<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 September 30, 1997
------------------
Commission File Number 0-18513
-------
SKANEATELES BANCORP, INC.
------------------------------------------------------
(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 November 10, 1997
- --------------------------------------------------------------------------------
Common Stock (par value $.01 per share) 956,507 Shares
1
<PAGE> 2
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 2. Changes in Securities 16
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE> 3
SKANEATELES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
- --------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
Cash and due from banks $ 6,516 5,726
Federal funds sold 1,400 3,800
Securities available for sale 8,451 6,009
Securities held to maturity, fair value of
$9,298 in 1997 and $11,138 in 1996 9,041 10,893
Federal Home Loan Bank stock, at cost 1,561 1,410
Mortgage loans receivable 154,186 161,379
Other loans and leases receivable 58,283 45,266
- --------------------------------------------------------------------------------
212,469 206,645
Net deferred costs 457 299
Allowance for loan losses (2,085) (2,114)
- --------------------------------------------------------------------------------
Loans receivable, net 210,841 204,830
Premises and equipment, net 6,186 6,195
Real estate owned, net 975 717
Accrued interest receivable 1,401 1,271
Other assets 1,271 1,331
- --------------------------------------------------------------------------------
247,643 242,182
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Liabilities:
Interest bearing deposits $ 190,845 188,424
Demand deposits 17,311 14,861
- --------------------------------------------------------------------------------
Total deposits 208,156 203,285
Advance payments by borrowers for property
taxes and insurance 650 1,744
Borrowings 18,378 18,181
Accrued expenses and other liabilities 3,122 2,742
- --------------------------------------------------------------------------------
Total liabilities 230,306 225,952
- --------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 500,000 shares, none issued -- --
Common stock, par value $.01 per share,
authorized 2,500,000 shares, 955,067
and 948,092 shares issued in 1997 and
1996, respectively 10 9
Additional paid-in capital 9,076 8,978
Retained earnings 8,293 7,300
Net unrealized loss on securities,
net of taxes (42) (57)
- --------------------------------------------------------------------------------
Total stockholders' equity 17,337 16,230
- --------------------------------------------------------------------------------
$ 247,643 242,182
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $ 3,166 3,140 9,597 8,934
Other loans 1,311 1,011 3,478 2,342
Securities 312 382 909 1,104
Federal funds sold 64 19 151 188
- ------------------------------------------------------------------------------------------
Total interest income 4,853 4,552 14,135 12,568
- ------------------------------------------------------------------------------------------
Interest expense:
Deposits 2,080 2,116 6,152 5,980
Borrowings 301 251 889 730
- ------------------------------------------------------------------------------------------
Total interest expense 2,381 2,367 7,041 6,710
- ------------------------------------------------------------------------------------------
Net interest income 2,472 2,185 7,094 5,858
Provision for loan losses 200 50 400 100
- ------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2,272 2,135 6,694 5,758
- ------------------------------------------------------------------------------------------
Other operating income:
Net gain on security transactions -- -- -- 77
Net gain on sale of loans 8 6 73 23
Service charges 374 187 998 453
Other 83 84 264 204
- ------------------------------------------------------------------------------------------
Total other operating income 465 277 1,335 757
- ------------------------------------------------------------------------------------------
2,737 2,412 8,029 6,515
- ------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 874 951 2,699 2,360
Building, occupancy and equipment 321 323 933 897
Real estate owned, net 21 2 36 2
Other 860 706 2,382 2,131
- ------------------------------------------------------------------------------------------
Total other operating expenses 2,076 1,982 6,050 5,390
- ------------------------------------------------------------------------------------------
Income before income taxes 661 430 1,979 1,125
Income tax 231 25 700 65
==========================================================================================
Net income $ 430 405 1,279 1,060
==========================================================================================
Net income per common share $ 0.45 0.43 1.34 1.13
