<PAGE>
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, 1998
( ) 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, 1998
- --------------------------------------------------------------------------------
Common Stock, $1.00 per share 1,128,700 shares
Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Statement of Condition (Unaudited)
March 31, 1998 and
December 31, 1997 3
Consolidated Statement of Income (Unaudited)
Three Months Ended March 31, 1998
and 1997, respectively 4
Consolidated Statement of Comprehensive Income
(Unaudited)Three Months Ended March 31, 1998
and 1997, respectively 5
Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31,1998 and 1997,
respectively 6
Notes to Consolidated Financial Information 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II Other Information
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 18
Exhibit 11 19
2
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LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
-----------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------- ------------------
<S> <C> <C>
Assets
------
Cash and due from banks $ 7,397,051 $ 10,863,023
Federal funds sold 1,275,000 1,550,000
Securities available for sale, 37,960,914 34,356,500
Securities held to maturity, market value of 41,766,109 43,109,322
$42,979,672 and $44,242,300, respectively
Other securities 1,702,331 1,702,331
Loans, net of allowance for loan losses of
$2,078,011 and $2,028,600, respectively 162,319,726 157,943,432
Accrued interest receivable 2,063,248 1,740,101
Premises and equipment, net 6,576,218 6,419,871
Other assets 2,441,998 2,254,116
------------ ------------
Total Assets $263,502,595 $259,938,696
------------ ------------
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest-bearing $ 29,562,830 $ 32,083,730
Interest-bearing 190,746,709 185,121,594
------------ ------------
Total deposits $220,309,539 $217,205,324
Securities sold under agreements to repurchase 1,768,909 1,673,911
Accrued interest payable 840,352 810,382
Accrued taxes and other liabilities 1,046,562 677,005
Advances from Federal Home Loan Bank 7,675,536 7,812,302
------------ ------------
Total Liabilities $231,640,898 $228,178,924
------------ ------------
Shareholders' equity:
Common stock, par value $1.00 per share,
5,000,000 and 1,500,000 shares authorized,
respectively and 3,377,856 and 1,124,852 $ 3,377,856 $ 1,124,852
shares issued, respectively
Capital surplus 12,200,930 14,436,634
Retained earnings 16,958,846 16,428,534
Treasury stock at cost (30,000 shares) (486,250) 0
Unearned employee stock ownership plan shares (490,654) (539,320)
Accumulated other comprehensive income 300,969 309,072
------------ ------------
Total shareholders' equity $ 31,861,697 $ 31,759,772
------------ ------------
Total Liabilities and Shareholders' Equity $263,502,595 $259,938,696
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
-----------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,850,122 $ 3,454,903
Interest on investment securities
Taxable 798,525 832,038
Tax-Exempt 395,258 312,826
Interest on federal funds sold 56,257 50,655
--------------- ---------------
Total interest income $ 5,100,162 $ 4,650,422
Interest on deposits 2,163,249 1,891,855
--------------- ---------------
Net interest income $ 2,936,913 $ 2,758,567
Provision for possible loan losses 131,422 93,603
--------------- ---------------
Net interest income after
provision for possible loan
losses $ 2,805,491 $ 2,664,964
--------------- ---------------
Other operating income:
Service charges on deposit accounts $ 272,930 $ 229,882
Other charges and fees 16,718 19,149
Other operating income 48,747 61,683
Net gain on sales of loans and
investment securities 21,427 8,015
--------------- ---------------
Total other operating income $ 359,822 $ 318,729
--------------- ---------------
Other operating expenses:
Salaries and employee benefits $ 1,098,463 $ 966,590
Occupancy expense 134,950 127,751
Printing and supplies 66,189 76,977
Equipment expense 232,851 205,800
FDIC assessment 9,994 3,786
Other operating expenses 484,590 487,346
--------------- ---------------
Total other operating expense $ 2,027,037 $ 1,868,250
Income before income taxes 1,138,276 1,115,443
Provision for income taxes 338,000 374,500
--------------- ---------------
NET INCOME $ 800,276 $ 740,943
--------------- ---------------
Basic earnings per share $0.24 $0.27
Diluted earnings per share $0.23 $0.24
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
----------------------------------------------
(UNAUDITED)
-----------
Three Months Ended
March 31,
1998 1997
---- ----
