UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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 3,737,519
---------------------------- --------------------------------
(Title of Class) (outstanding at April 30, 2000)
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
March 31, 2000
INDEX
- -----
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
Item 1. Consolidated Interim Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2000 (Unaudited) and September 30, 1999.............. 1
Consolidated Statements of Income for the three months and six
months ended March 31, 2000 and 1999 (Unaudited)............... 2
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended March 31, 2000 and 1999
(Unaudited).................................................... 3
Consolidated Statements of Cash Flows for the six
months ended March 31, 2000 and 1999 (Unaudited)........
4
Notes to Unaudited Consolidated Interim Financial Statements... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 18
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings.............................................. 21
Item 2. Changes in Securities.......................................... 21
Item 3. Default on Senior Securities................................... 21
Item 4. Submission of Matters to a Vote of Security Holders............ 21
Item 5. Other Information.............................................. 22
Item 6. Exhibits and Reports on Form 8-K............................... 22
Signatures..................................................... 23
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(In thousands, except share and per share data)
March 31, September 30,
2000 1999
---------- -------------
<S> <C> <C>
Assets: (Unaudited)
-----------
Cash and due from banks $ 3,533 $ 3,025
Securities available for sale, at fair value 156,557 165,833
Federal Home Loan Bank of NY stock, at cost 3,461 2,634
Loans receivable, net 160,663 150,821
Corporate-owned life insurance 10,638 10,381
Accrued interest receivable 2,624 2,576
Premises and equipment, net 3,888 3,297
Other real estate owned 107 --
Other assets 4,631 3,014
----------- -----------
Total assets $ 346,102 $ 341,581
=========== ===========
Liabilities and Shareholders' Equity:
Liabilities
Deposits:
Non-interest bearing $ 8,839 $ 8,918
Interest bearing 212,706 210,146
----------- -----------
Total deposits 221,545 219,064
Short-term borrowings 47,650 31,100
Long-term borrowings 15,000 25,000
Mortgagors' escrow deposits 1,796 2,449
Other liabilities 4,005 4,756
----------- -----------
Total liabilities $ 289,996 $ 282,369
----------- -----------
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 March 31, 2000 and September 30, 1999 57 57
Additional paid-in capital 55,132 55,114
Retained earnings, substantially restricted 41,388 39,997
Unallocated common stock acquired by ESOP (3,640) (3,753)
Unearned management recognition plan (804) (1,011)
Treasury stock, at cost (1,949,231 shares
at March 31, 2000 and 1,778,342
shares at September 30, 1999) (30,943) (28,521)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated other comprehensive income (loss) (5,084) (2,671)
----------- -----------
Total shareholders' equity 56,106 59,212
----------- -----------
Total liabilities and shareholders' equity $ 346,102 $ 341,581
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 3,103 $ 2,778 $ 6,109 $ 5,542
Securities available for sale
Taxable 1,956 1,919 3,954 3,949
Non-taxable 719 537 1,437 1,028
Investment securities held to maturity -- 10 -- 43
Federal funds sold and other 2 3 3 4
Federal Home Loan Bank of NY stock 57 32 108 67
----------- ----------- ----------- -----------
Total interest and dividend income 5,837 5,279 11,611 10,633
Interest expense:
Deposits 2,075 2,118 4,159 4,344
Short-term borrowings 701 108 1,257 180
Long-term borrowings 221 322 516 651
----------- ----------- ----------- -----------
Total interest expense 2,997 2,548 5,932 5,175
----------- ----------- ----------- -----------
Net interest income 2,840 2,731 5,679 5,458
Provision for loan losses 50 45 100 90
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 2,790 2,686 5,579 5,368
----------- ----------- ----------- -----------
Non-interest income:
Corporate-owned life insurance 124 120 257 123
Service fees on deposit accounts 100 90 206 178
Net securities gains (losses) (24) -- (117) 22
Other income 56 44 109 88
----------- ----------- ----------- -----------
Total non-interest income 256 254 455 411
----------- ----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits 927 881 1,854 1,752
Advertising and business promotion 51 36 106 58
Net occupancy on premises 123 98 234 193
Federal deposit insurance premiums 12 6 19 13
Postage and supplies 93 91 179 159
Data processing fees 126 146 258 267
Equipment 62 35 120 75
Professional fees 63 82 121 141
Other real estate operations, net 2 19 3 33
Other 148 148 306 316
----------- ----------- ----------- -----------
Total non-interest expense 1,607 1,542 3,200 3,007
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income before taxes 1,439 1,398 2,834 2,772
Income tax expense 315 357 608 750
----------- ----------- ----------- -----------
Net income $ 1,124 $ 1,041 $ 2,226 $ 2,022
=========== =========== =========== ===========
Basic earnings per common share $ .34 $ .27 $ .66 $ .53
Diluted earnings per common share $ .34 $ .27 $ .66 $ .52
Weighted Average Common Shares-Basic 3,287,894 3,850,029 3,348,466 3,844,594
Weighted Average Common Shares-Diluted 3,287,894 3,916,756 3,378,275 3,898,120
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
2
<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, 1999 $ 57 $55,114 $39,997 $(3,753) $(1,011)
Comprehensive income:
Net income 2,226
Other comprehensive income (loss), net of tax:
Unrealized net losses arising during the
period on AFS securities (Pre-tax $4,139)
Reclassification adjustment for net losses
realized in net income (pre-tax $117)
Other comprehensive losses
Comprehensive loss
Allocation of ESOP stock (11,373 shares) 40 113
Dividends paid on common stock ($.2425 per share) (828)
Purchase of common stock (200,000 shares)
Grant of restricted stock (2,250 shares) (7) (29)
Exercise of stock options
(26,861 shares issued, net)
(22)
Amortization of unearned MRP compensation 236
---------- ----------- ----------- ----------- ------
Balance at March 31, 2000 $ 57 $55,132 $41,388 $(3,640) $ (804)
==== ======= ======= ======== =======
Balance at September 30, 1998 $ 57 $54,974 $37,374 $(3,981) $(1,433)
Comprehensive income:
Net income 2,022
