<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, 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 April 30, 1997
------------------------------------------------------------------------
Common Stock (par value $.01 per share) 952,151 Shares
1
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<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION Page
- ----------------------------- ----
Item 1. Consolidated Financial Statements
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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 17
-------
Item 2. Changes in Securities 17
-------
Item 3. Defaults Upon Senior Securities 17
-------
Item 4. Submission of Matters to a Vote of Security Holders 17
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Item 5. Other Information 17
-------
Item 6. Exhibits and Reports on Form 8-K 17
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SIGNATURES 18
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</TABLE>
2
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<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- -----------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
Cash and due from banks $ 5,501 5,726
Federal funds sold 3,000 3,800
Securities available for sale 5,757 6,009
Securities held to maturity, fair value of
$10,699 in 1997 and $11,138 in 1996 10,512 10,893
Federal Home Loan Bank stock, at cost 1,561 1,410
Mortgage loans receivable 160,471 161,379
Other loans receivable 46,728 45,266
- -----------------------------------------------------------------------------------
207,199 206,645
Net deferred costs 327 299
Allowance for loan losses (1,959) (2,114)
- -----------------------------------------------------------------------------------
Loans receivable, net 205,567 204,830
Premises and equipment, net 6,091 6,195
Real estate owned, net 717 717
Accrued interest receivable 1,344 1,271
Other assets 1,375 1,331
- -----------------------------------------------------------------------------------
$ 241,425 242,182
- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------
Liabilities:
Interest bearing deposits $ 188,420 188,424
Demand deposits 15,230 14,861
- -----------------------------------------------------------------------------------
Total deposits 203,650 203,285
Advance payments by borrowers for property taxes
and insurance 1,043 1,744
Borrowings 18,167 18,181
Accrued expenses and other liabilities 1,990 2,742
- -----------------------------------------------------------------------------------
Total liabilities 224,850 225,952
- -----------------------------------------------------------------------------------
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, 952,051 and 948,092 shares issued
in 1997 and 1996, respectively 10 9
Additional paid-in capital 9,022 8,978
Retained earnings 7,607 7,300
Net unrealized gain (loss) on securities, net of taxes (64) (57)
- -----------------------------------------------------------------------------------
Total stockholders' equity 16,575 16,230
- -----------------------------------------------------------------------------------
$ 241,425 242,182
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31,
1997 1996
- ----------------------------------------------------------------------------------
(In Thousands, Except Per Share
Data)
Interest income:
<S> <C> <C>
Mortgage loans $ 3,227 2,863
Other loans 1,005 680
Securities 294 338
Federal funds sold 46 91
- ----------------------------------------------------------------------------------
Total interest income 4,572 3,972
- ----------------------------------------------------------------------------------
Interest expense:
Deposits 2,040 1,938
Borrowings 290 235
- ----------------------------------------------------------------------------------
Total interest expense 2,330 2,173
- ----------------------------------------------------------------------------------
Net interest income 2,242 1,799
Provision for loan losses 100 25
- ----------------------------------------------------------------------------------
Net interest income after provision
for loan losses 2,142 1,774
- ----------------------------------------------------------------------------------
Other operating income:
Net gain on security transactions 0 77
Net gain on sale of loans 50 7
Service charges 297 122
Other 74 59
- ----------------------------------------------------------------------------------
Total other operating income 421 265
- ----------------------------------------------------------------------------------
2,563 2,039
- ----------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 887 733
Building, occupancy and equipment 308 289
Real estate owned, net 7 2
Other 737 596
- ----------------------------------------------------------------------------------
Total other operating expenses 1,939 1,620
- ----------------------------------------------------------------------------------
Income before income taxes 624 419
Income tax 222 24
- ----------------------------------------------------------------------------------
Net income $ 402 395
- ----------------------------------------------------------------------------------
Net income per common share $ 0.42 0.42
- ----------------------------------------------------------------------------------
Weighted average common shares 950,819 931,809
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
4
