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 June 30, 1999
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 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
incorporation or organization) Identification No.)
341 MAIN STREET, CATSKILL, NY 12414
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(518)943-3600
(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:
Common Shares, $.01 par value 3,938,172
----------------------------- ---------------
(Title of class) (outstanding at August 13, 1999)
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
June 30, 1999
INDEX
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
Item 1. Consolidated Interim Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1999 (Unaudited) and September 30, 1998.............. 1
Consolidated Statements of Income for the three months and
nine months ended June 30, 1999 and 1998 (Unaudited).......... 2
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended June 30, 1999 and 1998
(Unaudited)................................................... 3
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 and 1998 (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
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 20
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings............................................. 23
Item 2. Changes in Securities......................................... 23
Item 3. Default on Senior Securities.................................. 23
Item 4. Submission of Matters to a Vote of Security Holders........... 23
Item 5. Other Information............................................. 23
Item 6. Exhibits and Reports on Form 8-K.............................. 23
Signatures.................................................... 24
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(In thousands, except share data)
Assets June 30, 1999 September 30, 1998
------ -------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 3,407 $ 2,795
Securities available for sale, at fair value 167,706 164,983
Investment securities, at amortized cost:
(Estimated fair value of $2,106 at
September 30, 1998) -- 2,060
Stock in Federal Home Loan Bank of NY, at cost 2,055 1,954
Loans receivable, net 145,834 137,785
Corporate owned life insurance 10,250 --
Accrued interest receivable 2,656 2,398
Premises and equipment, net 2,846 2,522
Real estate owned 32 53
Other assets 256 202
--------- ---------
Total Assets $ 335,042 $ 314,752
========= =========
Liabilities and
Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 8,111 $ 6,009
Interest bearing 211,968 203,968
--------- ---------
Total Deposits 220,079 209,977
Short-term borrowings 21,100 6,840
Long-term borrowings 25,000 25,000
Advance payments by borrowers for taxes and
insurance 2,543 673
Accrued interest payable 307 288
Official bank checks 1,178 1,986
Accrued expenses and other liabilities 451 2,157
--------- ---------
Total Liabilities $ 270,658 $ 246,921
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(In thousands, except share data)
June 30, 1999 September 30, 1998
-------------- ------------------
(Unaudited)
<S> <C> <C>
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 June 30, 1999 and September 30, 1998 57 57
Additional paid-in capital 55,022 54,974
Retained earnings, substantially restricted 39,326 37,374
Common stock acquired by ESOP (3,867) (3,981)
Unearned management recognition plan (MRP) (1,086) (1,433)
Treasury stock, at cost (1,505,196 shares at
June 30, 1999 and 1,328,416 shares at
September 30, 1998) (24,085) (21,223)
Accumulated other comprehensive income (loss) (983) 2,063
--------- ---------
Total Shareholders' Equity 64,384 67,831
--------- ---------
Total Liabilities and Shareholders' Equity $ 335,042 $ 314,752
========= =========
</TABLE>
See accompanying notes to unaudited consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, June 30,
-------- --------
1999 1998 1999 1998
---------- ----------- --------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 2,801 $ 2,603 $ 8,343 $ 7,702
Securities available for sale
Taxable 1,992 2,269 5,941 7,188
Non-taxable 570 337 1,598 566
Investment securities held to maturity -- 48 43 225
Federal funds sold and other 1 1 5 5
Stock in Federal Home Loan Bank of NY 33 36 100 101
--------- --------- --------- ----------
Total interest and dividend income 5,397 5,294 16,030 15,787
Interest expense:
Deposits 2,112 2,213 6,456 6,642
Short-term borrowings 124 220 304 548
Long-term borrowings 325 74 976 132
--------- --------- --------- ----------
Total interest expense 2,561 2,507 7,736 7,322
--------- --------- --------- ----------
Net interest income 2,836 2,787 8,294 8,465
Provision for loan losses 50 45 140 144
--------- --------- --------- ----------
Net interest income after provision for
loan losses 2,786 2,742 8,154 8,321
--------- --------- --------- ----------
Non-interest income:
Corporate-owned life insurance 127 --- 250 ---
Service fees on deposit accounts 92 73 270 206
Net securities gains --- 37 22 90
Other income 40 45 128 104
--------- --------- --------- ----------
Total non-interest income 259 155 670 400
--------- --------- --------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share data)
(continued)
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, June 30,
-------- --------
1999 1998 1999 1998
---------- ----------- --------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Non-interest expense:
Salaries and employee benefits 921 900 2,673 2,578
Advertising and business promotion 31 15 89 104
Net occupancy 125 85 318 256
Federal deposit insurance premiums 6 6 19 20
Postage and supplies 88 83 247 229
Outside data processing fees 131 115 398 339
Equipment 46 46 121 129
Professional fees 74 64 215 168
Real estate operations, net (1) 1 32 (58)
Other 156 154 472 446
--------- --------- --------- ----------
Total non-interest expense 1,577 1,469 4,584 4,211
--------- --------- --------- ----------
Income before taxes 1,468 1,428 4,240 4,510
Income tax expense 369 454 1,119 1,606
--------- --------- --------- ----------
Net income $ 1,099 $ 974 $ 3,121 $ 2,904
=========== =========== ========== ===========
Basic earnings per common share $ .29 $ .24 $ .81 $ .70
Diluted earnings per common share $ .28 $ .24 $ .80 $ .68
Weighted Average Common Shares-Basic 3,804,676 4,002,738 3,831,288 4,139,721
Weighted Average Common Shares-Diluted 3,898,696 4,134,109 3,898,447 4,268,945
</TABLE>
See accompanying notes to unaudited consolidated interim financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In thousands, except share and per share data) (Unaudited)
Retained Common Unearned
Additional Earnings, Stock Management
Common Paid-in Substantially Acquired by Recognition
Stock Capital Restricted ESOP Plan
----- ------- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 57 $54,974 $37,374 $(3,981) $(1,433)
Comprehensive income:
Net income 3,121
Other comprehensive income, net of tax:
Unrealized net losses arising during the
period on AFS securities (pre-tax $5,054)
Reclassification adjustment for gains
realized in net income (pre-tax $22)
Other comprehensive income
Comprehensive income
Allocation of ESOP stock (11,386 shares) 48 114
Dividends paid on common stock ($.295 per share) (1,162)
Purchase of common stock (178,780 shares)
Exercise of stock options (2,000 shares issued) (7)
Amortization of unearned MRP compensation 347
---- ------- ------- ------- -------
Balance at June 30, 1999 $ 57 $55,022 $39,326 $(3,867) $(1,086)
==== ======= ======= ======== ========
Balance at September 30, 1997 $ 57 $54,811 $34,915 $(4,209) $(1,856)
Comprehensive income:
Net income 2,904
Other comprehensive income, net of tax:
Unrealized net gains arising during the
period on AFS securities (pre-tax $657)
Reclassification adjustment for gains
realized in net income (pre-tax $90)
Other comprehensive income
Comprehensive income
Allocation of ESOP stock (11,363 shares) 89 114
Dividends paid on common stock ($.24 per share) (1,030)
Purchase of common stock (356,792 shares)
Exercise of stock options
(4,401 shares issued, net) (29)
Amortization of unearned MRP compensation 341
---- ------- ------- ------- -------
Balance at June 30, 1998 $ 57 $54,900 $36,760 $(4,095) $(1,515)
==== ======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In thousands, except share and per share data) (Unaudited)
Accumulated
Treasury Other
Stock, Comprehensive Comprehensive
at Cost Income (Loss) Income Total
------- ------------- ------ -----
<S> <C> <C> <C> <C>
Balance at September 30, 1998 $(21,223) $ 2,063 $67,831
Comprehensive income:
Net income $ 3,121 3,121
Other comprehensive income, net of tax:
Unrealized net losses arising during the
period on AFS securities (pre-tax $5,054) (3,033)
Reclassification adjustment for gains
realized in net income (pre-tax $22) (13)
----------
Other comprehensive income (3,046) (3,046) (3,046)
