SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------------------
Securities Exchange Act Number 000-25101
ONEIDA FINANCIAL CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Federal 16-1561678
------- ----------
(State or other jurisdiction of (IRS Employer)
incorporation or organization) Identification Number)
182 Main Street, Oneida, New York 13421
----------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (315) 363-2000
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check x whether the Registrant 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: There were 4,859,385 shares
of the Registrant's common stock outstanding as of August 1, 2002.
ONEIDA FINANCIAL CORP.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition 2
As of June 30, 2002 (unaudited) and December 31, 2001 (audited)
Consolidated Statements of Operations (unaudited) 3
For the three months ended and six months ended June 30, 2002 and 2001
Consolidated Statements of Comprehensive Income (unaudited) 4
For the three months ended and six months ended June 30, 2002
and 2001
Consolidated Statements of Cash Flows (unaudited) 5
For the three months ended and six months June 30, 2002 and 2001
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition 13
And Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION 21
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
1 of 23
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
At June 30, 2002 and December 31, 2001
(unaudited) (audited)
At At
June 30, December 31,
2002 2001
---- ----
ASSETS (in thousands)
Cash and due from banks $ 13,301 $ 11,851
Federal funds sold 10,000 9,900
-------------------------
TOTAL CASH AND CASH EQUIVALENTS 23,301 21,751
Investment securities, at fair value 105,642 78,390
Mortgage-backed securities, at fair value 56,552 53,686
Mortgage loans held for sale 4,080 5,946
Loans receivable 192,742 166,619
Allowance for credit losses (2,423) (1,672)
-------------------------
LOANS RECEIVABLE, NET 190,319 164,947
Bank premises and equipment, net 9,978 8,015
Accrued interest receivable 2,461 2,028
Other real estate 107 77
Other assets 4,639 3,751
Goodwill and other intangible assets 10,764 4,744
Cash surrender value - life insurance 9,637 9,382
--------------------------------------------------------------------------
TOTAL ASSETS $ 417,480 $ 352,717
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits $ 251,638 $ 198,281
Non-interest bearing deposits 44,859 29,882
Borrowings 71,100 76,600
Other liabilities 3,265 2,940
-------------------------
TOTAL LIABILITIES 370,862 307,703
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized 0 0
Common stock ($.01 par value; 20,000,000
shares authorized; 5,495,069 issued) 55 55
Additional paid-in capital 16,777 16,779
Retained earnings 33,808 33,031
Common shares issued under employee
stock plans - unearned (874) (874)
Accumulated other comprehensive income (loss) 552 (157)
Treasury stock (at cost, 437,550
and 444,094 shares) (3,156) (3,198)
Unearned stock compensation (544) (622)
--------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 46,618 45,014
--------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 417,480 $ 352,717
==========================================================================
The accompanying notes are an integral part of the consolidated financial
statements
Page 2 of 23
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended and Six Months Ended June 30, 2002 (unaudited) and
2001 (unaudited )
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except Earnings Per Share Data)
INTEREST INCOME:
Interest and fees on loans $ 3,384 $ 3,578 6,585 7,196
Interest on investment and mortgage-
backed securities 1,630 1,872 3,169 3,663
Dividends on equity securities 228 252 455 544
Interest on federal fund sold and
interest-bearing deposits 60 79 108 134
- -------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 5,302 5,781 10,317 11,537
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposit 123 205 234 473
Money market and Super NOW 145 150 282 320
Time deposits 1,380 1,659 2,821 3,300
Borrowings 887 1,062 1,841 2,114
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,535 3,076 5,178 6,207
- -------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 2,767 2,705 5,139 5,330
Less: Provision for credit losses 80 120 270 240
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 2,687 2,585 4,869 5,090
- -------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Investment security gain(loss), net 3 (26) 4 (10)
Other operating income 1,937 1,655 3,976 3,210
- -------------------------------------------------------------------------------------------------------------------------
Total other income 1,940 1,629 3,980 3,200
- -------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Compensation and employee benefits 2,245 1,897 4,317 3,811
Occupancy expenses, net 688 622 1,286 1,163
725 685 1,404 1,384
- -------------------------------------------------------------------------------------------------------------------------
Total other expenses 3,658 3,204 7,007 6,358
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 969 1,010 1,842 1,932
- -------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 258 313 518 593
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 711 $ 697 1,324 $ 1,339
=========================================================================================================================
EARNINGS PER SHARE - BASIC $ 0.15 $ 0.15 $ 0.27 $ 0.28
=========================================================================================================================
EARNINGS PER SHARE - DILUTED $ 0.14 $ 0.14 $ 0.26 $ 0.28
=========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3 of 23
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended and Six Months Ended June 30, 2002 (unaudited) and
2001 (unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
(in thousands)
Net income $ 711 $ 697 $ 1,324 $ 1,339
Other comprehensive income, net of tax:
Unrealized gains on investment securities available for sale:
Unrealized holding gains(losses)
arising during period 500 (749) 1,186
193
Less: reclassification adjustment for
gains(losses) included in net income (3) 26 (4)
10
497 (723) 1,182
203
Income tax effect (199) 289 (473)
(81)
Other comprehensive income, net of tax 298 (434) 709 122
Comprehensive Income $ 1,009 $ 263 $ 2,033 $
1,461
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4 of 23
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended and Six Months Ended June 30, 2002 (unaudited) and
2001 (unaudited )
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Operating Activities: (in thousands)
Net income $ 711 $ 697 $ 1,324 $ 1,339
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 255 295 476 596
