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 June 30, 1998
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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.
----------------------
(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: 2,402,980 shares of common
stock on June 30, 1998.
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Item 3. Quantative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17-19
(2)
ITEM 1. FINANCIAL INFORMATION
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
June 30, December 31,
1998 1997
--------- -------------
ASSETS
Cash and due from banks $ 12,858 $ 12,778
Federal funds sold and interest-bearing
deposits with other financial institutions 2,498 705
Securities available for sale 56,353 51,944
Securities held to maturity 47,382 51,676
Loans receivable 393,398 373,269
Less allowance for loan losses 3,543 3,285
- ---------------------------------------------------------------- -------- --------
Loans receivable, net 389,855 369,984
Premises and equipment, net 8,194 8,170
Federal Home Loan Bank stock, at cost 4,004 3,629
Accrued interest receivable 3,807 3,855
Other assets 6,528 7,037
- ---------------------------------------------------------------- -------- --------
Total Assets $531,479 509,778
================================================================ ======== ========
LIABILITIES
Savings and time deposits $406,071 $389,448
Demand deposits 28,618 27,563
Borrowings 56,242 50,164
Accrued expenses and other liabilities 2,507 3,574
- ---------------------------------------------------------------- -------- --------
Total Liabilities $493,438 $470,749
- ---------------------------------------------------------------- -------- --------
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 3,000,000 shares authorized:
Series A - 29,999 shares issued and outstanding in
December 1997 -- 30
Series B - 18,098 and 18,632 shares issued and outstanding
in June 1998 and December 1997 respectively,
liquidation value $1,810 18 19
Common Stock $1.00 par value; 6,000,000 shares
authorized; 2,402,980 and 2,388,936 shares
issued and outstanding at June 30, 1998
and December 31, 1997, respectively 2,403 2,389
Additional paid-in capital 11,289 13,793
Retained earnings 24,334 22,868
Accumulated other comprehensive income 280 213
Unallocated shares of Stock Ownership Plans (283) (283)
- ---------------------------------------------------------------- -------- --------
Total Shareholders' Equity 38,041 39,029
- ---------------------------------------------------------------- -------- --------
Total Liabilities and Shareholders' Equity $531,479 $509,778
================================================================ ======== ========
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
June 30,
1998 1997
------------------
Interest Income:
Loans $8,063 7,542
Securities 1,592 1,671
Other 130 110
- ------------------------------------------------------------------------
9,785 9,323
- ------------------------------------------------------------------------
Interest Expense:
Deposits 4,071 3,896
Borrowings 724 322
- ------------------------------------------------------------------------
4,795 4,218
- ------------------------------------------------------------------------
Net Interest Income 4,990 5,105
Provision for loan losses 360 372
- ------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 4,630 4,733
- ------------------------------------------------------------------------
Non-Interest Income:
Service charges, commissions and fees 894 746
Net gain on sales of securities and loans 18 7
Other 17 96
- ------------------------------------------------------------------------
Total Non-Interest Income 929 849
- ------------------------------------------------------------------------
Non-Interest Expense:
Salaries and employee benefits 1,876 1,815
Occupancy and equipment expenses 409 424
Computer and product service fees 430 309
Promotion and marketing expenses 110 88
Deposit insurance 23 25
Other 778 830
- ------------------------------------------------------------------------
Total Non-Interest Expenses 3,626 3,491
- ------------------------------------------------------------------------
Income Before Income Taxes 1,933 2,091
Income taxes 697 793
- ------------------------------------------------------------------------
Net Income $1,236 1,298
Preferred stock dividend 38 111
- ------------------------------------------------------------------------
Net income attributable to common stock $1,198 1,187
========================================================================
Net income per common share:
Basic $.50 .50
====== =====
Diluted $.49 .49
====== =====
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)
Six months ended
June 30,
1998 1997
----------------------
Interest Income:
Loans $15,990 $14,989
Securities 3,202 3,280
Other 240 166
- ---------------------------------------------------------------------------------
19,432 18,435
- ---------------------------------------------------------------------------------
Interest Expense:
Deposits 7,950 7,597
Borrowings 1,436 667
- ---------------------------------------------------------------------------------
