<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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
incorporation or organization) Identification Number)
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, December 31, 1997
- ----------------------- -----------------------------------------------
$.01 Par Value 3,020,763
<PAGE>
YONKERS FINANCIAL CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at December 31, 1997 and
September 30, 1997....................................... 1
Consolidated Statements of Income for the Three Months
Ended December 31, 1997 and 1996......................... 2
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended December 31, 1997............. 3
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1997 and 1996......................... 4
Notes to Consolidated Financial Statements................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 17
Item 2. Changes in Securities...................................... 17
Item 3. Defaults Upon Senior Securities............................ 17
Item 4. Submission of Matters to a Vote of Security Holders........ 17
Item 5. Other Information.......................................... 17
Item 6. Exhibits and Reports on Form 8-K........................... 17
Signature Page............................................. 18
</TABLE>
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 December 31, 1997 At September 30, 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $2,796 $2,046
Short-term investments 1,159 1,547
------ ------
Total cash and cash equivalents 3,955 3,593
------ ------
Securities:
Available for sale, at fair value (amortized cost of $107,262
at December 31, 1997 and $85,336 at September 30, 1997) 108,433 86,286
Held to maturity, at amortized cost (fair value of $70,415
at December 31, 1997 and $76,902 at September 30, 1997) 69,810 76,329
------- -------
Total securities 178,243 162,615
------- -------
Real estate mortgage loans held for sale, at lower
of cost or market value - 20,437
------- ------
Loans receivable, net:
Real estate mortgage loans 134,739 112,357
Consumer and commercial business loans 7,443 7,419
Allowance for loan losses (1,170) (1,093)
------- -------
Total loans receivable, net 141,012 118,683
------- -------
Accrued interest receivable 2,866 2,845
Federal Home Loan Bank ("FHLB") stock 3,402 3,005
Office properties and equipment, net 1,132 902
Other assets 1,192 876
------- -------
Total assets $331,802 $312,956
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $216,882 $207,933
Securities repurchase agreements 67,787 54,096
FHLB advances - 6,000
Deferred income taxes 145 58
Other liabilities 2,064 991
------- -------
Total liabilities 286,878 269,078
------- -------
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 34,864 34,734
Unallocated common stock held by employee stock
ownership plan ("ESOP") (2,357) (2,428)
Unamortized awards of common stock under management
recognition plan ("MRP") (1,055) (1,125)
Treasury stock, at cost (549,987 shares) (7,513) (7,513)
Retained income, substantially restricted 20,247 19,605
Net unrealized gain on available-for-sale
securities, net of taxes 702 569
------- -------
Total stockholders' equity 44,924 43,878
------- -------
Total liabilities and stockholders' equity $331,802 $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
Ended December 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Interest and dividend income:
Loans $3,081 $1,880
Securities 2,864 2,734
Other earning assets 109 126
----- -----
Total interest and dividend income 6,054 4,740
----- -----
Interest expense:
Deposits 2,186 1,907
Securities repurchase agreements 801 253
FHLB advances 44 69
----- -----
Total interest expense 3,031 2,229
----- -----
Net interest income 3,023 2,511
Provision for loan losses 175 75
----- -----
Net interest income after provision for
loan losses 2,848 2,436
----- -----
Non-interest income:
Service charges and fees 221 184
Net gain (loss) on sales of real estate
mortgage loans held for sale 136 (5)
Net loss on sales of securities (15) (1)
Other 15 24
----- -----
Total non-interest income 357 202
----- -----
Non-interest expense:
Compensation and benefits 992 857
Occupancy and equipment 212 166
Federal deposit insurance costs 32 90
Data processing service fees 131 110
Other 462 360
----- -----
Total non-interest expense 1,829 1,583
----- -----
Income before income tax expense 1,376 1,055
Income tax expense 568 388
----- -----
Net income $808 $667
===== =====
Earnings per common share (note 3):
Basic $0.30 $0.22
Diluted 0.29 0.22
</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 ($0.06 per share) - - - -
Amortization of MRP awards - - - 70
Tax benefits from vested MRP awards - 62 - -
ESOP shares released for allocation (7,141 shares) - 68 71 -
Increase in net unrealized gain on
available-for-sale securities, net of taxes - - - -
------------ ------------- -------------- ---------------
Balance at December 31, 1997 $36 $34,864 ($2,357) ($1,055)
============ ============= ============== ===============
