================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
Commission file number 0-27716
YONKERS FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3870836
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Executive Plaza, Yonkers, New York 10701
- --------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 965-2500
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
twelve months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-K contained in this form, and no
disclosure will be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
As of December 24, 1997, there were issued and outstanding 3,020,763
shares of the Registrant's Common Stock. The aggregate market value of the
voting stock held by non-affiliates of the Registrant, computed by reference to
the closing price of such stock on the Nasdaq National Market as of December 24,
1997, was approximately $48.0 million. (The exclusion from such amount of the
market value of the shares owned by any person shall not be deemed an admission
by the Registrant that such person is an affiliate of the Issuer.)
DOCUMENTS INCORPORATED BY REFERENCE
PARTS II and IV of Form 10-K--Annual Report to Stockholders for the fiscal year
ended September 30, 1997. PART III of Form 10-K--Proxy Statement for the Annual
Meeting of Stockholders for the fiscal year ended September 30, 1997.
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<PAGE>
YONKERS FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
SEPTEMBER 30, 1997
Table of Contents
Page
----
Part I
----------
Item 1 Business.......................................................... 3
Item 2 Properties........................................................ 45
Item 3 Legal Proceedings................................................. 45
Item 4 Submission of Matters to a Vote of Security Holders............... 46
Part II
----------
Item 5 Market for Registrant's Common Equity and Related Shareholder
Matters........................................................... 46
Item 6 Selected Financial Data........................................... 46
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 46
Item 7a Quantitative and Qualitative Disclosures About Market Risk........ 46
Item 8 Financial Statements and Supplementary Data....................... 46
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 46
Part III
----------
Item 10 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 47
Item 11 Executive Compensation............................................ 48
Item 12 Security Ownership of Certain Beneficial Owners
and Management................................................. 48
Item 13 Certain Relationships and Related Transactions.................... 48
Part IV
----------
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K....................................................... 49
Signatures........................................................ 51
2
<PAGE>
PART I
Item 1. Business
General
Yonkers Financial Corporation (the "Holding Company") was formed at the
direction of The Yonkers Savings and Loan Association, FA ("Yonkers Savings" or
the "Association") in December 1995 for the purpose of owning all of the
outstanding stock of the Association issued in the Association's conversion from
the mutual to stock form of organization (the "Conversion"). The Conversion was
completed on April 18, 1996. Concurrent with the Conversion, the Holding Company
sold 3,570,750 shares of its common stock for net proceeds of $34.6 million. The
Holding Company and the Association are collectively referred to herein as the
"Company."
The Holding Company is incorporated under the laws of the State of
Delaware (and qualified to do business in the State of New York) and generally
is authorized to engage in any activity that is permitted by the Delaware
General Corporation Law. The assets of the Holding Company consist of the stock
of the Association, certain short-term and other investments, and a loan to its
Employee Stock Ownership Plan (the "ESOP").
As a community-oriented financial institution, the Association offers a
variety of financial services to meet the needs of communities in its market
area. The Association attracts deposits from the general public and uses such
deposits, together with borrowings, to originate primarily one- to four-family
residential mortgage loans (including home equity lines of credit) and, to a
lesser extent, multi-family and commercial real estate, consumer, land,
construction and commercial business loans in the Association's primary market
area. The Association also invests in mortgage-backed and other securities
permissible for a federally-chartered savings association. As a member of the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"), the Association's deposits are insured up to applicable
limits.
The executive offices (corporate headquarters) of the Company are
located at 6 Executive Plaza, Yonkers, New York 10701, and its telephone number
at that address is (914) 965-2500.
Market Area
The Company conducts its banking operations through its main office
located at One Manor House Square, Yonkers, New York and three branch offices
located in Yonkers, New York. An in-store branch located in Dutchess County, New
York opened in December 1997. A corporate headquarters office is also maintained
in Yonkers, New York. The Company's market area for deposits includes the City
of Yonkers and surrounding communities. The Company's primary market area for
its lending activities consists of communities within Westchester County and
portions of Rockland, Putnam and Dutchess Counties, New York.
Yonkers is located in Westchester County approximately 10 miles north
of the Borough of Manhattan in New York City. Yonkers and the surrounding
communities include a diverse population of low- and moderate-income
neighborhoods as well as middle class and more affluent neighborhoods. The
housing in the low- and moderate-income neighborhoods consists mainly of
apartments while other areas consist primarily of single-family residences. The
3
<PAGE>
Company's market area also includes substantial commercial areas containing
shopping areas, office and medical facilities and small- and medium-size
manufacturing and industrial facilities.
Lending Activities
General. Historically, the Company originated 30-year, fixed-rate
mortgage loans secured by one- to four-family residences. Since the mid-1980s,
in order to reduce its vulnerability to changes in interest rates, the Company
has also originated adjustable-rate mortgage ("ARM") loans and home equity lines
of credit. During fiscal 1997, the Company began to offer a "15/1" residential
mortgage loan product with a fixed rate for the first fifteen years and annual
rate adjustments thereafter. The Company engages in secondary market sales of a
portion of its residential mortgage originations, as market conditions warrant.
The Company also offers multi-family and commercial real estate, consumer,
construction and land loans.
4
<PAGE>
The following table sets forth the composition of the loan portfolio,
by category, in dollar amounts and as a percentage of the total portfolio at the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994
--------------------- ------------------ ------------------ ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Real Estate Mortgage Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family(1)(2)(3)............ $111,821 79.0% $62,283 70.6% $63,282 74.4% $64,078 80.7%
Multi-family............................ 5,658 4.0 5,471 6.2 5,647 6.6 4,483 5.7
Commercial.............................. 11,990 8.5 9,117 10.3 6,575 7.7 3,176 4.0
Construction............................ 2,786 2.0 2,175 2.5 2,205 2.6 2,138 2.7
Land.................................... 1,814 1.3 1,934 2.2 2,112 2.5 814 1.0
---------- ------ ------- ------ -------- ------ -------- ------
Total real estate mortgage loans..... 134,069 94.8 80,980 91.8 79,821 93.8 74,689 94.1
--------- ----- ------- ----- ------- ----- ------- -----
Other Loans:
Consumer loans:
Home equity............................. 3,217 2.3 2,911 3.3 2,389 2.8 1,872 2.4
Personal................................ 1,666 1.1 1,632 1.8 1,734 2.0 1,704 2.2
Automobile.............................. 336 0.2 367 0.4 409 0.5 473 0.6
Home improvement........................ 82 0.1 153 0.2 209 0.2 279 0.3
Other................................... 819 0.6 790 0.9 474 0.6 273 0.3
---------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans................. 6,120 4.3 5,853 6.6 5,215 6.1 4,601 5.8
Commercial business loans................. 1,299 0.9 1,413 1.6 56 0.1 92 0.1
---------- ------ -------- ------ -------- ------ -------- ------
Total other loans.................... 7,419 5.2 7,266 8.2 5,271 6.2 4,693 5.9
---------- ------ -------- ------ -------- ------ -------- ------
Total loans.......................... 141,488 100.0% 88,246 100.0% 85,092 100.0% 79,382 100.0%
===== ===== ===== =====
Less:
Construction loans in process............ (1,091) (171) (293) (943)
Allowance for loan losses................ (1,093) (937) (719) (311)
Net deferred loan fees................... (184) (472) (401) (304)
---------- -------- -------- --------
Total loans, net..................... $139,120 $86,666 $83,679 $77,824
========== ======== ======== ========
</TABLE>
1993
------------------
Percent
Amount of Total
------ --------
(Dollars in Thousands)
Real Estate Mortgage Loans:
One- to four-family(1)(2)(3)............ $67,633 85.1%
Multi-family............................ 2,281 2.9
Commercial.............................. 2,704 3.4
Construction............................ 1,472 1.9
Land.................................... 914 1.1
-------- ------
Total real estate mortgage loans..... 75,004 94.4
------- -----
Other Loans:
Consumer loans:
Home equity............................. 1,881 2.4
Personal................................ 1,589 2.0
Automobile.............................. 381 0.5
Home improvement........................ 326 0.4
Other................................... 81 0.1
--------- ------
Total consumer loans................. 4,258 5.4
Commercial business loans................. 175 0.2
--------- ------
Total other loans.................... 4,433 5.6
--------- ------
Total loans.......................... 79,437 100.0%
=====
Less:
Construction loans in process............ (215)
Allowance for loan losses................ (295)
Net deferred loan fees................... (294)
--------
Total loans, net..................... $78,633
========
<PAGE>
- ----------
(1) Includes advances under home equity lines of credit of $5.9 million, $7.3
million, $9.1 million, $10.1 million and $11.2 million, respectively, at
September 30, 1997, 1996, 1995, 1994 and 1993.
(2) Includes cooperative apartment loans of $4.8 million, $5.5 million, $5.8
million, $5.9 million and $6.7 million, respectively, at September 30,
1997, 1996, 1995, 1994 and 1993.
(3) Includes loans held for sale of $20.4 million at September 30, 1997.
5
<PAGE>
The following table sets forth the composition of the loan portfolio,
by category and by type of interest rate (fixed or adjustable), in dollar
amounts and as a percentage of the total portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------------
1997 1996 1995 1994
------------------- ------------------ ------------------ ----------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Fixed-Rate Loans
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family(1)..................... $ 36,074 25.5% $11,805 13.4% $11,805 13.9% $ 8,352 10.5%
Multi-family............................... 108 0.1 47 0.1 715 0.8 539 0.7
Commercial................................. 95 0.1 131 0.1 396 0.5 194 0.2
Land....................................... 390 0.3 49 0.1 49 0.1 49 0.1
--------- ---- ------ ---- ------ ---- ------ ----
Total real estate mortgage loans........ 36,667 26.0 12,032 13.7 12,965 15.3 9,134 11.5
Consumer loans.......................... 6,120 4.3 5,853 6.6 5,215 6.1 4,601 5.8
--------- ---- ------ ---- ------ ---- ------ ----
Total fixed-rate loans.................. 42,787 30.3 17,885 20.3 18,180 21.4 13,735 17.3
--------- ---- ------ ---- ------ ---- ------ ----
Adjustable-Rate Loans
Real estate mortgage loans:
One- to four-family(2)(3).................. 75,747 53.5 50,478 57.2 51,477 60.5 55,726 70.2
Multi-family............................... 5,550 3.9 5,424 6.1 4,932 5.8 3,944 5.0
Commercial................................. 11,895 8.4 8,986 10.2 6,179 7.2 2,982 3.7
Construction............................... 2,786 2.0 2,175 2.5 2,205 2.6 2,138 2.7
Land....................................... 1,424 1.0 1,885 2.1 2,063 2.4 765 1.0
--------- ---- ------ ---- ------ ---- ------ ----
Total real estate mortgage loans........ 97,402 68.8 68,948 78.1 66,856 78.5 65,555 82.6
Commercial business loans............... 1,299 0.9 1,413 1.6 56 0.1 92 0.1
--------- ---- ------ ---- ------ ---- ------ ----
Total adjustable-rate loans............. 98,701 69.7 70,361 79.7 66,912 78.6 65,647 82.7
--------- ---- ------ ---- ------ ---- ------ ----
Total loans............................. 141,488 100.0% 88,246 100.0% 85,092 100.0% 79,382 100.0%
===== ===== ===== =====
Less:
Construction loans in process.............. (1,091) (171) (293) (943)
Allowance for loan losses.................. (1,093) (937) (719) (311)
Net deferred loan fees..................... (184) (472) (401) (304)
--------- ------ ------ -------
Total loans, net........................ $139,120 $86,666 $83,679 $77,824
========= ====== ====== =======
</TABLE>
1993
----------------
Percent
Amount of Total
------ --------
(Dollars in Thousands)
Fixed-Rate Loans
Real estate mortgage loans:
One- to four-family(1)..................... $10,094 12.7%
Multi-family............................... 550 0.7
Commercial................................. 230 0.3
Land....................................... 49 0.1
------ ----
Total real estate mortgage loans........ 10,923 13.8
Consumer loans.......................... 4,258 5.3
------ ----
Total fixed-rate loans.................. 15,181 19.1
------ ----
Adjustable-Rate Loans
Real estate mortgage loans:
One- to four-family(2)(3).................. 57,539 72.4
Multi-family............................... 1,731 2.2
Commercial................................. 2,474 3.1
Construction............................... 1,472 1.9
Land....................................... 865 1.1
------ ----
Total real estate mortgage loans........ 64,081 80.7
Commercial business loans............... 175 0.2
------ ----
Total adjustable-rate loans............. 64,256 80.9
------ ----
Total loans............................. 79,437 100.0%
=====
Less:
Construction loans in process.............. (215)
Allowance for loan losses.................. (295)
Net deferred loan fees..................... (294)
------
Total loans, net........................ $78,633
=======
<PAGE>
- ----------
(1) Includes loans held for sale of $20.4 million at September 30, 1997.
(2) Includes advances under home equity lines of credit of $5.9 million, $7.3
million, $9.1 million, $10.1 million and $11.2 million, respectively, at
September 30, 1997, 1996, 1995, 1994 and 1993.
(3) Includes cooperative apartment loans of $4.8 million, $5.5 million, $5.8
million, $5.9 million and $6.7 million, respectively, at September 30,
1997, 1996, 1995, 1994 and 1993.
6
<PAGE>
The following table sets forth the contractual maturity of the
Company's loan portfolio at September 30, 1997. The table reflects the entire
unpaid principal balance of a loan in the maturity period that includes the
final payment date and, accordingly, does not give effect to periodic principal
repayments or possible prepayments. Principal repayments and prepayments totaled
$13.6 million , $11.8 million and $11.0 million for the years ended September
30, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
At September 30, 1997
-------------------------------------------------------------------------------------------------
Commercial
One-to Four-Family(1) Multi-Family Real Estate Construction Land
--------------------- -------------- ---------------- ------------------ ------------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
Contractual maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One year or less(2) ............ $ 1,785 9.19% $ 101 9.13% $ 247 10.44% $2,786 10.24% $1,018 10.66%
-------- ------ ------ ------ ------
After one year:
More than 1 year to 2 years .. 1,307 9.78 -- -- -- -- -- -- 29 10.50
More than 2 years to 3 years . 1,166 9.61 5 8.25 30 9.50 -- -- 520 10.50
More than 3 years to 5 years . 1,909 9.62 -- -- 113 8.70 -- -- -- --
More than 5 years to 10 years 3,950 9.10 674 9.02 892 9.53 -- -- -- --
More than 10 years to 20 years 15,847 8.03 4,379 8.93 7,730 8.86 -- -- 247 10.00
More than 20 years ........... 85,857 7.63 499 8.85 2,978 8.53 -- -- -- --
-------- ------ ------- ------ ------
Total after one year ......... 110,036 7.82 5,557 8.93 11,743 8.83 -- -- 796 10.34
-------- ------ ------- ------ ------
Total amount due ............. $111,821 7.84% $5,658 8.93% $11,990 8.86% $2,786 10.24% $1,814 10.52%
======== ====== ======= ====== ======
</TABLE>
At September 30, 1997
-----------------------------------------
Consumer and
Commercial Business Total
------------------- ----------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
Contractual maturity:
One year or less(2) ............ $ 261 13.26% $6,198 10.12%
------ ------
After one year:
More than 1 year to 2 years .. 456 11.42 1,792 10.28
More than 2 years to 3 years . 765 10.97 2,486 10.21
More than 3 years to 5 years . 1,689 10.73 3,711 10.10
More than 5 years to 10 years 4,141 9.61 9,657 9.35
More than 10 years to 20 years 107 8.72 28,310 8.42
More than 20 years ........... -- -- 89,334 7.67
------ -------
Total after one year ......... 7,158 10.12 135,290 8.09
------ -------
Total amount due ............. $7,419 10.23 $141,488 8.18
====== =======
- ----------
(1) Includes $5.9 million of advances under home equity lines of credit which
require minimum interest-only payments for the first five to ten years the
advance is outstanding, followed by a balloon payment thereafter. Also
includes $20.4 million in loans held for sale on the basis of their final
contractual maturity (all more than 20 years).
(2) Includes demand loans, loans having no stated maturity, and overdraft
loans.
7
<PAGE>
The following table sets forth the dollar amounts in each loan category
at September 30, 1997 that are contractually due after September 30, 1998, and
whether such loans have fixed interest rates or adjustable interest rates.
Due After September 30, 1998
-----------------------------
Fixed Adjustable Total
----- ---------- -----
(In Thousands)
Real estate mortgage loans:
One- to four-family ....................... $ 36,015 $ 74,021 $110,036
Multi-family .............................. 108 5,449 5,557
Commercial ................................ 74 11,669 11,743
Construction .............................. -- -- --
Land ...................................... 247 549 796
-------- -------- --------
Total real estate mortgage loans ....... 36,444 91,688 128,132
Consumer and commercial business loans . 5,859 1,299 7,158
-------- -------- --------
Total loans ............................ $ 42,303 $ 92,987 $135,290
======== ======== ========
Pursuant to Federal law, the aggregate amount of loans that the Company
is permitted to make to any one borrower or a group of related borrowers is
generally limited to 15% of the Association's unimpaired capital and surplus
(25% if the security for such loan has a "readily ascertainable" value or 30%
for certain residential development loans). At September 30, 1997, based on the
15% limitation, the Company's loans-to-one borrower limit was approximately $5.6
million. On the same date, the Company had no borrowers with outstanding
balances in excess of this amount. As of September 30, 1997, the largest dollar
amount outstanding to one borrower, or group of related borrowers, was a $2.0
million loan to a development company for the purpose of land development and
the construction of six single-family residences located in Ossining, New York.
The advanced portion of this loan totaled $1.1 million at September 30, 1997,
consisting of $520,000 for land lots and $586,000 for construction of the first
four residences for which there are contracts for sale. The Company's next
largest loan to one borrower or group outstanding totaled $1.5 million at
September 30, 1997 and was secured by an office building located in Yonkers, New
York. These loans were performing in accordance with their terms at September
30, 1997.
The Company's lending is subject to its written underwriting standards
and to loan origination procedures. Decisions on loan applications are made on
the basis of detailed applications submitted by the prospective borrower and
property valuations (consistent with the Company's appraisal policy) prepared by
independent appraisers. The loan applications are designed primarily to
determine the borrower's ability to repay, and the more significant items on the
application are verified through use of credit reports, financial statements,
tax returns and/or confirmations.
Under the Company's loan policy, the individual processing an
application is responsible for ensuring that all documentation is obtained prior
to the submission of the application to a loan officer for approval. In
addition, the loan officer verifies that the application meets the Company's
underwriting guidelines described below. Also, each application file is reviewed
to assure its accuracy and completeness. In 1997, the Company instituted an
enhanced quality control procedure for residential loan originations. The
8
<PAGE>
quality control system reviews underwriting decisions, appraisals and
documentation. The Company is using the services of an independent company to
perform the quality control reviews.
The Company's lending officers have approval authority for one- to
four-family residential loans, other than cooperative apartment ("co-op") loans,
up to $250,000. One- to four-family residential loans over $250,000 to $500,000
require the approval of the Company's President or its Vice President and Chief
Lending Officer. Co-op loans up to $500,000 require the approval and/or review
of the Chief Lending Officer. The Company's Chief Lending Officer has approval
authority for multi-family and commercial real estate loans up to $500,000 and
for land loans up to $250,000. Loans in excess of these amounts require the
approval of the Company's Executive Committee or Board of Directors. Various
officers have approval authority ranging from $2,000 on secured consumer loans,
up to $50,000 on fixed-rate home equity loans and up to $30,000 on commercial
business loans. Approval authorities on unsecured consumer loans range from
$2,000 to $10,000.
Generally, the Company requires title insurance or abstracts on its
mortgage loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Company also
requires flood insurance to protect the property securing its interest when the
property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Company's lending program is the origination of loans secured by mortgages
on owner-occupied one- to four-family residences. At September 30, 1997, $111.8
million, or 79.0%, of the Company's loan portfolio consisted of mortgage loans
on one- to four-family residences (including $20.4 million of loans held for
sale, $5.9 million of advances under home equity lines of credit and $4.8
million of co-op loans). Substantially all of the residential loans originated
by the Company are secured by properties located in the Company's primary
lending area. A majority of the mortgage loans originated by the Company are
retained and serviced by it. At September 30, 1997, approximately $4.5 million
of the Company's one- to four-family residential real estate loans were secured
by non-owner occupied properties. At that date, the average outstanding
residential loan balance was approximately $114,000.
Since the mid-1980s, the Company has offered ARM loans at rates and on
terms determined in accordance with market and competitive factors. The Company
offers one-year ARMs for terms of up to 30 years at a margin (generally 275
basis points) over the yield on the Average Weekly One Year U.S. Treasury
Constant Maturity Index. The one-year ARM loans currently offered by the Company
generally provide for a 200 basis point annual interest rate change cap and a
lifetime cap of 600 basis points over the initial rate. The Company also offers
a three-year ARM loan which adjusts based on a margin (generally 275 basis
points) over the yield on the three-year Treasury Note. The Company's three-year
ARM loans have a 200 basis point interest rate cap per adjustment period and a
lifetime cap of 500 basis points over the initial rate. The Company also offers
loans which are fixed for the first five-, seven- or ten-year period of the loan
term and adjust annually thereafter based on a specified margin over the yield
on the Average Weekly One Year U.S. Treasury Constant Maturity Index for the
remaining loan term. These loans currently provide for an annual interest rate
cap not to exceed 300 basis points for the initial adjustment period (and 200
basis points thereafter) and a lifetime cap of 500 basis points.
9
<PAGE>
The Company's ARM loans typically do not adjust below the initial rate.
Initial interest rates offered on the Company's ARMs may be 100 to 350 basis
points below the fully indexed rate. Although borrowers on such loans are
generally qualified at the fully indexed rate, the risk of default on these
loans may increase as interest rates increase. See "- Delinquencies and
Non-Performing Assets." The Company's ARMs do not permit negative amortization
of principal, do not contain prepayment penalties and are not convertible into
fixed-rate loans. At September 30, 1997, one- to four-family ARMs (including
loans of $35.7 million earning a fixed rate of interest for initial periods of
five, seven or 10 years) totaled $75.7 million, or 53.5% of the Company's total
loan portfolio.
During fiscal 1997, the Company began to offer a 30-year residential
mortgage loan product with a fixed rate for the first fifteen years and annual
rate adjustments thereafter based on a specified margin over the Average Weekly
One Year U.S. Treasury Constant Maturity Index. In addition, the loan has a
conversion option which allows the borrower to convert, during years sixteen
through eighteen, to a fixed rate for the remaining term. Loans held for sale of
$20.4 million at September 30, 1997 represent substantially all of the Company's
loans of this type. The sale of these loans was completed, with servicing
retained, during November 1997. The Company also offers conventional fixed-rate
loans with maximum terms of up to 30 years, although the Company has recently
emphasized originations of fixed-rate loans with terms of 10 to 15 years. The
interest rate on such loans is generally based on competitive factors. The
fixed-rate one- to four-family loans described in this paragraph are typically
underwritten in accordance with Freddie Mac and Fannie Mae standards to permit
their sale in the secondary market. The Company engages in secondary market
sales of a portion of its residential mortgage originations, as market
conditions warrant.
The Company originates home equity lines of credit secured by a lien on
the borrower's residence. The Company's home equity lines are generally limited
to $250,000. The Company uses the same underwriting standards for home equity
lines as it uses for one- to four-family residential mortgage loans. The
interest rates for home equity lines of credit float at a stated margin over the
lowest prime rate published in The Wall Street Journal and may not exceed 15.75%
over the life of the loan. The Company currently offers home equity lines for
terms of up to 30 years with interest only paid for the first 10 years of the
loan term. At September 30, 1997, the Company had $5.9 million of outstanding
advances under home equity lines and an additional $4.4 million of funds
committed, but undrawn, under home equity lines of credit.
The Company also originates loans secured by co-ops and condominiums
located in its market area. Condominium and co-op loans are made on
substantially the same terms as one- to four-family loans, except that co-op
loans are made only at adjustable rates of interest. At September 30, 1997, the
Company had $8.5 million of condominium and co-op loans.
In underwriting one- to four-family residential real estate loans, the
Company evaluates the borrower's ability to make principal, interest and escrow
payments, as well as the value of the property that will secure the loan and
debt-to-income ratios. The Company currently originates residential mortgage
loans with loan-to-value ratios of up to 80% for owner-occupied homes (95% with
private mortgage insurance to reduce the Company's exposure to 80% or less); up
to 65% for non-owner occupied homes; and up to 75% for co-op loans. The
Company's home equity lines of credit are originated in amounts which, together
with the amount of the first mortgage, generally do not exceed 75% of the
appraised value of the property securing the loan.
10
<PAGE>
The Company's residential mortgage loans customarily include
due-on-sale clauses giving the Company the right to declare the loan immediately
due and payable in the event that, among other things, the borrower sells or
otherwise disposes of the property subject to the mortgage and the loan is not
repaid.
Multi-family and Commercial Real Estate Lending. The Company has
increased its emphasis on the origination of permanent multi-family and
commercial real estate loans since fiscal 1994, in order to increase the
interest rate sensitivity and yield of its loan portfolio and to complement
residential lending opportunities. The Company's multi-family and commercial
real estate loan portfolio includes loans secured by apartment buildings, office
buildings, strip shopping centers and other income producing properties located
in its market area. At September 30, 1997, the Company had $12.0 million in
commercial real estate loans, representing 8.5% of the total loan portfolio, and
$5.7 million in multi-family loans, or 4.0% of the total loan portfolio.
The Company's permanent multi-family and commercial real estate loans
generally carry a maximum term of 20 years and have adjustable rates generally
based on a specific index, plus a margin. These loans are generally made in
amounts of up to 75% of the lesser of the appraised value or the purchase price
of the property, with a projected debt service coverage ratio of at least 125%.
Appraisals on properties securing multi-family and commercial real estate loans
are performed by an independent appraiser designated by the Company at the time
the loan is made. All appraisals on multi-family or commercial real estate loans
are reviewed by the Company's management. In addition, the Company's
underwriting procedures require verification of the borrower's credit history,
income and financial statements, banking relationships, references and income
projections for the property. Where feasible, the Company seeks to obtain
personal guarantees on these loans. For loans in excess of $250,000, Phase I
environmental studies are performed.
The table below sets forth, by type of security property, the number
and amount of the Company's multi-family and commercial real estate loans at
September 30, 1997. Substantially all of the loans referred to in the table
below are secured by properties located in the Company's market area.
Outstanding Amount
Number of Principal Non-Performing
Loans Balance or of Concern(1)
----- ------- ----------------
(Dollars in Thousands)
Commercial real estate:
Small business facilities .......... 34 $ 8,195 $ 211
Office buildings ................... 5 2,914 227
Health care facilities ............. 4 769 --
Industrial real estate ............. 1 112 --
Multi-family ....................... 30 5,658 --
------- ------- -------
Total multi-family and
commercial real estate loans ... 74 $17,648 $ 438
======= ======= =======
- ----------
(1) See "- Delinquencies and Non-Performing Assets"
At September 30, 1997, the Company's largest commercial real estate
loan had an outstanding balance of $1.5 million. This loan was originated in
September 1995 and refinanced in July 1997, and is secured by an office building
located in Yonkers. At September 30, 1997, the largest multi-family loan had a
balance of $434,000 and is secured by a 21-unit apartment building located in
Yonkers, New York.
11
<PAGE>
Multi-family and commercial real estate loans generally present a
higher level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effects of general economic
conditions on income producing properties, and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired.
Construction and Land Lending. The Company originates a modest amount
of construction loans to individuals and builders for the construction of
residential real estate. At September 30, 1997, the Company's construction loan
portfolio totaled $2.8 million, or 2.0% of the total loan portfolio. The Company
also currently originates a limited number of land loans primarily for the
purpose of developing residential subdivisions. At September 30, 1997, the
Company's land loan portfolio totaled $1.8 million, or 1.3% of the total loan
portfolio. At September 30, 1997, all of the Company's land loans were made for
the purpose of developing residential lots except for two loans totaling
$296,000 which were secured by commercial real estate.
