<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
COMMISSION FILE NUMBER 0-26466
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 30,1997
<S> <C> <C>
$.01 Par Value 1,497,062
</TABLE>
<PAGE> 2
TAPPAN ZEE FINANCIAL, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets at 2
June 30, 1997 and March 31, 1997
Consolidated Statements of Income for
the Three Months Ended June 30, 1997 and 1996 3
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended June 30, 1997 4
Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 2. Changes in Securities. 16
Item 3. Defaults Upon Senior Securities. 16
Item 4. Submission of Matters to a Vote of Security Holders. 16
Item 5. Other Information. 16
Item 6. Exhibits and Reports on Form 8-K. 16
Signature Page . 17
</TABLE>
Explanatory Note: This Quarterly Report on Form 10-Q contains certain
forward-looking statements consisting of estimates with respect to the financial
condition, results of operations and business of the Company that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
1
<PAGE> 3
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 696 $ 912
Interest-bearing deposits 1,310 1,438
Federal funds sold 12,600 5,900
Securities:
Available-for-sale, at fair value (amortized cost of $31,419 at June 30, 1997 and
$36,967 at March 31, 1997) 31,293 36,384
Held-to-maturity, at amortized cost (fair value of $18,282 at June 30, 1997 and
$17,889 at March 31, 1997) 18,228 18,123
--------- ---------
Total securities 49,521 54,507
Loans, net:
Mortgage loans 52,748 51,876
Other loans 4,330 4,170
Allowance for loan losses (671) (660)
Net deferred loan fees (285) (276)
--------- ---------
Total loans, net 56,122 55,110
Federal Home Loan Bank stock 674 674
Real estate owned, net 122 122
Other assets 3,105 3,178
--------- ---------
Total assets $ 124,150 $ 121,841
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 100,866 $ 98,327
Other liabilities 2,158 2,286
--------- ---------
Total liabilities 103,024 100,613
--------- ---------
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 14,966 14,942
Common stock held by employee stock ownership plan ("ESOP") (1,017) (1,056)
Common stock awarded under recognition and retention plans ("RRPs") (493) (524)
Treasury stock, at cost (123,000 shares at June 30, 1997 and 86,000 shares at March 31, 1997) (1,703) (1,070)
Retained earnings, substantially restricted 9,433 9,269
Net unrealized loss on available-for-sale securities, net of taxes (76) (349)
--------- ---------
Total shareholders' equity 21,126 21,228
--------- ---------
Total liabilities and shareholders' equity $ 124,150 $ 121,841
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 4
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
------ ------
<S> <C> <C>
Interest income:
Mortgage loans $1,098 $1,044
Other loans 101 98
Securities 894 860
Other earning assets 172 86
------ ------
Total interest income 2,265 2,088
------ ------
Interest expense:
Deposits 1,132 1,001
Federal Home Loan Bank advances -- 3
------ ------
Total interest expense 1,132 1,004
------ ------
Net interest income 1,133 1,084
Provision for loan losses 11 6
------ ------
Net interest income after provision for loan losses 1,122 1,078
------ ------
Non-interest income:
Service charges and other fees 34 27
Net gain on sales of available-for-sale securities 11 11
Other 5 2
------ ------
Total non-interest income 50 40
------ ------
Non-interest expense:
Compensation and benefits 410 364
Occupancy and equipment 46 47
Federal deposit insurance costs 15 49
Data processing service fees 42 36
Other 201 181
------ ------
Total non-interest expense 714 677
------ ------
Income before income tax expense 458 441
Income tax expense 193 187
------ ------
Net income $ 265 $ 254
====== ======
Earnings per share (note 2) $ 0.18 $ 0.17
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 5
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON COMMON NET
ADDITIONAL STOCK STOCK UNREALIZED TOTAL
COMMON PAID-IN HELD AWARDED TREASURY RETAINED LOSS ON SHAREHOLDERS'
STOCK CAPITAL BY ESOP UNDER RRPS STOCK EARNINGS SECURITIES EQUITY
----- ------- ------- ---------- ----- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $16 $14,942 $(1,056) $(524) $(1,070) $ 9,269 $(349) $ 21,228
Net income -- -- -- -- -- 265 -- 265
Dividends paid ($0.07 per share) -- -- -- -- -- (101) -- (101)
Repurchase of 37,000
treasury shares -- -- -- -- (633) -- -- (633)
Amortization of awards -- -- -- 31 -- -- -- 31
ESOP shares committed to be
released (3,909 shares) -- 24 39 -- -- -- -- 63
Decrease in net unrealized loss
on available-for sale
securities, net of taxes -- -- -- -- -- -- 273 273
--- ------- ------- ----- ------- ------- ----- --------
Balance at June 30, 1997 $16 $14,966 $(1,017) $(493) $(1,703) $ 9,433 $ (76) $ 21,126
=== ======= ======= ===== ======= ======= ===== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 6
