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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended: March 31, 1996 Commission File No.: 0-18011
ONBANCorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 16-1345830
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 South Salina Street, Syracuse, New York 13202
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(Address of principal executive office and Zip Code)
(315) 424-4400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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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:
Common Stock, par value $1.00 per share 13,526,420
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(Title of Class) (Shares Outstanding)
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This report contains 20 pages
2
ONBANCorp, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1996, December 31, 1995, and March 31, 1995................... 3
Condensed Consolidated Statements of Income
for the Three Months ended March 31, 1996 and 1995 ..................... 4
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the Three Months ended March 31, 1996 and 1995.............. 5
Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1996 and 1995...................... 6
Notes to Condensed Consolidated Financial Statements...................... 7 - 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 11 - 18
PART II. OTHER INFORMATION................................................................. 19
Signatures.................................................................................. 20
3
ONBANCorp, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
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March 31, December 31, March 31,
1996 1995 1995
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ASSETS
Cash and due from banks $ 134,722 150,621 141,933
Federal funds sold and other 14,337 134,623 18,888
Securities:
Trading 1,790 1,790 13,252
Available for sale 876,797 978,361 521,554
Held to maturity, fair value of $1,796,455 at March 31, 1996,
$1,797,286 at December 31, 1995 and $3,200,359 at March 31, 1995 1,778,035 1,761,692 3,292,846
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Total securities 2,656,622 2,741,843 3,827,652
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Loans:
Portfolio, net of premium and discount 2,307,775 2,288,990 2,047,572
Allowance for loan losses (35,793) (34,583) (34,816)
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Net loans 2,271,982 2,254,407 2,012,756
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Loans available for sale 43,046 40,137 24,364
Premises and equipment, net 65,718 66,549 62,407
Due from brokers 117,551 65,205 9,706
Other assets 116,073 113,674 142,067
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TOTAL ASSETS $ 5,420,051 5,567,059 6,239,773
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing 296,662 320,140 288,633
Interest bearing:
Savings, NOW and money market 1,318,362 1,291,952 1,408,845
Time deposits less than $100,000 1,631,504 1,671,027 1,658,296
Time deposits $100,000 and greater 519,100 525,154 502,287
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Total deposits 3,765,628 3,808,273 3,858,061
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Repurchase agreements 354,330 361,617 822,527
Other borrowings 804,205 903,370 1,075,538
Due to brokers 33,450 43,951 40,069
Other liabilities 71,048 61,082 69,203
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Total liabilities 5,028,661 5,178,293 5,865,398
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Shareholders' equity:
Preferred stock, par value $1.00 per share; 10,000,000 shares authorized;
Series B 6.75% Cummulative Convertible; par value $1.00 per share;
10,000,000 shares authorized; issued at outstanding: 2,515,700 at
March 31, 1996 and December 31, 1995; 2,817,500 at March 31, 1995:
aggregate liquidation value $62,893 at March 31, 1996 2,516 2,516 2,818
Common stock, par value $1.00 per share; 56,000,000 shares authorized;
shares issued: March 31, 1996 - 14,104,320; December 31, 1995 - 14,104 14,095 14,065
14,095,499; March 31, 1995 - 14,065,313
Additional paid-in capital 155,899 155,748 163,128
Retained earnings 260,122 253,727 234,173
Net unrealized holding loss on securities, net of deferred taxes (22,883) (18,952) (39,359)
Treasury Stock, at cost, 577,900 shares at March 31, 1996
and December 31, 1995 (18,068) (18,068) --
Guarantee of ESOP indebtedness (300) (300) (450)
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Total shareholders' equity 391,390 388,766 374,375
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,420,051 5,567,059 6,239,773
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See accompanying notes to condensed consolidated financial statements.
4
ONBANCorp, Inc.
Condensed Consolidated Statements of Income
(In Thousands, Except Share Data)
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For the Three Months Ended
Ended March 31,
1996 1995
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Interest income:
Loans $48,478 42,435
Securities 45,370 59,042
Federal funds sold and other 979 907
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Total interest income 94,827 102,384
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Interest expense:
Deposits 38,962 36,449
Borrowings:
Repurchase agreements 5,543 13,124
Other 12,440 15,412
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Total interest expense 56,945 64,985
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Net interest income 37,882 37,399
Provision for loan losses 1,950 1,690
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Net interest income after provision for loan losses 35,932 35,709
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Other operating income:
Mortgage banking 793 677
Service charges 4,328 3,697
Net gain on securities 1,893 1,146
Other 1,500 1,215
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Total other operating income 8,514 6,735
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Other operating expenses:
Salaries and employee benefits 10,512 10,104
Building, occupancy and equipment 4,735 4,562
Deposit insurance premiums 705 2,116
Contracted data processing 2,625 2,095
Legal and financial services 951 1,046
Other 6,685 6,243
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Total other operating expenses 26,213 26,166
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Income before income taxes 18,233 16,278
Income taxes 6,667 6,353
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Net income $11,566 9,925
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Income per common share:
Primary $ 0.77 0.62
Fully diluted 0.74 0.61
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See accompanying notes to condensed consolidated financial statements.