Amortization of premiums/discounts on securities, net 17 16 62 30
Provision for credit losses and other real estate losses 80 120 270 240
Provision for investment losses 0 0 256 0
Stock compensation earned 39 39 78 79
Loss on sale of other real estate 14 0 19 0
(Gain) Loss on sale/call of securities, net (3) 26 (4) 10
Gain on sale of loans, net (22) (22) (121) (37)
Income tax payable 104 (18) (110) (122)
Accrued interest receivable (70) (82) 12 121
Other assets (519) (73) (874) (1,408)
Other liabilities (312) 198 (89) 1,224
Origination of loans held for sale (2,574) (9,560) (11,629) (14,027)
Proceeds from sales of loans 2,340 8,512 13,616 12,533
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 60 148 3,286 578
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of investment securities (16,052) (6,972) (29,740) (25,290)
Principal collected on and proceeds of maturities
sales or calls from investments 17,985 14,317 25,621 42,984
Purchase of mortgage-backed securities (3,007) (13,051) (8.031) (20,882)
Principal collected on and proceeds from sales
of mortgage-backed securities 4,600 3,425 12,043
6,323
Net decrease (increase) in loans 1,475 821 1,039
(253)
Purchase of bank premises and equipment (685) (808) (1,484)
(1,150)
Proceeds from sale of other real estate 91 0 147
55
Purchase of SBC Financial Corp, net of cash acquired (3,328) 0 (3,328) 0
Purchase of insurance agencies (183) 0 (183) (965)
Purchase of life insurance 0 0 0 (9,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by(used in) investing activities 896 (2,268) (3,916) (8,178)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase in demand deposit, savings,
money market, super now and escrow 9,517 4,542 12,847
5,243
Net (decrease) increase in time deposits (3,264) 1,926 (4,661)
6,234
Proceeds from borrowings 2,000 4,000 4,500
11,500
Repayment of borrowings (7,500) 0 (10,000)
(7,000)
Cash dividends (1) 0 (549)
(603)
Purchase of treasury stock 0 0
(3) (18)
Exercise of stock options (using treasury stock) 34 13 46 13
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 786 10,481 2,180 15,369
-----------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 1,742 8,361 1,550
7,769
Cash and cash equivalents at beginning of period 21,559 8,225 21,751
8,817
Cash and cash equivalents at end of period $ 23,301 $ 16,586 $ 23,301 $ 16,586
====================================================================================================================================
Page 5 of 23
Supplemental disclosures of cash flow information:
Cash paid for interest 2,554 3,145 5,131 6,275
Cash paid for income taxes 155 331 620 551
Non-cash investing activities:
Unrealized gain on investment and mortgage-backed
securities designated as available for sale 497 (723) 1,182
203
Transfer of loans to other real estate 0 239 25 239
The accompanying notes are an integral part of the consolidated financial
statements
Page 6 of 23
Oneida Financial Corp.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2002
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary to fairly present the consolidated
financial position of the Oneida Financial Corp. (the "Company") at June 30,
2002 and the results of its consolidated operations and cash flows for the
period then ended have been included. Operating results for the three-month
period and six-month period are not necessarily indicative of the results that
may be expected for the year ended December 31, 2002.
Note B - Earnings Per Share
Basic earnings per share is computed based on the weighted average shares
outstanding at June 30, 2002. Diluted earnings per share is computed based on
the weighted average shares outstanding adjusted for the dilutive effect of the
assumed exercise of stock options and awards during the year. The Company paid a
three-for-two stock dividend based on the ex-dividend date of April, 23, 2002.
The following is a reconciliation of basic to diluted earnings per share for the
three months ended and six months ended June 30. All share data from prior
periods have been retroactively restated to reflect the effect of the stock
dividend.
Income Shares Per Share
June 30, 2002:
- --------------
Net income (Three Months Ended) $ 711,250
Basic Earnings Per Share: $ 711,250 4,848,641 $ 0.15
--------
Effect of dilutive securities:
Stock options and awards 0 175,345
-----------------------------
Diluted Earnings Per Share $ 711,250 5,023,986 $ 0.14
--------
June 30, 2001:
Net income (Three Months Ended) $ 696,692
Basic Earnings Per Share $ 696,692 4,790,150 $ 0.15
--------
Effect of dilutive securities:
Stock options and awards 0 67,345
-----------------------------
Diluted Earnings Per Share $ 696,692 4,857,495 $ 0.14
--------
June 30, 2002:
Net income (Six Months Ended) $1,323,867
Basic Earnings Per Share: $1,323,867 4,839,057 $ 0.27
--------
Effect of dilutive securities:
Stock options and awards 0 161,052
-----------------------------
Diluted Earnings Per Share $1,323,867 5,000,109 $ 0.26
--------
June 30, 2001:
Net income (Six Months Ended) $1,339,312
Basic Earnings Per Share $1,339,312 4,775,942 $ 0.28
--------
Effect of dilutive securities:
Stock options and awards 0 53,329
-----------------------------
Diluted Earnings Per Share $1,339,312 4,829,271 $ 0.28
--------
Page 7 of 23
Note C - Nature of Operations
On October 2, 2000, the Bank completed its acquisition of Bailey & Haskell
Associates, Inc., an insurance agency (the "Agency"). The Bank paid $3,075,000
in cash and $500,000 in Company stock, of which 45,496 shares of stock were
issued in January 2001, to the Agency's shareholders. Goodwill in the amount of
$3,350,000 was recorded in conjunction with the transaction. Under terms of the
agreement, contingent purchase payments based on future performance levels may
be made over a five-year period ending in 2005. As of March 31, 2002, $182,291
additional goodwill was recorded for the contingent purchase payment for 2001.
On January 2, 2001, the Bank completed its acquisition of Noyes and LaLonde,
Inc., an insurance agency. The Bank paid $667,500 in cash for $55,200 in fixed
assets and established a note payable for $612,500 to be paid over 24 months
with interest at 7.5% per annum to acquire certain tangible and intangible
assets of the agency. Goodwill in the amount of $1,250,000 was recorded in
conjunction with the transaction. Noyes and LaLonde, Inc. was subsequently
merged into Bailey and Haskell Associates, Inc. Additionally, effective as of
January 1, 2001, the Bank also completed its acquisition of The Dunn Agency. The
Bank paid $247,500 in cash and established a note payable for $247,500 to be
paid over 24 months with interest at 7.5% per annum to acquire 100% of the
capital stock of The Dunn Agency. Goodwill in the amount of $523,000 was
recorded in conjunction with this transaction.