----------
Comprehensive income $ 75
==========
Allocation of ESOP stock (11,386 shares) 162
Dividends paid on common stock ($.295 per share) (1,162)
Purchase of common stock (178,780 shares) (2,894) (2,894)
Exercise of stock options (2,000 shares issued) 32 25
Amortization of unearned MRP compensation 347
-------- ------- -------
Balance at June 30, 1999 $(24,085) $ (983) $64,384
========= ======= =======
Balance at September 30, 1997 $(12,862) $ 921 $71,777
Comprehensive income:
Net income $ 2,904 2,904
Other comprehensive income, net of tax:
Unrealized net gains arising during the
period on AFS securities (pre-tax $657) 394
Reclassification adjustment for gains
realized in net income (pre-tax $90) (54)
-----------
Other comprehensive income 340 340 340
-----------
Comprehensive income $ 3,244
===========
Allocation of ESOP stock (11,363 shares) 203
Dividends paid on common stock ($.24 per share) (1,030)
Purchase of common stock (356,792 shares) (6,351) (6,351)
Exercise of stock options
(4,401 shares issued, net) 67 38
Amortization of unearned MRP compensation 341
-------- ---------- ------
Balance at June 30, 1998 $(19,146) $ 1,261 68,222
======== ========== ======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
Nine Months Ended
June 30,
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C>
Net income $ 3,121 $ 2,904
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 156 159
Net accretion on securities (115) (25)
Provision for loan losses 140 144
MRP compensation expense 347 341
ESOP compensation expense 251 302
Increase in cash surrender values on COLI (250) --
Losses (gains) on sale of real estate owned 28 (68)
Gains on sales and calls of securities (22) (90)
Net increase in other assets (312) (515)
Net decrease in accrued expense and other liabilities (554) (1,796)
--------- ---------
Net cash provided by operating activities 2,790 1,356
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/calls/paydown of
investment securities 2,065 5,007
Net increase in loans (8,221) (8,417)
Capital expenditures, net (480) (342)
Purchase of corporate-owned life insurance (10,000) --
Purchase of Federal Home Loan Bank stock (101) (192)
Purchase of AFS securities (48,052) (63,855)
Proceeds from sale of securities available for sale 5,394 13,431
Proceeds from maturity/calls/paydown of AFS securities 34,991 35,151
Proceeds from sale of real estate owned 25 443
--------- ---------
Net cash used by investing activities (24,379) (18,774)
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(continued)
Nine Months Ended
June 30,
1999 1998
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES: (Unaudited)
<S> <C> <C>
Net proceeds from the exercise of stock options 25 38
Net increase in deposits 10,102 8,532
Net increase in advances from borrowers for
taxes and insurance 1,870 1,945
Net increase in short-term borrowings 14,260 4,495
Increase in long-term borrowings -- 10,000
Cash dividends paid on common stock (1,162) (1,030)
Purchase of common stock for treasury (2,894) (6,351)
--------- ---------
Net cash provided by financing activities 22,201 17,629
--------- ---------
Net increase in cash and cash equivalents 612 211
Cash and cash equivalents at beginning of period 2,795 2,274
--------- ---------
Cash and cash equivalents at end of period $ 3,407 $ 2,485
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,717 $ 7,255
Taxes 1,234 1,640
Transfer of loans to real estate owned 32 252
Change in net unrealized gain (loss) on AFS
securities, net of deferred tax expense (benefit) of
$(2,030) and $227, respectively (3,046) 340
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements
<PAGE>
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 (the "Company") and its wholly owned subsidiary,
Catskill Savings Bank (the "Bank"). All intercompany accounts and transactions
have been eliminated in consolidation. Amounts in prior periods' unaudited
consolidated interim financial statements are reclassified whenever necessary to
conform to the current period's presentation. 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 the Company's 1998 Annual Report to Stockholders. 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, 1999.
Note 2. Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Unvested restricted stock is not considered
outstanding and only included in the computation of basic earnings per share on
the date they are fully vested. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company, such
as the Company's stock options and unvested restricted stock. Unallocated ESOP
shares are not included in the weighted average number of common shares
outstanding for either the basic or diluted earnings per share calculations.
The following sets forth certain information regarding the calculation of basic
and diluted earnings per share for the three month and nine month periods ended
June 30:
<TABLE>
<CAPTION>
(in thousands, except share and per share data)
Three Months Ended Nine Months Ended
June 30 June 30
---------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 1,099 $ 974 $ 3,121 $ 2,904
======== ========== ========== ==========
Weighted average common shares 3,804,676 4,002,738 3,831,288 4,139,721
Dilutive effect of potential common shares
related to stock compensation plans 94,020 131,371 67,159 129,224
---------- ---------- ---------- ----------
Weighted average common shares including
potential dilution 3,898,696 4,134,109 3,898,447 4,268,945
========= ========= ========= =========
Basic earnings per share $ .29 $ .24 $ .81 $ .70
Diluted earnings per share $ .28 $ .24 $ .80 $ .68
</TABLE>
<PAGE>
Note 3. Comprehensive Income
On October 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
Statement establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income includes the reported net income
of the Company adjusted for items that are currently accounted for as direct
entries to equity, such as the mark to market adjustment on securities available
for sale, foreign currency items and minimum pension liability adjustments. At
the Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains or losses on
securities available for sale for the period. Accumulated other comprehensive
income (loss) represents the net unrealized gains or losses on securities
available for sale as of the balance sheet dates. Comprehensive income (loss)
for the three and nine month periods ended June 30, 1999 and 1998 was
($1,024,000), $1,232,000, $75,000 and $3,244,000, respectively.
Note 4. Impact of New Accounting Standards
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In May 1999, this Statement was
delayed by the FASB, consequently, it will now be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Management is currently
evaluating the impact of this Statement on the Company's consolidated financial
statements.
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
June 30, 1999
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
area is comprised of Greene County and southern Albany County in New York, which
are serviced through five banking offices, the most recent having opened in
April 1998. 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, 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.
<PAGE>
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", "believe", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigations Reform Act of 1995. In addition, certain disclosures and information
customarily provided by financial institutions, such as analysis of the adequacy
of the allowance for loan losses or an analysis of the interest rate sensitivity
of the Company's assets and liabilities, are inherently based upon predictions
of future events and circumstances. Furthermore, from time to time, the Company
may publish other forward-looking statements relating to such matters as
anticipated financial performance, business prospects, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. Some of the risks and uncertainties that may affect
the operations, performance, development and results of the Company's business,
the interest rate sensitivity of its assets and liabilities, and the adequacy of
its allowance for loan losses, include but are not limited to the following:
o Deterioration in local, regional, national or global economic
conditions which could result, among other things, in an increase in
loan delinquencies, a decrease in property values, or a change in the
housing turnover rate;
o the effect of certain customers and vendors of critical systems or
services failing to adequately address issues relating to becoming Year
2000 compliant;
o changes in market interest rates or changes in the speed at which
market interest rates change;
o changes in laws and regulations affecting the financial service
industry;
o changes in competition; and
o changes in consumer preferences.
