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, 1999
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
incorporation or organization) Identification No.)
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.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was approximately $51.8 million as of May 3,
1999. As of May 3, 1999, the registrant had 5,088,829 shares of Common Stock
outstanding.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Part I. FINANCIAL IMFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.............................. 1
Condensed Consolidated Statements of Income........................ 2
Condensed Consolidated Statements of Cash Flows.................... 3
Footnotes to Unaudited Condensed
Consolidated Financial Statement................................. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation..................... 5
Item 3 Quantitative and Qualitative Disclosures about Market Risk......... 12
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................ 12
Item 6. (a) Exhibits.................................................. 13
(b) Reports of Form 8-K....................................... 13
None
Form 10-Q Signature Page.................................................... 14
</TABLE>
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<TABLE>
<CAPTION>
CNY Financial Corporation and Subsidiary
Condensed Consolidated Balance Sheet
(In thousands, except share data)
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS (unaudited)
<S> <C> <C>
Cash and due from banks $ 5,812 $ 4,432
Interest-bearing balances at financial institutions and federal funds sold 1,130 10,104
Securities available-for-sale, at fair value 96,409 88,437
Securities held-to-maturity (fair value of $9,324 in 1999 and $10,404
in 1998) 9,268 10,318
Loans, net of deferred fees 162,336 161,701
Less allowance for loan losses 2,569 2,494
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 159,767 159,207
Premises and equipment, net 3,239 3,243
Federal Home Loan Bank stock, at cost 1,637 1,303
Other assets 4,661 4,142
- ----------------------------------------------------------------------------------------------------------------------------
$ 281,923 $ 281,186
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing demand accounts $ 10,658 $ 10,780
Interest bearing deposits 184,749 185,234
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 195,407 196,014
Advance payments by borrowers for property taxes and insurance 819 1,450
Borrowings 5,000 1,000
Other liabilities 3,150 3,652
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 204,376 202,116
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common Stock, $0.01 par value, 8,500,000 shares authorized,
5,356,662 shares issued and outstanding 54 54
Additional paid-in-capital 51,298 51,289
Retained earnings 32,405 31,848
Treasury stock, at cost; 267,833 and 105,625 shares in 1999 and 1998 (2,775) (1,067)
Other equity (3,435) (3,054)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 77,547 79,070
- ----------------------------------------------------------------------------------------------------------------------------
$ 281,923 $ 281,186
============================================================================================================================
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
1
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<TABLE>
<CAPTION>
CNY Financial Corporation and Subsidiary
Condensed Statements of Income
Three Months Ended March 31, 1999 and 1998
(In thousands, except share data)
(Unaudited)
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income
Loans $ 3,288 $ 3,377
Securities 1,444 848
Other short-term investments 84 86
- ------------------------------------------------------------------------------------------
Total interest income 4,816 4,311
Interest expense
Deposits 1,775 2,010
Borrowings 17 --
- ------------------------------------------------------------------------------------------
Total interest expense 1,792 2,010
- ------------------------------------------------------------------------------------------
Net interest income 3,024 2,301
Provision for loan losses 75 75
- ------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,949 2,226
Non-interest income
Service charges 171 186
Net gain on sale of securities -- 6
Other 45 55
- ------------------------------------------------------------------------------------------
Total non-interest income 216 245
Non-interest expenses
Salaries and employee benefits 928 812
Building, occupancy and equipment 222 214
Other 680 619
- ------------------------------------------------------------------------------------------
Total non-interest expenses 1,830 1,645
- ------------------------------------------------------------------------------------------
Income before income tax expense 1,335 826
Income tax expense 586 333
- ------------------------------------------------------------------------------------------
Net income $ 749 $ 493
==========================================================================================
Basic earnings per share $ 0. 16 N/A
==========================================================================================
Weighted average shares outstanding 4,711,725 N/A
==========================================================================================
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
CNY Financial Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(In thousands)
(Unaudited)
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 410 $ 4,220
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale -- 2,006
Proceeds from maturities and principle reductions of available-for-
sale securities 25,407 5,155
Purchase of securities available-for-sale (34,221) (8,214)
Proceeds from maturities and principle reductions of held-to-
maturity securities 1,043 1,593
Purchases of securities held-to-maturity -- (1,522)
Purchase of FHLB stock (334) (12)
Net (increase) decrease in loans (635) 542
Proceeds from sale of real estate owned -- 243
Premises and equipment expenditures (126) (117)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,866) (326)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits (607) (1,536)
Decrease in advance payments by borrowers for property taxes and
insurance (631) (624)
Net increase in Federal Home Loan Bank advances 4,000 --
Cash dividends on common stock (192) --
Treasury stock purchased (1,708) --
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (unused in) financing activities 862 (2,160)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,594) 1,734
Cash and cash equivalents at beginning of period 14,536 8,079
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,942 $ 9,813
========================================================================================================================
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
3
<PAGE>
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 unauditied; 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, 1999 are not necessarily indicative of the results
expected for the year ended December 31, 1999.
