 billion.
ONBANCorp's capital ratios exceed all regulatory requirements, including the
Company's regulatory capital leverage ratio of 7.1% and total risk adjusted
capital ratio of 13.5%. Each of the Banks significantly exceeds the
regulatory targets of 5.0% and 10.0%, respectively, for "well capitalized"
institutions.
17
PART II. OTHER INFORMATION
-----------------
Item 6: Exhibits and Reports on Forms 8K
(a) Exhibits. The following exhibits are filed as part of
this quarterly report on Form 10A.
No. Exhibit
--- ---------
11 Earnings Per Share Computations
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: August 12, 1997 Robert J. Bennett
Chairman, President
and Chief Executive Officer
/s/Robert J. Berger
--------------------------------
DATE: August 12, 1997 Robert J. Berger
Senior Vice President, Treasurer
and Chief Financial Officer
19