9,386 8,264
- ---------------------------------------------------------------------------------
Net Interest Income 10,046 10,171
Provision for loan losses 720 745
- ---------------------------------------------------------------------------------
Net Interest Income after provision for Loan Losses 9,326 9,426
- ---------------------------------------------------------------------------------
Non-Interest Income:
Service charges, commissions and fees 1,696 1,362
Net gain (loss) on sales of securities and loans 18 37
Other 30 174
- ---------------------------------------------------------------------------------
Total Non-Interest Income 1,744 1,573
- ---------------------------------------------------------------------------------
Non-Interest Expense:
Salaries and employee benefits 3,750 3,628
Occupancy and equipment expenses 803 868
Computer and product service fees 831 626
Promotion and marketing expenses 192 162
Deposit insurance 46 49
Other 1,600 1,587
- ---------------------------------------------------------------------------------
Total Non-Interest Expenses 7,222 6,920
- ---------------------------------------------------------------------------------
Income Before Income Taxes 3,848 4,079
Income taxes 1,394 1,552
- ---------------------------------------------------------------------------------
Net Income $ 2,454 2,527
Preferred stock dividend 149 219
- ---------------------------------------------------------------------------------
Net income attributable to common stock 2,305 2,308
=================================================================================
Net income per common share:
Basic $.97 .98
======= =======
Diluted $.94 .96
======= =======
Cash dividends declared $.20 .16
See accompanying notes to condensed consolidated financial statements.
(5)
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Six months ended
June 30,
1998 1997
----------------------
Cash flows from operating activities:
Net income $ 2,454 2,527
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense, provision for
loan losses, deferred taxes and other 1,454 1,248
Net (gain) loss on sale of securities and loans (18) (37)
Increase in accrued interest receivable and other assets (92) (608)
Increase(decrease) in accrued expenses and other liabilities (1,457) 56
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,341 3,186
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 1,085 1,381
Proceeds from maturities and redemptions of securities available for sale 4,925 1,768
Proceeds from maturities and redemptions of
securities held to maturity 9,677 7,670
Purchases of securities available for sale (10,215) (9,370)
Purchases of securities held to maturity (5,531) (6,817)
Loans made to customers net of principal payments received (21,265) (9,271)
Proceeds from sales of loans 1,140 918
Capital expenditures (182) (437)
Purchase of FHLB stock (375) (156)
Other - net 26 (2,730)
- ---------------------------------------------------------------------------------------------------------
Net cash used by investing activities (20,715) (17,044)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in savings accounts and demand deposits 9,223 674
Net increase in time deposits 8,455 17,156
Net increase in borrowings and other liabilities 6,078 3,993
Proceeds from issuance of Common stock 181 161
Dividends paid (637) (595)
Redemption of Preferred stock (3,053) (139)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 20,247 21,250
- ---------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,873 7,392
Cash and cash equivalents at beginning of period 13,483 10,675
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 15,356 18,067
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 9,386 8,279
Income taxes 790 711
Supplemental schedule of non-cash investing activities:
Loans to facilitate the sale of ORE 48 46
Additions to other real estate 560 467
(6)
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Financial Statements
--------------------
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.
The data in the consolidated balance sheet for December 31, 1997 was
derived from the Company's 1997 Annual Report to Shareholders. That
data, along with the other interim financial information presented in
the consolidated balance sheets, statements of income, and statements of
cash flows should be read in conjunction with the consolidated financial
statements, including the notes thereto, contained in the 1997 Annual
Report to Shareholders.
2) Earnings Per Share
------------------
At December 31, 1997 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." SFAS
No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
Per Share" and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly
held common stock. All prior period EPS amounts included in the
consolidated financial statements and in the related notes thereto have
been restated to conform with the computational provisions of this
statement.
Basic earnings per share is calculated by dividing net income available
to common shareholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share includes the
maximum dilutive effect of stock issuable upon conversion of stock
options.
