SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-QSB
-----------------------------------------
|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 _______________
COMMISSION FILE NUMBER 000-30140
-----------------------------------------
OSWEGO COUNTY BANCORP, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 16-1567491
--------------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
44 EAST BRIDGE STREET, OSWEGO, NEW YORK 13126
--------------------------------------------- ------------------
(Address of principal executive office) (Zip Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
Registrant's telephone number, including area code: (315) 343-4100
----------------------
Number of shares of common stock outstanding
as of June 30, 2000
Class Outstanding
COMMON STOCK, $.01 PAR VALUE 893,824
---------------------------- -------
<PAGE>
OSWEGO COUNTY BANCORP, INC.
FORM 10-QSB
INDEX
Part I - FINANCIAL INFORMATION PAGE
Item 1 - Financial statements (unaudited):
Condensed Consolidated Statements of Financial
Condition at June 30, 2000 and December 31,
1999 1
Condensed Consolidated Statements of Income
for the three and six month periods ended June 30,
2000 and June 30, 1999 2
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 2000
and June 30, 1999 3
Notes to Unaudited Condensed Consolidated
Financial Statements 4-6
Item 2 - Management's Discussion and Analysis 6-14
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities and Use of Proceeds 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security
Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Financial Condition
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(thousands, except per share data) (unaudited)
June 30, December 31,
2000 1999
--------- --------
Assets
<S> <C> <C>
Cash and due from banks $ 5,753 6,450
Securities available for sale, at fair value 20,824 20,834
Securities held to maturity, fair value of $15,217 in 2000
and $15,829 in 1999 15,695 16,307
Loans 79,973 73,098
Allowance for loan losses (1,070) (1,069)
--------- --------
Loans, net 78,903 72,029
Real estate owned 62 255
Premises and equipment, net 3,147 3,056
Accrued interest receivable 1,001 938
Life insurance owned 4,314 --
Other assets 1,813 2,980
--------- --------
Total assets $ 131,512 122,849
========= ========
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Deposits:
Demand $ 14,773 13,329
Savings and money market 50,970 49,000
Time 39,357 37,789
--------- --------
Total deposits 105,100 100,118
Escrow deposits 887 1,286
Short-term borrowings 450 900
Long-term debt 9,000 5,000
Other liabilities 1,817 1,326
--------- --------
Total liabilities 117,254 108,630
Shareholders' equity:
Preferred stock, $0.01 par value, 500,000 shares
authorized, no shares issued -- --
Common stock, $0.01 par value, 3,000,000 shares
authorized, 893,824 issued in 2000; 887,230 in 1999 9 9
Additional paid-in capital 3,241 3,182
Retained earnings 11,962 11,764
Accumulated other comprehensive income (loss) (502) (498)
Restricted common stock, 6,264 shares (56) --
Unallocated common stock held by Employee Stock
Plan (ESOP), 28,325 shares in 2000; 24,284 in 1999 (274) (238)
Treasury stock (13,500 shares), at cost (122) --
--------- --------
Total shareholders' equity 14,258 14,219
Total liabilities and shareholders' equity $ 131,512 122,849
========= ========
</TABLE>
See accompanying notes to unaudited, condensed consolidated financial
statements.
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income
Quarters and six-month periods ended June 30, 2000 and 1999
(thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------- ---------------
2000 1999 2000 1999
------- ----- ------ -----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,607 1,449 $ 3,146 2,887
Securities 588 455 1,162 855
Federal funds sold and other 32 35 45 69
------- ----- ------ -----
Total interest income 2,227 1,939 4,353 3,811
Interest expense:
Deposits and escrow accounts 852 778 1,654 1,549
Borrowings 137 -- 215 --
------- ----- ------ -----
Total interest expense 989 778 1,869 1,549
Net interest income 1,238 1,161 2,484 2,262
Provision for loan losses 15 30 30 60
------- ----- ------ -----
Net interest income after provision 1,223 1,131 2,454 2,202
Noninterest income:
Service charges 264 103 507 193
Net gains (losses) on securities sales -- -- (13) 8
Other 111 13 131 31
------- ----- ------ -----
Total noninterest income 375 116 625 232
Noninterest expenses:
Salaries and employee benefits 622 495 1,200 973
Occupancy and equipment 236 180 456 344
Information technology 153 103 243 189
Professional fees 152 55 303 102
Office supplies, printing and postage 56 50 117 94
Marketing and advertising 52 32 88 54
Director fees 27 30 69 61
Real estate owned, net (2) 19 (9) 44
Other 179 55 297 120
------- ----- ------ -----
Total noninterest expenses 1,475 1,019 2,764 1,981
Income before income taxes 123 228 315 453
Income tax expense 26 81 89 164
------- ----- ------ -----
Net income $ 97 147 $ 226 289
======= ===== ====== =====
Basic and diluted earnings per share $ 0.11 (a) $ 0.26 (a)
</TABLE>
(a) Not applicable prior to the Company's July 13, 1999 conversion from mutual
to stock form.
