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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, 1998
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 21, 1998, there were issued and outstanding 2,726,239
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 21,
1998, was approximately $38.2 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, 1998.
PART III of form 10-K--Proxy statement for the Annual Meeting for the fiscal
year ended September 30, 1998.
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<PAGE>
YONKERS FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
SEPTEMBER 30, 1998
Table of Contents
Part I Page
Item 1 Business.................................................. 3
Item 2 Properties................................................ 45
Item 3 Legal Proceedings......................................... 46
Item 4 Submission of Matters to a Vote of Security Holders....... 46
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder 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..................... 47
Part III
Item 10 Directors and Executive Officers of the Registrant........ 48
Item 11 Executive Compensation.................................... 49
Item 12 Security Ownership of Certain Beneficial Owners
and Management.......................................... 49
Item 13 Certain Relationships and Related Transactions............ 49
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................ 50
Signatures................................................ 52
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 principal asset of the Holding Company is its
investment in the stock of the Association, although it also holds certain 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; three full-service banking
offices located in Yonkers, New York; and two in-store branches located in
Wappingers Falls, Dutchess County, New York and Yorktown Heights, Westchester
County, New York. The in-store branches opened in December 1997 and October
1998. A corporate headquarters office is also maintained in Yonkers, New York.
The Company's primary 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.
3
<PAGE>
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
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 15 years and annual rate
adjustments thereafter. Residential mortgage originations also currently include
products with initial fixed-rate periods of five, seven or ten years with annual
rate adjustments thereafter. The Company engages in secondary market sales of a
portion of its residential mortgage originations, as market conditions warrant.
Both originations and sales activity increased significantly in fiscal 1998. 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,
--------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
--------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Mortgage Loans:
One- to four-family (1)(2)(3) $ 167,225 84.1% $ 111,821 79.0% $ 62,283 70.6%
Multi-family 7,846 3.9 5,658 4.0 5,471 6.2
Commercial 12,766 6.4 11,990 8.5 9,117 10.3
Construction 2,613 1.3 2,786 2.0 2,175 2.5
Land 932 0.5 1,814 1.3 1,934 2.2
--------- ----- --------- ----- --------- -----
Total real estate mortgage loans 191,382 96.2 134,069 94.8 80,980 91.8
--------- ----- --------- ----- --------- -----
Other Loans:
Consumer loans:
Home equity 3,678 1.9 3,217 2.3 2,911 3.3
Personal 1,447 0.7 1,666 1.1 1,632 1.8
Other 1,224 0.6 1,237 0.9 1,310 1.5
--------- ----- --------- ----- --------- -----
Total consumer loans 6,349 3.2 6,120 4.3 5,853 6.6
Commercial business loans 1,195 0.6 1,299 0.9 1,413 1.6
--------- ----- --------- ----- --------- -----
Total other loans 7,544 3.8 7,419 5.2 7,266 8.2
--------- ----- --------- ----- --------- -----
Total loans 198,926 100.0% 141,488 100.0% 88,246 100.0%
===== ===== =====
Less:
Construction loans in process (743) (1,091) (171)
Allowance for loan losses (1,302) (1,093) (937)
Deferred loan origination costs (fees), net 478 (184) (472)
--------- ---------- ---------
Total loans, net $ 197,359 $ 139,120 $ 86,666
========= ========== =========
<CAPTION>
At September 30,
--------------------------------------------------
1995 1994
----------------------- -----------------------
Percent Percent
Amount of Total Amount of Total
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Mortgage Loans:
One- to four-family (1)(2)(3) $ 63,282 74.4% $ 64,078 80.7%
Multi-family 5,647 6.6 4,483 5.7
Commercial 6,575 7.7 3,176 4.0
Construction 2,205 2.6 2,138 2.7
Land 2,112 2.5 814 1.0
--------- ----- --------- -----
Total real estate mortgage loans 79,821 93.8 74,689 94.1
--------- ----- --------- -----
Other Loans:
Consumer loans:
Home equity 2,389 2.8 1,872 2.3
Personal 1,734 2.0 1,704 2.2
Other 1,092 1.3 1,025 1.3
--------- ----- --------- -----
Total consumer loans 5,215 6.1 4,601 5.8
Commercial business loans 56 0.1 92 0.1
--------- ----- --------- -----
Total other loans 5,271 6.2 4,693 5.9
--------- ----- --------- -----
Total loans 85,092 100.0% 79,382 100.0%
===== =====
Less:
Construction loans in process (293) (943)
Allowance for loan losses (719) (311)
Deferred loan origination costs (fees), net (401) (304)
--------- ---------
Total loans, net $ 83,679 $ 77,824
========= =========
</TABLE>
- ----------
(1) Includes advances under home equity lines of credit of $4.6 million, $5.9
million, $7.3 million, $9.1 million and $10.1 million, respectively, at
September 30, 1998, 1997, 1996, 1995 and 1994.
(2) Includes cooperative apartment loans of $4.5 million, $4.8 million, $5.5
million, $5.8 million and $5.9 million, respectively, at September 30,
1998, 1997, 1996, 1995 and 1994.
(3) Includes loans held for sale of $13.3 million and $20.4 million at
September 30, 1998 and 1997, respectively.
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,
--------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
--------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate mortgage loans:
One- to four-family (1)(2) $ 46,838 23.5% $ 36,074 25.5% $ 11,805 13.4%
Multi-family 1,529 0.8 108 0.1 47 0.1
Commercial 1,742 0.9 95 0.1 131 0.1
Land 270 0.1 390 0.3 49 0.1
-------- ----- -------- ----- -------- -----
Total real estate mortgage loans 50,379 25.3 36,667 26.0 12,032 13.7
Consumer loans 6,349 3.2 6,120 4.3 5,853 6.6
-------- ----- -------- ----- -------- -----
Total fixed-rate loans 56,728 28.5 42,787 30.3 17,885 20.3
-------- ----- -------- ----- -------- -----
Adjustable-Rate Loans:
Real estate mortgage loans:
One- to four-family (3)(4)(5) 120,387 60.6 75,747 53.5 50,478 57.2
Multi-family 6,317 3.2 5,550 3.9 5,424 6.1
Commercial 11,024 5.5 11,895 8.4 8,986 10.2
Construction 2,613 1.3 2,786 2.0 2,175 2.5
Land 662 0.3 1,424 1.0 1,885 2.1
-------- ----- -------- ----- -------- -----
Total real estate mortgage loans 141,003 70.9 97,402 68.8 68,948 78.1
Commercial business loans 1,195 0.6 1,299 0.9 1,413 1.6
-------- ----- -------- ----- -------- -----
Total adjustable-rate loans 142,198 71.5 98,701 69.7 70,361 79.7
-------- ----- -------- ----- -------- -----
Total loans 198,926 100.0% 141,488 100.0% 88,246 100.0%
===== ===== =====
Less:
Construction loans in process (743) (1,091) (171)
Allowance for loan losses (1,302) (1,093) (937)
Deferred loan origination costs (fees), net 478 (184) (472)
-------- -------- --------
Total loans, net $197,359 $139,120 $ 86,666
======== ======== ========
<CAPTION>
At September 30,
--------------------------------------------------
1995 1994
----------------------- -----------------------
Percent Percent
Amount of Total Amount of Total
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate mortgage loans: $ 11,805 13.9% $ 8,352 10.5%
One- to four-family (1)(2) 715 0.8 539 0.7
Multi-family 396 0.5 194 0.2
Commercial 49 0.1 49 0.1
Land -------- ----- -------- -----
12,965 15.3 9,134 11.5
Total real estate mortgage loans 5,215 6.1 4,601 5.8
Consumer loans -------- ----- -------- -----
18,180 21.4 13,735 17.3
Total fixed-rate loans -------- ----- -------- -----
Adjustable-Rate Loans:
Real estate mortgage loans: 51,477 60.4 55,726 70.1
One- to four-family (3)(4)(5) 4,932 5.8 3,944 5.0
Multi-family 6,179 7.3 2,982 3.8
Commercial 2,205 2.6 2,138 2.7
Construction 2,063 2.4 765 1.0
Land -------- ----- -------- -----
66,856 78.5 65,555 82.6
Total real estate mortgage loans 56 0.1 92 0.1
Commercial business loans -------- ----- -------- -----
66,912 78.6 65,647 82.7
Total adjustable-rate loans -------- ----- -------- -----
85,092 100.0% 79,382 100.0%
Total loans ===== =====
Less: (293) (943)
Construction loans in process (719) (311)
Allowance for loan losses (401) (304)
Deferred loan origination costs (fees), net -------- --------
$ 83,679 $ 77,824
Total loans, net ======== ========
</TABLE>
- ----------
(1) Includes loans held for sale of $13.3 million and $20.4 million at
September 30, 1998 and 1997, respectively.
(2) Fixed-rate totals include loans with an initial fixed-rate period of 15
years, with annual rate adjustments thereafter, totaling $14.0 million and
$23.6 million, respectively, at September 30, 1998 and 1997.
(3) Adjustable-rate totals include loans with initial fixed-rate periods of
five, seven or ten years, with annual rate adjustments thereafter,
totaling $83.8 million, $35.7 million and $3.6 million, respectively, at
September 30, 1998, 1997 and 1996.
(4) Includes advances under home equity lines of credit of $4.6 million, $5.9
million, $7.3 million, $9.1 million and $10.1 million, respectively, at
September 30, 1998, 1997, 1996, 1995 and 1994.
(5) Includes cooperative apartment loans of $4.5 million, $4.8 million, $5.5
million, $5.8 million and $5.9 million, respectively, at September 30,
1998, 1997, 1996, 1995 and 1994.
6
<PAGE>
The following table sets forth the contractual maturity of the Company's
loan portfolio at September 30, 1998. 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
$24.2 million, $13.6 million and $11.8 million for the years ended September 30,
1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
At September 30, 1998
--------------------------------------------------------------------------------------
Commercial
One- to Four-Family(1) Multi-Family Real Estate Construction
---------------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contractual maturity:
One year or less (2) $ 978 9.89% $ -- --% $ -- --% $ 2,613 10.01%
-------- -------- -------- --------
After one year:
More than 1 year to 2 years 1,069 9.45 3 8.25 -- -- -- --
More than 2 years to 3 years 767 9.82 253 9.08 20 9.50 -- --
More than 3 years to 5 years 2,028 9.55 -- -- 315 9.28 -- --
More than 5 years to 10 years 5,666 8.07 799 8.39 2,070 8.62 -- --
More than 10 years to 20 years 36,645 7.34 6,498 8.83 7,870 8.75 -- --
More than 20 years 120,072 7.18 293 8.53 2,491 8.56 -- --
-------- -------- -------- --------
Total after one year 166,247 7.30 7,846 8.78 12,766 8.71 -- --
-------- -------- -------- --------
Total amount due $167,225 7.32% $ 7,846 8.78% $ 12,766 8.71% $ 2,613 10.01%
======== ======== ======== ========
<CAPTION>
At September 30, 1998
---------------------------------------------------------------
Consumer and
Land Commercial Business Total
------------------ ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Contractual maturity:
One year or less (2) $ 324 10.50% $ 211 14.64% $ 4,126 10.25%
-------- -------- --------
After one year:
More than 1 year to 2 years 320 10.50 409 11.23 1,801 10.04
More than 2 years to 3 years -- -- 677 10.90 1,717 10.13
More than 3 years to 5 years -- -- 1,604 10.64 3,947 9.97
More than 5 years to 10 years -- -- 4,410 9.35 12,945 8.62
More than 10 years to 20 years 288 9.70 233 9.32 51,534 7.76
More than 20 years -- -- -- -- 122,856 7.21
-------- -------- --------
Total after one year 608 10.12 7,333 9.88 194,800 7.56
-------- -------- --------
Total amount due $ 932 10.25% $ 7,544 10.01% $198,926 7.62%
======== ======== ========
</TABLE>
- ----------
(1) Includes $4.6 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 $13.3 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, 1998 that are contractually due after September 30, 1999, and
whether such loans have fixed interest rates or adjustable interest rates.
Due After September 30, 1999
-------------------------------
Fixed Adjustable Total
------- ---------- --------
(In thousands)
Real estate mortgage loans:
One- to four-family $46,825 $119,422 $166,247
Multi-family 1,529 6,317 7,846
Commercial 1,742 11,024 12,766
Land 238 370 608
------- -------- --------
Total real estate mortgage loans 50,334 137,133 187,467
Consumer and commercial business loans 6,139 1,194 7,333
------- -------- --------
Total loans $56,473 $138,327 $194,800
======= ======== ========
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, 1998, based on the
15% limitation, the Company's loans-to-one borrower limit was approximately $5.7
million. On the same date, the Company had no borrowers with outstanding
balances in excess of this amount. As of September 30, 1998, the largest dollar
amount outstanding to one borrower, or group of related borrowers, was a $1.5
million loan secured by an office building located in Yonkers, New York. At
September 30, 1998, the Company's next largest loan relationship totaled $1.3
million to a development company for the purpose of land development and the
construction of four single-family residences located in Ossining, New York. The
advanced portion of this loan totaled $1.1 million at September 30, 1998,
consisting of $320,000 for land lots and $828,000 for construction of four
residences for which there are contracts for sale. These loans were performing
in accordance with their terms at September 30, 1998.
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
process for quality control reviews of residential loan originations. The
8
<PAGE>
quality control process includes reviews of 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 Loan 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, 1998, $167.2
million, or 84.1%, of the Company's loan portfolio consisted of mortgage loans
on one- to four-family residences (including $13.3 million of loans held for
sale, $4.6 million of advances under home equity lines of credit and $4.5
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, although a larger percentage of its originations
were sold in the secondary market (with servicing retained) in fiscal 1998. At
September 30, 1998, approximately $5.1 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 $163,000, compared to $114,000 at September 30, 1997. The increase
in the average outstanding residential loan balance reflects recent originations
of larger loans, consistent with changes in the Company's lending operations
(including the introduction of new residential loan products).
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
9
<PAGE>
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 are classified as ARM loans for reporting purposes and 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.
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, 1998, one- to four-family ARMs (including
loans of $83.8 million earning a fixed rate of interest for initial periods of
five, seven or 10 years) totaled $142.2 million, or 71.5% 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. 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. Loans held for sale at September 30,
1998 amounted $13.3 million and represented a variety of fixed-rate one- to
four-family loans.
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, 1998, the Company had $4.6 million of outstanding
advances under home equity lines and an additional $3.7 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, 1998, the
Company had $13.2 million of condominium loans and $4.5 million of co-op loans.
10
<PAGE>
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.
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 in recent years, 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, 1998, the Company had $12.8 million in commercial real
estate loans, representing 6.4% of the total loan portfolio, and $7.8 million in
multi-family loans, or 3.9% 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.
11
<PAGE>
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, 1998. Substantially all of the loans referred to in the table
below are secured by properties located in the Company's market area.
<TABLE>
<CAPTION>
Outstanding Amount Non-
Number Principal Performing or
of Loans Balance of Concern(1)
-------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial real estate:
Small business facilities 37 $ 8,867 $ 203
Office buildings 6 3,073 223
Health care facilities 4 734 --
Industrial real estate 1 92 --
Multi-family 38 7,846 --
---- -------- -----
Total multi-family and commercial real estate loans 86 $ 20,612 $ 426
==== ======== =====
</TABLE>
- ----------
(1) See "- Delinquencies and Non-Performing Assets".
At September 30, 1998, 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, 1998, the largest multi-family loan had a
balance of $506,000 and is secured by a 21-unit apartment building located in
Yonkers, New York.
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, 1998, the Company's construction loan
portfolio totaled $2.6 million, or 1.3% 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, 1998, the
Company's land loan portfolio totaled $932,000, or 0.5% of the total loan
portfolio. At September 30, 1998, all of the Company's land loans were made for
the purpose of developing residential lots except for one loan totaling $238,000
which was secured by commercial real estate.
12
<PAGE>
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, 1998, there were
$230,000 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, 1998, the Company had $2.4 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.
13
<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, 1998, all
of which are secured by properties located in the Company's market area.
<TABLE>
<CAPTION>
Outstanding Amount Non-
Number Loan Principal Performing or
of Loans Commitment Balance of Concern(1)
-------- ---------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Single-family construction 10 $ 2,613 $ 1,870 $ --
Residential land 5 694 694 --
Other land 1 238 238 238
===== ======= ======= =====
Total construction and land loans 16 $ 3,545 $ 2,802 $ 238
===== ======= ======= =====
</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, 1998, consumer loans totaled $6.3 million,
or 3.2% 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.
14
<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 a 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, 1998, there were $35,000 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, 1998, the
Company had $1.2 million of commercial business loans outstanding, representing
0.6% 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.
15
<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. Total loan originations increased substantially to $151.7 million in
fiscal 1998, compared to $70.1 million in fiscal 1997 and $17.7 million in
fiscal 1996, primarily reflecting higher one- to four-family loan originations.
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 currently
sells in the secondary market a portion of its fixed-rate residential mortgage
originations. In addition, certain current year originations of adjustable-rate
loans are sold in the secondary market. Residential mortgage sales increased
substantially to $69.8 million in fiscal 1998, compared to $2.8 million in
fiscal 1997 and $1.9 million in fiscal 1996. 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, 1998, the Company serviced
$81.7 million of mortgage loans for others.
16
<PAGE>
The following table sets forth the Company's loan originations, sales,
repayments and other portfolio activity for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended September 30,
--------------------------------
1998 1997 1996
----- ------ ----
(In thousands)
<S> <C> <C> <C>
Unpaid principal balances at beginning of year $ 141,488 $ 88,246 $ 85,092
--------- --------- --------
Loans originated:
Real estate mortgage loans:
One- to four-family(1) 139,351 60,497 9,053
Multi-family 3,372 839 174
Commercial 2,235 2,815 2,740
Construction 3,734 2,913 1,285
Land 50 150 --
Consumer and commercial business loans 2,981 2,919 4,415
--------- --------- --------
Total loans originated 151,723 70,133 17,667
--------- --------- --------
Loans sold:
One-to four-family real estate mortgage loans (69,810) (2,822) (1,886)
--------- --------- --------
Principal repayments:
Real estate mortgage loans (21,325) (10,846) (9,389)
Consumer and commercial business loans (2,856) (2,766) (2,391)
--------- --------- --------
Total principal repayments (24,181) (13,612) (11,780)
--------- --------- --------
Net charge-offs (166) (144) (244)
Transfers to real estate owned (128) (313) (603)
--------- --------- --------
Unpaid principal balances at end of year 198,926 141,488 88,246
Less:
Construction loans in process (743) (1,091) (171)
Allowance for loan losses (1,302) (1,093) (937)
Deferred loan origination costs (fees), net 478 (184) (472)
--------- --------- --------
Net loans at end of year $ 197,359 $ 139,120 $ 86,666
========= ========= ========
</TABLE>
- ----------
(1) Consists of (i) adjustable-rate loans of $89.0 million, $32.3 million and
$5.6 million, and (ii) fixed-rate loans of $50.3 million, $28.2 million
and $3.5 million for the years ended September 30, 1998, 1997 and 1996,
respectively.
17
<PAGE>
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 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>
September 30, 1998 September 30, 1997
-------------------------------------------- -----------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- -------------------- --------------------- ---------------------
Number Principal Number Principal Number Principal Number Principal
of Loans Balance of Loans Balance of Loans Balance of Loans Balance
-------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family 4 $ 257 5 $ 515 1 $ 88 3 $ 389
Multi-family -- -- -- -- 1 101 -- --
Construction -- -- -- -- 1 88 2 279
Land -- -- -- -- -- -- 3 250
Commercial -- -- 1 203 -- -- 1 211
Consumer loans 3 43 5 35 1 7 2 9
-------- ------- -------- ------- -------- ------- -------- -------
Total 7 $ 300 11 $ 753 4 $ 284 11 $ 1,138
======== ======= ======== ======= ======== ======= ======== =======
Delinquent loans to total loans(1) 0.15% 0.38% 0.20% 0.80%
======= ======= ======= =======
</TABLE>
- ----------
(1) If loans held for sale are excluded from total loans, the percentages are
0.16% for the 60-89 days category and 0.41% for the 90 days or more
category at September 30, 1998 (0.23% and 0.94%, respectively, at
September 30, 1997).
18
<PAGE>
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, 1998 the Company had classified $924,000
of loans and $305,000 of real estate owned as substandard, and $1,000 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.