5
ONBANCorp, Inc.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(In Thousands, Except Share Data)
Net
Unrealized
Additional Holding Guarantee of
Preferred Common Paid-In Retained Loss on Treasury ESOP
Stock Stock Capital Earnings Securities Stock Indebtedness Total
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Balance at December 31, 1994 $ 2,818 14,050 162,960 229,374 (45,816) -- (450) 362,936
Net income -- -- -- 9,925 -- -- -- 9,925
Stock issued under:
Stock Option Plans -- 9 56 -- -- -- -- 65
Employee Stock Purchase Plan -- 6 112 -- -- -- -- 118
Cash dividends declared:
Preferred ($.42 per share) -- -- -- (1,189) -- -- -- (1,189)
Common ($.28 per share) -- -- -- (3,937) -- -- -- (3,937)
Changes in net unrealized holding loss
on securities, net of income tax effect
of $4,305 -- -- -- -- 6,457 -- -- 6,457
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Balance at March 31, 1995 $ 2,818 14,065 163,128 234,173 (39,359) -- (450) 374,375
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Balance at December 31, 1995 $ 2,516 14,095 155,748 253,727 (18,952) (18,068) (300) 388,766
Net income -- -- -- 11,566 -- -- -- 11,566
Stock issued under:
Stock Option Plans -- 4 34 -- -- -- -- 38
Employee Stock Purchase Plan -- 5 117 -- -- -- -- 122
Cash dividends declared:
Preferred ($.42 per share) -- -- -- (1,060) -- -- -- (1,060)
Common ($.30 per share) -- -- -- (4,111) -- -- -- (4,111)
Changes in net unrealized holding gain
on securities, net of income tax effect
of $2,519 -- -- -- -- (3,931) -- -- (3,931)
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Balance at March 31, 1996 $ 2,516 14,104 155,899 260,122 (22,883) (18,068) (300) 391,390
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See accompanying notes to condensed consolidated financial statements.
6
ONBANCorp, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
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Three months ended March 31,
1996 1995
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 19,591 31,089
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INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 172,590 748,202
Proceeds from maturities of and principal collected on securities available for sale 56,855 16,646
Proceeds from maturities of and principal collected on securities held to maturity 198,718 100,245
Purchases of securities available for sale (181,024) (112,862)
Purchases of securities held to maturity (227,859) (358,774)
Net change in loans (21,925) (72,412)
Purchases of premises and equipment (772) (2,793)
Other 1,669 875
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NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (1,748) 319,127
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FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts excluding time deposits 2,932 (54,441)
Net increase (decrease) in time deposits (45,577) 119,159
Net decrease in repurchase agreements (7,287) (339,902)
Net increase (decrease) in other borrowings 25,700 (26,337)
Advances from Federal Home Loan Bank 631 178,676
Repayment of advances from Federal Home Loan Bank (125,029) (235,000)
Repayments of collateralized mortgage obligations (467) (573)
Net proceeds from issuance of common stock 160 183
Cash dividends paid on common stock (4,029) (3,935)
Cash dividends paid on preferred stock (1,062) (1,189)
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NET CASH USED BY FINANCING ACTIVITIES (154,028) (363,359)
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Net decrease in cash and cash equivalents (136,185) (13,143)
Cash and cash equivalents at beginning of period 285,244 173,964
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Cash and cash equivalents at end of period $ 149,059 160,821
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Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest 56,324 61,228
Income taxes 1,410 373
Non-cash investing and financing activities:
Securitization of mortgage loans 17,512 --
Mortgage loans transferred to other real estate owned 1,359 (1,315)
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See accompanying notes to condensed consolidated financial statements
7
ONBANCorp, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements and
related notes should be read in conjunction with the consolidated financial
statements and related notes thereto included in the Company's Form 10-K for
the year ended December 31, 1995.
The condensed consolidated financial statements included herein
reflect all adjustments of a normal recurring nature which are, in the opinion
of management, necessary for a fair presentation of the Company's financial
position at March 31, 1996 and 1995 and the results of operations for the
three months ended March 31, 1996 and 1995.
