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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
YORK FINANCIAL CORP.
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(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
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(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 8, 1998, there were issued and outstanding 9,104,694
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 8, 1998 was $157,055,971($17.25 per share based
upon 9,104,694 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, 1998. (Parts I and II)
2. Portions of Proxy Statement for the 1998 Annual Meeting of
Stockholders. (Part III)
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<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, 1998, the Corporation had assets of $1.2 billion, total deposits
of $1.1 billion and stockholders' equity of $109.2 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,
1998, York Federal's stockholder's equity was $94.2 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,
commercial business loans, 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-three 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 "Business
- -- 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, 1998, is incorporated herein by reference.
1
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Interest Rate Sensitivity Management and Market Risk
The information contained on pages 7 through 9 of the Corporation's
Annual Report is incorporated herein by reference.
Lending Activities
General. On a consolidated basis, the Corporation's loan portfolio
totaled $951.6 million at June 30, 1998, representing 77.4% 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 and commercial business 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 mortgage 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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<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,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- --------------- --------------- ---------------
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.. $680,779 71.5% $772,962 77.5% $718,755 76.6% $602,072 71.2% $441,544 65.9%
Construction.. 111,032 11.7 65,641 6.6 65,725 7.0 79,742 9.4 90,781 13.6
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
791,811 83.2 838,603 84.1 784,480 83.6 681,814 80.6 532,325 79.5
Commercial first
mortgage loans:
Conventional.. 56,047 5.9 48,443 4.9 62,006 6.6 82,544 9.8 84,880 12.7
Construction.. 14,258 1.5 9,967 1.0 9,840 1.0 6,409 0.8 9,456 1.3
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
70,305 7.4 58,410 5.9 71,846 7.6 88,953 10.6 94,336 14.0
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
862,116 90.6 897,013 90.0 856,326 91.2 770,767 91.2 626,661 93.5
Commercial busi-
ness loans..... 3,737 0.4 496 -- 1,714 0.2 2,751 0.3 2,622 0.4
Consumer loans:
Automobile
loans........ 2,459 0.3 2,597 0.3 5,301 0.6 5,945 0.7 2,328 0.3
Mobile home
loans........ 1,954 0.2 2,249 0.2 1,362 0.1 1,306 0.2 1,076 0.2
Education
loans........ 18,360 1.9 17,163 1.7 15,505 1.7 12,777 1.5 9,465 1.4
Savings account
loans........ 2,479 0.3 2,334 0.2 2,001 0.2 1,916 0.2 1,893 0.3
Home improve-
ment loans... 4,582 0.5 3,987 0.4 3,901 0.4 3,360 0.4 2,490 0.4
Boat loans.... 1,711 0.2 2,525 0.3 3,126 0.3 4,326 0.5 5,504 0.8
Home equity
loans........ 50,659 5.3 53,827 5.4 49,217 5.2 49,900 5.9 44,657 6.7
Other......... 56,836 6.0 49,805 5.0 34,401 3.7 27,220 3.2 24,168 3.6
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
139,040 14.7 134,487 13.5 114,814 12.2 106,750 12.6 91,581 13.7
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
Subtotals... 1,004,893 1,031,996 972,854 880,268 720,864
Less:
Loans in
process...... 45,382 4.8 28,302 2.9 27,497 2.9 26,577 3.1 44,691 6.7
Unamortized
loan fees
(expenses)
and unearned
income....... (940) -- (560) -- 178 -- 2,646 0.3 1,831 0.3
Allowance for
loan losses.. 8,810 0.9 6,413 0.6 6,609 0.7 5,840 0.7 4,492 0.6
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
53,252 5.7 34,155 3.5 34,284 3.6 35,063 4.1 51,014 7.6
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
Total....... $ 951,641 100.0% $ 997,841 100.0% $938,570 100.0% $845,205 100.0% $669,850 100.0%
========= ===== ========= ===== ======== ===== ======== ===== ======== =====
3
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Residential Real Estate Loans. At June 30, 1998 approximately 83.2% 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, 1998, 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, 1998, $17.5 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. Such loans are generally 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. In addition to the
5/1 CMT adjustable rate mortgage loans, intermediate term loans include 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 and Business Loans. York Federal established a
business banking group in Spring 1997, with the intention to more aggressively
pursue commercial real estate and business lending opportunities within its
branch market area. These activities are expected to provide higher yields
and shorter terms and/or repricing characteristics than other loan types
within the portfolio. The Association's existing commercial loan portfolio
includes a mix of land development, construction and permanent financing on
commercial and multi-family real estate as well as commercial business loans
representing working capital, equipment and some unsecured lending.
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 represent 7.4% of York Federal's
portfolio as of June 30, 1998.
4<PAGE>
Commercial business loans represent customized financial solutions to
meet the unique needs of known business customers within the Association's
branch market area. Such loans may have fixed rates but generally have
adjustable rates tied to prime, libor, treasury or fed funds indices.
Commercial business loans may be made for working capital or equipment
financing supported by appropriate collateral (i.e., accounts receivable,
inventory, equipment) or in some instances unsecured lending supported by the
creditworthiness of the borrower and appropriate guarantees. All loans are
subjected to a rigorous risk identification and loan grading process in
connection with extending the credit as well as ongoing credit analysis and
evaluation while the loan is outstanding. At June 30, 1998, commercial
business loans totaled $3.9 million or 0.4% of total loans.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending
with loan amounts based on predetermined loan to collateral values and
liquidation of the underlying real estate collateral is viewed as the primary
source of repayment in the event of borrower default. Although commercial
business loans are often collateralized by equipment, inventory, accounts
receivable or other business assets, the liquidation of collateral in the
event of a borrower default is often not a sufficient source of repayment
because accounts receivable may be uncollectible and inventories and equipment
may be obsolete or of limited use, among other things. Accordingly, the
repayment of a commercial business loan depends primarily on the
creditworthiness of the borrower (and any guarantors), while liquidation of
collateral is a secondary and often insufficient source of repayment.
As explained more fully under "Regulation - Loans to One Borrower," the
OTS lending limitation on loans permitted to one borrower are equivalent to
that applicable to national banks. At June 30, 1998, the Association's limit
on loans to one borrower was $15.4 million. At June 30, 1998, the
Association's largest aggregate amount of loans to one borrower was $5.5
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, 1998 consumer loans totaled $139.0 million or approximately
14.7% 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 the Citibank prime rate. At June 30, 1998,
York Federal had approximately $50.7 million of home equity loans outstanding
under total lines of credit available of $101.3 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.
Other consumer loans represent closed end loans with fixed rates of interest
for terms of up to 15 years and collateralized by real estate. 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.
5
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Construction Loans. York Federal provides interim construction financing
for residential and commercial real estate properties. At June 30, 1998, the
Association had $125.3 million or 13.2% 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.
Residential construction loans generally are made for a six-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.
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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<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, 1998 (1) after June 30, 1998 (1) after June 30, 1998 (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
----- ----- ----- ------ ----- ----- ----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate
Conventional
Residential
and
commercial..$ 97,003 $ 63,791 $160,794 $327,280 $134,474 $461,754 $ 64,098 $ 49,159 $113,257 $735,805
Construction
Residential
and
commercial.. 10,186 4,389 14,575 25,829 11,128 36,957 20,545 8,852 29,397 80,929
Commercial
business
loans......... 256 2,739 2,995 5 737 742 -- -- -- 3,737
Consumer....... 25,169 53,948 79,117 38,973 18,882 57,855 2,068 -- 2,068 139,040
-------- -------- -------- -------- -------- -------- -------- ------- -------- --------
Total.......$132,614 $124,867 $257,481 $392,087 $165,221 $557,308 $ 86,711 $58,011 $144,722 $959,511
======== ======== ======== ======== ======== ======== ======== ======= ======== ========
_______________
(1) Based on contractual terms to maturity and adjusted for market consensus prepayment assumptions.
7
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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.
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.
During fiscal 1997, York Federal began to develop plans to enter
commercial business banking. In 1998, the Association recruited management
expertise and adopted appropriate credit management policies in order for York
Federal to position itself in the local commercial lending market. All
commercial mortgage and business 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.
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 CMT (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,
1998, York Federal had outstanding commitments to sell $21.5 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, 1998 totaled $17.5 million and represent loans in portfolio 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 years 1998 and 1997 are under FNMA special
servicing programs and are without recourse. The principal balance
outstanding of loans sold with recourse is $35.7 million at June 30, 1998.
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 17 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 FASB Statement No. 65. Statement No. 122 requires 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, and 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 $1.4 million for the year ended June 30, 1998. The book
value of mortgage servicing rights was approximately $2.9 million (including
originated and purchased mortgage servicing rights), net of valuation
allowance of $218,000 at June 30, 1998. As of June 30, 1998, York Federal was
servicing loans for others aggregating approximately $487.1 million. See
Notes 1 and 6 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,
-----------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Loans originated:
Conventional real estate loans:
Construction loans. . . . . . . . . . . . $138,481 $105,094 $104,957
Loans on existing properties(1) . . . . . 219,799 207,060 298,792
Other loans. . . . . . . . . . . . . . . . 80,923 78,478 73,859
-------- -------- --------
Total loans originated. . . . . . . . . $439,203 $390,632 $477,608
======== ======== ========
Loans securitized and/or sold:
Real estate:
Loans securitized(2). . . . . . . . . . . $145,473 $125,077 $153,312
Loans sold. . . . . . . . . . . . . . . . 33,426 1,645 1,622
-------- -------- --------
Total real estate loans securitized
and/or sold . . . . . . . . . . . . . $178,899 $126,722 $154,934
======== ======== ========
(footnotes on following page)
9
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- ---------
(1) Includes loans refinanced from the Association's portfolio totaling
$24.5 million, $13.6 million and $40.6 million in years ended June
30, 1998, 1997, and 1996, respectively.
(2) Loans securitized in the year ended June 30, 1998, 1997 and 1996
includes loans securitized and sold totalling $132.4 million, $105.6
million and $96.4 million, respectively, and loans securitized and
retained in portfolio totalling $13.1 million, $19.5 million and
$56.9 million, respectively.
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 1998, less than 5% of loan commitments expired
without being funded. At June 30, 1998 York Federal's outstanding residential
and commercial mortgage loan commitments amounted to $33.3 million. See Note
17 of the Notes to Consolidated Financial Statements.
Asset Quality
The information contained on pages 9 through 12 of the Corporation's
Annual Report is incorporated herein by reference.
10
<PAGE>
<PAGE>
<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,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- -------------
% 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.... $3,158 78.3% $2,485 81.2% $2,063 80.5% $1,500 77.0% $1,100 72.6%
Commercial..... 893 6.8 740 5.4 1,430 7.2 1,700 10.2 1,350 13.4
Commercial
business loans. 263 0.4 35 -- 65 0.2 50 0.3 50 0.4
Consumer........ 656 14.5 514 13.4 406 12.1 350 12.5 350 13.6
Unallocated..... 3,840 -- 2,639 -- 2,645 -- 2,240 -- 1,642 --
------ ------ ------ ----- ------ ----- ------ ----- ------ -----
Total allow-
ance for loan
losses........ $8,810 100.0% $6,413 100.0% $6,609 100.0% $5,840 100.0% $4,492 100.0%
====== ====== ====== ===== ====== ===== ====== ===== ====== =====
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, 1998.
Non-Performing Loans. The information contained on pages 9 through 12 of
the Corporation's Annual Report is incorporated herein by reference. See
Notes 1 and 5 of the Notes to Consolidated Financial Statements. The
Association had no loans on nonaccrual status at June 30, 1998 compared to
$950,000 of commercial real estate loans on nonaccrual status at June 30,
1997.
Real Estate Owned. The information contained on pages 9 through 12 of the
Corporation's Annual Report is incorporated herein by reference. See Notes 1
and 7 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,
-------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Short-term investments:
Interest bearing deposits . . . . . . . . .$126,613 $ 1,527 $ 2,207
Securities:
Held for Trading:
Mortgage-backed . . . . . . . . . . . . . -- 7,158 21,736
Available for Sale:
Equity Security . . . . . . . . . . . . . 338 -- --
U.S. Treasury and other U.S.
Government Agencies . . . . . . . . . . 14,810 6,095 7,471
Mortgage-backed . . . . . . . . . . . . . 32,792 53,595 45,644
-------- -------- --------
Total. . . . . . . . . . . . . . . . . 47,940 59,690 53,115
Held to maturity:
U.S. Treasury and other U.S.
Government Agencies . . . . . . . . . . 5,500 8,590 8,857
Mortgage-backed . . . . . . . . . . . . 284 363 418
-------- -------- --------
Total . . . . . . . . . . . . . . . . 5,784 8,953 9,275
FHLB of Pittsburgh stock . . . . . . . . . . 7,976 7,907 6,733
-------- -------- --------
Total . . . . . . . . . . . . . . . . . .$188,313 $ 85,235 $ 93,066
======== ======== ========
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 increase in short term investments
is primarily the result of a stable, low-rate interest rate environment that
resulted in increased originations of fixed rate loans subsequently sold into
the secondary market as well as an increased level of refinance activity
resulting in higher than expected loan payoffs, a loan sale initiated to
reduce certain credit risks identified within the residential mortgage loan
portfolio, certain loan and security sales to manage interest rate risk levels
within acceptable limits, and deposit pricing decisions to facilitate the
maintenance and expansion of customer relationships.
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. There were no securities held for
trading at June 30, 1998. See Notes 1 and 6 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.
13
<PAGE>
<PAGE>
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. During fiscal 1998, 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 decreased
primarily due to increased prepayment speeds experienced by mortgage-backed
securities held in the portfolio as well as sales of certain securities as
part of overall strategies to manage interest rate risk with acceptable
limits. See Notes 1 and 4 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 adjusted for market concensus prepayment assumptions.
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> <C>
Securities:
Available
for Sale:
U.S. Trea-
sury and
other U.S.
Government
agencies...$ 481 6.65% $ 12,102 6.35% $ 2,138 6.65% $ -- --% $ 14,721 $ 14,810 6.40%
Mortgage-
backed..... 10,105 6.56 21,629 6.55 570 7.24 107 7.24 32,411 32,792 6.57
-------- ---- ------- ---- -------- ---- ----- --- --------- -------- ----
$ 10,586 6.56% $ 33,731 6.48% $ 2,708 6.77% $ 107 7.24% $ 47,132 $ 47,602 6.52%
======== ==== ======= ==== ======== ==== ===== === ========= ======== ====
Held to Maturity:
U.S. Treasury
and other U.S.
