W
V
S
FINANCIAL
---------
CORP.
THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK
ANNUAL REPORT
2000
<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 52
Corporate Information
<PAGE>
To Our Stockholders:
During fiscal 2000, WVS Financial Corp. and West View Savings Bank continued to
post record operating results. Diluted earnings per share increased 25.6% from
$1.17 in fiscal 1999 to $1.47 in fiscal 2000. Return on average equity has
steadily increased over the past two years, from 10.45% in fiscal 1998, 13.01%
in fiscal 1999, to 16.27% in fiscal 2000. Total assets grew by $61.2 million or
17.6% during fiscal 2000 and totaled $409.6 million on June 30, 2000.
We continued to build upon our core deposit base, particularly our checking
accounts. In our view, checking accounts represent the foundation upon which
other account relationships can be offered. During fiscal 2000, we took two
additional steps to add value to our checking accounts: (1) we introduced the
VISA Check Card and (2) we helped to form the Freedom ATM Alliance. Our VISA
Check Card allows customers the convenience of paying for purchases anywhere
VISA is accepted without the hassle of writing a check or the need to carry
large amounts of cash. The Freedom ATM Alliance allows our customers access to
over 250 ATMs with no surcharges.
From time to time we are asked questions about bank stock pricing. Community
banks and thrifts have been severely hurt by outflows in financial services
mutual funds over the past two years as institutional investors have been forced
to sell off positions to cover redemptions. During the past two years, investors
have put their money into technology funds, as evidenced by the dramatic upswing
in technology fund inflows throughout 1999 and the first half of 2000. The
Federal Reserve Board's six increases in the federal funds rate have also
limited investor interest in the banking sector.
We feel that these setbacks to the entire banking sector are starting to reverse
themselves. Since the beginning of August 2000, financial services funds have
seen a net inflow of money - the first time money has entered these funds since
November 1998. Also, with the economy appearing to be slowing, future interest
rate hikes by the Federal Reserve may be limited.
In light of the Company's record earnings, attractive dividend yield and strong
return on equity we believe that our shares are a good value in today's
marketplace. During fiscal 2000, the Company's Board of Directors authorized the
Fourth Stock Repurchase Program. With this Program we intend to purchase up to
200,000 shares of Company common stock. To date, approximately 100,000 shares
have been purchased under the Fourth Program and we believe that these purchases
will continue to confirm our ongoing commitment to actively manage our capital
and to enhance long-term stockholder value.
On behalf of the Board of Directors and employees, we would like to thank you
for your ongoing interest in the Company, and in many cases, your continued
patronage of West View Savings Bank. Our Bank is a full service bank. We offer a
variety of business, consumer and mortgage loans to meet all of your needs.
Please continue to recommend West View Savings Bank to your family, friends and
neighbors.
/S/DAVID J. BURSIC /S/WILLIAM J. HOEGEL
------------------ --------------------
DAVID J. BURSIC WILLIAM J. HOEGEL
President and Chairman of the Board
Chief Executive Officer
<PAGE>
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
As of or For the Year Ended June 30,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- --------------- -------------- --------------
(Dollars in Thousands)
Selected Financial Data:
<S> <C> <C> <C> <C> <C>
Total assets $409,618 $348,408 $297,054 $294,693 $259,622
Net loans receivable 183,295 170,327 157,737 158,134 149,011
Mortgage-backed securities 73,673 72,380 46,314 37,490 42,118
Investment securities 137,502 92,166 81,268 87,548 59,218
Savings deposit accounts 169,508 171,114 167,670 170,879 170,843
FHLB advances 104,500 116,900 88,857 77,857 38,000
Other borrowings 101,025 25,820 889 6,784 10,652
Stockholders' equity 26,911 27,938 32,978 32,889 34,038
Nonperforming assets and troubled
debt restructurings(1) 4,050 765 603 274 980
Selected Operating Data:
Interest income $ 27,952 $ 22,999 $ 22,146 $ 21,125 $ 18,317
Interest expense 16,933 12,739 11,781 10,884 8,840
-------- -------- -------- -------- --------
Net interest income 11,019 10,260 10,365 10,241 9,477
Provision for loan losses 150 --- (120) 60 150
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 10,869 10,260 10,485 10,181 9,327
Non-interest income 605 490 538 374 383
Non-interest expense 4,626 4,285 5,422 5,666 4,067
-------- -------- -------- -------- --------
Income before income tax expense 6,848 6,465 5,601 4,889 5,643
Income tax expense 2,469 2,434 2,109 1,930 2,066
-------- -------- -------- -------- --------
Net income $ 4,379 $ 4,031 $ 3,492 $ 2,959 $ 3,577
======== ======== ======== ======== ========
Per Share Information(2):
Basic earnings $ 1.48 $ 1.18 $ 1.01 $ 0.88 $ 1.07
Diluted earnings $ 1.47 $ 1.17 $ 0.98 $ 0.85 $ 1.04
Dividends per share(3) $ 0.64 $ 0.63 $ 1.50 $ 1.50 $ 1.03
Dividend payout ratio(3) 43.24% 53.39% 148.51% 170.45% 96.26%
Book value per share at period end $ 9.35 $ 8.81 $ 9.12 $ 9.41 $ 9.80
Average shares outstanding:
Basic 2,953,720 3,405,662 3,470,479 3,369,796 3,347,363
Diluted 2,977,089 3,435,738 3,574,043 3,490,226 3,452,854
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
As of or For the Year Ended June 30,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Ratios(4):
Average yield earned on interest-
earning assets 7.34% 7.32% 7.69% 7.69% 7.83%
Average rate paid on interest-
bearing liabilities 4.91 4.70 4.78 4.78 4.58
Average interest rate spread(5) 2.43 2.62 2.91 2.91 3.25
Net interest margin(5) 2.89 3.27 3.60 3.73 4.05
Ratio of interest-earning assets to
interest-bearing liabilities 110.57 114.54 116.65 120.70 121.18
Non-interest expense as a percent of
average assets 1.20 1.35 1.86 2.04 1.71
Return on average assets 1.14 1.27 1.20 1.06 1.51
Return on average equity 16.27 13.01 10.45 8.63 10.19
Ratio of average equity to average
Assets 6.99 9.76 11.48 12.33 14.81
Full-service offices at end of period 5 5 5 5 5
Asset Quality Ratios(4):
Non-performing loans and troubled
debt restructurings as a percent of
net total loans(1) 2.21% 0.32% 0.38% 0.17% 0.66%
Non-performing assets as a percent
of total assets(1) 0.99 0.22 0.20 0.09 0.15
Non-performing assets and troubled
debt restructurings as a percent of
total assets 0.99 0.22 0.20 0.09 0.38
Allowance for loan losses as a
percent of total loans receivable 0.98 1.07 1.08 1.16 1.17
Allowance for loan losses as a
percent of non-performing loans 48.72 336.75 308.46 733.21 520.95
Charge-offs to average loans
receivable outstanding during the
period 0.01 0.02 0.02 0.01 0.02
Capital Ratios(4):
Tier 1 risk-based capital ratio 14.05% 15.85% 20.90% 24.52% 27.19%
Total risk-based capital ratio 15.11 16.90 22.09 25.77 28.44
Tier 1 leverage capital ratio 6.69 8.29 10.98 11.44 13.90
</TABLE>
----------------
(1) Non-performing assets consist of non-performing loans and real estate owned
("REO"). Non- performing loans consist of non-accrual loans and accruing
loans greater than 90 days delinquent, while REO consists of real estate
acquired through foreclosure and real estate acquired by acceptance of a
deed in lieu of foreclosure.
(2) All per share information for fiscal years ended June 30, 1997 and 1996
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, 2000.
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 strategic focus includes:
Consistent Earnings Growth - Net income has grown from $3.5 million in fiscal
1998 to $4.0 million in fiscal 1999 to $4.4 million in fiscal 2000. Diluted
earnings per share have increased from $0.98 in fiscal 1998 to $1.17 in fiscal
1999 to $1.47 in fiscal 2000; this equates to a compounded annual growth rate in
diluted earnings per share of 22.47%.
Commitment to Capital Management - The Company is committed to maximizing
long-term shareholder value. Specific components of this strategy include: (1)
the repurchase of 310,141 shares of Company common stock during fiscal 2000; (2)
growing Company assets to increase net income; and (3) paying an above-average
dividend yield of 5.53% on the Company's common stock during fiscal 2000.
Growth of Core Deposits - As of June 30, 2000, $78.4 million or 46.3% of West
View's total deposits consisted of regular savings and club accounts, money
market deposit accounts, and checking accounts. Approximately $37.0 million or
47.2% of core deposits consisted of regular savings and club accounts. Checking
account balances grew $2.9 million or 11.3% during fiscal 2000 and totaled $28.6
million or 36.5% of core deposits at June 30, 2000. 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.
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 2000, West
View continued to expand its small business lending program, including term
loans, business inventory loans and loans for business machinery.
Strong Non-interest Expense Ratios - For the fiscal years ended June 30, 2000,
1999 and 1998, the Company's ratios of non-interest expense to average assets
were 1.20%, 1.35% and 1.86%, respectively. Excluding unusual items relating to
severance costs, the Company's ratios of non-interest expense to average assets
were 1.20%, 1.35% and 1.68% for the fiscal years ended June 30, 2000, 1999 and
1998, respectively.
