SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
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OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-18301
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IROQUOIS BANCORP, INC.
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(Exact name of Registrant as specified in its charter)
NEW YORK 16-1351101
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
115 Genesee Street, Auburn, New York 13021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (315) 252-9521
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____________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
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___
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,387,989 shares of common
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stock on September 30, 1997.
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996............. 3
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 1997 and 1996....... 4
Condensed Consolidated Statements of Income -
Nine Months Ended September 30, 1997 and 1996........ 5
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1997 and 1996........ 6-7
Notes to Condensed Consolidated Financial
Statements............................................ 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10-13
Item 3. Quantative and Qualitative Disclosures About
Market Risk.......................................... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................... 14
Item 2. Changes in Securities................................ 14
Item 3. Defaults upon Senior Securities...................... 14
Item 4. Submission of Matters to a Vote of Security Holders.. 14
Item 5. Other Information.................................... 14
Item 6. Exhibits and Reports on Form 8-K..................... 14
SIGNATURES.................................................... 15
(2)
ITEM 1. FINANCIAL INFORMATION
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, December 31,
1997 1996
-------------- -----------
ASSETS
Cash and due from banks $ 14,763 10,375
Federal funds sold and interest-bearing
deposits with other financial institutions 2,700 300
Securities available for sale 48,525 43,895
Securities held to maturity 54,105 54,392
Loans receivable 362,706 348,463
Less allowance for loan losses 3,030 3,389
-------- -------
Loans receivable, net 359,676 345,074
Premises and equipment, net 7,895 7,114
Federal Home Loan Bank stock, at cost 2,999 2,279
Accrued interest receivable 3,719 3,571
Other assets 4,577 5,908
- ------------------------------------------------ -------- -------
Total Assets 498,959 472,908
================================================ ======== =======
LIABILITIES
Savings and time deposits $386,181 385,288
Demand deposits 28,706 24,934
Borrowings 43,225 25,536
Accrued expenses and other liabilities 2,894 2,348
- ------------------------------------------------ -------- -------
Total Liabilities $461,006 438,106
- ------------------------------------------------ -------- -------
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value,
3,000,000 shares authorized:
Series A - 29,999 and 30,957 shares
issued and outstanding in September
1997 and December 1996 respectively,
liquidation value $3,000 30 31
Series B - 18,652 and 19,082 shares
issued and outstanding in September
1997 and December 1996 respectively,
liquidation value $1,865 19 19
Common Stock $1.00 par value; 6,000,000 shares
authorized; 2,387,989 and 2,367,940 shares
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 2,388 2,368
Additional paid-in capital 13,709 13,520
Retained earnings 22,069 19,260
Net unrealized gain on securities
available for sale 175 56
Unallocated shares of Stock Ownership Plans (437) (452)
- ------------------------------------------------ -------- -------
Total Shareholders' Equity 37,953 34,802
- ------------------------------------------------ -------- -------
Total Liabilities and Shareholders' Equity $498,959 472,908
================================================ ======== =======
See accompanying notes to condensed consolidated financial statements.
(3)
IROQUOIS BANCORP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended
September 30,
1997 1996
----------------------
Interest Income:
Loans $7,713 7,577
Securities 1,677 1,499
Other 86 60
- ----------------------------------------- ------ ------
9,476 9,136
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Interest Expense:
Deposits 3,974 3,776
Borrowings 432 290
- ----------------------------------------- ------ ------
4,406 4,066
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Net Interest Income 5,070 5,070
Provision for loan losses 373 227
- ----------------------------------------- ------ ------
Net Interest Income after Provision
for Loan Losses 4,697 4,843
- ----------------------------------------- ------ ------
Non-Interest Income:
Service charges, commissions and fees 752 677
Net gain (loss) on sales of securities
and loans 52 (1,039)
Other 41 53
- ----------------------------------------- ------ ------
Total Non-Interest Income 845 (309)
- ----------------------------------------- ------ ------
Non-Interest Expense:
Salaries and employee benefits 1,875 1,737
Occupancy and equipment expenses 423 413
Computer and product service fees 361 282
Promotion and marketing expenses 82 107
Deposit insurance 24 606
Other 829 906
- ----------------------------------------- ------ ------
Total Non-Interest Expense 3,594 4,051
- ----------------------------------------- ------ ------
Income Before Income Taxes 1,948 483
Income taxes 724 193
- ----------------------------------------- ------ ------
Net Income 1,224 290
Preferred stock dividend 111 111
- ----------------------------------------- ------ ------
Net income attributable to common stock $1,113 179
========================================= ====== ======
Net income per common share $.47 .08
========================================= ====== ======
Cash dividends declared $.10 .08
See accompanying notes to condensed consolidated financial statements.
