UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 0-27716
YONKERS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3870836
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6 EXECUTIVE PLAZA, YONKERS, NEW YORK 10701
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 965-2500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING, MARCH 31, 1999
- ----------------------- --------------------------------------------
$0.01 Par Value 2,731,239
<PAGE>
YONKERS FINANCIAL CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1999
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1999 and
September 30, 1998............................................. 2
Consolidated Statements of Income for the Three and Six Months
Ended March 31, 1999 and 1998 ................................. 3
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended March 31, 1999 ....................... 4
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 1999 and 1998 ................................. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................. 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ...................................................23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...............................................23
Item 2. Changes in Securities ...........................................23
Item 3. Defaults Upon Senior Securities .................................23
Item 4. Submission of Matters to a Vote of Security Holders .............24
Item 5. Other Information ...............................................24
Item 6. Exhibits and Reports on Form 8-K ................................25
Signature Page ..................................................26
<PAGE>
Part I - Item 1
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 5,177 $ 3,195
Short-term investments 4,031 1,000
----------- -----------
----------- -----------
Total cash and cash equivalents 9,208 4,195
----------- -----------
Securities:
Available for sale, at fair value (amortized cost of $116,590
at March 31, 1999 and $123,317 at September 30, 1998) 116,258 125,225
Held to maturity, at amortized cost (fair value of $27,517
at March 31, 1999 and $43,948 at September 30, 1998) 27,286 43,303
----------- -----------
----------- -----------
Total securities 143,544 168,528
----------- -----------
----------- -----------
Real estate mortgage loans held for sale, at lower of cost or market value 8,513 13,334
----------- -----------
Loans receivable, net:
Real estate mortgage loans 202,014 177,783
Consumer and commercial business loans 7,623 7,544
Allowance for loan losses (1,453) (1,302)
----------- -----------
----------- -----------
Total loans receivable, net 208,184 184,025
----------- -----------
Accrued interest receivable 2,288 2,791
Federal Home Loan Bank ("FHLB") stock 6,426 6,426
Office properties and equipment, net 1,747 1,258
Other assets 2,285 2,467
=========== ===========
Total assets $ 382,195 $ 383,024
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 253,225 $ 231,181
Securities repurchase agreements 71,012 107,790
FHLB advances 15,000 --
Other liabilities 1,208 2,251
----------- -----------
Total liabilities 340,445 341,222
----------- -----------
Commitments and contingencies
Stockholders' equity:
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 35,119 35,044
Unallocated common stock held by employee stock
ownership plan ("ESOP") (2,000) (2,142)
Unamortized awards of common stock under management
recognition plan ("MRP") (767) (846)
Treasury stock, at cost ( 839,511 shares at March 31, 1999 and
844,511 shares at September 30, 1998 (13,125) (13,189)
Retained income, substantially restricted 22,686 21,754
Accumulated other comprehensive (loss) income (note 2) (199) 1,145
----------- -----------
Total stockholders' equity 41,750 41,802
----------- -----------
Total liabilities and stockholders' equity $ 382,195 $ 383,024
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Three Months For the Six Months
Ended March 31, Ended March 31,
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 3,785 $ 3,137 $ 7,544 $ 6,218
Securities 2,503 3,008 5,182 5,872
Other earning assets 184 101 367 210
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Total interest and dividend income 6,472 6,246 13,093 12,300
------------ ------------- ------------- -------------
Interest expense:
Deposits 2,340 2,214 4,721 4,400
Securities repurchase agreements 1,068 1,036 2,443 1,837
FHLB advances 171 43 180 87
------------ ------------- ------------- -------------
Total interest expense 3,579 3,293 7,344 6,324
------------ ------------- ------------- -------------
Net interest income 2,893 2,953 5,749 5,976
Provision for loan losses 75 75 150 250
------------ ------------- ------------- -------------
Net interest income after provision for loan losses 2,818 2,878 5,599 5,726
------------ ------------- ------------- -------------
Non-interest income:
Service charges and fees 265 212 526 433
Net gain on sales of real estate mortgage
loans held for sale 109 58 246 194
Net gain (loss) on sales of securities 70 (37) 73 (52)
Other 82 15 91 30
------------ ------------- ------------- -------------
Total non-interest income 526 248 936 605
------------ ------------- ------------- -------------
Non-interest expense:
Compensation and benefits 1,115 975 2,271 1,967
Occupancy and equipment 323 223 551 435
Data processing service fees 169 128 319 259
Federal deposit insurance costs 35 32 68 64
Other 641 621 1,135 1,083
------------ ------------- ------------- -------------
Total non-interest expense 2,283 1,979 4,344 3,808
------------ ------------- ------------- -------------
Income before income tax expense 1,061 1,147 2,191 2,523
Income tax expense 394 459 857 1,027
------------ ------------- ------------- -------------
Net income $ 667 $ 688 $ 1,334 $ 1,496
============ ============= ============= =============
Earnings per common share (note 3):
Basic $ 0.27 $ 0.26 $ 0.54 $ 0.56
Diluted 0.27 0.25 0.54 0.54
============ ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unallocated Unamortized
Common Awards of Accumulated
Additional Stock Common Other
Common Paid-in Held Stock Treasury Retained Comprehensive Stockholders
Stock Capital by Esop Under Mrp Stock Income Income(loss) Equity
----- ------- ------- --------- ----- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 36 $ 35,044 $ (2,142) $ (846) $(13,189) $ 21,754 $ 1,145 $ 41,802
