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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-27716
YONKERS FINANCIAL CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3870836
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Executive Plaza, Yonkers, New York 10701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 965-2500
Securities Registered Pursuant to Section 12(b) of the Act:
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None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
twelve months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of December 15, 1999, there were issued and outstanding 2,238,739
shares of the Registrant's Common Stock. The aggregate market value of the
voting stock held by non-affiliates of the Registrant, computed by reference to
the closing price of such stock on the Nasdaq National Market as of December 15,
1999, was approximately $34.1 million. (The exclusion from such amount of the
market value of the shares owned by any person shall not be deemed an admission
by the Registrant that such person is an affiliate of the Issuer.)
DOCUMENTS INCORPORATED BY REFERENCE
PARTS II and IV of Form 10-K--Annual Report to Stockholders for the fiscal year
ended September 30, 1999. PART III of Form 10-K--Proxy Statement for the Annual
Meeting of Stockholders for the fiscal year ended September 30, 1999.
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<PAGE>
YONKERS FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
SEPTEMBER 30, 1999
TABLE OF CONTENTS
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PART I PAGE
Item 1 Business............................................... 3
Item 2 Properties............................................. 40
Item 3 Legal Proceedings...................................... 42
Item 4 Submission of Matters to a Vote of Security Holders.... 42
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 42
Item 6 Selected Financial Data................................ 42
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 42
Item 7A Quantitative and Qualitative Disclosures About Market 42
Risk...................................................
Item 8 Financial Statements and Supplementary Data............ 42
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 43
PART III
Item 10 Director, and Executive Officers of the Registrant..... 43
Item 11 Executive Compensation................................. 44
Item 12 Security Ownership of Certain Beneficial Owners
and Management...................................... 44
Item 13 Certain Relationships and Related Transactions......... 44
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................ 45
Signatures............................................. 47
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Yonkers Financial Corporation (the "Holding Company") was formed at the
direction of The Yonkers Savings and Loan Association, FA ("Yonkers Savings" or
the "Association") in December 1995 for the purpose of owning all of the
outstanding stock of the Association issued in the Association's conversion from
the mutual to stock form of organization (the "Conversion"). The Conversion was
completed on April 18, 1996. Concurrent with the Conversion, the Holding Company
sold 3,570,750 shares of its common stock for net proceeds of $34.6 million. The
Holding Company and the Association are collectively referred to herein as the
"Company."
The Holding Company is incorporated under the laws of the State of
Delaware (and qualified to do business in the State of New York) and generally
is authorized to engage in any activity that is permitted by the Delaware
General Corporation Law. The principal asset of the Holding Company is its
investment in the stock of the Association, although it also holds certain other
investments and a loan to its Employee Stock Ownership Plan (the "ESOP"). The
Association has two wholly owned subsidiaries, Yonkers REIT, Inc., a real estate
investment trust. (the "REIT") and Yonkers Financial Services, Inc., a
subsidiary that sells savings bank life insurance and annuities.
As a community-oriented financial institution, the Association offers a
variety of financial services to meet the needs of communities in its market
area. The Association attracts deposits from the general public and uses such
deposits, together with borrowings, to originate primarily one- to four-family
residential mortgage loans (including home equity lines of credit) and, to a
lesser extent, multi-family and commercial real estate, consumer, land,
construction and commercial business loans in the Association's primary market
area. The Association also invests in mortgage-backed and other securities
permissible for a federally-chartered savings association. As a member of the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"), the Association's deposits are insured up to applicable
limits.
The executive offices (corporate headquarters) and lending center of the
Company are located at 6 Executive Plaza, Yonkers, New York 10701, and its
telephone number at that address is (914) 965-2500.
3
<PAGE>
MARKET AREA
The Company conducts its banking operations through its main office
located at One Manor House Square, Yonkers, New York and three full-service
banking offices located in Yonkers, New York. A branch located in a discount
store in Wappingers Falls, Dutchess County, was opened in December 1997 and a
second in-store branch was opened in Yorktown Heights, Westchester County in
October 1998. In May 1999, a third in-store branch was opened in a supermarket
in Mt. Vernon, Westchester County and a fourth was opened in a supermarket in
Poughkeepsie, Dutchess County in September 1999. A corporate headquarters office
and lending center is also maintained in Yonkers, New York. The Company's
primary market area for deposits includes the City of Yonkers and surrounding
communities. The Company's primary market area for its lending activities
consists of communities within Westchester County and portions of Rockland,
Putnam and Dutchess Counties, New York.
Yonkers is located in Westchester County approximately 10 miles north of
the Borough of Manhattan in New York City. Yonkers and the surrounding
communities include a diverse population of low- and moderate-income
neighborhoods as well as middle class and more affluent neighborhoods. The
housing in the low- and moderate-income neighborhoods consists mainly of
apartments while other areas consist primarily of single-family residences. The
Company's market area also includes substantial commercial areas containing
shopping areas, office and medical facilities and small- and medium-size
manufacturing and industrial facilities.
LENDING ACTIVITIES
GENERAL. Historically, the Company originated 30-year, fixed-rate mortgage
loans secured by one- to four-family residences. Since the mid-1980s, in order
to reduce its vulnerability to changes in interest rates, the Company has also
originated adjustable-rate mortgage ("ARM") loans and home equity lines of
credit. During fiscal 1997, the Company began to offer a "15/1" residential
mortgage loan product with a fixed rate for the first 15 years and annual rate
adjustments thereafter. Residential mortgage originations also currently include
products with initial fixed-rate periods of five, seven or ten years with annual
rate adjustments thereafter. The Company engages in secondary market sales of a
portion of its residential mortgage originations, as market conditions warrant.
Both originations and sales activity increased significantly in fiscal 1998. The
Company also offers multi-family and commercial real estate, consumer,
construction and land loans. During fiscal 1999 the Company expanded its lending
operations and increased originations of multi-family and commercial real estate
loans in order to enhance portfolio yield.
4
<PAGE>
The following table sets forth the composition of the loan portfolio, by
category, in dollar amounts and as a percentage of the total portfolio at the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Mortgage Loans:
One- to four-family (1)(2)(3) $245,692 81.6% $167,225 84.1% $111,821 79.0% $62,283 70.6% $63,282 74.4%
Multi-family 16,264 5.4 7,846 3.9 5,658 4.0 5,471 6.2 5,647 6.6
Commercial 26,753 8.9 12,766 6.4 11,990 8.5 9,117 10.3 6,575 7.7
Construction 2,812 0.9 2,613 1.3 2,786 2.0 2,175 2.5 2,205 2.6
Land 1,502 0.5 932 0.5 1,814 1.3 1,934 2.2 2,112 2.5
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total real estate mortgage loans $293,023 97.3 191,382 96.2 134,069 94.8 80,980 91.8 79,821 93.8
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Other Loans:
Consumer loans:
Home equity 4,574 1.5 3,678 1.9 3,217 2.3 2,911 3.3 2,389 2.8
Personal 1,483 0.5 1,447 0.7 1,666 1.1 1,632 1.8 1,734 2.0
Other 1,117 0.4 1,224 0.6 1,237 0.9 1,310 1.5 1,092 1.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total consumer loans 7,174 2.4 6,349 3.2 6,120 4.3 5,853 6.6 5,215 6.1
Commercial business loans 1,080 0.3 1,195 0.6 1,299 0.9 1,413 1.6 56 0.1
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total other loans 8,254 2.7 7,544 3.8 7,419 5.2 7,266 8.2 5,271 6.2
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total loans 301,277 100.0% 198,926 100.0% 141,488 100.0% 88,246 100.0% 85,092 100.0%
===== ===== ===== ===== =====
Less:
Construction loans in process (1,672) (743) (1,091) (171) (293)
Allowance for loan losses (1,503) (1,302) (1,093) (937) (719)
Deferred loan origination
costs (fees), net 1,074 478 (184) (472) (401)
-------- -------- -------- ------- -------
Total loans, net $299,176 $197,359 $139,120 $86,666 $83,679
======== ======== ======== ======= =======
</TABLE>
- --------------------------------
(1) Includes advances under home equity lines of credit of $3.2 million, $4.6
million, $5.9 million, $7.3 million, and $9.1 million, respectively, at
September 30, 1999, 1998, 1997, 1996 and 1995.
(2) Includes cooperative apartment loans of $3.7 million, $4.5 million, $4.8
million, $5.5 million and $5.8 million, respectively, at September 30, 1999,
1998, 1997, 1996 and 1995.
(3) Includes loans held for sale of $1.2 million , $13.3 million and $20.4
million at September 30, 1999, 1998 and 1997, respectively.
5
<PAGE>
The following table sets forth the composition of the loan portfolio, by
category and by type of interest rate (fixed or adjustable), in dollar amounts
and as a percentage of the total portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real Estate Mortgage Loans:
One- to four-family (1)(2) $ 60,071 19.9% $ 46,838 23.5% $ 36,074 25.5% $11,805 13.4% $11,805 13.9%
Multi-family 10,320 3.4 1,529 0.8 108 0.1 47 0.1 715 0.8
Commercial 14,295 4.7 1,742 0.9 95 0.1 131 0.1 396 0.5
Land 229 0.1 270 0.1 390 0.3 49 0.1 49 0.1
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total real estate mortgage loans 84,915 28.1 50,379 25.3 36,667 26.0 12,032 13.7 12,965 15.3
Consumer loans 7,174 2.4 6,349 3.2 6,120 4.3 5,853 6.6 5,215 6.1
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total fixed-rate loans 92,089 30.5 56,728 28.5 42,787 30.3 17,885 20.3 18,180 21.4
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Adjustable-Rate Loans:
Real Estate Mortgage Loans:
One- to four-family (3)(4)(5) 185,621 61.7 120,387 60.6 75,747 53.5 50,478 57.2 51,477 60.4
Multi-family 5,944 2.0 6,317 3.2 5,550 3.9 5,424 6.1 4,932 5.8
Commercial 12,458 4.1 11,024 5.5 11,895 8.4 8,986 10.2 6,179 7.3
Construction 2,812 0.9 2,613 1.3 2,786 2.0 2,175 2.5 2,205 2.6
Land 1,273 0.4 662 0.3 1,424 1.0 1,885 2.1 2,063 2.4
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total real estate mortgage loans 208,108 69.1 141,003 70.9 97,402 68.8 68,948 78.1 66,856 78.5
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Commercial business loans 1,080 0.4 1,195 0.6 1,299 0.9 1,413 1.6 56 0.1
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total adjustable-rate loans 209,188 69.5 142,198 71.5 98,701 69.7 70,361 79.7 66,912 78.6
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total loans 301,277 100.0% 198,926 100.0% 141,488 100.0% 88,246 100.0% 85,092 100.0%
-------- ===== -------- ===== -------- ===== ------- ===== ------- =====
Less:
Construction loans in process (1,672) (743) (1,091) (171) (293)
Allowance for loan losses (1,503) (1,302) (1,093) (937) (719)
Deferred loan origination costs
(fees), net 1,074 478 (184) (472) (401)
-------- -------- -------- ------- -------
Total loans, net $299,176 $197,359 $139,120 $86,666 $83,679
======== ======== ======== ======= =======
</TABLE>
- ------------------------
(1) Includes loans held for sale of $1.2 million, $13.3 million and $20.4
million at September 30, 1999, 1998 and 1997, respectively.
(2) Fixed-rate totals include loans with an initial fixed-rate period of 15
years, with annual rate adjustments thereafter, totaling $23.5 million,
$14.0 million and $23.6 million, respectively, at September 30, 1999, 1998
and 1997.
(3) Adjustable-rate totals include loans with initial fixed-rate periods of
five, seven or ten years, with annual rate adjustments thereafter, totaling
$157.0 million, $83.8 million, $35.7 million and $3.6 million, respectively,
at September 30, 1999, 1998, 1997 and 1996.
(4) Includes advances under home equity lines of credit of $3.2 million, $4.6
million, $5.9 million, $7.3 million, and $9.1 million, respectively, at
September 30, 1999, 1998, 1997, 1996 and 1995.
(5) Includes cooperative apartment loans of $3.7 million, $4.5 million, $4.8
million, $5.5 million and $5.8 million, respectively, at September 30, 1999,
1998, 1997, 1996 and 1995.
6
<PAGE>
The following table sets forth the contractual maturity of the
Company's loan portfolio at September 30, 1999. The table reflects the entire
unpaid principal balance of a loan in the maturity period that includes the
final payment date and, accordingly, does not give effect to periodic principal
repayments or possible prepayments. Principal repayments and prepayments totaled
$38.5 million, $24.2 million and $13.6 million for the years ended September 30,
1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
At September 30, 1999
---------------------------------------------------------------------------------------------------
Consumer and
One-to-Four Commercial Commercial
Family (1) Multi-Family Real Estate Construction Land Business Total
-------------- ------------- ------------- ------------ ------------ ------------- ----------------
Weighted Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
-------- ----- ------- ----- ------- ----- ------ ----- ------ ----- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contractual maturity:
One year or less (2) $ 1,708 8.15% $ --- ---% $ 8 9.50% $2,040 9.35% $ 755 9.20% $ 303 12.83% $ 4,814 9.12%
-------- ------- ------- ------ ------ ------ --------
After one year:
More than 1 year to 2 years 531 9.64 249 9.08 --- --- 772 9.75 469 8.18 358 11.32 2,379 10.04
More than 2 year to 3 years 598 9.47 --- --- 2,564 7.19 --- --- --- --- 645 11.10 3,807 10.13
More than 3 year to 5 years 3,061 8.37 --- --- 1,535 7.44 --- --- --- --- 1,578 10.09 6,174 9.97
More than 5 year to 10 years 7,946 7.46 5,701 8.16 7,274 8.00 --- --- --- --- 4,296 9.13 25,217 8.62
More than 10 year to 20 years 32,322 7.18 10,025 8.32 14,349 7.86 --- --- 278 9.69 1,074 8.53 58,048 7.76
More than 20 years 199,526 6.98 289 8.00 1,023 8.26 --- --- --- --- --- --- 200,838 7.21
-------- ------- ------- ------ ------ ------ --------
Total after one year 243,984 7.05 16,264 8.78 26,745 7.83 772 9.75 747 8.75 7,951 9.51 296,463 7.56
-------- ------- ------- ------ ------ ------ --------
Total amount due $245,692 7.06% $16,264 8.78% $26,753 7.83% $2,812 9.46% $1,502 8.98% $8,254 9.63% $301,277 7.62%
</TABLE>
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(1) Includes $3.2 million of advances under home equity lines of credit which
require minimum interest-only payments for the first five to ten years the
advance is outstanding, followed by a balloon payment thereafter. Also
includes $1.2 million in loans held for sale on the basis of their final
contractual maturity (all more than 20 years).
(2) Includes demand loans, loans having no stated maturity, and overdraft
loans.
7
<PAGE>
The following table sets forth the dollar amounts in each loan category at
September 30, 1999 that are contractually due after September 30, 2000, and
whether such loans have fixed interest rates or adjustable interest rates.
Due After September 30, 2000
----------------------------
Fixed Adjustable Total
------- ----------- --------
(In thousands)
Real estate mortgage loans:
One- to four-family $59,864 $184,120 $243,984
Multi-family 10,319 5,945 16,264
Commercial 14,296 12,449 26,745
Construction --- 772 772
Land 229 518 747
------- -------- --------
Total real estate mortgage loans 84,708 203,804 288,512
Consumer and commercial business loans 6,872 1,079 7,951
------- -------- --------
Total loans $91,580 $204,883 $296,463
======= ======== ========
Pursuant to Federal law, the aggregate amount of loans that the Company is
permitted to make to any one borrower or a group of related borrowers is
generally limited to 15% of the Association's unimpaired capital and surplus
(25% if the security for such loan has a "readily ascertainable" value or 30%
for certain residential development loans). At September 30, 1999, based on the
15% limitation, the Company's loans-to-one borrower limit was approximately $5.1
million. On the same date, the Company had no borrowers with outstanding
balances in excess of this amount. As of September 30, 1999, the largest dollar
amount outstanding to one borrower, or group of related borrowers, was $2.2
million secured by five apartment buildings located in Mt. Vernon and Yonkers,
New York; one four family residence located in Yonkers, New York and one single
family residence located in Eastchester, New York . At September 30, 1999, the
Company's next largest loan relationship or group outstanding totaled $1.2
million secured by a 28-unit apartment building and a single family residence
located in Yonkers, New York. These loans were performing in accordance with
their terms at September 30, 1999.
The Company's lending is subject to its written underwriting standards and
to loan origination procedures. Decisions on loan applications are made on the
basis of detailed applications submitted by the prospective borrower and
property valuations (consistent with the Company's appraisal policy) prepared by
independent appraisers. The loan applications are designed primarily to
determine the borrower's ability to repay, and the more significant items on the
application are verified through use of credit reports, financial statements,
tax returns and/or confirmations.
Under the Company's loan policy, the individual processing an application
is responsible for ensuring that all documentation is obtained prior to the
submission of the application to a loan officer for approval. In addition, the
loan officer verifies that the application meets the Company's underwriting
guidelines described below. Also, each application file is reviewed to assure
its accuracy and completeness. In 1997, the Company instituted an enhanced
process for quality control reviews of residential loan originations. The
quality control process includes reviews of underwriting decisions, appraisals
8
<PAGE>
and documentation. The Company is using the services of an independent company
to perform the quality control reviews.
The Company's lending officers have approval authority for one- to
four-family residential loans and cooperative apartment ("co-op") loans, up to
$350,000. One- to four-family residential loans over $350,000 to $500,000
require the approval of the Company's President or its Vice President and Chief
Lending Officer. Co-op loans over $350,000 require the approval and/or review of
the Chief Lending Officer. The Company's Chief Lending Officer has approval
authority for multi-family, commercial real estate loans, and for land loans up
to $500,000. Loans in excess of these amounts require the approval of the
Company's Loan Committee or Board of Directors. Various officers have approval
authority ranging from $2,000 on secured consumer loans, up to $50,000 on
fixed-rate home equity loans and up to $30,000 on commercial business loans.
Approval authorities on unsecured consumer loans range from $2,000 to $10,000.
Generally, the Company requires title insurance or abstracts on its
mortgage loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Company also
requires flood insurance to protect the property securing its interest when the
property is located in a flood plain.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. The cornerstone of
the Company's lending program is the origination of loans secured by mortgages
on owner-occupied one- to four-family residences. At September 30, 1999, $245.7
million, or 81.6%, of the Company's loan portfolio consisted of mortgage loans
on one- to four-family residences (including $1.2 million of loans held for
sale, $3.2 million of advances under home equity lines of credit and $3.7
million of co-op loans). Substantially all of the residential loans originated
by the Company are secured by properties located in the Company's primary
lending area. A majority of the mortgage loans originated by the Company are
generally retained and serviced by it, although a portion of its originations
were sold in the secondary market (with servicing retained) in fiscal 1999. At
September 30, 1999, approximately $6.8 million of the Company's one- to
four-family residential real estate loans were secured by non-owner occupied
properties. At that date, the average outstanding residential loan balance was
approximately $204,000, compared to $163,000 at September 30, 1998. The increase
in the average outstanding residential loan balance reflects the origination of
loans with larger loan balances.
Since the mid-1980s, the Company has offered ARM loans at rates and on
terms determined in accordance with market and competitive factors. The Company
offers one-year ARMs for terms of up to 30 years at a margin (generally 275
basis points) over the yield on the Average Weekly One Year U.S. Treasury
Constant Maturity Index. The one-year ARM loans currently offered by the Company
generally provide for a 200 basis point annual interest rate change cap and a
lifetime cap of 600 basis points over the initial rate. The Company also offers
a three-year ARM loan which adjusts based on a margin (generally 275 basis
points) over the yield on the three-year Treasury Note. The Company's three-year
ARM loans have a 200 basis point interest rate cap per adjustment period and a
lifetime cap of 500 basis points over the initial rate. The Company also offers
loans which are fixed for the first five-, seven-
9
<PAGE>
or ten-year period of the loan term and adjust annually thereafter based on a
specified margin over the yield on the Average Weekly One Year U.S. Treasury
Constant Maturity Index for the remaining loan term. These loans are classified
as ARM loans for reporting purposes and currently provide for an annual interest
rate cap not to exceed 300 basis points for the initial adjustment period (and
200 basis points thereafter) and a lifetime cap of 500 basis points.
Initial interest rates offered on the Company's ARMs may be 100 to 350
basis points below the fully indexed rate. Although borrowers on such loans are
generally qualified at the fully indexed rate, the risk of default on these
loans may increase as interest rates increase. See "- Delinquencies and
Non-Performing Assets." The Company's ARMs do not permit negative amortization
of principal, do not contain prepayment penalties and are not convertible into
fixed-rate loans. At September 30, 1999, one- to four-family ARMs (including
loans of $157.0 million earning a fixed rate of interest for initial periods of
five, seven or 10 years) totaled $185.6 million, or 61.7% of the Company's total
loan portfolio.
During fiscal 1997, the Company began to offer a 30-year residential
mortgage loan product with a fixed rate for the first fifteen years and annual
rate adjustments thereafter based on a specified margin over the Average Weekly
One Year U.S. Treasury Constant Maturity Index. In addition, the loan has a
conversion option which allows the borrower to convert, during years sixteen
through eighteen, to a fixed rate for the remaining term. The Company also
offers conventional fixed-rate loans with maximum terms of up to 30 years,
although the Company has recently emphasized originations of fixed-rate loans
with terms of 10 to 15 years. The interest rate on such loans is generally based
on competitive factors. The fixed-rate one- to four-family loans described in
this paragraph are typically underwritten in accordance with Freddie Mac and
Fannie Mae standards to permit their sale in the secondary market. The Company
engages in secondary market sales of a portion of its residential mortgage
originations, as market conditions warrant. Loans held for sale at September 30,
1999 amounted $1.2 million and represented a variety of fixed-rate one- to
four-family loans.
The Company originates home equity lines of credit secured by a lien on
the borrower's residence. The Company's home equity lines are generally limited
to $250,000. The Company uses the same underwriting standards for home equity
lines as it uses for one- to four-family residential mortgage loans. The
interest rates for home equity lines of credit float at a stated margin over the
lowest prime rate published in THE WALL STREET JOURNAL and may not exceed 15.75%
over the life of the loan. The Company currently offers home equity lines for
terms of up to 30 years with interest only paid for the first 10 years of the
loan term. At September 30, 1999, the Company had $3.2 million of outstanding
advances under home equity lines and an additional $4.4 million of funds
committed, but undrawn, under home equity lines of credit.
The Company also originates loans secured by co-ops and condominiums
located in its market area. Condominium and co-op loans are made on
substantially the same terms as one- to four-family loans, except that co-op
loans are made only at adjustable rates of interest. At September 30, 1999, the
Company had $24.1 million of condominium loans and $3.7 million of co-op loans.
In underwriting one- to four-family residential real estate loans, the
Company evaluates the borrower's ability to make principal, interest and escrow
payments, as well as the value of
10
<PAGE>
the property that will secure the loan and debt-to-income ratios. The Company
currently originates residential mortgage loans with loan-to-value ratios of up
to 80% for owner-occupied homes (95% with private mortgage insurance to reduce
the Company's exposure to 80% or less); up to 70% for non-owner occupied homes;
and up to 90% for co-op loans. The Company's home equity lines of credit are
originated in amounts which, together with the amount of the first mortgage,
generally do not exceed 80% of the appraised value of the property securing the
loan.
The Company's residential mortgage loans customarily include due-on-sale
clauses giving the Company the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Company has increased
its emphasis on the origination of permanent multi-family and commercial real
estate loans in recent years in order to increase the interest rate sensitivity
and yield of its loan portfolio and to complement residential lending
opportunities. The Company's commercial real estate and multi-family loan
portfolio includes loans secured by office buildings, small business facilities,
health care facilities, industrial real estate, apartment buildings and other
income producing properties located in its market area. At September 30, 1999,
the Company had $26.8 million in commercial real estate loans, representing 8.9%
of the total loan portfolio, and $16.3 million in multi-family loans, or 5.4% of
the total loan portfolio.
The Company's permanent multi-family and commercial real estate loans
generally carry a maximum term of 20 years and have adjustable rates generally
based on a specific index, plus a margin. These loans are generally made in
amounts of up to 75% of the lesser of the appraised value or the purchase price
of the property, with a projected debt service coverage ratio of at least 125%.
Appraisals on properties securing multi-family and commercial real estate loans
are performed by an independent appraiser designated by the Company at the time
the loan is made. All appraisals on multi-family or commercial real estate loans
are reviewed by the Company's management. In addition, the Company's
underwriting procedures require verification of the borrower's credit history,
income and financial statements, banking relationships, references and income
projections for the property. Where feasible, the Company seeks to obtain
personal guarantees on these loans. For loans in excess of $250,000, Phase I
environmental studies are performed.
The table below sets forth, by type of security property, the number and
amount of the Company's multi-family and commercial real estate loans at
September 30, 1999. Substantially all of the loans referred to in the table
below are secured by properties located in the Company's market area.
11
<PAGE>
Outstanding Amount Non-
Number Principal Performing or
of Loans Balance of Concern(1)
--------- ------------ ---------------
(Dollars in thousands)
Commercial real estate:
Small business facilities 49 $15,938 $305
Office buildings 3 988 ---
Health care facilities 5 857 ---
Mixed use 21 8,901 ---
Industrial real estate 1 69 ---
Multi-family 68 16,264 ---
--- ------- ----
Total multi-family and
commercial real estate loans 147 $43,017 $305
=== ======= ====
- -----------------------
(1) See "- Delinquencies and Non-Performing Assets"
At September 30, 1999, the Company's largest commercial real estate loan
had an outstanding balance of $1.1 million. This loan was originated in May 1999
and is secured by a store and apartments located in New York, New York. At
September 30, 1999, the largest multi-family loan had a balance of $973,000 and
is secured by a 24-unit apartment building located in Corona, New York.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties, and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. There can be
no assurance that the Company will not experience increased credit problems as a
result of its increase in multi-family and commercial real estate loans.
CONSTRUCTION AND LAND LENDING. The Company originates a modest amount of
construction loans to individuals and builders for the construction of
residential real estate. At September 30, 1999, the Company's construction loan
portfolio totaled $2.8 million, or 0.9% of the total loan portfolio. The Company
also currently originates a limited number of land loans primarily for the
purpose of developing residential subdivisions. At September 30, 1999, the
Company's land loan portfolio totaled $1.5 million, or 0.5% of the total loan
portfolio. At September 30, 1999, all of the Company's land loans were made for
the purpose of developing residential lots except for one loan totaling $229,000
which was secured by commercial real estate.
Construction loans to individuals for the construction of their residences
are structured
12
<PAGE>
to convert to permanent loans at the end of the construction phase, which
typically runs up to one year. These construction loans have rates and terms
comparable to one- to four-family loans then offered by the Company, except that
during the construction phase, the borrower pays interest only at a specified
margin over the prime rate. The maximum loan-to-value ratio of owner-occupied
single-family construction loans is 75%. Residential construction loans are
generally underwritten pursuant to the same guidelines used for originating
permanent residential loans. At September 30, 1999, there were $180,000 of
construction loans outstanding to persons intending to occupy the premises upon
the completion of the construction.
The Company also originates construction loans to builders of one- to
four-family residences. Such loans generally carry terms of up to two years and
require the payment of interest only for the loan term. The maximum
loan-to-value ratio on loans to builders for the construction of residential
real estate is 75%. When practical, the Company seeks to obtain personal
guarantees on such loans. The Company generally limits loans to builders for the
construction of homes on speculation for sale to two homes per builder. At
September 30, 1999, the Company had $2.6 million of construction loans
outstanding to builders of one- to four-family residences.
The Company's construction loan agreements generally provide that loan
proceeds are disbursed in increments as construction progresses. The Company
reviews the progress of the construction of the dwelling before disbursements
are made.
The Company also makes loans to builders and developers for the
development of one- to four-family lots in the Company's market area. All of the
Company's land loans have been originated with adjustable rates of interest tied
to the prime rate of interest and have terms of five years or less. Land loans
are generally made in amounts up to a maximum loan-to-value ratio of 65% on raw
land and up to 75% on developed building lots based upon an independent
appraisal. When feasible, the Company obtains personal guarantees for its land
loans.
