UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
0-24739
Commission File Number
CNY Financial Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 16-1557490
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
ONE NORTH MAIN STREET
CORTLAND, NEW YORK 13045
(Address of principal executive offices)
(607) 756-5643
Registrant's telephone number, including area code
COMMON STOCK, $0.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act
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 day. [X] Yes [ ] No.
As of May 2, 2000 the registrant had 4,601,373 shares of Common Stock
outstanding.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets.................. 1
Condensed Consolidated Statements of Income............ 2
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income...................... 3
Condensed Consolidated Statements of Cash Flows........ 4
Footnotes to Unaudited Condensed Consolidated
Financial Statements................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 6
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................... 13
Part II. OTHER INFORMATION
Item 6. (a) Exhibits...................................... 13
(b) Reports of Form 8-K........................... 13
None
Form 10-Q Signature Page........................................ 14
CNY Financial Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------
ASSETS (unaudited)
Cash and due from banks $ 3,937 $ 6,051
Interest-bearing balances at financial institutions and federal funds sold 183 221
Securities available-for-sale, at fair value 92,579 97,560
Securities held-to-maturity (fair value of $6,270 at 2000 and $7,026
at 1999) 6,379 7,103
Loans, net of deferred fees 173,568 169,087
Less allowance for loan losses 2,452 2,430
- -------------------------------------------------------------------------------------------------------
Net loans 171,116 166,657
Premises and equipment, net 2,986 3,084
Federal Home Loan Bank stock, at cost 1,809 1,637
Other assets 5,342 5,132
- -------------------------------------------------------------------------------------------------------
$284,331 $287,445
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing demand accounts $ 12,661 $ 12,033
Interest bearing deposits 182,769 183,437
- -------------------------------------------------------------------------------------------------------
Total deposits 195,430 195,470
Advance payments by borrowers for property taxes and insurance 963 1,595
Borrowings 16,500 19,200
Other liabilities 3,376 3,480
- -------------------------------------------------------------------------------------------------------
Total liabilities 216,269 219,745
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 68,062 67,700
- -------------------------------------------------------------------------------------------------------
$284,331 $287,445
=======================================================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements.
1
CNY Financial Corporation and Subsidiary
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999
(In thousands, except share data)
(Unaudited)
Quarter to Date
-----------------
2000 1999
- --------------------------------------------------------------------------------
Interest income
Loans $ 3,466 $ 3,288
Securities 1,601 1,444
Other short-term investments 11 84
- --------------------------------------------------------------------------------
Total interest income 5,078 4,816
Interest expense
Deposits 1,753 1,775
Borrowings 283 17
- --------------------------------------------------------------------------------
Total interest expense 2,036 1,792
- --------------------------------------------------------------------------------
Net interest income 3,042 3,024
Provision for loan losses -- 75
- --------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,042 2,949
Non-interest income
Service charges 232 171
Net gain on sale of securities 6 --
Other 117 45
- --------------------------------------------------------------------------------
Total non-interest income 355 216
Non-interest expenses
Salaries and employee benefits 1,086 928
Building, occupancy and equipment 208 222
Merger expenses 44 --
Other 738 680
- --------------------------------------------------------------------------------
Total non-interest expenses 2,076 1,830
- --------------------------------------------------------------------------------
Income before income tax expense 1,321 1,335
Income tax expense 496 586
- --------------------------------------------------------------------------------
Net income $ 825 $ 749
================================================================================
Basic earnings per share $ 0.21 $ 0.16
Diluted earnings per share $ 0.20 $ 0.16
Weighted average diluted shares outstanding 4,167,538 4,711,725
================================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements.