Certain reclassifications have been made to prior period amounts for
consistency in reporting.
(2) Loans
The Financial Accounting Standards Board issued Statement 114
Accounting by Creditors for Impairment of a Loan as amended by Statement 118,
Accounting by Creditors for Impairment of a Loan - Income and Disclosure.
These statements prescribe recognition criteria for loan impairment, generally
related to commercial type loans, and measurement methods for certain impaired
loans and all loans whose terms are modified in troubled debt restructuring
subsequent to the adoption of these statements. A loan is considered impaired
when it is probable that the borrower will be unable to repay the loan
according to the original contractual terms of the loan agreement.
As of January 1, 1995, the Company has adopted the provisions of SFAS
No. 114 and SFAS No. 118 and has provided the required disclosures. The effect
of adoption was not material to the consolidated financial statements. As of
January 1, 1995, all of the Company's in substance foreclosed assets were
reclassified into impaired loan status as required by SFAS No. 114. For all
prior periods presented, all amounts related to in substance foreclosures have
also been reclassified. These reclassifications did not impact the Company's
consolidated financial condition or results of operations.
As a result of the adoption of SFAS No. 114, the allowance for
possible loan losses related to impaired loans that are identified for
evaluation in accordance with SFAS No. 114 is based on the present value of
expected cash flows discounted at the loan's initial effective interest rate,
except that as a practical expedient, impairment may be measured at the loan's
observable market price, or the fair value of the collateral for certain loans
where repayment of the loan is expected to be provided solely by the
underlying collateral (collateral dependent loans). The Company's impaired
loans are generally collateral dependent. The Company considers estimated
costs to sell, on a discounted basis, when determining the fair value of
collateral in the measurement of impairment of those costs are expected to
reduce the cash flows available to repay or otherwise satisfy the loans. Prior
to the adoption of SFAS No. 114 and 118, the allowance for possible loan
losses related to these loans was based on estimated undiscounted cash flows
or the fair value of the collateral, less estimated costs to sell for
collateral dependent loans.
Other real estate owned included both formally foreclosed and
in-substance foreclosed real properties. In accordance with SFAS No. 114, a
loan is classified as an in-substance foreclosure when the Company has taken
possession of the collateral regardless of whether formal foreclosure
proceedings have taken place. Prior to the adoption of SFAS No. 114 and SFAS
No. 118, in-substance foreclosed properties included those properties where
the borrower had little or no remaining equity in the property considering its
fair value remaining equity; where repayment was only expected to come from
the operation or sale of the property; and where the borrower had effectively
abandoned control of the property or it was doubtful that the borrower would
be able to rebuild equity in the property.
8
At March 31, 1996, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled $11.4 million. Included
in this amount is $9.8 million of impaired loans for which the related
allowance for credit losses is $1.6 million. In addition, included in the
total impaired loans at March 31, 1996 is $3.6 million of impaired loans that
as a result of the adequacy of collateral values do not have an allowance for
credit losses determined in accordance with SFAS No. 114. The average recorded
investments in impaired loans during the three months ended March 31, 1996 was
approximately $10.7 million.
Impaired loans generally are included in non-performing loans, as
non-accrual loans. Commercial type loans past due greater than 90 days and
still accruing are generally not considered to be impaired as the Company
expects to collect all amounts due, including interest accrued at the
contractual interest rate for the delinquent period.
For the three months ended March 31, 1996 the Company recognized
interest income on those impaired loans of $133 thousand using the cash basis
method of income recognition.
Potential problem loans at March 31, 1996 amounted to $20.9 million.
"Potential problem loans" are defined as loans which are not included with
past due and non-accrual loans discussed above, but about which management,
through normal internal credit review procedures, has information about
possible credit problems which may result in the borrowers inability to comply
with the present loan repayment terms. Of the $20.9 million in potential
problem loans, $3.4 million are considered impaired under SFAS No. 114. There
have been no loans classified for regulatory purposes as loss, doubtful, or
substandard that are not included above or which caused management to have
serious doubts as to the ability of the borrower to comply with repayment
terms. In addition, there were no material commitments to lend additional
funds to borrowers whose loans were classified as non-performing.
(3) Securities
The following table sets forth securities available for sale as of March 31,
1996.
