-----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, KfzFs1tyll3NoZj3EeWye4YDUGe9V088grioUX7jADUddwYEq/kXql/B2Jy9W7nN 49gTUHcgiEMI27Hgy0RfCw== 0000914317-02-001086.txt : 20020930 0000914317-02-001086.hdr.sgml : 20020930 20020930160809 ACCESSION NUMBER: 0000914317-02-001086 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020930 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22444 FILM NUMBER: 02776589 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-K 1 form10k-46917.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: June 30, 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 No.: 0-22444 WVS Financial Corp. ----------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1710500 - ------------------------------------------- ---------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 9001 Perry Highway Pittsburgh, Pennsylvania 15237 ----------------------------------------- --------------------------- (Address of Principal (Zip Code) Executive Offices) Registrant's telephone number, including area code: (412) 364-1911 Securities registered pursuant to Section 12(b) of the Act: Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock (par value $.01 per share) -------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of September 24, 2002, the aggregate value of the 2,173,002 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 478,784 shares held by all directors and officers of the Registrant as a group, was approximately $34.5 million. This figure is based on the last known trade price of $15.86 per share of the Registrant's Common Stock on September 24, 2002. Number of shares of Common Stock outstanding as of September 24, 2002: 2,651,786 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) Portions of the Annual Report to Stockholders for the fiscal year ended June 30, 2002 are incorporated into Parts I, II and IV. (2) Portions of the definitive proxy statement for the 2002 Annual Meeting of Stockholders are incorporated into Part III. PART I. Item 1. Business. - ------ -------- WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of West View Savings Bank ("West View" or the "Savings Bank"). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993. West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at June 30, 2002. Lending Activities General. At June 30, 2002, the Company's net portfolio of loans receivable totaled $152.9 million, as compared to $185.2 million at June 30, 2001. Net loans receivable comprised 37.8% of Company total assets and 86.1% of total deposits at June 30, 2002, as compared to 46.7% and 102.1%, respectively, at June 30, 2001. The principal categories of loans in the Company's portfolio are single-family and multi-family residential real estate loans, commercial real estate loans, construction loans, consumer loans and land acquisition and development loans. Substantially all of the Company's mortgage loan portfolio consists of conventional mortgage loans, which are loans that are neither insured by the Federal Housing Administration ("FHA") nor partially guaranteed by the Department of Veterans Affairs ("VA"). Historically, the Company's lending activities have been concentrated in single-family residential loans secured by properties located in its primary market area of northern Allegheny County, southern Butler County and eastern Beaver County, Pennsylvania. On occasion, the Company has also purchased whole loans and loan participations secured by properties located outside of its primary market area but predominantly in Pennsylvania. The Company believes that all of its mortgage loans are secured by properties located in Pennsylvania. Moreover, substantially all of the Company's non-mortgage loan portfolio consists of loans made to residents and businesses located in the Company's primary market area. Federal regulations impose limitations on the aggregate amount of loans that a savings institution can make to any one borrower, including related entities. The permissible amount of loans-to-one borrower follows the national bank standard for all loans made by savings institutions, which generally does not permit loans-to-one borrower to exceed 15% of unimpaired capital and surplus. Loans in an amount equal to an additional 10% of unimpaired capital and surplus also may be made to a borrower if the loans are fully secured by readily marketable securities. At June 30, 2002, the Savings Bank's limit on loans-to-one borrower was approximately $3.7 million. The Company's general policy has been to limit loans-to-one borrower, including related entities, to $2.0 million although this general limit may be exceeded based on the merit of a particular credit. At June 30, 2002, the Company's five largest loans or groups of loans-to-one borrower, including related entities, ranged from an aggregate of $2.1 million to $3.5 million, and are secured primarily by real estate located in the Company's primary market area. 2 Loan Portfolio Composition. The following table sets forth the composition of the Company's net loans receivable portfolio by type of loan at the dates indicated.
At June 30, --------------------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------------------- ------------------ ---------------------- --------------------- ----------------- Amount % Amount % Amount % Amount % Amount % ------ - ------ - ------ - ------ - ------ - (Dollars in Thousands) Real estate loans: Single-family $ 89,889 53.69% $ 105,623 51.50% $ 105,964 52.49% $ 103,035 54.43% $ 104,849 61.06% Multi-family 6,173 3.69 6,920 3.37 6,077 3.01 5,925 3.12 4,012 2.34 Commercial 25,439 15.19 34,955 17.05 32,847 16.27 28,546 15.08 21,021 12.24 Construction 19,965 11.92 28,157 13.73 26,935 13.34 23,810 12.58 17,779 10.35 Land acquisition and development 6,691 4.00 6,343 3.09 7,510 3.72 7,646 4.04 7,233 4.21 ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- Total real estate Loans 148,157 88.49 181,998 88.74 179,333 88.83 168,962 89.25 154,894 90.20 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Consumer loans: Home equity 16,319 9.75 19,142 9.33 18,558 9.19 16,467 8.70 13,613 7.93 Education 1 0.00 31 0.02 57 0.03 11 0.01 591 0.34 Other 1,514 0.90 2,092 1.02 2,062 1.02 2,153 1.14 2,336 1.36 ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- Total consumer Loans 17,834 10.65 21,265 10.37 20,677 10.24 18,631 9.85 16,540 9.63 ------ ----- ------ ----- ------ ----- ------ ---- ------ ---- Commercial loans 1,447 0.86 1,819 0.89 1,879 0.93 1,720 0.90 290 0.17 ----- ---- ----- ---- ----- ---- ----- ---- --- ---- Commercial lease Financings --- 0.00 --- 0.00 --- 0.00 --- 0.00 --- 0.00 167,438 100.00% 205,082 100.00% 201,889 100.00% 189,313 100.00% 171,724 100.00% ------- ====== ------- ====== ------- ====== ------- ====== ------- ====== Less: Undisbursed loan Proceeds (11,311) (16,481) (15,820) (16,327) (11,312) Net deferred loan origination fees (464) (659) (801) (817) (815) Allowance for loan Losses (2,758) (2,763) (1,973) (1,842) (1,860) ------ ------ ------ ------ ------ Net loans Receivable $ 152,905 $ 185,179 $ 183,295 $ 170,327 $ 157,737 ========= ========= =========== ========= ===========
Contractual Maturities. The following table sets forth the scheduled contractual maturities of the Company's loans and mortgage-backed securities at June 30, 2002. The amounts shown for each period do not take into account loan prepayments and normal amortization of the Company's loan portfolio.
Real Estate Loans ------------------------------------------------------------------ Land Consumer acquisition loans and Mortgage Single- Multi- and commercial -backed family family Commercial Construction development loans securities Total ------ ------ ---------- ------------ ----------- ----- ---------- ----- (Dollars in Thousands) Amounts due in: One year or less $ 2,339 $ 5 $ 485 $11,407 $1,756 $ 812 $ 443 $ 17,247 After one year through five years 2,588 645 1,407 3,450 4,935 5,100 --- 18,125 After five years 84,962 5,523 23,547 5,108 --- 13,369 82,100 214,609 ------ ----- ------ ----- ------ ------ ------ ------- Total(1) $ 89,889 $6,173 $25,439 $19,965 $6,691 $19,281 $82,543 $249,981 ======== ====== ======= ======= ====== ======= ======= ========
Interest rate terms on amounts due after one year: Fixed $ 79,457 $3,808 $11,978 $5,108 $ 212 $12,836 $23,620 $137,019 Adjustable 8,093 2,360 12,976 3,450 4,723 5,633 58,480 95,715 ----- ----- ------ ----- ----- ----- ------ ------ Total $ 87,550 $6,168 $24,954 $8,558 $4,935 $18,469 $82,100 $232,734 ======== ====== ======= ====== ====== ======= ======= ========
- ------------------ (1) Does not include adjustments relating to loans in process, the allowance for loan losses, accrued interest, deferred fee income and unearned discounts. 3 Scheduled contractual principal repayments do not reflect the actual maturities of loans. The average maturity of loans is substantially less than their average contractual terms because of prepayments and due-on-sale clauses. The average life of mortgage loans tends to increase when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgages are substantially higher than current mortgage loan rates (due to refinancings of adjustable-rate and fixed-rate loans at lower rates). As further discussed below, the Company has from time to time renewed commercial real estate loans and speculative construction (single-family) loans due to slower than expected sales of the underlying collateral. Commercial real estate loans are generally renewed at a contract rate that is the greater of the market rate at the time of the renewal or the original contract rate. Loans secured by speculative single-family construction or developed lots are generally renewed for an additional six month term with monthly payments of interest. Subsequent renewals, if necessary, are generally granted for an additional six month term; principal amortization may also be required. Land acquisition and development loans are generally renewed for an additional twelve month term with monthly payments of interest. At June 30, 2002, the Company had approximately $6.9 million of renewed commercial real estate and construction loans. The $6.9 million in aggregate disbursed principal that has been renewed is comprised of: construction and business lines of credit totaling $4.2 million and land acquisition and single-family speculative construction loans totaling $2.7 million. Management believes that the previously discussed whole loans will self-liquidate during the normal course of business, though some additional rollovers may be necessary. All but one of the loans that have been rolled over, as discussed above, are in compliance with all loan terms, including the receipt of all required payments, and are considered performing loans. Origination, Purchase and Sale of Loans. Applications for residential real estate loans and consumer loans are obtained at all of the Company's offices. Applications for commercial real estate loans are taken only at the Company's Franklin Park office. Loan applications are primarily attributable to existing customers, builders, walk-in customers and referrals from both real estate brokers and existing customers. All processing and underwriting of real estate and commercial business is performed solely at the Company's loan division at the Franklin Park office. The Company believes this centralized approach to approving such loan applications allows it to process and approve such applications faster and with greater efficiency. The Company also believes that this approach increases its ability to service the loans. All loan applications are required to be approved by the Company's Loan Committee, comprised of both outside directors and management, which meets at least monthly. Historically, the Company has originated substantially all of the loans retained in its portfolio. Substantially all of the residential real estate loans originated by the Company have been under terms, conditions and documentation which permit their sale to the Federal National Mortgage Association and other investors in the secondary market. Although West View has not been a frequent seller of loans in the secondary market, the Savings Bank is on the Federal National Mortgage Association approved list of sellers/servicers. The Company has held most of the loans it originates in its own portfolio until maturity, due, in part, to competitive pricing conditions in the marketplace for origination by nationwide lenders and portfolio lenders. During fiscal 2002, the Company sold loans with an approximate combined principal balance of $3.0 million comprised primarily of two pools of residential loans totaling $2.7 million and education loans totaling approximately $300 thousand. The Company did not retain any servicing rights with respect to the loans sold. The Company has not been an aggressive purchaser of loans. However, the Company may purchase whole loans or loan participations in those instances where demand for new loan originations in the Company's market area is insufficient or t o increase the yield earned on the loan portfolio. Such loans are generally presented to the Company from contacts primarily at other financial institutions, particularly those 4 which have previously done business with the Company. At June 30, 2002, $3.2 million or 2.1% of the Company's total loans receivable consisted of whole loans and participation interests in loans purchased from other financial institutions which consisted of single-family mortgage pools. The Company requires that all purchased loans be underwritten in accordance with its underwriting guidelines and standards. The Company reviews loans, particularly scrutinizing the borrower's ability to repay the obligation, the appraisal and the loan-to-value ratio. Servicing of loans or loan participations purchased by the Company generally is performed by the seller, with a portion of the interest being paid by the borrower retained by the seller to cover servicing costs. At June 30, 2002, $3.2 million or 2.1% of the Company's total loans receivable were being serviced for the Company by others. The following table shows origination, purchase and sale activity of the Company with respect to loans on a consolidated basis during the periods indicated.
