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, 1999
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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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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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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,426,880 shares of common
stock on August 6, 1999.
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 1999 and 1998 5
Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Six Months Ended June 30, 1999 and 1998 6
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 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
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except
share data) 6/30/99 12/31/98
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 10,239 $ 9,571
Interest-bearing deposits and Federal funds sold 2,500 6,393
Securities available for sale, at fair value 67,301 61,431
Securities held to maturity (fair value of $55,609 in 1999 and
$47,717 in 1998) 55,716 47,056
Loans 418,967 404,092
Less allowance for loan losses 3,364 3,815
-------- ---------
Loans, net 415,603 400,277
Other assets 27,522 22,692
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Total Assets $578,881 $ 547,420
======== =========
LIABILITIES
Savings and time deposits $410,244 $ 412,334
Demand deposits 35,363 30,905
Borrowings 90,882 61,591
Other liabilities 2,802 4,248
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Total Liabilities 539,291 509,078
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SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 3,000,000 shares authorized;
none issued and outstanding -- --
Common Stock, $1.00 par value; 6,000,000 shares authorized;
2,426,880 and 2,402,980 shares issued and outstanding at June
30, 1999 and December 31, 1998, respectively 2,427 2,410
Additional paid-in capital 9,590 9,303
Retained earnings 28,437 26,557
Accumulated other comprehensive income (loss) (446) 490
Unallocated shares of Stock Ownership Plan (418) (418)
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Total Shareholders' Equity 39,590 38,342
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Total Liabilities and Shareholders' Equity $578,881 $ 547,420
======== =========
See accompanying notes to condensed consolidated financial statements
3
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
For the Three Months Ended
- -----------------------------------------------------------------------------------------------------
(dollars in thousands, except
share data) 6/30/99 6/30/98
- -----------------------------------------------------------------------------------------------------
Interest Income:
Loans $ 8,208 $ 8,063
Securities 1,746 1,592
Other 134 130
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Total Interest Income 10,088 9,785
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Interest Expense:
Deposits 3,994 4,071
Borrowings 1,027 724
-------- --------
Total Interest Expense 5,021 4,795
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Net interest income 5,067 4,990
Provision for loan losses 366 360
-------- --------
Net Interest Income after Provision
for Loan Losses 4,701 4,630
Net gain on sales of securities and loans 5 18
Noninterest income 928 911
Noninterest expense 3,731 3,626
-------- --------
Net income before income taxes 1,903 1,933
Provision for income taxes 655 697
-------- --------
Net Income 1,248 1,236
Preferred stock dividend -- 38
-------- --------
Net income attributable to common stock $ 1,248 $ 1,198
======== ========
Earnings per share
Basic $0.52 $0.50
Diluted 0.52 0.49
Cash dividends declared per common share $0.10 $0.10
See accompanying notes to condensed consolidated financial statements
4
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
For the Six Months Ended
- -----------------------------------------------------------------------------------------------------
(dollars in thousands, except
share data) 6/30/99 6/30/98
- -----------------------------------------------------------------------------------------------------
Interest Income:
Loans $ 16,249 $ 15,990
Securities 3,403 3,202
Other 262 240
-------- --------
Total Interest Income 19,914 19,432
-------- --------
Interest Expense:
Deposits 7,890 7,950
Borrowings 1,927 1,436
-------- --------
Total Interest Expense 9,817 9,386
-------- --------
Net interest income 10,097 10,046
Provision for loan losses 724 720
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Net Interest Income after Provision
for Loan Losses 9,373 9,326
Net gain on sales of securities and loans 15 18
Noninterest income 1,705 1,726
Noninterest expense 7,482 7,222
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Net income before income taxes 3,611 3,848
Provision for income taxes 1,253 1,394
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Net Income 2,358 2,454
Preferred stock dividend -- 149
-------- --------
Net income attributable to common stock $ 2,358 $ 2,305