Net income $800,276 $740,943
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains(losses) arising
during period 11,194 (74,382)
Less: reclassification adjustments for gains
included in net income (19,297) (8,517)
-------- --------
Other comprehensive loss (8,103) (82,899)
-------- --------
Comprehensive income $792,173 $658,044
-------- --------
The accompanying notes are an integral part of these financial statements
5
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 800,276 $ 740,943
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 214,875 210,200
Provision for possible loan losses 131,422 93,603
ESOP compensation expense 48,666 112,584
Gain on sale of investments (19,297) (8,517)
(Gain)loss on sale of loans (2,130) 503
Increase in interest receivable (323,147) (188,844)
Increase in other assets (222,667) (74,698)
Increase in interest payable 29,970 40,780
Increase(decrease) in accrued taxes
and other liabilities 369,557 (602,521)
----------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,027,525 $ 324,033
----------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities-available
for sale $ 37,352 $ 1,994,063
Proceeds from calls and maturities of securities:
Held to maturity 1,585,336 662,859
Available for sale 3,484,375 3,272,099
Proceeds from sale of loans 370,892 (150,250)
Purchases of securities:
Held to maturity (522,780) (2,692,625)
Available for sale (6,834,290) $ 0
Net(increase) decrease in loans (4,876,478) 796,410
Expenditures for capital assets (336,437) (34,102)
----------------- ------------
NET CASH (USED IN)PROVIDED BY INVESTING ACTIVITIES ($7,092,030) $ 3,848,454
----------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW
accounts and money market accounts ($2,083,383) ($7,685,170)
Net time deposits 5,187,598 1,083,146
Repayment FHLB borrowings (136,766) (164,281)
Exercise of options and warrants 17,300 94,350
Purchase of treasury stock (486,250) 0
Net repurchase agreements 94,998 (83,382)
Dividends paid (269,964) (187,926)
----------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 2,323,533 ($6,943,263)
----------------- ------------
Net decrease in cash and cash equivalents ($3,740,972) ($2,770,776)
Cash and cash equivalents, beginning of year 12,413,023 11,565,746
----------------- ------------
Cash and cash equivalents, end of quarter $ 8,672,051 $ 8,794,970
----------------- ------------
Interest paid $ 2,193,219 $ 1,932,635
----------------- ------------
Income taxes paid $ 38,806 $ 290,835
----------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
March 31, 1998
--------------
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, 1997 and, in the opinion of management contains all
adjustments necessary to present fairly the Company's financial position as of
March 31, 1998 and December 31, 1997, the results of its operations for the
three month periods ended March 31, 1998 and 1997, respectively, and its cash
flows for the three month periods ended March 31, 1998 and 1997, respectively.
The accounting policies of the Company conform with generally accepted
accounting principles and prevailing practices within the banking industry. The
preparation of financial information in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial information and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Certain amounts in the prior period financial statements have been reclassified
to conform to the current period presentation.
These notes should be read in conjunction with the notes to the consolidated
financial statements incorporated in the Letchworth Independent Bancshares
Corporation 1997 Annual Report and Form 10-KSB.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125," was issued in December 1996 and defered until January 1,
1998, the effective date for certain provisions of SFAS No. 125 relating to
repurchase agreements, dollar roll, securities lending and similar transactions
and pledged collateral. SFAS No. 127 has been be adopted by the company in the
first quarter of 1998, as required, and has not had a material impact on the
Company's results of
Note 2 Stock Split
- ------------------
On May 7, 1998, the shareholders approved an increase in the allowable
outstanding shares of common stock to 5,000,000 shares and a three for one stock
split effective for shareholders of record on May 8, 1998. The stock split has
been recorded as of March 31, 1998, by a transfer of $2,251,904 from Capital
surplus to common stock, representing $1.00
7
<PAGE>
par value for each additional share issued. All share and per share data has
been retroactively restated to reflect the split.