In January the Company signed a letter of intent to acquire the assets of
Kennedy & Clarke, Inc., an insurance agency. The acquisition was completed on
July 1, 2002. The Bank paid $200,855 in cash and established a note payable for
$194,500 to be paid over 24 months with interest at 6.0% per annum for $6,000 in
fixed assets. Goodwill in the amount of $401,000 was recorded in conjunction
with the transaction. Kennedy & Clarke, Inc. will be subsequently merged into
Bailey and Haskell Associates, Inc.
The acquisitions were accounted for under the purchase method of accounting and,
accordingly, the results of the Agency operations are included in the financial
statements as of the date of the acquisitions.
On May 31, 2002, the Bank completed its acquisition of the State Bank of
Chittenango (SBC); a New York State chartered commercial bank. The results of
SBC's operations have been included in the consolidated financial statements
since that date. The Bank paid $11.9 million or $102.60 in cash for each of the
116,079 shares of common stock outstanding in SBC Financial Corporation. Assets
acquired as a result of the acquisition totaled $66.8 million and resulted in
additional goodwill and core deposit intangible of approximately $6.0 million.
Amortization expense of the core deposit intangible approximated $7,000 for the
three months and six months ended June 30,2002.
The following summarizes the estimated fair values of the assets acquired and
liabilities assumed as of May 31, 2002:
(in thousands)
Cash and cash equivalents $ 8,593
Investment and mortgage-backed securities 29,146
Loans receivable, net 26,706
Other assets 2,381
-----
Total assets acquired 66,826
Deposits (60,146)
Other liabilities (421)
-----
Net assets acquired $ 6,259
========
The Company is in the process of obtaining valuation information of certain
assets; thus, the allocation of the purchase price is subject to refinement.
The following represents proforma information on the results of operations for
the three months ended and six months ended as of June 30, 2002 and 2001:
For the Three Months Ended For the Six Months Ended
June 30, June 30, June30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except for per share data)
Net interest income
Oneida Financial Corp. $2,767 $2,705 $5,139 $5,330
State Bank of Chittenango 562 553 910 1,094
------ ------ ------ ------
Combined $3,329 $3,258 $6,049 $6,424
====== ====== ====== ======
Page 8 of 23
Net income
Oneida Financial Corp. $ 711 $ 697 $1,324 $1,339
State Bank of Chittenango 98 98 123 186
------ ------ ------ ------
Combined $ 809 $ 795 $1,447 $1,525
====== ====== ====== ======
Earnings per share
Oneida Financial Corp. $ 0.15 $ 0.15 $ 0.27 $ 0.28
State Bank of Chittenango 0.02 0.02 0.03 0.04
------ ------ ------ ------
Combined $ 0.17 $ 0.17 $ 0.30 $ 0.32
====== ====== ====== ======
Note D - New Pronouncements
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rule, goodwill will no
longer be amortized but will subject to annual impairment tests in accordance
with the Statement. Other intangible assets will continue to be amortized over
their useful lives. This statement was effective for the Company beginning on
January 1, 2002. The Company will periodically review for impairment based on
fair values and make adjustments as necessary. As of June 30, 2002, no
impairment adjustment has been made to the goodwill. The impact of the
pronouncement on the financial statements is as follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 20,
2002 2001 2002 2001
---- ---- ---- ----
(In thousands, except for Earnings Per Share Data)
Reported net income $711 $697 $1,324 $1,339
Add back: Goodwill amortization, net of tax 0 59 0 119
Adjusted Net income $711 $756 $1,324 $1,458
==== ==== ====== ======
Basic earnings per share:
Reported net income $0.15 $0.15 $0.27 $0.28
Goodwill amortization, net of tax 0 0.01 0 0.03
Adjusted net income $0.15 $0.16 $0.27 $0.31
===== ===== ===== =====
Note D - New Pronouncements (continued)
Diluted earnings per share:
Reported net income $0.14 $0.14 $0.26 $0.28
Goodwill amortization, net of tax 0 0.02 0 0.02
------- ------ -------- ------
Adjusted net income $0.14 $0.16 $0.26 $0.30
===== ===== ===== =====
Note E - Charter Conversion
The Company received regulatory approval to convert its charter from a Delaware
Corporation to a Federal Corporation chartered by the Office of Thrift
Supervision ("OTS") on July 12, 2001 and completed the charter conversion on
July 18, 2001. As part of the charter conversion, the total number of shares
authorized changed from 8,000,000 at a par value of $0.10 to 20,000,000 at a par
value of $0.01. In addition, one million shares of serial preferred stock were
authorized. There is no serial preferred stock outstanding at June 30, 2002.
Note F - Dividend Restrictions
Oneida Financial MHC, which owns 2,873,167 or 56.88% of the outstanding shares
as of June 30, 2002 of Oneida Financial Corp., had filed a notice with the OTS
regarding its intent to waive its right to receive cash dividends declared by
Oneida Financial Corp. The notice was approved by the OTS subject to the
condition that Oneida Financial Corp.'s retained earnings be restricted by the
dollar amount of dividends waived by Oneida Financial MHC. As of June 30, 2002
and December 31, 2001, the retained earnings restricted for cash dividends
waived was $1,417,429 and $689,560, respectively.
Page 9 of 23
Note G - Stock Split
On March 13, 2002, the Company declared a three-for-two stock dividend to
shareholders of record as of April 9, 2002, payable on April 23, 2002. The stock
dividend was paid with additional shares of common stock and fractional shares
was paid in cash based on the last sales price of the common stock on the first
trading date following the record date, as adjusted for the stock dividend. The
Company recorded the stock dividend as of the ex-dividend date. All share data
from previous periods have been retroactively restated to reflect the effect of
the stock dividend.
Note H - Allowance for Credit Losses
The allowance for credit losses decreased $211,000 net of the allowance for
credit losses of State Bank of Chittenango to $2.4 million at June 30, 2002. The
decrease in the allowance is due in part to one commercial loan charged off
during the first quarter of 2002 and due to a change in the methodology used by
management in determining the adequacy of the allowance for credit losses. The
allowance is established based upon management's evaluation of the probable and
estimable losses in the loan portfolio, the composition of the loan portfolio
and other quantitative and qualitative factors. Management monitors and modifies
the level of the allowance for credit losses in order to maintain a level
considered adequate to provide for potential loan losses. Annually, management
evaluates the adequacy of the allowance and determines the appropriate level of
provision of credit losses by applying fixed percentages to each category of
performing loans and classified loans. Management has updated the fixed
percentages to be applied during 2002 to each loan category based on net
charge-off experience and delinquencies over the past five years and currently.