======== ========
Earnings per share
Basic $ 0.98 $ 0.97
Diluted 0.98 0.94
Cash dividends declared per common share $ 0.20 $ 0.20
See accompanying notes to condensed consolidated financial statements
5
IROQUOIS BANCORP, INC.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(unaudited)
Six months ended June 30, 1998:
Unallocated
Addi- Accumulated Shares of
(dollars in thousands, tional Other Stock
except share data) Preferred Common Paid-In Retained Comprehensive Ownership
Stock Stock Capital Earnings Income Plan Total
- ----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 $ 49 2,389 13,793 22,868 213 (283) 39,029
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net Income -- -- -- 2,454 -- -- 2,454
Change in net unrealized gain
on securities available for
sale, net of taxes -- -- -- -- 67 -- 67
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Total comprehensive income 2,521
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Preferred Stock Redemption
(145 shares) (31) -- (3,022) -- -- -- (3,053)
Stock Options Exercised -- 14 167 -- -- -- 181
Cash dividends declared:
Common stock -- -- -- (488) -- -- (488)
Preferred stock -- -- -- (149) -- -- (149)
Balances at June 30, 1998 $ 18 2,403 10,938 24,685 280 (283) 38,041
- ----------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999:
Unallocated
(dollars in thousands) Addi- Accumulated Shares of
tional Other Stock
Common Paid-In Retained Comprehensive Ownership
Stock Capital Earnings Income Plan Total
- ----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 $2,410 9,303 26,557 490 (418) 38,342
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net Income -- -- 2,358 -- -- 2,358
Change in net unrealized gain
on securities available for
sale, net of taxes -- -- -- (936) -- (936)
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Total comprehensive income 1,422
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Stock Options Exercised 17 287 -- -- -- 304
Cash dividends declared
on common stock -- -- (478) -- -- (478)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1999 $2,427 9,590 28,437 (446) (418) 39,590
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
6
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30,
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 2,358 $ 2,454
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan/lease losses 724 720
Depreciation and amortization 647 734
Net gain on sale of securities and loans (15) (18)
Decrease in other assets 1,572 518
Decrease in other liabilities (1,446) (1,066)
Net cash provided by operating activities 3,840 3,342
---------- ----------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 6,121 4,925
Proceeds from sales of available-for-sale securities 1,713 1,085
Proceeds from maturities of held-to-maturity securities 5,849 9,677
Purchases of available for sale securities (21,042) (10,215)
Purchases of held to maturity securities (8,779) (5,531)
Proceeds from sales of loans 1,569 1,140
Net increase in loans (18,373) (22,240)
Purchases of bank premises and equipment (149) (182)
Purchase of corporate owned life insurance (5,000) --
Purchase of FHLB stock (459) (375)
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Net cash used by investing activities (38,550) (21,716)
Cash flows from financing activities:
Net increase in demand deposits, money market 4,344 9,223
accounts, and savings accounts
Net increase(decrease) in time deposits (1,976) 8,455
Net increase(decrease) in other borrowings 21,300 (2,915)
Proceeds of long-term borrowings 17,500 25,000
Repayment of long-term borrowings (9,509) (16,007)
Cash dividends (478) (637)
Net proceeds from exercise of stock options, and related tax 304 181
benefit
Redemption of Preferred stock -- (3,053)
---------- ----------
Net cash provided by financing activities 31,485 20,247
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Net increase(decrease) in cash and cash equivalents (3,225) 1,873
Cash and cash equivalents at beginning of period 15,964 13,483
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Cash and cash equivalents at end of period $ 12,739 $ 15,356
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 9,718 $ 9,386
Income taxes 2,089 1,515
Supplemental schedule of non-cash investing activities:
Additions to other real estate 762 512
Transfer of AFS Securities to HTM Securities 5,744 --
See accompanying notes to condensed consolidated financial statements
7
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Unaudited 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 condensed balance sheet for December 31, 1998
was derived from the Company's 1998 Annual Report to Shareholders. That
data, along with the other interim financial information presented in the
consolidated condensed balance sheets, statements of income, shareholders'
equity and comprehensive income and statements of cash flows should be read
in conjunction with the consolidated financial statements, including the
notes thereto, contained in the 1998 Annual Report to Shareholders.
