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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
YORK FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2427539
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South George Street, York, Pennsylvania 17401
- ------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 846-8777
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 1, 1999, there were issued and outstanding 9,598,384
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 1, 1999 was $138,576,669 ($14.4375 per share based
upon 9,598,384 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, 1999. (Parts I and II)
2. Portions of Proxy Statement for the 1999 Annual Meeting of Stockholders.
(Part III)
<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, 1999, the Corporation had assets of $1.4 billion, total deposits of
$1.1 billion and stockholders' equity of $110.4 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, 1999,
York Federal's stockholder's equity was $93.6 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 17401 (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-five offices located in
south central Pennsylvania and Maryland. Effective August 1, 1999, the two
Shrewsbury offices were combined into one office resulting in twenty-four office
locations. York Federal maintains a commissioned mortgage origination staff as
well as mortgage correspondent relationships which originate residential
mortgage loans for the Association primarily in Pennsylvania, Maryland and
Virginia, although loans are originated in eleven states within the Mid-Atlantic
region.
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, 1999, is incorporated herein by reference.
1
<PAGE>
Interest Rate Sensitivity Management and Market Risk
The information contained on pages 7 through 8 of the Corporation's Annual
Report is incorporated herein by reference.
Lending Activities
General. On a consolidated basis, the Corporation's net loan portfolio
totaled $909.2 million at June 30, 1999, representing 66.6% of 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 conforming
long-term (15 to 30 years), fixed rate real estate mortgage loans. 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.
Additional information concerning the loan portfolio is contained on pages
11 through 15 of the Corporation's Annual Report and is incorporated herein by
reference. For additional information about the Corporation's lending
activities and commitments, see Notes 1, 5 and 17 of the Notes to Consolidated
Financial Statements.
2
<PAGE>
<TABLE>
Loan Portfolio Analysis. The following table sets forth the composition of the Association's loan
portfolio by type of loan as of the dates indicated:
At June 30,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
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..... $595,854 65.5% $680,779 71.5% $772,962 77.5% $718,755 76.6% $602,072 71.2%
Construction..... 159,138 17.5 111,032 11.7 65,641 6.6 65,725 7.0 79,742 9.4
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
754,992 83.0 791,811 83.2 838,603 84.1 784,480 83.6 681,814 80.6
Commercial first
mortgage loans:
Conventional..... 82,485 9.1 56,047 5.9 48,443 4.9 62,006 6.6 82,544 9.8
Construction..... 30,269 3.3 14,258 1.5 9,967 1.0 9,840 1.0 6,409 0.8
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
112,754 12.4 70,305 7.4 58,410 5.9 71,846 7.6 88,953 10.6
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
867,746 95.4 862,116 90.6 897,013 90.0 856,326 91.2 770,767 91.2
Commercial
business loans.... 12,364 1.4 3,737 0.4 496 -- 1,714 0.2 2,751 0.3
Consumer loans:
Automobile loans. 2,684 0.3 2,459 0.3 2,597 0.3 5,301 0.6 5,945 0.7
Mobile home loans 1,697 0.2 1,954 0.2 2,249 0.2 1,362 0.1 1,306 0.2
Education loans.. 19,246 2.1 18,360 1.9 17,163 1.7 15,505 1.7 12,777 1.5
Savings account
loans........... 2,186 0.3 2,479 0.3 2,334 0.2 2,001 0.2 1,916 0.2
Home improvement
loans........... 3,041 0.4 4,582 0.5 3,987 0.4 3,901 0.4 3,360 0.4
Boat loans....... 1,098 0.1 1,711 0.2 2,525 0.3 3,126 0.3 4,326 0.5
Home equity
loans........... 49,390 5.4 50,659 5.3 53,827 5.4 49,217 5.2 49,900 5.9
Other............ 65,216 7.2 56,836 6.0 49,805 5.0 34,401 3.7 27,220 3.2
--------- ----- --------- ----- --------- ----- -------- ----- -------- -----
144,558 16.0 139,040 14.7 134,487 13.5 114,814 12.2 106,750 12.6
--------- ----- --------- ----- --------- ----- -------- ----- -------- -----
Subtotals..... 1,024,668 1,004,893 1,031,996 972,854 880,268
Less:
Loans in process. 106,088 11.6 45,382 4.8 28,302 2.9 27,497 2.9 26,577 3.1
Unamortized loan
fees (expenses)
and unearned
income.......... (1,416) -- (940) -- (560) -- 178 -- 2,646 0.3
Allowance for
loan losses..... 10,803 1.2 8,810 0.9 6,413 0.6 6,609 0.7 5,840 0.7
--------- ----- --------- ----- --------- ----- -------- ----- -------- -----
115,475 12.8 53,252 5.7 34,155 3.5 34,284 3.6 35,063 4.1
--------- ----- --------- ----- --------- ----- -------- ----- -------- -----
Total.......... $ 909,193 100.0% $ 951,641 100.0% $ 997,841 100.0% $938,570 100.0% $845,205 100.0%
========= ===== ========= ===== ========= ===== ======== ===== ======== =====
3
</TABLE>
<PAGE>
<TABLE>
Loan Maturity
The following table sets forth the dollar amount of total loans receivable which have predetermined
interest rates and those which have floating or adjustable interest rates.
Due within one year Due one to five years Due more than five years
of June 30, 1999 (1) after June 30, 1999 (1) after June 30, 1999 (1)
----------------------------- ----------------------------- ----------------------------
Pre- Floating or Pre- Floating or Pre- Floating or
Determined Adjustable Determined Adjustable Determined Adjustable Grand
Rates Rates Total Rates Rates Total Rates Rates Total Total
--------- --------- --------- --------- --------- --------- --------- -------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real
Estate
Conven-
tional
Residen-
tial and
commer-
cial..$ 103,844 $ 44,768 $ 148,612 $ 284,675 $ 104,826 $ 389,501 $ 86,517 $ 51,472 $ 137,989 $ 676,102
Construction
Residential
and commer-
cial.. 7,435 4,265 11,700 21,349 12,245 33,594 25,586 14,676 40,262 85,556
Commercial
business
loans... 1,718 9,020 10,738 241 764 1,005 -- 621 621 12,364
Consumer. 26,645 52,390 79,035 42,882 19,561 62,443 3,080 -- 3,080 144,558
--------- --------- --------- --------- --------- --------- --------- -------- --------- ---------
Total..$ 139,642 $ 110,443 $ 250,085 $ 349,147 $ 137,396 $ 486,543 $ 115,183 $ 66,769 $ 181,952 $ 918,580
========= ========= ========= ========= ========= ========= ========= ======== ========= =========
- ---------------
(1) Based on contractual terms to maturity and adjusted for market consensus prepayment assumptions.
4
</TABLE>
<PAGE>
Residential Real Estate Loans. At June 30, 1999 approximately 83.0% of
York Federal's loan portfolio was comprised of one-to-four family residential
mortgage loans. 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. Loans in excess of the 90% loan-to-value ratio are insured for the
amount which the loan exceeds 80% of value. Interest rates and fees charged on
loans originated by York Federal are competitive with other lenders in the
general market area.
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, 1999, $30.6
million of conventional mortgages were held for sale in the secondary market.
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.
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 has developed a
business banking group 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
20 years either as adjustable interest rate loans with rate adjustment
provisions of one to five years, with monthly rate adjustment provisions, or as
"balloon" loans with abbreviated maturity dates.
The commercial real estate loan portfolio is secured by commercial and
single family condominiums, land for development, hotel/motel/restaurant,
multi-family residential, office, industrial, and retail buildings and other
properties. These loans are made in amounts generally limited to 80% of the
appraised value of the property securing the loan. Commercial real estate loans
are usually considered to be of higher risk than residential loans and represent
12.4% of York Federal's portfolio as of June 30, 1999.
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, 1999, commercial business
loans totaled $12.4 million or 1.4% of total loans. Such loans may have fixed
rates but generally have adjustable rates tied to prime, libor, treasury or
federal funds indices.
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
5
<PAGE>
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.
Consumer Loans. At June 30, 1999, consumer loans totaled $144.6 million or
approximately 16.0% of York Federal's total loan portfolio. 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. In addition, 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, 1999, York Federal had approximately $49.4
million of home equity loans outstanding under total lines of credit available
of $107.0 million.
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.
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.
Construction Loans. York Federal provides loans to finance the
construction of and permanent financing for residential and commercial real
estate properties. Such construction/permanent financing is considered to have
less risk than construction financing. At June 30, 1999, the Association had
$85.6 million net of loans in process or 9.3% of total loans outstanding in
construction loans. The Association considers this a niche product and
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/permanent loans
generally are made for a six-month term. This period may be extended subject to
negotiation and the payment of an extension fee.
Commercial construction loans are made at adjustable rates of interest for
terms of six months, 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.
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. At June 30, 1999, York Federal had outstanding commitments to
sell $25.3 million in loans. York Federal generally expects to satisfy these
commitments with loans originated within the respective commitment period.
In prior years, certain sales to FNMA included recourse provisions. For
additional information, see Note 17 of the Notes to Consolidated Financial
Statements.
6
<PAGE>
In connection with loan sales, York Federal generally retains the servicing
rights of the loans. See Notes 1 and 6 of the Notes to Consolidated Financial
Statements and pages 13 through 17 of the Annual Report.
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 1999, less than 5% of loan commitments expired without being
funded. At June 30, 1999, York Federal's outstanding residential and commercial
mortgage loan commitments amounted to $36.8 million. See Note 17 of the Notes
to Consolidated Financial Statements.
Asset Quality
The information contained on pages 9 through 11 of the Corporation's
Annual Report is incorporated herein by reference.
7
<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,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- --------------- ---------------- -------------- --------------
% of loans % of loans % of loans % of loans % of loans
in each in each in each in each in each
category category category category category
to gross to gross to gross to gross to 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........... $ 4,696 72.4% $3,158 78.3% $2,485 81.2% $2,063 80.5% $1,500 77.0%
Commercial............ 2,106 10.4 893 6.8 740 5.4 1,430 7.2 1,700 10.2
Commercial
business loans........ 607 1.4 263 0.4 35 -- 65 0.2 50 0.3
Consumer............... 878 15.8 656 14.5 514 13.4 406 12.1 350 12.5
Unallocated............ 2,516 -- 3,840 -- 2,639 -- 2,645 -- 2,240 --
-------- ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allowance for
loan losses.......... $ 10,803 100.0% $8,810 100.0% $6,413 100.0% $6,609 100.0% $5,840 100.0%
======== ===== ====== ===== ====== ===== ====== ===== ====== =====
8
</TABLE>
<PAGE>
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. Management of York Federal assesses risk known
and inherent in the portfolio by identification of specific problem assets,
consideration of past loss experience and other qualitative factors. OTS
regulations require a classification system that includes three classifications
for problem assets: substandard, doubtful and loss. Problem amounts are
identified through consideration of nonperforming loans. 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 charge
off such amount. 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. The management of York Federal assigns a risk
factor to each asset classification and monitors such asset classifications on
an ongoing basis with the results representing a primary consideration in
determining the adequacy of the allowance for loan losses.
In addition, management considers the past loss experience on various
segments of the loan portfolio after adjusting for asset classifications and
assigns an appropriate risk factor to be applied to the balance in assessing the
adequacy of the allowances. Finally, other qualitative factors are considered
and risk factors assigned to represent the impact of indicators such as current
economic conditions, competition, trends in delinquencies, charge-offs and
nonperforming loans and volume/term of current loan production.
The resulting risk assessment and allocation of the allowance as indicated
in the table indicates the allowance for loan loss at June 30, 1999 of $10.8
million is adequate relative to the known and inherent risks in the portfolio.
Non-Performing Loans. The information contained on pages 8 through 11 of
the Corporation's Annual Report is incorporated herein by reference. See Notes
1 and 5 of the Notes to Consolidated Financial Statements. Effective June 30,
1999, the Association implemented the Uniform Retail Credit Classification
Policy. With the implementation of the policy, a one-time charge to the
allowance for loan losses of $408,000 was recognized representing the total
amount due on certain loans identified in accordance with the policy, in excess
of the net realizable value of the underlying collateral. Previously, the
Association had a nonaccrual policy which primarily effected commercial loans.
With the implementation of the Uniform Retail Credit Classification Policy, in
addition to commercial loans, nonaccrual loans include consumer and mortgage
loans. The Association had nonaccrual loans totaling $919,000 at June 30, 1999
compared to $0 at June 30, 1998.
Real Estate Owned. The information contained on pages 8 through 11 of the
Corporation's Annual Report is incorporated herein by reference. See Notes 1
and 7 of the Notes to Consolidated Financial Statements.
9
<PAGE>
Investment Activities
Investment decisions are made by the Asset/Liability Committee of York
Federal under the supervision of York Federal's Board of Directors. The
Association's policies generally limit investments to U.S. Government and agency
securities, mortgage-backed securities issued and guaranteed by Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association
("FNMA"), and Government National Mortgage Association ("GNMA"), and Bank
qualified municipal bonds and investment grade corporate debt obligations.
Investments are made based on various considerations, which include the interest
rate, yield, and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments) and projected risk based capital positions.
The effect that the proposed investment would have on the Association's credit
and interest rate risk is also given consideration during the evaluation.
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,
------------------------------
1999 1998 1997
(In thousands)
Short-term investments:
Interest bearing deposits.................. $ 8,958 $126,613 $ 1,527
Securities:
Held for Trading:
Mortgage-backed......................... -- -- 7,158
Available for Sale:
Equity Securities....................... 1,335 338 --
U.S. Treasury and other U.S.
Government Agencies.................... 161,856 14,810 6,095
Mortgage-backed......................... 132,500 32,792 53,595
-------- -------- --------
Total............................... 295,691 47,940 59,690
Held to maturity:
U.S. Treasury and other U.S.
Government Agencies.................... 3,498 5,500 8,590
Corporate debt.......................... 18,903 -- --
Mortgage-backed......................... 217 284 363
-------- -------- --------
Total............................... 22,618 5,784 8,953
FHLB of Pittsburgh stock.................... 7,976 7,976 7,907
-------- -------- --------
Total.................................... $335,243 $188,313 $ 85,235
======== ======== ========
During fiscal 1999, liquid assets were deployed primarily into available
for sale securities. Additionally, leverage strategies were initiated to
effectively utilize available capital which resulted in the expansion of the
investment portfolio through the purchase of available for sale securities and
held to maturity securities with a related increase to borrowings. Securities
purchased under these strategies include U.S. Treasury and other U.S. Government
agency securities which generally include call features which allow the issuing
agency the right to call the securities at various dates prior to final
maturity, mortgage-backed securities and investment grade corporate debt
securities primarily in the form of trust preferred securities issued by other
financial institutions. Mortgage-backed securities (which also are known as
mortgage participation certificates or pass-through certificates) typically
represent a participation interest in a pool of single-family or multi-family
mortgages. The principal and interest payments on these mortgages are passed
from the mortgage originators, through intermediaries (generally U.S. Government
agencies and government sponsored enterprises) that pool and resell the
participation interests in the form of securities, to investors such as the
Association. Such U.S. Government agencies and government sponsored
enterprises, which guarantee the payment of principal and interest to investors,
primarily include the FHLMC, FNMA and the GNMA.
10
<PAGE>
Mortgage-backed securities typically are issued with stated principal amounts,
and the securities are backed by pools of mortgages that have loans with
interest rates that fall within a specific range and have varying maturities.
Mortgage-backed securities generally yield less than the loans that underlie
such securities because of the cost of payment guarantees and credit
enhancements. In addition, mortgage-backed securities are usually more liquid
than individual mortgage loans and may be used to collateralize certain
liabilities and obligations of the Association. These types of securities also
permit the Association to optimize its regulatory capital because they have low
risk weighting.
For further discussion of changes in the investment portfolio as noted in
the preceding table and the related impact on interest rate sensitivity and
market risk, see pages 7, 8 and 11 through 15 of the Corporation's Annual Report
which is incorporated herein by reference. For additional information about the
Corporation's investment activities, 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."
11
<PAGE>
<TABLE>
The following table represents maturity distributions of various debt securities based on contractual
terms to maturity adjusted for market consensus prepayment assumptions:
At June 30, 1999
--------------------------------------------------------------------------------------------
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. Treasury
and other U.S.
Government
agencies.....$ 1,048 5.67% $ 82,833 5.93% $ 79,187 6.36% $ 1,682 5.67% $164,750 $161,856 6.13%
Mortgage-
backed....... 23,288 6.09 63,821 6.07 29,050 5.88 18,045 5.68 134,204 132,500 5.98
------- ---- -------- ---- -------- ---- ------- ---- -------- -------- ----
$24,336 6.07% $146,654 5.99% $108,237 6.23% $19,727 5.68% $298,954 $294,356 6.06%
======= ==== ======== ==== ======== ==== ======= ==== ======== ======== ====
Held to Maturity:
U.S. Treasury
and other U.S.
Government
agencies.....$ -- --% $ -- --% $ 3,498 6.88% $ -- --% $ 3,498 $ 3,484 6.88%
Corporate
debt......... -- -- -- -- 4,882 5.94 14,021 6.61 18,903 18,920 6.44
Mortgage-
backed....... 50 8.58 135 8.58 32 8.58 -- -- 217 231 8.58
------- ---- -------- ---- -------- ---- ------- ---- -------- -------- ----
$ 50 8.58% $ 135 8.58% $ 8,412 6.34% $14,021 6.61% $ 22,618 $ 22,635 6.53%
======= ==== ======== ==== ======== ==== ======= ==== ======== ======== ====
12
</TABLE>
<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 ten 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, 1999 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 1999. 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, 1999.
Certificates
Maturity Period of Deposit
- --------------- ----------
(In thousands)
Three months or less................. $27,065
Three through six months............. 19,038
Six through twelve months............ 15,310
Over twelve months................... 29,586
-------
Total.............................. $90,999
=======
Borrowings. As discussed within the Corporation's investment activities
section above, leverage activities were initiated during fiscal 1999, which is
the primary reason for the increase in short-term borrowings.
For further discussion of changes in short-term borrowings as noted in the
following table, see pages 11 through 15 of the Corporation's Annual Report,
which is incorporated herein by reference. For additional information about the
Corporation's borrowing activities, see Note 11 of the Notes to Consolidated
Financial Statements.
13
<PAGE>
The following is a summary of aggregate short-term borrowings for the years
ended June 30, 1999, 1998 and 1997, respectively:
Year Ended June 30,
------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Amount outstanding at end of year............. $87,288 $ 1,252 $ 20,000
Average interest rate at end of year.......... 5.14% 4.44% 5.87%
Maximum amount outstanding at any month-end... $87,288 $29,000 $120,500
Average amount outstanding.................... $ 9,771 $12,479 $ 86,523
Weighted average interest rate for the year... 4.60% 5.70% 5.41%
Yields Earned and Rates Paid
See pages 13 through 15 of the Corporation's Annual Report incorporated by
reference herein.
Subsidiaries of York Federal
York Financial Investment Corp. York Financial Investment Corp. ("YFIC")
is an operating subsidiary of York Federal and 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 to maturity and securities available for sale. During fiscal 1999, YFIC
received contributed capital of $274.0 million, net income of $6.9 million and
unrealized losses on securities available for sale of $3.3 million net of
applicable income taxes resulting in YFIC's stockholders' equity of $345.9
million at June 30, 1999.
Subsidiaries and Joint Ventures of the Corporation
The directors of subsidiaries consist exclusively of persons who serve as
either officers or directors of the Corporation or York Federal.
Y-F Service Corp. ("Y-F Service/YFSC"). Y-F Service owns office facilities
which it leases to York Federal and affiliates and is engaged in land
acquisition, development and construction of future branch locations. During
fiscal 1999, YFSC completed development of two new branch locations and at June
30, 1999 had two branch development projects in progress with projected openings
by the end of 1999 and Spring 2000. During fiscal 1996, Y-F Service
substantially completed the construction of an office building in the City of
York consisting of approximately 45,000 square feet of retail office space.
