ONEIDA, N.Y., Oct. 31 /PRNewswire-FirstCall/ -- Oneida Financial Corp. , the parent company of The Oneida Savings Bank, has announced third quarter operating results. Third quarter results were negatively impacted by the disruption in the financial markets and in particular the significant decline in value of Federal Home Loan Mortgage Corporation ("Freddie Mac") perpetual preferred stock following the announcement by the United States Treasury and the Federal Housing Finance Agency ("the FHFA") that the government sponsored enterprise was placed under conservatorship. Additionally, the FHFA eliminated the payment of dividends on common stock and preferred stock and assumed the powers of the Board and management of Freddie Mac which adversely impacted the market value of this investment. Management of the Company has recorded a non-cash charge to earnings reflecting the decrease in market value of Freddie Mac preferred stock and certain other investment securities. The Company recorded a net loss for the three months ending September 30, 2008 of $4.4 million, or a loss of $0.57 per share compared to net income of $931,000, or $0.12 basic earnings per share, for the three months ended September 30, 2007. Earnings per share from operations for the three months ended September 30, 2008 excluding the impact of the non-cash charges was $0.11 per share. The net loss for the current quarter was primarily due to non-cash investment losses, an increase in non-interest expense and an increase in the provision for loan losses in the third quarter of 2008 as compared with the same period in 2007. These increases were partially offset by an increase in net interest income and a decrease in the provision for income taxes.
The non-cash investment losses have also resulted in a net loss for the nine months ended September 30, 2008 of $3.4 million, or a loss of $0.43 per share, as compared with net income of $2.4 million or $0.32 basic earnings per share for the same period in 2007. The decrease in net income for the nine months ending September 30, 2008 is primarily the result of cumulative non- cash charges to earnings reflecting a decrease in market value of certain investment securities during 2008. Net income from operations for the nine months ending September 30, 2008, as referenced in the table below, was $2.4 million or $0.31 per share. This compares to net income from operations for the nine months ended September 30, 2007 of $2.4 million, or $0.32 per share. Net income from operations for the nine months ended September 30, 2008 as compared with September 30, 2007 reflects an increase in net interest income, an increase in non-interest income and a decrease in the provision for income taxes, partially offset by an increase in non-interest expense and an increase in provision for loan losses. The acquisition of The National Bank of Vernon and the opening of a banking, insurance and retail center in the Griffiss Business and Technology Park in Rome, New York both completed in the second quarter of 2007 contributed to the increase in non-interest expense.
Reported Results (including non-cash gains and losses recognized under FAS 159)
(All amounts in thousands except net income per diluted share) Year to Date Year to Date Sept. 30, Sept. 30, 2008 2007 Net interest income $11,514 $10,065 Provision for loan losses 275 - Investment (losses) gains (7,843) 1 Non-interest income 13,567 13,334 Non-interest expense 21,536 20,024 Net (loss) income $(3,353) $ 2,433 Net (loss) income per basic share $ (0.43) $ 0.32
Operating Results / Non-GAAP (excluding non-cash gains and losses recognized under FAS 159)
(All amounts in thousands except net income per diluted share) Year to Date Year to Date Sept. 30, Sept. 30, 2008 2007 Net interest income $11,514 $10,065 Provision for loan losses 275 - Investment gains 24 1 Non-interest income 13,567 13,334 Non-interest expense 21,536 20,024 Net income $ 2,390 $ 2,433 Net income per basic share $ 0.31 $ 0.32
The table above summarizes the Company's operating results excluding a non-cash impairment charge related to the bankruptcy of Lehman Brothers Holdings which has negatively impacted the value of a medium term note and the non-cash charge to earnings recognized in connection with the adoption of FAS 159 (The Fair Value Option of Financial Assets and Financial Liabilities). This new accounting pronouncement is effective as of January 1, 2008 and requires that the change in fair value of certain financial instruments be reflected through the income statement. Oneida Financial Corp. has adopted this accounting treatment for the preferred and common equity securities it holds in the investment portfolio of the Bank. Cumulative non-cash charges through September 30, 2008 of $7.9 million, net of taxes of $2.1 million related to the change in fair value of these investment securities represents the difference between reported results and operating results, as presented in the above tables. The Company intends to continue holding these securities. Future earnings may reflect an increase in value as market conditions improve. The Company believes these non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors' assessments of business and performance trends in comparison to others in the financial services industry. In addition, the Company believes the exclusion of these items enables management to perform a more effective evaluation and comparison of the Company's results and assess performance in relation to the Company's ongoing operations.