The data in the condensed consolidated balance sheet for December 31,
1998 was derived from the Company's 1998 Annual Report to Shareholders.
That data, along with the other interim financial information presented
in the condensed consolidated balance sheets, statements of income, and
statements of cash flows should be read in conjunction with the
consolidated financial statements, including the notes thereto,
contained in the 1998 Annual Report to Shareholders.
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. Prior to the conversion to a stock
savings bank, earnings per share are not applicable as the mutual
savings bank had no shares outstanding. Unallocated shares held by the
Company's ESOP are not included in the weighted average number of
shares outstanding.
4
<PAGE>
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 $281 million at March 31, 1999. 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 a loan production office in Ithaca, Tompkins County.
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 Company commenced operations on October 6, 1998, when the Bank
converted from a state chartered mutual savings bank to a state chartered stock
savings bank. References to the business activities, financial condition and
operations of the Company prior to October 6, 1998 refer to the Bank, while
references to the Company on or after that date refer to both the Company and
the Bank as consolidated, unless the context indicates otherwise.
The Bank's result 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 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, 1999 were $281.9 million compared to $281.2
million at December 31, 1998. The primary cause of the $737,000 increase was a
$635,000 increase in loans, net of deferred fees which is attributed to new loan
closings exceeding paydowns.
Additionally, the Company repositioned a portion of its invested funds
in the first quarter to take advantage of higher rates available by extending
the average maturity of investments. The Company's securities portfolio
increased $6.9 million from the end of 1998 and totaled $105.7 million at March
31, 1999. The majority of purchases were 15 year mortgage-backed securities, and
were funded by a reduction in federal funds sold and interest-bearing balances
at other banks of $9.0 million.
Total deposits declined $607,000 from December 31, 1998, and totaled
$195.4 million at March 31, 1999. Now accounts experienced the largest decline
and were $10.5 million at March 31, 1999 compared with $11.1 million at the end
of 1998. This $645,000 decline is attributed to the timing of customer
transactions.
Borrowings were $5.0 million and $1.0 million at March 31, 1999 and
December 31, 1998, respectively. This $4.0 increase was required to fund the
growth in assets, the decline in deposits and the stock repurchases discussed in
the following paragraph.
Stockholders' equity was $77.5 million at March 31, 1999 compared to
$79.1 million at December 31, 1998. The primary contributor to this $1.5 million
decline was completion of the Company's previously announced share repurchase
program. 162,208 shares of the Company's common stock were purchased through the
end of January, at an average price of $10.53 per share. These repurchases were
in addition to the 105,625 shares repurchased during December 1998, bringing the
total shares repurchased to 267,833 at an average price of $10.36. The impact of
these share repurchases has been a significant improvement in the Company's book
value per share which was $15.24 at March 31, 1999 compared to $15.06 at the end
of 1998.
