United States
Securities and Exchange Commission
Washington, D.C. 20549
---------------
Form 10-Q
[x] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 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 April 30, 1998
------ -----------------
Common Stock, $.01 par value 3,016,790
Peekskill Financial Corporation
Form 10-Q
Quarterly Period Ended March 31, 1998
Part I - Financial Information
Page
----
ITEM 1 - FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 1998
and June 30, 1997 ..................................................... 3
Condensed Consolidated Statements of Income for the three and nine
months ended March 31, 1998 and 1997 .................................. 4
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 31, 1998 ....................... 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 1998 and 1997 .................................. 6
Notes to Condensed Consolidated Interim Financial Statements .............. 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF .......................... 10
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
Explanatory Note: This Quarterly Report on Form 10-Q contains certain
forward-looking statements consisting of estimates with respect to the financial
condition, results of operations and business of the Company that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
March 31, June 30,
1998 1997
---- ----
Assets:
Cash and cash equivalents ................. $ 2,980 $ 4,158
Securities:
Held-to-maturity, at amortized cost
(fair value of $133,764 at March 31,
1998 and $127,348 at June 30, 1997) ... 132,199 126,450
Available-for-sale, at fair value
(amortized cost of $9,500 at March 31,
1998 and $2,999 at June 30, 1997) ..... 9,475 2,983
------- -------
Total securities ...................... 141,674 129,433
------- -------
Loans, net of allowance for loan losses
of $667 at March 31, 1998 and $622
at June 30, 1997 ..................... 47,171 45,507
Federal Home Loan Bank stock .............. 1,463 1,463
Accrued interest receivable ............... 954 1,064
Real estate owned ......................... 153 220
Deferred income taxes, net ................ 343 304
Other assets .............................. 1,109 411
------- -------
Total assets ............................ $ 195,847 $ 182,560
======= =======
Liabilities and Stockholders' Equity:
Liabilities:
Depositor accounts ...................... $ 137,538 $ 132,418
Securities repurchase agreement ......... 10,000 --
Mortgage escrow deposits ................ 1,993 1,943
Other liabilities ....................... 1,317 1,233
------- -------
Total liabilities ..................... 150,848 135,594
------- -------
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 ................ 40,151 40,032
Unallocated common stock held by employee
stock ownership plan ("ESOP") ........... (2,911) (3,034)
Unamortized awards of common stock under
recognition and retention plan ("RRP") .. (970) (1,188)
Treasury stock, at cost (1,082,960 shares
at March 31, 1998 and 906,629 shares at
June 30, 1997) .......................... (15,587) (12,543)
Retained earnings, substantially restricted 24,290 23,668
Net unrealized loss on available-for-sale
securities, net of taxes ................ (15) (10)
------- ------
Total stockholders' equity ............. 44,999 46,966
------- ------
Total liabilities and stockholders'
equity ............................... $ 195,847 $ 182,560
======= =======
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 For the Nine Months
Ended March 31, Ended March 31,
------------------------ -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Interest and dividend income:
Loans ...................................... $ 938 $ 869 $2,785 $2,513
Securities ................................. 2,188 2,066 6,318 6,175
Interest-bearing deposits and other ........ 94 110 271 534
------ ------ ------ ------
Total interest and dividend income ........ 3,220 3,045 9,374 9,222
------ ------ ------ ------
Interest expense:
Depositor accounts ......................... 1,438 1,361 4,314 4,022
Securities repurchase agreement ............ 102 -- 102 --
------ ------ ------ ------
Total interest expense .................... 1,540 1,361 4,416 4,022
------ ------ ------ ------
Net interest income ....................... 1,680 1,684 4,958 5,200
Provision for loan losses ................... 15 15 45 128
------ ------ ------ ------
Net interest income after
provision for loan losses ................... 1,665 1,669 4,913 5,072
------ ------ ------ ------
Non-interest income ......................... 54 52 166 176
------ ------ ------ ------
Non-interest expense:
Compensation and benefits ................. 527 430 1,428 1,289
Federal deposit insurance:
Regular premiums ........................ 36 36 108 201
Special assessment ...................... -- -- -- 884
Occupancy costs ........................... 115 91 316 257
Professional fees ......................... 39 50 122 162
Computer service fees ..................... 46 45 134 137
Safekeeping and custodial expenses ........ 19 25 68 72
