15
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1997
Commission File No. 0-14995
YORK FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-2427539
(I.R.S. employer identification number)
101 South George Street York, Pa. 17401
(Address of principal executive offices)(Zip code)
(717) 846-8777
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X
No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, par value $1.00 per share 8,851,599 shares
outstanding as of December 31, 1997.
YORK FINANCIAL CORP.
INDEX
Page
Part I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated balance sheets
December 31, 1997 and June 30, 1997 (unaudited) 3
Consolidated statements of income,
three months and six months ended December 31, 1997
and 1996 (unaudited) 4
Consolidated statements of cash flows,
six months ended December 31, 1997
and 1996 (unaudited) 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December June
31 30
1997 1997
ASSETS (In thousands, unaudited)
<S> <C> <C>
Cash and due from banks:
Noninterest-earning $18,599 $21,612
Interest-earning 7,810 1,527
26,409 23,139
Loans held for sale, net 13,982 4,882
Securities held for trading 5,117 7,158
Securities available for sale 57,481 59,690
Securities held to maturity
(fair value at Dec. 31, 1997 -
$5,822 and June 30,
1997 - $8,782) 5,820 8,953
Loans receivable, net 1,010,360 997,841
Real estate, net 13,317 13,439
Premises and equipment 18,789 17,320
Federal Home Loan Bank stock, at
cost 7,907 7,907
Accrued interest receivable 7,935 7,981
Other assets 9,049 8,777
Investments in joint ventures 6,110 5,306
Total Assets $1,182,276 $1,162,393
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,014,534 $993,106
Federal Home Loan Bank
advances and other borrowings 40,857 46,236
Advances from borrowers
for taxes and insurance 2,608 4,719
Other liabilities 19,475 18,249
Total Liabilities 1,077,474 1,062,310
Stockholders' Equity:
Preferred Stock: 10,000,000
shares authorized and unissued --- ---
Common Stock, $1.00 par value:
Authorized 20,000,000 shares;
issued Dec. 31, 1997 -
8,851,599; June 30, 1997 -
7,008,347 8,852 7,008
Additional capital 80,016 80,633
Retained earnings 16,526 13,290
Unrealized gains 335 79
Unearned ESOP shares (927) (927)
Total Stockholders' Equity 104,802 100,083
Total Liabilities and Stockholders'
Equity $1,182,276 $1,162,393
See notes to consolidated financial statements
</TABLE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months
Ended Ended
December 31 December 31
1997 1996 1997 1996
(In thousands except per share data, unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on
loans $20,741 $20,501 $41,242 $40,203
Interest on securities
held for trading 152 242 349 624
Interest on securities
available for sale 973 871 1,979 1,759
Interest and dividends on
securities held to
maturity 244 236 499 469
Other interest income 161 228 368 403
Total interest income 22,271 22,078 44,437 43,458
Interest expense:
Interest on deposits 12,382 11,509 24,606 22,721
Interest on borrowings 587 1,692 1,388 3,130
Total interest expense 12,969 13,201 25,994 25,851
Net interest income 9,302 8,877 18,443 17,607
Provision for loan losses 1,060 903 1,813 1,806
Net interest income after
provision for loan losses 8,242 7,974 16,630 15,801
Other income:
Mortgage banking 1,385 1,273 2,235 2,026
Gain (loss) on
sales of real estate 16 13 22 (40)
Fees and service charges 779 776 1,519 1,453
Income (loss)
from joint ventures 763 206 953 (421)
Other operating income 368 242 677 484
Total other income 3,311 2,510 5,406 3,502
Other expenses:
Salaries and employee
benefits 3,327 2,484 6,471 5,441
Occupancy 896 875 1,769 1,685
Federal deposit insurance 158 415 313 946
SAIF assessment --- --- --- 5,310
Real estate 235 87 701 184
Data processing 290 278 556 527
Advertising 272 240 406 374
Other 1,590 1,364 2,976 2,672
Total other expenses 6,768 5,743 13,192 17,139
Income before income taxes 4,785 4,741 8,844 2,164
Provision for income taxes 1,874 1,871 3,500 887
Net income $2,911 $2,870 $5,344 $1,277
Per share data:
Net income per share $ 0.33 $ 0.34 $ 0.61 $ 0.15
Net income per
share - assuming dilution $ 0.31 $ 0.32 $ 0.57 $ 0.14
Cash dividends paid $0.120 $0.109 $0.240 $0.218
Weighted average shares 8,744,342 8,352,548 8,720,366 8,329,631