Other comprehensive income (loss), net of tax:
Unrealized net losses arising during the
period on AFS securities (Pre-tax $1,516)
Reclassification adjustment for gains
realized in net income (pre-tax $22)
Other comprehensive income (losses)
Comprehensive income
Allocation of ESOP stock (11,386 shares) 48 114
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Dividends paid on common stock ($.185 per share) (733)
Exercise of stock options (2,000 shares issued) (7)
Amortization of unearned MRP compensation 231
--------- ----------- ----------- --------- ---------
Balance at March 31, 1999 $ 57 $55,022 $38,656 $(3,867) $(1,202)
==== ======= ======= ======== ========
</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)
Accumulated
Treasury Other
Stock, Comprehensive Comprehensive
at Cost Income (Loss) Income Total
------------ --------------- --------------- ---------
<S> <C> <C> <C> <C>
Balance at September 30, 1999 $(28,521) $ (2,671) $59,212
Comprehensive income:
Net income $ 2,226 2,226
Other comprehensive income (loss), net of tax:
Unrealized net losses arising during the
period on AFS securities (Pre-tax $4,139) (2,483)
Reclassification adjustment for net losses
realized in net income (pre-tax $117) 70
------ --
Other comprehensive losses (2,413) (2,413) (2,413)
------
Comprehensive loss $ (187)
=======
Allocation of ESOP stock (11,373 shares) 153
Dividends paid on common stock ($.2425 per share) (828)
Purchase of common stock (200,000 shares) (2,888) (2,888)
Grant of restricted stock (2,250 shares) 36
Exercise of stock options
(26,861 shares issued, net) 430 408
Amortization of unearned MRP compensation 236
-------- ------- -------
Balance at March 31, 2000 $(30,943) $(5,084) $56,106
========= ======== =======
Balance at September 30, 1998 $(21,223) $ 2,063 $67,831
Comprehensive income:
Net income $ 2,022 2,022
Other comprehensive income (loss), net of tax:
Unrealized net losses arising during the
period on AFS securities (Pre-tax $1,516) (910)
Reclassification adjustment for gains
realized in net income (pre-tax $22) (13)
------
Other comprehensive income (losses) (923) (923) (923)
------ -----
Comprehensive income $ 1,099
=======
Allocation of ESOP stock (11,386 shares) 162
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Dividends paid on common stock ($.185 per share) (733)
Exercise of stock options (2,000 shares issued) 32 25
Amortization of unearned MRP compensation -- 231
--------- -------- -------
Balance at March 31, 1999 $(21,191) $ 1,140 $68,615
========= ======= =======
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
March 31,
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net Income $ 2,226 $ 2,022
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 142 103
Net accretion on securities (275) (55)
Provision for loan losses 100 90
MRP compensation expense 236 231
ESOP compensation expense 153 162
Increase in cash surrender values on COLI (257) (123)
Losses on sale of other real estate owned -- 13
Write-down on other real estate owned -- 17
Losses (gains) on sales of securities 117 (22)
Net increase in other assets (56) (72)
Net decrease in other liabilities (751) (54)
-------- --------
Net cash provided by operating activities 1,635 2,312
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/calls/paydown of investment securities -- 2,065
Net increase in loans (10,049) (5,573)
Capital expenditures, net (733) (173)
Purchase of corporate-owned life insurance -- (10,000)
Purchase of Federal Home Loan Bank stock (827) (32)
Purchase of AFS securities (3,822) (25,645)
Proceeds from sale of securities available for sale 3,458 5,394
Proceeds from maturity/calls/paydown of AFS securities 5,776 24,300
Proceeds from sale of other real estate owned -- 10
-------- --------
Net cash used by investing activities (6,197) (9,654)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock option exercises 408 25
Net increase in deposits 2,481 7,133
Net increase (decrease) in mortgagors' escrow deposits (653) 816
Net increase in short-term borrowings 16,550 60
Repayment of long-term borrowings (10,000) --
Cash dividends paid on common stock (828) (733)
Purchase of common stock for treasury (2,888) --
-------- --------
Net cash provided by financing activities 5,070 7,301
-------- --------
Net (decrease) increase in cash and cash equivalents 508 (41)
Cash and cash equivalents at beginning of period 3,025 2,795
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash and cash equivalents at end of period $ 3,533 $ 2,754
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 5,932 $ 5,185
Taxes paid 396 489
Transfer of loans to other real estate owned 107 32
Change in net unrealized gain (loss) on AFS securities,
net of change in deferred tax benefit of $1,609 and
$615, respectively (2,413) (923)
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements
4
<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 1999 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, 2000.
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 is only included in the computation
of basic earnings per share on the date that 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 entity, 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 six month periods ended March 31:
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------------ -----------------------------
2000 1999 2000 1999
----- ----- ----- ----
<S> <C> <C> <C> <C>
Net income $ 1,124 $ 1,041 $ 2,226 $ 2,022
============= ============= ============= =============
Weighted average common shares 3,287,894 3,850,029 3,348,466 3,844,594
Dilutive effect of potential common shares
related to stock compensation plans --- 66,727 29,809 53,526
------------- ---------- ---------- ----------
Weighted average common shares including
potential dilution 3,287,894 3,916,756 3,378,275 3,898,120
========= ========= ========= =========
Basic earnings per share $ .34 $ .27 $ .66 $ .53
Diluted earnings per share $ .34 $ .27 $ .66 $ .52
</TABLE>
5
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
March 31, 2000
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") is a
savings and loan holding company, which owns all of the outstanding common stock
of Catskill Savings Bank (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 and Schoharie Counties and southern Albany County in
New York, which are serviced through seven banking offices, the most recent
having opened in February 2000. 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 Company'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
and borrowings.