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<TABLE>
<CAPTION>
SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Net
Additional Unrealized
Common Paid-in- Retained Gain (Loss) Treasury
Stock Capital Earnings on 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 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
tax effect of $55 0 0 0 (81) 0 (81)
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $ 10 9,539 6,422 (48) (713) 15,210
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 9 8,978 7,300 (57) 0 16,230
- ---------------------------------------------------------------------------------------------------------------------
Net income 0 0 402 0 0 402
Sale of 2,800 shares under option 1 24 0 0 0 25
Issuance of 664 shares of stock under
1995 Non-employee Director's Stock Plan 0 11 0 0 0 11
Issuance of 495 shares of stock under
Dividend Reinvestment Plan 0 9 0 0 0 9
Cash dividend declared on
Common stock ($.10 per share) 0 0 (95) 0 0 (95)
Change in net unrealized
loss on securities, net of
tax effect of $2 0 0 0 (7) 0 (7)
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ 10 9,022 7,607 (64) 0 16,575
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
<TABLE>
<CAPTION>
CENTER BANKS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
1997 1996
- -------------------------------------------------------------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 402 395
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Provision for loan losses 100 25
Depreciation and amortization 160 141
Mortgage loans originated for sale (888) (811)
Proceeds from sale of loans originated for sale 1,440 1,217
Net gain on security transactions 0 (77)
Net (increase) decrease in interest receivable (74) 16
Net increase (decrease) in other liabilities (756) 193
Other, net (279) (347)
- -------------------------------------------------------------------------------------------------
Total adjustments (297) 357
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 105 752
INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 4 0
Proceeds from sale of securities available for sale 0 2,462
Proceeds from maturities of securities held to maturity 262 1,020
Purchase of securities held to maturity 0 (2,066)
Principal collected on asset-backed securities 364 77
Purchase of Federal Home Loan Bank stock (151) (107)
Net increase in loans made to customers (1,161) (276)
Proceeds from sale of real estate owned 0 132
Purchase of property and equipment, net (48) (71)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (730) 1,171
FINANCING ACTIVITIES:
Net increase (decrease) in time certificates (2,885) 230
Net increase in other deposits 2,549 3,199
Increase (decrease) in overnight borrowings (254) 411
Increase in long-term borrowings 500 0
Repayment of long-term borrowings (260) (15)
Proceeds from issuance of stock pursuant to stock plans 45 13
Dividends paid (95) (56)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (400) 3,782
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,025) 5,705
Cash and cash equivalents at beginning of period 9,526 9,289
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 8,501 14,994
==================================================================================================
Interest paid $ 2,324 2,169
==================================================================================================
Income taxes paid $ 3 73
==================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
6
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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.
On April 15, 1997, shareholders of the Company approved the Company's proposal
to change its name from Center Banks Incorporated. The name change became
effective April 16, 1997.
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 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 should have no material effect on
earnings per share as the Company does not have a complex capital structure.
2. INCOME TAXES
Income taxes for the first quarter were $222,000 or 35.6% of pre-tax income,
compared with $24,000 or 5.7% 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
through credits to the income tax provision in 1996, which resulted 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 March 31, 1997
-----------------------------------
Assets
- ------
Consolidated assets of the Company were $241.4 million at March 31, 1997, a
$757,000 or .31% decrease from December 31, 1996.
Loans
- -----
Net loans receivable were $205.6 million at March 31, 1997, an increase of
$737,000 or .36% from December 31, 1996. Total loan closings (including
undisbursed funds) were $10.8 million in the first quarter, compared with $8.0
million in the year ago quarter, an increase of 34.4%. Consumer installment and
commercial loan originations increased a combined $4.7 million or 137.2% over
the year ago quarter. Residential mortgage originations decreased $2 million or
43% in 1997's first quarter. Loan sales of $1.2 million and higher than normal
loan amortization partially offset originations in the first quarter of 1997.
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 in 1997 and beyond. These applications are
subject to the Bank's normal consumer loan underwriting criteria. Indirect
consumer loan originations in the first quarter of 1997 totaled approximately
$950,000 or 22.7% of total consumer loan originations.
