<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
COMMISSION FILE NUMBER 0-26466
TAPPAN ZEE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3840352
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 NORTH BROADWAY, TARRYTOWN, NEW YORK 10591-0187
(Address of principal executive offices) (Zip Code)
(914) 631-0344
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING, JUNE 30,1996
----------------------- ------------------------------------------
<S> <C>
$.01 Par Value 1,553,062
</TABLE>
<PAGE> 2
TAPPAN ZEE FINANCIAL, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets at 2
June 30, 1996 and March 31, 1996
Condensed Consolidated Statements of Income for
the Three Months Ended June 30, 1996 and June 30, 1995 3
Condensed Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended June 30, 1996 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 1996 and June 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities. 14
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 17
Item 6. Exhibits and Reports on Form 8-K. 17
Signature Page 18
</TABLE>
1
<PAGE> 3
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 545 $ 581
Interest-bearing deposits 1,909 2,458
Federal funds sold 1,700 5,500
Securities:
Held-to-maturity (fair value of $9,235 at June 30, 1996 and
$9,596 at March 31, 1996) 9,136 9,436
Available-for-sale (amortized cost of $48,484 at June 30, 1996 and
$41,772 at March 31, 1996) 47,799 41,544
-------- --------
Total securities 56,935 50,980
Loans, net:
Mortgage loans 50,291 48,072
Other loans 4,392 4,037
Allowance for loan losses (659) (654)
Net deferred loan fees (271) (281)
-------- --------
Total loans, net 53,753 51,174
Federal Home Loan Bank stock 561 561
Real estate owned, net 405 402
Other assets 3,359 3,134
-------- --------
Total assets $119,167 $114,790
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 89,869 $ 89,908
Federal Home Loan Bank advances 5,500 --
Other liabilities 2,299 2,522
-------- --------
Total liabilities 97,668 92,430
-------- --------
Shareholders' equity:
Preferred stock (par value $0.01 per share; 1,000,000
shares authorized; none issued or outstanding) -- --
Common stock (par value $0.01 per share; 5,000,000 shares authorized;
1,620,062 shares issued) 16 16
Additional paid-in capital 14,901 14,893
Common stock held by employee stock ownership plan ("ESOP")
(117,435 shares at June 30, 1996 and 121,476 shares at March 31, 1996) (1,174) (1,215)
Treasury stock, at cost (67,000 shares) (812) --
Retained earnings, substantially restricted 8,979 8,803
Net unrealized loss on available-for-sale securities, net of taxes (411) (137)
-------- --------
Total shareholders' equity 21,499 22,360
-------- --------
Total liabilities and shareholders' equity $119,167 $114,790
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 4
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Interest income:
Mortgage loans $1,044 $1,024
Other loans 98 89
Securities 860 527
Other earning assets 86 127
------ ------
Total interest income 2,088 1,767
------ ------
Interest expense:
Deposits 1,001 939
Federal Home Loan Bank advances 3 --
------ ------
Total interest expense 1,004 939
------ ------
Net interest income 1,084 828
Provision for loan losses 6 30
------ ------
Net interest income after provision for loan losses 1,078 798
------ ------
Non-interest income 40 33
------ ------
Non-interest expense:
Compensation and benefits 364 253
Occupancy and equipment 47 63
Federal deposit insurance premiums 49 46
Data processing service fees 36 35
Net cost of real estate owned 5 8
Other 176 75
------ ------
Total non-interest expense 677 480
------ ------
Income before income tax expense 441 351
Income tax expense 187 150
------ ------
Net income $ 254 $ 201
====== ======
Earnings per share (note 2) $ 0.17
======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 5
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHARHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL STOCK HELD TREASURY RETAINED NET UNREALIZED TOTAL
STOCK PAID-IN BY ESOP STOCK EARNINGS LOSS ON SHAREHOLDERS'
----- CAPITAL ------- ----- -------- SECURITIES EQUITY
------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $16 $14,893 $(1,215) $ -- $8,803 $(137) $22,360
Net income -- -- -- -- 254 -- 254
Dividends paid ($0.05 per share) -- -- -- -- (78) -- (78)
Treasury stock purchased -- -- -- (812) -- -- (812)
ESOP shares committed to be released -- 8 41 -- -- -- 49
Increase in net unrealized loss on
available-for sale securities, net
of taxes -- -- -- -- -- (274) (274)
=== ======= ======= ===== ====== ===== =======
Balance at June 30, 1996 $16 $14,901 $(1,174) $(812) $8,979 $(411) $21,499
=== ======= ======= ===== ====== ===== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 6
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 254 $ 201
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 6 30
Depreciation expense 16 22
Accretion of net deferred loan fees (10) (14)
Net increase in accrued interest receivable (61) (118)
Net gain on sales of available-for-sale securities (11) --
Other adjustments, net (42) (105)
-------- -------
Net cash provided by operating activities 152 16
-------- -------