Weighted average
shares - assuming
dilution 9,435,273 8,922,521 9,366,653 8,860,222
See notes to consolidated financial statements
</TABLE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31
1997 1996
<S> <C> <C>
(In thousands, unaudited)
OPERATING ACTIVITIES
Net income $ 5,344 $ 1,277
Adjustments to reconcile net
income to net cash provided
by operating activities:
Amortization and accretion on (120) (357)
securities, net
Provision for loan losses 1,813 1,806
Provision for real estate losses 428 ---
Depreciation and amortization 893 838
Loans originated for sale (70,016) (44,914)
Proceeds from sales of
trading securities 62,236 60,406
Realized (gains) losses
on trading securities (1,044) 158
Decrease in other assets 1,054 515
Increase (decrease) in other
liabilities 1,088 (15,928)
Other (1,788) (1,101)
Net cash provided by
(used in) operating activities (112) 2,700
INVESTING ACTIVITIES
Purchases of securities held to
maturity (2,000) (57)
Proceeds from maturities
of securities held to maturity 5,090 57
Principal repayments on
securities 3,825 4,354
Loans originated or acquired, net
of change in deferred loan fees (131,626)(163,558)
Principal collected on loans 114,066 86,894
Proceeds from sales of loans --- 1,643
Purchases of real estate (280) (82)
Proceeds from sales of real
estate 3,151 1,686
Purchases of premises, equipment,
and tenant improvements, net (2,223) (1,338)
Other (1,790) (297)
Net cash used in investing
activities (11,787) (70,698)
FINANCING ACTIVITIES
Net increase (decrease) in
noninterest-bearing demand
deposits, interest-bearing
transaction accounts,
savings accounts, and 31-day
certificates of deposit 9,592 (23,283)
Net increase in certificates of
deposit 12,185 58,047
Net increase (decrease) in
short-term advances received
from FHLB (6,000) 7,000
Net increase in convertible
advance received from FHLB 279 25,000
Repayments of Federal Home Loan
Bank advances and other
borrowings (6) (6)
Issuance of common stock :
Dividend reinvestment plan 1,120 1,016
Stock option plans 128 97
Cash dividends paid (2,108) (1,833)
Cash paid in lieu of fractional
shares (21) (21)
Net cash (used in) provided
by financing activities 15,169 66,017
Increase (decrease) in
cash and cash equivalents 3,270 (1,981)
Cash and cash equivalents
at beginning of year 23,139 24,071
Cash and cash equivalents
at end of year $ 26,409 $ 22,090
See notes to consolidated financial statements
</TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note A -- Basis Of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period
ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1997.
Cash Flow Information: For purposes of the statements of cash
flows, cash equivalents include cash and amounts due from banks.
During the six months ended December 31, 1997 and 1996, the
Association exchanged loans for mortgage-backed securities in the
amounts of $60.8 million and $43.0 million, respectively. During
the six months ended December 31, 1997 and 1996, the Association
transferred unpaid loan balances from loans to real estate
acquired due to foreclosures of $3.2 million and $6.6 million,
respectively.
Reclassifications: Certain reclassifications have been made to
the fiscal 1997 consolidated financial statements to conform with
the fiscal 1998 presentation.
Note B -- Per Share Data
On October 22, 1997, the Corporation declared a 5 for 4 stock
split, effected in the form of a 25% stock dividend, to
shareholders of record on November 3, 1997, to be paid November
17, 1997. Net income per share is computed based on the weighted
average number of common shares outstanding and dilutive common
stock equivalents, adjusted for stock splits/dividends. Cash
dividends paid per share are based on the number of common shares
outstanding at each record date, adjusted for stock
splits/dividends.
In February 1997, the FASB issued Statement No. 128, "Earnings
per Share", which establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. The
Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings per
Share", and makes them comparable to international EPS standards.
The Corporation adopted Statement No. 128 on January 1, 1998 and
all prior-period EPS data presented was restated.
