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 December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ___ to ___
Commission File No. 0-27650
CATSKILL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 14-1788465
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
341 MAIN STREET, CATSKILL, NY 12414
(Address of principal executive offices)
Registrant's telephone number, including area code: (518)943-3600
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:
Common Shares, $.01 par value 5,361,482
(Title of class) (outstanding at January 31, 1997)
<TABLE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
DECEMBER 31, 1996
INDEX
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of December
31, 1996 (Unaudited) and September 30, 1996. 1
Consolidated Statements of Income for the Three months ended
December 31, 1996 and 1995 (Unaudited) 2
Consolidated Statements of Changes in Shareholders' Equity
for the Three months ended December 31, 1996 and 1995 (Unaudited). 3
Consolidated Statements of Cash Flows for the Three months
ended December 31, 1996 and 1995 (Unaudited) 4
Notes to Unaudited Consolidated Interim Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 4. Submission of Matters to a Vote of Security Holders. 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<TABLE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(In Thousands, Except Per Share Data)
<CAPTION>
Assets December 31, 1996 September 30, 1996
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 4,095 $ 4,112
Federal funds sold 12,200 35,600
Cash and cash equivalents 16,295 39,712
Securities available for sale, at fair value 117,519 97,041
Investment securities, at amortized cost:
(Approximate fair market value of $12,262
at December 31, 1996, and $19,090 at
September 30, 1996) 12,068 19,077
Investment required by law, stock in Federal
Home Loan Bank of NY, at cost 1,159 1,159
Loans receivable, net 123,803 122,533
Accrued interest receivable 2,114 1,736
Premises and equipment, net 2,056 1,886
Real estate owned, net 467 357
Deposits held at Nationar, net --- 83
Prepaid expenses and other assets 144 175
Total Assets $ 275,625 $ 283,759
Liabilities and Shareholders' Equity
Liabilities:
Due to depositors:
Non-interest bearing $ 3,774 $ 3,714
Interest bearing 190,490 193,039
Total Deposits 194,264 196,753
Advance payments by borrowers for property
taxes and insurance 1,896 1,632
Accrued interest on depositors' accounts 58 58
Official bank checks 1,431 2,557
Accrued expenses and other liabilities 1,159 378
Total Liabilities $ 198,808 $ 201,378
Shareholders' Equity
Preferred stock, $.01 par value; authorized
5,000,000 shares
Common stock, $.01 par value; authorized
15,000,000 shares; 5,686,750 shares issued at
December 31, 1996 57 57
Additional paid-in-capital 54,697 54,864
Treasury stock at cost (325,268 shares) (4,599) ---
Retained earnings, substantially restricted 33,050 31,984
Common Stock acquired by ESOP (4,436) (4,436)
Unearned Management Recognition Plan (2,234) ---
Net unrealized gain (loss) on securities
available for sale, net of taxes 282 (88)
Total Shareholders' Equity 76,817 82,381
Total Liabilities and Shareholders' Equity $ 275,625 $ 283,759
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
<CAPTION>
THREE MONTHS ENDED
December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Loans $ 2,543 $ 2,461
Securities available for sale 1,727 ---
Investment securities 238 1,006
Federal Funds sold and other 450 542
Stock in Federal Home Loan Bank of NY 19 ---
Total interest and dividend income 4,977 4,009
Interest Expense
Deposits 2,136 2,217
Net interest income 2,841 1,792
Provision for loan loss 75 45
Net interest income after provision for loan losses 2,766 1,747
Noninterest income:
Recovery of Nationar loss contingency 84 ---
Service fees on deposit accounts 59 55
Net securities gains --- 20
Other income 34 36
Total noninterest income 177 111
Noninterest expense:
Salaries and employee benefits 664 568
Advertising and business promotion 39 40
Net occupancy on premises 70 60
Federal deposit insurance premiums 1 20
Postage and supplies 46 43
