UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- ------------------------ Commission File Number: 0-22444 WVS Financial Corp. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1710500 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9001 Perry Highway Pittsburgh, Pennsylvania 15237 - ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) (412) 364-1911 ------------------------------------------------------------------------------- (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES [X] NO [ ] Shares outstanding as of November 12, 2002: 2,624,342 shares Common Stock, $.01 par value. WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- INDEX ----- PART I. Financial Information Page - ------- --------------------- ---- Item 1. Financial Statements Consolidated Statement of Financial Condition as of September 30, 2002 and June 30, 2002 (Unaudited) 3 Consolidated Statement of Income for the Three Months Ended September 30, 2002 and 2001 (Unaudited) 4 Consolidated Statement of Cash Flows for the Three Months Ended September 30, 2002 and 2001 (Unaudited) 5 Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended September 30, 2002 (Unaudited) 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended September 30, 2002 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 Item 4. Controls and Procedures 21 PART II. Other Information Page - -------- ----------------- ---- Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 22 Item 3. Defaults upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Certification of Chief Executive Officer 24 Certification of Chief Accounting Officer 25 2 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED) (In thousands) September 30, 2002 June 30, 2002 ------------------ ------------- Assets ------ Cash and due from banks $ 989 $ 879 Interest-earning demand deposits 2,198 2,298 Investment securities available-for-sale (amortized cost of $2,712 and $8,375) 2,834 8,426 Investment securities held-to-maturity (market value of $160,297 and $146,146) 156,682 142,958 Mortgage-backed securities available-for-sale (amortized cost of $5,795 and $6,196) 6,085 6,450 Mortgage-backed securities held-to-maturity (market value of $63,191 and $76,819) 62,298 76,093 Federal Home Loan Bank stock, at cost 8,394 8,281 Net loans receivable (allowance for loan losses of $2,776 and $2,758) 143,616 152,905 Accrued interest receivable 3,520 3,903 Premises and equipment 985 996 Deferred taxes and other assets 1,469 1,722 --------- --------- TOTAL ASSETS $ 389,070 $ 404,911 ========= ========= Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Savings Deposits: Non-interest-bearing accounts $ 16,212 $ 12,615 NOW accounts 19,544 20,872 Savings accounts 41,130 41,620 Money market accounts 14,229 14,843 Certificates of deposit 84,039 84,709 --------- --------- Total savings deposits 175,154 174,659 Federal Home Loan Bank advances 159,937 159,937 Other borrowings 19,139 33,731 Advance payments by borrowers for taxes and insurance 940 3,013 Accrued interest payable 1,745 1,698 Other liabilities 1,668 1,620 --------- --------- TOTAL LIABILITIES 358,583 374,658 Stockholders' equity: Preferred stock: 5,000,000 shares, no par value per share, authorized; none outstanding --- --- Common stock: 10,000,000 shares, $.01 par value per share, authorized; 3,730,258 and 3,729,858 shares issued 37 37 Additional paid-in capital 20,039 20,037 Treasury stock: 1,078,472 and 1,051,872 shares at cost, respectively (15,556) (15,133) Retained earnings, substantially restricted 25,757 25,183 Accumulated other comprehensive income 272 201 Unallocated shares - Recognition and Retention Plans (62) (72) --------- --------- TOTAL STOCKHOLDERS' EQUITY 30,487 30,253 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 389,070 $ 404,911 ========= ========= See accompanying notes to consolidated financial statements. 3 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share data) Three Months Ended September 30, ------------------- 2002 2001 ---- ---- INTEREST AND DIVIDEND INCOME: Loans $ 2,809 $ 3,551 Investment securities 1,742 1,882 Mortgage-backed securities 808 975 Interest-earning deposits with other institutions 4 4 Federal Home Loan Bank stock 69 139 ---------- ---------- Total interest and dividend income 5,432 6,551 ---------- ---------- INTEREST EXPENSE: Deposits 959 1,608 Borrowings 2,223 2,245 Advance payments by borrowers for taxes and insurance 6 6 ---------- ---------- Total interest expense 3,188 3,859 ---------- ---------- NET INTEREST INCOME 2,244 2,692 PROVISION FOR LOAN LOSSES 18 37 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,226 2,655 ---------- ---------- NON-INTEREST INCOME: Service charges on deposits 100 104 Gain on sale of investments 64 --- Other 79 69 ---------- ---------- Total non-interest income 243 173 ---------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits 601 627 Occupancy and equipment 89 89 Deposit insurance premium 7 8 Data processing 49 45 Correspondent bank service charges 40 44 Other 334 163 ---------- ---------- Total non-interest expense 1,120 976 ---------- ---------- INCOME BEFORE INCOME TAXES 1,349 1,852 INCOME TAXES 349 611 ---------- ---------- NET INCOME $ 1,000 $ 1,241 ========== ========== EARNINGS PER SHARE: Basic $ 0.38 $ 0.45 Diluted $ 0.37 $ 0.45 AVERAGE SHARES OUTSTANDING: Basic 2,661,933 2,753,358 Diluted 2,667,220 2,763,744 See accompanying notes to consolidated financial statements. 