SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Securities Exchange Act Number 000-25101
ONEIDA FINANCIAL CORP.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1561678
------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer)
incorporation or organization) Identification Number)
182 Main Street, Oneida, New York 13421
--------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (315) 363-2000
----------------
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check x whether the Registrant has filed all reports required to be
filed by Sections 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 [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: There were 3,163,302 shares of
the Registrant's common stock outstanding as of August 1, 2000.
<PAGE>
ONEIDA FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements 1
Consolidated Statements of Condition (unaudited) 2
As of June 30, 2000 and December 31, 1999 (audited)
Consolidated Statements of Operations (unaudited) 3
For the three months ended and six months ended June 30, 2000 and 1999
Consolidated Statements of Comprehensive Income (unaudited) 4
For the three months ended and six months ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows (unaudited) 5
For the three months ended and six months ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
1
<PAGE>
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
At June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(unaudited) (audited)
At At
June 30, December 31,
2000 1999
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,986 $ 8,815
Federal funds sold
--------------------------------
TOTAL CASH AND CASH EQUIVALENTS 5,986 8,815
Investment securities, at fair value 87,881 85,543
Mortgage-backed securities, at fair value 35,275 26,355
--------------------------------
TOTAL INVESTMENT SECURITIES 123,156 111,898
Mortgage loans held for sale 1,280 341
Loans receivable 160,262 150,328
Allowance for credit losses (1,590) (1,523)
--------------------------------
LOANS RECEIVABLE, NET 158,672 148,805
Bank premises and equipment, net 5,526 5,301
Accrued interest receivable 1,886 1,766
Other real estate 91 94
Other assets 3,161 3,192
---------------------------------------------------------------------------
TOTAL ASSETS $ 299,758 $ 280,212
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to Depositors $ 194,137 $ 188,271
Mortgagors' escrow funds 925 849
Borrowings 64,300 50,200
Other Liabilities 630 941
--------------------------------
TOTAL LIABILITIES 259,992 240,261
Shareholders' equity:
Common stock ( $.10 par value; 8,000,000
shares authorized; 3,663,438 and 366 358
3,580,200 shares issued)
Additional paid-in capital 16,289 15,413
Retained earnings 30,361 29,682
Common shares issued under employee
stock plans - unearned (1,167) (1,167)
Accumulated other comprehensive income(loss) (2,221) (2,584)
Treasury stock (at cost, 282,149 and
167,100 shares) (3,004) (1,751)
Unearned stock compensation (858)
--------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 39,766 39,951
--------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 299,758 $ 280,212
==========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
2
<PAGE>
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended and Six Months Ended June 30, 2000 (unaudited) and
1999 (unaudited )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
( in thousands, except Earnings Per Share Data )
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 3,361 $ 2,677 $ 6,541 $ 5,440
Interest on investment and mortgage-
backed securities 1,720 1,707 3,338 3,161
Dividends on equity securities 334 32 620 55
Interest on federal fund sold and
interest-bearing deposits 11 78 27 203
--------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 5,426 4,494 10,526 8,859
--------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposit 276 270 551 545
Money market and Super NOW 174 155 344 289
Time deposits 1,388 1,375 2,728 2,781
Borrowings 954 401 1,761 603
--------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,792 2,201 5,384 4,218
--------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 2,634 2,293 5,142 4,641
Less: Provision for credit losses 84 45 150 90
--------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 2,550 2,248 4,992 4,551
--------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Investment security gain(loss), net (149) 280 (149) 281
Other operating income 251 203 509 437
--------------------------------------------------------------------------------------------------------------------------
Total other income 102 483 360 718
--------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Compensation and employee benefits 1,070 1,030 2,155 1,909
Occupancy expenses, net 365 316 712 652
Other operating expense 364 507 771 836
--------------------------------------------------------------------------------------------------------------------------
Total other expenses 1,799 1,853 3,638 3,397
--------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 853 878 1,714 1,872
--------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 236 270 490 659
--------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 617 $ 608 $ 1,224 $ 1,213
==========================================================================================================================
EARNINGS PER SHARE - BASIC and DILUTED $ 0.19 $ 0.17 $ 0.38 $ 0.34
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended and Six Months Ended June 30, 2000 (unaudited) and
1999 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ----- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 617 $ 608 $ 1,224 $ 1,213
-------- -------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains(losses) on assets available for sale:
Unrealized holding gains (losses)
arising during period 974 (1,992) 456 (2,612)
