UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended: June 30, 1997
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 No.: 0-22444
WVS Financial Corp.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (412) 364-1911
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of September 16, 1997, the aggregate value of the 1,448,594 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
299,326 shares held by all directors and officers of the Registrant as a group,
was approximately $39.9 million. This figure is based on the last known trade
price of $27.50 per share of the Registrant's Common Stock on September 11,
1997.
Number of shares of Common Stock outstanding as of September 16, 1997: 1,747,920
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the fiscal year ended June
30, 1997 are incorporated into Parts I, II and IV. (2) Portions of the
definitive proxy statement for the 1997 Annual Meeting of Stockholders are
incorporated into Part III.
<PAGE>
PART I.
Item 1. Business.
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. Originally organized under Pennsylvania law in 1908 as West View
Building Loan Association, West View changed its name to West View Savings and
Loan Association in 1954. In June 1992, West View converted from a
Pennsylvania-chartered mutual savings and loan association to a
Pennsylvania-chartered mutual savings bank. The Savings Bank converted to the
stock form of ownership in November 1993. The Savings Bank had no subsidiaries
at June 30, 1997.
Lending Activities
General. At June 30, 1997, the Company's net portfolio of loans receivable
totaled $158.1 million, as compared to $149.0 million at June 30, 1996. Net
loans receivable comprised 53.6% of Company total assets and 92.5% of total
deposits at June 30, 1997, as compared to 57.4% and 87.2%, respectively, at June
30, 1996. The principal categories of loans in the Company's portfolio are
single-family and multi-family residential real estate loans, commercial real
estate loans, construction loans, land acquisition and development loans and
consumer loans. Substantially all of the Company's mortgage loan portfolio
consists of conventional mortgage loans, which are loans that are neither
insured by the Federal Housing Administration ("FHA") nor partially guaranteed
by the Department of Veterans Affairs ("VA").
Historically, the Company's lending activities have been concentrated in
single-family residential loans secured by properties located in its primary
market area of northern Allegheny County, southern Butler County and eastern
Beaver County, Pennsylvania. During fiscal 1997, the Company's single-family
real estate loans increased by $6.9 million or 6.3% primarily due to weaker
consumer demand for home purchase and refinancing activity and the Company's
decision not to directly match aggressive local market pricing. Commercial real
estate loans increased $1.6 million or 12.2% during fiscal 1997 principally due
to the Company's renewed focus on this market segment. The Company's land
acquisition and development lending, and construction lending, decreased $3.9
million or 13.8% during fiscal 1997. The decrease was principally due to the
repayment of later stage construction development and the Company's desire to
reduce its exposure to such loans in light of a slow-down in the final sales of
such projects. Land acquisition and development lending, and speculative
construction lending to builders is generally considered to involve a higher
level of risk as compared to single-family residential lending. The Company
believes that its underwriting standards are prudent and consistent with safe
and sound banking practices.
On occasion, the Company has also purchased whole loans and loan
participations secured by properties located outside of its primary market area
but predominantly in Pennsylvania. The Company believes that all of its mortgage
loans are secured by properties located in Pennsylvania. Moreover, substantially
all of the Company's non-mortgage loan portfolio consists of loans made to
residents and businesses located in the Company's primary market area.
<PAGE>
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposed limitations on the aggregate amount of loans that a savings
institution could make to any one borrower, including related entities. Under
FIRREA, the permissible amount of loans-to-one borrower follows the national
bank standard for all loans made by savings institutions, which generally does
not permit loans-to-one borrower to exceed 15% of unimpaired capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully secured by readily
marketable securities. At June 30, 1997, the Savings Bank's limit on
loans-to-one borrower under FIRREA was approximately $3.9 million. The Company's
general policy has been to limit loans-to-one borrower, including related
entities, to $2.0 million although this general limit may be exceeded based on
the merit of a particular credit. At June 30, 1997, the Company's five largest
loans or groups of loans-to-one borrower, including related entities, ranged
from an aggregate of $1.8 million to $3.2 million, and are secured primarily by
real estate located in the Company's primary market area.
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition
of the Company's net loans receivable portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------ ----------------- ----------------- -----------------
Amount % Amount % Amount % Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family $116,663 67.25% $109,776 65.16% $ 92,710 63.17% $ 85,661 60.06% $ 83,572 63.33%
Multi-family 3,499 2.02 3,235 1.92 2,303 1.57 2,931 2.05 3,245 2.46
Commercial 14,669 8.46 13,088 7.77 12,138 8.27 9,087 6.37 9,083 6.88
Construction 16,969 9.78 19,269 11.44 21,106 14.38 27,341 19.17 17,949 13.60
Land acquisition
& development 7,412 4.27 9,004 5.35 4,671 3.18 4,601 3.23 4,435 3.37
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
159,212 91.78 154,372 91.64 132,928 90.57 129,621 90.88 118,284 89.64
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer loans:
Home equity 12,258 7.06 11,963 7.10 12,477 8.50 11,601 8.13 11,925 9.04
Education 516 0.30 590 0.35 394 0.27 353 0.25 746 0.57
Other 1,403 0.81 1,484 0.88 905 0.61 863 0.61 663 0.50
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer
loans 14,177 8.17 14,037 8.33 13,776 9.38 12,817 8.99 13,334 10.11
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Commercial loans 91 0.05 40 0.02 --- --- --- --- --- ---
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Commercial lease
financings 2 0.00 14 0.01 68 0.05 184 0.13 317 0.25
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
173,482 100.00% 168,463 100.00% 146,772 100.00% 142,622 100.00% 131,935 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ======
Less:
Undisbursed loan
proceeds (12,505) (16,651) (10,794) (16,508) (10,136)
Net deferred loan
origination fees (834) (837) (799) (881) (1,004)
Allowance for
loan losses (2,009) (1,964) (1,836) (1,633) (1,447)
-------- -------- -------- -------- --------
Net loans receivable $158,134 $149,011 $133,343 $123,600 $119,348
======== ======== ======== ======== ========
</TABLE>
<PAGE>
Contractual Maturities. The following table sets forth the scheduled
contractual maturities of the Company's loans and mortgage-backed securities at
June 30, 1997. The amounts shown for each period do not take into account loan
prepayments and normal amortization of the Company's loan portfolio.
<TABLE>
<CAPTION>
Real Estate Loans
Land
acquisition
and
Single-family Multi-family Non-residential Construction development
------------- ------------ --------------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due in:
One year or less $ 1,433 $ 1,542 $ 828 $ 11,931 $ 3,395
After one year through
five years 4,237 49 1,558 -- 3,983
After five years 110,993 1,908 12,283 5,038 34
-------- -------- -------- -------- --------
Total(1) $116,663 $ 3,499 $ 14,669 $ 16,969 $ 7,412
======== ======== ======== ======== ========
<CAPTION>
Consumer
loans and Mortgage-
commercial backed
loans & leases securities Total
-------------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Amounts due in:
One year or less $ 878 $ 103 $ 20,110
After one year through
five years 9,900 1,882 21,609
After five years 3,492 35,505 169,253
-------- -------- --------
Total(1) $ 14,270 $ 37,490 $210,972
======== ======== ========
(1) Does not include adjustments relating to loans in process, the allowance for
loan losses, accrued interest, deferred fee income and unearned discounts.
</TABLE>
<PAGE>
Interest rate terms on amounts due after one year:
<TABLE>
<CAPTION>
Real Estate Loans
Land
acquisition
and
Single-family Multi-family Non-residential Construction development
------------- ------------ --------------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Fixed $ 92,689 $ 1,341 $ 7,861 $ 4,405 $ 1,978
Adjustable 22,541 616 5,980 633 2,039
-------- -------- -------- -------- --------
Total $115,230 $ 1,957 $ 13,841 $ 5,038 $ 4,017
======== ======== ======== ======== ========
<CAPTION>
Consumer
loans and Mortgage-
commercial backed
loans & leases securities Total
-------------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Fixed $ 7,835 $ 18,405 $134,514
Adjustable 5,557 18,982 56,348
-------- -------- --------
Total $ 13,392 $ 37,387 $190,862
======== ======== ========
</TABLE>
Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less than
their average contractual terms because of prepayments and, in the case of
conventional mortgage loans, due-on-sale clauses, which generally give the
Company the right to declare a loan immediately due and payable in the event,
among other things, that the borrower sells the real property subject to the
mortgage and the loan is not repaid. The average life of mortgage loans tends to
increase when current mortgage loan rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgages are substantially higher than current mortgage loan rates (due to
refinancings of adjustable-rate and fixed-rate loans at lower rates).
<PAGE>
As further discussed below, the Company has from time to time renewed
commercial real estate loans and speculative construction (single-family) loans
due to slower than expected sales of the underlying collateral. Commercial real
estate loans are generally renewed at a contract rate that is the greater of the
market rate at the time of the renewal or the original contract rate. Loans
secured by speculative single-family construction or developed lots are
generally renewed for an additional six month term with monthly payments of
interest. Subsequent renewals, if necessary, are generally granted for an
additional six month term; principal amortization may also be required. Land
acquisition and development loans are generally renewed for an additional twelve
month term with monthly payments of interest.
At June 30, 1997, the Company had approximately $4.9 million of renewed
commercial real estate and construction loans, all of which were performing. The
$4.9 million in aggregate disbursed principal that has been renewed is comprised
of: single-family speculative construction loans - $943 thousand, developed
residential lots - $721 thousand, acquisition and development loans - $2.8
million, and a participation in a land development project for upscale
residential housing totaling $407 thousand. Management believes that the
previously discussed whole loans will self-liquidate during the normal course of
business, though some additional rollovers may be necessary. All of the loans
that have been rolled over, as discussed above, are in compliance with all loan
terms, including the receipt of all required payments, and are considered
performing loans. The Company had no loans scheduled to mature in the one year
period ending June 30, 1997 which were non-performing. See "-Multi-Family
Residential, Commercial Real Estate and Construction Loans" and "-Non-Performing
Assets".
Origination, Purchase and Sale of Loans. Applications for residential
real estate loans and consumer loans are obtained at all of the Company's
offices. Applications for commercial real estate loans are taken only at the
Company's Franklin Park office. Residential loan applications are primarily
attributable to existing customers, builders, walk-in customers and referrals
from both real estate brokers and existing customers. Commercial real estate
loan applications are obtained primarily by referrals from former and existing
borrowers. Consumer loans are primarily obtained through existing and walk-in
customers.
All processing and underwriting of real estate and commercial business
is performed solely at the Company's loan division at the Franklin Park office.
The Company believes this centralized approach to approving such loan
applications allows it to process and approve such applications faster and with
greater efficiency. The Company also believes that this approach increases its
ability to service the loans. All loan applications are required to be approved
by the Company's Loan Committee, comprised of both outside directors and
management, which meets weekly.
Historically, the Company has originated substantially all of the loans
retained in its portfolio. Substantially all of the residential real estate
loans originated by the Company have been under terms, conditions and
documentation which permit their sale to the Federal National Mortgage
Association ("FNMA") and other investors in the secondary market. Although the
Company has not been a seller of loans in the secondary market, the Company is
on the FNMA approved list of sellers/servicers. The Company has held the loans
it originates in its own portfolio until maturity, due, in part, to competitive
pricing conditions in the marketplace for origination by nationwide lenders and
portfolio lenders.
<PAGE>
The Company has not been an aggressive purchaser of loans. However, the
Company may purchase whole loans or loan participations in those instances where
demand for new loan originations in the Company's market area is insufficient or
to increase the yield earned on the loan portfolio. Such loans are generally
presented to the Company from contacts primarily at other financial
institutions, particularly those which have previously done business with the
Company. At June 30, 1997, $6.3 million or 3.6% of the Company's total loans
receivable consisted of whole loans and participation interests in loans
purchased from other financial institutions, of which $2.1 million or 33%
consisted of loans secured by commercial real estate, $2.2 million or 35%
consisted of pools of low to moderate income single-family residences, $1.6
million or 25% consisted of a multi-family apartment complex loan, and $407
thousand or 7% consisted of a land development loan. During fiscal 1997,
purchases of whole loans and participations decreased by $1.6 million, to a
total of $1.1 million, as compared to fiscal 1996. The $1.1 million purchase was
comprised primarily of low to moderate income single-family residential loans.
The Company requires that all purchased loans be underwritten in
accordance with its underwriting guidelines and standards. The Company reviews
loans, particularly scrutinizing the borrower's ability to repay the obligation,
the appraisal and the loan-to-value ratio. Servicing of loans or loan
participations purchased by the Company generally is performed by the seller,
with a portion of the interest being paid by the borrower retained by the seller
to cover servicing costs. At June 30, 1997, approximately $3.8 million or 2.2%
of the Company's total loans receivable were being serviced for the Company by
others.
<PAGE>
The following table shows origination, purchase and sale activity of
the Company with respect to loans on a consolidated basis during the periods
indicated.
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
--------------------------------------
1997 1996 1995
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Net loans receivable beginning balance ...... $ 149,011 $ 133,343 $ 123,600
Real estate loan originations:
Single-family(1) ......................... 15,643 25,181 18,481
Multi-family(2) .......................... 575 1,984 85
Commercial ............................... 2,000 1,731 4,388
Construction ............................. 9,044 10,792 10,776
Land acquisition and development ......... 1,384 4,219 1,921
--------- --------- ---------
Total real estate loan originations ... 28,646 43,907 35,651
--------- --------- ---------
Home equity ................................. 3,160 2,589 4,122
Education ................................... 323 -- --
Commercial .................................. 533 40 --
Other ....................................... 207 287 616
--------- --------- ---------
Total loan originations ............... 32,869 46,823 40,389
--------- --------- ---------
Disbursements against available credit lines:
Home equity .............................. 4,608 4,693 3,998
Other .................................... 28 28 47
Purchase of whole loans and participations .. 1,145 2,653 250
--------- --------- ---------
Total originations and purchases ...... 38,650 54,197 44,684
--------- --------- ---------
Less:
Loan principal repayments ................ 33,569 32,460 40,542
Sales of whole loans and participations .. -- -- --
Transferred to real estate owned ......... 73 51 --
Change in loans in process ............... (4,147) 5,857 (5,714)
Other, net(3) ............................ 32 161 113
--------- --------- ---------
Net increase .......................... $ 9,123 $ 15,668 $ 9,743
========= ========= =========
Net loans receivable ending balance ......... $ 158,134 $ 149,011 $ 133,343
========= ========= =========
- ------------
(1) Consists of loans secured by 1-4 family properties.
(2) Consists of loans secured by five or more family properties.
(3) Includes reductions for net deferred loan origination fees and the allowance
for losses.
</TABLE>
<PAGE>
Real Estate Lending Standards. All financial institutions are required
to adopt and maintain comprehensive written real estate lending policies that
are consistent with safe and sound banking practices. These lending policies
must reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by the federal banking agencies in December 1992
("Guidelines"). The Guidelines set forth uniform regulations prescribing
standards for real estate lending. Real estate lending is defined as extension
of credit secured by liens on interests in real estate or made for the purpose
of financing the construction of a building or other improvements to real
estate, regardless of whether a lien has been taken on the property.
The policies must address certain lending considerations set forth in
the Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards, and
documentation, approval and reporting requirements. These policies must also be
appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with a LTV ratio being the
total amount of credit to be extended divided by the appraised value of the
property at the time the credit is originated, must be established for each
category of real estate loans. If not a first lien, the lender must combine all
senior liens when calculating this ratio. The Guidelines, among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%); construction (commercial, multi-family and non-residential) (80%);
improved property (85%); and one-to-four family residential (owner occupied) (no
maximum ratio; however any LTV ratio in excess of 90% should require appropriate
insurance or readily marketable collateral). Consistent with its conservative
lending philosophy, the Company's LTV limits are generally more restrictive than
those in the Guidelines: raw land (60%); land development (70%); construction
(commercial - 70%; multi-family - 75%; speculative residential - 80%); and
residential properties (95% in the case of one-to-four family owner-occupied
residences and 75% on larger family non owner-occupied residences).
Single-Family Residential Real Estate Loans. Historically, savings
institutions such as the Company have concentrated their lending activities on
the origination of loans secured primarily by first mortgage liens on existing
single-family residences. At June 30, 1997, $116.7 million or 67.3% of the
Company's total loan portfolio consisted of single-family residential real
estate loans, substantially all of which are conventional loans. Single-family
loan originations totaled $15.6 million and decreased $9.6 million or 38.1%
during the fiscal year ended June 30, 1997 when compared to the same period in
1996. The decrease in single-family originations is due primarily to weaker
consumer demand for home purchase and refinance activity and the Company's
decision not to directly match aggressive local market pricing.
The Company historically has and continues to emphasize the origination
of fixed-rate loans with terms of up to 30 years. Although such loans are
originated with the expectation that they will be maintained in portfolio, these
loans are originated generally under terms, conditions and documentation which
permit their sale in the secondary market. The Company also makes available
single-family residential adjustable-rate mortgages ("ARMs") which provide for
periodic adjustments to the interest rate, but such loans have never been as
widely accepted in the Company's market area as the fixed-rate mortgage loan
products. The ARMs currently offered by the Company have up to 30-year terms and
an interest rate which adjusts in accordance with one of several indices.
Consumer response to adjustable rate loans has been limited due to the
appreciable decline in long-term interest rates experienced during the first
half of fiscal 1996.
<PAGE>
At June 30, 1997, approximately $94.1 million or 80.6% of the
single-family residential loans in the Company's loan portfolio consisted of
loans which provide for fixed rates of interest. Although these loans generally
provide for repayments of principal over a fixed period of 15 to 30 years, it is
the Company's experience that because of prepayments and due-on-sale clauses,
such loans generally remain outstanding for a substantially shorter period of
time.
The Company is permitted to lend up to 95% of the appraised value of
real property securing a residential loan; however, if the amount of a
residential loan originated or refinanced exceeds 95% of the appraised value,
the Company is required by state banking regulations to obtain private mortgage
insurance on the portion of the principal amount that exceeds 75% of the
appraised value of the security property. Pursuant to underwriting guidelines
adopted by the Board of Directors, private mortgage insurance is generally
obtained on residential loans for which loan-to-value ratios exceed 80%.
Property appraisals on the real estate and improvements securing the
Company's single-family residential loans are made by independent appraisers
approved by the Board of Directors. Appraisals are performed in accordance with
federal regulations and policies. The Company obtains title insurance policies
on most first mortgage real estate loans originated by it. If title insurance is
not obtained or is unavailable, the Company obtains an abstract of title and
title opinion. Borrowers also must obtain hazard insurance prior to closing and,
when required by the United States Department of Housing and Urban Development,
flood insurance. Borrowers may be required to advance funds, with each monthly
payment of principal and interest, to a loan escrow account from which the
Company makes disbursements for items such as real estate taxes and mortgage
insurance premiums as they become due.
Multi-Family Residential, Commercial Real Estate and Construction
Loans. The Company originates mortgage loans for the acquisition and refinancing
of existing multi-family residential and commercial real estate properties. At
June 30, 1997, $3.5 million or 2.0% of the Company's total loan portfolio
consisted of loans secured by existing multi-family residential real estate
properties and $14.7 million or 8.5% of such loan portfolio consisted of loans
secured by existing commercial real estate properties.
The majority of the Company's multi-family residential loans are
secured primarily by 5 to 20 unit apartment buildings, while commercial real
estate loans are secured by office buildings, hotels, small retail
establishments and churches. These types of properties constitute the majority
of the Company's commercial real estate loan portfolio. The Company's
multi-family residential and commercial real estate loan portfolio consists
primarily of loans secured by properties located in its primary market area.
Although terms vary, multi-family residential and commercial real
estate loans generally are amortized over a period of up to 15 years (although
some loans amortize over a twenty year period) and mature in five to fifteen
years. The Company will originate these loans either with fixed interest rates
or with interest rates which adjust in accordance with a designated index, which
generally is negotiated at the time of origination. Loan-to-value ratios on the
Company's commercial real estate loans are currently limited to 75% or lower. As
part of the criteria for underwriting multi-family residential and commercial
real estate loans, the Company generally imposes a debt coverage ratio (the
ratio of net cash from operations before payment of the debt service to debt
<PAGE>
service) of at least 100%. It is also the Savings Bank's general policy to
obtain personal guarantees on its multi-family residential and commercial real
estate loans from the principals of the borrower and, when this cannot be
obtained, to impose more stringent loan-to-value, debt service and other
underwriting requirements.
At June 30, 1997, the Company's multi-family residential and commercial
real estate loan portfolio consisted of approximately 87 loans with an average
principal balance of $209 thousand. At June 30, 1997, the Company had one
commercial real estate loan that was not accruing interest.
In recent years, the Company has been increasingly active in
originating loans to construct primarily single-family residences, and, to a
much lesser extent, loans to acquire and develop real estate for construction of
residential properties. These construction lending activities generally are
limited to the Company's primary market area. At June 30, 1997, construction
loans amounted to approximately $17.0 million or 9.8% of the Company's total
loan portfolio. As of such date, the Company's portfolio of construction loans
consisted of $13.4 million of loans for the construction of single-family
residential real estate and $3.6 million of loans for the construction of
commercial real estate. Construction loan originations totaled $9.0 million and
decreased by $1.8 million or 16.7% during the fiscal year ended June 30, 1997
when compared to the same period in 1996. Construction loan originations
declined during fiscal 1997 primarily due to an excess supply in the new
construction market and the Company's desire to limit its exposure to this
market segment to current investment levels.
Construction loans are made to individuals for the purpose of
constructing a personal residence. In such circumstances, the Company will
underwrite such loans on a construction/permanent mortgage loan basis. At June
30, 1997, approximately 51.4% of total outstanding construction loans were made
to local real estate builders and developers with whom the Company has worked
for a number of years for the purpose of constructing primarily single-family
residential developments, with the remaining 48.6% of total construction loans
made to individuals for the purpose of constructing a personal residence. Upon
application, credit review and analysis of personal and corporate financial
statements, the Company will grant local builders with whom it has done business
lines of credit up to designated amounts. These credit lines may be used for the
purpose of construction of speculative (or unsold) residential properties. In
some instances, lines of credit will also be granted for purposes of acquiring
finished residential lots and developing speculative residential properties
thereon. Such lines generally have not exceeded $1.0 million, with the largest
line totaling $1.4 million. Once approved for a construction line, a developer
must still submit plans and specifications and receive the Company's
authorization, including an appraisal of the collateral satisfactory to the
Company, in order to begin utilizing the line for a particular project. As of
June 30, 1997, the Company also had $7.4 million or 4.3% of the total loan
portfolio invested in land development loans, which consisted of 35 loans to 24
developers.
Construction loans generally have maturities of 18 months, including
one 6 month extension, with payments being made monthly on an interest-only
basis. Thereafter, the permanent financing arrangements will generally provide
for either an adjustable or fixed interest rate, consistent with the Company's
policies with respect to residential and commercial real estate financing. For a
discussion of the Company's policy with respect to renewing a speculative
construction loan at the expiration of its term if the underlying property has
not been sold, see "-Contractual Maturities".
<PAGE>
The Company intends to maintain its involvement in construction lending
within its primary market area. Such loans afford the Company the opportunity to
increase the interest rate sensitivity of its loan portfolio. Commercial real
estate and construction lending is generally considered to involve a higher
level of risk as compared to single-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developers and managers.
Moreover, a construction loan can involve additional risks because of the
inherent difficulty in estimating both a property's value at completion of the
project and the estimated cost (including interest) of the project. The nature
of these loans is such that they are generally more difficult to evaluate and
monitor. In addition, speculative construction loans to a builder are not
necessarily pre-sold and thus pose a greater potential risk to the Company than
construction loans to individuals on their personal residences.
The Company has attempted to minimize the foregoing risks by, among
other things, limiting the extent of its commercial real estate lending
generally and by limiting its construction lending to primarily residential
properties. In addition, the Savings Bank has adopted underwriting guidelines
which impose stringent loan-to-value, debt service and other requirements for
loans which are believed to involve higher elements of credit risk, by generally
limiting the geographic area in which the Savings Bank will do business to its
primary market area and by working with builders with whom it has established
relationships.
Consumer Loans. The Company offers consumer loans, although such
lending activity has not historically been a large part of its business. At June
30, 1997, $14.2 million or 8.2% of the Company's total loan portfolio consisted
of consumer loans. The consumer loans offered by the Company include home equity
loans, home equity lines of credit, education loans, automobile loans, deposit
account secured loans and personal loans. Most of the Company's consumer loans
are secured by real estate and are primarily obtained through existing and
walk-in customers.
The Company will originate either a fixed-rate, fixed term home equity
loan, or a home equity line of credit with a variable rate. At June 30, 1997,
approximately 54.7% of the Company's home equity loans were at a fixed rate for
a fixed term. Although there have been a few exceptions with greater loan to
value ratios, substantially all of such loans are originated with a loan to
value ratio which, when coupled with the outstanding first mortgage loan, does
not exceed 80%.