This building is primarily occupied by the Association's administrative support
staff but also includes lease of certain space to an unrelated third party.
This construction project included the restoration of a 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
$313,000 for the year ended June 30, 1999. Stockholders' equity was $3.4
million at June 30, 1999.
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, 1999 was $194,000 net of
capital distributions to York Financial during fiscal 1999 totaling $29,000 and
its net income for the year ended June 30, 1999 was $60,000.
14
<PAGE>
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, employee group benefit plans, as well as a wide variety of life
insurance products to the retail market. First Capital Insurance Services
Inc.'s net income was $13,000 for the year ended June 30, 1999. Stockholders
equity was $11,000 at June 30, 1999.
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 residential real estate lots. The total number of developed
lots was 122 with 18 remaining to be sold. At June 30, 1999, New Service
Corp.'s investment of $333,000 represents a 50% equity interest in the venture
with total assets of $713,000. 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 the
level of vacancies experienced in properties held for investment. New Service's
net loss for the year ended June 30, 1999 was $139,000. At June 30, 1999
stockholders' equity was $665,000.
Lenders Support Group ("LSG"). LSG performs residential construction and
home inspection and residential appraisal services for York Federal and the
general public. During fiscal 1999, 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 were discontinued as of
September 30, 1998 and was inactive for the remainder of the year. Operations
during fiscal 1999 resulted in net income of $47,000. LSG's net worth was
$1,000 at June 30, 1999.
Meridian Venture Partners ("MVP"). 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). The Corporation originally invested $4.0 million in MVP.
During fiscal 1999, York Financial purchased the partnership interest of a
limited partner resulting in a net limited partner capital position of 25.6%
(net of SBA preferred limited partner interest discussed below). The net amount
of the investment at June 30, 1999 including the Corporation's share of reported
gains (losses) recognized using the equity method of accounting and partnership
distributions is $3.8 million.
York Financial's share of MVP income from operations for the year ended
June 30, 1999 including market value adjustments of portfolio investments is
$1.4 million. Such amount compares to income of $1.5 million for the year ended
June 30, 1998. As of June 30, 1999, MVP had total assets of $32.6 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, 1999, MVP had $14.9
million of Participating Securities outstanding.
REGULATION
General
As a federally chartered and federally insured thrift institution, York
Federal is subject to extensive regulation. Lending activities and other
investments and capital position must comply with various statutory and
regulatory 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.
15
<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 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, 1999.
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 Savings Association Insurance Fund ("SAIF").
The Association's deposit accounts are insured by the SAIF to the maximum
extent permitted by laws. As the Association's insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any FDIC-
insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified
as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier
1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy,
pay the lowest premium while institutions that are less then adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern, pay the highest premium. Risk classification of all
insured institutions will be made by the FDIC for each semi-annual assessment
period.
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 quarterly 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, 1999
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
16
<PAGE>
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, 1999, 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, 1999, the Association's QTL ratio of 67.5% 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, 1999, 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.
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, 1999, $20.7 million. During fiscal 1999, $5,578,600 was dividended from
York Federal to York Financial.
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, 1999, the Association's
limit on loans to one borrower was $15.6 million. At June 30, 1999, the
Association's largest aggregate amount of loans to one borrower was $9.8
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
17
<PAGE>
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 equity infusion 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.
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,"
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.
18
<PAGE>
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. 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.
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, 1999, 1998 and
1997.
In August 1996, the provisions repealing the reserve method of accounting
for bad debt reserves were passed by Congress as part of "The Small Business Job
Protection Act of 1996." As a result, savings associations are no longer able
to calculate their deduction for bad debts using the percentage-of-taxable-
income method. Instead, savings associations are required to compute their
deduction based on specific charge-offs during the taxable year or, if the
savings association or its controlled group had assets of less than $500
million, based on actual loss experience over a period of years. This
legislation also requires savings associations to recapture into income over a
six-year period their post-1987 additions to their bad debt tax reserves,
thereby generating additional tax liability. At June 30, 1999, 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.
19
<PAGE>
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 was 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.
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%.
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 and other 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, 1999, the Corporation and its subsidiaries had 422 full-
time equivalent employees. The employees are not represented by a collective
bargaining agreement. The Corporation believes its employee relations are good.
20
<PAGE>
Executive Officers. The executive officers of the Corporation and
Association are as follows:
Age at
June 30,
Name 1999 Position
- ---- ---- ------------------------------------------------------
Corporation Association
--------------------------- -------------------------
Robert W. Pullo 59 Director, President and Chairman of the Board and
and Chief Executive Officer Chief Executive Officer
Robert A. Angelo 52 Executive Vice President, President and Chief
Secretary and General Operating Officer
Counsel
James H. Moss 45 Senior Vice President Chief Executive Vice President
Financial Officer/Treasurer and Chief Financial
Officer/Treasurer
In addition to the above, the Association's executive officer group
includes:
Age at
Name June 30, 1999 Position
- ---- ------------- --------
Lynn D. Kramer-Crenshaw 48 Executive Vice President
Robert P. O'Hara 48 Executive Vice President
Harry M. Zimmerman 52 Executive Vice President
Rebecca S. McClure, Esquire 39 Senior Vice President, Secretary
and General Counsel
Kenneth H. Sallade 47 Senior Vice President and Chief
Investment Officer
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 and serves as Chairman of the Board of
Directors of its subsidiary company, York Financial Investment Corp. of
Delaware. Mr. Pullo is a member of the Board of Directors and Chairman of the
Board of subsidiaries of York Financial Corp.: First Capital Brokerage
Services, Inc., New Service Corp., First Capital Insurance Services, Inc. and
Y-F Service Corp. He also serves on the Advisory Board of Meridian Venture
Partnership, a venture capital company. He is a member of the American
Community Bankers' National Task Force for Electronic Banking and serves as a
Pennsylvania State liaison to the America's Community Bankers' Legislative
Committee. He is the founding Chairman of the Board of the White Rose
Foundation, a member of the Board of York Foundation, and a member of the Board
of Anna Huber Community Health Initiatives. He is a member and past President
of the Penn State York Campus Advisory Board, and Co-Chairman of York College,
York Federal Institute of Regional Affairs. Mr. Pullo serves as a member of the
Board and Executive Committee of Memorial Hospital of York and the parent
company, Memorial Health Systems Corporation. He is the current Chairman of the
York County Alliance for Learning, a business, education and a school-to- work
partnership, a member of the Advisory Board of Junior Achievement, the Junior
League of York, the York YWCA, and Youth Build. Mr. Pullo was the charter
Chairman of the United Way Housing Initiatives. He currently serves on the
Steering Committee of the Crispus Attucks Boundary Avenue Urban Development
Project. He is a founding board member of The Cultural Alliance of
21
<PAGE>
York County, Inc. and is a member of the York Area Capital Campaign Review
Association and Better York, Inc. He is a Past Chairman of the York Area
Chamber of Commerce. Mr. Pullo is the recipient of the Minority Businessmen
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 Association. 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,
South George Street Community Partnership, the York County Chamber of Commerce
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 Association. 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 graduate of
Elizabethtown College. 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 the
chairperson of the United Way's Fund Distribution Division.
Lynn D. Kramer-Crenshaw is Executive Vice President of the Retail Group of
York Federal Savings and Loan Association. A graduate of Towson State
University, Ms. Kramer-Crenshaw 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.
Robert P. O'Hara of Hunt Valley, Maryland, is Executive Vice President of
the York Federal Savings and Loan Association Mortgage Banking Group. Mr.
O'Hara joined York Federal Savings and Loan Association in February 1999. Prior
to joining York Federal, Mr. O'Hara had over 20 years of experience in all
aspects of Mortgage Banking. From 1989 through 1999, he worked for First
Maryland Bancorp and served as President of the Mortgage Company from 1995 -
1998. He is a graduate of Loyola College in Maryland. Mr. O'Hara is a member
of the Board of Governors of the Maryland Mortgage Bankers Association and a
past President of Maryland Mortgage Bankers Association and former Advisory
Board member for Fannie Mae's South Eastern region.
Harry M. Zimmerman of York, Pennsylvania, is the Executive Vice President
of the Business Banking Group of York Federal Savings and Loan Association and
has over 30 years of experience in the banking industry. Mr. Zimmerman joined
York Federal in April 1997. 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 commercial 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 Economic
Development Corporation, the United Way of York County, the York YMCA, Salvation
Army, Pen-Mar Organization, and the York Adams Area Council of the Boy Scouts of
America.
22
<PAGE>
Rebecca S. McClure is Senior Vice President of the Corporate Services Group
and Secretary/General Counsel for York Federal Savings and Loan Association.
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 Junior Achievement. 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.
Kenneth H. Sallade of York, Pennsylvania, joined York Federal Savings and
Loan Association in February 1999 and currently serves as Senior Vice President,
Chief Investment Officer. Prior to joining York Federal, Mr. Sallade had over
18 years of commercial banking experience with Dauphin Deposit Corporation and
served as Executive Vice President/Chief Investment Officer. He also served as
Controller for Southern Pennsylvania Bank prior to the merger with Dauphin in
1982. He is a graduate of Elizabethtown College with a Bachelor of Science
Degree in Accounting. He is a past member of the Finance Committee for
Tri-County United Way.
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, 1999.
Expira-
Year tion
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
- --------------- ------ ---- -------- ----- -----
Main Office:
101 South George Street
York, PA 1979 $4,453,156 $2,583,275 Owned --
Branch Offices:
1940 Carlisle Road
York, PA 1972 467,159 270,400 Owned --
1123 W. Governor Road
Hershey, PA 1973 415,764 210,672 Owned --
Haines Acre Shopping Center
York, PA 1975 126,523 67,814 Leased 10/05
Main Street & Forrest Avenue
Shrewsbury, PA (2) 1975 258,970 138,022 Owned --
798 Simpson Ferry Road
Mechanicsburg, PA 1975 263,215 188,528 Owned --
880 W. Broadway
Red Lion, PA 1978 340,333 206,367 Owned --
(table continued on following page)
23
<PAGE>
Expira-
Year tion
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
- --------------- ------ ---- -------- ----- -----
1442 Bannister Street
West York, PA 1979 $ 298,942 $ 224,462 Owned --
75 Zimmerman Drive
Camp Hill, PA 1979 352,685 211,187 Owned --
1758 Oregon Pike
Lancaster, PA 1979 392,769 236,446 Owned --
201 Dart Drive
Hanover, PA 1980 392,952 269,449 Owned --
1781 West Market Street
York, PA 1986 360,053 273,477 Owned --
499 Tyler Run Road
York, PA 1989 415,112 349,808 Owned --
4157 N. George Street
York, PA 1989 354,445 267,957 Owned --
3995 E. Market Street
York, PA (3) 1990 1,781,987 1,201,215 Owned --
1816 Emmorton Road
Bel Air, MD 1991 725,771 580,254 Owned --
2006 Rock Spring Road
Bel Air, MD 1991 725,420 577,843 Owned --
39 Hanover Street
Spring Grove, PA 1993 419,621 364,279 Owned --
1700 Baltimore Pike
Hanover, PA 1993 391,485 330,677 Owned --
1160 Walnut Bottom Road
Carlisle, PA 1993 681,201 672,773 Owned --
2690 S. Queen Street
York, PA 1993 286,022 211,213 Owned --
Northern Way
York, PA 1995 509,781 445,413 Owned --
269 Penrose Place
Carlisle, PA 1997 105,998 101,242 Leased 6/07
(table continued on following page)
24
<PAGE>
Expira-
Year tion
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
- --------------- ------ ---- -------- ----- -----
70 East Forrest Avenue
Shrewsbury, PA 1999 $ 924,816 $ 911,438 Owned --
19 West Pennsylvania Avenue
Stewartstown, PA 1999 629,457 622,581 Owned --
Other Facilities:
30 East King Street
York, PA (3) 1973 747,489 313,817 Owned --
Haines Road MAC
York, PA 1987 28,038 4,673 Leased 10/05
Red Lion MAC
Red Lion, PA 1988 21,330 13,882 Owned --
122 South George Street
York, PA(4) 1996 4,520,135 4,151,673 Owned --
42 East King Street Parking
York, PA Lot 20,000 20,000 Owned --
134 South Duke Street Parking
York, PA Lot 25,470 25,470 Owned --
144 South Duke Street Parking
York, PA Lot 136,926 124,142 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) Effective August 1, 1999, the office was combined with the Shrewsbury
office on Forrest Avenue.
(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) Facility used as administrative and operations center.
As of June 30, 1999, the total book value of office properties and
equipment owned by the Corporation and its subsidiaries, less allowances for
depreciation and amortization, was $20.8 million.
Item 3. Legal Proceedings
- --------------------------
Periodically, there are various claims and lawsuits involving York
Financial, York Federal and their subsidiaries mainly as defendants, such as
claims to enforce liens, condemnation proceedings on properties in which they
hold security interests, claims involving the making and servicing of real
property loans and other issues incident to their 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.
25
<PAGE>
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, 1999.
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 8 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 1999 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.
26
<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, 1999 and 1998
(b) Consolidated Statements of Income For the Years
Ended June 30, 1999, 1998 and 1997
(c) Consolidated Statements of Stockholders' Equity For
the Years Ended June 30, 1999, 1998 and 1997
(d) Consolidated Statements of Cash Flows For the Years
Ended June 30, 1999, 1998 and 1997
(e) Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements have been
omitted as the required information is inapplicable.
- -----------------
* Incorporated by reference from the Annual Report attached as an exhibit
hereto.
27
<PAGE>
(3) Exhibits
(3.1) Articles of Incorporation of York Financial Corp.(1)
(3.2) Bylaws of York Financial Corp.(1)
(10)(a) York Financial Corp. Incentive Stock Option Plan(1)
(b) 1984 York Financial Corp. Amended Incentive Stock Option
Plan(2)
(c) 1984 York Financial Corp. Non-Incentive Stock Option
Plan for Outside Directors(2)
(d) 1992 York Financial Corp. Non-Incentive Stock Option
Plan for Directors(2)(3)
(e) 1992 York Financial Corp. Stock Option and Incentive
Plan(2)(3)
(f) 1995 York Financial Corp. Non-Qualified Stock Option
Plan for Directors(4)
(g) 1997 York Financial Corp. Stock Option and Incentive
Plan(5)
(h) Supplemental Executive Retirement Plan
(13) York Financial Corp. 1999 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, 1999. The Corporation filed a Form 8-K
subsequent to June 30, 1999 on August 12, 1999 related to an
additional stock repurchase program.
- -----------------
(1) 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.
(2) Incorporated by reference from the Registration Statement on Form S-8 (33-
87300) filed by the Corporation with the Securities and Exchange
Commission on December 13, 1994.
(3) Incorporated by reference from the 1992 Annual Meeting Proxy Statement
filed by the Corporation with the Securities and Exchange Commission on
September 24, 1992.
(4) Incorporated by reference from the 1995 Annual Meeting Proxy Statement
filed by the Corporation with the Securities and Exchange Commission on
September 25, 1995 and Form S-8 (33-64505) filed by the Corporation with
the Securities and Exchange Commission on November 21, 1995.
(5) Incorporated by reference from the 1997 Annual Meeting Proxy Statement
filed by the Corporation with the Securities and Exchange Commission on
September 25, 1997 and the Form S-8 (333-40887) filed by the Corporation
with the Securities and Exchange Commission on November 24, 1997.
28
<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 24, 1999 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 24, 1999
- --------------------------- Officer and Director
Robert W. Pullo (Principal Executive Officer)
/s/ James H. Moss Senior Vice President September 24, 1999
- --------------------------- (Principal Financial
James H. Moss and Accounting Officer)
/s/ Thomas W. Wolf Chairman of the Board September 24, 1999
- --------------------------- of Directors
Thomas W. Wolf
/s/ Cynthia A. Dotzel Director September 24, 1999
- ---------------------------
Cynthia A. Dotzel
/s/ Robert W. Erdos Director September 24, 1999
- ---------------------------
Robert W. Erdos
/s/ Randall A. Gross Director September 24, 1999
- ---------------------------
Randall A. Gross
/s/ Paul D. Mills Director September 24, 1999
- ---------------------------
Paul D. Mills
<PAGE>
/s/ Byron M. Ream Director September 24, 1999
- ---------------------------
Byron M. Ream
/s/ Carolyn E. Steinhauser Director September 24, 1999
- ---------------------------
Carolyn E. Steinhauser
/s/ Robert L. Simpson Director September 24, 1999
- ---------------------------
Robert L. Simpson
<PAGE>
EXHIBIT 10(h)
Supplemental Executive Retirement Plan
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT
This Agreement made and entered into this 14th day of July, 1999 by and
between York Federal Savings and Loan Association, a corporation organized and
existing under the laws of the United States of America (hereinafter referred to
as the Bank") and York Financial Corp., a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania (hereinafter referred to as
"the Company"), (the Bank and the Company are jointly referred to as "the
Employer"), and Robert W. Pullo, a Key Employee and Executive of the Bank and
Company, hereinafter referred to as "the Executive."
The Executive has been in the employ of the Employer for many years and has
now and for years past faithfully served the Employer. It is the consensus of
the Boards of Directors of the Employer (the Board) that the Executive's
services have been of exceptional merit, in excess of the compensation paid and
an invaluable contribution to the profits and position of the Employer in its
field of activity. The Board further believes that the Executive's experience,
knowledge of corporate affairs, reputation and industry contacts are of such
value and his continued services are so essential to the Employer's future
growth and profits that it would suffer severe financial loss should the
Executive terminate his services.
Accordingly, it is the desire of the Employer and the Executive to enter
into this Agreement under which the Employer will agree to make certain payments
to the Executive upon his retirement and, alternatively, to his beneficiary(ies)
in the event of his premature death while employed by the Employer.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive, as a member of a select group of management or highly-
compensated employees of the Employer, and to be considered a non-qualified
benefit plan for purposes of the Employee Retirement Security Act of 1974
(ERISA). The Executive is fully advised of the Employer's financial status and
has had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Employer and the Executive, agree as
follows:
<PAGE>
I. DEFINITIONS
-----------
A. Effective Date:
The effective date of this Agreement shall be December 17,1998.
B. Plan Year:
---------
Any reference to "year" shall mean a calendar year from January 1 to
December 31. In the year of implementation, the term "year" shall
mean the period from the effective date to December 31 of the year of
the effective date.
C. Retirement Date:
---------------
Retirement Date shall mean retirement from service with the Bank
which becomes effective on the first day of the calendar month
following the month in which the Executive reaches his seventieth
(70) birthday or such later date as the Executive may actually
retire, with at least twenty-three (23) years of service with the
Bank.
D. Early Retirement Date:
---------------------
Early Retirement Date shall mean a retirement from service which is
effective prior to the Retirement Date stated above, provided the
Executive has attained age sixty (60) and has served the Bank for
twenty-three (23) full years from the date of first service.
E. Termination of Service:
----------------------
Termination of Service shall mean either:
i.) voluntary resignation of service by the Executive prior to
the Normal Retirement Age; or
ii.) the Employer's discharge of the Executive without cause
["cause" defined in Subparagraph III (E) hereinafter], prior to
the Normal Retirement Age described in Subparagraph I (K)
hereinafter].
F. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Employer for the benefit of the
Executive. Prior to the Executive's Retirement Date [Subparagraph I
(C)] or prior to the Executive receiving benefits under this
Agreement, such liability
2
<PAGE>
reserve account shall be increased or decreased each year by an
amount equal to the annual earnings or loss for the year determined
by the Index (described in Subparagraph I (H) hereinafter), less the
Opportunity Cost for that year (described in Subparagraph I (I)
hereinafter).
G. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for the Executive for any year shall be
equal to the excess of the annual earnings (if any) determined by the
Index [Subparagraph I (H)] for that year over the Opportunity Cost
[Subparagraph I (I)], for that year.