Utilization of a similar methodology as applied during 2001 would have resulted
in additional provisions charged against earnings during the first quarter of
2002 of approximately $250,000. Management believes that the current method of
determining the adequacy of the allowance for credit losses is prudent in light
of the evaluation and review of the fair value of underlying collateral,
economic conditions, historic loan loss experience and geographic
concentrations. Offsetting the decrease in the allowance due to the change in
methodology was the addition of SBC's allowance for credit losses of $962,000 as
of May 31, 2002. At June 30, 2002 the allowance for credit losses as a
percentage of net loans receivable was 1.25% as compared to 1.03% on June 30,
2001.
Note I - Segment Information
The Company has determined that it has two primary business segments, its
banking franchise and its insurance activities. For the three months ended and
six months ended June 30, 2002 and 2001, the Company's insurance activities
consisted of those conducted through Bailey & Haskell Associates, Inc. and The
Dunn Agency subsidiaries. Information about the Company's segments is presented
in the following table for the periods indicated (amounts in thousands):
Three Months Ended June 30, 2002
--------------------------------
2002
--------------------------------------------------------
Banking Insurance
Activities Activities Total
Net interest income $2,767 $ -- $2,767
Provision for credit losses 80 -- 80
------ ------ ------
Net interest income after provision
for credit losses 2,687 -- 2,687
Other income 552 1,388 1,940
Other expenses 2,489 1,169 3,658
------ ------ ------
Income before income taxes 750 219 969
Income tax expense 184 74 258
------ ------ ------
Net income $ 566 $ 145 $ 711
====== ====== ======
Page 10 of 23
Three Months Ended June 30, 2001
-------------------------------------------------
2001
-------------------------------------------------
Banking Insurance
Activities Activities Total
Net interest income $2,705 $ -- $2,705
------ ---- ------
Provision for credit losses 120 -- 120
Net interest income after provision
for credit losses 2,585 -- 2,585
Other income 456 1,173 1,629
Other expenses 2,185 1,019 3,204
------ ---- ------
Income before income taxes 856 154 1,010
Income tax expense 265 48 313
------ ---- ------
Net income $ 591 $ 106 $ 697
Six Months Ended June 30, 2002
-------------------------------------------------
2002
-------------------------------------------------
Banking Insurance
Activities Activities Total
Net interest income $5,139 $ -- $5,139
Provision for credit losses 270 -- 270
------ ---- ------
Net interest income after provision
for credit losses 4,869 -- 4,869
Other income 1,184 2,796 3,980
Other expenses 4,758 2,249 7,007
------ ---- ------
Income before income taxes 1,295 547 1,842
Income tax expense 332 186 518
------ ---- ------
Net income $ 963 $ 361 $1,324
Page 11 of 23
Six Months Ended June 30, 2001
-------------------------------------------------
2001
-------------------------------------------------
Banking Insurance
Activities Activities Total
Net interest income $5,330 $ -- $5,330
Provision for credit losses 240 -- 240
Net interest income after provision
for credit losses 5,090 -- 5,090
Other income 837 2,363 3,200
Other expenses 4,353 2,005 6,358
Income before income taxes 1,574 358 1,932
Income tax expense 483 110 593
Net income $1,091 $ 248 $1,339
Page 12 of 23
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations
Page 13 of 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents Management's Discussion and Analysis of and changes
to the Company's consolidated financial results of operations and condition and
should be read in conjunction with the Company's financial statements and notes
thereto included herein.
When used in this quarterly report the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including, among other things, changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market area and competition,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company does not undertake, and specifically declines any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL
Oneida Financial Corp. is the parent company of Oneida Savings Bank ("the
Bank"). The Company conducts no business other than holding the common stock of
the Bank and general investment activities resulting from the capital raised and
retained in the initial public stock offering. Consequently, the net income of
the Company is primary derived from its investment in the Bank. The Bank's net
income is primarily dependent on its net interest income, which is the
difference between interest income earned on its investments in loans,
investment securities and mortgage-backed securities and its cost of funds
consisting of interest paid on deposits and borrowings. The Bank's net income is
also affected by its provision for credit losses, as well as by the amount of
other income, including income from fees and service charges, revenue derived
from the insurance agency activities of the Bank, net gains and losses on sales
of investments and loans, and operating expenses such as employee compensation
and benefits, occupancy and equipment costs and income taxes. Earnings of the
Bank are also affected significantly by general economic and competitive
conditions, particularly changes in market interest rates, which tend to be
highly cyclical, and government policies and actions of regulatory authorities,
which events are beyond the control of the Bank. At December 31, 2001 and June
30, 2002 the Company had 4,828,927 shares and 4,857,585 shares outstanding of
which 2,873,167 were held by Oneida Financial MHC, the Company's mutual holding
company parent.
RECENT DEVELOPMENTS
On May 31, 2002, the Bank completed its acquisition of the State Bank of
Chittenango; a New York State chartered commercial bank. The Bank paid $11.9
million or $102.60 in cash for each of the 116,079 shares of common stock
outstanding in SBC Financial Corporation. Assets acquired as a result of the
acquisition totaled $66.8 million and resulted in additional goodwill and core
deposit intangible of approximately $6.0 million. Amortization expense of the
core deposit intangible approximated $7,000 for the three months and six months
ended June 30,2002.
In January 2002 the Company signed a letter of intent to acquire the
assets of Kennedy & Clarke, Inc., an insurance agency. The acquisition was
completed on July 1, 2002. The Bank paid $200,855 in cash and established a note
payable for $194,500 to be paid over 24 months with interest at 6.0% per annum
for $6,000 in fixed assets. Goodwill in the amount of $401,000 was recorded in
conjunction with the transaction. Kennedy & Clarke, Inc. will be subsequently
merged into Bailey and Haskell Associates, Inc.
The Company announced a cash dividend to all shareholders of record as
of July 16, 2002 of $0.26 per share of common stock, payable on August 6, 2002.