Commercial Loans and Lease Financings. At June 30, 1997, $93 thousand
or less than 1% of the Company's total loan portfolio consisted of commercial
loan and lease financings. During fiscal 1991, the Company began to purchase
participation interests in pools of leases of general commercial chattel. The
Company ceased purchasing participation interests in fiscal 1992 based on
management's belief that the quality of the pools were not as good as those it
had invested in previously and because some of the participation interests in
pools it had acquired started to experience some losses. Commercial loans, which
include loans secured by accounts receivable, business inventory and equipment,
and similar collateral totaled $91 thousand or less than 1% of the Company's
total loan portfolio. The Company intends to selectively develop this line of
business in order to increase interest income and to possibly attract
compensating deposit account balances. Due to the higher risks associated with
commercial loans not secured by real estate, future commercial loan originations
will be modest.
<PAGE>
Loan Fee Income. In addition to interest earned on loans, the Company
receives income from fees in connection with loan originations, loan
modifications, late payments, prepayments and for miscellaneous services related
to its loans. Income from these activities varies from period to period with the
volume and type of loans made and competitive conditions.
The Company charges loan origination fees which are calculated as a
percentage of the amount borrowed. 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.
Discounts and premiums on loans purchased are accreted and amortized in the same
manner. In accordance with FASB 91, the Company has recognized $229 thousand,
$216 thousand and $248 thousand of deferred loan fees during fiscal 1997, 1996
and 1995, respectively, in connection with loan refinancings, payoffs and
ongoing amortization of outstanding loans. The increase in loan origination fee
income for fiscal 1997 was primarily attributable to a higher volume of loans
originated with loan origination fees.
Non-Performing Loans, Real Estate Owned and Troubled Debt
Restructurings. When a borrower fails to make a required payment on a loan, the
Company attempts to cure the deficiency by contacting the borrower and seeking
payment. Contacts are generally made on the fifteenth day after a payment is
due. In most cases, deficiencies are cured promptly. If a delinquency extends
beyond 15 days, the loan and payment history is reviewed and efforts are made to
collect the loan. While the Company generally prefers to work with borrowers to
resolve such problems, when the account becomes 90 days delinquent, the Company
does institute foreclosure or other proceedings, as necessary, to minimize any
potential loss.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Company normally does not accrue interest on loans past due 90 days or more.
The Company will continue to accrue interest on education loans past due 90 days
or more because of the repayment guarantee provided by the Federal government.
The Company may also continue to accrue interest if, in the opinion of
management, it believes it will collect on the loan.
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired, it is recorded at the lower of cost or fair value at
the date of acquisition and any write-down resulting therefrom is charged to the
allowance for losses on real estate owned. All costs incurred in maintaining the
Company's interest in the property are capitalized between the date the loan
becomes delinquent and the date of acquisition. After the date of acquisition,
all costs incurred in maintaining the property are expensed and costs incurred
for the improvement or development of such property are capitalized.
<PAGE>
The following table sets forth the amounts and categories of the
Company's non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------ ------ ------ ------
(Dollars in Thousands)
<C> <C> <C> <C> <C> <C>
Non-accruing loans:
Real estate:
Single-family .................... $ -- $ 100 $ 185 $ 106 $ 61
Multi-family ..................... -- -- 561 581 --
Commercial(1) .................... 274 274 274 271 --
Consumer ............................ -- -- -- -- 3
Commercial loans & leases ........... -- 3 9 -- --
------- ------ ------ ------ ------
Total non-accrual loans ............. 274 377 1,029 958 64
------- ------ ------ ------ ------
Accruing loans greater than
90 days delinquent ............... -- -- -- 4 98
------- ------ ------ ------ ------
Total non-performing loans ..... $ 274 $ 377 $1,029 $ 962 $ 162
------- ------ ------ ------ ------
Real estate owned ................... -- -- -- 25 --
------- ------ ------ ------ ------
Total non-performing assets .... $ 274 $ 377 $1,029 $ 987 $ 162
======= ====== ====== ====== ======
Troubled debt restructurings ........ $ -- $ 603 $ 930 $ 944 $ 956
======= ====== ====== ====== ======
Total non-performing loans and
troubled debt restructurings as a
percentage of net loans receivable 0.17% 0.66% 1.47% 1.54% 0.94%
======= ====== ====== ====== ======
Total non-performing assets
to total assets .................. 0.09% 0.15% 0.45% 0.45% 0.08%
======= ====== ====== ====== ======
Total non-performing assets
and troubled debt restructurings
as a percentage of total assets .. 0.09% 0.38% 0.86% 0.87% 0.53%
======= ====== ====== ====== ======
- -----------
(1) At June 30, 1997, non-accrual commercial real estate loans consisted of one
loan.
</TABLE>
The $103 thousand decrease in non-accrual loans during fiscal 1997 is
primarily comprised of a $100 thousand decrease in non-accrual single-family
real estate loans.
At June 30, 1997, the Company had one performing restructured
multi-family loan with a total outstanding principal balance of $599 thousand.
The loan is secured by an eight unit apartment building and one single-family
residence located in Oakmont Borough. Though originally appraised for $840
thousand in 1991, a revised appraisal report dated September 1995 has indicated
an appraised value of approximately $475 thousand. Though no charge-offs have
been recorded to date, the loan has been internally classified as substandard
due to payment history and collateral value. The Company believes that it has an
adequate valuation allowance with respect to this loan.
<PAGE>
At June 30, 1997, the Company had one land development participation
loan, with an outstanding principal balance of $383 thousand, that was granted a
third extension. The loan, which was originated to finance the development of a
45 lot upscale residential subdivision, provides for interest only payments,
floats monthly at a net participant rate of prime plus seven-eighths of one
percent, and matures in March 2000. At June 30, 1997, 21 lots remained unsold.
The third extension was granted due to the continued weak market demand for lots
within the subdivision. In exchange for granting the extension, loan
participants, including the Company, received a renewal fee of 0.75% of the
loan's outstanding principal balance and a lot release price paid to the
participants of 75% with a minimum amount of $175 thousand per lot. If the loan
is paid off prior to maturity, a pro-rated refund of the renewal fee will be
issued to the borrower. Management believes that the loan is presently
well-secured based upon an approximate 19.5% loan to value first-lien position
and the obligor's strong net-worth and paying capacity. The loan has been
internally classified substandard due to the low level of lot sale activity.
As of June 30, 1997, the Company had one non-accruing commercial real
estate loan with an outstanding principal balance of $274 thousand that was over
90 days delinquent. The Company stopped accruing interest on the loan as of
September 1993. The loan is secured by a restaurant and real estate which is
located in Wexford, PA. The property was appraised for $395 thousand in June
1988. Since such date, an addition to the restaurant has been constructed. The
obligors on this loan are the two former principal owners of the restaurant. The
restaurant and the two obligors on this loan have filed under Chapter 7 of the
Federal Bankruptcy Code. Through June 30, 1997 the Company was unable to obtain
relief from stay to proceed with a foreclosure action against the property. A
third party has acquired the restaurant business and property in a Bankruptcy
Court supervised restructuring plan by, among other things, agreeing to make
certain periodic payments into the bankruptcy estate. The Bankruptcy Court has
not as of yet approved the bankruptcy plan. The Company, however, is presently
receiving interest only payments at a modified rate of 8%, as opposed to the
original contract rate of 9%. Under terms of the pending but as of yet
unapproved bankruptcy restructuring plan, the Company has agreed, among other
things, to a reduction in the contract rate of interest to 8% and certain
repayment modifications.
In addition to the foregoing, at June 30, 1997 the Company had a 7.9%
or $907 thousand participation interest in a first mortgage loan on a 12 1/2
acre property in Allegheny County, Pennsylvania which includes a 194 room
Sheraton hotel and restaurant and an 8,100 square foot office building. The
Company acquired its interest in 1984. The loan, which was originated to acquire
the property and construct the hotel, matures in March 1999 and provides for
principal and interest payments at 8.2% based on a 30-year amortization
schedule. The borrower is current in its payments but the loan continues to be
monitored due to the nature of the hotel industry in general and a decrease in
the capital accounts of the general partners.
During fiscal 1997, 1996 and 1995, approximately $15 thousand, $9
thousand and $42 thousand, respectively, of interest would have been recorded on
loans accounted for on a non-accrual basis and troubled debt restructurings if
such loans had been current according to the original loan agreements for the
entire period. These amounts were not included in the Company's interest income
for the respective periods. The amount of interest income on loans accounted for
on a non-accrual basis and troubled debt restructurings that was included in
income during the same periods amounted to approximately $20 thousand, $75
thousand and $144 thousand, respectively.
<PAGE>
Allowances for Loan Losses. The allowance for loan losses is
established through provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance account. Subsequent
recoveries, if any, are credited to the allowance. The allowance is maintained
at a level believed adequate by management to absorb estimated potential loan
losses. Management's determination of the adequacy of the allowance is based on
periodic evaluations of the loan portfolio considering past experience, current
economic conditions, composition of the loan portfolio and other relevant
factors. This evaluation is inherently subjective, as it requires material
estimates that may be susceptible to significant change.
Effective December 21, 1993, the FDIC, in conjunction with the Office
of the Comptroller of the Currency, the Office of Thrift Supervision and the
Federal Reserve Board, adopted an Interagency Policy Statement on the Allowance
for Loan and Lease Losses ("Policy Statement"). The Policy Statement, which
effectively supersedes previous FDIC proposed guidance, includes guidance (i) on
the responsibilities of management for the assessment and establishment of an
adequate allowance and (ii) for the agencies' examiners to use in evaluating the
adequacy of such allowance and the policies utilized to determine such
allowance. The Policy Statement also sets forth quantitative measures for the
allowance with respect to assets classified substandard and doubtful, described
below, and with respect to the remaining portion of an institution's loan
portfolio. Specifically, the Policy Statement sets forth the following
quantitative measures which examiners may use to determine the reasonableness of
an allowance: (i) 50% of the portfolio that is classified doubtful; (ii) 15% of
the portfolio that is classified substandard and (iii) for the portions of the
portfolio that have not been classified (including loans designated special
mention), estimated credit losses over the upcoming twelve months based on facts
and circumstances available on the evaluation date. While the Policy Statement
sets forth this quantitative measure, such guidance is not intended as a "floor"
or "ceiling".
Federal regulations require that each insured savings institution
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard", "doubtful" and "loss".
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of those
classified as substandard with the added characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Another
category designated "asset watch" is also utilized by the Bank for assets which
do not currently expose an insured institution to a sufficient degree of risk to
warrant classification as substandard, doubtful or loss. Assets classified as
substandard or doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified as loss, the
insured institution must either establish specific allowances for loan losses in
the amount of 100% of the portion of the asset classified loss, or charge-off
such amount. General loss allowances established to cover possible losses
related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses do not qualify as regulatory capital.
<PAGE>
The Company's general policy is to internally classify its assets on a
regular basis and establish prudent general valuation allowances that are
adequate to absorb losses that have not been identified but that are inherent in
the loan portfolio. The Company maintains general valuation allowances that it
believes are adequate to absorb losses in its loan portfolio that are not
clearly attributable to specific loans. The Company's general valuation
allowances are within the following ranges: (i) 0% to 5% of assets subject to
special mention; (ii) 5% to 25% of assets classified substandard; and (iii) 50%
to 100% of assets classified doubtful. Any loan classified as loss is charged
off. To further monitor and assess the risk characteristics of the loan
portfolio, loan delinquencies are reviewed to consider any developing problem
loans. Based upon the procedures in place, considering the Company's past
charge-offs and recoveries and assessing the current risk elements in the
portfolio, management believes the allowance for loan losses at June 30, 1997 is
adequate.
The Company has consistently added to the allowance for possible loan
losses during the past three fiscal years. The allowance for loan losses
increased from $1.96 million at June 30, 1996 to approximately $2.00 million at
June 30, 1997. These increases reflect a number of factors, the most significant
of which is the industry trend towards greater emphasis on the allowance method
of providing for loan losses and the specific charge-off method.
<PAGE>
The following table summarizes changes in the Company's allowance for
loan losses and other selected statistics for the periods indicated.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average net loans ........................ $153,726 $141,643 $133,517 $118,302 $124,530
======== ======== ======== ======== ========
Allowance balance (at beginning of period) $ 1,964 $ 1,836 $ 1,634 $ 1,447 $ 864
Provision for loan losses ................ 60 150 211 211 666
Charge-offs:
Real estate:
Single-family ........................ 15 25 -- 6 11
Multi-family ......................... -- -- -- -- --
Commercial ........................... -- -- -- -- 46
Construction ......................... -- -- -- -- --
Land acquisition and development ........ -- -- -- -- --
Consumer:
Home equity .......................... -- -- -- -- --
Education ............................ -- -- -- -- --
Other ................................ -- -- -- 4 15
Commercial loans and leases .............. 3 4 12 18 14
-------- -------- -------- -------- --------
Total charge-offs ....................... 18 29 12 28 86
-------- -------- -------- -------- --------
Recoveries:
Real estate:
Single-family ....................... 1 -- -- -- --
Multi-family ........................ -- -- -- -- --
Commercial .......................... -- -- -- -- --
Construction ........................ -- -- -- -- --
Land acquisition and development ........ -- -- -- -- --
Consumer:
Home equity .......................... -- -- -- -- --
Education ............................ -- -- -- -- --
Other ................................ -- 1 1 3 2
Commercial loans and leases ............. 2 6 2 1 1
-------- -------- -------- -------- --------
Total recoveries ..................... 3 7 3 4 3
-------- -------- -------- -------- --------
Net loans charged-off .................... 15 22 9 24 83
Transfer to real estate owned loss reserve -- -- -- -- --
-------- -------- -------- -------- --------
Allowance balance (at end of period) ..... $ 2,009 $ 1,964 $ 1,836 $ 1,634 $ 1,447
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses as a
percent of total loans receivable ..... 1.16% 1.17% 1.25% 1.15% 1.10%
======== ======== ======== ======== ========
Net loans charged off as a
percentage of average net loans ....... 0.01% 0.02% 0.01% 0.02% 0.07%
======== ======== ======== ======== ========
Allowance for loan losses to
non-performing loans .................. 733.21% 520.95% 178.43% 169.85% 893.21%
======== ======== ======== ======== ========
Net loans charged-off to
allowance for loan losses ............. 0.75% 1.12% 0.49% 1.47% 5.74%
======== ======== ======== ======== ========
Recoveries to charge-offs ................ 16.67% 24.14% 25.00% 14.29% 3.49%
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table presents the allocation of the allowances for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------- ------------------
% of Total % of Total % of Total % of Total % of Total
Loans by Loans by Loans by Loans by Loans by
Amount Category Amount Category Amount Category Amount Category Amount Category
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family .. $ 175 67.25% $ 161 65.16% $ 146 63.17% $ 124 60.06% $ 128 63.33%
Multi-family ... 142 2.02 141 1.92 12 1.57 18 2.05 16 2.46
Commercial ..... 449 8.46 469 7.77 593 8.27 546 6.37 554 6.88
Construction ... 58 9.78 38 11.44 49 14.38 71 19.17 28 13.60
Land acquisition
and development 59 4.27 69 5.35 31 3.18 36 3.23 37 3.37
Unallocated .... 722 -- 711 -- 693 -- 577 -- 465 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total real
estate loans . 1,605 91.78 1,589 91.64 1,524 90.57 1,372 90.88 1,228 89.64
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Consumer loans:
Home equity .... 123 7.06 120 7.10 124 8.50 116 8.13 120 9.04
Education ...... 5 0.30 6 0.35 4 0.27 4 0.25 7 0.57
Other .......... 10 0.81 10 0.88 14 0.61 15 0.61 14 0.50
Unallocated .... 258 -- 215 -- 127 -- 83 -- 60 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total consumer
loans ........ 396 8.17 351 8.33 269 9.38 218 8.99 201 10.11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Commercial loans .... 5 0.05 2 0.02 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Commercial lease
financings ........ 3 0.00 22 0.01 43 0.05 44 0.13 18 0.25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$2,009 100.00% $1,964 100.00% $1,836 100.00% $1,634 100.00% $1,447 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Management believes that the reserves it has established are adequate
to cover any potential losses in the Company's loan and real estate owned
portfolios. However, future adjustments to these reserves may be necessary, and
the Company's results of operations could be adversely affected if circumstances
differ substantially from the assumptions used by management in making its
determinations in this regard.
Mortgage-Backed Securities
Mortgage-backed securities ("MBS") include mortgage pass-through
certificates ("PCs") and collateralized mortgage obligations ("CMOs"). With a
pass-through security, investors own an undivided interest in the pool of
mortgages that collateralize the PCs; principal and interest is passed through
to the investor as it is generated by the mortgages underlying the pool. PCs may
<PAGE>
be insured or guaranteed by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA") and the Government
National Mortgage Association ("GNMA") or privately issued with varying degrees
of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of
bonds (called traunches) with varying stated maturities, estimated average
lives, coupon rates and prepayment characteristics.
At June 30, 1997, the Company's mortgage-backed securities portfolio
totaled $37.5 million as compared to $42.1 million at June 30, 1996. The $4.6
million or 10.9% decrease in MBS balances outstanding during fiscal 1997 was
primarily attributable to the sale of approximately $1.6 million of low balance
MBS pools and the reinvestment of MBS principal and interest cash flows in
higher yielding callable government agency securities. At June 30, 1997
approximately $18.9 million or 50.3% (book value) of the Company's portfolio of
mortgage-backed securities, including CMOs, were comprised of adjustable or
floating rate instruments, as compared to $21.2 million or 49.9% at June 30,
1996. Substantially all of the Company's floating rate mortgage-backed
securities adjust monthly based upon changes in certain short-term market
indexes (e.g. LIBOR, Prime, etc.).
<PAGE>
The following tables set forth the amortized cost and market values of
the Company's mortgage-backed securities available for sale and held to maturity
as of the periods indicated.
<TABLE>
<CAPTION>
MBS Available for Sale at June 30 1997 1996 1995
- --------------------------------- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLMC PCs $ 931 $ 2,880 $ ---
GNMA PCs 1,306 1,580 ---
FNMA PCs 10,708 11,359 ---
CMOs - agency collateral 5,472 6,956 ---
CMOs - other --- --- ---
------- ------- --------
Total amortized cost $18,417 $22,775 $ 0
======= ======= ========
Total market value $18,280 $22,428 $ 0
======= ======= ========
<CAPTION>
MBS Held to Maturity at June 30 1997 1996 1995
- ------------------------------- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLMC PCs $ 351 $ 450 $ 4,881
GNMA PCs 1,219 1,268 2,095
FNMA PCs 194 269 984
CMOs - agency collateral 16,728 16,878 14,695
CMOs - other 718 825 ---
------- ------- -------
Total amortized cost $19,210 $19,690 $22,655
======= ======= =======
Total market value $19,381 $19,733 $22,892
======= ======= =======
</TABLE>
The Company believes that its present MBS available-for-sale allocation
of $18.3 million or 48.8% of the carrying value of the MBS portfolio, is
adequate to meet anticipated future liquidity requirements and to reposition its
balance sheet and asset/liability mix should it wish to do so in the future.
<PAGE>
The following table sets forth the amortized cost, contractual
maturities and weighted average yields of the Company's mortgage-backed
securities, including CMOs, at June 30, 1997.
<TABLE>
<CAPTION>
At June 30, 1997
--------------------------------------------------------------------
After After
One Year One to Five to Over
or Less Five Years Ten Years Ten Years Total
------- ---------- --------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
MBS available for sale $ 103 $ 1,811 $ 2,782 $ 13,721 $18,417
5.86% 6.37% 6.02% 7.14% 6.89%
MBS held to maturity . $ -- $ 75 $ -- $ 19,135 $19,210
0% 8.14% 0% 7.02% 7.03%
Total ................ $ 103 $ 1,886 $ 2,782 $ 32,856 $37,627
======= ======= ========= ========== =======
Weighted average yield 5.86% 6.44% 6.02% 7.07% 6.96%
======= ======= ========= ========== =======
</TABLE>
Due to prepayments of the underlying loans, and the prepayment characteristics
of the CMO traunches, the actual maturities of the Company's mortgage-backed
securities are expected to be substantially less than the scheduled maturities.
As a result of the volatility of market interest rates experienced during fiscal
1997, Management maintained an approximately equal weighting between fixed rate
and variable rate MBS products.
Investment Securities
The Company may invest in various types of securities, including
corporate debt and equity securities, U.S. Government and government agency
obligations, securities of various federal, state and municipal agencies,
commercial paper, bankers' acceptances, federal funds, and interest-bearing
deposits with other financial institutions.
The Company's investment activities are directly monitored by the
Company's Investment Committee under policy guidelines adopted by the Board of
Directors. In recent years, the general objective of the Company's investment
policy has been to manage the Company's GAP and generally to increase
interest-earning assets. As reflected in the table below, the Company during
fiscal 1997 continued to increase its holdings of U.S. Government and agency
obligations, which amounted to $84.1 million or 91.9% of the total investment
portfolio at June 30, 1997 as compared to $54.2 million or 88.7% of the total
investment portfolio at June 30, 1996. Approximately $81.9 million or 89.5% of
the Company's total investment portfolio at June 30, 1997 was comprised of U.S.
Government agency securities with longer-terms to maturity and optional
principal redemption features ("callable bonds"). By increasing its holdings of
callable longer-term securities, the Company has been able to earn higher levels
of net interest income, while improving the credit quality of its investment
portfolio. While a substantial portion of the Company's investment portfolio is
funded with short-term borrowings, such borrowings can be repaid if all, or a
portion of, the Company's callable agency bonds are redeemed prior to maturity.
<PAGE>
The following tables set forth the amortized cost and market values of
the Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
Investment Securities Available for Sale at June 30,
1997 1996 1995
------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C>
Corporate debt obligations ................ $ -- $ -- $ --
U.S. Government and agency securities ..... 2,192 2,193 --
------ ------ -------
Total amortized cost ...................... 2,192 2,193 --
Equity securities ......................... 1,497 -- --
------ ------ -------
Total amortized cost ...................... $3,689 $2,193 $ --
====== ====== =======
Total market value ........................ $3,553 $1,981 $ --
====== ====== =======
<CAPTION>
Investment Securities Held to Maturity at June 30,
1997 1996 1995
------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C>
Corporate debt obligations .............. $ 2,145 $ 4,956 $16,453
U.S. Government and agency securities ... 81,850 51,981 45,072
State and municipal securities .......... -- 300 --
------- ------- -------
83,995 57,237 61,525
FHLB stock .............................. 3,927 1,900 1,153
------- ------- -------
Total amortized cost .................... $87,922 $59,137 $62,678
======= ======= =======
Total market value ...................... $87,816 $58,571 $63,127
======= ======= =======
</TABLE>
No investment securities owned by the Company at June 30, 1997 had a
carrying value greater than 10% of the Company's stockholders' equity at such
date, other than securities issued by United States Government agencies and
corporations.
<PAGE>
Information regarding the amortized cost, contractual maturities and
weighted average yields of the Company's investment portfolio at June 30, 1997
is presented below.
<TABLE>
<CAPTION>
At June 30, 1997
-----------------------------------------------------------------------
After After
Investment Securities One Year One to Five to Over
Available for Sale or Less Five Years Ten Years Ten Years Total
------------------ ------- ---------- --------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Corporate debt obligations $ -- $ -- $ -- $ -- $ --
0% 0% 0% 0% 0%
U.S. Government and agency
securities ............ $ -- $ -- $ -- $2,192 $2,192
0% 0% 0% 6.23% 6.23%
Total .................... $ -- $ -- $ -- $2,192 $2,192
====== ====== ====== ====== ======
Weighted average yield ... 0% 0% 0% 6.23% 6.23%
====== ====== ====== ====== ======
Equity securities ........ $ -- $ -- $ -- $1,497 $1,497
------ ------ ------ ------ ------
Total .................... $ -- $ -- $ -- $3,689 $3,689
====== ====== ====== ====== ======
<CAPTION>
At June 30, 1997
--------------------------------------------------------------------
After After
Investment Securities One Year One to Five to Over
Held to Maturity or Less Five Years Ten Years Ten Years Total
---------------- ------- ---------- --------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Corporate debt obligations $1,645 $ 500 $ --- $ --- $ 2,145
7.29% 6.40% 0% 0% 7.08%
U.S. Government and agency
securities $ --- $1,500 $47,732 $32,618 $81,850
0% 6.82% 7.47% 8.21% 7.75%
Total $1,645 $2,000 $47,732 $32,618 $83,995
====== ====== ======= ======= =======
Weighted average yield 7.29% 6.71% 7.47% 8.21% 7.74%
===== ===== ====== ====== ======
</TABLE>
<PAGE>
Information regarding the amortized cost, earliest call dates and
weighted average yield of the Company's investment portfolio at June 30, 1997 is
presented below. All Company investments in callable bonds were classified as
held-to-maturity at June 30, 1997.
<TABLE>
<CAPTION>
At June 30, 1997
-------------------------------------------------------------------
After After
One Year One to Five to Over
or Less Five Years Ten Years Ten Years Total
------- ---------- --------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Corporate debt obligations $ 1,645 $ 500 $-- $ -- $ 2,145
7.29% 6.40% 0% 0% 7.08%
U.S. Government and agency
securities ............ $57,878 $23,972 $-- $ 2,192 $84,042
7.84% 7.56% 0% 6.23% 7.72%
Total .................... $59,523 $24,472 $-- $ 2,192 $86,187
======= ======= ==== ======= =======
Weighted average yield ... 7.82% 7.54% 0% 6.23% 7.70%
======= ======= ==== ======= =======
Equity securities ........ $ -- $ -- $-- $ 1,497 $ 1,497
------- ------- ---- ------- -------
Total .................... $59,523 $24,472 $-- $ 3,689 $87,684
======= ======= ==== ======= =======
</TABLE>
The Company to date has not engaged, and does not intend to engage in
the immediate future, in trading investment securities.