The Bank's deposit base has grown considerably in 1996 and into 1997, with more
than 7,000 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. In January 1997, a marketing
software package was purchased which allows the Bank to identify all
relationships with its customers on an individual or household level. This
software is expected to further enhance the effectiveness of the direct mail
marketing program.
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 March 31, 1997, the Bank had total approved dealer
floor plan lines totaling $1.4 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>
MARCH 31, DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1996 1996 1995
--------------------- --------------------- --------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------------------- --------------------- -------------------- --------------------
(Dollars in Thousands)
Loans secured by first mortgages
on real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 127,956 61.76% 116,196 67.79% 129,651 62.74% 116,320 67.80%
Commercial 32,515 15.69% 26,680 15.57% 31,728 15.35% 27,357 15.94%
Other loans:
Commercial loans & leases 18,460 8.91% 10,882 6.35% 18,861 9.13% 10,631 6.20%
Home equity and improvement 18,244 8.81% 14,788 8.62% 17,599 8.52% 14,578 8.50%
Guaranteed student 921 0.44% 860 0.50% 882 0.43% 858 0.50%
Other consumer 9,103 4.39% 2,014 1.17% 7,924 3.83% 1,821 1.06%
- ----------------------------------------------------------------------------------------------------------------------
Total $207,199 100.00% 171,410 100.00% 206,645 100.00% 171,565 100.00%
=====================================================================================================================
</TABLE>
On July 1, 1996, the Bank acquired the assets and assumed deposit liabilities of
Cicero Bank. Loans acquired in this transaction totaled $14 million, and
consisted primarily of commercial and consumer loans.
The allowance for loan losses was $1,959,000 at March 31, 1997, which was a
$155,000 decrease from the balance at December 31, 1996. Loan loss provisions of
$100,000 in the first quarter of 1997 were offset by net charge-offs totaling
$255,000.
11
<PAGE> 12
The following table sets forth the activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 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 100 25 175 235 360
Charge-offs
- -----------
Residential mortgages 0 (30) (74) 0 (18)
Commercial mortgages (188) 0 (168) (569) 0
Business (12) (11) (999) (153) (331)
Other consumer (70) (1) (60) (10) (17)
- --------------------------------------------------------------------------------------------------------
(270) (42) (1,301) (732) (366)
- --------------------------------------------------------------------------------------------------------
Recoveries
- ----------
Commercial mortgages 3 0 0 0 0
Business 6 11 118 118 96
Other consumer 6 0 8 6 12
- --------------------------------------------------------------------------------------------------------
15 11 126 124 108
- --------------------------------------------------------------------------------------------------------
Net Charge-offs (255) (31) (1,175) (608) (258)
- --------------------------------------------------------------------------------------------------------
Allowance of Cicero Bank
at time of acquisition 0 0 447 0 0
- --------------------------------------------------------------------------------------------------------
Ending Balance $ 1,959 2,661 2,114 2,667 3,040
=======================================================================================================
Ratio of net charge-offs
to average loans outstanding 0.12% 0.02% 0.62% 0.36% 0.17%
=======================================================================================================
</TABLE>
12
<PAGE> 13
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>
MARCH 31, DECEMBER 31,
------------------------------------------------------------------
1997 1996 1996 1995 1994
------------- ----------- ----------- ------------ -----------
(In Thousands)
Nonaccruing loans
<S> <C> <C> <C> <C> <C>
Residential real estate mortgages $1,379 315 1,359 271 317
Commercial (1) 1,401 1,579 1,626 1,757 2,894
Consumer 171 15 186 110 40
- ------------------------------------------------------------------------------------------------------------------
Total $2,951 1,909 3,171 2,138 3,251
- ------------------------------------------------------------------------------------------------------------------
Other loans past due 90 days or more
and still accruing:
Consumer (2) 42 24 29 1 0
Commercial (1) 266 103 370 0 447
- ------------------------------------------------------------------------------------------------------------------
Total $308 127 399 1 447
- ------------------------------------------------------------------------------------------------------------------
Restructured loans, not included above 0 1,113 0 1,125 932
- ------------------------------------------------------------------------------------------------------------------
Real estate owned 717 268 717 397 984
- ------------------------------------------------------------------------------------------------------------------
Total assets containing specific risk elements $3,976 3,417 4,287 3,661 5,614
- ------------------------------------------------------------------------------------------------------------------
Ratio of total loans past due
90 days or more to gross loans 1.57% 1.19% 1.73% 1.25% 2.05%
- ------------------------------------------------------------------------------------------------------------------
Ratio of assets containing specific
risk elements to total assets 1.65% 1.59% 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 $3.7
million, or 1.5% of total assets at March 31, 1997, compared with $3.9 million,
or 1.6% of total assets at December 31, 1996, and $2.2 million or 1.0% at March
31, 1996. Included in nonperforming assets at March 31, 1997 were nonaccrual
loans of $3.0 million or 1.4% of gross loans, compared with $3.2 million or 1.5%
at December 31, 1996 and $1.9 million or 1.1% at March 31, 1996. Approximately
40% of the increase in nonaccrual loans at March 31, 1997 compared with March
31, 1996 is attributable to the July 1, 1996 acquisition of Cicero Bank's $19
million loan portfolio.
