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 Quarter Ended December 31, 1999
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
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(Address of principal executive offices)
(914) 737-2777
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(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 February 4, 2000
- ----------------------------- --------------------
Common Stock, $0.01 par value 1,762,228
Peekskill Financial Corporation
Form 10-Q
Three and Six Months Ended December 31, 1999
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Page
Consolidated Balance Sheets at December 31, 1999
and June 30, 1999 3
Consolidated Statements of Income for the three and six
months ended December 31, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders'
Equity for the six months ended December 31, 1999 and 1998 5
Consolidated Statements of Cash Flows for the six
months ended December 31, 1999 and 1998 6
Notes to Consolidated Interim Financial Statements 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 15
Part II - Other Information
Other Information 16
Signatures 17
2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Peekskill Financial Corporation and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
December 31, 1999 June 30, 1999
----------------- -------------
Assets:
Cash and due from banks.................................. $ 2,433 $ 957
Interest-bearing deposits................................ 8,006 3,200
Securities:
Held-to-maturity, at amortized cost (fair value of
$112,073 at December 31, 1999 and $118,675
at June 30, 1999)................................... 114,290 119,122
Available-for-sale, at fair value (amortized cost of
$16,500 at December 31, 1999 and June 30, 1999)..... 15,082 15,673
-------- --------
Total securities..................................... 129,372 134,795
-------- --------
Loans, net of allowance for loan losses of $772 at
December 31, 1999 and $742 at June 30, 1999......... 68,048 63,436
Federal Home Loan Bank stock............................. 1,550 1,463
Accrued interest receivable.............................. 1,105 1,094
Office properties and equipment, net..................... 1,069 1,114
Deferred income taxes, net............................... 1,044 814
Other assets............................................. 32 59
-------- --------
Total assets........................................... $212,659 $206,932
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Depositor accounts..................................... $152,651 $148,693
Securities repurchase agreements and other borrowings.. 31,000 28,000
Mortgage escrow deposits............................... 1,847 1,692
Other liabilities...................................... 1,178 1,196
-------- --------
Total liabilities.................................... 186,676 179,581
-------- --------
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............................... 40,325 40,305
Unallocated common stock held by employee stock
ownership plan ("ESOP")................................ (2,624) (2,706)
Unamortized awards of common stock under recognition
and retention plan ("RRP")............................. (719) (771)
Treasury stock, at cost (2,337,522 shares at December 31,
1999 and 2,211,922 shares at June 30, 1999)............ (35,846) (34,204)
Retained earnings........................................ 25,696 25,183
Accumulated other comprehensive loss, net of tax benefit. (890) (497)
-------- --------
Total stockholders' equity............................ 25,983 27,351
-------- --------
Total liabilities and stockholders' equity............ $212,659 $206,932
======== ========
See accompanying notes to unaudited consolidated financial statements.
3
Peekskill Financial Corporation and Subsidiary
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
For the Three Months For the Six Months
Ended December 31, Ended December 31,
--------------------------- ------------------------
1999 1998 1999 1998
------------ ----------- ----------- ----------
Interest and dividend income:
Loans.................................. $ 1,260 $ 1,032 $ 2,489 $ 2,022
Securities............................. 2,050 2,196 4,112 4,485
Interest-bearing deposits and other.... 118 142 182 218
------- ------- ------- -------
Total interest and dividend income.... 3,428 3,370 6,783 6,725
------- ------- ------- -------
Interest expense:
Depositor accounts..................... 1,547 1,508 3,057 3,021
Securities repurchase agreements and
other borrowings................... 371 222 733 404
------- ------- ------- -------
Total interest expense................ 1,918 1,730 3,790 3,425
------- ------- ------- -------
Net interest income................... 1,510 1,640 2,993 3,300
Provision for loan losses .............. 15 15 30 30
------- ------- ------- -------
Net interest income after
provision for loan losses............ 1,495 1,625 2,963 3,270
------- ------- ------- -------
Non-interest income..................... 72 69 143 132
------- ------- ------- -------
Non-interest expense:
Compensation and benefits............. 489 451 954 906
Occupancy costs....................... 107 101 223 213
Professional fees..................... 48 41 97 79
Computer service fees................. 66 55 122 107
Federal deposit insurance costs....... 36 36 72 72
Safekeeping and custodial expenses.... 28 27 53 56
Other................................. 144 189 289 352
------- ------- ------- -------
Total non-interest expense.......... 918 900 1,810 1,785
------- ------- ------- -------
Income before income tax expense........ 649 794 1,296 1,617
Income tax expense...................... 250 350 500 717
------- ------- ------- -------
Net income............................ $ 399 $ 444 $ 796 $ 900
======= ======= ======= =======
Earnings per share (Note 3):
Basic................................. $ 0.27 $ 0.18 $ 0.53 $ 0.36
Diluted............................... 0.27 0.18 0.52 0.35
See accompanying notes to unaudited consolidated financial statements.