The Company wishes to caution readers not to place undue reliance on
any forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including those described above, could
affect the Company's financial performance and could cause the Company's actual
results or circumstances for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release any revisions to any forward-looking statements
to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
<PAGE>
FINANCIAL CONDITION
- -------------------
Total assets were $335.0 million at June 30, 1999, an increase of $20.2 million,
or 6.4% from the $314.8 million at September 30, 1998. The increase in assets
was primarily in corporate owned life insurance and loans and was funded
principally by increases in short-term borrowings and deposits.
Cash and cash equivalents were $3.4 million at June 30, 1999, up $.6 million
from September 30, 1998, due principally to the Company's strategy of growing
its checking related accounts, which increases the amount of checks in process
of collection.
Total securities, which include securities held to maturity ("HTM") and
securities available for sale ("AFS"), excluding Federal Home Loan Bank stock,
were $167.7 million, an increase of $.7 million, or .4% from the $167.0 million
as of September 30, 1998. Although the total investment portfolio increase was
marginal, the lower interest rate environment in late 1998 and early 1999
accelerated the rate of prepayments on the Company's mortgage-backed securities
("MBS") portfolio, consequently, MBS's now represent 43.5% of the total
investment portfolio as compared to 54.3% as of September 30, 1998. The Company
has replaced MBS run-offs, as well as calls on its agency portfolio, with more
non-callable corporates and municipals with longer call protection. The Company
also used some of the MBS paydowns to fund a $10.0 million purchase of corporate
owned life insurance ("COLI") as a financing vehicle for pre- and post
retirement employee benefits. The COLI's investment returns and death benefits
are not taxable to the Company, and the insurance premiums are non-deductible.
The insurance policy provides that the initial lump sum premium, after certain
deductions, is maintained in a separate account, which minimizes the Company's
exposure to insurance carrier credit risk and allows the Company to select both
the investment manager and the investment portfolio strategy.
Loans receivable were $147.9 million as of June 30, 1999, an increase of $8.2
million or 5.9% over the $139.7 million at September 30, 1998. The following
table shows the loan portfolio composition as of the respective balance sheet
dates:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
---------------------------------- ------------------------------------
(In thousands) % of Loans (In thousands) % of Loans
<S> <C> <C> <C> <C>
Real Estate Loans
One-to-four family $ 119,832 81.0% $ 113,423 81.0%
Multi-family and commercial 7,063 4.7 6,389 4.6
Construction 2,363 1.6 1,182 0.8
--------- ------ --------- -----
Total real estate loans 129,258 87.3 120,994 86.4
Consumer Loans 17,993 12.2 18,399 13.2
Commercial Loans 766 0.5 602 0.4
--------- ------ --------- -----
Gross Loans 148,017 100.0% 139,995 100.0%
===== =====
Less: Net deferred loan fees (133) (260)
--------- ---------
Total loans receivable $ 147,884 $ 139,735
========= =========
</TABLE>
<PAGE>
One-to-four family real estate loans increased $6.4 million, or 5.6%, as the
Company has continued to promote a 15 year fixed rate mortgage product with a
preferred rate for borrowers who have their monthly payments automatically
deducted from a checking account with the Bank. The increase in multi-family and
commercial real estate loans was principally represented by a loan to finance a
mobile home park in the Company's primary market area. Construction loans are up
due to several commercial projects under development as well as seasonal one to
four family residential construction, with the Company providing both
construction and permanent financing.
Non-performing assets at June 30, 1999 were $640,000, or .19% of total assets,
compared to the $644,000, or .20% of total assets at September 30, 1998. The
table below sets forth the amounts and composition of the Company's
non-performing assets.
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Non-performing loans:
One-to-four family $ 535 $ 520
Multi-family and commercial -- --
Consumer 73 71
--------- ---------
Total non-performing loans 608 591
--------- ---------
Foreclosed assets, net:
One-to-four family 32 53
Multi-family and commercial -- --
--------- ---------
Total foreclosed assets, net 32 53
--------- ---------
Total non-performing assets $ 640 $ 644
========= =========
Total non-performing loans
as a % of total loans .41% .42%
</TABLE>
The increase in non-performing loans at June 30, 1999 as compared to September
30, 1998 was principally due to the death of three borrowers, which caused
payment delays pending the settlement of their estates, offset somewhat by the
foreclosure of one loan which resulted in the Company acquiring title to the
mortgaged property. The net realizable value of the property, totaling $32,000,
was transferred to other real estate, and since the net realizable value
approximated the Company's carrying value, the Company recorded no loss. In
addition, during the nine months ended June 30, 1999, the Company sold two
parcels of other real estate which reduced real estate owned by $53,000. The
following table summarizes the activity in other real estate for the periods
presented:
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Other real estate beginning of
period $ 53 $ 248
Transfer of loans to other real
estate owned 32 252
Sales of other real estate, net (53) (375)
--------- ---------
Other real estate end of period $ 32 $ 125
========= =========
</TABLE>
The allowance for loan losses was $2,050,000, or 1.39%, of period end loans at
June 30, 1999, and provided coverage of non-performing loans of 337.2%, compared
to coverage of 330.0% as of September 30, 1998. The following summarizes the
activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Allowance at beginning of the period $ 1,950 $ 1,889
Charge-offs (68) (121)
Recoveries 28 10
--------- ---------
Net charge-offs (40) (111)
Provision for loan losses 140 144
--------- ---------
Allowance at end of the period $ 2,050 $ 1,922
========= =========
</TABLE>
Total deposits were $220.1 million at June 30, 1999, an increase of $10.1
million, or 4.8% from the $210.0 million at September 30, 1998. The following
table shows the deposit composition as of the respective balance sheet dates:
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
------------------------------------- ------------------------------------
(In thousands) % of Deposits (In thousands) % of Deposits
<S> <C> <C> <C> <C>
Savings $ 83,642 38.0% $ 78,075 37.2%
Money market 6,143 2.8 5,949 2.8
NOW 15,113 6.9 12,396 5.9
Non-interest demand 8,111 3.7 6,009 2.9
Certificates of deposits 107,070 48.6 107,548 51.2
------- ----- ------- -----
$220,079 100.0% $209,977 100.0%
======== ===== ======== =====
</TABLE>
The growth in deposits was principally generated by the Company's two newest
offices. In addition, the Company continues its strategy of growing its core
deposits, principally checking related products. Core deposits now represent
over 51% of total deposits, and checking products represent almost 11.0% of
deposits.
The Company's borrowings, which are principally with the Federal Home Loan Bank
of New York ("FHLB"), were $46.1 million at June 30, 1999, an increase of $14.3
million from the $31.8 million at September 30, 1998. As of June 30, 1999, the
Company still had additional available credit of $4.6 million under its
overnight line and $15.7 million under its one month advance program with the
FHLB.
Shareholders' equity at June 30, 1999 was $64.4 million, a decrease of $3.4
million or 5.0% from the $67.8 million at September 30, 1998. The decrease was
principally caused by the Company's repurchase of 178,780 shares of its stock at
a cost of $2.9 million, and a $3.0 million change in the Company's net
unrealized gain (loss) on securities available for sale, net of taxes due to
recent increases in market interest rates, offset by the $2.0 million of net
income retained after cash dividends. The Company also recorded a $.5 million
increase in shareholders' equity due to the amortization of restricted stock
awards, exercise of stock options and the release of shares under the Company's
ESOP.
Shareholders' equity as a percentage of total assets was 19.2% at June 30, 1999
compared to 21.6% at September 30, 1998. Book value per common share was $15.40,
or $15.82 excluding unvested shares of the Company's restricted stock plan
("MRP"), and was $17.48 excluding unallocated ESOP shares and unvested MRP
shares.
