1999 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C>
At or for the Fiscal Year Ended September 30, 2000 1999 1998
---------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Selected Financial Condition Data
Total assets $522,874 $457,695 $383,204
Loans receivable, net 364,238 297,950 184,025
Mortgage-backed securities 83,574 97,380 113,485
Other securities 44,991 41,268 55,043
Deposits 325,106 272,974 231,181
Borrowings 157,412 147,935 107,790
Stockholders' equity 34,882 32,017 41,802
Selected Operating Data
Net interest income $ 13,962 $ 12,048 $ 11,453
Net income 3,141 2,663 2,901
Basic earnings per common share(1) 1.56 1.13 1.12
Diluted earnings per common share(1) 1.53 1.11 1.08
Asset Quality Data
Non-performing loans $ 123 $ 755 $ 753
Non-performing loans to total loans
receivable 0.03% 0.25% 0.41%
Selected Statistical Data
Return on average equity 9.69% 6.64% 6.72%
Average equity to average assets 6.37 10.21 12.18
Book value per share(2) $15.65 $14.30 $15.33
Cash dividends per share 0.36 0.32 0.28
</TABLE>
(1) Earnings per share data for all periods has been computed in accordance with
Statement of Financial Accounting Standards No. 128.
(2) Represents stockholders' equity divided by total common shares outstanding
at the end of the period .
1
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TO OUR STOCKHOLDERS:
From a financial point of view, fiscal 2000 was Yonkers Financial
Corporation's best year since becoming a public company in 1996,-- a year marked
by strong asset growth, records profits and a growing presence in our
marketplace.
The Company, which is the holding company for The Yonkers Savings and Loan
Association, F.A. reported earnings of $1.53 per diluted share for the fiscal
year ended September 30, 2000, an increase of 37.8% over the $1.11 per share
reported in fiscal 1999. Net income rose to a record $3.1 million, an increase
of 17.9% over 1999.
By any measure, this was an outstanding performance, but it was not
entirely unexpected. In fact, it reflected the effective execution of our
business plan for 2000. That plan called for strong growth in our deposit base,
increased lending for residential and commercial real estate purposes,
appropriate control of expenses, and a further reduction in non-performing
loans. It called for us to capitalize further on the growth initiatives we had
put in place over the past few years. And with some additional help from the
continuing strength in our region's economy, our dedicated employees delivered
even better results than we projected.
Solid Asset Growth. The Company's assets, principally its loan portfolio,
grew a solid $65.2 million, or 14.2%, to $522.9 million. We funded the growth in
two ways. First, we grew our deposit base with the majority of the increase a
direct result from the expansion of our retail franchise over the past two
years. Deposits rose by $52.1 million, or 19.1% to $325.1 million. Second, we
increased our borrowings, in the form of advances from the Federal Home Loan
Bank, by $9.5 million, or 6.4% to $157.4 million.
Deposit Base Increases. Although while we operate in a highly competitive
marketplace for banking services, we successfully increased our deposit base,
increasing our market share in the process. We achieved this through effective
promotions in our four traditional branches and by taking advantage of the
expanded presence afforded by our five recently added in-store branches located
in Wappingers Falls, Yorktown Heights, Mount Vernon, Poughkeepsie and Cortlandt
Manor.
We also stepped up our emphasis on our BusinessVantage program for business
customers, expanding the number of BusinessVantage accounts by more than 50%,
from 525 to 800, and more than doubling the amount of these deposits. Combined,
these efforts enabled us to increase our deposits beyond our projections.
It is worthy of note that we achieved this strong deposit growth at a time
when most competing institutions were having trouble attracting deposits.
Expanded Loan Portfolio. Total loans, including both loans receivable and
mortgage loans held for sale, rose by an impressive 22.7% or $67.8 million to a
new high of $367.0 million.
As described in our 1999 annual report, our modern lending center, staffed
by our dedicated retail sales team, is making a significant contribution in
growing our loan portfolio. Traditionally, we have focused primarily on
originating mortgage loans secured by one- to four-family residences, but we are
currently placing increased emphasis on commercial real estate lending.
Multi-family and mixed-use loans accounted for 36%, or $24.4 million of the
$67.8 million loan growth in fiscal 2000, compared to 21% of the loan growth in
the previous year.
Loan quality improved even further in 2000 as non-performing loans
decreased from $755,000 in 1999 to $123,000 in 2000. Non-performing loans to
total loans fell from 0.25% in 1999 to 0.03%. While a robust economy has helped,
this excellent performance is mainly attributable to the skill and diligence of
our staff.
Net Interest and Non Interest Income Up. The expansion of our loan
portfolio contributed to an increase of $2.0 million in net interest income to
$14.0 million, a gain of 15.9% over fiscal 1999. The additional earnings
generated by this loan growth more than offset the negative effects of a decline
in our average interest rate spread from 2.66 % to 2.47%.
2
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Our non-interest income rose 37.7% for the year to $1.6 million, primarily
reflecting increases in service charges and fee income. Growth in service
charges revenue resulted mainly from higher transaction volume, while fee income
increased on the strength of sales of annuities and mutual funds under a program
launched during fiscal 2000. This program, which generated $236,000 in income,
was essentially on target in sales for the fiscal year, and we look for
continued growth during fiscal 2001. The gains in these income categories were
partially offset by declines in our net gain on sales of securities and on sales
of real estate mortgages held for sale.
Strong Financial Position. Yonkers Financial Corporation ended its 2000
fiscal year in excellent financial condition. Return on average equity increased
substantially, from 6.64% in fiscal 1999 to 9.69% in fiscal 2000, and we hope to
improve on that in the future. The increase reflects higher profits and the
further leveraging of our capital. Essentially the same trend is displayed in
another ratio, average equity to average assets, which went from 10.2% in fiscal
1999 to 6.4% in fiscal 2000, as a result of growth in fiscal 2000 and stock
repurchases in fiscal 1999. The effect was to position our Company for excellent
EPS growth from the very start of the fiscal year.
Our solid performance enabled the Board of Directors to maintain the
quarterly dividend of $0.9 per share, established for 1999's fourth quarter,
throughout fiscal 2000. This amounted to a dividend increase of 12.5% for the
year.
New Director Named. Fredric H. Gould, Chairman of the Board of BRT Realty
Trust and General Partner of Gould Investors L.P., was elected to the Board of
Directors in February 2000 for a two-year term. Mr. Gould was also a former
majority owner and member of the Board of Directors of BFS Bankorp. We believe
the Company will benefit from his real estate expertise and business insight.
Mr. Gould currently serves on the Company's Loan Committee.
A Positive Outlook. Prospects for fiscal 2001 appear very good. The
regional economy remains solid, and we will further expand our deposit base and
loan portfolio. Our employees continue to work diligently to build every aspect
of our business. We plan to enhance our Web site (www.yonkers.com) to add bill
paying to the balance inquiry and funds transfer activities currently available.
Overall, we look forward to a solid and profitable performance in fiscal 2001.
We will continue to take an opportunistic approach to growth, and are open
to new branches or potential acquisitions if the "fit" and price are right. Most
of all, we remain committed to the goal of building shareholder value.
It is said that superior business performance will eventually be reflected
in the price of a company's stock, although that has not been our experience
lately. But I am confident that our strong results will in due course be
rewarding to our shareholders. On behalf of the board, I want to thank our
employees, our customers and in particular our shareholders for their
dedication, loyalty and unstinting support.
Sincerely,
Richard F. Komosinski
President and Chief Executive Officer
November 27, 2000
3
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<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
At or for the Fiscal Year Ended September 30,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------- ------------ ------------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $522,874 $457,695 $383,204 $312,956 $259,534
Loans receivable, net 364,238 297,950 184,025 118,683 86,666
Real estate mortgage loans held for sale 2,743 1,226 13,334 20,437 --
Securities:
Available-for-sale 112,373 116,712 125,225 86,286 58,552
Held-to-maturity 16,192 21,936 43,303 76,329 95,007
Cash and cash equivalents 10,178 4,651 4,195 3,593 12,500
Deposits 325,106 272,974 231,181 207,933 190,675
Borrowings 157,412 147,935 107,790 60,096 18,264
Stockholders' equity 34,882 32,017 41,802 43,878 48,999
Selected Operating Data:
Interest and dividend income $ 36,092 $ 26,932 $ 25,475 $ 20,731 $ 16,376
Interest expense 22,130 14,884 14,022 9,957 7,975
-------- -------- -------- -------- --------
Net interest income 13,962 12,048 11,453 10,774 8,401
Provision for loan losses 220 235 375 300 462
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 13,742 11,813 11,078 10,474 7,939
Non-interest income 1,593 1,157 1,128 532 502
Non-interest expense (excluding special assessment) 10,340 8,737 7,301 6,064 4,838
SAIF special assessment (1) -- -- -- -- 1,166
-------- -------- -------- -------- --------
Income before income tax expense 4,995 4,233 4,905 4,942 2,437
Income tax expense 1,854 1,570 2,004 1,990 917
-------- -------- -------- -------- --------
Net income (2) $ 3,141 $ 2,663 $ 2,901 $ 2,952 $ 1,520
======== ======== ======== ======== ========
Basic earnings per common share (3) $ 1.56 $ 1.13 $ 1.12 $ 1.05 $ 0.22
Diluted earnings per common share (3) $ 1.53 $ 1.11 $ 1.08 $ 1.04 $ 0.22
Selected Statistical Data: (4)
Return on average assets (2) 0.62% 0.68% 0.82% 1.05% 0.66%
Return on average equity (2) 9.69 6.64 6.72 6.72 4.60
Net interest margin (5) 2.80 3.13 3.28 3.93 3.73
Average interest rate spread (6) 2.47 2.66 2.67 3.26 3.13
Efficiency ratio (7) 66.56 66.83 58.21 53.44 53.82
Non-interest expense to average assets (2) 2.03 2.22 2.06 2.17 2.11
Non-performing loans to total loans receivable 0.03 0.25 0.38 0.81 3.14
Allowance for loan losses to non-performing loans 1,384.55 199.07 172.91 96.05 33.77
Allowance for loan losses to total loans receivable 0.46 0.50 0.66 0.78 1.06
Non-performing assets to total assets 0.02 0.16 0.28 0.48 1.30
Equity to total assets at end of period 6.67 7.00 10.91 14.02 18.88
Average equity to average assets 6.37 10.21 12.18 15.69 14.41
Book value per share (8) $ 15.65 $ 14.30 $ 15.33 $ 14.53 $ 13.72
Cash dividends per share 0.36 0.32 0.28 0.21 0.05
Dividend payout ratio (9) 24.23% 28.73% 25.92% 20.66% 22.50%
</TABLE>
----------------------------------------------------
(1) 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").