Net income -- -- -- -- -- 1,334 -- 1,334
Dividends paid ($0.16 per share) -- -- -- -- -- (402) -- (402)
Repurchased stock awarded under MRP
(5,000 shares) -- -- -- (64) 64 -- -- --
Amortization of MRP awards -- -- -- 143 -- -- -- 143
Tax benefits from vested
MRP awards -- 12 -- -- -- -- -- 12
ESOP shares released for
allocation (14,283 shares) -- 63 142 -- -- -- -- 205
Decrease in net unrealized gain on
available-for-sale securities,
net of tax -- -- -- -- -- -- (1,344) (1,344)
======== ======== ======== ======== ======== ======== ======== ========
Balance at March 31, 1999 $ 36 $ 35,119 $ (2,000) $ (767) $(13,125) $ 22,686 $ (199) $ 41,750
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,334 $ 1,496
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 150 250
ESOP and MRP expense 348 416
Depreciation and amortization expense 168 124
Amortization of deferred fees, discounts and premiums, net 159 (5)
Net gain on sales of real estate mortgage loans held for sale (246) (194)
Net (gain) loss on sales of securities (73) 52
Other adjustments, net 689 (699)
-------- --------
Net cash provided by operating activities 2,529 1,440
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (37,098) (41,051)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 26,369 14,533
Held-to-maturity 16,025 15,574
Proceeds from sales of securities:
Available-for-sale 17,296 6,111
Held-to-maturity 630
Disbursements for loan originations (69,599) (66,583)
Principal collections on loans 20,834 9,716
Proceeds from sales of loans 29,307 35,192
Purchases of FHLB stock -- (1,005)
Other investing cash flows (514) (201)
-------- --------
Net cash provided by (used in) investing activities 2,620 (27,084)
-------- --------
Cash flows from financing activities:
Net increase in deposits 22,044 20,709
Net (decrease) increase in borrowings with
original terms of three months or less:
Securities repurchase agreements (32,178) (20,818)
FHLB advances 15,000 (4,500)
(Repayments of) proceeds from longer-term securities repurchase agreements (4,600) 34,330
Common stock repurchased -- (97)
Dividends paid (402) (361)
-------- --------
Net cash (used in) provided by financing activities (136) 29,263
-------- --------
Net increase in cash and cash equivalents 5,013 3,619
Cash and cash equivalents at beginning of period 4,195 3,593
-------- --------
Cash and cash equivalents at end of period $ 9,208 $ 7,212
======== ========
Supplemental information:
Interest paid $ 7,202 $ 6,104
Income taxes paid 361 920
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
Yonkers Financial Corporation (the "Holding Company") was incorporated under
the laws of the State of Delaware and on April 18, 1996 became the savings and
loan holding company of The Yonkers Savings and Loan Association, FA (the
"Association") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association (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 per share, resulting in net proceeds of
$34.6 million. The assets of the Holding Company consist of the stock of the
Association, certain short-term and other investments, and a loan to its
Employee Stock Ownership Plan (the "ESOP"). Collectively, the Holding Company
and the Association are referred to herein as the "Company".
On March 31, 1999 the Association established a real estate investment trust,
Yonkers REIT, Inc. (the "REIT"), a wholly-owned subsidiary. On such date, $119.3
million in real estate loans was transferred from the Association to the REIT.
The assets transferred to the REIT are viewed by regulators as part of the
Association's assets in consolidation.
The unaudited consolidated financial statements included herein have been
prepared in conformity with generally accepted accounting principles. In the
opinion of management, the unaudited consolidated financial statements include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented. The results of operations for the six months ended March 31,
1999 are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending September 30, 1999.
Certain financial information and footnote disclosures normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The unaudited interim consolidated
financial statements presented herein should be read in conjunction with the
annual consolidated financial statements of the Company as of and for the fiscal
year ended September 30, 1998, included in the Form 10-K.
(2) COMPREHENSIVE INCOME
During the quarter ended December 31, 1998, the Company 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
6
<PAGE>
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. Total
comprehensive income (loss) for the six months ended March 31, 1999 was
($10,000), consisting of $1,334,000 in net income less a net decrease of
$1,344,000 in the after-tax net unrealized gain on available-for-sale
securities. For the six months ended March 31, 1998, total comprehensive income
of $1.5 million consisted of net income of $1,496,000 less a net decrease of
$34,000 in the after-tax net unrealized gain on available-for-sale securities.
(3) EARNINGS PER SHARE
The Company reports both basic and diluted earnings per share ("EPS") in
accordance with SFAS No. 128, "Earnings per Share". Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed by dividing
net income by the weighted average number of common shares outstanding for the
period plus common-equivalent shares computed using the treasury stock method.
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.
The following is a summary of the number of shares utilized in the Company's
EPS calculations for the three and six months ended March 31, 1999 and 1998. For
purposes of computing basic EPS, net income applicable to common stock equaled
net income for both periods presented.
For the Three For the Six
Months Ended Months Ended
March 31, March 31,
-------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
(In thousands)
Weighted average common shares outstanding
for computation of basic EPS(1) 2,455 2,699 2,452 2,695
Common-equivalent shares due to the
dilutive effect of stock options
and MRP awards(2) 32 86 24 89
----- ----- ----- -----
Weighted average common shares for
computation of diluted EPS 2,488 2,785 2,475 2,784
===== ===== ===== =====
(1) Excludes unvested MRP awards and unallocated ESOP shares that have not been
committed to be released.
(2) Computed using the treasury stock method.