Construction loans to individuals for the construction of their
residences are structured to convert to permanent loans at the end of the
construction phase, which typically runs up to one year. These construction
loans have rates and terms comparable to one- to four-family loans then offered
by the Company, except that during the construction phase, the borrower pays
interest only at a specified margin over the prime rate. The maximum
loan-to-value ratio of owner-occupied single-family construction loans is 75%.
Residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential loans. At September 30,
1997, there were $1.4 million of construction loans outstanding to persons
intending to occupy the premises upon the completion of the construction.
The Company also originates construction loans to builders of one- to
four-family residences. Such loans generally carry terms of up to two years and
require the payment of interest only for the loan term. The maximum
loan-to-value ratio on loans to builders for the construction of residential
real estate is 75%. When practical, the Company seeks to obtain personal
guarantees on such loans. The Company generally limits loans to builders for the
construction of homes on speculation for sale to two homes per builder. At
September 30, 1997, the Company had $1.4 million of construction loans
outstanding to builders of one- to four-family residences.
The Company's construction loan agreements generally provide that loan
proceeds are disbursed in increments as construction progresses. The Company
reviews the progress of the construction of the dwelling before disbursements
are made.
The Company also makes loans to builders and developers for the
development of one- to four-family lots in the Company's market area. All of the
Company's land loans have been originated with adjustable rates of interest tied
to the prime rate of interest and have terms of five years or less. Land loans
are generally made in amounts up to a maximum loan-to-value ratio of 65% on raw
land and up to 75% on developed building lots based upon an independent
appraisal. When feasible, the Company obtains personal guarantees for its land
loans.
12
<PAGE>
The table below sets forth, by type of security property, the number
and amount of the Company's construction and land loans at September 30, 1997,
all of which are secured by properties located in the Company's market area.
<TABLE>
<CAPTION>
Outstanding Amount
Number Loan Principal Non-Performing
of Loans Commitment Balance or of Concern(1)
-------- ---------- ------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Single-family construction ............. 12 $2,786 $1,695 $ 632
Residential land ....................... 7 1,518 1,518 376
Other land ............................. 2 296 296 296
------ ------ ------ ------
Total construction and land loans ..... 21 $4,600 $3,509 $1,304
====== ====== ====== ======
</TABLE>
- ----------
(1) See "- Delinquencies and Non-Performing Assets"
Construction and land loans are obtained principally through referrals
from the Company's and management's contacts in the business community as well
as existing and walk-in customers. The application process includes a submission
to the Company of accurate plans, specifications and costs of the project to be
constructed/developed. These items are used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus building).
Construction and land lending generally affords the Company an
opportunity to receive interest at rates higher than those obtainable from
permanent residential loans and to receive higher origination and other loan
fees. In addition, construction and land loans are generally made with
adjustable rates of interest or for relatively short terms. Nevertheless,
construction and land lending is generally considered to involve a higher level
of credit risk than one- to four-family residential lending due to the
concentration of principal in a limited number of loans and borrowers, as well
as the effects of general economic conditions on development properties and on
real estate developers and managers. In addition, the nature of these loans is
such that they are more difficult to evaluate and monitor. Finally, the risk of
loss on construction and land loans is dependent largely upon the accuracy of
the initial estimate of the individual property's value upon completion and the
estimated cost (including interest) of construction. If the cost estimate proves
to be inaccurate, the Company may be required to advance funds beyond the amount
originally committed to permit completion of the property.
Consumer Lending. In order to increase the interest rate sensitivity of
the loan portfolio and provide a broader range of loan products to its retail
customers, the Company originates a variety of consumer loans, including
automobile, home equity, deposit account and other loans for household and
personal purposes. At September 30, 1997, consumer loans totaled $6.1 million,
or 4.3% of total loans outstanding. The Company intends to emphasize its
consumer lending in the future and to consider hiring an additional consumer
lending officer in order to increase volume.
13
<PAGE>
Consumer loan terms vary according to the type of loan and value of
collateral, length of contract and creditworthiness of the borrower. The
Company's consumer loans are made at fixed interest rates, with terms of up to
10 years. Home equity loans are made at fixed rates up to a maximum loan amount
of $50,000.
The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's payment history on other debts and
the ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is of primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At September 30, 1997, there were $9,000 of consumer loans
delinquent 90 days or more. There can be no assurance that delinquencies will
not increase in the future.
Commercial Business Lending. Federally chartered savings institutions,
such as the Association, are authorized to make secured or unsecured loans and
letters of credit for commercial, corporate, business and agricultural purposes
and to engage in commercial leasing activities, up to a maximum of 20% of total
assets, provided that amounts in excess of 10% relate to small business loans
(as defined). The Company may from time to time make a limited number of secured
and unsecured commercial loans to local businesses. At September 30, 1997, the
Company had $1.3 million of commercial business loans outstanding, representing
0.9% of the total loan portfolio.
The Company's commercial business lending policy includes credit file
documentation and analysis of the borrower's character and capacity to repay the
loan, the adequacy of the borrower's capital and collateral, and an evaluation
of conditions affecting the borrower. Analysis of the borrower's past, present
and future cash flows is also an important aspect of the Company's current
credit analysis.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself. Further, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
14
<PAGE>
Originations, Purchases and Sales of Loans
Loan applications are taken at each of the Company's offices.
Applications are processed and approved at the Company's Loan Center which is
located in one of the branch offices, except for consumer loans which are
processed and approved at the main office. The Company currently offers
incentives to employees for loan referrals. The Company also employs
commissioned loan originators and utilizes mortgage brokers to assist in the
process of obtaining loans.
While the Company originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon the relative customer demand for
loans in its market. Demand is affected by the local economy and the interest
rate environment.
Historically, most of the fixed-rate one- to four-family residential
loans originated by the Company were retained in its portfolio. However, in
order to reduce its vulnerability to changes in interest rates, the Company
engages in secondary market sales of a portion of its fixed-rate residential
mortgage originations. When loans are sold, the Company typically retains the
responsibility for collecting and remitting loan payments, making certain that
real estate tax payments are made on behalf of borrowers, and otherwise
servicing the loans. At September 30, 1997, the Company serviced $15.5 million
of mortgage loans for others.
From time to time, in order to supplement loan demand in the Company's
market area, the Company acquires mortgage-backed securities which are held,
depending on the investment intent, in the "held to maturity" or "available for
sale" portfolios. See "- Investment Activities - Mortgage-Backed Securities" and
Note 2 of the Notes to Consolidated Financial Statements.
15
<PAGE>
The following table sets forth the Company's loan originations, sales,
repayments and other portfolio activity for the periods indicated.
For the Year Ended
September 30,
------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Unpaid principal balances at
beginning of year ...................... $ 88,246 $ 85,092 $ 79,382
--------- --------- ---------
Loans originated:
Real estate mortgage loans
One- to four-family(1) .............. 60,510 9,142 7,787
Multi-family ........................ 839 174 1,328
Commercial .......................... 2,815 2,740 3,548
Construction ........................ 2,913 1,285 755
Land ................................ 150 -- 1,300
Consumer and commercial business
loans ............................... 2,919 4,415 2,732
--------- --------- ---------
Total loans originated .............. 70,146 17,756 17,450
--------- --------- ---------
Loans sold:
One- to four-family real estate
mortgage loans ...................... (2,822) (1,886) (387)
--------- --------- ---------
Principal repayments:
Real estate mortgage loans ............ (10,846) (9,389) (8,807)
Consumer and commercial business loans (2,766) (2,391) (2,154)
--------- --------- ---------
Total principal repayments .......... (13,612) (11,780) (10,961)
--------- --------- ---------
Charge-offs ........................... (157) (333) (89)
Transfers to real estate owned ........ (313) (603) (303)
--------- --------- ---------
Unpaid principal balances at
end of year ......................... 141,488 88,246 85,092
Less:
Construction loans in process ...... (1,091) (171) (293)
Allowance for loan losses .......... (1,093) (937) (719)
Net deferred loan fees ............. (184) (472) (401)
--------- --------- ---------
Net loans at end of year .............. $ 139,120 $ 86,666 $ 83,679
========= ========= =========
- ----------
(1) Consists of (i) adjustable-rate loans of $32.3 million, $5.6 million and
$3.4 million, and (ii) fixed-rate loans of $28.2 million, $3.5 million and
$4.4 million for the years ended September 30, 1997, 1996 and 1995,
respectively. The fixed-rate loans in fiscal 1997 include loans of $20.4
million which were held for sale at September 30, 1997 and subsequently
sold (with servicing retained) in November 1997.
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Company attempts to cure the delinquency by contacting
the borrower. A late notice is sent on all loans over 16 days delinquent.
Additional written and verbal contacts may be made with the borrower between 30
and 90 days after the due date. If the loan is contractually delinquent 60 days,
the Company usually sends a 30-day demand letter to the borrower and, after the
loan is contractually delinquent 91 days, institutes appropriate action to
foreclose on the property. If foreclosed, the property is sold at auction and
may be purchased by the Company. Delinquent consumer loans are generally handled
in a similar manner. The
16
<PAGE>
Company's procedures for repossession and sale of consumer collateral are
subject to various requirements under New York consumer protection laws.
Real estate acquired by the Company as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired or expected to be acquired by foreclosure or deed in
lieu of foreclosure, it is recorded at estimated fair value less the estimated
cost of disposition, with the resulting write-down charged to the allowance for
loan losses. After acquisition, all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the property,
however, are capitalized.
The following table sets forth certain information with respect to loan
portfolio delinquencies at the dates indicated.
<TABLE>
<CAPTION>
At September 30, 1997 At September 30, 1996
------------------------------------------- -----------------------------------------
60 - 89 Days 90 Days or More 60 - 89 Days 90 Days or More
--------------------- -------------------- ------------------- --------------------
Number of Principal Number of Principal Number of Principal Number of Principal
Loans Balance Loans Balance Loans Balance Loans Balance
----- ------- ----- ------- ----- ------- ----- -------
(Dollars in Thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ...................... 1 $ 88 3 $ 389 12 $1,513 17 $1,757
Multi-family ............................. 1 101 -- -- -- -- -- --
Construction ............................. 1 88 2 279 -- -- 3 511
Land ..................................... -- -- 3 250 -- -- 3 250
Commercial ............................... -- -- 1 211 1 383 1 214
Consumer loans ........................... 1 7 2 9 3 5 7 43
--- ------ --- ------ --- ------ --- ------
Total ................................. 4 $ 248 11 $1,138 16 $1,190 31 $2,775
=== ====== === ====== === ====== === =====
Delinquent loans to total loans(1) .... 0.20% 0.80% 2.15% 3.14%
====== ====== ====== ======
</TABLE>
- ----------
(1) If loans held for sale at September 30, 1997 are excluded from total loans,
the percentages are 0.23% for the 60-89 days category and 0.94% for the 90
days or more category.
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful, and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets, with the additional characteristics that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of the
institution is not warranted. Assets classified as substandard or doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as loss, the institution must
either establish specific allowances for loan losses in the amount of 100% of
the portion of the asset classified loss, or charge off such amount. If an
institution does not agree with an examiner's classification of an asset, it may
appeal this determination to the Regional Director of the OTS. On the basis of
management's review, at September 30, 1997, the Company had classified $1.2
million of loans and $379,000 of real estate owned as substandard, and $2,000 of
loans as doubtful.
The Company's classified assets consist principally of non-performing
loans, real estate owned and certain other loans of concern discussed herein. As
of the date hereof, these asset classifications are substantially consistent
with those of the OTS and FDIC.
17
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of the Company's non-performing assets at the dates indicated. Loans
are placed on non-accrual status when the collection of principal or interest
becomes doubtful. Real estate owned represents properties acquired in settlement
of loans. The Company's prospective adoption of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," effective October 1, 1995, had no impact on the comparability of
this information.
At September 30,
------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Non-accruing loans past
due 90 days or more:
Real estate mortgage loans
One- to four-family ........ $ 389 $1,757 $2,759 $2,229 $ 479
Multi-family(1) ............ -- -- 389 389 399
Commercial ................. 211 214 -- -- --
Land ....................... 250 250 49 -- --
Construction ............... 279 511 279 -- 217
Consumer loans .............. 9 43 54 45 62
------ ------ ------ ------ ------
Total ..................... 1,138 2,775 3,530 2,663 1,157
Real estate owned, net ....... 379 603 227 73 242
------ ------ ------ ------ ------
Total non-performing assets .. $1,517 $3,378 $3,757 $2,736 $1,399
====== ====== ====== ====== ======
Allowance for loan losses .... $1,093 $ 937 $ 719 $ 311 $ 295
====== ====== ====== ====== ======
Ratios:
Non-performing loans to total
loans receivable(2) ........ 0.94% 3.14% 4.15% 3.35% 1.46%
Non-performing assets to
total assets ............... 0.48 1.30 1.80 1.40 0.77
Allowance for loan losses to:
Non-performing loans ....... 96.05 20.37 11.68 25.50 33.77
Total loans receivable(2) .. 0.90 0.84 0.39 0.37 1.06
- ----------
(1) Includes a participation loan classified as a troubled debt restructuring
of $309,000, $309,000 and $312,000 at September 30, 1995, 1994 and 1993,
respectively. Collections and charge-offs in fiscal 1996 eliminated the
recorded investment in this loan.
(2) Total loans receivable for this purpose exclude loans held for sale.
For the year ended September 30, 1997, gross interest income of
$107,000 would have been recorded if the non-accruing loans at September 30,
1997 had remained current in accordance with their original terms. The amount of
interest income actually received on such loans in fiscal 1997 was $15,000. See
Note 3 of the Notes to Consolidated Financial Statements.
At September 30, 1997, the Company's non-performing loans consisted of
(1) three loans secured by one- to four-family real estate located in the
Company's market area which totaled $389,000; (2) one loan for $211,000 secured
by a store and five apartments located in Yonkers, New York; (3) three loans
18
<PAGE>
secured by land which totaled $250,000; (4) two loans for the construction of
one- to four-family real estate for $279,000 which were settled in November
1997; and (5) two consumer loans which totaled $9,000. At September 30, 1997,
real estate owned consisted of five single-family residences with a net carrying
value of $379,000.
Other Loans of Concern. In addition to the non-performing loans and
real estate owned discussed in the preceding section, as of September 30, 1997
there were other loans of concern totaling approximately $1.0 million." These
are loans with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the security properties have
caused management to have concerns as to the ability of the borrowers to comply
with present loan repayment terms and which may result in the future inclusion
of such items in the non-performing asset categories. Management has considered
the Company's non-performing loans and other loans of concern in establishing
the allowance for loan losses.
As of September 30, 1997, the Company had the following loans of
concern with principal balances in excess of $200,000 (other than one- to
four-family mortgage loans):
The Company has a $247,000 land loan, secured by a lot located in
Patterson, New York. The borrower intended to build a commercial
building on the security property. At September 30, 1997, although
this loan was performing, it was classified substandard due to
hazardous building materials on an adjacent lot which may result in a
decline in value of the security property. Although a phase I
environmental study performed on the security property did not
disclose any contamination to the security property from the adjoining
lot, the contamination on the adjacent lot has prevented the borrower
from using the security property for its intended purpose. As a
result, the loan was extended and modified in January 1997 as a
15-year, self-liquidating loan with market rate of interest. The
borrower is continuing to make payments on this loan as required by
the terms of the loan agreement and is waiting for the resolution of
the problem with the adjacent property.
The Company has a development loan secured by 25 residential lots
located in Dutchess County, New York. Sales of lots have been slow,
and the Company has renewed the loan several times at market rates and
terms. At September 30, 1997, 10 of the 15 lots in phase I had been
sold and construction of the homes completed. This development loan
was performing and had an outstanding balance of $175,000 at September
30, 1997. On such date, the Company also had two construction loans to
the same borrower totaling $353,000 for the construction of two
single-family homes in this development. Although such loans were
current at September 30, 1997, the Company considers these loans to be
of concern due to the slow sales in the development.
The Company has a $227,000 participation interest in a $3.5
million commercial mortgage loan secured by a two-story office
building located in Queens, New York originated by the Thrift
19
<PAGE>
Association Service Corporation ("TASCO"). This loan has a 30-year
amortization schedule with a balloon payment which was due in December
1996. Prior to this scheduled maturity, the borrower had been
unsuccessful in attempting to secure financing elsewhere in order to
payoff the loan. At that time, an extension was granted for six months
at the original terms of the loan until May 4, 1997. At September 30,
1997, the Company and the other participants had been unable to arrive
at an acceptable settlement concerning the extension of the loan. In
November 1997, a settlement was structured with regard to the
extension of the loan which is currently awaiting approval from the
participants. This loan was 30 days delinquent at September 30, 1997
and is considered to be of concern because the extended maturity date
has passed and the participants have not yet agreed on new repayment
terms.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses charged to operations based on management's
evaluation of the risk inherent in the loan portfolio. The allowance is
established as an amount that management believes will be adequate to absorb
probable losses on existing loans. Management's evaluation of the adequacy of
the allowance, which is subject to periodic review by the Company's regulators,
takes into consideration such factors as the historical loan loss experience,
known and inherent risks in the portfolio, changes in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific problem loans,
estimated value of underlying collateral, and current economic conditions that
may affect borrowers' ability to pay. While management believes that it uses the
best information available to determine the allowance for loan losses,
unforeseen market conditions could result in adjustments to the allowance for
loan losses, and net earnings could be significantly affected, if circumstances
differ substantially from the estimates made in making the final determination.
20
<PAGE>
The following table sets forth activity in the allowance for loan
losses for the periods indicated. The Company's prospective adoption of SFAS No.
114 in fiscal 1995 had no impact on the comparability of this information.
<TABLE>
<CAPTION>
For the Year Ended September 30,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ......................... $ 937 $ 719 $ 311 $ 295 $ 490
Provision for losses ................................. 300 462 493 64 313
Charge-offs:
Real estate mortgage loans
One- to four-family .............................. (132) (97) (76) (64) (19)
Multi-family(1) .................................. -- (203) -- -- (477)
Consumer loans ..................................... (25) (33) (13) (2) (12)
------- ------- ------- ------- -------
Total charge-offs ................................ (157) (333) (89) (66) (508)
Recoveries(2) ........................................ 13 89 4 18 --
------- ------- ------- ------- -------
Net charge-offs .................................. (144) (244) (85) (48) (508)
------- ------- ------- ------- -------
Balance at end of year ............................... $ 1,093 $ 937 $ 719 $ 311 $ 295
======= ======= ======= ======= =======
Ratio of net charge-offs to average total loans 0.15% 0.29% 0.10% 0.06% 0.62%
======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Charge-offs in fiscal 1996 and 1993 relate to the Company's purchased
participation interests in three multi-family loans originated by TASCO.
All such purchased participations were collected or charged-off prior
September 30, 1996.
(2) Recoveries in fiscal 1996 primarily relate to one of the TASCO
participation loans which had been partially charged-off in a prior year.
21
<PAGE>
The following table sets forth the allowance for loan losses allocated
by loan category, the total loan amounts by category, and the percent of loans
in each category to loans receivable at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------------- --------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each to Each to Each to
Loan Category Loan Category Loan Category
Allowance Amounts by Total Allowance Amounts by Total Allowance Amounts by Total
Amount Category(1) Loans Amount Category Loans Amount Category Loans
------ ---------- ----- ------ -------- ----- ------ -------- -----
(Dollars in Thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ................. $ 608 $ 91,367 75.5% $ 538 $ 62,283 70.6% $ 302 $ 63,282 74.4%
Multi-family ........................ 11 5,658 4.7 11 5,471 6.2 64 5,647 6.6
Commercial .......................... 121 11,990 9.9 91 9,117 10.3 66 6,575 7.7
Construction ........................ 98 2,786 2.3 74 2,175 2.5 75 2,205 2.6
Land(2) ............................. 196 1,814 1.5 166 1,934 2.2 171 2,112 2.5
Consumer and commer-
cial business loans ................. 59 7,419 6.1 57 7,266 8.2 41 5,271 6.2
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total ................................. $ 1,093 $121,034 100.0% $ 937 $ 88,246 100.0% $ 719 $ 85,092 100.0%
======== ======== ===== ======== ======== ===== ======== ======== =====
</TABLE>
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------
1994 1993
---------------------------------- ------------------------------------
Percent of Percent of
Loans in Loans in
Each to Each to
Loan Category Loan Category
Allowance Amounts by Total Allowance Amounts by Total
Amount Category Loans Amount Category Loans
------ ---------- ----- ------ -------- -----
(Dollars in Thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ..... 188 $ 64,078 80.7% $ 183 $ 67,633 85.1%
Multi-family ............ 64 4,483 5.7 61 2,281 2.9
Commercial .............. 20 3,176 4.0 17 2,704 3.4
Construction ............ 16 2,138 2.7 12 1,472 1.9
Land(2) ................. 8 814 1.0 9 914 1.1
Consumer and commer-
cial business loans ..... 15 4,693 5.9 13 4,433 5.6
-------- -------- ----- ------ ------- -----
Total ..................... 311 $ 79,382 100.0% $ 295 $ 79,437 100.0%
======== ======== ===== ====== ======= =====
</TABLE>
- ----------
(1) Excludes real estate mortgage loans held for sale of $20.4 million.
(2) The allowance at September 30, 1997, 1996 and 1995 principally represents
an allocation to land loans "of concern." See "- Other Loans of Concern."
22
<PAGE>
Investment Activities
General. The Company utilizes mortgage-backed and other securities in
virtually all aspects of its asset/liability management strategy. In making
investment decisions, the Board of Directors considers, among other things, the
Company's yield and interest rate objectives, its interest rate and credit risk
position, and its liquidity and cash flow.
Yonkers Savings must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is maintained.
Generally, the investment policy of the Company is to invest funds
among categories of investments and maturities based upon the Company's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires that securities
be classified into three categories: trading, held to maturity, and available
for sale. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and are
reported at fair value with unrealized gains and losses included in earnings.
Debt securities for which the Company has the positive intent and ability to
hold to maturity are classified as held to maturity and reported at amortized
cost. All other securities not classified as trading or held to maturity are
classified as available for sale. Available-for-sale securities are reported at
fair value with unrealized gains and losses included, on an after-tax basis, in
a separate component of equity. At September 30, 1997, the Company had no
securities classified as trading. At September 30, 1997, $86.3 million or 53.1%
of the Company's mortgage-backed and other securities was classified as
available for sale. The remaining $76.3 million, or 46.9%, was classified as
held to maturity.
Mortgage-Backed Securities. The Company invests in mortgage-backed
securities in order to supplement loan production and achieve its
asset/liability management goals. The Company has also invested in
mortgage-backed securities in order to take advantage of the spread between the
yield on such securities and the cost of borrowings from the FHLB and other
"wholesale" sources. In a number of instances, the expected maturity of the
securities purchased has been significantly longer than the term of the related
borrowings.
Substantially all of the mortgage-backed securities owned by the
Company are issued, insured or guaranteed either directly or indirectly by a
federal agency or are rated "AA" or higher. As of September 30, 1997, the
Company did not have any mortgage-backed securities of a single issuer in excess
of 10% of the Company's equity, except for federal agency obligations. At
September 30, 1997, the Company had $50.3 million and $43.0 million,
respectively, of mortgage-backed securities classified as held to maturity and
as available for sale.
Consistent with its asset/liability management strategy, at September
30, 1997, $55.0 million, or 58.9% of the Company's mortgage-backed securities
had adjustable interest rates. In addition, as discussed below, at September 30,
1997, the Company had $12.2 million of CMOs with anticipated average lives of
23
<PAGE>
five years or less. For additional information regarding the Company's
mortgage-backed securities portfolio, see Note 2 of the Notes to Consolidated
Financial Statements.
CMOs are securities derived by reallocating the cash flows from
mortgage-backed securities or pools of mortgage loans in order to create
multiple classes, or tranches, of securities with coupon rates and average lives
that differ from the underlying collateral as a whole. The term to maturity of
any particular tranche is dependent upon the prepayment speed of the underlying
collateral as well as the structure of the particular CMO. As a result, the cash
flows (and hence the values) of certain CMOs are subject to substantial change.
Management believes that CMOs at times represent attractive investment
alternatives relative to other investments due to the wide variety of maturity
and repayment options available through such investments. In particular, the
Company has from time to time concluded that short and intermediate duration
CMOs (seven-year or less estimated average life) represent a better combination
of rate and duration than adjustable rate mortgage-backed securities. At
September 30, 1997, the Company held $23.2 million of CMOs.
To assess price volatility, the Federal Financial Institutions
Examination Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage derivative securities. This policy, which has been
adopted by the OTS, requires the Company to annually test its CMOs to determine
whether they are high-risk or nonhigh-risk securities. Mortgage derivative
products with an average life or price volatility in excess of a benchmark
30-year, mortgage-backed, pass-through security are considered high-risk
mortgage securities. Under the policy, savings institutions may generally only
invest in high-risk mortgage securities in order to reduce interest rate risk.
In addition, all high-risk mortgage securities acquired after February 9, 1992
which are classified as high risk at the time of purchase must be carried in the
institution's trading account or as assets held for sale. At September 30, 1997,
none of the Company's CMOs were classified as "high-risk."
The value of the Company's mortgage-backed securities, particularly
those carrying fixed rates, would decline significantly in the event of an
increase in interest rates. In addition, a decrease in interest rates could
result in an increase in prepayments on the fixed-rate portion of the Company's
mortgage-backed securities portfolio. Funds from such prepayments may be
reinvested at a lower yield. Similarly, a decline in interest rates would result
in the downward adjustment of the rates earned on the Company's adjustable-rate,
mortgage-backed securities portfolio resulting in lower yields and interest
income in future periods.
24
<PAGE>
The following table sets forth the amortized cost and fair value of the
mortgage-backed securities portfolio, by accounting classification category and
by type of security, at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(In Thousands)
Held to Maturity
<S> <C> <C> <C> <C> <C> <C>
Pass-through securities .......................... $35,283 $35,905 $41,493 $41,520 $35,586 $35,874
CMOs ............................................. 15,063 15,066 16,646 16,478 17,025 16,880
------- ------- ------- ------- ------- -------
Total ......................................... 50,346 50,971 58,139 57,998 52,611 52,754
------- ------- ------- ------- ------- -------
Available for Sale
Pass-through securities .......................... 34,460 34,892 20,679 20,572 4,151 4,170
CMOs ............................................. 8,148 8,146 2,146 2,139 2,272 2,266
------- ------- ------- ------- ------- -------
Total ......................................... 42,068 43,038 22,825 22,711 6,423 6,436
------- ------- ------- ------- ------- -------
Total mortgage-backed securities .............. $92,954 $94,009 $80,964 $80,709 $59,034 $59,190
======= ======= ======= ======= ======= =======
</TABLE>
All mortgage-backed securities are guaranteed by Ginnie Mae, Fannie Mae
or Freddie Mac, except for privately issued securities with an amortized cost of
$302,000, $367,000 and $507,000 at September 30, 1997, 1996 and 1995,
respectively.
25
<PAGE>
The following table sets forth certain information regarding the
amortized cost, fair value and weighted average yield of the Company's
mortgage-backed securities at September 30, 1997. The entire amortized cost and
fair value of such securities are reflected in the maturity period that includes
the final security payment date and, accordingly, no effect has been given to
periodic repayments or possible prepayments. In addition, under the structure of
some of the Company's CMOs, the Company's short- and intermediate-tranche
interests have repayment priority over the longer term tranches of the same
underlying mortgage pool.
<TABLE>
<CAPTION>
At September 30, 1997
----------------------------------------------------------------------
Held to Maturity Available for Sale
---------------------------------- ---------------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
---- ----- ----- ---- ----- -----
(Dollars in Thousands)
Pass-through securities:
<S> <C> <C> <C> <C> <C> <C>
Due after 1 year but within 5 years ................ $ -- $ -- --% $ -- $ -- --%
Due after 5 years but within 10 years .............. 201 205 7.05 -- -- --
Due after 10 years ................................. 35,082 35,700 6.98 34,460 34,892 7.52
------ ------ ------ ------
Total ........................................... 35,283 $35,905 6.98% 34,460 $34,892 7.52
====== ====== ====== ======
CMOs:
Due after 1 year but within 5 years ................ $ 458 $ 471 8.00% -- $ -- --%
Due after 5 years but within 10 years .............. 2,395 2,391 6.33 -- -- --
Due after 10 years ................................. 12,210 12,204 5.95 8,148 8,146 7.24
------ ------ ------ -----
Total ........................................... $15,063 $15,066 6.07% 8,148 $8,146 7.24
====== ====== ====== ======
</TABLE>
The following table sets forth the activity in the mortgage-backed
securities portfolio for the periods indicated.