Government
agencies...$ 356 5.08% $ 3,563 5.91% $ 1,581 5.08% $ -- --% $ 5,500 $ 5,469 5.61%
Mortgage-
backed..... 89 8.56 195 8.56 -- -- -- -- 284 306 8.56
-------- ---- ------- ---- -------- ---- ----- --- --------- -------- ----
$ 445 5.78% $ 3,758 60.4% $ 1,581 5.08% $ -- --% $ 5,784 $ 5,775 5.76%
======== ==== ======= ==== ======== ==== ===== === ========= ======== ====
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, 1998 there were no broker-originated deposits. See Note 10
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 1998.
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,
1998.
Certificates
Maturity Period of Deposit
- --------------- ----------
(In thousands)
Three months or less .................. $ 53,576
Three through six months .............. 14,132
Six through twelve months.............. 10,903
Over twelve months..................... 6,997
--------
Total............................. $ 85,608
========
Borrowings. See Note 11 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, 1998,
York Federal was authorized to invest up to approximately $36.5 million in
stock of, or loans to, service corporations. In addition, Federal
associations
16
<PAGE>
<PAGE>
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, 1998, was permitted to make approximately $7.7 million of such
conforming loans, for a total investment limitation of approximately $44.2
million.
York Financial Investment Corp. York Financial Investment Corp. ("YFIC")
is incorporated in the State of Delaware for the purpose of engaging in
investment management services including the maintenance and management of
investments and collection and distribution of the income from such
investments. Originally incorporated in 1997 as a wholly owned subsidiary of
New Service Corp., effective October 1, 1997, New Service Corp. dividended its
interest in YFIC to York Financial which in turn contributed its interest in
YFIC to York Federal. York Federal made capital contributions to YFIC at
various times during the year in the form of securities held for sale and
securities available for sale. YFIC's net worth at June 30, 1998 was $68.3
million and in addition to contributed capital of $65.8 million includes net
income of $2.2 million and unrealized gains on securities available for sale
of $306,000 net of applicable income taxes.
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 1998, 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
1998, 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, 1998 including the
Corporation's share of reported gains (losses) recognized using the equity
method of accounting and partnership distributions is $4.2 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. York
Financial's share of MVP income from operations for the year ended June 30,
1998 including market value adjustments of portfolio investments is $1.5
million. Such amount compares to a loss of $297,000 for the year ended June
30, 1997 with the difference directly attributable to increased market value
of certain portfolio investments. As of June 30, 1998, MVP had total assets of
$45.1 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, 1998, MVP had $15.3 million of Participating Securities
outstanding.
17
<PAGE>
<PAGE>
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, 1998 was
$163,000 net of capital distributions to York Financial during fiscal 1998
totalling $32,000 and its net income for the year ended June 30, 1998 was
$83,000.
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. During fiscal 1998, the company
assessed the business plan of the environmental activity with the result that
it discontinued such activity in January 1998. Operations for the year ended
June 30, 1998 resulted in net loss of $59,000. LSG's net worth was $49,000
at June 30, 1998 net of capital distributions to York Financial during fiscal
1998 totaling $5,000. Subsequent to June 30, 1998 and as part of the
Company's ongoing business planning process, it was determined to reassign the
construction inspection and appraisal activities within the consolidated group
to York Federal's mortgage banking group. LSG's operations will be
discontinued as of September 30, 1998.
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 involving the acquisition
and development of real estate. See Note 9 of the Notes to Consolidated
Financial Statements. In addition, New Service has investments in real
estate, primarily office buildings. Losses were realized from operations due
to an inability to increase rents on properties held for investment and losses
on disposition of certain units held for sale. New Service's net loss for the
year ended June 30, 1998 was $172,000. At June 30, 1998 stockholders' equity
was $804,000.
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
the fiscal year, YFSC completed development of one new branch location and at
June 30, 1998 had two branch development projects in progress with projected
openings in Fall 1998. 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 $202,000 for the year ended June
30, 1998. Stockholders' equity was $3.1 million at June 30, 1998.
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 and is available to provide credit life and
health insurance products to certain of the insured institution's consumer
loan customers, as well as a wide variety of life insurance products to the
retail market. First Capital Insurance Services Inc.'s net loss was $3,00 for
the year ended June 30, 1998. Stockholders equity was $18,000 at June 30,
1998.
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.
18
<PAGE>
<PAGE>
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.
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 $8.0
million at June 30, 1998.
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 that insures deposits, up to prescribed statutory limits, of
depository institutions. The FDIC maintains two separate insurance funds:
the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Association's
deposits, the FDIC has examination, supervisory and enforcement authority over
the Association.
The Association's deposit accounts are insured by the SAIF to the maximum
extent permitted by law. The Association pays deposit insurance premiums
based on a risk-based assessment system established by the FDIC. 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, 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.
Pursuant to the Deposit Insurance Funds Act ("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 1980s 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
assessments expensed for the year ended June 30, 1998 equaled $628,000.
19
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<PAGE>
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.
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 4.0%) of its net withdrawable accounts plus short-term
borrowings. Monetary penalties may be imposed for failure to meet liquidity
requirements. The Association has maintained liquidity levels during the year
ended June 30, 1998 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, 1998, the Association was
categorized as "well capitalized" under the prompt corrective action
regulations of the OTS. See Note 14 of the Notes to Consolidated Financial
Statements.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, 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; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("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. 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. 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, 1998 the Association's QTL ratio of 86.7% 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. At June 30, 1998, the
Association meets all three minimum capital requirements. See Note 14 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.
20
<PAGE>
<PAGE>
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-tiered approach which permits various levels of distributions based
primarily upon a savings association's capital level.
The Association currently meets 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, 1998, $20.2 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, 1998, the
Association's limit on loans to one borrower was $15.4 million. At June 30,
1998, the Association's largest aggregate amount of loans to one borrower was
$5.5 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 received approval from the FDIC and OTS
to operate York Financial Investment Corp.as an operating subsidiary and such
activities commenced October 1, 1997 upon the transfer by dividend of
ownership interest from York Financial to York Federal.
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.
21
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<PAGE>
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 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, 1998, 1997 and 1996.
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
22
<PAGE>
<PAGE>
post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. At June 30, 1998, 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, 12 and 14 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
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<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, 1998, the Corporation and its subsidiaries had 370
full-time employees and 39 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 1998 Position
- ---- -------- ----------------------------------------------
Corporation Association
----------------------- -----------------
Robert W. Pullo 58 Director, President and Chairman of the Board
and Chief Executive and Chief Executive
Officer Officer
Robert A. Angelo 51 Executive Vice President, President and Chief
Secretary and General Operating Officer
Counsel
James H. Moss 44 Senior Vice President Executive Vice
Chief Financial Officer/ President and Chief
Treasurer Chief Financial
Officer
Robert C. Herzberger 44 Senior Vice President Senior Vice President
24
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<PAGE>
In addition to the above, the Association's executive officer group
includes:
Age at
Name June 30, 1998 Position
- ---- ------------- --------
Lynn D. Kramer-Crenshaw 47 Executive Vice President
Harry M. Zimmerman 51 Executive Vice President
Rebecca S. McClure, Esquire 38 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., 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 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 a
member of the Board of Directors of the Small Enterprise Development Company,
Affordable Housing Endeavors, Inc. and Misericordia Convalescent Home. 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.
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.
Robert C. Herzberger of Stewartstown, Pennsylvania, is Senior Vice
President of York Financial and Senior Vice President of York Federal Savings
and Loan. He earned a Masters of Science Degree from the University of
25
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<PAGE>
Baltimore and a Bachelor of Science Degree from the University of Maryland.
Mr. Herzberger is a member of the Board of Directors 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.
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-Crenshaw is a member of the York County
Private Industry Council. She 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 board.
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 United Way of York County, the York YMCA, Salvation Army, Pen-Mar
Organization, York Adams Area Council of the Boy Scouts of America.
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
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<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, 1998.
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 $4,508,589 $2,717,335 Owned --
Branch Offices:
2690 S. Queen
Street
York, PA 1993 286,022 223,248 Owned --
Northern Way
York, PA 1995 509,781 460,267 Owned --
Haines Acre
Shopping Center
York, PA 1975 126,523 69,788 Leased 10/05
1940 Carlisle Road
York, PA 1972 335,248 154,878 Owned --
1781 West Market
Street
York, PA 1986 360,053 279,987 Owned --
1442 Bannister
Street
West York, PA 1979 298,942 229,367 Owned --
269 Penrose Place
Carlisle, PA 1997(2) 105,998 103,959 Leased 6/07
880 W. Broadway
Red Lion, PA 1978 340,333 212,303 Owned --
Main Street &
Forrest Avenue
Shrewsbury, PA 1975 258,970 142,778 Owned --
798 Simpson Ferry
Road
Mechanicsburg, PA 1975 263,215 192,933 Owned --
1123 W. Governor
Road
Hershey, PA 1973 415,764 223,953 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 $ 219,044 Owned --
1758 Oregon Pike
Lancaster, PA 1979 392,769 245,263 Owned --
201 Dart Drive
Hanover, PA 1980 389,952 273,195 Owned --
499 Tyler Run Road
York, PA 1989 415,112 358,242 Owned --
4157 N. George
Street
York, PA 1989 354,445 277,077 Owned --
3995 E. Market
Street
York, PA (3) 1990 1,781,987 1,251,145 Owned --
1816 Emmorton Road
Bel Air, MD 1991 725,771 599,082 Owned --
2006 Rock Spring
Road
Bel Air, MD 1991 725,420 596,886 Owned --
39 Hanover Street
Spring Grove, PA 1993 419,621 372,890 Owned --
1700 Baltimore Pike
Hanover, PA 1993 391,485 339,916 Owned --
Other Facilities:
Haines Road MAC
York, PA 1987 28,038 6,542 Leased 10/05
Red Lion MAC
Red Lion, PA 1988 21,330 14,559 Owned --
30 East King Street
York, PA 1973 722,192 308,369 Owned --
42 East King
Street Parking
York, PA(4) Spaces 20,000 20,000 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
- --------------- ------ ---- -------- ----- -----
Other Facilities:
134 South Duke
Street Parking
York, PA Lot $ 25,470 $ 25,470 Owned --
144 South Duke
Street Parking
York, PA Lot 136,926 125,549 Owned --
122 South George
Street
York, PA(5) 1996 4,489,625 4,245,613 Owned --
150 South Duke
Street
York, PA 1998 70,545 70,032 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.
(3) Approximately 25.0% of the building is used as branch office with the
remainder of the building used as an income producing property.
(4) Property donoted to local charity in fiscal 1998; retained ownership of
certain parking areas.
(5) Facility used as administrative and operations center.
As of June 30, 1998, the total book value of office properties and
equipment owned by the Corporation and its subsidiaries, less allowances for
depreciation and amortization, was $19.6 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, 1998.
29
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<PAGE>
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.
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 Corp." in the Annual Report is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations of York Financial -- Interest Rate Sensitivity Management and
Market Risk" on pages 7 through 9 of the Annual Report are 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 1998 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.
30
<PAGE>
<PAGE>
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 section captioned "Voting Securities and Principal
Holders Thereof" of the Proxy Statement.
(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, 1998 and 1997
(b) Consolidated Statements of Income For the Years
Ended June 30, 1998, 1997 and 1996
(c) Consolidated Statements of Stockholders' Equity For
the Years Ended June 30, 1998, 1997 and 1996
(d) Consolidated Statements of Cash Flows For the Years
Ended June 30, 1998, 1997 and 1996
(e) Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements have been
omitted as the required information is inapplicable.
31
<PAGE>
(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***
(d) 1997 York Financial Corp. Stock Option and
Incentive Plan****
(13) York Financial Corp. 1998 Annual Report to
Stockholders
(21) Parent and Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) The Corporation did not file any Reports on Form 8-K during the
quarter ended June 30, 1998.
- -----------
* 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.
**** Incorporated by reference from the 1997 Annual Meeting Proxy Statement
filed by the Corporation with the Securities and Exchange Commission
on September 25, 1997.
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 25, 1998 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 25, 1998
- ------------------------- Officer and Director
Robert W. Pullo (Principal Executive Officer)
/s/ James H. Moss Senior Vice President September 25, 1998
- ------------------------- (Principal Financial
James H. Moss and Accounting Officer)
/s/ Thomas W. Wolf Chairman of the Board September 25, 1998
- ------------------------- of Directors
Thomas W. Wolf
/s/ Cynthia A. Dotzel Director September 25, 1998
- -------------------------
Cynthia A. Dotzel
/s/ Robert W. Erdos Director September 25, 1998
- -------------------------
Robert W. Erdos
<PAGE>
<PAGE>
/s/ Randall A. Gross Director September 25, 1998
- -------------------------
Randall A. Gross
/s/ Paul D. Mills Director September 25, 1998
- -------------------------
Paul D. Mills
/s/ Byron M. Ream Director September 25, 1998
- -------------------------
Byron M. Ream
/s/ Carolyn E. Steinhauser Director September 25, 1998
- --------------------------
Carolyn E. Steinhauser
/s/ Robert L. Simpson Director September 25, 1998
- -------------------------
Robert L. Simpson
<PAGE>
<PAGE>
EXHIBIT 13
1998 Annual Report to Stockholders
<PAGE>
<PAGE>
YORK FINANCIAL CORP.
1998 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
<PAGE>
PRESIDENT'S MESSAGE
TO OUR SHAREHOLDERS:
It's impossible to look back on the past year without getting excited about
the future. Though it's been a good year in and of itself, we will probably
look back on it as a time when we were laying the foundation for York
Financial Corp. to become ideally suited for a new age of financial services.
Our First Year of Commercial Banking
Mergers and acquisitions are reducing the number of banking options available
to commercial customers across the country. This makes it an opportune time
for York Financial Corp. to take its place as a leading provider of these
financial services for businesses, especially for smaller companies fearful of
being left behind by the megabanks.
Continuing our shift from our old mission as a thrift institution to a more
sophisticated full-service role for both consumers and businesses, we are now
fueling economic growth in our local communities like never before. Having
introduced our commercial banking services initially in York County, we will
now be expanding to include Lancaster, Cumberland, and Dauphin Counties in
Pennsylvania and Harford County in Maryland.
Also, in keeping with our emphasis on relationship banking, we are promoting
these commercial services through extensive personal contact and community
involvement from boardroom luncheons with local entrepreneurs to timely
seminars and out-bound telemarketing by relationship managers.
A Good Time for Building Our Reserves
The shift in our mix of products and services would indicate the need for
stronger reserves. Fortunately, we're in a position of strength that enabled
us to build our reserves up to $8,810,000 as of June 30, 1998. Though there's
certainly no reason for us to be pessimistic about York Financial Corp.'s
future, we know that the financial industry as a whole will inevitably run
into hard times sometime in the future. By building our reserves now, during
good times, we'll be able to continue doing business as usual if and when
things get a little tougher. When our competitors are pulling back, we'll be
able to market aggressively from a safe and secure base.