Cash flows from investing activities:
Purchases of available-for-sale securities (15,555) (500)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 6,375 214
Held-to-maturity 299 123
Proceeds from sales of available-for-sale securities 2,492 --
Disbursements for loan originations (3,972) (2,633)
Principal collections on loans 1,397 2,077
Other investing cash flows, net (4) 44
-------- -------
Net cash used in investing activities (8,968) (675)
-------- -------
Cash flows from financing activities:
Net (decrease) increase in deposits (39) 3,370
Net decrease in mortgage escrow funds (140) (277)
Purchase of treasury stock (812) --
Net increase in short-term borrowings 5,500 --
Dividends paid (78) --
-------- -------
Net cash provided by financing activities 4,431 3,093
-------- -------
Net increase (decrease) in cash and cash equivalents (4,385) 2,434
Cash and cash equivalents at beginning of period 8,539 7,553
-------- -------
Cash and cash equivalents at end of period $ 4,154 $ 9,987
======== =======
Supplemental disclosures:
Interest paid $ 1,004 $ 939
Income taxes paid 355 253
======== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 7
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
Tappan Zee Financial, Inc. (the "Registrant") is the unitary savings
association holding company for Tarrytowns Bank, FSB (the "Bank"), a federally
chartered savings bank and wholly-owned subsidiary of the Registrant. On October
5, 1995, the Bank converted from a mutual savings bank to a stock savings bank
(the "Conversion"). Collectively, the Registrant and the Bank are referred to
herein as the "Company." Concurrent with the Conversion, the Registrant sold
1,620,062 shares of its common stock in a subscription and community offering at
a price of $10 per share, for net proceeds of $14.9 million.
The unaudited condensed consolidated financial statements included herein
have been prepared in accordance with generally accepted accounting principles.
In the opinion of management, the unaudited condensed consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The results of operations for the three
months ended June 30, 1996 are not necessarily indicative of the results of
operations which may be expected for the fiscal year ending March 31, 1997.
Certain financial information and footnote disclosures normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The unaudited condensed
consolidated financial statements presented herein should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report to Shareholders and Annual Report on Form 10-K for
the fiscal year ended March 31, 1996.
Certain reclassifications have been made to conform the prior period's
consolidated financial statements to the current presentation. For purposes of
reporting cash flows, cash equivalents consist of overnight federal funds sold.
(2) Earnings Per Share
Earnings per share is based on net income divided by the weighted average
common shares outstanding during the period after the Conversion. For purposes
of determining the weighted average number of common shares outstanding, only
the portion of the employee stock ownership plan, ("ESOP") shares committed to
be released to participants have been considered outstanding. ESOP shares that
have not been committed to be released have not been considered outstanding in
computing earnings per share. The weighted average common shares outstanding for
the three months ended June 30, 1996 were 1,467,819. There were no common stock
equivalents outstanding during the period.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company's primary market area consists of the Village of Tarrytown and
its neighboring communities in Westchester County, New York with business
conducted from one office located in Tarrytown, New York. The Company is a
community-oriented savings institution whose business primarily consists of
accepting deposits from customers within its market area and investing those
funds in mortgage loans secured by one- to four-family residences. To a
significantly lesser extent, funds are invested in multi-family, commercial real
estate, construction, commercial business and consumer loans. The Company also
invests in mortgage-backed and other securities. The Registrant has no business
activities other than its ownership of the Bank.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned 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 also generates non-interest income such as service charges and other
fees. The Company's non-interest expenses primarily consist of employee
compensation and benefits, occupancy expenses, federal deposit insurance
premiums, net costs of real estate owned, data processing fees 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.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND MARCH 31, 1996
Total assets at June 30, 1996 increased $4.4 million, to $119.2 million
from $114.8 million at March 31, 1996. The securities portfolio increased to
$56.9 million at June 30, 1996 from $51.0 million at March 31, 1996. Of the $5.9
million increase in the portfolio, $3.8 million was due to the reinvestment of
federal funds into mortgage backed securities, classified as available-for-sale.