(4)
IROQUOIS BANCORP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Nine months ended
September 30,
1997 1996
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Interest Income:
Loans $22,702 22,087
Securities 4,957 4,282
Other 252 271
- ----------------------------------------- ------- ------
27,911 26,640
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Interest Expense:
Deposits 11,571 11,006
Borrowings 1,099 1,246
- ----------------------------------------- ------- ------
12,670 12,252
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Net Interest Income 15,241 14,388
Provision for loan losses 1,118 969
- ----------------------------------------- ------- ------
Net Interest Income after Provision
for Loan Losses 14,123 13,419
- ----------------------------------------- ------- ------
Non-Interest Income:
Service charges, commissions and fees 2,200 1,908
Net gain (loss) on sales of securities
and loans 89 (1,038)
Other 129 99
- ----------------------------------------- ------- ------
Total Non-Interest Income 2,418 969
- ----------------------------------------- ------- ------
Non-Interest Expense:
Salaries and employee benefits 5,503 4,986
Occupancy and equipment expenses 1,291 1,246
Computer and product service fees 987 772
Promotion and marketing expenses 244 280
Deposit insurance 73 705
Other 2,416 2,396
- ----------------------------------------- ------- ------
Total Non-Interest Expense 10,514 10,385
- ----------------------------------------- ------- ------
Income Before Income Taxes 6,027 4,003
Income taxes 2,276 1,570
- ----------------------------------------- ------- ------
Net Income 3,751 2,433
Preferred stock dividend 330 340
- ----------------------------------------- ------- ------
Net income attributable to common stock $ 3,421 2,093
========================================= ======= ======
Net income per common share $1.45 .90
========================================= ======= ======
Cash dividends declared $.26 .24
See accompanying notes to condensed consolidated financial statements.
(5)
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine months ended
September 30,
1997 1996
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Cash flows from operating activities:
Net income $ 3,751 2,433
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense,
provision for loan losses, deferred
taxes and other 1,933 1,586
Net (gain) loss on sale of securities
and loans (89) 1,038
(Decrease) in accrued interest receivable
and other assets (276) (190)
Increase (decrease) in accrued expenses
and other liabilities 641 1,445
- ----------------------------------------------- -------- -------
Net cash provided by operating activities 5,960 6,312
- ----------------------------------------------- -------- -------
Cash flows from investing activities:
Proceeds from sales of securities available
for sale 8,665 8,026
Proceeds from maturities and redemptions
of securities available for sale 4,732 5,716
Proceeds from maturities and redemptions
of securities held to maturity 9,286 8,359
Purchases of securities available for sale (16,933) (18,179)
Purchases of securities held to maturity (9,874) (15,940)
Loans made to customers net of principal
payments received (16,436) (14,489)
Loans of acquired branches -- (10,270)
Proceeds from sales of loans 2,196 3,211
Capital expenditures (1,260) (889)
Purchase of FHLB stock (721) (45)
Premium paid for deposits -- (3,032)
Other - net (446) (1,380)
- ----------------------------------------------- -------- -------
Net cash provided (used) by investing
activities (20,791) (38,912)
- ----------------------------------------------- -------- -------
Cash flows from financing activities:
Net increase (decrease) in savings
accounts and demand deposits (3,097) (1,708)
Net increase in time deposits 7,762 (2,920)
Deposits of acquired branches -- 46,652
Net increase (decrease) in borrowings
and other liabilities 17,689 (9,153)
Proceeds from issuance of common stock 346 247
Dividends paid (942) (900)
Redemption of preferred stock (139) (41)
- ----------------------------------------------- -------- -------
Net cash provided (used) by financing
activities 21,619 32,177
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(6)
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine months ended
September 30,
1997 1996
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Net increase (decrease) in cash and
cash equivalents 6,788 (423)
Cash and cash equivalents at beginning of
period 10,675 12,390
- ----------------------------------------------- ------- ------
Cash and cash equivalents at end of period $17,463 11,967
- ----------------------------------------------- ------- ------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $12,716 12,198
Income taxes 916 2,134
Supplemental schedule of non-cash investing
activities:
Loans to facilitate the sale of other
real estate 166 409
Additions to other real estate 638 1,639
See accompanying notes to condensed consolidated financial statements.
(7)
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Financial Statements
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The interim financial statements contained herein are unaudited, but in
the opinion of management of the Company, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for these periods. The results
of operations for the interim periods are not necessarily indicative of
the results of operations for the full year.
