<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________
Commission File Number 0-27716
YONKERS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3870836
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6 EXECUTIVE PLAZA, YONKERS, NEW YORK 10701
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 965-2500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, March 31, 1998
- ----------------------- --------------------------------------------
$0.01 Par Value 3,015,763
<PAGE>
YONKERS FINANCIAL CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1998
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1998 and
September 30, 1997............................................ 1
Consolidated Statements of Income for the Three and Six
Months Ended March 31, 1998 and 1997.......................... 2
Consolidated Statement of Changes in Stockholders' Equity for
the Six Months Ended March 31, 1998........................... 3
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1998 and 1997....................................... 4
Notes to Consolidated Financial Statements...................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 19
Item 2. Changes in Securities........................................... 19
Item 3. Defaults Upon Senior Securities................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............. 19
Item 5. Other Information............................................... 19
Item 6. Exhibits and Reports on Form 8-K................................ 19
Signature Page.................................................. 20
Explanatory Note: This Quarterly Report on Form 10-Q 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 which could cause actual results to differ materially from these
estimates. These factors include changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
i
<PAGE>
Part I. Item 1.
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
At March 31, 1998 At September 30, 1997
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 6,188 $ 2,046
Short-term investments 1,024 1,547
--------- ---------
Total cash and cash equivalents 7,212 3,593
--------- ---------
Securities:
Available for sale, at fair value (amortized cost of $105,597
at March 31, 1998 and $85,336 at September 30, 1997) 106,488 86,286
Held to maturity, at amortized cost (fair value of $60,757
at March 31, 1998 and $76,902 at September 30, 1997) 60,200 76,329
--------- ---------
Total securities 166,688 162,615
--------- ---------
Real estate mortgage loans held for sale, at lower
of cost or market value 10,486 20,437
--------- ---------
Loans receivable, net:
Real estate mortgage loans 143,737 112,357
Consumer and commercial business loans 7,541 7,419
Allowance for loan losses (1,243) (1,093)
--------- ---------
Total loans receivable, net 150,035 118,683
--------- ---------
Accrued interest receivable 3,102 2,845
Federal Home Loan Bank ("FHLB") stock 4,010 3,005
Office properties and equipment, net 1,133 902
Other assets 1,195 876
--------- ---------
Total assets $ 343,861 $ 312,956
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 228,642 $ 207,933
Securities repurchase agreements 67,608 54,096
FHLB advances 1,500 6,000
Other liabilities 751 1,049
--------- ---------
Total liabilities 298,501 269,078
--------- ---------
Stockholders' equity (note 2):
Preferred stock (par value $0.01 per share; 100,000
shares authorized; none issued or outstanding) -- --
Common stock (par value $0.01 per share: 4,500,000
shares authorized; 3,570,750 shares issued) 36 36
Additional paid-in capital 34,929 34,734
Unallocated common stock held by employee stock
ownership plan ("ESOP") (2,285) (2,428)
Unamortized awards of common stock under management
recognition plan ("MRP") (985) (1,125)
Treasury stock, at cost (554,987 shares at March 31, 1998 and
549,987 shares at September 30, 1997) (7,610) (7,513)
Retained income, substantially restricted 20,740 19,605
Net unrealized gain on available-for-sale
securities, net of taxes 535 569
--------- ---------
Total stockholders' equity 45,360 43,878
--------- ---------
Total liabilities and stockholders' equity $ 343,861 $ 312,956
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended March 31, Ended March 31,
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 3,137 $ 2,002 $ 6,218 $ 3,882
Securities 3,008 3,011 5,872 5,745
Other earning assets 101 94 210 220
-------- -------- -------- --------
Total interest and dividend income 6,246 5,107 12,300 9,847
-------- -------- -------- --------
Interest expense:
Deposits 2,214 1,914 4,400 3,821
Securities repurchase agreements 1,036 441 1,837 694
FHLB advances 43 37 87 106
-------- -------- -------- --------
Total interest expense 3,293 2,392 6,324 4,621
-------- -------- -------- --------
Net interest income 2,953 2,715 5,976 5,226
Provision for loan losses 75 75 250 150
-------- -------- -------- --------
Net interest income after provision for
loan losses 2,878 2,640 5,726 5,076
-------- -------- -------- --------
Non-interest income:
Service charges and fees 212 196 433 380
Net gain (loss) on sales of real estate
mortgage loans held for sale 58 (12) 194 (17)
Net loss on sales of securities (37) (33) (52) (34)