5
<PAGE>
OPERATING RESULTS
Net income was $749,000 or $0.16 per common share for the three months
ended March 31, 1999. These results compare with net income of $493,000 for the
first quarter of 1998, and reflect a $256,000, or 51.9%, increase.
NET INTEREST INCOME
The major source of earnings for the Company is net interest income.
Net interest income for the three months ended March 31, 1999 and 1998 was $3.0
million and $2.3 million, respectively. This $723,000 improvement is primarily
attributable to the investment of proceeds received from the conversion.
Competitive pressures and overall market interest rates continued to put
downward pressure on the Company's loan rates, however. The Company's annualized
yield on loans was 8.34% for the three months ended March 31, 1999, compared
with 8.72% for the first quarter of 1998. This reduction was, however, offset by
the investment of the proceeds received from the conversion, which resulted in
improvement in the Company's net interest margin to 4.62% for the quarter ended
March 31, 1999, compared with 4.27% for the three month period ended March 31,
1998.
The following table sets 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
INTEREST BALANCE COST INTEREST BALANCE COST
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans (1) $ 3,288 $159,810 8.34% $ 3,377 $157,134 8.72%
Securities (2) 1,444 97,965 5.98 848 54,852 6.27
Other short-term investments 84 7,556 4.51 86 6,645 5.25
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 4,816 265,331 7.36% 4,311 218,631 8.00%
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 12,070 13,553
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $277,401 $232,184
============================================================================================================================
Savings accounts (3) $ 378 $ 62,955 2.44% $ 474 $ 63,748 3.02%
Money market accounts 47 7,947 2.40 57 8,385 2.76
NOW accounts 32 10,570 1.23 40 9,357 1.73
Certificates of deposits 1,318 104,097 5.13 1,439 108,067 5.40
Borrowings 17 1,111 6.21 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 1,792 186,680 3.89% $ 2,010 189,557 4.30%
Non interest-bearing liabilities 12,544 12,076
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 199,224 201,633
Stockholders' equity 78,177 30,551
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $277,401 $232,184
============================================================================================================================
Net interest income/spread $ 3,024 3.47% $ 2,301 3.70%
Net earning assets/net interest margin $ 78,651 4.62% $ 29,074 4.27%
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.42x 1.15x
============================================================================================================================
- ---------------
(1) Average balances include loans held for sale and non-accrual loans, net of the allowance for loan losses. Interest is
recognized on non-accrual loans only as and when received.
(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).
</TABLE>
6
<PAGE>
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 changes 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------
1999 VS. 1998
-------------------------------------------------------------------
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 57 $ (146) $ (89)
Securities 637 (41) 596
Other short-term investments 11 (13) (2)
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 705 (200) 505
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts (6) (90) (96)
Money market accounts (3) (7) (10)
NOW accounts 5 (13) (8)
Certificate of deposit (52) (69) (121)
Borrowings 17 -- 17
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (39) (179) (218)
- -------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN NET INTEREST INCOME $ 744 $ (21) $ 723
===============================================================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $75,000 for
the three months ended March 31, 1999 and was equivalent to the amount recorded
in the first quarter of 1998. This level of provision was considered adequate
given the Company's level of non-performing loans as shown in the table below.
OTHER OPERATING EXPENSE. Non-interest expense was $1.8 million and $1.6
million for the three months ended March 31, 1999 and 1998, respectively. The
primary contributor to this $185,000 increase was a $116,000 increase in
salaries and employee benefits expense primarily attributable to $61,000 of
expenses recorded for the Company's ESOP and the hiring of experienced senior
personnel in 1998 and 1999.
INCOME TAXES. Income tax expense for the quarter ended March 31, 1999
was $586,000 compared with $333,000 for the same period in 1998, representing a
$253,000 increase. The increase is attributed to the improvement in net income
before taxes, the timing of various tax preference items and the establishment
of a wholly-owned Real Estate Investment Trust. The impact of these timing items
is expected to reverse in following quarters, thereby reducing the Company's
effective tax rate.