2
CNY Financial Corporation and Subsidiary
Condensed Consolidated Statements of Stockholders' Equity and Comprehensive Income
Three Months Ended March 31, 2000
(Unaudited)
(In thousands, except share data)
Accumulated Unearned
Additional Other Unallocated Common
Common Paid - in Retained Comprehensive Treasury ESOP Stock
Stock Capital Earnings Income Stock Shares For PRRP Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 54 $ 51,353 $ 33,554 $ (503) $(10,908) $ (4,017) $ (1,833) $ 67,700
ESOP shares released for allocation -- 42 -- -- -- 54 -- 96
Expense of PRRP -- -- -- -- -- -- 112 112
Dividend payments -- -- (420) -- -- -- -- (420)
Comprehensive income:
Change in net unrealized gain
(loss) on securities, net of tax -- -- -- (251) -- -- -- (251)
Net income -- -- 825 -- -- -- -- 825
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- 825 (251) -- -- -- 574
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $ 54 $ 51,395 $ 33,959 $ (754) $(10,908) $ (3,963) $ (1,721) $ 68,062
====================================================================================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements.
3
CNY Financial Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
Year to Date
- ----------------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 929 $ 410
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principle reductions of
available-for-sale securities 4,608 25,407
Purchase of securities available-for-sale -- (34,221)
Proceeds from maturities and principle reductions of held-to-
maturity securities 723 1,043
Purchase of FHLB stock (172) (334)
Net increase in loans (4,481) (635)
Proceeds from sale of real estate owned 60 --
Premises and equipment expenditures (27) (126)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 711 (8,866)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits (40) (607)
Decrease in advance payments by borrowers for property taxes and
insurance (632) (631)
Net (decrease) increase in Federal Home Loan Bank advances (2,700) 4,000
Cash dividends on common stock (420) (192)
Treasury stock purchased -- (1,708)
- ----------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (3,792) 862
- ----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,152) (7,594)
Cash and cash equivalents at beginning of period 6,272 14,536
- ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,120 $ 6,942
==============================================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements.
4
CNY Financial Corporation and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1: BASIS OF PRESENTATION
The financial information of CNY Financial Corporation and
subsidiary (the Company) included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for
a fair statement of results for the interim periods. The results of
the interim period ended March 31, 2000 are not necessarily
indicative of the results expected for the year ended December 31,
2000.
The data in the condensed consolidated balance sheet for December
31, 1999 was derived from the Company's 1999 Annual Report on Form
10-K. That data, along with the interim financial information
presented in the condensed consolidated balance sheets, statements
of income, statements of stockholders' equity and comprehensive
income and statements of cash flows should be read in conjunction
with the consolidated financial statements, including the notes
thereto.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income
available to common shareholders by the weighted average number of
shares outstanding during the period. Stock options and unvested
stock grants are regarded as common stock equivalents and are
considered in diluted earnings per share if dilutive. Unallocated
shares held by the Company's ESOP are not included in the weighted
average number of shares outstanding for either basic or diluted
earnings per share.
The following table summarizes the computation of earnings per share
for the period indicated:
Three Months Ended March 31,
-----------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------
Weighted Weighted
Net Income Average Shares Per-Share Net Income Average Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-----------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
BASIC EPS
Net income $ 825 4,023 $ 0.21 $ 749 4,712 $ 0.16
EFFECT OF DILUTIVE SECURITIES
Options 32 --
Unearned stock grants 113 --
------------------------------- ----------------------------------
DILUTED EPS $ 825 4,168 $ 0.20 $ 749 4,712 $ 0.16
===============================================================================================
NOTE 3: PENDING MERGER
On December 28, 1999, the Company signed a definitive agreement with
Niagara Bancorp, Inc. under which Niagara Bancorp, Inc. will acquire
all of the outstanding shares of the Company for $18.75 per share.
Cortland Savings Bank will become a wholly-owned subsidiary of
Niagara Bancorp, Inc. Consummation of the merger requires the
approval of the Company's shareholders, the New York Banking Board
and the Board of Governors of the Federal Reserve System.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
CNY Financial Corporation, a Delaware corporation incorporated in 1998
(the "Company") is a bank holding company headquartered in Cortland, New York
with total assets of over $280 million at March 31, 2000. Through its wholly
owned subsidiary, Cortland Savings Bank, which was founded in 1866 (the "Bank"),
the Company engages in full service community banking. The Bank is also
headquartered in Cortland, New York, and has three full service offices in
Cortland County, and two loan production offices.
