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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23975
NIAGARA BANCORP, INC.
(exact name of registrant as specified in its charter)
Delaware 16-1545669
------------ ------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6950 South Transit Road, P.O. Box 514, Lockport, NY 14095-0514
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(716)625-7500
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The Registrant had 25,688,900 shares of Common Stock, $.01 par value,
outstanding as of May 12, 2000.
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NIAGARA BANCORP, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2000
TABLE OF CONTENTS
Item Number Page Number
- ----------- -----------
PART I - FINANCIAL INFORMATION
1. Financial Statements
Condensed Consolidated Statements of Condition as of
March 31, 2000 (unaudited) and December 31, 1999.......................... 3
Condensed Consolidated Statements of Income for the
three months ended March 31, 2000 and 1999 (unaudited).................... 4
Condensed Consolidated Statements of Comprehensive Income for the
three months ended March 31, 2000 and 1999 (unaudited).................... 5
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 2000 and 1999 (unaudited)............ 6
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 (unaudited).................... 7
Notes to Condensed Consolidated Financial Statements (unaudited)............ 8
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................... 12
3. Quantitative and Qualitative Disclosures about Market Risk...................... 19
PART II - OTHER INFORMATION
1. Legal Proceedings............................................................... 20
2. Changes in Securities and Use of Proceeds....................................... 20
3. Defaults upon Senior Securities................................................. 20
4. Submission of Matters to a Vote of Security Holders............................. 20
5. Other Information............................................................... 20
6. Exhibits and Reports on Form 8-K................................................ 20
Signatures........................................................................... 20
Exhibit Index........................................................................ 21
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Condition
March 31, December 31,
2000 1999
-------------- --------------
(unaudited)
(Amounts in thousands)
Assets
------
Cash and cash equivalents:
Cash and due from banks ............................... $ 24,215 24,449
Federal funds sold and securities purchased
under resale agreements ............................ - 17,500
---------- -----------
Total cash and cash equivalents ................ 24,215 41,949
Securities available for sale ............................. 539,365 563,473
Loans, net ................................................ 1,076,434 985,628
Premises and equipment, net ............................... 27,060 25,886
Other assets .............................................. 111,395 94,776
---------- -----------
$ 1,778,469 1,711,712
========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits ................................................ $ 1,200,649 1,113,302
Short-term borrowings ................................... 74,588 90,005
Long-term borrowings .................................... 239,931 245,640
Other liabilities ....................................... 33,354 30,149
---------- -----------
1,548,522 1,479,096
---------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued ........................... - -
Common stock, $.01 par value, 45,000,000 shares
authorized, 29,756,250 shares issued .............. 298 298
Additional paid-in capital ............................ 135,913 135,964
Retained earnings ..................................... 154,478 151,341
Accumulated other comprehensive loss .................. (8,300) (8,893)
Common stock held by ESOP ............................. (12,900) (13,076)
Treasury stock, at cost, 3,767,350 and 3,110,850 shares
in 2000 and 1999, respectively ...................... (39,542) (33,018)
---------- -----------
229,947 232,616
---------- -----------
$ 1,778,469 1,711,712
========== ===========
3
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
-------- --------
(Amounts in thousands)
Interest income:
Loans ................................................... $ 19,547 15,033
Investment securities ................................... 8,837 9,003
Federal funds sold and securities purchased
under resale agreements ............................. 166 591
Other ................................................... 409 314
-------- --------
Total interest income .......................... 28,959 24,941
Interest expense:
Deposits ................................................ 11,044 10,473
Borrowings .............................................. 4,715 2,404
-------- --------
Total interest expense ......................... 15,759 12,877
-------- --------
Net interest income ........................................ 13,200 12,064
Provision for credit losses ................................ 417 821
-------- --------
Net interest income after provision
for credit losses .......................... 12,783 11,243
-------- --------
Noninterest income:
Banking service charges and fees ........................ 1,484 1,065
Loan fees ............................................... 327 450
Insurance services and fees ............................. 3,982 4,000
Bank-owned life insurance earnings ...................... 482 330
Annuity and mutual fund sales commissions ............... 295 323
Covered call option premium ............................. 282 504
Net gain (loss) on sales of securities available for sale (24) 178
Leasing income ........................................... 298 -
Other ................................................... 350 70
-------- --------
Total noninterest income ....................... 7,476 6,920
-------- --------
Noninterest expense:
Salaries and employee benefits .......................... 7,594 6,486
Occupancy and equipment ................................. 1,279 1,141
Technology and communications ........................... 1,209 1,044
Marketing and advertising ............................... 693 508
Goodwill amortization ................................... 451 374
Other ................................................... 1,961 1,742
-------- --------
Total noninterest expense ..................... 13,187 11,295
-------- --------
Income before income taxes .................... 7,072 6,868
Income tax expense ......................................... 2,416 2,363
-------- --------
Net income .................................... $ 4,656 4,505
======== ========
Earnings per common share:
Basic and diluted ............................. $ 0.18 0.16
Cash dividends per common share ............................ $ 0.06 0.04
Weighted average common shares outstanding:
Basic and diluted ............................. 25,377 27,888
4
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended
