<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
--------------
Commission File Number 0-18513
-------
CENTER BANKS INCORPORATED
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1368745
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 E. Genesee St., Skaneateles, New York, 13152
-----------------------------------------------
(Address of principal executive offices-Zip code)
Registrant's telephone number, including area code 315-685-2265
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
----- -----
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1996
-------------------------------------------------------------------
Common Stock (par value $.01 per share) 941,313 Shares
<PAGE> 2
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ----------------------------- ----
<S> <C>
Item 1. Consolidated Financial Statements
1. Consolidated Balance Sheets 3
2. Consolidated Statements of Income 4
3. Consolidated Statements of Stockholders' Equity 5
4. Consolidated Statements of Cash Flows 6
5. Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
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
</TABLE>
2
<PAGE> 3
CENTER BANKS INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
- ----------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
Cash and due from banks $ 4,894 5,889
Federal funds sold 10,100 3,400
Securities available for sale 6,049 8,653
Securities held to maturity, fair value of
$14,008 in 1996 and $13,117 in 1995 13,772 12,804
Federal Home Loan Bank stock, at cost 1,410 1,303
Mortgage loans receivable 142,876 143,677
Other loans receivable 28,534 27,888
- ----------------------------------------------------------------------------------------------
171,410 171,565
Less: Net deferred costs (89) (69)
Allowance for loan losses 2,661 2,667
- ----------------------------------------------------------------------------------------------
Loans receivable, net 168,838 168,967
Premises and equipment, net 5,815 5,885
Real estate owned, net 268 397
Accrued interest receivable 1,239 1,255
Other assets 2,590 2,094
- ----------------------------------------------------------------------------------------------
$ 214,975 210,647
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Liabilities:
Interest bearing deposits $ 172,065 167,182
Demand deposits 9,457 9,927
- ----------------------------------------------------------------------------------------------
Total deposits 181,522 177,109
Advance payments by borrowers for property
taxes and insurance 1,026 2,010
Borrowings 14,782 14,386
Accrued expenses and other liabilities 2,435 2,203
- ----------------------------------------------------------------------------------------------
Total liabilities 199,765 195,708
- ----------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 500,000 shares, none issued 0 0
Common stock, par value $.01 per share,
authorized 2,500,000 shares,
1,034,509 and 1,033,619 shares issued
in 1996 and 1995, respectively 10 10
Additional paid-in capital 9,539 9,526
Retained earnings 6,422 6,083
Net unrealized gain (loss) on securities, net of tax
effect of $22,000 and $22,000 in 1996 and 1995, respectively (48) 33
Treasury stock, at cost (102,700 shares) (713) (713)
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 15,210 14,939
- ----------------------------------------------------------------------------------------------
$ 214,975 210,647
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CENTER BANKS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
- ------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Interest income:
Mortgage loans $ 2,863 $ 2,712
Other loans 680 704
Securities 338 373
Federal funds sold 91
10
- ------------------------------------------------------------------------------
Total interest income 3,972 3,799
- ------------------------------------------------------------------------------
Interest expense:
Deposits 1,938 1,683
Borrowings 235 261
- ------------------------------------------------------------------------------
Total interest expense 2,173 1,944
- ------------------------------------------------------------------------------
Net interest income 1,799 1,855
Provision for loan losses 25 90
- ------------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,774 1,765
- ------------------------------------------------------------------------------
Other operating income :
Net gain (loss) on security transactions
77 (16)
Net gain on sale of loans 2
7
Other income 181 154
- ------------------------------------------------------------------------------
Total other operating income 265 140
- ------------------------------------------------------------------------------
2,039 1,905
- ------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 733 650
Building, occupancy and equipment 289 249
Real estate owned, net 2 60
Other 596 584
- ------------------------------------------------------------------------------
Total other operating expenses 1,620 1,543
