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 September 30, 1998
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-27178
Peekskill Financial Corporation
(Exact name of the registrant as specified in its charter)
Delaware 13-3858258
(State of incorporation) (I.R.S. Employer Identification No.)
1019 Park Street, Peekskill, New York 10566
(Address of principal executive offices)
(914) 737-2777
(Registrant's telephone number, including area code)
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 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __x__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class: at October 30, 1998
------ -------------------
Common Stock, $0.01 par value 2,842,069
Peekskill Financial Corporation
Form 10-Q
Quarterly Period Ended September 30, 1998
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Page
Condensed Consolidated Balance Sheets at September 30, 1998
and June 30, 1998 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 1998 and 1997 4
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the three months ended September 30, 1998 5
Condensed Consolidated Statements of Cash Flows for the three
months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Interim Financial Statements 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
Part II - Other Information
Other Information 15
Signatures 16
2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
September 30, 1998 June 30, 1998
------------------ -------------
Assets:
Cash and cash equivalents ................................ $ 1,248 $ 4,626
Securities:
Held-to-maturity, at amortized cost (fair value of
$128,772 at September 30, 1998 and $136,883
at June 30, 1998) ................................... 126,997 135,446
Available-for-sale, at fair value (amortized cost of
$15,500 at September 30, 1998 and $8,500 at
June 30, 1998) ...................................... 15,606 8,498
--------- ---------
Total securities ..................................... 142,603 143,944
--------- ---------
Loans, net of allowance for loan losses of $697 at
September 30, 1998 and $682 at June 30, 1998 ........ 51,913 47,631
Federal Home Loan Bank stock ............................. 1,463 1,463
Accrued interest receivable .............................. 995 1,050
Real estate owned ........................................ 94 94
Deferred income taxes, net ............................... 349 362
Other assets ............................................. 1,233 1,171
--------- ---------
Total assets ........................................... $ 199,898 $ 200,341
========= =========
Liabilities and Stockholders' Equity:
Liabilities:
Depositor accounts ..................................... $ 140,466 $ 139,858
Securities repurchase agreements ....................... 13,000 13,000
FHLB advance ........................................... 1,000 --
Mortgage escrow deposits ............................... 1,102 1,759
Other liabilities ...................................... 1,333 2,518
--------- ---------
Total liabilities .................................... 156,901 157,135
--------- ---------
Stockholders' equity (Note 2):
Preferred stock (par value $0.01 per share;
100,000 shares authorized; none issued or
outstanding) ........................................... -- --
Common stock (par value $0.01 per share; 4,900,000
shares authorized; 4,099,750 shares issued) ............ 41 41
Additional paid-in capital ............................... 40,221 40,181
Unallocated common stock held by employee stock
ownership plan ("ESOP") ................................ (2,829) (2,870)
Unamortized awards of common stock under recognition
and retention plan ("RRP") ............................. (918) (922)
Treasury stock, at cost (1,239,681 shares at September 30,
1998 and 1,204,181 shares at June 30, 1998) ............ (18,312) (17,730)
Retained earnings ........................................ 24,731 24,508
Net unrealized gain (loss) on available-for-sale
securities, net of taxes ................................. 63 (2)
--------- ---------
Total stockholders' equity .............................. 42,997 43,206
--------- ---------
Total liabilities and stockholders' equity ............ $ 199,898 $ 200,341
========= =========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
3
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
For the Three Months
Ended September 30,
1998 1997
------ ------
Interest and dividend income:
Loans ....................................... $ 990 $ 918
Securities .................................. 2,289 2,087
Interest-bearing deposits and other ......... 76 90
------ ------
Total interest and dividend income ......... 3,355 3,095
------ ------
Interest expense:
Depositor accounts .......................... 1,513 1,446
Securities repurchase agreements ............ 178 --
FHLB advance ................................ 4 --
------ ------
Total interest expense ..................... 1,695 1,446
------ ------
Net interest income ........................ 1,660 1,649
Provision for loan losses .................... 15 15
------ ------
Net interest income after provision
for loan losses ........................... 1,645 1,634
------ ------
Non-interest income .......................... 63 57
------ ------
Non-interest expense:
Compensation and benefits .................. 455 450
Occupancy costs ............................ 112 92
Professional fees .......................... 38 33
Computer service fees ...................... 52 43
Federal deposit insurance costs ............ 36 36
Safekeeping and custodial expenses ......... 29 24
Other ...................................... 163 148
------ ------
Total non-interest expense ............... 885 826
------ ------
Income before income tax expense .......... 823 865
Income tax expense ........................... 367 370
------ ------
Net income ................................. $ 456 $ 495
====== ======
Earnings per share (Note 3):
Basic ...................................... $ 0.18 $ 0.18
Diluted .................................... 0.18 0.17
See accompanying notes to unaudited condensed consolidated interim financial
statements.
