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 March 31, 2000
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OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-18301
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IROQUOIS BANCORP, INC.
----------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 16-1351101
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
115 Genesee Street, Auburn, New York 13021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (315) 252-9521
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_________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,306,880 shares of common
stock on March 31, 2000.
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands, except March 31, December 31,
share data) 2000 1999
- -------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 13,426 $ 13,410
Interest-bearing deposits and Federal funds sold 1,000 2,600
Securities available for sale, at fair value 67,052 65,810
Securities held to maturity (fair value of $51,592 in 2000 and
$50,476 in 1999) 52,504 51,149
Loans 440,699 436,129
Less allowance for loan losses 3,413 3,269
-------- --------
Loans, net 437,286 432,860
Other assets 29,533 29,297
-------- --------
Total Assets $600,801 $595,126
======== ========
Liabilities
Savings and time deposits $444,059 $430,770
Demand deposits 30,120 30,345
Borrowings 84,810 92,487
Other liabilities 2,576 2,639
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Total Liabilities 561,565 556,241
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 shares issued 2,427 2,427
Additional paid-in capital 9,620 9,620
Retained earnings 30,649 30,208
Accumulated other comprehensive loss (939) (849)
Treasury stock at cost, 120,000 shares (2,242) (2,242)
Unallocated shares of Employee Stock Ownership Plan (279) (279)
-------- --------
Total Shareholders' Equity 39,236 38,885
-------- --------
Total Liabilities and Shareholders' Equity $600,801 $595,126
======== ========
See accompanying notes to condensed consolidated financial statements
3
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
Three months ended
March 31,
- --------------------------------------------------------------------------------------------
(dollars in thousands, except
share data) 2000 1999
- --------------------------------------------------------------------------------------------
Interest Income:
Loans $ 8,550 $8,041
Securities 1,819 1,657
Other 128 128
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10,497 9,826
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Interest expense:
Deposits 4,361 3,896
Borrowings 1,291 900
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5,652 4,796
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Net interest income 4,845 5,030
Provision for loan losses 354 358
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Net interest income after provision
for loan losses 4,491 4,672
Net gain on sales of assets 99 10
Noninterest income 846 777
Noninterest expense 4,259 3,751
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Income before income taxes 1,177 1,708
Income taxes 462 598
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Net income $ 715 $1,110
======= ======
Earnings per share
Basic $ 0.31 $ 0.46
======= ======
Diluted $ 0.31 0.46
======= ======
Cash dividends declared per common share $ 0.12 $ 0.10
See accompanying notes to condensed consolidated financial statements
4
IROQUOIS BANCORP, INC.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(unaudited)
Three months ended March 31, 1999:
Unallocated
(dollars in thousands, Addi- Accumulated Shares of
except share data) tional Other Stock
Common Paid-In Retained Comprehensive Treasury Ownership
Stock Capital Earnings Income(Loss) Stock Plan Total
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 $2,410 9,303 26,557 490 -- (418) 38,342
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 1,110 -- -- -- 1,110
Change in net unrealized
gain(loss) on securities
available for sale, net
of taxes -- -- -- (292) -- -- (292)
------------------------------------------------------------------------------------------------
Total comprehensive income -- -- 1,110 (292) -- -- 818
------------------------------------------------------------------------------------------------
Stock options exercised 17 287 -- -- -- -- 304
Cash dividends declared -- -- (238) -- -- -- (238)
- -------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1999 $2,427 9,590 27,429 198 -- (418) 39,226
- -------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000:
Unallocated
(dollars in thousands, Addi- Accumulated Shares of
except share data) tional Other Stock
Common Paid-In Retained Comprehensive Treasury Ownership
Stock Capital Earnings Income(Loss) Stock Plan Total
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999 $2,427 9,620 30,208 (849) (2,242) (279) 38,885
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 715 -- -- -- 715
Change in net unrealized
gain(loss) on securities
available for sale, net -- -- -- (90) -- -- (90)
of taxes
Total comprehensive income -- -- 715 (90) -- -- 625
