FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No.: 0-22444
WVS Financial Corp.
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(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
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(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)
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(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. ___
As of September 24, 1999, the aggregate value of the 2,412,564 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
626,208 shares held by all directors and officers of the Registrant as a group,
was approximately $36.3 million. This figure is based on the last known trade
price of $15.0625 per share of the Registrant's Common Stock on September 24,
1999.
Number of shares of Common Stock outstanding as of September 24, 1999: 3,038,772
<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, 1999 are incorporated into Parts I, II and IV.
(2) Portions of the definitive proxy statement for the 1999 Annual Meeting of
Stockholders are incorporated into Part III.
<PAGE>
PART I.
Item 1. Business.
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WVS Financial Corp. ("WVS" or the "Company") is the parent holding company
of West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank converted to the stock form of ownership in
November 1993. The Savings Bank had no subsidiaries at June 30, 1999.
Lending Activities
General. At June 30, 1999, the Company's net portfolio of loans
receivable totaled $170.3 million, as compared to $157.7 million at June 30,
1998. Net loans receivable comprised 48.9% of Company total assets and 97.8% of
total deposits at June 30, 1999, as compared to 53.1% and 92.3%, respectively,
at June 30, 1998. 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, consumer loans and land acquisition and
development 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.
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.
Federal Regulations impose limitations on the aggregate amount of loans
that a savings institution can make to any one borrower, including related
entities. 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, 1999, the Savings Bank's limit on
loans-to-one borrower was approximately $4.0 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, 1999, the Company's five largest loans or groups
of loans-to-one borrower, including related entities, ranged from an aggregate
of $2.6 million to $4.8 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,
----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------- ------------------- ------------------- ------------------ ------------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family $103,035 54.43% $104,849 61.06% $116,663 67.25% $109,776 65.16% $92,710 63.17%
Multi-family 5,925 3.12 4,012 2.34 3,499 2.02 3,235 1.92 2,303 1.57
Commercial 28,546 15.08 21,021 12.24 14,669 8.46 13,088 7.77 12,138 8.27
Construction 23,810 12.58 17,779 10.35 16,969 9.78 19,269 11.44 21,106 14.38
Land acquisition
and development 7,646 4.04 7,233 4.21 7,412 4.27 9,004 5.35 4,671 3.18
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Total real estate
loans 168,962 89.25 154,894 90.20 159,212 91.78 154,372 91.64 132,928 90.57
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Consumer loans:
Home equity 16,467 8.70 13,613 7.93 12,258 7.06 11,963 7.10 12,477 8.50
Education 11 0.01 591 0.34 516 0.30 590 0.35 394 0.27
Other 2,153 1.14 2,336 1.36 1,403 0.81 1,484 0.88 905 0.61
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Total consumer
loans 18,631 9.85 16,540 9.63 14,177 8.17 14,037 8.33 13,776 9.38
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Commercial loans 1,720 0.90 290 0.17 91 0.05 40 0.02 --- ---
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Commercial lease
financings --- 0.00 --- 0.00 2 0.00 14 0.01 68 0.05
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
189,313 100.00% 171,724 100.00% 173,482 100.00% 168,463 100.00% 146,772 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== ------- ======
Less:
Undisbursed loan
proceeds (16,327) (11,312) (12,505) (16,651) (10,794)
Net deferred loan
origination fees (817) (815) (834) (837) (799)
Allowance for loan
losses (1,842) (1,860) (2,009) (1,964) (1,836)
-------- -------- -------- -------- --------
Net loans
receivable $170,327 $157,737 $158,134 $149,011 $133,343
======== ======== ======== ======== ========
</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, 1999. 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 Consumer
acquisition loans and Mortgage-
Single- Multi- and commercial backed
family family Commercial Construction development loans securities Total
------ ------ ---------- ------------ ----------- ----- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less $ 319 $ --- $ 1,522 $ 10,764 $ 2,418 $ 535 $ 55 $ 15,613
After one year through
five years 1,533 210 1,033 5,286 4,680 6,897 1,663 21,302
After five years 101,183 5,715 25,991 7,760 548 12,919 70,662 224,778
-------- ------- ------- ------- ------- ------- ------- --------
Total(1) $103,035 $ 5,925 $28,546 $23,810 $ 7,646 $20,351 $72,380 $261,693
======== ======= ======= ======= ======= ======= ======= ========
<CAPTION>
Interest rate terms on amounts due after one year:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed $ 88,338 $4,649 $16,936 $4,521 $1,225 $12,791 $55,910 $184,420
Adjustable 14,378 1,276 10,088 8,525 4,003 7,025 16,415 61,710
-------- ------- ------- ------- ------- ------- ------- --------
Total $102,716 $5,925 $27,024 $13,046 $5,228 $19,816 $72,325 $246,080
======== ====== ======= ======= ====== ======= ======= ========
</TABLE>
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(1) Does not include adjustments relating to loans in process, the allowance for
loan losses, accrued interest, deferred fee income and unearned discounts.
<PAGE>
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 due-on-sale clauses.
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).
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, 1999, the Company had approximately $10.0 million of
renewed commercial real estate and construction loans, all of which were
performing. The $10.0 million in aggregate disbursed principal that has been
renewed is comprised of: construction lines of credit totaling $8.3 million;
commercial real estate loans totaling $1.1 million; land acquisition and
single-family speculative construction loans totaling $284 thousand; business
lines of credit totaling $210 thousand; and developed residential lots totaling
$97 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.
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. Loan applications are primarily attributable to
existing customers, builders, walk-in customers and referrals from both real
estate brokers and existing 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 and other investors in the secondary market. Although the Company
has not been a frequent seller of loans in the secondary market, the Company is
on the Federal National Mortgage Association approved list of sellers/servicers.
<PAGE>
The Company has held most of 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. During fiscal 1999, the
Company sold four pools of mortgages with an approximate combined principal
balance of $400 thousand, and participations in a large commercial loan with an
approximate combined principal balance of $1.1 million.
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, 1999, $6.1 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 $2.3 million or 37.1%
consisted of loans secured by commercial real estate and $3.8 million or 62.9%
consisted of single-family mortgage pools. During fiscal 1999, purchases of
whole loans and participations increased by $2.3 million, to a total of $3.4
million, as compared to fiscal 1998.
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, 1999, $6.1 million or 3.6% 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,
--------------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Net loans receivable beginning balance $157,737 $158,134 $149,011
Real estate loan originations
Single-family(1) 13,638 4,979 15,643
Multi-family(2) 2,715 1,729 575
Commercial 10,723 6,484 2,000
Construction 14,230 10,796 9,044
Land acquisition and development 3,100 2,936 1,384
-------- -------- --------
Total real estate loan originations 44,406 26,924 28,646
-------- -------- --------
Home equity 7,293 4,572 3,160
Education 373 379 323
Commercial 864 216 533
Other 890 788 207
-------- -------- --------
Total loan originations 53,826 32,879 32,869
-------- -------- --------
Disbursements against available credit lines:
Home equity 4,663 5,785 4,608
Other 893 82 28
Purchase of whole loans and participations 3,479 1,115 1,145
-------- -------- --------
Total originations and purchases 62,861 39,861 38,650
-------- -------- --------
Less:
Loan principal repayments 43,597 37,622 33,569
Sales of whole loans and participations 1,469 3,964 ---
Transferred to real estate owned 207 --- 73
Change in loans in process 5,015 (1,193) (4,147)
Other, net(3) (17) (135) 32
-------- -------- --------
Net increase (decrease) $12,590 $ (397) $ 9,123
-------- -------- --------
Net loans receivable ending balance $170,327 $157,737 $158,134
======== ======== ========
</TABLE>
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(1) Consists of loans secured by one-to-four 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.
<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 ("Guidelines") adopted by the federal banking agencies in December
1992. The Guidelines set forth uniform regulations prescribing standards for
real estate lending. Real estate lending is defined as an 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 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 75% 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, 1999, $103.0 million or 54.4% 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 $13.6 million and increased $8.7 million or 173.9%
during the fiscal year ended June 30, 1999, when compared to the same period in
1998. The increase in single-family originations was primarily due to higher
cyclical mortgage refinancing activity and a stronger local demand for permanent
mortgage financing.
The Company historically has emphasized 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 the portfolio, these loans are
originated generally under terms, conditions and documentation that 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 continued decline
in long-term interest rates experienced during most of fiscal 1999.
<PAGE>
At June 30, 1999, approximately $88.7 million or 86.0% 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 obtained on
residential loans for which loan-to-value ratios exceed 80% according to the
following schedule: loans exceeding 80% but less than 90% - 25% coverage; and
loans exceeding 90% but less than 95% - 30% coverage. No loans are made in
excess of 95% of appraised value.
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 of the first mortgage real estate loans originated. If title insurance
is not obtained or is unavailable, the Company obtains an abstract of title and
a 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 and Commercial Real Estate Loans. The Company
originates mortgage loans for the acquisition and refinancing of existing
multi-family residential and commercial real estate properties. At June 30,
1999, $5.9 million or 3.1% of the Company's total loan portfolio consisted of
loans secured by existing multi-family residential real estate properties, which
represented an increase of $1.9 million or 47.7% from fiscal 1998. At June 30,
1999, $28.5 million or 15.1% of the loan portfolio consisted of loans secured by
existing commercial real estate properties, which represented an increase of
$7.5 million or 35.8% from fiscal 1998. Both increases were primarily due to
higher volumes of loan originations during fiscal 1999. During fiscal 1999, the
Company chose to emphasize originations of multi-family and commercial real
estate loans in order to earn returns greater than those offered in the
single-family residential mortgage market.
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.
<PAGE>
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 5 to 15 years. The
Company will originate these loans either with fixed or adjustable interest
rates 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 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, 1999, the Company's multi-family residential and commercial
real estate loan portfolio consisted of approximately 106 loans with an average
principal balance of $323 thousand. At June 30, 1999, the Company had one
commercial real estate loan totaling $274 thousand that was not accruing
interest.
Construction Loans. In recent years, the Company has been 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, 1999, construction
loans amounted to approximately $23.8 million or 12.6% of the Company's total
loan portfolio, which represented an increase of $6.1 million or 33.9% from
fiscal 1998. The increase was principally due to increased levels of new home
construction and in order to earn a higher rate of return than was available in
the single-family residential mortgage market. As of June 30, 1999, the
Company's portfolio of construction loans consisted of $17.7 million of loans
for the construction of single-family residential real estate, $5.7 million of
loans for the construction of commercial real estate, and $400 thousand of loans
for the construction of multi-family residential real estate. Construction loan
originations totaled $14.2 million and increased by $3.4 million or 31.8% during
the fiscal year ended June 30, 1999, when compared to the same period in 1998.
Construction loans are made 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, 1999, approximately
87.8% 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 12.2% 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 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 $1.5 million. Once approved for a construction line, a developer
<PAGE>
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, 1999, the Company also had $7.6 million or 4.0% of the total loan
portfolio invested in land development loans, which consisted of 15 loans to 13
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".
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, 1999, $18.6 million or 9.9% of the Company's total loan portfolio consisted
of consumer loans, which represented an increase of $2.1 million or 12.7% from
fiscal 1998 primarily due to higher volumes of loan originations. During fiscal
1999, the Company chose to emphasize originations of consumer loans in order to
earn returns greater than those offered in the single-family residential
mortgage market and to shorten the average life of the loan portfolio due to
relatively low market interest rates. 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.
<PAGE>
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, 1999,
approximately 63.6% 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. At June 30, 1999, $1.7 million or less than 1% of the
Company's total loan portfolio consisted of commercial loans, which include
loans secured by accounts receivable, business inventory and equipment, and
similar collateral. The $1.4 million or 493.1% increase from fiscal 1998 was
principally due to higher volumes of loan originations. The Company is
selectively developing this line of business in order to increase interest
income and to attract compensating deposit account balances.
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 that 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 $341 thousand,
$205 thousand and $229 thousand of deferred loan fees during fiscal 1999, 1998
and 1997, respectively, in connection with loan refinancings, payoffs and
ongoing amortization of outstanding loans. The increase in loan origination fee
income for fiscal 1999 was principally attributable to a higher volume of loan
refinancings which permitted the acceleration of associated deferred fee
balances.
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.
<PAGE>
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.
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,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Real estate:
Single-family(1) $ 189 $ 52 $ --- $ 100 $ 185
Multi-family --- --- --- --- 561
Commercial(2) 274 481 274 274 274
Consumer(3) 77 70 --- --- ---
Commercial loans and leases(4) 7 --- --- 3 9
------ ------ ------ ------ ------
Total non-accrual loans 547 603 274 377 1,029
------ ------ ------ ------ ------
Accruing loans greater than 90 days
delinquent --- --- --- --- ---
------ ------ ------ ------ ------
Total non-performing loans $ 547 $ 603 $ 274 $ 377 $1,029
------ ------ ------ ------ ------
Real estate owned 218 --- --- --- ---
------ ------ ------ ------ ------
Total non-performing assets $ 765 $ 603 $ 274 $ 377 $1,029
====== ====== ====== ====== ======
Troubled debt restructurings $ --- $ --- $ --- $ 603 $ 930
====== ====== ====== ====== ======
Total non-performing loans and troubled
debt restructurings as a percentage of
net loans receivable 0.32% 0.38% 0.17% 0.66% 1.47%
====== ====== ====== ====== ======
Total non-performing assets to total assets 0.22% 0.20% 0.09% 0.15% 0.45%
====== ====== ====== ====== ======
Total non-performing assets and troubled
debt restructurings as a percentage of
total assets 0.22% 0.20% 0.09% 0.38% 0.86%
====== ====== ====== ====== ======
</TABLE>
- --------------
(1) At June 30, 1999, non-accrual single-family residential real estate loans
consisted of five loans.
(2) At June 30, 1999, non-accrual commercial real estate loans consisted of one
loan.
(3) At June 30, 1999, non-accrual consumer loans consisted of one loan.
(4) At June 30, 1999, non-accrual commercial loans consisted of one loan.
<PAGE>
The $56 thousand decrease in non-accrual loans during fiscal 1999 is
comprised of a $207 thousand decrease in non-accrual commercial real estate
loans, partially offset by a $7 thousand increase in non-accrual consumer loans
and a $137 thousand increase in non-accrual single-family real estate loans.
At June 30, 1999, the Company had one performing restructured
multi-family loan with a total outstanding principal balance of $587 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 collateral value. Partner ownership has shifted on this property and the
Company has been receiving normal principal and interest payments for over three
years. The Company expects the loan to remain current and to possibly be
refinanced in the future. The Company believes that it has an adequate valuation
allowance with respect to this loan.
As of June 30, 1999, the Company had five non-accruing single-family
residential real estate loans which totaled approximately $189 thousand. During
July 1999, one of these loans with a principal balance of approximately $92
thousand was paid off in full. The Company expects that the remaining loans will
be worked out in the normal course of business.
As of June 30, 1999, the Company had one non-accruing commercial real
estate loan with a principal balance totaling $274 thousand. 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. 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. All payments due under the plan have been received to date.
As of June 30, 1999, the Company had one non-accruing commercial loan
with an outstanding principal balance of $7 thousand that was over 90 days
delinquent. The Company has initiated legal action to force the sale of the
collateral of this participation loan.
As of June 30, 1999, the Company had one non-accruing consumer loan
with an outstanding principal balance of $77 thousand that was over 90 days
delinquent. The Company is currently in proceedings with the debtor's estate,
which consists of a house and a business property.
<PAGE>
During fiscal 1999, 1998 and 1997, approximately $42 thousand, $64
thousand and $35 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 $41 thousand, $44
thousand and $20 thousand, respectively.
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 (1) on
the responsibilities of management for the assessment and establishment of an
adequate allowance and (2) 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: (1) 50% of the portfolio that is classified doubtful; (2) 15% of
the portfolio that is classified substandard; and (3) 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
<PAGE>
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.
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: (1) 0% to 5% of assets subject to
special mention; (2) 5% to 25% of assets classified substandard; and (3) 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, 1999, is adequate.
The allowance for loan losses at June 30, 1999 decreased $18 thousand
to $1.84 million due to net charge-offs. The allowance for loan losses at June
30, 1998 decreased $149 thousand to $1.86 million due primarily to the reversal
of previously established loan loss reserves attributable to the payoff of a
commercial loan participation. Previously, the Company had consistently added to
the allowance for possible loan losses. The increases in prior years reflected a
number of factors, the most significant of which was the industry trend towards
greater emphasis on the allowance method of providing for loan losses and the
specific charge-off method.
The Company transferred a $207 thousand non-accrual loan balance to
real estate owned during fiscal 1999. The loan was acquired by the Company in
fiscal 1992 through the acquisition of Home Savings Association. The Company
stopped accruing interest on the loan in fiscal 1998. The loan was secured by a
tavern and restaurant which the Company acquired through sheriff's sale during
June 1999. The Company intends to liquidate this asset in an orderly manner.