At or For the Year Ended June 30, ------------------------------------------------------- 2002 2001 2000 ---- ---- ---- (Dollars in Thousands) Net loans receivable beginning balance $ 185,179 $183,295 $ 170,327 Real estate loan originations Single-family(1) 5,313 7,918 13,396 Multi-family(2) 40 412 -- Commercial 578 3,268 5,989 Construction 13,634 22,255 17,157 Land acquisition and development 3,695 1,954 2,451 ----- ----- ----- Total real estate loan originations 23,260 35,807 38,993 ------ ------ ------ Home equity 3,950 5,358 6,387 Education 333 342 348 Commercial 215 295 621 Other 370 979 873 --- --- --- Total loan originations 28,128 42,781 47,222 ------ ------ ------ Disbursements against available credit lines: Home equity 3,472 4,491 4,348 Other 250 776 998 Purchase of whole loans and participations --- 2,848 --- ------ ------ ------ Total originations and purchases 31,850 50,896 52,568 ------ ------ ------ Less: Loan principal repayments 66,054 47,398 38,861 Sales of whole loans and participations(3) 2,988 313 1,093 Transferred to real estate owned 500 --- 20 Change in loans in process (5,170) 661 (508) Other, net(4) (248) 640 134 -- ---- --- --- Net increase (decrease) $ (32,274) $ 1,884 $ 12,968 --------- -------- --------- Net loans receivable ending balance $ 152,905 $185,179 $ 183,295 ========= ======== =========
- -------------------------- (1) Consists of loans secured by one-to-four family properties. (2) Consists of loans secured by five or more family properties. (3) Loans sold in fiscal years 2002, 2001 and 2000 included servicing rights. As of June 30, 2002, loans serviced for others totaled approximately $1.65 million. (4) Includes reductions for net deferred loan origination fees and the allowance for loan losses. 5 Real Estate Lending Standards. All financial institutions are required to adopt and maintain comprehensive written real estate lending policies that are consistent with safe and sound banking practices. These lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies ("Guidelines") adopted by the federal banking agencies in December 1992. The Guidelines set forth uniform regulations prescribing standards for real estate lending. Real estate lending is defined as an extension of credit secured by liens on interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate, regardless of whether a lien has been taken on the property. The policies must address certain lending considerations set forth in the Guidelines, including loan-to-value ("LTV") limits, loan administration procedures, underwriting standards, portfolio diversification standards, and documentation, approval and reporting requirements. These policies must also be appropriate to the size of the institution and the nature and scope of its operations, and must be reviewed and approved by the Board of Directors at least annually. The LTV ratio framework, with a LTV ratio being the total amount of credit to be extended divided by the appraised value of the property at the time the credit is originated, must be established for each category of real estate loans. If not a first lien, the lender must combine all senior liens when calculating this ratio. The Guidelines, among other things, establish the following supervisory LTV limits: raw land (65%); land development (75%); construction (commercial, multi-family and non-residential) (80%); improved property (85%); and one-to-four family residential (owner-occupied) (no maximum ratio; however any LTV ratio in excess of 80% should require appropriate insurance or readily marketable collateral). Consistent with its conservative lending philosophy, the Company's LTV limits are generally more restrictive than those in the Guidelines: raw land (60%); land development (70%); construction (commercial - 70%; multi-family - 75%; speculative residential - 80%); and residential properties (75% on larger family non-owner-occupied residences). Single-Family Residential Real Estate Loans. Historically, savings institutions such as the Company have concentrated their lending activities on the origination of loans secured primarily by first mortgage liens on existing single-family residences. At June 30, 2002, $89.9 million or 53.7% of the Company's total loan portfolio consisted of single-family residential real estate loans, substantially all of which are conventional loans. Single-family loan originations totaled $5.3 million and decreased $2.6 million or 32.9% during the fiscal year ended June 30, 2002, when compared to the same period in 2001. The decrease in single-family originations was primarily due to lower cyclical mortgage refinancing activity. The Company historically has originated fixed-rate loans with terms of up to 30 years. Although such loans are originated with the expectation that they will be maintained in the portfolio, these loans are originated generally under terms, conditions and documentation that permit their sale in the secondary market. The Company also makes available single-family residential adjustable-rate mortgages ("ARMs"), which provide for periodic adjustments to the interest rate, but such loans have never been as widely accepted in the Company's market area as the fixed-rate mortgage loan products. The ARMs currently offered by the Company have up to 30-year terms and an interest rate, which adjusts in accordance with one of several indices. At June 30, 2002, approximately $81.8 million or 91.0% of the single-family residential loans in the Company's loan portfolio consisted of loans which provide for fixed rates of interest. Although these loans generally provide for repayments of principal over a fixed period of 15 to 30 years, it is the Company's experience that because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time. The Company is permitted to lend up to 100% of the appraised value of real property securing a residential loan; however, if the amount of a residential loan originated or refinanced exceeds 95% of the appraised value, the Company is required by state banking regulations to obtain private mortgage insurance on the portion of the principal amount that exceeds 75% of the appraised value of the security property. Pursuant to underwriting guidelines adopted by the Board of Directors, private mortgage insurance is obtained on residential loans for which loan-to-value ratios exceed 80% according to the following schedule: loans exceeding 80% but less than 90% - 25% coverage; loans exceeding 90% but less than 95% - 30% 6 coverage; and loans exceeding 95% through 100% - 35% coverage. No loans are made in excess of 100% of appraised value. Property appraisals on the real estate and improvements securing the Company's single-family residential loans are made by independent appraisers approved by the Board of Directors. Appraisals are performed in accordance with federal regulations and policies. The Company obtains title insurance policies on most of the first mortgage real estate loans originated. If title insurance is not obtained or is unavailable, the Company obtains an abstract of title and a title opinion. Borrowers also must obtain hazard insurance prior to closing and, when required by the United States Department of Housing and Urban Development, flood insurance. Borrowers may be required to advance funds, with each monthly payment of principal and interest, to a loan escrow account from which the Company makes disbursements for items such as real estate taxes and mortgage insurance premiums as they become due. Multi-Family Residential and Commercial Real Estate Loans. The Company originates mortgage loans for the acquisition and refinancing of existing multi-family residential and commercial real estate properties. At June 30, 2002, $6.2 million or 3.7% of the Company's total loan portfolio consisted of loans secured by existing multi-family residential real estate properties, which represented a decrease of $747 thousand or 10.8% from fiscal 2001. At June 30, 2002, $25.4 million or 15.2% of the loan portfolio consisted of loans secured by existing commercial real estate properties, which represented a decrease of $8.9 million or 25.9% from fiscal 2001. During fiscal 2002, the Company chose not to emphasize originations of commercial real estate loans due to less than favorable pricing and to reduce credit risk associated with the national and local economic recessions. The majority of the Company's multi-family residential loans are secured primarily by 5 to 20 unit apartment buildings, while commercial real estate loans are secured by office buildings, hotels, small retail establishments and churches. These types of properties constitute the majority of the Company's commercial real estate loan portfolio. The Company's multi-family residential and commercial real estate loan portfolio consists primarily of loans secured by properties located in its primary market area. Although terms vary, multi-family residential and commercial real estate loans generally are amortized over a period of up to 15 years (although some loans amortize over a twenty year period) and mature in 5 to 15 years. The Company will originate these loans either with fixed or adjustable interest rates which generally is negotiated at the time of origination. Loan-to-value ratios on the Company's commercial real estate loans are currently limited to 75% or lower. As part of the criteria for underwriting multi-family residential and commercial real estate loans, the Company generally imposes a debt coverage ratio (the ratio of net cash from operations before payment of the debt service to debt service) of at least 100%. It is also the Savings Bank's general policy to obtain personal guarantees on its multi-family residential and commercial real estate loans from the principals of the borrower and, when this cannot be obtained, to impose more stringent loan-to-value, debt service and other underwriting requirements. At June 30, 2002, the Company's multi-family residential and commercial real estate loan portfolio consisted of approximately 97 loans with an average principal balance of $326 thousand. At June 30, 2002, the Company had three commercial real estate loans to three borrowers, totaling $3.3 million, that were not accruing interest. Construction Loans. In recent years, the Company has been active in originating loans to construct primarily single-family residences, and, to a much lesser extent, loans to acquire and develop real estate for construction of residential properties. These construction lending activities generally are limited to the Company's primary market area. At June 30, 2002, construction loans amounted to approximately $20.0 million or 11.9% of the Company's total loan portfolio, which represented a decrease of $8.2 million or 29.1% from fiscal 2001. The decrease was principally due to decreased levels of new home construction. As of June 30, 2002, the Company's portfolio of construction loans consisted of $17.7 million of loans for the construction of single-family residential real estate, $1.0 million of loans for the construction of commercial real estate, and $1.3 million of loans for the construction of multi-family residential real estate. Construction loan originations totaled $13.6 million and decreased by $8.6 million or 38.7% during the fiscal year ended June 30, 2002, when compared to the same period in 2001. 7 Construction loans are made for the purpose of constructing a personal residence. In such circumstances, the Company will underwrite such loans on a construction/permanent mortgage loan basis. At June 30, 2002, approximately 74.4% of total outstanding construction loans were made to local real estate builders and developers with whom the Company has worked for a number of years for the purpose of constructing primarily single-family residential developments, with 20.6% of total construction loans made to individuals for the purpose of constructing a personal residence, and 5.0% of total construction loans made to a church parish for an addition. Upon application, credit review and analysis of personal and corporate financial statements, the Company will grant local builders lines of credit up to designated amounts. These credit lines may be used for the purpose of construction of speculative (or unsold) residential properties. In some instances, lines of credit will also be granted for purposes of acquiring finished residential lots and developing speculative residential properties thereon. Such lines generally have not exceeded $1.0 million, with the largest line totaling approximately $1.2 million. Once approved for a construction line, a developer must still submit plans and specifications and receive the Company's authorization, including an appraisal of the collateral satisfactory to the Company, in order to begin utilizing the line for a particular project. As of June 30, 2002, the Company also had $6.7 million or 4.0% of the total loan portfolio invested in land development loans, which consisted of 24 loans to 19 developers. Speculative construction loans generally have maturities of 18 months, including one 6 month extension, with payments being made monthly on an interest-only basis. Thereafter, the permanent financing arrangements will generally provide for either an adjustable or fixed interest rate, consistent with the Company's policies with respect to residential and commercial real estate financing. The Company intends to maintain its involvement in construction lending within its primary market area. Such loans afford the Company the opportunity to increase the interest rate sensitivity of its loan portfolio. Commercial real estate and construction lending is generally considered to involve a higher level of risk as compared to single-family residential lending, due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on real estate developers and managers. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property's value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally more difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Company than construction loans to individuals on their personal residences. The Company has attempted to minimize the foregoing risks by, among other things, limiting the extent of its commercial real estate lending generally and by limiting its construction lending to primarily residential properties. In addition, the Savings Bank has adopted underwriting guidelines which impose stringent loan-to-value, debt service and other requirements for loans which are believed to involve higher elements of credit risk, by generally limiting the geographic area in which the Savings Bank will do business to its primary market area and by working with builders with whom it has established relationships. Consumer Loans. The Company offers consumer loans, although such lending activity has not historically been a large part of its business. At June 30, 2002, $17.8 million or 10.6% of the Company's total loan portfolio consisted of consumer loans, which represented a decrease of $3.5 million or 16.1% from fiscal 2001. The consumer loans offered by the Company include home equity loans, home equity lines of credit, education loans, automobile loans, deposit account secured loans and personal loans. Approximately 91.5% of the Company's consumer loans are secured by real estate and are primarily obtained through existing and walk-in customers. The Company will originate either a fixed-rate, fixed term home equity loan, or a home equity line of credit with a variable rate. At June 30, 2002, approximately 69.6% of the Company's home equity loans were at a fixed rate for a fixed term. Although there have been a few exceptions with greater loan-to-value ratios, substantially all of such loans are originated with a loan-to-value ratio which, when coupled with the outstanding first mortgage loan, does not exceed 80%. 