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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2004
OR
|_| TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED ]
For the Transition Period from ___________ to ___________
Commission File Number: 001-31896
THE WILBER CORPORATION
(Exact Name of the Registrant as Specified in its Charter)
New York 15-6018501
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
245 Main Street, Oneonta, NY 13820
(Address of Principal Executive Offices) (Zip Code)
607 432-1700
(Registrant's Telephone Number Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share
(Title of Class)
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports) or (2) has been subject to such requirements for
the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES |_| NO |X|
As of May 6, 2004, there were issued and outstanding 11,209,392 shares of the
Registrant's Common Stock.
THE WILBER CORPORATION
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
ITEM 1: Financial Statements (Unaudited)
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
A. General
B. Comparison of Financial Condition at March 31, 2004 and December 31, 2003
C. Comparison of Results of Operation for the Three Months Ended March 31, 2004 and 2003
D. Liquidity
E. Capital Resources and Dividends
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk
ITEM 4: Controls and Procedures
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
ITEM 2: Changes in Securities and Use of Proceeds
ITEM 3: Defaults Upon Senior Securities
ITEM 4: Submission of Matters to a Vote of Security Holders
ITEM 5: Other Information
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
Signature Page
Index to Exhibits
i
FORWARD-LOOKING STATEMENTS
When we use words or phrases like "will probably result," "we expect," "will
continue," "we anticipate," "estimate," "project," "should cause," or similar
expressions in this report or in any press releases, public announcements,
filings with the Securities and Exchange Commission (the "SEC") or other
disclosures, we are making "forward-looking statements" as described in the
Private Securities Litigation Reform Act of 1995. In addition, certain
information we provide, such as analysis of the adequacy of our allowance for
loan losses or an analysis of the interest rate sensitivity of our assets and
liabilities, is always based on predictions of the future. From time to time, we
may also publish other forward-looking statements about anticipated financial
performance, business prospects, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. We want you to know that a variety of future events
and uncertainties could cause our actual results and experience to differ
materially from what we anticipate when we make our forward-looking statements.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in consumer preferences, changes in interest
rates, deposit flows, cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and fees.
Please do not rely unduly on any forward-looking statements, which are valid
only as of the date made. Many factors, including those described above, could
affect our financial performance and could cause our actual results or
circumstances for future periods to differ materially from what we anticipate or
project. We have no obligation to update any forward-looking statements to
reflect future events which occur after the statements are made, and we
specifically disclaim such obligation.
ii
ITEM 1: Financial Statements (Unaudited)
The Wilber Corporation
Consolidated Statements of Condition (Unaudited)
March 31, December 31,
dollars in thousands except share and per share data 2004 2003
- -----------------------------------------------------------------------------------------
Assets
Cash and Due from Banks $ 9,055 $ 11,892
Time Deposits with Other Banks 7,498 7,998
Federal Funds Sold 10,900 --
--------- ---------
Total Cash and Cash Equivalents 27,453 19,890
Securities Available-for-Sale, at Fair Value 268,238 275,051
Securities Held-to-Maturity, Fair Value of $50,040 at
March 31, 2004, and $44,416 at December 31, 2003 49,538 44,140
Loans 366,435 360,906
Allowance for Loan Losses (5,893) (5,757)
--------- ---------
Loans, Net 360,542 355,149
--------- ---------
Premises and Equipment, Net 6,021 5,721
Bank Owned Life Insurance 14,566 14,405
Goodwill 2,682 2,682
Intangible Assets, Net 432 461
Other Assets 11,385 11,524
--------- ---------
Total Assets $ 740,857 $ 729,023
========= =========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 55,716 $ 61,267
Savings, NOW and Money Market Deposit Accounts 250,486 251,180
Certificates of Deposit (Over $100M) 90,837 82,847
Certificates of Deposit (Under $100M) 159,952 158,783
Other Time Deposits 26,455 26,556
--------- ---------
Total Deposits 583,446 580,633
--------- ---------
Short-Term Borrowings 14,735 20,018
Long-Term Borrowings 69,708 55,849
Other Liabilities 6,247 8,219
--------- ---------
Total Liabilities 674,136 664,719
--------- ---------
Stockholders' Equity:
Common Stock, $.01 Par Value, 13,961,664 Shares Issued at
March 31, 2004, and December 31, 2003 140 140
Additional Paid in Capital 4,224 4,224
Retained Earnings 80,262 79,043
Accumulated Other Comprehensive Income 2,470 1,272
Treasury Stock at Cost, 2,752,272 Shares at March 31, 2004
and December 31, 2003 (20,375) (20,375)
--------- ---------
Total Stockholders' Equity 66,721 64,304
--------- ---------
Total Liabilities and Stockholders' Equity $ 740,857 $ 729,023
========= =========
See accompanying notes to consolidated financial statements.
1
The Wilber Corporation
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
dollars in thousands except share and per share data 2004 2003
- ---------------------------------------------------------------------------------------------
Interest and Dividend Income
Interest and Fees on Loans $ 5,939 $ 6,314
Interest and Dividends on Securities:
U.S. Government and Agency Obligations 2,204 2,560
State and Municipal Obligations 649 482
Other 158 348
Interest on Federal Funds Sold and Time Deposits 144 320
------------ ------------
Total Interest and Dividend Income 9,094 10,024
------------ ------------
Interest Expense
Interest on Deposits:
Savings, NOW and Money Market Deposit Accounts 511 747
Certificates of Deposit (Over $100M) 531 622
Other Time 1,302 1,507
Interest on Short-Term Borrowings 34 40
Interest on Long-Term Borrowings 731 881
------------ ------------
Total Interest Expense 3,109 3,797
------------ ------------
Net Interest Income 5,985 6,227
Provisions for Loan Losses 360 420
------------ ------------
Net Interest Income After Provision for Loan Losses 5,625 5,807
------------ ------------
Other Income
Trust Fees 321 345
Service Charges on Deposit Accounts 341 360
Commissions Income 160 126
Investment Security Gains, Net 678 422
Increase in Cash Surrender Value of Bank Owned Life Insurance 161 162
Other Service Fees 54 110
Other Income 99 62
------------ ------------
Total Other Income 1,814 1,587
------------ ------------
Other Expense
Salaries and Employee Benefits 2,628 2,609
Net Occupancy Expense of Bank Premises 393 389
Furniture and Equipment Expense 174 201
Computer Service Fees 80 77
Advertising and Marketing 85 104
Professional Fees 225 70
Other 728 560
------------ ------------
Total Other Expense 4,313 4,010
------------ ------------
Income Before Taxes 3,126 3,384
Income Taxes (842) (989)
------------ ------------
Net Income $ 2,284 $ 2,395
============ ============
Weighted Average Shares Outstanding (1) 11,209,392 11,229,248
Basic Earnings Per Share (1) $ 0.20 $ 0.21
See accompanying notes to consolidated financial statements.
