W
V
S
FINANCIAL
-----------
CORPORATION
THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK
1999 ANNUAL REPORT
TABLE OF CONTENTS
Page
Number
------
Stockholders' Letter 1
Selected Financial and Other Data 2
Management's Discussion and Analysis 4
Report of Independent Auditors 21
Consolidated Balance Sheets 22
Consolidated Statements of Income 23
Consolidated Statements of Changes in Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to the Consolidated Financial Statements 26
Common Stock Market Price and Dividend Information 54
Corporate Information
To Our Stockholders:
Fiscal 1999 was a year of growth and record earnings for WVS Financial
Corp. and West View Savings Bank. Consolidated assets grew over $51 million or
17.3% and totaled $348.4 million at June 30, 1999. Company net income increased
$539 thousand or 15.4% and totaled a record $4.03 million for the year. The
Company's Board of Directors and employees worked hard throughout the year to
mitigate a less than favorable interest rate environment by increasing our
marketing efforts to new and existing customers.
During fiscal 1999, we emphasized the origination of consumer,
commercial and small business loans in order to alleviate the impact of
declining mortgage rates on our business. In addition to earning higher lending
spreads, we were also able to gain additional deposit balances. On the deposit
side of the business, total deposits grew by $3.3 million during fiscal 1999. We
are particularly pleased with the growth in our core checking and savings
accounts. These accounts, in our view, represent the basis for building a
primary banking relationship with our customers on both the deposit and loan
side of the business.
Community bank stocks were adversely impacted during the past year
primarily due to concerns over the Year 2000 computer issue and a flat interest
rate environment. During fiscal 1999, the Company's Board of Directors evaluated
a number of strategic options to enhance long-term shareholder value. Since our
core business remains strong and we are confident in our growing franchise, the
Board of Directors authorized a series of common stock repurchases in order to
better manage our strong capital position. The goals of the stock repurchase
program are: (1) to increase per share earnings by spreading net income over a
reduced number of shares and (2) to increase return on average stockholders'
equity. We were successful on both goals. During fiscal 1999, diluted earnings
per share increased 19.4% to $1.17 per diluted share from $0.98 per diluted
share in fiscal 1998. Return on average stockholders' equity increased sharply
from 10.45% at the end of fiscal 1998 to 13.01% during fiscal 1999. We expect
continued progress on both goals during fiscal 2000.
A considerable amount of internal resources were devoted to concerns
over the Year 2000 computer issue. West View Savings Bank outsources
substantially all of its data processing operations. Beginning in fiscal 1998 we
began to work diligently with our third party processors to identify mission
critical systems to determine what programs needed to be changed. We are pleased
to report that all mission critical customer software has been tested and
retested. Accordingly, we expect no Year 2000 related problems for our
customers. West View Savings Bank has been in business since 1908 and we pledge
to continue meeting our customers' needs well into the next millennium.
It is with a great deal of personal sadness that we note the passing
away of two dedicated and seasoned directors-James S. McKain, Jr. and James H.
Ritchie. Jim McKain was elected a director of West View Savings in 1960 and he
served as our Chairman of the Board since 1984. Many of you may remember him as
the owner of the Jim McKain Ford auto dealership in Wexford. Jim Ritchie was
elected a director of West View Savings in 1977. Mr. Ritchie owned a pharmacy in
Ingomar for over 22 years. Both men were active at West View Savings and in our
communities. Their advice, humor, leadership and sound business judgment will be
missed.
William J. Hoegel was elected Chairman of the Board of Directors in May
1999. Bill has been a director of West View Savings since 1984 and previously
served as Vice Chairman of the Board of Directors. Bill's community involvement,
marketing background and demonstrated leadership will be invaluable resources to
the Company's growth plans.
On behalf of the Board of Directors and employees of West View Savings
Bank, we would like to thank you for your ongoing interest in our Company. We
are proud of our achievements during fiscal 1999 and we will continue to work
hard to earn our customers' business every day.
/s/DAVID J. BURSIC /s/WILLIAM J. HOEGEL
- ------------------ --------------------
DAVID J. BURSIC WILLIAM J. HOEGEL
President and Chairman of the Board
Chief Executive Officer
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
As of or For the Year Ended June 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
- ---------------------------------
Selected Financial Data:
Total assets $ 348,408 $ 297,054 $ 294,693 $ 259,622 $ 227,368
Net loans receivable 170,327 157,737 158,134 149,011 133,343
Mortgage-backed securities 72,380 46,314 37,490 42,118 22,655
Investment securities 92,166 81,268 87,548 59,218 61,525
Real estate owned 218 --- --- --- ---
Savings deposit accounts 171,114 167,670 170,879 170,843 168,786
FHLB advances 116,900 88,857 77,857 38,000 14,984
Other borrowings 25,820 889 6,784 10,652 4,047
Stockholders' equity 27,938 32,978 32,889 34,038 33,809
Nonperforming assets and troubled
debt restructurings(1) 765 603 274 980 1,959
Selected Operating Data:
Interest income $ 22,999 $ 22,146 $ 21,125 $ 18,317 $ 15,612
Interest expense 12,739 11,781 10,884 8,840 7,372
---------- ---------- ---------- ---------- ----------
Net interest income 10,260 10,365 10,241 9,477 8,240
Provision for loan losses --- (120) 60 150 211
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 10,260 10,485 10,181 9,327 8,029
Non-interest income 490 538 374 383 307
Non-interest expense 4,285 5,422 5,666 4,067 4,894
---------- ---------- ---------- ---------- ----------
Income before income tax expense 6,465 5,601 4,889 5,643 3,442
Income tax expense 2,434 2,109 1,930 2,066 1,652
---------- ---------- ---------- ---------- ----------
Net income $ 4,031 $ 3,492 $ 2,959 $ 3,577 $ 1,790
========== ========== ========== ========== ==========
Per Share Information(2)(3):
Basic earnings $ 1.18 $ 1.01 $ 0.88 $ 1.07 $ 0.54
Diluted earnings $ 1.17 $ 0.98 $ 0.85 $ 1.04 $ 0.52
Dividends per share(4) $ 0.63 $ 1.50 $ 1.50 $ 1.03 $ 0.21
Dividend payout ratio(4) 53.39% 148.51% 170.45% 96.26% 38.89%
Book value per share at period end $ 8.81 $ 9.12 $ 9.41 $ 9.80 $ 9.73
Average shares outstanding:
Basic 3,405,662 3,470,479 3,369,796 3,347,363 3,331,086
Diluted 3,435,738 3,574,043 3,490,226 3,452,854 3,409,688
2
As of or For the Year Ended June 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in Thousands)
Selected Operating Ratios(5):
Average yield earned on interest-
earning assets 7.32% 7.69% 7.69% 7.83% 7.33%
Average rate paid on interest-
bearing liabilities 4.70 4.78 4.78 4.58 4.19
Average interest rate spread(6) 2.62 2.91 2.91 3.25 3.14
Net interest margin(6) 3.27 3.60 3.73 4.05 3.87
Ratio of interest-earning assets to
interest-bearing liabilities 118.88 116.65 120.70 121.18 121.09
Non-interest expense as a percent of
average assets 1.35 1.86 2.04 1.71 2.26
Return on average assets 1.27 1.20 1.06 1.51 0.83
Return on average equity 13.01 10.45 8.63 10.19 5.34
Ratio of average equity to average
assets 9.76 11.48 12.33 14.81 15.48
Full-service offices at end of period 5 5 5 5 5
Asset Quality Ratios(5):
Non-performing loans and troubled
debt restructurings as a percent of
net total loans(1) 0.32% 0.38% 0.17% 0.66% 1.47%
Non-performing assets as a percent
of total assets(1) 0.22 0.20 0.09 0.15 0.45
Non-performing assets and troubled
debt restructurings as a percent of
total assets 0.22 0.20 0.09 0.38 0.86
Allowance for loan losses as a
percent of total loans receivable 1.07 1.08 1.16 1.17 1.25
Allowance for loan losses as a
percent of non-performing loans 336.75 308.46 733.21 520.95 178.43
Charge-offs to average loans
receivable outstanding during the
period 0.02 0.02 0.01 0.02 0.01
Capital Ratios(5):
Tier 1 risk-based capital ratio 15.85% 20.90% 24.52% 27.19% 27.06%
Total risk-based capital ratio 16.90 22.09 25.77 28.44 28.32
Tier 1 leverage capital ratio 8.29 10.98 11.44 13.90 14.74
(1) Non-performing assets consist of non-performing loans and real estate owned
("REO"). Nonperforming loans consist of non-accrual loans and accruing
loans greater than 90 days delinquent, while REO consists of real estate
acquired through foreclosure and real estate acquired by acceptance of a
deed in lieu of foreclosure.
(2) All per share information for fiscal years ended June 30, 1997, 1996 and
1995 have been restated to reflect the two-for-one stock split of May 22,
1998.
(3) Dividends per share and dividend payout ratio includes special cash
dividends of $0.95, $1.15, and $0.85 per share, paid during fiscal 1998,
1997 and 1996, respectively.
(4) Consolidated asset quality ratios and capital ratios are end of period
ratios, except for net charge-offs to average net loans. With the exception
of end of period ratios, all ratios are based on average monthly balances
during the indicated periods.
(5) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities, and net interest margin represents net
interest income as a percent of average interest-earning assets.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 June 30, 1999.
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, maintaining asset
quality and generating consistent earnings growth. Specific strategic components
include:
Commitment to Capital Management - The Company is committed to maximizing
long-term shareholder value. Specific components of this strategy include: (1)
the repurchase of 498,303 shares of Company common stock during fiscal 1999; (2)
growing Company assets to increase net income; and (3) paying an above-average
dividend yield of 4.17% on the Company's common stock during fiscal 1999.
Core Deposits - As of June 30, 1999, $77.2 million or 45.1% of West View's total
deposits consisted of regular savings and club accounts, money market deposit
accounts, and checking accounts. Approximately $38.9 million or 50.4% of core
deposits consisted of regular savings and club accounts. Checking account
balances grew $2.8 million or 12.4% during fiscal 1999 and totaled $25.7 million
or 33.3% of core deposits at June 30, 1999. The continued growth in checking
account deposits was primarily due to increased marketing and promotional
efforts by the Company to gain market share. Core deposits are considered to be
more stable and lower cost funds than certificates of deposit and other
borrowings.
Consistent Earnings Growth - Net income has grown from $1.8 million in fiscal
1995 to $4.0 million in fiscal 1999. Diluted earnings per share have increased
from $0.52 in fiscal 1995 to $1.17 in fiscal 1999; this equates to a compounded
annual growth rate in diluted earnings per share of 22.7%.
Community-based Lending - West View has consistently focused its lending
activities on generating loans in our market area. Typical loan offerings
include home mortgages, construction loans, and consumer loans for home
improvement, automobile loans and home equity loans. During fiscal 1999, West
View also expanded its small business lending program to include term loans,
business inventory loans and loans for business machinery.
Asset Quality - Largely reflecting a lending strategy that emphasizes local loan
origination, West View has not had significant non-performing assets. For the
fiscal years ended June 30, 1999, 1998 and 1997, the Company's ratios of
non-performing assets and troubled debt restructurings to total assets were
4
0.16%, 0.20% and 0.09%, respectively. Total net recoveries for the past three
fiscal years have aggregated $86 thousand.
Non-interest Expense Ratios - For the fiscal years ended June 30, 1999, 1998 and
1997, the Company's ratios of non-interest expense to average assets were 1.35%,
1.86% and 2.04%, respectively. Excluding unusual items relating to severance
costs and the one-time SAIF recapitalization charge, the Company's ratios of
non-interest expense to average assets were 1.35%, 1.68% and 1.63% for the
fiscal years ended June 30, 1999, 1998 and 1997, respectively.
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
-----------------------
June 30, June 30, Change
------------------------
1999 1998 Dollars Percentage
---- ---- ------- ----------
(Dollars in thousands)
Cash and interest-earning
deposits $ 1,893 $ 2,506 $ (613) (24.5%)
Investment securities 98,361 85,943 12,418 14.4
Mortgage-backed securities 72,380 46,314 26,066 56.3
Net loans receivable 170,327 157,737 12,590 8.0
Total assets 348,408 297,054 51,354 17.3
Deposits 174,244 170,982 3,262 1.9
FHLB and other borrowings 142,720 89,746 52,974 59.0
Total liabilities 320,470 264,076 56,394 21.4
Total equity 27,938 32,978 (5,040) (15.5)
General. The $51.4 million or 17.3% growth in total assets was primarily
comprised of a $26.1 million increase in mortgage-backed securities, a $12.6
million increase in net loans receivable, a $12.4 million increase in investment
securities and Federal Home Loan Bank ("FHLB") stock.
The $56.4 million or 21.4% increase in total liabilities was primarily comprised
of a $53.0 million increase in FHLB advances and other borrowings, and a $3.3
million increase in total deposits.
