SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-18533
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
___New York __16-1168175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 North Main Street Box 129 Castile NY 14427
(Address of principal executive offices) (Zip Code)
(716) 493-2576
Registrant's telephone number, including area code)
____________________________________________________________
(Former name, address, fiscal year, if changed)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(b) 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.
Y 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.
Class Outstanding as of April 30, 1996
Common Stock, $1.00 per share 913,770 shares
Transitional Small Business Disclosure Format (Check One):
Yes__ No X
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Statement of Condition
March 31, 1996(Unaudited) and
December 31, 1995(Unaudited) 3
Consolidated Statement of Income (Unaudited)
Three Months Ended March 31, 1996
and 1995, respectively 4
Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31,1996 and 1995,
respectively 5
Notes to Consolidated Financial Information 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II Other Information
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
March 31, December 31,
1996 1995
Assets
Cash and due from banks $11,352,320 $7,752,080
Fed funds sold 8,000,000 2,050,000
Investment securities:
Available for sale, 38,197,207 38,200,900
Held to maturity 43,382,522 44,406,441
Loans 130,521,493 133,479,088
Less-Allowance for possible loan losses (1,720,071) (1,716,300)
Net Loans 128,801,422 131,762,788
Accrued interest receivable 2,143,833 1,949,266
Premises and equipment, net 5,000,387 4,998,697
Other assets 2,472,097 2,373,972
Total Assets $239,349,788 $233,494,144
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $21,982,877 $26,704,826
Interest bearing 187,070,408 177,370,635
Total deposits 209,053,285 204,075,461
Securities sold under agreements to
repurchase 2,099,604 1,767,984
Accrued interest payable 802,729 747,351
Accrued taxes and other liabilities 639,080 570,448
Advances from Federal Home Loan Bank 3,336,713 3,507,020
Total Liabilities 215,931,411 210,668,264
Shareholders' equity:
Common stock, par value $1.00 per share
1,500,000 shares authorized, 905,770
shares issued $905,770 $899,970
Capital surplus 10,303,624 10,206,024
Retained earnings 12,283,026 11,778,164
Unrealized gain on securities 179,052 307,400
Unearned employee stock ownership plan
shares (253,095) (365,678)
Total shareholders' equity 23,418,377 22,825,880
Total Liabilities and Shareholders' Equity $239,349,788 $233,494,144
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three
Months Ended
March 31,
1996 1995
Interest income:
Interest and fees on loans $3,225,962 $3,031,422
Interest on investment securities
Taxable 938,264 820,368
Tax-Exempt 281,768 260,574
Interest on federal funds sold 68,342 87,373
Total interest income 4,514,336 4,199,737
Interest on deposits 1,984,783 1,705,267
Net interest income 2,529,553 2,494,470
Provision for possible loan losses 19,990 80,063
Net interest income after
provision for possible loan
losses 2,509,563 2,414,407
Other operating income:
Service charges on deposit
accounts 214,362 210,881
Other charges and fees 24,837 20,607
Other operating income 24,876 26,130
(Losses) Gains on sales of loans
and
securities available for sale (9,549) 2,965
Total other operating income 254,526 260,583
Other operating expenses:
Salaries and employee benefits 924,607 862,923
Occupancy expense 138,609 110,006
Printing and supplies 79,135 91,315
Equipment expense 164,853 147,487
FDIC assessment 15,324 101,009
Other non-detailed expenses 472,865 426,342
Total other operating expense 1,795,393 1,739,082
Income before income taxes 968,696 935,908
Provision for income taxes 319,500 306,000
Net income $649,196 $629,908
Net income per common and common
equivalent share $0.66 $0.70
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Interest received $4,318,105 $4,049,665
Service charges, fees and other inc. received 254,526 257,618
Interest paid (2,040,161) (1,814,644)
Cash paid to suppliers and employees (1,359,038) (773,191)
Income taxes paid (177,000) (90,000)
Net cash provided by operating activities 996,432 1,629,448
Cash flows from investing activities:
Proceeds from maturities of invest. 2,383,048 4,841,252
securities
Purchases of investment securities-HTM (329,000) (5,811,525)
Purchases of investment securities-AFS (1,153,120) 0
Net increase (decrease) in loans 2,688,281 (2,365,315)
Proceeds from sale of loans 0 320,784
