SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
Commission File Number: 0-14995
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
YORK FINANCIAL CORP.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2427539
- --------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
No.) incorporation or organization)
101 South George Street, York, Pennsylvania 17401
- ------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 846-8777
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES x NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of September 2, 1997, there were issued and outstanding 7,040,278
shares of the registrant's common stock. The aggregate market value of the
voting stock held by non-affiliates of the registrant, based on the closing
sales price of the registrant's common stock as quoted on the Nasdaq National
Market System on September 2, 1997 was $170,726,742 ($24.25 per share based
upon 7,040,278 shares.) Directors and officers of the registrant are not
considered affiliates for purposes of this calculation.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended June
30, 1997. (Parts I and II)
2. Portions of Proxy Statement for the 1997 Annual Meeting of Stockholders.
(Part III)
<PAGE>
<PAGE>
PART I
Item 1. Business
- ----------------
York Financial Corp. ("York Financial" or the "Corporation") was
incorporated in Pennsylvania in September 1985 and in August 1986 became a
unitary savings and loan holding company and the sole shareholder of York
Federal Savings and Loan Association ("York Federal" or the "Association"). At
June 30, 1997, the Corporation had assets of $1.2 billion, total deposits of
$993.1 million and stockholders' equity of $100.1 million.
Presently, the primary business of York Financial is the business of
York Federal. York Federal received its federal charter in 1955. At June 30,
1997, York Federal's stockholders' equity was $86.7 million. York Federal 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 executive
offices of York Federal and the Corporation are located at 101 South George
Street, York, Pennsylvania (telephone number: (717) 846-8777).
The primary business of York Federal is attracting deposits from the
general public, commercial and governmental entities and investing these
deposits into loans secured by residential and commercial real property,
consumer loans and investment securities. York Federal's principal source of
income is interest and dividends received on loans and securities, fees
received from servicing loans sold to government sponsored agencies and other
investors and service charges assessed on loan and deposit transactions. York
Federal's principal expense is interest paid on deposits and borrowings.
Primary sources of funds to support lending and other general business
activities are operations, net deposits, loan repayments including monthly
amortization and prepayments, the sale of loans, securities held for trading,
and securities available for sale, short and long-term advances from the FHLB
of Pittsburgh and Federal Reserve Bank of Philadelphia and other short-term
borrowings. The Association does not rely on brokered deposits as a source of
funds.
York Federal conducts its business through twenty-two offices located
in south central Pennsylvania and Maryland. 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.
Earnings depend to a large extent on the ability of the institution to
maintain a positive spread between the yield on earning assets and the cost of
funds. The spread is affected by general economic conditions, monetary and
fiscal policies of the federal government and the policies of regulatory
authorities supervising the operations of thrift institutions. York Federal
has maintained a positive spread between the yield on its earning assets and
its cost of funds and, as a result, has experienced net income from its
operations. No assurances, however, can be given that this experience will
continue.
York Financial, in addition to its ownership of York Federal, has
several wholly-owned subsidiaries. For information regarding these
subsidiaries and their activities, see "Business -- Subsidiaries of York
Federal" and "-- Subsidiaries and Joint Ventures of the Corporation" contained
herein.
Selected Financial Data and Other Items
The information contained in the Corporation's Annual Report to
Stockholders, attached hereto as Exhibit 13 ("Annual Report"), for the fiscal
year ended June 30, 1997, is incorporated herein by reference.
Interest Rate Sensitivity Management
The information contained on pages 8 and 9 of the Corporation's Annual
Report is incorporated herein by reference.
1
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<PAGE>
Lending Activities
General. On a consolidated basis, York Federal's loan portfolio
totaled $997.8 million at June 30, 1997, representing 85.8% its total assets.
On that date, the portfolio consisted of loans secured by mortgages on
residential properties, commercial real estate loans, including loans secured
by undeveloped real estate, commercial business loans, and consumer loans.
York Federal originates for its own portfolio adjustable rate and
intermediate term real estate mortgage loans, consumer loans and certain
commercial real estate loans. York Federal generally has a policy of selling
in the secondary market its originations of long-term (15 to 30 years), fixed
rate real estate loans. This sales activity results in York Federal's loan
portfolio being more interest rate sensitive. Although loans within the
portfolio may have original maturities of 15 to 30 years, experience has
indicated that because of refinancing and prepayments, such loans remain
outstanding for significantly shorter periods than their contractual terms.
2
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<PAGE>
<TABLE>
Loan Portfolio Analysis. The following table sets forth the composition of the Association's loan
portfolio by type of loan as of the dates indicated:
At June 30,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential first
mortgage loans:
Conventional.... $ 772,962 77.5% $718,755 76.6% $602,072 71.2% $441,544 65.9% $443,586 65.7%
Construction....
65,641 6.6 65,725 7.0 79,742 9.4 90,781 13.6 77,204 11.4
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
838,603 84.1 784,480 83.6 681,814 80.6 532,325 79.5 520,790 77.1
Commercial first
mortgage loans:
Conventional.... 48,443 4.9 62,006 6.6 82,544 9.8 84,880 12.7 85,104 12.6
Constructional.. 9,967 1.0 9,840 1.0 6,409 0.8 9,456 1.3 18,015 2.7
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
58,410 5.9 71,846 7.6 88,953 10.6 94,336 14.0 103,119 15.3
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
897,013 90.0 856,326 91.2 770,767 91.2 626,661 93.5 623,909 92.4
Commercial busi-
ness loan....... 496 -- 1,714 0.2 2,751 0.3 2,622 0.4 3,512 0.5
Consumer loans:
Automobile
loans.......... 2,597 0.3 5,301 0.6 5,945 0.7 2,328 0.3 2,517 0.4
Mobile home.....
loans.......... 2,249 0.2 1,362 0.1 1,306 0.2 1,076 0.2 947 0.1
Education loans. 17,163 1.7 15,505 1.7 12,777 1.5 9,465 1.4 6,338 0.9
Savings account.
loans.......... 2,334 0.2 2,001 0.2 1,916 0.2 1,893 0.3 2,352 0.4
Home improve-
ment loans..... 3,987 0.4 3,901 0.4 3,360 0.4 2,490 0.4 2,724 0.4
Boat loans...... 2,525 0.3 3,126 0.3 4,326 0.5 5,504 0.8 8,343 1.2
Home equity
loans.......... 53,827 5.4 49,217 5.2 49,900 5.9 44,657 6.7 39,569 5.9
Other........... 49,805 5.0 34,401 3.7 27,220 3.2 24,168 3.6 24,887 3.7
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
134,487 13.5 114,814 12.2 106,750 12.6 91,581 13.7 87,677 13.0
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Subtotals........ 1,031,996 972,854 880,268 720,864 715,098
Less:
Loans in
process........ 28,302 2.9 27,497 2.9 26,577 3.1 44,691 6.7 34,518 5.1
Unamortized
loan fees
(expenses)
and unearned
income......... (560) -- 178 -- 2,646 0.3 1,831 0.3 2,210 0.3
Allowance
for loan
losses.......... 6,413 0.6 6,609 0.7 5,840 0.7 4,492 0.6 3,346 0.5
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
34,155 3.5 34,284 3.6 35,063 4.1 51,014 7.6 40,074 5.9
---------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total............ $ 997,841 100.0% $938,570 100.0% $845,205 100.0% $669,850 100.0% $675,024 100.0%
========== ====== ======== ===== ======== ===== ======== ===== ======== =====
3
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Residential Real Estate Loans. At June 30, 1997 approximately 84.1%
of York Federal's loan portfolio was comprised of one-to-four family
residential mortgage loans. OTS regulations require that all residential loans
made in excess of 90% loan-to-value ratio be insured for the amount by which
the loan exceeds 80% of value. The Association is authorized to make loans to
residential borrowers that do not otherwise comply with regulatory guidelines
in an amount up to 5% of total assets. As of June 30, 1997, the total of such
nonconforming loans was less than the 5% of assets limit.
Generally, the permanent fixed rate residential loans currently
originated by York Federal are structured to conform with terms and conditions
which would enable these loans to be sold in the secondary market. At June 30,
1997, $4.9 million of conventional mortgages were held for sale in the
secondary market. Permanent conventional residential mortgage loans originated
for sale to the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") are made for up to 95% of the
appraised value of the property when the loan is secured by real estate
containing no more than four family units. All fixed rate conventional loans
with a loan-to-value ratio in excess of 80% are required by secondary market
guidelines to have private mortgage insurance covering that portion of the
loan in excess of 70% of the appraised value. The Association makes loans not
conforming to these secondary marketing requirements and retains these loans
in portfolio. All such loans are made with adjustable interest rates.
The loan-to-value ratio, maturity and other provisions of the loans
made by York Federal have generally reflected the policy of making the maximum
loan permissible consistent with applicable regulations, market conditions,
and lending practices and underwriting standards established by York Federal.
Mortgage loans made by York Federal are generally long-term loans, with
principal and interest due each month. Borrowers may refinance or prepay loans
at their option. Interest rates and fees charged on loans originated by York
Federal are competitive with other lenders in the general market area.
York Federal also presently offers adjustable rate and intermediate
term mortgages on one-to-four unit residential dwellings for its portfolio.
The interest rate on most adjustable mortgages is adjustable once a year and
is tied to either the contract interest rate on loans closed to facilitate the
purchase of previously occupied homes published by the Federal Housing Finance
Board ("FHFB National Contract Rate") or the one-year constant maturity
treasury (CMT) yield. The Association also offers a 5/1 CMT adjustable rate
mortgage loan where the rate is fixed for the first five years with annual
adjustments to the one year CMT thereafter. Intermediate term loans are
primarily represented by seven year balloon loans where the interest rate is
fixed and the loan is amortized based on a 30 year amortization schedule with
the remaining loan balance at the end of seven years being due and payable.
Commercial Real Estate Loans. York Federal may grant permanent loans
on commercial properties and multi-family properties with more than four
units. Such activities have been limited because of the market conditions for
commercial real estate. However, York Federal does intend to more aggressively
pursue this activity within its primary branch market area and has
reestablished a commercial real estate lending unit to that end. In previous
years, York Federal actively engaged in granting permanent commercial real
estate loans due to the higher yields and shorter terms and/or repricing
characteristics of these loans. The Association's existing portfolio includes
a mix of land development, construction and permanent financing on commercial
and multi-family real estate. Permanent commercial loans are typically made
for terms of up to 25 years either as adjustable interest rate loans with rate
adjustment provisions of one to three years, with monthly rate adjustment
provisions, or as "balloon" loans with abbreviated maturity dates. The
commercial real estate loan portfolio is secured by single family
condominiums, land for development, hotel/motel/restaurant, multi-family
residential, office building and other properties. These loans are made in
amounts generally limited to 80% of the appraised value of the property
securing the loan. York Federal has provided permanent financing on commercial
properties and multi-family properties on which it has made the construction
loan. Commercial real estate loans are usually considered to be of higher risk
than residential loans and constitute a lesser portion of York Federal's
portfolio (5.9% as of June 30, 1997).
As explained more fully under "Regulation -- Loans to One Borrower,"
the OTS lending limitation on loans permitted to one borrower are equivalent
to that application to national banks. At June 30, 1997, the Association's
4
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<PAGE>
limit on loans to one borrower was $14.0 million. At June 30, 1997, the
Association's largest aggregate amount of loans to one borrower was $6.4
million.
Consumer Loans. Federal regulations permit federal associations to
make secured and unsecured consumer loans for personal, family and household
purposes up to 35% of an association's assets. In addition, a federal
association has unlimited lending authority for certain consumer loans, such
as property improvement loans, mobile home loans, savings account secured
loans and certain other secured and unsecured personal loans.
At June 30, 1997 consumer loans totalled $134.5 million or
approximately 13.5% of York Federal's total loan portfolio. York Federal
offers to its customers a home equity line of credit. Such loans are made in
amounts generally not to exceed the difference between 90% of the current
property value less the balance of other loans outstanding secured by the
property. Loans typically adjust monthly at a margin of 1.25% to 2.25% over
the Citibank prime rate with introductory terms to new customers which include
a fixed rate option for up to three years. At June 30, 1997, York Federal had
approximately $53.8 million of home equity loans outstanding under total lines
of credit available of $103.9 million.
The remaining portion of the consumer loan portfolio is composed of
automobile loans, loans secured by savings accounts, mobile home loans, home
improvement loans, boat loans, education loans and other consumer loans. It is
York Federal's intention to emphasize consumer lending consistent with prudent
underwriting practices in order to take advantage of the generally higher
yields on these loans as well as their shorter terms.
Consumer loans may entail greater risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or
secured by assets that depreciate rapidly, such as automobiles and boats. In
the latter case, repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan and the
remaining deficiency often does not warrant further substantial collection
efforts against the borrower. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability and, thus, are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the
amounts recoverable on such loans.
Construction Loans. York Federal provides interim construction
financing for residential and commercial real estate properties. At June 30,
1997, the Association had $75.6 million or 7.6% of total loans outstanding or
committed to interim construction loans. The Association continues to be
committed to this type of lending. York Federal's policy is to grant single
family construction loans up to 95% of the appraised value for an individual's
personal residence and for builders up to 90% of the lesser of cost or
appraised value.
Residential construction loans generally are made for a nine-month
term. This period may be extended subject to negotiation and the payment of an
extension fee. York Federal generally provides permanent financing on
residential properties on which it has made the construction loan.
Commercial construction loans are made at adjustable rates of interest
for terms of one year, although York Federal periodically makes longer term
commercial construction loans on larger projects. Commercial construction
financing is considered to involve a higher degree of credit risk than long
term financing of residential properties. York Federal's risk of loss on a
construction loan is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction or development
and the estimated cost (including interest) of construction. If the estimate
of construction cost and the salability of the property upon completion of the
project proves to be inaccurate, York Federal may advance funds beyond the
amount originally committed to permit completion of the project. If the
estimate of value proves to be inaccurate, York Federal may be confronted, at
or prior to the maturity of the loan, with a project that is under valued and
which is insufficient to assure full repayment.
5
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<PAGE>
York Federal's underwriting criteria are designed to evaluate and
minimize the risks of each construction loan. Among other things, York Federal
considers the financial condition and reputation of the borrower, the amount
of the borrower's equity in the project, the results of an independent
appraisal and review of cost estimates, pre-construction sale and leasing
information, and cash flow projections of the project by the borrower. In
addition to these criteria, York Federal also considers the availability of
permanent financing or a takeout commitment to the borrower on commercial
construction properties.
6
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<PAGE>
<TABLE>
Loan Maturity
The following table sets forth the dollar amount of total loans receivable which have predetermined
interest rates and those which have floating or adjustable interest rates.
Due within one year Due one to five years Due more than five years
of June 30, 1997 (1) after June 30, 1997 (1) after June 30, 1997 (1)
---------------------------- ----------------------------- ----------------------------
Float- Float- Float-
Pre- ing or Pre- ing or Pre- ing or
Deter- Adjust- Deter- Adjust- Deter- Adjust-
mined able mined able mined able Grand
Rates Rates Total Rates Rates Total Rates Rates Total Total
-------- ------- -------- -------- -------- -------- -------- -------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate
Conventional
Residential
and commer-
cial....... $ 68,383 $61,307 $129,690 $282,211 $150,680 $432,891 $127,427 $131,397 $257,488 $821,405
Construction
Residential
and commer-
cial........ 3,357 2,901 6,258 8,791 7,596 16,387 12,611 12,050 25,997 47,306
Consumer...... 57,189 23,571 80,760 35,638 18,089 53,727 -- -- -- 134,487
Commercial
business
loans........ 340 5 345 5 -- 5 146 -- 146 496
-------- ------- -------- -------- -------- -------- -------- -------- -------- ----------
Total........ $129,269 $87,784 $217,053 $326,645 $176,365 $503,010 $140,184 $143,447 $283,631 $1,003,694
========= ======= ======== ======== ======== ======== ======== ======== ======== ==========
- ---------------
(1) Based on contractual terms to maturity.
7
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<PAGE>
Loan Solicitation and Processing. York Federal solicits mortgage loan
applications from existing customers, real estate brokers, builders, real
estate developers, and various other persons. Upon receipt of a loan
application from a prospective borrower, a credit report is ordered to verify
specified information relating to the loan applicant's employment, income and
credit standing. An appraisal of the real estate intended to secure the
proposed loan is performed by a state certified and insured appraiser. As soon
as the required information has been obtained, the appraisal completed and the
loan underwritten by a loan underwriter, the loan is submitted for internal
committee or Board of Directors action depending on required level of lending
authority.
During fiscal 1997, York Federal began to develop plans to enter
commercial business banking. Both processing systems and personnel with
significant commercial loan background were acquired in order for York Federal
to position itself in the commercial market. All commercial mortgage loans are
submitted to the commercial lending committee which has lending authority up
to $2.0 million. The Board of Directors ratifies all loan decisions made in
the commercial lending committee; any loan which exceeds committee limitations
require the review and approval of the Board of Directors.
York Federal has established a group of mortgage representatives which
solicits permanent and construction loans on residential properties located in
York Federal's lending market areas. Mortgage representatives are paid
commissions on loans originated by them and consummated by York Federal.
York Federal has established relationships with independent mortgage
brokers as an additional source of residential mortgage loans from within its
lending market areas as well as other strategic market areas. Mortgage brokers
submit completed loan applications including credit information relating to
the loan applicant and an appraisal of the real estate intended to secure the
property. The completed loan application is underwritten by a York Federal
loan underwriter against the same underwriting standards used for loans
originated directly by York Federal and submitted for approval to a committee
consistent with the process discussed above. The mortgage broker is
compensated upon closing the loan.
Loan Sales. Generally, fixed rate long-term mortgage loans are sold
in the secondary mortgage market to FNMA, FHLMC and other investors. In
addition, when deemed prudent, York Federal has securitized adjustable rate, 7
year balloon and 5/1 (i.e., five year fixed and converts to one year
adjustable) adjustable rate mortgages. These transactions are generally
consummated through York Federal's participation in FNMA and FHLMC mortgage
programs. Under the programs, FNMA and FHLMC exchange an equal amount of
mortgage-backed securities ("MBS") for existing pools of mortgages. The fee
charged by the FNMA and FHLMC on a swap is the "guarantee fee" and the MBS
have a lower yield than the yield of the mortgage pool they represent. York
Federal is willing to pay the "guarantee fee" because participation in the
"swap" program has increased the liquidity of its asset portfolio since the
MBS are generally more marketable than the underlying loans. At June 30, 1997,
York Federal had outstanding commitments to sell $8.4 million in loans. York
Federal generally expects to satisfy these commitments with loans originated
within the respective commitment period.
In connection with loan sale commitments, net loans held for sale at
June 30, 1997 totalled $4.9 million and represent loans in portfolio and
specifically identified to fill loan sale commitments. Such loans are carried
at the lower of cost or estimated market value in the aggregate.
In prior years, certain sales to FNMA included recourse provisions.
Transactions consummated in fiscal year 1997 are under FNMA special servicing
programs and are without recourse. The principal balance outstanding of loans
sold with recourse is $44.5 million at June 30, 1997. Such amount is included
in determining compliance with risk-based capital requirements and in
management's assessment of the adequacy of the allowance for loan loss. For
additional information, see Note 16 of the Notes to Consolidated Financial
Statements.
8
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In connection with loan sales, York Federal retains the servicing of
the loans (i.e., collection of principal and interest payments) for which it
generally receives a servicing fee payable monthly of .25% to .375% per annum
of the unpaid balance of each loan. Effective July 1, 1995, the Corporation
adopted FASB Statement No. 122, "Accounting for Mortgage Servicing Rights," an
amendment of Statement No. 65. Statement No. 122 required the capitalization
of originated Mortgage Servicing Rights ("OMSR") retained for loans sold or
securitized determined by an allocation of cost between the loan and the
mortgage servicing rights based on their relative fair values resulting in an
increased gain (decreased loss) recognition on loan sales. Capitalization of
such rights was previously prohibited under Statement No. 65 except to the
extent of excess servicing fees. Servicing fees were recognized as income when
received. Mortgage servicing rights are amortized over the period of estimated
net servicing income. Impairment of mortgage servicing rights is measured
based on the fair value of those rights determined using discounted cash flows
based on various assumptions including projected loan prepayments and current
market interest rates.
In June 1996, the FASB issued Statement No. 125, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which supersedes FASB Statement No. 122, "Accounting for
Mortgage Servicing Rights." Statement No. 125 clarifies and provides
consistent guidance for distinguishing transfers of financial assets that are
sales from transfers that are borrowings. The standard is based on a financial
components approach that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, and derecognizes
liabilities when extinguished. Statement No. 125 is effective for specified
transactions occurring after December 31, 1996. In October 1996, the FASB
issued Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB No. 125," which defers until after December 31, 1997, the
effective date of paragraphs 9-12 of Statement No. 125 for repurchase
agreement, securities lending, dollar roll and similar transactions and the
effective date of paragraph 15 for all transactions.
In accordance with FASB Statement No. 125, additions to mortgage
servicing rights were $1,195,000 for the year ended June 30, 1997. This amount
represents capitalized amounts for the year less subsequent valuation
adjustments as well as valuation adjustments to purchase mortgage servicing
rights. The book value of mortgage servicing rights was approximately $2.6
million (including originated and purchased mortgage servicing rights), net of
valuation allowance of $144,900 at June 30, 1997. As of June 30, 1997, York
Federal was servicing loans for others aggregating approximately $548.2
million. See Notes 1 and 5 of the Notes to Consolidated Financial Statements.
The following table presents York Federal's real estate loans
originated or acquired and sales activity during the periods indicated.