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 265 $ 254
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 11 6
Depreciation expense 14 16
Accretion of net deferred loan fees (8) (10)
Net increase in accrued interest receivable (23) (61)
Net gain on sales of available-for-sale securities (11) (11)
Other adjustments, net 21 (42)
-------- --------
Net cash provided by operating activities 269 152
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities:
Available-for-sale (2,000) (15,555)
Held-to-maturity (500) --
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 5,040 6,375
Held-to-maturity 397 299
Proceeds from sales of available-for-sale securities 2,511 2,492
Disbursements for loan originations (2,263) (3,972)
Principal collections on loans 1,248 1,397
Other investing cash flows, net -- (4)
-------- --------
Net cash provided by ( used in) investing activities 4,433 (8,968)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 2,539 (39)
Net increase in short-term borrowings -- 5,500
Repurchase of treasury stock (633) (812)
Dividends paid (101) (78)
Net decrease in mortgage escrow funds (151) (140)
-------- --------
Net cash provided by financing activities 1,654 4,431
-------- --------
Net increase (decrease) in cash and cash equivalents 6,356 (4,385)
Cash and cash equivalents at beginning of period 8,250 8,539
-------- --------
Cash and cash equivalents at end of period $ 14,606 $ 4,154
======== ========
Supplemental information:
Interest paid $ 1,132 $ 1,004
Income taxes paid 310 355
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 7
TAPPAN ZEE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
Tappan Zee Financial, Inc. (the "Registrant") is the unitary savings bank
holding company for Tarrytowns Bank, FSB (the "Bank"), a federally chartered
savings bank and wholly-owned subsidiary of the Registrant. On October 5, 1996,
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 "Stock Offering").
The unaudited consolidated financial statements included herein have been
prepared in conformity with generally accepted accounting principles. In the
opinion of management, the unaudited consolidated financial statements include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for the periods
presented. The results of operations for the three months ended June 30, 1997
are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending March 31, 1998.
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
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, 1997.
Certain reclassifications have been made to conform the prior period's
consolidated financial statements to the current presentation.
(2) Earnings Per Share
Earnings per share is based on net income divided by the weighted average
common shares outstanding and common stock equivalents. 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.
(3) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive
6
<PAGE> 8
Income," which establishes standards for the 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 equity, such as the net unrealized gain or loss on
available-for-sale securities. While SFAS No. 130 does not require a specific
reporting format, it does require that an enterprise display an amount
representing total comprehensive income for the period. SFAS No. 130 is
effective for both interim and annual periods beginning after December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Among other things, SFAS
No. 131 requires public companies to report (1) certain financial and
descriptive information about its reportable operating segments (as defined)
and (2) certain enterprise-wide financial information about products and
services, geographic areas and major customers. The required segment financial
disclosures include a measure of profit or loss, certain specific revenue and
expense items, and total assets. SFAS No. 131 is effective for periods
beginning after December 15, 1997.
Management does not anticipate that the adoption of SFAS Nos. 130 and 131
will have a material impact on the Company's consolidated financial
statements.
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. The Company
also invests in mortgage-backed and other securities. To a significantly lesser
extent, funds are invested in multi-family, commercial real estate,
construction, commercial business and consumer loans. 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. The Company also
generates non-interest income such as service charges and other fees. The
Company's non-interest expense consists of compensation and benefits,
occupancy expenses, federal deposit insurance costs, data processing service
fees and other operating expenses. The Company's results of operations are
significantly affected by general economic and competitive conditions
(particularly changes in market
7
<PAGE> 9
interest rates), government policies, changes in accounting standards and
actions of regulatory agencies.
