1
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 March 31, 1998
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 8,924,267 shares
outstanding as of March 31, 1998.
YORK FINANCIAL CORP.
INDEX
Page
Part I. FINANCIAL INFORMATION Number
Item 1 Financial Statements
Consolidated balance sheets
March 31, 1998 and June 30, 1997 (unaudited) 3
Consolidated statements of income,
three months and nine months ended March 31, 1998
and 1997 (unaudited) 4
Consolidated statements of cash flows,
nine months ended March 31, 1998
and 1997 (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
March 31 June 30
1998 1997
<S> <C> <C>
ASSETS (In thousands, unaudited)
Cash and due from banks:
Noninterest-earning $ 18,894 $ 21,612
Interest-earning 62,989 1,527
81,883 23,139
Loans held for sale, net 18,252 4,882
Securities held for trading 4,571 7,158
Securities available for sale 55,367 59,690
Securities held to maturity (fair
value at March 31, 1998 - $5,801
and June 30, 1997 - $8,782) 5,797 8,953
Loans receivable, net 988,017 997,841
Real estate, net 12,359 13,439
Premises and equipment 19,571 17,320
Federal Home Loan Bank stock, at 7,907 7,907
cost
Accrued interest receivable 8,134 7,981
Other assets 9,401 8,777
Investments in joint ventures 6,515 5,306
Total Assets $1,217,774 $1,162,393
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,057,443 $ 993,106
Federal Home Loan Bank
advances and other borrowings 27,294 46,236
Advances from borrowers
for taxes and insurance 3,684 4,719
Other liabilities 22,526 18,249
Total Liabilities 1,110,947 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 Mar. 31, 1998 - 8,924,267
shares; June 30, 1997 -
7,008,347 shares 8,924 7,008
Additional capital 80,722 80,633
Retained earnings 17,611 13,290
Unrealized gains 365 79
Unearned ESOP shares (795) (927)
Total Stockholders' Equity 106,827 100,083
Total Liabilities & Stockholders' $1,217,774 $1,162,393
See notes to consolidated financial statements
</TABLE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
March 31 March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
(In thousands except per
share data, unaudited)
Interest income:
Interest and fees on loans $20,255 $20,349 $61,497 $60,552
Interest on securities
held for trading 162 360 511 984
Interest on securities
available for sale 928 951 2,907 2,710
Interest and dividends on
securities held to maturity 218 231 717 700
Other interest income 460 218 828 621
Total interest income 22,023 22,109 66,460 65,567
Interest expense:
Interest on deposits 12,402 11,530 37,008 34,251
Interest on borrowings 355 1,396 1,743 4,526
Total interest expense 12,757 12,926 38,751 38,777
Net interest income 9,266 9,183 27,709 26,790
Provision for loan losses 716 370 2,529 2,176
Net interest income after
provision for loan losses 8,550 8,813 25,180 24,614
Other income:
Mortgage banking 902 794 3,137 2,820
Gain on sales of real estate 109 78 131 38
Gain on sale of limited
partnership interest --- 1,223 --- 1,223
Fees and service charges 785 657 2,304 2,110
Income(loss) from
joint ventures 440 (198) 1,393 (619)
Other operating income 341 301 1,018 785
Total other income 2,577 2,855 7,983 6,357
Other expenses:
Salaries & employee benefits 3,464 3,082 9,935 8,523
Occupancy 965 891 2,734 2,576
Federal deposit insurance 156 150 469 1,096
SAIF assessment --- --- --- 5,310
Real estate 565 616 1,266 800
Data processing 275 269 831 796
Advertising 389 200 795 574
Other 1,780 1,442 4,756 4,114
Total other expenses 7,594 6,650 20,786 23,789
Income before income taxes 3,533 5,018 12,377 7,182
Provision for income taxes 1,297 1,968 4,797 2,855
Net income $ 2,236 $ 3,050 $ 7,580 $ 4,327
Per share data:
Net income per share $ 0.25 $ 0.36 $ 0.87 $ 0.51
Net income per share -
assuming dilution $ 0.24 $ 0.34 $ 0.81 $ 0.49
Cash dividends paid $ 0.130 $ 0.120 $ 0.370 $ 0.338
Weighted average shares 8,788,164 8,577,860 8,743,020 8,411,166
4 0 0 6
Weighted average shares -
assuming dilution 9,464,908 9,026,026 9,400,920 8,918,550
See notes to consolidated financial statements
</TABLE>
<TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31
1998 1997
<S> <C> <C>
(In thousands, unaudited)
OPERATING ACTIVITIES
Net income $ 7,580 $ 4,327
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Amortization and accretion
on securities, net (150) (498)
Provision for loan losses 2,529 2,176
Provision for real estate
losses 914 533
Depreciation and amortization 1,361 1,266
Loans originated for sale (118,907) (92,588)
Proceeds from sales
of trading securities 107,727 95,221
Realized gains on trading
securities (1,776) (465)
Realized gain on sale of
limited partnership interest --- (1,223)
interest
Decrease in other assets 912 44
Increase(decrease) in other
liabilities 4,123 (14,180)
Other (2,310) (1,061)
Net cash provided by (used
in) operating activities 2,003 (6,448)
activities
INVESTING ACTIVITIES
Purchases of securities
held to maturity (2,000) (1,231)
Proceeds from maturities
of securities held to
maturity 5,090 57
Principal repayments on
securities 6,246 5,933
Loans originated or acquired,
net of change in deferred
loan fees (187,665) (194,076)
Principal collected on loans 190,878 129,251
Proceeds from sales of loans --- 1,643
Purchases of real estate (365) (278)
Proceeds from sales of
real estate 4,264 4,634
Proceeds from sale of
limited partnership interest --- 1,343
Purchases of premises,
equipment, and
tenant improvements, net (3,555) (1,666)
Other (254) 1,057
Net cash provided by
(used in) investing activities 12,639 (53,333)
activities
FINANCING ACTIVITIES
Net increase (decrease) in
noninterest-bearing demand
deposits,interest-bearing
transaction accounts,savings
accounts, and 31-day
certificates of deposit 48,825 (3,646)
Net increase in certificates 16,435 73,237
of deposit
Net decrease in short-term
advances received from FHLB (20,000) (36,000)
Net increase in convertible
advance received from FHLB 279 25,000
Repayments of Federal Home
Loan Bank advances and
other borrowings (143) (142)
Issuance of common stock :
Dividend reinvestment plan 1,725 1,583
Stock option plans 128 518
Cash dividends paid (3,259) (2,874)
Cash paid in lieu of (21) (21)
fractional shares
Release of ESOP shares 133 133
Net cash provided by
financing activities 44,102 57,788
Increase (decrease) in
cash and cash equivalents 58,744 (1,993)
Cash and cash equivalents
at beginning of year 23,139 24,071
Cash and cash equivalents
at end of year $ 81,883 $ 22,078
See notes to consolidated financial statements
</TABLE>
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
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 nine month period
ended March 31, 1998 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 nine months ended March 31, 1998 and 1997, the
Association exchanged loans for mortgage-backed securities in the
amounts of $105.3 million and $92.6 million, respectively.
During the nine months ended March 31, 1998 and 1997, the
Association transferred unpaid loan balances from loans to real
estate acquired due to foreclosures of $4.0 million and $8.6
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 Nine Months Ended
March 31 March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net Income $2,236,000 $3,050,000 $7,580,000 $4,327,000
Numerator for
basic and
diluted earnings
per share $2,236,000 $3,050,000 $7,580,000 $4,327,000
Denominator:
Denominator for
basic earnings
per share -
weighted-average
shares 8,788,164 8,577,860 8,743,020 8,411,166
Effect of dilutive
securities:
Employee Stock
Options 676,744 448,166 657,900 507,384
Denominator for
diluted earnings
per share -
adjusted
weighted-average
shares and
assumed
conversion 9,464,908 9,026,026 9,400,920 8,918,550
Basic earnings
per share $ 0.25 $ 0.36 $ 0.87 $ 0.51
Diluted earnings
per share $ 0.24 $ 0.34 $ 0.81 $ 0.49
</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 March 31, 1998, the Corporation had consolidated
assets of $1.2 billion, total deposits of $ 1.1 billion and
stockholders' equity of $106.8 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, commercial loans, 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 March 31, 1998 and June
30, 1997.