Year Ended June 30,
-------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Loans originated:
Conventional real estate loans:
Construction loans............... $105,094 $104,957 $131,152
Loans on existing properties(1).. 207,060 298,792 193,402
Other loans....................... 78,478 73,859 70,506
-------- -------- --------
Total loans originated......... $390,632 $477,608 $395,060
======== ======== ========
Loans securitized and/or sold:
Real estate:
Loans securitized(2)............. $125,077 $153,312 $ 64,414
Loans sold....................... 1,645 1,622 2,319
-------- -------- --------
Total real estate loans
securitized and/or sold........ $126,722 $154,934 $ 66,733
======== ======== ========
(footnotes on following page)
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(1) Includes loans refinanced from the Association's portfolio totalling
$13.6 million, $40.6 million and $6.0 million in years ended June 30,
1997, 1996, and 1995, respectively.
(2) Loans securitized in the year ended June 30, 1997, 1996 and 1995
includes loans securitized and sold totalling $105.6 million, $96.4
million and $50.3 million, respectively, and loans securitized and
retained in portfolio totalling $19.5 million, $56.9 million and $14.1
million, respectively. Included in the $19.5 million of loans
securitized and held in portfolio for the year ended June 30, 1997 was
$7.2 million of securities held for trading.
Loan Commitments. York Federal makes commitments to grant
conventional mortgage loans on existing residential dwellings for periods of
up to 60 days from the date of rate lock-in. Such commitments are generally
made at the market rate of interest prevailing at the time the loan
application is received. During fiscal 1997, less than 5% of loan commitments
expired without being funded. At June 30, 1997 York Federal's outstanding
residential and commercial mortgage loan commitments amounted to $24.4
million.
Asset Quality
The information contained on page 10 through page 12 of the
Corporation's Annual Report is incorporated herein by reference.
10
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<TABLE>
The following table sets forth the breakdown of the allowance for loan losses by loan category at
the dates indicated. Management believes that the allowance can be allocated by category only on an
approximate basis. The allocation of the allowance to each category is not necessarily indicative of future
losses and does not restrict the use of the allowance to absorb losses in any category.
At June 30,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------- ------------- ------------- -------------
% of % of % of % of % of
loans loans loans loans loans
in in in in in
each each each each each
cate- cate- cate- cate- cate-
gory gory gory gory gory
to to to to to
gross gross gross gross gross
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Real Estate
Residential.. $2,485 81.4% $2,063 82.5% $1,500 78.5% $1,100 73.8% $ 960 73.0%
Commercial... 740 5.2 1,430 5.2 1,700 9.6 1,350 13.1 1,450 14.2
Commercial
business
loans........ 35 -- 65 0.2 50 0.3 50 0.4 55 0.5
Consumer...... 514 13.4 406 12.1 350 11.6 350 12.7 300 12.3
Unallocated... 2,639 -- 2,645 -- 2,240 -- 1,642 -- 581 --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total
allowance
for loan
losses...... $6,413 100.0% $6,609 100.0% $5,840 100.0% $4,492 100.0% $3,346 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
11
</TABLE>
<PAGE>
<PAGE>
OTS regulations require that management of each insured association
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, OTS examiners are authorized to identify
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful and loss.
Substandard assets must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable and there is a
high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified as
loss, the insured institution must either establish specific allowances for
loan losses in the amount of 100% of the portion of the asset classified as
loss, or charge off such amount. General loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loans classified as loss do not qualify as regulatory
capital. Assets that do not currently expose an insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and are
monitored by the Association.
Management recognizes the importance of an adequate allowance for loan
losses and makes provision for loan losses during each fiscal year in amounts
consistent with evaluated risks. The management of York Federal monitors asset
classifications on an ongoing basis with the results representing a primary
consideration in determining the adequacy of the allowance for loan losses.
The Association has established its allowance for loan losses in accordance
with generally accepted accounting principles. It is the opinion of management
that the allowance for loan losses is adequate to absorb risk of loss
associated with loans of York Federal at June 30, 1997.
Non-Performing Loans. The information contained on page 10 through
page 12 of the Corporation's Annual Report is incorporated herein by
reference. See Notes 1 and 4 of the Notes to Consolidated Financial
Statements.
The following table sets forth information with respect to loans on
non-accrual status at the dates indicated.
At June 30,
---------------------
1997 1996
------ ------
(In thousands)
Land held for development................... $ -- $ 200
Commercial real estate...................... 950 1,473
Other loans................................. -- 8
---- ------
Total................................... $950 $1,681
==== ======
The non-performing loans are in various stages of resolution with
appropriate reserve allocations made where indicated based on the value of the
underlying collateral.
Real Estate Owned. The information contained on page 10 through page
12 of the Corporation's Annual Report is incorporated herein by reference. See
Notes 1 and 6 of the Notes to Consolidated Financial Statements.
12
<PAGE>
<PAGE>
Investment Activities
The following table sets forth the carrying value of York Federal's
short-term investments, securities held for trading, securities available for
sale, securities held to maturity and FHLB stock at the dates indicated.
At June 30,
----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Short-term investments:
Interest bearing deposits............ $ 1,527 $ 2,207 $19,861
Securities:
Held for Trading:
Mortgage-backed..................... 7,158 21,736 4,451
Available for Sale:
U.S. Treasury and other
U.S. Government Agencies 6,095 7,471 --
Mortgage-backed...................... 53,595 45,644 31,569
------- ------- -------
Total.............................. 59,690 53,115 31,569
Held to maturity:
U.S. Treasury and other
U.S. Government Agencies 8,590 8,857 21,895
Mortgage-backed...................... 363 418 7,398
------- ------- --------
Total.............................. 8,953 9,275 29,293
FHLB of Pittsburgh stock.............. 7,907 6,733 5,177
------- ------- -------
Total.............................. $85,253 $93,066 $90,351
======= ======= =======
Income from securities provides the second largest source of interest
income for York Federal after interest on loans. York Federal is required
under OTS regulations to maintain a minimum amount of liquid assets which may
be invested in specified short-term securities and is also permitted to make
certain other securities investments. The decrease in short term, liquid
investments is a result of funding loan growth with such monies and is
consistent with the Association's desire to manage liquidity levels consistent
with regulatory requirements (currently 5% as defined by OTS regulations).
Securities Held for Trading. In accordance with FASB Statement No.
115, securities created in the Association's mortgage banking activity are
deemed trading securities and are carried at fair value with unrealized gains
and losses reported in the statement of income. At June 30, 1997, securities
held for trading were $7.2 million with an indicated unrealized gain of
$37,000 which was recognized as a component of mortgage banking income. See
Notes 1 and 5 of the Notes to Consolidated Financial Statements.
Securities Available for Sale and Held to Maturity. The
classification of securities is determined at the time of acquisition and is
reevaluated at each reporting date. Securities are classified as "held to
maturity" based upon management's ability and positive intent to hold such
securities to maturity. Held-to-maturity securities are carried at amortized
cost.
Securities not classified as trading or held-to-maturity are
classified as "available for sale." Available-for- sale securities are carried
at fair value, with unrealized gains and losses, net of taxes, reported as a
component of stockholders' equity.
13
<PAGE>
<PAGE>
The cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts, both computed using the interest method. Such
amortization/accretion, as well as interest and dividends, is included in
interest income. Realized gains and losses and declines in value judged to be
other than temporary are included in net gains (losses) on securities
available for sale in the statement of income. The cost of securities sold is
based on the specific identification method. During fiscal 1997, securities
held to maturity had minimal activity which included maturities, amortization
of premiums and accretion of discounts. There were no sales. Securities
available for sale increased primarily due to securitization of 7 year balloon
loans and holding the securities in portfolio. In November 1995, the FASB
issued a Guide to Implementation of Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities." The guide stated that no later
than December 31, 1995, an enterprise may reassess the appropriateness of the
classifications of all securities held at that time and account for any
resulting reclassifications at fair value. Reclassifications from the
held-to-maturity category that result from this one-time reassessment will not
call into question the intent of an enterprise to hold other debt securities
to maturity in the future. During the quarter ended December 31, 1995, the
Corporation transferred held-to-maturity securities with a fair value of $14.3
million to available-for-sale with the resulting net unrealized gains of
$29,000, net of taxes, reported as a component of stockholders' equity. See
Notes 1 and 3 of the Notes to Consolidated Financial Statements.
Federal Home Loan Bank (FHLB) Stock. The Association maintains its
stock position with the FHLB of Pittsburgh in an amount sufficient to satisfy
its membership requirement. See "Regulation -- Federal Regulation of Savings
Associations -- Federal Home Loan Bank System."
Investment decisions are made by the Asset/Liability Committee of York
Federal under the supervision of York Federal's Board of Directors.
14
<PAGE>
<PAGE>
<TABLE>
The following table represents maturity distributions of various securities based on contractual
terms to maturity:
At June 30,
-----------------------------------------------------------------------------------------
One Year One to Five Five to Ten More Than
or Less Years Years Ten Years Total Securities
--------------- --------------- --------------- --------------- --------------------------
Amortized Amortized Amortized Amortized Amortized Fair Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Value Yield
--------- ----- --------- ----- --------- ----- --------- ----- --------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Securities:
Held for
Trading:
Mortgage-
backed.. $ 1,425 6.98% $ 3,284 6.97% $ 1,620 7.01% $ 792 7.05% $ 7,121 $ 7,158 6.99%
======= ==== ======= ==== ======= ==== ====== ==== ======= ======= ====
Available
for Sale:
U.S.
Treasury
and other
U.S.
Government
agencies.. $ 617 6.65% $ 2,713 6.65% $ 2,745 6.65% $ -- --% $ 6,075 $ 6,095 6.65%
Mortgage-
backed.... 12,054 6.71 32,815 6.70 8,033 6.75 591 7.36 53,493 53,595 6.72
------- ---- ------- ---- ------- ---- ------ ---- ------- ------- ----
$12,671 6.71% $35,528 6.70% $10,778 6.73% $ 591 7.36% $59,568 $59,690 6.71%
======= ==== ======= ==== ======= ==== ====== ==== ======= ======= ====
Held to
Maturity:
U.S.
Treasury
and other
U.S.
Government
agencies.. $ 954 5.35% $ 3,796 5.35% $ 3,840 5.35% $ -- --% $ 8,590 $ 8,396 5.35%
Mortgage-
backed...... 83 8.53 228 8.53 52 8.53 -- -- 363 386 8.53
------- ---- ------- ---- ------- ---- ------ ---- ------- ------- ----
$ 1,037 5.60% $ 4,024 5.53% $ 3,892 5.39% $ -- --% $ 8,953 $ 8,782 5.48%
======= ==== ======= ==== ======= ==== ====== ==== ======= ======= ====
Table represents scheduled maturities adjusted for market concensus prepayment assumptions.
15
</TABLE>
<PAGE>
<PAGE>
Savings Activities and Other Sources of Funds
General. Deposits are the major source of York Federal's funds for
lending and other investment purposes. In addition to deposits, York Federal
obtains funds from operations, loan repayments including monthly amortization
and prepayments, proceeds from sales of loans, loan participations, securities
held for trading, securities available for sale, advances from the FHLB of
Pittsburgh and other short-term borrowings. Fund inflows and outflows are
significantly influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of other sources of funds. They also may be
used on a longer term basis for general business purposes. York Federal has
borrowed primarily from the FHLB of Pittsburgh.
Deposits. York Federal offers a number of deposit accounts, including
passbook and statement savings accounts, NOW accounts, money market type
accounts and certificate accounts, including Jumbo certificate accounts,
ranging in maturity from seven days to six years. Deposit accounts vary as to
terms, with the principal differences being the minimum balance required, the
time period the funds must remain on deposit and the interest rate. Deposit
accounts are primarily held by customers within York Federal's primary market
area. At June 30, 1997 there were no broker-originated deposits. See Note 9 of
the Notes to Consolidated Financial Statements.
Changes in the composition of the Association's deposit portfolio were
due to customers reaction to the current rate environment in fiscal 1997. The
Association priced money market deposit accounts and certain certificate
accounts in order to maintain existing customers, extend maturities and
attract new customers searching for investment alternatives as other deposits
matured. This resulted in a shift in interest-bearing liabilities from low
cost transaction accounts to higher cost money market and certificate
accounts.
The following table indicates the amount of York Federal's
certificates of deposit of $100,000 or more by terms remaining to maturity as
of June 30, 1997.
Certificates
Maturity Period of Deposit
- --------------- ------------
(In thousands)
Three months or less.................... $ 38,737
Three through six months................ 14,990
Six through twelve months............... 11,975
Over twelve months...................... 11,979
--------
Total $ 77,681
========
Borrowings. See Note 10 of the Notes to Consolidated Financial
Statements incorporated by reference herein.
Yields Earned and Rates Paid
See pages 14 through 16 of the Corporation's Annual Report
incorporated by reference herein.
Subsidiaries of York Federal
Under OTS regulations, York Federal is permitted to invest an amount
equal to 2% of its assets in its service corporations, with an additional
investment of 1% of assets where such investment is primarily for inner-city
and community development purposes. Under such limitations, on June 30, 1997,
York Federal was authorized to invest up to approximately $34.9 million in
stock of, or loans to, service corporations. In addition, Federal
16
<PAGE>
<PAGE>
associations meeting regulatory net worth requirements and certain other tests
may invest up to 50% of the limitations on loans to one borrower in conforming
loans to service corporations. By meeting these requirements and tests, York
Federal, at June 30, 1997, was permitted to make approximately $7.0 million of
such conforming loans, for a total investment limitation of approximately
$41.9 million.
Advanced Real Estate Associates. Incorporated in 1985, Advanced Real
Estate Associates ("AREA") is a wholly owned subsidiary of the Association.
AREA engages in property management for certain real estate owned by the
Association. During 1997, AREA was inactive.
Residential Mortgage Corporation. Incorporated in 1994, Residential
Mortgage Corporation ("RMC") is a wholly owned subsidiary of the Association.
RMC engages in origination of residential mortgages through relationships with
prominent real estate firms in York and Lancaster County markets. During
1997, RMC was inactive.
Subsidiaries and Joint Ventures of the Corporation
The directors of all service corporations and subsidiaries consist
exclusively of persons who serve as either officers or directors of the
Corporation or York Federal.
Meridian Venture Partners ("MVP"). The Corporation invested $4.0
million in MVP. The net amount of the investment at June 30, 1997 including
the Corporation's share of reported gains (losses) recognized using the equity
method of accounting and partnership distributions is $3.9 million. MVP is an
equity oriented venture capital partnership organized under the laws of
Pennsylvania in February 1987, and licensed as a small business investment
company. The purpose of MVP is to make equity investments, primarily in
established companies (as opposed to start-up companies). These companies
represent a diversity of industries in various geographical locations.
Although a limited partner, the Corporation is represented on an advisory
board of MVP, which was established to advise and consult with the general
partners and assist in the evaluation of certain investment proposals. All
investment decisions, however, are made by the general partners of MVP. In
addition, the Corporation is represented on a valuation committee of MVP which
semi-annually analyzes the value of partnership investments with indicated
market valuation adjustments reflected in the operations of MVP ($297,000 of
pre-tax income during this fiscal year attributable to increased market value
of certain portfolio investments). As of June 30, 1997, MVP had total assets
of $48.3 million. As of September 30, 1994, the Small Business Administration
("SBA") was admitted as a Preferred Limited Partner to MVP. This admission
enables MVP to draw down additional capital from the SBA in the form of
Participating Securities. These securities share in distributions from MVP. As
of June 30, 1997, MVP had $23.7 million of Participating Securities
outstanding.
First Capital Brokerage Services, Inc. ("First Capital"). First
Capital is a wholly owned discount securities brokerage subsidiary that
provides services to customers of York Federal and the general public.
Operations commenced October 1987. First Capital's net worth at June 30, 1997
was $13,000 and its net loss for the year ended June 30, 1997 was $24,000.
Lenders Support Group ("LSG"). LSG performs residential construction,
environmental and home inspection services for York Federal and the general
public. During fiscal 1995, an affiliate company, Appraisal Services, Inc.,
which was primarily engaged in performing appraisals for York Federal and the
general public, was merged with LSG. Operations for the year ended June 30,
1997 resulted in net loss of $4,000. LSG's net worth was $89,000 at June 30,
1997 net of capital distributions to York Financial during fiscal 1997
totalling $20,000.
New Service Corp. ("New Service"). New Service Corp. primarily
engages in land acquisition, development and construction projects for
management or resale. New Service, is engaged in a joint venture
17
<PAGE>
<PAGE>
involving the acquisition and development of real estate. See Note 8 of the
Notes to Consolidated Financial Statements. In addition, New Service has
investments in real estate, primarily office buildings. Losses were realized
on operations of these properties due to a softer than anticipated rental
market resulting in an inability to increase rents and an inability to sell
certain units held for sale. New Service's net income for the year ended June
30, 1997 was $581,000 and was primarily a result of a gain on sale of a
limited partnership interest for $1.2 million which represents the planned
exit from a successful real estate development/management partnership. Prior
to such sale, equity infusions from York Financial were made to support cash
flow shortfalls totalling $300,000 for fiscal 1997. At June 30, 1997
stockholders' equity was $976,000. New Service is also a 100% owner of York
Financial Investment Corp. (YFIC). YFIC is incorporated in the state of
Delaware for the purpose of engaging in corporate activities confined to the
maintenance and management of its investments and the collection and
distribution of the income from such investment.
Y-F Service Corp. ("Y-F Service"). Y-F Service owns office facilities
which it leases to York Federal and affiliates and is engaged in land
acquisition, development and construction of future branch locations. During
fiscal 1996, Y-F Service substantially completed the construction of an office
building consisting of approximately 45,000 square feet of retail office
space. This building is partially occupied by the Association's administrative
support staff as well as unrelated third party leases. This construction
project included the restoration of an historically significant facade
partially funded by state grant monies and is representative of the
Corporation's ongoing investment in its community. Y-F Service's net income
was $207,000 for the year ended June 30, 1997. Stockholders' equity was $2.9
million at June 30, 1997.
First Capital Insurance Services Inc. (Formerly YF Insurance Agency)
Incorporated in 1992, First Capital Insurance Services Inc. is a wholly-owned
subsidiary of the Corporation First Capital Insurance Services, Inc. is
available to provide credit life and health insurance products to certain of
the insured institution's consumer loan customers.
REGULATION
General
As a federally chartered and federally insured thrift institution,
York Federal is subject to extensive regulation. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. The Association is regularly examined by its federal regulators
and files periodic reports concerning the Association's activities and
financial condition. The Association's relationship with its depositors and
borrowers also is regulated to a great extent by both federal and state laws,
especially in such matters as the ownership of savings accounts and the form
and content of the Association's mortgage documents.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department
of the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations affecting
federally insured savings associations and regularly examines these
institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12
FHLBs, is under the jurisdiction of the Federal Housing Finance Board
("FHFB"). The designated duties of the FHFB are to: supervise the FHLBs;
ensure that the FHLBs carry out their housing finance mission; ensure that the
FHLBs remain adequately capitalized and able to raise funds in the capital
markets; and ensure that the FHLBs operate in a safe and sound manner.
18
<PAGE>
<PAGE>
The Association, as a member of the FHLB of Pittsburgh, is required to
acquire and hold shares of capital stock in the FHLB of Pittsburgh in an
amount equal to the greater of (i) 1.0% of the aggregate outstanding principal
amount of residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or (ii) 1/20 of its advances
(borrowings) from the FHLB of Pittsburgh. The Association is in compliance
with this requirement with an investment in FHLB of Pittsburgh stock of $7.9
million at June 30, 1997.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Pittsburgh.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency established originally to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to preserve the safety and
soundness of the banking industry. The FDIC maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of deposits,
the FDIC has examination, supervisory and enforcement authority over all
savings associations.
The Association's deposit accounts are insured by the FDIC under the
SAIF to the maximum extent permitted by law. The Association pays deposit
insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital ("well capitalized,"
"adequately capitalized" or "undercapitalized"), which are defined in the same
manner as the regulations establishing the prompt corrective action system
under the FDIA as discussed below. The matrix so created results in nine
assessment risk classifications, with rates that until September 30, 1996
ranged from 0.23% for well capitalized, financially sound institutions with
only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the SAIF unless effective corrective action
is taken. York Federal's insurance premium rates were 0.18% and 0.064% in the
quarters ended March 31, 1997 and June 30, 1997, respectively.
Pursuant to the Deposit Insurance Fund ("DIF") Act, which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each
depository institution with SAIF-assessable deposits which resulted in the
SAIF achieving its designated reserve ratio. In connection therewith, the FDIC
reduced the assessment schedule for SAIF members, effective January 1, 1997,
to a range of 0% to 0.27%, with most institutions, including the Association,
paying 0%. This assessment schedule is the same as that for the BIF, which
reached its designated reserve ratio in 1995. In addition, since January 1,
1997, SAIF members, including York Federal, are charged an assessment of
0.065% of SAIF-assessable deposits for the purpose of paying interest on the
obligations issued by the Financing Corporation ("FICO") in the 1980's to help
fund the thrift industry cleanup. BIF-assessable deposits will be charged an
assessment to help pay interest on the FICO bonds at a rate of approximately
.013% until the earlier of December 31, 1999 or the date upon which the last
savings association ceases to exist, after which time the assessment will be
the same for all insured deposits. The Association's insurance premium in the
quarter ended December 31, 1996 was 0.18%, representing a transition rate from
0.23% through September 30, 1996 to the current 0.065% rate. The
Association's assessments expensed for the year ended June 30, 1997 equaled
$6.6 million (including the FDIC SAIF assessment of $5.3 million).
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates
the development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Association.
19
<PAGE>
<PAGE>
Liquidity Requirements. Under OTS regulations, each savings
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 5.0%) of its net withdrawable accounts plus short-term
borrowings. OTS regulations also require each savings institution to maintain
an average daily balance of short-term liquid assets at a specified percentage
(currently 1.0%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements. The Association has maintained
liquidity levels during the year ended June 30, 1997 in excess of regulatory
requirements.
Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions that it
regulates. The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action. Under the
regulations, an institution shall be deemed to be "well capitalized" if it has
a total risk-based capital ratio of 10.0% or more, has a Tier I risk-based
capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital
level for any capital measure. At June 30, 1997, the Association was
categorized as "well capitalized" under the prompt corrective action
regulations of the OTS. See Note 13 of the Notes to Consolidated Financial
Statements.
Standards for Safety and Soundness. The Federal Deposit Insurance Act
("FDIA") requires the federal banking regulatory agencies to prescribe, by
regulation, standards for all insured depository institutions relating to: (i)
internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
(v) asset growth; and (vi) compensation, fees and benefits. The federal
banking agencies have adopted regulations and Interagency Guidelines
Prescribing Standards for Safety and Soundness ("Guidelines"). The Guidelines
set forth the safety and soundness standards that the federal banking agencies
use to identify and address problems at insured depository institutions before
capital becomes impaired. The agencies also proposed asset quality and
earnings standards which, if adopted in final, would be added to the
Guidelines. If the OTS determines that the Association fails to meet any
standard prescribed by the Guidelines, the agency may require the Association
to submit to the agency an acceptable plan to achieve compliance with the
standard, as required by the FDIA. Management is aware of no conditions
relating to these safety and soundness standards which would require
submission of a plan of compliance.
Qualified Thrift Lender Test. The QTL test, requires that a savings
association maintain at least 65% of its total tangible assets in "qualified
thrift investments" on a monthly average basis in nine out of every 12 months.
As of June 30, 1997 the Association's QTL ratio of 89.6% was in
compliance with the current QTL requirement.
Capital Requirements. Under OTS regulations a savings association
must satisfy three minimum capital requirements: core capital, tangible
capital and risk-based capital. Savings associations must meet all of the
standards in order to comply with the capital requirements. Also see Note 13
of the Notes to Consolidated Financial Statements.
Limitations on Capital Distributions. OTS regulations require the
Association to give the OTS 30 days' advance notice of any proposed
declaration of dividends to York Financial, and the OTS has the authority
under its supervisory powers to prohibit the payment of dividends to York
Financial.
OTS regulations impose uniform limitations on the ability of savings
associations to engage in various distributions of capital such as dividends,
stock repurchases and cash-out mergers. The regulation utilizes a three-
20
<PAGE>
<PAGE>
tiered approach which permits various levels of distributions based primarily
upon a savings association's capital level.
The Association is currently meeting the criteria to be designated a
Tier 1 association and, consequently, could at its option (after prior notice
to, and no objection made by, the OTS) distribute up to 100% of its net income
during the calendar year plus 50% of its surplus capital ratio at the
beginning of the calendar year less any distributions previously paid during
the year or at June 30, 1997, $17.0 million.
Loans to One Borrower. Under the Home Owners' Loan Act ("HOLA"),
savings institutions are generally subject to the national bank limit on loans
to one borrower. Generally, this limit is 15% of the Association's unimpaired
capital and surplus, plus an additional 10% of unimpaired capital and surplus,
if such loan is secured by readily-marketable collateral, which is defined to
include certain financial instruments and bullion. The OTS by regulation has
amended the loans to one borrower rule to permit savings associations meeting
certain requirements, including capital requirements, to extend loans to one
borrower in additional amounts under circumstances limited essentially to
loans to develop or complete residential housing units. At June 30, 1997, the
Association's limit on loans to one borrower was $14.0 million. At June 30,
1997, the Association's largest aggregate amount of loans to one borrower was
$6.4 million.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders. York Federal has applied and, subsequent to June 30,
1997, received approval to transfer York Financial Investment Corp. to York
Federal as an operating subsidiary.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
the purchase of assets, the issuance of a guarantee and similar types of
transactions. Any loan or extension of credit by the Association to an
affiliate must be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. The Association has not been affected by
the rules regarding transactions with affiliates.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such
persons, is governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and
21
<PAGE>
<PAGE>
Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk
of repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on
the Association's capital position, and requires certain board approval
procedures to be followed. The OTS regulations, with certain minor variances,
apply Regulation O to savings institutions.
Savings and Loan Holding Company Regulations
The Corporation is subject to certain restrictions under the HOLA and
the OTS regulations issued thereunder. Such restrictions generally concern,
among others, acquisitions of other savings associations and savings and loan
holding companies, and certain activities in the event the Corporation becomes
a multiple savings and loan holding company by acquiring another savings
association as a separate subsidiary.
Additionally, the HOLA requires any savings and loan holding company
that controls a savings association that fails the QTL test, as explained
under "-- Federal Regulation of Savings Associations -- Qualified Thrift
Lender Test," must, within one year after the date on which the association
ceases to be a QTL, register as and be deemed a bank holding company subject
to all applicable laws and regulations.
Federal and State Taxation
Federal Income Taxation
-----------------------
General. The Corporation and the Association report their income on a
-------
fiscal year basis using the accrual method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax
rules applicable to the Association or the Corporation.
Tax Bad Debt Reserves. For taxable years beginning prior to January
----------------------
1, 1996, savings institutions such as the Association which met certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") were permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, have been deducted in arriving at their taxable
income. The Association's deduction with respect to "qualifying loans," which
are generally loans secured by certain interests in real property, could have
been computed using an amount based on the Association's actual loss
experience (the experience method), or a percentage equal to 8% of the
Association's taxable income, computed with certain modifications and reduced
by the amount of any permitted additions to the nonqualifying reserve. The
Association's deduction with respect to nonqualifying loans was computed under
the experience method, which essentially allows a deduction based on the
Association's actual loss experience over a period of several years. Each year
the Association selected the most favorable way to calculate the deduction
attributable to an addition to the tax bad debt reserve. The Association used
the experience method bad debt deduction for the taxable years ended June 30,
1997, 1996 and 1995.
In August 1996, the provisions repealing the reserve method of
accounting for bad debt reserves were passed by Congress as part of "The Small
Business Job Protection Act of 1996." As a result, savings associations are no
longer able to calculate their deduction for bad debts using the
percentage-of-taxable-income method. Instead, savings associations are
required to compute their deduction based on specific charge-offs during the
taxable year or, if the savings association or its controlled group had assets
of less than $500 million, based on actual loss experience over a period of
years. This legislation also requires savings associations to recapture into
income over a six-year period their post-1987 additions to their bad debt tax
reserves, thereby generating additional tax liability.
22
<PAGE>
<PAGE>
At June 30, 1997, the Association's tax bad debt reserve approximated the base
year reserve and therefore no amounts are required to be recaptured into
income.
Distributions. To the extent that the Association makes distributions
-------------
to the Corporation that are considered as made: (i) from the reserve for
losses on qualifying real property loans; or (ii) from the supplemental
reserve for losses on loans, then an amount based on the amount distributed
will be included in the Association's taxable income. Distributions which may
be considered made from the reserves include distributions in excess of the
Association's current and accumulated earnings and profits, distributions in
redemption of stock, and distributions in partial or complete liquidation. Any
dividends to the Corporation that would reduce amounts appropriated to the
Association's bad debt reserve and deducted for federal income tax purposes
would create a tax liability for the Association. The amount of additional
taxable income attributable to a distribution that is deemed to come from the
reserves is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, the Association
makes a distribution, then approximately one and one-half times the amount so
used would be includable in gross income for federal income tax purposes,
assuming a 35% corporate income tax rate (exclusive of state and local taxes).
See "Regulation" for limits on the payment of dividends by the Association.
Dividends paid out of the Association's current or accumulated earnings and
profits, as calculated for federal income tax purposes, will not be considered
to result in a distribution from the Association's bad debt reserve. The
Association does not intend to pay dividends that would result in a recapture
of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
---------------------------------
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the tax bad debt reserve deduction using the percentage of taxable income
method over the deduction that would have been allowable under the experience
method is treated as a preference item for purposes of computing the AMTI. In
addition, only 90% of AMTI can be offset by net operating loss carryovers.
AMTI is increased by an amount equal to 75% of the amount by which the
Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses).
For taxable years beginning after December 31, 1986, and before January 1,
1996, an environmental tax of .12% of the excess of AMTI (with certain
modification) over $2.0 million is imposed on corporations, including the
Association, whether or not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Corporation may
----------------------------------------------
exclude from its income 100% of dividends received from the Association as a
member of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Corporation and the
Association will not file a consolidated tax return, except that if the
Corporation or the Association owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
York Financial and its subsidiaries file consolidated federal income
tax returns. The Corporation's income tax returns have not been audited by
federal or state authorities within the last five years.
See Notes 1, 11 and 13 of the Notes to Consolidated Financial
Statements contained in the Annual Report.
State Taxation
--------------
The Association is taxed under the Pennsylvania Mutual Thrift
Institution Tax Act, which exempts the Association from all other taxes
imposed by the Commonwealth of Pennsylvania for state income tax purposes, and
from all local taxation imposed by political subdivisions, except taxes on
real estate and real estate transfers. The current rate of this tax is 11.5%.
23
<PAGE>
<PAGE>
Competition
York Federal's most direct competition for savings deposits has
historically come from savings and loan associations, savings banks and
commercial banks located in its primary market area. It also faces competition
for savings from money market mutual funds, securities brokerage firms and
credit unions. Legislative and regulatory measures have increased competition
between thrift institutions and other financial institutions, such as
commercial banks, by expanding the ranges of financial services that may be
offered by thrift institutions, such as demand deposits, trust services and
consumer and commercial loans, while reducing or eliminating the difference
between thrift institutions and commercial banks with respect to long-term
lending authority, taxation and maximum rates of interest that may be paid on
savings deposits. York Federal competes for savings by offering depositors a
wide variety of savings accounts at competitive interest rates, convenient
branch locations, the ability to make deposits or withdrawals at any branch,
tax-deferred retirement programs and other services such as cashiers' checks
and travelers' checks.
York Federal's competition for real estate loans comes principally
from other savings and loan associations, commercial banks, mortgage banking
companies, insurance companies and other institutional lenders. York Federal
competes for loans principally through the interest rate and loan fees it
charges and the efficiency and quality of the services it provides borrowers,
real estate brokers, and home builders.
Personnel
As of June 30, 1997, the Corporation and its subsidiaries had 370
full-time employees and 51 part-time employees. The employees are not
represented by a collective bargaining agreement. The Corporation believes its
employee relations are good.
Executive Officers. The executive officers of the Corporation and
Association are as follows:
Age at
June 30,
Name 1997 Position
- ---- -------- ----------------------------------------
Corporation Association
----------------------------------------
Robert W. Pullo 57 Director, President and Chairman of
and Chief Executive the Board and
Officer Chief Executive
Officer
Robert A. Angelo 50 Executive Vice President, President and
Secretary and General Chief Operating
Counsel Officer
Robert C. Herzberger 43 Senior Vice President Executive Vice
President
James H. Moss 43 Senior Vice President Executive Vice
Financial Officer/ President and
Treasurer Chief Financial
Officer
24
<PAGE>
<PAGE>
In addition to the above, the Association's executive officer group
includes:
Age at
June 30,
Name 1997 Position
- ---- -------- --------
Lynn D. Kramer-Crenshaw 46 Executive Vice President
Harry M. Zimmerman 50 Executive Vice President
Rebecca S. McClure, Esquire 37 Senior Vice President,
Secretary and General Counsel
Robert W. Pullo of York, Pennsylvania, is President and Chief
Executive Officer of York Financial Corp. and a member of the Board of
Directors. He is also Chairman of the Board of Directors and Chief Executive
Officer of York Federal Savings and Loan Association, as well as Chairman of
the Board of Directors of subsidiary companies - First Capital Brokerage
Services, Inc., Lenders Support Group, Inc., New Service Corp., York Financial
Investment Corp., First Capital Insurance Services, Inc. and Y-F Service
Corp., Inc. He also serves on the Advisory Board of Meridian Venture
Partnership. He is a member of the Board of Directors of the Community Bankers
Association of Pennsylvania and a member of the American Community Bankers'
national task force for electronic banking. He is the founding and current
Chairman of the Board of the White Rose Foundation and is President of the
Advisory Board for Penn State York. Mr. Pullo serves on the Board of Directors
and Executive Committees of Memorial Hospital of York and the parent company
Memorial Health Systems Corporation. He also serves on the Board of Trustees
of the York YMCA and the York YWCA. He is a member of the Advisory Board of
Junior Achievement, Youth Build, and the Junior League of York. He is also a
member of the Board of Directors of the Jewish Community Center of York,
Better York, the Strand Capitol Performing Arts Center, and the founding Board
of the Susan P. Byrnes Health Education Center of Central Pennsylvania. He was
the charter Chairman of the United Way Housing Initiatives and is past
Chairman of the United Way Annual Fund Raising Campaign. He is also a past
Chairman of the York Area Chamber of Commerce. Mr. Pullo is the recipient of
the Minority Business Association's Volunteer of the Year award and the
Excellence award from the Human Relations Commission for his work with
minorities.
Robert A. Angelo, Esq., of York, Pennsylvania is Executive Vice
President, Secretary and General Counsel of York Financial and President and
Chief Operating Officer of York Federal Savings and Loan. Prior to becoming
Executive Vice President in August, 1991, Mr. Angelo was Senior Vice President
of the Corporation. He obtained a Bachelor of Science Degree from La Salle
University, Philadelphia, Pennsylvania and his Juris Doctor Degree from the
University of Baltimore, School of Law, Baltimore, Maryland. Mr. Angelo is
past Chairman of the Pennsylvania Association of Savings Institutions Legal
Committee. Mr. Angelo is past Chairman of the Board and Executive Committee
of the Housing Initiatives Corporation of the United Way of York County. He
is a member of the Board of Directors of the Small Enterprise Development
Company, Affordable Housing Endeavors, Inc. and Misericordia Convalescent
Home.
Robert C. Herzberger of Stewartstown, Pennsylvania, is Senior Vice
President of York Financial and Executive Vice President of York Federal
Savings and Loan. He earned a Masters of Science Degree from the University of
Baltimore and a Bachelor of Science Degree from the University of Maryland.
Mr. Herzberger is a member of the Board of Directors and Chairman of Junior
Achievement of South Central Pennsylvania. He is a faculty member at Penn
State York. Mr. Herzberger has also taught at York College of Pennsylvania,
University of Baltimore and the College of Notre Dame. He is a member of the
Baltimore Economic Society. From 1976 to 1986 he was Assistant Vice President
of the Bank of Baltimore.
25
<PAGE>
<PAGE>
James H. Moss joined York Federal in November 1984 and currently
serves as Senior Vice President, Chief Financial Officer/Treasurer for York
Financial and Executive Vice President of the Administrative Services Group
and Chief Financial Officer/Treasurer for York Federal Savings and Loan. Mr.
Moss is a Certified Public Accountant and from January 1978 to November 1984
served in various audit capacities with Ernst & Young LLP. He is a member of
the American and Pennsylvania Institutes of Certified Public Accountants. In
addition, Mr. Moss serves as a member of the Board of Directors of the York
County United Way and is active in the United Way's Fund Distribution
Division.
Lynn D. Kramer-Crenshaw is Executive Vice President of the Retail
Group of York Federal Savings and Loan. A graduate of Towson State University,
Ms. Kramer had over 15 years of commercial banking experience before joining
York Federal as Vice President of Marketing in 1993. A resident of northern
Baltimore County, Maryland, Ms. Kramer is a past board member and chairman of
the Marketing Committee for Child Care Consultants, a York County non-profit
organization. She is a also a past board member of the Central Atlantic Bank
Marketing Association and a past member of the Citizen Advisory Committee for
the Gunpowder Falls State Park and North Central Hike and Bike Trail.
Harry M. Zimmerman of York, Pennsylvania is the Executive Vice
President of the Business Banking Group of York Federal Savings and Loan and
has over 29 years of experience in the banking industry. From 1992 to 1997, he
was Senior Vice President and Corporate Banking Division Manager at Bank One
in Youngstown, Ohio. He is a graduate of the University of Delaware with a
Bachelor of Science Degree in Business Management and Psychology and has
completed studies at the University of Oklahoma, Graduate School of Banking
and the Rutgers University Stonier Graduate School of Banking. Current
responsibilities include overseeing the activities of the Business Banking
Group, which includes all commercial lending, commercial real estate lending
and cash management services. He is also a member of York Federal's Senior
Loan Committee. He has been active in numerous civic and community
organizations, including the York County Industrial Development Corporation,
the York County Industrial Development Authority, the United Way of York
County, Memorial Hospital, York Hospital and the York YMCA.
Rebecca S. McClure is Senior Vice President of the Corporate Services
Group and Secretary/General Counsel for York Federal Savings and Loan. Prior
to her promotion in October 1994, Ms. McClure was a Staff Attorney for the
Association responsible for all litigation matters. She obtained a Bachelor
of Arts Degree from Franklin and Marshall College, Lancaster, Pennsylvania in
1981 and a Juris Doctor Degree from Villanova University School of Law,
Villanova, Pennsylvania in 1986. She is licensed to practice in Pennsylvania
and Maryland. Ms. McClure is a member of the Board of Directors of the York
Chapter of the American Red Cross and chairperson of its Human Resource
committee. She was in private practice with the law firm of Zimmerman,
Pfannebecker and Nuffort, Lancaster, Pennsylvania for the four years prior to
joining York Federal's Legal Staff in May of 1990.
26
<PAGE>
<PAGE>
Item 2. Properties
- -------------------
The following table sets forth the location of York Federal's offices
and other facilities used in operations as well as certain additional
information relating to these offices and facilities as of June 30, 1997.
Year Expiration
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
- --------------- -------- ----------- ----------- ------- ---------
Main Office:
101 South George Street
York, PA 1979 $ 4,241,960 $ 2,555,324 Owned --
Branch Offices:
2690 S. Queen Street
York, PA 1993 286,022 235,282 Owned --
Northern Way
York, PA 1995 509,781 475,121 Owned --
Haines Acre Shopping
Center
York, PA 1975 126,523 71,762 Leased 10/05
1940 Carlisle Road
York, PA 1972 337,397 157,603 Owned --
1781 West Market Street
York, PA 1986 360,053 286,498 Owned --
1442 Bannister Street
West York, PA 1979 298,942 234,272 Owned --
269 Penrose Place
Carlisle, PA 1997(2) 7,321 5,539 Leased 6/07
880 W. Broadway
Red Lion, PA 1978 340,333 218,239 Owned --
Main Street & Forrest
Avenue
Shrewsbury, PA 1975 258,970 147,533 Owned --
798 Simpson Ferry Road
Mechanicsburg, PA 1975 263,215 197,337 Owned --
1123 W. Governor Road
Hershey, PA 1973 393,717 213,559 Owned --
(table continued on following page)
27
<PAGE>
<PAGE>
Year Expiration
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
- --------------- -------- ----------- ----------- ------- ---------
75 Zimmerman Drive
Camp Hill, PA 1979 $ 352,685 $ 226,900 Owned --
1758 Oregon Pike
Lancaster, PA 1979 392,769 254,081 Owned --
201 Dart Drive
Hanover, PA 1980 389,952 279,940 Owned --
499 Tyler Run Rd.
York, PA 1989 314,390 264,659 Owned --
4157 N. George Street
York, PA 1989 354,445 286,196 Owned --
3995 E. Market Street
York, PA (3) 1990 1,781,987 1,301,076 Owned --
1816 Emmorton Road
Bel Air, MD 1991 720,767 613,239 Owned --
2006 Rock Spring Road
Bel Air, MD 1991 725,420 615,928 Owned --
39 Hanover Street
Spring Grove, PA 1993 419,621 381,500 Owned --
1700 Baltimore Pike
Hanover, PA 1993 385,815 343,376 Owned --
Other Facilities:
Haines Road MAC
York, PA 1987 28,038 8,411 Leased
10/05
Red Lion MAC
Red Lion, PA 1988 21,330 15,236 Owned --
30 East King Street
York, PA 1973 747,489 351,677 Owned --
42 East King Street
York, PA 1989 229,790 175,178 Owned --
(table continued on following page)
28
<PAGE>
<PAGE>
Year Expiration
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
- --------------- -------- ----------- ----------- ------- ---------
134 South Duke Street Parking
York, PA Lot $ 25,470 $ 25,470 Owned --
144 South Duke Street Parking
York, PA Lot 136,926 126,957 Owned --
104-126 South George
Street 1996
York, PA 4,466,986 4,344,421 Owned --
- ---------------
(1) Represents the net book value of land and buildings owned by York
Financial or in the case of leased property the value of leasehold
improvements.
(2) Branch previously located at MJ Carlisle Mall, opened in 1978. Prior
to June 30, 1997, this leased facility was renovated at an approximate
cost of $114,000 with payments made subsequent to June 30, 1997.
(3) Approximately 25.0% of the building is used as branch office with the
remainder of the building used as an income producing property.
As of June 30, 1997, the total book value of office properties and
equipment owned by the Corporation and its subsidiaries, less allowances for
depreciation and amortization, was $17.3 million.
Item 3. Legal Proceedings
- --------------------------
Periodically, there are various claims and lawsuits involving York
Financial, York Federal and its subsidiaries mainly as defendants, such as
claims to enforce liens, condemnation proceedings on properties in which York
Federal holds security interests, claims involving the making and servicing of
real property loans and other issues incident to York Federal's business. In
the opinion of management and the Corporation's legal counsel, no material
loss is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
- --------------------------------------------------------------
The information contained under the caption "Market Information" in
the Annual Report is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the table captioned "Selected
Consolidated Financial Data" in the Annual Report is incorporated herein by
reference.
29
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations of York Financial" in the Annual Report is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The report of independent auditors and audited consolidated financial
statements contained in the Annual Report which are listed under Item 14
herein, and the information contained in the section captioned "Supplementary
Consolidated Financial Data" in the Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
- ---------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors" in the Corporation's definitive proxy statement for the
Corporation's 1997 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference. Information on the Corporation's executive
officers is included in "Part I - Item 1. - Business" in this Form 10-K.