On March 13, 2002, the Company declared a three-for-two stock dividend that
was paid on April 23, 2002. The stock dividend was paid with additional shares
of common stock and fractional shares were paid in cash based on the last sales
price of the common stock on the first trading date following the record date,
as adjusted for the stock dividend. The Company recorded the stock dividend as
of the ex-dividend date. The Company recorded the stock dividend as of the
ex-dividend date. All share data from prior periods have been retroactively
restated to reflect the effect of the stock dividend.
FINANCIAL CONDITION
ASSETS. Total assets at June 30, 2002 were $417.5 million, an increase of
$64.8 million from $352.7 million at December 31, 2001. The Company's asset
growth is primarily due to the acquisition of State Bank of Chittenango. Assets
acquired as of the completion of the acquisition totaled $66.8 million. The
merger of the two companies provided $26.7 million in loans receivable and $29.1
million in investment and mortgage-backed securities. The acquisition resulted
in the additional goodwill and core deposit intangible of approximately $6.0
million. Partially offsetting the increase in assets was a decrease in net loans
receivable of $3.2 million, net of State Bank of Chittenango loans. The decrease
in net loans receivable is due to the sale of $13.6 million in fixed rate
one-to-four family residential loans during 2002.
The allowance for credit losses decreased $211,000 net of the allowance for
credit losses of State Bank of Chittenango to $2.4 million at June 30, 2002. The
decrease in the allowance is due in part to one commercial loan charged-off
during the first quarter of 2002 and due to a change in the methodology used by
management in determining the adequacy of the allowance for credit losses. The
allowance is established based upon management's evaluation of the probable and
estimable losses in the loan portfolio, the composition of the loan portfolio
and other quantitative and qualitative factors. Management monitors and modifies
the level of the allowance for credit losses in order to maintain a level
considered adequate to provide for potential loan losses. Annually, management
evaluates the adequacy of the allowance and determines the appropriate level of
provision of credit losses by applying fixed percentages to each category of
performing loans and classified loans. Management has updated the fixed
percentages to be applied during 2002 to each loan category based on net
charge-off experience and delinquencies over the past five years and currently.
Utilization of a similar methodology as applied during 2001 would have resulted
in additional provisions charged against earnings during the first quarter of
2002 of approximately $250,000. Management believes that the current method of
determining the adequacy of the allowance for credit losses is prudent in light
of the evaluation and review of the fair value of underlying collateral,
economic conditions, historic loan loss experience and geographic
concentrations. Offsetting the decrease in the allowance due to the change in
methodology was the addition of SBC's allowance for credit losses of $962,000 as
of May 31, 2002. At June 30, 2002 the allowance for credit losses as a
percentage of net loans receivable was 1.25% as compared to 1.03% on June 30,
2001.
LIABILITIES. Total liabilities increased by $63.1 million or 20.5% to
$370.9 million at June 30, 2002 from $307.7 million at December 31, 2001. The
increase is primarily the result of $60.1 million in deposits assumed in
connection with the acquisition of State Bank of Chittenango. The Bank continues
to emphasize core deposits and checking accounts, which increased by $2.3
million since December 31, 2001. In addition, lower yielding savings and Money
Market/NOW accounts increased $6.9. Certificates of deposit decreased $3.3
million or by 2.7% since December 31, 2001. Borrowings decreased $5.5 million
since December 31, 2001 due to repayment of maturing borrowings.
STOCKHOLDERS' EQUITY. Total stockholders' equity at June 30, 2002 was $46.6
million, an increase of $1.6 million from $45.0 million at December 31, 2001.
The increase in stockholders' equity reflects the addition of after-tax net
income of $1.3 million for the six months ended June 30, 2002 and an adjustment
for the net unrealized gain on available for sale mortgage-backed and other
investment securities at June 30, 2002 as compared with December 31, 2001. A
decrease in interest rates generally has a positive effect on the market value
of the Company's investments and mortgage-backed securities portfolios.
Accumulated Other Comprehensive Income (Loss) increased $709,000 from December
31, 2001. The increases to total stockholders' equity were partially offset by
the payment of the Company's semiannual cash dividend of $0.38 resulting in an
equity reduction of $548,000.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on the
assets or liabilities.
AVERAGE BALANCE SHEET. The following tables set forth-certain information
relating to the Company for the three months ended and six months ended June 30,
2002 and 2001 and for the year ended December 31, 2001. For the periods
indicated, the dollar amount of interest income from average interest-earning
assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, is expressed in thousands of dollars and
percentages. No tax equivalent adjustments were made. The average balance is an
average daily balance.
TABLE 1. Average Balance Sheet. (Quarterly)
Three Months Ended June 30, Year Ended Dec. 31,
----------------------------------------------- -------------------
2002 2001 2001
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
Interest-earning Assets: (Dollars in Thousands)
- ------------------------
Loans Receivable* $179,927 $3,384 7.52% $168,542 $3,578 8.49% $169,831 $14,232 8.38%
Investment Securities 137,861 1,815 5.27% 118,967 2,056 6.91% 122,372 7,724 6.31%
Federal Funds 12,117 60 1.98% 7,749 79 4.08% 6,935 246 3.55%
Equity Securities 5,543 43 3.10% 6,362 68 4.28% 6,325 259 4.09%
----- --- ----- ------ --- ----- ------ ---- -----
Total Interest-earning 335,448 5,302 6.32% 301,620 5,781 7.67% 305,463 22,461 7.35%
-------- ------ ----- -------- ------ ----- -------- ------- -----
Assets
Interest-bearing Liabilities:
Money Market Deposits $27,314 $135 1.98% $17,181 $120 2.79% $18,317 $547 2.99%
Savings Accounts 86,390 123 0.56% 49,242 205 1.67% 48,083 834 1.73%
Interest-bearing Checking 9,636 10 0.42% 8,953 30 1.34% 8,943 116 1.30%
Time Deposits 121,979 1,380 4.53% 112,012 1,659 5.92% 113,762 6,533 5.74%
Borrowings 72,306 887 4.91% 75,281 1,062 5.64% 74,904 4,198 5.60%
------- --- ----- ------- ------ ----- ------- ------ -----
Total Interest-bearing Liabs 317,625 2,535 3.19% 262,669 3,076 4.68% 264,009 12,228 4.63%
-------- ------ ----- -------- ------ ----- -------- ------- -----
Net Interest Income $2,767 $2,705 $10,233
======= ======= =======
Net Interest Spread 3.13% 2.99% 2.72%
===== ===== =====
Net Earning Assets $17,823 $38,951 $41,454
======== ======== =======
Net yield on average
Interest-earning assets 3.30% 3.59% 3.35%
===== ===== =====
Average interest-earning
assets to average
Interest-bearing liabs 105.61% 114.83% 115.70%
======= ======= =======
*Included in Average Loans Receivable balance for the periods presented is
Mortgage Loans Held for Sale.