(1) All Share and per share information has been restated to give retroactive
effect to the 4-for-1 stock split in September 2003.
2
The Wilber Corporation
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income (Unaudited)
Accumulated
Additional Other
Common Paid in Retained Comprehensive Treasury
dollars in thousands except share and per share data Stock Capital Earnings Income (Loss) Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2002 $ 2,182 $ 2,182 $ 74,439 $ 4,242 $(19,883) $ 63,162
Comprehensive Income:
Net Income -- -- 2,395 -- -- 2,395
Change in Net Unrealized Gain (Loss)
on Securities, Net of Taxes -- -- -- (715) -- (715)
--------
Total Comprehensive Income 1,680
--------
Cash Dividends ($.0925 per share) (1) -- -- (999) -- -- (999)
Purchase of Treasury Stock (11,917 shares) -- -- -- -- (492) (492)
-------- -------- -------- -------- -------- --------
Balance March 31, 2003 $ 2,182 $ 2,182 $ 75,835 $ 3,527 $(20,375) $ 63,351
-------- -------- -------- -------- -------- --------
Balance December 31, 2003 $ 140 $ 4,224 $ 79,043 $ 1,272 $(20,375) $ 64,304
Comprehensive Income:
Net Income -- -- 2,284 -- -- 2,284
Change in Net Unrealized Gain (Loss)
on Securities, Net of Taxes -- -- -- 1,198 -- 1,198
--------
Total Comprehensive Income 3,482
--------
Cash Dividends ($.0950 per share) (1) -- -- (1,065) -- -- (1,065)
-------- -------- -------- -------- -------- --------
Balance March 31, 2004 $ 140 $ 4,224 $ 80,262 $ 2,470 $(20,375) $ 66,721
-------- -------- -------- -------- -------- --------
See accompanying notes to consolidated financial statements.
(1) All Share and per share information has been restated to give retroactive
effect to the 4-for-1 stock split in September 2003.
3
The Wilber Corporation
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
dollars in thousands 2004 2003
- ----------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 2,284 $ 2,395
Adjustments to Reconcile Net Income to Net Cash
Used by Operating Activities:
Provision for Loan Losses 360 420
Depreciation and Amortization 102 216
Net Amortization of Premiums and Accretion of Discounts on Investments 543 193
Investment Security Gains (678) (422)
Other Real Estate Losses 24 14
Increase in Cash Surrender Value of Bank Owned Life Insurance (161) (162)
Increase in Other Assets (232) (1,912)
Decrease in Other Liabilities (2,361) (2,094)
-------- --------
Net Cash Used by Operating Activities (119) (1,352)
-------- --------
Cash Flows from Investing Activities:
Proceeds from Maturities of Held-to-Maturity Investment Securities 4,015 9,444
Purchases of Held-to-Maturity Investment Securities (9,490) (8,203)
Proceeds from Maturities of Available-for-Sale Investment Securities 40,326 28,994
Proceeds from Sales of Available-for-Sale Investment Securities 7,394 5,629
Purchases of Available-for-Sale Investment Securities (38,737) (57,919)
Net Increase in Loans (6,106) (4,260)
Proceeds from Sale of Loans 294 --
Purchase of Premises and Equipment, Net of Disposals (373) (52)
Proceeds from Sale of Other Real Estate 35 15
-------- --------
Net Cash Used in Investing Activities (2,642) (26,352)
-------- --------
Cash Flows from Financing Activities:
Net (Decrease) Increase in Demand Deposits, Savings, NOW,
Money Market and Other Time Deposits (6,346) 10,258
Net Increase in Certificates of Deposit 9,159 18,274
Net Decrease in Short-Term Borrowings (5,283) (576)
Increase in Long-Term Borrowings 15,000 --
Repayment of Long-Term Borrowings (1,141) (8,613)
Decrease in Dividends Payable -- (209)
Purchase of Treasury Stock -- (492)
Cash Dividends (1,065) (999)
-------- --------
Net Cash Provided by Financing Activities 10,324 17,643
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 7,563 (10,061)
Cash and Cash Equivalents at Beginning of Year 19,890 47,064
-------- --------
Cash and Cash Equivalents at End of Period $ 27,453 $ 37,003
======== ========
See accompanying notes to consolidated financial statements
Supplemental Disclosures of Cash Flow Information:
Cash Paid during Period for:
Interest $ 3,137 $ 3,883
Income Taxes $ 2,859 $ 2,558
Non Cash Investing Activities:
Change in Unrealized Gain on Securities $ 1,958 $ (1,212)
Transfer of Loans to Other Real Estate $ 59 $ 58
See accompanying notes to consolidated financial statements.
4
The Wilber Corporation
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of The Wilber Corporation (the "Company"), its wholly-owned subsidiary
Wilber National Bank (the "Bank") and the Bank's wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete
financial statements.
The preparation of financial statements in conformity with GAAP required
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 financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, the unaudited consolidated financial
statements include all necessary adjustments, consisting of normal recurring
accruals, necessary for a fair presentation for the periods presented. The
results for the periods presented are not necessarily indicative of results to
be expected for the entire fiscal year or any other interim period.
The data in the consolidated balance sheet for December 31, 2003 was derived
from the Company's 2003 Annual Report on Form 10-K. The Annual Report of Form
10-K includes the Company's audited consolidated statements of condition as of
December 31, 2003 and 2002, and the consolidated statements of income,
consolidated statements of cash flows, consolidated statements of stockholders'
equity and comprehensive income for each of the years in the three-year period
ended December 31, 2003. That data, along with the interim unaudited financial
information presented in the consolidated statements of condition as of March
31, 2004; and the statements of income, statements of changes in stockholders'
equity and comprehensive income for the three months ended March 31, 2004 and
2003 should be read in conjunction with the 2003 consolidated financial
statements, including the notes thereto.
Amounts in prior period's consolidated financial statements are reclassified
when necessary to conform to the current period's presentation.