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Numerator:
Net Income $2,911,000 $2,870,000 $5,344,000 $1,277,000
Numerator for
basic and
diluted earnings
per share $2,911,000 $2,870,100 $5,344,000 $1,277,000
Denominator:
Denominator for
basic earnings per
share - weighted
average shares 8,744,342 8,352,548 8,720,366 8,329,631
Effect of
dilutive
securities:
Employee Stock
Options 690,931 569,973 646,287 530,591
Denominator for
diluted earnings per
share - adjusted
weighted-average
shares and assumed
conversion 9,435,273 8,922,521 9,366,653 8,860,222
Basic earnings
per share $0.33 $0.34 $0.61 $0.15
Diluted earnings
per share $0.31 $0.32 $0.57 $0.14
</TABLE>
Note C -- Recently Issued Accounting Guidance
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting
and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements. Statement No. 130 requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. The Corporation will adopt Statement No.
130 on July 1, 1998. Reclassification of financial statements
for earlier periods provided for comparative purposes will be
required. Adoption of Statement No. 130 is not expected to have
a material impact on the Corporation.
In June 1997, the FASB issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which
establishes standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. The Statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business
Enterprise." The Corporation will adopt Statement No. 131 on
July 1, 1998 and comparative information for earlier years will
be restated. Adoption of Statement No. 131 is not expected to
have a material impact on the Corporation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
YORK FINANCIAL CORP.
Financial Review
The purpose of this discussion is to provide additional
information about York Financial Corp. ("York Financial" or
"Corporation"), its financial condition and results of
operations. Readers of this report should refer to the
consolidated financial statements and other financial data
presented throughout this report to fully understand the
following discussion and analysis.
York Financial is a unitary savings and loan holding company
incorporated in Pennsylvania in September 1985 and in August 1986
became the sole stockholder of York Federal Savings and Loan
Association ("York Federal" or "Association"), a federally
chartered stock savings and loan association. Presently, the
primary business of York Financial is the business of York
Federal. At December 31, 1997, the Corporation had consolidated
assets of $1.2 billion, total deposits of $1.0 billion and
stockholders' equity of $104.8 million. The Association is a
member of the Federal Home Loan Bank ("FHLB") of Pittsburgh and
is subject to supervision, examination and regulation by the
Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"). The Association is primarily
engaged in the business of attracting deposits and investing
these deposits into loans secured by residential and commercial
real property, consumer loans and investment securities. York
Federal conducts its business through twenty-two offices located
in south central Pennsylvania and Maryland. In addition, York
Federal maintains a commissioned mortgage origination staff as
well as mortgage broker relationships which originate residential
mortgage loans for the Association primarily in Pennsylvania,
Maryland and Virginia. The Association's deposits are insured up
to applicable limits by the Savings Association Insurance Fund
("SAIF") of the FDIC.
The Corporation's net income is highly dependent on the interest
rate spread between the average rate earned on loans and
securities and the average rate paid on deposits and borrowings
as well as the amount of the respective assets and liabilities
outstanding. Other operating income is a strong supplement to
York Federal's interest income and is primarily the result of
mortgage banking activities including gains on sales of mortgage-
backed securities and related value attributed to mortgage
servicing rights created from loan originations and service fee
income derived from the portfolio of loans serviced for others.
Other operating income also includes gains and losses on sales of
real estate, equity in a limited partnership interest, and fees
and service charges assessed on loan and deposit transactions.
Interest Rate Sensitivity Management
In an effort to maintain control over net interest income,
management of York Federal focuses its attention on managing the
interest rate sensitivity of assets and liabilities and
controlling the volume of lending, securities, deposit and
borrowing activities. By managing the ratio of interest
sensitive assets to interest sensitive liabilities repricing in
the same periods, the Corporation seeks to minimize the adverse
effect of interest rate fluctuations.
Management reviews the Association's interest sensitivity
position on an ongoing basis and prepares strategies to adjust
that sensitivity to maximize the yield on the asset portfolio
while maintaining the interest rate sensitivity on earning assets
at acceptable levels to insulate it from the effects of interest
rate fluctuations. The Corporation originates for portfolio
principally short and intermediate term and adjustable rate loans
and sells most fixed rate loan originations. The funding sources
for these portfolio loans are deposits with various maturities
and short term borrowings.
A traditional measurement utilized to quantify interest rate risk
is an interest sensitivity gap analysis. The following table
presents the Corporation's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities that
mature or reprice within one year as of December 31, 1997 and
June 30, 1997.