For the Year Ended September 30,
--------------------------------
1997 1996 1995
(In Thousands)
Amortized cost at beginning of year ........ $ 80,964 $ 59,034 $ 57,084
-------- -------- --------
Purchases:
Pass-through securities:
Adjustable rate ...................... 2,502 21,657 8,500
Fixed rate ........................... 15,144 10,264 1,000
-------- -------- --------
Total pass-through securities ...... 17,646 31,921 9,500
CMOs ................................... 8,149 -- 946
-------- -------- --------
Total purchases .................... 25,795 31,921 10,446
-------- -------- --------
Sales of pass-through securities ....... (4,372) -- (1,285)
Principal repayments ................... (9,421) (9,979) (7,210)
Premium and discount amortization, net . (12) (12) (1)
-------- -------- --------
Amortized cost at end of year .......... $ 92,954 $ 80,964 $ 59,034
======== ======== ========
Other Securities. In addition to mortgage-backed securities, the
Company also invests in high-quality assets (primarily government and agency
obligations) with short and intermediate terms (typically seven years or less)
to maturity. At
26
<PAGE>
September 30, 1997, the Company did not own any investment securities of a
single issuer which exceeded 10% of the Company's equity, other than U.S.
Government or federal agency obligations. From time to time, the Company holds
high-grade, medium-term (up to five years) corporate debt securities and a
variety of mutual funds which invest in adjustable-rate mortgage-backed
securities, asset-backed securities, and U.S. Treasury and Agency obligations.
See Note 2 of the Notes to Consolidated Financial Statements for additional
information regarding the Company's securities portfolio.
From time to time, the Company has invested in "step-up" securities
which provide for interest rate increases periodically if the security is not
redeemed by the issuer. Because of this "step-up" structure, the Company expects
most of these securities to be redeemed prior to maturity. Prior to investing in
these securities, the Company analyzes the yield on the security in comparison
to the option on the part of the issuer to redeem the security or pay a higher
interest rate. A majority of the Company's "step-up" securities have terms of
seven years or less and provide for increases in interest rates of 25 to 180
basis points within one to three years of issuance. At September 30, 1997, the
Company had $11.0 million of "step-up" securities with a weighted average yield
of 6.0%.
The following table sets forth the amortized cost and fair value of
other securities, by accounting classification category and by type of security,
at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------
1997 1996 1995
--------------------- ---------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(In Thousands)
Available for Sale
U.S. Government and Agency:
<S> <C> <C> <C> <C> <C> <C>
Step-up securities ......................... $ -- $ -- $ 3,000 $ 2,969 $ 1,985 $ 2,000
Other securities ........................... 40,805 41,469 26,960 27,023 6,921 6,951
Mutual fund investments .................... 1,923 1,779 6,070 5,849 5,740 5,535
------- ------- ------- ------- ------- -------
Total .................................... 42,728 43,248 36,030 35,841 14,441 14,691
------- ------- ------- ------- ------- -------
Held to Maturity
U.S. Government and Agency:
Step-up securities ......................... 10,984 10,956 12,966 12,651 20,960 20,675
Other securities ........................... 14,999 14,975 23,402 23,012 21,393 21,171
Corporate bonds .............................. -- -- 500 501 500 500
------- ------- ------- ------- ------- -------
Total ..................................... 25,983 25,931 36,868 36,164 42,853 42,346
------- ------- ------- ------- ------- -------
Total other securities, net ............... $68,711 $69,179 $72,898 $72,005 $57,544 $56,787
======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE>
The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of other debt securities at
September 30, 1997, by remaining period to contractual maturity.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
-------------------------------- --------------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
---- ----- ----- ---- ----- -----
(Dollars in Thousands)
U.S. Government and Agency:
<S> <C> <C> <C> <C> <C> <C>
Due within 1 year........................ $ 1,000 $ 998 5.31% $ --- $ --- ---%
Due after 1 year but within 5 years...... 10,986 10,951 5.68 --- --- ---
Due after 5 years but within 10 years.... 8,999 9,010 7.01 24,100 24,525 7.54
Due after 10 years....................... 4,998 4,972 6.55 16,705 16,944 7.64
------- ------- ------ -------
Total................................. $25,983 $25,931 6.29% $40,805 $41,469 7.58%
======= ======= ======= =======
</TABLE>
In addition to its securities portfolios, from time to time the Company
holds short-term liquid assets such as money market mutual funds, federal funds
sold and interest-bearing deposits. Short-term investments at September 30, 1997
consisted of a $1.5 million investment in a money market mutual fund.
Sources of Funds
General. The Company's primary sources of funds are deposits, payments
(including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities, borrowings and funds provided from
operations.
Deposits. The Company offers a variety of deposit accounts having a
wide range of interest rates and terms. The Company's deposits consist of
regular savings (passbook) accounts, transaction (NOW and checking) accounts,
money market accounts, club accounts and certificate accounts. The Company only
solicits deposits in its market area and does not accept brokered deposits. The
Company relies primarily on competitive pricing policies, advertising and
customer service to attract and retain these deposits and provides incentives to
employees who refer new deposit customers to the Company. The Company also has
ATMs located in three branch offices.
The variety of deposit accounts offered by the Company has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. As certain customers have become more interest rate
conscious, the Company has become more susceptible to short-term fluctuations in
deposit flows. The Company manages the pricing of its deposits in keeping with
its asset/liability management, profitability and growth objectives.
Management believes that the "core" portion of the Company's regular
savings, transaction, money market and club accounts can have a lower cost and
be more resistant to interest rate changes than certificate accounts. These core
accounts decreased $970,000 during fiscal 1996, but increased $5.4 million
during fiscal 1997. Management believes that the majority of the remaining
portion of the Company's regular savings, transaction, money market and club
accounts are relatively stable sources of deposits. The Company continues to
utilize customer service and marketing initiatives (including newspaper
advertisements) in an effort to maintain and increase the volume of such
deposits. However, the ability of the Company to attract and maintain these
accounts (as well as certificate accounts) has been and will continue to be
affected by market conditions.
28
<PAGE>
The following table sets forth the deposit activity of the Company for
the periods indicated.
For the Year Ended September 30,
--------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Balance at beginning of year ...... $ 190,675 $ 188,009 $ 179,816
Deposits .......................... 425,392 421,132 297,860
Withdrawals ....................... (416,056) (426,246) (296,569)
Interest credited ................. 7,922 7,780 6,902
--------- --------- ---------
Balance at end of year ............ $ 207,933 $ 190,675 $ 188,009
========= ========= =========
Net increase during the year:
Amount ........................ $ 17,258 $ 2,666 $ 8,193
========= ========= =========
Percent ....................... 9.1% 1.4% 4.6%
========= ========= =========
The following table sets forth the distribution of the Company's
deposit accounts and the related weighted average interest rates at the dates
indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- -----------------------------
Percent of Weighted Percent of Weighted Percent of Weighted
Total Average Total Average Total Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Checking accounts............ $ 4,655 2.2% ---% $ 1,957 1.0% ---% $ 2,680 1.4% ---%
NOW accounts................. 19,055 9.2 2.00 18,141 9.5 1.86 15,609 8.3 1.73
Money market accounts........ 21,624 10.4 3.33 16,599 8.7 2.91 12,484 6.7 2.91
Regular savings accounts .... 44,591 21.4 2.56 47,832 25.1 2.61 54,794 29.1 2.70
Club accounts................ 1,132 0.6 2.56 1,112 0.6 2.61 1,044 0.6 2.70
Savings certificate accounts. 116,876 56.2 5.45 105,034 55.1 5.24 101,398 53.9 5.61
-------- ----- -------- ----- -------- -----
Total.................... $207,933 100.0% 4.15% $190,675 100.0% 3.99% $188,009 100.0% 4.16%
======== ===== ======== ===== ======== =====
</TABLE>
29
<PAGE>
The following table sets forth, by interest rate ranges, the amount of
savings certificate accounts outstanding at the dates indicated and the period
to maturity of savings certificate accounts outstanding at September 30, 1997.
<TABLE>
<CAPTION>
At September 30, 1997
------------------------------------------------------------ Total at
Period to Maturity September 30,
------------------------------------------------------------ ------------------
Less than One to More than Percent
Interest Rate Range One Year Three Years Three Years Total of Total 1996 1995
- ------------------- -------- ----------- ----------- ----- -------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% and below.............. $ --- $ --- $ --- $ --- ---% $ 39 $ 3,174
4.01% to 5.00%............... 30,138 865 --- 31,003 26.5 52,810 18,252
5.01% to 6.00%............... 38,719 31,493 4,228 74,440 63.7 35,805 44,359
6.01% to 7.00%............... 2,975 8,004 454 11,433 9.8 16,293 34,282
7.01% and above.............. --- --- --- --- --- 87 1,331
--------- --------- --------- ---------- ----- -------- ---------
Total.................... $71,832 $40,362 $4,682 $116,876 100.0% $105,034 $101,398
======= ======= ====== ======== ===== ======== ========
</TABLE>
The following table sets forth the maturity distribution and related
weighted average interest rates for savings certificate accounts with balances
less than $100,000, accounts of $100,000 or more, and total savings certificates
at September 30, 1997.
<TABLE>
<CAPTION>
Less than $100,000 $100,000 or More Total
--------------------- ---------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Maturity Period Amount Rate Amount Rate Amount Rate
--------------- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Within three months..................... $ 18,461 5.11% $ 2,082 5.33% $ 20,543 5.13%
After three but within six months....... 19,981 5.17 2,344 5.26 22,325 5.18
After six but within 12 months.......... 26,262 5.33 2,635 5.45 28,897 5.34
--------- ------- --------
Total within one year............... 64,704 5.22 7,061 5.35 71,765 5.23
After one but within two years...... 27,090 5.62 3,792 5.74 30,882 5.64
After two but within three years.... 7,979 6.25 1,568 6.49 9,547 6.29
After three but within five years... 4,191 5.79 491 5.70 4,682 5.78
--------- ------- --------
Total............................... $103,964 5.43% $12,912 5.62% $116,876 5.45%
======== ======= ========
</TABLE>
Borrowings. The Company's other available sources of funds include
advances from the FHLB of New York and other borrowings, including repurchase
agreements. As a member of the FHLB of New York, the Company is required to own
capital stock in the FHLB of New York and is authorized to apply for advances
from the FHLB of New York. Each FHLB credit program has its own interest rate,
which may be fixed or variable, and range of maturities. The FHLB of New York
may prescribe the acceptable uses for these advances, as well as limitations on
the size of the advances and repayment provisions. At September 30, 1997, the
Company had $6.0 million of FHLB advances outstanding. On such date, the Company
had a collateral pledge arrangement with the FHLB of New York pursuant to which
the Company may borrow up to $76.8 million.
The Company enters into repurchase agreements with the FHLB of New York
utilizing mortgage-backed and other securities as collateral. At September 30,
1997, the Company had $54.1 million of repurchase agreements outstanding which
were collateralized by mortgage-backed and other debt securities.
30
<PAGE>
See Note 7 of the Notes to Consolidated Financial Statements for
further information concerning the Company's FHLB advances and securities
repurchase agreements.
The following table sets forth information concerning the balances and
interest rates on borrowings at the dates and for the periods indicated.
At or For the Year
Ended September 30,
-------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Securities repurchase agreements:
Balance at end of year ........................ $54,096 $10,264 $ --
Average balance during year .................. 32,074 1,214 1,250
Maximum outstanding at any month end ......... 54,096 10,264 4,000
Weighted average interest rate at end of year 5.82% --% 5.44%
Average interest rate during the year ........ 5.77 6.26 5.35
FHLB advances:
Balance at end of year ........................ $ 6,000 $ 8,000 $ 4,295
Average balance during year .................. 3,186 2,356 920
Maximum outstanding at any month end ......... 7,500 8,000 4,295
Weighted average interest rate at end of year 6.75% 5.73% 6.26%
Average interest rate during the year ........ 5.84 5.52 5.87
Service Corporations
As a federally chartered savings and loan association, the Association
is permitted by OTS regulations to invest up to 2% of its assets in the stock
of, or loans to, service corporation subsidiaries, and may invest an additional
1% of its assets in service corporations where such additional funds are used
for inner-city or community development purposes. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating subsidiaries engaged solely in activities which a federal
savings association may engage in directly. At September 30, 1997, the
Association had one service corporation, Yonkers Financial Services Corporation,
which offers life insurance on an agency basis to the Association's customers.
Competition
The Company faces extremely strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from mortgage bankers, commercial banks, credit unions and other
savings institutions, which also make loans secured by real estate located in
the Company's market area. The Company competes for loans principally on the
basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
31
<PAGE>
Competition for deposits is intense given the size of the New York
market and the fact that it is the home state for many large regional and money
center banks. Competition for deposits is principally from money market and
mutual funds, securities firms, commercial banks, credit unions and other
savings institutions located in the same communities. There is further
competition for deposits from institutions offering home and internet computer
banking. The ability of the Company to attract and retain deposits depends on
its ability to provide an investment opportunity that satisfies the requirements
of investors as to rate of return, liquidity, risk, convenient locations and
other factors. The Company is significantly smaller than most of its competitors
which, due to their size and economies of scale, generally offer a broader range
of deposit products than the Company. The Company competes for these deposits by
offering deposit accounts at competitive rates, convenient business hours,
availability of ATMs and a customer oriented staff. As of June 30, 1997, the
latest date such information was available, there were 333 other thrift,
commercial bank and credit union offices in Westchester County which compete for
deposits. As of June 30, 1996, the Company held approximately 1.05% of total
deposits in Westchester County.
Employees
At September 30, 1997, the Company had a total of 56 full-time and 8
part-time employees. None of the Company's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.
Regulation
General. Yonkers Savings is a federally chartered savings and loan
association, the deposits of which are federally insured and backed by the full
faith and credit of the United States Government. Accordingly, Yonkers Savings
is subject to broad federal regulation and oversight extending to all its
operations. Yonkers Savings is a member of the FHLB of New York and is subject
to certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). Prior to December 1995, the Association was a
state-chartered savings and loan association and was subject to the regulation
of the State of New York Banking Department. Effective December 28, 1995, the
Association converted to a federal charter. As the savings and loan holding
company of Yonkers Savings, the Holding Company also is subject to federal
regulation and oversight. The purpose of holding company regulation is to
protect subsidiary savings associations. Yonkers Savings is a member of the SAIF
and the deposits of Yonkers Savings are insured by the FDIC. As a result, the
FDIC has certain regulatory and examination authority over Yonkers Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, Yonkers Savings is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and the FDIC. The last regular
OTS safety and soundness examination of Yonkers Savings was as of December 31,
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1996. When these examinations are conducted by the OTS and the FDIC, the
examiners may require Yonkers Savings to provide for higher general or specific
loan loss reserves. All savings associations are subject to a semi-annual
assessment, based upon the savings association's total assets, to fund the
operations of the OTS. Yonkers Savings' OTS assessment for the fiscal year ended
September 30, 1997 was approximately $71,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Yonkers Savings and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of Yonkers
Savings is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Yonkers Savings is in compliance with the noted
restrictions.
Yonkers Savings' general permissible lending limit for loans-to-one
borrower is equal to the greater of $500,000 or 15% of unimpaired capital and
surplus (except for loans fully secured by certain readily marketable
collateral, in which case this limit is increased to 25% of unimpaired capital
and surplus). At September 30, 1997, Yonkers Savings' lending limit under this
restriction was $5.6 million. Yonkers Savings is in compliance with the
loans-to-one borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure, and compensation and other employee benefits. Any
institution which fails to comply with these standards must submit a compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the institution to further enforcement action.
Insurance of Accounts and Regulation by the FDIC. Yonkers Savings is a
member of the SAIF, which is administered by the FDIC. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
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initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classifications of all insured
institutions are made by the FDIC for each semi-annual assessment period.
In order to equalize the deposit insurance premium schedules for BIF
and SAIF insured institutions, the FDIC imposed a special assessment on all
SAIF-assessable deposits pursuant to federal legislation passed on September 30,
1996. The Company's special assessment, which was approximately $1.2 million,
was paid in November 1996, but accrued for the fiscal year ended September 30,
1996. Effective January 1, 1997, the premium schedule for BIF and SAIF insured
institutions ranged from 0 to 27 basis points. However, SAIF-insured
institutions are required to pay a Financing Corporation (FICO) assessment, in
order to fund the interest on bonds issued to resolve thrift failures in the
1980s, equal to 6.48 basis points for each $100 in domestic deposits, while
BIF-insured institutions pay an assessment equal to 1.52 basis points for each
$100 in domestic deposits. The assessment is expected to be reduced to 2.43
basis points no later than January 1, 2000, when BIF insured institutions fully
participate in the assessment. These assessments, which may be revised based
upon the level of BIF and SAIF deposits, will continue until the FICO bonds
mature in the year 2017.
Regulatory Capital Requirements. Federally insured savings
associations, such as Yonkers Savings, are required to maintain a minimum level
of regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained earnings, and certain
noncumulative perpetual preferred stock and related surplus. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights and credit card relationships, must be deducted from tangible capital for
calculating compliance with the requirement. At September 30, 1997, Yonkers
Savings had no intangible assets.
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The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. Debt and equity
investments in excludable subsidiaries are deducted from assets and capital. At
September 30, 1997, Yonkers Savings had one "includable" subsidiary.
At September 30, 1997, Yonkers Savings had tangible capital of $37.1
million, or 12.1% of adjusted total assets, which is $32.5 million above the
minimum requirement of 1.5% in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased mortgage
servicing rights and credit card relationships. At September 30, 1997, Yonkers
Savings had no intangible assets. In accordance with the prompt corrective
action provisions discussed below, however, a savings association must maintain
a core capital ratio of at least 4% to be considered adequately capitalized
unless its supervisory condition is such to allow it to maintain a 3% ratio.
At September 30, 1997, Yonkers Savings had core capital equal to $37.1
million, or 12.1% of adjusted total assets, which is $27.9 million above the
minimum leverage ratio requirement of 3% in effect on that date.
The OTS risk-based capital regulations require savings associations to
have total capital of at least 8% of risk-weighted assets. Total capital
consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based capital requirement
only up to the amount of core capital. The OTS is also authorized to require a
savings association to maintain an additional amount of total capital to account
for concentration of credit risk and the risk of non-traditional activities. At
September 30, 1997, Yonkers Savings had no capital instruments that qualify as
supplementary capital and $1.1 million of general loan loss reserves, which was
less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Yonkers Savings had no
such exclusions from capital and assets at September 30, 1997.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, are multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
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permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by Fannie Mae or Freddie
Mac.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total risk-based
capital ratio in excess of 12% is exempt from this requirement unless the OTS
determines otherwise.
At September 30, 1997, Yonkers Savings had total capital of $38.2
million (including $37.1 million in core capital and $1.1 million in qualifying
supplementary capital) and risk-weighted assets of $119.1 million (including
$4.9 million in converted off-balance sheet items), or total capital of 32.1% of
risk-weighted assets. This amount was $28.7 million above the 8% requirement in
effect on that date.
Under the prompt corrective action regulations, the OTS and the FDIC
are authorized (and, under certain circumstances, required) to take certain
actions against savings associations that fail to meet their capital
requirements. The OTS is generally required to take action to restrict the
activities of an "undercapitalized association" (generally defined as having
less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio
or an 8% risk-based capital ratio). Any such association must submit a capital
restoration plan and until such plan is approved by the OTS may not increase its
assets, acquire another institution, establish a branch or engage in any new
activities, and generally may not make capital distributions. The OTS is
authorized to impose the additional restrictions that are applicable to
significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
The prompt corrective action regulations also provide that any savings
association that fails to comply with its capital plan or is "significantly
undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than
3% or a risk-based capital ratio of less than 6%) must be made subject to one or
more of additional specified actions and operating restrictions which may cover
all aspects of its operations and include a forced merger or acquisition of the
association. An association that becomes "critically undercapitalized" (i.e., a
tangible capital ratio of 2% or less) is subject to further mandatory
restrictions on its
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activities in addition to those applicable to significantly undercapitalized
associations. In addition, the OTS must appoint a receiver (or conservator with
the concurrence of the FDIC) for a savings association, with certain limited
exceptions, within 90 days after it becomes critically undercapitalized. Any
undercapitalized association is also subject to the general enforcement
authority of the OTS and the FDIC, including the appointment of a conservator or
a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on
Yonkers Savings may have a substantial adverse effect on Yonkers Savings'
operations and profitability, and on the value of the Holding Company's common
stock. Holding Company shareholders do not have preemptive rights, and
therefore, if the Holding Company is directed by the OTS or the FDIC to issue
additional shares of common stock, such issuance may result in the dilution in
the percentage ownership of present shareholders.
Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions on associations with respect to their
ability to make distributions of capital which include dividends, stock
redemptions or repurchases, cash-out mergers and transactions charged to the
capital account. OTS regulations prohibit an association from declaring or
paying any dividends or from repurchasing any of its stock if, as a result, the
regulatory capital of the association would be reduced below the amount required
to be maintained for the liquidation account established in connection with its
mutual to stock conversion.
Generally, associations (such as Yonkers Savings) that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of (i) 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its fully phased-in
capital requirement for such capital component, as measured at the beginning of
the calendar year, or (ii) 75% of net income for the most recent four-quarter
period. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted.
Associations proposing to make a capital distribution need only submit
written notice to the OTS 30 days prior to such distribution. Associations that
do not currently meet or would not after the proposed capital distribution meet
their minimum capital requirements must obtain OTS approval prior to making such
distribution. As a subsidiary of the Holding Company, Yonkers Savings will also
be required to give the OTS 30 days' notice prior to declaring any dividend on
its stock. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal, a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not in troubled
condition (as defined by regulation) and would remain adequately capitalized (as
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defined in the OTS prompt corrective action regulations) following the proposed
distribution. Savings associations that would remain adequately capitalized
following the proposed distribution but do not meet the other noted requirements
must notify the OTS 30 days prior to declaring a capital distribution. The OTS
stated it will generally regard as permissible that amount of capital
distributions that do not exceed 50% of the institution's excess regulatory
capital plus net income to date during the calendar year. A savings association
may not make a capital distribution without prior approval of the OTS and the
FDIC if it is undercapitalized before, or as a result of, such a distribution.
As under the current rule, the OTS may object to a capital distribution if it
would constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity. All savings associations, including Yonkers Savings, are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. This liquid asset
ratio requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. The minimum
liquid asset ratio of 5% at September 30, 1997 was subsequently reduced to 4%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) were required to equal at least 1% of an association's average
daily balance of net withdrawable deposit accounts and current borrowings at
September 30, 1997. Subsequent to that date, the OTS eliminated the short-term
liquidity requirement.
Penalties may be imposed upon associations for violations of the
liquidity requirement. At September 30, 1997, Yonkers Savings was in compliance
with both requirements, with an overall liquid asset ratio of 6.5% and a
short-term liquid asset ratio of 2.1%.
Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. Yonkers Savings believes it is in
compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test. All savings associations, including
Yonkers Savings, are required to meet a qualified thrift lender ("QTL") test to
avoid certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments, primarily residential housing
related loans and investments. At September 30, 1997, Yonkers Savings met the
test and has always met the test since its effectiveness.
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Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible for additional FHLB advances and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB advances, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of Yonkers Savings, to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications, such
as a merger or the establishment of a branch, by Yonkers Savings. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Yonkers Savings may be required to devote additional
funds for investment and lending in its local community. Yonkers Savings was
examined for CRA compliance by the OTS in September 1996 and received a rating
of satisfactory.
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of Yonkers
Savings include the Holding Company and any company which is under common
control with Yonkers Savings. In addition, a savings association may not lend to
any affiliate engaged in activities not permissible for a bank holding company
or acquire the securities of most affiliates. Subsidiaries of a savings
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association are generally not deemed affiliates; however, the OTS has the
discretion to treat subsidiaries of savings associations as affiliates on a
case-by-case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation. The Holding Company is a unitary savings
and loan holding company subject to regulatory oversight by the OTS. As such,
the Holding Company is required to register and file reports with the OTS and is
subject to regulation and examination by the OTS. In addition, the OTS has
enforcement authority over the Holding Company and its non-savings association
subsidiaries (if any) which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Yonkers Savings or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Yonkers Savings fails the QTL test, the Holding Company must obtain
the approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those approved
for multiple savings and loan holding companies or their subsidiaries. In
addition, within one year of such failure the Holding Company must register as,
and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law. The stock of the Holding Company is registered
with the SEC under the Exchange Act. The Holding Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
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restrictions. If the Holding Company meets specified public information
requirements, each affiliate is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At September 30, 1997, Yonkers Savings was in compliance
with these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. Yonkers Savings is a member of the FHLB
of New York, which is one of 12 regional FHLBs that administer the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the board of directors of the FHLB, which
are subject to the oversight of the Federal Housing Finance Board. All advances
from the FHLB are required to be fully secured by sufficient collateral as
determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, Yonkers Savings is required to purchase and maintain stock
in the FHLB of New York. At September 30, 1997, Yonkers Savings had $3.0 million
in FHLB stock, which was in compliance with this requirement. For the fiscal
year ended September 30, 1997, dividends paid by the FHLB of New York to Yonkers
Savings totaled $121,000 compared to $72,000 for fiscal 1996. Over the past five
calendar years (1992-1996) such dividends have averaged 8.0% and were 6.4% for
calendar year 1996.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Yonkers Savings' FHLB stock may result in a corresponding
reduction in Yonkers Savings' capital.
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Taxation
Federal. The Association and the Holding Company currently file
separate federal income tax returns. These returns are filed on a fiscal year
basis, as of September 30, using the accrual method of accounting.
Savings associations such as the Association are permitted to establish
reserves for bad debts and to make annual additions thereto which may, within
specified formula limits, be taken as a deduction in computing taxable income
for federal income tax purposes. The amount of the bad debt reserve deduction
for "non-qualifying loans" is computed under the experience method. The amount
of the bad debt reserve deduction for "qualifying real property loans"
(generally loans secured by improved real estate) is also computed under the
experience method. Historically, a percentage of taxable income method was also
available in computing the qualifying loan bad debt deduction; however, this
method is no longer available for tax years beginning after December 31, 1995.
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
Since 1987, the percentage of specially-computed taxable income that
was used to compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the "percentage bad debt deduction") was
8%. The percentage bad debt deduction thus computed was reduced by the amount
permitted as a deduction for non-qualifying loans under the experience method.
The availability of the percentage of taxable income method permitted qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction). Under changes in federal tax law enacted
in August 1996, the percentage bad debt deduction has been eliminated for tax
years beginning after December 31, 1995. Accordingly, this method is not
available to the Association for its tax years ending September 30, 1997 and
thereafter.
The federal tax legislation enacted in August 1996 also imposes a
requirement to recapture into taxable income the portion of the qualifying and
non-qualifying loan reserves in excess of the "base-year" balances of such
reserves. For the Association, the base-year reserves are the balances as of
September 30, 1988. Recapture of the excess reserves will occur over a six-year
period which could begin for the Association as early as the tax year ending
September 30, 1998 (commencement of the recapture period may be delayed,
however, until the year ending September 30, 1999 provided the Association
continues to meet certain residential lending requirements). The Association
previously established, and will continue to maintain, a deferred tax liability
with respect to its federal tax bad debt reserves in excess of the base-year
balances; accordingly, the legislative changes will have no effect on total
income tax expense for financial reporting purposes.
