1
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d) OF
REGULATION S-T.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1999
Commission File No. 0-14995
YORK FINANCIAL CORP
(Exact name of Registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-2427539
(I.R.S. employer identification number)
101 South George Street York, Pa. 17401
(Address of principal executive offices)(Zip code)
(717) 846-8777
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X
No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, par value $1.00 per share 10,047,897 shares
outstanding as of December 31, 1999.
YORK FINANCIAL CORP.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets
December 31, 1999 and June 30, 1999 (unaudited) 3
Consolidated statements of income,
three months and six months ended
December 31, 1999 and 1998 (unaudited) 4
Consolidated statements of cash flows,
six months ended December 31, 1999
and 1998 (unaudited) 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31 June 30
1999 1999
ASSETS (In thousands, unaudited)
Cash and due from banks:
Noninterest-earning $28,139 $22,813
Interest-earning 4,413 8,958
32,552 31,771
Loans held for sale, net 3,672 30,631
Securities available for sale 346,048 295,691
Securities held to maturity (fair
value at December 31, 1999
- $22,245 and
June 30, 1999 - $22,635) 22,650 22,618
Loans receivable, net 1,160,002 909,193
Real estate, net 6,901 8,633
Premises and equipment, net 21,249 20,842
Federal Home Loan Bank stock, at 20,850 7,976
cost
Accrued interest receivable 10,137 8,581
Other assets 20,063 20,952
Investments in joint ventures 6,531 7,738
Total Assets $1,650,655 $1,364,626
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Deposits $1,103,344 $1,115,253
Federal Home Loan Bank advances
and other borrowings 418,551 113,962
Advances from borrowers for taxes
and insurance 3,376 4,281
Other liabilities 16,264 20,720
Total Liabilities 1,541,535 1,254,216
Stockholders' Equity:
Preferred Stock: 10,000,000
shares authorized and unissued - -
Common Stock, $1.00 par value:
Authorized 20,000,000 shares;
issued
December 31, 1999 - 10,047,897
shares; June 30, 1999 -
9,565,467 shares 10,048 9,565
Additional capital 96,518 90,417
Retained earnings 10,368 15,028
Accumulated other comprehensive (7,152) (3,938)
income
Unearned ESOP shares (662) (662)
Total Stockholders' Equity 109,120 110,410
Total Liabilities and
Stockholders' Equity $1,650,655 $1,364,626
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
December 31 December 31
1999 1998 1999 1998
(Dollars in thousands, except per share data, unaudited)
Interest income:
Interest and
fees on loans $20,874 $17,428 $39,276 $35,329
Interest on
securities
held for
trading 9 188 73 318
Interest on
securities
available
for sale 5,616 1,243 10,525 3,098
Interest and
dividends on
securities
held to
maturity 712 224 1,273 438
Other interest
income 108 2,234 196 4,018
Total interest
income 27,319 21,317 51,343 43,201
Interest expense:
Interest on
deposits 12,733 12,674 25,034 25,565
Interest on
borrowings 4,963 368 7,399 718
Total interest
expense 17,696 13,042 32,433 26,283
Net interest
income 9,623 8,275 18,910 16,918
Provision for
loan losses 550 992 1,150 1,857
Net interest
income after
provision for
loan losses 9,073 7,283 17,760 15,061
Other income:
Mortgage banking 238 855 821 1,361
Gain on sale of
securities
available for
sale 105 5 105 794
Gain on sales of
real estate 55 45 94 135
Fees and service
charges 1,216 1,022 2,190 1,825
Income (loss)
from joint
ventures and
partnerships (320) (42) (859) 531
Other operating
income 359 275 923 597
Total other
income 1,653 2,160 3,274 5,243
Other expenses:
Salaries and
employee
benefits 3,783 3,321 7,396 6,724
Occupancy 956 898 1,922 1,815
Federal deposit
insurance 166 156 330 319
Real estate 135 146 338 398
Data processing 392 315 779 610
Advertising 475 364 858 575
Other 1,636 1,706 3,328 3,269
Total other
expenses 7,543 6,906 14,951 13,710
Income before
income taxes 3,183 2,537 6,083 6,594
Provision for
income taxes 890 915 1,461 2,419
Net income $2,293 $1,622 $4,622 $4,175
Per share data:
Net income $0.23 $0.16 $0.46 $0.42
Net income -
assuming
dilution $0.23 $0.16 $0.45 $0.40
Cash dividends
paid $0.12 $0.12 $0.25 $0.24
Weighted average
shares 9,967,388 10,075,880 9,970,868 9,987,476
Weighted average
shares -
assuming
dilution 10,187,591 10,463,193 10,212,691 10,446,778
YORK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31