An Enviable Position In an Enviable Market
For York Financial Corp. to earn the top "Superior 5-Star" rating from Bauer
Financial Reports, Inc., is not new news. We have earned this top rating for
16 consecutive quarters. But, being named one of Central Pennsylvania's fifty
fastest-growing companies by the Central Penn Business Journal comes as quite
an honor. We appreciate the recognition, but we know that it's the dynamic
growth of our market that has given us greater opportunities, broader
awareness, and more influence. Major banking investors have targeted this
region, which supports the high value of York Financial Corp.'s franchise,
whether or not it's reflected in the stock market.
All the evidence we need is in the local market. For example, Pennsylvania is
second only to Florida in the number of residents over 50 years of age well
known for controlling much of the nation's wealth. And, not long ago, USA
Today ranked York ninth nationally in baby boomer population, with a hefty
30%. No wonder the megabanks are interested in this market area. And, no
wonder York Financial Corp. opened a new branch in Carlisle this year, will
open new branches in Shrewsbury and Stewartstown before the end of 1998, and
is awaiting approval on an additional branch in the Maryland market. This
will bring our total up to 26 branch offices.
Partnering for Community Economic Research and Development
While outsiders may look at how to take profits from our strong local markets,
York Financial Corp. sees its success in terms of helping to build these
markets. This year, we took a dramatic step in this direction as the sponsor
of the York College/York Federal Institute for Regional Affairs. The mission
of the Institute is "to conduct research which will improve our under-
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standing of the forces at work shaping the economic, political and social
development of the Greater York Region." By conducting feasibility studies,
developing long-term assessments, and performing expert economic forecasting
for local enterprises, the York College/York Federal Institute for Regional
Affairs should benefit everyone in our communities.
Harnessing Technology, From Year 2000 to the Internet
These are interesting times technologically, too. The Year 2000 computer
software problem has generated a lot of ink and anxiety, but we're happy to
say that York Financial Corp. is already well on its way to full compliance.
In fact, we've already turned our attention to our suppliers and customers to
make sure they'll be ready January 1, 2000.
York Financial Corp. is also ahead of the curve in Internet banking. We know
that making the considerable financial commitment to this emerging technology
is essential to our future, so we're keeping pace with larger institutions in
order to maintain our independence. We are pleased to be receiving positive
feedback about our site from our more progressive, computer-literate
customers. We are also pleased to have been honored by the national Bank
Marketing Association for our website. York Financial Corp.'s website was
selected as the Certificate of Excellence Award winner for the best website
for banks $1 billion to $5 billion in size nationally.
On the other hand, we're protective of the traditional ways of banking too.
After all, many of our best customers are hesitant to make changes. They
value the personal commitment York Financial Corp. has made to them, and we'll
honor that commitment for as long as it takes.
Yet Another Year of Dividend Growth
When looking at the numbers in this annual report, please note that we have
extended our record of increasing cash dividends for stockholders. In
addition, we have issued stock dividends or splits every year since becoming a
publicly traded company, with a 25% stock split effected in the form of a
stock dividend distributed in November 1997. Few companies have done this for
10 years or more, as we have. This is the kind of long-term success we
believe our stockholders are seeking, and it's the result of long- term
management, long-term relationships and a long-term vision.
Preparing Our Employees for the Future
Finally, I'd like to talk about how we're broadening our role as financial
advisers for our customers. Based on a consultative selling philosophy, we
have embarked on an extensive employee retraining program. Our plan is to
become more of a turnkey source for financial advice and services. Now, in
addition to the brokerage services we've offered for 10 years through First
Capital Brokerage Services, we'll also be sharpening our expertise in
providing insurance products, annuities, and other financial planning products
and services. At this time, thirty of our branch staff members are now
licensed insurance agents and will be continuing their training with the goal
of ultimately becoming certified financial planners.
I'd like to thank all our employees for helping us with these and other
achievements over the past year and their continued support in closing the gap
between traditional banking and future opportunities.
Sincerely,
/s/Robert W. Pullo
Robert W. Pullo
President and Chief Executive Officer
2
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Table of Contents
Page 1 President's Message
Page 4 Consolidated Financial Highlights
Page 4 Market Information
Page 5 Selected Consolidated Financial Data
Page 6 Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp.
Page 22 Report of Management
Page 23 Report of Independent Auditors
Page 24 Consolidated Financial Statements
Page 56 Supplementary Consolidated Financial Data
Page 57 Directors and Officers
Page 59 Corporate Organization and Information
Page 60 York Federal Offices
3
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York Financial Corp. and Subsidiaries
CONSOLIDATED FINANCIAL
HIGHLIGHTS
(In thousands, except
per share data) Year ended June 30
- ------------------------------ --------------------------
1998 1997 % CHANGE
- ------------------------------ ----------- ----------- --------
GROWTH
- ------------------------------ ----------- ----------- --------
Average assets $ 1,186,759 $ 1,160,893 2.2%
Average loans 997,078 989,670 0.7%
Average deposits 1,025,622 949,903 8.0%
Average stockholders' equity 104,196 95,023 9.7%
OPERATING PERFORMANCE
- ------------------------------ ----------- ----------- --------
Net interest income $ 36,722 $ 35,853 2.4%
Provision for loan losses 3,737 2,424 54.2%
Other income 10,152 8,696 16.7%
Other expenses 27,323 31,163 (1) (12.3%)
Net income 10,015 7,087 41.3%
FINANCIAL RATIOS (1)
- ------------------------------ ----------- ----------- --------
Return on average assets 0.84% 0.61% 37.7%
Return on average stockholders' equity 9.61% 7.46% 28.8%
STOCK PERFORMANCE (1) (2)
- ------------------------------ ----------- ----------- --------
Net income per share -
assuming dilution $ 1.06 $ 0.79 34.2%
Book value per share 12.18 11.42 6.7%
Market value per share 20.88 15.90 31.3%
Cash dividends paid per share 0.50 0.46 8.7%
Market Information
The common stock of York Financial Corp. is traded on the Nasdaq
National Market under the symbol YFED. At the close of business on September
8, 1998, there were approximately 3,383 stockholders of record owning
9,104,694 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 1998
1st quarter $ 21.40 $ 15.60 $ 0.120
2nd quarter 27.25 20.20 0.120
3rd quarter 26.25 23.25 0.130
4th quarter 26.00 20.00 0.130
- --------------------- --------- --------- -----------------
$ 0.500
- --------------------- --------- --------- -----------------
Fiscal 1997
1st quarter $ 13.27 $ 11.64 $ 0.109
2nd quarter 14.73 12.80 0.109
3rd quarter 15.80 12.80 0.120
4th quarter 16.00 14.20 0.120
- --------------------- --------- --------- -----------------
$ 0.458
- --------------------- --------- --------- -----------------
(1) Year ended June 30, 1997, includes one-time special assessment of $5.3
million pre-tax ($3.2 million net of taxes) torecapitalize the Savings
Association Insurance Fund (SAIF) of the Federal Deposit Insurance
Corporation (FDIC) in accordance with Deposit Insurance Funds Act enacted
September 30, 1996.
(2) Market prices and amounts per share, including dividends, are adjusted
for stock dividends effected through June 30, 1998.
(3) Restrictions are placed on the Corporation's ability to pay cash
dividends as discussed in Note 14 of the Notes to Consolidated Financial
Statements.
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YORK FINANCIAL CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
June 30
1998 1997 1996 1995 1994
-------------------------------------------------------------
(Dollars in Thousands)
Assets $ 1,229,268 $ 1,162,393 $ 1,109,804 $ 1,009,918 $ 888,543
Short-term
investments 126,613 1,527 2,207 19,861 53,794
Loans held for
sale, net 17,534 4,882 5,686 6,450 10,314
Securities and
Federal Home
Loan Bank stock 61,700 83,708 90,859 70,490 82,573
Loans receivable,
net 951,641 997,841 938,570 845,205 669,850
Deposits 1,065,777 993,106 908,123 832,056 785,483
Borrowings 27,861 46,236 74,380 65,759 1,668
Stockholders'
equity 109,225 100,083 93,540 85,330 78,626
Loans serviced
for others 487,092 548,202 593,166 571,351 563,595
Number of:
Real estate loans
outstanding 8,795 9,471 9,724 9,786 9,063
Loans serviced
for others 7,724 8,484 9,649 9,648 9,579
Deposit accounts 130,968 128,211 118,758 114,541 112,271
Offices 23 22 22 22 22
Year Ended June 30
1998 1997 1996 1995 1994
-------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Interest
income $ 88,566 $ 87,641 $ 80,880 $ 68,155 $ 62,235
Interest expense 51,844 51,788 45,905 36,402 30,798
----------- ----------- ----------- ----------- ---------
Net interest
income 36,722 35,853 34,975 31,753 31,437
Provision for loan
losses 3,737 2,424 2,300 2,340 2,200
----------- ----------- ----------- ----------- ---------
Net interest income
after provision
for loan losses 32,985 33,429 32,675 29,413 29,237
Other income 10,152 8,696 8,630 5,706 5,786
Other expenses 27,323 31,163(1) 24,450 22,616 23,384
----------- ----------- ----------- ----------- ---------
Income before in-
come taxes and
cumulative effect
of change in
accounting
principle 15,814 10,962 16,855 12,503 11,639
Provision for income
taxes 5,799 3,875 6,512 4,837 4,353
----------- ----------- ----------- ----------- ---------
Income before cumu-
lative effect of
change in
accounting
principle 10,015 7,087 10,343 7,666 7,286
Cumulative effect
of change in
accounting
principle --- --- --- --- 2,088(2)
----------- ----------- ----------- ----------- ---------
Net income $ 10,015 $ 7,087 $ 10,343 $ 7,666 $ 9,374
=========== =========== =========== =========== =========
Per share data:
Net income -
assuming
dilution $ 1.06 $ 0.79 $ 1.19 $ 0.91 $ 1.13
Cash dividends
paid $ 0.50 $ 0.46 $ 0.41 $ 0.38 $ 0.36
Book value $ 12.18 $ 11.42 $ 11.18 $ 10.41 $ 9.81
Shares out-
standing
(year end) 8,968,031 7,008,347 6,696,494 6,560,558 6,412,468
Weighted average
shares - assuming
dilution 9,421,822 8 ,974,490 8,700,072 8,410,305 8,309,670
Other financial
ratios:
Return on
average assets 0.84% 0.61% 0.99% 0.83% 1.05%
Return on average
equity 9.61% 7.46% 11.57% 9.39% 12.30%
Dividend payout
ratio 44.13% 55.30% 32.69% 39.94% 29.62%
Average equity
to average assets 8.78% 8.19% 8.51% 8.85% 8.55%
____________________
All per share data is adjusted for stock dividends effected through June 30,
1998.
(1) Includes one-time special assessment of $5.3 million pre-tax ($3.2
million net of taxes) to recapitalize the SAIF of the FDIC in accordance
with the Deposit Insurance Funds Act enacted September 30, 1996.
(2) Cumulative effect of change in accounting principle resulting from
adoption of FASB Statement No. 109, "Accounting for Income Taxes".
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YORK FINANCIAL CORP.
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.
Forward-Looking Statements
In addition to historical information, this Annual Report contains
forward-looking statements. The forward-looking statements contained in the
following sections are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a
difference include, but are not limited to, interest rate trends, the general
economic climate in the Corporation's market area and the country as a whole,
the ability of the Corporation to control costs and expenses, competitive
products and pricing, loan delinquency rates and changes in federal and state
regulation. Readers should not place undue reliance on these forward-looking
statements, as they reflect management's analysis only as of the date of this
report. The Corporation has no obligation to update or revise these
forward-looking statements to reflect events or circumstances that occur after
the date of this report. Readers should carefully review the risk factors
described in other documents the Corporation files periodically with the
Securities and Exchange Commission.
Financial Review
York Financial is a unitary savings and loan holding company
incorporated in Pennsylvania. In August 1986, York Financial 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, 1998, the Corporation had consolidated assets of $1.2
billion, total deposits of $1.1 billion and stockholders' equity of $109.2
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 business loans, consumer
loans, and investment securities. York Federal conducts its business through
twenty-three 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
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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 securities
available for sale, 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 and Market Risk
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. The Corporation's assets and liabilities are not directly
exposed to foreign currency or commodity price risk. At June 30, 1998, the
Corporation had no off-balance sheet derivative financial instruments.
Management utilizes an Asset/Liability Committee (ALCO), which meets at
least once each month, to review the Association's interest sensitivity
position on an ongoing basis and prepare strategies that outline the overall
acquisition and allocation of funds to maximize earnings and maintain the
interest rate sensitivity position at acceptable levels in order to insulate
earnings 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 $10.6 million asset sensitive gap for the one year time period
at June 30, 1998.
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, 1998.
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, NOW accounts and money market
accounts are assumed to be subject to repricing throughout the periods shown
based on experience for the respective deposit category.
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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) $162,134 $81,266 $303,432 $370,418 $51,925 $ 969,175
Securities avail-
able for sale (2) 9,003 1,639 7,114 26,890 3,294 47,940
Securities held
to maturity (3) 3,508 16 65 2,166 8,005 13,760
Other interest-
earning assets 126,613 --- --- --- --- 126,613
---------------------------------------------------------
Total 301,258 82,921 310,611 399,474 63,224 1,157,488
Interest-bearing
liabilities:
Deposits
NOW accounts 15,752 4,860 18,373 45,798 14,708 99,491
Savings accounts 995 1,990 8,149 28,294 24,761 64,189
Money market
accounts 228,483 1,462 5,883 18,908 12,779 267,515
Certificate
accounts 122,903 61,482 186,794 240,407 7,499 619,085
Borrowings 2,050 25,002 18 106 685 27,861
---------------------------------------------------------
Total 370,183 94,796 219,217 333,513 60,432 1,078,141
---------------------------------------------------------
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Interest sensi-
tivity gap $(68,925) $(11,875) $ 91,394 $ 65,961 $ 2,792 $ 79,347
==========================================================
Cumulative interest
sensitivity gap $(68,925) $(80,800) $ 10,594 $ 76,555 $79,347
===============================================
Cumulative interest
sensitivity gap
As a percent of
total assets (4) (5.61%) (6.57%) 0.86% 6.23% 6.45%
===============================================
___________________
(1) Includes loans held for sale of $17.5 million.
(2) Includes equity security of $0.3 million considered subject to
repricing in the over 5 years time frame.