19
<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.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans past due ninety days or more:
Real estate mortgage loans:
One- to four-family $ 515 $ 389 $1,757 $2,759 $2,229
Multi-family (1) -- -- -- 389 389
Commercial 203 211 214 -- --
Land -- 250 250 49 --
Construction -- 279 511 279 --
Consumer loans 35 9 43 54 45
------ ------ ------ ------ ------
Total 753 1,138 2,775 3,530 2,663
Real estate owned, net 305 379 603 227 73
------ ------ ------ ------ ------
Total non-performing assets $1,058 $1,517 $3,378 $3,757 $2,736
====== ====== ====== ====== ======
Allowance for loan losses $1,302 $1,093 $ 937 $ 719 $ 311
====== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans receivable (2) 0.41% 0.94% 3.14% 4.15% 3.35%
Non-performing assets to total assets 0.28 0.48 1.30 1.80 1.40
Allowance for loan losses to:
Non-performing loans 172.91 96.05 33.77 20.37 11.68
Total loans receivable (2) 0.70 0.90 1.06 0.84 0.39
</TABLE>
- ----------
(1) Includes a participation loan of $309,000 classified as a troubled debt
restructuring at September 30, 1995 and 1994. 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, 1998, gross interest income of $64,000
would have been recorded if the non-accrual loans at September 30, 1998 had
remained current in accordance with their original terms. The amount of interest
income actually received on such loans in fiscal 1998 was $48,000. See Note 3 of
the Notes to Consolidated Financial Statements.
20
<PAGE>
At September 30, 1998, the Company's non-performing loans consisted of
five loans secured by one- to four-family real estate located in the Company's
market area which totaled $515,000; one loan for $203,000 secured by a store and
five apartments located in Yonkers, New York; and five consumer loans which
totaled $35,000. At September 30, 1998, real estate owned consisted of two
single-family residences with a net carrying value of $305,000.
Other Loans of Concern. In addition to the non-performing loans and real
estate owned discussed in the preceding section, as of September 30, 1998 there
were other loans of concern totaling approximately $551,000. 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, 1998, the Company's loans of concern included the
following loans with principal balances in excess of $200,000:
The Company has a $238,000 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, 1998, 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 a 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 $223,000 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 Association Service Corporation
("TASCO"). This loan originally had 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 securing financing in
order to payoff the loan. As a result, a short-term extension was granted
at the original terms of the loan until December 1997. In December 1997,
the loan was extended at market terms for an additional five-year term
with principal payments based on a 25-year amortization schedule. Although
the loan was current as of September 30, 1998, the Company considers this
loan to be of concern due to its past performance and extended term.
21
<PAGE>
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. The allowance for loan losses consists of
amounts specifically allocated to non-performing loans and potential problem
loans (if any) as well as allowances determined for each major loan category.
Loan categories such as single-family residential mortgages and consumer loans
are generally evaluated on an aggregate or "pool" basis by applying loss factors
to the current balances of the various loan categories. The loss factors are
determined by management based on an evaluation of historical loss experience,
delinquency trends, volume and type of lending conducted, and the impact of
current economic conditions in the Company's market area.
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.
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,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,093 $ 937 $ 719 $ 311 $ 295
Provision for losses 375 300 462 493 64
Charge-offs:
Real estate mortgage loans:
One- to four-family (45) (132) (97) (76) (64)
Multi-family (1) -- -- (203) -- --
Land (17) -- -- -- --
Construction (91) -- -- -- --
Consumer loans (40) (25) (33) (13) (2)
------- ------- ------- ------- -------
Total charge-offs (193) (157) (333) (89) (66)
Recoveries 27 13 89 4 18
------- ------- ------- ------- -------
Net charge-offs (166) (144) (244) (85) (48)
------- ------- ------- ------- -------
Balance at end of year $ 1,302 $ 1,093 $ 937 $ 719 $ 311
======= ======= ======= ======= =======
Ratio of net charge-offs to average total loans 0.10% 0.15% 0.29% 0.10% 0.06%
</TABLE>
- ----------
(1) Charge-offs in fiscal 1996 relate to the Company's purchased participation
interests in a multi-family loan originated by TASCO.
22
<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,
--------------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------- ---------------------------------- --------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Loan Each Loan Each Loan Each
Amounts Category Amounts Category Amounts Category
Allowance by to Total Allowance by to Total Allowance by to Total
Amount Category(1) Loans Amount Category(1) Loans Amount Category Loans
-------- ----------- ---------- --------- ----------- ---------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $ 917 $153,891 82.9% $ 608 $ 91,367 75.5% $ 538 $ 62,283 70.6%
Multi-family 16 7,846 4.2 11 5,658 4.7 11 5,471 6.2
Commercial 160 12,766 6.9 121 11,990 9.9 91 9,117 10.3
Construction 23 2,613 1.4 98 2,786 2.3 74 2,175 2.5
Land(2) 128 932 0.5 196 1,814 1.5 166 1,934 2.2
Consumer and commercial
business loans 58 7,544 4.1 59 7,419 6.1 57 7,266 8.2
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total $ 1,302 $185,592 100.0% $ 1,093 $121,034 100.0% $ 937 $ 88,246 100.0%
======== ======== ===== ======== ======== ===== ======== ======== =====
<CAPTION>
At September 30,
--------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
Percent of Percent of
Loans in Loans in
Loan Each Loan Each
Amounts Category Amounts Category
Allowance by to Total Allowance by to Total
Amount Category Loans Amount Category Loans
--------- -------- ---------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $ 302 $ 63,282 74.4% $ 188 $ 64,078 80.7%
Multi-family 64 5,647 6.6 64 4,483 5.6
Commercial 66 6,575 7.7 20 3,176 4.0
Construction 75 2,205 2.6 16 2,138 2.7
Land(2) 171 2,112 2.5 8 814 1.0
Consumer and commercial
business loans 41 5,271 6.2 15 4,693 5.9
-------- -------- ----- -------- -------- -----
Total $ 719 $ 85,092 100.0% $ 311 $ 79,382 100.0%
======== ======== ===== ======== ======== =====
</TABLE>
- ----------
(1) Excludes real estate mortgage loans held for sale of $13.3 million and
$20.4 million, respectively, at September 30, 1998 and 1997.
(2) The allowance at September 30, 1998, 1997, 1996 and 1995 principally
represents an allocation to land loans "of concern." See "- Other Loans of
Concern."
23
<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 stockholders' equity. At September 30, 1998, the Company had no
securities classified as trading. At September 30, 1998, $125.2 million or 74.3%
of the Company's mortgage-backed and other securities was classified as
available for sale. The remaining $43.3 million, or 25.7%, 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, including collateralized mortgage obligations
("CMOs"), 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, 1998, the Company did
not have any mortgage-backed securities of a single issuer in excess of 10% of
the Company's stockholders' equity, except for federal agency obligations. At
September 30, 1998, the Company classified mortgage-backed securities of $33.8
million as held to maturity and $79.7 million as available for sale. Consistent
with its asset/liability management strategy, $33.2 million, or 29.6%, of the
Company's mortgage-backed securities at September 30, 1998 had adjustable
interest rates.
24
<PAGE>
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, 1998, the Company held $9.1 million of CMOs, all of which were
classified as held-to-maturity.
Prior to the purchase of a CMO, the Company conducts an analysis of the
security to assess its price volatility. The analysis is designed to show the
expected change in the value of the security that would result from immediate
parallel shifts in the yield curve of plus or minus 100, 200, and 300 basis
points. The Company establishes risk tolerance levels for its CMO activities on
a periodic basis based on its overall asset/liability management goals and
market conditions.
The fair 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.
For additional information regarding the Company's mortgage-backed
securities portfolio, see Note 2 of the Notes to Consolidated Financial
Statements.
25
<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,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity
Pass-through securities $ 24,704 $ 25,230 $ 35,283 $ 35,905 $ 41,493 $ 41,520
CMOs 9,104 9,165 15,063 15,066 16,646 16,478
-------- -------- -------- -------- -------- --------
Total 33,808 34,395 50,346 50,971 58,139 57,998
-------- -------- -------- -------- -------- --------
Available for Sale
Pass-through securities 78,549 79,678 34,460 34,892 20,679 20,572
CMOs -- -- 8,148 8,146 2,146 2,139
-------- -------- -------- -------- -------- --------
Total 78,549 79,678 42,608 43,038 22,825 22,711
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities $112,357 $114,073 $ 92,954 $ 94,009 $ 80,964 $ 80,709
======== ======== ======== ======== ======== ========
</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
$160,000, $302,000 and $367,000 at September 30, 1998, 1997 and 1996,
respectively.
26
<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, 1998. 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, 1998
------------------------------------------------------------
Held to Maturity Available for Sale
----------------------------- -----------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
------- ------- -------- --------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Pass-through securities:
Due after 1 year but within 5 years $ 433 $ 458 8.17% $ -- $ -- --%
Due after 5 years but within 10 years 1,620 1,648 6.80 -- -- --
Due after 10 years 22,651 23,124 6.85 78,549 79,678 7.19
------- ------- ------- -------
Total $24,704 $25,230 6.87% $78,549 $79,678 7.19%
======= ======= ======= =======
CMOs:
Due after 1 year but within 5 years $ 373 $ 384 8.00% $ -- $ -- --%
Due after 5 years but within 10 years 2,244 2,246 5.81 -- -- --
Due after 10 years 6,487 6,535 5.62 -- -- --
------- ------- ------- -------
Total $ 9,104 $ 9,165 5.76% $ -- $ -- --%
======= ======= ======= =======
</TABLE>
The following table sets forth the activity in the mortgage-backed
securities portfolio for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended September 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Amortized cost at beginning of year $ 92,954 $ 80,964 $ 59,034
--------- --------- ---------
Purchases:
Pass-through securities:
Fixed rate 74,391 15,144 10,264
Adjustable rate -- 2,502 21,657
CMOs -- 8,149 --
--------- --------- ---------
Total purchases 74,391 25,795 31,921
--------- --------- ---------
Sales (16,667) (4,372) --
Principal repayments (38,116) (9,421) (9,979)
Premium amortization, net of discount accretion (205) (12) (12)
--------- --------- ---------
Amortized cost at end of year $ 112,357 $ 92,954 $ 80,964
========= ========= =========
</TABLE>
27
<PAGE>
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 September 30, 1998, the Company did not own any investment
securities of a single issuer which exceeded 10% of the Company's stockholders'
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, as well as common stocks and mutual fund shares. 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, 1998, the Company had
$3.5 million of "step-up" securities with a weighted average yield of 5.69%.
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,
---------------------------------------------------------------
1998 1997 1996
------------------ ------------------- -------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale
U.S. Government and Agency securities $43,801 $44,810 $40,805 $41,469 $29,960 $29,992
Equity securities 967 737 1,923 1,779 6,070 5,849
------- ------- ------- ------- ------- -------
Total 44,768 45,547 42,728 43,248 36,030 35,841
------- ------- ------- ------- ------- -------
Held to Maturity
U.S. Government and Agency securities 9,495 9,553 25,983 25,931 36,368 35,663
Corporate bonds -- -- -- -- 500 501
------- ------- ------- ------- ------- -------
Total 9,495 9,553 25,983 25,931 36,868 36,164
------- ------- ------- ------- ------- -------
Total other securities $54,263 $55,100 $68,711 $69,179 $72,898 $72,005
======= ======= ======= ======= ======= =======
</TABLE>
28
<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, 1998, 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)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and Agency:
Due within 1 year $ 2,500 $ 2,503 5.37% $ -- $ -- --%
Due after 1 years but within 5 years 3,496 3,510 5.66 -- -- --
Due after 5 years but within 10 years 1,500 1,528 6.69 19,100 19,343 7.57
Due after 10 years 1,999 2,012 6.00 24,701 25,467 7.35
------- ------- -------- --------
Total $ 9,495 $ 9,553 5.82% $ 43,801 $ 44,810 7.45%
======= ======= ======== ========
</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, 1998
consisted of federal funds sold of $1.0 million.
Sources of Funds
General. The Company's primary sources of funds are deposits, borrowings,
payments (including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities and other 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 five branch offices and one offsite ATM located in a hospital.
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 and
therefore are relatively stable sources of deposits. These core accounts
increased $7.9 million during fiscal 1998, as compared to $5.4
29
<PAGE>
million during fiscal 1997. 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.
The following table sets forth the deposit activity of the Company for the
periods indicated.
For the Year Ended September 30,
---------------------------------------
1998 1997 1996
--------- --------- ---------
(Dollars in thousands)
Balance at beginning of year $ 207,933 $ 190,675 $ 188,009
Deposits 593,174 425,392 421,132
Withdrawals (578,982) (416,056) (426,246)
Interest credited 9,056 7,922 7,780
--------- --------- ---------
Balance at end of year $ 231,181 $ 207,933 $ 190,675
========= ========= =========
Net increase during the year:
Amount $ 23,248 $ 17,258 $ 2,666
Percent 11.2% 9.1% 1.4%
========= ========= =========
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,
----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ----------------------------- ------------------------------
Percent Weighted Percent Weighted Percent Weighted
of Total Average of Total Average of Total Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ -------- -------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking accounts $ 5,423 2.4% --% $ 4,655 2.2% --% $ 1,957 1.0% --%
NOW accounts 21,123 9.1 1.00 19,055 9.2 2.00 18,141 9.5 1.86
Money market accounts 27,613 11.9 3.64 21,624 10.4 3.33 16,599 8.7 2.91
Regular savings accounts 43,492 18.8 2.43 44,591 21.4 2.56 47,832 25.1 2.61
Club accounts 1,282 0.6 2.43 1,132 0.6 2.56 1,112 0.6 2.61
Savings certificate accounts 132,248 57.2 5.43 116,876 56.2 5.45 105,034 55.1 5.24
-------- ----- -------- ----- -------- -----
Total $231,181 100.0% 4.10% $207,933 100.0% 4.15% $190,675 100.0% 3.99%
======== ===== ======== ===== ======== =====
</TABLE>
30
<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, 1998.
<TABLE>
<CAPTION>
At September 30, 1998
--------------------------------------------------------- Total at
Period to Maturity September 30,
--------------------------------------------------------- --------------------
Less than One to More than Percent
One Year Three Years Three Years Total of Total 1997 1996
--------- ----------- ----------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% and below $ -- $ -- $ -- $ -- --% $ -- $ 39
4.01% to 5.00% 28,014 1,663 -- 29,677 22.4 31,003 52,810
5.01% to 6.00% 54,055 23,167 5,738 82,960 62.8 74,440 35,805
6.01% to 7.00% 2,192 16,865 554 19,611 14.8 11,433 16,293
7.01% and above -- -- -- -- -- -- 87
-------- -------- -------- -------- ----- -------- --------
Total $ 84,261 $ 41,695 $ 6,292 $132,248 100.0% $116,876 $105,034
======== ======== ======== ======== ===== ======== ========
</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 tot1l savings certificates
at September 30, 1998.
<TABLE>
<CAPTION>
Less than $100,000 $100,000 or more Total
-------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Within three months $ 22,283 5.11% $ 2,221 5.21% $ 24,504 5.12%
After three but within six months 17,855 5.16 1,711 5.06 19,566 5.15
After six but within 12 months 34,410 5.41 5,781 5.57 40,191 5.43
-------- -------- --------
Total within one year 74,548 5.26 9,713 5.40 84,261 5.28
After one but within two years 30,735 5.70 5,820 5.83 36,555 5.72
After two but within three years 4,144 5.49 996 5.67 5,140 5.52
After three but within five years 6,292 5.78 -- -- 6,292 5.78
-------- -------- --------
Total $115,719 5.41% $ 16,529 5.57% $132,248 5.43%
======== ======== ========
</TABLE>
Borrowings. The Company's other available sources of funds include
securities repurchase agreements and advances from the FHLB of New York. 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, 1998, the Company had a
collateral pledge arrangement with the FHLB of New York pursuant to which the
Company may borrow advances of up to $94.5 million. On such date, there were no
FHLB advances outstanding.
31
<PAGE>
The Company enters into securities repurchase agreements with the FHLB of
New York utilizing mortgage-backed and other securities as collateral. At
September 30, 1998, the Company had $107.8 million of outstanding borrowings
under securities repurchase agreements which were collateralized by
mortgage-backed and other debt securities with a total fair value of $118.5
million.
The following table sets forth information concerning the balances and
interest rates on borrowings at the dates and for the periods indicated.
<TABLE>
<CAPTION>
At or for the Year
Ended September 30,
----------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Securities repurchase agreements:
Balance at end of year $107,790 $ 54,096 $ 10,264
Average balance during year 81,892 32,074 1,214
Maximum outstanding at any month end 119,890 54,096 10,264
Weighted average interest rate at end of year 5.64% 5.82% 5.44%
Average interest rate during the year 5.76 5.77 5.35
FHLB advances:
Balance at end of year $ -- $ 6,000 $ 8,000
Average balance during year 4,139 3,186 2,356
Maximum outstanding at any month end 11,000 7,500 8,000
Weighted average interest rate at end of year --% 6.75% 5.73%
Average interest rate during the year 5.99 5.84 5.52
</TABLE>
See Note 7 of the Notes to the Consolidated Financial Statements for
further information concerning the Company's securities repurchase agreements
and FHLB advances.
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, 1998, the
Association had one service corporation, Yonkers Financial Services Corporation,
which offers life insurance on an agency basis to the Association's customers.
32
<PAGE>
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.
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, 1997, the Company held approximately 1.0% of total deposits in
Westchester County.
Employees
At September 30, 1998, the Company had a total of 74 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
33
<PAGE>
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,
1997. 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, 1998 was approximately $82,000.
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, 1998, Yonkers Savings' lending limit under this
restriction was $5.7 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.
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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
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 schedule for SAIF
insured institutions with the schedule for institutions insured by the Bank
Insurance Fund ("BIF"), 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 accrued as an expense charge for the fiscal year ended September 30, 1996
and paid in November 1996. Effective January 1, 1997, the premium schedule for
both 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, currently equal to 6.10 basis points for each $100
in domestic deposits, while BIF-insured institutions currently pay an assessment
equal to 1.22 basis points for each $100 in domestic deposits. The assessment
for SAIF-insured institutions 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
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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, 1998, Yonkers
Savings had no intangible assets.
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, 1998, Yonkers Savings had one "includable" subsidiary.
At September 30, 1998, Yonkers Savings had tangible capital of $35.2
million, or 9.3% of adjusted total assets, which is $29.6 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. 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, 1998, Yonkers Savings had core capital equal to $35.2
million, or 9.3% of adjusted total assets, which is $23.9 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, 1998, Yonkers Savings had no capital instruments that qualify as
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supplementary capital and $1.3 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, 1998.
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 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.
At September 30, 1998, Yonkers Savings had total capital of $36.5 million
(including $35.2 million in core capital and $1.3 million in qualifying
supplementary capital) and risk-weighted assets of $140.4 million (including
$2.8 million in converted off-balance sheet items), or total capital of 26.0% of
risk-weighted assets. This amount was $25.3 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,
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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 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
year-to-date net income 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.
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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 their minimum capital requirements (or that would not do
so after the proposed capital distribution) 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
defined in the OTS prompt corrective action regulations) following the proposed
distribution. Savings associations that would remain adequately capitalized
following the proposed distribution, but that 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 was 4% at September 30, 1998. Penalties may be imposed upon
associations for violations of the liquidity requirement. At September 30, 1998,
Yonkers Savings' liquidity ratio of 13.1% was in compliance with the
requirement.
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, 1998, Yonkers Savings met the
test and has always met the test since its effectiveness.
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
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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.
In 1995, the federal banking agencies, including the OTS, 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
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.
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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 activities 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
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.
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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, 1998, 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, 1998, Yonkers Savings held $6.4 million
in FHLB stock, which was in compliance with this requirement. Dividends paid by
the FHLB of New York to Yonkers Savings totaled $338,000 for fiscal 1998.
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. 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.
Historically, a percentage of taxable income method was also available in
computing the qualifying loan bad debt deduction; however, as a result of 1996
federal tax legislation, this method is no longer available to the Association
for tax years ending on or after September 30, 1997.
The 1996 federal tax legislation also imposed 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 will
begin for the Association in the tax year ending September 30, 1999. 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.
Also, under the 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.
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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 State 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
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 Holding 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 Holding Company is also subject
to an annual franchise tax imposed by the State of Delaware.
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Item 2. Properties
The following table sets forth information concerning the Company's
properties at September 30, 1998. The Company's premises had an aggregate net
book value of approximately $270,000 at that date.
Year Net Book Value at
Location Acquired/Leased Owned or Leased September 30, 1998
- ------------------------ --------------- --------------- ------------------
(Dollars in thousands)
Corporate Headquarters:
6 Executive Plaza 1996 Leased $ 8
Yonkers, New York
10701-9858
Main Office:
One Manor House Square 1976 Owned 137
Yonkers, New York
10701-2701
Full-Service Branches:
780 Palisade Avenue 1989 Leased 23
Yonkers, New York 10703
1759 Central Park Avenue 1977 Leased 54
Yonkers, New York
10710-2828
2320 Central Park Avenue 1986 Leased 48
Yonkers, New York
10710-1216
In-Store Branches:
1357 Route 9 1997 Leased --
Wappingers Falls, New
York 12590
3303 Crompond Road 1998 Leased --
Yorktown Heights, New York
10598
Yonkers Savings has entered into an agreement for in-store branching with
BJ's Wholesale Club, Inc. An in-store branch opened in December 1997 in BJ's
location in Wappingers Falls, New York and a second in-store branch opened in
October 1998 in BJ's location in Yorktown Heights, 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, 1998 was approximately
$296,000.
