17
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
Commission File No. 0-14995
YORK FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-2427539
(I.R.S. employer identification number)
101 South George Street York, Pa. 17401
(Address of principal executive offices)(Zip code)
(717) 846-8777
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
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.
Common stock, par value $1.00 per share 8,806,398 shares
outstanding as of September 30, 1997.
YORK FINANCIAL CORP.
INDEX
Part I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Consolidated balance sheets
September 30, 1997 and June 30, 1997 (unaudited) 3
Consolidated statements of income,
three months ended September 30, 1997
and 1996 (unaudited) 4
Consolidated statements of cash flows,
three months ended September 30, 1997
and 1996 (unaudited) 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 June 30
1997 1997
ASSETS
(In thousands, unaudited)
<S> <C> <C>
Cash and due from banks:
Noninterest-earning $ 19,070 $ 21,612
Interest-earning 1,924 1,527
20,994 23,139
Loans held for sale, net 6,190 4,882
Securities held for
trading 5,186 7,158
Securities available for
sale 58,582 59,690
Securities held to maturity
(fair value at Sept. 30,
1997 - $8,902 and June 30,
1997 - $8,782) 8,916 8,953
Loans receivable, net 994,703 997,841
Real estate, net 13,484 13,439
Premises and equipment 17,875 17,320
Federal Home Loan Bank
stock, at cost 7,907 7,907
Accrued interest receivable 8,384 7,981
Other assets 7,823 8,777
Investments in joint ventures 5,681 5,306
Total Assets $ 1,155,725 $ 1,162,393
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 987,482 $ 993,106
Federal Home Loan Bank
advances and other
borrowings 46,330 46,236
Advances from borrowers for
taxes and insurance 1,373 4,719
Other liabilities 18,205 18,249
Total Liabilities 1,053,390 1,062,310
Stockholders' Equity:
Preferred Stock:
10,000,000
shares authorized and unissued --- ---
Common Stock, $1.00 par value:
Authorized 20,000,000 shares;
issued Sept 30, 1997 - 8,806,398;
June 30, 1997 - 7,008,347 8,806 7,008
Additional capital 79,492 80,633
Retained earnings 14,672 13,290
Unrealized gains 292 79
Unearned ESOP shares (927) (927)
Total Stockholders' Equity 102,335 100,083
Total Liabilities and
Stockholders' Equity $ 1,155,725 $ 1,162,393
See notes to consolidated financial statements
</TABLE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
September 30
1997 1996
(In thousands, unaudited)
<S> <C> <C>
Interest income:
Interest and fees on loans $ 20,501 19,702
Interest on securities held
for trading 197 382
Interest on securities
available for sale 1,006 888
Interest and dividends on
securities held to maturity 255 233
Other interest income 207 175
Total interest income 22,166 21,380
Interest expense:
Interest on deposits 12,224 11,212
Interest on borrowings 801 1,438
Total interest expense 13,025 12,650
Net interest income 9,141 8,730
Provision for loan losses 753 903
Net interest income after
provision for loan losses 8,388 7,827
Other income:
Mortgage banking 850 753
Gain (loss) on sales of
real estate 6 (53)
Fees and service charges 740 677
Income (loss) from joint
ventures 190 (627)
Other operating income 309 242
Total other income 2,095 992
Other expenses:
Salaries and employee benefits 3,144 2,957
Occupancy 873 810
Federal deposit insurance 155 531
SAIF assessment --- 5,310
Real estate 466 97
Data processing 266 249
Advertising 134 134
Other 1,386 1,308
Total other expenses 6,424 11,396
Income before income taxes 4,059 (2,577)
Provision for income taxes 1,626 (984)
Net income $ 2,433 $ (1,593)
Per share data:
Net income $ 0.26 $ (0.18)
Cash dividends paid $ 0.120 $ 0.109
Weighted average shares 9,276,996 8,796,412
See notes to consolidated financial statements
</TABLE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30
1997 1996
(In thousands,unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,433 $(1,593)
Adjustments to reconcile
netincome to net cash
provided by operating
activities:
Amortization and accretion
on securities, net (65) (192)
Provision for loan losses 753 903
Provision for real estate
losses 328 ---
Depreciation and amortization 440 417
Loans originated for sale (33,206) (19,276)
Proceeds from sales of
trading securities 34,232 25,525
Realized (gains) losses on
trading securities (631) 133
Decrease (increase) in
other assets 829 (708)
Decrease in other liabilities (159) (7,652)
Other (294) 110
Net cash provided by (used
in) operating activities 4,660 (2,333)
INVESTING ACTIVITIES
Principal repayments on