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999
- ------------------------------------------------------------------------
AND 1998
- --------
General
- -------
For the three months ended June 30, 1999, the Company recorded net income of
$1,099,000, an increase of $125,000, or 12.8%, compared to the three month
period ended June 30, 1998. Basic and diluted earnings per share were $.29 and
$.28 respectively, an increase of 20.8% and 16.7% compared to basic and diluted
earnings per share of $.24 for the three months ended June 30, 1998. For the
three months ended June 30, 1999, weighted average common shares - basic were
3,804,676, down 198,062, or 4.9%, due to the Company's share repurchase
programs.
Annualized return on average assets for the three months ended June 30, 1999 and
1998, was 1.35% and 1.29%, respectively, and return on average equity was 6.55%
and 5.73%, respectively.
Net Interest Income
- -------------------
Net interest income on a full tax equivalent basis for the three months ended
June 30, 1999, was $3.1 million, an increase of $162,000, or 5.5%, when compared
to the three months ended June 30, 1998. The increase was principally volume
related as the Company increased its average earning assets $15.2 million, or
5.1%, more than offsetting the increase in interest expense from the Company's
funding of its stock repurchase and corporate owned life insurance ("COLI")
purchases. The Company funded the share repurchases and COLI, along with its
growth in earning assets, principally with borrowings and deposit growth.
Interest income for the three months ended June 30, 1999 was $5.7 million on a
tax equivalent basis, an increase of $216,000, or 4.0%, over the comparable
period last year. The $15.2 million increase in the average volume of earning
assets had a positive effect on interest income as the Company sought to
leverage its excess capital, offset somewhat by a 8 basis point drop in the
yield on its average earning assets.
Average earning assets increased principally in the loan portfolio, which on
average grew $16.2 million, or 12.4%. Loan growth was principally due to the
promotion of a 15 year fixed rate mortgage product, which increased volume, but
had an adverse impact on the loan portfolio yield since the loans were
originated at rates below the average loan portfolio yield. In addition, the
Company, due to lower market interest rates earlier in the fiscal year,
experienced higher loan prepayments, and refinancing of its existing portfolio,
which together with the loan promotion caused the yield on the loan portfolio to
decrease 34 basis points to 7.67%.
Average mortgage backed securities ("MBS") were $72.2 million for the three
months ended June 30, 1999, down $18.7 million, or 20.5% from the comparable
period due to accelerated prepayments caused by the lower interest rate
environment in late 1998. The average yield on MBS was 6.46%, down 17 basis
points from the comparable period, as the Company has been purchasing one year
Treasury indexed teaser rate adjustable rate mortgages ("ARM's") to balance its
asset mix since most loan originations have been at fixed rates. Consequently,
26.6% of the average MBS portfolio represented ARM's compared to 24.5% in the
<PAGE>
comparable period. The teaser ARM's were purchased during the initial teaser
rate period; therefore, the initial interest rate and yields will be less than
the fully indexed rate and yield. Management expects the average yield of these
ARM's to increase as they adjust to their fully indexed rate; however, the
actual increase will depend upon the level of the one-year constant maturity
treasury index when the rates adjust.
Average other securities increased $17.7 million, or 24.0%, as the Company
purchased longer call protected bank qualified municipals and non-callable
corporate securities to increase yields and reduce reinvestment risk should
rates decline. The average yield on the other securities portfolio for the three
months ended June 30, 1999, was 7.47%, an increase of 16 basis points from the
comparable period, as the Company replaced securities called and/or matured with
higher yielding municipals. Municipal securities represented 45.3% of average
other securities during the three month period ended June 30, 1999, compared to
only 33.4% in the comparable period.
Interest expense for the three months ended June 30, 1999, was $2.6 million, an
increase of $54,000, or 2.2%. The change was principally due to an increase in
the average volume of interest bearing liabilities offset somewhat by a decrease
in the Company's cost of funds. Average interest bearing liabilities were $248.4
million, an increase of $24.6 million, or 11.0%, as deposits increased and the
Company borrowed in order to fund its earning asset growth, COLI purchase and
stock repurchases. Average long-term borrowings were up $19.2 million, as the
Company funded its stock repurchases and earning asset growth, as well as
converted a portion of its short-term borrowings to long-term borrowings,
principally through convertible (callable) advances. Average short-term
borrowings were $10.0 million for the three months ended June 30, 1999, down
$5.4 million from the comparable three month period due to the change to
long-term borrowings. In addition, the Company's average certificates of deposit
("CD's") increased $4.4 million, or 4.3%, as the Company in fiscal 1998 promoted
a 15 month CD program at a premium rate due to competitive pressures. The cost
of funds decreased 36 basis points to 4.13% as the Company has lowered its
deposit rates, and generally benefitted from a reduction in the rate on
short-term borrowings after the Fed's Open Market Committee reduced the
overnight bank rate 75 basis points in late 1998.
The Company's net yield on average earning assets was 4.03% for the three months
ended June 30, 1999, up 1 basis point compared to 4.02% for the comparable
period of the prior year. The increase was principally the impact of the 28
basis point rise in the Company's net interest spread offset by the Company's
stock repurchase program, which reduced the level of no-cost funding sources,
and increased the amount of average earning assets funded by interest bearing
liabilities, along with the funding of the COLI purchase which increased
interest expense without a corresponding increase in interest income. The
increase in the Company's net spread was principally due to the 36 basis point
drop in the cost of funds, principally in deposits, more than offsetting the 8
basis point drop in the earning asset yield as the increase in the securities
portfolio yield somewhat offset the decline in the loan portfolio yield. For the
three months ended June 30, 1999, the Company had $61.3 million of average
earning assets with no funding costs, a decrease of $9.4 million, or 13.3%, from
the $70.7 million for the three months ended June 30, 1998.
For more information on average balances, interest, yield and rate, please refer
to Table #1, included in this report.
<PAGE>
Provision for Loan Losses
- -------------------------
The Company establishes an allowance for loan losses based on an analysis of
risk factors in its 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 $50,000 for the three months ended June 30,
1999, up $5,000 from the comparable quarter. The increase was principally due to
loan growth as the provision represented .14% of average loans in both periods.
The Company had net charge-offs of $30,000, or .08% of average loans for the
quarter ended June 30, 1999, as compared to net chargeoffs of $29,000, or .09%
of average loans in the comparable period. Non-performing loans were $608,000 at
June 30, 1999, or .41% of total loans, an increase of $53,000 from June 30,
1998, when they were also .41% of total loans. At June 30, 1999, the allowance
for loan losses was $2,050,000, or 1.39% of period end loans, and provided
coverage of non-performing loans of 337.2% compared to 1.43% and 346.3%,
respectively, as of June 30, 1998.
Non-Interest Income
- -------------------
Non-interest income was $259,000 for the three months ended June 30, 1999, an
increase of $104,000 or 67.1% from the three months ended June 30, 1998. The
increase was principally due to the investment performance on the Company's
corporate owned life insurance which increased its cash surrender value by
$127,000, more than offsetting the $37,000 of security gains realized in the
comparable period in the prior year. There were no security gains in the three
month period ended June 30, 1999. In addition, service fees on deposit accounts
increased $19,000, or 26.0%, as the Company continues to promote checking
related products to increase core deposits and diversify its revenues.
Non-Interest Expense
- --------------------
Non-interest expense for the three months ended June 30, 1999 was $1,577,000, an
increase of $108,000, or 7.4%, over the comparable period last year. Increases
included higher occupancy costs of $40,000 due principally to renovation
expenses at our Main Street office. Other professional fees were $74,000, an
increase of $10,000 as the Company incurred higher costs due to increased tax
research, actuarial and investment advisory services. In addition, the Company
incurred higher personnel costs of $21,000 and advertising costs of $16,000
principally due to the anticipated opening of its next full service branch in
August 1999.
