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, 2000
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 846-8777
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 12, 2000, there were issued and outstanding 10,112,815
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 Stock
Market on September 12, 2000 was $153,588,378 ($15.1875 per share based upon
10,112,815 shares). Directors and officers of the registrant are not
considered affiliates for purposes of this calculation.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Business
-----------------
General
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, 2000, the Corporation had assets of $1.7 billion, total deposits
of $1.2 billion and stockholders' equity of $109.9 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,
2000, York Federal's stockholders' equity was $114.6 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 25 offices located in south
central Pennsylvania and Maryland. 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.
Proposed Merger
On March 27, 2000, York Financial and York Federal entered into an
Agreement and Plan of Reorganization ("Agreement") with Harris Financial, MHC,
Harris Financial, Inc., Waypoint Financial, Inc. and Harris Savings Bank,
which Agreement was amended by the parties on June 23, 2000.
1
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To accomplish the merger, the Board of Trustees of Harris Financial, MHC
has adopted a plan of conversion pursuant to which the MHC will convert from a
mutual to a capital stock form of organization. Approximately 76% of Harris
Financial's outstanding shares of common stock are owned by its mutual holding
company, Harris Financial, MHC. The plan provides that Waypoint Financial
Corp., a Pennsylvania corporation and the successor to Harris Financial, will
conduct an offering of common stock to certain Harris Savings Bank depositors,
the community and public.
The number and price of shares to be issued in the conversion offering
will be based on an independent appraisal. Under the terms of the agreement,
the merger consideration will be based, in part, on the independent appraisal.
The primary pricing provisions of the agreement include that if the
independent appraisal of the common stock issued in the conversion is between
$289.5 million and $341.5 million, each York Financial share will be exchanged
for $17.25 of Harris Financial common stock based on the $10.00 price at which
Harris Financial's shares are sold in the conversion offering.
The merger is contemplated to be accounted for under the "pooling of
interests" method for business combinations. However, the agreement provides
that the parties may mutually elect to employ the "purchase" method of
accounting for the merger. If a "purchase", between 15% and 30% of the merger
consideration may be paid in cash. The merger is intended to be a tax-free
exchange for York Financial stockholders, except to the extent that cash is
received as consideration.
Harris Savings Bank is a community savings bank that operates 38 branches
in five counties of south-central Pennsylvania and Washington County,
Maryland. As of June 30, 2000, Harris Financial had assets of $2.8 billion,
deposits of $1.4 billion and equity of $169.0 million. York Federal is a
community savings association that operates 25 full-service offices in four
counties in south central Pennsylvania and Harford County, Maryland. As of
June 30, 2000, York Financial had assets of $1.7 billion, deposits of $1.2
billion and stockholders' equity of $109.9 million.
As a result of the conversion and merger, York Federal will be merged
with Harris Savings Bank. The resulting bank will be renamed "Waypoint Bank"
and will be wholly owned by Waypoint Financial. Currently, Harris Savings is
ranked fourth and York Federal is ranked sixth in deposit market share, in the
five county south central region of Pennsylvania including Dauphin, York,
Cumberland, Lancaster and Lebanon. With 13.3% of deposits after the
combination, Waypoint Financial will rank second in market share in the five
county south central region. It will also have six branches holding $164
million in deposits in two Maryland counties. Pro forma for the merger and the
expected second-step conversion indicate Waypoint Financial will have assets
of approximately $4.5 billion, deposits of $2.5 billion and equity of $480.0
million.
The merger is subject to the approval of York Financial's stockholders
and the conversion is subject to the approval of Harris Savings' depositors
and Harris Financial's minority stockholders. The transactions are also
subject to the approval of federal regulatory authorities, as well as
customary conditions. The conversion and merger are expected to be completed
in the fourth quarter of 2000. The agreement provides for breakup fees and
grants Harris Financial an option to acquire 19.9% of York Financial's common
stock if the agreement is terminated under certain circumstances.
Lending Activities
General. On a consolidated basis, the Corporation's net loan portfolio
totaled $1.2 billion at June 30, 2000, representing 70.0% 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
2
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policy of selling in the secondary market its originations of conforming
long-term (15 to 30 years), fixed rate real estate mortgage loans. However,
fixed rate loans may be retained in portfolio if the risk profile of the
Association's balance sheet can absorb the related interest rate risk of such
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 29 through 41 of "Management's Discussion and Analysis of Financial
Condition and Operations of the Corporation's" included as Item 7 of this Form
10-K. For additional information about the Corporation's lending activities
and commitments, see Notes 1, 6 and 18 of the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
3
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<PAGE>
<TABLE>
Loan Portfolio Analysis. The following table sets forth the composition of the Association's loan
portfolio by type of loan as of the dates indicated:
At June 30,
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2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- -------------
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:
1-4 family real
estate mortgage
loans:
Conventional.....$ 738,172 63.0% $ 565,675 62.3% $ 642,314 67.5% $ 772,962 77.5% $718,755 76.6%
Construction .... 146,864 12.6 156,709 17.2 109,938 11.6 65,641 6.6 65,725 7.0
---------- ---- --------- ---- --------- ---- ---------- ---- -------- ----
885,036 75.6 722,384 79.5 752,252 79.1 838,603 84.1 784,480 83.6
Commercial first
mortgage loans:
Conventional..... 136,743 11.7 106,653 11.7 89,451 9.4 48,443 4.9 62,006 6.6
Construction..... 26,012 2.2 30,268 3.3 14,258 1.5 9,967 1.0 9,840 1.0
---------- ---- --------- ---- --------- ---- ---------- ---- -------- ----
162,755 13.9 136,921 15.0 103,709 10.9 58,410 5.9 71,846 7.6
---------- ---- --------- ---- --------- ---- ---------- ---- --------- -----
1,047,791 89.5 859,305 94.5 855,961 90.0 897,013 90.0 856,326 91.2
Commercial business
loans............. 51,455 4.4 20,805 2.3 9,892 1.0 496 -- 1,714 0.2
Consumer loans:
Automobile loans.. 2,619 0.2 2,684 0.3 2,459 0.2 2,597 0.3 5,301 0.6
Mobile home loans. 1,363 0.1 1,697 0.2 1,954 0.2 2,249 0.2 1,362 0.1
Education loans... 20,625 1.8 19,246 2.1 18,360 1.9 17,163 1.7 15,505 1.7
Savings account
loans............ 2,396 0.2 2,186 0.3 2,479 0.3 2,334 0.2 2,001 0.2
Home improvement
loans............ 13,024 1.1 3,041 0.3 4,582 0.5 3,987 0.4 3,901 0.4
Boat loans........ 821 0.1 1,098 0.1 1,711 0.2 2,525 0.3 3,126 0.3
Home equity loans. 52,110 4.4 49,390 5.4 50,659 5.3 53,827 5.4 49,217 5.2
Other............. 72,394 6.2 65,216 7.2 56,836 6.0 49,805 5.0 34,401 3.7
---------- ---- --------- ---- --------- ---- ---------- ---- -------- -----
165,352 14.1 144,558 15.9 139,040 14.6 134,487 13.5 114,814 12.2
---------- ---- --------- ---- --------- ---- ---------- ---- -------- -----
Subtotals....... 1,264,598 1,024,668 1,004,893 1,031,996 972,854
Less:
Loans in process.. 84,981 7.3 106,088 11.7 45,382 4.8 28,302 2.9 27,497 2.9
Unamortized loan
fees and unearned
income........... (2,848) (0.3) (1,416) (0.2) (940) (0.1) (560) -- 178 --
Allowance for
loan losses...... 11,254 1.0 10,803 1.2 8,810 0.9 6,413 0.6 6,609 0.7
---------- ----- --------- ----- --------- ----- ---------- ---- -------- -----
93,387 8.0 115,475 12.7 53,252 5.6 34,155 3.5 34,284 3.6
---------- ----- --------- ----- --------- ----- ---------- ---- -------- -----
Total...........$1,171,211 100.0% $ 909,193 100.0% $ 951,641 100.0% $ 997,841 100.0% $938,570 100.0%
========== ===== ========= ===== ========= ====== ========== ===== ======== =====
</TABLE>
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<TABLE>
Loan Maturity
The following table sets forth the dollar amount of total loans receivable which have predetermined
interest rates and those which have floating or adjustable interest rates.
Due within one year Due one to five years Due more than five years
of June 30, 2000 (1) after June 30, 2000 (1) after June 30, 2000 (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
Conventional:
Residential
and com-
mercial... $118,813 $ 32,898 $151,711 $420,368 $ 87,244 $507,612 $161,192 $53,601 $214,793 $ 874,116
Construction:
Residential
and com-
mercial... 1,126 8,389 9,515 3,756 26,666 30,422 6,402 42,355 48,757 88,694
Commercial
business
loans....... 8,766 20,352 29,118 9,504 5,913 15,417 1,086 5,834 6,920 51,455
Consumer..... 18,729 55,158 73,887 42,005 20,789 62,794 28,648 23 28,671 165,352
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
Total.... $147,434 $116,797 $264,231 $475,633 $140,612 $616,245 $197,328 $101,813 $299,141 $1,179,617
======== ======== ======== ======== ======== ======== ======== ======== ======== ==========
----------------
(1) Based on contractual terms to maturity and adjusted for market consensus prepayment assumptions.
5
</TABLE>
<PAGE>
Residential Real Estate Loans. At June 30, 2000 approximately 75.6% 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, 2000, $4.4 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's Business
Banking Group continues to aggressively pursue commercial real estate and
business lending opportunities within York Federal's 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 13.9% of York Federal's portfolio as of June 30, 2000.
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, 2000, commercial
business loans totaled $51.5 million or 4.4% of total loans. Such loans may
have fixed rates for terms generally not greater than five years or have
adjustable rates tied to prime, libor, or treasury 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
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<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, 2000, consumer loans totaled $165.4 million
or approximately 14.1% of York Federal's total loan portfolio. The consumer
loan portfolio is comprised 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, 2000,
York Federal had approximately $52.1 million of home equity loans outstanding
under total lines of credit available of $119.2 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 then construction financing. At June 30, 2000, the
Association had $88.7 million net of loans in process or 7.5% 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 up to 12 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 Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("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, 2000,
York Federal did not have any outstanding commitments to sell loans.
In the current and prior years, certain sales to FNMA included recourse
provisions. For additional information, see Note 18 of the Notes to
Consolidated Financial Statements contained in Item 8 of this Form 10-K.
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The following table sets forth the loans originated and sold as of the
dates indicated.
Year Ended June 30,
------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Loans originated:
Conventional real estate loans:
Construction loans........................ $250,779 $203,262 $138,481
Loans on existing property(1)............. 229,656 237,066 219,799
Other loans................................. 205,569 137,498 80,923
-------- -------- --------
Total loans originated................. $686,004 $577,826 $439,203
======== ======== ========
Loans securitized and/or sold:
Real estate:
Loan securitized(2)....................... $114,206 $241,282 $145,473
Loans sold................................ 11,552 1,648 33,426
-------- -------- --------
Total real estate loans securitized
and/or sold......................... $125,758 $242,930 $178,899
======== ======== ========
--------------
(1) Includes loans refinanced from the Association's portfolio totaling
$6.2 million, $62.8 million and $24.5 million in years ended June
30, 2000, 1999, and 1998, respectively.
(2) Loans securitized in the years ended June 30, 2000, 1999 and 1998
includes loans securitized and sold totaling $114.2 million, $222.8
million, and $132.4 million, respectively, and loans securitized and
retained in portfolio totaling $0, $18.5 million, and $13.1 million,
respectively.
In connection with loan sales, York Federal generally retains the
servicing rights of the loans. See Notes 1 and 7 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K and pages 34
through 38 of "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" contained in Item 7 of this Form 10-K.
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 2000, less than 5% of loan commitments expired
without being funded. At June 30, 2000, York Federal's outstanding residential
and commercial mortgage loan commitments amounted to $16.5 million. See Note
18 of the Notes to Consolidated Financial Statements contained in Item 8 of
this Form 10-K.
Asset Quality
See pages 30 through 33 of "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations" contained in Item
7 of this Form 10-K.
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<TABLE>
The following table sets forth the breakdown of the allowance for loan losses by loan category at the
dates indicated. Management believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
At June 30,
-------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- --------------- ---------------- -------------- --------------
% of % of % of % of % of
loans loans loans loans loans
in each in each in each in each in each
category category category category category
to gross to gross to gross to gross to gross
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Real Estate
Residential.........$ 4,412 68.9% $ 4,696 72.4% $3,158 78.3% $2,485 81.2% $2,063 80.5%
Commercial.......... 2,034 12.7 2,106 10.4 893 6.8 740 5.4 1,430 7.2
Commercial
business loans..... 1,761 4.4 607 1.4 263 -- 35 -- 65 0.2
Consumer............. 1,039 14.0 878 15.8 656 14.5 514 13.4 406 12.1
Unallocated.......... 2,008 N/A 2,516 N/A 3,840 N/A 2,639 N/A 2,645 N/A
------- ----- ------- ----- ------ ----- ------ ----- ------ ----
Total allowance
for loan losses....$11,254 100.0% $ 10,803 100.0% $8,810 100.0% $6,413 100.0% $6,609 100.0%
======= ===== ======== ===== ====== ===== ====== ===== ====== =====
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</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, 2000
of $11.3 million is adequate relative to the known and inherent losses in the
portfolio.
Non-Performing Loans. The information contained on pages 30 through 33
of "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" contained in Item 7 of this Form 10-K is
incorporated herein by reference. See Notes 1 and 6 of the Notes to
Consolidated Financial Statements contained in Item 8 of this Form 10-K. All
commercial 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 Classification Policy effective June 30, 1999 and follows this
policy for placing loans on nonaccrual status.
The Uniform Retail Credit Classification Policy was a policy statement
adopted by the Federal Financial Institutions Examination Council ("FFIEC")
which establishes (1) a uniform charge-off policy for open-end credit at 180
days and closed-end credit of 120 days delinquency, (2) provides uniform
guidance for loans affected by bankruptcy, fraud and death, (3) establishes
guidelines for re-aging, extending, deferring or rewriting past due accounts,
(4) classifies certain delinquent residential mortgage and home equity loans,
and (5) broadens recognition of partial payments that qualify as full
payments. The Association had nonaccrual loans totaling $263,000 at June 30,
2000 compared to $919,000 at June 30, 1999.
Real Estate Owned. For information regarding the Association's real
estate owned, see the discussion on pages 30 through 33 of "Management's
Discussion and Analysis of Consolidated Financial Condition and Results
of Operations" and Notes 1 and 8 of the Notes to Consolidated Financial
Statements contained in Item 7 and Item 8, respectively, of this Form 10-K.
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
10
<PAGE>
agency securities, mortgage-backed securities issued and guaranteed by FHLMC,
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,
------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Short-term investments:
Interest bearing deposits.................. $ 12,856 $ 8,958 $126,613
Securities:
Available for Sale:
Equity Securities........................ 10,919 1,335 338
U.S. Treasury and other U.S.
Government Agencies.................... 180,111 161,856 14,810
Mortgage-backed........................ 155,475 132,500 32,792
-------- -------- --------
Total............................. 346,505 295,691 47,940
Held to maturity:
U.S. Treasury and other U.S.
Government Agencies.................... 3,500 3,498 5,500
Corporate debt........................... 19,018 18,903 --
Mortgage-backed.......................... 171 217 284
-------- -------- --------
Total............................. 22,689 22,618 5,784
FHLB of Pittsburgh stock.................... 21,290 7,976 7,976
-------- -------- --------
Total.................................... $403,340 $335,243 $188,313
======== ======== ========
During fiscal 2000, leverage strategies were completed to effectively
utilize available capital which resulted in the expansion of the investment
portfolio through the purchase of available for sale 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 and mortgage-backed
securities. 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. 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.
11
<PAGE>
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 29, 30 and 33 through 36 of "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations"
contained in Item 7 of this Form 10-K. For additional information about the
Corporation's investment activities, see Notes 1 and 5 of the Notes to
Consolidated Financial Statements contained in Item 8 of this Form 10-K.
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."
12
<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, 2000
-----------------------------------------------------------------------------------------
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 and
municipals..... $ 147 7.14% $134,165 6.00% $ 46,678 6.35% $ 5,775 6.74% $186,765 $180,111 6.11%
FNMA/FHLMC
mortgage-backed
securities and
collateralized
mortgage
obligations.... 7,209 6.25 33,399 6.75 26,161 6.79 93,227 7.19 159,996 155,475 6.99
------- ---- -------- ---- -------- ---- -------- ---- -------- -------- ----
$ 7,356 6.27% $167,564 6.15% $ 72,839 6.51% $ 99,002 7.17% $346,761 $335,586 6.52%
======= ==== ======== ==== ======== ==== ======== ==== ======== ======== ====
Held to Maturity:
U.S. Treasury
and other U.S.
Government
agencies and
municipals.....$ -- --% $ 3,500 6.75% $ -- --% $ -- --% $ 3,500 $ 3,421 6.75%
Corporate debt.. -- -- -- -- 4,898 7.59 14,120 7.97 19,018 18,506 7.87
GNMA mortgage-
backed......... 16 8.58 82 8.59 73 8.58 -- -- 171 178 8.58
------- ---- -------- ---- -------- ---- -------- ---- -------- -------- ----
$ 16 8.58% $ 3,582 6.79% $ 4,971 7.61% $ 14,120 7.97% $ 22,689 $ 22,105 7.71%
======= ==== ======== ==== ======== ==== ======== ==== ======== ======== ====
</TABLE>
13
<PAGE>
Savings Activities and Other Sources of Funds
General. Deposits are a 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, 2000 there were no broker-originated deposits. See Note 11
of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K.
Changes in the composition of the Association's deposit portfolio were
due to customers' reaction to the current rate environment in fiscal 2000.
The growth in deposits resulted primarily from aggressive pricing of
certificate accounts to retain existing customers and attract new customers
during fiscal 2000. 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,
2000.
Certificates
Maturity Period of Deposit
--------------- -------------
(In thousands)
Three months or less................... $ 36,729
Three through six months............... 17,684
Six through twelve months.............. 27,346
Over twelve months..................... 27,532
---------
Total................................ $ 109,291
=========
Borrowings. As discussed within the Corporation's investment activities
section above, leverage activities were completed during fiscal 2000, which is
the primary reason for the increase in borrowings.