<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,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average net loans $ 158,651 $ 163,046 $ 153,726 $ 141,643 $ 133,517
========= ========= ========= ========= =========
Allowance balance (at beginning of period) $ 1,860 $ 2,009 $ 1,964 $ 1,836 $ 1,634
Provision for loan losses --- (120) 60 150 211
Charge-offs:
Real Estate:
Single-family 5 1 15 25 ---
Multi-family --- --- --- --- ---
Commercial --- --- --- --- ---
Construction --- --- --- --- ---
Land acquisition and development --- --- --- --- ---
Consumer:
Home equity 15 15 --- --- ---
Education --- --- --- --- ---
Other --- 23 --- --- ---
Commercial loans and leases --- --- 3 4 12
--------- --------- --------- --------- ---------
Total charge-offs 20 39 18 29 12
--------- --------- --------- --------- ---------
Recoveries:
Real estate:
Single-family 1 8 1 --- ---
Multi-family --- --- --- --- ---
Commercial --- --- --- --- ---
Construction --- --- --- --- ---
Land acquisition and development --- --- --- --- ---
Consumer:
Home equity 1 --- --- --- ---
Education --- --- --- --- ---
Other --- 1 --- 1 1
Commercial loans and leases --- 1 2 6 2
--------- --------- --------- --------- ---------
Total recoveries 2 10 3 7 3
--------- --------- --------- --------- ---------
Net loans charged-off 18 29 15 22 9
Transfer to real estate owned loss reserve --- --- --- --- ---
--------- --------- --------- --------- ---------
Allowance balance (at end of period) $ 1,842 $ 1,860 $ 2,009 $ 1,964 $ 1,836
========= ========= ========= ========= =========
Allowance for loan losses as a percentage
of total loans receivable 1.07% 1.08% 1.16% 1.17% 1.25%
========= ========= ========= ========= =========
Net loans charged-off as a percentage of
average net loans 0.02% 0.02% 0.01% 0.02% 0.01%
========= ========= ========= ========= =========
Allowance for loan losses to non-performing
loans 336.75% 308.46% 733.21% 520.95% 178.43%
========= ========= ========= ========= =========
Net loans charged-off to allowance for loan
losses 0.98% 1.56% 0.75% 1.12% 0.49%
========= ========= ========= ========= =========
Recoveries to charge-offs 11.12% 25.64% 16.67% 24.14% 25.00%
========= ========= ========= ========= =========
</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,
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------- ------------------- ------------------- -------------------
% of Total Loans by % of Total Loans by % of Total Loans by % of Total Loans by % of Total 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 $ 174 54.43% $ 164 61.06% $ 175 67.25% $ 161 65.16% $ 146 63.17%
Multi-family 152 3.12 143 2.34 142 2.02 141 1.92 12 1.57
Commercial 283 15.08 423 12.24 449 8.46 468 7.77 593 8.27
Construction 85 12.58 52 10.35 58 9.78 38 11.44 49 14.38
Land acquisition
and development 57 4.04 59 4.21 59 4.27 69 5.35 31 3.18
Unallocated 695 0.00 652 0.00 722 0.00 711 0.00 693 0.00
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate
loans 1,446 89.25 1,493 90.20 1,605 91.78 1,589 91.64 1,524 90.57
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Consumer loans:
Home equity 202 8.70 168 7.93 123 7.06 120 7.10 124 8.50
Education 0 0.01 5 0.34 5 0.30 6 0.35 4 0.27
Other 24 1.14 17 1.36 10 0.81 10 0.88 14 0.61
Unallocated 77 0.00 167 0.00 258 0.00 215 0.00 127 0.00
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer
loans 303 9.85 357 9.63 396 8.17 351 8.33 269 9.38
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Commercial loans:
Commercial loans 86 0.90 10 0.17 5 0.05 2 0.02 -- 0.00
Unallocated 7 0.00 -- 0.00 -- 0.00 -- 0.00 -- 0.00
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total commercial
loans 93 0.90 10 0.17 5 0.05 2 0.02 -- 0.00
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Commercial lease
financings -- 0.00 -- 0.00 3 0.00 22 0.01 43 0.05
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
$ 1,842 100.00% $ 1,860 100.00% $ 2,009 100.00% $ 1,964 100.00% $ 1,836 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</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.
<PAGE>
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
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"). CMOs may also be 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. All of the
Company's CMOs are rated in the highest category by at least two national rating
services.
At June 30, 1999, the Company's MBS portfolio totaled $72.4 million as
compared to $46.3 million at June 30, 1998. The $26.1 million or 56.3% increase
in MBS balances outstanding during fiscal 1999 was primarily attributable to
increased MBS purchases made in order to mitigate the principal calls on the
Company's callable bond portfolio and earn a higher yield with an expected
average life profile comparable to longer-term callable agency bonds. At June
30, 1999, approximately $16.4 million or 22.7% (book value) of the Company's
portfolio of MBS, including CMOs, were comprised of adjustable or floating rate
instruments, as compared to $17.8 million or 38.5% at June 30, 1998.
Substantially all of the Company's floating rate MBS adjust monthly based upon
changes in certain short-term market indices (e.g. LIBOR, Prime, etc.).
The following tables set forth the amortized cost and estimated market
values of the Company's MBSs available for sale and held to maturity as of the
periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- ---------
MBS Available for Sale at June 30, (Dollars in thousands)
- ----------------------------------
<S> <C> <C> <C>
FHLMC PCs $ 214 $ 308 $ 931
GNMA PCs 766 11,022 1,306
FNMA PCs 6,632 9,178 10,708
CMOs - agency collateral 878 2,584 5,472
CMOs - single-family whole loan collateral 852 5,750 ---
--------- -------- ---------
Total amortized cost $ 9,342 $ 18,842 $ 18,417
========= ======== =========
Total estimated market value $ 9,273 $ 19,041 $ 18,280
========= ======== =========
MBS Held to Maturity at June 30,
- --------------------------------
FHLMC PCs $ 146 $ 246 $ 351
GNMA PCs 1,107 1,156 1,219
FNMA PCs 103 151 194
CMOs - agency collateral 18,847 15,810 16,728
CMOs - single-family whole loan collateral 42,904 9,910 718
--------- -------- ---------
Total amortized cost $ 63,107 $ 27,273 $ 19,210
========= ======== =========
Total estimated market value $ 62,167 $ 27,777 $ 19,381
========= ======== =========
</TABLE>
<PAGE>
The Company believes that its present MBS available for sale allocation
of $9.3 million or 12.8% 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.
The following table sets forth the amortized cost, contractual
maturities and weighted average yields of the Company's MBSs, including CMOs, at
June 30, 1999.
<TABLE>
<CAPTION>
One Year or After One to After Five to Over Ten
Less Five Years Ten Years Years Total
----------- ------------ -------------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
MBS available for sale $ 55 $ 1,670 $ 66 $ 7,551 $ 9,342
6.42% 6.07% 9.10% 6.99% 6.83%
MBS held to maturity $ --- $ 32 $ 140 $62,935 $63,107
0.00% 8.00% 9.17% 6.59% 6.60%
------- ------- ------- ------- -------
Total $ 55 $ 1,702 $ 206 $70,486 $72,449
======= ======= ======= ======= =======
Weighted average yield 6.42% 6.11% 9.15% 6.64% 6.63%
======= ======= ======= ======= =======
</TABLE>
Due to prepayments of the underlying loans, and the prepayment
characteristics of the CMO traunches, the actual maturities of the Company's MBS
are expected to be substantially less than the scheduled maturities. As a result
of the decline of market interest rates experienced during most of fiscal 1999,
the Company continued to shift more weighting from variable rate MBS products to
fixed rate MBS products.
<PAGE>
The following table sets forth information with respect to the MBS
owned by the Company at June 30, 1999, which had a carrying value greater than
10% of the Company's stockholders' equity at such date, other than securities
issued by the United States Government and United States Government agencies and
corporations. All such securities have been assigned a triple A investment grade
rating.
<TABLE>
<CAPTION>
Estimated Market Weighted
Name of Issuer Carrying Value Value Average Yield
- -------------- -------------- ---------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Norwest Asset Securities Corp. CMO $ 7,200 $ 6,713 6.55%
Countrywide Home Loan CMO 5,696 5,571 6.77
Structured Asset Mortgage Investment Inc.
CMO 4,416 4,271 6.72
Residential Funding CMO 4,266 4,199 6.65
Citicorp Mortgage Security CMO 4,109 4,027 6.74
Countrywide Home Loan CMO 3,471 3,383 6.68
Residential Funding CMO 2,906 2,848 6.65
Countrywide Home Loan CMO 2,889 2,828 6.86
-------- --------
$ 34,953 $ 33,840 6.69%
======== ======== ====
</TABLE>
Investment Securities
The Company may invest in various types of securities, including
corporate debt and equity securities, U.S. Government and U.S. Government agency
obligations, securities of various federal, state and municipal agencies, FHLB
stock, 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 interest rate sensitivity gap and
generally to increase interest-earning assets. As reflected in the table below,
the Company continued to hold a significant portion of its investment portfolio
in U.S. Government and agency obligations, which amounted to $88.7 million or
90.2% of the total investment portfolio at June 30, 1999, as compared to $63.7
million or 74.1% of the total investment portfolio at June 30, 1998. All $88.7
million or 100.0% of the Company's U.S. Government agencies portfolio at June
30, 1999 was comprised of U.S. Government agency securities with longer-terms to
maturity and optional principal redemption features ("callable bonds"). As part
of the Company's continuing investment growth program, the Company has increased
its holdings of both investment and MBS. A substantial portion of the Company's
investment portfolio is funded with FHLB advances. Such advances 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 estimated market
values of the Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ------
Investment Securities Available for Sale at June 30, (Dollars in thousands)
- ----------------------------------------------------
<S> <C> <C> <C>
Corporate debt obligations $ --- $ 15,419 $ ---
U.S. Government agency securities --- --- 2,192
-------- -------- ------
Total amortized cost --- 15,419 2,192
Equity securities 1,380 2,062 1,497
-------- -------- ------
Total amortized cost $ 1,380 $ 17,481 $3,689
======== ======== =======
Total estimated market value $ 1,402 $ 17,519 $3,553
======== ======== =======
Investment Securities Held to Maturity at June 30,
- --------------------------------------------------
Corporate debt obligations $ --- $ --- $ 2,145
U.S. Government agency securities 88,714 63,749 81,850
State and municipal securities 2,050 --- ---
-------- -------- ------
90,764 63,749 83,995
FHLB stock 6,195 4,675 3,927
-------- -------- ------
Total amortized cost $ 96,959 $ 68,424 $87,922
======== ======== =======
Total estimated market value $ 94,045 $ 68,670 $87,816
======== ======== =======
</TABLE>
Information regarding the amortized cost, contractual maturities and
weighted average yields of the Company's investment portfolio at June 30, 1999
is presented below.
<TABLE>
<CAPTION>
Investment Securities One Year or After One to After Five Over Ten
Available for Sale Less Five Years to Ten Years Years Total
- ------------------ ----------- ------------ ------------ -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Equity securities $ --- $ --- $ --- $1,380 $ 1,380
======= ======= ======= ======= =======
Investment Securities
Held to Maturity
- ----------------
U.S. Government agency securities $ --- $ --- $ 8,685 $80,029 $88,714
0.00% 0.00% 6.06% 7.09% 6.98%
State and municipal securities (1) $ 1,215 $ --- $ --- $ 835 $ 2,050
5.73% 0.00% 0.00% 7.94% 6.63%
------- ------- ------- ------- -------
Total $ 1,215 $ --- $ 8,685 $80,864 $90,764
======= ======= ======= ======= =======
Weighted average yield 5.73% 0.00% 6.06% 7.10% 6.98%
======= ======= ======= ======= =======
</TABLE>
- ----------
(1) State and municipal security yields are calculated on a taxable equivalent
basis.
<PAGE>
Information regarding the amortized cost, earliest call dates and
weighted average yield of the Company's investment portfolio at June 30, 1999,
is presented below. All Company investments in callable bonds were classified as
held to maturity at June 30, 1999.
<TABLE>
<CAPTION>
One Year or After One to After Five Over Ten
Less Five Years to Ten Years Years Total
----------- ------------ ------------ -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Government agency securities $72,897 $ 2,997 $ --- $12,820 $88,714
7.02% 7.07% 0.00% 6.73% 6.98%
State and municipal securities (1) $ 1,215 $ --- $ 835 $ --- $ 2,050
5.73% 0.00% 7.94% 0.00% 6.63%
------- --------- -------- ------- -------
Total debt obligations $74,112 $ 2,997 $ 835 $12,820 $90,764
======= ========= ======== ======= =======
Weighted average yield 7.00% 7.07% 7.94% 6.73% 6.98%
======= ========= ======== ======= =======
Equity securities $ --- $ --- $ --- $ 1,380 $ 1,380
------- --------- -------- ------- -------
Total $74,112 $ 2,997 $ 835 $14,200 $92,144
======= ========= ======== ======= =======
</TABLE>
- ----------
(1) State and municipal security yields are calculated on a taxable equivalent
basis.
The Company to date has not engaged, and does not intend to engage in
the immediate future, in trading investment securities.
The Company did not have any investment securities at June 30, 1999
which had a carrying value greater than 10% of the Company's stockholders'
equity at such date, other than securities issued by the U.S. Government and
U.S. Government agencies and corporations.
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 FHLB
advances, short-term borrowings, amortization and prepayments of outstanding
loans and MBS and from maturing investment securities.
<PAGE>
Deposits. The Company's deposits totaled $174.2 million at June 30,
1999, as compared to $171.0 million at June 30, 1998. The $3.3 million increase
was primarily attributable to an approximate $3.1 million increase in core
deposits. In order to attract new and lower cost core deposits, the Company
continued to promote 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 10 years. Included
among these deposit products are certificates of deposit with negotiable
interest rates and balances of $100,000 or more, which amounted to $10.9 million
or 6.3% of the Company's total deposits at June 30, 1999, as compared to $10.3
million or 6.0% at June 30, 1998. 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 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, 1999. The Company has drive-up banking facilities and
automated teller machines ("ATMs") at its McCandless, Franklin Park, Bellevue
and Cranberry Township offices. The Company participates in the MAC(R) and
CIRRUS(R) ATM networks. The Company also participates in a new ATM program
called the Freedom ATM AllianceSM. The Freedom ATM AllianceSM allows West View
Savings Bank customers to use other Pittsburgh area Freedom ATM AllianceSM
affiliates' ATMs without being surcharged and vice versa. The Freedom ATM
AllianceSM was organized to help smaller local banks compete with larger
national banks that have large 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
and growth 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.
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 for fiscal 1999 and 1998 were derived from daily average balances.
Fiscal 1997 average balances were derived from month-end average balances.
<PAGE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Regular savings and club
accounts $ 36,882 2.54% $ 36,576 2.62% $ 36,330 2.61%
NOW accounts 15,921 0.63 14,998 0.91 14,398 0.88
Money market deposit accounts 11,927 2.64 11,711 2.64 12,045 2.63
Certificate of deposit accounts 94,197 5.46 96,140 5.72 99,773 5.66
Escrows 2,262 1.81 2,430 1.81 2,471 1.82
-------- ---- -------- ---- -------- ----
Total interest-bearing
deposits and escrows 161,189 4.27 161,855 4.29 165,017 4.29
Non-interest-bearing checking
accounts 8,306 0.00 7,073 0.00 6,459 0.00
-------- ---- -------- ---- -------- ----
Total deposits and escrows $169,495 4.06% $168,928 4.11% $171,476 4.13%
======== ==== ======== ==== ======== ====
</TABLE>
The following table sets forth the net deposit flows of the Company
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1999 1998 1997
------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
(Decrease) before interest credited $(3,330) $(10,057) $(7,011)
Interest credited 6,592 6,848 7,047
------- -------- -------
Net deposit increase (decrease) $ 3,262 $ (3,209) $ 36
======= ======== =======
</TABLE>
The following table sets forth maturities of the Company's time
deposits of $100,000 or more at June 30, 1999 by time remaining to maturity.
<TABLE>
<CAPTION>
Amounts
-------
(Dollars in thousands)
<S> <C>
Three months or less $ 2,131
Over three months through six months 2,007
Over six months through twelve months 2,796
Over twelve months 4,014
-------
$10,948
=======
</TABLE>
<PAGE>
Borrowings. Borrowings are comprised of FHLB advances with various
terms and repurchase agreements with securities brokers with original maturities
of ninety-two days or less. At June 30, 1999, borrowings totaled $142.7 million
as compared to $89.7 million at June 30, 1998. The $53.0 million or 59.0%
increase was primarily used to meet ongoing commitments to fund loan commitments
and fund the Company's purchase of investments and MBS during fiscal 1999. The
Company believes that the judicious use of borrowings has allowed it to pursue a
strategy of increasing net interest income by purchasing assets 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 increasing its branch network and with federal deposit insurance
premiums through the utilization of borrowings, as opposed to retail time
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, competitive interest rates,
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 Company had 51 full-time employees and 7 part-time employees as of
June 30, 1999. None of these employees is represented by a collective bargaining
agent. The Company believes that it enjoys excellent relations with its
personnel.
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.
<PAGE>
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
(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
<PAGE>
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-weighting system, as are certain privately-issued MBS 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%. 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% 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% to 5% 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 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 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
<PAGE>
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, 1999.
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 the 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(cent) 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% 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% to 5% 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 and 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% 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
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 be restored 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.
<PAGE>
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 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 (1) 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 (2) the time when economic
performance with respect to the item of expense has occurred.
Bad Debt Reserves. Historically under Section 593 of the Code, thrift
institutions such as the Savings Bank, which met certain definitional tests
primarily relating to their assets and the nature of their business, were
permitted to establish a tax reserve for bad debts and to make annual additions
within specified limitations which may have been 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 based on the Savings Bank's actual loss
experience (the "experience method").
The Small Business Job Protection Act of 1996, adopted in August 1996,
generally (1) repealed the provision of the Code which authorized 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 (2) required that a savings institution recapture for tax purposes
(i.e. take into income) over a six-year period its applicable excess reserves.
<PAGE>
For a savings institution such as West View which is a "small bank", as defined
in the Code, generally this 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. Any recapture would be suspended for any tax
year that began after December 31, 1995, and before January 1, 1998 (thus a
maximum of two years), in which a savings institution originated an amount of
residential loans which was 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. The amount of tax bad debt reserves
subject to recapture is approximately $1.2 million, which is being recaptured
ratably over a six-year period ending December 31, 2003. In accordance with FASB
No. 109, deferred income taxes have previously been provided on this amount,
therefore no financial statement expense has been recorded as a result of this
recapture. The Company's supplemental bad debt reserve of approximately $3.8
million is not subject to recapture.
The above-referenced legislation also repealed certain provisions of
the Code that only apply to thrift institutions to which Section 593 applies:
(1) the denial of a portion of certain tax credits to a thrift institution; (2)
the special rules with respect to the foreclosure of property securing loans of
a thrift institution; (3) the reduction in the dividends received deduction of a
thrift institution; and (4) 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. The repeal of these provisions did not 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, 1995, 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 is 9.99% 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 1.099% of a
corporation's capital stock value, which is determined in accordance with a
fixed formula based upon average net income and consolidated net worth.
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, 1999.
<TABLE>
<CAPTION>
Net Book
Value of
Description/Address Leased/Owned Property
------------------- ------------ --------
(Dollars in thousands)
<S> <C> <C>
McCandless Office Owned $156
9001 Perry Highway
Pittsburgh, PA 15237
West View Boro Office Owned 9
456 Perry Highway
Pittsburgh, PA 15229
Cranberry Township Office Owned 250
20531 Perry Highway
Cranberry Township, PA 16066
Sherwood Oaks Office Leased (1) ---
100 Norman Drive
Cranberry Township, PA 16066
Bellevue Boro Office Leased (2) 14
572 Lincoln Avenue
Pittsburgh, PA 15202
Franklin Park Boro Office Owned 560
2566 Brandt School Road
Wexford, PA 15090
</TABLE>
- --------
(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.