<PAGE>
Income Tax Expense
- ------------------
Income tax expense for the three months ended June 30, 1999, was $369,000, a
decrease of $85,000, or 18.7%, from the comparable period last year. The
Company's effective tax rates for the three months ended June 30, 1999 and 1998,
were 25.14% and 31.79%, respectively. The decrease in both the effective tax
rate and income tax expense is principally the impact of the Company's purchase
of tax-exempt securities, primarily bank qualified municipals, as well as
increase in cash surrender value of the COLI, which is non-taxable.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1999
- -----------------------------------------------------------------------
AND 1998
- --------
General
- -------
For the nine months ended June 30, 1999, the Company recorded net income of
$3,121,000, an increase of $217,000, or 7.5%, compared to the nine month period
ended June 30, 1998. Basic earnings per share were $.81, an increase of 15.7%
compared to basic earnings per share of $.70 for the nine months ended June 30,
1998. Diluted earnings per share were $.80 for the nine month period, an
increase of 17.6% compared to $.68 for the comparable nine month period. For the
nine months ended June 30, 1999, weighted average common shares - basic were
3,831,288, down 308,433, or 7.5%, due to the Company's share repurchase
programs.
Annualized return on average assets for the nine months ended June 30, 1999 and
1998, was 1.30% and 1.32%, respectively, and return on average equity was 6.19%
and 5.54%, respectively.
Net Interest Income
- -------------------
Net interest income for the nine months ended June 30, 1999, was $9.1 million on
a full tax equivalent basis, an increase of $341,000, or 3.9%, when compared to
the nine months ended June 30, 1998. The increase was principally volume related
as the Company increased its average earning assets $19.5 million, or 6.8%, more
than offsetting the increase in interest expense from the borrowings used to
fund its share repurchases and corporate owned life insurance ("COLI"). The
Company funded the share repurchases, the COLI purchase and its earning asset
growth, principally with borrowings and, to a lesser extent, deposit growth.
Interest income for the nine months ended June 30, 1999 was $16.8 million on a
tax equivalent basis, an increase of $755,000, or 4.7%, over the comparable
period. The $19.5 million, or 6.8%, increase in the average volume of earning
assets had a positive effect on interest income as the Company sought to
leverage its excess capital, offset somewhat by a 15 basis point drop in the
yield on its average earning assets.
Average earning assets increased principally in the loan portfolio and to a
lesser extent, its securities portfolio, which on average grew 12.9% and 1.9%,
respectively. Loan growth was principally due to the promotion of a 15 year
fixed rate mortgage product, which increased volume, but had an adverse impact
<PAGE>
on the loan portfolio yield since the loans were originated at rates below the
average loan portfolio yield. In addition, the Company, due to lower market
interest rates, experienced higher loan prepayments, and refinancing of its
existing portfolio, which together with the loan promotion caused the yield on
the loan portfolio to decrease 33 basis points to 7.71%.
Average MBS were $77.9 million for the nine months ended June 30, 1999, down
$10.9 million, or 12.3%, from the comparable period. The average yield on MBS
was 6.39%, down 44 basis points from the comparable period, as the Company has
been purchasing one year Treasury indexed teaser rate ARM's as previously
described in the three month comparison. Consequently, 26.7% of the average MBS
portfolio represented teaser rate ARM's compared to only 14.9% in the comparable
period.
Average other securities increased $14.0 million, or 19.8%, as the Company
purchased longer call protected bank qualified municipals and non-callable
corporate securities to increase yields and reduce reinvestment risk should
rates decline. The average yield on the other securities portfolio for the nine
months ended June 30, 1999, was 7.45%, an increase of 30 basis points from the
comparable period, as the Company replaced securities called or matured with
higher yielding municipals. Municipal securities now represent 46.2% of average
other securities, compared to less than 16.3% in the comparable period.
Interest expense for the nine months ended June 30, 1999, was $7.7 million, an
increase of $414,000, or 5.7%. The change was principally due to an increase in
the average volume of interest bearing liabilities offset somewhat by a decrease
in the Company's cost of funds. Average interest bearing liabilities were $243.1
million, an increase of $27.0 million, or 12.5%, as deposits increased and the
Company borrowed in order to fund the Company's stock repurchases, its COLI
purchase and earning asset growth. Average long-term borrowings were up $21.5
million, as the Company funded its stock repurchases and its earning asset
growth, as well as converted a portion of its short-term borrowings to long-term
borrowings, principally through convertible (callable) advances. Average
short-term borrowings were $8.1 million for the nine months ended June 30, 1999,
down $4.6 million from the comparable nine month period due to the change to
long-term borrowings. In addition, the Company's average CD's increased $6.2
million, or 6.1%, as the Company in fiscal 1998 promoted a special 15 month CD
program at a premium rate due to competitive pressures. The cost of funds
decreased 27 basis points to 4.26% as the Company has generally lowered its
deposit rates.
The Company's net yield on average earning assets was 3.95% for the nine months
ended June 30, 1999, down 11 basis points compared to 4.06% for the comparable
period of the prior year. The decrease was principally caused by the Company's
stock repurchase program, and the funding of the COLI purchase. For the nine
months ended June 30, 1999, the Company had $63.7 million of average earning
assets with no funding costs, a decrease of $7.5 million, or 10.5%, from the
$71.2 million for the nine months ended June 30, 1998. The Company did, however,
increase its net interest spread 12 basis points as the cost of funds decreased
27 basis points, principally due to the lower deposit costs, whereas the yield
on earning assets only decreased 15 basis points as increases in the yield on
securities somewhat offset the decline in the loan portfolio yield.
For more information on average balances, interest, yield and rate, please refer
to Table #2, included in this report.
<PAGE>
Provision for Loan Losses
- -------------------------
The provision for loan losses was $140,000, or .13% of average loans for the
nine months ended June 30, 1999, down from $144,000, or .16% of average loans in
the comparable period of the prior year. The decrease is principally
attributable to a reduction in net charge-offs to $40,000, or .04% of average
loans for the nine months ended June 30, 1999, as compared to $111,000, or .12%
of average loans in the comparable period. Despite the decrease in net
charge-offs, the Company's provisions have remained relatively constant due to
the 12.9% growth in average loans outstanding. Nonperforming loans were $608,000
at June 30, 1999, or .41% of total loans, an increase of $53,000 from June 30,
1998, when they were also .41% of total loans. At June 30, 1999, the allowance
for loan losses was $2,050,000, or 1.39% of period end loans, and provided
coverage of non-performing loans of 337.2% compared to 1.43% and 346.3%,
respectively, as of June 30, 1998.
Non-Interest Income
- -------------------
Non-interest income was $670,000 for the nine months ended June 30, 1999, an
increase of $270,000, or 67.5% from the nine months ended June 30, 1998. The
increase was principally due to the investment performance on the Company's
corporate owned life insurance which increased its cash surrender value by
$250,000, more than offsetting the $68,000 reduction in net securities gains. In
addition, service fees on deposit accounts increased $64,000, or 31.1%, as the
Company continues to promote checking related products to increase core deposits
and diversify its revenues.
Non-Interest Expense
- --------------------
Non-interest expense for the nine months ended June 30, 1999 was $4,584,000, an
increase of $373,000, or 8.9%, over the comparable period last year. The
increase was principally the cost attributable to our new supermarket branch,
which opened in April 1998, as well as higher real estate operations net, net
occupancy, other professional fees, and a contract termination charge to switch
ATM service providers.