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Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
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Debt securities:
U.S. Government obligations $ 9,452 19 70 9,401
U.S. Government agencies 50,032 -- 713 49,319
Mortgage-backed securities 754,751 8,756 1,846 761,661
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Total debt securities 814,235 8,775 2,629 820,381
Equity securities:
Common 13 -- -- 13
Federal Home Loan Bank 56,403 -- -- 56,403
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Total equity securities 56,416 -- -- 56,416
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$870,651 8,775 2,629 876,797
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9
The following table sets forth securities held to maturity as of March 31,
1996.
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Amortized Gross Unrealized Fair
(In Thousands) Cost Gains Losses Value
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Debt securities:
U.S. Government obligations $ 29,804 246 84 29,966
U.S. Government agencies 159,514 -- 9,191 150,323
State and municipal 71,273 1,054 59 72,268
Corporate and other 433 1 -- 434
Mortgage-backed securities 1,561,194 5,105 22,835 1,543,464
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Total debt securities 1,822,218 6,406 32,169 1,796,455
Unamortized holding loss on
securities transferred (44,183)
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$1,778,035
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The difference between the amortized cost and the fair value of both
the available for sale and the held to maturity categories of securities
represents the change in value related to interest rate fluctuations occurring
following the purchase of these securities. These differences will disappear
as the assets prepay or mature and are considered to be temporary in nature.
There is minimal credit risk associated with the portfolio given it's secured
nature. Approximately one-third of the total portfolio is available for sale,
and therefore, a relatively instantaneous source of liquidity. The held to
maturity portfolio also provides ongoing liquidity given the amortizing nature
of the securities. The major uncertainty relative to this portfolio which is
predominantly mortgage-backed securities, is prepayment risk. Accelerating or
decelerating prepayments affect the cash flows and hence the yield on these
securities. These factors are taken into consideration when the assets are
acquired and are periodically monitored.
(4) Shareholders' Equity
In 1995 the Company repurchased and retired 301,800 shares of Series
"B" Cumulative Convertible Preferred Stock at a cost of $8.058 million and
repurchased 577,900 shares of Common Stock at a cost of $18.068 million. In
addition, the Company intends to continue to acquire, as market conditions
permit, both preferred and common stock up to the limit of 10% of fully
diluted shares which was announced during the first quarter of 1996.
Primary earnings per share are based upon the weighted average number
of common shares and common share equivalents outstanding, after provision for
dividends on preferred shares. The average number of shares used to compute
primary earnings per share was 13,707,434 and 14,187,443 for the three months
ended March 31, 1996 and 1995, respectively.
Fully diluted earnings per share are based upon the weighted average
number of common shares and common share equivalents outstanding and the
assumed conversion of the preferred shares. The average number of shares used
to compute fully diluted earnings per share was 15,680,391 and 16,4381,758 for
the three months ended March 31, 1996 and 1995, respectively.
(5) Other Accounting Issues
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights" on a
prospective basis. SFAS 122 requires the Company to recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights are acquired, and also requires the Company to assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. The adoption of SFAS 122 did not have a material impact on the
Company's financial condition or results of operations.
10
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" which encourages, but does not require, companies to
use a fair value based method of determining compensation cost for grants of
stock options under stock-based employee compensation plans. As permitted by
SFAS No. 123, the Company elected to continue accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25
("APB 25"). Under APB 25, no compensation cost is recorded as options are
granted by the Company at a purchase price not less than the fair market value
of the common stock on the date of the grant. Companies electing to continue
accounting under the provisions of APB 25 are required to present pro forma
disclosures of net income and net income per for each period in which a
complete set of financial statements are presented.
11
ONBANCorp, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
ONBANCorp, Inc.'s ("ONBANCorp" or "the Company") results of
operations are dependent upon the results of operations of its wholly owned
subsidiary banks: OnBank & Trust Co., Franklin First Savings Bank and OnBank
("the Banks").
First quarter net income was $11.6 million compared to $9.9 million
for the 1995 first quarter. Fully diluted net income per common share was $.74
compared to $.61 for the 1995 first quarter. Book value per common share
increased to $24.29 at March 31, 1996 from $24.11 at December 31, 1995 and
from $21.61 at March 31, 1995. A regular dividend of $.30 per common share was
declared for the first quarter of 1996 and paid on April 1, 1996. Return on
average equity (ROE) was 12.0% for the three months ended March 31, 1996
compared to 11.0% for the prior year period. Return on Average Assets (ROA)
was .85% for the three months ended March 31, 1996 compared to .64% for the
prior year.