4
Peekskill Financial Corporation and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(In thousands, except share data)
Unallocated Unamortized
Common Awards of Accumulated
Additional Stock Common Other Total
Common Paid-in Held Stock Treasury Retained Comprehensive Stockholders'
Stock Capital By ESOP Under RRP Stock Earnings Loss Equity
-------- --------- ----------- ----------- --------- --------- -------------- -------------
Balance at June 30, 1999........ $ 41 $40,305 $(2,706) $ (771) $(34,204) $25,183 $(497) $ 27,351
Net income................... --- --- --- --- --- 796 --- 796
Other comprehensive loss.....
(393) (393)
--------
Total comprehensive
income....................... 403
Dividends paid ($0.18 per
share)....................... --- --- --- --- --- (283) --- (283)
Amortization of RRP awards... --- --- --- 104 --- --- --- 104
RRP award (4,000 treasury
shares)...................... --- (10) --- (52) 62 --- --- ---
Tax benefit from vesting of
RRP awards................ --- 6 --- --- --- --- --- 6
Purchase of 129,600 treasury
shares.................... --- --- --- --- (1,704) --- --- (1,704)
ESOP shares committed to be
released (8,200 shares)... --- 24 82 --- --- --- --- 106
------ ------- ------- ------ -------- ------- ----- -------
Balance at December 31, 1999.... $ 41 $40,325 $(2,624) $ (719) $(35,846) $25,696 $(890) $25,983
====== ======= ======= ====== ======== ======= ===== =======
Balance at June 30, 1998........ $ 41 $40,181 $(2,870) $ (922) $(17,730) $24,508 $ (2) $43,206
Net income................... --- --- --- --- --- 900 --- 900
Other comprehensive loss..... (124) (124)
--------
Total comprehensive
income....................... 776
Dividends paid ($0.18 per
share)....................... --- --- --- --- --- (464) --- (464)
Amortization of RRP awards... --- --- --- 97 --- --- --- 97
RRP award (2,500 treasury
shares)...................... --- 14 --- (44) 30 --- --- ---
Tax benefit from vesting of
RRP awards................ --- 36 --- --- --- --- --- 36
Purchase of 56,000 treasury
shares.................... --- --- --- --- (857) --- --- (857)
ESOP shares committed to be
released (8,200 shares)... --- 41 82 --- --- --- --- 123
------ ------- ------- ------ -------- ------- ----- -------
Balance at December 31, 1998.... $ 41 $40,272 $(2,788) $ (869) $(18,557) $24,944 $(126) $42,917
====== ======= ======= ====== ======== ======= ===== =======
See accompanying notes to unaudited consolidated financial statements.