Results of operations are also affected by the Company'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.
General economic conditions, competition and the monetary and fiscal policies of
the federal government also significantly affect financial institutions in
general, including the Company. The demand for and supply of housing,
competition among lenders, interest rate conditions and funds availability all
impact lending activities, while prevailing market rates on competing
investments, customer preference and the levels of personal income and savings
in the Bank's primary market area affect deposit inflows and outflows.
6
<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 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.
7
<PAGE>
FINANCIAL CONDITION
Total assets were $346.1 million at March 31, 2000, an increase of $4.5 million,
or 1.3% from the $341.6 million at September 30, 1999. The increase was
primarily in loans and was funded by higher short-term borrowings and deposits,
as well as a reduction in the Company's securities portfolio.
Cash and cash equivalents were $3.5 million, an increase of $.5 million, or
16.7% from the $3.0 million at September 30, 1999. The increase was principally
due to the higher amount of checks in process of collection between the two
periods.
Securities available for sale ("AFS") were $156.6 million, down $9.2 million, or
5.5% from $165.8 million, due to sales, mortgage-backed securities ("MBS")
payments and the increase in unrealized losses on the AFS portfolio due in part
to rising interest rates. In addition, the Company's AFS portfolio was also
adversely impacted by an increase in the level of spreads on fixed income
securities over treasuries, which increased market yields and correspondingly
decreased market values of its portfolio. During the six months ended March 31,
2000, the Company sold lower yielding securities and reinvested some of the
proceeds at higher rates. In addition, the Company invested some of its MBS
prepayments in new MBS's backed by adjustable rate mortgages ("ARM's") with
teaser rates, with the remaining balance, along with some of the sales proceeds
used to fund loan growth. The unrealized losses on the Company's AFS portfolio
changed from $4.5 million or 2.6% of the portfolio's book cost to $8.5 million
or 5.2% of book cost due principally to rising interest rates and the increase
in the level of spreads over treasuries.
Loans receivable were $162.8 million at March 31, 2000, an increase of $9.9
million or 6.5% over the $152.9 million at September 30, 1999. The following
table shows the loan portfolio composition as of the balance sheet dates shown:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------------------------- -------------------------------
(In thousands) % of Loans (In thousands) % of Loans
---------- ----------
<S> <C> <C> <C> <C>
Real Estate Loans
One-to-four family $ 123,369 75.8% $ 121,151 79.2%
Multi-family and commercial 8,428 5.2 7,940 5.2
Construction 2,934 1.8 3,176 2.1
----- ------- ----- ------
Total real estate loans 134,731 82.8 132,267 86.5
Consumer Loans 23,353 14.3 19,729 12.9
Commercial Loans 4,648 2.9 994 .6
----- ------- --- -------
Gross Loans 162,732 100.0% 152,990 100.0%
===== =====
Net deferred loan costs (fees) 94 (76)
-- ---
Total loans receivable $ 162,826 $ 152,914
========= =========
</TABLE>
One-to-four family real estate loans increased $2.2 million, or 1.8%, as the
Company continues to promote a 15 year fixed rate mortgage product with a
<PAGE>
preferred rate for borrowers who have their monthly payments automatically
deducted from a checking account with the Bank. Consumer loans increased $3.6
million or 18.4% from September 30, 1999, due principally to an increase in
indirect auto loans. The Company began its indirect auto program in June 1998,
and still originates only through a limited number of dealers in, or contiguous
8
<PAGE>
to its market area. At March 31, 2000, the Company had $6.1 million of indirect
consumer loans representing 25.9% of the consumer loan portfolio, and less than
3.7% of the Company's gross loan portfolio. Commercial loans now total $4.6
million, up $3.6 million from September 30, 1999. The increase is primarily
secured indirect lending to small businesses, and is collateralized principally
by autos. At March 31, 2000, the Company had $3.2 million of indirect commercial
loans representing 67.4% of its commercial loan portfolio, and approximately
1.9% of the Company's gross loan portfolio.
Non-performing assets at March 31, 2000 were $391,000, or .11% of total assets,
compared to the $544,000, or .16% of total assets at September 30, 1999. The
table below sets forth the amounts and categories of the Company's
non-performing assets.
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
---------------------- -------------------
(In thousands)
<S> <C> <C>
Non-performing loans:
One-to-four family $ 133 $ 396
Multi-family and commercial --- -----
Consumer 151 148
------ -----
Total non-performing loans 284 544
Foreclosed assets, net:
One-to-four family 107 ---
Multi-family and commercial --- ---
------- ------
Total foreclosed assets, net 107 ---
------- ------
Total non-performing assets $ 391 $ 544
======= =====
Total non-performing loans
as a % of total loans .17% .36%
</TABLE>
The decrease in non-performing loans at March 31, 2000 as compared to September
30, 1999 was principally due to the foreclosure of one loan, which resulted in
the Company acquiring title to the mortgaged property. The net realizable value
of the property, totaling $107,000, was transferred to other real estate, and
since the net realizable value exceeded the Company's carrying value, the
Company recorded no loss. In addition, non-performing loans decreased from the
payoff of several past due loans, when the estates of deceased borrowers were
settled.