March 31,
---------------------
2000 1999
------- -------
(Amounts in thousands)
Net income .......................................................... $ 4,656 4,505
Other comprehensive income (loss), net of income taxes:
Net unrealized gains (losses) on securities available
for sale arising during the period ..................... 579 (1,988)
Less: Reclassification adjustment for realized gains (losses)
included in net income ................................. (14) 105
------- -------
Total other comprehensive income (loss) .......... 593 (2,093)
------- -------
Total comprehensive income .................. $ 5,249 2,412
======= =======
5
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
Additional Other
Common paid-in Retained comprehensive ESOP
stock capital earnings income shares
-------- -------- -------- -------- --------
(Amounts in thousands)
Balances at January 1, 1999 .............................. $ 298 136,114 136,602 4,587 (13,776)
Net income ............................................ - - 4,505 - -
Unrealized loss on securities
available for sale, net of
reclassification adjustment ........................ - - - (2,093) -
Purchase of treasury stock
(1,487,800 shares) ................................. - - - - -
ESOP shares committed to be released
(13,431 shares) .................................... - (38) - - 177
Common stock dividend of $0.04 per
share .............................................. - - (1,093) - -
-------- -------- -------- -------- --------
Balances at March 31, 1999 ............................... $ 298 136,076 140,014 2,494 (13,599)
======== ======== ======== ======== ========
Balances at January 1, 2000 .............................. $ 298 135,964 151,341 (8,893) (13,076)
Net income ............................................ - - 4,656 - -
Unrealized gain on securities
available for sale, net of reclassification
adjustment ......................................... - - - 593 -
Purchase of treasury stock
(656,500 shares) ................................... - - - - -
ESOP shares committed to be released
(13,317 shares) .................................... - (51) - - 176
Common stock dividend of $0.06 per
share .............................................. - - (1,519) - -
-------- -------- -------- -------- --------
Balances at March 31, 2000 ............................... $ 298 135,913 154,478 (8,300) (12,900)
======== ======== ======== ======== ========
Treasury
stock Total
-------- --------
Balances at January 1, 1999 .............................. - 263,825
Net income ............................................ - 4,505
Unrealized loss on securities
available for sale, net of
reclassification adjustment ........................ - (2,093)
Purchase of treasury stock
(1,487,800 shares) ................................. (16,027) (16,027)
ESOP shares committed to be released
(13,431 shares) .................................... - 139
Common stock dividend of $0.04 per
share .............................................. - (1,093)
-------- --------
Balances at March 31, 1999 ............................... (16,027) 249,256
======== ========
Balances at January 1, 2000 .............................. (33,018) 232,616
Net income ............................................ - 4,656
Unrealized gain on securities
available for sale, net of reclassification
adjustment ......................................... - 593
Purchase of treasury stock
(656,500 shares) ................................... (6,524) (6,524)
ESOP shares committed to be released
(13,317 shares) .................................... - 125
Common stock dividend of $0.06 per
share .............................................. - (1,519)
-------- --------
Balances at March 31, 2000 ............................... (39,542) 229,947
======== ========
6
Niagara Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
-------------------------------
2000 1999
-------- ---------
(Amounts in thousands)
Net cash provided by operating activities .................................... $ 6,335 689
Cash flows from investing activities:
Proceeds from sales of securities available for sale ...................... 8,132 5,338
Proceeds from maturities of securities available for sale ................. 1,545 5,040
Principal payments received on securities available for sale .............. 22,398 57,258
Purchases of securities available for sale ................................ (7,641) (182,167)
Net increase in loans ..................................................... (29,468) (40,734)
Acquisitions , net of cash acquired:
Warren-Hoffman & Associates, Inc. ....................................... - (11,260)
Empire National Leasing, Inc. ........................................... (3,633) -
Albion Banc Corp, Inc. .................................................. (2,627) -
Other, net ................................................................ (1,109) (6,623)
-------- ---------
Net cash used by investing activities ......................... (12,403) (173,148)
-------- ---------
Cash flows from financing activities:
Net increase in deposits ..................................................... 25,669 4,097
Proceeds from (repayments of) short-term borrowings .......................... (32,200) 39,897
Proceeds from long-term borrowings ........................................... - 63,260
Repayments of long-term borrowings ........................................... (114) (114)
Purchase of treasury stock ................................................... (3,502) (16,027)
Dividends paid on common stock ............................................... (1,519) (860)
-------- ---------
Net cash provided by (used for) financing activities ............ (11,666) 90,253
-------- ---------
Net decrease in cash and cash equivalents ....................... (17,734) (82,206)
-------- ---------
Cash and cash equivalents at beginning of period ............................... 41,949 111,263
-------- ---------
Cash and cash equivalents at end of period ..................................... $ 24,215 29,057
-------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ......................................................... $ 192 6,150
Interest expense ..................................................... 15,622 12,499
-------- ---------
Treasury stock purchases not settled ........................................ $ 3,022 -
-------- ---------
Acquisition of banks and financial services companies:
Fair value of:
Assets acquired (noncash) ............................................. $ 65,146 2,889
Liabilities assumed ................................................... 74,454 3,655
Purchase price payable ................................................ $ 1,200 2,919
======== ========
7
Niagara Bancorp, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Basis of Financial Statement Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation have been
included. Results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. Certain reclassification adjustments were made to the 1999 financial
statements to conform them to the 2000 presentation.