Item 3. Legal Proceedings.
- ------- ------------------
The information required herein is incorporated by reference from page
45 of the Company's 1999 Annual Report, Note 14 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
54 of the Company's 1999 Annual Report.
Item 6. Selected Financial Data.
- ------- ------------------------
The information required herein is incorporated by reference from
pages 2 to 3 of the Company's 1999 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 20 of the Company's 1999 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- -------- -----------------------------------------------------------
The information required herein is incorporated by reference from
pages 15 to 18 of the Company's 1999 Annual Report.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The information required herein is incorporated by reference from
pages 21 to 53 of the Company's 1999 Annual Report.
PART III
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
- ------- --------------------------------------------------------------------
Not applicable.
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 1999 Annual
Meeting of Stockholders dated September 24, 1999 ("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.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The information required herein is incorporated by reference from page
12 to 13 of the Company's Proxy Statement.
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 1999
Annual Report.
Report of Independent Auditors.
Consolidated Statements of Financial Condition at June 30, 1999
and 1998.
Consolidated Statements of Income for the Years Ended June 30,
1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended June
30, 1999, 1998 and 1997.
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.
<TABLE>
<CAPTION>
No. Description Page
--- ----------- ----
<S> <C> <C>
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
David Bursic, Margaret VonDerau and Edward Wielgus ** ***
10.7 Directors Deferred Compensation Program** *
13 1999 Annual Report to Stockholders E-1
21 Subsidiaries of the Registrant - Reference is made to
Item 1. "Business" for the required information
23 Consent of Independent Auditors E-59
27 Financial Data Schedule E-60
</TABLE>
* 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.
***Incorporated by reference from the September 1998 Form 10-Q filed by the
Company with the SEC on November 13, 1998.
(3)(b)The Company filed a Current Report on Form 8-K, dated May
25, 1999, reporting under Item 5 that the Company's Board of
Directors authorized the repurchase of up to 190,000 shares, or
approximately five percent, of the Company's outstanding common
stock. Repurchases are authorized to be made during the next
twelve months as market conditions warrant. All repurchased shares
will be held as treasury stock and may be reserved for issuance
pursuant to the Company's stock benefit plans.
<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 28, 1999 By: /s/ David J. Bursic
--------------------
David J. Bursic
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/ David J. Bursic
- --------------------
David J. Bursic, Director, President and September 28, 1999
Chief Executive Officer
(Principal Executive Officer)
/s/William J. Hoegel
- --------------------
William J. Hoegel, September 28, 1999
Chairman of the Board
/s/Margaret VonDerau
- ---------------------
Margaret VonDerau, Director, September 28, 1999
Senior Vice President, Treasurer
and Corporate Secretary
/s/ Janell A. Butorac
- ---------------------
Janell A. Butorac, September 28, 1999
Assistant Vice President
(Principal Accounting Officer)
<PAGE>
/s/David L. Aeberli
- -------------------
David L. Aeberli, Director September 28, 1999
/s/Arthur H. Brandt
- -------------------
Arthur H. Brandt, Director September 28, 1999
/s/ Donald E. Hook
- ------------------
Donald E. Hook, Director September 28, 1999
/s/ John M. Seifarth
- --------------------
John M. Seifarth, Director September 28, 1999
W
V
S
FINANCIAL
-----------
CORPORATION
THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK
1999 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 21
Consolidated Balance Sheets 22
Consolidated Statements of Income 23
Consolidated Statements of Changes in Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to the Consolidated Financial Statements 26
Common Stock Market Price and Dividend Information 54
Corporate Information
<PAGE>
To Our Stockholders:
Fiscal 1999 was a year of growth and record earnings for WVS Financial
Corp. and West View Savings Bank. Consolidated assets grew over $51 million or
17.3% and totaled $348.4 million at June 30, 1999. Company net income increased
$539 thousand or 15.4% and totaled a record $4.03 million for the year. The
Company's Board of Directors and employees worked hard throughout the year to
mitigate a less than favorable interest rate environment by increasing our
marketing efforts to new and existing customers.
During fiscal 1999, we emphasized the origination of consumer,
commercial and small business loans in order to alleviate the impact of
declining mortgage rates on our business. In addition to earning higher lending
spreads, we were also able to gain additional deposit balances. On the deposit
side of the business, total deposits grew by $3.3 million during fiscal 1999. We
are particularly pleased with the growth in our core checking and savings
accounts. These accounts, in our view, represent the basis for building a
primary banking relationship with our customers on both the deposit and loan
side of the business.
Community bank stocks were adversely impacted during the past year
primarily due to concerns over the Year 2000 computer issue and a flat interest
rate environment. During fiscal 1999, the Company's Board of Directors evaluated
a number of strategic options to enhance long-term shareholder value. Since our
core business remains strong and we are confident in our growing franchise, the
Board of Directors authorized a series of common stock repurchases in order to
better manage our strong capital position. The goals of the stock repurchase
program are: (1) to increase per share earnings by spreading net income over a
reduced number of shares and (2) to increase return on average stockholders'
equity. We were successful on both goals. During fiscal 1999, diluted earnings
per share increased 19.4% to $1.17 per diluted share from $0.98 per diluted
share in fiscal 1998. Return on average stockholders' equity increased sharply
from 10.45% at the end of fiscal 1998 to 13.01% during fiscal 1999. We expect
continued progress on both goals during fiscal 2000.
A considerable amount of internal resources were devoted to concerns
over the Year 2000 computer issue. West View Savings Bank outsources
substantially all of its data processing operations. Beginning in fiscal 1998 we
began to work diligently with our third party processors to identify mission
critical systems to determine what programs needed to be changed. We are pleased
to report that all mission critical customer software has been tested and
retested. Accordingly, we expect no Year 2000 related problems for our
customers. West View Savings Bank has been in business since 1908 and we pledge
to continue meeting our customers' needs well into the next millennium.
It is with a great deal of personal sadness that we note the passing
away of two dedicated and seasoned directors-James S. McKain, Jr. and James H.
Ritchie. Jim McKain was elected a director of West View Savings in 1960 and he
served as our Chairman of the Board since 1984. Many of you may remember him as
the owner of the Jim McKain Ford auto dealership in Wexford. Jim Ritchie was
elected a director of West View Savings in 1977. Mr. Ritchie owned a pharmacy in
Ingomar for over 22 years. Both men were active at West View Savings and in our
communities. Their advice, humor, leadership and sound business judgment will be
missed.
<PAGE>
William J. Hoegel was elected Chairman of the Board of Directors in May
1999. Bill has been a director of West View Savings since 1984 and previously
served as Vice Chairman of the Board of Directors. Bill's community involvement,
marketing background and demonstrated leadership will be invaluable resources to
the Company's growth plans.
On behalf of the Board of Directors and employees of West View Savings
Bank, we would like to thank you for your ongoing interest in our Company. We
are proud of our achievements during fiscal 1999 and we will continue to work
hard to earn our customers' business every day.
/s/DAVID J. BURSIC /s/WILLIAM J. HOEGEL
- ------------------ --------------------
DAVID J. BURSIC WILLIAM J. HOEGEL
President and Chairman of the Board
Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
As of or For the Year Ended June 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
- ---------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $ 348,408 $ 297,054 $ 294,693 $ 259,622 $ 227,368
Net loans receivable 170,327 157,737 158,134 149,011 133,343
Mortgage-backed securities 72,380 46,314 37,490 42,118 22,655
Investment securities 92,166 81,268 87,548 59,218 61,525
Real estate owned 218 --- --- --- ---
Savings deposit accounts 171,114 167,670 170,879 170,843 168,786
FHLB advances 116,900 88,857 77,857 38,000 14,984
Other borrowings 25,820 889 6,784 10,652 4,047
Stockholders' equity 27,938 32,978 32,889 34,038 33,809
Nonperforming assets and troubled
debt restructurings(1) 765 603 274 980 1,959
Selected Operating Data:
Interest income $ 22,999 $ 22,146 $ 21,125 $ 18,317 $ 15,612
Interest expense 12,739 11,781 10,884 8,840 7,372
---------- ---------- ---------- ---------- ----------
Net interest income 10,260 10,365 10,241 9,477 8,240
Provision for loan losses --- (120) 60 150 211
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 10,260 10,485 10,181 9,327 8,029
Non-interest income 490 538 374 383 307
Non-interest expense 4,285 5,422 5,666 4,067 4,894
---------- ---------- ---------- ---------- ----------
Income before income tax expense 6,465 5,601 4,889 5,643 3,442
Income tax expense 2,434 2,109 1,930 2,066 1,652
---------- ---------- ---------- ---------- ----------
Net income $ 4,031 $ 3,492 $ 2,959 $ 3,577 $ 1,790
========== ========== ========== ========== ==========
Per Share Information(2)(3):
Basic earnings $ 1.18 $ 1.01 $ 0.88 $ 1.07 $ 0.54
Diluted earnings $ 1.17 $ 0.98 $ 0.85 $ 1.04 $ 0.52
Dividends per share(4) $ 0.63 $ 1.50 $ 1.50 $ 1.03 $ 0.21
Dividend payout ratio(4) 53.39% 148.51% 170.45% 96.26% 38.89%
Book value per share at period end $ 8.81 $ 9.12 $ 9.41 $ 9.80 $ 9.73
Average shares outstanding:
Basic 3,405,662 3,470,479 3,369,796 3,347,363 3,331,086
Diluted 3,435,738 3,574,043 3,490,226 3,452,854 3,409,688
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
As of or For the Year Ended June 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Ratios(5):
Average yield earned on interest-
earning assets 7.32% 7.69% 7.69% 7.83% 7.33%
Average rate paid on interest-
bearing liabilities 4.70 4.78 4.78 4.58 4.19
Average interest rate spread(6) 2.62 2.91 2.91 3.25 3.14
Net interest margin(6) 3.27 3.60 3.73 4.05 3.87
Ratio of interest-earning assets to
interest-bearing liabilities 118.88 116.65 120.70 121.18 121.09
Non-interest expense as a percent of
average assets 1.35 1.86 2.04 1.71 2.26
Return on average assets 1.27 1.20 1.06 1.51 0.83
Return on average equity 13.01 10.45 8.63 10.19 5.34
Ratio of average equity to average
assets 9.76 11.48 12.33 14.81 15.48
Full-service offices at end of period 5 5 5 5 5
Asset Quality Ratios(5):
Non-performing loans and troubled
debt restructurings as a percent of
net total loans(1) 0.32% 0.38% 0.17% 0.66% 1.47%
Non-performing assets as a percent
of total assets(1) 0.22 0.20 0.09 0.15 0.45
Non-performing assets and troubled
debt restructurings as a percent of
total assets 0.22 0.20 0.09 0.38 0.86
Allowance for loan losses as a
percent of total loans receivable 1.07 1.08 1.16 1.17 1.25
Allowance for loan losses as a
percent of non-performing loans 336.75 308.46 733.21 520.95 178.43
Charge-offs to average loans
receivable outstanding during the
period 0.02 0.02 0.01 0.02 0.01
Capital Ratios(5):
Tier 1 risk-based capital ratio 15.85% 20.90% 24.52% 27.19% 27.06%
Total risk-based capital ratio 16.90 22.09 25.77 28.44 28.32
Tier 1 leverage capital ratio 8.29 10.98 11.44 13.90 14.74
</TABLE>
<PAGE>
(1) Non-performing assets consist of non-performing loans and real estate owned
("REO"). Nonperforming loans consist of non-accrual loans and accruing
loans greater than 90 days delinquent, while REO consists of real estate
acquired through foreclosure and real estate acquired by acceptance of a
deed in lieu of foreclosure.
(2) All per share information for fiscal years ended June 30, 1997, 1996 and
1995 have been restated to reflect the two-for-one stock split of May 22,
1998.
(3) Dividends per share and dividend payout ratio includes special cash
dividends of $0.95, $1.15, and $0.85 per share, paid during fiscal 1998,
1997 and 1996, respectively.
(4) Consolidated asset quality ratios and capital ratios are end of period
ratios, except for net charge-offs to average net loans. With the exception
of end of period ratios, all ratios are based on average monthly balances
during the indicated periods.
(5) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities, and net interest margin represents net
interest income as a percent of average interest-earning assets.
3
<PAGE>
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of
West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock savings
bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank converted to the stock form of ownership in
November 1993. The Savings Bank had no subsidiaries at June 30, 1999.
The operating results of the Company depend primarily upon its net interest
income, which is determined by the difference between income on interest-earning
assets, principally loans, mortgage-backed securities and investment securities,
and interest expense on interest-bearing liabilities, which consist primarily of
deposits and borrowings. The Company's net income is also affected by its
provision for loan losses, as well as the level of its non-interest income,
including loan fees and service charges, and its non-interest expenses, such as
compensation and employee benefits, income taxes, deposit insurance and
occupancy costs.
The Company's strategy focuses on community-based lending, maintaining asset
quality and generating consistent earnings growth. Specific strategic components
include:
Commitment to Capital Management - The Company is committed to maximizing
long-term shareholder value. Specific components of this strategy include: (1)
the repurchase of 498,303 shares of Company common stock during fiscal 1999; (2)
growing Company assets to increase net income; and (3) paying an above-average
dividend yield of 4.17% on the Company's common stock during fiscal 1999.
Core Deposits - As of June 30, 1999, $77.2 million or 45.1% of West View's total
deposits consisted of regular savings and club accounts, money market deposit
accounts, and checking accounts. Approximately $38.9 million or 50.4% of core
deposits consisted of regular savings and club accounts. Checking account
balances grew $2.8 million or 12.4% during fiscal 1999 and totaled $25.7 million
or 33.3% of core deposits at June 30, 1999. The continued growth in checking
account deposits was primarily due to increased marketing and promotional
efforts by the Company to gain market share. Core deposits are considered to be
more stable and lower cost funds than certificates of deposit and other
borrowings.
Consistent Earnings Growth - Net income has grown from $1.8 million in fiscal
1995 to $4.0 million in fiscal 1999. Diluted earnings per share have increased
from $0.52 in fiscal 1995 to $1.17 in fiscal 1999; this equates to a compounded
annual growth rate in diluted earnings per share of 22.7%.
<PAGE>
Community-based Lending - West View has consistently focused its lending
activities on generating loans in our market area. Typical loan offerings
include home mortgages, construction loans, and consumer loans for home
improvement, automobile loans and home equity loans. During fiscal 1999, West
View also expanded its small business lending program to include term loans,
business inventory loans and loans for business machinery.
Asset Quality - Largely reflecting a lending strategy that emphasizes local loan
origination, West View has not had significant non-performing assets. For the
fiscal years ended June 30, 1999, 1998 and 1997, the Company's ratios of
non-performing assets and troubled debt restructurings to total assets were
4
<PAGE>
0.16%, 0.20% and 0.09%, respectively. Total net recoveries for the past three
fiscal years have aggregated $86 thousand.
Non-interest Expense Ratios - For the fiscal years ended June 30, 1999, 1998 and
1997, the Company's ratios of non-interest expense to average assets were 1.35%,
1.86% and 2.04%, respectively. Excluding unusual items relating to severance
costs and the one-time SAIF recapitalization charge, the Company's ratios of
non-interest expense to average assets were 1.35%, 1.68% and 1.63% for the
fiscal years ended June 30, 1999, 1998 and 1997, respectively.
CHANGES IN FINANCIAL CONDITION
<TABLE>
<CAPTION>
Condensed Balance Sheet
-----------------------
June 30, June 30, Change
------------------------
1999 1998 Dollars Percentage
---- ---- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and interest-earning
deposits $ 1,893 $ 2,506 $ (613) (24.5%)
Investment securities 98,361 85,943 12,418 14.4
Mortgage-backed securities 72,380 46,314 26,066 56.3
Net loans receivable 170,327 157,737 12,590 8.0
Total assets 348,408 297,054 51,354 17.3
Deposits 174,244 170,982 3,262 1.9
FHLB and other borrowings 142,720 89,746 52,974 59.0
Total liabilities 320,470 264,076 56,394 21.4
Total equity 27,938 32,978 (5,040) (15.5)
</TABLE>
General. The $51.4 million or 17.3% growth in total assets was primarily
comprised of a $26.1 million increase in mortgage-backed securities, a $12.6
million increase in net loans receivable, a $12.4 million increase in investment
securities and Federal Home Loan Bank ("FHLB") stock.
The $56.4 million or 21.4% increase in total liabilities was primarily comprised
of a $53.0 million increase in FHLB advances and other borrowings, and a $3.3
million increase in total deposits.
<PAGE>
Total stockholders' equity decreased $5.1 million or 15.5% primarily due to the
Company's ongoing commitment to manage its capital levels to further enhance
stockholder value. The $5.1 million decrease in stockholders' equity was
principally attributable to the repurchase of $7.6 million of the Company's own
common stock, $2.2 million of cash dividends paid to stockholders, and a $188
thousand increase in unrealized securities losses, which were partially offset
by $4.0 million of Company net income and an $863 thousand increase in capital
attributable to stock option exercises, Employee Stock Ownership Plan ("ESOP")
share releases and Recognition and Retention Plan ("RRP") equity contributions.
5
<PAGE>
Cash on Hand and Interest-earning Deposits. Cash on hand and interest-earning
deposits represent cash equivalents. Cash equivalents decreased $613 thousand or
24.5% to $1.9 million at June 30, 1999 from $2.6 million at June 30, 1998.
Decreases in these accounts are primarily due to a combination of new loan
originations, customer withdrawals, investment purchases and repayments of
borrowings. Increases in these accounts are usually the result of a combination
of customer deposits, loan and investment repayments, and proceeds from
borrowings.
Investments. The Company's overall investment portfolio increased $38.5 million
or 29.1% to $170.8 million at June 30, 1999 from $132.3 million at June 30,
1998. Mortgage-backed securities increased $26.1 million or 56.3% to $72.4
million at June 30, 1999. These purchases were made in order to mitigate the
principal calls on the Company's callable bond portfolio and to earn a higher
yield with an expected average life profile comparable to longer-term callable
agency bonds. Investment securities increased $12.4 million or 14.4% to $98.4
million at June 30, 1999. These purchases were made as a part of the Company's
investment growth program.