securities 1,498 2,313
Loans originated or acquired,
net of change in deferred
loan fees (53,073) (100,139)
Principal collected on loans 54,428 43,086
Purchases of real estate (93) (33)
Proceeds from sales of
real estate 765 958
Purchases of premises,
equipment, and tenant
improvements, net (915) (963)
Other (3,492) (2,219)
Net cash used in investing
activities (882) (56,997)
FINANCING ACTIVITIES
Net decrease in noninterest-
bearing demand deposits,
interest-bearing transaction
accounts, savings accounts,
and 31-day certificates of
deposit (5,752) (19,035)
Net increase in certificates
of deposit 129 32,919
Net increase in short-term
advances received from
Federal Home Loan Bank --- 42,500
Increase in convertible
advance received from Federal
Home Loan Bank 97 ---
Repayments of Federal Home
Loan Bank advances
and other borrowings (3) (3)
Issuance of common stock :
Dividend reinvestment plan 561 552
Stock option plans 96 ---
Cash dividends paid (1,051) (914)
Net cash (used in) provided
by financing activities (5,923) 56,019
Decrease in cash and cash
equivalents (2,145) (3,311)
Cash and cash equivalents
at beginning of year 23,139 24,071
Cash and cash equivalents
at end of year $ 20,994 $ 20,760
See notes to consolidated fiancial statements
</TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
Note A -- Basis Of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period
ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1997.
Cash Flow Information: For purposes of the statements of cash
flows, cash equivalents include cash and amounts due from banks.
During the three months ended September 30, 1997 and 1996, the
Association exchanged loans for mortgage-backed securities in the
amounts of $31.8 million and $21.0 million, respectively.
During the three months ended September 30, 1997 and 1996, the
Association transferred unpaid loan balances from loans to real
estate acquired due to foreclosures of $1.1 million and $1.4
million, respectively.
Reclassifications: Certain reclassifications have been made to
the fiscal 1997 consolidated financial statements to conform with
the fiscal 1998 presentation.
Note B -- Per Share Data
On October 22, 1997, the Corporation declared a 5 for 4 stock
split, effected in the form of a 25% stock dividend, to
shareholders of record on November 3, 1997, to be paid November
17, 1997. Net income per share is computed based on the weighted
average number of common shares outstanding and dilutive common
stock equivalents, adjusted for stock splits/dividends. Cash
dividends paid per share are based on the number of common shares
outstanding at each record date, adjusted for stock
splits/dividends.
Note C -- Recently Issued Accounting Guidance
In February 1997, the FASB issued Statement No. 128, "Earnings
per Share", which establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. The
Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings per
Share", and makes them comparable to international EPS standards.
The Corporation will adopt Statement No. 128 on January 1, 1998
and all prior-period EPS data presented will be restated.
Adoption of Statement No. 128 is not expected to have a material
impact on the Corporation.
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting
and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements. Statement No. 130 requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. The Corporation will adopt Statement No.
130 on July 1, 1998. Reclassification of financial statements
for earlier periods provided for comparative purposes will be
required. Adoption of Statement No. 130 is not expected to have
a material impact on the Corporation.
In June 1997, the FASB issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which
establishes standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. The Statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business
Enterprise." The Corporation will adopt Statement No. 131 on
July 1, 1998 and comparative information for earlier years will
be restated. Adoption of Statement No. 131 is not expected to
have a material impact on the Corporation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
YORK FINANCIAL CORP.
Financial Review
The purpose of this discussion is to provide additional
information about York Financial Corp. ("York Financial" or
"Corporation"), its financial condition and results of
operations. Readers of this report should refer to the
consolidated financial statements and other financial data
presented throughout this report to fully understand the
following discussion and analysis.