Salaries and employee benefits were up $95,000, or 3.7% principally from
staffing the supermarket branch which opened in April 1998, as well as the cost
associated with an Executive Supplemental Retirement Plan implemented in the
third quarter of fiscal 1998. Real estate operations net, increased $90,000, as
the Company had losses due to sales of other real estate during the nine months
ended June 30, 1999, compared to gains on sales in the comparable period. Net
occupancy increased $62,000, principally from renovation expenses at the
Company's main office, as well as cost associated with the opening of the
supermarket branch. Other professional fees were $215,000, an increase of
$47,000 as the Company incurred higher costs due to increased tax research,
actuarial and investment advisory services. The Company also recorded a contract
termination charge of $29,000 during the period to switch ATM service providers.
Management expects the change to improve customer service, reduce operating
costs, and increase service fee income by implementing surcharging on
non-customer ATM transactions.
<PAGE>
Income Tax Expense
- ------------------
Income tax expense for the nine months ended June 30, 1999, was $1,119,000, a
decrease of $487,000, or 30.3%, from the comparable period last year. The
Company's effective tax rates for the nine months ended June 30, 1999 and 1998,
were 26.39% and 35.61%, respectively. The decrease in both the effective tax
rate and income tax expense is principally the impact of the Company's purchase
of tax-exempt securities, primarily bank qualified municipals, as well as the
non-taxable increase in cash surrender value of the COLI.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is the ability to generate cash flows to meet present and expected
future funding needs. Management monitors the Company's liquidity position on a
daily basis to evaluate its ability to meet expected and unexpected depositor
withdrawals and to make new loans and/or investments. The Company has reduced
its high level of liquidity, but continues to manage its balance sheet so there
has been no need for unanticipated sales of assets.
The Company's primary sources of funds for operations are deposits, borrowings,
principal and interest payments on loans, mortgage backed securities and other
securities available for sale.
Net cash provided by operating activities was $2.8 million for the nine months
ended June 30, 1999, an increase of $1.4 million from the comparable nine month
period. The increase was principally the change in accrued expenses and other
liabilities caused by a decrease in official bank checks outstanding in the
prior year. Official bank checks decreased principally as a result of the
Company's payment of real estate taxes for mortgage borrowers using escrowed
funds earlier in September 1998 than in September 1997.
Investing activities used $24.4 million in the nine months ended June 30, 1999,
as the Company increased its assets principally from the $10.0 million purchase
of COLI, $8.2 million in loans, and a $6.1 million increase in the Company's
securities portfolio. Financing activities provided $22.2 million, as the
Company experienced a $14.3 million increase in short-term borrowings, a $10.1
million increase in deposits, and a $1.9 million increase in advances by
borrowers for taxes, somewhat offset by the cost to purchase treasury stock of
$2.9 million and the payment of cash dividends of $1.2 million on its common
stock. 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 $220.1 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 as of June 30, 1999, deposit accounts having balances in excess of
$100,000 totaled $23.8 million, or 10.8%, of total deposits. The Bank is
required to maintain minimum levels of liquid assets as defined by the OTS
regulations. The requirement, which may be 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
4% and for the month of June 1999, the Bank exceeded that, maintaining an
average liquidity ratio of 37.64%.
<PAGE>
The Company anticipates that it will have sufficient funds to meet its current
commitments. At June 30, 1999, the Company had commitments to originate loans of
$5.1 million. In addition, the Company had undrawn commitments of $3.4 million
on home equity and other lines of credit. Certificates of deposits which are
scheduled to mature in one year or less at June 30, 1999, totaled $76.8 million,
and management believes that a significant portion of such deposits will remain
with the Company.
Although there are no minimum capital ratio requirements for the Company, the
Bank is required to maintain minimum regulatory capital ratios. The following is
a summary of the Bank's actual capital amounts and ratios at June 30, 1999,
compared to the OTS minimum capital requirements:
<TABLE>
<CAPTION>
Actual Minimum
Amount % Amount %
------- ----- ------- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tangible Capital $51,549 15.47% $ 4,997 1.5%
Core Capital 51,549 15.47 13,327 4.0
Risk Based Capital 53,532 32.98 12,984 8.0
</TABLE>
Beginning on April 18, 1999, the Company was no longer subject to any stock
repurchase restrictions of the OTS and shortly thereafter announced a 10% share
repurchase program to purchase approximately 436,000 shares. From April 18
through June 30, 1999, the Company had already repurchased 178,780 shares at a
cost of $2.9 million, or $16.19 per common share. At June 30, 1999, the Holding
Company had approximately $9.4 million in available resources to pursue stock
repurchases without dividends from the Bank. Dividends from the Bank are
permitted without notice or application to the OTS, under revised regulations
effective April of this year, if total dividends for a year do not exceed
current period net income plus retained net income for the two previous years
and certain other standards are met. Dividends from the Bank to the Company this
year have already exceeded that level, and hence the Bank cannot pay additional
dividends to the Company at this time without OTS approval.
Year 2000
The following disclosure is a Year 2000 Readiness Disclosure and a Year 2000
Statement, as defined in the Year 2000 Information and Readiness Disclosure Act.
The Year 2000 ("Y2K") issue confronting the Company and its suppliers,
customers, customers' suppliers and competitors centers on the inability of
computer systems to recognize the year 2000. Many existing computer programs and
systems originally were programmed with six digit dates that provided only two
digits to identify the calendar year in the date field. With the impending new
millennium, these programs and computers will recognize "00" as the year 1900
rather than the year 2000.
Substantially, all of the Company's mission critical systems are outsourced or
are purchased software packages. As a result, much of the remediation and
testing process is dependent on the accuracy of work performed by, and the Year
2000 compliance of software, hardware and equipment provided by, vendors.
<PAGE>
The Company's progress on its Year 2000 readiness is continuing as scheduled.
The Company has completed the testing of all of its mission critical systems. In
addition, the testing of other customers of the Company's data processing
service provider, disclosed no Year 2000 issues, consequently, as of June 30,
1999, all production systems are now operating in a Y2K compliant environment.
The Company expects to continue to monitor all of its systems, and will test
upgrades, if any, for Y2K compliance as well.
The Company's total Y2K project cost is estimated to be $100,000, of which
$50,000 is expected to be hardware and software upgrades. So far, the Company
has expensed approximately $36,000 of the project cost, and expects to amortize
the hardware and software upgrades, which have already been purchased, over
their estimated useful lives of three to five years.
The Company expects that when the century changes, disruption in service will
come not from a failure of its systems or the systems of the providers with whom
it interfaces, but rather from outside agencies (i.e., electric and telephone
companies) beyond its control. Therefore, contingency planning and business
resumption planning will be based on the Company's formal Disaster Recovery
Program, which includes using such things as spreadsheet software or reverting
to manual systems until problems can be corrected.
The Company has written a Disaster Recovery Plan, a Year 2000 Contingency Plan,
and a Y2K Liquidity Plan, all of which management expects to test through the
end of the year. The Company is also undertaking various customer awareness
programs, such as posted statements, mailing of FDIC brochures and publishing
information on its website.
<PAGE>
PART I - FINANCIAL INFORMATION (continued)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company believes there have been no material changes in the Company's
interest rate risk position since September 30, 1998. Other types of market
risk, such as foreign exchange rate risk and commodity price risk, do not arise
in the normal course of the Company's business activities.
<PAGE>
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. Tax equivalent adjustments reflected
principally on municipal securities totaled $276,000 and $163,000 for the three
month periods ended June 30, 1999 and 1998, respectively. All average balances
are daily 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 shown at amortized cost.