==========================================================================================
Weighted average common shares 954,818 945,497 952,896 940,195
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NET
ADDITIONAL UNREALIZED
COMMON PAID-IN- RETAINED GAIN (LOSS) ON TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $10 9,526 6,083 33 (713) 14,939
Net income -- -- 1,060 -- -- 1,060
Sale of 12,100 shares under option -- 102 -- -- -- 102
Issuance of 2,678 shares of stock
under 1995 Non-employee
Director's Stock Plan -- 37 -- -- -- 37
Cash dividend declared on
Common stock ($.18 per share) -- -- (170) -- -- (170)
Change in net unrealized
gain on securities, net of
tax effect of $68 -- -- -- (96) -- (96)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $10 9,665 6,973 (63) (713) 15,872
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 9 8,978 7,300 (57) -- 16,230
Net income -- -- 1,279 -- -- 1,279
Sale of 3,300 shares under option 1 28 -- -- -- 29
Issuance of 1,925 shares of stock
under 1995 Non-employee
Director's Stock Plan -- 36 -- -- -- 36
Issuance of 1,467 shares of
stock under Dividend
Reinvestment Plan -- 27 -- -- -- 27
Issuance of 283 shares of stock
under 1997 Employee Stock
Purchase Plan -- 7 -- -- -- 7
Cash dividend declared on
Common stock ($.30 per share) -- -- (286) -- -- (286)
Change in net unrealized
loss on securities,
net of tax effect of $5 -- -- -- 15 -- 15
==============================================================================================================================
Balance at September 30, 1997 $10 9,076 8,293 (42) -- 17,337
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
- --------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,279 $ 1,060
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Provision for loan losses 400 100
Depreciation and amortization 561 434
Mortgage loans originated for sale (2,686) (3,210)
Proceeds from sale of loans
originated for sale 3,368 3,345
Net gain on security transactions -- (77)
Net increase in interest receivable (130) (173)
Net increase (decrease)
in other liabilities 368 2,345
Other, net (300) 170
- --------------------------------------------------------------------------------
Total adjustments 1,581 2,934
- --------------------------------------------------------------------------------
Net cash provided by
operating activities 2,860 3,994
INVESTING ACTIVITIES
Proceeds from maturities of securities
available for sale 1,008 1,000
Proceeds from sale of securities
available for sale -- 2,462
Proceeds from maturities of securities
held to maturity 1,445 3,150
Purchase of securities held to maturity (60) (4,135)
Purchase of securities available for sale (3,825) (3,096)
Principal collected on asset-backed securities 820 890
Purchase of Federal Home Loan Bank stock (151) (107)
Net increase in loans made to customers (7,167) (19,670)
Net cash and cash equivalents from acquired bank -- 3,387
Proceeds from sale of real estate owned 135 196
Purchase of property and equipment, net (462) (293)
- --------------------------------------------------------------------------------
Net cash used in investing activities (8,257) (16,216)
FINANCING ACTIVITIES:
Net decrease in time certificates (4,088) (1,091)
Net increase in other deposits 7,865 7,145
Increase (decrease) in overnight borrowings (25) 2,930
Increase in long-term borrowings 500 --
Repayment of long-term borrowings (278) (45)
Proceeds from issuance of stock pursuant
to stock plans 98 139
Dividends paid (286) (170)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 3,786 8,908
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,611) (3,314)
Cash and cash equivalents at beginning of period 9,526 9,289
================================================================================
Cash and cash equivalents at end of period $ 7,915 $ 5,975
================================================================================
Interest paid $ 7,064 $ 6,724
================================================================================
Income taxes paid $ 756 $ 89
================================================================================
Supplemental schedule of noncash investing activities:
Mortgage loans foreclosed and
transferred to real estate owned $ 408 $ 271
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
SKANEATELES BANCORP, INC.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Skaneateles Bancorp, Inc. (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 Skaneateles Savings Bank (the Bank), its
sole subsidiary. Skaneateles Savings Bank is a full service retail bank.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
The data in the consolidated balance sheet for December 31, 1996 was derived
from the Company's 1996 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 1996 Annual Report to
Stockholders.