4
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
(In thousands, except share data)
Unallocated Unamortized
Net
Common Awards of Unrealized
Additional Stock Common Gain (Loss) Total
Common Paid-in Held Stock Treasury Retained On Stockholders'
Stock Capital By ESOP Under RRP Stock Earnings Securities Equity
-------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1998 ............ $ 41 $ 40,181 $ (2,870) $ (922) $(17,730) $ 24,508 $ (2) $ 43,206
Net income ....................... -- -- -- -- -- 456 -- 456
Dividends paid ($0.09 per share) . -- -- -- -- -- (233) -- (233)
Amortization of RRP awards ....... -- -- -- 48 -- -- -- 48
RRP award (2,500 treasury shares) -- 14 -- (44) 30 -- -- --
Purchase of 38,000 treasury
shares ........................ -- -- -- -- (612) -- -- (612)
ESOP shares committed to be
released (4,100 shares) ....... -- 26 41 -- -- -- -- 67
Change in net unrealized gain
(loss) on available-for-sale
securities, net of taxes .... -- -- -- -- -- -- 65 65
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1998 ....... $ 41 $ 40,221 $ (2,829) $ (918) $(18,312) $ 24,731 $ 63 $ 42,997
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
5
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Three Months Ended
September 31,
1998 1997
-------- --------
Cash flows from operating activities:
Net income ................................................ $ 456 $ 495
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ............................... 15 15
Depreciation and amortization expense ................... 24 22
ESOP and RRP expense .................................... 115 118
Net amortization and accretion of deferred fees,
discounts and premiums ............................... (59) (45)
Net decrease in accrued interest receivable ............. 55 134
Net (increase) decrease in other assets ................. (66) 14
Deferred tax expense .................................... 13 2
Net increase in other liabilities ....................... 166 177
-------- --------
Net cash provided by operating activities ............. 719 932
-------- --------
Cash flows from investing activities:
Purchases of securities:
Held-to-maturity ........................................ (7,436) (5,014)
Available-for-sale ...................................... (9,992) (2,000)
Proceeds from principal payments, maturities and calls of
securities:
Held-to-maturity ........................................ 15,893 8,999
Available-for-sale ...................................... 3,000 1,000
Originations of loans, net of principal collections ....... (4,297) (1,052)
Purchases of office properties and equipment .............. (20) (391)
-------- --------
Net cash (used in) provided by investing activities .... (2,852) 1,542
-------- --------
Cash flows from financing activities:
Net increase (decrease) in depositor accounts ............. 608 (556)
Net decrease in mortgage escrow deposits .................. (658) (771)
Proceeds from Federal Home Loan Bank advance .............. 1,000 --
Treasury stock purchases .................................. (1,962) --
Dividends paid ............................................ (233) (287)
-------- --------
Net cash used in financing activities .................. (1,245) (1,614)
-------- --------
Net (decrease) increase in cash and cash equivalents ........ (3,378) 860
Cash and cash equivalents at beginning of period ............ 4,626 4,158
-------- --------
Cash and cash equivalents at end of period .................. $ 1,248 $ 5,018
======== ========
Supplemental information:
Interest paid ............................................. $ 1,697 $ 1,442
Income taxes paid ......................................... 318 263
Decrease in liability for securities purchased,
not yet settled ........................................ -- 499
Decrease in liability for treasury stock purchased, not yet
settled ................................................ 1,350 --
======== ========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
6
PEEKSKILL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Basis of Presentation
Peekskill Financial Corporation (the "Holding Company") was incorporated in
September 1995 and on December 29, 1995 became the holding company for First
Federal Savings Bank (the "Bank") upon the completion of the Conversion of the
Bank from a mutual savings bank to a stock savings bank (the "Conversion"). The
Holding Company and the Bank (collectively, the "Company") are located in
Peekskill, New York and the Holding Company's principal business, subsequent to
the Conversion, is the ownership of its wholly-owned subsidiary, the Bank. The
accompanying unaudited condensed consolidated interim financial statements
include the accounts of the Holding Company and the Bank.