Total stockholders' equity decreased $5.1 million or 15.5% primarily due to the
Company's ongoing commitment to manage its capital levels to further enhance
stockholder value. The $5.1 million decrease in stockholders' equity was
principally attributable to the repurchase of $7.6 million of the Company's own
common stock, $2.2 million of cash dividends paid to stockholders, and a $188
thousand increase in unrealized securities losses, which were partially offset
by $4.0 million of Company net income and an $863 thousand increase in capital
attributable to stock option exercises, Employee Stock Ownership Plan ("ESOP")
share releases and Recognition and Retention Plan ("RRP") equity contributions.
5
Cash on Hand and Interest-earning Deposits. Cash on hand and interest-earning
deposits represent cash equivalents. Cash equivalents decreased $613 thousand or
24.5% to $1.9 million at June 30, 1999 from $2.6 million at June 30, 1998.
Decreases in these accounts are primarily due to a combination of new loan
originations, customer withdrawals, investment purchases and repayments of
borrowings. Increases in these accounts are usually the result of a combination
of customer deposits, loan and investment repayments, and proceeds from
borrowings.
Investments. The Company's overall investment portfolio increased $38.5 million
or 29.1% to $170.8 million at June 30, 1999 from $132.3 million at June 30,
1998. Mortgage-backed securities increased $26.1 million or 56.3% to $72.4
million at June 30, 1999. These purchases were made in order to mitigate the
principal calls on the Company's callable bond portfolio and to earn a higher
yield with an expected average life profile comparable to longer-term callable
agency bonds. Investment securities increased $12.4 million or 14.4% to $98.4
million at June 30, 1999. These purchases were made as a part of the Company's
investment growth program.
Net Loans Receivable. Net loans receivable increased $12.6 million or 8.0% to
$170.3 million at June 30, 1999. The increase in loans receivable was
principally the result of increased mortgage and commercial loan originations.
Deposits. Total deposits increased $3.3 million or 1.9% to $142.7 million at
June 30, 1999. Interest-bearing and non-interest-bearing accounts, as well as
time deposits increased during the year.
Borrowed Funds. Borrowed funds increased $52.9 million or 58.9% to $142.7
million at June 30, 1999. The increase is principally the result of funding the
Company's investment growth program. FHLB advances increased $28.0 million or
31.5% to $116.9 million at June 30, 1999 and other short-term borrowings
increased $24.9 million or 2,766.7% to $25.8 million at June 30, 1999.
Stockholders' Equity. Total stockholders' equity decreased $5.1 million or 15.5%
to $27.9 million at June 30, 1999. The decrease was principally the result of
the repurchase of $7.6 million of the Company's common stock, $2.2 million of
cash dividends paid to stockholders, and a $188 thousand increase in unrealized
securities losses, which were partially offset by $4.0 million of Company net
income and an $863 thousand increase in capital attributable to stock option
exercises, ESOP share releases and RRP equity contributions.
6
RESULTS OF OPERATIONS
Condensed Statements of Income
------------------------------
June 30, June 30, June 30,
1999 Change 1998 Change 1997
------- ------- -------- ------- -------
(Dollars in thousands)
Interest income $22,999 $ 853 $ 22,146 $ 1,021 $21,125
3.9% 4.8%
Interest expense $12,739 $ 958 $ 11,781 $ 897 $10,884
8.1% 8.3%
Net interest income $10,260 $ (105) $ 10,365 $ 124 $10,241
(1.0%) 1.2%
Provision for loan losses $ 0 $ 120 $ (120) $ (180) $ 60
100.0% (300.0%)
Non-interest income $ 490 $ (48) $ 538 $ 164 $ 374
(8.9%) 43.9%
Non-interest expense $ 4,285 $(1,137) $ 5,422 $ (244) $ 5,666
(21.0%) (4.3%)
Income tax expense $ 2,434 $ 325 $ 2,109 $ 179 $ 1,930
15.4% 9.3%
Net income $ 4,031 $ 539 $ 3,492 $ 533 $ 2,959
15.4% 18.0%
General. WVS reported net income of $4.0 million, $3.5 million and $3.0 million
for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. The $539
thousand or 15.4% increase in net income during fiscal 1999 was primarily the
result of a $1.1 million decrease in non-interest expense, which was partially
offset by the absence of $120 thousand reduction in the provision for loan
losses due to the payoff of a commercial loan participation in fiscal 1998, a
$105 thousand decrease in net interest income, a $48 thousand decrease in
non-interest income and a $325 thousand increase in income tax expense. Earnings
per share totaled $1.18 (basic) and $1.17 (diluted) for fiscal 1999 as compared
to $1.01 (basic) and $0.98 (diluted) for fiscal 1998. The increase in earnings
per share was due to an increase in net income and a reduction in the weighted
average number of shares outstanding due to the Company's stock repurchases
during fiscal 1999.
7
Average Balances, Net Interest Income and Yields Earned and Rates Paid. The
following average balance sheet table sets forth at and for the periods
indicated, information on the Company regarding: (1) the total dollar amounts of
interest income on interest-earning assets and the resulting average yields; (2)
the total dollar amounts of interest expense on interest-bearing liabilities and
the resulting average costs; (3) net interest income; (4) interest rate spread;
(5) net interest-earning assets (interest-bearing liabilities); (6) the net
yield earned on interest-earning assets; and (7) the ratio of total
interest-earning assets to total interest-bearing liabilities. Average balances
are derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
For the Years Ended June 30,
At June 30, -------------------------------------------------------------------------------------------
1999 1999 1998 1997
----------- ----------------------------- ----------------------------- ----------------------------
Period End Average Average Average Average Average Average
Rate/Cost Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
--------- ------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable(1) 7.62% $158,651 $12,850 8.10% $163,046 $13,191 8.09% $153,726 $12,440 8.09%
Mortgage-backed
securities 6.63 66,685 4,280 6.42 40,066 2,715 6.78 39,451 2,724 6.90
Investments 6.95 87,116 5,792 6.65 82,877 6,167 7.44 79,128 5,881 7.43
Interest-bearing
deposits 5.35 1,995 77 3.86 1,842 73 3.96 2,335 80 3.43
-------- ------- -------- ------- -------- -------
Total interest-earning
assets 7.21% 314,447 22,999 7.32% 287,831 22,146 7.69% 274,640 21,125 7.69%
==== -------- ==== ------- ==== ------- ====
Non-interest-earning
assets 3,324 3,143 3,331
-------- -------- --------
Total assets $317,771 $290,974 $277,971
======== ======== ========
Interest-bearing
liabilities:
Interest-bearing
deposits and escrows 3.64% $161,189 $6,537 4.27% $161,855 $6,943 4.29% $165,017 $7,086 4.29%
Borrowings 5.38 113,338 6,202 5.47 84,887 4,838 5.70 62,522 3,798 6.07
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 4.43% 274,527 12,739 4.70% 246,742 11,781 4.78% 227,539 10,884 4.78%
==== ------ ==== ------- ==== ------ ====
Non-interest-bearing
accounts 8,306 7,073 6,459
-------- -------- --------
Total interest-bearing
liabilities and
non-interest-bearing
accounts 282,833 253,815 233,998
Non-interest-bearing
liabilities 3,934 3,747 9,686
-------- -------- --------
Total liabilities 286,767 257,562 243,684
Retained income 31,004 33,412 34,287
-------- -------- --------
Total liabilities and
retained income $317,771 $290,974 $277,971
======== ======== ========
Net interest income $10,260 $10,365 $10,241
======= ======= =======
Interest rate spread 2.78% 2.62% 2.91% 2.91%
====== ====== ====== ======
Net yield on interest-
earning assets(2) 3.00% 3.27% 3.60% 3.73%
====== ====== ====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities 111.38% 118.88% 116.65% 120.70%
====== ====== ====== ======
(1)Includes non-accrual loans.
(2)Net interest income divided by interest-earning assets.
8
Rate/Volume Analysis. The following table describes the extent to which changes
in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to: (1) changes in volume (change in volume multiplied by prior year rate), (2)
changes in rate (change in rate multiplied by prior year volume), and (3) total
change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume.
Year Ended June 30,
--------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
---------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
------------------ Increase ------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable $ (357) $ 16 $ (341) $ 751 $ 0 $ 751
Mortgage-backed securities 1,716 (151) 1,565 39 (48) (9)
Investments 302 (677) (375) 278 8 286
Interest-bearing deposits 6 (2) 4 (18) 11 (7)
------ ------- ------ ------ ------- ------
Total interest-earning assets 1,667 (814) 853 1,050 (29) 1,021
Interest-bearing liabilities:
Interest-bearing deposits and
escrows (86) (320) (406) (212) 69 (143)
Other borrowings 1,566 (202) 1,364 1,283 (243) 1,040
------ ------- ------ ------ ------- ------
Total interest-bearing
liabilities 1,480 (522) 958 1,071 (174) 897
------ ------- ------ ------ ------- ------
Increase (decrease) in net interest
income $ 187 $ (292) $ (105) $ (21) $ 145 $ 124
====== ====== ====== ====== ====== ======
Net Interest Income. Net interest income is determined by the Company's interest
rate spread (i.e. the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities.
Interest Income. Total interest income increased by $853 thousand or 3.9% during
fiscal 1999 and increased by $1.0 million or 4.8% during fiscal 1998. The
increase in fiscal 1999 was primarily a result of a $1.6 million and a $119
thousand increase in interest on mortgage-backed securities and FHLB stock,
respectively, which were partially offset by a $494 thousand and a $341 thousand
decrease in interest on investment securities and loans, respectively.
Interest income on net loans receivable decreased $341 thousand or 2.6% during
fiscal 1999 and increased $751 thousand or 6.0% during fiscal 1998. The decrease
in fiscal 1999 was attributable to a $4.4 million decrease in the average
balance of net loans outstanding and a 1 basis point increase in the weighted
average yield on the Company's loan portfolio. The increase in fiscal 1998 was
attributable to a $9.3 million increase in the average balance of net loans
outstanding while maintaining a constant weighted average yield on the Company's
loan portfolio.
Interest income on investment securities and FHLB stock decreased $375 thousand
or 6.1% during fiscal 1999 and increased $286 thousand or 4.9% during fiscal
1998. The decrease in fiscal 1999 was primarily attributable to a decrease of 79
basis points in the weighted average yield on the Company's investment
securities which was partially offset by a $4.2 million increase in the average
balance of investment securities primarily due to increased purchases of
callable government agency securities. The increase in fiscal 1998 was
attributable to a $3.7 million increase in the average balance of investment
securities outstanding, while maintaining a constant weighted average yield
earned on the Company's investment securities portfolio.
9
Interest income on mortgage-backed securities increased $1.6 million or 57.6%
during fiscal 1999 and decreased $9 thousand or 0.3% during fiscal 1998. The
increase during fiscal 1999 was attributable to an increase in the average
outstanding balance of mortgage-backed securities of $26.6 million, partially
offset by a decrease in the weighted average interest rate yield of 36 basis
points. During fiscal 1999, the Company increased its purchases of
mortgage-backed securities in order to mitigate the principal calls on the
Company's callable bond portfolio and to earn a higher yield with an expected
average life profile comparable to longer-term callable agency bonds. The
increase in fiscal 1998 was attributable to a $615 thousand increase in the
average balance of mortgage-backed securities outstanding, partially offset by a
12 basis point decrease in the weighted average interest rate yield.
Interest Expense. Total interest expense increased $958 thousand or 8.1% during
fiscal 1999 and increased by $897 thousand or 8.2% during fiscal 1998. The
increase during fiscal 1999 is attributable to an increase of $1.4 million of
interest expense on borrowings partially offset by a $406 thousand decrease of
interest expense on deposits.
Interest expense on borrowings increased $1.4 million or 28.2% during fiscal
1999 and increased $1.0 million or 27.4% during fiscal 1998. The increases for
both fiscal 1999 and 1998 were primarily attributable to increases in the
average balance of borrowings outstanding totaling $28.5 million and $22.3
million, respectively. In order to better match investment opportunities and
resources and enhance its net interest income, the Company continues to utilize
short- and intermediate-term borrowings to fund purchases of interest-earning
assets and other commitments.
Interest expense on interest-bearing deposits and escrows decreased $406
thousand or 5.9% in fiscal 1999 and decreased $143 thousand or 2.0% in fiscal
1998. The decrease in fiscal 1999 was primarily attributable to a $10.7 million
decrease in the average balance of interest-bearing deposits and escrows
outstanding and a decrease of 26 basis points in the weighted average rate paid
on the Company's deposits. The decrease in fiscal 1998 was principally
attributable to a $3.2 million decrease in the average balance of
interest-bearing deposits and escrows outstanding, which was slightly offset by
an increase of 4 basis points in the weighted average rate paid on the Company's
deposits.
Provision for Loan Losses. A provision for loan losses is charged to earnings to
bring the total allowance to 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 periodic evaluations of the loan portfolio considering
past experience, current economic conditions, volume, growth, composition of the
loan portfolio and other relevant factors.
The Company did not record a provision for loan losses for fiscal 1999 primarily
due to adequate current loan loss reserves. The Company decreased the provision
by $120 thousand in fiscal 1998 primarily due to a recovery of previously
established loan loss reserves attributable to the payoff of a commercial loan
participation. The provision for fiscal 1997 was primarily due to increases in
the Company's general allowance for losses on loans.