4
<PAGE>
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
<TABLE>
<CAPTION>
Change
June 30, June 30. ---------------------------
2000 1999 Dollars Percentage
---- ---- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Cash and interest-earning
deposits $ 2,915 $ 1,893 $ 1,022 54.0%
Investment securities 142,727 98,361 44,366 45.1
Mortgage-backed securities 73,673 72,380 1,293 1.8
Net loans receivable 183,295 170,327 12,968 7.6
Total assets 409,618 348,408 61,210 17.6
Deposits 172,858 174,244 (1,386) -0.8
FHLB and other borrowings 205,525 142,720 62,805 44.0
Total liabilities 382,707 320,470 62,237 19.4
Total equity 26,911 27,938 (1,027) -3.7
</TABLE>
General. The $61.2 million or 17.6% growth in total assets was primarily
comprised of a $44.4 million increase in investment securities and Federal Home
Loan Bank ("FHLB") stock, a $13.0 million increase in net loans receivable, a
$1.3 million increase in mortgage-backed securities, and a $1.0 million increase
in cash and interest-earning deposits.
The $62.2 million or 19.4% increase in total liabilities was primarily comprised
of a $62.8 million increase in FHLB advances and other borrowings.
Total stockholders' equity decreased $1.0 million or 3.7% primarily due to the
Company's ongoing commitment to manage its capital levels to further enhance
stockholder value. The $1.0 million decrease in stockholders' equity was
principally attributable to the repurchase of $4.2 million of the Company's own
common stock, $1.9 million of cash dividends paid to stockholders, and a $166
thousand increase in unrealized securities losses, which were partially offset
by $4.4 million of Company net income and a $774 thousand increase in capital
attributable to stock option exercises, Employee Stock Ownership Plan ("ESOP")
share releases and Recognition and Retention Plan ("RRP") equity contributions.
Cash on Hand and Interest-earning Deposits. Cash on hand and interest-earning
deposits represent cash equivalents. Cash equivalents increased $1.0 million or
54.0% to $2.9 million at June 30, 2000 from $1.9 million at June 30, 1999.
Increases in these accounts are usually the result of a combination of customer
deposits, loan and investment repayments, and proceeds from borrowings.
Decreases in these accounts are primarily due to a combination of new loan
originations, customer withdrawals, investment purchases and repayments of
borrowings.
Investments. The Company's overall investment portfolio increased $45.6 million
or 26.7% to $216.4 million at June 30, 2000 from $170.8 million at June 30,
1999. Investment securities increased $44.3 million or 45.1% to $142.7 million
at June 30, 2000. These purchases were made as a part of the Company's
investment growth program. Mortgage-backed securities increased $1.3 million or
1.8% to $73.7 million at June 30, 2000. These purchases were made in order to
mitigate the principal calls on the
5
<PAGE>
Company's callable bond portfolio and to earn a higher yield with an expected
average life profile comparable to longer-term callable agency bonds.
Net Loans Receivable. Net loans receivable increased $13.0 million or 7.6% to
$183.3 million at June 30, 2000. The increase in loans receivable was
principally the result of increased mortgage and commercial loan originations.
Deposits. Total deposits decreased $1.4 million or 0.8% to $174.2 million at
June 30, 2000. Interest-bearing and non-interest-bearing checking accounts, as
well as money market accounts increased during the year, while passbook accounts
and time deposits decreased.
Borrowed Funds. Borrowed funds increased $62.8 million or 44.0% to $205.5
million at June 30, 2000. The increase is principally the result of funding the
Company's investment growth program. Other short-term borrowings increased $75.2
million or 291.3% to $101.0 million at June 30, 2000, and FHLB advances
decreased $12.4 million or 10.6% to $104.5 million at June 30, 2000.
Stockholders' Equity. Total stockholders' equity decreased $1.0 million or 3.7%
to $26.9 million at June 30, 2000. The decrease was principally the result of
the repurchase of $4.2 million of the Company's common stock, $1.9 million of
cash dividends paid to stockholders, and a $166 thousand increase in unrealized
securities losses, which were partially offset by $4.4 million of Company net
income and a $774 thousand increase in capital attributable to stock option
exercises, ESOP share releases and RRP equity contributions.
6
<PAGE>
RESULTS OF OPERATIONS
Condensed Statements of Income
<TABLE>
<CAPTION>
June 30, June 30, June 30,
2000 Change 1999 Change 1998
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $27,952 $ 4,953 $22,999 $ 853 $22,146
21.5% 3.9%
Interest expense $16,933 $ 4,194 $12,739 $ 958 $11,781
32.9% 8.1%
Net interest income $11,019 $ 759 $10,260 $ (105) $10,365
7.4% -1.0%
Provision for loan losses $ 150 $ 150 $ 0 $ 120 $ (120)
100.0% 100.0%
Non-interest income $ 605 $ 115 $ 490 $ (48) $ 538
23.5% -8.9%
Non-interest expense $ 4,626 $ 341 $ 4,285 $(1,137) $ 5,422
8.0% -21.0%
Income tax expense $ 2,469 $ 35 $ 2,434 $ 325 $ 2,109
1.4% 15.4%
Net income $ 4,379 $ 348 $ 4,031 $ 539 $ 3,492
8.6% 15.4%
</TABLE>
General. WVS reported net income of $4.4 million, $4.0 million and $3.5 million
for the fiscal years ended June 30, 2000, 1999 and 1998, respectively. The $348
thousand or 8.6% increase in net income during fiscal 2000 was primarily the
result of a $759 thousand increase in net interest income and a $115 thousand
increase in non-interest income, which was partially offset by a $341 thousand
increase in non-interest expense, a $150 provision for loan losses and a $35
thousand increase in income tax expense. Earnings per share totaled $1.48
(basic) and $1.47 (diluted) for fiscal 2000 as compared to $1.18 (basic) and
$1.17 (diluted) for fiscal 1999. 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 2000.
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.
<TABLE>
<CAPTION>
For the Years Ended June 30,
--------------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
-------- --------- ---------- -------- --------- ----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Net loans receivable(1) $176,851 $13,805 7.81% $157,926 $12,800 8.11%
Net tax-free loans receivable(2) 706 71 10.01 725 72 9.97
Mortgage-backed securities 75,312 5,170 6.86 66,685 4,280 6.42
Investments - taxable 116,500 8,352 7.17 86,137 5,752 6.68
Investments - tax-free(2) 9,901 768 7.76 979 56 5.71
Interest-bearing deposits 1,710 36 2.11 1,995 77 3.86
-------- --------- -------- -------
Total interest-earning assets 380,980 28,202 7.40% 314,447 23,037 7.33%
--------- ==== ------- ====
Non-interest-earning assets 4,385 3,324
-------- --------
Total assets $385,365 $317,771
======== ========
Interest-bearing
liabilities:
Interest-bearing deposits and
escrows $161,727 $6,375 3.94% $161,189 $6,537 4.05%
Borrowings 182,818 10,558 5.78 113,338 6,202 5.47
-------- ------ -------- ------
Total interest-bearing liabilities 344,545 16,933 4.91% 274,527 12,739 4.64%
------ ==== ------ ====
Non-interest-bearing accounts 10,281 8,306
-------- --------
Total interest-bearing
liabilities and
non-interest-bearing accounts 354,826 282,833
Non-interest-bearing liabilities 3,618 3,934
-------- --------
Total liabilities 358,444 286,767
Retained income 26,921 31,004
-------- --------
Total liabilities and retained
income $385,365 $317,771
======== ========
Net interest income $11,269 $10,298
======= =======
Interest rate spread 2.49% 2.69%
==== ====
Net yield on interest-earning
assets(3) 2.96% 3.27%
==== ====
Ratio of interest-earning assets to
interest- bearing liabilities 110.57% 114.54%
====== ======
<CAPTION>
For the Years Ended June 30,
---------------------------------
1998
---------------------------------
Average Average
Balance Interest Yield/Rate
-------- -------- ----------
Interest-earning assets:
<S> <C> <C> <C>
Net loans receivable(1) $163,046 $13,191 8.09%
Net tax-free loans receivable(2) 0 0 0.00
Mortgage-backed securities 40,066 2,715 6.78
Investments - taxable 82,877 6,167 7.44
Investments - tax-free(2) 0 0 0.00
Interest-bearing deposits 1,842 73 3.96
-------- -------
Total interest-earning assets 287,831 22,146 7.69%
------- ====
Non-interest-earning assets 3,143
-----
Total assets $290,974
========
Interest-bearing
liabilities:
Interest-bearing deposits and
escrows $161,855 $6,943 4.29%
Borrowings 84,887 4,838 5.70
-------- ------
Total interest-bearing liabilities 246,742 11,781 4.78%
------ ====
Non-interest-bearing accounts 7,073
--------
Total interest-bearing
liabilities and
non-interest-bearing accounts 253,815
Non-interest-bearing liabilities 3,747
--------
Total liabilities 257,562
Retained income 33,412
--------
Total liabilities and retained
income $290,974
========
Net interest income $10,365
=======
Interest rate spread 2.91%
====
Net yield on interest-earning
assets(3) 3.60%
====
Ratio of interest-earning assets to
interest- bearing liabilities 116.65%
======
</TABLE>
(1) Includes non-accrual loans.