Less: reclassification adjustment for
losses (gains) included in net income 149 (280) 149 (281)
-------- -------- --------- ---------
1,123 (2,272) 605
(2,893)
Net income tax benefit effect (449) 909 (242) 1,157
-------- -------- --------- ---------
Other comprehensive income(loss), net of tax 674 (1,363) 363 (1,736)
Comprehensive Income $ 1,291 $ (755) $ 1,587 $ (523)
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE>
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended and Six Months Ended June 30, 2000 (unaudited) and
1999 (unaudited )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 617 $ 608 1,224 1,213
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock based compensation earned 26 0 26 0
Depreciation 170 162 340 327
Amortization of premiums/discounts on securities, net (33) (24) (28) (18)
Provision for credit losses 84 45 150 90
Loss on sale of other real estate 0 31 7 31
Loss (Gain) on sale/call of securities, net 149 (280) 149 (281)
(Gain) Loss on sale of loans, net (5) 6 (8) (22)
Income tax payable (256) (408) (490) (73)
Accrued interest receivable 387 (106) (120) (297)
Other assets (74) 26 (211) (182)
Other liabilities (27) 285 179 216
Origination of loans held for sale (2,040) 0 (2,506) (3,984)
Proceeds from sales of loans 1,266 1,924 1,575 5,678
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 264 2,269 287 2,698
------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of investment securities (2,855) (29,828) (8,813) (58,293)
Principal collected on and proceeds of maturities
or calls from investments 6,897 13,927 6,909 24,449
Purchase of mortgage-backed securities (2,450) (5,182) (10,432) (8,215)
Principal collected from mortgage-backed securities 869 1,174 1,563 3,006
Net (increase) decrease in loans (3,362) (6,170) (10,089) (3,875)
Purchase of bank premises and equipment (475) (400) (565) (634)
Proceeds from sale of other real estate 25 47 68 130
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,351) (26,432) (21,360) (43,432)
------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in demand deposit, savings,
money market, super now and escrow (778) 6.294 4,237 3,707
Net increase (decrease) in time deposits 180 (120) 1,705 (4,250)
Proceeds from borrowings 6,300 20,000 29,500 30,000
Repayment of borrowings (5,000) (5,000) (15,400) (5,000)
Cash dividends 0 0 (546) 0
Purchase of treasury stock (475) 0 (1,253) 0
Adjust net proceeds 0 0 0 (123)
Common stock acquired by ESOP 0 0 0 (913)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 227 21,174 18,243 23,421
------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (860) (2,989) (2,829) (17,313)
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 6,846 11,832 8,815 26,156
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 5,986 8,843 5,986 8,843
==========================================================================================
Supplemental disclosures of cash flow information:
Cash paid for interest 2,861 2,018 5,343 4,034
Cash paid for income taxes 497 678 502 678
Non-cash investing activities:
Unrealized gain (loss) on investment and mortgage-backed
securities designated as available for sale 1,124 (2,262) 606 (2,882)
Transfer of loans to other real estate 0 159 72 201
==========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Oneida Financial Corp.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary to fairly present the consolidated
financial position of the Company at June 30, 2000 and the results of its
consolidated operations and cash flows for the period then ended have been
included. Operating results for the three-month period and six month period are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
Note B - Earnings Per Share
Basic earnings per share is computed based on the weighted average shares
outstanding. Diluted earnings per share is computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options and awards during the year. The following is a
reconciliation of basic to diluted earnings per share for the three months ended
and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Income Shares Per Share
<S> <C> <C> <C>
For the Three Months Ended June 30, 2000:
=========================================
Net income (Three Months Ended) $ 616,537
==========
Basic Earnings Per Share: $ 616,537 3,214,476 $ 0.19
========
Effect of dilutive securities:
Stock options 0 2,317
----------------------------
Diluted Earnings Per Share $ 616,537 3,216,793 $ 0.19
========
For the Six Months Ended June 30, 2000:
========================================
Net income (Six Months Ended) $1,224,281
==========
Basic Earnings Per Share: $1,224,281 3,249,308 $ 0.38
========
Effect of dilutive securities:
Stock options 0 1,159
----------------------------
Diluted Earnings Per Share $1,224,281 3,250,467 $ 0.38
========
For the Three Months Ended June 30,1999:
========================================
Net income (Three Months Ended) $ 607,588
==========
Basic and Diluted Earnings Per Share $ 607,588 3,460,503 $ 0.18
========= ========
For the Six Months Ended June 30,1999:
Net income (Three Months Ended) $1,212,666
==========
Basic and Diluted Earnings Per Share $1,212,666 3,462,073 $ 0.35
========= ========
</TABLE>
6
<PAGE>
Note C - Formation of Real Estate Investment Trust Subsidiary
On April 26, 1999, the Bank funded Oneida Preferred Funding Corp., a wholly
owned subsidiary corporation that will elect under Federal tax law to be treated
as a Real Estate Investment Trust (REIT). The REIT was initially funded with
$43.1 million of 1-4 family residential real estate loans and commercial real
estate loans. The REIT is expected to allow the Bank to more competitively price
real estate loans and provide other benefits in future periods. At June 30,
2000, the principal balance outstanding of real estate loans in the REIT totaled
$41.7 million.