5
Peekskill Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Six Months Ended
December 31,
------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net income................................................. $ 796 $ 900
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses................................ 30 30
Depreciation and amortization expense.................... 51 50
ESOP and RRP expense..................................... 210 220
Net amortization and accretion of deferred fees, discounts
and premiums.......................................... (13) (4)
Net increase in accrued interest receivable.............. (11) (116)
Net decrease (increase) in other assets.................. 27 (8)
Deferred tax benefit..................................... (41) (66)
Net (decrease) increase in other liabilities............. (13) 222
------- -------
Net cash provided by operating activities.............. $ 1,036 $ 1,228
------- -------
Cash flows from investing activities:
Purchases of securities:
Held-to-maturity......................................... (9,896) (20,358)
Available-for-sale....................................... --- (17,500)
Proceeds from principal payments, maturities and
calls of securities:
Held-to-maturity......................................... 14,752 37,008
Available-for-sale....................................... --- 4,500
Originations of loans, net of principal collections........ (4,642) (5,037)
Proceeds from sale of real estate owned.................... --- 94
Purchase of FHLB stock..................................... (87) ---
Purchases of office properties and equipment............... (7) (41)
------- -------
Net cash provided by (used in) investing activities..... 120 (1,334)
------- -------
Cash flows from financing activities:
Net increase in depositor accounts......................... 3,958 4,508
Net increase in mortgage escrow deposits................... 155 64
Proceeds from securities repurchase agreements and
other borrowings........................................ 6,000 10,000
Repayments of securities repurchase agreements and
other borrowings........................................ (3,000) ---
Treasury stock purchases................................... (1,704) (2,207)
Dividends paid............................................. (283) (464)
------- -------
Net cash provided by financing activities............... 5,126 11,901
------- -------
Net increase in cash and cash equivalents.................... 6,282 11,795
Cash and cash equivalents at beginning of period............. 4,157 4,626
------- -------
Cash and cash equivalents at end of period................... $10,439 $16,421
======= =======
Supplemental information:
Interest paid.............................................. $ 3,741 $ 3,385
Income taxes paid.......................................... 579 702
Decrease in liability for treasury stock purchased, not
yet settled............................................. --- 1,350
======= =======
See accompanying notes to unaudited consolidated financial statements.
6
PEEKSKILL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 financial statements
include the accounts of the Holding Company and the Bank.
The accompanying unaudited condensed 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. The accompanying unaudited condensed
consolidated 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, 1999 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 six months ended
December 31, 1999 are not necessarily indicative of results that may be expected
for the entire fiscal year ending June 30, 2000.
NOTE 2. Stockholders' Equity
From July 1, 1999 through December 31, 1999, the Holding Company
purchased 129,600 shares for treasury at a cost of $1.7 million, or $13.15 per
share. At December 31, 1999, the Holding Company has a total of 2,337,522 shares
held for treasury, at a total cost of $35.8 million or $15.33 per share.
For income tax purposes, certain capital distributions made by a thrift
institution, such as the Bank, may be deemed to have been made from the thrift's
bad debt reserves. An amount equal to approximately one and one-half times the
amount of such a distribution would be included in the thrift's taxable income,
attributable to the "recapture" of a portion of its tax bad debt reserves.
Distributions resulting in taxable income include distributions in excess of the
thrift's current and accumulated earnings and profits, as calculated for federal
income tax purposes; distributions in redemption of the thrift's stock; and
distributions in partial or complete
7
liquidation of the thrift. However, dividends paid from the thrift's current or
accumulated earnings and profits do not result in taxable income from bad debt
reserve recapture.
All dividends paid to date by the Bank to the Holding Company have been
paid from the Bank's current and accumulated earnings and profits. The Holding
Company has relied on dividends from the Bank as the principal source of funding
for its more recent stock repurchases. Since the Bank intends to limit future
dividend payments to amounts that will not result in the recapture of tax bad
debt reserves, the amount of additional funds which may be available to the
Holding Company for future stock repurchases will generally be limited to the
amount of the Bank's current and accumulated earnings and profits. At December
31, 1999, the Bank had approximately $2.7 million in current and accumulated
earnings and profits from which it could pay dividends without causing the
recapture of any portion of its bad debt reserves.