Outside data processing fees 89 104
Equipment 36 34
Professional fees 62 21
Other real estate expenses, net 3 29
Other 161 103
Total noninterest expense 1,171 1,022
Income before taxes 1,772 836
Income tax expense 706 299
Net income $ 1,066 $ 537
Earnings per common share $ .21 N/A
Weighted Average Common Shares 5,090,814 N/A
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In Thousands except per share amounts) (Unaudited)
<CAPTION>
Common Unearned Net Unrealized
Additional Stock Management Treasury Gain (Loss)
Common Paid-in Retained Acquired by Recognition Shares, on Securities
Stock Capital Earnings ESOP Plan at Cost AFS Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1996
$ 57 $ 54,864 $ 31,984 $ (4,436) $ (88) $ 82,381
Net Income 1,066 1,066
Change in net
unrealized gain
(loss) on
securities
available for
sale, net of
taxes
370 370
Grant of restricted
stock under
Management
Recognition Plan
(178,732 shares)
(167) (2,234) 2,401 ---
Purchase of
common shares
(504,000 shares) (7,000) (7,000)
Balance at December
31, 1996 $ 57 $ 54,697 $ 33,050 $ (4,436) $ (2,234) $ (4,599) $ 282 $ 76,817
Balance at
September 30,
1995 $ 28,667 $ 28,667
Net income 537 537
Change in net
unrealized gain
(loss) on
securities
available for
sale, net of
taxes 262 262
Balance at December
31, 1995 $ 29,204 $ 262 $ 29,466
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
<CAPTION>
Three Months Ended
December 31,
1996 1995
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,066 $ 537
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation 40 34
Net amortization(accretion) on securities (81) (27)
Provision for loan losses 75 45
MRP compensation expense 80 -
ESOP compensation expense 75 -
Recovery of Nationar loss contingency (84) -
Loss (gains) on sale of real estate owned (21) -
Gain on redemption of securities - (20)
Increase in other assets (347) (156)
Collection of deposits held at Nationar 167 -
Decrease in accrued expense and other liabilities (747) (2,216)
Net cash provided (used) by operating activities 223 (1,803)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/calls/paydown of
investment securities 7,000 9,072
Purchases of investment securities - (5,000)
Net (increase)decrease in loans receivable (1,593) (1,285)
Capital expenditures (210) -
Purchase of AFS securities (69,359) -
Proceeds from maturity/calls/paydown of AFS securities 49,588 -
Proceeds from the sale of real estate owned 159 -
Net cash provided (used) by investing activities (14,415) 2,787
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in deposits (2,489) 840
Net increase in advance payments by borrowers for
property taxes and insurance 264 1,468
Purchase of common stock for treasury (7,000) -
Net cash provided (used) by financing activities (9,225) 2,308
Net increase(decrease) in cash and cash equivalents (23,417) 3,392
Cash and cash equivalents at beginning of period 39,712 38,064
Cash and cash equivalents at end of period $ 16,295 $ 41,356
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,135 $ 2,214
Taxes 375 321
Transfer of loans to other real estate owned 248 56
Change in net unrealized gain(loss) on AFS net of tax
liability of $247 and $175, respectively 370 262
See accompanying notes to unaudited consolidated interim financial statements
</TABLE>
CATSKILL FINANCIAL CORPORATION
Notes to Unaudited Consolidated
Interim Financial Statements
Note 1. Basis of Presentation
The unaudited consolidated interim financial statements include the accounts
of Catskill Financial Corporation ("Company") and its wholly owned subsidiary,
Catskill Savings Bank ("Bank"). In Management's opinion, the unaudited
consolidated interim financial statements reflect all adjustments of a normal
recurring nature, and disclosures which are necessary for a fair presentation
of the results for the interim periods presented and should be read in
conjunction with the consolidated financial statements and related notes
included in Catskill Financial's 1996 Annual Report to Shareholders. The
results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full fiscal year ended
September 30, 1997.