Note 3 Comprehensive Income
- ---------------------------
In the first quarter, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company has chosen to disclose comprehensive income in a separate statement,
in which the components of comprehensive income are displayed net of income
taxes. The following table sets forth the related tax effects allocated to each
element of comprehensive income for the three months ended March 31, 1998 and
1997:
Three months ended March 31, 1998
-------------------------------------
Tax
Before-tax (Expense) Net-of-Tax
Amount or Benefit Amount
----------- ----------- -----------
Unrealized gains (losses) on
securities:
Unrealized holding gains
arising during period $ 20,842 $(9,649) $ 11,194
Less: reclassification
adjustment for gains
realized in net income (19,297) 0 (19,297)
-------- ------- ----------
Net unrealized gain (loss) 1,546 (9,649) (8,103)
-------- ------- ----------
Other comprehensive income(loss) $ 1,546 $(9,649) $ (8,103)
-------- ------- ----------
Three months ended March 31, 1997
---------------------------------
Tax
Before-tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Unrealized gains (losses) on
securities:
Unrealized holding losses
arising during period $(69,630) $(4,752) $(74,382)
Less: reclassification
adjustment for gains
realized in net income (8,517) 0 (8,517)
-------- ------- ----------
Net unrealized loss (78,147) (4,752) (82,899)
-------- ------- ----------
Other comprehensive income(loss) $(78,147) $(4,752) $(82,899)
-------- ------- ----------
The following table sets forth the components of accumulated other comprehensive
income for the three months ended March 31, 1998 and 1997:
8
<PAGE>
Three Months Ended
March 31,
1998 1997
---- ----
Beginning balance 309,072 162,869
Unrealized gains on securities, net (8,103) (82,899)
------- -------
Ending balance 309,969 79,970
------- -------
Note 4 Investment Securities
- ----------------------------
The book and approximate market
value of investment securities
at:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
Amortized Cost Market Value Amortized Cost Market Value
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Available for Sale
- ------------------
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $13,548,023 $13,817,496 $14,920,070 $15,186,700
State and political subdivision
obligations $ 7,963,169 $ 8,081,472 $ 4,812,298 $ 4,923,200
Mortgage-Backed Securities $15,967,928 $16,061,946 $14,163,181 $14,246,600
----------- ----------- ----------- -----------
$37,479,120 $37,960,914 $33,895,549 $34,356,500
----------- ----------- ----------- -----------
Held to Maturity
- ---------------------------------------
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $11,702,555 $11,901,343 $11,958,264 $12,168,400
State and political subdivision
obligations $24,175,241 $25,168,753 $24,961,440 $25,853,700
Mortgage-Backed Securities $ 5,888,313 $ 5,909,576 $ 6,189,618 $ 6,220,200
----------- ----------- ----------- -----------
$41,766,109 $42,979,672 $43,109,322 $44,242,300
----------- ----------- ----------- -----------
</TABLE>
9
<PAGE>
Note 5 Loans
- ------------
LOANS CONSIST OF THE FOLLOWING:
March-31 December-31
1998 1997
--------------- ----------------
Residential real estate $ 50,511,481 $ 49,158,726
Commercial real estate 38,322,544 35,046,889
Agricultural loans 28,978,685 31,563,146
Commercial and industrial loans 34,789,052 33,616,025
Consumer loans 11,795,975 10,587,246
------------ ------------
$164,397,737 $159,972,032
------------ ------------
An analysis of changes in the
allowance for possible loan losses
is as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------------- ----------------
<S> <C> <C>
Balance, beginning of year $2,028,600 $1,841,200
Chargeoffs:
Agricultural loans 0 0
Commercial and industrial loans 61,024 13,604
Real estate mortgages $ 24,787 $ 11,325
Consumer loans $ 100 $ 27,130
---------- ----------
$ 85,911 $ 52,059
Recoveries:
Agricultural loans 0 0
Commercial and industrial loans 1063 996
Real estate mortgages 0 0
Consumer loans 2,837 2,449
---------- ----------
3,900 3,445
---------- ----------
Net charge-offs $ 82,011 $ 48,614
---------- ----------
Additional charges to operations 131,422 93,603
---------- ----------
Balance, end of period $2,078,011 $1,886,189
============================
</TABLE>
The following table summarized the Company's non-performing loans at the dates
indicated.