Interest Sensitivity Gap Analysis
<TABLE>
Subject to Repricing
December 31 June 30
1997 1997
(Dollars in thousands)
<S> <C> <C>
Earning assets maturing
or repricing within one year $591,995 $593,435
Interest bearing liabilities
maturing or repricing
within one year 670,569 668,562
Interest sensitivity gap
within one year $ (78,574) $(75,127)
Cumulative interest sensitivity
gap within one year as a percent
of total assets (6.65%) (6.46%)
</TABLE>
The Corporation also monitors its interest rate risk in
accordance with regulatory guidance. Fluctuations in net interest
income and the market value of portfolio equity are determined in
various interest rate scenarios and monitored against acceptable
limitations established by management and approved by the Board
of Directors.
An analysis of hypothetical changes in interest rates as of
December 31, 1997 is as follows:
<TABLE>
Changes in Projected Change in
Interest Rates Net Interest Income Projected Change in
(basis points) Next 12 Months (1) Net Portfolio Value (2)
<C> <C> <C>
200 (8%) (16%)
100 (4%) (8%)
(100) 4% 8%
(200) 8% 17%
</TABLE>
(1) The percentage change in this column represents the net
interest income for 12 months in a stable interest rate
environment, versus the net interest income in the various rate
scenarios.
(2) The percentage change in this column represents the net
portfolio value in a stable interest rate environment, versus the
net portfolio value in the various rate scenarios. Net portfolio
value is defined as the present value of expected net cash flows
from existing assets, minus the present value of expected cash
flows from existing liabilities, plus or minus the present value
of expected net cash flows from existing off-balance-sheet
contracts.
Interest rate risk as indicated through these financial statement
simulations is considered to be within acceptable limits. The
management of York Federal is committed to managing the asset
portfolio in order to maximize the yield and maintain an interest
rate sensitivity of York Federal's earning assets that insulates
it from the potential negative effect of interest rate
fluctuations.
Asset Quality
Management is aware of the risks inherent in lending and
continually monitors risk characteristics of the loan portfolio.
The Association's policy is to maintain the allowance for loan
losses at a level believed adequate by management to absorb
potential loan losses within the portfolio. Management's
determination of the adequacy of the allowance is performed by an
internal loan review committee and is based on risk
characteristics of the loans, including loans deemed impaired in
accordance with Financial Accounting Standards Board (FASB)
Statement No. 114, past loss experience, economic conditions and
such other factors that deserve recognition. Additions to the
allowance are charged to operations.
An analysis of the allowance for loan losses, for the periods
indicated is as follows:
<TABLE>
Six Months Fiscal Year
Ended Ended
December 31 June 30
1997 1997
(Dollars in thousands)
<S> <C> <C>
Total allowance for loan losses
at beginning of period $6,413 $6,609
Loans charged-off:
Real estate - mortgage:
Residential 719 1,304
Commercial 24 1,820
Consumer 36 226
Total charged-offs 779 3,350
Recoveries:
Real estate - mortgage:
Residential 39 210
Commercial 229 516
Consumer 6 4
Total recoveries 274 730
Net loans charged-off 505 2,620
Provision for loan losses 1,813 2,424
Total allowance for loan
losses at end of period $7,721 $6,413
Percentage of net charge-offs to
average loans outstanding
during the period 0.05% 0.26%
Percentage of allowance for loan
losses to adjusted total loans 0.76% 0.64%
</TABLE>
The allowance for loan losses totaled $7.7 million or .76%
of adjusted total loans of $1.0 billion at December 31, 1997.
Such amount is considered adequate relative to management's
assessment of risk characteristics inherent in the loan
portfolio. While management uses available information to
recognize losses on loans, future additions to the allowance may
be necessary based on specific circumstances related to problem
loans as well as changes in economic conditions.
An analysis of nonperforming assets is summarized as follows:
<TABLE>
December 31 June 30
1997 1997
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual
basis:
Real estate-mortgage:
Commercial $ -- $ 950
Total nonaccrual loans -- 950
Accruing loans which are
contractually
past due 90 days or more:
Real estate-mortgage:
Residential 13,585 12,735
Consumer 903 702
Total of 90 days past due loans 14,488 13,437
Total of nonaccrual and 90 days
past due loans $14,488 $14,387
As a percent of total loans 1.41% 1.43%
Real estate owned:
Real estate acquired through
foreclosure
or repossession by loan type:
Real estate:
Residential $6,506 $4,978
Commercial 2,060 2,714
Land 2,600 2,895
Allowance for real estate losses (51) (365)
Total real estate owned $11,115 $10,222
As a percent of total assets 0.94% 0.88%
Total nonperforming assets $25,603 $24,609
As a percent of total assets 2.17% 2.12%
</TABLE>
The Association's nonaccrual policy generally covers loans which
are 90 or more days past due. All commercial real estate loans
are placed on nonaccrual status when the collectibility of
interest is uncertain based on specific circumstances evaluated
on a loan by loan basis or when interest is more than 90 days
past due. In the case of residential real estate and consumer
loans, management evaluates the collectibility of accrued amounts
based on the underlying collateral value or knowledge of the
specific circumstances resulting from collection efforts and may
elect to place specific loans on nonaccrual status.