The following table summarizes the activity in other real estate for the periods
presented:
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31,
------------------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Other real estate beginning of
period $ --- $ 53
Transfer of loans to other real
estate owned 107 32
Write-downs of other real estate --- (17)
Sales of other real estate, net --- (23)
------- -------
Other real estate end of period $ 107 $ 45
===== =======
</TABLE>
Additionally, at March 31, 2000, the Company had identified approximately
$245,000 in loans having more than normal credit risk, principally all of which,
were secured by real estate. The Company believes that if economic and/or
9
<PAGE>
business conditions change in its lending area, some of these loans could become
non-performing in the future.
The allowance for loan losses was $2.2 million, or 1.33%, of period end loans at
March 31, 2000, and provided coverage of non-performing loans of 761.6%,
compared to 1.37% and coverage of 384.7% as of September 30, 1999. The following
summarizes the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------------
2000 1999
-------- ------
(In thousands)
<S> <C> <C>
Allowance at beginning of the period $ 2,093 $ 1,950
Charge-offs (40) (36)
Recoveries 10 26
--------- --------
Net charge-offs (30) (10)
Provision for loan losses 100 90
-------- --------
Allowance at end of the period $ 2,163 $ 2,030
======= =======
</TABLE>
Total deposits were $221.5 million at March 31, 2000, up $2.4 million, or 1.1%,
from the $219.1 million at September 30, 1999. The following table shows the
deposit composition as of the two dates:
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
---------------------------------- ---------------------------------
(In thousands) % of Deposits (In thousands) % of Deposits
<S> <C> <C> <C> <C>
Savings $ 80,661 36.4% $ 81,894 37.4%
Money market 6,192 2.8 6,435 2.9
NOW 17,176 7.8 14,833 6.8
Non-interest demand 8,839 4.0 8,918 4.1
Certificates of deposits 108,677 49.0 106,984 48.8
------- ----- ------- -----
$221,545 100.0% $219,064 100.0%
======= ===== ======= =====
</TABLE>
The increase in deposits was generated principally by the Middleburgh
branch, which opened in August 1999. In addition, in February 2000, the
Company opened its seventh full-service branch in Oak Hill, and the
Company expects this branch to contribute to its strategy of growing its
core deposits. Core deposits, representing all deposits other than
certificates of deposit, represent approximately 51.0% of total deposits.
The Company increased its borrowings with the Federal Home Loan Bank of
New York ("FHLB"), to $62.7 million at March 31, 2000, an increase of $6.6
million from the $56.1 million at September 30, 1999. The additional
<PAGE>
borrowings were used to fund the Company's loan growth and stock
repurchases. At March 31, 2000, the Company still had additional available
credit of $4.2 million under its overnight line and $6.9 million under its
one-month advance program with the FHLB.
Shareholders' equity at March 31, 2000 was $56.1 million, a decrease of
$3.1 million or 5.2% from the $59.2 million at September 30, 1999. The
decrease was principally caused by the Company's repurchase of 200,000
shares of its stock at a cost of $2.9 million and the $2.4 million adverse
change in the Company's net unrealized gain (loss) on AFS securities net
of taxes, due to recent increases in market interest rates, as well as the
increase in the level of spreads over treasuries. Offsetting the decreases
were the $1.4 million of net income retained after cash dividends and the
$.8 million increase in shareholders' equity due to the amortization of
restricted stock awards, release of shares under the Company's ESOP, and
the proceeds from the exercise of stock options.
10
<PAGE>
Shareholders' equity as a percentage of total assets was 16.2% at March
31, 2000 compared to 17.3% at September 30, 1999. Book value per common
share was $15.01 at March 31, 2000, down from $15.15 at September 30,
1999, due principally to the adverse change in the Company's net
unrealized gain (loss) in AFS securities, net of taxes.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
1999
General
For the three months ended March 31, 2000, the Company recorded net income of
$1,124,000, an increase of $83,000, or 8.0%, compared to the three month period
ended March 31, 1999. Diluted earnings per share were $.34, an increase of 25.9%
compared to diluted earnings per share of $.27 for the three months ended March
31, 1999. Basic earnings per share were $.34 for the three month period, an
increase of 25.9% compared to $.27 for the comparable quarter. For the three
months ended March 31, 2000, weighted average common shares - basic were
3,287,894, down 562,135, or 14.6% from the comparable period, due to the
Company's share repurchase programs.
Annualized return on average assets for the three months ended March 31, 2000
and 1999, was 1.32% and 1.31%, respectively, and the annualized return on
average equity was 8.26% and 6.23%, respectively.
Net Interest Income
Net interest income on a tax equivalent basis for the three months ended March
31, 2000, was $3.2 million, an increase of $195,000, or 6.5%, when compared to
the three months ended March 31, 1999. The increase was principally volume
related as the Company increased its average earning assets $26.5 million, or
8.7%, more than offsetting the increase in interest expense from the Company's
funding of its stock repurchase program. The Company funded the share
repurchases, along with its growth in earning assets, principally with
borrowings and, to a lesser extent, deposit growth.
Interest income for the three months ended March 31, 2000 was $6.2 million on a
tax equivalent basis, an increase of $644,000, or 11.6%, over the comparable
period last year. The $26.5 million increase in the average volume of earning
assets had a direct positive effect on interest income as the Company sought to
leverage its excess capital. The Company also benefited from a 20 basis point
increase in the yield on its average earning assets caused primarily by
increases in the yield earned on its loans, securities and MBS portfolios due to
higher market interest rates.
Average earning assets increased principally in the loan and securities
portfolios, which on average grew 10.9% and 6.7%, respectively. Loan growth was
principally in 15 year fixed rate one-to-four family mortgages and the Company's
indirect auto program. Yield on the average loan portfolio was 7.72%, up 6 basis
points from the comparable quarter due to an increase in the percentage of
higher yielding consumer and commercial loans. Consumer and commercial loans
represented 15.9% of average loans, up from 12.9% in the comparable quarter.
