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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For quarter ended June 30, 1996
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
------------- ---------------
Commission file number 0-23824
WFS BANCORP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3943114
--------------------------------- --------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
340 SOUTH BROADWAY
WICHITA, KANSAS 67202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 383-8404
Indicate by check mark whether Registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
There were 1,564,387 shares of common stock, par value $.01 per share, of the
registrant outstanding as of June 30, 1996.
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WFS BANCORP, INC.
INDEX
Page
Number
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 and 3
September 30, 1995
Consolidated Statements of Operations for the Three-Month 4
and Nine-Month Periods ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the Nine-Month 5
Periods ended June 30, 1996 and 1995
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II. OTHER INFORMATION 16
SIGNATURES 17
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WFS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(IN THOUSANDS)
JUNE 30, 1996
ASSETS (UNAUDITED) SEPTEMBER 30, 1995
------ ----------- ------------------
Cash and cash equivalents $ 16,137 $ 7,472
Investment securities 3,886 4,686
Investment securities available for sale 1,494 8,437
Stock in the FHLB, at cost 3,006 2,866
Mortgage-backed and related securities 30,020 79,622
Mortgage-backed and related securities available for sale 34,223 10,057
Loans receivable, net 173,665 175,722
Mortgage loans available for sale, net 406 274
Real estate owned and in judgment, net 219 566
Premises and equipment, net 2,169 2,304
Accrued interest receivable 1,704 2,015
Income tax receivable -- 83
Other assets 900 865
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TOTAL ASSETS $267,829 $294,969
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Deposits 193,140 199,656
FHLB advances & other borrowings 37,478 57,323
Advances from borrowers for taxes and insurance 1,417 2,845
Deferred income taxes 81 229
Income tax payable 101 --
Other liabilities 1,207 1,694
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TOTAL LIABILITIES 233,424 261,747
STOCKHOLDERS' EQUITY
--------------------
Preferred Stock, par value $0.01 per share
Authorized: 1,000,000 shares
Issued: 0 shares -- --
Common Stock, par value $0.01 per share
Authorized: 5,000,000 shares
Issued: 1,661,178 shares as of June 30, 1996 17 17
1,657,871 shares as of September 30, 1995
Additional paid in capital 16,487 16,258
Retained earnings - substantially restricted 19,533 18,505
Unrealized loss on securities available for sale (386) (63)
Unearned ESOP shares, 97,791 shares March 31, 1996;
107,057 shares September 30, 1995 (967) (1,071)
Unearned Compensation (279) (424)
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TOTAL STOCKHOLDERS' EQUITY 34,405 33,222
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $267,829 $294,969
======== ========
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WFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
NINE-MONTH PERIOD ENDED THREE-MONTH PERIOD ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
Interest income:
Loans receivable $11,079 $8,070 $3,655 $3,078
Investment securities 685 825 244 389
Dividends on stock in FHLB 140 98 50 37
Mortgage-backed and related securities 4,206 5,860 1,222 1,837
------- ------ ------ ------
Total interest income and dividends 16,110 14,853 5,171 5,341
Interest expense:
Deposits 7,681 7,091 2,457 2,717
Other borrowings 2,036 1,887 574 698
------- ------ ------ ------
Total interest expense 9,717 8,978 3,031 3,415
Net interest income 6,393 5,875 2,120 1,926
Provision for loan losses
(reduction of allowance) charged (credited) to expense 115 189 25 126
------- ------ ------ ------
Net interest income after provision for loan losses
(reduction of allowance) 6,278 5,686 2,095 1,800
------- ------ ------ ------
Other income:
Fees and service charges 410 361 138 126
Gain (loss) on sale of investment securities (56) (38) 0 (38)
Gain (loss) on sale of mortgage-backed and related securities (377) (514) 0 (514)
Gain (loss) on sale of loans 35 25 12 27
Other income 237 491 147 128
------- ------ ------ ------
Total other income 249 325 297 (271)
------- ------ ------ ------
Other expenses:
Compensation and employee benefits 2,365 2,550 738 855
Occupancy 344 359 104 122
Advertising 77 197 13 44
Federal insurance premiums 349 326 116 109