H. Index:
-----
The Index for any year shall be the aggregate annual after-tax income
from the life insurance contracts described hereinafter as defined by
FASB Technical Bulletin 85-4 as in effect on the date of this
Agreement or as modified if such modification is to the benefit of
the Executive. This Index shall be applied as if such insurance
contracts were purchased on the effective date hereof.
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan IV
Insured's Age and Sex: 59, Male
Riders: None
Ratings: None
Option: A, Level Death Benefit
Face Amount: $2,324,000
Premiums Paid: $1,200,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
Insurance Company: Canada Life Assurance
Policy Form: Whole Life
Policy Name: CL/1
Insured's Age and Sex: 59, Male
Riders: AddVantage
Ratings: None
Option: Level Death Benefit
Face Amount: $1,977,562
Premiums Paid: $1,000,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
3
<PAGE>
Insurance Company: Lincoln Benefit Life Insurance Company
Policy Form: Flexible Premium Adjustable Life
Policy Name: Ultra Achiever
Insured's Age and Sex: 59 Male
Option: Level Death Benefit
Face Amount: $10,355,148
Premiums Paid: $3,900,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
Insurance Company: Security Life of Denver Life Insurance
Company
Policy Form: Whole Life
Policy Name: Corp IV
Insured's Age and Sex: 59, Male
Riders: None
Ratings: None
Option: Level Death Benefit
Face Amount: $1,548,199
Premiums Paid: $800,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
If such contracts of life insurance are actually purchased by the
Employer then the actual policies as of the dates they were purchased
shall be used in calculations under this Agreement. If such contracts
of life insurance are not purchased or are subsequently surrendered
or lapsed, then the Employer shall receive annual policy
illustrations that assume the above described policies were purchased
from the above named insurance company(ies) on the effective date
from which the increase in policy value will be used to calculate the
amount of the Index.
In either case, references to the life insurance contract are merely
for purposes of calculating a benefit. The Employer has no
obligation to purchase such life insurance and, if purchased, the
Executive and his beneficiary(ies) shall have no ownership interest
in such policy and shall always have no greater interest in the
benefits under this Agreement than that of an unsecured general
creditor of the Bank.
I. Opportunity Cost:
----------------
The Opportunity Cost for any year shall be calculated by taking the
sum of the amount of premiums set forth in the Indexed policies
described above plus the amount of any after-tax benefits paid to the
Executive pursuant to this Agreement (Paragraph III hereinafter) plus
the sum of all previous years after-tax Opportunity Cost, and
multiplying that sum by the average after-tax yield of a ninety-day
Treasury bill for the Plan Year, or the
4
<PAGE>
Bank's average annualized after-tax cost of funds as calculated using
the Bank's third quarter Thrift Financial Report or any successor
regulatory financial report for the Plan Year as filed with the
Bank's primary regulatory agency, whichever amount is less. The
applicable tax rate, as agreed to by the parties, used to calculate
the Opportunity Cost shall be thc average combined Federal and State
tax rate for the fiscal year ending June 30 for the years 1994
through 1998, said rate being thirty-eight and eight-tenths percent
(38.8%).
J. Change of Control
-----------------
For purposes of this Agreement a "Change in Control" of the Company
or the Bank shall be deemed to occur if and when (a) an offeror other
than the Company purchases shares of the common stock of the Company
or the Bank pursuant to a tender or exchange offer for such shares,
(b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company or the
Bank representing twenty-five percent (25%) or more of the combined
voting power of the Company's or Bank's then outstanding securities,
(c) the membership of the board of directors of the Company or the
Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four
(24) month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at
the end of such period, or (d) shareholders of the Company or the
Bank approve a merger consolidation, sale or disposition of all or
substantially all of the Company's or Bank's assets, or a plan of
partial or complete liquidation is approved by the directors or the
shareholders of the Company or the Bank.
K. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the Executive
attains age seventy (70).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
employment agreement by and between the Employer and the Executive, nor
shall any conditions herein create specific employment rights to the
Executive nor limit the right of the Employer to discharge the Executive
with or without cause. In a similar fashion, no provision shall limit the
Executive's rights to voluntarily sever his employment at any time.
5
<PAGE>
III. INDEX BENEFITS
The following benefits provided by the Employer to the Executive are in
the nature of a fringe benefit and shall in no event be construed to
effect nor limit the Executive's current or prospective salary increases,
cash bonuses or profit-sharing distributions or credits.
A. Retirement Benefits:
-------------------
Should the Executive continue to be employed by the Employer until
the "Normal Retirement Age" defined in Subparagraph I (K). he shall
be entitled to receive the balance in his Pre-Retirement Account [as
defined in Subparagraph I (F)] in a lump sum within thirty (30) days
following the Executive's retirement. In addition to the lump sum
payment and commencing in the Plan Year in which the Executive
attains his Retirement Date, the Index Retirement Benefit (as defined
in Subparagraph I (G) above) for each year shall be paid to the
Executive until his death.
B. Early Retirement:
----------------
Subject to Subparagraph III (E) hereinafter, should the Executive
elect Early Retirement or be discharged without cause by the Bank
subsequent to the Early Retirement Date [defined in Subparagraph I
(D)], he shall be entitled to receive the balance in the Pre-
Retirement Account in a lump sum within thirty (30) days following
said early retirement. In addition to these payments and commencing
in the Plan Year in which the Executive retires early, the Index
Retirement Benefit (as defined in Subparagraph I (G) above) for each
year shall be paid to the Executive until his death.
C. Termination of Service:
----------------------
i.) Subject to Subparagraph III (E) hereinafter, should the
Executive suffer a Termination of Service as defined in
Subparagraph I (E) (i) (i.e. a voluntary resignation of service
by the Executive), he shall be entitled to receive four percent
(4%) times the number of full years the Executive has served the
Bank from the date of first service [to a maximum of one hundred
percent (100%)], times the balance in the Pre-Retirement Account
paid in a lump sum within thirty (30) days following attaining
age sixty (60). In addition to these payments and commencing in
the Plan Year in which the Executive attains age sixty (60),
four percent (4%) times the number of full years the Executive
has served the Bank from the date of first service [to a maximum
of one hundred percent (100%)], times the Index Retirement
Benefit (as defined in
6
<PAGE>
Subparagraph I (G) above) for each year shall be paid to the
Executive until his death.
ii.) Subject to Subparagraph III (E) hereinafter, if the Executive
should suffer a Termination of Service as defined in
Subparagraph I (E) (ii) (i.e. the Employer's discharge of the
Executive without cause), then the Executive shall be entitled
to the benefits as set forth in Subparagraph III (C) (i)
hereinabove except said benefits shall commence thirty (30) days
following the date of said Termination of Service without regard
to age.
D. Death:
-----
Should the Executive die prior to having received that portion of the
Pre-Retirement Account he was entitled to pursuant to subparagraph A
herein above, as the case may be, the unpaid balance of the Pre-
Retirement Account shall be paid in a lump sum to the Executive's
spouse, Donna J. Pullo. In the absence of or a failure to designate a
beneficiary, the unpaid balance shall be paid in a lump sum to the
personal representative of the Executive's estate.
E. Discharge for Cause:
-------------------
Should the Executive be discharged for cause at any time, all Benefits
under this Agreement shall be forfeited. The term "for cause" shall
mean gross negligence or gross neglect or the commission of a felony
or gross-misdemeanor involving moral turpitude, fraud, dishonesty or
willful violation of any law that results in any adverse effect on the
Employer. If a dispute arises as to discharge "for cause", such
dispute shall be resolved by arbitration as set forth in this
Agreement.
F. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided under
this Agreement.
G. Installment Payments:
--------------------
Notwithstanding the foregoing, in the sole discretion of the Plan
Administrator, after taking into consideration the economic and tax
situations of the Executive (and his Beneficiaries in the event that
the benefit hereunder shall become payable by reason of his death),
and taking into consideration the deductibility of the payments by the
Bank under Section 162(m) of the Internal Revenue Code of 1986 as
amended, the benefits payable hereunder may be paid in the form of a
series of substantially equal annual installment payments over a
period not to exceed seven (7) years.
7
<PAGE>
IV. RESTRICTIONS UPON FUNDING
The Employer shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his beneficiary(ies) or any successor in interest to him shall
be and remain simply a general creditor of the Employer in the same manner
as any other creditor having a general claim for matured and unpaid
compensation.
The Employer reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Employer elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Employer reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall the Executive be deemed to have any lien or right,
title or interest in or to any specific funding investment or to any
assets of the Employer.
If the Employer elects to invest in a life insurance, disability or
annuity policy upon the life of the Executive, then the Executive shall
assist the Employer by freely submitting to a physical exam and supplying
such additional information necessary to obtain such insurance or
annuities.
V. CHANGE OF CONTROL
Upon a Change of Control (as defined in Subparagraph I (J) herein), the
Executive shall begin receiving the benefits set forth in Subparagraph III
(A) herein without regard to age within thirty (30) days from the date of
said Change of Control, and the Executive shall be one-hundred percent
(100%) vested in said benefits. The Executive will also remain eligible
for all promised death benefits in this Agreement. In addition no sale,
merger or consolidation of the Company or Bank shall take place unless the
new or surviving entity expressly acknowledges the obligations under this
Agreement and agrees to abide by its terms.
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments,
8
<PAGE>
alimony or separate maintenance owed by the Executive or his
beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or
any beneficiary attempts assignment commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Employer's
liabilities shall forthwith cease and terminate.
B. Binding Obligation of Employer and any Successor in Interest:
------------------------------------------------------------
The Employer expressly agrees that it shall not merge or consolidate
into or with another bank, firm or person or sell substantially all
of its assets to another bank, firm or person until such bank, firm
or person expressly agrees, in writing, to assume and discharge the
duties and obligations of the Employer under this Agreement. This
Agreement shall be binding upon the parties hereto, their successors,
beneficiary(ies), heirs and personal representatives.
C. Revocation:
----------
It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked
at any time or times, in whole or in part, by the mutual written
assent of the Executive and the Employer.
D. Gender:
------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
E. Effect on Other Employer Benefit Plans:
--------------------------------------
Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or non-
qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the
Employer's existing or future compensation structure.
F. Headings:
--------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this
Agreement.
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed
by the laws of the Commonwealth of Pennsylvania.
9
<PAGE>
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan shall be
York Federal Savings and Loan Association until its resignation or
removal by the Board. As Named Fiduciary and Administrator, the Bank
shall be responsible for the management, control and administration of
the Executive Supplemental Retirement Plan Agreement as established
herein. The Named Fiduciary may delegate to others certain aspects of
the management and operation responsibilities of the plan including
the employment of advisors and the delegation of ministerial duties to
qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Executive (or to his beneficiary in the
case of the Executive's death) and such Executive or beneficiary
("the Claimants") feel they are entitled to receive such benefits,
then a written claim must be made to the Named Fiduciary and
Administrator named above within ninety (90) days from the date
payments are refused. The Named Fiduciary and Administrator and the
Employer shall review the written claim and if the claim is denied,
in whole or in part, they shall provide in writing within ninety (90)
days of receipt of such claim their specific reasons for such denial,
reference to the provisions of this agreement upon which the denial
is based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further review of the
claim denial is desired. A claim shall be deemed denied if the Named
Fiduciary and Administrator fails to take any action within the
aforesaid ninety-day period.
If Claimants desire a second review they shall notify the Named
Fiduciary and Administrator in writing within ninety (90) days of the
first claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In its sole discretion, the Named
Fiduciary and Administrator shall then review the second claim and
provide a written decision within ninety (90) days of receipt of such
claim. This decision shall likewise state the specific reasons for
the decision and shall include reference to specific provisions of
this Agreement upon which the decision is based.
If Claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and
10
<PAGE>
conditions thereof, then claimants may submit the dispute to a Board
of Arbitration for final arbitration. Said Board shall consist of one
member selected by the Claimant, one member selected by the Employer,
and the third member selected by the first two members. The Board
shall operate under any generally recognized set of arbitration
rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the
decision of such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Employer's discharge of the
Executive "for cause", such dispute shall likewise be submitted to
arbitration as above described and the parties hereto agree to be
bound by the decision thereunder.
VIII. ACKNOWLEDGEMENT
The Executive acknowledges that his benefit hereunder is entirely
dependent upon the Index as set forth in Subparagraph I (H) and the
interest rates and costs described at Subparagraph I (I), and that,
consequently, the application of those variable amounts and variable
rates to the benefit formula herein may result in no benefit being
paid under this Agreement.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 14th day
of July, 1999 and that, upon execution, each has received a conforming copy.
YORK FEDERAL SAVINGS
& LOAN ASSOCIATION
/s/Benjamin Riggs /s/James H. Moss
- ----------------------------- ------------------------------------
Witness - Assistant Secretary Executive Vice President Title
YORK FINANCIAL CORP.
/s/Robert Angelo /s/Thomas Wolf
- ----------------------------- ------------------------------------
Witness - Secretary Chairman Title
/s/Patricia Smith /s/Robert W. Pullo
- ----------------------------- ------------------------------------
Witness Robert W. Pullo
11
<PAGE>
BENEFICIARY DESIGNATION FORM
FOR THE EXECUTIVE SUPPLEMENTAL RETIREMENT
PLAN AGREEMENT
PRIMARY DESIGNATION:
Name Address Relationship
---- ------- ------------
Donna J. Pullo Spouse
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECONDARY (CONTINGENT) DESIGNATION:
Estate
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
All sums payable under the Executive Supplemental Retirement Plan Agreement by
reason of my death shall be paid to the Primary Beneficiary, if he or she
survives me, and if no Primary Beneficiary shall survive me, then to the
Secondary (Contingent) Beneficiary.
/s/ Robert A. Pullo 7/14/99
- ------------------------------- ------------------------------
Robert A. Pullo Date
12
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT
This Agreement, made and entered into this 14th day of July, 1999, by and
between York Federal Savings and Loan Association, a corporation organized and
existing under the laws of the United States of America (hereinafter referred to
as "the Bank") and York Financial Corp., a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania (hereinafter referred to as
"the Company"), (the Bank and the Company are jointly referred to as "the
Employer"), and Robert A. Angelo, a Key Employee and Executive of the Bank and
Company, hereinafter referred to as "the Executive."
The Executive has been in the employ of the Employer for many years and has
now and for years past faithfully served the Employer. It is the consensus of
the Boards of Directors of the Employer (the Board) that the Executive's
services have been of exceptional merit, in excess of the compensation paid and
an invaluable contribution to the profits and position of the Employer in its
field of activity. The Board further believes that the Executive's experience,
knowledge of corporate affairs, reputation and industry contacts are of such
value and his continued services are so essential to the Employer's future
growth and profits that it would suffer severe financial loss should the
Executive terminate his services.
Accordingly, it is the desire of the Employer and the Executive to enter
into this Agreement under which the Employer will agree to make certain payments
to the Executive upon his retirement and, alternatively, to his beneficiary(ies)
in the event of his premature death while employed by the Employer.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive, as a member of a select group of management or highly-
compensated employees of the Employer, and to be considered a non-qualified
benefit plan for purposes of the Employee Retirement Security Act of 1974
(ERISA). The Executive is fully advised of the Employer's financial status and
has had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Employer and the Executive, agree as
follows:
<PAGE>
I. DEFINITIONS
A. Effective Date:
--------------
The effective date of this Agreement shall be December 17, 1998.
B. Plan Year:
---------
Any reference to "year" shall mean a calendar year from January 1 to
December 31. In the year of implementation, the term "year" shall
mean the period from the effective date to December 31 of the year of
the effective date.
C. Retirement Date:
---------------
Retirement Date shall mean retirement from service with the Bank
which becomes effective on the first day of the calendar month
following the month in which the Executive reaches his seventieth
(70th) birthday or such later date as the Executive may actually
retire, with at least twenty-three (23) years of service with the
Bank.
D. Early Retirement Date:
---------------------
Early Retirement Date shall mean a retirement from service which is
effective prior to the Retirement Date stated above, provided the
Executive has attained age sixty (60) and has served the Bank for
twenty-three (23) full years from the date of first service.
E. Termination of Service:
----------------------
Termination of Service shall mean either:
i.) voluntary resignation of service by the Executive prior to
the Normal Retirement Age; or
ii.) the Employer's discharge of the Executive without cause
["cause" defined in Subparagraph III (E) hereinafter], prior to
the Normal Retirement Age [described in Subparagraph I (K)
hereinafter].
F. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Employer for the benefit of the
Executive. Prior to the Executive's Retirement Date [Subparagraph I
(C)] or prior to the Executive receiving benefits under this
Agreement, such liability
2
<PAGE>
reserve account shall be increased or decreased each year by an
amount equal to the annual earnings or loss for the year determined
by the Index (described in Subparagraph I (H) hereinafter), less the
Opportunity Cost for that year (described in Subparagraph I (I)
hereinafter).
G. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for the Executive for any year shall be
equal to the excess of the annual earnings (if any) determined by the
index [Subparagraph I (H)] for that year over the Opportunity Cost
[Subparagraph I (I)], for that year.
H. Index:
-----
The Index for any year shall be the aggregate annual after-tax income
from the life insurance contracts described hereinafter as defined by
FASB Technical Bulletin 85-4 as in effect on the date of this
Agreement or as modified if such modification is to the benefit of
the Executive. This Index shall be applied as if such insurance
contracts were purchased on the effective date hereof.
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan IV
Insured's Age and Sex: 51, Male
Riders: None
Ratings: None
Option: A, Level Death Benefit
Face Amount: $724,000
Premiums Paid: $300,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
Insurance Company: Canada Life Assurance
Policy Form: Whole Life
Policy Name: CL/1
Insured's Age and Sex: 51, Male
Riders: AddVantage
Ratings: None
Option: Level Death Benefit
Face Amount: $1,056,209
Premiums Paid: $400,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
3
<PAGE>
Insurance Company: Lincoln Benefit Life Insurance Company
Policy Form: Flexible Premium Adjustable Life
Policy Name: Ultra Achiever
Insured's Age and Sex: 51, Male
Option: Level Death Benefit
Face Amount: $5,185,404
Premiums Paid: $1,400,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
Insurance Company: Security Life of Denver Life Insurance
Company
Policy Form: Whole Life
Policy Name: Corp IV
Insured's Age and Sex: 51, Male
Riders: None
Ratings: None
Option: Level Death Benefit
Face Amount: $482,634
Premiums Paid: $200,000
Number of Premiums Paid: One
Assumed Purchase Date: December 17, 1998
If such contracts of life insurance are actually purchased by the
Employer then the actual policies as of the dates they were purchased
shall be used in calculations under this Agreement. If such contracts
of life insurance are not purchased or are subsequently surrendered
or lapsed, then the Employer shall receive annual policy
illustrations that assume the above described policies were purchased
from the above named insurance company(ies) on the effective date
from which the increase in policy value will be used to calculate the
amount of the Index.
In either case, our references to the life insurance contract are
merely for purposes of calculating a benefit. The Employer has no
obligation to purchase such life insurance and, if purchased, the
Executive and his beneficiary(ies) shall have no ownership interest
in such policy and shall always have no greater interest in the
benefits under this Agreement than that of an unsecured general
creditor of the Employer.
I. Opportunity Cost:
----------------
The Opportunity Cost for any year shall be calculated by taking the
sum of the amount of premiums set forth in the Indexed policies
described above plus the amount of any after-tax benefits paid to the
Executive pursuant to this Agreement (Paragraph III hereinafter) plus
the sum of all previous years after-tax Opportunity Cost, and
multiplying that sum by the average
4
<PAGE>
after-tax yield of a ninety-day Treasury bill for the Plan Year or
the Bank's average annualized after-tax cost of funds as calculated
using the Bank's third quarter Thrift Financial Report or any
successor regulatory financial report for the Plan Year as filed with
the Bank's primary regulatory agency, whichever amount is less. The
applicable tax rate, as agreed to by the parties, used to calculate
the Opportunity Cost shall be the average combined Federal and State
tax rate for the fiscal year ending June 30 for the years 1994
through 1998, said rate being thirty-eight and eight-tenths percent
(38.8%).