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 Federal Home Loan Bank ("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 prepayment
rates and deposit flows, reducing the predictability of the timing of these cash
flows.
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, 1997 and March
31, 1997, the Company's liquidity ratio was 19.1% and 13.5%, 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. 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 $31.0 million at June 30, 1997. There were no such borrowings
outstanding at June 30, 1997. The utilization of particular sources of funds
depends on comparative costs and availability.
At June 30, 1997, the Company had outstanding loan origination commitments
of $2.8 million, undisbursed construction loans in process of $1.1 million and
unadvanced commercial lines of credit of $15,000. 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, 1997 totaled $51.2 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 dividends from the
Bank and net proceeds from the sale of stock. The main cash outflows are
payments of dividends to shareholders and repurchases of the Registrant's
common stock. During the quarter ended June 30, 1997, the Registrant repurchased
for its treasury 37,000 shares of its common stock at a cost of $633,000. Since
the Stock Offering, the Registrant has repurchased a
8
<PAGE> 10
total of 123,000 shares, representing 7.6% of the shares issued in the Stock
Offering, at an aggregate cost of $1.7 million. At that date, the Registrant had
OTS authorization to repurchase up to an additional 34,950 shares (approximately
2.4% of outstanding shares) prior to November 1997.
OTS regulations require savings associations, such as the Bank, to meet
three minimum capital standards: a tangible capital ratio of 1.5% of total
assets as adjusted under the OTS regulations; a leverage ratio of 3% of core
capital to such adjusted total assets; and a risk-based capital ratio of 8% of
core and supplementary capital to total risk-weighted assets. At June 30, 1997,
the Bank satisfied these minimum capital standards and was classified as a "well
capitalized" institution.
The following is a summary of the Bank's actual capital amounts and ratios
as of June 30 and March 31, 1997, compared to the OTS regulatory requirements
for classification as well as a well-capitalized institution and for minimum
capital adequacy:
<TABLE>
<CAPTION>
FOR CLASSIFICATIONS AS MINIMUM CAPITAL
BANK WELL CAPITALIZED ADEQUACY
-------------- ----------------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- -------- ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997
- -------------
Tangible capital $16,763 13.5% N/A N/A $1,862 1.5%
Tier I (core) capital 16,763 13.5 $6,206 5.0% $3,724 3.0
Risk-based capital:
Tier I 16,763 36.5 2,757 6.0 N/A N/A
Total 17,338 37.7 4,595 10.0 3,676 8.0
March 31, 1997
- --------------
Tangible capital $16,607 14.1% N/A N/A $1,763 1.5%
Tier I (core) capital 16,607 14.1 $5,876 5.0% $3,526 3.0
Risk-based capital:
Tier I 16,607 38.2 2,606 6.0 N/A N/A
Total 17,151 39.5 4,344 10.0 3,475 8.0
</TABLE>
In determining the amount of risk-weighted assets for purposes of the
risk-based capital requirement, a savings association multiplies 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 Bank's total equity to arrive at the various regulatory
capital amounts.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND MARCH 31, 1997
Total assets increased $2.3 million to $124.1 million at June 30, 1997
from $121.8 million at March 31, 1997, reflecting management's strategy of
controlled growth, particularly with respect to retail deposits. Deposits, the
primary source of funds for the asset growth, increased $2.6 million to $100.9
million at June 30, 1997 from $98.3
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<PAGE> 11
million at March 31, 1997. Asset growth was primarily in federal funds sold and
the loan portfolio. The $6.7 million increase in federal funds sold was
substantially offset by a $5.0 million decrease in the securities portfolio
which amounted to $49.5 million at June 30, 1997, compared to $54.5 million at
March 31, 1997. Net loans increased $1.0 million to $56.1 million at June 30,
1997, compared to $55.1 million at March 31, 1997, primarily due to the
origination of one- to four-family mortgage loans.
Shareholders' equity was $21.1 million at June 30, 1997, as compared to
$21.2 million at March 31, 1997. The decrease primarily reflects the repurchase
during the quarter of 37,000 common shares for the treasury at a cost of
$633,000, substantially offset by earnings net earnings of $164,000 retained
after dividends and a $273,000 decrease in the net unrealized loss on
available-for-sale securities. The ratio of shareholders' equity to total assets
at June 30, 1997 was 17.02%, as compared to 17.42% at March 31, 1997. The
Company's tangible book value per share was $14.11 at June 30, 1997 compared to
$13.84 at March 31, 1997.