The securities portfolio at June 30, 1996 had an estimated weighted average life
of 6.6 years and an estimated yield of 6.8%. Loans, net, increased $2.6 million
or 5.0%, to $53.8 million at June 30, 1996, compared to March 31, 1996,
primarily due to the origination of one- to four-family mortgage loans. Deposits
remained flat at $89.9 million at June 30, 1996. The asset growth was funded
with advances from the Federal Home Loan Bank ("FHLB") of New York which
amounted to $5.5 million at June 30, 1996. There were no borrowings at March 31,
1996.
Total non-performing loans decreased to $1.4 million at June 30, 1996, from
$1.6 million at March 31, 1996. Real estate owned, net, was $405,000 at June 30,
1996, as compared with $402,000 at March 31, 1996. The ratio of non-performing
loans and real estate owned to total assets decreased to 1.51% at June 30, 1996,
from 1.77% at March 31, 1996. The allowance for loan losses increased to
$659,000 at June 30, 1996 from $654,000 at March 31, 1996. The ratio of the
allowance for loan losses to
7
<PAGE> 9
non-performing loans increased to 47.31% at June 30, 1996 from 40.07% at March
31, 1996.
The following table sets forth certain asset quality data at the dates
indicated:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NON-ACCRUAL LOANS:
Mortgage loans:
One-to four-family $ 854 $ 856
Commercial property 126 126
-------- --------
Total 980 982
-------- --------
Number of non-accrual loans 6 6
ACCRUING LOANS PAST DUE NINETY DAYS OR MORE:
Mortgage loans:
One-to four-family $ 320 $ 342
Commercial property -- 266
Commercial business and consumer 93 42
-------- --------
Total 413 650
-------- --------
Number of accruing loans past due ninety days or more 7 7
Total non-performing loans $ 1,393 $ 1,632
======== ========
Number of non-performing loans 13 13
Allowance for loan losses $ 659 $ 654
======== ========
Real estate owned, net $ 405 $ 402
======== ========
Number of real estate owned properties 2 2
Ratios:
Non-accrual loans to total loans 1.80% 1.89%
Non-performing loans to total loans 2.56 3.15
Non-performing loans and real estate owned
to total assets 1.51 1.77
Allowance for loan losses to:
Non-accrual loans 67.24 66.60
Non-performing loans 47.31 40.07
Total loans 1.21 1.26
Contractual interest income that would have
been recognized on non-accrual loans $ -- $ 93
Actual interest income recognized -- 58
======== ========
Interest income not recognized $ -- $ 35
======== ========
Total loans: 54,412 51,828
Total assets: 119,167 114,790
</TABLE>
Shareholders' equity was $21.5 million at June 30, 1996, a decrease of
$861,000 from equity of $22.4 million at March 31, 1996. The decrease is
primarily attributable to the
8
<PAGE> 10
repurchase of 67,000 shares of the Company's common stock at a cost of $812,000
and an increase of $274,000 in the net unrealized loss on available-for-sale
securities, partially offset by earnings retained for the quarter. The ratio of
shareholders' equity to total assets at June 30, 1996 was 18.04%, as compared
with 19.48% at March 31, 1996. The Company's tangible book value per share at
June 30, 1996 was $13.84.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
General. Net income for the quarter ended June 30, 1996 was $254,000, or
$0.17 per share, compared with $201,000 for the quarter ended June 30, 1995. Net
interest income for the three months ended June 30, 1996 increased $256,000 and
non-interest expense increased $197,000 from the 1995 quarter. The return on
average assets and return on average equity were 0.89% and 4.61%, respectively,
for the three months June 30, 1996, compared to 0.86% and 10.04% respectively,
for the 1995 quarter.