The accompanying unaudited condensed consolidated interim 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. The accompanying unaudited
condensed consolidated interim financial statements should be read in
conjunction with the financial statements and related management's discussion
and analysis of financial condition and results of operations of the Company as
of and for the year ended June 30, 1998 included in the Form 10-K filed with the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included herein. The results of operations for the
three months ended September 30, 1998 are not necessarily indicative of results
that may be expected for the entire year ending June 30, 1999.
NOTE 2. Stockholders' Equity
From July 1, 1998 through September 30, 1998, the Holding Company purchased
38,000 shares for treasury at a cost of $612,000, or $16.10 per share. From the
date of Conversion through September 30, 1998, the Holding Company purchased an
aggregate of 1,239,681 shares for treasury. The Holding Company purchased these
shares, in open market transactions, at a total cost of $18.3 million or $14.77
per share.
On June 11, 1998, the Holding Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock, or 148,528 shares. As of
October 31, 1998, the Holding Company had repurchased 131,000 shares, leaving
17,528 shares available to be purchased through December 29, 1998.
7
Note 3. Earnings Per Share
The Company reports both basic and diluted earnings per share ("EPS") in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic EPS excludes dilution and is computed by dividing
net income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
(such as stock options) were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed by dividing net income by the weighted average
number of common shares outstanding for the period plus common-equivalent shares
computed using the treasury stock method.
The table below summarizes the number of shares utilized in the Company's
EPS calculations for the three month periods ended September 30, 1998 and 1997.
For purposes of computing basic EPS, net income applicable to common stock
equaled net income for both periods presented.
For the Three Months
Ended September 30,
1998 1997
----- -----
(In thousands)
Weighted average common shares outstanding
for computation of basic EPS (1) 2,516 2,791
Common-equivalent shares due to the dilutive
effect of stock options and RRP awards (2) 86 95
----- -----
Weighted average common shares for
computation of diluted EPS 2,602 2,886
===== =====
(1) Excludes unvested RRP awards and unallocated ESOP shares that have not been
committed to be released.
(2) Computed using the treasury stock method.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for periods subsequent to September 30, 1998. The Company
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and that statements for subsequent periods
are subject to greater uncertainty because of the likelihood of changes in
underlying factors and assumptions. Actual results could differ materially from
forward-looking statements.
8
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements: pricing
pressures on loan and deposit products; actions of competitors; changes in local
and national economic conditions; customer deposit disintermediation; changes in
customers' acceptance of the Company's products and services; the extent and
timing of legislative and regulatory actions and reforms; and Year 2000 related
costs and issues substantially different from those now anticipated.
The Company's forward-looking statements speak only as of the date on which
such statements are made. By making any forward-looking statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated events
or circumstances.
Comparison of Financial Condition at March 31, 1998 and June 30, 1997
Total assets at September 30, 1998 were $199.9 million compared to $200.3
million at June 30, 1998, a decrease of $443,000. This decrease was due
primarily to a $3.4 million decrease in cash and cash equivalents, and a $1.3
million decrease in total securities, partially offset by a $4.3 million
increase in total loans. Management intends to continue its current strategy of
increasing the loan portfolio (primarily through the origination of residential
mortgage loans), as market conditions permit, by introducing new products and
stimulating loan demand through advertising.