<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 - 808 - 808
Dividends paid ($0.06 per share) - (166) - (166)
Amortization of MRP awards - - - 70
Tax benefits from vested MRP awards - - - 62
ESOP shares released for allocation (7,141 shares) - - - 139
Increase in net unrealized gain on
available-for-sale securities, net of taxes - - 133 133
------------ ------------- ----------------- -----------------
Balance at December 31, 1997 ($7,513) $20,247 $702 $44,924
============ ============= ================= =================
</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 Three Months
Ended December 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $808 $667
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 175 75
Depreciation and amortization expense 58 43
Amortization of deferred fees, discounts and premiums, net (33) (78)
Net (gain) loss on sales of real estate mortgage loans held for sale (136) 5
Net loss (gain) on sales of securities 15 1
Other adjustments, net 7 (76)
-------- --------
Net cash provided by operating activities 894 637
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (30,833) (16,060)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 3,214 2,851
Held-to-maturity 6,539 5,174
Proceeds from sales of securities:
Available-for-sale 5,670 556
Held-to-maturity 0 235
Disbursements for loan originations (30,029) (3,851)
Principal collections on loans 5,190 2,454
Proceeds from sales of loans 22,877 377
Purchase of FHLB stock (397) -
Other investing cash flows, net (107) (164)
-------- --------
Net cash used in investing activities (17,876) (8,428)
-------- --------
Cash flows from financing activities:
Net increase in deposits 8,949 3,612
Net increase (decrease) in borrowings with
original terms of three months or less:
Securities repurchase agreements (1,309) 9,415
FHLB advances (6,000) (4,500)
Proceeds from longer-term securities repurchase agreements 15,000 -
Common stock repurchased - (6,450)
Dividends paid (166) (149)
Other financing cash flows 870 -
-------- --------
Net cash provided by financing activities 17,344 1,928
-------- --------
Net increase (decrease) in cash and cash equivalents 362 (5,863)
Cash and cash equivalents at beginning of period 3,593 12,500
-------- --------
Cash and cash equivalents at end of period $3,955 $6,637
======== ========
Supplemental information:
Interest paid $2,977 $2,229
Income taxes paid 110 -
======== ========
</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 months ended December
31, 1997 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. Under the Option Plan,
grants of 285,233 options have been made through December 31, 1997, 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.
(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 months ended December 31, 1997 and 1996. For
purposes of computing basic EPS, net income applicable to common stock equaled
net income for both periods presented.
For the Three Months
Ended December 31,
------------------
1997 1996
---- ----
(In Thousands)
Weighted average common shares outstanding
for computation of basic EPS (1) 2,692 3,014
Common-equivalent shares due to the dilutive effect of
stock options and MRP awards (2) 91 -
----- -----
Weighted average common shares for computation of
diluted EPS 2,783 3,014
===== =====
(1) Excludes unvested MRP awards and unallocated ESOP shares that have not been
committed to be released.
(2) Computed using the treasury stock method. Stock options and MRP awards had
an anti-dilutive effect in the three months ended December 31, 1996.
7
<PAGE>
Part I. Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Comparison of Financial Condition at December 31, 1997 and September 30, 1997
Total assets at December 31, 1997 increased $18.8 million to $331.8 million
from $313.0 million at September 30, 1997. Asset growth was funded primarily
through proceeds from borrowings under securities repurchase agreements and
deposit inflows. Borrowings under securities repurchase agreements increased
$13.7 million to $67.8 million at December 31, 1997 from $54.1 million at
September 30, 1997. Deposit liabilities increased $9.0 million to $216.9 million
at December 31, 1997 from $207.9 million at September 30, 1997.
Funds provided by borrowings and deposit growth, as well as proceeds from
sales of loans held for sale, were primarily invested in new securities and
loans. Total securities increased $15.6 million to $178.2 million at December
31, 1997 from $162.6 million at September 30, 1997. Overall, total loans (loans
receivable and loans held for sale) increased $1.9 million to $141.0 million at
December 31, 1997 from $139.1 million at September 30, 1997. This increase
primarily reflects originations (net of principal payments) of $25.0 million,
less $22.9 million in loans sold. The $1.9 million net increase primarily
reflects increases of $2.3 million in one-to four-family mortgage loans and
$188,000 in multi-family loans, partially offset by decreases of $346,000 in
commercial real estate loans, $263,000 in construction loans and $162,000 in
land loans.
