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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 March 31, 2005
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 mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes |_| No |X|
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 7,573,578 shares
of the Registrant's common stock outstanding as of May 1, 2005.
ONEIDA FINANCIAL CORP.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Statements of Condition 2
As of March 31, 2005 (unaudited) and December 31, 2004 (audited)
Consolidated Statements of Operations (unaudited) 3
For the three months ended March 31, 2005 and 2004
Consolidated Statements of Comprehensive Income (unaudited) 4
For the three months ended March 31, 2005 and 2004
Consolidated Statements of Changes in Stockholders' Equity (unaudited) 5
For the three months ended March 31, 2005
Consolidated Statements of Cash Flows (unaudited) 6
For the three months ended March 31, 2005 and 2004
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition 12
And Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION 19
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Page 1 of 21
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
At March 31, 2005 and December 31, 2004
(unaudited) (audited)
At At
March 31, December 31,
2005 2004
---- ----
ASSETS (in thousands, except share data)
Cash and due from banks $ 9,847 $ 11,853
Federal funds sold 729 3,180
-----------------------------
TOTAL CASH AND CASH EQUIVALENTS 10,576 15,033
Investment securities, at fair value 111,718 109,730
Mortgage-backed securities, at fair value 44,114 44,378
Mortgage loans held for sale 1,363 2,894
Loans receivable 215,522 210,966
Allowance for loan losses (1,972) (1,982)
-----------------------------
LOANS RECEIVABLE, NET 213,550 208,984
Bank premises and equipment, net 9,732 9,854
Accrued interest receivable 1,939 2,104
Other assets 5,290 5,543
Cash surrender value - life insurance 10,924 10,819
Goodwill 12,284 12,284
Other intangible assets 957 986
---------------------------------------------------------------------------------
TOTAL ASSETS $ 422,447 $ 422,609
=================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits $ 254,019 $ 251,565
Non-interest bearing deposits 49,507 50,082
Borrowings 64,400 64,400
Other liabilities 2,821 3,918
-----------------------------
TOTAL LIABILITIES 370,747 369,965
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized -- --
Common stock ($.01 par value; 20,000,000
shares authorized; 8,242,452 issued) 82 82
Additional paid-in capital 17,961 17,946
Retained earnings 39,500 39,197
Common shares issued under employee
stock plans - unearned (435) (435)
Accumulated other comprehensive income (2,320) (994)
Treasury stock (at cost, 562,121
and 582,827 shares) (3,015) (3,030)
Unearned stock-based compensation (73) (122)
---------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 51,700 52,644
---------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 422,447 $ 422,609
=================================================================================
The accompanying notes are an integral part of the consolidated financial
statements
Page 2 of 21
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)
Three Months Ended
March 31, March 31,
2005 2004
---- ----
(in thousands, except Earnings per Share Data)
INTEREST INCOME:
Interest and fees on loans $ 3,332 $ 3,216
Interest on investment and mortgage-
backed securities 1,577 1,486
Dividends on equity securities 157 184
Interest on federal fund sold and
interest-earning deposits 15 8
- ----------------------------------------------------------------------------------------------
Total interest and dividend income 5,081 4,894
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposit 78 76
Money market and interest-bearing checking 151 98
Time deposits 781 855
Borrowings 741 682
- ----------------------------------------------------------------------------------------------
Total interest expense 1,751 1,711
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,330 3,183
Less: Provision for loan losses 80 150
- ----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,250 3,033
- ----------------------------------------------------------------------------------------------
OTHER INCOME:
Investment security gain, net 3 31
Insurance commission income 2,129 1,817
Other operating income 801 772
- ----------------------------------------------------------------------------------------------
Total other income 2,933 2,620
- ----------------------------------------------------------------------------------------------
OTHER EXPENSES:
Compensation and employee benefits 3,111 2,970
Occupancy expenses, net 805 791
Other operating expense 956 915
- ----------------------------------------------------------------------------------------------
Total other expenses 4,872 4,676
- ----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,311 977
- ----------------------------------------------------------------------------------------------
Provision for income taxes 336 255
- ----------------------------------------------------------------------------------------------
NET INCOME $ 975 $ 722
==============================================================================================
EARNINGS PER SHARE - BASIC $ 0.13 $ 0.10
==============================================================================================
EARNINGS PER SHARE - DILUTED $ 0.13 $ 0.09
==============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3 of 21
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)
Three Months Ended
March 31, March 31,
2005 2004
---- ----
(in thousands)
Net income $ 975 $ 722
----------- -----------
Other comprehensive income, net of tax:
Unrealized (losses) gains on assets
available for sale:
Unrealized holding (losses) gains
arising during period (2,207) 1,226
Less: reclassification adjustment for
gains included in net income (3) (31)
----------- -----------
(2,210) 1,195