Other ..................................... 154 135 438 376
------ ------ ------ ------
Total non-interest expense .............. 936 812 2,614 3,378
------ ------ ------ ------
Income before income tax expense ............ 783 909 2,465 1,870
Income tax expense .......................... 346 385 1,072 571
------ ------ ------ ------
Net income ................................ $ 437 $ 524 $1,393 $1,299
====== ====== ====== ======
Earnings per share (Note 3):
Basic ..................................... $ 0.16 $ 0.18 $ 0.51 $ 0.40
Diluted ................................... 0.16 0.18 0.49 0.40
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
Common Awards of Net
Additional Stock Common Unrealized Total
Common Paid-in Held Stock Treasury Retained Loss on Stockholders'
Stock Capital By ESOP Under RRP Stock Earnings Securities Equity
----- ------- ------- --------- ----- -------- ---------- ------
Balance at June 30, 1997 ......... $ 41 $ 40,032 $ (3,034) $ (1,188) $(12,543) $ 23,668 $ (10) $ 46,966
Net income .................... -- -- -- -- -- 1,393 -- 1,393
Dividends paid ($0.27 per
share) ........................ -- -- -- -- -- (771) -- (771)
Amortization of RRP awards .... -- -- -- 218 -- -- -- 218
Tax benefit from vesting of
RRP shares .................... -- 36 -- -- -- -- -- 36
Purchase of 176,331 treasury
shares ..................... -- -- -- -- (3,044) -- -- (3,044)
ESOP shares committed to be
released (12,300 shares) ... -- 83 123 -- -- -- -- 206
Increase in net unrealized
loss on available-for-sale
securities, net of taxes ... -- -- -- -- -- -- (5) (5)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 ........ $ 41 $ 40,151 $ (2,911) $ (970) $(15,587) $ 24,290 $ (15) $ 44,999
======== ======== ======== ======== ======== ======== ======== ========
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 Nine Months Ended
March 31,
-------------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income ......................................... $ 1,393 $ 1,299
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses ........................ 45 128
Depreciation and amortization expense ............ 72 54
ESOP and RRP expense ............................. 424 335
Net amortization and accretion of
deferred fees, discounts and premiums ........... (52) (117)
Net decrease in accrued interest receivable ...... 110 125
Net decrease in other assets ..................... 41 5
Deferred tax benefit ............................. (39) (367)
Net increase in other liabilities ................ 583 376
-------- --------
Net cash provided by operating activities ...... 2,577 1,838
-------- --------
Cash flows from investing activities:
Purchases of securities:
Held-to-maturity ................................. (35,483) (14,900)
Available-for-sale ............................... (11,600) (500)
Proceeds from principal payments,
maturities and calls of securities:
Held-to-maturity ................................. 29,826 14,649
Available-for-sale ............................... 4,600 --
Originations of loans, net of principal
collections ...................................... (1,862) (4,805)
Purchase of Federal Home Loan Bank stock ........... -- (144)
Proceeds from sale of real estate owned ............ 220 --
Purchases of office properties and
equipment ........................................ (811) (35)
-------- --------
Net cash used in investing activities ........... (15,110) (5,735)
-------- --------
Cash flows from financing activities:
Net increase in depositor accounts ................. 5,120 4,414
Proceeds from securities repurchase
agreement ........................................ 10,000 --
Net increase in mortgage escrow deposits ........... 50 119
Repayment of Federal Home Loan Bank
advance .......................................... -- (500)
Treasury stock purchases ........................... (3,044) (12,377)
Purchase of shares to fund current-year
RRP awards ....................................... --
(1,430)
Dividends paid ..................................... (771) (897)
-------- --------
Net cash provided by (used in)
financing activities ............................. 11,355 (10,671)
-------- --------
Net decrease in cash and cash equivalents ............ (1,178) (14,568)
Cash and cash equivalents at beginning
of period ......................................... 4,158 17,320
-------- --------
Cash and cash equivalents at end of period ........... $ 2,980 $ 2,752
======== ========
Supplemental information:
Interest paid ...................................... $ 4,310 $ 4,054
Income taxes paid .................................. 740 338
Decrease in liability for securities
purchased, not yet settled ....................... 499 --
Loans transferred to real estate owned ............. 153 220
Reclassification of RRP shares to
treasury stock ................................... -- 30
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, 1997 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
nine months ended March 31, 1998 are not necessarily indicative of results that
may be expected for the entire year ending June 30, 1998.