The allowance for loan losses covered 66% of nonperforming loans at March 31,
1997, compared with coverage of 67% at December 31, 1996 and 139% at March 31,
1996. At March 31, 1997, residential mortgages comprised 47% of all nonaccrual
loans, compared with 16% at March 31, 1996. Conversely, commercial loans
represented 47% of nonaccrual loans at March 31, 1997, down from 84% at March
31, 1996. The Company's exposure to losses on nonaccrual loans has not increased
proportionately with the increase in nonperforming loans because most of the
increase is in residential mortgages, which have a very low risk of loss. Since
January 1, 1994, the Company's losses on residential mortgages has totaled only
$113,000 or .1% of total residential mortgages outstanding.
Impaired loans, which included troubled debt restructured loans, were $839,000
and $3.5 million at March 31, 1997 and 1996, respectively. Included in these
amounts are $443,000 and $2.8 million of impaired loans for which the related
allowance for loan losses is $83,000 and $938,000, respectively. In addition,
included in the total impaired loans at March 31, 1997 and 1996 are $396,000 and
$735,000 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 first quarter of 1997 and 1996 was
approximately $1.1 million and $3.8 million, respectively.
13
<PAGE> 14
The Company did not recognize any interest income on impaired loans in the first
quarter of 1997. The amount of interest income recognized on impaired loans in
the first quarter of 1996 was approximately $62,000. The Bank is not committed
to lend additional funds to these borrowers.
Potential problem loans at March 31, 1997 amounted to $1.5 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 $204.7 million at March 31, 1997, compared with $205 million at
December 31, 1996. A $2.9 million decrease in time certificates was offset by a
$1.7 million increase in savings accounts and a $800,000 increase in NOW and
demand accounts.
The Bank's deposit strategy for the past year has focused on growing its low
cost transaction account base (savings, checking and NOW accounts), while
reducing its reliance on time certificates. This strategy is supported by an
ongoing direct mail marketing program that was implemented in February 1996.
Transaction accounts comprised 38.12% of total deposits at March 31, 1997, up
from 36.88% at December 31, 1996 and 33.20% at March 31, 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>
MARCH 31, 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 $ 40,407 19.74% 34,069 18.66% 38,690 18.87% 33,016 18.43%
Time certificates 104,544 51.08% 99,704 54.62% 107,429 52.39% 99,474 55.54%
Money market accounts 22,115 10.80% 22,227 12.18% 21,991 10.73% 21,448 11.98%
NOW accounts 21,354 10.43% 16,065 8.80% 20,314 9.91% 13,244 7.39%
Demand accounts 15,230 7.44% 9,457 5.18% 14,861 7.25% 9,927 5.54%
Escrow accounts 1,043 0.51% 1,026 0.56% 1,744 0.85% 2,010 1.12%
- --------------------------------------------------------------------------------------------------------------------
Total $204,693 100.00% 182,548 100.00% 205,029 100.00% 179,119 100.00%
====================================================================================================================
</TABLE>
Stockholders' Equity
- --------------------
Stockholders' equity at March 31, 1997 was $16.6 million, or $17.41 per share,
compared with $16.2 million or $17.12 per share at December 31, 1996. At March
31, 1997, the Company's leverage capital ratio was 6.6% and its risk-based
capital ratio was 11.3%. Both capital measurements were in excess of regulatory
requirements.