Sources of Funds
The Company's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Company's home and branch offices. Funding is also derived from
Federal Home Loan Bank advances, short-term borrowings, amortization and
prepayments of outstanding loans and mortgage-backed securities and from
maturing investment securities.
Deposits. The Company's deposits totaled $170.9 million at June 30,
1997 as compared to $170.8 million at June 30, 1996. The $36 thousand increase
was attributable to an approximate $1.0 million increase in core deposits offset
by a $949 thousand decrease in certificates of deposit. In order to mitigate the
decline in time deposits, and to attract new and lower cost core deposits, the
Company continued to offer a no minimum balance, "free", checking account
product. Current deposit products include regular savings accounts, demand
accounts, negotiable order of withdrawal (NOW) accounts, money market deposit
accounts, and certificates of deposit ranging in terms from 30 days to ten
<PAGE>
years. Included among these deposit products are certificates of deposit with
negotiable interest rates and balances of $100,000 or more, which amounted to
$11.1 million or 6.5% of the Company's total deposits at June 30, 1997 as
compared to $9.7 million or 5.7% at June 30, 1996. The Company's deposit
products also include Individual Retirement Account certificates ("IRA
certificates").
The Company's deposits are obtained primarily from residents of
northern Allegheny, southern Butler and eastern Beaver counties, Pennsylvania.
The Company attracts deposit accounts by offering a wide variety of accounts,
competitive interest rates, and convenient office locations and service hours.
The Company utilizes traditional marketing methods to attract new customers and
savings deposits, including print media advertising and direct mailings. The
Company does not advertise for deposits outside of its local market area or
utilize the services of deposit brokers, and Management believes that an
insignificant number of deposit accounts were held by non-residents of
Pennsylvania at June 30, 1997. The Company has drive-up banking facilities and
automated teller machines ("ATMs") at its McCandless, Franklin Park and
Cranberry Township offices. The Company participates in the MAC(R) and CIRRUS(R)
ATM networks.
The Company has been competitive in the types of accounts and in
interest rates it has offered on its deposit products and continued to price its
savings products nearer to the market average rate as opposed to the upper range
of market offering rates. The Company has continued to emphasize the retention
of core deposits, particularly demand deposits. Financial institutions
generally, including the Company, have experienced a certain degree of depositor
disintermediation to other investment alternatives. Management believes that the
degree of disintermediation experienced by the Company has not had a material
impact on overall liquidity.
<PAGE>
The following table sets forth the average balance of the Company's
deposits and the average rates paid thereon for the past three years. Average
balances are derived from month-end balances.
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Regular savings and club
accounts ................ $ 36,330 2.61% $ 37,560 2.66% $ 46,805 2.74%
NOW accounts ................ 14,398 0.88 14,483 1.35 14,951 1.75
Money market deposit
accounts ................ 12,045 2.63 11,438 2.64 13,537 2.62
Certificate of deposit
accounts ................ 99,773 5.66 102,263 5.76 94,430 5.55
Escrows ..................... 2,471 1.82 2,536 1.81 2,257 1.68
-------- -------- --------
Total interest-bearing
deposits and escrows .. 165,017 4.29 168,280 4.42 171,980 4.16
Non-interest-bearing checking
accounts ................ 6,459 -- 4,559 -- 3,583 --
-------- -------- --------
Total deposits and
escrows ............... $171,476 4.13% $172,839 4.30% $175,563 4.07%
======== ==== ======== ==== ======== ====
</TABLE>
The following table sets forth the net deposit flows of the Company
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
(Decrease) before interest credited $ (7,011) $ (5,339) $(18,490)
Interest credited 7,047 7,396 6,947
-------- -------- --------
Net deposit (decrease) increase $ 36 $ 2,057 $(11,543)
======== ======== ========
</TABLE>
<PAGE>
The following table sets forth maturities of the Company's time
deposits of $100,000 or more at June 30, 1997 by time remaining to maturity.
<TABLE>
<CAPTION>
Amounts
-------
(Dollars in Thousands)
<S> <C>
Three months or less $ 2,852
Over three months through six months 2,105
Over six months through twelve months 1,931
Over twelve months 4,173
---------
$11,061
</TABLE>
Borrowings. Borrowings are comprised of Federal Home Loan Bank advances
and repurchase agreements with securities brokers with original maturities of
ninety-two days or less. At June 30, 1997, borrowings totaled $84.6 million as
compared to $48.7 million at June 30, 1996. The $35.9 million or 73.7% increase
was primarily used to fund the Company's purchase of investment and
mortgage-backed securities during fiscal 1997. The Company believes that the
judicious use of borrowings has allowed it to pursue a strategy of increasing
net interest income by purchasing investment securities with lower total cost
wholesale funding. Wholesale funding also provides the Company with a larger
degree of control with respect to the term structure of its liabilities than
traditional retail deposits. The Company also avoids the additional cost
associated with federal deposit insurance premiums through the utilization of
borrowings, as opposed to retail deposits.
Competition
The Company faces significant competition in attracting deposits. Its
most direct competition for deposits has historically come from commercial banks
and other savings institutions located in its market area. The Company also
faces additional significant competition for investors' funds from other
financial intermediaries. The Company competes for deposits principally by
offering depositors a variety of deposit programs, convenient branch locations,
hours and other services. The Company does not rely upon any individual group or
entity for a material portion of its deposits.
The Company's competition for real estate loans comes principally from
mortgage banking companies, other savings institutions, commercial banks and
credit unions. The Company competes for loan originations primarily through the
interest rates and loan fees it charges, the efficiency and quality of services
it provides borrowers, referrals from real estate brokers and builders, and the
variety of its products. Factors which affect competition include the general
and local economic conditions, current interest rate levels and volatility in
the mortgage markets.
Employees
The Savings Bank had 50 full-time employees and 11 part-time employees
as of June 30, 1997. None of these employees is represented by a collective
bargaining agent. The Savings Bank believes that it enjoys excellent relations
with its personnel.
<PAGE>
REGULATION AND SUPERVISION
The Company
General. The Company, as a bank holding company, is subject to
regulation and supervision by the Federal Reserve Board and by the Pennsylvania
Department of Banking (the "Department"). The Company is required to file
annually a report of its operations with, and is subject to examination by, the
Federal Reserve Board and the Department.
BHCA Activities and Other Limitations. The Bank Holding Company Act of
1956, as amended ("BHCA") prohibits a bank holding company from acquiring direct
or indirect ownership or control of more than 5% of the voting shares of any
bank, or increasing such ownership or control of any bank, without prior
approval of the Federal Reserve Board. The BHCA also generally prohibits a bank
holding company from acquiring any bank located outside of the state in which
the existing bank subsidiaries of the bank holding company are located unless
specifically authorized by applicable state law. No approval under the BHCA is
required, however, for a bank holding company already owning or controlling 50%
of the voting shares of a bank to acquire additional shares of such bank.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefit to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include operating a mortgage company, finance company, credit card
company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full-payout, non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal Reserve Board also has determined that certain other activities,
including real estate brokerage and syndication, land development, property
management and underwriting of life insurance not related to credit
transactions, are not closely related to banking and a proper incident thereto.
Capital Requirements. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the BHCA. The Federal Reserve Board capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount consisting of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
<PAGE>
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill. Tier II capital
generally consists of hybrid capital instruments; perpetual preferred stock
which is not eligible to be included as Tier I capital; term subordinated debt
and intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics, with the categories ranging
from 0% (requiring no additional capital) for assets such as cash to 100% for
the bulk of assets which are typically held by a bank holding company, including
multi-family residential and commercial real estate loans, commercial business
loans and consumer loans. Single-family residential first mortgage loans which
are not (90 days or more) past-due or non-performing and which have been made in
accordance with prudent underwriting standards are assigned a 50% level in the
risk-weighing system, as are certain privately-issued mortgage-backed securities
representing indirect ownership of such loans. Off-balance sheet items also are
adjusted to take into account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose
does not include goodwill and any other intangible assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies will be expected to maintain Tier I leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition.
The Company is in compliance with the above-described Federal Reserve
Board regulatory capital requirements.
Commitments to Affiliated Institutions. Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to the
Savings Bank and to commit resources to support the Savings Bank in
circumstances when it might not do so absent such policy. The legality and
precise scope of this policy is unclear, however, in light of recent judicial
precedent.
The Savings Bank
General. The Savings Bank is subject to extensive regulation and
examination by the Department and by the FDIC, which insures its deposits to the
maximum extent permitted by law, and is subject to certain requirements
established by the Federal Reserve Board. The federal and state laws and
regulations which are applicable to banks regulate, among other things, the
scope of their business, their investments, their reserves against deposits, the
timing of the availability of deposited funds and the nature and amount of and
collateral for certain loans. The laws and regulations governing the Savings
Bank generally have been promulgated to protect depositors and not for the
purpose of protecting stockholders.
FDIC Insurance Premiums. The Savings Bank currently pays deposit
insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups which is
based solely on the level of an institution's capital - "well capitalized",
"adequately capitalized" and "undercapitalized"- which is defined in the same
manner as the regulations establishing the prompt corrective action system under
<PAGE>
Section 38 of the Federal Deposit Insurance Act ("FDIA"), as discussed below.
These three groups are then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered to be healthy to
those which are considered to be of substantial supervisory concern. The matrix
so created results in nine assessment risk classifications, with rates ranging
from 0.00% for well capitalized, healthy institutions to 0.27% for
undercapitalized institutions with substantial supervisory concerns. The Savings
Bank is a "well-capitalized" institution as of June 30, 1997.
On September 30, 1996 the President signed the Deposit Insurance Funds
Act of 1996 (the "Funds Act") into law. The Funds Act called for a Special
Assessment on SAIF-assessable deposits as of March 31, 1995 to capitalize the
SAIF to its designated reserve ratio of 1.25%. The Company recorded a pre-tax
charge of approximately $1.1 million during the quarter ended September 30, 1996
using an FDIC estimated assessment rate of $0.657 for every $100 of assessable
deposits. During the quarter ended December 31, 1996, the Company accrued a $102
thousand refund of prepaid federal deposit insurance premiums as a result of the
capitalization of the SAIF. The Funds Act also provides for a Financing
Corporation ("FICO") debt service assessment. The current FICO debt service
assessment annual rate for SAIF members is 6.3 basis points (or 6.3 (cents) per
$100 of assessable deposits).
Capital Requirements. The FDIC has promulgated regulations and adopted
a statement of policy regarding the capital adequacy of state-chartered banks
which, like the Savings Bank, are not members of the Federal Reserve System.
These requirements are substantially similar to those adopted by the Federal
Reserve Board regarding bank holding companies, as described above.
The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively will increase the minimum
Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the
FDIC's regulation, highest-rated banks are those that the FDIC determines are
not anticipating or experiencing significant growth and have well diversified
risk, including no undue interest rate risk exposure, excellent asset quality,
high liquidity, good earnings and, in general, which are considered a strong
banking organization, rated composite 1 under the Uniform Financial Institutions
Rating System.
A bank which has less than the minimum leverage capital requirement
shall, within 60 days of the date as of which it fails to comply with such
requirement, submit to its FDIC regional director for review and approval, a
reasonable plan describing the means and timing by which the bank shall achieve
its minimum leverage capital requirement. A bank which fails to file such plan
with the FDIC is deemed to be operating in an unsafe and unsound manner, and
could subject the bank to a cease-and-desist order from the FDIC. The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total assets that is less than 2.0% is deemed to be operating
in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is
subject to potential termination of deposit insurance. However, such an
institution will not be subject to an enforcement proceeding thereunder solely
on account of its capital ratios if it has entered into and is in compliance
with a written agreement with the FDIC to increase its Tier I leverage capital
ratio to such level as the FDIC deems appropriate and to take such other action
as may be necessary for the institution to be operated in a safe and sound
<PAGE>
manner. The FDIC capital regulation also provides, among other things, for the
issuance by the FDIC or its designee(s) of a capital directive, which is a final
order issued to a bank that fails to maintain minimum capital to restore its
capital to the minimum leverage capital requirement within a specified time
period. Such directive is enforceable in the same manner as a final
cease-and-desist order.
Miscellaneous
The Savings Bank is subject to certain restrictions on loans to the
Company, on investments in the stock or securities thereof, on the taking of
such stock or securities as collateral for loans to any borrower, and on the
issuance of a guarantee or letter of credit on behalf of the Company. The
Savings Bank is also subject to certain restrictions on most types of
transactions with the Company, requiring that the terms of such transactions be
substantially equivalent to terms of similar transactions with non-affiliated
firms. In addition, there are various limitations on the distribution of
dividends to the Company by the Savings Bank.
The foregoing references to laws and regulations which are applicable
to the Company and the Savings Bank are brief summaries thereof which do not
purport to be complete and which are qualified in their entirety by reference to
such laws and regulations.
FEDERAL AND STATE TAXATION
General. The Company and the Savings Bank are subject to the generally
applicable corporate tax provisions of the Internal Revenue Code of 1986 (the
"Code"), as well as certain additional provisions of the Code which apply to
thrift and other types of financial institutions. The following discussion of
tax matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Company and the
Savings Bank.
Fiscal Year. The Company currently files a consolidated federal income
tax return on the basis of the calendar year ending on December 31.
Method of Accounting. The Company maintains its books and records for
federal income tax purposes using the accrual method of accounting. The accrual
method of accounting generally requires that items of income be recognized when
all events have occurred that establish the right to receive the income and the
amount of income can be determined with reasonable accuracy and that items of
expense be deducted at the later of (i) the time when all events have occurred
that establish the liability to pay the expense and the amount of such liability
can be determined with reasonable accuracy or (ii) the time when economic
performance with respect to the item of expense has occurred.
Bad Debt Reserves. Under Section 593 of the Internal Revenue Code of
1986 (the "Code"), thrift institutions such as the Savings Bank, which meet
certain definitional tests primarily relating to their assets and the nature of
their business, are permitted to establish a tax reserve for bad debts and to
make annual additions thereto, which additions may, within specified
limitations, be deducted in arriving at their taxable income. The Savings Bank's
deduction with respect to "qualifying loans", which are generally loans secured
by certain interests in real property, may currently be computed using an amount
<PAGE>
based on the Savings Bank's actual loss experience (the "experience method"), or
a percentage equal to 8.0% of the Savings Bank's taxable income (the "percentage
of taxable income method"), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve. The Savings Bank has generally used the percentage
of taxable income method in the past.
The Small Business Jobs Protection Act of 1996, adopted in August 1996,
generally (i) repeals the provision of the Code which authorizes use of the
percentage of taxable income method by qualifying savings institutions to
determine deductions for bad debts, effective for taxable years beginning after
1995, and (ii) requires that a savings institution recapture for tax purposes
(i.e. take into income) over a six-year period its applicable excess reserves,
which for a savings institution such as West View which is a "small bank", as
defined in the Code, generally is the excess of the balance of its bad debt
reserves as of the close of its last taxable year beginning before January 1,
1996 over the balance of such reserves as of the close of its last taxable year
beginning before January 1, 1988, which recapture would be suspended for any tax
year that begins after December 31, 1995 and before January 1, 1998 (thus a
maximum of two years) in which a savings institution originates an amount of
residential loans which is not less than the average of the principal amount of
such loans made by a savings institution during its six most recent taxable
years beginning before January 1, 1996. As an institution with less than $500.0
million in assets, the Savings Bank can elect to either use the experience
method available to commercial banks of this size or it can adopt the specific
charge-off method applicable to "large banks" (banks with total assets in excess
of $500.0 million). The amount of tax bad debt reserves subject to recapture is
approximately $1.2 million. In accordance with FASB No. 109, deferred income
taxes have previously been provided on this amount, therefore no financial
statement expense should be recorded as a result of this recapture. The
Company's supplemented bad debt reserve of approximately $3.8 million is not
subject to recapture. The Company does not believe that these provisions will
have a material adverse effect on the Company's financial condition or
operations.
The above-referenced legislation also repeals certain provisions of the
Code that only apply to thrift institutions to which Section 593 applies: (i)
the denial of a portion of certain tax credits to a thrift institution; (ii) the
special rules with respect to the foreclosure of property securing loans of a
thrift institution; (iii) the reduction in the dividends received deduction of a
thrift institution; and (iv) the ability of a thrift institution to use a net
operating loss to offset its income from a residual interest in a real estate
mortgage investment conduit. It is not anticipated that the repeal of these
provisions will have a material adverse effect on the Company's financial
condition or operations.
Audit by IRS. The Company's consolidated federal income tax returns for
taxable years through December 31, 1993 have been closed for the purpose of
examination by the Internal Revenue Service.
State Taxation. The Company is subject to the Pennsylvania Corporate
Net Income Tax and Capital Stock and Franchise Tax. The Pennsylvania Corporate
Net Income Tax rate was reduced from 10.99% to 9.99% effective January 1, 1995
and is imposed on the Company's unconsolidated taxable income for federal
purposes with certain adjustments. In general, the Capital Stock Tax is a
property tax imposed at the rate of 12.75% of a corporation's capital stock
value, which is determined in accordance with a fixed formula based upon average
net income and net worth.
<PAGE>
The Savings Bank is taxed under the Pennsylvania Mutual Thrift
Institutions Tax Act (enacted on December 13, 1988 and amended in July 1989)
(the "MTIT"), as amended to include thrift institutions having capital stock.
Pursuant to the MTIT, the Savings Bank's current tax rate is 11.5%. The MTIT
exempts the Savings Bank from all other taxes imposed by the Commonwealth of
Pennsylvania for state income tax purposes and from all local taxation imposed
by political subdivisions, except taxes on real estate and real estate
transfers. The MTIT is a tax upon net earnings, determined in accordance with
generally accepted accounting principles ("GAAP") with certain adjustments. The
MTIT, in computing GAAP income, allows for the deduction of interest earned on
state and federal securities, while disallowing a percentage of a thrift's
interest expense deduction in the proportion of those securities to the overall
investment portfolio. Net operating losses, if any, thereafter can be carried
forward three years for MTIT purposes.
<PAGE>
Item 2. Properties.
The following table sets forth certain information with respect to the
offices and other properties of the Company at June 30, 1997.
<TABLE>
<CAPTION>
Net Book
Value of
Description/Address Leased/Owned Property
------------------- ------------ --------
(Dollars in Thousands)
<S> <C> <C>
McCandless Office Owned $171
9001 Perry Highway
Pittsburgh, PA 15237
West View Boro Office Owned 12
456 Perry Highway
Pittsburgh, PA 15229
Cranberry Township Office Owned 294
20531 Perry Highway
Cranberry Township, PA 16066
Sherwood Oaks Office Leased(1) ---
100 Norman Drive
Cranberry Township, PA 16066
Bellevue Boro Office Leased(2) 18
572 Lincoln Avenue
Pittsburgh, PA 15202
Franklin Park Boro Office Owned 613
2566 Brandt School Road
Wexford, PA 15090
Wexford Loan Production Office Leased(3) ---
10521 Perry Highway
Wexford, PA 15090
(1) The Company operates this office out of a retirement community. The lease
expires in June 2000.
(2) The lease is for a period of 15 years ending in September 2006 with an
option for the Company to renew the lease for an additional five years.
(3) The lease is for a period to end December 1997.
</TABLE>
Item 3. Legal Proceedings.
The information required herein is incorporated by reference from page
43 of the Company's 1997 Annual Report, Note 12 of Notes to Consolidated
Financial Statements, "Litigation".
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required herein is incorporated by reference from page
57 of the Company's 1997 Annual Report.
Item 6. Selected Financial Data.
The information required herein is incorporated by reference from pages
2 to 3 of the Company's 1997 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required herein is incorporated by reference from pages
4 to 24 of the Company's 1997 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required herein is incorporated by reference from pages
11 to 15 of the Company's 1997 Annual Report.
Item 8. Financial Statements and Supplementary Data.
The information required herein is incorporated by reference from pages
25 to 56 of the Company's 1997 Annual Report.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The information required herein is incorporated by reference from pages
2 to 5 of the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders dated September 26, 1997 ("Proxy Statement").
Item 11. Executive Compensation.
The information required herein is incorporated by reference from pages
8 to 12 of the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required herein is incorporated by reference from pages
6 to 8 of the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required herein is incorporated by reference from page
13 of the Company's Proxy Statement.
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report.
(1) The following documents are filed as part of this report and are
incorporated herein by reference from the Company's 1997 Annual Report.
Report of Independent Auditors.
Consolidated Statements of Financial Condition at June 30, 1997 and
1996.
Consolidated Statements of Income for the Years Ended June 30, 1997,
1996 and 1995.
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended June 30,
1997, 1996 and 1995.
Notes to the Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission ("SEC") are
omitted because they are not applicable or the required information is included
in the Consolidated Financial Statements or notes thereto.
<PAGE>
(3)(a)The following exhibits are filed as part of this Form 10-K, and
this list includes the Exhibit Index.
No. Description Page
--- ----------- ----
3.1 Articles of Incorporation *
3.2 By-Laws *
4 Stock Certificate of WVS Financial Corp. *
10.1 WVS Financial Corp. Recognition Plans and
Trusts for Executive Officers,
Directors and Key Employees** *
10.2 WVS Financial Corp. 1993 Stock Incentive Plan** *
10.3 WVS Financial Corp. 1993 Directors' Stock
Option Plan** *
10.4 WVS Financial Corp. Employee Stock Ownership
Plan and Trust** *
10.5 Amended West View Savings Bank Employee
Profit Sharing Plan** *
10.6 Employment Agreements between WVS Financial
Corp. and Robert Sinewe, Margaret
VonDerau, David Bursic and Edward
Wielgus** E-1
10.7 Directors Deferred Compensation Program** *
11 Statement Re Computation of Per Share Earnings E-41
13 1997 Annual Report to Stockholders E-42
21 Subsidiaries of the Registrant - Reference is
made to Item 1. "Business" for the
required information
23 Consent of Independent Auditors E-105
27 Financial Data Schedule E-106
* Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 33-67506) filed by the Company with the SEC on August 16,
1993, as amended.
** Management contract or compensatory plan or arrangement.
(3)(b)Reports filed on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
September 25, 1997 By: /s/Robert C. Sinewe
-------------------
Robert C. Sinewe
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Robert C. Sinewe September 25, 1997
- -------------------
Robert C. Sinewe, Director, President and
Chief Executive Officer (Principal
Executive Officer)
/s/James S. McKain Jr. September 25, 1997
- ----------------------
James S. McKain Jr., Chairman of the Board
/s/David J. Bursic
- ------------------ September 25, 1997
David J. Bursic, Vice President, Treasurer
and Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/David L. Aeberli
- ------------------- September 25, 1997
David L. Aeberli, Director
/s/Arthur H. Brandt
- ------------------- September 25, 1997
Arthur H. Brandt, Director
/s/William J. Hoegel
- -------------------- September 25, 1997
William J. Hoegel, Director
<PAGE>
/s/Donald E. Hook
- ----------------- September 25, 1997
Donald E. Hook, Director
/s/James H. Ritchie
- ------------------- September 25, 1997
James H. Ritchie, Director
/s/John M. Seifarth
- ------------------- September 25, 1997
John M. Seifarth, Director
/s/Margaret VonDerau
- --------------------- September 25, 1997
Margaret VonDerau, Director, Senior
Vice President and Corporate Secretary
Exhibit 10-6
AGREEMENT
AGREEMENT, dated this 1st day of July 1997, between WVS Financial Corp.
(the "Corporation"), a Pennsylvania-chartered corporation, West View Savings
Bank (the "Savings Bank"), a Pennsylvania-chartered savings bank and a
wholly-owned subsidiary of the Corporation, and Robert C. Sinewe (the
"Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation
and/or the Savings Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(b) Cause. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of the Agreement. For
purposes of this paragraph, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers.
(c) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto, whether or not the Corporation is registered
under Exchange Act; provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(d) Code. "Code" shall mean the Internal Revenue code of 1986, as
amended.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(f) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(g) Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to re-appoint the Executive to
the offices of President and Chief Executive Officer of the Employers or a
material adverse change made by the Employers in the Executive's functions,
duties or responsibilities as President and Chief Executive Officer of the
Employers immediately prior to a Change in Control of the Corporation;
(ii) Without the Executive's express written consent, a
reduction by the Employers in the Executive's Base Salary as the same may be
increased from time to time or, except to the extent permitted by Section 3(b)
hereof, a reduction in the package of fringe benefits provided to the Executive,
taken as a whole;
(iii) The principal executive office of the Employers is
relocated outside of the Pittsburgh, Pennsylvania, area or, without the
Executive's express written consent, the Employers require the Executive to be
based anywhere other that an area in which the Employers' principal executive
office is located, except for required travel on business of the Employers to an
extent substantially consistent with the Executive's present business travel
obligations;
(iv) Any purported termination of the Executive's employment
for Cause, Disability or Retirement which is not effected pursuant to a Notice
of Termination satisfying the requirements of paragraph (j) below; or
(v) The failure by the Employers to obtain the assumption of
and agreement to perform this Agreement by any successor as contemplated in
Section 9 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability, or Retirement , or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in the Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employers termination of Executive's employment for Cause; and
(iv) is given in the manner specified in Section 10 hereof.