8 Commercial Loans. At June 30, 2002, $1.4 million or less than 1% of the Company's total loan portfolio consisted of commercial loans, which include loans secured by accounts receivable, business inventory and equipment, and similar collateral. The $372 thousand or 20.5% decrease from fiscal 2001 was principally due to principal repayments. The Company is selectively developing this line of business in order to increase interest income and to attract compensating deposit account balances. Loan Fee Income. In addition to interest earned on loans, the Company receives income from fees in connection with loan originations, loan modifications, late payments, prepayments and for miscellaneous services related to its loans. Income from these activities varies from period to period with the volume and type of loans made and competitive conditions. The Company's loan origination fees are generally calculated as a percentage of the amount borrowed. Loan origination and commitment fees and all incremental direct loan origination costs are deferred and recognized over the contractual remaining lives of the related loans on a level yield basis. Discounts and premiums on loans purchased are accreted and amortized in the same manner. In accordance with FASB 91, the Company has recognized $285 thousand, $202 thousand and $212 thousand of deferred loan fees during fiscal 2002, 2001 and 2000, respectively, in connection with loan refinancings, payoffs and ongoing amortization of outstanding loans. The increases in loan origination fee income for fiscal year 2002 was principally attributable to a higher volume of loan refinancings. A higher volume of loan refinancings will permit the acceleration of associated deferred fee balances. Non-Performing Loans, Real Estate Owned and Troubled Debt Restructurings. When a borrower fails to make a required payment on a loan, the Company attempts to cure the deficiency by contacting the borrower and seeking payment. Contacts are generally made on the fifteenth day after a payment is due. In most cases, deficiencies are cured promptly. If a delinquency extends beyond 15 days, the loan and payment history is reviewed and efforts are made to collect the loan. While the Company generally prefers to work with borrowers to resolve such problems, when the account becomes 90 days delinquent, the Company does institute foreclosure or other proceedings, as necessary, to minimize any potential loss. Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more. The Company will continue to accrue interest on education loans past due 90 days or more because of the repayment guarantee provided by the Federal government. The Company may also continue to accrue interest if, in the opinion of management, it believes it will collect on the loan. Real estate acquired by the Company as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired, it is recorded at the lower of cost or fair value at the date of acquisition and any write-down resulting therefrom is charged to the allowance for losses on real estate owned. All costs incurred in maintaining the Company's interest in the property are capitalized between the date the loan becomes delinquent and the date of acquisition. After the date of acquisition, all costs incurred in maintaining the property are expensed and costs incurred for the improvement or development of such property are capitalized. 9 The following table sets forth the amounts and categories of the Company's non-performing assets at the dates indicated.
At June 30, ------------------------------------------------ 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (Dollars in Thousands) Non-accruing loans: Real estate: Single-family(1) $ 582 $ 201 $ 67 $189 $ 52 Commercial(2) 3,267 3,326 2,344 274 481 Construction(3) 520 1,355 1,520 --- --- Land Acquisition and Development (4) 477 --- --- --- --- Consumer --- 134 113 77 70 Commercial loans and leases(5) 198 --- 6 7 --- ------ ------ ------ ------ ------ Total non-accrual loans 5,044 5,016 4,050 547 603 ------ ------ ------ ------ ------ Accruing loans greater than 90 days Delinquent --- --- --- --- --- ------ ------ ------ ------ ------ Total non-performing loans $5,044 $5,016 $4,050 $547 $603 ------ ------ ------ ------ ------ Real estate owned 235 --- --- 218 --- ------ ------ ------ ------ ------ Total non-performing assets $5,279 $5,016 $4,050 $765 $603 ====== ====== ====== ====== ====== Troubled debt restructurings $ --- $ --- $ --- $ --- $ --- ====== ====== ====== ====== ====== Total non-performing loans and troubled debt restructurings as a percentage of net loans receivable 3.30% 2.71% 2.21% 0.32% 0.38% ====== ====== ====== ====== ====== Total non-performing assets to total assets 1.30% 1.27% 0.99% 0.22% 0.20% ====== ====== ====== ====== ====== Total non-performing assets and troubled debt restructurings as a percentage of total assets 1.30% 1.27% 0.99% 0.22% 0.20% ====== ====== ====== ====== ======
- ----------------------------- (1) At June 30, 2002, non-accrual single-family residential real estate loans consisted of three loans. (2) At June 30, 2002, non-accrual commercial real estate loans consisted of three loans. (3) At June 30, 2002, non-accrual construction loans consisted of one loan. (4) At June 30, 2002, non-accrual land acquisition and development loans consisted of one loan. (5) At June 30, 2002, non-accrual commercial loans and leases consisted of one loan. The $28 thousand increase in non-accrual loans during fiscal 2002 is comprised of a $477 thousand increase in non-accrual land acquisition and development loans, a $381 thousand increase in non-accrual single-family real estate loans and a $198 thousand increase in non-accrual commercial loans and leases, partially offset by a $835 thousand decrease in non-accrual construction loans, a $134 thousand decrease in non-accrual consumer loans and a $59 thousand decrease in non-accrual commercial real estate loans. As of June 30, 2002, the Company had three commercial real estate loans classified as non-accrual status. One of the commercial real estate loans is secured by a restaurant and real estate located in Wexford, PA. The outstanding principal balance of this loan totals $206 thousand and is part of a court supervised bankruptcy plan. In brief, the original bankruptcy plan called for payments in excess of the original loan terms to cure the deficiency with the next three years. During the quarter ended June 30, 2002, the original court appointed disbursing agent stopped making payments and is being investigated by the U.S. Attorney's Office for bankruptcy fraud and money laundering. On July 31, 2002 the United States Bankruptcy Court for the Western District of Pennsylvania appointed a successor disbursing agent for the limited purpose of disbursing funds currently held in escrow (rent payments) as well as regularly scheduled payments due under the plan. The Savings Bank has not modified the original terms of this loan and we are presently providing a loan accounting to the successor disbursing agent. We believe that a small lump sum payment from escrow, and future monthly payments, will commence in September 2002. 10 The Company has one non-accrual commercial real estate loan, and one non-accrual construction loan, to a retirement village located within the North Hills area. Both loans became delinquent in fiscal 2000. The outstanding principal balances total $3.8 million of which $2.6 million is owned by the Company and the remaining $1.2 million is serviced by the Company for four participating lenders. Prior to January 2002, the borrower had been paying $15 thousand per month towards curing the arrearages. See Part II - Other Information - Item #1, "Legal Proceedings". As of this date, the Savings Bank and the borrower have not been able to negotiate a mutually acceptable written work-out agreement; therefore no modification of these credits has occurred. The Savings Bank remains willing to endeavor to work towards a loan work-out with respect to these credits while pursuing appropriate legal remedies. The Company has one non-accruing commercial real estate loan, with a principal balance of $980 thousand, to a personal care home that was originally part of the two retirement village loans discussed above. Due to the low occupancy of the personal care home, and the related cash drain on the retirement village, the Savings Bank "carved out" approximately $1 million of loan debt from the retirement village, assigned that $1 million in debt to the personal care home, and allowed one of the obligors - a geriatric physician - to separately own and operate the personal care home as a separate facility. The borrower was in compliance with a written loan work-out agreement until February 2002. Sporadic payments have been received since March 2002. The borrower alleges insufficient operating cash, along with the loss of other income, to service the debt. The Savings Bank also holds three other loans, secured by pledges of various real estate and chattel, to this same borrower which were accruing interest as of June 30, 2002. If satisfactory payment arrangements cannot be worked-out with the borrower on these loans, the Savings Bank will classify the loans as non-accrual and begin appropriate legal proceedings during the quarter ending September 30, 2002. The loan acquisition and development loan classified as non-accrual at June 30, 2002 was released by the Bankruptcy Court and sold in July 2002. The Savings Bank recovered the full principal balance plus approximately $36 thousand in previously unaccrued interest. As of June 30, 2002 the Company had one non-accruing commercial loan with a principal balance of $198 thousand. The loan is secured by various commercial business assets including photographic equipment and a truck along with the personal guarantees of both owners. In July 2002, the Company entered into a loan work-out that provided for reduced monthly loan payments in exchange for the pledging of additional unrelated business assets. The revised payment plan went into effect in August 2002 and the borrowers are performing under the modified terms. The Company had three non-accrual single-family loans at June 30, 2002 which totaled $582 thousand. During July 2002 one of these loans, with $171 thousand of principal and $9 thousand of unaccrued interest, was satisfied in full. The other two single-family loans are in the process of collection. Real estate owned, at June 30, 2002, totaled $235 thousand and was comprised of two undeveloped residential lots and one completed single-family home. During May 2002, the Company sold one partially completed speculative construction home to an independent third party builder and realized proceeds of approximately $114 thousand with the Savings Bank financing approximately $53 thousand for completion of the home. Additionally, a developed residential lot from the same real estate owned grouping was sold with the Company realizing proceeds of approximately $38 thousand. The completed single-family home was sold in August 2002 with the Company realizing proceeds totaling approximately $188 thousand. In August 2002 the Company entered into a sales agreement to sell the remaining two lots and recorded a $15 thousand loss provision. During fiscal 2002, 2001 and 2000, approximately $408 thousand, $422 thousand and $357 thousand, respectively, of interest would have been recorded on loans accounted for on a non-accrual basis and troubled debt restructurings if such loans had been current according to the original loan agreements for the entire period. These amounts were not included in the Company's interest income for the respective periods. The amount of interest income on loans accounted for on a non-accrual basis and troubled debt restructurings that was included in income during the same periods amounted to approximately $162 thousand, $296 thousand and $180 thousand, respectively. 11 Allowances for Loan Losses. The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance. The allowance is maintained at a level believed adequate by management to absorb estimated potential loan losses. Management's determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio considering past experience, current economic conditions, composition of the loan portfolio and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change. Effective December 21, 1993, the FDIC, in conjunction with the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve Board, adopted an Interagency Policy Statement on the Allowance for Loan and Lease Losses ("Policy Statement"). The Policy Statement, which effectively supersedes previous FDIC proposed guidance, includes guidance (1) on the responsibilities of management for the assessment and establishment of an adequate allowance and (2) for the agencies' examiners to use in evaluating the adequacy of such allowance and the policies utilized to determine such allowance. The Policy Statement also sets forth quantitative measures for the allowance with respect to assets classified substandard and doubtful, described below, and with respect to the remaining portion of an institution's loan portfolio. Specifically, the Policy Statement sets forth the following quantitative measures which examiners may use to determine the reasonableness of an allowance: (1) 50% of the portfolio that is classified doubtful; (2) 15% of the portfolio that is classified substandard; and (3) for the portions of the portfolio that have not been classified (including loans designated special mention), estimated credit losses over the upcoming twelve months based on facts and circumstances available on the evaluation date. While the Policy Statement sets forth this quantitative measure, such guidance is not intended as a "floor" or "ceiling". Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: "substandard", "doubtful" and "loss". Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated "asset watch" is also utilized by the Bank for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. The Company's general policy is to internally classify its assets on a regular basis and establish prudent general valuation allowances that are adequate to absorb losses that have not been identified but that are inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are adequate to absorb losses in its loan portfolio that are not clearly attributable to specific loans. The Company's general valuation allowances are within the following ranges: (1) 0% to 5% of assets subject to special mention; (2) 5% to 25% of assets classified substandard; and (3) 50% to 100% of assets classified doubtful. Any loan classified as loss is charged-off. To further monitor and assess the risk characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem loans. Based upon the procedures in place, considering the Company's past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at June 30, 2002, is adequate. 12 The allowance for loan losses at June 30, 2002 decreased $5 thousand to $2.76 million due to charge-offs of $68 thousand, which were partially offset by additional provisions of $57 thousand and recoveries of $6 thousand. The Company believes that the loan loss reserve levels are prudent and warranted at this time due to the weakening of the national economy. The increases in prior years reflected a number of factors, the most significant of which were the industry trend towards greater emphasis on the allowance method of providing for loan losses and the specific charge-off method and the increase in non-accrual loans. The following table summarizes changes in the Company's allowance for loan losses and other selected statistics for the periods indicated.