York Financial is a unitary savings and loan holding company
incorporated in Pennsylvania in September 1985 and in August 1986
became the sole stockholder of York Federal Savings and Loan
Association ("York Federal" or "Association"), a federally
chartered stock savings and loan association. Presently, the
primary business of York Financial is the business of York
Federal. At September 30, 1997, the Corporation had consolidated
assets of $1.2 billion, total deposits of $987.5 million and
stockholders' equity of $102.3 million. The Association is a
member of the Federal Home Loan Bank ("FHLB") of Pittsburgh and
is subject to supervision, examination and regulation by the
Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"). The Association is primarily
engaged in the business of attracting deposits and investing
these deposits into loans secured by residential and commercial
real property, consumer loans and investment securities. York
Federal conducts its business through twenty-two offices located
in south central Pennsylvania and Maryland. In addition, York
Federal maintains a commissioned mortgage origination staff as
well as mortgage broker relationships which originate residential
mortgage loans for the Association primarily in Pennsylvania,
Maryland and Virginia. The Association's deposits are insured up
to applicable limits by the Savings Association Insurance Fund
("SAIF") of the FDIC.
The Corporation's net income is highly dependent on the interest
rate spread between the average rate earned on loans and
securities and the average rate paid on deposits and borrowings
as well as the amount of the respective assets and liabilities
outstanding. Other operating income is a strong supplement to
York Federal's interest income and is primarily the result of
mortgage banking activities including gains on sales of mortgage-
backed securities and related value attributed to mortgage
servicing rights created from loan originations and service fee
income derived from the portfolio of loans serviced for others.
Other operating income also includes gains and losses on sales of
real estate, equity in a limited partnership interest, and fees
and service charges assessed on loan and deposit transactions.
Interest Rate Sensitivity Management
In an effort to maintain control over net interest income,
management of York Federal focuses its attention on managing the
interest rate sensitivity of assets and liabilities and
controlling the volume of lending, securities, deposit and
borrowing activities. By managing the ratio of interest
sensitive assets to interest sensitive liabilities repricing in
the same periods, the Corporation seeks to minimize the adverse
effect of interest rate fluctuations.
Management reviews the Association's interest sensitivity
position on an ongoing basis and prepares strategies to adjust
that sensitivity to maximize the yield on the asset portfolio
while maintaining the interest rate sensitivity on earning assets
at acceptable levels to insulate it from the effects of interest
rate fluctuations. The Corporation originates for portfolio
principally short and intermediate term and adjustable rate loans
and sells most fixed rate loan originations. The funding sources
for these portfolio loans are deposits with various maturities
and short term borrowings.
A traditional measurement utilized to quantify interest rate risk
is an interest sensitivity gap analysis. The following table
presents the Corporation's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities that
mature or reprice within one year as of September 30, 1997 and
June 30, 1997.
Interest Sensitivity Gap Analysis
<TABLE>
Subject to Repricing
September 30 June 30
1997 1997
(Dollars in thousands)
<S> <C> <C>
Earning assets maturing or
repricing within one year $ 583,679 $ 593,435
Interest bearing liabilities
maturing or repricing within
one year 638,132 668,562
Interest sensitivity gap
within one year $ (54,453) $ (75,127)
Cumulative interest sensitivity
gap within one year as a
percent of total assets (4.71%) (6.46%)
</TABLE>
The Corporation also monitors its interest rate risk in
accordance with regulatory guidance. Fluctuations in net interest
income and the market value of portfolio equity are determined in
various interest rate scenarios and monitored against acceptable
limitations established by management and approved by the Board
of Directors.
An analysis of hypothetical changes in interest rates as of
September 30, 1997 is as follows:
<TABLE>
Projected Change
Changes in in Net Projected Change
Interest Rates Interest Income in Net
(basis points) Next 12 Months Portfolio Value
(1) (2)
<C> <C> <C>
200 (8%) (15%)
100 (4%) (7%)
(100) 4% 8%
(200) 7% 16%
</TABLE>
(1) The percentage change in this column represents the net
interest income for 12 months in a stable interest rate
environment, versus the net interest income in the various rate
scenarios.
(2) The percentage change in this column represents the net
portfolio value in a stable interest rate environment, versus the
net portfolio value in the various rate scenarios. Net portfolio
value is defined as the present value of expected net cash flows
from existing assets, minus the present value of expected cash
flows from existing liabilities, plus or minus the present value
of expected net cash flows from existing off-balance-sheet
contracts.
Interest rate risk as indicated through these financial statement
simulations is considered to be within acceptable limits. The
management of York Federal is committed to managing the asset
portfolio in order to maximize the yield and maintain an interest
rate sensitivity of York Federal's earning assets that insulates
it from the potential negative effect of interest rate
fluctuations.
Asset Quality
Management is aware of the risks inherent in lending and
continually monitors risk characteristics of the loan portfolio.