(2) Interest and yields on tax-exempt loans and securities (tax-exempt for
federal income tax purposes) are shown on a fully taxable equivalent basis.
(3) Net interest income divided by average 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,
--------------------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
------------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
-------------------- Increase -------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
--------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Net loans receivable $1,491 $ (487) $1,004 $ (357) $ 16 $ (341)
Mortgage-backed securities 584 306 890 1,716 (151) 1,565
Investments 2,605 495 3,100 302 (677) (375)
Interest-bearing deposits (10) (31) (41) 6 (2) 4
--------- -------- -------- -------- -------- -------
Total interest-earning assets 4,670 283 4,953 1,667 (814) 853
Interest-bearing liabilities:
Interest-bearing deposits and
escrows (74) (88) (162) (86) (320) (406)
Other borrowings 3,987 369 4,356 1,566 (202) 1,364
--------- -------- -------- -------- -------- -------
Total interest-bearing
liabilities 3,913 281 4,194 1,480 (522) 958
--------- -------- -------- -------- -------- -------
Increase (decrease) in net interest
income $ 757 $ 2 $ 759 $ 187 $ (292) $ (105)
========= ======== ======== ======== ======== ========
</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 $5.0 million or 21.5% during
fiscal 2000 and increased by $853 thousand or 3.9% during fiscal 1999. The
increase in fiscal 2000 was primarily a result of volume growth in the Company's
investment and mortgage-backed securities portfolios, and net loans receivable
during the periods presented.
Interest income on net loans receivable increased $1.0 million or 7.8% during
fiscal 2000 and decreased $341 thousand or 2.6% during fiscal 1999. The increase
in fiscal 2000 was attributable to a $18.9 million increase in the average
balance of net loans outstanding which was partially offset by a 30 basis point
decrease in the weighted average yield on the Company's loan portfolio. 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.
Interest income on investment securities and FHLB stock increased $3.0 million
or 53.5% during fiscal 2000 and decreased $375 thousand or 6.1% during fiscal
1999. The increase in fiscal 2000 was primarily attributable to a $39 million
increase in the average balance of investment securities outstanding and a 55
basis point increase in the weighted average yield on the Company's investment
securities. 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.
Interest income on mortgage-backed securities increased $890 thousand or 20.8%
during fiscal 2000 and increased $1.6 million or 57.6% during fiscal 1999. The
increase in fiscal 2000 was attributable to a $8.6 million increase in the
average outstanding balance of mortgage-backed securities and a 44 basis point
9
<PAGE>
increase in the weighted average yield on the mortgage-backed securities
portfolio. 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.
Interest Expense. Total interest expense increased $4.2 million or 32.9% during
fiscal 2000 and increased by $958 thousand or 8.1% during fiscal 1999. The
increase during fiscal 2000 is attributable to an increase of $4.4 million of
interest expense on borrowings partially offset by a $162 thousand decrease of
interest expense on deposits. The increase during fiscal 1999 was attributable
to an increase of $1.4 million of interest expense on borrowings which was
partially offset by a $406 thousand decrease of interest expense on deposits.
Interest expense on borrowings increased $4.4 million or 70.2% during fiscal
2000 and increased $1.4 million or 28.2% during fiscal 1999. The increase in
fiscal 2000 was attributable to a $69.5 million increase in the average balance
of borrowings outstanding, and a 31 basis point increase in the weighted average
yield on the Company's borrowings. The increase for fiscal 1999 was primarily
attributable to increases in the average balance of borrowings outstanding
totaling $28.5 million. In order to better match investment opportunities and
resources and enhance its net interest income, the Company continued 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 $162
thousand or 2.5% in fiscal 2000 and decreased $406 thousand or 5.9% in fiscal
1999. The decrease in fiscal 2000 was primarily attributable to a $2 million
decrease in the average balance of time deposits and an 11 basis point decrease
in the weighted average rate paid on the Company's deposits. 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.
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. A $150 thousand provision for loan
loss was recorded to increase the Company's general loan loss reserves. The
Company did not record a provision for loan losses for fiscal 1999.
Non-interest Income. Total non-interest income increased by $115 thousand or
23.5% in fiscal 2000 and decreased by $48 thousand or 8.9% in fiscal 1999. The
increase in fiscal 2000 was primarily attributable to an increase in service
charge fee income. 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.
Non-interest Expense. Total non-interest expense increased $341 thousand or 8.0%
and decreased $1.1 million or 21.0% during fiscal 2000 and 1999, respectively.
The increase in fiscal 2000 was primarily attributable to increased
discretionary employee stock ownership plan amortization, which was partially
offset by decreases in other payroll costs. 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 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.
Income Taxes. Income taxes increased $35 thousand or 1.44% during fiscal 2000
and increased $325 thousand or 15.4% during fiscal 1999. Fiscal year 2000 income
tax expense was favorably impacted by the $18.1 million increase in tax-exempt
investments. The increases in fiscal 2000 and 1999 were primarily attributable
to increases in taxable income. The Company's effective tax rate was 36.1% at
June 30, 2000 and 37.7% at June 30, 1999.
10
<PAGE>
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 acquisition and retention of lower-cost core deposits and
checking accounts; 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 2000 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 non-deposit liabilities, such as FHLB advances and
other 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 $220.0 million;
2) suitable investments shall be restricted to those meeting the credit
quality criteria outlined in the Company's investment policy;
3) all securities purchased will be allocated to either held to maturity or
available for sale portfolios;
4) each security purchased shall initially yield a minimum of 125 basis points
above the incremental rate paid on short-term borrowings, at the time of
purchase; and
5) the Company's total borrowed funds position may not exceed $225.0 million.
In most cases, the initial yield spread earned on investment security purchases
ranged from approximately 221 to 228 basis points.
During the fiscal year ended June 30, 2000, the Company increased its
mortgage-backed securities holdings by $1.3 million. At June 30, 2000, the
Company held $73.7 million of mortgage-backed securities with an approximate
yield of 7.1%. 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 $16.1 million or 21.8% of the Company's
mortgage-backed securities portfolio were floating rate securities with a
weighted average yield of 7.8%.
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 $4.0 million of callable agency bonds with
an estimated weighted average rate of 8.08% were called during the fiscal year
ended June 30, 2000. During the fiscal year ended June 30, 2000, the Company
purchased approximately $31.0 million of callable bonds with an approximate
weighted average yield to call and maturity of 8.17% and 7.91%, respectively.
The callable agency bond purchases, totaling $31.1 million, are summarized by
initial term to call as follows: $10.0 million within three months, $3.2 million
with greater than three months and within six months, $4.0 million with greater
than six months and within one year, $1.0 million with greater than twelve
months and within twenty-four months, $7.7 million with greater than twenty-four
months and within thirty-six months, and $5.2 million with greater than
thirty-six months and less than sixty months.
11
<PAGE>
During the twelve months ended June 30, 2000, the Company purchased
approximately $14.6 million of bank qualified tax-exempt bonds with a taxable
equivalent yield of 8.47%. Bank qualified tax-exempt bonds generally have longer
terms to maturity (e.g. twenty years) and longer first call dates (e.g. five
years). The Company purchased these securities in order to capture attractive
yields for an extended period of time as measured by the first call date.
During the fiscal year ended June 30, 2000, the Company borrowed approximately
$766.1 million in various borrowings from the FHLB with a weighted average rate
of 5.97% and incurred $752.3 million in other borrowings with a weighted average
rate of 5.96%. During the twelve months ended June 30, 2000, the Company repaid
$778.5 million of FHLB advances and $677.1 million of other borrowings.
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. 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, 2000, the implementation of these asset and liability management
initiatives resulted in the following:
1) an aggregate of $51.2 million or 27.9% of the Company's net loan portfolio
had adjustable interest rates or maturities of less than 12 months;
2) $16.1 million or 21.8% of the Company's portfolio of mortgage-backed
securities (including collateralized mortgage obligations - "CMOs") were
secured by floating rate securities; and
3) $116.1 million or 84.4% of the Company's investment securities portfolio
was comprised of callable bonds.
The effect of interest rate changes on a financial institution's assets and
liabilities may be analyzed by examining the "interest rate sensitivity" of the
assets and liabilities and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within a given time
period. A gap is considered positive (negative) when the amount of rate
sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities
(assets). During a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income. The Company's one year cumulative interest rate sensitivity gap
is estimated at a negative 46.3% of total assets at June 30, 2000, as compared
to a negative 8.9% at June 30, 1999, in each instance, based on certain
assumptions by management with respect to the repricing of certain assets and
liabilities. At June 30, 2000, the Company's interest-earning assets maturing or
repricing within one year totaled $86.2 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$275.8 million, providing a deficiency of interest-earning assets over
interest-bearing liabilities of $189.6 million. At June 30, 2000, the percentage
of the Company's assets to liabilities maturing or repricing within one year was
31.3%.