J. Change of Control
-----------------
For purposes of this Agreement, a "Change in Control" of the Company
or the Bank shall be deemed to occur if and when (a) an offeror other
than the Company purchases shares of the common stock of the Company
or the Bank pursuant to a tender or exchange offer for such shares,
(b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company or the
Bank representing twenty-five percent (25%) or more of the combined
voting power of the Company's or Bank's then outstanding securities,
(c) the membership of the board of directors of the Company or the
Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four
(24) month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at
the end of such period, or (d) shareholders of the Company or the
Bank approve a merger, consolidation, sale or disposition of all or
substantially all of the Company's or Bank's assets, or a plan of
partial or complete liquidation is approved by the directors or the
shareholders of the Company or the Bank.
K. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the Executive
attains age seventy (70).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Employer and the
Executive, nor shall any conditions herein create specific employment
rights to the Executive nor limit the right of the Employer to discharge
the Executive with or without cause. In a similar fashion, no provision
shall limit the Executive's rights to voluntarily sever his employment at
any time.
5
<PAGE>
III. INDEX BENEFITS
The following benefits provided by the Employer to the Executive are in
the nature of a fringe benefit and shall in no event be construed to
effect nor limit the Executive's current or prospective salary increases,
cash bonuses or profit-sharing distributions or credits.
A. Retirement Benefits:
-------------------
Should the Executive continue to be employed by the Employer until
the "Normal Retirement Age" defined in Subparagraph I (K), he shall
be entitled to receive the balance in his Pre-Retirement Account [as
defined in Subparagraph I (F)] in a lump sum within thirty (30) days
following the Executive's retirement. In addition to the lump sum
payment and commencing in the Plan Year in which the Executive
attains his Retirement Date, the Index Retirement Benefit (as
defined in Subparagraph I (G) above) for each year shall be paid to
the Executive until his death.
B. Early Retirement:
----------------
Subject to Subparagraph III (E) hereinafter, should the Executive
elect Early Retirement or be discharged without cause by the Bank
subsequent to the Early Retirement Date [defined in Subparagraph I
(D)], he shall be entitled to receive the balance in the Pre-
Retirement Account in a lump sum within thirty (30) days following
said early retirement. In addition to these payments and commencing
in the Plan Year in which the Executive retires early, the Index
Retirement Benefit (as defined in Subparagraph I (G) above) for each
year shall be paid to the Executive until his death.
C. Termination of Service:
----------------------
i.) Subject to Subparagraph III (E) hereinafter, should the
Executive suffer a Termination of Service as defined in
Subparagraph I (E) (i) (i.e. a voluntary resignation of service
by the Executive), he shall be entitled to receive four percent
(4%) times the number of full years the Executive has served the
Bank from the date of first service [to a maximum of one hundred
percent (100%)], times the balance in the Pre-Retirement Account
paid in a lump sum within thirty (30) days following attaining
age sixty (60). In addition to these payments and commencing in
the Plan Year in which the Executive attains age sixty (60),
four percent (4%) times the number of full years the Executive
has served the Bank from the date of first service [to a maximum
of one hundred percent (100%)], times the Index Retirement
Benefit (as defined in Subparagraph I (G) above) for each year
shall be paid to the Executive until his death.
6
<PAGE>
ii.) Subject to Subparagraph III (E) hereinafter, if the Executive
should suffer a Termination of Service as defined in
Subparagraph I E) (ii) (i.e. the Employer's discharge of the
Executive without cause). then the Executive shall be entitled
to the benefits as set forth in Subparagraph III (C) (i)
hereinabove except said benefits shall commence thirty (30) days
following the date of said Termination of Service without regard
to age.
D. Death:
-----
Should the Executive die prior to having received that portion of the
Pre-Retirement Account he was entitled to pursuant to subparagraph A
herein above, as the case may be, the unpaid balance of the Pre-
Retirement Account shall be paid in a lump sum to the Executive's
spouse, Sharon L. Angelo. In the absence of or a failure to
designate a beneficiary, the unpaid balance shall be paid in a lump
sum to the personal representative of the Executive's estate.
E. Discharge for Cause:
-------------------
Should the Executive be discharged for cause at any time, all
Benefits under this Agreement shall be forfeited. The term "for
cause" shall mean gross negligence or gross neglect or the commission
of a felony or gross-misdemeanor involving moral turpitude, fraud,
dishonesty or willful violation of any law that results in any
adverse effect on the Employer. If a dispute arises as to discharge
"for cause", such dispute shall be resolved by arbitration as set
forth in this Agreement.
F. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided under
this Agreement.
G. Installment Payments:
--------------------
Notwithstanding the foregoing in the sole discretion of the Plan
Administrator, after taking into consideration the economic and tax
situations of the Executive (and his Beneficiaries in the event that
the benefit hereunder shall become payable by reason of his death),
and taking into consideration the deductibility of the payments by
the Bank under Section 162(m) of the Internal Revenue Code of 1986,
as amended, the benefits payable hereunder may be paid in the form of
a series of substantially equal annual installment payments over a
period not to exceed seven (7) years.
7
<PAGE>
IV. RESTRICTIONS UPON FUNDING
The Employer shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his beneficiary(ies) or any successor in interest to him shall
be and remain simply a general creditor of the Employer in the same manner
as any other creditor having a general claim for matured and unpaid
compensation.
The Employer reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Employer elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Employer reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall the Executive be deemed to have any lien or right,
title or interest in or to any specific funding investment or to any
assets of the Employer.
If the Employer elects to invest in a life insurance, disability or
annuity policy upon the life of the Executive, then the Executive shall
assist the Employer by freely submitting to a physical exam and supplying
such additional information necessary to obtain such insurance or
annuities.
V. CHANGE OF CONTROL
Upon a Change of Control (as defined in Subparagraph I (J) herein), the
Executive shall begin receiving the benefits set forth in Subparagraph III
(A) herein without regard to age within thirty (30) days from the date of
said Change of Control, and the Executive shall be one-hundred percent
(100%) vested in said benefits. The Executive will also remain eligible
for all promised death benefits in this Agreement. In addition, no sale,
merger or consolidation of the Company or Bank shall take place unless the
new or surviving entity expressly acknowledges the obligations under this
Agreement and agrees to abide by its terms.
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Executive, his widow nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the
Executive or his beneficiary, nor be transferable by operation of law
in the event of bankruptcy,
8
<PAGE>
insolvency or otherwise. In the event the Executive or
any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Employer's
liabilities shall forthwith cease and terminate.
B. Binding Obligation of Employer and any Successor in Interest:
------------------------------------------------------------
The Employer expressly agrees that it shall not merge or consolidate
into or with another bank, firm or person or sell substantially all
of its assets to another bank, firm or person until such bank, firm
or person expressly agrees, in writing, to assume and discharge the
duties and obligations of the Employer under this Agreement. This
Agreement shall be binding upon the parties hereto, their successors,
beneficiary(ies), heirs and personal representatives.
C. Revocation:
----------
It is agreed by and between the parties hereto that, during the
lifetime of the Executive, this Agreement may be amended or revoked
at any time or times, in whole or in part, by the mutual written
assent of the Executive and the Employer.
D. Gender:
------
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
E. Effect on Other Employer Benefit Plans:
--------------------------------------
Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or non-
qualified pension. profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the
Employer's existing or future compensation structure.
F. Headings:
--------
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this
Agreement.
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be governed
by the laws of the Commonwealth of Pennsylvania.
9
<PAGE>
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan shall be
York Federal Savings and Loan Association until its resignation or
removal by the Board. As Named Fiduciary and Administrator, the Bank
shall be responsible for the management control and administration of
the Executive Supplemental Retirement Plan Agreement as established
herein. The Named Fiduciary may delegate to others certain aspects of
the management and operation responsibilities of the plan including
the employment of advisors and the delegation of ministerial duties
to qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Executive (or to his beneficiary in the
case of the Executive's death) and such Executive or beneficiary
("the Claimants") feel they are entitled to receive such benefits,
then a written claim must be made to the Named Fiduciary and
Administrator named above within ninety (90) days from the date
payments are refused. The Named Fiduciary and Administrator and the
Employer shall review the written claim and if the claim is denied,
in whole or in part, they shall provide in writing within ninety (90)
days of receipt of such claim their specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial
is based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further review of the
claim denial is desired. A claim shall be deemed denied if the Named
Fiduciary and Administrator fails to take any action within the
aforesaid ninety-day period.
If Claimants desire a second review they shall notify the Named
Fiduciary and Administrator in writing within ninety (90) days of the
first claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and comments
they may feel appropriate. In its sole discretion, the Named
Fiduciary and Administrator shall then review the second claim and
provide a written decision within ninety (90) days of receipt of such
claim. This decision shall likewise state the specific reasons for
the decision and shall include reference to specific provisions of
this Agreement upon which the decision is based.
If Claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the
dispute to a Board of Arbitration for final arbitration. Said Board
shall consist of one member
10
<PAGE>
selected by the Claimant, one member selected by the Employer,
and the third member selected by the first two members. The Board
shall operate under any generally recognized set of arbitration
rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the
decision of such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Employer's discharge of the
Executive" for cause", such dispute shall likewise be submitted to
arbitration as above described and the parties hereto agree to be
bound by the decision thereunder.
VIII. ACKNOWLEDGEMENT
The Executive acknowledges that his benefit hereunder is entirely
dependent upon the Index as set forth in Subparagraph I (H) and the
interest rates and costs described at Subparagraph I (I), and that,
consequently, the application of those variable amounts and variable
rates to the benefit formula herein may result in no benefit being paid
under this Agreement.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the 14th day of July,
1999 and that, upon execution, each has received a conforming copy.
YORK FEDERAL SAVINGS
& LOAN ASSOCIATION
/s/Benjamin Riggs /s/James H. Moss
- ----------------------------- ------------------------------------
Witness - Assistant Secretary Executive Vice President Title
YORK FINANCIAL CORP.
/s/Robert Angelo /s/Thomas Wolf
- ----------------------------- ------------------------------------
Witness - Secretary Chairman Title
/s/Patricia Smith /s/Robert A. Angelo
- ----------------------------- ------------------------------------
Witness Robert A. Angelo
11
<PAGE>
BENEFICIARY DESIGNATION FORM
FOR THE EXECUTIVE SUPPLEMENTAL RETIREMENT
PLAN AGREEMENT
PRIMARY DESIGNATION:
Name Address Relationship
---- ------- ------------
Sharon L. Angelo Spouse
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECONDARY (CONTINGENT) DESIGNATION:
Estate
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
All sums payable under the Executive Supplemental Retirement Plan Agreement by
reason of my death shall be paid to the Primary Beneficiary, if he or she
survives me, and if no Primary Beneficiary shall survive me, then to the
Secondary (Contingent) Beneficiary.
/s/ Robert A. Angelo 7/14/99
- ------------------------------- ------------------------------
Robert A. Angelo Date
12
<PAGE>
EXHIBIT 13
1999 Annual Report to Stockholders
<PAGE>
YORK FINANCIAL CORP.
1999 ANNUAL REPORT TO STOCKHOLDERS
Surf-Thru Banking
[Picture appears here]
Www.yorkfed.com
<PAGE>
OUR VISION
When individuals and businesses in the communities we
serve are in need of high quality financial services, they select
York Financial Corp.
OUR MISSION
The mission of York Financial Corp. is to partner with our
customers in meeting their financial services needs. This will
result in the development of mutually beneficial relationships
with our customers, employees, stockholders, vendors, and
community in order to achieve superior returns.
<PAGE>
To Our Shareholders
Curious about why that surfer is on the cover? There's a great story behind
that picture, which we'll explain in a little while. Before we get to that,
however, we want to explain why the year ending June 30, 1999, was disappointing
and why we at York Federal are nevertheless more confident than ever in our
future.
Hurt By A High Level of Liquid Assets
The first three-quarters of fiscal '99 were difficult. Though our performance
in both the consumer and commercial markets was excellent, a tough interest rate
environment put us in a position of accumulating a high level of liquid assets.
Naturally, we saw this situation developing, but we were determined to deploy
those assets in high quality portfolio loans or low-risk securities, and
opportunities to do this were quite limited.
By the end of the year, we had managed to deploy the excess liquidity safely.
We made up a tremendous amount of lost ground, ending within 4% of last year's
earnings.
That's the bad news. Now I'd like to explain why we are actually quite
optimistic at this point.
The Fourth Quarter Was A Good Way to End the Year
If this were a quarterly report, rather than an annual report, we'd have
nothing but good news. The final quarter of fiscal '99 was rewarding. With our
marketing strategies working as planned and the final deployment of the liquid
assets, the fourth quarter showed a gratifying 48% increase over the same
quarter last year. Although some non-recurring income items are a part of our
fourth quarter earnings, our net interest income after provision for loan losses
increased over 7%. In our opinion, this is a clear indication that this
strategy is moving us in the right direction.
Yet Another Year of Cash and Stock Dividends
For the fifteenth consecutive year, we have increased our cash dividend. The
rate of growth of the quarterly cash dividend was 5%. Our ability to provide
this growth has been based on our historical performance and it is our long-term
commitment to continue this achievement.
We continued our equally impressive trend of declaring annual stock
dividends, fiscal '99 being the fifteenth year in a row. We believe this is
good news for our shareholders, contributing significantly to the volume and
float of our thinly-traded stock and reducing the price to make it more
attractive to small investors.
Stock Repurchase Programs Show Confidence
We initiated a six month stock repurchase program in February 1999. When we
saw our stock trading at what we believe to be bargain rates, we recognized that
this was, quite simply, one of the best investments around. By the end of the
program, we had purchased 287,664 shares at an average price of $14.49 per
share. We promptly announced another six month, 5% program to repurchase an
additional 478,000 shares. These programs should not only increase our return
on equity and the value of our stock for the remaining shareholders, but also
express confidence in the company's ability to achieve higher valuation in the
long run.
Overall, with assets up 11% and deposits up almost 5% for the year, we are
confident that our tradition of growth, combined with our capital strength and
balance sheet quality, bode well for the future.
Surfing Our Way to "One-Stop Banking"
We don't think many of our customers are surfers in the old sense of the
word. But many of our customers are--or will soon be--surfers in the new sense
of the word, because York Federal is ahead of the wave in on-line banking.
In a major ad campaign featuring a Beach Boys-type sound and surfer image,
we've introduced a strong "One-Stop Banking" concept that will change the way
people think about banking. By banking with us on the internet, customers will
be able to do just about anything, anytime, anywhere they can make an on-line
connection.
Our web site is completely interactive and represents a full-service e-
commerce branch office. Customers can go on-line to handle their transactions,
buy and sell securities, obtain insurance, open deposit accounts, apply for
loans, and much more. All of this can be accomplished safely with our state-of-
the-art security, including password systems and protective firewall barriers.
Understanding that some people are still nervous about banking on-line and
unsure about how to go surfing on the Web, we have installed computer stations
in the lobbies of several York Federal
1
<PAGE>
branches. While advertising the fact that we offer internet banking, these
terminals also teach people how to negotiate through their first internet
experience. With the guidance of a branch employee, a customer proceeds through
an easy, step-by-step, hands-on-demonstration using sample account information.
This way, even our more mature customers (now the fastest growing segment of
internet surfers) quickly overcome any hesitancy and jump right in.
By the way, we are proud of the fact that our Web site, located at
www.yorkfed.com, was one of just three in the country to earn the Bank Marketing
Association's "Best of Web Sites Award for Creative Excellence."
New Branches Capitalize On Market Growth
Though we are aggressively pursuing growth through on-line technology, there
are still significant growth opportunities for bricks-and-mortar commitments.
During the year, we opened two branch offices--one in Carlisle and one in
Stewartstown. We also relocated our branch office in Shrewsbury to a new, more
modern location. The Shrewsbury and Stewartstown branch offices are located in
the heart of the fastest-growing part of York County.
Our Business Banking Strategy Is Working Well
For commercial banking customers, York Federal has every intention of
becoming the business bank of choice in our market. Our long-range plan
includes significant growth and market share penetration from our business
banking efforts. Though we have been selective in our investments and risk
analysis, we nevertheless have made excellent progress during fiscal 1999. We
successfully competed against dominant commercial lenders and aggressive smaller
lenders to elevate our profile and reputation in the market and increase our
market penetration. Many businesses in our region are beginning to recognize
the value that York Federal's personal attention and local decision and policy
making can offer them.
Into The Future with the ONLY Account
During the year, York Federal developed an innovative new account for retail
customers. Called the ONLY Account, it consolidates the customer's checking,
savings, mortgage and other loans into a single account. Working like the
classic "sweep" account that businesses have taken advantage of for years, the
ONLY account automatically moves checking and savings deposits on a daily basis
to a credit line where the funds work to reduce interest expense. The checking
and savings balances are therefore always at $0. Whenever a check is written or
a withdrawal is made, the needed amount is swept back to the checking side of
the account to accommodate the transaction. So, in essence, the customer earns
the same rate on their deposits as they pay on their loans.
The ONLY Account is the best deal a customer can get from any bank. This
product is available in England, but to our knowledge, we are the first
financial institution in the United States to offer this extraordinary product.
With strong promotion, we believe it will win an even greater market share for
York Federal in the future. This account debuted in August 1999.
A Final Word About Y2K
According to federal regulators, the banking industry is notably well
prepared and leading the way in dealing with the Y2K transition, and York
Financial Corp. is as ready as any financial institution can be. We've not only
made all the necessary software modifications, we've also put our systems to the
test, setting our computer systems' clocks ahead to the year 2000 to ensure and
confirm that our systems will function accurately. We are pleased to report
that everything worked fine, right down to the ATM machines.
Of course, we can't guarantee that there won't be any glitches. But with the
understanding that Y2K is not an issue of safety but an issue of convenience, we
can assure our customers they have nothing to fear.
As always, I want to take this opportunity to thank all our employees. In
this ever changing industry, they continue to work diligently and put forth the
extra effort needed to prepare York Financial Corp. for an exciting and
rewarding future.
Sincerely,
/s/ Robert W. Pullo
Robert W. Pullo
President and Chief Executive Officer
2
<PAGE>
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
Page 59 . . Corporate Information
Page 60 . . Branch Offices
3
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Financial Highlights
- -------------------------------------------------------------------------------
(Dollars in thousands, Except
per share data) Year Ended June 30
- --------------------------------- ------------------
1999 1998 % Change
- --------------------------------- --------------- --------------- ---------
GROWTH
- --------------------------------- --------------- --------------- ---------
Average assets $ 1,267,131 $ 1,186,759 6.8%
Average loans 900,213 997,078 (9.7%)
Average deposits 1,093,074 1,025,622 6.6%
Average stockholders' equity 111,963 104,196 7.5%
OPERATING PERFORMANCE
- --------------------------------- --------------- --------------- ---------
Net interest income $ 34,539 $ 36,722 (5.9%)
Provision for loan losses 3,632 3,737 (2.8%)
Other income 12,038 10,152 18.6%
Other expenses 28,234 27,323 3.3%
Net income 9,670 10,015 (3.4%)
FINANCIAL RATIOS
- --------------------------------- --------------- --------------- ---------
Return on average assets 0.76% 0.84% (9.5%)
Return on average stockholders'
equity 8.64% 9.61% (10.1%)
STOCK PERFORMANCE (1)
- --------------------------------- --------------- --------------- ---------
Net income per share - assuming
dilution $ 0.97 $ 1.01 (4.0%)
Book value per share 11.54 11.60 (0.5%)
Market value per share 14.63 19.88 (26.4%)
Cash dividends per share 0.51 0.48 6.3%
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 1, 1999,
there were approximately 3,294 stockholders of record owning 9,598,384
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 (1)(2)
- --------------------- --------------------- ---------------
High (1) Low (1)
- --------------------- --------- --------- ---------------
Fiscal 1999
1st quarter $ 21.07 $ 16.01 $ 0.125
2nd quarter 20.83 14.88 0.125
3rd quarter 16.25 14.38 0.130
4th quarter 15.44 14.31 0.130
---------------
$ 0.510
===============
Fiscal 1998
1st quarter $ 20.38 $ 14.86 $ 0.115
2nd quarter 25.95 19.24 0.115
3rd quarter 25.00 22.14 0.125
4th quarter 24.76 19.05 0.125
---------------
$ 0.480
===============
(1) Market prices and amounts per share, including dividends, are adjusted for
stock dividends effected through June 30, 1999.