(2) Excluding the after-tax SAIF charge described in note (2), net income for
fiscal 1996 would have been approximately $700,000 higher, resulting in a
return on average assets of 0.97% and a return on average equity of 6.71%.
The ratio of non-interest expense to average assets would have been 2.20%.
(3) Earnings per share data for all periods has been computed in accordance
with Statement of Financial Accounting Standards No.128. Earnings per share
for fiscal 1996 is for the period following the Association's conversion.
(4) All ratios are based on average daily balances with the exception of 1996
ratios which are based on average monthly balances and end-of-period
ratios.
(5) Net interest income divided by average interest-earning assets.
(6) The difference between the weighted average yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities.
(7) Non-interest expense (other than certain loss provisions and the SAIF
special assessment) divided by the sum of net interest income and
non-interest income (other than net security gains and losses).
(8) Represents stockholders' equity divided by total common shares outstanding
at the end of the period.
(9) Dividends paid as a percentage of net income. Ratio for fiscal 1996 is
based on net income for the six-month period following the Association's
conversion to stock form.
4
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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; 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."
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, mutual funds 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. In addition, business
is also conducted through five in-store branches located in Wappingers Falls,
Yorktown Heights, Mt. Vernon, Poughkeepsie, and Cortlandt Manor.
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, multi-family and commercial real estate, construction, land,
consumer and commercial business loans. The Company has recently determined to
increase its emphasis on its multi-family lending activity. 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 results of operations are also affected by the provision for loan
losses, non-interest income and non-interest expense. Non-interest income
5
<PAGE>
primarily consists of service charges and fees on deposit and loan products,
fees from the sale of annuities and mutual funds, 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 Company's
current operating strategy consists primarily of (i) 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 a substantial amount of
higher-yielding multi-family loans and, to a lesser extent commercial real
estate, consumer, construction and land loans; (iv) augment its lending
activities where appropriate, with investments in mortgage-backed and other
securities; (v) build and maintain its regular savings, transaction, money
market and club accounts; (vi) increase, at a managed pace, the volume of the
Company's assets and liabilities; and (vii) utilize borrowings to fund increases
in asset volume at a positive interest-rate spread.
Comparison of Financial Condition at September 30, 2000 and 1999
Total assets at September 30, 2000 amounted to $522.9 million, an increase
of $65.2 million or 14.2% from $457.7 million at September 30, 1999. Asset
growth during the period was funded primarily through growth in the Company's
deposit base relating to the expansion of its retail franchise, as well as
proceeds from borrowings under Federal Home Loan Bank ("FHLB") advances and
securities repurchase agreements.
Funds provided by deposit growth and borrowings, as well as proceeds from
sales of mortgage loans held for sale, were invested primarily in new loans.
Overall, total loans (loans receivable and mortgage loans held for sale)
increased $67.8 million or 22.7% to $367.0 million at September 30, 2000 from
$299.2 million at September 30, 1999. One- to four-family mortgage loans
accounted for $39.7 million of the overall increase (net of an increase of $1.5
million in loans held for sale). Multi-family real estate loans increased $16.3
million or 111.2% while commercial real estate loans increased $6.3 million or
23.5% reflecting the Company's intention to increase such higher-yielding
assets. Changes in other portfolio categories were less significant. The loan
growth during fiscal 2000 represented loan originations of $117.3 million,
offset by principal repayments of $33.1 million, loans sold of $16.1 million,
and an increase in the allowance for loan losses of $200,000. The increase in
loan production was the result of an expanded retail mortgage representative
sales force and the establishment of a new lending center during fiscal 1999, as
well as favorable market conditions.
6
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Total securities at September 30, 2000 decreased $10.0 million to $128.6
million from $138.6 million at September 30, 1999, reflecting a $5.7 million
decrease in held-to-maturity securities and a $4.3 million decrease in
available-for-sale securities. Proceeds from sales, principal payments and
maturities of securities were used to fund the significant increase in loan
volume during fiscal 2000 rather than the reinvestment in securities. The
decrease in held-to-maturity securities primarily reflects principal repayments,
maturities and calls. The decrease in available-for-sale securities primarily
reflects $8.1 million in principal repayments, maturities and calls, $370,000 in
proceeds from sales and a $201,000 decrease in the market value of the
portfolio, partially offset by purchases of $4.4 million. Available-for-sale
securities represented 87.4% of the total securities portfolio at September 30,
2000, compared to 84.2% at September 30, 1999. Cash and cash equivalents
increased $5.5 million to $10.2 million at September 30, 2000 from $4.7 million
at September 30, 1999.
Deposit liabilities increased $52.1 million or 19.1% to $325.1 million at
September 30, 2000 from $273.0 million at September 30, 1999. The increase is
attributable to the expansion of the retail franchise as well as continued
aggressive cross-selling, quality customer service and competitive deposit
products.
Borrowings increased $9.5 million (primarily FHLB advances) to $157.4
million at September 30, 2000 from $147.9 million at September 30, 1999. For
information regarding the terms of the borrowings, see "Liquidity and Capital
Resources".
Stockholders' equity amounted to $34.9 million at September 30, 2000, a
$2.9 million increase from $32.0 million at September 30, 1999. The increase is
primarily attributable to net income retained after dividends of $2.4 million,
and a combined increase of $795,000 relating to the employee stock ownership
plan ("ESOP") and the management recognition plan ("MRP"), partially offset by
common share repurchases of $171,000 for the treasury, and a $139,000 increase
in the after-tax net unrealized loss on available-for-sale securities. A total
of 10,000 common shares were repurchased in open market transactions during
fiscal 2000 at an average cost of $17.10 per share. The ratio of stockholders'
equity to total assets decreased to 6.67% at September 30, 2000 from 7.00% at
September 30, 1999, primarily reflecting substantial asset growth. Book value
per share (computed based on total shares issued less treasury shares) was
$15.65 at September 30, 2000, an increase from $14.30 at September 30, 1999. For
information regarding the Association's regulatory capital, see "Liquidity and
Capital Resources".
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rates earned or paid on them.
The following table sets forth average balance sheets, average yields and
costs, and certain other information for the years ended September 30, 2000,
1999 and 1998. 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.
7
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<TABLE>
For the Year Ended September 30,
--------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Assets (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $353,742 $ 26,005 7.35% $221,754 $16,399 7.40% $169,011 $13,243 7.84%
Mortgage-backed securities (2) 90,016 6,168 6.85 109,831 7,032 6.40 108,674 7,394 6.80
Other securities (2) 41,528 3,097 7.46 40,331 2,837 7.03 62,654 4,356 6.95
Other earning assets 13,853 822 5.93 13,108 664 5.07 8,646 482 5.57
-------- -------- -------- ------- -------- -------
Total interest-earning assets 499,139 $ 36,092 7.23 385,024 $26,932 6.99 348,985 $25,475 7.30
======== ======= =======
Allowance for loan losses (1,575) (1,423) (1,195)
Non-interest earning assets 11,323 9,194 6,738
-------- -------- --------
Total assets $508,887 $392,795 $354,528
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW, club and money market accounts $ 62,908 $ 1,368 2.17% $ 56,462 $ 1,286 2.28% $ 47,078 $ 841 1.79%
Regular savings accounts (3) 55,902 959 1.72 49,148 949 1.93 45,124 1,092 2.42
Savings certificate accounts 174,798 9,596 5.49 140,763 7,308 5.19 124,647 7,123 5.71
-------- -------- -------- ------- -------- -------
Total interest-bearing deposits 293,608 11,923 4.06 246,373 9,543 3.87 216,849 9,056 4.18
Borrowings 170,809 10,207 5.98 97,138 5,341 5.50 86,031 4,966 5.77
-------- -------- -------- ------- -------- -------
Total interest-bearing liabilities 464,417 $ 22,130 4.77 343,511 $14,884 4.33 302,880 $14,022 4.63
======== ======= =======
Non-interest-bearing liabilities 12,067 9,197 8,461
-------- -------- --------
Total liabilities 476,484 352,708 311,341
Stockholders' equity 32,403 40,087 43,187
-------- -------- --------
Total liabilities and stockholders'
equity $508,887 $392,795 $354,528
======== ======== ========
Net interest income $ 13,962 $12,048 $11,453
======== ======= =======
Average interest rate spread (4) 2.47% 2.66% 2.67%
Net interest margin (5) 2.80% 3.13% 3.28%
Net interest-earning assets (6) $ 34,722 $ 41,513 $ 46,105
======== ======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 107.48% 112.08% 115.22%
</TABLE>
(1) Balances are net of deferred loan fees and construction loans in process,
and include loans receivable and loans held for sale. Non-accrual loans are
included in the balances.