The table below sets forth, by type of security property, the number and
amount of the Company's construction and land loans at September 30, 1999, all
of which are secured by properties located in the Company's market area.
<TABLE>
<CAPTION>
Outstanding Amount Non-
Number Loan Principal Performing or
of Loans Commitment Balance of Concern(1)
--------- ------------ ------------ ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Single-family construction 8 $2,092 $1,090 $---
Other construction 1 720 50 ---
Residential land 7 1,224 1,224 ---
Other land 2 278 278 ---
-- ------ ------ ----
Total construction and land loans 18 $4,314 $2,642 $---
== ====== ====== ====
</TABLE>
- -------------------
(1) See "- Delinquencies and Non-Performing Assets"
13
<PAGE>
Construction and land loans are obtained principally through referrals
from the Company's and management's contacts in the business community as well
as existing and walk-in customers. The application process includes a submission
to the Company of accurate plans, specifications and costs of the project to be
constructed/developed. These items are used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus building).
Construction and land lending generally affords the Company an opportunity
to receive interest at rates higher than those obtainable from permanent
residential loans and to receive higher origination and other loan fees. In
addition, construction and land loans are generally made with adjustable rates
of interest or for relatively short terms. Nevertheless, construction and land
lending is generally considered to involve a higher level of credit risk than
one- to four-family residential lending due to the concentration of principal in
a limited number of loans and borrowers, as well as the effects of general
economic conditions on development properties and on real estate developers and
managers. In addition, the nature of these loans is such that they are more
difficult to evaluate and monitor. Finally, the risk of loss on construction and
land loans is dependent largely upon the accuracy of the initial estimate of the
individual property's value upon completion and the estimated cost (including
interest) of construction. If the cost estimate proves to be inaccurate, the
Company may be required to advance funds beyond the amount originally committed
to permit completion of the property.
CONSUMER LENDING. In order to increase the interest rate sensitivity of
the loan portfolio and provide a broader range of loan products to its retail
customers, the Company originates a variety of consumer loans, including
automobile, home equity, deposit account and other loans for household and
personal purposes. At September 30, 1999, consumer loans totaled $7.2 million,
or 2.4% of total loans outstanding. The Company intends to emphasize its
consumer lending in the future and to consider hiring an additional consumer
lending officer in order to increase volume.
Consumer loan terms vary according to the type of loan and value of
collateral, length of contract and creditworthiness of the borrower. The
Company's consumer loans are made at fixed interest rates, with terms of up to
10 years. Home equity loans are made at fixed rates up to a maximum loan amount
of $50,000.
The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's payment history on other debts and
the ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
14
<PAGE>
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At September 30, 1999, there were $103,000 of consumer loans
delinquent 90 days or more. There can be no assurance that delinquencies will
not increase in the future.
COMMERCIAL BUSINESS LENDING. Federally chartered savings institutions,
such as the Association, are authorized to make secured or unsecured loans and
letters of credit for commercial, corporate, business and agricultural purposes
and to engage in commercial leasing activities, up to a maximum of 20% of total
assets, provided that amounts in excess of 10% relate to small business loans
(as defined). The Company may from time to time make a limited number of secured
and unsecured commercial loans to local businesses. At September 30, 1999, the
Company had $1.1 million of commercial business loans outstanding, representing
0.3% of the total loan portfolio.
The Company's commercial business lending policy includes credit file
documentation and analysis of the borrower's character and capacity to repay the
loan, the adequacy of the borrower's capital and collateral, and an evaluation
of conditions affecting the borrower. Analysis of the borrower's past, present
and future cash flows is also an important aspect of the Company's current
credit analysis.
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business.
ORIGINATIONS, PURCHASES AND SALES OF LOANS
Loan applications are taken at each of the Company's offices. Applications
are processed and approved at the Company's Loan Center which is located in the
corporate headquarters. The Company currently offers incentives to employees for
loan referrals. The Company also employs commissioned loan originators and
utilizes mortgage brokers to assist in the process of obtaining loans. Total
loan originations increased substantially to $178.4 million in fiscal 1999,
compared to $151.7 million in fiscal 1998 and $70.1 million in fiscal 1997,
primarily reflecting higher one- to four-family loan originations.
While the Company originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon the relative customer demand for
loans in its market. Demand is affected by the local economy and the interest
rate environment.
Historically, most of the fixed-rate one- to four-family residential loans
originated by the Company were retained in its portfolio. However, in order to
reduce its vulnerability to
15
<PAGE>
changes in interest rates, the Company currently sells in the secondary market a
portion of its fixed-rate residential mortgage originations. In addition,
certain current year originations of adjustable-rate loans are generally sold in
the secondary market. Residential mortgage sales amounted to $37.4 million in
fiscal 1999, compared to $69.8 million in fiscal 1998 and $2.8 million in fiscal
1997. When loans are sold, the Company typically retains the responsibility for
collecting and remitting loan payments, making certain that real estate tax
payments are made on behalf of borrowers, and otherwise servicing the loans. At
September 30, 1999, the Company serviced $88.4 million of mortgage loans for
others.
The following table sets forth the Company's loan originations, sales,
repayments and other portfolio activity for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended September 30,
---------------------------------------------
1999 1998 1997
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Unpaid principal balances at beginning of year $198,900 $141,488 $88,246
-------- -------- -------
Loans originated:
Real estate mortgage loans:
One- to four-family(1) 141,648 139,325 60,497
Multi-family 8,349 3,372 839
Commercial 19,697 2,235 2,815
Construction 4,597 3,734 2,913
Land 732 50 150
Consumer and commercial business loans 3,367 2,981 2,919
-------- -------- -------
Total loans originated 178,390 151,697 70,133
-------- -------- -------
Loans sold:
One-to four-family real estate mortgage loans (37,476) (69,810) (2,822)
-------- -------- -------
Principal repayments:
Real estate mortgage loans (35,866) (21,325) (10,846)
Consumer and commercial business loans (2,637) (2,856) (2,766)
-------- -------- -------
Total principal repayments (38,503) (24,181) (13,612)
-------- -------- -------
Net charge-offs (34) (166) (144)
Transfers to real estate owned --- (128) (313)
-------- -------- -------
Unpaid principal balances at end of year 301,277 198,900 141,488
Less:
Construction loans in process (1,672) (743) (1,091)
Allowance for loan losses (1,503) (1,302) (1,093)
Deferred loan origination costs (fees), net 1,074 478 (184)
-------- -------- --------
Net loans at end of year $299,176 $197,333 $139,120
======== ======== ========
</TABLE>
16
<PAGE>
- -------------------------
(1) Consists of (i) adjustable-rate loans of $107.8 million, $89.0 million and
$32.3 million, and (ii) fixed-rate loans of $32.7 million, $50.3 million and
$28.2 million for the years ended September 30, 1999, 1998 and 1997,
respectively.
DELINQUENCIES AND NON-PERFORMING ASSETS
DELINQUENCY PROCEDURES. When a borrower fails to make a required payment
on a loan, the Company attempts to cure the delinquency by contacting the
borrower. A late notice is sent on all loans over 16 days delinquent. Additional
written and verbal contacts may be made with the borrower between 30 and 90 days
after the due date. If the loan is contractually delinquent 60 days, the Company
usually sends a 30-day demand letter to the borrower and, after the loan is
contractually delinquent 91 days, institutes appropriate action to foreclose on
the property. If foreclosed, the property is sold at auction and may be
purchased by the Company. Delinquent consumer loans are generally handled in a
similar manner. The Company's procedures for repossession and sale of consumer
collateral are subject to various requirements under New York consumer
protection laws.
Real estate acquired by the Company as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired or expected to be acquired by foreclosure or deed in lieu
of foreclosure, it is recorded at estimated fair value less the estimated cost
of disposition, with the resulting write-down charged to the allowance for loan
losses. After acquisition, all costs incurred in maintaining the property are
expensed. Costs relating to the development and improvement of the property,
however, are capitalized.
The following table sets forth certain information with respect to loan
portfolio delinquencies at the dates indicated.
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
--------------------------------- ---------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
---------------- ---------------- ---------------- ----------------
Number Principal Number Principal Number Principal Number Principal
of Loans Balance of Loans Balance of Loans Balance of Loans Balance
-------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family 1 $20 4 $347 4 $257 5 $ 515
Multi-family --- --- --- --- --- --- --- ---
Construction --- --- --- --- --- --- --- ---
Land --- --- --- --- --- --- --- ---
Commercial --- --- 2 305 --- --- 1 203
Consumer loans 3 7 8 103 3 43 5 35
------ ----- ----- ----- ---- ----- ---- -----
Total 4 $27 14 $755 7 $300 11 $ 753
====== ===== ===== ===== ==== ===== ==== =====
Delinquent loans to total loans (1) 0.01% 0.25% 0.15% 0.38%
===== ===== ===== =====
</TABLE>
- ------------------------------------------------------
(1)If loans held for sale are excluded from total loans, the percentages would
have remained the same for the 60-89 days category and the 90 days or more
category at September 30, 1999 (0.16% and 0.41%, respectively, at September
30, 1998).
17
<PAGE>
CLASSIFICATION OF ASSETS. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful, and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets, with the additional characteristics that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of the
institution is not warranted. Assets classified as substandard or doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as loss, the institution must
either establish specific allowances for loan losses in the amount of 100% of
the portion of the asset classified loss, or charge off such amount. If an
institution does not agree with an examiner's classification of an asset, it may
appeal this determination to the Regional Director of the OTS. On the basis of
management's review, at September 30, 1999 the Company had classified $1.3
million of loans as substandard.
The Company's classified assets consist principally of non-performing
loans and certain other loans of concern discussed herein. As of the date
hereof, these asset classifications are substantially consistent with those of
the OTS and FDIC.
NON-PERFORMING ASSETS. The table below sets forth the amounts and
categories of the Company's non-performing assets at the dates indicated. Loans
are placed on non-accrual status when the collection of principal or interest
becomes doubtful. Real estate owned represents properties acquired in settlement
of loans. The Company's prospective adoption of Statement of Financial
Accounting Standards ("SFAS") No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF
A LOAN, effective October 1, 1995, had no impact on the comparability of this
information.
18
<PAGE>
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------
1999 1998 1997 1996 1995
-------- ------ -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans past due ninety days or more:
Real estate mortgage loans:
One- to four-family $347 $515 $389 $1,757 $2,759
Multi-family (1) --- --- --- --- 389
Commercial 305 203 211 214 ---
Land --- --- 250 250 49
Construction --- --- 279 511 279
Consumer loans 103 35 9 43 54
------ ------ ------ ------ ------
Total 755 753 1,138 2,775 3,530
Real estate owned, net --- 305 379 603 227
------ ------ ------ ------ ------
Total non-performing assets $755 $1,058 $1,517 $3,378 $3,757
====== ====== ====== ====== ======
Allowance for loan losses $1,503 $1,302 $1,093 $937 $719
====== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans receivable 0.25% 0.41% 0.94% 3.14% 4.15%
Non-performing assets to total assets 0.16 0.28 0.48 1.30 1.80
Allowance for loan losses to:
Non-performing loans 199.07 172.91 96.05 33.77 20.37
Total loans receivable 0.50 0.70 0.90 1.06 0.84
</TABLE>
- --------------------------------
(1) Includes a loan of $309,000 classified as a troubled debt restructuring at
September 30, 1995. Collections and charge-offs in fiscal 1996 eliminated the
recorded investment in this loan.
For the year ended September 30, 1999, gross interest income of $69,000
would have been recorded if the non-accrual loans at September 30, 1999 had
remained current in accordance with their original terms. The amount of interest
income actually received on such loans in fiscal 1999 was $42,000. See Note 3 of
the Notes to Consolidated Financial Statements.
At September 30, 1999, the Company's non-performing loans consisted of
four loans secured by one- to four-family real estate located in the Company's
market area which totaled $347,000; two loans for $305,000 secured by two stores
and 13 apartments located in Yonkers, New York; and eight consumer loans which
totaled $103,000. At September 30, 1999, there was no real estate owned.
OTHER LOANS OF CONCERN. In addition to the non-performing loans and real
estate owned discussed in the preceding section, as of September 30, 1999 there
were other loans of concern totaling approximately $451,000. These are loans
with respect to which known information about the possible credit problems of
the borrowers or the cash flows of the security properties have caused
management to have concerns as to the ability of the borrowers to comply with
present loan repayment terms and which may result in the future inclusion of
19
<PAGE>
such items in the non-performing asset categories. Management has considered the
Company's non-performing loans and other loans of concern in establishing the
allowance for loan losses.
As of September 30, 1999, the Company's other loans of concern included
the following loans with principal balances in excess of $200,000:
The Company has a $230,000 land loan, secured by a lot located in
Patterson, New York. The borrower intended to build a commercial building on
the security property. At September 30, 1999, although this loan was
performing, it was classified substandard due to hazardous building materials
on an adjacent lot which may result in a decline in value of the security
property. Although a phase I environmental study performed on the security
property did not disclose any contamination to the security property from the
adjoining lot, the contamination on the adjacent lot was subsequently
discovered and has prevented the borrower from using the security property
for its intended purpose. As a result, the loan was extended and modified in
January 1997 as a 15-year, self-liquidating loan with a market rate of
interest. The borrower is continuing to make payments on this loan as
required by the terms of the loan agreement and is waiting for the resolution
of the problem with the adjacent property.
The Company has a $221,000 participation interest in a $3.5 million
commercial mortgage loan secured by a two-story office building located in
Queens, New York originated by the Thrift Association Service Corporation
("TASCO"). This loan originally had a 30-year amortization schedule with a
balloon payment which was due in December 1996. Prior to this scheduled
maturity, the borrower had been unsuccessful in securing financing in order
to payoff the loan. As a result, a short-term extension was granted at the
original terms of the loan until December 1997. In December 1997 the loan was
extended at market terms for an additional five-year term with principal
payments based on a 25-year amortization schedule. Although the loan was
current as of September 30, 1999, the Company considers this loan to be of
concern due to its past performance and extended term.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses charged to operations based on management's
evaluation of the risk inherent in the loan portfolio. The allowance is
established as an amount that management believes will be adequate to absorb
probable losses on existing loans. The allowance for loan losses consists of
amounts specifically allocated to non-performing loans and potential problem
loans (if any) as well as allowances determined for each major loan category.
Loan categories such as single-family residential mortgages and consumer loans
are generally evaluated on an aggregate or "pool" basis by applying loss factors
to the current balances of the various loan categories. The loss factors are
determined by management based on an evaluation of historical loss experience,
delinquency trends, volume and type of lending conducted, and the impact of
current economic conditions in the Company's market area.
Management's evaluation of the adequacy of the allowance, which is subject
to periodic review by the Company's regulators, takes into consideration such
factors as the historical loan
20
<PAGE>
loss experience, known and inherent risks in the portfolio, changes in the
nature and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, estimated value of underlying collateral, and current
economic conditions that may affect borrowers ability to pay. While management
believes that it uses the best information available to determine the allowance
for loan losses, unforeseen market conditions could result in adjustments to the
allowance for loan losses, and net earnings could be significantly affected, if
circumstances differ substantially from the estimates made in making the final
determination.
The following table sets forth activity in the allowance for loan losses
for the periods indicated. The Company's prospective adoption of SFAS No. 114 in
fiscal 1995 had no impact on the comparability of this information.
For the Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
------- ------- -------- -------- ----------
(Dollars in Thousands)
Balance at beginning of year $1,302 $1,093 $937 $719 $311
Provision for losses 235 375 300 462 493
Charge-offs:
Real estate mortgage loans:
One- to four-family (23) (45) (132) (97) (76)
Multi-family (1) --- --- --- (203) ---
Land --- (17) --- --- ---
Construction --- (91) --- --- ---
Consumer loans (20) (40) (25) (33) (13)
------ ------ ------ ---- ----
Total charge-offs (43) (193) (157) (333) (89)
Recoveries 9 27 13 89 4
------ ------ ------ ---- ----
Net charge-offs (34) (166) (144) (244) (85)
Balance at end of year $1,503 $1,302 $1,093 $937 $719
====== ====== ====== ==== ====
Ratio of net charge-offs to
average total loans 0.02% 0.10% 0.15% 0.29% 0.10%
- -------------------------
(1)Charge-offs in fiscal 1996 relate to the Company's purchased participation
interests in a multi-family loan originated by TASCO.
21
<PAGE>
The following table sets forth the allowance for loan losses allocated by
loan category, the total loan amounts by category, and the percent of loans in
each category to loans receivable at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------- --------------------------------- --------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Loan Each Loan Each Loan Each
Amounts Category Amounts Category Amounts Category
Allowance by to Total Allowance by to Total Allowance by to Total
Amount Category(1) Loans Amount Category(1) Loans Amount Category Loans
---------- ------------ --------- -------- -------------- --------- ---------- ---------- ----------
(Dollars in thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family $895 $244,466 81.5% $917 $153,891 82.9% $608 $91,367 75.5%
Multi-family 86 16,264 5.4 16 7,846 4.2 11 5,658 4.7
Commercial 297 26,753 8.9 160 12,766 6.9 121 11,990 9.9
Construction 11 2,812 0.9 23 2,613 1.4 98 2,786 2.3
Land(2) 118 1,502 0.5 128 932 0.5 196 1,814 1.5
Consumer and commercial
business loans 96 8,254 2.8 58 7,544 4.1 59 7,419 6.1
------ -------- ----- ------ -------- ----- ------ -------- -----
Total $1,503 $300,051 100.0% $1,302 $185,592 100.0% $1,093 $121,034 100.0%
====== ======== ===== ====== ======== ===== ====== ======== =====
</TABLE>
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
Percent of Percent of
Loans in Loans in
Loan Each Loan Each
Amounts Category Amounts Category
Allowance by to Total Allowance by to Total
Amount Category Loans Amount Category Loans
---------- ----------- --------- --------- ----------- ----------
(Dollars in thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $538 $62,283 70.6% $302 $63,282 74.4%
Multi-family 11 5,471 6.2 64 5,647 6.6
Commercial 91 9,117 10.3 66 6,575 7.7
Construction 74 2,175 2.5 75 2,205 2.6
Land(2) 166 1,934 2.2 171 2,112 2.5
Consumer and commercial
business loans 57 7,266 8.2 41 5,271 6.2
---- ------- ----- ---- ------- -----
Total $937 $88,246 100.0% $719 $85,092 100.0%
==== ======= ===== ==== ======= =====
</TABLE>
- -------------------------
(1) Excludes real estate mortgage loans held for sale of $1.2 million, $13.3
million and $20.4 million, respectively, at September 30, 1999, 1998 and 1997.
(2) The allowance principally represents an allocation to land loans "of
concern." See "- Other Loans of Concern."
22
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The Company utilizes mortgage-backed and other securities in
virtually all aspects of its asset/liability management strategy. In making
investment decisions, the Board of Directors considers, among other things, the
Company's yield and interest rate objectives, its interest rate and credit risk
position, and its liquidity and cash flow.
Yonkers Savings must maintain minimum levels of investments that qualify
as liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Cash flow projections are regularly reviewed
and updated to assure that adequate liquidity is maintained.
Generally, the investment policy of the Company is to invest funds among
categories of investments and maturities based upon the Company's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. SFAS No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, requires that securities be
classified into three categories: trading, held to maturity, and available for
sale. Securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and are reported at
fair value with unrealized gains and losses included in earnings. Debt
securities for which the Company has the positive intent and ability to hold to
maturity are classified as held to maturity and reported at amortized cost. All
other securities not classified as trading or held to maturity are classified as
available for sale. Available-for-sale securities are reported at fair value
with unrealized gains and losses included, on an after-tax basis, in a separate
component of stockholders' equity. At September 30, 1999, the Company had no
securities classified as trading. At September 30, 1999, $116.7 million or 84.2%
of the Company's mortgage-backed and other securities was classified as
available for sale. The remaining $21.9 million, or 15.8%, was classified as
held to maturity.
MORTGAGE-BACKED SECURITIES. The Company invests in mortgage-backed
securities in order to supplement loan production and achieve its
asset/liability management goals. The Company has also invested in
mortgage-backed securities, including collateralized mortgage obligations
("CMOs"), in order to take advantage of the spread between the yield on such
securities and the cost of borrowings from the FHLB and other "wholesale"
sources. In a number of instances, the expected maturity of the securities
purchased has been significantly longer than the term of the related borrowings.
Substantially all of the mortgage-backed securities owned by the Company
are issued, insured or guaranteed either directly or indirectly by a federal
agency or are rated "AA" or higher. As of September 30, 1999, the Company did
not have any mortgage-backed securities of a single issuer in excess of 10% of
the Company's stockholders' equity, except for federal agency obligations. At
September 30, 1999, the Company classified mortgage-backed securities of $21.4
million as held to maturity and $75.9 million as available for sale.
23
<PAGE>
Consistent with its asset/liability management strategy, at September 30, 1999
$19.4 million, or 19.4%, of the Company's mortgage-backed securities had
adjustable interest rates.
CMOs are securities derived by reallocating the cash flows from
mortgage-backed securities or pools of mortgage loans in order to create
multiple classes, or tranches, of securities with coupon rates and average lives
that differ from the underlying collateral as a whole. The term to maturity of
any particular tranche is dependent upon the prepayment speed of the underlying
collateral as well as the structure of the particular CMO. As a result, the cash
flows (and hence the values) of certain CMOs are subject to substantial change.
Management believes that CMOs at times represent attractive investment
alternatives relative to other investments due to the wide variety of maturity
and repayment options available through such investments. In particular, the
Company has from time to time concluded that short and intermediate duration
CMOs (seven-year or less estimated average life) represent a better combination
of rate and duration than adjustable-rate mortgage-backed securities. At
September 30, 1999, the Company held $4.5 million of CMOs, all of which were
classified as held-to-maturity.
Prior to the purchase of a CMO, the Company conducts an analysis of the
security to assess its price volatility. The analysis is designed to show the
expected change in the value of the security that would result from immediate
parallel shifts in the yield curve of plus or minus 100, 200 and 300 basis
points. The Company establishes risk tolerance levels for its CMO activities on
a periodic basis based on its overall asset/liability management goals and
market conditions.
The fair value of the Company's mortgage-backed securities, particularly
those carrying fixed rates, would decline significantly in the event of an
increase in interest rates. In addition, a decrease in interest rates could
result in an increase in prepayments on the fixed-rate portion of the Company's
mortgage-backed securities portfolio. Funds from such prepayments may be
reinvested at a lower yield. Similarly, a decline in interest rates would result
in the downward adjustment of the rates earned on the Company's adjustable-rate,
mortgage-backed securities portfolio resulting in lower yields and interest
income in future periods.
For additional information regarding the Company's mortgage-backed
securities portfolio, see Note 2 of the Notes to Consolidated Financial
Statements.
24
<PAGE>
The following table sets forth the amortized cost and fair value of the
mortgage-backed securities portfolio, by accounting classification category and
by type of security, at the dates indicated:
At September 30,
-------------------------------------------------------
1999 1998 1997
----------------- -------------------- ----------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-------- ------- -------- -------- ------- -------
Held to Maturity
Pass-through securities $ 16,897 $16,934 $ 24,704 $ 25,231 $35,283 $35,905
CMOs 4,539 4,531 9,104 9,165 15,063 15,066
-------- ------- -------- -------- ------- -------
Total 21,436 21,465 33,808 34,396 50,346 50,971
-------- ------- -------- -------- ------- -------
Available for Sale
Pass-through securities 78,651 75,944 78,549 79,678 34,460 34,892
CMOs --- --- --- --- 8,148 8,146
-------- ------- -------- -------- ------- -------
Total 78,651 75,944 78,549 79,678 42,608 43,038
-------- ------- -------- -------- ------- -------
Total mortgage-backed
securities $100,087 $97,409 $112,357 $114,074 $92,954 $94,009
======== ======= ======== ======== ======= =======
All mortgage-backed securities are guaranteed by, Ginnie Mae, Fannie Mae
or Freddie Mac, except for privately-issued securities with an amortized cost of
$115,000, $160,000 and $302,000 at September 30, 1999, 1998 and 1997,
respectively.
25
<PAGE>
The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of the Company's mortgage-backed
securities at September 30, 1999. The entire amortized cost and fair value of
such securities are reflected in the maturity period that includes the final
security payment date and, accordingly, no effect has been given to periodic
repayments or possible prepayments. In addition, under the structure of some of
the Company's CMOs, the Company's short- and intermediate-tranche interests have
repayment priority over the longer-term tranches of the same underlying mortgage
pool.
<TABLE>
<CAPTION>
At September 30, 1999
--------------------------------------------------------
Held to Maturity Available for Sale
----------------------------- --------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
-------- --------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Pass-through securities:
Due after 1 year but within 5 years $ 318 $ 332 7.95% $ --- $ --- ---%
Due after 5 years but within 10 years 67 68 7.39 --- --- ---
Due after 10 years 16,512 16,534 6.58 78,651 75,944 6.81
------- ------- ---- ------- ------- ----
Total $16,897 $16,934 6.60% $78,651 $75,944 6.81%
======= ======= ==== ======= ======= ====
CMOs:
Due after 1 year but within 5 years $ 280 $ 285 8.00% $ --- $ --- ---%
Due after 5 years but within 10 years 641 638 5.75 --- --- ---
Due after 10 years 3,618 3,608 5.62 --- --- ---
------- ------- ---- ------- ------- ----
Total $ 4,539 $ 4,531 5.79% $ --- $ --- ---%
======= ======= ==== ======= ======= ====
</TABLE>
The following table sets forth the activity in the mortgage-backed
securities portfolio for the periods indicated.
For the Year Ended September 30,
-------------------------------------
1999 1998 1997
----------- ------------ ------------
(In thousands)
Amortized cost at beginning of year $112,357 $92,954 $80,964
Purchases:
Pass-through securities:
Fixed rate 34,851 74,391 15,144
Adjustable rate --- --- 2,502
-------- ------- -------
Total pass-through securities 34,851 74,391 17,646
CMOs --- --- 8,149
-------- ------- -------
Total purchases 34,851 74,391 25,795
-------- ------- -------
Sales (15,377) (16,667) (4,372)
Principal repayments (31,414) (38,116) (9,421)
Premium amortization, net of
discount accretion (330) (205) (12)
-------- ------- -------
Amortized cost at end of year $100,087 $112,357 $92,954
======== ======= =======
26
<PAGE>
OTHER SECURITIES. In addition to mortgage-backed securities, the Company
also invests in high-quality assets (primarily government and agency
obligations) with short and intermediate terms (typically seven years or less)
to maturity. At September 30, 1999, the Company did not own any investment
securities of a single issuer, which exceeded 10% of the Company's stockholders'
equity, other than U.S. Government or federal agency obligations. From time to
time, the Company holds high-grade, medium-term (up to five years) corporate
debt securities, as well as common stocks and mutual fund shares. See Note 2 of
the Notes to Consolidated Financial Statements for additional information
regarding the Company's securities portfolio.
The following table sets forth the amortized cost and fair value of other
securities, by accounting classification category and by type of security, at
the dates indicated:
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------
1999 1998 1997
--------------- --------------- -----------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-------- ------ -------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale
U.S. Government and Agency securities $41,527 $40,156 $43,801 $44,810 $40,805 $41,469
Equity securities 818 612 967 737 1,923 1,779
------- ------- ------- ------- ------- -------
Total 42,345 40,768 44,768 45,547 42,728 43,248
------- ------- ------- ------- ------- -------
Held to Maturity
U.S. Government and Agency securities $ 500 $ 494 $ 9,495 $ 9,553 $25,983 $25,931
------- ------- ------- ------- ------- -------
Total other securities $42,845 $41,262 $54,263 $55,100 $68,711 $69,179
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of other debt securities at
September 30, 1999, by remaining period to contractual maturity.
At September 30, 1999
--------------------------------------------
Held to Maturity Available for Sale
--------------------- ----------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
------- ----- ------- -------- ----- -------
(Dollars in thousands)
U.S. Government and Agency securities:
Due after 1 year but within 5 years $500 $494 5.99% $ --- $ --- ---%
Due after 5 years but within 10 years --- --- --- 2,000 2,021 7.58
Due after 10 years --- --- --- 39,527 38,135 7.24
---- ---- ---- ------- ------- ----
Total $500 $494 5.99% $41,527 $40,156 7.25%
==== ==== ==== ======= ======= ====
27
<PAGE>
SOURCES OF FUNDS
GENERAL. The Company's primary sources of funds are deposits, borrowings,
payments (including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities and other funds provided from operations.