Note 2. Earnings Per Share
Basic earnings per share (EPS) are calculated by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Entities with complex capital structures must
also present diluted EPS, which reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common shares. The Company does not have a complex capital
structure, and accordingly, has presented only basic EPS.
Note 3. Guarantees
The Company does not issue any guarantees that would require
liability-recognition or disclosure, other than its standby letters of credit.
Standby and other letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Typically, these instruments have
terms of 12 months or less and expire unused; therefore, the total amounts do
not necessarily represent future cash requirements.
The estimated fair value of the Company's stand-by letters of credit was $68
thousand and $43 thousand at March 31, 2004 and December 31, 2003 respectively.
The estimated fair value of stand-by letters of credit at their inception is
equal to the fee that is charged to the customer by the Company. Generally, the
Company's stand-by letters of credit have a term of one year. In determining the
fair values disclosed above, the fees were reduced on a straight-line basis from
the inception of each stand-by letter of credit
5
to the respective dates above. Due to immateriality of the fair value of the
Company's stand-by letters of credit, as well as their short-term nature, the
Company recognized the fees for the stand-by letters of credit in income at
inception.
The amount of collateral obtained, if deemed necessary, by the Bank upon
extension of credit for commitments to extend credit and letters of credit, is
based upon management's credit evaluation of the counter party. Collateral held
varies but includes residential and commercial real estate.
Note 4. Employee Benefit Plans
The Company, through its bank subsidiary, has a non-contributory defined benefit
pension plan covering employees who have attained the age of 21 and have
completed one year of service. The Company's funding practice is to contribute
at least the minimum amount annually to meet minimum funding requirements.
Contributions are intended to provide not only for benefits attributed to
service to date, but for those expected to be earned in the future. Plan assets
consist primarily of marketable fixed income securities and common stocks. Plan
benefits are based on years of service and the employee's average compensation
during the five highest consecutive years of the last ten years of employment.
The Components of Net Periodic Benefit Cost (Benefit), based on a September 30
measurement date, are:
Three Months Ended
March 31,
dollars in thousands 2004 2003
- -------------------------------------------------------------------------------
Service Cost $ 162 $ 135
Interest Cost 210 196
Expected Return on Plan Assets (286) (237)
Net Amortization 50 42
------- -------
$ 136 $ 136
======= =======
Note 5. Long-Term Borrowings
During the three month period ended March 31, 2004, the Company, through its
bank subsidiary, secured $15,000,000 of long-term borrowings from the Federal
Home Loan Bank of New York. All of the long-term borrowings secured by the
Company during the period were collateralized by mortgage-backed securities or
other government agency securities. The following is a summary of the long-term
borrowings secured during the three month period ended March 31, 2004:
Advances from the Federal Home Loan Bank of New York
Bearing Interest at 1.30%, due March 24, 2005 $ 3,000,000
Bearing Interest at 1.81%, due March 24, 2006 3,000,000
Bearing Interest at 2.43%, due March 9, 2007 3,500,000
Bearing Interest at 2.35%, due March 26, 2007 2,000,000
Bearing Interest at 3.12%, due March 9, 2011 3,500,000
-----------
$15,000,000
Note 6. Other Comprehensive Income
The following is a summary of changes in other comprehensive income for the
periods presented.
Three Months Ended
March 31,
dollars in thousands 2004 2003
- -------------------------------------------------------------------------------------------
Unrealized Holding Gains / (Losses) Arising During the Period Net
of Tax (Pre-tax Amount of $2,636 and ($789)) $ 1,601 $ (464)
Reclassification Adjustment for Gains Realized in Net Income During
the Period, Net of Tax (Pre-tax Amount of ($678), and ($422)) (403) (251)
------- -------
Other Comprehensive (Loss) Income, Net of Tax of $764 and ($494) $ 1,198 $ (715)
======= =======
6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
A. General
The primary objective of this quarterly report is to provide: (i) an overview of
the material changes in our financial condition, including liquidity and capital
resources, at March 31, 2004, as compared to December 31, 2003; and (ii) a
comparison of our results of operations for the three month period ended March
31, 2004, as compared to the three month period ended March 31, 2003.
Our financial performance is heavily dependent upon net interest income, which
is the difference between the interest income earned on our loans and investment
securities less the interest paid on our deposits and borrowings. Results of
operations are also affected by the provision for loan losses, investment
securities gains (losses), service charges and penalty fees on deposit accounts,
fees collected for trust and investment services, insurance commission income,
the increase on the cash surrender value on bank owned life insurance, other
service fees and other income. Our non-interest expenses primarily consist of
employee salaries and benefits, occupancy and equipment expense, advertising and
marketing expense, computer service fees, professional fees and other expenses.
Results of operations are also influenced by general economic and competitive
conditions (particularly changes in interest rates), government policies,
changes in Federal or State tax law, and the actions of our regulatory
authorities.
Critical Accounting Policies. Our management considers the accounting policy
relating to the allowance for loan losses to be a critical accounting policy
given the uncertainty in evaluating the level of the allowance required to cover
credit losses inherent in the loan portfolio and the material effect that such
judgments can have on the results of operations. While management's current
evaluation of the allowance for loan losses indicates that the allowance is
adequate, under adversely different conditions or assumptions, the allowance
would need to be increased. For example, if historical loan loss experience
significantly worsened or if current economic conditions significantly
deteriorated, additional provisions for loan losses would be required to
increase the allowance. In addition, the assumptions and estimates used in our
internal reviews of non-performing loans and potential problem loans has a
significant impact on the overall analysis of the adequacy of the allowance for
loan losses. While we have concluded that the current evaluation of collateral
values is reasonable under the circumstances, if collateral valuations were
significantly lowered, our allowance for loan losses would also require
additional provisions for loan losses.
The following tables set forth in this quarterly financial report provide
readers with supplementary information, which is not directly obtainable from
the unaudited financial statements provided in PART I, Item 1 of this quarterly
report. These tables are to be read in conjunction with our management,
discussion and analysis narrative regarding the financial condition, results of
operations, liquidity and capital resources contained within this report.
7
Asset and Yield Summary Table:
The following table sets forth the total dollar amount and resultant yields of
interest income from average earning assets, as well as the interest expense on
average interest bearing liabilities. No tax equivalent adjustments were made.
Average balances are daily averages.