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 and six month periods ended December
31, 1999 and 1998. For purposes of computing basic EPS, net income applicable to
common stock equaled net income for each period presented.
For the Three Months For the Six Months
Ended December 31, Ended December 31,
-------------------- --------------------
1999 1998 1999 1998
---------- -------- ---------- --------
(In thousands)
Weighted average common shares outstanding
for computation of basic EPS (1) 1,461 2,482 1,496 2,499
Common-equivalent shares due to the dilutive
effect of stock options and RRP awards (2) 24 44 27 67
----- ----- ----- -----
Weighted average common shares for
computation of diluted EPS 1,485 2,526 1,523 2,566
===== ===== ===== =====
<FN>
(1) Excludes unvested RRP awards and unallocated ESOP shares that have not
been committed to be released.
(2) Computed using the treasury stock method.
</FN>
8
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 December 31, 1999. 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.
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; and the
extent and timing of legislative and regulatory actions and reforms.
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 December 31, 1999 and June 30, 1999
Total assets at December 31, 1999 were $212.7 million compared to
$206.9 million at June 30, 1999, an increase of $5.7 million. This increase was
due primarily to a $6.3 million increase in cash and cash equivalents and a $4.6
million increase in net loans, partially offset by a $5.4 million decrease in
total securities. The funding of the asset growth was accomplished by a $3.0
million increase in securities repurchase agreements and other borrowings and a
$4.0 million increase in depositor accounts. 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 loans decreased $195,000, or 17.3%, to $935,000 at
December 31, 1999 from $1.1 million at June 30, 1999. At December 31, 1999, the
Company classified $264,000 of participation interests in certain residential
mortgage loans purchased from Thrift Association Service Corporation as
non-accrual, as compared to $316,000 at June 30, 1999. Additional non-accrual
mortgage loans totaled $563,000 at December 31, 1999 and $382,000 at June 30,
1999. One-to-four family mortgage loans past due more than 90 days but still
accruing interest totaled $108,000 at December 31, 1999 compared to $432,000 at
June 30, 1999. The allowance for loan losses was $772,000 or 82.6% of
non-performing loans at December 31, 1999, compared to $742,000 or 65.7% of
non-performing loans at June 30, 1999.
9
There were no loan charge-offs or recoveries in the six months ended December
31, 1999. The Bank had no real estate owned at December 31, 1999 and June 30,
1999.
Stockholders' equity decreased $1.4 million from $27.4 million at June
30, 1999 to $26.0 million at December 31, 1999. The decrease primarily reflects
treasury stock purchases of $1.7 million and dividends paid of $283,000,
partially offset by net income of $796,000. Book value per share increased from
$14.49 at June 30,1999 to $14.74 at December 31, 1999.
Comparison of Operating Results for the Three Months Ended December 31, 1999 and
1998
Net income decreased $45,000 to $399,000, or $0.27 per diluted share,
for the quarter ended December 31, 1999, compared to net income of $444,000, or
$0.18 per diluted share, for the same period last year. Basic EPS amounts were
$0.27 and $0.18 for the quarters ended December 31, 1999 and 1998, respectively.
The decrease in net income is primarily attributable to a $130,000 decrease in
net interest income, partially offset by a $100,000 decrease in income tax
expense. The higher basic and diluted EPS amounts in the current quarter reflect
the substantially lower number of shares outstanding, due to treasury stock
purchases made over the past year.
Net interest income decreased $130,000 in the current quarter compared
to the quarter ended December 31, 1998, reflecting a 29 basis point decline in
the net yield on average interest-earning assets to 2.93% in the current
quarter. The decreases in the net yield and in net interest income reflect the
$15.4 million decline in average net earning assets from $41.6 million for the
three months ended December 31, 1998 to $26.2 million for the current quarter,
mostly attributable to the utilization of $17.7 million to purchase common stock
for treasury. Interest and dividend income remained constant at $3.4 million for
the quarters ended December 31, 1999 and 1998. Average interest-earning assets
increased $2.4 million and the average yield increased 4 basis points. Interest
expense increased $188,000 to $1.9 million for the quarter ended December 31,
1999 compared to the same quarter last year. This increase was due primarily to
a $19.4 million increase in average interest-bearing liabilities partially
offset by a 4 basis point decrease in the average cost.