Total non-performing assets decreased $86,000, or 5.4%, from $1.6 million
at June 30, 1998 to $1.5 million at September 30, 1998. At September 30, 1998,
the Company held an $868,000 participation interest in certain residential
mortgage loans purchased from Thrift Association Service Corporation (the "TASCO
Loans"). These loans were placed on non-accrual status during the quarter ended
September 30, 1996. As a servicer of these loans, the FDIC is disputing its
obligation to remit certain principal and interest payments on the loans whether
or not such amounts are collected from the borrowers. The FDIC suspended
payments beginning in 1996, but resumed making certain principal and interest
payments in the quarter ended June 30, 1997, and has continued to make current
payments. As a result, interest payments of $12,000 received in the current
quarter were recognized as income on a cash basis. However, the dispute over the
suspended payments has not been resolved, and the TASCO Loans of $868,000 at
September 30, 1998 and $876,000 at June 30, 1998 are included in the Company's
total non-performing loans.
The Bank had two loans, with principal balances totaling $245,000, on
non-accrual status at September 30, 1998 and June 30, 1998. One-to-four family
mortgage loans past due more than 90 days but still accruing interest totaled
$292,000 at September 30, 1998 compared to $370,000 at June 30, 1998. The Bank
had one property classified as real estate owned with a carrying value of
$94,000 at September 30, 1998 and June 30, 1998. The Bank has subsequently sold
the property for $94,000, the same amount as the carrying value. The allowance
for loan losses was $697,000 or 49.6% of non-performing loans at September 30,
9
1998, compared to $682,000 or 45.7% of non-performing loans at June 30, 1998.
There were no loan charge-offs or recoveries in the three months ended September
30, 1998.
Stockholders' equity decreased $209,000 from $43.2 million at June 30, 1998
to $43.0 million at September 30, 1998. The decrease primarily reflects treasury
stock purchases of $612,000 and dividends paid of $233,000, partially offset by
net income of $456,000 and a $65,000 increase attributable to the net unrealized
gain on securities. Book value per share increased from $14.92 at June 30,1998
to $15.03 at September 30, 1998.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
Net income decreased $39,000 to $456,000, or $0.18 per share, for the
quarter ended September 30, 1998, compared to net income of $495,000, or $0.18
per share, for the same period last year. Diluted earnings per share amounts
were $0.18 and $0.17 for the quarters ended September 30, 1998 and 1997,
respectively. The decrease is primarily attributable to a $249,000 increase in
interest expense and a $59,000 increase in non-interest expense, partially
offset by a $260,000 increase in interest and dividend income.
Net interest income increased $11,000 in the current quarter compared to
the quarter ended September 30, 1997. Interest and dividend income increased
$260,000 to $3.4 million for the quarter ended September 30, 1998 compared to
the quarter ended September 30, 1997. The increase was caused primarily by a
$17.9 million increase in average interest-earning assets, partially offset by a
10 basis point decrease in the average yield on interest-earning assets.
Interest expense increased $249,000 to $1.7 million for the quarter ended
September 30, 1998 compared to the same quarter last year. This increase was due
primarily to a $21.6 million increase in average interest-bearing liabilities.
The provision for loan losses was $15,000 for the quarters ended September
30, 1998 and 1997. Management continues to evaluate the adequacy of the
allowance for loan losses based on local economic and real estate market
conditions, loan portfolio growth and the level of non-performing loans.
Non-interest expense increased $59,000 for the quarter ended September 30,
1998 compared to the prior year quarter. The increase was caused primarily by a
$20,000 increase in occupancy costs due to the construction of a new building
for the Bank's Mohegan Lake branch, a $9,000 increase in computer service fees
and a $15,000 increase in other operating expenses.
Income tax expense for the quarter ended September 30, 1998 decreased
$3,000 compared to the same period last year, primarily due to a decrease in
pre-tax income. The effective tax rates were 44.6% and 42.8% for the quarters
ended September 30, 1998 and 1997, respectively.
10
The following table shows the Company's average consolidated balances,
interest income and expense, and average rates (annualized) for the periods
indicated.