1999 1998
(In thousands, unaudited)
OPERATING ACTIVITIES
Net income $4,622 $4,175
Adjustments to reconcile net
income to net cash provided by
operating activities:
Amortization and accretion
on securities, net (115) (22)
Provision for loan losses 1,150 1,857
Provision for real estate losses 50 85
Depreciation and amortization 1,143 970
Loans originated for sale (3,086) (82,817)
Proceeds from sales of
trading securities 30,127 76,493
Realized gains on trading
securities (391) (1,190)
Realized gains on sales of
securities available for sale (105) (794)
Increase in other assets (476) (7,793)
Decrease in other liabilities (2,592) (2,728)
Other increase (decrease) 1,181 (940)
Net cash provided by (used in)
operating activities 31,508 (12,704)
INVESTING ACTIVITIES
Proceeds from sales of
securities available for sale 105 50,582
Purchases of securities
available for sale (62,765) (53,535)
Proceeds from maturities of
securities held to maturity - 2,000
Purchases of FHLB stock (12,874) -
Principal repayments on
securities 7,651 11,977
Net increase in short-term
investments - (14,944)
Loans originated or acquired,
net of change in deferred
loan fees (414,109) (141,780)
Principal collected on loans 160,794 149,764
Purchases of real estate (193) (192)
Proceeds from sales of real
estate 2,678 3,644
Purchases of premises, equipment,
and tenant improvements, net (1,299) (2,039)
Other (563) 192
Net cash provided by (used in)
investing activities (320,575) 5,669
FINANCING ACTIVITIES
Net increase (decrease) in
noninterest-bearing demand
deposits, interest-bearing
transaction accounts
and savings accounts (16,582) 46,066
Net increase (decrease) in
certificates of deposit 4,673 (10,765)
Net increase in FHLB advances
and other borrowings 304,589 97
Issuance of common stock :
Dividend reinvestment plan 1,094 1,144
Stock option plans 238 1,056
Cash dividends paid (2,482) (2,375)
Cash paid in lieu of fractional
shares (16) (18)
Retirement of stock (1,666) -
Net cash provided by
financing activities 289,848 35,205
Increase in cash and cash
equivalents 781 28,170
Cash and cash equivalents at
beginning of period 31,771 144,547
Cash and cash equivalents
at end of period $32,552 $172,717
YORK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1999
Note A -- Basis Of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. Such
preparation requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Although the interim amounts are unaudited, they do reflect all
adjustments (consisting of normal recurring accruals) that, in
the opinion of management, are considered necessary for a fair
presentation of the results of operations for the interim
periods. Operating results for the six month period ended
December 31, 1999 are not necessarily indicative of the results
that may be expected for the year ended June 30, 2000. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Corporation's
annual report on Form 10-K for the year ended June 30, 1999.
Cash Flow Information: For purposes of the statements of cash
flows, cash equivalents include cash and amounts due from banks.
During the six months ended December 31, 1999 and 1998, the
Association exchanged loans for mortgage-backed securities in the
amounts of $30.0 million and $140.4 million, respectively. During
the six months ended December 31, 1999 and 1998, the Association
transferred unpaid loan balances from loans to real estate
acquired due to foreclosures of $1.9 million and $2.5 million,
respectively. During the six months ended December 31, 1999 and
1998, there was a noncash capital distribution from an investment
in joint venture of $0 and $2,205,000, respectively.
Reclassifications: Certain reclassifications have been made to
the fiscal 1999 consolidated financial statements to conform with
the fiscal 2000 presentation. Additionally, during the second
quarter of fiscal 2000, a change in classification was made
related to accounting for a partnership investment.
Note B -- Per Share Data
On October 20, 1999, the Corporation declared a 5% stock
dividend, to shareholders of record on November 5, 1999, to be
distributed November 15, 1999. Net income per share is computed
based on the weighted average number of common shares outstanding
and dilutive common stock equivalents, adjusted for stock
splits/dividends. Cash dividends paid per share are based on the
number of common shares outstanding at each record date, adjusted
for stock splits/dividends.