7
<PAGE>
PART I. ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", "believe" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any forward-looking statements, which speak only as of
the date made, and to advise readers that various factors, including regional
and national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors,
could affect the Company's financial performance and could cause actual results
for future periods to differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND SEPTEMBER 30, 1998
Total assets at March 31, 1999 amounted to $382.2 million, a decrease of
$829,000 from $383.0 million at September 30, 1998. However, loans and deposits,
representing the foundation of the Company's retail franchise, increased
significantly during this period.
Securities at March 31, 1999 decreased $25.0 million to $143.5 million from
$168.5 million at September 30, 1998, while cash and cash equivalents increased
$5.0 million to $9.2 million at March 31, 1999 from $4.2 million at September
30, 1998. Overall, total loans (loans receivable and mortgage loans held for
sale) increased $19.4 to $216.7 million at March 31, 1999 from $197.3 million at
September 30, 1998. The loan growth during the six months ended March 31, 1999
represents loan originations of $69.6 million, offset by principal collections
of $20.8 million, loans sold of $29.3 million and an increase in the allowance
for loan losses of $151,000.
Deposit liabilities increased $22.0 million to $253.2 million at March 31,
1999 from $231.2 million at September 30, 1998. Borrowings decreased $21.8
million to $86.0 million at March 31, 1999 from $107.8 million at September 30,
1998.
8
<PAGE>
Stockholders' equity amounted to $41.8 million at March 31, 1999 a $52,000
decrease from September 30, 1998. The decrease is primarily attributable to net
income retained after dividends of $932,000, a combined increase of $360,000
relating to the employee stock ownership plan and the management recognition
plan, offset by a decrease of $1.3 million in the after-tax net unrealized gain
on available-for-sale securities. The ratio of stockholders' equity to total
assets increased to 10.92% at March 31, 1999 from 10.91% at September 30, 1998.
Book value per share (computed based on total shares issued less treasury
shares) was $15.29 at March 31, 1999, a decrease from $15.33 at September 30,
1998. See "Liquidity and Capital Resources" for information regarding the
Association's regulatory capital amounts and ratios.
ANALYSIS OF NET INTEREST INCOME
The following tables set forth the Company's average balance sheets, average
yields and costs (on an annualized basis), and certain other information for the
three and six months ended March 31, 1999 and 1998. The yields and costs were
derived by dividing interest income or expense by the average balance of assets
or liabilities, respectively, for the periods shown. Substantially all average
balances were computed based on daily balances. Interest income includes the
effect of deferred fees, discounts and premiums which are considered yield
adjustments.
9
<PAGE>
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
----------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Average Average Average Average
Balance Interest Yield/cost Balance Interest Yield/cost
--------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Interest-earning assets:
Loans (1) $206,204 $ 3,785 7.34% $152,942 $ 3,137 8.20%
Mortgage-backed securities (2) 115,569 1,827 6.32 112,025 1,937 6.92
Other securities (2) 38,519 676 7.02 62,272 1,071 6.88
Other earning assets 15,409 184 4.78 7,762 101 5.20
-------- ------- -------- -------
Total interest-earning assets 375,701 $ 6,472 6.89 335,001 $ 6,246 7.46
======= =======
Allowance for loan losses (1,404) (1,168)
Non-interest-earning assets 8,538 7,281
--------- --------
Total assets $ 382,835 $341,114
========= ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW, club and money market accounts $ 55,151 $ 313 2.27% $ 45,969 $ 273 2.38%
Regular savings accounts (3) 47,942 232 1.94 45,110 265 2.35
Savings certificate accounts 141,191 1,795 5.09 122,747 1,676 5.46
---------- ------- -------- -------
Total interest-bearing deposits 244,284 2,340 3.83 213,826 2,214 4.14
Borrowings 90,209 1,239 5.49 73,829 1,079 5.85
--------- ------- -------- -------
Total interest-bearing liabilities 334,493 $ 3,579 4.28 287,655 $ 3,293 4.58
======= =======
Non-interest-bearing liabilities 6,390 8,525
--------- --------
Total liabilities 340,883 296,180
Stockholders' equity 41,952 44,934
--------- --------
Total liabilities and stockholders'
equity $ 382,835 $341,114
========= ========
Net interest income $ 2,893 $ 2,953
======= =======
Average interest rate spread (4) 2.61% 2.88%
Net interest margin (5) 3.08% 3.53%
Net interest-earning assets (6) $ 41,208 $ 47,346
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 112.32% 116.46%
</TABLE>
See footnote explanations on the following page.
(1) Balances are net of deferred loan fees and construction loans in process,
and include loans receivable and loans held for sale. Non-accrual loans
are included in the balances.
(2) Average balances represent amortized cost.
(3) Includes mortgage escrow accounts.
(4) Average interest rate spread represents the difference between the yield
on average interest-earning assets and the cost of average
interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
total interest-earning assets.