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.
The following summarizes the significant accounting policies of the Company:
A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany balances and transactions are eliminated
in consolidation.
B) 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.
7
<PAGE> 8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
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.
C) 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 between sales proceeds and the
carrying value of the loans. The Bank typically retains the servicing rights to
mortgages sold.
D) 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.
The Company estimates losses on impaired loans based on the present value of
expected future cash flows (discounted at the loan's effective interest rate) or
the fair value of the underlying collateral if the loan is collateral dependent.
An impairment loss exists if the recorded investment in a loan exceeds the value
of the loan as measured by the aforementioned methods. A loan is considered
impaired when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Generally,
all commercial mortgage loans and commercial loans in a delinquent payment
status (90 days or more delinquent) are considered impaired. Residential
mortgage loans, consumer loans, home equity lines of credit and education loans
are evaluated collectively since they are homogenous and generally carry smaller
individual balances. Impairment losses are included as a component of the
allowance for loan losses. Troubled debt restructurings involving a modification
of terms are recorded at fair value as of the date of the transaction. The
Company recognizes interest income on impaired loans using the cash basis of
income recognition. Cash receipts on impaired loans are generally applied
according to the terms of the loan agreement, or as a reduction of principal,
based upon management judgment and the related factors discussed above.
E) 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
<PAGE> 9
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
F) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash,
amounts due from banks and federal funds sold.
G) RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts for consistency
in reporting.
H) NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." The statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. The impact on the Company's consolidated financial statements is not
expected to be material.
The Financial Accounting Standards Board (FASB) issued Statement No. 128 ("SFAS
No. 128") Earnings Per Share in February 1997 effective for periods ending after
December 15, 1997. Statement 128 was issued to simplify the computation of EPS
and to make the U.S. standard more compatible with the EPS standards of other
countries. Prior period EPS will be restated after the effective date of this
statement. The adoption of SFAS No. 128 is not expected to have material effect
on earnings per share as the Company does not have a complex capital structure.
In June 1997, the FASB issued Statement No. 130 entitled "Reporting
Comprehensive Income." The statement establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The impact of adopting Statement 130, which is effective for fiscal
years beginning after December 15, 1997, is not expected to have a material
impact on the Company.
In June 1997, the FASB also issued Statement No. 131 entitled "Disclosures about
Segments of an Enterprise and Related Information." The statement requires
publicly-held companies to report financial and other information about key
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific information to
be reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
Statement 131 is effective for financial statements for periods beginning after
December 15, 1997. At the present time, the effect of adopting the statement,
if any, has not been determined.
2. INCOME TAXES
Income taxes for the third quarter were $231,000 or 35.0% of pre-tax income,
compared with $25,000 or 5.8% of pre-tax income for the year ago quarter. In
1995, the Company had a valuation allowance relating to loan losses that had not
yet been deducted for income tax purposes. The Company generated sufficient
earnings in 1994 through 1996 to enable it to reduce the valuation allowance,
resulting in an effective tax rate less than the statutory rates for 1996. The
Company's effective tax rate is projected to be approximately 35% in 1997.
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION & RESULTS OF OPERATIONS
-------------------------------------------
GENERAL
Skaneateles Bancorp, Inc. (the "Company") is a bank holding company, with
Skaneateles Savings Bank (the "Bank") being its sole subsidiary. The financial
condition and operating results of the Company are largely dependent on the
Bank, its primary investment.
CHANGES IN FINANCIAL CONDITION FROM
-----------------------------------
DECEMBER 31, 1996 TO SEPTEMBER 30, 1997
----------------------------------------
ASSETS
Consolidated assets of the Company were $247.6 million at September 30, 1997, a
$5.5 million or 2.3% increase from December 31, 1996.