Net Interest Income. Net interest income for the three months ended June
30, 1996 amounted to $1.1 million as compared to $828,000 for the same period
last year. The increase is primarily due to the deployment of the net proceeds
from the Registrant's stock offering and funds from deposit growth. The
Company's ratio of average interest-earning assets to average interest-bearing
liabilities increased to 125.15% for the quarter ended June 30, 1996 from
110.56% for the quarter ended June 30, 1995. As a result of a lower interest
rate environment coupled with the increase in the volume of higher yielding
certificates of deposits, the Company's average interest rate spread decreased
to 3.00% for the quarter ended June 30, 1996, compared to 3.21% for the quarter
ended June 30, 1995. The Company's net interest margin increased to 3.91% for
the quarter ended June 30, 1996, as compared to 3.64% for the quarter ended June
30, 1995, reflecting the growth in average interest-earning assets, funded
principally by capital stock raised in the offering.
Interest Income. Interest income, which amounted to $2.1 million for the
quarter ended June 30, 1996, increased $321,000, or 18.2%, compared to the
quarter ended June 30, 1995. This increase is primarily due to a $19.9 million
increase in average interest-earning assets resulting from the investment of
proceeds from the Registrant's stock offering and deposit growth. Of the
increase in average interest-earning assets, $1.9 million was attributable to
the loan portfolio and $20.6 million related to the securities portfolio. These
increases were partially offset by a decline of $2.6 million in other
investments (primarily federal funds sold). The average yield on
interest-earning assets for the quarter ended June 30, 1996 decreased to 7.54%
from 7.77% for the comparable period in 1995 due to the lower interest rate
environment in the current period.
Interest Expense. Interest expense for the quarter ended June 30, 1996
amounted to $1.0 million, an increase of $65,000, or 6.9%, from the quarter
ended June 30, 1995. This increase, which was somewhat offset by a slight
decrease in the average cost of funds to 4.54% from 4.57% a year earlier, is
primarily attributable to a $6.3 million increase in average interest-bearing
liabilities (primarily certificates of deposit). The deposit growth is
consistent with management's strategy to increase retail deposits.
9
<PAGE> 11
Provision for Loan Losses. The provision for loan losses was $6,000 for the
quarter ended June 30, 1996, compared to $30,000 for the quarter ended June 30,
1995. The provision reflects management's evaluation of the adequacy of the
allowance for loan losses. Factors considered include 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 and prospective
economic conditions. The decline in the provision for loan losses reflects the
decrease in non-performing loans to $1.4 million at June 30, 1996 from $1.8
million a year earlier while the increase in the allowance for loan losses
reflects the Company's overall loan growth.
Non-Interest Income. Non-interest income was $40,000 and $33,000 for the
three months ended June 30, 1996 and 1995, respectively. The increase in
non-interest income is primarily attributable to an $11,000 gain recognized on
sales of available-for-sale securities during the quarter ended June 30, 1996.
There were no sales of securities in the 1995 comparable quarter.
Non-Interest Expense. Non-interest expense amounted to $677,000 for the
quarter ended June 30, 1996, reflecting an increase of $197,000 from the 1995
quarter, primarily due to increases in compensation and benefits of $111,000 and
other expenses of $101,000, offset partially by a reduction in occupancy and
equipment expense of $16,000. The increase in compensation and benefits expense
reflects the increased costs associated with the deferred compensation plan for
directors, as adopted in its amended form upon completion of the Conversion;
expense related to the employee stock ownership plan; increased
performance-based compensation of certain staff members and the costs associated
with the directors retirement program. Non-interest expense for the three months
ended June 30, 1996 reflects a reduction of $30,000 for the reversal of a
valuation allowance established in fiscal 1995 for the Company's claim
receivable from Nationar, which was fully collected in the current period. The
increase in other expenses is primarily due to increased professional fees
(accounting, tax and legal), printing and other costs associated with operations
as a public company. The ratio of non-interest expense to average assets, on an
annualized basis, increased to 2.37% for the quarter ended June 30, 1996 from
2.06% for the quarter ended June 30, 1995.