8
IROQUOIS BANCORP, INC.
AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
Iroquois Bancorp, Inc. ("Iroquois" or the "Company") is a bank holding company
with two financial institutions: Cayuga Bank of Auburn, New York, a New York
state-chartered commercial bank and trust company, and The Homestead Savings
(FA) of Utica, New York, a federally-chartered savings association.
RESULTS OF OPERATIONS
- ---------------------
Three months ended June 30, 1999 compared to June 30, 1998
- ----------------------------------------------------------
Net income for the three months ended June 30, 1999 was $1,248,000, or $.52
basic earnings per share, compared to net income of $1,236,000, or $.50 basic
earnings per share, for the three months ended June 30, 1998. Diluted earnings
per share were $.52 and $.49 for the three months ended June 30, 1999 and 1998,
respectively.
Net interest income was $5,067,000 for the second quarter of 1999 compared to
$4,990,000 for the second quarter of 1998. Net interest margin for the second
quarter of 1999 was 3.73%, compared to 4.09% in 1998. Growth in residential
mortgages and securities as a percentage of total assets combined with a lower
yield curve compared to the prior year were the primary reasons for the decline
in net interest margin. Asset yields decreased to 7.44% for the current quarter
compared to 7.90% the year earlier. Interest-bearing liability costs were 4.02%
for the current quarter compared to 4.22% the year earlier.
Interest income increased 3.1%, to $10,088,000, for the three months ended June
30, 1999, compared to $9,785,000 for the same period the year earlier. Average
earning assets increased 9.3%, to $544.0 million in 1999, from $497.6 million in
1998. Average residential mortgage loans increased $36.0 million, or 15.5%,
while the yield on mortgages decreased from 7.75% in the second quarter of 1998
to 7.39% in the current quarter. Average commercial mortgage loan balances
remained relatively constant while average commercial loans declined $3.9
million in the same period. Residential mortgage loans represented 49.3% of
average earning assets for the three months ended June 30, 1999, compared to
46.6% for the same three months in 1998.
Interest expense on deposits and borrowings increased 4.7%, to $5,021,000, for
the three months ended June 30, 1999, compared to $4,795,000 for the three
months ended June 30, 1998. The increase was due primarily to the growth in
average deposits and borrowings. Average deposit balances increased 5.3%, from
$434.3 million to $457.5 million while the average cost of deposits decreased
from 3.76% in 1998 to 3.50% in 1999. Average borrowings increased 52.6%, from
9
$48.6 million in 1998 to $74.2 million in 1999. The average cost of borrowings
decreased from 5.97% for the three months ended June 30, 1998 to 5.55% for the
three months ended June 30, 1999.
The provision for loan losses increased slightly from $360,000 for the quarter
ended June 30, 1998, to $366,000 for the same period in 1999.
Total noninterest income remained relatively constant at $933,000 for the
quarter ended June 30, 1999, compared to $929,000 for the quarter ended June 30,
1998. Net gains on sales of securities and loans contributed $5,000 to
noninterest income for the three months ended June 30, 1999, compared to $18,000
for the second quarter of 1998.
Total noninterest expense was $3,731,000 for the quarter ended June 30, 1999,
compared to $3,626,000 for the quarter ended June 30, 1998, an increase of 2.9%.
The increase was primarily due to higher legal and consulting fees and increased
costs relating to foreclosed real estate.
The provision for income taxes for the three months ended June 30, 1999 was
$655,000, or an effective tax rate of 34.4%, compared to $697,000, or an
effective tax rate of 36.1%, for the three months ended June 30, 1998.
Six months ended June 30, 1999 compared to June 30, 1998
- --------------------------------------------------------
Net income for the six months ended June 30, 1999 was $2,358,000 or $.98 basic
earnings per share, compared to $2,454,000, or $.97 basic earnings per share,
for the six months ended June 30, 1998. Diluted earnings per share were $.98
and $.94 for the six months ended June 30, 1999 and 1998, respectively.