(7)
Calculation of Basic Earnings Per Share (Basic EPS) and Diluted Earnings Per
Share (Diluted EPS) were as follows:
================================================================================================
FOR THREE MONTHS ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------
Income Average Shares Amounts
- ------------------------------------------------------------------------------------------------
Basic EPS
Net Income $1,236
Less: Preferred stock dividends (38)
- ------------------------------------------------------------------------------------------------
Income available to common
shareholders $1,198 2,378,433 $.50
Effect of Dilutive Securities -
Stock Options 70,210
- ------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $1,198 2,448,643 $.49
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
FOR THREE MONTHS ENDED JUNE 30, 1997
- ------------------------------------------------------------------------------------------------
Income Average Shares Amounts
- ------------------------------------------------------------------------------------------------
Basic EPS
Net Income $1,298
Less: Preferred stock dividends (111)
- ------------------------------------------------------------------------------------------------
Income available to common
shareholders $1,187 2,350,596 $.50
Effect of Dilutive Securities -
Stock Options 56,666
- ------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $1,187 2,407,262 $.49
================================================================================================
( 8 )
Calculation of Basic Earnings Per Share (Basic EPS) and Diluted Earnings Per
Share (Diluted EPS) were as follows:
==================================================================================================
FOR SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------------------------
Income Average Shares Amounts
- --------------------------------------------------------------------------------------------------
Basic EPS
Net Income $2,454
Less: Preferred stock dividends (149)
- --------------------------------------------------------------------------------------------------
Income available to common
shareholders $2,305 2,374,778 $.97
Effect of Dilutive Securities -
Stock Options 67,816
- --------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $2,305 2,442,594 $.94
- --------------------------------------------------------------------------------------------------
FOR SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------------------------
Income Average Shares Amounts
- --------------------------------------------------------------------------------------------------
Basic EPS
Net Income $2,527
Less: Preferred stock dividends (219)
- --------------------------------------------------------------------------------------------------
Income available to common
shareholders $2,308 2,348,362 $.98
Effect of Dilutive Securities -
Stock Options 56,666
- --------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $2,308 2,405,028 $.96
===================================================================================================
3) Other Accounting Issues
-----------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The statement is effective for the Company in 1998. In the initial
year of application, comparative information for earlier years is to be
restated. SFAS No. 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating
segments. Adoption of this statement will have no effect on the Company's
financial position or results of operations.
(9)
Effective January 1, 1998, the Company adopted the remaining provisions of
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," which relate to the accounting for
securities lending, repurchase agreements, and other secured financing
activities. These provisions, which were delayed for implementation by
SFAS No. 127, are not expected to have a material impact on the Company.
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components.
Comprehensive income includes the reported net income of a company adjusted
for items that are currently accounted for as direct entries to equity,
such as the mark to market adjustment on securities available for sale,
foreign currency items and minimum pension liability adjustments. At the
Company, comprehensive income represents net income plus other
comprehensive income net of taxes, which consists of the net change in
unrealized gains or losses on securities available for sale for the period.
Accumulated other comprehensive income represents the net unrealized gains
or losses on securities available for sale as of the balance sheet dates.
Comprehensive income for the three-month and six month periods ended June
30, 1998 and 1997 was $1,284,000 and $2,522,000, and $1,564,000 and
$2,571,000, respectively.
The FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post Retirement Benefits" in February 1998. SFAS No. 132 revises
employers' disclosures about pension and other post retirement benefit
plans, it does not change the measurement or recognition of these plans.
SFAS No. 132 is effective for the Company in 1998 and will not impact the
Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
comprehensive accounting and reporting requirements for derivative
instruments and hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for gains and losses
resulting from changes in fair value of the derivative instrument, depends
on the intended use of the derivative and the type of risk being hedged.
This statement is effective for all fiscal quarters beginning January 1,
2000 for calendar year companies. Earlier adoption, however, is permitted.
At the present time, the Company has not fully analyzed the effect or
timing of the adoption of SFAS No. 133 on the Company's consolidated
financial statements.