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,
-------------------------------------------
2000 1999 1998
--------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets maturing or
repricing within one year(1) $ 86,215 $ 99,729 $107,186
Interest-bearing liabilities maturing or
repricing within one year(2) 275,814 130,788 180,318
--------- -------- --------
Interest sensitivity gap $(189,599) $(31,059) $(73,132)
========= ======== ========
Interest sensitivity gap as a percentage of
total assets (46.3)% (8.9)% (24.6)%
Ratio of assets to liabilities
maturing or repricing within one year 31.3% 76.3% 59.4%
</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.
During fiscal 2001, the Company anticipates reducing its one year interest
sensitivity gap by: (1)reducing the amount of incremental wholesale borrowing;
(2) limiting future investment purchases; and (3) extending the term structure
of a portion of the Company's borrowings as market conditions permit.
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, 2000, 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
---------- -------- --------- ---------- -------- ----------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable (1)(2)(3)(4) $ 34,841 $ 20,132 $ 40,833 $ 23,865 $ 66,398 $ 186,069
Mortgage-backed securities 18,935 3,275 11,283 9,205 31,189 73,887
Investments(5) 6,905 --- --- --- 135,906 142,811
Interest-bearing deposits 2,127 --- --- --- --- 2,127
---------- ---------- ---------- ----------- ---------- ----------
Total 62,808 23,407 52,116 33,070 233,493 404,894
---------- ---------- ---------- ----------- ---------- ----------
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(6)(7)(8) 46,812 41,477 43,324 17,898 23,347 172,858
Borrowings 167,525 20,000 8,000 5,000 5,000 205,525
---------- ---------- ---------- ----------- ---------- ----------
Total 214,337 61,477 51,324 22,898 28,347 378,383
---------- ---------- ---------- ----------- ---------- ----------
Interest sensitivity gap (151,529) (38,070) 792 10,172 205,146
---------- ---------- ---------- ----------- ----------
Cumulative interest sensitivity
gap (151,529) (189,599) (188,807) (178,635) 26,511
---------- --------- ---------- ----------- ----------
Ratio of cumulative gap to
total assets (37.0)% (46.3)% (46.1)% (43.6)% 6.5%
---------- ---------- ---------- ----------- ----------
</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 18% for adjustable rate loans, and 8% to 38% 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.
(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.
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 11.
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
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
15
<PAGE>
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, 2000
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, 2000. 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
2001 2002 2003 2004 2005 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 $28,978 $16,716 $13,734 $12,927 $ 9,442 $60,981 $142,778 $142,681
Average interest rate 7.98% 7.64% 7.60% 7.60% 7.54% 7.46%
Adjustable rate 13,094 6,121 5,158 4,326 3,635 10,957 43,291 41,009
Average interest rate(5) 8.45% 8.06% 8.07% 8.08% 8.09% 7.91%
Mortgage-backed securities
Fixed rate --- 32 1,251 --- --- 56,483 57,766 55,524
Average interest rate 0.00% 8.00% 6.02% 0.00% 0.00% 6.94%
Adjustable rate --- --- --- --- --- 16,121 16,121 16,355
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 7.76%
Investments(7) 6,905 --- --- --- --- 135,906 142,811 135,793
Average interest rate 7.03% 0.00% 0.00% 0.00% 0.00% 7.82%
Interest-bearing deposits 2,127 --- --- --- --- --- 2,127 2,127
Average interest rate 6.96% 0.00% 0.00% 0.00% 0.00% 0.00%
-------- ------- ------- -------- -------- --------- ---------- ---------
Total $51,104 $22,869 $20,143 $17,253 $13,077 $280,448 $404,894 $393,489
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) $88,290 $21,662 $21,662 $ 8,948 $ 8,948 $ 23,348 $172,858 $172,540
Average interest rate 4.38% 3.67% 3.67% 3.48% 3.48% 2.06%
Borrowings 167,525 --- --- --- --- 38,000 205,525 205,140
Average interest rate 6.61% 0.00% 0.00% 0.00% 0.00% 5.61%
-------- ------- ------- -------- -------- --------- ---------- ---------
Total $255,815 $21,662 $21,662 $ 8,948 $ 8,948 $ 61,348 $378,383 $377,680
</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 18% for adjustable rate loans, and 8% to 38% 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.
(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,
2000.
Anticipated Transactions
------------------------------------------------
Undisbursed construction and
land development loans
Fixed rate $ 4,985
8.47%
Adjustable rate $10,835
9.77%
Undisbursed lines of credit
Adjustable rate $10,639
9.25%
Loan origination commitments
Fixed rate $ 3,888
8.74%
Letters of credit
Adjustable rate $ 77
12.50%
--------
$30,424
========
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash
equivalents increased by $1.0 million during fiscal 2000 primarily due to $55.4
million of net cash provided by financing activities and $4.3 million of net
cash provided by operating activities. This increase was partially offset by
$58.7 million of net cash used for investing activities.
Funds provided by operating activities totaled $4.3 million during fiscal 2000
as compared to $4.4 million during fiscal 1999. Net cash provided by operating
activities was primarily comprised of $4.4 million of net income.
Funds used for investing activities totaled $58.7 million during fiscal 2000 as
compared to $51.7 million during fiscal 1999. Primary uses of funds during
fiscal 2000 include $61.7 million in purchases of investment and mortgage-backed
securities and a $13.4 million increase in net loans receivable, which were
partially offset by $15.2 million in proceeds from maturities and repayments on
investment and mortgage-backed securities.
Funds provided by financing activities totaled $55.4 million for fiscal 2000 as
compared to $46.7 million used for financing activities in fiscal 1999. Primary
sources of funds for fiscal 2000 were a $62.8 million increase in FHLB and other
borrowings used to fund loan commitments and investment security purchases,
which was partially offset by $4.2 million in common stock repurchases, $1.9
million of cash dividends paid and a $1.4 million decrease in deposits. During
fiscal 2000, the Company purchased 310,141 shares of common stock for
approximately $4.2 million. Management has determined that it currently is
maintaining adequate liquidity and continues to better match funding sources
with lending and investment opportunities.
18
<PAGE>
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, 2000, the total approved loan commitments
outstanding amounted to $3.3 million. At the same date, commitments under unused
letters and lines of credit amounted to $10.7 million and the unadvanced portion
of construction loans approximated $15.8 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 2000, totaled $58.5 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 25, 2000, the Company's Board of Directors declared a cash dividend of
$0.16 per share payable on August 17, 2000 to shareholders of record at the
close of business on August 7, 2000. 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, 2000, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier 1 and total risk-based capital equal to $27.1
million or 14.1% and $29.0 million or 15.1%, respectively, of total
risk-weighted assets, and Tier 1 leverage capital of $27.1 million or 6.7% 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 $3.3 million or 429.4% to $4.1 million, or 1.0% of total assets, at
June 30, 2000. The increase was primarily the result of a $3.5 million increase
in non-accrual loans, which was partially offset by the sale of $218 thousand of
real estate owned.
19
<PAGE>
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>
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2000, in conformity with generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
-----------------------
S.R. Snodgrass, A.C.