Other 15 14 30 38
-------- -------- -------- --------
Total non-interest income 248 165 605 367
-------- -------- -------- --------
Non-interest expense:
Compensation and benefits 975 809 1,967 1,666
Occupancy and equipment 223 182 435 348
Federal deposit insurance costs 32 31 64 121
Data processing service fees 128 118 259 228
Other 621 409 1,083 769
-------- -------- -------- --------
Total non-interest expense 1,979 1,549 3,808 3,132
-------- -------- -------- --------
Income before income tax expense 1,147 1,256 2,523 2,311
Income tax expense 459 508 1,027 896
-------- -------- -------- --------
Net income $ 688 $ 748 $ 1,496 $ 1,415
======== ======== ======== ========
Earnings per common share (note 3):
Basic $ 0.26 $ 0.27 $ 0.56 $ 0.49
Diluted 0.25 0.26 0.54 0.47
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Unamortized
Unallocated Awards of
Additional Common Common
Common Paid-in Stock Held Stock
Stock Capital by ESOP Under MRP
----- ------- ------- ---------
<S> <C> <C> <C> <C>
Balance at September 30, 1997 $ 36 $34,734 ($2,428) ($1,125)
Net income -- -- -- --
Dividends paid ($0.13 per share) -- -- -- --
Common stock repurchased (5,000 shares) -- -- -- --
Amortization of MRP awards -- -- -- 140
Tax benefits from vested MRP awards -- 62 -- --
ESOP shares released for allocation (14,283 shares) -- 133 143 --
Decrease in net unrealized gain on
available-for-sale securities, net of taxes -- -- -- --
------- ------- ------- -------
Balance at March 31, 1998 $ 36 $34,929 ($2,285) ($ 985)
======= ======= ======= =======
<CAPTION>
Net
Unrealized Total
Treasury Retained Gain on Stockholders'
Stock Income Securities Equity
----- ------ ---------- ------
<S> <C> <C> <C> <C>
Balance at September 30, 1997 ($ 7,513) $ 19,605 $ 569 $ 43,878
Net income -- 1,496 -- 1,496
Dividends paid ($0.13 per share) -- (361) -- (361)
Common stock repurchased (5,000 shares) (97) -- -- (97)
Amortization of MRP awards -- -- -- 140
Tax benefits from vested MRP awards -- -- -- 62
ESOP shares released for allocation (14,283 shares) -- -- -- 276
Decrease in net unrealized gain on
available-for-sale securities, net of taxes -- -- (34) (34)
-------- -------- -------- --------
Balance at March 31, 1998 ($ 7,610) $ 20,740 $ 535 $ 45,360
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,496 $ 1,415
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 250 150
Depreciation and amortization expense 124 91
Amortization of deferred fees, discounts and premiums, net (5) (165)
Net (gain) loss on sales of real estate mortgage loans held for sale (194) 17
Net loss on sales of securities 52 34
Other adjustments, net (397) (804)
-------- --------
Net cash provided by operating activities 1,326 738
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (41,051) (45,430)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 14,533 3,202
Held-to-maturity 15,574 8,812
Proceeds from sales of securities:
Available-for-sale 6,111 7,377
Held-to-maturity 630 235
Disbursements for loan originations (66,583) (11,561)
Principal collections on loans 9,830 6,162
Proceeds from sales of loans 35,192 1,105
Purchases of FHLB stock (1,005) (1,045)
Other investing cash flows, net (201) 187
-------- --------
Net cash used in investing activities (26,970) (30,956)
-------- --------
Cash flows from financing activities:
Net increase in deposits 20,709 7,175
Net (decrease) increase in borrowings with
original terms of three months or less:
Securities repurchase agreements (20,818) 16,479
FHLB advances (4,500) (5,000)
Proceeds from longer-term securities repurchase agreements 34,330 12,229
Common stock repurchased (97) (6,450)
Dividends paid (361) (289)
-------- --------
Net cash provided by financing activities 29,263 24,144
-------- --------
Net increase (decrease) in cash and cash equivalents 3,619 (6,074)
Cash and cash equivalents at beginning of period 3,593 12,500
-------- --------
Cash and cash equivalents at end of period $ 7,212 $ 6,426
======== ========
Supplemental information:
Interest paid $ 6,104 $ 4,288
Income taxes paid 920 720
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
Yonkers Financial Corporation (the "Holding Company") was incorporated
under the laws of the State of Delaware and on April 18, 1996 became the savings
and loan holding company of The Yonkers Savings and Loan Association, FA (the
"Association") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association, pursuant to its Plan of Conversion. The Holding
Company's principal business, subsequent to the Conversion, is the ownership of
its wholly owned subsidiary, the Association. Collectively, the Holding Company
and the Association are referred to herein as the "Company".
The unaudited consolidated financial statements included herein have
been prepared in conformity with generally accepted accounting principles. In
the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the financial position and results of operations for the
interim periods presented. The results of operations for the three and six
months ended March 31, 1998 are not necessarily indicative of the results of
operations which may be expected for the fiscal year ending September 30, 1998.