Average MBS were $69.1 million for the three months ended March 31, 2000, down
$6.9 million or 9.1% from the comparable period due principally to payments. The
Company used some of the proceeds to fund higher yielding loans rather than
purchase additional MBS. The average yield on MBS was 6.74%, up 35 basis points
from the comparable period, as the interest rates on the Company's MBS's with
11
<PAGE>
underlying teaser rate ARM's purchased in prior periods continue to reset to
higher rates. Management expects the average yield of these ARM's to continue 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 securities increased $17.5 million, or 21.1%, as the Company purchased
in 1999 longer call protected bank qualified municipals and non-callable
corporate securities to increase yields and reduce reinvestment risk. The
average yield on the securities portfolio for the three months ended March 31,
2000, was 7.61%, an increase of 18 basis points from the comparable period, as
the Company replaced securities called and/or matured with higher yielding
municipals and corporates. Municipal securities now represent 52.5% of average
securities, compared to 46.6% in the comparable period.
Interest expense for the three months ended March 31, 2000, was $3.0 million, an
increase of $449,000, or 17.6%. The increase was principally due to the higher
volume of average interest-bearing liabilities, as well as an increase in the
Company's cost of funds. Average interest-bearing liabilities were $277.3
million, an increase of $33.9 million, or 13.9%, as the Company borrowed in
order to fund its earning asset growth and the stock repurchase program. Average
short-term borrowings were $47.3 million for the three months ended March 31,
2000, up $38.4 million from the comparable three-month period. The cost of funds
increased 11 basis points to 4.35% as the Company's short-term borrowing costs
increased 103 basis points to 5.96% due to the rising level of short-term
interest rates. Somewhat offsetting the increase in short-term borrowing costs
was a 19 basis point drop in the cost of average interest-bearing deposits to
3.92% as the Company benefited from a 31 basis point decline in its average CD
costs. The Company expects that the average cost of its CD portfolio will begin
to increase due to the rising level of interest rates and competitive pressures.
The Company's net yield on average earning assets was 3.88% for the three months
ended March 31, 2000, down 11 basis points compared to the same period of the
prior year. The decrease was principally caused by the reduced level of no cost
funding sources as the Company funded its stock repurchase program with
short-term borrowings, which increased the percentage of earning assets funded
by interest-bearing liabilities. For the three months ended March 31, 2000, the
Company had $53.4 million of average earning assets with no funding costs, a
decrease of $7.4 million, or 12.2%, from the three months ended March 31, 1999.
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 its loan portfolio. This analysis includes concentrations of
credit, past loan loss experience, current economic conditions, amount and
changes to the 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.
12
<PAGE>
The provision for loan losses was $50,000, or .13% of average loans for the
three months ended March 31, 2000, up $5,000 or 11.1% from the comparable period
of the prior year. The increase was principally based on loan growth, as well as
the change in portfolio mix as the provision annualized, represented .13% of
average loans in both periods. The Company had net charge-offs of $27,000 or
.07% of average loans for the quarter, compared to net recoveries of $1,000 in
the comparable period. Non-performing loans were $284,000 as of March 31, 2000,
or .17% of total loans, a decrease of $468,000 from March 31, 1999, when they
were .52% of total loans. At March 31, 2000, the allowance for loan losses was
$2,163,000, or 1.33%, of period end loans, and provided coverage of
non-performing loans of 761.6% compared to 1.40% and 270.0%, respectively, as of
March 31, 1999.
Non-Interest Income
Non-interest income was $256,000 for the three months ended March 31, 2000, up
$26,000, or 10.2%, excluding the $24,000 of security losses realized during the
current quarter; there were no gains or losses in the comparable period. Service
fees on deposit accounts increased $10,000, or 11.1%, as the Company continues
to promote checking accounts to increase its core deposits. The Company also
earned $16,000 in fees from ATM surcharges during the quarter on non-customer
transactions; the Company did not charge this fee in the comparable period.
Non-Interest Expense
Non-interest expense for the three months ended March 31, 2000 was $1,607,000,
an increase of $65,000, or 4.2%, over the comparable period last year. The
increase was principally the cost attributable to our new branch in Oak Hill,
which opened in February 2000, including promotional and start-up costs, as well
as the ongoing costs of our Middleburgh office, which opened in August 1999.
Salaries and employee benefits for the three months ended March 31, 2000, were
$927,000, an increase of $46,000, or 5.2%, principally from staffing our new
branches. Advertising, as well as occupancy and equipment were all higher due to
the new branches.
Income Tax Expense
Income tax expense for the three months ended March 31, 2000, was $315,000, a
decrease of $42,000, or 11.8%, from the comparable period last year. The
Company's effective tax rates for the three months ended March 31, 2000 and
1999, were 21.89% and 25.54%, respectively. The decrease in both the effective
tax rate and income tax expense is principally the impact of the Company's
tax-exempt securities, primarily bank qualified municipals.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
General
For the six months ended March 31, 2000, the Company recorded net income of
$2,226,000, an increase of $204,000, or 10.0%, compared to the six month period
ended March 31, 1999. Diluted earnings per share were $.66, an increase of 26.9%
compared to diluted earnings per share of $.52 for the six months ended March
31, 1999. Basic earnings per share were $.66 for the six month period, an
13
<PAGE>
increase of 24.5% compared to $.53 for the comparable six month period. For the
six months ended March 31, 2000, weighted average common shares - basic were
3,348,466, down 496,128, or 12.9%, due to the Company's share repurchase
programs.