Three Months Ended
------------------------------------------------------------------------------
September 30, 1998 September 30, 1997
------------------------------------- ------------------------------------
Average Average Average Average
Balance (1) Interest Yield/Rate Balance(1) Interest Yield/Rate
----------- -------- ---------- ---------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans (2) ..................................... $ 49,722 $ 990 7.97% $ 45,810 $ 918 8.02%
Mortgage-backed securities(3) ................. 127,202 2,035 6.40 115,978 1,882 6.49
Other debt securities(3) ...................... 16,854 254 6.02 12,218 205 6.71
Other interest-earning assets ................. 4,347 76 7.00 6,218 90 5.79
-------- -------- -------- --------
Total interest-earning assets ............... 198,125 $ 3,355 6.77% 180,224 $ 3,095 6.87%
======== ========
Non interest-earning assets ...................... 2,678 1,895
-------- --------
Total assets ................................ $200,803 $182,119
======== ========
Interest-bearing liabilities:
Regular savings and club accounts ............. $ 50,933 $ 354 2.78% $ 54,382 $ 412 3.03%
Money market and NOW accounts ................. 14,178 94 2.64 11,219 80 2.85
Savings certificates and other ................ 77,370 1,065 5.51 68,733 954 5.55
Securities repurchase agreements .............. 13,000 178 5.49 -- -- --
FHLB advance .................................. 500 4 3.20 -- -- --
-------- -------- -------- --------
Total interest-bearing liabilities .......... 155,981 $ 1,695 4.35% 134,334 $ 1,446 4.31%
======== ========
Non interest-bearing liabilities ................. 1,665 657
-------- --------
Total liabilities ........................... 157,646 134,991
Stockholders' equity ............................. 43,157 47,128
-------- --------
Total liabilities and stockholders' equity .. $200,803 $182,119
======== ========
Net earning assets ............................... $ 42,144 $ 45,890
======== ========
Net interest income .............................. $ 1,660 $ 1,649
======== ========
Net interest rate spread ......................... 2.42% 2.56%
==== ====
Net yield on average interest-earning assets(4) .. 3.35% 3.66%
==== ====
Average interest-earning assets to average
interest-bearing liabilities .................... 1.27x 1.34x
==== ====
(1) Average balances are calculated using end-of-month balances, producing
results which are not materially different from average daily balances.
(2) Balances are net of deferred loan fees and loans in process. Non-accrual
loans are included in the balances.
(3) Balances represent amortized cost. Yields are not stated on a
tax-equivalent basis, as the Company does not invest in tax-exempt
securities.
(4) Represents net interest income divided by average total interest-earning
assets.
11
Liquidity and Capital Resources
The Bank's primary sources of funds are depositor accounts from its market
area; proceeds from principal and interest payments on loans, mortgage-backed
securities and other debt securities; and borrowings from the Federal Home Loan
Bank of New York ("FHLB") and other sources. While maturities and scheduled
payments on loans and securities are a predictable source of funds, deposit
flows and loan and securities prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of
mortgage loans and the purchase of securities, and its primary financing
activity is the attraction of depositor accounts.
The Bank may borrow from the FHLB of New York subject to an overall
limitation of 25% of total assets or $49.8 million at September 30, 1998. Funds
may be borrowed through a combination of FHLB advances and overnight borrowings
under a $15.5 million line of credit. The Bank had $1.0 million of such
borrowings outstanding at September 30, 1998 and none at June 30, 1998.
In January 1998, the Company began to utilize securities repurchase
agreements as a funding source, in order to supplement retail deposit growth.
The Company has borrowed a total of $13.0 million and invested the proceeds in
securities. The Company may engage in other repurchase agreements, from time to
time, as conditions warrant.
The Bank is required to maintain a minimum level of liquid assets as
defined by OTS regulations, based upon a percentage of liquid assets to
depositor accounts and short-term borrowings. For the month of September 1998,
the Bank's average daily total liquidity ratio was 31.2%, compared to the
minimum OTS requirement of 4.0%.