4 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands) Three Months Ended September 30, -------------------- 2002 2001 ---- ---- OPERATING ACTIVITIES Net income $ 1,000 $ 1,241 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan and real estate owned losses 33 37 Gain on sale of investments (64) --- Depreciation and amortization, net 29 29 Amortization of discounts, premiums and deferred loan fees 841 (120) Amortization of ESOP, RRP and deferred and unearned compensation 10 22 Decrease in accrued interest receivable 383 875 Increase (decrease) in accrued interest payable 47 (152) Increase in accrued and deferred taxes 66 635 Other, net (5) (117) -------- -------- Net cash provided by operating activities 2,340 2,450 -------- -------- INVESTING ACTIVITIES Available-for-sale: Purchases of investments and mortgage-backed securities (1,381) (2,073) Proceeds from repayments of investments and mortgage-backed securities 6,901 486 Proceeds from sale of investments and mortgage-backed securities 610 --- Held-to-maturity: Purchases of investments and mortgage-backed securities (24,030) (44,383) Proceeds from repayments of investments and mortgage-backed securities 23,319 72,742 Decrease in net loans receivable 9,209 6,587 Sale of real estate owned 190 5 Increase in FHLB stock (113) (37) Purchases of premises and equipment (18) (87) -------- -------- Net cash provided by investing activities 14,687 33,240 -------- -------- 5 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands) Three Months Ended September 30, -------------------- 2002 2001 ---- ---- FINANCING ACTIVITIES Net increase in transaction and passbook accounts 1,165 186 Net decrease in certificates of deposit (670) (7,055) Net decrease in FHLB advances --- (5,837) Net decrease in other borrowings (14,592) (19,660) Net decrease in advance payments by borrowers for taxes and insurance (2,073) (2,176) Net proceeds from issuance of common stock 2 38 Funds used for purchase of treasury stock (423) (140) Cash dividends paid (426) (441) ------- ------- Net cash used for financing activities (17,017) (35,085) ------- ------- Increase in cash and cash equivalents 10 605 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,177 2,993 ------- ------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,187 $ 3,598 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest on deposits, escrows and borrowings $ 3,141 $ 4,011 Income taxes $ 320 $ 20 See accompanying notes to consolidated financial statements. 6 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands) Accumulated Retained Additional Unallocated Unallocated Other Compre- Earnings Common Paid-In Treasury Shares Held Shares Held hensive Substantially Stock Capital Stock by ESOP by RRP Income Restricted Total ----- ------- ----- ------- ------ ------ ---------- ----- Balance at June 30, 2002 $ 37 $ 20,037 $(15,133) $ --- $ (72) $ 201 $ 25,183 $ 30,253 Comprehensive income: Net Income 1,000 1,000 Other comprehensive income: Change in unrealized holding gains on securities, net of income tax effect of $36 71 71 --------- Comprehensive income 1,071 Purchase of shares for treasury stock (423) (423) Accrued compensation expense for Recognition and Retention Plans (RRP) 10 10 Exercise of stock options 2 2 Cash dividends declared ($0.16 per share) (426) (426) -------- -------- -------- ----- -------- -------- -------- -------- Balance at Sept. 30, 2002 $ 37 $ 20,039 $(15,556) $ --- $ (62) $ 272 $ 25,757 $ 30,487 ======== ======== ======== ===== ======== ======== ======== ======== See accompanying notes to consolidated financial statements. 7 WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three months ended September 30, 2002, are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- On October 1, 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 147, Acquisitions of Certain Financial Institutions, effective for all business combinations initiated after October 1, 2002. This Statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. This Statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method. The acquisition of all or part of a financial institution that meets the definition of a business combination shall be accounted for by the purchase method in accordance with FAS No. 141, Business Combinations, and FAS No. 142, Goodwill and Other Intangible Assets. This Statement also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets (such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets), including those acquired in transactions between two or more mutual enterprises. The adoption of FAS No. 147 is not expected to have a material effect on the Company's financial position or results of operations. 8 3. EARNINGS PER SHARE ------------------ The following table sets forth the computation of basic and diluted earnings per share. Three Months Ended September 30, ---------------------- 2002 2001 ---- ---- Weighted average common shares outstanding 3,729,910 3,710,677 Average treasury stock shares (1,067,977) (957,319) Average unearned ESOP shares --- --- ----------- ----------- Weighted average common shares and common stock equivalents used to calculate basic earnings per share 2,661,933 2,753,358 Additional common stock equivalents (stock options) used to calculate diluted earnings per share 5,287 10,386 ----------- ----------- Weighted average common shares and common stock equivalents used to calculate diluted earnings per share 2,667,220 2,763,744 =========== =========== Net income $ 999,845 $ 1,240,538 =========== =========== Earnings per share: Basic $ 0.38 $ 0.45 Diluted $ 0.37 $ 0.45 4. COMPREHENSIVE INCOME -------------------- Other comprehensive income primarily reflects changes in net unrealized gains/losses on available for sale securities. Total comprehensive income is summarized as follows (dollars in thousands): Three Months Ended September 30, ----------------------- 2002 2001 ---- ---- Net Income $1,000 $1,241 Other comprehensive income: 71 85 ------ ------ Total comprehensive income $1,071 $1,326 ====== ====== 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 FORWARD LOOKING STATEMENTS When used in this Form 10-Q or, in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to forward looking statements to reflect events or circumstances after the date of statements or to reflect the occurrence of anticipated or unanticipated events. GENERAL WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of West View Savings Bank ("West View" or the "Savings Bank"). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993. West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at September 30, 2002. The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Company's net income is also affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs. The Company's strategy focuses on community-based lending, growth of core deposits, capital management, maintaining strong non-interest expense ratios and steadily increasing book value per share. 10 FINANCIAL CONDITION The Company's assets totaled $389.1 million at September 30, 2002, as compared to $404.9 million at June 30, 2002. The $15.8 million or 3.9% decrease in total assets was primarily comprised of a $9.3 million or 6.1% decrease in net loans receivable, a $5.9 million or 2.4% decrease in investment and mortgage-backed securities, including FHLB Stock, a $383 thousand or 9.8% decrease in accrued interest receivable, and a $205 thousand or 87.2% decrease in real estate owned. The Company's total liabilities decreased $16.1 million or 4.3% to $358.6 million as of September 30, 2002, from $374.7 million as of June 30, 2002. The $16.1 million decrease in total liabilities was primarily comprised of a $14.6 million or 43.3% decrease in other borrowings, and a $2.1 million or 68.8% decrease in advance payments by borrowers for taxes and insurance due to the seasonal payment of local real estate taxes, which were partially offset by a $495 thousand or 0.3% increase in total savings deposits. Total stockholders' equity increased $234 thousand or 0.8% to $30.5 million as of September 30, 2002, from $30.3 million as of June 30, 2002. Capital expenditures for the Company's stock repurchase program and cash dividends totaled $423 thousand and $426 thousand, respectively, which were entirely funded by net income of $1.0 million for the three months ended September 30, 2002. RESULTS OF OPERATIONS General. WVS reported net income of $1.0 million, or $0.37 diluted earnings per share for the three months ended September 30, 2002. Net income decreased by $241 thousand or 19.4% and diluted earnings per share decreased $0.08 or 17.8% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease in net income was primarily attributable to a $448 thousand decrease in net interest income, and a $144 thousand increase in non-interest expense, which were partially offset by a $262 thousand decrease in income tax expense, a $70 thousand increase in non-interest income, and a $19 thousand decrease in provisions for loan losses. Net Interest Income. The Company's net interest income decreased by $448 thousand or 16.6% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease in net interest income was primarily attributable to lower rates earned on Company assets due to lower market interest rates which was partially offset by lower rates paid on deposits and borrowings. The Company experienced higher levels of repayments on its loan, investment and mortgage-backed securities portfolios due to refinancing activities. Interest Income. Interest on net loans receivable decreased by $742 thousand or 20.9% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease was attributable to a decrease of $34.3 million in the average balance of net loans receivable outstanding and a decrease of 24 basis points in the weighted average yield earned on net loans receivable for the three months ended September 30, 2002, when compared to the same period in 2001. The decreases in the average loan balance outstanding for the three months ended September 30, 2002, was primarily attributable to an increased level of mortgage prepayments and refinancings due to lower market rates on mortgages. As part of its asset/liability management strategy, the Company has limited its origination of longer-term fixed rate loans to mitigate its exposure to a rise in market interest rates. Interest and dividend income on interest-bearing deposits with other institutions, investment securities and FHLB stock ("other investment securities") decreased by $210 thousand or 10.4% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease was primarily attributable to a 202 basis point decrease in the weighted average yield earned on investment securities which was partially offset by a $38.7 million increase in the average balance of investment securities outstanding for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease in the weighted average yield earned was consistent with market conditions for the three months ended September 30, 2002. The increase in the average balance of investment securities 11 during the three month period ended September 30, 2002 was principally attributable to the reinvestment of a portion of its loan payment proceeds into shorter-term corporate bonds. Interest on mortgage-backed securities ("MBS") decreased by $167 thousand or 17.1% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease was attributable to a 213 basis