-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+wIxbC2lL0V+aFryyQmlK/rWdL5vh1jMu65DhIYQq5fZjJqAxeJckLKp+zB65NB Wpp0Z8GuRe+UwzWe5Ba5vw== 0000914317-02-000560.txt : 20020514 0000914317-02-000560.hdr.sgml : 20020514 ACCESSION NUMBER: 0000914317-02-000560 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WVS FINANCIAL CORP CENTRAL INDEX KEY: 0000910679 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 251710500 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22444 FILM NUMBER: 02646862 BUSINESS ADDRESS: STREET 1: 9001 PERRY HIGHWAY CITY: PITTSBURGH STATE: PA ZIP: 15237 BUSINESS PHONE: 4123641911 MAIL ADDRESS: STREET 1: 9001 PERRY HIGHWAY CITY: PITTSBURG STATE: PA ZIP: 15237 10-Q 1 form10q-45123.txt 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number: 0-22444 WVS Financial Corp. -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1710500 - -------------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9001 Perry Highway Pittsburgh, Pennsylvania 15237 - -------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) (412) 364-1911 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES [X] NO [ ] Shares outstanding as of May 13, 2002: 2,682,486 shares Common Stock, $.01 par value.
WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- INDEX ----- PART I. Financial Information Page - ------- --------------------- ---- Item 1. Financial Statements Consolidated Statements of Financial Condition as of March 31, 2002 and June 30, 2001 (Unaudited) 3 Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2002 and 2001 (Unaudited) 4 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2002 and 2001 (Unaudited) 5 Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended March 31, 2002 (Unaudited) 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended March 31, 2002 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II. Other Information Page - -------- ----------------- ---- Item 1. Legal Proceedings 20 Item 2. Changes in Securities and Use of Proceeds 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 -- Signatures 21
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (In thousands) March 31, 2002 June 30, 2001 -------------- ------------- Assets ------ Cash and due from banks $ 846 $ 696 Interest-earning demand deposits 1,723 2,297 Investment securities available-for-sale (amortized cost of $1,882 and $1,380) 1,925 1,379 Investment securities held-to-maturity (market value of $130,630 and $129,191) 129,536 128,213 Mortgage-backed securities available-for-sale (amortized cost of $6,593 and $8,386) 6,770 8,551 Mortgage-backed securities held-to-maturity (market value of $74,572 and $56,082) 74,089 55,582 Federal Home Loan Bank stock, at cost 8,752 8,150 Net loans receivable (allowance for loan losses of $2,752 and $2,763) 161,275 185,179 Accrued interest receivable 3,085 3,837 Premises and equipment 1,003 1,001 Deferred taxes and other assets 1,809 1,555 --------- --------- TOTAL ASSETS $ 390,813 $ 396,440 ========= ========= Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Savings Deposits: Non-interest-bearing accounts $ 10,647 $ 11,634 NOW accounts 20,919 18,411 Savings accounts 40,258 36,589 Money market accounts 15,021 12,095 Certificates of deposit 85,053 99,300 --------- --------- Total savings deposits 171,898 178,029 Federal Home Loan Bank advances 173,787 161,494 Other borrowings 9,078 20,660 Advance payments by borrowers for taxes and insurance 2,555 3,310 Accrued interest payable 1,774 2,441 Other liabilities 1,960 1,861 --------- --------- TOTAL LIABILITIES 361,052 367,795 Stockholders' equity: Preferred stock: 5,000,000 shares, no par value per share, authorized; none outstanding -- -- Common stock: 10,000,000 shares, $.01 par value per share, authorized; 3,726,280 and 3,708,590 shares issued 37 37 Additional paid-in capital 19,901 19,742 Treasury stock: 1,025,934 and 955,144 shares at cost, respectively (14,719) (13,589) Retained earnings, substantially restricted 24,478 22,478 Accumulated other comprehensive income 145 108 Unallocated shares - Recognition and Retention Plans (81) (131) Unallocated shares - Employee Stock Ownership Plan -- -- --------- --------- TOTAL STOCKHOLDERS' EQUITY 29,761 28,645 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 390,813 $ 396,440 ========= =========
See accompanying notes to unaudited consolidated financial statements. 3 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)
Three Months Ended Nine Months Ended March 31, March 31, -------------------------- ------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- INTEREST AND DIVIDEND INCOME: Loans $ 3,156 $ 3,666 $ 10,160 $ 11,029 Investment securities 1,613 2,212 5,123 7,072 Mortgage-backed securities 700 1,194 2,516 3,744 Interest-earning deposits with other institutions 3 9 11 31 Federal Home Loan Bank stock 96 146 364 386 ---------- ---------- ---------- ---------- Total interest and dividend income 5,568 7,227 18,174 22,262 ---------- ---------- ---------- ---------- INTEREST EXPENSE: Deposits 1,103 1,704 4,035 5,094 Borrowings 2,208 2,748 6,759 9,337 Advance payments by borrowers for taxes and insurance 10 11 23 25 ---------- ---------- ---------- ---------- Total interest expense 3,321 4,463 10,817 14,456 ---------- ---------- ---------- ---------- NET INTEREST INCOME 2,247 2,764 7,357 7,806 PROVISION FOR LOAN LOSSES 0 150 57 150 ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,247 2,614 7,300 7,656 ---------- ---------- ---------- ---------- NON-INTEREST INCOME: Service charges on deposits 97 86 308 278 Other 75 76 253 244 ---------- ---------- ---------- ---------- Total non-interest income 172 162 561 522 ---------- ---------- ---------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits 607 637 1,852 1,867 Occupancy and equipment 98 94 281 277 Deposit insurance premium 8 8 25 26 Data processing 49 46 142 140 Correspondent bank service charges 38 39 122 113 Other 178 165 641 529 ---------- ---------- ---------- ---------- Total non-interest expense 978 989 3,063 2,952 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 1,441 1,787 4,798 5,226 INCOME TAXES 476 643 1,483 1,881 ---------- ---------- ---------- ---------- NET INCOME $ 965 $ 1,144 $ 3,315 $ 3,345 ========== ========== ========== ========== EARNINGS PER SHARE: Basic $ 0.36 $ 0.41 $ 1.21 $ 1.19 Diluted $ 0.35 $ 0.41 $ 1.21 $ 1.18 AVERAGE SHARES OUTSTANDING: Basic 2,714,480 2,778,839 2,736,254 2,817,336 Diluted 2,720,976 2,787,946 2,745,783 2,830,674
See accompanying notes to unaudited consolidated financial statements. 4 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended March 31, -------------------------- 2002 2001 --------- --------- OPERATING ACTIVITIES Net income $ 3,315 $ 3,345 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan losses 57 150 Depreciation and amortization, net 92 83 Amortization of discounts, premiums and deferred loan fees 61 (181) Amortization of ESOP, RRP and deferred and unearned compensation 50 68 Decrease (increase) in accrued interest receivable 752 1,420 Decrease in accrued interest payable (667) (354) Decrease in accrued and deferred taxes 343 953 Other, net (131) 58 --------- --------- Net cash provided by operating activities 3,872 5,542 --------- --------- INVESTING ACTIVITIES Available-for-sale: Purchases of investments and mortgage-backed securities (19,960) -- Proceeds from repayments of investments and mortgage-backed securities 21,375 1,170 Held-to-maturity: Purchases of investments and mortgage-backed securities (259,520) (22,856) Proceeds from repayments of investments and mortgage-backed securities 239,699 46,337 Decrease (increase) in net loans receivable 23,241 (1,934) Increase in Federal Home Loan Bank stock (602) (3,682) Purchases of premises and equipment (95) (18) Proceeds from sale of Other Real Estate Owned 27 -- --------- --------- Net cash provided by investing activities 4,165 19,017 --------- ---------
5
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended March 31, -------------------------- 2002 2001 -------- ----------- FINANCING ACTIVITIES Net increase (decrease) in transaction and passbook accounts 8,116 (1,000) Net (decrease) increase in certificates of deposit (14,247) 5,956 Net (decrease) increase in FHLB short-term advances (986) 35,850 Net decrease in other borrowings (11,582) (94,496) Proceeds from FHLB long-term advances 23,279 84,000 Repayments of FHLB long-term advances (10,000) (50,000) Net decrease in advance payments by borrowers for taxes and insurance (755) (953) Net proceeds from issuance of common stock 159 91 Funds used for purchase of treasury stock (1,130) (1,563) Cash dividends paid (1,315) (1,355) -------- -------- Net cash used for financing activities (8,461) (23,470) -------- -------- Increase (decrease) in cash and cash equivalents (424) 1,089 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,993 2,915 -------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 2,569 $ 4,004 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest on deposits, escrows and borrowings $ 11,484 $ 12,306 Income taxes $ 1,160 $ 1,427 Non-cash item: Mortgage Loan Transferred to Other Real Estate Owned $ 388 -- Pennsylvania Education Tax Credit $ 100 --
See accompanying notes to unaudited consolidated financial statements. 6
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands) Accumulated Other Retained Additional Unallocated Unallocated Compre- Earnings Common Paid-In Treasury Shares Held Shares Held hensive Substantially Stock Capital Stock by ESOP by RRP Income Restricted Total ----- ------- ----- ----------- ----------- ---------- ------------- ----- Balance at June 30, 2001 $ 37 $19,742 $(13,589) $ -- $ (131) $ 108 $22,478 $28,645 Comprehensive income: Net Income 3,315 3,315 Other comprehensive income: Change in unrealized holding gains on securities, net of income tax effect of $19 37 37 ------- Comprehensive income 3,352 Purchase of shares for treasury stock (1,130) (1,130) Accrued compensation expense for Recognition and Retention Plans (RRP) 50 50 Exercise of stock options 159 159 Cash dividends declared ($0.48 per share) (1,315) (1,315) Balance at Mar. 31, 2002 $ 37 $19,901 $(14,719) $ -- $ (81) $ 145 $24,478 $29,761 ======= ======= ======== ======== ======= ========= ======= =======