NOTE 2. Stockholders' Equity
Concurrent with the Conversion, on December 29, 1995 the Holding
Company sold 4,099,750 shares of its common stock in a subscription and
community offering at a price of $10 per share, for gross proceeds of $41.0
million. The Holding Company used $20.5 million of the proceeds to acquire all
of the common stock issued by the Bank in the Conversion. The remaining proceeds
were retained by the Holding Company. In accordance with the Plan of Conversion,
the Holding Company and the Bank shared the costs of the Conversion which
totaled $1.0 million. On a consolidated basis, the net offering proceeds were
$40.0 million which resulted in an increase in stockholders' equity of $36.7
million after deducting shares purchased by the employee stock ownership plan
("ESOP").
From the date of Conversion through December 31, 1997, the Company
received approvals from the Office of Thrift Supervision ("OTS") to purchase an
aggregate of 926,135 shares for
7
treasury. The Holding Company purchased these shares, in open market
transactions, at a total cost of $13.1 million or $14.21 per share.
On January 12, 1998, the Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock, or 156,346 shares. As of
March 31, 1998, the Company had repurchased 110,125 shares at a cost of $1.9
million.
On July 16, 1996, the Company purchased 4% (163,990 shares) of its
outstanding common stock for the purpose of funding its recognition and
retention plan ("RRP") for $2.0 million. Of the 163,990 shares, 117,290 have
been awarded to employees and directors, and accordingly, unearned compensation
of $1.4 million was initially recorded (as a deduction from stockholders'
equity) with respect to the shares awarded. In the future, the remaining 46,700
shares (which are presently included in treasury stock) can be used for awards
of additional RRP shares to employees or directors.
Note 3. Earnings Per Share
During the quarter ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which requires presentation of both basic EPS and diluted EPS by all
entities with complex capital structures. 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 which 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.
SFAS No. 128 requires the restatement of all prior period EPS data to conform to
the new requirements.
8
The table below summarizes the number of shares utilized in the
Company's EPS calculations for the three and nine month periods ended March 31,
1998 and 1997. For purposes of computing basic EPS, net income applicable to
common stock equaled net income for each of the periods presented.
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
---------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
Weighted average common shares outstanding
for computation of basic EPS (1) .............. 2,667 2,840 2,745 3,210
Common-equivalent shares due to the dilutive
effect of stock options and RRP awards (2) .... 103 79 110 45
---- ---- ---- ----
Weighted average common shares for
computation of diluted EPS .................... 2,770 2,919 2,855 3,255
===== ===== ===== =====
---------------
(1) Excludes unvested RRP awards and unallocated ESOP shares that have not been
committed to be released.