See accompanying notes to unaudited, condensed consolidated financial
statements.
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
(thousands; unaudited) Six months ended June 30,
2000 1999
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 226 289
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 30 60
Net amortization on securities 12 19
Net (gains) losses on securities sales 13 (8)
Net (gain) on sale of real estate owned (18) --
ESOP and restricted stock expense 17 --
Depreciation 200 143
Change in:
Accrued interest and other assets 1,073 (473)
Escrow deposits (399) (382)
Other liabilities 491 337
-------- ------
Net cash provided by (used in) operating activities 1,645 (15)
Cash flows from investing activities:
Proceeds from maturity of and principal collected on
securities available for sale -- 6,956
Proceeds from sale of securities available for sale 987 --
Proceeds from maturity of and principal collected on
securities held to maturity 604 2,371
Purchases of securities available for sale (1,000) (7,989)
Purchases of securities held to maturity -- (4,316)
Net loan originations and principal collections (7,014) 284
Proceeds from sale of real estate owned 321 28
Purchases of premises and equipment, net of disposals (291) (187)
Purchases of life insurance (4,281) --
-------- ------
Net cash (used in) investing activities (10,674) (2,853)
Cash flows from financing activities:
Net increase in demand, savings, money market deposits 3,414 6,047
Net increase (decrease) in time deposits 1,568 (213)
Net (decrease) in short-term borrowings (450) --
Increase in long-term borrowings 4,000 --
Purchase of common stock by ESOP (50) --
Purchases of treasury stock (122) --
Dividends on common stock (28) --
-------- ------
Net cash provided by financing activities 8,332 5,834
Net increase (decrease) in cash and cash equivalents (697) 2,966
Cash and cash equivalents at beginning of year 6,450 6,607
-------- ------
Cash and cash equivalents at end of period $ 5,753 9,573
======== ======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1,828 1,546
Income taxes 55 100
Non-cash investing and financing activities:
Fair value change, securities available for sale (7) (445)
Transfer of loans to real estate owned 110 81
</TABLE>
See accompanying notes to unaudited, condensed consolidated financial
statements.
<PAGE>
OSWEGO COUNTY BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2000
(1) Basis of presentation
The accompanying condensed consolidated financial statements include the
accounts of Oswego County Bancorp, Inc. (OCB or the Company) and its
wholly owned subsidiary, Oswego County Savings Bank (OCSB or the Bank).
All significant intercompany balances and transactions have been
eliminated in consolidation. The statements were prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. However, in the opinion of
management, all material adjustments necessary for fair presentation,
consisting of normal accruals and adjustments, have been made in the
accompanying statements. The results of operations for the interim periods
presented should not be considered indicative of results that may be
expected for an entire fiscal year. The accompanying financial statements
are intended to be read in conjunction with the Company's audited
financial statements and footnotes for the year ended December 31, 1999.
(2) 1999 Reorganization and initial public offering
Prior to July 13, 1999, the Bank operated as a mutually owned, state
chartered savings bank. To facilitate the institution's conversion to
stock form, both a mutual holding company and bank holding company were
formed in mid 1999. Under the reorganization, the Bank became a wholly
owned subsidiary of Oswego County Bancorp, Inc. which in turn became a
subsidiary of Oswego County MHC (MHC). On July 13, 1999, 399,500 shares of
the Company's common stock were sold in an initial public offering, and
15,980 shares were contributed to the Oswego County Charitable Foundation.