Note D - Letter of Intent
On April 25, 2000, the Company announced that a Letter of intent has been
executed to acquire Bailey and Haskell Associates, Inc., an independent
insurance agency located n Central New York State. The agency provides a
diversified portfolio of insurance products and services to individuals and
businesses in Madison, Oneida, and Onondaga counties. The acquisition is
expected to be completed before the end of the year, subject to the execution of
a definitive purchase agreement and necessary regulatory approval.
Note E - Stock Compensation Plans
On April 25, 2000, shareholder approval was obtained for the acceptance of the
Oneida Financial Corp. 2000 Recognition and Retention Plan and the Oneida
Financial Corp. 2000 Stock Option Plan. The Plans authorize 83,238 and 166,475
shares respectively of the Company's common stock to be used for the purpose of
granting awards under the terms of the plans. Under the Recognition and
Retention Plan, the company issued 83,238 shares of stock in April 2000 of which
74,000 shares have been awarded. The Company recorded $884,404 in unearned
compensation expense to be recognized over the five year vesting period. As of
June 30, 2000, $26,000 has been expensed to date. The Stock Option plan has
awarded 150,500 shares of the authorized shares available in the Plan. All
options granted have a ten year term with the options vesting on a pro-rata
basis over a five year period. The exercise price of each option is $10.625 per
share, which was the closing market price of Oneida Financial Corp. common stock
on April 25, 2000 the date of the grant.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents Management's discussion and analysis of and
changes to the Company's consolidated financial results of operations and
condition and should be read in conjunction with the Company's financial
statements and notes thereto included herein.
When used in this quarterly report the words or phrases "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including, among other things, changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically declines any
obligation, to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL
On December 30, 1998 the Company completed its reorganization and
initial public stock offering providing a total of $15.9 million in additional
paid in capital. A total of 3,580,200 shares of common stock were issued of
which 1,915,445 shares were issued to Oneida Financial MHC the mutual holding
company parent of the Company. Approximately half of the net proceeds of the
stock offering were invested into the Bank.
The Company is the parent company of The Oneida Savings Bank (the
"Bank"). The Company conducts no business other than holding the common stock of
the Bank and general investment activities resulting from the capital raised and
retained in the initial public stock offering. Consequently, the net income of
the Company is primary derived from its investment in the Bank. The Bank's net
income is primarily dependent on its net interest income, which is the
difference between interest income earned on its investments in loans,
investment securities and mortgage-backed securities and its cost of funds
consisting of interest paid on deposits and borrowings. The Bank's net income is
also affected by its provision for loan losses, as well as by the amount of
other income, including income from fees and service charges, net gains and
losses on sales of investments and loans, and operating expenses such as
employee compensation and benefits, occupancy and equipment costs and income
taxes. Earnings of the Bank are also affected significantly by general economic
and competitive conditions, particularly changes in market interest rates, which
tend to be highly cyclical, and government policies and actions of regulatory
authorities, which events are beyond the control of the Bank.