(2) Business
Niagara Bancorp, Inc., (the "Company"), is a Delaware corporation organized in
December 1997 by First Niagara Bank (the "Bank"), formerly Lockport Savings
Bank. The Company was organized in connection with the conversion of the Bank
from a New York chartered mutual savings bank to a New York chartered stock
savings bank and the reorganization to a two-tiered mutual holding company. The
business and management of the Company consist primarily of the business and
management of the Bank. Currently, the Company neither owns nor leases any
property, but instead uses the premises, equipment and furniture of the Bank. At
the present time, the Company does not have any employees but utilizes certain
officers and the support staff of the Bank. Employees will be hired as
appropriate to the extent the Company expands its business in the future. During
2000, the Company expects to become a multi-bank holding company through its
pending acquisitions of community banks that will continue to maintain their own
identities by operating as wholly owned subsidiaries of the Company under the
direction of their own management teams and Boards of Directors.
The Bank operates as a wholly owned subsidiary of the Company and is a
traditional, full-service, community-oriented savings bank. The Bank's business
is primarily accepting deposits from customers through its twenty-two branch
offices in the Western New York counties of Niagara, Orleans, Erie, Genesee and
Monroe and investing those deposits, together with funds generated from
operations and borrowings, in various loan and investment products.
Additionally, the Bank provides consumer, commercial and electronic banking
services, as well as a variety of insurance, leasing and investment products and
services.
In recognition of the expansion in geographic scope, as well as the continued
diversification of its financial service and product offerings, the Bank
received approval from the New York State Banking Department to change its name
to First Niagara Bank, effective February 21, 2000. In order to link the entire
organization under a common brand focused on providing a unique array of
financial services, the Company, at its 2000 Annual Meeting, received
shareholder approval to change its name to First Niagara Financial Group, Inc.,
which will become effective May 16, 2000.
(3) Acquisitions
In January 2000, the Bank completed the acquisition of 100% of the common stock
of Empire National Leasing, Inc. and First Niagara Leasing, Inc. (collectively
"ENL"), nationwide providers of equipment lease financing. The acquired
companies operate as wholly owned subsidiaries of the Bank. The transaction
further enhances the Company's commercial lending client base, as well as
provides additional fee-based revenue. The acquisition has been accounted for as
a purchase transaction, and accordingly, the excess of the purchase price over
the fair value of identifiable assets acquired less liabilities assumed, has
been recorded by the Company as goodwill. Approximately, $4.6 million of such
goodwill is being amortized on a straight-line basis over a period of fifteen
years.
On March 24, 2000, the Company acquired all of the common stock of Albion Banc
Corp, Inc. ("Albion") for an aggregate purchase price of approximately $11.9
million and merged Albion's subsidiary bank, Albion Federal Savings and Loan
Association, and its two branch locations into First Niagara Bank's branch
network. Acquired assets, loans and deposits of Albion totaled approximately
$79.3 million, $63.8 million and $61.7 million, respectively. The transaction
has been accounted for using
8
Niagara Bancorp, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
as a purchase transaction and accordingly, the excess of the purchase price over
the fair value of identifiable assets acquired less liabilities assumed, has
been recorded by the Company as goodwill. Approximately, $7.9 million of such
goodwill will be amortized on a straight-line basis over a period of fifteen
years.
Presented below is certain pro forma information as if Albion had been acquired
on January 1, 1999. These results combine the historical data of Albion into the
Company's consolidated statement of income, and while certain adjustments were
made for the acquisition-related activity, they are not necessarily indicative
of what would have occurred had the acquisition taken place at that time.
Pro Forma
-------------------------------
Three Months Ended March 31,
-------------------------------
2000 1999
--------- --------
(Amounts in thousands)
Net income ..................................... $ 4,768 4,585
========= ========
Basic/diluted earnings per share ............... $ 0.18 0.16
========= ========
In December 1999, the Company reached a definitive agreement to acquire all the
stock of CNY Financial Corporation ("CNY"), with approximately $284 million in
assets, and its subsidiary bank, Cortland Savings Bank ("CSB"). CSB, a full
service community bank headquartered in Cortland, New York, which has three
branch locations and two loan production offices, will retain its current name
and charter and operate as a wholly owned subsidiary of the Company. The Company
will pay $18.75 per share in cash for each of the outstanding shares and options
of CNY common stock with an aggregate purchase price of approximately $87.9
million. The acquisition, subject to approval by various regulatory agencies,
will be accounted for using the purchase method of accounting and is scheduled
to be completed during the second quarter of 2000.
The Company continued to increase its presence in Central New York State by also
announcing during the first quarter of 2000 that it had signed a definitive
merger agreement to acquire all of the stock of Iroquois Bancorp, Inc.
("Iroquois"). Iroquois, with over $595 million in assets, is the holding company
of Cayuga Bank, of Auburn, New York and The Homestead Savings FA, of Utica, New
York. As a result, Cayuga Bank will become a wholly owned subsidiary of the
Company and operate as a state chartered commercial bank. The Company intends to
either sell or merge the branches of Homestead Savings into Cayuga Bank's branch
network. Under the terms of the agreement, the Company will pay $33.25 per share
in cash for each of the outstanding shares and options of Iroquois' common stock
for an aggregate purchase price of approximately $80.3 million. The transaction,
which will be accounted for under the purchase method of accounting and is
subject to approval by Iroquois' shareholders and various regulatory agencies,
is expected to close in the third quarter of 2000.