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Also, under the August 1996 legislation, the Association's base-year
federal tax bad debt reserves are "frozen" and subject to current recapture only
in very limited circumstances. Generally, recapture of all or a portion of the
base-year reserves will be required if the Association pays a dividend in excess
of the greater of its current or accumulated earnings and profits, redeems any
of its stock, or is liquidated. The Association has not established a deferred
federal tax liability under SFAS No. 109 for its base-year federal tax bad debt
reserves, as it does not anticipate engaging in any of the transactions that
would cause such reserves to be recaptured.
In addition to the regular income tax, corporations generally are
subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax
rate of 20% on alternative minimum taxable income, which is the sum of a
corporation's regular taxable income (with certain adjustments) and tax
preference items, less any available exemption. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax, and net
operating losses can offset no more than 90% of alternative minimum taxable
income. The Association and the Company have not been subject to the alternative
minimum tax.
The Association has been audited by the IRS with respect to federal
income tax returns through September 30, 1991, and all deficiencies have been
satisfied. In the opinion of management, any examination of still open returns
would not result in a deficiency which could have a material adverse effect on
the financial condition of the Company.
New York State. The Association and the Holding Company currently file
combined New York State tax returns on a fiscal year basis. The Company is
subject to the New York State Franchise Tax on Banking Corporations in an annual
amount equal to the greater of (i) 9% of "entire net income" allocable to New
York State during the taxable year, or (ii) the applicable alternative minimum
tax. The alternative minimum tax is generally the greater of (a) 0.01% of the
value of assets allocable to New York State with certain modifications, (b) 3%
of "alternative entire net income" allocable to New York State, or (c) $250.
Entire net income is similar to federal taxable income, subject to certain
modifications (including the fact that net operating losses cannot be carried
back or carried forward). In addition, New York also imposes a Metropolitan
Commuter Transportation District surcharge of 17% that is assessed on the amount
of the New York State Franchise tax.
In July 1996, New York State enacted legislation to preserve the use of
the percentage of taxable income bad debt deduction for state tax purposes. In
general, the legislation provides for a deduction equal to 32% of the
Association's New York State taxable income, which is comparable to the
deductions permitted under the prior tax law. The legislation also provides for
a floating base year, which will allow the Association to change from the
percentage of taxable income method to the experience method without recapture
of any reserve. Previously, the Association had established a deferred New York
State tax liability for the excess of its New York State tax bad debt reserves
over the amount of its base-year New York State reserves. Since the new
43
<PAGE>
legislation effectively eliminated the reserves in excess of the base-year
balances, the Company reduced its deferred tax liability by $100,000 (with a
corresponding reduction in income tax expense) during the quarter ended
September 30, 1996.
Generally, New York State tax law has requirements similar to federal
requirements regarding the recapture of base-year tax bad debt reserves. One
notable exception is that, after the 1996 legislation, New York continues to
require that at least 60% of the Association's assets consist of specified
assets (generally, loans secured by residential real estate or deposits,
educational loans, cash and certain government obligations). The Association
expects to continue to meet the 60% requirement and does not anticipate engaging
in any of the transactions which would require recapture of its base-year
reserves (such as changing to a commercial bank charter). Accordingly, under
SFAS No. 109, it has not provided any deferred tax liability on such reserves.
Delaware. As a Delaware company, the Company is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
44
<PAGE>
Item 2. Properties
The following table sets forth information concerning the Company's
properties at September 30, 1997. The Company's premises had an aggregate net
book value of approximately $329,000 at that date.
<TABLE>
<CAPTION>
Year Net Book Value at
Location Acquired/Leased Owned or Leased September 30, 1997
- -------------------------------- --------------- --------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Corporate Headquarters:
6 Executive Plaza 1996 Leased $ 11
Yonkers, New York 10701-9858
Main Office:
One Manor House Square 1976 Owned 146
Yonkers, New York 10701-2701
Full Service Branches:
780 Palisade Avenue 1989 Leased 42
Yonkers, New York 10703
1759 Central Park Avenue 1977 Leased 65
Yonkers, New York 10710-2828
2320 Central Park Avenue 1986 Leased 65
Yonkers, New York 10710-1216
</TABLE>
Yonkers Savings has entered into an agreement with BJ's Wholesale Club,
Inc. for in-store branching. An in-store branch opened on December 22, 1997 in
BJ's location in Wappingers Falls, New York. The Association's agreement gives
it the right of first refusal to establish an in-store branch in any of BJ's
remaining or future clubs located in Dutchess, Putnam, Rockland, and Westchester
Counties, New York.
The Company believes that its current facilities are adequate to meet
present needs. In the future, the Company intends to continue to explore
branching opportunities to the extent they develop, although no specific
proposals are currently under consideration, other than the possibility of
additional in-store branches under the agreement described above.
The Company's depositor and borrower customer files are maintained by
an independent data processing company. The net book value of the computer
equipment utilized by the Company at September 30, 1997 was approximately
$125,000.
Item 3. 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.
45
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Page 55 of the attached 1997 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Selected Financial Data
Pages 4 and 5 of the attached 1997 Annual Report to Stockholders are
herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 6 through 25 of the attached 1997 Annual Report to Stockholders
are herein incorporated by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The section "Interest Rate Risk Management", appearing on pages 20 and
22 of the attached 1997 Annual Report to Stockholders, is herein incorporated
by reference.
Item 8. Financial Statements and Supplementary Data
Pages 28 through 56 of the attached 1997 Annual Report to Stockholders
are herein incorporated by reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
46
<PAGE>
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors
Information concerning directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in January 1998, a copy of which will be
filed not later than 120 days after the close of the fiscal year.
Executive Officers Who Are Not Directors
The following are the Company's executive officers who are not also
directors as of September 30, 1997.
Joseph L. Macchia. Mr. Macchia, age 46, has been Vice President and
Secretary to the Association since 1991, and Vice President and Secretary of the
Holding Company since its formation. Mr. Macchia was named Chief Operations
Officer in January 1997. Mr. Macchia is responsible for the Association's branch
administration, consumer lending and savings operations. He is also responsible
for the Association's Bank Secrecy Act compliance. Prior to such time, Mr.
Macchia served as the Association's Vice President. Mr. Macchia has been
employed by the Association since 1972.
Joseph D. Roberto. Mr. Roberto, age 45, is the Vice President,
Treasurer and Chief Financial Officer of the Holding Company, a position he has
held since its formation, and is Vice President, Treasurer and Chief Financial
Officer of the Association. Mr. Roberto was appointed the Association's Vice
President and Treasurer in 1991 and Chief Financial Officer in 1995. Mr. Roberto
is responsible for the Accounting Department, interest rate risk and
asset/liability management as well as financial reporting. Prior to 1991, Mr.
Roberto served as the Association's Secretary and Treasurer. Mr. Roberto has
been employed by the Association since 1973.
Philip Guarnieri. Mr. Guarnieri, age 40, is the Vice President and
Chief Lending Officer of the Association. Mr. Guarnieri was appointed Vice
President and Chief Lending Officer in July 1996. Prior to joining the
Association, Mr. Guarnieri was the Vice President for loan origination at Home
Federal Savings Bank, Queens, New York. Mr. Guarnieri is responsible for the
administration of the Association's real estate lending programs.
Compliance with Section 16(a)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Holding Company's equity securities, to file with the SEC reports of
ownership and reports of changes in ownership of common stock and other equity
47
<PAGE>
securities of the Holding Company. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended September 30, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were met, with the exception of
certain transactions in a nominal amount of the Company's stock made by a
partnership in which director emeritus John S. Kulacz had a beneficial interest.
Mr. Kulacz has recently filed a Form 4 to reflect these transactions.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in January 1998, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in January 1998, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in January 1998, a copy of which will
be filed not later than 120 days after the close of the fiscal year.
48
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The following information appearing in the Company's 1997 Annual Report
to Stockholders is herein incorporated by reference:
Item Pages in Annual Report
---- ----------------------
Independent Auditors' Report Page 27
Consolidated Balance Sheets as of September 30,
1997 and 1996 Page 28
Consolidated Statements of Income for the Years
Ended September 30, 1997, 1996 and 1995 Page 29
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended September 30, 1997, 1996
and 1995 Page 30
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1997, 1996 and 1995 Page 31
Notes to Consolidated Financial Statements Pages 32 through 54
49
<PAGE>
(a) (2) Financial Statement Schedules
All financial statement schedules have been omitted as the required
information is not applicable or has been included in the Consolidated Financial
Statements.
(a) (3) Exhibits
<TABLE>
<CAPTION>
Sequential Page
Reference to Number Where
Prior Filing Attached Exhibits
Regulation S-K or Exhibit are Located in this
Exhibit Number Attached Form 10-K
Number Document Hereto Report
------ -------- ------ ------
<S> <C> <C> <C>
3(a) Certificate of Incorporation * Not applicable
3(b) By-Laws * Not applicable
4 Instruments defining the rights of security holders, * Not applicable
including debentures
9 Voting Trust Agreement None Not applicable
10 Material Contracts
Employment Contract * Not applicable
Management Recognition Plan and Stock
Option and Incentive Plan * Not applicable
Change-in-Control Severance Agreements ** Not applicable
11 Statement re: computation of per share earnings Not required Not applicable
12 Statement re: computation of ratios Not required Not applicable
13 Annual Report to Security Holders 13
16 Letter re: change in certifying accountants None Not applicable
18 Letter re: change in accounting principles None Not applicable
19 Previously unfiled documents None Not applicable
21 Subsidiaries of Registrant 21
22 Published report regarding matters submitted to vote None Not applicable
of security holders
23 Consents of Experts and Counsel 23
24 Power of Attorney Not required Not applicable
27 Financial Data Schedule 27
28 Information from reports furnished to state insurance None Not applicable
regulatory authorities
99 Additional Exhibits None Not applicable
</TABLE>
- ----------------
* Filed as exhibits to the Company's Form S-1 registration statement filed on
December 29, 1995 (File No. 33-81013) pursuant to Section 5 of the
Securities Act of 1933, as amended. All of such previously filed documents
are hereby incorporated herein by reference in accordance with Item 601 of
Regulation S-K.
** Filed as exhibits to the Company's Pre-effective Amendment No.1 to its Form
S-1 registration statement filed on February 6, 1996 (File No. 33-81013)
pursuant to Section 5 of the Securities Act of 1933, as amended. All of
such previously filed documents are hereby incorporated herein by reference
in accordance with Item 601 of Regulation S-K.
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, no current reports on Form
8-K were filed by the Holding Company.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) 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
By: /s/ Richard F. Komosinski
------------------------------------
Richard F. Komosinski, President,
Chief Executive Officer and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Richard F. Komosinski /s/ William G. Bachop
- --------------------------------- --------------------------------
Richard F. Komosinski, President, William G. Bachop, Chairman
Chief Executive Officer and Director
(Principal Executive and Operating Officer)
Date: December 29, 1997 Date: December 29, 1997
--------------------------- -----------------------
/s/ Michael J. Martin /s/ Charles D. Lohrfink
- --------------------------------- --------------------------------
Michael J. Martin, Director Charles D. Lohrfink, Director
Date: December 29, 1997 Date: December 29, 1997
------------------------ -----------------------
/s/ Donald R. Angelilli /s/ Eben T. Walker
- -------------------------------- ---------------------------------
Donald R. Angelilli, Director Eben T. Walker, Director
Date: December 29, 1997 Date: December 29, 1997
----------------------- -----------------------
/s/ P. Anthony Sarubbi /s/ Joseph D. Roberto
- -------------------------------- ----------------------------------
P. Anthony Sarubbi, Director Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: December 29, 1997 Date: December 29, 1997
----------------------- -----------------------
51
1997 ANNUAL REPORT
YONKERS FINANCIAL CORPORATION
<PAGE>
YONKERS FINANCIAL CORPORATION
-----------------------------
FINANCIAL HIGHLIGHTS
At or for the Year Ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
SELECTED FINANCIAL DATA
- -----------------------
Total assets ................................... $312,956 $259,534 $208,283
Loans receivable, net .......................... 118,683 86,666 83,679
Mortgage-backed securities ..................... 93,384 80,850 59,047
Other securities ............................... 69,231 72,709 57,294
Deposits ....................................... 207,933 190,675 188,009
Borrowings ..................................... 60,096 18,264 4,295
Stockholders' equity(1) ........................ 43,878 48,999 15,765
Book value per share(2) ........................ 14.53 13.72 --
SELECTED OPERATING DATA
- -----------------------
Net interest income ............................ $ 10,774 $ 8,401 $ 7,059
Net income(3) .................................. 2,952 1,520 1,440
Earnings per share(4) .......................... 1.02 0.22 --
ASSET QUALITY DATA
- ------------------
Non-performing loans ........................... $ 1,138 $ 2,775 $ 3,530
Non-performing loans to total loans receivable . 0.94% 3.14% 4.15%
- ----------
(1) Includes additional capital in 1997 and 1996 subsequent to the sale of the
Holding Company's common stock in connection with the Association's
conversion to stock form on April 18, 1996.
(2) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
(3) Fiscal 1996 net income was reduced by approximately $700,000 for the
after-tax impact of a Federal deposit insurance special assessment imposed
to recapitalize the Savings Association Insurance Fund.
(4) The amount for fiscal 1996 is for the six-month period following the
conversion to stock form.
TABLE OF CONTENTS
-----------------
President's Message ................................ 2
Selected Consolidated Financial Information ........ 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 5
Management's Report ................................ 24
Independent Auditors' Report ....................... 25
Consolidated Financial Statements .................. 26
Stockholder Information ............................ 55
Corporate Information .............................. 56
1
<PAGE>
YONKERS FINANCIAL CORPORATION
-----------------------------
LETTER TO STOCKHOLDERS
To Our Stockholders:
It is with a great deal of pride that I report to you on our progress and
results for the fiscal year ended September 30, 1997, our first full year
operating as a public company. Although fiscal 1997 was a challenging year, we
successfully implemented several new strategies which enabled us to increase our
core business and enhance shareholder value. At the same time, The Yonkers
Savings and Loan Association, FA continues to operate as a community-oriented
financial institution providing high-quality service and products that meet the
banking needs of our local customer base.
Net income for the year ended September 30, 1997 was $3.0 million or $1.02
per share, compared to $1.5 million for the year ended September 30, 1996. Net
income for fiscal 1996 was reduced by a Federal deposit insurance special
assessment of $1.2 million, or approximately $700,000 after taxes, which was
imposed by Congress to recapitalize the Savings Association Insurance Fund. The
higher net income in fiscal 1997 also reflects a $2.4 million increase in net
interest income attributable to growth in our core business as well as expansion
of our securities leveraging program, partially offset by a $1.3 million
increase in non-interest expenses other than the special assessment. Although
operating expenses were higher this year, we improved the efficiency ratio to
54.43% in fiscal 1997 from 57.12% in fiscal 1996. The ratio of non-interest
expense (excluding the special assessment) to average assets was slightly higher
at 2.26% in fiscal 1997 compared to 2.20% in the prior year.
Total assets increased $53.5 million to $313.0 million from $259.5 million
a year earlier. Our growth was achieved without compromising the safety and
soundness of our business practices.
The dramatic increase in our core business during fiscal 1997 was focused
in the mortgage loan area. Loans receivable and loans held for sale increased
60.4% or $52.4 million to $139.1 million at September 30, 1997 from $86.7
million at September 30, 1996. This increase, which includes loans held for sale
of $20.4 million, is a result of higher originations of residential mortgage
loans attributable to new lending programs initiated in fiscal 1997. The
implementation of a mortgage broker program, the hiring of more mortgage sales
representatives, and the introduction of newly-designed products, all
contributed to the success of this part of our business. As we move ahead, we
will continue to provide home financing to our community, focusing on prudent
underwriting standards that will result in a high-quality mortgage loan
portfolio with moderate risk.
Our core business expansion in fiscal 1997 also included significant growth
in deposits attributable to new products and excellent customer service. Deposit
liabilities increased $17.2 million to $207.9 million at September 30, 1997 from
$190.7 million at September 30, 1996. Our VIP product, a
2
<PAGE>
YONKERS FINANCIAL CORPORATION
-----------------------------
LETTER TO STOCKHOLDERS (Continued)
popular new program initiated in fiscal 1997, was a major contributor to the
growth and retention of our deposits. This program offers customers higher
savings and CD rates, lower loan costs and other benefits all tied into an
attractive checking account. In addition, modern banking conveniences such as
automated teller machines ("ATM's"), "FASTBanking" (our 24 hour interactive
telephone banking system) and PC Advantage Banking (our internet based web site
at http://www.yonkers.com) will continue to be expanded to help meet the needs
of our customers. In fact, our first off-site ATM was installed this October at
St. John's Riverside Hospital in Yonkers.
Fiscal 1998 began with the Company taking further action to enhance its
retail banking franchise. We have entered into an agreement with BJ's Wholesale
Club, Inc., for in-store branching. BJ's wholesale clubs currently include a
club in Westchester County and a club in Dutchess County, with another location
scheduled to open in early 1998 in Rockland County. Our first in-store branch,
located in BJ's Dutchess County location in Wappingers Falls, opened on December
22, 1997. Our agreement gives us the right of first refusal to establish an
in-store branch in any of BJ's remaining or future clubs located in Dutchess,
Putnam, Rockland and Westchester counties. We believe this venture will allow us
to bring our personalized service and convenient products to other market areas.
The Company continues to focus on enhancing shareholder value. In addition
to growth in our core business, the Company completed two stock repurchase
programs in fiscal 1997. A total of 142,830 shares, or approximately 19% of the
Company's common stock, was repurchased in the open market, including 108,905
shares for purposes of the Company's management recognition plan. The Board of
Directors believes that treasury repurchases enhance shareholder value by
increasing earnings per share.
Since converting to stock form, the Company has declared five consecutive
quarterly cash dividends. The dividend paid in the quarter ended September 30,
1997 was increased to $0.06 per share from $0.05 per share, reflecting the
continued strength of the Company's operating results.
As a well-established community bank, we will continue to explore ways to
add value for our stockholders and customers. We intend to continue to focus on
the financial needs of our community and continue our active participation in
community development and other types of community-related programs.
On behalf of the Board of Directors, I wish to thank our stockholders,
customers and staff for your continued support of Yonkers Financial Corporation.
Sincerely,
/s/ Richard F. Komosinski
- -------------------------
Richard F. Komosinski
President and
Chief Executive Officer
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands)
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Selected Financial Condition Data
<S> <C> <C> <C> <C> <C>
Total assets......................................... $312,956 $259,534 $208,283 $194,862 $182,717
Loans receivable, net................................ 118,683 86,666 83,679 77,824 78,633
Real estate mortgage loans held for sale............. 20,437 --- --- --- ---
Mortgage-backed securities(1):
Held to maturity................................. 50,346 58,139 52,611 49,181 ---
Available for sale............................... 43,038 22,711 6,436 7,786 ---
Held for investment.............................. --- --- --- --- 61,295
Other securities(1):
Held to maturity................................. 25,983 36,868 42,853 38,539 ---
Available for sale............................... 43,248 35,841 14,441 11,430 ---
Held for investment.............................. --- --- --- --- 31,510
Cash and cash equivalents............................ 3,593 12,500 3,261 5,818 7,083
Deposits............................................. 207,933 190,675 188,009 179,816 169,508
Borrowings........................................... 60,096 18,264 4,295 295 295
Stockholders' equity(2).............................. 43,878 48,999 15,765 14,156 12,163
Selected Operating Data
Interest and dividend income......................... $ 20,731 $16,376 $14,063 $12,460 $12,372
Interest expense..................................... 9,957 7,975 7,004 5,422 5,623
--------- ------- -------- -------- --------
Net interest income.............................. 10,774 8,401 7,059 7,038 6,749
Provision for loan losses............................ 300 462 493 64 313
---------- -------- -------- --------- --------
Net interest income after provision for loan losses 10,474 7,939 6,566 6,974 6,436
Non-interest income:
Service charges and fees......................... 814 680 640 529 412
Other............................................ (27) 22 46 96 247
Non-interest expense (excluding special assessment).. 6,319 5,038 4,779 4,272 3,716
SAIF special assessment(3)........................... --- 1,166 --- --- ---
---------- -------- ---------- ---------- ----------
Income before income tax expense and cumulative
effect of change in accounting principle....... 4,942 2,437 2,473 3,327 3,379
Income tax expense................................... 1,990 917 1,033 1,356 1,338
-------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle........................... 2,952 1,520 1,440 1,971 2,041
Cumulative effect of change in accounting for income
taxes............................................ --- --- --- 326 ---
--------- --------- --------- -------- ---------
Net income....................................... $ 2,952 $ 1,520 $ 1,440 $ 2,297 $ 2,041
======== ======= ======= ======= =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands, Except Per Share Data)
At or For the Year Ended September 30,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data
Performance Ratios:
Return on assets (ratio of net income to average total
assets)(4)................................................ 1.05% 0.66% 0.72% 1.22% 1.16%
Return on equity (ratio of net income to average
equity)(4)................................................ 6.72 4.60 9.61 17.31 17.78
Average interest rate spread(4)(5).......................... 3.26 3.13 3.34 3.58 3.68
Net interest margin(4)(6)................................... 3.93 3.73 3.61 3.80 3.90
Efficiency ratio(7)......................................... 54.43 57.12 58.18 55.31 50.16
Net interest income to non-interest expense(4)(8)........... 170.50 135.41 147.71 164.75 181.62
Non-interest expense to average total assets(4)(8).......... 2.26 2.70 2.39 2.27 2.11
Average interest-earning assets to average
interest-bearing liabilities(4)........................... 118.60 117.07 107.70 107.45 106.84
Earnings per share, from date of conversion................. $ 1.02 $ 0.22$ --- $ --- $ ---
Cash dividends per share.................................... 0.21 0.05 --- --- ---
Dividend payout ratio(9).................................... 20.66% 22.50% ---% ---% ---%
Capital Ratios and Other Data:
Average equity to average assets(4)......................... 15.69 14.41 7.50 7.04 6.53
Equity to total assets at end of period..................... 14.02 18.88 7.57 7.26 6.66
Book value per share(10).................................... $14.53 $13.72 $ --- $ --- $ ---
Total risk-based capital.................................... 32.08% 37.19% 18.66% 18.67% 16.02%
Asset Quality and Other Data:
Non-performing loans........................................ $1,138 $ 2,775 $3,530 $2,663 $1,157
Real estate owned, net...................................... 379 603 227 73 242
------- -------- ------ ------- -------
Total non-performing assets................................. $1,517 $ 3,378 $3,757 $2,736 $1,399
====== ======= ====== ====== ======
Asset quality ratios:
Non-performing loans to total loans receivable............ 0.94% 3.14% 4.15% 3.35% 1.46%
Non-performing assets to total assets..................... 0.48 1.30 1.80 1.40 0.77
Allowance for loan losses to:
Non-performing loans...................................... 96.05 33.77 20.37 11.68 25.50
Total loans receivable.................................... 0.90 1.06 0.84 0.39 0.37
Number of full-service banking offices...................... 4 4 4 4 4
</TABLE>
- ----------
(1) The Company has classified its securities as "held to maturity" or
"available for sale" since September 30, 1994, when it adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
(2) Includes additional capital in 1997 and 1996 subsequent to the sale of the
Holding Company's common stock in connection with the Association's
conversion to stock form on April 18, 1996.
(3) Represents the Association's share of a special assessment imposed on all
financial institutions with deposits insured by the Savings Association
Insurance Fund (the "SAIF"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Comparison of Operating
Results for the Years Ended September 30, 1996 and 1995."
(4) Ratio is based on average daily balances during fiscal 1997 and average
monthly balances during the earlier years.
(5) The interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) The efficiency ratio represents non-interest expense (other than the
special assessment in 1996 and certain loss provisions in each year)
divided by the sum of net interest income and non-interest income (other
than net security gains and losses).
(8) Excluding the SAIF special assessment described in note (3), the ratio of
net interest income to non-interest expense and the ratio of non-interest
expense to average total assets for fiscal 1996 would have been 166.75% and
2.20%, respectively.
(9) Represents dividends paid as a percentage of net income. Ratio for fiscal
1996 is based on net income for the six-month period following the
Association's conversion to stock form.
(10) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Yonkers Financial Corporation (the "Holding Company") is the unitary
savings association holding company for The Yonkers Savings and Loan
Association, FA (the "Association"), a federally chartered savings and loan
association and a wholly-owned subsidiary of the Holding Company. Collectively,
the Holding Company and the Association are referred to herein as the "Company."
On April 18, 1996, the Association converted from a mutual savings and loan
association to a stock savings and loan association (the "Conversion").
Concurrent with the Conversion, the Holding Company sold 3,570,750 shares of its
common stock in a subscription and community offering at a price of $10.00 per
share, for net proceeds of $34.6 million (the "Stock Offering").
The Company's primary market area consists of Westchester County, New
York, and portions of Putnam, Rockland and Dutchess Counties, New York. Business
is conducted from its executive offices as well as four full-service banking
offices located in Yonkers, New York. A branch located in a discount store in
Wappingers Falls, Dutchess County, opened in December 1997. The Association is a
community-oriented savings institution whose business primarily consists of
accepting deposits from customers within its market area and investing those
funds in mortgage loans secured by one-to-four family residences. To a lesser
extent, funds are invested in multi-family and commercial real estate,
construction, land, consumer and commercial business loans. The Company also
invests in mortgage-backed and other securities. The Holding Company's business
activities have been limited to its ownership of the Association and certain
short-term and other investments.
The Company's results of operations are primarily dependent on net
interest income, which is the difference between the interest income on its
interest-earning assets (such as loans and securities) and the interest expense
on its interest-bearing liabilities (such as deposits and borrowings). The
Company's results of operations are also affected by the provision for loan
losses, non-interest income and non-interest expense. Noninterest income
primarily consists of service charges and fees on deposit and loan products. The
Company's non-interest expenses primarily consist of employee compensation and
benefits, occupancy and equipment expenses, federal deposit insurance costs,
data processing service fees and other operating expenses.
The Company's results of operations are significantly affected by
general economic and competitive conditions (particularly changes in market
interest rates), government policies, changes in accounting standards and
actions of regulatory agencies. Future changes in applicable laws, regulations
or government policies may have a material impact on the Company. Lending
activities are influenced by the demand for and supply of housing, competition
among lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market interest
rates (including rates on non-deposit investment alternatives), account
maturities, and the levels of personal income and savings in the Company's
market area.
6
<PAGE>
Operating Strategy
The Company's basic mission is to maintain its focus as an independent,
community-oriented financial institution servicing customers in its primary
market area. The Board of Directors has sought to accomplish this mission
through an operating strategy designed to maintain capital in excess of
regulatory requirements and manage, to the extent practical, the Company's loan
delinquencies and vulnerability to changes in interest rates. The key components
of the Company's operating strategy are to: (i) focus its lending operations on
the origination of loans secured by one-to-four family residential real estate;
(ii) supplement its one-to-four family residential lending activities with
multi-family, commercial real estate, consumer, construction and land loans;
(iii) augment its lending activities with investments in mortgage-backed and
other securities; (iv) emphasize adjustable rate and/or short and medium
duration assets; (v) build and maintain its regular savings, transaction, money
market and club accounts; (vi) increase, at a managed pace, the volume of the
Company's assets and liabilities; and (vii) utilize borrowings to fund increases
in asset volume at a positive interest rate spread.
Comparison of Financial Condition at September 30, 1997 and 1996
Total assets increased $53.5 million to $313.0 million at September 30,
1997 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 $43.8
million to $54.1 million at September 30, 1997 from $10.3 million at September
30, 1996. Deposit liabilities increased $17.2 million to $207.9 million at
September 30, 1997 from $190.7 million at September 30, 1996. Funds of $8.9
million were used to repurchase 658,892 shares of the Holding Company's common
stock in the open market during the year ended September 30, 1997, including
both treasury shares and shares for use in the Company's management recognition
plan ("MRP"). A total of 108,905 repurchased shares with a cost of $1.4 million
were awarded under the MRP in fiscal 1997.
