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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-27716
YONKERS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3870836
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6 EXECUTIVE PLAZA, YONKERS, NEW YORK 10701
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(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 965-2500
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.
Classes of Common Stock Number of Shares Outstanding, June 30, 1997
- ----------------------- -------------------------------------------
$.01 Par Value 3,035,750
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YONKERS FINANCIAL CORPORATION
INDEX
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<TABLE>
<CAPTION>
Page
Number
------
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1997 and
September 30, 1996.............................................. 1
Consolidated Statements of Income for the Three and Nine
Months Ended June 30, 1997 and 1996 ............................ 2
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended June 30, 1997 ........................ 3
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1997 and 1996 ................................... 4
Notes to Consolidated Financial Statements...................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .................................................... 17
<CAPTION>
PART II. OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings .............................................. 18
Item 2. Changes in Securities .......................................... 18
Item 3. Defaults Upon Senior Securities ................................ 18
Item 4. Submission of Matters to a Vote of Security Holders ............ 18
Item 5. Other Information .............................................. 18
Item 6. Exhibits and Reports on Form 8-K ............................... 18
Signature Page ................................................. 19
</TABLE>
Explanatory Note: This Quarterly Report on Form 10-Q contains forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
i
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Part I. Item 1.
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
At June 30, 1997 At September 30, 1996
---------------- ---------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,257 $2,152
Short-term investments 1,858 10,348
Securities:
Available for sale, at fair value (amortized cost of $88,038
at June 30, 1997 and $58,855 at September 30,1996) 88,230 58,552
Held to maturity, at amortized cost (fair value of $83,290
at June 30, 1997 and $94,162 at September 30, 1996) 83,276 95,007
------- ------
Total securities 171,506 153,559
-------- -------
Loans, net:
Real estate mortgage loans 97,196 80,337
Consumer and commercial business loans 7,699 7,266
Allowance for loan losses (1,075) (937)
------ ----
Total loans, net 103,820 86,666
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Accrued interest receivable 2,740 2,449
Federal Home Loan Bank ("FHLB") stock 2,193 1,065
Office properties and equipment, net 895 947
Other assets 1,820 2,348
----- -----
Total assets $288,089 $259,534
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $204,156 $190,675
Securities repurchase agreements 38,859 10,264
FHLB advances 1,000 8,000
Other liabilities 1,160 1,596
----- -----
Total liabilities 245,175 210,535
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Stockholders' equity (Note 2):
Preferred stock (par value $0.01 per share; 100,000
shares authorized; none issued or outstanding) - -
Common stock (par value $0.01 per share: 4,500,000
shares authorized and 3,570,750 shares issued) 36 36
Additional paid-in capital 34,679 34,596
Common stock held by employee stock ownership plan ("ESOP") (2,500) (2,714)
Common stock awarded under management recognition plan ("MRP") (1,195) -
Treasury stock, at cost (535,000 shares) (7,256) -
Retained income, substantially restricted 19,035 17,263
Net unrealized gain (loss) on available-for-sale
securities, net of taxes 115 (182)
--- ----
Total stockholders' equity 42,914 48,999
------ ------
Total liabilities and stockholders' equity $288,089 $259,534
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
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YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
------------------------------ -----------------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $2,132 $1,815 $6,014 $5,608
Securities 3,107 2,067 8,852 5,737
Other earning assets 100 385 320 556
--- --- --- ---
Total interest and dividend income 5,339 4,267 15,186 11,901
----- ----- ------ ------
Interest expense:
Deposits 1,992 1,939 5,813 5,891
Securities repurchase agreements 567 - 1,261 -
FHLB advances 29 15 135 88
-- -- --- --
Total interest expense 2,588 1,954 7,209 5,979
----- ----- ----- -----
Net interest income 2,751 2,313 7,977 5,922
Provision for loan losses 75 237 225 387
-- --- --- ---
Net interest income after provision for
loan losses 2,676 2,076 7,752 5,535
----- ----- ----- -----
Non-interest income:
Service charges and fees 205 174 585 495
Net loss on sales of securities (18) - (52) -
Other 12 (1) 33 9
-- --- -- -
Total non-interest income 199 173 566 504
--- --- --- ---
Non-interest expense:
Compensation and benefits 863 662 2,529 1,855
Occupancy and equipment 186 157 534 468
Federal deposit insurance premiums 31 110 152 323
Data processing service fees 110 102 338 302
Other 379 117 1,148 649
--- --- ----- ---
Total non-interest expense 1,569 1,148 4,701 3,597
----- ----- ----- -----
Income before income tax expense 1,306 1,101 3,617 2,442
Income tax expense 513 469 1,409 1,019
--- --- ----- -----
Net income $793 $632 $2,208 $1,423
==== ==== ====== ======
Earnings per share (Notes 3 and 4) $0.27 $0.19 $0.75
===== ===== =====
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
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YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Common
Additional Common Stock
Common Paid-in Stock Held Awarded Treasury Retained
Stock Capital by ESOP Under MRP Stock Income