For further discussion of changes in short-term borrowings as noted in
the following table, see pages 33 through 36 of "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations"
contained in Item 7 of this Form 10-K. For additional information about the
Corporation's borrowing activities, see Note 12 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K.
14
<PAGE>
The following is a summary of aggregate short-term borrowings for the
years ended June 30, 2000, 1999 and 1998, respectively:
Year Ended June 30,
-------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Amount outstanding at end of year............ $255,200 $87,288 $ 1,252
Average interest rate at end of year......... 7.02% 5.14% 4.44%
Maximum amount outstanding at any month-end.. $330,324 $87,288 $29,000
Average amount outstanding................... $186,420 $ 9,771 $12,479
Weighted average interest rate for the year.. 5.87% 4.60% 5.70%
Yields Earned and Rates Paid
For a discussion of yields earned and rates paid by the Association, see
pages 34 through 36 of "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" contained in Item 7 of this
Form 10-K.
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 2000, YFIC received contributed capital of $49.6 million, net income of
$16.8 million and unrealized losses on securities available for sale of $4.2
million net of applicable income taxes resulting in YFIC's stockholders'
equity of $408.2 million at June 30, 2000.
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 2000, YFSC combined the two Shrewsbury offices into one office
and completed development of one new branch location and at June 30, 2000 had
two branch development projects in progress with projected openings in
approximately September 2000 and by the end of 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 $262,000 or the year ended June 30, 2000.
Stockholders' equity was $3.7 million at June 30, 2000.
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
15
<PAGE>
commenced October 1987. First Capital's net worth at June 30, 2000 was
$223,000 net of capital distributions to York Financial during fiscal 2000
totaling $46,000 and its net income for the year ended June 30, 2000 was
$75,000.
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 $47,000 for the year ended June 30, 2000.
Stockholders equity was $57,000 at June 30, 2000.
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. At June 30, 2000, the total
number of developed lots was 122 with four remaining to be sold. New Service
Corp.'s investment at June 30, 2000 of $117,000 represents a 50% equity
interest in the venture with total assets of $274,000. See Note 10 of the
Notes to Consolidated Financial Statements contained in Item 8 of this Form
10-K. 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. Also included in the
losses from operations was a property impairment charge of $105,000 and a gain
of $94,000 on the sale of a property. See Note 8 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K. New Service's net
loss for the year ended June 30, 2000 was $166,000. At June 30, 2000
stockholders' equity was $499,000.
Lenders Support Group ("LSG"). LSG performed 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 has remained inactive. LSG's net worth was $1,000 at
June 30, 2000.
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
with an additional investment of $789,000 in fiscal 2000 with a resulting net
limited capital position of approximately 8.5% (including SBA preferred
limited partner interest discussed below). The net amount of the investment
at June 30, 2000 including the Corporation's share of reported gains (losses)
recognized using the equity method of accounting and partnership distributions
is $3.6 million.
York Financial's share of MVP income from operations for the year ended
June 30, 2000 including market value adjustments of portfolio investments is a
loss of $1.0 million. Such amount compares to income of $1.4 million for the
year ended June 30, 1999. As of June 30, 2000, MVP had total assets of $29.5
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,
2000, MVP had $14.6 million of Participating Securities outstanding.
16
<PAGE>
The following table sets forth the Corporation's composition of
investments in joint ventures and other partnerships at and for the year ended
June 30, 2000.
50% Owned Limited
Joint Venture Partnership Partnerships(1)
------------- ----------- ---------------
Total assets................ $ 29,489,000 $ 274,000 $12,150,000
============ =========== ============
Total liabilities........... $ 1,466,000 $ 39,000 $ 7,952,000
Partners' capital........... 28,023,000 235,000 4,198,000
------------ ----------- ------------
$ 29,489,000 $ 274,000 $12,150,000
============ =========== ============
York Financial's
partners' capital .......... $ 3,633,000 $ 117,000 $ 5,775,000
============ =========== ============
Net (loss) income........... $ (4,737,000) $ 77,000 $ (359,000)
============ =========== ============
Total of York Financial's
share of net (loss) income
recorded for the year
ended June 30, 2000........ $ (956,000) $ 39,000 $ (514,000)(2)
============ =========== ===========
Tax credits recognized on
investments................ $ -- $ -- $1,485,000 (3)
============ =========== ===========
--------------
(1) See Note 10 of the Notes to Consolidated Financial Statements contained
in Item 8 of this Form 10-K for a description of investments.
(2) Prior year and current year losses are included as a result of more
timely information received from the partnerships.
(3) The Corporation has a tax credit carryforward, which expires in 2020
of approximately $1,354,000 for federal income tax purposes.
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.
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 loans (borrowings) from the FHLB of Pittsburgh. The
17
<PAGE>
Association is in compliance with this requirement with an investment in FHLB
of Pittsburgh stock of $21.3 million at June 30, 2000.
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 loans 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 law. 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. As a well capitalized savings association, York Federal
qualified for the lowest rate on its deposits for fiscal 2000.
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, 2000 in excess of regulatory requirements.
Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions that it
regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action.
Under the regulations, an institution shall be deemed to be "well capitalized"
if it has a total risk-based capital ratio of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more
and is not subject to specified requirements to meet and maintain a specific
capital level for any capital measure. At June 30, 2000, the Association was
categorized as "well capitalized" under the prompt corrective action
regulations of the OTS. See Note 15 of the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
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
18
<PAGE>
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, 2000, the Association's QTL ratio of 72.1% was in compliance
with the current QTL requirement.
Capital Requirements. 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 4.0%
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, 2000, York Federal's tangible and core capital both equaled
7.3% ($121.6 million), substantially in excess of the minimum regulatory
requirements of 1.5% and 4.0%, respectively. York Federal's total assets do
not include any goodwill. York Federal's core capital to risk-weighted assets
equaled 12.2% ($121.6 million) at June 30, 2000, which exceeds the required
level of 6.0%. Finally, York Federal's risk-based capital ratio equaled 13.2%
($132.0 million) at June 30, 2000, which exceeds the required level of 8.0% by
$52.1 million, and exceeds the required level to be deemed well capitalized of
10.0% by $32.2 million. For a more comprehensive analysis of capital, see Note
15 of the Notes to Consolidated Financial Statements contained in Item 8 of
this Form 10-K.
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, 2000, $27.0 million. During fiscal 2000, $3.1 million 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, 2000, the
Association's limit on loans
19
<PAGE>
to one borrower was $18.9 million. At June 30, 2000, the Association's
largest aggregate amount of loans to one borrower was $9.9 million.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders. York Federal received approval from the FDIC and OTS
to operate York Financial Investment Corp. as an operating subsidiary and such
activities commenced October 1, 1997 upon the transfer by 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
20
<PAGE>
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.
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, 2000, 1999 and 1998.
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, 2000, 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.
21
<PAGE>
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modification)
over $2.0 million 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 13 and 15 of the Notes to Consolidated Financial Statements
contained in Item 8 of this Form 10-K.
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, 2000, the Corporation and its subsidiaries had 396
full-time equivalent employees. The employees are not represented by a
collective bargaining agreement. The Corporation believes its employee
relations are good.
22
<PAGE>
Item 2. Properties
-------------------
The following table sets forth the location of York Federal's offices and
other facilities used in operations as well as certain additional information
relating to these offices and facilities as of June 30, 2000.
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 $2,496,845 Owned --
Branch Offices:
2690 S. Queen Street
York, PA 1993 286,022 199,178 Owned --
Northern Way
York, PA 1995 511,006 431,771 Owned --
Haines Acre Shopping Center
York, PA 1975 126,523 65,840 Leased 10/05
1940 Carlisle Road
York, PA 1972 467,159 259,487 Owned --
1781 West Market Street
York, PA 1986 360,053 266,967 Owned --
1442 Bannister Street
West York, PA 1979 416,992 335,315 Owned --
269 Penrose Place
Carlisle, PA 1997(2) 105,998 98,524 Leased 6/07
880 W. Broadway
Red Lion, PA 1978 347,703 207,707 Owned --
Main Street & Forrest Avenue
Shrewsbury, PA (3) 1975 258,624 148,958 Owned --
798 Simpson Ferry Road
Mechanicsburg, PA 1975 263,215 184,124 Owned --
1123 W. Governor Road
Hershey, PA 1973 439,564 220,581 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
--------------- ------ ---- -------- ----- -----
75 Zimmerman Drive
Camp Hill, PA 1979 $ 352,685 $ 203,330 Owned --
1758 Oregon Pike
Lancaster, PA 1979 392,769 227,629 Owned --
201 Dart Drive
Hanover, PA 1980 399,705 269,375 Owned --
499 Tyler Run Road
York, PA 1989 415,112 341,375 Owned --
4157 N. George Street
York, PA 1989 354,445 258,838 Owned --
3995 E. Market Street
York, PA 1990 86,197 65,926 Leased 6/15
1816 Emmorton Road
Bel Air, MD 1991 725,771 561,425 Owned --
2006 Rock Spring Road
Bel Air, MD 1991 725,420 558,801 Owned --
39 Hanover Street
Spring Grove, PA 1993 419,621 355,669 Owned --
1700 Baltimore Pike
Hanover, PA 1993 391,485 321,437 Owned --
1160 Walnut Bottom Road
Carlisle, PA 1998 681,201 664,346 Owned --
70 East Forrest Avenue
Shrewsbury, PA 1999 924,816 891,371 Owned --
19 West Pennsylvania Avenue
Stewartstown, PA 1999 637,792 620,046 Owned --
500 Greenbriar Road
York, PA 1999 966,606 954,695 Owned --
11350 McCormick Road
Hunt Valley, MD (4) 2000 2,601 2,562 Leased 12/04
(table continued on following page)
24
<PAGE>
Expira-
Year tion
Facility Net Book Leased/ Date of
Office Location Opened Cost Value(1) Owned Lease
--------------- ------ ---- -------- ----- -----
Other Facilities:
Haines Road MAC
York, PA 1987 $ 28,038 $ 2,804 Leased 10/05
Red Lion MAC
Red Lion, PA 1988 21,330 13,205 Owned --
30 East King Street
York, PA (5) 1973 747,489 294,886 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 136,926 122,734 Owned --
122 South George Street
York, PA (5) 1996 4,520,135 4,027,745 Owned --
------------
(1) Represents the net book value of land and buildings owned by York
Financial or in the case of leased property the value of leasehold
improvements.
(2) Branch previously located at MJ Carlisle Mall, opened in 1978.
(3) Facility used by First Capital Brokerage Services, Inc., a subsidiary of
York Financial.
(4) Facility used as a loan origination office.
(5) Facility used as administrative and operations center.
As of June 30, 2000, the total book value of office properties and
equipment owned by the Corporation and its subsidiaries, less allowances for
depreciation and amortization, was $21.1 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.
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, 2000.
25
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
--------------------------------------------------------------------------
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 12, 2000,
there were approximately 3,136 stockholders of record owning 10,112,815
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 2000
1st quarter $ 14.35 $ 13.63 $ 0.125
2nd quarter 14.38 11.00 0.125
3rd quarter 15.00 10.25 0.130
4th quarter 13.75 11.63 0.130
--------
$ 0.510
========
Fiscal 1999
1st quarter $ 20.07 $ 15.25 $ 0.120
2nd quarter 19.84 14.17 0.120
3rd quarter 15.48 13.70 0.125
4th quarter 14.70 13.63 0.125
--------
$ 0.490
========
-------------
(1) Market prices and amounts per share, including dividends, are adjusted
for stock dividends effected through June 30, 2000.
(2) Restrictions are placed on the Corporation's ability to pay cash
dividends as discussed in Note 15 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K.
Item 6. Selected Financial Data
--------------------------------
The following table sets forth certain information concerning the
consolidated financial position and results of operations of the Corporation
and its subsidiaries at and for the dates indicated. The consolidated data is
derived in part from, and should be read in conjunction with, the Consolidated
Financial Statements of the Corporation and its subsidiaries contained in Item
8 of this Form 10-K.
26
<PAGE>
At June 30,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
Assets.............$1,673,645 $1,364,626 $1,229,268 $1,162,393 $1,109,804
Short-term
investments...... 12,856 8,958 126,613 1,527 2,207
Loans held for
sale, net........ 4,415 30,631 17,534 4,882 5,686
Securities and
Federal Home
Loan Bank stock.. 390,484 326,285 61,700 83,708 90,859
Loans receivable,
net.............. 1,171,211 909,193 951,641 997,841 938,570
Deposits........... 1,170,728 1,115,253 1,065,777 993,106 908,123
Borrowings......... 370,390 113,962 27,861 46,236 74,380
Stockholders'
equity........... 109,878 110,410 109,225 100,083 93,540
Loans serviced for
others........... 542,711 494,687 487,092 548,202 593,166
Number of:
Real estate loans
outstanding...... 7,689 7,401 8,795 9,471 9,724
Loans serviced for
others........... 6,978 7,823 7,724 8,484 9,649
Deposit accounts... 137,404 133,107 130,968 128,211 118,758
Offices............ 25 25 23 22 22
Year Ended June 30,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands, except per share data*)
Interest income..... $108,538 $ 86,365 $ 88,566 $ 87,641 $ 80,880
Interest expense.... 71,317 51,826 51,844 51,788 45,905
-------- -------- -------- -------- --------
Net interest income. 37,221 34,539 36,722 35,853 34,975
Provision for loan
losses............ 1,660 3,632 3,737 2,424 2,300
-------- -------- -------- -------- --------
Net interest income
after provision for
loan losses....... 35,561 30,907 32,985 33,429 32,675
Other income........ 7,261 12,038 10,152 8,696 8,630
Other expenses...... 31,353 28,234 27,323 31,163(1) 24,450
-------- -------- -------- -------- --------
Income before income
taxes............. 11,469 14,711 15,814 10,962 16,855
Provision for income
taxes............. 2,180 5,041 5,799 3,875 6,512
-------- -------- -------- -------- --------
Net income.......... $ 9,289 $ 9,670 $ 10,015 $ 7,087 $10,343
======== ======== ======== ======== ========
Per share data:
Net income-assuming
dilution......... $ 0.91 $ 0.93 $ 0.96 $ 0.71 $ 1.08
Cash dividends
paid............. $ 0.51 $ 0.49 $ 0.46 $ 0.42 $ 0.37
Book value......... $ 10.91 $ 10.99 $ 11.05 $ 10.36 $ 10.14
Shares outstanding
(year end).......10,112,815 10,043,740 9,887,225 9,658,379 9,228,606
Weighted average
shares-assuming
dilution...........10,196,667 10,415,074 10,387,559 9,894,376 9,591,830
Other financial ratios:
Return on average
assets........... 0.58% 0.76% 0.84% 0.61% 0.99%
Return on average
equity........... 8.55% 8.64% 9.61% 7.46% 11.57%
Dividend payout
ratio............ 54.80% 50.62% 44.13% 55.30% 32.69%
Average equity to
average assets... 6.82% 8.84% 8.78% 8.19% 8.51%
(footnotes on following page)
27
<PAGE>
<PAGE>
---------------
* All per share data is adjusted for stock dividends effected through
June 30, 2000.
(1) Includes one-time special assessment of $5.3 million pre-tax ($3.2
million net of taxes) for the year ended June 30, 1997 to recapitalize
the SAIF of the FDIC in accordance with the Deposit Insurance Funds Act
enacted September 30, 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion is to provide additional information about
York Financial Corp. ("York Financial" or the "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 ("SEC").
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, 2000,
the Corporation had consolidated assets of $1.7 billion, total deposits of
$1.2 billion and stockholders' equity of $109.9 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 outstanding. Other operating income is an important
supplement to York Federal's interest income and includes mortgage banking
activities which includes 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
28
<PAGE>
sale, gains and losses on sales of real estate, equity in (losses) 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 Corporation's market risk arises principally from interest rate
risk within York Federal. 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. By managing the ratio of
interest sensitive assets to interest sensitive liabilities repricing in the
same periods, the Association seeks to control the adverse effect of interest
rate fluctuations. The Corporation's assets and liabilities are not directly
exposed to foreign currency or commodity price risk. At June 30, 2000, 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 regarding the acquisition
and allocation of funds to maximize earnings and maintain the interest rate
sensitivity position at acceptable levels. The Association originates for
portfolio principally short and intermediate term and adjustable rate loans
and sells most fixed rate loan originations. Additionally, investment
securities categorized as available for sale have been acquired for portfolio.
The funding sources for these portfolio loans and securities are deposits and
borrowings with various maturities. In addition to normal portfolio management
activities, strategies are evaluated on an ongoing basis, and implemented as
necessary to manage interest rate risk levels, including asset sales, equity
infusions to York Federal and extension of maturities of borrowings. As part
of our risk management, we utilized all of these strategies with the sale of
intermediate term loans totaling $82.6 million during the third quarter,
equity infusion totaling $3.0 million to York Federal from cash available at
York Financial, equity infusion totaling $15.0 million from the proceeds of a
commercial bank borrowing by York Financial and through extensions of
maturities on certain borrowings. See Note 12 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K.
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 with the comparison of June 30, 2000
to June 30, 1999 in the following table.
An analysis of hypothetical changes in interest rates as of June 30, 2000
compared to June 30, 1999 is as follows:
June 30,
---------------------------------------------------------
2000 1999
-------------------------- ----------------------------
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 (28.00)% 4.09% (14.00)% 4.70%
+200 (17.00) 5.33 (9.00) 5.75
+100 (7.00) 6.60 (4.00) 6.69
0 0.00 7.57 0.00 7.49
(100) 5.00 8.67 4.00 8.15
(200) 9.00 8.89 6.00 8.41
(footnotes on following page)
29
<PAGE>
-------------
(1) The percentage change in this column represents an increase (decrease) in
net interest income for 12 months in a stable interest rate environment
versus net interest income for 12 months 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 with regard 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. The increase in net
interest income variability in various rate shock scenarios is due to the
continuation of portfolio lending and investment leverage strategies which
were funded with convertible borrowings and overnight borrowings resulting in
inherently more interest rate risk than previous periods, combined with an
increase in market interest rates. Net portfolio value had less variability
due to strategies evaluated and implemented to manage risks over the long
term. 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 Association'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, 2000.