------------------------------------------------------------------------------------------------
Cash dividends declared (274) -- -- -- (274)
- -------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2000 $2,427 9,620 30,649 (939) (2,242) (279) 39,236
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
5
IROQUOIS BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended
March 31,
- ------------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 715 $ 1,110
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 354 358
Depreciation and amortization 315 327
Net (gain) loss on sales of securities and loans 25 (10)
Net gain on sale of fixed assets (124) --
Decrease in other assets 170 116
Decrease in other liabilities (63) (1,234)
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Net cash provided by operating activities 1,392 667
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Cash flows from investing activities:
Proceeds from maturities of available for sale securities 1,991 1,690
Proceeds from sales of available for sale securities 3,964 1,713
Proceeds from maturities of held to maturity securities 4,097 3,756
Purchases of available for sale securities (7,384) (13,099)
Purchases of held to maturity securities (5,455) (3,453)
Proceeds from sales of loans 432 761
Net increase in loans (5,384) (10,250)
Proceeds from sale of bank premises 264 --
Purchases of bank premises and equipment (614) (72)
Purchase of corporate owned life insurance -- (5,000)
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Net cash used by investing activities (8,089) (23,954)
Cash flows from financing activities:
Net increase(decrease) in demand deposits, money market
accounts, and savings accounts 8,468 (2,556)
Net increase in time deposits 4,596 7,977
Net increase(decrease) in other borrowings (3,673) 9,300
Proceeds of long-term borrowings 10,500 9,000
Repayment of long-term borrowings (14,504) (3,004)
Cash dividends (274) 238)
Net proceeds from exercise of stock options, and related tax benefit -- 304
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Net cash provided by financing activities 5,113 20,783
Net decrease in cash and cash equivalents (1,584) (2,504)
Cash and cash equivalents at beginning of period 16,010 15,964
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Cash and cash equivalents at end of period $14,426 $13,460
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 5,593 4,811
Income taxes -- 1,402
Supplemental schedule of non-cash investing activities:
Additions to other real estate 172 623
See accompanying notes to condensed consolidated financial statements
6
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 balance sheet for December 31, 1999 was derived
from the Company's 1999 Annual Report to Shareholders. That data, along with
the other interim financial information presented in the consolidated
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 1999 Annual Report to Shareholders.
7
IROQUOIS BANCORP, INC.
AND CONSOLIDATED SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
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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.
On March 26, 2000, the Company signed a definitive agreement with Niagara
Bancorp, Inc. ("Niagara Bancorp") under which Niagara Bancorp will acquire all
of the outstanding shares of the Company for $33.25 per share and Iroquois will
be merged into Niagara Bancorp. As a result of the merger, Cayuga Bank will
operate as a wholly-owned subsidiary of Niagara Bancorp. The agreement
contemplates that Homestead Savings will be sold or merged into Cayuga Bank.
The transaction is expected to close during the third quarter of 2000.
RESULTS OF OPERATIONS
- ---------------------
Three months ended March 31, 2000 compared to March 31, 1999
- ------------------------------------------------------------
Net income for the three months ended March 31, 2000 was $715,000, or $.31 basic
earnings per share, compared to net income of $1,110,000, or $.46 basic earnings
per share, for the three months ended March 31, 1999. Diluted earnings per share
were $.31 and $.46 for the three months ended March 31, 2000 and 1999,
respectively. First quarter 2000 net income was reduced by $280,000 of merger
related expenses comprised primarily of fees relating to services of the
Company's investment banker in connection with the announced acquisition of
Iroquois stock by Niagara Bancorp and merger of Iroquois into Niagara Bancorp.
Net interest income was $4,845,000 for the first quarter of 2000, compared to
$5,030,000 for the first quarter of 1999. Net interest margin for the first
quarter of 2000 was 3.50%, compared to 3.86% in 1999. Asset yields increased to
7.51% for the current quarter, compared to 7.49% the year earlier. Interest-
bearing liability costs were 4.35% for the current quarter compared to 4.04% the
year earlier. The compression in the Company's net interest margin primarily
reflects an increase in funding costs caused by the recent rise in short term
interest rates combined with asset yields that have remained relatively stable
as a result of the inversion of the yield curve.