RECENT DEVELOPMENTS
On April 26, 1999, the Bank funded Oneida Preferred Funding
Corp., a wholly owned subsidiary corporation that will elect under Federal tax
law to be treated as a Real Estate Investment Trust (REIT). The REIT was
initially funded with $43.1 million of 1-4 family residential real estate loans
and commercial real estate loans. The REIT is expected to allow the Bank to more
competitively price real estate loans and provide other benefits in future
periods. At June 30, 2000 the principal balance outstanding of real estate loans
in the REIT totaled $41.7 million.
The Bank continues employing a wholesale arbitrage strategy to
compliment traditional retail deposit and loan activities. The arbitrage
transactions have involved entering into borrowing transactions with the Federal
Home Loan Bank of New York ("FHLB") as a funding source for the purchase of
investment securities and mortgage-backed securities. At June 30, 2000 the Bank
had total borrowings of $64.3 million at an average cost of 6.16%. The Bank's
net income is enhanced through the positive spread between the borrowing rate
and investment returns.
On July 1, 1999 the Company commenced a 5% stock repurchase
program, representing 179,010 shares of common stock. The repurchase program was
completed during the first quarter of 2000 with 11,900 remaining shares
purchased. The average cost of the shares purchased in the program was $10.493
per share.
8
<PAGE>
On February 2, 2000 the Company commenced its second 5% stock
repurchase program, representing 170,000 shares of the Company's common stock.
The repurchase program is expected to be completed within six months. Through
June 30, 2000 a total of 103,139 shares were repurchased at an average price of
$10.916. The Company considers the common stock to be an attractive investment,
particularly in view of the current price at which the common stock is trading
relative to the Company's earnings per share, book value per share and market
and economic factors generally, as well as other factors.
On April 25, 2000 the Company announced that a Letter of Intent
had been executed to acquire Bailey and Haskell Associates, Inc. an independent
insurance agency located in Central New York State. The agency provides a
diversified portfolio of insurance products and services to individuals and
businesses in Madison, Oneida and Onondaga counties. The acquisition is expected
to be completed before the end of the year, subject to the execution of a
definitive purchase agreement and necessary regulatory approvals.
On April 25, 2000, shareholder approval was obtained for the
acceptance of the Oneida Financial Corp. 2000 Recognition and Retention Plan and
the Oneida Financial Corp. 2000 Stock Option Plan. The Plans authorize 83,238
and 166,475 shares respectively of the Company's common stock to be used for the
purpose of granting awards under the terms of the plans. Under the Recognition
and Retention Plan, the company issued 83,238 shares of stock in April 2000 of
which 74,000 shares have been awarded. The company recorded $884,404 in unearned
compensation expense to be recognized over the five year vesting period. As of
June 30, 2000, $26,000 has been expensed to date. The Stock Option plan has
awarded 150,500 shares of the authorized shares available in the Plan. All
options granted have a ten year term with the options vesting on a pro-rata
basis over a five year period. The exercise price of each option is $10.625 per
share, which was the closing market price of Oneida Financial Corp. common stock
on April 25, 2000 the date of the grant.
FINANCIAL CONDITION
ASSETS. Total assets at June 30, 2000 were $299.8 million, an
increase of $19.6 million from $280.2 million at December 31, 1999. The increase
in total assets was achieved through a balance of retail and wholesale banking
activities. Investment and mortgage-backed securities increased $11.2 million as
a result of the Bank's continuing leveraging strategies. Asset growth was also
supported by an increase of $10.8 million or 7.2% in net loans receivable.
Management has sought to increase the Bank's consumer and commercial business
loan portfolios with the intent of increasing the average yield on the Bank's
interest-earning assets. At June 30, 2000, total consumer and commercial
business loans increased by $5.8 million from December 31, 1999. The Bank also
increased its residential real estate loans by $4.0 as a result of the increased
demand for adjustable rate loan products in the current rate environment.
LIABILITIES. Total liabilities increased by $19.7 million or 8.2%
to $260.0 million at June 30, 2000 from $240.3 million at December 31, 1999. The
increase is primarily the result of an increase of $14.1 million in borrowings
as well as an increase of $5.9 million in total deposits. Of the increase, $5.1
million was in Money Market and Now accounts which are lower yielding deposit
products. The Bank's newest branch addition in Canastota, New York, which opened
in November 1999, has total deposits of $3.3 million as of June 30, 2000 with
$2.4 million in deposit growth during the first half of 2000.