(10)
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 JUNE 30, 1998 COMPARED TO JUNE 30, 1997
- ----------------------------------------------------------
Net income for the three months ended June 30, 1998 was $1,236,000, or $.50
basic earnings per share, compared to net income of $1,298,000, or $.50 basic
earnings per share, for the three months ended June 30, 1997. Diluted earnings
per share were $.49 for the three months ended June 30, 1997 and 1998.
Net interest income was $4,990,000 for the second quarter of 1998 compared to
$5,105,000 for the second quarter of 1997. The decline in net interest income
reflects a continued tightening of net interest spreads caused by a flatter
yield curve and changes in the Company's balance sheet mix. Asset yields fell to
7.90% for the current quarter compared to 8.09% the year earlier. Interest-
bearing liability costs were 4.22% for the current quarter compared to 4.01% the
year earlier. When combined, the net interest spread contracted to 3.68% for
the three months ended June 30, 1998 compared to 4.07% for the three months
ended June 30, 1997.
Interest income increased 5.0% to $9,785,000 for the three months ended June 30,
1998 compared to $9,323,000 for the same period the year earlier. Average
earning assets increased 7.9%, to $494.1 million in 1998 from $458.5 million in
1997. Residential mortgage loans, yielding 7.75%, increased $38.9 million, or
20.1%. Higher yielding commercial mortgage loans and commercial loans declined
$3.1 million and $3.9 million, respectively. Residential mortgage loans
increased from 42.1% of average earning assets in 1997 to 50.6% in 1998.
Interest expense on deposits and borrowings was $4,795,000 for the three months
ended June 30, 1998 compared to $4,218,000 for the three months ended June 30,
1997. Average deposit balances increased 1.9% from $426.0 million to $434.3
million. Retail and commercial deposits declined by $4.7 million while
municipal deposits increased $12.2 million. The average cost of interest-
bearing deposits increased from 3.67% in 1997 to 3.76% in 1998, primarily
reflecting growth in higher costing deposits as a percent of total deposits.
Average borrowings increased from $21.4 million in 1997 to $48.6 million in
1998. The average cost of borrowings declined from 6.05% in 1997 to 5.97% in
1998, primarily reflecting the decline in the yield curve.
The loan loss provision was $360,000 for the quarter ended June 30, 1998
compared to $372,000 for the quarter ended June 30, 1997. The allowance for
loan losses was $3.5 million at June 30, 1998 compared to $3.3 million at June
30, 1997. Net charge-offs for the three months ended June 30, 1998 were
$160,000 compared to $1,002,000 in 1997.
(11)
Total non-interest income was $929,000 for the quarter ended June 30, 1998
compared to $849,000 for the quarter ended June 30, 1997, an increase of 9.4%.
Increases in revenues from trust and investment services, as well as increases
in loan and deposit service fees contributed to the growth of non-interest
income in 1998.
Total non-interest expenses were $3,626,000 for the quarter ended June 30, 1998
compared to $3,491,000 for the quarter ended June 30, 1997, an increase of 3.9%.
The increase was related primarily to computer and product servicing fees, which
were $430,000 for the second quarter of 1998 compared to $309,000 for the second
quarter of 1997, a reflection of increased product and processing volumes.
The provision for income taxes for the three months ended June 30, 1998 was
$697,000, for an effective tax rate of 36.1%, compared to $793,000, or an
effective tax rate of 37.9%, for the three months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
- --------------------------------------------------------
.
Net income for the six months ended June 30, 1998 was $2,454,000, or $.97 basic
earnings per share, compared to $2,527,000, or $.98 basic earnings per share for
the six months ended June 30, 1997. Diluted earnings per share were $.94 and
$.96 for the six months ended June 30, 1997 and 1998, respectively.
Net interest income was $10,046,000 for the first six months of 1998 compared to
$10,171,000 for the first six months of 1997. The yield on earning assets
decreased to 7.96% for the six months ended June 30, 1998 from 8.10% for the six
months ended June 30, 1998. The cost of interest-bearing liabilities increased
during the same time period from 4.00% to 4.22%. When combined, the net
interest spread contracted from 4.10% in 1997 to 3.73% in 1998. Net interest
margin declined from 4.49% in 1997 to 4.11% in 1998.