45
<PAGE>
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.
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,
1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Page 55 of the attached 1998 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Selected Financial Data
Pages 5 and 6 of the attached 1998 Annual Report to Stockholders are
herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 7 through 26 of the attached 1998 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 21
of the attached 1998 Annual Report to Stockholders, is herein incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
Pages 27 through 54 of the attached 1998 Annual Report to Stockholders are
herein incorporated by reference.
46
<PAGE>
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.
47
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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 1999, 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, 1998.
Joseph L. Macchia. Mr. Macchia, age 47, 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 46, 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 41, 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) of the Exchange Act
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
48
<PAGE>
equity securities, to file with the SEC reports of ownership and reports of
changes in ownership of common stock and other equity 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, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were met.
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 1999, 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 1999, 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 1999, a copy of which will
be filed not later than 120 days after the close of the fiscal year.
49
<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 1998 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, 1998 Page 28
and 1997
Consolidated Statements of Income for the Years Page 29
Ended September 30, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Page 30
Equity for the Years Ended September 30, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the Years Page 31
Ended September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements Pages 32 through 54
(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.
50
<PAGE>
(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 * Not applicable
of security holders including
debentures
9 Voting Trust Agreement None Not applicable
10 Material Contracts
10.1 Management Recognition Plan * Not applicable
10.2 Stock Option and Incentive Plan * Not applicable
10.3 Employment Contract with 10.3
Richard F. Komosinski dated June
30, 1998
10.4 Change-in-Control Severence Agreement 10.4
with Joseph L. Macchia dated
June 30, 1998
10.5 Change-in-Control Severence Agreement 10.5
with Joseph D. Roberto dated
June 30, 1998
10.6 Change-in-Control Severence Agreement 10.6
with Philip Guarnieri
11 Statement re: computation of per share Not required Not applicable
earnings
12 Statement re: computation of ratios Not required Not applicable
13 Annual Report to Security Holders 13
16 Letter re: change in certifying None Not applicable
accountants
18 Letter re: change in accounting None Not applicable
principles
19 Previously unfiled documents None Not applicable
21 Subsidiaries of Registrant 21
22 Published report regarding matters None Not applicable
submittedto vote 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 None Not applicable
state insurance 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.
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, no current reports on Form
8-K were filed by the Holding Company.
51
<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 28, 1998 Date: December 28, 1998
----------------------------- -----------------------------------
/s/ Michael J. Martin /s/ Charles D. Lohrfink
- ----------------------------------- -----------------------------------------
Michael J. Martin, Director Charles D. Lohrfink, Director
Date: December 28, 1998 Date: December 28, 1998
----------------------------- -----------------------------------
/s/ Donald R. Angelilli /s/ Eben T. Walker
- ----------------------------------- -----------------------------------------
Donald R. Angelilli, Director Eben T. Walker, Director
Date: December 28, 1998 Date: December 28, 1998
----------------------------- -----------------------------------
/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 28, 1998 Date: December 28, 1998
----------------------------- -----------------------------------
52
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 30th day of June, 1998, by and between Yonkers Financial Corporation (the
"Holding Company"), and Richard F. Komosinski (the "Employee").
WHEREAS, the Employee is currently serving as President and Chief
Executive Officer of the Holding Company and President and Chief Executive
Officer of the Holding Company's wholly-owned subsidiary, The Yonkers Savings
and Loan Association, FA (the "Association"); and
WHEREAS, the board of directors of the Holding Company (the "Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Employee and the Association had entered an Employment
Agreement dated March 25, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Association have agreed to terminate the
Prior Agreement, with no obligation to any party thereunder, effective upon the
entering into of this Agreement; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Holding Company to enter into this Agreement with the Employee in order to
assure continuity of management of the Holding Company and the Association and
to reinforce and encourage the continued attention and dedication of the
Employee to the Employee's assigned duties without distraction in the face of
potentially disruptive circumstances arising from the possibility of a change in
control of the Holding Company or the Association, although no such change is
now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
<PAGE>
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); (2) any person (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the
Association or the Holding Company representing 20% or more of the Association's
or the Holding Company's outstanding securities; (3) individuals who are members
of the board of directors of the Association or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the nominating committee
serving under an Incumbent Board, shall be considered a member of the Incumbent
Board; or (4) a reorganization, merger, consolidation, sale of all or
substantially all of the assets of the Association or the Holding Company or a
similar transaction in which the Association or the Holding Company is not the
resulting entity. The term "Change in Control" shall not include an acquisition
of securities by an employee benefit plan of the Association or the Holding
Company. In the application of 12 C.F.R. Part 574 to a determination of a Change
in Control, determinations to be made by the Office of Thrift Supervision
("OTS") or its Director under such regulations shall be made by the Board of
Directors.
(b) The term "Commencement Date" means June 30, 1998.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Holding Company or the Association gives notice to the Employee
of the termination of the Employee's employment with the Holding Company or the
Association or (2) the date upon which the Employee ceases to serve as an
employee of either the Holding Company or the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee by either the Holding Company or the Association without
the Employee's express written consent, and shall include a material diminution
of or interference with the Employee's duties, responsibilities and benefits as
President and Chief Executive Officer of the Holding Company and of the
Association, including (without limitation) any of the following actions unless
consented to in writing by the Employee: (1) a change in the principal workplace
of the Employee to a location outside of Westchester County, New York; (2) a
material demotion of the Employee; (3) a material reduction in the number or
seniority of other Holding Company and Association personnel reporting to the
Employee or a material reduction in the frequency with which, or in the nature
of the matters with respect to which, such personnel are to report to the
Employee, other than as part of a Association- or Holding Company-wide reduction
in staff; (4) a material adverse change in the Employee's salary, perquisites,
benefits, contingent benefits or
<PAGE>
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due to
retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Association's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA") and shall not include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits unless the Employee submits to the Holding Company
within 180 days after the occurrence of such event written notice of his
determination that such material diminution constitutes Involuntary Termination.
(e) The terms "Termination for Cause" and "Terminated for Cause"
mean termination of the employment of the Employee because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement.
2. Term; Termination of Prior Agreements. The term of this Agreement shall
be a period of three years commencing on the Commencement Date, subject to
earlier termination as provided herein. Beginning on the day following the
Commencement Date, and on each day thereafter, the term of this Agreement shall
be extended for a period of one day in addition to the then-remaining term,
provided that the Holding Company has not given notice to the Employee in
writing at least 90 days prior to such day that the term of this Agreement shall
not be extended further; and provided further that the daily extension of the
term this Agreement shall not continue beginning on the date on which the
Employee reaches age 65. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms. Effective upon the
Commencement Date, the Prior Agreement shall terminate, with no obligation to
the Employee thereunder on the part of the Holding Company or the Association.
3. Employment. The Employee is employed as President and Chief Executive
Officer of the Holding Company and of the Association. As such, the Employee
shall render administrative and management services as are customarily performed
by persons situated in similar executive capacities, and shall have such other
powers and duties of an officer of the Holding Company or the Association as the
Board of Directors or the board of directors of the Association, respectively,
may prescribe from time to time.
4. Compensation.
(a) Salary. The Holding Company agrees to pay the Employee during
the term of this Agreement the salary payable by the Association established by
the Association's board of directors, which shall be at least the Employee's
salary payable by the Association in effect as of the Commencement Date, and
shall be increased in accordance with salary increases approved by the Board of
Directors and such additional salary, if any, as the Board of Directors may
determine to pay the Employee from time to time. Adjustments in salary or other
compensation
<PAGE>
shall not limit or reduce any other obligation of the Holding Company under this
Agreement. The Employee's salary in effect from time to time during the term of
this Agreement shall not thereafter be reduced other than as part of an overall
program applied uniformly and with equitable effect on all members of the senior
management of the Association and the Holding Company. To the extent that the
Association pays salary and provides other compensation to the Employee provided
for in any section of this Agreement, to the Employee, the Holding Company's
obligations to pay salary and provide other compensation under this Agreement
shall be deemed satisfied.
(b) Benefits. While employed under this Agreement, the Employee
shall receive the same health insurance benefits as the Association provides
generally from time to time during the term of this Agreement ("Health Insurance
Benefits").
5. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate
the Employee's employment at any time, but, except in the case of Termination
for Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within 36 months after a Change in
Control and subject to the provisions of Sections 6 and 7 of this Agreement, (1)
the Holding Company shall pay to the Employee during the remaining term of this
Agreement the Employee's salary at the rate in effect immediately prior to the
Date of Termination, in such manner and at such times as such salary would have
been payable to the Employee under Section 4 of this Agreement, if the Employee
had continued to be employed, and (2) the Holding Company shall provide to the
Employee during the remaining term of this Agreement benefits substantially the
same as the Health Insurance Benefits as of the Date of Termination on terms as
favorable to him as applied as of the Date of Termination.
(b) Termination for Cause. In the event of Termination for Cause,
the Holding Company shall pay the Employee the Employee's salary through the
Date of Termination, and the Holding Company shall have no further obligation to
the Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Board of Directors or such shorter period as may be agreed upon between
the Employee and the Board of Directors. In the event of such voluntary
termination, the Holding Company shall be obligated to continue to pay to the
Employee the Employee's salary and benefits only through the Date of
Termination, at the time such payments are due, and the Holding Company shall
have no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 36 months after a Change in Control which occurs at
any time while the Employee is employed under this Agreement, the Holding
Company shall, subject to Sections 6 and 7 of this Agreement, (1) pay to the
Employee in a lump sum in cash within 25 business days after the
<PAGE>
Date of Termination an amount equal to 299% of the Employee's "base amount" as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"); and (2) provide to the Employee during the remaining term of this
Agreement such health benefits as are substantially the same as the Health
Insurance Benefits as of the Date of Termination on terms as favorable to him as
applied as of Date of Termination.
(e) Death; Disability. In the event of the death of the Employee
while employed under this Agreement and prior to any termination of employment,
the Employee's estate, or such person as the Employee may have previously
designated in writing, shall be entitled to receive from the Holding Company the
salary of the Employee through the last day of the calendar month in which the
Employee died. If the Employee becomes disabled as defined in the then current
disability plan, if any, of the Holding Company (or of the Association, if, in
the absence of the such a plan of the Holding Company, the Association has such
a plan), or if the Employee is otherwise unable to serve as President and Chief
Executive Officer of the Holding Company and the Association, the Employee shall
be entitled to receive group and other disability income benefits of the type,
if any, then provided for executive officers. However, the Holding Company shall
be obligated only to pay the Employee's salary pursuant to Section 4(a) of this
Agreement only to the extent the Employee's salary, in the absence of such
disability, would exceed (on an after tax basis) the disability income benefits
received pursuant to this paragraph. In addition, the Holding Company shall have
the right, upon resolution of the Board of Directors, to discontinue paying
salary pursuant to Section 4(a) beginning six months following a determination
that the Employee qualifies for the foregoing disability income benefits.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Holding Company's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Holding Company may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Holding
Company under this Agreement shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
6. Certain Reductions of Payments.
<PAGE>
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
7. Mitigation.
(a) Reduction of Salary Payments. The Holding Company's obligations
to pay salary under Section 5(a) of this Agreement shall be reduced by the
amounts, if any, of cash income (as defined below) earned by the Employee from
providing services during the remaining term of this Agreement. For purposes of
this Section 7, the term "cash income" shall include the amounts of salary,
wages and fees paid to the Employee in cash, but shall not include bonuses,
incentive compensation, shares of stock, stock, stock options, stock
appreciation rights or other benefits or earned income not paid to the Employee
in cash.
(b) Reduction of Health Insurance Benefits. The Association's
obligations to provide benefits under Section 5(a) of this Agreement shall be
reduced to the extent, if any, of substantially the same benefits provided to
the Employee on no less favorable terms by another employer during the remaining
term of this Agreement.
(c) Reporting by Employee. The Employee agrees that, in the event he
becomes entitled to payment of salary and to benefits pursuant to Section 5(a)
of this Agreement during the remaining term of this Agreement, he shall promptly
inform the Holding Company of the nature and amounts of cash income and benefits
of the same or similar nature which he earns or receives from another employer
during the remaining term of this Agreement and shall provide such documentation
concerning such cash income and benefits as the Holding Company may reasonably
request from time to time. Changes in such cash income and benefits shall be
reported within 10 days following each change.
8. Attorneys Fees. In the event the Holding Company exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 16 of this Agreement that cause as
contemplated by Section 1(e) of this Agreement did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Holding Company has failed to make timely payment of any amounts owed
to the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all
<PAGE>
reasonable costs, including attorneys' fees, incurred in challenging such
termination or collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.
9. Confidential Information; Loyalty; Noncompetition.
(a) During the term of the Employee's employment hereunder and
thereafter, the Employee shall not except as may be required to perform his
duties hereunder or as required by law, disclose to others or use, whether
directly or indirectly, any Confidential Information; provided, however, that
this prohibition shall not apply to requests for information from federal
banking regulators. "Confidential Information" means information about the
clients and customers of the Association and the Holding Company which is not
available to the general public and was or shall be learned by the Employee in
the course of his employment by the Association and the Holding Company,
including without limitation any data, formulae, information, proprietary
knowledge, trade secrets, and credit reports and analyses owned, developed and
used in the course of the business of the Association or the Holding Company,
including client and customer lists and information related thereto; and all
papers, records and other documents (and all copies thereof) containing such
Confidential Information. The Employee acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the
Association and the Holding Company. The Employee agrees that upon the
termination of his employment, the Employee will promptly deliver to the
Association or the Holding Company all documents (and all copies thereof)
containing any Confidential Information.
(b) The Employee shall devote his full time to the performance of
his employment under this Agreement; provided, however, that the Employee may
serve, without compensation, as a director of charitable, community and industry
organizations and continue to serve, with compensation, as a director of the
business corporations of which he is currently a director to the extent such
directorships do not inhibit the performance of his duties hereunder or conflict
with the business of the Association and the Holding Company. While employed by
the Association or the Holding Company, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the
Association or the Holding Company.
(c) Upon the expiration of the term of the Employee's employment
hereunder or in the event the Employee's employment hereunder terminates prior
thereto for any reason whatsoever, the Employee shall not, for a period of one
year after the occurrence of such event, for himself, or as the agent of, on
behalf of, or in conjunction with, any person or entity, solicit or attempt to
solicit, whether directly or indirectly: (i) any employee of the Association or
the Holding Company or any subsidiary thereof to terminate such employee's
employment relationship with the Association or the Holding Company or any
subsidiary thereof; or (ii) any savings and loan, banking or either business
from any person or entity that is or was a client, employee, or customer of the
Association or the Holding Company or any subsidiary thereof and
<PAGE>
had dealt with the Employee or any other employee of the Association or the
Holding Company or any subsidiary thereof under the supervision of the Employee.
(d) In the event that the Employee voluntarily resigns pursuant to
Section 7(c) of this Agreement, the Employee shall not for a period of one year
from the effective date of such resignation, or in the event the Employee's
employment hereunder is terminated for cause, the Employee shall not, for a
period of one year from the date of termination, directly or indirectly, own,
manage, operate or control, or participate in the ownership, management,
operation or control of, or be employed by or connected in any manner with, any
financial institution having an office located within ten miles of any office of
the Association as of the date of termination of employment.
(e) The provisions of this Section 9 shall not prevent the Employee
from purchasing, solely for investment, not more five percent of any financial
institution's stock or other securities which are traded on any national or
regional securities exchange or are actively traded in the over-the-counter
market and registered under Section 12(g) of the Securities Exchange Act of
1934.
(f) The provisions of this Section 9 shall survive the termination
of the Employee's employment hereunder whether by expiration of the term hereof
or otherwise.
10. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Holding Company shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Holding Company or the
Association, by an assumption agreement in form and substance satisfactory to
the Employee, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Holding Company would be required to
perform it if no such succession or assignment had taken place. Failure of the
Holding Company to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Holding
Company in the same amount and on the same terms as the compensation pursuant to
Section 5(d) hereof. For purposes of implementing the provisions of this Section
10(a), the date on which any such succession becomes effective shall be deemed
the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
<PAGE>
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Holding Company at its
principal office, to the attention of the Board of Directors with a copy to the
Secretary of the Holding Company, or, if to the Employee, to such home or other
address as the Employee has most recently provided in writing to the Holding
Company or the Association.
12. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
13. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New York.
16. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Yonkers Financial Corporation
- --------------------- ------------------------------
Secretary By:
Its:
Employee
----------------------------
Richard F. Komosinski
Exhibit 10.4
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT ("Agreement") is made and entered into as
of this 30th day of June, 1998, by and between Yonkers Financial Corporation
(the "Holding Company"), and Joseph L. Macchia (the "Employee").
WHEREAS, the Employee is currently serving as Vice President and Secretary
of the Holding Company and Vice President, Secretary and Chief Operating Officer
of the Holding Company's wholly-owned subsidiary, The Yonkers Savings and Loan
Association, FA (the "Association"); and
WHEREAS, the board of directors of the Holding Company (the "Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Employee and the Association had entered a Change in Control
Severance Agreement dated March 25, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Association have agreed to terminate the
Prior Agreement, with no obligation to any party thereunder, effective upon the
entering into of this Agreement; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Holding Company to enter into this Agreement with the Employee in order to
assure continuity of management of the Holding Company and the Association and
to reinforce and encourage the continued attention and dedication of the
Employee to the Employee's assigned duties without distraction in the face of
potentially disruptive circumstances arising from the possibility of a change in
control of the Holding Company or the Association, although no such change is
now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) would be
<PAGE>
required to be reported in response to Item 1 of the current report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Association or the Holding Company representing
20% or more of the Association's or the Holding Company's outstanding
securities; (3) individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Association or the Holding Company or a similar transaction in
which the Association or the Holding Company is not the resulting entity. The
term "Change in Control" shall not include an acquisition of securities by an
employee benefit plan of the Association or the Holding Company. In the
application of 12 C.F.R. Part 574 to a determination of a Change in Control,
determinations to be made by the Office of Thrift Supervision ("OTS") or its
Director under such regulations shall be made by the Board of Directors.
(b) The term "Commencement Date" means June 30, 1998.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Holding Company or the Association gives notice to the Employee
of the termination of the Employee's employment with the Holding Company or the
Association or (2) the date upon which the Employee ceases to serve as an
employee of either the Holding Company or the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee by either the Holding Company or the Association without
the Employee's express written consent, and shall include a material diminution
of or interference with the Employee's duties, responsibilities and benefits as
Vice President and Secretary of the Holding Company and Vice President,
Secretary and Chief Operating Officer of the Association, including (without
limitation) any of the following actions unless consented to in writing by the
Employee: (1) a change in the principal workplace of the Employee to a location
outside of Westchester County, New York; (2) a material demotion of the
Employee; (3) a material reduction in the number or seniority of other Holding
Company and Association personnel reporting to the Employee or a material
reduction in the frequency with which, or in the nature of the matters with
respect to which, such personnel are to report to the Employee, other than as
part of a Association- or Holding Company-wide reduction in staff; (4) a
material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than as part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Association or the Holding Company; and (5) a material
permanent increase in the required hours of work or the workload of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA") and shall
<PAGE>
not include a material diminution of or interference with the Employee's duties,
responsibilities and benefits unless the Employee submits to the Holding Company
within 180 days after the occurrence of such event written notice of his
determination that such material diminution constitutes Involuntary Termination.
(e) The terms "Termination for Cause" and "Terminated for Cause"
mean termination of the employment of the Employee because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement.
2. Term; Termination of Prior Agreements. The term of this Agreement shall
be a period of three years commencing on the Commencement Date, subject to
earlier termination as provided herein. Beginning on the day following the
Commencement Date, and on each day thereafter, the term of this Agreement shall
be extended for a period of one day in addition to the then-remaining term,
provided that the Holding Company has not given notice to the Employee in
writing at least 90 days prior to such day that the term of this Agreement shall
not be extended further; and provided further that the daily extension of this
Agreement shall not continue beginning on the date when the Employee reaches age
65. Reference herein to the term of this Agreement shall refer to both such
initial term and such extended terms. Effective upon the Commencement Date, the
Prior Agreement shall terminate, with no obligation to the Employee thereunder
on the part of the Holding Company or the Association.
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control.