Funds provided by borrowings and deposit growth were primarily invested
in new loans and securities, while funds from existing short-term investments
were primarily used to fund the Holding Company's stock repurchases. On a
combined basis, loans receivable (held for portfolio) and loans held for sale
increased $52.4 million to $139.1 million at September 30, 1997 from $86.7
million at September 30, 1996. The combined increase, which includes an increase
of $20.4 million in real estate mortgage loans held for sale, has primarily
resulted from higher originations of residential mortgage loans attributable to
new lending programs initiated in fiscal 1997. Total securities increased $9.0
million to $162.6 million at September 30, 1997 from $153.6 million at September
30, 1996. Short-term investments decreased $8.8 million to $1.5 million at
September 30, 1997 from $10.3 million at September 30. 1996.
The $52.4 million combined increase in loans receivable and loans held
for sale primarily reflects increases of $49.5 million in one-to-four family
mortgage loans (including $20.4 million in loans held for sale) and $2.9 million
in commercial real estate loans. Net increases and decreases in other portfolio
categories were not significant. During fiscal 1997, the Company implemented a
mortgage broker program, utilized additional mortgage sales representatives and
7
<PAGE>
developed a newly designed "15/1" residential mortgage loan product, all of
which contributed to the increase in loan production. The 15/1 mortgage loan has
a term of 30 years with a fixed rate for the first fifteen years and annual rate
adjustments thereafter based on a specified margin over the Average Weekly One
Year U.S. Treasury Constant Maturity Index. In addition, the loan has a
conversion option which allows the borrower to convert, during years sixteen
through eighteen, to a fixed rate for the remaining term. Loans held for sale of
$20.4 million at September 30, 1997 represent substantially all of the Company's
loans of this type, the majority of which were originated during the quarter
ended September 30, 1997. The sale of these loans was completed, with servicing
retained, during November 1997. The Company expects to engage in similar
secondary market sales of a portion of its future residential mortgage loan
originations as market conditions warrant. These loans will be classified as
held for sale at origination and carried at the lower of cost or market value.
The securities portfolio at September 30, 1997 reflects a $27.7 million
increase in available-for-sale securities and an $18.7 million decrease in
held-to-maturity securities, compared to September 30, 1996. The increase in
available-for-sale securities primarily reflected purchases of $55.8 million
(including purchases of longer term, fixed rate securities funded with
borrowings under repurchase agreements), partially offset by $13.4 million in
principal payments, maturities and calls, and $15.9 million in proceeds from
sales. The Company's overall interest rate risk, as measured by the sensitivity
of its net portfolio value to instantaneous interest rate changes, has increased
somewhat as a result of funding these security purchases with shorter term
borrowings. See "Interest Rate Risk Management". The decrease in
held-to-maturity securities primarily reflects principal payments, maturities
and calls of $18.6 million. Available-for-sale securities represented 53.1% of
the total securities portfolio at September 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, including the
ability to reposition the portfolio or reduce borrowings in response to changes
in interest rates and other market conditions.
Borrowings at September 30, 1997 reflect a $43.8 million increase in
securities repurchase agreements to $54.1 million compared to $10.3 million at
September 30, 1996, partially offset by a $2.0 million decrease in FHLB advances
to $6.0 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".
The $17.2 million increase in deposit liabilities during fiscal 1997
was the result of aggressive cross-selling, quality customer service and new
deposit products. During fiscal 1997, the Company introduced a VIP program which
offers certain high-balance customers higher savings and certificate of deposit
rates, lower loan costs and other benefits, all tied into an attractive checking
account. In addition, modern banking conveniences such as "FASTBanking" (a 24
hour interactive telephone banking system) and PC Advantage Banking (an internet
based web site) were expanded to meet the needs of the Company's customers.
Stockholders' equity decreased $5.1 million, from $49.0 million at
September 30, 1996 to $43.9 million at September 30, 1997. The decrease is
primarily attributable to common share repurchases at a total cost of $8.9
million, partially offset by net income of $2.3 million retained after dividends
and an improvement of $751,000 in the after-tax net unrealized gains and losses
8
<PAGE>
on available-for-sale securities. A total of 658,892 common shares were
repurchased in open market transactions during fiscal 1997 at an average cost of
$13.52 per share. Of this total, 108,905 repurchased shares with a cost of $1.4
million were awarded under the MRP during the year and 549,987 shares were held
as treasury stock at September 30, 1997. The ratio of stockholders' equity to
total assets at September 30, 1997 was 14.02% as compared to 18.88% at September
30, 1996. Book value per share (computed based on total shares issued less
treasury shares) was $14.53 at September 30, 1997, up from $13.72 at September
30, 1996. For information regarding the Association's regulatory capital amounts
and ratios, see "Liquidity and Capital Resources".
Total non-performing assets decreased $1.9 million, from $3.4 million
at September 30, 1996 to $1.5 million at September 30, 1997, reflecting net
reductions of $1.6 million in non-accrual loans past due ninety days or more and
$224,000 in real estate owned. The ratio of non-performing assets to total
assets decreased to 0.48% at September 30, 1997 from 1.30% at September 30,
1996. The allowance for loan losses was $1.1 million or 0.90% of total loans
receivable at September 30, 1997, compared to $937,000 or 1.06% at September 30,
1996. The ratio of the allowance for loan losses to non-performing loans
increased to 96.05% at September 30, 1997 from 33.77% at September 30, 1996. See
"Asset Quality" for additional information.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rates earned or paid on them.
The following table sets forth average balance sheets, average yields
and costs, and certain other information for the years ended September 30, 1997,
1996 and 1995. The average yields and costs were computed by dividing interest
income or expense by the average balance of the related assets or liabilities.
Average balances were computed based on daily balances in fiscal 1997 and
month-end balances in fiscal 1996 and 1995. Management believes that the use of
average monthly balances rather than average daily balances in earlier years did
not have a material effect on the information presented. The yields include the
effect of deferred fees, discounts and premiums included in interest income. No
tax-equivalent yield adjustments were made for tax-exempt securities, as the
effect thereof was not material.
9
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended September 30,
-----------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ----------------------------- ------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans(1)..............................$ 98,721 $ 8,603 8.71% $ 85,479 $ 7,471 8.74% $ 80,027 $ 6,937 8.67%
Mortgage-backed securities(2)......... 88,030 6,078 6.90 66,778 4,346 6.51 58,662 3,813 6.50
Other securities(2)................... 79,584 5,655 7.11 60,567 3,807 6.29 51,136 2,988 5.84
Other earning assets.................. 7,760 395 5.09 12,367 752 6.08 5,670 325 5.73
--------- --------- ------- -------- ------- --------
Total interest-earning assets....... 274,095 $20,731 7.56 225,191 $16,376 7.27 195,495 $14,063 7.19
======= ======= =======
Allowance for loan losses................ (1,048) (841) (414)
Non-interest-earning assets.............. 6,850 5,062 4,817
--------- ------- -------
Total assets........................ $279,897 $229,412 $199,898
======== ======== ========
Liabilities and Equity
Interest-bearing liabilities:
NOW, club and money market accounts..$ 38,284 $ 862 2.25% $ 32,606 $ 788 2.42% $ 28,910 $ 710 2.46%
Regular savings accounts(3)........... 46,636 1,166 2.50 51,564 1,336 2.59 60,173 1,610 2.68
Savings certificate accounts.......... 110,935 5,894 5.31 104,613 5,656 5.41 90,270 4,582 5.08
--------- -------- ------- -------- ------- --------
Total interest-bearing deposits..... 195,855 7,922 4.04 188,783 7,780 4.12 179,353 6,902 3.85
Borrowings............................ 35,260 2,035 5.77 3,570 195 5.46 2,170 102 4.70
--------- -------- ------- -------- ------- ---------
Total interest-bearing liabilities.. 231,115 $ 9,957 4.30 192,353 $ 7,975 4.14 181,523 $ 7,004 3.85
======= ======= =======
Non-interest-bearing liabilities......... 4,860 3,996 3,389
--------- ------- -------
Total liabilities................... 235,975 196,349 184,912
Equity................................... 43,922 33,063 14,986
--------- ------- -------
Total liabilities and equity........ $279,897 $229,412 $199,898
======== ======== ========
Net interest income...................... $10,774 $ 8,401 $ 7,059
======= ======= =======
Average interest rate spread(4).......... 3.26% 3.13% 3.34%
Net interest margin(5)................... 3.93% 3.73% 3.61%
Net interest-earning assets(6)........... $ 42,980 $ 32,838 $ 13,972
======== ======== ========
Ratio of total interest-earning assets
to total interest-bearing liabilities. 118.60% 117.07% 107.70%
</TABLE>
- ----------
(1) Balances are net of deferred loan fees and construction loans in process,
and include loans receivable and loans held for sale. Non-accrual loans are
included in the balances.
(2) Average balances represent amortized cost.
(3) Includes mortgage escrow accounts.
(4) Average interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average total
interest-earning assets.
(6) Net interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
10
<PAGE>
The following table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
Fiscal 1997 Compared to Fiscal 1996 Fiscal 1996 Compared to Fiscal 1995
----------------------------------- -----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
--------------- Net ---------------- Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(Dollars In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans..................................... $1,155 $ (23) $1,132 $ 473 $ 61 $ 534
Mortgage-backed securities................ 1,406 326 1,732 528 5 533
Other securities.......................... 1,232 616 1,848 560 259 819
Other earning assets...................... (246) (111) (357) 413 14 427
------- ----- ------- ------- ------- ------
Total................................... 3,547 808 4,355 1,974 339 2,313
------ ----- ------ ------- ------- ------
Interest-bearing liabilities:
NOW, club and money market accounts....... 134 (60) 74 89 (11) 78
Regular savings accounts.................. (127) (43) (170) (230) (44) (274)
Savings certificate accounts.............. 339 (101) 238 736 338 1,074
Borrowings................................ 1,782 58 1,840 62 31 93
------- ------ ------ ------- ------- --------
Total................................... 2,128 (146) 1,982 657 314 971
------ ----- ------ ------- ------- --------
Net change in net interest income............ $ 1,419 $ 954 $2,373 $ 1,317 $ 25 $ 1,342
======= ====== ====== ======= ======= =======
</TABLE>
Comparison of Operating Results for the Years Ended September 30, 1997 and 1996
General. Net income was $3.0 million or $1.02 per share for the fiscal
year ended September 30, 1997, compared to net income of $1.5 million for the
fiscal year ended September 30, 1996. Earnings per share was $0.22 for the
six-month period from the Conversion to September 30, 1996. The increase in net
income was primarily attributable to a $2.4 million increase in net interest
income and the absence in fiscal 1997 of a $1.2 million Federal deposit
insurance special assessment charged to earnings in fiscal 1996, partially
offset by increases of $1.3 million in non-interest expenses (other than the
special assessment) and $1.1 million in income tax expense. Excluding the
after-tax effect of the special assessment, net income for fiscal 1996 would
have been $2.2 million.
Net Interest Income. Net interest income increased $2.4 million to
$10.8 million for the year ended September 30, 1997 from $8.4 million for the
prior year. The increase reflects higher average interest-earning assets
primarily attributable to the growth in the loan and securities portfolios in
fiscal 1997, as well as reinvestment of the net proceeds from the April 1996
stock offering for a full year in fiscal 1997 compared to approximately six
months in fiscal 1996. The higher net interest income also reflects increases in
both the average interest rate spread and net interest margin, which were 3.26%
and 3.93% for the year ended September 30, 1997 compared to 3.13% and 3.73%,
respectively, for the prior year.
11
<PAGE>
Compared to fiscal 1996, market interest rates averaged slightly lower
in fiscal 1997, particularly across the longer term maturity end of the U.S.
Treasury yield curve. The Company realized higher average yields on its
interest-earning assets primarily as a result of the purchase of
higher-yielding, longer-term fixed rate securities. Although the Company's rate
paid on deposit liabilities declined, the overall rate on its interest-bearing
liabilities increased due to the larger proportion of higher-rate borrowings to
total interest-bearing liabilities. However, on a combined basis, these trends
in interest rates had a positive impact on the Company's average interest rate
spread and net interest margin in fiscal 1997 compared to fiscal 1996.
Interest and Dividend Income. Interest and dividend income totaled
$20.7 million for the year ended September 30, 1997, an increase of $4.3 million
compared to $16.4 million for the prior year. This increase reflects the effect
of a $48.9 million increase in total average interest-earning assets and a 29
basis point increase in the average yield on such assets to 7.56% for the year
ended September 30, 1997 from 7.27% for the prior year.
Interest income on loans increased by $1.1 million to $8.6 million for
the year ended September 30, 1997 from $7.5 million for the prior year,
reflecting a $13.2 million increase in the average balance, partially offset by
a 3 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 and commercial real estate loans.
On a combined basis, interest and dividend income on mortgage-backed
and other securities increased $3.5 million to $11.7 million for the year ended
September 30, 1997 from $8.2 million for year ended September 30, 1996. This
combined increase consisted of (i) a $1.8 million increase in interest on other
securities, attributable to the effects of a $19.0 million increase in the
average balance and an 82 basis point increase in the average yield, and (ii) a
$1.7 million increase in interest on mortgage-backed securities, attributable to
the effects of a $21.2 million increase in the average balance and a 39 basis
point increase in the average yield. The higher average yields on both
portfolios reflect current-year purchases of longer term, fixed rate securities
at higher yields.
Interest and dividend income on other earning assets decreased
$357,000, primarily due to the use of short-term investments to fund
current-year repurchases of the Holding Company's common stock.
Interest Expense. Interest expense totaled $10.0 million for the year
ended September 30, 1997, an increase of $2.0 million from $8.0 million for the
year ended September 30, 1996.
Interest expense on deposits increased $142,000 to $7.9 million for the
year ended September 30, 1997 from $7.8 million for the prior year. This
increase reflects the effect of a $7.1 million increase in the average balance
of interest-bearing deposits, partially offset by an 8 basis point decrease in
the average rate to 4.04% for the year ended September 30, 1997 from 4.12% for
the prior year. The increase in average interest-bearing deposits consisted of a
$6.3 million increase in average savings certificate accounts (to $110.9 million
from $104.6 million) and a $5.7 million increase in average NOW, club and money
market accounts (to $38.3 million from $32.6 million), partially offset by a
$5.0 million decrease in average regular savings accounts (to $46.6 million from
$51.6 million). The overall decrease in the average rate paid reflects the
12
<PAGE>
overall stability in deposit interest rates during fiscal 1997, coupled with a
slowdown in the shift from generally lower rate savings accounts to generally
higher rate certificate accounts.
Interest expense on borrowings increased $1.8 million to $2.0 million
for the year ended September 30, 1997 from $195,000 for the year ended September
30, 1996, as the Company continued to increase borrowings to leverage available
capital and support further asset growth. Substantially all of this increase was
attributable to interest on borrowings under securities repurchase agreements,
which had an average balance of $32.1 million and an average rate of 5.77% for
the year ended September 30, 1997 compared to $1.2 million and 5.35%,
respectively, for the prior year. See "Liquidity and Capital Resources" for a
further discussion of the Company's securities repurchase agreements.
Provision for Loan Losses. The provision for loan losses was $300,000
and $462,000 for the fiscal years ended September 30, 1997 and 1996,
respectively. The current-year provision reflects the impact of lower
non-performing loans and net charge-offs compared to the prior year, partially
offset by the impact of portfolio growth in the current year.
Non-performing loans declined to $1.1 million at September 30, 1997
from $2.8 million at September 30, 1996. The decrease in nonperforming 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 received on a $232,000 construction loan secured by a
two-family residence and a $304,000 mortgage loan secured by 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.
Net loan charge-offs declined to $144,000 in fiscal 1997 from $244,000
in fiscal 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 years primarily relate to transfers of foreclosed properties to real estate
owned.
The allowance for loan losses was $1.1 million or 0.90% of loans
receivable at September 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
increased to 96.05% at September 30, 1997 from 33.77% at September 30, 1996.
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. Subject to market conditions in the future, the Company intends to
continue to expand its multi-family and commercial real estate lending. As a
result, these loan categories may represent a larger percentage of the total
loan portfolio in the future. Since such loans are generally thought to carry a
higher degree of credit risk than one-to-four-family residential loans, such a
change in the loan portfolio mix would probably result in a further increase in
the allowance for losses. See "Asset Quality" for further information.
13
<PAGE>
Non-Interest Income. Non-interest income for the year ended September
30, 1997 increased $85,000 to $787,000 from $702,000 for the year ended
September 30, 1996. This increase was primarily attributable to a $134,000
increase in service charges and fee income, partially offset by a $48,000 net
loss on sales of securities in fiscal 1997. The increase in service charges and
fee income primarily reflects increases in transaction volume. The net loss on
securities primarily reflects realized losses on sales of available for-sale
securities.
Non-Interest Expense. Non-interest expense increased $115,000 to $6.3
million for the year ended September 30, 1997 from $6.2 million for the prior
year. Increases of $886,000 in compensation and benefits expense and $519,000 in
other non-interest expense were substantially offset by a $1.4 million decrease
in Federal deposit insurance costs. Incremental expenses associated with
ensuring that the Company's computer systems are Year 2000 compliant are not
expected to have a material impact on financial condition or results of
operations.
The increase in compensation and benefits expense primarily reflects
(i) the current year recognition of $271,000 in costs associated with the MRP,
(ii) a $277,000 increase in employee stock ownership plan expenses reflecting a
full year of costs under such plan as well as an increase in the Company's stock
price, and (iii) additional staffing and merit and performance-based increases
for management and staff members.
The increase in other non-interest expense is primarily attributable to
additional advertising expense and costs associated with operations as a public
company for a full year in fiscal 1997, as well as a non-recurring reduction of
$162,000 in fiscal 1996 expenses resulting from the favorable resolution of the
Company's Nationar claim.
The decrease in Federal deposit insurance costs was attributable to the
Federal deposit insurance special assessment of $1.2 million in fiscal 1996, as
well as lower deposit insurance rates subsequent to the recapitalization of the
Savings Association Insurance Fund ("SAIF"). 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 calendar 1997,
this assessment equals 6.48 basis points on SAIF-insured deposits.
Income Tax Expense. Income tax expense amounted to $2.0 million and
$917,000 for the fiscal years ended September 30, 1997 and 1996, respectively.
The increase primarily reflects higher pre-tax income in fiscal 1997, as well as
a non-recurring tax benefit of $100,000 recognized in fiscal 1996 due to a
decrease in deferred tax liabilities caused by an amendment to the New York
State tax law enacted in July 1996.
Comparison of Operating Results for the Fiscal Years Ended September 30, 1996
and 1995
General. Net income was $1.5 million for the year ended September 30,
1996 compared to $1.4 million for the year ended September 30, 1995. The
increase in net income was primarily attributable to a $1.3 million increase in
net interest income and a $116,000 decrease in income tax expense, substantially
offset by a $1.4 million increase in non-interest expense primarily attributable
to the $1.2 million Federal deposit insurance special assessment.
Net Interest Income. Net interest income increased $1.3 million to $8.4
million for the year ended September 30, 1996 from $7.1 million for the year
ended September 30, 1995. This
14
<PAGE>
increase was primarily attributable to the positive effect of an increase in
average earning assets, partially offset by a 21 basis point decrease in the
interest rate spread to 3.13% for the year ended September 30, 1996 from 3.34%
for the prior year. The increase in average earning assets for the 1996 fiscal
year reflects reinvestment of the Stock Offering proceeds for the period from
April 18, 1996 to September 30, 1996, as well as reinvestment of proceeds from
borrowings and deposit growth.
Compared to fiscal 1995, market interest rates remained relatively flat
in fiscal 1996. The Company realized slightly higher average yields on its
interest-earning assets primarily as a result of the reinvestment of principal
payments, maturities and calls into higher yielding intermediate term
securities, and the increase in the proportion of the Company's assets
consisting of non-residential loans. However, a shift from generally lower rate
regular savings accounts to generally higher rate certificate accounts had a
negative impact on the Company's average interest-rate spread in fiscal 1996
compared to fiscal 1995.
Interest and Dividend Income. Interest and dividend income totaled
$16.4 million for the year ended September 30, 1996, an increase of $2.3 million
as compared to $14.1 million for the year ended September 30, 1995. This
increase reflects a $29.7 million increase in total average interest-earning
assets and an 8 basis point increase in the average yield on such assets to
7.27% for the year ended September 30, 1996 from 7.19% for the prior year.
Interest income on loans increased by $534,000 to $7.5 million for the
year ended September 30, 1996 from $6.9 million for the year ended September 30,
1995, reflecting a $5.5 million increase in the average balance of loans and a 7
basis point increase in the average yield. The increase in the average balance
of loans was primarily attributable to increases in commercial real estate and
commercial business loans.
On a combined basis, interest and dividend income on mortgage-backed
and other securities increased $1.4 million to $8.2 million for the year ended
September 30, 1996 from $6.8 million for the year ended September 30, 1995. This
combined increase consisted of (i) an $819,000 increase in interest on other
securities, attributable to a $9.4 million increase in the average balance and a
45 basis point increase in the average yield and (ii) a $533,000 increase in
interest on mortgage-backed securities, primarily attributable to an $8.1
million increase in the average balance.
Interest and dividend income on other earning assets increased
$427,000, primarily due to the reinvestment of a portion of the Stock Offering
proceeds in short-term liquid assets.
Interest Expense. Interest expense totaled $8.0 million for the year
ended September 30, 1996, an increase of $1.0 million as compared to interest
expense of $7.0 million for the year ended September 30, 1995.
Interest expense on deposits increased $878,000 to $7.8 million for the
year ended September 30, 1996 from $6.9 million for the year ended September 30,
1995. This increase reflects a $9.4 million increase in the average balance of
interest-bearing deposits and a 29 basis point increase in the average rate to
4.14% for the year ended September 30, 1996 from 3.85% for the prior year. The
increase in average interest-bearing deposits consisted of a $14.3 million
increase in average savings certificate accounts (to $104.6 million from $90.3
million) and a $3.7
15
<PAGE>
million increase in average NOW, club and money market accounts, partially
offset by an $8.6 million decrease in average regular savings accounts (to $51.6
million from $60.2 million). The overall increase in the average rate paid
reflects the continuing shift from generally lower rate savings accounts to
generally higher rate certificate accounts.
Interest expense on borrowings increased $93,000 to $195,000 for the
year ended September 30, 1996 from $102,000 for the year ended September 30,
1995. This increase primarily reflects a $1.4 million increase in average
borrowings to $3.6 million for the year ended September 30, 1996 from $2.2
million for the prior year, as the Company leveraged available capital to
support further asset growth.
Provision for Loan Losses. The provision for loan losses was $462,000
for the year ended September 30, 1996, compared to $493,000 for prior year. Net
loan charge-offs were $244,000 for the year ended September 30, 1996, compared
to $85,000 for the year ended September 30, 1995. Non-performing loans totaled
$2.8 million at September 30, 1996, down from $3.5 million at September 30,
1995. The allowance for loan losses was $937,000 or 1.06% of total loans at
September 30, 1996, compared to $719,000 or 0.84% of total loans at September
30, 1995. The ratio of the allowance for loan losses to nonperforming loans was
33.77% at September 30, 1996, compared to 20.37% a year earlier.
Charge-offs for the year ended September 30, 1996 include $203,000 for
the settlement of the Company's non-performing interest in a participation loan,
as well as $97,000 for three single-family properties that were transferred into
real estate owned. The participation loan was originated by TASCO in 1986 and
was secured by a co-op located in Kew Gardens, New York. Management decided to
replenish the allowance for the net charge-offs during the year ended September
30,1996 and to further increase the allowance as a result of loan growth and
changes in the portfolio mix.
Non-Interest Income. Non-interest income for the year ended September
30, 1996 increased $16,000 to $702,000 from $686,000 for the year ended
September 30, 1995. This increase was primarily attributable to a $40,000
increase in service charges and fee income, reflecting higher transaction
volume, partially offset by a $29,000 decrease in the net gain on sales of
securities.
Non-Interest Expense. Non-interest expense for the year ended September
30, 1996 increased $1.4 million to $6.2 million from $4.8 million for the prior
year. The increase was primarily attributable to the SAIF special assessment of
$1.2 million (discussed below), an increase of $339,000 in compensation and
benefits expense and an increase of $82,000 in occupancy and equipment expense,
partially offset by a decrease of $241,000 in other non-interest expense.
16
<PAGE>
The increase in compensation and benefits expense primarily reflects
the recognition in fiscal 1996 of $147,000 in expense associated with the ESOP;
merit and performance based increases for management and staff members; and an
increase in the number of employees. The increase in occupancy and equipment
expense primarily reflects the leasing of additional space for corporate offices
initially occupied during fiscal 1996. The decrease in other non-interest
expense was primarily attributable to adjustments related to the Company's claim
against Nationar, a check-clearing and trust company which failed in February
1995. At that time, the Company had
a check-clearing balance of $841,000 due from Nationar. Based on management's
concerns at that time about the probability of fully collecting this balance, a
provision for losses of $168,000 was recognized in other non-interest expense
for the year ended September 30, 1995, which reduced the net carrying amount of
the claim to $673,000. In June 1996, the Company collected $835,000 in
settlement of the claim. The difference of $162,000 between the amount collected
and the net carrying amount of the claim was reflected as a credit to other
non-interest expense for the year ended September 30, 1996. The ratio of
non-interest expense to average total assets (excluding the SAIF special
assessment) decreased to 2.20% for the year ended September 30, 1996 from 2.39%
for the prior year.
The deposits of savings associations such as the Association are
insured by the SAIF which, together with the Bank Insurance Fund ("BIF"),
comprise the deposit insurance funds administered by the Federal Deposit
Insurance Corporation ("FDIC"). Beginning in 1995, when the BIF achieved the
ratio of reserves to deposits required by statute, BIF-insured institutions were
assessed premiums at rates lower than those applicable to SAIF-insured
institutions. In response to this premium disparity, the Deposit Insurance Funds
Act ("Act") was enacted into law on September 30, 1996. Among other things, the
Act required depository institutions to pay a special assessment of 65.7 basis
points on the balance of their SAIF-assessable deposits held as of March 31,
1995, in order to recapitalize the SAIF to the reserve level required by
statute. Accordingly, the Company's consolidated statement of income for the
year ended September 30, 1996 reflects a separate expense charge of
approximately $1.2 million for the accrual of this special assessment which was
paid in November 1996.
Income Tax Expense. Income tax expense for the year ended September 30,
1996 decreased $116,000 as compared to the prior year although pre-tax income
was substantially the same for the two periods. The decrease in fiscal 1996 was
primarily attributable to a $100,000 tax benefit recognized in the quarter ended
September 30, 1996, due to a decrease in deferred tax liabilities caused by an
amendment to the New York State tax law enacted in July 1996. The amendment
changed the definition of the base-year tax bad debt reserves and eliminated the
need for a deferred tax liability previously recognized for reserves in excess
of the base-year amount. See Note 8 of the Notes to Consolidated Financial
Statements for a further discussion of this amendment and the Association's tax
bad debt reserves.
17
<PAGE>
Asset Quality
Non-performing assets consist of non-accruing loans past due 90 days or
more and real estate owned properties that have been acquired by foreclosure.
Loans are placed on non-accrual status when the collection of principal or
interest becomes doubtful. Management and the Board of Directors perform a
monthly review of all non-performing loans. The actions taken by the Company
with respect to delinquencies (workout, settlement or foreclosure) vary
depending on the nature of the loan, length of delinquency and the borrower's
past credit history. The classification of a loan as non-performing does not
necessarily indicate that the principal and interest ultimately will be
uncollectible. Historical experience indicates that a portion of non-performing
assets will eventually be recovered. Real estate owned properties are carried at
the lower of cost or fair value less sales costs.