Annualized return on average assets for the six months ended March 31, 2000 and
1999, was 1.30% and 1.27%, respectively, and return on average equity was 7.94%
and 6.01%, respectively.
Net Interest Income
Net interest income for the six months ended March 31, 2000, was $6.4 million on
a full tax equivalent basis, an increase of $419,000, or 7.0%, when compared to
the six months ended March 31, 1999. The increase was principally volume related
as the Company increased its average earning assets $24.8 million, or 8.1%, 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 six months ended March 31, 2000 was $12.3 million on a
tax equivalent basis, an increase of $1,176,000, or 10.6%, over the comparable
period. The $24.8 million, or 8.1%, increase in the average volume of earning
assets had a positive effect on interest income as the Company sought to
leverage its excess capital. Furthermore, the Company benefited from a 17 basis
point increase in the yield on its average earning assets.
Average earning assets increased principally in the loan and securities
portfolios, which on average grew 10.8% and 5.8%, 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 on the loan portfolio yield since
the loans were originated at rates below the average portfolio yield. In
addition, the Company, due to lower market interest rates in late 1998 and early
1999, 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 4 basis points to 7.70%.
Average MBS were $70.4 million for the six months ended March 31, 2000, down
$10.3 million, or 12.8%, from the comparable period. The average yield on MBS
was 6.70%, up 35 basis points from the comparable period, as interest rates on
the Company's MBS ARM's purchased in prior periods with teaser rates continue to
reset to higher rates. Management expects the average yield of these ARM's to
continue 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 $19.7 million, or 24.2%, as the Company
purchased in 1999 longer call protected bank qualified municipals and
non-callable corporate securities to increase yields and reduce reinvestment
risk if rates decline. The average yield on the other securities portfolio for
the six months ended March 31, 2000, was 7.60%, an increase of 17 basis points
from the comparable period, as the Company replaced securities called or matured
with higher yielding municipals. Municipal securities now represent 52.5% of
average other securities, compared to 45.9% in the comparable period.
Interest expense for the six months ended March 31, 2000, was $5.9 million, an
increase of $757,000, or 14.6%. The change was principally due to an increase in
14
<PAGE>
the average volume of interest-bearing liabilities offset somewhat by a 2 basis
point decrease in the Company's cost of funds. Average interest-bearing
liabilities were $275.8 million, an increase of $35.4 million, or 14.7%, as the
Company borrowed in order to fund the Company's stock repurchases, its COLI
purchase and earning asset growth. Average short-term borrowings were up $36.1
million, as the Company funded its stock repurchases and its earning asset
growth, as well as repaid called long-term borrowings. Average long-term
borrowings were $19.7 million for the six months ended March 31, 2000, down $5.3
million from the comparable six-month period due to the repayment of called
borrowings. In addition, the Company continues to grow its core deposits with
average Now accounts up $2.7 million, or 19.8%, and average savings up $2.1
million, or 2.7%. The Company's cost of funds decreased 2 basis points to 4.30%,
as the Company generally lowered its deposit costs in late 1998 and early 1999.
Average deposit costs for the six-month period ended March 31, 2000, were down
28 basis points to 3.92%, more than offsetting the 72 basis point rise in
short-term borrowing costs due to an increase in short-term interest rates.
The Company's net yield on average earning assets was 3.86% for the six months
ended March 31, 2000, down 5 basis points compared to 3.91% for the comparable
period of the prior year. The decrease was principally caused by the Company's
stock repurchase program, which reduced the level of no-cost funding sources,
and increased the amount of earning assets funded by average interest-bearing
liabilities. For the six months ended March 31, 2000, the Company had $52.3
million of average earning assets with no funding costs, a decrease of $10.6
million, or 16.3%, from the six months ended March 31, 1999.
For more information on average balances, interest, yield and rate, please refer
to Table #2, included in this report.
Provision for Loan Losses
The provision for loan losses was $100,000, or .13% annualized of average loans
for the six months ended March 31, 2000, up $10,000, or 11.1%. The increase was
principally based on loan growth, as well as the change in portfolio mix, as the
provision represented .13% of average loans in both periods.
Non-Interest Income
Non-interest income was $455,000 for the six months ended March 31, 2000, an
increase of $44,000, or 10.7% from the six months ended March 31, 1999. The
increase was principally due to two quarters of investment performance on the
Company's corporate-owned life insurance in this period compared to only one
quarter in the prior period. The cash surrender value increased by $134,000.
Offsetting most of that increase was the $139,000 change in net security
transactions. In the six months ended March 31, 2000, the Company realized
losses of $117,000 compared to gains of $22,000 in the comparable period. In
addition, service fees on deposit accounts increased $28,000, or 15.7%, as the
Company continues to promote checking related products to increase core deposits
and diversify its revenues. Furthermore, the Company earned $32,000 in fees from
ATM surcharges on non-customer transactions; the Company did not charge this fee
in the comparable period.
15
<PAGE>
Non-Interest Expense
Non-interest expense for the six months ended March 31, 2000 was $3,200,000, an
increase of $193,000, or 6.4%, over the comparable period last year. The
increase was principally the cost attributable to our two new branches, which
opened in August 1999 and February 2000.
Salaries and employee benefits were up $102,000, or 5.8%, principally from
staffing the two new offices. Advertising, as well as occupancy, equipment and
supplies were all higher, principally from the new branches.
Income Tax Expense
Income tax expense for the six months ended March 31, 2000, was $608,000, a
decrease of $142,000, or 18.9%, from the comparable period last year. The
Company's effective tax rates for the six months ended March 31, 2000 and 1999,
were 21.45% and 27.06%, 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 the 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'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 $1,635,000 for the three months
ended March 31, 2000, a decrease of $677,000 from the comparable three month
period. The decrease was principally the change in other liabilities caused by a
decrease in official bank checks outstanding. 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 1999 than in
September 1998.