In the event of Involuntary Termination in connection with or within 36 months
after a Change in Control which occurs at any time while the Employee is
employed under this Agreement, the Holding Company shall, subject to Section 4
of this Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 299% of the
Employee's "base amount" as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"); and (2) provide to the Employee during the
remaining term of this Agreement substantially the same health benefits the
Association maintained for executive officers at the Date of Termination on
terms as favorable to him as applied as of Date of Termination.
(b) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Holding Company's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Holding Company may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
<PAGE>
(c) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Holding
Company under this Agreement shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
4. Certain Reductions of Payments.
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit under this Agreement by seeking employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by the Employee as the result of
any employment by another employer, by retirement benefits after the date of
employment or otherwise.
6. Attorneys Fees. If the Employee is purportedly Terminated for Cause and
the Holding Company denies payments or benefits under Section 3(a) of this
Agreement on the basis that the Employee experienced Termination for Cause
rather than Involuntary Termination, but it is determined by a court of
competent jurisdiction or by an arbitrator pursuant to Section 13 of this
Agreement that cause as contemplated by Section 1(e) of this Agreement did not
exist for such termination, or if in any event it is determined by any such
court or arbitrator that the Holding Company has failed to make timely payment
of any amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
<PAGE>
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Holding Company shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Holding Company or the
Association, by an assumption agreement in form and substance satisfactory to
the Employee, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Holding Company would be required to
perform it if no such succession or assignment had taken place. Failure of the
Holding Company to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Holding
Company in the same amount and on the same terms as the compensation pursuant to
Section 3(a) hereof. For purposes of implementing the provisions of this Section
7(a), the date on which any such succession becomes effective shall be deemed
the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Holding Company at its
principal office, to the attention of the Board of Directors with a copy to the
Secretary of the Holding Company, or, if to the Employee, to such home or other
address as the Employee has most recently provided in writing to the Holding
Company or the Association.
9. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New York.
<PAGE>
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Yonkers Financial Corporation
- --------------------- --------------------------------
Assistant Secretary By:
Its:
Employee
----------------------------
Joseph L. Macchia
Exhibit 10.5
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT ("Agreement") is made and entered into as
of this 30th day of June, 1998, by and between Yonkers Financial Corporation
(the "Holding Company"), and Joseph D. Roberto (the "Employee").
WHEREAS, the Employee is currently serving as Vice President, Treasurer
and Chief Financial Officer of the Holding Company and Vice President, Treasurer
and Chief Financial Officer of the Holding Company's wholly-owned subsidiary,
The Yonkers Savings and Loan Association, FA (the "Association"); and
WHEREAS, the board of directors of the Holding Company (the "Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Employee and the Association had entered a Change in Control
Severance Agreement dated March 25, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Association have agreed to terminate the
Prior Agreement, with no obligation to any party thereunder, effective upon the
entering into of this Agreement; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Holding Company to enter into this Agreement with the Employee in order to
assure continuity of management of the Holding Company and the Association and
to reinforce and encourage the continued attention and dedication of the
Employee to the Employee's assigned duties without distraction in the face of
potentially disruptive circumstances arising from the possibility of a change in
control of the Holding Company or the Association, although no such change is
now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) would be
<PAGE>
required to be reported in response to Item 1 of the current report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Association or the Holding Company representing
20% or more of the Association's or the Holding Company's outstanding
securities; (3) individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Association or the Holding Company or a similar transaction in
which the Association or the Holding Company is not the resulting entity. The
term "Change in Control" shall not include an acquisition of securities by an
employee benefit plan of the Association or the Holding Company. In the
application of 12 C.F.R. Part 574 to a determination of a Change in Control,
determinations to be made by the Office of Thrift Supervision ("OTS") or its
Director under such regulations shall be made by the Board of Directors.
(b) The term "Commencement Date" means June 30, 1998.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Holding Company or the Association gives notice to the Employee
of the termination of the Employee's employment with the Holding Company or the
Association or (2) the date upon which the Employee ceases to serve as an
employee of either the Holding Company or the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee by either the Holding Company or the Association without
the Employee's express written consent, and shall include a material diminution
of or interference with the Employee's duties, responsibilities and benefits as
Vice President, Treasurer and Chief Financial Officer of the Holding Company and
of the Association, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a change in the principal
workplace of the Employee to a location outside of Westchester County, New York;
(2) a material demotion of the Employee; (3) a material reduction in the number
or seniority of other Holding Company and Association personnel reporting to the
Employee or a material reduction in the frequency with which, or in the nature
of the matters with respect to which, such personnel are to report to the
Employee, other than as part of a Association- or Holding Company-wide reduction
in staff; (4) a material adverse change in the Employee's salary, perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all members of the senior
management of the Association or the Holding Company; and (5) a material
permanent increase in the required hours of work or the workload of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA") and shall not include a material diminution of or
<PAGE>
interference with the Employee's duties, responsibilities and benefits unless
the Employee submits to the Holding Company within 180 days after the occurrence
of such event written notice of his determination that such material diminution
constitutes Involuntary Termination.
(e) The terms "Termination for Cause" and "Terminated for Cause"
mean termination of the employment of the Employee because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement.
2. Term; Termination of Prior Agreements. The term of this Agreement shall
be a period of three years commencing on the Commencement Date, subject to
earlier termination as provided herein. Beginning on the day following the
Commencement Date, and on each day thereafter, the term of this Agreement shall
be extended for a period of one day in addition to the then-remaining term,
provided that the Holding Company has not given notice to the Employee in
writing at least 90 days prior to such day that the term of this Agreement shall
not be extended further; and provided further that the daily extension of this
Agreement shall not continue beginning on the date when the Employee reaches age
65. Reference herein to the term of this Agreement shall refer to both such
initial term and such extended terms. Effective upon the Commencement Date, the
Prior Agreement shall terminate, with no obligation to the Employee thereunder
on the part of the Holding Company or the Association.
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control.
In the event of Involuntary Termination in connection with or within 36 months
after a Change in Control which occurs at any time while the Employee is
employed under this Agreement, the Holding Company shall, subject to Section 4
of this Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 299% of the
Employee's "base amount" as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"); and (2) provide to the Employee during the
remaining term of this Agreement substantially the same health benefits the
Association maintained for executive officers at the Date of Termination on
terms as favorable to him as applied as of Date of Termination.
(b) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Holding Company's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Holding Company may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order
<PAGE>
issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and
(g)(1), all obligations of the Holding Company under this Agreement shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
4. Certain Reductions of Payments.
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit under this Agreement by seeking employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by the Employee as the result of
any employment by another employer, by retirement benefits after the date of
employment or otherwise.
6. Attorneys Fees. If the Employee is purportedly Terminated for Cause and
the Holding Company denies payments or benefits under Section 3(a) of this
Agreement on the basis that the Employee experienced Termination for Cause
rather than Involuntary Termination, but it is determined by a court of
competent jurisdiction or by an arbitrator pursuant to Section 13 of this
Agreement that cause as contemplated by Section 1(e) of this Agreement did not
exist for such termination, or if in any event it is determined by any such
court or arbitrator that the Holding Company has failed to make timely payment
of any amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the
<PAGE>
written consent of the other party; provided, however, that the Holding Company
shall require any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Holding Company or the Association, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Holding Company would be required to perform it if no such
succession or assignment had taken place. Failure of the Holding Company to
obtain such an assumption agreement prior to the effectiveness of any such
succession or assignment shall be a breach of this Agreement and shall entitle
the Employee to compensation from the Holding Company in the same amount and on
the same terms as the compensation pursuant to Section 3(a) hereof. For purposes
of implementing the provisions of this Section 7(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Holding Company at its
principal office, to the attention of the Board of Directors with a copy to the
Secretary of the Holding Company, or, if to the Employee, to such home or other
address as the Employee has most recently provided in writing to the Holding
Company or the Association.
9. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New York.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Yonkers Financial Corporation
- --------------------- -------------------------------
Secretary By:
Its:
Employee
-------------------------------
Joseph D. Roberto
Exhibit 10.6
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT ("Agreement") is made and entered into as
of this 30th day of June, 1998, by and between Yonkers Financial Corporation
(the "Holding Company"), and Philip A. Guarnieri (the "Employee").
WHEREAS, the Employee is currently serving as Vice President of the
Holding Company and Vice President and Chief Lending Officer of the Holding
Company's wholly-owned subsidiary, The Yonkers Savings and Loan Association, FA
(the "Association"); and
WHEREAS, the board of directors of the Holding Company (the "Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Employee and the Association had entered a Change in Control
Severance Agreement dated July 16, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Association have agreed to terminate the
Prior Agreement, with no obligation to any party thereunder, effective upon the
entering into of this Agreement; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Holding Company to enter into this Agreement with the Employee in order to
assure continuity of management of the Holding Company and the Association and
to reinforce and encourage the continued attention and dedication of the
Employee to the Employee's assigned duties without distraction in the face of
potentially disruptive circumstances arising from the possibility of a change in
control of the Holding Company or the Association, although no such change is
now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on
<PAGE>
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"); (2) any person (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly of
securities of the Association or the Holding Company representing 20% or more of
the Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the Association or the
Holding Company on the date hereof (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Association
or the Holding Company or a similar transaction in which the Association or the
Holding Company is not the resulting entity. The term "Change in Control" shall
not include an acquisition of securities by an employee benefit plan of the
Association or the Holding Company. In the application of 12 C.F.R. Part 574 to
a determination of a Change in Control, determinations to be made by the Office
of Thrift supervision ("OTS") or its Director under such regulations shall be
made by the Board of Directors.
(b) The term "Commencement Date" means June 30, 1998.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Holding Company or the Association gives notice to the Employee
of the termination of the Employee's employment with the Holding Company or the
Association or (2) the date upon which the Employee ceases to serve as an
employee of either the Holding Company or the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee by either the Holding Company or the Association without
the Employee's express written consent, and shall include a material diminution
of or interference with the Employee's duties, responsibilities and benefits as
Vice President of the Holding Company and Vice President and Chief Lending
Officer of the Association, including (without limitation) any of the following
actions unless consented to in writing by the Employee: (1) a change in the
principal workplace of the Employee to a location outside of Westchester County,
New York; (2) a material demotion of the Employee; (3) a material reduction in
the number or seniority of other Holding Company and Association personnel
reporting to the Employee or a material reduction in the frequency with which,
or in the nature of the matters with respect to which, such personnel are to
report to the Employee, other than as part of a Association- or Holding
Company-wide reduction in staff; (4) a material adverse change in the Employee's
salary, perquisites, benefits, contingent benefits or vacation, other than as
part of an overall program applied uniformly and with equitable effect to all
members of the senior management of the Association or the Holding Company; and
(5) a material permanent increase in the required hours of work or the workload
of the Employee. The term "Involuntary Termination" does not include Termination
for Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA") and shall not include a material diminution of or
interference with the Employee's duties, responsibilities and benefits unless
the Employee
<PAGE>
submits to the Holding Company within 180 days after the occurrence of such
event written notice of his determination that such material diminution
constitutes Involuntary Termination.
(e) The terms "Termination for Cause" and "Terminated for Cause"
mean termination of the employment of the Employee because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement.
2. Term; Termination of Prior Agreements. The term of this Agreement shall
be a period of three years commencing on the Commencement Date, subject to
earlier termination as provided herein. Beginning on the day following the
Commencement Date, and on each day thereafter, the term of this Agreement shall
be extended for a period of one day in addition to the then-remaining term,
provided that the Holding Company has not given notice to the Employee in
writing at least 90 days prior to such day that the term of this Agreement shall
not be extended further; and provided further that the daily extension of this
Agreement shall not continue beginning on the date when the Employee reaches age
65. Reference herein to the term of this Agreement shall refer to both such
initial term and such extended terms. Effective upon the Commencement Date, the
Prior Agreement shall terminate, with no obligation to the Employee thereunder
on the part of the Holding Company or the Association.
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control.
In the event of Involuntary Termination in connection with or within 36 months
after a Change in Control which occurs at any time while the Employee is
employed under this Agreement, the Holding Company shall, subject to Section 4
of this Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 299% of the
Employee's "base amount" as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"); and (2) provide to the Employee during the
remaining term of this Agreement substantially the same health benefits the
Association maintained for executive officers at the Date of Termination on
terms as favorable to him as applied as of Date of Termination.
(b) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Holding Company's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Holding Company may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
<PAGE>
obligations of the Holding Company under this Agreement shall terminate as of
the effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
4. Certain Reductions of Payments.
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit under this Agreement by seeking employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by the Employee as the result of
any employment by another employer, by retirement benefits after the date of
employment or otherwise.
6. Attorneys Fees. If the Employee is purportedly Terminated for Cause and
the Holding Company denies payments or benefits under Section 3(a) of this
Agreement on the basis that the Employee experienced Termination for Cause
rather than Involuntary Termination, but it is determined by a court of
competent jurisdiction or by an arbitrator pursuant to Section 13 of this
Agreement that cause as contemplated by Section 1(e) of this Agreement did not
exist for such termination, or if in any event it is determined by any such
court or arbitrator that the Holding Company has failed to make timely payment
of any amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Holding Company shall require
<PAGE>
any successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Holding Company or the Association, by an assumption agreement in
form and substance satisfactory to the Employee, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Holding Company would be required to perform it if no such succession or
assignment had taken place. Failure of the Holding Company to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Employee to
compensation from the Holding Company in the same amount and on the same terms
as the compensation pursuant to Section 3(a) hereof. For purposes of
implementing the provisions of this Section 7(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Holding Company at its
principal office, to the attention of the Board of Directors with a copy to the
Secretary of the Holding Company, or, if to the Employee, to such home or other
address as the Employee has most recently provided in writing to the Holding
Company or the Association.
9. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New York.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Yonkers Financial Corporation
- --------------------- ---------------------------------
Secretary By:
Its:
Employee
---------------------------------
Philip A. Guarnieri
EXHIBIT 13 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
At or for the Fiscal Year Ended September 30, 1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Selected Financial Condition Data
Total assets $383,204 $312,956 $259,534
Loans receivable, net 184,025 118,683 86,666
Mortgage-backed securities 113,485 93,384 80,850
Other securities 55,043 69,231 72,709
Deposits 231,181 207,933 190,675
Borrowings 107,790 60,096 18,264
Stockholders' equity 41,802 43,878 48,999
Book value per share(1) 15.33 14.53 13.72
Selected Operating Data
Net interest income $ 11,453 $ 10,774 $ 8,401
Net income(2) 2,901 2,952 1,520
Basic earnings per common share(3) 1.12 1.05 0.22
Diluted earnings per common share(3) 1.08 1.04 0.22
Asset Quality Data
Non-performing loans $ 753 $ 1,138 $ 2,775
Non-performing loans to total loans
receivable 0.41% 0.94% 3.14%
- ----------
(1) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
(2) 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.
(3) Earnings per share data for all periods has been computed in accordance
with Statement of Financial Accounting Standards No. 128. Earnings per
share for fiscal 1996 is for the period following the Association's
conversion to stock form in April 1996.
1
<PAGE>
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, 1998, our second full year
operating as a public company. Although fiscal 1998 was a challenging year
caused by turbulence in the financial markets, we remained committed to
increasing our core business and enhancing shareholder value. This is reflected
in our subsidiary, The Yonkers Savings and Loan Association, FA, which continues
to operate as a community-oriented financial institution with a focus on
providing quality banking services to our local customer base.
Our financial results for fiscal 1998 reflect our progress as a public company.
Net income for the fiscal year ended September 30, 1998 was $2.9 million or
basic earnings per common share of $1.12, compared to net income of $3.0 million
or basic earnings per common share of $1.05 for the fiscal year ended September
30, 1997.
Total assets increased $70.0 million, or 22.4%, to $383.0 million at September
30, 1998 from $313.0 million a year earlier, primarily through growth of $58.3
million in the loan portfolio and $5.9 million in the securities portfolio. The
asset growth was primarily funded by proceeds from borrowings which increased
$47.7 million and deposits which increased $23.3 million.
From a performance perspective, although our efficiency ratio was higher at
59.3% in fiscal 1998 compared to 54.4% in fiscal 1997, the ratio of non-interest
expense to average assets decreased to 2.16% in fiscal 1998 from 2.26% in the
prior year. Our percentage of non-performing loans to total loans receivable at
year end decreased to 0.41% this year from 0.94% in fiscal 1997, while our
allowance for loan losses as a percentage of non-performing loans at year end
increased to 172.9% in fiscal 1998 from 96.0% in fiscal 1997.
Fiscal 1998 saw a dramatic increase in our core business, mortgage lending. Loan
growth of 41.9% was accomplished through record levels of one- to four-family
residential mortgage originations which continue to be the backbone of our
lending operations. Loans receivable and loans held for sale increased $58.3
million to $197.4 million at September 30, 1998 from $139.1 million at September
30, 1997. In total, we originated $152.6 million in loans and have become a
leading lender in our market area. As we move ahead, we will continue to provide
home financing to our community, focusing on prudent underwriting standards in
an effort to maintain a high-quality mortgage loan portfolio.
Our core business expansion in fiscal 1998 also included significant growth in
deposits attributable to aggressive cross-selling, quality customer service and
the successful opening in December 1997 of our first in-store branch in BJ's
Wholesale Club located in Wappingers Falls, Dutchess County, New York. Deposit
liabilities increased $23.3 million to $231.2 million at September 30, 1998 from
$207.9 million at September 30, 1997. Our aggressive sales and services
practices, along with product enhancement and service-oriented employees, will
be key to strengthening our community banking franchise. We will continue to
take advantage of cross-selling opportunities for expanded relationships within
our market area.
Fiscal 1999 began with the Company taking further action to enhance its retail
banking franchise. In October 1998, we opened our second in-store branch in BJ's
Yorktown Heights, Westchester County, New York location. This branch will enable
us to bring our personalized service and convenient products to other market
areas.
2
<PAGE>
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 1998. A total of 294,524 shares, or approximately 10% of the Company's
outstanding common shares, was repurchased in the open market. The Board of
Directors believes that treasury repurchases have enhanced shareholder value by
increasing earnings per share. The positive effect of treasury share repurchases
and earnings retained is reflected in the increase in our book value per share
to $15.33 at September 30, 1998 from $14.53 at September 30, 1997.
Since converting to stock form, the Company has declared nine consecutive
quarterly cash dividends. The dividend paid in the quarter ended September 30,
1998 was increased to $0.08 per share from $0.07 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,
Richard F. Komosinski,
President and Chief Executive Officer
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Fiscal Year Ended September 30,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $383,204 $312,956 $259,534 $208,283 $194,862
Loans receivable, net 184,025 118,683 86,666 83,679 77,824
Real estate mortgage loans held for sale 13,334 20,437 -- -- --
Securities:
Available-for-sale 125,225 86,286 58,552 20,877 19,216
Held-to-maturity 43,303 76,329 95,007 95,464 87,720
Cash and cash equivalents 4,195 3,593 12,500 3,261 5,818
Deposits 231,181 207,933 190,675 188,009 179,816
Borrowings 107,790 60,096 18,264 4,295 295
Stockholders' equity (1) 41,802 43,878 48,999 15,765 14,156
Selected Operating Data:
Interest and dividend income $ 25,475 $ 20,731 $ 16,376 $ 14,063 $ 12,460
Interest expense 14,022 9,957 7,975 7,004 5,422
-------- -------- -------- -------- --------
Net interest income 11,453 10,774 8,401 7,059 7,038
Provision for loan losses 375 300 462 493 64
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 11,078 10,474 7,939 6,566 6,974
Non-interest income 1,471 787 702 686 625
Non-interest expense (excluding special assessment) 7,644 6,319 5,038 4,779 4,272
SAIF special assessment (2) -- -- 1,166 -- --
-------- -------- -------- -------- --------
Income before income tax expense and cumulative
effect of change in accounting principle 4,905 4,942 2,437 2,473 3,327
Income tax expense 2,004 1,990 917 1,033 1,356
-------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 2,901 2,952 1,520 1,440 1,971
Cumulative effect of change in accounting for income taxes -- -- -- -- 326
-------- -------- -------- -------- --------
Net income (3) $ 2,901 $ 2,952 $ 1,520 $ 1,440 $ 2,297
======== ======== ======== ======== ========
Basic earnings per common share (4) $ 1.12 $ 1.05 $ 0.22
Diluted earnings per common share (4) 1.08 1.04 0.22
Selected Statistical Data: (5)
Return on average assets (3) 0.82% 1.05% 0.66% 0.72% 1.22%
Return on average equity (3) 6.72 6.72 4.60 9.61 17.31
Net interest margin (6) 3.28 3.93 3.73 3.61 3.80
Average interest rate spread (7) 2.67 3.26 3.13 3.34 3.58
Efficiency ratio (8) 59.33 54.43 57.12 58.18 55.31
Non-interest expense to average assets (3) 2.16 2.26 2.70 2.39 2.27
Non-performing loans to total loans receivable 0.41 0.94 3.14 4.15 3.35
Allowance for loan losses to non-performing loans 172.91 96.05 33.77 20.37 11.68
Allowance for loan losses to total loans receivable 0.70 0.90 1.06 0.84 0.39
Non-performing assets to total assets 0.28 0.48 1.30 1.80 1.40
Equity to total assets at end of period 10.91 14.02 18.88 7.57 7.26
Average equity to average assets 12.18 15.69 14.41 7.50 7.04
Book value per share (9) $ 15.33 $ 14.53 $ 13.72
Cash dividends per share 0.28 0.21 0.05
Dividend payout ratio (10) 25.92% 20.66% 22.50%
</TABLE>
- ----------
(1) Includes additional capital in 1998, 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 the Association's share of a special assessment imposed on all
financial institutions with deposits insured by the Savings Association
Insurance Fund (the "SAIF").