- ------------------------------------------------------------------------------
Income before income taxes 419 362
Income tax 24 94
- ------------------------------------------------------------------------------
Net income $ 395 $ 268
- ------------------------------------------------------------------------------
Net income per common share $ 0.42 $ 0.29
- ------------------------------------------------------------------------------
Weighted average common shares 931,809 925,931
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
CENTER BANKS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL GAIN (LOSS)
COMMON PAID-IN- RETAINED ON TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
- ----------------------------------------------------------------------------------------------------------
(In Thousands)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $10 9,475 5,206 (187) (713) 13,791
Net income 0 0 268 0 0 268
Sale of 280 shares under option 0 2 0 0 0 2
Cash dividend declared on
Common stock ($.04 per share) 0 0 (36) 0 0 (36)
Change in net unrealized
gain on securities, net of
tax effect of $37,000 0 0 0 48 0 48
- ----------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 $10 9,477 5,438 (139) (713) 14,073
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $10 9,526 6,083 33 (713) 14,939
- ----------------------------------------------------------------------------------------------------------
Net income 0 0 395 0 0 395
Issuance of 890 shares of stock under
1995 Non-employee Director's Stock Plan 0 13 0 0 0 13
Cash dividend declared on
Common stock ($.06 per share) 0 0 (56) 0 0 (56)
Change in net unrealized
gain on securities, net of
taxes of $55,000 0 0 0 (81) 0 (81)
- ----------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $10 9,539 6,422 (48) (713) 15,210
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
CENTER BANKS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
- --------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 395 268
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 25 90
Provision for losses on real estate owned 0 45
Depreciation and amortization 141 134
Mortgage loans originated for sale (811) (136)
Proceeds from sale of mortgaged loans originated for sale 1,217 104
Net (gain) loss on security transactions (77) 16
Net (increase) decrease in interest receivable 16 (117)
Net increase in accrued expenses 193 50
Other, net (347) (103)
- --------------------------------------------------------------------------------------------
Total adjustments 357 83
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 752 351
INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 0 3,000
Proceeds from sale of securities available for sale 2,462 0
Proceeds from maturities of securities held to maturity 1,020 10
Purchase of securities held to maturity (2,066) (2,944)
Principal collected on asset-backed securities 77 323
Purchase of Federal Home Loan Bank stock (107) (103)
Net increase in loans made to customers (276) (1,772)
Proceeds from sale of REO 132 38
Purchase of property and equipment, net (71) (274)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,171 (1,722)
FINANCING ACTIVITIES:
Net increase in time certificates 230 13,393
Net increase (decrease) in other deposits 3,199 (6,106)
Increase in overnight borrowings 411 265
Net decrease in long-term borowings (15) (10)
Proceeds from issuance of stock pursuant to stock plans 13 2
Dividends paid (56) (37)
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,782 7,507
- --------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,705 6,136
Cash and cash equivalents at beginning of period 9,289 3,343
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 14,994 9,479
- --------------------------------------------------------------------------------------------
Interest paid $ 2,169 1,932
- --------------------------------------------------------------------------------------------
Income taxes paid $ 73 3
- --------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing activities:
Transfer of securities available for sale to securities held to
maturity 0 8,195
Mortgage loans foreclosed and transferred to real estate owned
0 279
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
Center Banks Incorporated
Notes to Consolidated Financial Statements
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Center
Banks Incorporated (the "Company") and its wholly-owned subsidiary,
Skaneateles Savings Bank (the "Bank"). All significant intercompany
balances and transactions are eliminated in consolidation.
The data in the consolidated balance sheet for December 31, 1995 was
derived from the Company's 1995 Annual Report to Stockholders. That
data, along with the other interim financial information presented in
the consolidated balance sheets, statements of income, statements of
stockholders' equity and cash flows should be read in conjunction with
the consolidated financial statements, including the notes thereto,
contained in the 1995 Annual Report to Stockholders.