STOCKHOLDERS' EQUITY. Total stockholders' equity at June 30, 2000
was $39.8 million, a decrease of $185,000 from $40.0 million at December 31,
1999. The decrease in stockholder's equity is primarily a result of management
efforts to effectively manage the Company's capital through a combination of
stock repurchases and dividends. The Company has acquired 115,049 additional
shares of its common stock, at an average price of $10.891 per share, since
December 31, 1999 resulting in an increase of $1.3 million in Treasury stock
held. The current stock repurchase program authorizes an additional 66,861shares
for purchase by the Company. The Company also paid its second semiannual
dividend at the rate of $0.16 resulting in an equity reduction of $546,000. The
decreases in stockholders' equity were partially offset by the addition of
after-tax net income and an increase in Accumulated Other Comprehensive Income
(Loss). Retained Earnings increased as the result of the addition of $1,224,0000
in after-tax net income for the six months ended June 30, 2000. Accumulated
Other Comprehensive Income (Loss) increased $363,000 from December 31, 1999
primarily as a result of a favorable adjustment in the net unrealized loss on
available for sale mortgage-backed and other investment securities due to
changes in the market interest rates at June 30, 2000 as compared with December
31, 1999. Changes in interest rates generally have an inverse impact on the
market value of the Company's investments and mortgage-backed securities
portfolios.
9
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on the
assets or liabilities.
AVERAGE BALANCE SHEET. The following tables set forth certain
information relating to the Company for the three and six months ended June 30,
2000 and 1999 and for the year ended December 31, 1999. For the periods
indicated, the dollar amount of interest income from average interest-earning
assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, is expressed in thousands of dollars and
percentages. No tax equivalent adjustments were made. The average balance is an
average daily balance.
TABLE 1. Average Balance Sheet. (Quarterly)
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------------------------------
2000 1999
-
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets: ( Dollars in Thousands )
------------------------
Loans Receivable $160,788 $3,361 8.36% $132,860 $2,677 8.06%
Investment Securities 122,534 2,002 6.54% 111,347 1,707 6.13%
Federal Funds 569 11 7.73 6,526 78 4.78%
Equity Securities 5,515 52 3.77% 3,544 32 3.61%
----- --- ----- ------ --- -----
Total Interest-earning Assets 289,406 5,426 7.50% 254,277 4,494 7.07%
-------- ------ ----- -------- ------ -----
Interest-bearing Liabilities:
Money Market Deposits $16,504 $137 3.32% $14,834 $120 3.24%
Savings Accounts 47,138 278 2.36% 48,088 270 2.25%
Interest-bearing Checking 8,579 38 1.77% 7,806 35 1.79%
Time Deposits 101,827 1,388 5.45% 102,321 1,375 5.38%
Borrowings 64,009 953 5.96% 30,567 401 5.25%
------- ---- ----- ------- ---- -----
Total Interest-bearing Liabs 238,057 2,794 4.69% 203,616 2,201 4.32%
-------- ------ ----- -------- ------ -----
Net Interest Income $2,632 $2,293
======= =======
Net Interest Spread 2.80% 2.75%
===== =====
Net Earning Assets $51,349 $50,661
======== ========
Net yield on average
Interest-earning assets 3.64% 3.61%
===== =====
Average interest-earning
assets to average
Interest-bearing liabs 121.57% 124.88%
======= =======
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended Dec. 31,
----------------------------------------
1999
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
------- ---- ----
<S> <C> <C> <C>
Interest-earning Assets:
------------------------
Loans Receivable $136,765 $11,358 8.30%
Investment Securities 104,294 6,757 6.48%
Federal Funds 6,565 323 4.92%
Equity Securities 3,709 144 3.88%
------ ---- -----
Total Interest-earning Assets 251,333 18,582 7.39%
-------- ------- -----
Interest-bearing Liabilities:
Money Market Deposits $14,985 $491 3.28%
Savings Accounts 45,824 1,094 2.39%
Interest-bearing Checking 7,890 143 1.81%
Time Deposits 103,018 5,488 5.33%
Borrowings 32,841 1,769 5.39%
------- ------ -----
Total Interest-bearing Liabs 204,558 8,985 4.39%
-------- ------ -----
Net Interest Income $9,597
======
Net Interest Spread 3.00%
=====
Net Earning Assets $46,775
=======
Net yield on average
Interest-earning assets 3.82%