Expenditures for capital assets (133,604) (84,181)
Net cash used in investing activities 3,455,605 (3,098,985)
Cash flows from financing activities:
Net (decrease) increase in demand deposits,
NOW accounts and money market accounts (1,980,808) 1,517,437
Net increase in time deposits 6,958,632 7,717,653
Proceeds from current FHLB borrowings 0 400,000
Repayment FHLB borrowings (170,307) (47,948)
Exercise of Warrants 103,400 0
Increase in repos 331,620 2,675
Dividends paid (144,334) (98,637)
Net cash provided by financing activities 5,098,203 9,491,180
Net increase in cash and cash equivalents 9,550,240 8,021,643
Cash and cash equivalents, beginning of year 9,802,080 11,864,350
Cash and cash equivalents, end of quarter $19,352,320 $19,885,993
Reconciliation of net income to
net cash provided by operating activities:
Net income $649,196 $629,908
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation 175,823 154,123
Provision for possible loan losses 19,990 80,063
Loss on sale of investments 0 0
(Gain) on sale of loans 0 (2,965)
(Increase) in interest receivable (194,567) (208,660)
Amortization of bond premium 17,844 67,343
Accretion of bond discount (19,508) (8,755)
(Increase) decrease in other assets (355,428) 361,217
Increase in interest payable 55,378 109,377
Decrease in accrued taxes
and other liabilities 647,704 447,797
Net cash provided by operating activities $996,432 $1,629,448
</TABLE>
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
March 31, 1996
Note 1 Basis of Presentation
The unaudited interim financial information includes the accounts of
Letchworth Independent Bancshares Corporation and its subsidiary, The
Bank of Castile. The financial information has been prepared in
accordance with the Summary of Significant Accounting Policies as
outlined in the Company's Form 10-KSB for the year ended December 31,
1995 and, in the opinion of management contains all adjustments
necessary to present fairly the Company's financial position as of
March 31, 1996 and December 31, 1995, the results of its operations
for the three month periods ended March 31, 1996 and 1995,
respectively, and its cash flows for the three month periods ended
March 31, 1996 and 1995, respectively.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
Note 2 Loans
Loans consist of the following:
March-31 December-31
1996 1995
(unaudited) (unaudited)
Agricultural loans $22,778,040 $25,168,552
Commercial and industrial loan 23,853,870 23,317,057
Real estate loans:
Secured by 1 to 4 family
residential properties 42,151,542 41,120,730
Other 32,514,759 33,917,880
$74,666,301 $75,038,610
Consumer loans 9,223,282 9,954,869
$130,521,493 $133,479,088
An analysis of changes in the
allowance for possible loan losses
is as follows:
March 31, March 31,
1996 1995
(unaudited) (unaudited)
Balance, beginning of year $1,716,319 $1,526,877
Chargeoffs:
Agricultural loans 0 446
Commercial and industrial loans 912 17,416
Real estate mortgages 0 0
Consumer loans 22,798 62,549
23,710 80,411
Recoveries:
Agricultural loans 0 0
Commercial and industrial loans 1,377 3,299
Real estate mortgages 0 0
Consumer loans 6,095 21,186
7,472 24,485
Net charge-offs 16,238 55,926
Additions charges to operations 19,990 80,063
Balance, end of period $1,720,071 $1,551,014
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL INFORMATION, CONTINUED
Note 3 Investment Securities
The book and approximate market
value of investment securities
at March 31, 1996:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
Amortized Market Amortized Market
Cost Value Cost Value
(unaudited) (unaudited) (unaudited) (unaudited)
Available for Sale
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.Government
corporations and agencies $30,899,240 $31,207,362 $31,907,710 $32,380,800
State and political subdivision
obligations $1,053,654 $1,067,895 $1,054,794 $1,070,000
Mortgage-Backed Securities $5,080,502 $5,107,050 $7,086,984 $4,113,800
Federal Home Loan Bank stock $814,900 $814,900 $636,300 $636,300
$37,848,296 $38,197,207 $40,685,788 $38,200,900
Held to Maturity
U.S. Treasury securities and
obligations of U.S.Government
corporations and agencies $15,891,348 $16,214,826 $15,992,787 $16,483,900
State and political subdivision
obligations $21,095,220 $21,645,283 $21,674,732 $22,396,100
Mortgage-Backed Securities $6,395,954 $6,361,013 $6,738,922 $6,742,500
$43,382,522 $44,221,122 $44,406,441 $45,622,500
</TABLE>
Note 4 Earnings Per Share
Earnings per share are based on the weighted average number of common,
and when applicable, common equivalent shares outstanding during the
period.