(j) Parachute Payment. The term "Parachute Payment" has the meaning as
set forth in Section 280G of the Code and applicable Treasury regulations
(without regard to Section 280(b)(2)(A)(ii) of the Code and the Treasury
regulations thereunder).
(k) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Employee in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as President and Chief
Executive Officer and Executive hereby accepts said employment and agrees to
render such services to the Employers on the terms and conditions set forth in
this Agreement. The term of employment under this Agreement shall be for three
years, commencing on the date of this Agreement and, subject to the requirements
of the succeeding sentence, shall be deemed automatically, without further
action, to extend for an additional year on each annual anniversary of the date
of this Agreement such that at any time the remaining term of this Agreement
shall be from two to three years. Prior to the first annual anniversary of the
date of this Agreement and each annual anniversary thereafter, the Board of
Directors of the Employers shall consider and review (with appropriate corporate
documentation thereof, and after taking into account all relevant factors,
including the Executive's performance hereunder) extension of the term under
this Agreement, and the term shall continue to extend in the manner set forth
above unless either the Board of Directors does not approve such extension and
provides written notice to the Executive of such event or the Executive gives
written notice to the Employers of the Executive's election not to extend the
term, in each case with such written notice to be given not less than thirty
(30) days prior to any such anniversary date. References herein to the term of
this Agreement shall refer both to the initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Board of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $140,400 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Board of Directors of the Employers and may not be
decreased without the Executive's express written consent. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Board of Directors of
the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to Executive as compared with any other executive officer of the
Employers. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to
paid annual vacation in accordance with the policies as established from time to
time by the Board of Directors of the Employers, which shall in no event be less
than five weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Employers for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Board of Directors of the
Employers.
4. Expenses. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Board of
Directors of the Employers. If such expenses are paid in the first instance by
Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement, and Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event (i) Executive's employment is terminated by the
Employers for Cause, Disability or Retirement or in the event of the Executive's
death, or (ii) Executive terminates his employment hereunder other than for Good
Reason, Executive shall have no right pursuant to this Agreement to compensation
or other benefits for any period after the applicable Date of Termination.
(c) In the event that (i) Executive's employment is terminated by the
Employers for other than Cause, Disability, Retirement or the Executive's death
or (ii) such employment is terminated by the Executive (a) due to a material
breach of this Agreement by the Employers, which breach has not been cured
within fifteen (15) days after a written notice of non-compliance has been given
by the Executive to the Employers, or (b) for Good Reason, then the Employers
shall, subject to the provisions of Section 6 hereof, if applicable
(A) pay to the Executive, in thirty-six (36) equal monthly installments
beginning with the first business day of the month following the Date
of Termination, a cash severance amount equal to three (3) times the
Executive's Base Salary, and
(B) maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of employment pursuant hereto prior to
the Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive,
the Executive's continued participation in all group insurance, life
insurance, health and accident, disability and other employee benefit
plans, programs and arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination (other than
stock option and restricted stock plans of the Employers), provided
that in the event that the Executive's participation in any plan,
program or arrangement as provided in this subparagraph (B) is barred,
or during such period any such plan, program or arrangement is
discontinued or the benefits thereunder are materially reduced, the
Employers shall arrange to provide the Executive with benefits
substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior
to the Date of Termination.
(d) If the Executive becomes liable, in any taxable year, for the
payment of an excise tax under Section 4999 of the Code on account of any
payments to the Executive pursuant to this Section 5, and the Employers chose
not to contest the liability or have exhausted all administrative and judicial
appeals contesting the liability, the Employers shall pay the Executive (i) an
amount equal to the excise tax for which the Executive is liable under Section
4999 of the Code, (ii) the federal, state, and local income taxes, and interest
if any, for which the Executive is liable on account of the payments pursuant to
item (i), and (ii) any additional excise tax under Section 4999 of the Code and
any federal, state and local income taxes, for which the Executive is liable on
account of payments made pursuant to items (i) and (ii).
(e) This subsection 5(e) applies if the amount of payments to the
Executive under subsection 5(d) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employers and the Executive shall, as soon as practicable after the event or
series of events has occurred giving rise to the imposition of the excise tax,
cooperate in determining the amount of the Executive's excise tax liability for
purposes of paying the estimated tax. The Executive shall thereafter furnish to
the Employers or their successors a copy of each tax return which reflects a
liability for an excise tax under Section 4999 of the Code at least 20 days
before the date on which such return is required to be filed with the IRS. The
liability reflected on such return shall be dispositive for the purposes hereof
unless, within 15 days after such notice is given, the Employers furnish the
Executive with a letter of the auditors or tax advisor selected by the Employers
indicating a different liability or that the matter is not free from doubt under
the applicable laws and regulations and the Executive may, in such auditor's or
advisor's opinion, cogently take a different position, which shall be set forth
in the letter with respect to the payments in question. Such letter shall be
addressed to the Executive and state that he is entitled to rely thereon. If the
Employers furnish such a letter to the Executive, the position reflected in such
letter shall be dispositive for purposes of this Agreement, except as provided
in subsection 5(f) below.
(f) Notwithstanding anything in this Agreement to the contrary, if the
Executive's liability for the excise tax under Section 4999 of the Code for a
taxable year is subsequently determined to be less than the amount paid by the
Employers pursuant to subsection 5(e), the Executive shall repay the Employers
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the reduction
(plus interest on the amount of such repayment at the rate provided on Section
1274(b)(2)(B) of the Code and if the Executive's liability for the excise tax
under Section 4999 of the Code for a taxable year is subsequently determined to
exceed the amount paid by the Employers pursuant to Section 5, the Employers
shall make an additional payment of income and excise taxes in the amount of
such excess, as well as the amount of any penalty and interest assessed with
respect thereto at the time that the amount of such excess and any penalty and
interest is finally determined.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
7. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
8. Assignability. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employers
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: WVS Financial Corp.
West View Savings Bank
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
To the Executive: Robert C. Sinewe
210 Crescent Ct.
Cranberry Twp., Pennsylvania 16066
10. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the Commonwealth of
Pennsylvania.
12. Nature of Obligations. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
13. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C.ss.1828(k)) and any regulations
promulgated thereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: WVS FINANCIAL CORP. INC.
/s/ William J. Hoegel By: /s/ Margaret VonDerau
- -------------------------------- -------------------------------
Margaret VonDerau, Senior
Vice President and Corporate
Secretary
Attest: WEST VIEW SAVINGS BANK
/s/ William J. Hoegel By: /s/ Margaret VonDerau
- -------------------------------- -------------------------------
Margaret VonDerau, Senior
Vice President and Corporate
Secretary
By: /s/ Robert C. Sinewe
-------------------------------
Robert C. Sinewe
<PAGE>
AGREEMENT
AGREEMENT, dated this 1st day of July 1997, between WVS Financial Corp.
(the "Corporation"), a Pennsylvania-chartered corporation, West View Savings
Bank (the "Savings Bank"), a Pennsylvania-chartered savings bank and a
wholly-owned subsidiary of the Corporation, and Margaret VonDerau (the
"Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation
and/or the Savings Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(b) Cause. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of the Agreement. For
purposes of this paragraph, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers.
(c) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto, whether or not the Corporation is registered
under Exchange Act; provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(d) Code. "Code" shall mean the Internal Revenue code of 1986, as
amended.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(f) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(g) Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to re-appoint the Executive to
the offices of Senior Vice President and Corporate Secretary of the Employers or
a material adverse change made by the Employers in the Executive's functions,
duties or responsibilities as Senior Vice President and Corporate Secretary of
the Employers immediately prior to a Change in Control of the Corporation;
(ii) Without the Executive's express written consent, a
reduction by the Employers in the Executive's Base Salary as the same may be
increased from time to time or, except to the extent permitted by Section 3(b)
hereof, a reduction in the package of fringe benefits provided to the Executive,
taken as a whole;
(iii) The principal executive office of the Employers is
relocated outside of the Pittsburgh, Pennsylvania, area or, without the
Executive's express written consent, the Employers require the Executive to be
based anywhere other that an area in which the Employers' principal executive
office is located, except for required travel on business of the Employers to an
extent substantially consistent with the Executive's present business travel
obligations;
(iv) Any purported termination of the Executive's employment
for Cause, Disability or Retirement which is not effected pursuant to a Notice
of Termination satisfying the requirements of paragraph (j) below; or
(v) The failure by the Employers to obtain the assumption of
and agreement to perform this Agreement by any successor as contemplated in
Section 9 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability, or Retirement , or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in the Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employers termination of Executive's employment for Cause; and
(iv) is given in the manner specified in Section 10 hereof.
(j) Parachute Payment. The term "Parachute Payment" has the meaning as
set forth in Section 280G of the Code and applicable Treasury regulations
(without regard to Section 280(b)(2)(A)(ii) of the Code and the Treasury
regulations thereunder).
(k) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Employee in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as Senior Vice President
and Corporate Secretary and Executive hereby accepts said employment and agrees
to render such services to the Employers on the terms and conditions set forth
in this Agreement. The term of employment under this Agreement shall be for
three years, commencing on the date of this Agreement and, subject to the
requirements of the succeeding sentence, shall be deemed automatically, without
further action, to extend for an additional year on each annual anniversary of
the date of this Agreement such that at any time the remaining term of this
Agreement shall be from two to three years. Prior to the first annual
anniversary of the date of this Agreement and each annual anniversary
thereafter, the Board of Directors of the Employers shall consider and review
(with appropriate corporate documentation thereof, and after taking into account
all relevant factors, including the Executive's performance hereunder) extension
of the term under this Agreement, and the term shall continue to extend in the
manner set forth above unless either the Board of Directors does not approve
such extension and provides written notice to the Executive of such event or the
Executive gives written notice to the Employers of the Executive's election not
to extend the term, in each case with such written notice to be given not less
than thirty (30) days prior to any such anniversary date. References herein to
the term of this Agreement shall refer both to the initial term and successive
terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Board of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $106,800 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Board of Directors of the Employers and may not be
decreased without the Executive's express written consent. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Board of Directors of
the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to Executive as compared with any other executive officer of the
Employers. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to
paid annual vacation in accordance with the policies as established from time to
time by the Board of Directors of the Employers, which shall in no event be less
than five weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Employers for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Board of Directors of the
Employers.
4. Expenses. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Board of
Directors of the Employers. If such expenses are paid in the first instance by
Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement, and Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event (i) Executive's employment is terminated by the
Employers for Cause, Disability or Retirement or in the event of the Executive's
death, or (ii) Executive terminates his employment hereunder other than for Good
Reason, Executive shall have no right pursuant to this Agreement to compensation
or other benefits for any period after the applicable Date of Termination.
(c) In the event that (i) Executive's employment is terminated by the
Employers for other than Cause, Disability, Retirement or the Executive's death
or (ii) such employment is terminated by the Executive (a) due to a material
breach of this Agreement by the Employers, which breach has not been cured
within fifteen (15) days after a written notice of non-compliance has been given
by the Executive to the Employers, or (b) for Good Reason, then the Employers
shall, subject to the provisions of Section 6 hereof, if applicable
(A) pay to the Executive, in thirty-six (36) equal monthly installments
beginning with the first business day of the month following the Date
of Termination, a cash severance amount equal to three (3) times the
Executive's Base Salary, and
(B) maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of employment pursuant hereto prior to
the Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive,
the Executive's continued participation in all group insurance, life
insurance, health and accident, disability and other employee benefit
plans, programs and arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination (other than
stock option and restricted stock plans of the Employers), provided
that in the event that the Executive's participation in any plan,
program or arrangement as provided in this subparagraph (B) is barred,
or during such period any such plan, program or arrangement is
discontinued or the benefits thereunder are materially reduced, the
Employers shall arrange to provide the Executive with benefits
substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior
to the Date of Termination.
(d) If the Executive becomes liable, in any taxable year, for the
payment of an excise tax under Section 4999 of the Code on account of any
payments to the Executive pursuant to this Section 5, and the Employers chose
not to contest the liability or have exhausted all administrative and judicial
appeals contesting the liability, the Employers shall pay the Executive (i) an
amount equal to the excise tax for which the Executive is liable under Section
4999 of the Code, (ii) the federal, state, and local income taxes, and interest
if any, for which the Executive is liable on account of the payments pursuant to
item (i), and (ii) any additional excise tax under Section 4999 of the Code and
any federal, state and local income taxes, for which the Executive is liable on
account of payments made pursuant to items (i) and (ii).
(e) This subsection 5(e) applies if the amount of payments to the
Executive under subsection 5(d) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employers and the Executive shall, as soon as practicable after the event or
series of events has occurred giving rise to the imposition of the excise tax,
cooperate in determining the amount of the Executive's excise tax liability for
purposes of paying the estimated tax. The Executive shall thereafter furnish to
the Employers or their successors a copy of each tax return which reflects a
liability for an excise tax under Section 4999 of the Code at least 20 days
before the date on which such return is required to be filed with the IRS. The
liability reflected on such return shall be dispositive for the purposes hereof
unless, within 15 days after such notice is given, the Employers furnish the
Executive with a letter of the auditors or tax advisor selected by the Employers
indicating a different liability or that the matter is not free from doubt under
the applicable laws and regulations and the Executive may, in such auditor's or
advisor's opinion, cogently take a different position, which shall be set forth
in the letter with respect to the payments in question. Such letter shall be
addressed to the Executive and state that he is entitled to rely thereon. If the
Employers furnish such a letter to the Executive, the position reflected in such
letter shall be dispositive for purposes of this Agreement, except as provided
in subsection 5(f) below.
(f) Notwithstanding anything in this Agreement to the contrary, if the
Executive's liability for the excise tax under Section 4999 of the Code for a
taxable year is subsequently determined to be less than the amount paid by the
Employers pursuant to subsection 5(e), the Executive shall repay the Employers
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the reduction
(plus interest on the amount of such repayment at the rate provided on Section
1274(b)(2)(B) of the Code and if the Executive's liability for the excise tax
under Section 4999 of the Code for a taxable year is subsequently determined to
exceed the amount paid by the Employers pursuant to Section 5, the Employers
shall make an additional payment of income and excise taxes in the amount of
such excess, as well as the amount of any penalty and interest assessed with
respect thereto at the time that the amount of such excess and any penalty and
interest is finally determined.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
7. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
8. Assignability. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employers
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: WVS Financial Corp.
West View Savings Bank
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
To the Executive: Margaret VonDerau
202 Greenbriar Drive
Cranberry Twp., Pennsylvania 16066
10. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the Commonwealth of
Pennsylvania.
12. Nature of Obligations. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
13. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C.ss.1828(k)) and any regulations
promulgated thereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: WVS FINANCIAL CORP. INC.
/s/ William J. Hoegel By: /s/ Robert C. Sinewe
- -------------------------------- -------------------------------
Robert C. Sinewe, President and
Chief Executive Officer
Attest: WEST VIEW SAVINGS BANK
/s/ William J. Hoegel By: /s/ Robert C. Sinewe
- -------------------------------- -------------------------------
Robert C. Sinewe, President and
Chief Executive Officer
By: /s/ Margaret VonDerau
-------------------------------
Margaret VonDerau
<PAGE>
AGREEMENT
AGREEMENT, dated this 1st day of July 1997, between WVS Financial Corp.
(the "Corporation"), a Pennsylvania-chartered corporation, West View Savings
Bank (the "Savings Bank"), a Pennsylvania-chartered savings bank and a
wholly-owned subsidiary of the Corporation, and David J. Bursic (the
"Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation
and/or the Savings Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(b) Cause. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of the Agreement. For
purposes of this paragraph, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers.
(c) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto, whether or not the Corporation is registered
under Exchange Act; provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(d) Code. "Code" shall mean the Internal Revenue code of 1986, as
amended.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(f) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(g) Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to re-appoint the Executive to
the offices of Vice President, Treasurer and Chief Financial Officer of the
Employers or a material adverse change made by the Employers in the Executive's
functions, duties or responsibilities as Vice President, Treasurer and Chief
Financial Officer of the Employers immediately prior to a Change in Control of
the Corporation;
(ii) Without the Executive's express written consent, a
reduction by the Employers in the Executive's Base Salary as the same may be
increased from time to time or, except to the extent permitted by Section 3(b)
hereof, a reduction in the package of fringe benefits provided to the Executive,
taken as a whole;
(iii) The principal executive office of the Employers is
relocated outside of the Pittsburgh, Pennsylvania, area or, without the
Executive's express written consent, the Employers require the Executive to be
based anywhere other that an area in which the Employers' principal executive
office is located, except for required travel on business of the Employers to an
extent substantially consistent with the Executive's present business travel
obligations;
(iv) Any purported termination of the Executive's employment
for Cause, Disability or Retirement which is not effected pursuant to a Notice
of Termination satisfying the requirements of paragraph (j) below; or
(v) The failure by the Employers to obtain the assumption of
and agreement to perform this Agreement by any successor as contemplated in
Section 9 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability, or Retirement , or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in the Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employers termination of Executive's employment for Cause; and
(iv) is given in the manner specified in Section 10 hereof.
(j) Parachute Payment. The term "Parachute Payment" has the meaning as
set forth in Section 280G of the Code and applicable Treasury regulations
(without regard to Section 280(b)(2)(A)(ii) of the Code and the Treasury
regulations thereunder).
(k) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Employee in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as Vice President,
Treasurer and Chief Financial Officer and Executive hereby accepts said
employment and agrees to render such services to the Employers on the terms and
conditions set forth in this Agreement. The term of employment under this
Agreement shall be for three years, commencing on the date of this Agreement
and, subject to the requirements of the succeeding sentence, shall be deemed
automatically, without further action, to extend for an additional year on each
annual anniversary of the date of this Agreement such that at any time the
remaining term of this Agreement shall be from two to three years. Prior to the
first annual anniversary of the date of this Agreement and each annual
anniversary thereafter, the Board of Directors of the Employers shall consider
and review (with appropriate corporate documentation thereof, and after taking
into account all relevant factors, including the Executive's performance
hereunder) extension of the term under this Agreement, and the term shall
continue to extend in the manner set forth above unless either the Board of
Directors does not approve such extension and provides written notice to the
Executive of such event or the Executive gives written notice to the Employers
of the Executive's election not to extend the term, in each case with such
written notice to be given not less than thirty (30) days prior to any such
anniversary date. References herein to the term of this Agreement shall refer
both to the initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Board of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $87,600 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Board of Directors of the Employers and may not be
decreased without the Executive's express written consent. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Board of Directors of
the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to Executive as compared with any other executive officer of the
Employers. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to
paid annual vacation in accordance with the policies as established from time to
time by the Board of Directors of the Employers, which shall in no event be less
than three weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Employers for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Board of Directors of the
Employers.
4. Expenses. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Board of
Directors of the Employers. If such expenses are paid in the first instance by
Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement, and Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event (i) Executive's employment is terminated by the
Employers for Cause, Disability or Retirement or in the event of the Executive's
death, or (ii) Executive terminates his employment hereunder other than for Good
Reason, Executive shall have no right pursuant to this Agreement to compensation
or other benefits for any period after the applicable Date of Termination.
(c) In the event that (i) Executive's employment is terminated by the
Employers for other than Cause, Disability, Retirement or the Executive's death
or (ii) such employment is terminated by the Executive (a) due to a material
breach of this Agreement by the Employers, which breach has not been cured
within fifteen (15) days after a written notice of non-compliance has been given
by the Executive to the Employers, or (b) for Good Reason, then the Employers
shall, subject to the provisions of Section 6 hereof, if applicable
(A) pay to the Executive, in thirty-six (36) equal monthly installments
beginning with the first business day of the month following the Date
of Termination, a cash severance amount equal to three (3) times the
Executive's Base Salary, and
(B) maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of employment pursuant hereto prior to
the Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive,
the Executive's continued participation in all group insurance, life
insurance, health and accident, disability and other employee benefit
plans, programs and arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination (other than
stock option and restricted stock plans of the Employers), provided
that in the event that the Executive's participation in any plan,
program or arrangement as provided in this subparagraph (B) is barred,
or during such period any such plan, program or arrangement is
discontinued or the benefits thereunder are materially reduced, the
Employers shall arrange to provide the Executive with benefits
substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior
to the Date of Termination.
(d) If the Executive becomes liable, in any taxable year, for the
payment of an excise tax under Section 4999 of the Code on account of any
payments to the Executive pursuant to this Section 5, and the Employers chose
not to contest the liability or have exhausted all administrative and judicial
appeals contesting the liability, the Employers shall pay the Executive (i) an
amount equal to the excise tax for which the Executive is liable under Section
4999 of the Code, (ii) the federal, state, and local income taxes, and interest
if any, for which the Executive is liable on account of the payments pursuant to
item (i), and (ii) any additional excise tax under Section 4999 of the Code and
any federal, state and local income taxes, for which the Executive is liable on
account of payments made pursuant to items (i) and (ii).
(e) This subsection 5(e) applies if the amount of payments to the
Executive under subsection 5(d) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employers and the Executive shall, as soon as practicable after the event or
series of events has occurred giving rise to the imposition of the excise tax,
cooperate in determining the amount of the Executive's excise tax liability for
purposes of paying the estimated tax. The Executive shall thereafter furnish to
the Employers or their successors a copy of each tax return which reflects a
liability for an excise tax under Section 4999 of the Code at least 20 days
before the date on which such return is required to be filed with the IRS. The
liability reflected on such return shall be dispositive for the purposes hereof
unless, within 15 days after such notice is given, the Employers furnish the
Executive with a letter of the auditors or tax advisor selected by the Employers
indicating a different liability or that the matter is not free from doubt under
the applicable laws and regulations and the Executive may, in such auditor's or
advisor's opinion, cogently take a different position, which shall be set forth
in the letter with respect to the payments in question. Such letter shall be
addressed to the Executive and state that he is entitled to rely thereon. If the
Employers furnish such a letter to the Executive, the position reflected in such
letter shall be dispositive for purposes of this Agreement, except as provided
in subsection 5(f) below.
(f) Notwithstanding anything in this Agreement to the contrary, if the
Executive's liability for the excise tax under Section 4999 of the Code for a
taxable year is subsequently determined to be less than the amount paid by the
Employers pursuant to subsection 5(e), the Executive shall repay the Employers
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the reduction
(plus interest on the amount of such repayment at the rate provided on Section
1274(b)(2)(B) of the Code and if the Executive's liability for the excise tax
under Section 4999 of the Code for a taxable year is subsequently determined to
exceed the amount paid by the Employers pursuant to Section 5, the Employers
shall make an additional payment of income and excise taxes in the amount of
such excess, as well as the amount of any penalty and interest assessed with
respect thereto at the time that the amount of such excess and any penalty and
interest is finally determined.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
7. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
8. Assignability. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employers
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: WVS Financial Corp.
West View Savings Bank
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
To the Executive: David J. Bursic
304 Wagon Wheel Trail
Wexford, Pennsylvania 15090
10. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the Commonwealth of
Pennsylvania.
12. Nature of Obligations. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
13. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C.ss.1828(k)) and any regulations
promulgated thereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: WVS FINANCIAL CORP. INC.
/s/ William J. Hoegel By: /s/ Robert C. Sinewe
- -------------------------------- -------------------------------
Robert C. Sinewe, President and
Chief Executive Officer
Attest: WEST VIEW SAVINGS BANK
/s/ William J. Hoegel By: /s/ Robert C. Sinewe
- -------------------------------- -------------------------------
Robert C. Sinewe, President and
Chief Executive Officer
By: /s/ David J. Bursic
-------------------------------
David J. Bursic
<PAGE>
AGREEMENT
AGREEMENT, dated this 1st day of July 1997, between WVS Financial Corp.
(the "Corporation"), a Pennsylvania-chartered corporation, West View Savings
Bank (the "Savings Bank"), a Pennsylvania-chartered savings bank and a
wholly-owned subsidiary of the Corporation, and Edward M. Wielgus (the
"Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation
and/or the Savings Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(b) Cause. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of the Agreement. For
purposes of this paragraph, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers.
(c) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto, whether or not the Corporation is registered
under Exchange Act; provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(d) Code. "Code" shall mean the Internal Revenue code of 1986, as
amended.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(f) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(g) Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to re-appoint the Executive to
the offices of Vice President and Chief Lending Officer of the Employers or a
material adverse change made by the Employers in the Executive's functions,
duties or responsibilities as Vice President and Chief Lending Officer of the
Employers immediately prior to a Change in Control of the Corporation;
(ii) Without the Executive's express written consent, a
reduction by the Employers in the Executive's Base Salary as the same may be
increased from time to time or, except to the extent permitted by Section 3(b)
hereof, a reduction in the package of fringe benefits provided to the Executive,
taken as a whole;
(iii) The principal executive office of the Employers is
relocated outside of the Pittsburgh, Pennsylvania, area or, without the
Executive's express written consent, the Employers require the Executive to be
based anywhere other that an area in which the Employers' principal executive
office is located, except for required travel on business of the Employers to an
extent substantially consistent with the Executive's present business travel
obligations;
(iv) Any purported termination of the Executive's employment
for Cause, Disability or Retirement which is not effected pursuant to a Notice
of Termination satisfying the requirements of paragraph (j) below; or
(v) The failure by the Employers to obtain the assumption of
and agreement to perform this Agreement by any successor as contemplated in
Section 9 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability, or Retirement , or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in the Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employers termination of Executive's employment for Cause; and
(iv) is given in the manner specified in Section 10 hereof.