Certain financial information and footnote disclosures normally included
in annual financial statements prepared in conformity with generally accepted
accounting principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The unaudited interim consolidated
financial statements presented herein should be read in conjunction with the
annual consolidated financial statements of the Company as of and for the fiscal
year ended September 30, 1997, included in the Form 10-K.
(2) Stockholders' Equity
--------------------
Concurrent with the Conversion, on April 18, 1996 the Holding Company
sold 3,570,750 shares of its common stock in a subscription and community
offering at a price of $10 per share, resulting in gross proceeds of $35.7
million (including $2.9 million attributable to the shares purchased by the
Holding Company's Employee Stock Ownership Plan). After deducting conversion
costs of $1.1 million, the net proceeds were $34.6 million. The Holding Company
used $17.3 million of the net proceeds to acquire all of the common stock issued
by the Association in the Conversion. The remaining proceeds were retained by
the Holding Company. On a consolidated basis, the net offering proceeds were
$31.7 million after deducting shares purchased by the Holding Company's Employee
Stock Ownership plan ("ESOP").
5
<PAGE>
On September 4, 1996, the Holding Company received approval from the OTS
to repurchase up to 10% of its outstanding common stock, or 357,075 shares, for
the treasury. The Holding Company completed this repurchase in the quarter ended
December 31, 1996 at a total cost of $4.6 million.
On October 30, 1996, the Company's stockholders approved (i) the Yonkers
Financial Corporation 1996 Management Recognition Plan ("MRP") and (ii) the
Yonkers Financial Corporation 1996 Stock Option and Incentive Plan (the "Option
Plan"). The Holding Company funded the MRP in the quarter ended December 31,
1996 by purchasing 4% of its outstanding common stock, or 142,830 shares, in the
open market at a total cost of $1.8 million. Grants for a total of 108,905
shares have been made to employees and directors under the MRP, and the
remaining 33,925 shares are included in treasury stock at March 31, 1998 and
available for future awards. Under the Option Plan, grants of 285,233 options
have been made through March 31, 1998, at a weighted average exercise price of
approximately $13.01 per share.
On May 1, 1997, the Holding Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock, or 158,987 shares, for the
treasury. The Holding Company completed this repurchase in the quarter ended
September 30, 1997 at a total cost of $2.5 million.
On January 28, 1998, the Holding Company received approval from the OTS
to repurchase up to 5% of its outstanding common stock, or 151,038 shares, for
the treasury. Through March 31, 1998, the Holding Company had repurchased 5,000
shares of the 151,038 approved shares at a total cost of $97,000.
(3) Earnings Per Share
------------------
During the quarter ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
requires presentation of both basic earnings per share ("EPS") and diluted EPS
by all entities with complex capital structures. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock (such as stock options) were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed by dividing net income by the
weighted average number of common shares outstanding for the period plus common-
equivalent shares computed using the treasury stock method. SFAS No. 128
requires the restatement of all prior period EPS data to conform to the new
requirements.
6
<PAGE>
The table below summarizes the number of shares utilized in the Company's
EPS calculations for the three and six months ended March 31, 1998 and 1997.
For purposes of computing basic EPS, net income applicable to common stock
equaled net income for each of the periods presented.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended March 31, Ended March 31,
--------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
for computation of basic EPS (1) 2,699 2,809 2,695 2,913
Common-equivalent shares due to the dilutive
effect of stock options and MRP awards (2) 86 108 89 89
-- --- -- --
Weighted average common shares for computation
of diluted EPS 2,785 2,917 2,784 3,002
===== ===== ===== =====
</TABLE>
(1) Excludes unvested MRP awards and unallocated ESOP shares that have not
been committed to be released.
(2) Computed using the treasury stock method.
7
<PAGE>
Part I. Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Comparison of Financial Condition at March 31, 1998 and September 30, 1997
Total assets at March 31, 1998 increased $30.9 million to $343.9 million
from $313.0 million at September 30, 1997. Asset growth was funded primarily
through deposit inflows and proceeds from borrowings under securities repurchase
agreements. Deposit liabilities increased $20.7 million to $228.6 million at
March 31, 1998 from $207.9 million at September 30, 1997. Borrowings under
securities repurchase agreements increased $13.5 million to $67.6 million at
March 31, 1998 from $54.1 million at September 30, 1997. Funds provided by
deposit growth and borrowings, as well as proceeds from sales of loans held for
sale, were primarily invested in securities and new loans.
Overall, total loans (loans receivable and loans held for sale) increased
$21.4 million to $160.5 million at March 31, 1998 from $139.1 million at
September 30, 1997. This increase primarily reflects originations (net of
principal payments) of $56.8 million, less $35.2 million in loans sold. The
$21.4 million net increase in total loans primarily reflects increases of $20.1
million in one-to four-family mortgage loans, $1.0 million in multi-family
loans, $419,000 in commercial real estate loans and $71,000 in construction
loans, partially offset by a decrease of $336,000 in land loans.