Asset Quality
Management is aware of the risks that are part of York Federal's lending
operations and continually monitors risk of the loan portfolio. The
Association's Business Banking Group offers financial products and services to
small and mid-sized businesses in the Association's branch market area. The
nature of these products and services and the financial characteristics of the
target client group may have the effect of increasing the Association's credit
risk exposure. The Association has 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. 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 loss 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.
30
<PAGE>
An analysis of the allowance for loan losses is as follows:
Year Ended June 30,
--------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Total allowance for loan
losses at beginning of
period.....................$ 10,803 $ 8,810 $ 6,413 $ 6,609 $ 5,840
Loans charged-off:
Real estate-mortgage:
Residential............... 1,036 1,581 1,701 1,304 1,151
Commercial................ -- 16 68 1,820 620
Consumer.................... 394 397 89 226 100
-------- -------- ------- ------- -------
Total charge-offs .... 1,430 1,994 1,858 3,350 1,871
Recoveries:
Real estate-mortgage:
Residential............... 189 325 212 210 156
Commercial................ 24 24 294 516 184
Consumer.................... 8 6 12 4 --
-------- -------- ------- ------- -------
Total recoveries...... 221 355 518 730 340
-------- -------- ------- ------- -------
Net loans charged-off. 1,209 1,639 1,340 2,620 1,531
Provision for loan losses.... 1,660 3,632 3,737 2,424 2,300
-------- -------- ------- ------- -------
Total allowance for loan
losses at end of period.....$ 11,254 $ 10,803 $ 8,810 $ 6,413 $ 6,609
======== ======== ======= ======= =======
Percentage of net charge-offs
to average loans outstanding
during the period........... 0.11% 0.18% 0.13% 0.26% 0.17%
==== ==== ==== ==== ====
Percentage of allowance for
loan losses to adjusted
total loans................. 0.95% 1.17% 0.92% 0.64% 0.70%
==== ==== ==== ==== ====
The allowance for loan losses totaled $11.3 million or 0.95% of adjusted
total loans of $1.2 billion at June 30,2000 compared to $10.8 million or 1.17%
of adjusted total loans of $919.9 million at June 30, 1999. During fiscal
2000, the Association followed the Uniform Retail Credit Classification Policy
which was implemented effective June 30, 1999. With the implementation of the
policy as of June 30, 1999, a one-time charge to the allowance for loan losses
of $408,000 was recognized representing the total amount due on certain loans
in excess of the net realizable value of the underlying collateral. An
analysis of nonperforming assets follows indicating a decrease in nonaccrual
and 90 day past due loans to 0.63% at June 30, 2000 compared to 1.07% at June
30, 1999. Such decrease is attributable to favorable economic conditions
consistent with ongoing, aggressive collection efforts to reduce
delinquencies. After considering all of the factors disclosed in this asset
quality discussion, management believes the allowance for loan loss is
adequate relative to its assessment of existing loss characteristics within
the loan portfolio and therefore the decrease in the provision for loan losses
to $1.7 million for the year ended June 30, 2000 is considered appropriate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on specific
circumstances related to future problem loans, increased risk of loss due to a
change in mix within the portfolio as well as changes in economic conditions.
31
<PAGE>
An analysis of nonperforming assets is summarized as follows:
June 30,
--------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a
nonaccrual basis:
Real estate-mortgage:
Residential..............$ 263 $ 870 $ -- $ -- $ --
Commercial............... -- -- -- 950 1,481
Land..................... -- -- -- -- 200
Consumer................... -- 49 -- -- --
-------- ------- ------- ------- -------
Total nonaccrual loans... 263 919 -- 950 1,681
Accruing loans which are
contractually past due 90
days or more:
Real estate-mortgage:
Residential.............. 6,428 8,311 14,487 12,735 10,029
Consumer................... 723 823 1,194 702 383
-------- ------- ------- ------- -------
Total of 90 days past
due loans.............. 7,151 9,134 15,681 13,437 10,412
-------- ------- ------- ------- -------
Total of nonaccrual and
90 days past due loans......$ 7,414 $10,053 $15,681 $14,387 $12,093
======== ======= ======= ======= =======
As a percent of total
loans.................... 0.63% 1.07% 1.63% 1.43% 1.28%
==== ==== ==== ==== ====
Real estate owned:
Real estate acquired
through foreclosure
or repossession by
loan type:
Real estate:
Residential............$ 2,300 $ 4,571 $ 4,543 $ 4,978 $ 4,913
Commercial............. -- 1,055 2,687 2,714 2,370
Land................... 1,113 1,319 1,863 2,895 3,349
Allowance for real estate
losses..................... (55) (45) (116) (365) (955)
-------- ------- ------- ------- -------
Total real estate owned......$ 3,358 $ 6,900 $ 8,977 $10,222 $ 9,677
======== ======= ======= ======= =======
As a percent of total
assets................... 0.20% 0.51% 0.73% 0.88% 0.87%
==== ==== ==== ==== ====
Total nonperforming assets...$ 10,772 $16,953 $24,658 $24,609 $21,770
======== ======= ======= ======= =======
As a percent of total
assets................... 0.64% 1.24% 2.01% 2.12% 1.96%
==== ==== ==== ==== ====
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: (1)
favorable economic conditions; (2) ongoing, aggressive collection efforts to
reduce delinquencies; and (3) the impact of sales of real estate owned.
32
<PAGE>
Management recognizes the risk of 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 2000, net charge-offs
were $240,000 and additions to the allowance totaled $250,000 resulting in an
increase in the allowance to $55,000. 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 inherent 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 may 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 and resulting ability to sell loans as necessary.
Liquidity needs may also be met by attracting deposits and utilizing borrowing
arrangements with the FHLB of Pittsburgh and the Federal Reserve Bank of
Philadelphia for short and long-term loans 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 2000, the Association's deposits increased $55.5 million. The deposit
growth resulted primarily from aggressive pricing of certificate accounts to
retain existing customers and attract new customers. To supplement
deposit-gathering efforts, York Federal borrows from the FHLB of Pittsburgh.
At June 30, 2000, York Federal had $346.3 million in FHLB loans
outstanding at a weighted average interest rate of 6.70%, an increase of
$235.9 million from $110.4 million in fiscal 1999. The Association was
required to purchase additional FHLB stock totaling $13.3 million due to
increased FHLB loans outstanding. Other borrowings also increased to $24.1
million at June 30, 2000 from $3.6 million at June 30, 1999. For additional
details of FHLB loans and other borrowings, see Note 12 of the Notes to
Consolidated Financial Statements contained in Item 8 of this Form 10-K
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 $466.7 million, $551.4 million and $475.3 million in
fiscal 2000, 1999 and 1998, respectively.
Generally, the principal use of funds is the origination of mortgage and
other loans. In addition, leverage strategies to effectively utilize available
capital were completed early in fiscal 2000. These strategies resulted in
expansion of the investment portfolio through the purchase of available for
sale securities as well as an increase in loan balances. Various types of
securities were purchased during fiscal 2000 including $9.7 million of Federal
National Mortgage Association (FNMA) preferred stock. The carrying value of
securities available for sale increased $50.9 million to $369.2 million in
fiscal 2000 from $318.3 million in fiscal 1999.
Loan demand resulted in total originations of $686.0 million in fiscal
2000. 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 impacted by
the Association's pricing strategies and a relatively low-rate interest rate
environment in the earlier portion of the fiscal year. A significant component
of loan origination volume was intermediate term mortgage products, primarily,
5/1 CMT adjustable rate loans (fixed rate for the first five years with
33
<PAGE>
annual adjustments thereafter) as well as an increase in the commercial loan
portfolio. During fiscal 2000, the loan portfolio increased $262.0 million to
$1.2 billion at June 30, 2000. 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. At June 30, 2000, the Association's
liquidity level was 6.3%.
The sources of liquidity previously discussed are deemed by management to
be sufficient to fund outstanding loan commitments and meet other obligations.
See Notes 18 and 19 of the Notes to Consolidated Financial Statements
contained in Item 8 of this Form 10-K for information on commitments and fair
value of financial instruments at June 30, 2000.
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. Stockholders' equity at June 30, 2000, totaled $109.9 million
compared to $110.4 million at June 30, 1999, a decrease of $0.5 million or
0.5%. This decrease was primarily a result of the impact of unrealized losses
on available for sale securities, acquisition of treasury stock for issuance
in connection with the dividend reinvestment plan, retirement of shares
related to a stock repurchase program and cash dividends paid (representing a
payout ratio of 54.8%), partially offset by a combination of factors including
current earnings and the issuance of shares in connection with various benefit
and dividend reinvestment plans.
During August 1999, the first stock repurchase plan expired and the Board
of Directors authorized a second stock repurchase program for up to 478,000
shares of the Corporation's common stock. In February 2000, the second stock
repurchase program expired. Under each repurchase plan, share purchases were
made from time to time depending on market and business conditions. During
fiscal 2000, 118,293 shares were repurchased and retired under the stock
repurchase programs. Under its stock repurchase programs, the Corporation has
repurchased and retired a total of 395,957 shares. At June 30, 2000, there
were no open authorizations for additional share repurchases.
During the fourth quarter of fiscal 2000, the Corporation acquired 95,000
shares of treasury stock at a cost of $1.3 million. Of this amount, 49,937
shares were issued under the dividend reinvestment plan, with 45,063 shares at
a cost of approximately $617,000 remaining in treasury stock at June 30, 2000.
These shares are expected to be issued within the next year in connection with
the dividend reinvestment plan. Any remaining treasury stock will be retired
upon consummation of the merger.
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, 2000, the Association meets all three
minimum capital requirements. See Item 1, "Regulation -- Federal Regulation
of Savings Associations -- Capital Requirements" contained herein and Note 15
of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K.
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, 2000, such transactions are within
these regulatory limits. See Item 1, "Regulation -- Federal Regulation of
Savings Associations -- Transactions with Affiliates" contained herein.
Results of Operations
Fiscal 2000 Compared to Fiscal 1999
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
34
<PAGE>
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 2000 was $37.2 million, as compared to
$34.5 million for fiscal 1999, which represents a 7.8% increase. The increase
in net interest income was primarily due to an increase in average balances in
loan and securities portfolios, which more than offset the lower earning asset
yield and the higher cost of funds rate. The margin on interest-earning assets
for fiscal 2000 decreased to 2.47% from 2.90% for fiscal 1999. 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, 2000.
<TABLE>
Year Ended June 30,
----------------------------------------------------------------------------
2000 1999 1998
Yield/ ----------------------- ------------------------ -------------------------
Rate at Interest Interest Interest
June 30, Average and Yield/ Average and Yield/ Average and Yield/
2000 Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
---- ------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning
assets:
Loans(1)(2)(3)..... 7.67% $1,102,319 $ 82,772 7.51% $ 900,213 $69,880 7.76% $ 997,078 $80,893 8.11%
Securities held for
trading........... -- 1,111 78 7.02 9,478 601 6.34 10,314 688 6.67
Securities avail-
able for sale..... 6.50 353,270 22,368 6.33 132,478 8,120 6.13 56,858 3,770 6.63
Securities held to
maturity.......... 7.12 43,237 2,839 6.57 21,347 1,308 6.13 15,015 930 6.19
Other interest-
earning assets.... 6.59 8,379 481 5.74 129,118 6,456 5.00 41,721 2,285 5.48
---- ---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-
earning assets.... 7.39 1,508,316 108,538 7.20 1,192,634 86,365 7.24 1,120,986 88,566 7.90
Noninterest-
earning assets.... 83,711 74,497 65,773
---------- ---------- ----------
Total......... $1,592,027 $1,267,131 $1,186,759
========== ========== ==========
Interest-bearing
liabilities:
Deposits:
NOW accounts...... 1.34 $ 111,181 1,924 1.73 $ 106,543 2,079 1.95 $ 94,847 2,167 2.28
Savings accounts.. 2.50 47,099 1,178 2.50 58,492 1,463 2.50 66,052 1,676 2.54
Money market
accounts......... 5.02 324,463 14,750 4.55 293,084 12,762 4.35 233,500 10,794 4.62
Certificate
accounts......... 5.93 621,276 34,657 5.58 612,710 33,693 5.50 608,126 35,107 5.77
Borrowings......... 6.76 326,262 18,808 5.76 36,435 1,829 5.02 38,871 2,100 5.40
---- ---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-bearing
liabilities........ 5.48 1,430,281 71,317 4.99 1,107,264 51,826 4.68 1,041,396 51,844 4.98
---- ---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Noninterest-bearing
deposits........... 26,055 22,245 23,097
Noninterest-bearing
liabilities........ 27,086 25,659 18,070
---------- ---------- ----------
1,483,422 1,155,168 1,082,563
Stockholders'
equity............ 108,605 111,963 104,196
---------- ---------- ----------
Total............ $1,592,027 $1,267,131 $1,186,759
========== ========== ==========
Ratio of interest-
earning assets to
interest-bearing
liabilities........ 1.05x 1.08x 1.08x
==== ==== ====
Net interest
income/interest
rate spread........ 1.91% $ 37,221 2.21% $34,539 2.56% $36,722 2.92%
==== ======== ==== ======= ==== ======= ====
Net interest-earning
assets/margin
on interest-earning
assets............. $ 78,035 2.47% $ 85,370 2.90% $ 79,590 3.28%
========== ==== ========== ==== ========== ====
-------------
(1) Average balances include loans on nonaccrual status.
(2) Average balances include amounts held for sale.
(3) Interest includes amortization of loan fees of $0.3 million, $0.2 million and $0.2 million in 2000,
1999 and 1998, respectively.
35
</TABLE>
<PAGE>
During fiscal 2000, York Federal originated $686.0 million of loans
including loans refinanced from the Association's portfolio totaling $6.2
million. The result of these originations, when combined with mortgage loan
securitizations or sales totaling $114.2 million and loan repayment activity,
was an increase of 22.5% or $202.1 million in average loans outstanding during
fiscal 2000. The average balance of securities and other interest-earning
assets increased $113.6 million over the prior fiscal year and results
primarily from the above mentioned secondary market activity and the
Corporation's leveraging strategy. The increase in interest-earning assets was
funded by an increase in average deposits of $33.2 million or 3.1% and an
increase in average borrowings of $289.8 million or 795.5%. The primary factor
effecting the increase in interest income was the increased volume of
interest-earning assets and the composition shift from overnight investments
to higher yielding earning assets. Offsetting the favorable effect the shift
in composition had to yield on earning assets was downward repricing in the
loan portfolio resulting in the yield on interest-earning assets decreasing 4
basis points to 7.20%. The average rate on interest-bearing liabilities
increased to 4.99% as compared to 4.68% in the prior fiscal year. The higher
rate on interest-bearing liabilities was primarily a result of the increase in
the cost of funds for borrowings related to increasing market rates and
repricing of short term maturities of such borrowings. The average rate paid
on borrowings increased to 5.76% as compared to 5.02% in the prior fiscal
year. The net effect caused the interest rate spread for the current fiscal
year to decrease to 2.21% from 2.56% in fiscal 1999.
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 2000 compared to fiscal 1999, and fiscal 1999 compared to fiscal 1998.
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,
---------------------------------------------------------
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Due to: Increase (Decrease) Due to:
--------------------------- ----------------------------
Rate/ Rate/
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands)
Interest income:
Loans............ $15,176 $(2,284) $12,892 $(7,758) $(3,255) $(11,013)
Securities held
for trading..... (531) 8 (523) (55) (32) (87)
Securities avail-
able for sale... 13,807 441 14,248 4,425 (75) 4,350
Securities held
to maturity..... 1,374 157 1,531 367 11 378
Other interest-
earning assets.. (6,037) 62 (5,975) 4,370 (199) 4,171
------- ------- ------- ------- ------- --------
Total......... 23,789 (1,616) 22,173 1,349 (3,550) (2,201)
Interest expense:
Deposits:
NOW accounts.... 81 (236) (155) 228 (316) (88)
Savings
accounts....... (285) -- (285) (192) (21) (213)
Money market
accounts....... 1,409 579 1,988 2,595 (627) 1,968
Certificate
accounts....... 474 490 964 252 (1,666) (1,414)
Borrowings....... 16,668 311 16,979 (127) (144) (271)
------- ------- ------- ------- ------ -------
Total......... 18,347 1,144 19,491 2,756 (2,774) (18)
------- ------- ------- ------- ------ -------
Net interest
income.......... $ 5,442 $(2,760) $ 2,682 $(1,407) $ (776) $(2,183)
======= ======= ======= ======= ====== =======
36
<PAGE>
Provision for Loan Losses. In fiscal 2000, additions were made to the
allowance for loan losses in the amount of $1.7 million resulting in an
allowance (net of charge-offs and recoveries of $1.2 million) of $11.3
million, or 0.95% of the loan portfolio, compared to an allowance of $10.8
million, or 1.17% at fiscal year end 1999. See "Asset Quality" for further
discussion of the allowance for loan losses.
Other Income. Other income was $7.3 million for fiscal 2000, a decrease
of $4.8 million or 39.7% compared to 1999. Mortgage banking income for fiscal
2000 decreased $2.0 million or 61.2% as compared to the same period in 1999.
Included in mortgage banking income are gain on sales of loans and unrealized
gain on trading securities of $421,000 for fiscal 2000 compared to $2.2
million for fiscal 1999. Due to a change in the rate environment, the primary
type of loan originated by York Federal has been for portfolio. This reduced
the volume of loans originated for sale through the mortgage banking activity
and the resulting gain on sale of such loans. 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, 2000, there were no
securities held for trading.
The portfolio of loans serviced for others totaled $542.7 million at June
30, 2000, with a net average servicing rate of approximately 16.1 basis
points, as compared to $494.7 million at June 30, 1999 with a net average
servicing rate of approximately 9.2 basis points. The increase in the
portfolio of loans serviced for others was primarily attributable to the sale
of intermediate term loans totaling $82.6 million during the third quarter.
Net servicing rate increased 6.9 basis points primarily as a result of changes
in prepayment speeds from year to year, which lowered interest related
expenses and favorably impacted lower of cost or market adjustments.
Additionally, amortization of capitalized mortgage servicing rights was
reduced to $609,000 in fiscal 2000 from $735,000 in fiscal 1999 as a result of
slower prepayment speeds. This amortization is recognized as a reduction of
gross servicing fee income. The combination of these volume and rate changes
caused net loan servicing fees for fiscal 2000 to increase to $829,000 as
compared to the fiscal 1999 level of $496,000.