10
<PAGE> 12
ANALYSIS OF NET INTEREST INCOME
The following table sets forth the Company's average balance sheets,
average yields and costs (on an annualized basis), and certain other information
for the three months ended June 30, 1997 and 1996. The yields and costs were
derived by dividing interest income or expense by the average balance of assets
or liabilities, respectively, for the periods shown. Substantially all average
balances were computed based on month-end balances, producing results which
approximate average daily balances. Interest income includes the effect of
deferred fees and discounts which are considered yield adjustments.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996
-------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans (1) $ 56,347 $1,199 8.51% $ 53,313 $1,142 8.57%
Mortgage-backed securities (2) 38,761 704 7.27 37,238 638 6.85
Other securities (2) 11,756 190 6.46 14,503 222 6.12
Federal funds sold 11,477 151 5.26 3,800 55 5.79
FHLB stock 674 10 5.93 561 9 6.42
Other 880 11 5.00 1,753 22 5.02
-------- ------ -------- ------
Total interest-earning assets 119,895 $2,265 7.56% 111,168 $2,088 7.51%
====== ======
Allowance for loan losses (665) (654)
Non-interest-earning assets 3,649 3,918
-------- --------
Total assets $122,879 $114,432
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW and money market $ 6,793 $ 39 2.30% $ 7,016 $ 41 2.34%
Savings accounts 25,454 179 2.81 27,718 218 3.15
Short term FHLB borrowings - - - 241 3 4.98
Certificate accounts and other 65,217 914 5.61 53,578 742 5.54
-------- ------ -------- ------
Total interest-bearing liabilities 97,464 $1,132 4.65% 88,553 $1,004 4.53%
====== ======
Checking accounts 2,598 1,998
Other non-interest-bearing liabilities 1,548 1,833
-------- --------
Total liabilities 101,610 92,384
Shareholders' equity 21,269 22,048
-------- --------
Total liabilities and
Shareholders' equity $122,879 $114,432
======== ========
Net interest income $1,133 $1,084
====== ======
Average interest rate spread (3) 2.91% 2.98%
Net interest margin (4) 3.78 3.90
Ratio of interest-earning assets to
interest-bearing liabilities 123.01% 125.54%
</TABLE>
(1) Balances are net of deferred loan fees, loan discounts and premiums, and
loans in process. Non-accrual loans are included in the balances.
(2) Balances represent amortized cost.
(3) Average interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest- bearing
liabilities.
(4) Net interest margin represents net interest income divided by average total
interest-earning assets.
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<PAGE> 13
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities affected the Company's interest income and interest expense during
the three months ended June 30, 1997 compared to the same period in the prior
year. Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (changes in rate multiplied by
prior volume), and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
DUE TO
------------------- NET
VOLUME RATE CHANGE
------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans $ 65 $ (8) $ 57
Mortgage-backed securities 26 40 66
Other securities (44) 12 (32)
Federal funds sold 101 (5) 96
FHLB stock 2 (1) 1
Other (11) -- (11)
----- ---- -----
Total 139 38 177
----- ---- -----
Interest-bearing liabilities:
NOW and money market accounts (1) (1) (2)
Savings accounts (17) (22) (39)
Certificate accounts and other 163 9 172
Short term FHLB borrowings (3) -- (3)
----- ---- -----
Total 142 (14) 128
----- ---- -----
Net change in net interest income $ (3) $ 52 $ 49
===== ==== =====
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
General. Net income for the quarter ended June 30, 1997 was $265,000, or
$0.18 per share, compared with $254,000, or $0.17 per share for the comparable
period in 1996. Net interest income for the three months ended June 30, 1997
increased $49,000 and non-interest expense increased $37,000 from the 1996
quarter. The return on average assets and return on average equity were 0.86%
and 4.98%, respectively, for the three months ended June 30, 1997, compared to
0.89% and 4.61%, respectively, for the 1996 quarter.