In order to further the Company's strategic focus to become a complete financial
services organization, the Company announced during the first quarter of 2000
that it had signed an agreement to acquire 100% of the common stock of Niagara
Investment Advisors, Inc. ("NIA"). NIA, which will operate as a wholly owned
subsidiary of the Bank, provides investment advisory and management services to
individuals, pension plans, corporations and charitable instituations. The
transaction is expected to close in the second quarter of 2000.
(4) Earnings per Share
Earnings per share is based on the weighted average number of shares outstanding
during the periods presented. The Company's "basic" and "diluted" earnings per
share computations are identical in the periods presented, as there is,
currently, no dilution effect. Set forth below is the computation of basic and
diluted earnings per share for the periods indicated (amounts in thousands):
9
Niagara Bancorp, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Three Months Ended March 31,
---------------------------------
2000 1999
------------ ------------
Net income available to common stockholders ......................... $ 4,656,000 4,505,000
------------ ------------
Weighted average shares outstanding:
Total shares issued ........................................... 29,756,250 29,756,250
Unallocated ESOP shares ....................................... (987,810) (1,040,718)
ESOP shares committed to be released during the period ........ 146 149
Treasury shares ............................................... (3,391,855) (827,489)
------------ ------------
Total weighted average shares outstanding ........................... 25,376,731 27,888,192
------------ ------------
Basic/diluted earnings per share for the period ..................... $ 0.18 0.16
============ ============
(5) Treasury Stock
During the quarter ended March 31, 2000, the Company repurchased 656,500 shares
of common stock outstanding at an average cost of $9.94 per share as part of the
Company's stock buyback programs. During the first quarter of 2000, the New York
State Banking Department approved an additional repurchase of up to 5% of total
shares outstanding, or 1.3 million shares of common stock. The Company has
repurchased approximately 3.8 million shares of common stock outstanding since
the beginning of 1999. The purchases were made in the open market at an average
cost of $10.50 per share.
(6) Dividends
In conjunction with the Company's Board of Director's (the "Board") review of
fourth quarter 1999 results on January 26, 2000, the Board approved and declared
a regular quarterly cash dividend of $0.06 (six cents) per common share. The
dividend was paid on February 23, 2000 to shareholders of record as of February
9, 2000.
On April 14, 2000, the Board reviewed the Company's first quarter 2000 results
and approved and declared a regular quarterly dividend of $0.07 (seven cents)
per common share. The dividend will be paid on May 12, 2000 to shareholders of
record as of April 28, 2000.
(7) Segment Information
Based on the "management approach" model, the Company has determined that it has
two primary business segments, its banking franchise and its insurance
activities. For the quarterly period ended March 31, 1999, the Company's
insurance activities consisted of those conducted through its Warren-Hoffman &
Associates, Inc. ("WHA") and Nova Healthcare Administrators, Inc. ("NOVA")
subsidiaries, as well as through the Company's relationship with Saving Bank
Life Insurance ("SBLI"). Effective January 1, 2000, as a result of the
reorganization of SBLI into a mutual insurance company, the Company's insurance
activities through SBLI have been limited to the servicing of life insurance
policies and the collection of income generated by insurance sales. Information
about the Company's segments is presented in the following table for the periods
indicated (amounts in thousands):
10
Three Months Ended March 31,
-------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ------------------------------------------
Banking Insurance Banking Insurance
activities activities Total activities activities Total
------------- ------------ ----------- ------------ ------------ ---------
Net interest income .................... $ 13,194 6 13,200 12,060 4 12,064
Provision for credit losses ............ 417 - 417 821 - 821
-------- -------- -------- -------- -------- --------
Net interest income after provision
for credit losses ............... 12,777 6 12,783 11,239 4 11,243
Noninterest income ..................... 3,515 3,990 7505 2,742 4,000 6,742
Net securities gains (losses) .......... (24) - (24) 178 - 178
Noninterest expense .................... 9,500 3,691 13,191 8,216 3,079 11,295
-------- -------- -------- -------- -------- --------
Income before income taxes ........ 6,768 305 7,073 5,943 925 6,868
Income tax expense ..................... 2,147 270 2,417 1,856 507 2,363
-------- -------- -------- -------- -------- --------
Net income ........................ $ 4,621 35 4,656 4,087 418 4,505
======== ======== ======== ======== ======== ========
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
General
- -------
This Quarterly Report on Form 10-Q may contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that involve substantial risks and
uncertainties. When used in this report, or in the documents incorporated by
reference herein, the words "anticipate", "believe", "estimate", "expect",
"intend", "may", and similar expressions identify such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. These forward-looking statements are based largely on the
expectations of the Company or the Company's management and are subject to a
number of risks and uncertainties, including but not limited to, economic,
competitive, regulatory, and other factors affecting the Company's operations,
markets, products and services, as well as expansion strategies and other
factors discussed elsewhere in this report filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on loans and
securities and the Company's cost of funds, consisting of the interest paid on
deposits and borrowings. Results of operations are also affected by the
provision for credit losses, investment activities, loan origination, sale and
servicing activities, service charges and fees collected on deposit accounts,
and insurance services and fees. Noninterest expense primarily consists of
salaries and employee benefits, occupancy and equipment expense, marketing
expenses, and other expenses.