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 generally classifies its new securities investments as
available-for-sale in order to maintain flexibility in satisfying future
investment and lending requirements.
7
<PAGE>
The following table sets forth certain information with respect to the
Company's securities portfolio.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-----------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
- ------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury securities $ 8,532 $ 8,591 $ 8,041 $ 8,136
U.S. Government agencies 4,997 4,989 4,996 5,028
Corporate debt obligations 28,108 28,197 27,649 27,822
State and municipal sub-divisions 916 916 917 927
Mortgage-backed securities 50,400 49,952 42,801 43,041
- ------------------------------------------------------------------------------------
Total debt securities 92,953 92,645 84,404 84,954
Equity securities 2,217 3,764 2,072 3,483
- ------------------------------------------------------------------------------------
Total available-for-sale 95,170 96,409 86,476 88,437
- ------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
U.S. Government agencies 1,005 1,002 1,505 1,507
Corporate debt obligations 2,855 2,870 2,858 2,878
State and municipal sub-divisions 746 759 747 764
Mortgage-backed securities 4,662 4,693 5,208 5,255
- ------------------------------------------------------------------------------------
Total held-to-maturity 9,268 9,324 10,318 10,404
- ------------------------------------------------------------------------------------
TOTAL SECURITIES $104,438 $105,733 $ 96,794 $ 98,841
====================================================================================
</TABLE>
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.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
--------------------------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
- -------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Residential $ 102,735 63.24% $101,885 62.96%
Construction 220 0.14 145 0.09
Home equity 6,779 4.17 6,804 4.20
Commercial mortgages 29,116 17.92 29,224 18.06
- -------------------------------------------------------------------------------------
Total real estate loans 138,850 85.47 138,058 85.31
- -------------------------------------------------------------------------------------
Other loans:
Guaranteed student loans 1,304 0.80 1,016 0.63
Property improvement loans 656 0.40 709 0.44
Automobile loans 10,751 6.62 10,854 6.71
Other consumer loans 4,251 2.62 4,597 2.84
Commercial loans 6,645 4.09 6,588 4.07
- -------------------------------------------------------------------------------------
Total other loans 23,607 14.53 23,764 14.69
- -------------------------------------------------------------------------------------
Total loans 162,457 100.00% 161,822 100.00%
Less:
Deferred loan fees, net 121 121
Allowance for loan losses 2,569 2,494
- -------------------------------------------------------------------------------------
Total loans, net $ 159,767 $159,207
=====================================================================================
</TABLE>
8
<PAGE>
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.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Residential mortgages $ 974 $ 667
Commercial mortgages 165 167
--------------------------------------------------------------------------------
Total real estate loans 1,139 834
Commercial loans 70 71
Other loans 47 15
--------------------------------------------------------------------------------
Total non-accrual loans 1,256 920
Accruing loans past due 90 days or more: -- --
Residential mortgages -- --
Commercial mortgages -- --
--------------------------------------------------------------------------------
Total real estate loans -- --
Commercial loans -- 11
Other loans 2 4
--------------------------------------------------------------------------------
Total loans past due 90 days or more and still
accruing 2 15
--------------------------------------------------------------------------------
Total non-performing loans 1,258 935
Real estate owned 260 260
--------------------------------------------------------------------------------
Total non-performing assets $ 1,518 $1,195
================================================================================
Non-performing loans as a percent of total loans 0.77% 0.58%
Non-performing assets as a percent of total assets 0.54% 0.42%
================================================================================
</TABLE>
At March 31, 1999 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 potential future losses. The level
of the allowance is based upon management's periodic and comprehensive
evaluation of the loan portfolio, as well as current and projected 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 future 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.
9
<PAGE>
Set forth in the following table is an analysis of the allowance for
loan losses.