Note 2. Earnings per share
On April 18, 1996, Catskill Financial Corporation completed its initial stock
offering of 5,686,750 shares of common stock. Concurrent with the offering,
approximately 8% of the shares sold (454,940) were purchased by the Catskill
Financial Corporation Employee Stock Ownership Plan ("ESOP"). On September
30, 1996, the Company released 11,374 shares to plan participants,
consequently the remaining 443,566 shares have not been committed to be
released and accordingly under AICPA Statement of Position 93-6, these shares
are not considered to be outstanding for purposes of calculating per share
amounts. Weighted average common shares for the quarter ending December 31,
1996 of 5,090,814 have been calculated based on the actual number of days the
shares were outstanding during the quarter. The effect of outstanding stock
option awards and restricted shares issued under the MRP plan are not
material to the calculation of earnings per share. Earnings per share are not
presented for periods prior to the initial public offering as the Bank was a
mutual savings bank, and had no stock outstanding.
Note 3. Employee Benefits
Management Recognition Plan
On October 24, 1996, the shareholders approved a Management Recognition Plan
("MRP") for the benefit of employees, officers and directors of the Company.
Under the MRP, 4% of the Company's common stock, or 227,470 shares, are
available for award in a manner designed to encourage recipients to remain
with the Company. Concurrent with the approval of the plan, 178,732 common
shares were awarded and will vest at an annual rate of 20% over 5 years. The
fair market value of the shares awarded on the date of grant of $2.2 million,
is being amortized to compensation expense as the plan's participants become
vested in those shares. For the three months ended December 31, 1996, the
Company recognized compensation expense of approximately $80,000.
Stock Option and Incentive Plan
On October 24, 1996, the shareholders approved a Stock Option and Incentive
Plan ("Stock Option Plan"). Under the stock option plan, options to purchase
a number of shares equal to 10% of the Company's common shares issued in its
initial public offering, or 568,675 shares, will be available for award to
employees, officers and directors of the Company. Concurrent with the approval
of the plan, 416,333 stock options were granted at an exercise price of $12.50
per share, representing the average of the high and low sales price on the
grant date. The options vest over a five year period, at an annual rate of
20% on the anniversary of the grant date.
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
DECEMBER 31, 1996
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Catskill Financial Corporation (the "Company" or "Catskill Financial") was
formed in December 1995 to acquire all of the common stock of Catskill Savings
Bank (the "Bank") upon its conversion from a mutual savings bank to a stock
savings bank. On April 18, 1996, the Company completed its initial public
stock offering, issuing 5,686,750 shares of $.01 par value common stock at
$10.00 per share. Net proceeds to the Company were $54.9 million after
conversion costs, and $50.4 million excluding the shares acquired by the
Company's Employee Stock Ownership Plan (the "ESOP"), which were purchased
with the proceeds of a loan from the Company.
The consolidated financial condition and operating results of the Company are
primarily dependent upon its wholly owned subsidiary, the Bank, and all
references to the Company prior to April 18, 1996, except where otherwise
indicated, are to the Bank.
The Bank has been and continues to be a community oriented financial
institution offering a variety of financial services. The Bank attracts
deposits from the general public and uses such deposits, together with other
funds, to originate one to four family residential mortgages, and, to a lesser
extent, consumer (including home equity lines of credit), commercial, and
multi-family real estate and other loans in its primary market area. The
Bank's primary market is comprised of Greene County and southern Albany County
in New York, which are serviced through four banking offices, the most recent
having opened in December 1996. The Bank's deposit accounts are insured by the
Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC"), and, as a federal savings bank, the Bank is subject to regulation by
the Office of Thrift Supervision ("OTS").
The Bank's profitability, like many financial institutions, is dependent to a
large extent upon its net interest income, which is the difference between the
interest it receives on interest earning assets, such as loans and
investments, and the interest it pays on interest bearing liabilities,
principally deposits.
Results of operations are also affected by the Bank's provision for loan
losses, non-interest expenses such as salaries and employee benefits,
occupancy and other operating expenses and to a lesser extent, non-interest
income such as service charges on deposit accounts.