LOANS
Net loans receivable were $210.8 million at September 30, 1997, an increase of
$6 million or 2.9% from December 31, 1996. Total loan closings (including
undisbursed funds) were $12.2 million in the third quarter, compared with $15.7
million in the year ago quarter, a decrease of 22%. Consumer installment and
commercial loan originations during the quarter increased a combined $3.1
million or 44.7% over the year ago quarter, while residential mortgage
originations decreased $6.5 million or 72.8% compared with the same period last
year. Consumer and commercial loans represented 80.2% of the total loans
originated in the third quarter of 1997, compared with 43.3% in the third
quarter of 1996.
As discussed in the Company's 1996 Form 10-K Annual Report, a large portion of
the residential mortgages originated in 1996 was referred to the Bank by
third-party brokers in areas contiguous to the Bank's designated lending area.
Brokers were used to supplement the Bank's own direct originations in order to
meet mortgage lending goals. Increasing competition in mortgage lending,
however, has squeezed margins and profitability. As a result, the Bank shifted
its lending focus in 1996, placing more emphasis on consumer and commercial
loans and less on residential mortgages.
In the third quarter of 1996, the Bank effectively suspended the use of mortgage
brokers, focusing instead on its designated lending area for residential
mortgages, and implemented an indirect lending program, through which it
receives consumer loan applications from Bank-approved automobile, boat and
recreational vehicle dealerships on behalf of their customers to finance their
purchases. This program is expected to be an integral part of the Bank's
consumer loan origination efforts for the foreseeable future. These applications
are subject to the Bank's normal consumer loan underwriting criteria. Indirect
consumer loan originations in the first nine months of 1997 totaled
approximately $6.2 million or 37.7% of total consumer loan originations.
The Bank's deposit base has grown considerably in 1996 and 1997, with more than
11,000 new deposit accounts being added since March 1996, as a result of a
direct mail marketing program. This has provided the Bank with an enormous
opportunity to cross-sell the Bank's credit products, and is expected to be a
significant source of future consumer loan growth.
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.
In addition, the Bank has attempted to increase its name recognition in the
business community via advertisements in trade journals and business
publications and participation in trade shows.
In January 1997, the Bank expanded its commercial loan products by offering
dealer floor plans. Through this program the Bank offers revolving credit lines
to local automobile, boat and recreational vehicle dealerships to finance
inventory purchases. As of September 30, 1997, the Bank had total approved
dealer floor plan lines totaling $3.7 million.
10
<PAGE> 11
The following table sets forth the composition of Skaneateles' loan portfolio by
loan type as of the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------------------ -----------------------------------------
1997 1996 1996 1995
------------------- ------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by first mortgages
on real estate:
Residential $121,337 57.11% 129,644 63.49% 129,651 62.74% 116,320 67.80%
Commercial 32,849 15.46% 30,898 15.13% 31,728 15.35% 27,357 15.94%
Other loans:
Commercial loans & leases 21,008 9.89% 19,227 9.42% 18,861 9.13% 10,631 6.20%
Home equity and
improvement 19,844 9.34% 15,995 7.83% 17,599 8.52% 14,578 8.50%
Guaranteed student 955 0.45% 763 0.37% 882 0.43% 858 0.50%
Other consumer 16,476 7.75% 7,678 3.76% 7,924 3.83% 1,821 1.06%
- ----------------------------------------------------------------------------------------------------------------------------
Total $212,469 100.00% 204,205 100.00% 206,645 100.00% 171,565 100.00%
============================================================================================================================
</TABLE>
The allowance for loan losses was $2,085,000 at September 30, 1997. Loan loss
provisions of $400,000 in the first nine months of 1997 were offset by net
charge-offs totaling $429,000.
In October and November 1997, the Bank received cash payments of $438,000 on two
loans that had been charged down in 1995 and 1996. These recoveries were
credited to the allowance for loan losses.