Non-interest Income. Total non-interest income decreased by $48 thousand or 8.9%
in fiscal 1999 and increased by $164 thousand or 43.9% in fiscal 1998. The
decrease in fiscal 1999 was primarily due to the absence of a $133 thousand gain
on the sale of an office building in fiscal 1998 partially offset by a $30
thousand increase in service charges on deposits and a $36 thousand net gain on
sale of investments. The increase in non-interest income for fiscal year 1998
was primarily attributable to service charges applied to a larger number of
transaction accounts opened during fiscal 1998 which was partially offset by the
absence of a $30 thousand gain from the sale of securities in 1997.
Non-interest Expense. Total non-interest expense decreased $1.1 million or 21.0%
and $244 thousand or 4.3% during fiscal 1999 and 1998, respectively. The
decrease in fiscal 1999 was principally attributable to a $1.1 million decrease
in salaries and employee benefits and a $57 thousand decrease in other
10
non-interest expenses. The decrease in salaries and employee benefits during
fiscal 1999 was primarily due to the absence of a $533 thousand non-recurring
charge related to the resignation of the Company's former Chief Executive
Officer in fiscal 1998, $430 thousand of reductions in discretionary ESOP
contributions and lower RRP expenses and a $63 thousand decrease in employee
compensation expense. The decrease in fiscal 1998 was primarily attributable to
a $1.2 million decrease in deposit insurance premiums, which was partially
offset by an $893 thousand increase in employee salaries and benefits,
principally the $533 thousand one-time expense as discussed above.
Income Taxes. Income taxes increased $325 thousand or 15.4% during fiscal 1999
and increased $179 thousand or 9.3% during fiscal 1998. The increases in fiscal
1999 and 1998 were primarily attributable to increases in taxable income. The
Company's effective tax rate was 37.7% at June 30, 1999 and 1998, and 39.4% at
June 30, 1997.
ASSET AND LIABILITY MANAGEMENT
The Company continued a strategy designed to reduce the interest rate
sensitivity of its financial assets to its financial liabilities. The primary
elements of this strategy include:
1) expanding the Company's investment growth program in order to enhance
net interest income;
2) maintaining the Company's level of short-term liquid investments by
funding loan commitments and purchasing longer-term investment
securities;
3) emphasizing the retention of lower-cost savings accounts and other
core deposits; and
4) pricing the Company's certificates of deposit and loan products nearer
to the market average rate as opposed to the upper range of market
offered rates.
The Company has continued its investment growth program, originally initiated in
the third quarter of fiscal 1994, throughout fiscal 1999 in order to realize
additional net interest income. Under this strategy, a longer-term callable or
non-callable investment security, or mortgage-backed security, is purchased and
funded through the use of short-term non-deposit liabilities, such as FHLB
advances and short-term borrowings. With this strategy, the Company increases
its net interest income, but also faces the risk, during periods of rising
market interest rates, that it may experience a decline in net interest income
if the rate paid on its various borrowings rises above the rate earned on the
investment security purchased. In order to mitigate this exposure, the Board has
placed certain restrictions on the investment growth program, including:
1) the average outstanding daily balance of total borrowings, computed
quarterly, may not exceed $165.0 million;
2) suitable investments shall be restricted to those meeting the credit
quality criteria outlined in the Company's investment policy;
3) each security purchased shall initially yield a minimum of
seventy-five basis points above the incremental rate paid on
short-term borrowings, at the time of purchase; and
4) the Company's total borrowed funds position may not exceed $175.0
million.
In most cases, the initial yield spread earned on investment security purchases
exceeded approximately one hundred to two hundred and eighty basis points.
During the fiscal year ended June 30, 1999, the Company increased its
mortgage-backed securities holdings by $26.1 million. At June 30, 1999 the
Company held $72.4 million of mortgage-backed securities with an approximate
yield of 6.6%. The mortgage-backed securities purchases were made in order to
mitigate the principal calls on the Company's callable bond portfolio and earn a
higher yield with an expected average life profile comparable to longer-term
callable agency bonds. In order to mitigate risks associated with a general rise
in market interest rates, approximately $16.4 million or 22.7% of the Company's
mortgage-backed securities portfolio were floating rate securities with a
weighted average yield of 6.2%.
11
The Company has continued to purchase callable bonds in order to capture
additional net interest income. Callable bonds generally provide investors with
higher rates of return than noncallable bonds because the issuer has the option
to redeem the bonds before maturity. During a period of declining interest
rates, the Company would be exposed to the risk that the investment will be
redeemed prior to its final stated maturity. In order to mitigate this risk, the
Company has funded a significant portion of its purchases of callable bonds with
short-term borrowings. Approximately $83.5 million of callable agency bonds with
an estimated weighted average rate of 7.22% were called during the fiscal year
ended June 30, 1999. During the fiscal year ended June 30, 1999, the Company
purchased approximately $123.7 million of callable bonds with an approximate
weighted average yield to call and maturity of 6.81% and 7.09%, respectively.
During the fiscal year ended June 30, 1999, the Company borrowed approximately
$125.2 million in various borrowings from the FHLB with a weighted average rate
of 5.08% and incurred $130.3 million in other borrowings with a weighted average
rate of 5.03%. During the twelve months ended June 30, 1999, the Company repaid
$97.2 million of FHLB advances and $105.2 million of other borrowings. Due to a
decline in market interest rates during most of fiscal 1999, the Company
lengthened the maturity structure of its incremental borrowings to lock in lower
cost, longer-term liability funding.
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 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. Due to
relatively low fifteen and thirty year mortgage yields, the Company intends to
emphasize higher yielding commercial real estate, home equity and small business
loans to existing customers and seasoned prospective customers.
As of June 30, 1999, the implementation of these asset and liability management
initiatives resulted in the following:
1) an aggregate of $49.2 million or 28.9% of the Company's net loan
portfolio had adjustable interest rates or maturities of less than 12
months;
2) $16.4 million or 22.7% of the Company's portfolio of mortgage-backed
securities (including collateralized mortgage obligations - "CMOs")
were secured by floating rate securities;
3) $1.2 million or 1.3% of the Company's investment securities portfolio
had scheduled maturities of one year or less; and
4) $89.5 million or 97.4% of the Company's investment securities
portfolio was comprised of callable bonds.
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. The Company's one year cumulative interest rate sensitivity gap
is estimated at a negative 8.9% of total assets at June 30, 1999, as compared to
a negative 24.6% at June 30, 1998, in each instance, based on certain
assumptions by management with respect to the repricing of certain assets and
liabilities. At June 30, 1999, the Company's interest-earning assets maturing or
repricing within one year totaled $99.7 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$130.8 million, providing a deficiency of interest-earning assets over
interest-bearing liabilities of $31.1 million. At June 30, 1999, the percentage
of the Company's assets to liabilities maturing or repricing within one year was
76.3%.
12
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.
June 30,
---------------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year(1) $ 99,729 $107,186 $103,161
Interest-bearing liabilities maturing or
repricing within one year(2) 130,788 180,318 142,265
-------- -------- --------
Interest sensitivity gap $(31,059) $(73,132) $(39,104)
======== ======== ========
Interest sensitivity gap as a percentage of
total assets (8.9)% (24.6)% (13.3)%
Ratio of assets to liabilities
maturing or repricing within one year 76.3% 59.4% 72.5 %
- ----------------
(1) Adjustable and floating rate assets are included in the period in
which interest rates are next scheduled to adjust rather than in the
period in which they are contractually due to mature, and fixed rate
loans are included in the periods in which they are scheduled to be
repaid, based on scheduled amortization, in each case as adjusted to
take into account estimated prepayments based on the assumptions set
forth in the footnotes to the following table. The Company believes
that the assumptions utilized, which are based on statistical data
provided by a federal regulatory agency in the Company's market area,
are reasonable.
(2) Deposit decay rates are based on the assumptions set forth in the
footnotes to the following table.
13
The following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of June
30, 1999, based on the information and assumptions set forth in the notes. The
Company believes that the assumptions utilized, which are based on statistical
data provided by a federal regulatory agency in the Company's market area, are
reasonable.
More Than More Than
Within Six to One Year Three Over
Six Twelve to Three Years to Five
Months Months Years Five Years Years Total
----------- ----------- ----------- ----------- ----------- -----------
Interest-earning assets:
Loans receivable (1)(2)(3)(4) $ 35,408 $ 20,804 $ 43,532 $ 23,251 $ 49,991 $ 172,986
Mortgage-backed securities 23,389 5,498 11,331 7,437 24,794 72,449
Investments(5) 13,481 --- --- --- 84,858 98,339
Interest-bearing deposits 1,148 --- --- --- --- 1,148
----------- ----------- ----------- ----------- ----------- -----------
Total 73,426 26,302 54,863 30,688 159,643 344,922
----------- ----------- ----------- ----------- ----------- -----------
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(6)(7)(8) 48,367 43,201 39,722 19,265 23,689 174,244
Borrowings 33,820 5,400 56,500 --- 47,000 142,720
----------- ----------- ----------- ----------- ----------- -----------
Total 82,187 48,601 96,222 19,265 70,689 316,964
----------- ----------- ----------- ----------- ----------- -----------
Interest sensitivity gap (8,761) (22,299) (41,359) 11,423 88,954
----------- ----------- ----------- ----------- -----------
Cumulative interest sensitivity
gap (8,761) (31,060) (72,419) (60,996) 27,958
----------- ----------- ----------- ----------- -----------
Ratio of cumulative gap to
total assets (2.5)% (8.9)% (20.8)% (17.5)% 8.0%
----------- ----------- ----------- ----------- -----------
- ---------------------
(1) Net of undisbursed loan proceeds and does not include net deferred loan
fees or the allowance for loan losses.
(2) For single-family residential loans, assumes annual amortization and
prepayment rate at 30% for adjustable rate loans, and 11% to 41% for fixed
rate loans. For multi-family residential loans and other loans, assumes
amortization and prepayment rate of 12%.
(3) For second mortgage loans, assumes annual amortization and prepayment rate
of 18%.
(4) Consumer loans assumes amortization and prepayment rate of 13%.
(5) Totals include the Company's investment in Federal Home Loan Bank stock.
Amounts adjusted to reflect called investment securities totaling
approximately $5,000.
(6) For regular savings accounts, assumes an annual decay rate of 17% for three
years or less, 16% for more than three through five years and 14% for more
than five years.
(7) For NOW accounts, assumes an annual decay rate of 37% for one year or less,
32% for more than one through three years and 17% for more than three
years.
(8) For money market deposit accounts, assumes an annual decay rate of 79% for
one year or less and 31% for more than one year.
14
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
The Federal Reserve Board, together with the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency
Policy Statement on Interest-Rate Risk, effective June 26, 1996. The policy
statement provides guidance to examiners and bankers on sound practices for
managing interest rate risk, which will form the basis for ongoing evaluation of
the adequacy of interest-rate risk management at supervised institutions. The
policy statement also outlines fundamental elements of sound management that
have been identified in prior Federal Reserve guidance and discusses the
importance of these elements in the context of managing interest-rate risk.
Specifically, the guidance emphasizes the need for active board of director and
senior management oversight and a comprehensive risk-management process that
effectively identifies, measures, and controls interest-rate risk. 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 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.
An institution may use several techniques to minimize interest rate risk. One
approach used by the Company is to periodically analyze its assets and
liabilities and make future financing and investment decisions based on payment
streams, interest rates, contractual maturities, and estimated sensitivity to
actual or potential changes in market interest rates. Such activities fall under
the broad definition of asset/liability management. The Company's primary
asset/liability management technique is the monitoring of the Company's
asset/liability gap, which was discussed in detail under "Asset and Liability
Management" commencing on page 12.
An institution could also manage interest rate risk by selling existing assets,
repaying certain liabilities or matching repricing periods for new assets and
liabilities (for example, by shortening terms of new loans or investments). A
15
large portion of an institution's liabilities may be short-term or due on
demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, the Company seeks to have in place sources of cash to
meet short-term demands. These funds can be obtained by increasing deposits,
borrowing, or selling assets. Also, FHLB advances and wholesale borrowings have
become increasingly important sources of liquidity for the Company. Financial
institutions are also subject to prepayment risk in falling rate environments.
For example, mortgage loans and other financial assets may be prepaid by a
debtor so that the debtor may refund its obligations at new, lower rates.
Prepayments of assets carrying higher rates reduce the Company's interest income
and overall asset yields.