Net proceeds from the offering amounted to approximately $3.0 million, and
MHC retained a majority interest (471,750 shares) in the Company. An
Employee Stock Ownership Plan (ESOP) was also formed, and it acquired
31,960 shares of the Company's common stock through January 2000. The ESOP
has no immediate plans to acquire additional shares.
(3) Earnings per share
Basic and diluted earnings per share are calculated by dividing net income
available to common shareholders by the weighted average number of shares
outstanding (852.0 and 854.8 thousand, respectively) during the three- and
six-month periods ended June 30, 2000. No dilutive common stock
equivalents were outstanding during either period.
-4-
<PAGE>
(4) Comprehensive income (loss)
The components of comprehensive income (loss) for the three and six-month
periods ended June 30, 2000 and 1999 are as follows.
<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
(thousands) 2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 97 147 $ 226 289
Other comprehensive income, net of taxes:
Change in net unrealized loss on
securities available for sale 21 (211) (12) (262)
less: Reclassification adjustment for
securities (gains) losses
included in net income -- -- 8 (5)
------------ ------------ ------------ ------------
Total other comprehensive income (loss) 21 (211) (4) (267)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ 118 (64) $ 222 22
============ ============ ============ ============
</TABLE>
(5) Certain second quarter 2000 events
At its April 20, 2000 annual meeting of shareholders, the Company
announced its first dividend of $.03 per share payable on or about May
15th. OCB intends to consider the payment of dividends on a quarterly
basis, and declared its second $.03 dividend on July 20, 2000, payable on
or about August 14th to shareholders of record as of July 28, 2000.
A limited share buyback program was also announced on April 20th, covering
up to 5% of the Company's outstanding common stock, subject to market
conditions. Through July 2000, 13,500 shares were repurchased.
At the annual meeting, shareholders approved stock option and restricted
stock plans for the Company covering aggregate grants of up to 39,950 and
11,985 shares, respectively. Stock options granted must have an exercise
price equal to the fair market value of the shares on the date of grant,
vesting over a period to be established at the time of grant and expiring
no later than ten years following the grant date. As a result of
shareholder approval of the stock option plan, grants to directors and
employees totaling 33,971 shares at an exercise price of $8.875 per share
were effective as of March 16, 2000.
Under the restricted stock plan, 6,594 newly issued shares were awarded to
directors, effective March 16, 2000, under terms that provide for
restrictions on transferability and assignability to lapse at the rate of
20% per year, with the first such lapse occurring in March 2001. The cost
of the shares, which is equal to the market value of OCB stock on the
grant date ($8.875 per share), is presented as a reduction of
shareholders' equity. Such cost is amortized as compensation expense over
the five-year period during which restrictions lapse.
-5-
<PAGE>
At the April meeting, shareholders also approved a reduction in the number
of authorized shares of preferred and common stock to 500,000 and
3,000,000 shares, respectively. The reduced number of authorized shares is
expected to meet the Company's requirements in the foreseeable future and
will correspondingly reduce certain franchise taxes.
In April 2000, the Bank borrowed $4.0 million from the Federal Home Loan
Bank of New York for a term of five years at a 7.15% rate of interest.
OCSB utilized the funds to support asset growth, including the purchase of
life insurance contracts.
(6) New accounting pronouncement
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 entitled "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement No. 133." Statement 138 addresses a limited number of
issues that were causing difficulties for entities in the process of
implementing Statement 133, the standard establishing new accounting and
reporting requirements for derivative instruments and hedging activities.
Item 2. Management's Discussion and Analysis
FINANCIAL CONDITION: The total assets of Oswego County Bancorp (the Company or
OCB) increased by $8.7 million or 7.1% during the six-month period ended June
30, 2000. Asset growth was funded with a $5.0 million increase in deposits and
$4.0 million in new long-term borrowings. Shareholders' equity of $14.3 million
at June 30, 2000 was virtually unchanged from December 31, 1999.
Total investment securities decreased slightly (1.7%) during the six-month
period due to the sale and maturity of a limited number of issues. The
composition of OCB's securities portfolios is summarized below.