The following table sets forth the activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------
1997 1996 1996 1995 1994
-------- ------ ------- ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 2,114 2,667 2,667 3,040 2,938
Provision 400 100 175 235 360
CHARGE-OFFS
Residential mortgages (66) (35) (74) -- (18)
Commercial mortgages (237) (168) (168) (569) --
Business (76) (939) (999) (153) (331)
Other consumer (115) (14) (60) (10) (17)
- -------------------------------------------------------------------------------------------------
(494) (1,156) (1,301) (732) (366)
- -------------------------------------------------------------------------------------------------
RECOVERIES
Commercial mortgages 5 -- -- -- --
Business 46 49 118 118 96
Other consumer 14 4 8 6 12
- -------------------------------------------------------------------------------------------------
65 53 126 124 108
- -------------------------------------------------------------------------------------------------
NET CHARGE-OFFS (429) (1,103) (1,175) (608) (258)
- -------------------------------------------------------------------------------------------------
Allowance of Cicero Bank
at time of acquisition -- 447 447 -- --
- -------------------------------------------------------------------------------------------------
Ending Balance $ 2,085 2,111 2,114 2,667 3,040
- -------------------------------------------------------------------------------------------------
Ratio of net charge-offs
to average loans outstanding 0.21% 0.60% 0.62% 0.36% 0.17%
- -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
The following table sets forth information with respect to loans delinquent 90
days or more, nonaccrual loans, restructured loans, and real estate owned as of
the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-----------------------------------------------
1997 1996 1996 1995 1994
------ ----- ----- ----- -----
(In Thousands)
Nonaccruing loans
<S> <C> <C> <C> <C> <C>
Residential real estate mortgages $ 999 1,029 1,359 271 317
Commercial (1) 2,217 1,649 1,626 1,757 2,894
Consumer 228 153 186 110 40
- ---------------------------------------------------------------------------------------------------------
Total $3,444 2,831 3,171 2,138 3,251
=========================================================================================================
Other loans past due 90 days or more and still accruing:
Residential real estate mortgages $ 76 -- -- -- --
Consumer (2) -- -- 29 1 --
Commercial (1) -- 198 370 -- 447
- ---------------------------------------------------------------------------------------------------------
Total $ 76 198 399 1 447
=========================================================================================================
Restructured loans, not included above -- -- -- 1,125 932
=========================================================================================================
Real estate owned 975 473 717 397 984
=========================================================================================================
Total assets containing specific risk elements $4,495 3,502 4,287 3,661 5,614
=========================================================================================================
Ratio of total loans past due
90 days or more to gross loans 1.66% 1.48% 1.73% 1.25% 2.05%
=========================================================================================================
Ratio of assets containing specific
risk elements to total assets 1.82% 1.45% 1.77% 1.74% 2.78%
=========================================================================================================
(1) Includes commercial real estate loans.
(2) Consists primarily of Guaranteed Student Loans.
</TABLE>
Nonperforming assets (nonaccrual loans and real estate owned) totaled $4.4
million, or 1.8% of total assets at September 30, 1997, compared with $3.9
million, or 1.6% of total assets at December 31, 1996, and $3.3 million or 1.4%
at September 30, 1996. Included in nonperforming assets at September 30, 1997
were nonaccrual loans of $3.4 million or 1.6% of gross loans, compared with $3.2
million or 1.5% at December 31, 1996 and $2.8 million or 1.4% at September 30,
1996.
At September 30, 1997, nonaccrual loans were comprised of 29% residential
mortgages, 64% commercial loans and mortgages and 7% consumer loans. At
September 30, 1996, the breakdown was 36% residential mortgages, 58% commercial
loans and mortgages and 6% consumer loans.
The allowance for loan losses covered 60% of nonaccrual loans at September 30,
1997, compared with coverage of 67% at December 31, 1996 and 75% at September
30, 1996.