(3) Excluding the after-tax SAIF charge described in note (2), net income for
fiscal 1996 would have been approximately $700,000 higher, resulting in a
return on average assets of 0.97% and a return on average equity of 6.71%.
The ratio of non-interest expense to average assets would have been 2.20%.
(4) Earnings per share data for all periods has been computed in accordance
with Statement of Financial Accounting Standards No.128. Earnings per
share for fiscal 1996 is for the six-month period following the
Association's conversion.
(5) With the exception of end-of-period ratios, all ratios are based on
average daily balances in 1998 and 1997, and average monthly balances in
earlier years.
(6) Net interest income divided by average interest-earning assets.
(7) The difference between the weighted average yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities.
(8) Non-interest expense (other than certain loss provisions and the SAIF
special assessment) divided by the sum of net interest income and
non-interest income (other than net security gains and losses).
(9) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
(10) 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.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements consisting
of estimates with respect to the financial condition, results of operations and
business of the Company that are subject to various factors that could cause
actual results to differ materially from these estimates. These factors include
changes in general, economic and market, and legislative and regulatory
conditions; the impact of competition and pricing pressures on loan and deposit
products; Year 2000 costs and issues substantially different from those now
anticipated; and the development of an interest rate environment that adversely
affects the interest rate spread or other income anticipated from the Company's
operations.
The Company cautions that its forward-looking statements are subject to
numerous assumptions, risks and uncertainties, and that statements concerning
subsequent periods are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. The Company's
forward-looking statements speak only as of the date on which such statements
are made. By making any forward-looking statements, the Company assumes no duty
to update them to reflect new, changed or unanticipated events or circumstances.
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, was opened in December 1997 and a second
in-store branch was opened in Yorktown Heights, Westchester County in October
1998. 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. Non-interest income
primarily consists of service charges and fees on deposit and loan products, and
gains (losses) on sales of loans and securities. The Company's non-interest
expenses primarily consist of employee compensation and benefits, occupancy and
equipment expenses, data processing service fees, federal deposit insurance
costs and other operating expenses.
5
<PAGE>
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, national and local economic
conditions, 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.
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,
with a portion of such originations being sold in the secondary market; (ii)
maintain a significant portfolio of adjustable-rate loans, including loans with
rates that adjust periodically after an initial fixed-rate period; (iii)
supplement its one- to four-family residential lending activities with
multi-family, commercial real estate, consumer, construction and land loans;
(iv) augment its lending activities with investments in mortgage-backed and
other securities; (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, 1998 and 1997
Total assets increased $70.0 million, or 22.4%, in fiscal 1998 to $383.0
million at September 30, 1998 from $313.0 million at September 30, 1997. Asset
growth was funded primarily through proceeds from borrowings under securities
repurchase agreements and from deposit inflows. In addition, a portion of the
available funding was used to repurchase shares of the Holding Company's common
stock.
Funds provided by borrowings and deposit growth, as well as proceeds from
sales of mortgage loans held for sale, were primarily invested in new loans.
Overall, total loans (loans receivable and mortgage loans held for sale)
increased $58.3 million to $197.4 million at September 30, 1998 from $139.1
million at September 30, 1997. One- to four-family mortgage loans accounted for
$55.4 million of the overall increase (net of a decrease of $7.1 million in
loans held for sale). Multi-family real estate loans increased $2.2 million,
while changes in other portfolio categories were less significant. The loan
growth during fiscal 1998 primarily reflects originations (net of repayments) of
$127.4 million less $69.8 million in loans sold. The significant increase in
loan production was the result of loan program changes implemented during fiscal
1997 (such as the use of mortgage brokers, additional mortgage sales
representatives and the offering of new residential mortgage loan products), as
well as favorable market conditions.
Total securities increased $5.9 million to $168.5 million at September 30,
1998 from $162.6 million at September 30, 1997, reflecting a $38.9 million
increase in available-for-sale securities and a $33.0 million decrease in
held-to-maturity securities. The increase in available-for-sale securities
primarily reflected purchases of $90.6 million (including purchases of
longer-term, fixed-rate securities funded with borrowings under repurchase
agreements), partially offset by $24.1 million in principal payments, maturities
and calls, and $28.3 million in proceeds from sales. The decrease in
held-to-maturity securities primarily reflects principal payments, maturities
and calls of $32.5 million. Available-for-sale securities
6
<PAGE>
represented 74.3% of the total securities portfolio at September 30, 1998,
compared to 53.1% at September 30, 1997. 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.
Deposit liabilities increased $23.3 million to $231.2 million at September
30, 1998 from $207.9 million at September 30, 1997. The increase is attributable
to aggressive cross-selling, quality customer service and new deposit products,
as well as the opening of an in-store branch in December 1997. 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.
Borrowings under securities repurchase agreements increased $53.7 million
to $107.8 million at September 30, 1998 from $54.1 million at September 30,
1997. For information regarding the terms of the repurchase agreements, see
"Liquidity and Capital Resources".
Stockholders' equity decreased $2.1 million, from $43.9 million at
September 30, 1997 to $41.8 million at September 30, 1998. The decrease is
primarily attributable to common share repurchases of $5.7 million for the
treasury, partially offset by net income of $2.1 million retained after
dividends, a combined increase of $875,000 relating to the employee stock
ownership plan ("ESOP") and the Management Recognition Plan ("MRP"), and an
increase of $576,000 in the after-tax net unrealized gain on available-for-sale
securities. A total of 294,524 common shares were repurchased in open market
transactions during fiscal 1998 at an average cost of $19.27 per share. The
ratio of stockholders' equity to total assets decreased to 10.91% at September
30, 1998 from 14.02% at September 30, 1997, reflecting the substantial asset
growth coupled with the net decrease in stockholders' equity. Book value per
share (computed based on total shares issued less treasury shares) was $15.33 at
September 30, 1998, an increase from $14.53 at September 30, 1997. For
information regarding the Association's regulatory capital, see "Liquidity and
Capital Resources".
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, 1998,
1997 and 1996. 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 1998 and 1997,
and month-end balances in fiscal 1996. Management believes that the use of
average monthly balances rather than average daily balances in fiscal 1996 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.
7
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended September 30,
--------------------------------------------------------------------------------
1998 1997
---------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $ 169,011 $ 13,243 7.84% $ 98,721 $ 8,603 8.71%
Mortgage-backed securities (2) 108,674 7,394 6.80 88,030 6,078 6.90
Other securities (2) 62,654 4,356 6.95 79,584 5,655 7.11
Other earning assets 8,646 482 5.57 7,760 395 5.09
--------- --------- --------- ---------
Total interest-earning assets 348,985 $ 25,475 7.30 274,095 $ 20,731 7.56
========= =========
Allowance for loan losses (1,195) (1,048)
Non-interest earning assets 6,738 6,850
--------- ---------
Total assets $ 354,528 $ 279,897
========= =========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW, club and money market accounts $ 47,078 $ 841 1.79% $ 38,284 $ 862 2.25%
Regular savings accounts (3) 45,124 1,092 2.42 46,636 1,166 2.50
Savings certificate accounts 124,647 7,123 5.71 110,935 5,894 5.31
--------- --------- --------- ---------
Total interest-bearing deposits 216,849 9,056 4.18 195,855 7,922 4.04
Borrowings 86,031 4,966 5.77 35,260 2,035 5.77
--------- --------- --------- ---------
Total interest-bearing liabilities 302,880 $ 14,022 4.63 231,115 $ 9,957 4.30
========= =========
Non-interest-bearing liabilities 8,461 4,860
------- ---------
Total liabilities 311,341 235,975
Stockholders' equity 43,187 43,922
--------- ---------
Total liabilities and stockholders' equity $ 354,528 $ 279,897
========= =========
Net interest income $ 11,453 $ 10,774
========= =========
Average interest rate spread (4) 2.67% 3.26%
Net interest margin (5) 3.28% 3.93%
Net interest-earning assets (6) $ 46,105 $ 42,980
========= =========
Ratio of average interest-earning assets to average
interest-bearing liabilities 115.22% 118.60%
<CAPTION>
For the Year Ended September 30,
----------------------------------------
1996
---------------------------------------
Average Average
Balance Interest Yield/Cost
------- -------- ----------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans (1) $ 85,479 $ 7,471 8.74%
Mortgage-backed securities (2) 66,778 4,346 6.51
Other securities (2) 60,567 3,807 6.29
Other earning assets 12,367 752 6.08
--------- ---------
Total interest-earning assets 225,191 $ 16,376 7.27
=========
Allowance for loan losses (841)
Non-interest earning assets 5,062
---------
Total assets $ 229,412
=========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW, club and money market accounts $ 32,606 $ 788 2.42%
Regular savings accounts (3) 51,564 1,336 2.59
Savings certificate accounts 104,613 5,656 5.41
--------- ---------
Total interest-bearing deposits 188,783 7,780 4.12
Borrowings 3,570 195 5.46
--------- ---------
Total interest-bearing liabilities 192,353 $ 7,975 4.14
=========
Non-interest-bearing liabilities 3,996
---------
Total liabilities 196,349
Stockholders' equity 33,063
---------
Total liabilities and stockholders' equity $ 229,412
=========
Net interest income $ 8,401
==========
Average interest rate spread (4) 3.13%
Net interest margin (5) 3.73%
Net interest-earning assets (6) $ 32,838
=========
Ratio of average interest-earning assets to average
interest-bearing liabilities 117.07%
</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.
8
<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 the changes due to rate.
<TABLE>
<CAPTION>
Fiscal 1998 Compared to Fiscal 1997 Fiscal 1997 Compared to Fiscal 1996
------------------------------------ ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------- Net --------------------- Net
Volume Rate Change Volume Rate Change
------- -------- ------- ------- ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 5,576 $ (936) $ 4,640 $1,155 $ (23) $1,132
Mortgage-backed securities 1,408 (90) 1,318 1,406 326 1,732
Other securities (1,177) (124) (1,301) 1,232 616 1,848
Other earning assets 48 39 87 (246) (111) (357)
------- ------- ------- ------ ----- ------
Total 5,855 (1,111) 4,744 3,547 808 4,355
------- ------- ------- ------ ----- ------
Interest-bearing liabilities:
NOW, club and money market accounts 175 (196) (21) 134 (60) 74
Regular savings accounts (37) (37) (74) (127) (43) (170)
Savings certificate accounts 764 465 1,229 339 (101) 238
Borrowings 2,931 -- 2,931 1,782 58 1,840
------- ------- ------- ------ ----- ------
Total 3,833 232 4,065 2,128 (146) 1,982
------- ------- ------- ------ ----- ------
Net change in net interest income $ 2,022 $(1,343) $ 679 $1,419 $ 954 $2,373
======= ======= ======= ====== ===== ======
</TABLE>
Comparison of Operating Results for the Years Ended September 30, 1998 and 1997
General. Net income was $2.9 million and basic earnings per common share
("EPS") was $1.12 for the fiscal year ended September 30, 1998, compared to net
income of $3.0 million or basic EPS of $1.05 for the fiscal year ended September
30, 1997. Diluted EPS was $1.08 for the fiscal year ended September 30, 1998
compared to $1.04 for fiscal 1997. The decrease in net income reflects a $1.3
million increase in non-interest expense, as well as increases in the provision
for loan losses and income tax expense, substantially offset by increases of
$679,000 in net interest income and $684,000 in non-interest income.
Net Interest Income. Net interest income for the year ended September 30,
1998 was $11.5 million, an increase of $679,000 from $10.8 million for the prior
year. The positive effect on net interest income of higher average
interest-earning assets, primarily attributable to the reinvestment of proceeds
from borrowings and deposit growth, was partially offset by a decline in the
average interest rate spread. The narrower spread primarily reflects (i) an
overall lower asset yield from the origination of new mortgage loans (including
refinancings) in the current lower interest rate environment, and (ii) a higher
average rate paid on interest-bearing liabilities due primarily to the larger
proportion of higher-rate borrowings and savings certificate accounts to total
interest-bearing funding. The relatively flat yield curve in fiscal 1998 also
contributed to the reduction in the Company's average interest rate spread. The
low level of interest rates fueled a surge in home sales and refinancings, which
supported the Company's higher volume of loan originations but also contributed
to a lower average yield on the portfolio. The Company's average
9
<PAGE>
interest rate spread and net interest margin decreased to 2.67% and 3.28%,
respectively, for the year ended September 30, 1998, from 3.26% and 3.93%,
respectively, for fiscal 1997.
Interest and Dividend Income. Interest and dividend income increased $4.8
million, or 22.9%, to $25.5 million for fiscal 1998 from $20.7 million for
fiscal 1997. This increase reflects the impact of a $74.9 million increase in
total average interest-earning assets, primarily loans, partially offset by a 26
basis point decrease in the average yield on such assets to 7.30% for the year
ended September 30, 1998 from 7.56% for the prior year.
Interest income on loans increased $4.6 million to $13.2 million for the
year ended September 30, 1998 from $8.6 million for the prior year, reflecting a
$70.3 million increase in the average balance, partially offset by an 87 basis
point decrease in the average yield. The increase in the average balance of
loans was primarily attributable to a dramatic increase in originations of one-
to four-family residential loans. The decline in the average yield was primarily
attributable to the origination of new loans (including refinancings) in the
current lower interest rate environment.
On a combined basis, interest and dividend income on mortgage-backed and
other securities increased $17,000 in fiscal 1998 compared to the prior year.
Interest on mortgage-backed securities increased by $1.3 million, attributable
to a $20.6 million increase in the average balance partially offset by a 10
basis point decrease in the average yield. Interest on other securities declined
by $1.3 million, attributable to a $16.9 million decrease in the average balance
and a 16 basis point decrease in the average yield. The lower average yields in
fiscal 1998 reflect the impact of (i) higher premium amortization on
mortgage-backed securities caused by increased repayments of principal, and (ii)
calls of higher-yielding agency securities in the current lower interest rate
environment.
Interest and dividend income on other earning assets increased $87,000,
attributable to a 48 basis point increase in the average yield and an $886,000
increase in the average balance.
Interest Expense. Interest expense totaled $14.0 million for the year
ended September 30, 1998, an increase of $4.0 million from $10.0 million for the
prior year.
Interest expense on deposits increased $1.2 million to $9.1 million for
fiscal 1998 from $7.9 million for fiscal 1997. This increase reflects the impact
of a $21.0 million increase in the average balance of interest-bearing deposits,
as well as a 14 basis point increase in the average rate paid on deposits to
4.18% for the year ended September 30, 1998 from 4.04% for the prior year. The
increase in average interest-bearing deposits consisted of increases of $13.7
million in average savings certificate accounts and $8.8 million in average NOW,
club and money market accounts, partially offset by a $1.5 million decrease in
average regular savings accounts. The overall increase in the average rate paid
on deposits reflects a 40 basis point increase in the average rate paid on
savings certificate accounts during fiscal 1998, coupled with the higher volume
of certificate accounts resulting from aggressive advertising campaigns to
attract such long-term accounts.
Interest expense on borrowings increased $3.0 million to $5.0 million for
fiscal 1998 from $2.0 million for fiscal 1997, as the Company continued to
increase borrowings, primarily securities repurchase agreements, to leverage
available capital and support further asset growth. The average balance of
borrowings was $86.0 million for fiscal 1998 compared to $35.3 million for the
prior year. Although interest rates have declined in the past year, the average
cost of borrowings for the year ended September 30, 1998 was 5.77%, unchanged
from a year ago due to the use in fiscal 1998 of longer-term borrowings
10
<PAGE>
with higher interest rates. See "Liquidity and Capital Resources" for a further
discussion of the Company's securities repurchase agreements.
Provision for Loan Losses. The Company records provisions for loan losses,
which are charged to earnings, in order to maintain the allowance for loan
losses at a level which is considered appropriate to absorb probable losses
inherent in the existing loan portfolio. The provision in each period reflects
management's evaluation of the adequacy of the allowance for loan losses.
Factors considered include the volume and type of lending conducted, the
Company's previous loan loss experience, the known and inherent risks in the
loan portfolio, adverse situations that may affect the borrowers' ability to
repay, the estimated value of any underlying collateral, and current economic
conditions.
The provision for loan losses was $375,000 in fiscal 1998 and $300,000 in
fiscal 1997. Loans receivable (before the allowance for loan losses) increased
to $185.3 million at September 30, 1998 from $119.8 million at September 30,
1997, and the allowance for loan losses increased to $1.3 million at September
30, 1998 from $1.1 million a year earlier. The provision and allowance for loan
losses were increased in fiscal 1998 primarily in light of changes in inherent
losses attributable to continued portfolio growth. The allowance for loan losses
represented 0.70% of total loans receivable at September 30, 1998, compared to
0.90% at September 30, 1997. Net charge-offs in fiscal 1998 increased to
$166,000 from $144,000 in the prior year, while non-performing loans declined to
$753,000 at September 30, 1998 from $1.1 million at September 30, 1997. The
ratio of the allowance for loan losses to non-performing loans was 172.91% at
September 30, 1998, compared to 96.05% at September 30, 1997.
See "Asset Quality" for further information concerning the provision and
allowance for loan losses.
Non-Interest Income. Non-interest income increased $684,000 to $1.5
million for the year ended September 30, 1998 compared to $787,000 for fiscal
1997. The increase is primarily attributable to increases in the net gain on
sales of real estate mortgage loans held for sale, the net gain on sales of
securities, and service charges and fee income. In fiscal 1998, mortgage loan
sales totaled $69.8 million resulting in a net gain of $371,000, as compared to
loan sales of $2.8 million in fiscal 1997 which resulted in net losses of
$17,000. The net gain in fiscal 1998 includes the effect of capitalizing
mortgage servicing assets of $594,000 at the time of sale, in accordance with
Statement of Financial Accounting Standards No. 125. Servicing assets with a
carrying value of $538,000 (after amortization) are included in other assets in
the consolidated balance sheet as of September 30, 1998. See also Notes 1 and 3
of the Notes to Consolidated Financial Statements. The increase in the net gain
on sales of securities reflects a net gain of $117,000 on sales of $28.8 million
in securities in fiscal 1998, while net losses of $48,000 were incurred on sales
of $16.2 million in the prior year. The $98,000 increase in service charges and
fee income primarily reflects increases in transaction volume.
Non-Interest Expense. Non-interest expense increased $1.3 million to $7.6
million for the year ended September 30, 1998 compared to $6.3 million for the
prior year. Compensation and benefits expense increased $584,000 from the prior
year primarily due to (i) increased costs relating to additional staffing for an
in-store branch and the expansion of lending operations, and (ii) the
recognition of $106,000 in additional expense associated with the ESOP due to
the higher average market price of the Company's common stock in fiscal 1998
compared to the prior year. The $182,000 increase in occupancy and equipment
expense primarily reflects increased costs associated with the establishment of
an in-store branch during fiscal 1998. The $522,000 increase in other
non-interest expense was primarily attributable to additional costs associated
with the expansion of the Company's business activities and review of additional
growth opportunities.
11
<PAGE>
Income Tax Expense. Income tax expense was approximately $2.0 million for
both fiscal 1998 and 1997, reflecting effective tax rates of 40.9% and 40.3%,
respectively.
Comparison of Operating Results for the Years Ended September 30, 1997 and 1996
General. Net income was $3.0 million in fiscal 1997 (basic EPS of $1.05
and diluted EPS of $1.04), as compared to net income of $1.5 million in fiscal
1996. Both basic and diluted EPS were $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 growth in the loan and securities portfolios in fiscal 1997, as
well as reinvestment of the net proceeds from the 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%, respectively, for
the year ended September 30, 1997 compared to 3.13% and 3.73%, respectively, for
the prior year.
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 the 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
12
<PAGE>
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 purchases in fiscal 1997 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 repurchases of the
Holding Company's common stock during fiscal 1997.
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 impact 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 and a $5.7 million
increase in average NOW, club and money market accounts, partially offset by a
$5.0 million decrease in average regular savings accounts. The overall decrease
in the average rate paid reflects the 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.
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 provision in fiscal 1997 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. 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.