The following table sets forth the amounts and categories of the
Company's non-performing assets at the dates indicated. The Company's
prospective adoption of Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," effective October 1,
1995, had no impact on the comparability of this information.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans past due 90 days or more:
Real estate mortgage loans
One- to four-family............................ $ 389 $1,757 $2,759 $2,229 $ 479
Multi-family(1)................................ --- --- 389 389 399
Commercial..................................... 211 214 --- --- ---
Land........................................... 250 250 49 --- ---
Construction................................... 279 511 279 --- 217
Consumer loans.................................... 9 43 54 45 62
--------- ------- ------- ------- -------
Total........................................ 1,138 2,775 3,530 2,663 1,157
Real estate owned, net................................ 379 603 227 73 242
------- ------- ------- ------- ------
Total non-performing assets........................... $1,517 $3,378 $3,757 $2,736 $1,399
====== ====== ====== ====== ======
Allowance for loan losses............................. $1,093 $ 937 $ 719 $ 311 $ 295
====== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans receivable.... 0.94% 3.14% 4.15% 3.35% 1.46%
Non-performing assets to total assets............. 0.48 1.30 1.80 1.40 0.77
Allowance for loan losses to:
Non-performing loans........................... 96.05 33.77 20.37 11.68 25.50
Total loans receivable......................... 0.90 1.06 0.84 0.39 0.37
</TABLE>
- ----------
(1) Includes a loan classified as a troubled debt restructuring of $309,000,
$309,000 and $312,000 at September 30, 1995, 1994 and 1993, respectively.
Collections and charge-offs in fiscal 1996 eliminated the recorded
investment in this loan.
18
<PAGE>
The provisions of SFAS No. 114 are applied by the Company 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 September 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 September 30, 1997 and 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 $799,000 and
$700,000 for the years ended September 30, 1997 and 1996, respectively. Interest
collections and income recognized on impaired loans (while such loans were
considered impaired) were insignificant during the years ended September 30,
1997 and 1996.
For the year ended September 30, 1997, gross interest income of
$107,000 would have been recorded if all non-accruing loans at September 30,
1997 had remained current throughout the year in accordance with their original
terms. The amount of interest income actually recognized on such loans in fiscal
1997, prior to placing the loans on non-accrual status, was $15,000. See Note 3
of the Notes to the Consolidated Financial Statements.
The allowance for loan losses is established through a provision for
loan losses charged to operations based on management's evaluation of the risk
inherent in the loan portfolio. The allowance is established as an amount that
management believes will be adequate to absorb losses on existing loans that may
become uncollectible, based on the evaluation of the collectibility of loans and
prior loan loss experience. Management's evaluation of the adequacy of the
allowance takes into consideration such factors as the historical loan loss
experience, known and inherent risks in the portfolio, changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, estimated value of underlying collateral, and current economic
conditions that may affect borrowers' ability to pay.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net earnings could
be significantly affected, if circumstances differ substantially from the
assumptions used in making the final determination.
19
<PAGE>
The following table sets forth activity in the allowance for loan
losses for the periods indicated. The Company's prospective adoption of SFAS
No.114 in fiscal 1995 had no impact on the comparability of this information.
<TABLE>
<CAPTION>
For the Year Ended September 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year....................... $ 937 $719 $311 $295 $490
Provision for losses............................... 300 462 493 64 313
Charge-offs:
Real estate mortgate loans
One- to four-family......................... (132) (97) (76) (64) (19)
Multi-family(1)............................. --- (203) --- --- (477)
Consumer loans................................. (25) (33) (13) (2) (12)
----- ------ ----- ----- -----
Total charge-offs........................... (157) (333) (89) (66) (508)
Recoveries(2)...................................... 13 89 4 18 ---
------ ------ ------ ----- ------
Net charge-offs............................. (144) (244) (85) (48) (508)
------ ------ ------ ----- -----
Balance at end of year............................. $1,093 $937 $719 $311 $295
====== ==== ==== ==== ====
Ratio of net charge-offs to average total loans.... 0.15% 0.29% 0.10% 0.06% 0.62%
==== ==== ==== ==== ====
</TABLE>
- ----------
(1) Charge-offs in fiscal 1996 and 1993 relate to the Company's purchased
participation interests in three multi-family loans originated by TASCO.
All such purchased participations were collected or charged-off prior to
September 30, 1996.
(2) Recoveries in fiscal 1996 primarily relate to one of the TASCO
participation loans which had been partially charged-off in a prior year.
Interest Rate Risk Management
The principal objectives of the Company's interest rate risk management
activities are to: (i) define an acceptable level of risk based on the Company's
business focus, operating environment, capital and liquidity requirements, and
performance objectives; (ii) quantify and monitor the amount of interest rate
risk inherent in the asset/liability structure; and (iii) modify the Company's
asset/liability structure, as necessary, to manage interest rate risk and
maintain net interest margins in changing rate environments. Management seeks to
reduce the vulnerability of the Company's operating results to changes in
interest rates and to manage the ratio of interest rate sensitive assets to
interest rate sensitive liabilities within specified maturities or repricing
periods. The Company does not currently engage in trading activities or use
off-balance sheet derivative instruments to control interest rate risk. Even
though such activities may be permitted with the approval of the Board of
Directors, management does not intend to engage in such activities in the
immediate future.
Notwithstanding the Company's interest rate risk management activities,
the potential for changing interest rates is an uncertainty that could have an
adverse effect on the earnings of the Company. When interest-bearing liabilities
mature or reprice more quickly than interest-earning assets in a given period, a
significant increase in market interest rates could adversely affect net
interest income. Similarly, when interest-earning assets mature or reprice more
quickly than interest-bearing liabilities, falling interest rates could result
in a decrease in net interest income. Finally, a flattening of the "yield curve"
(i.e., a narrowing of the spread between long- and short-term interest rates),
could adversely impact net interest income to the extent that the Company's
assets have a longer average term than its liabilities.
In managing the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. However, the Board of Directors continues to believe that
the increased net interest income resulting from a mismatch in the maturity of
the Company's asset and liability portfolios can, during periods of declining or
stable interest rates and periods in which there is a substantial positive
difference between long- and short-term interest rates (i.e., a "positively
sloped yield curve"), provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates. (For instance,
during fiscal 1997, the Company significantly increased its utilization of
short-term borrowings to fund the purchase of longer term mortgage-backed
securities. As a result, the Company's results of operations and net portfolio
values remain significantly vulnerable to increases in interest rates and to
fluctuations in the difference between long- and short-term interest rates.
Consistent with its asset/liability management philosophy, the Company
has taken several steps to manage its interest rate risk. First, the Company
maintains a portfolio of interest rate sensitive adjustable-rate loans. At
September 30, 1997, adjustable-rate loans represented $98.7 million, or 69.7% of
the total loan portfolio. Second, most of the mortgage-backed securities
purchased by the Company in recent years had adjustable interest rates and/or
short or intermediate effective terms to maturity. At September 30, 1997, the
Company had $55.0 million of adjustable-rate mortgage-backed pass-through
securities and $12.2 million of
20
<PAGE>
collateralized mortgage obligations ("CMOs") with expected weighted average
lives of five years or less. Third, a significant portion of the Company's other
debt securities (primarily U.S. Government and agency securities) are short- or
intermediate-term instruments with $12.0 million of such securities
contractually maturing within five years of September 30, 1997. In addition, at
September 30, 1997, the Company had $11.0 million of "step-up" securities, a
substantial portion of which would likely be redeemed within five years, if
interest rates remain at current levels. Fourth, the Company has a substantial
amount of regular savings, transaction, money market and club accounts which may
be less sensitive to changes in interest rates than certificate accounts. At
September 30, 1997, the Company had $44.6 million of regular savings accounts,
$21.6 million of money market accounts and $24.8 million of NOW, checking and
club accounts. Overall, these accounts comprised 43.8% of the Company's total
deposit base.
One approach used by management to quantify interest rate risk is the
net portfolio value ("NPV") analysis. In essence, this approach calculates the
difference between the present value of liabilities and the present value of
expected cash flows from assets and off-balance sheet contracts. The following
table sets forth, at September 30, 1997, an analysis of the Association's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+/-400 basis
points, measured in 100 basis point increments). For comparative purposes, the
table also shows the estimated percent increase (decrease) in NPV at September
30, 1996.
<TABLE>
<CAPTION>
At September 30, 1997
------------------------------------------------------------
Estimated Increase (Decrease) in NPV Percent Increase
Change in Interest Rates Estimated NPV ------------------------------------ (Decrease) in NPV at
(Basis Points) Amount Amount Percent September 30, 1996
-------------- ------ ------ ------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 $25,069 $(23,920) (49)% (44)%
+300 32,084 (16,905) (35) (32)
+200 38,135 (10,854) (22) (20)
+100 43,833 (5,156) (11) (10)
--- 48,989 --- --- ---
-100 52,635 3,646 7 8
-200 56,259 7,270 15 15
-300 61,283 12,294 25 24
-400 67,520 18,531 38 34
</TABLE>
Certain assumptions utilized by the OTS in assessing the interest rate
risk of thrift institutions were employed in preparing the preceding table.
These assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Association's assets and liabilities would perform
as set forth above. In addition, a change in U.S. Treasury rates in the
designated amounts accompanied by a change in the shape of the Treasury yield
curve would cause significantly different changes to the NPV than indicated
above.
21
<PAGE>
Interest rate risk is the most significant market risk affecting the
Company. 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.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and
interest payments on loans and securities, borrowings, and 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 Company is required to maintain an average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by OTS regulations. The minimum
required liquidity and short-term liquidity ratios at September 30, 1997 were
5.0% and 1.0%, respectively. At September 30, 1997, the Company's liquidity
ratio was 6.5% and its short-term liquidity ratio was 2.1%. Subsequent to
September 30, 1997, the OTS reduced the liquidity requirement from 5.0% to 4.0%
and eliminated the short-term liquidity requirement.
The Company's most liquid assets are cash and cash equivalents, which
include highly liquid short-term investments (such as money market mutual funds)
that are readily convertible to known amounts of cash. The level of these assets
is dependent on the Company's operating, financing and investing activities
during any given period. At September 30, 1997 and 1996, cash and cash
equivalents totaled $3.6 million and $12.5 million, respectively.
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. During the years ended September 30, 1997, 1996 and 1995, the
Company's disbursements for loan originations totaled $69.2 million, $17.6
million and $17.2 million, respectively. For the years ended September 30, 1997,
1996 and 1995, purchases of mortgage-backed securities totaled $25.8 million,
$31.9 million and $10.4 million, respectively, and purchases of other securities
totaled $30.0 million, $35.3 million and $9.3 million, respectively. These
activities were funded primarily by net deposit inflows, borrowings under
repurchase agreements and principal repayments on loans and securities.
For the years ended September 30, 1997, 1996 and 1995, the Company
experienced net increases in deposits (including the effect of interest
credited) of $17.2 million, $2.7 million and $8.2 million, respectively. The
increase in fiscal 1997 was due to aggressive cross selling, quality customer
service and new deposit products. The increase in fiscal 1996 reflects
relatively flat market interest rates, customer preference for alternative
investments, and deposits withdrawn to purchase stock in the Conversion. The
increase in fiscal 1995 reflects the general increase in market interest rates
which made deposit products (particularly shorter term certificates of deposit)
a more attractive investment alternative for the Company's customers.
22
<PAGE>
In fiscal 1997, the Company significantly increased its use of
securities repurchase agreements as a funding source. In these agreements, the
Company borrows funds through the transfer of debt 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 secured financing transactions since it maintains effective
control over the transferred securities. Accordingly, the transaction proceeds
are recorded by the Company as borrowings and the underlying securities continue
to be carried in the Company's debt securities portfolio. Repurchase agreements
are collateralized by the securities sold and, in certain cases, by additional
margin securities. During the years ended September 30, 1997 and 1996, the
average borrowings under repurchase agreements with the FHLB amounted to $32.1
million and $1.2 million, respectively; the maximum month-end balance
outstanding was $54.1 million, and $10.3 million respectively; and the average
interest rate paid was 5.77% and 5.35%, respectively. The average interest rate
spread on these transactions, or the difference between the yield earned on the
underlying securities and the rate paid on the repurchase borrowings, was 1.91%
in fiscal 1997 and 2.40% in fiscal 1996.
23
<PAGE>
The Company may also borrow funds from the FHLB of New York subject to
certain limitations. Based on the Association's total assets at September 30,
1997, the Company's borrowing limit from the FHLB of New York was approximately
$76.8 million, with unused borrowing capacity of $70.8 million at that date.
At September 30, 1997, the Company had outstanding loan origination
commitments of $16.4 million, undisbursed construction loans in process of $1.1
million, and unadvanced lines of credit extended to customers of $4.4 million.
The Company anticipates that it will have sufficient funds available to meet its
current loan origination and other commitments. Certificates of deposit
scheduled to mature in one year or less from September 30, 1997 totaled $71.8
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.
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 outflows are payments of dividends to shareholders and repurchases of
the Holding Company's common stock. In fiscal 1997, the Holding Company
repurchased a total of 658,892 common shares in open market transactions at a
total cost of $8.9 million or $13.52 per share.
The Association may not declare or pay cash dividends on or repurchase
any of its shares of common stock if the effect thereof would cause equity to be
reduced below applicable regulatory capital requirements or the amount required
to be maintained for the liquidation account established in connection with the
Conversion. Unlike the Association, the Holding Company is not subject to OTS
regulatory restrictions on the payment of dividends to its shareholders;
however, it is subject to the requirements of Delaware law. Delaware law
generally limits dividends to an amount equal to the excess of the net assets of
the Holding Company (the amount by which total assets exceed total liabilities)
over its statutory capital, or if there is no such excess, to its profits for
the current and/or immediately preceding fiscal year.
The OTS regulations require savings associations, such as the
Association, to meet three minimum capital standards: a tangible capital ratio
requirement of 1.5% of total assets as adjusted under the OTS regulations; a
leverage ratio requirement of 3.0% of core capital to such adjusted total
assets; and a risk-based capital ratio requirement of 8.0% of core and
supplementary capital to total risk-weighted assets. The Association satisfied
these minimum capital standards at September 30, 1997 with tangible and leverage
capital ratios of 12.1% and a total risk-based capital ratio of 32.1%. In
determining the amount of risk-weighted assets for purposes of the risk-based
capital requirement, a savings association multiplies its assets and credit
equivalent amount for certain off-balance sheet items by risk-weights, which
range from 0% for cash and obligations issued by the United States Government or
its agencies to 100% for assets such as consumer and commercial loans, as
assigned by the OTS capital regulations. These 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 the Association's
equity to arrive at the various regulatory capital amounts.
The following table sets forth a reconciliation of the Association's
equity under generally accepted accounting principles ("GAAP") and its
regulatory capital at September 30, 1997, and a comparison of the Association's
regulatory capital amounts and ratios to the related OTS requirements.
24
<PAGE>
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C>
GAAP equity................................................................. $37,749 $37,749 $37,749
Net unrealized gain on available-for-sale debt securities, net of taxes..... (641) (641) (641)
Allowance for loan losses includable in supplementary capital............... --- --- 1,093
---------- ---------- --------
Regulatory capital (actual)................................................. 37,108 37,108 38,201
Regulatory capital (requirement)............................................ 4,608 9,217 9,527
-------- -------- --------
Excess................................................................... $32,500 $27,891 $28,674
======= ======= =======
Capital ratios:
Actual(1)................................................................ 12.1% 12.1% 32.1%
Requirement.............................................................. 1.5 3.0 8.0
Excess................................................................... 10.6 9.1 24.1
</TABLE>
- ---------------
(1) Based on tangible assets, total adjusted assets and risk-weighted assets,
respectively.
Impact of Accounting Standards
See Note 14 of the Notes to the Consolidated Financial Statements for a
discussion of recently-issued accounting standards concerning earnings per
share, comprehensive income and segment reporting.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and other financial information
included in this report have been prepared in conformity with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Company are monetary in nature.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
25
<PAGE>
MANAGEMENT'S REPORT
Management is responsible for the preparation and integrity of the
consolidated financial statements and other information presented in this annual
report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and reflect management's judgments
and estimates with respect to certain events and transactions.
Management is responsible for maintaining a system of internal control.
The purpose of the system is to provide reasonable assurance that transactions
are recorded in accordance with management's authorization; that assets are
safeguarded against loss or unauthorized use; and that underlying financial
records support the preparation of financial statements. The system includes the
communication of written policies and procedures, selection of qualified
personnel, appropriate segregation of responsibilities, and the ongoing internal
audit function.
The Board of Directors meets periodically with Company management, the
internal auditor, and the independent auditors, KPMG Peat Marwick LLP, to review
matters relative to the quality of financial reporting, internal control, and
the nature, extent and results of the audit efforts.
The independent auditors conduct an annual audit to enable them to
express an opinion on the Company's consolidated financial statements. In
connection with the audit, the independent auditors consider the Company's
internal control to the extent they consider necessary to determine the nature,
timing and extent of their auditing procedures.
/s/ Richard F. Komosinski /s/ Joseph D. Roberto
Richard F. Komosinski Joseph D. Roberto
President and Chief Executive Officer Vice President, Treasurer and
Chief Financial Officer
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Yonkers Financial Corporation:
We have audited the accompanying consolidated balance sheets of Yonkers
Financial Corporation and subsidiary (the "Company") as of September 30, 1997
and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1997. These consolidated financial statements are the
responsibility of the Companyis management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Yonkers
Financial Corporation and subsidiary as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997 in conformity with generally accepted
accounting principles.
/s/KPMG PEAT MARWICK LLP
Stamford, Connecticut
October 30, 1997
27
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
September 30,
------------------------
1997 1996
---- ----
ASSETS
Cash and cash equivalents:
Cash and due from banks .......................... $ 2,046 $ 2,152
Short-term investments ........................... 1,547 10,348
--------- ---------
Total cash and cash equivalents ............... 3,593 12,500
--------- ---------
Securities (note 2):
Available-for-sale, at fair value
(amortized cost of $85,336 in 1997
and $58,855 in 1996) ............................ 86,286 58,552
Held-to-maturity, at amortized cost
(fair value of $76,902 in 1997
and $94,162 in 1996) ............................ 76,329 95,007
--------- ---------
Total securities .............................. 162,615 153,559
--------- ---------
Real estate mortgage loans held for sale,
at lower of cost or market value (note 3) ........ 20,437 --
--------- ---------
Loans receivable, net (note 3):
Real estate mortgage loans ....................... 112,357 80,337
Consumer and commercial business loans ........... 7,419 7,266
Allowance for loan losses ........................ (1,093) (937)
--------- ---------
Total loans receivable, net .................... 118,683 86,666
--------- ---------
Accrued interest receivable (note 4) ............... 2,845 2,449
Federal Home Loan Bank ("FHLB") stock .............. 3,005 1,065
Office properties and equipment, net (note 5) ...... 902 947
Deferred income taxes (note 8) ..................... -- 1,010
Other assets ....................................... 876 1,338
--------- ---------
Total assets ................................... $ 312,956 $ 259,534
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6) ................................ $ 207,933 $ 190,675
Securities repurchase agreements (note 7) ........ 54,096 10,264
FHLB advances (note 7) ........................... 6,000 8,000
Deferred income taxes (note 8) ................... 58 --
Other liabilities ................................ 991 1,596
--------- ---------
Total liabilities .............................. 269,078 210,535
--------- ---------
Commitments and contingencies (notes 3 and 12)
Stockholders' equity (notes 10 and 11):
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;
3,570,750 shares issued) ........................ 36 36
Additional paid-in capital ....................... 34,734 34,596
Unallocated common stock held by
employee stock ownership plan ("ESOP") .......... (2,428) (2,714)
Unamortized awards of common stock
under management recognition plan ("MRP") ....... (1,125) --
Treasury stock, at cost (549,987 shares) ......... (7,513) --
Retained income, substantially restricted ........ 19,605 17,263
Net unrealized gain (loss) on available-
for-sale securities, net of taxes (note 2) ...... 569 (182)
--------- ---------
Total stockholders' equity ...................... 43,878 48,999
--------- ---------
Total liabilities and stockholders' equity ...... $ 312,956 $ 259,534
========= =========
See accompanying notes to consolidated financial statements.
28
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Year Ended September 30,
-------------------------------
1997 1996 1995
---- ---- ----
Interest and dividend income:
Loans ................................. $ 8,603 $ 7,471 $ 6,937
Securities ............................ 11,733 8,153 6,801
Other earning assets .................. 395 752 325
-------- -------- --------
Total interest and
dividend income ..................... 20,731 16,376 14,063
-------- -------- --------
Interest expense:
Deposits .............................. 7,922 7,780 6,902
Securities repurchase agreements ...... 1,849 65 79
FHLB advances ......................... 186 130 23
-------- -------- --------
Total interest expense ............... 9,957 7,975 7,004
-------- -------- --------
Net interest income ................ 10,774 8,401 7,059
Provision for loan losses (note 3) ........ 300 462 493
-------- -------- --------
Net interest income after
provision for loan losses ........ 10,474 7,939 6,566
-------- -------- --------
Non-interest income:
Service charges and fees .............. 814 680 640
Net (loss) gain on sales of
securities (note 2) ................. (48) -- 29
Other ................................. 21 22 17
-------- -------- --------
Total non-interest income ............. 787 702 686
-------- -------- --------
Non-interest expense:
Compensation and benefits
(note 10) ............................ 3,411 2,525 2,186
Occupancy and equipment ............... 733 653 571
Federal deposit insurance costs:
Regular premiums ................... 183 435 406
Special assessment (note 6) ........ -- 1,166 --
Data processing service fees .......... 465 417 367
Other (note 9) ........................ 1,527 1,008 1,249
-------- -------- --------
Total non-interest expense ........... 6,319 6,204 4,779
-------- -------- --------
Income before income tax expense ... 4,942 2,437 2,473
Income tax expense (note 8) ............... 1,990 917 1,033
-------- -------- --------
Net income ......................... $ 2,952 $ 1,520 $ 1,440
======== ======== ========
Earnings per share, from date of
conversion (note 11) .................... $ 1.02 $ 0.22
======== ========
See accompanying notes to consolidated financial statements.
29
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unamortized
Unallocated Awards of Net
Common Common Unrealized
Additional Stock Stock Gain (Loss) Total
Common Paid-in Held by Under Treasury Retained on Stockholders'
Stock Capital ESOP MRP Stock Income Securities Equity
----- ------- ---- --- ----- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 ........ $ -- $ -- $ -- $ -- $ -- $ 14,467 $ (311) $ 14,156
Net income .......................... -- -- -- -- -- 1,440 -- 1,440
Change in net unrealized gain (loss)
on available-for-sale securities,
net of taxes ..................... -- -- -- -- -- -- 169 169
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1995 ........ -- -- -- -- -- 15,907 (142) 15,765
Net income .......................... -- -- -- -- -- 1,520 -- 1,520
Dividend paid ($0.05 per share) ..... -- -- -- -- -- (164) -- (164)
Issuance of 3,570,750 common shares . 36 34,592 -- -- -- -- -- 34,628
Shares purchased by ESOP
(285,660 shares) ................. -- -- (2,857) -- -- -- -- (2,857)
ESOP shares released for allocation
(14,283 shares) .................. -- 4 143 -- -- -- -- 147
Change in net unrealized gain (loss)
on available-for-sale securities,
net of taxes ..................... -- -- -- -- -- -- (40) (40)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1996 ........ 36 34,596 (2,714) -- -- 17,263 (182) 48,999
Net income .......................... -- -- -- -- -- 2,952 -- 2,952
Dividends paid ($0.21 per share) .... -- -- -- -- -- (610) -- (610)
Common stock repurchased
(658,892 shares) ................. -- -- -- -- (8,909) -- -- (8,909)
Repurchased stock awarded under
MRP (108,905 shares) ............. -- -- -- (1,396) 1,396 -- -- --
Amortization of MRP awards .......... -- -- -- 271 -- -- -- 271
ESOP shares released for allocation
(28,566 shares) .................. -- 138 286 -- -- -- -- 424
Change in net unrealized gain (loss)
on available-for-sale securities,
net of taxes ..................... -- -- -- -- -- -- 751 751
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1997 ........ $ 36 $ 34,734 $ (2,428) $ (1,125) $ (7,513) $ 19,605 $ 569 $ 43,878
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended September 30,
---------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income ................................ $ 2,952 $ 1,520 $ 1,440
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses .............. 300 462 493
ESOP and MRP expense ................... 695 147 --
Depreciation and amortization expense .. 194 196 169
Amortization of deferred fees,
discounts and premiums, net ........... (289) (479) (517)
Net loss (gain) on sales of securities . 48 -- (29)
Other adjustments, net ................. (169) 80 (476)
-------- -------- --------
Net cash provided by operating
activities .......................... 3,731 1,926 1,080
-------- -------- --------
Cash flows from investing activities:
Purchases of securities:
Available-for-sale ..................... (55,835) (45,036) (3,804)
Held-to-maturity ....................... -- (22,142) (15,938)
Proceeds from principal payments,
maturities and calls of securities:
Available-for-sale ..................... 13,356 7,334 2,023
Held-to-maturity ....................... 18,563 22,895 6,687
Proceeds from sales of securities:
Available-for-sale ..................... 15,943 -- 438
Held-to-maturity ....................... 237 -- 847
Disbursements for loan originations ....... (69,169) (17,571) (17,213)
Principal collections on loans ............ 13,612 11,780 10,961
Proceeds from sales of loans .............. 2,785 1,883 383
(Purchase) redemption of FHLB stock ....... (1,940) 47 (48)
Other investing cash flows, net ........... 239 (119) (166)
-------- -------- --------
Net cash used in investing
activities ........................... (62,209) (40,929) (15,830)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits .................. 17,258 2,666 8,193
Net increase (decrease) in borrowings
with original terms of three months
or less:
Securities repurchase agreements .... 18,503 10,264 --
FHLB advances ....................... (2,000) 3,705 4,000
Proceeds from longer-term securities
repurchase agreements .................... 25,329 -- --
Common stock repurchased .................. (8,909) -- --
Net proceeds from issuance of common
stock, exclusive of ESOP shares .......... -- 31,771 --
Dividends paid ............................ (610) (164) --
-------- -------- --------
Net cash provided by financing
activities ............................ 49,571 48,242 12,193
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents .......................... (8,907) 9,239 (2,557)
Cash and cash equivalents at
beginning of year ......................... 12,500 3,261 5,818
-------- -------- --------
Cash and cash equivalents at end of year ... $ 3,593 $ 12,500 $ 3,261
======== ======== ========
Supplemental information:
Interest paid ............................. $ 9,623 7,956 7,004
Income taxes paid ......................... 1,931 1,331 1,520
Loans transferred to real estate owned .... 313 603 303
======== ======== ========
See accompanying notes to consolidated financial statements.
31
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
In December 1995, The Yonkers Savings and Loan Association converted from
a New York State chartered mutual savings and loan association to a federally
chartered mutual savings and loan association under the new name The Yonkers
Savings and Loan Association, FA (the iAssociationi). On April 18, 1996, Yonkers
Financial Corporation (the "Holding Company") became the holding company for the
Association upon completion of the Association's conversion to the stock form of
ownership (the "Conversion"). Collectively, the Holding Company and the
Association are referred to herein as the "Company".
The Company's primary market area consists of the City of Yonkers and its
neighboring communities in Westchester County, New York. The Association is a
community-oriented savings institution whose business primarily consists of
accepting deposits from customers within its market area and investing those
funds in mortgage loans secured by one- to four-family residences. To a lesser
extent, funds are invested in multi-family and commercial real estate loans,
construction and land loans, consumer loans and commercial business loans. The
Company also invests in mortgage-backed and other securities. Deposits are
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Company's
primary regulator is the Office of Thrift Supervision ("OTS").
The following is a summary of the significant accounting policies
followed by the Company in the preparation of the consolidated financial
statements.
Basis of Presentation
The consolidated financial statements include the accounts of the Holding
Company and its wholly-owned subsidiary, the Association. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Prior to the Conversion, the Holding Company had no operations other than those
of an organizational nature. Subsequent thereto, the Holding Company's business
activities have been limited to its ownership of the Association and certain
short-term and other investments. All financial information included herein for
periods prior to the Conversion refers to the Association.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, income and expense. A
material estimate that is particularly susceptible to near-term change is the
allowance for loan losses, which is discussed below.
Certain reclassifications have been made to prior-year amounts to conform
to the current-year presentation.
32
<PAGE>
Cash Equivalents
For purposes of reporting cash flows, cash equivalents consist of highly
liquid short-term investments. At September 30, 1997, short-term investments
reported in the consolidated balance sheet were money market mutual funds of
$1.5 million. Short-term investments at September 30, 1996 were money market
mutual funds of $10.2 million and interest-bearing deposits of $0.1 million.