Net income tax benefit (provision) 884 (478)
----------- -----------
Other comprehensive (loss) income, net of tax (1,326) 717
Comprehensive (Loss) Income $ (351) $ 1,439
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4 of 21
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2005 (unaudited)
Common Stock
Accumulated Issued Under Unearned
Additional Other Employee Stock
Common Stock Paid-In Retained Comprehensive Treasury Stock Plans- Based
Shares Amount Capital Earning Income Stock Unearned Compensation Total
(in thousands, except number of shares)
Balance as of December 31,
2004 8,242,452 $ 82 $17,946 $39,197 $ (994) $(3,030) $(435) $(122) $52,644
Net income 975 975
Other comprehensive income
(loss), net of tax (1,326) (1,326)
Shares issued under
stock plans 16 (16) --
Shares earned under
stock plans 65 65
Common stock dividends:
$0.20 per share (672) (672)
Treasury stock reissued (1) 15 14
------------------------------------------------------------------------------------------------------
Balance as of March 31,
2005 8,242,452 $ 82 $17,961 $39,500 $(2,320) $(3,015) $(435) $ (73) $51,700
======================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5 of 21
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)
Three Months Ended
March 31, March 31,
2005 2004
---- ----
(in thousands)
Operating Activities:
Net income $ 975 $ 722
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 266 274
Amortization of premiums/discounts on securities, net 64 151
Provision for loan losses 80 150
Stock compensation earned 65 52
Gain on sale/call of securities, net (3) (31)
Gain on sale of loans, net (48) (29)
Income tax payable 236 277
Accrued interest receivable 165 186
Other assets 796 1,168
Other liabilities (1,097) (1,070)
Origination of loans held for sale (2,172) (2,248)
Proceeds from sales of loans 3,751 2,298
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,078 1,900
- ------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of investment securities (9,273) (10,927)
Principal collected on and proceeds of maturities
sales or calls from investments 2,521 13,254
Principal collected on and proceeds from sales
of mortgage-backed securities 2,757 2,434
Net increase in loans (4,646) (44)
Purchase of bank premises and equipment (115) (89)
- ------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (8,756) 4,628
- ------------------------------------------------------------------------------------------------
Financing Activities:
Net increase in demand deposit, savings,
money market, super now and escrow 3,567 630
Net decrease in time deposits (1,688) (116)
Proceeds from borrowings 13,500 17,500
Repayment of borrowings (13,500) (20,000)
Cash dividends (672) (624)
Exercise of stock options (using treasury stock) 14 84
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,221 (2,526)
- ------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (4,457) 4,002
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 15,033 12,289
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 10,576 $ 16,291
================================================================================================
Supplemental disclosures of cash flow information:
Cash paid for interest 1,750 1,729
Cash paid for income taxes -- --
Non-cash investing activities:
Unrealized (loss) gain on investment and mortgage-backed
securities designated as available for sale (1,326) 1,195
Transfer of loans to other real estate -- 88
================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Page 6 of 21
ONEIDA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2005
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 March 31,
2005 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 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2005.
Note B - Earnings per Share
Basic earnings per share represents income available to common stockholders
divided by the weighted average number of common shares outstanding during the
period. ESOP shares are considered outstanding for the calculation unless
unearned. Diluted earnings per share give effect to weighted average shares,
which would be outstanding assuming the exercise of issued options and awards
using the treasury stock method. The Company declared a three-for-two stock
dividend to all shareholders of record as of February 10, 2004. The weighted
average shares outstanding and earnings per share and dividends per share
information has been adjusted retroactively to reflect the three-for-two stock
split declared. Earnings per common share have been computed based on the
following for the years ended March 31:
Income Shares Per Share
March 31, 2005:
- ---------------
Net income (Three Months Ended) $ 974,536
---------
Basic Earnings Per Share: $ 974,536 7,538,990 $0.13
Effect of dilutive securities:
Stock options and awards 0 135,182
------------------------
Diluted Earnings Per Share $ 974,536 7,674,172 $0.13
-----
March 31, 2004:
- ---------------
Net income (Three Months Ended) $ 721,614
---------
Basic Earnings Per Share $ 721,614 7,445,073 $0.10
-----
Effect of dilutive securities:
Stock options and awards 0 201,084
------------------------
Diluted Earnings Per Share $ 721,614 7,646,157 $0.09
Stock options for 26,638 and 11,355 shares of commons stock were not considered
in computing diluted earnings per common share for March 31, 2005 and March 31,
2004 respectively because they were antidilutive.
Page 7 of 21
Note C - Stock-Based Compensation
The Company maintains a fixed award stock option plan and restricted stock plan
for certain officers and directors providing service to the Company. The Company
accounts for those plans under the recognition and measurement principles of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under the stock option plan had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income per share if the
Company had applied the fair value recognition provisions of FASB Statement No.
123, "Accounting for stock-Based Compensation," to stock-based employee
compensation.