(2) Average balances represent amortized cost.
(3) Includes mortgage escrow accounts.
(4) Average interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average total
interest-earning assets.
(6) Net interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
8
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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>
Fiscal 2000 Compared to Fiscal 1999 Fiscal 1999 Compared to Fiscal 1998
---------------------------------------- ------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Net Due to Net
------------------------ ---------------------------
Volume Rate Change Volume Rate Change
---------- ----------- ------------ ------------ ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 9,717 $ (111) $ 9,606 $ 3,936 $ (780) $ 3,156
Mortgage-backed securities (1,333) 469 (864) 73 (435) (362)
Other securities 85 175 260 (1,570) 51 (1,519)
Other earning assets 40 118 158 229 (47) 182
------- ------ ------- ------- ------ -------
Total 8,509 651 9,160 2,668 (1,211) 1,457
------- ------ ------- ------- ------ -------
Interest-bearing liabilities:
NOW, club and money market accounts 145 (63) 82 188 257 445
Regular savings accounts 121 (111) 10 91 (234) (143)
Savings certificate accounts 1,847 441 2,288 869 (684) 185
Borrowings 4,364 502 4,866 616 (241) 375
------- ------ ------- ------- ------ -------
Total 6,477 769 7,246 1,764 (902) 862
------- ------ ------- ------- ------ -------
Net change in net interest income $ 2,032 $ (118) $ 1,914 $ 904 $ (309) $ 595
======= ====== ======= ======= ====== =======
</TABLE>
Comparison of Operating Results for the Years Ended September 30, 2000 and 1999
General. Net income was $3.1 million and diluted earnings per common share
("EPS") was $1.53 for the fiscal year ended September 30, 2000, a $478,000
increase from net income of $2.7 million and diluted EPS of $1.11 for the fiscal
year ended September 30, 1999. Basic EPS was $1.56 for the fiscal year ended
September 30, 2000 compared to $1.13 for fiscal 1999. The increase in net income
reflects, a $1.9 million increase in net interest income, a $436,000 increase in
non-interest income and a $15,000 decrease in the provision for loan losses,
partially offset by increases of $1.6 million in non-interest expense and
$284,000 in income tax expense.
Net Interest Income. Net interest income for the year ended September 30,
2000 was $14.0 million, an increase of $2.0 million from $12.0 million for the
prior year. The increase reflects the positive effect on net interest income of
higher average earning assets, primarily attributable to the investment of
proceeds from deposit growth and borrowings, partially offset by a decline in
the average interest rate spread. The decrease in average interest rate spread
is primarily a result of an increase in the cost of funds. The Company's average
interest rate spread decreased to 2.47% for fiscal 2000 from 2.66% for fiscal
1999, while the net interest margin decreased to 2.80% for fiscal 2000 from
3.13% for fiscal 1999.
9
<PAGE>
Interest and Dividend Income. Interest and dividend income increased $9.2
million, or 34.0%, to $36.1 million for fiscal 2000 from $26.9 for fiscal 1999.
This increase reflects the impact of a $114.1 million increase in total average
interest-earning assets, primarily loans, and by a 24 basis point increase in
the average yield on such assets to 7.23% for the year ended September 30, 2000
from 6.99% for the prior year.
Interest income on loans increased $9.6 million to $26.0 million for the
year ended September 30, 2000 from $16.4 million for the prior year, reflecting
a $132.0 million increase in the average balance, partially offset by a 5 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.
On a combined basis, interest and dividend income on mortgage-backed and
other securities decreased $604,000 to $9.3 million for fiscal 2000 from $9.9
million for the prior year. Interest on mortgage-backed securities decreased by
$864,000, attributable to a $19.8 million decrease in the average balance
partially offset by a 45 basis point increase in the average yield. The decrease
in the average balance of mortgage backed securities was primarily attributable
to principal repayments and sales of available for sale securities in fiscal
1999. The higher average yield on mortgage-backed securities in fiscal 2000
reflects the impact of lower premium amortization caused by decreased repayments
of principal. Interest on other securities increased by $260,000, primarily
attributable to a $1.2 million increase in the average balance and a 43 basis
point increase in the average yield on other securities to 7.46% for the year
ended September 30, 2000 from 7.03% for fiscal 1999.
Interest and dividend income on other earning assets increased $158,000,
attributable to a $745,000 increase in the average balance, and by a 86 basis
point increase in the average yield.
Interest Expense. Interest expense totaled $22.1 million for the year ended
September 30, 2000, an increase of $7.2 million from $14.9 million for the prior
year.
Interest expense on borrowings increased $4.9 million to $10.2 million for
fiscal 2000 from $5.3 million for fiscal 1999, as the Company continued to
increase borrowings, primarily FHLB advances, to leverage available capital and
support further loan growth. Total borrowings averaged $170.8 million for fiscal
2000 at an average rate of 5.98% compared to $97.1 million and 5.50%,
respectively, for the prior-year. See "Liquidity and Capital Resources" for a
further discussion of the Company's borrowings.
Interest expense on deposits increased $2.4 million to $11.9 million for
fiscal 2000 from $9.5 million for fiscal 1999. This increase reflects the impact
of a $47.2 million increase in the average balance of interest-bearing deposits,
and a 19 basis point increase in the average rate paid on deposits to 4.06% for
the year ended September 30, 2000 from 3.87% for the prior year. The increase in
average interest-bearing deposits consisted of a $34.0 million increase in
average savings certificate accounts (to $174.8 million from $140.8 million), a
$6.8 million increase in average regular savings accounts (to $55.9 million from
$49.1 million), and a $6.4 million increase in NOW, club and money market
accounts (to $62.9 million from $56.5 million). The overall increase in the
average rate paid on deposits during fiscal 2000 primarily reflects a 30 basis
point increase in the average rate paid on savings certificate accounts,
partially offset by a 21 basis point decrease in the average rate paid on
regular savings accounts, and a 11 basis point decrease in the average rate paid
on NOW, club and money market accounts.
10
<PAGE>
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 $220,000 in fiscal 2000 and $235,000 in
fiscal 1999. Loans receivable (before the allowance for loan losses and
including loans held for sale) increased to $368.7 million at September 30, 2000
from $300.7 million at September 30, 1999, and the allowance for loan losses
increased to $1.7 million at September 30, 2000 from $1.5 million a year
earlier. The allowance for loan losses represented 0.46% of total loans
receivable at September 30, 2000, compared to 0.50% at September 30, 1999. Net
charge-offs in fiscal 2000 decreased to $20,000 from $34,000 in the prior year,
while non-performing loans decreased to $123,000 at September 30, 2000 from
$755,000 at September 30, 1999. The ratio of the allowance for loan losses to
non-performing loans was 1384.55% at September 30, 2000, compared to 199.07% at
September 30, 1999. See "Asset Quality" for further information concerning the
provision and allowance for loan losses.
Non-Interest Income. Non-interest income increased $436,000 to $1.6 million
for the year ended September 30, 2000 compared to $1.2 million for the prior
year. The increase was primarily attributable to increases in service charges
and fee income partially offset by a decrease in the net gain on sales of
available-for-sale securities and real estate mortgage loans held for sale. The
$582,000 increase in service charges and fee income primarily reflects increases
in transaction volume as well as fee income generated from our annuities and
mutual funds sales program launched in fiscal 2000. Net gains on sales of
securities amounted to $19,000 for fiscal 2000 reflecting sales of $370,000 in
available-for-sale securities during the year, compared to gains of $111,000 on
sales of $17.6 million in the prior year. Mortgage loan sales totaled $16.1
million, resulting in a net gain of $175,000, as compared to loan sales of $37.4
million in fiscal 1999, which resulted in net gains of $197,000. 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
2000. 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 $44,000
for fiscal 2000 and $362,000 for the prior year. Servicing assets with a
carrying value of $530,000 and $548,000 (after amortization) are included in
other assets in the consolidated balance sheet as of September 30, 2000 and
1999, respectively. See also Notes 1 and 3 of the Notes to Consolidated
Financial Statements. Other non-interest income for fiscal 2000 decreased
$32,000 from the prior year. Fiscal 1999 reflected a gain of $72,000 from the
sale of servicing rights.
Non-Interest Expense. Non-interest expense increased $1.6 million to $10.3
million for the year ended September 30, 2000 compared to $8.7 million for the
prior year. The increase in fiscal 2000 was primarily attributable to increases
in compensation and benefits expense, other non-interest expense, data
processing service fees and occupancy and equipment expense. The increase in
compensation and benefit expense of $887,000, occupancy and equipment expense of
$235,000, and data processing service fees of $149,000 primarily reflects
increased costs associated with the establishment of three in-store branches
during fiscal 1999. The $389,000 increase in other non-interest expense
primarily reflects expenses of $212,000 relating to the costs associated with
the proxy fight that was concluded in January of this year.
11
<PAGE>
Income Tax Expense. Income tax expense was approximately $1.8 million for
fiscal 2000, an increase from $1.6 million for fiscal 1999, reflecting higher
pre-tax income and effective tax rates of 37.1% in both periods.
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 $1.4 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 $29,000
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 decreased to 2.66% 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.
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.
12
<PAGE>
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
$29.5 million increase in the average balance of interest-bearing deposits,
partially offset by a 31 basis point decrease in the average rate paid on
deposits to 3.87% for the year ended September 30, 1999 from 4.18% for the prior
year. The increase in average interest-bearing deposits consisted of a $16.1
million increase in average savings certificate accounts (to $140.7 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 52 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 and
including loans held for sale) increased to $300.7 million at September 30, 1999
from $198.2 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 0.66% 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.