DEPOSITS. The Company offers a variety of deposit accounts having a wide
range of interest rates and terms. The Company's deposits consist of regular
savings (passbook) accounts, transaction (NOW and checking) accounts, money
market accounts, club accounts and certificate accounts. The Company only
solicits deposits in its market area and does not accept brokered deposits. The
Company relies primarily on competitive pricing policies, advertising and
customer service to attract and retain these deposits and provides incentives to
employees who refer new deposit customers to the Company. The Company also has
ATMs located in eight branch offices and three offsite locations, one located in
a hospital and two in supermarkets.
The variety of deposit accounts offered by the Company has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. As certain customers have become more interest rate conscious,
the Company has become more susceptible to short-term fluctuations in deposit
flows. The Company manages the pricing of its deposits in keeping with its
asset/liability management, profitability and growth objectives.
Management believes that the "core" portion of the Company's regular
savings, transaction, money market and club accounts can have a lower cost and
be more resistant to interest rate changes than certificate accounts and
therefore are relatively stable sources of deposits. These core accounts
increased by a higher amount in 1999 than in other recent years. The Company
continues to utilize customer service and marketing initiatives (including
newspaper advertisements) in an effort to maintain and increase the volume of
such deposits. However, the ability of the Company to attract and maintain these
accounts (as well as certificate accounts) has been and will continue to be
affected by market conditions.
28
<PAGE>
The following table sets forth the deposit activity of the Company for the
periods indicated.
For the Year Ended September 30,
-----------------------------------
1999 1998 1997
----------- ------------ ----------
(Dollars in thousands)
Balance at beginning of year $231,181 $207,933 $190,675
Deposits 738,157 593,174 425,392
Withdrawals (705,907) (578,982) (416,056)
Interest credited 9,543 9,056 7,922
-------- -------- --------
Balance at end of year $272,974 $231,181 $207,933
======== ======== ========
Net increase during the year:
Amount $ 41,793 $ 23,248 $ 17,258
======== ======== ========
Percent 18.1% 11.2% 9.1%
======== ======== ========
The following table sets forth the distribution of the Company's deposit
accounts and the related weighted average interest rates at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------
1999 1998 1997
Percent Weighted Percent Weighted Percent Weighted
of Total Average of Total Average of Total Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
--------- --------- --------- -------- ---------- -------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking accounts $10,769 4.0% ---% $ 5,423 2.4% ---% $ 4,655 2.0% ---%
NOW accounts 24,708 9.1 1.06 21,123 9.1 1.00 19,055 8.2 2.00
Money market accounts 33,429 12.3 3.19 27,613 11.9 3.64 21,624 9.4 3.33
Regular savings accounts 50,776 18.6 2.23 43,492 18.8 2.43 44,591 19.3 2.56
Club accounts 1,480 0.5 2.23 1,282 0.6 2.43 1,132 0.6 2.56
Savings certificate accounts 151,812 55.6 5.04 132,248 57.2 5.43 116,876 50.6 5.45
-------- ----- ---- -------- ----- ---- -------- ---- ----
Total $272,974 100.0% 3.71% $231,181 100.0% 4.10% $207,933 89.9% 4.15%
======== ===== ==== ======== ===== ==== ======== ==== ====
</TABLE>
The following table sets forth, by interest rate ranges, the amount of
savings certificate accounts outstanding at the dates indicated and the period
to maturity of savings certificate accounts outstanding at September 30, 1999.
<TABLE>
<CAPTION>
At September 30, 1999
------------------------------------------------------
Period to Maturity Total at
------------------------------------------------------ September 30,
Less than One to More than Percent -------------------
One Year Three Years Three Years Total of Total 1998 1997
--------- ------------ ------------ --------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% and below $ 2,539 $ 80 $ --- $ 2,619 1.7% $ --- $ ---
4.01% to 5.00% 58,409 14,240 1,513 74,162 48.9 29,677 31,003
5.01% to 6.00% 39,040 23,407 4,139 66,586 43.9 82,960 74,440
6.01% to 7.00% 7,118 920 196 8,234 5.4 19,611 11,433
7.01% and above 211 --- --- 211 0.1 --- ---
-------- ------- ------ -------- ----- -------- --------
Total $107,317 $38,647 $5,848 $151,812 100.0% $132,248 $116,876
======== ======= ====== ======== ===== ======== ========
</TABLE>
29
<PAGE>
The following table sets forth the maturity distribution and related
weighted average interest rates for savings certificate accounts with balances
less than $100,000, accounts of $100,000 or more, and total savings certificates
at September 30, 1999.
Less than $100,000 $100,000 or more Total
------------------ ---------------- -----------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
---------- ------ ------- ------- ------- -----
(Dollars in thousands)
Within three months $ 29,953 4.91% $ 5,110 4.90% $ 35,063 4.91%
After three but within six months 23,988 4.87 3,943 5.15 27,931 4.91
After six but within 12 months 37,168 4.95 7,155 5.19 44,323 4.99
-------- ------- --------
Total within one year 91,109 4.92 16,208 5.09 107,317 4.94
After one but within two years 28,067 5.18 5,423 5.48 33,490 5.23
After two but within three years 4,553 5.34 604 5.56 5,157 5.36
After three but within five years 5,848 5.38 --- --- 5,848 5.38
-------- ------- --------
Total $129,577 5.01% $22,235 5.20% $151,812 5.04%
======== ======= ========
BORROWINGS. The Company's other available sources of funds include
securities repurchase agreements and advances from the FHLB of New York. As a
member of the FHLB of New York, the Company is required to own capital stock in
the FHLB of New York and is authorized to apply for advances from the FHLB of
New York. Each FHLB credit program has its own interest rate, which may be
fixed, or variable, and range of maturities. The FHLB of New York may prescribe
the acceptable uses for these advances, as well as limitations on the size of
the advances and repayment provisions. At September 30, 1999, the Company had a
collateral pledge arrangement with the FHLB of New York pursuant to which the
Company may borrow advances of up to $113.8 million. On such date, $47.9 million
of FHLB advances were outstanding. These advances were used to fund mortgage
loans.
The Company enters into securities repurchase agreements with the FHLB of
New York utilizing mortgage-backed and other securities as collateral. At
September 30, 1999, the Company had $100.0 million of outstanding borrowings
under securities repurchase agreements which were collateralized by
mortgage-backed and other debt securities with a total fair value of $106.8
million.
The following table sets forth information concerning the balances and
interest rates on borrowings at the dates and for the periods indicated.
30
<PAGE>
At or for the Year
Ended September 30,
----------------------------
1999 1998 1997
--------- ---------- -------
(Dollars in thousands)
Securities repurchase agreements:
Balance at end of year $ 99,987 $107,790 $54,096
Average balance during year 82,681 81,892 32,074
Maximum outstanding at any month end 100,962 119,890 54,096
Weighted average interest rate at end of year 5.53% 5.64% 5.82%
Average interest rate during the year 5.48 5.76 5.77
FHLB advances:
Balance at end of year $ 47,949 $ --- $ 6,000
Average balance during year 14,475 4,139 3,186
Maximum outstanding at any month end 47,949 11,000 7,500
Weighted average interest rate at end of year 5.19% ---% 6.75%
Average interest rate during the year 5.61 5.99 5.84
See Note 7 of the Notes to the Consolidated Financial Statements for
further information concerning the Company's securities repurchase agreements
and FHLB advances.
SUBSIDIARIES
At September 30, 1999, the Association had two subsidiaries, Yonkers
Financial Services Corporation, which offers life insurance and annuities on an
agency basis to the Association's customers and Yonkers REIT, Inc., see note 8
of the Notes to Consolidated Financial Statements.
COMPETITION
The Company faces extremely strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from mortgage bankers, commercial banks, credit unions and other
savings institutions, which also make loans secured by real estate located in
the Company's market area. The Company competes for loans principally on the
basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
Competition for deposits is intense given the size of the New York market
and the fact that it is the home state for many large regional and money center
banks. Competition for deposits is principally from money market and mutual
funds, securities firms, commercial banks, credit unions and other savings
institutions located in the same communities. There is further competition for
deposits from institutions offering home and internet computer banking. The
ability of the Company to attract and retain deposits depends on its ability to
provide an investment opportunity that satisfies the requirements of investors
as to rate of return,
31
<PAGE>
liquidity, risk, convenient locations and other factors. The Company is
significantly smaller than most of its competitors, which due to their size and
economies of scale, generally offer a broader range of deposit products than the
Company. The Company competes for these deposits by offering deposit accounts at
competitive rates, convenient business hours, availability of ATMs and a
customer oriented staff. As of June 30, 1998, the latest date such information
was available, there were 323 other thrift, commercial bank and credit union
offices in Westchester County which compete for deposits. As of June 30, 1998,
the Company held approximately 1.1% of total deposits in Westchester County.
EMPLOYEES
At September 30, 1999, the Company had a total of 90 full-time and 11
part-time employees. None of the Company's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.
REGULATION
GENERAL. Yonkers Savings is a federally chartered savings and loan
association, the deposits of which are federally insured and backed by the full
faith and credit of the United States Government. Accordingly, Yonkers Savings
is subject to broad federal regulation and oversight extending to all its
operations. Yonkers Savings is a member of the FHLB of New York and is subject
to certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As the savings and loan holding company of
Yonkers Savings, the Holding Company also is subject to federal regulation and
oversight. The purpose of holding company regulation is to protect subsidiary
savings associations. Certain of these regulatory requirements and restrictions
are discussed below or elsewhere in this document.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, Yonkers Savings is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and the FDIC. The last regular
OTS safety and soundness examination of Yonkers Savings was as of July 1, 1999.
When these examinations are conducted by the OTS and the FDIC, the examiners may
require Yonkers Savings to provide for higher general or specific loan loss
reserves. All savings associations are subject to a semi-annual assessment,
based upon the savings association's total assets, to fund the operations of the
OTS. Yonkers Savings' OTS assessment for the fiscal year ended September 30,
1999 was approximately $80,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Yonkers Savings and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions.
Yonkers Savings' general permissible lending limit for loans-to-one
borrower is equal to the greater of $500,000 or 15% of unimpaired capital and
surplus (except for loans fully
32
<PAGE>
secured by certain readily marketable collateral, in which case this limit is
increased to 25% of unimpaired capital and surplus). At September 30, 1999,
Yonkers Savings' lending limit under this restriction was $5.1 million. Yonkers
Savings is in compliance with the loans-to-one borrower limitation.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the SAIF. The FDIC also has the
authority to initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (I.E., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (I.E., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classifications of all insured
institutions are made by the FDIC for each semi-annual assessment period. At
September 30, 1999, the Association was classified as a well-capitalized
institution.
The premium schedule for both Bank Insurance Fund ("BIF") and SAIF insured
institutions ranges from 0 to 27 basis points for each $100 in domestic
deposits. The Association's most recent assessment rate was 0 basis points.
However, SAIF-insured institutions are required to pay a Financing Corporation
(FICO) assessment, in order to fund the interest on bonds issued to resolve
thrift failures in the 1980s, currently equal to about 6 basis points, while
BIF-insured institutions currently pay an assessment equal to about 1.50 basis
points for each $100 in domestic deposits. The assessment for SAIF-insured
institutions is expected to be reduced to about 2 basis points no later than
January 1, 2000, when BIF-insured institutions fully participate in the
assessment. These assessments, which may be revised based upon the level of BIF
and SAIF deposits, will continue until the FICO bonds mature in the year 2015.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations,
such as Yonkers Savings, are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible capital
requirement, a leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings associations.
33
<PAGE>
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). At September 30, 1999, Yonkers
Savings had tangible capital of $33.7 million, or 7.4% of adjusted total assets,
which is $26.9 million above the minimum requirement of 1.5% in effect on that
date.
In addition, all intangible assets, other than a limited amount of
purchased mortgage servicing rights and credit card relationships, must be
deducted from tangible capital for calculating compliance with the requirement.
At September 30, 1999, Yonkers Savings had no intangible assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. Debt and equity
investments in excludable subsidiaries are deducted from assets and capital. At
September 30, 1999, Yonkers Savings had two "includable" subsidiaries.
The capital standards also require core capital equal to at least 4% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased mortgage
servicing rights and credit card relationships. At September 30, 1999, Yonkers
Savings had core capital equal to $33.7 million, or 7.4% of adjusted total
assets, which is $15.4 million above the minimum leverage ratio requirement of
4% in effect on that date.
The OTS risk-based capital regulations require savings associations to
have total capital of at least 8% of risk-weighted assets. Total capital
consists of core capital, as defined above and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based capital requirement
only up to the amount of core capital. At September 30, 1999, Yonkers Savings
had no capital instruments that qualify as supplementary capital and $1.5
million of general loan loss reserves, which was less than 1.25% of
risk-weighted assets.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, are multiplied by a risk weight, ranging from
0% to 100%, based on the risk inherent in the type of asset. For example, the
OTS has assigned a risk weight of 50% for prudently underwritten permanent one-
to four-family first lien mortgage loans not more than 90 days delinquent and
having a loan to value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by Fannie Mae or Freddie Mac.
At September 30, 1999, Yonkers Savings had total capital of $35.2 million
(including $33.7 million in core capital and $1.5 million in qualifying
supplementary capital) and risk-weighted assets of $196.4 million (including
$2.8 million in converted off-balance sheet items),
34
<PAGE>
or total capital of 18.0% of risk-weighted assets. This amount was $19.5 million
above the 8% requirement in effect on that date.
The OTS is authorized to impose capital requirements in excess of these
standards on individual associations on a case-by-case basis. The OTS and FDIC
are authorized and, under certain circumstances required, to take certain
actions against savings associations that fail to meet their capital
requirements. The OTS is generally required to take action to restrict the
activities of an "undercapitalized association" (generally defined to be one
with less than either 4% core capital ratio, a 4% Tier 1 risk-based capital
ratio or an 8% risk-based capital ratio). Any such association must submit a
capital restoration plan and until such plan is approved by the OTS may not
increase its assets, acquire another institution, establish a branch or engage
in any new activities, and generally may not make capital distributions. The OTS
is authorized to impose the additional restrictions that are applicable to
significantly undercapitalized associations.
The OTS is also generally authorized to reclassify and association into a
lower capital category and impose restrictions applicable to such category if
the institution is engaged in unsafe or unsound practices or is in a an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Company or the Association may have a substantial adverse effect on operations
and profitability.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS regulations
impose various restrictions on associations with respect to their ability to
make distributions of capital which include dividends, stock redemptions or
repurchases, cash-out mergers and transactions charged to the capital account.
OTS regulations prohibit an association from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the regulatory capital of
the association would be reduced below the amount required to be maintained for
the liquidation account established in connection with its mutual to stock
conversion.
The Association may make a capital distribution without the approval of
the OTS provided we notify the OTS, 30 days before we declare the capital
distribution and we meet the following requirements: (i) we have a regulatory
rating in one of the two top examination categories, (ii) we are not of
supervisory concern, and will remain adequately- or well-capitalized, as defined
in the OTS prompt corrective action regulations, following the proposed
distribution, and (iii) the distribution does not exceed our net income for the
calendar year-to-date plus retained net income for the previous two calendar
years (less any dividends previously paid). If we do not meet the above stated
requirements, we must obtain the prior approval of the OTS before declaring any
proposed distributions.
35
<PAGE>
QUALIFIED THRIFT LENDER TEST. All savings associations, including Yonkers
Savings, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments, primarily residential housing
related loans and investments. At September 30, 1999, Yonkers Savings met the
test and has always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible for additional FHLB advances and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB advances, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act ("CRA"),
every FDIC insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit needs
of its entire community, including low and moderate, income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
the examination of Yonkers Savings, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications, such as a merger or the establishment
of a branch, by Yonkers Savings. An unsatisfactory rating may be used as the
basis for the denial of an application by the OTS. Yonkers Savings was examined
for CRA compliance by the OTS in June 1999 and received a rating of
satisfactory.
TRANSACTIONS WITH AFFILIATES. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of Yonkers
Savings include the Holding Company and any company which, is under common
control with Yonkers Savings. In addition, a savings association may not lend to
any affiliate engaged in activities not permissible for a bank holding company
or acquire the securities of most affiliates. Subsidiaries of a savings
association are generally not deemed affiliates; however,
36
<PAGE>
the OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case-by-case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
HOLDING COMPANY REGULATION. The Holding Company is a unitary savings and
loan holding company subject to regulatory oversight by the OTS. As such, the
Holding Company is required to register and file reports with the OTS and is
subject to regulation and examination by the OTS. In addition, the OTS has
enforcement authority over the Holding Company and its non-savings association
subsidiaries (if any) which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Yonkers Savings or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Yonkers Savings fails the QTL test, the Holding Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activities other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
FEDERAL SECURITIES LAW. The stock of the Holding Company is registered
with the SEC under the Exchange Act. The Holding Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
37
<PAGE>
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified public information
requirements, each affiliate is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At September 30, 1999, Yonkers Savings was in compliance
with these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM. Yonkers Savings is a member of the FHLB of
New York, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the FHLB, which are
subject to the oversight of the Federal Housing Finance Board. All advances from
the FHLB are required to be fully secured by sufficient collateral as determined
by the FHLB. In addition, all long-term advances are required to provide funds
for residential home financing.
As a member, Yonkers Savings is required to purchase and maintain stock in
the FHLB of New York. At September 30, 1999, Yonkers Savings held $7.4 million
in FHLB stock, which was in compliance with this requirement. Dividends paid by
the FHLB of New York to the Association totaled $450,000 for the year ended
September 30, 1999, representing an increase of $112,000 from dividends received
in fiscal 1998.
TAXATION
FEDERAL. The Association and the Holding Company currently file
consolidated federal income tax returns. These returns are filed on a fiscal
year basis, as of September 30, using the accrual method of accounting.
38
<PAGE>
Savings associations such as the Association are permitted to establish
reserves for bad debts and to make annual additions thereto which, may, within
specified formula limits, be taken as a deduction in computing taxable income
for federal income tax purposes. The amount of the bad debt reserve deduction
for "non-qualifying loans" is computed under the experience method. The amount
of the bad debt reserve deduction for "qualifying real property loans"
(generally loans secured by improved real estate) is also computed under the
experience method. Under the experience method, the bad debt reserve deduction
is an amount determined under a formula based generally upon the bad debts
actually sustained by the savings association over a period of years.
Historically, a percentage of taxable income method was also available in
computing the qualifying loan bad debt deduction; however, under 1996 federal
tax legislation, this method is no longer available to the Association for tax
years ending on or after September 30, 1997.
The 1996 federal tax legislation also imposed a requirement to recapture
into taxable income the portion of the qualifying and non-qualifying loan
reserves in excess of the "base-year" balances of such reserves. For the
Association, the base-year reserves are the balances as of September 30, 1988.
Recapture of the excess reserves will occur over a six-year period which began
for the Association in the tax year ending September 30, 1999. The Association
previously established, and will continue to maintain, a deferred tax liability
with respect to its federal tax bad debt reserves in excess of the base-year
balances; accordingly, the legislative changes will have no effect on total
income tax expense for financial reporting purposes.
Also, under the 1996 legislation, the Association's base-year federal tax
bad debt reserves are "frozen" and subject to current recapture only in very
limited circumstances. Generally, recapture of all or a portion of the base-year
reserves will be required if the Association pays a dividend in excess of the
greater of its current or accumulated earnings and profits, redeems any of its
stock, or is liquidated. The Association has not established a deferred federal
tax liability under SFAS No. 109 for its base-year federal tax bad debt
reserves, as it does not anticipate engaging in any of the transactions that
would cause such reserves to be recaptured.
In addition to the regular income tax, corporations generally are subject
to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of
20% on alternative minimum taxable income, which is the sum of a corporation's
regular taxable income (with certain adjustments) and tax preference items, less
any available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax, and net operating losses can
offset no more than 90% of alternative minimum taxable income. The Association
and the Company have not been subject to the alternative minimum tax.
The Association has been audited by the IRS with respect to federal income
tax returns through September 30, 1991, and all deficiencies have been
satisfied. In the opinion of management, any examination of still open returns
would not result in a deficiency, which could have a material adverse effect on
the financial condition of the Company.
39
<PAGE>
NEW YORK STATE. The Association and the Holding Company currently file
combined New York State tax returns on a fiscal year basis. The Company is
subject to the New York State Franchise Tax on Banking Corporations in an annual
amount equal to the greater of (i) 9% of "entire net income" allocable to New
York State during the taxable year, or (ii) the applicable alternative minimum
tax. The alternative minimum tax is generally the greater of (a) 0.01% of the
value of assets allocable to New York State with certain modifications, (b) 3%
of "alternative entire net income" allocable to New York State, or (c) $250.
Entire net income is similar to federal taxable income, subject to certain
modifications (including the fact that net operating losses cannot be carried
back or carried forward). In addition, New York also imposes a Metropolitan
Commuter Transportation District surcharge of 17% that is assessed on the amount
of the New York State Franchise tax.
In July 1996, New York State enacted legislation to preserve the use of
the percentage of taxable income bad debt deduction for state tax purposes. In
general, the legislation provides for a deduction equal to 32% of the
Association's New York State taxable income, which is comparable to the
deductions permitted under the prior Federal tax law. The legislation also
provides for a floating base year, which will allow the Association to change
from the percentage of taxable income method to the experience method without
recapture of any reserve. Previously, the Association had established a deferred
New York State tax liability for the excess of its New York State tax bad debt
reserves over the amount of its base-year New York State reserves. Since the new
legislation effectively eliminated the reserves in excess of the base-year
balances, the Company reduced its deferred tax liability by $100,000 (with a
corresponding reduction in income tax expense) during the quarter ended
September 30, 1996.
Generally, New York State tax law has requirements similar to federal
requirements regarding the recapture of base-year tax bad debt reserves. One
notable exception is that, after the 1996 legislation, New York continues to
require that at least 60% of the Association's assets consist of specified
assets (generally, loans secured by residential real estate or deposits,
educational loans, cash and certain government obligations). The Association
expects to continue to meet the 60% requirement and does not anticipate engaging
in any of the transactions, which would require recapture of its base-year
reserves (such as changing to a commercial bank charter). Accordingly, under
SFAS No. 109, it has not provided any deferred tax liability on such reserves.
DELAWARE. As a Delaware company, the Company is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
ITEM 2. PROPERTIES
The following table sets forth information concerning the Company's
properties at September 30, 1999. The Company's premises had an aggregate net
book value of approximately $367,000 at that date.
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<PAGE>
Year Owned or Net Book Value at
Location Acquired/Leased Leased September 30, 1999
- --------------------------- ---------------- ----------- ------------------
(Dollars in thousands)
CORPORATE HEADQUARTERS:
6 Executive Plaza 1996 Leased $ 125
Yonkers, New York
10701-9858
MAIN OFFICE:
One Manor House Square 1976 Owned 124
Yonkers, New York
10701-2701
FULL-SERVICE BRANCHES:
780 Palisade Avenue 1989 Leased 41
Yonkers, New York 10703
1759 Central Park Avenue 1977 Leased 44
Yonkers, New York 10710-2828
2320 Central Park Avenue 1986 Leased 33
Yonkers, New York
10710-1216
IN-STORE BRANCHES:
1357 Route 9
Wappingers Falls, New 1997 Leased --
York 12590
3303 Crompond Road.
Yorktown Heights, New York 1998 Leased --
10598
240 East Sanford Boulevard
Mt. Vernon, New York 10550 1999 Leased --
432 South Road, Route 9
Poughkeepsie, New York 12601 1999 Leased --
Yonkers Savings has entered into an agreement for in-store branching with
BJ's Wholesale Club, Inc. An in-store branch opened in December 1997 in BJ's
location in Wappingers Falls, New York; a second in-store branch opened in
October 1998 in Yorktown Heights, New York. The Association's agreement gives it
the right of first refusal to establish an in-store branch in any of BJ's
remaining or future clubs located in Dutchess, Putnam, Rockland, and Westchester
Counties, New York. In addition, in May 1999 a third in-store branch was opened
in a supermarket in Mt. Vernon, New York and a fourth was opened in a super
market in Poughkeepsie, New York.
The Company believes that its current facilities are adequate to meet
present needs. In the future, the Company intends to continue to explore
branching opportunities to the extent they develop, although no specific
proposals are currently under consideration, other than the possibility of
additional in-store branches under the agreement described above.
41
<PAGE>
The Company's depositor and borrower customer files are maintained by an
independent data processing company. The net book value of the computer
equipment utilized by the Company at September 30, 1999 was approximately
$335,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved as plaintiff or defendant in various legal
proceedings arising in the normal course of its business. While the ultimate
outcome of these various legal proceedings cannot be predicted with certainty,
it is the opinion of management that the resolution of these legal actions
should not have a material effect on the Company's financial position, results
of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Page 41 of the attached 1999 Annual Report to Stockholders is herein
incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
Pages 5 and 6 of the attached 1999 Annual Report to Stockholders are
herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pages 7 through 19 of the attached 1999 Annual Report to Stockholders are
herein incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The section "Interest Rate Risk Management", appearing on pages 15 and 16
of the attached 1999 Annual Report to Stockholders, is herein incorporated by
reference.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 20 through 39 of the attached 1999 Annual Report to Stockholders are
herein incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information concerning directors of the Registrant is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in January 2000, a copy of which will be
filed not later than 120 days after the close of the fiscal year.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following are the Company's executive officers who are not also
directors as of September 30, 1999.
JOSEPH L. MACCHIA. Mr. Macchia, age 48, has been Vice President and
Secretary to the Association since 1991, and Vice President and Secretary of the
Holding Company since its formation. Mr. Macchia was named Chief Operations
Officer in January 1997. Mr. Macchia is responsible for the Association's branch
administration, consumer lending and savings operations. He is also responsible
for the Association's Bank Secrecy Act compliance. Prior to such time, Mr.
Macchia served as the Association's Vice President.
Mr. Macchia has been employed by the Association since 1972.
JOSEPH D. ROBERTO. Mr. Roberto, age 47, is the Vice President, Treasurer
and Chief Financial Officer of the Holding Company, a position he has held since
its formation, and is Vice President, Treasurer and Chief Financial Officer of
the Association. Mr. Roberto was appointed the Association's Vice President and
Treasurer in 1991 and Chief Financial Officer in 1995. Mr. Roberto is
responsible for the Accounting Department, interest rate risk and
asset/liability management as well as financial reporting. Prior to 1991, Mr.
Roberto served as the Association's Secretary and Treasurer. Mr. Roberto has
been employed by the Association since 1973.
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<PAGE>
PHILIP GUARNIERI. Mr. Guarnieri, age 42, is the Vice President and Chief
Lending Officer of the Association. Mr. Guarnieri was appointed Vice President
and Chief Lending Officer in July 1996. Prior to joining the Association, Mr.
Guarnieri was the Vice President for loan origination at Home Federal Savings
Bank, Queens, New York. Mr. Guarnieri is responsible for the administration of
the Association's real estate lending programs.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Holding Company's equity securities, to file with the SEC reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Holding Company. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended September 30, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in January 2000, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in January 2000, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in January 2000, a copy of which will
be filed not later than 120 days after the close of the fiscal year.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
The following information appearing in the Company's 1999 Annual Report
to Stockholders is herein incorporated by reference
ITEM PAGES IN ANNUAL REPORT
Independent Auditors' Report Page 40
Consolidated Balance Sheets as of September 30, Page 20
1999 and 1998
Consolidated Statements of Income for the Years Page 21
Ended September 30, 1999, 1998 and 1997
Consolidated Statements of Changes in Page 22
Stockholders' Equity for the Years Ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Page 23
Years Ended September 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements Pages 24 through 39
(A) (2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted as the required
information is not applicable or has been included in the Consolidated Financial
Statements.