March 31,
1998 1997
------- ---------
Non-accruing loans 712,649 378,055
Accruing loans past due 90 days or more 63,613 130,056
Renegotiated loans 0 0
The average balance of impaired loans during the first three months of 1998 was
approximately $541,509. At March 31, 1998, the balance of impaired loans and
related reserve against that balance was $656,300
10
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and $98,627, respectively. Interest income recognized on impaired loans and
interest income recognized on a cash basis was not significant
Note 6 Earnings Per Share
- -------------------------
The calculations of basic and diluted earnings per share, as retroactively
restated for the stock split discussed in Note 2, are as follows:
QUARTER ENDED MARCH 1,
1998 1997
Income available to common shareholders $ 800,276 $ 740,943
BASIC EARNINGS PER SHARE
Weighted average shares outstanding 3,306,549 2,789,295
Basic earnings per share $ 0.24 $ 0.27
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 3,306,549 2,789,295
Dilutive effect of:
Warrants 0 173,844
Stock options 104,352 97,944
-------------------------
Adjusted weighted average shares
outstanding 3,410,901 3,061,083
Diluted earnings per share $ 0.23 $ 0.24
=========================
11
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
FINANCIAL CONDITION
Total assets of Letchworth Independent Bancshares Corporation (the "Company")
were $263.5 million as of March 31, 1998, an increase of $3.6 million, or 1.37%,
above total assets at December 31, 1997. Deposits, the Company's primary source
of funds, increased $3.1 million from December 31, 1997, or 1.43%, to $220.3
million at March 31, 1998. The increase in deposits occurred primarily in the
certificate of deposit category.
Total loans outstanding as of March 31, 1998 were $162.3 million, which
represented an increased by $4.4 million, or 2.77%, over total loans at December
31, 1997. The total loans outstanding is net of loans sold and the allowance for
loan losses. As of March 31, 1998, residential real estate loans increased by
$1.4 million or 2.75%; commercial real estate loans increased $3.3 million or
9.35%; agricultural loans decreased $2.6 million or 8.19%; commercial and
industrial loans increased $1.2 million or 3.49%; and consumer loans increased
$1.2 million or 11.42%. The increase in consumer loans during the first quarter
is primarily attributable to the Company's new indirect lending program. This
program generates auto loans through relationships with local dealers.
Nonaccrual loans totaled $712,649 as of March 31,1998, compared to $378,055 as
of March 31, 1997. While this represents a significant increase, the Company is
aggressive at identifying and dealing with problem loan situations. Further,
management believes that the loan loss allowance is adequate to cover any
expected losses.
The Company's shareholders' equity increased to $31.9 million, an increase of
.32% or $.1 million from December 31, 1997.
The Risk-based capital ratios are a very good indicator of the Company's
financial soundness. As of March 31, 1998, the Company had a Tier 1 capital
ratio of 19.29%, a total capital ratio of 20.54%, and a Tier 1 leverage ratio of
11.78%. Each of these ratios compares favorably with the regulatory minimum
requirements of 4.00%, 8.00%, and 4.00%, respectively.