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
Financial Condition
Total assets of Letchworth Independent Bancshares
Corporation (the "Company") were $239.3 million as of March
31, 1996, an increase of $5.9 million, or 2.51%, over total
assets at December 31, 1995. Deposits, the Company's
primary source of funds, increased $5.0 million or 2.44% to
$209.0 million at March 31, 1996.
Total loans outstanding as of March 31, 1996 decreased by
$3.0 million, or 2.22%, over total loans at December 31,
1995. The total loan outstanding figure of $130.5 million
is net of loans sold. As of March 31, 1996, residential
real estate loans increased by $1.0 million or 2.50%;
agricultural loans decreased $2.4 million or 9.50%;
commercial and industrial loans increased $ .5 million or
2.30%; consumer loans decreased $.7 million or 7.35%; and
other real estate loans decreased $1.4 million or 4.14%.
The decrease in agricultural loans was caused by a large
number of those customers who made sizable payments on their
lines of credit. This is typical of the agricultural
accounts in the first quarter of each year. Consumer loans
have been decreasing slowly over the past several years,
with increased competition from non-bank organizations and a
focus on different loan products.
The Company's shareholders' equity increased to $23.42
million, an increase of 2.60% or $ .6 million from December
31, 1995. As of March 31, 1996, a total of 5,300 warrants
have been exercised at $23 per share, or 2.7% of the
original 200,000 warrants outstanding.
The Risk-based capital ratios are a very good indicator of
the Company's financial soundness. As of March 31, 1996 the
Company had a Tier 1 capital ratio of 16.70%, a total
capital ratio of 17.95%, and a Tier 1 leverage ratio of
9.74%. Each of these ratios compares favorably with the
regulatory minimum requirements of 4.00%, 8.00%, and 4.00%,
respectively.
"Potential problem loans" consist of loans which are
generally secured and not currently considered
nonperforming, but where information about possible credit
problems has caused management to have doubts as to the
ability of such borrowers to comply with present repayment
terms. As of March 31, 1996, the Company considers
$2,044,000 to be "potentially problem loans", as described
above. Historically, however, only a very small portion of
those loans have resulted in actual losses for the Company.
Loans, including impaired loans, are placed on non-accrual
status in accordance with policies established by
management. Loans are generally transferred to non-accrual
status when principal or interest payments become ninety
days past due. Any accrued but uncollected interest
previously recorded on such loans is reversed in the current
period and interest income is subsequently recognized only
when actually collected. Loans are returned to accrual
status when management determines that the circumstances
have improved to the extent that both principal and interest
are deemed collectible and there has been a sustained period
of repayment performance. The Company may continue to
accrue interest on loans past due ninety days or more which
are well secured and in the process of collection. The
following table summarized the Company's non-performing
loans at the dates indicated.
March 31,
1996 1995 1994
Non-accruing loans 437,628 172,773 92,095
Accruing loans past due 90 days or more 209,669 29,426 438,058
Renegotiated loans 0 0 0
The average balance of impaired loans during the first
quarter of 1996 was approximately $442,000. At March 31,
1996, the balance of impaired loans and related reserve
against that balance was $430,512 and $188,781,
respectively. Interest income recognized on impaired loans
and interest income recognized on a cash basis was not
significant.