<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31,
----------------------
1999 1998
- -------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period $ 2,494 $2,143
Provision for loan losses 75 75
- -------------------------------------------------------------------------------------------------
Charge-offs:
Real estate -- --
Commercial -- 23
Other 21 16
- -------------------------------------------------------------------------------------------------
Total charge-offs 21 39
Recoveries:
Real estate 1 23
Commercial 3 9
Other 17 19
- -------------------------------------------------------------------------------------------------
Total recoveries 21 51
- -------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) -- (12)
- -------------------------------------------------------------------------------------------------
Allowance for loan losses, end of period $ 2,569 $2,230
=================================================================================================
Allowance for loan losses as a percent of total loans 1.58% 1.43%
Allowance for loan losses as a percent of non-performing loans 204.21% 151.91%
Ratio of net charge-offs (recoveries) to average loans outstanding --% (0.01)%
=================================================================================================
</TABLE>
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 period indicated.
MARCH 31, 1999 DECEMBER 31, 1998
- -------------------------------------------------------------------------------
(In thousands)
Non-interest bearing demand accounts $ 10,658 $ 10,780
Savings accounts 62,268 61,820
Certificates of deposit 104,029 104,317
Money market accounts 7,975 7,975
NOW accounts 10,477 11,122
- -------------------------------------------------------------------------------
Total deposits $ 195,407 $ 196,014
===============================================================================
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
$5 million of borrowings from the FHLB at March 31, 1999.
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, 1999, the Company and Bank met all capital adequacy
requirements to which they were subject.
10
<PAGE>
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):
<TABLE>
<CAPTION>
To be classified as
Minimum capital well capitalized under
adequacy prompt corrective
Actual requirements action provisions
-----------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At March 31, 1999:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Company $ 78,674 47.77% $ 13,176 => 8.00% N/A
Bank 61,250 39.53 12,397 => 8.00% $ 15,496 => 10.00%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Company 75,945 46.15 6,588 => 4.00% N/A
Bank 58,609 37.82 6,198 => 4.00% 9,297 => 6.00%
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Company 75,945 27.38 11,096 => 4.00% N/A
Bank $ 58,609 21.96% $ 10,677 => 4.00% $ 13,347 => 5.00%
=============================================================================================================================
</TABLE>
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 $410,000 and $4.2 million for the
three months ended March 31, 1999 and 1998, respectively. The primary
contributor to this $3.8 million decline was the $3.1 million of proceeds
received from the sale of problem loans in the first quarter of 1998. There was
no such transaction in 1999. Net cash used in investing activities consists
principally of securities and loan transactions. Net cash used in investing
activities was $8.9 million and $326,000 for the three months ended March 31,
1999 and 1998, respectively. The primary contributor to this $8.5 million
increase was the redeployment of short-term funds into longer-term investments
as discussed in "Financial Condition." Cash flows from financing activities
consist principally of deposit flows and borrowing transactions. Net cash of
$862,000 was provided by financing transactions in the first quarter of 1999
compared to cash used by financing activities of $2.2 million for the three
months ended March 31, 1998. This $3.0 million change is primarily attributed to
the $4.0 million borrowing partially offset by treasury stock purchases of $1.7
million, both as previously discussed.
YEAR 2000 CONSEQUENCES
The information contained in this section represents a Year 2000
Readiness Disclosure under the Year 2000 Information and Readiness Disclosure
Act.
The operations of the Company are substantially dependent upon computer
data processing for its deposit accounts, loans, and financial records and other
matters. Many computer systems and other equipment containing microchips will
not operate accurately after January 1, 2000. The Company has undertaken a
comprehensive review of all systems believed to create potential risks in order
to eliminate any Year 2000 operating difficulties.
Since the end of 1998, the Company has continued the testing of its
computer chip reliant systems and has not identified any major or costly
performance deficiencies. Testing will continue through 1999.
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.
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)
11
<PAGE>
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) changes in competition and (v) 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, 1998 as
filed with the Securities and Exchange Commission on March 26, 1999 and the
sections of the Annual Report to Stockholders referenced therein and included in
such report on form 10-K, particularly the discussion at pages 9 and 10 of the
Annual Report to Stockholders under the caption "Asset/Liability Management and
Market Risk." There has been no material changes since December 31, 1998.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
CNY Financial Corporation had an annual meeting of stockholders on
April 28, 1999. At the meeting, Patrick J. Hayes, Robert S. Kashdin and Lawrence
Seidman were elected as directors. The terms of office of directors Joseph H.