Total securities increased $4.1 million to $166.7 million at March 31, 1998
from $162.6 million at September 30, 1997. The securities portfolio at March
31, 1998 reflects a $20.2 million increase in available-for-sale securities and
a $16.1 million decrease in held-to-maturity securities, compared to September
30, 1997. The increase in available-for-sale securities primarily reflects
purchases of $41.1 million (including purchases of longer term, fixed rate
securities funded with borrowings under repurchase agreements), partially offset
by $14.5 million in principal payments, maturities and calls, and $6.1 million
in proceeds from sales. The Company's overall interest rate risk, as measured
by the sensitivity of its net portfolio value to instantaneous interest rate
changes, may have increased somewhat as a result of funding a portion of these
security purchases with shorter term borrowings. The decrease in held-to-
maturity securities primarily reflects principal payments, maturities and calls
of $15.6 million. Available-for-sale securities represented 63.9% of the total
securities portfolio at March 31, 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.
Borrowings at March 31, 1998 reflect a $13.5 million increase in securities
repurchase agreements to $67.6 million compared to $54.1 million at September
30, 1997, partially offset by a $4.5 million decrease in FHLB advances. The
Company began
8
<PAGE>
to utilize repurchase agreements during the quarter ended September 30, 1996 as
a means of leveraging available capital to support further asset growth
(primarily loans and available-for-sale securities) and increase net interest
income. For information regarding the terms of the repurchase agreements, see
"Liquidity and Capital Resources".
Stockholders' equity increased $1.5 million, from $43.9 million at
September 30, 1997 to $45.4 million at March 31, 1998, primarily attributable to
net income of $1.1 million retained after dividends. The ratio of stockholders'
equity to total assets was 13.19% at March 31, 1998 compared to 14.02% at
September 30, 1997. Book value per share (computed based on total shares issued
less treasury shares) was $15.04 at March 31, 1998, up from $14.53 at September
30, 1997. See "Liquidity and Capital Resources" for information regarding the
Association's regulatory capital amounts and ratios.
Total non-performing assets decreased $92,000, from $1.5 million at
September 30, 1997 to $1.4 million at March 31, 1998, reflecting a net decrease
of $62,000 in non-accrual loans past due ninety days or more and a $30,000 net
reduction in real estate owned. The ratio of non-performing assets to total
assets was 0.41% at March 31, 1998 compared to 0.48% at September 30, 1997. The
allowance for loan losses was $1.2 million or 0.82% of total loans receivable at
March 31, 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 was 115.52% at
March 31, 1998 compared to 96.05% at September 30, 1997.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997
Net income for the three months ended March 31, 1998 was $688,000 or basic
earnings per common share of $0.26, compared to net income of $748,000 or basic
earnings per common share of $0.27 for the quarter ended March 31, 1997.
Diluted earnings per common share were $0.25 for the quarter ended March 31,
1998 compared to $0.26 for the same period in 1997. The $60,000 decrease in net
income was attributable to a $430,000 increase in non-interest expense
partially offset by a $238,000 increase in net interest income, an $83,000
increase in non-interest income and a $49,000 decrease in income tax expense.
Net interest income increased $238,000 to $3.0 million for the three months
ended March 31, 1998 from $2.7 million for the three months ended March 31,
1997. The increase reflects higher average interest-earning assets primarily
attributable to the reinvestment of proceeds from deposit growth and borrowings,
partially offset by a decline in the average interest rate spread and net
interest margin. The interest rate spread was 2.88% for the current quarter
compared to 3.35% for the quarter ended March 31, 1997, while the net interest
margin was 3.53% in the current quarter compared to 4.03% in the year-ago
period. The narrower spread and margin primarily reflect (i) an overall lower
asset yield from the origination of mortgage loans (including refinancings) in
the current lower interest rate environment and (ii) higher average rates paid
on interest-
9
<PAGE>
bearing deposits and borrowings, as well as the larger proportion of higher rate
borrowings to total interest-bearing funding.
Interest and dividend income totaled $6.2 million for the three months
ended March 31, 1998, an increase of $1.1 million compared to $5.1 million for
the three months ended March 31, 1997. This increase reflects the effect of a
$65.4 million increase in total average interest-earning assets, partially
offset by a 12 basis point decrease in the average yield on such assets to 7.46%
for the three months ended March 31, 1998 from 7.58% for the same period in the
prior year.