Impaired loans, which included troubled debt restructured loans, were $1.5
million and $2.6 million at September 30, 1997 and 1996, respectively. Included
in these amounts are $649,000 and $1.2 million of impaired loans for which the
related allowance for loan losses is $127,000 and $412,000, respectively. In
addition, included in the total impaired loans at September 30, 1997 and 1996
are $823,000 and $1.4 million, respectively, of impaired loans for which no
allowance is recorded due to the adequacy of collateral values in accordance
with SFAS 114. The average recorded investment in impaired loans during the
three months and nine months ended September 30, 1997 was approximately $1.3
million.
The amount of interest income recognized on impaired loans for the three months
ended September 30, 1997 and 1996 was approximately $59,000 and $25,000,
respectively. The amount of interest income recognized on impaired
12
<PAGE> 13
loans for the nine months ended September 30, 1997 and 1996 was approximately
$66,000 and $156,000 respectively. The Bank is not committed to lend additional
funds to these borrowers.
Potential problem loans at September 30, 1997 amounted to $2.2 million.
"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 borrower's inability to comply with the present
loan repayment terms. 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.
DEPOSITS
- --------
Total deposits (including advance payments by borrowers for property taxes and
insurance) were $208.8 million at September 30, 1997, compared with $205 million
at December 31, 1996 and $204.2 million at September 30, 1996. A $4.1 million
decrease in time certificates in 1997 was offset by a $2.4 million increase in
savings accounts and a $5.1 million increase in NOW and demand accounts. Money
market accounts increased $1.4 million while escrow accounts decreased $1
million due to payments of property taxes on behalf of borrowers.
The Bank's deposit strategy for the past eighteen months has focused on growing
its low cost transaction account base (savings, checking and NOW accounts),
while reducing its reliance on time certificates. An ongoing direct mail
marketing program that was implemented in February 1996 supports this strategy.
Transaction accounts (including escrow) comprised 39.3% of total deposits at
September 30, 1997, up from 36.9% at December 31, 1996 and 36.3% at September
30, 1996. The direct mail 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>
SEPTEMBER 30, DECEMBER 31,
-------------------------------------------- ------------------------------------------
1997 1996 1996 1995
---------------------- --------------------- --------------------- ---------------------
Percent Percent Percent Percent
of total of total of total of total
Amount deposits Amount deposits Amount deposits Amount deposits
---------------------- --------------------- --------------------- --------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and club accounts $ 41,185 19.73% 39,808 19.49% 38,690 18.87% 33,016 18.43%
Time certificates 103,341 49.49% 108,251 52.99% 107,429 52.39% 99,474 55.54%
Money market accounts 23,445 11.23% 21,937 10.74% 21,991 10.73% 21,448 11.98%
NOW accounts 22,874 10.95% 19,506 9.55% 20,314 9.91% 13,244 7.39%
Demand accounts 17,311 8.29% 14,022 6.86% 14,861 7.25% 9,927 5.54%
Escrow accounts 650 0.31% 753 0.37% 1,744 0.85% 2,010 1.12%
- -------------------------------------------------------------------------------------------------------------------
Total $208,806 100.00% 204,277 100.00% 205,029 100.00% 179,119 100.00%
===================================================================================================================
</TABLE>
STOCKHOLDERS' EQUITY
- --------------------
Stockholders' equity at September 30, 1997 was $17.3 million, or $18.15 per
share, compared with $16.2 million or $17.12 per share at December 31, 1996. At
September 30, 1997, the Bank's leverage capital ratio was 6.79% and its
risk-based capital ratio was 11.29%. Both capital measurements were in excess of
regulatory requirements.
In October 1997 the Company declared a dividend of $.10 per share payable on
November 18, 1997 to shareholders of record on November 4.
13
<PAGE> 14
COMPARISON OF THE RESULTS OF OPERATIONS
---------------------------------------
GENERAL
- -------
Net income was $430,000 or $.45 per share for the third quarter of 1997,
compared with $405,000 or $.43 per share for the same period in 1996. Income
before taxes increased $231,000 or 53.7% compared with the year ago quarter. A
$287,000 increase in net interest income and a $188,000 increase in other
operating income offset increases in other operating expenses of $94,000 and a
$150,000 increase in loan loss provisions. Income taxes increased $206,000.