For the Three Months Ended March 31,
----------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned / Yield / Outstanding Earned / Yield /
Balance Paid Rate Balance Paid Rate
----------------------------------------------------------------------
(Dollars in thousands)
Earning Assets:
Federal funds sold $ 7,252 $ 18 1.00% $ 22,672 $ 68 1.22%
Interest bearing deposits 7,520 126 6.74% 16,483 252 6.20%
Securities (1) 305,244 3,011 3.97% 282,027 3,390 4.87%
Loans, Net (2) 358,519 5,939 6.66% 355,161 6,314 7.21%
-------------------- --------------------
Total earning assets 678,535 9,094 5.39% 676,343 10,024 6.01%
Non-earning assets 46,447 44,371
--------- ---------
Total assets $ 724,982 $ 720,714
========= =========
Liabilities:
Savings accounts $ 93,113 $ 173 0.75% $ 85,785 $ 249 1.18%
Money market accounts 31,018 64 0.83% 31,169 85 1.11%
NOW accounts 124,772 274 0.88% 118,023 413 1.42%
Time accounts 269,137 1,833 2.74% 276,778 2,129 3.12%
Borrowings 74,948 765 4.11% 81,921 921 4.56%
-------------------- --------------------
Total interest bearing liabilities 592,988 3,109 2.11% 593,676 3,797 2.59%
Non-interest bearing deposits 57,620 53,406
Other non-interest bearing liabilities 8,749 9,937
--------- ---------
Total liabilities 659,357 657,019
Stockholders' equity 65,625 63,695
--------- ---------
Total liabilities and shareholder equity $ 724,982 $ 720,714
========= =========
Net interest income $ 5,985 $ 6,227
======= =======
Net interest rate spread (3) 3.28% 3.42%
======= =======
Net earning assets $ 85,547 $ 82,667
========= =========
Net interest margin (4) 3.55% 3.73%
======= =======
Ratio of earning assets to interest bearing liabilities 114.43% 113.92%
========= =========
(1) Securities are shown at average amortized cost with net unrealized gains
or losses on securities available-for-sale included as a component of
non-earning assets.
(2) Average net loans equal average total loans less the average allowance for
loan losses. However, for purposes of these computations, non-accrual
loans are included in average loan balances outstanding.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) The net interest margin, also known as the net yield on average
interest-earning assets, represents net interest income as a percentage of
average interest-earning assets.
8
Table of Non-performing Assets:
The following table sets forth information regarding non-performing loans and
assets as of the periods indicated.
-------------------------------
At March 31, At December 31,
Dollars in Thousands 2004 2003
-------------------------------
Loans in Non-Accrual Status:
Agricultural $ 1,367 $ 1,425
Residential real estate (1) 26 257
Commercial real estate 953 1,199
Commercial 387 275
Consumer 6 8
--------------------------
Total non-accruing loans 2,739 3,164
Loans Contractually Past Due 90 Days
or More and Still Accruing Interest 370 123
Troubled Debt Restructured Loans 367 371
--------------------------
Total non-performing loans 3,476 3,658
Other real estate owned 20 20
--------------------------
Total non-performing assets $ 3,496 $ 3,678
==========================
Total non-performing assets as a
percentage of total assets 0.47% 0.50%
==========================
Total non-performing loans as a
percentage of total loans 0.95% 1.01%
==========================
(1) Includes home equity loans.
9
Analysis of the Allowance for Loan Losses Table:
The following table sets forth changes in the allowance for loan losses for the
periods indicated:
Three months ended
March 31,
-----------------------
2004 2003
-----------------------
(Dollars in thousands)
Balance at beginning of period $ 5,757 $ 5,392
Charge offs:
Agricultural -- 110
Residential real estate 112 7
Commercial real estate 43 --
Commercial 48 --
Consumer 120 195
-----------------------
Total charge offs 323 312
-----------------------
Recoveries:
Agricultural -- --
Residential real estate 13 --
Commercial real estate -- --
Commercial 20 68
Consumer 66 35
-----------------------
Total recoveries 99 103
-----------------------
Net charge-offs 224 209
Provision for loan losses 360 420
-----------------------
Balance at end of period $ 5,893 $ 5,603
=======================
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.06% 0.06%
=======================
Allowance for loan losses to total loans 1.61% 1.55%
=======================
Allowance for loan losses to non-performing loans 170% 115%
=======================
10
B. Comparison of Financial Condition at March 31, 2004 and December 31, 2003
Overview. The financial condition of the Company did not change significantly
between December 31, 2003 and March 31, 2004. Total Assets increased by 1.6% or
$11.9 million from $729.0 million at December 31, 2003 to $740.9 million at
March 31, 2004. During the quarter ended March 31, 2004 we borrowed $15.0
million from the Federal Home Loan Bank of New York to purchase an equivalent
amount of available-for-sale securities. The remaining net increases and
decreases in assets and liabilities provided in the Consolidated Statements of
Condition it PART I, Item 1 of this quarterly financial report occurred in the
normal course of business and were not due to any unusually large or
extraordinary transactions.
Asset Quality. We use several measures to determine the overall credit quality
of our loan portfolio. These include the level of delinquent loans (those 30 or
more days delinquent, excluding loans placed on non-accrual status), the level
of non-performing loans, the level of potential problem loans and the dollar
amount and type of loan charge-offs we experience. Between December 31, 2003 and
March 31, 2004 the level of non-performing loans decreased modestly, while
delinquent loans increased significantly due primarily to the inclusion of one
commercial real estate loan which management believes is adequately secured by
real estate collateral. Potential problem loans, the allowance for loan losses
and the level of loan charge-offs were relatively unchanged between December 31,
2003 and March 31, 2004.
At March 31, 2004 loans that were 30 or more days delinquent (excluding loans
placed on non-accrual status) totaled $3.715 million or 1.01% of loans
outstanding. By comparison at December 31, 2003 we had $2.752 million or 0.76%
of loans outstanding in this same category, an increase of $963 thousand between
the periods. One large commercial real estate loan totaling $1.775 million
became 30 days delinquent on March 31, 2004. Management believes this loan is
adequately secured by real estate collateral.
Total non-performing assets, including non-accruing loans, loans 90 days or more
past and still accruing interest, troubled debt restructured loans and other
real estate owned were $3.496 million at March 31, 2004, as compared to $3.678
million at December 31, 2003, a $182 thousand decrease. During the three month
period ended March 31, 2004 non-accruing loans decreased by $425 thousand. This
was due primarily to the sale of three loans, which totaled $337 thousand at
December 31, 2003. The decrease in non-accruing loans between the periods was
partially offset by a $247 thousand increase in loans 90 or more days past due
and still accruing interest.