(3) Includes FHLB stock, at cost of $8.0 million considered subject to
repricing in the over 5 years time frame.
(4) A negative percentage is generally favorable to net interest income
in a decreasing rate environment and a positive percentage is
generally favorable to net interest income in an increasing rate
environment.
The ALCO also monitors the Corporation's interest rate risk position
utilizing simulation analysis. Fluctuations in net interest income and net
portfolio value are determined in various interest rate scenarios and
monitored against acceptable limitations established by management and
approved by the Board of Directors. Such rate scenarios include immediate rate
shocks adjusting rates in +/- 100 basis point (bp) increments resulting in
projected changes to net interest income over the next 12 months and projected
changes in net portfolio value as indicated in the following table.
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June 30
1998 1997
Percentage change in
Change in ---------------------------------------------------------
interest rates Net interest Net portfolio Net interest Net portfolio
(In basis points) income (1) value (2 ) income (1) value (2)
- ----------------- ---------------------------------------------------------
Increase (Decrease)
+300 (7%) (12%) (18%) (13%)
+200 (4%) (7%) (10%) (7%)
+100 (2%) (3%) (5%) (4%)
0 0% 0% 0% 0%
-100 1% 3% 5% 4%
-200 3% 7% 9% 8%
____________________
(1) The percentage change in this column represents Net Interest Income
for 12 months in a stable interest rate environment versus Net
Interest Income in the various rate scenarios.
(2) The percentage change in this column represents Net Portfolio Value
of the Association in a stable interest rate environment versus the
Net Portfolio Value in the various rate scenarios. Net Portfolio
Value represents the present value of expected cash flows from
existing assets minus the present value of expected cash flows from
existing liabilities plus the present value of expected net cash
in-flows from existing off-balance sheet contracts.
Simulation results are influenced by a number of estimates and
assumptions with regard to embedded options, prepayment behaviors, pricing
strategies, cashflows, and others. The improvement in risk profile from year
to year as indicated in the above table is primarily attributed to an increase
in prepayment assumptions resulting in a shorter duration of the earning asset
portfolio which more closely matches the liability portfolio. Assumptions and
estimates used in simulation analysis are inherently uncertain and, as a
consequence, results will neither precisely estimate net interest income or
net portfolio value nor precisely measure the impact of higher or lower
interest rates on net interest income or net portfolio value. The results of
these simulations are reported to the Corporation's Board of Directors on a
quarterly basis. Management has determined that the level of interest rate
risk is within acceptable limits at June 30, 1998.
The management of York Federal is committed to managing the asset and
liability portfolios in order to maximize earnings and maintain an interest
rate sensitivity position that insulates earnings 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 has
created a Business Banking Group to offer financial products and services to
small and mid-sized businesses in the Association's branch market area. The
nature of these products and services and the financial characteristics of the
target client group may have the effect of increasing the Association's credit
risk exposure. The Association has recruited management expertise and adopted
appropriate credit management policies to control the credit risk exposure
inherent in this activity.
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
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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
------------------
1998 1997 1996 1995 1994
------------------------------------------
(Dollars in Thousands)
Total allowance for loan
losses at beginning of period $ 6,413 $ 6,609 $ 5,840 $ 4,492 $ 3,346
Loans charged-off:
Real estate-mortgage:
Residential 1,701 1,304 1,151 1,138 913
Commercial 68 1,820 620 5 125
Consumer 89 226 100 127 314
---------------------------------------------
Total charge-offs 1,858 3,350 1,871 1,270 1,352
Recoveries:
Real estate-mortgage:
Residential 212 210 156 185 266
Commercial 294 516 184 92 31
Consumer 12 4 --- 1 1
---------------------------------------------
Total recoveries 518 730 340 278 298
---------------------------------------------
Net loans charged-off 1,340 2,620 1,531 992 1,054
Provision for loan losses 3,737 2,424 2,300 2,340 2,200
---------------------------------------------
Total allowance for loan
losses at end of period $ 8,810 $ 6,413 $ 6,609 $ 5,840 $ 4,492
=============================================
Percentage of net charge-offs
to average loans outstanding
during the period 0.13% 0.26% 0.17% 0.13% 0.15%
=============================================
Percentage of allowance for
loan losses to adjusted
total loans 0.92% 0.64% 0.70% 0.69% 0.67%
=============================================
The allowance for loan losses totaled $8.8 million or .92% of adjusted
total loans of $960.5 million at June 30, 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.
During fiscal 1999, the Association expects to further increase its
percentage of allowance for loan losses to adjusted total loans in connection
with significant volume increases planned in the commercial and consumer loan
portfolios. This increase is intended to provide a strong allowance position
appropriate for the risk characteristics of the changing loan portfolio. It
is not a reflection of any deterioration in actual credit quality or loosening
of credit underwriting standards.
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An analysis of nonperforming assets is summarized as follows:
June 30
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a
nonaccrual basis:
Real estate-mortgage:
Commercial $ --- $ 950 $ 1,481 $ 3,498 $ 546
Land --- --- 200 --- ---
------- ------- ------- ------- -------
Total nonaccrual loans --- 950 1,681 3,498 546
Accruing loans which
are contractually past
due 90 days or more:
Real estate-mortgage:
Residential 14,487 12,735 10,029 9,133 11,905
Consumer 1,194 702 383 433 445
------- ------- ------- ------- -------
Total of 90 days
past due loans 15,681 13,437 10,412 9,566 12,350
------- ------- ------- ------- -------
Total of nonaccrual and
90 days past due loans $15,681 $14,387 $12,093 $13,064 $12,896
======= ======= ======= ======= =======
As a percent of total
loans 1.63% 1.43% 1.28% 1.53% 1.90%
======= ======= ======= ======= =======
Real estate owned:
Real estate acquired
through foreclosure or
repossession by loan type:
Real estate:
Residential $ 4,543 $ 4,978 $ 4,913 $ 5,981 $ 3,398
Commercial 2,687 2,714 2,370 2,278 9,421
Land 1,863 2,895 3,349 5,107 6,254
Loans classified as in
substance foreclosure --- --- --- 200 713
Allowance for real
estate losses (116) (365) (955) (630) (1,453)
------- ------- ------- ------- -------
Total real estate owned $ 8,977 $10,222 $ 9,677 $12,936 $18,333
======= ======= ======= ======= =======
As a percent of total
assets 0.73% 0.88% 0.87% 1.28% 2.06%
======= ======= ======= ======= =======
Total nonperforming
assets $24,658 $24,609 $21,770 $26,000 $31,229
======= ======= ======= ======= =======
As a percent of total
assets 2.01% 2.12% 1.96% 2.57% 3.51%
======= ======= ======= ======= =======
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. This is primarily due to a 14%
increase in the number of loans currently in the foreclosure process, and is
the result of a more aggressive collection effort initiated to reduce
delinquencies over the longer term. In management's judgement such
residential assets present a relatively low risk of loss primarily due to the
underlying value of the collateral.
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 1998, net
charge-offs were $1,163,000 and additions to the allowance
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totaled $914,000 resulting in a decrease in the allowance to $116,000.
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' participation in the
secondary mortgage market. Liquidity needs can also 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 1998, the Association's deposits increased $72.7 million. In addition,
York Federal has supplemented its deposit gathering efforts through
borrowings from the FHLB of Pittsburgh. At June 30, 1998, York Federal had
$25.8 million in FHLB advances outstanding at a weighted average interest
rate of 5.40%. For additional details of FHLB advances and other borrowings,
refer to Note 11 of the Notes to Consolidated Financial Statements.
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 $475.3 million, $317.0 million and $317.8 million in fiscal 1998,
1997 and 1996, respectively.
The principal use of funds is the origination of mortgage and other
loans. Loan demand resulted in total originations of $439.2 million in
fiscal 1998. Loan originations were obtained through various channels
including the retail branch system, commissioned mortgage origination staff,
tele-mortgage activity, expanded mortgage broker relationships, and Business
Banking relationship managers. The volume of originations was favorably
impacted by a relatively stable and low-rate 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.
The combination of the above referenced sources and uses of funds
resulted in a significant increase in liquid assets as evidenced in the
Corporation's interest-earning overnight cash position of $126.6 million at
June 30, 1998, as compared to $1.5 million at June 30, 1997. Primary factors
contributing to this increase are the interest rate environment that resulted
in increased originations of fixed rate loans subsequently sold into the
secondary market as well as an increased level of refinance activity resulting
in higher than expected loan payoffs, a loan sale initiated to reduce certain
credit risks identified within the residential mortgage loan portfolio,
certain loan and security sales to manage
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interest rate risk levels within acceptable limits, and deposit pricing
decisions to facilitate maintenance and expansion of customer relationships.
Under current regulations, York Federal is required to maintain liquid
assets at 4.0% or more of its net withdrawable deposits plus short-term
borrowings. Effective November 24, 1997, the Office of Thrift Supervision
lowered liquidity requirements from 5.0% to 4.0%. Additionally, the OTS
streamlined the calculations used to measure compliance with liquidity
requirements, expanded the types of investments considered to be liquid
assets, and reduced the liquidity base by modifying the definition of net
withdrawable accounts to exclude accounts with maturities exceeding one year.
The result of these changes to the liquidity requirements is to significantly
increase the reported liquidity position of the Association. At June 30, 1998,
the Association's liquidity level was 17.5%.
The sources of liquidity previously discussed are deemed by management to
be sufficient to fund outstanding loan commitments and meet other obligations.
See Notes 17 and 18 of the Notes to Consolidated Financial Statements for
information on commitments and fair value of financial instruments at June 30,
1998.
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, 1998, totaled $109.2 million
compared to $100.1 million at June 30, 1997, an increase of $9.1 million or
9.1%. This growth was a result of a combination of factors including current
earnings, cash dividends paid (representing a payout ratio of 44.1%),
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 various capital standards:
Tangible Capital. Generally, common stock plus retained earnings must
equal at least 1.5% of adjusted total assets.
Tier 1 (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; 5.0% to be deemed well capitalized.
Risk-Based Capital. Risk-based capital must equal at least 8.0% of
risk-weighted assets, as defined in the regulations; 10% to be deemed well
capitalized. The tier 1 (core) capital component of risk-based capital, as
defined above, must equal at least 6.0% of risk-weighted assets to be deemed
well capitalized.
At June 30, 1998, York Federal's tangible and core capital both equaled
7.7% ($93.4 million), substantially in excess of the minimum regulatory
requirements of 1.5% and 3.0%/5.0%, respectively. York Federal's total assets
do not include any goodwill. York Federal's core capital to risk-weighted
assets equaled 12.0% ($93.4 million) at June 30, 1998, which exceeds the
required level of 6.0%. Finally, York Federal's risk-based capital ratio
equaled 13.1% ($102.1 million) at June 30, 1998, which exceeds the required
level of 8.0% by $39.8 million, and exceeds the required level to be deemed
well capitalized of 10.0% by $24.2 million. For a more comprehensive analysis
of capital, refer to Note 14 of the Notes to Consolidated Financial
Statements.
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, 1998, such transactions are within
these regulatory limits.
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Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Net Interest Income
York Financial's earnings are affected by the level of York Federal's net
interest income, which is 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 1998 was $36.7 million, as compared to
$35.9 million for fiscal 1997, which represents a 2.2% increase. The margin
on interest-earning assets for fiscal 1998 increased to 3.28% from 3.27% for
fiscal 1997. 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, 1998.
<PAGE>
<TABLE>
Average Balance and Interest Yield/Rate Analysis
Year Ended June 30
1998 1997 1996
------------------------ ------------------------- ------------------------
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) (3) $ 997,078 $80,893 8.11% $ 989,670 $ 80,820 8.17% $ 895,912 $75,001 8.37%
Securities held for
trading 10,314 688 6.67 18,935 1,329 7.02 6,300 479 7.60
Securities available
for sale 56,858 3,770 6.63 56,256 3,711 6.60 47,126 3,142 6.67
Securities held to
maturity 15,015 930 6.19 16,141 951 5.89 22,888 1,361 5.95
Other interest-earning
assets 41,721 2,285 5.48 15,747 830 5.27 16,116 897 5.57
---------- ------- ----- ---------- ------- ----- ---------- ------- ----
Total interest-earning
assets 1,120,986 88,566 7.90 1,096,749 87,641 7.99 988,342 80,880 8.18
Noninterest-earning
assets 65,773 64,144 61,552
---------- ---------- ----------
Total $1,186,759 $1,160,893 $1,049,894
========== ========== ==========
Interest-bearing
liabilities:
Deposits
NOW accounts $ 94,847 2,167 2.28 $ 87,720 1,944 2.22 $ 81,803 1,865 2.28
Savings accounts 66,052 1,676 2.54 73,764 2,040 2.77 87,144 2,419 2.78
Money market
accounts 233,500 10,794 4.62 205,168 9,017 4.39 182,626 8,114 4.44
Certificate accounts 608,126 35,107 5.77 571,825 33,364 5.83 514,339 29,923 5.82
Borrowings 38,871 2,100 5.40 100,826 5,423 5.38 63,464 3,584 5.65
---------- ------- ----- ---------- ------- ----- ---------- ------- ----
Total interest-
bearing liabilities 1,041,396 51,844 4.98 1,039,303 51,788 4.98 929,376 45,905 4.94
------- ----- ------- ----- ------- -----
Noninterest-bearing
deposits 23,097 11,426 3,458
Noninterest-bearing
liabilities 18,070 15,141 27,677
---------- ---------- ----------
1,082,563 1,065,870 960,511
Stockholders' equity 104,196 95,023 89,383
---------- ---------- ----------
Total $1,186,759 $1,160,893 $1,049,894
========== ========== ==========
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.08x 1.06x 1.06x
========== ========== ==========
Net interest income/
interest rate spread $36,722 2.92% $35,853 3.01% $34,975 3.24%
======= ===== ======= ===== ======= =====
Net interest-earning
assets/margin on
interest-earning
assets $ 79,590 3.28% $ 57,446 3.27% $ 58,966 3.54%
========== ===== ========== ===== ========== =====
</TABLE>
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____________________
(1) Average balances include loans on nonaccrual status
(2) Average balances include amounts held for sale
(3) Interest includes amortization of loan fees of $0.2 million, $0.6 million
and $1.9 million in 1998, 1997 and 1996, respectively.
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During fiscal 1998, York Federal originated $439.2 million of loans
including loans refinanced from the Association's portfolio totaling $24.5
million. The result of these originations, when combined with mortgage loan
securitizations or sales totaling $179.3 million and loan repayment activity,
was a 0.7% increase in average loans outstanding during fiscal 1998. The
average balance of securities and other interest-earning assets increased
$16.8 million over the prior fiscal year and results from an increase in
deposits partially offset by repayment of short-term borrowing positions. The
resulting composition shift of the Association's assets had a negative effect
on interest income and contributed to the yield on earning assets decreasing 9
basis points to 7.90%. In total, interest-earning assets averaged 2.2% more
in fiscal 1998 than in fiscal 1997, resulting in an increase in interest
income. This combination of volume and rate changes resulted in a net
increase in interest income of $0.9 million, or 1.1%.