Loss (gain) on real estate owned activities (net) (92) 29 4 (33)
Other expenses 1,032 1,009 309 349
------- ------ ------ ------
Total other expenses 4,075 4,470 1,284 1,446
------- ------ ------ ------
Income before income taxes 2,452 1,541 1,108 83
Income tax expense 955 597 437 33
------- ------ ------ ------
Net income $ 1,497 $ 944 $ 671 $ 50
======= ====== ====== ======
Net income per share $ 0.96 $ 0.63 $ 0.43 $ 0.03
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WFS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
JUNE 1996 JUNE 1995
--------- ---------
(in thousands)
Cash flows from operating activities:
Net Income 1,497 944
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 133 141
Provision for loan losses charged to expense 115 189
Amortization of gains and losses on financial futures
and options 85 239
Amortization of premiums and discounts on investment
securities and mortgage-backed and related securities 202 400
Amortization of premiums and discounts on investment
securities and mortgage-backed and related securities
available for sale 100 (124)
Provision for loss on real estate owned (55) (35)
Additionas to real estate owned -- (42)
Gain/loss on sale of real estate owned (94) (26)
Loss on sale of mortgage-backed and related securities
available for sale 377 514
Loss on sale of investment securities 56 38
Gain/loss on sale of loans (35) (25)
Proceeds from sale of loans held for sale 4,672 1,817
Net origination and principal collections on
loans held for sale (4,638) (3,466)
Net loan fees deferred (17) (2)
Net changes in:
Accrued interest receivable 311 (145)
Other assets (35) (186)
Other liabilities (487) 59
Income taxes payable 101 29
Deferred income tax liability (148) (207)
Income tax receivable 83 --
Noncash compensation expense 446 552
------- -------
Net cash provided by operating activities 2,669 664
------- -------
Cash flows from investing activities:
Net originations and principal collections on loans (8,843) (18,981)
Purchase of loans -- (24,019)
Proceeds from the sale of loans 9,575 --
Purchase of FHLB stock -- (444)
Purchase of premises and equipment 1 (452)
Proceeds from maturity of investment securities 5,382 6,720
Purchase of investment securities available for sale (2,680) (9,925)
Purchase of mortgage-backed and related securities
available for sale -- (8,369)
Purchase of mortgage-backed and related securities (1,081) (5,281)
Principal received on mortgage-backed and related securities 5,981 11,286
Principal received on mortgage-backed and related securities
available for sale 10,334 2,393
Proceeds from sale of mortgage-backed and related securities
available for sale 10,198 19,167
Proceeds from the sale of investment securities available for sale 4,944 1,462
Proceeds from the sale of real estate owned 442 254
------- -------
Net cash used in investing activities 34,253 (26,189)
------- -------
Cash flows from financing activities:
Net increase/(decrease) in deposits (6,516) 13,796
Advances from FHLB 2,731 19,673
Repayments of FHLB advances (15,575) (6,550)
Change in FHLB line of credit, net (7,000) 1,000
Advances from borrowers for taxes and insurance (1,428) (549)
Dividends paid (469) (1,186)
Payment of offering costs -- (14)
------- -------
Net cash provided (used in) by financing activities (28,257) 26,170
------- -------
Increase (decrease) in cash
and cash equivalents 8,665 645
------- -------
Cash and cash equivalents, beginning of period 7,472 4,516
------- -------
Cash and cash equivalents, end of period 16,137 5,161
======= =======
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WFS BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements are for
interim periods and consequently, do not include all disclosures required by
generally accepted accounting principles for annual financial statements. It
is suggested that the accompanying financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's Form
10-KSB for the year ended September 30, 1995. In the opinion of management of
WFS Bancorp, Inc.,the consolidated financial statements reflect all adjustments
(all of which were of a normal recurring nature) necessary to present fairly
the financial position, results of operations, and cash flows for the interim
periods.
(2) Principles of Consolidation
The consolidated financial statements include the accounts of WFS
Bancorp, Inc. (the Company) and its wholly- owned subsidiary, Wichita Federal
Savings and Loan Association (WFSL) and its wholly-owned subsidiary Reliance
Financial Corporation (RFI). All significant intercompany transactions and
balances have been eliminated in consolidation.