Non-performing loans declined to $1.1 million at September 30, 1997 from
$2.8 million at September 30, 1996. The decrease in non-performing loans was
primarily a result of (i) returning certain loans to accruing status due to
collections received and management's judgment that these loans will continue to
perform, (ii) payoffs 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 fiscal 1996 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.
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
13
<PAGE>
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.
The increase in compensation and benefits expense primarily reflects (i)
the recognition of $271,000 in costs in fiscal 1997 associated with the MRP,
(ii) a $277,000 increase in ESOP expenses reflecting a full year of costs under
such plan in fiscal 1997, 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"). Following the recapitalization,
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.
In connection with the recapitalization, a Financing Corporation ("FICO")
assessment is now imposed on all SAIF-assessable 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 an
amendment to the New York State tax law.
Asset Quality
Non-performing assets consist of non-accrual loans past due 90 days or
more and real estate owned properties that have been acquired by foreclosure or
deed in lieu of 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. See Note 3 to the Consolidated Financial
14
<PAGE>
Statements for information concerning the Company's impaired loans which are
included in the non-accrual loans shown below.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans past due ninety days or more:
Real estate mortgage loans:
One- to four-family $ 515 $ 389 $1,757 $2,759 $2,229
Multi-family (1) -- -- -- 389 389
Commercial 203 211 214 -- --
Land -- 250 250 49 --
Construction -- 279 511 279 --
Consumer loans 35 9 43 54 45
------ ------ ------ ------ ------
Total 753 1,138 2,775 3,530 2,663
Real estate owned, net 305 379 603 227 73
------ ------ ------ ------ ------
Total non-performing assets $1,058 $1,517 $3,378 $3,757 $2,736
====== ====== ====== ====== ======
Allowance for loan losses $1,302 $1,093 $ 937 $ 719 $ 311
====== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans receivable (2) 0.41% 0.94% 3.14% 4.15% 3.35%
Non-performing assets to total assets 0.28 0.48 1.30 1.80 1.40
Allowance for loan losses to:
Non-performing loans 172.91 96.05 33.77 20.37 11.68
Total loans receivable (2) 0.70 0.90 1.06 0.84 0.39
</TABLE>
- ----------
(1) Includes a loan of $309,000 classified as a troubled debt restructuring at
September 30, 1995 and 1994. Collections and charge-offs in fiscal 1996
eliminated the recorded investment in this loan.
Total non-performing assets decreased $459,000 from $1.5 million at
September 30, 1997 to $1.1 million at September 30, 1998, reflecting net
reductions of $385,000 in non-accrual loans past due ninety days or more and
$74,000 in real estate owned. The ratio of non-performing assets to total assets
decreased to 0.28% at September 30, 1998 from 0.48% at September 30, 1997. The
allowance for loan losses was $1.3 million or 0.70% of total loans receivable at
September 30, 1998, compared to $1.1 million or 0.90% at September 30, 1997. The
ratio of the allowance for loan losses to non-performing loans increased to
172.91% at September 30, 1998 from 96.05% at September 30, 1997.
For the year ended September 30, 1998, gross interest income of $64,000
would have been recorded if all non-accrual loans at September 30, 1998 had
remained current throughout the year in accordance with their original terms.
The amount of interest income actually recognized on such loans in fiscal 1998,
prior to placing the loans on non-accrual status, was $48,000. See Note 3 of the
Notes to the Consolidated Financial Statements.
The Company provides for loan losses based on the allowance method.
Accordingly, losses for uncollectible loans are charged to the allowance and all
recoveries of loans previously charged-off are credited to the allowance.
Additions to the allowance for loan losses are provided by charges to income
15
<PAGE>
based on various factors which, in management's judgment, deserve current
recognition in estimating probable losses. Management regularly reviews the loan
portfolio and makes provisions for loan losses in order to maintain the adequacy
of the allowance for loan losses. The allowance for loan losses consists of
amounts specifically allocated to non-performing loans and potential problem
loans (if any) as well as allowances determined for each major loan category.
Loan categories such as single-family residential mortgages and consumer loans
are generally evaluated on an aggregate or "pool" basis by applying loss factors
to the current balances of the various loan categories. The loss factors are
determined by management based on an evaluation of historical loss experience,
delinquency trends, volume and type of lending conducted, and the impact of
current economic conditions in the Company's market area.
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 as
of October 1, 1995 had no impact on the comparability of this information.
<TABLE>
<CAPTION>
For the Year Ended September 30,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,093 $ 937 $ 719 $ 311 $ 295
Provision for losses 375 300 462 493 64
Charge-offs:
Real estate mortgage loans:
One- to four-family (45) (132) (97) (76) (64)
Multi-family (1) -- -- (203) -- --
Land (17) -- -- -- --
Construction (91) -- -- -- --
Consumer loans (40) (25) (33) (13) (2)
------- ------- ------- ------- -------
Total charge-offs (193) (157) (333) (89) (66)
Recoveries 27 13 89 4 18
------- ------- ------- ------- -------
Net charge-offs (166) (144) (244) (85) (48)
------- ------- ------- ------- -------
Balance at end of year $ 1,302 $ 1,093 $ 937 $ 719 $ 311
======= ======= ======= ======= =======
Ratio of net charge-offs to average total loans 0.10% 0.15% 0.29% 0.10% 0.06%
</TABLE>
- ----------
(1) Charge-offs in fiscal 1996 relate to the Company's purchased participation
interest in a multi-family loan originated by TASCO.
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.
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
16
<PAGE>
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 acceptable 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.
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 asset/liability position, the Company has taken several
steps to manage its interest rate risk. First, the Company maintains a
significant portfolio of interest rate sensitive adjustable-rate loans,
including loans with rates that adjust periodically after earning a fixed rate
of interest for initial periods of five, seven or ten years. At September 30,
1998, total adjustable-rate loans were $142.2 million or 71.5% of the total loan
portfolio, including $83.8 million in loans with initial fixed rates as
described above. Second, in fiscal 1998 the Company sold certain newly
originated, fixed-rate one- to four-family residential mortgage loans with
original terms of 15 years or more. Third, in recent years the Company has
increased its investment in mortgage-backed securities that are more liquid and
generally have shorter average lives than mortgage loans. At September 30, 1998,
mortgage-backed securities with terms to repricing or estimated average lives of
less than five years amounted to $46.0 million. 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, 1998, the Company had $43.5 million of
regular savings accounts, $27.6 million of money market accounts and $27.8
million of NOW, checking and club accounts. Overall, these accounts comprised
42.8% of the Company's total deposit base. Fifth, the Company has taken
advantage of the low interest rate environment by increasing the amount of its
longer-term securities repurchase agreements. The weighted average remaining
period to final maturity of these agreements was approximately 3.8 years at
September 30, 1998, compared to 1.7 years at September 30, 1997.
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, 1998, 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 (+/-300 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, 1997.
17
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1998
------------------------------------------------------
Change in Estimated Increase (Decrease) in NPV Percent Increase
Interest Rates Estimated NPV ------------------------------------ (Decrease in NPV at
(Basis Points) Amount Amount Percent September 30, 1997
- -------------- ------ ------ ------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 $ 39,813 $ (16,069) (29)% (35)%
+200 46,310 (9,572) (17) (22)
+100 51,816 (4,066) (7) (11)
-- 55,882 -- -- --
-100 58,653 2,771 5 7
-200 62,468 6,586 12 15
-300 67,442 11,560 21 25
</TABLE>
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market rates. The NPV table presented above assumes
that the composition of the Association's interest-sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. It also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or the repricing characteristics of specific assets and liabilities.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.
Accordingly, although the NPV table provides an indication of the Association's
sensitivity to interest rate changes at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Association's net interest
income and will differ from actual results.
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 and borrowings;
principal and interest payments on loans and securities; and proceeds from sales
of loans and securities. While maturities and scheduled payments on 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 Association is required to maintain an average daily balance of total
liquid assets as a percentage of net withdrawable deposit accounts plus
short-term borrowings, as defined by OTS regulations. The minimum required
liquidity ratio at September 30, 1998 was 4.0%, and the Company's actual
liquidity ratio was 13.1%.
18
<PAGE>
The Company's most liquid assets are cash and cash equivalents, which
include highly liquid short-term investments (such as federal funds sold and
money market mutual funds) that are readily convertible to known amounts of
cash. At September 30, 1998 and 1997, cash and cash equivalents totaled $4.2
million and $3.6 million, respectively. The level of these assets is dependent
on the Company's operating, financing and investing activities during any given
period.
The primary investing activities of the Company are the origination of
real estate mortgage and other loans, and the purchase of mortgage-backed and
other securities. During the years ended September 30, 1998, 1997 and 1996, the
Company's disbursements for loan originations totaled $152.6 million, $69.2
million and $17.6 million, respectively. For the years ended September 30, 1998,
1997 and 1996, purchases of mortgage-backed securities totaled $74.4 million,
$25.8 million and $31.9 million, respectively, and purchases of other securities
totaled $16.2 million, $30.0 million and $35.3 million, respectively. These
activities were funded primarily by net deposit inflows, borrowings under
repurchase agreements, principal repayments on loans and securities, and
proceeds from sales of loans and securities. Loan sales increased significantly
in fiscal 1998, providing proceeds of $69.6 million for reinvestment into new
loans and securities.
For the years ended September 30, 1998, 1997 and 1996, the Company
experienced net increases in deposits (including the effect of interest
credited) of $23.2 million, $17.2 million and $2.7 million, respectively. The
increases were due to aggressive cross selling, quality customer service, new
deposit products and the opening of an in-store branch during fiscal 1998.
Deposit inflows in fiscal 1996 were partially offset by deposits withdrawn to
purchase stock in the Conversion.
In fiscal 1998 and 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. During the years ended
September 30, 1998 and 1997, the average borrowings under repurchase agreements
with the FHLB amounted to $81.9 million and $32.1 million, respectively, and the
maximum month-end balance outstanding was $119.9 million and $54.1 million,
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 1.27% in fiscal 1998 and 1.91% in fiscal
1997. See Note 7 of the Notes to the Consolidated Financial Statements for
additional information concerning these transactions.
At September 30, 1998, the Company had outstanding loan origination
commitments of $18.3 million, undisbursed construction loans in process of
$743,000, and unadvanced lines of credit extended to customers of $3.7 million.
The Company anticipates that it will have sufficient funds available to meet its
current loan origination and other commitments. The Company also had the ability
to borrow advances of up to $94.5 million from the FHLB of New York at September
30, 1998, although there were no such borrowings outstanding at that date.
Certificates of deposit scheduled to mature in one year or less from September
30, 1998 totaled $84.3 million with a weighted average rate of 5.28%. 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 1998, the Holding
19
<PAGE>
Company repurchased a total of 294,524 common shares in open market transactions
at a total cost of $5.7 million or $19.27 per share. The Holding Company
received $4.8 million in dividends from the Association in fiscal 1998.
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-based assets. The Association satisfied these minimum capital
standards at September 30, 1998 with tangible and leverage capital ratios of
9.3% and a total risk-based capital ratio of 26.0%. 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 amounts 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.
Impact of Accounting Standards
See Note 14 of the Notes to the Consolidated Financial Statements for a
discussion of recently-issued accounting standards that the Company will adopt
in the future, and their anticipated impact on the Company's financial
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 generally accepted
accounting principles, 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.
20
<PAGE>
Year 2000 Considerations
The Company, like all companies that utilize computer technology, is
facing significant challenges associated with ensuring that its computer systems
will accurately process time-sensitive data beyond the year 1999 (the "Year 2000
Issue"). Many existing computer programs and systems were originally programmed
with six digit dates that provided only two digits to identify the calendar year
in the date field, without considering the upcoming change in the century. With
the impending millennium, these programs and computers will recognize "00" as
the year 1900 rather than the year 2000.
Like most financial service providers, the Company and its operations may
be significantly affected by the Year 2000 Issue due to the nature of financial
information. This includes software, hardware and equipment both within and
outside the Company's direct control and with whom the Company electronically or
operationally interfaces (e.g. third-party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information). If computer systems are not adequately changed to identify
the year 2000, many computer applications could fail or create erroneous
results. As a result, calculations that rely on the date field information (such
as interest, payment or due dates and other operating functions) would generate
results which could be significantly misstated, and the Company could experience
a temporary inability to process transactions and engage in similar normal
business activities. In addition, under certain circumstances, failure to
adequately address the Year 2000 Issue could adversely affect the viability of
the Company's suppliers and creditors, and the creditworthiness of its
borrowers. Thus, if not adequately addressed, the Year 2000 Issue could have a
significant adverse impact on the Company's products, services and competitive
condition.
The Company is in communication with all of its significant suppliers and
vendors to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. The Company's
data processing is performed almost entirely by a third-party vendor, including
its core mission-critical data processing systems for loans, deposits and the
general ledger. The Company has taken a proactive approach in participating in
the proxy testing process of the third-party vendor, which process is
anticipated to be completed by year-end 1998. The Company presently believes
that with modifications to existing software and conversions to new software,
the Year 2000 Issue will be mitigated without causing a material adverse impact
on the operations of the Company. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue could have an
impact on the operations of the Company.
The Company is also preparing a Year 2000 business resumption contingency
plan to document pre-determined actions to help the Company resume normal
operations in the event of failure of any mission-critical service and product.
Uncontrollable events, such as loss of the global power grid and telephone
service failures, will affect all companies, government and customers; these
global events cannot be remedied by anyone other than the appropriate
responsible party. The Company is assuring the availability of cash to meet
potential depositor demand due to concerns about the availability of funds as we
approach the Year 2000. Contingency plans are being developed for identified
mission- critical systems in anticipation of the possibility of unplanned system
difficulties or failure of third parties to successfully prepare for the century
date change. The Company expects to complete its contingency planning process by
March 31, 1999.
At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000
21
<PAGE>
Issue to have material adverse effects on the Company's business, operations or
financial condition. However, the Company cannot be certain that it will not
suffer business interruptions, either due to its own Year 2000 Issue or those of
its customers or vendors or third parties whose Year 2000 problems may make it
difficult or impossible to fulfill their commitments to the Company. In
addition, the Year 2000 Issue has many elements and potential consequences, some
of which may not be reasonably foreseeable, and there can be no assurances that
every material Year 2000 issue will be identified and addressed or that
unforeseen consequences will not arise and possibly have a material adverse
effect on the Company.
Monitoring and managing the Year 2000 Issue will result in additional
direct and indirect costs to the Company. Direct costs include potential charges
by third-party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced. Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans. The
Company's direct and indirect costs of addressing the Year 2000 Issue are
charged to expense as incurred. Based on the current status of the Company's
Year 2000 efforts, the costs associated with identified Year 2000 issues are not
expected to have a material effect on the results of operations or financial
condition of the Company. Costs incurred through September 30, 1998 were not
significant. Management estimates that remaining costs will range between
$150,000 and $200,000, which are expected to be funded with cash flow from
operations.
22
<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.
Richard F. Komosinski Joseph D. Roberto
President and Chief Executive Officer Vice President, Treasurer and
Chief Financial Officer
23
<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, 1998
and 1997, 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, 1998. These consolidated financial statements are the
responsibility of the Company's 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally accepted
accounting principles.
Stamford, Connecticut
October 29, 1998
24
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
----------------------
1998 1997
--------- ---------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 3,195 $ 2,046
Short-term investments 1,000 1,547
--------- ---------
Total cash and cash equivalents 4,195 3,593
--------- ---------
Securities (note 2):
Available for sale, at fair value (amortized cost of
$123,317 in 1998 and $85,336 in 1997) 125,225 86,286
Held to maturity, at amortized cost (fair value of
$43,948 in 1998 and $76,902 in 1997) 43,303 76,329
--------- ---------
Total securities 168,528 162,615
--------- ---------
Real estate mortgage loans held for sale, at lower of
cost or market value (note 3) 13,334 20,437
--------- ---------
Loans receivable, net (note 3):
Real estate mortgage loans 177,783 112,357
Consumer and commercial business loans 7,544 7,419
Allowance for loan losses (1,302) (1,093)
--------- ---------
Total loans receivable, net 184,025 118,683
--------- ---------
Accrued interest receivable (note 4) 2,791 2,845
Federal Home Loan Bank ("FHLB") stock 6,426 3,005
Office properties and equipment, net (note 5) 1,258 902
Other assets 2,467 876
--------- ---------
Total assets $ 383,024 $ 312,956
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6) $ 231,181 $ 207,933
Securities repurchase agreements (note 7) 107,790 54,096
FHLB advances (note 7) -- 6,000
Deferred income taxes (note 8) 726 58
Other liabilities 1,525 991
--------- ---------
Total liabilities 341,222 269,078
--------- ---------
Commitments and contingencies (notes 3 and 12)
Stockholders' equity (note 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 35,044 34,734
Unallocated common stock held by employee stock
ownership plan ("ESOP") (2,142) (2,428)
Unamortized awards of common stock under management
recognition plan ("MRP") (846) (1,125)
Treasury stock, at cost (844,511 shares in 1998 and
549,987 shares in 1997) (13,189) (7,513)
Retained income, substantially restricted 21,754 19,605
Net unrealized gain on available-for-sale
securities, net of taxes (note 2) 1,145 569
--------- ---------
Total stockholders' equity 41,802 43,878
--------- ---------
Total liabilities and stockholders' equity $ 383,024 $ 312,956
========= =========
See accompanying notes to consolidated financial statements.
25
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest and dividend income:
Loans $ 13,243 $ 8,603 $ 7,471
Securities 11,750 11,733 8,153
Other earning assets 482 395 752
-------- -------- --------
Total interest and dividend income 25,475 20,731 16,376
-------- -------- --------
Interest expense:
Deposits (note 6) 9,056 7,922 7,780
Securities repurchase agreements 4,718 1,849 65
FHLB advances 248 186 130
-------- -------- --------
Total interest expense 14,022 9,957 7,975
-------- -------- --------
Net interest income 11,453 10,774 8,401
Provision for loan losses (note 3) 375 300 462
-------- -------- --------
Net interest income after provision for loan losses 11,078 10,474 7,939
-------- -------- --------
Non-interest income:
Service charges and fees 912 814 680
Net gain (loss) on sales of real estate mortgage
loans held for sale (note 3) 371 (17) --
Net gain (loss) on sales of securities (note 2) 117 (48) --
Other 71 38 22
-------- -------- --------
Total non-interest income 1,471 787 702
-------- -------- --------
Non-interest expense:
Compensation and benefits (note 10) 3,995 3,411 2,525
Occupancy and equipment 915 733 653
Data processing service fees 554 465 417
Federal deposit insurance costs, including
a special assessment of $1,166 in 1996 (note 6) 131 183 1,601
Other (note 9) 2,049 1,527 1,008
-------- -------- --------
Total non-interest expense 7,644 6,319 6,204
-------- -------- --------
Income before income tax expense 4,905 4,942 2,437
Income tax expense (note 8) 2,004 1,990 917
-------- -------- --------
Net income $ 2,901 $ 2,952 $ 1,520
======== ======== ========
Earnings per common share, from date of conversion
in April 1996 (note 11):
Basic $ 1.12 $ 1.05 $ 0.22
Diluted 1.08 1.04 0.22
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Unallocated Unamortized
Common Awards of Net
Additional Stock Common Unrealized Total
Common Paid-in Held Stock Treasury Retained Gain (Loss) on Stockholders'
Stock Capital by ESOP Under MRP Stock Income Securities Equity
----- ------- ------- --------- ----- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income -- -- -- -- -- 2,901 -- 2,901
Dividends paid ($0.28 per share) -- -- -- -- -- (752) -- (752)
Common stock repurchased
(294,524 shares) -- -- -- -- (5,676) -- -- (5,676)
Amortization of MRP awards -- -- -- 279 -- -- -- 279
Tax benefits from vested
MRP awards -- 62 -- -- -- -- -- 62
ESOP shares released for
allocation (28,566 shares) -- 248 286 -- -- -- -- 534
Change in net unrealized gain
(loss) on available-for sale
securities, net of taxes -- -- -- -- -- -- 576 576
======== ======== ======== ======== ======== ======== ======== ========
Balance at September 30, 1998 $ 36 $ 35,044 $ (2,142) $ (846) $(13,189) $ 21,754 $ 1,145 $ 41,802
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,901 $ 2,952 $ 1,520
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 375 300 462
ESOP and MRP expense 813 695 147
Depreciation and amortization expense 264 194 196
Amortization of deferred fees, discounts and premiums, net 93 (289) (479)
Net (gain) loss on sales of real estate mortgage loans held for sale (371) 17 --
Net (gain) loss on sales of securities (117) 48 --
Other adjustments, net (115) (186) 80
--------- --------- ---------
Net cash provided by operating activities 3,843 3,731 1,926
--------- --------- ---------
Cash flows from investing activities:
Purchases of securities:
Available-for-sale (90,579) (55,835) (45,036)
Held-to-maturity -- -- (22,142)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 24,113 13,356 7,334
Held-to-maturity 32,500 18,563 22,895
Proceeds from sales of securities:
Available-for-sale 28,308 15,943 --
Held-to-maturity 630 237 --
Disbursements for loan originations (152,638) (69,169) (17,571)
Principal collections on loans 24,181 13,612 11,780
Proceeds from sales of loans 69,588 2,785 1,883
(Purchase) redemption of FHLB stock (3,421) (1,940) 47
Other investing cash flows (437) 239 (119)
--------- --------- ---------
Net cash used in investing activities (67,755) (62,209) (40,929)
--------- --------- ---------
Cash flows from financing activities:
Net increase in deposits 23,248 17,258 2,666
Net increase (decrease) in borrowings with
original terms of three months or less:
Securities repurchase agreements 3,411 18,503 10,264
FHLB advances (6,000) (2,000) 3,705
Proceeds from longer-term securities repurchase agreements 50,283 25,329 --
Common stock repurchased (5,676) (8,909) --
Net proceeds from issuance of common stock, exclusive
of ESOP shares -- -- 31,771
Dividends paid (752) (610) (164)
--------- --------- ---------
Net cash provided by financing activities 64,514 49,571 48,242
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 602 (8,907) 9,239
Cash and cash equivalents at beginning of year 3,593 12,500 3,261
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,195 $ 3,593 $ 12,500
========= ========= =========
Supplemental information:
Interest paid $ 13,818 $ 9,623 $ 7,956
Income taxes paid 2,457 1,931 1,331
Mortgage loans transferred to real estate owned 128 313 603
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
(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 "Association"). 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.