Net income for the nine months ended September 30, 1997 was $1.3 million or
$1.34 per share, up 20.7% from the year ago period. Income before taxes was $2
million for the first nine months of 1997, an increase of 75.9% from the year
ago period.
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 September 30,
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>
1997 1996
------------------------------------ -----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------------ -----------------------------------
(Dollars In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $155,583 $3,167 8.14% $158,903 $3,140 7.90%
Other loans 56,407 1,311 9.22% 41,927 1,011 9.59%
- --------------------------------------------------------------------------------------------------------------------
Total loans 211,990 4,478 8.43% 200,830 4,151 8.25%
- --------------------------------------------------------------------------------------------------------------------
Securities 18,775 310 6.55% 24,048 382 6.32%
Federal funds sold 4,632 66 5.65% 1,153 19 6.56%
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 235,397 4,854 8.22% 226,031 4,552 8.04%
- --------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 13,878 - 14,284 -
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 249,275 4,854 240,315 4,552
- --------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Savings and club accounts $ 42,178 302 2.84% 39,420 282 2.85%
Time certificates 102,944 1,433 5.52% 108,706 1,535 5.62%
Money market accounts 23,479 219 3.70% 22,894 193 3.35%
Now and escrow accounts 24,110 127 2.09% 19,724 107 2.16%
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 192,711 2,081 4.28% 190,744 2,117 4.42%
- --------------------------------------------------------------------------------------------------------------------
Borrowings 18,531 301 6.44% 15,375 251 6.49%
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 211,242 2,382 4.47% 206,119 2,368 4.57%
Non-interest-bearing deposits 18,195 - 14,747 -
Non-interest-bearing liabilities 2,420 - 3,567 -
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 231,857 2,382 224,433 2,368
Stockholders' equity 17,418 - 15,882 -
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 249,275 2,382 240,315 2,368
- --------------------------------------------------------------------------------------------------------------------
Net interest income/ interest rate
spread 2,472 3.75% 2,184 3.47%
- --------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/
net yield on interest-earning assets $ 24,155 4.20% 19,912 3.86%
Ratio of interest-earning assets
to interest-bearing liabilities 1.11 1.10
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
Net interest income was $2.5 million for the three months ended September 30,
1997 compared with $2.2 million for the same period in 1996. For the first nine
months of 1997, net interest income was $7.1 million, compared with $5.9 million
in the first nine months of 1996. The increase for the quarter is attributable
to a $9.4 million increase in average earning assets combined with a 36 basis
point increase in the net interest margin.
Average loans outstanding in the third quarter of 1997 were $212 million,
compared with $200.8 million in the year ago quarter. As noted above, most of
this growth was in the Bank's consumer and commercial loan portfolios.
The Company's earning-asset yield increased 18 basis points in the third quarter
of 1997 compared with the year ago quarter, due mainly to a 18 basis point
increase on loan yields. Mortgage loan yields increased 24 basis points due in
part to slightly higher bond market interest rates and to a higher proportion of
the portfolio being commercial mortgages, while yields on other loans decreased
37 basis points due in large part to strong growth in consumer and commercial
loans with lower yields relative to the Bank's existing portfolio.
The average cost of interest-bearing liabilities decreased 10 basis points due
to a change in the mix of interest bearing deposits, and to a lower cost of time
certificates. Savings and NOW accounts, which are the Company's lowest costing
source of funds, grew to 31.4% of average interest bearing deposits in the third
quarter of 1997, up from 28.8% in the year ago quarter. The cost of time
certificates decreased 10 basis points as some longer term, higher rate accounts
renewed at generally lower rates in the first half of 1997. In addition, many
customers moved their funds into shorter maturity accounts in the first nine
months of 1997 in anticipation of rising rates.