=====
Average interest-earning
assets to average
Interest-bearing liabs 122.87%
=======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------------------
2000 1999
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets: (Dollars in Thousands)
------------------------
Loans Receivable $157,321 $6,541 8.32% $131,720 $5,440 8.26%
Investment Securities 119,202 3,855 6.47% 100,708 3,161 6.28%
Federal Funds 1,376 26 3.78% 8,667 203 4.68%
Equity Securities 5,256 103 3.92% 3,333 55 3.30%
----- ---- ----- ------ --- -----
Total Interest-earning Assets 283,155 10,525 7.43% 244,428 8,859 7.25%
-------- ------- ----- -------- ------ -----
Interest-bearing Liabilities:
Money Market Deposits $16,284 $269 3.30% $13,840 $221 2.13%
Savings Accounts 46,203 553 2.39% 47,138 545 2.31%
Interest-bearing Checking 8,449 76 1.80% 7,504 68 1.81%
Time Deposits 101,572 2,728 5.37% 101,921 2,781 5.46%
Borrowings 59,555 1,760 5.91% 22,965 603 5.25%
------- ------ ----- ------- ---- -----
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total Interest-bearing Liabs 232,063 5,386 4.64% 193,368 4,218 4.36%
-------- ------ ----- -------- ------ -----
Net Interest Income $5,139 $4,641
======= ======
Net Interest Spread 2.79% 2.89%
===== =====
Net Earning Assets $51,092 $51,060
======== =======
Net yield on average
Interest-earning assets 3.63% 3.80%
===== =====
Average interest-earning
Assets to average
Interest-bearing liabs 122.02% 126.41%
======= =======
</TABLE>
RESULTS OF OPERATIONS
GENERAL. Net income for the three months ended June 30, 2000
increased by $9,000 to $617,000 for the second quarter 2000 from $608,000 for
the three months ended June 30, 1999. Net income for the six months ended June
30, 2000 was $1.2 million, consistent with the reported net income for the six
months ended June 30, 1999. The increases were due primarily to an increase in
net interest income and decreases in other expenses and in the provision for
income taxes. The increases in income were partially offset by decreases in
other income and an increase in the provision for credit losses.
INTEREST INCOME. Interest Income increased by $932,000 or 20.7%,
to $5.4 million for the three months ended June 30, 2000 from $4.5 million for
three months ended June 30, 1999. For the six months ended June 30, 2000 total
interest income was $10.5 million, an increase of $1.7 million or 18.8% as
compared with the same period in 1999. The increase in interest income was
primarily derived from an increase in income on loans receivable of $684,000 for
the second quarter of 2000 and $1.1 million for the year to date. In addition,
income on investment and mortgage-backed securities increased $13,000 and
$177,000 for the three months ended and six months ended June 30, 2000
respectively. Dividend income on equity securities increased $302,000 for the
quarter and $565,000 year to date. Interest on federal funds decreased $67,000
for the second quarter 2000 and $176,000 year to date partially offsetting the
increases in interest income.
The increase in loan income is a result of an increase of $27.9
million in the average balance in loans receivable for the three months ended
June 30, 2000 as compared with the same period in 1999, as well as an increase
of 30 basis points in average yield earned, increasing from 8.06% at June 30,
1999 to 8.36% at June 30, 2000. Management's strategy is to emphasize the
origination of consumer and commercial business loans for retention in the
Bank's portfolio. Consumer and commercial business loans increased $5.8 million
during the first and second quarter 2000. In addition, the Bank has increased
the residential real estate portfolio by $3.1 year to date due to the increased
demand for adjustable rate loan products in the current rate environment.
Investment income increased as a result of an increase of $11.2
million in the average balance of investment and mortgage-backed securities for
the three month period ended June 30, 2000 as compared with the same period in
1999. The increase in investment income was also the result of an increase in
the average yield of investment securities of 41 basis points to 6.54% for the
period. For the six months ended June 30, 2000 the average balance of investment
and mortgage-backed securities increased $25.6 million with the average yield
increasing 19 basis points from 6.28% during the six month period in 1999 to
6.47% during the 2000 period.