Interest income on loans increased $1.1 million for the three months ended
March 31, 1998 compared to the same period in the prior year, reflecting the
effect of a $62.1 million increase in the average balance partially offset by a
62 basis point decrease in the average yield to 8.20% for the three months ended
March 31, 1998 from 8.82% for the same period in the prior year. The increase
in the average balance of loans was primarily attributable to an increase in
one-to-four family residential loans. The lower average yield reflects the
repricing of adjustable rate mortgage loans and 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 was substantially unchanged at $3.0 million for the three
months ended March 31, 1998 and 1997. Interest on mortgage-backed securities
increased by $438,000, attributable to the effects of a $24.9 million increase
in the average balance and a 4 basis point increase in the average yield, while
interest on other securities declined by $441,000, primarily attributable to a
$22.1 million decrease in the average balance and a 29 basis point decrease in
the average yield.
Interest and dividend income on other earning assets increased $7,000,
attributable to a $515,000 increase in the average balance.
Interest expense totaled $3.3 million for the three months ended March 31,
1998, an increase of $901,000 compared to interest expense of $2.4 million for
the three months ended March 31, 1997. Interest expense on deposits increased
$300,000 compared to the same period in the prior year, reflecting the effect of
a $21.2 million increase in the average balance and a 17 basis point increase
in the average rate on interest-bearing deposits to 4.14% for the three months
ended March 31, 1998 from 3.97% for the prior-year quarter. The increase in the
average rate on interest-bearing deposits primarily reflects a shift from lower
rate savings and shorter-term certificates of deposit into generally higher rate
longer-term certificates of deposit. The increase in average interest-bearing
deposits consisted of a $13.2 million increase in average savings certificate
accounts (to $122.7 million from $109.5 million) and a $10.1 million increase in
average NOW, club and money market accounts (to $46.0 million from $35.9
million), partially offset by a $2.1 million decrease in average regular savings
accounts (to $45.1 million from $47.2 million).
10
<PAGE>
Interest expense on borrowings increased $601,000 to $1.1 million for the
three months ended March 31, 1998 from $478,000 for the three months ended March
31, 1997, 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 $70.8 million and an average rate of
5.85% for the three months ended March 31, 1998 compared to $30.9 million and
5.70%, respectively, for the prior-year quarter. The increase in the average
rate reflects a shift from generally lower rate shorter-term borrowings into
generally higher rate longer-term borrowings. The Company has recently
increased its utilization of longer-term repurchase agreements as a means of
controlling its overall interest rate risk in the event of a rise in market
interest rates. See "Liquidity and Capital Resources" for a further discussion
of the Company's securities repurchase agreements.
The provision for loan losses was $75,000 for each of the three-month
periods ended March 31, 1998 and 1997. Loan charge-offs were $6,000 and
recoveries were $4,000 during the three months ended March 31, 1998, compared to
$9,000 in charge-offs and $6,000 in recoveries during the same period in 1997.
Non-performing loans totaled $1.1 million at March 31, 1998, substantially
unchanged from September 30, 1997 and down from $1.7 million at March 31, 1997.
The ratio of non-performing loans to total loans receivable was 0.71% at March
31, 1998, compared to 0.94% at September 30, 1997 and 1.85% at March 31, 1997.
The allowance for loan losses was $1.2 million or 0.82% of total loans
receivable at March 31, 1998, compared to $1.1 million or 0.90% at September 30,
1997 and $1.1 million or 1.17% at March 31, 1997. The ratio of the allowance
for loan losses to non-performing loans was 115.52% at March 31, 1998, compared
to 96.05% at September 30, 1997 and 62.57% at March 31, 1997.
Management estimates the allowance for loan losses based on an analysis of
various factors, including the value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, historical loss experience, delinquency trends and
prevailing economic conditions. Although the Company maintains its allowance
for loan losses at a level it considers adequate to absorb probable losses,
there can be no assurance that such losses will not exceed the estimated amounts
or that additional substantial provisions for losses will not be required in
future periods.
11
<PAGE>
The following table sets forth certain asset quality ratios and other data
at the dates indicated:
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997 March 31, 1997
-------------- ------------------ --------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans $1,076 $1,138 $1,723
Real estate owned, net 349 379 359
------ ------ ------
Total non-performing assets $1,425 $1,517 $2,082
====== ====== ======
Non-performing loans to total loans receivable 0.71% 0.94% 1.85%
Non-performing assets to total assets 0.41% 0.48% 0.73%
Allowance for loan losses to:
Non-performing loans 115.52% 96.05% 62.57%
Total loans receivable 0.82% 0.90% 1.17%
</TABLE>
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 114 to loans that are individually evaluated for collectibility in
accordance with its normal loan review procedures (principally loans in the
commercial mortgage, multi-family, construction and land loan portfolios). SFAS
No. 114 does not apply to smaller-balance homogeneous loans in the Company's
one- to four-family mortgage and consumer loan portfolios. The Company's
recorded investment in impaired loans consisted of non-accrual commercial
mortgage, construction and land loans totaling $495,000 at March 31, 1998 and
$740,000 at September 30, 1997. All of these loans were collateral-dependent
loans measured based on the fair value of the collateral in accordance with SFAS
No. 114. The Company determines the need for an allowance for impairment under
SFAS No. 114 on a loan-by-loan basis. At March 31, 1998 and September 30, 1997,
such an allowance was not required with respect to the Company's impaired loans
due to the sufficiency of the related collateral values. The average recorded
investment in impaired loans was $634,000 and $818,000 for the three months
ended March 31, 1998 and 1997, respectively. Interest income recognized on
impaired loans (while such loans were considered to be impaired) was not
significant for the three months ended March 31, 1998 and 1997.