Interest income was $19,432,000 for the six months ended June 30, 1998 compared
to $18,435,000 for the six months ended June 30, 1997. The increase came
primarily from higher volumes of residential mortgages where average balances
increased from $190.6 million for the first six months of 1997 to $225.7 million
for the same period in 1998. Total average assets increased from $480.0 million
to $516.9 million during the same period.
Interest expense on deposits and borrowings increased from $8,264,000 for the
six months ended June 30, 1997 to $9,386,000 for the six months ended June 30,
1998. The average balance of retail and commercial deposits decreased by $6.7
million while the average balance of public deposits increased by $13.1 million.
The average cost of interest-bearing deposits increased from 3.65% in 1997 to
3.76% in 1998 reflecting growth in higher costing money market and time
deposits.
Average borrowings increased $25.7 million in 1998 compared to 1997. The
average cost of borrowings increased six basis points to 5.98% reflecting a
greater use of term advances in 1998 compared to 1997.
The loan loss provision for the first six months of 1998 was $720,000 compared
to $745,000 for the first six months of 1997. The allowance for loan losses as
a percentage of loans increased from .82% at June 30, 1997 to .90% at June 30,
1998. Net charge-offs for the six months ended June 30, 1998 were $462,000
compared to $1.2 million for the same time period in 1997.
(12)
Total non-interest income was $1,744,000 for the six months ended June 30, 1998
compared to $1,573,000 for the six months ended June 30, 1997, an increase of
10.9%. The increase primarily reflected growth in income generated from fees
for loan and deposit services, as well as trust and investment services.
Total non-interest expense was $7,222,000 for the six months ended June 30, 1998
compared to $6,920,000 for the six months ended June 30, 1997, an increase of
4.4%. The increase primarily reflected a higher level of computer and product
service fees, and a 3.4% increase in salaries and benefits.
The provision for income taxes was $1,394,000 for the first six months of 1998,
for an effective rate of 36.2%. For the first six months of 1997 the provision
for income taxes was $1,552,000, for an effective rate of 38.0%
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Consolidated assets were $531.5 million at June 30, 1998 compared to $509.8
million at December 31, 1997.
Net loans receivable were $389.9 million at June 30, 1998, or $19.9 million
higher than the $370.0 million balance at year end 1997. Within the loan
portfolio, residential mortgage loans increased $24.4 million, to $239.7
million, while commercial mortgage loans decreased $1.9 million, to $39.7
million. Consumer loans increased by $81,900 to $74.5 million. Commercial
loans decreased between December 31, 1997 and June 30, 1998 by $2.5 million to
end the period at $39.3 million.
The allowance for loan losses increased from $3.3 million at December 31, 1997
to $3.5 million at June 30, 1998. Non-performing loans increased during the
period from $6.2 million at year end 1997 to $6.5 million at June 30, 1998. The
percentage of non-performing loans to total loans, however, remained constant at
1.65%. Residential mortgage loans represented 42.8% of total non-performing
loans at June 30, 1998, while commercial mortgages represented 35.6% and
consumer and commercial loans represented 21.6%. The allowance for loan loss as
a percentage of total loans increased from .88% at December 31, 1997 to .90% at
June 30, 1998.
Total securities increased from $104.3 million at year end 1997 to $106.2
million at June 30, 1998. Securities available for sale increased to $56.4
million June 30, 1998 from $51.9 million at December 31, 1997. The increase was
primarily in state and municipal obligations while investments in mortgage-
backed securities and corporate bonds declined.
Total deposits increased 4.2%, to $434.7 million at June 30, 1998 compared to
$417.0 million at December 31, 1997. Deposits held in retail and commercial
accounts increased a combined $9.5 million while public deposits increased $6.8
million. Time deposits increased $8.5 million and money market accounts
increased $3.0 million from December 31, 1997 to June 30, 1998.
Borrowings ended June 30, 1998 at $56.2 million compared to $50.2 million at
December 31, 1997. The increase was in term advances which increased $9.0
million while advances against overnight lines of credit decreased $2.8 million.