Interest expense was virtually unchanged from the prior fiscal year as a
result of changes in composition of interest-bearing liabilities providing for
a stable cost of funds and a 0.2% increase in the average level of
interest-bearing liabilities. In order to maintain and attract new deposits
during fiscal 1998, the Association continued to successfully market a
Guaranteed Money Fund Account (which is priced based on nationally reported
money fund rates) as well as provided competitive interest rates through
special promotional offerings on selected certificate of deposit account
programs. This response to the increased competitive pressures for deposits
resulted in deposit growth in higher cost money market and certificate
accounts. A decrease in average overnight borrowings to $38.9 million from
the previous year's level of $100.8 million offset this shift in deposit
composition. The result was a 4.98% cost of funds, unchanged from the prior
fiscal year.
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 1998 compared to fiscal 1997, and fiscal 1997 compared to fiscal 1996.
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.
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Volume/Rate Analysis
Year Ended June 30
1998 compared to 1997 1997 compared to 1996
Increase (Decrease) Due to: Increase (Decrease) Due to:
--------------------------- ---------------------------
Volume Rate Net Volume Rate Net
--------------------------- ---------------------------
(In Thousands)
Interest income:
Loans $ 601 $(528) $ 73 $ 7,657 $ (1,838) $ 5,819
Securities held for
trading (603) (38) (641) 887 (37) 850
Securities avail-
able for sale 40 19 59 602 (33) 569
Securities held
to maturity (66) 45 (21) (401) (9) (410)
Other interest-
earning assets 1,421 34 1,455 (20) (47) (67)
-------- ------ -------- -------- --------- ------
Total 1,393 (468) 925 8,725 (1,964) 6,761
Interest expense:
Deposits
NOW accounts 161 62 223 131 (52) 79
Savings accounts (206) (158) (364) (371) (8) (379)
Money market
accounts 1,292 485 1,777 991 (88) 903
Certificate
accounts 2,096 (353) 1,743 3,354 87 3,441
Borrowings (3,332) 9 (3,323) 2,010 (171) 1,839
-------- ------ -------- -------- --------- ------
Total 11 45 56 6,115 (232) 5,883
-------- ------ -------- -------- --------- ------
Net interest income $ 1,382 $(513) $ 869 $ 2,610 $ (1,732) $ 878
======== ====== ======== ======== ========= ======
Provision for Loan Losses
In fiscal 1998, additions were made to the allowance for loan losses in
the amount of $3.7 million resulting in an allowance (net of charge-offs and
recoveries of $1.3 million) of $8.8 million, or .92% of the loan portfolio,
compared to an allowance of $6.4 million, or .64% at fiscal year end 1997. See
"Asset Quality" for further discussion of the allowance for loan losses.
Other Income
Other income was $10.2 million for fiscal 1998, an increase of $1.4
million over 1997. Mortgage banking income for fiscal 1998 increased $147,000
or 4.1% as compared to the same period in 1997 and includes gain on sales of
loans and trading securities of $2.3 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, 1998, there were no
securities held for trading.
The portfolio of loans serviced for others totaled $487.1 million at June
30, 1998, with an average net servicing rate of approximately 13.6 basis
points, as compared to $548.2 million at June 30, 1997, with an average net
servicing rate of approximately 22.0 basis points. A portion of the change
in the balance of loans serviced for others was the sale of servicing rights
on approximately $95.5 million of loans consummated in November 1997 at a net
gain of $740,000. Such transaction is in addition to normal securitization
and repayments within the portfolio both of which increased over prior year
levels due to the stable and low-rate interest rate environment. The average
balance outstanding of loans serviced for others decreased $57.2 million in
fiscal 1998. The
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decrease in net servicing rate of 8.4 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 $442,000 in fiscal 1998 and is recognized as a reduction of gross
servicing fee income. Such amount compares to $301,000 in fiscal 1997. In
addition, interest costs incurred by the Association in connection with the
increased level of repayments resulted in downward pressure on the net
servicing rate. The combination of these volume and rate changes caused loan
servicing fees for fiscal 1998 to decrease to $677,000 as compared to the
fiscal 1997 level of $1.2 million. For additional information on loan
servicing fees and mortgage banking activity refer to Notes 1 and 6 of the
Notes to Consolidated Financial Statements.
Gain on sales of real estate during fiscal 1998 totalled $193,000 and is
the result of dispositions of real estate acquired in the normal course of
business. Fees and service charges for fiscal 1998 increased $374,000 or
13.2% to $3.2 million as compared to $2.8 million in fiscal 1997. While fee
income on the loan portfolio and related activity remained relatively stable,
the increase in fees and service charges is primarily a result of deposit
account servicing fees related to increased volume of electronic transactions
initiated by deposit customers including inter-account sweeps, ATM
transactions and VISA debit card utilization. In addition, increased
commercial checking account relationships initiated through expanded Business
Banking activities and related fee structure associated with such accounts
contributed to the increase in fees and service charges.
The Corporation is a partner in various joint ventures. In the year
ended June 30, 1998, income from joint ventures totalled $1.4 million as
compared to a loss of $118,000 in 1997. The income is related to the
Corporation' share in the net income of a venture capital partnership
resulting from the increased market value of underlying portfolio investments.
For additional information on investments in and advances to joint ventures
refer to Note 9 of the Notes to Consolidated Financial Statements.
Other operating income was $1.4 million in fiscal 1998 as compared to
$1.1 million in fiscal 1997. Products and services delivered through discount
brokerage and insurance units is the primary reason for the increase in other
operating income and is expected to continue to have a favorable impact on
other fee income as the delivery of such products and services are more fully
integrated within the retail branch system.
Other Expenses
Other expenses of $27.3 million decreased $3.8 million or 12.3% in fiscal
1998 as compared to $31.2 million in fiscal 1997 which was primarily
attributable to the one time SAIF special assessment charged to operations in
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. 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
$628,000 in deposit insurance premiums to the SAIF in fiscal 1998, a decrease
of $622,000 or 49.8% compared to fiscal 1997. As a result of the one time
special assessment the Association's insurance premium rate decreased from a
blended rate experienced in fiscal 1997 ranging from quarterly premiums at the
annual rate of 23.0 to 6.4 basis points to 6.4 basis points for the entire
year in fiscal 1998. 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.
17
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Salaries and employee benefits increased $1.6 million or 13.7% in fiscal
1998 over fiscal 1997 and is attributable to a combination of the following
factors: annual adjustments through the salary administration program,
compensation investments related to the Business Banking Group formed in the
Spring of 1997 and to the Retail Banking Group in connection with new branches
in the process of development at the end of the fiscal year, and increases in
incentive and profit sharing compensation as a result of improved operating
performance. Full time equivalent personnel increased from 380 at June 30,
1997, to 389 at June 30, 1998. Occupancy expense increased $113,000 or 3.2%
in fiscal 1998 over fiscal 1997 as a result of normal inflationary pressure on
facilities management activities. Real estate expenses decreased $199,000 in
fiscal 1998 as compared to fiscal 1997 and is primarily attributable to a
decrease in the provision for possible real estate losses. Advertising cost
increased $103,000 or 10.5% in fiscal 1998 as compared to fiscal 1997 and is
primarily attributable to ongoing efforts to enhance customer and product
awareness through various media campaigns. Other expenses increased $462,000
or 7.8% in fiscal 1998 as compared to fiscal 1997 and include costs incurred
with third parties to examine the Association's operating efficiencies.
Provision for Income Taxes
The provision for income taxes of $5.8 million for fiscal 1998 represents
an effective tax rate of 36.7% as compared to 35.4% for fiscal 1997. The
increase in the effective tax rate is primarily attributable to a reduction in
tax credits recognized on tax favored community redevelopment projects from
year to year. For a more comprehensive analysis of income tax expense, refer
to Note 12 of the Notes to Consolidated Financial Statements.
Results of Operations
Fiscal 1997 Compared to Fiscal 1996
Net Interest Income
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. For further information, see "Average Balances and Interest
Yield/Rate Analysis" and "Volume/Rate Analysis" tables included in this
document.
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 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
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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 special promotional offerings 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.
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' 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 22.0 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 $301,000 in
fiscal 1997 and is recognized as a reduction of gross servicing fee income.
Such amount compares to $217,000 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 6 of the Notes to Consolidated Financial Statements.
Gain on sales of real estate during fiscal 1997 totalled $91,000 and is
the result of dispositions 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
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in 1996. The loss is related to the Corporation' 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 9 of the Notes to Consolidated
Financial Statements.
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 which 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.
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 through 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, 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 costs 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 12 of the Notes to
Consolidated Financial Statements.
Impact of Year 2000
We are less than a year and a half away from the turn of the century.
This milestone has generated widespread concern over its potential impact on
business continuity. Historically, most computer programs were written with
two digits rather than four to designate the applicable year. As a result, it
is anticipated that computer systems may recognize a date using "00" as the
year 1900 rather than the year 2000. This situation along with certain other
date issues is commonly referred to as the "Year 2000 issue". Such situations
could cause a system failure or miscalculations causing disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
20
<PAGE>
<PAGE>
The Year 2000 Issue is recognized by the Corporation as a significant
business issue and is receiving intense management focus. The majority of the
Corporation's transaction processing is provided by a third party processor. A
Year 2000 project team has been organized and a comprehensive action plan
designed to achieve Year 2000 readiness. The project is addressing not only
computer and technology areas but all areas of our business. Many
non-computer systems include embedded technology and may be affected by the
Year 2000 Issue if not appropriately addressed. The action plan has five key
project phases: awareness, assessment, remediation, validation, and
implementation addressing systems for both the Corporation and its third party
processor. The awareness and assessment phases are complete, while the
remediation and validation phases are underway and are expected to be
completed by the fall of 1998. The implementation phase of the Year 2000
action plan is expected to be substantially complete by December 31, 1998.
This timeline provides an opportunity to perform additional testing and
resolve any other issues that may arise prior to the turn of the century.
As part of the Year 2000 action plan the Corporation 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. While the Corporation has taken and will continue to take
appropriate actions to mitigate the risk of adverse consequences associated
with the failure of a third party to address these issues, there can be no
guarantee that the systems of third parties will be timely converted and will
not have an adverse effect on York Financial. As a precaution the Corporation
will develop and test contingency plans for all mission critical systems and
services.
It is difficult to isolate the incremental cost of this Year 2000 effort
given that it impacts technical personnel already in place in operational
areas across our business as well as possibly accelerating already planned
technology investments. However, such costs and related investments are
presently estimated to total $350,000 and the timing of recognizing such costs
is not considered to be material to any one fiscal period.
The costs of the project and the date on which the Corporation believes
it will complete the Year 2000 project 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.
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. (the Corporation) is responsible for the
preparation, integrity and fair presentation of its published financial
statements as of June 30, 1998, and for 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 internal controls
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, 1998. This assessment was based on criteria for effective internal
control over financial reporting described in 'Internal Control--Integrated
Framework' issued 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, 1998.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is 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 (the 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, 1998.