Financial institutions in general, including the Company, are significantly
affected by economic conditions, competition and the monetary and fiscal
policies of the federal government. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the interest rate
conditions and funds availability. Deposit balances and cost of funds are
influenced by prevailing market rates on competing investments, customer
preference and the levels of personal income and savings in the Bank's primary
market area.
For the three months ended December 31, 1996, the Company recorded net income
of $1,066,000, an increase of $529,000, or 98.5% over the comparable quarter
of 1995. Earnings per common share for the quarter ended December 31, 1996,
were $.21, based on weighted average common shares outstanding of 5,090,814.
No shares were outstanding during the comparable quarter of last year as the
Company completed its initial public offering on April 18, 1996. Annualized
return on average assets for the three months ended December 31, 1996 and 1995
was 1.51% and 93%, respectively, and return on average equity was 5.23% and
7.45%, respectively.
FINANCIAL CONDITION
Total assets were $275.6 million at December 31, 1996, a decrease of $8.1
million, or 2.9% from the $283.7 million at September 30, 1996. The asset
decrease was principally caused by the Company's repurchase of its common
shares, as well as a decrease in customer deposits, both of which reduced the
Company's earning assets.
Cash and cash equivalents were $16.3 million, a decrease of $23.4 million, or
58.9% from the $39.7 million at September 30, 1996. The decrease was
principally a reduction in federal funds as the Company used available cash to
purchase 504,000 shares of its common stock at a total cost of approximately
$7 million, and continued to invest the net proceeds of its initial public
offering in securities available for sale and, to a lesser extent, loans.
Total securities, which include securities held to maturity ("HTM") and
securities available for sale ("AFS"), excluding Federal Home Loan Bank stock,
were $129.6 million, an increase of $13.5 million, or 11.6% over the $116.1
million as of September 30, 1996. The change in securities consisted of a
$20.5 million increase in AFS securities, primarily the Company's purchase of
mortgage backed securities, and a $7.0 million decrease in HTM securities.
Loans receivable were $125.6 million as of December 31, 1996, an increase of
$1.2 million or 1.0% over the $124.4 million as of September 30, 1996. The
following table shows the loan portfolio composition as of the respective
balance sheet dates:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(In thousands)
<S> <C> <C>
Real Estate Loans
One-to-four family $ 101,545 $ 100,383
Multi-family and commercial 5,031 5,115
Construction 1,084 423
Total real estate loans 107,660 105,921
Consumer Loans 18,538 19,024
Gross Loans 126,198 124,945
Less: Net deferred loan fees (569) (579)
Total loans receivable $ 125,629 $ 124,366
</TABLE>
The decrease in consumer loans was principally a decrease in home equity
loans, as lower mortgage rates have encouraged customers to refinance their
underlying first mortgages and repay their home equity loans.
Non-performing assets at December 31, 1996 were $1.3 million, or .47% of total
assets, compared to the $1.7 million or .61% of total assets at September 30,
1996. The table below sets forth the amounts and categories of the Company's
non-performing assets.
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(In thousands)
<S> <C> <C>
Non-accruing loans:
One-to-four family $ 802 $ 1,008
Multi-family and commercial
real estate --- 78
Consumer 27 283
Total non-accruing loans 829 1,369
Foreclosed assets, net:
One-to-four family 397 334
Multi-family and commercial
real estate 70 23
Total foreclosed assets, net 467 357
Total non-performing assets $ 1,296 $ 1,726
Total non-performing loans as a
% of total loans .66% 1.10%
</TABLE>
Approximately 56% of the decrease in non-performing loans at December 31, 1996
as compared to September 30, 1996 was attributed to the Company foreclosing on
the property, with the balance primarily customers making payments to bring
their loans current.
The allowance for loan losses was $1.8 million, or 1.45% of period end loans
at December 31, 1996, and provided coverage of non-performing loans of 220.3%.