At June 30, ---------------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (Dollars in Thousands) Average net loans $173,023 $ 185,895 $177,557 $158,651 $ 163,046 ======== ======== ======== ======== ======== Allowance balance (at beginning of period) $ 2,763 $ 1,973 $ 1,842 $ 1,860 $ 2,009 Provision for loan losses 57 788 150 --- (120) Charge-offs: Real estate: Single-family --- --- --- 5 1 Multi-family --- --- --- --- --- Commercial --- 10 --- --- --- Construction --- --- --- --- --- Land acquisition and development --- --- --- --- --- Consumer: Home equity 25 --- --- 15 15 Education --- --- --- --- --- Other 43 --- 19 --- 23 Commercial loans and leases --- 7 --- --- --- ------- ------- ------- ------- ------- Total charge-offs 68 17 19 20 39 Recoveries: Real estate: Single-family --- --- --- 1 8 Multi-family --- --- --- --- --- Commercial --- --- --- --- --- Construction --- --- --- --- --- Land acquisition and development --- --- --- --- --- Consumer: Home equity --- --- --- 1 --- Education --- --- --- --- --- Other 6 19 --- --- 1 Commercial loans and leases --- --- --- --- 1 ------- ------- ------- ------- ------- Total recoveries 6 19 --- 2 10 ------- ------- ------- ------- ------- Net loans charged-off 62 (2) 19 18 29 Transfer to real estate owned loss reserve --- --- --- --- --- ------- ------- ------- ------- ------- Allowance balance (at end of period) $ 2,758 $ 2,763 $ 1,973 $ 1,842 $ 1,860 ======= ======= ======= ======= ======= Allowance for loan losses as a percentage of total loans receivable 1.77% 1.47% 1.06% 1.07% 1.08% ==== ==== ==== ==== ==== Net loans charged-off as a percentage of average net loans 0.04% 0.01% 0.01% 0.02% 0.02% ==== ==== ==== ==== ==== Allowance for loan losses to non-performing Loans 54.68% 55.08% 48.72% 336.75% 308.46% ===== ===== ===== ====== ====== Net loans charged-off to allowance for loan Losses 2.25% (0.07)% 0.96% 0.98% 1.56% ==== ===== ==== ==== ==== Recoveries to charge-offs 8.82% 111.76% 0.00% 11.12% 25.64% ==== ====== ==== ===== =====
13 The following table presents the allocation of the allowances for loan losses by loan category at the dates indicated.
At June 30, -------------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------------- ------------------- ------------------- ------------------- ------------------- % of Total Loans by % of Total Loans by % of Total Loans by % of Total Loans by % of Total Loans by Amount Category Amount Category Amount Category Amount Category Amount Category ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- (Dollars in Thousands) Real estate loans: Single-family $191 53.69% $180 51.50% $ 167 52.49% $ 174 54.43% $ 164 61.06% Multi-family 31 3.69 35 3.37 30 3.01 152 3.12 143 2.34 Commercial 1,745 15.19 1,721 17.05 704 16.27 283 15.08 423 12.24 Construction 300 11.92 407 13.73 287 13.34 85 12.58 52 10.35 Land acquisition and development 66 4.00 41 3.09 57 3.72 57 4.04 59 4.21 Unallocated 10 0.00 --- 0.00 363 0.00 695 0.00 652 0.00 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total real estate loans 2,343 88.49 2,384 88.74 1,608 88.83 1,446 89.25 1,493 90.20 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Consumer loans: Home equity 165 9.75 231 9.33 184 9.19 202 8.70 168 7.93 Education --- 0.00 --- 0.02 1 0.03 --- 0.01 5 0.34 Other 28 0.90 73 1.02 80 1.02 24 1.14 17 1.36 Unallocated --- 0.00 --- 0.00 --- 0.00 77 0.00 167 0.00 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total consumer loans 193 10.65 304 10.37 265 10.24 303 9.85 357 9.63 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Commercial loans: Commercial loans 187 0.86 75 0.89 100 0.93 86 0.90 10 0.17 Unallocated --- 0.00 --- 0.00 --- 0.00 7 0.00 --- 0.00 Total commercial loans 187 0.86 75 0.89 100 0.93 93 0.90 10 0.17 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Commercial lease financings --- 0.00 --- 0.00 --- 0.00 --- 0.00 --- 0.00 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Off balance-sheet items 35 0.00 --- 0.00 --- 0.00 --- 0.00 --- 0.00 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ $ 2,758 100.00% $ 2,763 100.00% $ 1,973 100.00% $ 1,842 100.00% $ 1,860 100.00% ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
The Company determines its allowance for loan losses in accordance with generally accepted accounting principles. The Company uses a systematic methodology as required by Financial Reporting Release No. 28 and the various Federal Financial Institutions Examination Council guidelines. The Company also endeavors to adhere to SEC Staff Accounting Bulletin No. 102 in connection with loan loss allowance methodology and documentation issues. Our methodology used to determine the allocated portion of the allowance is as follows. For groups of homogenous loans, we apply a loss rate to the groups' aggregate balance. Our group loss rate reflects our historical loss experience. We may adjust these group rates to compensate for changes in environmental factors; but our adjustments have not been frequent due to a relatively stable charge-off experience. The Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans for individual evaluation under SFAS 114. If the individually identified loans are performing, we apply a segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed individually and considered individually impaired, we use one of the three methods for measuring impairment mandated by SFAS 114. Generally the fair value of collateral is used since to date out impaired loans are real estate based. In connection with the fair value of collateral measurement, the Company generally would use an independent appraisal and determine costs to sell. The Company's appraisals for commercial income based loans, such as the retirement village, now assess value based upon the operating cash flows of the business as opposed to merely "as built" values. The Company then validates the reasonableness of our calculated allowances by: (1) reviewing trends in loan volume, delinquencies, restructurings and concentrations; (2) review prior period (historical) charge-offs and recoveries; and (3) present the results of this process, quarterly, to the Asset Classification Committee and the Bank's Board of Directors. We then tabulate, format and summarize the current loan loss allowance balance for financial and regulatory reporting purposes. The Company had a $10 thousand unallocated loss allowance balance at June 30, 2002. In prior fiscal years, an unallocated loss allowance balance was maintained for real estate, consumer and small 14 commercial loans. With respect to real estate loans, the Company believed that it was prudent to maintain a certain level of unallocated loss allowances as the Bank grew its commercial real estate and construction segments. At the time the Company's historical loss experience with these two segments was somewhat limited. At the time management believed that risks were inherent within those segments but was uncertain as to the degree of loss. A reasonable estimate, using industry loss factors, was utilized. The same rationale applied to the unallocated allowance for consumer loans. The Company had no unallocated consumer loan allowances for the past three fiscal years. The following table summarizes the calculations of required allowance for loan losses by loan category as of June 30, 2002. Allowance for Group Rate Loan Loss ----------------- ------------ Homogenous loans: Single-family 0.0015 $ 132 Multi-family 0.0050 31 Commercial real Estate 0.0100 223 Construction/land acquisition and development 0.0015-0.0100(1) 85 Secured consumer 0.0100 165 Unsecured consumer 0.0500 26 Commercial loans 0.0500 66 Off balance-sheet items (2) 0.0100 35 Unallocated 10 Individually evaluated Loans: Single-family 59 Multi-family --- Commercial real Estate 1,522 Construction/land acquisition and development 281 Secured consumer --- Unsecured consumer 2 Commercial loans 121 Off balance-sheet items --- Total allowance for loan losses: Single-family 191 Multi-family 31 Commercial real estate 1,745 Construction/land acquisition and development 366 Secured consumer 165 Unsecured consumer 28 Commercial loans 187 Off balance-sheet items 35 Unallocated 10 ----------- Total allowance for loan losses $ 2,758 =========== - ------------------------------- (1) The rate applied ranges from 0.0015 to 0.0100 depending upon the underlying collateral, loan type (permanent vs. construction), historical loss experience, industry loss experience on similar loan segments, delinquency trends, loan volumes and concentrations, and other relevant economic and environmental factors. (2) The 1.00% rate is applied to the credit equivalent amount of the off-balance sheet item. Various off- balance sheet items have different risk weightings and credit conversion factors. 15 Management believes that the reserves it has established are adequate to cover potential losses in the Company's loan and real estate owned portfolios. However, future adjustments to these reserves may be necessary, and the Company's results of operations could be adversely affected if circumstances differ substantially from the assumptions used by management in making its determinations in this regard. Mortgage-Backed Securities Mortgage-backed securities ("MBS") include mortgage pass-through certificates ("PCs") and collateralized mortgage obligations ("CMOs"). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs may be insured or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") and the Government National Mortgage Association ("GNMA"). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called traunches) with varying stated maturities, estimated average lives, coupon rates and prepayment characteristics. All of the Company's CMOs are rated in the highest category by at least two national rating services. At June 30, 2002, the Company's MBS portfolio totaled $82.5 million as compared to $64.1 million at June 30, 2001. The $18.4 million or 28.7% increase in MBS balances outstanding during fiscal 2002 was primarily attributable to purchases of floating rate CMOs which were partially offset by principal repayments. At June 30, 2002, approximately $58.5 million or 70.9% (book value) of the Company's portfolio of MBS, including CMOs, were comprised of adjustable or floating rate instruments, as compared to $16.0 million or 25.0% at June 30, 2001. Substantially all of the Company's floating rate MBS adjust monthly based upon changes in certain short-term market indices (e.g. LIBOR, Prime, etc.). The following tables set forth the amortized cost and estimated market values of the Company's MBSs available for sale and held to maturity as of the periods indicated. 2002 2001 2000 ---- ---- ---- MBS Available for Sale at June 30, - ---------------------------------- (Dollars in Thousands) FHLMC PCs $ 48 $ 49 $ 100 GNMA PCs 2,627 2,777 2,924 FNMA PCs 3,228 4,840 6,010 CMOs - agency collateral 293 472 595 CMOs - single-family whole loan collateral --- 248 521 ------- ------- ------- Total amortized cost $ 6,196 $ 8,386 $10,150 ======= ======= ======= Total estimated market value $ 6,450 $ 8,551 $ 9,936 ======= ======= ======= MBS Held to Maturity at June 30, - -------------------------------- FHLMC PCs $ 60 $ 74 $ 107 GNMA PCs 4,069 7,413 9,217 FNMA PCs 35 27 45 CMOs - agency collateral 55,587 17,590 17,792 CMOs - single-family whole loan collateral 16,342 30,477 36,576 ------- ------- ------- Total amortized cost $76,093 $55,581 $63,737 ======= ======= ======= Total estimated market value $76,819 $56,082 $61,943 ======= ======= ======= The Company believes that its present MBS available for sale allocation of $6.2 million or 7.5% of the carrying value of the MBS portfolio, is adequate to meet anticipated future liquidity requirements and to reposition its balance sheet and asset/liability mix should it wish to do so in the future. 16 The following table sets forth the amortized cost, contractual maturities and weighted average yields of the Company's MBSs, including CMOs, at June 30, 2002.