(2) Computed using the treasury stock method.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Financial Condition at March 31, 1998 and June 30, 1997
Total assets at March 31, 1998 were $195.8 million compared to $182.6
million at June 30, 1997, an increase of $13.2 million. This increase was due
primarily to the Company borrowing $10.0 million under a securities repurchase
agreement and a $5.1 million increase in depositor accounts, partially offset by
a $2.0 million decrease in stockholders' equity. Net loans increased $1.7
million, or 3.7%, during the nine months ended March 31, 1998, primarily
reflecting originations of one-to-four family mortgage 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 $480,000, or 21.6%, from $2.2
million at June 30, 1997 to $1.7 million at March 31, 1998. At March 31, 1998,
the Company held a $932,000 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. Although the FDIC resumed
making certain principal and interest payments in the quarter ended June 30,
1997, the matter has not been resolved and the TASCO Loans have remained on
non-accrual status. Interest payments on the TASCO Loans totaling $64,000 have
been deferred through March 31, 1998. The Bank had three additional loans, with
principal balances totaling $338,000, on non- accrual status at March 31, 1998
(none at June 30, 1997). One-to-four family mortgage loans past due more than 90
days but still accruing interest totaled $321,000 at March 31, 1998 compared to
$930,000 at June 30, 1997. The allowance for loan losses was $667,000 or 41.9%
of non-performing loans at March 31, 1998, compared to $622,000 or 31.0% of
non-performing loans at June 30, 1997. There were no loan charge-offs or
recoveries in the nine months ended March 31, 1998.
Stockholders' equity decreased $2.0 million from $47.0 million at June
30, 1997 to $45.0 million at March 31, 1998. The decrease primarily reflects
treasury stock purchases of $3.0 million and dividends paid of $771,000,
partially offset by net income of $1.4 million. Stockholders' equity as a
percent of total assets decreased to 23.0% at March 31, 1998 from 25.7% at June
30, 1997. Book value per share increased from $14.71 at June 30,1997 to $14.92
at March 31, 1998.
10
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997
Net income for the quarter ended March 31, 1998 was $437,000, or $0.16
per share, compared to net income of $524,000, or $0.18 per share, for the
comparable period last year. Diluted earnings per share were $0.16 in the
current quarter compared to $0.18 in the quarter ended March 31, 1997. Net
income for the three months ended March 31, 1998 was affected by a $124,000
increase in non-interest expenses, including a charge to earnings of $64,000
($37,000 net of taxes) for the full vesting of certain shares, under the
Company's RRP, due to the death of a Director.
Net interest income for the quarters ended March 31, 1998 and 1997 was
$1.7 million. Interest income increased $175,000 to $3.2 million for the quarter
ended March 31, 1998 compared to the quarter ended March 31, 1997. The increase
was caused primarily by a $9.2 million increase in average interest-earning
assets. Interest expense increased $179,000 to $1.5 million for the quarter
ended March 31, 1998 versus the comparable quarter in the prior year. This
increase was due primarily to a $13.6 million increase in average
interest-bearing liabilities and an 11 basis point increase in the average rate
paid on interest-bearing liabilities.
The provision for loan losses was $15,000 for the quarters ended March
31, 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 $124,000 to $936,000 for the quarter
ended March 31, 1998 compared to $812,000 for the same period a year ago. The
increase was caused primarily by the $64,000 charge to earnings for vested RRP
shares, as explained above; a $24,000 increase in occupancy costs due to the
construction of a new building for the Bank's Mohegan Lake branch; and a $29,000
increase in other non-interest expense.
Income tax expense decreased $39,000, or 10.1%, for the quarter ended
March 31, 1998 as compared to the quarter ended March 31, 1997. The decrease is
due primarily to a decrease of $126,000, or 13.9%, in pre-tax income.
Comparison of Operating Results for the Nine Months Ended March 31, 1998 and
1997
Net income for the nine months ended March 31, 1998 was $1.4 million,
or $0.51 per share, compared to $1.3 million, or $0.40 per share, for the same
period in the prior year. Diluted earnings per share were $0.49 in the
current-year period compared to $0.40 for the nine months ended March 31, 1997.
Excluding the $64,000 charge explained above, net income for the nine months
ended March 31, 1998 would have been $1.4 million, or $0.52 basic earnings per
share. Net income for the nine months ended March 31, 1997 was affected by a
one-time charge to earnings for a Federal deposit insurance special assessment
of $884,000 ($520,000 after taxes) and a credit to earnings for the recognition
of a $238,000 reduction to New York State tax expense, net of Federal taxes, due
to a change in the New
11
York State tax law. Excluding these one-time events recognized in the quarter
ended September 30, 1996, net income for the nine months ended March 31, 1997
would have been $1.6 million, or $0.49 basic earnings per share.