Income Tax Expense. Income tax expense increased $37,000, to $187,000 for
the quarter ended June 30, 1996, from $150,000 for the quarter ended June 30,
1995, reflecting the increase in pre-tax income. The effective income tax rates
for the three months ended June 30, 1996 and 1995 were 42.4% and 42.7%,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities and, to a lesser extent, proceeds from the sale
of securities and advances from the FHLB of New York. While maturities and
scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, changes in interest rates, economic conditions,
and competition strongly influence mortgage
10
<PAGE> 12
prepayment rates and deposit flows, reducing the predictability of the timing of
sources of funds.
The Bank is required to maintain an average daily balance of liquid assets
as a percentage of net withdrawable deposit accounts plus short-term borrowings
as defined by the regulations of the Office of Thrift Supervision ("OTS"). The
minimum required liquidity ratio is currently 5.0%. At June 30, 1996 and March
31, 1996, the Company's liquidity ratio was 11.1% and 19.0%, respectively. The
levels of the Company's short-term liquid assets are dependent on the Company's
operating, financing and investing activities during any given period.
The Company's cash flows are derived from operating activities, investing
activities and financing activities. Cash flows from operating activities
consist primarily of interest income received and interest expense paid. Net
cash flows from investing activities consist primarily of loan originations and
payments (including amortization of principal and prepayments) and the purchase,
maturity and sale of securities, including mortgage-backed securities. Financing
activity cash flows are generated primarily from deposit activity and capital
transactions such as the Conversion. The Company has other sources of liquidity
if a need for additional funds arises, including borrowing capacity from the
FHLB of New York of up to 25% of the Bank's assets, which amounts to $28.4
million at June 30, 1996. At June 30, 1996, the Company had overnight borrowings
from the FHLB of New York in the amount of $5.5 million. The utilization of
particular sources of funds depends on comparative costs and availability.
At June 30, 1996, the Company had outstanding loan commitments of $1.8
million, undisbursed construction loans in process of $489,000 and unadvanced
commercial lines of credit of $5,000. The Company anticipates that it will have
sufficient funds available to meet its current origination and other lending
commitments. Certificates of deposit scheduled to mature in one year or less
from June 30, 1996 totaled $41.5 million. Based upon the Company's most recent
experience and pricing strategy, management believes that a significant portion
of such deposits will remain with the Bank.
The main sources of liquidity for the Registrant are net proceeds from the
sale of stock and dividends from the Bank. The main cash outflows are payments
of dividends to shareholders and any repurchases of the Registrant's common
stock. On April 29, 1996, the Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock. The repurchase of stock may
be made at management's discretion within the six-month period ending November
13, 1996. At June 30, 1996, 67,000 shares, or 4.1% of the common stock
outstanding prior to commencement of the repurchase program, have been
repurchased at a cost of $812,000.
The OTS regulations require savings associations, such as the Bank, 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 3% of core capital to such adjusted total assets; and a risk-based capital
ratio requirement of 8% of core and supplementary capital to total risk-based
assets. At June 30, 1996, the Bank satisfied these minimum capital standards and
was classified as a "well capitalized" institution.
11
<PAGE> 13
The table below presents the Bank's regulatory capital as compared to the OTS
regulatory capital requirements at June 30, 1996:
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------
PERCENT OF
AMOUNT ASSETS(1)
------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GAAP capital $15,959 14.03%
======= =====
Tangible capital:
Capital level (2) $16,370 14.39%
Requirement 1,706 1.50
------- -----
Excess $14,664 12.89%
======= =====
Core capital:
Capital level (2) $16,370 14.39%
Requirement 3,413 3.00
------- -----
Excess $12,957 11.39%
======= =====
Risk-based capital:
Capital level (2) $16,919 38.52%
Requirement 3,514 8.00
------- -----
Excess $13,405 30.52%
======= =====
</TABLE>
(1) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of adjusted assets. Risk-based capital
levels are shown as a percentage of risk-weighted assets.