Investing activities used $6.2 million in the three months ended March 31, 2000,
as the Company increased its assets principally from the $10.0 million increase
in loans, $.8 million purchase of FHLB stock and $.7 million in capital
expenditures principally for the construction of a new full service branch,
offset somewhat by a $5.4 million reduction in securities. Financing activities
provided $5.1 million, as the Company experienced a $16.6 million increase in
short-term borrowings, somewhat offset by a $10.0 million payoff of long-term
borrowings. Furthermore, the Company experienced a $2.5 million deposit increase
and used $2.9 million to fund its stock repurchase program and $.8 million to
pay cash dividends. 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 $221.5 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
16
<PAGE>
of funds, and as of March 31, 2000, deposit accounts having balances in excess
of $100,000 totaled $23.6 million, or 10.7%, 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% measured on a monthly basis and for the month of March 2000, the Bank
exceeded that, maintaining an average liquidity ratio of 34.6%, primarily due to
the large percentage of its assets represented by AFS securities.
The Company anticipates that it will have sufficient funds to meet its current
commitments. At March 31, 2000, the Company had commitments to originate loans
of $3.6 million. In addition, the Company had undrawn commitments of $3.9
million on home equity and other lines of credit. Certificates of deposits which
are scheduled to mature in one year or less at March 31, 2000, totaled $80.9
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 March 31, 2000,
compared to the OTS minimum capital requirements:
Actual Minimum
Amount % Amount %
------ --- ------ --
(Dollars in thousands)
Tangible Capital $52,308 14.93% $ 5,257 1.5%
Core Capital 52,308 14.93 14,018 4.0
Risk Based Capital 54,471 30.32 14,372 8.0
At March 31, 2000, the Company had $4.9 million of available resources at the
holding company level on an unconsolidated basis to use for direct activities of
the Company. Furthermore, the Company has the ability to obtain dividends from
the Bank to provide additional funds. However, OTS regulations require advance
OTS approval before the Bank can declare a dividend if dividends paid during the
two prior years plus the current period exceed dividends paid during that same
period. The Bank has already paid dividends to the Company in the past two years
in excess of that amount. Therefore, OTS approval for additional dividends from
the Bank to the Company would be required unless and until the passage of time
and new net income from the Bank cause cumulative dividends on a rolling basis
to fall below that threshold. The Company has already applied and received
approval to declare and receive dividends of $2.0 million in June and September
2000, as well as $1.0 million in December 2000.
Year 2000 Disclosure
Concerns over the arrival of the Year 2000 ("Y2K") and its impact on the
embedded computer technologies used by financial institutions, among others, led
bank regulatory authorities to require substantial advance testing and
preparations by all banking organizations, including the Company. As of the date
of this filing, the Company has experienced no material problems in connection
with the arrival of Y2K, either in connection with the services and products it
provides to its customers or in connection with the services and products it
receives from third party vendors or suppliers. However, while no such
occurrence has developed, Y2K issues may arise that may not become immediately
17
<PAGE>
apparent. Therefore, the Company will continue to monitor and work to remedy any
issues that arise. Although the Company expects that its business will not be
materially impacted, such future events cannot be known with certainty.
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, 1999, however, in a rising
interest rate environment that we are currently experiencing, the Company net
interest income becomes more adversely exposed to rising rates. 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.
18
<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, principally on municipal securities, totaled
$346,000 and $260,000 for the three-month periods ended March 31, 2000 and
1999, 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.
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
March 31, 2000 March 31, 1999
------------------------------------- ----------------------------------------
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 $160,863 $ 3,103 7.72% $145,027 $ 2,778 7.66%
Mortgage-backed securities 69,111 1,164 6.74% 76,017 1,215 6.39%
Securities 100,593 1,914 7.61% 83,069 1,543 7.43%
Federal funds sold and other 112 2 7.18% 96 3 12.67%
----------- -------- --------- --------
Total interest-earning assets 330,679 6,183 7.48% 304,209 5,539 7.28%
------ ------
Allowance for loan losses (2,147) (1,995)
Other assets, net 14,781 19,852
--------- ---------
Total Assets $343,313 $322,066
======== ========
Interest-Bearing Liabilities
Savings deposits $ 80,755 $598 2.98% $ 79,863 $585 2.97%
Money market 6,083 47 3.11% 6,192 46 3.01%
Now deposits 16,725 81 1.95% 13,812 66 1.94%
Certificates of deposit 107,392 1,332 4.99% 107,680 1,406 5.30%
Short-term borrowings 47,324 701 5.96% 8,888 108 4.93%
Long-term borrowings 16,868 221 5.27% 25,000 322 5.22%
Escrow and other 2,176 17 3.14% 1,996 15 3.05%
--------- -------- --------- --------
Total interest-bearing
liabilities 277,323 2,997 4.35% 243,431 2,548 4.24%
------- -------
Non-interest bearing 8,572 7,247
Other liabilities 2,661 3,611
Shareholders' equity 54,757 67,777
------- -------
Total Equity and Liabilities $343,313 $322,066
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net interest income $3,186 $2,991
====== ======
Net interest rate spread 3.13% 3.04%
==== ====
Net yield on average
interest-earning assets 3.88% 3.99%
==== ====
Average interest earning
assets to average interest
bearing liabilities 119.24% 124.97%
====== ======
Earning Assets/Total Assets 96.32% 94.46%
===== =====
</TABLE>
19
<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, principally on municipal securities, totaled
$693,000 and $495,000 for the six month periods ended March 31, 2000 and
1999, 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.