(6) Net interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
10
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended March 31,
----------------------------------------------------------------------
1999 1998
--------------------------------- --------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Interest-earning assets:
Loans (1) $ 201,137 $ 7,544 7.50% $ 147,509 $ 6,218 8.43%
Mortgage-backed securities (2) 116,723 3,691 6.32 105,356 3,681 6.99
Other securities (2) 42,231 1,491 7.06 62,869 2,191 6.97
Other earning assets 14,647 367 5.01 7,754 210 5.42
--------- -------- ------- --------- -------- -------
Total interest-earning assets 374,738 $ 13,093 6.99 323,488 $ 12,300 7.60
======== ========
Allowance for loan losses (1,366) (1,131)
Non-interest-earning assets 8,260 6,441
--------- ---------
Total assets $ 381,632 $ 328,798
========= =========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW, club and money market accounts $ 54,116 $ 622 2.30% $ 44,391 $ 541 2.44%
Regular savings accounts (3) 47,176 479 2.03 45,125 542 2.40
Savings certificate accounts 137,655 3,620 5.26 121,191 3,317 5.47
--------- -------- --------- --------
Total interest-bearing deposits 238,947 4,721 3.95 210,707 4,400 4.18
Borrowings 94,055 2,623 5.58 65,593 1,924 5.87
--------- -------- --------- --------
Total interest-bearing liabilities 333,002 $ 7,344 4.41 276,300 $ 6,324 4.58
======== ========
Non-interest-bearing liabilities 7,637 8,042
--------- ---------
Total liabilities 340,639 284,342
Stockholders' equity 40,993 44,456
--------- ---------
Total liabilities and stockholders'
equity $ 381,632 $ 328,798
========= =========
Net interest income $ 5,749 $ 5,976
======== ========
Average interest rate spread (4) 2.58% 3.03%
Net interest margin (5) 3.07% 3.69%
Net interest-earning assets (6) $ 41,736 $ 47,188
========= =========
Ratio of average interest-earning assets
to average
interest-bearing liabilities 112.53% 117.08%
(1) Balances are net of deferred loan fees and construction loans in process,
and include loans receivable and loans held for sale. Non-accrual loans are
included in the balances.
(2) Average balances represent amortized cost.
(3) Includes mortgage escrow accounts.
(4) Average interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average total
interest-earning assets.
(6) Net interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
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 affected the Company's interest income and interest expense during
the three and six months ended March 31, 1999 compared to the same period in the
prior year. 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.
For the Quarter Ended March 31, For the Six Months Ended March 31,
1999 Compared to 1998 1999 Compared to 1998
------------------------------ ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------- Net -------------------- Net
Volume Rate Change Volume Rate Change
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest-earning assets:
Loans $ 1,003 $ (355) $ 648 $ 2,070 $ (744) $ 1,326
Mortgage-backed securities 60 (170) (110) 379 (369) 10
Other securities (416) 21 (395) (728) 28 (700)
Other earning assets 92 (9) 83 174 (17) 157
------- ------- ------- ------- ------- -------
Total 739 (513) 226 1,895 (1,102) 793
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
NOW, club and money market accounts 53 (13) 40 113 (32) 81
Regular savings accounts 16 (49) (33) 24 (87) (63)
Savings certificate accounts 239 (120) 119 435 (132) 303
Borrowings 229 (69) 160 798 (99) 699
------- ------- ------- -------
------- -------
Total 537 (251) 286 1,370 (350) 1,020
------- ------- ------- ------- ------- -------
Net change in net interest income $ 202 $ (262) $ (60) $ 525 $ (752) $ (227)
======= ======= ======= ======= ======= =======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998
GENERAL. Net income for the second fiscal quarter ended March 31, 1999
amounted to $667,000, or $0.27 diluted earnings per common share, compared to
net income of $688,000, or $0.25 diluted earnings per common share for the
second fiscal quarter ended March 31, 1998. The $21,000 decrease in net income
was attributable to a $60,000 decrease in net interest income and a $304,000
increase in non-interest expense, partially offset by a $278,000 increase in
non-interest income and a $65,000 decrease in income tax expense.
NET INTEREST INCOME. Net interest income for the three months ended March 31,
1999 was $2.9 million, a decrease of $60,000 from $3.0 million for the same
period in the prior year. The decrease reflects a decline in net
interest-earning assets (total interest-earning assets less total
interest-bearing liabilities) coupled with a decline in the average interest
rate spread to 2.61% for the quarter ended March 31, 1999 from 2.88% for the
same quarter last year. The decline in the average interest rate spread
12
<PAGE>
primarily reflects lower asset yields from the origination of new mortgage loans
(including refinancings) in the current lower interest rate environment. The
Company's net interest margin decreased to 3.08% for the three months ended
March 31, 1999, from 3.53% a year earlier.
INTEREST INCOME. Interest and dividend income totaled $6.5 million for the
three months ended March 31, 1999, an increase of $226,000 compared to $6.2
million for the three months ended March 31, 1998. This increase reflects the
effect of a $40.7 million increase in total average interest-earning assets
partially offset by a 57 basis point decrease in the average yield on such
assets to 6.89% for the three months ended March 31, 1999 from 7.46% for the
same period in the prior year.
Interest income on loans increased $648,000 for the three months ended March
31, 1999 compared to the same period in the prior year, reflecting the effect of
a $53.3 million increase in the average balance partially offset by a 86 basis
point decrease in the average yield. The increase in the average balance of
loans was primarily attributable to an increase in one-to-four family
residential mortgage loans. The lower average yield reflects the repricing of
adjustable rate mortgage loans and the origination of new loans in the current
low interest rate environment.
On a combined basis, interest and dividend income on mortgage-backed and
other securities decreased $505,000 to $2.5 million for the three months ended
March 31, 1999 from $3.0 million for the three months ended March 31, 1998.
Interest on mortgage-backed securities decreased by $110,000, attributable to a
60 basis point decrease in the average yield, partially offset by the effects of
a $3.5 million increase in the average balance. Interest on other securities
declined by $395,000, primarily attributable to a $23.8 million decrease in the
average balance.