Income on federal funds decreased during the three months ended
June 30, 2000 to $11,000 as compared with $78,000 for the 1999 period. The
decrease in income is due to a decrease of $6.0 million in the average balance
of federal funds. The decrease in the average balance was due to the temporary
investment of stock proceeds during the 1999 quarter resulting in a higher than
normal investment level and significant loan growth during 2000 quarter which
has employed excess cash.
INTEREST EXPENSE. Interest expense was $2.8 million for the three
months ended June 30, 2000; an increase of $591,000 or 26.9% from the same
period in 1999. The increase in interest expense is due to interest paid on
borrowed funds. The average balance outstanding in borrowings during the three
months ended June 30, 2000 was $64.0 million compared to $30.6 million for the
same period in 1999. Borrowed funds resulted in interest expense of $954,000 for
the second quarter of 2000 compared with $401,000 of interest expense on
borrowed funds for the 1999 period. Year to date interest expense on borrowed
funds has increased $1.2 million from $603,000 during the six months ended June
30, 1999 to $1.8 million for the 2000 period. Interest expense on deposits
increased by $38,000 for the three months ended June 30, 2000 to $1.8 million,
an increase of 2.1%. The increase in interest expense on deposits was due to a
24 basis point increase in the average rate paid on deposits for the second
quarter 2000 and an increase in the average balance on deposit accounts of $1.0
million. The average balance of deposits for the six months ended June 30, 2000
increased $2.1 million as compared with the same period of 1999, resulting in an
increase in interest expense partially offset by a decrease of 5 basis points in
the average rate paid on deposits during the 2000 period.
11
<PAGE>
PROVISION FOR CREDIT LOSSES. Total provisions for credit losses
for the three months ended June 30, 2000 were $84,000 as compared to $45,000
made during the same period of 1999. The allowance for credit losses was $1.6
million or 0.99% of loans receivable at June 30, 2000 as compared with $1.5
million or 1.16% of loans receivable at June 30, 1999. Although the allowance
for loan losses has decreased, non-performing assets have also decreased
representing 0.07% of total assets at June 30, 2000 compared with 0.32% of total
assets at June 30, 1999. Management continues to monitor changes in the loan
portfolio mix in response to the redirection of loan asset origination and
retention toward consumer and commercial business loans. The method utilized to
evaluate adequacy of the allowance level accounts for the higher relative degree
of credit risk associated with this activity as compared with traditional
residential real estate lending.
OTHER INCOME. Other operating income decreased by $381,000 for
the three month period ending June 30, 2000 compared with the same period in
1999 to $102,000 from $483,000. This was primarily due to the recognition of
gains and losses upon the sale of certain investment securities during the two
periods. Losses of $149,000 were recognized during the 2000 period as lower
yielding securities were sold and reinvested at higher current rates of return.
During the 1999 period, security gains of $280,000 were recognized. Other income
adjusted to eliminate investment gains and losses increased to $251,000 during
the quarter ended June 30, 2000 compared with $203,000 for the quarter ended
June 30, 1999
OTHER EXPENSES. Operating and other expenses decreased by $54,000
or 2.9%, to $1.8 million for the three months ended June 30, 2000 from $1.9
million for the same period in 1999. The decrease is primarily the result of
$84,000 in expenses recognized for the establishment of a real estate subsidiary
during the 1999 period. Other operating expenses increased $241,000 for the six
months ended June 30, 2000 as compared with the same period of 1999. The
increase was primarily due to an increase of $246,000 in compensation and
benefits expense due in part to the timing of recording certain payroll related
expenses and the opening in November 1999 of the Bank's sixth full-service
banking office located in Canastota, New York.
INCOME TAX. Income tax expense was $236,000 for the three months
ended June 30, 2000, a decrease of $34,000 from the second quarter 1999
provision of $270,000. The effective tax rate decreased to 28.6% for 2000 to
date from 35.2% for the six months of 1999 as the Company has employed various
strategies to reduce the tax burden in this and future periods.
ONEIDA FINANCIAL CORP.