------------ ------------- -------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $36 $34,596 ($2,714) $ - $ - $17,263
Net income - - - - - 2,208
Dividends paid
($0.15 per share) - - - - - (436)
Common stock repurchased
(643,905 shares) - - - - (8,652) -
Repurchased stock awarded
under MRP (108,905 shares) - - - (1,396) 1,396 -
Amortization of MRP awards - - - 201 - -
ESOP shares released for
allocation (21,425 shares) - 83 214 - - -
Change in net unrealized gain
(loss) on available-for-sale
securities, net of taxes - - - - - -
------------ ------------- -------------- --------------- ------------ -------------
Balance at June 30, 1997 $36 $34,679 ($2,500) ($1,195) ($7,256) $19,035
============ ============= ============== =============== ============ =============
<CAPTION>
Net
Unrealized Total
Gain (Loss) Stockholders'
on Securities Equity
----------------- -----------------
<S> <C> <C>
Balance at September 30, 1996 ($182) $ 48,999
Net income - 2,208
Dividends paid
($0.15 per share) - (436)
Common stock repurchased
(643,905 shares) - (8,652)
Repurchased stock awarded
under MRP (108,905 shares) - -
Amortization of MRP awards - 201
ESOP shares released for
allocation (21,425 shares) - 297
Change in net unrealized gain
(loss) on available-for-sale
securities, net of taxes 297 297
----------------- -----------------
Balance at June 30, 1997 $115 $42,914
================= =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
---------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,208 $1,423
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 225 387
Accretion of deferred fees, discounts and premiums, net (232) (349)
Increase in accrued interest receivable (291) (272)
Depreciation and amortization expense 141 139
Other adjustments, net (55) 132
------------ --------------
Net cash provided by operating activities 1,996 1,460
------------ --------------
Cash flows from investing activities:
Purchases of securities:
Available-for-sale (46,735) (25,687)
Held-to-maturity - (20,175)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 3,762 5,578
Held-to-maturity 11,608 20,865
Proceeds from sales of securities:
Available-for-sale 13,739 -
Held-to-maturity 235 -
Disbursements for loan originations (28,087) (12,748)
Principal collections on loans 9,413 9,243
Proceeds from sales of loans 1,479 1,696
Proceeds from sales of real estate owned 434 -
Purchases of FHLB stock (1,128) -
Other investing cash flows, net (89) (302)
------------ --------------
Net cash used in investing activities (35,369) (21,530)
------------ --------------
Cash flows from financing activities:
Net increase in deposits 13,481 4,732
Net increase (decrease) in borrowings with
original tems of three months or less:
Securities repurchase agreements 16,366 -
FHLB advances (7,000) (3,295)
Proceeds from longer-term securities repurchase agreements 12,229 -
Net proceeds from sale of common stock - 34,627
Common stock purchased by ESOP - (2,857)
Common stock repurchased (8,652) -
Dividends paid (436) -
------------ --------------
Net cash provided by financing activities 25,988 33,207
------------ --------------
Net (decrease) increase in cash and cash equivalents (7,385) 13,137
Cash and cash equivalents at beginning of period 12,500 3,261
------------ --------------
Cash and cash equivalents at end of period $5,115 $16,398
============ ==============
Supplemental information:
Interest paid $6,789 $5,979
Income taxes paid 1,340 706
============ ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
Yonkers Financial Corporation (the "Holding Company") was incorporated
under the laws of the State of Delaware and on April 18, 1996 became the savings
and loan holding company of The Yonkers Savings and Loan Association, FA (the
"Association") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association, pursuant to its Plan of Conversion. The Holding
Company's principal business, subsequent to the Conversion, is the ownership of
its wholly owned subsidiary, the Association. Prior to the Conversion, the
Holding Company had no operations other than those of an organizational nature.
Accordingly, all financial and other information for periods prior to the
Conversion, as set forth herein, refers to the Association. Collectively, the
Holding Company and the Association are referred to herein as the "Company".
The unaudited consolidated financial statements included herein have been
prepared in conformity with generally accepted accounting principles. In the
opinion of management, the unaudited consolidated financial statements include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented. The results of operations for the three and nine months
ended June 30, 1997 are not necessarily indicative of the results of operations
which may be expected for the fiscal year ending September 30, 1997.
Certain financial information and footnote disclosures normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The unaudited interim consolidated
financial statements presented herein should be read in conjunction with the
annual consolidated financial statements of the Company as of and for the fiscal
year ended September 30, 1996, included in the Form 10-K.
(2) Stockholders' Equity
--------------------
Concurrent with the Conversion, on April 18, 1996 the Holding Company sold
3,570,750 shares of its common stock in a subscription and community offering at
a price of $10 per share, resulting in gross proceeds of $35.7 million
(including $2.9 million attributable to the shares purchased by the Holding
Company's Employee Stock Ownership Plan). After deducting conversion costs of
$1.1 million, the net proceeds were $34.6 million. The Holding Company used
$17.3 million of the net proceeds to acquire all of the common stock issued by
the Association in the Conversion. The remaining proceeds were retained by the
Holding Company. On a consolidated basis, the
5
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net offering proceeds were $31.7 million after deducting shares purchased by the
Holding Company's Employee Stock Ownership plan ("ESOP").