Interest and dividend income on other earning assets increased $83,000,
primarily attributable to a $7.6 million increase in the average balance
partially offset by a 42 basis point decrease in the average yield.
INTEREST EXPENSE. Interest expense totaled $3.6 million for the three months
ended March 31, 1999, an increase of $286,000 from the prior year's quarter.
Interest expense on deposits increased $126,000 compared to the same period in
the prior year, reflecting the effect of an $30.5 million increase in the
average balance partially offset by a 31 basis point decrease in the average
rate on interest-bearing deposits to 3.83% for the three months ended March 31,
1999 from 4.14% for the three months ended March 31, 1998. The increase in
average interest-bearing deposits consisted of a $18.5 million increase in
average savings certificate accounts (to $141.2 million from $122.7 million), a
$9.2 million increase in average NOW, club and money market accounts (to $55.2
million from $46.0 million) and a $2.8 million increase in average regular
savings accounts (to $47.9 million from $45.1 million).
Interest expense on borrowings increased $160,000 to $1.2 million for the
three months ended March 31, 1999 from $1.1 for the three months ended March 31,
1998. Total borrowings averaged $90.2 million (borrowings under securities
repurchase agreements represented $79.3 million) for the three months ended
13
<PAGE>
March 31, 1999 at an average rate of 5.49% compared to $73.8 million (borrowings
under securities repurchase agreements represented $70.8 million) and 5.85%,
respectively, for the prior-year's quarter. The majority of this increase was
attributable to interest on borrowings under securities repurchase agreements.
See "Liquidity and Capital Resources" for a further discussion of the Company's
securities repurchase agreements.
PROVISION FOR LOAN LOSSES. 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 $75,000 for both of the quarters ended March 31, 1999 and 1998.
Non-performing loans totaled $777,000 at March 31, 1999, compared to $753,000 at
September 30, 1998 and $1.1 million at March 31, 1998. See "Asset Quality" for a
further discussion of the Company's non-performing assets and allowance for loan
losses.
NON-INTEREST INCOME. Non-interest income for the three months ended March 31,
1999 increased $278,000 to $526,000, from $248,000 for the comparable period in
1998. The increase is primarily attributable to increases in the net gain on
sales of loans held for sale, the net gain on sales of securities, other
non-interest income, and service charges and fee income. Mortgage loans sold
during the three months ended March 31, 1999 amounted to $9.2 million resulting
in net gains of $109,000, as compared to loan sales of $12.3 million during the
three months ended March 31, 1998 which resulted in net gains of $58,000. Net
gain on sales of securities amounted to $70,000 for the three months ended March
31, 1999 as compared to losses of $37,000 for the March 31, 1998 quarter. The
increase in other non-interest income primarily reflects a $72,000 gain on the
sale of loan servicing rights in the current quarter. The increase in service
charges and fee income primarily reflects increases in transaction volume.
NON-INTEREST EXPENSE. Non-interest expense increased $304,000 to $2.3 million
for the three months ended March 31, 1999, compared to $2.0 million for the
three months ended March 31, 1998. Compensation and benefits expense increased
$140,000 from the prior-year quarter primarily due to increased costs relating
to additional staffing in the in-store branch opened in October 1998 and the
loan department, coupled with performance-based increases for certain staff
members. The increase of $100,000 in occupancy and equipment expense primarily
reflects increased costs associated with the establishment of a lending center
in November 1998 and an in-store branch in October 1998. These new banking
locations coupled with increased transaction volumes attributed to the $41,000
increase in data processing service fees. Included in other non-interest expense
for the three months ended March 31, 1999 were expenses of $70,000 relating to
the establishment of the REIT.
INCOME TAX EXPENSE. Income tax expense was approximately $394,000 for the
three months ended March 31, 1999 and $459,000 for the comparable 1998 period,
14
<PAGE>
reflecting lower pre-tax income and effective tax rates of 37.1% and 40.0%,
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 is distributed to the Association in the form of a dividend and has the
effect of reducing the Company's New York State income tax expense.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
GENERAL. Net income for the six months ended March 31, 1999 was $1.3 million
or diluted earnings per common share of $0.54, compared to net income of $1.5
million or diluted earnings per common share of $0.54 for the six months ended
March 31, 1998. The $162,000 decrease in net income was attributable to a
$227,000 decrease in net interest income and a $536,000 increase in non-interest
expense, partially offset by a $331,000 increase in non-interest income, a
$170,000 decrease in income tax expense and a $100,000 decrease in the provision
for loan losses.
NET INTEREST INCOME. Net interest income for the six months ended March 31,
1999 was $5.7 million, as compared to $6.0 million for the same period in the
prior year. The decrease reflects a $5.5 million decline in net interest-earning
assets (total interest-earning assets less total interest-bearing liabilities),
and a decline in the average interest rate spread to 2.58% for the six months
ended March 31, 1999 from 3.03% for the same six months last year. The decline
in net interest-earning assets is primarily attributable to the use of funds to
repurchase the Company's common stock. The decline in the average interest rate
spread primarily reflects lower asset yields from the origination of new
mortgage loans (including refinancings) in the current lower interest rate
environment. The Company's net interest margin decreased to 3.07% for the six
months ended March 31, 1999, from 3.69% a year earlier.
INTEREST INCOME. Interest and dividend income totaled $13.1 million for the
six months ended March 31, 1999, an increase of $793,000 compared to $12.3
million for the six months ended March 31, 1998. This increase reflects the
effect of a $51.3 million increase in total average interest-earning assets
partially offset by a 61 basis point decrease in the average yield on such
assets to 6.99% for the six months ended March 31, 1999 from 7.60% for the same
period in the prior year.