One Year or After One to After Five to Over Ten Less Five Years Ten Years Years Total ---- ---------- --------- ----- ----- (Dollars in Thousands) MBS available for sale $ 433 $ --- $ 35 $ 5,728 $ 6,196 6.02% 0.00% 9.01% 7.23% 7.16% MBS held to maturity $ --- $ --- $ 58 $76,035 $ 76,093 0.00% 0.00% 9.03% 3.93% 3.93% ---- ---- ---- ---- ---- Total $ 433 $ --- $ 93 $81,763 $ 82,289 ========== ========= ======= ======= ======== Weighted average yield 6.02% 0.00% 9.02% 4.16% 4.18% ========== ========= ======= ======= ========
Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO traunches, the actual maturities of the Company's MBS are expected to be substantially less than the scheduled maturities. The following table sets forth information with respect to the MBS owned by the Company at June 30, 2002, which had a carrying value greater than 10% of the Company's stockholders' equity at such date, other than securities issued by the United States Government and United States Government agencies and corporations. All MBS owned by the Company have been assigned a triple A investment grade rating. Estimated Name of Issuer Carrying Value Market Value -------------- -------------- ------------ (Dollars in Thousands) Norwest Asset Securities Corp. $ 3,820 $ 3,922 Countrywide Home Loans, Inc. 4,180 4,323 Residential Funding Mortgage Securities, Inc. 3,573 3,624 ----- ----- $ 11,573 $ 11,869 ======== ======== Investment Securities The Company may invest in various types of securities, including corporate debt and equity securities, U.S. Government and U.S. Government agency obligations, securities of various federal, state and municipal agencies, FHLB stock, commercial paper, bankers' acceptances, federal funds and interest-bearing deposits with other financial institutions. The Company's investment activities are directly monitored by the Company's Investment Committee under policy guidelines adopted by the Board of Directors. In recent years, the general objective of the Company's investment policy has been to manage the Company's interest rate sensitivity gap and generally to increase interest-earning assets. As reflected in the table below, the Company experienced significant prepayments in significant portion of its investment portfolio from U.S. Government agency obligations. Outstanding balances totaled $55.2 million or 36.5% of the total investment portfolio at June 30, 2002, as compared to $87.9 million or 67.8% of the total investment portfolio at June 30, 2001. At June 30, 2002, approximately $52.7 million or 95.5% of the Company's U.S. Government Agency portfolio was comprised of U.S. Government Agency securities with longer-terms to maturity and optional principal redemption features ("callable bonds"). The Company purchased approximately $59.0 million of investment grade corporate debt securities during fiscal year 2002 and held approximately $58.4 million or 38.6% of the total investment portfolio in Corporate Debt Obligations. 17 The following tables set forth the amortized cost and estimated market values of the Company's investment securities portfolio at the dates indicated.
2002 2001 2000 ---- ---- ---- Investment Securities Available for Sale at June 30, - ---------------------------------------------------- (Dollars in Thousands) Preferred trust securities $ 860 $ 161 $ --- Corporate debt obligations 6,495 --- --- ------- ------- ------- Total amortized cost 7,355 161 --- Equity securities 1,020 1,219 1,380 ------- ------- ------- Total amortized cost $ 8,375 $ 1,380 $ 1,380 ======= ======= ======= Total estimated market value $ 8,426 $ 1,380 $ 1,296 ======= ======= ======= Investment Securities Held to Maturity at June 30, - -------------------------------------------------- Corporate debt obligations $58,415 $10,520 $ --- U.S. Government agency securities 55,216 87,927 116,052 State and municipal securities 29,327 29,766 20,154 ------ ------ ------ 142,958 128,213 136,206 FHLB stock 8,281 8,150 5,225 ----- ----- ----- Total amortized cost $151,239 $136,363 $141,431 ======== ======== ======== Total estimated market value $154,427 $137,341 $134,497 ======== ======== ========
Information regarding the amortized cost, contractual maturities and weighted average yields of the Company's investment portfolio at June 30, 2002 is presented below.
Investment Securities One Year After One to After Five to Over Ten Available for Sale or Less Five Years Ten Years Years Total - ------------------ ------- ---------- --------- ----- ----- (Dollars in Thousands) Preferred trust $ --- $ --- $ --- $ 860 $ 860 0.00% 0.00% 0.00% 9.54% 9.54% Corporate debt obligations $ 6,495 $ --- $ --- $ --- $6,495 2.67% 0.00% 0.00% 0.00% 2.67% Equity securities $ --- $ --- $ --- $ 1,020 $1,020 0.00% 0.00% 0.00% 5.76% 5.76% Total $ 6,495 $ --- $ --- $ 1,880 $8,375 ========= ===== ===== ========= ====== Weighted average yield 2.67% 0.00% 0.00% 7.49% 3.75% ========= ===== ===== ========= ======
Investment Securities One Year After One to After Five to Over Ten Held to Maturity or Less Five Years Ten Years Years Total - ---------------- ------- ---------- --------- ----- ----- Corporate debt obligations $ 48,479 $ 9,936 $ --- $ --- $ 58,415 3.82% 4.38% 0.00% 0.00% 3.92% U.S. Government agency securities $ --- $ --- $ --- $ 55,216 $ 55,216 0.00% 0.00% 0.00% 4.96% 4.96% State and municipal securities (1) $ --- $ --- $ 1,461 $ 27,866 $ 29,327 0.00% 0.00% 7.24% 8.15% 8.10% ---------- --------- --------- ---------- -------- Total $ 48,479 $ 9,936 $ 1,461 $ 83,082 $142,958 ========== ========= ========= ========== ======== Weighted average yield 3.82% 4.38% 7.24% 6.03% 5.18% ========== ========= ========= ========== ========
- ---------------------------------- (1) State and municipal security yields are calculated on a taxable equivalent basis. 18 Information regarding the amortized cost, earliest call dates and weighted average yield of the Company's investment portfolio at June 30, 2002, is presented below. All Company investments in callable bonds were classified as held to maturity at June 30, 2002.
One Year or After One to After Five to Over Ten Less Five Years Ten Years Years Total ---- ---------- --------- ----- ----- Corporate debt obligations $ 54,974 $ 9,936 $ --- $ --- $ 64,910 3.69% 4.38% 0.00% 0.00% 3.791% U.S. Government agency securities $ 47,550 $ 5,197 $ --- $ 2,469 $ 55,216 4.76% 8.03% 0.00% 2.38% 4.962% Preferred trust securities $ --- $ --- $ --- $ 860 $ 860 0.00% 0.00% 0.00% 9.54% 9.536% State and municipal securities (1) $ --- $21,759 $ 7,568 $ --- $ 29,327 0.00% 8.90% 8.58% 0.00% 8.818% ----------- ------- ---------- --------- -------- Total debt obligations $ 102,524 $36,892 $ 7,568 $ 3,329 $150,313 =========== ======= ========== ========= ======== Weighted average yield 4.18% 7.56% 8.58% 4.22% 5.235% Equity securities $ --- $ --- $ --- $ 1,020 $ 1,020 ----------- ------- ---------- --------- -------- Total $ 102,524 $36,892 $ 7,568 $ 4,349 $151,333 =========== ======= ========== ========= ========
- ---------------------------- (1) State and municipal security yields are calculated on a taxable equivalent basis. The Company to date has not engaged, and does not intend to engage in the immediate future, in trading investment securities. The following table sets forth information with respect to the investment securities owned by the Company at June 30, 2002, which had a carrying value greater than 10% of the Company's stockholders' equity at such date, other than securities issued by the United States Government and United States Government agencies and corporations. All investment securities owned by the Company, including those shown below, have been assigned an investment grade rating by at least two national rating services. The Company's investments in preferred trust securities are unrated.