Net interest income for the nine months ended March 31, 1998 decreased
$242,000 compared to the nine months ended March 31, 1997. The decrease was
caused primarily by an $8.9 million decrease in average net earning assets,
principally due to purchases of the Company's stock. The average rate paid on
interest-bearing liabilities increased 13 basis points to 4.25% from 4.12%. The
increase was primarily caused by shifts in the mix of interest-bearing deposits
from generally lower rate regular savings accounts to generally higher rate
savings certificates, and the Company entering into a securities repurchase
agreement for $10.0 million. Foregone interest income and other adjustments due
to the non-accrual status of the Bank's loans amounted to $64,000 for the nine
months ended March 31, 1998, compared to $119,000 for the nine months ended
March 31, 1997.
The provision for loan losses was $45,000 and $128,000, respectively,
for the nine months ended March 31, 1998 and 1997. The higher provision for the
nine months ended March 31, 1997 was caused by the establishment of an $83,000
allowance for loan losses on the TASCO Loans.
Non-interest expense decreased $764,000 to $2.6 million for the nine
months ended March 31, 1998 compared to $3.4 million for the same period a year
ago. The decrease was primarily the result of a $977,000 decrease in Federal
deposit insurance premiums, principally due to the one-time assessment of
$884,000 in the year-ago period, partially offset by a $59,000 increase in
occupancy expense and a $36,000 increase in other non-interest expense
categories. These increases were primarily due to the construction of a new
building for the Bank's Mohegan Lake branch.
Income tax expense was $1.1 million and $571,000, respectively, for the
nine months ended March 31, 1998 and 1997. The $501,000 increase in tax expense
reflects the recognition of an income tax benefit of $238,000 in the prior year
relating to an amendment in the New York State tax law which eliminated the need
for a deferred tax liability associated with certain tax bad debt reserves, as
well as taxes attributable to the $595,000 increase in pre-tax income in the
current year.
12
The following table shows the Company's average consolidated balances,
interest income and expense, and average rates (annualized) for the periods
indicated.
Nine Months Ended
-----------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------- ------------------------------------
Average Average Average Average
Balance(1) Interest Yield/Rate Balance(1) Interest Yield/Rate
---------- -------- ---------- ---------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans (2).................................... $ 46,418 $ 2,785 8.00% $ 42,429 $ 2,513 7.90%
Mortgage-backed securities(3)................ 119,300 5,707 6.38 116,675 5,529 6.32
Other debt securities(3)..................... 12,555 611 6.49 13,192 646 6.54
Other interest-earning assets................ 5,458 271 6.60 11,987 534 5.93
-------- ------- -------- -----
Total interest-earning assets.............. 183,731 $ 9,374 6.80% 184,283 $ 9,222 6.67%
======= =====
Non interest-earning assets..................... 2,304 1,380
-------- --------
Total assets............................... $186,035 $185,663
======== ========
Interest-bearing liabilities:
Regular savings and club accounts............ $53,280 $ 1,180 2.95% $ 56,785 $ 1,286 3.02%
Money market and NOW accounts................ 11,628 246 2.82 11,229 206 2.45
Savings certificates and other............... 70,592 2,888 5.45 62,183 2,530 5.42
Securities repurchase agreements............. 3,000 102 4.53 -- -- ---
-------- ------- ------- -------
Total interest-bearing liabilities......... 138,500 $ 4,416 4.25% 130,197 $ 4,022 4.12%
======= =======
Non interest-bearing liabilities................ 977 3,492
------- -------
Total liabilities.......................... 139,477 133,689
Stockholders' equity............................ 46,558 51,974
-------- --------
Total liabilities and stockholders' equity. $186,035 $185,663
======== ========
Net earning assets.............................. $ 45,231 $ 54,086
======== ========
Net interest income............................. $ 4,958 $ 5,200
======= =======
Net interest rate spread........................ 2.55% 2.55%
==== ====
Net yield on average interest-earning assets(4). 3.60% 3.76%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.33x 1.42x
==== ====
Three Months Ended