Interest income on loans increased $1.3 million for the six months ended
March 31, 1999 compared to the same period in the prior year, reflecting the
effect of a $53.6 million increase in the average balance partially offset by a
93 basis point decrease in the average yield. The increase in the average
balance of loans was primarily attributable to an increase in one-to-four family
residential mortgage loans. The lower average yield reflects the repricing of
adjustable rate mortgage loans and the origination of new loans in the current
low interest rate environment.
On a combined basis, interest and dividend income on mortgage-backed and
other securities decreased $690,000 to $5.2 million for the six months ended
March 31, 1999 from $5.9 million for the six months ended March 31, 1998.
15
<PAGE>
Interest on mortgage-backed securities increased by $10,000, attributable to the
effects of a $11.4 million increase in the average balance substantially offset
by a 67 basis point decrease in the average yield, while interest on other
securities declined by $700,000, primarily attributable to a $20.6 million
decrease in the average balance.
Interest and dividend income on other earning assets increased $157,000,
primarily attributable to a $6.9 million increase in the average balance
partially offset by a 41 basis point decrease in the average yield.
INTEREST EXPENSE. Interest expense totaled $7.3 million for the six months
ended March 31, 1999, an increase of $1.0 million from the prior year's six
months. Interest expense on deposits increased $321,000 compared to the same
period in the prior year, reflecting the effect of an $28.2 million increase in
the average balance partially offset by a 23 basis point decrease in the average
rate on interest-bearing deposits to 3.95% for the six months ended March 31,
1999 from 4.18% for the six months ended March 31, 1998. The increase in average
interest-bearing deposits consisted of a $16.5 million increase in average
savings certificate accounts (to $137.7 million from $121.2 million), a $9.7
million increase in average NOW, club and money market accounts (to $54.1
million from $44.4 million) and a $2.0 million increase in average regular
savings accounts (to $47.1 million from $45.1 million).
Interest expense on borrowings increased $699,000 to $2.6 million for the six
months ended March 31, 1999 from $1.9 million for the six months ended March 31,
1998. Total borrowings averaged $94.1 million for the six months ended March 31,
1999 at an average rate of 5.58% compared to $65.6 million and 5.87%,
respectively, for the prior-year's period. Substantially all of this increase
was attributable to interest on borrowings under securities repurchase
agreements. See "Liquidity and Capital Resources" for a further discussion of
the Company's securities repurchase agreements.
PROVISION FOR LOAN LOSSES. 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 $150,000 and $250,000 for the six months ended March 31, 1999
and 1998, respectively. The higher provision in the six months ended March 31,
1998 reflected the impact of higher net charge-offs which were $100,000 for the
period, compared to net recoveries of $1,000 for the six months ended March 31,
1999. See "Asset Quality" for a further discussion of the Company's
non-performing assets and allowance for loan losses.
NON-INTEREST INCOME. Non-interest income for the six months ended March 31,
1999 increased $331,000, to $936,000 from $605,000 for the comparable period in
1998. The increase is primarily attributable to increases in the net gain on
sales of loans held for sale, the net gain on sales of securities, other
non-interest income, and service charges and fee income. Mortgage loans sold
16
<PAGE>
during the six months ended March 31, 1999 amounted to $29.3 million resulting
in net gains of $246,000, as compared to loan sales of $35.2 million during the
six months ended March 31, 1998, which resulted in net gains of $194,000. Net
gain on sales of securities amounted to $73,000 for the six months ended March
31, 1999 reflecting sales of $17.2 million in available-for-sale securities
during the period, while losses of $52,000 were incurred on sales of $6.2
million in the prior year's period. The increase in other non-interest income
primarily reflects a $72,000 gain on the sale of loan servicing rights in the
1999 period. The increase in service charges and fee income primarily reflects
increases in transaction volume.
NON-INTEREST EXPENSE. Non-interest expense increased $536,000 to $4.3 million
for the six months ended March 31, 1999, compared to $3.8 million for the six
months ended March 31, 1998. Compensation and benefits expense increased
$304,000 from the prior-year six months primarily due to increased costs
relating to additional staffing in the loan department and the two in-store
branches, coupled with performance-based increases for certain staff members.
The increase of $116,000 in occupancy and equipment expense primarily reflects
increased costs associated with the establishment of an in-store branch in
December 1997 and another in October 1998 and a lending center in November 1998.
Included in other non-interest expense for the six months ended March 31, 1999
were expenses of $70,000 relating to the establishment of the REIT.
INCOME TAX EXPENSE. Income tax expense for the six months ended March 31,
1999 was approximately $857,000 as compared to $1.0 million for the 1998 period,
reflecting lower pre-tax income and effective tax rates of 39.1% and 40.7%,
respectively. The decrease in the effective tax rate reflects the ancillary
benefits from the aforementioned REIT.
ASSET QUALITY
Non-performing loans totaled $777,000 at March 31, 1999, up from $753,000 at
September 30, 1998 and down from $1.1 million at March 31, 1998. The ratio of
non-performing loans to total loans receivable was 0.37% at March 31, 1999,
compared to 0.41% at September 30, 1998 and 0.71% at March 31, 1998. The
allowance for loan losses was $1.5 million or 0.69% of total loans receivable at
March 31, 1999, compared to $1.3 million or 0.70% of total loans receivable at
September 30, 1998 and $1.2 million or 0.82% at March 31, 1998. The ratio of the
allowance for loan losses to non-performing loans was 187.00% at March 31, 1999,
compared to 172.91% at September 30, 1998 and 115.52% at March 31, 1998.