(2) The difference between capital under generally accepted accounting
principles ("GAAP") and regulatory tangible and core capital is an adjustment to
increase regulatory capital by the amount of the net unrealized loss on
available-for-sale securities recognized for GAAP purposes. Regulatory
risk-based capital reflects this adjustment and the inclusion of a portion of
the general allowance for loan losses.
In determining the amount of risk-weighted assets for purposes of the
risk-based capital requirement, a savings association must compute its
risk-based assets by multiplying its assets and 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 consumer and commercial
loans, as assigned by the OTS capital regulations. These capital requirements,
which are applicable to the Bank only, do not consider additional capital held
at the holding company level, and require certain adjustments to shareholder's
equity to arrive at the various regulatory capital amounts.
OTHER MATTERS
During the quarter ended June 30, 1996, representatives of the federal
banking agencies and other interested parties continued to work for legislative
action to recapitalize the Savings Association Insurance Fund ("SAIF"), which
insures deposits of the Company, and to resolve the disparity between the
deposit insurance assessments paid by institutions insured under the SAIF and
those insured under the Bank Insurance Fund ("BIF"). The various legislative
proposals discussed by the Congress have generally followed the features of the
recapitalization legislation that were part of the Balanced Budget Act of 1995,
which was vetoed by the President for reasons unrelated to the SAIF
recapitalization. A continuing feature of the legislative proposals is a special
one-time assessment to be paid with respect to deposits subject to SAIF
assessments. Estimates of
12
<PAGE> 14
the special assessment have ranged from 80 to 90 basis points on such
SAIF-assessable deposits as of March 31, 1995. For the Company, such a special
assessment would range from $655,000 at 80 basis points to $736,000 at 90 basis
points, each before taxes. Various holding companies with SAIF-insured
institutions are continuing to implement plans to establish BIF-insured
subsidiaries in order to facilitate the migration of deposits from its
SAIF-insured subsidiaries to its BIF-insured subsidiaries. In the absence of a
legislative recapitalization of the SAIF, any significant reduction in
SAIF-assessable deposits could result in an increase of the SAIF assessment
rates.
At this time, the Company cannot predict whether any legislative proposal
to recapitalize the SAIF and to resolve the BIF-SAIF assessment disparity will
be adopted or, if so, in what form. Until such time as such legislation is
adopted, it is expected that the Company will continue to be assessed deposit
insurance assessments at rates substantially in excess of those assessed on
comparably rated BIF-insured institutions. Based on the Company's June 30, 1996
assessment base, the SAIF premium paid by the Company on an annualized basis
would equal approximately $208,000. A comparably rated and sized BIF-insured
institution would pay approximately $2,000 for the same deposit insurance
coverage.
Another legislative development concerns bad debt recapture. Under the
Section 593 of the Internal Revenue Code, thrift institutions such as the Bank,
which meet certain definitional tests, primarily relating to their assets and
the nature of their business, are permitted to establish a tax reserve for bad
debts and to make annual additions thereto, which additions may, within
specified limitations, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, may currently be computed using
an amount based on the Bank's actual loss experience (the "Experience Method"),
or a percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications and
reduced by the amount of any permitted addition to the non-qualifying reserve.
A similar deduction for additions to the Bank's bad debt reserve is permitted
under the New York State Bank Franchise Tax; however, for purposes of this
tax, the effective allowable percentage under the PTI method is 32% rather than
8%.
Under the Small Business Job Protection Act of 1996 (the "1996 Act), as
passed by the House and Senate on August 2, 1996, section 593 of the Code would
be amended and the Bank, for its current and future taxable years, will be
permitted to use only the Experience Method of computing additions to its tax
bad debt reserve. In addition, the Bank is required to recapture (that is, take
into taxable income) over a six-year period, beginning with the Bank's current
taxable year, the excess of the balance of its tax bad debt reserves (other than
its supplemental reserve) as of December 31, 1995 over the greater of (a) the
balance of such reserves as of December 31, 1987 (or over a lesser amount if the
Bank's loan portfolio has decreased since December 31, 1987), or (b) an amount
that would have been the balance of such reserves as of December 31, 1995 had
the Bank always computed the additions to its reserve using the Experience
Method. However, under the 1996 Act, such recapture requirements would be
suspended for each of two successive taxable years beginning with the Bank's
current taxable year in which
13
<PAGE> 15
the Bank originates a minimum amount of certain residential loans based upon the
average of the principal amounts of such loans made by the Bank during its six
taxable years preceding its current taxable year. It is anticipated that the
President will sign the 1996 Act in the near future. Since the Bank's current
level of Federal tax bad debt reserves approximates the balance of such
reserves as of December 31, 1987, such recapture will not adversely impact the
Bank's result of operations.