12
Analysis of Financial Condition
- -------------------------------
Average Balance Sheet. The following table presents, for the periods indicated,
the total dollar amount of interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax
equivalent adjustments were made. All average balances are average daily
balances. Non-accruing loans have been excluded from the yield calculations in
these tables.
Three Months Ended March 31,
-----------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
---------- ---------- ------ ---------- ------- -----
(Amounts in thousands)
Interest-earning assets:
Federal funds sold and securities
purchased under resale agreements ... $ 12,587 $ 166 5.29% 47,406 591 5.06
Investment securities (1) .............. 170,722 2,373 5.56 187,728 2,701 5.76
Mortgage related securities (1) ........ 394,257 6,464 6.56 397,589 6,302 6.34
Loans (2) .............................. 1,009,601 19,547 7.74 768,244 15,033 7.83
Other interest-earning assets (3) ...... 24,403 409 6.71 18,812 314 6.77
---------- ---------- ---------- -------
Total interest-earning assets .... 1,611,570 $ 28,959 7.19% 1,419,779 24,941 7.03
---------- ---------- ---------- -------
Allowance for credit losses ............... (10,173) (8,338)
Other noninterest-earning assets (4) (5) .. 113,089 110,563
---------- ----------
Total assets ..................... $ 1,714,486 1,522,004
========== ==========
Interest-bearing liabilities:
Savings accounts ....................... $ 296,016 $ 2,220 3.01% 296,859 2,201 3.01
Interest-bearing checking .............. 348,709 3,265 3.76 270,779 2,260 3.38
Certificates of deposit ................ 431,696 5,513 5.12 448,487 5,978 5.41
Mortgagors' payments held in escrow .... 10,201 46 1.81 8,173 34 1.69
Borrowed funds ......................... 327,999 4,715 5.77 175,386 2,404 5.56
---------- ---------- ---------- -------
Total interest-bearing liabilities 1,414,621 $ 15,759 4.47% 1,199,684 12,877 4.35
---------- ---------- ---------- -------
Noninterest-bearing demand deposits ....... 33,005 30,574
Other noninterest-bearing liabilities ..... 36,051 34,499
---------- ----------
Total liabilities ................ 1,483,677 1,264,757
Stockholders' equity (4) .................. 230,809 257,247
---------- ----------
Total liabilities and
stockholders' equity .......... $ 1,714,486 1,522,004
========== ==========
Net interest income ....................... $ 13,200 12,064
=========== =======
Net interest rate spread .................. 2.72% 2.68
====== ======
Net earning assets ........................ $ 196,949 220,095
========== ==========
Net interest income as a percentage of
average interest-earning assets ........ 3.29% 3.45
=========== =======
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.92% 118.35
=========== =======
- -------------------------------------------
(1) Amounts shown are at amortized cost.
(2) Net of deferred loan fees and expenses, loan discounts, loans-in-process
and non-accruing loans.
(3) Includes Federal Home Loan Bank stock and interest-bearing demand accounts.
(4) Includes unrealized gains/losses on securities available for sale.
(5) Includes bank-owned life insurance, earnings on which are reflected in
other noninterest income.
13
Lending Activities
The Company continued to demonstrate consistent loan growth as the total lending
portfolio increased 9% to $1.08 billion at March 31, 2000 from $990.6 million at
December 31, 1999. Partially contributing to this loan growth was the purchase
of approximately $63.8 million of loans resulting from the Albion acquisition
completed during the first quarter of 2000. The acquired portfolio included
$53.4 million of one-to four-family residential real estate loans, $8.0 million
of fixed and variable rate home equity loans and $2.4 million of commercial and
consumer loans. Additionally, during the first quarter of 2000, the Company
expanded its presence in the small business commercial lending market with a
variety of commercial-based products and services. This expansion resulted in
the commercial real estate and business lending portfolios increasing 9% during
the three month period ending March 31, 2000.
Loan Portfolio Composition. Set forth below is selected information concerning
the composition of the Company's loan portfolio in dollar amounts and in
percentages (before deductions for deferred fees and costs, unearned discounts
and allowances for credit losses) as of the dates indicated.
March 31, 2000 December 31, 1999
----------------------- ---------------------
Amount Percent Amount Percent
----------- ------- --------- -------
(Amounts in thousands)
Real estate loans:
- ------------------
One-to four-family ......................... $ 673,913 62.19% 609,742 61.55
Home equity ................................ 32,285 2.98 22,499 2.27
Multi-family ............................... 77,738 7.17 74,652 7.54
Commercial real estate ..................... 131,112 12.10 120,758 12.19
Construction ............................... 28,794 2.66 28,413 2.87
----------- ------- --------- -------
Total real estate loans ................. 943,842 87.10 856,064 86.42
----------- ------- --------- -------
Consumer loans:
- ---------------
Mobile home ............................. 25,337 2.34 25,957 2.62
Recreational Vehicle .................... 24,765 2.29 23,389 2.36
Vehicle ................................. 25,476 2.35 24,289 2.45
Personal ................................ 15,349 1.42 15,771 1.59
Home improvement ........................ 7,885 0.73 7,983 0.81
Guaranteed education .................... 14,483 1.34 12,564 1.27
Other consumer .......................... 332 0.03 280 0.03
----------- ------- --------- -------
Total consumer loans ................. 113,627 10.48 110,233 11.13
Commercial business loans .................. 26,237 2.42 24,301 2.45
----------- ------- --------- -------
Total loans .......................... 1,083,706 100.00% 990,598 100.00
----------- ======= --------- =======
Net deferred costs and
unearned discounts .................. 3,231 4,892
Allowance for credit losses ............... (10,503) (9,862)
----------- ---------
Total loans, net ..................... $ 1,076,434 985,628
=========== =========
Reflective of the growth realized in the Company's lending portfolio, total
non-performing loans, when comparing the periods ended March 31, 2000 to March
31, 1999, increased from $2.0 million to $2.2 million, respectively.