Six Months Ended June 30, Year Ended Dec. 31,
------------------------------------------------- --------------------
2002 2001 2001
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
Interest-earning Assets: ( Dollars in Thousands)
- ------------------------
Loans Receivable* $175,321 $6,585 7.51% $167,445 $7,196 8.60% $169,831 $14,232 8.38%
Investment Securities 132,361 3,539 5.35% 120,138 4,067 6.77% 122,372 7,724 6.31%
Federal Funds 12,715 108 1.70% 5,717 134 4.69% 6,935 246 3.55%
Equity Securities 6,254 85 2.72% 6,362 140 4.40% 6,325 259 4.09%
----- --- ----- ------ ---- ----- ------ ---- -----
Total Interest-earning 326,651 10,317 6.32% 299,662 11,537 7.70% 305,463 22,461 7.35%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Assets
Interest-bearing Liabilities:
Money Market Deposits $25,927 $261 2.01% $16,663 $253 3.04% $18,317 $547 2.99%
Savings Accounts 68,395 234 0.68% 48,483 473 1.95% 48,083 834 1.73%
Interest-bearing Checking 9,005 21 0.47% 8,803 67 1.52% 8,943 116 1.30%
Time Deposits 119,611 2,821 4.72% 110,559 3,300 5.97% 113,762 6,533 5.74%
Borrowings 74,453 1,841 4.95% 73,207 2,114 5.78% 74,904 4,198 5.60%
------- ----- ----- ------- ------ ----- ------- ------ -----
Total Interest-bearing Liabs 297,391 5,178 3.48% 257,716 6,207 4.82% 264,009 12,228 4.63%
-------- ------ ----- -------- ------ ----- -------- ------- -----
Net Interest Income $5,139 $5,330 $10,233
======= ======= =======
Net Interest Spread 2.83% 2.88% 2.72%
===== ===== =====
Net Earning Assets $29,260 $41,946 $41,454
======== ======== =======
Net yield on average
Interest-earning assets 3.15% 3.56% 3.35%
===== ===== =====
Average interest-earning
assets to average
Interest-bearing liabs 109.84% 116.28% 115.70%
======= ======= =======
*Included in Average Loans Receivable balance for the periods presented is
Mortgage Loans Held for Sale.
RESULTS OF OPERATIONS
GENERAL. Net income for the three months ended June 30, 2002 increased by
$14,000 or 2.0% to $711,000 for the second quarter of 2002 from $697,000 for the
three months ended June 30, 2001. The increase was due primarily to an increase
in net interest income and non-interest income as well as a decrease in the
provision for credit losses and provision for income taxes. Net income for the
six months ended June 30, 2002 decreased slightly by $16,000 and was $1.3
million for the six month periods in both 2002 and 2001. The decrease in net
income reflects a decrease in net interest income and an increase in the
provision for credit losses, non-interest expense offset by an increase in
non-interest income and a decrease in the provision for income taxes.
INTEREST INCOME. Interest Income decreased by $479,000 or 8.3%, to $5.3
million for the three months ended June 30, 2002 from $5.8 million for three
months ended June 30, 2001. For the six months ended June 30, 2002 interest
income was $10.3 million, a decrease of $1.2 million or 10.6% as compared with
the same period in 2001. The decrease in interest income was primarily a result
of a decrease in interest income on loans receivable of $194,000 for the second
quarter of 2002 and $611,000 year to date. In addition, interest income on
investment and mortgage-backed securities decreased $242,000 and $494,000 for
the three months ended and six months ended June 30, 2002. Dividend income on
equity securities decreased $24,000 for the second quarter 2002 and $89,000 year
to date. Interest income on federal funds decreased $19,000 and $26,000 for the
second quarter 2002 and year to date. The reduction in interest income was due
to the decrease in market interest rates between the two periods as the Federal
Reserve reduced rates by 400 basis points from June 2001 to June 2002.
The decrease in interest income from loans is a result of a decrease of 97
basis points in the average yield to 7.52% at June 30, 2002 from 8.49% at June
30, 2001 offset by an increase of $11.4 million in the average balance in loans
receivable for the three months ended June 30, 2002 as compared with the same
period in 2001.
Investment income decreased as a result of a decrease in the average yield
of investment securities of 164 basis points to 5.27% at June 30, 2002 from
6.91% at June 30, 2001 partially offset by an increase of $18.9 million in the
average balance of investment and mortgage-backed securities for the three month
period ended June 30,
2002 as compared with the same period in 2001. For the six months ended June 30,
2002, the average balance of investments and mortgage-backed securities
increased $12.2 million with the average yield decreasing 142 basis points from
6.77% during the six month period in 2001 to 5.35% during the 2002 period.
Interest income from federal funds decreased during the three months ended
June 30, 2002 to $60,000 as compared with $79,000 for the 2001 period. The
decrease in interest income is due to a decrease of 210 basis points in the
average yield earned partially offset by an increase in the average balance of
$4.4 million. The increase in the average balance of fed funds reflects
management's decision to invest in shorter-term assets during a period of
moderate loan growth.