An institution might also invest in more complex financial instruments intended
to hedge, or otherwise change the interest rate risk of existing assets,
liabilities, or anticipated transactions. Interest rate swaps, futures
contracts, options on futures, and other such derivative financial instruments
often are used for this purpose. Because these instruments are sensitive to
interest rate changes, they require management expertise to be effective. The
Company has not purchased derivative financial instruments in the past and does
not presently intend to purchase such instruments in the near future.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of June 30, 1999
based on the information and assumptions in the notes. The Company's assumptions
are based on statistical data provided by a federal regulatory agency in the
Company's market area, and are believed to be reasonable. The Company had no
derivative financial instruments or trading portfolio as of June 30, 1999. The
expected maturity date values for loans receivable, mortgage-backed securities,
and investment securities were calculated by adjusting the instrument's
contractual maturity date for expectations of prepayments. Similarly, expected
maturity date values for interest-bearing core deposits were calculated based
upon estimates of the period over which the deposits would be outstanding. With
respect to the Company's adjustable rate instruments, expected maturity date
values were measured by adjusting the instrument's contractual maturity date for
expectations of prepayments. Substantially all of the Company's investment
securities portfolio is comprised of callable government agency securities. From
a risk management perspective, the Company believes that repricing dates, as
opposed to expected maturity dates, may be a more relevant metric in analyzing
the value of such instruments. Company borrowings were tabulated by contractual
maturity dates and without regard to any conversion or repricing dates.
16
EXPECTED MATURITY DATE -
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------- There- Fair
2000 2001 2002 2003 2004 after Total value
------- ------- ------- ------- ------- ------- -------- --------
ON-BALANCE SHEET FINANCIAL
INSTRUMENTS
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $29,065 $18,221 $13,709 $12,347 $ 9,783 $48,819 $131,944 $132,713
Average interest rate 7.83% 7.61% 7.54% 7.56% 7.51% 7.43%
Adjustable rate 14,636 6,869 5,352 4,210 3,342 6,086 40,495 40,862
Average interest rate(5) 6.76% 6.23% 6.19% 6.14% 6.10% 6.12%
Mortgage-backed securities
Fixed rate 55 --- 80 1,622 --- 54,290 56,047 54,615
Average interest rate 6.42% 0.00% 8.00% 6.02% 0.00% 6.78%
Adjustable rate --- --- --- --- --- 16,402 16,402 16,825
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 6.20%
Investments(7) 5,906 --- --- --- --- 92,433 98,339 95,447
Average interest rate 5.88% 0.00% 0.00% 0.00% 0.00% 7.02%
Interest-bearing deposits 1,148 --- --- --- --- --- 1,148 1,148
Average interest rate 5.35% 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------- ------- ------- -------- --------
Total $50,810 $25,090 $19,141 $18,179 $13,125 $218,030 $344,375 $341,610
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) $91,568 $19,861 $19,861 $ 9,632 $ 9,632 $ 23,690 $174,244 $174,190
Average interest rate 4.06% 3.44% 3.44% 3.63% 3.63% 2.17%
Borrowings 39,220 28,250 28,250 --- --- 47,000 142,720 141,849
Average interest rate 5.22% 5.72% 5.72% 0.00% 0.00% 5.10%
------- ------- ------- ------- ------- ------- -------- --------
Total $130,788 $48,111 $48,111 $ 9,632 $ 9,632 $ 70,690 $316,964 $316,039
- ----------------------------
(1) Net of undisbursed loan proceeds and does not include net deferred loan
fees or the allowance for loan losses.
(2) For single-family residential loans, assumes annual amortization and
prepayment rate at 30% for adjustable rate loans, and 11% to 41% for fixed
rate loans. For multi-family residential loans and other loans, assumes
amortization and prepayment rate of 12%.
(3) For second mortgage loans, assumes annual amortization and prepayment rate
of 18%.
(4) Consumer loans assumes amortization and prepayment rate of 13%.
(5) Substantially all of the Company's adjustable rate loans reprice on an
annual basis based upon changes in the one- year constant maturity treasury
index with various market based annual and lifetime interest rate caps and
floors.
(6) Substantially all of the Company's adjustable rate mortgage-backed
securities reprice on a monthly basis based upon changes in the one month
LIBOR index with various lifetime caps and floors.
(7) Totals include the Company's investment in Federal Home Loan Bank stock.
Amounts adjusted to reflect called investment securities totaling
approximately $5,000.
(8) For regular savings accounts, assumes an annual decay rate of 17% for three
years or less, 16% for more than three through five years and 14% for more
than five years.
(9) For NOW accounts, assumes an annual decay rate of 37% for one year or less,
32% for more than one though three years and 17% for more than three years.
(10) For money market deposit accounts, assumes an annual decay rate of 79% for
one year or less and 31% for more than one year.
17
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 June 30,
1999.
Anticipated Transactions
------------------------
Undisbursed construction and
land development loans
Fixed rate $ 5,919
7.64%
Adjustable rate $10,408
8.77%
Undisbursed lines of credit
Adjustable rate $10,067
7.79%
Loan origination commitments
Fixed rate $ 3,192
7.54%
Adjustable rate $ 293
7.15%
Letters of credit
Adjustable rate $ 20
10.75%
Unfunded security commitments
Fixed rate $10,220
7.72%
-------
$40,119
=======
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash
equivalents decreased by $613 thousand during fiscal 1999 primarily due to $51.7
million of net cash used for investing activities. This decrease was partially
offset by a $46.7 million net increase in cash provided by financing activities
and $4.4 million of cash provided by operating activities.
Funds provided by operating activities totaled $4.4 million during fiscal 1999
as compared to $5.1 million during fiscal 1998. Net cash provided by operating
activities was primarily comprised of $4.0 million of net income.
Funds used for investing activities totaled $51.7 million during fiscal 1999 as
compared to $2.2 million during fiscal 1998. Primary uses of funds during fiscal
1999 include $195.8 in purchases of investment and mortgage-backed securities
and a $13.1 million increase in net loans receivable, which were partially
offset by $157.9 million in proceeds from maturities and repayments on
investment and mortgage-backed securities.
18
Funds provided by financing activities totaled $46.7 million for fiscal 1999 as
compared to $2.9 million used for financing activities in fiscal 1998. Primary
sources of funds for fiscal 1999 were a $52.9 million increase in FHLB and other
borrowings used to fund loan commitments and investment security purchases and a
$3.1 million increase in deposits, which were partially offset by $7.6 million
in common stock repurchases and $2.2 million of cash dividends paid. During
fiscal 1999, the Company purchased 498,303 shares of common stock for
approximately $7.6 million. Management has determined that it currently is
maintaining adequate liquidity and continues to better match funding sources
with lending and investment opportunities.
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 June 30, 1999, the total approved loan commitments
outstanding amounted to $3.5 million. At the same date, commitments under unused
letters and lines of credit amounted to $10.0 million and the unadvanced portion
of construction loans approximated $16.3 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 1999, totaled $61.9 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 certificates of deposit 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 July 27, 1999, the Company's Board of Directors declared a cash dividend of
$0.16 per share payable on August 19, 1999 to shareholders of record at the
close of business on August 9, 1999. 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 in the future or that, if paid, such dividends
will not be reduced or eliminated in future periods.
As of June 30, 1999, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier 1 and total risk-based capital equal to $28.0
million or 15.9% and $29.8 million or 16.9%, respectively, of total
risk-weighted assets, and Tier 1 leverage capital of $28.0 million or 8.3% of
average total assets.
Non-performing assets consist of non-accrual loans and real estate owned. A loan
is placed on non-accrual 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 non-accrual status, previously accrued but
uncollected interest is deducted from interest income. Non-performing assets
increased $162 thousand or 26.9% to $765 thousand, or 0.2% of total assets, at
June 30, 1999. The increase was primarily the result of the acquisition of $218
thousand of real estate owned which was partially offset by a $56 thousand
decrease in non-accrual loans.
19
YEAR 2000 COMPLIANCE
The Company outsources substantially all of its data processing requirements and
it is to a large extent dependent upon vendor cooperation for systems used in
its day-to-day business. The Company, in conjunction with its vendors, is
testing its computer systems and requiring representations from its vendors that
the products provided are or will be year 2000 compliant. The Company has
developed a plan of action to help ensure that its operational and financial
systems will not be adversely affected by year 2000 software/hardware failures
due to processing errors arising from calculations using the year 2000 date.
Substantially all hardware and software products were compliant at December 31,
1998. In the unlikely event that the systems tested do not, in fact, operate
properly when the year 2000 does arrive, all customer accounts, deposits and
loans as well as accounting systems will be maintained manually to ensure
business continuation while systems are being corrected. The Company has not and
does not expect to incur material expenditures to address the year 2000 issue.
Based upon current estimates, the Company does not expect to incur more than $75
thousand (pre-tax) in year 2000 remediation expenses. Any year 2000 compliance
failures, which are currently unknown, could result in additional expenses or
business disruption to the Company.
FORWARD LOOKING STATEMENTS
When used in this Annual Report, 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.
20
[SNODGRASS LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
WVS Financial Corp.
We have audited the accompanying consolidated balance sheets of WVS Financial
Corp. and subsidiary as of June 30, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WVS Financial Corp.
and subsidiary as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1999, in conformity with generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
- -----------------------
S.R. Snodgrass, A.C.
Wexford, PA
July 30, 1999
21
WVS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
1999 1998
---------- ----------
ASSETS
Cash and due from banks $ 745 $ 699
Interest-earning demand deposits 1,148 1,807
Investment securities available for sale (amortized
cost of $1,380 and $17,481) (Note 4) 1,402 17,519
Investment securities held to maturity (market value
of $87,850 and $63,996) (Note 4) 90,764 63,749
Mortgage-backed securities available for sale
(amortized cost of $9,342 and $18,842) (Note 5) 9,273 19,041
Mortgage-backed securities held to maturity
(market value of $62,167 and $27,777) (Note 5) 63,107 27,273
Net loans receivable (allowance for loan losses of $1,842
and $1,860) (Note 6) 170,327 157,737
Accrued interest receivable 3,105 2,414
Federal Home Loan Bank stock, at cost 6,195 4,675
Premises and equipment 1,154 1,179
Deferred taxes and other assets 1,188 961
--------- ---------
TOTAL ASSETS $ 348,408 $ 297,054
========= =========
LIABILITIES
Deposits (Note 11) $ 174,244 $ 170,982
Federal Home Loan Bank advances (Note 12) 116,900 88,857
Other borrowings (Note 13) 25,820 889
Accrued interest payable 1,929 1,874
Other liabilities 1,577 1,474
--------- ---------
TOTAL LIABILITIES 320,470 264,076
--------- ---------
STOCKHOLDERS' EQUITY (Notes 15 and 16)
Preferred stock, no par value; 5,000,000 shares authorized;
none outstanding - -
Common stock, par value $.01; 10,000,000 shares authorized;
3,668,060 and 3,617,120 shares issued 37 36
Additional paid-in capital 19,062 18,386
Treasury stock (498,303 shares at cost) (7,596) -
Retained earnings - substantially restricted 17,024 15,143
Accumulated other comprehensive income (loss) (31) 157
Unallocated shares - Employee Stock Ownership Plan (232) (312)
Unallocated shares - Recognition and Retention Plans (326) (432)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 27,938 32,978
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 348,408 $ 297,054
========= =========
See accompanying notes to the consolidated financial statements.
22
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended June 30,
1999 1998 1997
---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 12,850 $ 13,191 $ 12,440
Investment securities 5,414 5,908 5,696
Mortgage-backed securities 4,280 2,715 2,724
Interest-earning demand deposits 77 73 80
Federal Home Loan Bank stock 378 259 185
---------- ---------- ----------
Total interest and dividend income 22,999 22,146 21,125
---------- ---------- ----------
INTEREST EXPENSE
Deposits (Note 11) 6,537 6,943 7,086
Borrowings 6,202 4,838 3,798
---------- ---------- ----------
Total interest expense 12,739 11,781 10,884
---------- ---------- ----------
NET INTEREST INCOME 10,260 10,365 10,241
Provision for loan losses (Note 7) - (120) 60
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,260 10,485 10,181
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposits 264 234 203
Investment securities gains, net 36 - 30
Other 190 304 141
---------- ---------- ----------
Total noninterest income 490 538 374
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,803 3,855 2,962
Occupancy and equipment 362 399 416
Deposit insurance premium (Note 21) 101 107 1,294
Data processing 175 169 171
Correspondent bank charges 127 118 113
Other 717 774 710
---------- ---------- ----------
Total noninterest expense 4,285 5,422 5,666
---------- ---------- ----------
Income before income taxes 6,465 5,601 4,889
Income taxes (Note 18) 2,434 2,109 1,930
---------- ---------- ----------
NET INCOME $ 4,031 $ 3,492 $ 2,959
========== ======== ========
EARNINGS PER SHARE:
Basic $ 1.18 $ 1.01 $ 0.88
Diluted 1.17 0.98 0.85
AVERAGE SHARES OUTSTANDING:
Basic 3,405,662 3,470,479 3,369,796
Diluted 3,435,738 3,574,043 3,490,226
See accompanying notes to the consolidated financial statements.