(j) Parachute Payment. The term "Parachute Payment" has the meaning as
set forth in Section 280G of the Code and applicable Treasury regulations
(without regard to Section 280(b)(2)(A)(ii) of the Code and the Treasury
regulations thereunder).
(k) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Employee in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as Vice President and
Chief Lending Officer and Executive hereby accepts said employment and agrees to
render such services to the Employers on the terms and conditions set forth in
this Agreement. The term of employment under this Agreement shall be for three
years, commencing on the date of this Agreement and, subject to the requirements
of the succeeding sentence, shall be deemed automatically, without further
action, to extend for an additional year on each annual anniversary of the date
of this Agreement such that at any time the remaining term of this Agreement
shall be from two to three years. Prior to the first annual anniversary of the
date of this Agreement and each annual anniversary thereafter, the Board of
Directors of the Employers shall consider and review (with appropriate corporate
documentation thereof, and after taking into account all relevant factors,
including the Executive's performance hereunder) extension of the term under
this Agreement, and the term shall continue to extend in the manner set forth
above unless either the Board of Directors does not approve such extension and
provides written notice to the Executive of such event or the Executive gives
written notice to the Employers of the Executive's election not to extend the
term, in each case with such written notice to be given not less than thirty
(30) days prior to any such anniversary date. References herein to the term of
this Agreement shall refer both to the initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Board of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $80,400 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Board of Directors of the Employers and may not be
decreased without the Executive's express written consent. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Board of Directors of
the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to Executive as compared with any other executive officer of the
Employers. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to
paid annual vacation in accordance with the policies as established from time to
time by the Board of Directors of the Employers, which shall in no event be less
than three weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Employers for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Board of Directors of the
Employers.
4. Expenses. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Board of
Directors of the Employers. If such expenses are paid in the first instance by
Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement, and Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event (i) Executive's employment is terminated by the
Employers for Cause, Disability or Retirement or in the event of the Executive's
death, or (ii) Executive terminates his employment hereunder other than for Good
Reason, Executive shall have no right pursuant to this Agreement to compensation
or other benefits for any period after the applicable Date of Termination.
(c) In the event that (i) Executive's employment is terminated by the
Employers for other than Cause, Disability, Retirement or the Executive's death
or (ii) such employment is terminated by the Executive (a) due to a material
breach of this Agreement by the Employers, which breach has not been cured
within fifteen (15) days after a written notice of non-compliance has been given
by the Executive to the Employers, or (b) for Good Reason, then the Employers
shall, subject to the provisions of Section 6 hereof, if applicable
(A) pay to the Executive, in thirty-six (36) equal monthly installments
beginning with the first business day of the month following the Date
of Termination, a cash severance amount equal to three (3) times the
Executive's Base Salary, and
(B) maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of employment pursuant hereto prior to
the Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive,
the Executive's continued participation in all group insurance, life
insurance, health and accident, disability and other employee benefit
plans, programs and arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination (other than
stock option and restricted stock plans of the Employers), provided
that in the event that the Executive's participation in any plan,
program or arrangement as provided in this subparagraph (B) is barred,
or during such period any such plan, program or arrangement is
discontinued or the benefits thereunder are materially reduced, the
Employers shall arrange to provide the Executive with benefits
substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior
to the Date of Termination.
(d) If the Executive becomes liable, in any taxable year, for the
payment of an excise tax under Section 4999 of the Code on account of any
payments to the Executive pursuant to this Section 5, and the Employers chose
not to contest the liability or have exhausted all administrative and judicial
appeals contesting the liability, the Employers shall pay the Executive (i) an
amount equal to the excise tax for which the Executive is liable under Section
4999 of the Code, (ii) the federal, state, and local income taxes, and interest
if any, for which the Executive is liable on account of the payments pursuant to
item (i), and (ii) any additional excise tax under Section 4999 of the Code and
any federal, state and local income taxes, for which the Executive is liable on
account of payments made pursuant to items (i) and (ii).
(e) This subsection 5(e) applies if the amount of payments to the
Executive under subsection 5(d) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employers and the Executive shall, as soon as practicable after the event or
series of events has occurred giving rise to the imposition of the excise tax,
cooperate in determining the amount of the Executive's excise tax liability for
purposes of paying the estimated tax. The Executive shall thereafter furnish to
the Employers or their successors a copy of each tax return which reflects a
liability for an excise tax under Section 4999 of the Code at least 20 days
before the date on which such return is required to be filed with the IRS. The
liability reflected on such return shall be dispositive for the purposes hereof
unless, within 15 days after such notice is given, the Employers furnish the
Executive with a letter of the auditors or tax advisor selected by the Employers
indicating a different liability or that the matter is not free from doubt under
the applicable laws and regulations and the Executive may, in such auditor's or
advisor's opinion, cogently take a different position, which shall be set forth
in the letter with respect to the payments in question. Such letter shall be
addressed to the Executive and state that he is entitled to rely thereon. If the
Employers furnish such a letter to the Executive, the position reflected in such
letter shall be dispositive for purposes of this Agreement, except as provided
in subsection 5(f) below.
(f) Notwithstanding anything in this Agreement to the contrary, if the
Executive's liability for the excise tax under Section 4999 of the Code for a
taxable year is subsequently determined to be less than the amount paid by the
Employers pursuant to subsection 5(e), the Executive shall repay the Employers
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the reduction
(plus interest on the amount of such repayment at the rate provided on Section
1274(b)(2)(B) of the Code and if the Executive's liability for the excise tax
under Section 4999 of the Code for a taxable year is subsequently determined to
exceed the amount paid by the Employers pursuant to Section 5, the Employers
shall make an additional payment of income and excise taxes in the amount of
such excess, as well as the amount of any penalty and interest assessed with
respect thereto at the time that the amount of such excess and any penalty and
interest is finally determined.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
7. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
8. Assignability. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employers
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: WVS Financial Corp.
West View Savings Bank
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
To the Executive: Edward M. Wielgus
150 Richmond Circle
Pittsburgh, Pennsylvania 15237
10. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the Commonwealth of
Pennsylvania.
12. Nature of Obligations. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
13. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C.ss.1828(k)) and any regulations
promulgated thereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: WVS FINANCIAL CORP. INC.
/s/ William J. Hoegel By: /s/ Robert C. Sinewe
- -------------------------------- -------------------------------
Robert C. Sinewe, President and
Chief Executive Officer
Attest: WEST VIEW SAVINGS BANK
/s/ William J. Hoegel By: /s/ Robert C. Sinewe
- -------------------------------- -------------------------------
Robert C. Sinewe, President and
Chief Executive Officer
By: /s/ Edward M. Wielgus
-------------------------------
Edward M. Wielgus
Exhibit 11
WVS Financial Corp.
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ..................... 1,743,286 1,736,505 1,738,563 1,736,426
Average unearned ESOP shares ...... (47,697) (59,809) (53,665) (62,745)
Common stock equivalents
(stock options) ................. 66,100 62,562 67,318 58,667
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate primary
earnings per share .............. 1,761,689 1,739,258 1,752,216 1,732,348
Additional common stock equivalents
(stock options) used to calculate
fully diluted earnings per share 1,776 69 2,226 2,119
----------- ----------- ----------- -----------
Weighted average common shares and
common stock equivalents
used to calculate
fully diluted earnings
per share ....................... 1,763,465 1,739,327 1,754,442 1,734,467
=========== =========== =========== ===========
Net income ........................ $ 882,559 $ 775,674 $ 2,958,878 $ 3,576,646
=========== =========== =========== ===========
Earnings per share:
Primary ......................... $ 0.50 $ 0.45 $ 1.69 $ 2.06
Fully diluted ................... $ 0.50 $ 0.45 $ 1.69 $ 2.06
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Exhibit 11
WVS Financial Corp.
Statement Re Computation of Per Share Earnings
Three Months Ended Twelve Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ..................... 1,743,286 1,736,505 1,738,563 1,736,426
Average unearned ESOP shares ...... (47,697) (59,809) (53,665) (62,745)
Common stock equivalents
(stock options) ................. 66,100 62,562 67,318 58,667
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate primary
earnings per share .............. 1,761,689 1,739,258 1,752,216 1,732,348
Additional common stock equivalents
(stock options) used to calculate
fully diluted earnings per share 1,776 69 2,226 2,119
----------- ----------- ----------- -----------
Weighted average common shares and
common stock equivalents used to
calculate fully diluted earnings
per share ....................... 1,763,465 1,739,327 1,754,442 1,734,467
=========== =========== =========== ===========
Net income ........................ $ 882,559 $ 775,674 $ 2,958,878 $ 3,576,646
=========== =========== =========== ===========
Earnings per share:
Primary ......................... $ 0.50 $ 0.45 $ 1.69 $ 2.06
Fully diluted ................... $ 0.50 $ 0.45 $ 1.69 $ 2.06
=========== =========== =========== ===========
</TABLE>
[GRAPHIC -- COMPANY LOGO]
WVS
FINANCIAL CORP.
1997 ANNUAL REPORT
<PAGE>
TABLE OF CONTENTS
Page
Number
------
Stockholders' Letter 1
Selected Financial and Other Data 2
Management's Discussion and Analysis 4
Report of Independent Auditors 25
Consolidated Statements of Financial Condition 26
Consolidated Statements of Income 27
Consolidated Statements of Changes in Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to the Consolidated Financial Statements 30
Common Stock Market Price and Dividend Information 57
Corporate Information 58
<PAGE>
To Our Stockholders:
Fiscal 1997 was a year of accomplishment for WVS Financial Corp. and its
operating subsidiary West View Savings Bank. Company assets increased $35.1
million or 13.5% to $294.7 million at June 30, 1997. Investment and
mortgage-backed securities grew $23.7 million or 23.4% significantly enhancing
bottom line results. Net loans receivable rose by $9.1 million and totaled
$158.1 million or 53.6% of Company assets. Cash dividends paid to stockholders
totaled $3.00 per share in fiscal 1997 as compared to $2.06 per share in fiscal
1996, including special cash dividends of $2.30 and $1.70 per share paid in
fiscal years 1997 and 1996, respectively.
Net income for the year totaled $2.96 million or $1.69 per share both on a
primary and fully diluted basis as compared to $3.58 million or $2.06 per share
on a comparable basis for the same period in 1996. Fiscal 1997 operations were
significantly impacted by a $1.1 million one-time expense to recapitalize the
Federal Deposit Insurance Corporation's Savings Association Insurance Fund
(SAIF). Without this one-time charge, Company net income would have been
approximately $3.65 million or $2.08 per share.
Our commitment to enhance stockholder value remains steadfast. On June 30, 1997
the Company's stock was trading at $25 7/8 compared to $20 1/2 on June 30, 1996,
which, when combined with the cash dividends paid during fiscal 1997, provided
an impressive 40.9% return.
The Board of Directors, Senior Management and staff would like to thank you for
your continued support and we welcome the opportunity to serve you in the
future. By referring your family, friends and neighbors to West View Savings
Bank, you can contribute to the Company's future success.
ROBERT C. SINEWE JAMES S. McKAIN, JR.
President and Chairman of the Board
Chief Executive Officer
1
<PAGE>
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
As of or For the Year Ended June 30,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets ...................... $ 294,693 $ 259,622 $ 227,368 $ 221,315 $ 210,633
Net loans receivable .............. 158,134 149,011 133,343 123,600 119,348
Mortgage-backed securities ........ 37,490 42,118 22,655 25,704 14,793
Investment securities ............. 87,548 59,218 61,525 63,578 61,917
Real estate owned ................. -- -- -- 25 --
Deposit accounts .................. 170,879 170,843 168,786 180,329 190,358
FHLB advances ..................... 77,857 38,000 14,984 4,000 --
Other borrowings .................. 6,784 10,652 4,047 -- --
Stockholders' equity .............. 32,889 34,038 33,809 32,369 15,349
Nonperforming assets and troubled
debt restructurings(1) ......... 274 980 1,959 1,931 1,118
Selected Operating Data:
Interest income ................... $ 21,125 $ 18,317 $ 15,612 $ 14,615 $ 16,026
Interest expense .................. 10,884 8,840 7,372 7,545 8,815
---------- ---------- ---------- ---------- ----------
Net interest income ............... 10,241 9,477 8,240 7,070 7,211
Provision for loan losses ......... 60 150 211 211 666
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses ................ 10,181 9,327 8,029 6,859 6,545
Non-interest income ............... 374 383 307 315 298
Non-interest expense .............. 5,666 4,067 4,894 4,270 3,598
---------- ---------- ---------- ---------- ----------
Income before income tax expense .. 4,889 5,643 3,442 2,904 3,245
Income tax expense ................ 1,930 2,066 1,652 914 1,369
---------- ---------- ---------- ---------- ----------
Net income before cumulative effect
of accounting change ........... 2,959 3,577 1,790 1,990 1,876
Cumulative effect of change in
accounting for income taxes .... -- -- -- 245 --
---------- ---------- ---------- ---------- ----------
Net income ........................ $ 2,959 $ 3,577 $ 1,790 $ 2,235 $ 1,876
========== ========== ========== ========== ==========
<PAGE>
<CAPTION>
As of or For the Year Ended June 30,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Per Share Information(2):
Primary:
Net income before cumulative effect
of accounting change ........... $ 1.69 $ 2.06 $ 1.05 $ 1.18 N/A
Cumulative effect of change in
accounting for income taxes .... -- -- -- 0.14 N/A
---------- ---------- ---------- ---------- ----------
Primary and fully diluted earnings $ 1.69 $ 2.06 $ 1.05 $ 1.32 N/A
========== ========== ========== ========== ==========
Dividends per share(3) ............ $ 3.00 $ 2.06 $ 0.42 $ 0.04 N/A
Dividend payout ratio(3) .......... 177.51% 100.00% 40.00% 3.10% N/A
Book value per share at period end $ 18.82 $ 19.60 $ 19.47 $ 18.64 N/A
Average shares outstanding
primary ........................ 1,752,216 1,732,348 1,709,243 1,693,580 N/A
fully diluted .................. 1,754,442 1,734,467 1,710,696 1,694,138 N/A
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
As of or For the Year Ended June 30,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Ratios(4):
Average yield earned on interest-
earning assets ................... 7.69% 7.83% 7.33% 6.81% 7.97%
Average rate paid on interest-
bearing liabilities .............. 4.78 4.58 4.19 4.02 4.67
Average interest rate spread(5) ..... 2.91 3.25 3.14 2.79 3.30
Net interest margin(5) .............. 3.73 4.05 3.87 3.30 3.59
Ratio of interest-earning assets
to interest-bearing liabilities .. 120.70 121.18 121.09 114.30 106.43
Non-interest expense as a percent
of average assets ................ 2.04 1.71 2.26 1.96 1.73
Return on average assets ............ 1.06 1.51 0.83 1.02 0.90
Return on average equity ............ 8.63 10.19 5.34 8.74 13.15
Ratio of average equity to average
assets ........................... 12.33 14.81 15.48 11.70 6.85
Full-service offices at end of period 5 5 5 5 5
Asset Quality Ratios(4):
Non-performing loans and troubled
debt restructurings as a percent
of net total loans(1) ............ 0.17% 0.66% 1.47% 1.54% 0.94%
Non-performing assets as a percent
of total assets(1) ............... 0.09 0.15 0.45 0.45 0.08
Non-performing assets and troubled
debt restructurings as a percent
of total assets .................. 0.09 0.38 0.86 0.86 0.53
Allowances for loan losses as a
percent of total loans receivable 1.16 1.17 1.25 1.14 1.10
Allowances for loan losses as a
percent of non-performing loans .. 733.21 520.95 178.43 169.75 893.21
Charge-offs to average loans
receivable outstanding during
the period ....................... 0.01 0.02 0.01 0.02 0.07
Capital Ratios(4):
Tier 1 risk-based capital ratio ..... 24.52 27.19 27.06 21.39 11.13
Total risk-based capital ratio ...... 25.77 28.44 28.32 22.47 12.18
Tier 1 leverage capital ratio ....... 11.44 13.90 14.74 14.59 7.36
</TABLE>
<PAGE>
- ---------------------
(1) Non-performing assets consist of non-performing loans and real estate
owned ("REO"). Non- performing 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) Earnings per share for fiscal 1994 have been computed as if all shares
were issued on July 1, 1993. Earnings per share computed for the period
from November 29, 1993 (date of the mutual-to-stock conversion) to June
30, 1994, would be $0.78.
(3) Dividends per share and dividend payout ratio includes special cash
dividends of $2.30, $1.70 and $0.20 per share, paid during fiscal 1997,
1996 and 1995, respectively.
(4) 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
<PAGE>
WVS FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General - WVS Financial Corp. ("WVS" or the "Company") is the parent
holding company of West View Savings Bank ("West View" or the "Savings Bank").
The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank
holding company and acquired 100% of the common stock of the Savings Bank in
November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. Originally organized under Pennsylvania law in 1908 as West View
Building Loan Association, West View changed its name to West View Savings and
Loan Association in 1954. In June 1992, West View converted from a
Pennsylvania-chartered mutual savings and loan association to a
Pennsylvania-chartered mutual savings bank. The Savings Bank converted to the
stock form of ownership in November 1993. The Savings Bank had no subsidiaries
at June 30, 1997.
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. 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 traditional thrift lending,
maintaining asset quality and increasing core earnings. Specific strategic
components include:
Core Deposits - As of June 30, 1997, $71.2 million or 41.7% of West
View's total deposits consisted of regular savings and club accounts, money
market deposit accounts, and checking accounts. Approximately $36.6 million or
51.4% of core deposits consisted of regular savings and club accounts. Checking
Account balances grew $1.9 million or 9.3% during fiscal 1997 and totaled $22.5
million or 31.6% of core deposits at June 30, 1997. 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
4
<PAGE>
considered to be more stable and lower cost funds than certificates of deposit
and other borrowings.
Consistent Core Earnings - The Company's net interest income has
consistently covered operating expenses (non-interest expense). During fiscal
1997, net interest income totaled $10.2 million, representing a $0.7 million or
7.4% increase over fiscal 1996. See "Selected Consolidated Financial and Other
Data".
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, 1997, 1996 and 1995, the Company's ratios of
non-performing assets and troubled debt restructurings to total assets were
0.09%, 0.38% and 0.86%, respectively. Total net charge-offs for the past three
fiscal years have aggregated $46 thousand.
Non-Interest Expense Ratios - For the fiscal years ended June 30,
1997, 1996 and 1995, the Company's ratios of non-interest expense to average
assets were 2.04%, 1.71% and 2.26%, respectively. Excluding unusual items
relating to shareholder litigation and the one-time SAIF recapitalization
charge, the Company's ratios of non-interest expense to average assets were
1.63%, 1.88% and 1.91% for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
Traditional Thrift Lending - West View has consistently focused its
lending activities toward traditional thrift loan products. At June 30, 1997,
$128.9 million or 74.3% of the Company's total loans consisted of permanent
single-family mortgage and home equity loans. At June 30, 1997, approximately
$171.5 million or 98.8% of the Company's total loan portfolio consisted of loans
secured by real estate.
FINANCIAL CONDITION
The Company's assets totaled $294.7 million at June 30, 1997 as
compared to $259.6 million at June 30, 1996. The $35.1 million or 13.5% growth
in total assets was primarily comprised of a $23.7 million or 23.4% increase in
investment and mortgage-backed securities, a $9.1 million or 6.1% increase in
net loans receivable and a $2.0 million or 105.3% increase in Federal Home Loan
Bank ("FHLB") stock. The Company's total liabilities increased $36.2 million or
16.0% to $261.8 million as of June 30, 1997 from $225.6 million as of June 30,
1996. The $36.2 million increase in total liabilities was primarily comprised of
a $35.9 million or 73.7% increase in Federal Home Loan Bank advances and
short-term borrowings. Total stockholders' equity decreased $1.1 million or 3.2%
to $32.9 million as of June 30, 1997 from $34.0 million as of June 30, 1996,
primarily due to the Company's ongoing commitment to manage its capital levels
to further enhance stockholder value. The $1.1 million decrease in stockholders'
equity was principally
5
<PAGE>
attributable to $2.9 million of Company net income, less cash dividends paid to
stockholders totaling $4.9 million for the fiscal year ended 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: (i)
expanding the Company's investment growth program in order to enhance net
interest income; (ii) maintaining the Company's level of short-term liquid
investments by funding loan commitments and purchasing longer-term investment
securities; (iii) emphasizing the retention of lower-cost savings accounts and
other core deposits; (iv) 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 expanded its investment growth program, originally
initiated in the third quarter of fiscal 1994, throughout fiscal 1997 in order
to realize additional net interest income. Under this strategy, a longer-term
callable or noncallable 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: (i)
the average outstanding daily balance of total borrowings, computed quarterly,
may not exceed approximately $85.0 million; (ii) suitable investments shall be
confined to those meeting the credit quality criteria outlined in the Company's
investment policy; and (iii) 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. In most cases, the initial yield
spread earned on investment security purchases exceeded approximately two
hundred basis points.
The Company has continued to aggressively purchase bonds with optional
principal redemption features ("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. While this strategy affords WVS the current
opportunity to improve its net interest income, during a period of declining
interest rates, such as was experienced during the first half of fiscal 1997,
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 $23.1 million of callable agency bonds with
an estimated weighted average rate of 8.0% were called during the fiscal year
ended June 30, 1997. During the fiscal year
6
<PAGE>
ended June 30, 1997, the Company purchased approximately $56.5 million of
callable bonds with an approximate weighted average yield to call and maturity
of 8.4% and 8.0%, respectively. The callable agency bond purchases, totaling
$56.5 million, are summarized by initial term to call as follows: $25.0 million
within three months, $5.5 million with greater than three months and within six
months, $14.0 million with greater than six months and within twelve months and
$12.0 million within twenty-four months. In addition, during the twelve months
ended June 30, 1997, the Company sold approximately $1.7 million of adjustable
rate mortgage-backed securities with an approximate weighted average yield of
6.6% at a gain of $26 thousand.
The Company's net interest income could also be adversely impacted by
a general rise in market interest rates, such as was experienced during the
second half of fiscal 1997. In order to partially mitigate this risk,
approximately $19.0 million or 50.7% of the Company's mortgage-backed securities
portfolio were comprised of floating rate securities. The yields on the floating
rate securities adjust monthly based upon certain short-term market indexes
(e.g. LIBOR, Prime, etc.). The Company's floating rate mortgage-backed
securities had an approximate weighted average yield of 6.9% as of June 30,
1997.
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 land acquisition and development
and shorter-term construction loans, primarily on residential properties, to
partially increase its loan asset sensitivity.
During the fiscal year ended June 30, 1997, the Company lengthened the
maturity structure of a portion of its borrowings in order to lock in a
favorable cost of funds on a longer term basis. The Company borrowed
approximately $84.3 million from the FHLB as follows: $66.9 million of
convertible advances, with terms ranging from three years to five years at a
weighted average rate of 5.69%, $6.4 million of various fixed rate advances with
terms ranging from eighteen to twenty-four months with a weighted average rate
of 6.08%, and various short-term borrowings totaling approximately $11.0
million. During the twelve months ended June 30, 1997, the Company repaid $44.4
million of FHLB advances and $3.9 million of other borrowings. Convertible
advances generally provide for a fixed rate of interest for a portion of the
term of the advance, an ability for the FHLB to convert the advance from a fixed
rate to an adjustable rate at some predetermined time during the remaining term
of advance (the "conversion" feature), and a concurrent opportunity for the
Company to prepay the advance with no prepayment penalty in the event that the
FHLB elects to exercise the conversion feature.
As of June 30, 1997, the implementation of these asset and liability
management initiatives resulted in the following: (i) an aggregate of $49.0
million or 31.0% of the
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<PAGE>
Company's net loan portfolio had adjustable interest rates or maturities of less
than 12 months; (ii) $19.0 million or 50.7% of the Company's portfolio of
mortgage-backed securities (including CMOs) were secured by floating rate
securities; (iii) $1.7 million or 1.9% of the Company's investment securities
portfolio had scheduled maturities of one year or less; and (iv) $81.9 million
or 93.6% 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 extent to which such assets and
liabilities are "interest rate sensitive" 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 when the amount of rate
sensitive assets exceeds the amount of rate sensitive liabilities. A gap is
considered negative when the amount of interest sensitive liabilities exceeds
the amount of interest sensitive assets. During a period of falling interest
rates, a positive gap would tend to adversely affect net interest income, while
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, while a negative gap would tend to adversely
affect net interest income.
The Company's one year cumulative interest rate sensitivity gap
amounted to a negative 13.3% of total assets at June 30, 1997 as compared to a
negative 18.0% at June 30, 1996, in each instance, based on certain assumptions
by management with respect to the repricing of certain assets and liabilities.
At June 30, 1997, the Company's interest-earning assets maturing or repricing
within one year totaled $103.2 million while the Company's interest-bearing
liabilities maturing or repricing within one year totaled $142.3 million,
providing a deficiency of interest-earning assets over interest-bearing
liabilities of $39.1 million. At June 30, 1997, the percentage of the Company's
assets to liabilities maturing or repricing within one year was 72.5%.