<PAGE>
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
June 30, 1999 June 30, 1998
--------------------------------------- ----------------------------------------
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 $146,125 $ 2,801 7.67% $129,948 $ 2,603 8.01%
Mortgage-backed securities 72,235 1,166 6.46% 90,917 1,507 6.63%
Securities 91,286 1,705 7.47% 73,619 1,346 7.31%
Federal funds sold and other 49 1 8.19% 50 1 8.02%
-------- ------- -------- -------
Total interest-earning assets 309,695 5,673 7.33% 294,534 5,457 7.41%
------- -------
Allowance for loan losses (2,029) (1,912)
Other assets, net 19,279 9,100
-------- --------
Total Assets $326,945 $301,722
======== ========
Interest-Bearing Liabilities
Savings deposits $ 82,410 $611 2.97% $ 79,419 $644 3.25%
Money market 6,484 50 3.09% 5,980 47 3.15%
Now deposits 14,613 71 1.95% 11,947 68 2.28%
Certificates of deposit 107,151 1,363 5.10% 102,704 1,440 5.62%
Short-term borrowings 10,032 124 4.96% 15,441 220 5.71%
Long-term borrowings 25,000 325 5.21% 5,824 74 5.10%
Escrow and other 2,745 17 2.48% 2,531 14 2.22%
-------- ------- -------- ------- -
Total interest-bearing
liabilities 248,435 2,561 4.13% 223,846 2,507 4.49%
------- -------
Non-interest bearing 8,101 6,611
Other liabilities 3,112 3,061
Shareholders' equity 67,297 68,204
-------- --------
Total Equity and Liabilities $326,945 $301,722
======== ========
Net interest income $3,112 $2,950
====== ======
Net interest rate spread 3.20% 2.92%
==== ====
Net yield on average
interest-earning assets 4.03% 4.02%
==== ====
Average interest earning
assets to average interest
bearing liabilities 124.66% 131.58%
====== ======
Earning Assets/Total Assets 94.72% 97.62%
===== =====
</TABLE>
<PAGE>
TABLE #2 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. Tax equivalent adjustments reflected
principally on municipal securities totaled $771,000 and $257,000 for the nine
month periods ended June 30, 1999 and 1998, respectively. All average balances
are daily 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 shown at amortized cost.
<PAGE>
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
June 30, 1999 June 30, 1998
--------------------------------------- ----------------------------------------
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 $144,225 $ 8,343 7.71% $127,780 $ 7,704 8.04%
Mortgage-backed securities 77,860 3,729 6.39% 88,788 4,551 6.83%
Securities 84,595 4,724 7.45% 70,633 3,787 7.15%
Federal funds sold and other 68 5 9.80% 74 4 7.23%
-------- ------- -------- -------
Total interest-earning assets 306,748 16,801 7.30% 287,275 16,046 7.45%
------- -------
Allowance for loan losses (1,996) (1,896)
Other assets, net 16,440 9,167
-------- --------
Total Assets $321,192 $294,546
======== ========
Interest-Bearing Liabilities
Savings deposits $ 80,024 $ 1,803 3.01% $ 78,770 $1,970 3.34%
Money market 6,258 141 3.01% 6,439 153 3.18%
Now deposits 13,843 202 1.95% 11,326 203 2.40%
Certificates of deposit 107,583 4,267 5.30% 101,428 4,281 5.64%
Short-term borrowings 8,144 304 4.99% 12,735 548 5.75%
Long-term borrowings 25,000 976 5.22% 3,486 133 5.10%
Escrow and other 2,207 43 2.60% 1,896 34 2.40%
-------- ------- -------- -------
Total interest-bearing
liabilities 243,059 7,736 4.26% 216,080 7,322 4.53%
------- -------
Non-interest bearing 7,292 5,358
Other liabilities 3,426 2,977
Shareholders' equity 67,415 70,131
------- --------
Total Equity and Liabilities $321,192 $294,546
======== ========
Net interest income $ 9,065 $ 8,724
======= =======
Net interest rate spread 3.04% 2.92%
==== ====
Net yield on average
interest-earning assets 3.95% 4.06%
==== ====
Average interest earning
assets to average interest
bearing liabilities 126.20% 132.95%
====== ======
Earning Assets/Total Assets 95.50% 97.53%
===== =====
</TABLE>
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
JUNE 30, 1999
- --------------------------------------------------------------------------------
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 or results of operation.
Item 2. Change in Securities
--------------------
None
Item 3. Defaults on Senior Securities
-----------------------------
Not Applicable
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
(10.1) Catskill Savings Bank Director Death Benefit Plan
(11) Computation of Net Income per Common Share
(27) Financial Data Schedule (included only in EDGAR filing)
<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.
CATSKILL FINANCIAL CORPORATION
Date: August 13, 1999 /s/ Wilbur J. Cross
--------------------
Wilbur J. Cross
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1999 /s/ David J. DeLuca
--------------------
David J. DeLuca
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 10.1
CATSKILL SAVINGS BANK
DIRECTOR DEATH BENEFIT PLAN
PLAN PURPOSE
This plan is the Catskill Savings Bank Director Death Benefit Plan, the
purpose of which is to provide a cash death benefit to the Designated
Beneficiary or estate of eligible directors of Catskill Savings Bank. Catskill
Savings Bank's board of directors believes that it is in the best interests of
the bank to provide the benefits provided in this plan, which it believes will
aid the bank in retaining as directors the experienced and highly qualified
individuals who are essential to its continued success and growth. It is
intended that the benefits contemplated by this plan shall survive and be an
enforceable obligation in the event of a change in control of Catskill Savings
Bank or Catskill Financial Corporation.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
The Plan has been established as of the Effective Date as defined
herein.
1.2 Applicability of Plan
---------------------
The benefits provided by the Plan shall be available to all Directors
who meet the eligibility requirements of Article III.
1.3 Contractual Right to Benefits
-----------------------------
The Plan establishes and vests in each Participant a contractual right
to the benefits to which each Participant is entitled hereunder, enforceable by
the Participant against Catskill Savings Bank.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
(a) "Bank" means Catskill Savings Bank, a federally chartered savings
bank, or any successor as provided for in Article VII.
(b) "Board of Directors", or "Board" means the board of directors of
the Bank, and, in the following definition of Change of Control means the board
of directors of the Holding Company.
<PAGE>
(c) "Cause" shall mean removal of a Director for cause, as provided in
the Bank's by-laws.
(d) "Change in Control" means an event in which: a) any "person" (as
such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")), other than (I) the Holding Company; or (ii)
a trustee or other fiduciary holding securities under an employee benefit plan
maintained for the benefit of employees of the Bank or the Holding Company,
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
1934 Act), directly or indirectly, of securities issued by the Bank or the
Holding Company representing 25% or more of the combined voting power of all of
the Bank's or the Holding Company's then outstanding securities; or b) the
individuals who on the date this Plan is adopted are members of the Board,
together with their successors as defined below, cease for any reason to
constitute a majority of the members of the Board; or c) the shareholders of the
Bank or the Holding Company approve either: (I) a merger or consolidation of the
Bank or the Holding Company with any other corporation, other than a merger or
consolidation following which both of the following conditions are satisfied:
(I) either (A) the members of the Board immediately prior to such merger or
consolidation constitute at least a majority of the members of the governing
body of the institution resulting from such merger or consolidation; or (B) the
shareholders of the Bank or the Holding Company own securities of the
institution resulting from such merger or consolidation representing eighty
percent or more of the combined voting power of all such securities then
outstanding in substantially the same proportions as their ownership of voting
securities of the Bank or the Holding Company before such merger or
consolidation; and (II) the entity which results from such merger or
consolidation expressly agrees in writing to assume and perform the Bank's or
the Holding Company's obligations under this Agreement; or (ii) a plan of
complete liquidation of the Bank or the Holding Company or an agreement for the
sale or disposition by the Bank or the Holding Company of all or substantially
all of its assets. "Change in Control" shall also mean an event of a nature
that: (I) would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the date of the occurrence of the event
pursuant to Section 13 or 15(d) of the 1934 Act, as amended; or (ii) results in
a Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners Loan Act as amended, the Federal Deposit Insurance Act as amended,
or regulations promulgated pursuant to such laws.