The provision for loan losses was $15,000 for the quarters ended
December 31, 1999 and 1998. 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 $18,000 for the quarter ended December
31, 1999 compared to the prior year quarter. The increase was caused primarily
by increases of $38,000 in compensation and benefits, $11,000 in computer
service fees and $7,000 in professional fees, partially offset by a $45,000
decrease in other non-interest expenses. The increase in compensation and
benefits is due to normal salary increases. The $45,000 decrease in other
non-interest expenses is primarily due to expenses of approximately $25,000
relating
10
to the Company's Modified Dutch Auction, that were incurred in the quarter ended
December 31, 1998.
Income tax expense for the quarter ended December 31, 1999 decreased
$100,000 compared to the same period last year. The decrease is due to a
$145,000 decrease in pre-tax income and the establishment of a real estate
investment trust ("REIT") in the fourth quarter of fiscal 1999. The Company's
effective tax rate was 38.5% in the current quarter compared to 44.1% in the
quarter ended December 31, 1998, primarily due to the effect of the REIT.
Comparison of Operating Results for the Six Months Ended December 31, 1999 and
1998
Net income decreased $104,000 to $796,000, or $0.52 per diluted share,
for the six months ended December 31, 1999, compared to $900,000, or $0.35 per
diluted share, for the six months ended December 31, 1998. Basic EPS amounts
were $0.53 and $0.36 for the six months ended December 31, 1999 and 1998,
respectively. The decrease in net income is primarily attributable to a $307,000
decrease in net interest income, partially offset by a $217,000 decrease in
income tax expense. The higher basic and diluted EPS amounts in the current
six-month period reflect the substantially lower number of shares outstanding,
due to treasury stock purchases made over the past year.
Net interest income decreased $307,000 for the six months ended
December 31, 1999 compared to the six months ended December 31, 1998, reflecting
a 37 basis point decline in the net yield on average interest-earning assets to
2.91% in the six months ended December 31, 1999. The decreases in the net yield
and in net interest income reflect the $15.5 million decline in average net
earning assets from $41.9 million for the six months ended December 31, 1998 to
$26.4 million for the current six months, mostly attributable to the utilization
of $17.7 million to purchase common stock for treasury. Interest and dividend
income increased $58,000 to $6.8 million for the six months ended December 31,
1999 compared to the six months ended December 31, 1998. Average
interest-earning assets increased $4.0 million, partially offset by an 8 basis
point decrease in the average yield. Interest expense increased $365,000 to $3.8
million for the six months ended December 31, 1999 compared to the same period
last year. The increase was caused primarily by a $20.9 million increase in
interest-bearing liabilities, partially offset by a 10 basis point decrease in
the average rate.
The provision for loan losses was $30,000 for the six-month periods
ended December 31, 1999 and 1998. 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.
For the six months ended December 31, 1999 non-interest expense
increased $25,000 compared to the same period in 1998. The increase was caused
primarily by increases of $48,000 in compensation and benefits, $18,000 in
professional fees and $15,000 in computer service fees, partially offset by a
$63,000 decrease in other non-interest expenses. The $48,000 increase in
compensation and benefits is due to normal salary increases. The $63,000
11
decrease in other non-interest expenses is primarily due to expenses of
approximately $25,000, relating to the Company's Modified Dutch Auction, that
were incurred in the quarter ended December 31, 1998.
Income tax expense decreased $217,000 for the six months ended December
31, 1999 compared to the same period a year ago. The decrease is due to a
$321,000 decrease in pre-tax income and the effect of the REIT. The Company's
effective tax rate was 38.6% for the six months ended December 31, 1999 compared
to 44.3% for the same period in 1998.