On September 4, 1996, the Holding Company received approval from the OTS to
repurchase up to 10% of its outstanding common stock, or 357,075 shares, for the
treasury. The Holding Company completed this repurchase in the quarter ended
December 31, 1996 at a total cost of $4.6 million.
On October 30, 1996, the Company's stockholders approved (i) the Yonkers
Financial Corporation 1996 Management Recognition Plan ("MRP") and (ii) the
Yonkers Financial Corporation 1996 Stock Option and Incentive Plan (the "Option
Plan"). The Holding Company funded the MRP in the quarter ended December 31,
1996 by purchasing 4% of its outstanding common stock, or 142,830 shares, in the
open market at a total cost of $1.8 million. Grants for a total of 108,905
shares have been made to employees and directors under the MRP through June 30,
1997; the remaining 33,925 shares are included in treasury stock at June 30,
1997. Unearned compensation of $1.4 million was recorded with respect to the
MRP awards and $201,000 of that amount was amortized to compensation expense
during the nine months ended June 30, 1997. Under the Option Plan, initial
grants of 264,951 options were made during the quarter ended December 31, 1996,
at an exercise price of $12.875 per share. A total of 92,124 shares are
reserved for future grants under the Option Plan.
On May 1, 1997, the Company received approval from the OTS to repurchase up
to 5% of the outstanding shares of common stock in the open market over a twelve
month period. Through June 30, 1997, the Company repurchased 144,000 shares of
the 158,987 approved shares at a total cost of $2.2 million.
(3) Earnings Per Share
------------------
Primary earnings per share is reported for periods after the Conversion,
based on net income divided by the weighted average number of common shares
outstanding and common stock equivalents (dilutive stock options, if any). For
purposes of determining the weighted average number of common shares
outstanding, only the portion of ESOP shares committed to be released to
participants as of the date of the financial statements has been considered
outstanding.
(4) Accounting Standards
--------------------
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," requires recognition of servicing rights as an asset when loans
are sold with servicing retained. Other transactions included in the scope of
SFAS No. 125 include securities repurchase agreements, securities lending,
pledges of collateral, loan participations and in-substance defeasances of debt.
SFAS No. 125 is generally effective for transactions entered into on or after
January 1, 1997 and superseded SFAS No. 122, "Accounting for Mortgage
6
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Servicing Rights," which became effective for the Company on October 1, 1996.
SFAS No. 125 applies to the Company's securities repurchase agreements, which
are accounted for as borrowings, and its sales of mortgage loans with servicing
retained. The Company's prospective adoption of SFAS Nos. 122 and 125 during the
nine months ended June 30, 1997 did not have a significant impact on its
financial condition or results of operations.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share," which requires presentation of both basic
earnings per share ("EPS") and diluted EPS by all entities with complex capital
structures. Basic EPS, which replaces primary EPS, excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as the Company's stock options) were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. As required, the Company
will adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and will
restate all prior-period EPS data at that time.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income (and its components) in financial statements. The standard
does not, however, specify when to recognize or how to measure items that make
up comprehensive income. Comprehensive income represents net income and certain
amounts reported directly in equity, such as the net unrealized gain or loss on
available-for-sale securities. While SFAS No. 130 does not require a specific
reporting format, it does require that an enterprise display an amount
representing total comprehensive income for the period. SFAS No. 130 is
effective for both interim and annual periods beginning after December 15, 1997.
Management does not anticipate that the adoption of SFAS No. 130 will have a
material impact on the Company's consolidated financial statements.
In June 1997, the FASB also issued SFAS No. 113, "Disclosures about
Segments of an Enterprise and Related Information." Among other things, SFAS No.
131 requires public companies to report (1) certain financial and descriptive
information about its reportable operating segments (as defined), and (2)
certain enterprise-wide financial information about products and services,
geographic areas and major customers. The required segment financial disclosures
include a measure of profit or loss, certain specific revenue and expense items,
and total assets. SFAS No. 131 is effective for periods beginning after December
15, 1997. Management does not anticipate that the adoption of SFAS No. 131 will
have a material impact on the Company's consolidated financial statements.
7
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Part I. Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Comparison of Financial Condition at June 30, 1997 and September 30, 1996
Total assets at June 30, 1997 increased $28.6 million to $288.1 million
from $259.5 million at September 30, 1996. Asset growth was funded primarily
through proceeds from borrowings under securities repurchase agreements and
deposit inflows, partially offset by funds used to repurchase shares of the
Holding Company's common stock. Borrowings under securities repurchase
agreements increased $28.6 million to $38.9 million at June 30, 1997 from $10.3
million at September 30, 1996. Deposit liabilities increased $13.5 million to
$204.2 million at June 30, 1997 from $190.7 million at September 30, 1996. Funds
of $8.6 million were used to repurchase 643,905 shares of the Holding Company's
common stock in the open market during the nine months ended June 30, 1997,
including $2.2 million for 144,000 shares repurchased in the current quarter.