See accompanying notes to unaudited consolidated financial statements. 7 WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three and nine months ended March 31, 2002, are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 141, Business Combinations, effective for all business combinations initiated after June 30, 2001, as well as all business combinations accounted for by the purchase method that are completed after June 30, 2001. The new statement requires that the purchase method of accounting be used for all business combinations and prohibits the use of the pooling-of-interests method. The adoption of FAS No. 141 is not expected to have a material effect on the Company's financial position or results of operations. In July 2001, the FASB issued FAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. The statement changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. However, the new statement did not amend FAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, which requires recognition and amortization of unidentified intangible assets relating to the acquisition of financial institutions or branches thereof. The FASB has decided to undertake a limited scope project to reconsider the provisions of FAS No. 72 in 2002. Therefore, the adoption of FAS No. 142 is not expected to have a material effect on the Company's financial position or results of operations. In August 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability be recognized when incurred for the retirement of a long-lived asset and the value of the asset be increased by that amount. The statement also requires that the liability be maintained at its present value in subsequent periods and outlines certain disclosures for such obligations. The adoption of this statement, which is effective January 1, 2003, is not expected to have a material effect on the Company's financial statements. In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. FAS No. 144 supercedes FAS No. 121 and applies to all long-lived assets (including discontinued operations) and consequently amends APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business. FAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. FAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. The adoption of this statement is not expected to have a material effect on the Company's financial statements. 8 3. EARNINGS PER SHARE ------------------ The following table sets forth the computation of basic and diluted earnings per share.
Three Months Ended Nine Months Ended March 31, March 31, ----------------------------- ----------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Weighted average common shares outstanding 3,722,989 3,698,581 3,715,153 3,691,998 Average treasury stock shares (1,008,509) (919,742) (978,899) (874,662) Average unearned ESOP shares -- -- -- -- ----------- ----------- ----------- ----------- Weighted average common shares and common stock equivalents used to calculate basic earnings per share 2,714,480 2,778,839 2,736,254 2,817,336 Additional common stock equivalents (stock options) used to calculate diluted earnings per share 6,496 9,107 9,529 13,338 ----------- ----------- ----------- ----------- Weighted average common shares and common stock equivalents used to calculate diluted earnings per share 2,720,976 2,787,946 2,745,783 2,830,674 =========== =========== =========== =========== Net income $ 965,123 $ 1,143,570 $ 3,314,490 $ 3,344,595 =========== =========== =========== =========== Earnings per share: Basic $ 0.36 $ 0.41 $ 1.21 $ 1.19 Diluted $ 0.35 $ 0.41 $ 1.21 $ 1.18 =========== =========== =========== ===========
All options at March 31, 2002 were included in the computation of diluted earnings per share, however, 78,600 options at March 31, 2001 at prices $12.875 to $15.625 were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2002 FORWARD LOOKING STATEMENTS When used in this Form 10-Q 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. GENERAL WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of West View Savings Bank ("West View" or the "Savings Bank"). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in connection with the conversion of the Savings Bank to the stock form of ownership 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 had no subsidiaries at March 31, 2002. The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Company's net income is also affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs. The Company's strategy focuses on community-based lending, growth of core deposits, generating consistent earnings growth, capital management and maintaining strong non-interest expense ratios. 10 FINANCIAL CONDITION The Company's assets totaled $390.8 million at March 31, 2002, as compared to $396.4 million at June 30, 2001. The $5.6 million or 1.4% decrease in total assets was primarily comprised of a $23.9 million or 12.9% decrease in net loans receivable, and a $752 thousand or 19.6% decrease in accrued interest receivables, which was partially offset by a $19.2 million or 9.5% increase in investment and mortgage-backed securities, including FHLB stock. The Company's total liabilities decreased $6.7 million or 1.8% to $361.1 million as of March 31, 2002, from $367.8 million as of June 30, 2001. The $6.7 million decrease in total liabilities was primarily comprised of a $11.6 million or 56.1% decrease in other borrowings, a $6.1 million or 3.4% decrease in total savings deposits, a $755 thousand or 22.8% decrease in advance payments by borrowers for taxes and insurance and a $667 thousand or 27.3% decrease in accrued interest payable, which was partially offset by a $12.3 million or 7.6% increase in FHLB advances. During the nine months ended March 31, 2002, time deposits decreased $14.2 million due to the Company's decision to reduce its offerings of municipal cash management deposits