2. Capital Stock
-------------
The Company has 500,000 shares of preferred stock, par value $.01 per
share, authorized; none have been issued. The Company has 2,500,000
shares of common stock, par value $.01 per share, authorized; 1,044,013
shares are issued as of May 8, 1996, of which 102,700 shares are held
as treasury stock.
3. Securities
----------
The Company classifies its debt securities as either available-for-sale
or held-to-maturity. Equity securities are classified as
available-for-sale. Held-to-maturity securities are those debt
securities that the Company has the ability and intent to hold until
maturity. All other securities not included as held-to-maturity are
classified as available-for-sale.
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Unrealized
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer. Unrealized gains or losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as
a separate component of stockholders' equity. The unrealized gains or
losses included in the separate component of equity for securities
transferred from available-for-sale to held-for-maturity are maintained
and amortized into earnings over the remaining life of the security as
an adjustment to yield in a manner consistent with the amortization or
accretion of premium or discount on the associated security.
A decline in the fair value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary is charged to earnings resulting in the establishment of a
new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment of yield using the effective interest
method. Interest income is recognized when earned. Purchases and sales
are recorded on a trade date basis with settlement occurring shortly
thereafter. Realized gains and losses on securities sold are derived
using the specific identification method for determining the cost of
securities sold.
4. Loans Receivable
----------------
Loans receivable are reported at the principal amount outstanding, net
of deferred fees and an allowance for loan losses. Accrual of interest
is discontinued on a loan when management believes, after considering
economic and business conditions and collection efforts, that the
borrower's financial condition precludes accrual. Generally, interest
income is not recognized on loans which are delinquent over 90 days,
and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
Net loan fees and costs are capitalized as an adjustment of loan
principal and amortized over the life of the related loan as an
adjustment of yield using the interest method.
The Bank originates some mortgage loans with the intent to sell. These
loans are carried at the lower of aggregate cost or fair value. Gains
or losses on sales of mortgages are recorded equal to the difference
7
<PAGE> 8
between sales proceeds and the carrying value of the loans. The Bank
typically retains the servicing rights to mortgages sold.
5. Allowance for Loan Losses
-------------------------
The allowance for loan losses consists of the provision charged to
operations based upon past loan loss experience, management's
evaluation of the loan portfolio under current economic conditions and
such other factors that require current recognition in estimating loan
losses. Loan losses and recoveries of loans previously written-off are
charged or credited to the allowance as incurred or realized,
respectively.
Management believes that the allowance for loan losses is adequate.
Management uses presently available information to recognize losses on
loans; however, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses and may
require the Company to recognize additions to the allowance based on
their judgment of information available to them at the time of their
examination.
Impaired loans, which included troubled debt restructured loans, were
$3,498,000 and $3,843,000 at March 31, 1996 and 1995, respectively.
Included in these amounts are $2,763,000 and $3,143,000 of impaired
loans for which the related allowance for loan losses is $938,000, and
$986,000, respectively. In addition, included in the total impaired
loans at March 31, 1996 and 1995 are $735,000 and $700,000,
respectively, of impaired loans for which no allowance is recorded due
to the adequacy of collateral values in accordance with SFAS 114. The
amount of interest income recognized on impaired loans in the first
quarter of 1996 and 1995 was approximately $62,000 and $74,000,
respectively. The Bank is not committed to lend additional funds to
these borrowers.
6. New Accounting Pronouncements
-----------------------------
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting For Mortgage
Servicing Rights" on a prospective basis. SFAS 122 requires the Company
to recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired, and also requires
the Company to assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. The adoption of
SFAS 122 did not have a material impact on the Company's financial
condition or results of operations.
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" which encourages, but does not require,
companies to use a fair value based method of determining compensation
cost for grants of stock options under stock-based employee
compensation plans. As permitted by SFAS No. 123, the Company elected
to continue accounting for stock-based compensation in accordance with
Accounting Principals Board Opinion No. 25 ("APB 25"). Under APB 25, no
compensation cost is recorded as options are granted by the Company at
a purchase price not less than the fair market value of the common
stock on the date of the grant. Companies electing to continue
accounting under the provisions of APB 25 are required to present pro
forma disclosures of net income and net income per for each period in
which a complete set of financial statements are presented.