The Association's policy is to maintain the allowance for loan
losses at a level believed adequate by management to absorb
potential loan losses within the portfolio. Management's
determination of the adequacy of the allowance is performed by an
internal loan review committee and is based on risk
characteristics of the loans, including loans deemed impaired in
accordance with Financial Accounting Standards Board (FASB)
Statement No. 114, past loss experience, economic conditions and
such other factors that deserve recognition. Additions to the
allowance are charged to operations.
An analysis of the allowance for loan losses, for the periods
indicated is as follows:
<TABLE>
Three Fiscal
Months Year
Ended Ended
September 30 June 30
1997 1997
(Dollars in thousands)
<S> <C> <C>
Total allowance for loan
losses at beginning of period $ 6,413 $ 6,609
Loans charged-off:
Real estate - mortgage:
Residential 278 1,304
Commercial 7 1,820
Consumer 6 226
Total charged-offs 291 3,350
Recoveries:
Real estate - mortgage:
Residential 37 210
Commercial 8 516
Consumer 4 4
Total recoveries 49 730
Net loans charged-off 242 2,620
Provision for loan losses 753 2,424
Total allowance for loan
losses at end of period $ 6,924 $ 6,413
Percentage of net charge-offs
to average loans outstanding
during the period 0.02% 0.26%
Percentage of allowance for loan
losses to adjusted total loans 0.69% 0.64%
</TABLE>
The allowance for loan losses totaled $6.9 million or .69% of
adjusted total loans of $1.0 billion at September 30, 1997. Such
amount is considered adequate relative to management's assessment
of risk characteristics inherent in the loan portfolio. While
management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based
on specific circumstances related to problem loans as well as
changes in economic conditions.
An analysis of nonperforming assets is summarized as follows:
<TABLE>
September 30 June 30
1997 1997
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a
nonaccrual basis:
Real estate-mortgage:
Commercial $ 826 $ 950
Total nonaccrual loans 826 950
Accruing loans which are
contractually past due
90 days or more:
Real estate-mortgage:
Residential 12,849 12,735
Consumer 955 702
Total of 90 days past due loans 13,804 13,437
Total of nonaccrual and 90
days past due loans $ 14,630 $ 14,387
As a percent of total loans 1.46% 1.43%
Real estate owned:
Real estate acquired through
foreclosure or repossession
by loan type:
Real estate:
Residential $ 5,377 $ 4,978
Commercial 2,443 2,714
Land 2,753 2,895
Allowance for real estate losses (278) (365)
Total real estate owned $ 10,295 $ 10,222
As a percent of total assets 0.89% 0.88%
Total nonperforming assets $ 24,925 $ 24,609
As a percent of total assets 2.16% 2.12%
</TABLE>
The Association's nonaccrual policy generally covers loans which
are 90 or more days past due. All commercial real estate loans
are placed on nonaccrual status when the collectibility of
interest is uncertain based on specific circumstances evaluated
on a loan by loan basis or when interest is more than 90 days
past due. In the case of residential real estate and consumer
loans, management evaluates the collectibility of accrued amounts
based on the underlying collateral value or knowledge of the
specific circumstances resulting from collection efforts and may
elect to place specific loans on nonaccrual status.
Management recognizes the risk of potential reduction in value of
real estate owned during the holding period and provides for such
risk by maintaining an allowance for real estate losses (such
allowance is separate from and in addition to the allowance for
loan losses). For the first three months of fiscal 1998, net
charge-offs were $415,000 and additions to the allowance totalled
$328,000 resulting in a decrease in the allowance to $278,000 at
September 30, 1997. Management continually monitors the risk
profile of real estate owned and maintains an allowance for real
estate losses at a level believed adequate to absorb potential
losses within the real estate portfolio.
Liquidity
The primary purpose of asset/liability management is to maintain
adequate liquidity and a desired balance between interest
sensitive assets and liabilities. Liquidity management focuses
on the ability to meet the cash flow requirements of customers
wanting to withdraw or borrow funds for their personal or
business needs. Interest rate sensitivity management focuses on
consistent growth of net interest income in times of fluctuating
interest rates. The management of liquidity and interest rate
sensitivity must be coordinated since decisions involving one may
influence the other.
Liquidity needs can be met by either reducing assets or
increasing liabilities. Sources of asset liquidity include short
term investments, securities available for sale, maturing and
repaying loans and monthly cash flows from mortgage-backed
securities. The loan portfolio provides an additional source of
liquidity due to York Federal's participation in the secondary
mortgage market. Liquidity needs can be met by attracting
deposits and utilizing borrowing arrangements with the FHLB of
Pittsburgh and the Federal Reserve Bank of Philadelphia for short
and long term advances as well as other short term borrowings.