Net Interest Income
The first quarter of 1996's operating results represented the
first full quarter of operations following the repositioning afforded to the
Company during the fourth quarter of 1995. The Company transferred
approximately $1.54 billion in securities from held to maturity to available
for sale. Following this transfer the Company sold approximately $1.2 billion
of its available for sale securities and used the proceeds to pay down
borrowings and to fund future loan growth. The late year "window" enabled the
Company to shrink the absolute levels of securities and borrowings. The yield
on assets sold was approximately the same as the cost of the borrowings
repaid, therefore, net interest income was not adversely affected. It was
anticipated that as a result of this activity, net interest margin would
improve in 1996 and, in fact, that has occurred with the net interest margin
of 2.95% for the first quarter of 1996 representing a significant increase
over the 2.55% margin for the year 1995.
Net interest income was $37.9 million for the three months ended
March 31, 1996 up from the $37.4 million in the prior year period. Average
loans of $2.295 billion for the first three months of 1996 were $294 million
or 15% improved over the first three months of 1995 as a result of the
Company's continuing focus on expanding its loan generation. The yield on
these average loans declined by .10% to 8.50% for the first three months of
1996 compared to the 8.60% for the prior year period. The volume of average
securities for the first three months of 1996 declined to $2.793 billion or by
$1.104 billion compared to the prior year period. The yield on these
securities increased by .39% to 6.53% as a combined result of the reinvestment
of part of the proceeds from the sale of securities during the fourth quarter
1995 repositioning and the scheduled repricing of certain adjustable-rate
securities. Average securities decreased by more than the increase in average
loans, therefore, average interest earning assets of $5.163 billion were $776
million less for the first three months of 1996 than for the first three
months of 1995. The yield on total earning assets increased by .40% to 7.39%
for the three months of 1996 compared to the first three months of 1995. The
Company intends to continue its efforts to increase its core lending business
as a percentage of overall earning assets.
The average balance of savings deposits decreased by $73 million to
$763 million for the first three months of 1996 compared to the prior year
period. The cost of these deposits also decreased by .14% to 2.68% for the
first three months of 1996 compared to the prior year period. Average time
deposits increased $110 million to $2.202 billion for the first three months
of 1996 compared to the first three months of 1995. The costs of these
deposits also increased by .36% to 5.64% for the first three months ended
March 31, 1996. The increase in time deposits was the result of increases in
retail and municipal certificates of deposit being greater than the decrease
in retail brokered certificates of deposit. Average interest bearing
transaction accounts (Money market, NOW and escrow deposits) decreased $50
million to $532 million and the cost decreased .11% to 2.28% when comparing
the first three months of 1996 to the first three months of 1995. The decrease
in these accounts is mainly attributable to consumer preference for higher
yielding certificates of deposit, as well as, alternative investments such as
stocks and
12
bonds. Average total interest bearing deposits decreased by only $13 million
to $3.497 billion for the first three months of 1996 compared to the first
three months of 1995.
Total average borrowings (including repurchase agreements) of $1.195
billion for the first three months of 1996 are $844 million or 41% less than
the $2.039 billion for the first three months of 1995 reflecting the Company's
strategy to reduce borrowings. The selective lengthening in maturities of
borrowings during 1995 affected the costs of the borrowings with repurchase
agreements increasing by .58% to 6.30% and other borrowings increasing .31% to
5.95% when comparing the first three months of 1996 to the first three months
of 1995. The essentially flat slope of the yield curve in 1995 provided the
opportunity for extending liabilities and thereby helping to protect against
rising interest rates, however, the offset is that the Company's net interest
income will not benefit as much from declining interest rates. As a result of
increased certificates of deposit and lengthening borrowings, the cost of
total interest bearing liabilities increased by .13% to 4.88% for the first
three months of 1996 compared to the first three months of 1995.
The effect of the increases in yield on earning assets of .40% being
.27% greater than the .13% increase in the cost resulted in the net interest
spread increasing from 2.24% to 2.51% for the first three months of 1996
compared to the first three months of 1995. The effects of average interest
bearing liabilities decreasing by more than interest earning assets resulted
in the net interest margin, which is affected by the relative average balances
of interest earning assets and interest bearing liabilities, increasing by
.40% to 2.95% for the first three months of 1996 compared to the first three
months of 1995.
13
This table sets forth for the three months ended March 31, the
average daily balances of the Company's major asset and liability items and
the interest earned or paid thereon expressed in dollars and weighted average
rates.