13
<PAGE>
Non-Interest Income. Non-interest income increased $29,000 to $1.2 million
for the year ended September 30, 1999 compared to $1.1 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 $166,000 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,
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.
Non-Interest Expense. Non-interest expense increased $1.4 million to $8.7
million for the year ended September 30, 1999 compared to $7.3 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 $206,000 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.
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.
14
<PAGE>
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>
At September 30,
---------------------------------------------
2000 1999 1998 1997 1996
(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 $ 109 $ 347 $ 515 $ 389 $1,757
Commercial -- 305 203 211 214
Land -- -- -- 250 250
Construction -- -- -- 279 511
Consumer loans 14 103 35 9 43
------ ------ ------ ------ ------
Total 123 755 753 1,138 2,775
Real estate owned, net -- -- 305 379 603
------ ------ ------ ------ ------
Total non-performing assets $ 123 $ 755 $1,058 $1,517 $3,378
====== ====== ====== ====== ======
Allowance for loan losses $1,703 $1,503 $1,302 $1,093 $ 937
====== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans receivable 0.03% 0.25% 0.38% 0.81% 3.14%
Non-performing assets to total assets 0.02 0.16 0.28 0.48 1.30
Allowance for loan losses to:
Non-performing loans 1384.55 199.07 172.91 96.05 33.77
Total loans receivable 0.46 0.50 0.66 0.78 1.06
</TABLE>
Total non-performing assets decreased $632,000 from $755,000 at September
30, 1999 to $123,000 at September 30, 2000. The ratio of non-performing assets
to total assets decreased to 0.02% at September 30, 2000 from 0.16% at September
30, 1999. The allowance for loan losses was $1.7 million or 0.46% of total loans
receivable at September 30, 2000, compared to $1.5 million or 0.50 % at
September 30, 1999. The ratio of the allowance for loan losses to non-performing
loans increased to 1384.55% at September 30, 2000 from 199.07% at September 30,
1999.
For the year ended September 30, 2000, gross interest income of $11,000
would have been recorded if all non-accrual loans at September 30, 2000 had
remained current throughout the year in accordance with their original terms.
The amount of interest income actually recognized on such loans in fiscal 2000,
prior to placing the loans on non-accrual status, was $6,000. 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.
15
<PAGE>
The following table sets forth activity in the allowance for loan losses
for the periods indicated.
<TABLE>
For the Year Ended September 30,
--------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,503 $1,302 $1,093 $ 937 $ 719
Provision for losses 220 235 375 300 462
Charge-offs:
Real estate mortgage loans:
One- to four-family --- (23) (45) (132) (97)
Multi-family (1) --- --- --- --- (203)
Land --- --- (17) --- ---
Construction --- --- (91) --- ---
Consumer loans (44) (20) (40) (25) (33)
------ ------ ------ ------ ------
Total charge-offs (44) (43) (193) (157) (333)
Recoveries 24 9 27 13 89
------ ------ ------ ------ ------
Net charge-offs (20) (34) (166) (144) (244)
------ ------ ------ ------ ------
Balance at end of year $1,703 $1,503 $1,302 $1,093 $ 937
====== ====== ====== ====== ======
Ratio of net charge-offs to average total loans 0.01% 0.02% 0.10% 0.15% 0.29%
</TABLE>
----------------------------------------------------
(1) Charge-offs in fiscal 1996 relate to the Company's purchased participation
interest in a multi-family loan originated by TASCO.
Although the Company maintains its allowance for loan losses at a level it
considers adequate to absorb probable losses, there can be no assurance that
such losses will not exceed the estimated amounts or that additional substantial
provisions for losses will not be required in future periods. Subject to market
conditions in the future, the Company intends to continue to expand its
multi-family and commercial real estate lending. As a result, these loan
categories may represent a larger percentage of the total loan portfolio in the
future. Since such loans are generally thought to carry a higher degree of
credit risk than one- to four-family residential loans, such a change in the
loan portfolio mix 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.
16
<PAGE>
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, 2000,
total adjustable-rate loans were $284.1 million or 76.5% of the total loan
portfolio, including $164.1 million in loans with initial fixed rates as
described above. Second, beginning in fiscal 1998, the Company has sold a
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, 2000,
mortgage-backed securities with terms to repricing or estimated average lives of
less than five years amounted to $2.3 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, 2000, the Company had $55.1 million of
regular savings accounts, $34.1 million of money market accounts and $42.7
million of NOW, checking and club accounts. Overall, these accounts comprised
40.6% of the Company's total deposit base at September 30, 2000. 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 4.7 years at September 30, 2000,
compared to 3.3 years at September 30, 1999.
17
<PAGE>
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, 2000, 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, 2000.
<TABLE>
Change in At September 30, 2000 Percent Increase
-----------------------------------------------------
Interest Rates Estimated NPV Estimated Increase (Decrease) in NPV (Decrease) in NPV at
-------------------------------------
(Basis Points) Amount Amount Percent September 30, 1999
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 $ 8,425 $ (32,624) (79)% (69)%
+200 19,851 (21,198) (52) (43)
+100 31,614 (9,435) (23) (19)
-- 41,049 -- -- --
-100 49,701 8,652 21 13
-200 53,152 12,103 29 18
-300 55,644 14,595 36 22
</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.
18
<PAGE>
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, 2000
was 4.0%, and the Company's actual liquidity ratio was 6.0%.
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, 2000 and 1999, cash and cash equivalents totaled $10.2
million and $4.7 million, respectively. The level of these assets is dependent
on the Company's operating, financing and investing activities during any given
period.
The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities. During the years ended September 30, 2000, 1999 and 1998, the
Company's disbursements for loan originations totaled $117.3 million, $178.1
million and $152.6 million, respectively. During fiscal 2000 the Company did not
purchase any mortgage- backed securities compared to purchases of $35.3 million
and $74.4 million for the years ended September 30, 1999 and 1998. Purchases of
other securities totaled $4.4 million, $19.0 million and $16.2 million for the
years ended September 30, 2000, 1999, and 1998. 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 2000, 1999
and 1998, provided proceeds of $16.1 million, $37.4 million and $69.6 million,
respectively, for reinvestment into new loans and securities.
For the years ended September 30, 2000, 1999 and 1998 the Company
experienced net increases in deposits (including the effect of interest
credited) of $52.1 million, $41.8 million and $23.2 million, respectively. The
increases were primarily due to the opening of five additional in-store branches
during this period as well as continued aggressive cross-selling, quality
customer service and new deposit products.
19
<PAGE>
In fiscals 2000, 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, 2000, 1999 and 1998, the average
borrowings under repurchase agreements with the FHLB amounted to $99.8 million,
$79.8 million, and $81.9 million respectively, and the maximum month-end balance
outstanding was $114.1 million, $101.0 million, and $119.9 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 1.26%, 1.25% and 1.27% for the years ended September
30, 2000, 1999, and 1998 respectively. See Note 7 of the Notes to the
Consolidated Financial Statements for additional information concerning these
transactions.
At September 30, 2000, the Company had outstanding loan origination
commitments of $23.8 million, undisbursed construction loans in process of $3.4
million, and unadvanced lines of credit to customers of $3.2 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 $56.3 million from the FHLB of New York
at September 30, 2000. Certificates of deposit scheduled to mature in one year
or less from September 30, 2000 totaled $134.6 million, with a weighted average
rate of 5.62%. 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 2000, the Holding Company repurchased
a total of 10,000 common shares in open market transactions at a total cost of
$171,000 or $17.10 per share. The Holding Company received $2.3 million in
dividends from the Association in fiscal 2000.
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, 2000 with tangible and leverage capital ratios of
6.6% and a total risk-based capital ratio of 15.2%. 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. See Note 11 of the Notes to the Consolidated
Financial Statements.
20
<PAGE>
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.
21
<PAGE>
<TABLE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
------------------------
2000 1999
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 10,178 $ 4,651
-------- --------
Total cash and cash equivalents 10,178 4,651
-------- --------
Securities (note 2):
Available for sale, at fair value (amortized cost of $ 116,858 at
September 30, 2000 and $120,996 at September 30, 1999) 112,373 116,712
Held to maturity, at amortized cost (fair value of $ 16,081 at
September 30, 2000 and $21,959 at September 30, 1999) 16,192 21,936
-------- --------
Total securities 128,565 138,648
-------- --------
Real estate mortgage loans held for sale, at lower of cost or market value (note 3) 2,743 1,226
-------- --------
Loans receivable, net(note 3):
Real estate mortgage loans 354,583 291,199
Consumer and commercial business loans 11,358 8,254
Allowance for loan losses (1,703) (1,503)
-------- --------
Total loans receivable, net 364,238 297,950
-------- --------
Accrued interest receivable (note 4) 3,223 2,750
Federal Home Loan Bank ("FHLB") stock 9,298 7,397
Office properties and equipment, net (note 5) 1,859 1,984
Deferred income tax receivable (note 8) 1,886 1,623
Other assets 884 1,466
======== ========
Total assets $522,874 $457,695
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6) $325,106 $272,974
Securities repurchase agreements (note 7) 85,012 99,987
FHLB advances (note 7) 72,400 47,948
Other liabilities 5,474 4,769
-------- --------
Total liabilities 487,992 425,678
-------- --------
Commitments and contingencies (notes 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 35,443 35,225
Unallocated common stock held by employee stock
ownership plan ("ESOP") (1,572) (1,857)
Unamortized awards of common stock under management
ecognition plan ("MRP") (329) (621)
Treasury stock, at cost (1,342,011 shares in 2000
and 1,332,011 shares in 1999) (22,037) (21,866)
Retained income, substantially restricted 26,032 23,652
Accumulated other comprehensive loss (notes 2 and 11) (2,691) (2,552)
-------- --------
Total stockholders' equity 34,882 32,017
-------- --------
$522,874 $457,695
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<TABLE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended September 30,
-------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
Interest and dividend income:
Loans $26,005 $16,399 $13,243
Securities 9,265 9,869 11,750
Other earning assets 822 664 482
------- ------- -------
Total interest and dividend income 36,092 26,932 25,475
------- ------- -------
Interest expense:
Deposits (note 6) 11,923 9,543 9,056
Securities repurchase agreements 5,908 4,530 4,718
FHLB advances 4,299 811 248
------- ------- -------
Total interest expense 22,130 14,884 14,022
------- ------- -------
Net interest income 13,962 12,048 11,453
Provision for loan losses (note 3) 220 235 375
------- ------- -------
Net interest income after provision for loan losses 13,742 11,813 11,078
------- ------- -------
Non-interest income:
Service charges and fees 1,317 735 569
Net gain on sales of real estate mortgage loans held for sale (note 3) 175 197 371
Net gain on sales of securities (note 2) 19 111 117
Other 82 114 71
------- ------- -------
Total non-interest income 1,593 1,157 1,128
------- ------- -------
Non-interest expense:
Compensation and benefits (note 10) 5,700 4,813 3,995
Occupancy and equipment 1,461 1,226 915
Data processing service fees 795 646 554
Federal deposit insurance costs 83 140 131
Other (note 9) 2,301 1,912 1,706
------- ------- -------
Total non-interest expense 10,340 8,737 7,301
------- ------- -------
Income before income tax expense 4,995 4,233 4,905
Income tax expense (note 8) 1,854 1,570 2,004
------- ------- -------
Net income $ 3,141 $ 2,663 $ 2,901
======= ======= =======
Earnings per common share (note 11):
Basic $1.56 $1.13 $1.12
Diluted 1.53 1.11 1.08
See accompanying notes to consolidated financial statements.