The information contained under the section captioned "Proposal I -
Election of Directors -- Compliance With Section 16(a) of the Exchange Act" in
the Proxy Statement is incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I -
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Voting Securities and
Principal Holders Thereof" and "Proposal I -- Election of
Directors" of the Proxy Statement.
30
<PAGE>
<PAGE>
(c) Changes In Control
The Corporation is not aware of any arrangements, including any
pledge by any person of securities of the Corporation, the
operation of which may at a subsequent date result in a change
in control of the Corporation.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Principal Holders
Thereof" and "Proposal I -- Election of Directors" of the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) (1) (2) Report of Independent Auditors*
Consolidated Financial Statements*
(a) Consolidated Balance Sheets, June 30, 1997 and 1996
(b) Consolidated Statements of Income For the Years
Ended June 30, 1997, 1996 and 1995
(c) Consolidated Statements of Stockholders' Equity For
the Years Ended June 30, 1997, 1996 and 1995
(d) Consolidated Statements of Cash Flows For the Years
Ended June 30, 1997, 1996 and 1995
(e) Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements have
been omitted as the required information is inapplicable.
(3) Exhibits
(3.1) Articles of Incorporation of York Financial Corp.**
(3.2) Bylaws of York Financial Corp.**
(10)(a) York Financial Corp. Incentive Stock Option Plan**
(b) York Financial Corp. Nonqualified Stock Option Plan
for Directors***
(c) 1992 York Financial Corp. Stock Option and
Incentive Plan***
(11) Statement Regarding Computation of Per Share
Earnings
(13) York Financial Corp. 1997 Annual Report to
Stockholders
(21) Parent and Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(footnotes on following page)
31
<PAGE>
<PAGE>
(b) The Corporation did not file any Reports on Form 8-K during the
quarter ended June 30, 1997.
- ---------------------
* Incorporated by reference from the Annual Report attached as an exhibit
hereto.
** Incorporated by reference from the Form S-4 filed by the Corporation
under its former name of First Capital Group, Inc. with the Securities
and Exchange Commission on September 19, 1985.
*** Incorporated by reference from the 1992 Annual Meeting Proxy Statement
filed by the Corporation with the Securities and Exchange Commission on
September 24, 1992.
32
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
Date: September 26, 1997 By: /s/ Robert W. Pullo
-----------------------------------
Robert W. Pullo
President and Chief Executive
Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert W. Pullo President, Chief Executive September 26, 1997
- ------------------------- Officer and Director
Robert W. Pullo (Principal Executive Officer)
/s/ James H. Moss Senior Vice President September 26, 1997
- ------------------------- (Principal Financial
James H. Moss and Accounting Officer)
/s/ Thomas W. Wolf Chairman of the Board September 26, 1997
- ------------------------- of Directors
Thomas W. Wolf
/s/ Cynthia A. Dotzel Director September 26, 1997
- -------------------------
Cynthia A. Dotzel
/s/ Robert W. Erdos Director September 26, 1997
- -------------------------
Robert W. Erdos
/s/ Randall A. Gross Director September 26, 1997
- -------------------------
Randall A. Gross
<PAGE>
<PAGE>
/s/ Paul D. Mills Director September 26, 1997
- -------------------------
Paul D. Mills
/s/ Byron M. Ream Director September 26, 1997
- -------------------------
Byron M. Ream
/s/ Carolyn E. Steinhauser Director September 26, 1997
- --------------------------
Carolyn E. Steinhauser
/s/ Robert L. Simpson Director September 26, 1997
- -------------------------
Robert L. Simpson
<PAGE>
<PAGE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Twelve Months Ended
June 30,
1997 1996
-------- --------
(Dollars in thousands,
except per share data)
Primary:
Average shares outstanding............... 6,776,631 6,542,626
Net effect of dilutive stock
options -- based on the treasury stock
method using average market price....... 402,961 417,432
--------- ---------
Totals............... 7,179,592 6,960,058
========= =========
Net income................................. $ 7,087 $ 10,343
========= =========
Per share amount........................... $ 0.99 $ 1.49
========= =========
Fully diluted:
Average shares outstanding................. 6,776,631 6,542,626
Net effect of dilutive stock options --
based on the treasury stock method using
quarter end market price or average
market price whichever is greater......... 482,090 404,041
--------- ---------
Totals............... 7,258,721 6,946,667
========= =========
Net income................................. $ 7,087 $ 10,343
========= =========
Per share amount........................... $ 0.98 $ 1.49
========= =========
<PAGE>
EXHIBIT 13
1997 Annual Report to Stockholders
<PAGE>
<PAGE>
YORK FINANCIAL CORP.
ANNUAL REPORT 1997
<PAGE>
<PAGE>
A MESSAGE FROM THE PRESIDENT
It's been an interesting and deeply satisfying year for York Financial Corp.,
featuring three milestones, a 13-year trend of positive earnings and
dividends, a one-time financial readjustment that will yield long-term
financial rewards, and a growing commitment to the communities we serve.
THE MILESTONES
This year our total stockholders' equity topped the $100 million mark,
reaching $100,083,000 as of June 30, 1997. As you probably know, this moves us
into the category of companies that stock analysts like to follow. And, given
our performance record and prospects for growth, we are glad to have them
watching.
We also crossed another threshold. Total assets increased 4.7% for the year,
enabling us to accumulate an impressive total of $1,162,393,000 in assets by
June 30, 1997.
Finally, consumer loans outstanding balances grew rapidly, with a 17.1%
increase over the previous year.
1
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<PAGE>
13 YEARS OF EARNINGS AND DIVIDEND GROWTH
We have issued stock dividends/splits every year since becoming a
publicly-traded company, with a 10% stock dividend on the October 1996
declaration date and a cash dividend pay-out of $0.57 for the year ending June
30, 1997.
Also, we've had an uninterrupted earnings record since going public, with
total earnings of $7,087,000 and earnings per share of $0.99 for the year
ending June 30, 1997. Book value per share at June 30, 1997 was $14.28.
We are also happy to report that Bauer Financial Reports, Inc., a
nationally-recognized bank research firm, has awarded us their coveted
"Superior 5-Star" rating for the 12th consecutive quarter.
THE NOT-SO-BAD NEWS THAT'S ACTUALLY GOOD NEWS
Due to circumstances beyond our control, we've experienced our first and only
interruption to our quarterly profitability as a public-traded company. But in
the long run, we'll be better off for it. Like all FDIC/SAIF members, we were
required to participate in the recapitalization of the Savings Association
Insurance Fund, or SAIF.
This resulted in an external, non-recurring, pre-tax charge of $5,310,000.
From now on, however, our deposit insurance premiums will be substantially
lower, so we will quickly recoup this expenditure and look forward to years of
reduced insurance costs.
PROVING YOU DON'T HAVE TO BE WORLDWIDE TO BE WORLD-CLASS
At a time when local communities need more attention than ever, community
banks are being swallowed up in waves of mergers and acquisitions.
Our community orientation sets us apart in the areas we serve. As local people
making decisions with a true understanding of and concern about local needs,
we strengthen the communities we serve, both financially and socially. Not
only is this good citizenship, it's good business. Our most recent corporate
advertising campaign, "You Don't Have To Be Worldwide To Be World-Class",
which features the globe shown in this report, echoes this community
commitment.
Operating on the promise that people buy trust before they buy product, we've
always worked energetically - investing a great deal of time and money - to
build this intangible yet invaluable asset. By providing world-class services
to the people who live and work in our world of south central Pennsylvania and
northern Maryland, we've earned an enviable share of business in the heart of
one of the most populous and prosperous regions of the country. There are many
ways to reach out to communities we serve.
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Consider these two examples from this past year. The first is postage stamps.
People need them, and getting them can be quite an inconvenience. So, we've
begun dispensing postage stamps through selected ATM machines. There's no
profit in this, but lots of goodwill. The other example is our sponsorship of
a local appearance by former British Prime Minister Margaret Thatcher . This
great leader, who played a major role in ending the Cold War, not only honored
and enriched our community by her very presence, she also enlightened us on a
subject that's important in any modern community- family structure. It's
activities like these that define the value of a community bank like York
Federal. And now, we're about to move into a new era of commitment to local
communities.
This year, we've established a new Business Banking Group. Designed to serve
as a platform for a wide range of services to build the strength of the local
economy, this group will also fill a critical void by providing commercial
loans to the middle market segment. This will not only stimulate local growth
and stability, but also diversify our income stream an make us less dependent
on the highly competitive mortgage market.
LOOKING FORWARD TO ANOTHER YEAR OF GROWTH AND INVOLVEMENT
We believe our prospects for the coming year are excellent. We anticipate
growth in our traditional areas of business and foresee a quick start for our
new Business Banking Group. Now that financial institutions in Pennsylvania
will be allowed to sell insurance, we are actively pursuing expert partners to
help us make it a vital part of our relationships with our customers. And with
the SAIF recapitalization behind us, the way is paved for a return to our
historic earning pattern.
I'd like to thank all our employees for their outstanding performance on the
job and their generous and spirited outreach into the communities we serve.
We would like to encourage you, our stockholders, to improve the quality of
your investment and the profitability of York Financial Corp. by taking
advantage of our excellent financial services and becoming customers of York
Federal.
Sincerely
/s/Robert W. Pullo
Robert W. Pullo
President and Chief Executive Officer
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OUR VISION
When individuals and businesses in the communities we serve are in need
of high quality financial services, they select York Financial Corp.
OUR MISSION
The mission of York Financial Corp. is to achieve superior financial
performance through the development of mutually beneficial relationships with
our constituents, including customers, employees, stockholders, vendors and
the community.
TABLE OF CONTENTS
Page 1 - President's Message
Page 6 - Consolidated Financial Highlights
Page 6 - Market Information
Page 7 - Selected Consolidated Financial Data
Page 8 - Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations of
York Financial
Page 22 - Report of Management
Page 23 - Report of Independent Auditors
Page 24 - Consolidated Financial Statements
Page 53 - Supplementary Consolidated Financial Data
Page 54 - Directors and Officers
Page 56 - Branch Offices
Page 57 - Corporate Organization
Page 57 - Corporate Information
5
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York Financial Corp. and Subsidiaries
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands, except per share data) For the year ended June 30
- ------------------------------------- ---------- ---------- --------
1997 1996 % CHANGE
- ------------------------------------- ---------- ---------- --------
GROWTH
- ------------------------------------- ---------- ---------- --------
Average assets $1,160,893 $1,049,894 10.6%
Average loans 989,670 895,912 10.5%
Average deposits 949,903 869,370 9.3%
Average stockholders' equity 95,023 89,383 6.3%
OPERATING PERFORMANCE
- ------------------------------------- ---------- ---------- --------
Net interest income $35,853 $34,975 2.5%
Provision for loan losses 2,424 2,300 5.4%
Other income 8,696 8,630 0.8%
Other expenses 31,163(1) 24,450 27.5%
Net income 7,087 10,343 (31.5%)
FINANCIAL RATIOS (1)
- ------------------------------------- ---------- ---------- --------
Return on average assets 0.61% 0.99% (38.4%)
Return on average stockholders' equity 7.46% 11.57% (35.5%)
STOCK PERFORMANCE (1) (2)
- ------------------------------------- ---------- ---------- --------
Net income $0.99 $1.49 (33.6%)
Book value per share 14.28 13.97 2.2%
Market value per share 19.88 15.23 30.5%
Cash dividends paid per share 0.57 0.51 11.8%
MARKET INFORMATION
The common stock of York Financial Corp. is traded on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National
Market System under the symbol YFED. At the close of business on September 2,
1997, there were approximately 2,700 stockholders of record owning 7,040,278
outstanding shares of common stock. This does not reflect the number of
persons or entities who hold their stock in nominee or "street" name through
various brokerage firms.
The table below sets forth the quarterly range of high and low closing
sales prices for York Financial Corp. Common Stock as reported by Nasdaq and
dividends declared per common share.
Cash
Market Price Dividends(2)(3)
- ------------------------------------- ---------- ---------- --------
High (2) Low (2)
- ------------------------------------- ---------- ---------- --------
Fiscal 1997
1st quarter $16.59 $14.55 $0.136
2nd quarter 18.41 16.00 0.137
3rd quarter 19.75 16.00 0.150
4th quarter 20.00 17.75 0.150
- ------------------------------------- ---------- ---------- --------
$0.573
- ------------------------------------- ---------- ---------- --------
Fiscal 1996
1st quarter $16.32 $13.02 $0.124
2nd quarter 17.15 14.77 0.124
3rd quarter 16.82 14.89 0.128
4th quarter 16.36 15.00 0.136
- ------------------------------------- ---------- ---------- --------
$0.512
- ------------------------------------- ---------- ---------- --------
(1) Includes one-time special assessment of $5.3 million pre-tax ($3.2 million
net of taxes) to recapitalize the Savings Association Insurance Fund
(SAIF)
of the Federal Deposit Insurance Corporation (FDIC) in accordance with the
Deposit Insurance Funds Act enacted September 30, 1997.
(2) Market prices and dividends per share are adjusted for stock dividends
effected through June 30, 1997.
(3) Restrictions are placed on the Corporation's ability to pay cash dividends
as discussed in Note 13 of the Notes to Consolidated Financial Statements.
6
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Selected Consolidated Financial Data
June 30
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- --------
(Dollars in Thousands)
Assets............ $1,162,393 $1,109,804 $1,009,918 $888,543 $885,467
Short-term
investments..... 1,527 2,207 19,861 53,794 51,754
Loans held for
sale, net....... 4,882 5,686 6,450 10,314 18,361
Securities and
Federal Home
Loan Bank stock. 83,708 90,859 70,490 82,573 64,231
Loans receivable,
net............. 997,841 938,570 845,205 669,850 675,024
Deposits.......... 993,106 908,123 832,056 785,483 786,550
Borrowings........ 46,236 74,380 65,759 1,668 3,853
Stockholders'
equity.......... 100,083 93,540 85,330 78,626 70,556
Loans serviced
for others...... 548,202 593,166 571,351 563,595 506,561
Number of:
Real estate
loans
outstanding.... 9,471 9,724 9,786 9,063 9,558
Loans serviced
for others..... 8,484 9,649 9,648 9,579 8,888
Deposit
accounts....... 128,211 118,758 114,541 112,271 113,371
Offices........ 22 22 22 22 22
Year Ended June 30
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- --------
(Dollars in Thousands, Except Per Share Data)
Interest income... $87,641 $80,880 $68,155 $62,235 $66,421
Interest expense.. 51,788 45,905 36,402 30,798 35,046
------- ------- ------- ------- -------
Net interest
income.......... 35,853 34,975 31,753 31,437 31,375
Provision for
loan losses..... 2,424 2,300 2,340 2,200 2,515
------- ------- ------- ------- -------
Net interest
income after
provision for
loan losses..... 33,429 32,675 29,413 29,237 28,860
Other income...... 8,696 8,630 5,706 5,786 9,106
Other expenses.... 31,163(1) 24,450 22,616 23,384 23,889
------- ------- ------- ------- -------
Income before
income taxes and
cumulative effect
of change in
accounting
principle....... 10,962 16,855 12,503 11,639 14,077
Provision for
income taxes.... 3,875 6,512 4,837 4,353 5,254
------- ------- ------- ------- -------
Income before
cumulative effect
of change in
accounting
principle....... 7,087 10,343 7,666 7,286 8,823
Cumulative effect
of change in
accounting
principle....... -- -- -- 2,088 --
------- ------- ------- ------- -------
Net income........ $7,087 $10,343 $7,666 $9,374 $8,823
======= ======= ======= ======= =======
Per share data:
Net income...... $0.99 $1.49 $1.14 $1.41 $1.37
Cash dividends
paid........... $0.57 $0.51 $0.47 $0.45 $0.41
Book value...... $14.28 $13.97 $13.01 $12.26 $11.37
Shares outstand-
ing (year end). 7,008,347 6,696,494 6,560,558 6,412,468 6,202,428
Weighted average
shares......... 7,179,592 6,960,058 6,728,244 6,647,736 6,407,172
Other financial ratios:
Return on
average assets. 0.61% 0.99% 0.83% 1.05% 1.01%
Return on
average equity. 7.46% 11.57% 9.39% 12.30% 13.38%
Dividend payout
ratio.......... 55.30% 32.69% 39.94% 29.62% 28.88%
Average equity
to average
assets......... 8.19% 8.51% 8.85% 8.55% 7.53%
All per share data is adjusted for stock dividends
effected through June 30, 1997.
(1) Includes one-time special assessment of $5.3 million pre-tax ($3.2
million net of taxes) to recapitalize the of the FDIC in accordance with
the Deposit Insurance Funds Act enacted September 30, 1996.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
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 annual 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 June 30, 1997, the Corporation had consolidated assets of $1.2
billion, total deposits of $993.1 million and stockholders' equity of $100.1
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. The result of this origination and funding activity was a $75.1
million liability sensitive gap at the one year time period at June 30, 1997.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
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 for various time frames as of June 30, 1997.
Fixed rate loans are shown in the time frame corresponding to contractual
principal amortization schedules, adjusted for annual prepayment assumptions
based on market expectations regarding future prepayment speeds. Adjustable
rate loans are shown in the time frame corresponding to the next contractual
interest rate adjustment date. Passbook and NOW accounts are assumed to be
subject to repricing throughout the periods shown based on OTS statistical
information.
Interest Sensitivity Gap Analysis
Subject to Repricing
--------------------
0-30 31-90 91-365 1-5 Over 5
Days Days Days Years Years Total
------- ------- -------- -------- -------- --------
(Dollars in Thousands)
Interest-earning
assets:
Loans (1)....... $133,470 $85,160 $335,592 $330,653 $117,848 $1,002,723
Securities held
for trading.... 7,158 -- -- -- -- 7,158
Securities
available for
sale........... 10,907 2,367 8,582 30,890 6,944 59,690
Securities held
to maturity(2). 3,507 5,014 151 229 7,959 16,860
Other interest-
earning assets. 1,527 -- -- -- -- 1,527
-------- ------- -------- -------- -------- ----------
Total........ 156,569 92,541 344,325 361,772 132,751 1,087,958
Interest-bearing
liabilities:
Deposits
NOW accounts... 9,747 6,230 22,352 36,779 17,192 92,300
Savings
accounts...... 6,496 2,010 8,249 28,264 26,733 71,752
Money market
accounts...... 216,901 -- -- -- -- 216,901
Certificate
accounts...... 146,504 44,514 159,620 245,610 3,811 600,059
Borrowings..... 20,928 25,002 9 50 247 46,236
-------- ------- -------- -------- -------- ----------
Total........ 400,576 77,756 190,230 310,703 47,983 1,027,248
-------- ------- -------- -------- -------- ----------
Interest sensi-
tivity gap......$(244,007) $14,785 $154,095 $51,069 $84,768 $60,710
======== ======= ======== ======= ========= =========
Cumulative
interest sensi-
tivity gap......$(244,007) $(229,222) $(75,127)$(24,058) $60,710
======== ======= ======== ======= =========
As a percent of
total
assets (3).... (20.99%) (19.72%) (6.46%) (2.07%) 5.22%
======== ======= ======== ======= =========
- --------------------
(1) Includes loans held for sale of $4.9 million.
(2) Includes FHLB stock, at cost of $7.9 million.
(3) A negative percentage is favorable to net interest income in a
decreasing rate environment and a positive percentage is favorable
to net interest income in an increasing rate environment.