Three Months Ended March 31,
2005 2004
(in thousands)
Net income:
As reported $ 975 $ 722
Deduct: Total stock-based employee
Compensation expense determined under
fair value method, net of related taxes (29) (29)
----- -----
Pro forma $ 946 $ 693
===== =====
Earnings per share:
As reported
Basic $0.13 $0.10
Diluted $0.13 $0.09
Pro forma
Basic $0.13 $0.09
Diluted $0.12 $0.09
Compensation expense equal to the market value of Oneida Financial Corp.'s stock
on the grant date is accrued ratably over the vesting period for shares of
restricted stock granted. Compensation expense recorded in conjunction with this
plan was $65,239 and $51,421 for the three months ended March 31, 2005 and 2004
respectively.
Note D - Dividend Restrictions
Oneida Financial MHC, which owns 4,309,750 or 56.11% of the outstanding shares
as of March 31, 2005 of Oneida Financial Corp., 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 March 31, 2005
and December 31, 2004, the retained earnings restricted for cash dividends
waived was $6,229,984 and $5,368,034, respectively.
Note E - Pension Plan
Net pension and postretirement cost (benefit), which is recorded within
compensation and employee benefits expenses in the condensed statements of
income, is comprised of the following:
Three Months Ended March 31,
2005 2004
(in thousands)
Service cost $ -- $ 70,516
Interest cost 77,601 73,720
Expected return on plan assets (97,693) (97,383)
Amortization of unrecognized loss 33,903 29,323
Amortization of unrecognized prior service liability -- (15,812)
-------- --------
Net pension and postretirement cost (benefit) $ 13,811 $ 60,364
======== ========
Page 8 of 21
Components of Net Periodic Benefit Cost
2005 2004
Weighted-average assumptions as of December 31:
Discount rate 6.125% 6.625%
Expected return on plan assets 9.000% 9.000%
Rate of compensation increase 0.000% 3.500%
The Bank previously disclosed in its financial statements for the year ended
December 31, 2004, that it expected to contribute $161,740 to its pension plan
in 2005. As of March 31, 2005, no contribution has been made. The Bank
anticipates contributing $161,740 in 2005 to fund its pension plan.
Note F - Investment Securities and Mortgage-Backed Securities
Investment securities and mortgage-backed securities consist of the following at
March 31, 2005 and December 31, 2004:
March 31, 2005
-------------------------------------
Gross Unrealized
Fair Value Gains Losses
(in thousands)
Investment Securities
Available for sale portfolio:
-----------------------------
Debt securities:
U. S. Agencies $ 39,854 $ 1 $ 1,180
Corporate 22,243 475 504
State and municipals 30,739 229 296
-------- -------- --------
92,836 705 1,980
Equity investments:
Preferred and other equity stocks 12,850 186 273
Mutual fund 2,812 29 --
Federal Home Loan Bank stock 3,220 -- --
-------- -------- --------
$111,718 $ 920 $ 2,253
======== ======== ========
Mortgage-Backed Securities
Available for sale portfolio:
-----------------------------
Federal National Mortgage Association $ 15,085 $ 14 $ 291
Federal Home Loan Mortgage Corp. 18,499 21 298
Government National Mortgage Assoc 393 23 --
Small Business Administration 25 -- --
Collateralized Mortgage Obligations 10,112 81 140
-------- -------- --------
$ 44,114 $ 139 $ 729
======== ======== ========
Page 9 of 21
December 31, 2004
------------------------------------------
Gross Unrealized
Fair Value Gains Losses
(in thousands)
Investment Securities
Available for sale portfolio:
-----------------------------
Debt securities:
U. S. Agencies $ 38,213 $ 6 $ 628
Corporate 22,194 633 207
State and municipals 31,168 532 106
---------- ---------- ----------
91,575 1,171 941
Equity investments:
Preferred and other equity stocks 12,115 266 213
Mutual fund 2,783 124 --
Federal Home Loan Bank stock 3,257 -- --
---------- ---------- ----------
$ 109,730 $ 1,561 $ 1,154
========== ========== ==========
Mortgage-Backed Securities
Available for sale portfolio:
-----------------------------
Federal National Mortgage Association $ 14,675 $ 36 $ 180
Federal Home Loan Mortgage Corp. 19,672 28 62
Government National Mortgage Assoc 444 28 --
Small Business Administration 405 -- --
Collateralized Mortgage Obligations 9,182 87 56
---------- ---------- ----------
$ 44,378 $ 179 $ 298
========== ========== ==========
The Company evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to the length of time and the extent to
which fair value has been less than cost, the financial condition and near-term
prospects of the issuer, and the intent and ability of the Company to retain its
investments in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. In analyzing an issuer's financial
condition, the Company may consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuer's financial condition.