Compagni, Harvey Kaufman, Donald P. Reed, Terrance D. Stalder and Wesley D.
Stisser continue after the meeting.
In addition to the election of directors, stockholders voted upon (i)
the approval of a stock option plan which provides for the award of options to
purchase up to 535,662 shares of stock of CNY Financial Corporation to
directors, officers and employees; (ii) the approval of a Personnel Recognition
and Retention Plan which provides for the award of up to 214,266 shares of
restricted stock of CNY Financial Corporation to directors, officers and
employees; and (iii) the ratification of the appointment of KPMG LLP as
auditors.
The votes cast for all nominees for directors, and the votes on the
other three matters, were as follows:
The election of directors:
Name For Withheld
---- --- --------
Patrick J. Hayes 4,346,133 106,798
Robert S. Kashdin 4,365,951 87,371
Lawrence B. Seidman 4,061,951 390,980
No other person received votes.
The stock option plan:
For 2,816,064
Against 538,691
Abstain 54,290
Broker non-votes 1,043,886
The Personnel Recognition and Retention Plan:
For 2,721,904
Against 599,761
Abstain 87,380
Broker non-votes 1,043,886
The ratification of the appointment of auditors:
For 4,311,660
Against 73,536
Abstain 67,735
12
<PAGE>
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.
13
<PAGE>
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: /s/ WESLEY D. STISSER May 6, 1999
-------------------------------------------------------- -----------
Wesley D. Stisser (Dated)
President & Chief Executive Officer
/s/ STEVEN A. COVERT May 6, 1999
-------------------------------------------------------- -----------
Steven A. Covert (Dated)
Executive Vice President & Chief Financial Officer
14
<PAGE>
Index To Exhibits
3.1 Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
27.1 Financial Data Schedule
*Previously filed.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 5,812 4,613
<INT-BEARING-DEPOSITS> 1,130 0
<FED-FUNDS-SOLD> 0 5,200
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 96,409 45,475
<INVESTMENTS-CARRYING> 9,268 12,479
<INVESTMENTS-MARKET> 9,324 12,489
<LOANS> 162,336 156,430
<ALLOWANCE> 2,569 2,230
<TOTAL-ASSETS> 281,923 232,388
<DEPOSITS> 195,407 198,234
<SHORT-TERM> 4,000 0
<LIABILITIES-OTHER> 3,969 2,760
<LONG-TERM> 1,000 0
0 0
0 0
<COMMON> 54 0
<OTHER-SE> 77,493 31,394
<TOTAL-LIABILITIES-AND-EQUITY> 281,923 232,388
<INTEREST-LOAN> 3,288 3,377
<INTEREST-INVEST> 1,444 848
<INTEREST-OTHER> 84 86
<INTEREST-TOTAL> 4,816 4,311
<INTEREST-DEPOSIT> 1,775 2,010
<INTEREST-EXPENSE> 1,792 2,010
<INTEREST-INCOME-NET> 3,024 2,301
<LOAN-LOSSES> 75 75
<SECURITIES-GAINS> 0 6
<EXPENSE-OTHER> 1,830 1,645
<INCOME-PRETAX> 1,335 826
<INCOME-PRE-EXTRAORDINARY> 1,335 826
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 749 493
<EPS-PRIMARY> 0.16 0
<EPS-DILUTED> 0.16 0
<YIELD-ACTUAL> 4.62 4.27
<LOANS-NON> 1,256 1,458
<LOANS-PAST> 2 10
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,494 2,143
<CHARGE-OFFS> 21 39
<RECOVERIES> 21 51
<ALLOWANCE-CLOSE> 2,569 2,230
<ALLOWANCE-DOMESTIC> 2,569 2,230
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