/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>
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 (the Corporation) as of June 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
Baltimore, Maryland
July 15, 1998
23
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Balance Sheets
June 30
1998 1997
-----------------------
(In Thousands)
ASSETS
Cash and due from banks:
Noninterest-earning $ 17,934 $ 21,612
Interest-earning 126,613 1,527
-----------------------
144,547 23,139
Loans held for sale, net 17,534 4,882
Securities held for trading --- 7,158
Securities available for sale 47,940 59,690
Securities held to maturity (fair value of 5,784 8,953
$5,775--1998 and $8,782--1997)
Loans receivable, net 951,641 997,841
Real estate, net 10,994 13,439
Premises and equipment, net 19,634 17,320
Federal Home Loan Bank stock, at cost 7,976 7,907
Accrued interest receivable 8,088 7,981
Other assets 9,451 8,777
Investments in joint ventures 5,679 5,306
-----------------------
Total assets $1,229,268 $1,162,393
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,065,777 $ 993,106
Federal Home Loan Bank advances and 27,861 46,236
other borrowings
Advances from borrowers for taxes and
insurance 4,634 4,719
Other liabilities 21,771 18,249
-----------------------
Total liabilities 1,120,043 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
1998--8,968,031 shares; 1997--
7,008,347 shares 8,968 7,008
Additional capital 81,848 80,633
Retained earnings 18,886 13,290
Unrealized gains on available for sale
securities, net of taxes of $171 in 1998
and $43 in 1997 318 79
Unearned ESOP shares (795) (927)
-----------------------
Total stockholders' equity 109,225 100,083
-----------------------
Total liabilities and stockholders' equity $1,229,268 $1,162,393
=======================
See accompanying notes
24
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Income
Year Ended June 30
1998 1997 1996
-----------------------------
(In Thousands, Except Per
Share Data)
Interest income:
Interest and fees on loans $ 80,893 $ 80,820 $ 75,001
Interest on securities held for
trading 688 1,329 479
Interest and dividends on securities
available for sale 3,770 3,711 3,142
Interest and dividends on securities
held to maturity 930 951 1,361
Other interest income 2,285 830 897
---------------------------------
Total interest income 88,566 87,641 80,880
Interest expense:
Interest on deposits 49,744 46,365 42,321
Interest on borrowings 2,100 5,423 3,584
---------------------------------
Total interest expense 51,844 51,788 45,905
---------------------------------
Net interest income 36,722 35,853 34,975
Provision for loan losses 3,737 2,424 2,300
---------------------------------
Net interest income after provision
for loan losses 32,985 33,429 32,675
Other income:
Mortgage banking 3,757 3,610 2,527
Gain on sales of securities available
for sale 174 --- 358
Gain on sales of real estate 193 91 1,291
Gain on sale of limited partnership
interest --- 1,214 ---
Fees and service charges 3,216 2,842 2,508
Income (loss) from joint ventures 1,411 (118) 1,233
Other operating income 1,401 1,057 713
---------------------------------
Total other income 10,152 8,696 8,630
---------------------------------
Other expenses:
Salaries and employee benefits 13,154 11,565 11,863
Occupancy 3,597 3,484 2,690
Federal deposit insurance 628 1,250 1,955
SAIF assessment --- 5,310 ---
Real estate 1,403 1,602 990
Data processing 1,110 1,086 1,006
Advertising 1,081 978 558
Other 6,350 5,888 5,388
---------------------------------
Total other expenses 27,323 31,163 24,450
---------------------------------
Income before income taxes 15,814 10,962 16,855
Provision for income taxes 5,799 3,875 6,512
---------------------------------
Net income $ 10,015 $ 7,087 $10,343
=================================
Per share data:
Net income $ 1.14 $ 0.83 $ 1.26
=================================
Net income-assuming dilution 1.06 0.79 1.19
=================================
Cash dividends paid 0.50 0.46 0.41
=================================
Weighted average shares 8,774,865 8,470,788 8,178,282
=================================
Weighted average shares-assuming
dilution 9,421,822 8,974,490 8,700,072
=================================
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 for ESOP
Stock Capital Earnings Sale Securities Shares Total
-----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
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
Net income - - 10,015 - - 10,015
Cash dividends paid - - (4,419) - - (4,419)
Stock options exercised 118 723 - - - 841
Income tax benefits of stock
options exercised - 531 - - - 531
Common stock issued under
dividend reinvestment plan 107 2,223 - - - 2,330
5-for 4 stock split effected
in the form of a 25% common
stock dividend--1,762,158
shares 1,762 (1,783) - - - (21)
Release of ESOP shares 172 - - 132 304
Retirement of common stock (27) (651) - - - (678)
Change in unrealized gains
(losses), net of income tax
(benefits) of $128 - - - 239 - 239
========================================================================
Balance, June 30, 1998 $ 8,968 $ 81,848 $ 18,886 $ (795) $ 109,225 $ 318
========================================================================
</TABLE>
See accompanying notes
26
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended June 30
1998 1997 1996
------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 10,015 $ 7,087 $ 10,343
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Amortization and accretion on securities
and loans, net (181) (622) (1,898)
Provision for loan losses 3,737 2,424 2,300
Provision for real estate losses 914 1,188 603
Depreciation and amortization 1,834 1,705 1,501
Loans originated for sale (158,494) (125,918) (154,169)
Proceeds from sales of trading securities 152,221 127,145 96,410
Realized gains on trading securities (2,377) (906) (1,583)
Realized gains on sales of securities
available for sale (174) --- (358)
Gain on sale of limited partnership
interest --- 1,214 ---
Decrease in accrued interest and other
assets 1,295 400 729
Increase (decrease) in other liabilities 3,931 (11,504) 8,499
Other (2,251) (4,214) (1,419)
------------------------------
Net cash provided by (used in) operating
activities 10,470 (2,001) (39,042)
Investing Activities
Proceeds from sales of securities available
for sale 14,191 --- 25,268
Proceeds from sale of limited partnership
interest --- 1,343 ---
Purchases of securities held to maturity and
Federal Home Loan Bank stock (2,069) (1,231) (1,557)
Proceeds from maturities of securities held
to maturity 5,090 57 4,170
Principal repayments on securities 10,137 8,162 7,089
Loans originated or acquired, net of increase
in deferred loan fees (256,092) (251,212) (283,359)
Principal collected on loans 260,215 179,981 183,271
Proceeds from sales of loans 33,426 1,642 1,637
Purchases of real estate (412) (425) (194)
Proceeds from sales of real estate 6,072 6,324 10,801
Purchases of premises, equipment, and (4,078) (2,452) (6,307)
leasehold improvements, net
Other (8,023) 3,155 (269)
------------------------------
Net cash provided by (used in) investing
activities 58,457 (54,656) (59,450)
27
PAGE
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year Ended June 30
1998 1997 1996
------------------------------
(In Thousands)
FINANCING ACTIVITIES
Net increase in noninterest-bearing
demand deposits, interest-bearing
transaction accounts, savings accounts,
and 31-day certificates of deposit 53,645 3,163 54,168
Net increase in certificates of deposit 19,026 81,820 21,899
Net (decrease) increase in short-term
advances received from Federal Home
Loan Bank (20,000) (53,000) 8,765
Increase in convertible advance
received from Federal Home Loan Bank --- --- 25,000
Net increase (decrease) in other
Federal Home Loan Bank advances and
other borrowings 1,625 (144) (144)
Issuance of common stock:
Dividend Reinvestment Plan 2,330 2,133 1,718
Stock Option Plans 163 561 96
Cash dividends paid (4,419) (3,919) (3,381)
Cash paid in lieu of fractional shares (21) (22) (20)
Release of ESOP shares 132 133 133
------------------------------
Net cash provided by financing
activities 52,481 55,725 83,234
------------------------------
Increase (decrease) in cash and cash
equivalents 121,408 (932) (15,258)
Cash and cash equivalents at beginning
of year 23,139 24,071 39,329
------------------------------
Cash and cash equivalents at end
of year $ 144,547 $ 23,139 $ 24,071
==============================
See accompanying notes
28
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998, 1997, and 1996
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, commercial business loans, consumer
loans and investment securities. York Federal conducts its business through
twenty-three 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 1997 and 1996 consolidated financial statements to conform
with the 1998 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.
Unrealized gains and losses are reported in the statements of income.
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
29
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 on sales of 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 loan's
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. 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 in accordance with FASB Statement No. 66,
"Accounting for Sales of Real Estate".
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 was 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
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 Statement No. 125," which defers until after December 31,
1997, the effective date of paragraphs 9-12 of Statement No. 125 for
repurchase agreements, 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)
Cash Flow Information
For purposes of the statements of cash flows, cash equivalents include
cash and amounts due from banks. During 1998, 1997 and 1996, the Association
exchanged loans for mortgage-backed securities in the amounts of $145,473,000,
$125,037,000 and $153,056,000, respectively. During 1998, 1997 and 1996 the
Association transferred unpaid loan balances from loans to real estate
acquired due to foreclosure of $4,926,000, $9,454,000 and $6,205,000,
respectively.
The Corporation paid $51,810,000, $51,758,000 and $45,963,000 in interest
on deposits and other borrowings during 1998, 1997 and 1996, respectively.
Recently Issued Accounting Guidance
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 presented. Adoption of Statement No. 131
is not expected to have a material impact on the Corporation.
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." Statement No.
132, effective for financial statements issued for fiscal years beginning
after December 15, 1997, revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. The adoption of Statement No. 132 is not expected
to have a material impact on the Corporation's consolidated financial
statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. This statement is effective for financial statements issued for
all quarters of all fiscal years beginning after June 15, 1999. The adoption
of Statement No. 133 is not expected to have a material impact on the
Corporation's consolidated financial statements.
32
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Earnings per Share
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 adopted Statement No. 128 on January 1, 1998 and all
prior-period EPS data was restated.
Earnings per common share ("basic") is computed using net income
applicable to common stock and weighted average common shares outstanding
during the period. Earnings per common share - assuming dilution ("diluted")
is computed using net income applicable to common stock and weighted average
common shares outstanding during the period after consideration of the
potential dilutive effect of common stock equivalents based on the treasury
stock method using an average market price for the period. The Corporation's
common stock equivalents are solely related to stock options.
Cash dividends paid per share are based on the number of shares
outstanding at each record date, adjusted for stock dividends and splits.
The following table sets forth the computation of basic and diluted earnings
per share:
1998 1997 1996
---------------------------------
(Dollars in Thousands, Except
Per Share Data)
Basic:
Net Income $ 10,015 $ 7,087 $ 10,343
=================================
Weighted average shares 8,774,865 8,470,788 8,178,282
=================================
Net income per share $ 1.14 $ 0.83 $ 1.26
=================================
Diluted:
Net income $ 10,015 $ 7,087 $ 10,343
=================================
Weighted average shares 8,774,865 8,470,788 8,178,282
Dilutive effect of stock options 646,957 503,702 521,790
---------------------------------
Weighted average shares -
assuming dilution 9,421,822 8,974,490 8,700,072
=================================
Net income per share - assuming
dilution $ 1.06 $ 0.79 $ 1.19
=================================
3. Restrictions on Cash and Due from Bank Accounts
The Association was required to maintain average reserve balances during
the year ended June 30, 1998 and 1997 of $8,000 and $854,000, respectively, as
established by the Federal Reserve Bank. The actual reserve balance at June
30, 1998 and 1997 was $16,000 and $1,200,000, respectively.
33
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Securities
The following is a summary of available for sale and held to maturity
securities:
June 30, 1998
-----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------
(In Thousands)
Available for Sale:
Equity security $ 319 $ 19 $ --- $ 338
U.S. Treasury and other
U.S. Government agencies --- 14,721 89 14,810
Mortgage-backed securities 32,411 414 (33) 32,792
=========================================
$ 47,451 $ 522 $ (33) $ 47,940
=========================================
Held to Maturity:
U.S. Treasury and other
U.S. Government agencies $ 5,500 $ --- $ (31) $ 5,469
Mortgage-backed securities 284 22 --- 306
-----------------------------------------
$ 5,784 $ 22 $ (31) $ 5,775
=========================================
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
=========================================
34
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The amortized cost and fair value of securities at June 30, 1998, 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.
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)
Available for Sale:
Due in one year or less $ 481 $ 490 $ 10,105 $ 10,222 $ 10,586 $10,712
Due after one year
through five years 12,102 12,141 21,629 21,870 33,731 34,011
Due afterer five years
through ten years 2,138 2,179 570 590 2,708 2,769
Due after ten years --- --- 107 110 107 110
----------------------------------------------------
. $14,721 $14,810 $ 32,411 $ 32,792 $ 47,132 $47,602
====================================================
Held to Maturity:
Due in one year or less $ 356 $ 353 $ 89 $ 96 $ 445 $ 449
Due after one year
through five years 3,563 3,549 195 210 3,758 3,759
Due after five years
through ten years 1,581 --- --- 1,581 1,567 1,567
----------------------------------------------------
$ 5,500 $ 5,469 $ 284 $ 306 $ 5,784 $ 5,775
====================================================
Securities with an amortized cost of $52,916,000 and $55,147,000 on June
30, 1998 and 1997, respectively, were pledged to secure public deposits,
repurchase agreements, and for certain other purposes as required by law.
Gross realized gains of $174,000, $0 and $397,000 and gross realized
losses of $0, $0 and $39,000 were realized on sales of available for sale
securities during 1998, 1997 and 1996, respectively.
For the year ended June 30, 1997, trading securities with a fair value of
$2,844,000 were transferred to securities available for sale with related
losses of $35,000 included in earnings. No such transfers occurred in years
ended June 30, 1998 and 1996.
35
<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
No. 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.
5. Loans Receivable
Loans receivable, net are summarized as follows:
June 30
1998 1997
-------------------
(In Thousands)
First mortgage loans:
Conventional:
Residential $ 680,779 $ 772,962
Commercial 56,047 48,443
-------------------
736,826 821,405
Construction:
Residential 111,032 65,641
Commercial 14,258 9,967
-------------------
125,290 75,608
Commercial business loans 3,737 496
Consumer loans 139,040 134,487
-------------------
142,777 134,983
Less:
Undisbursed portion of loans
in process 45,382 28,302
Deferred fees (expenses), net
and unearned income (940) (560)
Allowance for loan losses 8,810 6,413
-------------------
53,252 34,155
-------------------
$ 951,641 $ 997,841
===================
36
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
At June 30, 1998 and 1997, nonaccrual loans totaled $0 and $950,000,
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 $0, $430,000 and $294,000 for the years ended
June 30, 1998, 1997 and 1996, respectively. For the year ended June 30, 1998,
a net recovery totaling $186,000 of interest previously excluded from interest
income was recognized. During the years ended June 30, 1997 and 1996, the
Corporation did not receive any cash payments representing interest income on
impaired loans. At June 30, 1998 and 1997, the recorded investment in loans
considered to be impaired under Statement No. 114 was $0 and $725,000,
respectively. The related allowance for loan losses associated with impaired
loans at June 30, 1998 and 1997 was $0 and $207,000, respectively. The average
recorded investment in impaired loans for the years ended June 30, 1998, 1997
and 1996 was $275,000, $1,500,000 and $1,200,000, respectively.
The primary market area for the Association's loan originations is
Pennsylvania, Maryland and Virginia.
The 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 $66,800,000 at June 30, 1998 is collateralized by properties in
Pennsylvania (56%), Maryland (17%), Virginia (25%), and other (2%).
An analysis of the allowance for loan losses is as follows:
Year Ended June 30
1998 1997 1996
-----------------------------
(In Thousands)
Balance at beginning of year $ 6,413 $ 6,609 $ 5,840
Provision charged to expense 3,737 2,424 2,300
Recoveries credited to 518 730 340
allowance
Less: Loan losses charged to
allowance (1,858) (3,350) (1,871)
---------------------------
Balance at end of year $ 8,810 $ 6,413 $ 6,609
===========================
At June 30, 1998, the Association had outstanding commitments to sell
$21,500,000 in loans. The Association expects to satisfy these commitments
with loans currently classified as held for sale and loans originated/settled
in the commitment period.
37
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Mortgage Banking
The components of mortgage banking income are as follows:
Year Ended June 30
1998 1997 1996
------------------------------
(In thousands)
Gain on sales of loans and trading
securities $ 2,377 $ 906 $ 1,583
Unrealized (loss) gain on loans and
trading securities (37) 972 (943)
Loan servicing fee income, net of
amortization 677 1,222 1,391
Gain on sale of mortgage servicing
rights 740 510 496
------------------------------
$ 3,757 3,610 2,527
==============================
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others were $487,092,000, $548,202,000 and $593,166,000 at June
30, 1998, 1997 and 1996, respectively. Custodial escrow balances maintained in
connection with the foregoing loan servicing, and included in demand deposits,
were approximately $7,151,000, $3,468,000, and $3,885,000 at June 30, 1998,
1997 and 1996, respectively.
The changes in the Corporation's mortgage servicing assets are as follows:
Year Ended June 30
1998 1997
-------------------
(In Thousands)
Balance at beginning of year $ 2,704 $ 2,335
Additions 1,414 1,195
Less: Sales 558 525
Amortization 442 301
------------------
Balance at end of year
before valuation allowance 3,118 2,704
Valuation Allowance (218) (145)
------------------
Net Mortgage Servicing Assets $ 2,900 $ 2,559
==================
The estimated fair values of the mortgage servicing assets are $2,938,000
and $2,612,000 at June 30, 1998 and 1997, 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.