During fiscal 2000, there were no sales of servicing unlike in fiscal
1999, when there was a sale of servicing of approximately $84.2 million of
loans, which resulted in a gain of $475,000. For additional information on
loan servicing fees and mortgage banking activity, refer to Notes 1 and 7 of
the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K.
Gain on the sale of securities available for sale totaled $286,000 at
June 30, 2000 as compared to $794,000 at June 30, 1999. During the current
fiscal year, changes in the rate environment provided limited opportunity for
portfolio repositioning.
Gain on sales of real estate during fiscal 2000 totaled $214,000 as
compared to $1.6 million during fiscal 1999 and was the result of dispositions
of real estate acquired in the normal course of business. The decrease in gain
on sale of real estate during fiscal 2000 was primarily due to nonrecurring
gain transactions in fiscal 1999 with the disposition of a commercial real
estate property at a gain totaling $470,000 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"
in the amount of $844,000.
Fees and service charges for fiscal 2000 increased $1.1 million or 29.5%
to $4.7 million as compared to $3.6 million in fiscal 1999. The increase in
fees and service charges is primarily a result of growth in loan and deposit
volume. 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 loan and checking account relationships
initiated through expanded Business Banking activities and the 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. For the year
ended June 30, 2000, losses from joint ventures totaled $1.4 million as
compared to gains of $1.2 million in 1999. The variance related to joint
ventures and
37
<PAGE>
partnerships is due primarily to the following factors: (1) For fiscal 2000,
losses of $956,000 on a venture capital partnership resulted from the
decreased market value of underlying portfolio investments and operating
losses compared to gains of $1.4 million in fiscal 1999; (2) The Corporation
is a limited partner in several partnerships for the purpose of acquiring,
renovating, operating and leasing qualified low-income housing and historic
properties. During fiscal 2000, losses related to these partnerships amounted
to $514,000 compared to losses of $213,000 for fiscal 1999. Benefits
attributed to these partnerships included low income housing and historic tax
credits. For additional information on investments in joint ventures see Note
10 and Note 13 of the Notes to Consolidated Financial Statements contained in
Item 8 of this Form 10-K
Other operating income was $2.3 million in fiscal 2000 as compared to
$1.5 million in fiscal 1999. As products and services become more fully
integrated within the retail branch system, related income derived from
discount brokerage, insurance and title insurance activities resulted in an
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 and other retirement benefits.
Other Expenses. Other expenses of $31.4 million increased $3.1 million
or 11.1% in fiscal 2000 as compared to $28.2 million in fiscal 1999.
Salaries and employee benefits increased $1.4 million or 9.6% in fiscal
2000 over fiscal 1999 and is attributable to a combination of the following
factors: annual adjustments through the salary administration program,
increased commissions related to brokerage and insurance activities and
expenses related to a supplemental executive retirement plan. The number of
full time equivalent personnel at June 30, 2000 was 396 compared to 422 at
June 30, 1999.
Occupancy expense increased $110,000 or 2.9% in fiscal 2000 over fiscal
1999 as a result of normal inflationary pressure on facilities management
activities. Federal deposit insurance decreased $199,000 or 30.8% as compared
to fiscal 1999 due to lower Financing Corporation (FICO) debt service
assessment by the FDIC. Real estate expenses decreased $92,000 or 10.6% in
fiscal 2000 as compared to fiscal 1999 and is primarily attributable to a
decrease in carrying costs related to the decreasing real estate owned
portfolio. Data processing increased $328,000 or 24.0% in fiscal 2000 compared
to fiscal 1999 due to costs related to technology purchases to enhance
efficiency. Advertising cost increased $503,000 or 43.5% in fiscal 2000 as
compared to fiscal 1999 and is primarily attributable to ongoing efforts to
enhance customer and product awareness through various media campaigns. Other
expenses increased $1.1 million or 17.7% in fiscal 2000 as compared to fiscal
1999 as a result of increased cost of services and the effects of increased
loan and deposit volume.
Provision for Income Taxes. The provision for income taxes of $2.2
million for fiscal 2000 represents an effective tax rate of 19.0% as compared
to 34.2% for fiscal 1999. The decrease in the effective tax rate is primarily
attributable to the increase in tax credits recognized on tax favored
community redevelopment projects from year to year and favorable results of a
Delaware investment holding company activity. For a more comprehensive
analysis of income tax expense, see Note 13 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Net Interest Income. 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. For further information, see "Average
Balances and Interest Yield/Rate Analysis" and "Volume/Rate Analysis" tables
included in this Item 7.
38
<PAGE>
During fiscal 1999, York Federal originated $577.8 million of loans
including loans refinanced from the Association's portfolio totaling $62.8
million and mortgage loans securitized or sold of $241.3 million. The result
of these activities, when combined with loan repayments including refinance
activity, was a 9.7% decrease 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 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 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 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. 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.
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 an average net 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 outstanding of 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. 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 $496,000 as compared to the fiscal 1998 level of
$677,000. For additional information on loan servicing fees and mortgage
banking activity see Notes 1 and 7 of the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
39
<PAGE>
Gain on 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 fiscal
year, 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 property during fiscal 1999 was primarily due to the
disposition of a commercial real estate propertyand 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."
Fees and service charges for fiscal year 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. For the year
ended June 30, 1999, income from joint ventures totaled $1.2 million as
compared to $1.4 million in fiscal 1998. 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 see Note 10 of the
Notes to Consolidated Financial Statements contained in Item 8 of this Form
10-K.
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 activities 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. Lender
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 brokerage and insurance activities,
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
40
<PAGE>
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 cost incurred in 1998 with third
parties to examine the Association's operating efficiencies.
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, see Note 13 of the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K.
Impact of Year 2000
We passed the turn of the century without any internal or third party
problems but will continue to monitor as we pass certain first events of the
new year. Various first events have already been tested and reviewed as part
of the Year 2000 action plan. We will have our contingency plans in effect on
a continual basis in the unlikely event a year 2000 disruption occurs.
The incremental cost and related investment of the Year 2000 effort has
been estimated to total $320,000. The timing and recognition of such costs has
not been considered to be material to any one period. Additional costs in the
current fiscal year related to Year 2000 are not expected.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------
The information set forth in "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations of York Financial
-- Interest Rate Sensitivity Management and Market Risk" contained in Item 7
of this Form 10-K is incorporated herein by reference.
41
<PAGE>
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
Index to Consolidated Financial Statements Page
----
Report of Independent Auditors 43
Consolidated Balance Sheets, June 30, 2000 and 1999 44
Consolidated Statements of Income For the Years
Ended June 30, 2000, 1999 and 1998 45
Consolidated Statements of Stockholders' Equity For
the Years Ended June 30, 2000, 1999 and 1998 46
Consolidated Statements of Cash Flows For the Years
Ended June 30, 2000, 1999 and 1998 47
Notes to Consolidated Financial Statements 49
42
<PAGE>
[Letterhead of Ernst & Young LLP]
Report of Independent Auditors
The Board of Directors
York Financial Corp.
We have audited the accompanying consolidated balance sheets of York
Financial Corp. and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/Ernst & Young LLP
Baltimore, Maryland
July 19, 2000
43
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Balance Sheets
June 30
2000 1999
-------------------------
(In Thousands)
Assets
Cash and due from banks:
Noninterest-earning $ 24,470 $ 22,813
Interest-earning 12,856 8,958
-------------------------
37,326 31,771
Loans held for sale, net 4,415 30,631
Securities available for sale 346,505 295,691
Securities held to maturity (fair
value of $22,105--2000; $22,635--1999) 22,689 22,618
Loans receivable, net 1,171,211 909,193
Real estate, net 4,146 8,633
Premises and equipment, net 21,133 20,842
Federal Home Loan Bank stock, at cost 21,290 7,976
Accrued interest receivable 10,340 8,581
Other assets 25,064 20,952
Investments in joint ventures 9,526 7,738
-------------------------
Total assets $ 1,673,645 $ 1,364,626
=========================
Liabilities and stockholders' equity
Liabilities:
Deposits $ 1,170,728 $ 1,115,253
Federal Home Loan Bank loans and other
borrowings 370,390 113,962
Advances from borrowers for taxes and
insurance 5,302 4,281
Other liabilities 17,347 20,720
-------------------------
Total liabilities 1,563,767 1,254,216
Commitments and contingencies
Stockholders' equity:
Preferred stock: 10,000,000 shares authorized
and unissued - -
Common Stock, $1.00 par value:
Authorized 20,000,000 shares; issued 2000--
10,112,815 shares; 1999--9,565,467 shares 10,113 9,565
Additional capital 97,004 90,417
Retained earnings 12,427 15,028
Accumumlated other comprehensive income (8,519) (3,938)
Unearned ESOP shares (530) (662)
Less:Treasury stock, at cost; 2000--45,063 shares (617) -
-------------------------
Total stockholders' equity 109,878 110,410
-------------------------
Total liabilities and stockholders' equity $ 1,673,645 $ 1,364,626
=========================
See accompanying notes
44
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Income
Year Ended June 30
2000 1999 1998
-------------------------------
(Dollars in Thousands, Except
Per Share Data)
Interest income:
Interest and fees on loans $ 82,772 $ 69,880 $ 80,893
Interest on securities held for trading 78 601 688
Interest and dividends on securities
available for sale 22,368 8,120 3,770
Interest and dividends on securities
held to maturity 2,839 1,308 930
Other interest income 481 6,456 2,285
----------------------------------
Total interest income 108,538 86,365 88,566
Interest expense:
Interest on deposits 52,509 49,997 49,744
Interest on borrowings 18,808 1,829 2,100
----------------------------------
Total interest expense 71,317 51,826 51,844
----------------------------------
Net interest income 37,221 34,539 36,722
Provision for loan losses 1,660 3,632 3,737
----------------------------------
Net interest income after provision
for loan losses 35,561 30,907 32,985
Other income:
Mortgage banking 1,265 3,256 3,757
Gain on sales of securities available
for sale 286 794 174
Gain on sales of real estate 214 1,599 193
Fees and service charges 4,662 3,601 3,216
(Loss) income from joint ventures (1,431) 1,241 1,411
Other operating income 2,265 1,547 1,401
----------------------------------
Total other income 7,261 12,038 10,152
----------------------------------
Other expenses:
Salaries and employee benefits 15,503 14,140 13,154
Occupancy 3,912 3,802 3,597
Federal deposit insurance 447 646 628
Real estate 780 872 1,403
Data processing 1,693 1,365 1,110
Advertising 1,660 1,157 1,081
Other 7,358 6,252 6,350
----------------------------------
Total other expenses 31,353 28,234 27,323
----------------------------------
Income before income taxes 11,469 14,711 15,814
Provision for income taxes 2,180 5,041 5,799
----------------------------------
Net income $ 9,289 $ 9,670 $ 10,015
==================================
Per share data:
Net income $ 0.93 $ 0.96 $ 1.04
==================================
Net income-assuming dilution $ 0.91 $ 0.93 $ 0.96
==================================
Cash dividends paid $ 0.51 $ 0.49 $ 0.46
==================================
Weighted average shares 9,986,268 10,042,999 9,674,288
==================================
Weighted average shares-
assuming dilution 10,196,667 10,415,074 10,387,559
==================================
See accompanying notes
45
<PAGE>
<TABLE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Accumulated
Other Unearned
Common Additional Retained Comprehensive ESOP Treasury
Stock Capital Earnings Income Shares Stock Total
-----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
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 benefits of $128 - - - 239 - - 239
--------
Total comprehensive 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 comprehensive 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
reinvestment 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
Comprehensive income
Net income - - 9,289 - - - 9,289
Net change in unrealized losses
on available-for-sale securities,
net of income tax benefits of
$2,467 - - - (4,581) - - (4,581)
--------
Total comprehensive income 4,708
--------
Cash dividends paid - - (5,091) - - - (5,091)
Stock options exercised 46 240 - - - - 286
Income tax benefit of stock
options exercised - 143 - - - - 143
Common stock issued under
dividend reinvestment plan 144 1,375 - - - 684 2,203
5% Common stock dividend--
476,087 shares at fair value 476 6,308 (6,799) - - - (15)
Release of ESOP shares - 69 - - 132 - 201
Retirement of common stock (118) (1,548) - - - - (1,666)
Acquisition of treasury stock - - - - - (1,301) (1,301)
-----------------------------------------------------------------------
Balance, June 30, 2000 $10,113 $ 97,004 $12,427 $ (8,519) $ (530) $ (617) $109,878
=======================================================================
See accompanying notes
4
</TABLE>
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended June 30
2000 1999 1998
--------------------------------
(In Thousands)
Operating Activities
Net income $ 9,289 $ 9,670 $ 10,015
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Amortization and accretion on securities
and loans, net (188) (22) (181)
Provision for loan losses 1,660 3,632 3,737
Provision for real estate losses 250 250 914
Depreciation and amortization 2,290 2,161 1,834
Deferred income taxes 1,882 3,174 (793)
Loans originated for sale (16,583) (196,803) (158,494)
Proceeds from sales of trading securities 31,327 175,963 152,221
Realized gains on trading securities (421) (2,240) (2,377)
Realized gains on sales of securities
available for sale (286) (794) (174)
(Increase) decrease in accrued interest
and other assets (5,837) (9,082) 2,161
(Decrease) increase in other liabilities (764) (1,337) 3,858
Other (595) (2,868) (2,251)
--------------------------------
Net cash provided by (used in) operating
activities 22,024 (18,296) 10,470
Investing Activities
Purchase of securities available for sale (82,463) (268,815) (10,344)
Proceeds from sales of securities available
for sale 93,133 40,294 14,126
Proceeds from maturities of securities
available for sale 103 21,288 65
Purchases of securities held to maturity - (22,352) (2,000)
Purchases of FHLB stock (13,314) - (69)
Proceeds from maturities of securities
held to maturity - 5,500 5,090
Principal repayments on securities 15,010 21,673 10,137
Net decrease in short-term investments - 77 -
Loans originated or acquired, net of
increase in deferred loan fees (665,233) (319,140) (256,092)
Principal collected on loans 316,208 293,498 260,215
Proceeds from sales of loans 11,577 1,669 33,426
Purchases of real estate (563) (370) (412)
Proceeds from sales of real estate 6,471 7,069 6,072
Purchases of premises, equipment, and
leasehold improvements, net (2,138) (3,039) (4,078)
Other (1,711) (2,324) 2,321
--------------------------------
Net cash (used in) provided by investing
activities (322,920) (224,972) 58,457
47
<PAGE>
York Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year Ended June 30
2000 1999 1998
------------------------------
(In Thousands)
Financing Activities
Net increase in noninterest-bearing
demand deposits, interest-bearing
transaction accounts and savings
accounts 1,052 65,838 53,645
Net increase (decrease) in certificates
of deposit 54,423 (16,363) 19,026
Net increase (decrease) in Federal Home
Loan Bank loans and other borrowings 256,428 86,101 (18,375)
Issuance of common stock:
Dividend Reinvestment Plan 1,519 2,265 2,330
Stock Option Plans 286 1,455 163
Cash dividends paid (5,091) (4,896) (4,419)
Retirement of stock (1,666) (4,023) -
Cash paid in lieu of fractional shares (15) (18) (21)
Acquistion of treasury stock (1,301) - -
Issuance of treasury stock 684 - -
Release of ESOP shares 132 133 132
------------------------------
Net cash provided by financing
activities 306,451 130,492 52,481
------------------------------
Increase (decrease) in cash and cash
equivalents 5,555 (112,776) 121,408
Cash and cash equivalents at beginning
of year 31,771 144,547 23,139
------------------------------
Cash and cash equivalents at end of
year $ 37,326 $ 31,771 $144,547
==============================
See accompanying notes
48
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
1. Summary of Significant Accounting Policies
Description of Business
York Financial Corp.(York Financial or 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 1999 and 1998 consolidated financial statements to conform
with the 2000 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 (SFAS) 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.
49
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Securities Available for Sale and Held to Maturity
The classification of securities is determined at the time of acquisition
and is reevaluated at each reporting date. Securities are classified as "held
to maturity" based upon management's ability and positive intent to hold such
securities to maturity. Held to maturity securities are carried at amortized
cost.
Securities not classified as trading or held to maturity are classified
as "available for sale." Available for sale securities are carried at fair
value, with unrealized gains and losses, net of taxes, reported as a component
of 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 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 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 amended by
Statement No. 118) 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.
50
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Loans Receivable (continued)
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 loss 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.
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 inherent 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 values. 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.
51
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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 the asset or lease term whichever
is shorter except leasehold improvements with related companies which use the
life of the asset.
Impairment of Long-Lived Assets
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.
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 SFAS No. 123, "Accounting for
Stock-Based Compensation".
Cash Flow Information
For purposes of the statements of cash flows, cash equivalents include
cash and amounts due from banks. During 2000, 1999 and 1998, the Association
exchanged loans for mortgage-backed securities in the amounts of $114,206,000,
$241,282,000 and $145,473,000, respectively. During 2000, 1999 and 1998, the
Association transferred unpaid loan balances from loans to real estate
acquired due to foreclosure of $2,953,000, $4,919,000 and $4,926,000,
respectively. There were no noncash capital distributions in 2000 or 1998.
During 1999, there was a noncash capital distribution from an investment in
joint venture of $2,205,000. In connection with the exercise of stock options,
a portion of the exercise price was represented by the surrender of shares
which amounted to $0, $374,000 and $678,000 in 2000, 1999 and 1998,
respectively.
The Corporation paid $70,638,000, $51,399,000 and $51,810,000 in interest
on deposits and other borrowings during 2000, 1999 and 1998, respectively.
52
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Guidance
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
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. In
June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement
No. 133". Since the Corporation does not hold any derivative financial
instruments, the adoption of these Statements on July 1, 2000 will not have an
impact on the Corporation's consolidated financial statements.
2. Definitive Agreement and Plan of Reorganization
On March 28, 2000, York Financial Corp. and Harris Financial, Inc.
jointly announced that they have entered into a definitive agreement and plan
of reorganization pursuant to which York Financial Corp. and Harris Financial,
Inc. would merge.
To accomplish the merger, the Board of Trustees of Harris Financial, MHC
has adopted a plan of conversion pursuant to which it will convert from a
mutual to a capital stock form of organization. Approximately 76% of Harris
Financial's outstanding shares of common stock are owned by its mutual holding
company, Harris Financial, MHC. The plan provides that Harris Financial will
conduct an offering of common stock to certain Harris Savings Bank depositors,
the community and public.