The total repurchases include $1.8 million or 142,830 shares repurchased in the
quarter ended December 31, 1996 for purposes of the Company's Management
Recognition Plan ("MRP").
Funds provided by borrowings and deposit growth were primarily invested in
new securities and loans, while funds from existing short-term investments were
primarily used to fund the Company's stock repurchases. Total securities
increased $17.9 million to $171.5 million at June 30, 1997 from $153.6 million
at September 30, 1996. Net loans increased $17.1 million to $103.8 million at
June 30, 1997 from $86.7 million at September 30, 1996. The increase in loans,
which has primarily resulted from higher originations of residential mortgage
loans, includes growth of $12.9 million in the quarter ended June 30, 1997.
Short-term investments decreased $8.4 million to $1.9 million at June 30, 1997
from $10.3 million at September 30, 1996.
The securities portfolio at June 30, 1997 reflects a $29.7 million increase
in available-for-sale securities and an $11.7 million decrease in held-to-
maturity securities, compared to September 30, 1996. The increase in available-
for-sale securities primarily reflects purchases of $46.7 million (including
purchases of longer term, fixed rate securities funded with borrowings under
repurchase agreements), partially offset by $3.8 million in principal payments,
maturities and calls and $13.7 million in proceeds from sales. The Company's
interest rate risk, as measured by the sensitivity of its net portfolio value to
instantaneous interest rate changes, may have increased as a result of funding
these security purchases with shorter term borrowings. The decrease in held-to-
maturity securities primarily reflects principal payments, maturities and calls
of $11.6 million. Available-for-sale securities represented 51.4% of the total
securities portfolio at June 30, 1997, compared to 38.1% at September 30, 1996.
Management has increased the level of available-for-sale securities to enhance
the Company's overall financial flexibility,
8
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including the ability to reposition the portfolio or reduce borrowings in
response to changes in interest rates and other market conditions.
The $17.1 million increase in net loans reflects increases of $14.2 million
in one-to four-family mortgage loans, $2.6 million in commercial real estate
loans, $536,000 in multi-family loans, and $433,000 in consumer and commercial
business loans. These increases were partially offset by a decrease of $475,000
in construction loans and an increase of $138,000 in the allowance for loan
losses.
Borrowings at June 30, 1997 reflect a $28.6 million increase in securities
repurchase agreements to $38.9 million, compared to $10.3 million at September
30, 1996, partially offset by a $7.0 million decrease in FHLB advances to $1.0
million compared to $8.0 million at September 30, 1996. The Company began to
utilize repurchase agreements during the quarter ended September 30, 1996 as a
means of leveraging available capital to support further asset growth (primarily
available-for-sale securities) and increase net interest income. For
information regarding the terms of the repurchase agreements, see "Liquidity and
Capital Resources".
Stockholders' equity decreased $6.1 million, from $49.0 million at
September 30, 1996 to $42.9 million at June 30, 1997. The decrease is primarily
attributable to common share repurchases at a total cost of $8.6 million,
partially offset by net earnings of $1.8 million retained after dividends and an
improvement of $297,000 in the after-tax net unrealized gains and losses on
available-for-sale securities. A total of 643,905 shares were repurchased in the
nine months ended June 30, 1997 at an average cost of $13.44 per share. Of this
total, 108,905 repurchased shares with a cost of $1.4 million were awarded under
the MRP through June 30, 1997, and 535,000 shares were held as treasury stock at
the end of the current quarter. The ratio of stockholders' equity to total
assets at June 30, 1997 was 14.90% as compared to 18.88% at September 30, 1996.
The book value per share was $14.14 at June 30, 1997 and $13.72 at September 30,
1996 (computed based on total shares issued less treasury shares).
Total non-performing assets decreased $1.8 million, from $3.4 million at
September 30, 1996 to $1.6 million at June 30, 1997, as a result of a $1.5
million net reduction in non-accrual loans past due ninety days or more and a
$179,000 net reduction in real estate owned. The ratio of non-performing assets
to total assets decreased to 0.57% at June 30, 1997 from 1.30% at September 30,
1996. The allowance for loan losses was $1.1 million or 1.01% of total loans at
June 30, 1997, compared to $937,000 or 1.06% at September 30, 1996. The ratio
of the allowance for loan losses to non-performing loans was 87.75% at June 30,
1997, compared to 33.77% at September 30, 1996.
9
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Comparison of Operating Results for the Three-Month Periods Ended June 30, 1997
and 1996
Net income for the three months ended June 30, 1997 was $793,000 or $0.27
per common share compared to $632,000 or $0.19 per share for the same period in
1996. The $161,000 increase in net income was primarily attributable to a
$438,000 increase in net interest income and a $162,000 decrease in the
provision for loan losses, partially offset by a $421,000 increase in non-
interest expense.
Net interest income increased $438,000 to $2.8 million for the three months
ended June 30, 1997 from $2.3 million for the three months ended June 30, 1996.