Potential problem loans, which are those that are currently performing, but
where we believe potential credit problems exist, were $8.491 million or 2.32%
of total loans at March 31, 2004, as compared to $7.854 million or 2.18% of
total loans at December 31, 2004.
The allowance for loan losses increased from $5.757 million or 1.60% of total
loans outstanding at December 31, 2003 to $5.893 or 1.61% of total loans
outstanding at March 31, 2004. Our management and Board of Directors deemed the
allowance for loan losses as adequate at March 31, 2004.
The credit quality of the investment securities portfolios, both
available-for-sale and held-to-maturity, remained strong during the quarter. At
March 31, 2004, 99.7% of the securities held in the Company's bond portfolio
were rated "A" or better by Moody's or Standard and Poor's credit rating
services; 91.6% were rated AAA. At December 31, 2003, 98.5% were rated "A" or
better and 89.8% were rated AAA by these same services.
C. Comparison of the Results of Operations for the Three Months Ended March 31,
2003 and 2004
Overview. Net Income decreased by $111 thousand or 4.6%, from $2.395 million for
the three month period ended March 31, 2003 to $2.284 million for the three
month period ended March 31, 2004. During the three month period ended March 31,
2004 our net interest income decreased due to a lower net interest margin. This
decrease, as well as an increase in other expenses was offset by a decreased
provision for loan loss, increased investment securities gains, and a lower
provision for income taxes. During the three month period ended March 31, 2004
we sold $7.394 million of available-for-sale investment securities netting
realized gains of $678 thousand. By comparison during the three month period
ended March 31, 2003 we sold $5.629 million of available-for-sale securities
netting gains of $422 thousand. The decrease in net income caused earnings per
share to decrease by $0.01, from $0.21 for the three month period ended March
31, 2003 to $0.20 for the three month period ended March 31, 2004.
11
Return on average assets decreased from 1.35% in the three month period ended
March 31, 2003 to 1.27% for the three month period ended March 31, 2004. This
occurred primarily because net interest margin declined between periods.
Historically low and declining interest rates prompted significant loan
refinancing activity reducing interest rate spreads on new loans and
investments. Return on average stockholders' equity also declined from 15.25%
for the three month period ended March 31, 2003 to 14.00% for the three month
period ended March 31, 2004.
Net Interest Income. Net interest income is our most significant source of
revenue. During the three month period ended March 31, 2004 and the three month
period ended March 31, 2003, net interest income comprised 77% and 80%,
respectively, of our total revenues. Net interest income totaled $5.985 million
for the three month period ended March 31, 2004, as compared to $6.227 million
for the three month period ended March 31, 2003, a $242 thousand or 3.9%
decrease.
Throughout 2003 and during the first quarter of 2004 maturing and
adjustable-rate loans and investment securities were renewed and replaced by new
loans and investments at lower rates of interest. This resulted in a much lower
yield on earning assets for the three month period ended March 31, 2004, as
compared to the three month period ended March 31, 2003. In addition during the
first three months of 2004 residential mortgage refinancing activity remained
high. This resulted in accelerated principal prepayment rates on our
mortgage-backed securities portfolio, requiring us to increase the net
amortization expense of premiums on our investments securities. During the three
month period ended March 31, 2004 we received proceeds from the maturity of
available-for-sale and held-to-maturity investment securities totaling $44.3
million, which required us to record a net amortization expense for the quarter
of $543 thousand. During the same three month period ended March 31, 2003, we
received proceeds from the maturity of our securities portfolios totaling $38.4
million, which required us to record a net amortization expense for the quarter
of $193 thousand. These factors were the primary reason the average yield on
total earning assets decreased by 62 basis points between the periods, from
6.01% in the three month period ended March 31, 2003 to 5.39% during the three
month period ended March 31, 2004.
The interest expense on interest bearing liabilities decreased by $688 thousand
between the periods, from $3.797 million for the three month period ended March
31, 2003 to $3.109 million for the three month period ended March 31, 2004.
Between the periods we decreased the rates of interest paid on all interest
bearing deposit accounts. In addition, we experienced an increase in the volume
of non-maturity interest bearing deposit accounts in spite of the lower rates of
interest being paid on those accounts. The increase in low-cost, non-maturity,
interest bearing deposit accounts (transaction and savings accounts) and a
decrease in higher-cost certificates of deposit contributed to the reduction in
the cost of interest bearing deposits between the periods. The cost of interest
bearing deposit accounts decreased by 48 basis points between the periods, from
2.59% for the three month period ended March 31, 2003 to 2.11% for the three
month period ended March 31, 2004. The interest expense related to the Company's
of borrowings also decreased by $156 thousand between periods from $921 thousand
during the three month period ended March 31, 2003 to $765 thousand during the
three month period ended March 31, 2004. This decrease was due to both a
decrease in the average borrowings outstanding and a reduction in average
borrowing costs.
We were unable to sustain or improve net interest margin between the periods
because it became increasingly difficult for management, throughout 2003 and
during the first quarter of 2004, to lower the interest rates paid on
non-maturity, interest bearing deposit accounts while earning assets continued
to price down in the historically low interest rate environment. Savings and NOW
accounts were already near an interest rate floor of 0%. This condition may
exist prospectively in future quarters.
Rate and Volume Analysis: The purpose of a rate volume analysis is to identify
the dollar amount of change in net interest income due to changes in interest
rates versus changes in the volume of earning assets and interest bearing
liabilities. Net interest income was $242 thousand less in the three month
period ended March 31, 2004 than in the three month period ended March 31, 2003.
An increase in the volume of earning assets and decrease in volume of interest
bearing liabilities resulted in an increase in net interest income of $190
thousand. However, this improvement was offset by a $432 thousand decrease in
net interest income due to interest rates. Interest income decreased by $1.027
million due to lower yields on earning assets between the periods. This decrease
in interest income was offset by a $595 thousand decrease in interest bearing
liability costs due to lower rates of interest.
12
Rate and Volume Table:
The following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amount of change. The table has not been adjusted for
tax-exempt interest.