Management recognizes the risk of potential reduction in value of
real estate owned during the holding period and provides for such
risk by maintaining an allowance for real estate losses (such
allowance is separate from and in addition to the allowance for
loan losses). For the first six months of fiscal 1998, net
charge-offs were $742,000 and additions to the allowance totalled
$428,000 resulting in a decrease in the allowance to $51,000 at
December 31, 1997. Management continually monitors the risk
profile of real estate owned and maintains an allowance for real
estate losses at a level believed adequate to absorb potential
losses within the real estate portfolio.
Liquidity
The primary purpose of asset/liability management is to maintain
adequate liquidity and a desired balance between interest-
sensitive assets and liabilities. Liquidity management focuses
on the ability to meet the cash flow requirements of customers
wanting to withdraw or borrow funds for their personal or
business needs. Interest rate sensitivity management focuses on
consistent growth of net interest income in times of fluctuating
interest rates. The management of liquidity and interest rate
sensitivity must be coordinated since decisions involving one may
influence the other.
Liquidity needs can be met by either reducing assets or
increasing liabilities. Sources of asset liquidity include short
term investments, securities available for sale, maturing and
repaying loans and monthly cash flows from mortgage-backed
securities. The loan portfolio provides an additional source of
liquidity due to York Federal's participation in the secondary
mortgage market. Liquidity needs can be met by attracting
deposits and utilizing borrowing arrangements with the FHLB of
Pittsburgh and the Federal Reserve Bank of Philadelphia for short
and long term advances as well as other short term borrowings.
Deposits represent the Association's primary source of funds.
The Association does not rely on brokered deposits as a source of
funds. During the first six months of fiscal 1998, the
Association's deposits increased $21.4 million. York Federal has
supplemented its deposit gathering efforts through borrowings
from the FHLB of Pittsburgh. At December 31, 1997, York Federal
had $39.9 million in FHLB advances outstanding at a weighted
average interest rate of 5.47%.
Under current regulations, effective November 24, 1997, York
Federal is required to maintain liquid assets at 4.0% or more of
its net withdrawable deposits and short term borrowings,
excluding those with unexpired maturities exceeding one year.
Throughout the six months ended December 31, 1997, York Federal
maintained an average liquidity level which was in compliance
with the regulatory requirements. At December 31, 1997, the
Association's liquidity level was 5.50%.
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 $184.1 million for the first six months
of fiscal 1998.
The principal use of funds is the origination of mortgage and
other loans. Loan demand resulted in total originations of
$209.3 million for the period ended December 31, 1997. Loan
originations were obtained through various channels including the
retail branch system, commissioned mortgage origination staff,
tele-mortgage activity and expanded mortgage broker
relationships. The volume of originations was favorably impacted
by a relatively stable interest rate environment and included
traditional long term fixed rate loans originated primarily for
sale as well as adjustable rate and residential construction loan
products. In addition, in response to changing customer
preferences, intermediate term mortgage products, i.e. seven year
balloon loans and 5/1 CMT adjustable rate loans (fixed rate for
the first five years with annual adjustments thereafter),
continue to represent a significant component of loan origination
volume.
Capital
The management of capital provides the foundation for future
asset and profitability growth and is a major strategy in the
management of York Financial Corp. Stockholders' equity at
December 31, 1997 totaled $104.8 million compared to $94.5
million at December 31, 1996, an increase of $10.3 million or
10.9%. This growth was a result of a combination of factors
including current earnings, cash dividends paid (representing a
payout ratio of 39.4%), 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 December 31, 1997, York Federal's tangible and core capital
both equaled 7.7% ($90.3 million), substantially in excess of
the minimum regulatory requirements of 1.5% and 3.0%,
respectively, as indicated above. York Federal's total assets do
not include any goodwill. York Federal's core capital to risk
weighted assets equaled 11.4% ($90.3 million) at December 31,
1997, which exceeds its required level of 4.0%. Finally, York
Federal's risk-based capital ratio equaled 12.4% ($97.8 million)
at December 31, 1997, which exceeds its required level of 8.0 %
by $34.5 million.