8
<PAGE>
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.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1997 1996 1995 1994
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets maturing or
repricing within one year(1) ........ $ 103,161 $ 88,530 $ 87,294 $ 117,767
Interest-bearing liabilities maturing or
repricing within one year(2) ........ $ 142,265 $ 135,344 $ 105,486 $ 87,816
--------- --------- --------- ---------
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities ......................... $ (39,104) $ (46,814) $ (18,192) $ 29,951
========= ========= ========= =========
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities as a percentage of total
assets .............................. (13.3)% (18.0)% (8.0)% 13.5%
Percentage of assets to liabilities
maturing or repricing within one year 72.5 % 65.4 % 82.8 % 134.1%
</TABLE>
- ----------------
(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.
9
<PAGE>
The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
June 30, 1997, 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.
<TABLE>
<CAPTION>
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
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)(2)(3)(4) $ 37,754 $ 18,803 $ 31,138 $ 20,455 $ 52,828 $160,978
Mortgage-backed securities .... 19,069 2,816 4,217 3,793 7,732 37,627
Investments(5) .............. 22,807 9 500 1,500 66,795 91,611
Interest-bearing deposits ... 1,904 -- -- -- -- 1,904
-------- -------- -------- -------- -------- --------
Total .................. $ 81,534 $ 21,628 $ 35,855 $ 25,748 $127,355 $292,120
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(6)(7)(8) ...... $ 46,893 $ 42,088 $ 47,346 $ 15,870 $ 22,213 $174,410
Borrowings .................. 36,784 16,500 31,357 -- -- 84,641
-------- -------- -------- -------- -------- --------
Total .................. $ 83,677 $ 58,588 $ 78,703 $ 15,870 $ 22,213 $259,051
======== ======== ======== ======== ======== ========
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities ................. $ (2,143) $(36,960) $(42,848) $ 9,878 $105,142
======== ======== ======== ======== ========
Cumulative excess of
interest-earning assets
over interest-bearing
liabilities ................. $ (2,143) $(39,103) $(81,951) $(72,073) $ 33,069
======== ======== ======== ======== ========
Cumulative excess of
interest-earning assets
over interest-bearing
liabilities as a percentage
of total assets ............. (0.7)% (13.3)% (27.8)% (24.5)% 11.2%
======== ======== ======== ======== ========
</TABLE>
<PAGE>
- ----------------
(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 15% for adjustable rate loans, and 8% to 37% 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 $16,750.
(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.
10
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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
U.S. 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
11
<PAGE>
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. Several techniques might be used by an institution 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 measurement of the
Company's asset/liability gap-that is, the difference between the cash flow
amounts of interest-sensitive assets and liabilities that will be refinanced (or
repriced) during a given period. For example, if the asset amount to be repriced
exceeds the corresponding liability amount for a certain day, month, year, or
longer period, the institution is in an asset-sensitive gap position. In this
situation, net interest income would increase if market interest rates rose or
decrease if market interest rates fell. If, alternatively, more liabilities than
assets will reprice, the institution is in a liability-sensitive position.
Accordingly, net interest income would decline when rates rose and increase when
rates fell. Also, these examples assume that interest-rate changes for assets
and liabilities are of the same magnitude, whereas actual interest-rate changes
generally differ in magnitude for assets and liabilities.
Several ways an institution can manage interest-rate risk include:
selling existing assets or repaying certain liabilities; matching repricing
periods for new assets and liabilities for example, by shortening terms of new
loans or investments; hedging existing assets, liabilities, or anticipated
transactions. An institution might also invest in more complex financial
instruments intended to hedge or otherwise change interest-rate risk.
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. 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. The Company has not purchased derivative
financial instruments in the past and does not presently intend to purchase such
instruments in the near future. Prepayments of assets carrying higher rates
reduce the Company's interest income and overall asset yields. A 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.
12
<PAGE>
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of June 30, 1997
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. The Company had no derivative financial instruments, or trading
portfolio, as of June 30, 1997. 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, as set forth in the notes. 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 as set
forth in the notes. 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, as set forth in the
notes. From a risk management perspective, however, 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. Similarly, substantially all
of the Company's investment securities portfolio is comprised of callable
government agency securities. Company borrowings were tabulated by contractual
maturity dates and without regard to any conversion or repricing dates.
13
<PAGE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE-FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------
There- Fair
1998 1999 2000 2001 2002 after Total value
-------- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ON-BALANCE SHEET
FINANCIAL INSTRUMENTS
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $23,239 $15,089 $11,857 $10,444 $8,170 $48,726 $117,525 $117,087
Average interest rate 8.37% 8.03% 7.95% 7.91% 7.81% 7.55%
Adjustable rate 8,316 7,040 5,951 5,020 4,224 12,627 43,178 43,474
Average interest rate(5) 8.01% 8.02% 8.03% 8.04% 8.05% 7.71%
Mortgage-backed securities
Fixed rate 1,437 1,110 454 1,619 171 13,907 18,698 18,557
Average interest rate 6.03% 7.00% 6.35% 7.61% 8.08% 7.02%
Adjustable rate --- --- --- --- --- 18,929 18,929 19,104
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 6.92%
Investments(7) 18,393 500 --- 500 1,000 71,218 91,611 91,369
Average interest rate 7.25% 6.40% 0.00% 6.41% 7.02% 7.75%
Interest-bearing deposits 1,904 --- --- --- --- --- 1,904 1,904
Average interest rate 6.26% 0.00% 0.00% 0.00% 0.00% 0.00%
-------- ------- ------- -------- ------- -------- -------- --------
Total $53,289 $23,739 $18,262 $17,583 $13,565 $165,407 $291,845 $291,495
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) $88,981 $23,673 $23,673 $ 7,936 $ 7,936 $ 22,211 $174,410 $174,428
Average interest rate 4.42% 4.41% 4.41% 3.65% 3.65% 2.22%
Borrowings 21,784 1,357 8,000 --- 53,500 --- 84,641 83,991
Average interest rate 5.74% 6.19% 5.89% 0.00% 5.74% 0.00%
-------- ------- ------- -------- ------- -------- -------- --------
Total $110,765 $25,030 $31,673 $ 7,936 $61,436 $ 22,211 $259,051 $258,419
</TABLE>
- ----------------
(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 15% for adjustable rate loans, and 8% to 37% 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 $16,750.
(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.
14
<PAGE>
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,
1997.
Anticipated Transactions
- ----------------------------------------------------------------
Undisbursed construction and
land development loans
Fixed rate $ 7,494
9.43%
Adjustable rate 5,011
8.78%
Undisbursed lines of credit
Adjustable rate 6,108
8.56%
Loan origination commitments
Fixed rate 1,109
8.34%
Adjustable rate 1,966
8.11%
Letters of credit
Adjustable rate 82
11.50%
-------
$21,770
15
<PAGE>
RESULTS OF OPERATIONS
GENERAL. WVS reported net income of $3.0 million, $3.6 million and $1.8
million for the fiscal years ended June 30, 1997, 1996 and 1995 respectively.
Net income for the fiscal year ended June 30, 1997 totaled $3.0 million or $1.69
per share on both a primary and fully diluted basis as compared to net income of
$3.6 million or $2.06 per share on both a primary and fully diluted basis for
the same period in 1996. The $600 thousand or 16.7% decrease in net income was
the result of a $1.6 million increase in non-interest expense, which was
partially offset by a $764 thousand increase in net interest income, a $136
thousand decrease in income tax expense, and a $90 thousand decrease in the
provision for the loan losses. The $1.6 million increase in fiscal year
non-interest expense was principally attributable to one-time items including a
$1.0 net increase in federal deposit premiums to recapitalize the Savings
Association Insurance Fund ("SAIF"). Fiscal 1996 net income increased by $1.8
million or 100% primarily as the result of a $1.3 million increase in net
interest income, an $827 thousand decrease in non-interest expense, a $76
thousand increase in non-interest income and a $61 thousand decrease in the
provision for loan losses, which was partially offset by a $414 thousand
increase in income tax expense.
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.
16
<PAGE>
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: (i) the total dollar amounts of
interest income on interest-earning assets and the resulting average yields;
(ii) the total dollar amounts of interest expense on interest-bearing
liabilities and the resulting average costs; (iii) net interest income; (iv)
interest rate spread; (v) net interest-earning assets (interest-bearing
liabilities); (vi) the net yield earned on interest-earning assets; and (vii)
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.
<TABLE>
<CAPTION>
For the Years Ended June 30,
At June 30, ---------------------------------------------------------------------------------------
1997 1997 1996 1995
----------- --------------------------- ----------------------------- -----------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans receivable(1) 7.89% $153,726 $12,440 8.09% $141,643 $11,756 8.30% $133,516 $11,152 8.35%
Mortgage-backed securities 6.96% 39,451 2,724 6.90% 25,384 1,638 6.45% 22,852 1,326 5.80%
Investments 7.70% 79,128 5,881 7.43% 64,679 4,831 7.47% 53,765 3,000 5.58%
Interest-bearing deposits 6.26% 2,335 80 3.43% 2,288 92 4.02% 2,896 134 4.63%
-------- ------- -------- ------- -------- -------
Total interest-earning assets 7.70% 274,640 21,125 7.69% 233,994 18,317 7.83% 213,029 15,612 7.33%
===== ------ ====== ------- ====== ------ ======
Non-interest-earning assets 3,331 3,140 3,516
-------- -------- --------
Total assets $277,971 $237,134 $216,545
======== ======== ========
Interest-bearing liabilities:
Interest-bearing deposits
and escrows 4.30% $165,017 $7,086 4.29% $168,280 $7,431 4.42% $171,980 $ 7,146 4.16%
Borrowings 5.76% 62,522 3,798 6.07% 24,814 1,409 5.68% 3,947 226 5.73%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 4.79% 227,539 10,884 4.78% 193,094 8,840 4.58% 175,927 7,372 4.19%
===== ------ ====== ------- ====== ------ ======
Non-interest-bearing accounts 6,459 4,559 3,583
-------- ------- --------
Total interest-bearing
liabilities
and non-interest-bearing
accounts 233,998 197,653 179,510
Non-interest-bearing
liabilities 9,686 4,361 3,524
------- -------- --------
Total liabilities 243,684 202,014 183,034
Retained income 34,287 35,120 33,511
-------- -------- --------
Total liabilities and retained
income $277,971 $237,134 $216,545
======== ======== ========
<PAGE>
<CAPTION>
For the Years Ended June 30,
At June 30, ---------------------------------------------------------------------------------------
1997 1997 1996 1995
----------- --------------------------- ----------------------------- -----------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $10,241 $ 9,477 $ 8,240
======= ======= =======
Interest rate spread 2.91% 2.91% 3.25% 3.14%
====== ====== ====== ======
Net yield on interest-earning
assets(2) 3.54% 3.73% 4.05% 3.87%
====== ====== ====== ======
Ratio of interest-earning
assets to interest-bearing
liabilities 114.79% 120.70% 121.18% 121.09%
======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes non-accrual loans.
(2) Net interest income divided by interest-earning assets.
17
<PAGE>
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
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
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.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------------- -----------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
-------------------- --------------------
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans receivable ......... $ 987 $ (303) $ 684 $ 671 $ (67) $ 604
Mortgage-backed securities ... 965 121 1,086 155 157 312
Investments .................. 1,076 (26) 1,050 686 1,145 1,831
Interest-bearing deposits .... 1 (13) (12) (26) (16) (42)
------- ------- ------- ------- ------- -------
Total interest-earning assets 3,029 (221) 2,808 1,486 1,219 2,705
Interest-bearing liabilities:
Interest-bearing deposits
and escrows ............... (156) (189) (345) 135 150 285
Other borrowings ............. 2,286 103 2,389 1,185 (2) 1,183
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ................ 2,130 (86) 2,044 1,320 148 1,468
------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income .............. $ 899 $ (135) $ 764 $ 166 $ 1,071 $ 1,237
======= ======= ======= ======= ======= =======
</TABLE>
INTEREST INCOME. Total interest income increased by $2.8 million or
15.3% during fiscal 1997 and increased by $2.7 million or 17.3% during fiscal
1996, primarily as a result of changes in interest income on the Company's
investment and mortgage-backed securities portfolio, and net loans receivable,
during the periods.
Interest income on net loans receivable increased $684 thousand or
5.8% during fiscal 1997 and increased $604 thousand or 5.4% during fiscal 1996.
The increase in fiscal 1997 was attributable to a $12.1 million increase in the
average balance of net loans outstanding which more than offset a decrease of 21
basis points in the weighted average yield earned on the Company's loan
portfolio. The increase in fiscal 1996 was attributable to an $8.1 million
increase in the average balance of net loans outstanding, which more than offset
a decrease of 5 basis points in the weighted average yield earned on the
Company's loan portfolio.
Interest income on mortgage-backed securities increased $1.1 million or
68.8% during fiscal 1997 and increased $312 thousand or 23.5% during fiscal
1996. The increase
18
<PAGE>
in fiscal 1997 was attributable to an increase of 45 basis points in the
weighted average yield earned on the Company's mortgage-backed securities
portfolio and a $14.1 million increase in the average balance of mortgage-backed
securities outstanding. The increase in fiscal 1996 was attributable to an
increase of 65 basis points in the weighted average yield earned on the
Company's mortgage-backed securities portfolio and a $2.5 million increase in
the average balance of mortgage-backed securities outstanding.
Interest income on investment securities and FHLB stock increased $1.1
million or 22.9% during fiscal 1997 and $1.8 million or 60.0% during fiscal
1996. The increase in fiscal 1997 was attributable to a $14.4 million increase
in the average balance of investment securities and FHLB stock outstanding,
which more than offset a decrease of 4 basis points in the weighted average
yield earned on the Company's investment and FHLB stock portfolio. The increase
in fiscal 1996 was attributable to a $10.9 million increase in the average
balance of investment securities and FHLB stock outstanding and to an increase
of 189 basis points in the weighted average yield earned on the Company's
investment securities and FHLB stock portfolio.
Interest income on interest-bearing deposits decreased $12 thousand or
13.0% during fiscal 1997 and decreased $42 thousand or 31.3% during fiscal 1996.
The decrease in fiscal 1997 was primarily due to a $47 thousand decrease in the
average balance of interest-earning deposits outstanding and a decrease of 59
basis points in the weighted average yield earned on the Company's
interest-earning deposits. The decrease in fiscal 1996 was attributable to a
$608 thousand decrease in the average balance of interest-bearing deposits
outstanding and a decrease of 61 basis points in the weighted average yield
earned on the Company's interest-earning deposits.
Throughout the first half of fiscal 1997, market interest rates
continued to decrease primarily due to reduced inflationary expectations in the
capital markets. During the second half of fiscal 1997, market interest rates
began to increase in response to inflationary expectations in the capital
markets due to continued economic expansion and the Federal Reserve Board's
predilection to tighten the Federal Funds rate. The Company continued to
restructure its balance sheet by lengthening the maturity of its financial
assets, particularly its investment securities portfolio, and lengthening the
maturities of its financial liabilities by emphasizing the use of FHLB term
borrowings. The Company believes that this strategy has contributed to increased
net interest income during fiscal 1997.
INTEREST EXPENSE. Total interest expense increased $2.1 million or
23.9% during fiscal 1997 and increased by $1.4 million or 18.9% during fiscal
1996.
Interest expense on interest-bearing deposits and escrows decreased
$345 thousand or 4.6% in fiscal 1997 and increased $285 thousand or 4.0% in
fiscal 1996. The decrease in fiscal 1996 was primarily attributable to a
decrease of 13 basis points in the weighted average rate paid on the Company's
deposits and a $3.2 million decrease in the average balance of interest-bearing
deposits and escrows outstanding. The increase in
19
<PAGE>
fiscal 1996 was primarily attributable to an increase of 26 basis points in the
weighted average rate paid on the Company's deposits and a $7.9 million increase
in the proportion of time deposits to the average total of interest-bearing
deposits and escrows outstanding.
Interest expense on borrowings increased $2.4 million or 171.4% during
fiscal 1997 and increased $1.2 million or 523.6% during fiscal 1996. The
increases for both fiscal 1997 and 1996 were primarily attributable to increases
in the average balance of borrowings outstanding totaling $37.7 million and
$20.9 million, respectively. In order to better match investment opportunities
and resources, enhance its net interest income and reduce the amount of excess
cash invested at the FHLB of Pittsburgh, the Company continues to utilize short
and intermediate term borrowings to purchase investment securities and fund
other commitments.
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 established provisions for possible losses on loans of $60
thousand, $150 thousand and $211 thousand, for the fiscal years ended June 30,
1997, 1996 and 1995, respectively. The provisions for fiscal 1997 and 1996 were
primarily due to increases in the Company's general allowance for losses on
loans.
NON-INTEREST INCOME. Total non-interest income decreased by $9 thousand
or 2.3% in fiscal 1997 and increased $76 thousand or 24.8% in fiscal 1996.
Service charges on deposits increased by $7 thousand or 3.6% in fiscal
1997 and increased $20 thousand or 11.4% in fiscal 1996. The increase in both
fiscal years was principally attributable to service charges applied to a larger
number of transaction accounts opened during the respective fiscal year. The
Company has continued to aggressively pursue transaction accounts in order to
enhance its level of core deposits and to increase its relationship base with
new and existing customers.
Other non-interest income (e.g. safe deposit box fees, income from
loan late charges, automated teller machine (ATM) fee income, profit on sale of
real estate owned, miscellaneous income, and money order fee income) increased
$8 thousand in fiscal 1997 and increased $2 thousand in fiscal 1996.
20
<PAGE>
NON-INTEREST EXPENSE. Total non-interest expense increased $1.6
million or 39.0% during fiscal 1997 and decreased $827 thousand or 16.9% during
fiscal 1996. The decrease in non-interest expense during fiscal 1996 was
primarily attributable to a $748 thousand decrease in litigation defense and
settlement charges, $391 thousand of insurance reimbursements related to a class
action lawsuit, partially offset by a $227 thousand increase in compensation
expense and a $96 thousand increase in other non-interest expense. The increase
in non-interest expense during the fiscal 1997 was principally attributable to
an $893 increase in deposit insurance premiums, the absence of $382 thousand of
non-taxable insurance settlement proceeds resulting from previously disclosed
and settled shareholder litigation and defense costs and a $337 thousand
increase in compensation expense.
Salaries and employee benefits increased $337 thousand or 12.8% during
fiscal 1997 and increased $227 thousand or 9.5% during fiscal 1996. The increase
in fiscal 1997 was principally attributable to a $195 thousand increase related
to the Company's Employee Stock Ownership Plan ("ESOP"), a $75 thousand increase
in employee wages and salaries and a $57 thousand increase in profit sharing
plan expense. The increase in fiscal 1996 was primarily attributable to a $134
thousand increase related to the ESOP, a $51 thousand increase in employee wages
and salaries, a $23 thousand increase in the Company's recognition and retention
plan expense and a $15 thousand increase in federal unemployment tax expense.
Occupancy and equipment expense increased $8 thousand or 2.0% in
fiscal 1997 and declined $3 thousand or 0.7% in fiscal 1996. The change in both
fiscal years was due to changes in the amount of equipment purchases and
depreciation expense.
Federal deposit insurance premiums increased $893 thousand or 222.7%
during fiscal 1997 and decreased $17 thousand or 4.1% during fiscal 1996. On
September 30, 1996 the President signed the Deposit Insurance Funds Act of 1996
(the "Funds Act") into law. The Funds Act calls for a Special Assessment on
SAIF-assessable deposits as of March 31, 1995 to capitalize the SAIF to its
designated reserve ratio of 1.25%. The Company recorded a pre-tax charge of
approximately $1.1 million during the quarter ended September 30, 1996 using an
FDIC estimated assessment rate of $0.657 for every $100 of assessable deposits.
During the quarter ended December 31, 1996, the Company accrued a $102 thousand
refund of prepaid federal deposit insurance premiums as a result of the
capitalization of the SAIF. Federal insurance premiums are dependent on the size
of the Company's deposit base and premiums which were assessed by the FDIC
during the respective years.
Data processing expense increased $3 thousand or 1.8% during fiscal
1997 and declined $3 thousand or 1.8% during fiscal 1996. Data processing
expense is directly related to processing volumes and certain pricing features
associated with the Company's third party data processor.
21
<PAGE>
Correspondent bank service charges increased $2 thousand or 1.8% in
fiscal 1997 and increased $12 thousand or 12.1% in fiscal 1996. The increase in
correspondent bank service charges for both periods is due to higher volumes of
check and deposit processing and coin and currency service charges and
investment security safekeeping costs.
Other non-interest expense (e.g. director's compensation expense,
advertising, Pennsylvania capital stock tax expense, ATM network expense,
provision for loss on real estate owned, legal expense, transfer agent expense,
etc.) decreased $15 thousand or 2.0% during fiscal 1997 and decreased $96
thousand or 15.0% during fiscal 1996. The decrease in fiscal 1997 was primarily
attributable to the absence of foreclosed real estate disposition costs and
related expenses. The increase in fiscal 1996 was principally attributable to a
$52 thousand increase in Pennsylvania capital stock tax expense, a $25 thousand
increase in real estate owned charges relating to the disposition of two
foreclosed properties, a $10 thousand increase in supervisory assessment charges
imposed by the Pennsylvania Department of Banking, and a $9 thousand increase in
advertising expense to attract new core deposit and loan business.
INCOME TAXES. Income taxes decreased $136 thousand or 6.6% during
fiscal 1997 and increased $414 thousand or 25.1% during fiscal 1996. The
decrease in fiscal 1997 was principally attributable to a $754 or 13.4% decrease
in taxable income. The increase in fiscal 1996 was primarily attributable to a
$2.2 million or 64.7% increase in taxable income partially offset by a $123
thousand benefit associated with the shareholder litigation insurance
reimbursement. The Company's effective tax rate was 39.4%, 36.6% and 48.0% at
June 30, 1997, 1996 and 1995 respectively. The decrease in the effective rate
for fiscal 1996 was due primarily to a one-time adjustment for the non-taxable
litigation and settlement insurance settlement previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $3.7 million with no
significant change during the fiscal year ended June 30, 1997 when compared with
the same period in 1996. Net cash provided by operating activities was primarily
comprised of $3.0 million in net income.
Funds used by investing activities totaled $34.8 million during the
fiscal year ended June 30, 1997. Primary uses of funds during the fiscal year
ended June 30, 1997 include $23.3 million in net purchases of investment and
mortgage-backed securities, a $9.5 million increase in net loan receivables, and
a $2.0 million increase in FHLB stock.
22
<PAGE>
Funds provided by financing activities totaled $31.0 million for the
fiscal year ended June 30, 1997. Primary sources of funding include $40.0
million in FHLB advances used to fund loan commitments and investment security
purchases, which was partially offset by $4.9 million in cash dividends paid,
and a $3.9 million decrease in other borrowings. Financial institutions
generally, including the Company, have experienced a certain degree of depositor
disintermediation to other investment alternatives. Management believes that the
degree of disintermediation experienced by the Company has not had a material
impact on overall liquidity. As of June 30, 1997, $71.2 million or 41.7% of the
Company's total deposits consisted of core deposits. 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 Federal
Home Loan Bank advances and other borrowings. At June 30, 1997, the total
approved loan commitments outstanding amounted to $3.1 million. At the same
date, commitments under unused letters and lines of credit amounted to $6.6
million, the unadvanced portion of construction loans approximated $12.5
million, and commitments to purchase when-issued investments totaled $1.1
million. Certificates of deposit scheduled to mature in one year or less at June
30, 1997 totaled $70.0 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 established a $15.0 million line of credit with the
FHLB, which is scheduled to mature on March 25, 1998 and is subject to various
conditions, including the pledging and delivery of acceptable collateral. The
primary purpose of the line of credit is to serve as a back-up liquidity
facility for the Company, however, the Company may from time to time utilize the
line of credit to purchase investment securities and fund other commitments. In
addition, 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 29, 1997 the Company's Board of Directors declared a cash
dividend of $0.20 per share payable on August 21, 1997 to shareholders of record
at the close of
23
<PAGE>
business on August 11, 1997. 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, 1997, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$33.1 million or 24.5% and $34.8 million or 25.8%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $33.1 million or 11.4% of
average total assets.
Nonperforming assets consist of nonaccrual loans and real estate owned.
A loan is placed on nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed insufficient to warrant further
accrual. When a loan is placed on nonaccrual status, previously accrued but
uncollected interest is deducted from interest income. The Company normally does
not accrue interest on loans past due 90 days or more, however, interest may be
accrued if management believes that it will collect on the loan.
The Company's nonperforming assets at June 30, 1997 totaled
approximately $274 thousand or 0.09% of total assets as compared to $377
thousand or 0.15% of total assets as of June 30, 1996. Nonperforming assets at
March 31, 1997 consisted of $274 thousand in a single commercial real estate
loan. Approximately $15 thousand of additional interest income would have been
recorded during the fiscal year ended June 30, 1997, if the Company's nonaccrual
and restructured loans had been current in accordance with their original loan
terms and outstanding throughout the fiscal year ended June 30, 1997.
24
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
WVS Financial Corp.
We have audited the accompanying consolidated statements of financial condition
of WVS Financial Corp. and subsidiary as of June 30, 1997, and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three year period ended June
30, 1997, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, in fiscal
1996, the Company changed its method of accounting for the impairment of loans
and the related allowance for loan losses.