Non-interest income for the three months ended March 31, 1998 increased
$83,000 to $248,000 from $165,000 for the three months ended March 31, 1997.
Increases of $70,000 in the net gain (loss) on sales of loans held for sale and
$16,000 in service charges and fee income were partially offset by an increase
of $4,000 in the net loss on sales of securities. The increase in the net gain
on sales of loans reflects increased sales activity, as $12.3 million in loan
sales were completed (with servicing retained) during the current quarter. The
increase in service charges and fee income primarily reflects increases in
transaction volume.
12
<PAGE>
Non-interest expense for the three months ended March 31, 1998 increased
$430,000 to $2.0 million from $1.5 million for the three months ended March 31,
1997. The increase was primarily attributable to an increase in other non-
interest expense of $212,000 and an increase in compensation and benefits
expense of $166,000. The 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. The increase
in compensation and benefits expense primarily reflects increased costs due to
(i) additional staffing resulting from the establishment of an in-store branch
and the expansion of lending operations, and (ii) a $38,000 increase in employee
stock ownership plan expenses due to an increase in the Company's stock price.
Income tax expense decreased $49,000 from $508,000 for the three months
ended March 31, 1997 to $459,000 for the three months ended March 31, 1998,
primarily reflecting lower pre-tax income.
Comparison of Operating Results for the Six Months Ended March 31, 1998 and 1997
Net income for the six months ended March 31, 1998 was $1.5 million or
basic earnings per common share of $0.56 compared to net income of $1.4 million
or basic earnings per common share of $0.49 for the six months ended March 31,
1997. Diluted earnings per common share were $0.54 for the six months ended
March 31, 1998 compared to $0.47 for the same period in 1997. The $81,000
increase in net income was attributable to a $750,000 increase in net interest
income and a $238,000 increase in non-interest income partially offset by a
$676,000 increase in non-interest expense, a $131,000 increase in income tax
expense and a $100,000 increase in the provision for loan losses.
Net interest income increased $750,000 to $6.0 million for the six months
ended March 31, 1998 from $5.2 million for the six months ended March 31, 1997.
The increase reflects higher average interest-earning assets primarily
attributable to the reinvestment of proceeds from deposit growth and borrowings,
partially offset by a decline in the average interest rate spread and net
interest margin. The interest rate spread was 3.03% for the current six-month
period compared to 3.27% for the six months ended March 31, 1997, while the net
interest margin was 3.69% in the current period compared to 3.97% in the year-
ago period. The narrower spread and margin primarily reflect the higher average
rates paid on interest-bearing deposits and borrowings, as well as the larger
proportion of higher rate borrowings to total interest-bearing funding.
Interest and dividend income totaled $12.3 million for the six months ended
March 31, 1998, an increase of $2.5 million compared to $9.8 million for the six
months ended March 31, 1997. This increase reflects the effect of a $60.5
million increase in total average interest-earning assets and an 11 basis point
increase in the average yield on
13
<PAGE>
such assets to 7.60% for the six months ended March 31, 1998 from 7.49% for the
same period in the prior year.
Interest income on loans increased $2.3 million for the six months ended
March 31, 1998 compared to the same period in the prior year, reflecting the
effect of a $57.9 million increase in the average balance partially offset by a
23 basis point decrease in the average yield to 8.43% for the six months ended
March 31, 1998 from 8.66% for the same period in the prior year. The increase
in the average balance of loans was primarily attributable to an increase in
one-to four-family residential loans. The lower average yield reflects the
repricing of adjustable rate mortgage loans and 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 $127,000 for the six months ended March 31, 1998 as
compared to the same period in the prior year. Interest on mortgage-backed
securities increased by $829,000 attributable to the effects of a $22.0 million
increase in the average balance and a 15 basis point increase in the average
yield, while interest on other securities declined by $702,000, primarily
attributable to a $19.1 million decrease in the average balance and a 9 basis
point decrease in the average yield.
Interest and dividend income on other earning assets decreased $10,000,
attributable to a $305,000 decrease in the average balance and a 4 basis point
decrease in the average yield.