The securities portfolio at December 31, 1997 reflects a $22.1 million
increase in available-for-sale securities and a $6.5 million decrease in
held-to-maturity securities, compared to September 30, 1997. The increase in
available-for-sale securities primarily reflects purchases of $30.8 million
(including purchases of longer term, fixed rate securities funded with
borrowings under repurchase agreements), partially offset by $3.2 million in
principal payments, maturities and calls, and $5.7 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 $6.5 million.
Available-for-sale securities represented 60.8% of the total securities
portfolio at December 31, 1997, 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 December 31, 1997 reflect a $13.7 million increase in
securities repurchase agreements to $67.8 million compared to $54.1 million at
September 30, 1997, partially offset by a $6.0 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 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 $1.0 million, from $43.9 million at
September 30, 1997 to $44.9 million at December 31, 1997. The increase is
primarily attributable to net income of $642,000 retained after dividends and an
increase of $133,000 in the after-tax net unrealized gain on available-for-sale
securities. The ratio of stockholders' equity to total assets was 13.54% at
December 31, 1997 compared to 14.02% at September 30, 1997. Book value per share
(computed based on total shares issued less treasury shares) was $14.87 at
December 31, 1997, 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 increased $113,000, from $1.5 million at
September 30, 1997 to $1.6 million at December 31, 1997, reflecting a net
increase of $223,000 in non-accrual loans past due ninety days or more partially
offset by a $110,000 net reduction in real estate owned. The ratio of non-
performing assets to total assets was 0.49% at December 31, 1997 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 December 31, 1997, 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 85.97% at December 31, 1997 compared to 96.05% at
September 30, 1997.
Comparison of Operating Results for the Three Months Ended December 31, 1997
and 1996
Net income for the three months ended December 31, 1997 was $808,000 or
basic earnings per common share of $0.30, compared to net income of $667,000 or
basic earnings per common share of $0.22 for the quarter ended December 31,
1996. Diluted earnings per common share were $0.29 for the quarter ended
December 31, 1997 compared to $0.22 for the same period in 1996. The $141,000
increase in net income was primarily attributable to a $512,000 increase in net
interest income and a $155,000 increase in non-interest income, partially offset
by a $246,000 increase in non-interest expense, a $180,000 increase in income
tax expense and a $100,000 increase in the provision for loan losses.
Net interest income increased $512,000 to $3.0 million for the three months
ended December 31, 1997 from $2.5 million for the three months ended December
31,1996. The increase reflects higher average interest-earning assets primarily
attributable to the reinvestment of proceeds from borrowings and deposit growth.
The interest rate spread was 3.19% for the current quarter compared to 3.20% for
the quarter ended December
9
<PAGE>
31, 1996, while the net interest margin was 3.88% in the current quarter
compared to 3.91% in the year ago period.
Interest and dividend income totaled $6.1 million for the three months
ended December 31, 1997, an increase of $1.4 million compared to $4.7 million
for the three months ended December 31, 1996. This increase reflects the effect
of a $55.3 million increase in total average interest-earning assets and a 37
basis point increase in the average yield on such assets to 7.76% for the three
months ended December 31, 1997 from 7.39% for the same period in the prior year.
Interest income on loans increased $1.2 million for the three months ended
December 31, 1997 compared to the same period in the prior year, reflecting the
effect of a $53.7 million increase in the average balance partially offset by a
17 basis point decrease in the average yield. 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 in the current interest
rate environment.
On a combined basis, interest and dividend income on mortgage-backed and
other securities increased $130,000 to $2.8 million for the three months ended
December 31, 1997 from $2.7 million for the three months ended December 31,
1996. Interest on mortgage-backed securities increased by $390,000, attributable
to the effects of a $19.7 million increase in the average balance and a 22 basis
point increase in the average yield, while interest on other securities declined
by $260,000, primarily attributable to a $17.6 million decrease in the average
balance.
Interest and dividend income on other earning assets decreased $17,000,
attributable to a $349,000 decrease in the average balance and a 60 basis point
decrease in the average yield.
Interest expense totaled $3.0 million for the three months ended December
31, 1997, an increase of $802,000 compared to interest expense of $2.2 million
for the three months ended December 31, 1996. Interest expense on deposits
increased $279,000 compared to the same period in the prior year, reflecting the
effect of an $18.2 million increase in the average balance and an 18 basis point
increase in the average rate on interest-bearing deposits to 4.21% for the three
months ended December 31, 1997 from 4.03% for the prior-year quarter. The
increase in average interest-bearing deposits consisted of a $13.4 million
increase in average savings certificate accounts (to $119.6 million from $106.2
million) and a $7.1 million increase in average NOW, club and money market
accounts (to $42.8 million from $35.7 million), partially offset by a $2.3
million decrease in average regular savings accounts (to $45.1 million from
$47.4 million).