In April 1997 the Company declared a dividend of $.10 per share payable on May
13, 1997 to shareholders of record on April 29.
14
<PAGE> 15
Comparison of the Results of Operations
---------------------------------------
General
- -------
Net income was $402,000 or $.42 per share for the first quarter of 1997,
compared with $395,000 or $.42 per share for the same period in 1996. Income
before taxes increased $205,000 or 48.9% compared with the year ago quarter. A
$443,000 increase in net interest income and a $156,000 increase in other
operating income offset increases in other operating expenses of $319,000 and a
$75,000 increase in loan loss provisions. Income taxes increased $198,000.
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>
1997 1996
--------------------------------------- --------------------------------------
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 $ 160,538 $ 3,227 8.04% $ 145,368 $ 2,863 7.88%
Other loans 45,321 1,005 8.99% 28,165 678 9.68%
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 205,859 4,232 8.25% 173,533 3,541 8.17%
- --------------------------------------------------------------------------------------------------------------------------------
Securities 18,075 294 6.60% 20,294 338 6.70%
Federal funds sold 2,550 46 7.32% 7,126 91 5.14%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 226,484 4,572 8.11% 200,953 3,970 7.92%
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 13,421 0 8,101 0
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 239,905 4,572 209,054 3,970
================================================================================================================================
Interest-bearing liabilities:
Deposits:
Savings and club accounts $ 39,018 274 2.85% 33,107 231 2.81%
Time certificates 106,998 1,476 5.59% 100,150 1,451 5.83%
Money market accounts 21,382 180 3.41% 21,208 175 3.32%
Now and escrow accounts 21,146 110 2.11% 14,224 81 2.29%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 188,544 2,040 4.39% 168,689 1,938 4.62%
- --------------------------------------------------------------------------------------------------------------------------------
Borrowings 18,062 290 6.51% 14,263 234 6.61%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 206,606 2,330 4.57% 182,952 2,172 4.78%
Non-interest-bearing deposits 15,190 0 9,008 0
Non-interest-bearing liabilities 1,470 0 1,944 0
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 223,266 2,330 193,904 2,172
Stockholders' equity 16,639 0 15,150 0
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' $ 239,905 2,330 209,054 2,172
equity
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income/
interest rate spread 2,242 3.54% 1,798 3.14%
- --------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/
net yield on interest-earning assets $ 19,878 3.96% 18,001 3.58%
================================================================================================================================
Ratio of interest-earning assets
to interest-bearing liabilities 1.10 1.10
================================================================================================================================
</TABLE>
15
<PAGE> 16
Net interest income was $2.2 million for the three months ended March 31, 1997
compared with $1.8 million for the same period in 1996. The increase is
attributable to a $25.5 million increase in average earning assets combined with
a 38 basis point increase in the net interest margin.
Average loans outstanding in the first quarter of 1997 were $205.9 million,
compared with $173.5 million in the year ago quarter, an increase of $32.4
million. The Bank acquired loans totaling $14 million from Cicero Bank on July
1, 1996. The rest of the increase resulted from new loan originations.
The Company's earning-asset yield increased 19 basis points in the first quarter
of 1997 compared with the year ago quarter, due mainly to an increase of 8 basis
points on loan yields. Mortgage loan yields increased 16 basis points due in
part to higher bond market interest rates, while yields on other loans decreased
69 basis points due in large part to a shorter average life in the consumer loan
portfolio and corresponding lower rates, compared with the year ago quarter. In
addition, competition has put downward pressure on commercial loan rates in the
Bank's market area. The strong growth in consumer and commercial loans over the
past year relative to the size of the portfolios a year ago has magnified the
impact of the lower rates on these loans. Average consumer and commercial loans
outstanding in the first quarter of 1997 increased $17.1 million or 60.6%
compared with the year ago quarter.