7. Per Common Share Data
---------------------
Per common share data is computed based upon the weighted average
number of shares outstanding. Common stock equivalents are not included
since dilution is less than 3%.
8. Reclassifications
-----------------
Certain reclassifications have been made to prior period amounts for
consistency in reporting.
8
<PAGE> 9
9. Opinion of Management
---------------------
The interim financial statements of the Company included in this Report
reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the financial condition of the
Company. All adjustments made to the interim financial statements were
of a normal recurring nature.
Item 2. Management's Discussion and Analysis of Financial Condition &
-------------------------------------------------------------
Results of Operations
---------------------
General
- -------
The Company is a bank holding company registered under the Bank Holding Company
Act of 1956. The results of the Company are largely dependent upon the results
of the Bank, its sole subsidiary.
Changes in Financial Condition from
-----------------------------------
December 31, 1995 to March 31, 1996
-----------------------------------
Assets
- ------
Total assets of the Company were $215 million at March 31, 1996, an increase of
$4.3 million or 2.1% from December 31, 1995. Federal funds sold increased $6.7
million or 197% due to cash inflows from loan amortization, new deposits and
investment activities exceeding new loan originations and investment purchases.
Loans
- -----
Net loans receivable decreased $129,000 during the first quarter of 1996 to
$168.8 million. Prepayments on several larger commercial loans contributed to
the decrease in loans during the quarter. Total loan originations were $8.0
million for the quarter, of which 57.0% were residential mortgages, 30.7% were
commercial loans and mortgages and 12.3% were consumer loans. The mix of
originations has changed compared with all of 1995, when originations were
comprised of 62.3% residential mortgages, 17.2% commercial loans and mortgages
and 20.5% consumer loans. Loan originations increased 14.3% compared with the
same period a year ago due in large part to a $1.0 million or 61.7% increase in
commercial loan and mortgage originations. The increase in commercial loan
activity is a direct result of the Bank's efforts to expand its presence in this
part of the local market. The Bank sees its market niche for commercial loans as
being small to mid sized businesses in central New York, including corporations,
partnerships and sole proprietorships. The Bank's commercial loan department
recently instituted an expanded calling program whereby lenders dedicate more of
their time to making calls on businesses. In addition, the Bank has attempted to
increase its name recognition in the business community via advertisements in
trade journals, business publications and participation in trade shows.
The allowance for loan losses was $2,661,000 at March 31, 1996, which is a
$6,000 decrease from the balance at December 31, 1995. The provision for loan
losses was $25,000 for the quarter, compared with $90,000 for the same period in
1995.
9
<PAGE> 10
The following table sets forth the activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31,
------------------ ------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 2,667 3,040 3,040 2,938 2,847
Provision 25 90 235 360 600
Charge-offs
- -----------
Residential mortgages (30) 0 0 (18) 0
Commercial mortgages 0 (67) (569) 0 (237)
Business (11) (18) (153) (331) (428)
Other consumer (1) (5) (10) (17) (64)
- ------------------------------------------------------------------------------------
(42) (90) (732) (366) (729)
- ------------------------------------------------------------------------------------
Recoveries
- ----------
Commercial mortgages 0 0 0 0 4
Business 11 34 118 96 203
Other consumer 0 3 6 12 13
- ------------------------------------------------------------------------------------
11 37 124 108 220
- ------------------------------------------------------------------------------------
Net Charge-offs (31) (53) (608) (258) (509)
- ------------------------------------------------------------------------------------
Ending Balance $ 2,661 3,077 2,667 3,040 2,938
- ------------------------------------------------------------------------------------
Ratio of net charge-offs
to average loans outstanding 0.02% 0.03% 0.36% 0.17% 0.41%
- ------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
The following table sets forth information with respect to loans delinquent 90
days or more, non-accrual loans, restructured loans, and real estate owned as of
the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccruing loans