</TABLE>
23
<PAGE>
<TABLE>
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 ComprehensivStockholders'
Stock Capital by ESOP Under MRP Stock Income Income(Loss) Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income -- -- -- -- -- 3,141 -- 3,141
Dividends paid ($0.36 per share) -- -- -- -- -- (761) -- (761)
Common stock repurchased
(10,000 shares) -- -- -- -- (171) -- -- (171)
Amortization of MRP awards -- -- -- 292 -- -- -- 292
Tax benefits from vested
MRP awards -- 43 -- -- -- -- -- 43
ESOP shares released for
allocation (28,566 shares) -- 175 285 -- -- -- -- 460
Change in net unrealized gain
(loss) on available-for sale
securities, net of taxes -- -- -- -- -- -- (139) (139)
====== ========== ============ ========== =========== ========== ========= ==========
Balance at September 30, 2000 $ 36 $ 35,443 $ (1,572) $ (329) $(22,037) $26,032 $ (2,691) $ 34,882
====== ========== ============ ========== =========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
<TABLE>
YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,
------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
Net income $ 3,141 $ 2,663 $ 2,901
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 220 235 375
ESOP and MRP expense 752 743 813
Depreciation and amortization expense 479 363 264
Amortization of deferred fees, discounts and premiums, net 269 350 93
Net gain on sales of real estate mortgage loans held for sale (175) (197) (371)
Net gain on sales of securities (19) (111) (117)
Other adjustments, net 701 4,504 (115)
------- ------- -------
Net cash provided by operating activities 5,368 8,550 3,843
------- ------- -------
Cash flows from investing activities:
Purchases of available-for-sale securities (4,352) (54,317) (90,579)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 8,051 38,670 24,113
Held-to-maturity 5,738 21,346 32,500
Available-for-sale 370 17,758 28,308
Held-to-maturity -- -- 630
Disbursements for loan originations (117,274) (178,136) (152,638)
Principal collections on loans 33,078 38,503 24,181
Proceeds from sales of loans 16,126 37,407 69,588
Purchase of FHLB stock (1,901) (971) (3,421)
Other investing cash flows (354) (786) (437)
-------- ------- -------
Net cash used in investing activities (60,518) (80,526) (67,755)
-------- ------- -------
Cash flows from financing activities:
Net increase in deposits 52,132 41,793 23,248
Net (decrease) increase in borrowings with
original terms of three months or less:
Securities repurchase agreements (16,975) 1,797 3,411
FHLB advances (29,949) 32,948 (6,000)
Proceeds from longer-term borrowings 56,401 5,400 50,283
Common stock repurchased (171) (8,741) (5,676)
Dividends paid (761) (765) (752)
-------- ------- -------
Net cash provided by financing activities 60,677 72,432 64,514
-------- ------- -------
Net increase in cash and cash equivalents 5,527 456 602
Cash and cash equivalents at beginning of year 4,651 4,195 3,593
-------- ------- -------
Cash and cash equivalents at end of year $ 10,178 $ 4,651 $ 4,195
======== ======= =======
Supplemental information:
Interest paid $ 21,428 $14,904 $ 13,818
Income taxes paid -- 741 2,457
Mortgage loans transferred to real estate owned -- -- 128
======== ======= ========
</TABLE>
25
<PAGE>
(1) Summary of Significant Accounting Policies
------------------------------------------
In December 1995, The Yonkers Savings and Loan Association converted from a
New York State chartered mutual savings and loan association to a federally
chartered mutual savings and loan association under the new name The Yonkers
Savings and Loan Association, FA (the "Association"). On April 18, 1996, Yonkers
Financial Corporation (the "Holding Company") became the holding company for the
Association upon completion of the Association's conversion to the stock form of
ownership (the "Conversion"). Collectively, the Holding Company and the
Association are referred to herein as the "Company".
The Company's primary market area consists of 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, multi-family
and commercial real estate, construction, land, consumer, and commercial
business loans. In addition, the Company has recently determined to increase its
emphasis on its multi-family lending activity. 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.
26
<PAGE>
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.
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.
27
<PAGE>
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.
28
<PAGE>
Real Estate Owned
Real estate owned properties acquired through foreclosure are recorded
initially at fair value less estimated sales costs, with the resulting writedown
charged to the allowance for loan losses. Thereafter, an allowance for losses on
real estate owned is established by a charge to expense to reflect any
subsequent declines in fair value. Fair value estimates are based on recent
appraisals and other available information. Costs incurred to develop or improve
properties are capitalized, while holding costs are charged to expense.
Office Properties and Equipment
Office properties and equipment are comprised of land (carried at cost) and
buildings, furniture, fixtures, equipment and leasehold improvements (carried at
cost less accumulated depreciation and amortization). Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of the improvement.
Costs incurred to improve or extend the life of existing assets are capitalized.
Repairs and maintenance, as well as renewals and replacements of a routine
nature, are charged to expense.
Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers securities to a
counterparty under an agreement to repurchase the identical securities at a
fixed price in the future. These agreements are accounted for as secured
financing transactions provided the Company maintains effective control over the
transferred securities and meets the other criteria for such accounting as
specified in SFAS No. 125. The Company's agreements are accounted for as secured
financings; accordingly, the transaction proceeds are recorded as borrowed funds
and the underlying securities continue to be carried in the Company's securities
portfolio.
Income Taxes
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.
29
<PAGE>
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.
30
<PAGE>
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.
(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).
31
<PAGE>
The following is a summary of securities at September 30, 2000
<TABLE>
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Available-for-Sale Securities
Mortgage-backed securities:
Pass-through securities $ 70,526 $ 12 $(2,656) $ 67,882
U.S. Government and Agency securities 41,511 -- (1,856) 39,655
Corporate bonds 3,952 53 (8) 3,997
Equity securities 869 -- (30) 839
-------- ---- ------- --------
Total available-for-sale $116,858 $ 65 $(4,550) $112,373
======== ==== ======= ========
Held-to-Maturity Securities
Mortgage-backed securities:
Pass-through securities $ 13,344 $152 $ (173) $ 13,323
CMOs and other mortgage derivatives 2,348 5 (87) 2,266
-------- ---- ------- --------
15,692 157 (260) 15,589
U.S. Government and Agency securities 500 (8) 492
======== ==== ======= ========
Total held-to-maturity $ 16,192 $157 $ (268) $ 16,081
======== ==== ======= ========
</TABLE>
The following is a summary of securities at September 30, 1999:
<TABLE>
Amortized Gross Unrealized 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>
32
<PAGE>
Mortgage-backed and other debt securities at September 30, 2000 consisted
of fixed-rate securities and adjustable-rate securities with amortized costs of
$115.8 million and $16.3 million, respectively, and weighted average yields of
7.00% and 6.80%, respectively. Fixed-rate and adjustable-rate debt securities at
September 30, 1999 totaled $122.7 million and $19.4 million, respectively, with
weighted average yields of 6.94% and 6.46%, respectively.
Mortgage-backed securities primarily include securities guaranteed by
Ginnie Mae, Fannie Mae and Freddie Mac with total amortized costs of $67.0
million, $13.8 million and $3.0 million, respectively, at September 30, 2000
($74.6 million, $20.6 million and $4.8 million, respectively, at September 30,
1999).
The net unrealized loss on available-for-sale securities was $4.5 million
($2.7 million after taxes) at September 30, 2000, compared to an unrealized loss
of $4.3 million ($2.6 million after taxes) at September 30, 1999. Changes in
unrealized holding gains and losses resulted in an after-tax (decrease) increase
in stockholders' equity of ($139,000), ($3.7) million and $576,000 during fiscal
2000, 1999 and 1998, respectively. These gains and losses will continue to
fluctuate based on changes in the portfolio and market conditions.