INTEREST EXPENSE. Interest expense was $2.5 million for the three months
ended June 30, 2002, a decrease of $541,000 or 17.6% from the same period in
2001. The decrease in interest expense is due to a decrease in interest paid on
borrowed funds and deposit accounts. Interest expense of borrowed funds totaled
$887,000 for the second quarter of 2002 compared with $1.1 million for the 2001
period. The average cost of borrowed funds decreased 73 basis points to 4.91% as
of June 30, 2002 from 5.64% for the three months ended June 30, 2001. The
average balance outstanding of borrowings also decreased during the three months
ended June 30, 2002 at $72.3 million compared to $75.3 million for the same
period in 2001. Interest expense on deposits decreased by $367,000 for the three
months ended June 30, 2002 to $1.6 million, a decrease of 18.2%. The decrease in
interest expense on deposits was due to a 162 basis point decrease in the
average cost of deposits for the second quarter 2002 partially offset by an
increase in the average balance on deposit accounts of $57.9 million. The
average balance of deposits for the six months ended June 30, 2002 increased
$38.4 million as compared with the same period of 2001. This increase offset a
decrease in the average rate paid of 146 basis points on deposits resulting in a
decrease in interest expense for the six months of $757,000 compared with the
prior year.
PROVISION FOR CREDIT LOSSES. Total provisions for credit losses for the
three months ended June 30, 2002 were $80,000 as compared to $120,000 made
during the same period of 2001. For the six months ended June 30, 2002, the
provision for credit losses was $270,000 compared to $240,000 for the comparable
period in 2001. The allowance for credit losses was $2.4 million or 1.25% of
loans receivable at June 30, 2002 as compared with $1.7 million or 1.03% of
loans receivable at June 30, 2001. Management continues to monitor changes in
the loan portfolio mix in response to the redirection of loan asset origination
and retention toward consumer and commercial business loans. The method utilized
to evaluate adequacy of the allowance level accounts for the higher relative
degree of credit risk associated with this activity as compared with traditional
residential real estate lending. Management adds to the allowance as management
assesses losses that are probable and reasonably estimable. See Financial
Condition for further discussion of allowance for credit losses.
OTHER INCOME. Other operating income increased by $282,000 for the
three-month period ending June 30, 2002 compared with the same period in 2001 to
$1.9 million from $1.7 million. This improvement is primarily due to commission
income received from the insurance agencies of $1.4 million for the three months
ended June 30, 2002 as compared with $1.2 million for the same period during
2001. In addition, there was an increase in fee income on deposit accounts of
$71,000 from $180,000 during the 2001 period to $251,000 during the 2002 period.
Investment security gains, net increased $29,000 to $3,000 for the quarter
ended June 30, 2002 from a loss of $26,000 for the quarter ended June 30, 2001.
For the six months ended June 30, 2002, investment security gains, net increased
$14,000 from a loss of $10,000 for the same period in 2001. Included in
investment security gains was a loss of $256,000 for an other than temporary
decline in the value of an investment security. The investment security was
written down to the fair market value as of March 31, 2002 and was realized as a
loss. Offsetting this write-down was investment gains on the sales of certain
investments that totaled $257,000 during the first quarter of 2002.
For the six months ended June 30, 2002, other operating income
increased $766,000 from $3.2 million as of June 30, 2001 to $4.0 million as of
June 30, 2002. The increase is primarily due to commission income received from
the insurance agencies at $2.8 million for the six months ended June 30, 2002 as
compared with $2.4 million for the same period during 2001. In addition, there
was an increase in the cash surrender value of $133,000 from the Bank Owned Life
Insurance during 2002 as compared with the same period in 2001 due to timing of
the purchase.
OTHER EXPENSES. Other operating expenses increased by $454,000 or 14.2%, to
$3.7 million for the three months ended June 30, 2002 from $3.2 million for the
same period in 2001. Compensation increased $348,000 or 18.3% due to increases
in employee benefit expense as well as additional expenses associated with the
insurance agency subsidiaries and the purchase of SBC. Building occupancy
increased $66,000, which resulted from additional expenses from insurance agency
subsidiaries and the addition of SBC facilities.
For the six months ended June 30, 2002, operating expenses increased
$649,000 to $7.0 million from $6.4 million for the six months ended June
30,2001. The increase was primarily the result of operating expenses associated
with the insurance agency subsidiaries.
INCOME TAX. Income tax expense was $258,000 for the three months ended June
30, 2002, a decrease of $55,000 from the second quarter 2001 provision of
$313,000. The effective tax rate decreased to 26.7% for 2002 to date from 31.0%
for the three months of 2001. For the six months ended, the income tax expense
was $518,000 as compared to $593,000 for the same period in 2001. The effective
tax rate decreased to 28.1% for 2002 as compared with 30.7% for the six months
ended June 30,2001.
ONEIDA FINANCIAL CORP.
SELECTED FINANCIAL RATIOS
At and for the Three Months Ended and Six Months Ended June 30, 2002 and June 30, 2001 (unaudited)
(annualized where appropriate)
Three Months Ending Six Months Ending
June 30, June 30,
2001 2002 2001 2002
---- ---- ---- ----
Performance Ratios:
Return on average assets 0.74% 0.83% 0.72% 0.82%
Return on average equity
Net interest margin 6.12% 6.43% 5.80% 6.25%
Efficiency Ratio 3.13% 3.59% 3.15% 3.56%
Ratio of operating expense 77.61% 71.51% 76.77% 72.44%
to average total assets 3.82% 3.73% 3.86% 3.77%
Ratio of average interest-earning assets to
average interest-bearing liabilities 105.61% 114.83% 109.84% 116.28
Asset Quality Ratios:
Non-performing assets to total assets
Allowance for loan losses
to non-performing loans
Allowance for loan losses 0.14% 0.11% 0.14% 0.11%
to loans receivable, net
525.60% 1247.45 525.60% 1247.45
1.25% 1.03% 1.25% 1.03%
Capital Ratios:
Total shareholders' equity to total assets 11.17% 12.82% 11.17% 12.82%
Average equity to average assets 12.47% 13.05% 12.47% 13.05%
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Various forms of market risk are inherent in the business of the Bank
including concentration risk, liquidity management, credit risk and collateral
risk among others. However, the Bank's most significant form of market risk is
interest rate risk, as the majority of the Bank's assets and liabilities are
sensitive to changes in interest rates. Ongoing monitoring and management of
this risk is an important component of the Company's asset and liability
management process. The Bank's interest rate risk management program focuses
primarily on evaluating and managing the composition of the Bank's assets and
liabilities in the context of various interest rate scenarios. Factors beyond
Management's control, such as market interest rates and competition, also have
an impact on interest income and expense. Based on the asset-liability
composition at June 30, 2002, in a rising interest rate environment, Management
would expect that the Company's cost of shorter-term deposits might rise faster
than its earnings on longer-term loans and investments. Conversely, as interest
rates decrease, the prepayment of principal on loans and investments tends to
increase, causing the Company to invest funds in a lower rate environment. To
mitigate the effect of interest rate changes, Management has taken steps to
emphasize core deposits, monitor certificate of deposit rates to better match
asset changes, and sell substantially all newly originated longer term fixed
rate loans in the secondary market without recourse. Management believes this
approach will help reduce the exposure to interest rate fluctuations and enhance
long-term profitability.