(3) Income Per Share
Income per share for 1996 has been computed by dividing net income for
the period which amounted to $1,497,000 by the average number of shares of
common stock outstanding during the nine-month period which was 1,557,061
($.96/share) and $671,000 by 1,561,046 shares for the three-month period
($.43/share). Income for 1995 was computed by divided by net income for the
nine-month period which was $944,000 by average shares of 1,487,602
($.63/share) and $50,000 by average shares of 1,495,545 ($.03/share) for
three-month period.
(4) Investments and Mortgage-Backed and Related Securities
Investments on the Company's books are classified in one of three
categories and accounted for as follows: (i)debt securities that the Company
has the positive intent and ability to hold to maturity are classified as held
to maturity securities and reported at amortized cost; (ii) debt and equity
securities not classified as either held to maturity securities or trading
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholder's
equity; and (iii) securities classified as available for sale, with unrealized
gains and losses excluded from earnings and reported in a separate component of
stockholder's equity.
There were no sales of investment or mortgage-backed and related
securities available for sale for the quarter ended June 30, 1996.
Unrealized loss on investment securities available for sale and
mortgage-backed and related securities available for sale, net of applicable
deferred income taxes, resulted in a decrease to stockholder's equity of
$386,000 as of June 30, 1996.
In December 1995, the Company reclassified mortgage-backed and related
securities with a book value of $44.1 million from held to maturity to
available for sale. (See "Management's Discussion and Analysis --
Mortgage-Backed and Related Securities Available for Sale")
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(5) Employee Stock Ownership Plan (ESOP)
The FASB's Statement of Position 93-6 "Employers" Accounting for
Employee Stock Ownerships Plans (SOP 93-6) requires that the employer record
compensation expense in a amount equal to the fair value of shares committed to
be released from the ESOP to employees. On June 30, 1996 the Company had
allocated 24,707 shares and committed 6,794 shares to be released, leaving
96,791 collateralized shares with a fair market value of $2.2 million.
Committed shares will be allocated to employees as of the December 31, 1996.
ESOP expense for nine-months ended June 30, 1996 was $229,000.
(6) Management Recognition and Retention Plan (MRRP)
In connection with the conversion of WFSL from a mutual association to
stock association and the related formation of a holding company, the Board of
Directors adopted a recognition and retention plan which was approved by
stockholders in January 1995. The Company reserved 64,146 shares for issuance
under this plan. During fiscal 1995 the Company awarded 54,327 shares which
were issued to the participants in the plan and vest over a five-year period.
The Company issued an additional 3,207 shares in November 1995. Of 57,534
shares now issued, 22,346 were vested as of June 30, 1996. MRRP expense of
$217,000 was recorded for the nine-months ended June 30, 1996.
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WFS BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO
NINE MONTHS ENDED JUNE 30, 1995
AGREEMENT TO MERGE
On November 30, 1995, Emprise Bank - Wichita and WFS Bancorp, Inc.
("Company") announced that they entered into a definitive agreement providing
for the acquisition of the Company by Emprise Bank by means of a merger. Under
the terms of the agreement, each outstanding share of WFS common stock will be
cancelled in exchange for a cash payment from Emprise Bank in the amount of
$23.25. The total transaction, including payments with respect to outstanding
options, is valued at approximately $39.6 million. The merger is subject to
approval of the appropriate regulatory agencies, the approval by Company and
Emprise Bank shareholders, and the resolution of certain issues relating to the
Association's Employee Stock Ownership Plan. The transaction is expected to be
completed in the third calendar quarter of 1996.
RESULTS OF OPERATIONS
The Company's results of operations are dependent on the operations of
its subsidiary, Wichita Federal Savings and Loan Association ("WFSL"). As used
herein, all references to the Company include consolidated financial data,
unless the context states otherwise.
Net income for the nine and three months ended June 30, 1996 increased
$553,000 and $621,000, respectively, when compared to the same periods in 1995.
Primary reasons for the nine month increase are a nine percent increase in net
interest income before loan loss provision and a nine percent decrease in
noninterest expense. The three month increase resulted primarily from a
$568,0000 increase in noninterest income and a $162,000 decrease in noninterest
expense.
NET INTEREST INCOME.
For the nine months ended June 30, 1996, the $518,000 increase in net
interest income before provision for loan losses resulted primarily from
increases in average net earning assets of $1.2 million and a 0.16% increase in
interest rate spread over the same period in fiscal 1995.