Sales of securities resulted in the following gross realized gains and
gross realized losses during the years ended September 30:
<TABLE>
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Available-for-sale securities:
Gains $23 $154 $ 278
Losses (4) (43) (175)
--- ---- -----
19 111 103
--- ---- -----
Held-to-maturity securities:
Gains $-- $ -- $ 16
Losses -- -- (2)
--- ---- -----
-- -- 14
--- ---- -----
Net gain (loss) $19 $111 $ 117
=== ==== =====
</TABLE>
The held-to-maturity securities sold in fiscal 1998 were mortgage-backed
securities with an amortized cost of $616,000 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, 2000, 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.
33
<PAGE>
<TABLE>
Available-for-Sale Held-to-Maturity
---------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- -----
(In Thousands)
<S> <C> <C> <C> <C>
One to five years -- -- 500 492
Five to ten years 3,998 3,943 -- --
Over ten years 37,513 35,712 -- --
------- ------- ---- ----
Total $41,511 $39,655 $500 $492
======= ======= ==== ====
</TABLE>
(3) Loans
-----
A summary of loans receivable at September 30 follows:
<TABLE>
2000 1999
---- ----
Real estate mortgage loans: (In Thousands)
<S> <C> <C>
Residential properties:
One- to four-family $282,603 $244,466
Multi- family 34,352 16,264
Commercial properties 33,052 26,753
Land loans 759 1,502
Construction loans 6,317 2,812
Construction loans in process (3,397) (1,672)
Deferred loan origination costs (fees), net 897 1,074
-------- --------
354,583 291,199
-------- --------
Consumer loans:
Home equity 5,532 4,574
Personal 1,911 1,483
Other 2,952 1,117
-------- --------
10,395 7,174
Commercial business loans 963 1,080
-------- --------
11,358 8,254
-------- --------
Total loans receivable 365,941 299,453
Allowance for loan losses (1,703) (1,503)
-------- --------
Total loans receivable, net $364,238 $297,950
======== ========
</TABLE>
Gross loans receivable at September 30, 2000 consisted of adjustable-rate
loans of $284.1 million and fixed-rate loans of $84.3 million with weighted
average yields of 7.39% and 7.94%, respectively. Adjustable-rate and fixed-rate
loans at September 30, 1999 totaled $209.2 million and $90.9 million with
weighted average yields of 7.25% and 7.41%, respectively. One- to four-family
residential mortgage loans at September 30, 2000 and 1999 include advances under
home equity lines of credit of $2.5 million and $3.2 million, respectively, and
cooperative apartment loans of $3.5 million and $3.7 million, respectively.
34
<PAGE>
The Company primarily originates real estate mortgage loans secured by
existing single-family residential properties. The Company also originates
multi-family and commercial real estate loans, land loans, construction loans,
consumer loans and commercial business loans. A substantial portion of the loan
portfolio is secured by real estate properties located in Westchester County,
New York. The ability of the Company's borrowers to make principal and interest
payments is dependent upon, among other things, the level of overall economic
activity and the real estate market conditions prevailing within the Company's
concentrated lending area.
Activity in the allowance for loan losses is summarized as follows for the
years ended September 30:
<TABLE>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,503 $1,302 $1,093
Provision for losses 220 235 375
Charge-offs (44) (43) (193)
Recoveries 24 9 27
------ ------ ------
Balance at end of year $1,703 $1,503 $1,302
====== ====== ======
</TABLE>
The principal balances of non-accrual loans past due ninety days or more at
September 30 are as follows:
<TABLE>
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $109 $347 $515
Commercial --- 305 203
Consumer loans 14 103 35
---- ---- ----
Total $123 $755 $753
==== ==== ====
</TABLE>
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 $11,000, $69,000 and $64,000 would have been recognized in
fiscal 2000, 1999 and 1998, respectively, compared to interest income actually
recognized of $6,000, $42,000 and $48,000, respectively.
There were no impaired loans at September 30, 2000. The Company's impaired
loans consisted of non-accrual commercial mortgage loans with a recorded
investment totaling $305,000 at September 30, 1999. The Company determines the
need for an allowance for loan impairment on a loan-by-loan basis. At September
30, 1999, 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 $102,000, $201,000 and $438,000 for the years ended September 30,
2000, 1999 and 1998, respectively. Interest collections and income recognized on
impaired loans (while such loans were considered impaired) were insignificant
during fiscal 2000, 1999 and 1998.
35
<PAGE>
At September 30, 2000 and 1999, there were no real estate owned properties.
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 $85.2
million, $88.4 million and $81.7 million at September 30, 2000, 1999 and 1998,
respectively. These amounts include loans sold with recourse of $784,000, $1.3
million, and $2.0 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, 2000 and 1999 had total amortized costs of $2.7 million and
$1.2 million, respectively, which approximated market value at those dates.
During the years ended September 30, 2000, 1999 and 1998, the Company sold
$16.1 million, $37.4 million and $69.8 million, respectively, of real estate
mortgage loans, primarily with servicing retained, and recognized net gains of
$175,000, $197,000 and $371,000, respectively, on such sales. The net gains in
fiscal 2000, 1999 and 1998 includes the effect of capitalizing mortgage
servicing assets of $44,000, $362,000 and $594,000, respectively at the time of
sale, in accordance with SFAS No. 125. At September 30, 2000 and 1999, the net
carrying value of capitalized mortgage servicing rights included in other assets
was $530,000 and $548,000, respectively, which approximated fair value.
Amortization of mortgage servicing rights was $157,000, $352,000 and $56,000,
respectively, for the years ended September 30, 2000, 1999 and 1998.
(4) Accrued Interest Receivable
---------------------------
A summary of accrued interest receivable at September 30 follows:
<TABLE>
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Loans $1,996 $1,580
Mortgage-backed securities 506 582
Other securities 721 588
------ ------
Total $3,223 $2,750
====== ======
</TABLE>
36
<PAGE>
(5) Office Properties and Equipment
-------------------------------
A summary of office properties and equipment at September 30 follows:
<TABLE>
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Land $ 45 $ 45
Buildings 251 249
Leasehold improvements 784 756
Furniture, fixtures and equipment 3,594 3,268
------- ------
4,674 4,318
Less accumulated depreciation and amortization (2,815) (2,334)
------ ------
Total office properties and equipment, net $1,859 $1,984
====== ======
</TABLE>
(6) Deposits
--------
Deposit balances and weighted average stated interest rates at September 30
are summarized as follows:
<TABLE>
2000 1999
----------------------- ------------------------
Amount Rate Amount Rate
-------------- ------ -------------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Checking $ 11,669 $ 10,769
NOW 29,379 1.05% 24,708 1.06%
Money market 34,087 3.25 33,429 3.19
Regular savings 55,122 2.42 50,776 2.23
Club 1,609 2.42 1,480 2.23
-------- --------
131,866 2.12 121,162 2.06
-------- --------
Savings certificates by remaining term to
contractual maturity:
Within one year 134,566 5.62 107,317 4.94
After one but within two years 35,822 6.03 33,490 5.23
After two but within three years 7,651 5.94 5,157 5.36
After three years 15,201 6.45 5,848 5.38
-------- --------
193,240 5.78 151,812 5.04
-------- --------
Total deposits $325,106 4.29% $272,974 3.71%
======== ========
</TABLE>
Savings certificates issued in denominations of $100,000 or more totaled
$32.3 million and $22.2 million at September 30, 2000 and 1999, respectively.
The FDIC generally insures depositor accounts up to $100,000, as defined in the
applicable regulations.
37
<PAGE>
Interest expense on deposits is summarized as follows for the years ended
September 30:
<TABLE>
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
NOW, club and money market accounts $ 1,368 $1,286 $ 841
Regular savings accounts 959 949 1,092
Savings certificate accounts 9,596 7,308 7,123
------- ------ ------
Total interest expense $11,923 $9,543 $9,056
======= ====== ======
</TABLE>
(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, 2000, 1999 and 1998, the Company's average borrowings under
repurchase agreements with the FHLB of New York were $99.8 million, $79.8
million and $81.9 million, respectively, and the maximum month-end balance
outstanding was $114.1 million, $101.0 million and $119.9 million, respectively.
Information concerning outstanding securities repurchase agreements with
the FHLB of New York as of September 30, 2000 and 1999 is summarized as follows:
<TABLE>
Accrued Interest Weighted Fair Value of
Remaining Term to Final Maturity (1) Amount Payable (2) Average Rate Collateral Securities (3)
(Dollars in thousands)
<S> <C> <C> <C> <C>
September 30, 2000
Within 30 days $12,000 $ 28 6.60% $ 12,851
After 30 days but within one year 11,500 173 7.11 11,978
After one but within three years 11,000 29 5.99 14,413
After three but within five years 10,100 152 6.18 11,509
After five years 40,412 346 5.67 44,276
------- ---- --------
Total $85,012 $728 6.10% $ 95,027
======= ==== ========
September 30, 1999
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
======= ==== ========
</TABLE>
(1) The weighted average remaining term to final maturity was approximately 5.0
years and 3.5 years at September 30, 2000 and 1999, 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 1.6 years
at September 30, 2000.
(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 $852,000 and $879,000 at September 30, 2000 and 1999,
respectively. These securities consisted of available-for-sale securities
and held-to-maturity securities with fair values of $83.6 million and $10.6
million, respectively, at September 30, 2000 ($98.9 million and $7.1
million, respectively, at September 30, 1999).
38
<PAGE>
At September 30, 2000, the Company's "amount at risk" under securities
repurchase agreements was approximately $9.3 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 $130.1 million at September 30, 2000.