Interest expense on borrowings increased $523,000 to $845,000 for the three
months ended December 31, 1997 from $322,000 for the three months ended December
10
<PAGE>
31, 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 $54.5 million and an average rate of 5.88% for
the three months ended December 31, 1997 compared to $18.0 million and 5.62%,
respectively, for the prior-year quarter. See "Liquidity and Capital Resources"
for a further discussion of the Company's securities repurchase agreements.
The provision for loan losses was $175,000 and $75,000 for the three months
ended December 31, 1997 and 1996, respectively. The current-quarter provision
reflects the impact of higher net charge-offs and growth in loans receivable
compared to the same period in the prior year. Net loan charge-offs were $98,000
during the three months ended December 31, 1997, compared to $6,000 during the
same period in 1996. The increase in net charge-offs in the 1997 period was
primarily attributable to the settlement of two loans for the construction of
one-to four-family real estate. Non-performing loans totaled $1.4 million at
December 31, 1997, up from $1.1 million at September 30, 1997 and down from $2.6
million at December 31, 1996. The ratio of non-performing loans to total loans
receivable was 0.95% at December 31, 1997, compared to 0.94% at September 30,
1997 and 2.91% at December 31, 1996. The allowance for loan losses was $1.2
million or 0.82% of total loans receivable at December 31, 1997, compared to
$1.1 million or 0.90% at September 30, 1997 and $1.0 million or 1.12% at
December 31, 1996. The ratio of the allowance for loan losses to non-performing
loans was 85.97% at December 31, 1997, compared to 96.05% at September 30, 1997
and 38.62% at December 31, 1996.
Management estimates the allowance for loan losses based on an analysis of
various factors, including the value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, historical loss experience, delinquency trends and
prevailing economic conditions. Although the Company maintains its allowance for
loan losses at a level it considers adequate to absorb probable losses, there
can be no assurance that such losses will not exceed the estimated amounts or
that additional substantial provisions for losses will not be required in future
periods.
11
<PAGE>
The following table sets forth certain asset quality ratios and other data
at the dates indicated:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997 December 31, 1996
----------------- ------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans $1,361 $1,138 $2,605
Real estate owned, net 269 379 564
------ ------ ------
Total non-performing assets $1,630 $1,517 $3,169
====== ====== ======
Non-performing loans to total loans receivable 0.95% 0.94% 2.91%
Non-performing assets to total assets 0.49% 0.48% 1.21%
Allowance for loan losses to:
Non-performing loans 85.97% 96.05% 38.62%
Total loans receivable 0.82% 0.90% 1.12%
</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 $773,000 at December 31, 1997 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 December 31, 1997 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 $757,000 for the three months ended December
31, 1997. Interest income recognized on impaired loans (while such loans were
considered to be impaired) was not significant for the three months ended
December 31, 1997 and 1996.
Non-interest income for the three months ended December 31, 1997 increased
$155,000 to $357,000 from $202,000 for the three months ended December 31, 1996.
Increases of $141,000 in the net gain (loss) on sales of loans held for sale and
$37,000 in service charges and fee income were partially offset by an increase
of $14,000 in the net loss on sales of securities. The increase in the net gain
on sales of loans reflects increased sales activity, as $22.9 million in loan
sales were completed (with servicing retained)
12
<PAGE>
during the current quarter, including the sale of loans which were classified as
held for sale at September 30, 1997. The increase in service charges and fee
income primarily reflects increases in transaction volume.
Non-interest expense for the three months ended December 31, 1997 increased
$246,000 to $1.8 million from $1.6 million for the three months ended December
31, 1996. The increase was primarily attributable to an increase in compensation
and benefits expense of $135,000 and an increase in other non-interest expense
of $102,000, partially offset by a decrease of $58,000 in Federal deposit
insurance costs. The increase in compensation and benefits expense primarily
reflects increased costs due to additional staffing and a $48,000 increase in
employee stock ownership plan expenses due to an increase in the Company's stock
price, partially offset by a $75,000 charge in the year-ago quarter for a
payment made to the estate of the Company's former Senior Vice President, who
died during 1996, in recognition of his past service to the Association. The
increase in other non-interest expense was primarily attributable to additional
advertising expenses and costs associated with the Company's expanded activities
and asset growth. The decrease in Federal deposit insurance costs reflects lower
deposit insurance rates subsequent to the recapitalization of the Savings
Association Insurance Fund.