Michael R. Kallet, President and Chief Executive Officer of Oneida Financial Corp., said, "The investment charges we recorded during the recent quarter are a reflection of the economic and credit crisis the world financial markets are currently experiencing. As recently as August of this year, Freddie Mac and Lehman Brothers were considered among the highest quality investment securities available in the market as determined by the national rating agencies and are widely held by banks, insurance companies, and pension funds. Oneida Financial Corp. does not invest in high risk or esoteric loans or investments." Kallet continued, "At a time when many financial institutions are contracting, Oneida Financial Corp. has continued to expand, we have excess liquidity for lending purposes and sufficient capital to absorb the impact of this economic cycle." Kallet concluded, "Oneida Financial Corp. continues to maintain consistent operating results and measurable asset growth despite the difficult operating environment and uncertain economic times our country and our industry is currently experiencing."
Total assets increased $36.3 million or 7.1%, to $549.9 million at September 30, 2008 from $513.6 million at September 30, 2007. The increase in the Company's assets is the result of an increase in loans receivable and an increase in mortgage-backed securities. Loans receivable increased $18.4 million to $298.7 million at September 30, 2008 as compared with September 30, 2007, reflecting loan origination activities of Oneida Savings Bank. The increase in loans receivable was partially offset by the sale of $17.7 million in fixed rate one-to-four family residential real estate loans during the trailing twelve month period. The Company does not originate and has no direct exposure to sub-prime, Alt-A, negative amortizing or other higher risk residential mortgages. Mortgage-backed securities increased $41.9 million to $75.6 million at September 30, 2008 as compared with $33.6 million at September 30, 2007. Investment securities decreased $32.2 million to $62.7 million at September 30, 2008 as compared with $94.8 million at September 30, 2007 primarily due to the adoption of FAS 159 resulting in the reclassification of certain investment securities to that of trading securities. Total deposits increased $45.8 million to $439.7 million at September 30, 2008. Contributing to the increase in total deposits has been an increase in municipal deposits offered through Oneida Savings Bank's limited purpose commercial banking subsidiary, State Bank of Chittenango. Municipal deposits increased $32.8 million to $61.2 million at September 30, 2008 from $28.4 million at September 30, 2007. The Company's loan-to-deposit ratio at September 30, 2008 is 67.9% indicating significant liquidity available for lending activities.
Net interest income increased for the third quarter of 2008 to $3.9 million compared with $3.5 million for the third quarter of 2007. The increase in net interest income primarily is due to the average cost of interest-bearing liabilities decreasing to a greater extent than the average yield on interest-earning assets and the growth in interest-earning assets. The net interest margin was 3.37% for the three months ending September 30, 2008 as compared with 3.37% for the same period in 2007. For the nine month period ended September 30, 2008 the Bank's net interest margin was 3.36% compared to 3.36% for the same period in 2007.
Interest income was $6.7 million for the third quarter of 2008 as compared with interest income of $6.7 million during the same period in 2007. The consistent level of interest income during the three months ended September 30, 2008 resulted primarily from an increase in the average balances of interest-earning assets during the current period of $45.4 million. The increase was partially offset by a decrease in the yield of 62 basis points on interest earning assets, reflecting the decrease in market interest rates during the current quarter.
Total interest expense decreased to $2.7 million for the three months ended September 30, 2008. This is compared with interest expense of $3.1 million during the same 2007 period. The decrease for the three months ended September 30, 2008 was due to a decrease in the cost of 75 basis points of interest-bearing liabilities during the third quarter of 2008 as compared with the same period in 2007 to 2.53% from 3.28%, partially offset by an increase in the average balances of interest-bearing liabilities during the current period of $51.8 million. Average borrowed funds outstanding were $57.4 million for the three months ending September 30, 2008, compared with $57.1 million in average borrowings outstanding during the third quarter of 2007. Interest expense on deposits decreased during the third quarter of 2008 to $2.1 million from $2.4 million as compared with the same period of 2007. Average interest- bearing deposits were $371.6 million for the three months ending September 30, 2008, compared with $320.0 million during the third quarter of 2007.
Net investment losses for the three months ended September 30, 2008 were $7.3 million. Net investment losses for the nine months ended September 30, 2008 were $7.8 million compared with a net investment gain of $1,000 for the comparable period in 2007. The increase in net investment losses was the result of the fair value non-cash adjustments for certain investment securities which resulted in cumulative charges against earnings of $7.0 million and an non-cash impairment charge recorded for the Company's investment in a medium term note in Lehman Brothers Holdings of $832,000 during the third quarter of 2008 as previously described. These non-cash investment charges were partially offset by realized investment gains of $24,000 during the nine months ended September 30, 2008.