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, 1998, the
Company sold $1.3 million in federal funds. These funds are available on one day
notice to meet upcoming obligations. However, due to the low return available on
12
<PAGE>
federal funds, the Company has attempted to minimize the level of federal funds
while maintaining adequate daily liquidity. Pursuing this aggressive cash policy
may cause the Company to experience a negative excess cash position at certain
times. As additional sources of liquidity, the Company may also sell loans on
the secondary market or participate large commercial loans with other financial
institutions.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
Net income of $800,276 for the three months ended March 31, 1998 represents an
increase of $59,333 or 8.01%, over the $740,943 earned during the same period
ended March 31, 1997. Net income (diluted) per common share and common share
equivalent was $.23 for the three months ended March 31, 1998. (See Exhibit 11
of this Quarterly Report on Form 10-QSB) Although this represents a decrease
when compared to the $.24 per share figure for the same period in 1997, the
quarters earnings per share figure was affected by an increase in the number of
outstanding shares of common stock due to the exercise of the remainder of
outstanding warrants previously issued by the Company.
Net interest income was $2.9 million for the three months ended March 31, 1998,
up 6.47% from the $2.7 million earned during the three months ended March 31,
1997. Increased volume in the loan portfolio was the primary reason for the
increase in interest income during the first quarter of 1998. Interest expense
on deposits increased by $271,394.
The provision for possible loan losses, the charge to earnings for potential
credit losses associated with lending activities, was $131,422 for the three
months ended March 31, 1998, up 40.40% from the $93,603 provision recorded
during the three months ended March 31, 1997. This increase in the provision for
possible loan losses in 1998 was in part due to the increase in charge-offs
compared with 1997 and with the additional accrual for the increase in loan
volume. Gross charge-offs were $85,911 in the first quarter of 1998, as compared
to $52,059 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 loans, 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,
1998 was $2,078,011 or 1.26% of total loans and is up 2.44% or $49,411 from the
allowance at December 31, 1997. The allowance for possible loan losses of the
Company at March 31, 1997 was $1,886,189 or 1.27% of total loans at December 31,
1997.
Other operating expense for the three month period ended March 31, 1998 was
$2,027,037, an increase of 8.50% over the $1,868,250 recorded for the same
period in the prior year. The majority of these
13
<PAGE>
increases occurred in equipment expense which increased by $27,051 or 13.14%;
and salaries and employee benefits expense which increased by $131,873 or
13.64%. The increase in equipment expense was due largely to the increase in
maintenance contracts. Several new staff positions, in addition to annual
compensation increase , account for the increase in salaries and benefits. In
addition, occupancy expense increased by $7,199 or 5.64% and the FDIC assessment
increased by $6,208 or 26.39%.
OTHER EVENTS OF SIGNIFICANCE:
On January 5, 1998, The Bank of Castile opened its 11/th/ office in the village
of Geneseo. The office is located in the same building as the U.S. Post Office
in the central business district of Geneseo, and is approximately a block form
the State University of New York at Geneseo campus. The office is off to a good
start with solid growth in both deposits and loans.
The Geneseo office also houses the Bank's new "Trust and Investment Department"
which was developed in cooperation with the Tompkins County Trust Company of
Ithaca, New York. We received approval from the appropriate regulators in the
third quarter of 1997 and began offering the services shortly thereafter.
During the fourth quarter of 1997, the Board of Directors approved a program to
allow for the repurchase of up to $2 Million in Company common stock and
warrants. As of March 31, 1998 the Company had repurchased 48,000 warrants at an
average price of $8.95 and 30,000 shares at an average price of $16.21.
At the May 7, 1998, annual meeting, the Letchworth Independent Bancshares
Corporation shareholders elected Patrick J. Dalton as a director, filling the
expired term of Gunther Buerman, who asked not to stand for re-election. At that
meeting the shareholders also approved a three for one stock split as well as an
increase in the number of allowable outstanding shares to 5,000,000 and an
increase in the number of shares available for options.