45
<PAGE>
(A) (3) EXHIBITS
- --------------------------------------------------------------------------------
SEQUENTIAL PAGE
REFERENCE TO NUMBER WHERE
PRIOR FILING ATTACHED EXHIBITS
REGULATION OR EXHIBIT ARE LOCATED IN THIS
S-K EXHIBIT NUMBER ATTACHED FORM 10-K
NUMBER DOCUMENT HERETO REPORT
- --------------------------------------------------------------------------------
3(a) Certificate of Incorporation * Not applicable
3(b) By-Laws ** Not applicable
4 Instruments defining the rights of * Not applicable
security holders,
including debentures
9 Voting Trust Agreement None Not applicable
10 Material Contracts
Employment Contract *** Not applicable
Management Recognition Plan and Stock
Option and Incentive Plan * Not applicable
Change-in-Control Severance *** Not applicable
Agreements
11 Statement re: computation of per Not required Not applicable
share earnings
12 Statement re: computation of ratios Not required Not applicable
13 Annual Report to Security Holders 13
16 Letter re: change in certifying None Not applicable
accountants
18 Letter re: change in accounting None Not applicable
principles
19 Previously unfiled documents None Not applicable
21 Subsidiaries of Registrant 21
22 Published report regarding matters None Not applicable
submitted to vote
of security holders
23 Consents of Experts and Counsel 23
24 Power of Attorney Not required Not applicable
27 Financial Data Schedule 27
28 Information from reports furnished None Not applicable
to state insurance
regulatory authorities
99 Additional Exhibits None Not applicable
* Filed as exhibits to the Company's Form S-1 registration statement filed
on December 29, 1995 (File No. 33-81013) pursuant to Section 5 of the Securities
Act of 1933, as amended. All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of Regulation S-K.
** Filed as exhibits to the Company's Form 8-K registration statement
filed on July 29, 1999 (File No. 000-27716) pursuant to Section 13 or 15(d) of
the Securities Act of 1934, as amended. All of such previously filed documents
are hereby incorporated herein by reference in acccordance with Item 601 of
Regulation S-K.
*** Filed as exhibits to the Company's Form 10-K registration statement
filed on December 28, 1998 (File No. 000-27716) pursuant to Section 13 or 15(d)
of the Securities Act of 1934, as amended. All of such previously filed
documents are hereby incorporated herein by reference in acccordance with Item
601 of Regulation S-K.
(B) REPORTS ON FORM 8-K
During the quarter ended September 30, 1999, the Company filed two current
Reports on Form 8-K. On July 29, 1999, under Item 5, the Company reported the
adoption of amended and restated Bylaws and the issuance of a press release
announcing the Company's earnings for the quarter ended June 30, 1999. On
September 20, 1999, under Item 5, the Company reported the issuance of a press
release announcing its intention to repurchase up to 265,000 shares of its
outstanding shares.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
YONKERS FINANCIAL CORPORATION
By: /s/ Richard F. Komosinski
--------------------------------------
Richard F. Komosinski, President,
Chief Executive Officer and Director
(DULY AUTHORIZED REPRESENTATIVE)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
/s/ Richard F. Komosinski /s/ William G. Bachop
- ------------------------------------- --------------------------------------
Richard F. Komosinski, President, William G. Bachop, Chairman
Chief Executive Officer and
Director (PRINCIPAL EXECUTIVE AND
OPERATING OFFICER)
Date: December , 1999 Date: December __, 1999
/s/ Michael J. Martin /s/ Charles D. Lohrfink
- ------------------------------------- --------------------------------------
Michael J. Martin, Director Charles D. Lohrfink, Director
Date: Date:
/s/ Donald R. Angelilli /s/ Eben T. Walker
- ------------------------------------- --------------------------------------
Donald R. Angelilli, Director Eben T. Walker, Director
Date: Date:
/s/ P. Anthony Sarubbi /s/ Joseph D. Roberto
- ------------------------------------- --------------------------------------
P. Anthony Sarubbi, Director Joseph D. Roberto, Vice President,
Treasurer and Chief Financial
Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING
Date: OFFICER)
Date:
1999 ANNUAL REPORT
YONKERS FINANCIAL CORPORATION
99
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MISSION STATEMENT
The Mission of Yonkers Financial Corporation is to continue to be a strong
community-oriented financial institution with an ongoing commitment to improving
shareholder value, while delivering the highest quality products and services to
our customers and business markets. As we expand our franchise, we will always
strive to give extraordinary service to our customers by providing our employees
with the means and opportunities to make full use of their skills and
capabilities. These commitments to our shareholders, customers and employees
will enable Yonkers Financial Corporation to maintain a level of profitability
necessary to remain an independent institution for the benefit of the
communities we serve.
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA
<S> <C> <C> <C>
Total assets $457,695 $383,204 $312,956
Loans receivable, net 297,950 184,025 118,683
Mortgage-backed securities 97,380 113,485 93,384
Other securities 41,368 55,043 69,231
Deposits 272,974 231,181 207,933
Borrowings 147,935 107,790 60,096
Stockholders' equity 32,017 41,802 43,878
Book value per share(1) 14.30 15.33 14.53
SELECTED OPERATING DATA
Net interest income $ 12,048 $ 11,453 $ 10,774
Net income 2,663 2,901 2,952
Basic earnings per common share(2) 1.13 1.12 1.05
Diluted earnings per common share(2) 1.11 1.08 1.04
ASSET QUALITY DATA
Non-performing loans $ 755 $ 753 $ 1,138
Non-performing loans to total loans
receivable 0.25% 0.41% 0.94%
</TABLE>
- ---------------------
(1) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
(2) Earnings per share data for all periods has been computed in accordance
with Statement of Financial Accounting Standards No. 128.
[BAR GRAPHS OF TOTAL ASSETS, LOANS RECEIVABLE, NET AND DEPOSITS]
1
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
[PICTURE CHAIRMAN, RICHARD F. KOMOSINSKI, PRESIDENT AND CEO OMITTED]
TO OUR STOCKHOLDERS:
Yonkers Financial Corporation made notable gains in 1999, achieving
significant growth in assets, loans, deposits and number of branches. Perhaps
most importantly, earnings per share also increased.
We compete for loans, deposits and customers not only with community banks
and thrifts but with some of the world's largest financial institutions. We
succeed by focusing on meeting our community's particular needs and by
exploiting emerging opportunities.
Through our subsidiary, The Yonkers Savings and Loan Association, FA, we
moved aggressively along the growth track outlined in our 1998 annual report. In
the fiscal year ended September 30, 1999, our third full year as a public
company, we significantly increased our mortgage lending, extended our branch
operations into new geographic markets, and broadened our product and service
offerings to retail and business customers. Total assets increased from $383.0
million to $457.7 million, a gain of $74.7 million, or 19.5%.
As always, our objective is to enhance stockholder value, and it is
indicative of the underlying strength of our business that we were able to pay
for these investments in our franchise out of current earnings. Despite that
expense, we achieved a modest gain in earnings per share, although net income
decreased slightly.
EXPANDING OUR LENDING.
We continued the vigorous expansion of our real estate lending activities,
aided by our new modern lending center. Our energetic retail sales team,
available to customers seven days a week, is supported by a full menu of lending
products and an automated underwriting system that will soon allow completion
and approval of a mortgage application in a customer's home, or practically
anywhere, via laptop.
Total loans (including loans receivable and loans being held for sale)
increased by $101.8 million or 51.6%, to $299.2 million. Net loans receivable
increased by $113.9 million or nearly 61.9%, from $184.0 million to $297.9
million. Most of this strong growth came from mortgages originated for
one-to-four family homes, our traditional market niche, but lending for
higher-yielding multi-family and mixed-use projects rose by $22.4 million as
well.
We achieved this growth without compromising our lending standards.
Non-performing loans declined as a percentage of total loans receivable from
0.41% to 0.25%, a remarkable record that we believe reflects the quality of our
loans and diligence of our staff.
2
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
EXTENDING OUR BRANCH NETWORK.
We capitalized on a growth opportunity created in part by consolidation
among other financial institutions by expanding our retail banking franchise
into new territories through five in-store branches. Operating in leased space
seven days a week, these offer a fast and economical way to establish a presence
and customer base in a new community. We opened our first two such branches
within BJ's Wholesale Club warehouse stores in Wappingers Falls, Dutchess County
and Yorktown Heights, Westchester County in December 1997 and October 1998,
respectively. We launched two more in supermarkets in Mount Vernon, Westchester
County and Poughkeepsie, Dutchess County in May and September 1999, and a fifth
in a supermarket in the Westchester community of Cortlandt in October 1999. The
first three branches have proven to be successful, beating even our own
projections in attracting deposits, and we hope for similar results for the two
newest ones. In addition, we expanded our network of ATMs to 11, eight in
branches and three at stand-alone sites.
ATTRACTING NEW CUSTOMERS.
Through our BusinessVantage program, launched during the fourth quarter, we
intend to increase our commercial deposit base substantially. We now offer
business customers a full range of banking products tied to a commercial
checking account, and we have achieved this without adding staff. Business
accounts comprise only about 2% of deposits but hold promise because they
generate fee income and low-cost deposits.
In another new program, offered by a subsidiary of The Yonkers Savings and
Loan Association, FA, retail customers will soon be able to purchase mutual
funds and annuities. This program is intended to help us keep our customers by
meeting more of their needs.
GROWING OUR DEPOSIT BASE.
All these efforts helped us attract deposits, our primary source of funds
(along with borrowings). Total deposits grew from $231.2 million in 1998 to
$273.0 million in 1999, an increase of $41.8 million or 18.1%. This enlarged
deposit base enhances our capacity to generate additional earnings and increases
the value of our retail franchise.
GAIN IN EARNINGS PER SHARE.
Net interest income, the principal driver of our earnings, rose 5.2% to
$12.0 million, continuing a strong upward trend. Despite our heavy investment in
growth, we were able to maintain our earnings at close to the 1998 level. Net
income for the 1999 fiscal year was $2.7 million, a decrease of 8.1% from $2.9
million in 1998.
Basic earnings per share, however, rose to $1.13 ($1.11 diluted), compared
with $1.12 ($1.08 diluted) in 1998. The increase resulted from our repurchase of
492,500 shares of our stock on the open market at a cost of $8.7 million,
reducing shares outstanding to approximately 2.2 million. We will continue to
repurchase shares when that yields a better, or comparable, return on capital
than available alternatives.
3
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
[PICTURE OF BOARD OF DIRECTORS: MICHAEL J. MARTIN, CHARLES D. LOHRFINK, P.
ANTHONY SARUBBI, VICE CHAIRMAN, WILLIAM G. BACHOP, CHAIRMAN, RICHARD F.
KOMOSINSKI, PRESIDENT AND CEO, EBAN T. WALKER, DONALD T. WALKER AND DONALD R.
ANGELILLI]
Commitment, experience and community involvement are common characteristics
of Yonkers Financial Corporation's Board of Directors. The Company's Directors
are proud to uphold the long-standing values and traditions that have made the
Yonkers Savings and Loan Association, FA successful for the past one hundred and
eleven years.
We maintained our quarterly dividend at $.08 per share, or $.32 per share
for the 1999 fiscal year. In October 1999, our Board of Directors voted to
increase the quarterly dividend to $.09 per share.
POSITIVE OUTLOOK FOR 2000.
Our outlook for the millennial year is distinctly positive. Barring an
economic downturn or a sharp spike in interest rates, we expect continued growth
in assets, loans, deposits and net interest income. Accordingly, we anticipate
an increase in net earnings and earnings per share, based on the combined
benefits of higher revenues, effective expense control, and sound cash
management and tax strategies. After more than a year of effort, we believe we
are well prepared to handle any Y2K issues that may arise.
We will continue to take an opportunistic approach to growth, and are open
to potential acquisitions if the "fit" and price are right. We remain committed
to the goal of building shareholder value.
In pursuing that goal, we are fortunate to have a skilled and diligent
staff, a growing customer base and loyal stockholders. On behalf of the Board of
Directors, I want to thank all of them for their staunch support.
Sincerely,
/s/ RICHARD F. KOMOSINSKI
Richard F. Komosinski
President and Chief Executive Officer
4
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Fiscal Year Ended September 30,
---------------------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELCETED FINANCIAL CONDITION DATA:
Total Assets $457,695 $383,204 $312,956 $259,534 $208,283
Loans receivable, net 297,950 184,025 118,683 86,666 83,679
Real estate mortgage loans held for sale 1,226 13,334 20,437 --- ---
Securities :
Available-for-sale 116,712 125,225 86,286 58,552 20,877
Hold-to-maturity 21,936 43,303 76,329 95,007 95,464
Cash and cash equivalents 4,651 4,195 3,593 12,500 3,261
Deposits 272,974 231,181 207,933 190,675 188,009
Borrowings 147,935 107,790 60,096 18,264 4,295
Stockholders' equity(1) 32,017 41,802 43,878 48,999 15,765
SELECTED OPERATING DATA:
Interest and dividend income $26,932 $ 25,475 $ 20,731 $16,376 $ 14,063
Interest expense 14,884 14,022 9,957 7,975 7,004
Net interest income 12,048 11,453 10,774 8,401 7,059
Provision for loan losses 235 375 300 462 493
Net interest income after provision for loan
losses 11,813 11,078 10,474 7,939 6,566
Noninterest income 1,512 1,410 733 649 638
Noninterest expense (excluding special assessment) 9,092 7,583 6,265 4,985 4,731
SAIF-special assessment(2) --- --- --- 1,166 ---
------ -------- ------- ------ -------
Income before income tax expense 4,233 4,905 4,942 2,437 2,473
Income tax expense 1,570 2,004 1,990 917 1,033
------ -------- ------- ------ -------
Net income(3) $ 2,663 $2,901 $ 2,952 $1,520 $1,440
------ ------ ------- ------ ------
Basic earnings per common share(4) $ 1.13 $ 1.12 $ 1.05 $ 0.22 ---
Diluted earnings per common share(4) $ 1.11 $ 1.08 $ 1.04 $ 0.22 ---
</TABLE>
5
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
At or for the Fiscal Year Ended September 30,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------ ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED STATISTICAL DATA:(5)
Return on average assets(3) 0.68% 0.82% 1.05% 0.66% 0.72%
Return on average equity(3) 6.64 6.72 6.72 4.60 9.61
Net interest margin(6) 3.13 3.28 3.93 3.73 3.61
Average interest rate spread(7) 2.71 2.67 3.26 3.13 3.34
Efficiency ratio(8) 67.55 59.33 54.43 57.12 58.18
Noninterest expense to average assets(3) 2.31 2.16 2.26 2.70 2.39
Nonperforming loans to total loans
receivable 0.25 0.41 0.94 3.14 4.15
Allowance for loan losses to
nonperforming loans 199.07 172.91 96.05 33.77 20.37
Allowance for loan losses to total loans
receivable 0.50 0.70 0.90 1.06 0.84
Nonperforming assets to total assets 0.16 0.28 0.48 1.30 1.80
Equity to total assets at end of period 7.00 10.91 14.02 18.88 7.57
Average equity to average assets 10.21 12.18 15.69 14.41 7.50
Book value per share(9) $14.30 $15.33 $14.53 $13.72 ---
Cash dividends per share 0.32 0.28 0.21 0.05 ---
Dividend payout ratio(10) 28.73% 25.92% 20.66% 22.50% ---
<FN>
- ---------------------
(1) Includes additional capital in 1999, 1998, 1997 and 1996 subsequent to the
sale of the Holding Company's common stock in connection with the
Association's conversion tostock form on April 18, 1996.
(2) Represents the Association's share of a special assessment imposed on all
financial institutions with deposits insured by the Savings Association
Insurance Fund (the "SAIF").
(3) Excluding the after-tax SAIF charge described in note (2), net income for
fiscal 1996 would have been approximately $700,000 higher, resulting in a
return on average assets of 0.97% and a return on average equity of 6.71%.
The ratio of noninterest expense to average assets would have been 2.20%.
(4) Earnings per share data for all periods has been computed in accordance
with Statement of Financial Accounting Standards No. 128. Earnings per
share for fiscal 1997 is for the period following the Association's
conversion.
(5) With the exception of end-of period ratios are based on average daily
balances in 1999, 1998 and 1997, and average monthly balances in earlier
years.
(6) Net interest income divided by average interest-earnings assets.
(7) The difference between the weighted average yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities.
(8) Noninterest expense (other than certain loss provisions and the SAIF
special assessment) divided by the sum of net interest income and
noninterest income (other than net security gains and losses).
(9) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
(10) Dividends paid as a percentage of net income. Ratio for fiscal 1996 is
based on net income for the six-month period following the Association's
conversion to stock form.
</FN>
</TABLE>
6
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS CONSISTING
OF ESTIMATES WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF THE COMPANY THAT ARE SUBJECT TO VARIOUS FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE ESTIMATES. THESE FACTORS INCLUDE
CHANGES IN GENERAL, ECONOMIC AND MARKET, AND LEGISLATIVE AND REGULATORY
CONDITIONS; THE IMPACT OF COMPETITION AND PRICING PRESSURES ON LOAN AND DEPOSIT
PRODUCTS; YEAR 2000 COSTS AND ISSUES SUBSTANTIALLY DIFFERENT FROM THOSE NOW
ANTICIPATED; AND THE DEVELOPMENT OF AN INTEREST RATE ENVIRONMENT THAT ADVERSELY
AFFECTS THE INTEREST RATE SPREAD OR OTHER INCOME ANTICIPATED FROM THE COMPANY'S
OPERATIONS.
THE COMPANY CAUTIONS THAT ITS FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES, AND THAT STATEMENTS CONCERNING
SUBSEQUENT PERIODS ARE SUBJECT TO GREATER UNCERTAINTY BECAUSE OF THE INCREASED
LIKELIHOOD OF CHANGES IN UNDERLYING FACTORS AND ASSUMPTIONS. THE COMPANY'S
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE ON WHICH SUCH STATEMENTS
ARE MADE. BY MAKING ANY FORWARD-LOOKING STATEMENTS, THE COMPANY ASSUMES NO DUTY
TO UPDATE THEM TO REFLECT NEW, CHANGED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES.
GENERAL
Yonkers Financial Corporation (the "Holding Company") is the unitary
savings association holding company for The Yonkers Savings and Loan
Association, FA (the "Association"), a federally chartered savings and loan
association and a wholly owned subsidiary of the Holding Company. Collectively,
the Holding Company and the Association are referred to herein as the "Company."
On April 18, 1996, the Association converted from a mutual savings and loan
association to a stock savings and loan association (the "Conversion").
Concurrent with the Conversion, the Holding Company sold 3,570,750 shares of its
common stock in a subscription and community offering at a price of $10.00 per
share, for net proceeds of $34.6 million (the "Stock Offering").
The Association has two wholly owned subsidiaries, Yonkers REIT, Inc., a
real estate investment trust (the "REIT"), and Yonkers Financial Services, Inc.,
a subsidiary that sells savings bank life insurance and annuities.
The Company's primary market area consists of Westchester County, New York,
and portions of Putnam, Rockland and Dutchess Counties, New York. Business is
conducted from its executive offices as well as four full-service banking
offices and a lending office located in Yonkers, New York. A branch located in a
discount store in Wappingers Falls, Dutchess County, was opened in December 1997
and a second in-store branch was opened in Yorktown Heights, Westchester County
in October 1998. In May 1999, a third in-store branch was opened in a
supermarket in Mt. Vernon, Westchester County and a fourth was opened in a
supermarket in Poughkeepsie, Dutchess County in September 1999.
The Association is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers within its market area
and investing those funds in mortgage loans secured by one- to four-family
residences. To a lesser extent, funds are invested in multi-family and
commercial real estate, construction, land, consumer and commercial business
loans. The Company also invests in mortgage-backed and other securities. The
Holding Company's business activities have been limited to its ownership of the
Association and certain short-term and other investments.
The Company's results of operations are primarily dependent on net interest
income, which is the difference between the interest income on its
interest-earning assets (such as loans and securities) and the interest expense
on its interest-bearing liabilities (such as deposits and borrowings). The
Company's results of operations are also affected by the provision for loan
losses, non-interest income and non-interest expense. Non-interest income
primarily consists of service charges and fees on deposit and loan products, and
gains (losses) on sales of loans and securities. The Company's non-interest
expenses primarily consist of employee compensation and benefits, occupancy and
equipment expenses, data processing service fees, federal deposit insurance
costs and other operating expenses.
The Company's results of operations are significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards and actions of
regulatory agencies. Future changes in applicable laws, regulations or
government policies may have a material impact on the Company. Lending
activities are influenced by the demand for and supply of housing, competition
among lenders, the level of interest rates, national and local economic
conditions, and the availability of funds. Deposit flows and costs of funds are
influenced by prevailing market interest rates (including rates on non-deposit
investment alternatives), account maturities, and the levels of personal income
and savings in the Company's market area.
OPERATING STRATEGY
The Company's basic mission is to maintain its focus as an independent,
community-oriented financial institution servicing customers in its primary
market area. The Board of Directors has sought to accomplish this mission
through an operating strategy designed to maintain capital in excess of
regulatory requirements and manage, to the extent practical, the Company's loan
delinquencies and vulnerability to changes in interest rates. The key components
of the Company's operating strategy are to: (i) focus its lending operations on
the origination of loans secured by one- to four-family residential real estate,
with a portion of such originations being sold in the secondary market; (ii)
maintain a significant portfolio of adjustable-rate loans, that includes loans
with rates that adjust periodically after an initial fixed-rate period; (iii)
supplement its one- to four-family residential lending activities with
higher-yielding multi-family, commercial real estate, consumer, construction and
land loans; (iv) augment its lending activities with investments in
mortgage-backed and other securities; (v) build and maintain its regular
savings, transaction, money market and club accounts; (vi) increase, at a
managed pace, the volume of the Company's assets and liabilities; and (vii)
utilize borrowings to fund increases in asset volume at a positive interest-rate
spread.
7
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND 1998
Total assets at September 30, 1999 amounted to $457.7 million, an increase
of $74.7 million or 19.5% from $383.0 million at September 30, 1998. Asset
growth during the period was funded primarily through proceeds from borrowings
through Federal Home Loan Bank ("FHLB") advances and growth in the Company's
deposit base relating to the expansion of its retail franchise. In addition, a
portion of the available funding was used to repurchase shares of the Company's
common stock.
Funds provided by borrowings and deposit growth, as well as proceeds from
sales of mortgage loans held for sale, were primarily invested in new loans.
Overall, total loans (loans receivable and mortgage loans held for sale)
increased $101.8 million or 51.6% to $299.2 million at September 30, 1999 from
$197.4 million at September 30, 1998. One-to four-family mortgage loans
accounted for $78.5 million of the overall increase (net of a decrease of $12.1
million in loans held for sale). Commercial real estate loans increased $14.0
million or 7.1%, and, multi-family real estate loans increased $8.4 million or
4.3% reflecting the Company's intention to increase higher-yielding assets,
while changes in other portfolio categories were less significant. The loan
growth during fiscal 1999 represented loan originations of $178.1 million,
offset by principal repayments of $38.5 million, loans sold of $37.4 million,
and an increase in the allowance for loan losses of $201,000. The increase in
loan production was the result of an expanded mortgage representative sales
force and the establishment of a new lending center during fiscal 1999, as well
as favorable market conditions.
Total securities at September 30, 1999 decreased $29.9 million to $138.6
million from $168.5 million at September 30, 1998, reflecting a $21.4 million
decrease in held-to-maturity securities and a $8.5 million decrease in
available-for-sale securities. These decreases reflect the significant increase
in loan volume during fiscal 1999. The $21.4 million decrease in
held-to-maturity securities primarily reflects principal repayments, maturities
and calls. The $8.5 million decrease in available-for-sale securities primarily
reflects $38.7 million in principal repayments, maturities and calls, $17.6
million in proceeds from sales and a $6.2 million decrease in the market value
of the portfolio, partially offset by purchases of $54.3 million (including
purchases of longer-term, fixed-rate securities funded with borrowings under
repurchase agreements). Available-for-sale securities represented 84.2% of the
total securities portfolio at September 30, 1999, compared to 74.3% at September
30, 1998. Cash and cash equivalents increased $456,000 to $4.7 million at
September 30, 1999 from $4.2 million at September 30, 1998.
Deposit liabilities increased $41.8 million or 18.1% to $273.0 million at
September 30, 1999 from $231.2 million at September 30, 1998. The increase is
attributable to the opening of three additional in-store branches in fiscal 1999
as well as continued aggressive cross-selling, quality customer service and new
deposit products.
Borrowings increased $40.1 million (primarily FHLB advances) to $147.9
million at September 30, 1999 from $107.8 million at September 30, 1998. For
information regarding the terms of the borrowings, see "Liquidity and Capital
Resources".
Stockholders' equity amounted to $32.0 million at September 30, 1999, a
$9.8 million decrease from $41.8 million at September 30, 1998. The decrease is
primarily attributable to common share repurchases of $8.7 million for the
treasury, and a $3.7 million decrease in the after-tax net unrealized gain on
available-for-sale securities, partially offset by net income retained after
dividends of $1.9 million, and a combined increase of $755,000 relating to the
employee stock ownership plan ("ESOP") and the management recognition plan
("MRP"). A total of 492,500 common shares were repurchased in open market
transactions during fiscal 1999 at an average cost of $17.75 per share. The
ratio of stockholders' equity to total assets decreased to 7.00% at September
30, 1999 from 10.91% at September 30, 1998, reflecting substantial asset growth
coupled with the net decrease in stockholders' equity. Book value per share
(computed based on total shares issued less treasury shares) was $14.30 at
September 30, 1999, a decrease from $15.33 at September 30, 1998. For
information regarding the Association's regulatory capital, see "Liquidity and
Capital Resources".
8
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
<TABLE>
<CAPTION>
For the Year Ended September 30,
------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $221,754 $16,399 7.40% $169,011 $13,243 7.84% $ 98,721 $ 8,603 8.71%
Mortgage-backed securities (2) 109,831 7,032 6.40 108,674 7,394 6.80 88,030 6,078 6.90
Other securities (2) 40,331 2,837 7.03 62,654 4,356 6.95 79,584 5,655 7.11
Other earning assets 13,108 664 5.07 8,646 482 5.57 7,760 395 5.09
--------- -------- --------- ------- --------- -------
Total interest-earning assets 385,024 $26,932 6.99 348,985 $25,475 7.30 274,095 $20,731 7.56
-------- ------- -------
Allowance for loan losses (1,423) (1,195) (1,048)
Non-interest earning assets 9,194 6,738 6,850
--------- --------- ---------
Total assets $392,795 $354,528 $279,897
--------- --------- ---------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW, club and money market
accounts $ 56,462 $ 1,286 2.28% $ 47,078 $ 841 1.79% $ 38,284 $ 862 2.25%
Regular savings accounts (3) 49,148 949 1.93 45,124 1,092 2.42 46,636 1,166 2.50
Savings certificate accounts 144,475 7,308 5.06 124,647 7,123 5.71 110,935 5,894 5.31
--------- -------- --------- ------- --------- -------
Total interest-bearing deposits 250,085 9,543 3.82 216,849 9,056 4.18 195,855 7,922 4.04
Borrowings 97,138 5,341 5.50 86,031 4,966 5.77 35,260 2,035 5.77
--------- -------- --------- ------- --------- -------
Total interest-bearing liabilities 347,223 $14,884 4.29 302,880 $14,022 4.63 231,115 $ 9,957 4.30
-------- ------- -------
Non-interest-bearing liabilities 5,485 8,461 4,860
--------- --------- ---------
Total liabilities 352,708 311,341 235,975
Stockholders' equity 40,087 43,187 43,922
--------- --------- ---------
Total liabilities and $392,795 $354,528 $279,897
stockholders' equity --------- --------- ---------
Net interest income $12,048 $11,453 $10,774
-------- ------- -------
Average interest rate spread (4) 2.71% 2.67% 3.26%
Net interest margin (5) 3.13% 3.28% 3.93%
Net interest-earning assets (6) $ 37,801 $ 46,105 $ 42,980
--------- --------- ---------
Ratio of average interest-earning
assets to average interest-
bearing liabilities 110.89% 115.22% 118.60%
<FN>
- ----------------------
(1) Balances are net of deferred loan fees and construction loans in process,
and include loans receivable and loans held for sale. Nonaccrual loans are
included in the balances.
(2) Average balances represent amortized cost.
(3) Includes mortgage escrow accounts.
(4) Average interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabillities.
(5) Net interest margin represents net interest income divided by average total
interest-earning assets.