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. Interest rate risk as indicated through
balance sheet simulations at June 30, 1997 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
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 is as follows:
Year Ended June 30
1997 1996 1995 1994 1993
------ ------- ------ ------ ------
(Dollars in Thousands)
Total allowance for loan losses
at beginning of period........ $6,609 $5,840 $4,492 $3,346 $5,204
Loans charged-off:
Real estate-mortgage:
Residential................. 1,304 1,151 1,138 913 730
Commercial.................. 1,820 620 5 125 3,668
Consumer...................... 226 100 127 314 141
------ ------- ------ ------ ------
Total charge-offs....... 3,350 1,871 1,270 1,352 4,539
Recoveries:
Real estate-mortgage:
Residential................. 210 156 185 266 152
Commercial.................. 516 184 92 31 12
Consumer...................... 4 -- 1 1 2
------ ------- ------ ------ ------
Total recoveries....... 730 340 278 298 166
------ ------- ------ ------ ------
Net loans charged-off.. 2,620 1,531 992 1,054 4,373
Provision for loan losses....... 2,424 2,300 2,340 2,200 2,515
------ ------- ------ ------ ------
Total allowance for loan losses
at end of period.............. $6,413 $6,609 $5,840 $4,492 $3,346
====== ======= ====== ====== ======
Percentage of net charge-offs
to average loans outstanding
during the period............. 0.26% 0.17% 0.13% 0.15% 0.66%
====== ======= ====== ====== ======
Percentage of allowance for
loan losses to adjusted
total loans................... 0.64% 0.70% 0.69% 0.67% 0.49%
====== ======= ====== ====== ======
The allowance for loan losses totaled $6.4 million or .64% of adjusted
total loans of $1.0 billion at June 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
An analysis of nonperforming assets is summarized as follows:
June 30
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
Loans accounted for on a non-
accrual basis:
Real estate-mortgage:
Commercial................ $950 $1,481 $3,498 $546 $1,760
Land........................ -- 200 -- -- --
------ ------ ------ ------ ------
Total nonaccrual loans.... 950 1,681 3,498 546 1,760
Accruing loans which are
contractually past due
90 days or more:
Real estate-mortgage:
Residential............... 12,735 10,029 9,133 11,905 13,577
Consumer................... 702 383 433 445 679
------ ------ ------ ------ ------
Total of 90 days past due
loans................... 13,437 10,412 9,566 12,350 14,256
------ ------ ------ ------ ------
Total of nonaccrual and 90
days past due loans..........$14,387 $12,093 $13,064 $12,896 $16,016
====== ====== ====== ====== ======
As a percent of total
loans.................... 1.43% 1.28% 1.53% 1.90% 2.31%
====== ====== ====== ====== ======
Real estate owned:
Real estate acquired through
foreclosure or repossession
by loan type:
Real estate:
Residential.............. $4,978 $4,913 $5,981 $3,398 $4,346
Commercial............... 2,714 2,370 2,278 9,421 5,503
Land....................... 2,895 3,349 5,107 6,254 5,961
Consumer................... -- -- -- -- 19
Loans classified as in
substance foreclosure...... -- -- 200 713 7,571
Allowance for real estate
losses..................... (365) (955) (630) (1,453) (1,238)
------ ------ ------ ------ ------
Total real estate owned.......$10,222 $9,677 $12,936 $18,333 $22,162
====== ====== ====== ====== ======
As a percent of total
assets.................... 0.88% 0.87% 1.28% 2.06% 2.50%
====== ====== ====== ====== ======
Total nonperforming assets....$24,609 $21,770 $26,000 $31,229 $38,178
====== ====== ====== ====== ======
As a percent of total
assets.................... 2.12% 1.96% 2.57% 3.51% 4.31%
====== ====== ====== ====== ======
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. As noted in the previous table,
residential mortgage loans contractually past due 90 days or more have
increased as compared to the prior period due to a general increase in the
residential mortgage loan portfolio. However, in management's judgment, such
residential assets present a relatively low risk of loss as a result of
related underwriting requirements, normal collection efforts and the
underlying value of collateral. See Notes 1 and 4 of the Notes to
Consolidated Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
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). In fiscal 1997, net
charge-offs were $1,778,000 and additions to the allowance totaled $1,188,000
resulting in a decrease in the allowance to $365,000. 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 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
fiscal 1997, the Association's deposits increased $85.0 million. In addition,
York Federal has supplemented its deposit gathering efforts through borrowings
from the FHLB of Pittsburgh. At June 30, 1997, York Federal had $45.3 million
in FHLB advances outstanding at a weighted average interest rate of 5.79%. For
additional details of FHLB advances and other borrowings, refer to Note 10 of
the Notes to Consolidated Financial Statements.
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 fiscal years ended June 30, 1997 and 1996, York
Federal maintained an average liquidity level which was in compliance with the
regulatory requirements. At June 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
$316.0 million, $317.8 million and $223.9 million in fiscal 1997, 1996 and
1995, respectively.
The principal use of funds is the origination of mortgage and other
loans. Loan demand resulted in total originations of $390.6 million in fiscal
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
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
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.
The sources of liquidity previously discussed are deemed by management to
be sufficient to fund outstanding loan commitments and meet other obligations.
See Notes 16 and 17 of the Notes to Consolidated Financial Statements for
information on commitments and fair value of financial instruments at June 30,
1997.
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 June 30, 1997 totaled $100.1 million
compared to $93.5 million at June 30, 1996, an increase of $6.6 million or
7.1%. This growth was a result of a combination of factors including current
earnings, cash dividends paid (representing a payout ratio of 55.3%), 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 June 30, 1997, York Federal's tangible and core capital both equaled
7.5% ($86.2 million), substantially in excess of the minimum regulatory
requirements of 1.5% and 3.0%, respectively. York Federal's total assets do
not include any goodwill. York Federal's core capital to risk weighted assets
equaled 11.1% ($86.2 million) at June 30, 1997, which exceeds the required
level of 4.0%. Finally, York Federal's risk-based capital ratio equaled 12.0%
($92.5 million) at June 30, 1997, which exceeds the required level of 8.0% by
$30.6 million. For a more comprehensive analysis of capital, refer to Note 13
of the Notes to Consolidated Financial Statements.
13
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
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 June 30, 1997, such transactions are within
these regulatory limits.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 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 fiscal 1997 was $35.9 million, as compared to
$35.0 million for fiscal 1996, which represents a 2.5% increase. The margin on
interest-earning assets for fiscal 1997 decreased to 3.27% from 3.54% for
fiscal 1996. The following table provides information regarding the dollar
amount of interest income earned on interest-earning assets and the resulting
yields, as well as the dollar amount of interest expense on interest-bearing
liabilities and the resulting rates paid for the three years ending June 30,
1997.
14
<PAGE>
<PAGE>
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
Average Balance and Interest Yield/Rate Analysis
Year Ended June 30
1997 1996 1995
------------------------- ------------------------ --------------------------
Average Yield Average Yield Average Yield
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ----- ------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans(1)(2)........ $989,670 $80,820 8.17% $895,912 $75,001 8.37% $751,646 $61,354 8.16%
Securities held
for trading ..... 18,935 1,329 7.02 6,300 479 7.60 3,918 291 7.43
Securities avail-
able for sale ... 56,256 3,711 6.60 47,126 3,142 6.67 47,059 3,369 7.16
Securities held to
maturity......... 16,141 951 5.89 22,888 1,361 5.95 35,239 2,069 5.87
Other interest-
earning assets... 15,747 830 5.27 16,116 897 5.57 21,077 1,072 5.09
--------- ------ ---- ---------- ------ ---- -------- ------ ----
Total interest-
earning assets..... 1,096,749 87,641 7.99 988,342 80,880 8.18 858,939 68,155 7.93
Noninterest-earning
assets............. 64,144 61,552 63,428
---------- ---------- --------
Total............$1,160,893 $1,049,894 $922,367
========== ========== ========
Interest-bearing
liabilities:
Deposits
NOW accounts ..... $87,720 1,944 2.22 $81,803 1,865 2.28 $85,259 2,001 2.35
Savings accounts.. 73,764 2,040 2.77 87,144 2,419 2.78 126,365 3,497 2.77
Money market
accounts......... 205,168 9,017 4.39 182,626 8,114 4.44 124,269 4,307 3.47
Certificate
accounts......... 571,825 33,364 5.83 514,339 29,923 5.82 447,573 24,527 5.48
Borrowings......... 100,826 5,423 5.38 63,464 3,584 5.65 35,193 2,070 5.88
--------- ------ ---- ---------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities........ 1,039,303 51,788 4.98 929,376 45,905 4.94 818,659 36,402 4.45
------ ---- ------ ---- ------ ----
Noninterest-bearing
deposits........... 11,426 3,458 6,244
Noninterest-bearing
liabilities........ 15,141 27,677 15,790
---------- ---------- --------
1,065,870 960,511 840,693
Stockholders' equity. 95,023 89,383 81,674
---------- ---------- --------
Total.............$1,160,893 $1,049,894 $922,367
========== ========== ========
Ratio of interest-
earning assets to
interest-bearing
liabilities......... 1.06x 1.06x 1.06x
========== ========== ========
Net interest income/
interest rate
spread.............. $35,853 3.01% $34,975 3.24% $31,753 3.49%
======= ==== ======= ==== ======= ====
Net interest-earning
assets/margin on
interest-earning
assets.............. $57,446 3.27% $58,966 3.54% $40,280 3.70%
========== ==== ========== ==== =======
====
- --------------------
(1) Average balances include loans on nonaccrual status.
(2) Average balances include amounts held for sale.
During fiscal 1997, York Federal originated $390.6 million of loans including loans refinanced from the
Association's portfolio totalling $13.6 million and mortgage loans securitized or sold of $126.7 million.
The result of these activities, when combined with loan repayments including refinance activity was a 10.5%
increase in average loans outstanding during fiscal 1997. This increase is primarily attributable to the
success by our mortgage broker relationships of selling our intermediate term mortgage loan products. These
15
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
programs represented $196.1 million or 50.2% of total loan originations. The
average balance of securities and other interest-earning assets increased
$14.6 million over the prior fiscal year. This composition of the
Association's assets had a positive effect on interest income and reflected
the retention of intermediate term mortgages. In total, interest-earning
assets averaged 11.0% more in fiscal 1997 than in fiscal 1996, resulting in an
increase in interest income. Offsetting the changes in asset composition,
downward loan repricing contributed to the yield on earning assets decreasing
19 basis points to 7.99%. This combination of volume and rate changes resulted
in a net increase in interest income of $6.8 million, or 8.4%.
Interest expense increased as a result of an 11.8% increase in the
average level of interest-bearing liabilities and a four basis point increase
in the cost of funds to 4.98%. In order to maintain and attract new deposits
during fiscal 1997, the Association continued to successfully market a
Guaranteed Money Fund Account (which is priced based on nationally reported
money fund rates) as well as to provide competitive interest rates through
offerings and special promotional rates on selected certificate of deposit
account programs. This response to the increased competitive pressures for
deposits resulted in an increase in deposit balances and a shift in the
composition of the deposit portfolio from low cost transaction accounts to
higher cost money market and certificate accounts. These changes in the
composition of the deposit portfolio, in addition to an increase in short term
borrowings required to fund asset growth, contributed to the increased cost of
funds.
The volume/rate analysis shown in the following table presents a
comparative analysis of reported interest income and expense in relation to
changes in specific asset and liability account balances (volume) and
corresponding interest rates (rate). This analysis illustrates the net impact
of previously discussed volume and rate changes on net interest income for
fiscal 1997 compared to fiscal 1996, and fiscal 1996 compared to fiscal 1995.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume and
(2) changes in rates. The change in interest income/expense due to both volume
and rate has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.
<PAGE>
<TABLE>
Volume/Rate Analysis
Year Ended June 30
1997 compared to 1996 1996 compared to 1995
Increase (Decrease) Due To: Increase (Decrease) Due To:
--------------------------- ---------------------------
Volume Rate Net Volume Rate Net
-------- ---------- ------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans................................. $7,657 $(1,838) $5,819 $12,042 $1,605 $13,647
Securities held for trading........... 887 (37) 850 181 7 188
Securities available for sale......... 602 (33) 569 4 (231) (227)
Securities held to maturity........... (401) (9) (410) (725) 17 (708)
Other interest-earning assets......... (20) (47) (67) (252) 77 (175)
------ ------ ----- ------- ------ -------
Total............................. 8,725 (1,964) 6,761 11,250 1,475 12,725
Interest expense:
Deposits
NOW accounts........................ 131 (52) 79 (80) (56) (136)
Savings accounts.................... (371) (8) (379) (1,085) 7 (1,078)
Money market accounts............... 991 (88) 903 2,379 1,428 3,807
Certificate accounts................ 3,354 87 3,441 3,818 1,578 5,396
Borrowings............................ 2,010 (171) 1,839 1,597 (83) 1,514
------ ------ ----- ------- ------ -------
Total............................. 6,115 (232) 5,883 6,629 2,874 9,503
------ ------ ----- ------- ------ -------
Net interest income....................... $2,610 $(1,732) $878 $4,621 $(1,399) $3,222
====== ====== ===== ======= ====== =======
16
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
PROVISION FOR LOAN LOSSES
In fiscal 1997, additions were made to the allowance for loan losses in
the amount of $2.4 million resulting in an allowance (net of charge-offs and
recoveries of $2.6 million) of $6.4 million, or .64% of the loan portfolio,
compared to an allowance of $6.6 million, or .70% at fiscal year end 1996. See
"Asset Quality" for further discussion of the allowance for loan losses.
OTHER INCOME
Other income was $8.7 million for fiscal 1997. Mortgage banking income
for fiscal 1997 increased $1.1 million to $3.6 million or 42.9% as compared to
the same period in 1996 and includes gain on sales of loans and trading
securities of $1.8 million. 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 June 30, 1997, securities held for
trading were $7.2 million with an indicated unrealized gain of $37,000 which
was recognized as a component of mortgage banking income.
The portfolio of loans serviced for others totaled $548.2 million at June
30, 1997, with an average net servicing rate of approximately 22 basis points,
as compared to $593.2 million at June 30, 1996 with an average net servicing
rate of approximately 23.4 basis points. A portion of the change in the
balance of loans serviced for others was the sale of servicing rights on
approximately $96.7 million of loans consummated in December 1996 at a net
gain of $510,000. The average balance outstanding of loans serviced for others
decreased $36.9 million in fiscal 1997. The decrease in net servicing rate of
1.4 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 was $215,000 in fiscal
1997 and is recognized as a reduction of gross servicing fee income. Such
amount compares to $79,000 in fiscal 1996. The combination of these volume and
rate changes caused loan servicing fees for fiscal 1997 to decrease $169,000
or 12.2% to $1.2 million as compared to fiscal 1996. For additional
information on loan servicing fees and mortgage banking activity refer to
Notes 1 and 5 of the Notes to Consolidated Financial Statements.
Gain on sales of real estate during fiscal 1997 totalled $91,000 and is
the result of disposition of real estate acquired in the normal course of
business. Gain on sale of a limited partnership interest was $1.2 million and
represents the planned exit from a successful real estate
development/management partnership. Fees and service charges for fiscal 1997
increased $334,000 or 13.3% to $2.8 million as compared to $2.5 million in
fiscal 1996, and is primarily a result of a current service charge fee
structure coupled with growth in both loans and deposits.
The Corporation is a partner in various joint ventures. In the year ended
June 30, 1997, loss from joint ventures totalled $118,000 as compared to
income of $1.2 million in 1996. The loss is related to the Corporation's share
in the net loss of a venture capital partnership resulting from the decreased
market value of underlying portfolio investments. For additional information
on investments in and advances to joint ventures refer to Note 8 of the Notes
to Consolidated Financial Statements.
17
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
Other operating income was $1.1 million in fiscal 1997 as compared to
$713,000 in fiscal 1996. This amount represents income from operations of
subsidiaries including commissions earned from discount brokerage activities
and appraisal and construction inspection fees for services provided to
independent third parties.
OTHER EXPENSES
Other expenses of $31.2 million increased $6.7 million or 27.5% in fiscal
1997 as compared to $24.5 million in fiscal 1996 which was primarily
attributable to the one time SAIF special assessment. 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. The one-time special assessment amounted to an additional expense to the
Association of approximately $5.3 million for the year ended June 30, 1997.
York Federal paid $1.2 million in deposit insurance premiums to the SAIF in
fiscal 1997, a decrease of $705,000 or 36.1% compared to fiscal 1996. As a
result of the one time special assessment the Association's insurance premium
rate decreased from 23.0 basis points for the periods ending December 31, 1996
to 18.0 basis points and to 6.4 basis points in the quarters ending 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 decreased $298,000 or 2.5% in fiscal 1997
over fiscal 1996 and is attributable to a combination of the following
factors: annual adjustments to the salary administration program and start up
compensation expenses related to a newly established Commercial Business
Banking Group, decreases in incentive and profit sharing compensation as a
result of lower than anticipated operating performance primarily due to the
SAIF assessment, decrease in commissions paid to loan originators as a result
of a decrease in loan volume through that origination channel and a decrease
in full time equivalent personnel from 393 at June 30, 1996 to 380 at June 30,
1997. Occupancy expense increased $794,000 or 29.6% in fiscal 1997 over
fiscal 1996 and is primarily attributed to operating cost related to a new
office facility occupied in June 1996. Real estate expenses increased $612,000
in fiscal 1997 over fiscal 1996 and is primarily attributable to an increase
in the provision for possible real estate losses. Advertising cost increased
$420,000 or 75.3% in fiscal 1997 as compared to fiscal 1996 and is primarily
attributable to customer and product awareness campaigns. Other expenses
increased $500,000 or 9.3% in fiscal 1997 as compared to fiscal 1996 and
includes contributions in connection with tax favored community redevelopment
projects.
PROVISION FOR INCOME TAXES
The provision for income taxes of $3.9 million for fiscal 1997 represents
an effective tax rate of 35.4% as compared to 38.6% for fiscal 1996. The
decrease in the effective tax rate is primarily attributable to tax credits
recognized on tax favored community redevelopment projects. For a more
comprehensive analysis of income tax expense, refer to Note 11 of the Notes to
Consolidated Financial Statements.
18
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(continued)
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
NET INTEREST INCOME
Net interest income for fiscal 1996 was $35.0 million, as compared to
$31.8 million for fiscal 1995, which represented a 10.1% increase. The margin
on interest-earning assets for fiscal 1996 decreased to 3.54% from 3.70% for
fiscal 1995. For further information, see "Average Balances and Interest
Yield/Rate Analysis" and "Volume/Rate Analysis" tables included in this
document.
During fiscal 1996, York Federal originated $477.6 million of loans
including loans refinanced from the Association's portfolio totalling $40.6
million and mortgage loans securitized or sold of $154.9 million. The result
of these activities, when combined with loan repayments including refinance
activity, was a 19.2% increase in average loans outstanding during fiscal
1996. This increase is primarily attributable to the success by our mortgage
broker relationships of selling our intermediate term mortgage loan products.
These programs represented $106.5 million or 22.3% of total loan originations.
Securities and other interest-earning assets represented a net decrease of
$14.9 million over the prior fiscal year. This shift in composition of the
Association's assets had a positive effect on interest income and reflected
the utilization of excess liquidity to assist in funding loan demand. In
total, interest-earning assets averaged 15.1% more in fiscal 1996 than in
fiscal 1995, resulting in an increase in interest income. In addition to the
above mentioned change in asset composition, upward loan repricing contributed
to the yield on earning assets increasing 25 basis points to 8.18%. This
combination of volume and rate changes resulted in an increase in interest
income of $12.7 million.
Interest expense increased as a result of a 13.5% increase in the average
level of interest-bearing liabilities and a 49 basis point increase in the
cost of funds to 4.94%. In order to maintain and attract new deposits during
fiscal 1996, the Association continued to successfully market a Guaranteed
Money Fund Account (which is priced based on nationally reported money fund
rates) as well as providing very competitive interest rate offerings and
special promotional rates on selected certificate of deposit account programs.
This response to the increased competitive pressures for deposits resulted in
an increase in deposit balances and a shift in the composition of the deposit
portfolio from low cost transaction accounts to higher cost money market and
certificate accounts. These changes in the deposit portfolio in addition to an
increase in short term borrowings required to fund asset growth contributed to
the increased cost of funds.
PROVISION FOR LOAN LOSSES
In fiscal 1996, additions were made to the allowance for loan losses in
the amount of $2.3 million resulting in an allowance (net of charge-offs and
recoveries of $1.5 million) of $6.6 million, or .70% of the loan portfolio,
compared to an allowance of $5.8 million, or .69% at fiscal year end 1995. See
"Asset Quality".
19
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(CONTINUED)
OTHER INCOME
Other income was $8.6 million for fiscal 1996, an increase of 51.2% over
fiscal 1995. Mortgage banking income for fiscal 1996 increased $337,000 to
$2.5 million or 15.4% as compared to the same period in 1995. Mortgage
servicing rights capitalized during the year ended June 30, 1996 was the
primary factor in the increased gain on sales of loans and trading securities
over the prior year.
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 June 30, 1996, securities held for trading were $21.7 million with an
indicated unrealized loss of $943,000 which was recognized as a component of
mortgage banking income.
The portfolio of loans serviced for others totaled $593.2 million at June
30, 1996, with an average net servicing rate of approximately 23.4 basis
points, as compared to $571.4 million at June 30, 1995 with an average net
servicing rate of approximately 28.5 basis points. Included in the change in
the balance of loans serviced for others was the sale of servicing rights on
approximately $47.1 million of loans consummated in June 1996 at a net gain of
$496,000. The average balance outstanding of loans serviced for others
increased $35.6 million in fiscal 1996. The decrease in net servicing rate of
5.1 basis points includes an increase in interest cost totalling $214,000 in
fiscal 1996 compared to $135,000 in fiscal 1995 resulting from the timing of
loan payoffs and remittances to government sponsored agencies in the secondary
market. The combination of these volume and rate changes caused loan servicing
fees for fiscal 1996 to decrease $201,000 or 12.6% to $1.4 million as compared
to fiscal 1995. For additional information on loan servicing fees and mortgage
banking activity refer to Notes 1 and 5 of the Notes to Consolidated Financial
Statements.
Gain on sales of real estate during fiscal 1996 totalled $1.3 million and
is primarily attributed to the sale of real estate held for investment. Fees
and service charges for fiscal 1996 increased $287,000 or 12.9 % to $2.5
million as compared to $2.2 million in fiscal 1995, and is primarily a result
of a new service charge fee structure coupled with growth in both loans and
deposits.
The Corporation is a partner in various joint ventures. In the year ended
June 30, 1996, income from joint ventures totalled $1.2 million as compared to
$100,000 in 1995. The income is 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 $713,000 in fiscal 1996 as compared to
$759,000 in fiscal 1995. This amount represents income from operations of
subsidiaries including commissions earned from discount brokerage activities
and appraisal and construction inspection fees for services provided to
independent third parties.
OTHER EXPENSES
Other expenses of $24.5 million increased $1.8 million or 8.1% in fiscal
1996 as compared to $22.6 million in fiscal 1995. Salaries and employee
benefits increased $697,000 or 6.2% in fiscal 1996 over fiscal 1995 and is
attributable to a combination of the following factors: revisions to the
salary administration program wherein staff salary levels were adjusted to
bring salaries in line with current market target pay amounts for respective
positions, increases in incentive compensation payouts as a result of improved
operating performance measures, lower commissions paid to loan originators as
a result of increased
20
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL
(CONTINUED)
emphasis on correspondent mortgage broker relationships, and a decrease in
full time equivalent personnel from 419 at June 30, 1995 to 393 at June 30,
1996. Occupancy expense increased $218,000 or 8.8% in fiscal 1996 over fiscal
1995 as a result of increased cost of services used in operations as well as
the initial startup cost for the recently completed operations office in York,
Pennsylvania. This project included the restoration of an historically
significant facade and is representative of the Association's ongoing
investment in its community.