Interest Sensitivity Gap Analysis
<TABLE>
Subject to Repricing
March 31 June 30
1998 1997
(Dollars in thousands)
<S> <C> <C>
Earning assets maturing or
repricing within one year $ 674,011 $ 593,435
Interest bearing liabilities
maturing or repricing
within one year 677,885 668,562
Interest sensitivity gap within
one year $ (3,874) $ (75,127)
Cumulative interest sensitivity
gap within one year as a
percent of total assets (0.32%) (6.46%)
</TABLE>
The change in the interest sensitivity gap is due to
increased prepayment assumptions and a build up of liquidity
funded in part by long term liabilities.
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
March 31, 1998 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 (3%) (7%)
100 (2%) (4%)
(100) 1% 4%
(200) 2% 8%
</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 net
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>
Nine Months Fiscal Year
Ended Ended
March 31 June 30
1998 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 1,065 1,304
Commercial 24 1,820
Consumer 50 226
Total charged-offs 1,139 3,350
Recoveries:
Real estate - mortgage:
Residential 170 210
Commercial 235 516
Consumer 11 4
Total recoveries 416 730
Net loans charged-off 723 2,620
Provision for loan losses 2,529 2,424
Total allowance for loan losses
at end of period $ 8,219 $ 6,413
Percentage of net charge-offs
to average loans outstanding
during the period 0.07% 0.26%
Percentage of allowance for loan
losses to adjusted total loans 0.82% 0.64%
</TABLE>
The allowance for loan losses totaled $8.2 million or .82%
of adjusted total loans of $996.2 million at March 31, 1998.
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>
March 31 June 30
1998 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 14,644 12,735
Consumer 1,013 702
Total of 90 days past due loans 15,657 13,437
Total of nonaccrual and
90 days past due loans $ 15,657 $ 14,387
As a percent of total loans 1.56% 1.43%
Real estate owned:
Real estate acquired through
foreclosure or repossession
by loan type:
Real estate:
Residential $ 6,346 $ 4,978
Commercial 2,024 2,714
Land 2,420 2,895
Allowance for real estate losses (467) (365)
Total real estate owned $ 10,323 $ 10,222
As a percent of total assets 0.85% 0.88%
Total nonperforming assets $ 25,980 $ 24,609
As a percent of total assets 2.13% 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 nine months of fiscal 1998, net
charge-offs were $812,000 and additions to the allowance totalled
$914,000 resulting in an increase in the allowance to $467,000 at
March 31, 1998. 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 nine months of fiscal 1998,
the Association's deposits increased $64.3 million. York Federal
has supplemented its deposit gathering efforts through borrowings
from the FHLB of Pittsburgh. At March 31, 1998, York Federal had
$26.5 million in FHLB advances outstanding at a weighted average
interest rate of 5.37 %.
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 nine months ended March 31, 1998, York Federal
maintained an average liquidity level which was in compliance
with the regulatory requirements. At March 31, 1998, the
Association's liquidity level was 8.85%.
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 $308.2 million for the first nine
months of fiscal 1998.
The principal use of funds is the origination of mortgage
and other loans. Loan demand resulted in total originations of
$319.7 million for the period ended March 31, 1998. 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 March
31, 1998 totaled $106.8 million compared to $97.6 million at
March 31, 1997, an increase of $9.2 million or 9.4%. This
growth was a result of a combination of factors including current
earnings, cash dividends paid (representing a payout ratio of
43.0%), 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 March 31, 1998, York Federal's tangible and core capital
both equaled 7.6 % ($91.6 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 11.6 % ($91.6 million) at March 31,
1998, which exceeds its required level of 4.0%. Finally, York
Federal's risk-based capital ratio equaled 12.6 % ($ 99.7
million) at March 31, 1998, which exceeds its required level of
8.0 % by $36.4 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
March 31, 1998 such transactions are within these regulatory
limits.