During 2004, the Company had a non-cash charge of $1.1 million to record the
other-than-temporary impairment of certain perpetual preferred stock investments
in two government sponsored enterprises ("GSE"); the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac") with a book value of $5.0 million.
Note G - Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
based on management's evaluation of the probable or incurred risk in the loan
portfolio and current economic conditions. 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's evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse circumstances that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, and an analysis of the
levels and trends of delinquencies, charge-offs, and the risk ratings of the
various loan categories. Quarterly, management evaluates the adequacy of the
allowance and determines the appropriate level of provision of loan losses by
applying a range of estimated loss percentages to each category of performing
loans and classified loans. The allowance adjustment is based upon the net
change in each portfolio category, as well as adjustment related to impaired
loans, since the prior quarter. Management monitors and modifies the level of
the allowance for loan losses to maintain it at a level which it considers
adequate to provide for probable loan losses. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
principal is unlikely. A loan is considered impaired, based on current
information and events, if it is
Page 10 of 21
probable that the Bank will be unable to collect the scheduled payments of
principal and interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the estimated fair value of the collateral. At March 31,
2005 the allowance for loan losses as a percentage of net loans receivable was
0.92% as compared to 1.09% on March 31, 2004.
The following table sets forth the analysis of the allowance for credit losses
for the periods indicated:
Three Months Ended March 31,
2005 2004
(in thousands)
Balance at beginning of period: $ 1,982 $ 2,115
Net charge-offs:
Charge-offs (108) (93)
Recoveries 18 18
---------- ----------
Net charge-offs (90) (75)
Provision for loan losses 80 150
---------- ----------
Balance at end of period $ 1,972 $ 2,190
========== ==========
Impaired loans were as follows: March 31, 2005 December 31, 2004
Impaired loans $ 73,074 $ 79,410
Allocated allowance for loan losses $ 48,074 $ 54,410
Average of impaired loans during the year $ 85,649 $ 791,483
Cash-basis interest income recognized $ 1,231 $ 94,178
Note H - 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 March
31, 2005 and 2004, the Company's insurance activities consisted of those
conducted through its wholly owned subsidiary, Bailey & Haskell Associates, Inc.
Information about the Company's segments is presented in the following table for
the periods indicated (amounts in thousands):
Three Months Ended March 31, 2005
------------------------------------------
Banking Insurance
Activities Activities Total
Net interest income $ 3,330 $ -- $ 3,330
Provision for loan losses 80 -- 80
---------- ---------- ----------
Net interest income after provision for loan losses 3,250 -- 3,250
Other income 804 2,129 2,933
Other expenses 3,095 1,777 4,872
---------- ---------- ----------
Income before income taxes 959 352 1,311
Income tax expense 226 110 336
---------- ---------- ----------
Net income $ 733 $ 242 $ 975
========== ========== ==========
Three Months Ended March 31, 2004
------------------------------------------
Banking Insurance
Activities Activities Total
Net interest income $ 3,183 $ -- $ 3,183
Provision for loan losses 150 -- 150
---------- ---------- ----------
Net interest income after provision for loan losses 3,033 -- 3,033
Other income 803 1,817 2,620
Other expenses 3,081 1,595 4,676
---------- ---------- ----------
Income before income taxes 755 222 977
Income tax expense 185 70 255
---------- ---------- ----------
Net income $ 570 $ 152 $ 722
========== ========== ==========
Page 11 of 21
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations
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
results of operations are 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 loan 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, 2004 and March
31, 2005 the Company had 7,524,526 shares and 7,545,232 shares outstanding of
which 4,309,750 were held by Oneida Financial MHC, the Company's mutual holding
company parent.
RECENT DEVELOPMENTS
The Company announced a cash dividend as of January 12, 2005 of $0.20 per
share which was paid to its shareholders on February 8, 2005. Oneida Financial
MHC waived its receipt of dividends. As of March 31, 2005 and December 31, 2004
the retained earnings restricted for cash dividends waived was $6,229,984 and
$5,368,034.
FINANCIAL CONDITION
ASSETS. Total assets at March 31, 2005 were $422.4 million, a decrease of
$162,000 from $422.6 million at December 31, 2004. Investment securities
increased $2.0 million and mortgage-backed securities decreased $264,000 due to
the timing of investing excess cash and cash equivalents offset by the
adjustment for the net unrealized loss on available for sale securities from
December 31, 2004 to March 31, 2005. An increase in interest rates generally has
a negative effect on the market value of the Company's investment and
mortgage-backed securities portfolios classified as available for sale. Loans
receivable increased $3.0 million to $216.9 million at March 31, 2005 compared
with $213.9 million at December 31, 2004. At March 31, 2005, total commercial
real estate loans increased by $3.9 million while consumer and commercial
business loans increased by $1.5 million from December 31, 2004. Management
continues to seek to increase the Bank's consumer and commercial business loan
portfolios with the intent of increasing the average yield on the Bank's
interest
Page 12 of 21
earning assets. Residential loans decreased by $908,000 since December 31, 2004,
after the sale of $3.7 million of fixed-rate residential real estate loans in
the secondary market during the first quarter 2005. The mortgage loans held for
sale at March 31, 2005 decreased $1.5 million from December 31, 2004. The
increase in investment and mortgage-backed securities and loans receivable was
partially funded by a decrease in cash and cash equivalents of $4.5 million.