(2) Restrictions are placed on the Corporation's ability to pay cash dividends
as discussed in Note 14 of the Notes to Consolidated Financial Statements.
4
<PAGE>
York Financial Corp. and Subsidiaries
Selected Consolidated Financial Data
- -------------------------------------------------------------------------------
June 30
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Assets $1,364,626 $1,229,268 $1,162,393 $1,109,804 $1,009,918
Short-term investments 8,958 126,613 1,527 2,207 19,861
Loans held for sale, net 30,631 17,534 4,882 5,686 6,450
Securities and Federal
Home Loan Bank stock 326,285 61,700 83,708 90,859 70,490
Loans receivable, net 909,193 951,641 997,841 938,570 845,205
Deposits 1,115,253 1,065,777 993,106 908,123 832,056
Borrowings 113,962 27,861 46,236 74,380 65,759
Stockholders' equity 110,410 109,225 100,083 93,540 85,330
Loans serviced for others 494,687 487,092 548,202 593,166 571,351
Number of:
Real estate loans
outstanding 7,401 8,795 9,471 9,724 9,786
Loans serviced for others 7,823 7,724 8,484 9,649 9,648
Deposit accounts 133,107 130,968 128,211 118,758 114,541
Offices 25 23 22 22 22
Year Ended June 30
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Data)
Interest income $ 86,365 $ 88,566 $ 87,641 $ 80,880 $ 68,155
Interest expense 51,826 51,844 51,788 45,905 36,402
---------- ---------- ---------- ---------- ----------
Net interest income 34,539 36,722 35,853 34,975 31,753
Provision for loan losses 3,632 3,737 2,424 2,300 2,340
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 30,907 32,985 33,429 32,675 29,413
Other income 12,038 10,152 8,696 8,630 5,706
Other expenses 28,234 27,323 31,163 (1) 24,450 22,616
---------- ---------- ---------- ---------- ----------
Income before income taxes 14,711 15,814 10,962 16,855 12,503
Provision for income taxes 5,041 5,799 3,875 6,512 4,837
---------- ---------- ---------- ---------- ----------
Net income $ 9,670 $ 10,015 $ 7,087 $ 10,343 $ 7,666
========== ========== ========== ========== ==========
Per share data:
Net income-assuming
dilution $ 0.97 $ 1.01 $ 0.75 $ 1.13 $ 0.87
Cash dividends paid $ 0.51 $ 0.48 $ 0.44 $ 0.39 $ 0.36
Book value $ 11.54 $ 11.60 $ 10.88 $ 10.65 $ 9.91
Shares outstanding
(year end) 9,565,467 8,968,031 7,008,347 6,696,494 6,560,558
Weighted average shares-
assuming dilution 9,919,118 9,892,913 9,423,215 9,135,076 8,830,820
Other financial ratios:
Return on average assets 0.76% 0.84% 0.61% 0.99% 0.83%
Return on average equity 8.64% 9.61% 7.46% 11.57% 9.39%
Dividend payout ratio 50.62% 44.13% 55.30% 32.69% 39.94%
Average equity to
average assets 8.84% 8.78% 8.19% 8.51% 8.85%
- --------------------
All per share data is adjusted for stock dividends effected through June 30,
1999.
(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.
5
<PAGE>
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, 1999,
the Corporation had consolidated assets of $1.4 billion, total deposits of $1.1
billion and stockholders' equity of $110.4 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-five offices located in south
central Pennsylvania and Maryland. In addition, York Federal maintains a
commissioned mortgage origination staff as well as mortgage correspondent
relationships which originate residential mortgage loans for the Association
primarily in Pennsylvania, Maryland and Virginia, although loans are originated
in 11 states within the Mid- Atlantic region. 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
6
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
outstanding. Other operating income is an important supplement to York Federal's
interest income and is primarily the result of mortgage banking activities
including gains on sales of mortgage-backed securities and related value
attributed to mortgage servicing rights created from loan originations and
service fee income derived from the portfolio of loans serviced for others.
Other operating income also includes gains and losses on sales of securities
available for sale, gains and losses on sales of real estate, equity in earnings
of limited partnership interests, and fees and service charges assessed on loan
and deposit transactions.
Interest Rate Sensitivity Management and Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Association's market risk arises principally from interest rate risk.
In an effort to maintain control over such risks, 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. The Association's principal financial objective is to
achieve long-term profitability while reducing (controlling) its exposure to
fluctuating market interest rates. By managing the ratio of interest rate
sensitive assets to interest rate sensitive liabilities repricing in the same
periods, the Corporation seeks to minimize the adverse effect of interest rate
fluctuations to net interest income and net portfolio value. The Corporation's
assets and liabilities are not directly exposed to foreign currency or commodity
price risk. At June 30, 1999, 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 permanent loan originations. The funding sources for these portfolio
loans are deposits and borrowings with various maturities.
The ALCO monitors the Corporation's interest rate risk position by
utilizing simulation analysis. Net interest income fluctuations and the net
portfolio value ratio 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 net
portfolio value ratios as indicated in the following table.
7
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
An analysis of hypothetical changes in interest rates as of June 30, 1999
compared to June 30, 1998 is as follows:
June 30
1999 1998
--------------------------- ---------------------------
Percentage change in
---------------------------------------------------------
Change in interest
rates Net interest Net portfolio Net interest Net portfolio
(In basis points) income (1) ratio (2) income (1) ratio (2)
- ------------------ ------------ ------------ ------------ ------------
+300 (14.00%) 4.70% (7.00%) 8.00%
+200 (9.00%) 5.75% (4.00%) 8.31%
+100 (4.00%) 6.69% (2.00%) 8.53%
0 0.00% 7.49% 0.00% 8.70%
(100) 4.00% 8.15% 1.00% 8.86%
(200) 6.00% 8.41% 3.00% 9.05%
- --------------------
(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 net portfolio value ratio in this column represents net portfolio value
of the Association in various rate scenarios, divided by the present value
of expected net cash flows from existing assets in those same scenarios.
Net portfolio value is defined as the present value of expected net cash
flows from existing assets, minus the present value of expected net cash
flows from existing liabilities, plus or minus the present value of
expected net cash flows from existing off-balance-sheet contracts.
Simulation results are influenced by a number of estimates and assumptions
which are primarily related to embedded options, prepayment behaviors, pricing
strategies and cashflows. The risk profile of the Association has increased from
year to year as indicated in the preceding table. This increase resulted
primarily from the deployment of excess liquid funds into higher yielding
investments with inherently more interest rate risk. Additionally, construction
mortgage conversions to fixed rate permanent mortgages were retained in
portfolio and partially funded with available liquid assets and overnight
borrowings as required. Assumptions and estimates used in simulation analysis
are inherently subjective 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 ratio. 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, 1999.
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 developed 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
8
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
the financial characteristics of the target client group may have the effect of
increasing the Association's credit risk exposure. The Association has employed
management expertise and has adopted 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 losses in the existing loan
portfolio. The allowance for loan loss is an estimate, however, these estimates
are reviewed periodically and, any adjustments necessary, are recognized in
operations in the period adjustments become known. Management's determination of
the adequacy of the allowance is performed by an internal loan review committee
and is based on known and inherent risk characteristics in the portfolio, past
loss experience, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, current 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 Statement of Financial Accounting Standards No.
114, as amended by Statement No. 118. Actual losses or recoveries are charged or
credited directly to the allowance.
An analysis of the allowance for loan losses is as follows:
Year Ended June 30
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in Thousands)
Total allowance for loan
losses at beginning of
period $ 8,810 $ 6,413 $ 6,609 $ 5,840 $ 4,492
Loans charged-off:
Real estate-mortgage:
Residential 1,581 1,701 1,304 1,151 1,138
Commercial 16 68 1,820 620 5
Consumer 397 89 226 100 127
-------- -------- -------- ------- --------
Total charge-offs 1,994 1,858 3,350 1,871 1,270
Recoveries:
Real estate-mortgage:
Residential 325 212 210 156 185
Commercial 24 294 516 184 92
Consumer 6 12 4 - 1
-------- -------- -------- -------- --------
Total recoveries 355 518 730 340 278
-------- -------- -------- -------- --------
Net loans charged-off 1,639 1,340 2,620 1,531 992
Provision for loan losses 3,632 3,737 2,424 2,300 2,340
-------- -------- -------- -------- --------
Total allowance for loan
losses at end of period $ 10,803 $ 8,810 $ 6,413 $ 6,609 $ 5,840
======== ======== ======== ======== ========
Percentage of net charge-offs
to average loans outstanding
during the period 0.18% 0.13% 0.26% 0.17% 0.13%
======== ======== ======== ======== ========
Percentage of allowance for
loan losses to adjusted
total loans 1.17% 0.92% 0.64% 0.70% 0.69%
======== ======== ======== ======== ========
The allowance for loan losses totaled $10.8 million or 1.17% of adjusted
total loans of $919.9 million at June 30, 1999. With the implementation of the
Uniform Retail Credit Classification Policy at June 30, 1999, a one-time charge
to the allowance for loan losses of $408,000 was recognized representing the
total amount due on
9
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
certain loans identified in accordance with the policy, in excess of the net
realizable value of the underlying collateral. With this adjustment to the
allowance for loan losses, net charge-offs increased compared to the prior year.
Over the last two years, the composition of the loan portfolio has changed
with an increase of $66.2 million in the commercial loan portfolio. The
commercial loan portfolio as a percentage of total loans represented 12.2% at
June 30, 1999 compared to 5.7% at June 30, 1997. Because of the increased
inherent risk within the portfolio, the allowance for loan losses has been
increased $4.4 million or 68.5% within the past two years. Management believes
that a provision in excess of net charge-offs is warranted due to the changing
composition within the loan portfolio and increased inherent risk. However,
management believes the allowance for loan loss is adequate relative to its
assessment of existing risk characteristics within 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 future problem loans, increased risk due to a change in mix within
the portfolio as well as changes in economic conditions.
An analysis of nonperforming assets is summarized as follows:
June 30
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in Thousands)
Loans accounted for on a
nonaccrual basis:
Real estate-mortgage:
Residential $ 870 $ - $ - $ - $ -
Commercial - - 950 1,481 3,498
Land - - - 200 -
Consumer 49 - - - -
-------- -------- -------- -------- --------
Total nonaccrual loans 919 - 950 1,681 3,498
Accruing loans which are
contractually past due 90
days or more:
Real estate-mortgage:
Residential 8,311 14,487 12,735 10,029 9,133
Consumer 823 1,194 702 383 433
-------- -------- -------- -------- --------
Total of 90 days past
due loans 9,134 15,681 13,437 10,412 9,566
-------- -------- -------- -------- --------
Total of nonaccrual and 90
days past due loans $10,053 $15,681 $14,387 $12,093 $13,064
======== ======== ======== ======== ========
As a percent of total
loans 1.07% 1.63% 1.43% 1.28% 1.53%
======== ======== ======== ======== ========
Real estate owned:
Real estate acquired
through foreclosure
or repossession by
loan type:
Real estate:
Residential $ 4,571 $ 4,543 $ 4,978 $ 4,913 $ 5,981
Commercial 1,055 2,687 2,714 2,370 2,278
Land 1,319 1,863 2,895 3,349 5,107
Loans classified as in
substance foreclosure - - - - 200
Allowance for real estate
losses (45) (116) (365) (955) (630)
-------- -------- -------- -------- --------
Total real estate owned $ 6,900 $ 8,977 $10,222 $ 9,677 $12,936
======== ======== ======== ======== ========
As a percent of
total assets 0.51% 0.73% 0.88% 0.87% 1.28%
======== ======== ======== ======== ========
Total nonperforming assets $16,953 $24,658 $24,609 $21,770 $26,000
======== ======== ======== ======== ========
As a percent of
total assets 1.24% 2.01% 2.12% 1.96% 2.57%
======== ======== ======== ======== ========
10
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
The Association's nonaccrual policy generally covers loans which are 90 or
more days past due, dependent upon type of loan and related collateral. 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, the Association
implemented the Uniform Retail Credit Classification Policy effective June 30,
1999 and follows this policy for placing loans on nonaccrual. As noted in the
previous table, loans contractually past due 90 days or more and real estate
acquired through foreclosure have decreased as compared to the prior period.
This is primarily due to the result of favorable economic conditions, an
ongoing, more aggressive, collection effort to reduce delinquencies and the
impact of sales of real estate owned.
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 1999, net charge-offs were
$321,000 and additions to the allowance totaled $250,000 resulting in a decrease
in the allowance to $45,000. Management continually monitors the risk profile of
real estate owned and maintains an allowance for real estate losses at a level
believed adequate to absorb potential losses within the real estate portfolio.
Liquidity
The primary purpose of asset/liability management is to maintain adequate
liquidity and a desired balance between interest sensitive assets and
liabilities. Liquidity management focuses on the ability to meet the cash flow
requirements of customers wanting to withdraw or borrow funds for their personal
or business needs. Interest rate sensitivity management focuses on consistent
growth of net interest income in times of fluctuating interest rates. The
management of liquidity and interest rate sensitivity must be coordinated since
decisions involving one may influence the other.
Liquidity needs can be met by either reducing assets or increasing
liabilities. Sources of asset liquidity include short term investments,
securities available for sale, maturing and repaying loans, and monthly cash
flows from mortgage-backed securities. The loan portfolio provides an additional
source of liquidity due to York Federal's participation in the secondary
mortgage market. Liquidity needs can 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 1999, the
Association's deposits increased $49.5 million and is attributed to deposit
pricing decisions to facilitate maintenance and expansion of customer
relationships. In addition, York Federal has supplemented its deposit gathering
efforts through borrowings from the FHLB of Pittsburgh.
At June 30, 1999, York Federal had $110.4 million in FHLB advances
outstanding at a weighted average interest rate of 5.24%, an increase of $84.6
million from $25.8 million in fiscal 1998. For additional details of FHLB
advances and other borrowings, refer to Note 11 of the Notes to Consolidated
Financial Statements.
The decrease in the interest-earning overnight cash position to $9.0 million
at June 30, 1999, as compared to $126.6 million at June 30, 1998 provided $117.6
million as a source of funds.
11
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
Amortization and prepayments of loans and proceeds from loan and securities
sales represent a substantial source of funds to York Federal. These sources
amounted to $549.7 million, $475.3 million and $317.0 million in fiscal 1999,
1998 and 1997, respectively. During fiscal 1999, the loan portfolio decreased
$42.4 million to $909.2 million from $951.6 million in fiscal 1998. The primary
factors contributing to the decrease in the loan portfolio and an increase in
sources of funds 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 and certain loan and
security sales to manage interest rate risk levels within acceptable limits.
Generally, the principal use of funds is the origination of mortgage and
other loans. In addition, during fiscal 1999, the initiation of leverage
strategies to effectively utilize available capital, resulted in expansion of
the investment portfolio through the purchase of available for sale securities
and held to maturity securities. The carrying value of securities available for
sale and securities held to maturity increased $264.6 million to $318.3 million
in fiscal 1999 from $53.7 million in fiscal 1998.
Loan demand resulted in total originations of $577.8 million in fiscal 1999.
Loan originations were obtained through various channels including the retail
branch system, commissioned mortgage origination staff, tele-mortgage activity,
expanded mortgage correspondent relationships, and Business Banking relationship
managers. The volume of originations was favorably effected 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.
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, 1999, the Association's
liquidity level was 8.7%.
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,
1999.
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, 1999, totaled $110.4 million compared to
$109.2 million at June 30, 1998, an increase of $1.2 million or 1.1%. This
growth was a result of a combination of
12
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
factors including current earnings, cash dividends paid (representing a payout
ratio of 50.6%), issuance of shares in connection with various benefit and
dividend reinvestment plans, retirement of stock through a stock repurchase
program and the impact of unrealized gains or losses 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, 1999, York Federal's tangible and core capital both equaled 7.1%
($96.5 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 11.7%
($96.5 million) at June 30, 1999, which exceeds the required level of 6.0%.
Finally, York Federal's risk-based capital ratio equaled 12.8% ($105.6 million)
at June 30, 1999, which exceeds the required level of 8.0% by $39.7 million, and
exceeds the required level to be deemed well capitalized of 10.0% by $23.2
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, 1999, such transactions are within these
regulatory limits.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
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 1999 was $34.5 million, as compared to $36.7
million for fiscal 1998, which represents a 6.0% decrease. The margin on
interest-earning assets for fiscal 1999 decreased to 2.90% from 3.28% for fiscal
1998. 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, 1999.
13
<PAGE>
<TABLE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------------------------------------
Year Ended June 30
1999 1998 1997
--------------------------- --------------------------- ---------------------------
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) $ 900,213 $69,880 7.76% $ 997,078 $80,893 8.11% $ 989,670 $80,820 8.17%
Securities held for
trading 9,478 601 6.34 10,314 688 6.67 18,935 1,329 7.02
Securities available for
sale 132,478 8,120 6.13 56,858 3,770 6.63 56,256 3,711 6.60
Securities held to
maturity 21,347 1,308 6.13 15,015 930 6.19 16,141 951 5.89
Other interest-earning
assets 129,118 6,456 5.00 41,721 2,285 5.48 15,747 830 5.27
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-earning
assets 1,192,634 86,365 7.24 1,120,986 88,566 7.90 1,096,749 87,641 7.99
Noninterest-earning
assets 74,497 65,773 64,144
---------- ---------- ----------
Total $1,267,131 $1,186,759 $1,160,893
========== ========== ==========
Interest-bearing
liabilities:
Deposits:
NOW accounts $ 106,543 2,079 1.95 $ 94,847 2,167 2.28 $ 87,720 1,944 2.22
Savings accounts 58,492 1,463 2.50 66,052 1,676 2.54 73,764 2,040 2.77
Money market accounts 293,084 12,762 4.35 233,500 10,794 4.62 205,168 9,017 4.39
Certificate accounts 612,710 33,693 5.50 608,126 35,107 5.77 571,825 33,364 5.83
Borrowings 36,435 1,829 5.02 38,871 2,100 5.40 100,826 5,423 5.38
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-bearing
liabilities 1,107,264 51,826 4.68 1,041,396 51,844 4.98 1,039,303 51,788 4.98
------- ---- ------- ---- ------- ----
Noninterest-bearing
deposits 22,245 23,097 11,426
Noninterest-bearing
liabilities 25,659 18,070 15,141
---------- ---------- ----------
1,155,168 1,082,563 1,065,870
Stockholders' equity 111,963 104,196 95,023
---------- ---------- ----------
Total $1,267,131 $1,186,759 $1,160,893
========== ========== ==========
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.08x 1.08x 1.06x
========== ========== ==========
Net interest income/
interest rate
spread $34,539 2.56% $36,722 2.92% $35,853 3.01%
======= ==== ======= ==== ======= ====
Net interest-earning
assets/margin on
interest-earning
assets $ 85,370 2.90% $ 79,590 3.28% $ 57,446 3.27%
========== ==== ========== ==== ========== ====
</TABLE>
- --------------------
(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, $0.2 million
and $0.6 million in 1999, 1998 and 1997, respectively.