Net interest income was $10,097,000 for the first six months of 1999, compared
to $10,046,000 for the first six months of 1998. The yield on interest earning
assets decreased from 7.96% for the six months ended June 30, 1998, to 7.46% for
the six months ended June 30, 1999. The cost of interest bearing liabilities
decreased from 4.22% to 4.03% for the same period. The net interest margin
declined from 4.11% in 1998 to 3.75% in 1999.
Interest income was $19,914,000 for the six months ended June 30, 1999, compared
to $19,432,000 for the six months ended June 30, 1998, an increase of 2.5%. The
increase is primarily due to the 9.2% increase in average earning assets, from
$491.1 million for the six months ended June 30, 1998 to $536.4 million for the
six months ended June 30, 1999. Average residential mortgages increased 16.6%,
from $225.7 million for the first six months of 1998 to $263.2 million for the
same period in 1998. The average securities portfolio increased 13.6%, or $15.0
million, while average commercial mortgages and commercial loans declined $.6
million and $4.0 million, respectively, during the same period.
10
Interest expense on deposits and borrowings increased 4.6%, from $9,386,000 for
the six months ended June 30, 1998 to $9,817,000 for the six months ended June
30, 1999. Combined increases in public deposits, retail deposits and commercial
deposits of $13.2 million, $11.5 million and $.6 million, respectively, resulted
in a 5.9% increase in average deposits for the first six months of 1999 compared
to the same period the year earlier. The average cost of deposits decreased
from 3.76% in 1998 to 3.52% in 1999. Average borrowings increased 44.0%, from
$48.4 million for the six months ended June 30, 1998 to $69.8 million for the
six months ended June 30, 1999. The average cost of borrowings was 5.57% for
the first six months of 1999 compared to 5.98% in 1998.
The provision for loan losses remained relatively constant for the period at
$724,000 for the six months ended June 30, 1999 compared to $720,000 for the
same period in 1998.
Total non-interest income was $1,720,000 for the first six months of 1999,
compared to $1,744,000 for the first six months of 1999. A decline in
commercial lending related fees in 1999 compared to 1998 offset noninterest
income growth generated by increased fees from deposit and trust services and
earnings from the Company's investment in corporate owned life insurance.
Noninterest expense increased 3.6%, from $7,222,000 for the six months ended
June 30, 1998 to $7,482,000 for the six months ended June 30, 1999. The
increase was attributable primarily to increased occupancy and equipment costs,
as well as increased expense relating to other real estate.
The provision for income taxes was $1,253,000, for an effective tax rate of
34.7% for the six months ended June 30, 1999, compared to $1,394,000, or an
effective tax rate of 36.2%, for the six months ended June 30, 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Consolidated assets were $578.9 million at June 30, 1999, compared to $547.4
million at December 31, 1998, an increase of $31.5 million, or 5.7%.
Loans increased $14.9 million, or 3.7%, to $419.0 million at June 30, 1999,
compared to $404.1 million at year end 1998. Residential mortgage loans
increased $17.5 million, from $254.8 million at year end 1998, to $272.3 million
at June 30, 1999. Commercial mortgage loans increased $.9 million, to $40.4
million at June 30, 1999. Commercial loans decreased $2.8 million from December
31, 1998 to June 30, 1999, ending the period at $34.6 million. The decline in
commercial loans continues to reflect lower loan demand and increased
competition in the small business market.
The allowance for loan losses decreased from $3.8 million at December 31, 1998,
to $3.4 million at June 30, 1999 as year to date net charge-offs exceeded the
loan loss provision. Nonperforming assets decreased $1.6 million to $5.1
million at June 30, 1999. Nonperforming loans decreased from $6.0 million at
year end 1998 to $4.5 million at June 30, 1999. The percentage of
11
nonperforming loans to total loans decreased from 1.49% at December 31, 1998, to
1.07% at June 30, 1999. Residential mortgage loans represented 45.2% of total
nonperforming loans at June 30, 1999, while commercial mortgages represented
35.0% and consumer and commercial loans represented 19.8%.