The Corporation computes earnings per share in accordance with
Statement of Financial Accounting Standards (SFAS) 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.
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Six Months Ended
December 31 December 31
1999 1998 1999 1998
Numerator:
Net Income $2,293 $1,622 $4,622 $4,175
Numerator for
basic and
diluted
earnings
per share $2,293 $1,622 $4,622 $4,175
Denominator:
Denominator
for basic
earnings
per share-
weighted-
average
shares 9,967,388 10,075,880 9,970,868 9,987,476
shares
Effect of
dilutive
securities:
Employee Stock
Options 220,203 387,313 241,823 459,302
Denominator for
diluted
earnings
per share-
adjusted
weighted-
average
shares
and assumed
conversion 10,187,591 10,463,193 10,212,691 10,446,778
Basic
earnings
per share $0.23 $0.16 $0.46 $0.42
Diluted
earnings
per share $0.23 $0.16 $0.45 $0.40
Note C - Federal Home Loan Bank (FHLB) Advances and other
borrowings
Borrowings consist of the following:
December 31 June 30
1999 1999
(In Thousands)
FHLB advances payable to FHLB
Pittsburgh, secured by all
FHLB stock and certain first
mortgage loans:
Short-term advances:
Due August 27, 1999, 5.12% $- $70,000
Due July 1, 1999, 5.57% - 14,400
Due January 1, 2000, 4.05% 22,600 -
Due January 7, 2000, 3.27% 200,000 -
222,600 84,400
Convertible select advances:
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 2009, conversion option date
2000, 5.09% 100,000 -
Due 2009, conversion option date
2002, 5.75% 25,000 -
Other advances:
Due 2008, 2.00% 278 285
Due 2024, 4.25% 718 727
398,596 110,412
Other borrowings:
Due 2000, libor plus 2.00% 15,000 -
Due 2004, 0.90% 31 -
Advance to ESOP
Due 2004, prime plus .75% 662 662
Repurchase agreements:
Due July 1, 1999, 3.60% - 2,888
Due January 1, 2000, 3.78% 4,262 -
$418,551 $113,962
Maturities of FHLB advances and other borrowings are as follows:
2000-$367,031,000; 2001-$25,170,000; 2002-$25,171,000; 2003-
$172,000; 2004-$173,000; thereafter-$834,000. The FHLB has the
option of converting the fixed rate convertible select advances
to a LIBOR adjustable rate advance 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.
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. The Association may increase its borrowing over
amounts currently available by purchasing additional FHLB stock.
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.
During the second quarter of fiscal 2000, the Corporation
obtained a demand line of credit with a commercial bank in the
amount of $15.0 million at LIBOR plus 2.00%, with a review of the
commitment on a semi-annual basis.
Note D -- Comprehensive Income
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial
statements that are displayed with the same prominence as other
financial statements, and also provides for footnote disclosure
of total comprehensive income in interim financial statements.
Total comprehensive income for the three months ended December
31, 1999 and 1998 was $0.8 million. Year to date total
comprehensive income was $1.4 million for 1999 compared to $3.5
million for 1998. Comprehensive income was lower for the six
months ended December 31, 1999 as compared to the same period in
1998 due to increased unrealized holding losses on securities.
Note E - Income Taxes
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
Six Months Fiscal Year
Ended Ended
December 31 June 30
1999 1999
Income tax expense at
federal statutory rate 35.0 % 35.0 %
Tax-exempt income (0.6) (0.3)
State income taxes, net
of federal benefit (1.7) 1.0
Federal tax credits (8.2) (1.3)
Other (0.5) (0.2)
Effective tax rate 24.0 % 34.2 %
Note F -- Recently Issued Accounting Guidance
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 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 SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133". This Statement is effective for
financial statements issued for all quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 137 is
not expected to have a material impact on the Corporation's
consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
YORK FINANCIAL CORP.
Financial Review
The purpose of this discussion is to provide additional
information about York Financial Corp. ("York Financial" or
"Corporation"), its financial condition and results of
operations. Readers of this report should refer to the
consolidated financial statements and other financial data
presented throughout this report to fully understand the
following discussion and analysis.