Net Loans Receivable. Net loans receivable increased $12.6 million or 8.0% to
$170.3 million at June 30, 1999. The increase in loans receivable was
principally the result of increased mortgage and commercial loan originations.
Deposits. Total deposits increased $3.3 million or 1.9% to $142.7 million at
June 30, 1999. Interest-bearing and non-interest-bearing accounts, as well as
time deposits increased during the year.
Borrowed Funds. Borrowed funds increased $52.9 million or 58.9% to $142.7
million at June 30, 1999. The increase is principally the result of funding the
Company's investment growth program. FHLB advances increased $28.0 million or
31.5% to $116.9 million at June 30, 1999 and other short-term borrowings
increased $24.9 million or 2,766.7% to $25.8 million at June 30, 1999.
Stockholders' Equity. Total stockholders' equity decreased $5.1 million or 15.5%
to $27.9 million at June 30, 1999. The decrease was principally the result of
the repurchase of $7.6 million of the Company's common stock, $2.2 million of
cash dividends paid to stockholders, and a $188 thousand increase in unrealized
securities losses, which were partially offset by $4.0 million of Company net
income and an $863 thousand increase in capital attributable to stock option
exercises, ESOP share releases and RRP equity contributions.
6
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Condensed Statements of Income
------------------------------
June 30, June 30, June 30,
1999 Change 1998 Change 1997
------- ------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $22,999 $ 853 $ 22,146 $ 1,021 $21,125
3.9% 4.8%
Interest expense $12,739 $ 958 $ 11,781 $ 897 $10,884
8.1% 8.3%
Net interest income $10,260 $ (105) $ 10,365 $ 124 $10,241
(1.0%) 1.2%
Provision for loan losses $ 0 $ 120 $ (120) $ (180) $ 60
100.0% (300.0%)
Non-interest income $ 490 $ (48) $ 538 $ 164 $ 374
(8.9%) 43.9%
Non-interest expense $ 4,285 $(1,137) $ 5,422 $ (244) $ 5,666
(21.0%) (4.3%)
Income tax expense $ 2,434 $ 325 $ 2,109 $ 179 $ 1,930
15.4% 9.3%
Net income $ 4,031 $ 539 $ 3,492 $ 533 $ 2,959
15.4% 18.0%
</TABLE>
General. WVS reported net income of $4.0 million, $3.5 million and $3.0 million
for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. The $539
thousand or 15.4% increase in net income during fiscal 1999 was primarily the
result of a $1.1 million decrease in non-interest expense, which was partially
offset by the absence of $120 thousand reduction in the provision for loan
losses due to the payoff of a commercial loan participation in fiscal 1998, a
$105 thousand decrease in net interest income, a $48 thousand decrease in
non-interest income and a $325 thousand increase in income tax expense. Earnings
per share totaled $1.18 (basic) and $1.17 (diluted) for fiscal 1999 as compared
to $1.01 (basic) and $0.98 (diluted) for fiscal 1998. The increase in earnings
per share was due to an increase in net income and a reduction in the weighted
average number of shares outstanding due to the Company's stock repurchases
during fiscal 1999.
7
<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: (1) the total dollar amounts of
interest income on interest-earning assets and the resulting average yields; (2)
the total dollar amounts of interest expense on interest-bearing liabilities and
the resulting average costs; (3) net interest income; (4) interest rate spread;
(5) net interest-earning assets (interest-bearing liabilities); (6) the net
yield earned on interest-earning assets; and (7) the ratio of total
interest-earning assets to total interest-bearing liabilities. Average balances
are derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended June 30,
At June 30, -------------------------------------------------------------------------------------------
1999 1999 1998 1997
----------- ----------------------------- ----------------------------- ----------------------------
Period End Average Average Average Average Average Average
Rate/Cost Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
--------- ------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans receivable(1) 7.62% $158,651 $12,850 8.10% $163,046 $13,191 8.09% $153,726 $12,440 8.09%
Mortgage-backed
securities 6.63 66,685 4,280 6.42 40,066 2,715 6.78 39,451 2,724 6.90
Investments 6.95 87,116 5,792 6.65 82,877 6,167 7.44 79,128 5,881 7.43
Interest-bearing
deposits 5.35 1,995 77 3.86 1,842 73 3.96 2,335 80 3.43
-------- ------- -------- ------- -------- -------
Total interest-earning
assets 7.21% 314,447 22,999 7.32% 287,831 22,146 7.69% 274,640 21,125 7.69%
==== -------- ==== ------- ==== ------- ====
Non-interest-earning
assets 3,324 3,143 3,331
-------- -------- --------
Total assets $317,771 $290,974 $277,971
======== ======== ========
Interest-bearing
liabilities:
Interest-bearing
deposits and escrows 3.64% $161,189 $6,537 4.27% $161,855 $6,943 4.29% $165,017 $7,086 4.29%
Borrowings 5.38 113,338 6,202 5.47 84,887 4,838 5.70 62,522 3,798 6.07
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 4.43% 274,527 12,739 4.70% 246,742 11,781 4.78% 227,539 10,884 4.78%
==== ------ ==== ------- ==== ------ ====
Non-interest-bearing
accounts 8,306 7,073 6,459
-------- -------- --------
Total interest-bearing
liabilities and
non-interest-bearing
accounts 282,833 253,815 233,998
Non-interest-bearing
liabilities 3,934 3,747 9,686
-------- -------- --------
Total liabilities 286,767 257,562 243,684
Retained income 31,004 33,412 34,287
-------- -------- --------
Total liabilities and
retained income $317,771 $290,974 $277,971
======== ======== ========
Net interest income $10,260 $10,365 $10,241
======= ======= =======
Interest rate spread 2.78% 2.62% 2.91% 2.91%
====== ====== ====== ======
Net yield on interest-
earning assets(2) 3.00% 3.27% 3.60% 3.73%
====== ====== ====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities 111.38% 118.88% 116.65% 120.70%
====== ====== ====== ======
</TABLE>
(1)Includes non-accrual loans.
(2)Net interest income divided by interest-earning assets.
8
<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: (1) changes in volume (change in volume multiplied by prior year rate), (2)
changes in rate (change in rate multiplied by prior year volume), and (3) total
change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
---------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
------------------ Increase ------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans receivable $ (357) $ 16 $ (341) $ 751 $ 0 $ 751
Mortgage-backed securities 1,716 (151) 1,565 39 (48) (9)
Investments 302 (677) (375) 278 8 286
Interest-bearing deposits 6 (2) 4 (18) 11 (7)
------ ------- ------ ------ ------- ------
Total interest-earning assets 1,667 (814) 853 1,050 (29) 1,021
Interest-bearing liabilities:
Interest-bearing deposits and
escrows (86) (320) (406) (212) 69 (143)
Other borrowings 1,566 (202) 1,364 1,283 (243) 1,040
------ ------- ------ ------ ------- ------
Total interest-bearing
liabilities 1,480 (522) 958 1,071 (174) 897
------ ------- ------ ------ ------- ------
Increase (decrease) in net interest
income $ 187 $ (292) $ (105) $ (21) $ 145 $ 124
====== ====== ====== ====== ====== ======
</TABLE>
Net Interest Income. Net interest income is determined by the Company's interest
rate spread (i.e. the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities.
Interest Income. Total interest income increased by $853 thousand or 3.9% during
fiscal 1999 and increased by $1.0 million or 4.8% during fiscal 1998. The
increase in fiscal 1999 was primarily a result of a $1.6 million and a $119
thousand increase in interest on mortgage-backed securities and FHLB stock,
respectively, which were partially offset by a $494 thousand and a $341 thousand
decrease in interest on investment securities and loans, respectively.
<PAGE>
Interest income on net loans receivable decreased $341 thousand or 2.6% during
fiscal 1999 and increased $751 thousand or 6.0% during fiscal 1998. The decrease
in fiscal 1999 was attributable to a $4.4 million decrease in the average
balance of net loans outstanding and a 1 basis point increase in the weighted
average yield on the Company's loan portfolio. The increase in fiscal 1998 was
attributable to a $9.3 million increase in the average balance of net loans
outstanding while maintaining a constant weighted average yield on the Company's
loan portfolio.
Interest income on investment securities and FHLB stock decreased $375 thousand
or 6.1% during fiscal 1999 and increased $286 thousand or 4.9% during fiscal
1998. The decrease in fiscal 1999 was primarily attributable to a decrease of 79
basis points in the weighted average yield on the Company's investment
securities which was partially offset by a $4.2 million increase in the average
balance of investment securities primarily due to increased purchases of
callable government agency securities. The increase in fiscal 1998 was
attributable to a $3.7 million increase in the average balance of investment
securities outstanding, while maintaining a constant weighted average yield
earned on the Company's investment securities portfolio.
9
<PAGE>
Interest income on mortgage-backed securities increased $1.6 million or 57.6%
during fiscal 1999 and decreased $9 thousand or 0.3% during fiscal 1998. The
increase during fiscal 1999 was attributable to an increase in the average
outstanding balance of mortgage-backed securities of $26.6 million, partially
offset by a decrease in the weighted average interest rate yield of 36 basis
points. During fiscal 1999, the Company increased its purchases of
mortgage-backed securities in order to mitigate the principal calls on the
Company's callable bond portfolio and to earn a higher yield with an expected
average life profile comparable to longer-term callable agency bonds. The
increase in fiscal 1998 was attributable to a $615 thousand increase in the
average balance of mortgage-backed securities outstanding, partially offset by a
12 basis point decrease in the weighted average interest rate yield.
Interest Expense. Total interest expense increased $958 thousand or 8.1% during
fiscal 1999 and increased by $897 thousand or 8.2% during fiscal 1998. The
increase during fiscal 1999 is attributable to an increase of $1.4 million of
interest expense on borrowings partially offset by a $406 thousand decrease of
interest expense on deposits.
Interest expense on borrowings increased $1.4 million or 28.2% during fiscal
1999 and increased $1.0 million or 27.4% during fiscal 1998. The increases for
both fiscal 1999 and 1998 were primarily attributable to increases in the
average balance of borrowings outstanding totaling $28.5 million and $22.3
million, respectively. In order to better match investment opportunities and
resources and enhance its net interest income, the Company continues to utilize
short- and intermediate-term borrowings to fund purchases of interest-earning
assets and other commitments.
Interest expense on interest-bearing deposits and escrows decreased $406
thousand or 5.9% in fiscal 1999 and decreased $143 thousand or 2.0% in fiscal
1998. The decrease in fiscal 1999 was primarily attributable to a $10.7 million
decrease in the average balance of interest-bearing deposits and escrows
outstanding and a decrease of 26 basis points in the weighted average rate paid
on the Company's deposits. The decrease in fiscal 1998 was principally
attributable to a $3.2 million decrease in the average balance of
interest-bearing deposits and escrows outstanding, which was slightly offset by
an increase of 4 basis points in the weighted average rate paid on the Company's
deposits.
Provision for Loan Losses. A provision for loan losses is charged to earnings to
bring the total allowance to a level considered adequate by management to absorb
potential losses in the portfolio. Management's determination of the adequacy of
the allowance is based on periodic evaluations of the loan portfolio considering
past experience, current economic conditions, volume, growth, composition of the
loan portfolio and other relevant factors.
The Company did not record a provision for loan losses for fiscal 1999 primarily
due to adequate current loan loss reserves. The Company decreased the provision
by $120 thousand in fiscal 1998 primarily due to a recovery of previously
established loan loss reserves attributable to the payoff of a commercial loan
participation. The provision for fiscal 1997 was primarily due to increases in
the Company's general allowance for losses on loans.
<PAGE>
Non-interest Income. Total non-interest income decreased by $48 thousand or 8.9%
in fiscal 1999 and increased by $164 thousand or 43.9% in fiscal 1998. The
decrease in fiscal 1999 was primarily due to the absence of a $133 thousand gain
on the sale of an office building in fiscal 1998 partially offset by a $30
thousand increase in service charges on deposits and a $36 thousand net gain on
sale of investments. The increase in non-interest income for fiscal year 1998
was primarily attributable to service charges applied to a larger number of
transaction accounts opened during fiscal 1998 which was partially offset by the
absence of a $30 thousand gain from the sale of securities in 1997.
Non-interest Expense. Total non-interest expense decreased $1.1 million or 21.0%
and $244 thousand or 4.3% during fiscal 1999 and 1998, respectively. The
decrease in fiscal 1999 was principally attributable to a $1.1 million decrease
in salaries and employee benefits and a $57 thousand decrease in other
10
<PAGE>
non-interest expenses. The decrease in salaries and employee benefits during
fiscal 1999 was primarily due to the absence of a $533 thousand non-recurring
charge related to the resignation of the Company's former Chief Executive
Officer in fiscal 1998, $430 thousand of reductions in discretionary ESOP
contributions and lower RRP expenses and a $63 thousand decrease in employee
compensation expense. The decrease in fiscal 1998 was primarily attributable to
a $1.2 million decrease in deposit insurance premiums, which was partially
offset by an $893 thousand increase in employee salaries and benefits,
principally the $533 thousand one-time expense as discussed above.
Income Taxes. Income taxes increased $325 thousand or 15.4% during fiscal 1999
and increased $179 thousand or 9.3% during fiscal 1998. The increases in fiscal
1999 and 1998 were primarily attributable to increases in taxable income. The
Company's effective tax rate was 37.7% at June 30, 1999 and 1998, and 39.4% at
June 30, 1997.
ASSET AND LIABILITY MANAGEMENT
The Company continued a strategy designed to reduce the interest rate
sensitivity of its financial assets to its financial liabilities. The primary
elements of this strategy include:
1) expanding the Company's investment growth program in order to enhance
net interest income;
2) maintaining the Company's level of short-term liquid investments by
funding loan commitments and purchasing longer-term investment
securities;
3) emphasizing the retention of lower-cost savings accounts and other
core deposits; and
4) pricing the Company's certificates of deposit and loan products nearer
to the market average rate as opposed to the upper range of market
offered rates.
The Company has continued its investment growth program, originally initiated in
the third quarter of fiscal 1994, throughout fiscal 1999 in order to realize
additional net interest income. Under this strategy, a longer-term callable or
non-callable investment security, or mortgage-backed security, is purchased and
funded through the use of short-term non-deposit liabilities, such as FHLB
advances and short-term borrowings. With this strategy, the Company increases
its net interest income, but also faces the risk, during periods of rising
market interest rates, that it may experience a decline in net interest income
if the rate paid on its various borrowings rises above the rate earned on the
investment security purchased. In order to mitigate this exposure, the Board has
placed certain restrictions on the investment growth program, including:
1) the average outstanding daily balance of total borrowings, computed
quarterly, may not exceed $165.0 million;
2) suitable investments shall be restricted to those meeting the credit
quality criteria outlined in the Company's investment policy;
3) each security purchased shall initially yield a minimum of
seventy-five basis points above the incremental rate paid on
short-term borrowings, at the time of purchase; and
4) the Company's total borrowed funds position may not exceed $175.0
million.
<PAGE>
In most cases, the initial yield spread earned on investment security purchases
exceeded approximately one hundred to two hundred and eighty basis points.
During the fiscal year ended June 30, 1999, the Company increased its
mortgage-backed securities holdings by $26.1 million. At June 30, 1999 the
Company held $72.4 million of mortgage-backed securities with an approximate
yield of 6.6%. The mortgage-backed securities purchases were made in order to
mitigate the principal calls on the Company's callable bond portfolio and earn a
higher yield with an expected average life profile comparable to longer-term
callable agency bonds. In order to mitigate risks associated with a general rise
in market interest rates, approximately $16.4 million or 22.7% of the Company's
mortgage-backed securities portfolio were floating rate securities with a
weighted average yield of 6.2%.
11
<PAGE>
The Company has continued to purchase callable bonds in order to capture
additional net interest income. Callable bonds generally provide investors with
higher rates of return than noncallable bonds because the issuer has the option
to redeem the bonds before maturity. During a period of declining interest
rates, the Company would be exposed to the risk that the investment will be
redeemed prior to its final stated maturity. In order to mitigate this risk, the
Company has funded a significant portion of its purchases of callable bonds with
short-term borrowings. Approximately $83.5 million of callable agency bonds with
an estimated weighted average rate of 7.22% were called during the fiscal year
ended June 30, 1999. During the fiscal year ended June 30, 1999, the Company
purchased approximately $123.7 million of callable bonds with an approximate
weighted average yield to call and maturity of 6.81% and 7.09%, respectively.
During the fiscal year ended June 30, 1999, the Company borrowed approximately
$125.2 million in various borrowings from the FHLB with a weighted average rate
of 5.08% and incurred $130.3 million in other borrowings with a weighted average
rate of 5.03%. During the twelve months ended June 30, 1999, the Company repaid
$97.2 million of FHLB advances and $105.2 million of other borrowings. Due to a
decline in market interest rates during most of fiscal 1999, the Company
lengthened the maturity structure of its incremental borrowings to lock in lower
cost, longer-term liability funding.
The Company also makes available for origination residential mortgage loans with
interest rates which adjust pursuant to a designated index, although customer
acceptance has been somewhat limited in the Savings Bank's market area. The
Company will continue to selectively offer commercial real estate, land
acquisition and development, and shorter-term construction loans, primarily on
residential properties, to partially increase its loan asset sensitivity. Due to
relatively low fifteen and thirty year mortgage yields, the Company intends to
emphasize higher yielding commercial real estate, home equity and small business
loans to existing customers and seasoned prospective customers.
As of June 30, 1999, the implementation of these asset and liability management
initiatives resulted in the following:
1) an aggregate of $49.2 million or 28.9% of the Company's net loan
portfolio had adjustable interest rates or maturities of less than 12
months;
2) $16.4 million or 22.7% of the Company's portfolio of mortgage-backed
securities (including collateralized mortgage obligations - "CMOs")
were secured by floating rate securities;
3) $1.2 million or 1.3% of the Company's investment securities portfolio
had scheduled maturities of one year or less; and
4) $89.5 million or 97.4% of the Company's investment securities
portfolio was comprised of callable bonds.