(13)
At June 30, 1998, Iroquois Bancorp, Inc. had total shareholders' equity of $38.0
million compared to $39.0 million at December 31, 1997. The decrease in
shareholders equity reflects the redemption of the Company's outstanding Series
A Preferred Stock as of April 1, 1998. The reduction in shareholders' equity
caused the Company's Tier 1 capital to average assets ratio to decrease from
7.20% at December 31, 1997 to 6.83% at June 30, 1998, and the Tier 1 capital to
risk weighted assets ratio to decline from 10.75% to 10.59%.
The decrease in shareholders' equity had no material impact on required
regulatory capital, and as of June 30, 1998, the capital ratios of Iroquois
Bancorp, Inc. and both of its banking subsidiaries exceeded the capital
requirements for "well capitalized" institutions under applicable regulatory
provisions.
At June 30, 1998, the Company held short-term liquid assets of $29.2 million,
compared to $22.3 million at December 31, 1997. The Company considers its
current level of liquidity coupled with other available sources of funds as both
sufficient and within acceptable ranges.
YEAR 2000
- ---------
A committee continues to direct the Company's Year 2000 activities under the
framework of the FFIEC's Five Step program. Testing of critical applications
began in June 1998. Testing of core systems is expected to be completed by
year end 1998, with testing of minor systems to continue through the third
quarter of 1999. The Company continues to work closely with Fiserv, Inc., its
data services and item processing provider, regarding Year 2000 compliance. The
Company has recently begun evaluating Year 2000 readiness of its commercial loan
applicants as part of the loan underwriting process and is calling upon major
existing borrowers to assess their readiness and identify potential problems.
(14)
IROQUOIS BANCORP, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest
rate risk inherent in its lending and deposit activities. Other types
of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the
Company's business activities.
Managing interest rate risk is of primary importance to Iroquois. The
Company's asset and liability management program includes a process
for identifying and measuring potential risks to earnings and to the
market value of equity due to changes in interest rates. Interest rate
risk is measured and managed for each bank and monitored from a
holding company perspective. The goal of interest rate risk analysis
is to minimize the potential loss in net interest income and net
portfolio value that could arise from changes in interest rates.
Iroquois' asset/liability management strategies emphasize balancing
the mix and repricing characteristics of its loans, securities,
deposits and borrowings to ensure that exposure to interest rate risk
is limited within acceptable levels. Iroquois determines sensitivity
of earnings and capital to changes in interest rates by utilizing
various tools.
A simulation model is the primary tool used to assess the impact of
changes in interest rates on net interest income. The Company also
uses a net portfolio value ("NPV") analysis as another means of
measuring and monitoring its interest rate risk, and in addition also
uses a cumulative gap analysis to measure interest rate sensitivity.
The Company establishes guidelines to monitor the results to ensure
interest rate risk is limited within acceptable levels. At June 30,
1998, the Company's interest rate risk as measured by the above
mentioned analyses was within established guidelines.
The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of
Directors, the Company does not intend to engage in such activities in
the immediate future.
(15)
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
(a) The Annual Meeting of Shareholders of the Company was held on
April 30, 1998.
(b) At the Annual Meeting, four directors were elected. Peter J.
Emerson, Joseph P. Ganey, Edward D. Peterson, Lewis E. Springer
II.
(c) On the proposal for the election of the four directors, the
following votes were cast:
For Withheld
--------- --------
Peter J. Emerson 1,969,887 33,942
Joseph P. Ganey 1,959,585 48,444
Edward D. Peterson 1,968,819 34,211
Lewis E. Springer II 1,968,885 34,144
On the proposal to approve the selection of KPMG Peat Marwick LLP as
independent auditors, the following votes were cast:
For Against Abstain
--- ------- -------
1,961,184 25,329 16,516
There were no broker non-votes as there was no non-discretionary matter
on the agenda for which brokers may not vote without instruction.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
(16)
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: August 10, 1998 /s/Richard D. Callahan
-----------------------------------
Richard D. Callahan
President & CEO
Date: August 10, 1998 /s/Marianne R. O'Connor
-----------------------------------
Marianne R. O'Connor
Treasurer & CFO
(17)