(6) Net interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
</FN>
</TABLE>
9
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rates earned or paid on them.
The following table sets forth average balance sheets, average yields and
costs, and certain other information for the years ended September 30, 1999,
1998 and 1997. The average yields and costs were computed by dividing interest
income or expense by the average balance of the related assets or liabilities.
Average balances were computed based on daily balances. The yields include the
effect of deferred fees, discounts and premiums included in interest income. No
tax-equivalent yield adjustments were made for tax-exempt securities, as the
effect thereof was not material.
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Fiscal 1999 Compared to Fiscal 1998 Fiscal 1998 Compared to Fiscal 1997
----------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------- Net ------------------- Net
Volume Rate Change Volume Rate Change
-------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 3,936 $ (780) $ 3,156 $ 5,576 $ (936) $ 4,640
Mortgage-backed securities 73 (435) (362) 1,408 (90) 1,318
Other securities (1,570) 51 (1,519) (1,177) (124) (1,301)
Other earning assets 229 (47) 182 48 39 87
------- ------- ------- ------- ------- -------
Total 2,668 (1,211) 1,457 5,855 (1,111) 4,744
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
NOW, club and money market accounts 188 257 445 175 (196) (21)
Regular savings accounts 91 (234) (143) (37) (37) (74)
Savings certificate accounts 1,052 (867) 185 764 465 1,229
Borrowings 616 (241) 375 2,931 -- 2,931
------- ------- ------- ------- -------
-------
Total 1,947 (1,085) 862 3,833 232 4,065
------- ------- ------- ------- ------- -------
Net change in net interest income $ 721 $ (126) $ 595 $ 2,022 $(1,343) $ 679
------- ------- ------- ------- ------- -------
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
GENERAL.
Net income was $2.7 million and diluted earnings per common share ("EPS")
was $1.11 for the fiscal year ended September 30, 1999, a $238,000 decrease from
net income of $2.9 million and diluted EPS of $1.08 for the fiscal year ended
September 30, 1998. Basic EPS was $1.13 for the fiscal year ended September 30,
1999 compared to $1.12 for fiscal 1998. The decrease in net income reflects a
$1.5 million increase in non-interest expense, partially offset by an increase
of $595,000 in net interest income, a decrease of $434,000 in income tax
expense, a $140,000 decrease in the provision for loan losses, and a $102,000
increase in non-interest income.
NET INTEREST INCOME.
Net interest income for the year ended September 30, 1999 was $12.0
million, an increase of $595,000 from $11.5 million for the prior year. The
increase primarily reflects a rise in the average interest rate spread,
partially offset by a decline in net-interest earning assets (total
interest-earning assets less total interest-bearing liabilities) primarily due
to $8.7 million in funds used to purchase treasury stock during fiscal 1999. The
increase in the average interest rate spread is primarily a result of a decrease
in the cost of funds as well as increases in the proportion of assets consisting
of commercial real estate and multi-family loans. The Company's average interest
rate spread increased to 2.71% for fiscal 1999 from 2.67% for fiscal 1998, while
the net interest margin decreased to 3.13% for fiscal 1999 from 3.28% for fiscal
1998.
INTEREST AND DIVIDEND INCOME.
Interest and dividend income increased $1.4 million, or 5.72%, to $26.9
million for fiscal 1999 from $25.5 for fiscal 1998. This increase reflects the
impact of a $36.0 million increase in total average interest-earning assets,
primarily loans, partially offset by a 31 basis point decrease in the average
yield on such assets to 6.99% for the year ended September 30, 1999 from 7.30%
for the prior year.
10
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
Interest income on loans increased $3.2 million to $16.4 million for the
year ended September 30, 1999 from $13.2 million for the prior year, reflecting
a $52.7 million increase in the average balance, partially offset by a 44 basis
point decrease in the average yield. The increase in the average balance of
loans was primarily attributable to an increase in originations of one- to
four-family residential loans for portfolio purposes and the reinvestment of
proceeds from principal repayments, maturities and calls of securities. The
decline in the average yield was primarily attributable to the origination of
new loans (including refinancings) in a lower interest rate environment.
On a combined basis, interest and dividend income on mortgage-backed and
other securities decreased $1.9 million to $9.9 million for fiscal 1999 from
$11.8 million for the prior year. Interest on mortgage-backed securities
decreased by $362,000, attributable to the effects of a 40 basis point decrease
in the average yield partially offset by a $1.1 million increase in the average
balance. The lower average yield on mortgage-backed securities in fiscal 1999
reflects the impact of higher premium amortization caused by increased
repayments of principal. Interest on other securities declined by $1.5 million,
primarily attributable to a $22.3 million decrease in the average balance. The
decrease in the average balance of other securities was primarily attributable
to calls of higher yielding agency securities in the lower interest rate
environment of fiscal 1999.
Interest and dividend income on other earning assets increased $182,000,
attributable to a $4.5 million increase in the average balance, partially offset
by a 50 basis point decrease in the average yield.
INTEREST EXPENSE.
Interest expense totaled $14.9 million for the year ended September 30,
1999, an increase of $862,000 from $14.0 million for the prior year.
Interest expense on deposits increased $487,000 to $9.5 million for fiscal
1999 from $9.1 million for fiscal 1998. This increase reflects the impact of a
$33.2 million increase in the average balance of interest-bearing deposits,
partially offset by a 36 basis point decrease in the average rate paid on
deposits to 3.82% for the year ended September 30, 1999 from 4.18% for the prior
year. The increase in average interest-bearing deposits consisted of a $19.9
million increase in average savings certificate accounts (to $144.5 million from
$124.6 million), a $9.4 million increase in average NOW, club and money market
accounts (to $56.5 million from $47.1 million), and a $4.0 million increase in
average regular savings accounts (to $49.1 million from $45.1 million). The
overall decrease in the average rate paid on deposits during fiscal 1999
primarily reflects a 65 basis point decrease in the average rate paid on savings
certificate accounts, coupled with a 49 basis point decrease in the average rate
paid on regular savings accounts, partially offset by a 49 basis point increase
in the average rate paid on NOW, club and money market accounts.
Interest expense on borrowings increased $375,000 to $5.3 million for
fiscal 1999 from $5.0 million for fiscal 1998, as the Company continued to
increase borrowings, primarily FHLB advances, to leverage available capital and
support further loan growth. Total borrowings averaged $97.1 million for fiscal
1999 at an average rate of 5.50% compared to $86.0 million and 5.77%,
respectively, for the prior-year. See "Liquidity and Capital Resources" for a
further discussion of the Company's borrowings.
PROVISION FOR LOAN LOSSES.
The Company records provisions for loan losses, which are charged to
earnings, in order to maintain the allowance for loan losses at a level which is
considered appropriate to absorb probable losses inherent in the existing loan
portfolio. The provision in each period reflects management's evaluation of the
adequacy of the allowance for loan losses. Factors considered include the volume
and type of lending conducted, the Company's previous loan loss experience, the
known and inherent risks in the loan portfolio, adverse situations that may
affect the borrowers' ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
The provision for loan losses was $235,000 in fiscal 1999 and $375,000 in
fiscal 1998. Loans receivable (before the allowance for loan losses) increased
to $299.4 million at September 30, 1999 from $185.3 million at September 30,
1998, and the allowance for loan losses increased to $1.5 million at September
30, 1999 from $1.3 million a year earlier. The higher provision in fiscal 1998
reflected the impact of higher net charge-offs, which were $166,000 for the
period, compared to $34,000 for fiscal 1999. The allowance for loan losses
represented 0.50% of total loans receivable at September 30, 1999, compared to
0.70% at September 30, 1998. Non-performing loans increased slightly to $755,000
at September 30, 1999 from $753,000 at September 30, 1998. The ratio of the
allowance for loan losses to non-performing loans was 199.07% at September 30,
1999, compared to 172.91% at September 30, 1998. See "Asset Quality" for further
information concerning the provision and allowance for loan losses.
NON-INTEREST INCOME.
Non-interest income increased $102,000 to $1.5 million for the year ended
September 30, 1999 compared to $1.4 million for the prior year. The increase was
primarily attributable to increases in service charges and fee income and other
non-interest income, partially offset by decreases in the net gain on sales of
real estate mortgage loans held for sale and available-for-sale securities. The
$239,000 increase in service charges and fee income primarily reflects increases
in transaction volume. In fiscal 1999, mortgage loan sales totaled $37.4
million, resulting in a net gain of $197,000 (including the recognition of
mortgage servicing assets), as compared to loan sales of $69.8 million in fiscal
1998, which resulted in net gains of $371,000. In addition, a provision for
losses on loans held for sale of $97,000 was charged to net gain on sales of
loans for fiscal 1999, while no such provisions were made in fiscal 1998. The
net gain on sales of loans held for sale includes the effect of capitalizing
mortgage servicing assets at the time of sale, in accordance with Statement of
Financial Accounting Standards No. 125, which amounted to $362,000 for fiscal
1999 and $594,000 for the prior year. Servicing assets with a carrying value of
$548,000 and $538,000 (after amortization) are included in other assets in the
consolidated balance sheet as of September 30, 1999 and 1998, respectively. See
also Notes 1 and 3 of the Notes to Consolidated Financial Statements. Net gain
on sales of securities amounted to $111,000 for fiscal 1999 reflecting sales of
$17.6 million in available-for-sale securities during the year, compared to
gains of $117,000 on sales of $28.2 million in the prior year. Other
non-interest income for fiscal 1999 increased $43,000 from the prior year,
reflecting a gain of $72,000 from the sale of servicing rights in fiscal 1999.
11
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
NON-INTEREST EXPENSE.
Non-interest expense increased $1.5 million to $9.1 million for the year
ended September 30, 1999 compared to $7.6 million for the prior year. The
increase in fiscal 1999 was primarily attributable to increases in compensation
and benefits expense, occupancy and equipment expense, and other non-interest
expense. Compensation and benefits expense increased $818,000 from the prior
year primarily due to increased costs relating to additional staffing for three
new in-store branches and the expansion of lending operations. The $311,000
increase in occupancy and equipment expense primarily reflects increased costs
associated with the establishment of three in-store branches and a lending
center during fiscal 1999. The $279,000 increase in other non-interest expense
primarily reflects expenses of $140,000 relating to the establishment of the
REIT. On September 30, 1999, $120.3 million in real estate loans were held by
the REIT. The assets transferred to the REIT are viewed by regulators as part of
the Association's assets in consolidation.
INCOME TAX EXPENSE.
Income tax expense was approximately $1.6 million for fiscal 1999, a
decrease from $2.0 million for fiscal 1998, reflecting lower pre-tax income and
effective tax rates of 37.1% and 40.9%, respectively. The decrease in the
effective tax rate reflects the ancillary benefits from the aforementioned REIT.
Under current law, all income earned by the REIT distributed to the Association
in the form of a dividend has the effect of reducing the Company's New York
State income tax expense.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
GENERAL.
Net income was $2.9 million and basic EPS was $1.12 for the fiscal year
ended September 30, 1998, a $51,000 decrease from net income of $3.0 million or
basic EPS of $1.05 for the fiscal year ended September 30, 1997. Diluted EPS was
$1.08 for the fiscal year ended September 30, 1998 compared to $1.04 for fiscal
1997. The decrease in net income reflects a $1.3 million increase in
non-interest expense, as well as increases in the provision for loan losses and
income tax expense, substantially offset by increases of $679,000 in net
interest income and $677,000 in non-interest income.
NET INTEREST INCOME.
Net interest income for the year ended September 30, 1998 was $11.5
million, an increase of $679,000 from $10.8 million for the prior year. The
positive effect on net interest income of higher average interest-earning
assets, primarily attributable to the reinvestment of proceeds from borrowings
and deposit growth, was partially offset by a decline in the average interest
rate spread. The narrower spread primarily reflects (i) an overall lower asset
yield from the origination of new mortgage loans (including refinancings) in the
current lower interest rate environment and (ii) a higher average rate paid on
interest-bearing liabilities due primarily to the larger proportion of
higher-rate borrowings and savings certificate accounts to total
interest-bearing funding. The relatively flat yield curve in fiscal 1998 also
contributed to the reduction in the Company's average interest rate spread. The
low level of interest rates fueled a surge in home sales and refinancings, which
supported the Company's higher volume of loan originations but also contributed
to a lower average yield on the portfolio. The Company's average interest rate
spread and net interest margin decreased to 2.67% and 3.28%, respectively, for
the year ended September 30, 1998, from 3.26% and 3.93%, respectively, for
fiscal 1997.
INTEREST AND DIVIDEND INCOME.
Interest and dividend income increased $4.8 million, or 22.9%, to $25.5
million for fiscal 1998 from $20.7 for fiscal 1997. This increase reflects the
impact of a $74.9 million increase in total average interest-earning assets,
primarily loans, partially offset by a 26 basis point decrease in the average
yield on such assets to 7.30% for the year ended September 30, 1998 from 7.56%
for the prior year.
Interest income on loans increased $4.6 million to $13.2 million for the
year ended September 30, 1998 from $8.6 million for the prior year, reflecting a
$70.3 million increase in the average balance, partially offset by an 87 basis
point decrease in the average yield. The increase in the average balance of
loans was primarily attributable to a dramatic increase in originations of one-
to four-family residential loans. The decline in the average yield was primarily
attributable to the origination of new loans (including refinancings) in the
lower interest rate environment of fiscal 1998.
On a combined basis, interest and dividend income on mortgage-backed and
other securities increased $17,000 in fiscal 1998 compared to the prior year.
Interest on mortgage-backed securities increased by $1.3 million, attributable
to a $20.6 million increase in the average balance partially offset by a 10
basis point decrease in the average yield. Interest on other securities declined
by $1.3 million, attributable to a $16.9 million decrease in the average balance
and a 16 basis point decrease in the average yield. The lower average yields in
fiscal 1998 reflect the impact of (i) higher premium amortization on
mortgage-backed securities caused by increased repayments of principal and (ii)
calls of higher-yielding agency securities in the current lower interest rate
environment.
12
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
Interest and dividend income on other earning assets increased $87,000,
attributable to a 48 basis point increase in the average yield and an $886,000
increase in the average balance.
INTEREST EXPENSE.
Interest expense totaled $14.0 million for the year ended September 30,
1998, an increase of $4.0 million from $10.0 million for the prior year.
Interest expense on deposits increased $1.2 million to $9.1 million for
fiscal 1998 from $7.9 million for fiscal 1997. This increase reflects the impact
of a $21.0 million increase in the average balance of interest-bearing deposits,
as well as a 14 basis point increase in the average rate paid on deposits to
4.18% for the year ended September 30, 1998 from 4.04% for the prior year. The
increase in average interest-bearing deposits consisted of increases of $13.7
million in average savings certificate accounts and $8.8 million in average NOW,
club and money market accounts, partially offset by a $1.5 million decrease in
average regular savings accounts. The overall increase in the average rate paid
on deposits reflects a 40 basis point increase in the average rate paid on
savings certificate accounts during fiscal 1998, coupled with the higher volume
of certificate accounts resulting from aggressive advertising campaigns to
attract, such long-term accounts.
Interest expense on borrowings increased $3.0 million to $5.0 million for
fiscal 1998 from $2.0 million for fiscal 1997, as the Company continued to
increase borrowings, primarily securities repurchase agreements, to leverage
available capital and support further asset growth. The average balance of
borrowings was $86.0 million for fiscal 1998 compared to $35.3 million for the
prior year. Although interest rates have declined in the past year, the average
cost of borrowings for the year ended September 30, 1998 was 5.77%, unchanged
from a year ago due to the use in fiscal 1998 of longer-term borrowings with
higher interest rates.
PROVISION FOR LOAN LOSSES.
The Company records provisions for loan losses, which are charged to
earnings, in order to maintain the allowance for loan losses at a level which is
considered appropriate to absorb probable losses inherent in the existing loan
portfolio. The provision in each period reflects management's evaluation of the
adequacy of the allowance for loan losses. Factors considered include the volume
and type of lending conducted, the Company's previous loan loss experience, the
known and inherent risks in the loan portfolio, adverse situations that may
affect the borrowers' ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
The provision for loan losses was $375,000 in fiscal 1998 and $300,000 in
fiscal 1997. Loans receivable (before the allowance for loan losses) increased
to $185.3 million at September 30, 1998 from $119.8 million at September 30,
1997, and the allowance for loan losses increased to $1.3 million at September
30, 1998 from $1.1 million a year earlier. The provision and allowance for loan
losses were increased in fiscal 1998 primarily in light of changes in inherent
losses attributable to continued portfolio growth. The allowance for loan losses
represented 0.70% of total loans receivable at September 30, 1998, compared to
0.90% at September 30, 1997. Net charge-offs in fiscal 1998 increased to
$166,000 from $144,000 in the prior year, while non-performing loans declined to
$753,000 at September 30, 1998 from $1.1 million at September 30, 1997. The
ratio of the allowance for loan losses to non-performing loans was 172.91% at
September 30, 1998, compared to 96.05% at September 30, 1997.
NON-INTEREST INCOME.
Non-interest income increased $677,000 to $1.4 million for the year ended
September 30, 1998 compared to $733,000 for fiscal 1997. The increase is
primarily attributable to increases in the net gain on sales of real estate
mortgage loans held for sale, the net gain on sales of securities, and service
charges and fee income. In fiscal 1998, mortgage loan sales totaled $69.8
million resulting in a net gain of $371,000, as compared to loan sales of $2.8
million in fiscal 1997 which resulted in net losses of $17,000. The net gain in
fiscal 1998 includes the effect of capitalizing mortgage servicing assets of
$594,000 at the time of sale, in accordance with Statement of Financial
Accounting Standards No. 125. Servicing assets with a carrying value of $538,000
(after amortization) are included in other assets in the consolidated balance
sheet as of September 30, 1998. See also Notes 1 and 3 of the Notes to
Consolidated Financial Statements. The increase in the net gain on sales of
securities reflects a net gain of $117,000 on sales of $28.3 million in
available-for-sale securities in fiscal 1998, while net losses of $48,000 were
incurred on sales of $16.2 million in the prior year. The $91,000 increase in
service charges and fee income primarily reflects increases in transaction
volume.
NON-INTEREST EXPENSE.
Non-interest expense increased $1.3 million to $7.6 million for the year
ended September 30, 1998 compared to $6.3 million for the prior year.
Compensation and benefits expense increased $584,000 from the prior year
primarily due to (i) increased costs relating to additional staffing for an
in-store branch and the expansion of lending operations and (ii) the recognition
of $106,000 in additional expense associated with the ESOP due to the higher
average market price of the Company's common stock in fiscal 1998 compared to
the prior year. The $182,000 increase in occupancy and equipment expense
primarily reflects increased costs associated with the establishment of an
in-store branch during fiscal 1998. The $515,000 increase in other non-interest
expense was primarily attributable to additional costs associated with the
expansion of the Company's business activities and review of additional growth
opportunities.
INCOME TAX EXPENSE.
Income tax expense was approximately $2.0 million for both fiscal 1998 and
1997, reflecting effective tax rates of 40.9% and 40.3%, respectively.
13
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
ASSET QUALITY
Non-performing assets consist of non-accrual loans past due 90 days or more
and real estate owned properties that have been acquired by foreclosure or deed
in lieu of foreclosure. Loans are placed on non-accrual status when the
collection of principal or interest becomes doubtful. Management and the Board
of Directors perform a monthly review of all non-performing loans. The actions
taken by the Company with respect to delinquencies (workout, settlement or
foreclosure) vary depending on the nature of the loan, length of delinquency and
the borrower's past credit history. The classification of a loan as
non-performing does not necessarily indicate that the principal and interest
ultimately will be uncollectible. Historical experience indicates that a portion
of non-performing assets will eventually be recovered. Real estate owned
properties are carried at the lower of cost or fair value less sales costs.
The following table sets forth the amounts and categories of the Company's
non-performing assets at the dates indicated. The Company's prospective adoption
of Statement of Financial Accounting Standards ("SFAS") No. 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN, effective October 1, 1995, had no impact on
the comparability of this information. See Note 3 to the Consolidated Financial
Statements for information concerning the Company's impaired loans which are
included in the non-accrual loans shown below.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans past due ninety days or more:
Real estate mortgage loans:
One- to four-family $ 347 $ 515 $ 389 $1,757 $2,759
Multi-family (1) -- -- -- -- 389
Commercial 305 203 211 214 --
Land -- -- 250 250 49
Construction -- -- 279 511 279
Consumer loans 103 35 9 43 54
------ ------ ------ ------ ------
Total 755 753 1,138 2,775 3,530
Real estate owned, net -- 305 379 603 227
------ ------ ------ ------ ------
Total non-performing assets $ 755 $1,058 $1,517 $3,378 $3,757
------ ------ ------ ------ ------
Allowance for loan losses $1,503 $1,302 $1,093 $ 937 $ 719
------ ------ ------ ------ ------
Ratios:
Non-performing loans to total loans receivable 0.25% 0.41% 0.94% 3.14% 4.15%
Non-performing assets to total assets 0.16 0.28 0.48 1.30 1.80
Allowance for loan losses to:
Non-performing loans 199.07 172.91 96.05 33.77 20.37
Total loans receivable 0.50 0.70 0.90 1.06 0.84
<FN>
- --------------------------------
(1) Includes a loan of $309,000 classified as a troubled debt restructuring at
September 30, 1995. Collections and charge-offs in fiscal 1996 eliminated
the recorded investment in this loan.
</FN>
</TABLE>
Total non-performing assets decreased $303,000 from $1.1 million at
September 30, 1998 to $755,000 at September 30, 1999, primarily reflecting a net
reduction of $305,000 in real estate owned. The ratio of non-performing assets
to total assets decreased to 0.16% at September 30, 1999 from 0.28% at September
30, 1998. The allowance for loan losses was $1.5 million or 0.50% of total loans
receivable at September 30, 1999, compared to $1.3 million or 0.70 % at
September 30, 1998. The ratio of the allowance for loan losses to non-performing
loans increased to 199.07% at September 30, 1999 from 172.91% at September 30,
1998.
For the year ended September 30, 1999, gross interest income of $69,000
would have been recorded if all non-accrual loans at September 30, 1999 had
remained current throughout the year in accordance with their original terms.
The amount of interest income actually recognized on such loans in fiscal 1999,
prior to placing the loans on non-accrual status, was $42,000. See Note 3 of the
Notes to the Consolidated Financial Statements.
The Company provides for loan losses based on the allowance method.
Accordingly, losses for uncollectible loans are charged to the allowance and all
recoveries of loans previously charged-off are credited to the allowance.
Additions to the allowance for loan losses are provided by charges to income
based on various factors which, in management's judgment, deserve current
recognition in estimating probable losses. Management regularly reviews the loan
portfolio and makes provisions for loan losses in order to maintain the adequacy
of the allowance for loan losses. The allowance for loan losses consists of
amounts specifically allocated to non-performing loans and potential problem
loans (if any) as well as allowances determined for each major loan category.
Loan categories such as single-family residential mortgages and consumer loans
are generally evaluated on an aggregate or "pool" basis by applying loss factors
to the current balances of the various loan categories. The loss factors are
determined by management based on an evaluation of historical loss experience,
delinquency trends, volume and type of lending conducted, and the impact of
current economic conditions in the Company's market area.
14
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
The following table sets forth activity in the allowance for loan losses
for the periods indicated. The Company's prospective adoption of SFAS No. 114 as
of October 1, 1995 had no impact on the comparability of this information.
<TABLE>
<CAPTION>
For the Year Ended September 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,302 $ 1,093 $ 937 $ 719 $ 311
Provision for losses 235 375 300 462 493
Charge-offs:
Real estate mortgage loans:
One- to four-family (23) (45) (132) (97) (76)
Multi-family (1) -- -- -- (203) --
Land -- (17) -- -- --
Construction -- (91) -- -- --
Consumer loans (20) (40) (25) (33) (13)
------- ------- ------- ------- -------
Total charge-offs (43) (193) (157) (333) (89)
Recoveries 9 27 13 89 4
------- ------- ------- ------- -------
Net charge-offs (34) (166) (144) (244) (85)
------- ------- ------- ------- -------
Balance at end of year $ 1,503 $ 1,302 $ 1,093 $ 937 $ 719
------- ------- ------- ------- -------
Ratio of net charge-offs to average total loans 0.02% 0.10% 0.15% 0.29% 0.10%
<FN>
- ----------------------
(1) Charge-offs in fiscal 1996 relate to the Company's purchased participation
interest in a multi-family loan originated by TASCO.
</FN>
</TABLE>
Although the Company maintains its allowance for loan losses at a level it
considers adequate to absorb probable losses, there can be no assurance that
such losses will not exceed the estimated amounts or that additional substantial
provisions for losses will not be required in future periods. Subject to market
conditions in the future, the Company intends to continue to expand its
multi-family and commercial real estate lending. As a result, these loan
categories may represent a larger percentage of the total loan portfolio in the
future. Since such loans are generally thought to carry a higher degree of
credit risk than one- to four-family residential loans, such a change in the
loan portfolio mix may result in a further increase in the allowance for losses.
INTEREST RATE RISK MANAGEMENT
The principal objectives of the Company's interest rate risk management
activities are to: (i) define an acceptable level of risk based on the Company's
business focus, operating environment, capital and liquidity requirements and
performance objectives; (ii) quantify and monitor the amount of interest rate
risk inherent in the asset/liability structure; (iii) modify the Company's
asset/liability structure, as necessary, to manage interest rate risk; and (iv)
maintain acceptable net interest margins in changing rate environments.
Management seeks to reduce the vulnerability of the Company's operating results
to changes in interest rates and to manage the ratio of interest-rate-sensitive
assets to interest-rate-sensitive liabilities within specified maturities or
repricing periods. The Company does not currently engage in trading activities
or use off-balance sheet derivative instruments to control interest rate risk.
Notwithstanding the Company's interest rate risk management activities, the
potential for changing interest rates is an uncertainty that could have an
adverse effect on the earnings of the Company. When interest-bearing liabilities
mature or reprice more quickly than interest-earning assets in a given period, a
significant increase in market interest rates could adversely affect net
interest income. Similarly, when interest-earning assets mature or reprice more
quickly than interest-bearing liabilities, falling interest rates could result
in a decrease in net interest income. Finally, a flattening of the "yield curve"
(I.E., a narrowing of the spread between long- and short-term interest rates),
could adversely impact net interest income to the extent that the Company's
assets have a longer average term than its liabilities.
In managing the asset/liability position, the Company has taken several
steps to manage its interest rate risk. First, the Company maintains a
significant portfolio of interest rate sensitive adjustable-rate loans that
includes loans with rates that adjust periodically after earning a fixed rate of
interest for initial periods of five, seven or ten years. At September 30, 1999,
total adjustable-rate loans were $209.2 million or 69.7% of the total loan
portfolio, including $157.0 million in loans with initial fixed rates as
described above. Second, beginning in fiscal 1998 the Company sold the majority
of its newly originated, fixed-rate one- to four-family residential mortgage
loans with original terms of more than 15 years. Third, the Company carries an
investment in mortgage-backed securities that are more liquid and generally have
shorter average lives than mortgage loans. At September 30, 1999,
mortgage-backed securities with terms to repricing or estimated average lives of
less than five years amounted to $4.5 million. Fourth, the Company has a
substantial amount of regular savings, transaction, money market and club
accounts, which may be less sensitive to changes in interest rates than
certificate accounts. At September 30, 1999, the Company had $50.8 million of
regular savings accounts, $33.4 million of money market accounts and $37.0
million of NOW, checking and club accounts. Overall, these accounts comprised
44.4% of the Company's total deposit base at September 30, 1999. Finally, a
portion of the Company's securities repurchase agreements and FHLB advances have
terms in excess of one year. The weighted, average remaining period to final
maturity of these borrowings was approximately 3.3 years at September 30, 1999,
compared to 3.8 years at September 30, 1998.
15
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
One approach used by management to quantify interest rate risk is the net
portfolio value ("NPV") analysis. In essence, this approach calculates the
difference between the present value of liabilities and the present value of
expected cash flows from assets and off-balance sheet contracts. The following
table sets forth, at September 30, 1999, an analysis of the Association's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+/-300 basis
points, measured in 100 basis point increments). For comparative purposes, the
table also shows the estimated percent increase (decrease) in NPV at September
30, 1998.