Interest income increased 6.8%, to $10,497,000, for the three months ended March
31, 2000, compared to $9,826,000 for the same period the year earlier. Average
earning assets increased $34.7 million, or 6.6%, to $563.4 million in 2000, from
$528.7 million in 1999. Average residential mortgage loans increased $32.5
million, or 12.6%, while the yield on mortgages decreased from 7.46% in the
first quarter of 1999 to 7.30% in the current quarter. Average commercial
mortgage loans and commercial loans declined $3.1 million and $5.4 million,
respectively, in the same period. Residential mortgage loans represented 51.6%
of average
8
earning assets for the three months ended March 31, 2000, compared to 48.8% for
the same three months in 1999.
Interest expense on deposits and borrowings increased 17.8%, to $5,652,000, for
the three months ended March 31, 2000, compared to $4,796,000 for the three
months ended March 31, 1999. The increase was due to the growth in average
deposits and borrowings combined with an increase in the average cost of
interest-bearing funds. Average deposit balances increased 3.8%, from $446.3
million to $463.4 million, while the average cost of interest-bearing deposits
increased from 3.54% in 1999 to 3.78% in 2000. Average borrowings increased
37.7% from $65.3 million in 1999 to $90.0 million in 2000. The average cost of
borrowings increased from 5.59% for the three months ended March 31, 1999 to
5.78% for the three months ended March 31, 2000.
The provision for loan losses decreased slightly from $358,000 for the quarter
ended March 31, 1999, to $354,000 for the same period in 2000.
Total noninterest income including net gains on the sale of assets was $945,000
for the quarter ended March 31, 2000, compared to $787,000 for the quarter ended
March 31, 1999. Excluding net gains on sales of assets, noninterest income
increased $69,000, or 8.8%, to $846,000 for the three months ended March 31,
2000, compared to $777,000 for the same period in 1999. The growth in
noninterest income resulted from increased income from deposit service fees and
trust and investment brokerage fees. In addition, the first quarter of 2000
included a full quarter's income on the Company's investment in corporate-owned
life insurance compared to a partial quarter of earnings in 1999. During the
first quarter of 2000, the Company realized a net gain of $124,000 on the sale
of a former branch building in South Utica, NY, and $25,000 in net losses on the
sale of available for sale investment securities.
Total noninterest expense was $4,259,000 for the quarter ended March 31, 2000,
compared to $3,751,000 for the quarter ended March 31, 1999. Excluding $280,000
of merger related expenses referenced above, noninterest expense was $3,979,000
for the three months ended March 31, 2000, compared to $3,751,000 in the first
quarter of 1999, an increase of 6.1%. The growth in noninterest expense came
principally from increases in legal fees, salaries and benefits, and marketing
expenses.
The provision for income taxes for the three months ended March 31, 2000 was
$462,000, an effective tax rate of 39.2%, compared to $598,000, or an effective
tax rate of 35.0%, for the three months ended March 31, 1999. The increase in
the Company's effective tax rate in 2000 is a result of the merger expenses
being a non-tax deductible expense item.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Consolidated assets were $600.8 million at March 31, 2000, compared to $595.1
million at December 31, 1999, an increase of $5.7 million, or 1.0%.
Loans increased $4.6 million, or 1.0%, to $440.7 million at March 31, 2000,
compared to $436.1 million at year end 1999. Residential mortgage loans
increased $4.7 million, from $289.5 million at year end 1999, to $294.2 million
at March 31, 2000. Commercial mortgage loans
9
increased $1.0 million, or 2.8%, to $38.0 million at March 31, 2000. Commercial
loans decreased $455,000 from December 31, 1999 to March 31, 2000, ending the
period at $35.1 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 increased from $3.3 million at December 31, 1999,
to $3.4 million at March 31, 2000. Nonperforming loans increased from $2.9
million at year end 1999 to $3.1 million at March 31, 2000. The percentage of
nonperforming loans to total loans increased from .67% at December 31, 1999, to
.70% at March 31, 2000. Residential mortgage loans represented 44.6% of total
nonperforming loans at March 31, 2000, while commercial mortgages represented
21.0% and consumer and commercial loans represented 23.6% and 10.8%,
respectively.