Results of Operations
Nine months ended March 31, 1998 compared to March 31, 1997
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 nine months ended March 31, 1998
was $27.7 million compared to $26.8 million for the same period
last year, which represents a 3.4 % 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
3.33 % from 3.26 % for the nine months ended March 31, 1998 and
1997, respectively. The average yield on interest earning assets
increased 1 basis point to 7.99% for the nine months ended March
31, 1998, as a result of a lower average level of non-accrual loans
that was offset by current loan originations at lower rates than
the average portfolio yield. The higher level of interest-bearing
liabilities during the first nine 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
5.00 % as compared to 4.98 % in the same period last year. The
net effect caused the interest rate spread for the current period
to decrease to 2.99 % from 3.00 % 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 $ 8.0 million for the nine months ended
March 31, 1998, an increase from the nine months ended March 31,
1997. Mortgage banking income for the nine months ended March
31, 1998 increased $317,000 to $3.1 million or 11.2 % as
compared to the same period in 1997 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 March 31,
1998, securities held for trading were $ 4.6 million with an
indicated unrealized gain of $50,000 which was recognized as a
component of mortgage banking income.
The portfolio of loans serviced for others totaled $481.9
million at March 31, 1998 as compared to $534.3 million at March
31, 1997. The net servicing rate earned on the portfolio of
loans serviced for others for the nine months ended March 31,
1998 decreased to .162% from .220% in the same period in 1997.
The decrease in net servicing rate of 5.8 basis points is
primarily attributable to the 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 nine months ended
March 31, 1998 was $ 269,000 and is recognized as a reduction of
gross servicing fee income. Such amount compares to $148,000 for
March 31, 1997. The combination of these volume and rate changes
caused loan servicing fees as of March 31, 1998 to decrease
$315,000 to $617,000 as compared to March 31, 1997.
Fees and service charges for the nine months ended March 31,
1998 were $ 2.3 million as compared to $2.1 million in the same
period in 1997, 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 nine months of fiscal 1998
had net income of $1.4 million. 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 $1.0 million in the first nine
months of fiscal 1998 as compared to $785,000 in the first nine
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 $20.8 million decreased $3.0 million or
12.6 % for the nine months ended March 31, 1998 as compared to
the same period in 1997, which was primarily attributable to the
one time SAIF special assessment paid during fiscal 1997. 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 nine months ended
March 31, 1998 increased $1.4 million or 16.6% over the same
period in 1997 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
380 at March 31, 1997 to 400 at March 31, 1998 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 $466,000 when compared to
March 31, 1997 and is primarily attributable to an increase in
the provision for possible real estate losses. Advertising
expense for the nine months ended March 31, 1998 increased
$221,000 or 38.5% compared to the same period in 1997, resulting
from an increase in marketing efforts for both deposits and
loans. Other expenses for the nine months ended March 31, 1998
increased $642,000 or 15.6% compared to the same period in 1997,
resulting from the recognition of costs incurred to examine the
Association's operating efficiency and increased cost of
services.
Provision for Income Taxes
The provision for income taxes of $4.8 million for the nine
months ended March 31, 1998 represents an effective tax rate of
38.8 % as compared to 39.8% 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 $270,000 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.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The company did not file any reports on Form 8-K
during the nine months ended March 31, 1998.
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 May 14, 1998
/s/ Robert W. Pullo
Robert W. Pullo, President -
Chief Executive Officer
Date May 14, 1998
/s/ James H. Moss
James H. Moss, Senior Vice President -
Chief Financial Officer/Treasurer
<TABLE> <S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 81,883
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<COMMON> 8,924,267
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