38
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The changes in the Corporation's valuation allowance for mortgage servicing
assets are as follows:
Year Ended June 30
1998 1997 1996
---------------------------
(In Thousands)
Balance at beginning of year $ (145) $ (227) $ (28)
Provisions for impairment (73) 54 (199)
Sales --- 28 ---
----------------------------
Balance at end of year $ (218) $ (145) $ (227)
============================
7. Real Estate
A summary of real estate is as follows:
June 30
1998 1997
--------------------
(In Thousands)
Held for investment (net of
accumulated depreciation
of $863,000 in 1998 and
$1,336,000 in 1997) $ 2,017 $ 3,217
Foreclosed assets held for sale 9,093 10,587
--------------------
11,110 13,804
Less: Allowance for real estate
losses 116 365
--------------------
$ 10,994 $ 13,439
====================
An analysis of the allowance for real estate losses is as follows:
Year Ended June 30
1998 1997 1996
-----------------------------
(In Thousands)
Balance at beginning of year $ 365 $ 955 $ 630
Provision charged to real
estate expense 914 1,188 603
Recoveries credited to allowance --- 1 10
Less: Real estate losses
charged to allowance (1,163) (1,779) (288)
-----------------------------
Balance at end of year $ 116 $ 365 $ 955
=============================
39
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Premises and Equipment
A summary of premises and equipment is as follows:
June 30
1998 1997
--------------------
(In Thousands)
Land and improvements $ 4,833 $ 4,785
Buildings 12,794 11,388
Leasehold improvements 1,709 1,301
Furniture, fixtures, and equipment 11,063 9,630
--------------------
30,399 27,104
Less: Accumulated depreciation
and amortization (10,765) (9,784)
--------------------
$ 19,634 $ 17,320
====================
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 years ended June 30,
1998 and 1997, the Corporation did not have any long-lived assets considered
to be impaired.
9. 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, 1998 and 1997, the carrying value of this investment was
approximately $4,157,000 and $3,863,000. The Corporation's share of the
venture's net income for the year ended June 30, 1998, 1997 and 1996 is
$1,490,000, ($297,000) and $979,000, respectively.
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, 1998
and 1997, aggregate net equity investment in these ventures approximated
$1,522,000 and $1,443,000, respectively. The Corporation's share of the
ventures' net loss of $79,000 for the year ended June 30, 1998 and net income
of $179,000 and $254,000 for the years ended June 30, 1997 and June 30, 1996
(which approximates 50% for all three years) is included in operations under
the equity method of accounting.
40
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Deposits
Deposits are summarized as follows:
June 30
1998 1997
---------------------
(In Thousands)
Demand and savings
accounts:
Noninterest-bearing $ 15,497 $ 12,094
NOW accounts 99,491 92,300
Savings accounts 64,189 71,752
Money market accounts 267,515 216,901
---------------------
446,692 393,047
Certificate accounts 619,085 600,059
---------------------
$1,065,777 $ 993,106
=====================
At June 30, 1998 the scheduled maturities of certificate accounts for the
succeeding five fiscal years are as follows: 1999-$317,611,000;
2000-$143,300,000; 2001-$114,711,000; 2002-$25,397,000; 2003-$10,630,000 and
thereafter-$7,436,000.
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $85,608,000 and $77,681,000 at June
30, 1998 and 1997, respectively.
41
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Federal Home Loan Bank (FHLB) Advances and Other Borrowings
Borrowings consist of the following:
June 30
1998 1997
--------------------
(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
-------------------
--- 20,000
Convertible advance:
Due 2002, 5.46% 25,000 25,000
Other advances:
Due 2008, 2.00% 297 309
Due 2023, 4.25% 517 ---
-------------------
25,814 45,309
-------------------
Other borrowings:
Advance to ESOP
Due 2004, prime plus .75% 795 927
Repurchase agreement:
Due July 1, 1998, 4.09% - 4.69% 1,252 ---
-------------------
$ 27,861 $ 46,236
===================
Maturities of FHLB advances and other borrowings are as follows:
1999-$26,408,000; 2000-$157,000; 2001-$158,000; 2002-$159,000; 2003-$160,000;
thereafter-$819,000. 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 quarterly. 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 1999
maturities based on the next 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 negotiated interest rates. At June 30,
1998, additional borrowings available under this policy were approximately
$133,712,000. 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 $7,729,000. Mortgage loans in the
amount of $8,588,000 are held in safekeeping by the Federal Reserve Bank to
collateralize borrowings under this credit agreement. At June 30, 1998 there
were no borrowings under this credit agreement.
42
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 13).
12. Income Taxes
The provision for income taxes in the consolidated statements of income
consists of the following:
Year Ended June 30
1998 1997 1996
-----------------------------
(In Thousands)
Current:
Federal $ 5,792 $ 2,501 $ 3,877
State 800 527 995
-----------------------------
6,592 3,028 4,872
Deferred:
Federal (795) 901 1,568
State 2 (54) 72
-----------------------------
(793) 847 1,640
-----------------------------
Total provision for income taxes $ 5,799 $ 3,875 $ 6,512
=============================
The provision for income taxes includes $394,000, $253,000 and ($163,000)
in 1998, 1997 and 1996, respectively, of applicable income taxes related to
gains (losses) on sales of securities of $1,044,000, $670,000 and ($418,000),
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
1998 1997 1996
-----------------------------------
Income tax expense at federal
statutory rate 35.0 % 35.0 % 35.0 %
Tax-exempt income (0.1) (0.1) (0.2)
State income taxes, net of
federal benefit 3.3 2.8 4.1
Federal tax credits (0.6) (2.1) ---
Other (0.9) (0.2) (0.3)
-----------------------------------
Effective tax rate 36.7 % 35.4 % 38.6 %
===================================
43
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Corporation made income tax payments of $5,912,000, $3,404,000, and
$5,949,000 during 1998, 1997, and 1996, 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:
1998 1997
-----------------------
(In Thousands)
Deferred tax assets:
Bad debt $ 3,102 $ 2,399
Securities valuation
adjustment 57 ---
Other 1,541 1,435
--------------------
Total gross deferred
tax assets 4,700 3,834
--------------------
Deferred tax liabilities:
Deferred loan expenses 297 188
Depreciation and
amortization 549 495
Joint ventures 549 502
Securities valuation
adjustment --- 663
Servicing rights 1,114 768
Other 1,213 904
---------------------
Total gross deferred
tax liabilities 3,722 3,520
---------------------
Net deferred tax
asset $ 978 $ 314
=====================
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.
13. 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 $395,000, $346,000 and $372,000 in 1998, 1997 and
1996, respectively. In May 1994, the ESOP borrowed $1,325,000 and acquired
106,240 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", 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, 1998 and 1997, the ESOP debt outstanding was
$795,000 and $927,000 and the fair value of related shares (72,505 and 83,271,
respectively, including shares acquired through the dividends paid on unearned
ESOP shares) was $1,514,000 and
44
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
$1,324,000. 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 pension plan's funded status and amounts
recognized in the Corporation's consolidated financial statements.
June 30
1998 1997
-------------------
(In Thousands)
Fair value of plan assets $ 6,884 $ 5,450
Actuarial present value of benefit
obligations:
Vested 5,394 4,428
Nonvested 216 158
-------------------
Accumulated benefit obligation 5,610 4,586
Effect of projected future salary increase 672 555
-------------------
Projected benefit obligation 6,282 5,141
Plan assets in excess of projected benefit
obligation 602 309
Unrecognized net asset at transition (295) (345)
Unrecognized prior service costs 171 193
Unrecognized net loss 408 514
-------------------
Prepaid pension expense $ 886 $ 671
===================
Plan assets include investments in York Financial Corp.'s stock with fair
value of $999,000 and $742,000 in 1998 and 1997, respectively, and debt and
equity funds.
Net pension cost included the following components:
Year Ended June 30
1998 1997 1996
-----------------------------
(In Thousands)
Service cost-benefits earned
during the period $ 385 358 312
Interest cost on projected
benefit obligation 388 345 283
Actual return on plan assets (1,178) (843) (356)
Net amortization and deferral 652 484 (5)
-----------------------------
Net periodic pension cost $ 247 344 234
=============================
45
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 7.0% and 4.0%, respectively, at June 30,
1998, 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 1998, 1997, and 1996 was 9.0%.
14. Stockholders' Equity
Retained earnings of the Association includes $14,470,000 of accumulated
earnings for which no provision for federal income tax has been made. The
amount represents 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, 1998, the Association meets all capital
adequacy requirements to which it is subject.
At June 30, 1998, 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.
46
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table sets forth OTS capital requirements as compared to the
capital position of the Association as of June 30, 1998 and 1997:
To be well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------
Minimum Required Minimum Required
Amount Ratio Amount Ratio Amount Ratio
------------------------------------ -----------------
As of June (Dollars In Thousands)
30, 1998:
Tangible capital $ 93,439 7.7% $ 18,273 1.5% N/A N/A
Tier 1 (core)
capital 93,439 7.7% 48,727 3.0% 60,904 5.0%
Tier 1 risk-based
capital 93,439 12.0% N/A N/A 46,732 6.0%
Total risk-based
capital 102,102 13.1% 62,310 8.0% 77,887 10.0%
To be well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------
Minimum Required Minimum Required
Amount Ratio Amount Ratio Amount Ratio
------------------------------------ -----------------
As of June (Dollars In Thousands)
30, 1997:
Tangible capital $ 86,207 7.5% $ 17,290 1.5% N/A N/A
Tier 1 (core)
capital 86,207 7.5% 34,581 3.0% 57,635 5.0%
Tier 1 risk-based
capital 86,207 11.1% N/A N/A 46,429 6.0%
Total risk-based
capital 92,473 12.0% 61,906 8.0% 77,382 10.0%
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, 1998 and 1997, the total allowable dividend distribution
was $20,197,000 and $16,988,000.
47
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Stock Option Plans
The Corporation has reserved 1,676,363 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 expire 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, 1998 and 1997.
Stock options transactions, adjusted for stock dividends, under the Plans were
as follows:
Year Ended June 30
1998 Weighted 1997 Weighted 1996 Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
-----------------------------------------------------
Options outstanding at
beginning of year 1,100,806 $ 8.66 1,359,523 $ 7.72 1,136,235 $ 7.16
Options granted at
$9.44 to $20.60 per
share 117,029 20.48 54,781 13.36 257,731 12.31
Options exercised at
$3.95 to $13.09 per (122,863) 7.35 (302,911) 6.73 (19,318) 6.87
share
Options forfeited (4,125) 11.01 (10,587) 10.25 (15,125) 10.25
---------- --------- ---------
Options outstanding
at end of year 1,090,847 10.13 1,100,806 8.66 1,359,523 7.72
========== ========= =========
Options available for
grant at June 30 585,516
==========
Options exercisable at
June 30 at $3.95
to $20.60 per share 963,542 9.25 998,511 8.40 1,216,723 7.42
========== ========== =========
The weighted average remaining contractual life of outstanding options at June
30, 1998 was 4.8 years. The weighted average grant-date fair value of options
granted during 1998, 1997 and 1996 was $4.42, $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:
June 30
1998 1997 1996
-----------------------------
Risk free interest rate 5.470% 6.625% 5.875%
Expected life 4 years 4 years 3 years
Expected volatility 30.3% 21.7% 21.7%
Expected dividends 2.5% 3.37% 3.37%
48
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
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
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 be the pro forma amounts indicated below:
Year Ending June 30
1998 1997 1996
-----------------------------
(In Thousands, Except Per
Share Data)
Net Income
As reported $10,015 $ 7,087 $10,343
Pro forma 9,848 7,053 10,328
Earnings Per Share
As reported 1.14 0.83 1.26
Pro forma 1.12 0.83 1.26
Earnings Per Share
Assuming Dilution
As reported 1.06 0.79 1.19
Pro forma 1.05 0.79 1.19
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 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.
49
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. York Financial Corp. (Parent Company Only) Financial Information
Balance Sheets June 30
- -------------- 1998 1997
-------------------
ASSETS (In Thousands)
Cash $ 5,266 $ 4,750
Securities 338 ---
Loan receivable, net 2,382 2,376
Prepaid expenses and other assets 127 57
Investment in joint venture 4,157 3,863
Investments in subsidiaries:
York Federal Savings and Loan
Association 94,190 86,660
Other 4,095 4,058
---------------------
Total investments in subsidiaries 98,285 90,718
---------------------
$ 110,555 $101,764
=====================
Liabilities
Other borrowings $ 795 927
Accrued expenses and other
liabilities 535 754
Stockholders' equity 109,225 100,083
---------------------
$ 110,555 $101,764
=====================
Statements of Income Year Ended June 30
- -------------------- 1998 1997 1996
-----------------------------
Dividend income: (In Thousands)
York Federal Savings and Loan
Association $ 1,870 2,630 1,798
Other 37 29 178
Interest Income 485 387 386
Gain on sales of real estate 16 14 841
Income (loss) from joint venture 1,490 (297) 979
Other Income 10 7 46
-----------------------------
3,908 2,770 4,228
Other expenses 659 612 709
-----------------------------
Income before equity in undistributed
net income of subsidiaries and income
taxes 3,249 2,158 3,519
Equity in undistributed net income
(loss) of subsidiaries:
York Federal Savings and Loan 7,303 3,991 7,476
Association
Other 12 732 (1)
-----------------------------
Income before income taxes 10,564 6,881 10,994
Provision for income taxes (benefit) 549 (206) 651
-----------------------------
Net Income $ 10,015 $ 7,087 $ 10,343
=============================
50
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Year Ended June 30
1998 1997 1996
-----------------------------
Statements of Cash Flows (In Thousands)
- ------------------------
Operating activities
Net income $ 10,015 $ 7,087 $ 10,343
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in undistributed net
income of subsidiaries (7,315) (4,723) (7,475)
Other (1,254) 713 (1,252)
-----------------------------
Net cash provided by operating
activities 1,446 3,077 1,616
Investing Activities
Purchase of securities available
for sale (320) --- ---
Loans orginated or acquired --- (33) (684)
Principal collected on loans 28 16 53
Purchase of equipment --- --- (26)
Distribution from joint venture 1,196 --- ---
Increase in investments in
subsidiaries (25) (322) (1,048)
Decrease in investment in
real estate --- --- 848
-----------------------------
Net cash provided by (used in)
investing activities 846 (1,016) (147)
Financing activities
Issuance of common stock:
Dividend Reinvestment Plan 2,330 2,133 1,718
Stock Option Plans 163 561 96
Cash dividends paid (4,419) (3,919) (3,381)
Cash in lieu of fractional shares (21) (22) (20)
Release of ESOP shares 132 133 133
Other 39 (93) (116)
-----------------------------
Net cash used in financing
activities (1,776) (1,207) (1,570)
-----------------------------
Increase (decrease) in cash 516 854 (101)
Cash at beginning of year 4,750 3,896 3,997
-----------------------------
Cash at end of year $ 5,266 $ 4,750 $ 3,896
=============================
51
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. 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.