2) Earnings Per Share
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Net income per common share for 1997 and 1996 was calculated for the
respective periods by dividing net income applicable to common shares of
$3,421,000 in 1997 and $2,093,000 in 1996 by the weighted average number
of shares outstanding of 2,352,303 in 1997 and 2,321,942 in 1996. The
exercise of outstanding stock options was not considered in the
calculation because, if exercised, they would not materially affect
earnings per share, as presented.
3) Other Accounting Issues
-----------------------
In June 1996 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is based on consistent
application of a "financial components approach" that focuses on control.
The Statement provides consistent standards for distinguishing transfer of
financial assets that are sales from transfers that are secured
borrowings. Effective January 1, 1997, the Company adopted SFAS 125 and
the adoption did not have a material impact on its financial condition or
results of operations.
In February 1997 the FASB issued SFAS No. 128, "Earnings per Share." SFAS
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 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Upon
adoption, prior period EPS will be restated to conform with the provisions
of SFAS 128. Management does not believe the adoption of SFAS 128 will
have a material impact on its financial condition or results of operation.
(8)
In June 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS 129 establishes standards for disclosing
information about an entity's capital structure and is effective for the
Company in 1988. Adoption of SFAS 129 is not expected to have an impact
on the financial condition or results of operations of the Company.
In June 1997, the FASB issued SFAS NO. 130, "Reporting Comprehensive
Income." SFAS 123 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 130, which is effective for the Company in 1998, has not
been determined.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 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 operation 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 131 is effective for the
Company in 1998 and the impact of adoption has not been determined.
(9)
IROQUOIS BANCORP, INC.
AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
- --------------------------------------------------------------------
Net income for the three months ended September 30, 1997 was $1,224,000, or $.47
per share, compared to net income of $290,000, or $.08 per share, for the three
months ended September 30, 1996. The 1996 third quarter results included a pre-
tax loss of $1.1 million on the sale of certain classified mortgage loans as
well as a $556,000 expense relating to the recapitalization of the SAIF Deposit
Insurance Fund.
Net interest income was $5,070,000 for the third quarter of 1997, identical to
the amount of net interest income for the third quarter of 1996. Net interest
income remained flat for the quarter as a result of lower yields on retail loans
and higher deposit and borrowing costs, causing a tightening of net interest
margin. The net interest margin was 4.35% for the third quarter of 1997
compared to 4.74% for the third quarter of 1996.
Interest income was $9,476,000 for the quarter ended September 30, 1997,
compared to $9,136,000 for the quarter ended September 30, 1996. Average earning
assets increased to $465.8 million at quarter end September 1997 from $426.7
million at quarter end September 1996. The largest increase was reflected in
residential mortgage loans, which increased to $202.1 million from $185.3
million the year earlier.
Interest expense on deposits and borrowings was $4,406,000 for the quarter ended
September 30, 1997, compared to $4,066,000 for the quarter ended September 30,
1996. Average costing liabilities increased to $426.7 million in 1997 from
$410.1 million in 1996. Average deposits including non-interest bearing demand
deposits increased to $425.3 million from $413.7 million, while average
borrowings increased to $28.7 million from $20.1 million the year earlier. The
largest increase in deposits was from public funds, which increased to $26.4
million from $11.9 million.
The loan loss provision for the quarter ended September 30, 1997 was $373,000,
compared to $227,000 for the quarter ended September 30, 1996. The increase
reflects additions to the allowance for loan losses consistent with continued
loan growth and current levels of non-performing loans. The ratio of non-
performing loans to total loans increased from 1.20% at September 30, 1996 to
1.50% at September 30, 1997.
(10)
Total non-interest income increased to $845,000 in 1997, compared to a loss of
$309,000 in 1996. Net losses on the sale of securities and loans totaled
$1,039,000 in 1996 compared to net gains of $52,000 in 1997. The loss in 1996
reflects the loss on the sale of $4.6 million of certain classified commercial
mortgage loans. Non-interest income, excluding gains/losses on sales of
securities and loans, increased $63,000 reflecting increased loan and deposit
service fees.
Total non-interest expense decreased from $4,051,000 for the third quarter of
1996 to $3,594,000 for the third quarter of 1997. Excluding the 1996 SAIF
assessment, non-interest expense increased 2.8% and was largely related to
litigation costs incurred during the third quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
- -------------------------------------------------------------------
Net income for the nine months ended September 30, 1997 was $3,751,000, or $1.45
per share, compared to $2,433,000, or $.90 per share, for the nine months ended
September 30, 1996.
Net interest income was $15,241,000 for the first nine months of 1997, compared
to $14,388,000 for the first nine months of 1996. The increase was primarily
volume related as net interest margin increased from 4.40% for the nine months
ended September 30, 1996, to 4.44% for the nine months ended September 30, 1997.