Non-interest income was $4.5 million during the third quarter of 2008 as compared with $4.6 million during the comparable 2007 period. Non-interest income for the nine months ended September 30, 2008 was $13.6 million as compared with $13.3 million during the nine month period ended September 30, 2007. The increase in non-interest income during the nine month period ended September 30, 2008 was supported by an increased level of service charges on deposit accounts, increasing $222,000 or 12.2% for the nine months ended September 30, 2008 compared with 2007 primarily the result of the growth in total deposits. Commissions and fees on the sale of non-banking products through the Company's subsidiaries for the nine months ended September 30, 2008 decreased 1.3% as compared with the same period during 2007. Our insurance and financial services subsidiaries, Bailey Haskell & LaLonde, and Benefit Consulting Group, Inc. continue to contribute favorably to the Company's overall performance by developing creative products and services which allow these companies to compete in a softening insurance market.
Non-interest expense was $7.0 million for the three months ended September 30, 2008 compared with $6.8 million for the three months ended September 30, 2007. Non-interest expense for the nine months ended September 30, 2008 was $21.5 million as compared with $20.0 million during the nine month period ended September 30, 2007. The increase in non-interest expense is primarily the result of an increase in employee compensation and benefits, equipment and other operating expenses associated with the expansion of our banking franchise resulting from the acquisition of the National Bank of Vernon and the completion of our banking, insurance and retail center at the Griffiss Business and Technology Park in Rome, New York. In addition, an increase in operating expenses associated with our insurance agency and consulting subsidiaries contributed to the increase in non-interest expense.
Provision for loan losses of $125,000 were made during third quarter of 2008 with no provisions made during the 2007 period. Provision for loan losses for the nine months ended September 30, 2008 was $275,000 as compared with no provisions made during the nine month period ended September 30, 2007. The Company continues to monitor the adequacy of the allowance for loan losses given the risk assessment of the loan portfolio and current economic conditions. The Bank continues to maintain a low level of net loan charge- offs and non-performing assets, however, remains prudent in analyzing the potential risks of a further downturn in the economy and the ability of borrowers to repay their debt obligations thus supporting the provision for loan losses during the third quarter of 2008. The ratio of the loan loss allowance to loans receivable is 0.83% at September 30, 2008 compared with a ratio of 0.91% at September 30, 2007. The level of the allowance as a percentage of loans outstanding is deemed to be adequate based upon management's assessment of various credit factors.
Stockholders' equity was $50.7 million, or 9.2% of assets at September 30, 2008 compared with $58.6 million, or 11.4% of assets, at September 30, 2007. The decrease in stockholders' equity was primarily a result of valuation adjustments made for the Company's available for sale investment and mortgage- backed securities as well as the adoption of FAS 159 on January 1, 2008. In addition, stockholders' equity was reduced through the payment of cash dividends in February and August of 2008. Partially offsetting the decreases in stockholders' equity was the contribution of net earnings during the fourth quarter of 2007 and the first and second quarters of 2008.
This release may contain certain forward-looking statements, which are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact the Company's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products, and services.
All financial information provided at and for the quarter and nine months ended September 30, 2008 and 2007, and all quarterly data is unaudited. Selected financial ratios have been annualized where appropriate. Operating data is presented in thousands of dollars, except for per share amounts.