For the Three Months Ended
March 31,
----------------------------------
2004 vs. 2003
----------------------------------
Rate Volume Total
----------------------------------
(In thousands)
Earning assets:
Federal Funds Sold $ (12) $ (38) $ (50)
Interest Bearing Deposits $ 24 $ (150) $ (126)
Securities $ (608) $ 229 $ (379)
Loans $ (431) $ 56 $ (375)
----------------------------------
Total earning assets $ (1,027) $ 97 $ (930)
----------------------------------
Interest bearing liabilities:
Savings accounts $ 90 $ (14) $ 76
Money market accounts $ 21 $ -- $ 21
NOW accounts $ 154 $ (15) $ 139
Time accounts $ 245 $ 51 $ 296
Borrowings $ 85 $ 71 $ 156
----------------------------------
Total interest bearing liabilities $ 595 $ 93 $ 688
----------------------------------
Change in net interest income $ (432) $ 190 $ (242)
----------------------------------
Provision for Loan Losses. The provision for loan losses for the three month
period ended March 31, 2004 was $360 thousand, as compared to $420 thousand for
the three month period ended March 31, 2003, a $60 thousand decrease. The
provision for loan losses decreased in the first quarter of 2004, as compared to
the first quarter of 2003 due to a decrease in non-performing loans and a
relatively stable level of net charge-offs. In addition, although the level of
delinquent loans was greater at March 31, 2004 than at March 31, 2003 due to the
addition of one adequately collateralized $1.775 million commercial real estate
loan which became 30 days past due on the last day of the quarter, the average
level of delinquent loans during the quarter was substantially reduced. Average
delinquent loans (those 30 or more days past due and still accruing interest) as
a percent of average total loans outstanding during the quarter ended March 31,
2004 was 0.65%. By comparison, average delinquent loans as a percent of average
total loans outstanding during the quarter ended March 31, 2003 was 1.74%.
Management attributes the improvement in average delinquency levels to
implementation of an improved consumer credit identification and management
system established in 2001. Net charge-offs remained relatively stable between
the quarters. Net charge-offs for the quarter ended March 31, 2004 were $224
thousand, as compared to $209 thousand for the quarter ended March 31, 2003. Net
charge-offs were stable even though we sold $448 thousand of loans ($337
thousand of which were non-performing loans) during the quarter resulting in a
$155 thousand charge-off. During both periods, net charge-offs were 0.06% or 6
basis points of average loans outstanding.
Non-Interest Income. Non-interest income increased to $1.814 million for the
quarter ended March 31, 2004 from $1.587 million for the quarter ended March 31,
2003, a $227 thousand or 14.3% increase. The increase can be primarily
attributed to an increase in investment securities gains of $256 thousand.
Non-Interest Expense. Non-interest expense increased to $4.313 million for the
quarter ended March 31, 2004, as compared to $4.010 for the quarter ended March
31, 2003. During the quarter ended March 31, 2004 we incurred a greater amount
of professional fees expense associated with listing our common stock on the
American Stock Exchange and registering the Company with the SEC. Specifically,
13
professional fees increased from $70 thousand during the first quarter of 2003
to $225 thousand during the first quarter of 2004, a $155 thousand increase.
In addition, other expenses increased by $168 thousand from $560 thousand in the
three month period ended March 31, 2003 to $728 thousand during the three month
period ended March 31, 2004. The Bank's executive deferred compensation plan
expense increased by $66 thousand, from a gain of $23 thousand for the three
month period ended March 31, 2003 to an expense of $43 thousand for the three
month period ended March 31, 2004. In addition, during the first quarter of 2004
we incurred additional production and printing expenses due to the Company's
expanded SEC reporting and shareholder reporting requirements, additional office
supplies associated with opening a new branch and loan production office during
the quarter, and additional minority interest expense related to its insurance
agency joint venture, Mang - Wilber LLC.
Income Taxes. Income tax expense decreased from $989 thousand during the three
month period ended March 31, 2003 to $842 thousand during the three month period
ended March 31, 2004. The decrease in income tax expense was due to an increase
in tax-exempt income from state and municipal investment securities and a
general decrease in taxable income.
D. Liquidity
Liquidity describes our ability to meet financial obligations in the normal
course of business. Liquidity is primarily needed to meet the borrowing and
deposit withdrawal requirements of our customers and to fund our current and
planned expenditures. We are committed to maintaining a strong liquidity
position. Accordingly, we monitor our liquidity position on a daily basis
through our daily funds management process. This includes:
o maintaining the appropriate levels of currency throughout our branch
system to meet the daily cash needs of our customers,
o balancing our mandated deposit or "reserve" requirements at the Federal
Reserve Bank of New York,
o maintaining adequate cash balances at the Federal Home Loan Bank of New
York and other correspondent banks, and
o assuring that adequate levels of federal funds sold, liquid assets, and
borrowing resources are available to meet obligations including reasonably
anticipated daily fluctuations.
In addition to the daily funds management process, we also monitor certain
liquidity ratios and complete a liquidity assessment every 90 days to estimate
current and future sources and uses of liquidity. The 90-day sources and uses
assessment is reviewed by our Asset and Liability Committee. The committee,
based on this assessment and other data, determines our future funding or
investment needs and strategies. The following list represents the sources of
funds available to meet our liquidity requirements. Our primary sources of funds
are denoted by an asterisk (*).
Source of Funding
o Currency*
o Federal Reserve and Correspondent Bank Balances*
o Federal Funds Sold*
o Loan and Investment Principal and Interest Payments*
o Investment Security Maturities and Calls*
o Demand Deposits & NOW Accounts*
o Savings & Money Market Deposits*
o Certificates of Deposit and Other Time Deposits*
o Repurchase Agreements*
o FHLBNY Advances / Lines of Credit*
o Sale of Available for Sale Investment Securities
o Brokered Deposits
o Correspondent Lines of Credit
o Fed. Reserve Discount Window Borrowings
o Sale of Loans
o Proceeds from Issuance of Equity Securities
o Branch Acquisition
14
The following table summarizes several of our key liquidity measures for the
periods stated:
Table of Liquidity Measures:
- --------------------------------------------------------------------------------
Liquidity Measure March 31, December 31,
Dollars in Thousands 2004 2003
- --------------------------------------------------------------------------------
Cash and Cash Equivalents $ 27,453 $ 19,890
- --------------------------------------------------------------------------------
Available for Sale Investment Securities at
Estimated Fair Value less Securities pledged
for State and Municipal Deposits and Borrowings $100,904 $106,933
- --------------------------------------------------------------------------------
Total Loan to Total Asset Ratio 49.46% 49.50%
- --------------------------------------------------------------------------------
FHLBNY Remaining Borrowing Capacity $ 14,908 $ 18,314
- --------------------------------------------------------------------------------
Correspondent Bank Lines of Credit $ 10,000 $ 10,000
- --------------------------------------------------------------------------------
At March 31, 2004 and December 31, 2003, we maintained adequate levels of
liquidity. The substantial majority of the unencumbered available-for-sale
investment securities are highly liquid and could be sold immediately or pledged
for borrowing purposes to meet our anticipated or unanticipated loan and other
funding requirements.