The effect of interest rate changes on a financial institution's assets and
liabilities may be analyzed by examining the "interest rate sensitivity" of the
assets and liabilities and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within a given time
period. A gap is considered positive (negative) when the amount of rate
<PAGE>
sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities
(assets). During a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income. The Company's one year cumulative interest rate sensitivity gap
is estimated at a negative 8.9% of total assets at June 30, 1999, as compared to
a negative 24.6% at June 30, 1998, in each instance, based on certain
assumptions by management with respect to the repricing of certain assets and
liabilities. At June 30, 1999, the Company's interest-earning assets maturing or
repricing within one year totaled $99.7 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$130.8 million, providing a deficiency of interest-earning assets over
interest-bearing liabilities of $31.1 million. At June 30, 1999, the percentage
of the Company's assets to liabilities maturing or repricing within one year was
76.3%.
12
<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,
---------------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets maturing or
repricing within one year(1) $ 99,729 $107,186 $103,161
Interest-bearing liabilities maturing or
repricing within one year(2) 130,788 180,318 142,265
-------- -------- --------
Interest sensitivity gap $(31,059) $(73,132) $(39,104)
======== ======== ========
Interest sensitivity gap as a percentage of
total assets (8.9)% (24.6)% (13.3)%
Ratio of assets to liabilities
maturing or repricing within one year 76.3% 59.4% 72.5 %
</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.
13
<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, 1999, based on the information and assumptions set forth in the notes. The
Company believes that the assumptions utilized, which are based on statistical
data provided by a federal regulatory agency in the Company's market area, are
reasonable.
<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) $ 35,408 $ 20,804 $ 43,532 $ 23,251 $ 49,991 $ 172,986
Mortgage-backed securities 23,389 5,498 11,331 7,437 24,794 72,449
Investments(5) 13,481 --- --- --- 84,858 98,339
Interest-bearing deposits 1,148 --- --- --- --- 1,148
----------- ----------- ----------- ----------- ----------- -----------
Total 73,426 26,302 54,863 30,688 159,643 344,922
----------- ----------- ----------- ----------- ----------- -----------
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(6)(7)(8) 48,367 43,201 39,722 19,265 23,689 174,244
Borrowings 33,820 5,400 56,500 --- 47,000 142,720
----------- ----------- ----------- ----------- ----------- -----------
Total 82,187 48,601 96,222 19,265 70,689 316,964
----------- ----------- ----------- ----------- ----------- -----------
Interest sensitivity gap (8,761) (22,299) (41,359) 11,423 88,954
----------- ----------- ----------- ----------- -----------
Cumulative interest sensitivity
gap (8,761) (31,060) (72,419) (60,996) 27,958
----------- ----------- ----------- ----------- -----------
Ratio of cumulative gap to
total assets (2.5)% (8.9)% (20.8)% (17.5)% 8.0%
----------- ----------- ----------- ----------- -----------
</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 30% for adjustable rate loans, and 11% to 41% for fixed
rate loans. For multi-family residential loans and other loans, assumes
amortization and prepayment rate of 12%.
(3) For second mortgage loans, assumes annual amortization and prepayment rate
of 18%.
(4) Consumer loans assumes amortization and prepayment rate of 13%.
(5) Totals include the Company's investment in Federal Home Loan Bank stock.
Amounts adjusted to reflect called investment securities totaling
approximately $5,000.
<PAGE>
(6) For regular savings accounts, assumes an annual decay rate of 17% for three
years or less, 16% for more than three through five years and 14% for more
than five years.
(7) For NOW accounts, assumes an annual decay rate of 37% for one year or less,
32% for more than one through three years and 17% for more than three
years.
(8) For money market deposit accounts, assumes an annual decay rate of 79% for
one year or less and 31% for more than one year.
14
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Company's transactions are denominated
in US dollars with no specific foreign exchange exposure. The Savings Bank has
no agricultural loan assets and therefore would not have a specific exposure to
changes in commodity prices. Any impacts that changes in foreign exchange rates
and commodity prices would have on interest rates are assumed to be exogenous
and will be analyzed on an ex post basis.
Interest rate risk ("IRR") is the exposure of a banking organization's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and shareholder value, however excessive
levels of IRR can pose a significant threat to the Company's earnings and
capital base. Accordingly, effective risk management that maintains IRR at
prudent levels is essential to the Company's safety and soundness.
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organization's quantitative level of exposure. When assessing the
IRR management process, the Company seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistency and continuity. Evaluating the
quantitative level of IRR exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency
Policy Statement on Interest-Rate Risk, effective June 26, 1996. The policy
statement provides guidance to examiners and bankers on sound practices for
managing interest rate risk, which will form the basis for ongoing evaluation of
the adequacy of interest-rate risk management at supervised institutions. The
policy statement also outlines fundamental elements of sound management that
have been identified in prior Federal Reserve guidance and discusses the
importance of these elements in the context of managing interest-rate risk.
Specifically, the guidance emphasizes the need for active board of director and
senior management oversight and a comprehensive risk-management process that
effectively identifies, measures, and controls interest-rate risk. Financial
institutions derive their income primarily from the excess of interest collected
over interest paid. The rates of interest an institution earns on its assets and
owes on its liabilities generally are established contractually for a period of
time. Since market interest rates change over time, an institution is exposed to
lower profit margins (or losses) if it cannot adapt to interest-rate changes.
For example, assume that an institution's assets carry intermediate- or
long-term fixed rates and that those assets were funded with short-term
liabilities. If market interest rates rise by the time the short-term
liabilities must be refinanced, the increase in the institution's interest
expense on its liabilities may not be sufficiently offset if assets continue to
earn at the long-term fixed rates. Accordingly, an institution's profits could
decrease on existing assets because the institution will either have lower net
interest income or, possibly, net interest expense. Similar risks exist when
assets are subject to contractual interest-rate ceilings, or rate sensitive
assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate
environment.
<PAGE>
An institution may use several techniques to minimize interest rate risk. One
approach used by the Company is to periodically analyze its assets and
liabilities and make future financing and investment decisions based on payment
streams, interest rates, contractual maturities, and estimated sensitivity to
actual or potential changes in market interest rates. Such activities fall under
the broad definition of asset/liability management. The Company's primary
asset/liability management technique is the monitoring of the Company's
asset/liability gap, which was discussed in detail under "Asset and Liability
Management" commencing on page 12.
An institution could also manage interest rate risk by selling existing assets,
repaying certain liabilities or matching repricing periods for new assets and
liabilities (for example, by shortening terms of new loans or investments). A
15
<PAGE>
large portion of an institution's liabilities may be short-term or due on
demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, the Company seeks to have in place sources of cash to
meet short-term demands. These funds can be obtained by increasing deposits,
borrowing, or selling assets. Also, FHLB advances and wholesale borrowings have
become increasingly important sources of liquidity for the Company. Financial
institutions are also subject to prepayment risk in falling rate environments.
For example, mortgage loans and other financial assets may be prepaid by a
debtor so that the debtor may refund its obligations at new, lower rates.
Prepayments of assets carrying higher rates reduce the Company's interest income
and overall asset yields.
An institution might also invest in more complex financial instruments intended
to hedge, or otherwise change the interest rate risk of existing assets,
liabilities, or anticipated transactions. Interest rate swaps, futures
contracts, options on futures, and other such derivative financial instruments
often are used for this purpose. Because these instruments are sensitive to
interest rate changes, they require management expertise to be effective. The
Company has not purchased derivative financial instruments in the past and does
not presently intend to purchase such instruments in the near future.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of June 30, 1999
based on the information and assumptions in the notes. The Company's assumptions
are based on statistical data provided by a federal regulatory agency in the
Company's market area, and are believed to be reasonable. The Company had no
derivative financial instruments or trading portfolio as of June 30, 1999. The
expected maturity date values for loans receivable, mortgage-backed securities,
and investment securities were calculated by adjusting the instrument's
contractual maturity date for expectations of prepayments. Similarly, expected
maturity date values for interest-bearing core deposits were calculated based
upon estimates of the period over which the deposits would be outstanding. With
respect to the Company's adjustable rate instruments, expected maturity date
values were measured by adjusting the instrument's contractual maturity date for
expectations of prepayments. Substantially all of the Company's investment
securities portfolio is comprised of callable government agency securities. From
a risk management perspective, the Company believes that repricing dates, as
opposed to expected maturity dates, may be a more relevant metric in analyzing
the value of such instruments. Company borrowings were tabulated by contractual
maturity dates and without regard to any conversion or repricing dates.
16
<PAGE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE -
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------- There- Fair
2000 2001 2002 2003 2004 after Total value
------- ------- ------- ------- ------- ------- -------- --------
ON-BALANCE SHEET FINANCIAL
INSTRUMENTS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $29,065 $18,221 $13,709 $12,347 $ 9,783 $48,819 $131,944 $132,713
Average interest rate 7.83% 7.61% 7.54% 7.56% 7.51% 7.43%
Adjustable rate 14,636 6,869 5,352 4,210 3,342 6,086 40,495 40,862
Average interest rate(5) 6.76% 6.23% 6.19% 6.14% 6.10% 6.12%
Mortgage-backed securities
Fixed rate 55 --- 80 1,622 --- 54,290 56,047 54,615
Average interest rate 6.42% 0.00% 8.00% 6.02% 0.00% 6.78%
Adjustable rate --- --- --- --- --- 16,402 16,402 16,825
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 6.20%
Investments(7) 5,906 --- --- --- --- 92,433 98,339 95,447
Average interest rate 5.88% 0.00% 0.00% 0.00% 0.00% 7.02%
Interest-bearing deposits 1,148 --- --- --- --- --- 1,148 1,148
Average interest rate 5.35% 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------- ------- ------- -------- --------
Total $50,810 $25,090 $19,141 $18,179 $13,125 $218,030 $344,375 $341,610
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) $91,568 $19,861 $19,861 $ 9,632 $ 9,632 $ 23,690 $174,244 $174,190
Average interest rate 4.06% 3.44% 3.44% 3.63% 3.63% 2.17%
Borrowings 39,220 28,250 28,250 --- --- 47,000 142,720 141,849
Average interest rate 5.22% 5.72% 5.72% 0.00% 0.00% 5.10%
------- ------- ------- ------- ------- ------- -------- --------
Total $130,788 $48,111 $48,111 $ 9,632 $ 9,632 $ 70,690 $316,964 $316,039
</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 30% for adjustable rate loans, and 11% to 41% for fixed
rate loans. For multi-family residential loans and other loans, assumes
amortization and prepayment rate of 12%.
(3) For second mortgage loans, assumes annual amortization and prepayment rate
of 18%.
(4) Consumer loans assumes amortization and prepayment rate of 13%.
(5) Substantially all of the Company's adjustable rate loans reprice on an
annual basis based upon changes in the one- year constant maturity treasury
index with various market based annual and lifetime interest rate caps and
floors.
(6) Substantially all of the Company's adjustable rate mortgage-backed
securities reprice on a monthly basis based upon changes in the one month
LIBOR index with various lifetime caps and floors.
(7) Totals include the Company's investment in Federal Home Loan Bank stock.
Amounts adjusted to reflect called investment securities totaling
approximately $5,000.
(8) For regular savings accounts, assumes an annual decay rate of 17% for three
years or less, 16% for more than three through five years and 14% for more
than five years.
(9) For NOW accounts, assumes an annual decay rate of 37% for one year or less,
32% for more than one though three years and 17% for more than three years.
(10) For money market deposit accounts, assumes an annual decay rate of 79% for
one year or less and 31% for more than one year.
17
<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,
1999.
<TABLE>
<CAPTION>
Anticipated Transactions
------------------------
<S> <C>
Undisbursed construction and
land development loans
Fixed rate $ 5,919
7.64%
Adjustable rate $10,408
8.77%
Undisbursed lines of credit
Adjustable rate $10,067
7.79%
Loan origination commitments
Fixed rate $ 3,192
7.54%
Adjustable rate $ 293
7.15%
Letters of credit
Adjustable rate $ 20
10.75%
Unfunded security commitments
Fixed rate $10,220
7.72%
-------
$40,119
=======
</TABLE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash
equivalents decreased by $613 thousand during fiscal 1999 primarily due to $51.7
million of net cash used for investing activities. This decrease was partially
offset by a $46.7 million net increase in cash provided by financing activities
and $4.4 million of cash provided by operating activities.
Funds provided by operating activities totaled $4.4 million during fiscal 1999
as compared to $5.1 million during fiscal 1998. Net cash provided by operating
activities was primarily comprised of $4.0 million of net income.
Funds used for investing activities totaled $51.7 million during fiscal 1999 as
compared to $2.2 million during fiscal 1998. Primary uses of funds during fiscal
1999 include $195.8 in purchases of investment and mortgage-backed securities
and a $13.1 million increase in net loans receivable, which were partially
offset by $157.9 million in proceeds from maturities and repayments on
investment and mortgage-backed securities.
18
<PAGE>
Funds provided by financing activities totaled $46.7 million for fiscal 1999 as
compared to $2.9 million used for financing activities in fiscal 1998. Primary
sources of funds for fiscal 1999 were a $52.9 million increase in FHLB and other
borrowings used to fund loan commitments and investment security purchases and a
$3.1 million increase in deposits, which were partially offset by $7.6 million
in common stock repurchases and $2.2 million of cash dividends paid. During
fiscal 1999, the Company purchased 498,303 shares of common stock for
approximately $7.6 million. Management has determined that it currently is
maintaining adequate liquidity and continues to better match funding sources
with lending and investment opportunities.
The Company's primary sources of funds are deposits, amortization, prepayments
and maturities of existing loans, mortgage-backed securities and investment
securities, funds from operations, and funds obtained through FHLB advances and
other borrowings. At June 30, 1999, the total approved loan commitments
outstanding amounted to $3.5 million. At the same date, commitments under unused
letters and lines of credit amounted to $10.0 million and the unadvanced portion
of construction loans approximated $16.3 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 1999, totaled $61.9 million.
Management believes that a significant portion of maturing deposits will remain
with the Company.
Historically, the Company used its sources of funds primarily to meet its
ongoing commitments to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a substantial portfolio of
investment securities. The Company has been able to generate sufficient cash
through the retail deposit market, its traditional funding source, and through
FHLB advances and other borrowings, to provide the cash utilized in investing
activities. The Company has access to the Federal Reserve Bank discount window.
Management believes that the Company currently has adequate liquidity available
to respond to liquidity demands.
On July 27, 1999, the Company's Board of Directors declared a cash dividend of
$0.16 per share payable on August 19, 1999 to shareholders of record at the
close of business on August 9, 1999. Dividends are subject to determination and
declaration by the Board of Directors, which take into account the Company's
financial condition, statutory and regulatory restrictions, general economic
conditions and other factors. There can be no assurance that dividends will in
fact be paid on the common stock in the future or that, if paid, such dividends
will not be reduced or eliminated in future periods.
As of June 30, 1999, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier 1 and total risk-based capital equal to $28.0
million or 15.9% and $29.8 million or 16.9%, respectively, of total
risk-weighted assets, and Tier 1 leverage capital of $28.0 million or 8.3% of
average total assets.
Non-performing assets consist of non-accrual loans and real estate owned. A loan
is placed on non-accrual status when, in the judgment of management, the
probability of collection of interest is deemed insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
uncollected interest is deducted from interest income. Non-performing assets
increased $162 thousand or 26.9% to $765 thousand, or 0.2% of total assets, at
June 30, 1999. The increase was primarily the result of the acquisition of $218
thousand of real estate owned which was partially offset by a $56 thousand
decrease in non-accrual loans.
19
<PAGE>
YEAR 2000 COMPLIANCE
The Company outsources substantially all of its data processing requirements and
it is to a large extent dependent upon vendor cooperation for systems used in
its day-to-day business. The Company, in conjunction with its vendors, is
testing its computer systems and requiring representations from its vendors that
the products provided are or will be year 2000 compliant. The Company has
developed a plan of action to help ensure that its operational and financial
systems will not be adversely affected by year 2000 software/hardware failures
due to processing errors arising from calculations using the year 2000 date.
Substantially all hardware and software products were compliant at December 31,
1998. In the unlikely event that the systems tested do not, in fact, operate
properly when the year 2000 does arrive, all customer accounts, deposits and
loans as well as accounting systems will be maintained manually to ensure
business continuation while systems are being corrected. The Company has not and
does not expect to incur material expenditures to address the year 2000 issue.
Based upon current estimates, the Company does not expect to incur more than $75
thousand (pre-tax) in year 2000 remediation expenses. Any year 2000 compliance
failures, which are currently unknown, could result in additional expenses or
business disruption to the Company.
FORWARD LOOKING STATEMENTS
When used in this Annual Report, or, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to forward
looking statements to reflect events or circumstances after the date of
statements or to reflect the occurrence of anticipated or unanticipated events.
20
<PAGE>
[SNODGRASS LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
WVS Financial Corp.
We have audited the accompanying consolidated balance sheets of WVS Financial
Corp. and subsidiary as of June 30, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WVS Financial Corp.
and subsidiary as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1999, in conformity with generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
- -----------------------
S.R. Snodgrass, A.C.