The Company provides community banking services, primarily to individuals
and small-to-medium-sized businesses, in Cortland County and the neighboring
counties. These services include traditional checking, NOW, money market,
savings and time deposit accounts. The Company offers home equity, home
mortgage, commercial real estate, commercial and consumer loans, safe deposit
facilities and other services specially tailored to meet the needs of customers
in its target markets.
The Bank's results of operations depend principally on its net interest
income, which is the difference between the income earned on its loans and
securities and its cost of funds, principally interest paid on deposits. Net
interest income is dependent on the amounts and yields of interest earning
assets as compared to the amounts of and rates on interest bearing liabilities.
Net interest income is sensitive to changes in market rates of interest and the
Company's asset/liability management procedures in coping with such changes.
Results of operations are also affected by the provision for loan losses, the
volume of non-performing assets, and the levels of both non-interest income and
non-interest expense.
Sources of non-interest income include categories such as deposit account
fees and other service charges, gains on the sale of securities and fees for
banking services such as safe deposit boxes. The largest category of
non-interest expense is compensation and benefits expense. Other principal
categories of non-interest expense are occupancy expense and real estate owned
expense, which represents expense in connection with real estate acquired in
foreclosure or in satisfaction of a debt owed to the Company.
FINANCIAL CONDITION
Total assets at March 31, 2000 were $284.3 million, compared to $287.4
million at December 31, 1999. The primary cause of the $3.1 million decrease was
a $2.7 million decline in borrowings as the Company used payments on its
securities portfolio to reduce its borrowings. The Company also used payments on
its securities portfolio to fund an increase in the loan portfolio. Loans
receivable was $171.1 million at March 31, 2000, an increase of $4.5 million, or
2.7% from the end of 1999.
OPERATING RESULTS
Net income was $825,000 or $0.20 per diluted common share for the three
months ended March 31, 2000. These results compare with net income of $749,000
or $0.16 per share for the first quarter of 1999.
Net Interest Income
The major source of earnings for the Company is net interest income. Net
interest income was $3.0 million for the three months ended March 31, 2000,
which was consistent with the same period in 1999. Competitive pressures and
overall market interest rates resulted in a decline in the yield on loans to
8.28% for the three months ended March 31, 2000, compared with 8.34% for the
same period in 1999. This decline, in conjunction with increased borrowings
period to period, caused the Company's net interest margin to decline to 4.46%
for the three months ended March 31, 2000, compared to 4.62% for the first
quarter in 1999.
6
The following tables set forth the average daily balances, net interest
income and expense and average yields and rates for the Company's earning assets
and interest bearing liabilities for the indicated periods. No tax-equivalent
adjustments were made.
Three Months Ended March 31,
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Interest Balance Cost Interest Balance Cost
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Loans (1) $ 3,466 $ 168,285 8.28% $ 3,288 $159,810 8.34%
Securities (2) 1,601 104,834 6.14 1,444 97,965 5.98
Other short-term investments 11 1,014 4.36 84 7,556 4.51
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 5,078 274,133 7.45% 4,816 265,331 7.36%
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 10,244 12,070
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 284,377 $277,401
==============================================================================================================================
Savings accounts (3) $ 362 $ 61,747 2.36% $ 378 $ 62,955 2.44%
Money market accounts 89 10,922 3.28 47 7,947 2.40
NOW accounts 34 10,823 1.26 32 10,570 1.23
Certificates of deposit 1,268 100,101 5.09 1,318 104,097 5.13
Borrowings 283 18,312 6.22 17 1,111 6.21%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 2,036 201,905 4.06% $ 1,792 186,680 3.89%
Non interest-bearing liabilities 15,035 12,544
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 216,940 199,224
Stockholders' equity 67,437 78,177
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 284,377 $277,401
==============================================================================================================================
Net interest income/spread $ 3,042 3.39% $ 3,024 3.47%
Net earning assets/net interest margin $ 72,228 4.46% $ 78,651 4.62%
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.36x 1.42x
==============================================================================================================================
(1) Average balances include non-accrual loans, net of the allowance for loan
losses.
(2) Securities are included at amortized cost, with net unrealized gains or
losses on securities available-for-sale included as a component of
non-earning assets. Securities include Federal Home Loan Bank stock.