The increase is primarily attributable to the positive effect of an increase in
average earning assets reflecting reinvestment of proceeds from borrowings and
deposit growth. The interest rate spread increased to 3.29% for the current
quarter compared to 3.05% for the quarter ended June 30, 1996, while the net
interest margin widened to 3.94% in the current quarter from 3.87% in the year-
ago period.
Interest and dividend income totaled $5.3 million for the three months
ended June 30, 1997, an increase of $1.0 million compared to interest and
dividend income of $4.3 million for the three months ended June 30, 1996. This
increase reflects the effect of a $40.7 million increase in total average
interest-earning assets and a 50 basis point increase in the average yield on
such assets to 7.64% for the three months ended June 30, 1997 from 7.14% for the
same period in the prior year. Interest income on loans increased $317,000 for
the three months ended June 30, 1997 compared to the same period in the prior
year, reflecting the effect of a $10.1 million increase in the average loan
portfolio and a 44 basis point increase in the average yield. The increase in
the average loan portfolio was primarily attributable to increases in one-to-
four family residential loans, commercial real estate loans and commercial
business loans. The increase in average yield reflects the annualized effect of
additional interest income recognized in the current quarter due to the
collection of non-accrued interest on certain previously non-performing loans
which were paid-off or returned to accruing status in the current quarter.
On a combined basis, interest and dividend income on mortgage-backed and
other securities increased $1.0 million to $3.1 million for the three months
ended June 30, 1997 from $2.1 million for the three months ended June 30, 1996.
This combined increase consisted of (i) a $564,000 increase in interest on other
securities, attributable to the effects of a $23.6 million increase in the
average balance and a 91 basis point increase in the average yield, and (ii) a
$476,000 increase in interest on mortgage-backed securities, attributable to the
effects of a $23.0 million increase in the average balance and a 44 basis point
increase in the average yield. The higher average yields on both portfolios
reflect recent purchases of longer term, fixed rate securities at higher yields.
Interest and dividend income on other earning assets decreased $285,000,
reflecting lower average balances and yields.
10
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Interest expense totaled $2.6 million for the three months ended June 30,
1997, an increase of $634,000 compared to interest expense of $2.0 million for
the three months ended June 30, 1996. Interest expense on deposits increased
$53,000 for the three months ended June 30, 1997 compared to the same period in
the prior year. This increase reflects the effect of a $7.4 million increase in
the average balance, partially offset by a 5 basis point decrease in the
average rate on interest-bearing deposits to 4.04% for the three months ended
June 30, 1997 from 4.09% for the prior-year quarter. The increase in average
interest-bearing deposits consisted of a $5.9 million increase in average NOW,
money market and club accounts and a $5.7 million increase in average savings
certificate accounts, partially offset by a $4.3 million decrease in average
regular savings accounts. Interest expense on borrowings increased $581,000 to
$596,000 for the three months ended June 30, 1997 from $15,000 for the three
months ended June 30, 1996. This increase primarily reflects the effect of a
$40.0 million increase in average borrowings to $41.0 million for the three
months ended June 30, 1997 from $1.0 million for the same period last year, as
the Company continued to increase borrowings to leverage available capital and
support further asset growth.
The provision for loan losses was $75,000 and $237,000 for the three months
ended June 30, 1997 and 1996, respectively. Loan charge-offs were $79,000 and
recoveries were $1,000 during the three months ended June 30, 1997, compared to
$310,000 in charge-offs and $7,000 in recoveries during the same period in 1996.
Charge-offs in the 1996 period include $203,000 relating to the settlement of
the Company's participation interest in a loan originated by the Thrift
Association Service Corporation ("TASCO"). The remaining charge-offs in both
periods primarily relate to transfers of foreclosed properties to real estate
owned. Non-performing loans totaled $1.2 million at June 30, 1997, down from
$2.8 million at September 30, 1996 and $2.7 million at June 30, 1996. The
decrease in non-performing loans was primarily a result of (i) returning certain
loans to accruing status due to collections received and management's judgment
that these loans will continue to perform, (ii) payoffs of a $232,000
construction loan on a two-family residence and a $304,000 mortgage loan on a
single-family residence as a result of the sale of these properties, and (iii)
transfers of loans of $313,000 to real estate owned. The allowance for loan
losses was $1.1 million or 1.01% of total loans at June 30, 1997, compared to
$937,000 or 1.06% at September 30, 1996 and $862,000 or 1.00% at June 30, 1996.
The ratio of the allowance for loan losses to non-performing loans was 87.75% at
June 30, 1997, compared to 33.77% at September 30, 1996 and 31.90% a year
earlier.
Management estimates the allowance for loan losses based on an analysis of
various factors, including the value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, historical loss experience, delinquency trends and
prevailing economic conditions. Although the Company maintains its allowance
for loan losses at a level it considers adequate to absorb probable losses,
there can be no assurance that such losses will not exceed the estimated amounts
or that additional substantial provisions for losses will not be required in
future periods.