The following summarizes the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1995
(In thousands)
<S> <C> <C>
Allowance at beginning of period $ 1,833 $ 1,950
Charge-offs (87) (22)
Recoveries 5 2
Net charge-offs (82) (20)
Provision for loan losses 75 45
Allowance at end of period $ 1,826 $ 1,975
</TABLE>
Total deposits were $194.3 million, at December 31, 1996, a decrease of $2.5
million, or 1.3% from the $196.8 million at September 30, 1996. Savings
deposits were $81.7 million at December 31, 1996, or 42.0% of total deposits,
a decrease of $1.7 million, or 2.0% from September 30, 1996, when savings
represented 42.4% of total deposits. The balance of the decrease in deposits
was principally a $.7 million reduction in certificates of deposits.
Management believes that the decrease in deposits is somewhat seasonal,
however, the Company is experiencing similar to other financial institutions,
deposits outflows to other investment vehicles such as mutual funds. The
Company opened its fourth full service branch in late December and management
anticipates its opening will generate deposit growth.
Shareholders' equity at December 31, 1996 was $76.8 million, a decrease of
$5.6 million, or 6.8% from the $82.4 million at September 30, 1996. The
decrease was principally caused by the Company's repurchase of common shares,
offset by net income for the quarter and a $370,000 improvement in the
Company's net unrealized gain (loss) on securities available for sale, net of
taxes.
Shareholders' equity as a percent of total assets was 27.9% at December 31,
1996 compared to 29.0% at September 30, 1996. Book value per common share was
$14.82 excluding unvested shares of the Company's MRP, and was $16.21
excluding unallocated ESOP shares and unvested MRP shares.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
AND 1995
Net Interest Income
Net interest income for the three months ended December 31, 1996 was $2.8
million, an increase of $1 million, or 58.5% over the comparable quarter of
1995. The change was primarily due to the increase in average earning assets
of $50.9 million, or 22.7% higher than the comparable period of 1995.
Interest income for the three months ended December 31, 1996 was $5.0 million,
an increase of $968,000, or 24.1%. The increase was principally volume
related as the Company invested the net proceeds of its initial public
offering in mortgage backed securities, other securities and loans. The yield
on average earning assets was 7.24%, an increase of 8 basis points over 1995.
The increase was principally in the securities portfolio, as the Company
purchased investments with longer term durations to increase yields.
Interest expense for the three months ended December 31, 1996 was $2.1
million, a decrease of $82,000, or 3.7%. The decrease was primarily rate
related as the average cost of funds decreased 10 basis points to 4.40%. The
rate change was principally caused by the average rate paid on certificates of
deposit which decreased from 5.75% to 5.51%, or 24 basis points, primarily
from the decrease in market rates since the Federal Reserve lowered the
discount rate in January 1996.
For more information on average balances, interest, yield and rate, please
refer to Table #1, included in this report.
Provision for Loan Losses
The Company establishes an allowance for loan losses based on an analysis of
risk factors in the loan portfolio. This analysis includes concentrations of
credit, past loan loss experience, current economic conditions, amount and
composition of loan portfolio, estimated fair market value of underlying
collateral, delinquencies and other factors. Accordingly, the calculation of
the adequacy of the allowance for loan losses is not based solely on the level
of non-performing loans. The provision for loan losses was $75,000 for the
three months ended December 31, 1996, an increase of $30,000 from the
comparable period of 1995. The increase is principally to cover the higher
level of net charge-offs of $82,000 for the three month period ended December
31, 1996, compared to only $20,000 for the comparable period of 1995. The
allowance for loan losses at December 31, 1996 was $1.8 million, or 1.45% of
total loans and provided coverage of non-performing loans of 220.3%.
Non-Interest Income
Non-interest income was $177,000 for the three months ended December 31, 1996,
an increase of $66,000 over the comparable period of 1995. The increase was
principally the recovery of $84,000 of the Nationar loss reserve, as the
Company received payment of substantially all its remaining claims, offset
somewhat by a reduction in net securities gains of $20,000. The gains
realized in the three months ended December 31, 1995 related to securities
acquired at a discount that were called by the issuer prior to their
contractual maturity; there were no such gains in 1996.