The allowance for loan losses remained stable at $2.0 million at December
31, 2004 and March 31, 2005. The allowance is established through a provision
for loan losses based upon management's evaluation of the probable and estimable
losses in the loan portfolio, the composition of the loan portfolio, current
economic conditions and other quantitative and qualitative factors. Management's
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse
circumstances that may affect the borrower's ability to repay the loan in
accordance with its terms, the estimated value of any underlying collateral, and
an analysis of the levels and trends of delinquencies, charge-offs, and the risk
ratings of the various loan categories. Quarterly, management evaluates the
adequacy of the allowance and determines the appropriate level of provision of
loan losses by applying a range of estimated loss percentages to each category
of performing loans and classified loans. The allowance adjustment is based upon
the net change in each portfolio category, as well as adjustment related to
impaired loans, since the prior quarter. A loan is considered impaired, based on
current information and events, if it is probable that the Bank will be unable
to collect the scheduled payments of principal and interest when due according
to the contractual terms of the loan agreement. The measurement of impaired
loans is generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the estimated
fair value of the collateral. Management monitors and modifies the level of the
allowance for loan losses to maintain it at a level which it considers adequate
to provide for potential loan losses. Loans are charged against the allowance
for loan losses when management believes that the collectibility of principal is
unlikely. At March 31, 2005 the allowance for loan losses as a percentage of net
loans receivable was 0.92% as compared to 1.09% at March 31, 2004.
LIABILITIES. Total liabilities increased by $782,000 or 0.02% to $370.7
million at March 31, 2005 from $370.0 million at December 31, 2004. The increase
is primarily the result of an increase in interest bearing deposits of $2.4
million offset by a decrease in non-interest bearing deposits of $575,000 and a
decrease in other liabilities of $1.1 million. The Bank continues to emphasize
core deposit savings and checking accounts. The decrease in other liabilities is
related to the timing of insurance premium payables of our insurance agency
subsidiary.
STOCKHOLDERS' EQUITY. Total stockholders' equity at March 31, 2005 was
$51.7 million, a decrease of $944,000 from $52.6 million at December 31, 2004.
The decrease in stockholders' equity was due to the adjustment for the net
unrealized loss on available for sale securities offset by the addition of
after-tax net income of $975,000 for the three months ended March 31, 2005.
Accumulated Other Comprehensive Income (Loss) decreased $1.3 million from
December 31, 2004. The payment of the Company's semiannual cash dividend of
$0.20 also resulted in an equity reduction of $672,000.
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 March 31, 2005 and 2004 and
for the year ended December 31, 2004. 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.
Page 13 of 21
TABLE 1. Average Balance Sheet.
Three Months Ended March 31, Twelve Months Ended Dec. 31,
------------------------------------------------------------- ------------------------------
2005 2004 2004
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Assets Balance Paid Rate Balance Paid Rate Balance Paid Rate
- ------ ------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
Interest-earning Assets:
- ------------------------
Loans Receivable* $215,943 $ 3,332 6.17% $202,658 $3,216 6.35% $208,417 $12,907 6.19%
Investment Securities 137,431 1,577 4.59% 148,599 1,486 4.00% 147,553 6,043 4.10%
Federal Funds 1,594 15 3.76% 1,443 8 2.22% 2,424 43 1.77%
Equity Securities 17,120 157 3.67% 18,363 184 4.01% 18,422 671 3.64%
------- ----- ---- ------- ----- ---- ------- ------ ----
Total Interest-earning Assets 372,088 5,081 5.46% 371,063 4,894 5.28% 376,816 19,664 5.22%
------- ----- ---- ------- ----- ---- ------- ------ ----
Non interest-earning assets:
- ----------------------------
Cash and due from banks 11,109 9,611 10,389
Other assets 41,163 42,145 40,882
-------- -------- --------
Total assets $424,360 $422,819 $428,087
======== ======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing Liabilities:
- -----------------------------
Money Market Deposits $ 40,447 $ 129 1.28% $ 39,991 $ 77 0.76% $ 39,041 $ 324 0.83%
Savings Accounts 73,045 78 0.43% 71,988 76 0.42% 74,203 328 0.44%
Interest-bearing Checking 28,840 22 0.31% 20,805 21 0.40% 24,952 97 0.39%
Time Deposits 110,357 781 2.87% 122,661 855 2.77% 117,203 3,227 2.75%
Borrowings 65,382 741 4.60% 63,631 682 4.25% 65,795 2,861 4.35%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total Interest-bearing Liabs 318,071 1,751 2.23% 319,076 1,711 2.13% 321,194 6,837 2.13%