Total securities increased 13.4%, from $108.5 million at year end 1998 to $123.0
million at June 30, 1999. Securities available for sale increased from $61.4
million at December 31, 1998 to $67.3 million at June 30, 1999, while in the
same period securities held to maturity increased from $47.1 million to $55.7
million. Holdings of U.S. Government Agency securities and mortgage-backed
securities increased while holdings of U.S. Government securities and state and
municipal obligations declined compared to year end 1998.
Other assets increased $4.8 million, or 23.1%, from $22.7 million at December
31, 1998 to $27.5 at June 30, 1999. The increase is primarily attributable to
the Company's first quarter purchase of $5 million in corporate owned life
insurance.
Total deposits increased $2.4 million, or .5%, to $445.6 million at June 30,
1999, compared to $443.2 million at December 31, 1998. Personal deposits
increased $5.5 million, while public deposits and business deposits decreased
$7.8 million and $1.9 million, respectively.
Borrowings at June 30, 1999 were $90.9 million, compared to $61.6 million at
December 31, 1998, an increase of 47.6%. Term advances from the Federal Home
Loan Bank ("FHLB") and advances against overnight lines of credit with the FHLB
increased $8.0 million and $21.3 million, respectively. Borrowings represented
15.7% of total assets at June 30, 1999 compared to 11.3% at year end 1998. The
increase in borrowings was used to fund asset growth and offset seasonal
declines in public deposits.
At June 30, 1999, Iroquois had total shareholders' equity of $39.6 million,
compared to $38.3 million at December 31, 1998. The Company's regulatory Tier 1
capital to average assets ratio decreased slightly from 6.70% at December 31,
1998 to 6.67% at June 30, 1999, and the ratio of Tier 1 Capital to risk weighted
assets increased from 10.55% to 10.60%. As of June 30, 1999, the capital ratios
of Iroquois and both of its banking subsidiaries continued to exceed the
respective capital requirements for classification as "well capitalized" under
applicable regulatory provisions.
At June 30, 1999, the Company held securities maturing in one year or less
(excluding estimated payments from amortizing securities) of $25.5 million,
compared to $21.8 million at December 31, 1998. The Company considers its
current level of liquidity along with other available sources of funds as both
sufficient and within acceptable ranges.
12
YEAR 2000
- ---------
The Company's Year 2000 (or "Y2K") activities continue on schedule under the
framework of the FFIEC's Five Step program. Senior management and the Company's
Board of Directors are actively involved in managing efforts in support of these
activities, monitoring the Company's progress, and evaluating risks of the
process to the Company's strategic plan.
Step 1 Awareness Phase
- ----------------------
The Company continues to follow a comprehensive reporting and communication
plan. All employees have participated in Y2K awareness training. Customer
awareness is being promoted through various mailings, in-branch signage and
community education seminars.
Step 2 Assessment Phase
- -----------------------
The assessment phase has been completed. All software, hardware and other
systems applications have been identified and evaluated for Year 2000
compliance.
All business customers with loan relationships in excess of $150,000 have been
identified and contacted relative to their Y2K readiness.
Step 3 Renovation Phase
- -----------------------
The renovation phase has been completed. All required upgrades to Y2K compliant
versions of various software products have been installed. Noncompliant
hardware systems, primarily PCs, have been replaced in all areas.
The Company's primary data services and item processing provider, Fiserv Inc.,
has indicated that its systems have been upgraded to Year 2000 compliance and
have been tested and implemented as of June 30, 1999.
Step 4 Validation Phase
- -----------------------
All critical systems and applications, both internal and those supplied by
service providers, have been tested and certified for Y2K compliance. Two non-
critical applications remain to be tested.
Step 5 Implementation Phase
- ---------------------------
All hardware and software products that have passed Y2K testing have been placed
back into daily production.
Costs to Address Year 2000 Issues
- ---------------------------------
The Company has incurred and will continue to incur expenses related to its Year
2000 project activities. These actual and anticipated expenses are not
considered material to the business, operations, or financial condition of the
Company.
Risks of Year 2000 Issues
- -------------------------
The Company faces three primary risks in regard to Year 2000 issues:
operational risk, liquidity risk, and credit risk.