11
<PAGE>
The following table sets forth certain asset quality ratios and other data
at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1996 June 30, 1996
-------------- ------------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans $1,225 $2,775 $2,702
Real estate owned, net 424 603 391
Total non-performing assets $1,649 $3,378 $3,093
------ ------ ------
Non-performing loans to total loans 1.15% 3.14% 3.13%
Non-performing assets to total assets 0.57% 1.30% 1.27%
Allowance for loan losses to:
Non-performing loans 87.75% 33.77% 31.90%
Total loans 1.01% 1.06% 1.00%
</TABLE>
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 114 to loans that are individually evaluated for collectibility in
accordance with its normal loan review procedures (principally loans in the
commercial mortgage, multi-family, construction and land loan portfolios). SFAS
No. 114 does not apply to smaller-balance homogeneous loans in the Company's
one-to four-family mortgage and consumer loan portfolios. The Company's recorded
investment in impaired loans consisted of non-accrual commercial mortgage,
construction and land loans totaling $740,000 at June 30, 1997 and $975,000 at
September 30, 1996. All of these loans were collateral-dependent loans measured
based on the fair value of the collateral in accordance with SFAS No. 114. The
Company determines the need for an allowance for impairment under SFAS No. 114
on a loan-by-loan basis. At June 30, 1997 and September 30, 1996, such an
allowance was not required with respect to the Company's impaired loans due to
the sufficiency of the related collateral values. The average recorded
investment in impaired loans was $818,000 for the nine months ended June 30,
1997. Interest income recognized on impaired loans (while such loans were
considered to be impaired) was not significant for the nine months ended June
30, 1997.
Non-interest income for the three months ended June 30, 1997 increased
$26,000 to $199,000 from $173,000 for the three months ended June 30, 1996.
Increases of $31,000 in service charges and fee income and $13,000 in other
non-interest income were partially offset by a net loss of $18,000 on sales of
securities in the current quarter. The increase in service charges and fee
income primarily reflects increases in volume. The net loss on securities
primarily reflects realized losses on sales of available-for-sale securities.
12
<PAGE>
Non-interest expense increased $421,000 to $1.6 million for the three
months ended June 30, 1997 as compared to $1.1 million for the same period in
the prior year. The increase is primarily attributable to an increase in
compensation and benefits expense of $201,000 and an increase in other non-
interest expense of $262,000, partially offset by a $79,000 decrease in federal
deposit insurance premiums. The increase in compensation and benefits expense
primarily reflects recognition in the current quarter of costs associated with
the Management Recognition Plan ($70,000) and an increase in Employee Stock
Ownership Plan expenses ($38,000), as well as additional staffing. The increase
in other non-interest expense is primarily attributable to additional
advertising expense and costs associated with operations as a public company, as
well as a non-recurring $162,000 reduction in expense reflected in the quarter
ended June 30, 1996 resulting from the favorable resolution of the Company's
Nationar claim. The decrease in federal deposit insurance premiums reflects
lower deposit insurance rates applicable to the Association subsequent to the
recapitalization of the Savings Association Insurance Fund ("SAIF") in September
1996. For calendar 1997, SAIF insurance premiums range from 0 to 27 basis points
of insured deposits, compared to 23 basis points for all institutions prior to
the recapitalization of SAIF. In connection with the recapitalization, a
Financing Corporation ("FICO") assessment is now imposed on all SAIF-assessable
deposits. For the first semi-annual period of calendar 1997, this assessment was
equal to 6.48 basis points of insured deposits.
Income tax expense increased $44,000 from $469,000 for the three months
ended June 30, 1996 to $513,000 for the three months ended June 30, 1997,
primarily reflecting higher pre-tax income.
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 1997
and 1996
Net income for the nine months ended June 30, 1997 was $2.2 million or
$0.75 per common share compared to $1.4 million for the nine-month period ended
June 30, 1996. The $784,000 increase in net income was primarily attributable to
a $2.1 million increase in net interest income and a $162,000 decrease in the
provision for loan losses, partially offset by a $1.1 million increase in non-
interest expense and a $390,000 increase in income tax expense.
Net interest income increased $2.1 million to $8.0 million for the nine
months ended June 30, 1997 from $5.9 million for the nine months ended June 30,
1996. The increase is primarily attributable to the positive effect of an
increase in average earning assets reflecting reinvestment of the stock offering
proceeds since April 1996, as well as reinvestment of proceeds from borrowings
and deposit growth. The interest rate spread increased to 3.28% for the current
nine-month period compared to 3.13% for the nine months ended June 30, 1996,
while the net interest margin widened to 3.96% in the current period from 3.63%
in the year-ago period.
13
<PAGE>
Interest and dividend income totaled $15.2 million for the nine months
ended June 30, 1997, an increase of $3.3 million compared to interest and
dividend income of $11.9 million for the nine months ended June 30, 1996. This
increase reflects a $51.2 million increase in total average interest-earning
assets and a 24 basis point increase in the average yield on such assets to
7.54% for the nine months ended June 30, 1997 from 7.30% for the same period in
the prior year. Interest income on loans increased $406,000 for the nine months
ended June 30, 1997 compared to the same period in the prior year. This increase
reflects the effect of a $6.8 million increase in the average loan portfolio,
slightly offset by the effect of a 6 basis point decrease in the average yield.