Wexford, PA
July 30, 1999
21
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 745 $ 699
Interest-earning demand deposits 1,148 1,807
Investment securities available for sale (amortized
cost of $1,380 and $17,481) (Note 4) 1,402 17,519
Investment securities held to maturity (market value
of $87,850 and $63,996) (Note 4) 90,764 63,749
Mortgage-backed securities available for sale
(amortized cost of $9,342 and $18,842) (Note 5) 9,273 19,041
Mortgage-backed securities held to maturity
(market value of $62,167 and $27,777) (Note 5) 63,107 27,273
Net loans receivable (allowance for loan losses of $1,842
and $1,860) (Note 6) 170,327 157,737
Accrued interest receivable 3,105 2,414
Federal Home Loan Bank stock, at cost 6,195 4,675
Premises and equipment 1,154 1,179
Deferred taxes and other assets 1,188 961
--------- ---------
TOTAL ASSETS $ 348,408 $ 297,054
========= =========
LIABILITIES
Deposits (Note 11) $ 174,244 $ 170,982
Federal Home Loan Bank advances (Note 12) 116,900 88,857
Other borrowings (Note 13) 25,820 889
Accrued interest payable 1,929 1,874
Other liabilities 1,577 1,474
--------- ---------
TOTAL LIABILITIES 320,470 264,076
--------- ---------
STOCKHOLDERS' EQUITY (Notes 15 and 16)
Preferred stock, no par value; 5,000,000 shares authorized;
none outstanding - -
Common stock, par value $.01; 10,000,000 shares authorized;
3,668,060 and 3,617,120 shares issued 37 36
Additional paid-in capital 19,062 18,386
Treasury stock (498,303 shares at cost) (7,596) -
Retained earnings - substantially restricted 17,024 15,143
Accumulated other comprehensive income (loss) (31) 157
Unallocated shares - Employee Stock Ownership Plan (232) (312)
Unallocated shares - Recognition and Retention Plans (326) (432)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 27,938 32,978
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 348,408 $ 297,054
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended June 30,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 12,850 $ 13,191 $ 12,440
Investment securities 5,414 5,908 5,696
Mortgage-backed securities 4,280 2,715 2,724
Interest-earning demand deposits 77 73 80
Federal Home Loan Bank stock 378 259 185
---------- ---------- ----------
Total interest and dividend income 22,999 22,146 21,125
---------- ---------- ----------
INTEREST EXPENSE
Deposits (Note 11) 6,537 6,943 7,086
Borrowings 6,202 4,838 3,798
---------- ---------- ----------
Total interest expense 12,739 11,781 10,884
---------- ---------- ----------
NET INTEREST INCOME 10,260 10,365 10,241
Provision for loan losses (Note 7) - (120) 60
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,260 10,485 10,181
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposits 264 234 203
Investment securities gains, net 36 - 30
Other 190 304 141
---------- ---------- ----------
Total noninterest income 490 538 374
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,803 3,855 2,962
Occupancy and equipment 362 399 416
Deposit insurance premium (Note 21) 101 107 1,294
Data processing 175 169 171
Correspondent bank charges 127 118 113
Other 717 774 710
---------- ---------- ----------
Total noninterest expense 4,285 5,422 5,666
---------- ---------- ----------
Income before income taxes 6,465 5,601 4,889
Income taxes (Note 18) 2,434 2,109 1,930
---------- ---------- ----------
NET INCOME $ 4,031 $ 3,492 $ 2,959
========== ======== ========
<PAGE>
<CAPTION>
<S> <C> <C> <C>
EARNINGS PER SHARE:
Basic $ 1.18 $ 1.01 $ 0.88
Diluted 1.17 0.98 0.85
AVERAGE SHARES OUTSTANDING:
Basic 3,405,662 3,470,479 3,369,796
Diluted 3,435,738 3,574,043 3,490,226
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Retained
Additional Unallocated Unallocated Earnings-
Common Paid-in Treasury Shares Held Shares Held Substantially
Stock Capital Stock by ESOP by RRP Restricted
-------- ----------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 $ 17 $ 16,947 $ - $ (584) $ (835) $ 18,861
Comprehensive income:
Net income 2,959
Unrealized gain on available
for sale securities
Reclassification adjustment for
realized gains included in
net income, net of tax ---------
Total comprehensive income 2,959
Release of earned ESOP shares 184 131
Accrued compensation expense for RRPs 204
Exercise of stock options 105
Cash dividends declared ($1.50 per share) (4,920)
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1997 17 17,236 - (453) (631) 16,900
Comprehensive income:
Net income 3,492
Unrealized gain on available
for sale securities
---------
Total comprehensive income 3,492
Release of earned ESOP shares 360 141
Accrued compensation expense for RRPs 199
Exercise of stock options 1 635
Tax benefit from stock grants issued
under RRPs 173
Two-for-one stock split 18 (18)
Cash dividends declared ($1.50 per share) (5,249)
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1998 36 18,386 - (312) (432) 15,143
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Comprehensive income:
Net income 4,031
Unrealized loss on available
for sale securities
Reclassification adjustment for
realized gains included in
net income, net of tax ---------
Total comprehensive income 4,031
Release of earned ESOP shares 165 80
Accrued compensation expense for RRPs 106
Exercise of stock options 1 253
Tax benefit from exercise of stock options 257
Tax benefit from stock grants issued
under RRPs 1
Purchase of treasury stock (7,596)
Cash dividends declared ($0.63 per share) (2,150)
-------- ----------- -------- ------- -------- ---------
Balance, June 30, 1999 $ 37 $ 19,062 $ (7,596) $ (232) $ (326) $ 17,024
======== =========== ======== ======= ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- -----
<S> <C> <C>
Balance, June 30, 1996 $ (368) $ 34,038
Comprehensive income:
Net income 2,959
Unrealized gain on available
for sale securities 168 168
Reclassification adjustment for
realized gains included in
net income, net of tax 20 20
-------- -----------
Total comprehensive income 188 3,147
Release of earned ESOP shares 315
Accrued compensation expense for RRPs 204
Exercise of stock options 105
Cash dividends declared ($1.50 per share) (4,920)
-------- -----------
Balance, June 30, 1997 (180) 32,889
Comprehensive income:
Net income 3,492
Unrealized gain on available
for sale securities 337 337
-------- -----------
Total comprehensive income 337 3,829
Release of earned ESOP shares 501
Accrued compensation expense for RRPs 199
Exercise of stock options 636
Tax benefit from stock grants issued
under RRPs 173
Two-for-one stock split -
Cash dividends declared ($1.50 per share) (5,249)
-------- -----------
Balance, June 30, 1998 157 32,978
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Comprehensive income:
Net income 4,031
Unrealized loss on available
for sale securities (212) (212)
Reclassification adjustment for
realized gains included in
net income, net of tax 24 24
-------- -----------
Total comprehensive income (188) 3,843
Release of earned ESOP shares 245
Accrued compensation expense for RRPs 106
Exercise of stock options 254
Tax benefit from exercise of stock options 257
Tax benefit from stock grants issued
under RRPs 1
Purchase of treasury stock (7,596)
Cash dividends declared ($0.63 per share) (2,150)
-------- -----------
Balance June 30, 1999 $ (31) $ 27,938
======== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended June 30,
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,031 $ 3,492 $ 2,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses - (120) 60
Depreciation and amortization, net 116 126 134
Amortization of discounts, premiums, and
deferred loan fees 96 (32) 111
Amortization of ESOP and RRP deferred
compensation 350 899 519
Investment securities gains, net (36) - (30)
Deferred income taxes 87 (202) (52)
Decrease (increase) in accrued interest receivable (691) 396 (436)
Increase in accrued interest payable 56 106 343
Other, net 363 445 71
--------- --------- --------
Net cash provided by operating activities 4,372 5,110 3,679
--------- --------- --------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and mortgage-backed
securities (26,908) (36,992) (1,508)
Proceeds from repayments of investment and
mortgage-backed securities 52,022 20,731 2,711
Proceeds from sale of investment and
mortgage-backed securities 905 2,192 1,678
Held to maturity:
Purchase of investment and mortgage-backed
securities (168,868) (99,744) (75,006)
Proceeds from repayments of investment and
mortgage-backed securities 105,881 112,017 48,856
Net increase in net loans receivable (13,139) (2,602) (9,476)
Proceeds from sale of real estate owned - - 73
Proceeds from sale of loans - 2,914 -
Increase in Federal Home Loan Bank stock (1,520) (748) (2,027)
Acquisition of premises and equipment (91) (8) (105)
Other, net (11) - -
--------- --------- --------
Net cash used for investing activities (51,729) (2,240) (34,804)
--------- --------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,261 (3,427) (205)
Net increase in Federal Home Loan Bank advances 28,043 11,000 39,857
Net increase (decrease) in other borrowings 24,931 (5,895) (3,868)
Net proceeds from issuance of common stock 255 636 105
Cash dividends paid (2,150) (5,249) (4,920)
Purchase of treasury stock (7,596) - -
--------- --------- --------
Net cash provided by (used for) financing activities 46,744 (2,935) 30,969
--------- --------- --------
Decrease in cash and cash equivalents (613) (65) (156)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 2,506 2,571 2,727
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,893 $ 2,506 $ 2,571
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 12,683 $ 11,675 $ 10,541
Taxes 2,059 2,286 2,118
</TABLE>
See accompanying notes to the consolidated financial statements.
25
<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") is a Pennsylvania-chartered unitary
bank holding company which owns 100 percent of the common stock of West View
Savings Bank ("West View" or the "Savings Bank"). The operating results of the
Company depend primarily upon the operating results of the Savings Bank and, to
a lesser extent, income from interest-earning assets such as investment
securities.
West View is a Pennsylvania-chartered, SAIF-insured stock savings bank
conducting business from six offices in the North Hills suburbs of Pittsburgh.
The Savings Bank's principal sources of revenue emanate from its portfolio of
residential real estate and commercial mortgage loans as well as income from
investment and mortgage-backed securities.
The Company is supervised by the Board of Governors of the Federal Reserve
System, while the Savings Bank is subject to regulation and supervision by the
Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department
of Banking.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of WVS and its
wholly-owned subsidiary, West View. All intercompany transactions have been
eliminated in consolidation. The accounting and reporting policies of WVS and
West View conform with generally accepted accounting principles. The Company's
fiscal year-end for financial reporting is June 30. For regulatory and income
tax reporting purposes, WVS reports on a December 31 calendar year basis.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that effect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for that
period. Actual results could differ significantly from those estimates.
Investment and Mortgage-backed Securities
- -----------------------------------------
Investment securities are classified at the time of purchase as securities held
to maturity or securities available for sale based on management's ability. Debt
and mortgage-backed securities acquired with the ability and intent to hold to
maturity are stated at cost adjusted for amortization of premium and accretion
of discount, which are computed using the interest method and recognized as
adjustments of interest income. Amortization rates for mortgage-backed
securities are periodically adjusted to reflect changes in the prepayment speeds
of the underlying mortgages. Certain other debt, equity, and mortgage-backed
<PAGE>
securities have been classified as available for sale to serve principally as a
source of liquidity. Unrealized holding gains and losses for available for sale
securities are reported as a separate component of stockholders' equity, net of
tax, until realized. Realized securities gains and losses are computed using the
specific identification method. Interest and dividends on investment and
mortgage-backed securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank (the "FHLB") represents ownership in
an institution which is wholly-owned by other financial institutions. This
equity security is accounted for at cost and reported separately on the
accompanying consolidated balance sheet.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loans Receivable
- --------------------
Net loans receivable are reported at their principal amount, net of the
allowance for loan losses and deferred loan fees. Interest on mortgage,
consumer, and commercial loans is recognized on the accrual method. The
Company's general policy is to stop accruing interest on loans when, based upon
relevant factors, the collection of principal or interest is doubtful,
regardless of the contractual status. Interest received on nonaccrual loans is
recorded as income or applied against principal according to management's
judgment as to the collectibility of such principal.
Loan origination and commitment fees, and all incremental direct loan
origination costs, are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential loan losses in its loan portfolio. The
allowance method is used in providing for loan losses. Accordingly, all loan
losses are charged to the allowance, and all recoveries are credited to the
allowance. The allowance for loan losses is established through a provision for
loan losses which is charged to operations. The provision is based on
management's periodic evaluation of the adequacy of the allowance for loan
losses which encompasses the overall risk characteristics of the various
portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors. The estimates used in
determining the adequacy of the allowance for loan losses including the amounts
and timing of future cash flows expected on impaired loans are particularly
susceptible to significant change in the near term.
A loan is considered impaired when it is probable the borrower will not repay
the loan according to the original contractual terms of the loan agreement.
Management has determined that first mortgage loans on one-to-four family
properties and all consumer loans represent large groups of smaller-balance
homogeneous loans that are to be collectively evaluated. All other loans, such
as commercial business loans and loans secured by commercial real estate, are
individually evaluated. Management considers an insignificant delay, which is
defined as less than 90 days by the Company, will not cause a loan to be
classified as impaired. A loan is not impaired during a period of delay in
payment if the Company expects to collect all amounts due including interest
accrued at the contractual interest rate for the period of delay. All loans
identified as impaired are evaluated independently by management. The Company
estimates credit losses on impaired loans based on the present value of expected
cash flows or the fair value of the underlying collateral if the loan repayment
is expected to come from the sale or operation of such collateral. Impaired
loans, or portions thereof, are charged off when it is determined that a
realized loss has occurred. Until such time, an allowance for loan losses is
maintained for estimated losses. Cash receipts on impaired loans are applied
first to accrued interest receivable, unless otherwise required by the loan
terms, except when an impaired loan is also a nonaccrual loan, in which case the
portion of the receipts related to interest is recognized as income.
<PAGE>
Real Estate Owned
- -----------------
Real estate owned acquired through foreclosure is carried at the lower of cost
or fair value minus estimated costs to sell. Costs relating to development and
improvement of the property are capitalized, whereas costs of holding such real
estate are expensed as incurred. Valuation allowances for estimated losses are
provided when the carrying value of the real estate acquired exceeds the fair
value.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is principally computed on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over their estimated useful lives or their respective lease terms,
whichever is shorter. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions and improvements are
capitalized.
Income Taxes
- ------------
Deferred tax assets and liabilities are computed based on the difference between
the financial statement and the income tax basis of assets and liabilities using
the enacted marginal tax rates. Deferred income taxes or benefits are based on
the changes in the deferred tax asset or liability from period to period.
The Company files a consolidated federal income tax return. Deferred tax assets
and liabilities are reflected at currently enacted income tax rates applicable
to the period in which such items are expected to be realized or settled. As
changes in tax rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Earnings Per Share
- ------------------
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is calculated by dividing net
income available to common stockholders, adjusted for the effects of any
dilutive securities, by the weighted-average number of common shares
outstanding, adjusted for the effects of any dilutive securities.
Comprehensive Income
- --------------------
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." In adopting Statement No.
130, the Company is required to present comprehensive income and its components
in a full set of general purpose financial statements for all periods presented.
The Company has elected to report the effects of Statement No. 130 as part of
the Consolidated Statements of Stockholders' Equity.
<PAGE>
Cash Flow Information
- ---------------------
Cash and cash equivalents include cash and due from banks and interest-earning
demand deposits.
Reclassification of Comparative Figures
- ---------------------------------------
Certain comparative amounts for prior years have been reclassified to conform to
current year presentations. Such reclassifications did not effect net income.
28
<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 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement provides accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring the recognition of those items as
assets or liabilities in the statement of financial position, recorded at fair
value. Statement No. 133 precludes a held to maturity security from being
designated as a hedged item; however, at the date of initial application of this
statement, an entity is permitted to transfer any held to maturity security into
the available for sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Such transfers do not raise an issue regarding an
entity's intent to hold other debt securities to maturity in the future. In June
1999, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133." This Statement delayed the effective date
of Statement No. 133 for one year, to fiscal years beginning after June 15,
2000. Earlier adoption is permitted for any fiscal quarter that begins after the
issue date of Statement No. 133.
The Financial Accounting Standards Board also issued Statement of Financial
Accounting Standards No. 134, "Accounting for Mortgage-backed Securities
Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise." This Statement requires that after the securitization of
mortgage loans, an entity classify the resulting mortgage-backed securities or
other retained interest based on its ability and intent to sell or hold these
securities in accordance with Statement No. 115. This Statement applies to the
first fiscal quarter beginning after December 31, 1998; however, early adoption
is permitted as of the issue date of the Statement.
The Company does not believe the effect of the adoption of these accounting
statements will be material.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average common shares
outstanding 3,662,402 3,548,088 3,477,126
Average treasury stock shares (201,716) - -
Average unearned ESOP shares (55,024) (77,609) (107,330)
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 3,405,662 3,470,479 3,369,796
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 30,076 103,564 120,430
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 3,435,738 3,574,043 3,490,226
========== ========== ==========
</TABLE>
There are no convertible securities which would effect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the consolidated statements of income is used.
3. COMMON STOCK SPLIT
On April 28, 1998, the Board of Directors approved a two-for-one stock split.
All references to the number of common shares and per share amounts for 1997
have been restated to reflect the stock split.
<PAGE>
4. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments are as follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Equity securities $1,380 $42 $(20) $1,402
====== === ==== ======
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government agency securities $ 88,714 $ 6 $ (2,871) $ 85,849
Obligations of states and political
subdivisions 2,050 -- (49) 2,001
---------- ------ --------- ---------
Total $ 90,764 $ 6 $ (2,920) $ 87,850
========== ====== ========= =========
<CAPTION>
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Corporate securities $ 15,419 $ -- $ (3) $ 15,416
Equity securities 2,062 86 (45) 2,103
--------- ------- --------- ---------
Total $ 17,481 $ 86 $ (48) $ 17,519
========= ======= ========= =========
<CAPTION>
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government agency securities $ 63,749 $ 262 $ (15) $ 63,996
--------- ------- -------- ---------
Total $ 63,749 $ 262 $ (15) $ 63,996
========= ======= ======== =========
</TABLE>
<PAGE>
The amortized cost and estimated market values of debt securities at June 30,
1999, by contractual maturity, are shown below. Expected maturities may differ
from the contractual maturities because issuers may have the right to call
securities prior to their final maturities.
<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>
HELD TO MATURITY
Amortized cost $ 1,215 $ - $ 8,685 $80,864 $90,764
Estimated market value 1,215 - 8,642 77,993 87,850
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. INVESTMENT SECURITIES (Continued)
Proceeds from the sale of investment securities available for sale and the gross
realized gains and losses for the year ended June 30, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ------ ------
<S> <C> <C> <C>
Proceeds $905 $2,192 $1,678
Gross gains 156 - 30
Gross losses 120 - -
</TABLE>
Investment securities with carrying values of $28,224 and $2,000 and estimated
market values of $29,104 and $2,003 at June 30, 1999 and 1998, respectively,
were pledged to secure public deposits, repurchase agreements, and for other
purposes as required by law.
5. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities are
as follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Federal National Mortgage
Association certificates $6,632 $ 1 $ (114) $ 6,519
Government National Mortgage
Association certificates 766 14 - 780
Federal Home Loan Mortgage
Corporation certificates 214 4 - 218
Collateralized mortgage obligations issued
by agencies of the U.S. Government 878 24 - 902
Corporate collateralized mortgage obligations 852 2 - 854
------ ---- ------ -------
Total $9,342 $ 45 $ (114) $ 9,273
====== ==== ====== =======
</TABLE>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. MORTGAGE-BACKED SECURITIES(Continued)
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Federal National Mortgage
Association certificates $ 103 $ 4 $ - $ 107
Government National Mortgage
Association certificates 1,107 10 (8) 1,109
Federal Home Loan Mortgage
Corporation certificates 146 10 - 156
Collateralized mortgage obligations issued
by agencies of the U.S. Government 18,847 375 (130) 19,092
Corporate collateralized mortgage obligations 42,904 35 (1,236) 41,703
-------- ---- ------- ---------
Total $ 63,107 $434 $(1,374) $ 62,167
======== ==== ======= =========
<CAPTION>
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Federal National Mortgage
Association certificates $ 9,178 $ 83 $ (6) $ 9,255
Government National Mortgage
Association certificates 1,022 27 - 1,049
Federal Home Loan Mortgage
Corporation certificates 308 6 - 314
Collateralized mortgage obligations issued
by agencies of the U.S. Government 8,334 89 - 8,423
-------- ---- -------- --------
Total $ 18,842 $205 $ (6) $ 19,041
========= ==== ======== =========
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. MORTGAGE-BACKED SECURITIES(Continued)
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Federal National Mortgage
Association certificates $ 151 $ 8 $ - $ 159
Government National Mortgage
Association certificates 1,156 15 - 1,171
Federal Home Loan Mortgage
Corporation certificates 246 19 - 265
Collateralized mortgage obligations issued
by agencies of the U.S. Government 25,001 437 (7) 25,431
Collateralized mortgage obligations backed
by securities issued by U.S. Government
agencies 719 32 - 751
-------- ----- -------- --------
Total $ 27,273 $ 511 $ (7) $ 27,777
======== ===== ======== ========
</TABLE>
The amortized cost and estimated market values of mortgage-backed securities at
June 30, 1999, by contractual maturity, are shown below. Expected maturities may
differ from the contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<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 $ 55 $ 1,670 $ 66 $ 7,551 $ 9,342
Estimated market value 55 1,631 71 7,516 9,273
HELD TO MATURITY
Amortized cost $ - $ 32 $ 140 $ 62,935 $ 63,107
Estimated market value - 33 150 61,984 62,167
</TABLE>
Mortgage-backed securities with a carrying value of $31,183 and an estimated
market value of $32,216 at June 30, 1999, were pledged to secure borrowings with
the Federal Home Loan Bank.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
6. NET LOANS RECEIVABLE
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
First mortgage loans:
1 - 4 family dwellings $103,035 $104,849
Construction 23,810 17,779
Land acquisition and development 7,646 7,233
Multi-family dwellings 5,925 4,012
Commercial 27,826 20,291
-------- --------
168,242 154,164
-------- --------
Consumer loans:
Home equity 5,727 7,801
Home equity lines of credit 10,740 5,812
Education loans 11 591
Other 2,153 2,336
-------- --------
18,631 16,540
-------- --------
Commercial loans 1,720 290
-------- --------
Obligations of state and political subdivisions 720 730
-------- --------
Less:
Undisbursed construction and land development 16,327 11,312
Net deferred loan fees 817 815
Allowance for loan losses 1,842 1,860
-------- --------
18,986 13,987
-------- --------
Net loans receivable $170,327 $157,737
======== ========
</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 at June 30, 1999 and 1998, is dependent upon the local economic
conditions.
<PAGE>
As of June 30, 1999, 1998, and 1997 there were no material impaired loans for
disclosure purposes. Total nonaccrual loans and troubled debt restructurings and
the related interest income recognized for the years ended June 30, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Principal outstanding $546 $603 $274
---- ---- ----
Interest income that would
have been recognized $ 42 $ 64 $ 35
Interest income recognized 41 44 20
---- ---- ----
Interest income foregone $ 1 $ 20 $ 15
==== ==== ====
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
6. NET LOANS RECEIVABLE(Continued)
Certain officers, directors, and their associates were customers of, and had
transactions with, the Company in the ordinary course of business. A summary of
loan activity for those directors, executive officers, and their associates with
aggregate loan balances outstanding of at least $60,000 during the years ended
June 30, are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Balance, July 1 $ 1,664 $ 1,458
Additions 662 335
Amounts collected (768) (129)
Other (732) -
------- -------
Balance, June 30 $ 826 $ 1,664
======= =======
</TABLE>
7. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Balance, July 1 $1,860 $ 2,009 $1,964
Add:
Provision charged to operations - (120) 60
Recoveries 2 10 3
Less loans charged off 20 39 18
------ ------- ------
Balance, June 30 $1,842 $ 1,860 $2,009
====== ======= ======
</TABLE>
<PAGE>
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Investment and mortgage-backed securities $2,082 $1,406
Loans receivable 1,023 1,008
------ ------
Total $3,105 $2,414
====== ======
</TABLE>
9. FEDERAL HOME LOAN BANK STOCK
The Savings Bank is a member of the Federal Home Loan Bank System. As a member,
West View maintains an investment in the capital stock of the Federal Home Loan
Bank ("FHLB") of Pittsburgh in an amount not less than one percent of its
outstanding qualifying assets as defined by the FHLB or 1/20 of its outstanding
FHLB borrowings, whichever is greater, as calculated throughout the year.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
10. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Land and improvements $ 226 $ 226
Buildings and improvements 1,937 1,923
Furniture, fixtures, and equipment 970 915
------ ------
3,133 3,064
Less accumulated depreciation 1,979 1,885
------ ------
Total $1,154 $1,179
====== ======
</TABLE>
Depreciation charged to operations was $116, $126, and $134, for the years ended
June 30, 1999, 1998, and 1997, respectively.
During 1998, having satisfied the criteria defined in Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate," a deferred
gain on the sale of branch office property of $136 was recognized and included
in other noninterest income on the consolidated statements of income.
<PAGE>
11. DEPOSITS
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- ---------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Noninterest-earning checking $ 9,037 5.2% $ 7,528 4.4%
Interest-earning checking 16,668 9.6 15,347 9.0
Savings accounts 38,923 22.3 37,966 22.2
Money market accounts 12,610 7.2 13,259 7.8
Advance payments by borrowers
for taxes and insurance 3,130 1.8 3,312 1.9
-------- ----- -------- -----
80,368 46.1 77,412 45.3
-------- ----- -------- -----
Savings certificates:
5.00% or less 38,906 22.3 12,819 7.5
5.01 - 6.00% 47,611 27.3 66,527 38.9
6.01 - 7.00% 4,991 2.9 7,812 4.6
7.01 or more 2,368 1.4 6,412 3.7
-------- ----- -------- -----
93,876 53.9 93,570 54.7
-------- ----- -------- -----
Total $174,244 100.0% $170,982 100.0%
======== ===== ======== =====
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
11. DEPOSITS(Continued)
The maturities of savings certificates at June 30, 1999, are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Within one year $60,771
Beyond one year but within two years 14,323
Beyond two years but within three years 7,674
Beyond three years 11,108
-------
Total $93,876
=======
</TABLE>
Savings certificates with balances of $100 thousand or more amounted to $10,948
and $10,250 on June 30, 1999 and 1998. The Company does not have any brokered
deposits.
Interest expense by deposit category for the years ended June 30, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Checking accounts $ 141 $ 180 $ 172
Savings accounts 920 957 940
Money market accounts 316 309 327
Savings certificates 5,160 5,497 5,647
------ ------ ------
Total $6,537 $6,943 $7,086
====== ====== ======
</TABLE>
<PAGE>
12. FEDERAL HOME LOAN BANK ADVANCES
The following table presents information regarding FHLB term advances as of June
30:
<TABLE>
<CAPTION>
Weighted- Weighted-
Maturing During average average
Fiscal Year Ended Interest Interest
June 30: 1999 Rate 1998 Rate
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
2000 $ - - % $ 6,357 5.16%
2001 - - 8,000 5.89
2002 56,500 5.72 51,500 6.00
2003 - - - -
2004 and thereafter 47,000 5.11 23,000 5.05
--------- ----------
Total $ 103,500 $ 88,857
========= ==========
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
12. FEDERAL HOME LOAN BANK ADVANCES(Continued)
WVS also utilized revolving and short-term FHLB advances. Short-term FHLB
advances generally mature within 90 days, while revolving FHLB advances may be
repaid by the Company without penalty. The following table presents information
regarding such advances as of June 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
FHLB revolving and short-term advances:
Ending balance $ 13,400 $ -
Average balance during the year 13,303 3,523
Maximum month-end balance during the year 28,550 13,355
Average interest rate during the year 5.57% 5.72%
Weighted-average rate at year end 5.58% -
</TABLE>
At June 30, 1999, WVS had an unused borrowing capacity of approximately $79,949.
Although no specific collateral is required to be pledged, Federal Home Loan
Bank advances are secured by a blanket security agreement that includes the
Company's FHLB stock, investment and mortgage-backed securities held in
safekeeping at the FHLB, and certain qualifying first mortgage loans.
13. OTHER BORROWINGS
Other borrowings include Treasury, Tax, and Loan ("TT&L") demand notes and
securities sold under agreements to repurchase with securities brokers. TT&L
notes amounted to $749 and $889 at June 30, 1999 and 1998. Repurchase agreements
amounted to $25,071 as of June 30, 1999. There were no outstanding repurchase
agreements at June 30, 1998. The outstanding repurchase agreements generally
mature within one to 92 days from the transaction date and qualifying collateral
has been delivered. The Company pledged investment securities with a carrying
value of $25,812 at June 30, 1999, as collateral for the repurchase agreements
as explained in Note 4. The following table presents information regarding other
borrowings as of June 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Ending balance $25,820 $ -
Average balance during the year 12,473 5,616
Maximum month-end balance during the year 25,820 11,195
Average interest rate during the year 5.12% 5.69%
Weighted-average rate at year end 5.16% -
</TABLE>
<PAGE>
14. COMMITMENTS AND CONTINGENT LIABILITIES
Loan commitments
- ----------------
In the normal course of business, there are various outstanding commitments and
certain contingent liabilities which are not reflected in the accompanying
consolidated balance sheet. Various loan commitments totaling $30,009 and
$23,789 at June 30, 1999 and 1998, respectively, represent financial instruments
with off-balance sheet risk.
Loan commitments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated balance sheet.
The same credit policies are used in making commitments and conditional
obligations as for on-balance sheet instruments. Generally, collateral, usually
in the form of real estate, is required to support financial instruments with
credit risk.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. COMMITMENTS AND CONTINGENT LIABILITIES(Continued)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of the undisbursed portion of construction
and land development loans (Note 6), residential, commercial real estate, and
consumer loan originations.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all commitments to
extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses.
Litigation
The Company is involved with various other legal actions arising in the ordinary
course of business. Management believes the outcome of these matters will have
no material effect on the consolidated operations or financial condition of WVS.
15. REGULATORY CAPITAL
Federal regulations require the Company and Savings Bank to maintain minimum
amounts of capital. Specifically, each is required to maintain certain minimum
dollar amounts and ratios of Total and Tier I Capital to Risk-weighted Assets
and of Tier I Capital to Average Total Assets.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from well capitalized to critically undercapitalized. Should any
institution fail to meet the requirements to be considered adequately
capitalized, respectively, it would become subject to a series of increasingly
restrictive regulatory actions.
As of June 30, 1999 and 1998, the FDIC categorized the Savings Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
classified as a well capitalized financial institution, Total Risk-based, Tier 1
Risk-based, and Tier 1 Leverage Capital Ratios must be at least ten percent, six
percent, and five percent, respectively.
The Company and Savings Bank's actual capital ratios are presented in the
following tables, which shows that both met all regulatory capital requirements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
15. REGULATORY CAPITAL(Continued)
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------------------
WVS Financial Corp. West View Savings Bank
------------------- ----------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
- -------------------------
Actual $29,821 16.90% $ 28,594 16.28%
To Be Well Capitalized 17,644 10.00 17,560 10.00
For Capital Adequacy Purposes 14,115 8.00 14,048 8.00
Tier I Capital
(to Risk-weighted Assets)
- -------------------------
Actual $27,969 15.85% $ 26,747 15.23%
To Be Well Capitalized 10,587 6.00 10,536 6.00
For Capital Adequacy Purposes 7,058 4.00 7,024 4.00
Tier I Capital
(to Average Total Assets)
- -------------------------
Actual $27,969 8.29% $ 26,747 7.95%
To Be Well Capitalized 16,876 5.00 16,814 5.00
For Capital Adequacy Purposes 13,501 4.00 13,451 4.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------
WVS Financial Corp. West View Savings Bank
------------------- ----------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $34,681 22.10% $29,665 19.40%
To Be Well Capitalized 15,700 10.00 15,298 10.00
For Capital Adequacy Purposes 12,560 8.00 12,238 8.00
Tier I Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $32,821 20.90% $27,805 18.20%
To Be Well Capitalized 9,420 6.00 9,179 6.00
For Capital Adequacy Purposes 6,280 4.00 6,119 4.00
Tier I Capital
(to Average Total Assets)
- ---------------------------
Actual $32,821 11.00% $27,805 9.40%
To Be Well Capitalized 14,941 5.00 14,712 5.00
For Capital Adequacy Purposes 11,952 4.00 11,770 4.00
</TABLE>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. STOCK BENEFIT PLANS
Stock Option Plan
- -----------------
The Company maintains a Stock Option Plan for the directors, officers, and
employees. An aggregate of 347,258 shares of authorized but unissued common
stock of WVS were reserved for future issuance under this plan. The stock
options typically have an expiration term of ten years, subject to certain
extensions and early terminations. The per share exercise price of an incentive
stock option shall at a minimum equal the fair market value of a share of common
stock on the date the option is granted. The per share exercise price of a
compensatory stock option granted shall at least equal the greater of par value
or 85 percent of the fair market value of a share of common stock on the date
the option is granted. Proceeds from the exercise of the stock options are
credited to common stock for the aggregate par value and the excess is credited
to paid-in capital.
The following table presents information related to the outstanding options:
<TABLE>
<CAPTION>
Officers' and Weighted-
Employees' Directors' average
Stock Stock Exercise
Options Options Price
------- ------- -----
<S> <C> <C> <C>
Outstanding, June 30, 1997 147,400 78,400 $ 5.15
Granted 91,084 2,800 15.63
Exercised (71,960) (50,600) 5.19
Forfeited (12,640) - 15.63
------- -------
Outstanding, June 30, 1998 153,884 30,600 $ 9.82
Granted - 2,800 14.75
Exercised (50,940) - 5.00
Forfeited (3,320) - 15.63
------- -------
Outstanding, June 30, 1999 99,624 33,400 $ 11.56
======= =======
Exercisable at year end 48,597 33,400
======= =======
Available for future grant 24,600 2,814
======= =======
</TABLE>
<PAGE>
At June 30, 1999, for officers and employees there were 99,624 options
outstanding, of which 48,597 were exercisable at a weighted average exercise
price of $13.05, and a weighted-average remaining contractual life of 7.27
years.
There were also 33,400 options outstanding for directors with exercise prices
between $5.00 and $15.625, with a weighted average exercise price of $7.10, and
a weighted-average remaining contractual life of 5.9 years. All of these options
are exercisable.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. STOCK BENEFIT PLANS (Continued)
As permitted under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-based Compensation," the Company has elected to continue
following Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized in the Company's
financial statements. Had compensation expense included stock option plan costs
determined based on the fair value at the grant dates for options granted under
these plans consistent with Statement No. 123, pro forma net income and earnings
per share would not have been materially different than that presented on the
consolidated statements of income.
Retention and Recognition Plans ("RRP")
- ---------------------------------------
The Company also maintains an RRP for substantially all officers, employees and
directors of the Company. The objective of the RRPs is to enable the Company to
retain its corporate officers, key employees, and directors who have the
experience and ability necessary to manage WVS and the Savings Bank. Officers
and key employees of the Company who were selected by members of a
Board-appointed committee are eligible to receive benefits under the RRPs.
Non-employee directors of the Company are eligible to participate in the RRP for
directors. WVS has appointed an independent fiduciary to serve as trustee for
the RRP Trusts.
An aggregate of 300,000 shares of common stock of WVS were acquired at
conversion for future issuance under these plans, of which 60,000 shares are
subject to the RRP for directors and 240,000 shares are subject to the RRP for
officers and key employees.
As of June 30, 1999, 126,880 RRP shares were available for future issuance. RRP
costs are accrued to operations, and added back to stockholders' equity, over a
four to ten-year vesting period.
Employee Stock Ownership Plan ("ESOP")
- --------------------------------------
WVS maintains an ESOP for the benefit of officers and Savings Bank employees who
have met certain eligibility requirements related to age and length of service.
An ESOP Trust was created, and acquired 161,000 shares of common stock in WVS's
initial public offering, using proceeds of a loan obtained from WVS, which bears
interest at one quarter point over the prime rate, adjusted quarterly. The loan,
which is secured by the shares of stock purchased, calls for quarterly interest
and principal payments over a ten-year term.
<PAGE>
The Savings Bank makes quarterly contributions to the Trust to allow the Trust
to make the required loan payments to WVS. Shares are released from collateral
based upon the proportion of annual principal payments made on the loan each
year and allocated to eligible employees. As shares are released from
collateral, the Savings Bank reports compensation expense based upon the amounts
contributed or committed to be contributed each year and the shares become
outstanding for earnings per share computations. Dividends paid on allocated
ESOP shares are recorded as a reduction of retained earnings. Dividends paid on
unallocated shares are added to participant accounts and reported as
compensation. Compensation expense for the ESOP was $310, $680, and $487 for the
years ended June 30, 1999, 1998, and 1997, respectively.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. STOCK BENEFIT PLANS (Continued)
The following table presents the components of the ESOP shares at June 30:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Allocated shares 98,574 70,398 45,208
Shares released for allocation 16,099 28,176 26,124
Shares distributed (10,391) - (934)
Unallocated shares 46,325 62,424 90,600
--------- -------- ---------
Total ESOP shares 150,607 160,998 160,998
========= ======== =========
Fair value of unreleased ESOP shares $ 701 $ 999 $ 1,246
========= ======== =========
</TABLE>
During fiscal 1997, the ESOP purchased an additional 1,200 shares of WVS stock
which is included in the allocated share balance as of June 30, 1997. The 1,200
shares were purchased using vested participant funds.
17. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS
Profit Sharing Plan
- -------------------
The Company maintains a non-contributory profit sharing plan (the "Plan") for
its officers and employees who have met the age and length of service
requirements. The Plan is a defined contribution plan with the contributions
based on a percentage of salaries of the plan participants. In conjunction with
the Plan, an integrated 401(k) employee savings plan was also implemented.