Liquidity measures the ability of the Company to meet its
maturing obligations and existing commitments, to withstand
fluctuations in deposit levels, to fund its operations, and
to provide for customer credit needs. At March 31, 1996,
the Company sold $8.0 million in federal funds. These funds
are available on one day notice to meet upcoming
obligations. The Company has not been forced to sacrifice
profitability by selling investments prior to maturity nor
has it transferred any securities between its available for
sale and held to maturity portfolios. However, due to the
low return available on federal funds the Company has
attempted to minimize the level of federal funds while
maintaining adequate daily liquidity. Therefore,
infrequently the Company accesses lines of credit available
with M & T Bank, the Federal Home Loan Bank of New York, and
the Federal Reserve Bank of New York. Specifically, during
the three months ended March 31, 1996, these lines were
utilized for only four days in order to access additional
liquidity. The Company also has the capability to sell
loans on the secondary market and to participate large
commercial loans with other financial institutions.
Results of Operations - Three Months Ended March 31, 1996
Compared to Three Months Ended March 31, 1995
Net income of $649,196 for the three months ended March 31,
1996 represents an increase of $19,288; or 3.06%, over the
$629,908 earned during the same period ended March 31, 1995.
Net income per common share was $.66 for the three months
ended March 31, 1996 compared to $.70 for the same period in
1995. This decrease is primarily due to the dilutive effect
of outstanding options and warrants on the earnings per
share calculation.
Net interest income increased to $2.5 million for the three
months ended March 31, 1996, up 1.41% from the $2.4 million
earned during the three months ended March 31, 1995. Lower
interest rates on interest earning assets was more than
offset by increased volume over the first quarter of 1995.
Interest expense on deposits also increased by $.3 million
as deposit volumes more than offset the general downward
trend in interest rates.
The provision for possible loan losses, the charge to
earnings for potential credit losses associated with lending
activities, was $19,990 for the three months ended March 31,
1996, down 75.0% from the $80,063 provision recorded during
the three months ended March 31, 1995. This decrease is due
to the overall decrease in total loans during the first
quarter of 1996, and the fact that net charge offs were
significantly lower during the three months ended March 31,
1996. Charge offs were only $16,000 in the first quarter of
1996, as compared to $56,000 for the same period last year.
Management conducts a periodic evaluation which assigns risk
weights for individual loans and different classes of loan
groups in determining the adequacy of the reserve.
Regulatory examination, historical gross loan losses, an
assessment of prevailing and anticipated economic conditions
and other relevant factors are used in this analysis.
Management of the Company believes this analysis indicates
that the level of the loan loss reserve is adequate to
absorb any potential losses within the loan portfolio. The
allowance for possible loan losses of the Company at March
31, 1996 was $1,720,071 or 1.318% of total loans and is up
.22% or $3,771 from the allowance at December 31, 1995.
Other operating expense for the three month period ended
March 31, 1996 was $1,795,393, an increase of 3.24% over the
$1,739,082 recorded for the same period in the prior year.
Increases in this category occurred in the following areas:
salaries and employee benefits expense of $61,684 or 7.151%;
occupancy expense of $28,603 or 26.00%; equipment expense of
$17,366 or 11.77%; and other non-detailed expenses of
$46,523 or 10.91%. All salary increases throughout the
organization took effect on January 1st of this year. This
represents a change in practice from previous years, when
they took place throughout the year. The increase in
occupancy expense results mainly from the major addition to
the operations center building. Printing and supplies
expense decreased by $12,180 in the first quarter of 1996,
compared to the first quarter of 1995, while the FDIC
assessment dropped by $85,685 during the same period. The
decrease in the assessment results from the lowering of the
deposit insurance premium during the fourth quarter of last
year. The Company continues to pay deposit insurance
premiums on its SAIF insured deposits, at a rate of $.23 per
$100.