Net Interest Income. Net interest income for the three months ended June
30, 1997 amounted to $1,133,000 as compared to $1,084,000 for the same period
last year. The increase is primarily due to higher average interest-earning
assets, partially offset by a lower interest rate spread. The Company's average
interest rate spread decreased to 2.91% for the quarter ended June 30, 1997,
compared to 2.98% for the quarter ended June 30, 1996. The Company's net
interest margin decreased to 3.78% for the quarter ended June 30,
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<PAGE> 14
1997, as compared to 3.90% for the quarter ended June 30, 1996. The decreases
in spread and margin are due primarily to the increase in certificates of
deposit and the lower rates realized on short-term investments, partially
offset by the increased yield obtained in the securities portfolio.
Interest Income. Interest income, which amounted to $2.3 million for the
quarter ended June 30, 1997, increased $177,000, or 8.5%, compared to the
quarter ended June 30, 1996. This increase is primarily due to an $8.7 million
increase in average interest-earning assets funded by deposit growth. The
overall increase in average interest-earning assets reflects increases of $3.0
million in the average loan portfolio and $6.9 million in other earning assets
(principally federal funds sold), partially offset by a $1.2 million decrease in
the average securities portfolios. The increase in interest income for the three
months ended June 30, 1997 was also attributable to a slight increase in the
average yield on interest-earning assets, to 7.56% from 7.51% for the same
period in 1996, primarily reflecting the investment in higher yielding fixed
rate mortgage-backed securities.
Interest Expense. Interest expense for the quarter ended June 30, 1997
amounted to $1.1 million, an increase of $128,000, or 12.7%, from the quarter
ended June 30, 1996. This increase is primarily attributable to an $8.9 million
increase in average interest-bearing liabilities due to an increase in the
average balance of certificates of deposit, offset in part by declines in
average balances of NOW, money market and savings accounts. The deposit growth
is consistent with management's strategy to increase retail deposits. The
average cost of funds for the three months ended June 30, 1997 was 4.65% as
compared to 4.53% for the 1996 quarter. Despite decreases in average rates paid
on savings, NOW and money market accounts, the cost of funds increased due to
higher rates being offered on certificates of deposits, coupled with the
increase in the average balance of certificates of deposit.
Provision for Loan Losses. The provision for loan losses was $11,000 for
the quarter ended June 30, 1997, compared to $6,000 for the quarter ended June
30, 1996. The provision in each period 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 economic
conditions. The increase in the provision for loan losses reflects the increase
in non-performing loans to $2.0 million at June 30, 1997 from $1.4 million a
year earlier. See "--Asset Quality".
Non-Interest Income. Non-interest income was $50,000 and $40,000 for the
three months ended June 30, 1997 and 1996, respectively. The increase is
primarily attributable to the increase in service charges and other fees on
customers' accounts during the current quarter.
Non-Interest Expense. Non-interest expense amounted to $714,000 for the
quarter ended June 30, 1997, reflecting an increase of $37,000 from the 1996
quarter, primarily
13
<PAGE> 15
due to increases in compensation and benefits of $46,000 and other expenses of
$19,000, partially offset by a reduction of $34,000 in federal deposit insurance
costs. The decline in federal deposit insurance costs reflects a decline in
federal deposit insurance assessment rates as a result of legislation in 1996 to
recapitalize the Savings Association Insurance Fund. The increase in
compensation and benefits expense reflects the costs associated with the
recognition and retention plans ("RRPs") which became effective upon
shareholders' approval in July 1996, coupled with increased performance-based
compensation for certain staff members. The $19,000 increase in other
non-interest expense for the three months ended June 30, 1997 reflects a $30,000
reversal recorded in the three months ended June 30, 1996 of a valuation
allowance for the Company's claim receivable from Nationar, which was fully
collected. Absent such reversal, other non-interest expense would have declined
by $11,000. The ratio of non-interest expense to average assets, on an
annualized basis, decreased to 2.32% for the quarter ended June 30, 1997 from
2.37% for the quarter ended June 30, 1996.
Income Tax Expense. Income tax expense increased to $193,000 for the
quarter ended June 30, 1997, from $187,000 for the 1996 quarter, reflecting the
increase in pre-tax income. The effective income tax rates for the three months
ended June 30, 1997 and 1996 were 42.1% and 42.4%, respectively.