23
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Retained
Additional Unallocated Unallocated Earnings-
Common Paid-in Treasury Shares Held Shares Held Substantially
Stock Capital Stock by ESOP by RRP Restricted
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1996 $ 17 $ 16,947 $ - $ (584) $ (835) $ 18,861
Comprehensive income:
Net income 2,959
Unrealized gain on available
for sale securities
Reclassification adjustment for
realized gains included in
net income, net of tax ---------
Total comprehensive income 2,959
Release of earned ESOP shares 184 131
Accrued compensation expense for RRPs 204
Exercise of stock options 105
Cash dividends declared ($1.50 per share) (4,920)
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1997 17 17,236 - (453) (631) 16,900
Comprehensive income:
Net income 3,492
Unrealized gain on available
for sale securities
---------
Total comprehensive income 3,492
Release of earned ESOP shares 360 141
Accrued compensation expense for RRPs 199
Exercise of stock options 1 635
Tax benefit from stock grants issued
under RRPs 173
Two-for-one stock split 18 (18)
Cash dividends declared ($1.50 per share) (5,249)
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1998 36 18,386 - (312) (432) 15,143
Comprehensive income:
Net income 4,031
Unrealized loss on available
for sale securities
Reclassification adjustment for
realized gains included in
net income, net of tax ---------
Total comprehensive income 4,031
Release of earned ESOP shares 165 80
Accrued compensation expense for RRPs 106
Exercise of stock options 1 253
Tax benefit from exercise of stock options 257
Tax benefit from stock grants issued
under RRPs 1
Purchase of treasury stock (7,596)
Cash dividends declared ($0.63 per share) (2,150)
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1999 $ 37 $ 19,062 $ (7,596) $ (232) $ (326) $ 17,024
======== =========== ======== ======= ======== =========
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- -----
Balance, June 30, 1996 $ (368) $ 34,038
Comprehensive income:
Net income 2,959
Unrealized gain on available
for sale securities 168 168
Reclassification adjustment for
realized gains included in
net income, net of tax 20 20
-------- -----------
Total comprehensive income 188 3,147
Release of earned ESOP shares 315
Accrued compensation expense for RRPs 204
Exercise of stock options 105
Cash dividends declared ($1.50 per share) (4,920)
-------- -----------
Balance, June 30, 1997 (180) 32,889
Comprehensive income:
Net income 3,492
Unrealized gain on available
for sale securities 337 337
-------- -----------
Total comprehensive income 337 3,829
Release of earned ESOP shares 501
Accrued compensation expense for RRPs 199
Exercise of stock options 636
Tax benefit from stock grants issued
under RRPs 173
Two-for-one stock split -
Cash dividends declared ($1.50 per share) (5,249)
-------- -----------
Balance, June 30, 1998 157 32,978
Comprehensive income:
Net income 4,031
Unrealized loss on available
for sale securities (212) (212)
Reclassification adjustment for
realized gains included in
net income, net of tax 24 24
-------- -----------
Total comprehensive income (188) 3,843
Release of earned ESOP shares 245
Accrued compensation expense for RRPs 106
Exercise of stock options 254
Tax benefit from exercise of stock options 257
Tax benefit from stock grants issued
under RRPs 1
Purchase of treasury stock (7,596)
Cash dividends declared ($0.63 per share) (2,150)
-------- -----------
Balance June 30, 1999 $ (31) $ 27,938
======== ===========
See accompanying notes to the consolidated financial statements.
24
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended June 30,
1999 1998 1997
--------- --------- --------
OPERATING ACTIVITIES
Net income $ 4,031 $ 3,492 $ 2,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses - (120) 60
Depreciation and amortization, net 116 126 134
Amortization of discounts, premiums, and
deferred loan fees 96 (32) 111
Amortization of ESOP and RRP deferred
compensation 350 899 519
Investment securities gains, net (36) - (30)
Deferred income taxes 87 (202) (52)
Decrease (increase) in accrued interest receivable (691) 396 (436)
Increase in accrued interest payable 56 106 343
Other, net 363 445 71
--------- --------- --------
Net cash provided by operating activities 4,372 5,110 3,679
--------- --------- --------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and mortgage-backed
securities (26,908) (36,992) (1,508)
Proceeds from repayments of investment and
mortgage-backed securities 52,022 20,731 2,711
Proceeds from sale of investment and
mortgage-backed securities 905 2,192 1,678
Held to maturity:
Purchase of investment and mortgage-backed
securities (168,868) (99,744) (75,006)
Proceeds from repayments of investment and
mortgage-backed securities 105,881 112,017 48,856
Net increase in net loans receivable (13,139) (2,602) (9,476)
Proceeds from sale of real estate owned - - 73
Proceeds from sale of loans - 2,914 -
Increase in Federal Home Loan Bank stock (1,520) (748) (2,027)
Acquisition of premises and equipment (91) (8) (105)
Other, net (11) - -
--------- --------- --------
Net cash used for investing activities (51,729) (2,240) (34,804)
--------- --------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,261 (3,427) (205)
Net increase in Federal Home Loan Bank advances 28,043 11,000 39,857
Net increase (decrease) in other borrowings 24,931 (5,895) (3,868)
Net proceeds from issuance of common stock 255 636 105
Cash dividends paid (2,150) (5,249) (4,920)
Purchase of treasury stock (7,596) - -
--------- --------- --------
Net cash provided by (used for) financing activities 46,744 (2,935) 30,969
--------- --------- --------
Decrease in cash and cash equivalents (613) (65) (156)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 2,506 2,571 2,727
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,893 $ 2,506 $ 2,571
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 12,683 $ 11,675 $ 10,541
Taxes 2,059 2,286 2,118
See accompanying notes to the consolidated financial statements.
25
WVS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
WVS Financial Corp. ("WVS" or the "Company") is a Pennsylvania-chartered unitary
bank holding company which owns 100 percent of the common stock of West View
Savings Bank ("West View" or the "Savings Bank"). The operating results of the
Company depend primarily upon the operating results of the Savings Bank and, to
a lesser extent, income from interest-earning assets such as investment
securities.
West View is a Pennsylvania-chartered, SAIF-insured stock savings bank
conducting business from six offices in the North Hills suburbs of Pittsburgh.
The Savings Bank's principal sources of revenue emanate from its portfolio of
residential real estate and commercial mortgage loans as well as income from
investment and mortgage-backed securities.
The Company is supervised by the Board of Governors of the Federal Reserve
System, while the Savings Bank is subject to regulation and supervision by the
Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department
of Banking.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of WVS and its
wholly-owned subsidiary, West View. All intercompany transactions have been
eliminated in consolidation. The accounting and reporting policies of WVS and
West View conform with generally accepted accounting principles. The Company's
fiscal year-end for financial reporting is June 30. For regulatory and income
tax reporting purposes, WVS reports on a December 31 calendar year basis.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that effect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for that
period. Actual results could differ significantly from those estimates.
Investment and Mortgage-backed Securities
- -----------------------------------------
Investment securities are classified at the time of purchase as securities held
to maturity or securities available for sale based on management's ability. Debt
and mortgage-backed securities acquired with the ability and intent to hold to
maturity are stated at cost adjusted for amortization of premium and accretion
of discount, which are computed using the interest method and recognized as
adjustments of interest income. Amortization rates for mortgage-backed
securities are periodically adjusted to reflect changes in the prepayment speeds
of the underlying mortgages. Certain other debt, equity, and mortgage-backed
securities have been classified as available for sale to serve principally as a
source of liquidity. Unrealized holding gains and losses for available for sale
securities are reported as a separate component of stockholders' equity, net of
tax, until realized. Realized securities gains and losses are computed using the
specific identification method. Interest and dividends on investment and
mortgage-backed securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank (the "FHLB") represents ownership in
an institution which is wholly-owned by other financial institutions. This
equity security is accounted for at cost and reported separately on the
accompanying consolidated balance sheet.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loans Receivable
- --------------------
Net loans receivable are reported at their principal amount, net of the
allowance for loan losses and deferred loan fees. Interest on mortgage,
consumer, and commercial loans is recognized on the accrual method. The
Company's general policy is to stop accruing interest on loans when, based upon
relevant factors, the collection of principal or interest is doubtful,
regardless of the contractual status. Interest received on nonaccrual loans is
recorded as income or applied against principal according to management's
judgment as to the collectibility of such principal.
Loan origination and commitment fees, and all incremental direct loan
origination costs, are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential loan losses in its loan portfolio. The
allowance method is used in providing for loan losses. Accordingly, all loan
losses are charged to the allowance, and all recoveries are credited to the
allowance. The allowance for loan losses is established through a provision for
loan losses which is charged to operations. The provision is based on
management's periodic evaluation of the adequacy of the allowance for loan
losses which encompasses the overall risk characteristics of the various
portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors. The estimates used in
determining the adequacy of the allowance for loan losses including the amounts
and timing of future cash flows expected on impaired loans are particularly
susceptible to significant change in the near term.
A loan is considered impaired when it is probable the borrower will not repay
the loan according to the original contractual terms of the loan agreement.
Management has determined that first mortgage loans on one-to-four family
properties and all consumer loans represent large groups of smaller-balance
homogeneous loans that are to be collectively evaluated. All other loans, such
as commercial business loans and loans secured by commercial real estate, are
individually evaluated. Management considers an insignificant delay, which is
defined as less than 90 days by the Company, will not cause a loan to be
classified as impaired. A loan is not impaired during a period of delay in
payment if the Company expects to collect all amounts due including interest
accrued at the contractual interest rate for the period of delay. All loans
identified as impaired are evaluated independently by management. The Company
estimates credit losses on impaired loans based on the present value of expected
cash flows or the fair value of the underlying collateral if the loan repayment
is expected to come from the sale or operation of such collateral. Impaired
loans, or portions thereof, are charged off when it is determined that a
realized loss has occurred. Until such time, an allowance for loan losses is
maintained for estimated losses. Cash receipts on impaired loans are applied
first to accrued interest receivable, unless otherwise required by the loan
terms, except when an impaired loan is also a nonaccrual loan, in which case the
portion of the receipts related to interest is recognized as income.
Real Estate Owned
- -----------------
Real estate owned acquired through foreclosure is carried at the lower of cost
or fair value minus estimated costs to sell. Costs relating to development and
improvement of the property are capitalized, whereas costs of holding such real
estate are expensed as incurred. Valuation allowances for estimated losses are
provided when the carrying value of the real estate acquired exceeds the fair
value.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is principally computed on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over their estimated useful lives or their respective lease terms,
whichever is shorter. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions and improvements are
capitalized.
Income Taxes
- ------------
Deferred tax assets and liabilities are computed based on the difference between
the financial statement and the income tax basis of assets and liabilities using
the enacted marginal tax rates. Deferred income taxes or benefits are based on
the changes in the deferred tax asset or liability from period to period.
The Company files a consolidated federal income tax return. Deferred tax assets
and liabilities are reflected at currently enacted income tax rates applicable
to the period in which such items are expected to be realized or settled. As
changes in tax rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Earnings Per Share
- ------------------
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is calculated by dividing net
income available to common stockholders, adjusted for the effects of any
dilutive securities, by the weighted-average number of common shares
outstanding, adjusted for the effects of any dilutive securities.
Comprehensive Income
- --------------------
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." In adopting Statement No.
130, the Company is required to present comprehensive income and its components
in a full set of general purpose financial statements for all periods presented.
The Company has elected to report the effects of Statement No. 130 as part of
the Consolidated Statements of Stockholders' Equity.
Cash Flow Information
- ---------------------
Cash and cash equivalents include cash and due from banks and interest-earning
demand deposits.
Reclassification of Comparative Figures
- ---------------------------------------
Certain comparative amounts for prior years have been reclassified to conform to
current year presentations. Such reclassifications did not effect net income.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement provides accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring the recognition of those items as
assets or liabilities in the statement of financial position, recorded at fair
value. Statement No. 133 precludes a held to maturity security from being
designated as a hedged item; however, at the date of initial application of this
statement, an entity is permitted to transfer any held to maturity security into
the available for sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Such transfers do not raise an issue regarding an
entity's intent to hold other debt securities to maturity in the future. In June
1999, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133." This Statement delayed the effective date
of Statement No. 133 for one year, to fiscal years beginning after June 15,
2000. Earlier adoption is permitted for any fiscal quarter that begins after the
issue date of Statement No. 133.
The Financial Accounting Standards Board also issued Statement of Financial
Accounting Standards No. 134, "Accounting for Mortgage-backed Securities
Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise." This Statement requires that after the securitization of
mortgage loans, an entity classify the resulting mortgage-backed securities or
other retained interest based on its ability and intent to sell or hold these
securities in accordance with Statement No. 115. This Statement applies to the
first fiscal quarter beginning after December 31, 1998; however, early adoption
is permitted as of the issue date of the Statement.
The Company does not believe the effect of the adoption of these accounting
statements will be material.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
1999 1998 1997
---------- ---------- ----------
Weighted-average common shares
outstanding 3,662,402 3,548,088 3,477,126
Average treasury stock shares (201,716) - -
Average unearned ESOP shares (55,024) (77,609) (107,330)
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 3,405,662 3,470,479 3,369,796
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 30,076 103,564 120,430
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 3,435,738 3,574,043 3,490,226
========== ========== ==========
There are no convertible securities which would effect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the consolidated statements of income is used.
3. COMMON STOCK SPLIT
On April 28, 1998, the Board of Directors approved a two-for-one stock split.
All references to the number of common shares and per share amounts for 1997
have been restated to reflect the stock split.
4. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments are as follows:
1999
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
AVAILABLE FOR SALE
Equity securities $1,380 $42 $(20) $1,402
====== === ==== ======
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. INVESTMENT SECURITIES (Continued)
1999
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
HELD TO MATURITY
U.S. Government agency securities $ 88,714 $ 6 $ (2,871) $ 85,849
Obligations of states and political
subdivisions 2,050 -- (49) 2,001
---------- ------ --------- ---------
Total $ 90,764 $ 6 $ (2,920) $ 87,850
========== ====== ========= =========
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
AVAILABLE FOR SALE
Corporate securities $ 15,419 $ -- $ (3) $ 15,416
Equity securities 2,062 86 (45) 2,103
--------- ------- --------- ---------
Total $ 17,481 $ 86 $ (48) $ 17,519
========= ======= ========= =========
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
HELD TO MATURITY
U.S. Government agency securities $ 63,749 $ 262 $ (15) $ 63,996
--------- ------- -------- ---------
Total $ 63,749 $ 262 $ (15) $ 63,996
========= ======= ======== =========
The amortized cost and estimated market values of debt securities at June 30,
1999, by contractual maturity, are shown below. Expected maturities may differ
from the contractual maturities because issuers may have the right to call
securities prior to their final maturities.
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
------- ---------- --------- --------- -----
HELD TO MATURITY
Amortized cost $ 1,215 $ - $ 8,685 $80,864 $90,764
Estimated market value 1,215 - 8,642 77,993 87,850
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. INVESTMENT SECURITIES (Continued)
Proceeds from the sale of investment securities available for sale and the gross
realized gains and losses for the year ended June 30, are as follows:
1999 1998 1997
---- ------ ------
Proceeds $905 $2,192 $1,678
Gross gains 156 - 30
Gross losses 120 - -
Investment securities with carrying values of $28,224 and $2,000 and estimated
market values of $29,104 and $2,003 at June 30, 1999 and 1998, respectively,
were pledged to secure public deposits, repurchase agreements, and for other
purposes as required by law.
5. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities are
as follows:
1999
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
AVAILABLE FOR SALE
Federal National Mortgage
Association certificates $6,632 $ 1 $ (114) $ 6,519
Government National Mortgage
Association certificates 766 14 - 780
Federal Home Loan Mortgage
Corporation certificates 214 4 - 218
Collateralized mortgage obligations issued
by agencies of the U.S. Government 878 24 - 902
Corporate collateralized mortgage obligations 852 2 - 854
------ ---- ------ -------
Total $9,342 $ 45 $ (114) $ 9,273
====== ==== ====== =======
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. MORTGAGE-BACKED SECURITIES(Continued)
1999
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
HELD TO MATURITY
Federal National Mortgage
Association certificates $ 103 $ 4 $ - $ 107
Government National Mortgage
Association certificates 1,107 10 (8) 1,109
Federal Home Loan Mortgage
Corporation certificates 146 10 - 156
Collateralized mortgage obligations issued
by agencies of the U.S. Government 18,847 375 (130) 19,092
Corporate collateralized mortgage obligations 42,904 35 (1,236) 41,703
-------- ---- ------- ---------
Total $ 63,107 $434 $(1,374) $ 62,167
======== ==== ======= =========
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
AVAILABLE FOR SALE
Federal National Mortgage
Association certificates $ 9,178 $ 83 $ (6) $ 9,255
Government National Mortgage
Association certificates 1,022 27 - 1,049
Federal Home Loan Mortgage
Corporation certificates 308 6 - 314
Collateralized mortgage obligations issued
by agencies of the U.S. Government 8,334 89 - 8,423
-------- ---- -------- --------
Total $ 18,842 $205 $ (6) $ 19,041
========= ==== ======== =========
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. MORTGAGE-BACKED SECURITIES(Continued)
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
HELD TO MATURITY
Federal National Mortgage
Association certificates $ 151 $ 8 $ - $ 159
Government National Mortgage
Association certificates 1,156 15 - 1,171
Federal Home Loan Mortgage
Corporation certificates 246 19 - 265
Collateralized mortgage obligations issued
by agencies of the U.S. Government 25,001 437 (7) 25,431
Collateralized mortgage obligations backed
by securities issued by U.S. Government
agencies 719 32 - 751
-------- ----- -------- --------
Total $ 27,273 $ 511 $ (7) $ 27,777
======== ===== ======== ========
The amortized cost and estimated market values of mortgage-backed securities at
June 30, 1999, by contractual maturity, are shown below. Expected maturities may
differ from the contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
----------- ------------ --------- ------------ ------------
AVAILABLE FOR SALE
Amortized cost $ 55 $ 1,670 $ 66 $ 7,551 $ 9,342
Estimated market value 55 1,631 71 7,516 9,273
HELD TO MATURITY
Amortized cost $ - $ 32 $ 140 $ 62,935 $ 63,107
Estimated market value - 33 150 61,984 62,167
Mortgage-backed securities with a carrying value of $31,183 and an estimated
market value of $32,216 at June 30, 1999, were pledged to secure borrowings with
the Federal Home Loan Bank.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
6. NET LOANS RECEIVABLE
Major classifications of loans are summarized as follows:
1999 1998
-------- --------
First mortgage loans:
1 - 4 family dwellings $103,035 $104,849
Construction 23,810 17,779
Land acquisition and development 7,646 7,233
Multi-family dwellings 5,925 4,012
Commercial 27,826 20,291
-------- --------
168,242 154,164
-------- --------
Consumer loans:
Home equity 5,727 7,801
Home equity lines of credit 10,740 5,812
Education loans 11 591
Other 2,153 2,336
-------- --------
18,631 16,540
-------- --------
Commercial loans 1,720 290
-------- --------
Obligations of state and political subdivisions 720 730
-------- --------
Less:
Undisbursed construction and land development 16,327 11,312
Net deferred loan fees 817 815
Allowance for loan losses 1,842 1,860
-------- --------
18,986 13,987
-------- --------
Net loans receivable $170,327 $157,737
======== ========
The Company's primary business activity is with customers located within its
local trade area of Northern Allegheny and Southern Butler counties. The Company
has concentrated its lending efforts by granting residential and construction
mortgage loans to customers throughout its immediate trade area. The Company
also selectively funds and participates in commercial and residential mortgage
loans outside of its immediate trade area, provided such loans meet the
Company's credit policy guidelines. In general, the Company's loan portfolio
performance at June 30, 1999 and 1998, is dependent upon the local economic
conditions.
As of June 30, 1999, 1998, and 1997 there were no material impaired loans for
disclosure purposes. Total nonaccrual loans and troubled debt restructurings and
the related interest income recognized for the years ended June 30, are as
follows:
1999 1998 1997
---- ---- ----
Principal outstanding $546 $603 $274
---- ---- ----
Interest income that would
have been recognized $ 42 $ 64 $ 35
Interest income recognized 41 44 20
---- ---- ----
Interest income foregone $ 1 $ 20 $ 15
==== ==== ====
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
6. NET LOANS RECEIVABLE(Continued)
Certain officers, directors, and their associates were customers of, and had
transactions with, the Company in the ordinary course of business. A summary of
loan activity for those directors, executive officers, and their associates with
aggregate loan balances outstanding of at least $60,000 during the years ended
June 30, are as follows:
1999 1998
------- -------
Balance, July 1 $ 1,664 $ 1,458
Additions 662 335
Amounts collected (768) (129)
Other (732) -
------- -------
Balance, June 30 $ 826 $ 1,664
======= =======
7. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
1999 1998 1997
------ ------- ------
Balance, July 1 $1,860 $ 2,009 $1,964
Add:
Provision charged to operations - (120) 60
Recoveries 2 10 3
Less loans charged off 20 39 18
------ ------- ------
Balance, June 30 $1,842 $ 1,860 $2,009
====== ======= ======
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
1999 1998
------ ------
Investment and mortgage-backed securities $2,082 $1,406
Loans receivable 1,023 1,008
------ ------
Total $3,105 $2,414
====== ======
9. FEDERAL HOME LOAN BANK STOCK
The Savings Bank is a member of the Federal Home Loan Bank System. As a member,
West View maintains an investment in the capital stock of the Federal Home Loan
Bank ("FHLB") of Pittsburgh in an amount not less than one percent of its
outstanding qualifying assets as defined by the FHLB or 1/20 of its outstanding
FHLB borrowings, whichever is greater, as calculated throughout the year.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
10. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
1999 1998
------ ------
Land and improvements $ 226 $ 226
Buildings and improvements 1,937 1,923
Furniture, fixtures, and equipment 970 915
------ ------
3,133 3,064
Less accumulated depreciation 1,979 1,885
------ ------
Total $1,154 $1,179
====== ======
Depreciation charged to operations was $116, $126, and $134, for the years ended
June 30, 1999, 1998, and 1997, respectively.
During 1998, having satisfied the criteria defined in Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate," a deferred
gain on the sale of branch office property of $136 was recognized and included
in other noninterest income on the consolidated statements of income.
11. DEPOSITS
Deposit accounts are summarized as follows:
1999 1998
-------------------- ---------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------ --------- ------ ---------
Noninterest-earning checking $ 9,037 5.2% $ 7,528 4.4%
Interest-earning checking 16,668 9.6 15,347 9.0
Savings accounts 38,923 22.3 37,966 22.2
Money market accounts 12,610 7.2 13,259 7.8
Advance payments by borrowers
for taxes and insurance 3,130 1.8 3,312 1.9
-------- ----- -------- -----
80,368 46.1 77,412 45.3
-------- ----- -------- -----
Savings certificates:
5.00% or less 38,906 22.3 12,819 7.5
5.01 - 6.00% 47,611 27.3 66,527 38.9
6.01 - 7.00% 4,991 2.9 7,812 4.6
7.01 or more 2,368 1.4 6,412 3.7
-------- ----- -------- -----
93,876 53.9 93,570 54.7
-------- ----- -------- -----
Total $174,244 100.0% $170,982 100.0%
======== ===== ======== =====
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
11. DEPOSITS(Continued)
The maturities of savings certificates at June 30, 1999, are summarized as
follows:
Within one year $60,771
Beyond one year but within two years 14,323
Beyond two years but within three years 7,674
Beyond three years 11,108
-------
Total $93,876
=======
Savings certificates with balances of $100 thousand or more amounted to $10,948
and $10,250 on June 30, 1999 and 1998. The Company does not have any brokered
deposits.
Interest expense by deposit category for the years ended June 30, are as
follows:
1999 1998 1997
------ ------ ------
Checking accounts $ 141 $ 180 $ 172
Savings accounts 920 957 940
Money market accounts 316 309 327
Savings certificates 5,160 5,497 5,647
------ ------ ------
Total $6,537 $6,943 $7,086
====== ====== ======
12. FEDERAL HOME LOAN BANK ADVANCES
The following table presents information regarding FHLB term advances as of June
30:
Weighted- Weighted-
Maturing During average average
Fiscal Year Ended Interest Interest
June 30: 1999 Rate 1998 Rate
-------- ---- ---- ---- ----
2000 $ - - % $ 6,357 5.16%
2001 - - 8,000 5.89
2002 56,500 5.72 51,500 6.00
2003 - - - -
2004 and thereafter 47,000 5.11 23,000 5.05
--------- ----------
Total $ 103,500 $ 88,857
========= ==========
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
12. FEDERAL HOME LOAN BANK ADVANCES(Continued)
WVS also utilized revolving and short-term FHLB advances. Short-term FHLB
advances generally mature within 90 days, while revolving FHLB advances may be
repaid by the Company without penalty. The following table presents information
regarding such advances as of June 30:
1999 1998
-------- --------
FHLB revolving and short-term advances:
Ending balance $ 13,400 $ -
Average balance during the year 13,303 3,523
Maximum month-end balance during the year 28,550 13,355
Average interest rate during the year 5.57% 5.72%
Weighted-average rate at year end 5.58% -
At June 30, 1999, WVS had an unused borrowing capacity of approximately $79,949.
Although no specific collateral is required to be pledged, Federal Home Loan
Bank advances are secured by a blanket security agreement that includes the
Company's FHLB stock, investment and mortgage-backed securities held in
safekeeping at the FHLB, and certain qualifying first mortgage loans.
13. OTHER BORROWINGS
Other borrowings include Treasury, Tax, and Loan ("TT&L") demand notes and
securities sold under agreements to repurchase with securities brokers. TT&L
notes amounted to $749 and $889 at June 30, 1999 and 1998. Repurchase agreements
amounted to $25,071 as of June 30, 1999. There were no outstanding repurchase
agreements at June 30, 1998. The outstanding repurchase agreements generally
mature within one to 92 days from the transaction date and qualifying collateral
has been delivered. The Company pledged investment securities with a carrying
value of $25,812 at June 30, 1999, as collateral for the repurchase agreements
as explained in Note 4. The following table presents information regarding other
borrowings as of June 30:
1999 1998
-------- --------
Ending balance $25,820 $ -
Average balance during the year 12,473 5,616
Maximum month-end balance during the year 25,820 11,195
Average interest rate during the year 5.12% 5.69%
Weighted-average rate at year end 5.16% -
14. COMMITMENTS AND CONTINGENT LIABILITIES
Loan commitments
- ----------------
In the normal course of business, there are various outstanding commitments and
certain contingent liabilities which are not reflected in the accompanying
consolidated balance sheet. Various loan commitments totaling $30,009 and
$23,789 at June 30, 1999 and 1998, respectively, represent financial instruments
with off-balance sheet risk.