Residential real estate mortgages $ 315 271 317 291 582 686
Commercial (1) 1,579 1,757 2,894 2,481 1,900 4,271
Consumer 15 110 40 10 63 22
- ----------------------------------------------------------------------------------------------------
Total $1,909 2,138 3,251 2,782 2,545 4,979
- ----------------------------------------------------------------------------------------------------
Other loans past due 90 days or more
and still accruing:
Consumer (2) $ 24 1 0 12 16 25
Commercial (1) 103 0 447 0 0 0
Lease loans 0 0 0 0 0 52
- ----------------------------------------------------------------------------------------------------
Total $ 127 1 447 12 16 77
- ----------------------------------------------------------------------------------------------------
Restructured loans, not included above 1,113 1,125 932 1,006 901 114
- ----------------------------------------------------------------------------------------------------
Real estate owned 268 397 984 1,807 1,578 1,671
- ----------------------------------------------------------------------------------------------------
Total assets containing specific risk elements $3,417 3,661 5,614 5,607 5,040 6,841
- ----------------------------------------------------------------------------------------------------
Ratio of total loans past due
90 days or more to gross loans 1.19% 1.25% 2.05% 1.95% 2.27% 4.36%
- ----------------------------------------------------------------------------------------------------
Ratio of assets containing specific
risk elements to total assets 1.59% 1.74% 2.78% 3.21% 2.98% 3.74%
- ----------------------------------------------------------------------------------------------------
<FN>
(1) Includes commercial real estate loans.
(2) Consists primarily of Guaranteed Student Loans.
</TABLE>
Nonperforming loans were $1,909,000 or 1.11% of gross loans at March 31, 1996,
compared with $2,138,000 or 1.25% at December 31, 1995. The allowance for loan
losses covered 139% of nonperforming loans at March 31, 1996, compared with
coverage of 125% at December 31, 1995.
Potential problem loans at March 31, 1996 amounted to $2,897,000. "Potential
problem loans" are defined as loans which are not included with past due and
non-accrual loans discussed above, but about which management, through normal
internal credit review procedures, has information about possible credit
problems which may result in the borrowers inability to comply with the present
loan repayment terms. Of the $2,897,000 in potential problem loans, loans
totaling $2,221,000 are considered impaired under SFAS No. 114. There have been
no loans classified for regulatory purposes as loss, doubtful, or substandard
that are not included above or which caused management to have serious doubts as
to the ability of the borrower to comply with repayment terms. In addition,
there were no material commitments to lend additional funds to borrowers whose
loans were classified as non-performing.
Other Assets
- ------------
Other assets totaled $2.6 million at March 31, 1996, an increase of $496,000 or
23.7% from December 31, 1995. Much of the increase is attributable to the cost
of an off-balance sheet financial instrument purchased in the first quarter. In
February, the Bank entered into a Prime Interest Rate Floor contract (the
"Floor") with the Federal Home Loan Bank of New York (FHLB-NY) on a notional
amount of $18 million for a three year term. The cost of the floor was $329,000
and the strike rate is 8.25%, which was the Prime rate at the time the Floor was
purchased. The cost was capitalized and is being amortized straight line into
income over the life of the contract. On a quarterly basis, the FHLB-NY will
11
<PAGE> 12
pay the Bank an amount equal to the excess of the strike rate over the daily
average of Prime for the quarter, multiplied by the notional amount of the
contract. The purpose of the floor is to reduce the exposure to changes in the
Prime rate on the Bank's Prime based assets, for which no on-balance sheet hedge
exists.
Included in other assets is $1.0 million of cash balances due from Nationar,
which provided item processing and check clearing services for the Bank, until
it was seized by the New York State Banking Department (the Department) on
February 6, 1995. The Department froze all assets of Nationar and a liquidation
of Nationar is in process. Based on information set forth in certain publicly
available documents, which by their terms are preliminary, management believes
that the Bank will recover all of its items in process owed by Nationar. The
foregoing event has not had any material effect on the Bank's ability to meet
its liquidity needs. Management has taken all steps necessary to recover the
amounts owed the Bank by Nationar.