For a discussion of the Company's asset and liability management policies
as well as the potential impact of interest rate changes upon the earnings of
the Company, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's 2001 Annual Report to Stockholders.
The acquisition of SBC has not materially changed in the Company's risk profile.
Page 20 of 23
ONEIDA FINANCIAL CORP.
AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
Much of the Bank's market area is included in the 270,000-acre land claim
of the Oneida Indian Nation ("Oneidas"). The land claim area is held primarily
by private persons. Over 15 years ago the United States Supreme Court ruled in
favor of the Oneidas in a lawsuit which management believes was intended to
encourage the State of New York to negotiate an equitable settlement in a land
dispute that has existed over 200 years.
In June 1998, the United States Justice Department intervened in the action
on behalf of the Oneidas against Madison County and Oneida County in New York
State. In September 1998, an U.S. District Court removed a stay of litigation,
having been in place since the late 1980's pending settlement negotiations. In
December 1998, both the Oneidas and the U.S. Justice Department filed motions to
amend the long outstanding claim against the State of New York. The motion
attempts to include in the claim, various named and 20,000 unnamed additional
defendants, who own real property in parts of Madison and Oneida counties,
thereby including the additional defendants in the original suit. The U.S.
District Court granted the motions to add as a defendant the State of New York,
but denied the motions to add the private landowners. Neither the Bank nor the
Company is a named defendant in the motion. The Court further rejected as not
being viable the remedies of ejectment and/or of monetary damages against
private landowners. Amended complaints were served by the Oneidas and the United
States which seek to eject the Counties of Madison and Oneida from lands owned
by the counties, and the Oneidas also seek a declaration that they have the
right to possess all land within the land claim area. In June 2001, the Court
determined that certain land purchased by the Oneidas in 1997 and 1998 are
exempt from real estate established in 1794 by the Federal Government. The State
of New York, Counties of Madison and Oneida and the City of Sherrill have
appealed the Courts decision with a court date set for March 2002. In February
2002, a joint statement was issued by the Oneidas, State of New York, and the
counties of Madison and Oneida, indicating that the framework for a settlement
had been agreed upon subject to the approval by the State legislature and the
Federal Government.
To date neither the original claim nor the motion to amend has had an
adverse impact on the local economy or real property values. In addition, title
insurance companies continue to underwrite policies in the land claim area with
no change in premiums or underwriting standards. The Bank requires title
insurance on all residential real estate loans, excluding home equity loans.
Both the State of New York and the Oneidas have indicated in their respective
communications that individual landowners will not be adversely affected by the
ongoing litigation. The Company continues to monitor the situation.
The Company is not involved in any other pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business
which, in the aggregate, involve amounts which are believed by management to be
immaterial to the financial condition or operations of the Company.
Item 2 Changes in Securities
None
Item 3 Default Upon Senior Securities
Not applicable.
Page 21 of 23
Item 4 Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders, held on April 25, 2002,
shareholders voted on the following matters as follows:
Proposal No. 1 - Election of Directors
For Withheld
--- --------
Edward J. Clarke 3,172,816 5,051
Rodney Kent 3,172,790 5,077
Michael W. Milmoe 3,171,890 5,977
Richard D. Myers 3,172,816 5,051
Proposal No. 2 - Ratification of PricewaterhouseCoopers, LLP
as auditors for the Company for the fiscal year ended
December 31, 2002:
For Against Withheld
----------- ------------- -------------
3,171,985 3,309 2,573
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) All required exhibits are included in Part I under
Consolidated Financial Statements, Notes to Unaudited
Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and
Results of Operations, and are incorporated by
reference, herein.
(b) Acquisition or Disposition of Asset. On May 31, 2002,
Oneida Financial Corp. completed its acquisition of
SBC Financial Corporation. Form 8-K was filed on June
17, 2002 disclosing this event. As part of the
acquisition, SBC Financial Corporation's stockholders
received $102.60 per share for each share of SBC
Financial Corporation's common stock issued and
outstanding. The aggregate purchase price for the
transaction was approximately $11.9 million. The
transaction was accounted for using the purchase
method.
(c) Exhibits.
Exhibit 99.1 - Certification of Chief
Executive Officer and Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Page 22 of 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
ONEIDA FINANCIAL CORP.
Date: August 14, 2002 By: /s/ Michael R. Kallet
--------------------------------------
Michael R. Kallet
President and Chief Executive Officer
Date: August 14, 2002 By: /s/ Eric E. Stickels
--------------------------------------
Eric E. Stickels
Senior Vice President and Chief
Financial Officer
Page 23 of 23
Exhibit 99.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Michael R. Kallet, Chief Executive Officer and Eric E. Stickels, Chief
Financial Officer of Oneida Financial
Corp. (the "Company") each certify in his capacity as an officer of the Company
that he has reviewed the quarterly report on
Form 10-Q for the quarter ended June 30, 2002 and that to his knowledge:
(1) the report fully complies with the requirements of Sections 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company
August 14, 2002 /s/ Michael R. Kallet
- ---------------------- ---------------------------------
Date Chief Executive Officer
August 14, 2002 /s/ Eric E. Stickels
- ---------------------- --------------------------------------
Date Chief Financial Officer