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.
Cash Equivalents
For purposes of reporting cash flows, cash equivalents consist of
highly liquid short-term investments. Short-term investments reported in
the consolidated balance sheets were federal funds sold at September 30,
1998 and money market mutual funds at September 30, 1997.
29
<PAGE>
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 the 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 Company's past
loan loss experience, known and inherent risks in the portfolio, estimated
value of underlying collateral, and current economic conditions. In
management's judgment, the allowance for loan losses is adequate to absorb
probable losses in the existing portfolio.
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 Company's 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.
In accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118, the Company considers a
loan to be impaired when, based on current
30
<PAGE>
information and events, it is probable that the Company will be unable to
collect all principal and interest contractually due from the borrower.
The Company applies SFAS No. 114 to loans that are individually evaluated
for collectibility in accordance with its normal loan review procedures
(principally loans in the multi-family, commercial mortgage, land and
construction loan portfolios). The standard generally does not apply to
smaller-balance homogeneous loans in the Company's one- to four-family
mortgage and consumer loan portfolios that are collectively evaluated for
impairment. Under SFAS No. 114, the measurement of an impaired loan may be
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. Mortgage Servicing Rights
SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, establishes financial reporting
standards for a broad range of transactions including sales of loans with
servicing retained, loan securitizations, loan participations, securities
repurchase agreements, securities lending and in-substance defeasances of
debt. Among other things, the standard requires recognition of servicing
rights as an asset when loans are sold with servicing retained. Asset
recognition of servicing rights on sales of originated loans was not
permitted under previous accounting standards. SFAS No. 125 is generally
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.
In accordance with SFAS No. 125, the Company recognizes mortgage
servicing rights as an asset when loans are sold with servicing retained,
by allocating the cost of an originated mortgage loan between the loan and
the servicing right based on estimated relative fair values. The cost
allocated to the servicing right is capitalized as a separate asset which
is amortized thereafter in proportion to, and over the period of,
estimated net servicing income. Capitalized mortgage servicing rights are
stratified, based on loan type and interest rate, and assessed for
impairment by comparing the asset's amortized cost to its current fair
value. Impairment losses, if any, are recognized through charges to
income.
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, in which case the loan is placed on non-accrual status. The
Company's loans on non-accrual status include all loans contractually
delinquent ninety days or more. Interest payments received on non-accrual
loans (including impaired loans under SFAS No. 114) are recognized as
income unless future collections are doubtful. Loans are returned to
accrual status when collectibility of interest or principal 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.
31
<PAGE>
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.
Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers
securities to a counterparty under an agreement to repurchase the
identical securities at a fixed price in the future. These agreements are
accounted for as secured financing transactions provided the Company
maintains effective control over the transferred securities and meets the
other criteria for such accounting as specified in SFAS No. 125. The
Company's agreements are accounted for as secured financings; accordingly,
the transaction proceeds are recorded as borrowed funds and the underlying
securities continue to be carried in the Company's securities portfolio.
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 adjustments based on changes in
circumstances that affect management's 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.
32
<PAGE>
Treasury Stock
Treasury stock is recorded at cost and is presented as a reduction
of stockholders' equity.
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 the
Company's unfunded supplemental retirement agreement, are accounted for in
accordance with SFAS No. 87, Employers' Accounting for Pensions.
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. 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. When MRP
shares become vested, the Company records a credit to additional paid-in
capital for tax benefits attributable to any MRP deductions for tax
purposes in excess of the grant-date fair value charged to expense for
financial reporting purposes.
Earnings Per Share
The Company has adopted SFAS No. 128, Earnings Per Share, which
requires entities with complex capital structures to present both basic
earnings per share ("EPS") and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income applicable to common stock 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
33
<PAGE>
resulted in the issuance of common stock that would then share in the
earnings of the entity. Diluted EPS is computed by dividing net income by
the weighted average number of common shares outstanding for the period
plus common stock equivalents. Unallocated ESOP shares that have not been
committed to be released to participants are excluded from outstanding
shares in computing both basic and diluted EPS. In accordance with SFAS
No. 128, the Company has restated all prior-period EPS data to conform to
the new requirements. EPS data for fiscal 1996 is for the six-month period
following the Conversion.
(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 (Ginnie
Mae, Fannie Mae and Freddie Mac).
The following is a summary of securities at September 30, 1998:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------------- Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Available-for-Sale Securities
Mortgage-backed securities:
Pass-through securities $ 78,549 $ 1,163 $ (34) $ 79,678
U.S. Government and Agency securities 43,801 1,017 (8) 44,810
Equity securities 967 -- (230) 737
-------- -------- -------- --------
Total available-for-sale $123,317 $ 2,180 $ (272) $125,225
======== ======== ======== ========
Held-to-Maturity Securities
Mortgage-backed securities:
Pass-through securities $ 24,704 $ 582 $ (56) $ 25,230
CMOs 9,104 98 (37) 9,165
-------- -------- -------- --------
33,808 680 (93) 34,395
U.S. Government and Agency securities 9,495 58 -- 9,553
-------- -------- -------- --------
Total held-to-maturity $ 43,303 $ 738 $ (93) $ 43,948
======== ======== ======== ========
</TABLE>
34
<PAGE>
The following is a summary of securities at September 30, 1997:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------------- Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
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
Equity securities 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 securities 25,983 50 (102) 25,931
-------- -------- -------- --------
Total held-to-maturity $ 76,329 $ 910 $ (337) $ 76,902
======== ======== ======== ========
</TABLE>
Mortgage-backed and other debt securities at September 30, 1998
consisted of fixed-rate securities and adjustable-rate securities with
amortized costs of $129.0 million and $36.7 million, respectively, and
weighted average yields of 7.18% and 6.60%, respectively. Fixed-rate and
adjustable-rate debt securities at September 30, 1997 totaled $93.9
million and $65.8 million, respectively, with weighted average yields of
7.30% and 6.74%, respectively.
Mortgage-backed securities include securities guaranteed by Ginnie
Mae, Fannie Mae and Freddie Mac with total amortized costs of $69.7
million, $ 34.7 million and $7.8 million, respectively, at September 30,
1998 ($30.7 million, $39.2 million and $22.7 million, respectively, at
September 30, 1997). Privately-issued mortgage-backed securities had
amortized costs of $0.2 million and $0.3 million at September 30, 1998 and
1997, respectively.
The Company held step-up securities, issued by U.S. Government
Agencies or government-sponsored enterprises, with total amortized costs
and fair values of approximately $3.5 million at September 30, 1998 and
$11.0 million at September 30, 1997. These securities 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. The Company's step-up securities had a
weighted average yield of 5.69% and 5.97% at September 30, 1998 and 1997,
respectively.
The net unrealized gain on available-for-sale securities was $1.9
million ($1.1 million after taxes) at September 30, 1998, compared to
$950,000 ($569,000 after taxes) at September 30, 1997. Changes in
unrealized holding gains and losses resulted in an after-tax increase
(decrease) in stockholders' equity of $576,000, $751,000 and ($40,000)
during fiscal 1998, 1997 and 1996, respectively. These gains and losses
will continue to fluctuate based on changes in the portfolio and market
conditions.
35
<PAGE>
Sales of securities resulted in the following gross realized gains
and gross realized losses during the years ended September 30:
1998 1997 1996
----- ----- ----
(In thousands)
Available-for-sale securities:
Gains $ 278 $ 47 $ --
Losses (175) (97) --
----- ----- ----
103 (50) --
----- ----- ----
Held-to-maturity securities:
Gains 16 2 --
Losses (2) -- --
----- ----- ----
14 2 --
----- ----- ----
Net gain (loss) $ 117 $ (48) $ --
===== ===== ====
The held-to-maturity securities sold in fiscal 1998 and 1997 were
mortgage-backed securities with an amortized cost of $616,000 and
$235,000, 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.
The following is a summary of the amortized cost and fair value of
U.S. Government and Agency securities at September 30, 1998, 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.
36
<PAGE>
Available-for-Sale Held-to-Maturity
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
Within one year $ -- $ -- $ 2,500 $ 2,503
One to five years -- -- 3,496 3,510
Five to ten years 19,100 19,343 1,500 1,528
Over ten years 24,701 25,467 1,999 2,012
------- ------- ------- -------
Total $43,801 $44,810 $ 9,495 $ 9,553
======= ======= ======= =======
(3) Loans
A summary of loans receivable at September 30 follows:
1998 1997
--------- ---------
(In thousands)
Real estate mortgage loans:
Residential properties:
One- to four-family $ 153,891 $ 91,367
Multi-family 7,846 5,658
Commercial properties 12,766 11,990
Land loans 932 1,814
Construction loans 2,613 2,786
Construction loans in process (743) (1,091)
Deferred loan origination costs (fees), net 478 (167)
--------- ---------
177,783 112,357
--------- ---------
Consumer loans:
Home equity 3,678 3,217
Personal 1,447 1,666
Other 1,224 1,237
--------- ---------
6,349 6,120
Commercial business loans 1,195 1,299
--------- ---------
7,544 7,419
--------- ---------
Total loans receivable 185,327 119,776
Allowance for loan losses (1,302) (1,093)
--------- ---------
Gross loans receivable at September 30, 1998 consisted of
adjustable-rate loans of $142.2 million and fixed-rate loans of $43.4
million with weighted average yields of 7.60% and 7.99%, respectively.
Adjustable-rate and fixed-rate loans at September 30, 1997 totaled $98.7
million and $22.3 million, respectively, with weighted average yields of
8.19% and 8.65%, respectively. One- to four-family residential mortgage
loans at September 30, 1998 and 1997 include advances under home equity
lines of credit of $4.6 million and $5.9 million, respectively, and
cooperative apartment loans of $4.5 million and $4.8 million,
respectively.
37
<PAGE>
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
Company's 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 Company's concentrated
lending area.
Activity in the allowance for loan losses is summarized as follows
for the years ended September 30:
1998 1997 1996
------- ------- -------
(In thousands)
Balance at beginning of year $ 1,093 $ 937 $ 719
Provision for losses 375 300 462
Charge-offs (193) (157) (333)
Recoveries 27 13 89
------- ------- -------
Balance at end of year $ 1,302 $ 1,093 $ 937
======= ======= =======
The principal balances of non-accrual loans past due ninety days or
more at September 30 are as follows:
1998 1997 1996
------ ------ ------
(In thousands)
Real estate mortgage loans:
One- to four-family $ 515 $ 389 $1,757
Commercial 203 211 214
Land -- 250 250
Construction -- 279 511
Consumer loans 35 9 43
------ ------ ------
Total $ 753 $1,138 $2,775
====== ====== ======
If all interest payments on the foregoing non-accrual loans had been
made during the respective years in accordance with the loan agreements,
gross interest income of $64,000, $107,000 and $251,000 would have been
recognized in fiscal 1998, 1997 and 1996, respectively, compared to
interest income actually recognized of $48,000, $15,000 and $94,000,
respectively.
The Company's impaired loans, as defined under SFAS No. 114,
consisted of non-accrual commercial mortgage, land and construction loans
with a recorded investment totaling $203,000 and $740,000 at September 30,
1998 and 1997, 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, 1998 and 1997, 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 $438,000, $799,000 and $700,000 for the years
ended September 30, 1998, 1997 and 1996,
38
<PAGE>
respectively. Interest collections and income recognized on impaired loans
(while such loans were considered impaired) were insignificant during
fiscal 1998, 1997 and 1996.
At September 30, 1998 and 1997, single-family real estate owned
properties with net carrying values of $305,000 and $379,000,
respectively, are included in other assets. Provisions for losses and
other activity in the allowance for real estate owned losses were
insignificant during the years ended September 30, 1998, 1997 and 1996.
The Company has sold 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 $81.7 million, $15.5 million and $14.0 million at
September 30, 1998, 1997 and 1996, respectively, are included in other
assets. These amounts include loans sold with recourse of $2.0 million,
$2.7 million and $3.4 million at the respective dates, for which the
Association does not expect to incur any significant losses. Real estate
loans held for sale at September 30, 1998 and 1997 had total amortized
costs of $13.3 million and $20.4 million, respectively, which approximated
market value at those dates.
During the year ended September 30, 1998, the Company sold $69.8
million of real estate mortgage loans, with servicing retained, and
recognized a net gain of $371,000 on such sales (sales in fiscal 1997 and
1996 were not significant). The net gain in fiscal 1998 includes the
effect of capitalizing mortgage servicing assets of $594,000 at the time
of sale, in accordance with SFAS No. 125. At September 30, 1998, the
amortized cost of capitalized mortgage servicing rights included in other
assets was $538,000, which approximated fair value. Amortization of
mortgage servicing rights was $56,000 for the year ended September 30,
1998.
(4) Accrued Interest Receivable
A summary of accrued interest receivable at September 30 follows:
1998 1997
------ ------
(In thousands)
Loans $1,100 $ 940
Mortgage-backed securities 640 486
Other securities 1,051 1,419
------ ------
Total $2,791 $2,845
====== ======
(5) Office Properties and Equipment
A summary of office properties and equipment at September 30
follows:
39
<PAGE>
1998 1997
------- -------
(In thousands)
Land $ 45 $ 45
Buildings 246 240
Leasehold improvements 591 589
Furniture, fixtures and equipment 2,344 1,773
------- -------
3,226 2,647
Less accumulated depreciation and amortization (1,968) (1,745)
------- -------
Total office properties and equipment, net $ 1,258 $ 902
======= =======
(6) Deposits
Deposit balances and weighted average stated interest rates at
September 30 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ---------------
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Checking $ 5,423 $ 4,655
NOW 21,123 1.00% 19,055 2.00%
Money market 27,613 3.64 21,624 3.33
Regular savings 43,492 2.43 44,591 2.56
Club 1,282 2.43 1,132 2.56
-------- --------
98,933 2.34 91,057 2.49
-------- --------
Savings certificates by remaining term to
contractual maturity:
Within one year 84,261 5.28 71,765 5.23
After one but within two years 36,555 5.72 30,882 5.64
After two but within three years 5,140 5.52 9,547 6.29
After three years 6,292 5.78 4,682 5.78
-------- --------
132,248 5.43 116,876 5.45
-------- --------
Total deposits $231,181 4.10% $207,933 4.15%
======== ========
</TABLE>
Savings certificates issued in denominations of $100,000 or more
totaled $16.5 million and $12.9 million at September 30, 1998 and 1997,
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.
40
<PAGE>
Interest expense on deposits is summarized as follows for the years
ended September 30:
1998 1997 1996
------ ------ ------
(In thousands)
NOW, club and money market accounts $ 841 $ 862 $ 788
Regular savings accounts 1,092 1,166 1,336
Savings certificate accounts 7,123 5,894 5,656
------ ------ ------
Total interest expense $9,056 $7,922 $7,780
====== ====== ======
(7) Borrowings
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. Repurchase agreements are
collateralized by the securities sold and, in certain cases, by additional
margin securities. During the years ended September 30, 1998, 1997 and
1996, the Company's average borrowings under repurchase agreements with
the FHLB of New York were $81.9 million, $32.1 million and $1.2 million,
respectively, and the maximum month-end balance outstanding was $119.9
million, $54.1 million and $10.3 million, respectively.
Information concerning outstanding securities repurchase agreements
with the FHLB of New York as of September 30, 1998 and 1997 is summarized
as follows:
41
<PAGE>
<TABLE>
<CAPTION>
Repurchase Borrowings
-----------------------------------------------------------------------
Accrued Weighted Fair Value
Interest Average of Collateral
Remaining Term to Final Maturity (1) Amount Payable(2) Rate Securities(3)
------------------------------------ ------ ---------- ---- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
September 30, 1998
Within 30 days $ 32,178 $ 110 5.57% $ 37,243
After 30 days but within one year 9,600 57 5.76 10,933
After one but within three years 13,100 10 5.81 12,237
After three but within five years 22,500 179 5.80 24,694
After five years 30,412 200 5.47 33,387
-------- -------- --------
Total $107,790 $ 556 5.64% $118,494
======== ======== ========
September 30, 1997
Within 30 days $ 28,767 $ 149 5.63% $ 33,302
After 30 days but within one year 4,729 59 6.15 5,248
After three but within five years 20,600 145 6.01 21,499
-------- -------- --------
Total $ 54,096 $ 353 5.82% $ 60,049
======== ======== ========
</TABLE>
(1) The weighted average remaining term to final maturity was
approximately 3.8 years and 1.7 years at September 30, 1998 and
1997, respectively. Certain securities repurchase agreements are
callable by the FHLB of New York, prior to the maturity date. The
weighted average remaining term to maturity, giving effect to
earlier call dates, was approximately 1.7 years at September 30,
1998.
(2) Included in other liabilities in the consolidated balance sheets.
(3) Represents the fair value of the mortgage-backed and other debt
securities which were transferred to the counterparty, plus accrued
interest receivable of $1.1 million and $537,000 at September 30,
1998 and 1997, respectively. These securities consisted of
available-for-sale securities and held-to-maturity securities with
fair values of $100.5 million and $16.9 million, respectively, at
September 30, 1998 ($42.5 million and $17.0 million, respectively,
at September 30, 1997).
At September 30, 1998, the Company's "amount at risk" under
securities repurchase agreements was approximately $10.1 million. This
amount represents the excess of (i) the carrying amount, or market value
if higher, of the securities transferred to the FHLB of New York plus
accrued interest receivable over (ii) the amount of the repurchase
liability plus accrued interest payable.
FHLB Advances
As a member of the FHLB of New York, the Association may have
outstanding FHLB borrowings in a combination of term advances and
overnight funds of up to 25% of its total assets, or approximately $94.5
million at September 30, 1998, none of which was used at that date. FHLB
advances of $6.0 million at September 30, 1997 had a weighted average
interest rate of 6.75% and a term to maturity of less than thirty days.
Borrowings are secured by the Association's investment in FHLB stock and
by a blanket security agreement. This agreement requires the Association
to maintain as collateral certain qualifying assets (principally
securities and residential mortgage loans) not otherwise pledged.