Interest income increased from $26,640,000 for the first nine months of 1996 to
$27,911,000 for the first nine months of 1997. Interest expense for the first
nine months of 1996 was $14,388,000, compared to $15,241,000 for the first nine
months of 1997. Average earning assets increased from $433.5 million in 1996 to
$457.3 million in 1997. Average loans increased from $337.2 million to $349.5
million year over year, while average investments increased from $96.3 million
to $107.8 million. Average costing liabilities increased from $403.8 -million in
1997 to $420.0 million in 1996.
The loan loss provision for the nine months ended September 30, 1997 was
$1,118,000, compared to $969,000 for the nine months ended September 30, 1996.
The increase in 1997 compared to 1996 reflects additions to the allowance for
loan losses consistent with loan growth and a general increase in non-performing
loans, particularly mortgage loans in a non-accrual status.
Total non-interest income was $2,418,000 in 1997, compared to $969,000 in 1996.
Non-interest income in 1996 included net losses on the sale of securities and
loans of $1,038,000, compared to net gains of $89,000 in 1997.
Total non-interest expense was $10,385,000 in 1996, compared to $10,514,000 in
1997. The increase in salary and benefits primarily reflects additional expenses
associated with the three branches acquired during 1996. Computer and product
service fees reflect
(11)
increased data processing fees and service fees relating to the "Business
Manager" lending product. Deposit insurance premiums decreased as a result of
the recapitalization of the SAIF insurance fund during 1996. Other expense
increases were associated -Primarily with additional legal and consulting fees.
The provision for income taxes was $1,570,000 through September 30, 1996,
compared to $2,276,000 through September 30, 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Consolidated assets were $499.0 million at September 30, 1997, compared to
$472.9 million at December 31, 1996.
Net loans receivable increased to $359.7 million at September 30
1997, from $345.1 million at December 31, 1996. The increase was primarily in
residential mortgages, which increased from $188.2 million to $206.2 million.
Commercial mortgages decreased from $46.0 million at the end of December 1996 to
$41.1 million at the end of September 1997. Other consumer lending was stagnant
during the period, with ending balances increasing from $74.2 million to $75.1
million. Growth was also slow in commercial loans, which increased from $40.0
million to $40.3 million.
The allowance for loan losses at September 30, 1997, stood at $3.0 million, down
from $3.4 million at the end of December 1996. The allowance for loan losses as
a percentage of total loans was .83% at September 30, 1997, compared to .97% at
December 31, 1996. The allowance as a percentage of non-performing loans was
91.0% at December 31, 1996 and 55.8% at September 30, 1997. The decrease in the
allowance primarily reflects the charge-off of certain impaired loans during the
period.
Total securities increased from $98.3 million at December 31, 1996 to $102.6
million at September 30, 1997. The increase was primarily within the available
for sale portfolio which increased from $43.9 million to $48.5 million. U.S.
Government and Agency security holdings increased, while mortgage-backed
securities declined as a result of sales during the third quarter of 1997.
Total deposits increased from $410.2 million at December 31, 1996 to $414.9
million at September 30, 1997. The increase in deposits was primarily in demand
deposits, which increased from $24.9 million to $28.7 million.
Borrowings from the Federal Home Loan Bank of New York (FHLBNY) increased during
the period. Total borrowings were $25.5 million at December 31, 1996 compared to
$43.2 million at September 30, 1997. Term advances increased $6.0 million and
draws against lines of credit increased $11.7 million.
(12)
The Company had total shareholders equity of $38.0 million at September 30,
1997, compared to $34.8 million at December 31, 1996. The average equity to
assets ratio increased from 7.12% at the end of December 1996 to 7.34% at the
end of September 1997. Tier I capital to average assets for the period ending
September 30, 1997 was 7.06%.
As of September 30, 1997, the capital ratios of the Company and both of its
banking subsidiaries exceeded their respective capital ratio requirements and
the member bank ratios were within the "well capitalized" category under
applicable regulatory provisions.
At September 30, 1997, short-term liquid assets including securities and loans
totaled $53.4 million, compared to $44.2 million at December 31, 1996. The
Company considers its current level of liquidity and additional sources of funds
as both sufficient and within acceptable ranges.
Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
(13)
IROQUOIS BANCORP, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
(14)
IROQUOIS BANCORP, INC.
AND SUBSIDIARIES
SIGNATURE
---------
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.
Iroquois Bancorp, Inc.
(Registrant)
Date: November 13, 1997 /s/Richard D. Callahan
-------------------------------
Richard D. Callahan
President & CEO
Date: November 13, 1997 /s/Marianne R. O'Connor
-------------------------------
Marianne R. O'Connor
Treasurer & CFO