(e) "Designated Beneficiary" means the person(s) designated in writing
by a Participant as the person(s) entitled to receive a Payment, on a form
prescribed by the Board and delivered to the Secretary of the Bank.
(f) "Director" means a voting director of the Bank.
(g) "Effective Date" means May 18,1999.
(h) "Expiration Date" means the date on which Payment is made to the
Designated Beneficiary or estate of the last Participant to die, or the date on
which the Plan is earlier terminated pursuant to Section 8.2 or extended
pursuant to Section 8.1.
(I) "Holding Company" means Catskill Financial Corporation, a Delaware
corporation.
(j) "Participant" means a Director who meets the eligibility
requirements of Article III.
(k) "Payment" means the payment of a death benefit as provided in
Article IV hereof.
<PAGE>
(l) "Plan" means the Catskill Savings Bank Director Death Benefit Plan.
2.2 Applicable Law
--------------
The laws of the State of New York shall be the controlling law in all
matters relating to the Plan to the extent not preempted by applicable Federal
law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
Directors of the Bank as of the Effective Date, who, on the Effective
Date, have completed, or thereafter complete, five (5) consecutive years of
service as a Director (taking into account such service prior and subsequent to
the Effective Date) shall be Participants in the Plan.
3.2 Duration of Participation
-------------------------
Unless such participation is prohibited by applicable law, regulatory
action or judicial order, and, subject to Sections 3.3, 3.4 and 3.5, a
Participant shall continue to be a Participant in the Plan following his or her
voluntary resignation as a Director or his or her failure to be elected as a
Director. A Participant shall cease to be a Participant in the Plan upon the
Participant's removal as a Director for Cause.
3.3 Suspension
----------
If a Participant is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.
1818(e)(3) or (g)(1), the Bank's obligations under the Plan shall be suspended
as of the date of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank shall pay the Participant's
Designated Beneficiary or estate any Payment which may have come due during such
suspension or temporary prohibition.
3.4 Removal
-------
If a Participant is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.
1818(e)(4) or (g)(1), all obligations of the Bank under the Plan shall terminate
as of the effective date of the order.
<PAGE>
3.5 Default
-------
If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss. 1813(x)(1), all obligations of the
Bank under the Plan shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
Following the death of a Participant, the Participant's Designated
Beneficiary or estate shall be entitled to receive a Payment from the Bank.
4.2 Time and Amount of Payment
--------------------------
Not later than twenty (20) business days after the delivery to the
Secretary of the Bank of a certified copy of a death certificate, and such other
documentation evidencing the death of a Participant as the Bank may require, the
Bank shall pay to the Designated Beneficiary or Estate of the deceased
Participant, in cash and in full: I) $200,000, if the Participant was a Director
at the time of death, or ii) $100,000, if the Participant was not a Director at
the time of death.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as a Director of the Bank, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership, deferred compensation, or other plan or arrangement.
ARTICLE VI
PARTICIPATING ORGANIZATIONS
6.1 Upon approval by the Board of Directors, this Plan may be adopted
by any Subsidiary or Parent of the Bank. Upon such adoption, the provisions of
the Plan shall be fully applicable to the Directors of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of the outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority of
the voting power of the Bank's outstanding shares of capital stock.
<PAGE>
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under the
Plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, the Plan shall expire as of
the Expiration Date, unless sooner terminated as provided in Section 8.2, or
unless extended for an additional period or periods by resolution adopted by the
Board of Directors. Notwithstanding the foregoing, if a Change in Control
occurs, this Plan shall continue in full force and effect, and shall not
terminate or expire until the Expiration Date.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors unless a Change in Control has
previously occurred. If a Change in Control occurs, the Plan no longer shall be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever.
8.3 Form of Amendment
-----------------
The Plan may be amended or terminated by a written instrument signed by
a duly authorized officer of the Bank, certifying that the amendment or
termination has been approved by the Board of Directors.
8.4 No Attachment
-------------
Except as required by law, no right to receive Payments under this Plan
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect such action shall be null, void, and of no
effect.
<PAGE>
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 If a court of competent jurisdiction or an arbitrator determines
that the Bank or any successor to the Bank as described in Section 7.1 has
failed to meet any of its obligations under this Plan, the Bank or such
successor shall reimburse a Participant, a Designated Beneficiary or estate, as
applicable, for all reasonable costs, including attorneys' fees, incurred in
enforcing such obligation.
Having been adopted by its Board of Directors on May 18, 1999, this
Plan is executed by its duly authorized officers this 18 day of May, 1999.
Attest CATSKILL SAVINGS BANK
/s/ David L. Guldenstern BY: /s/ David J. DeLuca
- ------------------------ -----------------------
David Guldenstern David J. DeLuca
Secretary Vice President &
Chief Financial Officer
<TABLE>
<CAPTION>
EXHIBIT 11
CATSKILL FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except share and per share data)
Three Months Ended June 30, Nine Months Ended June 30,
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income per common share - basic
Net income applicable to common shares $ 1,099 $ 974 $ 3,121 $ 2,904
Weighted average common shares outstanding 3,804,676 4,002,738 3,831,288 4,139,721
Net income per common share - basic $ .29 $ .24 $ .81 $ .70
============ =========== ============ ============
Net income per common share - diluted
Net income applicable to common shares $ 1,099 $ 974 $ 3,121 $ 2,904
Weighted average common shares outstanding 3,804,676 4,002,738 3,831,288 4,139,721
Dilutive common stock options (1) 94,020 131,371 67,159 129,224
------------ ----------- ------------ ------------
Weighted average common shares including
potential dilution 3,898,696 4,134,109 3,898,447 4,268,945
============ =========== ============ ============
Net income per common share - diluted $ .28 $ .24 $ .80 $ .68
============ =========== ============ ============
</TABLE>
(1) Dilutive common stock options (includes granted, but unvested restricted
stock under the Company's MRP plan and options granted, but unexercised, under
its stock option plan) are based on the treasury stock method using average
market price. The treasury stock method recognizes the use of assumed proceeds
upon the exercise of options, and the amount of unearned compensation attributed
to future services under the Company's restricted stock plan, including any tax
benefits, to purchase the Company's common stock at the average market price
during the period.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,407
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 167,706
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 147,884
<ALLOWANCE> 2,050
<TOTAL-ASSETS> 335,042
<DEPOSITS> 220,079
<SHORT-TERM> 21,100
<LIABILITIES-OTHER> 4,479
<LONG-TERM> 25,000
0
0
<COMMON> 57
<OTHER-SE> 64,327
<TOTAL-LIABILITIES-AND-EQUITY> 335,042
<INTEREST-LOAN> 8,343
<INTEREST-INVEST> 7,582
<INTEREST-OTHER> 105
<INTEREST-TOTAL> 16,030
<INTEREST-DEPOSIT> 6,456
<INTEREST-EXPENSE> 7,736
<INTEREST-INCOME-NET> 8,294
<LOAN-LOSSES> 140
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 4,584
<INCOME-PRETAX> 4,240
<INCOME-PRE-EXTRAORDINARY> 4,240
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,121
<EPS-BASIC> .81
<EPS-DILUTED> .80
<YIELD-ACTUAL> 3.95
<LOANS-NON> 608
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 547
<ALLOWANCE-OPEN> 1,950
<CHARGE-OFFS> 68
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 2,050
<ALLOWANCE-DOMESTIC> 1,622
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 428
</TABLE>
