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, 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 February 5, 1999
Common Stock, $0.01 par value 2,042,029
<PAGE>
Peekskill Financial Corporation
Form 10-Q
Three and Six Months Ended December 31, 1998
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Page
Condensed Consolidated Balance Sheets at December 31, 1998
and June 30, 1998 3
Condensed Consolidated Statements of Income for the three and six
months ended December 31, 1998 and 1997 4
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the six months ended December 31, 1998 5
Condensed Consolidated Statements of Cash Flows for the six
months ended December 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 16
Part II - Other Information
Other Information 17
Signatures 18
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
December 31, 1998 June 30, 1998
----------------- -------------
<S> <C> <C>
Assets:
Cash and cash equivalents................................ $ 16,421 $ 4,626
Securities:
Held-to-maturity, at amortized cost (fair value of
$120,227 at December 31, 1998 and $136,883
at June 30, 1998)................................... 118,837 135,446
Available-for-sale, at fair value (amortized cost of
$21,500 at December 31, 1998 and $8,500 at
June 30, 1998)...................................... 21,289 8,498
------- -------
Total securities..................................... 140,126 143,944
------- -------
Loans, net of allowance for loan losses of $712 at
December 31, 1998 and $682 at June 30, 1998......... 52,638 47,631
Federal Home Loan Bank stock............................. 1,463 1,463
Accrued interest receivable.............................. 1,166 1,050
Real estate owned........................................ --- 94
Deferred income taxes, net............................... 510 362
Other assets............................................. 1,171 1,171
----- -----
Total assets........................................... $213,495 $200,341
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Depositor accounts..................................... $144,366 $139,858
Securities repurchase agreements....................... 23,000 13,000
Mortgage escrow deposits............................... 1,823 1,759
Other liabilities...................................... 1,389 2,518
----- -----
Total liabilities.................................... 170,578 157,135
------- -------
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............................... 40,272 40,181
Unallocated common stock held by employee stock
ownership plan ("ESOP")................................ (2,788) (2,870)
Unamortized awards of common stock under recognition
and retention plan ("RRP")............................. (869) (922)
Treasury stock, at cost (1,257,681 shares at December 31,
1998 and 1,204,181 shares at June 30, 1998)............ (18,557) (17,730)
Retained earnings........................................ 24,944 24,508
Accumulated other comprehensive income
(net unrealized loss on available-for-sale
securities, net of taxes)............................. (126) (2)
---- --
Total stockholders' equity............................ 42,917 43,206
------ ------
Total liabilities and stockholders' equity............ $213,495 $200,341
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Peekskill Financial Corporation and Subsidiary
Condensed 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,
------------------------- ----------------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans.................................. $ 1,032 $ 929 $ 2,022 $ 1,847
Securities............................. 2,196 2,043 4,485 4,130
Interest-bearing deposits and other.... 142 87 218 177
--- -- --- ---
Total interest and dividend income.... 3,370 3,059 6,725 6,154
----- ----- ----- -----
Interest expense:
Depositor accounts..................... 1,508 1,430 3,021 2,876
Securities repurchase agreements....... 220 --- 398 ---
FHLB advances.......................... 2 --- 6 ---
----- ----- ----- -----
Total interest expense................ 1,730 1,430 3,425 2,876
----- ----- ----- -----
Net interest income................... 1,640 1,629 3,300 3,278
Provision for loan losses .............. 15 15 30 30
----- ----- ----- -----
Net interest income after
provision 1,625 1,614 3,270 3,248
----- ----- ----- -----
for loan losses......................