Deposits
- --------
Total deposits (including advance payments by borrowers for property taxes and
insurance) increased $3.4 million or 1.9% in the first quarter of 1996, to reach
$182.5 million at March 31, 1996. The Bank's lower costing transaction accounts
(NOW, demand, and savings accounts) increased a combined $3.4 million or 6.1%
due in large part to the Bank's Checking Account Marketing Program (CHAMP) which
was implemented in February 1996. The Bank completely redesigned and expanded
its interest and non-interest bearing checking account product line, offering
seven different checking accounts, each one targeted to specific demographic
groups. These products are backed up by an on-going direct mail marketing
campaign that has been very successful to date. The CHAMP program is an integral
part of the Bank's plan to increase its lower costing transaction account base
and reduce its dependence on higher costing time deposits. In addition to
reducing the Bank's cost of funds, transaction accounts provide a more stable
funding source than time accounts and the Bank earns service fee income on most
transaction accounts.
The following table sets forth deposits by type of account as of the dates
indicated.
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993
-------------------- ----------------- ------------------ ----------------- -----------------
Percent Percent Percent Percent Percent
of of of of of
total total total total total
Amount deposits Amount deposits Amount deposits Amount deposits Amount deposits
------------------- ----------------- ----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and club $ 34,069 18.66% 32,712 18.38% 33,016 18.43% 36,255 21.24% 37,421 25.09%
accounts
Time certificates 99,704 54.62% 99,302 55.79% 99,474 55.54% 85,909 50.33% 65,575 43.96%
Money market accounts 22,227 12.18% 24,535 13.78% 21,448 11.98% 25,502 14.94% 27,706 18.57%
NOW accounts 16,065 8.80% 12,135 6.82% 13,244 7.39% 13,488 7.90% 11,437 7.67%
Demand accounts 9,457 5.18% 7,977 4.48% 9,927 5.54% 7,645 4.48% 5,159 3.46%
Escrow accounts 1,026 0.56% 1,331 0.75% 2,010 1.12% 1,897 1.11% 1,875 1.26%
- -------------------------------------------------------------------------------------------------------------------------------
Total $182,548 100.00% 177,992 100.00% 179,119 100.00% 170,696 100.00% 149,173 100.00%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stockholders' Equity
- --------------------
Stockholders' equity at March 31, 1996 was $15.2 million, or $16.32 per share,
compared with $14.9 million or $16.05 per share at December 31, 1995. At March
31, 1996, the Company's leverage capital ratio was 7.07% and its risk-based
capital ratio was 12.86%. Both capital measurements were in excess of regulatory
requirements.
The Company declared a dividend of $.06 per share during the first quarter,
payable on May 14, 1996 to shareholders of record on April 30.
12
<PAGE> 13
Comparison of the Results of Operations
---------------------------------------
General
- -------
Net income was $395,000 or $.42 per share for the first quarter of 1996,
compared with $268,000 or $.29 per share for the same period in 1995.
Net Interest Income
- -------------------
Net interest income is affected by the difference between the yield earned on
interest earning assets and rates paid on interest bearing deposits and
borrowings. The relative amounts of interest earning assets, interest bearing
deposits, and borrowings also impact net interest income levels.
The following table sets forth, for the three months ended March 31, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resulting average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost;
(iii) net interest income; (iv) interest rate spread; (v) net interest-earning
assets; (vi) net yield on interest-earning assets; and (vii) ratio of
interest-earning assets to interest-bearing liabilities. No tax equivalent
adjustments were made.