Non-Interest Expense
Non-interest expense for the three months ended December 31, 1996 was
$1,171,000 an increase of $149,000, or 14.6% over 1995. Increases in
personnel costs, net occupancy, professional fees and other expenses were
partially offset by reductions in FDIC insurance premiums, data processing
fees and other real estate expenses.
Salaries and employee benefits increased $96,000 or 16.9% over 1995,
principally from ESOP and MRP compensation expenses both new plans since the
Company went public. ESOP and MRP compensation expense for the three months
ended December 31, 1996 were $75,000 and $80,000, respectively, offset
somewhat by lower medical benefits costs, as the Company changed insurance
carriers and received refunds from its prior insurer due to favorable claims
experience. Net occupancy costs were $70,000, an increase of 16.7% over 1995,
as the Company experienced increased costs relating to opening a new full
service branch in December 1996. Professional fees increased $41,000,
principally from higher legal and accounting costs related to operating a
public company. All other expenses were $161,000, an increase of $58,000, or
56.3% over 1995. The increases were principally $23,000 in OTS assessments
due to the Bank's change to a federal charter, and higher insurance, transfer
agent, and other costs relating to operating a public company.
FDIC insurance premiums were lower for the three months ended December 31,
1996, since the Bank is BIF insured and paid only the regulatory minimum of
$500 per quarter, compared to $.04 per $100 of assessed deposits for the
comparable period of 1995. Data processing costs were $89,000 in the three
months ended December 31, 1996, a decrease of $15,000 or 14.4% compared to
1995. The decrease was principally caused by additional billings in 1995,
with the balance primarily preparation to become a public company. Other real
estate expenses were $3,000, a decrease of $26,000 from the comparable quarter
of 1995. The decrease was principally caused by $21,000 of gains on other
real estate sales during the three months ended December 31, 1996; there were
no sales during the comparable period of 1995.
Income Tax Expense
Income tax expense for the three months ended December 31, 1996 was $706,000
an increase of $407,000, or 136.1% over the comparable period of 1995. The
change was principally the 112.0% increase in income before income taxes. The
Company's effective tax rates for the three months ended December 31, 1996 and
1995, were 39.84% and 35.77%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to generate cash flows to meet present, as well as
expected, future funding commitments. Management monitors the Company's
liquidity position, principally its federal funds, on a daily basis and
evaluates its ability to meet expected and unexpected depositor withdrawals
and to make new loans and or investments. The Company has historically
maintained high levels of liquidity, and manages its balance sheet so there
has been no need for unanticipated sales of assets.
The primary sources of funds for operations are deposits, principal and
interest payments on loans, mortgage backed securities, and other securities
available for sale.
Net cash provided by operating activities was $223,000 for the three months
ended December 31, 1996, an increase of $2,026,000 over the comparable period
of 1995. The increase over 1995 was principally caused by the timing of
escrow related tax payments on mortgages which were paid in the month of
September in 1995, compared to October in 1996, with the balance attributed to
improved operating performance. Investing activities used $14.4 million in
1996, as the Company invested more of its initial net offering proceeds in
securities available for sale, principally mortgage backed securities and, to
a lesser extent, loans. Financing activities used $9.2 million, the majority
of which related to the Company's repurchase of 504,000 shares of its common
stock at a cost of approximately $7.0 million. The balance of the funds used
in financing activities was represented by a decrease in deposits. Management
believes that the decrease is somewhat seasonal, however, the Company is
experiencing, similar to other financial institutions, deposit outflows to
other investment vehicles such as mutual funds. The Company opened its fourth
full service branch in late December 1996, and management anticipates its
opening will generate deposit growth. For more details concerning the
company's cash flows, see "Consolidated Statements of Cash Flows."
An important source of the Company's funds is the Bank's core deposits.