point decrease in the weighted average yield earned on mortgage-backed securities, which was partially offset by a $15.9 million increase in the average balance of mortgage-backed securities for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease in the weighted average yield earned on mortgage-backed securities was consistent with market conditions for the three months ended September 30, 2002 and reflects the higher proportion of floating rate MBS in the portfolio. The increase in the average balance of mortgage-backed securities during the three month period ended September 30, 2002 was principally attributable to the reinvestment of a portion of its loan payment proceeds into floating rate MBS. Interest Expense. Interest expense on deposits and escrows decreased by $649 thousand or 40.4% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease in interest expense on deposits and escrows was principally attributable to a 152 basis point decrease in the average yield paid on deposits and escrows, and a $3.2 million decrease in the average balance of interest-bearing deposits and escrows for the three months ended September 30, 2002, when compared to the same period in 2001. The average yield paid on interest-bearing deposits was consistent with market conditions for the three months ended September 30, 2002. Interest expense on FHLB advances and other borrowings decreased by $22 thousand or 1.0% for the three months ended September 30, 2002, when compared to the same period in 2001. The decrease was primarily attributable to a 70 basis point decrease in the weighted average rate paid on such borrowings for the three months ended September 30, 2002 which was partially offset by a $22.1 million increase in the average balance of such borrowings outstanding during the three months ended September 30, 2002. The increase in borrowings outstanding was primarily to fund purchases of investments and mortgage-backed securities. The weighted average rate paid declined less than deposits due to the longer average maturity of the Company's FHLB advances outstanding. Provision for Loan Losses. A provision for loan losses is charged to earnings to maintain the total allowance at a level considered adequate by management to absorb potential losses in the portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors. The Company recorded a $18 thousand provision for possible losses on loans for the three months ended September 30, 2002, compared to $37 thousand for the same period in 2001. At September 30, 2002, the Company's total allowance for loan losses amounted to $2.8 million or 1.9% of the Company's total loan portfolio, as compared to $2.8 million or 1.5% at September 30, 2001. The Company believes that the additional loan loss reserves are prudent and warranted at this time due to the weakening of the national economy. Non-Interest Income. Total non-interest income increased by $70 thousand or 40.5% for the three months ended September 30, 2002, when compared to the same period in 2001. The increase in non-interest income for the three months ended September 30, 2002, was primarily attributable to sales of investments from the Company's investment portfolio. Non-Interest Expense. Total non-interest expense increased $144 thousand or 14.8% for the three months ended September 30, 2002 when compared to the same period in 2001. The increase was primarily attributable to a $111 thousand increase in charitable contributions for local educational programs, a $23 thousand increase in legal expenses, and a $15 thousand increase in the provision for losses on real estate owned, which were partially offset by a decrease of $26 thousand in employee salaries and benefits, when compared to the same period in 2001. Income Taxes. Income tax expense decreased $262 thousand or 42.9% for the three months ended September 30, 2002 when compared to the same period in 2001. The decrease was attributable to a $100 thousand Pennsylvania tax credit associated with the previously mentioned charitable contributions and lower levels of taxable income. 12 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaled $2.3 million during the three months ended September 30, 2002. Net cash provided by operating activities was primarily comprised of $1.0 million of net income, $841 thousand in amortization of discounts, premiums and deferred loan fees, and a $383 thousand decrease in accrued interest receivable. Funds provided by investing activities totaled $14.7 million during the three months ended September 30, 2002. Primary sources of funds during the three months ended September 30, 2002, included $30.2 million of proceeds from repayments of investment and mortgage-backed securities, a $9.2 million decrease in net loans receivable, and $610 thousand of proceeds from the sale of investment securities, which were partially offset by $25.4 million for purchases of investments and mortgage-backed securities, including Federal Home Loan Bank stock. Funds used for financing activities totaled $17.0 million for the three months ended September 30, 2002. The primary financial use included a $14.6 million decrease in other short-term borrowings, a $1.6 million decrease in deposits and escrows, $426 thousand in cash dividends paid on the Company's common stock, and $423 thousand in purchased treasury stock. Management believes that it currently is maintaining adequate liquidity and continues to better match funding sources with lending and investment opportunities. During the quarter ended September 30, 2002, the Company incurred $74.7 million in other borrowings with a weighted average rate of 1.81%. During the three months ended September 30, 2002, the Company repaid $89.3 million of other borrowings. The Company's primary sources of funds are deposits, amortization, prepayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. At September 30, 2002, the total approved loan commitments outstanding amounted to $575 thousand. At the same date, commitments under unused lines of credit amounted to $6.9 million and the unadvanced portion of construction loans approximated $9.2 million. Certificates of deposit scheduled to mature in one year or less at September 30, 2002, totaled $56.1 million. Management believes that a significant portion of maturing deposits will remain with the Company. Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances and other borrowings, to provide the cash utilized in investing activities. The Company has access to the Federal Reserve Bank discount window. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands. On October 29, 2002, the Company's Board of Directors declared a cash dividend of $0.16 per share payable November 14, 2002, to shareholders of record at the close of business on November 4, 2002. Dividends are subject to determination and declaration by the Board of Directors, which take into account the Company's financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the Common Stock or that, if paid, such dividends will not be reduced or eliminated in future periods. As of September 30, 2002, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $30.2 million or 13.3% and $33.0 million or 14.6%, respectively, of total risk-weighted assets, and Tier I leverage capital of $30.2 million or 7.59% of average quarterly assets. 13 Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan. The Company's nonperforming assets at September 30, 2002, totaled approximately $4.7 million or 1.2% of total assets as compared to $5.3 million or 1.3% at June 30, 2002. Nonperforming assets at September 30, 2002, consisted of: five commercial real estate loans totaling $3.6 million, two construction and land development loans totaling $578 thousand, two single-family loans totaling $411 thousand, one commercial loan totaling $26 thousand, and two residential lots carried as real estate owned totaling $30 thousand. The $394 thousand decrease in non-accrual loans during the quarter ended September 30, 2002 was comprised of a $419 thousand decrease in construction and land development loans, a $172 thousand decrease in commercial loans, and a $171 thousand decrease in single-family loans, which were partially offset by a $368 thousand increase in commercial real estate loans. The land acquisition and development loan classified as non-accrual at June 30, 2002 was released by the Bankruptcy Court and sold in July 2002. The Savings Bank recovered the full principal balance plus approximately $36 thousand in previously unaccrued interest. As of June 30, 2002 the Company had one non-accruing commercial loan with a principal balance of $198 thousand. The loan is secured by various commercial business assets including photographic equipment and a truck along with the personal guarantees of both owners. In July 2002, the Company entered into a loan work-out that provided for reduced monthly loan payments in exchange for the pledging of additional unrelated business assets. The revised payment plan went into effect in August 2002 and the borrowers are performing under the modified terms, therefore the loan is no longer classified as non-accrual. As of September 30, 2002, the Company had five commercial real estate loans classified as non-accrual loans. One of the commercial real estate loans is secured by a restaurant and real estate located in Wexford, PA. The outstanding principal balance of this loan totals $189 thousand and is part of a court supervised bankruptcy plan. In brief, the original bankruptcy plan called for payments in excess of the original loan terms to cure the deficiency within the next three years. During the quarter ended June 30, 2002, the original court appointed disbursing agent stopped making payments and is being investigated by the U.S. Attorney's Office for bankruptcy fraud and money laundering. On July 31, 2002 the United States Bankruptcy Court for the Western District of Pennsylvania appointed a successor disbursing agent for the limited purpose of disbursing funds currently held in escrow (rent payments) as well as regularly scheduled payments due under the plan. The Savings Bank has not modified the original terms of this loan and we are presently providing a loan accounting to the successor disbursing agent. The Company has one non-accrual commercial real estate loan, and one non-accrual construction loan, to a retirement village located within the North Hills area. Both loans became delinquent in fiscal 2000. The outstanding principal balances total $3.8 million of which $2.6 million is owned by the Company and the remaining $1.2 million is serviced by the Company for four participating lenders. Prior to January 2002, the borrower had been paying $15 thousand per month towards curing the arrearages. See Part II - Other Information - Item #1, "Legal Proceedings". As of the date of this Quarterly Report on Form 10-Q, the Savings Bank and the debtor are working towards a final work-out of these credits prior to a Court review of the Petition for Enforcement of Assignment of Rents and for Supplementary Aid of Execution during November 2002. The Company has one non-accruing commercial real estate loan, with a principal balance of $980 thousand, to a personal care home that