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1996 1995
Average Yield \ Average Yield \
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------
Interest earning assets(1)
Securities 2,793,364 45,370 6.53% 3,897,841 59,042 6.14%
Loans 2,294,739 48,478 8.50% 2,000,327 42,435 8.60%
Federal funds sold and other 74,774 979 5.27% 40,681 907 9.04%
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Total interest earning assets 5,162,877 94,827 7.39% 5,938,849 102,384 6.99%
Non-interest earning assets 281,110 332,212
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Total assets $5,443,987 6,271,061
- -----------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities
Savings deposits 762,900 5,090 2.68% 835,638 5,806 2.82%
Time deposits 2,201,648 30,851 5.64% 2,091,262 27,205 5.28%
Money market accounts, NOW accounts,
and escrow deposits 532,263 3,021 2.28% 582,564 3,438 2.39%
- -----------------------------------------------------------------------------------------------------------------------------
Total Deposits 3,496,811 38,962 4.48% 3,509,464 36,449 4.21%
Repurchase agreements 354,004 5,543 6.30% 930,720 13,124 5.72%
Other borrowings 840,692 12,440 5.95% 1,107,895 15,412 5.64%
- -----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 4,691,507 56,945 4.88% 5,548,079 64,985 4.75%
Non-interest bearing deposits 300,456 285,640
Non-interest bearing liabilities 62,976 71,940
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Total liabilities 5,054,939 5,905,659
Shareholders' equity 389,048 365,402
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,443,987 6,271,061
Net interest income $ 37,882 37,399
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.51% 2.24%
Net interest margin(2) 2.95% 2.55%
Total interest earning assets to total interest
bearing liabilities 1.10X 1.07X
Average equity to average assets 7.15% 5.83%
- -----------------------------------------------------------------------------------------------------------------------------
(1) Nonaccruing loans, which are immaterial, have been included in interest
earning assets.
(2) Computed by dividing net interest income by total
interest earning assets.
14
The following table presents changes in interest income and interest
expense attributable to: changes in volume (changes in average balance or
volume multiplied by prior year rate), changes in rate (change in rate
multiplied by prior year volume), and the net change in net interest income.
The net change attributable to the combined impact of volume and rate has been
allocated proportionately to the absolute dollar amount of the change in each.
- --------------------------------------------------------------------------------------
1996 Compared to 1995
Increase (Decrease)
(Dollars in Thousands) Volume Rate Net
- --------------------------------------------------------------------------------------
Interest earning assets
Securities $(17,344) 3,672 (13,672)
Loans 6,522 (479) 6,043
Federal funds sold and other 557 (485) 72
- --------------------------------------------------------------------------------------
Total change in income from interest
earning assets (10,265) 2,708 (7,557)
- --------------------------------------------------------------------------------------
Interest bearing liabilities
Savings deposits (456) (260) (716)
Time deposits 1,591 2,055 3,646
Money market accounts, NOW accounts,
and escrow deposits (272) (145) (417)
- --------------------------------------------------------------------------------------
Total change in interest expense on deposits 863 1,650 2,513
Repurchase agreements (8,822) 1,241 (7,581)
Other borrowings (3,811) 839 (2,972)
- --------------------------------------------------------------------------------------
Total change in expense from interest
bearing liabilities (11,770) 3,730 (8,040)
- --------------------------------------------------------------------------------------
Net interest income $ 1,505 (1,022) 483
- --------------------------------------------------------------------------------------
Allowance for Loan Losses. Management's evaluation of the adequacy of
the allowance takes into consideration the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations
which may affect the borrower's ability to repay, overall portfolio quality,
and current and prospective economic conditions.
Non-performing loans plus other real estate owned represented .66% of
total assets at March 31, 1996. The Company's provision for loan losses of
$2.0 million for the three months ended March 31, 1996 increased from the $1.7
million recorded in the prior year period. These provisions reflect both the
increase in overall lending and the increase in non-performing loans to $31.1
million at March 31, 1996 from $29.0 million at December 31, 1995. The
coverage ratio of allowance for loan losses to nonperforming loans decreased
slightly from 119% at year-end 1995 to 115% at March 31, 1996. The allowance
as a percent of gross loans was 1.55% at March 31, 1996. The ratio of
delinquent loans as a percentage of gross loans was 1.3% at March 31, 1996.
Loan quality remains strong at ONBANCorp.