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------------------------- ---------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $145,368 2,863 7.88% 139,931 2,712 7.75%
Other loans 28,165 679 9.70% 27,740 704 10.29%
- ----------------------------------------------------------------------------------------------
Total loans 173,533 3,542 8.18% 167,672 3,416 8.17%
- ----------------------------------------------------------------------------------------------
Securities 20,294 338 6.70% 23,041 373 6.57%
Federal funds sold 7,126 91 5.14% 567 10 7.16%
- ----------------------------------------------------------------------------------------------
Total interest-earning assets 200,953 3,971 7.92% 191,279 3,799 7.97%
- ----------------------------------------------------------------------------------------------
Non-interest earning assets 8,101 0 9,271 0
- ----------------------------------------------------------------------------------------------
Total assets $209,054 3,971 200,550 3,799
- ----------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Savings and club accounts $ 33,107 231 2.81% 34,030 244 2.91%
Time certificates 100,150 1,451 5.82% 89,381 1,164 5.28%
Money market accounts 21,208 175 3.32% 24,892 204 3.32%
Now and escrow accounts 14,224 81 2.29% 14,210 71 2.03%
- ----------------------------------------------------------------------------------------------
Total interest-bearing deposits 168,689 1,938 4.62% 162,513 1,683 4.20%
- ----------------------------------------------------------------------------------------------
Borrowings 14,263 234 6.61% 15,880 261 6.66%
- ----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 182,952 2,172 4.77% 178,393 1,944 4.42%
Non-interest-bearing deposits 9,009 0 7,463 0
Non-interest-bearing liabilities 1,943 0 426 0
- ----------------------------------------------------------------------------------------------
Total liabilities 193,904 2,172 186,282 1,944
Stockholders' equity 15,150 0 14,268 0
- ----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity 209,054 2,172 200,550 1,944
- ----------------------------------------------------------------------------------------------
Net interest income/
interest rate spread 1,799 3.15% 1,855 3.55%
- ----------------------------------------------------------------------------------------------
Net interest-earning assets/
net yield on interest-earning
assets $ 18,001 3.58% 12,886 3.88%
- ----------------------------------------------------------------------------------------------
Ratio of interest-earning assets
to interest-bearing liabilities 1.10 1.07
- ----------------------------------------------------------------------------------------------
</TABLE>
Net interest income was $1,799,000 for the three months ended March 31, 1996
compared with $1,855,000 for the same period in 1995. The decrease resulted
primarily from a higher average balance of time deposits in relation to total
average deposits in the first quarter of 1996 compared with the year ago
quarter, compounded by an increase in the cost
13
<PAGE> 14
of funds due to higher overall market rates. As discussed previously, the Bank
recently instituted a deposit gathering program designed to increase its lower
costing transaction account deposit base and thereby help lower its cost of
funds. The company's net interest margin was 3.58% in the first quarter, down
from 3.88% in the year ago quarter. Much of the contraction in the Company's net
interest margin over the past twelve months occurred during the second quarter
of 1995, with the margin shrinking by 22 basis points. A higher costs of funds
due to rising rates in the first quarter of 1995 was exacerbated by a drop in
the prime rate in the second quarter, which is the index used for many
adjustable commercial and consumer loans.
Other Operating Income
- ----------------------
Total other operating income was $265,000 first quarter of 1996, compared with
$140,000 for the same period in 1995. Gains on security sales and increased
service fee income due to growth in the Bank's transaction account base
contributed to the increase.
Other Operating Expenses
- ------------------------
Total other operating expenses were $1,620,000 for three months ended March 31,
1996, compared with $1,543,000 for the same period in 1995. The increase in
operating expenses is due entirely to the costs of operating two new branch
offices, both of which opened in the second quarter of 1995.
Income Taxes
- ------------
Income taxes for the first quarter of 1996 totaled $24,000 or 5.7 percent of
pre-tax income, compared with $94,000 or 26 percent of pre-tax income for the
year ago period. The Company has approximately $572,000 of unrecognized deferred
tax assets relating to prior years' provision for loan losses that have not yet
been deducted for income tax purposes. The Company expects to generate
sufficient earnings in 1996 to recognize the deferred tax assets, which will
result in an effective tax rate of approximately 5 percent for 1996. The
Company's effective tax rate is projected to increase to 30% in 1997.