was originally part of the two retirement village loans discussed above. Due to the low occupancy of the personal care home, and the related cash drain on the retirement 14 village, the Savings Bank "carved out" approximately $1 million of loan debt from the retirement village, assigned that $1 million in debt to the personal care home, and allowed one of the obligors - a geriatric physician - to separately own and operate the personal care home as a separate facility. The borrower was in compliance with a written loan work-out agreement until February 2002. Sporadic payments have been received since March 2002. The borrower alleges insufficient operating cash, along with the loss of other income, to service the debt. The Savings Bank also holds three other loans, totaling $366 thousand, secured by pledges of various real estate and chattel, to this same borrower which were non-accrual as of September 30, 2002. During the quarter ended September 30, 2002, the Company began legal proceedings against the debtors. Legal proceedings at this point are preliminary and the Company is exploring work-out options with legal counsel. As of September 30, 2002, the Company had one non-accruing commercial loan with a principal balance of $26 thousand. This loan is unsecured and is in the process of collection. The Company had two non-accrual single-family loans at September 30, 2002 which totaled $411 thousand. These loans are in the process of collection. Real estate owned, at September 30, 2002, totaled $30 thousand and was comprised of two undeveloped residential lots. In August 2002 the Company entered into a sales agreement to sell the two lots and recorded a $15 thousand loss provision. In October 2002, the two undeveloped residential lots were sold with the Company realizing proceeds of approximately $30 thousand. During the three months ended September 30, 2002, the Company collected and recognized approximately $11 thousand in past due interest on its nonperforming loans. Approximately $89 thousand of additional interest income would have been recorded during the three months ended September 30, 2002, if the Company's nonaccrual and restructured loans had been current in accordance with their original loan terms and outstanding throughout the three months ended September 30, 2002. The Company continues to work with the borrowers in an attempt to cure the defaults and is also pursuing various legal avenues in order to collect on these loans. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ASSET AND LIABILITY MANAGEMENT The Company's primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Company's transactions are denominated in US dollars with no specific foreign exchange exposure. The Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be exogenous and will be analyzed on an ex post basis. -- ---- Interest rate risk ("IRR") is the exposure of a banking organization's financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value, however, excessive levels of IRR can pose a significant threat to the Company's earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company's safety and soundness. Evaluating a financial institution's exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization's quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution's assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution's interest expense on its liabilities may not be sufficiently offset if assets continue to earn interest at the long-term fixed rates. Accordingly, an institution's profits could decrease on existing assets because the institution will either have lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment. During the quarter ended September 30, 2002, the level of market interest rates remained at relatively low levels due to the Federal Reserve's accommodative monetary policy and the weakness in the national economy. The marked decline in equity market prices and reduced corporate earnings have caused a considerable disintermediation from the equity to the fixed income markets, further compounding the decline in market interest rates across the yield curve. Due to the rapid decline in market interest rates, the Company's loan, investment and mortgage-backed securities portfolios experienced much higher then anticipated levels of prepayments. Principal repayments on the Company's loan, investment and mortgage-backed securities portfolios for the quarter ended September 30, 2002, totaled $15.8 million, $16.5 million and $14.2 million respectively. In response to higher levels of liquidity the Company began to rebalance its loan, investment and mortgage-backed securities portfolios. Due to the low level of market interest rates, the Company began to reduce its originations of long-term fixed rate mortgages while continuing to offer consumer home equity and construction loans. The Company's commercial loan exposure was also reduced in recognition of the weaknesses in the national and local economies. The Company began to purchase investment grade commercial paper and corporate bonds in order to earn a higher return with a shorter maturity profile and to reduce the prepayment risk within the portfolio. Each of the aforementioned strategies also helped to improve the interest-rate and liquidity risks associated with the Savings Bank's customers' liquidity preference for shorter term deposit products. The Company also makes available for origination residential mortgage loans with interest rates which adjust pursuant to a designated index, although customer acceptance has been somewhat limited in the Savings 16 Bank's market area. The