<TABLE>
<CAPTION>
At September 30, 1999
------------------------------------------------------
Change in Estimated Increase (Decrease) in NPV Percent Increase
Interest Rates Estimated NPV ------------------------------------ (Decrease) in NPV at
(Basis Points) Amount Amount Percent September 30, 1998
-------------- ------------- ------ ------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 $ 13,819 $ (30,670) (69)% (29)%
+200 25,230 (19,259) (43) (17)
+100 36,107 (8,382) (19) (7)
-- 44,489 -- -- --
-100 50,493 6,004 13 5
-200 52,607 8,118 18 12
-300 54,057 9,568 22 21
</TABLE>
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market rates. The NPV table presented above assumes
that the composition of the Association's interest-sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. It also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or the repricing characteristics of specific assets and liabilities.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.
Accordingly, although the NPV table provides an indication of the Association's
sensitivity to interest rate changes at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Association's net interest
income and will differ from actual results.
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and borrowings;
principal and interest payments on loans and securities; and proceeds from sales
of loans and securities. While maturities and scheduled payments on loans and
securities provide an indication of the timing of the receipt of funds, other
sources of funds such as loan prepayments and deposit inflows are less
predictable due to the effects of changes in interest rates, economic conditions
and competition.
The Association is required to maintain an average daily balance of total
liquid assets as a percentage of net withdrawable deposit accounts plus
short-term borrowings, as defined by the Office of Thrift Supervision (the
"OTS") regulations. The minimum required liquidity ratio at September 30, 1999
was 4.0%, and the Company's actual liquidity ratio was 7.8%.
The Company's most liquid assets are cash and cash equivalents, which
include highly liquid short-term investments (such as federal funds sold and
money market mutual funds) that are readily convertible to known amounts of
cash. At September 30, 1999 and 1998, cash and cash equivalents totaled $4.7
million and $4.2 million, respectively. The level of these assets is dependent
on the Company's operating, financing and investing activities during any given
period.
16
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities. During the years ended September 30, 1999, 1998 and 1997, the
Company's disbursements for loan originations totaled $178.1 million, $152.6
million and $69.2 million, respectively. For the years ended September 30, 1999,
1998 and 1997, purchases of mortgage-backed securities totaled $35.3 million,
$74.4 million and $25.8 million, respectively, and purchases of other securities
totaled $19.0 million, $16.2 million and $30.0 million, respectively. These
activities were funded primarily by net deposit inflows, borrowings under
securities repurchase agreements, FHLB advances, principal repayments on loans
and securities, and proceeds from sales of loans and securities. Loan sales
during fiscal 1999, 1998 and 1997, provided proceeds of $37.4, $69.6 and $2.8
million, respectively, for reinvestment into new loans and securities.
For the years ended September 30, 1999, 1998 and 1997 the Company
experienced net increases in deposits (including the effect of interest
credited) of $41.8 million, $23.2 million and $17.2 million, respectively. The
increases were due to the opening of three additional in-store branches in
fiscal 1999 as well as continued aggressive cross-selling, quality customer
service and new deposit products.
In fiscal 1999 and 1998, the Company significantly increased its use of
securities repurchase agreements and FHLB advances as a funding source. In
securities repurchase agreements, the Company borrows funds through the transfer
of debt securities to the FHLB of New York, as counterparty, and concurrently
agrees to repurchase the identical securities at a fixed price on a specified
date. During the years ended September 30, 1999 and 1998, the average borrowings
under repurchase agreements with the FHLB amounted to $79.8 million and $81.9
million, respectively, and the maximum month-end balance outstanding was $101.0
million and $119.9 million, respectively. The average interest rate spread on
these transactions, or the difference between the yield earned on the underlying
securities and the rate paid on the repurchase borrowings, was 1.25% in fiscal
1999 and 1.27% in fiscal 1998. See Note 7 of the Notes to the Consolidated
Financial Statements for additional information concerning these transactions.
At September 30, 1999, the Company had outstanding loan origination
commitments of $53.3 million, undisbursed construction loans in process of $1.7
million, and unadvanced lines of credit to customers of $4.4 million. The
Company anticipates that it will have sufficient funds available to meet its
current loan origination and other commitments. The Company also had the ability
to borrow additional advances of up to $65.8 million from the FHLB of New York
at September 30, 1999. Certificates of deposit scheduled to mature in one year
or less from September 30, 1999 totaled $107.3 million, with a weighted average
rate of 4.94%. Based on the Company's most recent experience and pricing
strategy, management believes that a significant portion of such deposits will
remain with the Company.
The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends received from the Association, if any. The main
cash outflows are payments of dividends to shareholders and repurchases of the
Holding Company's common stock. In fiscal 1999, the Holding Company repurchased
a total of 492,500 common shares in open market transactions at a total cost of
$8.7 million or $17.75 per share. The Holding Company received $4.0 million in
dividends from the Association in fiscal 1999.
The Association may not declare or pay cash dividends on or repurchase any
of its shares of common stock if the effect thereof would cause equity to be
reduced below applicable regulatory capital requirements or the amount required
to be maintained for the liquidation account established in connection with the
Conversion. Unlike the Association, the Holding Company is not subject to OTS
regulatory restrictions on the payment of dividends to its shareholders;
however, it is subject to the requirements of Delaware law. Delaware law
generally limits dividends to an amount equal to the excess of the net assets of
the Holding Company (the amount by which total assets exceed total liabilities)
over its statutory capital, or if there is no such excess, to its profits for
the current and/or immediately preceding fiscal year.
The OTS regulations require savings associations, such as the Association,
to meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations; a leverage ratio
requirement of 4.0% of core capital to such adjusted total assets; and a
risk-based capital ratio requirement of 8.0% of core and supplementary capital
to total risk-based assets. The Association satisfied these minimum capital
standards at September 30, 1999 with tangible and leverage capital ratios of
7.4% and a total risk-based capital ratio of 18.0%. In determining the amount of
risk-weighted assets for purposes of the risk-based capital requirement, a
savings association multiplies its assets and credit equivalent amount for
certain off-balance sheet items by risk-weights, which range from 0% for cash
and obligations issued by the United States Government or its agencies to 100%
for assets such as consumer and commercial loans, as assigned by the OTS capital
regulations. These capital requirements, which are applicable to the Association
only, do not consider additional capital held at the Holding Company level, and
require certain adjustments to the Association's equity to arrive at the various
regulatory capital amounts.
17
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
IMPACT OF ACCOUNTING STANDARDS
See Note 14 of the Notes to the Consolidated Financial Statements for a
discussion of recently-issued accounting standards that the Company will adopt
in the future, and their anticipated impact on the Company's financial
reporting.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and other financial information
included in this report have been prepared in conformity with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike industrial companies, nearly all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
IMPACT OF YEAR 2000 ISSUE
The Company, like all companies that utilize computer technology, has faced
significant challenges associated with ensuring that its computer systems will
accurately process time-sensitive data beyond the year 1999 (the "Year 2000
Issue"). Many existing computer programs and systems were originally programmed
with nine digit dates that provided only two digits to identify the calendar
year in the date field, without considering the upcoming change in the century.
With the impending millennium, these programs and computers will recognize "00"
as the year 1900 rather than the year 2000.
Like most financial service providers, the Company and its operations may
be significantly affected by the Year 2000 Issue due to the nature of financial
information. This includes software, hardware and equipment both within and
outside the Company's direct control and with whom the Company electronically or
operationally interfaces (e.g. third-party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information). If computer systems are not adequately changed to identify
the year 2000, many computer applications could fail or create erroneous
results. As a result, calculations that rely on the date field information (such
as interest, payment or due dates and other operating functions) would generate
results which could be significantly misstated, and the Company could experience
a temporary inability to process transactions and engage in similar normal
business activities. In addition, under certain circumstances, failure to
adequately address the Year 2000 Issue could adversely affect the viability of
the Company's suppliers and creditors, and the creditworthiness of its
borrowers. Thus, if not adequately addressed, the Year 2000 Issue could have a
significant adverse impact on the Company's products, services and competitive
condition.
The Company's primary federal regulator, the OTS, has published
substantive guidance on the Year 2000 Issue, alone and in conjunction with other
federal regulatory agencies. The OTS has also included Year 2000 compliance as a
substantive area of examination during special and regularly scheduled
examinations. These publications also included requirements for the creation and
implementation of a Year 2000 compliance plan as well as setting forth certain
target dates. Should a financial institution not become Year 2000 compliant, it
could then be subject to administrative remedies similar to those imposed on
financial institutions otherwise found not to be operating in a safe and sound
manner.
The Company has established and implemented a Year 2000 Action Plan (the
"Plan") to address the Year 2000 Issue. The Plan includes the five components as
recommended by the OTS, which address issues involving awareness, assessment,
renovation, validation and implementation. All phases have been substantially
completed.
Under the regulatory guidelines previously mentioned, testing of core
mission critical internal systems must have been substantively completed by
December 31, 1998 and testing with service providers must have been
substantively completed by June 30, 1999. All renovations must have been
substantially completed, and testing of mission critical systems must have been
completed, by June 30, 1999. As of September 30, 1999, the Company substantially
completed testing its internal mission critical systems and testing with its
primary service provider, which provides almost all of the Company's data
processing.
As part of the Plan, the Company is in communication with all of its
significant suppliers and vendors to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year 2000
Issue. The Company presently believes that with the modifications made to
existing software and conversions to new software, the Year 2000 Issue will be
mitigated without causing a material adverse impact on the operations of the
Company.
18
<PAGE>
YONKERS FINANCIAL CORPORATION 1999 Annual Report
The Company is also preparing a Year 2000 business resumption contingency
plan to document pre-determined actions to help the Company resume normal
operations in the event of failure of any mission-critical service and product.
Uncontrollable events, such as loss of the global power grid and telephone
service failures, will affect all companies, government and customers; these
global events cannot be remedied by anyone other than the appropriate
responsible party. The Company has reviewed its customer base to determine
whether they pose significant Year 2000 risks; the customer base is primarily
composed of individuals who utilize the Company's services for personal,
household or consumer uses and thus, individually, are not likely to pose
significant Year 2000 risks directly. The Company also reviewed its borrower
base and determined that its loans are primarily secured by residential and
multi-family residences, which management believes does not carry a high Year
2000 risk. The Company is ensuring the availability of sufficient cash to meet
potential depositor demand due to concerns about the availability of funds as we
approach the Year 2000. Contingency plans have been developed for identified
mission-critical systems in anticipation of the possibility of unplanned system
difficulties or failure of third parties to successfully prepare for the century
date change.
At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000 Issue to have a material adverse effect on the
Company's business, operations or financial condition. However, despite its
efforts, the Company cannot be certain that it will not suffer business
interruptions, either due to its own Year 2000 Issue or those of its customers
or vendors or third parties whose Year 2000 problems may make it difficult or
impossible to fulfill their commitments to the Company. In addition, the Year
2000 Issue has many elements and potential consequences, some of which may not
be reasonably foreseeable, and there can be no assurances that every material
Year 2000 issue will be identified and addressed or that unforeseen consequences
will not arise and possibly have a material adverse effect on the Company.
Monitoring and managing the Year 2000 Issue will result in additional
direct and indirect costs to the Company. Direct costs include potential charges
by third-party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced. Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans.
Based on the current status of the Company's Year 2000 efforts, the costs
associated with identified Year 2000 issues are not expected to have a material
adverse effect on the results of operations or financial condition of the
Company. Costs incurred through September 30, 1999 were approximately $138,000.
This includes Y2K remediation efforts and planned system upgrades related to
business expansion. Approximately $115,000 of this cost was recognized in fiscal
1999. Management currently estimates that remaining costs will not exceed
$40,000, most of which will be recognized in the quarter ended December 31,
1999.
19
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Year Ended September 30,
--------------------------
(In thousands, except per share data) 1999 1998
- -------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 4,651 $ 3,195
Short-term investments -- 1,000
--------- ---------
Total cash and cash equivalents 4,651 4,195
--------- ---------
Securities (note 2):
Available-for-sale, at fair value
(amortized cost of $120,996 in 1999
and $123,317 in 1998) 116,712 125,225
Held-to-maturity, at amortized cost
(fair value of $21,959 in 1999
and $43,948 in 1998) 21,936 43,303
--------- ---------
Total securities 138,648 168,528
--------- ---------
Real estate mortgage loans held for sale,
at lower of cost or market value (note 3) 1,226 13,334
--------- ---------
Loans receivable, net(note 3):
Real estate mortgage loans 291,199 177,783
Consumer and commercial business loans 8,254 7,544
Allowance for loan losses (1,503) (1,302)
--------- ---------
Total loans receivable, net 297,950 184,025
--------- ---------
Accrued interest receivable (note 4) 2,750 2,791
Federal Home Loan Bank ("FHLB") stock 7,397 6,426
Office properties and equipment, net (note 5) 1,984 1,258
Net deferred income taxes (note 8) 1,623 --
Other assets 1,466 2,467
--------- ---------
Total assets $ 457,695 $ 383,024
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6) $ 272,974 $ 231,181
Securities repurchase agreements (note 7) 99,987 107,790
FHLB advances (note 7) 47,948 --
Net deferred income taxes (note 8) -- 726
Other liabilities 4,769 1,525
Total liabilities 425,678 341,222
--------- ---------
Commitments and contingencies (note 10 and 11)
Stockholders' equity (notes 10 and 11):
Preferred stock (par value $0.01 per share; 100,000
shares authorized; none issued or outstanding) -- --
Common stock (par value $0.01 per share: 4,500,000
shares authorized; 3,570,750 shares issued) 36 36
Additional paid-in capital 35,225 35,044
Unallocated common stock held by employee stock
ownership plan ("ESOP") (1,857) (2,142)
Unamortized awards of common stock under management
recognition plan ("MRP") (621) (846)
Treasury stock, at cost (1,332,011 shares in 1999
and 844,511 shares in 1998) (21,866) (13,189)
Retained income, substantially restricted 23,652 21,754
Accumulated other comprehensive (loss) income (note 2) (2,552) 1,145
--------- ---------
Total stockholders' equity 32,017 41,802
--------- ---------
$ 457,695 $ 383,024
--------- ---------
See accompanying notes to consolidated financial statements.
20
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended September 30,
----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income:
Loans $ 16,399 $ 13,243 $ 8,603
Securities 9,869 11,750 11,733
Other earning assets 664 482 395
-------- -------- --------
Total interest and dividend income 26,932 25,475 20,731
-------- -------- --------
Interest expense:
Deposits (note 6) 9,543 9,056 7,922
Securities repurchase agreements 4,530 4,718 1,849
FHLB advances 811 248 186
-------- -------- --------
Total interest expense 14,884 14,022 9,957
-------- -------- --------
Net interest income 12,048 11,453 10,774
Provision for loan losses (note 3) 235 375 300
-------- -------- --------
Net interest income after provision for loan losses 11,813 11,078 10,474
-------- -------- --------
Non-interest income:
Service charges and fees 1,090 851 760
Net gain (loss) on sales of real estate mortgage loans held for sale (note 3) 197 371 (17)
Net gain (loss) on sales of securities (note 2) 111 117 (48)
Other 114 71 38
-------- -------- --------
Total non-interest income 1,512 1,410 733
-------- -------- --------
Non-interest expense:
Compensation and benefits (note 8) 4,813 3,995 3,411
Occupancy and equipment 1,226 915 733
Data processing service fees 646 554 465
Federal deposit insurance costs 140 131 183
Other (note 9) 2,267 1,988 1,473
-------- -------- --------
Total non-interest expense 9,092 7,583 6,265
-------- -------- --------
Income before income tax expense 4,233 4,905 4,942
Income tax expense (note 8) 1,570 2,004 1,990
-------- -------- --------
Net income $ 2,663 $ 2,901 $ 2,952
-------- -------- --------
Earnings per common share (note 11):
Basic $ 1.13 $ 1.12 $ 1.05
Diluted 1.11 1.08 1.04
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Unallocated Unamortized
Common Awards of Accumulated
Additional Stock Common Other Total
Common Paid-in Held Stock Treasury Retained Comprehensive Stockholders'
Stock Capital by ESOP Under MRP Stock Income (Loss)Income Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 36 $ 34,596 $ (2,714) $ -- $ -- $ 17,263 $ (182) $ 48,999
Net income -- -- -- -- -- 2,952 -- 2,952
Dividends paid ($0.21 per share) -- -- -- -- -- (610) -- (610)
Common stock repurchased
(658,892 shares) -- -- -- -- (8,909) -- -- (8,909)
Repurchased stock awarded under
MRP (108,905 shares) -- -- -- (1,396) 1,396 -- -- --
Amortization of MRP awards -- -- -- 271 -- -- -- 271
ESOP shares released for
allocation (28,566 shares) -- 138 286 -- -- -- -- 424
Change in net unrealized gain
(loss) on available-for-sale
securities, net of taxes -- -- -- -- -- -- 751 751
------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1997 36 34,734 (2,428) (1,125) (7,513) 19,605 569 43,878
Net income -- -- -- -- -- 2,901 -- 2,901
Dividends paid ($0.28 per share) -- -- -- -- -- (752) -- (752)
Common stock repurchased
(294,524 shares) -- -- -- -- (5,676) -- -- (5,676)
Amortization of MRP awards -- -- -- 279 -- -- -- 279
Tax benefits from vested
MRP awards -- 62 -- -- -- -- -- 62
ESOP shares released for
allocation (28,566 shares) -- 248 286 -- -- -- -- 534
Change in net unrealized gain
(loss) on available-for-sale
securities, net of taxes -- -- -- -- -- -- 576 576
------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1998 36 35,044 (2,142) (846) (13,189) 21,754 1,145 41,802
Net income -- -- -- -- -- 2,663 -- 2,663
Dividends paid ($0.32 per share) -- -- -- -- -- (765) -- (765)
Common stock repurchased
(492,500 shares) -- -- -- -- (8,741) -- -- (8,741)
Repurchased stock awarded under
MRP (5,000 shares) -- -- -- (64) 64 -- -- --
Amortization of MRP awards -- -- -- 289 -- -- -- 289
Tax benefits from vested
MRP awards -- 12 -- -- -- -- -- 12
ESOP shares released for
allocation (28,566 shares) -- 169 285 -- -- -- -- 454
Change in net unrealized gain
(loss) on available-for-sale
securities, net of taxes -- -- -- -- -- -- (3,697) (3,697)
------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1999 $ 36 $ 35,225 $ (1,857) $ (621) $(21,866) $ 23,652 $ (2,552) $ 32,017
------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,663 $ 2,901 $ 2,952
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 235 375 300
ESOP and MRP expense 743 813 695
Depreciation and amortization expense 363 264 194
Amortization of deferred fees, discounts and premiums, net 350 93 (289)
Net (gain) loss on sales of real estate mortgage loans held for sale (197) (371) 17
Net (gain) loss on sales of securities (111) (117) 48
Other adjustments, net 4,504 (115) (186)
--------- --------- ---------
Net cash provided by operating activities 8,550 3,843 3,731
--------- --------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (54,317) (90,579) (55,835)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 38,670 24,113 13,356
Held-to-maturity 21,346 32,500 18,563
Proceeds from sales of securities:
Available-for-sale 17,758 28,308 15,943
Held-to-maturity -- 630 237
Disbursements for loan originations (178,136) (152,638) (69,169)
Principal collections on loans 38,503 24,181 13,612
Proceeds from sales of loans 37,407 69,588 2,785
Purchase of FHLB stock (971) (3,421) (1,940)
Other investing cash flows (786) (437) 239
--------- --------- ---------
Net cash used in investing activities (80,526) (67,755) (62,209)
--------- --------- ---------
Cash flows from financing activities:
Net increase in deposits 41,793 23,248 17,258
Net increase (decrease) in borrowings with
original terms of three months or less:
Securities repurchase agreements 1,797 3,411 18,503
FHLB advances 32,948 (6,000) (2,000)
Proceeds from longer-term borrowings 5,400 50,283 25,329
Common stock repurchased (8,741) (5,676) (8,909)
Dividends paid (765) (752) (610)
--------- --------- ---------
Net cash provided by financing activities 72,432 64,514 49,571
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 456 602 (8,907)
Cash and cash equivalents at beginning of year 4,195 3,593 12,500
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,651 $ 4,195 $ 3,593
--------- --------- ---------
Supplemental information:
Interest paid $ 14,904 $ 13,818 $ 9,623
Income taxes paid 741 2,457 1,931
Mortgage loans transferred to real estate owned -- 128 313
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In December 1995, The Yonkers Savings and Loan Association converted
from a New York State chartered mutual savings and loan association to a
federally chartered mutual savings and loan association under the new name The
Yonkers Savings and Loan Association, FA (the "Association"). On April 18, 1996,
Yonkers Financial Corporation (the "Holding Company") became the holding company
for the Association upon completion of the Association's conversion to the stock
form of ownership (the "Conversion"). Collectively, the Holding Company and the
Association are referred to herein as the "Company".
The Company's primary market area consists of Westchester County, New
York and portions of Putnam, Rockland and Dutchess County, New York. The
Association is a community-oriented savings institution whose business primarily
consists of accepting deposits from customers within its market area and
investing those funds in mortgage loans secured by one- to four-family
residences. To a lesser extent, funds are invested in multi-family and
commercial real estate loans, construction and land loans, consumer loans and
commercial business loans. The Company also invests in mortgage-backed and other
securities. Deposits are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). The Company's primary regulator is the Office of Thrift Supervision
("OTS").
The following is a summary of the significant accounting policies
followed by the Company in the preparation of the consolidated financial
statements.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Holding Company and its wholly owned subsidiary, the Association. The
Association has two wholly-owned subsidiaries Yonkers REIT, Inc., a real estate
investment trust formed in March 1999 to hold a portion of the Association's
mortgage related assets (the "REIT") and Yonkers Financial Services, Inc.,
("YFS") formed in November 1996 to sell Savings Bank Life Insurance, annuities
and mutual funds. As of September 30, 1999 YFS was inactive. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Prior to the Conversion, the Holding Company had no operations other than those
of an organizational nature. Subsequent thereto, the Holding Company's business
activities have been limited to its ownership of the Association and certain
short-term and other investments.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, income and expense. A
material estimate that is particularly susceptible to near-term change is the
allowance for loan losses, which is discussed below.
Certain reclassifications have been made to prior-year amounts to
conform to the current-year presentation.
CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents consist of
highly liquid short-term investments. Short-term investments reported in the
consolidated balance sheets were federal funds sold.
SECURITIES
The Company classifies individual securities as held-to-maturity
securities, trading securities, or available-for-sale securities. Securities
held to maturity are limited to debt securities for which the entity has the
positive intent and ability to hold to maturity. Trading securities are debt and
equity securities that are bought principally for the purpose of selling them in
the near term. All other debt and equity securities are classified as available
for sale.
Held-to-maturity securities are carried at amortized cost.
Available-for-sale securities are carried at fair value with unrealized gains
and losses excluded from earnings and reported on a net-of-tax basis as a
separate component of stockholders' equity. The Company has no trading
securities. Federal Home Loan Bank stock is a non-marketable equity security
held in accordance with certain regulatory requirements and, accordingly, is
carried at cost.
Premiums and discounts are amortized to interest income on a
level-yield basis over the expected term of the debt security. Realized gains
and losses on sales of securities are determined based on the amortized cost of
the specific securities sold. Unrealized losses on securities are charged to
earnings if management determines that the decline in fair value of a security
is other than temporary.
REAL ESTATE MORTGAGE LOANS HELD FOR SALE
Real estate mortgage loans held for sale in the secondary market are
carried at lower of cost or market value in the aggregate. Market values are
estimated based on outstanding investor sale commitments or, in the absence of
such commitments, based on current secondary market yield requirements. Net
unrealized losses, if any, are recognized in a valuation allowance by a charge
to income.
24
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions for losses
charged to income. Losses on loans (including impaired loans) are charged to the
allowance for loan losses when all or a portion of a loan is deemed to be
uncollectible. Recoveries of loans previously charged-off are credited to the
allowance when realized. Management estimates the allowance for loan losses
based on an evaluation of the Company's past loan loss experience, known and
inherent risks in the portfolio, estimated value of underlying collateral, and
current economic conditions. In management's judgment, the allowance for loan
losses is adequate to absorb probable losses in the existing portfolio.
Establishing the allowance for loan losses involves significant
management judgments utilizing the best information available at the time. Those
judgments are subject to further review by various sources, including the
Company's regulators. Adjustments to the allowance may be necessary in the
future based on changes in economic and real estate market conditions, further
information obtained regarding known problem loans, the identification of
additional problem loans, and other factors.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all principal and interest contractually due from the borrower. The
Company reviews loans to identify impairment for loans that are individually
evaluated for collectibility in accordance with its normal loan review
procedures (principally loans in the multi-family, commercial mortgage, land and
construction loan portfolios). The standard generally does not apply to
smaller-balance homogeneous loans in the Company's one- to four-family mortgage
and consumer loan portfolios that are collectively evaluated for impairment. The
measurement of an impaired loan may be based on (i) the present value of
expected future cash flows discounted at the loan's effective interest rate,
(ii) the loan's observable market price or (iii) the fair value of the
collateral if the loan is collateral dependent. If the approach used results in
a measurement that is less than an impaired loan's recorded investment, an
impairment loss is recognized as part of the allowance for loan losses.
MORTGAGE SERVICING RIGHTS
The Company recognizes mortgage servicing rights as an asset when loans
are sold with servicing retained, by allocating the cost of an originated
mortgage loan between the loan and the servicing right based on estimated
relative fair values. The cost allocated to the servicing right is capitalized
as a separate asset which is amortized thereafter in proportion to, and over the
period of, estimated net servicing income. Capitalized mortgage servicing rights
are stratified, based on loan type and interest rate, and assessed for
impairment by comparing the asset's amortized cost to its current fair value.
Impairment losses, if any, are recognized through charges to income.
INTEREST AND FEES ON LOANS
Interest is accrued monthly on outstanding principal balances unless
management considers the collection of interest or principal to be doubtful, in
which case the loan is placed on non-accrual status. The Company's loans on
non-accrual status include all loans contractually delinquent ninety days or
more. Interest payments received on non-accrual loans (including impaired loans)
are recognized as income unless future collections are doubtful. Loans are
returned to accrual status when collectibility of interest or principal is no
longer considered doubtful (generally, when all payments have been brought
current).
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is amortized to interest income over the
contractual term of the loans using the level-yield method. Unamortized fees and
costs applicable to loans prepaid or sold are recognized in income at the time
of prepayment or sale.
REAL ESTATE OWNED
Real estate owned properties acquired through foreclosure are recorded
initially at fair value less estimated sales costs, with the resulting writedown
charged to the allowance for loan losses. Thereafter, an allowance for losses on
real estate owned is established by a charge to expense to reflect any
subsequent declines in fair value. Fair value estimates are based on recent
appraisals and other available information. Costs incurred to develop or improve
properties are capitalized, while holding costs are charged to expense.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are comprised of land (carried at cost)
and buildings, furniture, fixtures, equipment and leasehold improvements
(carried at cost less accumulated depreciation and amortization). Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
improvement. Costs incurred to improve or extend the life of existing assets are
capitalized. Repairs and maintenance, as well as renewals and replacements of a
routine nature, are charged to expense.
SECURITIES REPURCHASE AGREEMENTS
In securities repurchase agreements, the Company transfers securities
to a counterparty under an agreement to repurchase the identical securities at a
fixed price in the future. These agreements are accounted for as secured
financing transactions provided the Company maintains effective control over the
transferred securities and meets the other criteria for such accounting as
specified in SFAS No. 125. The Company's agreements are accounted for as secured
financings; accordingly, the transaction proceeds are recorded as borrowed funds
and the underlying securities continue to be carried in the Company's securities
portfolio.
25
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
INCOME TAXES
The Company uses the asset and liability method to account for income
taxes. Under this method deferred taxes are recognized for the estimated future
tax effects attributable to "temporary differences" between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. A deferred tax liability is recognized for all temporary
differences that will result in future taxable income. A deferred tax asset is
recognized for all temporary differences that will result in future tax
deductions, subject to reduction of the asset by a valuation allowance in
certain circumstances. This valuation allowance is recognized if, based on an
analysis of available evidence, management determines that it is more likely
than not that a portion or all of the deferred tax asset will not be realized.