Non-interest income..................... 69 55 132 112
----- ----- ----- -----
Non-interest expense:
Compensation and benefits............. 451 451 906 901
Occupancy costs....................... 101 109 213 201
Professional fees..................... 41 50 79 83
Computer service fees................. 55 45 107 88
Federal deposit insurance costs....... 36 36 72 72
Safekeeping and custodial expenses.... 27 25 56 49
Other................................. 189 136 352 284
----- ----- ----- -----
Total non-interest expense.......... 900 852 1,785 1,678
----- ----- ----- -----
Income before income tax expense........ 794 817 1,617 1,682
Income tax expense...................... 350 356 717 726
----- ----- ----- -----
Net income............................ $444 $461 $900 $956
==== ==== ==== ====
Earnings per share (Note 3):
Basic................................. $0.18 $0.17 $0.36 $0.34
Diluted............................... 0.18 0.16 0.35 0.33
</TABLE>
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Statement 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 Income Equity
-------- --------- ----------- ----------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998........ $ 41 $ 40,181 $ (2,870) $ (922) $(17,730) $24,508 $ (2) $ 43,206
Net income................... --- --- --- --- --- 900 --- 900
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
Change in net unrealized loss
on available-for-sale
securities, net of taxes --- --- --- --- --- --- (124) (124)
----- ------- ------ ------- ------ ----- ----- -----
Balance at December 31, 1998.... $ 41 $ 40,272 $ (2,788) $ (869) $(18,557) $24,944 $ (126) $ 42,917
===== ======== ======== ======= ======== ======= ======= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Peekskill Financial Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Six Months Ended
December 31,
----------------------------
1998 1997
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $900 $956
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses................................ 30 30
Depreciation and amortization expense.................... 50 48
ESOP and RRP expense..................................... 220 241
Net amortization and accretion of deferred fees,
discounts and premiums............................... (4) (71)
Net (increase) decrease in accrued interest receivable... (116) 60
Net (increase) decrease in other assets.................. (8) 26
Deferred tax benefit..................................... (66) ---
Net increase in other liabilities........................ 222 212
--- ---
Net cash provided by operating activities.............. 1,228 1,502
----- -----
Cash flows from investing activities:
Purchases of securities:
Held-to-maturity......................................... (20,358) (15,587)
Available-for-sale....................................... (17,500) (4,600)
Proceeds from principal payments, maturities
and calls of securities:
Held-to-maturity......................................... 37,008 19,203
Available-for-sale....................................... 4,500 1,500
Originations of loans, net of principal collections........ (5,037) (2,509)
Proceeds from sale of real estate owned.................... 94 220
Purchases of office properties and equipment............... (41) (776)
------ -----
Net cash used in investing activities................... (1,334) (2,549)
------ ------
Cash flows from financing activities:
Net increase in depositor accounts......................... 4,508 2,426
Net increase (decrease) in mortgage escrow deposits........ 64 (6)
Proceeds from securities repurchase agreements............. 10,000 ---
Treasury stock purchases................................... (2,207) (1,164)
Dividends paid............................................. (464) (520)
----- -----
Net cash provided by financing activities............... 11,901 736
------ ---
Net increase (decrease) in cash and cash equivalents......... 11,795 (311)
Cash and cash equivalents at beginning of period............. 4,626 4,158
----- -----
Cash and cash equivalents at end of period................... $16,421 $3,847
======= ======
Supplemental information:
Interest paid.............................................. $ 3,385 $ 2,871
Income taxes paid.......................................... 702 647
Decrease in liability for treasury stock purchased, not
yet settled............................................. (1,350) ---
Increase in liability for securities purchased, not yet
settled...................................................... --- 499
</TABLE>
See accompanying notes to unaudited condensed consolidated interim financial
statements.
<PAGE>
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
six months ended December 31, 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 December 31, 1998, the Holding Company
purchased 56,000 shares for treasury at a cost of $857,000, or $15.30 per share.
From the date of Conversion through December 31, 1998, the Holding Company
purchased an aggregate of 1,257,681 shares for treasury. The Holding Company
purchased these shares, in open market transactions, at a total cost of $18.6
million or $14.75 per share.
On December 23, 1998, the Company commenced a Modified Dutch Auction
Tender Offer for the repurchase of up to 800,000 shares of its common stock
(representing 28% of its outstanding shares) at a price not less than $14.75 per
share and not more than $16.75 per share. The repurchase of shares was designed
to enhance the long term value of the Company's shares without reducing its
capital base below the level needed to support its business operations.
On January 5, 1999, the Company received an unsolicited conditional
expression of interest in acquiring the Company for a cash purchase price of
$17.25 per share, from BRT Realty Trust ("BRT"). After review of the unsolicited
conditional expression of interest, the Board of Directors determined not to
pursue the unsolicited conditional expression of interest and reaffirmed its
position that the Company is not for sale.