Correspondingly, total non-performing loans as a percentage of total loans
decreased slightly from 0.26% at March 31, 1999 to 0.21% at March 31, 2000.
Additionally, as a result of the high credit quality of the portfolio, the
allowance for credit losses as a percentage of total non-performing loans
increased to 469.93% at March 31, 2000 compared to 434.31% at March 31, 1999.
The significant portfolio growth combined with this high credit quality resulted
in the allowance for credit losses as a percentage of total loans decreasing to
0.97% at March 31, 2000 compared to 1.10% at March 31, 1999. The adequacy of the
Company's allowance for credit losses is reviewed quarterly with consideration
given to potential risk inherent within the loan portfolio, the status of
particular loans, historical loan loss experience, as well as current and
anticipated economic and market conditions. While management uses available
information to recognize losses on loans, future credit loss provisions may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for credit losses and may require the Company
to recognize additional provisions based on their judgement of information
available to them at the time of their examination.
14
Non-Accruing Loans and Non-Performing Assets. The following table sets forth
information regarding non-accruing loans and non-performing assets.
March 31, 2000 December 31, 1999
--------------- -----------------
(Amounts in thousands)
Non-accruing loans (1):
One-to four-family ............................................................ $ 1,325 974
Home equity ................................................................... 54 130
Commercial real estate and multi-family ....................................... 627 640
Consumer ...................................................................... 70 33
Commercial business ........................................................... 159 152
------- -------
Total .................................................................... 2,235 1,929
------- -------
Non-performing assets ............................................................ $ 436 1,073
------- -------
Total non-accruing loans and non-performing assets ............................... $ 2,671 3,002
======= =======
Total non-accruing loans and non-performing assets
as a percentage of total assets ............................................... 0.15% 0.18
======= =======
Total non-accruing loans to total loans .......................................... 0.21% 0.19
======= =======
- --------------------
(1) Loans are placed on non-accrual status when they become 90 days or more
past due or if they have been identified by the Company as presenting
uncertainty with respect to the collectibility of interest or principal.
Analysis of the Allowance For Credit Losses. The following table sets forth the
analysis of the allowance for credit losses for the periods indicated.
Three months ended March 31,
----------------------------
2000 1999
------- -------
(Amounts in thousands)
Balance at beginning of period ................................................... $ 9,862 8,010
Net charge-offs:
Charge-offs ................................................................... (161) (129)
Recoveries .................................................................... 85 28
------- -------
Total net charge-offs ............................................................ (76) (101)
Provision for credit losses ...................................................... 417 821
Allowance obtained through acquisition of Albion ................................. 300 -
------- -------
Balance at end of period ......................................................... $ 10,503 8,730
------- -------
Ratio of net charge-offs during the period to
average loans outstanding during the period ................................... 0.01% 0.01
======= =======
Allowance for credit losses to total loans at end of period ...................... 0.97% 1.10
======= =======
Allowance for credit losses to non-accruing loans at end of period ............... 469.93% 434.31
======= =======
15
Investing Activities
The Company's investment securities portfolio decreased slightly from $563.5
million at December 31, 1999 to $539.4 million at March 31, 2000. This decrease
resulted primarily from principal payments received on asset-backed and mortgage
related securities, which totaled $22.4 million, during the first quarter of
2000. Reflecting the continued increase in market interest rates, these payments
represented a 61%, or $34.9 million, decrease from the total payments received
in the first quarter of 1999. The amounts received from these payments and from
funds previously invested in federal funds sold were utilized to fund loan
growth, the Albion and ENL acquisitions, and repay matured borrowings.
Funding Activities
Total deposits increased $87.3 million during the first quarter of 2000,
primarily as a result of $61.7 million in deposit liabilities acquired from
Albion. Additionally, deposits increased due to increased activity and usage of
the new home banking product and the opening of two new branch locations by the
Bank.
Other borrowed funds decreased to $314.5 million at March 31, 2000 from $335.6
million at December 31, 1999 due to the scheduled maturities of various FHLB
advances and repurchase agreements.
Equity Activities
Stockholders' equity decreased to $229.9 million for the period ended March 31,
2000 as compared to $232.6 million at December 31, 1999. The decrease was
primarily attributable to the continuation of the Company's stock repurchase
programs. During the quarter ended March 31, 2000, the Company repurchased
656,500 shares of common stock at an average cost per share of $9.94.
Additionally, the New York State Banking Department, during the first quarter of
2000, approved a fourth repurchase plan of up to 1.3 million shares of common
stock, or 5% of total shares outstanding.
16
Results of Operations
Net Income
The Company recorded earnings of $4.7 million for the quarter ended March 31,
2000, an increase of 3% from $4.5 million for the first quarter of 1999.