Securities
The Company accounts for its securities in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, individual
securities are classified as held-to-maturity securities, trading securities, or
available-for-sale securities. Securities held to maturity are limited to debt
securities for which the entity has the positive intent and ability to hold to
maturity. Trading securities are debt and equity securities that are bought
principally for the purpose of selling them in the near term. All other debt and
equity securities are classified as available for sale.
Held-to-maturity securities are carried at amortized cost.
Available-for-sale securities are carried at fair value with unrealized gains
and losses excluded from earnings and reported on a net-of-tax basis as a
separate component of stockholders' equity. The Company has no trading
securities. Federal Home Loan Bank stock is a non-marketable equity security
held in accordance with certain regulatory requirements and, accordingly, is
carried at cost.
Premiums and discounts are amortized to interest income on a level-yield
basis over the expected term of the debt security. Realized gains and losses on
sales of securities are determined based on the amortized cost of the specific
securities sold. Unrealized losses on securities are charged to earnings if
management determines that the decline in fair value of a security is other than
temporary.
Real Estate Mortgage Loans Held for Sale
Real estate mortgage loans held for sale in the secondary market are
carried at lower of cost or market value in the aggregate. Market values are
estimated based on outstanding investor sale commitments or, in the absence of
such commitments, based on current secondary market yield requirements. Net
unrealized losses, if any, are recognized in a valuation allowance by a charge
to income.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions for losses
charged to income. Losses on loans (including impaired loans) are charged to the
allowance for loan losses when all or a portion of a loan is deemed to be
uncollectible. Recoveries of loans previously charged-off are credited to the
allowance when realized. Management estimates the allowance for loan losses
based on an evaluation of the Companyis past loan loss experience, known and
inherent risks in the portfolio, estimated value of underlying collateral, and
current economic conditions. In managementis judgment, the allowance for loan
losses is adequate to absorb probable losses in the existing portfolio.
33
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Establishing the allowance for loan losses involves significant
management judgments utilizing the best information available at the time. Those
judgments are subject to further review by various sources, including the
Companyis regulators. Adjustments to the allowance may be necessary in the
future based on changes in economic and real estate market conditions, further
information obtained regarding known problem loans, the identification of
additional problem loans, and other factors.
Effective October 1, 1995, the Company prospectively adopted SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118. Under SFAS No. 114, a loan is considered to be impaired when, based on
current information and events, it is probable that the creditor will be unable
to collect all principal and interest contractually due. Creditors are permitted
to measure impaired loans based on (i) the present value of expected future cash
flows discounted at the loan's effective interest rate, (ii) the loan's
observable market price or (iii) the fair value of the collateral if the loan is
collateral dependent. If the approach used results in a measurement that is less
than an impaired loan's recorded investment, an impairment loss is recognized as
part of the allowance for loan losses. SFAS No. 118 allows creditors to continue
to use existing methods for recognizing interest income on impaired loans. The
Company's adoption of SFAS Nos. 114 and 118 did not affect its overall allowance
for loan losses or income recognition practices.
Interest and Fees on Loans
Interest is accrued monthly on outstanding principal balances unless
management considers the collection of interest or principal to be doubtful.
Loans on non-accrual status include all loans contractually delinquent ninety
days or more. Interest payments received on non-accrual loans (including
impaired loans) are recognized as income unless future collections are doubtful.
Loans are returned to accrual status when collectibility is no longer considered
doubtful (generally, when all payments have been brought current).
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is amortized to interest income over the
contractual term of the loans using the level-yield method. Unamortized fees and
costs applicable to loans prepaid or sold are recognized in income at the time
of prepayment or sale.
Real Estate Owned
Real estate owned properties acquired through foreclosure are recorded
initially at fair value less estimated sales costs, with the resulting writedown
charged to the allowance for loan losses. Thereafter, an allowance for losses on
real estate owned is established by a charge to expense to reflect any
subsequent declines in fair value. Fair value estimates are based on recent
appraisals and other available information. Costs incurred to develop or improve
properties are capitalized, while holding costs are charged to expense.
Office Properties and Equipment
Office properties and equipment are comprised of land (carried at cost)
and buildings, furniture, fixtures, equipment and leasehold improvements
(carried at cost less accumulated depreciation and amortization). Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
improvement. Costs incurred to improve or extend the life of existing assets are
capitalized. Repairs and maintenance, as well as renewals and replacements of a
routine nature, are charged to expense.
Income Taxes
In accordance with the asset and liability method required by SFAS No.
109, "Accounting for Income Taxes," deferred taxes are recognized for the
estimated future tax effects attributable to "temporary differences" between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. A deferred tax liability is recognized for all
temporary differences that will result in future taxable income. A deferred tax
asset is recognized for all temporary differences that will result in future tax
deductions, subject to reduction of the asset by a valuation allowance in
certain circumstances. This valuation allowance is recognized if, based on an
analysis of available evidence, management determines that it is more likely
than not that a portion or all of the deferred tax asset will not be realized.
The valuation allowance is subject to ongoing adjustment based on changes in
circumstances that affect managementis judgment about the realizability of the
deferred tax asset. Adjustments to increase or decrease the valuation allowance
are charged or credited, respectively, to income tax expense.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to future taxable income. The effect on deferred tax assets
and liabilities of an enacted change in tax rates is recognized in income tax
expense in the period that includes the enactment date of the change.
Pension Plans
The Company has a non-contributory defined benefit pension plan which
covers substantially all employees. Pension costs are funded on a current basis
in compliance with the requirements of the Employee Retirement Income Security
Act. Costs for this plan, as well as any unfunded supplemental retirement
agreements, are accounted for in accordance with SFAS No. 87, "Employers'
Accounting for Pensions."
34
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation Plans
Compensation expense is recognized for the Company's employee stock
ownership plan ("ESOP") equal to the fair value of shares committed to be
released for allocation to participant accounts. Any difference between the fair
value at that time and the ESOP's original acquisition cost is charged or
credited to stockholders' equity (additional paid-in capital). The cost of
unallocated ESOP shares (shares not yet committed to be released) is reflected
as a reduction of stockholders' equity.
The Company accounts for its stock option plan in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation expense is recognized only if the
exercise price of the option is less than the fair value of the underlying stock
at the grant date. SFAS No. 123, "Accounting for Stock-Based Compensation,"
encourages entities to recognize the fair value of all stock-based awards
(measured on the grant date) as compensation expense over the vesting period.
Alternatively, SFAS No. 123 allows entities to apply the provisions of APB
Opinion No. 25 and provide pro forma disclosures of net income and earnings per
share as if the fair-value-based method defined in SFAS No. 123 had been applied
to awards granted in fiscal years beginning after December 15, 1994. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide these pro
forma disclosures.
The Company's management recognition and retention plan ("MRP") is also
accounted for in accordance with APB Opinion No. 25. The fair value of the
shares awarded, measured at the grant date, is recognized as unearned
compensation (a deduction from stockholders' equity) and amortized to
compensation expense as the shares become vested.
Earnings Per Share
Earnings per share is reported for periods following the Conversion based
on net income divided by the weighted average number of common shares
outstanding and common stock equivalents (dilutive stock options computed using
the treasury stock method). Common stock equivalents are included in the
calculation of earnings per share when such inclusion has a significant dilutive
effect. Unallocated ESOP shares that have not been committed to be released to
participants are excluded from outstanding shares in computing earning per
share.
(2) Securities
The Company's securities portfolio principally consists of
mortgage-backed securities and U.S. Government and Agency securities.
Mortgage-backed securities include both pass-through securities and
collateralized mortgage obligations ("CMOs"), substantially all of which are
guaranteed by U.S. Government or government-sponsored entities (Fannie Mae,
Ginnie Mae and Freddie Mac).
The following is a summary of securities at September 30, 1997:
Gross Unrealized
Amortized -------------------- Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Available-for-Sale Securities
Mortgage-backed securities:
Pass-through securities ........ $ 34,460 $ 446 $ (14) $ 34,892
CMOs ........................... 8,148 -- (2) 8,146
-------- -------- -------- --------
42,608 446 (16) 43,038
U.S. Government and Agency
securities ...................... 40,805 671 (7) 41,469
Mutual fund investments .......... 1,923 -- (144) 1,779
-------- -------- -------- --------
Total available for sale ..... $ 85,336 $ 1,117 $ (167) $ 86,286
======== ======== ======== ========
Held-to-Maturity Securities
Mortgage-backed securities:
Pass-through securities ........ $ 35,283 $ 733 $ (111) $ 35,905
CMOs ........................... 15,063 127 (124) 15,066
-------- -------- -------- --------
50,346 860 (235) 50,971
-------- -------- -------- --------
U.S. Government and Agency:
Step-up securities ............. 10,984 18 (46) 10,956
Other securities ............... 14,999 32 (56) 14,975
-------- -------- -------- --------
25,983 50 (102) 25,931
-------- -------- -------- --------
Total held to maturity ....... $ 76,329 $ 910 $ (337) $ 76,902
======== ======== ======== ========
35
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of securities at September 30, 1996:
Gross Unrealized
Amortized -------------------- Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Available-for-Sale Securities
Mortgage-backed securities:
Pass-through securities ........ $ 20,679 $ 80 $ (187) $ 20,572
CMOs ........................... 2,146 -- (7) 2,139
-------- -------- -------- --------
22,825 80 (194) 22,711
-------- -------- -------- --------
U.S. Government and Agency:
Step-up securities ............. 3,000 -- (31) 2,969
Other securities ............... 26,960 116 (53) 27,023
-------- -------- -------- --------
29,960 116 (84) 29,992
-------- -------- -------- --------
Mutual fund investments .......... 6,070 -- (221) 5,849
-------- -------- -------- --------
Total available for sale ..... $ 58,855 $ 196 $ (499) $ 58,552
======== ======== ======== ========
Held-to-Maturity Securities
Mortgage-backed securities:
Pass-through securities ........ $ 41,493 $ 426 $ (399) $ 41,520
CMOs ........................... 16,646 132 (300) 16,478
-------- -------- -------- --------
58,139 558 (699) 57,998
-------- -------- -------- --------
U.S. Government and Agency:
Step-up securities ............. 12,966 1 (316) 12,651
Other securities ............... 23,402 7 (397) 23,012
-------- -------- -------- --------
36,368 8 (713) 35,663
-------- -------- -------- --------
Corporate bond ................... 500 1 -- 501
-------- -------- -------- --------
Total held to maturity ....... $ 95,007 $ 567 $ (1,412) $ 94,162
======== ======== ======== ========
Mortgage-backed and other debt securities at September 30, 1997 consisted
of fixed-rate securities and adjustable-rate securities with amortized costs of
$93.9 million and $65.8 million, respectively, and weighted average yields of
7.30% and 6.74%, respectively. Fixed-rate and adjustable-rate debt securities at
September 30, 1996 totaled $77.2 million and $70.6 million, respectively, with
weighted average yields of 7.20% and 6.52%, respectively.
36
<PAGE>
Mortgage-backed securities include securities guaranteed by Fannie Mae,
Ginnie Mae and Freddie Mac with total amortized costs of $39.2 million, $30.7
million and $22.7 million, respectively, at September 30, 1997 ($46.1 million,
$18.6 million and $15.9 million, respectively, at September 30, 1996).
Privately-issued mortgage-backed securities had amortized costs of $0.3 million
and $0.4 million at September 30, 1997 and 1996, respectively.
The Company's step-up securities are issued by U.S. Government Agencies
or government-sponsored enterprises and initially pay an above-market yield for
a short non-call period. If the securities are not called, the interest rate
"steps-up" to a higher coupon rate which would be below then-current market
rates. These securities had a weighted average yield of 5.97% and 5.78% at
September 30, 1997 and 1996, respectively.
The net unrealized gain on available-for-sale securities was $950,000
($569,000 after taxes) at September 30, 1997, compared to a net unrealized loss
of $303,000 ($182,000 after taxes) at September 30, 1996. Changes in unrealized
holding gains and losses resulted in an after-tax increase (decrease) in
stockholders' equity of $751,000, ($40,000) and $169,000 during fiscal 1997,
1996 and 1995, respectively. These gains and losses will continue to fluctuate
based on changes in the portfolio and market conditions.
Sales of securities resulted in the following gross realized gains and
gross realized losses during the years ended September 30:
1997 1996 1995
---- ---- ----
(In Thousands)
Available-for-sale securities:
Gains ................................... $ 47 $ -- $ 7
Losses .................................. (97) -- (1)
---- ---- ----
(50) -- 6
---- ---- ----
Held-to-maturity securities:
Gains ................................... 2 -- 24
Losses .................................. -- -- (1)
---- ---- ----
2 -- 23
---- ---- ----
Net (loss) gain ............................. $(48) $ -- $ 29
==== ==== ====
The held-to-maturity securities sold in fiscal 1997 and 1995 were
mortgage-backed securities with an amortized cost of $235,000 and $824,000,
respectively, for which the Company had collected more than 85% of the principal
purchased. Under SFAS No. 115, sales in these circumstances are deemed to be
equivalent to maturities and, accordingly, do not call into question the intent
to hold other debt securities to maturity in the future.
37
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the amortized cost and fair value of U.S.
Government and Agency securities at September 30, 1997, by remaining period to
contractual maturity (ignoring earlier call dates, if any). Actual maturities
may differ from contractual maturities because certain security issuers have the
right to call or prepay their obligations.
Available for Sale Held to Maturity
-------------------- ---------------------
Amortized Fair Amortized Fair
Contractual Maturity Cost Value Cost Value
- -------------------- ---- ----- ---- -----
(In Thousands)
Within one year ............ $ -- $ -- $ 1,000 $ 998
One to five years .......... -- -- 10,986 10,951
Five to ten years .......... 24,100 24,525 8,999 9,010
Over ten years ............. 16,705 16,944 4,998 4,972
------- ------- ------- -------
Total ................. $40,805 $41,469 $25,983 $25,931
======= ======= ======= =======
(3) Loans
A summary of loans receivable at September 30 follows:
1997 1996
---- ----
(In Thousands)
Real estate mortgage loans:
Residential properties:
One- to four-family ................... $ 91,367 $ 62,283
Multi-family .......................... 5,658 5,471
Commercial properties .................... 11,990 9,117
Land loans ............................... 1,814 1,934
Construction loans ....................... 2,786 2,175
Construction loans in process ............ (1,091) (171)
Deferred loan fees, net .................. (167) (472)
--------- ---------
112,357 80,337
--------- ---------
Consumer loans:
Home equity .............................. 3,217 2,911
Personal ................................. 1,666 1,632
Automobile ............................... 336 367
Home improvement ......................... 82 153
Other .................................... 819 790
--------- ---------
6,120 5,853
Commercial business loans .................... 1,299 1,413
--------- ---------
7,419 7,266
--------- ---------
Total loans receivable ................ 119,776 87,603
Allowance for loan losses .................... (1,093) (937)
--------- ---------
Total loans receivable, net ........... $ 118,683 $ 86,666
========= =========
38
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross loans receivable at September 30, 1997 consisted of adjustable-rate
loans of $98.7 million and fixed-rate loans of $22.3 million with weighted
average yields of 8.19% and 8.65%, respectively. Adjustable-rate and fixed-rate
loans at September 30, 1996 totaled $70.4 million and $17.9 million,
respectively, with weighted average yields of 8.44% and 8.92%, respectively.
One- to four-family residential mortgage loans at September 30, 1997 and 1996
include advances under home equity lines of credit of $5.9 million and $7.3
million, respectively, and cooperative apartment loans of $4.8 million and $5.5
million, respectively.
The Company primarily originates real estate mortgage loans secured by
existing single-family residential properties. The Company also originates
multi-family and commercial real estate loans, land loans, construction loans,
consumer loans and commercial business loans. A substantial portion of the loan
portfolio is secured by real estate properties located in Westchester County,
New York. The ability of the Companyis borrowers to make principal and interest
payments is dependent upon, among other things, the level of overall economic
activity and the real estate market conditions prevailing within the Companyis
concentrated lending area.
Activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
1997 1996 1995
---- ---- ----
(In Thousands)
Balance at beginning of year ......... $ 937 $ 719 $ 311
Provision for losses ................. 300 462 493
Charge-offs .......................... (157) (333) (89)
Recoveries ........................... 13 89 4
------- ------- -------
Balance at end of year ............... $ 1,093 $ 937 $ 719
======= ======= =======
The principal balances of non-accrual loans past due ninety days or more
at September 30 are as follows:
1997 1996 1995
---- ---- ----
(In Thousands)
Real estate mortgage loans:
One- to four-family ................. $ 389 $1,757 $2,759
Multi-family ........................ -- -- 389
Commercial .......................... 211 214 --
Land ................................ 250 250 49
Construction ........................ 279 511 279
Consumer loans .......................... 9 43 54
------ ------ ------
Total ......................... $1,138 $2,775 $3,530
====== ====== ======
39
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CNSOLIDATED FINANCIAL STATEMENTS
If interest payments on the foregoing non-accrual loans had been made
during the respective years in accordance with the loan agreements, additional
interest income of $92,000, $157,000 and $191,000 would have been recognized in
the years ended September 30, 1997, 1996 and 1995, respectively.
SFAS No. 114 applies to loans that are individually evaluated for
collectibility in accordance with the Company's normal loan review procedures
(principally loans in the multi-family, commercial mortgage, land and
construction loan portfolios). The standard does not apply to smaller-balance
homogeneous loans in the Company's one- to four-family mortgage and consumer
loan portfolios. The Company's impaired loans consisted of non-accrual
commercial mortgage, land and construction loans with a recorded investment
totaling $740,000 and $975,000 at September 30, 1997 and 1996, respectively. 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 loan impairment under SFAS No. 114 on a loan-by-loan
basis. At September 30, 1997 and 1996, such an allowance was not required with
respect to the Company's impaired loans primarily due to the sufficiency of the
related collateral values. The Company's average recorded investment in impaired
loans was approximately $799,000 and $700,000 for the years ended September 30,
1997 and 1996, respectively. Interest collections and income recognized on
impaired loans (while such loans were considered impaired) were insignificant
during fiscal 1997 and 1996.
At September 30, 1997 and 1996, other assets includes single-family real
estate owned properties with net carrying values of $379,000 and $603,000,
respectively. Provisions for losses and other activity in the allowance for real
estate owned losses were insignificant during the years ended September 30,
1997, 1996 and 1995.
The Company has sold, with recourse, certain real estate mortgage loans
and retained the related servicing rights. The principal balances of these
serviced loans, which are not included in the accompanying consolidated balance
sheets, totaled $2.7 million, $3.4 million and $4.3 million at September 30,
1997, 1996 and 1995, respectively. The Company is required to remit to the
investors the monthly principal and interest payments (less servicing fees) on
these loans, including loans that are delinquent or in foreclosure. No losses
have been incurred through September 30, 1997 as a result of this recourse
obligation. The Company also serviced real estate mortgage loans sold without
recourse with total principal balances of $12.8 million, $10.6 million and $9.4
million at September 30, 1997, 1996 and 1995, respectively. Real estate mortgage
loans held for sale of $20.4 million at September 30, 1997 were sold in November
1997, with servicing retained.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," includes a requirement to recognize
servicing rights as an asset when loans are sold with servicing retained. SFAS
No. 125 generally became effective for transactions entered into on or after
January 1, 1997 and superseded SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which became effective for the Company on October 1, 1996. These
accounting standards require that a portion of the cost of an originated loan be
allocated to the loan's servicing right (retained by the seller) based on the
fair value of the servicing right relative to the fair value of the loan
including the servicing right. The allocated cost of the retained servicing
right is recognized as a separate asset at the settlement date and amortized
thereafter in proportion to, and over the period of, estimated servicing net
income. Mortgage servicing assets must be periodically assessed for impairment
on a stratified basis. A valuation allowance is recognized, by a charge to
income, if the estimated fair value of a stratum exceeds the related unamortized
servicing asset. Since the Company's loan sale activity completed in fiscal 1997
was insignificant, its prospective adoption of the servicing asset provisions of
SFAS Nos. 122 and 125 did not have a material impact on its financial condition
or results of operations.
40
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Accrued Interest Receivable
A summary of accrued interest receivable at September 30 follows:
1997 1996
---- ----
(In Thousands)
Loans ............................................ $ 940 $ 764
Securities:
Mortgage-backed securities ................... 486 433
Other securities ............................. 1,419 1,252
------ ------
Total ........................................ $2,845 $2,449
====== ======
(5) Office Properties and Equipment
A summary of office properties and equipment at September 30 follows:
1997 1996
---- ----
(In Thousands)
Land ................................................. $ 45 $ 45
Buildings ............................................ 240 207
Leasehold improvements ............................... 589 582
Furniture, fixtures and equipment .................... 1,773 1,664
------- -------
2,647 2,498
Less accumulated depreciation and amortization ....... (1,745) (1,551)
------- -------
Total office properties and equipment, net ....... $ 902 $ 947
======= =======
(6) Deposits
Deposit balances and weighted average stated interest rates at September
30 are summarized as follows:
1997 1996
------------------ -------------------
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars In Thousands)
Checking ......................... $ 4,655 $ 1,957
NOW .............................. 19,055 2.00% 18,141 1.86%
Money market ..................... 21,624 3.33 16,599 2.91
Regular savings .................. 44,591 2.56 47,832 2.61
Club ............................. 1,132 2.56 1,112 2.61
-------- -------
91,057 2.49 85,641 2.45
-------- -------
Savings certificates by remaining
term to contractual maturity:
Within one year ................ 71,765 5.23 70,507 5.02
After one but within two years . 30,882 5.64 18,755 5.49
After two but within three years 9,547 6.29 7,226 5.52
After three years .............. 4,682 5.78 8,546 6.28
-------- -------
116,876 5.45 105,034 5.24
-------- -------
Total deposits ................ $207,933 4.15% $190,675 3.99%
======== =======
41
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Savings certificates issued in denominations of $100,000 or more totaled
$12.9 million and $10.6 million at September 30, 1997 and 1996, respectively.
The FDIC generally insures depositor accounts up to $100,000, as defined in the
applicable regulations.
The Deposit Insurance Funds Act of 1996 (the "Act") was signed into law
on September 30, 1996. Among other things, the Act required depository
institutions to pay a one-time special assessment of 65.7 basis points on the
balance of their SAIF-assessable deposits held as of March 31, 1995, in order to
recapitalize the SAIF to the reserve level required by statute. Accordingly, the
consolidated statement of income for the year ended September 30, 1996 reflects
a separate expense charge of approximately $1.2 million for the accrual of this
special assessment which was paid in November 1996.
(7) Borrowings
Borrowings and weighted average interest rates at September 30 are
summarized as follows, by remaining period to maturity:
1997 1996
----------------- -----------------
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars In Thousands)
Securities repurchase
agreements maturing:
Within 30 days .............. $28,767 5.63% $10,264 5.44%
After one year .............. 25,329 6.03 -- --
------- -------
Total .................... $54,096 5.82% $10,264 5.44%
======= =======
Federal Home Loan
Bank ("FHLB") advances
maturing within 30 days ....... $ 6,000 6.75% $ 8,000 5.73%
======= =======
Securities Repurchase Agreements
In securities repurchase agreements, the Company borrows funds through
the transfer of debt 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 secured financing
transactions since it maintains effective control over the transferred
securities. Accordingly, the transaction proceeds are recorded by the Company as
borrowings and the underlying securities continue to be carried in the Company's
debt securities portfolio. Repurchase agreements are collateralized by the
securities sold and, in certain cases, by additional margin securities. During
the years ended September 30, 1997 and 1996, the average borrowings under
repurchase agreements with the FHLB amounted to $32.1 million and $1.2 million,
respectively, and the maximum month-end balance outstanding was $54.1 million
and $10.3 million, respectively.
42
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additional information concerning outstanding securities repurchase
agreements with the FHLB of New York as of September 30, 1997 is summarized as
follows:
Repurchase Borrowings
Accrued Weighted Fair Value
Interest Average of Collateral
Remaining Term to Maturity Amount Payable (1) Rate Securities (2)
- -------------------------- ------ ----------- ---- --------------
(Dollars In Thousands)
Within 30 days ........... $28,767 $ 149 5.63% $33,302
After one year ........... 25,329 204 6.03 26,747
------- ------- -------
Total ................ $54,096 $ 353 5.82% $60,049
======= ======= =======
(1) Included in other liabilities in the consolidated balance sheet.
(2) Represents the fair value of the mortgage-backed securities ($53.0 million)
and other debt securities ($7.0 million) which were transferred to the
counterparty, including accrued interest receivable of $537,000. These
securities consist of available-for-sale securities and held-to-maturity
securities with fair values of $42.9 million and $17.1 million,
respectively.
At September 30, 1997, the Company's "amount at risk" (excess of the
carrying amount, or market value if higher, of the securities transferred to the
FHLB of New York over the amount of the repurchase liability) was approximately
$6.0 million. The weighted average remaining maturity of these agreements was
approximately 20 months.
FHLB Advances
As a member of the FHLB of New York, the Bank may have outstanding FHLB
advances of up to 25% of its total assets, or approximately $76.8 million at
September 30, 1997, in a combination of term advances and overnight funds. The
Bank's unused FHLB borrowing capacity was approximately $70.8 million at
September 30, 1997.
Borrowings are secured by the Bankis investment in FHLB stock and by a
blanket security agreement. This agreement requires the Bank to maintain as
collateral certain qualifying assets (principally securities and residential
mortgage loans) not otherwise pledged. The Bank satisfied this collateral
requirement at September 30, 1997 and 1996.
43
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Income Taxes
The components of income tax expense are summarized as follows for the
years ended September 30:
1997 1996 1995
---- ---- ----
(In Thousands)
Current tax expense:
Federal ........................... $ 1,177 $ 1,155 $ 880
State ............................. 247 668 91
------- ------- -------
1,424 1,823 971
------- ------- -------
Deferred tax expense (benefit):
Federal ........................... 413 (410) (124)
State ............................. 153 (496) 186
------- ------- -------
566 (906) 62
------- ------- -------
Total income tax expense ............. $ 1,990 $ 917 $ 1,033
======= ======= =======
The following is a reconciliation of the expected income tax expense,
computed at the applicable Federal statutory rate of 34%, to the actual income
tax expense for the years ended September 30:
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Tax at Federal statutory rate ............ $1,680 $ 829 $ 841
New York State income taxes, net of
Federal tax benefit .................. 264 114 183
Other reconciling items, net ............. 46 (26) 9
------ ------ ------
Actual income tax expense ................ $1,990 $ 917 $1,033
====== ====== ======
Effective income tax rate ............... 40.3% 37.6% 41.8%
====== ====== ======
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows at September 30:
1997 1996
---- ----
(In Thousands)
Deferred tax liabilities:
Net unrealized gain on available-for-sale securities .... $ 381 $ --
Other taxable temporary differences ..................... 200 215
------ ------
Total deferred tax liabilities ................... 581 215
------ ------
Deferred tax assets:
Allowance for loan losses ............................... 448 385
Accrued SAIF special assessment ......................... -- 479
Net unrealized loss on available-for-sale securities .... -- 121
Other deductible temporary differences .................. 75 240
------ ------
Total deferred tax assets ........................ 523 1,225
------ ------
Net deferred tax (liability) asset ............... $ (58) $1,010
====== ======
44
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based on the Company's historical and anticipated future pre-tax
earnings, management believes that it is more likely than not that the total
deferred tax assets will be realized.
As a thrift institution, the Association is subject to special provisions
in the Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been determined using methods based on loss experience or a percentage of
taxable income. Tax bad debt reserves represent the excess of allowable
deductions over actual bad debt losses and other reserve reductions. These
reserves consist of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109 requires recognition of
deferred tax liabilities with respect to such excess reserves, as well as any
portion of the base-year amount which is expected to become taxable (or
"recaptured") in the foreseeable future.
Certain amendments to the Federal and New York State tax laws regarding
bad debt deductions were enacted in July and August 1996. The Federal amendments
include elimination of the percentage-of-taxable-income method for tax years
beginning after December 31, 1995 and imposition of a requirement to recapture
into taxable income (over a six-year period) the bad debt reserves in excess of
the base-year amounts. The Company previously established, and will continue to
maintain, a deferred tax liability with respect to such excess Federal reserves.