13
The Company's banking operations could be disrupted in the event of computer
failure by third parties, electrical power outages and/or telecommunications
failures. The Company cannot make any assurance that significant disruptions
attributable to such parties will not occur. Failure of a third party fully to
address its Year 2000 issues could have an adverse effect on the business,
operations and/or financial condition of the Company.
Because of general fears relating to Y2K, customers of the Company's subsidiary
banks may withdraw substantial amounts of currency causing an increase in
required liquidity to handle increased cash outflows. A Y2K Liquidity Plan has
been formulated to prepare for increased demands on the Company's cash and/or
liquidity.
In addition, the risk of credit losses exists should any customer and/or bond
issuer experience significant business disruption causing default on outstanding
obligations. The Company has taken steps to limit its risk through
diversification, and through monitoring of its larger loan and security
investments relative to their stated Y2K preparedness.
Contingency Plans
- -----------------
Business resumption contingency plans have been completed and tested for all of
the Company's critical business processes. These plans address the actions that
would be taken if key business processes could not be performed in the normal
manner. An Event Management Plan has also been completed detailing
responsibilities and activities relative to the century rollover--before, during
and after the actual event.
FORWARD-LOOKING STATEMENTS
- --------------------------
Portions of this document may constitute "forward looking statements" as defined
by federal law. Although the Company believes any such statements are based on
reasonable assumptions, there is no assurance that actual outcomes will not be
materially different. The Company assumes no duty to update forward-looking
statements, and cautions that these statements are subject to numerous
assumptions, risk, and uncertainties, all of which could change over time.
14
Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES 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, 1999, the Company's interest rate
risk as measured by the above mentioned analyses was within established
guidelines.
The following table sets forth at June 30, 1999 the analysis of the
Company's interest rate risk as measured by the estimated changes in NPV
resulting from instantaneous and sustained parallel shifts in the interest
rate yield curve. The NPV represents the difference between the present
value of the Company's liabilities and the present value of the expected
cash flows from its assets. For purposes of the NPV table, assumptions
similar to those used in the 1998 Annual Report, adjusted to reflect
current market conditions, were used.
NET PORTFOLIO VALUE ANALYSIS at June 30, 1999
($ in thousands)
Changes in interest Estimated Change in NPV
rate (basis points) NPV Amount %
----------------------- --------------- -------------------------------
+200 $42,711 (13,454) (24.0)
+100 49,746 (6,419) (11.4)
0 56,165 --
-100 61,836 5,671 10.1
-200 66,493 10,328 18.4
15
IROQUOIS BANCORP, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, there are various outstanding legal
proceedings.
In the opinion of management based on review with counsel, the
proceedings should not have a material effect on the financial
condition, liquidity or results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds - 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 29, 1999.
(b) At the Annual Meeting, two directors were elected to three year
terms: Arthur A. Karpinski, Henry D. Morehouse.
(c) On the proposal for the election of the two directors, the
following votes were cast:
For Withheld
--- --------
Arthur A. Karpinski 1,981,373 123,166
Henry D. Morehouse 1,987,396 117,144
On the proposal to approve the selection of KPMG LLP as independent
auditors, the following votes were cast:
For Against Abstain
--- ------- -------
2,037,002 56,619 10,915
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
(a) Exhibits
Number Description
------ -----------
10 (L) Employment agreement with Robert B. Bantle
10 (M) Incentive agreement with Robert B. Bantle
11 Statement Regarding Computation of Earnings per
Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K - None
16
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.
Iroquois Bancorp, Inc.
Registrant
Date: August 11, 1999 /s/Richard D. Callahan
-------------------------
Richard D. Callahan
President & CEO
Date: August 11, 1999 /s/Marianne R. O'Connor
-----------------------
Marianne R. O'Connor
Treasurer & CFO
17
EXHIBIT INDEX
-------------
Number Description
- ------ -----------
10 (L) Employment Agreement with Robert B. Bantle
10 (M) Incentive Agreement with Robert B. Bantle
11 Statement Regarding Computation of Earnings per Common Share
27 Financial Data Schedule
18