Total securities increased 2.2%, from $117.0 million at year end 1999 to $119.6
million at March 31, 2000. Securities available for sale increased to $67.1
million at March 31, 2000, from $65.8 million at December 31, 1999, while in the
same period securities held to maturity increased from $51.1 million to $52.5
million. Holdings of U.S. Government Agency securities, mortgage-backed
securities and state and municipal obligations increased, while holdings of U.S.
Government securities declined compared to year end 1999.
Total deposits increased $13.1 million, or 2.8%, to $474.2 million at March 31,
2000, compared to $461.1 million at December 31, 1999. The increase in deposits
was primarily attributable to continued growth in public deposits. Money market,
savings and time deposits increased $6.8 million, $1.7 million and $4.6 million
respectively from year end 1999 to March 31, 2000.
Borrowings at March 31, 2000 were $84.8 million compared to $92.5 million at
December 31, 1999. Term advances from the Federal Home Loan Bank ("FHLB") and
advances against overnight lines of credit with the FHLB decreased $4.0 million
and $3.8 million, respectively. Borrowings represented 14.1% of total assets at
March 31, 2000, compared to 15.5% at year end 1999. Increased cash and short-
term liquidity held at year end 1999 relative to the Company's Y2K contingency
plans were used to reduce outstanding borrowings in the first quarter of 2000.
At March 31, 2000, Iroquois had total shareholders' equity of $39.2 million,
compared to $38.9 million at December 31, 1999. The Company's regulatory Tier 1
capital to average assets ratio increased from 6.35% at December 31, 1999 to
6.50% at March 31, 2000. The Company's ratio of Tier 1 Capital to risk weighted
assets increased from 10.59% to 10.76%. As of March 31, 2000, the capital ratios
of Iroquois and both of its banking subsidiaries continued to exceed the capital
requirements for classification as "well capitalized" under applicable
regulatory provisions.
At March 31, 2000, the Company held securities maturing in one year or less
(excluding estimated payments from amortizing securities) of $22.3 million,
compared to $25.6 million at December 31, 1999. The Company considers its
current level of liquidity along with other available sources of funds as both
sufficient and within acceptable ranges.
10
Forward-looking Statements
- --------------------------
The information set forth above contains certain "forward-looking statements"
covered by the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company is making this statement for the express purpose
of availing itself of the safe harbor protection with respect to any and all of
such forward-looking statements, including without limitation, those contained
in Management's Discussion and Analysis which describe future plans or
strategies and include the Company's expectations of future financial results.
The words "believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements. The Company's ability to
predict results or the effect of future plans or strategies is inherently
uncertain. Factors that could affect actual results include interest rate
trends, the general economic climate in the Company's market areas or in the
country as a whole, loan delinquency rates, and changes in federal and state
regulation. These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such statements.
11
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 March 31,
2000, the Company's interest rate risk as measured by the above
mentioned analyses was within established guidelines.
The table below sets forth at March 31, 2000 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 1999 Annual Report,
adjusted to reflect current market conditions, were used.
NET PORTFOLIO VALUE ANALYSIS at March 31, 2000
($ in thousands)
Changes in interest Estimated Change in NPV
rate (basis points) NPV Amount %
----------------------- --------------- -------------------------------
+200 $47,290 (12,395) (20.8)
+100 53,738 (5,948) (10.0)
0 59,686 --
-100 64,575 4,889 8.2
-200 68,292 8,606 14.4
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
In the normal course of business, various unresolved legal proceedings
remained during the period covered by this report. 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 - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Number Description
------ -----------
11 Statement Regarding Computation of Earnings per
Common Share
27 Financial Data Schedule
b) Reports on Form 8-K - None
13
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: April 20, 2000 /s/ Richard D. Callahan
-------------------------
Richard D. Callahan
President & CEO
Date: April 20, 2000 /s/ Marianne R. O'Connor
-----------------------
Marianne R. O'Connor
Treasurer & CFO
14
EXHIBIT INDEX
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Number Description
- ------ -----------
11 Statement Regarding Computation of Earnings per Common Share
27 Financial Data Schedule
15