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
--------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
-------------------------------------- ------------------------------------
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 $158,708 $ 6,109 7.70% $143,273 $ 5,542 7.74%
Mortgage-backed securities 70,364 2,357 6.70% 80,673 2,563 6.35%
Securities 100,902 3,835 7.60% 81,245 3,019 7.43%
Federal funds sold and other 89 3 6.74% 78 4 10.28%
--------- -------- -------- -------
Total interest-earning assets 330,063 12,304 7.46% 305,269 11,128 7.29%
------ ------
Allowance for loan losses (2,131) (1,980)
Other assets, net 15,202 15,024
------ ------
Total Assets $343,134 $318,313
======== ========
Interest-Bearing Liabilities
Savings deposits $ 80,962 $1,207 2.98% $ 78,831 $1,192 3.03%
Money market 6,170 95 3.08% 6,145 91 2.97%
Now deposits 16,119 157 1.95% 13,457 131 1.95%
Certificates of deposit 107,208 2,666 4.97% 107,798 2,904 5.40%
Short-term borrowings 43,341 1,257 5.80% 7,194 180 5.02%
Long-term borrowings 19,670 516 5.25% 25,000 651 5.22%
Escrow and other 2,310 34 2.94% 1,938 26 2.69%
----- -------- ----- --------
Total interest-bearing
liabilities 275,780 5,932 4.30% 240,363 5,175 4.32%
------- -------
Non-interest bearing 8,646 6,888
Other liabilities 2,640 3,584
Shareholders' equity 56,068 67,478
------ ------
Total Equity and Liabilities $343,134 $318,313
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net interest income $6,372 $5,953
====== ======
Net interest rate spread 3.16% 2.97%
==== ====
Net yield on average
interest-earning assets 3.86% 3.91%
==== ====
Average interest earning
assets to average interest
bearing liabilities 119.68% 127.00%
====== ======
Earning Assets/Total Assets 96.19% 95.90%
===== =====
</TABLE>
20
<PAGE>
CATSKILL FINANCIAL CORPORATION
FORM 10-Q
MARCH 31, 2000
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company and the Bank may be
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
At the annual meeting of shareholders held on February 15, 2000,
there were 3,400,051 voting shares present in person or by proxy,
which represented 90.98% of the Company's outstanding shares
eligible to vote of 3,737,108. Votes were taken on the following
shareholder proposals:
Proposal #1 "Election of two directors to serve for
three-year terms and until their successors
have been duly elected and qualified."
Votes
For % Withheld %
---- ----- --------- ----
George P. Jones 3,378,684 99.4 21,367 .6
Hugh J. Quigley 3,378,784 99.4 21,267 .6
The Board of Directors of the Company currently consists of
six members. In addition to the directors named above,
continuing directors are Wilbur J. Cross, Allan D. Oren,
Richard A. Marshall, and Edward P. Stiefel.
21
<PAGE>
Proposal #2 "Ratification of the appointment of KPMG LLP
as auditors for the Company for the fiscal year
ending September 30, 2000."
Votes Votes
For % Against % Abstain %
---- ---- -------- ---- -------- ---
3,364,873 99.0 16,372 .5 18,806 .5
There were no broker non-votes for either proposal #1 or proposal #2.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Net Income per Common Share
(27) Financial Data Schedule (included only in EDGAR filing)
21
<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: May 12, 2000 /s/ Wilbur J. Cross
--------------------
Wilbur J. Cross
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 /s/ David J. DeLuca
--------------------
David J. DeLuca
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
<TABLE>
<CAPTION>
CATSKILL FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except share and per share data)
Three Months Ended March 31, Six Months Ended March 31,
-------------------------------- --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income per common share - basic
Net income applicable to common shares $ 1,124 $ 1,041 $ 2,226 $ 2,022
Weighted average common shares outstanding 3,287,894 3,850,029 3,348,466 3,844,594
Net income per common share - basic $ .34 $ .27 $ .66 $ .53
========== ========== ========== ==========
Net income per common share - diluted
Net income applicable to common shares $ 1,124 $ 1,041 $ 2,226 $ 2,022
Weighted average common shares outstanding 3,287,894 3,850,029 3,348,466 3,844,594
Dilutive common stock options (1) -- 66,727 29,809 53,526
---------- ---------- ---------- ----------
Weighted average common shares including
potential dilution 3,287,894 3,916,756 3,378,275 3,898,120
========== ========== ========== ==========
Net income per common share - diluted $ .34 $ .27 $ .66 $ .52
========== ========== ========== ==========
</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> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,533
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 156,557
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 162,826
<ALLOWANCE> 2,163
<TOTAL-ASSETS> 346,102
<DEPOSITS> 221,545
<SHORT-TERM> 47,650
<LIABILITIES-OTHER> 5,801
<LONG-TERM> 15,000
0
0
<COMMON> 57
<OTHER-SE> 56,049
<TOTAL-LIABILITIES-AND-EQUITY> 346,102
<INTEREST-LOAN> 6,109
<INTEREST-INVEST> 5,391
<INTEREST-OTHER> 111
<INTEREST-TOTAL> 11,611
<INTEREST-DEPOSIT> 4,159
<INTEREST-EXPENSE> 5,932
<INTEREST-INCOME-NET> 5,679
<LOAN-LOSSES> 100
<SECURITIES-GAINS> (117)
<EXPENSE-OTHER> 3,200
<INCOME-PRETAX> 2,834
<INCOME-PRE-EXTRAORDINARY> 2,834
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,226
<EPS-BASIC> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 3.86
<LOANS-NON> 284
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 245
<ALLOWANCE-OPEN> 2,093
<CHARGE-OFFS> 40
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 2,163
<ALLOWANCE-DOMESTIC> 1,834
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 329
</TABLE>