Company will continue to selectively offer commercial real estate, land acquisition and development, and shorter-term construction loans, primarily on residential properties, to partially increase its loan asset sensitivity. The Company intends to emphasize higher yielding home equity and small business loans to existing customers and seasoned prospective customers. During the quarter ended September 30, 2002, principal investment purchases were comprised of: investment grade corporate bonds - $20.9 million with a weighted average yield of approximately 3.47%; investment grade commercial paper - - $3.6 million with a weighted average yield of approximately 2.10%; and corporate equity securities - $867 thousand. Major investment proceeds received during the quarter ended September 30, 2002 were: investment grade commercial paper - $6.5 million with a weighted average yield of approximately 2.64%; callable government agency bonds - $3.5 million with a weighted average rate of approximately 5.94%; and investment grade corporate bonds - $4.0 million with a weighted average yield of approximately 3.33%. In most cases, the initial spread earned on investment security purchases averaged approximately 165.6 basis points. As of September 30, 2002, the implementation of these asset and liability management initiatives resulted in the following: 1) the Company's liquidity profile has improved by reducing the investment portfolio's stated final maturities as follows: less than 1 year: $66.4 million or 29.1%; 1-3 years: $12.4 million or 5.5%; 3-5 years: $0 million or 0.0%; over 5 years: $149.1 million or 65.4%; 2) $49.8 million or 73.1% of the Company's portfolio of mortgage-backed securities (including collateralized mortgage obligations - "CMOs") were secured by floating rate securities; 3) the maturity distribution of the Company's borrowings is as follows: less than 1 year: $30.1 million or 16.8%; 1-3 years: $279 thousand or 0.2%; 3-5 years: $4.2 million or 2.3%; over 5 years: $144.5 million or 80.7%; and 4) an aggregate of $40.2 million or 28.0% of the Company's net loan portfolio had adjustable interest rates or maturities of less than 12 months. The effect of interest rate changes on a financial institution's assets and liabilities may be analyzed by examining the "interest rate sensitivity" of the assets and liabilities and by monitoring an institution's interest rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within a given time period. A gap is considered positive (negative) when the amount of rate sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities (assets). During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income. 17 The following table sets forth certain information at the dates indicated relating to the Company's interest-earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within one year. September 30, June 30, ------------- -------- 2002 2002 2001 ---- ---- ---- (Dollars in Thousands) Interest-earning assets maturing or repricing within one year $ 237,309 $ 252,467 $ 155,928 Interest-bearing liabilities maturing or repricing within one year 127,244 142,823 137,232 --------- --------- ---------- Interest sensitivity gap $ 110,065 $ 109,644 $ 18,696 ========= ========= ========== Interest sensitivity gap as a percentage of total assets 28.3% 27.1% (4.7)% Ratio of assets to liabilities maturing or repricing within one year 186.5% 176.8% 113.6% During the quarter ended September 30, 2002, the Company managed its one year interest sensitivity gap by: (1) reducing the amount of short-term borrowings and (2) generally limiting incremental corporate bond purchases to those with repricing dates within 2 years. 18 The following table illustrates the Company's estimated stressed cumulative repricing gap - the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time - at September 30, 2002. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points. Cumulative Stressed Repricing Gap --------------------------------- Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term ------- ------- -------- -------- -------- -------- --------- (Dollars in Thousands) Base Case Up 200 bp - ------------------- Cummulative Gap ($'s) 62,886 90,713 98,699 101,248 104,659 87,132 25,593 % of Total Assets 16.1% 23.3% 25.3% 26.0% 26.9% 22.4% 6.6% Base Case Up 100 bp - ------------------- Cummulative Gap ($'s) 63,983 92,724 102,017 106,587 115,538 102,489 25,593 % of Total Assets 16.4% 23.8% 26.2% 27.4% 29.7% 26.3% 6.6% Base Case No Change - ------------------- Cummulative Gap ($'s) 70,003 99,935 110,065 114,852 122,801 108,668 28,332 % of Total Assets 18.0% 25.7% 28.3% 29.5% 31.5% 27.9% 7.3% Base Case Down 100 bp - ------------------- Cummulative Gap ($'s) 68,908 99,040 109,244 113,516 121,433 107,069 25,593 % of Total Assets 17.7% 25.4% 28.1% 29.2% 31.2% 27.5% 6.6% Base Case Down 200 bp - ------------------- Cummulative Gap ($'s) 69,837 100,436 110,690 115,391 123,264 108,384 25,593 % of Total Assets 17.9% 25.8% 28.4% 29.6% 31.7% 27.8% 6.6% Beginning in the third quarter of fiscal 2001, the Company began to utilize an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to more accurately estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company's loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company's borrowings. 