The following table sets forth certain asset quality ratios and other data at
the dates indicated:
March 31, September 30, March 31,
1999 1998 1998
---------- ------------ ---------
(Dollars in thousands)
Non-accrual loans past due ninety
days or more:
Real estate mortgage loans:
One- to four-family ................. $ 552 $ 515 $ 538
Commercial .......................... 198 203 207
Land ................................ -- -- 201
Construction ........................ -- -- 88
Consumer loans ........................... 27 35 42
------ ------ ------
Total ........................... 777 753 1,076
Real estate owned, net ..................... 183 305 349
------ ------ ------
Total non-performing assets ................ $ 960 $1,058 $1,425
====== ====== ======
Allowance for loan losses .................. $1,453 $1,302 $1,243
====== ====== ======
Ratios:
Non-performing loans to total
loans receivable ....................... 0.37% 0.41% 0.71%
Non-performing assets to total assets .... 0.25 0.28 0.41
Allowance for loan losses to:
Non-performing loans ................. 187.00 172.91 115.52
Total loans receivable ............... 0.69 0.70 0.82
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and borrowings; principal
and interest payments on loans and securities; and proceeds from sales of loans
and securities. While maturities and scheduled payments on loans and securities
provide an indication of the timing of the receipt of funds, other sources of
funds such as loan prepayments and deposit inflows are less predictable due to
the effects of changes in interest rates, economic conditions and competition.
The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends received from the Association, if any. The main
cash flows are payments of dividends to shareholders and repurchases of the
Holding Company's common stock.
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 regulations of the Office of Thrift
18
<PAGE>
Supervision. The minimum required liquidity ratio at March 31, 1999 was 4.0%,
and the Company's actual liquidity ratio was 11.0%.
The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities. At March 31, 1999, the Company had outstanding loan origination
commitments of $18.6 million, unadvanced home equity lines of credit of $2.3
million and undisbursed construction loans in process of $609,000. The Company
anticipates that it will have sufficient funds available to meet its current
loan origination and other commitments. At March 31, 1999, the Company had the
ability to obtain additional FHLB advances of approximately $75.4 million.
Certificates of deposit scheduled to mature in one year or less from March 31,
1999 totaled $103.8 million. Based on the Company's most recent experience and
pricing strategy, management believes that a significant portion of such
deposits will remain with the Company.
The Company's borrowings at March 31, 1999 consisted of $71.0 million in
borrowings under securities repurchase agreements and FHLB advances of $15.0
million. FHLB advances at March 31, 1999 had a weighted average interest rate of
4.36% and a term to maturity of 9.6 years with a call date in 1.6 years. In the
securities repurchase agreements, the Company borrows funds through the transfer
of debt securities to the FHLB of New York, as counterparty, and concurrently
agrees to repurchase the identical securities at a fixed price on a specified
date. The Company accounts for these agreements as secured financing
transactions since it maintains effective control over the transferred
securities. Accordingly, the transaction proceeds are recorded as borrowings and
the underlying securities continue to be carried in the Company's debt
securities portfolio. Repurchase agreements are collateralized by the securities
sold and, in certain cases, by additional margin securities. During the six
months ended March 31, 1999, the average borrowings under these agreements
amounted to $82.5 million and the maximum month-end balance outstanding was
$98.6 million.
Additional information concerning outstanding repurchase agreements with the
FHLB of New York as of March 31, 1999 is summarized as follows:
19
<PAGE>
<TABLE>
<CAPTION>
Repurchase Borrowings
- -------------------------------------------------------------------------------------------------------
Accrued Weighted Fair Value
Interest Average of Collateral
Remaining Term to Final Maturity(1) Amount Payable (2) Rate Securities (3)
- ----------------------------------- ----------- ----------- -------- --------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
After 30 days but within one year $ 5,000 $ 186 5.74% 5,639
After one but within three years 20,600 96 5.91 24,323
After three but within five years 15,000 97 5.65 12,693
After five years 30,412 198 5.47 29,685
--------- -------- --------
Total $ 71,012 $ 577 5.66% $ 72,340
========= ======== ========
</TABLE>
(1) The weighted average remaining term to final maturity was approximately 5.0
years at March 31, 1999. 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 2.1 years at March 31, 1999.
(2) Included in other liabilities in the consolidated balance sheet.
(3) Represents the fair value of the mortgage-backed securities ($57.1 million)
and other debt securities ($15.2 million) which were transferred to the
counterparty, including accrued interest receivable of $583,000. These
securities consist of available-for-sale securities and held-to-maturity
securities with fair values of $63.3 million and $9.0 million, respectively.
At March 31, 1999, the Company's "amount at risk" under securities repurchase
agreements was approximately $751,000. 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.
At March 31, 1999, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of 9.66% of total adjusted assets,
which is above the required level of 1.5%; core capital of 9.66% of total
adjusted assets, which is above the required level of 3.0%; and total risk-based
capital of 25.71%, which is above the required level of 8.0%. These regulatory
capital requirements, which are applicable to the Association only, do not
consider additional capital held at the Holding Company level, and require
certain adjustments to stockholder's equity to arrive at the various capital
amounts.