-----------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------- ------------------------------------
Average Average Average Average
Balance(1) Interest Yield/Rate Balance(1) Interest Yield/Rate
---------- -------- ---------- ---------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans (2).................................... $ 47,064 $ 938 7.97% $ 43,173 $ 869 8.05%
Mortgage-backed securities(3)................ 123,744 1,967 6.36 117,773 1,852 6.29
Other debt securities(3)..................... 13,429 221 6.58 12,967 214 6.60
Other interest-earning assets................ 5,340 94 7.01 6,473 110 6.80
-------- ------- -------- ------
Total interest-earning assets.............. 189,577 $ 3,220 6.79% 180,386 $3,045 6.75%
======= ======
Non interest-earning assets..................... 2,462 2,086
Total assets............................... $192,039 $182,472
======== ========
Interest-bearing liabilities:
Regular savings and club accounts............ $52,592 $ 370 2.82% $ 55,893 $ 421 3.01%
Money market and NOW accounts................ 12,035 83 2.76 11,037 68 2.46
Savings certificates and other............... 73,084 985 5.39 64,727 872 5.39
Securities repurchase agreements............. 7,500 102 5.44 -- -- --
-------- ------- -------- ------
Total interest-bearing liabilities......... 145,211 $ 1,540 4.24% 131,657 $1,361 4.13%
======= ======
Non interest-bearing liabilities................ 1,101 3,468
-------- --------
Total liabilities.......................... 146,312 135,125
Stockholders' equity............................ 45,727 47,347
-------- --------
Total liabilities and stockholders' equity. $192,039 $182,472
======== ========
Net earning assets.............................. $ 44,366 $ 48,729
======== ========
Net interest income............................. $ 1,680 $1,684
======= ======
Net interest rate spread........................ 2.55% 2.62%
==== ====
Net yield on average interest-earning assets(4). 3.54% 3.73%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.31x 1.37x
==== ====
- -------------
(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.
13
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 $48.7 million at March 31, 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 no such borrowings at March
31, 1998 and June 30, 1997.
In January 1998, the Company began to utilize securities repurchase
agreements as a funding source, in order to supplement retail deposit growth, by
borrowing $10.0 million and investing 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 March 1998, the
Bank's average daily total liquidity ratio was 35.7%, 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 $1.2 million, from $4.2 million at June 30, 1997 to $3.0 million at
March 31, 1998.
The Bank anticipates that it will have sufficient funds available to
meet its current commitments and other funding needs. At March 31, 1998, the
Bank had commitments to originate loans of $1.5 million. Savings certificates
which are scheduled to mature in one year or less at March 31, 1998 totaled
$56.4 million. Management believes that a significant portion of such depositor
accounts will remain with the Bank.
At March 31, 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 minimum regulatory capital ratio
requirements are 1.5% for tangible capital, 3.0% for Tier I (core) capital and
14
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 March 31, 1998, the Bank had both tangible and core
capital of $44.0 million (22.6% of total adjusted assets); Tier I risk-based
capital of $44.0 million (88.4% of total risk-weighted assets); and total
risk-based capital of $44.7 million (89.7% of total risk-weighted assets).
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
The Company, working with its outside service providers, has initiated
a project to ensure that its computer systems are year 2000 compliant. The
Company believes that the costs associated with ensuring year 2000 compliance
will not materially affect the Company's future operating results or financial
condition.
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, 1997. 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
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:
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: May 13, 1998 BY: /s/ Eldorus Maynard
--------------------------------
Eldorus Maynard
Chairman of the Board and
Chief Executive Officer
DATE: May 13, 1998 BY: /s/ William J. LaCalamito
--------------------------------
William J. LaCalamito
President
(principal financial officer)
17