19 The following table presents the simulated impact of a 100 and 200 basis point upward or downward shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at September 30, 2002. Analysis of Sensitivity to Changes in Market Interest Rates ----------------------------------------------------------- Modeled Change in Market Interest Rates ----------------------------------------------------------------------------------------- Estimated impact on: -200 -100 0 +100 +200 - -------------------- Change in net interest income -20.6% -11.9% 0.0% 10.4% 16.6% Return on average equity 7.58% 9.24% 11.46% 13.38% 14.52% Return on average assets 0.59% 0.72% 0.90% 1.06% 1.15% Market value of equity (in thousands) $18,781 $19,952 $21,089 $20,911 $20,489 The table below provides information about the Company's anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed letters and lines of credit. The Company used no derivative financial instruments to hedge such anticipated transactions as of September 30, 2002. Anticipated Transaction - ------------------------------------------------------------------ (Dollars in Thousands) Undisbursed construction and land development loans Fixed rate $ 3,920 6.98% Adjustable rate $ 5,278 5.75% Undisbursed lines of credit Adjustable rate $ 6,944 5.37% Loan origination commitments Fixed rate $ 360 6.81% Adjustable rate $ 215 5.55% Letters of credit Adjustable rate $ 82 7.75% ------- $16,799 ======= 20 ITEM 4. CONTROLS AND PROCEDURES Within 90 days prior to the date of this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the Company's disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are the controls and other procedures of the Company that are designed to ensure that the information required to be disclosed by the Company in its reports filed or submitted under the Securities Exchange Act of 1934, as amended ("Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company's management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 21 ITEM 1. Legal Proceedings ------------------ The Savings Bank filed a Complaint in Mortgage Foreclosure (the "Foreclosure") in March 2000 against the Development Group of Rose Valley (the "Obligor"), an obligor on two previously disclosed impaired and non-accrual loans. The Foreclosure was filed in the Court of Common Pleas of Allegheny County, Pennsylvania to request a judicial sale of the underlying real properties securing the mortgage loans due to nonpayment as per the terms of the mortgage notes. In November 2001, the Obligor filed an Answer, New Matter and Counterclaim to the Foreclosure. The counterclaims include breach of contract, promissory estoppel, breach of duty of good faith and fair dealing and tortuous interference with prospective and existing business relations and seeks damages of approximately $5.2 million. In January 2002, the Court dismissed the tortuous interference claim. The Company believes the remaining counterclaims are without merit. The Company anticipates a January 2003 trial date for the Foreclosure. In April 2002, the Savings Bank filed a Petition for Enforcement of Assignment of Rents and for Supplementary Aid of Execution. This Petition seeks to sequester $25 thousand per month to adequately protect the Savings Bank's interest in the loan during the pending litigation and any possible workout. The discovery phase of the Petition is substantially complete. During the quarter ended September 30, 2002, the Savings Bank and the Obligor have made considerable progress in resolving this credit. In light of this progress, the Savings Bank and the Obligor have extended the Court reviewed date for the Petition to November 2002 to allow time for negotiations to continue. ITEM 2. Changes in Securities and Use of Proceeds ----------------------------------------- Not applicable. ITEM 3. Defaults Upon Senior Securities ------------------------------- Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. ITEM 5. Other Information ----------------- Not applicable. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following exhibits are filed as part of this Form 10-Q, and this list includes the Exhibit Index. Number Description Page ------ ----------- ---- 99-1 Sarbanes-Oxley Act Certification of Chief Executive Officer E-1 99-2 Sarbanes-Oxley Act Certification of Chief Accounting Officer E-2 99-3 Independent Accountant's Report E-3 (b) The Company filed a current Report on Form 8-K, dated September 30, 2002, reporting under Item 5 that the Company filed its Annual Report on Form 10-K for the year ended June 30, 2002. The Company included as exhibits to the Form 8-K the Certifications of its Chief Executive and Chief Accounting Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 22 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. WVS FINANCIAL CORP. November 14, 2002 BY: /s/ David J. Bursic --------------------------------------------- Date David J. Bursic President and Chief Executive Officer (Principal Executive Officer) November 14, 2002 BY: /s/ Keith A. Simpson --------------------------------------------- Date Keith A. Simpson Vice-President and Chief Accounting Officer 23 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER I, David J. Bursic, certify that: 1. I have reviewed this quarterly report on Form 10-Q of WVS Financial Corp. (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and Audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ David J. Bursic ------------------------------------- David J. Bursic President and Chief Executive Officer 24 SECTION 302 CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER I, Keith A. Simpson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of WVS Financial Corp. (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and Audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Keith A. Simpson ------------------------------------------- Keith A. Simpson Vice-President and Chief Accounting Officer 25