/s/S.R. Snodgrass, A.C.
Wexford, PA
August 1, 1997
S.R. Snodgrass, A.C.
101 Bradford Road Wexford, PA 15090-6909
Phone: 412-934-0344 Facsimile: 412-934-0345
25
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
June 30,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks ...................................... $ 667 $ 508
Interest - earning demand deposits ........................... 1,904 2,219
Investment securities available for sale (amortized
cost of $3,689 and $2,193) (Note 2) .................... 3,553 1,981
Investment securities held to maturity (market value of
$83,889 and $56,671) (Note 2) .......................... 83,995 57,237
Mortgage - backed securities available for sale (amortized
cost of $18,417 and $22,775) (Note 3) .................. 18,280 22,428
Mortgage - backed securities held to maturity (market value
of $19,381 and $19,735) (Note 3) ....................... 19,210 19,690
Net loans receivable (Notes 4 and 5) ......................... 158,134 149,011
Accrued interest receivable .................................. 2,809 2,373
Federal Home Loan Bank stock, at cost ........................ 3,927 1,900
Premises and equipment ....................................... 1,298 1,327
Deferred taxes and other assets .............................. 916 948
--------- ---------
TOTAL ASSETS ................................................. $ 294,693 $ 259,622
========= =========
LIABILITIES
Deposits (Note 9) ............................................ $ 170,879 $ 170,843
Federal Home Loan Bank Advances (Note 10) .................... 77,857 38,000
Other borrowings (Note 11) ................................... 6,784 10,652
Advance payments by borrowers for taxes and insurance ........ 3,531 3,772
Accrued interest payable ..................................... 1,768 1,425
Other liabilities ............................................ 985 892
--------- ---------
TOTAL LIABILITIES ............................................ 261,804 225,584
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized;
none outstanding ....................................... -- --
Common stock, par value $.01; 10,000,000 shares authorized;
1,747,280 and 1,736,760 shares issued and outstanding .. 17 17
Additional paid - in capital ................................. 17,236 16,947
Retained earnings - substantially restricted (Note 13) ....... 16,900 18,861
Net unrealized loss on securities ............................ (180) (368)
Unallocated shares - Employee Stock Ownership Plan (Note 14) . (453) (584)
Unallocated shares - Recognition and Retention Plans (Note 14) (631) (835)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ................................... 32,889 34,038
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 294,693 $ 259,622
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
26
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans .................................................. $ 12,440 $ 11,756 $ 11,152
Investment securities .................................. 5,696 4,747 2,931
Mortgage - backed securities ........................... 2,724 1,638 1,326
Interest - earning demand deposits ..................... 80 92 134
Federal Home Loan Bank stock ........................... 185 84 69
----------- ----------- -----------
Total interest and dividend income ..................... 21,125 18,317 15,612
----------- ----------- -----------
INTEREST EXPENSE
Deposits (Note 9) ...................................... 7,041 7,385 7,107
Borrowings (Notes 10 and 11) ........................... 3,798 1,409 226
Advance payments by borrowers for
taxes and insurance .............................. 45 46 39
----------- ----------- -----------
Total interest expense ................................. 10,884 8,840 7,372
----------- ----------- -----------
NET INTEREST INCOME .................................... 10,241 9,477 8,240
Provision for loan losses (Note 5) ..................... 60 150 211
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES .................................. 10,181 9,327 8,029
----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposits ............................ 203 196 176
Investment securities gains ............................ 30 54 --
Other .................................................. 141 133 131
----------- ----------- -----------
Total noninterest income ............................... 374 383 307
----------- ----------- -----------
<PAGE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NONINTEREST EXPENSE
Unusual items:
Shareholder litigation settlement (Note 12) ... (11) (245) 491
Shareholder litigation costs (Note 12) ........ -- (137) 266
Salaries and employee benefits ......................... 2,962 2,625 2,398
Occupancy and equipment ................................ 416 408 411
Deposit insurance premium (Note 19) .................... 1,294 401 418
Data processing ........................................ 171 168 171
Correspondent bank service charges ..................... 113 111 99
Other .................................................. 721 736 640
----------- ----------- -----------
Total noninterest expense .............................. 5,666 4,067 4,894
----------- ----------- -----------
Income before income taxes ............................. 4,889 5,643 3,442
Income taxes (Note 16) ................................. 1,930 2,066 1,652
----------- ----------- -----------
NET INCOME ............................................. $ 2,959 $ 3,577 $ 1,790
=========== =========== ===========
EARNINGS PER SHARE:
Primary and Fully Diluted .............................. $ 1.69 $ 2.06 $ 1.05
AVERAGE SHARES OUTSTANDING:
Primary ................................................ 1,752,216 1,732,348 1,709,243
Fully Diluted .......................................... 1,754,442 1,734,467 1,710,696
</TABLE>
See accompanying notes to the consolidated financial statements.
27
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Net
Additional Unallocated Unallocated Unrealized
Common Paid-in Shares Held Shares Held Loss on
Stock Capital by ESOP by RRP Securities
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 $17 $16,795 $(765) $(1,194) $ --
Release of earned Employee
Stock Ownership Plan shares 44 101
Accrued compensation expense
for Recognition and Retention Plans 181
Market value adjustment for
additional stock grant issued 27 (27)
Exercise of Stock Options 1
Cash dividends declared
($.42 per share)
Net income
------------- -------------- ------------- -------------- -------------
Balance, June 30, 1995 17 16,867 (664) (1,040) --
Release of earned Employee
Stock Ownership Plan shares 76 80
Accrued compensation expense
for Recognition and Retention Plans 205
Exercise of Stock Options 4
Cash dividends declared
($2.06 per share)
Net unrealized loss on securities (368)
Net income
------------- -------------- ------------- -------------- -------------
Balance, June 30, 1996 17 16,947 (584) (835) (368)
<PAGE>
<CAPTION>
Retained
Earnings-
Substantially
Restricted Total
-------------- -------------
<S> <C> <C>
Balance, June 30, 1994 $17,517 $32,370
Release of earned Employee
Stock Ownership Plan shares 145
Accrued compensation expense
for Recognition and Retention Plans 181
Market value adjustment for
additional stock grant issued
Exercise of Stock Options 1
Cash dividends declared
($.42 per share) (678) (678)
Net income 1,790 1,790
-------------- -------------
Balance, June 30, 1995 18,629 33,809
Release of earned Employee
Stock Ownership Plan shares 156
Accrued compensation expense
for Recognition and Retention Plans 205
Exercise of Stock Options 4
Cash dividends declared
($2.06 per share) (3,345) (3,345)
Net unrealized loss on securities (368)
Net income 3,577 3,577
-------------- -------------
Balance, June 30, 1996 18,861 34,038
<PAGE>
<CAPTION>
Net
Additional Unallocated Unallocated Unrealized
Common Paid-in Shares Held Shares Held Loss on
Stock Capital by ESOP by RRP Securities
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Release of earned Employee
Stock Ownership Plan shares 184 131
Accrued compensation expense
for Recognition and Retention Plans 204
Exercise of Stock Options 105
Cash dividends declared
($3.00 per share)
Net unrealized gain on securities 188
Net income
------------- -------------- ------------- -------------- -------------
Balance June 30, 1997 $17 $17,236 $(453) $(631) $(180)
============= ============== ============= ============== =============
<PAGE>
<CAPTION>
Retained
Earnings-
Substantially
Restricted Total
-------------- -------------
<S> <C> <C>
Release of earned Employee
Stock Ownership Plan shares 315
Accrued compensation expense
for Recognition and Retention Plans 204
Exercise of Stock Options 105
Cash dividends declared
($3.00 per share) (4,920) (4,920)
Net unrealized gain on securities 188
Net income 2,959 2,959
-------------- -------------
Balance June 30, 1997 $16,900 $32,889
============== =============
</TABLE>
See accompanying notes to the consolidated financial statements.
28
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $ 2,959 $ 3,577 $ 1,790
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan and real estate owned losses ................................. 60 161 211
Provision for litigation settlement ............................................. -- -- 491
Depreciation and amortization, net .............................................. 134 133 145
Amortization of discounts, premiums and deferred loan fees ...................... 111 (203) 883
Amortization of ESOP and RRP deferred and unearned
compensation .............................................................. 519 361 326
Investment securities gains ..................................................... (30) (54) --
Deferred income taxes ........................................................... (52) 95 148
(Increase) decrease in accrued interest receivable .............................. (436) (288) 346
Increase in accrued interest payable ............................................ 343 159 278
Other, net ...................................................................... 71 (192) (164)
-------- -------- --------
Net cash provided by operating activities ....................................... 3,679 3,749 4,454
-------- -------- --------
INVESTING ACTIVITIES
Decrease in certificates of deposit with other institutions, net ................ -- -- 648
Available for sale:
Purchase of investment and mortgage-backed securities ..................... (1,508) (13,470) --
Proceeds from repayments of investment and
mortgage-backed securities ............................................ 2,711 4,135 --
Proceeds from sale of investment and
mortgage-backed securities ............................................ 1,678 301 --
Held to maturity:
Purchase of investment and mortgage-backed securities ..................... (75,006) (71,399) (53,526)
Proceeds from repayments of investment and
mortgage - backed securities .......................................... 48,856 62,705 57,497
Increase in net loans receivable ................................................ (9,476) (15,637) (9,706)
Proceeds from sale of real estate owned ......................................... 73 24 41
Increase in Federal Home Loan Bank Stock ........................................ (2,027) (747) (96)
Acquisition of premises and equipment ........................................... (105) (6) (15)
-------- -------- --------
Net cash used by investing activities ........................................... (34,804) (34,094) (5,157)
-------- -------- --------
<PAGE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in deposits ............................................. 36 2,057 (11,543)
Net increase in Federal Home Loan Bank Advances ................................. 39,857 23,016 10,984
Net increase (decrease) in other borrowings ..................................... (3,868) 6,604 4,048
Net increase (decrease) in advance payments by
borrowers for taxes and insurance ......................................... (241) 518 150
Net proceeds from issuance of common stock ...................................... 105 4 1
Cash dividends paid ............................................................. (4,920) (3,345) (678)
-------- -------- --------
Net cash provided by financing activities ....................................... 30,969 28,854 2,962
-------- -------- --------
Increase (decrease) in cash and cash equivalents ................................ (156) (1,491) 2,259
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR ................................................................... 2,727 4,218 1,959
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 2,571 $ 2,727 $ 4,218
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest .................................................................. $ 10,541 $ 8,681 $ 7,129
Taxes ..................................................................... 2,118 1,869 1,506
</TABLE>
See accompanying notes to the consolidated financial statements.
29
<PAGE>
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") was organized in July, 1993 as a
Pennsylvania- chartered unitary bank holding company and acquired 100% of the
common stock of West View Savings Bank ("West View" or the "Savings Bank") in
November, 1993. 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 Savings Bank. All intercompany transactions
have been eliminated in consolidation. The accounting and reporting policies of
WVS and its wholly-owned subsidiary 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
Debt and mortgage-backed securities acquired with the 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 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 statement of financial condition.
In December, 1995, in accordance with the Financial Accounting Standards Board
Special Report, "A Guide to Implementation of Statement No. 115 on Accounting
for Certain Investments in Debt and Equity Securities", the Company reclassified
certain mortgage-backed securities, with an amortized cost of $15.9 million and
an estimated market value of $16.1 million, from the held to maturity
classification to the available for sale classification. The net appreciation of
these securities, at the time of transfer, was recorded net of federal income
taxes to an unrealized securities gain (loss) account which is a component of
stockholders' equity.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loans Receivable
Loans receivable are reported at their principal amount, net of the allowance
for loan losses and deferred loan fees. Interest on mortgage loans, consumer
loans, financing leases 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.
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
Effective January 1, 1995, WVS adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by Statement No. 118. Under this Standard, the Bank estimates credit
losses on impaired loans based on the present value of expected cash flows or
fair value of the underlying collateral if the loan repayment is expected to
come from the sale or operation of such collateral. The adoption of these
statements did not have a material effect on WVS' consolidated financial
position or results of operation.
Impaired loans are commercial and commercial real estate loans for which it is
probable that WVS will not be able to collect all amounts due according to the
contractual terms of the loan agreement. WVS individually evaluates such loans
for impairment and does not aggregate loans by major risk classifications. The
definition of "impaired loans" is not the same as the definition of "nonaccrual
loans," although the two categories overlap. WVS may choose to place a loan on
nonaccrual status due to payment delinquency or uncertain collectibility, while
not classifying the loan as impaired if the loan is not a commercial or
commercial real estate loan. Factors considered by management in determining
impairment include payment status and collateral value. The amount of impairment
for these types of loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the original
interest rate, and its recorded value, or, as a practical expedient in the case
of collateralized loans, the difference between the fair value of the collateral
and the recorded amount of the loans. When foreclosure is probable, impairment
is measured based on the fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans represent
large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as impaired.
Management determines the significance of payment delays on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the borrower's prior
payment record, and the amount of shortfall in relation to the principal and
interest owed.
The allowance for loan losses is established through a provision for loan losses
charged against income. Loans deemed to be uncollectible are charged against the
allowance account. Subsequent recoveries, if any, are credited to the allowance.
The allowance is maintained at a level believed adequate by management to absorb
estimated potential loan losses. Management's determination of the adequacy of
the allowance is based on periodic evaluations of the loan portfolio considering
past experience, current economic conditions, composition of the loan portfolio,
and other relevant factors. This evaluation is inherently subjective, as it
requires material estimates that may be susceptible to significant change in the
near term.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 or 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 the deferred tax assets or liabilities 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.
Cash Flow Information
Cash and cash equivalents include cash and due from banks and interest-earning
demand deposits, as noted on the consolidated statements of financial condition.
Earnings Per Share
Earnings per share for the years ended June 30, 1997, 1996, and 1995 have been
calculated based upon the weighted average number of issued and outstanding
common shares, including common stock equivalents, if such items have a dilutive
effect.
Reclassification of Comparative Figures
Certain comparative amounts for 1996 and 1995 have been reclassified to conform
to 1997 presentations. Such reclassifications did not affect net income.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities", which provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement applies prospectively in fiscal
years beginning after December 31, 1996, and establishes new standards that
focus on control, whereas, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.
In December 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125". Statement 127 defers for one year
the effective date of certain portions of Statement No. 125 that address secured
borrowings and collateral for all transactions. Additionally, Statement No. 127
defers for one year the effective date of transfers of financial assets that are
part of repurchase agreements, securities lending and similar transactions. WVS
does not expect the adoption of Statement 125 and 127 to have a material impact
on the Company's consolidated financial condition or results of operations.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", effective for
financial statements issued for periods ending after December 15, 1997. The new
standard specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock. WVS does
not anticipate adoption to have a material impact on presentation and disclosure
for earnings per share.
In July 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. Statement No.
130 requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
2. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government securities ......... $2,192 $ -- $ (185) $2,007
Equity securities .................. 1,497 49 -- 1,546
------ ------ ------ ------
Total ........................ $3,689 $ 49 $ (185) $3,553
====== ====== ====== ======
<CAPTION>
1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government agency securities .. $81,850 $ 134 $ (241) $81,743
Corporate securities ............... 2,145 3 (2) 2,146
------ ------ ------ ------
Total ........................ $83,995 $ 137 $ (243) $83,889
====== ====== ====== ======
<PAGE>
<CAPTION>
1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government securities ......... $2,193 $ -- $ (212) $1,981
====== ====== ====== ======
<CAPTION>
1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government agency securities .. $51,981 $ 42 $ (610) $51,413
Obligations of state and
political subdivisions ....... 300 -- -- 300
Corporate securities ............... 4,956 25 (23) 4,958
------ ------ ------ ------
Total .............. $57,237 $ 67 $ (633) $56,671
====== ====== ====== ======
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market values of debt securities at June 30,
1997, 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.
<TABLE>
<CAPTION>
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
------- ----------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
Amortized Cost ......... $ -- $ -- $ -- $ 2,192 $ 2,192
Estimated Market Value ..... -- -- -- 2,007 2,007
HELD TO MATURITY
Amortized Cost ......... $ 1,644 $ 2,000 $47,733 $32,618 $83,995
Estimated Market Value ..... 1,647 1,991 47,520 32,731 83,889
</TABLE>
Proceeds from the sale of securities available for sale were $1,678 and $301 in
1997 and 1996. The gains resulting from these sales were $30 and $54,
respectively. There were no sales of investment securities during 1995.
Investment securities with carrying values of $9,256 and $11,479 and estimated
market values of $9,144 and $11,158 at June 30, 1997 and 1996, respectively,
were pledged to secure public deposits, repurchase agreements and for other
purposes as required by law.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
3. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities are
as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Federal National Mortgage
Association certificates ........... $10,708 $ 6 $ (265) $10,449
Government National Mortgage
Association Certificates ........... 1,306 38 -- 1,344
Federal Home Loan Mortgage
Corporation Certificates ........... 931 19 -- 950
Collateralized mortgage obligations issued
by agencies of the U.S. Government . 5,472 74 (9) 5,537
------- ------- ------- -------
Total ............................... $18,417 $ 137 $ (274) $18,280
======= ======= ======= =======
<PAGE>
<CAPTION>
1997
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Federal National Mortgage
Association certificates ........... $ 194 $ 11 $ -- $ 205
Government National Mortgage
Association certificates ........... 1,219 14 (13) 1,220
Federal Home Loan Mortgage
Corporation certificates ........... 350 30 -- 380
Collateralized mortgage obligations issued
by agencies of the U.S. Government . 16,728 115 -- 16,843
Collateralized mortgage obligations backed
by securities issued by U.S. Government
agencies ........................... 719 14 -- 733
------- ------- ------- -------
Total ............................... $19,210 $ 184 $ (13) $19,381
======= ======= ======= =======
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
3. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Federal National Mortgage
Association certificates ........... $11,359 $ 8 $ (443) $10,924
Government National Mortgage
Association certificates ........... 1,580 28 -- 1,608
Federal Home Loan Mortgage
Corporation certificates ........... 2,880 31 (2) 2,909
Collateralized mortgage obligations issued
by agencies of the U.S. Government . 6,956 57 (26) 6,987
------- ------- ------- -------
Total ............................... $22,775 $ 124 $ (471) $22,428
======= ======= ======= =======
<CAPTION>
1996
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Federal National Mortgage
Association certificates ........... $ 269 $ 11 $ -- $ 280
Government National Mortgage
Association certificates ........... 1,268 18 (31) 1,255
Federal Home Loan Mortgage
Corporation certificates ........... 450 32 -- 482
Collateralized mortgage obligations issued
by agencies of the U.S. Government . 16,878 29 (18) 16,889
Collateralized mortgage obligations backed
by securities issued by U.S. Government
agencies ........................... 825 5 (1) 829
------- ------- ------- -------
Total ............................... $19,690 $ 95 $ (50) $19,735
======= ======= ======= =======
</TABLE>
<PAGE>
The amortized cost and estimated market values of mortgage-backed securities at
June 30, 1997, 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.
<TABLE>
<CAPTION>
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
------- ----------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
Amortized Cost ............... $ 103 $ 1,811 $ 2,782 $13,721 $18,417
Estimated Market Value ....... 103 1,807 2,702 13,668 18,280
HELD TO MATURITY
Amortized Cost ............... $ -- $ 75 $ -- $19,135 $19,210
Estimated Market Value ....... -- 78 -- 19,303 19,381
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. NET LOANS RECEIVABLE
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
First mortgage loans:
1 - 4 family dwellings ........................... $116,663 $109,776
Construction and land development ................ 24,381 28,273
Multi-family dwellings ........................... 3,499 3,235
Commercial ....................................... 14,669 13,088
-------- --------
159,212 154,372
-------- --------
Consumer loans:
Home equity ...................................... 6,701 6,619
Home equity lines of credit ...................... 5,557 5,344
Education loans .................................. 516 590
Other ............................................ 1,403 1,484
-------- --------
14,177 14,037
-------- --------
Commercial loans and leases ............................ 93 54
-------- --------
Less:
Undisbursed construction and land development .... 12,505 16,651
Net deferred loan fees ........................... 834 837
Allowance for loan losses ........................ 2,009 1,964
-------- --------
15,348 19,452
-------- --------
Net loans receivable ................................... $158,134 $149,011
======== ========
</TABLE>
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 is dependent upon the local economic conditions.
<PAGE>
Total nonaccrual loans and troubled debt restructurings and the related interest
for the years ended June 30, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Principal outstanding ...................... $ 274 $ 980 $1,959
Interest income that would
have been recognized ................. $ 35 $ 84 $ 186
Interest income recognized ................. 20 75 144
------ ------ ------
Interest income foregone ............. $ 15 $ 9 $ 42
====== ====== ======
</TABLE>
At June 30, 1996, the recorded investment in loans which are considered to be
impaired in accordance with SFAS No. 114 was $877 of which $274 was considered
to be nonaccrual. In addition, $131 of the related allowance for loan losses has
been allocated for these impaired loans. The average recorded investment in
impaired loans during the year ended June 30, 1996 was approximately $871. For
the year ended June 30, 1996, interest income totaling $73 was recognized on
impaired loans both on the accrual and cash basis of income recognition. There
were no material impaired loans at June 30, 1997.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. 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. All loans were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
customers. A summary of loan activity for those directors, executive officers,
and their associates with aggregate loan balances in excess of $60,000 for the
years ended June 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Balance, July 1 .......................... $ 1,635 $ 1,499
Additions ............................ 240 392
Amounts collected .................... (417) (256)
------- -------
Balance, June 30 ......................... $ 1,458 $ 1,635
======= =======
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Balance, July 1 ............................ $1,964 $1,836 $1,634
Add:
Provision charged to operations ...... 60 150 211
Recoveries ........................... 3 7 3
Less loans charged off ..................... 18 29 12
------ ------ ------
Balance, June 30 ........................... $2,009 $1,964 $1,836
====== ====== ======
</TABLE>
<PAGE>
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Investment and mortgage-backed securities ............ $1,820 $1,453
Loans receivable ..................................... 989 920
------ ------
Total .......................................... $2,809 $2,373
====== ======
</TABLE>
7. 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 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.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
8. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Land and improvements ............................ $ 226 $ 226
Buildings and improvements ....................... 1,930 1,948
Furniture, fixtures, and equipment ............... 1,041 967
------ ------
3,197 3,141
Less accumulated depreciation .................... 1,899 1,814
------ ------
Total ....................................... $1,298 $1,327
====== ======
</TABLE>
Depreciation charged to operations was $134, $133 and $145, for the years ended
June 30, 1997, 1996, and 1995, respectively.
9. DEPOSITS
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Noninterest-earning checking $ 7,283 4.3% $ 6,259 3.7%
Interest-earning checking .. 15,177 8.9 14,252 8.3
Savings accounts ........... 36,591 21.4 37,976 22.2
Money market accounts ...... 12,103 7.1 11,682 6.8
-------- ----- -------- -----
71,154 41.7 70,169 41.0
-------- ----- -------- -----
Savings Certificates:
5.00% or less ........ 15,321 9.0 28,009 16.4
5.01 - 6.00% ......... 67,858 39.7 53,622 31.4
6.01 - 7.00% ......... 8,930 5.2 10,756 6.3
7.01 or more ......... 7,616 4.4 8,287 4.9
-------- ----- -------- -----
99,725 58.3 100,674 59.0
-------- ----- -------- -----
Total ................ $170,879 100.0% $170,843 100.0%
======== ===== ======== =====
</TABLE>
<PAGE>
The maturities of savings certificates at June 30, 1997 are summarized as
follows:
Within one year ............................................... $60,994
Beyond one year but within two years .......................... 20,110
Beyond two years but within three years ....................... 10,329
Beyond three years ............................................ 8,292
-------
Total .................................................... $99,725
=======
Savings certificates with balances of $100 thousand or more amounted to $11,061
and $9,664 on June 30, 1997 and 1996. The Company does not have any brokered
deposits.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
9. DEPOSITS (Continued)
Interest expense by deposit category for the years ended June 30, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Checking accounts ................. $ 127 $ 195 $ 262
Savings accounts .................. 940 998 1,248
Money market accounts ............. 327 302 354
Savings certificates .............. 5,647 5,890 5,243
------ ------ ------
Total ........................ $7,041 $7,385 $7,107
====== ====== ======
</TABLE>
10. FEDERAL HOME LOAN BANK ADVANCES
The following table presents information regarding FHLB term advances
as of June 30:
<TABLE>
<CAPTION>
Maturing during Weighted Weighted
fiscal year ended Interest Interest
June 30: 1997 Rate 1996 Rate
- ------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1997 $ -- --% $10,000 5.50%
1998 5,000 6.05 -- --
1999 1,357 6.19 -- --
2000 8,000 5.89 -- --
2001 -- -- -- --
2002 53,500 5.74 -- --
-------------- --------------
$67,857 $10,000
============== ==============
</TABLE>
<PAGE>
WVS also utilized revolving and short-term FHLB advances. Short-term FHLB
advances generally mature within ninety days, while revolving FHLB advances may
be repaid without penalty. The following table presents information regarding
such advances as of June 30:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
FHLB revolving and short-term advances:
Ending Balance ................................... $10,000 $28,000
Average balance during the year .................. 8,800 19,340
Maximum month-end balance during the year ........ 25,000 28,000
Average interest rate during the year ............ 5.15% 5.63%
Weighted average rate at year end ................ 5.64% 5.40%
</TABLE>
At June 30, 1997, WVS had unused revolving borrowing capacity of approximately
$15,000.