attributable to more favorable wholesale borrowing costs and a $5.2 million increase in transaction and passbook accounts. Management believes that the increase in transaction and passbook balances was attributable to a temporary change in customer preferences for short-term liquid investments due to the relatively low level of market interest rates and the September 11, 2001 World Trade Center attacks. Total stockholders' equity increased $1.1 million or 3.9% to $29.8 million as of March 31, 2002, from $28.6 million as of June 30, 2001. Capital expenditures for the Company's stock repurchase program and cash dividends totaled $1.1 million and $1.4 million, respectively, which were entirely funded by net income of $3.3 million for the nine months ended March 31, 2002. RESULTS OF OPERATIONS General. WVS reported net income of $965 thousand, or $0.35 diluted earnings per share, and $3.3 million, or $1.21 diluted earnings per share, for the three and nine months ended March 31, 2002, respectively. Net income decreased by $179 thousand or 15.6% and diluted earnings per share decreased $0.06 or 14.6% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease in net income was primarily attributable to a $517 thousand decrease in net interest income, which was partially offset by a $167 thousand decrease in income tax expense, a $150 thousand decrease in provision for loan losses, a $11 thousand decrease in non-interest expense, and a $10 thousand increase in non-interest income. For the nine months ended March 31, 2002, net income decreased by $30 thousand or 0.9% and diluted earnings per share increased $0.03 or 2.5% when compared to the same period in 2001. The decrease was principally the result of a $449 thousand decrease in net interest income and a $111 thousand increase in non-interest expense, which were partially offset by a $398 thousand decrease in income tax expense, a $93 thousand decrease in provision for loan losses, and a $39 thousand increase in non-interest income. The decrease in income tax expense for both the three and nine month periods ended March 31, 2002 was principally attributable to a decrease in taxable income and a $100 thousand Pennsylvania tax credit for charitable contributions made in support of local educational programs. Net Interest Income. The Company's net interest income decreased $517 thousand or 18.7% and $449 thousand or 5.8% for the three and nine month periods ended March 31, 2002, respectively, when compared to the same periods in 2001. The decreases were principally attributable to decreased interest income associated with the Company's investment, mortgage-backed securities, and loan portfolios which was partially offset by decreased wholesale borrowing and time deposit costs due to decreases in rates paid and average volumes during the period. 11 Interest Income. Interest income decreased $1.7 million or 23.0% and $4.1 million or 18.4% for the three and nine months ended March 31, 2002, respectively, when compared to the same periods in 2001. Interest and dividend income on interest-bearing deposits with other institutions, investment securities and FHLB stock ("other investment securities") decreased by $655 thousand or 27.7% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease was primarily attributable to a 236 basis point decrease in the weighted average yield earned on investment securities which was partially offset by a $13.9 million increase in the average balance of investment securities outstanding for the three months ended March 31, 2002, when compared to the same period in 2001. Interest on other investment securities decreased $2.0 million or 26.7% for the nine months ended March 31, 2002, when compared to the same period in 2001. The decrease in interest income on investment securities was attributable to a 175 basis point decrease in the weighted average yield earned on investment securities and a $2.6 million decrease in the average balance of investment securities outstanding for the nine months ended March 31, 2002, when compared to the same period in 2001. Interest on net loans receivable decreased by $510 thousand or 13.9% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease was attributable to a decrease of $18.0 million in the average balance of net loans receivable outstanding and a decrease of 37 basis points in the weighted average yield earned on net loans receivable for the three months ended March 31, 2002, when compared to the same period in 2001. Interest on net loans receivable decreased by $869 thousand or 7.9% for the nine months ended March 31, 2002, when compared to the same period in 2001. The decrease was attributable to a 30 basis point decrease in the weighted average yield earned on net loans receivable and a decrease of $8.0 million in the average balance of net loans receivable outstanding for the nine months ended March 31, 2002, when compared to the same period in 2001. The decreases in the average loan balance outstanding for the three and nine months ended March 31, 2002, was primarily attributable to an increased level of mortgage prepayments and refinancings due to lower market rates on mortgages. Interest on mortgage-backed securities decreased by $494 thousand or 41.4% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease was attributable to a 214 basis point decrease in the weighted average yield earned on