The average cost of interest-bearing liabilities decreased 21 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 31.9% of average interest bearing deposits in the first
quarter of 1997, up from 28% in the year ago quarter. The cost of time
certificates decreased 24 basis points as some longer term, higher rate accounts
renewed at generally lower rates in the first quarter of 1997. In addition, many
customers moved their funds into shorter maturity accounts in the first quarter
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 3.96% for the first quarter of 1997, up
from 3.58% for the year ago quarter.
Other Operating Income
- ----------------------
Total other operating income was $421,000 in the first quarter of 1997, an
increase of $156,000 or 58.9% from the first quarter of 1996. 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. In the first quarter of
1997, the Company sold the guaranteed portion of its Small Business
Administration loan portfolio, which resulted in gains of approximately $45,000.
Other Operating Expenses
- ------------------------
Total other operating expenses were $1.9 million for quarter ended March 31,
1997, compared with $1.6 million for the same period in 1996. The increase is
directly attributable to current and planned future asset growth.
16
<PAGE> 17
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
------ a) The annual meeting of stockholders was held April 15, 1997.
b) The following three directors were elected: Israel
Berkman, Ann G. Higbee, Anne E. O'Connor. The following
directors have continued their term of office: Clifford C.
Abrams, David E. Blackwell, Walter D. Copeland, John P.
Driscoll, Carl W. Gerst, Jr., John Bernard Henry, Howard
J. Miller, Raymond C. Traver, Jr.
c) The following table summarizes the votes cast for each
matter voted upon:
<TABLE>
<CAPTION>
1. Election of Directors.
For Against/Withheld
--- ----------------
<S> <C> <C> <C>
Israel Berkman 784,597 11,144
Ann G. Higbee 784,549 11,192
Anne E. O'Connor 784,497 11,244
2. Proposal to change the name of the Company to
"Skaneateles Bancorp, Inc." and to amend Article 1 of
the Company's Certificate of Incorporation for that
purpose.
For Against Abstain
--- ------- -------
744,413 46,743 4,585
</TABLE>
3. 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, 1997.
<TABLE>
For Against/Abstain
--- ---------------
<S> <C> <C>
794,235 1,506
</TABLE>
Item 5. Other Information
-------
On April 8, 1997, the Company declared a cash dividend of $.10
per share, payable on May 13, 1997 to shareholders
of record on April 29.
Item 6. Exhibits and Reports on Form 8-K
------- a. Exhibits
No. Exhibit
--- -------
27 Financial Data Schedule
17
<PAGE> 18
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)
<TABLE>
<S> <C>
By: /s/ John P. Driscoll Date: May 12, 1997
------------------------------- ------------
John P. Driscoll
Chairman, President and Chief
Executive Officer
By: /s/ J. Daniel Mohr Date: May 12, 1997
------------------------------- ------------
J. Daniel Mohr
Chief Financial Officer
and Treasurer
</TABLE>
18
<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, 1997
FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,501
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,757
<INVESTMENTS-CARRYING> 10,512
<INVESTMENTS-MARKET> 10,699
<LOANS> 207,199
<ALLOWANCE> 1,959
<TOTAL-ASSETS> 241,425
<DEPOSITS> 204,693
<SHORT-TERM> 4,262
<LIABILITIES-OTHER> 1,990
<LONG-TERM> 13,905
<COMMON> 10
0
0
<OTHER-SE> 16,565
<TOTAL-LIABILITIES-AND-EQUITY> 241,425
<INTEREST-LOAN> 4,232
<INTEREST-INVEST> 294
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 4,572
<INTEREST-DEPOSIT> 2,040
<INTEREST-EXPENSE> 2,330
<INTEREST-INCOME-NET> 2,242
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,939
<INCOME-PRETAX> 624
<INCOME-PRE-EXTRAORDINARY> 624
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 8.11
<LOANS-NON> 2,951
<LOANS-PAST> 308
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,500
<ALLOWANCE-OPEN> 2,114
<CHARGE-OFFS> 270
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,959
<ALLOWANCE-DOMESTIC> 1,959
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