The Bank's most liquid assets are cash and cash equivalents, which consist
of interest-bearing deposits in other financial institutions and short-term
highly liquid investments with original maturities of less than three months
that are readily convertible to known amounts of cash. The level of these assets
is dependent on cash flows from the Bank's operating, financing and investing
activities during any given period. Cash and cash equivalents decreased $3.4
million, from $4.6 million at June 30, 1998 to $1.2 million at September 30,
1998.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments and other funding needs. At September 30, 1998, the Bank
had commitments to originate loans of $4.5 million. Savings certificates which
are scheduled to mature in one year or less at September 30, 1998 totaled $58.6
million. Management believes that a significant portion of such depositor
accounts will remain with the Bank.
At September 30, 1998, the Bank's capital exceeded each of the OTS minimum
capital requirements and the requirements for classification as a
"well-capitalized" institution. The current
12
minimum regulatory capital ratio requirements are 1.5% for tangible capital,
3.0% for Tier I (core) capital and 8.0% for total risk-based capital. In order
to be considered well-capitalized, an institution must maintain a core capital
ratio of at least 5.0%; a Tier I risk-based capital ratio of at least 6.0%; and
a total risk-based capital ratio of at least 10.0%. At September 30, 1998, the
Bank had both tangible and core capital of $42.4 million (21.3% of total
adjusted assets); Tier I risk-based capital of $42.4 million (83.2% of total
risk-weighted assets); and total risk-based capital of $43.1 million (84.5% of
total risk-weighted assets).
Impact of Year 2000 Issue
Like other financial institutions, the Company relies on computers for the
daily conduct of its business, all its transaction processing and for general
data processing. The "Year 2000 Issue" arose because many existing computer
programs use only the last two digits to refer to a year. Therefore, these
computer programs may not properly recognize a year that begins with "20"
instead of the familiar "19", causing the programs to fail or create erroneous
results.
The Company has initiated formal communications with all its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. The Company's
data processing is performed almost entirely by a third party vendor. At this
time, the vendor has asserted that it is Year 2000 compliant and the Company, in
conjunction with other customers of this vendor, has begun testing the updated
system. The Company currently believes that, with modifications to existing
software and conversions to new software, the Year 2000 Issue will be mitigated
without causing a material adverse impact on its operations. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material adverse impact on the operations of the
Company.
The Company will utilize both internal and external resources to reprogram,
or replace, and test all software for Year 2000 modifications. Related costs are
expensed as incurred, except for costs incurred in the purchase of new software
or hardware, which are capitalized. To date, costs incurred and expensed relate
to the dedication of internal resources employed in the assessment of and
development of the Company's Year 2000 compliance remediation plan, as well as
the testing of the hardware and software owned or licensed for its personal
computers. Costs incurred to date are not material, and management does not
expect that additional costs to be incurred in connection with the Year 2000
Issue will have a material impact on the Company's financial condition or
results of operations. Since substantially all of the Company's loans are
residential mortgages, the ability of the Company's borrowers to become Year
2000 compliant is not a significant concern.
The estimated costs and timetable for the Year 2000 modifications are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors in respect of both
13
the Company and its suppliers that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this field, the ability to locate and correct all relevant computer codes,
testing complications and similar uncertainties. In addition, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
The Company plans to complete the Year 2000 project not later than March
31, 1999. Given the near-term timing of the test plan, the Company has not
developed a contingency plan, but will do so if testing results are not
satisfactory. Such a contingency plan could entail converting all data
processing applications to a third party vendor who is already Year 2000
compliant.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk
position since June 30, 1998. Other types of market risk, such as foreign
currency exchange rate risk and commodity price risk, do not arise in the normal
course of the Company's business activities.
14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the Company is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of
its business. While the ultimate outcome of these various legal
proceedings cannot be predicted with certainty, it is the opinion of
management that the resolution of these legal actions should not have
a material effect on the Company's financial condition or results of
operations.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3. Amended and Restated Bylaws
27. Financial Data Schedule
b. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEEKSKILL FINANCIAL CORPORATION
(Registrant)
DATE: November 13, 1998 BY: /s/ Eldorus Maynard
---------------------------
Eldorus Maynard
Chairman of the Board and
Chief Executive Officer
DATE: November 13, 1998 BY: /s/ William J. LaCalamito
---------------------------
William J. LaCalamito
President
(principal financial officer)
16