Wexford, PA
July 28, 2000
21
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30,
2000 1999
---------------- ----------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 788 $ 745
Interest-earning demand deposits 2,127 1,148
Investment securities available for sale (amortized
cost of $1,380 and $1,380) (Note 3) 1,296 1,402
Investment securities held to maturity (market value
of $129,272 and $87,850) (Note 3) 136,206 90,764
Mortgage-backed securities available for sale
(amortized cost of $10,150 and $9,342) (Note 4) 9,936 9,273
Mortgage-backed securities held to maturity
(market value of $61,943 and $62,167) (Note 4) 63,737 63,107
Net loans receivable (allowance for loan losses of
$1,973 and $1,842) (Note 5) 183,295 170,327
Accrued interest receivable 4,375 3,105
Federal Home Loan Bank stock, at cost 5,225 6,195
Premises and equipment 1,050 1,154
Deferred taxes and other assets 1,583 1,188
---------------- ----------------
TOTAL ASSETS $ 409,618 $ 348,408
================ ================
LIABILITIES
Deposits (Note 10) $ 172,858 $ 174,244
Federal Home Loan Bank advances (Note 11) 104,500 116,900
Other borrowings (Note 12) 101,025 25,820
Accrued interest payable 2,704 1,929
Other liabilities 1,620 1,577
---------------- ----------------
TOTAL LIABILITIES 382,707 320,470
---------------- ----------------
STOCKHOLDERS' EQUITY (Notes 14 and 15)
Preferred stock, no par value; 5,000,000 shares authorized;
none outstanding - -
Common stock, par value $.01; 10,000,000 shares authorized;
3,685,280 and 3,668,060 shares issued 37 37
Additional paid-in capital 19,548 19,062
Treasury stock (808,444 and 498,303 shares at cost) (11,770) (7,596)
Retained earnings - substantially restricted 19,513 17,024
Accumulated other comprehensive income (loss) (197) (31)
Unallocated shares - Employee Stock Ownership Plan - (232)
Unallocated shares - Recognition and Retention Plans (220) (326)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 26,911 27,938
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 409,618 $ 348,408
================ ================
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998
--------------- --------------- ---------------
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C>
Loans $ 13,854 $ 12,850 $ 13,191
Investment securities 8,428 5,414 5,908
Mortgage-backed securities 5,170 4,280 2,715
Interest-earning demand deposits 36 77 73
Federal Home Loan Bank stock 464 378 259
--------------- --------------- ---------------
Total interest and dividend income 27,952 22,999 22,146
--------------- --------------- ---------------
INTEREST EXPENSE
Deposits (Note 10) 6,375 6,537 6,943
Borrowings 10,558 6,202 4,838
--------------- --------------- ---------------
Total interest expense 16,933 12,739 11,781
--------------- --------------- ---------------
NET INTEREST INCOME 11,019 10,260 10,365
Provision for loan losses (Note 6) 150 - (120)
--------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,869 10,260 10,485
--------------- --------------- ---------------
NONINTEREST INCOME
Service charges on deposits 312 264 234
Investment securities gains, net - 36 -
Other 293 190 304
--------------- --------------- ---------------
Total noninterest income 605 490 538
--------------- --------------- ---------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,095 2,803 3,855
Occupancy and equipment 354 362 399
Deposit insurance premium 69 101 107
Data processing 179 175 169
Correspondent bank charges 144 127 118
Other 785 717 774
--------------- --------------- ---------------
Total noninterest expense 4,626 4,285 5,422
--------------- --------------- ---------------
Income before income taxes 6,848 6,465 5,601
Income taxes (Note 17) 2,469 2,434 2,109
--------------- --------------- ---------------
NET INCOME $ 4,379 $ 4,031 $ 3,492
=============== =============== ===============
EARNINGS PER SHARE:
Basic $ 1.48 $ 1.18 $ 1.01
Diluted 1.47 1.17 0.98
AVERAGE SHARES OUTSTANDING:
Basic 2,953,720 3,405,662 3,470,479
Diluted 2,977,089 3,435,738 3,574,043
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Retained
Additional Earnings- Unallocated
Common Paid-in Treasury Substantially Shares Held
Stock Capital Stock Restricted by ESOP
------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 $ 17 $ 17,236 $ - $ 16,900 $ (453)
Comprehensive income:
Net income 3,492
Unrealized gain on available
for sale securities
Total comprehensive income
Release of earned ESOP shares 360 141
Accrued compensation expense for RRPs
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 - 15,143 (312)
Comprehensive income:
Net income 4,031
Unrealized loss on available
for sale securities
Reclassification adjustment for
realized gains included in
net income, net of taxes of $12
Total comprehensive income
Release of earned ESOP shares 165 80
Accrued compensation expense for RRPs
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) 17,024 (232)
Comprehensive income:
Net income 4,379
Unrealized loss on available
for sale securities
Reclassification adjustment for
realized gains included in
net income, net of tax
Total comprehensive income
Release of earned ESOP shares 395 232
Accrued compensation expense for RRPs
Exercise of stock options 91
Purchase of treasury stock (4,174)
Cash dividends declared ($0.64 per share) (1,890)
------------ ------------ ------------ ------------- --------------
Balance June 30, 2000 $ 37 $ 19,548 $ (11,770) $ 19,513 $ -
============ ============ ============ ============= ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Unallocated Other
Shares Held Comprehensive
by RRP Income (Loss) Total
------------- ---------------- --------------
<S> <C> <C> <C>
Balance, June 30, 1997 $ (631) $ (180) $ 32,889
Comprehensive income:
Net income 3,492
Unrealized gain on available
for sale securities 337 337
--------------
Total comprehensive income 3,829
Release of earned ESOP shares 501
Accrued compensation expense for RRPs 199 199
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 (432) 157 32,978
Comprehensive income:
Net income 4,031
Unrealized loss on available
for sale securities (212) (212)
Reclassification adjustment for
realized gains included in
net income, net of taxes of $12 24 24
--------------
Total comprehensive income 3,843
Release of earned ESOP shares 245
Accrued compensation expense for RRPs 106 106
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 (326) (31) 27,938
Comprehensive income:
Net income 4,379
Unrealized loss on available
for sale securities (166) (166)
Reclassification adjustment for
realized gains included in
net income, net of tax - -
--------------
Total comprehensive income 4,213
Release of earned ESOP shares 627
Accrued compensation expense for RRPs 106 106
Exercise of stock options 91
Purchase of treasury stock (4,174)
Cash dividends declared ($0.64 per share) (1,890)
------------- ---------------- --------------
Balance June 30, 2000 $ (220) $ (197) $ 26,911
============= ================ ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998
----------- ----------- -----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 4,379 $ 4,031 $ 3,492
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150 -- (120)
Depreciation and amortization, net 115 116 126
Amortization of discounts, premiums, and
deferred loan fees (120) 96 (32)
Amortization of ESOP and RRP deferred
compensation 683 350 899
Investment securities gains, net -- (36) --
Deferred income taxes (121) 87 (202)
(Increase) decrease in accrued interest receivable (1,270) (691) 396
Increase in accrued interest payable 774 56 106
Other, net (328) 363 445
--------- --------- ---------
Net cash provided by operating activities 4,262 4,372 5,110
--------- --------- ---------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and mortgage-backed
securities (2,932) (26,908) (36,992)
Proceeds from repayments of investment and
mortgage-backed securities 2,114 52,022 20,731
Proceeds from sale of investment and
mortgage-backed securities -- 905 2,192
Held to maturity:
Purchase of investment and mortgage-backed
securities (58,774) (168,868) (99,744)
Proceeds from repayments of investment and
mortgage-backed securities 13,045 105,881 112,017
Net increase in net loans receivable (13,353) (13,139) (2,602)
Proceeds from sale of loans -- -- 2,914
Decrease (increase) in Federal Home Loan Bank stock 970 (1,520) (748)
Acquisition of premises and equipment (10) (91) (8)
Other, net 253 (11) --
--------- --------- ---------
Net cash used for investing activities (58,687) (51,729) (2,240)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,385) 3,261 (3,427)
Net increase (decrease) in Federal Home Loan Bank advances (23,500) 28,043 11,000
Net increase (decrease) in other borrowings 86,305 24,931 (5,895)
Net proceeds from issuance of common stock 91 255 636
Cash dividends paid (1,890) (2,150) (5,249)
Purchase of treasury stock (4,174) (7,596) --
--------- --------- ---------
Net cash provided by (used for) financing activities 55,447 46,744 (2,935)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,022 (613) (65)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 1,893 2,506 2,571
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,915 $ 1,893 $ 2,506
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 16,159 $ 12,683 $ 11,675
Taxes 2,668 2,059 2,286
</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 originate 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 and
intent. 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 level-yield method and
recognized as adjustments of interest income. Amortization rates for
mortgage-backed securities are periodically adjusted to reflect changes in the
prepayment speeds of the underlying mortgages. Certain other debt, equity, and
mortgage-backed securities have been classified as available for sale to serve
principally as a source of liquidity. Unrealized holding gains and losses for
available for sale securities are reported as a separate component of
stockholders' equity, net of tax, until realized. Realized securities gains and
losses are computed using the specific identification method. Interest and
dividends on investment and mortgage-backed securities are recognized as income
when earned.
Common stock of the Federal Home Loan Bank (the "FHLB") represents ownership in
an institution which is wholly-owned by other financial institutions. This
equity security is accounted for at cost and reported separately on the
accompanying consolidated balance sheet.
26
<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 non-accrual 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 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 it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on management's periodic
evaluation of individual loans, economic factors, past loan loss experience,
changes in the composition and volume of the portfolio, 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 changes in the near term.
Impaired loans are commercial and commercial real estate loans for which it is
probable the Company will not be able to collect all amounts due according to
the contractual terms of the loan agreement. The Company individually evaluates
such loans for impairment and does not aggregate loans by major risk
classifications. The definition of "impaired loans" is not the same as the
definition of "nonaccrual loans," although the two categories overlap. The
Company may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired if the loan is not a commercial or commercial real estate loan. Factors
considered by management in determining impairment include payment status and
collateral value. The amount of impairment for these types of impaired loans is
determined by the difference between the present value of the expected cash
flows related to the loan, using the original interest rate, and its recorded
value, or as a practical expedient in the case of collateralized loans, the
difference between the fair value of the collateral and the recorded amount of
the loans. When foreclosure is probable, impairment is measured based on the
fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are large
groups of smaller-balance homogeneous loans and are measured for impairment
collectively. Loans that experience insignificant payment delays, which are
defined as 90 days or less, generally are not classified as impaired. Management
determines the significance of payment delays on a case-by-case basis taking
into consideration all circumstances surrounding the loan and the borrower
including the length of the delay, the borrower's prior payment record, and the
amount of shortfall in relation to the principal and interest owed.
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
The Company is required to present comprehensive income and its components in a
full set of general purpose financial statements for all periods presented.
Other comprehensive income (loss) is comprised exclusively of net unrealized
holding gains (losses) on its available for sale securities portfolio. The
Company has elected to report the effects of its other comprehensive income
(loss) as part of the Consolidated Statement of Stockholders' Equity.
Cash Flow Information
Cash and cash equivalents include cash and due from banks and interest-earning
demand deposits.