ASSET QUALITY
Non-performing loans totaled $2.0 million at June 30, 1997, an increase of
$366,000 compared to $1.7 million at March 31, 1997. The increase was primarily
due to the increase in accruing loans past due ninety days or more secured by
one-to four-family residences and commercial property. It is the Company's
general policy to stop the accrual of interest on all loans ninety days or more
past due. Certain loans ninety days or more past due may continue to accrue
interest based on management's evaluation of the loan, the underlying collateral
and the credit worthiness of the borrower. The allowance for loan losses was
$671,000 at June 30, 1997, compared to $660,000 at March 31, 1997. The ratio of
non-performing loans to total loans was 3.56% at June 30, 1997 compared to 2.97%
at March 31, 1997. The ratio of non-performing assets to total assets was 1.73%
at June 30, 1997 compared to 1.46% at March 31, 1997.
14
<PAGE> 16
The following table sets forth certain asset quality data at the dates
indicated:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
NON-ACCRUAL LOANS:
Mortgage loans:
One-to four-family $1,352 $1,355
Commercial property 120 123
------- -------
Total 1,472 1,478
------- -------
Number of non-accrual loans 9 9
ACCRUING LOANS PAST DUE NINETY DAYS OR MORE:
Mortgage loans:
One-to four-family $ 299 $ --
Commercial property 248 72
Construction -- 100
Commercial business and consumer 5 8
------- -------
Total 552 180
------- -------
Number of accruing loans past due ninety days or more 3 4
Total non-performing loans $2,024 $1,658
======= =======
Number of non-performing loans 12 13
Allowance for loan losses $ 671 $ 660
======= =======
Real estate owned, net $ 122 $ 122
======= =======
Number of real estate owned properties 1 1
RATIOS:
Non-accrual loans to total loans 2.59% 2.65
Non-performing loans to total loans 3.56 2.97
Non-performing loans and real estate owned to total assets 1.73 1.46
Allowance for loan losses to:
Non-accrual loans 45.58 44.65
Non-performing loans 33.15 39.81
Total loans 1.18 1.18
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
15
<PAGE> 17
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement re: Computation of Earnings Per Share
27. Financial Data Schedule (submitted only with filing in
electronic format)
(b) Reports on Form 8-K
None.
16
<PAGE> 18
CONFORMED
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 13, 1997 By: /s/Stephen C. Byelick
------------------------------------------
Stephen C. Byelick
President and Chief Executive Officer
Dated: August 13, 1997 By: /s/Harry G. Murphy
------------------------------------------
Harry G. Murphy
Vice President and Secretary
(principal financial officer)
17
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Net income (in thousands) $ 265 $ 254
=========== ==========
Weighted average shares outstanding * 1,418,804 1,467,819
Common stock equivalents due to the dilutive effect of
stock options under the treasury stock method 31,450 --
----------- ----------
Weighted average shares outstanding and
common stock equivalents 1,450,254 1,467,819
Primary earnings per share $ 0.18 $ 0.17
=========== ==========
Weighted average shares outstanding and
common stock equivalents (above) 1,450,254 1,467,819
Additional dilutive common stock equivalents using period end
market value versus average market value for the period 9,339 --
----------- ----------
Fully diluted weighted average shares and
common stock equivalents 1,459,593 1,467,819
Fully diluted earnings per share $ 0.18 $ 0.17
=========== ==========
</TABLE>
* Includes only the portion of ESOP shares committed to be released to
participants.
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of income, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 696
<INT-BEARING-DEPOSITS> 1,310
<FED-FUNDS-SOLD> 12,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,293
<INVESTMENTS-CARRYING> 18,228
<INVESTMENTS-MARKET> 18,282
<LOANS> 56,793
<ALLOWANCE> 671
<TOTAL-ASSETS> 124,150
<DEPOSITS> 100,866
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,158
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 21,110
<TOTAL-LIABILITIES-AND-EQUITY> 124,150
<INTEREST-LOAN> 1,199
<INTEREST-INVEST> 894
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 2,265
<INTEREST-DEPOSIT> 1,132
<INTEREST-EXPENSE> 1,132
<INTEREST-INCOME-NET> 1,133
<LOAN-LOSSES> 11
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 714
<INCOME-PRETAX> 458
<INCOME-PRE-EXTRAORDINARY> 265
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 3.78
<LOANS-NON> 1,472
<LOANS-PAST> 552
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 660
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 671
<ALLOWANCE-DOMESTIC> 671
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