The increase in the average balance of loans was primarily attributable to
increases in one- to four- family residential loans, commercial real estate
loans and commercial business loans.
On a combined basis, interest and dividend income on mortgage-backed and
other securities increased $3.1 million to $8.8 million for the nine months
ended June 30, 1997 from $5.7 million for the nine months ended June 30, 1996.
This combined increase consisted of (i) a $1.7 million increase in interest on
other securities, attributable to the effects of a $25.0 million increase in the
average balance and a 94 basis point increase in the average yield, and (ii) a
$1.4 million increase in interest on mortgage-backed securities, attributable to
the effects of a $23.7 million increase in the average balance and a 32 basis
point increase in the average yield. The higher average yields on both
portfolios reflect recent purchases of longer term, fixed rate securities at
higher yields. Interest and dividend income on other earning assets decreased
$236,000, reflecting lower average balances and yields.
Interest expense totaled $7.2 million for the nine months ended June 30,
1997, an increase of $1.2 million compared to interest expense of $6.0 million
for the nine months ended June 30, 1996. Interest expense on deposits decreased
$78,000 for the nine months ended June 30, 1997 compared to the same period in
the prior year. This decrease reflects the effect of a 14 basis point decrease
in the average rate on interest-bearing deposits to 4.02% for the nine months
ended June 30, 1997 from 4.16% for the prior year's equivalent period, partially
offset by the effect of a $4.1 million increase in average balances. The
increase in average interest-bearing deposits consisted of a $5.4 million
increase in average NOW, money market and club accounts, and a $4.3 million
increase in average savings certificate accounts, partially offset by a $5.6
million decrease in average regular savings accounts. Interest expense on
borrowings increased $1.3 million to $1.4 million for the nine months ended June
30, 1997 from $88,000 for the nine months ended June 30, 1996. This increase
primarily reflects the effect of a $30.5 million increase in average borrowings
to $32.4 million for the nine months ended June 30, 1997 from $1.9 million for
the same period last year, as the Company continued to increase borrowings to
leverage available capital and support further asset growth.
The provision for loan losses was $225,000 and $387,000 for nine months
ended June 30, 1997 and 1996, respectively. Net charge-offs were $87,000 during
the nine months ended June 30, 1997 compared to $244,000 for the nine months
ended June 30, 1996.
14
<PAGE>
Non-interest income for the nine months ended June 30, 1997 increased
$62,000 to $566,000 from $504,000 for the nine months ended June 30, 1996.
Increases of $90,000 in service charges and fee income and $24,000 in other non-
interest income were partially offset by a net loss of $52,000 on sales of
securities in the current year. The increase in service charges and fee income
primarily reflects increases in volume. The net loss on securities primarily
reflects realized losses on sales of available-for-sale securities.
Non-interest expense increased $1.1 million to $4.7 million for the nine
months ended June 30, 1997 as compared to $3.6 million for the same period in
the prior year. The increase is primarily attributable to an increase in
compensation and benefits expense of $674,000, and an increase in other non-
interest expense of $499,000, partially offset by a $171,000 decrease in federal
deposit insurance premiums. The increase in compensation and benefits expense
primarily reflects current-period costs associated with the Management
Recognition Plan ($201,000) and an increase in Employee Stock Ownership Plan
expenses ($227,000), as well as a $75,000 payment made to the estate of the
Company's former Senior Vice President, who died last year, in recognition of
his past service to the Association. The remaining increase in compensation and
benefits expense is primarily attributable to an increase in staffing. The
increase in other non-interest expense is primarily attributable to additional
advertising expense and costs associated with operations as a public company, as
well as a $162,000 reduction in expense reflected in the quarter ended June 30,
1996 resulting from the favorable resolution of the Company's Nationar claim.
The decrease in federal deposit insurance premiums reflects lower deposit
insurance rates applicable to the Association subsequent to the recapitalization
of the SAIF.
Income tax expense increased $390,000 from $1.0 million for the nine months
ended June 30, 1996 to $1.4 million for the nine months ended June 30, 1997,
primarily reflecting higher pre-tax income.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings, principal
and interest payments on loans and securities and, to a lesser extent, proceeds
from the sale of loans and securities. While maturities and scheduled
amortization of loans and securities provide an indication of the timing of the
receipt of funds, other sources of funds such as loan prepayments and deposit
inflows are less predictable due to the effects of changes in interest rates,
economic conditions and competition.
The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends received from the Association, if any. The main
cash flows are payments of dividends to shareholders and any repurchases of the
Holding Company's common stock. During the nine months ended June 30, 1997, the
Holding Company completed the repurchase of approximately 14% of its shares
under repurchase programs
15
<PAGE>
and 4% of its shares for awards under the Management Recognition Plan. A total
of 643,905 shares were repurchased at a cost of $8.6 million.
The Association is required to maintain an average daily balance of total
liquid assets and short-term liquid assets as a percentage of net withdrawable
deposit accounts plus short-term borrowings, as defined by the regulations of
the Office of Thrift Supervision. The minimum required total liquidity and
short-term liquidity ratios are currently 5.0% and 1.0%, respectively. At June
30, 1997, the Association's total liquidity ratio was 8.1% and its short-term
liquidity ratio was 3.0%. The level of liquid assets is dependent on the
Association's operating, financing and investing activities during any given
period.