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
14
<PAGE> 15
Item 4. Submission of Matters to a Vote of Security Holders
a) The annual meeting of stockholders was held April 16, 1996.
b) The following four directors were elected: Clifford C.
Abrams, David E. Blackwell, Howard J. Miller, Raymond C.
Traver, Jr. The following directors have continued their
term of office: Israel Berkman, Walter D. Copeland, John
P. Driscoll, Carl W. Gerst, Jr., John Bernard Henry, Ann
G. Higbee, Bruce H. Leslie, Anne E. O'Connor.
The following table summarizes the votes cast for each
matter voted upon:
1. Election of Directors.
<TABLE>
<CAPTION>
For Against/Withheld
--- ----------------
<S> <C> <C>
Clifford C. Abrams 697,858 73,872
David E. Blackwell 717,310 54,420
Howard J. Miller 717,310 54,420
Raymond C. Traver, Jr. 717,205 54,525
2. Proposal to approve and ratify the selection of KPMG Peat
Marwick LLP as the Company's independent auditors for the
fiscal year ending December 31, 1996.
For Against/Withheld
--- ----------------
770,315 1,415
</TABLE>
Item 5. Other Information
On April 9, 1996, the Company declared a dividend of $.06 per
share, payable on May 14, 1996 to shareholders of record on
April 30.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule
b. The following Form 8-K Current Reports were
filed by the Company:
January 4, 1996 - reporting an agreement in
principle whereby Center Banks and its
wholly-owned subsidiary, Skaneateles Savings
Bank, will purchase the assets and assume the
deposit liabilities of Cicero Bank.
February 5, 1996 - reporting the date of the
Company's 1996 Annual Meeting.
February 20, 1996 - reporting execution of a
certain Purchase and Assumption Agreement by
and between Center Banks, Skaneateles Savings
Bank and Cicero Bank.
No financial statements were filed as parts of these
reports.
15
<PAGE> 16
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.
CENTER BANKS INCORPORATED
-------------------------
(Registrant)
By: /s/ John P. Driscoll Date: May 13, 1996
------------------------------- ------------
John P. Driscoll
Chairman, President and Chief
Executive Officer
By: /s/ J. Daniel Mohr Date: May 13, 1996
-------------------------------- ------------
J. Daniel Mohr
Chief Financial Officer
and Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements included within the Company's March 31, 1996
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<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> 4,717
<INT-BEARING-DEPOSITS> 177
<FED-FUNDS-SOLD> 10,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,049
<INVESTMENTS-CARRYING> 13,772
<INVESTMENTS-MARKET> 14,008
<LOANS> 168,838
<ALLOWANCE> 2,661
<TOTAL-ASSETS> 214,975
<DEPOSITS> 182,548
<SHORT-TERM> 3,322
<LIABILITIES-OTHER> 2,435
<LONG-TERM> 11,460
<COMMON> 10
0
0
<OTHER-SE> 15,200
<TOTAL-LIABILITIES-AND-EQUITY> 214,975
<INTEREST-LOAN> 3,543
<INTEREST-INVEST> 338
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 3,972
<INTEREST-DEPOSIT> 1,938
<INTEREST-EXPENSE> 2,173
<INTEREST-INCOME-NET> 1,799
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 77
<EXPENSE-OTHER> 1,620
<INCOME-PRETAX> 419
<INCOME-PRE-EXTRAORDINARY> 419
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 395
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 3.58
<LOANS-NON> 1,909
<LOANS-PAST> 127
<LOANS-TROUBLED> 1,113
<LOANS-PROBLEM> 2,897
<ALLOWANCE-OPEN> 2,667
<CHARGE-OFFS> 42
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 2,661
<ALLOWANCE-DOMESTIC> 2,661
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