The number and price of shares to be issued in the conversion offering
will be based on an independent appraisal. Under the terms of the agreement,
the merger consideration will be based, in part, on the independent appraisal.
The primary pricing provisions of the agreement include that if the
independent appraisal of the common stock issued in the conversion is between
$289.5 million and $341.5 million, each York Financial share will be exchanged
for $17.25 of Harris Financial common stock based on the price at which Harris
Financial's shares are sold in the conversion offering.
The merger is contemplated to be accounted for under the "pooling of
interests" method for business combinations. However, the agreement provides
that the parties may mutually elect to employ the "purchase" method of
accounting for the merger. If a "purchase", between 15% and 30% of the merger
consideration may be paid in cash. The merger is intended to be a tax-free
exchange for York Financial stockholders, except to the extent that cash is
received as consideration.
53
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Definitive Agreement and Plan of Reorganization (continued)
The merger is subject to the approval of York Financial's stockholders
and the conversion is subject to the approval of Harris Savings' depositors
and Harris Financial's minority stockholders. The transactions are also
subject to the approval of federal and state bank regulatory authorities, as
well as customary conditions. The conversion and merger are expected to be
completed in the fourth quarter of 2000. The agreement provides for breakup
fees and grants Harris Financial an option to acquire 19.9% of York
Financial's common stock if the agreement is terminated under certain
circumstances.
3. 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.
54
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Earnings Per Share (continued)
The following table sets forth the computation of basic and diluted
earnings per share:
2000 1999 1998
-------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Basic:
Net Income $ 9,289 $ 9,670 $ 10,015
===========================================
Weighted average shares 9,986,268 10,042,999 9,674,288
===========================================
Net income per share $ 0.93 $ 0.96 $ 1.04
===========================================
Diluted:
Net income $ 9,289 $ 9,670 $ 10,015
===========================================
Weighted average shares 9,986,268 10,042,999 9,674,288
Dilutive effect of stock
options 210,399 372,075 713,271
-------------------------------------------
Weighted average shares -
assuming dilution 10,196,667 10,415,074 10,387,559
===========================================
Net income per share -
assuming dilution $ 0.91 $ 0.93 $ 0.96
===========================================
4. Restrictions on Cash and Due from Bank Accounts
The Association was required to meet reserve balance requirements as
established by the Federal Reserve. During the year ended June 30, 2000 and
1999, average reserve balances at the Federal Reserve necessary to meet
requirements were $1,019,000 and $0, respectively. The actual reserve balance
at June 30, 2000 and 1999 was $1,019,000 and $0, respectively. During 1999,
reserve balance requirements based on outstanding transaction account
balances, were satisfied by vault cash positions held by the Association.
55
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Securities Available for Sale and Held to Maturity
Included in the following summary of available for sale and held to
maturity securities are mortgage-backed securities and collateralized mortgage
obligations issued by the Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC):
June 30, 2000
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
(In Thousands)
Available for Sale:
Equity securities $ 12,851 $ 190 $ (2,122) $ 10,919
U.S. Treasury and other U.S.
Government agencies 186,765 13 (6,667) 180,111
FNMA/FHLMC mortgage-backed
securities and collateral-
ized mortgage obligations 159,996 42 (4,563) 155,475
------------------------------------------------
$ 359,612 $ 245 $ (13,352) $ 346,505
================================================
Held to Maturity:
U.S. Treasury and other U.S.
Government agencies $ 3,500 $ - $ (79) $ 3,421
Corporate debt securities 19,018 58 (570) 18,506
GNMA mortgage-backed
securities 171 7 - 178
------------------------------------------------
$ 22,689 $ 65 $ (649) $ 22,105
================================================
June 30, 1999
------------------------------------------------
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
FNMA/FHLMC mortgage-backed
securities and collateral-
ized 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
GNMA mortgage-backed
securities 217 14 - 231
------------------------------------------------
$ 22,618 $ 117 $ (100) $ 22,635
================================================
The amortized cost and fair value of debt securities at June 30, 2000, 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.
56
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Securities Available for Sale and Held to Maturity (continued)
<PAGE>
<TABLE>
Mortgage-backed
U.S. Treasury securities and
and other U.S. collateralized 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 $ 147 $ 149 $ - $ - $ 7,209 $ 7,047 $ 7,356 $ 7,196
Due after one year
through five years 134,165 129,679 - - 33,399 32,646 167,564 162,325
Due after five years
through ten years 46,678 44,526 - - 26,161 25,511 72,839 70,037
Due after ten years 5,775 5,757 - - 93,227 90,271 99,002 96,028
--------------------------------------------------------------------------------
$186,765 $180,111 $ - $ - $159,996 $155,475 $346,761 $335,586
================================================================================
Held to Maturity:
Due in one year or less $ - $ - $ - $ - $ 16 $ 17 $ 16 $ 17
Due after one year
through five years 3,500 3,421 - - 82 85 3,582 3,506
Due after five years
through ten years - - 4,898 4,956 73 76 4,971 5,032
Due after ten years - - 14,120 13,550 - - 14,120 13,550
--------------------------------------------------------------------------------
$ 3,500 $ 3,421 $19,018 $18,506 $ 171 $ 178 $ 22,689 $ 22,105
================================================================================
</TABLE>
Securities with an amortized cost of $308,781,000 and $302,669,000 on
June 30, 2000 and 1999, respectively, were pledged to secure public deposits,
repurchase agreements, and for certain other purposes as required by law.
Gross realized gains of $286,000, $794,000 and $174,000 were realized on
sales of available for sale securities during 2000, 1999 and 1998,
respectively. There were no gross realized losses realized on sales of
available for sale securities during 2000, 1999 and 1998.
For the years ended June 30, 2000 and 1998, there were no trading
securities transferred to securities available for sale. 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 losses of $45,000
included in earnings.
At June 30, 2000 and 1999, the aggregate book value of debt securities
from a single issuer in accordance with applicable regulations did not exceed
10% of stockholders' equity.
57
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Loans Receivable
Loans receivable, net are summarized as follows:
June 30
2000 1999
------------------------------
(In Thousands)
Permanent mortgage loans:
1 - 4 family real estate $ 738,172 $ 565,675
Commercial 136,743 106,653
------------------------------
874,915 672,328
Construction:
1 - 4 family real estate 146,864 156,709
Commercial 26,012 30,268
------------------------------
172,876 186,977
Commercial business loans 51,455 20,805
Consumer loans 165,352 144,558
------------------------------
216,807 165,363
Less:
Undisbursed portion of loans
in process 84,981 106,088
Deferred expenses, net (2,848) (1,416)
Allowance for loan losses 11,254 10,803
------------------------------
93,387 115,475
------------------------------
$ 1,171,211 $ 909,193
==============================
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 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 status. 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 $63,000, $0 and $0 for the years ended June 30, 2000, 1999 and 1998,
respectively. At June 30, 2000 and 1999, nonaccrual loans totaled $263,000 and
$919,000, respectively.
At June 30, 2000 and 1999, the recorded investment in loans considered to
be impaired under Statement No. 114 was $0. During the years ended June 30,
2000 and 1999, 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 average recorded investment in impaired loans for
the years ended June 30, 2000, 1999 and 1998 was $0, $0 and $275,000,
respectively.
58
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Loans Receivable (continued)
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 $167,137,000 at June 30,
2000 is collateralized by properties in Pennsylvania (80%), Maryland (10%),
Virginia (8%), 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,
2000.
At June 30, 2000, the Association did not have any outstanding
commitments to sell loans.
An analysis of the allowance for loan losses is as follows:
Year ended June 30
2000 1999 1998
-------------------------------------
(In Thousands)
Balance at beginning of year $ 10,803 $ 8,810 $ 6,413
Provision charged to expense 1,660 3,632 3,737
Recoveries credited to allowance 221 355 518
Less: Loan losses charged to
allowance (1,430) (1,994) (1,858)
-------------------------------------
Balance at end of year $ 11,254 $ 10,803 $ 8,810
=====================================
7. Mortgage Banking
The components of mortgage banking income are as follows:
Year Ended June 30
2000 1999 1998
-------------------------------------
(In thousands)
Gain on sales of loans and trading
securities $ 421 $ 2,240 $ 2,377
Unrealized (loss) gain on loans and
trading securities - 45 (37)
Loan servicing fee income, net of
amortization 829 496 677
Gain on sale of mortgage servicing
rights 15 475 740
-------------------------------------
$ 1,265 $ 3,256 $ 3,757
=====================================
59
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Mortgage Banking (continued)
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 $542,711,000, $494,687,000 and $487,092,000 at June
30, 2000, 1999 and 1998, respectively. Custodial escrow balances maintained in
connection with the foregoing loan servicing, and included in demand deposits,
were approximately $3,356,000, $5,983,000, and $7,151,000 at June 30, 2000,
1999 and 1998, respectively.
The changes in the Corporation's mortgage servicing assets are as
follows:
Year Ended June 30
2000 1999
-------------------------
(In Thousands)
Balance at beginning of year $ 4,411 $ 3,118
Additions 1,536 2,490
Less: Sales - 462
Amortization 609 735
-------------------------
Balance at end of year before
valuation allowance 5,338 4,411
Valuation allowance (216) (260)
-------------------------
Net mortgage servicing assets $ 5,122 $ 4,151
=========================
The estimated fair values of the mortgage servicing assets are $5,508,000
and $4,440,000 at June 30, 2000 and 1999, respectively. Fair value is
estimated by discounting estimated future cash flows from the mortgage
servicing assets stratified based on loan type and interest rate using
discount rates that approximate current market rates and using current
expected future prepayment rates. A valuation allowance is recorded where the
fair value is below the carrying amount of certain mortgage servicing assets,
even though the overall fair value of the mortgage servicing assets exceeds
amortized cost.
The changes in the Corporation's valuation allowance for mortgage
servicing assets are as follows:
Year Ended June 30
2000 1999 1998
-------------------------------
(In Thousands)
Balance at beginning of year $ (260) $ (218) $ (145)
Recovery of (provision for)
impairment 44 (42) (73)
-------------------------------
Balance at end of year $ (216) $ (260) $ (218)
===============================
60
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Real Estate
A summary of real estate is as follows:
June 30
2000 1999
---------------------
(In Thousands)
Held for investment (net of accumulated
depreciation of $310 in 2000 and
$827 in 1999) $ 788 $ 1,733
Foreclosed assets held for sale 3,413 6,945
---------------------
4,201 8,678
Less: Allowance for real estate losses 55 45
---------------------
$ 4,146 $ 8,633
=====================
At June 30, 2000, the Corporation recognized a property impairment charge
of $105,000. In determining the amount of the impairment charge, the
Corporation used appraised value and recent offers to develop its best
estimate of market value. The loss is reflected within "Other" of other
expenses. During 1999, there were not any long-lived assets considered to be
impaired.
An analysis of the allowance for real estate losses is as follows:
Year Ended June 30
2000 1999 1998
-----------------------------------
(In Thousands)
Balance at beginning of year $ 45 $ 116 $ 365
Provision charged to real estate
expense 250 250 914
Less: Real estate losses charged
to allowance (240) (321) (1,163)
-----------------------------------
Balance at end of year $ 55 $ 45 $ 116
===================================
9. Premises and Equipment
A summary of premises and equipment is as follows:
June 30
2000 1999
---------------------
(In Thousands)
Land and improvements $ 6,039 $ 5,687
Buildings 14,074 13,620
Leasehold improvements 1,995 1,842
Furniture, fixtures, and equipment 12,945 12,046
---------------------
35,053 33,195
Less: Accumulated depreciation and
amortization (13,920) (12,353)
---------------------
$ 21,133 $ 20,842
=====================
61
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Investments in Joint Ventures
The Corporation is a partner in an unconsolidated joint venture in which
its ownership percentage is less than 20%. The Corporation's investment in
this joint venture is accounted for under the equity method of accounting. At
June 30, 2000 and 1999, the carrying value of this investment was
approximately $3,633,000 and $3,787,000, respectively. The Corporation's
share of the venture's net (loss) income for the years ended June 30, 2000,
1999 and 1998 was ($956,000), $1,433,000 and $1,490,000, 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, 2000 and
1999, the carrying value of this investment was approximately $117,000 and
$333,000, respectively. The Corporation's share of the venture's net income
for the years ended June 30, 2000, 1999 and 1998 was $39,000, $21,000 and
$79,000, 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,
2000 and 1999, aggregate net equity investment in these partnerships
approximated $5,775,000 and $3,618,000, respectively. The Corporation's share
of the partnerships' net loss of $514,000, $213,000 and $260,000 for the years
ended June 30, 2000, 1999 and 1998, respectively, is included in operations
under the equity method of accounting. Benefits attributed to these
partnerships included low income housing and historic tax credits (see Note
13).
11. Deposits
Deposits are summarized as follows:
Interest Rate at June 30
June 30, 2000 2000 1999
----------------- ------------------------
(In Thousands)
Demand and savings accounts:
Noninterest-bearing $ 23,990 $ 22,470
NOW accounts 1.24% - 1.44% 116,898 107,107
Savings accounts 2.50% - 3.00% 43,103 54,179
Money market accounts 2.60% - 5.69% 329,592 328,775
------------------------
513,583 512,531
Certificate accounts
3.54% - 3.99% 3,168 3,913
4.00% - 4.99% 107,924 176,881
5.00% - 5.99% 219,820 317,128
6.00% - 6.99% 291,312 64,705
7.00% - 7.99% 34,921 40,089
8.00% - 8.75% - 6
------------------------
657,145 602,722
------------------------
$1,170,728 $ 1,115,253
========================
62
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Deposits (continued)
Interest expense by category of deposit is summarized as follows:
Year Ended June 30
2000 1999 1998
-----------------------------------
(In Thousands)
NOW accounts $ 1,924 $ 2,079 $ 2,167
Savings accounts 1,178 1,463 1,676
Money market accounts 14,750 12,762 10,794
Certificate accounts 34,657 33,693 35,107
-----------------------------------
$ 52,509 $ 49,997 $ 49,744
===================================
At June 30, 2000, the scheduled maturities of certificate accounts for
the succeeding five fiscal years are as follows: 2001-$393,688,000;
2002-$158,266,000; 2003-$68,471,000; 2004-$27,453,000; 2005-$5,713,000 and
thereafter-$3,554,000.
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $109,291,000 and $90,999,000 at
June 30, 2000 and 1999, respectively.
63
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Federal Home Loan Bank (FHLB) Loans and Other Borrowings
Borrowings consist of the following:
June 30
2000 1999
---------------------
(In Thousands)
FHLB loans payable to FHLB Pittsburgh, secured by all
FHLB stock and certain first mortgage loans:
Short-term loans:
Due August 27, 1999, 5.12% $ - $ 70,000
Due July 1, 1999, 5.57% - 14,400
Due July 1, 2000, 7.06% 246,700 -
---------------------
246,700 84,400
Convertible select loans:
Due 2002, conversion option date 1999, 5.46% - 25,000
Due 2004, conversion option date 2001, 5.75% 25,000 -
Due 2006, conversion option date 2000, 5.32% 25,000 -
Due 2008, conversion option date 2003 23,652 -
($25,000,000 face amount bearing 4.69%
stated rate less unamortized discount based
on imputed interest rate of 6.50%; June 30,
2000, $1,348)
Due 2009, conversion option date 2002, 5.75% 25,000 -
Other loans:
Due 2008, 2.00% 272 285
Due 2024, 4.25% 709 727
---------------------
346,333 110,412
---------------------
Other borrowings:
Due 2000, libor plus 2.00% 15,000 -
Due 2004, 0.90% 27 -
Advance to ESOP
Due 2004, prime plus .75% 530 662
Repurchase agreements:
Due July 1, 2000, 5.79% 8,500
Due July 1, 1999, 3.60% - 2,888
---------------------
$370,390 $113,962
=====================
Maturities of FHLB loans and other borrowings are as follows:
2001-$294,988,000; 2002-$24,763,000; 2003-$24,737,000; 2004-$25,050,000;
2005-$38,000; thereafter-$814,000. The FHLB has the option of converting the
fixed rate convertible select loans to a LIBOR adjustable rate loan quarterly
after the conversion date. Upon conversion, management has the right to
exercise a return option to the FHLB with no prepayment penalty. Accordingly,
amounts are included in maturities based on the next conversion date.
64
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Federal Home Loan Bank (FHLB) Loans and Other Borrowings (continued)
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,
2000, additional borrowings available under this policy were approximately
$79,457,000.
The Association may increase its borrowings over amounts currently
available up to the maximum borrowing capacity as defined by the FHLB with the
purchase of 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 $36,902,000. Mortgage loans in the
amount of $46,127,000 are held in safekeeping by the Federal Reserve Bank to
collateralize borrowings under this credit agreement. At June 30, 2000, there
were no borrowings under this credit agreement.
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 14).
13. Income Taxes
The provision for income taxes in the consolidated statements of income
consists of the following:
Year Ended June 30
2000 1999 1998
-----------------------------
(In Thousands)
Current:
Federal $ 488 $ 1,846 $ 5,792
State (109) 21 800
-----------------------------
379 1,867 6,592
Deferred:
Federal 1,706 2,971 (795)
-----------------------------
State 95 203 2
1,801 3,174 (793)
-----------------------------
Total provision for income taxes $ 2,180 $ 5,041 $ 5,799
=============================
The provision for income taxes includes $58,000, $342,000 and $394,000 in
2000, 1999 and 1998, respectively, of applicable income taxes related to gains
on sales of securities of $268,000, $1,108,000 and $1,044,000, respectively.
65
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
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
2000 1999 1998
-----------------------------
Income tax expense at federal statutory rate 35.0 % 35.0 % 35.0 %
Tax-exempt income (0.6) (0.3) (0.1)
State income taxes, net of federal benefit 0.2 1.0 3.3
Executive retirement (1.5) - -
Federal tax credits (13.0) (1.3) (0.6)
Other (1.1) (0.2) (0.9)
-----------------------------
Effective tax rate 19.0 % 34.2 % 36.7 %
=============================
The Corporation made income tax payments of $0, $3,467,000, and
$5,912,000 during 2000, 1999, and 1998, respectively.