Interest expense totaled $6.3 million for the six months ended March 31,
1998, an increase of $1.7 million compared to interest expense of $4.6 million
for the six months ended March 31, 1997. Interest expense on deposits increased
$579,000 compared to the same period in the prior year, reflecting the effect of
a $19.7 million increase in the average balance and an 18 basis point increase
in the average rate on interest-bearing deposits to 4.18% for the six months
ended March 31, 1998 from 4.00% for the prior-year period. The increase in the
average rate on interest-bearing deposits primarily reflects a shift from lower
rate savings and shorter-term certificates of deposit into generally higher-rate
longer-term certificates of deposit. The increase in average interest-bearing
deposits consisted of a $13.3 million increase in average savings certificate
accounts (to $121.2 million from $107.9 million) and an $8.5 million increase in
average NOW, club and money market accounts (to $44.4 million from $35.8
million), partially offset by a $2.2 million decrease in average regular savings
accounts (to $45.1 million from $47.3 million).
Interest expense on borrowings increased $1.1 million to $1.9 million for
the six months ended March 31, 1998 from $800,000 for the six months ended March
31, 1997, as the Company continued to increase borrowings to leverage 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 $62.7 million and an average rate of 5.86% for
the six months ended March 31, 1998 compared to $24.5 million and 5.67%,
respectively, for the prior-year period. The increase in the
14
<PAGE>
average rate reflects a shift from generally lower rate shorter-term borrowings
into generally higher rate longer-term borrowings. The Company has recently
increased its utilization of longer-term repurchase agreements as a means of
controlling its overall interest rate risk in the event of a rise in market
interest rates.
The provision for loan losses was $250,000 and $150,000 for the six months
ended March 31, 1998 and 1997, respectively. The current-period provision
reflects the impact of higher net charge-offs and growth in loans receivable
compared to the same six-month period in the prior year. Net loan charge-offs
were $100,000 during the six months ended March 31, 1998, compared to $9,000
during the same period in 1997. The increase in net charge-offs in the 1998
period was primarily attributable to the settlement of two construction loans in
the quarter ended December 31, 1997.
Non-interest income for the six months ended March 31, 1998 increased
$238,000 to $605,000 from $367,000 for the six months ended March 31, 1997.
Increases of $211,000 in the net gain on sales of loans held for sale and
$53,000 in service charges and fee income were partially offset by an increase
of $18,000 in the net loss on sales of securities. The increase in the net gain
on sales of loans reflects increased sales activity in the current year, as
mortgage loans of $35.2 million were sold (with servicing retained) during the
six-month period ended March 31, 1998. In comparison, loan sales during the six
months ended March 31, 1997 amounted to $1.1 million. The increase in service
charges and fee income primarily reflects increases in transaction volume.
Non-interest expense for the six months ended March 31, 1998 increased
$676,000 to $3.8 million from $3.1 million for the six months ended March 31,
1997. The increase was primarily attributable to an increase in other non-
interest expense of $314,000 and an increase in compensation and benefits
expense of $301,000. The 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. The increase
in compensation and benefits expense primarily reflects increased costs due to
(i) additional staffing resulting from the establishment of an in-store branch
and the expansion of lending operations, and (ii) an $86,000 increase in
employee stock ownership plan expenses due to an increase in the Company's stock
price.
Income tax expense increased $131,000 to $1.0 million for the six months
ended March 31, 1998 from $896,000 for the three months ended March 31, 1997,
primarily reflecting higher pre-tax income.
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
15
<PAGE>
prepayments and deposit inflows are less predictable due to the effects of
changes in interest rates, economic conditions and competition.
The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends received from the Association, if any. The main
cash flows are payments of dividends to shareholders and any repurchases of the
Holding Company's common stock.
The Company 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 the regulations of the Office of Thrift
Supervision. Effective November 24, 1997, the OTS reduced the liquid asset
requirement from 5.0% to 4.0% and eliminated the 1.0% short-term liquidity
ratio. At March 31, 1998, the Company's total liquidity ratio was 25.3%. The
level of liquid assets is dependent on the Association's operating, financing
and investing activities during any given period.
The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities. At March 31, 1998, the Company had outstanding loan origination
commitments of $39.2 million, unadvanced home equity lines of credit of $4.0
million and undisbursed construction loans in process of $1.4 million. The
Company anticipates that it will have sufficient funds available to meet its
current loan origination and other commitments. At March 31, 1998, the Company
had the ability to obtain additional FHLB advances of approximately $83.2
million. Certificates of deposit scheduled to mature in one year or less from
March 31, 1998 totaled $72.2 million. Based on the Company's most recent
experience and pricing strategy, management believes that a significant portion
of such deposits will remain with the Company.