Employees may contribute up to the maximum allowed by law. The Company may make
matching contributions as approved at the discretion of the Board of Directors.
The Company has made no matching contributions to date. The Company's
contributions to the Plan, which were charged to expense, were $200, $200, and
$172 for the years ended June 30, 1999, 1998, and 1997, respectively.
<PAGE>
Directors' Deferred Compensation Plan
- -------------------------------------
The Company maintains a deferred compensation plan (the "Plan") for directors
who elect to defer all or a portion of their directors' fees. Deferred fees are
paid to the participants in installments commencing in the year following the
year the individual is no longer a member of the Board of Directors.
The Plan allows for the deferred amounts to be paid in shares of common stock at
the prevailing market price on the date of distribution. For fiscal years ended
June 30, 1999, 1998, and 1997, 42,598, 41,598, and 40,798 shares respectively,
were held by the Plan.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
18. INCOME TAXES
The provision for incomes taxes consits of:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Currently payable:
Federal $2,035 $ 2,064 $ 1,747
State 312 247 235
------ ------- -------
2,347 2,311 1,982
Deferred 87 (202) (52)
------ ------- -------
Total $2,434 $ 2,109 $ 1,930
====== ======= =======
</TABLE>
The following temporary differences gave rise to the net deferred tax assets at
June 30:
<TABLE>
<CAPTION>
1999 1998
---- ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $639 $ 646
Deferred origination fees, net - 22
Net unrealized loss on securities available for sale 16 -
Deferred compensation 317 387
Other 17 22
---- ------
Total gross deferred tax assets 989 1,077
---- ------
Deferred tax liabilities:
Bad debt reserve for tax reporting purposes 279 353
Deferred origination fees, net 63 -
Net unrealized gain on securities available for sale - 81
Other 70 76
---- ------
Total gross deferred tax liabilities 412 510
---- ------
Net deferred tax assets $577 $ 567
==== ======
</TABLE>
No valuation allowance was established at June 30, 1999 and 1998, in view of
WVS's ability to carryback to taxes paid in previous years, future anticipated
taxable income, which is evidenced by WVS's earnings potential, and deferred tax
liabilities at June 30.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
18. INCOME TAXES(Continued)
The following is a reconciliation between the actual provision for income taxes
and the amount of income taxes which would have been provided at federal
statutory rates for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------ --------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $2,198 34.0% $1,904 34.0% $1,662 34.0%
State income tax, net of federal
tax benefit 206 3.2 163 2.9 155 3.2
Other, net 30 0.5 42 0.8 113 2.2
------ ----- ------ ----- ------ -----
Actual tax expense and
effective rate $2,434 37.7% $2,109 37.7% $1,930 39.4%
====== ==== ====== ==== ====== ====
</TABLE>
19. REGULATORY MATTERS
Cash and Due from Banks
- -----------------------
The Federal Reserve requires the Savings Bank to maintain certain reserve
balances. The required reserves are computed by applying prescribed ratios to
the Savings Bank's average deposit transaction account balances. As of June 30,
1999 and 1998, the Savings Bank had required reserves of $684 and $577,
respectively. The required reserves are held in the form of vault cash and a
noninterest-bearing depository balance maintained directly with the Federal
Reserve.
Loans
- -----
Federal law prohibits the Company from borrowing from the Savings Bank unless
the loans are secured by specific obligations. Further, such secured loans are
limited in amount to ten percent of the Savings Bank's capital surplus.
Dividend Restrictions
- ---------------------
The Savings Bank is subject to the Pennsylvania Banking Code which restricts the
availability of surplus for dividend purposes. At June 30, 1999, surplus funds
of $3,363 were not available for dividends.
<PAGE>
20. CONVERSION AND REORGANIZATION
In accordance with regulations at the time that the Savings Bank converted from
a mutual savings bank to a stock savings bank, a portion of retained earnings
was restricted by establishing a liquidation account. The liquidation account
will be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Savings Bank after the conversion, for a period
of ten years from the date of the stock conversion. The liquidation account will
be reduced annually to the extent that eligible account holders have reduced
their qualifying deposits. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the unlikely event of a
complete liquidation of the Savings Bank, each account holder will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for the accounts then
held.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION
On September 30, 1996, the President signed into law legislation which included
recapitalization of the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC") by a one-time charge to
SAIF-insured institutions of 65.7 basis points per one hundred dollars of
insurable deposits. The gross effect to the Savings Bank amounted to $1,138,
which is reflected in the consolidated statement of income for the year ended
June 30, 1997.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at June 30, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets
Cash, due from banks and interest-
earning demand deposits $ 1,893 $ 1,893 $ 2,506 $ 2,506
Investment securities 92,166 89,252 81,268 81,515
Mortgage-backed securities 72,380 71,440 46,314 46,818
Net loans receivable 170,327 173,575 157,737 168,150
Accrued interest receivable 3,105 3,105 2,414 2,414
Federal Home Loan Bank stock 6,195 6,195 4,675 4,675
-------- -------- -------- --------
Total financial assets $346,066 $345,460 $294,914 $306,078
======== ======== ======== ========
Financial Liabilities
Deposits $174,244 $174,190 $170,982 $171,194
FHLB advances 116,900 116,029 88,857 88,071
Other borrowings 25,820 25,820 889 889
Accrued interest payable 1,929 1,929 1,874 1,874
-------- -------- -------- --------
Total financial liabilities $318,893 $317,968 $262,602 $262,028
======== ======== ======== ========
</TABLE>
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.
<PAGE>
If no readily available market exists, the fair value estimates for financial
instruments should be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated
losses and other factors, as determined through various option pricing formulas
or simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the resulting
estimated values may not be indicative of the amount realizable in the sale of a
particular financial instrument. In addition, changes in the assumptions on
which the estimated values are based may have a significant impact on the
resulting estimated values.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
As certain assets and liabilities, such as deferred tax assets, premises and
equipment, and many other operational elements of WVS are not considered
financial instruments, but have value, this estimated fair value of financial
instruments would not represent the full market value of WVS.
Estimated fair values have been determined by WVS using the best available data,
as generally provided in internal Savings Bank reports and regulatory reports,
using an estimation methodology suitable for each category of financial
instruments. The estimation methodologies used are as follows:
Cash, Due from Banks, Interest-earning Demand Deposits, Accrued Interest
- --------------------------------------------------------------------------------
Receivable and Payable, and Other Borrowings
- --------------------------------------------
The fair value approximates the current book value.
Investment Securities, Mortgage-backed Securities, and FHLB stock
- -----------------------------------------------------------------
The fair value of investment and mortgage-backed securities held to maturity is
equal to the available quoted market price. If no quoted market price is
available, fair value is estimated using the quoted market price for similar
securities. Since the FHLB stock is not actively traded on a secondary market
and held exclusively by member financial institutions, the estimated fair market
value approximates the carrying amount.
Net Loans Receivable and Deposits
- ---------------------------------
Fair value for consumer mortgage loans is estimated using market quotes or
discounting contractual cash flows for prepayment estimates. Discount rates were
obtained from secondary market sources, adjusted to reflect differences in
servicing, credit, and other characteristics.
The estimated fair values for consumer, fixed rate commercial and multi-family
real estate loans are estimated by discounting contractual cash flows for
prepayment estimates. Discount rates are based upon rates generally charged for
such loans with similar credit characteristics.
The estimated fair value for non-performing loans is the appraised value of the
underlying collateral adjusted for estimated credit risk.
Demand, savings, and money market deposit accounts are reported at book value.
The fair value of certificates of deposit is based upon the discounted value of
the contractual cash flows. The discount rate is estimated using average market
rates for deposits with similar average terms.
<PAGE>
FHLB Advances
- -------------
The fair value of fixed rate advances are estimated using discounted cash flows,
based on current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amount on variable rate advances approximates their
fair value.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Commitments to Extend Credit
- ----------------------------
These financial instruments are generally not subject to sale and estimated fair
values are not readily available. The carrying value, represented by the net
deferred fee arising from the unrecognized commitment, and the fair value
determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 14 to these financial
statements.
23. PARENT COMPANY
Condensed financial information of WVS Financial Corp. is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
June 30,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Interest-earning deposits with subsidiary bank $ 325 $ 502
Investment securities available for sale 1,141 4,264
Investment and mortgage-backed securities held to maturity 18 616
Investment in subsidiary bank 26,151 27,200
Loan receivable from ESOP 232 312
Accrued interest receivable and other assets 77 101
------- -------
TOTAL ASSETS $27,944 $32,995
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 6 $ 17
Stockholders' equity 27,938 32,978
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,944 $32,995
======= =======
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. PARENT COMPANY(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
Year Ended June 30,
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
INCOME
Loans $ 24 $ 33 $ 47
Investment and mortgage-backed securities 124 442 627
Dividend from subsidiary 5,000 - 3,500
Interest-earning deposits with subsidiary bank 31 31 16
Investment securities gains, net 36 - 4
------- ------ -------
Total income 5,215 506 4,194
------- ------ -------
OTHER OPERATING EXPENSE 94 111 86
------- ------ -------
Income before equity in undistributed
earnings of subsidiary 5,121 395 4,108
Equity in undistributed earnings of subsidiary (1,059) 3,202 (913)
------- ------ -------
Income before income taxes 4,062 3,597 3,195
Income taxes 31 105 236
------- ------ -------
NET INCOME $ 4,031 $3,492 $ 2,959
======= ====== =======
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. PARENT COMPANY(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30,
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,031 $ 3,492 $ 2,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary 1,059 (3,202) 913
Amortization of investment discounts and premiums (21) (120) 16
Amortization of ESOP and RRP deferred compensation 164 360 184
Investment securities gains, net (36) - (4)
Decrease in accrued interest receivable 2 63 8
Other 276 293 (130)
------- -------- -------
Net cash provided by operating activities 5,475 886 3,946
------- -------- -------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and
mortgage-backed securities (2,972) (12,735) (1,258)
Proceeds from sale of investment securities 905 - 13
Proceeds from repayments of investment and
mortgage-backed securities 5,229 9,842 -
Held to maturity:
Purchases of investment and mortgage-backed
securities - (7,579) -
Proceeds from repayments of investment and
mortgage-backed securities 596 14,156 2,021
ESOP loan repayments 81 141 111
------- -------- -------
Net cash provided by investing activities 3,839 3,825 887
------- -------- -------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 255 636 105
Cash dividends paid (2,150) (5,249) (4,920)
Purchases of treasury stock (7,596) - -
------- -------- -------
Net cash used for financing activities (9,491) (4,613) (4,815)
------- -------- -------
Increase (decrease) in cash and cash equivalents (177) 98 18
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 502 404 386
------- -------- -------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 325 $ 502 $ 404
======= ======== =======
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------
September December March June
1998 1998 1999 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total interest and dividend income $ 5,554 $ 5,710 $ 5,718 $ 6,017
Total interest expense 3,038 3,213 3,137 3,351
----------- ----------- ----------- -----------
Net interest income 2,516 2,497 2,581 2,666
Provision for loan losses - - - -
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,516 2,497 2,581 2,666
Investment securities gains, net - 36 - -
Total noninterest income 102 126 109 117
Total noninterest expense 1,061 1,113 1,039 1,072
----------- ----------- ----------- -----------
Income before income taxes 1,557 1,546 1,651 1,711
Income taxes 607 563 644 620
----------- ----------- ----------- -----------
Net income 950 $ 983 $ 1,007 $ 1,091
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.26 $ 0.28 $ 0.30 $ 0.34
Diluted 0.26 0.28 0.30 0.33
Average shares outstanding
Basic 3,596,067 3,514,757 3,364,721 3,165,631
Diluted 3,627,719 3,545,577 3,394,679 3,193,476
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
24. SELECTED QUARTERLY FINANCIAL DATA (unaudited)(Continued)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------
September December March June
1997 1997 1998 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total interest and dividend income $ 5,550 $ 5,484 $ 5,515 $ 5,597
Total interest expense 2,969 2,939 2,892 2,981
----------- ----------- ----------- -----------
Net interest income 2,581 2,545 2,623 2,616
Provision for loan losses - (120) - -
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,581 2,665 2,623 2,616
Investment securities gains, net - - - -
Total noninterest income 90 106 98 244
Total noninterest expense 1,126 1,316 1,276 1,704
----------- ----------- ----------- -----------
Income before income taxes 1,545 1,455 1,445 1,156
Income taxes 610 459 571 469
----------- ----------- ----------- -----------
Net income $ 935 $ 996 $ 874 $ 687
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.27 $ 0.29 $ 0.25 $ 0.20
Diluted 0.26 0.28 0.24 0.20
Average shares outstanding
Basic 3,407,641 3,418,340 3,513,627 3,551,460
Diluted 3,531,473 3,547,240 3,593,231 3,633,379
</TABLE>
53
<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 Nasdaq Stock MarketSM National Market System under the symbol
"WVFC". The bid and ask quotations for the common stock on September 9, 1999
were:
Bid Ask
--- ---
$15 $15 3/8
The following table sets forth the high and low market prices, and cash
dividends declared, for the periods indicated. All data has been adjusted for
the two-for-one stock split paid on May 22, 1998.
<TABLE>
<CAPTION>
Market Price
------------------------ Cash Dividends
Quarter Ended High Low Declared
- ------------- ---- --- --------
<S> <C> <C> <C>
June 99 $15 3/8 $14 7/8 $ 0.16
March 99 15 3/8 14 3/4 0.16
December 98 15 1/2 14 5/8 0.16
September 98 16 1/4 15 1/8 0.15
June 98 $20 3/8 $16 $ 0.15
March 98 19 1/2 16 3/8 1.10(1)
December 97 17 5/8 14 1/8 0.15
September 97 14 5/8 12 5/8 0.10
</TABLE>
- ---------------
(1) Includes special cash dividend of $0.95 per share paid during the quarter
ended March 31, 1998.
There were eight Nasdaq Market Makers in the Company's common stock as of June
30, 1999: F. J. Morrissey & Co., Inc.; Legg Mason Wood Walker, Inc.; Sandler
O'Neill & Partners; Herzog, Heine, Geduld, Inc.; Ryan, Beck & Co., Inc.;
Parker/Hunter, Inc.; Tucker Anthony, Inc.; and Spear, Leeds & Kellogg.
According to the records of the Company's transfer agent, there were
approximately 1014 shareholders of record at September 9, 1999. This does not
include any persons or entities who hold their stock in nominee or "street name"
through various brokerage firms.
Dividends are subject to determination and declaration by the Board of
Directors, which takes into account the Company's financial condition, statutory
and regulatory restrictions, general economic condition and other factors.
54
<PAGE>
WVS FINANCIAL CORP.
CORPORATE INFORMATION
--------------------------------------------
CORPORATE OFFICES
WVS FINANCIAL CORP. o WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
COMMON STOCK
The common stock of WVS Financial Corp. is traded on The Nasdaq
Stock MarketSM under the symbol "WVFC".
TRANSFER AGENT & REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
INVESTOR RELATIONS
Janet L. Campisino
412-364-1911
COUNSEL
Bruggeman & Linn
SPECIAL COUNSEL
Elias, Matz, Tiernan & Herrick L.L.P.
WEST VIEW SAVINGS BANK
9001 Perry Highway
Pittsburgh, PA 15237
412-364-1911
WEST VIEW OFFICE
456 Perry Highway
412-931-2171
CRANBERRY OFFICE
20531 Perry Highway
412-931-6080/724-776-3480
FRANKLIN PARK OFFICE
2566 Brandt School Road
724-935-7100
BELLEVUE OFFICE
572 Lincoln Avenue
412-761-5595
SHERWOOD OAKS OFFICE
Serving Sherwood Oaks
Cranberry Twp.
LENDING DIVISION
2566 Brandt School Road
724-935-7400
<PAGE>
BOARD OF DIRECTORS
David L. Aeberli
President
McDonald-Aeberli Funeral Home, Inc.
Arthur H. Brandt
President and CEO Brandt Excavating, Inc. and
Retired - Former President and CEO
Brandt Paving, Inc.
William J. Hoegel
Sole Proprietor
William J. Hoegel & Associates
Donald E. Hook
Chairman
Pittsburgh Cut Flower Co.
John M. Seifarth
Senior Engineer - Consultant
Nichols & Slagle Engineering, Inc.
David J. Bursic
President and Chief Executive Officer
WVS Financial Corp. and
West View Savings Bank
Margaret VonDerau
Senior Vice President, Treasurer and Secretary
WVS Financial Corp. and
West View Savings Bank
EXECUTIVE OFFICERS
William J. Hoegel
Chairman
David J. Bursic
President and
Chief Executive Officer
Margaret VonDerau
Senior Vice President, Treasurer and
Corporate Secretary
Edward M. Wielgus
Senior Vice President and
Chief Lending Officer
The members of the Board of Directors serve in that capacity for both the
Company and the Savings Bank.
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 July 30, 1999,
appearing in the Annual Report on Form 10-K of WVS Financial Corp. for the year
ended June 30, 1999.
/s/ S.R. Snodgrass, A.C.
- ------------------------
S.R. Snodgrass, A.C.
Wexford, PA
September 17, 1999
<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, 1999 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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 745
<INT-BEARING-DEPOSITS> 1,148
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,675
<INVESTMENTS-CARRYING> 160,066
<INVESTMENTS-MARKET> 156,212
<LOANS> 170,327
<ALLOWANCE> 1,842
<TOTAL-ASSETS> 348,408
<DEPOSITS> 174,244
<SHORT-TERM> 38,471
<LIABILITIES-OTHER> 3,506
<LONG-TERM> 103,500
0
0
<COMMON> 37
<OTHER-SE> 27,901
<TOTAL-LIABILITIES-AND-EQUITY> 348,408
<INTEREST-LOAN> 12,850
<INTEREST-INVEST> 10,149
<INTEREST-OTHER> 77
<INTEREST-TOTAL> 22,999
<INTEREST-DEPOSIT> 6,537
<INTEREST-EXPENSE> 12,739
<INTEREST-INCOME-NET> 10,260
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 4,285
<INCOME-PRETAX> 6,465
<INCOME-PRE-EXTRAORDINARY> 6,465
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,031
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 3.00
<LOANS-NON> 547
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,860
<CHARGE-OFFS> 20
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,842
<ALLOWANCE-DOMESTIC> 1,063
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 779
</TABLE>