------- ----- ----- ------- ----- ----- ------- ----- -----
Non interest-bearing liabilities:
- ---------------------------------
Demand deposits 48,382 49,064 50,497
Other liabilities 5,163 3,471 5,693
-------- -------- --------
Total liabilities $371,616 $371,611 $377,384
-------- -------- --------
Stockholders' equity 52,744 51,208 50,703
-------- -------- --------
Total liabilities and
stockholders' equity $424,360 $422,819 $428,087
======== ======== ========
Net Interest Income $ 3,330 $3,183 $12,827
======= ====== =======
Net Interest Spread 3.23% 3.15% 3.09%
==== ==== ====
Net Earning Assets $ 54,017 $ 51,987 $ 55,622
======== ======== ========
Net yield on average
Interest-earning assets 3.58% 3.43% 3.40%
==== ==== ====
Average interest-earning
assets to average
Interest-bearing liabs 116.98% 16.29% 117.32%
====== ===== ======
* 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 March 31, 2005 was
$975,000; an increase of $253,000 or 35.0% from $722,000 for the three months
ended March 31, 2004. The increase was due primarily to an increase in the net
interest income, an increase in non-interest income and a decrease in the
provision for loan losses. Offsetting these were increases in other expenses and
provision for income taxes.
INTEREST INCOME. Interest and dividend income decreased by $187,000 or
3.8%, to $5.1 million for the three months ended March 31, 2005 from $4.9
million for three months ended March 31, 2004. The increase in interest income
Page 14 of 21
was primarily a result of an increase in the average balances and average yield
of interest-earning assets during the first three months of 2005 as compared to
the same period in 2004.
Interest and fees on loans increased $116,000 to $3.3 million for the
three months ended March 31, 2005 from $3.2 million for the three months ended
March 31, 2004. The increase in interest income on loans is a result of an
increase of $13.3 million in the average balance of loans receivable for the
three months ended March 31, 2005 as compared with the same period in 2004
partially offset by a decrease of 18 basis points in the average yield to 6.17%
at March 31, 2005 from 6.35% at March 31, 2004. Commercial real estate loans
increased $10.2 million at March 31, 2005 from March 31, 2004 while commercial
business loans increased $580,000 for the same period. Consumer loans increased
$2.4 million for the same period. Residential real estate loans increased $1.6
million for the same time period, after recording the sale of $20.0 million in
fixed rate one-to-four family residential real estate loans.
Investment income increased as a result of an increase in the average
yield of investment securities and mortgage-backed securities of 59 basis points
to 4.59% at March 31, 2005 from 4.00% at March 31, 2004 partially offset by a
decrease of $11.2 million in the average balance of investment and
mortgage-backed securities for the three month period ended March 31, 2005 as
compared with the same period in 2004.
Interest income from federal funds increased during the three months ended
March 31, 2005 to $15,000 as compared with $8,000 for the 2004 period. The
increase in interest income is due to a increase in the average balance of
$151,000 and an increase of 154 basis points in the average yield.
INTEREST EXPENSE. Interest expense was $1.8 million for the three months
ended March 31, 2005, an increase of $40,000 or 2.3% from the same period in
2004. The increase in interest expense is due to an increase in interest paid on
borrowed funds and deposit accounts. Interest expense on borrowed funds totaled
$741,000 for the first quarter of 2005 compared with $682,000 for the 2004
period. The average cost of borrowed funds increased 35 basis points to 4.60% as
of March 31, 2005 from 4.25% for the three months ended March 31, 2004. In
addition, the average balance outstanding of borrowings increased during the
three months ended March 31, 2005 to $65.4 million compared to $63.6 million for
the same period in 2004. Interest expense on deposits remained stable at $1.0
million for the three months ended March 31, 2005 as compared to the same period
in 2004. The average cost of deposits was 1.62% for the periods ending March 31,
2005 and 2004 while the average balance of deposit accounts decreased 1.08% for
the same period.
PROVISION FOR LOAN LOSSES. Total provisions for loan losses for the three
months ended March 31, 2005 were $80,000 as compared to $150,000 made during the
same period of 2004. The allowance for loan losses was $2.0 million or 0.92% of
loans receivable at March 31, 2005 as compared with $2.0 million or 1.09% of
loans receivable at March 31, 2004. 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 the 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. Provisions to the allowance are made as
management assesses losses that are probable and reasonably estimable.