The New York State amendments redesignate the State bad debt reserve as the
base-year amount and provide for future additions to the base-year reserve using
the percentage-of-taxable-income method. This change effectively eliminated the
excess New York State reserves for which a deferred tax liability had been
recognized and, accordingly, the Company reduced its deferred tax liability by
$100,000 (with a corresponding reduction in income tax expense) during the
quarter ended September 30, 1996.
At September 30, 1997, the Association's base-year Federal and State tax
bad debt reserves were $3.0 million and $8.6 million, respectively. In
accordance with SFAS No. 109, deferred tax liabilities have not been recognized
with respect to these reserves, since the Company does not expect that these
amounts will become taxable in the foreseeable future. Under the tax laws as
amended, events that would result in taxation of these reserves include (i)
redemptions of the Association's stock or certain excess distributions to the
Holding Company and (ii) failure of the Association to retain a thrift charter
or continue to maintain a specified qualifying-assets ratio and meet other
thrift definition tests for New York State tax purposes. At September 30, 1997,
the Association's unrecognized deferred tax liabilities with respect to its
Federal and State tax bad debt reserves were $1.0 million and $0.6 million,
respectively.
(9) Other Non-Interest Expense
The components of other non-interest expense are as follows for the years
ended September 30:
1997 1996 1995
---- ---- ----
(In Thousands)
Advertising and promotion ....................... $ 246 $ 118 $ 84
Supervisory exams and audits .................... 164 150 142
Correspondent bank fees ......................... 113 114 95
Checking account expenses ....................... 100 93 84
Telephone and postage ........................... 107 80 59
Insurance and surety bond premiums .............. 107 78 89
Stationery and printing ......................... 93 68 77
Appraisal fees .................................. 94 50 55
(Credit) provision for loss on Nationar claim ... -- (162) 168
Provision for litigation settlement ............. -- -- 93
Other ........................................... 503 419 303
------- ------- -------
Total ................................ $ 1,527 $ 1,008 $ 1,249
======= ======= =======
45
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 1995, the New York Superintendent of Banks took possession of
Nationar, a check clearing and trust company, freezing all of Nationar's assets.
At that time, the Company had a check clearing balance of $841,000 due from
Nationar. Based upon the information available at September 30, 1995, management
believed that there was at least a reasonable likelihood that the Company would
not recover its entire claim against Nationar. As a result, the Company
established a valuation allowance of $168,000 against its claim and included the
related provision for loss of $168,000 in other non-interest expense for the
year ended September 30, 1995. In June 1996, the Company collected $835,000 in
settlement of the claim. The difference of $162,000 between the amount collected
and the claim's net carrying amount was reflected as a credit to other
non-interest expense for the year ended September 30, 1996.
(10) Employee Benefit and Stock Compensation Plans
Pension Benefits
All eligible Company employees are included in the New York State
Bankers' Retirement System, a trusteed non-contributory pension plan. The
benefits contemplated by the plan are funded through annual remittances based on
actuarially determined funding requirements.
The following is a reconciliation of the funded status of the plan and
the amount of prepaid pension cost included in other assets at September 30:
1997 1996
---- ----
(In Thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $1,054,000 in 1997 and $1,009,000 in 1996 ......... $(1,063) $(1,014)
======= =======
Projected benefit obligation ............................ $(1,224) $(1,411)
Plan assets at fair value (primarily debt and
equity securities) ...................................... 1,963 1,882
------- -------
Plan assets in excess of projected benefit obligation .... 739 471
Unrecognized net gain .................................... (179) (179)
Unrecognized prior service cost .......................... (269) (2)
------- -------
Prepaid pension cost ........................... $ 291 $ 290
======= =======
Pension (credit) expense consisted of the following for the years ended
September 30:
1997 1996 1995
---- ---- ----
(In Thousands)
Service cost (benefits earned during the year) $ 72 $ 96 $ 86
Interest cost on projected benefit obligation 94 111 100
Actual return on plan assets ................. (155) (136) (114)
Net amortization and deferral ................ (13) -- 2
----- ----- -----
Net pension (credit) expense ......... $ (2) $ 71 $ 74
===== ===== =====
The projected benefit obligations at September 30, 1997 and 1996 were
computed using a discount rate of 8.0% and a rate of compensation increase of
5.0%. The expected long-term rate of return on plan assets was 8.5%.
The Company entered into a non-qualified Supplemental Executive
Retirement Agreement with an executive officer, effective January 1, 1997, to
provide retirement benefits in addition to the benefits provided by the pension
plan. The projected benefit obligation at September 30, 1997 was approximately
$200,000, computed using a discount rate of 8.0% and a rate of compensation
increase of 5.0%. Pension expense of $27,000 was recognized for the period ended
September 30, 1997.
46
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Savings Plan
The Company also maintains an employee savings plan under Section 401(k)
of the Internal Revenue Code. Eligible employees may make contributions to the
plan of up to 15% of their compensation, subject to a dollar limitation.
Effective January 1997, the Company no longer makes matching contributions;
prior thereto, matching contributions were made in amounts of up to 2% of a
participant's compensation. Participants vest immediately in their own
contributions and over a five-year period with respect to Company contributions.
Savings plan expense was $10,000, $28,000 and $22,000 for the years ended
September 30, 1997, 1996 and 1995, respectively.
Employee Stock Ownership Plan
In connection with the Conversion, the Company established an ESOP for
eligible employees. The ESOP borrowed approximately $2.9 million from the
Holding Company and used the funds to purchase 285,660 shares of the Holding
Company's common stock sold in the subscription and community offering described
in note 11. The Association makes semi-annual contributions to the ESOP equal to
the debt service requirements less all dividends received by the ESOP on
unallocated shares. The ESOP uses these contributions and dividends to repay
principal and interest over the ten-year term of the loan.
Shares purchased by the ESOP are held in a suspense account by the plan
trustee until allocated to participant accounts. Shares released from the
suspense account are allocated to participants on the basis of their relative
compensation. Participants become vested in the allocated shares over a period
not to exceed five years. Any forfeited shares are allocated to other
participants in the same proportion as contributions. Total shares released for
allocation to participants were 28,566 in fiscal 1997 and 14,283 in fiscal 1996
(from the Conversion date). Compensation expense recognized with respect to
these shares amounted to $424,000 and $147,000 in fiscal 1997 and 1996,
respectively, based on the average fair value of the Holding Company's common
stock for each period. The cost of the 242,811 shares which have not yet been
committed to be released to participant accounts is reflected as a reduction to
stockholders' equity ($2.4 million at September 30, 1997). The fair value of
these shares was approximately $4.8 million at that date.
Stock Option and Incentive Plan
On October 30, 1996, the stockholders approved the Yonkers Financial
Corporation 1996 Stock Option and Incentive Plan. Under the plan, 357,075 shares
of authorized but unissued Holding Company common stock are reserved for
issuance to employees and non-employee directors upon option exercises. Options
may be either non-qualified stock options or incentive stock options. Each
option entitles the holder to purchase one share of common stock at an exercise
price equal to the fair market value of the stock on the grant date. An initial
grant of 264,951 options was made, effective October 30, 1996, at an exercise
price of $12.875 per share. Options were granted later in fiscal 1997 for 3,000
shares at an exercise price of $16.625 per share. All options granted have a
ten-year term and vest ratably over five years. All options granted in fiscal
1997 were outstanding at September 30, 1997 with a weighted average remaining
term of approximately 9.1 years, although no options were exercisable at that
date. At September 30, 1997, there were 89,124 reserved shares available for
future option grants.
Options were granted at exercise prices equal to the fair value of the
common stock at the grant dates. Therefore, in accordance with the provisions of
APB Opinion No. 25 related to fixed stock options, no compensation expense is
recognized with respect to options granted or exercised. Under the alternative
fair-value-based method defined in SFAS No. 123, the fair value of all fixed
stock options on the grant date would be recognized as expense over the vesting
period. The estimated per-share fair value of options granted in fiscal 1997 was
$4.50, estimated using the Black-Scholes option-pricing model with assumptions
approximately as follows: dividend yield of 1.7%; expected volatility rate of
25.3%; risk-free interest rate of 6.7%; and expected option life of 7.0 years.
Had the Company applied the fair-value-based method to the options granted, net
income and earnings per share for fiscal 1997 would have been $2.8 million and
$0.95, respectively, compared to the reported amounts of $3.0 million and $1.02,
respectively.
47
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management Recognition Plan
On October 30, 1996, the stockholders also approved the Yonkers Financial
Corporation 1996 Management Recognition Plan ("MRP"). The purpose of this plan
is to provide directors, officers and employees with a proprietary interest in
the Company in a manner designed to encourage such individuals to remain with
the Company. Awards granted under this plan vest ratably over five years from
the date of grant. The Holding Company completed the funding of the plan in
November 1996 by purchasing 142,830 shares of common stock in the open market at
a total cost of approximately $1.8 million. MRP awards for 108,905 of these
shares were made in fiscal 1997, with the remaining 33,925 purchased shares
included in treasury stock at September 30, 1997 and available for future
awards. Unearned compensation of $1.4 million was recorded with respect to the
shares awarded and $271,000 of that amount was amortized to compensation expense
in fiscal 1997.
(11) Stockholders' Equity
Conversion and Stock Offering
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, for net proceeds of $34.6 million after
deducting conversion costs of $1.1 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.
In accordance with regulatory requirements, the Association established a
liquidation account at the time of the Conversion in the amount of $15.8
million, equal to its equity at September 30, 1995. The liquidation account is
maintained for the benefit of eligible and supplemental eligible account holders
who continue to maintain their accounts at the Association after the Conversion.
The liquidation account will be reduced annually to the extent that eligible and
supplemental eligible account holders have reduced their qualifying deposits as
of each anniversary date. Subsequent increases will not restore such account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Association, each eligible account holder and supplemental
eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
Earnings Per Share
Earnings per share ("EPS") of $1.02 for fiscal 1997 and $0.22 for the
six-month period ended September 30, 1996 were based on weighted average common
shares of 2,907,304 and 3,291,698, respectively. Outstanding stock options did
not have a significant dilutive effect. EPS data has not been presented for
periods prior to the Conversion.
Capital Distributions
The Association may not declare or pay cash dividends on or repurchase
any of its shares of common stock if the effect thereof would cause its
stockholder's equity to be reduced below applicable regulatory capital
requirements or the amount required to be maintained for the liquidation
account. The OTS capital distribution regulations applicable to savings
institutions (such as the Association) that meet their regulatory capital
requirements, generally limit dividend payments in any year to the greater of
(i) 100% of year-to-date net income plus an amount that would reduce surplus
capital by one-half or (ii) 75% of net income for the most recent four quarters.
Surplus capital is the excess of actual capital at the beginning of the year
over the institution's minimum regulatory capital requirement. The Association
did not pay any dividends to the Holding Company in fiscal 1997 and 1996.
Unlike the Association, the Holding Company is not subject to OTS
regulatory restrictions on the payment of dividends to its shareholders. The
Holding Company is subject, however, to Delaware law, which generally limits
dividends to an amount equal to the excess of the net assets of the Holding
Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
48
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During fiscal 1997, pursuant to approvals received from the OTS, the
Holding Company repurchased a total of 516,062 common shares for its treasury at
a total cost of $7.1 million. These repurchases were made under a 10% repurchase
program completed in November 1996 and a 5% repurchase program completed in
August 1997, and were in addition to shares purchased to fund the MRP described
in note 10.
Regulatory Capital Requirements
OTS regulations require savings institutions to maintain a minimum ratio
of tangible capital to total adjusted assets of 1.5%; a minimum ratio of Tier I
(core) capital to total adjusted assets of 3.0%; and a minimum ratio of total
(core and supplementary) capital to risk-weighted assets of 8.0%.
Under its prompt corrective action regulations, the OTS is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on the institution's financial statements. The
regulations establish a framework for the classification of savings institutions
into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized if it
has a Tier I (core) capital ratio of at least 5.0%; a Tier I risk-based capital
ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors. These capital
requirements, which are applicable to the Association only, do not consider
additional capital at the Holding Company level.
Management believes that, as of September 30, 1997 and 1996, the
Association met all capital adequacy requirements to which it is subject.
Further, the most recent OTS notification categorized the Association as a
well-capitalized institution under the prompt corrective action regulations.
There have been no conditions or events since that notification that management
believes have changed the Association's capital classification.
The following is a summary of the Association's actual capital amounts
and ratios as of September 30, 1997 and 1996, compared to the OTS requirements
for minimum capital adequacy and for classification as a well-capitalized
institution:
<TABLE>
<CAPTION>
Minimum Capital For Classification
Association Actual Adequacy as Well Capitalized
---------------------- ------------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
September 30, 1997
<S> <C> <C> <C> <C>
Tangible capital ...................... $37,108 12.1% $ 4,608 1.5%
Tier I (core) capital ................. 37,108 12.1 9,217 3.0 $15,361 5.0%
Risk-based capital:
Tier I ............................ 37,108 31.2 7,145 6.0
Total ............................. 38,201 32.1 9,527 8.0 11,909 10.0
September 30, 1996
Tangible capital ...................... $34,409 14.0% $ 3,673 1.5%
Tier I (core) capital ................. 34,409 14.0 7,346 3.0 $12,244 5.0%
Risk-based capital:
Tier I ............................ 34,409 36.3 5,693 6.0
Total ............................. 35,346 37.2 7,591 8.0 9,488 10.0
</TABLE>
49
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
The Companyis off-balance sheet financial instruments were limited to
outstanding commitments to originate loans of $16.4 million, unadvanced lines of
credit extended to customers of $4.4 million and undisbursed construction loans
in process of $1.1 million at September 30, 1997 ($1.5 million, $5.0 million and
$0.2 million, respectively, at September 30, 1996). Although these contractual
amounts represent the Companyis maximum potential exposure to credit loss, they
do not necessarily represent future cash requirements since certain commitments
and lines of credit may expire without being funded and others may not be fully
drawn upon. Substantially all of these commitments and lines of credit have been
provided to customers within the Companyis primary lending area described in
note 3. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee by the customer. Commitments and
lines of credit are subject to the Company's credit approval process, including
a case-by-case evaluation of the customer's creditworthiness and related
collateral requirements.
Lease Commitments
The Company is obligated under non-cancellable leases for certain of its
banking premises. Rental expense under these leases was $203,000, $172,000 and
$120,000 for the years ended September 30, 1997, 1996 and 1995, respectively. At
September 30, 1997, the future minimum rental payments under the lease
agreements for the fiscal years ending September 30 are $222,000 in 1998;
$233,000 in 1999; $195,000 in 2000; $140,000 in 2001; $91,000 in 2002; and
$12,000 thereafter.
Legal Proceedings
In the normal course of business, the Company is involved in various
outstanding legal proceedings. In the opinion of management, after consultation
with legal counsel, the outcome of such legal proceedings should not have a
material effect on the Company's financial condition, results of operations or
liquidity.
(13) Fair Values of Financial Instruments
SFAS No. 107 requires disclosures about the fair values of financial
instruments for which it is practicable to estimate fair value. The definition
of a financial instrument includes many of the assets and liabilities recognized
in the Companyis balance sheet, as well as certain off-balance sheet items. Fair
value is defined in SFAS No. 107 as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
Quoted market prices are used to estimate fair values when those prices
are available. However, active markets do not exist for many types of financial
instruments. Consequently, fair values for these instruments must be estimated
by management using techniques such as discounted cash flow analysis and
comparison to similar instruments. Estimates developed using these methods are
highly subjective and require judgments regarding significant matters, such as
the amount and timing of future cash flows and the selection of discount rates
that appropriately reflect market and credit risks. Changes in these judgments
often have a material effect on the fair value estimates. Since these estimates
are made as of a specific point in time, they are susceptible to material
near-term changes. Fair values disclosed in accordance with SFAS No. 107 do not
reflect any premium or discount that could result from the sale of a large
volume of a particular financial instrument, nor do they reflect possible tax
ramifications or estimated transaction costs.
50
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the carrying amounts and fair values of the
Companyis financial assets and liabilities (none of which were held for trading
purposes) at September 30:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In Millions)
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks........................ $ 2.0 $ 2.0 $ 2.2 $ 2.2
Short-term investments......................... 1.5 1.5 10.3 10.3
Securities..................................... 162.6 163.2 153.6 152.7
Real estate mortgage loans held for sale....... 20.4 20.4 - -
Loans receivable............................... 118.7 119.5 86.7 85.4
Accrued interest receivable.................... 2.8 2.8 2.4 2.4
FHLB stock..................................... 3.0 3.0 1.1 1.1
Financial liabilities:
Savings certificate accounts................... 116.9 116.9 105.0 104.9
Other deposit accounts......................... 91.0 91.0 85.7 85.7
Securities repurchase agreements............... 54.1 53.8 10.3 10.3
FHLB advances.................................. 6.0 6.0 8.0 8.0
</TABLE>
The following is a description of the principal valuation methods used by
the Company to estimate the fair values of its financial instruments:
Securities
The fair values of securities were based on market prices or dealer
quotes.
Loans
For valuation purposes, the loan portfolio was segregated into its
significant categories, such as residential mortgage loans and consumer loans.
These categories were further analyzed, where appropriate, into components based
on significant financial characteristics such as type of interest rate (fixed or
adjustable). Generally, management estimated fair values by discounting the
anticipated cash flows at current market rates for loans with similar terms to
borrowers of similar credit quality.
Deposit Liabilities
The fair values of savings certificate accounts represent contractual
cash flows discounted using interest rates currently offered on certificates
with similar characteristics and remaining maturities. In accordance with SFAS
No. 107, the fair values of deposit liabilities with no stated maturity
(checking, NOW, money market, regular savings and club accounts) are equal to
the carrying amounts payable on demand.
In accordance with SFAS No. 107, these fair values do not include the
value of core deposit relationships which comprise a significant portion of the
Companyis deposit base. Management believes that the Companyis core deposit
relationships provide a relatively stable, low-cost funding source which has a
substantial unrecognized value separate from the deposit balances.
51
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowings
The fair values of securities repurchase agreements and FHLB advances
represent contractual repayments discounted using interest rates currently
available on borrowings with similar characteristics and remaining maturities.
Other Financial Instruments
The other financial assets and liabilities set forth in the preceding
table have fair values that approximate the respective carrying amounts because
the instruments are payable on demand or have short-term maturities and present
relatively low credit risk and interest rate risk.
The fair values of the loan origination commitments and unadvanced lines
of credit described in note 12 were estimated based on an analysis of the
interest rates and fees currently charged to enter into similar transactions,
considering the remaining terms of the instruments and the creditworthiness of
the potential borrowers. At September 30, 1997 and 1996, the fair values of
these financial instruments approximated the related carrying amounts which were
not significant.
(14) Recent Accounting Pronouncements
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. 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 fiscal years beginning after December 15,
1997 and, accordingly, will be adopted by the Company in its fiscal year ending
September 30, 1999.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Among other things, SFAS No.
131 requires public companies to report (i) certain financial and descriptive
information about its reportable operating segments (as defined), and (ii)
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 fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Company in its fiscal
year ending September 30, 1999.
Management does not anticipate that the adoption of these standards will
have a material impact on the Company's consolidated financial statements.
52
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) Parent Company Condensed Financial Information
Set forth below are the condensed balance sheets of Yonkers Financial
Corporation as of September 30, 1997 and 1996, and its condensed statements of
income and cash flows for the periods then ended:
<TABLE>
<CAPTION>
September 30,
----------------------
1997 1996
---- ----
<S> <C> <C>
Condensed Balance Sheets (In Thousands)
Assets:
Cash......................................................... $ 259 $ 384
Short-term investments....................................... 1,546 10,248
Securities................................................... 4,024 4,016
Investment in subsidiary..................................... 37,749 34,351
Other assets................................................. 318 64
------- --------
Total assets........................................... $ 43,896 $ 49,063
======= ========
Liabilities and Stockholders' Equity:
Liabilities.................................................. $ 18 $ 64
Stockholders' equity......................................... 43,878 48,999
-------- ---------
Total liabilities and stockholders' equity............. $ 43,896 $ 49,063
======= ========
Year Ended September 30,
------------------------
1997 1996*
---- -----
Condensed Statements of Income (In Thousands)
Interest income................................................. $ 682 $ 388
Non-interest expense............................................ (150) (43)
------- --------
Income before income tax expense and equity in
undistributed earnings of subsidiary...................... 532 345
Income tax expense ............................................. 232 146
------- --------
Income before equity in undistributed earnings of subsidiary. 300 199
Equity in undistributed earnings of subsidiary.................. 2,652 530
------- ---------
Net income............................................. $ 2,952 $ 729
======= ========
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income ................................................. $ 2,952 $ 729
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiary......... (2,652) (530)
Other adjustments, net................................. 106 (3)
------- --------
Net cash provided by operating activities.............. 406 196
------- --------
Cash flows from investing activities:
Purchases of securities...................................... (4,000) (4,000)
Proceeds from calls of securities............................ 4,000 --
Purchase of subsidiary's common stock........................ -- (17,314)
Other........................................................ 286 143
------- --------
Net cash provided by (used in) investing activities.... 286 (21,171)
------- ---------
Cash flows from financing activities:
Common stock repurchased..................................... (8,909) --
Net proceeds from issuance of common stock, exclusive
of ESOP shares............................................ -- 31,771
Dividends paid............................................... (610) (164)
------- --------
Net cash (used in) provided by financing activities.... (9,519) 31,607
------- --------
Net (decrease) increase in cash and cash equivalents............ (8,827) 10,632
Cash and cash equivalents at beginning of period................ 10,632 --
-------- -------
Cash and cash equivalents at end of period...................... $ 1,805 $ 10,632
======== =========
</TABLE>
* From the date of conversion, April 18, 1996.
53
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly financial data for the
fiscal years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- ------- ------------
(In Thousands, Except Per Share Data)
Fiscal 1997
<S> <C> <C> <C> <C>
Interest and dividend income.......... $ 4,740 $ 5,107 $ 5,339 $ 5,545
Interest expense...................... 2,229 2,392 2,588 2,748
-------- -------- -------- --------
Net interest income............... 2,511 2,715 2,751 2,797
Provision for loan losses............. 75 75 75 75
Non-interest income................... 202 165 199 221
Non-interest expense.................. 1,583 1,549 1,569 1,618
-------- -------- -------- --------
Income before income taxes........ 1,055 1,256 1,306 1,325
Income tax expense.................... 388 508 513 581
-------- -------- -------- --------
Net income........................ $ 667 $ 748 $ 793 $ 744
======== ======== ======== ========
Earnings per share................ $ 0.22 $ 0.26 $ 0.27 $ 0.27
======= ====== ======= ======
Fiscal 1996
Interest and dividend income.......... $ 3,821 $ 3,813 $ 4,267 $ 4,475
Interest expense...................... 2,024 2,001 1,954 1,996
-------- -------- -------- --------
Net interest income............... 1,797 1,812 2,313 2,479
Provision for loan losses............. 100 50 237 75
Non-interest income................... 166 165 173 198
SAIF special assessment............... -- -- -- 1,166
Other non-interest expense............ 1,200 1,249 1,148 1,441
-------- -------- -------- --------
Income (loss) before income
taxes.......................... 663 678 1,101 (5)
Income tax expense (benefit).......... 272 278 469 (102)
-------- -------- -------- --------
Net income........................ $ 391 $ 400 $ 632 $ 97
======== ======== ======== ========
Earnings per share................ $ 0.19 $ 0.03
======= ======
</TABLE>
54
<PAGE>
YONKERS FINANCIAL CORPORATION
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 4:30 p.m., January 28, 1998,
at The Yonkers Savings and Loan Association, FA, located at One Manor House
Square, Yonkers, New York.
STOCK LISTING
The Company's stock is traded over the counter, on the NASDAQ National Market
under the symbol "YFCB".
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The table below shows the range of high and low bid prices and dividends paid
for the quarters indicated. The prices do not represent actual transactions and
do not include retail markups, markdowns or commissions.
QUARTER ENDED HIGH LOW DIVIDENDS
------------- ---- --- ---------
June 30, 1996.................. $10 1/4 $ 9 1/4 $ ---
September 30, 1996............. 12 5/8 9 1/2 0.05
December 31, 1996.............. 13 3/8 12 1/8 0.05
March 31, 1997................. 16 1/4 12 3/4 0.05
June 30, 1997.................. 15 3/4 14 1/4 0.05
September 30, 1997............. 20 3/8 15 3/8 0.06
The Board of Directors intends to continue the payment of cash dividends,
dependent on the results of operations and financial condition of the Company,
tax considerations, industry standards, economic conditions, general business
practices and other factors. Dividend payment decisions are made with
consideration of a variety of factors including earnings, financial condition,
market considerations and regulatory restrictions. Restrictions on dividend
payments are described in Note 11 of the Notes to Consolidated Financial
Statements included in this report.
As of September 30, 1997, the Company had approximately 533 stockholders of
record and 3,020,763 outstanding shares of common stock.
SHAREHOLDER AND GENERAL INQUIRIES TRANSFER AGENT
Joseph L. Macchia, Vice President Registrar & Transfer Co.
Yonkers Financial Corporation 10 Commerce Drive
6 Executive Plaza Cranford, New Jersey 07016
Yonkers, New York 10701 (800) 456-0596
(914) 965-2500
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-K for its fiscal
year ended September 30, 1997, with the Securities and Exchange Commission.
Copies of the Form 10-K annual report and the Company's quarterly reports may be
obtained without charge by contacting:
INVESTOR RELATIONS
Yonkers Financial Corporation
6 Executive Plaza
Yonkers, New York 10701
(914) 965-2500
55
<PAGE>
YONKERS FINANCIAL CORPORATION
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
6 Executive Plaza
Yonkers, New York 10701
Telephone (914) 965-2500
Fax (914) 965-2599
BOARD OF DIRECTORS
William G. Bachop, Chairman
Retired professional engineer and President of
Herbert G. Martin, Inc.
P. Anthony Sarubbi, Vice Chairman
A consulting engineer and President of P. Anthony Sarubbi, Inc.
Donald R. Angelilli
A real estate broker employed by Prudential Ragette
Richard F. Komosinski
President and Chief Executive Officer
The Yonkers Savings and Loan Association, FA
Michael J. Martin
Vice President of Herbert G. Martin, Inc.
Eben T. Walker
President of Graphite Metallizing Corporation
Charles D. Lohrfink
Retired Public Affairs Director for Consolidated
Edison
YONKERS FINANCIAL CORPORATION
OFFICERS
Richard F. Komosinski
President and Chief Executive Officer
Joseph L. Macchia
Vice President, Secretary and
Chief Operations Officer
Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer
Philip Guaranieri
Vice President and
Chief Lending Officer
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
3001 Summer Street
Stamford, Connecticut 06905
SPECIAL COUNSEL
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Seventh Floor -- East Tower
Washington, D.C. 20005
56
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
<S> <C> <C> <C>
Yonkers Financial The Yonkers Savings and 100% Federal
Corporation Loan Association, FA
The Yonkers Savings and Yonkers Financial Services 100% New York
Loan Association, FA Corporation
</TABLE>
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors and Stockholders
Yonkers Financial Corporation:
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 (Nos. 333-37667 and 333-37669) of our report dated October 30, 1997
relating to the consolidated balance sheets of Yonkers Financial Corporation and
subsidiary as of September 30, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended September 30, 1997, which report
appears in the September 30, 1997 Annual Report on Form 10-K of Yonkers
Financial Corporation.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
December 29, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 2,046
<INT-BEARING-DEPOSITS> 1,547
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,286
<INVESTMENTS-CARRYING> 76,329
<INVESTMENTS-MARKET> 85,336
<LOANS> 119,776
<ALLOWANCE> (1,093)
<TOTAL-ASSETS> 312,956
<DEPOSITS> 207,933
<SHORT-TERM> 60,096
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<COMMON> 36
0
0
<OTHER-SE> 43,842
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<ALLOWANCE-OPEN> (937)
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<ALLOWANCE-CLOSE> (1,093)
<ALLOWANCE-DOMESTIC> (1,093)
<ALLOWANCE-FOREIGN> 0
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</TABLE>