Deposits represent the Association's primary source of funds.
The Association does not rely on brokered deposits as a source of
funds. During the first three months of fiscal 1998, the
Association's deposits decreased $5.2 million. York Federal has
supplemented its deposit gathering efforts through borrowings
from the FHLB of Pittsburgh. At September 30, 1997, York Federal
had $45.4 million in FHLB advances outstanding at a weighted
average interest rate of 5.79%.
Under current regulations, York Federal is required to maintain
liquid assets at 5.0% or more of its net withdrawable deposits
plus short term borrowings. Throughout the three months ended
September 30, 1997, York Federal maintained an average liquidity
level which was in compliance with the regulatory requirements.
At September 30, 1997, the Association's liquidity level was
5.04%.
Amortization and prepayments of loans and proceeds from loan and
securities sales within the Association's mortgage banking
activity represent a substantial source of funds to York Federal.
These sources amounted to $89.5 million for the first three
months of fiscal 1998.
The principal use of funds is the origination of mortgage and
other loans. Loan demand resulted in total originations of $89.1
million for the period ended September 30, 1997. Loan
originations were obtained through various channels including the
retail branch system, commissioned mortgage origination staff,
tele-mortgage activity and expanded mortgage broker
relationships. The volume of originations was favorably impacted
by a relatively stable interest rate environment and included
traditional long term fixed rate loans originated primarily for
sale as well as adjustable rate and residential construction loan
products. In addition, in response to changing customer
preferences, intermediate term mortgage products, i.e. seven year
balloon loans and 5/1 CMT adjustable rate loans (fixed rate for
the first five years with annual adjustments thereafter),
continue to represent a significant component of loan origination
volume.
Capital
The management of capital provides the foundation for future
asset and profitability growth and is a major strategy in the
management of York Financial Corp. Stockholders' equity at
September 30, 1997 totaled $102.3 million compared to $91.8
million at September 30, 1996, an increase of $10.5 million or
11.4%. This growth was a result of a combination of factors
including current earnings, cash dividends paid (representing a
payout ratio of 43.2%), issuance of shares in connection with
various benefit and dividend reinvestment plans and the impact of
unrealized gains on "available for sale" securities.
OTS regulated thrifts must comply with three separate capital
standards:
Tangible Capital. Generally, common stock plus retained earnings
must equal at least 1.5% of adjusted total assets.
Core Capital to total assets. Tangible capital plus qualifying
supervisory goodwill (arising from the purchase of a troubled
savings association) and other qualifying intangible assets must
equal at least 3.0% of adjusted total assets.
Risk-Based Capital. Risk-based capital must equal at least 8.0%
of risk-weighted assets, as defined in the regulations. The core
capital component of risk-based capital, as defined above, must
equal at least 4.0% of risk weighted assets.
At September 30, 1997, York Federal's tangible and core capital
both equaled 7.7% ($88.0 million), substantially in excess of
the minimum regulatory requirements of 1.5% and 3.0%,
respectively, as indicated above. York Federal's total assets do
not include any goodwill. York Federal's core capital to risk
weighted assets equaled 11.4% ($88.0 million) at September 30,
1997, which exceeds its required level of 4.0%. Finally, York
Federal's risk-based capital ratio equaled 12.3% ($94.8 million)
at September 30, 1997, which exceeds its required level of 8.0 %
by $33.1 million.
Transactions with Affiliates
Transactions with affiliates are limited to 10% of capital and
surplus per affiliate with an aggregate limit on all such
transactions with affiliates to 20% of capital and surplus. At
September 30, 1997 such transactions are within these regulatory
limits.
Results of Operations
Three months ended September 30, 1997 compared to September 30,
1996
Net Interest Income
York Financial's earnings are affected by the level of York
Federal's net interest income, the difference between the income
it receives on its loan portfolio and other investments, and its
cost of funds, consisting primarily of interest paid on deposits
and borrowings. Net interest income is affected by the average
yield on interest-earning assets, the average rate paid on
interest-bearing liabilities, and the ratio of interest-earning
assets to interest-bearing liabilities.