Loan commitments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated balance sheet.
The same credit policies are used in making commitments and conditional
obligations as for on-balance sheet instruments. Generally, collateral, usually
in the form of real estate, is required to support financial instruments with
credit risk.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. COMMITMENTS AND CONTINGENT LIABILITIES(Continued)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of the undisbursed portion of construction
and land development loans (Note 6), residential, commercial real estate, and
consumer loan originations.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all commitments to
extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses.
Litigation
The Company is involved with various other legal actions arising in the ordinary
course of business. Management believes the outcome of these matters will have
no material effect on the consolidated operations or financial condition of WVS.
15. REGULATORY CAPITAL
Federal regulations require the Company and Savings Bank to maintain minimum
amounts of capital. Specifically, each is required to maintain certain minimum
dollar amounts and ratios of Total and Tier I Capital to Risk-weighted Assets
and of Tier I Capital to Average Total Assets.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from well capitalized to critically undercapitalized. Should any
institution fail to meet the requirements to be considered adequately
capitalized, respectively, it would become subject to a series of increasingly
restrictive regulatory actions.
As of June 30, 1999 and 1998, the FDIC categorized the Savings Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
classified as a well capitalized financial institution, Total Risk-based, Tier 1
Risk-based, and Tier 1 Leverage Capital Ratios must be at least ten percent, six
percent, and five percent, respectively.
The Company and Savings Bank's actual capital ratios are presented in the
following tables, which shows that both met all regulatory capital requirements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
15. REGULATORY CAPITAL(Continued)
June 30, 1999
------------------------------------------------
WVS Financial Corp. West View Savings Bank
------------------- ----------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Total Capital
(to Risk-weighted Assets)
- -------------------------
Actual $29,821 16.90% $ 28,594 16.28%
To Be Well Capitalized 17,644 10.00 17,560 10.00
For Capital Adequacy Purposes 14,115 8.00 14,048 8.00
Tier I Capital
(to Risk-weighted Assets)
- -------------------------
Actual $27,969 15.85% $ 26,747 15.23%
To Be Well Capitalized 10,587 6.00 10,536 6.00
For Capital Adequacy Purposes 7,058 4.00 7,024 4.00
Tier I Capital
(to Average Total Assets)
- -------------------------
Actual $27,969 8.29% $ 26,747 7.95%
To Be Well Capitalized 16,876 5.00 16,814 5.00
For Capital Adequacy Purposes 13,501 4.00 13,451 4.00
June 30, 1998
------------------------------------------------
WVS Financial Corp. West View Savings Bank
------------------- ----------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Total Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $34,681 22.10% $29,665 19.40%
To Be Well Capitalized 15,700 10.00 15,298 10.00
For Capital Adequacy Purposes 12,560 8.00 12,238 8.00
Tier I Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $32,821 20.90% $27,805 18.20%
To Be Well Capitalized 9,420 6.00 9,179 6.00
For Capital Adequacy Purposes 6,280 4.00 6,119 4.00
Tier I Capital
(to Average Total Assets)
- ---------------------------
Actual $32,821 11.00% $27,805 9.40%
To Be Well Capitalized 14,941 5.00 14,712 5.00
For Capital Adequacy Purposes 11,952 4.00 11,770 4.00
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. STOCK BENEFIT PLANS
Stock Option Plan
- -----------------
The Company maintains a Stock Option Plan for the directors, officers, and
employees. An aggregate of 347,258 shares of authorized but unissued common
stock of WVS were reserved for future issuance under this plan. The stock
options typically have an expiration term of ten years, subject to certain
extensions and early terminations. The per share exercise price of an incentive
stock option shall at a minimum equal the fair market value of a share of common
stock on the date the option is granted. The per share exercise price of a
compensatory stock option granted shall at least equal the greater of par value
or 85 percent of the fair market value of a share of common stock on the date
the option is granted. Proceeds from the exercise of the stock options are
credited to common stock for the aggregate par value and the excess is credited
to paid-in capital.
The following table presents information related to the outstanding options:
Officers' and Weighted-
Employees' Directors' average
Stock Stock Exercise
Options Options Price
------- ------- -----
Outstanding, June 30, 1997 147,400 78,400 $ 5.15
Granted 91,084 2,800 15.63
Exercised (71,960) (50,600) 5.19
Forfeited (12,640) - 15.63
------- -------
Outstanding, June 30, 1998 153,884 30,600 $ 9.82
Granted - 2,800 14.75
Exercised (50,940) - 5.00
Forfeited (3,320) - 15.63
------- -------
Outstanding, June 30, 1999 99,624 33,400 $ 11.56
======= =======
Exercisable at year end 48,597 33,400
======= =======
Available for future grant 24,600 2,814
======= =======
At June 30, 1999, for officers and employees there were 99,624 options
outstanding, of which 48,597 were exercisable at a weighted average exercise
price of $13.05, and a weighted-average remaining contractual life of 7.27
years.
There were also 33,400 options outstanding for directors with exercise prices
between $5.00 and $15.625, with a weighted average exercise price of $7.10, and
a weighted-average remaining contractual life of 5.9 years. All of these options
are exercisable.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. STOCK BENEFIT PLANS (Continued)
As permitted under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-based Compensation," the Company has elected to continue
following Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized in the Company's
financial statements. Had compensation expense included stock option plan costs
determined based on the fair value at the grant dates for options granted under
these plans consistent with Statement No. 123, pro forma net income and earnings
per share would not have been materially different than that presented on the
consolidated statements of income.
Retention and Recognition Plans ("RRP")
- ---------------------------------------
The Company also maintains an RRP for substantially all officers, employees and
directors of the Company. The objective of the RRPs is to enable the Company to
retain its corporate officers, key employees, and directors who have the
experience and ability necessary to manage WVS and the Savings Bank. Officers
and key employees of the Company who were selected by members of a
Board-appointed committee are eligible to receive benefits under the RRPs.
Non-employee directors of the Company are eligible to participate in the RRP for
directors. WVS has appointed an independent fiduciary to serve as trustee for
the RRP Trusts.
An aggregate of 300,000 shares of common stock of WVS were acquired at
conversion for future issuance under these plans, of which 60,000 shares are
subject to the RRP for directors and 240,000 shares are subject to the RRP for
officers and key employees.
As of June 30, 1999, 126,880 RRP shares were available for future issuance. RRP
costs are accrued to operations, and added back to stockholders' equity, over a
four to ten-year vesting period.
Employee Stock Ownership Plan ("ESOP")
- --------------------------------------
WVS maintains an ESOP for the benefit of officers and Savings Bank employees who
have met certain eligibility requirements related to age and length of service.
An ESOP Trust was created, and acquired 161,000 shares of common stock in WVS's
initial public offering, using proceeds of a loan obtained from WVS, which bears
interest at one quarter point over the prime rate, adjusted quarterly. The loan,
which is secured by the shares of stock purchased, calls for quarterly interest
and principal payments over a ten-year term.
The Savings Bank makes quarterly contributions to the Trust to allow the Trust
to make the required loan payments to WVS. Shares are released from collateral
based upon the proportion of annual principal payments made on the loan each
year and allocated to eligible employees. As shares are released from
collateral, the Savings Bank reports compensation expense based upon the amounts
contributed or committed to be contributed each year and the shares become
outstanding for earnings per share computations. Dividends paid on allocated
ESOP shares are recorded as a reduction of retained earnings. Dividends paid on
unallocated shares are added to participant accounts and reported as
compensation. Compensation expense for the ESOP was $310, $680, and $487 for the
years ended June 30, 1999, 1998, and 1997, respectively.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. STOCK BENEFIT PLANS (Continued)
The following table presents the components of the ESOP shares at June 30:
1999 1998 1997
--------- -------- ---------
Allocated shares 98,574 70,398 45,208
Shares released for allocation 16,099 28,176 26,124
Shares distributed (10,391) - (934)
Unallocated shares 46,325 62,424 90,600
--------- -------- ---------
Total ESOP shares 150,607 160,998 160,998
========= ======== =========
Fair value of unreleased ESOP shares $ 701 $ 999 $ 1,246
========= ======== =========
During fiscal 1997, the ESOP purchased an additional 1,200 shares of WVS stock
which is included in the allocated share balance as of June 30, 1997. The 1,200
shares were purchased using vested participant funds.
17. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS
Profit Sharing Plan
- -------------------
The Company maintains a non-contributory profit sharing plan (the "Plan") for
its officers and employees who have met the age and length of service
requirements. The Plan is a defined contribution plan with the contributions
based on a percentage of salaries of the plan participants. In conjunction with
the Plan, an integrated 401(k) employee savings plan was also implemented.
Employees may contribute up to the maximum allowed by law. The Company may make
matching contributions as approved at the discretion of the Board of Directors.
The Company has made no matching contributions to date. The Company's
contributions to the Plan, which were charged to expense, were $200, $200, and
$172 for the years ended June 30, 1999, 1998, and 1997, respectively.
Directors' Deferred Compensation Plan
- -------------------------------------
The Company maintains a deferred compensation plan (the "Plan") for directors
who elect to defer all or a portion of their directors' fees. Deferred fees are
paid to the participants in installments commencing in the year following the
year the individual is no longer a member of the Board of Directors.
The Plan allows for the deferred amounts to be paid in shares of common stock at
the prevailing market price on the date of distribution. For fiscal years ended
June 30, 1999, 1998, and 1997, 42,598, 41,598, and 40,798 shares respectively,
were held by the Plan.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
18. INCOME TAXES
The provision for incomes taxes consits of:
1999 1998 1997
------ ------- -------
Currently payable:
Federal $2,035 $ 2,064 $ 1,747
State 312 247 235
------ ------- -------
2,347 2,311 1,982
Deferred 87 (202) (52)
------ ------- -------
Total $2,434 $ 2,109 $ 1,930
====== ======= =======
The following temporary differences gave rise to the net deferred tax assets at
June 30:
1999 1998
---- ------
Deferred tax assets:
Allowance for loan losses $639 $ 646
Deferred origination fees, net - 22
Net unrealized loss on securities available for sale 16 -
Deferred compensation 317 387
Other 17 22
---- ------
Total gross deferred tax assets 989 1,077
---- ------
Deferred tax liabilities:
Bad debt reserve for tax reporting purposes 279 353
Deferred origination fees, net 63 -
Net unrealized gain on securities available for sale - 81
Other 70 76
---- ------
Total gross deferred tax liabilities 412 510
---- ------
Net deferred tax assets $577 $ 567
==== ======
No valuation allowance was established at June 30, 1999 and 1998, in view of
WVS's ability to carryback to taxes paid in previous years, future anticipated
taxable income, which is evidenced by WVS's earnings potential, and deferred tax
liabilities at June 30.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
18. INCOME TAXES(Continued)
The following is a reconciliation between the actual provision for income taxes
and the amount of income taxes which would have been provided at federal
statutory rates for the years ended June 30:
1999 1998 1997
------------------- ------------------ --------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Provision at statutory rate $2,198 34.0% $1,904 34.0% $1,662 34.0%
State income tax, net of federal
tax benefit 206 3.2 163 2.9 155 3.2
Other, net 30 0.5 42 0.8 113 2.2
------ ----- ------ ----- ------ -----
Actual tax expense and
effective rate $2,434 37.7% $2,109 37.7% $1,930 39.4%
====== ==== ====== ==== ====== ====
19. REGULATORY MATTERS
Cash and Due from Banks
- -----------------------
The Federal Reserve requires the Savings Bank to maintain certain reserve
balances. The required reserves are computed by applying prescribed ratios to
the Savings Bank's average deposit transaction account balances. As of June 30,
1999 and 1998, the Savings Bank had required reserves of $684 and $577,
respectively. The required reserves are held in the form of vault cash and a
noninterest-bearing depository balance maintained directly with the Federal
Reserve.
Loans
- -----
Federal law prohibits the Company from borrowing from the Savings Bank unless
the loans are secured by specific obligations. Further, such secured loans are
limited in amount to ten percent of the Savings Bank's capital surplus.
Dividend Restrictions
- ---------------------
The Savings Bank is subject to the Pennsylvania Banking Code which restricts the
availability of surplus for dividend purposes. At June 30, 1999, surplus funds
of $3,363 were not available for dividends.