<TABLE>
<CAPTION>
June 30, December 31,
(thousands) 2000 1999
------------ ------------
<S> <C> <C>
Securities available for sale (fair value)
-----------------------------
U.S. Government agency bonds $ 20,192 20,202
Federal Home Loan Bank and other capital stock 632 632
------------ ------------
20,824 20,834
Securities held to maturity (amortized cost)
---------------------------
U.S. Government agency bonds 4,996 4,995
Corporate bonds 4,234 4,490
Municipal securities 3,678 3,681
Mortgage-backed securities 2,787 3,141
------------ ------------
15,695 16,307
Total securities $ 36,519 37,141
============ ============
</TABLE>
-6-
<PAGE>
Loans increased by $6.9 million or 9.4% during the first half of 2000 as the
Company added $3.3 million of residential mortgages, $1.0 million of commercial
mortgage loans and $2.4 million of commercial business loans. Residential loans
were generated by the Company's retail banking offices and through purchases of
newly originated loans from a real estate firm operating in a nearby community
outside OCB's primary market area. The purchased residential loans were
underwritten by the Company under its normal credit standards. As a result of
commercial loan originations during the first half of 2000, commercial business
loans now account for 10.4% of the total loan portfolio. Such loans typically
carry higher rates of interest than certain other loan products, and many of the
loans carry interest rates that vary with changes in the prime rate. Loan
balances by category are presented in the table that follows.
<TABLE>
<CAPTION>
Loans
----- June 30, December 31,
(thousands) 2000 1999
-------------- ---------------
<S> <C> <C>
Residential mortgage
and home equity $ 58,867 55,594
Commercial mortgage 8,877 7,857
Commercial 8,279 5,903
Consumer 3,950 3,744
-------------- ---------------
Total loans $ 79,973 73,098
============== ===============
</TABLE>
OCB purchased life insurance policies on the lives of its directors during the
first six months of 2000 for $4.3 million. The policies provide the Company with
non-taxable income through anticipated increases in cash values.
The Company's deposits increased by $5.0 million or 5.0% in the first half of
2000, reflecting the continued growth of OCB's newly opened (in August 1999)
North Syracuse branch office and success in generating customer deposits from
its four established locations. The institution has been able to improve upon
its base of core deposits that continues to be strong relative to peers in its
industry.
In April of the current year, OCB borrowed $4.0 million from the Federal Home
Loan Bank of New York for a term of five years and for a 7.15% fixed rate of
interest.
OCB's overall equity position at the midpoint of 2000 approximated the Company's
total equity at December 31, 1999. An increase in retained earnings produced by
net income was offset by dividends and by the purchase of 13,500 common shares
for treasury and 5,500 shares for the Company's employee stock ownership plan.
While no further purchases are planned at this time for the ESOP, OCB's Board of
Directors has authorized the purchase of approximately 30,900 additional common
shares for treasury, subject to market conditions.
OCB has continued to benefit from actions in recent years designed to improve
credit quality and to resolve problem loan situations. In the first half of
2000, nonperforming
-7-
<PAGE>
assets were further reduced to 1.12% of total assets, down
from 1.28% at year-end 1999. At the same time, OCB's allowance for loan losses
has been maintained approximately equal to the year-end level. A summary of the
Company's nonperforming assets and related ratios follows.
<TABLE>
<CAPTION>
Nonperforming assets June 30, December 31,
-------------------- 2000 1999
(dollars in thousands) --------------- --------------
<S> <C> <C>
Nonaccrual loans $ 1,162 1,064
Restructured loans 250 250
--------------- --------------
Nonperforming loans 1,412 1,314
Other real estate 62 255
--------------- --------------
Nonperforming assets $ 1,474 1,569
=============== ==============
Nonperforming assets
to total assets 1.12% 1.28%
Allowance for loan losses
to nonperforming loans 75.78% 81.35%
</TABLE>
While management views recent experience with respect to nonperforming assets to
be favorable, future experience will be affected by regional and national
economic conditions, underwriting judgments and business and personal factors
affecting the Bank's customers. Although management considers the Bank's loan
loss allowance to be adequate, similar factors will determine the adequacy of
the allowance in future periods. In addition, banking regulators' judgments
regarding the adequacy of the allowance may differ from management's and further
additions may be required.