Net interest income for the three months ended September 30, 1997
was $9.1 million compared to $8.7 million for the same period
last year, which represents a 4.7% increase. The increase in net
interest income was attributable to an increase in average
earning assets primarily due to the retention of intermediate
term assets. The margin on interest-earning assets increased to
3.35% from 3.28% for the three months ended September 30, 1997
and 1996, respectively. The impact of a more favorable asset
composition and a lower average level of non-accrual loans
resulted in a 10 basis point increase to the average yield on
interest earning assets to 8.04% for the three months ended
September 30, 1997 as compared to 7.94% in the same period in the
prior year. The higher level of interest-bearing liabilities
during the first three months of fiscal 1998 resulted from
increases in higher cost guaranteed money fund and certificate
accounts which were offset by decreases in savings and regular
money market accounts. This resulting composition shift
partially offset the generally lower levels of interest rates
resulting in an increase to the average rate on interest bearing
liabilities to 5.01% as compared to 4.95% in the same period last
year. The net effect caused the interest rate spread for the
current period to increase to 3.03% from 2.99% in the same period
last year.
Provision for Loan Losses
Management is aware of the risks inherent in lending and
continually monitors risk characteristics of the loan portfolio.
See "Asset Quality".
Other Income
Other income was $2.1 million for the three months ended
September 30, 1997, an increase from the three months ended
September 30, 1996. Mortgage banking income for the three months
ended September 30, 1997 increased $97,000 to $850,000 or 12.9%
as compared to the same period in 1996 and includes net gains on
sales of loans, trading securities and servicing rights and
income from loan servicing fees. Mortgage backed securities
created in conjunction with the Association's mortgage banking
activities are deemed trading securities and are carried at fair
value with unrealized gains and losses reported in the income
statement. At September 30, 1997, securities held for trading
were $5.2 million with an indicated unrealized gain of $32,000
which was recognized as a component of mortgage banking income.
The portfolio of loans serviced for others totaled $557.7 million
at September 30, 1997 as compared to $597.9 million at September
30, 1996. The net servicing rate earned on the portfolio of
loans serviced for others for the three months ended September
30, 1997 decreased to .163% from .257% in the same period in
1996. The decrease in net servicing rate of 9.4 basis points is
primarily attributable to the implementation of FASB Statement
No. 122 and the related capitalization of mortgage servicing
rights. Amortization of capitalized mortgage servicing rights
for the three months ended September 30, 1997 was $80,000 and is
recognized as a reduction of gross servicing fee income. Such
amount compares to $43,000 for September 30, 1996. The
combination of these volume and rate changes caused loan
servicing fees as of September 30, 1997 to decrease $157,000 to
$226,000 as compared to September 30, 1996.
Fees and service charges for the three months ended September 30,
1997 increased by 9.3% to $740,000 compared to 677,000 in the
same period in 1996, and is primarily a result of the current
service charge fee structure coupled with growth in both loans
and deposits.
The Corporation is a partner in various joint ventures; these
joint ventures during the first three months of fiscal 1998 had
net income of $190,000. This income was primarily related to the
Corporation's share in the net income of a venture capital
partnership resulting from the increased market value of
underlying portfolio investments.
Other operating income was $309,000 in the first three months of
fiscal 1998 as compared to $242,000 in the first three months of
fiscal 1997. Other operating income includes income from
operations of subsidiaries, including commissions earned from
discount brokerage activities and appraisal and construction
inspection services provided to independent third parties.
Other Expenses
Other expenses of $6.4 million decreased $5.0 million or 43.6%
for the three months ended September 30, 1997 as compared to the
same period in 1996, which was primarily attributable to the one
time SAIF special assessment paid during fiscal 1996. On
September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996 to recapitalize the SAIF and to
provide for repayment of the FICO (Financial Institution
Collateral Obligation) bonds issued by the United States Treasury
Department. The FDIC levied a one-time special assessment on
SAIF deposits equal to 65.7 basis points of the SAIF-assessable
deposit base as of March 31, 1995. As a result of the one time
special assessment the Association's insurance premium rate
decreased from 23.0 basis points for the quarter ended September
30, 1996 to 18.0 basis points for the quarter ended December 31,
1996 and to 6.4 basis points in the quarters ended March 31, 1997
and June 30, 1997, respectively. The current 6.4 basis point
rate is more consistent with the deposit insurance premiums paid
by Bank Insurance Fund (BIF) insured institutions and may vary
according to Association capital levels and management ratings.