(3) Includes advance payments for taxes and insurance (mortgage escrow
deposits).
Changes in Interest Income and Expense
One method of analyzing net interest income is to consider how changes in
average balances and average rates from one period to the next affect net
interest income. The following table shows the dollar amount of changes in
interest income and expense by major categories of interest earning assets and
interest bearing liabilities attributable to changes in volume or rate or both,
for the periods indicated.
Volume variances are computed using the change in volume multiplied by
the previous year's rate. Rate variances are computed using the change in rate
multiplied by the previous year's volume. The change in interest due to both
rate and volume has been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
7
Three Months Ended March 31,
----------------------------
2000 vs. 1999
----------------------------
Increase (Decrease) Due To:
Volume Rate Total
---------------------------------------------------------------------
(In thousands)
INTEREST-EARNING ASSETS:
Loans $ 199 $ (21) $ 178
Securities 113 44 157
Other short-term investments (70) (3) (73)
---------------------------------------------------------------------
Total interest-earning assets 242 20 262
---------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts (6) (10) (16)
Money market accounts 22 20 42
NOW accounts 1 1 2
Certificate of deposit (42) (8) (50)
Borrowings 266 -- 266
---------------------------------------------------------------------
Total interest-bearing liabilities 241 3 244
---------------------------------------------------------------------
NET CHANGE IN NET INTEREST INCOME $ 1 $ 17 $ 18
=====================================================================
Provision for Loan Losses. No provision for loan losses was recorded for
the three months ended March 31, 2000, which was $75,000 less than the amount
recorded in the first quarter of 1999. This level of provision was considered
adequate given the Company's level of non-performing loans as shown in the table
under "Lending Activities."
Non-interest Income. Non-interest income was $355,000 for the quarter
ended March 31, 2000, compared with $216,000 in the same period in 1999. This
$139,000 increase was primarily attributable to increased service charges on
deposit accounts and the commencement of non-deposit product sales in October
1999.
Non-interest Expenses. Non-interest expenses were $2.1 million and $1.8
million for the three months ended March 31, 2000 and 1999, respectively. The
primary contributor to this $246,000 increase was a $158,000 increase in
personnel expenses.
Salaries and employee benefits expense was $1.1 million for the quarter
ended March 31, 2000, compared with $928,000 in the same period in 1999. The
primary contributor to this increase was a $147,000 increase in the expenses
related to the Company's ESOP and stock compensation plan. The increased market
value of the Company's stock increased the expense associated with the ESOP, and
the stock compensation plan was not adopted until April 1999.
Income Taxes. Income tax expense for the quarter ended March 31, 2000 was
$496,000 compared with $586,000 for the same period in 1999. The Company's
effective tax rate was 37.6% for the first quarter of 2000, compared with 43.9%
for the three months ended March 31, 1999. This improvement resulted from the
implementation of tax-advantaged strategies.
BUSINESS OF THE COMPANY
INVESTMENT ACTIVITIES
General. The investment policy of the Company, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide satisfactory yields, while maintaining adequate
liquidity, a balance of high quality, diversified investments, and minimal risk.
The Company may consider the orderly disposition of a portion of its securities
available-for-sale prior to, and in anticipation of, its merger with Niagara
Bancorp. This disposition, if any, could result in significant losses on the
sale of securities if current market conditions continue.
8
The following table sets forth information with respect to the Company's
securities portfolio.
March 31, 2000 December 31, 1999
--------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------
(In thousands)
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury securities $ 515 $ 515 $ 3,016 $ 3,021
U.S. Government agencies 11,457 11,201 11,453 11,225
Corporate debt obligations 20,046 19,786 20,553 20,328
State and municipal sub-divisions 1,865 1,801 1,865 1,804
Mortgage-backed securities 57,144 54,539 58,684 56,437
- --------------------------------------------------------------------------------
Total debt securities 91,027 87,842 95,571 92,815
Equity securities 2,812 4,737 2,827 4,745
- --------------------------------------------------------------------------------
Total available-for-sale 93,839 92,579 98,398 97,560
- --------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
U.S. Government agencies 1,000 985 1,000 989
Corporate debt obligations 1,352 1,349 1,853 1,850
State and municipal sub-divisions 740 734 742 737
Mortgage-backed securities 3,287 3,202 3,508 3,450
- --------------------------------------------------------------------------------
Total held-to-maturity 6,379 6,270 7,103 7,026
- --------------------------------------------------------------------------------
TOTAL SECURITIES $100,218 $ 98,849 $105,501 $104,586
================================================================================
LENDING ACTIVITIES
The loan portfolio is the largest category of the Company's interest
earning assets.