15
The following table sets forth the activity in the allowance for loan
losses for the periods indicated:
March 31, /---------------December 31,----------------/
(Dollars in Thousands) 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
Beginning balance $34,583 33,775 32,717 31,722 13,064 10,937
Charge-offs
Mortgage loans 447 3,749 3,706 748 1,623 1,687
Commercial loans 122 1,437 1,746 7,303 8 6
Other loans 585 2,405 2,686 3,684 639 726
- --------------------------------------------------------------------------------------------------------------------
Total charge-offs 1,154 7,591 8,138 11,735 2,270 2,419
- --------------------------------------------------------------------------------------------------------------------
Recoveries
Mortgage loans 195 630 236 1 30 --
Commercial loans 118 352 598 1,341 9 --
Other loans 101 627 724 1,091 93 86
- --------------------------------------------------------------------------------------------------------------------
Total recoveries 414 1,609 1,558 2,433 132 86
- --------------------------------------------------------------------------------------------------------------------
Net charge-offs 740 5,982 6,580 9,302 2,138 2,333
- --------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,950 6,790 7,638 10,297 5,900 4,460
Allowance of combined banks -- -- -- -- 14,896 --
- --------------------------------------------------------------------------------------------------------------------
Ending balance $35,793 34,583 33,775 32,717 31,722 13,064
- --------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans
outstanding 0.03% 0.28% 0.35% 0.47% 0.14% 0.15%
- --------------------------------------------------------------------------------------------------------------------
The following table sets forth the allocation of the allowance for
loan losses:
March 31, /---------------December 31,----------------/
(Dollars in Thousands) 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
Mortgage loans $16,292 15,629 17,374 17,313 15,237 9,122
Mortgage loans to total loans 58.64% 59.36% 59.74% 60.89% 61.32% 72.22%
Construction loans $ 1,360 1,060 340 340 150 --
Construction loans to total loans 2.19% 2.30% 1.58% 1.64% 1.64% 1.21%
Commercial loans $11,713 11,801 10,676 10,856 10,774 1,067
Commercial loans to total loans 12.11% 11.68% 11.32% 9.53% 9.54% 1.72%
Other loans $ 6,428 6,093 5,385 4,208 5,561 2,875
Other loans to total loans 27.06% 26.66% 27.36% 27.94% 27.50% 24.85%
- --------------------------------------------------------------------------------------------------------------------
Total allowance for loan losses $35,793 34,583 33,775 32,717 31,722 13,064
- --------------------------------------------------------------------------------------------------------------------
The loan loss allowance allocation provided does not necessarily
represent the total amount which may or may not be available for actual future
losses in any one or more of the categories.
16
The following table sets forth information with respect to loans
delinquent for 90 days or more, restructured loans and other nonperforming
assets:
March 31, /---------------December 31,----------------/
(Dollars in Thousands) 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
Delinquent mortgage loans:
Conventional $11,793 12,340 12,691 11,436 13,275 10,940
FHA and VA 710 705 612 905 1,155 1,055
Multi family and commercial 10,531 9,063 8,591 7,546 7,864 3,735
- -----------------------------------------------------------------------------------------------------------------------------
Total delinquent mortgage loans $23,034 22,108 21,894 19,887 22,294 15,730
- -----------------------------------------------------------------------------------------------------------------------------
As a percentage of gross mortgage loans 1.6% 1.5% 1.8% 1.7% 1.7% 1.4%
- -----------------------------------------------------------------------------------------------------------------------------
Delinquent commercial loans: $ 5,651 4,387 5,593 6,655 9,782 357
- -----------------------------------------------------------------------------------------------------------------------------
As a percentage of gross commercial loans 2.0% 1.6% 2.5% 3.6% 4.9% 1.4%
- -----------------------------------------------------------------------------------------------------------------------------
Delinquent other loans:
Home equity $ 698 738 720 414 528 389
Guaranteed student 110 183 157 97 902 5,829
Loans to individuals 1,631 1,542 1,396 1,651 1,815 1,033
- -----------------------------------------------------------------------------------------------------------------------------
Total delinquent other loans $ 2,439 2,463 2,273 2,162 3,245 7,251
- -----------------------------------------------------------------------------------------------------------------------------
As a percentage of gross other loans 0.4% 0.4% 0.4% 0.4% 0.6% 1.9%
- -----------------------------------------------------------------------------------------------------------------------------
Delinquent loans as a percentage of gross loans 1.3% 1.2% 1.5% 1.5% 1.7% 1.5%
- -----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans:
Non-accrual loans $25,265 23,580 22,525 25,381 30,236 14,999
Accruing loans delinquent 90 days or more 2,929 2,586 2,386 3,323 5,085 8,339
Restructured loans 2,930 2,792 4,849 5,559 4,053 7,991
- -----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 31,124 28,958 29,760 34,263 39,374 31,329
Other nonperforming assets:
Other real estate owned 3,825 4,019 5,431 10,719 17,332 6,893
Repossessed assets 712 441 335 666 327 210
- -----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $35,661 33,418 35,526 45,648 57,033 38,432
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage of non-
performing loans 115.00% 119.42% 113.49% 95.49% 80.57% 41.70%
Nonperforming assets as a percentage of total
assets 0.66% 0.60% 0.53% 0.79% 1.21% 1.13%
- -----------------------------------------------------------------------------------------------------------------------------
17
Other Operating Income
Other operating income, which is generated by mortgage banking
activities, service charges, security transactions and miscellaneous other
sources, increased by $1.8 million for the three months ended March 31, 1996
compared prior year period.