12
The following table shows the Company's average consolidated balances,
interest income and expense, and average rates (annualized) for the periods
indicated.
Six Months Ended
---------------------------------------------------------------------------
December 31, December 31,
1999 1998
---------------------------------------- ----------------------------------
Average Average Average Average
Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate
------------ ---------- ----------- ------------ --------- -----------
(Dollars in thousands)
Interest-earning assets:
Loans (2).................................... $ 66,156 $ 2,489 7.52% $ 50,810 $ 2,023 7.96%
Mortgage-backed securities(3)................ 109,498 3,341 6.10 123,219 3,913 6.35
Other debt securities(3)..................... 23,043 771 6.69 18,551 571 6.16
Other interest-earning assets................ 6,716 182 5.42 8,794 218 4.96
-------- ------- -------- -------
Total interest-earning assets.............. 205,413 6,783 6.60 201,374 6,725 6.68
------- -------
Non interest-earning assets..................... 3,118 2,688
-------- --------
Total assets............................... $208,531 $204,062
======== ========
Interest-bearing liabilities:
Regular savings and club accounts............ $ 50,605 $ 703 2.78% $ 50,383 $ 699 2.77%
Money market and NOW accounts (5)............ 18,268 236 2.58 14,705 194 2.64
Savings certificates and other............... 82,879 2,188 5.11 78,205 2,128 5.44
Securities repurchase agreements and other 28,571 733 5.13 16,143 404 5.00
-------- ------- -------- -------
borrowings......................................
Total interest-bearing liabilities......... 180,323 3,790 4.20 159,436 3,425 4.30
------- -------
Non interest-bearing liabilities................ 1,391 1,577
-------- --------
Total liabilities.......................... 181,714 161,013
Stockholders' equity............................ 26,817 43,049
-------- --------
Total liabilities and stockholders' equity. $208,531 $204,062
======== ========
Net earning assets.............................. $ 26,369 $ 41,938
======== ========
Net interest income............................. $ 2,993 $ 3,300
======= =======
Net interest rate spread........................ 2.40% 2.38%
==== ====
Net yield on average interest-earning assets(4). 2.91% 3.28%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.14x 1.26x
==== ====
Three Months Ended
---------------------------------------------------------------------------
December 31, December 31,
1999 1998
---------------------------------------- ----------------------------------
Average Average Average Average
Balance (1) Interest Yield/Rate Balance (1) Interest Yield/Rate
------------ ---------- ----------- ------------ --------- -----------
(Dollars in thousands)
Interest-earning assets:
Loans (2).................................... $ 67,181 $ 1,260 7.50% $ 52,044 $ 1,032 7.93%
Mortgage-backed securities(3)................ 107,132 1,657 6.19 119,061 1,879 6.31
Other debt securities(3)..................... 23,373 393 6.73 20,605 317 6.15
Other interest-earning assets................ 8,278 118 5.70 11,849 142 4.79
-------- ------- -------- -------
Total interest-earning assets.............. 205,964 3,428 6.66 203,559 3,370 6.62
------- -------
Non interest-earning assets..................... 3,179 2,704
-------- --------
Total assets............................... $209,143 $206,263
======== ========
Interest-bearing liabilities:
Regular savings and club accounts............ $49,986 $ 347 2.78% $49,691 $ 345 2.78%
Money market and NOW accounts (5)............ 18,490 116 2.51 15,192 100 2.63
Savings certificates and other............... 84,140 5.15 78,792 5.39
1,084 1,062
Securities repurchase agreements and other 28,750 371 5.16 18,250 223 4.89
-------- ------- -------- -------
borrowings......................................