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 are summarized as
follows, by remaining period to maturity:
<TABLE>
2000 1999
------ -------
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
FHLB advances maturing:
Within 30 days $ 3,000 6.85% $32,948 5.49%
30 days to 1 year 15,000 6.72 -- --
1 year to 3 years 6,000 6.48 -- --
3 years to 5 years 28,200 7.17 -- --
Over 5 years 20,200 5.06 15,000 4.36
------- -------
Total 72,400 6.42 $47,948 5.19%
======= =======
</TABLE>
The weighted average period to maturity date for the FHLB advances
outstanding at September 30, 2000 was 4.3 years, with a weighted average period
to call date of 2.4 years. During the years ended September 30, 2000, 1999 and
1998, the Company's average FHLB advances outstanding were $71.1 million, $14.5
million and $4.1 million, respectively, and the maximum month-end balance
outstanding was $80.8 million, $47.9 million and $11.0 million, respectively.
(8) Income Taxes
------------
The components of income tax expense are summarized as follows for the
years ended September 30:
<TABLE>
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $1,885 $1,311 $1,404
State 171 113 314
------ ------ ------
2,056 1,424 1,718
------ ------ ------
Deferred tax expense (benefit):
Federal (153) 105 207
State (49) 41 79
------ ------ ------
(202) 146 286
------ ------ ------
Total income tax expense $1,854 $1,570 $2,004
====== ====== ======
</TABLE>
39
<PAGE>
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:
<TABLE>
2000 1999 1998
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Tax at Federal statutory rate $1,698 $1,439 $1,668
New York State income taxes, net
of Federal tax benefit 81 102 259
Other reconciling items, net 75 29 77
------ ------ ------
Actual income tax expense $1,854 $1,570 $2,004
====== ====== ======
Effective income tax rate 37.1% 37.1% 40.9%
====== ====== ======
</TABLE>
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, 2000, $107.6 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:
<TABLE>
2000 1999
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Net unrealized loss on available-for-sale securities 1,793 1,732
Allowance for loan losses 697 615
Other deductible temporary differences 94 95
------ ------
Total deferred tax assets 2,584 2,442
------ ------
Deferred tax liabilities:
Mortgage servicing assets 217 224
Other taxable temporary differences 481 595
------ ------
Total deferred tax liabilities 698 819
------- ------
Net deferred tax asset $1,886 $1,623
====== ======
</TABLE>
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.
40
<PAGE>
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.
At September 30, 2000, the Association's base-year Federal and State tax
bad debt reserves were $3.0 million and $10.8 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, 2000, the Association's unrecognized
deferred tax liabilities with respect to its Federal and State tax bad debt
reserves totaled $1.8 million.
(9) Other Non-Interest Expense
--------------------------
The components of other non-interest expense are as follows for the years
ended September 30:
<TABLE>
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Professional services $ 530 $ 435 $ 480
Advertising and promotion 387 398 258
Telephone and postage 246 195 134
Stationery and printing 161 154 149
Insurance and surety bond premiums 146 105 128
Correspondent bank fees 125 107 105
Other 706 518 452
------ ------ ------
Total $2,301 $1,912 $1,706
====== ====== ======
</TABLE>
(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.
41
<PAGE>
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:
<TABLE>
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
Change in Benefit Obligation:
Projected benefit obligation - beginning of year $1,813 $1,378
Service cost 127 101
Interest Cost 124 94
Actuarial loss (84) 334
Benefits paid (100) (94)
------ ------
Projected benefit obligation - end of year 1,880 1,813
------ ------
Change in Plan Assets:
Plan assets at fair value - beginning of year 2,326 2,093
Actuarial return on plan assets 236 327
Employer contributions -- --
Benefits paid (100) (94)
------ ------
Plan assets at fair value - end of year 2,462 2,326
------ ------
Funded status at end of year 582 513
Unrecognized net actuarial (gain) loss (90) 38
Unrecognized prior service cost (218) (235)
====== ======
Prepaid pension cost $ 274 $ 316
====== ======
</TABLE>
The components of net pension expense are as follows for the years ended
September 30:
<TABLE>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Service cost (benefits earned during the year) $127 $101 $ 73
Interest cost on projected benefit obligation 125 94 97
Actual return on plan assets (193) (173) (176)
Net amortization and deferral (17) (17) (23)
==== ==== ====
Net pension (credit) expense $ 42 $ 5 $(29)
==== ==== ====
</TABLE>
The projected benefit obligations at September 30, 2000 and 1999 was
computed using discount rates of 7.0%, respectively, and rates of compensation
4.0%, respectively. The expected long-term rate of return on plan assets was
8.5%.
42
<PAGE>
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, 2000 and 1999 was
approximately $263,000 and $257,000, 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 $42,000 in fiscal 2000, $41,000
in fiscal 1999 and $45,000 in fiscal 1998.
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.
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
128,547 shares have been allocated to participants through September 30, 2000.
Compensation expense recognized with respect to these shares amounted to
$461,000, $454,000 and $534,000 in fiscal 2000, 1999 and 1998, respectively,
based on the average fair value of the Holding Company's common stock for each
period. The cost of the 157,113 shares which have not yet been committed to be
released to participant accounts is reflected as a reduction to stockholders'
equity ($1.6 million at September 30, 2000). The fair value of these shares was
approximately $2.5 million at that date.
43
<PAGE>
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, in fiscal 1999 for 10,563
shares at an exercise price of $14.125 per share, and in fiscal 2000 for 14,000
shares at an exercise price of $16.625 per share. All options granted have a
ten-year term and vest ratably over five years. No options were exercised
through September 30, 2000 and the 295,514 outstanding options had a weighted
average remaining term of approximately 6.3 years. At September 30, 2000, a
total of 165,596 options with a weighted average exercise price $12.98 were
exercisable and 61,561 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 2000,
1999 and 1998 was $7.07, $5.57 and $6.32, respectively, estimated using the
Black-Scholes option-pricing model with assumptions approximately as follows:
dividend yield of 2.3% in fiscal 2000 and 1.8% in fiscal 1999 and 1998 expected
volatility rate of 41.3% in fiscal 2000 and 38.3% in fiscal 1999 and 1998;
risk-free interest rate of 6.5% in fiscal 2000, 4.6% in fiscal 1999, and 6.1% in
fiscal 1998; 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 $2.9 million, $1.46 and $1.43,
respectively, in fiscal 2000; $2.5 million, $1.05 and $1.03, respectively, in
fiscal 1999 and $2.7 million, $1.05, and $1.01, respectively, in fiscal 1998.
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 $292,000, $289,000 and $279,000 of that amount was amortized to
compensation expense in fiscal 2000, 1999 and 1998, respectively.
44
<PAGE>
(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 2,228,739 at
September 30, 2000 (net of 1,342,011 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, 2000, 1999 and
1998. For purposes of computing basic EPS, net income applicable to common stock
equaled net income for each of the periods presented.
<TABLE>
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Weighted average common shares outstanding
for computation of basic EPS (1) 2,011 2,362 2,598
Common-equivalent shares due to the dilutive effect of
stock options and MRP awards (2) 46 46 77
----- ----- -----
Weighted average common shares for
computation of diluted EPS 2,057 2,408 2,675
------ ------ -----
</TABLE>
(1) Excludes unvested MRP awards and unallocated ESOP shares that have not
been committed to be released.
(2)Computed using the treasury stock method.
45
<PAGE>
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 2000, 1999 and 1998 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:
<TABLE>
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Net unrealized holding (losses) gains arising
during the period $(201) $(6,192) $958
Related income tax effect 62 2,495 (382)
----- ------- ----
Other comprehensive (loss) income $(139) $(3,697) $576
===== ======= ====
</TABLE>
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 $2.3 million, $4.0 million and $4.8 million in dividends to the Holding
Company in fiscal 2000, 1999 and 1998, respectively.
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, 2000 the
Holding Company has repurchased 1,455,916 shares of common stock for its
treasury (or approximately 40.8% of its common stock issued). These repurchases
were made in open market transactions, at a total cost of $23.5 million or an
average of approximately $16.14 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%.
46
<PAGE>
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, 2000 and 1999, 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, 2000 and 1999, compared to the OTS requirements for
minimum capital adequacy and for classification as a well-capitalized
institution:
<TABLE>
Minimum Capital Classification as
Association Actual Adequacy Well Capitalized
------------------------ ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Tangible capital $ 34,645 6.6% $ 7,847 1.5% N/A N/A
Tier I (core)capital 34,645 6.6 20,924 4.0 $ 26,155 5.0%
Risk-based capital:
Tier I 34,645 14.5 N/A N/A 14,315 6.0
Total 36,348 15.2 19,086 8.0 23,858 10.0
September 30, 1999
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
</TABLE>
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
The Company had outstanding commitments to originate loans of $23.8 million
and unadvanced lines of credit extended to customers of $3.2 million at
September 30, 2000 ($52.1 million and $4.4 million, respectively, at September
30, 1999). 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, 2000
include $12.3 million for fixed-rate loans with interest rates ranging from
7.50% to 10.37%.
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, 2000, the Company had a commitment to sell mortgage loans
of $2.7 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
47
<PAGE>
Lease Commitments
The Company is obligated under non-cancelable leases for certain of its
banking premises. Rental expense under these leases was $562,000, $420,000 and
$255,000 for the years ended September 30, 2000, 1999 and 1998, respectively. At
September 30, 2000, the future minimum rental payments under the lease
agreements for the fiscal years ending September 30 are $500,000 in 2001,
$500,000 in 2002, $389,000 in 2003, $296,000 in 2004 and $32,000 in 2005.
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.