FIRST-HALF OPERATING RESULTS: Net income amounted to $226 thousand in the first
half of 2000, compared to $289 thousand in the first six months of 1999. While
total revenues improved by 23.1%, expense increases attributable to a branch
opening in mid 1999, facility and computer system enhancements, and costs of
operating as a publicly held company produced an overall reduction in earnings
as compared to the prior year. Return on equity was 3.19% in the first half of
2000 versus 4.94% in the year earlier period. Return on assets amounted to 0.36%
in 2000 compared to 0.52% in the 1999 period.
The $222 thousand improvement in net interest income between the two first-half
periods was achieved through growth in earning assets and by increasing the
excess of earning assets over interest-bearing liabilities. The Company's
interest rate spread in the first half of 2000, 3.71%, was .08% lower than in
1999 due to utilizing borrowings as a funding source in the current year.
Borrowings typically carry higher rates than many deposit products but may be
employed profitably to fund asset growth. Such growth may produce greater net
interest income even though the overall spread percentage is reduced.
Additionally, OCB's interest rate spread tends to benefit in a rising rate
-8-
<PAGE>
environment, such as experienced in 2000, from its substantial portfolios of
adjustable rate loans and from a significant volume of savings accounts that are
less sensitive to interest rate movements. Excluding the effect of borrowings,
the spread between average rates on the Company's earning assets and
interest-bearing deposits increased during the first half of 2000.
Growth in earning asset balances since the year-ago six-month period played a
large part in the increase experienced in net interest income. Average loan
balances rose by $3.5 million as commercial loans increased from $0.4 million in
1999 to $7.1 million in the 2000 period. That increase was partially offset by
lower average residential mortgage loan balances which decreased from $59.6
million in 1999 to $56.1 million in 2000, as customers paid off and refinanced
adjustable rate mortgages in the relatively low interest rate environment
prevalent in early and mid-1999.
Subsequent to the first half of 1999, OCB added $9.0 million, on average, to its
investment securities portfolios. OCB's portfolio of U.S. Government agency
securities that are classified as available for sale increased by $7.1 million
between the first half of 1999 and the same period in 2000. The Company also
added to its municipal bond holdings during the year, increasing that portfolio
from $2.2 million in the 1999 period, on average, to $3.7 million in 2000.
Asset growth during the past year was funded with stock offering proceeds ($3.0
million), deposit growth ($4.1 million) and $6.9 million in average borrowings
from the Federal Home Loan Bank of New York. OCB's net interest income has
benefited from higher average levels of demand and savings deposits which
increased by $3.2 million from the first half of 1999 to the same period in
2000. Such deposits are desirable because they tend to promote ongoing customer
relationships and because they generally carry lower or no rates of interest.
The Company attributes deposit growth during the past year to OCB's new branch
office in North Syracuse and to the development and promotion of deposit
products. A further analysis of changes in net interest income is provided in
the table that follows.
-9-
<PAGE>
NET INTEREST INCOME, RATES AND BALANCES
Six Months Ended June 30,
-------------------------
<TABLE>
<CAPTION>
Interest Yields/Rates Average balances
----------------------- ---------------------- ----------------------
(dollars in thousands) 2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, gross (a) $ 3,146 2,887 8.38% 8.11% $ 75,286 71,803
Securities, at amortized cost 1,162 855 6.20% 6.03% 37,615 28,614
Federal funds sold & other 45 69 6.37% 4.08% 1,416 3,408
---------- ---------- --------- --------- ---------- ---------
Total interest earning assets 4,353 3,811 7.64% 7.40% 114,317 103,825
Noninterest earning assets 10,785 7,855
---------- ---------
Total assets $ 125,102 111,680
Interest bearing liabilities:
Savings, now, money market (b) 631 592 2.54% 2.45% $ 49,853 48,696
Time deposits 1,023 957 5.30% 5.10% 38,720 37,865
Borrowings 215 6.28% 6,861
---------- ---------- --------- --------- ---------- ---------
Total interest bearing liabilities 1,869 1,549 3.93% 3.61% 95,434 86,561
Noninterest bearing deposits 13,855 11,810
Other noninterest liabilities 1,615 1,505
---------- ---------
Total liabilities 110,904 99,876
Shareholders' equity 14,198 11,804
---------- ---------
Total liabilities & equity $ 125,102 111,680
Net interest income $ 2,484 2,262
Excess of earning assets
over interest bearing liabilities $ 18,883 17,264
Interest rate spread 3.71% 3.79%
Net interest margin (c) 4.36% 4.39%
(a) Includes nonaccruing loans.