The $1.3 million increases in interest income for the nine months
ended June 30, 1996 compared to the same period in fiscal 1995 resulted from
loan portfolio growth and an adjustment to purchase loan discount, offset
somewhat by income from adjustments to unamortized purchased premiums on
mortgage-backed and related securities and investment securities in the same
fiscal 1995 periods. The positive adjustment to purchase loan discount in June
1996 quarter was not sufficient enough to offset the impact a $24 million
decrease in average interest earning assets, when compared to the same quarter
in 1995. The aforementioned adjustments to premiums and discounts resulted
from changes in prepayment speeds in underlying loans. In the same comparative
three month periods, interest rate spread increased 0.50% when compared with
the same three months in 1995, partially offsetting the decrease in average
earning assets.
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Interest expense for the current nine month period also increased
$739,000 (or 20%), primarily due to higher competitive rates of interest paid
on interest bearing liabilities. The average cost of interest-bearing
liabilities for the nine months ended June 30, 1996 increased 36 basis points
as compared to the same period last year. For the comparative quarters ended
June 30, 1996 and 1995, there was a $25.8 million (or 10%) decrease in total
interest bearing liabilities, while the average cost of those liabilities
decreased only 0.07% basis points.
Generally, mortgage loan principal prepayments appear to have remained
relatively stable, in part reflecting some modest interest rate volatility.
Should interest rates fall, the cost of deposit liabilities is expected to
decline slightly faster than the yield on loans and mortgage-backed and
mortgage-related securities, due to the liabilities' shorter duration. The
opposite is true if interest rates increase. The Company's interest rate
spread is expected to remain substantially unchanged in the last quarter of
fiscal 1996, assuming no unusual and significant sales of loan and
mortgage-backed and related assets. The ongoing decline in consumer loan
production and prepayments on existing consumer and FHA Title I loan
receivables may, however, cause a slight decline in the Company's interest rate
spread.
PROVISION FOR LOAN LOSSES.
During the nine months ended June 30, 1996, the loan loss provision
was generally due to early period growth in the loan portfolios, increased
exposure to troubled FHA Title I loans, and/or increased losses experienced in
the consumer loan portfolio in fiscal 1996. In its continuing reassessment of
loan loss reserves, management has determined that the current allowances are
generally sufficient. Loan loss provisions for the last fiscal quarter are not
expected to be significant. The Company has maintained the same 0.7% ratio of
allowance for loan losses to total loans for the past year.
NON-INTEREST INCOME.
For the nine and three months ended June 30, 1996, non-interest income
decreased $76,000 (or 23%) and increased $568,000, respectively, as compared
with the same periods in fiscal 1995. In the third quarter 1996, and primarily
responsible for the increase in comparative three month noninterest income were
the Company's recognition of a $118,000 recovery on a previously charged-off
commercial property, as compared to $552,000 losses recognized in the same 1995
quarter that resulted from the sale and permanent write-down of securities.
However, the impact of a prior 1996 quarter's combined losses of $433,000 on
sales of FHA Title I Participation Certificates (PCs)--also noted below--and
mutual fund shares, when combined with a $265,000 loss recovery in fiscal 1995
resulted in reversal of fortune for the comparative nine month periods.
The second fiscal 1996 quarter sale of the PCs was transacted in
conjunction with the acquisition of the Company by Emprise Bank, Wichita, under
terms of the definitive merger agreement between the Company and Emprise Bank,
Wichita.
NON-INTEREST EXPENSE.
Non-interest expense decreased 9% and 11% in the nine months and
quarter ended June 30, 1996, when compared to the same periods one year
earlier. Compensation expense for the June 1996 quarter decreased $117,000
when compared
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to the June 1995 quarter, while comparative nine month compensation costs
decreased $185,000. This primarily resulted from decreases in the cost of the
Management Recognition and Retention Plan ("MRRP"). Under generally accepted
accounting standards, the expense of granted MRRP common stock is valued at
quoted market value as of the date of grant (January 18, 1995). The expense of
the program is accrued based on "earned" shares, a practice that effectively
"front loads" most of the expense into the first two years.
Advertising expense decreased $120,000 (or 61%) in the nine months
ended June 30, 1996 as compared to the same period one year earlier. The
decrease reflects a philosophical change, from promoting WFSL's market presence
and special certificate of deposit promotions in the first nine months of 1995,
to de-emphasis of market presence due to the impending merger with Emprise
Bank, Wichita.