Total interest-bearing liabilities......... 181,366 1,918 4.23 161,925 1,730 4.27
------- -------
Non interest-bearing liabilities................ 1,445 1,426
-------- --------
Total liabilities.......................... 182,811 163,351
Stockholders' equity............................ 26,332 42,912
-------- --------
Total liabilities and stockholders' equity. $209,143 $206,263
======== ========
Net earning assets.............................. $ 26,229 $ 41,634
======== ========
Net interest income............................. $ 1,510 $ 1,640
======= =======
Net interest rate spread........................ 2.43% 2.35%
==== ====
Net yield on average interest-earning assets(4). 2.93% 3.22%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.14x 1.26x
==== ====
<FN>
(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.
(5) Average balances for the six months and three months ended December 31,
1999 include non-interest bearing checking deposits of $1.3 million and
$1.6 million, respectively. Excluding these deposits, the average rate
would be 2.78% for the six months ended December 31, 1999 and 2.75% for
the three months ended December 31, 1999.
</FN>
13
Liquidity and Capital Resources
The Company'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 $52.0 million at December 31, 1999. Funds
may be borrowed through a combination of FHLB advances and overnight borrowings
under a $15.5 million line of credit. The Bank had $6.0 million of such
borrowings outstanding at December 31, 1999 and none at June 30, 1999. The
Company also had $25.0 million of borrowings under securities repurchase
agreements at December 31, 1999, compared to $28.0 million at June 30, 1999. The
Company has utilized borrowings as a funding source in order to supplement
retail deposit growth and may engage in additional borrowings, 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 December 1999,
the Bank's average daily total liquidity ratio was 16.8%, compared to the
minimum OTS requirement of 4.0%.
The Company'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 Company's operating, financing and
investing activities during any given period. Cash and cash equivalents
increased $6.2 million, from $4.2 million at June 30, 1999 to $10.4 million at
December 31, 1999. The temporary increase in cash and cash equivalents at
year-end 1999 was due, in part, to Year 2000 contingency planning for possible
depositor withdrawals.
The Company anticipates that it will have sufficient funds available to
meet its current commitments and other funding needs. At December 31, 1999, the
Company had commitments to originate loans of $1.3 million. Savings certificates
scheduled to mature in one year or less at December 31, 1999 totaled $65.7
million. Management believes that a significant portion of such depositor
accounts will remain with the Company.
At December 31, 1999, the Bank's capital exceeded each of the OTS
minimum capital requirements and the requirements for classification as a
"well-capitalized" institution. The current
14
minimum regulatory capital ratio requirements are 1.5% for tangible capital,
4.0% 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 December 31, 1999, the
Bank had both tangible and core capital of $26.9 million (12.6% of total
adjusted assets); Tier I risk-based capital of $26.9 million (43.1% of total
risk-weighted assets); and total risk-based capital of $27.7 million (44.3% of
total risk-weighted assets).
Year 2000
The Company's Year 2000 preparations allowed it to transition into the
new year without system failures or interruptions in customer service. The
Company is not currently aware of any Year 2000 issues that have adversely
affected its customers or key business relationships. However, the nature of the
Year 2000 issue is such that unanticipated developments affecting the Company's
information technology systems, and/or those of third parties, upon which it
depends, may come to light in the future. The Company will continue to monitor
its systems for Year 2000 issues that may not have been immediately apparent, as
well as possible adverse effects on its customers and key business
relationships. The Company's cumulative Year 2000 costs of $160,000 through
December 31, 1999 were primarily for computer hardware purchases. Management
does not expect that any additional significant costs will be incurred in
connection with the Year 2000 issue.
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, 1999. 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.
15
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
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
Annual Meeting
The Annual Meeting for the fiscal year ended June 30, 2000
will be held on October 18, 2000 at the main office of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27. Financial Data Schedule
b. Reports on Form 8-K
None
16
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: February 11, 2000 BY: /s/ Eldorus Maynard
-------------------
Eldorus Maynard
Chairman of the Board and
Chief Executive Officer
DATE: February 11, 2000 BY: /s/ William J. LaCalamito
-------------------------
William J. LaCalamito
President
(principal financial officer)
17