At June 30, 2000, the Corporation has a tax credit carryforward, which
expires in 2020 of approximately $1,354,000 for federal income tax purposes.
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:
2000 1999
---------------------
(In Thousands)
Deferred tax assets:
Bad debt $ 3,934 $ 3,775
Directors expenses 545 380
Tax credits 1,354 -
Other 1,291 743
---------------------
Total gross deferred
tax assets 7,124 4,898
---------------------
Deferred tax liabilities:
Deferred loan expenses 1,006 529
Depreciation and amortization 570 509
Joint ventures 2,110 1,042
Servicing rights 1,510 1,549
Other 1,167 1,173
---------------------
Total gross deferred
tax liabilities 6,363 4,802
---------------------
Net deferred tax asset $ 761 $ 96
=====================
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 realized through carryback to taxable income in
prior years, future reversals of existing taxable temporary differences, or
reductions of future taxes.
66
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
The before-tax amounts and tax effects of unrealized holding gains
(losses) on available for sale securities were ($6,761,000) and
($2,366,000), respectively, at June 30, 2000, ($5,754,000) and ($2,014,000),
respectively, at June 30, 1999 and $541,000 and $189,000, respectively, at
June 30, 1998.
The before-tax amounts and tax effects of the reclassification
adjustments for gains included in net income were $286,000 and $100,000,
respectively, at June 30, 2000, $794,000 and $278,000, respectively, at June
30, 1999, and $174,000 and $61,000, respectively, for June 30, 1998.
14. 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 $253,000, $281,000 and $395,000 in 2000, 1999 and
1998, respectively. In May 1994, the ESOP borrowed $1,325,000 and acquired
117,130 shares (as adjusted for subsequent stock dividends) of the
Corporation's common stock to be released and allocated to eligible employees
as the borrowing is repaid. In accordance with the provisions of AICPA
Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership
Plans", the borrowing is reflected as a liability and the related shares as a
contra equity account, unearned ESOP shares, on the Corporation's consolidated
balance sheet. At June 30, 2000 and 1999, the ESOP debt outstanding was
$530,000 and $662,000 and the fair value of related shares (57,753 and 65,825,
respectively, including shares acquired through the dividends paid on unearned
ESOP shares) was $707,000 and $963,000, 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.
67
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Employee Stock Ownership Plan and Pension Plan (continued)
The following table sets forth the pension plan's funded status and
amounts recognized in the Corporation's consolidated financial statements.
June 30
2000 1999
--------------------
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 6,436 $ 6,282
Service cost (net of expenses) 391 381
Interest cost 495 435
Benefits paid (218) (155)
Change in assumptions (601) (509)
Experience loss 259 2
--------------------
Benefit obligation at end of year 6,762 6,436
--------------------
Change in plan assets:
Fair value at beginning of year 7,330 6,884
Actual return on plan assets (net of expenses) 1,004 487
Employer contribution - 125
Benefits paid (252) (155)
Adjustment for payable at beginning of year - (11)
--------------------
Fair value at end of year 8,082 7,330
--------------------
Funded status 1,320 894
Unrecognized net asset at transition (197) (246)
Unrecognized prior service costs 127 149
Unrecognized net gain (708) (13)
--------------------
Prepaid pension expense $ 542 $ 784
====================
Plan assets include investments in York Financial Corp.'s common stock
with a fair value of $700,000 and $761,000 in 2000 and 1999, respectively.
Other plan assets include debt and equity funds. At June 30, 2000, the plan
held 57,168 shares of the Corporation's stock, which earned dividends of
$28,177 during the year.
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 8.0% and 4.5%, respectively, at June 30,
2000, 7.5% and 4.5%, respectively, at June 30, 1999 and 7.0% and 4.0%,
respectively, at June 30, 1998. The expected long-term rate of return on plan
assets in 1999, 1998, and 1997 was 9.0%.
68
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Employee Stock Ownership Plan and Pension Plan (continued)
Net pension cost included the following components:
Year Ended June 30
2000 1999 1998
------------------------------
(In Thousands)
Service cost-benefits earned during the period $ 425 $ 441 $ 385
Interest cost on projected benefit obligation 495 435 388
Actual return on plan assets (1,004) (547) (1,178)
Amortization of unrecognized net transition asset (49) (49) (49)
Amount of unrecognized prior service cost 22 22 22
Amortization of unrecognized net loss - - 7
Asset gain (loss) deferred 353 (75) 672
------------------------------
Net periodic pension cost $ 242 $ 227 $ 247
==============================
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
$9.8 million and $9.4 million in 2000 and 1999, respectively, and is included
in other assets in the accompanying consolidated balance sheets. Total income
recognized on the SERP for the year ended June 30, 2000 and 1999, amounted to
$439,000 and $198,000, respectively. For the year ended June 30, 2000 and
1999, salaries and employee benefits expense included $165,000 and $67,000,
respectively, in connection with the SERP.
15. 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 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.
69
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Stockholders' Equity (continued)
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, 2000, the Association meets all capital
adequacy requirements to which it is subject.
At June 30, 2000, 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.
A reconciliation of the Association's regulatory capital to capital using
accounting principles generally accepted in the United States (GAAP) as of
June 30, 2000 follows:
Tangible Core Risk-based
capital capital capital
--------- --------- ---------
GAAP capital at York Financial $ 109,878 $ 109,878 $ 109,878
Capital attributed to affiliates 4,739 4,739 4,739
--------- --------- ---------
GAAP capital at York Federal 114,617 114,617 114,617
Capital adjustments:
Unrealized losses on securities
available for sale, net of taxes 7,140 7,140 7,140
Allowance for loan losses - - 11,254
Purchased mortgage servicing rights (187) (187) (187)
Investment in real estate - - (851)
--------- --------- ---------
Regulatory capital at York Federal $ 121,570 $ 121,570 $ 131,973
========= ========= =========
70
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Stockholders' Equity (continued)
The following table sets forth OTS capital requirements as compared to
the capital position of the Association as of June 30, 2000 and 1999:
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, 2000: (Dollars In Thousands)
Tangible capital $121,570 7.3% $ 25,124 1.5% $ N/A N/A
Tier 1 (core) capital 121,570 7.3% 66,997 4.0% 83,747 5.0%
Tier 1 risk-based
capital 121,570 12.2% N/A N/A 59,888 6.0%
Total risk-based
capital 131,973 13.2% 79,851 8.0% 99,813 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, 2000 and 1999, the total allowable dividend distribution
was $27,001,000 and $20,651,000, respectively.
71
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Stock Option Plans
At June 30, 2000, the Corporation has reserved 1,488,146 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 in accordance with the terms of the option. Options under
the Plans are granted at prices not less than 100% of the fair market value at
the date of option grant. During 2000, 1999 and 1998, performance-based
options granted under the Plans were 61,425, 6,300 and 47,775 shares,
respectively. 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. During 2000, 1999 and 1998, performance-based
options which were forfeited amounted to 42,086, 38,720 and 0 shares,
respectively.
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, 2000 and 1999.
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
2000 Price 1999 Price 1998 Price
-------------------------------------------------------
Options outstanding at
beginning of year 938,498 $10.64 1,203,682 $ 9.18 1,213,560 $ 7.86
Options granted at
$13.57 to $19.95 per
share 147,762 13.84 54,632 15.91 130,126 18.58
Options exercised at
$3.58 to $11.99 per
share (46,980) 6.07 (313,030) 5.84 (135,456) 6.67
Options forfeited (38,720) 18.51 (6,786) 18.09 (4,548) 9.98
--------- --------- ---------
Options outstanding
at end of year 1,000,560 11.02 938,498 10.64 1,203,682 9.18
========= ========= =========
Options available for
grant at June 30 487,586
=========
Options exercisable at
June 30 at $3.58 to
$18.69 per share 873,174 10.52 840,711 9.86 1,062,304 8.39
========= ========= =========
72
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Stock Option Plans (continued)
The following options were outstanding and exercisable at June 30, 2000:
Options Outstanding Options Exercisable
---------------------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Range of Number of Exercise Remaining Number of Exercise
Exercise Prices Shares Price Life (Years) Shares Price
----------------------------------------------------- --------------------
$0.00 - $ 5.00 67,136 $ 3.58 0.6 67,136 $ 3.58
$5.01 - $10.00 472,414 9.10 4.3 472,414 9.10
$10.01 - $15.00 331,004 12.61 7.0 220,156 11.99
$15.01 - $20.00 130,006 17.81 7.9 113,468 17.70
--------- -------
1,000,560 11.02 5.4 873,174 10.52
========= =======
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 2000, 1999 and 1998 was $2.67, $3.25 and $4.42,
respectively. The following significant assumptions were used to calculate the
estimated fair value of the options granted:
June 30
2000 1999 1998
---------------------------
Risk free interest rate 6.110% 5.725% 5.470%
Expected life 4 years 4 years 4 years
Expected volatility 24.2% 24.5% 30.3%
Expected dividends 3.8% 3.6% 2.5%
73
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Stock Option Plans (continued)
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
2000 1999 1998
------------------------------
(Dollars In Thousands,
Except Per Share Data)
Net Income
As reported $ 9,289 $ 9,670 $10,015
Pro forma 9,122 9,422 9,848
Earnings Per Share
As reported 0.93 0.96 1.04
Pro forma 0.91 0.94 1.02
Earnings Per Share
Assuming Dilution
As reported 0.91 0.93 0.96
Pro forma 0.89 0.90 0.95
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.
74
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. York Financial Corp. (Parent Company Only) Financial Information
Balance Sheets
--------------
June 30
2000 1999
------------------------
Assets (In Thousands)
Cash $ 2,523 $ 6,421
Securities 1,019 1,336
Loan receivable, net 973 2,315
Prepaid expenses and other assets 733 189
Investment in joint venture 3,634 3,787
Investments in subsidiaries:
York Federal Savings and Loan Association 114,617 93,649
Other 4,481 4,264
------------------------
Total investments in subsidiaries 119,098 97,913
------------------------
$ 127,980 $ 111,961
========================
Liabilities
Other borrowings $ 16,320 $ 662
Accrued expenses and other liabilities 1,782 889
Stockholders' equity 109,878 110,410
------------------------
$ 127,980 $ 111,961
========================
Statements of Income
--------------------
Year Ended June 30
2000 1999 1998
-------------------------------
Dividend income: (In Thousands)
York Federal Savings and Loan Association $ 3,095 $ 5,579 $ 1,870
Other 46 29 37
Interest Income 372 470 485
Gain on sales of real estate - 589 16
(Loss) income from joint venture (956) 1,433 1,490
Other Income 12 9 10
-------------------------------
2,569 8,109 3,908
Interest expense 647 - -
Other expenses 733 714 659
-------------------------------
Income before equity in undistributed net
income of subsidiaries and income taxes 1,189 7,395 3,249
Equity in undistributed net income
of subsidiaries:
York Federal Savings and Loan Association 7,119 2,753 7,303
Other 171 264 12
-------------------------------
Income before income taxes 8,479 10,412 10,564
Provision for income (benefit) taxes (810) 742 549
-------------------------------
Net income $ 9,289 $ 9,670 $10,015
===============================
75
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. York Financial Corp. (Parent Company Only) Financial Information
(continued)
Year ended June 30
2000 1999 1998
-----------------------------------
Statements of Cash Flows (In Thousands)
------------------------
Operating activities
Net income $ 9,289 $ 9,670 $ 10,015
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in undistributed net
income of subsidiaries (7,290) (3,017) (7,315)
Other 1,662 310 (1,254)
-----------------------------------
Net cash provided by operating
activities 3,661 6,963 1,446
Investing activities
Purchase of securities available
for sale (344) (271) (320)
Loans orginated or acquired - - (33)
Principal collected on loans 1,342 33 28
Disposal of equipment 5 4 -
Increase in investment in joint venture (789) (415) -
Distribution from joint venture - - 1,196
Increase in investments in
subsidiaries (18,046) (8) (25)
Other - 4 -
-----------------------------------
Net cash (used in) provided by
investing activities (17,832) (653) 846
Financing activities
Net increase in borrowings 15,789 - -
Issuance of common stock:
Dividend Reinvestment Plan 1,519 2,265 2,330
Stock Option Plans 286 1,455 163
Cash dividends paid (5,091) (4,896) (4,419)
Retirement of common stock (1,666) (4,023) -
Cash in lieu of fractional shares (15) (18) (21)
Acquistion of treasury stock (1,301) - -
Issuance of treasury stock 684 - -
Release of ESOP shares 132 133 132
Other (64) (71) 39
-----------------------------------
Net cash provided by (used in)
financing activities 10,273 (5,155) (1,776)
-----------------------------------
(Decrease) increase in cash (3,898) 1,155 516
Cash at beginning of year 6,421 5,266 4,750
-----------------------------------
Cash at end of year $ 2,523 $ 6,421 $ 5,266
===================================
76
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. 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
2000 1999
---------------------
(In Thousands)
Commitments to extend credit:
Loan origination commitments:
Fixed interest rates $ 4,565 $ 16,553
Variable interest rates 11,932 43,874
---------------------
16,497 60,427
Unused home equity lines of
credit 67,119 57,596
Unused commercial lines of
credit 29,858 28,701
---------------------
$113,474 $146,724
=====================
Standby letters of credit $ 3,219 $ 3,044
=====================
Loans sold with recourse $ 31,884 $ 27,356
=====================
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. The range of interest rates for fixed commitments is 7.88% to 9.83%
and 6.50% to 10.00% at June 30, 2000 and 1999, respectively.
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.
77
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. Financial Instruments with Off-Balance Sheet Risk (continued)
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.
19. 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.
78
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Fair Value of Financial Instruments (continued)
Loans
The fair value of adjustable rate loans that reprice frequently is
approximately their carrying value. The fair value of fixed rate loans and
adjustable rate loans with repricing frequencies of greater than one year is
estimated by discounting the future cash flows using the current rate at which
similar loans would be made to borrowers with similar credit ratings.
Mortgages and certain consumer loans include prepayment assumptions.
Other Financial Assets
Currently other financial assets consist of mortgage servicing rights
whose fair values are calculated based on the present values of their
estimated future cash flows.
Deposits
The fair value of deposits with no stated maturity, such as noninterest
bearing deposits, NOW accounts, savings accounts, and money market accounts
is, by definition, equal to the amount payable on demand (i.e., their carrying
amounts). The fair value of fixed rate certificates of deposit is based on the
discounted value of cash flows, using Federal Home Loan Bank borrowing rates
with similar remaining maturities. The carrying amounts for variable rate
certificates of deposit approximate their fair values. The estimated fair
value of core deposits does not include the benefits commonly referred to as a
core deposit intangible resulting 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 Loans 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.
79
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Fair Value of Financial Instruments (continued)
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.
The Corporation's estimated fair values of financial instruments based on
assumptions disclosed above are as follows:
June 30
2000 1999
------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------
(In Thousands)
Cash and Due from banks -
Noninterest and interest-
earning $ 37,326 $ 37,326 $ 31,771 $ 31,771
Loans held for sale 4,415 4,415 30,631 30,631
Securities available for sale 346,505 346,505 295,691 295,691
Securities held to maturity
and FHLB stock 43,979 43,396 30,594 30,611
Loans:
Residential 847,767 827,641 666,257 662,420
Commercial 166,498 165,075 107,765 107,135
Consumer 165,352 163,176 144,558 145,757
------------------------------------------------
Total Gross Loans 1,179,617 1,155,892 918,580 915,312
Other Financial Assets 5,104 5,476 4,127 4,403
Noninterest-bearing deposits 23,990 23,990 22,470 22,470
NOW accounts 116,898 116,898 107,107 107,107
Savings accounts 43,103 43,103 54,179 54,179
Money market accounts 329,592 329,592 328,775 328,775
Certificates of deposit 657,145 656,764 602,722 609,644
------------------------------------------------
Total Deposits 1,170,728 1,170,347 1,115,253 1,122,175
FHLB Loans and other
borrowings 370,390 368,649 113,962 113,191
Off-balance-sheet financial
instruments:
Commitments to extend credit $ (301) $ (551)
Standby letters of credit (48) (46)
80
<PAGE>
York Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
20. 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.
81
<PAGE>
York Financial Corp. and Subsidiaries
Supplementary Consolidated Financial Data
Summaries of consolidated results of operations on a quarterly basis for
the years ended June 30, 2000 and 1999 are as follows:
Three Months Ended
September 30 December 31 March 31 June 30
------------------------------------------------
(Unaudited)
FISCAL YEAR 2000
(Dollars in Thousands, Except Per Share Data)
Interest income $ 24,024 $ 27,319 $ 28,656 $ 28,539
----------------------------------------------
Interest expense 14,737 17,696 19,144 19,740
Net interest income 9,287 9,623 9,512 8,799
Provision for loan losses 600 550 400 110
----------------------------------------------
Net interest income after
provision for loan losses 8,687 9,073 9,112 8,689
Security gains - 105 20 161
Other income 1,620 (1) 1,548 1,811 1,996
Other expenses 7,408 7,543 8,324 8,078
Income tax expense 570 (1) 890 293 427
----------------------------------------------
Net income $ 2,329 $ 2,293 $ 2,326 $ 2,341
==============================================
Per share data:
Net income $ 0.234 $ 0.230 $ 0.232 $ 0.234
==============================================
Net income-assuming dilution $ 0.227 $ 0.225 $ 0.229 $ 0.229
==============================================
Cash dividends paid $ 0.125 $ 0.125 $ 0.130 $ 0.130
==============================================
FISCAL YEAR 1999
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 $ 0.257 $ 0.160 $ 0.188 $ 0.355
==============================================
Net income-assuming dilution $ 0.245 $ 0.155 $ 0.184 $ 0.346
==============================================
Cash dividends paid $ 0.120 $ 0.120 $ 0.125 $ 0.125
==============================================
(1) During the second quarter of fiscal 2000, a change in classification was
made related to accounting for a partnership investment. This
reclassification causes the amounts noted above to differ from the Form
10-Q for the quarter ended September 30, 1999
All per share data is adjusted for stock dividends and splits effected through
June 30, 2000.
82
<PAGE>
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 Board of Directors of the Corporation is presently composed of nine
members, each of who are elected for terms of three years pursuant to the
Corporation's Articles of Incorporation. The executive officers of the
Corporation and the Association are elected annually and hold office until
their respective successors have been elected and qualified or until death,
resignation or removal by the Board of Directors. The following tables sets
forth information with respect to the Directors and executive officers of the
Corporation and the Association.