In addition to the above liquidity measures, at March 31, 2004 and December 31,
2003 we had $14.6 million and $14.4 million respectively, of cash surrender
value in our bank-owned life insurance portfolio. These policies could be
terminated and surrendered for cash upon our demand.
Our commitments to extend credit and standby letters of credit did not change
significantly from December 31, 2003 to March 31, 2004. At March 31, 2004
commitments to extend credit and standby letters of credit were $59.8 million,
as compared to $59.1 million at December 31, 2003, a $700 thousand or a 1.2%
increase. Our experience indicates that draws on the commitments to extend
credit and standby letters of credit do not fluctuate significantly and
therefore are not expected to materially impact our liquidity.
Deposit flows and loan and investment prepayment activity are affected by the
level of interest rates, the interest rates and products offered by competitors,
and other factors. Based on our deposit retention experience, anticipated levels
of regional economic activity, particularly moderate levels of loan demand
within our primary market area, and current pricing strategies, we anticipate
that we will have sufficient levels of liquidity to meet our current funding
commitments for several quarters prospectively.
E. Capital Resources and Dividends
The maintenance of appropriate capital levels is a management priority. Overall
capital adequacy is monitored on an ongoing basis by our management and reviewed
regularly by the Board of Directors. Our principal capital planning goal is to
provide an adequate return to shareholders while retaining a sufficient capital
base to provide for future expansion and comply with all regulatory standards.
At March 31, 2004 stockholders' equity was $66.7 million, a $1.142 million or
1.8% increase over December 31, 2003 stockholders' equity of $64.3 million. The
increase was due to an increase in retained earnings of $1.219 million and an
increase in other comprehensive income $1.198 million.
From time to time we have repurchased outstanding common stock from our
stockholders under limits prescribed by the Board of Directors. These limits
have been set by the Board of Directors based upon the Company's total capital
ratio. Given the Company's financial condition, the Board of Directors has
attempted to maintain a total capital to total assets ratio of 8.0% to 9.0%.
Throughout the quarter ended March 31, 2004 management did not have any
authority to re-purchase the Company's common shares into Treasury. Hence, no
shares of stock were repurchased by the Company during the three month period
ended March 31, 2004. Any future stock repurchase activities will be approved by
the Board of Directors and will be designed to comply with applicable SEC and
American Stock Exchange rules.
The Company and the Bank are both subject to regulatory capital guidelines.
Under these guidelines, as established by federal bank regulators, to be
adequately capitalized, the Company and the Bank must
15
both maintain the minimum ratio of "Tier 1" capital to risk-weighted assets at
4.0% and the minimum ratio of total capital to risk-weighted assets of 8.0%.
Tier 1 capital is comprised of stockholders' equity, less intangible assets and
accumulated other comprehensive income. Total capital, for this risk-based
capital standard, includes Tier 1 capital plus the Company's allowance for loan
losses. Similarly, for the Bank to be considered "well capitalized," it must
maintain a Tier 1 capital to risk-weighted assets ratio of 6.0% and a total
capital to risk-weighted assets ratio of 10.00%. The Company and the Bank
exceeded all capital adequacy and well capitalized guidelines at March 31, 2004
and December 31, 2003. The Company's Tier 1 capital to risk-weighted assets
ratio and total capital to risk-weighted assets ratio at March 31, 2004 were
13.18% and 14.43%, respectively.
The principal source of funds for the payment of shareholder dividends by the
Company has been dividends declared and paid to the Company by its subsidiary
bank. There are various legal and regulatory limitations applicable to the
payment of dividends to the Company by its subsidiaries as well as the payment
of dividends by the Company to its shareholders. As of March 31, 2004, under
this statutory limitation, the maximum amount that could have been paid by the
Bank subsidiary to the Company, without special regulatory approval, was
approximately $8.1 million. The ability of the Company and the Bank to pay
dividends in the future is and will continue to be influenced by regulatory
policies, capital guidelines and applicable laws.
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk
Our business activities generate market risk. Market risk is the possibility
that changes in future market conditions, including interest rates and prices,
will reduce earnings and make the Company less valuable. We are primarily
exposed to market risk through changes in interest rates. This risk is called
Interest Rate Risk and is an inherent component of risk for all banks. The risk
occurs because we pay interest on deposits and borrowed funds at varying rates
and terms, while receiving interest income on loans and investments with
different rates and terms. As a result, our earnings and the market value of
assets and liabilities are subject to potentially significant fluctuations as
interest rates rise and fall. Our objective is to minimize the fluctuation in
Net Interest Margin and Net Interest Income caused by anticipated and
unanticipated changes in interest rates.
Ultimately, the Company's Board of Directors is responsible for monitoring and
managing market and interest rate risk. The Board accomplishes this objective by
annually reviewing and approving an Asset and Liability Management Policy, which
establishes broad risk limits and delegates responsibility to carry out asset
and liability oversight and control to the Directors' Loan and Investment
Committee and management's Asset and Liability Committee ("ALCO").
We manage several different forms of Interest Rate Risk. The first is mismatch
risk, which involves the mismatch of maturities of fixed rate assets and
liabilities. The second is basis risk. Basis risk is the risk associated with
non-correlated changes in different interest rates. For example, we price many
of our adjustable rate commercial loans (an asset) using the Prime Rate as a
basis, while some of our deposit accounts (a liability) are tied to Treasury
security yields. In a given timeframe, the Prime rate might decrease 2% while a
particular Treasury security might only decrease 1%. If this were to occur, our
yield on Prime based commercial loans would decrease by 2%, while the cost of
deposits might only decrease by 1% negatively affecting Net Interest Income and
Net Interest Margin. The third risk is option risk. Option risk generally
appears in the form of prepayment volatility on residential mortgages,
commercial and commercial real estate loans, consumer loans, mortgage backed
securities, and callable agency or municipal investment securities. The Bank's
customers generally have alternative financing sources (or options) to refinance
their existing debt obligations with other financial institutions. When interest
rates decrease, many of these customers exercise this option and refinance at
other institutions and prepay their loans with us, forcing us to reinvest the
prepaid funds in lower yielding investments and loans. The same type of
refinancing activity also accelerates principal payments on mortgage-backed
securities held by the Bank. Municipal investment securities and agency
securities are issued with specified call dates and call prices and are
typically exercised by the issuer when interest rates on comparable maturity
securities are lower than the current coupon rate on the security.