Reclassification of Comparative Figures
Certain comparative amounts for prior years have been reclassified to conform to
current year presentations. Such reclassifications did not effect net income.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncement
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 Company does not believe the effect of the adoption of this accounting
statement will be material.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Weighted-average common shares
outstanding 3,672,506 3,662,402 3,548,088
Average treasury stock shares (684,957) (201,716) --
Average unearned ESOP shares (33,829) (55,024) (77,609)
---------------- ---------------- ----------------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 2,953,720 3,405,662 3,470,479
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 23,369 30,076 103,564
---------------- ---------------- ----------------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 2,977,089 3,435,738 3,574,043
================ ================ ================
</TABLE>
There are no convertible securities that would effect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the consolidated statement of income is used.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments are as follows:
<TABLE>
<CAPTION>
2000
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
AVAILABLE FOR SALE
<S> <C> <C> <C> <C>
Equity securities $ 1,380 $ 16 $ (100) $ 1,296
================ ================ ================ ================
<CAPTION>
2000
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
HELD TO MATURITY
<S> <C> <C> <C> <C>
U.S. Government agency securities $ 116,052 $ - $ (6,691) $ 109,361
Obligations of states and political
subdivisions 20,154 80 (323) 19,911
---------------- ---------------- ---------------- ----------------
Total $ 136,206 $ 80 $ (7,014) $ 129,272
================ ================ ================ ================
<CAPTION>
1999
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
AVAILABLE FOR SALE
<S> <C> <C> <C> <C>
Equity securities $ 1,380 $ 42 $ (20) $ 1,402
================ ================ ================ ================
1999
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
HELD TO MATURITY
<S> <C> <C> <C> <C>
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
================ ================ ================ ================
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
3. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market values of debt securities at June 30,
2000, 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
---------------- ---------------- ---------------- ---------------- ----------------
HELD TO MATURITY
<S> <C> <C> <C> <C> <C>
Amortized cost $ 300 $ - $ 7,904 $ 128,002 $ 136,206
Estimated market value 300 - 7,672 121,300 129,272
</TABLE>
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:
2000 1999 1998
---------------- ---------------- ----------------
Proceeds $ - $ 905 $ 2,192
Gross gains - 156 -
Gross losses - 120 -
Investment securities with amortized cost of $102,246 and $28,224 and estimated
market values of $96,337 and $29,104 at June 30, 2000 and 1999, respectively,
were pledged to secure public deposits, repurchase agreements, and for other
purposes as required by law.
4. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities are
as follows:
<TABLE>
<CAPTION>
2000
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE FOR SALE
<S> <C> <C> <C> <C>
Federal National Mortgage
Association certificates $ 6,010 $ 2 $ (220) $5,792
Government National Mortgage
Association certificates 2,924 15 (13) 2,926
Federal Home Loan Mortgage
Corporation certificates 100 1 -- 101
Collateralized mortgage obligations issued
by agencies of the U.S. Government 595 5 -- 600
Corporate collateralized mortgage obligations 521 -- (4) 517
------- ----- ------- ------
Total $10,150 $ 23 $ (237) $9,936
======= ===== ======= ======
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
2000
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
HELD TO MATURITY
<S> <C> <C> <C> <C>
Federal National Mortgage
Association certificates $ 45 $ 3 $ - $ 48
Government National Mortgage
Association certificates 9,217 15 (93) 9,139
Federal Home Loan Mortgage
Corporation certificates 107 5 - 112
Collateralized mortgage obligations issued
by agencies of the U.S. Government 17,792 209 (216) 17,785
Corporate collateralized mortgage obligations 36,576 21 (1,738) 34,859
---------------- ---------------- ---------------- ----------------
Total $ 63,737 $ 253 $ (2,047) $ 61,943
================ ================ ================ ================
<CAPTION>
1999
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
AVAILABLE FOR SALE
<S> <C> <C> <C> <C>
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)
4. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
HELD TO MATURITY
<S> <C> <C> <C> <C>
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
================ ================ ================ ================
</TABLE>
The amortized cost and estimated market values of mortgage-backed securities at
June 30, 2000, 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
---------------- ---------------- ---------------- --------------- ---------------
AVAILABLE FOR SALE
<S> <C> <C> <C> <C> <C>
Amortized cost $ - $ 1,264 $ 58 $ 8,828 $ 10,150
Estimated market value - 1,205 60 8,671 9,936
HELD TO MATURITY
Amortized cost $ - $ 20 $ 99 $ 63,618 $ 63,737
Estimated market value - 20 103 61,820 61,943
</TABLE>
At June 30, 2000 and 1999, mortgage-backed securities with an amortized cost of
$81,826 and $31,183 and estimated market values of $79,274 and $32,216, were
pledged to secure borrowings with the Federal Home Loan Bank and repurchase
agreements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. NET LOANS RECEIVABLE
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
First mortgage loans:
<S> <C> <C>
1 - 4 family dwellings $ 105,964 $ 103,035
Construction 26,935 23,810
Land acquisition and development 7,510 7,646
Multi-family dwellings 6,077 5,925
Commercial 32,149 27,826
---------------- ----------------
178,635 168,242
---------------- ----------------
Consumer loans:
Home equity 12,749 10,740
Home equity lines of credit 5,809 5,727
Education loans 57 11
Other 2,062 2,153
---------------- ----------------
20,677 18,631
---------------- ----------------
Commercial loans 1,879 1,720
---------------- ----------------
Obligations of state and political subdivisions 698 720
---------------- ----------------
Less:
Undisbursed construction and land development 15,820 16,327
Net deferred loan fees 801 817
Allowance for loan losses 1,973 1,842
---------------- ----------------
18,594 18,986
---------------- ----------------
Net loans receivable $ 183,295 $ 170,327
================ ================
</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, 2000 and 1999, is dependent upon the local economic
conditions.
Total nonaccrual loans and troubled debt restructurings and the related interest
income recognized for the years ended June 30, are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Principal outstanding $ 4,050 $ 546 $ 603
---------------- ---------------- ----------------
Interest income that would
have been recognized $ 357 $ 42 $ 64
Interest income recognized 180 41 44
---------------- ---------------- ----------------
Interest income foregone $ 177 $ 1 $ 20
================ ================ ================
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. NET LOANS RECEIVABLE (Continued)
Included in total non-accrual loans are impaired loans of $3,600 at June 30,
2000. A related allowance for loan losses of $630 has been reserved for these
impaired loans. During the year, the Bank had an average balance of $3,604, and
recognized $150 in interest income on these loans. There were no material
impaired loans at June 30, 1999.
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:
2000 1999
---------------- ----------------
Balance, July 1 $ 826 $ 1,664
Additions 95 662
Amounts collected (40) (768)
Other - (732)
---------------- ----------------
Balance, June 30 $ 881 $ 826
================ ================
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, July 1 $ 1,842 $ 1,860 $ 2,009
Add:
Provision charged to operations 150 - (120)
Recoveries - 2 10
Less loans charged off 19 20 39
---------------- ---------------- ----------------
Balance, June 30 $ 1,973 $ 1,842 $ 1,860
================ ================ ================
</TABLE>
7. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
2000 1999
---------------- ----------------
Investment and mortgage-backed securities $ 3,259 $ 2,082
Loans receivable 1,116 1,023
---------------- ----------------
Total $ 4,375 $ 3,105
================ ================
8. 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.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
9. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
2000 1999
---------------- ----------------
Land and improvements $ 264 $ 226
Buildings and improvements 1,900 1,937
Furniture, fixtures, and equipment 953 970
---------------- ----------------
3,117 3,133
Less accumulated depreciation 2,067 1,979
---------------- ----------------
Total $ 1,050 $ 1,154
================ ================
Depreciation charged to operations was $115, $116, and $126 for the years ended
June 30, 2000, 1999, and 1998, 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 Statement of Income.
10. DEPOSITS
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- ----------------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Noninterest-earning checking $ 10,485 6.1% $ 9,037 5.2%
Interest-earning checking 18,158 10.5 16,668 9.6
Savings accounts 36,995 21.4 38,923 22.3
Money market accounts 12,802 7.4 12,610 7.2
Advance payments by borrowers
for taxes and insurance 3,350 1.9 3,130 1.8
---------------- ---------------- ---------------- ----------------
81,790 47.3 80,368 46.1
---------------- ---------------- ---------------- ----------------
Savings certificates:
5.00% or less 10,509 6.1 38,906 22.3
5.01 - 6.00% 58,114 33.6 47,611 27.3
6.01 - 7.00% 21,180 12.3 4,991 2.9
7.01% or more 1,265 0.7 2,368 1.4
---------------- ---------------- ---------------- ----------------
91,068 52.7 93,876 53.9
---------------- ---------------- ---------------- ----------------
Total $ 172,858 100.0% $ 174,244 100.0%
================ ================ ================ ================
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
10. DEPOSITS (Continued)
The maturities of savings certificates at June 30, 2000, are summarized as
follows:
Within one year $ 57,231
Beyond one year but within two years 19,166
Beyond two years but within three years 5,381
Beyond three years 9,290
----------------
Total $ 91,068
================
Savings certificates with balances of $100,000 or more amounted to $12,052 and
$10,948 on June 30, 2000 and 1999, respectively. The Company does not have any
brokered deposits.