During fiscal 1999, York Federal originated $577.8 million of loans including
loans refinanced from the Association's portfolio totaling $62.8 million. The
result of these originations, when combined with mortgage loan securitizations
or sales totaling $241.3 million and loan repayment activity, was a decrease of
9.7% or $96.8 million in average loans outstanding during fiscal 1999. The
average balance of securities and other interest-earning assets increased $168.5
million over the prior fiscal year and results primarily from a decrease in
loans and an increase in average deposits of $68.3 million or 6.8% partially
offset by lower average borrowings of $2.4 million or 6.3%. The resulting shift
in composition of the Association's assets coupled with the lower interest rate
environment had a negative effect on interest income and contributed to the
yield on earning assets decreasing 66 basis points to 7.24%. Even though in
total, interest-earning assets increased 6.4% in fiscal 1999 compared to fiscal
1998, the
14
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
decrease in yield on interest-earning assets resulted in a decrease in interest
income. This combination of volume and rate changes resulted in a net decrease
in interest income of $2.2 million, or 2.5%.
Interest expense was virtually unchanged in fiscal 1999 from the prior fiscal
year. There was an increase of $65.9 million or 6.3% in the average level of
interest-bearing liabilities but this was offset by a decrease in the cost of
funds. In order to maintain and attract new deposits during fiscal 1999, the
Association continued to successfully market a Guaranteed Money Fund Account
(which is priced based on nationally reported money fund rates) as well as
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 deposit growth in higher cost
money market and certificate accounts. The increase in average deposits of $68.3
million was partially offset by a decrease in average overnight borrowings to
$36.4 million from the previous year's level of $38.9 million. The average rate
on interest-bearing liabilities decreased 30 basis points to 4.68% as compared
to 4.98% in the prior period.
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 1999
compared to fiscal 1998, and fiscal 1998 compared to fiscal 1997. 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.
Year Ended June 30
1999 Compared to 1998 1998 compared to 1997
Increase (Decrease) Due to: Increase (Decrease) Due to:
--------------------------- --------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
Interest income:
Loans $(7,758) $(3,255) $(11,013) $ 601 $ (528) $ 73
Securities held
for trading (55) (32) (87) (603) (38) (641)
Securities available
for sale 4,425 (75) 4,350 40 19 59
Securities held to
maturity 367 11 378 (66) 45 (21)
Other interest-
earning assets 4,370 (199) 4,171 1,421 34 1,455
------- ------- -------- ------ ------ ------
Total 1,349 (3,550) (2,201) 1,393 (468) 925
Interest expense:
Deposits:
NOW accounts 228 (316) (88) 161 62 223
Savings accounts (192) (21) (213) (206) (158) (364)
Money market
accounts 2,595 (627) 1,968 1,292 485 1,777
Certificate
accounts 252 (1,666) (1,414) 2,096 (353) 1,743
Borrowings (127) (144) (271) (3,332) 9 (3,323)
------- ------- -------- ------ ------ ------
Total 2,756 (2,774) (18) 11 45 56
------- ------- -------- ------ ------ ------
Net interest income $(1,407) $ (776) $ (2,183) $1,382 $ (513) $ 869
======= ====== ======== ====== ====== ======
15
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
Provision for Loan Losses
In fiscal 1999, additions were made to the allowance for loan losses in the
amount of $3.6 million resulting in an allowance (net of charge-offs and
recoveries of $1.6 million) of $10.8 million, or 1.17% of the loan portfolio,
compared to an allowance of $8.8 million, or .92% at fiscal year end 1998. See
"Asset Quality" for further discussion of the allowance for loan losses.
Other Income
Other income was $12.0 million for fiscal 1999, an increase of $1.9 million
or 18.6% over 1998. Mortgage banking income for fiscal 1999 decreased $501,000
or 13.3% as compared to the same period in 1998 and included 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, 1999, there were no
securities held for trading.
The portfolio of loans serviced for others totaled $494.7 million at June 30,
1999, with a net average servicing rate of approximately 9.2 basis points, as
compared to $487.1 million at June 30, 1998 with an average net servicing rate
of approximately 13.6 basis points. A portion of the change in the balance of
loans serviced for others was the sale of servicing on approximately $84.2
million of loans consummated in May 1999 with a net gain of $475,000. 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. In consideration of the timing of these
transactions, the average balance of outstanding loans serviced for others
increased $42.6 million in fiscal 1999. The decrease in net servicing rate of
4.4 basis points is primarily due to the capitalization of mortgage servicing
rights with expected future decreases in servicing fee income. Amortization of
capitalized mortgage servicing rights was $735,000 in fiscal 1999 compared to
$442,000 in fiscal 1998 and is recognized as a reduction of gross servicing fee
income. 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 net loan
servicing fees for fiscal 1999 to decrease to $496,000 as compared to the fiscal
1998 level of $677,000. 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 the sale of securities available for sale totaled $794,000 at June
30, 1999 as compared to $174,000 at June 30, 1998. During the current year,
Fannie Mae (FNMA) introduced a program which provides for the securitization of
high loan-to-value seven year balloon loans. Management, recognizing the default
risk associated with this loan type, securitized $58.0 million of loans within
the portfolio qualifying under the FNMA program. Furthermore, in consideration
of the interest rate risk associated with this asset, $40.6 million of these
securities were sold resulting in the aforementioned gain during fiscal 1999.
The balance of such securities are held in the Association's securities
available for sale portfolio at June 30, 1999.
Gain on sales of real estate during fiscal 1999 totaled $1.6 million as
compared to $193,000 during fiscal 1998 and is the result of dispositions of
real estate acquired in the normal course of business. The increase in gain on
sale of real estate during fiscal 1999 was primarily due to the disposition of a
commercial real estate property and the recognition of the gain on sale of a
property previously deferred in accordance with Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate."
16
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
Fees and service charges for fiscal 1999 increased $385,000 or 12.0% to $3.6
million as compared to $3.2 million in fiscal 1998. The increase in fees and
service charges is primarily a result of growth in loan and deposit volume. Loan
volume was higher due to increased originations of $138.6 million to $577.8
million during fiscal 1999. The increase in deposit account servicing fees is
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, 1999, income from joint ventures totaled $1.2 million as compared to
$1.4 million in 1998. The income is primarily related to the Corporation's share
in the net income of a venture capital partnership resulting from the increased
market value of underlying portfolio investments. For additional information on
investments in joint ventures refer to Note 9 of the Notes to Consolidated
Financial Statements.
Other operating income was $1.5 million in fiscal 1999 as compared to $1.4
million in fiscal 1998. As products and services become more fully integrated
within the retail branch system, related income delivered through discount
brokerage and insurance units was the primary reason for the increase in other
operating income. Other effects on other operating income were income on
corporate-owned life insurance policies related to a supplemental executive
retirement plan which was partially offset by a reduction in appraisal and
inspection fees performed for third parties. Lenders Support Group, an affiliate
of the Association, performed appraisal and inspection activities for the
Association and the general public. Effective September 30, 1998, the activities
of Lenders Support Group were absorbed into the mortgage banking activity of the
Association with appraisal and inspection activities for third parties
discontinued.
Other Expenses
Other expenses of $28.2 million increased $911,000 or 3.3% in fiscal 1999 as
compared to $27.3 million in fiscal 1998 primarily due to an increase in
salaries and benefits.
Salaries and employee benefits increased $986,000 or 7.5% in fiscal 1999 over
fiscal 1998 and is attributable to a combination of the following factors:
annual adjustments through the salary administration program, increased staffing
within the Retail Banking Group in connection with new branches, increased
commissions related to an affiliate brokerage and insurance units, commissions
and overtime due to increased loan volume and decreases in incentive and profit
sharing compensation due to lower operating results. Full time equivalent
personnel increased from 389 at June 30, 1998, to 422 at June 30, 1999.
Occupancy expense increased $205,000 or 5.7% in fiscal 1999 over fiscal 1998
as a result of normal inflationary pressure on facilities management activities.
Real estate expenses decreased $531,000 or 37.8% in fiscal 1999 as compared to
fiscal 1998 and is primarily attributable to a decrease in the provision for
possible real estate losses. Data processing increased $255,000 or 23.0% in
fiscal 1999 compared to fiscal 1998 due to costs related to technology purchases
to enhance efficiency. Advertising cost increased $76,000 or 7.0% in fiscal 1999
as compared to fiscal 1998 and is primarily attributable to ongoing efforts to
enhance customer and product awareness through various media campaigns. Other
expenses decreased $98,000 or 1.5% in fiscal 1999 as compared to fiscal 1998 as
a result of increased cost of services and the effects of increased loan and
deposit volume offset by elimination of costs incurred in 1998 with third
parties to examine the Association's operating efficiencies.
17
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
Other operating expenses as a percentage of net interest income and other
operating income represents the efficiency ratio. The Corporation's efficiency
ratio for fiscal 1999 was 60.6% compared to 58.3% for fiscal 1998.
Provision for Income Taxes
The provision for income taxes of $5.0 million for fiscal 1999 represents an
effective tax rate of 34.2% as compared to 36.7% for fiscal 1998. The decrease
in the effective tax rate is primarily attributable to the favorable results of
a Delaware investment holding company activity and an increase 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 1998 Compared to Fiscal 1997
Net Interest Income
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. For further information, see "Average Balances and Interest Yield/ Rate
Analysis" and "Volume/Rate Analysis" tables included in this document.
During fiscal 1998, York Federal originated $439.2 million of loans including
loans refinanced from the Association's portfolio totaling $24.5 million and
mortgage loans securitized or sold of $179.3 million. The result of these
activities, when combined with loan repayments including refinance 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 has 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.
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.
18
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
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 included 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 decrease in net
servicing rate of 8.4 basis points is primarily attributable to the
implementation of Statement of Financial Accounting Standards (SFAS) No. 122
which was superceded by SFAS No. 125 and the related capitalization of mortgage
servicing rights. Amortization of capitalized mortgage servicing rights was
$442,000 in fiscal 1998 compared to $301,000 in fiscal 1997, and is recognized
as a reduction of gross servicing fee income. 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 $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 totaled $193,000 as compared
to $91,000 during fiscal 1997, and is the result of dispositions of real estate
acquired in the normal course of business. Fees and service charges for fiscal
year 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 totaled $1.4 million as compared to a
loss of $118,000 in fiscal 1997. The income is related to the Corporation's
share in the net income of a venture capital partnership resulting from the
increased market value of underlying portfolio investments. For additional
information on investments in 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
19
<PAGE>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
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 which 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 basis points to 6.4
basis points, to 6.4 basis points for the entire year in fiscal 1998. The 6.4
basis points rate is more consistent with the deposit insurance premiums paid by
Bank Insurance Fund (BIF) insured institutions and may vary according to the
Association's capital levels and management ratings.
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 to the salary administration program, compensation
investments related to the Business Banking Group formed in the Spring of fiscal
1997 and to 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 $190,000 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 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. 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 six months 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 using 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" and 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>
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations of York Financial Corp. (continued)
- -------------------------------------------------------------------------------
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 the Corporation's 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
five phases of the project are substantially complete and we are currently in
the process of completing the interface/integration testing between all key
vendors and systems to ensure application compatibility. This timeline provides
an opportunity to resolve any 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 vendors 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 has developed
a comprehensive Year 2000 contingency plan and is currently in the process of
testing the plan for all mission critical applications and systems. The testing
of the plan should be substantially completed no later than September 30, 1999.
To assist customers in understanding Year 2000 issues and to inform them of
the Corporation's actions to prepare, brochures regarding Year 2000 preparedness
have been distributed to all customers. Additional mailings and other
communications are anticipated prior to the turn of the century.
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 $320,000 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>
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, 1999, 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, 1999. 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, 1999.
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, 1999.
/s/Robert W. Pullo /s/James H. Moss
Robert W. Pullo James H. Moss
President Senior Vice President
Chief Executive Officer Chief Financial Officer/Treasurer
22
<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 as of June 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1999. 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, 1999 and 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1999, in conformity with generally accepted accounting
principles.
Baltimore, Maryland /s/Ernst & Young LLP
July 21, 1999
23
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
June 30
1999 1998
------------------------
(In Thousands)
Assets
Cash and due from banks:
Noninterest-earning $ 22,813 $ 17,934
Interest-earning 8,958 126,613
------------------------
31,771 144,547
Loans held for sale, net 30,631 17,534
Securities available for sale 295,691 47,940
Securities held to maturity (fair value of $22,635--1999
and $5,775--1998) 22,618 5,784
Loans receivable, net 909,193 951,641
Real estate, net 8,633 10,994
Premises and equipment, net 20,842 19,634
Federal Home Loan Bank stock, at cost 7,976 7,976
Accrued interest receivable 8,581 8,088
Other assets 20,952 9,451
Investments in joint ventures 7,738 5,679
------------------------
Total assets $ 1,364,626 $ 1,229,268
========================
Liabilities and stockholders' equity
Liabilities:
Deposits 1,115,253 1,065,777
Federal Home Loan Bank advances and other
borrowings 113,962 27,861
Advances from borrowers for taxes and insurance 4,281 4,634
Other liabilities 20,720 21,771
------------------------
Total liabilities 1,254,216 1,120,043
Stockholders' equity:
Preferred stock: 10,000,000 shares authorized and
unissued
Common Stock, $1.00 par value:
Authorized 20,000,000 shares; issued
1999-9,565,467 shares; 1998--8,968,031 shares 9,565 8,968
Additional capital 90,417 81,848
Retained earnings 15,028 18,886
Accumulated other comprehensive income (3,938) 318
Unearned ESOP shares (662) (795)
------------------------
Total stockholders' equity 110,410 109,225
------------------------
Total liabilities and stockholders' equity $ 1,364,626 $ 1,229,268
========================
See accompanying notes
24
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Income
- -------------------------------------------------------------------------------
Year Ended June 30
1999 1998 1997
----------------------------------
(Dollars in Thousands,
Except Per Share Data)
Interest income:
Interest and fees on loans $ 69,880 $ 80,893 $ 80,820
Interest on securities held for trading 601 688 1,329
Interest and dividends on securities
available for sale 8,120 3,770 3,711
Interest and dividends on securities
held to maturity 1,308 930 951
Other interest income 6,456 2,285 830
----------------------------------
Total interest income 86,365 88,566 87,641
Interest expense:
Interest on deposits 49,997 49,744 46,365
Interest on borrowings 1,829 2,100 5,423
----------------------------------
Total interest expense 51,826 51,844 51,788
----------------------------------
Net interest income 34,539 36,722 35,853
Provision for loan losses 3,632 3,737 2,424
----------------------------------
Net interest income after provision
for loan losses 30,907 32,985 33,429
Other income:
Mortgage banking 3,256 3,757 3,610
Gain on sales of securities available
for sale 794 174 -
Gain on sales of real estate 1,599 193 91
Gain on sale of limited partnership
interest - - 1,214
Fees and service charges 3,601 3,216 2,842
Income (loss) from joint ventures 1,241 1,411 (118)
Other operating income 1,547 1,401 1,057
----------------------------------
Total other income 12,038 10,152 8,696
----------------------------------
Other expenses:
Salaries and employee benefits 14,140 13,154 11,565
Occupancy 3,802 3,597 3,484
Federal deposit insurance 646 628 1,250
SAIF assessment - - 5,310
Real estate 872 1,403 1,602
Data processing 1,365 1,110 1,086
Advertising 1,157 1,081 978
Other 6,252 6,350 5,888
----------------------------------
Total other expenses 28,234 27,323 31,163
----------------------------------
Income before income taxes 14,711 15,814 10,962
Provision for income taxes 5,041 5,799 3,875
----------------------------------
Net income $ 9,670 $ 10,015 $ 7,087
==================================
Per share data:
Net income $ 1.01 $ 1.09 $ 0.80
==================================
Net income-assuming dilution $ 0.97 $ 1.01 $ 0.75
==================================
Cash dividends paid $ 0.51 $ 0.48 $ 0.44
==================================
Weighted average shares 9,564,761 9,213,608 8,894,327
==================================
Weighted average shares-assuming dilution 9,919,118 9,892,913 9,423,215
==================================
See accompanying notes
25
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
- -------------------------------------------------------------------------------
Accumu-
lated
Other
Addi- Compre- Unearned
Common tional Retained hensive ESOP
Stock Capital Earnings Income Shares Total
--------------------------------------------------------
(In Thousands)
Balance, June 30,
1996 $ 6,088 $ 67,809 $ 21,154 $ (451) $(1,060) $ 93,540
Comprehensive
income:
Net income - - 7,087 - - 7,087
Net change in
unrealized gains
on available-for-
sale securities,
net of income
tax of $331 - - - 530 - 530
---------
Total compre-
hensive
income 7,617
---------
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)
--------------------------------------------------------
Balance, June 30,
1997 7,008 80,633 13,290 79 (927) 100,083
Comprehensive
income:
Net income - - 10,015 - - 10,015
Net change in
unrealized gains
on available-for-
sale securities,
net of income
tax of $128 - - - 239 - 239
---------
Total compre-
hensive
income 10,254
---------
Cash dividends paid - - (4,419) - - (4,419)
Stock options
exercised 118 723 - - - 841
Income tax benefit
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)
--------------------------------------------------------
Balance, June 30,
1998 8,968 81,848 18,886 318 (795) 109,225
Comprehensive
income:
Net income - - 9,670 - - 9,670
Net change in
unrealized
losses on
available-for-
sale securities,
net of income
tax benefits
of $2,292 - - - (4,256) - (4,256)
---------
Total compre-
hensive
income 5,414
---------
Cash dividends paid - - (4,896) - - (4,896)
Stock options
exercised 287 1,542 - - - 1,829
Income tax benefit
of stock options
exercised - 794 - - - 794
Common stock issued
under dividend re-
investment plan 151 2,114 - - - 2,265
5% Common stock
dividend--459,408
shares at fair
value 459 8,155 (8,632) - - (18)
Release of ESOP
shares - 61 - - 133 194
Retirement of common
stock (300) (4,097) - - - (4,397)
--------------------------------------------------------
Balance June 30,
1999 $ 9,565 $ 90,417 $ 15,028 $ (3,938) $ (662) $ 110,410
========================================================
See accompanying notes
26
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
Year Ended June 30
1999 1998 1997
----------------------------------
(In Thousands)
Operating Activities
Net income $ 9,670 $ 10,015 $ 7,087
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization and accretion on securities
and loans, net (22) (181) (622)
Provision for loan losses 3,632 3,737 2,424
Provision for real estate losses 250 914 1,188
Depreciation and amortization 2,161 1,834 1,705
Deferred income taxes 3,174 (793) 847
Loans originated for sale (196,803) (158,494) (125,918)
Proceeds from sales of trading securities 175,963 152,221 127,145
Realized gains on trading securities (2,240) (2,377) (906)
Realized gains on sales of securities
available for sale (794) (174) -
Gain on sale of limited partnership interest - - 1,214
(Increase) decrease in accrued interest
and other assets (9,082) 2,161 392
Increase (decrease) in other liabilities (1,337) 3,858 (12,343)
Other (2,868) (2,251) (4,214)
----------------------------------
Net cash provided by (used in) operating
activities (18,296) 10,470 (2,001)
Investing Activities
Proceeds from sales and maturities of
securities available for sale 61,582 14,191 -
Purchase of securities available for sale (268,815) (10,344) (50)
Proceeds from sale of limited partnership
interest - - 1,343
Purchases of securities held to maturity
and Federal Home Loan Bank stock (22,352) (2,069) (1,231)
Proceeds from maturities of securities
held to maturity 5,500 5,090 57
Principal repayments on securities 21,673 10,137 8,162
Net decrease in short-term investments 77 - -
Loans originated or acquired, net of
increase in deferred loan fees (319,140) (256,092) (251,212)
Principal collected on loans 293,498 260,215 179,981
Proceeds from sales of loans 1,669 33,426 1,642
Purchases of real estate (370) (412) (425)
Proceeds from sales of real estate 7,069 6,072 6,324
Purchases of premises, equipment, and
leasehold improvements, net (3,039) (4,078) (2,452)
Other (2,324) 2,321 3,205
----------------------------------
Net cash provided by(used in) investing
activities (224,972) 58,457 (54,656)
27
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
- -------------------------------------------------------------------------------
Year Ended June 30
1999 1998 1997
----------------------------------
(In Thousands)
Financing Activities
Net increase in noninterest-bearing
demand deposits, interest-bearing
transaction accounts, savings
accounts, and 31-day certificates
of deposit 65,838 53,645 3,163
Net increase (decrease) in certificates
of deposit (16,363) 19,026 81,820
Net increase (decrease) in short-term
advances received from Federal Home
Loan Bank 84,400 (20,000) (53,000)
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 1,701 1,625 (144)
Issuance of common stock:
Dividend Reinvestment Plan 2,265 2,330 2,133
Stock Option Plans 1,455 163 561
Cash dividends paid (4,896) (4,419) (3,919)
Retirement of stock (4,023) - -
Cash paid in lieu of fractional shares (18) (21) (22)
Release of ESOP shares 133 132 133
----------------------------------
Net cash provided by financing activities 130,492 52,481 55,725
----------------------------------
Increase (decrease) in cash and cash
equivalents (112,776) 121,408 (932)
Cash and cash equivalents at beginning of
year 144,547 23,139 24,071
----------------------------------
Cash and cash equivalents at end of year $ 31,771 $ 144,547 $ 23,139
=================================
See accompanying notes
28
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
- -------------------------------------------------------------------------------
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-five
offices located in south central Pennsylvania and Maryland. In addition, York
Federal maintains a commissioned mortgage origination staff as well as mortgage
correspondent 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 1998 and 1997
consolidated financial statements to conform with the 1999 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
The Corporation may at times have securities classified as "held for trading"
which are principally mortgage-backed securities held for sale in conjunction
with the Association's mortgage banking activities. These securities are carried
at fair value which is based on Statement of Financial Accounting Standards No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise". 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.