Transactions with Affiliates
Transactions with affiliates are limited to 10% of capital and
surplus per affiliate with an aggregate limit on all such
transactions with affiliates to 20% of capital and surplus. At
December 31, 1997 such transactions are within these regulatory
limits.
Results of Operations
Six months ended December 31, 1997 compared to December 31, 1996
Net Interest Income
York Financial's earnings are affected by the level of York
Federal's net interest income, the difference between the income
it receives on its loan portfolio and other investments, and its
cost of funds, consisting primarily of interest paid on deposits
and borrowings. Net interest income is affected by the average
yield on interest-earning assets, the average rate paid on
interest-bearing liabilities, and the ratio of interest-earning
assets to interest-bearing liabilities.
Net interest income for the six months ended December 31, 1997
was $18.4 million compared to $17.6 million for the same period
last year, which represents a 4.7% increase. The increase in net
interest income was attributable to an increase in average
earning assets primarily due to the retention of intermediate
term assets. The margin on interest-earning assets increased to
3.38% from 3.27% for the six months ended December 31, 1997 and
1996, respectively. The impact of a more favorable asset
composition and a lower average level of non-accrual loans
resulted in an 8 basis point increase to the average yield on
interest earning assets to 8.05% for the six months ended
December 31, 1997 as compared to 7.97% in the same period in the
prior year. The higher level of interest-bearing liabilities
during the first six months of fiscal 1998 resulted from
increases in higher cost guaranteed money fund and certificate
accounts which were offset by decreases in savings and overnight
borrowings. This resulting composition shift partially offset
the generally lower levels of interest rates resulting in an
increase to the average rate on interest bearing liabilities to
5.01% as compared to 4.98% in the same period last year. The net
effect caused the interest rate spread for the current period to
increase to 3.04% from 2.99% in the same period last year.
Provision for Loan Losses
Management is aware of the risks inherent in lending and
continually monitors risk characteristics of the loan portfolio.
See "Asset Quality".
Other Income
Other income was $5.4 million for the six months ended December
31, 1997, an increase from the six months ended December 31,
1996. Mortgage banking income for the six months ended December
31, 1997 increased $209,000 to $2.2 million or 10.3% as compared
to the same period in 1996 and includes net gains on sales of
loans and trading securities and income from loan servicing
fees. Additionally, servicing rights on approximately $95.5
million of loans serviced for others were sold in November 1997
at a net gain of $740,000 as compared to a net gain of $510,000
realized on the sale of servicing rights on approximately $96.7
million of loans serviced for others in December 1996. 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 December 31, 1997, securities held
for trading were $5.1 million with an indicated unrealized gain
of $11,000 which was recognized as a component of mortgage
banking income.
The portfolio of loans serviced for others totaled $465.4 million
at December 31, 1997 as compared to $505.7 million at December
31, 1996. The net servicing rate earned on the portfolio of
loans serviced for others for the six months ended December 31,
1997 decreased to .183% from .248% in the same period in 1996.
The decrease in net servicing rate of 6.5 basis points is
primarily attributable to the implementation of FASB Statement
No. 122 and the related capitalization of mortgage servicing
rights and an increase in interest costs resulting from the
timing of loan payoffs and remittances to government sponsored
agencies in the secondary market. Amortization of capitalized
mortgage servicing rights for the six months ended December 31,
1997 was $171,000 and is recognized as a reduction of gross
servicing fee income. Such amount compares to $95,000 for
December 31, 1996. The combination of these volume and rate
changes caused loan servicing fees as of December 31, 1997 to
decrease $244,000 to $479,000 as compared to December 31, 1996.
Fees and service charges for the six months ended December 31,
1997 were $1.5 million which is comparable to the same period in
1996, and is primarily a result of the current service charge fee
structure coupled with growth in both loans and deposits.
The Corporation is a partner in various joint ventures; these
joint ventures during the first six months of fiscal 1998 had net
income of $953,000. This income was primarily related to the
Corporation's share in the net income of a venture capital
partnership resulting from the increased market value of
underlying portfolio investments.