Mortgage banking income increased by $.1 million for the three months
ended March 31, 1996 compared to the prior year period. The volume of loans
serviced for others has decreased from $1.197 billion at March 31, 1995 to
$1.130 billion at March 31, 1996.
Service charges increased $.6 million or 17.1% for the three months
ended March 31, 1996 compared to the prior year period. Increasing volumes of
commercial banking business and the associated fees are primarily responsible
for these increases. The Company intends to continue to emphasize the growth
of "core" commercial banking in the form of deposit growth and electronic fee
generated business. For example, OnBank & Trust Co. became the sole provider
of ATM's at twenty six New York State Thruway Service Areas during the second
half of 1995. This type of activity will provide additional fee income.
Gains on the sale of securities increased $.7 million in the three
months ended March 31, 1996 compared to the prior year period. These gains
generally reflect the sale of selected available-for-sale securities
associated with the securities downsizing strategy.
Other Operating Expenses
Other operating expenses remained stable at $26.2 million for the
three months ended March 31, 1996 and 1995. A decrease of FDIC insurance
premiums of $1.4 million for the first quarter of 1996 compared to the
previous year was offset by $.5 million of one-time borrowing prepayment
penalties and $.9 million increase in overall operating expenses associated
with increased volume of banking activity and the associated expenses.
However, when compared to almost any peer group the Company's expenses to
average assets ratio of 1.94% for the first three months of 1996 is favorable.
Contingencies
Congress currently has proposed legislation to recapitalize the
Savings Association Insurance Fund. If enacted in its current form, the Banks'
one-time FDIC assessment would be approximately $7.0 million. Proposed
legislation would also repeal the bad debt methods currently available to
thrift institutions, requiring the Company to recapture a portion of their
existing bad debt reserves. The aggregate potential Federal and state tax
expense resulting from recapture would be approximately $5.6 million. There is
no assurance that this pending legislation will be enacted into law,
therefore, the FASB has stated that the charge to earnings must be recorded in
the period enacted. Accordingly, the Company has made no accrual for these
potential obligations.
Dividends
Payments of dividends by ONBANCorp on its common and preferred stock
is subject to various regulatory and tax restrictions. During the three months
ended March 31, 1996 the Company declared a dividend of $.30 per common share
amounting to $4.1 million. For the same period the Company declared a dividend
of $.42 per preferred share amounting to $1.1 million. These dividends were
paid in April 1996 to appropriate shareholders of record.
Liquidity
ONBANCorp's liquidity should be sufficient to meet normal transaction
requirements and flexible enough to take advantage of market opportunities and
to react to other liquidity needs. Net cash provided by operating activities
decreased to $20 million for the first three months of 1996 from $31 million
for the prior year period. Investing activities used $2 million with purchases
of securities approximating proceeds from sales, maturities and principal
collected on securities. The major use of financing activity funds was to
reduce advances from Federal Home Loan Bank and fund the decrease in time
deposits, with total uses of cash from financing activities totaling $154
million. Cash and cash equivalents of $149 million at March 31, 1996 were $12
million less than at March 31, 1995.
18
Shareholders' Equity and Capital Adequacy
The capital to asset ratio was 7.2% on March 31, 1996 as measured by
shareholders' equity of $391 million and assets of $5.420 billion. ONBANCorp's
capital ratios exceed all regulatory requirements including the total risk
adjust capital ratio of 15.3% which is almost double the regulatory
requirements of 8.0%.
19
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part
of this quarterly report on Form 10Q.
No. Exhibit
---- --------
11 Computation of Per Share Earnings
27 Selected Financial Data
(b) Reports on Form 8-K
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONBANCorp, INC.
/s/ Robert J. Bennett
--------------------------------
DATE: May 14, 1996 Robert J. Bennett
Chairman, President
and Chief Executive Officer
/s/ Robert J. Berger
--------------------------------
DATE: May 14, 1996 Robert J. Berger
Senior Vice President, Treasurer
and Chief Financial Officer