York Financial is a unitary savings and loan holding company
incorporated in Pennsylvania in September 1985 and in August 1986
became the sole stockholder of York Federal Savings and Loan
Association ("York Federal" or Association"), a federally
chartered stock savings and loan association. Presently, the
primary business of York Financial is the business of York
Federal. At December 31, 1999, the Corporation had consolidated
assets of $1.7 billion, total deposits of $1.1 billion and
stockholders' equity of $109.1 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 is primarily the result of
mortgage banking activities including gains on sales of mortgage-
backed securities and related value attributed to mortgage
servicing rights created from loan originations and service fee
income derived from the portfolio of loans serviced for others.
Other operating income also includes gains and losses on sales of
securities available for sale, gains and losses on sales of real
estate, equity in earnings (losses) of limited partnership
interests, and fees and service charges assessed on loan and
deposit transactions.
Interest Rate Sensitivity Management
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
December 31, 1999 and June 30, 1999, the Corporation had no off-
balance sheet derivative financial instruments.
Management utilizes an Asset/Liability Committee (ALCO), which
meets at least once a 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 were
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 evaluated on an ongoing basis to manage
interest rate risk levels include additional equity infusion to
York Federal, asset sales and extension of maturities of
borrowings.
The ALCO monitors the Association's interest rate risk position
utilizing simulation analysis. Net interest income fluctuations
and the net portfolio value ratio are determined in various
interest rate scenarios and monitored against acceptable
limitations established by management and approved by the Board
of Directors. Such rate scenarios include immediate rate shocks
adjusting rates in +/- 100 basis point (bp) increments resulting
in projected changes to net interest income over the next 12
months and projected net portfolio value ratios as indicated in
the following table.
An analysis of hypothetical changes in interest rates as of
December 31, 1999 compared to June 30, 1999 is as follows:
December 31,1999 June 30, 1999
Percentage Percentage
change in change in
Net Net Net Net
Basis Point interest portfolio interest portfolio
Change in income value income value
interest rates (1) ratio (2) (2) ratio (2)
300 (36.00%) 2.54% (14.00%) 4.70%
200 (22.00%) 4.11% (9.00%) 5.75%
100 (11.00%) 5.62% (4.00%) 6.69%
0 0.00% 7.00% 0.00% 7.49%
(100) 8.00% 9.00% 4.00% 8.15%
(200) 11.00% 8.97% 6.00% 8.41%
(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 as indicated in the preceding
table. This increase is due to the continuation of portfolio
lending and investment leverage strategies which were funded with
convertible advances and overnight borrowings resulting in
inherently more interest rate risk than previous periods combined
with an increase in market interest rates. 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 established limits at December 31,
1999.
Asset Quality
Management is aware of the risks inherent in lending and
continually monitors risk characteristics 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 risk
characteristics in the portfolio, past loss experience, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, current economic
conditions, and such other relevant factors which in management's
judgment deserve recognition. The allowance for loan losses
related to impaired loans was determined in accordance with SFAS
No. 114, as amended by SFAS No. 118. Actual losses or recoveries
are charged or credited directly to the allowance.
An analysis of the allowance for loan losses, for the periods
indicated is as follows:
Six Months Fiscal Year
Ended Ended
December 31 June 30
1999 1999
(Dollars in thousands)
Total allowance for loan losses
at beginning of period $10,803 $8,810
Loans charged-off:
Real estate - mortgage:
Residential 681 1,581
Commercial - 16
Consumer 190 397
Total charged-offs 871 1,994
Recoveries:
Real estate - mortgage:
Residential 79 325
Commercial 4 24
Consumer 15 6
Total recoveries 98 355
Net loans charged-off 773 1,639
Provision for loan losses 1,150 3,632
Total allowance for loan losses
at end of period $11,180 $10,803
Percentage of net charge-offs to
average loans outstanding
during the period 0.07% 0.18%
Percentage of allowance for loan
losses to adjusted total loans 0.95% 1.17%
The allowance for loan losses totaled $11.2 million or 0.95% of
adjusted total loans of $1.2 billion at December 31, 1999
compared to $10.8 million or 1.17% of adjusted total loans of
$920.0 million at June 30, 1999. Management believes the
allowance for loan loss is adequate relative to its assessment of
existing risk characteristics within the loan portfolio. While
management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based
on specific circumstances related to future problem loans,
increased risk due to a change in mix within the portfolio as
well as changes in economic conditions.