Other operating income was $677,000 in the first six months of
fiscal 1998 as compared to $484,000 in the first six months of
fiscal 1997. Other operating income includes income from
operations of subsidiaries, including commissions earned from
discount brokerage activities and appraisal and construction
inspection services provided to independent third parties.
Other Expenses
Other expenses of $13.2 million decreased $3.9 million or 23.0%
for the six months ended December 31, 1997 as compared to the
same period in 1996, which was primarily attributable to the one
time SAIF special assessment paid during fiscal 1996. On
September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996 to recapitalize the SAIF and to
provide for repayment of the FICO (Financial Institution
Collateral Obligation) bonds issued by the United States Treasury
Department. The FDIC levied a one-time special assessment on
SAIF deposits equal to 65.7 basis points of the SAIF-assessable
deposit base as of March 31, 1995. As a result of the one time
special assessment the Association's insurance premium rate
decreased from 23.0 basis points for the quarter ended September
30, 1996 to 18.0 basis points for the quarter ended December 31,
1996 and to 6.4 basis points in the quarters ended March 31, 1997
and thereafter. The current 6.4 basis point rate is more
consistent with the deposit insurance premiums paid by Bank
Insurance Fund (BIF) insured institutions and may vary according
to Association capital levels and management ratings.
Salaries and employee benefits for the six months ended December
31, 1997 increased $1.0 million or 18.9% over the same period in
1996 and is attributable to a combination of the following
factors: adjustments to the salary administration program and an
increase in full time equivalent personnel from 377 at December
31, 1996 to 389 at December 31, 1997 primarily due to start up of
the Commercial Business Banking Group and additional staffing at
First Capital Brokerage Services, Inc. related to providing
financial planning services formerly provided by third parties.
Real estate expenses increased $517,000 when compared to December
31, 1996 and is primarily attributable to an increase in the
provision for possible real estate losses. Other expenses for
the six months ended December 31, 1997 increased $304,000 or
11.4% compared to the same period in 1996, resulting from the
recognition of costs incurred to examine the Association's
operating efficiency.
Provision for Income Taxes
The provision for income taxes of $3.5 million for the six months
ended December 31, 1997 represents an effective tax rate of
39.6% as compared to 41.0% for the same period last year.
Other Matters
Impact of Year 2000
Some of the Company's older computer programs were written using
two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year
2000. This situation is commonly referred to as the "Year 2000
Issue." Such situations could cause a system failure or
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
The Company has completed an assessment of its in-house
applications and has initiated formal communications with all of
its significant suppliers and large customers to determine the
extent to which its systems will need to be modified or replaced
or are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. The total Year 2000 project cost is
estimated at $100,000 and will be completed not later than
December 31, 1998, which is prior to any anticipated impact on
its operating systems.
The Company believes that with modifications to existing software
and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems.
If such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based
on management's best estimates. However, there can be no
guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
Furthermore, there is no guarantee that the systems of other
companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's
systems.
Effects of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature.
As a result, interest rates generally have a more significant
impact on a financial institution's performance than does the
effect of inflation. Interest rates do not necessarily move in
the same direction or in the same magnitude as the price of goods
and services since such prices are affected by inflation. In the
current interest rate environment, the liquidity and maturity
structures of York Federal's assets and liabilities are critical
to the maintenance of acceptable performance levels.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual meeting of Stockholders of York Financial Corp. was held
October 22, 1997. Business transacted at the meeting was as
outlined in the Notice of Annual Meeting and Proxy Statement
dated September 25, 1997. Included was ratification of the 1997
Stock Option and Incentive Plan, with votes cast as follows:
For 4,260,902 shares
Against 492,605 shares
Abstain 82,804 shares
Proposal was ratified.
Also included was ratification of an Amendment to the Articles of
Incorporation to increase the Company's authorized Common Stock
from 10,000,000 to 20,000,000 shares, with votes cast as follows:
For 5,332,375 shares
Against 224,741 shares
Abstain 66,970 shares
Proposal was ratified.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein:
(11) Statement re: computation of earnings per share
The company did not file any reports on Form 8-K during the six
months ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
York Financial Corp.
(Registrant)
Date February 12, 1998
/s/ Robert W. Pullo
Robert W. Pullo, President - Chief Executive Officer
Date February 12, 1998
/s/ James H. Moss
James H. Moss, Senior Vice President -
Chief Financial Officer/Treasurer
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