Additionally, earnings per share for the first quarter of 2000 increased 13% to
$0.18 per share from $0.16 per share for the first quarter of 1999. This
increase primarily reflects the Company's efforts to increase fee-based sources
of revenue and minimize the risk associated with the fluctuations in interest
rates. Net income represented a return on average assets of 1.09% for the
quarter ended March 31, 2000 compared to 1.20% for the same period in 1999. The
return on average equity for the first quarter of 2000 increased to 8.11%
compared to 7.10% for the first quarter of 1999.
Net Interest Income
The net interest margin declined to 3.29% for the three months ended March 31,
2000 compared to 3.45% for the same quarter in 1999. The decline primarily
reflects a $23.1 million decrease in the Company's average net interest-earning
assets when comparing the two quarters. Funds previously available for
investment in interest-earning assets were utilized to fund the Company's stock
buyback programs and the acquisitions of ENL and Albion.
Interest income increased $4.0 million, or 16%, for the period ending March 31,
2000 compared to the period ending March 31, 1999. This increase reflects the
$191.8 million, or 14%, increase in average interest-earning assets to $1.61
billion for the first quarter of 2000 from $1.42 billion for the first quarter
of 1999. The increased interest-earning assets were funded primarily by the
Company's leverage program, primarily implemented in the first quarter of 1999.
The increase in interest income also reflects a 16 basis point increase in the
overall yield on interest-earning assets from 7.03% for the three months ended
March 31, 1999 to 7.19% for the same period in 2000. The increase in overall
yield resulted primarily from the redeployment of funds from the lower yielding
federal funds sold and investment and mortgage related securities into the
higher yielding loan portfolio. The average balance of loans outstanding
increased 31% from the first quarter of 1999 to the first quarter of 2000.
Correspondingly, interest income on loans increased 30% to $19.6 million for the
quarter ended March 31, 2000 from $15.0 million for the same period in 1999. The
benefits of this increase, however, were partially offset by a 9 basis point
decrease in the average yield on loans over the same time periods.
Interest expense increased 22% from the first quarter of 1999 to the first
quarter of 2000, primarily due to the $152.6 million increase in average
borrowed funds under the Company's leverage program. Also contributing to the
increase was the 21 basis point increase paid on these borrowed funds when
comparing the two periods, as well as an inflow of deposits into the money
market demand deposit account product, which carries a market-based cost of
funds that is slightly higher than the other interest-bearing deposits of the
Company.
Provision for Credit Losses
Despite the significant increase in the loan portfolio, the management of the
Company deemed the decrease in the provision for credit losses to be appropriate
in light of the high credit quality of the loan portfolio, as reflected by the
low non-performing loan to total loans ratio and the high non-performing loan to
allowance for credit losses ratio. The adequacy of the Company's allowance for
credit losses is reviewed quarterly with consideration given to potential risk
inherent within the loan portfolio, the status of particular loans, historical
loan loss experience, as well as current and anticipated economic and market
conditions.
Noninterest Income
Noninterest income increased to $7.5 million for the three months ended March
31, 2000 from $6.9 million for the same period in 1999. Factors contributing to
the increase in fee-based income were primarily the commissions and lease
residual income from the Company's new leasing activities through ENL, bank
service charges and fees related to the continued focus on generating core
checking accounts, growth in debit card usage, and increased earnings generated
by an additional purchase of bank-owned life insurance. These increases were
partially offset by a decrease in gains on the sales of investment securities
and a market related decrease in premiums earned on the Company's covered call
option program, as well as a reduction in income from insurance activities due
to revised estimates for contingent commissions.
Noninterest Expense
Noninterest expense totaled $13.2 million for the first quarter of 2000
reflecting a $1.9 million increase over the first quarter of 1999 total of $11.3
million. This increase was primarily in salaries and benefits related to the
expansion of the Company's lending and leasing activities and the staffing of
the two new branch locations opened during the quarter. Similarly, salaries and
benefits expense increased related to third party administration activities due
to a 20% growth in anticipated volume. Additionally, benefit expense was
incurred for the restricted stock plan implemented in the second quarter of
1999. Occupancy and equipment costs increased as a result of the new branches
and the relocation of some of the insurance activities to larger premises. Third
party processing charges for the increased debit
17
card usage are reflected in the increase in technology and communication
expenses, and the higher costs were incurred for marketing and advertising
related to the Company's corporate branding campaign and name change.
Income Taxes
Income tax expense totaled $2.4 million, and the effective tax rate was 34%, for
the first three months of 2000 and 1999.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings, proceeds from
the principal and interest payments on loans, mortgage related and debt and
equity securities, as well as proceeds from the limited sale of fixed rate
mortgage loans to the secondary market. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
outflows, mortgage prepayments, mortgage loan sales, and borrowings are greatly
influenced by market interest rates, economic conditions and competition.
Principal repayments on loans and mortgage related and other available for sale
securities provided $32.7 million and $22.4 million, respectively, of liquidity
for the three months ended March 31, 2000 compared to $34.9 million and $57.3
million, respectively, for the three months ended March 31, 1999.
The primary investing activities of the Company are the origination of both
residential one- to four-family and commercial real estate loans and the
purchase of mortgage related and debt and equity securities. During the first
three months of 2000 and 1999, loan originations totaled $71.6 million and $83.7
million, respectively. Purchases of investment securities totaled $7.6 million
for the three months ended March 31, 2000 compared to $182.2 million for the
three months ended March 31, 1999. For the first quarter of 1999, such purchases
were funded by FHLB advances and repurchase agreements as part of the Company's
leveraging strategy and by the redeployment of funds from federal funds sold.