Net gain on Real Estate Owned (REO) activities in the first nine
months resulted in a $121,000 improvement in comparative earnings, while the
third quarter 1996 net expense of REO operations represented an increase in
costs when compared to the net gain recognized in the same 1995 quarter. Nine
month results in fiscal 1996 primarily resulted from the earlier sale in 1996
of a commercial real estate property in metropolitan Phoenix, Arizona that
resulted in a gain of $86,000. Decreases in real estate property taxes and net
earnings from real estate operations/management in fiscal 1996 were also
responsible for improvement. For the comparative quarters ended June 30, a
reversal and reduction in real estate owned loss reserves was recognized in the
1995 quarter.
PROVISION FOR INCOME TAXES.
The increases in the provision for income taxes resulted from higher
earnings for the current nine and three month periods.
FINANCIAL CONDITION
Total consolidated assets of the Company, at June 30, 1996, decreased
9% when compared to total assets at September 30, 1995. The decline resulted
from prior quarter sales of $10.2 million FHA Title I Participation
Certificates, a $5.0 million mutual fund, a $3.4 million commercial loan, and
the June 1996 quarter resale of a $9.6 million single family whole loan pool.
The funds provided from these dispositions were used to pay off maturing FHLB
of Topeka advances and line of credit, and provide available cash to close the
Company's acquisition by Emprise Bank.
INVESTMENT SECURITIES AVAILABLE FOR SALE
At June 30, 1996, the Company's current market value of certain
investment securities held as "Available for Sale" is $4,000 less than cost,
net of tax effect, as reflected as an adjustment to Stockholders' Equity. (See
"Mortgage-Backed and Related Securities Available for Sale" below.)
MORTGAGE-BACKED AND RELATED SECURITIES.
Mortgage-backed and related securities, including certain
mortgage-backed and related CMOs and REMICs, as well as such securities
available for sale, continue to make up a substantial portion (24%) of the
consolidated balance sheet. Cash flows from principal prepayment are generally
re-channeled back into WFSL loan originations.
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MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE FOR SALE
At June 30, 1996, the Company's current market value of certain
mortgage-backed and related securities held as "Available for Sale" is $382,000
less than cost, net of tax effect, as reflected as an adjustment to
Stockholders' Equity. (See Results of Operations, "Non-Interest Income"
discussion above and "Equity Capital" below.)
In November 1995, the FASB issued Special Report No. 155-B, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities." This release allowed a "one time" opportunity to
reassess the appropriateness of the classification of all securities and
reclassify securities held to maturity to available for sale. The Company
reclassified mortgage-backed and related securities with a book value of $44.1
million to available for sale.
LOAN PORTFOLIO.
The loan portfolio, exclusive of loans available for sale at June 30,
1996, decreased $1.1 million from September 30, 1995, primarily as a result of
sales of loans and substantially curtailed consumer loan originations in the
last two fiscal quarters. That decrease occurred in spite of increased volumes
of real estate mortgage loans originated (including construction). No loans
have been purchased in fiscal 1996.
REAL ESTATE OWNED AND NON-PERFORMING ASSETS.
Real Estate Owned through foreclosure has declined since 1995 fiscal
year end. A $510,000 commercial property in Arizona was sold in 1996. The
primary real estate owned property with an indicated fair value of $192,000 is
a commercial building in Arizona.
Total non-performing assets decreased $333,000 (24%) during the nine
months ended June 30, 1996. There is no single non-performing asset in excess
of $250,000.
A $511,000 note taken by the Company in conjunction with the sale of
the aforementioned FHA Title I PCs and represented by an unsecured note,
initially, increased the Company's classified assets by $475,000 (net of a
$36,000 imputed discount in the value of the note due to the non-interest
bearing attribute). The current net note is $326,000. This note is expected
to be repaid as the subject Title I claims are paid by the Department of
Housing and Urban Development (HUD). No loss is expected in collection of the
note.
DEPOSITS.
Savings deposits remained relatively constant, for the first six
months of fiscal 1996, however deposit maturity related runoff was experienced
in the June quarter. Notwithstanding the impending merger with Emprise Bank-
Wichita, the flow of deposits continues to be influenced by prevailing interest
rates and competition.