In response to the Board of Directors' decision not to pursue the
unsolicited conditional expression of interest from BRT, a lawsuit, purporting
to be on behalf of shareholders, was filed in the Chancery Court of the State of
Delaware. The case, Michael Demetriou v. Eldorus Maynard, William LaCalamito,
Dominick Bertoline, Edward Dwyer, Robert Flower, John McGurty and Peekskill
Financial Corporation, filed on January 8, 1999, alleged among other things that
the directors violated their fiduciary obligations in connection with the
rejection of the unsolicited conditional expression of interest in acquiring the
Company. The Board of Directors has reviewed the complaint with counsel and
believes that it has no merit and intends to contest it vigorously.
On January 13, 1999, the Company received a letter from BRT indicating,
among other things, that it was amenable to raising the price in its unsolicited
conditional expression of interest. In addition, on January 19, 1999, the
Company received a letter from Gould Investors, L.P., which is believed to be an
affiliate of BRT, demanding that the Company (1) halt the Modified Dutch Auction
Tender Offer, (2) hire a financial adviser to analyze the fair value of the
Company, (3) solicit offers for the sale of the Company and, (4) if offers are
at or near price indicated by the financial advisers, sell the Company. The
Board considered these letters at length and, after review, continued to believe
that it was in the best interest of the shareholders for the Company to remain
independent and execute its business plan.
On February 2, 1999, the Company completed the Modified Dutch Tender
Offer through the purchase of 800,040 shares at a price of $16.75 per share.
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.
<PAGE>
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, 1998 and 1997. For purposes of computing basic EPS, net income applicable to
common stock equaled net income for each period presented.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ -------------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
for computation of basic EPS (1) 2,482 2,763 2,499 2,777
Common-equivalent shares due to the dilutive
effect of stock options and RRP awards (2) 44 112 67 103
----- ----- ----- -----
Weighted average common shares for
computation of diluted EPS 2,526 2,875 2,566 2,880
===== ===== ===== =====
<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>
</TABLE>
Note 4. Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income (and its components) in financial statements. The standard does not,
however, specify when to recognize or how to measure items that make up
comprehensive income. Comprehensive income represents net income and certain
amounts reported directly in stockholders' equity, such as the net unrealized
gain or loss on securities available-for-sale. While SFAS No. 130 does not
require a specific reporting format, it does require that an enterprise display
an amount representing total comprehensive income for the period.
The Company's comprehensive income for the three- and six-month periods
ended December 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ -------------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net income $ 444 $ 461 $ 900 $ 956
Net change in the after-tax unrealized gain or
loss on available-for-sale securities (189) 4 (124) 9
----- ----- ----- -----
Weighted average common shares for
Computation of diluted EPS $ 255 $ 465 $ 776 $ 965
====== ===== ====== =====
</TABLE>
<PAGE>
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, 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.
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 December 31, 1998 and June 30, 1998
Total assets at December 31, 1998 were $213.5 million compared to
$200.3 million at June 30, 1998, an increase of $13.2 million. This increase was
due primarily to an $11.8 million increase in cash and cash equivalents and a
$5.0 million increase in net loans, partially offset by a $3.8 million decrease
in total securities. The funding of the asset growth was accomplished by a $10.0
million increase in securities repurchase agreements and a $4.5 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 assets decreased $147,000, or 9.3%, from $1.6
million at June 30, 1998 to $1.4 million at December 31, 1998. At December 31,
1998, the Company held an $856,000 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 $23,000 received in the six-month
period ended December 31, 1998 were recognized as income on a cash basis.
However, the dispute over the suspended payments has not been resolved, and the
TASCO Loans of $856,000 at December 31, 1998 and $876,000 at June 30, 1998 are
included in the Company's total non-performing loans.
<PAGE>
The Bank had two loans, with principal balances totaling $245,000, on
non-accrual status at December 31, 1998 and June 30, 1998. One-to-four family
mortgage loans past due more than 90 days but still accruing interest totaled
$337,000 at December 31, 1998 compared to $370,000 at June 30, 1998. The Bank
had no real estate owned at December 31, 1998 and one property classified as
real estate owned with a carrying value of $94,000 at June 30, 1998. The
allowance for loan losses was $712,000 or 49.5% of non-performing loans at
December 31, 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 six months ended
December 31, 1998.