Directors of the Corporation and the Association
Year First Current
Elected Term
Name Age(1) Director(2) Expires
---- ------ ----------- -------
Carolyn E. Steinhauser 61 1984 2000
Thomas W. Wolf 51 1984 2000
Robert L. Simpson 54 1994 2000
Cynthia A. Dotzel 46 1984 2001
Paul D. Mills 70 1970 2001
Byron M. Ream 56 1984 2001
Robert W. Erdos 69 1971 2002
Randall A. Gross 56 1984 2002
Robert W. Pullo 60 1981 2002
-------------
(1) As of June 30, 2000.
(2) Includes prior service on the Board of Directors of York Federal.
Executive Officers of the Corporation and the Association
Name Age(1) Position
---- ----- ------------------------------------------------------
Corporation Association
-------------------------- -------------------------
Robert W. Pullo 60 Director, President and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
Robert A. Angelo 53 Executive Vice President, President and Chief
Secretary and General Operating Officer
Counsel
James H. Moss 46 Senior Vice President and Executive Vice President
Chief Financial Officer/ and Chief Financial
Treasurer Officer/Treasurer
-----------------
(1) As of June 30, 2000.
83
<PAGE>
In addition to the above, the Association's executive officer group
includes:
Name Age(1) Position
---- ------ --------
Lynn D. Crenshaw 49 Executive Vice President
Robert P. O'Hara 49 Executive Vice President
Harry M. Zimmerman 53 Executive Vice President
Rebecca S. McClure, Esquire 40 Senior Vice President, Secretary
and General Counsel
Kenneth H. Sallade 48 Senior Vice President and Chief
Investment Officer
----------
(1) As of June 30, 2000.
Biographical Information
Set forth below is certain information regarding the directors and
executive officers of the Corporation and the Association. All of the
directors and officers listed above have held positions with or been employed
by the Corporation for five years unless otherwise stated. There are no
family relationships among or between the directors or executive officers.
Carolyn E. Steinhauser of York, Pennsylvania, is Executive Director of
York Foundation. A graduate of Middlebury College, Ms. Steinhauser is a
member of the board of Commonwealth Community Foundations (PA) and a Trustee
of York College of Pennsylvania. She was formerly Vice President/Campaign of
the United Way of York County and Executive Director of the York YWCA.
Thomas W. Wolf of Mount Wolf, Pennsylvania, is President of The Wolf
Organization, Inc. where he has been affiliated since 1979. Mr. Wolf earned a
Bachelor of Arts degree from Dartmouth College, a Master of Philosophy from
the University of London, and a Ph.D. from the Massachusetts Institute of
Technology. Mr. Wolf is past Chairman of the Board of the York Area Chamber
of Commerce, Past Chairman of the Board of the United Way of York County, past
Chairman of the Board of WITF Public Broadcasting Station, Vice Chairman of
the Board of York College of Pennsylvania, and President of Better York, Inc.
Mr. Wolf served in the U.S. Peace Corps in India.
Robert L. Simpson of York, Pennsylvania, is Executive Director of the
Crispus Attucks Association, a multi-purpose community center, a position he
has held since 1979. Mr. Simpson serves on the Board of Directors and the
Medical Affairs and Community Health Care Committees of the York Hospital, is
a Trustee of York College of Pennsylvania and is a member of the Board of
Directors of WITF Public Broadcasting Station. Mr. Simpson also serves on the
Board of Directors of the York Health Bureau, the White Rose Foundation, the
Martin Memorial Library, and the York County Industrial Development
Corporation. A member of the Rotary Club of York, he serves on the Rotary and
York City School District Drop-Out Prevention Program Committee, and serves on
the Atkins House Advisory Committee. He has also served on the boards of the
County Drug Task Force, York 2000 Committee, the YMCA, York Area Chamber of
Commerce, and the Junior League.
Cynthia A. Dotzel of York, Pennsylvania, is a Certified Public
Accountant, practicing with Dotzel & Company, Inc., Certified Public
Accountants. She earned a Bachelor of Science degree in Accounting from York
College after completing undergraduate work at York College and Bloomsburg
University. Ms. Dotzel is a member
84
<PAGE>
of the Cyber Center Management Group. She is a member of the Board of
Directors and Finance Committee of the York Foundation and the Finance
Committee of St. Patricks Church in York.
Paul D. Mills of Hellam, Pennsylvania, is the owner of Willow Tree Farms,
a thoroughbred horse breeding farm and training center. He is a member of the
North York Lions Club and the State Horse Racing Commission. Mr. Mills is a
past President of the Pennsylvania Horse Breeders Association. He is a member
of the White Rose Lodge 706, York County Shrine Club, and V.F.W. Post 6241.
Byron M. Ream of York, Pennsylvania, is Executive Vice President of R&R
Components, Inc. He formerly served as the Director of Property Management
and as a realtor for Bennett Williams, Inc., York. Mr. Ream attended Wesleyan
University and Pennsylvania State University, York Campus. He is a member of
the Building Committee of the United Way of York County, Vice Chairman of the
Administrative Council and a past President of the Board of Trustees of Asbury
United Methodist Church, and a member of the Board of Directors of Bell
Socialization Services and B.U.I.L.D., Inc.
Robert W. Erdos of York, Pennsylvania, is the owner of Stomp Off Records,
a company which produces recordings of jazz and ragtime. He earned a Bachelor
of Arts degree from the University of Pennsylvania and an LLB from Yale Law
School. From 1957 to 1981 he was Executive Vice President of Danskin Inc.,
which is a manufacturer of dancewear and sportswear. He is a Past President
of the United Way and a Past President of the Manufacturers Association of
York County. Mr. Erdos served as a member of the Board of Directors of the
York Hospital from 1977 to 1989.
Randall A. Gross of York, Pennsylvania, is President of RG Industries.
He earned his BBA and MBA from the University of Cincinnati. Mr. Gross was
formerly Chairman of the York Area Chamber of Commerce and also Chairman of
its Reaccreditation Committee. He also served with the Chamber of Commerce as
Chairman of the Local Government Committee, Vice President of Community
Affairs, member of the Executive Committee, Budget and Finance Committee, and
Board of Directors. Mr. Gross is a member of the Board of Trustees of York
College, and Board of Directors of Tighe Industries, B.W. Rogers Co. and Valin
Corporation. He is also a member of the Chief Executive Officers (CEO)
Organization. He is Past Chairman of the Keystone Chapter of the Young
Presidents' Organization where he had previously served as Education Chairman.
Mr. Gross is licensed by the State of Georgia as a Certified Public
Accountant.
Robert W. Pullo of York, Pennsylvania, is President and Chief Executive
Officer of York Financial and a member of the Board of Directors. He is also
Chairman of the Board of Directors and Chief Executive Officer of York Federal
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 and
on the Board of Pennbanks Insurance Company, SPC. He is a member of the
America's 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 of Memorial Health Systems Corporation. He is the
immediate Past 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 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
85
<PAGE>
Award from the Human Relations Commission for his work with minorities. Mr.
Pullo is expected to be Co-Chairman of the Board od Directors of Waypoint
Financial Corp. following the merger.
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 York Financial. 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. Mr.
Angelo is expected to be Chief Administrative Officer of Waypoint Financial
Corp. following the merger.
James H. Moss of Lancaster, Pennsylvania, 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. Mr. Moss is expected to be Chief
Financial Officer of Waypoint Financial Corp. following the merger.
Lynn D. Crenshaw is Executive Vice President of the Retail Group of York
Federal Savings and Loan Association. A graduate of Towson State University,
Ms. 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. Crenshaw is a past board 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.
Ms. Crenshaw is expected to supervise Waypoint Financial Corp.'s retail
banking group following the merger.
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. Mr. O'Hara is expected to
supervise Waypoint Financial Corp.'s mortgage lending following the merger.
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
86
<PAGE>
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.
Rebecca S. McClure of Lancaster, Pennsylvania, 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.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act") requires certain officers of the Corporation and its
directors, and persons who beneficially own more than 10% of any registered
class of the Corporation's common stock, to file reports of ownership and
changes in ownership with the SEC and the Corporation.
Based solely on a review of the reports and written representations
provided to the Corporation by the above referenced persons, the Corporation
believes that all filing requirements applicable to its reporting officers,
directors and greater than 10% beneficial owners were properly and timely
complied with during the fiscal year ended June 30, 2000, except for a
transaction by Randall A. Gross, a member of the Board of Directors. Mr.
Gross filed a Form 4, Statement of Change in Beneficial Ownership of
Securities, for an option exercise that occurred in the month of May 2000 on
June 15, 2000 rather than by the required reporting date of June 12, 2000.
Item 11. Executive Compensation
--------------------------------
For executive compensation reporting purposes, SEC regulations define the
term "named executive officers" to include all individuals serving as chief
executive officer during the next recently completed year, regardless of
compensation level, and the four most highly compensated executive officers,
other than the chief executive officer, whose total annual salary and bonus
for the last completed fiscal year exceeded $100,000. Messrs. Pullo, Angelo,
Moss, Zimmerman, and O'Hara were the Corporation's "named executive officers"
for the fiscal year ended June 30, 2000.
Summary Compensation Table
The following information is furnished for the Corporation's chief
executive officer and named executive officers for the year ended June 30,
2000.
87
<PAGE>
<TABLE>
Summary Compensation Table*
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------
Other Annual All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($) ($)(1) (#)(2) ($)(3)
------------------ ---- -------- -------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Pullo, President 2000 $375,024 $ 72,342 -- 25,168 $168,947
and Chief Executive Officer 1999 375,011 123,708 -- 3,970 160,378
1998 360,490 167,197(4) -- 24,970 111,910
Robert A. Angelo, Executive 2000 192,400 38,187 -- 15,750 52,867
Vice President, Secretary 1999 192,400 64,389 -- -- 27,982
and General Counsel; President 1998 185,000 87,530(4) -- 15,750 10,873
of York Federal
James H. Moss, Senior Vice 2000 144,000 25,401 -- 10,500 4,027
President, Chief Financial 1999 143,929 43,662 -- -- 7,231
Officer/Treasurer; Executive 1998 135,000 64,428(4) -- 10,500 7,817
Vice President of York Federal
Harry M. Zimmerman, 2000 131,500 23,325 -- 10,500 3,710
Executive Vice President of 1999 131,323 35,798 -- -- 4,407
York Federal 1998 125,000 41,669 -- 10,500 3,793
Robert P. O'Hara, Executive 2000 125,000 21,874 -- 10,500 2,994
Vice President of York Federal 1999 48,077 12,708 -- 5,250 477
</TABLE>
------------
* All compensation is paid by the Association but allocated between the
Corporation and the Association based on approximate time spent by the
named executive officer on Company business.
(1) Amounts not reportable as they do not exceed the lesser of $50,000 or 10%
of salary and bonus.
(2) The number of stock options indicated have been adjusted for stock
dividends issued.
(3) Includes contributions of $2,790, $2,790, $2,790, $2,790 and $2,474,
respectively, for Messrs. Pullo, Angelo, Moss, Zimmerman, and O'Hara to
the Corporation's ESOP. Includes contributions of $131,257, $49,477,
$637, $920 and $520, respectively, for Messrs. Pullo, Angelo, Moss,
Zimmerman, and O'Hara for life insurance premiums and benefit accruals
for Messrs. Pullo and Angelo for the Supplemental Executive Retirement
Plan. Includes $34,300 in directors' fees paid to Mr. Pullo. Includes
directors' fees of $600 each for Messrs. Pullo, Angelo and Moss for board
meetings of York Financial Investment Corp., a subsidiary of York
Federal.
(4) Includes bonuses received in November 1997 under the Corporation's Bonus
Plan for performance standards achieved in the 1996/1997 fiscal year.
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<PAGE>
Option Grants Table
The following table sets forth all grants of options to the Corporation's
chief executive officer and named executive officers for the fiscal year ended
June 30, 2000.
Individual Grants(1)
-------------------------------------------------------------
% of Total
Options
Granted Potential Realizable
to Value at Assumed Annual
Employ- Rates of Stock Price
Options ees in Exercise Expira- Appreciation for Option
Granted Fiscal Price tion Term(2)
Name (#) Year ($/Sh) Date 0%($) 5%($) 10%($)
---- ------- ---- ------ ---- ----- ----- ------
Robert W. Pullo 10,500 9.17% $13.869 7/21/09 -- $91,582 $232,088
10,500 9.17 13.869 7/21/09 -- 91,582 232,088
4,168 3.64 13.7516 10/1/09 -- 36,046 91,348
Robert A. Angelo 7,875 6.88 13.869 7/21/09 -- 68,687 174,066
7,875 6.88 13.869 7/21/09 -- 68,687 174,066
James H. Moss 5,250 4.58 13.869 7/21/09 -- 45,791 116,044
5,250 4.58 13.869 7/21/09 -- 45,791 116,044
Harry M.
Zimmerman 5,250 4.58 13.869 7/21/09 -- 45,791 116,044
5,250 4.58 13.869 7/21/09 -- 45,791 116,044
Robert P. O'Hara 5,250 4.58 13.869 7/21/09 -- 45,791 116,044
5,250 4.58 13.869 7/21/09 -- 45,791 116,044
---------------
(1) Only named executive officers receiving grants are listed.
(2) The amounts under the columns labeled "5%" and "10%" are included by the
Corporation pursuant to certain rules promulgated by the SEC and are not
intended to forecast future appreciation, if any, in the price of the
Corporation's stock. Such amounts are based on the assumption that the
named persons hold the options granted for their full 10 year term. The
actual value of the options will vary in accordance with the market price
of the Corporation's common stock. The column headed "0%" is included to
demonstrate that the options were granted at fair market value and
optionees will not recognize any gain without an increase in the stock
price, which increase benefits all stockholders commensurately. The
Corporation did not use an alternative formula to attempt to value
options at the date of grant, as management is not aware of any formula
which determines with reasonable accuracy a present value of options of
the type granted to the optionees.
Option Exercise Table
The following table sets forth all exercises of options under the Stock
Option and Incentive Plans to the Corporation's Chief Executive Officer and
named executive officers for the fiscal year ended June 30, 2000.
89
<PAGE>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Shares Year End(#)(1) Year End($)
Acquired Value ---------------- -----------------
on Real- Exer- Unexer- Exer- Unexer-
Name Exercise(#) ized($) cisable cisable cisable cisable
---- ----------- ------- ------- ------- ------- -------
Robert W. Pullo -- -- 136,961 23,310 $423,350 --
Robert A. Angelo -- -- 66,712 17,483 114,225 --
James H. Moss -- -- 30,490 11,655 54,942 --
Harry M. Zimmerman -- -- 16,759 14,412 -- --
Robert P. O'Hara -- -- 3,150 12,600 -- --
------------
(1) Number of shares acquired have been adjusted for 5% stock dividend paid
November 15, 1999.
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan is a non-qualified, unfunded
deferred compensation plan evidenced by two separate agreements that provide
supplemental executive retirement benefits to Messrs. Pullo and Angelo. The
agreements are unfunded, but the Corporation and the Association have
purchased life insurance policies on each executive that are actuarially
designed to offset the annual expenses associated with the agreements and
will, pursuant to the actuarial assumptions, offset all of the costs
associated with the agreements during the life of the executive and provide a
complete recovery of all plan costs upon the executive's death. The
Corporation and the Association are the sole owners of all the insurance
policies. The amount of an executive's benefit will be determined pursuant to
the accrual of two accounts: (i) a pre-retirement account and (ii) an index
retirement benefit account. The pre-retirement account is a liability reserve
account on the books of the Corporation and Association, and is increased or
decreased each year by an amount determined by the aggregate annual after-tax
income from specified life insurance contracts reduced by an "opportunity
cost" which is calculated by taking into account the Association's after-tax
cost of funds. The index retirement benefit account is equal to the excess of
the annual earnings of the insurance policies over the "opportunity cost."
Upon retirement at age 70 (normal retirement) or at age 60 with 23 years of
service (early retirement), the balance in the executive's pre-retirement
account will be paid in a lump sum within 30 days following the executive's
retirement (unless the plan administrator shall elect to pay such amount in
annual installments). In addition, upon normal or early retirement the
executives will receive an index retirement benefit annually until their
death. Should the executives die prior to having received the entire amount
of their pre-retirement account, the unpaid balance will be paid in a lump sum
to their designated beneficiaries. The executives are entitled to receive
their benefit if they retire prior to age 60, however, the payment of such
benefits will not commence until the executive reaches age 60. In the event
of a change in control of the Association, or the executives' services with
the Association are terminated without cause, the executives will be entitled
to receive their benefit within 30 days of such event. The benefits under the
Agreements are forfeitable by the executives if they are terminated by the
Association for cause. At June 30, 2000, the estimated annual benefit payable
to Messrs. Pullo and Angelo upon normal retirement would be approximately
$294,313 and $240,192, respectively.
Split Dollar Death Benefits
The Association has also entered into Life Insurance Split Dollar
Agreements with Messrs. Pullo and Angelo, whereby their beneficiaries shall be
paid $5,000,000 and $2,500,000, respectively, for certain death benefits in
the event that the executives should die while employed by the Association.
Life insurance policies have been purchased to provide this benefit. In the
event that the executive should not be employed by the Association at his
death, then the executive's beneficiaries shall receive an amount equal to 4%
of the amount that he would receive if the executive died while employed by
the Association, multiplied by the number of full years of service the
executive had completed with the Association, up to 25 year of service. The
Association is entitled to an amount equal the cash value of the
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<PAGE>
insurance policies, less any policy loans and unpaid interest or cash
withdrawals previously incurred by the Association and any applicable
surrender charges.
Pension Plan Table
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan (as discussed herein) upon retirement at age
65 to a participant electing to receive his or her retirement benefit in the
standard form of benefit, assuming various specified levels of Retirement Plan
compensation and various specified years of credited service.