(b) Includes escrow deposits.
(c) Net interest income divided by average interest-earning assets.
(d) No tax equivalent adjustments were made.
</TABLE>
The provision for loan losses represents the amount added to the related
allowance to maintain a level sufficient to absorb losses inherent in the loan
portfolios. Based on improvement in the quality of the portfolios during the
past year, the provision in the first half of 2000 was decreased to $30 thousand
from $60 thousand in the comparable period of the prior year. Net charge-offs
have been reduced since the prior year period, amounting to $29 thousand in the
first half of 2000. Further information regarding the allowance for loan losses
is provided in the table below.
-10-
<PAGE>
<TABLE>
<CAPTION>
Allowance for loan losses
------------------------- Six months ended June 30,
(thousands) 2000 1999
------------- -------------
<S> <C> <C>
Balance, beginning of period $ 1,069 1,068
Provision for loan losses 30 60
Charge-offs (66) (56)
Recoveries 37 12
------------- -------------
Balance, end of period $ 1,070 1,084
============= =============
Net charge-offs (annualized) to average loans 0.08% 0.12%
Allowance to ending loans 1.34% 1.51%
</TABLE>
Service charge income increased to $507 thousand in the first half of 2000 from
$193 thousand in the 1999 period. The Company has been attempting to increase
revenues from noninterest sources and has obtained this 163% improvement by
enhancing services available primarily to deposit customers and by revising fee
structures for existing services. In concert with others in the industry, OCB
has also attempted to limit the utilization of fee waivers. One program
available to demand deposit customers permits processing aggregate overdrafts of
up to $300 for a per-check fee. This program has resulted in higher fee revenue
and also has generated a lesser increase in charge-offs related to overdrafts
not made good by customers. Such charge-offs are included in operating expenses.
Total operating expenses rose from $2.0 million in the first half of 1999 to
$2.8 million in 2000. This 39.5% increase reflects the opening of a fifth branch
office in August of 1999, the ongoing cost of equipment and software upgrades
associated with year 2000 enhancements, and professional fees and other costs
relating to OCB's activities as a publicly held entity. The Company's initial
public offering was completed in July 1999. Furthermore, certain facility
improvements designed to enhance the attractiveness to customers and the
efficiency of facilities were completed in 1999, producing higher levels of
depreciation expense in the current year. Consistent with the reduction in
problem real estate loans and assets, the net cost of carrying and disposing of
foreclosed properties decreased to a credit of $9 thousand in the year 2000
six-month period from expense of $44 thousand in 1999.
OCB's income tax expense decreased in the first half of 2000 to $89 thousand
from $164 thousand in the 1999 period. This 45.7% decrease was the result of a
30.5% decrease in pretax income and the effect of holding a larger portfolio of
tax exempt municipal securities in the current year. Furthermore, earnings on
life insurance policies purchased in 2000 are non-taxable.
-11-
<PAGE>
SECOND QUARTER OPERATING RESULTS: The Company earned $97 thousand in the second
quarter of 2000, compared to $147 thousand in the year-ago quarter. Net interest
income improved and noninterest revenues grew significantly, while operating
expenses were also substantially higher.
The 6.6% increase in net interest income resulted mainly from $10.8 million of
growth in OCB's average earning assets. The loan portfolio advanced by $4.8
million while investment securities were $7.8 million higher. The Company has
continued to add to its commercial loan portfolio, increasing it from $0.4
million on average in the 1999 quarter to $7.7 million in the most recent
quarter. The residential mortgage portfolio was $2.2 million lower than in the
second quarter of 1999, reflecting somewhat elevated prepayment levels in
early-to-mid 1999. While the spread between average interest rates on earning
assets and deposits increased in comparison to the prior year quarter, the
Company's overall spread decreased by 0.15% to 3.67% due to the addition of
borrowings as a funding source. Long-term borrowings at June 30, 2000 totaled
$9.0 million, including a $4.0 million advance obtained from the Federal Home
Loan Bank of New York in April of the current year. Additional information
regarding the components of OCB's net interest income, spread and margin is
presented in the table below.