Stockholders' equity decreased $289,000 from $43.2 million at June 30,
1998 to $42.9 million at December 31, 1998. The decrease primarily reflects
treasury stock purchases of $857,000 and dividends paid of $464,000, partially
offset by net income of $900,000. Book value per share increased from $14.92 at
June 30,1998 to $15.10 at December 31, 1998.
Comparison of Operating Results for the Three Months Ended December 31, 1998 and
1997
Net income decreased $17,000 to $444,000, or $0.18 per share, for the
quarter ended December 31, 1998, compared to net income of $461,000, or $0.17
per share, for the same period last year. Diluted earnings per share amounts
were $0.18 and $0.16 for the quarters ended December 31, 1998 and 1997,
respectively. The decrease is primarily attributable to a $300,000 increase in
interest expense and a $48,000 increase in non-interest expense, partially
offset by a $311,000 increase in interest and dividend income.
Net interest income increased $11,000 in the current quarter compared
to the quarter ended December 31, 1997. Interest and dividend income increased
$311,000 to $3.4 million for the quarter ended December 31, 1998 compared to the
quarter ended December 31, 1997. The increase was caused primarily by a $23.8
million increase in average interest-earning assets, partially offset by a 41
basis point decrease in the average yield on interest-earning assets. Interest
expense increased $300,000 to $1.7 million for the quarter ended December 31,
1998 compared to the same quarter last year. This increase was due primarily to
a $27.8 million increase in average interest-bearing liabilities.
The provision for loan losses was $15,000 for the quarters ended
December 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 $48,000 for the quarter ended December
31, 1998 compared to the prior year quarter. The increase was caused primarily
by a $10,000 increase in computer service fees and a $53,000 increase in other
operating expenses, partially offset by a $9,000 decrease in professional fees
and an $8,000 decrease in occupancy costs.
Income tax expense for the quarter ended December 31, 1998 decreased
$6,000 compared to the same period last year, primarily due to a decrease in
pre-tax income. The effective tax rates were 44.1% and 43.6% for the quarters
ended December 31, 1998 and 1997, respectively.
<PAGE>
Comparison of Operating Results for the Six Months Ended December 31, 1998 and
1997
Net income decreased $56,000 to $900,000, or $0.36 per share, for the
six months ended December 31, 1998, compared to net income of $956,000, or $0.34
per share, for the same period last year. Diluted earnings per share amounts
were $0.35 and $0.33 for the six months ended December 31, 1998 and 1997,
respectively. The decrease is primarily attributable to a $549,000 increase in
interest expense and a $107,000 increase in non-interest expense, partially
offset by a $571,000 increase in interest and dividend income.
Net interest income increased $22,000 in the current six-month period
compared to the six months ended December 31, 1997. Interest and dividend income
increased $571,000 to $6.7 million for the six months ended December 31, 1998
compared to the same period last year. The increase was caused primarily by a
$21.3 million increase in average interest-earning assets, partially offset by a
36 basis point decrease in the average yield on interest-earning assets.
Interest expense increased $549,000 to $3.4 million for the six months ended
December 31, 1998 compared to the same period last year. This increase was due
primarily to a $25.2 million increase in average interest-bearing liabilities.
The provision for loan losses was $30,000 for the six-month periods
ended December 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 $107,000 for the six months ended
December 31, 1998 compared to the prior year period. The increase was caused
primarily by increases of $19,000 in computer service fees, $68,000 in other
operating expenses and $12,000 in occupancy costs.
Income tax expense for the six months ended December 31, 1998 decreased
$9,000 compared to the same period last year, primarily due to a decrease in
pre-tax income. The effective tax rates were 44.3% and 43.2% for the six months
ended December 31, 1998 and 1997, respectively.
<PAGE>
The following table shows the Company's average consolidated balances,
interest income and expense, and average rates (annualized) for the periods
indicated.