42
<PAGE>
(8) Income Taxes
The components of income tax expense are summarized as follows for
the years ended September 30:
1998 1997 1996
------- ------- -------
(In thousands)
Current tax expense:
Federal $ 1,404 $ 1,177 $ 1,155
State 314 247 668
------- ------- -------
1,718 1,424 1,823
------- ------- -------
Deferred tax expense (benefit):
Federal 207 413 (410)
State 79 153 (496)
------- ------- -------
286 566 (906)
------- ------- -------
Total income tax expense $ 2,004 $ 1,990 $ 917
======= ======= =======
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:
1998 1997 1996
------ ------ ------
(Dollars in thousands)
Tax at Federal statutory rate $1,668 $1,680 $ 829
New York State income taxes, net
of Federal tax benefit 259 264 114
Other reconciling items, net 77 46 (26)
------ ------ ------
Actual income tax expense $2,004 $1,990 $ 917
====== ====== ======
Effective income tax rate 40.9% 40.3% 37.6%
====== ====== ======
43
<PAGE>
The tax effects of temporary differences that give rise to deferred
tax assets and liabilities are as follows at September 30:
1998 1997
------ ------
(In thousands)
Deferred tax liabilities:
Net unrealized gain on available-for-sale securities $ 763 $ 381
Mortgage servicing assets 220 --
ther taxable temporary differences 371 200
------ ------
Total deferred tax liabilities 1,354 581
------ ------
Deferred tax assets:
Allowance for loan losses 533 448
Other deductible temporary differences 95 75
------ ------
Total deferred tax assets 628 523
------ ------
Net deferred tax liability $ 726 $ 58
====== ======
Based on the Company's historical and anticipated future pre-tax
earnings, management believes that it is more likely than not that the
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 the quarter ended September
30, 1996. The Federal amendments eliminated the
percentage-of-taxable-income method for tax years beginning after December
31, 1995 and imposed 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 has continued to
maintain, a deferred tax liability with respect to such excess Federal
reserves. The New York State amendments redesignated the State bad debt
reserve as the base-year amount and permit future additions to the
base-year reserve using the percentage-of-taxable-income method. These
changes 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, 1998, the Association's base-year Federal and State
tax bad debt reserves were $3.0 million and $9.8 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
44
<PAGE>
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, 1998, the Association's
unrecognized deferred tax liabilities with respect to its Federal and
State tax bad debt reserves totaled $1.7 million.
(9) Other Non-Interest Expense
The components of other non-interest expense are as follows for the
years ended September 30:
1998 1997 1996
------- ------- -------
(In thousands)
Professional services $ 480 $ 301 $ 177
Advertising and promotion 258 246 118
Stationery and printing 149 93 68
Telephone and postage 134 107 80
Insurance and surety bond premiums 128 107 78
Correspondent bank fees 105 113 114
Checking account expenses 107 100 93
Adjustment for settlement of Nationar claim -- -- (162)
Other 688 460 442
------- ------- -------
Total $ 2,049 $ 1,527 $ 1,008
======= ======= =======
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 and, accordingly, a valuation allowance of
$168,000 was recorded in fiscal 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.
45
<PAGE>
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:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $1,231 in 1998 and $1,054 in 1997 $(1,335) $(1,063)
======= =======
Projected benefit obligation $(1,378) $(1,224)
Plan assets at fair value (primarily debt and equity securities) 2,093 1,963
------- -------
Plan assets in excess of projected benefit obligation 715 739
Unrecognized net gain (142) (179)
Unrecognized prior service cost (252) (269)
------- -------
Prepaid pension cost $ 321 $ 291
======= =======
</TABLE>
Pension (credit) expense consisted of the following for the years
ended September 30:
1998 1997 1996
----- ----- -----
(In thousands)
Service cost (benefits earned during the year) $ 73 $ 72 $ 96
Interest cost on projected benefit obligation 97 94 111
Actual return on plan assets (176) (155) (136)
Net amortization and deferral (23) (13) --
----- ----- -----
Net pension (credit) expense $ (29) $ (2) $ 71
===== ===== =====
The projected benefit obligation at September 30, 1998 and 1997 was
computed using discount rates of 7.0% and 8.0%, respectively, and rates of
compensation increase of 4.0% and 5.0%, respectively. 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, 1998 was
approximately $175,000. This amount was computed using a discount rate of
7.0% and a rate of compensation increase of 4.0%. Pension expense for this
agreement amounted to $45,000 in fiscal 1998 and $27,000 in fiscal 1997.
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 in
fiscal 1997 and $28,000 in fiscal 1996.
46
<PAGE>
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 both fiscal
1998 and 1997, and 14,283 in fiscal 1996 following the Conversion.
Compensation expense recognized with respect to these shares amounted to
$534,000, $424,000 and $147,000 in fiscal 1998, 1997 and 1996,
respectively, based on the average fair value of the Holding Company's
common stock for each period. The cost of the 214,245 shares that have not
yet been committed to be released to participant accounts is reflected as
a reduction to stockholders' equity ($2.1 million at September 30, 1998).
The fair value of these shares was approximately $3.3 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 and in fiscal 1998 for 3,000 shares at an
exercise price of $21.625 per share. All options granted have a ten-year
term and vest ratably over five years. No options were exercised through
September 30, 1998 and the 270,951 outstanding options had a weighted
average remaining term of approximately 8.1 years. At September 30, 1998,
a total of 53,590 options with a weighted average exercise price $12.92
were exercisable and 86,124 reserved shares were 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. 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 1998 and 1997 was $4.28 and $4.50, respectively,
estimated using the Black-Scholes option-pricing model with assumptions
approximately as follows: dividend yield of 1.8% and 1.7%; expected
volatility rate of 38.3% and 25.3%; risk-free interest rate of 6.1% and
6.7%; and expected option life of 7.0 years. Had the Company applied the
fair-value-based method of SFAS No. 123 to the options granted, it would
have reported net income,
47
<PAGE>
basic EPS and diluted EPS of $2.7 million, $1.05 and $1.01, respectively,
in fiscal 1998 ($2.8 million, $0.99 and $0.98, respectively, in fiscal
1997).
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 and available for future awards. Unearned compensation
of $1.4 million was recorded with respect to the shares awarded, and
$279,000 and $271,000 of that amount was amortized to compensation expense
in fiscal 1998 and 1997, respectively.
(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. Total common
shares issued and outstanding were 3,570,750 at September 30, 1996,
3,020,763 at September 30, 1997 (net of 549,987 treasury shares) and
2,726,239 at September 30, 1998 (net of 844,511 treasury shares).
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
is reduced annually to the extent that eligible and supplemental eligible
account holders have reduced their qualifying deposits as of each
anniversary date. Subsequent increases do 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
As discussed in note 1, the Company has adopted SFAS No. 128 and
restated its EPS data for all periods to present basic EPS and diluted EPS
in accordance with the new requirements.
48
<PAGE>
The following is a summary of the number of shares utilized in the
Company's EPS calculations for the years ended September 30, 1998, 1997
and 1996. For purposes of computing basic EPS, net income applicable to
common stock equaled net income for each of the periods presented.
<TABLE>
<CAPTION>
1998 1997 1996(1)
----- ----- -------
(In thousands)
<S> <C> <C> <C>
Weighted average common shares outstanding
for computation of basic EPS (2) 2,598 2,815 3,292
Common-equivalent shares due to the dilutive effect of
stock options and MRP awards (3) 77 35 --
----- ----- -----
Weighted average common shares for
computation of diluted EPS 2,675 2,850 3,292
===== ===== =====
</TABLE>
(1) From the date of Conversion, April 18, 1996. Net income for this six-month
period was $729,000.
(2) Excludes unvested MRP awards and unallocated ESOP shares that have not
been committed to be released.
(3) Computed using the treasury stock method.
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 paid $4.8 million in
dividends to the Holding Company in fiscal 1998 (none 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.
Pursuant to approvals received from the OTS, through September 30,
1998 the Holding Company has repurchased 810,586 shares of common stock
for its treasury (or approximately 22.7% of its common stock issued).
These repurchases were made in open market transactions, at a total cost
of $12.8 million or an average of approximately $15.73 per share. These
repurchases were in addition to 33,925 treasury shares included in the MRP
purchases 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
49
<PAGE>
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, 1998 and 1997, 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, 1998 and 1997, compared to the OTS
requirements for minimum capital adequacy and for classification as a
well-capitalized institution:
<TABLE>
<CAPTION>
Minimum Capital Classification as
Association Actual Adequacy Well Capitalized
------------------ ------------------ -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
September 30, 1998
Tangible capital $ 35,218 9.3% $ 5,654 1.5% N/A N/A
Tier I (core)capital 35,218 9.3 11,308 3.0 $ 18,845 5.0%
Risk-based capital:
Tier I 35,218 25.1 N/A N/A 8,427 6.0
Total 36,520 26.0 11,236 8.0 14,045 10.0
September 30, 1997
Tangible capital $ 37,108 12.1% $ 4,608 1.5% N/A N/A
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 N/A N/A 7,145 6.0
Total 38,201 32.1 9,527 8.0 11,909 10.0
</TABLE>
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
50
<PAGE>
The Company had outstanding commitments to originate loans of $18.3
million and unadvanced lines of credit extended to customers of $3.7
million at September 30, 1998 ($16.4 million and $4.4 million,
respectively, at September 30, 1997). Although these contractual amounts
represent the Company's 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 Company's
primary lending area described in note 3.
Commitments to originate loans are legally-binding agreements to
lend to a customer as long as there is no violation of any condition
established in the contract. Commitments have fixed expiration dates
(generally ranging up to 45 days) or other termination clauses and may
require the payment of a fee by the customer. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral, if any, obtained by the Company upon extension of credit, is
based on management's credit evaluation of the borrower. The Company's
loan origination commitments at September 30, 1998 include $3.6 million
for fixed-rate loans with interest rates ranging from 6.125% to 8.25%.
Unused lines of credit are legally binding agreements to lend a
customer as long as there is no violation of any condition established in
the contract. Lines of credit generally have fixed expiration dates or
other termination clauses. The amount of collateral obtained, if deemed
necessary by the Company, is based on management's credit evaluation of
the borrower.
At September 30, 1998, the Company had a commitment to sell mortgage
loans of $12.0 million. This sale was completed in October 1998. Loan sale
commitments are used from time to time in order to limit the interest rate
and market risk associated with loans held for sale and commitments to
originate loans held for sale. Risks associated with commitments to sell
mortgage loans include the possible inability of the counterparties to
meet the contract terms, or of the Company to originate loans to fulfill
the contracts. The Company controls its risk by entering into these
agreements only with creditworthy counterparties.
Lease Commitments
The Company is obligated under non-cancelable leases for certain of
its banking premises. Rental expense under these leases was $255,000,
$203,000 and $172,000 for the years ended September 30, 1998, 1997 and
1996, respectively. At September 30, 1998, the future minimum rental
payments under the lease agreements for the fiscal years ending September
30 are $313,000 in 1999, $275,000 in 2000, $220,000 in 2001, $171,000 in
2002 and $59,000 in 2003.
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
51
<PAGE>
assets and liabilities recognized in the Company's 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.
The following is a summary of the carrying amounts and fair values
of the Company's financial assets and liabilities (none of which were held
for trading purposes) at September 30:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 3.2 $ 3.2 $ 2.0 $ 2.0
Short-term investments 1.0 1.0 1.5 1.5
Securities 168.5 169.2 162.6 163.2
Real estate mortgage loans held for sale 13.3 13.4 20.4 20.4
Loans receivable 184.0 186.9 118.7 119.5
Accrued interest receivable 2.8 2.8 2.8 2.8
FHLB stock 6.4 6.4 3.0 3.0
Financial liabilities:
Savings certificate accounts 132.3 133.9 116.9 116.9
Other deposit accounts 98.9 98.9 91.0 91.0
Securities repurchase agreements 107.8 109.6 54.1 53.8
FHLB advances -- -- 6.0 6.0
</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.
52
<PAGE>
Loans
Fair values of real estate mortgage loans held for sale were based
on contractual sale prices for loans covered by investor commitments. Any
remaining loans held for sale were valued based on current secondary
market prices and yields.
For valuation purposes, the portfolio of loans receivable 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 Company's deposit base. Management believes that the
Company's core deposit relationships provide a relatively stable, low-cost
funding source which has a substantial unrecognized value separate from
the deposit balances.
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 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, 1998 and
1997, the fair values of these financial instruments approximated the
related carrying amounts which were not significant.
(14) Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income (and its components) in financial statements. The
standard does not, however, specify when to recognize or how to measure
53
<PAGE>
items that make up comprehensive income. Comprehensive income represents
net income and certain amounts reported directly in stockholders' 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 in the financial statements 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 fiscal 1999. Management
does not expect that SFAS No. 130 will have a significant impact on the
Company's financial reporting.
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 fiscal 1999. Management
does not expect that SFAS No. 131 will have a significant impact on the
Company's financial reporting.
In February 1998, the FASB issued SFAS No.132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which
standardizes the disclosure requirements for these benefits; requires
additional information on changes in the benefit obligations and fair
values of plan assets; and eliminates certain present disclosure
requirements. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Company in
fiscal 1999. Management does not expect that this standard will
significantly affect the Company's financial reporting.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires entities to
recognize all derivatives as either assets or liabilities in the balance
sheet at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a
foreign currency hedge. A specific accounting treatment applies to each
type of hedge. Entities may reclassify securities from the
held-to-maturity category to the available-for-sale category at the time
of adopting SFAS No. 133. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, although early adoption is permitted. The
Company has not yet selected an adoption date or decided whether it will
reclassify securities between categories. The Company is not presently
engaged in derivatives and hedging activities covered by the new standard
and, accordingly, SFAS No. 133 is not expected to have a material impact
on the Company's consolidated financial statements.
In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans held for Sale by a Mortgage Banking Enterprise. SFAS No. 134
provides for the classification of such retained securities as held to
maturity, available for sale, or trading in accordance with SFAS No.115.
Prior accounting standards limited the classification of these securities
to the trading category. SFAS No. 134 is effective for the fiscal quarter
beginning after December 15, 1998 and is not expected to have a material
impact on the Company's consolidated financial statements.
54
<PAGE>
(15) Parent Company Condensed Financial Information
Set forth below are the condensed balance sheets of Yonkers
Financial Corporation as of September 30, 1998 and 1997, and its condensed
statements of income and cash flows for the periods indicated:
September 30,
------------------
1998 1997
------- -------
(In thousands)
Condensed Balance Sheets
Assets
Cash $ 269 $ 259
Short-term investments -- 1,546
Securities 4,760 4,024
Investment in subsidiary 36,488 37,749
Other assets 329 318
------- -------
Total assets $41,846 $43,896
======= =======
Liabilities and Stockholders' Equity
Liabilities $ 44 $ 18
Stockholders' equity 41,802 43,878
------- -------
Total liabilities and stockholders' equity $41,846 $43,896
======= =======
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1998 1997 1996*
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Condensed Statements of Income
Dividends received from subsidiary $ 4,800 $ -- $ --
Interest income 537 682 388
Non-interest expense (404) (150) (43)
------- ------- -------
Income before income tax expense and effect of subsidiary earnings 4,933 532 345
Income tax expense 57 232 146
------- ------- -------
Income before effect of subsidiary earnings 4,876 300 199
Effect of subsidiary earnings:
Excess of dividends over current earnings of subsidiary (1,975) -- --
Equity in undistributed earnings of subsidiary -- 2,652 530
------- ------- -------
Net income $ 2,901 $ 2,952 $ 729
======= ======= =======
</TABLE>
* From the date of Conversion, April 18, 1996
55
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1998 1997 1996*
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income $ 2,901 $ 2,952 $ 729
Adjustments to reconcile net income to net cash
provided by operating activities:
Excess of dividends over current earnings of subsidiary 1,975 -- --
Equity in undistributed earnings of subsidiary -- (2,652) (530)
Other adjustments, net 947 392 140
-------- -------- --------
Net cash provided by operating activities 5,823 692 339
-------- -------- --------
Cash flows from investing activities:
Purchases of securities (1,187) (4,000) (4,000)
Proceeds from sales and calls of securities 256 4,000 --
Purchase of subsidiary's common stock -- -- (17,314)
-------- -------- --------
Net cash (used in) provided by investing activities (931) -- (21,314)
-------- -------- --------
Cash flows from financing activities:
Common stock repurchased (5,676) (8,909) --
Net proceeds from issuance of common stock, exclusive
of ESOP shares -- -- 31,771
Dividends paid (752) (610) (164)
-------- -------- --------
Net cash (provided by) used in financing activities (6,428) (9,519) 31,607
-------- -------- --------
(Decrease) increase in cash and cash equivalents (1,536) (8,827) 10,632
Cash and cash equivalents at beginning of period 1,805 10,632 --
-------- -------- --------
Cash and cash equivalents at end of period $ 269 $ 1,805 $ 10,632
======== ======== ========
</TABLE>
56
<PAGE>
(16) Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly financial data for
the fiscal years ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- ------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal 1998
Interest and dividend income $6,054 $6,246 $6,429 $6,746
Interest expense 3,031 3,293 3,718 3,980
------ ------ ------ ------
Net interest income 3,023 2,953 2,711 2,766
Provision for loan losses 175 75 75 50
Non-interest income 357 248 534 332
Non-interest expense 1,829 1,979 1,952 1,884
------ ------ ------ ------
Income before income tax expense 1,376 1,147 1,218 1,164
Income tax expense 568 459 491 486
------ ------ ------ ------
Net income $ 808 $ 688 $ 727 $ 678
====== ====== ====== ======
Earnings per common share:
Basic $ 0.30 $ 0.26 $ 0.28 $ 0.28
Diluted 0.29 0.25 0.27 0.27
====== ====== ====== ======
Fiscal 1997
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 tax expense 1,055 1,256 1,306 1,325
Income tax expense 388 508 513 581
------ ------ ------ ------
Net income $ 667 $ 748 $ 793 $ 744
====== ====== ====== ======
Earnings per common share:
Basic $ 0.22 $ 0.27 $ 0.29 $ 0.28
Diluted 0.22 0.26 0.28 0.27
====== ====== ====== ======
</TABLE>
57
<PAGE>
YONKERS FINANCIAL CORPORATION
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 4:30 p.m., January 27, 1999,
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
------------- ---- --- ---------
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
December 31, 1997 22 18 1/4 0.06
March 31, 1998 20 1/4 18 5/16 0.07
June 30, 1998 20 18 1/4 0.07
September 30, 1998 19 3/8 13 7/8 0.08
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 the Consolidated Financial
Statements included in this report.
As of September 30, 1998, the Company had approximately 491 stockholders of
record and 2,726,239 outstanding shares of common stock.
SHAREHOLDER AND TRANSFER
GENERAL INQUIRIES AGENT
Joseph L. Macchia, Vice President and Secretary 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
INVESTOR
RELATIONS
Yonkers Financial Corporation
6 Executive Plaza
Yonkers, New York 10701
(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, 1998, 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:
58
<PAGE>
YONKERS FINANCIAL CORPORATION
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
6 Executive Plaza Telephone (914) 965-2500
Yonkers, New York 10701 Fax (914) 965-2599
BOARD OF DIRECTORS
William G. Bachop, Chairman Michael J. Martin
Retired professional engineer Vice President of Herbert G.
and President of Herbert G. Martin, Inc. Martin, Inc.
P. Anthony Sarubbi, Vice Chairman Eben T. Walker
A consulting engineer and President of President of Graphite Metallizing
P. Anthony Sarubbi, Inc. Corporation
Donald R. Angelilli Charles D. Lohrfink
A real estate broker employed by Retired Public Affairs Director for
Weichert Realtors Consolidated Edison
Richard F. Komosinski
President and Chief Executive Officer
The Yonkers Savings and Loan Association, FA
OFFICERS
Richard F. Komosinski Joseph L. Macchia
President and Chief Executive Officer Vice President, Secretary
Joseph D. Roberto Philip Guarnieri
Vice President, Treasurer and Vice President
Chief Financial Officer
INDEPENDENT AUDITORS SPECIAL COUNSEL
KPMG Peat Marwick LLP Silver, Freedman & Taff, L.L.P.
3001 Summer Street 1100 New York Avenue, N.W.
Stamford, Connecticut 06905 Seventh Floor -- East Tower
Washington, D.C. 20005
59
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
Yonkers Financial Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 333-37667 and No. 333-37669) of our report dated October 29, 1998
relating to the consolidated balance sheets of Yonkers Financial Corporation and
subsidiary as of September 30, 1998 and 1997, 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, 1998, which report
appears in the September 30, 1998 Annual Report on Form 10-K of Yonkers
Financial Corporation.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
December 29, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
annual report on Form 10-K for the fiscal year ended September 30, 1998 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-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,195
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125,225
<INVESTMENTS-CARRYING> 43,303
<INVESTMENTS-MARKET> 43,948
<LOANS> 185,327
<ALLOWANCE> 1,302
<TOTAL-ASSETS> 383,024
<DEPOSITS> 231,181
<SHORT-TERM> 107,790
<LIABILITIES-OTHER> 2,251
<LONG-TERM> 0
0
0
<COMMON> 36
<OTHER-SE> 41,766
<TOTAL-LIABILITIES-AND-EQUITY> 383,024
<INTEREST-LOAN> 13,243
<INTEREST-INVEST> 11,750
<INTEREST-OTHER> 482
<INTEREST-TOTAL> 25,475
<INTEREST-DEPOSIT> 9,056
<INTEREST-EXPENSE> 14,022
<INTEREST-INCOME-NET> 11,453
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 117
<EXPENSE-OTHER> 7,644
<INCOME-PRETAX> 4,905
<INCOME-PRE-EXTRAORDINARY> 4,905
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,901
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 3.28
<LOANS-NON> 753
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 551
<ALLOWANCE-OPEN> 1,093
<CHARGE-OFFS> 193
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 1,302
<ALLOWANCE-DOMESTIC> 1,302
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