Loan Portfolio Composition. The following table sets forth the
composition of the Company's loan portfolio in dollar amounts and in percentages
at the dates indicated.
March 31, 2000 December 31, 1999
------------------------------------------------
Percent Percent
Amount of Total Amount of Total
- --------------------------------------------------------------------------------
(Dollars in thousands)
Real estate loans:
Residential $103,578 59.66% $104,494 61.76%
Construction 2,498 1.44 1,790 1.06
Home equity 6,666 3.84 6,520 3.85
Commercial mortgages 32,407 18.67 31,864 18.83
- --------------------------------------------------------------------------------
Total real estate loans 145,149 83.61 144,668 85.50
- --------------------------------------------------------------------------------
Other loans:
Guaranteed student loans 1,046 0.60 741 0.44
Property improvement loans 645 0.37 661 0.39
Automobile loans 15,393 8.87 12,641 7.47
Other consumer loans 4,337 2.50 4,208 2.49
Commercial loans 7,025 4.05 6,278 3.71
- --------------------------------------------------------------------------------
Total other loans 28,446 16.39 24,529 14.50
- --------------------------------------------------------------------------------
Total loans 173,595 100.00% 169,197 100.00%
Less:
Deferred loan fees, net 27 110
Allowance for loan losses 2,452 2,430
- --------------------------------------------------------------------------------
Total loans, net $171,116 $166,657
================================================================================
9
Total loan closings (including undisbursed funds and refinancings) were
$9.0 million for the first quarter of 2000, compared with $7.3 million for the
first quarter of 1999.
The Company recently expanded its indirect auto lending program in Ithaca
and Syracuse with the addition of high quality dealerships. These new
relationships have resulted in growth in its consumer loan originations. The
Company originated $5.4 million of consumer loans in the first quarter of 2000,
compared with $1.8 million for the same period in 1999.
Asset Quality
Non-performing Loans. Non-performing loans include: (1) loans accounted
for on a non-accrual basis; (2) accruing loans contractually past due ninety
days or more as to interest or principal payments; (3) loans whose terms have
been renegotiated to provide a reduction or deferral of interest or principal
because of a deterioration in the financial position of the borrower.
The following table provides certain information on the Company's
non-performing loans at the dates indicated.
March 31, December 31,
2000 1999
-----------------------------------------------------------------------------
(Dollars in thousands)
Non-accrual loans:
Residential mortgages $510 $539
Commercial mortgages -- --
-----------------------------------------------------------------------------
Total real estate loans 510 539
Commercial loans 48 57
Other loans 11 7
-----------------------------------------------------------------------------
Total non-accrual loans 569 603
Accruing loans past due 90 days or more:
Residential mortgages -- --
Commercial mortgages -- --
-----------------------------------------------------------------------------
Total real estate loans -- --
Commercial loans -- --
Other loans -- 6
-----------------------------------------------------------------------------
Total loans past due 90 days or more and still
accruing -- 6
-----------------------------------------------------------------------------
Total non-performing loans 569 609
Real estate owned 267 309
-----------------------------------------------------------------------------
Total non-performing assets $836 $918
=============================================================================
Non-performing loans as a percent of total loans 0.33% 0.36%
Non-performing assets as a percent of total assets 0.29% 0.32%
=============================================================================
At March 31, 2000 there were no loans other than those included in the
table with regard to which management had information about possible credit
problems of the borrower that caused management to seriously doubt the ability
of the borrower to comply with present loan repayment terms.