BORROWINGS.
A net $19.8 million of Federal Home Loan Bank advances and lines of
credit have been repaid in fiscal 1996.
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EQUITY CAPITAL.
The impact of application of SFAS 115 at June 30, 1996, is recognition
of a net unrealized market loss of $386,000. See discussion above regarding
"Investment Securities Available for Sale" and "Mortgage-Backed and Related
Securities Available for Sale".
Dividends paid in the amount of $469,000 were declared during the
first nine months of fiscal 1996. These were regular quarterly cash dividends
equal to ten cents per share, paid in December 1995 and March and June 1996.
LIQUIDITY AND CAPITAL RESOURCES.
The OTS requires minimum levels of liquid assets to be maintained by
WFSL. Presently, the minimum level is 5% of deposits and short term
borrowings. Such investments are intended to provide a source of relatively
liquid funds upon which WFSL may rely if necessary to fund deposit withdrawals
and loan commitments. WFSL's liquid assets are primarily cash and cash
equivalents, which are short-term, highly liquid investments with original
maturities of three months or less and qualifying debt securities maturing in
five years or less. WFSL's regulatory liquidity at June 30, 1996 was 9.7%.
WFSL is further required to maintain short-term liquid assets, as defined,
equal to 1.0% of the average sum of net withdrawable deposits and other
liabilities. This requirement is part of the overall 5% liquidity level.
WFSL's short-term liquidity ratio at June 30, 1996 was 7.6%. Management
believes that the liquidity levels maintained and WFSL access to approved lines
of credit from the FHLB of Topeka are adequate to meet normal deposit outflows,
loan demand and operating requirements. At June 30, 1996, WFSL had $8.1
million in outstanding commitments to originate loans.
The primary source of cash from operating activities is net earnings.
Cash received from loan repayments and other sources are used to originate new
loans or to purchase loans. Financing sources consist of deposits and advances
from the FHLB.
As a holding company, the Company conducts its business through its
subsidiary, WFSL. The principal sources of funds for the Company are dividends
paid by the subsidiary and interest and principal cash flows from its
investment securities. Principal uses of funds are the payment of dividends,
when and if, declared by the Board of Directors and operating expenses of the
Company.
REGULATORY CAPITAL.
The FDIC Improvement Act of 1991, and related regulations, establish
five capital categories which are based on an institution's capital ratio. The
highest category is a "well capitalized" institution, one which must generally
have a leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at
least 6%, and a total risk-based capital ratio of at least 10%. Under the
FDIC's deposit insurance assessment system, the assessment rate for an insured
depository institution depends on the assessment risk classification assigned
under related guidelines.
Under the Financial Institutions Reform, Recovery, and Enforcement
Act, ("Firrea"), and regulations of the OTS, WFSL is required to meet three
separate capital requirements. Capital substantially exceeded all applicable
requirements
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at June 30, 1996. At June 30, 1996, the Association's tangible and core
capital were $30.6 million (11.4%) and its total risk-based capital was $31.9
million (25.5%) of risk-weighted assets of $125.0 million.
Percent of
(Dollars in 000's) Amount Assets (1)
------ ----------
Tangible Capital $30,630 11.42%
Tangible Capital Requirement 4,024 1.50%
Excess 26,606 9.92%
Core Capital $30,630 11.42%
Core Capital Requirement 8,048 3.00%
Excess 22,582 8.42%
Total Capital (i.e., Core and $31,866 25.48%
Supplementary Capital)
Risk-Based Capital Requirement 10,004 8.00%
Excess 21,862 17.48%
(1) Based upon adjusted assets for purposes of the tangible capital and
core capital requirements, and risk weighted assets for purposes of the
risk-based capital requirements.
Since January 1994, OTS risk-based capital requirements require
institutions with more than a "normal" level of interest rate risk to maintain
additional capital known as the interest rate risk component. A "normal" level
of interest rate risk exists if the present value of expected cash inflows and
outflows from an institution's assets, liabilities and off-balance sheet items
is less than two percent of the current estimated market value of assets--after
an immediate 200 basis point increase or decrease in market interest rates,
whichever leads to the greatest decline. The amount of the interest rate risk
component would equal one-half of the dollar amount that exceeds the two
percent of estimated market value of assets, in addition to the capital
otherwise required to satisfy the risk-based capital requirement. However,
because the WFSL has total assets of less than $300 million and risk-based
capital in excess of 12%, the WFSL is exempt from this rule.