Income tax expense increased $180,000 from $388,000 for the three months
ended December 31, 1996 to $568,000 for the three months ended December 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 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 December 31, 1997, the Company's total liquidity
13
<PAGE>
ratio was 8.1%. 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 December 31, 1997, the Company had outstanding loan origination
commitments of $27.1 million, unadvanced home equity lines of credit of $4.1
million and undisbursed construction loans in process of $1.1 million. The
Company anticipates that it will have sufficient funds available to meet its
current loan origination and other commitments. At December 31, 1997, the
Company had the ability to obtain additional FHLB advances of approximately
$81.6 million. Certificates of deposit scheduled to mature in one year or less
from December 31, 1997 totaled $73.9 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 December 31, 1997 consisted of $67.8 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 three months ended December 31, 1997, the average
borrowings under these agreements amounted to $57.4 million and the maximum
month-end balance outstanding was $67.8 million.
14
<PAGE>
Additional information concerning outstanding repurchase agreements with
the FHLB of New York as of December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Repurchase Borrowings
- --------------------------------------------------------------
Accrued Weighted Fair Value
Remaining Term Interest Average Of Collateral
to Maturity Amount Payable (1) Rate Securities (2)
----------- ------ ----------- ---- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Under 30 days $17,640 $ 53 6.03% $18,798
30 days to 1 year 14,547 163 5.91 16,224
Over 1 year 35,600 191 5.80 36,532
------- ---- -------
Total $67,787 $407 5.89% $71,554
======= ==== =======
</TABLE>
(1) Included in other liabilities in the consolidated balance sheet.
(2) Represents the fair value of the mortgage-backed securities ($64.1
million) and other debt debt securities ($6.9 million) which were
transferred to the counterparty, including accrued interest receivable of
$554,000. These securities consist of available-for-sale securities and
held-to-maturity securities with fair values of $67.1 million and $3.9
million, respectively.
At December 31, 1997, the Company's "amount at risk" (excess of the
carrying amount, or market value if higher, of the securities transferred to the
FHLB of New York over the amount of the repurchase liability) was approximately
$3.4 million. The weighted average remaining maturity of these agreements was
approximately 25 months.
At December 31, 1997, the Association exceeded all of its regulatory
capital requirements with a tangible capital level of 11.6% of total adjusted
assets, which is above the required level of 1.5%; core capital of 11.6% of
total adjusted assets, which is above the required level of 3.0%; and total
risk-based capital of 30.8%, 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.
15
<PAGE>
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 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.
16
<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
17
<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: February 13, 1998 /s/ Richard F. Komosinski
-------------------------
Richard F. Komosinski,
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 1998 /s/ Joseph D. Roberto
----------------------
Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
18
<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 DECEMBER 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,796
<INT-BEARING-DEPOSITS> 1,159
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,433
<INVESTMENTS-CARRYING> 69,810
<INVESTMENTS-MARKET> 70,415
<LOANS> 142,182
<ALLOWANCE> (1,170)
<TOTAL-ASSETS> 331,802
<DEPOSITS> 216,882
<SHORT-TERM> 67,787
<LIABILITIES-OTHER> 2,209
<LONG-TERM> 0
0
0
<COMMON> 36
<OTHER-SE> 44,888
<TOTAL-LIABILITIES-AND-EQUITY> 331,802
<INTEREST-LOAN> 3,081
<INTEREST-INVEST> 2,864
<INTEREST-OTHER> 109
<INTEREST-TOTAL> 6,054
<INTEREST-DEPOSIT> 2,186
<INTEREST-EXPENSE> 3,031
<INTEREST-INCOME-NET> 3,023
<LOAN-LOSSES> 175
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 1,829
<INCOME-PRETAX> 1,376
<INCOME-PRE-EXTRAORDINARY> 1,376
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 808
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 7.76
<LOANS-NON> 1,361
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,002
<ALLOWANCE-OPEN> (1,093)
<CHARGE-OFFS> 108
<RECOVERIES> (10)
<ALLOWANCE-CLOSE> (1,170)
<ALLOWANCE-DOMESTIC> (1,170)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