29
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
Securities not classified as trading or held to maturity are classified as
"available for sale." Available for sale securities are carried at fair value,
with unrealized gains and losses, net of taxes, reported as a component of other
comprehensive income in 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 Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan" as amended by SFAS 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,
dependent upon type of loan and related collateral. 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 losses in its existing loan portfolio. It is management's
policy to establish reserves for losses on loans when deemed necessary. These
reserves are based on estimates, and ultimate losses are likely to vary from
such estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in operations in the period in which they
become known. Management's determination of the adequacy of the allowance
reflects judgments of current loss exposure at the end of the period which is
based on the known and inherent risk characteristics in the portfolio, past loss
experience, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral, current 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 as amended by
Statement No. 118. Actual losses or recoveries are charged or credited directly
to the allowance.
30
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
Real Estate
Real estate consists of property held for investment and foreclosed assets
held for sale. Properties held for investment are carried at cost unless they
are determined to be impaired, in which case they are written down to fair
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.
Foreclosed assets held for sale are valued at the lower of cost or fair value
less costs to sell, and are reported net of valuation reserves 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 SFAS No. 66, "Accounting for Sales of Real
Estate".
Mortgage Servicing Rights
When the Association sells or securitizes mortgage loans and retains the
mortgage servicing rights, a separate asset for mortgage servicing rights is
recognized. The total cost of the mortgage loans is allocated to the loan and
the servicing right based on their relative fair value. A valuation allowance is
recorded where the fair value is below the carrying amount of certain mortgage
servicing assets, even though the overall fair value of the mortgage servicing
assets exceeds amortized cost. The mortgage servicing rights are amortized in
proportion to, and over the period of, estimated net servicing revenues.
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. Estimated useful
lives of buildings and improvements are 15 to 39 years; and furniture, fixtures
and equipment lives are 5 to 7 years. Leasehold improvements are amortized over
the life of asset or lease term whichever is shorter except leasehold
improvements with related companies which use the life of the asset.
Income Taxes
The Corporation files a consolidated federal income tax return. Certain items
of income and expense are included in one period for financial reporting
purposes and another for income tax purposes. 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.
Stock-Based Compensation
The Corporation has elected to follow the intrinsic value method to account
for compensation expense related to the award of stock options and to furnish
the pro forma disclosures required under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation".
31
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
Comprehensive Income
The Corporation adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," as of July 1, 1998. Statement No. 130
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. The adoption of Statement No. 130 had no impact on
the Corporation's consolidated financial statements. The Corporation has elected
to disclose the required information in the Consolidated Statements of
Stockholders' Equity and accompanying notes. For purposes of comparability,
prior year financial statements have been reclassified to conform to the
Statement's requirements.
Business Segments
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was effective July 1, 1998.
This Statement establishes standards for the way public enterprises report
information about operating segments in the financial statements. Based on the
guidance provided by the Statement, the Corporation does not have more than one
operating segment which would require additional disclosures in accordance with
the Statement.
Cash Flow Information
For purposes of the statements of cash flows, cash equivalents include cash
and amounts due from banks. During 1999, 1998 and 1997, the Association
exchanged loans for mortgage-backed securities in the amounts of $241,282,000,
$145,473,000 and $125,037,000, respectively. During 1999, 1998 and 1997, the
Association transferred unpaid loan balances from loans to real estate acquired
due to foreclosure of $4,919,000, $4,926,000 and $9,454,000, respectively.
During 1999, there was a noncash capital distribution from an investment in
joint venture of $2,205,000. There were no such distributions in 1998 or 1997.
In connection with the exercise of stock options, a portion of the exercise
price was represented by the surrender of shares which amounted to $374,000,
$678,000 and $1,064,000 in 1999, 1998 and 1997, respectively.
The Corporation paid $51,399,000, $51,810,000 and $51,758,000 in interest on
deposits and other borrowings during 1999, 1998 and 1997, respectively.
Recently Issued Accounting Guidance
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards 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. The effective
date of the Statement was deferred in June 1999 under Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133". This Statement is effective for
financial statements issued for all quarters of all fiscal years beginning after
June 15, 2000. The adoption of Statement No. 137 is not expected to have a
material impact on the Corporation's consolidated financial statements.
32
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
2: Earnings Per Share
The Corporation computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share". 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:
Year Ended June 30
1999 1998 1997
-------------------------------------
(Dollars in Thousands,
Except Per Share Data)
Basic:
Net Income $ 9,670 $ 10,015 $ 7,087
=====================================
Weighted average shares 9,564,761 9,213,608 8,894,327
=====================================
Net income per share $ 1.01 $ 1.09 $ 0.80
=====================================
Diluted:
Net income $ 9,670 $ 10,015 $ 7,087
=====================================
Weighted average shares 9,564,761 9,213,608 8,894,327
Dilutive effect of stock options 354,357 679,305 528,888
-------------------------------------
Weighted average shares -
assuming dilution 9,919,118 9,892,913 9,423,215
=====================================
Net income per share - assuming
dilution $ 0.97 $ 1.01 $ 0.75
=====================================
33
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
3: Restrictions on Cash and Due from Bank Accounts
The Association was required to meet reserve balance requirements as
established by the Federal Reserve. Reserve balance requirements are based on
outstanding transaction account balances and were satisfied by vault cash
positions held by the Association. During the year ended June 30, 1999 and 1998,
average reserve balances at the Federal Reserve necessary to meet requirements
were $0 and $8,000, respectively. The actual reserve balance at June 30, 1999
and 1998 was $0 and $16,000, respectively.
4: Securities Available for Sale and Held to Maturity
The following is a summary of available for sale and held to maturity
securities:
June 30, 1999
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
(In Thousands)
Available for Sale:
Equity securities $ 2,796 $ - $ (1,461) $ 1,335
U.S. Treasury and other U.S.
Government agencies 164,750 49 (2,943) 161,856
Mortgage-backed securities and
collateralized mortgage
obligations 134,204 212 (1,916) 132,500
-----------------------------------------------
$ 301,750 $ 261 $ (6,320) $ 295,691
===============================================
Held to Maturity:
U.S. Treasury and other U.S.
Government agencies $ 3,498 $ - $ (14) $ 3,484
Corporate debt securities 18,903 103 (86) 18,920
Mortgage-backed securities 217 14 - 231
-----------------------------------------------
$ 22,618 $ 117 $ (100) $ 22,635
===============================================
June 30, 1998
-----------------------------------------------
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
===============================================
34
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
The amortized cost and fair value of debt securities at June 30, 1999, 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.
<TABLE>
Mortgage-backed
U.S. Treasury securities and
and other U.S. collaterialzed mortgage
Government agencies Corporate debt obligations Total
-----------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
-----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
Due in one year or
less $ 1,048 $ 1,052 $ - $ - $ 23,288 $ 23,017 $ 24,336 $ 24,069
Due after one year
through five years 82,833 81,358 - - 63,821 63,060 146,654 144,418
Due after five years
through ten years 79,187 77,757 - - 29,050 28,656 108,237 106,413
Due after ten years 1,682 1,689 - - 18,045 17,767 19,727 19,456
-----------------------------------------------------------------------------------------
$164,750 $161,856 $ - $ - $134,204 $132,500 $298,954 $294,356
=========================================================================================
Held to Maturity:
Due in one year or
less $ - $ - $ - $ - $ 50 $ 54 $ 50 $ 54
Due after one year
through five years - - - - 135 144 135 144
Due after five years
through ten years 3,498 3,484 4,882 4,968 32 33 8,412 8,485
Due after ten years - - 14,021 13,952 - - 14,021 13,952
-----------------------------------------------------------------------------------------
$ 3,498 $ 3,484 $18,903 $18,920 $ 217 $ 231 $ 22,618 $ 22,635
=========================================================================================
</TABLE>
Securities with an amortized cost of $302,669,000 and $52,916,000 on June 30,
1999 and 1998, respectively, were pledged to secure public deposits, repurchase
agreements, and for certain other purposes as required by law.
Gross realized gains of $794,000, $174,000 and $0 were realized on sales of
available for sale securities during 1999, 1998 and 1997, respectively. There
were no gross realized losses realized on sales of available for sale securities
during 1999, 1998 and 1997.
For the year ended June 30, 1999, trading securities with a fair value of
$5,223,000 were transferred to securities available for sale with related gains
of $45,000 included in earnings. 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 year ended June 30, 1998.
At June 30, 1999 and 1998, the aggregate book value of debt securities from a
single issuer did not exceed 10% of stockholders' equity.
35
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
5: Loans Receivable
Loans receivable, net are summarized as follows:
June 30
1999 1998
--------------------------
(In Thousands)
First mortgage loans:
Conventional:
Residential $ 595,854 $ 680,779
Commercial 82,485 56,047
--------------------------
678,339 736,826
Construction:
Residential 159,138 111,032
Commercial 30,269 14,258
--------------------------
189,407 125,290
Commercial business loans 12,364 3,737
Consumer loans 144,558 139,040
--------------------------
156,922 142,777
Less:
Undisbursed portion of
loans in process 106,088 45,382
Deferred expenses, net (1,416) (940)
Allowance for loan losses 10,803 8,810
--------------------------
115,475 53,252
--------------------------
$ 909,193 $ 951,641
==========================
Generally, when the accrual of interest is discontinued, all unpaid accrued
interest is reversed. The interest excluded from interest income on loans on
nonaccrual status amounted to $0, $0 and $430,000 for the years ended June 30,
1999, 1998 and 1997, respectively. Effective June 30, 1999, the Association
implemented the Uniform Retail Credit Classification Policy. With the
implementation of the policy, a one-time charge to the allowance for loan losses
of $408,000 was recognized representing the total amount due on certain loans
identified in accordance with the policy, in excess of the net realizable value
of the underlying collateral. At June 30, 1999 and 1998, nonaccrual loans
totaled $919,000 and $0, respectively.
36
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
At June 30, 1999 and 1998, the recorded investment in loans considered to be
impaired under Statement No. 114 was $0. During the years ended June 30, 1999
and 1997, the Corporation did not receive any cash payments representing
interest income on impaired loans. For the year ended June 30, 1998, a net
recovery totaling $186,000 of interest previously excluded from interest income
was recognized. The related allowance for loan losses associated with impaired
loans at June 30, 1999 and 1998 was $0. The average recorded investment in
impaired loans for the years ended June 30, 1999, 1998 and 1997 was $0, $275,000
and $1,500,000, 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 commercial and
single family condominiums, land for development, hotel/motel/restaurant,
multifamily residential, office, industrial and retail buildings and other
properties. The total commercial loan portfolio of $107,765,000 at June 30, 1999
is collateralized by properties in Pennsylvania (75%), Maryland (10%), Virginia
(13%), and other (2%).
The Corporation does not have customer or group (borrowers engaged in similar
activities) concentrations in excess of 10% of total loans.
Related party loans to directors, executive officers and their associates
were less than 5% of stockholders' equity throughout the year and at June 30,
1999.
At June 30, 1999, the Association had outstanding commitments to sell
$25,300,000 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.
An analysis of the allowance for loan losses is as follows:
Year ended June 30
1999 1998 1997
----------------------------------
(In Thousands)
Balance at beginning of year $ 8,810 $ 6,413 $ 6,609
Provision charged to expense 3,632 3,737 2,424
Recoveries credited to allowance 355 518 730
Less: Loan losses charged to
allowance (1,994) (1,858) (3,350)
----------------------------------
Balance at end of year $ 10,803 $ 8,810 $ 6,413
==================================
37
<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
1999 1998 1997
-----------------------------------
(In thousands)
Gain on sales of loans and trading
securities $ 2,240 $ 2,377 $ 906
Unrealized gain (loss) on loans and
trading securities 45 (37) 972
Loan servicing fee income, net of
amortization 496 677 1,222
Gain on sale of mortgage servicing rights 475 740 510
-----------------------------------
$ 3,256 $ 3,757 $ 3,610
===================================
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 $494,687,000, $487,092,000 and $548,202,000 at June 30,
1999, 1998 and 1997, respectively. Custodial escrow balances maintained in
connection with the foregoing loan servicing, and included in demand deposits,
were approximately $5,983,000, $7,151,000, and $3,468,000 at June 30, 1999, 1998
and 1997, respectively.
The changes in the Corporation's mortgage servicing assets are as follows:
Year Ended June 30
1999 1998
----------------------
(In Thousands)
Balance at beginning of year $ 3,118 $ 2,704
Additions 2,490 1,414
Less: Sales 462 558
Amortization 735 442
----------------------
Balance at end of year before
valuation allowance 4,411 3,118
Valuation allowance (260) (218)
----------------------
Net mortgage servicing assets $ 4,151 $ 2,900
======================
The estimated fair values of the mortgage servicing assets are $4,440,000 and
$2,938,000 at June 30, 1999 and 1998, 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>
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
1999 1998 1997
---------------------------------
(In Thousands)
Balance at beginning of year $ (218) $ (145) $ (227)
Provision for impairment (42) (73) 54
Sales - - 28
---------------------------------
Balance at end of year $ (260) $ (218) $ (145)
=================================
7: Real Estate
A summary of real estate is as follows:
June 30
1999 1998
--------------------
(In Thousands)
Held for investment (net of accumulated
depreciation of $827 in 1999 and $863 in 1998) $ 1,733 $ 2,017
Foreclosed assets held for sale 6,945 9,093
--------------------
8,678 11,110
Less: Allowance for real estate losses 45 116
--------------------
$ 8,633 $ 10,994
====================
An analysis of the allowance for real estate losses is as follows:
Year Ended June 30
1999 1998 1997
------------------------------
(In Thousands)
Balance at beginning of year $ 116 $ 365 $ 955
Provision charged to real estate expense 250 914 1,188
Recoveries credited to allowance - - 1
Less: Real estate losses charged to
allowance (321) (1,163) (1,779)
------------------------------
Balance at end of year $ 45 $ 116 $ 365
==============================
39
<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
1999 1998
-----------------------
(In Thousands)
Land and improvements $ 5,687 $ 4,833
Buildings 13,620 12,794
Leasehold improvements 1,842 1,709
Furniture, fixtures, and equipment 12,046 11,063
----------------------
33,195 30,399
Less: Accumulated depreciation and
amortization (12,353) (10,765)
----------------------
$ 20,842 $ 19,634
======================
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, 1999 and 1998, the Corporation did not have any long-lived assets
considered to be impaired.
9: Investments in Joint Ventures
The Corporation is a partner in an unconsolidated joint venture in which its
ownership percentage is greater than 20%. The Corporation's investment in this
joint venture is accounted for under the equity method of accounting. At June
30, 1999 and 1998, the carrying value of this investment was approximately
$3,787,000 and $4,157,000. The Corporation's share of the venture's net income
(loss) for the years ended June 30, 1999, 1998 and 1997 was $1,433,000,
$1,490,000 and ($297,000), respectively.
A subsidiary of the Corporation is a partner in an unconsolidated joint
venture in which its ownership percentage is greater than 20%. The purpose of
the venture is to acquire and develop real property for ultimate resale or for
management of the resulting income-producing property. At June 30, 1999 and
1998, the carrying value of this investment was approximately $333,000 and
$368,000, respectively. The Corporation's share of the venture's net income for
the years ended June 30, 1999, 1998 and 1997 was $21,000, $79,000 and $259,000,
respectively.
The Association is a limited partner in several partnerships (approximate
ownership position of 99%) for the purpose of acquiring, renovating, operating
and leasing qualified low income housing and historic properties. At June 30,
1999 and 1998, aggregate net equity investment in these partnerships
approximated $3,618,000 and $1,154,000, respectively. The Corporation's share of
the partnerships' net loss of $213,000, $260,000 and $80,000 for the years ended
June 30, 1999, 1998 and 1997, respectively, is included in operations under the
equity method of accounting.
40
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
10: Deposits
Deposits are summarized as follows:
June 30
1999 1998
--------------------------
(In Thousands)
Demand and savings accounts:
Noninterest-bearing $ 22,470 $ 15,497
NOW accounts 107,107 99,491
Savings accounts 54,179 64,189
Money market accounts 328,775 267,515
--------------------------
512,531 446,692
Certificate accounts 602,722 619,085
--------------------------
$ 1,115,253 $ 1,065,777
==========================
At June 30, 1999, the scheduled maturities of certificate accounts for the
succeeding five fiscal years are as follows: 2000-$337,781,000;
2001-$185,499,000; 2002-$43,246,000; 2003-$20,630,000; 2004-$8,281,000 and
thereafter-$7,285,000.
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $90,999,000 and $85,608,000 at June 30, 1999 and
1998, respectively.
41
<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
1999 1998
------------------------
(In Thousands)
FHLB advances payable to FHLB Pittsburgh,
secured by all FHLB stock and certain
first mortgage loans:
Short-term advances:
Due August 27, 1999, 5.12% $ 70,000 $ -
Due July 1, 1999, 5.57% 14,400 -
------------------------
84,400 -
Convertible advance:
Due 2002, 5.46% 25,000 25,000
Other advances:
Due 2008, 2.00% 285 297
Due 2024, 4.25% 727 517
------------------------
110,412 25,814
------------------------
Other borrowings:
Advance to ESOP
Due 2004, prime plus .75% 662 795
Repurchase agreement:
Due July 1, 1999, 3.60% 2,888 1,252
------------------------
$ 113,962 $ 27,861
========================
Maturities of FHLB advances and other borrowings are as follows:
2000-$112,451,000; 2001-$164,000; 2002-$165,000; 2003-$166,000; 2004-$167,000;
thereafter-$849,000. 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 2000 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, 1999, additional
borrowings available under this policy were approximately $49,114,000. 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 $6,600,000. Mortgage loans in the
amount of $8,247,000 are held in safekeeping by the Federal Reserve Bank to
collateralize borrowings under this credit agreement. At June 30, 1999, there
were no borrowings under this credit agreement.