Estimated Annual Pension for Representative Years of Service
------------------------------------------------------------
Average Earnings 10 15 20 25 30
---------------- ------ ------ ------ ------ ------
$ 25,000 $ 3,500 $ 5,250 $ 7,000 $ 8,750 $10,500
50,000 7,847 11,771 15,694 19,618 23,541
100,000 17,347 26,021 34,694 43,368 52,041
150,000 26,847 40,271 53,694 67,118 80,541
200,000 28,747 43,121 57,494 71,868 86,241
The York Federal Pension Plan is a noncontributory defined benefit
pension plan. An employee becomes a participant in the Plan after completing
one year of service and attaining age 21. Plan participants with five or more
years of service are entitled to monthly retirement benefits beginning at the
retirement age of 65. The retirement pension is payable monthly as long as
the participant lives.
A participant's accumulated pension credits are equal to 1/12th of the
sum of the benefits earned through June 30, 1996 plus the benefits earned
after July 1, 1996. Benefits earned through June 30, 1996 are equal to the
sum of (i) 1.1% of five year average compensation at June 30, 1996 for years
of benefit service before July 1, 1991; plus (ii) 1.4% of five year average
compensation at June 30, 1996 for years of benefit service from July 1, 1991
to June 30, 1996; plus (iii) 0.5% of average compensation over $25,920,
multiplied by the number of years of service from July 1, 1991 to June 30,
1996, up to 35 years of cumulative service. Benefits earned after July 1,
1996 are equal to 1.4% of annual compensation for each year of service after
July 1, 1996, plus 0.5% of pay over the Social Security Integration Level for
each year of service after July 1, 1996, provided, however, that no pension
benefit on compensation over the Social Security Integration Level accrues for
any year of service over 35 years. The amount of pension earned during a
fiscal year is based upon compensation during that year subject to limits
imposed by the Internal Revenue Code of 1986, as amended ("Code"). During the
last fiscal year, compensation for the purposes of calculating benefits for a
Plan participant was limited by the Code to $160,000. The Social Security
Integration Level for each plan year is equal to 100% of the Maximum Social
Security Covered Compensation as of the first day of the year.
The Plan provides for normal retirement at age 65 and permits early
retirement at ages between 55 and 64. Upon retirement, married participants
automatically receive an actuarially equivalent joint and 50% survivor pension
unless otherwise elected. The Plan also provides for other options for
pension benefits which can be elected by a participant. If the present value
of the monthly pension does not exceed $5,000, a lump sum payment is
automatically paid. Employees terminating after completion of at least five
years of service are entitled to a vested deferred pension equal to the
benefit accrued to the date of termination.
At June 30, 2000, the credited years of service for Messrs. Pullo,
Angelo, Moss, Zimmerman, and O'Hara were 25, 27, 16, 3 and 1, respectively.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended,
or the Exchange Act that might incorporate future filings, including this Form
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10-K, in whole or in part, the following report and Performance Graph shall
not be incorporated by reference into any such filings.
Directors' Compensation
For service in fiscal 2000 as a member of the Board of Directors of the
Corporation, each Director received a fee of $500 for each meeting attended.
For services as a member of the Audit Committee, the chair received a retainer
of $4,000 and each committee member received a retainer of $1,000. For
services as a member of the Compensation Committee and Nominating Committee,
the respective committee chair received a retainer of $2,000 and each
committee member received a retainer of $1,000. A fee of $400 was received by
Audit Committee members for each meeting attended. A fee of $200 was received
by Compensation Committee members and Nominating Committee members for each
meeting attended.
For service in fiscal 2000 as a member of the Board of Directors of the
Association, each director received a retainer of $10,000 and a fee of $500
for each meeting attended. For service as a member of the Executive Committee
of the Association, each member received a retainer of $4,500 and a fee of
$400 for each meeting attended. For services as a member of the Pension
Committee and Building Committee of the Association, the respective committee
chair received a retainer of $2,000 and each committee member received a
retainer of $1,000. A fee of $200 was received by Pension Committee members
and Building Committee members for each meeting attended.
For service in fiscal 2000, directors of the Corporation who also served
as members of the Board of Directors of subsidiaries of the Corporation, Y-F
Service Corp. and New Service Corp., received a fee of $200 for each meeting
attended and a retainer fee of $2,000.
Directors of the Corporation are participants in the 1984 Non-Incentive
Stock Option Plan, the 1992 Non-Incentive Stock Option Plan for Directors and
the 1995 Non-Qualified Stock Option Plan for Directors. The Plans were
designed to attract and retain the best available personnel as directors of
the Corporation and to provide additional incentive for directors to promote
the success of the business. All options under the 1984 and 1992 Plans have
been granted, and there are unexercised options that remain outstanding. The
1995 Plan is a formula plan providing for an annual grant of options on
October 1 of each year (to the extent options are available) at the closing
price of the Corporation's stock on the last business day prior to October 1
of each year.
In 1979, York Federal established a directors' deferred compensation plan
whereby the Association agreed to pay retired or disabled directors with 10 or
more years of service a joint and several annuity based on compensation
received by a participating director during the last 60 months of service to
the Association. Benefits under the Plan normally begin at age 70 and are
paid monthly for a period of 10 years or until death of the director and
spouse, whichever first occurs. The Plan is unfunded.
Report of the Compensation Committee
Compensation Committee of the Board of Directors of the Corporation is
responsible for establishing, implementing and monitoring all compensation
policies of the Corporation and its primary operating subsidiary, York Federal
Savings and Loan Association. The Committee is also responsible for
evaluating the performance of the Chief Executive Officer of the Corporation
and recommending appropriate compensation levels. The Chief Executive Officer
evaluates the performance of each of the named executive officers and other
subordinate officers of the Corporation and its subsidiaries and recommends
individual compensation levels to the Compensation Committee. None of the
Committee's members is a current or former officer or employee of the
Corporation or any subsidiary of the Corporation.
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The Compensation Committee believes that a compensation plan for
executive officers should take into account management skills, long term
performance results and stockholder returns. Compensation policies must be
maintained to promote:
1. the attraction and retention of highly-qualified executives;
2. motivation of executives that is related to the performance of the
individual and the Corporation;
3. current and long-term performance; and
4. a financial interest in the success of the Corporation similar to
the interests of its stockholders.
The Corporation's current compensation plan involves a combination of
salary, profit sharing and bonus to reward short-term performance and grants
of stock options to encourage long-term performance. The salary levels of
executive officers are designed to be competitive within the financial
services industry. Annual compensation surveys prepared by Towers Perrin and
SNL Securities are utilized to determine competitive salary levels and
individual annual performance is reviewed to determine appropriate salary
adjustments. A profit sharing plan in which all executive officers and
employees of York Federal participate has been designed to align their
interests with that of the stockholders of the Corporation. First Capital
Brokerage Services, Inc. also has a profit sharing plan in which its executive
officers and employees participate. Profits distributable pursuant to the
Plans may not exceed total dividends paid to the stockholders during the year.
Certain executive officers of York Federal, including the Chief Executive
Officer and the named executive officers, are eligible to participate in the
York Financial Corp. Bonus Plan which became effective July 1, 1998. The Plan
provides for a bonus of up to 45% of the executive officer's base compensation
(hereinafter the "available bonus") if certain performance standards are
achieved for the fiscal year. The bonus is payable as follows: (a) 30% of the
available bonus is earned if the Corporation achieves 85% or greater of its
budgeted net income; (b) 50% of the available bonus is dependent upon the
officer's achievement of ten goals. These ten performance-based goals are
different for each officer and are specific to areas and Company objectives
over which the officer has responsibility and/or significant influence. The
officer earns one-tenth of the 50% for each goal he/she achieves; (c) 20% of
the available bonus is paid out in the same proportion as the number of goals
achieved under (b) but is earned only if the Corporation achieves 85% or
greater of its budgeted net income.
Stock options are the Corporation's primary long-term compensation
program designed to reward executive performance consistent with performance
that benefits stockholders. Awards of stock options are intended to provide
executives with increased motivation and incentive to exert their best efforts
on behalf of the Corporation by enlarging their personal stake in its success
through the opportunity to increase their stock ownership in the Corporation.
Options issued to executives are at a price equal to the closing price of the
Corporation's stock on the date of grant in order to insure that any value
derived from the grant is realized by stockholders generally. The amount of
options granted to an executive officer is based on the officer's performance
and relative responsibilities within the Corporation. Options may be
exercisable immediately but generally vest over a period of years.
During the fiscal year ended June 30, 2000, the base compensation of
Robert W. Pullo, President and Chief Executive Officer of the Corporation was
$375,024, which represented no increase from the previous fiscal year. Profit
sharing and bonus distributions were awarded based on plan provisions. The
Committee believes the current compensation is appropriate based on
competitive salary surveys and the performance of the Corporation.
Compensation Committee
THOMAS W. WOLF CAROLYN E. STEINHAUSER
PAUL D. MILLS ROBERT W. ERDOS
RANDALL A. GROSS
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Performance Graph
The following graph compares the Corporation's cumulative stockholder
return on its common stock with the return on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") (U.S. companies) Index and a
peer group comprised of SIC Code 603-SAVINGS INSTITUTIONS (publicly traded).
Total return assumes the reinvestment of all dividends.
[graph appears here]
Period Ending
--------------------------------------------------------
Index(1) 6/30/95 6/30/96 6/30/97 6/30/98 6/30/99 6/30/00
-------- ------- ------- ------- ------- -------
York Financial Corp. $100.00 $112.07 $151.36 $203.35 $154.41 $141.44
SIC Code Index(2)(3) 100.00 126.25 203.63 276.43 231.59 193.72
Nasdaq Market Index(2) 100.00 125.88 151.64 201.01 281.68 423.84
---------------
(1) Source: Media General Financial Services
(2) Both the Market Index and the Industry Index contain only those companies
that are public and that have been public for the required six year time
frame.
(3) Peer Group includes SIC Code 603-SAVINGS INSTITUTIONS (publicly traded).
94
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Item 12. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners and
(b) Security Ownership of Management
Persons and groups owning in excess of 5% of the Corporation's common
stock are required to file certain reports disclosing such ownership pursuant
to the Exchange Act. Based upon such reports and information, the following
table sets forth, at the close of business on June 30, 2000, certain
information as to those persons who were beneficial owners of more than 5% of
the outstanding shares of common stock. Management knows of no persons other
than the person set forth below who owned more than 5% of the outstanding
shares of common stock at the close of business on June 30, 2000. The table
also sets forth information as to the shares of common stock beneficially
owned by the Chief Executive Officer of the Corporation, by the Corporation's
or the Association's four other most highly compensated individuals ("named
executive officers") and by all executive officers and directors of the
Corporation as a group.
Amount and Nature Percent of Shares
Name and Address of Beneficial of Common Stock
of Beneficial Owner Ownership*(1) Outstanding*(1)
------------------- ------------------ -----------------
Beneficial Owners of More than 5%
Robert W. Pullo 638,079(2) 6.31%
101 South George Street
York, Pennsylvania 17405
Directors
Cynthia A. Dotzel 116,450(3) 1.15
Paul D. Mills 135,807 1.34
Byron M. Ream 104,166 1.03
Robert W. Erdos 181,770(4) 1.80
Randall A. Gross 122,325 1.21
Carolyn E. Steinhauser 110,599(5) 1.09
Thomas W. Wolf 471,910(6) 4.67
Robert L. Simpson 56,605(7) 0.56
Named Executive Officers (8)
Robert W. Pullo (9) 638,079(2) 6.31
Robert A. Angelo, Esq. 272,375(10) 2.69
James H. Moss, CPA 164,214 1.62
Harry M. Zimmerman 19,747 0.20
Robert P. O'Hara 5,513 0.05
All Executive Officers and Directors
as a Group (16 Persons) 2,472,846 24.45
-------------
* Based on 10,113,247 total shares outstanding as of June 30, 2000.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
the Corporation's common stock if he or she has shared voting or
investment power with respect to such security, or has a right to acquire
beneficial ownership at any time within 60 days from the close of
business on June 30, 2000. Except as otherwise noted below, the table
95
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includes shares owned by spouses, other immediate family members in trust
and other forms of ownership, over which the persons named in the table
possess shared voting and investment power. This table also includes
shares of common stock subject to outstanding options which will be
exercisable within 60 days from the close of business on June 30, 2000.
(2) Excludes 323,114 shares owned by the York Federal Savings and Loan
Association Employee Stock Ownership Plan of which Mr. Pullo is the
trustee. Also excludes 5,441 shares owned by the spouse of Mr.
Pullo for which he disclaims any voting or investment power.
(3) Excludes 10,217 shares owned by the spouse of Ms. Dotzel, for which she
disclaims any voting or investment power. Excludes 22,455 shares Ms.
Dotzel holds as custodian for minor children under the Uniform Gifts
to Minors Act.
(4) Excludes 12,929 shares owned by the spouse of Mr. Erdos, for which he
disclaims any voting or investment power.
(5) Excludes 9,435 shares held by trusts for Ms. Steinhauser's children, of
which Ms. Steinhauser is a trustee.
(6) Includes 181,537 shares owned by affiliated companies of Mr. Wolf of
which he is an officer, director and principal stockholder. Excludes
7,126 shares owned by the spouse of Mr. Wolf, for which he disclaims any
voting or investment power. Excludes 3,738 shares Mr. Wolf holds as
custodian for minor children under the Uniform Gifts to Minors Act.
(7) Includes 5,820 shares held in trust in a Deferred Compensation Plan
sponsored by Mr. Simpson's employer.
(8) SEC regulations define the term "named executive officers" to include all
individuals serving as chief executive officer during the next recently
completed year, regardless of compensation level, and the four most
highly compensated executive officers, other than the chief executive
officer, whose total annual salary and bonus for the last completed
fiscal year exceeded $100,000. Messrs. Pullo, Angelo, Moss, Zimmerman,
and O'Hara were the Corporation's "named executive officers" for the
fiscal year ended June 30, 2000.
(9) Mr. Pullo is also a director of the Corporation.
(10) Excludes 4,990 shares owned by the spouse of Mr. Angelo for which he
disclaims any voting or investment power. Includes 55,725 shares owned by
the spouse of Mr. Angelo for which he shares voting and investment power.
(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
--------------------------------------------------------
Applicable law and regulations require that all loans or extensions of
credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
employees and does not give preference to any insider over any other employee)
and does not involve more than the normal risk of repayment or present other
unfavorable features. The Association has adopted a policy to this effect. At
June 30, 2000, loans to all employees, officers and directors of the
Association totalled $14,837,953.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------
(a) (1)(2) Consolidated Financial Statements and schedules.
See Item 8 of this Form 10-K.
(3) Exhibits
(2) Agreement and Plan of Reorganization by and between
Harris Financial, MHC, Harris Financial, Inc.,
Waypoint Financial Corp., Harris Savings Bank and
York Financial Corp. and York Federal Savings and
Loan Association, dated as of March 27, 2000 and
amended as of June 23, 2000(1)
(3.1) Articles of Incorporation of York Financial
Corp.(2)
(3.2) Bylaws of York Financial Corp.(2)
(10)(a) York Financial Corp. Incentive Stock Option Plan(2)
(b) 1984 York Financial Corp. Amended Incentive Stock
Option Plan(3)
(c) 1984 York Financial Corp. Non-Incentive Stock
Option Plan for Outside Directors(3)
(d) 1992 York Financial Corp. Non-Incentive Stock
Option Plan for Directors(3)(4)
(e) 1992 York Financial Corp. Stock Option and
Incentive Plan(3)(4)
(f) 1995 York Financial Corp. Non-Qualified Stock
Option Plan for Directors (5)
(g) 1997 York Financial Corp. Stock Option and
Incentive Plan(6)
(h) Supplemental Executive Retirement Plan(7)
(21) Parent and Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) The Corporation filed a Current Report on Form 8-K on April
10, 2000 with the Securities and Exchange Commission relating
to the announcement on March 27, 2000 of an Agreement and
Plan of Reorganization by and between York Financial Corp.
and York Federal Savings and Loan Association and Harris
Financial, MHC, Harris Financial, Inc., New Harris Financial,
Inc. and Harris Savings Bank.
------------
(1) Incorporated by reference from the Current Reports on Form 8-K filed by
Harris Financial, Inc. and the Corporation with the SEC on April 10,
2000, and the Form 8-K filed by Harris Financial, Inc. on June 20, 2000.
(2) Incorporated by reference from the Form S-4 filed by the Corporation
under its former name of First Capital Group, Inc. with the SEC on
September 19, 1985.
(3) Incorporated by reference from the Registration Statement on Form S-8
(33-87300) filed by the Corporation with the SEC on December 13, 1994.
(4) Incorporated by reference from the 1992 Annual Meeting Proxy Statement
filed by the Corporation with the SEC on September 24, 1992.
(5) Incorporated by reference from the 1995 Annual Meeting Proxy Statement
filed by the Corporation with the SEC on September 25, 1995 and the Form
S-8 (33-64505) filed by the Corporation with the SEC on November 21,
1995.
(6) Incorporated by reference from the 1997 Annual Meeting Proxy Statement
filed by the Corporation with the SEC on September 25, 1997 and the Form
S-8 (333-40887) filed by the Corporation with the SEC on November 24,
1997.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
year ended June 30, 1999 filed by the Corporation with the SEC on
September 24, 1999.
97
<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 20, 2000 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 20, 2000
--------------------------- Officer and Director
Robert W. Pullo (Principal Executive Officer)
/s/ James H. Moss Senior Vice President September 20, 2000
--------------------------- (Principal Financial
James H. Moss and Accounting Officer)
/s/ Thomas W. Wolf Chairman of the Board September 20, 2000
--------------------------- of Directors
Thomas W. Wolf
/s/ Cynthia A. Dotzel Director September 20, 2000
---------------------------
Cynthia A. Dotzel
/s/ Robert W. Erdos Director September 20, 2000
---------------------------
Robert W. Erdos
/s/ Randall A. Gross Director September 20, 2000
---------------------------
Randall A. Gross
/s/ Paul D. Mills Director September 20, 2000
---------------------------
Paul D. Mills
<PAGE>
/s/ Byron M. Ream Director September 20, 2000
---------------------------
Byron M. Ream
/s/ Carolyn E. Steinhauser Director September 20, 2000
---------------------------
Carolyn E. Steinhauser
/s/ Robert L. Simpson Director September 20, 2000
---------------------------
Robert L. Simpson
<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, 2000.
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
Exhibit 23 - Consent of Independent Auditors
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 19, 2000, with respect to the
consolidated financial statements of York Financial Corp. included in this
Annual Report (Form 10-K) for the year ended June 30, 2000.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
September 18, 2000
<PAGE>