Estimated Name of Issuer Carrying Value Market Value -------------- -------------- ------------ (Dollars in Thousands) Capital One Bank (2) $3,043 $3,064 Daimler Chrysler Financial Services N.A. LLC 3,637 3,650 Ford Motor Credit Co. 3,554 3,569 General Motors Acceptance Corp. 3,532 3,550 Harleysville Group, Inc. 3,383 3,374 Pittston PA Area School District 5,220 5,768 Potomac Capital Investment Corp. 3,497 3,497 Sears Roebuck Acceptance Corp. 3,407 3,439 Viacom, Inc. 3,060 3,042 ----- ----- $32,333 $32,953 ======= =======
- -------------------------------------- (2) Capital One Bank Corp. matures on February 15, 2003 and is rated as follows: Standard & Poors; BBB-; Moody's: Baa2; & Fitch BBB+. 19 Sources of Funds The Company's principal source of funds for use in lending and for other general business purposes has traditionally come from deposits obtained through the Company's home and branch offices. Funding is also derived from FHLB advances, short-term borrowings, amortization and prepayments of outstanding loans and MBS and from maturing investment securities. Deposits. The Company's deposits totaled $177.6 million at June 30, 2002, as compared to $181.3 million at June 30, 2001. The $3.7 million decrease was primarily attributable to an approximate $14.6 million decrease in certificates of deposit and a $297 thousand decrease in escrows, which were partially offset by a $8.4 million increase in core deposits and a $2.7 million increase in money market deposit accounts. In order to attract new and lower cost core deposits, the Company continued to promote a no minimum balance, "free", checking account product. Current deposit products include regular savings accounts, demand accounts, negotiable order of withdrawal ("NOW") accounts, money market deposit accounts and certificates of deposit ranging in terms from 30 days to 10 years. Included among these deposit products are certificates of deposit with negotiable interest rates and balances of $100,000 or more, which amounted to $12.3 million or 6.9% of the Company's total deposits at June 30, 2002, as compared to $16.4 million or 9.0% at June 30, 2001. The Company's deposit products also include Individual Retirement Account certificates ("IRA certificates"). The Company's deposits are obtained primarily from residents of northern Allegheny, southern Butler and eastern Beaver counties, Pennsylvania. The Company utilizes various marketing methods to attract new customers and savings deposits, including print media advertising and direct mailings. The Company does not advertise for deposits outside of its local market area or utilize the services of deposit brokers, and management believes that an insignificant number of deposit accounts were held by non-residents of Pennsylvania at June 30, 2002. The Company has drive-up banking facilities and automated teller machines ("ATMs") at its McCandless, Franklin Park, Bellevue and Cranberry Township offices. The Company also has an ATM machine at its West View Office. The Company participates in the MAC(R) and CIRRUS(R) ATM networks. The Company also participates in a new ATM program called the Freedom ATM AllianceSM. The Freedom ATM AllianceSM allows West View Savings Bank customers to use other Pittsburgh area Freedom ATM AllianceSM affiliates' ATMs without being surcharged and vice versa. The Freedom ATM AllianceSM was organized to help smaller local banks compete with larger national banks that have large ATM networks. The Company has been competitive in the types of accounts and in interest rates it has offered on its deposit products and continued to price its savings products nearer to the market average rate as opposed to the upper range of market offering rates. The Company has continued to emphasize the retention and growth of core deposits, particularly demand deposits. Financial institutions generally, including the Company, have experienced a certain degree of depositor disintermediation to other investment alternatives. Management believes that the degree of disintermediation experienced by the Company has not had a material impact on overall liquidity. 20
The following table sets forth the average balance of the Company's deposits and the average rates paid thereon for the past three years. Average balances were derived from daily average balances. At June 30, ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (Dollars in Thousands) Regular savings and club accounts $38,277 1.92% $35,623 2.51% $37,085 2.53% NOW accounts 19,463 0.31 17,543 0.54 17,356 0.56 Money market deposit accounts 13,460 1.91 12,409 2.65 12,717 2.67 Certificate of deposit accounts 90,022 4.44 93,879 5.82 92,206 5.38 Escrows 2,116 1.56 2,367 1.69 2,363 1.74 ----- ---- ----- ---- ----- ---- Total interest-bearing deposits and escrows 163,338 3.11 161,821 4.22 161,727 3.94 Non-interest-bearing checking accounts 11,814 0.00 11,616 0.00 10,281 0.00 ------ ---- ------ ---- ------ ---- Total deposits and escrows $175,152 2.90% $173,437 3.93% $172,008 3.70% ======== ==== ======== ==== ======== ====
The following table sets forth the net deposit flows of the Company during the periods indicated.
Year Ended June 30, -------------------------------------------------------------------- 2002 2001 2000 ---- ---- ---- (Dollars in Thousands) Increase(decrease) before interest credited $(9,465) $1,975 $(7,653) Interest credited 5,698 6,506 6,268 ----- ----- ----- Net deposit increase (decrease) $(3,767) $8,481 $(1,385) ======= ====== =======
The following table sets forth maturities of the Company's certificates of deposit of $100,000 or more at June 30, 2002, by time remaining to maturity. Amounts ------- (Dollars in Thousands) Three months or less $ 2,864 Over three months through six months 4,800 Over six months through twelve months 2,753 Over twelve months 1,860 ----- $12,277 ======= Borrowings. Borrowings are comprised of FHLB advances with various terms and repurchase agreements with securities brokers with original maturities of ninety-two days or less. At June 30, 2002, borrowings totaled $193.7 million as compared to $182.2 million at June 30, 2001. The $11.5 million or 6.3% increase was primarily due to increased purchases of investment and mortgage-backed securities. For a detailed discussion of the Company's asset and liability management activities, please see the "Quantitative and Qualitative Disclosures about Market Risk" section of the Company's fiscal year 2002 Annual Report. Wholesale funding also provides the Company with a larger degree of control with respect to the term structure of its liabilities than traditional retail deposits. By utilizing borrowings, as opposed to retail certificates of deposit, the Company also avoids the additional operating costs associated with increasing its branch network and associated federal deposit insurance premiums. 21 Competition The Company faces significant competition in attracting deposits. Its most direct competition for deposits has historically come from commercial banks and other savings institutions located in its market area. The Company also faces additional significant competition for investors' funds from other financial intermediaries. The Company competes for deposits principally by offering depositors a variety of deposit programs, competitive interest rates, convenient branch locations, hours and other services. The Company does not rely upon any individual group or entity for a material portion of its deposits. The Company's competition for real estate loans comes principally from mortgage banking companies, other savings institutions, commercial banks and credit unions. The Company competes for loan originations primarily through the interest rates and loan fees it charges, the efficiency and quality of services it provides borrowers, referrals from real estate brokers and builders, and the variety of its products. Factors which affect competition include the general and local economic conditions, current interest rate levels and volatility in the mortgage markets. Employees The Company had 43 full-time employees and 10 part-time employees as of June 30, 2002. None of these employees is represented by a collective bargaining agent. The Company believes that it enjoys excellent relations with its personnel. REGULATION AND SUPERVISION The Company General. The Company, as a bank holding company, is subject to regulation and supervision by the Federal Reserve Board and by the Pennsylvania Department of Banking (the "Department"). The Company is required to file annually a report of its operations with, and is subject to examination by, the Board of Governors of the Federal Reserve System ("Federal Reserve Board") and the Department. Sarbanes-Oxley Act of 2002. On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002, which generally establishes a comprehensive framework to modernize and reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors. BHCA Activities and Other Limitations. The Bank Holding Company Act of 1956, as amended ("BHCA") prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, without prior approval of the Federal Reserve Board. The BHCA also generally prohibits a bank holding company from acquiring any bank located outside of the state in which the existing bank subsidiaries of the bank holding company are located unless specifically authorized by applicable state law. No approval under the BHCA is required, however, for a bank holding company already owning or controlling 50% of the voting shares of a bank to acquire additional shares of such bank. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to weigh the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company, factoring company, trust company or savings association; performing certain 22 data processing operations; providing limited securities brokerage services; acting as an investment or financial advisor; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, non-operating basis; providing tax planning and preparation services; operating a collection agency; and providing certain courier services. The Federal Reserve Board also has determined that certain other activities, including real estate brokerage and syndication, land development, property management and underwriting of life insurance not related to credit transactions, are not closely related to banking and a proper incident thereto. Capital Requirements. The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve Board capital adequacy guidelines generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets, with at least one-half of that amount consisting of Tier I or core capital and up to one-half of that amount consisting of Tier II or supplementary capital. Tier I capital for bank holding companies generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital), less goodwill. Tier II capital generally consists of hybrid capital instruments; perpetual preferred stock which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets such as cash to 100% for the bulk of assets which are typically held by a bank holding company, including multi-family residential and commercial real estate loans, commercial business loans and consumer loans. Single-family residential first mortgage loans which are not (90 days or more) past-due or non-performing and which have been made in accordance with prudent underwriting standards are assigned a 50% level in the risk-weighting system, as are certain privately-issued MBS representing indirect ownership of such loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics. In addition to the risk-based capital requirements, the Federal Reserve Board requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets of 3%. Total assets for this purpose does not include goodwill and any other intangible assets and investments that the Federal Reserve Board determines should be deducted from Tier I capital. The Federal Reserve Board has announced that the 3% Tier I leverage capital ratio requirement is the minimum for the top-rated bank holding companies without any supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. Other bank holding companies will be expected to maintain Tier I leverage capital ratios of at least 4% to 5% or more, depending on their overall condition. The Company is in compliance with the above-described Federal Reserve Board regulatory capital requirements. Commitments to Affiliated Institutions. Under Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the Savings Bank and to commit resources to support the Savings Bank in circumstances when it might not do so absent such policy. The legality and precise scope of this policy is unclear, however, in light of recent judicial precedent. The Savings Bank General. The Savings Bank is subject to extensive regulation and examination by the Department and by the FDIC, which insures its deposits to the maximum extent permitted by law, and is subject to certain requirements established by the Federal Reserve Board. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The laws and regulations governing the Savings Bank generally have been promulgated to protect depositors and not for the purpose of protecting stockholders. FDIC Insurance Premiums. The Savings Bank currently pays deposit insurance premiums to the FDIC on a risk-based assessment system established by the FDIC for all SAIF-member institutions. Under 23 applicable regulations, institutions are assigned to one of three capital groups which is based solely on the level of an institution's capital - "well capitalized", "adequately capitalized" and "undercapitalized"- which is defined in the same manner as the regulations establishing the prompt corrective action system under Section 38 of the Federal Deposit Insurance Act ("FDIA"), as discussed below. These three groups are then divided into three subgroups which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial supervisory concern. The matrix so created results in nine assessment risk classifications, with rates ranging from 0.00% for well capitalized, healthy institutions to 0.27% for undercapitalized institutions with substantial supervisory concerns. The Savings Bank is a "well capitalized" institution as of June 30, 2002. Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks which, like the Savings Bank, are not members of the Federal Reserve System. These requirements are substantially similar to those adopted by the Federal Reserve Board regarding bank holding companies, as described above. The FDIC's capital regulations establish a minimum 3% Tier I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to 4% to 5% or more. Under the FDIC's regulation, highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and rated composite 1 under the Uniform Financial Institutions Rating System. A bank which has less than the minimum leverage capital requirement shall, within 60 days of the date as of which it fails to comply with such requirement, submit to its FDIC regional director for review and approval, a reasonable plan describing the means and timing by which the bank shall achieve its minimum leverage capital requirement. A bank which fails to file such plan with the FDIC is deemed to be operating in an unsafe and unsound manner, and could subject the bank to a cease-and-desist order from the FDIC. The FDIC's regulation also provides that any insured depository institution with a ratio of Tier I capital to total assets that is less than 2% is deemed to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is subject to potential termination of deposit insurance. However, such an institution will not be subject to an enforcement proceeding thereunder solely on account of its capital ratios if it has entered into and is in compliance with a written agreement with the FDIC to increase its Tier I leverage capital ratio to such level as the FDIC deems appropriate and to take such other action as may be necessary for the institution to be operated in a safe and sound manner. The FDIC capital regulation also provides, among other things, for the issuance by the FDIC or its designee(s) of a capital directive, which is a final order issued to a bank that fails to maintain minimum capital to be restored to the minimum leverage capital requirement within a specified time period. Such directive is enforceable in the same manner as a final cease-and-desist order. Miscellaneous The Savings Bank is subject to certain restrictions on loans to the Company, on investments in the stock or securities thereof, on the taking of such stock or securities as collateral for loans to any borrower, and on the issuance of a guarantee or letter of credit on behalf of the Company. The Savings Bank is also subject to certain restrictions on most types of transactions with the Company, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms. In addition, there are various limitations on the distribution of dividends to the Company by the Savings Bank. The foregoing references to laws and regulations which are applicable to the Company and the Savings Bank are brief summaries thereof which do not purport to be complete and which are qualified in their entirety by reference to such laws and regulations. 24 FEDERAL AND STATE TAXATION General. The Company and the Savings Bank are subject to the generally applicable corporate tax provisions of the Internal Revenue Code of 1986 (the "Code"), as well as certain provisions of the Code which apply to thrift and other types of financial institutions. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company and the Savings Bank. Fiscal Year. The Company currently files a consolidated federal income tax return on the basis of the calendar year ending on December 31. Method of Accounting. The Company maintains its books and records for federal income tax purposes using the accrual method of accounting. The accrual method of accounting generally requires that items of income be recognized when all events have occurred that establish the right to receive the income and the amount of income can be determined with reasonable accuracy and that items of expense be deducted at the later of (1) the time when all events have occurred that establish the liability to pay the expense and the amount of such liability can be determined with reasonable accuracy or (2) the time when economic performance with respect to the item of expense has occurred. Bad Debt Reserves. Historically under Section 593 of the Code, thrift institutions such as the Savings Bank, which met certain definitional tests primarily relating to their assets and the nature of their business, were permitted to establish a tax reserve for bad debts and to make annual additions within specified limitations which may have been deducted in arriving at their taxable income. The Savings Bank's deduction with respect to "qualifying loans", which are generally loans secured by certain interests in real property, may currently be computed using an amount based on the Savings Bank's actual loss experience (the "experience method"). The Small Business Job Protection Act of 1996, adopted in August 1996, generally (1) repealed the provision of the Code which authorized use of the percentage of taxable income method by qualifying savings institutions to determine deductions for bad debts, effective for taxable years beginning after 1995, and (2) required that a savings institution recapture for tax purposes (i.e. take into income) over a six-year period its applicable excess reserves. For a savings institution such as West View which is a "small bank", as defined in the Code, generally this is the excess of the balance of its bad debt reserves as of the close of its last taxable year beginning before January 1, 1996, over the balance of such reserves as of the close of its last taxable year beginning before January 1, 1988. Any recapture would be suspended for any tax year that began after December 31, 1995, and before January 1, 1998 (thus a maximum of two years), in which a savings institution originated an amount of residential loans which was not less than the average of the principal amount of such loans made by a savings institution during its six most recent taxable years beginning before January 1, 1996. The amount of tax bad debt reserves subject to recapture is approximately $1.2 million, which is being recaptured ratably over a six-year period ending December 31, 2003. In accordance with FASB No. 109, deferred income taxes have previously been provided on this amount, therefore no financial statement expense has been recorded as a result of this recapture. The Company's supplemental bad debt reserve of approximately $3.8 million is not subject to recapture. The above-referenced legislation also repealed certain provisions of the Code that only apply to thrift institutions to which Section 593 applies: (1) the denial of a portion of certain tax credits to a thrift institution; (2) the special rules with respect to the foreclosure of property securing loans of a thrift institution; (3) the reduction in the dividends received deduction of a thrift institution; and (4) the ability of a thrift institution to use a net operating loss to offset its income from a residual interest in a real estate mortgage investment conduit. The repeal of these provisions did not have a material adverse effect on the Company's financial condition or operations. Audit by IRS. The Company's consolidated federal income tax returns for taxable years through December 31, 1998, have been closed for the purpose of examination by the Internal Revenue Service. State Taxation. The Company is subject to the Pennsylvania Corporate Net Income Tax and Capital Stock and Franchise Tax. The Pennsylvania Corporate Net Income Tax rate is 9.99% and is 25 imposed on the Company's unconsolidated taxable income for federal purposes with certain adjustments. In general, the Capital Stock Tax is a property tax imposed at the rate of 0.649% of a corporation's capital stock value, which is determined in accordance with a fixed formula based upon average net income and consolidated net worth. The Savings Bank is taxed under the Pennsylvania Mutual Thrift Institutions Tax Act (enacted on December 13, 1988, and amended in July 1989) (the "MTIT"), as amended to include thrift institutions having capital stock. Pursuant to the MTIT, the Savings Bank's current tax rate is 11.5%. The MTIT exempts the Savings Bank from all other taxes imposed by the Commonwealth of Pennsylvania for state income tax purposes and from all local taxation imposed by political subdivisions, except taxes on real estate and real estate transfers. The MTIT is a tax upon net earnings, determined in accordance with generally accepted accounting principles ("GAAP") with certain adjustments. The MTIT, in computing GAAP income, allows for the deduction of interest earned on state and federal securities, while disallowing a percentage of a thrift's interest expense deduction in the proportion of those securities to the overall investment portfolio. Net operating losses, if any, thereafter can be carried forward three years for MTIT purposes. 26 Item 2. Properties. - ------- ----------- The following table sets forth certain information with respect to the offices and other properties of the Company at June 30, 2002. Description/Address Leased/Owned ------------------- ------------ McCandless Office Owned 9001 Perry Highway Pittsburgh, PA 15237 West View Boro Office Owned 456 Perry Highway Pittsburgh, PA 15229 Cranberry Township Office Owned 20531 Perry Highway Cranberry Township, PA 16066 Sherwood Oaks Office Leased(1) 100 Norman Drive Cranberry Township, PA 16066 Bellevue Boro Office Leased(2) 572 Lincoln Avenue Pittsburgh, PA 15202 Franklin Park Boro Office Owned 2566 Brandt School Road Wexford, PA 15090 - ----------------------------- (1) The Company operates this office out of a retirement community. The lease expires in June 2003. (2) The lease is for a period of 15 years ending in September 2006 with an option for the Company to renew the lease for an additional five years. Item 3. Legal Proceedings. - ------- ------------------- The 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 tortuous interference with prospective and existing business relations and seeks damages of approximately $5.2 million. In January 2002, the Court dismissed the tortuous interference claim. The Company believes the remaining counterclaims are without merit. The Company anticipates a January 2003 trial date for the Foreclosure. 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 discovery phase of the Petition is substantially complete and the Company anticipates a Court review during October 2002. The Savings Bank remains willing to endeavor to work towards a loan work-out with respect to these credits. 27 Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- Not applicable. PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - ------- ---------------------------------------------------------------------- The information required herein is incorporated by reference from page 47 of the Company's 2002 Annual Report. Item 6. Selected Financial Data. - ------- ------------------------- The information required herein is incorporated by reference from pages 2 to 3 of the Company's 2002 Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------- ------------------------------------------------------------------------ of Operations. -------------- The information required herein is incorporated by reference from pages 4 to 17 of the Company's 2002 Annual Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. - -------- ----------------------------------------------------------- The information required herein is incorporated by reference from pages 11 to 15 of the Company's 2002 Annual Report. Item 8. Financial Statements and Supplementary Data. - ------- -------------------------------------------- The information required herein is incorporated by reference from pages 18 to 46 of the Company's 2002 Annual Report. PART III. Item 9. Changes in and Disagreements on Accounting and Financial Disclosure. - ------- -------------------------------------------------------------------- Not applicable. Item 10. Directors and Executive Officers of the Registrant. - -------- --------------------------------------------------- The information required herein is incorporated by reference from pages 2 to 6 of the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders dated September 27, 2002 ("Proxy Statement"). Item 11. Executive Compensation. - -------- ----------------------- The information required herein is incorporated by reference from pages 9 to 14 of the Company's Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. - -------- --------------------------------------------------------------- The information required herein is incorporated by reference from pages 7 to 9 of the Company's Proxy Statement. Item 13. Certain Relationships and Related Transactions. - -------- ----------------------------------------------- The information required herein is incorporated by reference from pages 14 to 15 of the Company's Proxy Statement. 28 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - -------- ---------------------------------------------------------------- (a) Documents filed as part of this report. (1)The following documents are filed as part of this report and are incorporated herein by reference from the Company's 2002 Annual Report. Report of Independent Auditors. Consolidated Balance Sheets at June 30, 2002 and 2001. Consolidated Statements of Income for the Years Ended June 30, 2002, 2001 and 2000. Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 2002, 2001 and 2000. Consolidated Statements of Cash Flows for the Years Ended June 30, 2002, 2001 and 2000. Notes to the Consolidated Financial Statements. (2) All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission ("SEC") are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto. (3) (a) The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.