<TABLE>
<CAPTION>
Six Months
Ended
-----------------------------------------------------------------------------
December 31, December 31,
---------------------------------------- -----------------------------------
1998 1997
---------------------------------------- -----------------------------------
Average Average Average Average
Balance (1) Interest Yield/Rate Balance(1) Interest Yield/Rate
------------- ---------- ------------ ---------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (2).................................... $ 50,810 $ 2,023 7.96% $ 46,196 $ 1,847 8.00%
Mortgage-backed securities(3)................ 123,219 3,913 6.35 116,277 3,740 6.43
Other debt securities(3)..................... 18,551 571 6.16 12,059 390 6.47
Other interest-earning assets................ 8,794 218 4.96 5,581 177 6.32
-------- -------- -------- -------
Total interest-earning assets.............. 201,374 $ 6,725 6.68% 180,113 $ 6,154 6.83%
======= =======
Non interest-earning assets..................... 2,688 2,230
-------- --------
Total assets............................... $204,062 $182,343
======== ========
Interest-bearing liabilities:
Regular savings and club accounts............ $50,383 $ 699 2.77% $53,441 $ 809 3.03%
Money market and NOW accounts................ 14,705 194 2.64 11,449 163 2.84
Savings certificates and other............... 78,205 2,128 5.44 69,380 1,904 5.48
Securities repurchase agreements............. 15,768 398 5.05 --- --- ---
FHLB advance................................. 375 6 3.20 --- --- ---
-------- -------- -------- -------
Total interest-bearing liabilities......... 159,436 $ 3,425 4.30% 134,270 $ 2,876 4.28%
======= =======
Non interest-bearing liabilities................ 1,577 1,051
-------- --------
Total liabilities.......................... 161,013 135,321
Stockholders' equity............................ 43,049 47,022
-------- --------
Total liabilities and stockholders' equity. $204,062 $182,343
======== ========
Net earning assets.............................. $41,938 $45,843
======= =======
Net interest income............................. $ 3,300 $ 3,278
======= =======
Net interest rate spread........................ 2.38% 2.55%
==== ====
Net yield on average interest-earning assets(4). 3.28% 3.64%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.26x 1.34x
==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
-----------------------------------------------------------------------------
December 31, December 31,
---------------------------------------- -----------------------------------
1998 1997
---------------------------------------- -----------------------------------
Average Average Average Average
Balance (1) Interest Yield/Rate Balance(1) Interest Yield/Rate
------------- ---------- ------------ ---------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (2).................................... $ 52,044 $ 1,032 7.93% $ 46,549 $ 929 7.98%
Mortgage-backed securities(3)................ 119,061 1,879 6.31 116,139 1,858 6.40
Other debt securities(3)..................... 20,605 317 6.15 11,752 185 6.29
Other interest-earning assets................ 11,849 142 4.79 5,289 87 6.55
-------- ------- ------- -------
Total interest-earning assets.............. 203,559 $ 3,370 6.62% 179,729 $ 3,059 6.81%
======= =======
Non interest-earning assets..................... 2,704 2,532
-------- --------
Total assets............................... $206,263 $182,261
======== ========
Interest-bearing liabilities:
Regular savings and club accounts............ $49,691 $ 345 2.78% $52,808 $ 397 3.01%
Money market and NOW accounts................ 15,192 100 2.63 11,647 83 2.84
Savings certificates and other............... 78,792 1,062 5.39 69,708 950 5.45
Securities repurchase agreements............. 18,000 220 4.89 --- --- ---
FHLB advance................................. 250 2 3.20 --- --- ---
-------- ------- ------- -------
Total interest-bearing liabilities......... 161,925 $ 1,730 4.27% 134,163 $ 1,430 4.26%
======= =======
Non interest-bearing liabilities................ 1,426 1,113
-------- --------
Total liabilities.......................... 163,351 135,276
Stockholders' equity............................ 42,912 46,985
-------- --------
Total liabilities and stockholders' equity. $206,263 $182,261
======== ========
Net earning assets.............................. $41,634 $45,566
======== =======
Net interest income............................. $ 1,640 $ 1,629
======= =======
Net interest rate spread........................ 2.35% 2.55%
==== ====
Net yield on average interest-earning assets(4). 3.22% 3.63%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.26x 1.34x
==== ====
<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.