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IMPACT OF INFLATION AND CHANGING PRICES.
The financial statements presented have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and results of operations in the measurements of historical
dollars without considering changes in the relative purchasing power of money
over time because of inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of the Company and its subsidiary are
monetary in nature. As a result, interest rates have a more significant impact
on the Company's operating performance than the effects of general levels of
inflation. In the present interest rate environment, the liquidity, maturity
structure, and quality of the Company's assets and liabilities are important
factors in the maintenance of acceptable performance levels.
ASSET/LIABILITY MANAGEMENT.
WFSL attempts to maximize net interest income by achieving a positive
interest rate spread that can be sustained during fluctuations in prevailing
interest rates. Policies are designed to reduce the impact of changes in
interest rates on net interest income by maintaining a favorable duration match
between interest-earning assets and interest-bearing liabilities.
Traditionally, WFSL has implemented such policies by selling the low,
fixed-rate mortgage loans originated, retaining adjustable rate mortgage loans
originated, originating short-term consumer loans, and purchasing adjustable
rate or short term maturity mortgage-backed securities and collateralized
mortgage obligations.
IMPACT OF NEW ACCOUNTING STANDARDS.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of SFAS Statement No. 65." The statement
requires the capitalization of mortgage servicing rights, whether they were
acquired from another organization or originated internally. The statement
applies to mortgage banking activities in which a mortgage loan is originated
or purchased and then sold, with the right to service the loan retained by the
mortgage banking entity. A mortgage banking enterprise can capitalize the
rights to service mortgage loans for others as separate assets, without regard
to how those servicing rights are acquired. SFAS No. 122 is effective for
fiscal years beginning after December 15, 1995 (or beginning October 1, 1996
for the Company) to transactions in which the Company sells or securities
mortgage loans with servicing rights retained. The implementation of this
statement is not expected to have a material effect on the financial position
or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." The statement requires that an employer's financial
statements include certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for them. The proforma
amounts required to be disclosed by an employer that continues to apply the
accounting provisions of APB Opinion 25, "Accounting for Stock issued to
employees", will reflect the difference between compensation cost, if any,
included in net income and the related cost measured by the fair value based
method defined in SFAS No. 123, including tax effects, if any, that would have
been recognized in the income statement if the fair value based method had been
used. The required pro forma amounts will not reflect any other adjustments
to reported net income or, if
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presented, earnings per share. SFAS No. 123 is effective for fiscal years
beginning October 1, 1996 for the Company. The implementation of this
statement is not expected to have a material effect on the financial position
or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." The
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The statement requires that servicing assets (e.g., loans) and other retained
interests in transferred assets be measure by allocating the previous carrying
amounts between the assets sold, if any, and retained interests, if any, based
on their relative fair values at the date of the transfer. Subsequently,
servicing assets and liabilities are measured by (a) a specified amortization
methodology and (2) assessment for asset impairment or increased obligation
based on their fair values. The statement also provides criteria for
derecognition of a liability and guidance for assessing isolation of
transfeerred assets and for accounting for transfers of related items. SFAS
No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. The implementation of this statement is not expected to
have a material effect on the financial position or results of operations.
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WFS BANCORP,INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In late January 1996, the Company filed suit in federal court to
rescind the loan purchase contract with FSB Mortgage of Little Rock, Inc. No
answer has been filed by defendants as of August 8, 1996. The lawsuit stems
from what the Company alleges is a mutual mistake of fact regarding the
expected yield on a $6.4 million loan purchased in July 1995. Management
believes it is too soon to anticipate the result.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
(i) A Form 8-K dated July 24, 1996 announced third
quarter earnings.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WFS BANCORP, INC.
Registrant
Date August 14, 1996 /s/ BURTON G. DUNLAP
---------------------- -----------------------------------
Burton G. Dunlap
President & Chief Executive Officer
(Duly Authorized Officer)
Date August 14, 1996 /s/ EDWARD C. GILBERT, JR.
---------------------- -----------------------------------
Edward C. Gilbert, Jr.
Chief Financial Officer and Senior
Vice President (Principal Financial
Officer)
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