Interest expense by deposit category for the years ended June 30, are as
follows:
2000 1999 1998
---------------- ---------------- ----------------
Checking accounts $ 139 $ 141 $ 180
Savings accounts 915 920 957
Money market accounts 340 316 309
Savings certificates 4,981 5,160 5,497
---------------- ---------------- ----------------
Total $ 6,375 $ 6,537 $ 6,943
================ ================ ================
11. 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: 2000 Rate 1999 Rate
--------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
2001 $ 50,000 6.61% $ - -%
2002 - - - -
2003 - - 56,500 5.72
2004 - - - -
2005 - - - -
2006 and thereafter 38,000 5.61 47,000 5.11
---------------- ----------------
Total $ 88,000 $ 103,500
================ ================
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
11. 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:
2000 1999
------------- ------------
FHLB revolving and short-term advances:
Ending balance $ 16,500 $ 13,400
Average balance during the year 28,749 13,303
Maximum month-end balance during the year 88,200 28,550
Average interest rate during the year 5.36% 5.57%
Weighted-average rate at year-end 6.77% 5.58%
At June 30, 2000, WVS had an unused borrowing capacity of approximately $96,220.
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.
12. 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 $3,018 and $749 at June 30, 2000 and 1999, respectively.
Repurchase agreements amounted to $98,007 and $25,071 as of June 30, 2000 and
1999, respectively. The outstanding repurchase agreements generally mature
within one to ninety-two days from the transaction date and qualifying
collateral has been delivered. The Company pledged investment securities with a
carrying value of $93,849 and $25,812 at June 30, 2000 and 1999, respectively,
as collateral for the repurchase agreements and TT&L as explained in Notes 3 and
4. The following table presents information regarding other borrowings as of
June 30:
2000 1999
-------------- --------------
Ending balance $ 101,025 $ 25,820
Average balance during the year 61,927 12,473
Maximum month-end balance during the year 109,660 25,820
Average interest rate during the year 5.88% 5.12%
Weighted-average rate at year-end 6.58% 5.16%
13. COMMITMENTS AND CONTINGENT LIABILITIES
Loan commitments
In the normal course of business, there are various outstanding commitments and
certain contingent liabilities that are not reflected in the accompanying
Consolidated Balance Sheets. Various loan commitments totaling $30,424 and
$30,028 at June 30, 2000 and 1999, 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.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
13. 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 5), 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.
14. 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, it would become subject to a series of increasingly restrictive
regulatory actions.
As of June 30, 2000 and 1999, 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.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. REGULATORY CAPITAL (Continued)
The Company's and Savings Bank's actual capital ratios are presented in the
following tables, which show that both met all regulatory capital requirements.
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------------------------------------------------
WVS Financial Corp. West View Savings Bank
-------------------------------- ------------------------------------
Amount Ratio Amount Ratio
---------------- -------------- ---------------- ------------------
Total Capital (to Risk-weighted Assets)
<S> <C> <C> <C> <C>
Actual $ 29,071 15.11% $ 25,695 13.41%
To Be Well Capitalized 19,244 10.00 19,158 10.00
For Capital Adequacy Purposes 15,395 8.00 15,326 8.00
Tier I Capital (to Risk-weighted Assets)
Actual $ 27,042 14.05% $ 23,665 12.35%
To Be Well Capitalized 11,546 6.00 11,495 6.00
For Capital Adequacy Purposes 7,698 4.00 7,663 4.00
Tier I Capital (to Average Total Assets)
Actual $ 27,042 6.69% $ 23,665 5.86%
To Be Well Capitalized 20,215 5.00 20,175 5.00
For Capital Adequacy Purposes 16,172 4.00 16,140 4.00
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------------------------------------------
WVS Financial Corp. West View Savings Bank
-------------------------------- ------------------------------------
Amount Ratio Amount Ratio
---------------- -------------- ---------------- ------------------
Total Capital (to Risk-weighted Assets)
<S> <C> <C> <C> <C>
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>
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
15. 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, 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
Granted 15,960 2,000 12.02
Exercised (620) (16,600) 5.14
Forfeited (4,098) (2,400) 15.02
---------- ---------
Outstanding, June 30, 2000 110,866 16,400
========== =========
Exercisable at year-end 69,546 16,400
========== =========
Available for future grant 4,098 3,214
========== =========
</TABLE>
At June 30, 2000, for officers and employees there were 110,866 options
outstanding, of which 69,546 were exercisable at a weighted-average exercise
price of $11.87, and a weighted-average remaining contractual life of 5.92
years.
There were also 16,400 options outstanding for directors with exercise prices
between $5.00 and $15.625, with a weighted-average exercise price of $8.61, and
a weighted-average remaining contractual life of 4.32 years. All of these
options are exercisable.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
15. 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 Statement 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, 2000, 2,560 RRP shares were available for future issuance. RRP
costs are accrued to operations, and added back to stockholders' equity, over a
four to ten-year vesting period.
Employee Stock Ownership Plan ("ESOP")
WVS maintains an ESOP for the benefit of officers and Savings Bank employees who
have met certain eligibility requirements related to age and length of service.
An ESOP Trust was created, and acquired 161,000 shares of common stock in WVS's
initial public offering, using proceeds of a loan obtained from WVS, which bears
interest at one quarter point over the prime rate, adjusted quarterly. The loan,
which is secured by the shares of stock purchased, calls for quarterly interest
and principal payments over a ten-year term. The loan was repaid in full on June
30, 2000 by a contribution from the Savings Bank.
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 $627, $310, and $680 for the
years ended June 30, 2000, 1999, and 1998, respectively.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
15. STOCK BENEFIT PLANS (Continued)
The following table presents the components of the ESOP shares at June 30:
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Allocated shares 120,384 98,574 70,398
Shares released for allocation 30,225 16,099 28,176
Shares distributed (9,839) (10,391) -
Unallocated shares -- 46,325 62,424
---------------- ---------------- ----------------
Total ESOP shares 140,770 150,607 160,998
================ ================ ================
Fair value of unreleased ESOP shares $ - $ 701 $ 999
================ ================ ================
</TABLE>
16. 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
$200 for the years ended June 30, 2000, 1999, and 1998, respectively.
Directors' Deferred Compensation Plan
The Company maintains a deferred compensation plan (the "Plan") for directors
who elect to defer all or a portion of their directors' fees. Deferred fees are
paid to the participants in installments commencing in the year following the
year the individual is no longer a member of the Board of Directors.
The Plan allows for the deferred amounts to be paid in shares of common stock at
the prevailing market price on the date of distribution. For fiscal years ended
June 30, 2000, 1999, and 1998; 44,318, 42,598, and 41,598 shares respectively,
were held by the Plan.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
17. INCOME TAXES
The provision for income taxes consists of:
2000 1999 1998
---------------- ---------------- ----------------
Currently payable:
Federal $2,364 $2,035 $2,064
State 226 312 247
------ ------ ------
2,590 2,347 2,311
Deferred (121) 87 (202)
------ ------ -----
Total $2,469 $2,434 $2,109
====== ====== ======
The following temporary differences gave rise to the net deferred tax assets at
June 30:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $ 690 $ 639
Net unrealized loss on securities available for sale 101 16
Deferred compensation 305 317
Other 67 17
---------- ----------
Total gross deferred tax assets 1,163 989
---------- ----------
Deferred tax liabilities:
Bad debt reserve for tax reporting purposes 219 279
Deferred origination fees, net 98 63
Other 63 70
---------- ----------
Total gross deferred tax liabilities 380 412
---------- ----------
Net deferred tax assets $ 783 $ 577
========== ==========
</TABLE>
No valuation allowance was established at June 30, 2000 and 1999, 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.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
17. 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>
2000 1999 1998
--------------------- ---------------------- ----------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 2,328 34.0% $ 2,198 34.0% $ 1,904 34.0%
State income tax, net of federal
tax benefit 149 2.2 206 3.2 163 2.9
Other, net (8) (0.1) 30 0.5 42 0.8
---------- --------- ----------- --------- ----------- ---------
Actual tax expense and
effective rate $ 2,469 36.1% $ 2,434 37.7% $ 2,109 37.7%
========== ========= =========== ========= =========== =========
</TABLE>
18. 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,
2000 and 1999, the Savings Bank had required reserves of $738 and $684,
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 that restricts the
availability of surplus for dividend purposes. At June 30, 2000, surplus funds
of $3,363 were not available for dividends.
19. 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.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at June 30, are as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ---------------- ---------------- ----------------
FINANCIAL ASSETS
<S> <C> <C> <C> <C>
Cash, due from banks, and interest-
earning demand deposits $ 2,915 $ 2,915 $ 1,893 $ 1,893
Investment securities 137,502 130,568 92,166 89,252
Mortgage-backed securities 73,673 71,879 72,380 71,440
Net loans receivable 183,295 183,690 170,327 173,575
Accrued interest receivable 4,375 4,374 3,105 3,105
FHLB stock 5,225 5,225 6,195 6,195
---------------- ---------------- ---------------- ----------------
Total financial assets $ 406,985 $ 398,651 $ 346,066 $ 345,460
================ ================ ================ ================
FINANCIAL LIABILITIES
Deposits $ 172,858 $ 172,540 $ 174,244 $ 174,190
FHLB advances 104,500 104,115 116,900 116,029
Other borrowings 101,025 101,025 25,820 25,820
Accrued interest payable 2,704 2,704 1,929 1,929
---------------- ---------------- ---------------- ----------------
Total financial liabilities $ 381,087 $ 380,384 $ 318,893 $ 317,968
================ ================ ================ ================
</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.