Salaries and employee benefits for the three months ended
September 30, 1997 increased $187,000 or 6.3% over the same
period in 1996 and is attributable to a combination of the
following factors: adjustments to the salary administration
program, start up compensation expenses related to a newly
established Commercial Business Banking Group, an increase in
full time equivalent personnel from 384 at September 30, 1996 to
390 at September 30, 1997 and additional staffing at First
Capital Brokerage Services, Inc. related to providing financial
planning services formerly provided by third parties. Occupancy
expense increased $63,000 or 7.8% over the same period in 1996
and is primarily attributed to operating cost related to recently
acquired equipment and a new office facility occupied in June
1996. Real estate expenses increased $369,000 when compared to
September 30, 1996 and is primarily attributable to an increase
in the provision for possible real estate losses. Other expenses
for the three months ended September 30, 1997 increased $78,000
or 6.0% compared to the same period in 1996, resulting from the
recognition of costs incurred to examine the Association's
operating efficiency.
Provision for Income Taxes
The provision for income taxes of $1.6 million for the three
months ended September 30, 1997 represents an effective tax rate
of 40.1% as compared to 38.2% for the same period last year.
Other Matters
York Financial Corporation engages a third party service bureau
for all of its core banking processing applications. The Company
is monitoring and testing these applications as well as other in-
house applications, as necessary, to ensure that the situation
commonly referred to as the "year 2000 problem" will not have a
significant effect on operations or financial condition. The
problem arises when computer programs cannot process data for the
year 2000 and beyond. It is estimated that the cost of
addressing the year 2000 problem and making the Company's
computer systems year 2000 compliant will not be material.
Effects of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature.
As a result, interest rates generally have a more significant
impact on a financial institution's performance than does the
effect of inflation. Interest rates do not necessarily move in
the same direction or in the same magnitude as the price of goods
and services since such prices are affected by inflation. In the
current interest rate environment, the liquidity and maturity
structures of York Federal's assets and liabilities are critical
to the maintenance of acceptable performance levels.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual meeting of Stockholders of York Financial Corp.
was held October 22, 1997. Business transacted at the
meeting was as outlined in the Notice of Annual Meeting
and Proxy Statement dated September 25, 1997. Included
was ratification of the 1997 Stock Option and Incentive
Plan, with votes cast as follows:
For 4,260,902 shares
Against 492,605 shares
Abstain 82,804 shares
Proposal was ratified.
Also included was ratification of an Amendment to the
Articles of Incorporation to increase the Company's
authorized Common Stock frm 10,000,000 to 20,000,000
shares, with votes cast as follows:
For 5,332,375 shares
Against 224,741 shares
Abstain 66,970 shares
Proposal was ratified
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein:
(11) Statement re: computation of earning per share
The company did not file any reports on Form 8-K during
the six months ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
York Financial Corp.
(Registrant)
Date November 13, 1997
/s/ Robert W. Pullo
Robert W. Pullo, President - Chief Executive Officer
Date November 13, 1997
/s/ James H. Moss
James H. Moss, Senior Vice President -
Chief Financial Officer/Treasurer
(11) -- Statement re:
Computation of Earnings Per Share
<TABLE>
Three Months Ended
September 30
1997 1996
(Dollars in thousands, except per share data)
<S> <C> <C>
Primary:
Average shares outstanding 8,697,329 8,308,176
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 579,667 488,236
Totals 9,276,996 8,796,412
Net income $ 2,433 $ (1,593)
Per share amount $ 0.26 $ (0.18)
Fully diluted:
Average shares outstanding 8,697,329 8,308,176
Net effect of dilutive stock
options -- based on the
treasury stock method using
quarter end market price or
average market price whichever
is greater 627,380 488,236
Totals 9,324,709 8,796,412
Net income $ 2,433 $ (1,593)
Per share amount $ 0.26 $ (0.18)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 20994
<INT-BEARING-DEPOSITS> 1924
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 5186
<INVESTMENTS-HELD-FOR-SALE> 58582
<INVESTMENTS-CARRYING> 8916
<INVESTMENTS-MARKET> 8902
<LOANS> 1000893
<ALLOWANCE> 6924
<TOTAL-ASSETS> 1155725
<DEPOSITS> 987482
<SHORT-TERM> 45000
<LIABILITIES-OTHER> 18205
<LONG-TERM> 1330
0
0
<COMMON> 8806
<OTHER-SE> 93529
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<INCOME-PRETAX> 4059
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<EXTRAORDINARY> 0
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