42
<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
1999 1998 1997
---------------------------------
(In Thousands)
Current:
Federal $ 1,846 $ 5,792 $ 2,501
State 21 800 527
---------------------------------
1,867 6,592 3,028
Deferred:
Federal 2,971 (795) 901
State 203 2 (54)
---------------------------------
3,174 (793) 847
---------------------------------
Total provision for income
taxes $ 5,041 $ 5,799 $ 3,875
=================================
The provision for income taxes includes $342,000, $394,000 and $253,000 in
1999, 1998 and 1997, respectively, of applicable income taxes related to gains
on sales of securities of $1,108,000, $1,044,000 and $670,000, 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
1999 1998 1997
--------------------------------------
Income tax expense at federal
statutory rate 35.0 % 35.0 % 35.0 %
Tax-exempt income (0.3) (0.1) (0.1)
State income taxes, net of federal
benefit 1.0 3.3 2.8
Federal tax credits (1.3) (0.6) (2.1)
Other (0.2) (0.9) (0.2)
--------------------------------------
Effective tax rate 34.2 % 36.7 % 35.4 %
======================================
43
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
The Corporation made income tax payments of $3,467,000, $5,912,000, and
$3,404,000 during 1999, 1998, and 1997, 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:
1999 1998
--------------------
(In Thousands)
Deferred tax assets:
Bad debt $ 3,775 $ 3,102
Securities valuation
adjustment - 57
Other 1,123 1,541
--------------------
Total gross deferred
tax assets 4,898 4,700
--------------------
Deferred tax liabilities:
Deferred loan expenses 529 297
Depreciation and amortization 509 549
Joint ventures 1,042 549
Securities valuation adjustment 95 -
Servicing rights 1,549 1,114
Other 1,078 1,213
--------------------
Total gross deferred tax
liabilities 4,802 3,722
--------------------
Net deferred tax asset $ 96 $ 978
====================
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.
The before-tax amounts and tax effects of unrealized holding gains (losses)
on available for sale securities were ($5,754,000) and ($2,014,000),
respectively, at June 30, 1999, $541,000 and $189,000, respectively, at June 30,
1998 and $861,000 and $331,000, respectively, at June 30, 1997.
The before-tax amounts and tax effects of the reclassification adjustments
for gains included in net income were $794,000 and $278,000, respectively, at
June 30, 1999, $174,000 and $61,000, respectively, at June 30, 1998 and $0 and
$0, respectively, for June 30, 1997.
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 $281,000, $395,000 and $346,000 in 1999, 1998 and 1997,
respectively. In May 1994, the ESOP borrowed $1,325,000 and acquired 111,552
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
44
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
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, 1999 and 1998, the ESOP
debt outstanding was $662,000 and $795,000 and the fair value of related shares
(65,825 and 72,505, respectively, including shares acquired through the
dividends paid on unearned ESOP shares) was $963,000 and $1,514,000,
respectively. 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
1999 1998
---------------------
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 6,282 $ 5,141
Service cost (net of expenses) 381 327
Interest cost 435 388
Benefits paid (155) (148)
Change in assumptions (509) 467
Experience loss 2 107
---------------------
Benefit obligation at end of year 6,436 6,282
---------------------
Change in plan assets:
Fair value at beginning of year 6,884 5,450
Actual return on plan assets (net of expenses) 487 1,121
Employer contribution 125 461
Benefits paid (155) (148)
Adjustment for payable at beginning of year (11) -
---------------------
Fair value at end of year 7,330 6,884
---------------------
Funded status 894 602
Unrecognized net asset at transition (246) (295)
Unrecognized prior service costs 149 171
Unrecognized net (gain) loss (13) 408
---------------------
Prepaid pension expense $ 784 $ 886
=====================
Plan assets include investments in York Financial Corp.'s stock with a fair
value of $761,000 and $999,000 in 1999 and 1998, respectively. Other plan assets
include debt and equity funds. At June 30, 1999, the plan held 52,021 shares of
the Corporation's stock which earned dividends of $25,814 during the year.
45
<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 7.5% and 4.5%, respectively, at June 30, 1999,
7.0% and 4.0%, respectively, at June 30, 1998 and 7.5% and 4.5%, respectively,
at June 30, 1997. The expected long-term rate of return on plan assets in 1998,
1997, and 1996 was 9.0%.
Net pension cost included the following components:
Year Ended June 30
1999 1998 1997
--------------------------------
(In Thousands)
Service cost-benefits earned during the
period $ 441 $ 385 $ 358
Interest cost on projected benefit
obligation 435 388 345
Actual return on plan assets (547) (1,178) (843)
Amortization of unrecognized net
transition asset (49) (49) (49)
Amount of unrecognized prior service
cost 22 22 22
Amortization of unrecognized net loss - 7 46
Asset gain (loss) deferred (75) 672 465
--------------------------------
Net periodic pension cost $ 227 $ 247 $ 344
================================
Beginning in fiscal 1999, the Corporation provided a Supplemental Executive
Retirement Plan (SERP) to certain key executives. The SERP is funded through
life insurance policies. The cash surrender value of the policies was $9.4
million at June 30, 1999 and is included in other assets in the accompanying
consolidated balance sheet. Total income recognized on the SERP for the year
ended June 30, 1999 amounted to $198,000. For the year ended June 30, 1999,
salaries and employee benefits expense included $67,000 in connection with
the SERP.
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 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
46
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
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, 1999, the Association meets all capital adequacy
requirements to which it is subject.
At June 30, 1999, the most recent notification from the OTS categorized the
Association as well capitalized under the regulatory framework for prompt
corrective action. There were no conditions or events since that notification
that management believes have changed the Association's category.
The following table sets forth OTS capital requirements as compared to the
capital position of the Association as of June 30, 1999 and 1998:
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 30, 1999: (Dollars In Thousands)
Tangible capital $ 96,473 7.1% $20,344 1.5% $ N/A N/A
Tier 1 (core) capital 96,473 7.1% 54,250 3.0% 67,812 5.0%
Tier 1 risk-based capital 96,473 11.7% N/A N/A 49,431 6.0%
Total risk-based capital 105,654 12.8% 65,930 8.0% 82,384 10.0%
As of June 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%
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, 1999 and 1998, the total allowable dividend distribution
was $20,651,000 and $20,197,000, respectively.
47
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
15: Stock Option Plans
At June 30, 1999, the Corporation has reserved 1,462,031 shares of common
stock for options granted or available for grant to certain directors and
officers under Stock Option Plans (Plans), as amended. Incentive stock options
granted under the 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. Nonincentive stock options granted under the Plans
become exercisable over periods determinable at the date of grant and expire ten
years after the date of grant. Performance-based options granted under the Plans
become exercisable when the Corporation achieves certain performance measurement
targets. Options under the Plans are granted at prices not less than 100% of the
fair market value at the date of option grant. During 1999 and 1998, 6,300 and
47,775 shares, respectively, of performance-based options were granted under the
Plans. If performance measurement targets are not achieved in accordance with
the terms of the option, the options are forfeited. 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, 1999 and 1998.
Stock options transactions, adjusted for stock dividends, under the Plans were
as follows:
Year Ended June 30
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1999 Price 1998 Price 1997 Price
-----------------------------------------------------
Options outstanding at
beginning of year 1,145,349 $ 9.64 1,155,806 $ 8.25 1,427,45 $ 7.36
Options granted at
$12.21 to $20.95
per share 52,030 16.70 122,880 19.51 57,520 12.72
Options exercised at
$3.76 to $12.59 per
share (298,124) 6.13 (129,006) 7.00 (318,057 6.41
Options forfeited (6,463) 18.99 (4,331) 10.48 (11,116) 9.76
--------- --------- ---------
Options outstanding at
end of year 892,792 11.16 1,145,349 9.64 1,155,806 8.25
========= ========= =========
Options available for
grant at June 30 569,239
=========
Options exercisable at
June 30 at $3.76 to
$19.62 per share 800,678 10.35 1,011,719 8.81 1,048,436 8.00
========= ========= =========
The following options were outstanding and exercisable at June 30, 1999:
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Number of Exercise Life Number of Exercise
Prices Shares Price (Years) Shares Price
- -------------------------------------------------- -----------------------
$0.00-$5.00 75,565 $ 3.76 1.6 75,565 $ 3.76
$5.01-$10.00 439,179 9.29 5.0 439,179 9.29
$10.01-$15.00 218,388 11.85 6.0 198,724 11.68
$15.01-$20.00 159,660 18.86 8.9 87,210 18.38
-------- --------
892,792 11.16 5.7 800,678 10.35
======== ========
48
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
The Corporation uses the Black-Scholes Option Pricing Model to calculate the
grant-date fair value. The weighted average grant-date fair value of options
granted during 1999, 1998 and 1997 was $3.25, $4.42 and $3.39, respectively. The
following significant assumptions were used to calculate the estimated fair
value of the options granted:
June 30
1999 1998 1997
------------------------------------
Risk free interest rate 5.725% 5.470% 6.625%
Expected life 4 years 4 years 4 years
Expected volatility 24.5% 30.3% 21.7%
Expected dividends 3.59% 2.50% 3.37%
Under Accounting Principles Board 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
1999 1998 1997
-----------------------------------
(Dollars in Thousands,
Except Per Share Data)
Net Income
As reported $ 9,670 $ 10,015 $ 7,087
Pro forma 9,422 9,848 7,053
Earnings Per Share
As reported 1.01 1.09 0.80
Pro forma 0.99 1.07 0.80
Earnings Per Share
Assuming Dilution
As reported 0.97 1.01 0.75
Pro forma 0.95 1.00 0.75
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>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
16: York Financial Corp. (Parent Company Only)
Financial Information
Balance Sheets
- -------------- June 30
1999 1998
----------------------
Assets (In Thousands)
Cash $ 6,421 $ 5,266
Securities 1,336 338
Loan receivable, net 2,315 2,382
Prepaid expenses and other assets 189 127
Investment in joint venture 3,787 4,157
Investments in subsidiaries:
York Federal Savings and Loan Association 93,649 94,190
Other 4,264 4,095
----------------------
Total investments in subsidiaries 97,913 98,285
----------------------
$ 111,961 $ 110,555
======================
Liabilities
Other borrowings $ 662 $ 795
Accrued expenses and other liabilities 889 535
Stockholders' equity 110,410 109,225
----------------------
$ 111,961 $ 110,555
======================
Statements of Income
- -------------------- Year Ended June 30
1999 1998 1997
--------------------------------
Dividend income: (In Thousands)
York Federal Savings and Loan Association $ 5,579 $ 1,870 $ 2,630
Other 29 37 29
Interest Income 470 485 387
Gain on sales of real estate 589 16 14
Income (loss) from joint venture 1,433 1,490 (297)
Other Income 9 10 7
--------------------------------
8,109 3,908 2,770
Other expenses 714 659 612
--------------------------------
Income before equity in undistributed net
income of subsidiaries and income taxes 7,395 3,249 2,158
Equity in undistributed net income of
subsidiaries:
York Federal Savings and Loan Association 2,753 7,303 3,991
Other 264 12 732
--------------------------------
Income before income taxes 10,412 10,564 6,881
Provision for income taxes (benefit) 742 549 (206)
--------------------------------
Net Income $ 9,670 $ 10,015 $ 7,087
================================
50
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
Statements of Cash Flows
- ------------------------ Year Ended June 30
1999 1998 1997
--------------------------------
(In Thousands)
Operating Activities
Net income $ 9,670 $ 10,015 $ 7,087
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed
net income of subsidiaries (3,017) (7,315) (4,723)
Other 310 (1,254) 713
--------------------------------
Net cash provided by operating
activities 6,963 1,446 3,077
Investing Activities
Purchase of securities
available for sale (271) (320) -
Loans originated or acquired - (33) (684)
Principal collected on loans 33 28 16
Disposal (Purchase) of equipment 4 - (26)
Increase in investment in joint venture (415)
Distribution from joint venture - 1,196 -
Increase in investments in
subsidiaries (8) (25) (322)
Other 4 - -
--------------------------------
Net cash provided by (used in)
investing activities (653) 846 (1,016)
Financing Activities
Issuance of common stock:
Dividend Reinvestment Plan 2,265 2,330 2,133
Stock Option Plans 1,455 163 561
Retirement of common stock (4,023) - -
Cash dividends paid (4,896) (4,419) (3,919)
Cash in lieu of fractional shares (18) (21) (22)
Release of ESOP shares 133 132 133
Other (71) 39 (93)
--------------------------------
Net cash used in financing
activities (5,155) (1,776) (1,207)
--------------------------------
Increase in cash 1,155 516 854
Cash at beginning of year 5,266 4,750 3,896
--------------------------------
Cash at end of year $ 6,421 $ 5,266 $ 4,750
================================
51
<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
1999 1998
--------------------
(In Thousands)
Commitments to extend credit:
Loan origination commitments:
Fixed interest rates $ 8,530 $ 21,085
Variable interest rates 28,269 12,264
--------------------
36,799 33,349
Unused home equity lines of credit 57,596 50,672
Unused unsecured lines of credit 28,701 7,025
--------------------
$123,096 $ 91,046
====================
Standby letters of credit $ 3,044 $ 2,744
====================
Loans sold with recourse $ 27,356 $ 35,701
====================
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, 1999 and 1998.
52
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
18: Fair Value of Financial Instruments
SFAS 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 Available for Sale
The fair value for securities 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>
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>
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
1999 1998
----------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------
(In Thousands)
Cash and Due from banks -
Noninterest and interest-
earning $ 31,771 $ 31,771 $ 144,547 $ 144,547
Loans held for sale 30,631 30,631 17,534 17,534
Securities available for sale 295,691 295,691 47,940 47,940
Securities held to maturity 30,594 30,611 13,760 13,751
Loans:
Residential 666,257 662,420 753,627 760,074
Commercial 107,765 107,135 66,844 67,212
Consumer 144,558 145,757 139,040 139,564
----------------------------------------------
Total Gross Loans 918,580 915,312 959,511 966,850
Other Financial Assets 4,127 4,403 2,862 2,887
Noninterest-bearing
deposits 22,470 22,470 15,497 15,497
NOW accounts 107,107 107,107 99,491 99,491
Savings accounts 54,179 54,179 64,189 64,189
Money market accounts 328,775 328,775 267,515 267,515
Certificates of deposit 602,722 609,644 619,085 629,394
----------------------------------------------
Total Deposits 1,115,253 1,122,175 1,065,777 1,076,086
FHLB Advances and other
borrowings 113,962 113,191 27,861 27,715
Off-balance-sheet financial
instruments:
Commitments to extend credit $ (551) $ (250)
Standby letters of credit (46) (52)
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>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
Summaries of consolidated results of operations on a quarterly basis for the
years ended June 30, 1999 and 1998 are as follows:
Three Months Ended
September December
30 31 March 31 June 30
-----------------------------------------------
(Unaudited)
FISCAL YEAR 1999 (Dollars in Thousands, Except Per Share Data)
----------------
Interest income $ 21,884 $ 21,317 $ 21,149 $ 22,015
Interest expense 13,241 13,042 12,593 12,950
---------------------------------------------
Net interest income 8,643 8,275 8,556 9,065
Provision for loan losses 865 992 915 860
---------------------------------------------
Net interest income after
provision for loan losses 7,778 7,283 7,641 8,205
Securities gains 789 5 - -
Other income 2,294 2,155 1,949 4,846
Other expenses 6,804 6,906 6,885 7,639
Income tax expense 1,504 915 782 1,840
---------------------------------------------
Net income $ 2,553 $ 1,622 $ 1,923 $ 3,572
=============================================
Per share data:
Net income $ 0.27 $ 0.17 $ 0.20 $ 0.37
=============================================
Net income-assuming dilution $ 0.26 $ 0.16 $ 0.19 $ 0.36
=============================================
Cash dividends paid $ 0.125 $ 0.125 $ 0.130 $ 0.130
=============================================
FISCAL YEAR 1998
----------------
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
Securities gains - - - 174
Other income 2,095 3,311 2,577 1,995
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 $ 0.27 $ 0.32 $ 0.24 $ 0.26
=============================================
Net income-assuming dilution $ 0.25 $ 0.29 $ 0.22 $ 0.25
=============================================
Cash dividends paid $ 0.115 $ 0.115 $ 0.125 $ 0.125
=============================================
All per share data is adjusted for stock dividends and splits effected through
June 30, 1999.
56
<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
Paul D. Mills
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>
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 P. O'Hara
Executive Vice President CORPORATE SERVICES GROUP
Group Leader
Rebecca S. McClure, Esq.
Sherry L. Cronin Senior Vice President
Senior Vice President Group Leader
Mortgage Origination Division Secretary/General Counsel
Eleanor R. Connolly Sharon L. Luker
Vice President Vice President
Residential Mortgage Processing 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 Donald L. Arnold
Vice President
Relationship Manager
RETAIL BANKING GROUP
J. Martin Dell
Lynn D. Crenshaw Vice President
Executive Vice President Relationship Manager
Group Leader
Edmund H. Robinson
Miles C. Baxter Vice President
Vice President Relationship Manager
Branch Banking Division
OTHER ASSOCIATION OFFICERS
Michael J. McClure
Vice President William E. Groft
Product Sales Division Senior Vice President
Continuous Improvement
Kenneth H. Sallade
Senior Vice President
Chief Investment Officer
Dawn C. Paul, CBA
Vice President, Auditor
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 & Associates
A Subsidiary of York Federal 1100 New York Avenue, N.W.
James H. Moss, CPA Suite 700 East
President and Chief Executive Officer Washington, D.C. 20005
Y-F Service Corp. Transfer Agent and Registrar
Richard C. Arcuri American Stock Transfer and Trust Co.
President and Chief Executive Officer 40 Wall Street
46th Floor
New Service Corp. New York, New York 10005
Richard C. Arcuri
President and Chief Executive Officer 10-K Information
A copy of Form 10-K as filed with the
First Capital Brokerage Services, Inc. Securities and Exchange Commission
Kenneth P. Fetrow will be furnished without charge to
President and Chief Executive Officer stockholders of record on September 1,
1999, upon written request to James H.
First Capital Insurance 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.
Annual Meeting
The Annual Meeting of the stockholders
of York Financial Corp. will be held
on Thursday, October 21, 1999, 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>
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, York
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
1001 Haines Road, York President
Victoria A. Schofield, Assistant Vice
President
Dauphin County, Pennsylvania
1940 Carlisle Road, York
Andrea R. Geier, Assistant Vice President 1123 West Governor Road, Hershey
Debra E. Dupler, Assistant Vice
1442 Bannister Street, York President
Fred L. Landis II, Assistant Vice
President
Lancaster County, Pennsylvania
880 West Broadway, Red Lion
Kay M. Vannoy, Assistant Vice President 1758 Oregon Pike, Lancaster
Daniele L. Neff, Assistant Vice
201 Dart Drive, Hanover President
Tammy L. Ford, Assistant Vice President
1781 West Market Street, York Harford County, Maryland
Fred L. Landis II, Assistant
President 1816 Emmorton Road, Bel Air
Judith M. Kyle, Assistant Vice
499 Tyler Run Road, York President
Margarette A. Sboray, Assistant Vice
President 2006 Rock Spring Road, Forest Hill
Judith M. Kyle, Assistant Vice
4157 North George Street, Manchester President
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
70 East Forrest Avenue, Shrewsbury
Laurie A. Blevins, Assistant Vice
President
1 North Main Street, Shrewsbury
(Consolidated with Forrest Avenue -
8/1/99)
19 West Pennsylvania Avenue,
Stewartstown
Laura K. McDonald, Assistant Vice
President
- -------------------------------------------------------------------------------
Web site: www.yorkfed.com
60
<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, 1999.
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<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 21, 1999, included in the 1999
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 1984 Amended Incentive Stock Option
Plan of York Financial Corp., the 1984 York Financial Corp. Non-Incentive Stock
Option Plan for Outside Directors, the 1992 Stock Option and Incentive Plan of
York Financial Corp. and the 1992 York Financial Corp. Non-Incentive Stock
Option Plan for Directors; the Registration Statement (Form S-8 No. 33-64505)
pertaining to the 1995 York Financial Corp. Non-Qualified Stock Option Plan for
Directors; the Registration Statement (Form S-8 No. 333-40887) pertaining to the
1997 Stock Option and Incentive 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
21, 1999, 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
Baltimore, Maryland
September 23, 1999
<PAGE>
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