An analysis of nonperforming assets is summarized as follows:
December 31 June 30
1999 1999
(Dollars in thousands)
Loans accounted for on a
nonaccrual basis:
Real Estate-mortgage:
Residential $754 $870
Consumer - 49
Total nonaccrual loans 754 919
Accruing loans which are
contractually
past due 90 days or more:
Real estate-mortgage:
Residential 7,182 8,311
Consumer 800 823
Total of 90 days past due loans 7,982 9,134
Total of nonaccrual and 90 days
past due loans $8,736 $10,053
As a percent of total loans 0.75% 1.07%
Real estate owned:
Real estate acquired through
foreclosure or repossession
by loan type:
Real estate:
Residential $3,646 $4,571
Commercial 479 1,055
Land 1,085 1,319
Allowance for real estate losses 11) (45)
Total real estate owned $5,199 $6,900
As a percent of total assets 0.31% 0.51%
Total nonperforming assets $13,935 $16,953
As a percent of total assets 0.84% 1.24%
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.
Management recognizes the risk of potential reduction in value of
real estate owned during the holding period and provides for such
risk by maintaining an allowance for real estate losses (such
allowance is separate from and in addition to the allowance for
loan losses). For the six months ended December 31, 1999, net
charge-offs were $84,000 and additions to the allowance totaled
$50,000 resulting in a decrease in the allowance to $11,000 at
December 31, 1999. Management continually monitors the risk
profile of real estate owned and maintains an allowance for real
estate losses at a level believed adequate to absorb potential
losses within the real estate portfolio.
Liquidity
The primary purpose of asset/liability management is to maintain
adequate liquidity and a desired balance between interest-
sensitive assets and liabilities. Liquidity management focuses on
the ability to meet the cash flow requirements of customers
wanting to withdraw or borrow funds for their personal or
business needs. Interest rate sensitivity management focuses on
consistent growth of net interest income in times of fluctuating
interest rates. The management of liquidity and interest rate
sensitivity must be coordinated since decisions involving one may
influence the other.
Liquidity needs can be met by either reducing assets or
increasing liabilities. Sources of asset liquidity include short
term investments, securities available for sale, maturing and
repaying loans and monthly cash flows from mortgage-backed
securities. The loan portfolio provides an additional source of
liquidity due to York Federal's participation in the secondary
mortgage market. Liquidity needs can be met by attracting
deposits and utilizing borrowing arrangements with the FHLB of
Pittsburgh and the Federal Reserve Bank of Philadelphia for short
and long term advances as well as other short-term borrowings.
Deposits represent the Association's primary source of funds. The
Association does not rely on brokered deposits as a source of
funds. During the six months ended December 31, 1999, the
Association's deposits decreased $11.9 million. To supplement
deposit-gathering efforts, York Federal borrows from the FHLB of
Pittsburgh.
At December 31, 1999, York Federal had $399.0 million in FHLB
advances outstanding at a weighted average interest rate of
4.21%, an increase of $288.2 million for the first six months of
fiscal 2000. The Association was required to purchase additional
FHLB stock due to increased borrowings. Other borrowings also
increased for the first six months of fiscal 2000 to $20.0
million from $3.6 million for the same period in the prior year.
For additional details of FHLB advances and other borrowings,
refer to Note C of the Notes to Consolidated Financial
Statements.
Amortization and prepayments of loans and proceeds from loan and
securities sales represent a source of funds to York Federal.
These sources amounted to $198.1 million for the first six months
of fiscal 2000.
Generally, the principal use of funds is the origination of
mortgage and other loans. Early in the first six months of fiscal
2000, leverage strategies to effectively utilize available
capital were completed. These strategies resulted in expansion of
the investment portfolio through the purchase of available for
sale securities and increase in loan balances. The carrying value
of securities available for sale increased $50.7 million for the
first six months of fiscal 2000 from $295.7 million at June 30,
1999 to $346.0 million at December 31, 1999. Additionally, FHLB
stock increased $12.9 million during the first six months of
fiscal 2000 as a result of our increased borrowings.
Loan demand resulted in total originations of $419.6 million for
the period ended December 31, 1999. Loan originations were
obtained through various channels including the retail branch
system, commissioned mortgage origination staff, tele-mortgage
activity, expanded mortgage correspondent relationships and
Business Banking relationship managers. The volume of
originations was favorably impacted by the Association's pricing
strategies and a relatively low-rate interest rate environment.