Measuring and managing interest rate risk is a dynamic process that the Bank's
management must continually perform to meet the objective of maintaining stable
Net Interest Income and Net Interest Margin. This means that prior to setting
the term or interest rate on loans or deposits, or before purchasing investment
securities or borrowing funds, management must understand the impact that
alternative interest rates will have on the Bank's interest rate risk profile.
This is accomplished through
16
simulation modeling. Simulation modeling is the process of "shocking" the
current Balance Sheet under a variety of interest rate scenarios and then
measuring the impact of interest rate changes on both projected earnings and the
market value of the Bank's equity. The estimates underlying the sensitivity
analysis are based on numerous assumptions including, but not limited to: the
nature and timing of interest rate changes, prepayments on loans and securities,
deposit decay rates, pricing decisions on loans and deposits, and
reinvestment/replacement rates on asset and liability cash flows. While
assumptions are developed based on available information and current economic
and local market conditions, management cannot make any assurances as to the
ultimate accuracy of these assumptions including competitive influences and
customer behavior. Accordingly, actual results will differ from those predicted
by simulation modeling.
The following table shows the projected changes in Net Interest Income from a
parallel shift in all market interest rates. The shift in interest rates is
assumed to occur in monthly increments of 0.50% per month until the full shift
is complete. In other words, the model assumes it will take 6 months for a 3.00%
shift to take place. This is also known as a "ramped" interest rate shock. The
projected changes in Net Interest Income are totals for the 12-month period
beginning April 1, 2004 and ending March 31, 2005 under ramped shock scenarios.
Interest Rate Sensitivity Table:
- --------------------------------------------------------------------------------
Interest Rates Dollars in Thousands
- --------------------------------------------------------------------------------
Projected
Projected Change in Net
Dollar Projected Interest Income
Projected Change Percentage as a Percent
Interest Annualized in Net Change in of Total
Rate Prime Net Interest Interest Net Interest Stockholders'
Shock (1) Rate Income Income Income Equity
- --------------------------------------------------------------------------------
-2.00% 2.00% $23,878 ($1,243) -4.95% -1.86%
- --------------------------------------------------------------------------------
-1.00% 3.00% $24,528 ($593) -2.36% -0.89%
- --------------------------------------------------------------------------------
No change 4.00% $25,121 -- -- --
- --------------------------------------------------------------------------------
1.00% 5.00% $24,807 ($314) -1.25% -0.47%
- --------------------------------------------------------------------------------
2.00% 6.00% $25,101 ($20) -0.08% -0.03%
- --------------------------------------------------------------------------------
3.00% 7.00% $25,923 $802 3.19% 1.20%
- --------------------------------------------------------------------------------
(1) Under a ramped interest rate shock, interest rates are modeled to change
at a rate of 0.50% per month.
Many assumptions are embedded within our interest rate risk model. These
assumptions are approved by the Bank's Asset and Liability Committee and are
based upon both management's experience and projections provided by investment
securities companies. Assuming our prepayment and other assumptions are accurate
and assuming we take reasonable actions to preserve Net Interest Income, we
project that Net Interest Income would decline by $20 thousand or 0.03% of total
stockholders' equity in a +2.00% ramped interest rate shock and $1.243 million
or 1.86% of total stockholders' equity in a -2.00% ramped interest rate shock.
This is within our Asset and Liability Policy guideline, which limits the
maximum projected decrease in net interest income in a +2.00% or -2.00% ramped
interest rate shock to -5.0% of the Company's total equity capital.
Our strategy for managing interest rate risk is impacted by general market
conditions and customer demand. But, generally, we try to limit the volume and
term of fixed-rate assets and fixed-rate liabilities, so that we can adjust the
mix and pricing of assets and liabilities to mitigate Net Interest Income
volatility. We also purchase investments for the securities portfolio and
structure borrowings from the Federal Home Loan Bank of New York to
counter-balance interest rate risk taken in the loan portfolio. We also offer
adjustable rate loan and deposit products that change as interest rates change.
Approximately 24% of our Total Assets were invested in adjustable rate loans and
investments at March 31, 2004.
17
ITEM 4: Controls and Procedures
Our management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the design and operational effectiveness of the Company's
disclosure controls and procedures (as defined in Rule 13(a)-15(e) and
15(d)-15(e) under the Securities Exchange Act of 1934, as amended) as of March
31, 2004. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934 are recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company is not the subject of any material pending legal proceedings, other
than ordinary routine litigation occurring in the normal course of its business.
On an ongoing basis, the Bank also becomes subject to various legal claims from
time to time, which arise in the normal course of business. The various pending
legal claims against the Bank will not, in the opinion of management based upon
consultation with counsel, result in any material liability to the Company and
will not materially affect our financial position, results of operation or cash
flow.
ITEM 2: Changes in Securities and Use of Proceeds
During the three month period ended March 31, 2004 the rights of holders of our
registered securities were not modified; nor were any other class of security
issued that could materially limit or qualify our registered securities.
ITEM 3: Defaults Upon Senior Securities
The Company did not default on any senior securities during the three month
period ended March 31, 2004.
ITEM 4: Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders of the Company
during the three month period ended March 31, 2004.
ITEM 5: Other Information
None.
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits: see Exhibit Index to this Form 10-Q
(b) Reports on Form 8-K
None
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE WILBER CORPORATION
By: /s/ Alfred S. Whittet Dated: 05/07/2004
----------------------------------
Alfred S. Whittet
President and Chief Executive Officer
By: /s/ Joseph E. Sutaris Dated: 05/07/2004
----------------------------------
Joseph E. Sutaris
Secretary and Chief Financial Officer
19
EXHIBIT INDEX
No. Document
31.1 Certification of Chief Executive Officer Pursuant to 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
20