Federal deposit insurance premiums increased $136,000 or 7.5% in fiscal
1996 over 1995 and is attributable to increased deposits. Real estate expenses
increased $183,000 in fiscal 1996 over fiscal 1995 and is primarily
attributable to an increase in the provision for possible real estate losses.
Other expenses increased $518,000 or 10.6% in fiscal 1996 as compared to
fiscal 1995 and includes contributions in connection with community
redevelopment projects.
PROVISION FOR INCOME TAXES
The provision for income taxes of $6.5 million for fiscal 1996 represents
an effective tax rate of 38.6% as compared to 38.7% for fiscal 1995.
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.
21
<PAGE>
<PAGE>
REPORT OF MANAGEMENT
FINANCIAL STATEMENTS
York Financial Corp. ("Corporation") is responsible for the preparation,
integrity and fair presentation of its published financial statements as of
June 30, 1997 and the year then ended. The consolidated financial statements
of the Corporation have been prepared in accordance with generally accepted
accounting principles and, as such, include some amounts that are based on
judgments and estimates of management.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining effective
internal control over financial reporting presented in conformity with
generally accepted accounting principles and the requirements of the Office of
Thrift Supervision (OTS) Annual Report H-(b) 11. The system contains
monitoring mechanisms and actions are taken to correct deficiencies
identified.
There are inherent limitations in the effectiveness of any system of
internal control including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even effective internal
control can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of internal control may vary over time.
Management assessed the Corporation's internal control over financial
reporting presented in conformity with generally accepted accounting
principles and the requirements of the OTS Annual Report H-(b) 11 as of June
30, 1997. This assessment was based on criteria for effective internal control
over financial reporting described in "Internal Control--Integrated Framework"
published by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management believes that the Corporation
maintained effective internal control over financial reporting presented in
conformity with generally accepted accounting principles and the requirements
of the OTS Annual Report H-(b) 11 as of June 30, 1997.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for compliance with the federal and
state laws and regulations concerning dividend restrictions and federal laws
and regulations concerning loans to insiders designated by the FDIC as safety
and soundness laws and regulations.
Management assessed compliance by York Federal Savings and Loan
Association ("Association") with the designated laws and regulations relating
to safety and soundness. Based on this assessment, management believes that
the Association complied, in all significant respects, with the designated
laws and regulations related to safety and soundness for the year ended June
30, 1997.
/s/Robert W. Pullo /s/James H. Moss
Robert W. Pullo James H. Moss
President -- Chief Executive Officer Senior Vice President --
Chief Financial
Officer/Treasurer
22
<PAGE>
<PAGE>
[Letterhead of Ernst & Young, LLP]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
York Financial Corp.
We have audited the accompanying consolidated balance sheets of York Financial
Corp. and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of York Financial
Corp. and subsidiaries at June 30, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Corporation effective
July 1, 1995, changed its method of accounting for mortgage servicing rights.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Baltimore, Maryland
July 17, 1997
23
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30
1997 1996
----------------------
(In Thousands)
Assets
Cash and due from banks:
Noninterest-earning $21,612 $21,864
Interest-earning 1,527 2,207
----------------------
23,139 24,071
Loans held for sale, net 4,882 5,686
Securities held for trading 7,158 21,736
Securities available for sale 59,690 53,115
Securities held to maturity (fair value of
$8,782--1997 and $8,948--1996) 8,953 9,275
Loans receivable, net 997,841 938,570
Real estate, net 13,439 13,361
Premises and equipment 17,320 16,398
Federal Home Loan Bank stock, at cost 7,907 6,733
Accrued interest receivable 7,981 7,370
Other assets 8,777 8,142
Investments in joint ventures 5,306 5,347
----------------------
Total assets $1,162,393 $1,109,804
======================
Liabilities and stockholders' equity
Liabilities:
Deposits $993,106 $908,123
Federal Home Loan Bank advances and other
borrowings 46,236 74,380
Advances from borrowers for taxes and 4,719 4,237
insurance
Other Liabilities 18,249 29,524
----------------------
Total liabilities 1,062,310 1,016,264
Stockholders' equity:
Preferred Stock:10,000,000 shares authorized
and unissued -- --
Common Stock, $1.00 par value:
Authorized 10,000,000 shares; issued
1997--7,008,347 shares;
1996--6,087,722 shares 7,008 6,088
Additional capital 80,633 67,809
Retained Earnings 13,290 21,154
Unrealized gains (losses) on available for
sale securities, net of taxes (benefit)
of $43 in 1997 and ($239) in 1996 79 (451)
Unearned ESOP shares (927) (1,060)
----------------------
Total stockholders' equity 100,083 93,540
----------------------
Total liabilities and stockholders' equity $1,162,393 $1,109,804
======================
See accompanying notes
24
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended June 30
1997 1996 1995
-------------------------------------
(In Thousands, Except Per Share Data)
Interest income:
Interest and fees on loans $80,820 $75,001 $61,354
Interest on securities held for trading 1,329 479 291
Interest on securities available for sale 3,711 3,142 3,369
Interest and dividends on securities held
to maturity 951 1,361 2,069
Other interest income 830 897 1,072
-------------------------------------
Total interest income 87,641 80,880 68,155
Interest expense:
Interest on deposits 46,365 42,321 34,332
Interest on borrowings 5,423 3,584 2,070
-------------------------------------
Total interest expense 51,788 45,905 36,402
-------------------------------------
Net interest income 35,853 34,975 31,753
Provision for loan losses 2,424 2,300 2,340
-------------------------------------
Net interest income after provision for
loan losses 33,429 32,675 29,413
Other income:
Mortgage banking 3,610 2,527 2,190
Gain on sales of securities available for
sale -- 358 687
Gain (loss) on sales of real estate 91 1,291 (251)
Gain on sale of limited partnership interest 1,214 -- --
Fees and service charges 2,842 2,508 2,221
Income (loss) from joint ventures (118) 1,233 100
Other operating income 1,057 713 759
-------------------------------------
Total other income 8,696 8,630 5,706
-------------------------------------
Other expenses:
Salaries and employee benefits 11,565 11,863 11,166
Occupancy 3,484 2,690 2,472
Federal deposit insurance 1,250 1,955 1,819
SAIF assessment 5,310 -- --
Real estate 1,602 990 807
Data processing 1,086 1,006 956
Advertising 978 558 526
Other 5,888 5,388 4,870
-------------------------------------
Total other expenses 31,163 24,450 22,616
-------------------------------------
Income before income taxes 10,962 16,855 12,503
Provision for income taxes 3,875 6,512 4,837
-------------------------------------
Net income $7,087 $10,343 $7,666
=====================================
Per share data:
Net income $0.99 $1.49 $1.14
=====================================
Cash dividends paid $0.57 $0.51 $0.47
=====================================
Weighted average shares 7,179,592 6,960,058 6,728,244
=====================================
See accompanying notes
25
<PAGE>
<PAGE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Gains (Losses) Unearned
Common Additional Retained on Available ESOP Treasury
Stock Capital Earnings Sale Securities Shares Stock Total
----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 $4,818 $46,389 $28,933 $(189) $(1,325) $-- $78,626
Net income -- -- 7,666 -- -- -- 7,666
Cash dividends paid -- -- (3,062) -- -- -- (3,062)
Stock options exercised 43 389 -- -- -- -- 432
Common stock issued
under dividend
reinvestment plan 109 1,522 -- -- -- -- 1,631
10% Common stock
dividend--482,788
shares at fair value 483 8,087 (8,591) -- -- -- (21)
Release of ESOP shares -- (12) -- -- 132 -- 120
Acquisition of treasury
stock--30,579 shares
at fair value -- -- -- -- -- (495) (495)
Retirement of treasury
stock (31) (464) -- -- -- 495 --
Change in unrealized
gains (losses),
net of income tax
(benefits) of $277 -- -- -- 433 -- -- 433
----------------------------------------------------------------------------------
Balance, June 30, 1995 5,422 55,911 24,946 244 (1,193) -- 85,330
Net income -- -- 10,343 -- -- -- 10,343
Cash dividends paid -- -- (3,381) -- -- -- (3,381)
Stock options exercised 14 82 -- -- -- -- 96
Common stock issued
under dividend
reinvestment plan 108 1,610 -- -- -- -- 1,718
10% Common stock
dividend--543,436
shares at fair value 544 10,190 (10,754) -- -- -- (20)
Release of ESOP shares -- 16 -- -- 133 -- 149
Change in unrealized
gains (losses),
net of income tax
(benefits) of ($445) -- -- -- (695) -- -- (695)
----------------------------------------------------------------------------------
Balance, June 30, 1996 $6,088 $67,809 $21,154 $(451) $(1,060) $-- $93,540
Net income -- -- 7,087 -- -- -- 7,087
Cash dividends paid -- -- (3,919) -- -- -- (3,919)
Stock options exercised 242 1,383 -- -- -- -- 1,625
Common stock issued
under dividend
reinvestment plan 132 2,001 -- -- -- -- 2,133
10% Common stock
dividend--611,694
shares at fair value 611 10,399 (11,032) -- -- -- (22)
Release of ESOP shares -- 40 -- -- 133 -- 173
Retirement of common
stock (65) (999) -- -- -- -- (1,064)
Change in unrealized
gains (losses),
net of income tax
(benefits) of $331 -- -- -- 530 -- -- 530
----------------------------------------------------------------------------------
Balance, June 30, 1997 $7,008 $80,633 $13,290 $79 $(927) -- $100,083
==================================================================================
26
</TABLE>
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
1997 1996 1995
-----------------------------
Operating Activities (In Thousands)
Net income $7,087 $10,343 $7,666
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and accretion on
securities and loans, net (622) (1,898) (1,707)
Provision for loan losses 2,424 2,300 2,340
Provision for real estate losses 1,188 603 490
Depreciation and amortization 1,705 1,501 1,517
Loans originated for sale (125,918) (154,169) (62,578)
Proceeds from sales of trading
securities 127,145 96,410 50,309
Realized gains on trading securities (906) (1,583) (140)
Realized gains on sales of securities
available for sale -- (358) (687)
Gain on sale of limited partnership
interest 1,214 -- --
Decrease (increase) in other assets 400 729 (2,876)
(Decrease) increase in other
liabilities (11,504) 8,499 2,223
Other (4,214) (1,419) 1,437
-----------------------------
Net cash used in operating activities (2,001) (39,042) (2,006)
Investing Activities
Proceeds from sales of securities available
for sale -- 25,268 20,648
Proceeds from sale of limited partnership
interest 1,343 -- --
Purchases of securities held to maturity
and Federal Home Loan Bank stock (1,231) (1,557) (320)
Proceeds from maturities of securities
held to maturity 57 4,170 250
Principal repayments on securities 8,162 7,089 7,078
Loans originated or acquired, net of
increase in deferred loan fees (251,212) (283,359) (324,000)
Principal collected on loans 179,981 183,271 143,346
Proceeds from sales of loans 1,642 1,637 2,334
Purchases of real estate (425) (194) (328)
Proceeds from sales of real estate 6,324 10,801 9,593
Purchases of premises, equipment, and
tenant improvements, net (2,452) (6,307) (1,401)
Other 3,155 (269) 3,185
-----------------------------
Net cash used in investing activities (54,656) (59,450) (139,615)
27
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year Ended June 30
1997 1996 1995
-----------------------------
Financing Activities (In Thousands)
Net increase (decrease) in noninterest-
bearing demand deposits, interest-bearing
transaction accounts, savings accounts,
and 31-day certificates of deposit 3,163 54,168 (49,870)
Net increase in certificates of deposit 81,820 21,899 96,443
Net (decrease) increase in short-term
advances received from Federal Home
Loan Bank (53,000) 8,765 64,235
Increase in convertible advance received
from Federal Home Loan Bank 25,000 -- --
Repayments of Federal Home Loan Bank
advances and other borrowings (144) (144) (144)
Issuance of common stock:
Dividend Reinvestment Plan 2,133 1,718 1,631
Stock Option Plans 561 96 24
Cash dividends paid (3,919) (3,381) (3,062)
Acquisition of treasury stock -- -- (87)
Cash paid in lieu of fractional shares (22) (20) (21)
Release of ESOP shares 133 133 132
-----------------------------
Net cash provided by financing activities 55,725 83,234 109,281
-----------------------------
Decrease in cash and cash equivalents (932) (15,258) (32,340)
Cash and cash equivalents at beginning
of year 24,071 39,329 71,669
-----------------------------
Cash and cash equivalents at end of year $23,139 $24,071 $39,329
=============================
See accompanying notes
28
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
York Financial Corp. (Corporation) is a unitary savings and loan holding
company. York Federal Savings and Loan Association (Association), a federally
chartered savings and loan association, is the primary operating unit of the
Corporation. 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.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of York Financial
Corp. and its wholly-owned subsidiaries including York Federal Savings and
Loan Association. All significant intercompany accounts and transactions have
been eliminated in consolidation. Preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from the estimates. Certain reclassifications have been made to the
1996 and 1995 consolidated financial statements to conform with the 1997
presentation.
LOANS HELD FOR SALE
The Corporation originates mortgage loans and creates mortgage-backed
securities generally through government sponsored agencies for sale in the
secondary market. During the period of origination, mortgage loans are
designated as held either for investment purposes or for sale. Loans held for
sale are carried at lower of cost or market based on quoted market prices of
securities collateralized by similar loans. Gains or losses on the sales of
loans held for sale are determined using the specific identification method.
SECURITIES HELD FOR TRADING
Securities classified by the Corporation as "held for trading" are principally
mortgage-backed securities held for sale in conjunction with the Association's
mortgage banking activities and are carried at fair value.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
The classification of securities is determined at the time of acquisition and
is reevaluated at each reporting date. Securities are classified as "held to
maturity" based upon management's ability and positive intent to hold such
securities to maturity. Held-to-maturity securities are carried at amortized
cost.
29
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Securities not classified as trading or held-to-maturity are classified as
"available for sale." Available-for- sale securities are carried at fair
value, with unrealized gains and losses, net of taxes, reported as a component
of stockholders' equity.
The cost of securities classified as held-to-maturity or available-for-sale is
adjusted for amortization of premiums and accretion of discounts, both
computed using the interest method. Such amortization/accretion, as well as
interest and dividends, is included in interest income. Realized gains and
losses and declines in value judged to be other than temporary are included in
net gains(losses) on securities available for sale in the statement of income.
The cost of securities sold is based on the specific identification method,
and all sales are recorded as of the trade date.
LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balance adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans.
Interest on loans is accrued and credited to operations based upon principal
amounts outstanding.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amount amortized as an adjustment of the related
loan's yield, generally over the contractual life of the related commitments
or loans.
The Association accounts for loans in accordance with Financial Accounting
Standards Board (FASB) Statement No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by FASB Statement No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". As a
result of applying the rules, certain loans which are deemed to be impaired
are reported at the present value of expected future cash flows using the
loan's effective interest rate, or as a practical expedient, at the loans
observable market price or the fair value of the collateral if the loan is
collateral dependent.
Loans (including loans impaired under Statement No. 114) are generally placed
on nonaccrual status when principal or interest is past due 90 days or more
and when, in the opinion of management, full collection of principal or
interest is unlikely. After a loan is placed on nonaccrual status, income is
recognized only to the extent of cash received and collection of principal is
not in doubt.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential loan losses. Management's determination of the
adequacy of the allowance is based on the risk characteristics of the loans,
past loss experience, economic conditions, and such other relevant factors
which in management's judgment deserve recognition. During 1997 and 1996, the
allowance for loan losses related to impaired loans was determined in
accordance with the provisions of Statement No. 114.
REAL ESTATE
Real estate consists of property held for investment and foreclosed assets
held for sale. Properties held for investment are carried at the lower of cost
or net realizable value. Costs related to development and improvement of real
estate are capitalized until the real estate reaches a saleable condition.
Those costs incurred related to holding the real estate are charged to real
estate expenses.
30
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Foreclosed assets held for sale are valued at the lower of cost or fair value
thereby establishing a new cost basis. Current valuations of real estate are
periodically performed by management. An allowance for real estate losses is
maintained at a level believed adequate by management to absorb potential real
estate losses. Losses on sales of real estate are recognized at the time
sales occur. Gains on sales of real estate are recognized when the criteria
for gain recognition have been met.
LOAN SERVICING FEES
Effective July 1, 1995, the Company adopted FASB Statement No. 122,
"Accounting for Mortgage Servicing Rights", an amendment of FASB Statement
No. 65. Statement No. 122 required the recognition of a separate asset for
mortgage servicing rights, regardless of how they were acquired. If the
Association sold or securitized mortgage loans and retained the mortgage
servicing rights, the total cost of the mortgage loans were allocated to the
loan and the servicing right based on their relative fair value. Statement
No. 122 also specified how mortgage servicing rights should have been
evaluated for impairment.
In June 1996, the FASB issued Statement No. 125, "Accounting for the Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
supersedes FASB Statement No. 122, "Accounting for Mortgage Servicing Rights."
Statement No. 125 clarifies and provides consistent guidance for
distinguishing transfers of financial assets that are sales from transfers
that are borrowings. The standard is based on a financial components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and liabilities it has incurred, and derecognizes liabilities when
extinguished. Statement No. 125 is effective for specified transactions
occurring after December 31, 1996. In October 1996, the FASB issued Statement
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB No.
125," which defers until after December 31, 1997, the effective date of
paragraphs 9-12 of Statement No. 125 for repurchase agreement, securities
lending, dollar roll and similar transactions and the effective date of
paragraph 15 for all transactions. Earlier or retroactive application is not
permitted. Adoption of Statement No. 125 did not, and is not expected to, have
a material impact on the Corporation.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the various assets; amortization is
included in depreciation expense.
INCOME TAXES
The Corporation accounts for income taxes in accordance with FASB Statement
No. 109, "Accounting for Income Taxes." Statement No. 109 requires the
liability method for financial accounting and reporting of income taxes. Under
the liability method, deferred tax assets and liabilities are determined based
on the differences between financial statement carrying amounts and the tax
bases of existing assets and liabilities. These differences are measured at
the enacted tax rates that will be in effect when these differences reverse.
31
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
PER SHARE DATA
Net income per share is computed based upon the weighted average number of
common shares outstanding considering dilutive common stock equivalents (see
Note 13) and unearned ESOP shares adjusted for stock dividends. Cash dividends
paid per share are based on the number of shares outstanding at each record
date, adjusted for stock dividends.
CASH FLOW INFORMATION
For purposes of the statements of cash flows, cash equivalents include cash
and amounts due from banks. During 1997, 1996, and 1995, the Association
exchanged loans for mortgage-backed securities in the amounts of $125,037,000,
$153,056,000, and $62,578,000, respectively. During 1997, 1996, and 1995, the
Association transferred unpaid loan balances from loans to real estate
acquired due to foreclosure of $9,454,000, $6,205,000, and $4,575,000,
respectively.
The Corporation paid $51,758,000, $45,963,000, and $34,310,000 in interest on
deposits and other borrowings during 1997, 1996, and 1995, respectively.
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. Statement No. 128 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 display of
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. Statement No. 131 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.
32
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Association was required to maintain average reserve balances of $854,000
as established by the Federal Reserve Bank. The actual reserve balance at June
30, 1997 was $1.2 million.
3. SECURITIES
The following is a summary of available for sale and held to maturity
securities:
June 30, 1997
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------
(In Thousands)
Available for Sale:
U.S. Treasury and other U.S.
Government agencies $6,075 $27 $(7) $6,095
Mortgage-backed securities 53,493 473 (371) 53,595
----------------------------------------------
$59,568 $500 $(378) $59,690
==============================================
Held to Maturity:
U.S. Treasury and other U.S.
Government agencies $8,590 -- $(194) $8,396
Mortgage-backed securities 363 23 -- 386
----------------------------------------------
$8,953 $23 $(194) $8,782
==============================================
June 30, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------
(In Thousands)
Available for Sale:
U.S. Treasury and other U.S.
Government agencies $7,453 $27 $(9) $7,471
Mortgage-backed securities 46,401 190 (947) 45,644
----------------------------------------------
$53,854 $217 $(956) $53,115
==============================================
Held to Maturity:
U.S. Treasury and other U.S.
Government agencies $8,857 -- $(347) $8,510
Mortgage-backed securities 418 20 -- 438
----------------------------------------------
$9,275 $20 $(347) $8,948
==============================================
33
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The amortized cost and fair value of securities at June 30, 1997, as presented
in the following table are segregated by contractual maturity; where
applicable, contractual principal amortization schedules, adjusted for annual
prepayment assumptions based on consensus market forecasts, were utilized.
Expected maturities may differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.
<PAGE>
<TABLE>
U.S. Treasury
and other U.S.
Government agencies Mortgage-backed
Securities Securities Total
----------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
Due in one year or less $617 $619 $12,504 $12,071 $12,671 $12,690
Due after one year through
five years 2,713 2,722 32,815 32,844 35,528 35,566
Due after five years through
ten years 2,745 2,754 8,033 8,065 10,778 10,819
Due after ten years -- -- 591 615 591 615
----------------------------------------------------------
$6,075 $6,095 $53,493 $53,595 $59,568 $59,690
==========================================================
Held to Maturity:
Due in one year or less $954 $934 $83 $88 $1,037 $1,022
Due after one year through
five years 3,796 3,709 228 243 4,024 3,952
Due after five years through
ten years 3,840 3,753 52 55 3,892 3,808
Due after ten years -- -- -- -- -- --
----------------------------------------------------------
$8,590 $8,396 $363 $386 $8,953 $8,782
==========================================================
</TABLE>
<PAGE>
Securities with an amortized cost of $55,147,000 and $63,161,000 on June 30,
1997 and 1996 respectively, were pledged to secure public deposits and for
certain other purposes as required by law.
Gross realized gains of $397,000 and $687,000 and gross realized losses of
$39,000 and $0 were realized on sales of available for sale securities during
1996 and 1995, respectively. There were no sales of available for sale
securities during 1997.