Selected Financial Data (in thousands except per share data) At At At At At Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, 2008 2008 2008 2007 2007 (unaudited)(unaudited)(unaudited) (audited) (unaudited) Total Assets $549,905 $549,116 $542,655 $522,315 $513,562 Loans receivable, net 298,703 290,740 280,969 284,418 280,293 Mortgage-backed securities 75,562 78,820 65,219 46,583 33,646 Investment securities 62,650 72,720 81,481 95,811 94,831 Trading securities 6,591 13,037 13,041 0 0 Goodwill and other intangibles 25,196 25,369 25,430 25,434 25,529 Interest bearing deposits 373,781 362,130 358,232 334,444 327,957 Non-interest bearing deposits 65,896 65,879 63,940 65,685 65,005 Borrowings 51,900 58,900 56,400 56,400 56,400 Shareholders' Equity 50,689 56,927 58,775 59,340 58,633 Book value per share (end of period) $6.56 $7.37 $7.61 $7.68 $7.63 Tangible value per share(end of period) $3.30 $4.08 $4.32 $4.39 $4.31 Selected Financial Ratios Non-Performing Assets to Total Assets (end of period) 0.11% 0.09% 0.09% 0.07% 0.05% Allowance for Loan Losses to Loans Receivable, net 0.83% 0.87% 0.89% 0.88% 0.91% Average Equity to Average Assets 10.60% 10.96% 11.22% 11.83% 11.41% Regulatory Capital Ratios Total Capital to Risk Weighted Assets 10.01% 10.42% 10.48% 10.18% 10.58% Tier 1 Capital to Risk Weighted Assets 9.32% 9.71% 9.77% 9.45% 9.84% Tier 1 Capital to Average Assets 6.30% 6.67% 6.84% 6.60% 7.02% Selected Operating Data, (in thousands except per share data) Quarter Ended Year to date Sept 30, Sept 30, Sept 30, Sept 30 2008 2007 2008 2007 (unaudited) (unaudited) (unaudited) (unaudited) Interest income: Interest and fees on loans $ 4,634 $ 4,816 $ 1 3,857 $ 13,669 Interest and dividends on investments 1,998 1,627 6 ,078 4,507 Interest on fed funds 19 216 160 639 Total interest income 6,651 6,659 20,095 18,815 Interest expense: Interest on deposits 2,081 2,415 6,623 6,480 Interest on borrowings 646 702 1,958 2,270 Total interest expense 2,727 3,117 8,581 8,750 Net interest income 3,924 3,542 11,514 10,065 Provision for loan losses 125 - 275 - Net interest income after provision for loan losses 3,799 3,542 11,239 10,065 Net investment (losses) gains (7,262) - (7,843) 1 Non-interest income: Service charges on deposit accts 728 644 2,046 1,824 Commissions and fees on sales of non-banking products 3,178 3,486 10,050 10,184 Other revenue from operations 562 428 1,471 1,326 Total non-interest income 4,468 4,558 13,567 13,334 Non-interest expense Salaries and employee benefits 4,361 4,222 13,656 12,671 Equipment and net occupancy 1,237 1,103 3,520 3,225 Intangible amortization 134 153 408 394 Other costs of operations 1,315 1,317 3,952 3,734 Total non-interest expense 7,047 6,795 21,536 20,024 Income (loss) before income taxes (6,042) 1,305 (4,573) 3,376 Income tax provision (1,614) 374 (1,220) 943 Net (loss) income $ (4,428) $ 931 $ (3,353) $ 2,433 Net (loss) income per common share(EPS - Basic)$ (0.57) $ 0.12 $ (0.43) $ 0.32 Net (loss) income per common share (EPS - Diluted) $ (0.57) $ 0.12 $ (0.43) $ 0.31 Cash Dividends Paid $ 0.24 $ 0.24 $ 0.24 $ 0.24 Return on Average Assets -3.20% 0.73% -0.82% 0.67% Return on Average Equity -32.26% 6.42% -7.75% 5.56% Return on Average Tangible Equity -59.88% 11.46% -13.83% 8.82% Net Interest Margin 3.37% 3.37% 3.36% 3.36% Selected Operating Data (in thousands except per share data) Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter 2008 2008 2008 2007 2007 (unaudited)(unaudited) (unaudited) (unaudited) (unaudited) Interest income: Interest and fees on loans $ 4,634 $ 4,518 $ 4,704 $ 4,882 $ 4,816 Interest and dividends on investments 1,998 2,124 1,956 1,786 1,627 Interest on fed funds 19 76 65 190 216 Total interest income 6,651 6,718 6,725 6,858 6,659 Interest expense: Interest on deposits 2,081 2,207 2,334 2,557 2,415 Interest on borrowings 646 644 668 721 702 Total interest expense 2,727 2,851 3,002 3,278 3,117 Net interest income 3,924 3,867 3,723 3,580 3,542 Provision for loan losses 125 150 - - - Net interest income after provision for loan losses 3,799 3,717 3,723 3,580 3,542 Net investment (losses) gains (7,262) 27 (608) 352 - Non-interest income: Service charges on deposit accts 728 678 640 722 644 Commissions and fees on sales of non-banking products 3,178 3,373 3,500 3,337 3,486 Other revenue from operations 562 423 485 445 428 Total non-interest income 4,468 4,474 4,625 4,504 4,558 Non-interest expense Salaries and employee benefits 4,361 4,715 4,580 4,313 4,222 Equipment and net occupancy 1,237 1,070 1,214 1,202 1,103 Intangible amortization 134 134 141 154 153 Other costs of operations 1,315 1,414 1,221 1,271 1,317 Total non- interest expense 7,047 7,333 7,156 6,940 6,795 Income (loss) before income taxes (6,042) 885 584 1,496 1,305 Income tax provision (1,614) 239 155 424 374 Net (loss) income $(4,428) $ 646 $ 429 $ 1,072 $ 931 Net (loss) income per common share (EPS - Basic) $ (0.57) $ 0.08 $ 0.06 $ 0.14 $ 0.12 Net (loss) income per common share (EPS - Diluted) $ (0.57) $ 0.08 $ 0.06 $ 0.14 $ 0.12 Cash Dividends Paid $ 0.24 $ 0.00 $ 0.24 $ 0.00 $ 0.24 Return on Average Assets -3.20% 0.47% 0.32% 0.82% 0.73% Return on Average Equity -32.26% 4.39% 2.90% 7.28% 6.42% Return on Average Tangible Equity -59.88% 7.71% 5.07% 12.82% 11.46% Net Interest Margin 3.37% 3.34% 3.38% 3.30% 3.37%