YEAR 2000 PROJECT
The financial services industry relies extensively on computer programs with
dates. Many existing computer programs were written using only the last two
digits to identify the applicable year. These programs were designed and
developed without considering the impact of the upcoming century. Computer
programs that have date-sensitive software may, therefore, recognize a date
using "00" as the year 1900 rather than the year 2000. The potential exists that
such a mistake could result in system failures or miscalculations causing
disruptions of operations not only for the Company but for its commercial
customers who rely on computer software in managing their
14
<PAGE>
businesses. The Board of Directors has assigned the responsibility for the Year
2000 remediation process to the Data Processing Manager, who will report to the
Risk Committee. An inventory of all affected systems has been completed and
prioritized.
The latest update to the Bank's core processing system will be installed during
May 1998. Management believes that this will make the Bank's core system "Year
2000" compliant. The Bank has contacted all other critical vendors to discuss
their Year 2000 remediation plans, and management is in the process of reviewing
their responses. There are other areas that need to be addressed and management
believes that the Company is on target for complete compliance by year end 1998.
Recently, the Bank was examined by the FDIC to determine the status of "Year
2000" compliance, and the FDIC has indicated that they are satisfied with the
Bank's progress.
The Company presently believes that the Year 2000 problem will not pose
significant operational problems or have significant impact on its financial
condition, results of operations or cash flows. However, if the third party
modification plans are not completed and tested on a timely basis, the Year 2000
issue may have a material impact on the operations of the Company.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 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
15
<PAGE>
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.
11 Computation of Basic and Diluted Earnings Per Share for the quarter ended
March 31, 1998 is presented on Exhibit 11 of this Report on Form 10-QSB.
(b). The Registrant did not file any current reports on Form 8-K during the
quarter ended March 31, 1998.
16
<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.
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
Date 5/8/98 /s/ James W. Fulmer
------ --------------------
James W. Fulmer
President & Chief Executive Officer
Date 5/8/98 /s/ Steven C. Lockwood
------ -----------------------
Steven C. Lockwood
Treasurer & Chief Financial Officer
17
<PAGE>
EXHIBIT 11
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
March 31, 1998
--------------
Three Months Ended
March 31, 1998
Income available to common shareholders $ 800,276
BASIC EARNINGS PER SHARE
Weighted average shares outstanding 3,306,549
Basic earnings per share $ 0.24
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 3,306,549
Dilutive effect of:
----------
Stock options 104,352
Adjusted weighted average shares outstanding 3,410,901
Diluted earnings per share $ 0.23
----------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,397
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,275
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,961
<INVESTMENTS-CARRYING> 41,766
<INVESTMENTS-MARKET> 42,979
<LOANS> 164,398
<ALLOWANCE> 2,078
<TOTAL-ASSETS> 263,503
<DEPOSITS> 220,310
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,656
<LONG-TERM> 7,676
0
0
<COMMON> 3,378
<OTHER-SE> 28,484
<TOTAL-LIABILITIES-AND-EQUITY> 263,503
<INTEREST-LOAN> 3,850
<INTEREST-INVEST> 1,194
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 5,100
<INTEREST-DEPOSIT> 2,163
<INTEREST-EXPENSE> 2,163
<INTEREST-INCOME-NET> 2,937
<LOAN-LOSSES> 131
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 2,027
<INCOME-PRETAX> 1,138
<INCOME-PRE-EXTRAORDINARY> 1,138
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800
<EPS-PRIMARY> .24<F1>
<EPS-DILUTED> .23<F1>
<YIELD-ACTUAL> 0
<LOANS-NON> 713
<LOANS-PAST> 2,393
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,452
<ALLOWANCE-OPEN> 2,029
<CHARGE-OFFS> 86
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 2,078
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>BASIC AND DILUTED EARNINGS PER SHARE REFLECT THE RECENT 3 FOR 1 STOCK SPLIT
THAT WAS APPROVED AT THE ANNUAL MEETING ON MAY 8, 1998.
</FN>
</TABLE>