OTHER INCOME. Other operating income increased by $310,000 for the
three-month period ending March 31, 2005 compared with the same period in 2004
to $2.9 million from $2.6 million. The increase in non-interest income was
primarily due to increases in revenue derived from the Company's insurance
agency subsidiary activities and deposit account service fee income. Insurance
revenue increased $312,000 or 17.2% for the three months ended March 31, 2005 as
compared with the same period in 2004. In addition, service charges on deposit
accounts increased $42,000, or 9.7%, during the first quarter of 2005 as
compared with the first quarter of 2004.
The Bank continues to expand its Trust Department. Management expects that
fees generated by the Trust Department will increase as assets under management
grow. The Trust Department income increased 26.3% to $62,000 for the three
months ended March 31, 2005 from $49,000 for the three months ended March 31,
2004. At March 31, 2005, the Bank maintained 503 trust/fiduciary accounts, with
total assets of $95.6 million under management as compared with 494
trust/fiduciary accounts with $101.5 million total assets as of December 31,
2004.
OTHER EXPENSES. Other operating expenses increased by $196,000 or 4.2%, to
$4.9 million for the three months ended March 31, 2005 from $4.7 million for the
same period in 2004. Compensation expense increased $140,000 or 4.8% due
expenses associated with the insurance agency subsidiary. Other expenses
increased $40,000 primarily the result of an increase in advertising expense
related to a checking account promotion.
INCOME TAX. Income tax expense was $336,000 for the three months ended
March 31, 2005, an increase of $81,000 from the first quarter 2004 expense of
$255,000. The effective tax rate decreased to 25.6% for the three months of 2005
from 26.1% for the three months of 2004 to reflect the overall tax rate in
effect for 2004.
LIQUIDITY AND CAPITAL RESOURCES. In addition to the Company's primary
funding sources of cash flow from operations, deposits and borrowings, funding
is provided from the principal and interest payments received on loans
Page 15 of 21
and investment securities, proceeds from the maturities and sale of investment
securities, as well as proceeds from the sale of fixed rate mortgage loans in
the secondary market. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit balances and mortgage
prepayments are greatly influenced by general interest rates, the economic
environment and local competitive conditions.
The primary investing activities of the Company are the origination of
residential mortgages, commercial loans and consumer loans, as well as the
purchase of mortgage-backed and other debt securities. During the first quarter
of 2005, loan originations totaled $16.9 million compared to $17.6 million for
the first quarter of 2004. The decrease in loan originations during 2005 as
compared to 2004 is due to lower residential mortgage refinancing in 2005
partially offset by higher commercial mortgage, commercial business and consumer
loan originations. The purchases of investment securities totaled $9.3 million
during the first quarter of 2005 as compared to $10.9 million during the first
quarter of 2004. The decrease in the purchases of investment securities is due
to the timing of investing excess cash and cash equivalents.
Cash flow from operations, deposit growth, as well as the sales, maturity
and principal payments received on loans and investment securities were used to
fund the investing activities described above. Additionally, the Company has
lines of credit with the Federal Home Loan Bank, Federal Reserve Bank and two
commercial banks that provide funding sources for lending, liquidity and asset
and liability management as needed. During the first quarter of 2005 cash flows
provided by the sale, principal payments and maturity of securities available
for sale were $5.3 million compared to $15.7 million for the same period in
2004.
In the ordinary course of business, the Company extends commitments to
originate residential and commercial loans and other consumer loans. Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since the Company does not expect all of the commitments to be funded,
the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. Collateral may be obtained based upon management's
assessment of the customers' creditworthiness. Commitments to extend credit may
be written on a fixed rate basis exposing the Company to interest rate risk
given the possibility that market rates may change between the commitment date
and the actual extension of credit. As of March 31, 2005 the Company had
outstanding commitments to originate loans of approximately $7.0 million, which
generally have an expiration period of less than 120 days. Commitments to sell
residential mortgages amounted to $3.5 million at March 31, 2005.
The Company extends credit to consumer and commercial customers, up to a
specified amount, through lines of credit. The borrower is able to draw on these
lines as needed, thus the funding requirements are generally unpredictable.
Unused lines of credit amounted to $34.3 million at March 31, 2005 and generally
have an expiration period of less than one year. It is anticipated that there
will be sufficient funds available to meet the current loan commitments and
other obligations through the sources described above. The credit risk involved
in issuing these commitments is essentially the same as that involved in
extending loans to customers and is limited to the contractual notional amount
of those instruments.
Cash, interest-bearing demand accounts at correspondent banks, federal
funds sold, and other short-term investments are the Company's most liquid
assets. The level of these assets are monitored daily and are dependent on
operating, financing, lending and investing activities during any given period.
Excess short-term liquidity is usually invested in overnight federal funds sold.
In the event that funds beyond those generated internally are required due to
higher than expected loan commitment fundings, deposit outflows or the amount of
debt being called, additional sources of funds are available through the use of
repurchase agreements, the sale of loans or investments or the Company's various
lines of credit. As of March 31, 2005 the total of cash, interest-bearing demand
accounts and federal funds sold was $10.6 million.