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.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
11. 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 $848 and $671 at June 30, 1997 and 1996. Repurchase agreements
amounted to $5,936 and $9,981 as of June 30, 1997 and 1996. The outstanding
repurchase agreements generally mature within one to ninety-two days from the
transaction date and qualifying collateral has been delivered. The Company has
pledged investment securities with a carrying value of $6,006 and $9,979 at June
30, 1997 and 1996, as collateral for the repurchase agreements as explained in
Note 2. The following table presents information regarding repurchase agreements
as of June 30:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Ending Balance ..................................... $ 5,936 $ 9,981
Average balance during the year .................... 9,165 3,995
Maximum month-end balance during the year .......... 17,196 9,981
Average interest rate during the year .............. 5.19% 5.57%
Weighted average rate at year end .................. 5.60% 5.12%
</TABLE>
12. 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 financial statements. Various loan commitments totaling $21,686 and
$26,440 at June 30, 1997 and 1996, 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 statement of financial
condition. 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.
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 4), 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 of the 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.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Litigation
A settlement agreement was entered into during the fourth quarter of fiscal 1995
in connection with the class action lawsuit filed by Jeffrey Carberry, et. al.,
in the United States District Court for the Western District of Pennsylvania
against the Company and the Savings Bank. The lawsuit alleged, among other
things, antitrust and securities laws violations in connection with the Savings
Bank's mutual-to-stock conversion. The Company entered into the settlement to,
among other reasons, avoid the cost of and disruption of the continuing
litigation. During the quarter and fiscal year ended June 30, 1995, the Company
established a provision for the settlement of litigation totaling $491,000. On
January 16, 1996, the Company received an executed Release of Claims (the
"Release") in connection with this lawsuit. The Release fully and finally
discharged all Defendants from all claims, causes of action and disputes of any
kind that the class members directly or indirectly had with respect to the
Plaintiff's claims. Also on January 16, 1996, the Company's insurance carrier
entered into a settlement with regard to coverage for claims and costs of
defense arising from the previously settled class action lawsuit. The insurance
carrier agreed to pay the Savings Bank, as designee of the officers and
directors, the sum of approximately $391,000 to reimburse the Company and the
Savings Bank for litigation defense and settlement costs incurred or accrued
through December 1, 1995. In addition, the insurance carrier agreed to pay 50%
of the amount of future defense costs and expenses relating to the Carberry
lawsuit that may arise after December 1, 1995, for a one year period beginning
January 15, 1996.
On March 27, 1995, the United States District Court for the Western District of
Pennsylvania entered an Opinion and Orders dismissing in its entirety a lawsuit
brought by Plaintiff William S. Karn, who is a depositor of the Savings Bank and
a shareholder of the Company, which alleged, among other things, antitrust and
securities laws violations in connection with the Savings Bank's mutual-to-stock
conversion. The court also dismissed this same Plaintiff's federal claims in a
second and substantially similar lawsuit while remanding to the court of Common
Pleas of Allegheny County any cognizable state law claims. This Plaintiff has
filed Motion to Amend Judgment with the Court on the Opinion and Orders and a
Memorandum Response in Opposition has been filed. On August 28, 1995, the Court
denied the Plaintiff's motion to Amend Judgment.
The Company is also 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 consolidated
financial condition of WVS.
13. 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, 1997 and 1996, 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 10%, 6%, and 5%,
respectively.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
13. REGULATORY CAPITAL (Continued)
The Company and Savings Bank's actual capital ratios are presented in the
following tables, which shows that both met all regulatory capital requirements.
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------------------------------------
WVS Financial Corp. West View Savings Bank
--------------------------------- ---------------------------------
Amount Ratio Amount Ratio
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets)
Actual $34,759 25.8% $26,259 19.9%
To be "Well Capitalized" 13,487 10.0 13,215 10.0
For Capital Adequacy Purposes 10,790 8.0 10,572 8.0
Tier I Capital (to Risk-Weighted Assets)
Actual $33,069 24.5% $24,603 18.6%
To be "Well Capitalized" 8,092 6.0 7,929 6.0
For Capital Adequacy Purposes 5,395 4.0 5,286 4.0
Tier I Capital (to Average Total Assets)
Actual $33,069 11.4% $24,603 8.8%
To be "Well Capitalized" 14,454 5.0 14,016 5.0
For Capital Adequacy Purposes 11,563 4.0 11,213 4.0
<PAGE>
<CAPTION>
June 30, 1996
-----------------------------------------------------------------------
WVS Financial Corp. West View Savings Bank
--------------------------------- ---------------------------------
Amount Ratio Amount Ratio
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets)
Actual $35,994 28.4% $27,065 21.9%
To be "Well Capitalized" 12,656 10.0 12,351 10.0
For Capital Adequacy Purposes 10,125 8.0 9,881 8.0
Tier I Capital (to Risk-Weighted Assets)
Actual $34,406 27.2% $25,516 20.7%
To be "Well Capitalized" 7,594 6.0 7,411 6.0
For Capital Adequacy Purposes 5,062 4.0 4,941 4.0
Tier I Capital (to Average Total Assets)
Actual $34,406 13.9% $25,516 10.7%
To be "Well Capitalized" 12,376 5.0 11,887 5.0
For Capital Adequacy Purposes 9,901 4.0 9,509 4.0
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. STOCK BENEFIT PLANS
Stock Option and Stock Appreciation Plans
In November 1993, the Board of Directors adopted Stock Option Plans for the
Company's directors, officers, and employees, which were approved by
stockholders at a special meeting held on February 22, 1994. An aggregate of
173,629 shares of authorized but unissued common stock of WVS were reserved for
future issuance under these plans. 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% 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.
Stock appreciation rights (SARs) were also authorized under the Plans, and may
be granted in conjunction with stock options or in lieu of exercising all or a
portion of a stock option. An SAR entitles the holder to receive cash or shares
of WVS common stock, or combinations thereof, at a value equal to the difference
between the fair market value of all or part of the shares subject to option on
the date the right is exercised and the options exercise price. Exercise of an
option or companion SAR automatically cancels the related option or right. No
SARs have been issued under the Plans.
<PAGE>
The following table presents share data related to the outstanding options:
<TABLE>
<CAPTION>
Officers' and Weighted
Employees' Directors' Average
Stock Stock Exercise
Options Options Price
-------------- -------------- --------------
<S> <C> <C> <C>
Outstanding, June 30, 1995 85,400 36,400 10.0445
Granted -- 1,400 18.6250
Exercised (360) -- 10.0000
Forfeited (320) -- --
-------------- --------------
Outstanding, June 30, 1996 84,720 37,800 10.1428
Granted -- 1,400 23.1875
Exercised (10,520) -- 10.0000
Forfeited (500) -- --
-------------- --------------
Outstanding, June 30, 1997 73,700 39,200 10.3185
============== ==============
Exercisable at year end 54,512 39,200 10.3838
============== ==============
Available for future grant 45,542 4,207
============== ==============
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. STOCK BENEFIT PLANS (Continued)
Stock Option and Stock Appreciation Plans (Continued)
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards Statement No. 123, "Accounting for Stock-based Compensation". As
permitted under Statement 123, 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 grant, no compensation expense is recognized in the Company's
financial statements. Had the fair value method of Statement No. 123 been
applied, the pro forma net income and earnings per share would not be materially
different than that presented on the consolidated statements of income.
Retention and Recognition Plans (RRP)
The Board of Directors adopted and shareholders subsequently approved at a
special meeting on February 22, 1994, RRP's for selected officers, employees and
directors of the Company. The objective of the RRP's 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 RRP's.
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 150,000 shares of common stock of WVS were acquired at
conversion for future issuance under these plans, of which 30,000 shares are
subject to the RRP for directors and 120,000 shares are subject to the RRP for
officers and key employees. Officers, employees, and directors who terminate
their association with the Company shall forfeit the right to any shares which
were awarded but not earned.
As of June 30, 1997, 48,350 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")
During the year ended June 30, 1994, WVS adopted an ESOP for the benefit of
officers and employees who have met certain eligibility requirements related to
age and length of service. An ESOP Trust was created, and acquired 80,500 shares
of common stock in WVS' 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 Company 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 qualified employees. As shares are released from
collateral, the Company 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 $487, $291 and $156 for the
years ended June 30, 1997, 1996 and 1995, respectively.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. STOCK BENEFIT PLANS (Continued)
Employee Stock Ownership Plan ("ESOP") (Continued)
The following table presents the components of the ESOP shares at June 30:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Allocated shares ................... 22,604 14,087 6,037
Shares released for allocation ..... 8,050 8,050 8,050
Shares distributed ................. (468) (133) --
Unallocated shares ................. 50,313 58,363 66,413
----------- ----------- -----------
Total ESOP shares .............. 80,499 80,367 80,500
=========== =========== ===========
Fair value of ESOP shares .......... $ 2,082,912 $ 1,667,615 $ 1,102,057
=========== =========== ===========
</TABLE>
During fiscal 1997, the ESOP purchased an additional 600 shares of WVS stock,
which is included in the allocated share balance as of June 30, 1997. The 600
shares were purchased using vested participant funds.
15. DIRECTOR, OFFICER AND EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a non-contributory pension 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. The Company's contributions, which were
charged to expense, were $150, $115, and $110 for the years ended June 30, 1997,
1996 and 1995, 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 payment. In addition, the plan
permits directors of the Company, who are also employees to defer receipt of a
portion of their other compensation, including salary and bonuses. For fiscal
years ended June 30, 1997, 1996, and 1995, 20,399 shares were held by the
Deferred Compensation Plan.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Currently payable:
Federal .......................... $ 1,747 $ 1,687 $ 1,265
State ............................ 235 291 233
------- ------- -------
1,982 1,978 1,498
Deferred ......................... (52) 88 154
------- ------- -------
Total ...................... $ 1,930 $ 2,066 $ 1,652
======= ======= =======
</TABLE>
The following temporary differences gave rise to the net deferred tax assets at
June 30:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan and real estate owned losses ........ $ 685 $ 671
Deferred origination fees, net ......................... 68 124
Deferred directors compensation ........................ 158 115
Net unrealized loss on securities available for sale ... 93 190
Other .................................................. 26 41
------ ------
Total gross deferred tax assets .................... 1,030 1,141
------ ------
Deferred tax liabilities:
Bad debt reserve for tax reporting purposes ............ 393 458
Retention and recognition plans ........................ 83 86
Depreciation ........................................... 15 13
------ ------
Total gross deferred tax liabilities ............... 491 557
------ ------
Net deferred tax assets ................................ $ 539 $ 584
====== ======
</TABLE>
On August 20, 1996, the Small Business Job Protection Act (the "Act") was signed
into law. The Act eliminated the percentage of taxable income bad debt deduction
for thrift institutions for tax years beginning after December 31, 1995. The Act
provides that bad debt reserves accumulated prior to 1988 be exempt from
recapture. Bad debt reserves accumulated after 1987 are subject to recapture.
The recapture tax will be paid over six years beginning with the 1998 tax year.
At December 31, 1995, the Savings Bank had $1,174 in bad debt reserves in excess
of the base year. Subject to prevailing corporate tax rates, the Savings Bank
owes approximately $393 in federal income taxes which is reflected as a deferred
tax liability.
No valuation allowance was established at June 30, 1997 and 1996, in view of
WVS' ability to carryback to taxes paid in previous years, future anticipated
taxable income, which is evidenced by WVS' earnings potential, and deferred tax
liabilities at June 30.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. 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:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- -------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate ............. $ 1,662 34.0% $ 1,918 34.0% $ 1,170 34.0%
State income tax, net of federal
tax benefit ........................... 155 3.2 192 3.4 154 4.5
Non - deductible (taxable) litigation and
settlement costs (reimbursements) ....... -- -- (123) (2.2) 248 7.2
Other, net .......................... 113 2.2 79 1.4 80 2.3
------- ---- ------- ---- ------- ----
Actual tax expense and
effective rate ........................ $ 1,930 39.4% $ 2,066 36.6% $ 1,652 48.0%
======= ==== ======= ==== ======= ====
</TABLE>
17. REGULATORY RESTRICTIONS
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,
1997 and 1996, the Savings Bank had required reserves of $560 and $502,
respectively. The required reserves are held in the form of vault cash and a
non-interest 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.
Regulatory Restrictions
The Savings Bank is subject to the Pennsylvania Banking Code which restricts the
availability of surplus for dividend purposes. At June 30, 1997, surplus funds
of $3,363 were not available for dividends.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
18. CONVERSION AND REORGANIZATION
WVS was formed July, 1993, as a bank holding company to acquire 100 percent of
the common stock of the Savings Bank in a conversion from the mutual to the
stock form of ownership. A public offering of WVS' common stock was completed
November 29, 1993, through the sale of 1,763,300 shares of $ .01 par value
common stock at $10 per share. WVS acquired the Savings Bank by exchanging
$3,363 of the proceeds received in the public offering for all of the common
stock of the Savings Bank.
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. 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.
19. 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 results of operations for the year ended
June 30, 1997.
<PAGE>
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at June 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets
Cash, due from banks and interest-earning
demand deposits $ 2,571 $ 2,571 $ 2,727 $ 2,727
Investment securities 87,548 87,442 59,218 58,652
Mortgage - backed securities 37,490 37,661 42,118 42,161
Net loans receivable 158,134 160,835 149,011 149,479
Accrued interest receivable 2,809 2,809 2,373 2,373
Federal Home Loan Bank stock 3,927 3,927 1,900 1,900
------------- ------------- ------------- -------------
Total financial assets $ 292,479 $ 295,245 $ 257,347 $ 257,292
============= ============= ============= =============
Financial Liabilities
Deposits $ 170,879 $ 170,897 $ 170,843 $ 170,835
FHLB Advances 77,857 77,207 38,000 38,000
Other borrowings 6,784 6,784 10,652 10,652
Advance payments by borrowers
for taxes and insurance 3,531 3,531 3,772 3,772
Accrued interest payable 1,768 1,768 1,425 1,425
------------- ------------- ------------- -------------
Total financial liabilities $ 260,819 $ 260,187 $ 224,692 $ 224,684
============= ============= ============= =============
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
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, Advance Payments by Borrowers for Taxes and Insurance,
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. The fair value of securities available for sale is equal to the
current carrying value. 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 nonperforming loans is the appraised value of the
underlying collateral adjusted for estimated credit risk.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Net Loans Receivable and Deposits (Continued)
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.
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 12 to these financial
statements.
<PAGE>
21. PARENT COMPANY
Condensed financial information of WVS Financial Corp. is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
June 30,
1997 1996
------- -------
<S> <C> <C>
ASSETS
Interest-earning deposits with subsidiary bank ........... $ 404 $ 386
Investment securities available for sale ................. 1,286 --
Investment and mortgage-backed securities held-to-maturity 7,169 9,202
Investment in subsidiary bank ............................ 23,273 23,710
Loan receivable from ESOP ................................ 493 604
Accrued interest receivable and other assets ............. 282 182
------- -------
TOTAL ASSETS ............................................. $32,907 $34,084
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities .................................. $ 18 $ 46
Stockholders' equity ............................... 32,889 34,038
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $32,907 $34,084
======= =======
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. PARENT COMPANY (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
Year Ended June 30,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INCOME
Loans ...................................................... $ 47 $ 56 $ 60
Investment and mortgage-backed securities .................. 627 671 595
Dividend from subsidiary ................................... 3,500 -- --
Interest-earning deposits with subsidiary bank ............. 16 51 34
Investment securities gain ................................. 4 54 --
------- ------- -------
Total income ............................................... 4,194 832 689
------- ------- -------
OPERATING EXPENSE
Unusual items:
Shareholder litigation settlement .................... (5) (123) 245
Shareholder litigation costs ......................... -- (20) --
Other ...................................................... 91 100 56
------- ------- -------
Total operating expense .................................... 86 (43) 301
------- ------- -------
Income before equity in undistributed earnings of subsidiary 4,108 875 388
Equity in undistributed earnings of subsidiary ............. (913) 2,994 1,665
------- ------- -------
Income before income taxes ................................. 3,195 3,869 2,053
Income taxes ............................................... 236 292 263
------- ------- -------
NET INCOME ................................................. $ 2,959 $ 3,577 $ 1,790
======= ======= =======
</TABLE>
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. PARENT COMPANY (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................. $ 2,959 $ 3,577 $ 1,790
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed net income of subsidiary ..................... 913 (2,994) (1,665)
Provision for litigation settlement ........................ -- -- 245
Amortization of investment discounts and premiums .......... 16 34 221
Amortization of ESOP and RRP deferred and
unearned compensation ................................. 184 76 71
Investment securities gains ................................ (4) (54) --
(Increase) decrease in accrued interest receivable ......... 8 76 (10)
Other ...................................................... (130) (168) (130)
-------- -------- --------
Net cash provided by operating activities .................. 3,946 547 522
-------- -------- --------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and mortgage-backed securities (1,258) (247) --
Proceeds from sale of investment securities .......... 13 301 --
Held to maturity:
Purchases of investment and mortgage-backed securities -- (11,403) (4,732)
Proceeds from repayments of investment and
mortgage-backed securities ....................... 2,021 12,148 6,511
ESOP loan repayments ....................................... 111 80 80
-------- -------- --------
Net cash provided by investing activities .................. 887 879 1,859
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock ................. 105 4 1
Cash dividends paid ........................................ (4,920) (3,344) (677)
-------- -------- --------
Net cash used by financing activities ...................... (4,815) (3,340) (676)
-------- -------- --------
Increase (decrease) in cash and cash equivalents ........... 18 (1,914) 1,705
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD .............. 386 2,300 595
-------- -------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD .................... $ 404 $ 386 $ 2,300
======== ======== ========
</TABLE>
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
September December March June
1996 1996 1997 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total interest income $ 5,065 $ 5,298 $ 5,221 $ 5,541
Total interest expense 2,528 2,780 2,662 2,914
-------------- -------------- -------------- --------------
Net interest income 2,537 2,518 2,559 2,627
Provision for loan losses 30 30 -- --
-------------- -------------- -------------- --------------
Net interest income after
provision for loan losses 2,507 2,488 2,559 2,627
Security gains, net 26 -- -- 4
Total noninterest income 84 97 78 85
Total noninterest expense 2,203 1,079 1,126 1,258
-------------- -------------- -------------- --------------
Income before income taxes 414 1,506 1,511 1,458
Income taxes 164 594 597 575
-------------- -------------- -------------- --------------
Net income $ 250 $ 912 $ 914 $ 883
============== ============== ============== ==============
Per Share Data:
Average shares outstanding
Primary 1,741,995 1,749,039 1,756,228 1,761,689
Fully diluted 1,743,938 1,753,025 1,757,428 1,763,465
Net Income
Primary and fully diluted $ 0.14 $ 0.52 $ 0.52 $ 0.51
</TABLE>
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except shares and per share data)
22. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
September December March June
1995 1995 1996 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total interest income $ 4,510 $ 4,624 $ 4,455 $ 4,728
Total interest expense 2,194 2,269 2,108 2,270
-------------- -------------- -------------- --------------
Net interest income 2,316 2,355 2,347 2,458
Provision for loan losses 37 38 37 38
-------------- -------------- -------------- --------------
Net interest income after
provision for loan losses 2,279 2,317 2,310 2,420
Security gains, net -- -- -- 54
Total noninterest income 80 87 81 81
Total noninterest expense 1,031 723 1,094 1,218
-------------- -------------- -------------- --------------
Income before income taxes 1,328 1,681 1,297 1,337
Income taxes 553 448 504 561
-------------- -------------- -------------- --------------
Net income $ 775 $ 1,233 $ 793 $ 776
============== ============== ============== ==============
Per Share Data:
Average shares outstanding
Primary 1,722,803 1,729,776 1,737,602 1,739,258
Fully diluted 1,728,920 1,730,561 1,739,105 1,739,327
Net Income
Primary and fully diluted $ 0.45 $ 0.71 $ 0.46 $ 0.45
</TABLE>
56
<PAGE>
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 National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market System under the symbol "WVFC".
The bid and ask quotations for the common stock on September 16, 1997 were:
Bid Ask
--- ---
$27 1/4 $28 1/4
The following table sets forth the high and low market prices for the
periods indicated.
<TABLE>
<CAPTION>
Market Price
------------------- Cash Dividends
Quarter Ended High Low Declared
------------- ------ ------ -----------
<S> <C> <C> <C>
June 97 $27 1/4 $23 1/2 $2.50(1)
March 97 26 1/2 24 0.20
December 96 25 21 1/2 0.20
September 96 22 1/2 20 1/4 0.10
Quarter Ended
June 96 $22 $19 1/2 $1.80(1)
March 96 22 1/4 18 3/4 0.10
December 95 19 1/4 18 1/4 0.10
September 95 19 1/4 16 0.06
</TABLE>
- -----------
(1) Includes special cash dividends of $2.30 and $1.70 per share, paid
during the quarter ended June 30, 1997 and 1996, respectively.
The Company's stock commenced trading on November 29, 1993. There were
seven NASDAQ Market Makers in the Company's common stock as of June 30, 1997: F.
J. Morrissey & Co., Inc.; Legg Mason Wood Walker, Inc.; Sandler O'Neill &
Partners; Capital Resources, Inc.; Herzog, Heine, Geduld, Inc.; Ryan, Beck &
Co., Inc.; and Parker/Hunter, Inc.
According to the records of the Company's transfer agent, there were
approximately 998 shareholders of record at September 12, 1997. 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.
57
<PAGE>
WVS FINANCIAL CORP.
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
CORPORATE OFFICES
WVS FINANCIAL CORP. -- 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
National Market System 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
931-2171
CRANBERRY OFFICE
20531 Perry Highway
931-6080/776-3480
FRANKLIN PARK OFFICE
2566 Brandt School Road
935-7100
BELLEVUE OFFICE
572 Lincoln Avenue
761-5595
SHERWOOD OAKS OFFICE
Serving Sherwood Oaks
Cranberry Twp.
LENDING DIVISION
2566 Brandt School Road
Route 19 at Richard Road
935-7400
<PAGE>
BOARD OF DIRECTORS
David L. Aeberli
President
McDonald-Aeberli Funeral Home, Inc.
Arthur H. Brandt
President and CEO
Brandt Paving, Inc. and
Brandt Excavating, Inc.
William J. Hoegel
Sole Proprietor
William J. Hoegel & Associates
Donald E. Hook
Chairman
Pittsburgh Cut Flower Co.
James S. McKain, Jr.
Retired - Former Chairman & President
Barden McKain Ford, Inc. and
Jim McKain Car and Truck Leasing, Inc.
James H. Ritchie
Retired - Former Owner
Ingomar Pharmacy
John M. Seifarth
Senior Engineer - Consultant
Nichols & Slagle Engineering, Inc.
Robert C. Sinewe
President and Chief Executive Officer
WVS Financial Corp. and
West View Savings Bank
Margaret VonDerau
Senior Vice President and Secretary
WVS Financial Corp. and
West View Savings Bank
EXECUTIVE OFFICERS
James S. McKain, Jr.
Chairman
Robert C. Sinewe
President and
Chief Executive Officer
Margaret VonDerau
Senior Vice President and
Corporate Secretary
David J. Bursic
Vice President, Treasurer and
Chief Financial Officer
Edward M. Wielgus
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.
58
<PAGE>
A Tradition of Quality Banking
WVS FINANCIAL CORP.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
33-91684 of WVS Financial Corp. on Form S-8 of our report dated August 1, 1997,
appearing in the Annual Report on Form 10-K of WVS Financial Corp. for the year
ended June 30, 1997.
/s/S.R. Snograss, A.C.
Wexford, PA
September 19, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, INCOME, CHANGES IN STOCKHOLDERS'
EQUITY AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT, OR FOR THE TWELVE
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 667
<INT-BEARING-DEPOSITS> 1,904
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,833
<INVESTMENTS-CARRYING> 107,132
<INVESTMENTS-MARKET> 107,197
<LOANS> 158,134
<ALLOWANCE> 2,009
<TOTAL-ASSETS> 294,693
<DEPOSITS> 174,410
<SHORT-TERM> 21,784
<LIABILITIES-OTHER> 2,753
<LONG-TERM> 62,857
0
0
<COMMON> 17
<OTHER-SE> 32,872
<TOTAL-LIABILITIES-AND-EQUITY> 294,693
<INTEREST-LOAN> 12,440
<INTEREST-INVEST> 8,605
<INTEREST-OTHER> 80
<INTEREST-TOTAL> 21,125
<INTEREST-DEPOSIT> 7,086
<INTEREST-EXPENSE> 10,884
<INTEREST-INCOME-NET> 10,241
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 30
<EXPENSE-OTHER> 5,666
<INCOME-PRETAX> 4,889
<INCOME-PRE-EXTRAORDINARY> 4,889
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,959
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 3.54
<LOANS-NON> 274
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 1,964
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<RECOVERIES> 3
<ALLOWANCE-CLOSE> 2,009
<ALLOWANCE-DOMESTIC> 1,029
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 980
</TABLE>