SELECTED FINANCIAL RATIOS
At and for the Three Months Ended and Six Months Ended June 30, 2000 and June
30, 1999(unaudited)
(annualized where appropriate)
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
June 30, June 30,
2000 1999 2000 1999
----- ----- ---- ----
<S> <C> <C> <C> <C>
Performance Ratios:
Return on average assets 0.81% 0.92% 0.83% 1.01%
Return on average equity 6.27% 5.62% 6.22% 5.55%
Net interest margin
3.64% 3.61% 3.63% 3.80%
Efficiency Ratio 62.36% 59.75% 64.38% 66.90%
Ratio of operating expense
to average total assets 2.37% 2.80% 2.45% 2.69%
Ratio of average interest-earning assets
to average interest-bearing liabilities 121.57% 124.88% 122.02% 126.41%
Asset Quality Ratios:
Non-performing assets to total assets 0.07% 0.33% 0.07% 0.33%
Allowance for loan losses
to non-performing loans 1,382.61% 249.04% 1,382.61% 249.04%
Allowance for loan losses
to loans receivable, net 0.99% 1.16% 0.99% 1.16%
Capital Ratios:
Total shareholders' equity to total assets 13.27% 15.67% 13.27% 15.67%
Average equity to average assets 12.99% 16.37% 12.99% 16.37%
</TABLE>
12
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Various forms of market risk are inherent in the business of the
Bank including concentration risk, liquidity management, credit risk and
collateral risk among others. However, the Bank's most significant form of
market risk is interest rate risk, as the majority of the Bank's assets and
liabilities are sensitive to changes in interest rates. Ongoing monitoring and
management of this risk is an important component of the Company's asset and
liability management process. The Bank's interest rate risk management program
focuses primarily on evaluating and managing the composition of the Bank's
assets and liabilities in the context of various interest rate scenarios.
Factors beyond Management's control, such as market interest rates and
competition, also have an impact on interest income and interest expense. For a
discussion of the Company's asset and liability management policies as well as
the potential impact of interest rate changes upon the earnings of the Company,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1999 Annual Report to Stockholders. There has been
no material change in the Company's risk profile since December 31, 1999.
13
<PAGE>
ONEIDA FINANCIAL CORP.
AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
The Company and its subsidiary are not involved in any
litigation, nor is the Company aware of any pending litigation, other than legal
proceedings incident to the business of the Company, such as foreclosure actions
filed on behalf of the Company. The Oneida Indian Nation (the "Oneidas")
continues to pursue their land claim over 270,000 acres on Central New York
State which includes much of the Bank's market area. To date neither the
original claim nor the amended motion has had an adverse impact on the local
economy or real property values. Both the State of New York and the Oneidas have
indicated in their respective communications that individual landowners will not
be adversely affected by the ongoing litigation. Neither the Company nor the
Bank is a named defendant in the pending motion. Management, therefore, believes
the results of any current litigation would be immaterial to the consolidated
financial condition or results of operation of the Company.
Item 2 Changes in Securities
None
Item 3 Default Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders, held on
April 25, 2000, shareholders voted on the following matters as follows;
Proposal No.1 - Election of Directors;
For Withheld
--- --------
Nicholas J. Christakos 3,006,300 8,100
Patricia D. Caprio 3,004,550 9,850
Frank O. White, Jr. 2,989,084 25,316
Proposal No.2 - Oneida Financial Corp. 2000 Stock Option Plan:
For Against Abstain
--- ------- -------
2,766,967 20,850 5,403
Proposal No.3 - Oneida Financial Corp. 2000 Recognition and Retention Plan:
For Against Abstain
--- ------- -------
2,761,992 25,750 5,478
Proposal No.4 - Ratification of PricewaterhouseCoopers, LLP as auditors for the
Company for the fiscal year ended December 31, 2000;
For Against Abstain
--- ------- -------
3,008,522 3,300 2,578
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) All required exhibits are included in Part
I under Consolidated Financial Statements,
Notes to Unaudited Consolidated Financial
Statements and Management's Discussion and
Analysis of Financial Condition and Results of
Operations, and are incorporated by reference,
herein.
(b) Exhibits
(27) Financial Data Schedule
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
ONEIDA FINANCIAL CORP.
Date: August 9, 2000 By: /s/ Michael R. Kallet
-------------------------------------
Michael R. Kallet
President and Chief Executive Officer
Date: August 9, 2000 By: /s/ Eric E. Stickels
-------------------------------------
Eric E. Stickels
Senior Vice President and Chief
Financial Officer
15