At March 31, 2005, the Bank exceeded all regulatory capital requirements. The
current requirements and the actual levels for the Bank are detailed in the
following table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
(In thousands)
As of March 31, 2005:
Total Capital
(to Risk Weighted Assets) $ 37,653 14.26% $ 21,122 8% $ 26,402 10%
Tier I Capital
(to Risk Weighted Assets) $ 35,681 13.51% $ 10,561 4% $ 15,841 6%
Tier I Capital
(to Average Assets) $ 35,681 8.72% $ 16,367 4% $ 20,459 5%
Page 16 of 21
ONEIDA FINANCIAL CORP.
SELECTED FINANCIAL RATIOS
At and for the Three Months Ended March 31, 2005 and March 31, 2004 (unaudited)
(Annualized where appropriate)
Three Months Ending
March 31,
2005 2004
---- ----
Performance Ratios:
Return on average assets 0.92% 0.68%
Return on average equity 7.39% 5.64%
Net interest margin 3.58% 3.43%
Efficiency Ratio 77.34% 80.10%
Ratio of operating expense
to average total assets 4.59% 4.42%
Ratio of average interest-earning assets
to average interest-bearing liabilities 116.98% 116.29%
Asset Quality Ratios:
Non-performing assets to total assets 0.12% 0.10%
Allowance for loan losses
to non-performing loans 392.05% 893.88%
Allowance for loan losses
to loans receivable, net 0.92% 1.09%
Capital Ratios:
Total stockholders' equity to total assets 12.24% 12.14%
Average equity to average assets 12.43% 12.11%
Page 17 of 21
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 March 31, 2005, 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 2004 Annual Report to Stockholders.
There has been no material change in the Company's interest rate risk profile
since December 31, 2004.
ITEM 4. Controls and Procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, the Company has
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a- 15(3) and 15d - 15(e) under the
Exchange Act) as of the end of the period covered by this quarterly report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the period covered by this quarterly report, the
Company's disclosure controls and procedures are effective to ensure that
information to be disclosed in the reports that the Company files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods or submits specified in the Securities and
Exchange Commission's rules and forms. There has been no change in the Company's
internal control over financial reporting during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting
Page 18 of 21
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. In January 2001, 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 taxes, accepting the Oneidas argument that
the acquired parcels lie within the boundaries of the "reservation" established
in 1974 by the Federal Government.
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. The Oneidas of Wisconsin and the
Stockbridge-Munsee Band of the Mohican Indians have commenced separate actions
in the United State District Court for the Northern District of New York to
dispute and interrupt any settlement pending.
In July 2003, the United States Court of Appeals affirmed the decision of
the lower court against the City of Sherrill but appeals continue relative to
the decision against the Counties of Madison and Oneida. In January 2005 the
United State Supreme Court heard the appeal brought forward by the City of
Sherrill against the Oneidas arguing that the acquisition of real property by
the Oneidas within the land claim area does not return the property to sovereign
status. Therefore, the City of Sherrill contends that the property is subject to
the payment of real property taxes or revert to the ownership of the taxing
authority if assessed property taxes are not paid. The United States Supreme
Court filed their decision in March 2005, ruling in favor of the City of
Sherrill.
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 and Use of Proceeds
The following table summarizes our share repurchase activity during the
three months ended March 31, 2005 and additional information regarding our share
repurchase program. The shares purchased during the current quarter were
received in exchange for the exercise of options or to satisfy tax withholding
obligations that arose on the vesting of restricted stock. Our current
repurchase plan of 250,000 was announced on June 8, 2004. The plan has no
expiration date.
Page 19 of 21
- ----------------------------------------------------------------------------------------------------------
Maximum
Number of
Total Shares that
Number of Total Number of Shares May Yet Be
Shares Average Price Paid Purchased as Part of Purchased
Period Purchased per Share Publicly Announced Plans Under the Plan
- ----------------------------------------------------------------------------------------------------------
January 1, 2005 - 8,999 14.0103 -- 250,000
January 31, 2005
- ----------------------------------------------------------------------------------------------------------
February 1, 2005 - -- -- --
February 28, 2005
- ----------------------------------------------------------------------------------------------------------
March 1, 2005 - -- -- --
March 31, 2005
- ----------------------------------------------------------------------------------------------------------
Total 8,999 -- 250,000
- ----------------------------------------------------------------------------------------------------------
Item 3 Defaults Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits
(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.
Exhibits
Exhibit 31.1 - Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 32.1 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Page 20 of 21
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: May 12, 2005 By: /s/ Michael R. Kallet
-------------------------------------
Michael R. Kallet
President and Chief Executive Officer
Date: May 12, 2005 By: /s/ Eric E. Stickels
-------------------------------------
Eric E. Stickels
Executive Vice President and Chief
Financial Officer
Page 21 of 21