The Company's borrowings at March 31, 1998 included $67.6 million in
borrowings under securities repurchase agreements. In these agreements, the
Company borrows funds through the transfer of debt securities to the FHLB of New
York, as counterparty, and concurrently agrees to repurchase the identical
securities at a fixed price on a specified date. The Company accounts for these
agreements as secured financing transactions since it maintains effective
control over the transferred securities. Accordingly, the transaction proceeds
are recorded as borrowings and the underlying securities continue to be carried
in the Company's debt securities portfolio. Repurchase agreements are
collateralized by the securities sold and, in certain cases, by additional
margin securities. During the six months ended March 31, 1998, the average
borrowings under these agreements amounted to $62.7 million and the maximum
month-end balance outstanding was $72.7 million.
16
<PAGE>
Additional information concerning outstanding repurchase agreements with
the FHLB of New York as of March 31, 1998 is summarized as follows:
Repurchase Borrowings
- -------------------------------------------------------
Accrued Weighted Fair Value
Remaining Term Interest Average Of Collateral
to Maturity Amount Payable (1) Rate Securities (2)
----------- ------ ----------- ---- --------------
(Dollars in thousands)
Under 30 days $17,767 $286 5.73% $21,081
30 days to 1 year 9,329 75 5.97 10,239
Over 1 year 40,512 212 5.79 40,907
------- ---- -------
Total $67,608 $573 5.80% $72,227
======= ==== =======
(1) Included in other liabilities in the consolidated balance sheet.
(2) Represents the fair value of the mortgage-backed securities ($64.8 million)
and other debt debt securities ($6.7 million) which were transferred to the
counterparty, including accrued interest receivable of $731,000. These
securities consist of available-for-sale securities and held-to-maturity
securities with fair values of $65.7 million and $5.8 million,
respectively.
At March 31, 1998, the Company's "amount at risk" (excess of the carrying
amount, or market value if higher, of the securities transferred to the FHLB of
New York over the amount of the repurchase liability) was approximately $4.0
million. The weighted average remaining maturity of these agreements was
approximately 32 months.
At March 31, 1998, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of 11.4% of total adjusted assets,
which is above the required level of 1.5%; core capital of 11.4% of total
adjusted assets, which is above the required level of 4.0%; and total risk-based
capital of 28.2%, which is above the required level of 8.0%. These regulatory
capital requirements, which are applicable to the Association only, do not
consider additional capital held at the Holding Company level, and require
certain adjustments to stockholder's equity to arrive at the various capital
amounts.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact on the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. The year 2000 issue affects virtually all companies and organizations.
The Company, working with its outside service providers, has developed a
plan to ensure that its computer systems are year 2000 compliant. The Company
believes that
17
<PAGE>
the costs associated with ensuring year 2000 compliance will not materially
affect the Company's future operating results or financial condition.
Part I. Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's interest rate risk
position since September 30, 1997. Other types of market risk, such as foreign
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal
proceedings arising in the normal course of its business. While the ultimate
outcome of these various legal proceedings cannot be predicted with certainty,
it is the opinion of management that the resolution of these legal actions
should not have a material effect on the Company's financial position, results
of operations or liquidity.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name
----------- ----
27 Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YONKERS FINANCIAL CORPORATION
-----------------------------
(Registrant)
Date: May 14, 1998 /s/ Richard F. Komosinski
--------------------------
Richard F. Komosinski,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1998 /s/ Joseph D. Roberto
-----------------------
Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,188
<INT-BEARING-DEPOSITS> 1,024
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 106,488
<INVESTMENTS-CARRYING> 60,200
<INVESTMENTS-MARKET> 60,757
<LOANS> 151,278
<ALLOWANCE> (1,243)
<TOTAL-ASSETS> 343,861
<DEPOSITS> 228,642
<SHORT-TERM> 69,108
<LIABILITIES-OTHER> 751
<LONG-TERM> 0
0
0
<COMMON> 36
<OTHER-SE> 45,324
<TOTAL-LIABILITIES-AND-EQUITY> 343,861
<INTEREST-LOAN> 3,137
<INTEREST-INVEST> 3,008
<INTEREST-OTHER> 101
<INTEREST-TOTAL> 6,246
<INTEREST-DEPOSIT> 2,214
<INTEREST-EXPENSE> 3,293
<INTEREST-INCOME-NET> 2,953
<LOAN-LOSSES> 75
<SECURITIES-GAINS> (37)
<EXPENSE-OTHER> 1,979
<INCOME-PRETAX> 1,147
<INCOME-PRE-EXTRAORDINARY> 1,147
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 688
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 7.46
<LOANS-NON> 1,076
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 742
<ALLOWANCE-OPEN> (1,170)
<CHARGE-OFFS> 6
<RECOVERIES> (4)
<ALLOWANCE-CLOSE> (1,243)
<ALLOWANCE-DOMESTIC> (1,243)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