In early August, 1996, the New York State tax law was been amended to
prevent a similar recapture of the Bank's Post-1987 state bad debt reserve,
and to permit continued future use of the bad debt reserve methods, for
purposes of determining the Bank's New York State tax liability. The Bank has
established a dereffed tax liability for the excess of its current level of
State tax bad debt reserves over the balance of such reserves as of December
31, 1987. Due to the foregoing amendment of the New York State Tax law, the
Company will substantially reduce this deferred tax liability (with a
corresponding reduction in income tax expense) during the quarter ending
September 30, 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Registrant and the Bank are not involved in any pending legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings in the aggregate are believed
by management to be immaterial to the Company's financial condition and results
of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on July 10, 1996, the
following matters were voted upon, with the results of the voting on such
matters indicated:
1. Election of the following persons to serve a three-year term as
directors of the Company:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
- ------- --- --------
<S> <C> <C>
Marvin Levy 1,486,493 10,200
Kevin J. Plunkett 1,486,493 10,200
Paul R. Wheatley 1,486,493 10,200
</TABLE>
Broker Non-Vote: None
2. The proposal to approve the 1996 Stock Option Plan for Officers and
Employees:
14
<PAGE> 16
For: 1,044,984
Against: 52,593
Abstain: 15,472
Broker Non-Vote: 383,644
3. The proposal to approve the 1996 Stock Option Plan for Outside
Directors:
For: 1,018,196
Against: 134,046
Abstain: 22,508
Broker Non-Vote: 321,943
4. The proposal to approve the Recognition and Retention Plan for Officers
and Employees:
For: 1,034,258
Against: 130,759
Abstain: 9,733
Broker Non-Vote: 321,943
5. The proposal to approve the Recognition and Retention Plan for Outside
Directors:
For: 1,017,368
Against: 140,974
Abstain: 16,408
Broker Non-Vote: 321,943
6. Ratification of the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending March 31, 1997:
For: 1,478,968
Against: 9,300
Abstain: 8,425
Broker Non-Vote: None
15
<PAGE> 17
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (submitted only with filing in
electronic format)
(b) Reports on Form 8-K
None.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Tappan Zee Financial, Inc.
Dated: August 8, 1996 By: STEPHEN C. BYELICK
------------------
Stephen C. Byelick
President and Chief Executive Officer
Dated: August 8, 1996 By: HARRY G. MURPHY
------------------
Harry G. Murphy
Vice President and Secretary
(principal financial officer)
17
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
(submitted only with filing
in electronic format)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 545
<INT-BEARING-DEPOSITS> 1,909
<FED-FUNDS-SOLD> 1,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,799
<INVESTMENTS-CARRYING> 9,136
<INVESTMENTS-MARKET> 9,235
<LOANS> 54,412
<ALLOWANCE> 659
<TOTAL-ASSETS> 119,167
<DEPOSITS> 89,869
<SHORT-TERM> 5,500
<LIABILITIES-OTHER> 2,299
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 21,483
<TOTAL-LIABILITIES-AND-EQUITY> 119,167
<INTEREST-LOAN> 1,142
<INTEREST-INVEST> 860
<INTEREST-OTHER> 86
<INTEREST-TOTAL> 2,088
<INTEREST-DEPOSIT> 1,001
<INTEREST-EXPENSE> 1,004
<INTEREST-INCOME-NET> 1,084
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 677
<INCOME-PRETAX> 441
<INCOME-PRE-EXTRAORDINARY> 254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 3.91
<LOANS-NON> 980
<LOANS-PAST> 413
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 654
<CHARGE-OFFS> 1
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 659
<ALLOWANCE-DOMESTIC> 659
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