For the years ended June 30, 1997, 1996 and 1995, trading securities with a
fair value of $2,844,000, $0 and $3,470,000, respectively, were transferred to
securities available for sale with related losses of $35,000, $0 and $143,000
included in earnings during the periods indicated.
34
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In November 1995, the FASB issued a Guide to Implementation of Statement 115,
"Accounting for Certain Investments in Debt and Equity Securities." The guide
stated that no later than December 31, 1995, an enterprise may reassess the
appropriateness of the classifications of all securities held at that time and
account for any resulting reclassifications at fair value. Reclassifications
from the held-to-maturity category that result from this one-time reassessment
will not call into question the intent of an enterprise to hold other debt
securities to maturity in the future. During the quarter ended December 31,
1995, the Corporation transferred held-to-maturity securities with a fair
value of $14,300,000 to available-for-sale with the resulting net unrealized
gains of $29,000, net of taxes, reported as a component of stockholders'
equity.
4. LOANS RECEIVABLE
Loans receivable are summarized as follows:
June 30
1997 1996
---------------------
(In Thousands)
First mortgage loans:
Conventional:
Residential $772,962 $718,755
Commercial 48,443 62,006
---------------------
821,405 780,761
Construction:
Residential 65,641 65,725
Commercial 9,967 9,840
---------------------
75,608 75,565
Commercial business loans 496 1,714
Consumer loans 134,487 114,814
---------------------
134,983 116,528
Less:
Undisbursed portion of loans in process 28,302 27,497
Deferred fees (expenses), net and unearned income (560) 178
Allowance for loan losses 6,413 6,609
---------------------
34,155 34,284
---------------------
$997,841 $938,570
=====================
At June 30, 1997 and 1996, nonaccrual loans totaled $950,000 and $1,681,000,
respectively. When interest accrual is discontinued, all unpaid accrued
interest is reversed. The interest excluded from interest income on loans on
nonaccrual status amounted to $430,000, $294,000 and $144,000 for the years
ended June 30, 1997, 1996, and 1995, respectively. The Association had no
commitments to lend additional funds to borrowers whose loans were on
nonaccrual status at June 30, 1997. At June 30, 1997 and 1996, the recorded
investment in loans that are considered to be impaired under Statement No. 114
were $725,000
35
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
and $2,900,000, respectively. The related allowance for loan losses associated
with impaired loans at June 30, 1997 and 1996 was $207,000 and $500,000,
respectively. The average recorded investments in impaired loans for the years
ended June 30, 1997 and 1996 were $1,500,000 and $1,200,000, respectively.
During the years ended June 30, 1997 and 1996, the Corporation did not receive
any cash payments representing interest income on impaired loans.
The primary market area for the Association's loan originations is
Pennsylvania, Maryland and Virginia.
The Association's commercial loan portfolio is comprised of loans secured by
single family condominiums, land for development, hotel/motel/restaurant,
multifamily residential, office buildings and other properties. The total
commercial loan portfolio of $53.9 million at June 30, 1997 is collateralized
by properties in Pennsylvania (43%), Maryland (26%), Virginia (29%), and other
(2%).
An analysis of the allowance for loan losses is as follows:
Year ended June 30
1997 1996 1995
-----------------------------
(In Thousands)
Balance at beginning of year $6,609 $5,840 $4,492
Provision charged to expense 2,424 2,300 2,340
Recoveries credited to allowance 730 340 278
Less: Loan losses charged to allowance (3,350) (1,871) (1,270)
-----------------------------
Balance at end of year $6,413 $6,609 $5,840
=============================
At June 30, 1997, the Association had outstanding commitments to sell
$8,385,000 in loans. The Association expects to satisfy these commitments with
loans originated/settled in the commitment period.
5. MORTGAGE BANKING
The components of mortgage banking income are as follows:
Year Ended June 30
1997 1996 1995
-----------------------------
(In thousands)
Gain on sales of loans and trading
securities $906 $1,583 $283
Loss on transfer of trading securities -- -- (143)
Unrealized gain (loss) on loans and trading
securities 972 (943) 458
Loan servicing fee income, net of
amortization 1,222 1,391 1,592
Gain on sale of mortgage servicing rights 510 496 --
-----------------------------
$3,610 $2,527 $2,190
=============================
36
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of mortgage loans serviced for others was $548,202,000, $593,166,000 and
$571,351,000 at June 30, 1997, 1996 and 1995, respectively. Custodial escrow
balances maintained in connection with the foregoing loan servicing, and
included in demand deposits, were approximately $3,468,000, $3,885,000 and
$4,972,000 at June 30, 1997, 1996 and 1995, respectively.
The changes in the Corporation's mortgage servicing assets are as follows:
Year Ended June 30
1997 1996
---------------------
(In Thousands)
Balance at beginning of year $2,335 $795
Additions 1,195 1,757
Less: Amortization and Sales 826 217
---------------------
Balance at end of year before
valuation allowance 2,704 2,335
Valuation Allowance (145) (227)
---------------------
Net Mortgage Servicing Assets $2,559 $2,108
=====================
The estimated fair values of the mortgage servicing assets are $2,612,000 and
$2,330,000 at June 30, 1997 and 1996, respectively. Fair value is estimated by
discounting estimated future cash flows from the mortgage servicing assets
stratified based on loan type and interest rate using discount rates that
approximate current market rates and using current expected future prepayment
rates.
A valuation allowance is recorded where the fair value is below the carrying
amount of certain mortgage servicing assets, even though the overall fair
value of the mortgage servicing assets exceeds amortized cost.
The changes in the Corporation's valuation allowance for mortgage servicing
assets are as follows:
Year Ended June 30
1997 1996 1995
----------------------------
(In Thousands)
Balance at beginning of year $(227) $(28) (136)
Provisions for impairment 54 (199) 108
Sales 28 -- --
----------------------------
Balance at end of year $(145) $(227) $(28)
============================
37
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. REAL ESTATE
A summary of real estate is as follows:
June 30
1997 1996
-------------------
(In Thousands)
Held for investment (net of accumulated depreciation
of $1,336,000 in 1997 and $1,302,000 in 1996) $3,217 $3,684
Foreclosed assets held for sale 10,587 10,632
-------------------
13,804 14,316
Less: Allowance for real estate losses 365 955
-------------------
$13,439 $13,361
===================
An analysis of the allowance for real estate losses is as follows:
Year Ended June 30
1997 1996 1995
--------------------------
(In Thousands)
Balance at beginning of year $955 $630 $1,453
Provision charged to real estate expense 1,188 603 490
Recoveries credited to allowance 1 10 --
Less: Real estate losses charged to allowance (1,779) (288) (1,313)
--------------------------
Balance at end of year $365 $955 $630
==========================
7. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
June 30
1997 1996
-----------------
(In Thousands)
Land and improvements $4,785 $4,334
Buildings 11,388 11,651
Leasehold improvements 1,301 1,231
Furniture, fixtures, and equipment 9,630 8,317
-----------------
27,104 25,533
Less: Accumulated depreciation and amortization (9,784) (9,135)
-----------------
$17,320 $16,398
=================
38
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the
Corporation records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets. During the year ended June 30,
1997, the Corporation did not have any long-lived assets considered to be
impaired.
8. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
The Corporation is a partner in an unconsolidated joint venture in which its
ownership percentage is less than 20%. The Corporation's investment in this
joint venture is accounted for under the equity method of accounting. At June
30, 1997, the carrying value of this investment was approximately $3,863,000.
The Corporation's share of the venture's net loss for the year ended June 30,
1997 is $297,000.
Subsidiaries of the Corporation are partners in various joint ventures for the
purpose of acquiring and developing real property for ultimate resale or for
management of the resulting income-producing property. In addition, the
Association is a limited partner in several partnerships designed to generate
federal rehabilitation tax credits by acquiring, renovating, operating and
leasing qualified low income housing and historic properties. At June 30,
1997, aggregate net equity investment in these ventures approximated
$1,443,000. The Corporation's share of the ventures' net income of $179,000
(which approximates 50%) is included in operations under the equity method of
accounting.
9. DEPOSITS
Deposits are summarized as follows:
June 30
1997 1996
-------------------
(In Thousands)
Demand and savings accounts:
Noninterest-bearing $12,094 $11,116
NOW accounts 92,300 85,288
Savings accounts 71,752 81,311
Money market accounts 216,901 211,939
-------------------
393,047 389,654
Certificate accounts 600,059 518,469
-------------------
$993,106 $908,123
===================
At June 30, 1997, the scheduled maturities of certificate accounts for the
succeeding five fiscal years are as follows: 1998-$318,144,000;
1999-$136,388,000; 2000-$69,398,000; 2001-$55,837,000; 2002 and
thereafter-$20,292,000.
The aggregate amount of short-term certificates of deposit with a minimum
denomination of $100,000 was approximately $77,681,000 and $73,565,000 at June
30, 1997 and 1996, respectively.
39
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. FEDERAL HOME LOAN BANK (FHLB) ADVANCES AND OTHER BORROWINGS
Borrowings consist of the following:
June 30
1997 1996
--------------------
(In Thousands)
FHLB advances payable to FHLB Pittsburgh, secured by
all FHLB stock and certain first mortgage loans:
Short-term advances:
Due July 1, 1997, 5.87% $20,000 $ --
Due July 1, 1996, 5.21% -- 3,000
Due July 3, 1996, 5.44% -- 70,000
--------------------
20,000 73,000
Convertible advance:
Due 2002, 5.46% 25,000 --
Other advance:
Due 2008, 2.00% 309 320
--------------------
45,309 73,320
--------------------
Other borrowing:
Due 2004, prime plus .75% 927 1,060
--------------------
$46,236 $74,380
====================
Maturities of FHLB advances and other borrowings for the succeeding five
fiscal years are as follows: 1998-$45,144,000; 1999-$145,000; 2000-$145,000;
2001-$145,000; 2002-$145,000. The convertible advance of $25,000,000, due in
the year 2002, is a five-year fixed rate advance which the FHLB has the option
of converting to a LIBOR adjustable rate advance on September 27, 1997 or
quarterly thereafter. Upon conversion, management has the right to exercise a
return option to the FHLB with no prepayment penalty. Accordingly, this amount
is included in the 1998 maturities based on the initial conversion date.
The FHLB of Pittsburgh has an established credit policy which permits the
Association to borrow amounts up to twenty times the amount of the
Association's holding of FHLB stock, at a negotiated interest rate. At June
30, 1997, additional borrowings available under this policy were approximately
$112,831,000. The Association may increase its borrowings over amounts
currently available by purchasing additional FHLB stock.
The Association has a credit agreement with the Federal Reserve Bank of
Philadelphia whereby the Association can borrow to meet short-term liquidity
requirements in amounts up to approximately $2,949,000. Certain mortgage loans
held in safekeeping by the Federal Reserve Bank collateralize borrowings under
this credit agreement. At June 30, 1997 there were no borrowings under this
credit agreement.
40
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During 1994, the Corporation on behalf of the Employee Stock Ownership Trust
arranged for a loan in the amount of $1,325,000 payable in equal annual
installments of $132,500 plus interest at prime plus .75% for a period of 10
years. The final maturity will be March 31, 2004. The proceeds were used to
acquire shares of the Corporation's stock for the benefit of the corporate
sponsored employee stock ownership plan (See note 12).
11. INCOME TAXES
The provision for income taxes in the consolidated statements of income
consists of the following:
Year Ended June 30
1997 1996 1995
------------------------------
(In Thousands)
Current:
Federal $2,501 $3,877 $4,814
State 527 995 1,029
------------------------------
3,028 4,872 5,843
Deferred:
Federal 901 1,568 (1,006)
State (54) 72 --
------------------------------
847 1,640 (1,006)
------------------------------
Total provision for
income taxes $3,875 $6,512 $4,837
==============================
The provision for income taxes includes $253,000, ($163,000), and $327,000 in
1997, 1996 and 1995, respectively, of applicable income taxes related to gains
(losses) on sales of securities of $670,000, ($418,000), and $809,000,
respectively.
Income tax expense for the Corporation is different than the amounts computed
by applying the statutory federal income tax rate to income before income
taxes because of the following:
Percentage of Income
Before Income Taxes
--------------------------
Year Ended June 30
1997 1996 1995
--------------------------
Income tax expense at federal statutory
rate 35.0 % 35.0 % 35.0 %
Tax-exempt income (0.1) (0.2) (0.5)
State income taxes, net of federal benefit 2.8 4.1 5.4
Federal tax credits (2.1) -- --
Other (0.2) (0.3) (1.2)
--------------------------
Effective tax rate 35.4 % 38.6 % 38.7 %
==========================
41
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Corporation made income tax payments of $3,404,000, $5,949,000, and
$4,973,000 during 1997, 1996, and 1995, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30
are as follows:
1997 1996
-------------------
(In Thousands)
Deferred tax assets:
Deferred loan fees $ -- $ 5
Bad debt 2,399 2,481
Securities available for sale -- 289
Other 1,435 1,067
-------------------
Total gross deferred tax assets 3,834 3,842
-------------------
Deferred tax liabilities:
Deferred loan expenses 188 --
Depreciation and amortization 495 431
Joint ventures 502 514
Securities valuation adjustment 620 592
Securities available for sale 43 --
Servicing rights 768 426
Other 904 387
-------------------
Total gross deferred tax liabilities 3,520 2,350
-------------------
Net deferred tax asset $314 $1,492
===================
As required by FASB Statement No. 109, the Corporation has determined that a
valuation reserve for the net deferred tax asset is not required since it is
more likely than not that the net deferred tax asset can be principally
realized through carryback to taxable income in prior years and future
reversals of existing taxable temporary differences.
12. EMPLOYEE STOCK OWNERSHIP PLAN AND PENSION PLAN
The Corporation sponsors an employee stock ownership plan (ESOP) which
provides all eligible employees an opportunity to share in the ownership of
the Corporation's common stock. The ESOP generally acquires shares of common
stock with contributions made to the ESOP. Expenses related to ESOP
contributions amounted to $346,000, $372,000 and $326,000 in 1997, 1996 and
1995, respectively. In May 1994, the ESOP borrowed $1,325,000 and acquired
84,992 shares (as adjusted for subsequent stock dividends) of the
Corporation's common stock to be released and allocated to eligible employees
as the borrowing is repaid. In accordance with the provisions of AICPA
Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership
Plans", at June 30, 1997, the borrowing is reflected as a liability and the
related shares as a contra equity account, unearned ESOP shares, on the
Corporation's consolidated balance sheet. At June 30, 1997, the ESOP debt
outstanding was $927,000 and the fair value of related shares (66,617
including shares acquired through the dividends paid on unearned ESOP shares)
was $1,324,000.
42
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Corporation has committed to make contributions sufficient to provide for
ESOP debt service requirements.
The Corporation and its subsidiaries have a noncontributory pension plan
covering all eligible employees. The benefits are based on the employee's
compensation and years of service. The Corporation's funding policy is to
contribute amounts required under ERISA.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated financial statements.
June 30
Accumulated Benefits 1997 1996
-----------------
Acturial present value of benefit obligations: (In Thousands)
Accumulated benefit obligation including vested
benefits of $4,428 in 1997 and $3,812 in 1996 $(4,586) $(3,922)
==================
Accrued Pension Liability
Actuarial present value of projected benefit obligation
for services rendered to date $(5,141) $(4,271)
Plan assets at fair value, including shares of
York Financial Corp. stock with a fair value of $742
in 1997 and $548 in 1996, and equity and debt funds 5,450 4,107
-----------------
Plan assets in excess of (less than) projected benefit
obligation 309 (164)
Unrecognized net loss from past experience different
from that assumed 707 899
Unrecognized net transition asset (345) (394)
-----------------
Prepaid pension cost $671 $341
==================
Net pension cost included the following components:
Year Ended June 30
1997 1996 1995
----------------------------
(In Thousands)
Service cost-benefits earned during the period $358 $312 $285
Interest cost on projected benefit obligation 345 283 236
Actual return on plan assets (843) (356) (371)
Net amortization and deferral 484 (5) 86
----------------------------
Net periodic pension cost $344 $234 $236
============================
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation was 7.5% and 4.5%, respectively, at June 30, 1997 and 7.5%
and 5.0%, respectively, at June 30, 1996. The expected long-term rate of
return on plan assets in 1997, 1996, and 1995 was 9.0%.
43
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. Stockholders' Equity
Retained earnings of the Association includes $14,470,000 at June 30, 1997 and
1996, for which no provision for federal income tax has been made. These
amounts represent deductions for bad debt reserve for tax purposes only which
were allowed to savings institutions which met certain definitional tests
prescribed by the Internal Revenue Code of 1986, as amended. The Small
Business Job Protection Act of 1996 passed on August 20, 1996 eliminates the
special bad debt deduction granted solely to thrifts. Under the terms of the
Act, there would be no recapture of the pre-1988 (base year) reserves.
However, these pre-1988 reserves would be subject to recapture under the rules
of the Internal Revenue Code section 593(e), if the Association itself redeems
its shares, pays a cash dividend in excess of earnings and profits, or
liquidates.
The Act also provides for the recapture of permanent deductions arising from
"applicable excess reserve" defined as the total amount of reserve over the
base year reserve. The Association's total reserve approximates the base year
reserve, and therefore, no recapture tax is due.
The Association is subject to various regulatory capital requirements
administered by the OTS. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators, that if undertaken, could have a direct material effect on the
Association's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Association's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth in
the table below) of tangible, core and risk-based capital as defined in the
regulations. At June 30, 1997, the Association meets all capital adequacy
requirements to which it is subject.
At June 30, 1997, the most recent notification from the OTS categorized the
Association as well capitalized under the regulatory framework for prompt
corrective action. There were no conditions or events since that notification
that management believes have changed the Association's category.
The following table sets forth Office of Thrift Supervision capital
requirements as compared to the capital position of the Association as of June
30, 1997 and 1996:
<PAGE>
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------
Amount Ratio Minimum Required Minimum Required
Amount Ratio Amount Ratio
-----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Tangible capital $86,207 7.5% $17,290 1.5% $17,290 1.5%
Core capital (to total
assets) $86,207 7.5% $34,581 3.0% $57,635 5.0%
Core capital (to risk
weighted assets) $86,207 11.1% $30,953 4.0% $46,429 6.0%
Risk-based capital $92,473 12.0% $61,906 8.0% $77,382 10.0%
44
</TABLE>
<PAGE>
<PAGE>
<TABLE>
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------
Amount Ratio Minimum Required Minimum Required
Amount Ratio Amount Ratio
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
As of June 30, 1996:
Tangible capital $82,533 7.5% $16,529 1.5% $16,529 1.5%
Core capital (to
total assets) $82,533 7.5% $33,057 3.0% $55,096 5.0%
Core capital (to
risk weighted assets $82,533 11.5% $28,776 4.0% $43,164 6.0%
Risk-based capital $88,495 12.3% $57,552 8.0% $71,940 10.0%
</TABLE>
<PAGE>
The Association may make dividend distributions to the Corporation up to 100%
of its net income in the calendar year plus an amount that would reduce its
surplus risk-based capital ratio at the beginning of the calendar year by
one-half. At June 30, 1997, the total allowable dividend distribution was
$16,988,000.
14. Stock Option Plans
The Corporation has reserved 1,039,377 shares of common stock for options
granted or available for grant to certain directors and officers under the
Incentive Stock Option Plans and the Non-Incentive Stock Option Plans (Plans),
as amended. Options granted under the Incentive Stock Option Plans become
exercisable over periods of five to eight years on a cumulative basis,
beginning on the date of grant, and expiring ten years after the date of
grant. Options granted under the Non-Incentive Stock Option Plans become
exercisable over periods determinable at the date of grant and expire ten
years after the date of grant. Options under the Plans are granted at prices
not less than 100% of the fair market value at the date of option grant. In
case of termination of employment, options and grants not yet exercisable are
subject to the risk of forfeiture.
Under the Plans, the Corporation may also grant stock appreciation rights,
either singly or in tandem with stock options. No stock appreciation rights
were outstanding at June 30, 1997 and 1996.
Stock options transactions, adjusted for stock dividends, under the Plans were
as follows:
Year Ended June 30
1997 1996 1995
-------------------------------
Options outstanding at beginning of year 1,087,613 908,983 746,947
Options granted at $11.80 to $18.75 per share 43,825 206,185 213,711
Options exercised at $4.94 to $12.81 per share (242,329) (15,455) (51,675)
Options forfeited (8,470) (12,100) --
-------------------------------
Options outstanding at end of year 880,639 1,087,613 908,983
===============================
Options available for grant at June 30 158,738
==========
Options exercisable at June 30 at $4.94
to $18.75 per share 798,809
==========
45
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The weighted average grant-date fair value of options granted during 1997 and
1996 was $3.39 and $3.71, respectively. The Corporation uses the Black-Scholes
Option Pricing Model to calculate the grant-date fair value. The following
significant assumptions were used to calculate the estimated fair value of the
options granted:
1997 1996
------------------
Risk free interest rate 6.625% 5.875%
Expected life 4 years 3 years
Expected volatility 21.7% 21.7%
Expected dividends 3.37% 3.37%
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which encourages companies to recognize expense for
stock-based awards based on their estimated fair value on the date of grant.
However, Statement No. 123 also permits entities to continue to measure
compensation expense for stock-based plans using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
while supplementally disclosing pro forma income and earnings per share data
as if the fair value method had been adopted. The Corporation did not adopt
the fair value method of accounting for stock-based plans, and will continue
to use the intrinsic value method to measure compensation expense.