mortgage-backed securities, and a $10.2 million decrease in the average balance of mortgage-backed securities for the three months ended March 31, 2002, when compared to the same period in 2001. Interest on mortgage-backed securities decreased $1.2 million or 32.8% for the nine months ended March 31, 2002. The decrease was primarily attributable to a 147 basis point decrease in the weighted average yield earned on mortgage-backed securities and a $10.7 million decrease in the average balance of mortgage-backed securities outstanding for the nine months ended March 31, 2002, when compared to the same period in 2001. The decrease in the average balance of mortgage-backed securities was primarily attributable to increased levels of prepayments and refinancings due to lower mortgage market rates. Interest Expense. Interest expense decreased $1.1 million or 25.6% and $3.6 million or 25.2% for the three and nine months ended March 31, 2002, respectively, when compared to the same periods in 2001. Interest expense on deposits and escrows decreased by $602 thousand or 35.1% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease in interest expense on deposits and escrows was principally attributable to a 149 basis point decrease in the average yield paid on deposits and escrows, which was partially offset by a $512 thousand increase in the average balance of interest-bearing deposits and escrows for the three months ended March 31, 2002, when compared to the same period in 2001. Interest expense on deposits and escrows decreased $1.1 million or 20.7% for the nine months ended March 31, 2002. The decrease was primarily attributable to a 95 basis point decrease in the weighted average yield paid on deposits and escrows which was partially offset by a $3.1 million increase in the average balance of interest-bearing deposits and escrows for the nine months ended March 31, 2002, when compared to the same period in 2001. The average yield paid on interest-bearing deposits and escrows decreased during both periods due to lower rates paid on deposits accounts. 12 Interest expense on FHLB advances and other borrowings decreased by $540 thousand or 19.7% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease was primarily attributable to a 74 basis point decrease in the weighted average rate paid on such borrowings and a $14.7 million or 7.6% decrease in the average balance of such borrowings outstanding for the three months ended March 31, 2002. Interest expense on FHLB advances and other borrowings decreased $2.6 million or 27.6% for the nine months ended March 31, 2002 when compared to the same period in 2001. The decrease was primarily attributable to a 105 basis point decrease in the weighted average rate paid on such borrowings and a $25.9 million or 12.9% decrease in the average balance of such borrowings for the nine months ended March 31, 2002, when compared to the same period in 2001. The reduction of average borrowings outstanding was funded by issuer redemptions of higher rate investment securities in the Company's portfolio. Provision for Loan Losses. A provision for loan losses is charged to earnings to maintain the total allowance at 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 an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors. The Company recorded no provision for possible loan losses for the three month period ended March 31, 2002 and a $57 thousand provision for possible loan losses for the nine month period ended March 31, 2002. At March 31, 2002, the Company's total allowance for loan losses amounted to $2.8 million or 1.7% of the Company's total loan portfolio, as compared to $2.8 million or 1.5% at June 30, 2001. The Company believes that the additional loan loss reserves are prudent and warranted at this time due to the weakening of the national economy. Non-Interest Income. Total non-interest income increased by $10 thousand or 6.2% and $39 thousand or 7.5% for the three and nine months ended March 31, 2002, respectively, when compared to the same periods in 2001. The increase in non-interest income for the three months ended March 31, 2002, was principally attributable to increases in deposit related service fee income. The increase in non-interest income for the nine months ended March 31, 2002, was primarily attributable to increases in deposit related service fee income and late charge income collected on the Company's mortgage loan portfolio. Non-Interest Expense. Total non-interest expense decreased $11 thousand or 1.1% for the three months ended March 31, 2002, when compared to the same period in 2001. The decrease in non-interest expense for the three months ended March 31, 2002, was primarily attributable to a $30 thousand decrease in compensation and employee benefits which was partially offset by a $14 increase in advertising costs. Total non-interest expense increased $111 thousand or 3.8% for the nine months ended March 31, 2002, when compared to the same period in 2001. The increase in non-interest expense for the nine months ended March 31, 2002, was principally attributable to a $100 thousand increase in charitable contributions for local educational programs, when compared to the same period in 2001. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaled $3.9 million during the nine months ended March 31, 2002. Net cash provided by operating activities was primarily comprised of $3.3 million of net income, a $752 thousand decrease in accrued interest receivable and a $343 thousand decrease in accrued and deferred taxes, which was partially offset by a $667 thousand decrease in accrued interest payable. Funds provided by investing activities totaled $4.2 million during the nine months ended March 31, 2002. Primary sources of funds during the nine months ended March 31, 2002, included $261.1 million of proceeds from repayments of investment and mortgage-backed securities, and $23.2 million decrease in net 13 loans receivable, which were partially offset by $280.1 million of purchases of investments and mortgage-backed securities, including Federal Home Loan Bank stock. During the quarter ended March 31, 2002, principal investment purchases were comprised of: investment grade commercial paper - $42.1 million with a weighted average yield of approximately 2.62%, callable government agency bonds - - $14.5 million with a weighted average yield to call of approximately 3.70%; and investment grade corporate bonds - $17.6 million with a weighted average yield of approximately 3.70%. Major investment proceeds received during the quarter ended March 31, 2002 were: callable government agency bonds - $3.9 million with a weighted average rate of approximately 6.78%; and investment grade commercial paper - $96.7 million with a weighted average yield of approximately 2.93%. At March 31, 2002, the Company held $80.9 million of mortgage-backed securities with an approximate weighted average yield of 4.3%. In order to mitigate risk associated with a general rise in market interest rates, approximately $55.4 million or 68.5% of the Company's mortgage-backed securities portfolio were floating rate with a weighted average yield of approximately 3.09%. During the quarter ended March 31, 2002, the Company purchased $36.2 million of floating rate CMO's at an approximate spread of one month LIBOR plus 123.4 basis points. Funds used for financing activities totaled $8.5 million for the nine months ended March 31, 2002. Primary uses of funds included a $11.6 million decrease in other short-term borrowings, a $6.9 million decrease in deposits and escrows, $1.3 million in cash dividends paid on the Company's common stock, and $1.1 million in purchased treasury stock, which were partially offset by a $12.3 million increase in FHLB advances. Management believes that it currently is maintaining adequate liquidity and continues to better match funding sources with lending and investment opportunities. During the quarter ended March 31, 2002, the Company borrowed approximately $19.8 million in various borrowings from the FHLB with a weighted average rate of 2.12%, and incurred $42.4 million in other borrowings with a weighted average rate of 1.87%. During the three months ended March 31, 2002, the Company repaid $10.5 million of FHLB advances and $65.7 million of other borrowings with weighted average rates of 5.20% and 1.87%, respectively. 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 March 31, 2002, the total approved loan commitments outstanding amounted to $930 thousand. At the same date, commitments under unused lines of credit amounted to $7.1 million and the unadvanced portion of construction loans approximated $11.1 million. Certificates of deposit scheduled to mature in one year or less at March 31, 2002, totaled $57.9 million. Management believes that a significant portion of maturing deposits will remain with the Company. Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. During the nine months ended March 31, 2002, the Company experienced large issuer redemptions in its government agency investment securities portfolio due to aggressive monetary easing by the Federal Open Market Committee, and a general downward trend in market interest rates. In response to this phenomenon, the Company purchased investment grade commercial paper and corporate bonds in order to partially mitigate the issuer redemptions of government agency bonds. 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 April 30, 2002, the Company's Board of Directors declared a cash dividend of $0.16 per share payable May 16, 2002, to shareholders of record at the close of business on May 6, 2002. 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 future periods or that, if paid, such dividends will not be reduced or eliminated. 14 As of March 31, 2002, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $29.6 million or 14.3% and $32.2 million or 15.5%, respectively, of total risk-weighted assets, and Tier I leverage capital of $29.6 million or 7.69% of average quarterly assets. Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan. The Company's nonperforming assets at March 31, 2002, totaled approximately $4.9 million or 1.3% of total assets as compared to $5.0 million or 1.3% at June 30, 2001. Nonperforming assets at March 31, 2002, consisted of $3.3 million in commercial real estate loans, $1.0 million in construction and land development loans, $244 thousand in single-family loans, and $388 thousand in other real estate owned. During the nine months ended March 31, 2002, the Company collected and recognized approximately $118 thousand in past due interest on its nonperforming loans. Approximately $167 thousand of additional interest income would have been recorded during the nine months ended March 31, 2002, if the Company's nonaccrual and restructured loans had been current in accordance with their original loan terms and outstanding throughout the nine months ended March 31, 2002. The Company continues to work with the borrowers in an attempt to cure the defaults and is also pursuing various legal avenues in order to collect on these loans. During the quarter ended March 31, 2002, the Company transferred $388 thousand from nonaccrual loans to other real estate owned. This transfer was made in connection with a U.S. Bankruptcy Court approved sale to the Company of the loan's underlying collateral. The collateral consists of three residential lots, one partially completed single-family home and one finished single-family home. Subsequent to March 31, 2002, the Company signed sales agreements with respect to one residential lot and the partially completed home with closings scheduled for the fourth quarter of fiscal 2002. The Company is marketing the remaining properties. At March 31, 2002, the recorded investment in three loans that are considered to be impaired under SFAS No. 114 was $3.6 million as compared to $3.6 million at June 30, 2001. A related allowance for loan losses totaled $1.6 million and $1.6 million at March 31, 2002 and June 30, 2001, respectively. The average recorded investment in impaired loans during the nine months ended March 31, 2002 totaled $3.6 million as compared to $3.6 million for the same period in the prior fiscal year. During the nine months ended March 31, 2002, the Company recognized approximately $100 thousand in interest income on these loans. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ASSET AND LIABILITY MANAGEMENT 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. 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. As of March 31, 2002, the Company's asset and liability management initiatives resulted in the following: 1) an aggregate of $49.9 million or 30.4% of the Company's net loan portfolio had adjustable interest rates or maturities of less than 12 months; 2) $55.4 million or 68.5% of the Company's portfolio of mortgage-backed securities (including collateralized mortgage obligations - "CMOs") were secured by floating rate securities; 3) $43.7 million or 19.8% of the Company's investment portfolio is scheduled to mature within 24 months; and 4) the term structure of the Company's borrowings as of March 31, 2002 has been positioned as follows: less than 1 year: $34.2 million or 18.7%; 3-5 years: $4.2 million or 2.3%; over 5 years: $144.5 million or 79.0%. 16 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 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.
March 31, June 30, --------- -------- 2002 2001 2000 --------- --------- --------- (Dollars in Thousands) Interest-earning assets maturing or repricing within one year $ 218,176 $ 155,928 $ 86,215 Interest-bearing liabilities maturing or repricing within one year 146,323 137,232 275,814 --------- --------- --------- Interest sensitivity gap $ 71,853 $ 18,696 $(189,599) ========= ========= ========= Interest sensitivity gap as a percentage of total assets 18.4% 4.7% (46.3)% Ratio of assets to liabilities maturing or repricing within one year 149.1 113.6% 31.3%
During the nine months ended March 31, 2002, the Company markedly improved its one year interest sensitivity gap by: (1) extending the term structure of a portion of the Company's borrowings; (2) increasing the amount of floating rate CMO's and short-term commercial paper investments; and (3) generally limiting incremental corporate bond purchases to those with repricing dates within 2 years. 17 The following table illustrates the Company's estimated stressed cumulative repricing gap - the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time - at March 31, 2002. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points.
Stressed Repricing Gap ---------------------- Long Term & Non Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 sensitive ------- ------- -------- -------- -------- -------- ------------ (Dollars in Thousands) Base Case Up 200 bp - ------------------- Cummulative Gap ($'s) 32,041 17,489 16,862 -4,648 -4,475 -24,512 0 % of Total Assets 8.2% 4.5% 4.3% -1.2% -1.1% -6.3% 0.0% Base Case Up 100 bp - ------------------- Cummulative Gap($'s) 33,139 19,304 34,575 29,073 44,020 38,456 0 % of Total Assets 8.5% 4.9% 8.8% 7.4% 11.2% 9.8% 0.0% Base Case No Change - ------------------- Cummulative Gap ($'s) 40,499 39,844 71,853 77,368 85,582 104,186 0 % of Total Assets 10.3% 10.2% 18.4% 19.8% 21.9% 26.6% 0.0% Base Case Down 100 bp - --------------------- Cummulative Gap($'s) 43,969 48,755 88,708 91,795 105,466 125,200 0 % of Total Assets 11.2% 12.5% 22.7% 23.4% 26.9% 32.0% 0.0% Base Case Down 200 bp - --------------------- Cummulative Gap ($'s) 50,842 58,394 100,393 106,992 121,841 140,791 0 % of Total Assets 13.0% 14.9% 25.6% 27.3% 31.1% 36.0% 0.0%
Beginning in the third quarter of fiscal 2001, the Company began to utilize an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to more accurately estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company's loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company's borrowings. 18 The following table presents the simulated impact of a 100 and 200 basis point upward or downward shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at March 31, 2002.