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>
2000 1999
------------------------ -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- ---------
(In Millions)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 10.2 $ 10.2 $ 4.7 $ 4.7
Securities 128.6 128.5 138.6 138.7
Real estate mortgage loans held for sale 2.7 2.7 1.2 1.2
Loans receivable 364.2 355.6 298.0 291.1
Accrued interest receivable 3.2 3.2 2.8 2.8
FHLB stock 9.3 9.3 7.4 7.4
Financial liabilities:
Savings certificate accounts 193.2 192.6 151.8 151.1
Other deposit accounts 131.9 131.9 121.2 121.2
Borrowings 157.4 157.0 147.9 142.6
</TABLE>
48
<PAGE>
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, 2000 and 1999, the fair values of these financial
instruments approximated the related carrying amounts which were not
significant.
49
<PAGE>
(14) Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation-an Interpretation of APB 25". This interpretation clarifies
the FASB's view in applying APB 25 to certain stock compensation awards. FIN 44
was effective prospectively July 1, 2000, with the exception of certain awards
granted after December 15, 1998. The implementation of FIN 44 is not expected to
have a material impact on the Company's consolidated financial statements
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities-an amendment of FASB
Statement No. 133". This statement amends and superseded certain paragraphs of
SFAS No. 133. The effective date for SFAS No. 138 is for fiscal years beginning
after June 15, 2000. SFAS No. 138 and 133 apply to quarterly and annual
financial statements. The Company is not presently engaged in derivatives and
hedging activities, and accordingly SFAS No. 133 is not expected to have a
material impact on the Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 replaces SFAS No. 125 and revises the standards for accounting and reporting
for securitizations and other transfers of financial assets and extinguishments
of liabilities. SFAS No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. SFAS No. 140 is effective for recognition and reclassifications of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years after December 15, 2000. The implementation of SFAS
No. 140 will not have a material impact on the Company's consolidated financial
statement.
50
<PAGE>
(15) Parent Company Condensed Financial Information
----------------------------------------------
Set forth below are the condensed balance sheets of Yonkers Financial
Corporation as of September 30, 2000 and 1999, and its condensed statements of
income and cash flows for the periods indicated:
<TABLE>
September 30,
----------------------------
2000 1999
------------- -------------
(In Thousands)
<S> <C> <C>
Condensed Balance Sheets
Assets
Cash $ 83 $ 217
Securities 2,788 2,570
Investment in subsidiary 32,003 31,327
Other assets 74 280
------- -------
Total assets $34,948 $34,394
======= =======
Liabilities and Stockholders' Equity
Liabilities $ 66 $ 2,377
Stockholders' equity 34,882 32,017
------- -------
Total liabilities and stockholders' equity $34,948 $34,394
======= =======
</TABLE>
<TABLE>
Year Ended September 30,
------------------------------------------
2000 1999 1998
------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Condensed Statements of Income
Dividends received from subsidiary $ 2,300 $ 4,000 $ 4,800
Interest income 267 353 499
Non-interest income 40 58 38
Non-interest expense (408) (207) (404)
------- ------- -------
Income before income tax expense and effect of subsidiary earnings 2,199 4,204 4,933
Income tax expense (43) 68 57
------- ------- -------
Income before effect of subsidiary earnings 2,242 4,136 4,876
Effect of subsidiary earnings:
Excess of dividends over current earnings of subsidiary 899 (1,473) (1,975)
------- ------- -------
Net income $ 3,141 $ 2,663 $ 2,901
======= ======= =======
</TABLE>
51
<PAGE>
<TABLE>
Year Ended September 30,
------------------------------------------
2000 1999 1998
------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income $ 3,141 $ 2,663 $ 2,901
Adjustments to reconcile net income to net cash
provided by operating activities:
Excess of dividends over current earnings of subsidiary (899) 1,473 1,975
Other adjustments, net (1,411) 3,122 947
------- ------- -------
Net cash provided by operating activities 831 7,258 5,823
------- ------- -------
Cash flows from investing activities:
Purchases of securities (402) (465) (1,187)
Proceeds from sales and calls of securities 369 2,661 256
------- ------- -------
Net cash (used in) provided by investing activities (33) 2,196 (931)
------- ------- -------
Cash flows from financing activities:
Common stock repurchased (171) (8,741) (5,676)
Dividends paid (761) (765) (752)
------- ------- -------
Net cash used in by financing activities (932) (9,506) (6,428)
------- ------- -------
Decrease in cash and cash equivalents (134) (52) (1,536)
Cash and cash equivalents at beginning of period 217 269 1,805
------- ------- -------
Cash and cash equivalents at end of period $ 83 $ 217 $ 269
======== ======= =======
</TABLE>
(16) Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly financial data for the
fiscal years ended September 30, 2000 and 1999:
<TABLE>
Three Months Ended
--------------------------------------------------------
December 31 March 31 June 30 September 30
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal 2000
Interest and dividend income $8,588 $8,971 $9,229 $9,304
Interest expense 5,136 5,449 5,711 5,834
------- ------ ------ ------
Net interest income 3,452 3,522 3,518 3,470
Provision for loan losses 35 35 75 75
Non-interest income 310 418 413 452
Non-interest expense 2,603 2,646 2,491 2,600
------ ------ ------ ------
Income before income tax expense 1,124 1,259 1,365 1,247
Income tax expense 420 465 500 469
======= ====== ====== ======
Net income $ 704 $ 794 $ 865 $ 778
======= ====== ====== ======
Earnings per common share:
Basic $ 0.35 $ 0.40 $ 0.43 $ 0.38
Diluted 0.34 0.39 0.42 0.38
====== ====== ====== ======
Fiscal 1999
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 290 442 165 260
Non-interest expense 1,941 2,200 2,153 2,443
------ ------ ------ ------
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
====== ====== ====== =======
</TABLE>
52
<PAGE>
MANAGEMENT'S REPORT
Management is responsible for the preparation and integrity of the
consolidated financial statements and other information presented in this annual
report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and reflect management's judgments
and estimates with respect to certain events and transactions.
Management is responsible for maintaining a system of internal control. The
purpose of the system is to provide reasonable assurance that transactions are
recorded in accordance with management's authorization; that assets are
safeguarded against loss or unauthorized use; and that underlying financial
records support the preparation of financial statements. The system includes the
communication of written policies and procedures, selection of qualified
personnel, appropriate segregation of responsibilities, and the ongoing internal
audit function.
The Board of Directors meets periodically with Company management, the
internal auditor, and the independent auditors, KPMG LLP, to review matters
relative to the quality of financial reporting, internal control, and the
nature, extent and results of the audit efforts.
The independent auditors conduct an annual audit to enable them to express
an opinion on the Company's consolidated financial statements. In connection
with the audit, the independent auditors consider the Company's internal control
to the extent they consider necessary to determine the nature, timing and extent
of their auditing procedures.
Richard F. Komosinski Joseph D. Roberto
President and Chief Executive Officer Senior Vice President, Treasurer
and Chief Financial Officer
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Yonkers Financial Corporation:
We have audited the accompanying consolidated balance sheets of Yonkers
Financial Corporation and subsidiary (the "Company") as of September 30, 2000
and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 2000 in conformity with accounting
principals generally accepted in the United States of America.
New York, New York
October 24, 2000
54
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YONKERS FINANCIAL CORPORATION
CORPORATE INFORMATION
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COMPANY AND BANK ADDRESS
6 Executive Plaza Telephone: (914) 965-2500
Yonkers, New York 10701 Fax: (914) 965-2599
Internet www.Yonkers.com
BOARD OF DIRECTORS
William G. Bachop, Chairman Richard Komosinski
Retired professional engineer and President of President and Chief Executive Officer
Herbert G. Martin, Inc. The Yonkers Savings and Loan Association
P. Anthony Sarubbi, Vice Chairman Charles D. Lohrfink
A consulting engineer and President of Retired Public Affairs Director for
P. Anthony Sarubbi, Inc. Consolidated Edison
Donald R. Angelilli Michael J. Martin
A real estate broker employed by Weichert Vice President of Herbert G. Martin, Inc.
Realtors
Fredric H. Gould Eben T. Walker
Chairman, BRT Realty Trust President of Graphite Metallizing
General Partner, Gould Investors, LP Corporation
OFFICERS
Richard Komosinski Joseph L. Macchia
President and Chief Executive Officer Senior Vice President, Secretary
Joseph D. Roberto Phillip Guarnieri
Senior Vice President, Treasurer and Senior Vice President
Chief Financial Officer
Kathy Kowler
Vice President
INDEPENDENT AUDITORS SPECIAL COUNSEL
KPMG LLP Silver, Freedman & Taff, L.L.P.
757 Third Avenue 1100 New York Avenue, N.W.
New York, N.Y. 10017 Seventh Floor - East Tower
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YONKERS FINANCIAL CORPORATION
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 6:00 p.m., January 25, 2001,
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.
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QUARTER ENDED HIGH LOW DIVIDENDS
------------- ---- --- ---------
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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
December 31, 1999 18 1/2 16 5/8 0.09
March 31, 2000 17 3/4 14 0.09
June 30, 2000 15 13/16 13 7/8 0.09
September 30, 2000 16 3/8 15 1/8 0.09
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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, 2000, the Company had approximately 420 registered
stockholders and 2,228,739 outstanding shares of common stock.
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SHAREHOLDER AND TRANSFER INVESTOR
GENERAL INQUIRIES AGENT RELATIONS
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Joseph L. Macchia, Senior Vice President Registrar & Transfer Co. Yonkers Financial Corporation
Yonkers Financial Corporation 10 Commerce Drive 6 Executive Plaza
6 Executive Plaza Cranford, New Jersey 07016 Yonkers, New York 10701
Yonkers, New York 10701 (800) 456-0596 (914) 965-2500
(914) 965-2500
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ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-K for its fiscal
year ended September 30, 2000, 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:
Washington, D.C. 20005