ITEM 5. Other Information
New Accounting Pronouncements
None
Other Events of Significance
Letchworth Independent Bancshares Corporation plans to
implement a major core software system upgrade during the
second quarter of 1996. This enhancement is expected to
generate increased operating efficiency. Also, the Company
plans to purchase and install an imaging system during the
third quarter of 1996. This equipment is expected to
greatly increase the Company's item processing efficiency
and cost effectiveness, as well as provide exciting
improvements in customer service and product delivery.
ITEM 6. Exhibits and Reports on From 8-K
(a) Index to Exhibits
3(a) Certificate of Incorporation of Registrant filed by the New
York Department of State on July 17, 1981, incorporated by reference
to the Registrant's Registration Statement on Form S-18 (Reg. No. 33-
31149-NY), filed with the commission on September 2, 1989 and wherein
such Exhibit is designed Exhibit 3(a).
3(b) Certificate of Amendment of Certificate of Incorporation of
Registrant filed by the New York Department of State on July 26, 1989,
incorporated by reference to the Registrant's Registration Statement
on Form S-18 (Reg. No. 33-31149-NY), filed with the Commission on
September 2, 1989, and wherein such Exhibit is designated Exhibit
3(b).
3(c) Certificate of Amendment to Certificate of Incorporation of
Registrant filed by the New York Department of State on May 2, 1990,
incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990 and filed with the Commission
on August 9, 1990, and wherein such Exhibit is designed Exhibit (4)b.
3(d) Bylaws of Registrant, as amended by the stockholders of the
Registrant at a special meeting of stockholders on July 11, 1989,
incorporated by reference to the Registrant's Registration Statement
on From S-18 (Reg. No. 33-31149-NY), filed with the Commission on
September 2, 1989 and wherein such Exhibit is designated Exhibit 3(c).
4(a) Form of Common Stock Certificate of Registrant, incorporated by
reference to the Registrant's Amendment No. 1 to Form s-18
Registration Statement (Reg. No. 33-31149-NY), filed with the
Commission on October 31, 1989, and wherein such Exhibit is designated
Exhibit 4.
4(b) Letchworth Independent Bancshares Corporation Stock Option Plan
of 1990 and form of Stock Option Agreement, incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990 and filed with the Commission on August 9, 1990,
and wherein such Exhibit is designated Exhibit 4.
4(c) Form of Warrant of Registrant, and Warrant Agreement, dated as
of September 27, 1993, by and between Registrant and Mellon Securities
Trust Company, incorporated by reference to the registrants annual
report on Form 10KSB for the year ended 12/31/94, filed with the
Commission on March 31, 1995, and therein such Exhibit is designated
Exhibit 4(c).
11 Computation of Earnings Per Share for the quarter ended March
31, 1996 is presented on Exhibit 11 of this Report, Form 10-QSB.
(b). The Registrant did not file any current reports on Form 8-K
during the quarter ended March 31, 1996.
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
COMPUTATION OF EARNINGS PER SHARE
MARCH 31, 1996
Exhibit 11:
Net income $649,196
Add: Adjustment due to assumed interest
savings on debt reduction 1,698
Adjusted Net Income $650,894
Weighted average number of shares
outstanding 905,170
Add: Common stock equivalent shares due
to assumed exercise of options and warrants 94,924
Less: ESOP shares accounted for in accordance
with SOP 93-6 not committed to be released (14,890)
Adjusted common and common equivalent shares 985,204
Net Income per common and common equivalent
share $ .66
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.
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
Date_05/14/96_____ /s/ James W. Fulmer
James W. Fulmer
President & Chief Executive Officer
Date_05/14/96_____ /s/ Steven C. Lockwood
Steven C. Lockwood
Treasurer & Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 19352
<SECURITIES> 81580
<RECEIVABLES> 130521
<ALLOWANCES> 1720
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7313
<DEPRECIATION> 2313
<TOTAL-ASSETS> 239350
<CURRENT-LIABILITIES> 211153
<BONDS> 0
0
0
<COMMON> 906
<OTHER-SE> 22513
<TOTAL-LIABILITY-AND-EQUITY> 239350
<SALES> 0
<TOTAL-REVENUES> 4514
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3780
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 969
<INCOME-TAX> 320
<INCOME-CONTINUING> 649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