Analysis of Sensitivity to Changes in Market Interest Rates ----------------------------------------------------------- Modeled Change in Market Interest Rates (Basis Points) ------------------------------------------------------------------------- -200 -100 0 +100 +200 --- --- - --- --- Estimated impact on: - -------------------- Change in net interest income -25.0% -11.7% 0 7.2% 16.4% Return on average equity 8.34% 11.08% 13.43% 14.85% 16.61% Return on average assets 0.65% 0.87% 1.06% 1.18% 1.33% Market value of equity (in thousands) 21,936 26,615 27,218 23,817 17,469
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 March 31, 2002. Anticipated Transactions - ------------------------------------------------------------------- (Dollars in Thousands/ Weighted Average Rate) Undisbursed construction and land development loans Fixed rate $ 5,388 7.33% Adjustable rate $ 5,732 6.09% Undisbursed lines of credit Adjustable rate $ 7,069 5.54% Loan origination commitments Fixed rate $ 850 7.71% Adjustable rate $ 80 5.78% Letters of credit Adjustable rate $ 117 7.75% -------- $19,236 ======== 19 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- The Savings Bank filed a Complaint in Mortgage Foreclosure (the "Foreclosure") in March 2000 against The Development Group of Rose Valley (the "Obligor"), an obligor on two previously disclosed impaired and non-accrual loans. The Foreclosure was filed in the Court of Common Pleas of Allegheny County, Pennsylvania to request a judicial sale of the underlying real properties securing the mortgage loans due to nonpayment as per the terms of the mortgage notes. In November 2001, the Obligor filed an Answer, New Matter and Counterclaim to the Foreclosure. The counterclaims include breach of contract, promissory estoppel, breach of duty of good faith and fair dealing and tortious interference with prospective and existing business relations and seeks damages of approximately $5.2 million. In January 2002, the Court dismissed the tortious interference claim. The Company believes the remaining counterclaims are without merit. In April 2002, the Savings Bank filed a Petition for Enforcement of Assignment of Rents and for Supplementary Aid of Execution. This Petition seeks to sequester $25 thousand per month to adequately protect the Savings Bank's interest in the loan during the pending litigation and any possible workout. The legal proceedings are in the discovery phase at this time. The Savings Bank remains willing to endeavor to work towards a loan work-out with respect to these credits. ITEM 2. Changes in Securities and Use of Proceeds ----------------------------------------- Not applicable. ITEM 3. Defaults Upon Senior Securities ------------------------------- Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. ITEM 5. Other Information ----------------- Not applicable. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following exhibit is filed as part of this Form 10-Q, and this list includes the Exhibit Index. Number Description Page ------ -------------------------------- ---- 99 Independent Accountant's Report E-1 (b) The Company filed a Current Report on Form 8-K, dated February 27, 2002, reporting under Item 5 that on February 27, 2002 Lawrence M. Lehman was elected as a director of the Company and the Savings Bank. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WVS FINANCIAL CORP. May 14, 2002 BY: /s/ David J. Bursic ------------------------------------- Date David J. Bursic President and Chief Executive Officer (Principal Executive Officer) May 14, 2002 BY: /s/ Keith A. Simpson ------------------------------------- Date Keith A. Simpson Controller 21 EX-99 3 exhibit99.txt Exhibit 99 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholders WVS Financial Corporation We have reviewed the accompanying consolidated balance sheet of WVS Financial Corporation and subsidiary as of March 31, 2002, and the related consolidated statement of income for the three-month and nine-month periods ended March 31, 2002 and 2001, the consolidated statement of changes in stockholders' equity for the nine-month period ended March 31, 2002, and the consolidated statement of cash flows for the nine-month periods ended March 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of June 30, 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated July 20, 2001, we expressed an unqualified opinion on those consolidated financial statements. /s/ S. R. Snodgrass, A. C. - -------------------------- S. R. Snodgrass, A. C. Wexford, PA May 8, 2002 E-1 -----END PRIVACY-ENHANCED MESSAGE-----