A significant component of loan origination volume was
intermediate term mortgage products, for example, 5/1 CMT
adjustable rate loans (fixed rate for the first five years with
annual adjustments thereafter). During the six months ended
December 31, 1999, the loan portfolio increased $250.8 million to
$1.2 billion at December 31, 1999.
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. For the quarter ended December 31,
1999, the Association's liquidity level was 8.6%.
Capital
The management of capital provides the foundation for future
asset and profitability growth and is a major strategy in the
management of York Financial Corp. Stockholders' equity at
December 31, 1999, totaled $109.1 million compared to $110.4
million at June 30, 1999, a decrease of $1.3 million or 1.2%.
This decrease was primarily a result of the impact of unrealized
losses on "available for sale" securities, retirement of shares
related to a stock repurchase program and cash dividends paid,
partially offset by a combination of factors including current
earnings and issuance of shares in connection with various
benefit and dividend reinvestment plans.
An additional stock repurchase program to replace the previous
expired stock repurchase program was announced in August 1999.
The Board of Directors authorized the repurchase of 478,000
shares of common stock on the open market. Under the repurchase
plan, share purchases may be made from time to time depending on
market and business conditions for the following six month
period. During the six months ending December 31, 1999, 118,293
shares were repurchased and retired under the stock repurchase
programs.
OTS regulated thrifts must comply with various capital standards:
Tangible Capital. Generally, common stock plus retained earnings
must equal at least 1.5% of adjusted total assets.
Tier 1 (Core) Capital to total assets. Tangible capital plus
qualifying supervisory goodwill (arising from the purchase of a
troubled savings association) and other qualifying intangible
assets must equal at least 3.0% of adjusted total assets; 5.0% to
be deemed well capitalized.
Risk-Based Capital. Risk-based capital must equal at least 8.0%
of risk-weighted assets, as defined in the regulations; 10% to be
deemed well capitalized. The tier 1 (core) capital component of
risk-based capital, as defined above, must equal at least 6.0% of
risk weighted assets to be deemed well capitalized.
At December 31, 1999, York Federal's tangible and core capital
both equaled 7.2% ($118.9 million), substantially in excess of
the minimum regulatory requirements of 1.5% and 3.0%/5.0%,
respectively. York Federal's total assets do not include any
goodwill. York Federal's core capital to risk-weighted assets
equaled 12.1% ($118.9 million) at December 31, 1999, which
exceeds the required level of 6.0%. Finally, York Federal's risk-
based capital ratio equaled 13.2% ($129.1 million) at December
31, 1999 which exceeds the required level of 8.0% by $50.7
million, and exceeds the required level to be deemed well
capitalized of 10.0% by $31.1 million.
Transactions with Affiliates
Transactions with affiliates are limited to 10% of capital and
surplus per affiliate with an aggregate limit on all such
transactions with affiliates to 20% of capital and surplus. At
December 31, 1999 such transactions are within these regulatory
limits.
Results of Operations
Six months ended December 31, 1999 compared to December 31, 1998
Net Interest Income
York Financial's earnings are affected by the level of York
Federal's net interest income, the difference between the income
it receives on its loan portfolio and other investments, and its
cost of funds, consisting primarily of interest paid on deposits
and borrowings. Net interest income is affected by the average
yield on interest-earning assets, the average rate paid on
interest-bearing liabilities, and the ratio of interest-earning
assets to interest-bearing liabilities.
Net interest income for the six months ended December 31, 1999
was $18.9 million compared to $16.9 million for the same period
last year, which represents an 11.8% 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 lower cost of funds rate.
The margin on interest-earning assets decreased to 2.66% from
2.92% for the six months ended December 31, 1999 and 1998,
respectively.
During the six months ended December 31, 1999, York Federal
originated $419.6 million of loans including loans refinanced
from the Association's loan portfolio. The result of these
originations, when combined with mortgage securitizations and
sales totaling $30.0 million and loan repayment activity, was a
17.5% increase in average loans outstanding during the first six
months of fiscal 2000 as compared to the same period in the prior
year. The average balance of securities and other interest
earning assets increased $111.0 million over the same period last
year and results from the above mentioned secondary market
activity and the Corporation's leveraging strategy which was
supported by an increase in deposits of $32.2 million and
increased borrowings of $245.1 million over the same period in
the prior year. The resulting composition shift of the
Association's assets had a positive effect on interest income
although the yield on earning assets decreased 23 basis points to
7.15%. The average rate on interest-bearing liabilities decreased
to 4.74% as compared to 4.82% in the same period last year. The
lower rate on interest-bearing liabilities was as a result of the
ability to reprice our deposit products lower in a low-rate
interest rate environment partially offset by an increase in the
cost of funds for borrowings. The average rate paid on borrowings
increased to 5.38% as compared to 5.01% in the same period of
last year. The net effect caused the interest rate spread for the
current period to decrease to 2.41% from 2.56% in the same period
last year.