Allowance for Loan Losses. The allowance for loan losses is maintained at
a level considered adequate to provide for the inherent risk of loss in the
current loan portfolio. The level of the allowance is based upon management's
periodic and comprehensive evaluation of the loan portfolio, as well as current
economic conditions. Reports of examination furnished by state and federal
banking authorities are also considered by management in this regard. These
evaluations by management in assessing the adequacy of the allowance include
consideration of past loan loss experience, changes in the composition of the
loan portfolio, the volume and condition of loans outstanding and current market
and economic conditions.
The analysis of the adequacy of the allowance is reported to and reviewed
by the Loan Committee of the Board of Directors of the Bank monthly. Management
believes it uses a reasonable and prudent methodology to estimate probable
10
losses in the loan portfolio, and hence assess the adequacy of the allowance for
loan losses. However, any such assessment is speculative and future adjustments
may be necessary if economic conditions or the Company's actual experience
differ substantially from the assumptions upon which the evaluation of the
allowance was based. Moreover, future additions to the allowance may be
necessary based on changes in economic and real estate market conditions, new
information regarding existing loans, identification of additional problem loans
and other factors, both within and outside of management's control.
Loans are charged to the allowance for loan losses when deemed
uncollectible by management, unless sufficient collateral exists to repay the
loan.
Set forth in the following table is an analysis of the allowance for loan
losses.
Three Month Ended
March 31,
--------------------------
2000 1999
--------------------------
(Dollars in thousands)
Allowance for loan losses, beginning of period $ 2,430 $ 2,494
Provision for loan losses -- 75
- -----------------------------------------------------------------------------------------------
Charge-offs:
Real estate -- --
Commercial -- --
Other 13 21
- -----------------------------------------------------------------------------------------------
Total charge-offs 13 21
Recoveries:
Real estate 1 1
Commercial 5 3
Other 29 17
- -----------------------------------------------------------------------------------------------
Total recoveries 35 21
- -----------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (22) --
- -----------------------------------------------------------------------------------------------
Allowance for loan losses, end of period $ 2,452 $ 2,569
===============================================================================================
Allowance for loan losses as a percent of total loans 1.41% 1.58%
Allowance for loan losses as a percent of non-performing loans 430.93% 204.21%
Ratio of net charge-offs (recoveries) to average loans outstanding (0.01)% --%
===============================================================================================
SOURCES OF FUNDS
Deposits. The Company's primary source of funds is deposits. The Company
offers several types of deposit programs to its customers, including passbook
and statement savings accounts, NOW accounts, money market deposit accounts,
checking accounts and certificates of deposit. The Company's deposits are
obtained predominantly from its Cortland County market area.
The following table sets forth deposits at the dates indicated.
March 31, 2000 December 31, 1999
-------------------------------------------------------------------------------
(In thousands)
Non-interest bearing demand accounts $ 12,661 $ 12,033
Savings accounts 60,661 61,109
Certificates of deposit 100,233 100,438
Money market accounts 10,703 10,789
NOW accounts 11,172 11,101
-------------------------------------------------------------------------------
Total deposits $ 195,430 $ 195,470
===============================================================================
11
Borrowings. The Company maintains an available overnight line of credit
with the Federal Home Loan Bank of New York (FHLB) for use in the event of
unanticipated funding needs which cannot be satisfied from other sources.
Additionally, the Company may borrow term advances for the FHLB. The Company had
$16.5 million of borrowings from the FHLB at March 31, 2000.
LIQUIDITY AND CAPITAL
Shareholders' Equity and Capital Standards. The Company and the Bank are
subject to capital adequacy requirements established by the federal banking
agencies.
At March 31, 2000, the Company and Bank met all capital adequacy
requirements to which they were subject.