YEAR 2000 CONSIDERATIONS
The Company, like all companies that utilize computer technology, is facing
significant challenges associated with ensuring that its computer systems will
accurately process time-sensitive data beyond the year 1999 (the "Year 2000
Issue"). Many existing computer programs and systems were originally programmed
with six digit dates that provided only two digits to identify the calendar year
in the date field, without considering the upcoming change in the century. With
the impending millennium, these programs and computers will recognize "00" as
the year 1900 rather than the year 2000.
20
<PAGE>
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 agency, the Office of Thrift
Supervision ("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 is implementing 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. The Company has completed
the awareness and assessment phases of the Plan. 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 March 31, 1999. All
renovations must be substantially complete, and testing of mission critical
systems must be completed, by June 30, 1999. As of March 31, 1999, the Company
substantively completed testing its internal mission critical systems and
testing with its primary service provider, which provides almost all of the
Company's data processing. The Company expects to meet the other deadlines
previously noted.
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 modifications to existing
software and conversions to new software, the Year 2000 Issue will be mitigated
without causing a material adverse impact on the operations of the Company.
21
<PAGE>
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have an impact on the operations of
the Company.
The Company is also preparing a Year 2000 business resumption contingency
plan to document pre-determined actions to help the Company resume normal
operations in the event of failure of any mission-critical service and product.
Uncontrollable events, such as loss of the global power grid and telephone
service failures, will affect all companies, government and customers; these
global events cannot be remedied by anyone other than the appropriate
responsible party. The Company 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, not likely to pose
significant Year 2000 risks directly. The Company also reviewed its borrower
base and determined that it is primarily secured by residential and multifamily
residences, which management believes does not carry a high Year 2000 risk. The
Company is assuring the availability of cash to meet potential depositor demand
due to concerns about the availability of funds as we approach the Year 2000.
Contingency plans are being developed for identified mission-critical systems in
anticipation of the possibility of unplanned system difficulties or failure of
third parties to successfully prepare for the century date change. The Company
has made substantial progress in its contingency planning process and expects to
have it completed by June 30, 1999.
At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000 Issue to have material adverse effects 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
effect on the results of operations or financial condition of the Company. Costs
incurred through March 31, 1999 were approximately $135,000, of which
approximately one-quarter was recognized as incurred with the balance amortized
22
<PAGE>
over a five-year period. Management currently estimates that remaining costs
will range between $5,000 and $40,000, most of which will be recognized in
calendar year 1999.
PART I. ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, investing and deposit taking activities. The Company's
real estate loan portfolio, concentrated primarily in Westchester County, New
York, and portions of Putnam, Rockland and Dutchess Counties, New York, is
subject to risks associated with the local economy.
There have been no material changes in the Company's interest rate risk
position since September 30, 1998. 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved as plaintiff or defendant in various legal
proceedings arising in the normal course of its business. While the ultimate
outcome of these various legal proceedings cannot be predicted with certainty,
it is the opinion of management that the resolution of these legal actions
should not have a material effect on the Company's financial position, results
of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on January 27, 1999, the
following matters were voted upon, with the results of the voting on such
matters indicated:
1. Election of the following persons to serve a three-year term as
directors of the Company:
NOMINEE FOR WITHHELD
------- --- --------
Richard F. Komosinski 2,519,424 18,957
Michael J. Martin 2,519,924 18,457
Broker Non-Vote: None
2. The approval of certain amendments to The Yonkers Financial Corporation
1996 Stock Option and Incentive Plan:
For: 2,425,248
Against: 84,647
Abstained: 19,624
Broker Non-Vote: 8,862
3. The approval of certain amendments to The Yonkers Financial Corporation
1996 Management Recognition Plan:
For: 2,409,557
Against: 96,647
Abstained: 23,374
Broker Non-Vote: 8,803
4. Ratification of the appointment of KPMG LLP as the independent auditors
of the Company for the fiscal year ending September 30, 1999:
For: 2,523,576
Against: 11,604
Abstained: 3,200
Broker Non-Vote: 1
ITEM 5. OTHER INFORMATION
None
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Name
----------- ----
27 Financial Data Schedule
(b) Reports on Form 8-K
None
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YONKERS FINANCIAL CORPORATION
-----------------------------
(Registrant)
Date: May 14, 1999 /s/ Richard F. Komosinski
--------------------------
Richard F. Komosinski,
President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 14, 1999 /s/ Joseph D. Roberto
--------------------------
Joseph D. Roberto
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
26
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of income, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,177
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,031
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,258
<INVESTMENTS-CARRYING> 27,286
<INVESTMENTS-MARKET> 27,517
<LOANS> 208,184
<ALLOWANCE> 1,453
<TOTAL-ASSETS> 382,195
<DEPOSITS> 253,225
<SHORT-TERM> 86,012
<LIABILITIES-OTHER> 1,208
<LONG-TERM> 0
0
0
<COMMON> 36
<OTHER-SE> 41,714
<TOTAL-LIABILITIES-AND-EQUITY> 382,195
<INTEREST-LOAN> 7,544
<INTEREST-INVEST> 5,182
<INTEREST-OTHER> 367
<INTEREST-TOTAL> 13,093
<INTEREST-DEPOSIT> 4,721
<INTEREST-EXPENSE> 7,344
<INTEREST-INCOME-NET> 5,749
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 73
<EXPENSE-OTHER> 4,344
<INCOME-PRETAX> 2,191
<INCOME-PRE-EXTRAORDINARY> 2,191
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,334
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 3.07
<LOANS-NON> 777
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 455
<ALLOWANCE-OPEN> 1,302
<CHARGE-OFFS> 2
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,453
<ALLOWANCE-DOMESTIC> 1,453
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