Provision for Loan Losses
Management is aware of the risks inherent in lending and
continually monitors risk characteristics of the loan portfolio.
See "Asset Quality".
Other Income
Other income was $2.7 million for the six months ended December
31, 1999, a decrease of $2.5 million from the six months ended
December 31, 1998.
The following table provides the components of mortgage banking
income:
Six Months Ended
December 31
1999 1998
(Dollars in thousands, unaudited)
Gain on sales of loans and
trading securities $391,000 $1,190,000
Unrealized gain on loans and
trading securities - 54,000
Loan servicing fee income,
net of amortization 415,000 117,000
Gain on sale of mortgage
servicing rights 15,000 -
$821,000 $1,361,000
Mortgage banking income for the six months ended December 31,
1999 decreased $540,000 to $821,000 or 39.7% as compared to the
same period in 1998. Included in mortgage banking income are gain
on sales of loans and unrealized gain on trading securities of
$391,000 for the six months ended December 31, 1999 compared to
$1,244,000 for the same period in 1998. Mortgage-backed
securities created in conjunction with the Association's mortgage
banking activities are deemed trading securities and are carried
at fair value with unrealized gains and losses reported in the
income statement. At December 31, 1999, there were no securities
held for trading.
The portfolio of loans serviced for others totaled $490.9 million
at December 31, 1999 with a net average servicing rate of
approximately 16.5 basis points as compared to $552.0 million at
December 31, 1998 with a net average servicing rate of
approximately 8.8 basis points. The increase in net servicing
rate is primarily attributable to the change in impairment
adjustments recorded as a result of changes in prepayment speeds
from year to year. Amortization of capitalized mortgage servicing
rights for the six months ended December 31, 1999 was $285,000
compared to $350,000 in the prior year and is recognized as a
reduction of gross servicing fee income. The combination of these
volume and rate changes caused net loan servicing fees for the
first six months of fiscal 2000 to increase to $415,000 from
$117,000 recognized in the same period for fiscal 1999.
Gain on the sale of available for sale securities totaled
$105,000 at December 31, 1999 as compared to $794,000 at December
31, 1998. During 1999, a FreddieMac (FHLMC) Preferred Stock
pairoff resulted in a gain of $105,000. The pairoff was initiated
by the broker and as a result of an inability to deliver the
security. During 1998, FannieMae (FNMA) introduced a program
which provided 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
portfolio loans 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 for the six months ended December 31,
1998.
Fees and service charges for the six months ended December 31,
1999 increased $365,000 or 19.6% to $2,190,000 as compared to
$1,825,000 in the same period in 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 $168.6 million for the first six months of fiscal
2000 as compared to the same period in the prior year. 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 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 and
partnerships. For the first six months of fiscal 2000, the loss
from these investments totaled $859,000 as compared to income of
$531,000 for the same period in fiscal 1999. The variance related
to joint ventures and partnerships is due primarily to the
following factors: (1) For the first six months of fiscal 2000,
losses of $602,000 on the venture capital partnership resulted
from the decreased market value of underlying portfolio
investments and operating losses compared to gains of $566,000 in
the same period of 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 the six months ended December 31,
1999, losses related to these partnerships amounted to $280,000
compared to losses of $40,000 for the same period in the prior
year.
Other operating income was $923,000 in the first six months of
fiscal 2000 as compared to $597,000 in the first six months of
fiscal 1999. As products and services become more fully
integrated within the retail branch system, related income
derived from discount brokerage and insurance units 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.
Other Expenses
Other expenses of $15.0 million increased $1,241,000 or 9.1% for
the six months ended December 31, 1999 as compared to the same
period in 1998.