</FN>
</TABLE>
<PAGE>
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 $52.9 million at December 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
outstanding at December 31, 1998 and 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. At
December 31, 1998, the Company had borrowed a total of $23.0 million and
invested the proceeds in securities and overnight deposits. 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 December 1998,
the Bank's average daily total liquidity ratio was 30.0%, 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
increased $11.8 million, from $4.6 million at June 30, 1998 to $16.4 million at
December 31, 1998, in anticipation of the completion of the Company's Modified
Dutch Auction Tender Offer, which was funded on February 2, 1999.
The Bank anticipates that it will have sufficient funds available to
meet its current commitments and other funding needs. At December 31, 1998, the
Bank had commitments to originate loans of $4.9 million. Savings certificates
which are scheduled to mature in one year or less at December 31, 1998 totaled
$60.9 million. Management believes that a significant portion of such depositor
accounts will remain with the Bank.
At December 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
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, 1998, the Bank had both tangible and core
capital of $41.4 million (19.5% of total adjusted assets); Tier I risk-based
capital of $41.4 million (73.3% of total risk-weighted assets); and total
risk-based capital of $42.1 million (74.6% of total risk-weighted assets).
<PAGE>
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 testing of the Company's data processing vendor is
anticipated to be completed by early April 1999. 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 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.
<PAGE>
The Company plans to complete the Year 2000 project not later than June
30, 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is the defendant in a lawsuit resulting from the
rejection of an unsolicited conditional expression of interest. For
more information, see Note 2 to the unaudited financial statements in
Part 1. From time to time, the Company is involved as plaintiff or
defendant in other 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
a. The annual meeting of stockholders was held on October 21, 1998
b. The matters approved by stockholders at the annual meeting and
the number of votes cast for, against or withheld (as well as
the number of abstentions and broker non-votes) as to each
matter are set forth below:
Election of the following persons to serve a three year term as
directors of the Company:
FOR WITHHELD
Eldorus Maynard 2,639,206 75,612
Robert E. Flower 2,639,203 75,615
Broker Non-Vote None
Approval of the adoption of the Amended and Restated Peekskill
Financial Corporation 1996 Stock Option and Incentive Plan:
For 2,443,502
Against 114,305
Abstain 15,165
Broker Non-Vote 141,846
Approval of the adoption of the Amended and Restated Peekskill
Financial Corporation 1996 Recognition and Retention Plan:
For 2,428,822
Against 131,835
Abstain 12,315
Broker Non-Vote 141,846
Ratification of the appointment of KPMG Peat Marwick LLP as auditors
for the Company for the fiscal year ending June 30, 1999:
For 2,683,800
Against 27,475
Abstain 3,543
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
<PAGE>
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 15, 1999 BY: /s/ Eldorus Maynard
-------------------
Eldorus Maynard
Chairman of the Board and
Chief Executive Officer
DATE: February 15, 1999 BY: /s/ William J. LaCalamito
-------------------------
William J. LaCalamito
President
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT FILED ON FORM 10-Q FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,401
<INT-BEARING-DEPOSITS> 15,020
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,289
<INVESTMENTS-CARRYING> 118,837
<INVESTMENTS-MARKET> 120,227
<LOANS> 53,350
<ALLOWANCE> 712
<TOTAL-ASSETS> 213,495
<DEPOSITS> 146,189
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,389
<LONG-TERM> 23,000
<COMMON> 41
0
0
<OTHER-SE> 42,875
<TOTAL-LIABILITIES-AND-EQUITY> 213,495
<INTEREST-LOAN> 2,022
<INTEREST-INVEST> 4,485
<INTEREST-OTHER> 218
<INTEREST-TOTAL> 6,725
<INTEREST-DEPOSIT> 3,021
<INTEREST-EXPENSE> 3,425
<INTEREST-INCOME-NET> 3,300
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,785
<INCOME-PRETAX> 1,617
<INCOME-PRE-EXTRAORDINARY> 1,617
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 900
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 3.28
<LOANS-NON> 1,101
<LOANS-PAST> 337
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 682
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 712
<ALLOWANCE-DOMESTIC> 712
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