Under Opinion No. 25, because the exercise price of the Corporation's employee
stock options equals the market value of the underlying stock on the date of
grant, no compensation expense was recognized. If the fair value method had
been used to measure compensation expense, the Corporation's net income and
earnings per share would have reduced to the pro forma amounts indicated
below:
Year Ending June 30
1997 1996
------------------------------------
(In Thousands, Except Per Share Data)
Net Income
As reported $7,087 $10,343
Pro forma 7,053 10,328
Earnings Per Share
As reported 0.99 1.49
Pro forma 0.98 1.48
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Corporation's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of the stock options
granted to employees.
46
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. YORK FINANCIAL CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
June 30
Balance Sheets 1997 1996
- -------------- -----------------
Assets (In Thousands)
Cash $4,750 $3,896
Loan receivable, net 2,376 1,709
Prepaid expenses and other assets 57 23
Investment in joint venture 3,863 4,160
Investments in subsidiaries:
York Federal Savings and Loan Association 86,660 82,140
Other 4,058 3,004
-----------------
Total investments in subsidiaries 90,718 85,144
-----------------
$101,764 $94,932
=================
Liabilities
Other borrowings $927 $1,060
Accrued expenses and other liabilities 754 332
Stockholders' equity 100,083 93,540
-----------------
$101,764 $94,932
=================
Statements of Income Year Ended June 30
- -------------------- 1997 1996 1995
-------------------------
Dividend income: (In Thousands)
York Federal Savings and Loan Association $2,630 $1,798 $1,382
Other 29 178 129
Interest Income 387 386 347
Gain on sales of real estate 14 841 --
Income (loss) from joint venture (297) 979 (93)
Other Income 7 46 169
-------------------------
2,770 4,228 1,934
Other expenses 612 709 636
-------------------------
Income before equity in undistributed net income
of subsidiaries and income taxes 2,158 3,519 1,298
Equity in undistributed net income (loss)
of subsidiaries:
York Federal Savings and Loan Association 3,991 7,476 6,330
Other 732 (1) (102)
-------------------------
Income before income taxes 6,881 10,994 7,526
Provision for income taxes (benefit) (206) 651 (140)
-------------------------
Net Income $7,087 $10,343 $7,666
-------------------------
47
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year ended June 30
1997 1996 1995
------------------------
Statements of Cash Flows (In Thousands)
- ------------------------
Operating activities
Net income $7,087 $10,343 $7,666
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed net income of
subsidiaries (4,723) (7,475) (6,228)
Other 620 (1,368) 585
------------------------
Net cash provided by operating activities 2,984 1,500 2,023
Investing activities
Loans originated or acquired (684) -- (360)
Principal collected on loans 16 53 19
Purchase of equipment (26) -- --
Increase in investments in subsidiaries (322) (1,048) (579)
Decrease in investment in real estate -- 848 744
------------------------
Net cash used in investing activities (1,016) (147) (176)
Financing activities
Issuance of common stock:
Dividend Reinvestment Plan 2,133 1,718 1,631
Stock Option Plans 561 96 24
Cash dividends paid (3,919) (3,381) (3,062)
Acquisition of treasury stock -- -- (87)
Cash in lieu of fractional shares (22) (20) (21)
Release of ESOP shares 133 133 132
------------------------
Net cash used in financing activities (1,114) (1,454) (1,383)
------------------------
Increase (decrease) in cash 854 (101) 464
Cash at beginning of year 3,896 3,997 3,533
------------------------
Cash at end of year $4,750 $3,896 $3,997
========================
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers.
48
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Financial instruments with off-balance sheet risk are summarized as follows:
June 30
1997 1996
------------------
(In Thousands)
Commitments to extend credit:
Loan origination commitments:
Fixed interest rates $20,739 $28,118
Variable interest rates 3,688 6,718
------------------
24,427 34,836
Unused home equity lines of credit 49,972 46,876
Unused unsecured lines of credit 1,136 1,128
------------------
$75,535 $82,840
==================
Standby letters of credit $1,545 $1,012
==================
Loans sold with recourse $44,455 $51,603
==================
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected
to expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. The Association evaluates each
customer's credit worthiness on a case-by-case basis using the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. The amount of collateral obtained, if deemed
necessary by the Association upon extension of credit, is based on
management's credit evaluation of the customer and generally consists of real
estate.
Standby letters of credit are conditional commitments issued by the
Association to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The Association holds
collateral, when deemed necessary, supporting those commitments.
The Association has sold loans to the Federal National Mortgage Association
(FNMA) which include certain recourse provisions for the life of the loans
whereby the Association is required to repurchase the buyer's interest in
individual loans on which foreclosure proceedings have been completed. The
Association does not believe that its recourse obligations subject it to
material risk of loss in the future. There were no sales of loans with
recourse in fiscal years ending June 30, 1997 and 1996.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of the fair value of financial instruments.
A substantial portion of the Corporation's assets and liabilities are
49
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
considered financial instruments. Significant assumptions were used in the
calculation of fair market values. The following assumptions and methods were
used by the Corporation to estimate the fair values of each type of the
Corporation's Financial Instruments.
CASH AND DUE FROM BANKS - NONINTEREST AND INTEREST EARNING
The fair value for cash and due from banks is book value, due to the short
maturity of, and negligible credit concerns within, those instruments.
LOANS HELD FOR SALE
Loans held for sale are generally fixed rate mortgage loans. The fair value
for such loans is based on quoted market prices of securities collateralized
by similar loans.
SECURITIES HELD FOR TRADING AND AVAILABLE FOR SALE
The fair value for securities held for trading and available for sale is based
on available market quotes. If a market quote is not available, fair value is
approximated by using the market price of a similar security.
SECURITIES HELD TO MATURITY
The fair value for securities held to maturity which includes the Federal Home
Loan Bank (FHLB) stock is based on available market quotes and the cost for
the FHLB stock. If a market quote is not available, fair value is approximated
by using the market price of a similar security.
LOANS
The fair value of adjustable rate loans that reprice frequently is
approximately their carrying value. The fair value of fixed rate loans and
adjustable rate loans with repricing frequencies of greater than one year is
estimated by discounting the future cash flows using the current rate at which
similar loans would be made to borrowers with similar credit ratings.
Mortgages and certain consumer loans include prepayment assumptions.
OTHER FINANCIAL ASSETS
Currently other financial assets consist of mortgage servicing rights whose
fair values are calculated based on the present values of their estimated
future cash flows.
DEPOSITS
The fair value of deposits with no stated maturity, such as noninterest
bearing deposits, NOW accounts, savings accounts, and money market accounts
is, by definition, equal to the amount payable on demand (i.e., their carrying
amounts). The fair value of fixed rate certificates of deposit is based on the
discounted value of cash flows, using Federal Home Loan Bank borrowing rates
with similar remaining maturities. The carrying amounts for variable rate
certificates of deposit approximate their fair values. The estimated fair
value of core deposits does not include the benefits commonly referred to as a
core deposit intangible resulting
50
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
from low-cost funding compared to the cost of borrowing funds in the financial
markets nor is such benefit recorded as an intangible asset on the balance
sheet.
BORROWINGS
The fair value of adjustable rate borrowings that reprice frequently is
approximately their carrying value. The fair value of long term borrowings is
calculated based on the discounted value of contractual cash flows, using
rates currently existing for borrowings from the Federal Home Loan Bank with
similar remaining maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account market
interest rates, the remaining terms and present creditworthiness of the
counterparties. The fair value of guarantees and letters of credit is based on
fees currently charged for similar agreements.
The fair values estimated are dependent upon subjective assumptions and
involve significant uncertainties resulting in estimates that vary with
changes in assumptions. Any changes in assumptions or estimation methodologies
may have a material effect on the estimated fair values disclosed.
At June 30, 1997, the Corporation's estimated fair values of financial
instruments based on assumptions disclosed above are as follows:
June 30
1997 1996
-----------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------
(In Thousands)
Cash and Due from banks - Non-
interest and interest-bearing $23,139 $23,139 $24,071 $24,071
Loans held for sale 4,882 4,882 5,686 5,686
Securities held for trading 7,158 7,158 21,736 21,736
Securities available for sale 59,690 59,690 53,115 53,115
Securities held to maturity 16,860 16,689 16,008 15,681
Loans:
Residential 815,275 817,089 762,261 759,695
Commercial 53,932 54,256 68,282 68,364
Consumer 134,487 132,730 114,814 113,617
-----------------------------------------
Total Gross Loans 1,003,694 1,004,075 945,357 941,676
Other Financial Assets 2,484 2,510 1,914 2,045
Noninterest-bearing deposits 12,094 12,094 11,116 11,116
NOW accounts 92,300 92,300 85,288 85,288
Savings accounts 71,752 71,752 81,311 81,311
Money market accounts 216,901 216,901 211,939 211,939
Certificates of deposit 600,059 608,168 518,469 526,581
-----------------------------------------
Total Deposits 993,106 1,001,215 908,123 916,235
FHLB Advances and other borrowings 46,236 46,115 74,380 74,259
Off-balance-sheet financial
instruments:
Commitments to extend credit $(118) $(214)
Standby letters of credit (23) (15)
51
<PAGE>
<PAGE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Corporation
is a defendant in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the consolidated financial condition of the
Corporation.
52
<PAGE>
<PAGE>
SUPPLEMENTARY CONSOLIDATED FINANCIAL DATA
Summaries of consolidated results of operations on a quarterly basis for the
years ended June 30, 1996 are as follows:
Three Months Ended
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
(Unaudited)
FISCAL YEAR 1997 (Dollars in Thousands, Except Per Share Data)
----------------
Interest income............ $21,380 $22,078 $22,109 $22,074
Interest expense........... 12,650 13,201 12,926 13,011
------- ------- ------- -------
Net interest income........ 8,730 8,877 9,183 9,063
Provision for loan losses.. 903 903 370 248
------- ------- ------- -------
Net interest income after
provision for loan losses. 7,827 7,974 8,813 8,815
Other income............... 992 2,510 2,855 2,339
Other expenses............. 11,396 5,743 6,650 7,374
Income tax expense ........ (984) 1,871 1,968 1,020
------- ------- ------- -------
Net income................. $(1,593) $2,870 $3,050 $2,760
======= ======= ======= =======
Per share data:
Net income................. $(0.23) $0.40 $0.42 $0.38
======= ======= ======= =======
Cash dividends paid........ $0.136 $0.136 $0.150 $0.150
======= ======= ======= =======
FISCAL YEAR 1996
----------------
Interest income............ $19,813 $20,385 $20,294 $20,388
Interest expense........... 11,316 11,846 11,293 11,450
------- ------- ------- -------
Net interest income........ 8,497 8,539 9,001 8,938
Provision for loan losses.. 600 700 500 500
------- ------- ------- -------
Net interest income after
provision for loan losses. 7,897 7,839 8,501 8,438
Other income............... 1,309 3,412 1,905 2,004
Other expenses............. 5,579 5,608 6,870 6,393
Income tax expense ........ 1,456 2,256 1,198 1,602
------- ------- ------- -------
Net income................. $2,171 $3,387 $2,338 $2,447
======= ======= ======= =======
Per share data:
Net income................. $0.32 $0.49 $0.34 $0.35
======= ======= ======= =======
Cash dividends paid........ $0.124 $0.124 $0.127 $0.136
======= ======= ======= =======
All per share data is adjusted for stock dividends
effected through June 30, 1997.
53
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
York Financial Corp. York Financial Corp. and
Executive Officers York Federal Savings and Loan
Association
Directors
THOMAS W. WOLF CYNTHIA A. DOTZEL, CPA
Chairman of the Board Dotzel and Company, Inc.
Certified Public Accountants
ROBERT W. PULLO
President and Chief Executive Officer ROBERT W. ERDOS
Owner
ROBERT A. ANGELO, ESQ. Stomp Off Records
Executive Vice President
Secretary/General Counsel RANDALL A. GROSS
President
JAMES H. MOSS, CPA RG Industries
Senior Vice President
Chief Financial Officer/Treasurer PAUL D. MILLS
Owner
ROBERT C. HERZBERGER Willow Tree Farm
Senior Vice President
ROBERT W. PULLO
President and Chief Executive
Officer
York Financial Corp.
Chairman and Chief Executive
Officer
York Federal Savings and Loan
Association
BYRON M. REAM
Executive Vice President
R & R Components, Inc.
ROBERT L. SIMPSON
Executive Director
Crispus Attucks Association, Inc.
CAROLYN E. STEINHAUSER
Executive Director
York Foundation
THOMAS W. WOLF
President
The Wolf Organization
DIRECTORS EMERITI
PAUL W. MOYER
HIRAM L. WIEST, M.D.
WILLIAM T. WOLF
Chairman of the Board Emeritus
54
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
YORK FEDERAL SAVINGS AND LOAN ASSOCIATION
EXECUTIVE OFFICERS
ROBERT W. PULLO
Chairman of the Board and Chief Executive Officer
ROBERT A. ANGELO
President and Chief Operating Officer
ADMINISTRATIVE
MORTGAGE BANKING RETAIL BANKING SERVICES
GROUP GROUP GROUP
ROBERT C. HERZBERGER LYNN D. KRAMER-CRENSHAW JAMES H. MOSS, CPA
Executive Vice President Executive Vice President Executive Vice
President
Group Leader Group Leader Group Leader
Chief Financial
Officer/Treasurer
ROBERT H. BOYER MILES C. BAXTER
Senior Vice President Vice President FERN W. BRESSLER, CPA
Mortgage Origination Branch Banking Vice President
Division Controller
CAROL H. HINKLE MICHAEL J. MCCLURE
Vice President Vice President CRAIGE L. SMITH, JR.
Lancaster Mortgage Center Product Sales Senior Vice President
Support Services
Division
ROBERT J. MATULEVICH
Vice President
Correspondent Lending
KATHY F. SERVELLE
Vice President
Residential Mortgage Lending
CORPORATE SERVICES BUSINESS BANKING GROUP OTHER VICE PRESIDENTS
GROUP
REBECCA S. MCCLURE, ESQ. HARRY M. ZIMMERMAN WILLIAM E. GROFT
Senior Vice President Executive Vice President Vice President
Group Leader Group Leader Continuous Improvement
Secretary/General Counsel
MICHAEL C. ROSE DAWN C. PAUL
SHARON L. LUKER Vice President Vice President
Vice President Relationship Manager Auditor
Human Resources
55
<PAGE>
<PAGE>
<TABLE>
YORK FEDERAL SAVINGS AND LOAN ASSOCIATION
BRANCH OFFICES
<S> <C>
CORPORATE HEADQUARTERS CUMBERLAND COUNTY, PENNSYLVANIA OFFICES
101 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 798 EAST SIMPSON STREET, MECHANICSBURG
Joye E. Matysek, Assistant Vice President Wendy L. Meneses, Assistant Vice President
269 PENROSE PLACE, CARLISLE
YORK COUNTY, PENNSYLVANIA OFFICES Teresa F. Kline, Assistant Vice President
2690 SOUTH QUEEN STREET, YORK 75 ZIMMERMAN DRIVE, CAMP HILL
Judith A. Grube-Myers, Assistant Vice President Wendy L. Meneses, Assistant Vice President
100 NORTH NORTHERN WAY, YORK
Wendy J. Spangler, Assistant Vice President
DAUPHIN COUNTY, PENNSYLVANIA OFFICE
1940 CARLISLE ROAD, YORK
Edward R. Fadely, Sr., Assistant Vice President 1123 WEST GOVERNOR ROAD, HERSHEY
Debra E. Dupler, Assistant Vice President
1 NORTH MAIN STREET, SHREWSBURY
Laurie A. Blevins, Assistant Vice President
HAINES ACRES SHOPPING CENTER, YORK LANCASTER COUNTY, PENNSYLVANIA OFFICE
Victoria A. Schofield, Assistant Vice President
1758 OREGON PIKE, LANCASTER
880 WEST BROADWAY, RED LION Jay E. Lowman, Assistant Vice President
Matthew J. Forry, Assistant Vice President
1442 BANNISTER STREET, YORK HARFORD COUNTY, MARYLAND OFFICES
Fred L. Landis II, Assistant Vice President
1816 EMMORTON ROAD, BEL AIR
201 DART DRIVE, HANOVER Charlotte D. Smith, Assistant Vice President
Tammy L. Ford, Assistant Vice President
2006 ROCK SPRING ROAD, FOREST HILL
1781 WEST MARKET STREET, YORK Charlotte D. Smith, Assistant Vice President
Fred L. Landis II, Assistant Vice President
499 TYLER RUN ROAD, YORK
Margarette A. Sboray, Assistant Vice President
4157 NORTH GEORGE STREET, MANCHESTER
Tammy A. Schopf-Smith, Assistant Vice
President
3995 EAST MARKET STREET, YORK
Victoria R. Hopwood, Assistant Vice President
39 HANOVER STREET, SPRING GROVE
Ruth L. Shaffer, Assistant Vice President
1700 BALTIMORE PIKE, HANOVER
Tammy L. Ford, Assistant Vice President
</TABLE>
56
<PAGE>
<PAGE>
CORPORATE ORGANIZATION AND INFORMATION
Subsidiaries of York Financial Corp. Corporate Information
YORK FEDERAL SAVINGS AND LOAN ASSOCIATION CORPORATE HEADQUARTERS
ROBERT W. PULLO 101 South George Street
Chairman of the Board and York, Pennsylvania 17401
Chief Executive Officer
INDEPENDENT AUDITORS
ROBERT A. ANGELO, ESQ. Ernst & Young LLP
President and Chief Operating Officer One North Charles
Baltimore, Maryland 21201
Y-F SERVICE CORP. SPECIAL COUNSEL
HARRY A. LLOYD Breyer & Aguggia
President and Chief Executive Officer 1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
NEW SERVICE CORP. TRANSFER AGENT AND
HARRY A. LLOYD REGISTRAR
President and Chief Executive Officer American Stock Transfer
and Trust Co.
40 Wall Street
46th Floor
YORK FINANCIAL INVESTMENT CORP. New York, New York 10005
JAMES H. MOSS, CPA
President and Chief Executive Officer 10-K INFORMATION
A copy of Form 10-K as
filed with the
Securities and Exchange
Commission will be
LENDERS SUPPORT GROUP, INC. furnished without charge
HARRY A. LLOYD to stockholders of
President and Chief Executive Officer record on September 2, 1997
upon written request to
James H. Moss, Senior
Vice President and
Chief Financial
Officer/Treasurer, York
Financial Corp., 101
South George Street,
P.O. Box 15068, York
Pennsylvania 17405.
FIRST CAPITAL BROKERAGE SERVICES, INC. ANNUAL MEETING
KENNETH P. FETROW The Annual Meeting of
President and Chief Executive Officer the stockholders of York
Financial Corp. will be
held on Wednesday,
October 22, 1997 at 3:00
FIRST CAPITAL INSURANCE SERVICES, INC. 3:00 p.m. at the
KENNETH P. FETROW Yorktowne Hotel, 48 East
President and Chief Executive Officer Market Street, York,
Pennsylvania 17401.
York Financial Corp. is
an Equal Opportunity
Affirmative Action
Employer.
57
<PAGE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
Percentage Jurisdiction or
Subsidiaries (1) Owned State of Incorporation
- ---------------- ---------- ----------------------
York Federal Savings
and Loan Association 100% Federally chartered
Advanced Real Estate
Associates, Inc.(2) 100% Pennsylvania
Residential Mortgage
Corp. (2) 100% Pennsylvania
Y-F Service Corp. 100% Pennsylvania
New Service Corp. 100% Pennsylvania
York Financial
Investment Corp. (3) 100% Delaware
---
Lenders Support Group, Inc. 100% Pennsylvania
First Capital Brokerage
Services, Inc. 100% Pennsylvania
First Capital Insurance
Agency, Inc. 100% Maryland
- ----------------------
(1) The operations of the Corporation's subsidiaries are included in the
Corporation's consolidated financial statements.
(2) A wholly-owned subsidiary of York Federal Savings and Loan Association
at June 30, 1997.
(3) A wholly-owned subsidiary of New Service Corp.
<PAGE>
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
<PAGE>
[Ernst & Young Letterhead]
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of York Financial Corp. and in the related Prospectuses of our
report dated July 17, 1997, with respect to the consolidated financial
statements of York Financial Corp. included in the 1997 Annual Report to
Stockholders of York Financial Corp. and incorporated by reference in this
Annual Report (Form 10-K) for the year ended June 30, 1997:
Number 33-27812 on Form S-3 dated April 3, 1989
Number 33-89228 on Form S-3 dated April 5, 1995
Number 33-87300 on Form S-8 dated December 13, 1994
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Baltimore, Maryland
September 26, 1997
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 23139
<INT-BEARING-DEPOSITS> 1527
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 7158
<INVESTMENTS-HELD-FOR-SALE> 59690
<INVESTMENTS-CARRYING> 8953
<INVESTMENTS-MARKET> 8782
<LOANS> 997841
<ALLOWANCE> 6413
<TOTAL-ASSETS> 1162393
<DEPOSITS> 993106
<SHORT-TERM> 45000
<LIABILITIES-OTHER> 18249
<LONG-TERM> 1236
0
0
<COMMON> 7008
<OTHER-SE> 93075
<TOTAL-LIABILITIES-AND-EQUITY> 1162393
<INTEREST-LOAN> 80820
<INTEREST-INVEST> 5991
<INTEREST-OTHER> 830
<INTEREST-TOTAL> 87641
<INTEREST-DEPOSIT> 46365
<INTEREST-EXPENSE> 51788
<INTEREST-INCOME-NET> 35853
<LOAN-LOSSES> 2424
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 31163
<INCOME-PRETAX> 10962
<INCOME-PRE-EXTRAORDINARY> 10962
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7087
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 3.27
<LOANS-NON> 950
<LOANS-PAST> 13437
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6609
<CHARGE-OFFS> 3350
<RECOVERIES> 730
<ALLOWANCE-CLOSE> 6413
<ALLOWANCE-DOMESTIC> 3774
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2639
</TABLE>