If no readily available market exists, the fair value estimates for financial
instruments should be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated
losses and other factors, as determined through various option pricing formulas
or simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the resulting
estimated values may not be indicative of the amount realizable in the sale of a
particular financial instrument. In addition, changes in the assumptions on
which the estimated values are based may have a significant impact on the
resulting estimated values.
As certain assets and liabilities, such as deferred tax assets, premises and
equipment, and many other operational elements of WVS are not considered
financial instruments, but have value, this estimated fair value of financial
instruments would not represent the full market value of WVS.
Estimated fair values have been determined by WVS using the best available data,
as generally provided in internal Savings Bank reports and regulatory reports,
using an estimation methodology suitable for each category of financial
instruments. The estimation methodologies used are as follows:
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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 nonperforming loans is the appraised value of the
underlying collateral adjusted for estimated credit risk.
Demand, savings, and money market deposit accounts are reported at book value.
The fair value of certificates of deposit is based upon the discounted value of
the contractual cash flows. The discount rate is estimated using average market
rates for deposits with similar average terms.
FHLB Advances and Other Borrowings
The fair value of fixed rate advances are estimated using discounted cash flows,
based on current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amount on variable rate advances approximates their
fair value.
Commitments to Extend Credit
These financial instruments are generally not subject to sale and estimated fair
values are not readily available. The carrying value, represented by the net
deferred fee arising from the unrecognized commitment, and the fair value
determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 13 to these financial
statements.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. PARENT COMPANY
Condensed financial information of WVS Financial Corp. is as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 1999
---------------- ------------
ASSETS
<S> <C> <C>
Interest-earning deposits with subsidiary bank $ 2,283 $ 325
Investment securities available for sale 1,048 1,141
Investment and mortgage-backed securities held to maturity - 18
Investment in subsidiary bank 23,303 26,151
Loan receivable from ESOP - 232
Accrued interest receivable and other assets 341 77
---------------- ------------
TOTAL ASSETS $ 26,975 $ 27,944
================ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 64 $ 6
Stockholders' equity 26,911 27,938
---------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,975 $ 27,944
================ ============
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998
--------------- ---------------- ----------------
INCOME
<S> <C> <C> <C>
Loans $ 16 $ 24 $ 33
Investment and mortgage-backed securities 83 124 442
Dividend from subsidiary 7,429 5,000 -
Interest-earning deposits with subsidiary bank 32 31 31
Investment securities gains, net - 36 -
--------------- ---------------- ----------------
Total income 7,560 5,215 506
--------------- ---------------- ----------------
OTHER OPERATING EXPENSE 104 94 111
--------------- ---------------- ----------------
Income before equity in undistributed
earnings of subsidiary 7,456 5,121 395
Equity in undistributed earnings of subsidiary (3,081) (1,059) 3,202
--------------- ---------------- ----------------
Income before income taxes 4,375 4,062 3,597
Income taxes (4) 31 105
--------------- ---------------- ----------------
NET INCOME $ 4,379 $ 4,031 $ 3,492
=============== ================ ================
</TABLE>
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998
---------------- ---------------- ----------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 4,379 $ 4,031 $ 3,492
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary 3,081 1,059 (3,202)
Amortization of investment discounts and premiums - (21) (120)
Amortization of ESOP and RRP deferred
compensation 345 164 360
Investment securities gains, net - (36) -
Decrease in accrued interest receivable - 2 63
Other (124) 276 293
---------------- ---------------- ----------------
Net cash provided by operating activities 7,681 5,475 886
---------------- ---------------- ----------------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and
mortgage-backed securities - (2,972) (12,735)
Proceeds from sale of investment securities - 905 -
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 18 596 14,156
ESOP loan repayments 232 81 141
---------------- ---------------- ----------------
Net cash provided by investing activities 250 3,839 3,825
---------------- ---------------- ----------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 91 255 636
Cash dividends paid (1,890) (2,150) (5,249)
Purchases of treasury stock (4,174) (7,596) -
---------------- ---------------- ----------------
Net cash used for financing activities (5,973) (9,491) (4,613)
---------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents 1,958 (177) 98
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 325 502 404
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 2,283 $ 325 $ 502
================ ================ ================
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
September December March June
1999 1999 2000 2000
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total interest and dividend income $ 6,609 $ 6,931 $ 7,094 $ 7,318
Total interest expense 3,769 4,067 4,331 4,766
---------------- ---------------- ---------------- ----------------
Net interest income 2,840 2,864 2,763 2,552
Provision for loan losses - - - 150
---------------- ---------------- ---------------- ----------------
Net interest income after
provision for loan losses 2,840 2,864 2,763 2,402
Investment securities gains, net - - - -
Total noninterest income 135 144 132 194
Total noninterest expense 1,111 1,203 1,041 1,271
---------------- ---------------- ---------------- ----------------
Income before income taxes 1,864 1,805 1,854 1,325
Income taxes 727 625 723 394
---------------- ---------------- ---------------- ----------------
Net income $ 1,137 $ 1,180 $ 1,131 $ 931
================ ================ ================ ================
Per share data:
Net income
Basic $ 0.37 $ 0.40 $ 0.39 $ 0.33
Diluted 0.37 0.39 0.39 0.32
Average shares outstanding
Basic 3,056,406 2,977,411 2,915,300 2,864,368
Diluted 3,084,253 3,004,701 2,936,508 2,881,499
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
<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>
51
<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 14, 2000
were:
Bid Ask
------------- ----------
$ 12 3/16 $ 12 3/8
The following table sets forth the high and low market prices of a share of
common stock, and cash dividends declared per share, for the periods indicated.
Market Price
------------------------ Cash Dividends
Quarter Ended High Low Declared
-------------------------- ---- --- --------
June 00 $ 12 $ 11 1/2 $0.16
March 00 12 1/4 10 3/4 0.16
December 99 14 3/4 12 3/16 0.16
September 99 15 3/8 13 1/2 0.16
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
There were four Nasdaq Market Makers in the Company's common stock as of June
30, 2000: F. J. Morrissey & Co., Inc.; Legg Mason Wood Walker, Inc.; Herzog,
Heine, Geduld, Inc.; and Spear, Leeds & Kellogg.
According to the records of the Company's transfer agent, there were
approximately 940 shareholders of record at September 14, 2000. 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.
52
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP.
CORPORATE INFORMATION
--------------------------------------------------------------------------------
CORPORATE OFFICES
WVS FINANCIAL CORP.
WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
<S> <C>
COMMON STOCK BOARD OF DIRECTORS
The common stock of WVS Financial Corp. is traded on The Nasdaq David L. Aeberli
Stock MarketSM under the symbol "WVFC". President
McDonald-Aeberli Funeral Home, Inc.
TRANSFER AGENT & REGISTRAR
Registrar and Transfer Company
10 Commerce Drive Arthur H. Brandt
Cranford, NJ 07016 President and CEO Brandt Excavating, Inc. and
1-800-368-5948 Retired - Former President and CEO
Brandt Paving, Inc.
INVESTOR RELATIONS
Pamela M. Tracy David J. Bursic
412-364-1911 President and Chief Executive Officer
WVS Financial Corp. and
COUNSEL West View Savings Bank
Bruggeman & Linn
William J. Hoegel
SPECIAL COUNSEL Sole Proprietor
Elias, Matz, Tiernan & Herrick L.L.P. William J. Hoegel & Associates
WEST VIEW SAVINGS BANK Donald E. Hook
9001 Perry Highway Chairman
Pittsburgh, PA 15237 Pittsburgh Cut Flower Co.
412-364-1911
John M. Seifarth
WEST VIEW OFFICE Senior Engineer - Consultant
456 Perry Highway Nichols & Slagle Engineering, Inc.
412-931-2171
Margaret VonDerau
CRANBERRY OFFICE Senior Vice President, Treasurer and Secretary
20531 Perry Highway WVS Financial Corp. and
412-931-6080/724-776-3480 West View Savings Bank
FRANKLIN PARK OFFICE EXECUTIVE OFFICERS
2566 Brandt School Road
724-935-7100 William J. Hoegel
Chairman
BELLEVUE OFFICE
572 Lincoln Avenue David J. Bursic
412-761-5595 President and
Chief Executive Officer
SHERWOOD OAKS OFFICE
Serving Sherwood Oaks Margaret VonDerau
Cranberry Twp. Senior Vice President, Treasurer and
Corporate Secretary
LENDING DIVISION
2566 Brandt School Road Edward M. Wielgus
724-935-7400 Senior Vice President and
Chief Lending Officer
</TABLE>
The members of the Board of Directors serve in that capacity for both the
Company and the Savings Bank.
<PAGE>
A Tradition of Quality Banking
WVS FINANCIAL CORP.