20. CONVERSION AND REORGANIZATION
In accordance with regulations at the time that the Savings Bank converted from
a mutual savings bank to a stock savings bank, a portion of retained earnings
was restricted by establishing a liquidation account. The liquidation account
will be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Savings Bank after the conversion, for a period
of ten years from the date of the stock conversion. The liquidation account will
be reduced annually to the extent that eligible account holders have reduced
their qualifying deposits. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the unlikely event of a
complete liquidation of the Savings Bank, each account holder will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for the accounts then
held.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION
On September 30, 1996, the President signed into law legislation which included
recapitalization of the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC") by a one-time charge to
SAIF-insured institutions of 65.7 basis points per one hundred dollars of
insurable deposits. The gross effect to the Savings Bank amounted to $1,138,
which is reflected in the consolidated statement of income for the year ended
June 30, 1997.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at June 30, are as follows:
1999 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial Assets
Cash, due from banks and interest-
earning demand deposits $ 1,893 $ 1,893 $ 2,506 $ 2,506
Investment securities 92,166 89,252 81,268 81,515
Mortgage-backed securities 72,380 71,440 46,314 46,818
Net loans receivable 170,327 173,575 157,737 168,150
Accrued interest receivable 3,105 3,105 2,414 2,414
Federal Home Loan Bank stock 6,195 6,195 4,675 4,675
-------- -------- -------- --------
Total financial assets $346,066 $345,460 $294,914 $306,078
======== ======== ======== ========
Financial Liabilities
Deposits $174,244 $174,190 $170,982 $171,194
FHLB advances 116,900 116,029 88,857 88,071
Other borrowings 25,820 25,820 889 889
Accrued interest payable 1,929 1,929 1,874 1,874
-------- -------- -------- --------
Total financial liabilities $318,893 $317,968 $262,602 $262,028
======== ======== ======== ========
Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from or to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments should be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated
losses and other factors, as determined through various option pricing formulas
or simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the resulting
estimated values may not be indicative of the amount realizable in the sale of a
particular financial instrument. In addition, changes in the assumptions on
which the estimated values are based may have a significant impact on the
resulting estimated values.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
As certain assets and liabilities, such as deferred tax assets, premises and
equipment, and many other operational elements of WVS are not considered
financial instruments, but have value, this estimated fair value of financial
instruments would not represent the full market value of WVS.
Estimated fair values have been determined by WVS using the best available data,
as generally provided in internal Savings Bank reports and regulatory reports,
using an estimation methodology suitable for each category of financial
instruments. The estimation methodologies used are as follows:
Cash, Due from Banks, Interest-earning Demand Deposits, Accrued Interest
- --------------------------------------------------------------------------------
Receivable and Payable, and Other Borrowings
- --------------------------------------------
The fair value approximates the current book value.
Investment Securities, Mortgage-backed Securities, and FHLB stock
- -----------------------------------------------------------------
The fair value of investment and mortgage-backed securities held to maturity is
equal to the available quoted market price. If no quoted market price is
available, fair value is estimated using the quoted market price for similar
securities. Since the FHLB stock is not actively traded on a secondary market
and held exclusively by member financial institutions, the estimated fair market
value approximates the carrying amount.
Net Loans Receivable and Deposits
- ---------------------------------
Fair value for consumer mortgage loans is estimated using market quotes or
discounting contractual cash flows for prepayment estimates. Discount rates were
obtained from secondary market sources, adjusted to reflect differences in
servicing, credit, and other characteristics.
The estimated fair values for consumer, fixed rate commercial and multi-family
real estate loans are estimated by discounting contractual cash flows for
prepayment estimates. Discount rates are based upon rates generally charged for
such loans with similar credit characteristics.
The estimated fair value for non-performing loans is the appraised value of the
underlying collateral adjusted for estimated credit risk.
Demand, savings, and money market deposit accounts are reported at book value.
The fair value of certificates of deposit is based upon the discounted value of
the contractual cash flows. The discount rate is estimated using average market
rates for deposits with similar average terms.
FHLB Advances
- -------------
The fair value of fixed rate advances are estimated using discounted cash flows,
based on current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amount on variable rate advances approximates their
fair value.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Commitments to Extend Credit
- ----------------------------
These financial instruments are generally not subject to sale and estimated fair
values are not readily available. The carrying value, represented by the net
deferred fee arising from the unrecognized commitment, and the fair value
determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 14 to these financial
statements.
23. PARENT COMPANY
Condensed financial information of WVS Financial Corp. is as follows:
CONDENSED BALANCE SHEET
June 30,
1999 1998
------- -------
ASSETS
Interest-earning deposits with subsidiary bank $ 325 $ 502
Investment securities available for sale 1,141 4,264
Investment and mortgage-backed securities held to maturity 18 616
Investment in subsidiary bank 26,151 27,200
Loan receivable from ESOP 232 312
Accrued interest receivable and other assets 77 101
------- -------
TOTAL ASSETS $27,944 $32,995
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 6 $ 17
Stockholders' equity 27,938 32,978
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,944 $32,995
======= =======
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. PARENT COMPANY(Continued)
CONDENSED STATEMENT OF INCOME
Year Ended June 30,
1999 1998 1997
------- ------ -------
INCOME
Loans $ 24 $ 33 $ 47
Investment and mortgage-backed securities 124 442 627
Dividend from subsidiary 5,000 - 3,500
Interest-earning deposits with subsidiary bank 31 31 16
Investment securities gains, net 36 - 4
------- ------ -------
Total income 5,215 506 4,194
------- ------ -------
OTHER OPERATING EXPENSE 94 111 86
------- ------ -------
Income before equity in undistributed
earnings of subsidiary 5,121 395 4,108
Equity in undistributed earnings of subsidiary (1,059) 3,202 (913)
------- ------ -------
Income before income taxes 4,062 3,597 3,195
Income taxes 31 105 236
------- ------ -------
NET INCOME $ 4,031 $3,492 $ 2,959
======= ====== =======
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. PARENT COMPANY(Continued)
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30,
1999 1998 1997
------- -------- -------
OPERATING ACTIVITIES
Net income $ 4,031 $ 3,492 $ 2,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary 1,059 (3,202) 913
Amortization of investment discounts and premiums (21) (120) 16
Amortization of ESOP and RRP deferred compensation 164 360 184
Investment securities gains, net (36) - (4)
Decrease in accrued interest receivable 2 63 8
Other 276 293 (130)
------- -------- -------
Net cash provided by operating activities 5,475 886 3,946
------- -------- -------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and
mortgage-backed securities (2,972) (12,735) (1,258)
Proceeds from sale of investment securities 905 - 13
Proceeds from repayments of investment and
mortgage-backed securities 5,229 9,842 -
Held to maturity:
Purchases of investment and mortgage-backed
securities - (7,579) -
Proceeds from repayments of investment and
mortgage-backed securities 596 14,156 2,021
ESOP loan repayments 81 141 111
------- -------- -------
Net cash provided by investing activities 3,839 3,825 887
------- -------- -------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 255 636 105
Cash dividends paid (2,150) (5,249) (4,920)
Purchases of treasury stock (7,596) - -
------- -------- -------
Net cash used for financing activities (9,491) (4,613) (4,815)
------- -------- -------
Increase (decrease) in cash and cash equivalents (177) 98 18
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 502 404 386
------- -------- -------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 325 $ 502 $ 404
======= ======== =======
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Three Months Ended
-------------------------------------------------------------
September December March June
1998 1998 1999 1999
----------- ----------- ----------- -----------
Total interest and dividend income $ 5,554 $ 5,710 $ 5,718 $ 6,017
Total interest expense 3,038 3,213 3,137 3,351
----------- ----------- ----------- -----------
Net interest income 2,516 2,497 2,581 2,666
Provision for loan losses - - - -
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,516 2,497 2,581 2,666
Investment securities gains, net - 36 - -
Total noninterest income 102 126 109 117
Total noninterest expense 1,061 1,113 1,039 1,072
----------- ----------- ----------- -----------
Income before income taxes 1,557 1,546 1,651 1,711
Income taxes 607 563 644 620
----------- ----------- ----------- -----------
Net income 950 $ 983 $ 1,007 $ 1,091
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.26 $ 0.28 $ 0.30 $ 0.34
Diluted 0.26 0.28 0.30 0.33
Average shares outstanding
Basic 3,596,067 3,514,757 3,364,721 3,165,631
Diluted 3,627,719 3,545,577 3,394,679 3,193,476
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited)(Continued)
Three Months Ended
-------------------------------------------------------------
September December March June
1997 1997 1998 1998
----------- ----------- ----------- -----------
Total interest and dividend income $ 5,550 $ 5,484 $ 5,515 $ 5,597
Total interest expense 2,969 2,939 2,892 2,981
----------- ----------- ----------- -----------
Net interest income 2,581 2,545 2,623 2,616
Provision for loan losses - (120) - -
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,581 2,665 2,623 2,616
Investment securities gains, net - - - -
Total noninterest income 90 106 98 244
Total noninterest expense 1,126 1,316 1,276 1,704
----------- ----------- ----------- -----------
Income before income taxes 1,545 1,455 1,445 1,156
Income taxes 610 459 571 469
----------- ----------- ----------- -----------
Net income $ 935 $ 996 $ 874 $ 687
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.27 $ 0.29 $ 0.25 $ 0.20
Diluted 0.26 0.28 0.24 0.20
Average shares outstanding
Basic 3,407,641 3,418,340 3,513,627 3,551,460
Diluted 3,531,473 3,547,240 3,593,231 3,633,379
53
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
WVS Financial Corp.'s common stock is traded on the over-the-counter market and
quoted on the Nasdaq Stock MarketSM National Market System under the symbol
"WVFC". The bid and ask quotations for the common stock on September 9, 1999
were:
Bid Ask
--- ---
$15 $15 3/8
The following table sets forth the high and low market prices, and cash
dividends declared, for the periods indicated. All data has been adjusted for
the two-for-one stock split paid on May 22, 1998.
Market Price
------------------------ Cash Dividends
Quarter Ended High Low Declared
- ------------- ---- --- --------
June 99 $15 3/8 $14 7/8 $ 0.16
March 99 15 3/8 14 3/4 0.16
December 98 15 1/2 14 5/8 0.16
September 98 16 1/4 15 1/8 0.15
June 98 $20 3/8 $16 $ 0.15
March 98 19 1/2 16 3/8 1.10(1)
December 97 17 5/8 14 1/8 0.15
September 97 14 5/8 12 5/8 0.10
- ---------------
(1) Includes special cash dividend of $0.95 per share paid during the quarter
ended March 31, 1998.
There were eight Nasdaq Market Makers in the Company's common stock as of June
30, 1999: F. J. Morrissey & Co., Inc.; Legg Mason Wood Walker, Inc.; Sandler
O'Neill & Partners; Herzog, Heine, Geduld, Inc.; Ryan, Beck & Co., Inc.;
Parker/Hunter, Inc.; Tucker Anthony, Inc.; and Spear, Leeds & Kellogg.
According to the records of the Company's transfer agent, there were
approximately 1014 shareholders of record at September 9, 1999. This does not
include any persons or entities who hold their stock in nominee or "street name"
through various brokerage firms.
Dividends are subject to determination and declaration by the Board of
Directors, which takes into account the Company's financial condition, statutory
and regulatory restrictions, general economic condition and other factors.
54
WVS FINANCIAL CORP.
CORPORATE INFORMATION
--------------------------------------------
CORPORATE OFFICES
WVS FINANCIAL CORP. o WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
COMMON STOCK
The common stock of WVS Financial Corp. is traded on The Nasdaq
Stock MarketSM under the symbol "WVFC".
TRANSFER AGENT & REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
INVESTOR RELATIONS
Janet L. Campisino
412-364-1911
COUNSEL
Bruggeman & Linn
SPECIAL COUNSEL
Elias, Matz, Tiernan & Herrick L.L.P.
WEST VIEW SAVINGS BANK
9001 Perry Highway
Pittsburgh, PA 15237
412-364-1911
WEST VIEW OFFICE
456 Perry Highway
412-931-2171
CRANBERRY OFFICE
20531 Perry Highway
412-931-6080/724-776-3480
FRANKLIN PARK OFFICE
2566 Brandt School Road
724-935-7100
BELLEVUE OFFICE
572 Lincoln Avenue
412-761-5595
SHERWOOD OAKS OFFICE
Serving Sherwood Oaks
Cranberry Twp.
LENDING DIVISION
2566 Brandt School Road
724-935-7400
BOARD OF DIRECTORS
David L. Aeberli
President
McDonald-Aeberli Funeral Home, Inc.
Arthur H. Brandt
President and CEO Brandt Excavating, Inc. and
Retired - Former President and CEO
Brandt Paving, Inc.
William J. Hoegel
Sole Proprietor
William J. Hoegel & Associates
Donald E. Hook
Chairman
Pittsburgh Cut Flower Co.
John M. Seifarth
Senior Engineer - Consultant
Nichols & Slagle Engineering, Inc.
David J. Bursic
President and Chief Executive Officer
WVS Financial Corp. and
West View Savings Bank
Margaret VonDerau
Senior Vice President, Treasurer and Secretary
WVS Financial Corp. and
West View Savings Bank
EXECUTIVE OFFICERS
William J. Hoegel
Chairman
David J. Bursic
President and
Chief Executive Officer
Margaret VonDerau
Senior Vice President, Treasurer and
Corporate Secretary
Edward M. Wielgus
Senior Vice President and
Chief Lending Officer
The members of the Board of Directors serve in that capacity for both the
Company and the Savings Bank.