The following is a summary of the Company's and Bank's actual capital
amounts and ratios compared to the regulatory minimum capital adequacy
requirements and the FDIC requirements for classification of the Bank as a "well
capitalized" institution under prompt corrective action provisions (dollars in
thousands):
To be classified as
Minimum capital well capitalized under
adequacy prompt corrective
Actual requirements action provisions
------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
At March 31, 2000:
Total capital (to risk weighted assets):
Company $ 71,283 42.03% $ 13,570 > 8.00% N/A
-
Bank 65,443 39.22 13,350 > 8.00% $ 16,687 > 10.00%
- -
Tier 1 Capital (to risk weighted assets):
Company 68,818 40.57 6,785 > 4.00% N/A
-
Bank 62,479 37.44 6,675 > 4.00% 10,012 > 6.00%
- -
Tier 1 Capital (to average assets):
Company 68,818 24.19 11,381 > 4.00% N/A
-
Bank $ 62,479 22.53% $ 11,094 > 4.00% $ 13,868 > 5.00%
- -
=====================================================================================================================
Operating Investing and Financing Activities. The Company's cash flows
are composed of three classifications: cash flows from operating activities,
cash flows from investing activities, and cash flows from financing activities.
Net cash provided by operating activities consists primarily of earnings. Net
cash provided by operating activities was $929,000 and $410,000 for the three
months ended March 31, 2000 and 1999, respectively. Net cash used in investing
activities consists principally of securities and loan transactions. Investing
activities provided $711,000 in the first quarter of 2000, and used $8.9 million
for the three months ended March 31, 2000. The primary contributor to this $9.6
million increase was a reduction in security purchases as available funds were
used to reduce borrowings and fund loan closings. Cash flows from financing
activities consist principally of deposit flows and borrowing transactions. Net
cash of $3.8 million was used by financing transactions in the first three
months of 2000 compared to cash provided by financing activities of $862,000 for
the three months ended March 31, 1999. This $4.7 million reduction is primarily
attributed to the Company's reduction in borrowings as previously discussed.
FORWARD-LOOKING STATEMENTS
In this Form 10-Q, the Company, when discussing the future, may use words
like "will probably result", "are expected to", "may cause", "is anticipated",
"estimate", "project", or similar words. These words represent forward-looking
statements. In addition, any analysis of the adequacy of the allowance for loan
losses or the interest rate sensitivity of the Company's assets and liabilities,
represent attempts to predict future events and circumstances and also represent
forward-looking statements.
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Many factors could cause future results to differ from what is
anticipated in the forward-looking statements. For example, future financial
results could be affected by (i) deterioration in local, regional, national or
global economic conditions which could cause an increase in loan delinquencies,
a decrease in property values, or a change in the housing turnover rate; (ii)
changes in market interest rates or changes in the speed at which market
interest rates change; (iii) changes in laws and regulations affecting the
financial service industry; (iv) unforeseen business risks related to Year 2000
computer systems issues; (v) changes in competition and (vi) changes in consumer
preferences.
Please do not place unjustified or excessive reliance on any
forward-looking statements. They speak only as of the date made and are not
guarantees, promises or assurances of what will happen in the future. Remember
that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to be materially different from what has been
anticipated or projected.
ITEM 3. QUANTITATIVE AND QUALITATITIVE DISCLOSURES ABOUT MARKET RISK
For information concerning CNY Financial Corporation's quantitative and
qualitative disclosures about market risk, refer to Item 7A of the CNY Financial
Corporation Annual Report on Form 10-K for the year ended December 31, 1999 as
filed with the Securities and Exchange Commission on March 24, 2000. There have
been no material changes since December 31, 1999.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
3.0 EXHIBITS
3.1 Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 of the Company's Form S-1
Registration Statement (No. 333-57259) filed with the
Securities and Exchange Commission on June 19, 1998).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Form S-1 Registration
Statement (No. 333-57259) filed with the Securities and
Exchange Commission on June 19, 1998).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CNY FINANCIAL CORP.
By: Wesley D. Stisser /s/ WESLEY D. STISSER May 3, 2000
------------------------------------------------------ -------------------
Wesley D. Stisser (Dated)
President & Chief Executive Officer
Steven A. Covert /s/ STEVEN A. COVERT May 3, 2000
------------------------------------------------------ -------------------
Steven A. Covert (Dated)
Executive Vice President & Chief Financial Officer
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Index To Exhibits
3.1 Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
27.1 Financial Data Schedule
*Previously filed.
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