During the first quarter of 2000, $32.2 million of liquidity was utilized to
repay matured borrowings and $6.3 million was used to complete the acquisitions
of ENL and Albion.
At March 31, 2000, outstanding loan commitments totaled $110.3 million. These
commitments do not necessarily represent future cash requirements since certain
of these instruments may expire without being funded and others may not be fully
drawn upon. It is anticipated that there will be sufficient funds available to
meet the current loan commitments and other obligations.
Cash, interest-bearing demand accounts at correspondent banks, federal funds
sold and securities purchased under resale agreements are the Company's most
liquid assets. The levels of these assets are monitored daily and are dependent
on operating, financing, lending and investing activities during any given
period. Excess short-term liquidity is usually invested in overnight federal
funds sold. In the event that funds beyond those generated internally are
required, additional sources of funds are available through the use of reverse
repurchase agreements and FHLB advances. As of March 31, 2000, the total of
cash, interest-bearing demand accounts, federal funds sold and securities
purchased under resale agreements was $24.2 million, or 1.4% of total assets.
At March 31, 2000, the Company exceeded all regulatory capital requirements. The
current requirements and the actual levels for the Company are detailed in the
following table.
As of March 31, 2000
---------------------------------------------------------------------
Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ------- ----- ------- -----
(Amounts in thousands)
Total Capital (to risk-weighted assets) ........... $ 225,857 21.33% 84,714 8.00 105,892 10.00
Tier 1 Capital (to risk-weighted assets) .......... 212,709 20.09 42,357 4.00 63,535 6.00
Leverage Capital (to average assets) .............. $ 212,709 12.62% 50,567 3.00 84,278 5.00
18
Item 3. Quantitative and Qualitative Disclosure about Market Risk
- --------------------------------------------------------------------------------
Net Income and Net Portfolio Value Analysis
Market risk is the risk of loss from adverse changes in market prices and/or
interest rates of the Company's financial instruments. The primary market risk
the Company is exposed to is interest rate risk. Interest rate risk occurs when
assets and liabilities reprice at different times as interest rates change. The
company monitors this interest rate sensitivity partially through the use of a
net income model, which generates estimates of changes in net income over a
range of interest rate scenarios.
The Asset-Liability Committee, which includes members of senior management,
monitors the Company's interest rate sensitivity. When deemed prudent,
management has taken actions, and intends to do so in the future, to mitigate
exposure to interest rate risk through the use of on- or off-balance sheet
financial instruments. Possible actions include, but are not limited to, changes
in the pricing of loan and deposit products, modifying the composition of
interest-earning assets and interest-bearing liabilities, and the use of
interest rate swap agreements.
The accompanying table as of March 31, 2000 sets forth the estimated impact on
the Company's net income resulting from changes in the interest rates during the
next twelve months. These estimates require making certain assumptions including
loan and mortgage-related investment prepayment speeds, reinvestment rates, and
deposit maturities and decay rates. These assumptions are inherently uncertain
and, as a result, the Company cannot precisely predict the impact of changes in
interest rates on net income. Actual results may differ significantly due to
timing, magnitude and frequency of interest rate changes and changes in market
condition.
Calculated increase (decrease) at March 31, 2000
Changes in ----------------------------------------------------------
interest rates Net Income Net Portfolio Value
------------------------ ---------------------------- --------------------------
$ Change % Change $ Change % Change
------------ ------------ ----------- ------------
(Amounts in thousands)
+200 basis points $ (2,277) (10.1)% (24,606) (11.3)
+100 basis points (1,109) (4.9) (12,366) (5.7)
-100 basis points 1,096 4.8 7,941 3.6
-200 basis points $ 2,059 9.1% 12,620 5.8
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------------------------------------------------------------
There are no material pending legal proceedings to which the Company or
its subsidiaries are a party other than ordinary routine litigation
incidental to their respective businesses.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------------------------------------
Not applicable.
Item 3. Defaults upon Senior Securities
- --------------------------------------------------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
Not applicable.
Item 5. Other Information
- --------------------------------------------------------------------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) The following exhibits are filed herewith or are incorporated by
reference to other filings:
Exhibit No.
-----------
99.1 Summary of Quarterly Financial Data
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed on April 10, 2000 a Current Report on Form 8-K dated
March 26, 2000, which disclosed that it had reached an agreement to
acquire Iroquois Bancorp, Inc. The Company also disclosed that the
acquisition of Albion Banc Corp. and its wholly owned subsidiary,
Albion Federal Savings and Loan Association was completed on March 24,
2000. Such Current Report, as an Item 7 exhibit included the Agreement
and Plan of Merger dated April 6, 2000 and copies of the Company's
press release dated March 30, 2000.
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.
NIAGARA BANCORP, INC.
Date: May 12, 2000 By: /s/ William E. Swan
-------------------------------------------
William E. Swan
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Paul J. Kolkmeyer
-------------------------------------------
Paul J. Kolkmeyer
Executive Vice President and Chief
Financial Officer
20
EXHIBIT INDEX
Exhibit
Number
- -------------
99.1 Summary of Quarterly Financial Data. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
21