Management believes that a substantial portion of the Bank's $194.3 million of
deposits are a dependable source of funds due to long term customer
relationships. The Company does not currently use brokered deposits as a
source of funds, and deposit accounts having balances in excess of $100,000
total only $16.5 million or less than 8.5% of total deposits. The Bank is
required to maintain minimum levels of liquid assets as defined by OTS
regulations. The requirement, which maybe varied by the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short term borrowings. The OTS required minimum liquidity ratio is
currently 5% and for the month of December 1996, the Bank exceeded that,
reporting an average liquidity ratio of 34.9%.
The Company anticipates that it will have sufficient funds to meet its current
commitments. At December 31, 1996, the Company had commitments to originate
loans and purchase securities of $1.0 and $1.0, respectively. In addition,
the Company had undrawn commitments of $2.6 million on home equity and other
lines of credit. Certificates of deposits which are scheduled to mature in
one year or less at December 31, 1996, totaled $63.5 million, and management
believes that a significant portion of such deposits will remain with the
Company.
Catskill Financial is regulated by the OTS and although there are no minimum
capital requirements for the holding company itself, the Bank is required to
maintain a minimum level of regulatory capital. The following is a summary of
the Bank's actual capital amounts and ratios as of December 31, 1996, compared
to the OTS minimum capital requirements:
<TABLE>
<CAPTION>
Actual Minimum
Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tangible Capital $ 55,966 20.3% $ 4,133 1.5%
Core Capital 55,966 20.3 8,266 3.0
Risk Based Capital 57,162 60.1 7,605 8.0
</TABLE>
In October 1996, the Board authorized the Company to repurchase 4% of its
outstanding shares to fund its Management Recognition Plan which was approved
at a special meeting of shareholders on October 24, 1996. In addition, after
Board approval, the Company received OTS approval on November 26, 1996, to
repurchase up to 10% of its shares over the period ending April 18, 1997. Such
shares could be used for general corporate purposes including funding the
Company's stock options plan which was also approved at the special meeting of
shareholders. By December 4, 1996, the Company had completed the repurchase
of 227,470 shares of its common stock to fund the MRP at a cost of $3.1
million, or $13.59 per share. In addition, by December 31, 1996, the Company
had repurchased 276,530 of the shares under the 10% repurchase program at a
cost of $3.9 million or $14.15 per share. The Holding Company itself has
adequate resources to repurchase the shares without dividends from the Bank.
In addition, at December 31, 1996, the Bank could after notifying the OTS in
writing, pay to the holding company dividends of approximately $23.9 million.
TABLE #1 AVERAGE BALANCES, INTEREST, YIELD AND RATE
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are monthly average balances.
Non-accruing loans have been included in the table as loans receivable with
interest earned recognized on a cash basis only. Securities include both the
securities available for sale portfolio and the held to maturity portfolio
other than mortgage backed securities which are shown separately. Mortgage
backed securities are primarily classified as available for sale. Securities
available for sale are included at amortized cost.