Financial instruments with off-balance sheet risk are summarized as follows:
June 30
1998 1997
--------------------
(In Thousands)
Commitments to extend credit:
Loan origination commitments:
Fixed interest rates $ 21,085 $ 20,739
Variable interest rates 12,264 3,688
--------------------
33,349 24,427
Unused home equity lines 50,672 49,972
of credit
Unused unsecured lines of 7,025 1,136
credit
--------------------
$ 91,046 $ 75,535
====================
Standby letters of credit $ 2,744 1,545
====================
Loans sold with recourse $ 35,701 $ 44,455
====================
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, 1998 and 1997.
52
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. 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
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.
53
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 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.
FHLB Advances and Other 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.
54
<PAGE>
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Corporation's estimated fair values of financial instruments based on
assumptions disclosed above are as follows:
June 30
1998 1997
----------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------
(In Thousands)
Cash and Due from banks -
Noninterest and interest-
earning $ 144,547 $ 144,547 $ 23,139 $ 23,139
Loans held for sale 17,534 17,534 4,882 4,882
Securities held for trading --- --- 7,158 7,158
Securities available for sale 47,940 47,940 59,690 59,690
Securities held to maturity 13,760 13,752 16,860 16,689
Loans:
Residential 753,627 760,074 815,275 817,089
Commercial 66,844 67,212 53,932 54,256
Consumer 139,040 139,564 134,487 132,730
----------------------------------------
Total Gross Loans 959,511 966,850 1,003,694 1,004,075
Other Financial Assets 2,862 2,887 2,484 2,510
Noninterest-bearing deposits 15,497 15,497 12,094 12,094
NOW accounts 99,491 99,491 92,300 92,300
Savings accounts 64,189 64,189 71,752 71,752
Money market accounts 267,515 267,515 216,901 216,901
Certificates of deposit 619,085 629,394 600,059 608,168
----------------------------------------
Total Deposits 1,065,777 1,076,086 993,106 1,001,215
FHLB Advances and other
borrowings 27,861 27,715 46,236 46,115
Off-balance-sheet financial
instruments:
Commitments to extend
credit $ (250) $ (118)
Standby letters of credit (52) (23)
19. 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.
55
<PAGE>
<PAGE>
SUPPLEMENTARY CONSOLIDATED FINANCIAL DATA
Summaries of consolidated results of operations on a quarterly basis for the
years ended June 30, 1998 and June 30, 1997 are as follows:
Three Months Ended
September 30 December 31 March 31 June 30
-----------------------------------------------
(Unaudited)
FISCAL YEAR 1998 (Dollars in Thousands, Except per Share Data)
----------------
Interest income $ 22,166 22,271 22,023 22,106
Interest expense 13,025 12,969 12,757 13,093
---------------------------------------------
Net interest income 9,141 9,302 9,266 9,013
Provision for loan losses 753 1,060 716 1,208
---------------------------------------------
Net interest income after
provision for loan
losses 8,388 8,242 8,550 7,805
Other income 2,095 3,311 2,577 2,169
Other expenses 6,424 6,768 7,594 6,537
Income tax expense 1,626 1,874 1,297 1,002
---------------------------------------------
Net income $ 2,433 $ 2,911 $ 2,236 $ 2,435
=============================================
Per share data:
Net income $ 0.28 $ 0.33 $ 0.25 $ 0.28
=============================================
Net income-assuming
dilution $ 0.26 $ 0.31 $ 0.24 $ 0.26
=============================================
Cash dividends paid $ 0.12 $ 0.12 $ 0.13 $ 0.13
=============================================
FISCAL YEAR 1997
----------------
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 $ (0.19) $ 0.34 $ 0.36 $ 0.32
=============================================
Net income-assuming
dilution $ (0.18) $ 0.32 $ 0.34 $ 0.30
=============================================
Cash dividends paid $ 0.109 $ 0.109 $ 0.120 $ 0.120
=============================================
All per share data is adjusted for stock dividends and splits effected
through June 30, 1998.
56
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
YORK FINANCIAL CORP. YORK FINANCIAL CORP. AND
EXECUTIVE OFFICERS YORK FEDERAL SAVINGS AND
LOAN ASSOCIATION
Thomas W. Wolf DIRECTORS
Chairman of the Board
Cynthia A. Dotzel, CPA
Robert W. Pullo Dotzel and Company, Inc.
President and Chief Executive Officer Certified Public Accountants
Robert A. Angelo, Esq. Robert W. Erdos
Executive Vice President Owner
Secretary/General Counsel Stomp Off Records
James H. Moss, CPA Randall A. Gross
Senior Vice President President
Chief Financial Officer/Treasurer RG Industries
Robert C. Herzberger Paul D. Mills
Senior Vice President Owner
Willow Tree Farms
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
57
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
YORK FEDERAL SAVINGS AND ADMINISTRATIVE SERVICES GROUP
LOAN ASSOCIATION
EXECUTIVE OFFICERS James H. Moss, CPA
Executive Vice President
Robert W. Pullo Group Leader
Chairman of the Board and Chief Financial Officer/Treasurer
Chief Executive Officer
Craige L. Smith, Jr.
Robert A. Angelo Senior Vice President
President and Chief Operating Officer Support Services Division
Meta S. Palmer, CPA
MORTGAGE BANKING GROUP Vice President, Controller
Robert H. Boyer
Senior Vice President CORPORATE SERVICES GROUP
Mortgage Origination Division
Rebecca S. McClure, Esq.
William E. Groft Senior Vice President
Senior Vice President Group Leader
Residential Mortgage Processing Division Secretary/General Counsel
Eleanor R. Connolly Sharon L. Luker
Vice President Vice President
Residential Mortgage Underwriting Human Resources Division
Division
Carol M. Hinkle BUSINESS BANKING GROUP
Vice President
Lancaster Mortgage Origination Center Harry M. Zimmerman
Executive Vice President
Robert J. Matulevich Group Leader
Vice President
Correspondent Lending Center Blair E. Ansell
Vice President
Sharon A. Tapp Relationship Manager
Vice President
York Mortgage Origination Center Michael C. Rose
Vice President
Relationship Manager
RETAIL BANKING GROUP
Lynn D. Kramer-Crenshaw ADDITIONAL VICE PRESIDENTS
Executive Vice President
Group Leader Robert C. Herzberger
Senior Vice President
Miles C. Baxter Chief Economist and Portfolio
Vice President Manager
Branch Banking Division
Dawn C. Paul, CBA
Michael J. McClure Vice President
Vice President Auditor
Product Sales Division
58
<PAGE>
CORPORATE ORGANIZATION AND INFORMATION
SUBSIDIARIES OF CORPORATE INFORMATION
YORK FINANCIAL CORP.
Corporate Headquarters
York Federal Savings and 101 South George Street
Loan Association York, Pennsylvania 17401
Robert W. Pullo
Chairman of the Board and Independent Auditors
Chief Executive Officer Ernst & Young LLP
One North Charles
Robert A. Angelo, Esq. Baltimore, Maryland 21201
President and Chief Operating Officer
Special Counsel
York Financial Investment Corp. Breyer & Aguggia LLP
A Subsidiary of York Federal 1300 I Street, N.W.
James H. Moss, CPA Suite 470 East
President and Chief Executive Officer Washington, D.C. 20005
Y-F Service Corp. Transfer Agent and Registrar
Harry A. Lloyd American Stock Transfer and Trust Co.
President and Chief Executive Officer 40 Wall Street
46th Floor
New Service Corp. New York, New York 10005
Harry A. Lloyd
President and Chief Executive Officer 10-K Information
A copy of Form 10-K as filed with the
Lenders Support Group, Inc. Securities and Exchange Commission
Harry A. Lloyd will be furnished without charge to
President and Chief Executive Officer stockholders of record on September 8,
1998, upon written request to James H.
First Capital Brokerage Services, Inc. Moss, Senior Vice President, York
Kenneth P. Fetrow Financial Corp., 101 South George
President and Chief Executive Officer Street, P.O. Box 15068, York,
Pennsylvania 17405.
First Capital Insurance Services, Inc.
Kenneth P. Fetrow Annual Meeting
President and Chief Executive Officer The Annual Meeting of the stockholders
of York Financial Corp. will be held
on Wednesday, October 28, 1998, at
3:00 p.m., at the Yorktowne Hotel,
48 East Market Street, York,
Pennsylvania 17401.
York Financial Corp. is an Equal
Opportunity Affirmative Action
Employer.
59
<PAGE>
<PAGE>
YORK FEDERAL OFFICES
Main Office Cumberland County, Pennsylvania
101 South George Street, York, 269 Penrose Place, Carlisle
Pennsylvania Teresa F. Kline, Assistant Vice
Joye E. Matysek, Assistant Vice President President
1160 Walnut Bottom Road, Carlisle
York County, Pennsylvania Teresa F. Kline, Assistant Vice
President
2690 South Queen Street
Matthew J. Forry, Assistant Vice 798 East Simpson Street,
President Mechanicsburg
Alisa L. Kiehl, Assistant Vice
100 North Northern Way, York President
Wendy J. Spangler, Assistant Vice
President 75 Zimmerman Drive, Camp Hill
Alisa L. Kiehl, Assistant Vice
Haines Acres Shopping Center, York President
Victoria A. Schofield, Assistant Vice
President Dauphin County, Pennsylvania
1940 Carlisle Road, York 1123 West Governor Road, Hershey
Andrea R. Geier, Assistant Vice President Debra E. Dupler, Assistant Vice
President
1442 Bannister Street, York
Fred L. Landis II, Assistant Vice Lancaster County, Pennsylvania
President
1758 Oregon Pike, Lancaster
880 West Broadway, Red Lion Jay E. Lowman, Assistant Vice
Kay M. Vannoy, Assistant Vice President President
1 North Main Street, Shrewsbury
Laurie A. Blevins, Assistant Vice Harford County, Maryland
President
1816 Emmorton Road, Bel Air
201 Dart Drive, Hanover Charlotte D. Smith, Assistant
Tammy L. Ford, Assistant Vice President Vice President
1781 West Market Street, York 2006 Rock Spring Road, Forest Hill
Fred L. Landis II, Assistant Vice Charlotte D. Smith, Assistant Vice
President 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
1700 Baltimore Pike, Hanover
Tammy L. Ford, Assistant Vice
President
39 Hanover Street, Spring Grove
Ruth L. Shaffer, Assistant Vice
President
Web site: www.yorkfed.com
60
<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
York Financial Investment Corp. (2) 100% Delaware
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
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, 1998.
<PAGE>
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
<PAGE>
Exhibit 23 - Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of York Financial Corp. of our report dated July 15, 1998, included in the
1998 Annual Report to Stockholders of York Financial Corp.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-87300) pertaining to the 1994 Stock Option Plan of
York Financial Corp., the Registration Statement (Form S-8 No. 333-40887)
pertaining to the 1997 Stock Option Plan of York Financial Corp., and the
Registration Statement (Form S-3 No. 333-40885) pertaining to the York
Financial Corp. Dividend Reinvestment and Stock Purchase Plan of our report
dated July 15, 1998, with respect to the consolidated financial statements
incorporated herein by reference, in this Annual Report (Form 10-K) of York
Financial Corp.
/s/ERNST & YOUNG LLP
-----------------------
ERNST & YOUNG LLP
Baltimore, Maryland
September 22, 1998
<PAGE>
<PAGE>
Exhibit 27
Financial Data Schedule
This schedule contains financial information extracted from the consolidated
financial statements of York Financial Corp. for the year ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
Financial Data
as of or for the year
Item Number ended June 30, 1998 Item Description
- ----------- --------------------- ----------------
(In thousands except per share)
9-03 (1) 17,934 Cash and due from Banks
9-03 (2) 126,613 Interest-bearing deposits
9-03 (3) -- Federal funds sold - purchased securities
for resale
9-03 (4) -- Trading account assets
9-03 (6) 65,474 Investment and mortgage backed securities
held for sale
9-03 (6) 5,784 Investment and mortgage backed securities
held to maturity - carrying value
9-03 (6) 5,775 Investment and mortgage backed securities
held to maturity - market value
9-03 (7) 960,451 Loans
9-03 (7)(2) 8810 Allowance for losses
9-03 (11) 1,229,268 Total assets
9-03 (12) 1,065,777 Deposits
9-03 (13) 32,495 Short-term borrowings
9-03 (15) 21,771 Other liabilities
9-03 (16) -- Long-term debt
9-03 (19) -- Preferred stock - mandatory
redemption
9-03 (20) -- Preferred stock - no mandatory
redemption
9-03 (21) 8,968 Common stocks
9-03 (22) 100,257 Other stockholders' equity
9-03 (23) 1,229,268 Total liabilities and stockholders'equity
9-04 (1) 80,893 Interest and fees on loans
9-04 (2) 5,388 Interest and dividends on investments
9-04 (4) 2,285 Other interest income
9-04 (5) 88,566 Total interest income
9-04 (6) 49,744 Interest on deposits
9-04 (9) 51,844 Total interest expense
9-04 (10) 36,722 Net interest income
9-04 (11) 3,737 Provision for loan losses
9-04 (13)(h) 174 Investment securities gains/(losses)
9-04 (14) 27,323 Other expenses
9-04 (15) 15,814 Income/loss before income tax
9-04 (17) 10,015 Income/loss before extraordinary items
9-04 (18) -- Extraordinary items, less tax
9-04 (19) -- Cumulative change in accounting
principles
9-04 (20) 10,015 Net income or loss
<PAGE>
<PAGE>
9-04 (21) 1.14 Earnings per share - primary
9-04 (21) 1.06 Earnings per share - fully diluted
I.B. 5 3.33 Net yield - interest earning assets -
actual
III.C.1. (a) -- Loans on non-accrual
III.C.1. (b) 15,681 Accruing loans past due 90 days or more
III.C.2. (c) -- Troubled debt restructuring
III.C.2 -- Potential problem loans
IV.A.1 6,413 Allowance for loan loss - beginning
of period
IV.A.2 1,858 Total chargeoffs
IV.A.3 518 Total recoveries
IV.A.4 8,810 Allowance for loan loss - end of period
IV.B.1 4,970 Loan loss allowance allocated to
domestic loans
IV.B.2 -- Loan loss allowance allocated
to foreign loans
IV.B.3 3,840 Loan loss allowance - unallocated
<PAGE>
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 17934
<INT-BEARING-DEPOSITS> 126613
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<INVESTMENTS-HELD-FOR-SALE> 65474
<INVESTMENTS-CARRYING> 5784
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<TOTAL-ASSETS> 1229268
<DEPOSITS> 1065777
<SHORT-TERM> 32495
<LIABILITIES-OTHER> 21771
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0
0
<COMMON> 8968
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