The valuation allowance is subject to ongoing adjustments based on changes in
circumstances that affect management's judgment about the realizability of the
deferred tax asset. Adjustments to increase or decrease the valuation allowance
are charged or credited, respectively, to income tax expense.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to future taxable income. The effect on deferred tax
assets and liabilities of an enacted change in tax rates is recognized in income
tax expense in the period that includes the enactment date of the change.
TREASURY STOCK
Treasury stock is recorded at cost and is presented as a reduction of
stockholders' equity.
PENSION PLANS
The Company has a non-contributory defined benefit pension plan which
covers substantially all employees. Pension costs are funded on a current basis
in compliance with the requirements of the Employee Retirement Income Security
Act. Costs for this plan, as well as the Company's unfunded supplemental
retirement agreement, are accounted for in accordance with SFAS No. 87,
EMPLOYERS' ACCOUNTING FOR PENSIONS.
STOCK-BASED COMPENSATION PLANS
Compensation expense is recognized for the Company's employee stock
ownership plan ("ESOP") equal to the fair value of shares committed to be
released for allocation to participant accounts. Any difference between the fair
value at that time and the ESOP's original acquisition cost is charged or
credited to stockholders' equity (additional paid-in capital). The cost of
unallocated ESOP shares (shares not yet committed to be released) is reflected
as a reduction of stockholders' equity.
The Company accounts for its stock option plan in accordance with
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. Accordingly, compensation expense is recognized only if the
exercise price of the option is less than the fair value of the underlying stock
at the grant date. SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
encourages entities to recognize the fair value of all stock-based awards
(measured on the grant date) as compensation expense over the vesting period.
Alternatively, SFAS No. 123 allows entities to apply the provisions of APB
Opinion No. 25 and provide pro forma disclosures of net income and earnings per
share as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide these pro forma disclosures.
The Company's management recognition and retention plan ("MRP") is also
accounted for in accordance with APB Opinion No. 25. The fair value of the
shares awarded, measured at the grant date, is recognized as unearned
compensation (a deduction from stockholders' equity) and amortized to
compensation expense as the shares become vested. When MRP shares become vested,
the Company records a credit to additional paid-in capital for tax benefits
attributable to any MRP deductions for tax purposes in excess of the grant-date
fair value charged to expense for financial reporting purposes.
EARNINGS PER SHARE
The Company presents both basic earnings per share ("EPS") and diluted
EPS. Basic EPS excludes dilution and is computed by dividing net income
applicable to common stock by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock (such as the
Company's stock options) were exercised or converted into common stock or
resulted in the issuance of common stock that would then share in the earnings
of the entity. Diluted EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the period plus common stock
equivalents. Unallocated ESOP shares that have not been committed to be released
to participants are excluded from outstanding shares in computing both basic and
diluted EPS.
SEGMENT INFORMATION
During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.131 requires
public companies to report certain financial information about significant
revenue-producing segments of the business for which such information is
available and utilized by the chief operating decision maker. Specific
information to be reported for individual operating segments includes a measure
of profit and loss, certain revenue and expense items, and total assets. As a
community oriented financial institution, substantially all of the Company's
operations involves the delivery of loan and deposit products to customers.
Management makes operating decisions and assesses performance based on an
ongoing review of these community banking operations, which constitute the
Company's only operating segment for financial reporting purposes under SFAS No.
131.
26
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
(2) SECURITIES
The Company's securities portfolio principally consists of
mortgage-backed securities and U.S. Government and Agency securities.
Mortgage-backed securities include both pass-through securities and
collateralized mortgage obligations ("CMOs"), substantially all of which are
guaranteed by U.S. Government or government-sponsored entities (Ginnie Mae,
Fannie Mae and Freddie Mac).
The following is a summary of securities at September 30, 1999:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized -------------------------- Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Available-for-Sale Securities
Mortgage-backed securities:
Pass-through securities $ 78,651 $ 23 $ (2,730) $ 75,944
U.S. Government and Agency securities 41,527 21 (1,392) 40,156
Equity securities 818 -- (206) 612
-------- -------- -------- --------
Total available-for-sale $120,996 $ 44 $ (4,328) $116,712
-------- -------- -------- --------
Held-to-Maturity Securities
Mortgage-backed securities:
Pass-through securities $ 16,897 $ 235 $ (198) $ 16,934
CMOs 4,539 29 (37) 4,531
-------- -------- -------- --------
21,436 264 (235) 21,465
U.S. Government and Agency securities 500 --- (6) (494)
-------- -------- -------- --------
Total held-to-maturity $ 21,936 $ 264 $ (241) $ 21,959
-------- -------- -------- --------
</TABLE>
The following is a summary of securities at September 30, 1998:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized -------------------------- Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Available-for-Sale Securities
Mortgage-backed securities:
Pass-through securities $ 78,549 $ 1,163 $ (34) $ 79,678
U.S. Government and Agency securities 43,801 1,017 (8) 44,810
Equity securities 967 -- (230) 737
-------- -------- -------- --------
Total available-for-sale $123,317 $ 2,180 $ (272) $125,225
-------- -------- -------- --------
Held-to-Maturity Securities
Mortgage-backed securities:
Pass-through securities $ 24,704 $ 582 $ (56) $ 25,230
CMOs 9,104 98 (37) 9,165
-------- -------- -------- --------
33,808 680 (93) 34,395
U.S. Government and Agency securities 9,495 58 --- 9,553
-------- -------- -------- --------
Total held-to-maturity $ 43,303 $ 738 $ (93) $ 43,948
-------- -------- -------- --------
</TABLE>
Mortgage-backed and other debt securities at September 30, 1999
consisted of fixed-rate securities and adjustable-rate securities with amortized
costs of $122.7 million and $19.4 million, respectively, and weighted average
yields of 6.94% and 6.46%, respectively. Fixed-rate and adjustable-rate debt
securities at September 30, 1998 totaled $129.0 million and $36.7 million,
respectively, with weighted average yields of 7.18% and 6.60%, respectively.
Mortgage-backed securities primarily include securities guaranteed by
Ginnie Mae, Fannie Mae and Freddie Mac with total amortized costs of $74.6
million, $20.6 million and $4.8 million, respectively, at September 30, 1999
($69.7 million, $34.7 million and $7.8 million, respectively, at September 30,
1998).
The net unrealized loss on available-for-sale securities was $4.3
million ($2.6 million after taxes) at September 30, 1999, compared to an
unrealized gain of $1.9 million ($1.1 million after taxes) at September 30,
1998. Changes in unrealized holding gains and losses resulted in an after-tax
(decrease) increase in stockholders' equity of ($3.7) million, $576,000 and
$751,000 during fiscal 1999, 1998 and 1997, respectively. These gains and losses
will continue to fluctuate based on changes in the portfolio and market
conditions.
27
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sales of securities resulted in the following gross realized gains and
gross realized losses during the years ended September 30:
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------
Available-for-sale securities:
Gains $ 154 $ 278 $ 47
Losses (43) (175) (97)
----- ----- -----
111 103 (50)
----- ----- -----
Held-to-maturity securities:
Gains $ -- $ 16 $ 2
Losses -- (2) --
----- ----- -----
-- 14 2
----- ----- -----
Net gain (loss) $ 111 $ 117 $ (48)
----- ----- -----
The held-to-maturity securities sold in fiscal 1998 and 1997 were
mortgage-backed securities with an amortized cost of $616,000 and $235,000,
respectively, for which the Company had collected more than 85% of the principal
purchased. Sales in these circumstances are deemed to be equivalent to
maturities and, accordingly, do not call into question the intent to hold other
debt securities to maturity in the future.
The following is a summary of the amortized cost and fair value of U.S.
Government and Agency securities at September 30, 1999, by remaining period to
contractual maturity (ignoring earlier call dates, if any). Actual maturities
may differ from contractual maturities because certain security issuers have the
right to call or prepay their obligations.
Available-for-Sale Held-to-Maturity
---------------------- ----------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- --------------------------------------------------------------------------
One to five years $ -- $ -- $ 500 $ 494
Five to ten years 2,000 2,021 -- --
Over ten years 39,527 38,135 -- --
------- ------- ------- -------
Total $41,527 $40,156 $ 500 $ 494
------- ------- ------- -------
(3) LOANS
A summary of loans receivable at September 30 follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Real estate mortgage loans:
Residential properties:
One- to four-family $ 244,466 $ 153,891
Multi- family 16,264 7,846
Commercial properties 26,753 12,766
Land loans 1,502 932
Construction loans 2,812 2,613
Construction loans in process (1,672) (743)
Deferred loan origination costs (fees), net 1,074 478
--------- ---------
291,199 177,783
--------- ---------
Consumer loans:
Home equity 4,574 3,678
Personal 1,483 1,447
Other 1,117 1,224
--------- ---------
7,174 6,349
Commercial business loans 1,080 1,195
--------- ---------
8,254 7,544
--------- ---------
Total loans receivable 299,453 185,327
Allowance for loan losses (1,503) (1,302)
--------- ---------
Total loans receivable, net $ 297,950 $ 184,025
--------- ---------
</TABLE>
Gross loans receivable at September 30, 1999 consisted of
adjustable-rate loans of $209.2 million and fixed-rate loans of $90.9 million
with weighted average yields of 7.25% and 7.41%, respectively. Adjustable-rate
and fixed-rate loans at September 30, 1998 totaled $142.2 million and $43.4
million with weighted average yields of 7.60% and 7.99%, respectively. One- to
four-family residential mortgage loans at September 30, 1999 and 1998 include
advances under home equity lines of credit of $3.2 million and $4.6 million,
respectively, and cooperative apartment loans of $3.7 million and $4.5 million,
respectively.
The Company primarily originates real estate mortgage loans secured by
existing single-family residential properties. The Company also originates
multi-family and commercial real estate loans, land loans, construction loans,
consumer loans and commercial business loans. A substantial portion of the loan
portfolio is secured by real estate properties located in Westchester County,
New York. The ability of the Company's borrowers to make principal and interest
payments is dependent upon, among other things, the level of overall economic
activity and the real estate market conditions prevailing within the Company's
concentrated lending area.
28
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
Activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------
Balance at beginning of year $ 1,302 $ 1,093 $ 937
Provision for losses 235 375 300
Charge-offs (43) (193) (157)
Recoveries 9 27 13
------- ------- -------
Balance at end of year $ 1,503 $ 1,302 $ 1,093
------- ------- -------
The principal balances of non-accrual loans past due ninety days or
more at September 30 are as follows:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------
Real estate mortgage loans:
One- to four-family $ 347 $ 515 $ 389
Commercial 305 203 211
Land --- --- 250
Construction --- --- 279
Consumer loans 103 35 9
------- ------- -------
Total $ 755 $ 753 $ 1,138
------- ------- -------
If all interest payments on the foregoing non-accrual loans had been
made during the respective years in accordance with the loan agreements, gross
interest income of $69,000, $64,000 and $107,000 would have been recognized in
fiscal 1999, 1998 and 1997, respectively, compared to interest income actually
recognized of $42,000, $48,000 and $15,000, respectively.
The Company's impaired loans consisted of non-accrual commercial
mortgage loans with a recorded investment totaling $305,000 and $203,000 at
September 30, 1999 and 1998, respectively. All of these loans were
collateral-dependent loans measured based on the fair value of the collateral.
The Company determines the need for an allowance for loan impairment on a
loan-by-loan basis. At September 30, 1999 and 1998, such an allowance was not
required with respect to the Company's impaired loans primarily due to the
sufficiency of the related collateral values. The Company's average recorded
investment in impaired loans was approximately $201,000, $438,000 and $799,000
for the years ended September 30, 1999, 1998 and 1997, respectively. Interest
collections and income recognized on impaired loans (while such loans were
considered impaired) were insignificant during fiscal 1999, 1998 and 1997.
At September 30, 1998, other assets includes single-family real estate
owned properties with net carrying values of $305,000. There were no real estate
owned properties at September 30, 1999. Provisions for losses and other activity
in the allowance for real estate owned losses were insignificant during the
years ended September 30, 1999, 1998 and 1997.
The Company has sold certain real estate mortgage loans and retained
the related servicing rights. The principal balances of these serviced loans,
which are not included in the accompanying consolidated balance sheets, totaled
$88.4 million, $81.7 million and $15.5 million at September 30, 1999, 1998 and
1997, respectively. These amounts include loans sold with recourse of $1.3
million, $2.0 million and $2.7 million at the respective dates, for which the
Association does not expect to incur any significant losses. Real estate loans
held for sale at September 30, 1999 and 1998 had total amortized costs of $1.2
million and $13.3 million, respectively, which approximated market value at
those dates.
During the years ended September 30, 1999 and 1998, the Company sold
$37.4 million and $69.8 million, respectively, of real estate mortgage loans,
primarily with servicing retained, and recognized net gains of $197,000 and
$371,000, respectively, on such sales (sales in fiscal 1997 were not
significant). The net gains in fiscal 1999 and 1998 includes the effect of
capitalizing mortgage servicing assets of $362,000 and $594,000, respectively at
the time of sale, in accordance with SFAS No. 125. At September 30, 1999 and
1998, the net carrying value of capitalized mortgage servicing rights included
in other assets was $548,000 and $538,000, respectively, which approximated fair
value. Amortization of mortgage servicing rights was $352,000 and $56,000,
respectively, for the years ended September 30, 1999 and 1998.
(4) ACCRUED INTEREST RECEIVABLE
A summary of accrued interest receivable at September 30 follows:
(In thousands) 1999 1998
- -----------------------------------------------------
Loans $1,580 $1,100
Mortgage-backed securities 582 640
Other securities 588 1,051
------ ------
Total $2,750 $2,791
------ ------
(5) OFFICE PROPERTIES AND EQUIPMENT
A summary of office properties and equipment at September 30 follows:
(In thousands) 1999 1998
- ---------------------------------------------------------------
Land $ 45 $ 45
Buildings 249 246
Leashold improvements 756 591
Furniture, fixtures and equipment 3,268 2,344
------- -------
4,318 3,226
Less accumulated depreciation
and amortization (2,334) (1,968)
------- -------
Total office properties and
equipment, net $ 1,984 $ 1,258
------- -------
29
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(6) DEPOSITS
Deposit balances and weighted average stated interest rates at
September 30 are summarized as follows:
1999 1998
---------------- ----------------
AMOUNT RATE Amount Rate
------ ---- ------ ----
(Dollars in Thousands)
Checking $ 10,769 $ 5,423
NOW 24,708 1.06% 21,123 1.00%
Money market 33,429 3.19 27,613 3.64
Regular savings 50,776 2.23 43,492 2.43
Club 1,480 2.23 1,282 2.43
-------- --------
121,162 2.06 98,933 2.34
-------- --------
Savings certificates by
remaining term to
contractual maturity:
Within one year 107,317 4.94 84,261 5.28
After one but within two years 33,490 5.23 36,555 5.72
After two but within three years 5,157 5.36 5,140 5.52
After three years 5,848 5.38 6,292 5.78
-------- --------
151,812 5.04 132,248 5.43
-------- --------
Total deposits $272,974 3.71% $231,181 4.10%
-------- --------
Savings certificates issued in denominations of $100,000 or more
totaled $22.2 million and $16.5 million at September 30, 1999 and 1998,
respectively. The FDIC generally insures depositor accounts up to $100,000, as
defined in the applicable regulations.
Interest expense on deposits is summarized as follows for the years
ended September 30:
1999 1998 1997
---- ---- ----
(In Thousands)
NOW, club and money market accounts $1,286 $ 841 $ 862
Regular savings accounts 949 1,092 1,166
Savings certificate accounts 7,308 7,123 5,894
----------- ---------- ----------
Total interest expense $9,543 $ 9,056 $ 7,922
----------- ---------- ----------
(7) BORROWINGS
SECURITIES REPURCHASE AGREEMENTS
In securities repurchase agreements, the Company borrows funds through
the transfer of debt securities to the FHLB of New York, as counterparty, and
concurrently agrees to repurchase the identical securities at a fixed price on a
specified date. Repurchase agreements are collateralized by the securities sold
and, in certain cases, by additional margin securities. During the years ended
September 30, 1999, 1998 and 1997, the Company's average borrowings under
repurchase agreements with the FHLB of New York were $79.8 million, $81.9
million and $32.1 million, respectively, and the maximum month-end balance
outstanding was $101.0 million, $119.9 million and $54.1 million, respectively.
Information concerning outstanding securities repurchase agreements
with the FHLB of New York as of September 30, 1999 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Accrued Weighted Fair Value
Interest Average of Collateral
Remaining term to Final Maturity (1) Amount Payable (2) Rate Securities (3)
- -----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
SEPTEMBER 30, 1999
<S> <C> <C> <C> <C>
Within 30 days $ 33,975 $ -- 5.29% $ 35,403
After one but within three years 25,600 156 5.93 28,436
After three but within five years 10,000 41 5.48 14,940
After five years 30,412 210 5.47 28,065
--------- ------- ---------
Total $ 99,987 $ 407 5.64% $ 106,844
--------- ------- ---------
SEPTEMBER 30, 1998
Within 30 days $ 32,178 $ 110 5.57% $ 37,243
After 30 days but within one year 9,600 57 5.76 10,933
After one but within three years 13,100 10 5.81 12,237
After three but within five years 22,500 179 5.80 24,694
After five years 30,412 200 5.47 33,387
--------- ------- ---------
Total $ 107,790 $ 556 5.64% $ 118,494
--------- ------- ---------
<FN>
- ---------------------
(1) The weighted average remaining term to final maturity was approximately
3.5 years and 3.8 years at September 30, 1999 and 1998, respectively.
Certain securities repurchase agreements are callable by the FHLB of New
York, prior to the maturity date. The weighted average remaining term to
maturity, giving effect to earlier call dates, was approximately 1.3 years
at September 30, 1999.
(2) Included in other liabilities in the consolidated balance sheets.
(3) Represents the fair value of the mortgage-backed and other debt securities
which were transferred to the counterparty, plus accrued interest
receivable of $879,000 and $1.1 million at September 30, 1999 and 1998,
respectively. These securities consisted of available-for-sale securities
and held-to-maturity securities with fair values of $98.9 million and $7.1
million, respectively, at September 30, 1999 (100.5 million and $16.9
million, respectively, at September 30, 1998).
</FN>
</TABLE>
30
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
At September 30, 1999, the Company's "amount at risk" under securities
repurchase agreements was approximately $6.5 million. This amount represents the
excess of (i) the carrying amount, or market value if higher, of the securities
transferred to the FHLB of New York plus accrued interest receivable over (ii)
the amount of the repurchase liability plus accrued interest payable.
FHLB ADVANCES
As a member of the FHLB of New York, the Association may have
outstanding FHLB borrowings in a combination of term advances and overnight
funds of up to 25% of its total assets, or approximately $113.8 million at
September 30, 1999. Borrowings are secured by the Association's investment in
FHLB stock and by a blanket security agreement. This agreement requires the
Association to maintain as collateral certain qualifying assets (principally
securities and residential mortgage loans) not otherwise pledged.
FHLB and weighted average interest rates at September 30, 1999 are
summarized as follows, by remaining period to maturity (there were no such
borrowings at September 30, 1998):
(Dollars in thousands) Amount Rate
- -----------------------------------------------
FHLB advances maturing:
Within 30 days $ 32,948 5.49%
Over 5 years 15,000 4.36
--------
Total $ 47,948 5.19%
--------
The weighted average period to maturity date for the FHLB advances
outstanding at September 30, 1999 was 2.9 years, with a weighted average period
to date of 0.3 years.
(8) INCOME TAXES
The components of income tax expense are summarized as follows for the
years ended September 30:
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------
Current tax expense:
Federal $1,311 $1,404 $1,177
State 113 314 247
------ ------ ------
1,424 1,718 1,424
------ ------ ------
Deferred tax expense:
Federal 105 207 413
State 41 79 153
------ ------ ------
146 286 566
------ ------ ------
Total income tax expense $1,570 $2,004 $1,990
------ ------ ------
The following is a reconciliation of the expected income tax expense,
computed at the applicable Federal statutory rate of 34%, to the actual income
tax expense for the years ended September 30:
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------
Tax at Federal statutory rate $ 1,439 $ 1,668 $ 1,680
New York State income taxes, net
of Federal tax benefit 102 259 264
Other reconciling items, net 29 77 46
------- ------- -------
Actual income tax expense $ 1,570 $ 2,004 $ 1,990
------- ------- -------
Effective income tax rate 37.1% 40.9% 40.3%
----- ----- -----
On March 31, 1999 the Association established the REIT at which time
$117.7 million in real estate loans were transferred from the Association to the
REIT. At September 30, 1999, $120.3 million in real estate loans were held by
the REIT. The decrease in the effective tax rate reflects the ancillary benefits
from the REIT.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows at September 30:
(In thousands) 1999 1998
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Net unrealized gain on
available-for-sale securities $ -- $ 763
Mortgage servicing assets 224 220
Other taxable temporary differences 595 371
------- -------
Total deferred tax liabilities 819 1,354
------- -------
Deferred tax assets:
Net unrealized loss on
available-for-sale securities 1,732 --
Allowance for loan losses 615 533
Other deductible temporary differences 95 95
------- -------
Total deferred tax assets 2,442 628
------- -------
Net deferred tax (asset) liability $(1,623) $ 726
------- -------
Based on the Company's historical and anticipated future pre-tax
earnings, management believes that it is more likely than not that the deferred
tax assets will be realized.
As a thrift institution, the Association is subject to special
provisions in the Federal and New York State tax laws regarding its allowable
tax bad debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on loss experience or a
percentage of taxable income. Tax bad debt reserves represent the excess of
allowable deductions over actual bad debt losses and other reserve reductions.
These reserves consist of a defined base-year amount, plus additional amounts
("excess reserves") accumulated after the base year. SFAS No. 109 requires
recognition of deferred tax liabilities with respect to such excess reserves, as
well as any portion of the base-year amount which is expected to become taxable
(or "recaptured") in the foreseeable future.
31
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At September 30, 1999, the Association's base-year Federal and State
tax bad debt reserves were $3.0 million and $10.1 million, respectively.
Deferred tax liabilities have not been recognized with respect to these
reserves, since the Company does not expect that these amounts will become
taxable in the foreseeable future. Under the tax laws as amended, events that
would result in taxation of these reserves include (i) redemptions of the
Association's stock or certain excess distributions to the Holding Company and
(ii) failure of the Association to retain a thrift charter or continue to
maintain a specified qualifying-assets ratio and meet other thrift definition
tests for New York State tax purposes. At September 30, 1999, the Association's
unrecognized deferred tax liabilities with respect to its Federal and State tax
bad debt reserves totaled $1.7 million.
(9) OTHER NON-INTEREST EXPENSE
The components of other non-interest expense are as follows for the
years ended September 30:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Professional services $ 435 $ 480 $ 301
Advertising and promotion 398 258 246
Telephone and postage 195 134 107
Stationery and printing 154 149 93
Checking account expenses 122 107 100
Insurance and surety bond premiums 105 128 107
Correspondent bank fees 107 105 113
Other 751 627 406
------ ------ ------
Total $2,267 $1,988 $1,473
------ ------ ------
(10) EMPLOYEE BENEFIT AND STOCK COMPENSATION PLANS
PENSION BENEFITS
All eligible Company employees are included in the New York State
Bankers' Retirement System, a trusteed non-contributory pension plan. The
benefits contemplated by the plan are funded through annual remittances based on
actuarially determined funding requirements.
The following table sets forth changes in benefit obligation, changes
in plan assets and the funded status of the Association's pension plan and
amounts recognized in the consolidated balance sheets at September 30:
(In thousands) 1999 1998
- ------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation -
beginning of year $ 1,378 $ 1,224
Service cost 101 73
Interest Cost 94 97
Actuarial loss 334 106
Benefits paid (94) (122)
--------- ---------
Projected benefit obligation -
end of year 1,813 1,378
--------- ---------
CHANGE IN PLAN ASSETS:
Plan assets at fair value -
beginning of year 2,093 1,963
Actuarial return on plan assets 327 252
Employer contributions -- --
Benefits paid (94) (122)
Plan assets at fair value -
end of year 2,326 2,093
--------- ---------
Funded status at end of year 513 715
Unrecognized net actuarial (gain) loss 38 (142)
Unrecognized prior service cost (235) (252)
Prepaid pension cost $ 316 $ 321
--------- ---------
The components of net pension expense are as follows for the years
ended September 30:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Service cost (benefits earned during the year) $ 101 $ 73 $ 72
Interest cost on projected benefit obligation 94 97 94
Actual return on plan assets (173) (176) (155)
Net amortization and deferral (17) (23) (13)
----- ----- -----
Net pension (credit) expense $ 5 $ (29) $ (2)
----- ----- -----
The projected benefit obligations at September 30, 1999 and 1998 was
computed using discount rates of 7.0%, respectively, and rates of compensation
increases of 4.0% and 4.5%, respectively. The expected long-term rate of return
on plan assets was 8.5%.
The Company entered into a non-qualified Supplemental Executive
Retirement Agreement with an executive officer, effective January 1, 1997, to
provide retirement benefits in addition to the benefits provided by the pension
plan. The projected benefit obligation at September 30, 1999 and 1998 was
approximately $257,000 and $175,000, respectively. This amount was computed
using a discount rate of 7.0% and a rate of compensation increase of 4.0%.
Pension expense for this agreement amounted to $41,000 in fiscal 1999, $45,000
in fiscal 1998 and $27,000 in fiscal 1997.
32
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
SAVINGS PLAN
The Company also maintains an employee savings plan under Section
401(k) of the Internal Revenue Code. Eligible employees may make contributions
to the plan of up to 15% of their compensation, subject to a dollar limitation.
Effective January 1997, the Company no longer makes matching contributions;
prior thereto, matching contributions were made in amounts of up to 2% of a
participant's compensation. Participants vest immediately in their own
contributions and over a five-year period with respect to Company contributions.
Savings plan expense was $10,000 in fiscal 1997.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Conversion, the Company established an ESOP for
eligible employees. The ESOP borrowed approximately $2.9 million from the
Holding Company and used the funds to purchase 285,660 shares of the Holding
Company's common stock sold in the subscription and community offering described
in note 11. The Association makes semi-annual contributions to the ESOP equal to
the debt service requirements less all dividends received by the ESOP on
unallocated shares. The ESOP uses these contributions and dividends to repay
principal and interest over the ten-year term of the loan.
Shares purchased by the ESOP are held in a suspense account by the plan
trustee until allocated to participant accounts. Shares released from the
suspense account are allocated to participants on the basis of their relative
compensation. Participants become vested in the allocated shares over a period
not to exceed five years. Any forfeited shares are allocated to other
participants in the same proportion as contributions. A cumulative total of
99,981 shares have been allocated to participants through September 30, 1999.
Compensation expense recognized with respect to these shares amounted to
$454,000, $534,000 and $424,000 in fiscal 1999, 1998 and 1997, respectively,
based on the average fair value of the Holding Company's common stock for each
period. The cost of the 185,679 shares which have not yet been committed to be
released to participant accounts is reflected as a reduction to stockholders'
equity ($1.9 million at September 30, 1999). The fair value of these shares was
approximately $3.3 million at that date.
STOCK OPTION AND INCENTIVE PLAN
On October 30, 1996, the stockholders approved the Yonkers Financial
Corporation 1996 Stock Option and Incentive Plan. Under the plan, 357,075 shares
of authorized but unissued Holding Company common stock are reserved for
issuance to employees and non-employee directors upon option exercises. Options
may be either non-qualified stock options or incentive stock options. Each
option entitles the holder to purchase one share of common stock at an exercise
price equal to the fair market value of the stock on the grant date. An initial
grant of 264,951 options was made, effective October 30, 1996, at an exercise
price of $12.875 per share. Options were granted later in fiscal 1997 for 3,000
shares at an exercise price of $16.625 per share, in fiscal 1998 for 3,000
shares at an exercise price of $21.625 per share and in fiscal 1999 for 10,563
shares at an exercise price of $14.125 per share. All options granted have a
ten-year term and vest ratably over five years. No options were exercised
through September 30, 1999 and the 281,514 outstanding options had a weighted
average remaining term of approximately 7.2 years. At September 30, 1999, a
total of 107,780 options with a weighted average exercise price $12.97 were
exercisable and 75,561 reserved shares were available for future option grants.