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<PAGE>
NET INTEREST INCOME, RATES AND BALANCES
Quarter Ended June 30,
----------------------
<TABLE>
<CAPTION>
Interest Yields/Rates Average balances
----------------------- ---------------------- ----------------------
(dollars in thousands) 2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, gross (a) $ 1,607 1,449 8.42% 8.01% $ 76,527 71,730
Securities, at amortized cost 588 455 6.29% 6.15% 37,473 29,669
Federal funds sold & other 32 35 6.53% 3.69% 1,965 3,805
---------- ---------- --------- --------- ---------- ---------
Total interest earning assets 2,227 1,939 7.70% 7.39% 115,965 105,204
Noninterest earning assets 12,302 8,103
---------- ---------
Total assets $ 128,267 113,307
Interest bearing liabilities:
Savings, now, money market (b) 324 306 2.57% 2.47% $ 50,589 49,598
Time deposits 528 472 5.41% 5.01% 39,148 37,822
Borrowings 137 6.44% 8,527
---------- ---------- --------- --------- ---------- ---------
Total interest bearing liabilities 989 778 4.04% 3.57% 98,264 87,420
Noninterest bearing deposits 14,063 12,453
Other noninterest liabilities 1,728 1,584
---------- ---------
Total liabilities 114,055 101,457
Shareholders' equity 14,212 11,850
---------- ---------
Total liabilities & equity $ 128,267 113,307
Net interest income $ 1,238 1,161
Excess of earning assets
over interest bearing liabilities $ 17,701 17,784
Interest rate spread 3.67% 3.82%
Net interest margin (c) 4.28% 4.43%
(a) Includes nonaccruing loans.
(b) Includes escrow deposits.
(c) Net interest income divided by average interest-earning assets.
(d) No tax equivalent adjustments were made.
</TABLE>
Noninterest income increased by 223% in the recent quarter as compared to the
year-ago period mainly due to incremental service charge revenue derived from
deposit customers. Part of the increase was generated from checking account
customers' utilization of an overdraft privilege that was expanded in early
2000. Earnings from life insurance contracts purchased by the Company, mainly in
the second quarter of 2000, are also included in the noninterest income
category.
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<PAGE>
Operating expenses increased from $1.0 million in the second quarter of 1999 to
$1.5 million in the current year quarter. As discussed with respect to the
six-month period, the increase reflects the addition of a fifth branch office,
facility and system upgrades during the past year, charge-offs relating to the
overdraft checking product and incremental costs of operating as a public
company.
The effective rate of income taxes decreased in the most recent quarter as
compared to the second quarter of 1999 due to an increase in tax exempt
securities and the addition of life insurance policies that produce non-taxable
income. The effective rates were 21.1% in 2000 and 35.5% in the 1999 quarter.
FORWARD-LOOKING STATEMENTS: The preceding discussion contains certain
forward-looking statements based on current expectations, estimates and
projections about the Company's industry, and management's beliefs and
assumptions. Words such as anticipates, expects, intends, plans, believes,
estimates and variations of such words and expressions are intended to identify
forward-looking statements. Such statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to forecast. Therefore, actual results may differ materially from
those expressed or forecast in such forward-looking statements. OCB undertakes
no obligation to update publicly any forward-looking statements, whether as a
result of new information or otherwise.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
None
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial data schedule
(27.1) Financial data schedule, filed herewith.
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended June 30,
2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OSWEGO COUNTY BANCORP, INC.
Date: August 11, 2000 By: /s/ Gregory J. Kreis
-----------------------------
Gregory J. Kreis
President and Chief Executive Officer
Date: August 11, 2000 By: /s/ Stephen B. Albright
------------------------------
Stephen B. Albright
Senior Vice President and Treasurer
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