The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities. The Company's borrowings at June 30, 1997 consist of $38.9 million
in borrowings under securities repurchase agreements and $1.0 million in FHLB
advances. At June 30, 1997, the Company had the ability to obtain additional
FHLB advances of approximately $70.6 million.
At June 30, 1997, the Company had outstanding loan origination commitments
of $15.3 million, unadvanced home equity lines of credit of $4.3 million and
undisbursed construction loans in process of $792,000. The Company anticipates
that it will have sufficient funds available to meet its current origination and
other commitments. Certificates of deposit scheduled to mature in one year or
less from June 30, 1997 totaled $75.0 million. Based on the Company's most
recent experience and pricing strategy, management believes that a significant
portion of such deposits will remain with the Company.
In securities repurchase agreements, the Company borrows funds through the
sale of securities to the FHLB of New York, as counterparty, and concurrently
agrees to repurchase the identical securities at a fixed price on a specified
date. The Company accounts for these agreements as financing transactions since
it maintains effective control over the securities. Accordingly, the
transaction proceeds are recorded as borrowings and the underlying securities
continue to be carried in the Company's available-for-sale securities portfolio.
Repurchase agreements are collateralized by the securities sold and, in certain
cases, by additional margin securities. During the nine months ended June 30,
1997, the average borrowings under these agreements amounted to $29.3 million
and the maximum month-end balance outstanding was $39.2 million.
16
<PAGE>
Information concerning outstanding repurchase agreements with the FHLB of New
York as of June 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Repurchase Borrowings
Accrued Weighted Fair Value of
Remaining Term Interest Average Collateral Securities
to Maturity Amount Payable (1) Rate Sold (2) (3)
- ------------ ------ ---------- ---- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Under 30 days $18,530 $173 5.67% $20,668
30 to 90 days 8,100 118 5.69 8,908
Over 90 days 12,229 148 6.12 13,228
------- ---- -------
Total $38,859 $439 5.82% $42,804
======= ==== =======
</TABLE>
(1) Included in other liabilities on the consolidated balance sheet.
(2) Represents the fair value of the available-for-sale securities which were
sold to the counterparty, plus accrued interest receivable of $362,000. The
collateral securities sold consist of mortgage-backed securities and other
debt securities with fair values of $32.3 million and $10.2 million,
respectively.
(3) In order to satisfy subsequent margin requirements, held-to-maturity
securities with a carrying value of $2.6 million and a fair value of $2.7
million have also been pledged as collateral.
At June 30, 1997, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of 12.6% of total adjusted assets,
which is above the required level of 1.5%; core capital of 12.6% of total
adjusted assets, which is above the required level of 3.0%; and total risk-based
capital of 35.2%, which is above the required level of 8.0%. These regulatory
capital requirements, which are applicable to the Association only, do not
consider additional capital held at the Holding Company level, and require
certain adjustments to stockholder's equity to arrive at the various capital
amounts.
Part I. Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal
proceedings arising in the normal course of its business. While the ultimate
outcome of these various legal proceedings cannot be predicted with certainty,
it is the opinion of management that the resolution of these legal actions
should not have a material effect on the Company's financial position, results
of operations or liquidity.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name
----------- ----
27 Financial Data Schedule
(b) Reports on Form 8-K
None
18
<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.
YONKERS FINANCIAL CORPORATION
-----------------------------
(Registrant)
Date: August 14, 1997 /s/ Richard F. Komosinski
--------------------------
Richard F. Komosinski,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 /s/ Joseph D. Roberto
-----------------------
Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,257
<INT-BEARING-DEPOSITS> 1,858
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,230
<INVESTMENTS-CARRYING> 83,276
<INVESTMENTS-MARKET> 83,290
<LOANS> 104,895
<ALLOWANCE> (1,075)
<TOTAL-ASSETS> 288,089
<DEPOSITS> 204,156
<SHORT-TERM> 39,859
<LIABILITIES-OTHER> 1,160
<LONG-TERM> 0
0
0
<COMMON> 36
<OTHER-SE> 42,878
<TOTAL-LIABILITIES-AND-EQUITY> 268,089
<INTEREST-LOAN> 2,132
<INTEREST-INVEST> 3,107
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 5,339
<INTEREST-DEPOSIT> 1,992
<INTEREST-EXPENSE> 2,588
<INTEREST-INCOME-NET> 2,751
<LOAN-LOSSES> 75
<SECURITIES-GAINS> (18)
<EXPENSE-OTHER> 1,569
<INCOME-PRETAX> 1,306
<INCOME-PRE-EXTRAORDINARY> 1,306
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 793
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 7.64
<LOANS-NON> 1,225
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 813
<ALLOWANCE-OPEN> (1,078)
<CHARGE-OFFS> 79
<RECOVERIES> (1)
<ALLOWANCE-CLOSE> (1,075)
<ALLOWANCE-DOMESTIC> (1,075)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