Salaries and employee benefits for the six months ended December
31, 1999 increased $672,000 or 10.0% over the same period in 1998
and is attributable to a combination of the following factors:
annual adjustments through the salary administration program,
increased commissions related to affiliate brokerage and
insurance units and expenses related to a supplemental executive
retirement plan. The number of full time equivalent personnel at
December 31, 1999 was 405 compared to 406 at December 31, 1998.
Data processing increased $169,000 or 27.7% in fiscal 2000
compared to fiscal 1999 due to costs related to technology
purchases to enhance efficiency. Advertising cost increased
$283,000 or 49.2% for the six months ended December 31, 1999 as
compared to the same period in 1998, and is primarily
attributable to ongoing efforts to enhance customer and product
awareness through various media campaigns. Other expenses for the
six months ended December 31, 1999 increased $59,000 or 1.8%
compared to the same period in 1998, 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 $1,461,000 for the six months
ended December 31, 1999 represents an effective tax rate of 24.0%
as compared to 36.7% for the same period last year. For
additional details of Income Taxes, refer to Note E of the Notes
to Consolidated Financial Statements.
Other Matters
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. This milestone had generated
widespread concern over its potential impact on business
continuity. Historically, most computer programs were written
using two digits rather than four to designate the applicable
year. As a result, there had been anticipation whether computer
systems would recognize a date using "00" as the year 1900 rather
than the year 2000. This situation along with certain other date
issues has been referred to as the "Year 2000 Issue." These
situations could have caused a system failure or miscalculations
causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Year 2000 Issue was recognized by the Corporation as a
significant business issue and received intense management focus.
The majority of the Corporation's transaction processing is
provided by a third party processor. A Year 2000 project team was
organized and a comprehensive action plan designed to achieve
Year 2000 readiness. The project addressed not only computer and
technology areas but all areas of our business. There were
concerns that non-computer systems, which include embedded
technology could have been effected by the Year 2000 Issue if not
appropriately addressed. The action plan had five key project
phases: awareness, assessment, remediation, validation, and
implementation addressing systems for both the Corporation and
its third party processor. The five phases of the project and the
interface/integration testing between all key vendors and systems
were completed prior to December 31, 1999.
As part of the Year 2000 action plan, the Corporation initiated
formal communications with all of its significant vendors and
large customers to determine the extent to which its systems
would need to be modified or replaced or were vulnerable to those
third parties' failure to remediate their own Year 2000 issues.
While the Corporation has taken and will continue to take
appropriate actions to mitigate the risk of adverse consequences
associated with the failure of a third party to address these
issues, there can be no guarantee that the systems of third
parties won't have an adverse effect on York Financial. As a
precaution, the Corporation developed a comprehensive Year 2000
contingency plan and tested the plan for accuracy and consistency
between all mission critical applications and systems. The
testing of the plan was completed prior to September 30, 1999 as
mandated by all of the regulatory agencies.
To assist customers in understanding Year 2000 issues and to
inform them of the Corporation's actions for preparedness,
brochures outlining our Year 2000 initiatives were distributed to
all customers.
It has been difficult to isolate the incremental cost of the Year
2000 effort given that it impacts technical personnel already in
place in operational areas across our business as well as
possibly accelerating already planned technology investments.
However, such costs and related investments have been estimated
to total $320,000 and the timing of recognizing such costs has
not been considered to be material to any one fiscal period.
In order to prepare for possible customer demands for the Year
2000, we had accumulated approximately $5.0 million in excess
cash. After we passed the turn of the century, we reduced our
excess cash to normal levels within the first few weeks the new
year.
As the new year progresses, we will have our contingency plans in
effect on a continual basis to ensure that the remaining
milestones will not disrupt our normal day to day operations.
Effects of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact
on a financial institution's performance than does the effect of
inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and
services since such prices are affected by inflation. In the
current interest rate environment, the liquidity and maturity
structures of York Federal's assets and liabilities are critical
to the maintenance of acceptable performance levels.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual meeting of Stockholders of York Financial Corp.
was held October 21, 1999. Business transacted at the
meeting was as outlined in the Notice of Annual Meeting
and Proxy Statement dated September 21, 1999.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
York Financial Corp.
(Registrant)
Date February 11, 2000
/s/ Robert W. Pullo
Robert W. Pullo, President - Chief Executive Officer
Date February 11, 2000
/s/ James H. Moss
James H. Moss, Senior Vice President -
Chief Financial Officer/Treasurer