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
December 31, 1996 December 31, 1995
Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans receivable, net $ 125,623 $ 2,543 8.10% $ 121,284 $ 2,461 8.12%
Mortgage-backed securities 52,629 931 7.08% 13,467 251 7.46%
Securities 63,109 1,053 6.67% 50,033 755 6.04%
Federal funds sold and other 33,483 450 5.33% 39,132 542 5.50%
Total interest-earning assets 274,844 4,977 7.24% 223,916 4,009 7.16%
Allowance for loan losses (1,813) (1,964)
Other assets, net 6,489 7,347
Total Assets $ 279,520 $ 229,299
Interest-Bearing Liabilities
Savings deposits $ 82,102 $ 724 3.50% $ 84,144 $ 742 3.50%
Money market 7,829 67 3.40% 8,597 74 3.41%
Now deposits 9,215 57 2.45% 8,079 50 2.46%
Certificates of deposit 92,058 1,279 5.51% 92,571 1,341 5.75%
Other 1,550 9 2.30% 1,924 10 2.06%
Total interest-bearing
liabilities 192,754 2,136 4.40% 195,315 2,217 4.50%
Non-interest bearing 3,578 3,773
Other liabilities 2,374 1,629
Shareholders' equity 80,814 28,582
Total Equity and Liabilities $ 279,520 $ 229,299
Net interest income $ 2,841 $ 1,792
Net interest rate spread 2.84% 2.66%
Net yield on average
interest-earning assets 4.13% 3.20%
Average interest earning
assets to average interest
bearing liabilities 142.59% 114.64%
Earning Assets/Total Assets 98.33% 97.65%
</TABLE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
DECEMBER 31, 1996
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company and the Bank are subject to
legal actions which involve claims for monetary relief. Management, based on
advice of counsel, does not believe that any currently known legal actions,
individually or in the aggregate will have a material effect on its
consolidated financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of shareholders held on October 24, 1996, there were
4,416,534 voting shares present in person or by proxy, which represented
77.66% of the Company's outstanding shares of 5,686,750. Votes were taken on
the following shareholder proposals:
Proposal #1 "Ratification of the adoption of the Company's 1996 Stock Option
and Incentive Plan."
Votes Votes
For Against Abstain Non-Vote
4,036,737 303,457 74,424 1,916
Proposal #2 "Ratification of the adoption of the 1996 Management Recognition
Plan."
Votes Votes
For Against Abstain Non-Vote
3,881,997 456,323 78,214 ---
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Net Income per Common Share
(27) Financial Data Schedule
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.
CATSKILL FINANCIAL CORPORATION
Date: February 13, 1997 /s/ Wilbur J. Cross
Wilbur J. Cross
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 1997 /s/ David J. DeLuca
David J. DeLuca
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 11
<TABLE>
CATSKILL FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended December 31,
1996 1997
<S><C><C>
Net income applicable to common shares $ 1,066 $ 537
Weighted average common shares outstanding 5,090,814 N/A<F1>
Net income per common share $ .21
Net income per common share - primary
Weighted average common shares outstanding 5,090,814
Dilutive common stock options <F2> 33,704
Weighted average common shares and
common share equivalents outstanding 5,124,518
Net income per common share - primary $ .21
Net income per common share - fully diluted
Weighted average common shares outstanding 5,090,814
Dilutive common stock options <F2> 46,362
Weighted average common shares and
common share equivalents outstanding 5,137,176
Net income per common share - fully diluted $ .21
<FN>
<F1> Company completed its initial public offering on April 18, 1996.
<F2> Dilutive common stock options (includes restricted stock under the Company's MRP plan and options under its stock
option plan) are based on the treasury stock method using average market price in computing net income per share - primary,
and the higher of period-end market price or average market price in computing net income per common share - fully diluted.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 4,095
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 117,519
<INVESTMENTS-CARRYING> 12,068
<INVESTMENTS-MARKET> 12,262
<LOANS> 125,629
<ALLOWANCE> 1,826
<TOTAL-ASSETS> 275,625
<DEPOSITS> 194,264
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,544
<LONG-TERM> 0
0
0
<COMMON> 57
<OTHER-SE> 76,760
<TOTAL-LIABILITIES-AND-EQUITY> 275,625
<INTEREST-LOAN> 2,543
<INTEREST-INVEST> 1,984
<INTEREST-OTHER> 450
<INTEREST-TOTAL> 4,977
<INTEREST-DEPOSIT> 2,136
<INTEREST-EXPENSE> 2,136
<INTEREST-INCOME-NET> 2,841
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,171
<INCOME-PRETAX> 1,772
<INCOME-PRE-EXTRAORDINARY> 1,772
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,066
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 4.13
<LOANS-NON> 829
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,000
<ALLOWANCE-OPEN> 1,833
<CHARGE-OFFS> 87
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,826
<ALLOWANCE-DOMESTIC> 823
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 803
</TABLE>