The net interest margin, which is equal to net interest income divided by
average interest-earning assets, was 4.20% for the third quarter of 1997, up
from 3.86% in the year ago quarter. The margin for the first nine months of 1997
was 4.12%, compared with 3.72% in the first nine months of 1996.
OTHER OPERATING INCOME
Total other operating income was $465,000 in the third quarter of 1997, an
increase of $188,000 or 67.9% from the third quarter of 1996. Other operating
income for the first nine months of 1997 was $1.3 million, up $578,000 or 76.4%
from the year ago period. Service charges and fee income generated by the growth
in the Company's checking and savings accounts has been the main contributor to
the increase.
OTHER OPERATING EXPENSES
Total other operating expenses were $2.1 million for quarter ended September 30,
1997, compared with $2 million for the same period in 1996. Other operating
expenses for the first nine months of 1997 were $6.1 million, compared with $5.4
million for the same period in 1996. The increase is directly attributable to
current and planned future asset growth.
15
<PAGE> 16
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
ITEM 4. Submission of Matters to a Vote of Security Holders
------- Not applicable
ITEM 5. Other Information
------- On October 14, 1997, the Company declared a cash dividend of
$.10 per share, payable on November 18, 1997 to shareholders of
record on November 4.
ITEM 6. Exhibits and Reports on Form 8-K
-------
a. No. Exhibit
--- -------
27 Financial Data Schedule
b. On October 29, the Company filed a Form 8-K announcing the
declaration of a three-for-two stock split, in the form of a
50 percent stock dividend, payable on November 28, 1997 to
shareholders of record on November 12. The stock split will
increase the Company's shares outstanding by approximately
477,700 shares. The Company had 955,457 shares outstanding
on October 28.
Under the terms of the stock dividend, Skaneateles Bancorp
shareholders will receive a dividend of one share for every
two shares held on November 12. Fractional shares created by
the stock dividend will be paid in cash based upon the last
reported sale price on November 12, as adjusted for the
stock dividend, except for shareholders participating in the
Company's dividend reinvestment plan who will receive
fractional shares credited to their accounts.
16
<PAGE> 17
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.
SKANEATELES BANCORP, INC.
-------------------------
(Registrant)
By: /s/ John P. Driscoll Date: November 12, 1997
-------------------------------- -----------------
John P. Driscoll
Chairman, President and Chief
Executive Officer
By: /s/ J. Daniel Mohr Date: November 12, 1997
-------------------------------- -----------------
J. Daniel Mohr
Chief Financial Officer
and Treasurer
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED WITHIN THE COMPANY'S
SEPTEMBER 30, 1997 FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,516
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,451
<INVESTMENTS-CARRYING> 9,041
<INVESTMENTS-MARKET> 9,298
<LOANS> 212,469
<ALLOWANCE> 2,085
<TOTAL-ASSETS> 247,643
<DEPOSITS> 208,806
<SHORT-TERM> 4,988
<LIABILITIES-OTHER> 3,122
<LONG-TERM> 13,390
0
0
<COMMON> 10
<OTHER-SE> 17,327
<TOTAL-LIABILITIES-AND-EQUITY> 247,643
<INTEREST-LOAN> 13,075
<INTEREST-INVEST> 909
<INTEREST-OTHER> 151
<INTEREST-TOTAL> 14,135
<INTEREST-DEPOSIT> 6,152
<INTEREST-EXPENSE> 7,041
<INTEREST-INCOME-NET> 7,094
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,050
<INCOME-PRETAX> 1,979
<INCOME-PRE-EXTRAORDINARY> 1,979
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,279
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 4.20
<LOANS-NON> 3,444
<LOANS-PAST> 76
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,211
<ALLOWANCE-OPEN> 2,114
<CHARGE-OFFS> 494
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 2,085
<ALLOWANCE-DOMESTIC> 2,085
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