Options were granted at exercise prices equal to the fair value of the
common stock at the grant dates. Therefore, in accordance with the provisions of
APB Opinion No. 25 related to fixed stock options, no compensation expense is
recognized with respect to options granted. Under the alternative
fair-value-based method defined in SFAS No. 123, the fair value of all fixed
stock options on the grant date would be recognized as expense over the vesting
period. The estimated per-share fair value of options granted in fiscal 1999,
1998 and 1997 was $5.57, $6.32 and $4.50, respectively, estimated using the
Black-Scholes option-pricing model with assumptions approximately as follows:
dividend yield of 1.8% in fiscal 1999 and 1998 and 1.7% in fiscal 1997; expected
volatility rate of 38.3% in fiscal 1999 and 1998 and 25.3% in fiscal 1997;
risk-free interest rate of 4.6% in fiscal 1999, 6.1% in fiscal 1998 and 6.7% in
fiscal 1997; and expected option life of 7.0 years. Had the Company applied the
fair-value-based method of SFAS No. 123 to the options granted, it would have
reported net income, basic EPS and diluted EPS of $2.5 million, $1.05 and $1.03,
respectively, in fiscal 1999; $2.7 million, $1.05 and $1.01, respectively, in
fiscal 1998 and $2.8 million, $0.99, and $0.98, respectively, in fiscal 1997.
MANAGEMENT RECOGNITION PLAN
On October 30, 1996, the stockholders also approved the Yonkers
Financial Corporation 1996 MRP. The purpose of this plan is to provide
directors, officers and employees with a proprietary interest in the Company in
a manner designed to encourage such individuals to remain with the Company.
Awards granted under this plan vest ratably over five years from the date of
grant. The Holding Company completed the funding of the plan in November 1996 by
purchasing 142,830 shares of common stock in the open market at a total cost of
approximately $1.8 million. MRP awards for 5,000 of these shares were awarded in
fiscal 1999 and 108,905 of these shares were made in fiscal 1997, with the
remaining 28,925 purchased shares included in treasury stock and available for
future awards. Unearned compensation of $1.5 million was recorded with respect
to the shares awarded, and $289,000, $279,000 and $271,000 of that amount was
amortized to compensation expense in fiscal 1999, 1998 and 1997, respectively.
33
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) STOCKHOLDERS' EQUITY
CONVERSION AND STOCK OFFERING
Concurrent with the Conversion on April 18, 1996, the Holding Company
sold 3,570,750 shares of its common stock in a subscription and community
offering at a price of $10 per share, for net proceeds of $34.6 million after
deducting conversion costs of $1.1 million. The Holding Company used $17.3
million of the net proceeds to acquire all of the common stock issued by the
Association in the Conversion. Total common shares issued and outstanding were
3,020,763 at September 30, 1997 (net of 549,987 treasury shares), 2,726,239 at
September 30, 1998 (net of 844,511 treasury shares) and 2,238,739 at September
30, 1999 (net of 1,332,011 treasury shares).
In accordance with regulatory requirements, the Association established
a liquidation account at the time of the Conversion in the amount of $15.8
million, equal to its equity at September 30, 1995. The liquidation account is
maintained for the benefit of eligible and supplemental eligible account holders
who continue to maintain their accounts at the Association after the Conversion.
The liquidation account is reduced annually to the extent that eligible and
supplemental eligible account holders have reduced their qualifying deposits as
of each anniversary date. Subsequent increases do not restore such account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Association, each eligible account holder and supplemental
eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
EARNINGS PER SHARE
As discussed in note 1, the Company has adopted SFAS No. 128 and
restated its EPS data for all periods to present basic EPS and diluted EPS in
accordance with the new requirements.
The following is a summary of the number of shares utilized in the
Company's EPS calculations for the years ended September 30, 1999, 1998 and
1997. For purposes of computing basic EPS, net income applicable to common stock
equaled net income for each of the periods presented.
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Weighted average common shares
outstanding for computation of
basic EPS(1) 2,362 2,598 2,815
Common-equivalent shares due
to the dilutive effect of stock
options and MRP awards(2) 46 77 35
----- ----- -----
Weighted average common shares
for computation of diluted EPS 2,408 2,675 2,850
----- ----- -----
- -----------------
(1) Excludes unvested MRP awards and unallocated ESOP shares that have not
been committed to be released.
(2) Computed using the treasury stock method.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and display of comprehensive income (and its components) in
financial statements. The standard does not, however, specify when to recognize
or how to measure items that make up comprehensive income. Comprehensive income
represents net income and certain amounts reported directly in stockholders'
equity, such as the net unrealized gain or loss on securities available for
sale. While SFAS No. 130 does not require a specific reporting format, it does
require that an enterprise report an amount representing total comprehensive
income for the period. The company has reported its comprehensive income for
fiscal 1999, 1998 and 1997 in the consolidated statements of changes in
stockholders' equity.
The company's other comprehensive income or loss (other than net
income), which is attributable to gains and losses on securities
available-for-sale, is summarized as follows for the years ended September 30:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Net unrealized holding
(losses) gains arising
during the period $(6,192) $ 958 $ 1,253
Related income tax effect 2,495 (382) (502)
------- ------- -------
Other comprehensive
(loss) income $(3,697) $ 576 $ 751
------- ------- -------
34
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
CAPITAL DISTRIBUTIONS
The Association may not declare or pay cash dividends on or repurchase
any of its shares of common stock if the effect thereof would cause its
stockholder's equity to be reduced below applicable regulatory capital
requirements or the amount required to be maintained for the liquidation
account. The OTS capital distribution regulations applicable to savings
institutions (such as the Association) that meet their regulatory capital
requirements, generally limit dividend payments in any year to the greater of
(i) 100% of year-to-date net income plus an amount that would reduce surplus
capital by one-half or (ii) 75% of net income for the most recent four quarters.
Surplus capital is the excess of actual capital at the beginning of the year
over the institution's minimum regulatory capital requirement. The Association
paid $4.0 million and $4.8 million in dividends to the Holding Company in fiscal
1999 and 1998, respectively (none in fiscal 1997 and 1996).
Unlike the Association, the Holding Company is not subject to OTS
regulatory restrictions on the payment of dividends to its shareholders. The
Holding Company is subject, however, to Delaware law, which generally limits
dividends to an amount equal to the excess of the net assets of the Holding
Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
Pursuant to approvals received from the OTS, through September 30, 1999
the Holding Company has repurchased 1,445,916 shares of common stock for its
treasury (or approximately 40.5% of its common stock issued). These repurchases
were made in open market transactions, at a total cost of $23.3 million or an
average of approximately $16.13 per share. These repurchases have been used, in
part, to fund shares awarded under the MRP described in note 10.
REGULATORY CAPITAL REQUIREMENTS
OTS regulations require savings institutions to maintain a minimum
ratio of tangible capital to total adjusted assets of 1.5%; a minimum ratio of
Tier I (core) capital to total adjusted assets of 4.0%; and a minimum ratio of
total (core and supplementary) capital to risk-weighted assets of 8.0%.
Under its prompt corrective action regulations, the OTS is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on the institution's financial statements. The
regulations establish a framework for the classification of savings institutions
into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized if it
has a Tier I (core) capital ratio of at least 5.0%; a Tier I risk-based capital
ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors. These capital
requirements, which are applicable to the Association only, do not consider
additional capital at the Holding Company level.
Management believes that, as of September 30, 1999 and 1998, the
Association met all capital adequacy requirements to which it is subject.
Further, the most recent OTS notification categorized the Association as a
well-capitalized institution under the prompt corrective action regulations.
There have been no conditions or events since that notification that management
believes have changed the Association's capital classification.
The following is a summary of the Association's actual capital amounts
and ratios as of September 30, 1999 and 1998, compared to the OTS requirements
for minimum capital adequacy and for classification as a well-capitalized
institution:
<TABLE>
<CAPTION>
Minimum Capital Classification as
ASSOCIATION ACTUAL Adequacy Well Capitalized
---------------------- --------------------- ----------------------
(Dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 33,744 7.4% $ 6,863 1.5% N/A N/A
Tier I (core)capital 33,744 7.4 18,300 4.0 $ 22,876 5.0%
Risk-based capital:
Tier I 33,744 17.2 N/A N/A 11,784 6.0
Total 36,520 18.0 15,711 8.0 19,639 10.0
SEPTEMBER 30, 1998
Tangible capital $ 35,218 9.3% $ 5,654 1.5% N/A N/A
Tier I (core)capital 35,218 9.3 11,308 3.0 $ 18,845 5.0%
Risk-based capital:
Tier I 35,218 25.1 N/A N/A 8,427 6.0
Total 36,520 26.0 11,236 8.0 14,045 10.0
</TABLE>
35
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(12) COMMITMENTS AND CONTINGENCIES
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company had outstanding commitments to originate loans of $52.1
million and unadvanced lines of credit extended to customers of $4.4 million at
September 30, 1999 ($18.3 million and $3.7 million, respectively, at September
30, 1998). Although these contractual amounts represent the Company's maximum
potential exposure to credit loss, they do not necessarily represent future cash
requirements since certain commitments and lines of credit may expire without
being funded and others may not be fully drawn upon. Substantially all of these
commitments and lines of credit have been provided to customers within the
Company's primary lending area described in note 3.
Commitments to originate loans are legally binding agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Commitments have fixed expiration dates (generally ranging up to
45 days) or other termination clauses and may require the payment of a fee by
the customer. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral, if any, obtained by the Company
upon extension of credit, is based on management's credit evaluation of the
borrower. The Company's loan origination commitments at September 30, 1999
include $5.8 million for fixed-rate loans with interest rates ranging from 6.63%
to 8.26%.
Unused lines of credit are legally binding agreements to lend a
customer as long as there is no violation of any condition established in the
contract. Lines of credit generally have fixed expiration dates or other
termination clauses. The amount of collateral obtained, if deemed necessary by
the Company, is based on management's credit evaluation of the borrower.
At September 30, 1999, the Company had a commitment to sell mortgage
loans of $1.2 million. Loan sale commitments are used from time to time in order
to limit the interest rate and market risk associated with loans held for sale
and commitments to originate loans held for sale. Risks associated with
commitments to sell mortgage loans include the possible inability of the
counterparties to meet the contract terms, or of the Company to originate loans
to fulfill the contracts. The Company controls its risk by entering into these
agreements only with highly-rated counterparties
LEASE COMMITMENTS
The Company is obligated under non-cancelable leases for certain of its
banking premises. Rental expense under these leases was $420,000, $255,000 and
$203,000 for the years ended September 30, 1999, 1998 and 1997, respectively. At
September 30, 1999, the future minimum rental payments under the lease
agreements for the fiscal years ending September 30 are $446,000 in 2000,
$357,000 in 2001, $280,000 in 2002, $169,000 in 2003 and $74,000 in 2004.
LEGAL PROCEEDINGS
In the normal course of business, the Company is involved in various
outstanding legal proceedings. In the opinion of management, after consultation
with legal counsel, the outcome of such legal proceedings should not have a
material effect on the Company's financial condition, results of operations or
liquidity.
(13) FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosures about the fair values of financial
instruments for which it is practicable to estimate fair value. The definition
of a financial instrument includes many of the assets and liabilities recognized
in the Company's balance sheet, as well as certain off-balance sheet items. Fair
value is defined in SFAS No. 107 as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
Quoted market prices are used to estimate fair values when those prices
are available. However, active markets do not exist for many types of financial
instruments. Consequently, fair values for these instruments must be estimated
by management using techniques such as discounted cash flow analysis and
comparison to similar instruments. Estimates developed using these methods are
highly subjective and require judgments regarding significant matters, such as
the amount and timing of future cash flows and the selection of discount rates
that appropriately reflect market and credit risks. Changes in these judgments
often have a material effect on the fair value estimates. Since these estimates
are made as of a specific point in time, they are susceptible to material
near-term changes. Fair values disclosed in accordance with SFAS No. 107 do not
reflect any premium or discount that could result from the sale of a large
volume of a particular financial instrument, nor do they reflect possible tax
ramifications or estimated transaction costs.
36
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
The following is a summary of the carrying amounts and fair values of
the Company's financial assets and liabilities (none of which were held for
trading purposes) at September 30:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- -------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
<S> <C> <C> <C> <C>
Cash and due from banks $ 4.7 $ 4.7 $ 3.2 $ 3.2
Short-term investments -- -- 1.0 1.0
Securities 138.6 138.7 168.5 169.2
Real estate mortgage loans held for sale 1.2 1.2 13.3 13.4
Loans receivable 298.0 291.1 184.0 186.9
Accrued interest receivable 2.8 2.8 2.8 2.8
FHLB stock 7.4 7.4 6.4 6.4
FINANCIAL LIABILITIES:
Savings certificate accounts 151.8 151.1 132.3 133.9
Other deposit accounts 121.2 121.2 98.9 98.9
Borrowings 147.9 142.6 107.8 109.6
</TABLE>
The following is a description of the principal valuation methods used
by the Company to estimate the fair values of its financial instruments:
SECURITIES
The fair values of securities were based on market prices or dealer
quotes.
LOANS
Fair values of real estate mortgage loans held for sale were based on
contractual sale prices for loans covered by investor commitments. Any remaining
loans held for sale were valued based on current secondary market prices and
yields.
For valuation purposes, the portfolio of loans receivable was
segregated into its significant categories, such as residential mortgage loans
and consumer loans. These categories were further analyzed, where appropriate,
into components based on significant financial characteristics such as type of
interest rate (fixed or adjustable). Generally, management estimated fair values
by discounting the anticipated cash flows at current market rates for loans with
similar terms to borrowers of similar credit quality.
DEPOSIT LIABILITIES
The fair values of savings certificate accounts represent contractual
cash flows discounted using interest rates currently offered on certificates
with similar characteristics and remaining maturities. In accordance with SFAS
No. 107, the fair values of deposit liabilities with no stated maturity
(checking, NOW, money market, regular savings and club accounts) are equal to
the carrying amounts payable on demand.
In accordance with SFAS No. 107, these fair values do not include the
value of core deposit relationships which comprise a significant portion of the
Company's deposit base. Management believes that the Company's core deposit
relationships provide a relatively stable, low-cost funding source which has a
substantial unrecognized value separate from the deposit balances.
BORROWINGS
The fair values of securities repurchase agreements and FHLB advances
represent contractual repayments discounted using interest rates currently
available on borrowings with similar characteristics and remaining maturities.
OTHER FINANCIAL INSTRUMENTS
The other financial assets set forth in the preceding table have fair
values that approximate the respective carrying amounts because the instruments
are payable on demand or have short-term maturities and present relatively low
credit risk and interest rate risk.
The fair values of the loan origination commitments and unadvanced
lines of credit described in note 12 were estimated based on an analysis of the
interest rates and fees currently charged to enter into similar transactions,
considering the remaining terms of the instruments and the creditworthiness of
the potential borrowers. At September 30, 1999 and 1998, the fair values of
these financial instruments approximated the related carrying amounts which were
not significant.
(14) RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No.132, EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, which standardizes the
disclosure requirements for these benefits; requires additional information on
changes in the benefit obligations and fair values of plan assets; and
eliminates certain present disclosure requirements. This statement addresses
disclosure only and does not change any measurement or recognition provisions
provided in previous statements. The Company implemented this statement for the
year ended September 30, 1999. See note 10.
In September 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which requires entities to
recognize all derivatives as either assets or liabilities in the balance sheets
at fair value. If certain conditions are met, a derivative may be specifically
designated as a fair value hedge, a cash flow hedge, or a foreign currency
hedge. A specific accounting treatment applies to each type of hedge. Entities
may reclassify securities from the held-to-maturity category to the
available-for-sale category at the time of adopting SFAS No. 133. SFAS No. 133
is effective for fiscal years beginning after June 15, 1999, although early
adoption is permitted. The Company has not yet selected an adoption date or
decided whether it will reclassify securities between categories. The Company is
not presently engaged in derivatives and hedging activities covered by the new
standard and, accordingly, SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial statements.
37
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In October 1998, the FASB issued SFAS No. 134, ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE. SFAS No. 134 provides for the
classification of such retained securities as held to maturity, available for
sale, or trading in accordance with SFAS No.115. Prior accounting standards
limited the classification of these securities to the trading category. SFAS No.
134 is effective for the fiscal quarter beginning after December 15, 1998 and is
not expected to have a material impact on the Company's consolidated financial
statements.
(15) PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Set forth below are the condensed balance sheets of Yonkers Financial
Corporation as of September 30, 1999 and 1998, and its condensed statements of
income and cash flows for the periods indicated:
SEPTEMBER 30,
----------------------
(In thousands) 1999 1998
- ---------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
Assets
Cash $ 217 $ 269
Securities 2,570 4,760
Investment in subsidiary 31,327 36,488
Other assets 280 329
-------- --------
Total assets $ 34,394 $ 41,846
-------- --------
Liabilities and Stockholders' Equity
Liabilities $ 104 $ 44
Stockholders' equity 34,290 41,802
-------- --------
Total liabilities and stockholders' equity $ 34,394 $ 41,846
-------- --------
YEAR ENDED SEPTEMBER 30,
---------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
Dividends received from subsidiary $ 4,000 $ 4,800 $ --
Interest income 353 499 682
Non-interest income 58 38 --
Non-interest expense (207) (404) (150)
---------- --------- --------
Income before income tax expense
and effect of subsidiary earnings 4,204 4,933 532
Income tax expense 68 57 232
---------- --------- --------
Income before effect of subsidiary
earnings 4,136 4,876 300
Effect of subsidiary earnings:
Excess of dividends over current
earnings of subsidiary (1,473) (1,975) --
Equity in undistributed earnings
of subsidiary -- -- 2,652
---------- --------- --------
Net income $ 2,663 $ 2,901 $ 2,952
---------- --------- --------
38
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 2,663 $ 2,901 $ 2,952
Adjustments to reconcile net income to
net cash provided by operating activities:
Excess of dividends over current earnings of subsidiary 1,473 1,975 --
Equity in undistributed earnings of subsidiary -- -- (2,652)
Other adjustments, net 3,122 947 392
-------- -------- --------
Net cash provided by operating activities 7,258 5,823 692
-------- -------- --------
Cash flows from investing activities:
Purchases of securities (465) (1,187) (4,000)
Proceeds from sales and calls of securities 2,661 256 4,000
-------- -------- --------
Net cash used in investing activities 2,196 (931) --
-------- -------- --------
Cash flows from financing activities:
Common stock repurchased (8,741) (5,676) (8,909)
Dividends paid (765) (752) (610)
-------- -------- --------
Net cash (used in) provided by financing activities (9,506) (6,428) (9,519)
-------- -------- --------
(Decrease) increase in cash and cash equivalents (52) (1,536) (8,827)
Cash and cash equivalents at beginning of period 269 1,805 10,632
-------- -------- --------
Cash and cash equivalents at end of period 217 269 1,805
-------- -------- --------
</TABLE>
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for
the fiscal years ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
In thousands, except per share data) December 31 March 31 June 30 September 30
- ---------------------------------------------------------------------------------------------------------------
FISCAL 1999
<S> <C> <C> <C> <C>
Interest and dividend income $ 6,621 $ 6,472 $ 6,649 $ 7,190
Interest expense 3,765 3,579 3,585 3,955
------- ------- ------- -------
Net interest income 2,856 2,893 3,064 3,235
Provision for loan losses 75 75 50 35
Non-interest income 389 509 246 368
Non-interest expense 2,040 2,267 2,234 2,551
------- ------- ------- -------
Income before income tax expense 1,130 1,060 1,026 1,017
Income tax expense 463 394 369 344
------- ------- ------- -------
Net income $ 667 $ 666 $ 657 $ 673
------- ------- ------- -------
Earnings per common share:
Basic $ 0.27 $ 0.27 $ 0.28 $ 0.31
Diluted 0.27 0.27 0.27 0.30
------- ------- ------- -------
FISCAL 1998
Interest and dividend income $ 6,054 $ 6,246 $ 6,429 $ 6,746
Interest expense 3,031 3,293 3,718 3,980
------- ------- ------- -------
Net interest income 3,023 2,953 2,711 2,766
Provision for loan losses 175 75 75 50
Non-interest income 344 234 520 312
Non-interest expense 1,816 1,965 1,938 1,864
------- ------- ------- -------
Income before income tax expense 1,376 1,147 1,218 1,164
Income tax expense 568 459 491 486
------- ------- ------- -------
Net income $ 808 $ 688 $ 727 $ 678
------- ------- ------- -------
Earnings per common share:
Basic $ 0.30 $ 0.26 $ 0.28 $ 0.28
Diluted 0.29 0.25 0.27 0.27
------- ------- ------- -------
</TABLE>
39
<PAGE>
1999 Annual Report YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S REPORT
Management is responsible for the preparation and integrity of the
consolidated financial statements and other information presented in this annual
report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and reflect management's judgments
and estimates with respect to certain events and transactions.
Management is responsible for maintaining a system of internal control. The
purpose of the system is to provide reasonable assurance that transactions are
recorded in accordance with management's authorization; that assets are
safeguarded against loss or unauthorized use; and that underlying financial
records support the preparation of financial statements. The system includes the
communication of written policies and procedures, selection of qualified
personnel, appropriate segregation of responsibilities, and the ongoing internal
audit function.
The Board of Directors meets periodically with Company management, the
internal auditor, and the independent auditors, KPMG LLP, to review matters
relative to the quality of financial reporting, internal control, and the
nature, extent and results of the audit efforts.
The independent auditors conduct an annual audit to enable them to express
an opinion on the Company's consolidated financial statements. In connection
with the audit, the independent auditors consider the Company's internal control
to the extent they consider necessary to determine the nature, timing and extent
of their auditing procedures.
/s/ RICHARD F. KOMOSINSKI /s/ JOSEPH D. ROBERTO
- ----------------------------------- ------------------------------
Richard F. Komosinski Joseph D. Roberto
President and Chief Executive Officer Vice President, Treasurer and
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Yonkers Financial Corporation:
We have audited the accompanying consolidated balance sheets of Yonkers
Financial Corporation and subsidiary (the "Company") as of September 30, 1999
and 1998, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Yonkers
Financial Corporation and subsidiary as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
- ------------------
New York, New York
October 25, 1999
40
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY 1999 Annual Report
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
6 Executive Plaza
Yonkers, New York 10701
Telephone: (914) 965-2500
Fax: (914) 965-2599
Internet: www.Yonkers.com
BOARD OF DIRECTORS
WILLIAM G. BACHOP, CHAIRMAN
Retired professional engineer and President of
Herbert G. Martin, Inc.
P. ANTHONY SARUBBI, VICE CHAIRMAN
A consulting engineer and
President of P. Anthony Sarubbi, Inc.
DONALD R. ANGELILLI
A real estate broker employed by
Weichert Realtors
RICHARD F. KOMOSINSKI
President and Chief Executive Officer
The Yonkers Savings and Loan Association, FA
CHARLES D. LOHRFINK
Retired Public Affairs Director
for Consolidated Edison
MICHAEL J. MARTIN
Vice President of Herbert G. Martin, Inc.
EBEN T. WALKER
President of Graphite Metallizing Corporation
OFFICERS
RICHARD F. KOMOSINSKI
President and Chief Executive Officer
JOSEPH L. MACCHIA
Vice President, Secretary
JOSEPH D. ROBERTO
Vice President, Treasurer and
Chief Financial Officer
PHILIP GUARNIERI
Vice President
KATHY KOWLER
Vice President
<PAGE>
INDEPENDENT AUDITORS
KPMG LLP
3001 Summer Street
Stamford, Connecticut 06905
SPECIAL COUNSEL
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Seventh Floor--East Tower
Washington, D.C. 20005
ANNUAL MEETING
The annual meeting of stockholders will be held at 6:00 p.m., January 27, 2000,
at The Yonkers Savings and Loan Association, FA, located at 2320 Central Park
Avenue, Yonkers, New York.
STOCK LISTING
The Company's stock is traded over the counter, on the NASDAQ National Market
under the symbol "YFCB".
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The table below shows the range of high and low bid prices and dividends paid
for the quarters indicated. The prices do not represent actual transactions and
do not include retail markups, markdowns or commissions.
- -------------------------------------------------------------------------------
QUARTER ENDED HIGH LOW DIVIDENDS
- -------------------------------------------------------------------------------
December 31, 1997 $22 $18 1/4 $0.06
March 31, 1998 20 1/4 18 5/16 0.07
June 30, 1998 20 18 1/4 0.07
September 30, 1998 19 3/8 13 7/8 0.08
December 31, 1998 15 12 1/4 0.08
March 31, 1999 15 1/2 14 0.08
June 30, 1999 17 7/8 14 5/8 0.08
September 30, 1999 19 17 1/2 0.09
- -------------------------------------------------------------------------------
<PAGE>
The Board of Directors intends to continue the payment of cash dividends,
dependent on the results of operations and financial condition of the Company,
tax considerations, industry standards, economic conditions, general business
practices and other factors. Dividend payment decisions are made with
consideration of a variety of factors including earnings, financial condition,
market considerations and regulatory restrictions. Restrictions on dividend
payments are described in Note 11 of the Notes to Consolidated Financial
Statements included in this report.
As of September 30, 1999, the Company had approximately 450 stockholders of
record and 2,238,739 outstanding shares of common stock.
SHAREHOLDER AND GENERAL INQUIRIES
Joseph L. Macchia, Vice President
Yonkers Financial Corporation
6 Executive Plaza
Yonkers, New York 10701
(914) 965-2500
TRANSFER AGENT
Registrar & Transfer Co.
10 Commerce Drive
Cranford, New Jersey 07016
(800) 456-0596
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-K for its fiscal
year ended September 30, 1999, with the Securities and Exchange Commission.
Copies of the Form 10-K annual report and the Company's quarterly reports may be
obtained without charge by contacting:
INVESTOR RELATIONS
Yonkers Financial Corporation
6 Executive Plaza
Yonkers, New York 10701
Telephone: (914) 965-2500
Fax: (914) 965-2599
Internet: www.Yonkers.com
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT
<S> <C> <C> <C>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
Yonkers Financial The Yonkers Savings and 100% Federal
Corporation Loan Association, FA
The Yonkers Savings and Yonkers Financial Services 100% New York
Loan Association, FA Corporation
The Yonkers Savings and Yonkers REIT, Inc. 100% New York
Loan Association, FA
</TABLE>
EXHIBIT 23.1
KPMG
757 Third Avenue
New York, NY 10017
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Yonkers Financial Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 333-37667 and No. 333-37669) of our report dated October 25, 1999
relating to the consolidated balance sheets of Yonkers Financial Corporation and
subsidiary as of September 30, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended September 30, 1999, which report
appears in the September 30, 1999 Annual Report on Form 10-K of Yonkers
Financial Corporation.
/s/ KPMG LLP
New York, New York
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the annual
report on Form 10-K for the year ended September 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,651
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,712
<INVESTMENTS-CARRYING> 21,936
<INVESTMENTS-MARKET> 21,959
<LOANS> 299,453
<ALLOWANCE> 1,503
<TOTAL-ASSETS> 457,695
<DEPOSITS> 272,974
<SHORT-TERM> 147,935
<LIABILITIES-OTHER> 4,769
<LONG-TERM> 0
0
0
<COMMON> 36
<OTHER-SE> 31,981
<TOTAL-LIABILITIES-AND-EQUITY> 457,695
<INTEREST-LOAN> 16,399
<INTEREST-INVEST> 9,869
<INTEREST-OTHER> 664
<INTEREST-TOTAL> 26,932
<INTEREST-DEPOSIT> 9,543
<INTEREST-EXPENSE> 14,884
<INTEREST-INCOME-NET> 12,048
<LOAN-LOSSES> 235
<SECURITIES-GAINS> 111
<EXPENSE-OTHER> 9,092
<INCOME-PRETAX> 4,233
<INCOME-PRE-EXTRAORDINARY> 4,233
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,663
<EPS-BASIC> 1.13
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 3.13
<LOANS-NON> 755
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 451,000
<ALLOWANCE-OPEN> 1,302
<CHARGE-OFFS> 43
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 1,503
<ALLOWANCE-DOMESTIC> 1,503
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