No. Description Page --- ----------- ---- 3.1 Articles of Incorporation * 3.2 By-Laws * 4 Stock Certificate of WVS Financial Corp. * 10.1 WVS Financial Corp. Recognition Plans and Trusts for Executive Officers, Directors and Key Employees** * 10.2 WVS Financial Corp. 1993 Stock Incentive Plan** * 10.3 WVS Financial Corp. 1993 Directors' Stock Option Plan** * 10.4 WVS Financial Corp. Employee Stock Ownership Plan and Trust** * 10.5 Amended West View Savings Bank Employee Profit Sharing Plan** * 10.6 Employment Agreements between WVS Financial Corp. and David Bursic, Margaret VonDerau and Edward Wielgus ** *** 10.7 Directors Deferred Compensation Program** * 13 2002 Annual Report to Stockholders E-1 21 Subsidiaries of the Registrant - Reference is made to Item 1. "Business" for the required information 2 23 Consent of Independent Auditors E-53
* Incorporated by reference from the Registration Statement on Form S-1 (Registration No. 33-67506) filed by the Company with the SEC on August 16, 1993, as amended. ** Management contract or compensatory plan or arrangement. *** Incorporated by reference from the Form 10-Q for the quarter ended September 30, 1998 filed by the Company with the SEC on November 13, 1998. (3)(b)Not applicable. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WVS FINANCIAL CORP. September 24, 2002 By: /s/ David J. Bursic ------------------------------ David J. Bursic President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ David J. Bursic - ------------------------------------------ David J. Bursic, Director, President and September 24, 2002 Chief Executive Officer (Principal Executive Officer) /s/ Donald E. Hook - ------------------------------------------ Donald E. Hook September 24, 2002 Chairman of the Board /s/ Margaret VonDerau - ------------------------------------------ Margaret VonDerau, Director, September 24, 2002 Senior Vice President, Treasurer and Corporate Secretary /s/ Keith A. Simpson - ------------------------------------------ Keith A. Simpson, September 24, 2002 Controller (Principal Accounting Officer) /s/ David L. Aeberli - ------------------------------------------ David L. Aeberli, Director September 24, 2002 /s/ Arthur H. Brandt - ------------------------------------------ Arthur H. Brandt, Director September 24, 2002 /s/ Lawerence M. Lehman - ------------------------------------------ Lawrence M. Lehman, Director September 24, 2002 /s/ John M. Seifarth - ------------------------------------------ John M. Seifarth, Director September 24, 2002 30 CERTIFICATION I, David J. Bursic, certify that: 1. I have reviewed this annual report on Form 10-K of WVS Financial Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have; a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and Audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 24, 2002 /s/ David J. Bursic ----------------------- David J. Bursic President and Chief Executive Officer 31 CERTIFICATION I, Keith A. Simpson, certify that: 1. I have reviewed this annual report on Form 10-K of WVS Financial Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have; a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and Audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 24, 2002 /s/ Keith A. Simpson ---------------------------- Keith A. Simpson Controller and Assistant Treasurer (Principal Accounting Officer) 32 EX-13 3 exhibit13.txt W V S FINANCIAL - --------- CORP. THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK 2002 Annual Report TABLE OF CONTENTS Page Number ------ Report of Independent Auditors 18 Consolidated Balance Sheets 19 Consolidated Statements of Income 20 Consolidated Statements of Changes in Stockholders' Equity 21 Consolidated Statements of Cash Flows 22 Notes to the Consolidated Financial Statements 23 Common Stock Market Price and Dividend Information 47 Corporate Information 48 To Our Stockholders: We are pleased to report another strong year of financial success. Company net income during fiscal 2002 totaled $4.4 million or $1.63 per diluted share- the second best year in our Company's history. Return on average stockholders equity was 14.85% while book value per share grew by 8.65% and totaled $11.30 on June 30, 2002. Our Company's stock price began the fiscal year at $14.00 and closed at $15.82 on June 30, 2002. The resulting $1.82 appreciation in stock price, coupled with cash dividends paid of $0.64 per share, resulted in an impressive total return of approximately 17.6%. This was achieved during a year of high market volatility, and substantial losses experienced by the equity markets. As we look forward to fiscal 2003, a continuing challenge will be dealing with markedly low interest rates and the related compression of net interest margins. Since our last annual report to you, the Federal Reserve further reduced interest rates four times for a total of one hundred and seventy-five basis points. These actions were taken by the Federal Reserve in response to the terrorist attacks of September 11, 2001 and continued weakness in the national economy. Lower market interest rates impact the amount of interest income that we earn on our assets, and the rates that we can offer our borrowers and depositors. Before the end of calendar year 2002, we also anticipate a total replacement of the Bank's technology platform. Our goal is to continue to use technology to better serve customers and improve our "back office" processing. We also recognize that we must manage today for an eventual increase in interest rates in order to protect our balance sheet and ongoing profitability. During fiscal 2002 we significantly improved the Company's interest rate risk posture. Our capital structure was strengthened by increasing retained earnings. We also continued to enhance the liquidity of your investment by continuing to repurchase about 96,700 shares of our common stock. Capital management will continue to be our focus in order to deliver continuing shareholder value. The Company's Board of Directors continues to be actively involved in the Company's strategic planning. Bill Hoegel, our previous Chairman, retired during the fiscal year and moved to Florida. Bill served with distinction as a director since 1984 and as Chairman since 1999. Bill's seventeen years of dedicated service, marketing focus, and good cheer will be missed but not forgotten. Don Hook was elected as Chairman in October 2001. The Board of Directors believes that Don's extensive business and non-profit board leadership background will help to further strengthen the Company and the Bank. We also welcome Larry Lehman to the Board. Larry was elected to the Board effective March 2002, has over twenty-seven years of insurance sales and service experience, and holds a number of insurance professional designations. Larry's business contacts, insurance background and community involvement will enhance our business opportunities. 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/ Donald E. Hook - ----------------------- ---------------------- DAVID J. BURSIC DONALD E. HOOK President and Chairman of the Board Chief Executive Officer
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA As of or For the Year Ended June 30, --------------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------------- -------------- --------------- -------------- -------------- (Dollars in Thousands, except per share data) Selected Financial Data: Total assets $ 404,911 $ 396,440 $ 409,618 $ 348,408 $ 297,054 Net loans receivable 152,905 185,179 183,295 170,327 157,737 Mortgage-backed securities 82,543 64,132 73,673 72,380 46,314 Investment securities 151,384 129,593 137,502 92,166 81,268 Savings deposit accounts 174,659 178,029 169,508 171,114 167,670 FHLB advances 159,937 161,494 104,500 116,900 88,857 Other borrowings 33,731 20,660 101,025 25,820 889 Stockholders' equity 30,253 28,645 26,911 27,938 32,978 Non-performing assets and troubled debt restructurings(1) 5,279 5,016 4,050 765 603 Selected Operating Data: Interest income $ 23,760 $ 29,185 $ 27,987 $ 23,031 $ 22,178 Interest expense 14,025 18,561 16,933 12,739 11,781 Net interest income 9,735 10,624 11,054 10,292 10,397 Provision for loan losses 57 788 150 -- (120) ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 9,678 9,836 10,904 10,292 10,517 Non-interest income 687 669 570 458 506 Non-interest expense 4,104 3,787 4,626 4,285 5,422 ----------- ----------- ----------- ----------- ----------- Income before income tax expense 6,261 6,718 6,848 6,465 5,601 Income tax expense 1,813 1,956 2,469 2,434 2,109 ----------- ----------- ----------- ----------- ----------- Net income $ 4,448 $ 4,762 $ 4,379 $ 4,031 $ 3,492 =========== =========== =========== =========== =========== Per Share Information: Basic earnings $ 1.63 $ 1.70 $ 1.48 $ 1.18 $ 1.01 Diluted earnings $ 1.63 $ 1.69 $ 1.47 $ 1.17 $ 0.98 Dividends per share(2) $ 0.64 $ 0.64 $ 0.64 $ 0.63 $ 1.50 Dividend payout ratio(2) 39.26% 37.65% 43.24% 53.39% 148.51% Book value per share at period end $ 11.30 $ 10.40 $ 9.35 $ 8.81 $ 9.12 Average shares outstanding: Basic 2,723,891 2,804,125 2,953,720 3,405,662 3,470,479 Diluted 2,732,491 2,815,867 2,977,089 3,435,738 3,574,043
2
As of or For the Year Ended June 30, ------------------------------------------------------------------------ 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Selected Operating Ratios(3): Average yield earned on interest- earning assets(4) 6.41% 7.51% 7.41% 7.32% 7.71% Average rate paid on interest- bearing liabilities 4.13 5.21 4.91 4.64 4.77 Average interest rate spread(5) 2.28 2.30 2.50 2.68 2.94 Net interest margin(5) 2.74 2.83 2.97 3.27 3.61 Ratio of interest-earning assets to interest-bearing liabilities 112.34 111.33 110.57 114.54 116.65 Non-interest expense as a percent of average assets 1.07 0.94 1.20 1.35 1.86 Return on average assets 1.16 1.19 1.14 1.27 1.20 Return on average equity 14.85 17.17 16.27 13.01 10.45 Ratio of average equity to average Assets 7.78 6.92 6.99 9.76 11.48 Full-service offices at end of period 5 5 5 5 5 Asset Quality Ratios(3): Non-performing loans and troubled debt restructurings as a percent of net total loans(1) 3.30% 2.71% 2.21% 0.32% 0.38% Non-performing assets as a percent of total assets(1) 1.30 1.27 0.99 0.22 0.20 Non-performing assets and troubled debt restructurings as a percent of total assets 1.30 1.27 0.99 0.22 0.20 Allowance for loan losses as a percent of total loans receivable 1.77 1.47 1.06 1.07 1.08 Allowance for loan losses as a percent of non-performing loans 54.68 55.08 48.72 336.75 308.46 Charge-offs to average loans receivable outstanding during the period 0.04 0.01 0.01 0.02 0.02 Capital Ratios(3): Tier 1 risk-based capital ratio 13.42% 14.15% 14.05% 15.85% 20.90% Total risk-based capital ratio 14.66 15.40 15.11 16.90 22.09 Tier 1 leverage capital ratio 7.69 7.35 6.69 8.29 10.98
______________________________________ (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) Dividends per share and dividend payout ratios include a special cash dividend of $0.95 per share, paid during fiscal 1998. (3) Consolidated asset quality ratios and capital ratios are end of period ratios, except for 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. (4) Interest and yields on tax-exempt loans and securities (tax-exempt for federal income tax purposes) are shown on a fully taxable equivalent basis. (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 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, 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 strategic focus includes: Steady Income in Market Price and Book Value - During fiscal 2002, the Company's market price outperformed such broad market indexes as the Standard & Poor's 500 and the Total NASDAQ (US). Book value has grown at a compounded annual rate of 8.65% from $8.81 in fiscal 1999 to $11.30 in fiscal 2002. Commitment to Capital Management - The Company is committed to maximizing long-term shareholder value. Specific components of this strategy include: (1) the repurchase of 96,728 shares of Company common stock during fiscal 2002; (2) and paying an above-average dividend yield in excess of 4.00% on the Company's common stock during fiscal 2002. Substantial Net Income - During fiscal 2002, the Company earned $4.4 million or $1.63 per share (basic and diluted). Fiscal 2002 return on average stockholders' equity was 14.85% while return on average assets totaled 1.16%. Growth of Core Deposits - As of June 30, 2002, $89.9 million or 51.5% of West View's total deposits consisted of regular savings and club accounts, money market deposit accounts, and checking accounts. Approximately $41.6 million or 46.3% of core deposits consisted of regular savings and club accounts. Checking account balances grew $3.4 million or 11.5% during fiscal 2002 and totaled $33.5 million or 37.3% of core deposits at June 30, 2002. 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 its market area. Typical loan offerings include home mortgages, construction loans, and consumer loans for home improvement, automobile loans and home equity loans. West View's small business lending program includes term loans, business inventory loans and loans for business equipment and machinery. 4 Strong Non-interest Expense Ratios - For the fiscal years ended June 30, 2002, 2001 and 2000, the Company's ratios of non-interest expense to average assets were 1.07%, 0.94% and 1.20%, respectively. The Company believes that the judicious use of FHLB long-term borrowings to fund approximately 39.5% of its total assets significantly reduces operating costs. The Company will continue to invest in technology to help streamline operations and to increase customer satisfaction and loyalty.
CHANGES IN FINANCIAL CONDITION Condensed Balance Sheet ----------------------- June 30, June 30, Change --------------------------------- 2002 2001 Dollars Percentage ---- ---- ------- ---------- (Dollars in Thousands) Cash and interest-earning Deposits $ 3,177 $ 2,993 $ 184 6.1% Investment securities(1) 159,665 137,743 21,922 15.9 Mortgage-backed securities 82,543 64,132 18,411 28.7 Net loans receivable 152,905 185,179 (32,274) -17.4 Total assets 404,911 396,440 8,471 2.1 Deposits 177,672 181,339 (3,667) -2.0 FHLB and other borrowings 193,668 182,154 11,514 6.3 Total liabilities 374,658 367,795 6,863 1.9 Total equity 30,253 28,645 1,608 5.6
_______________ (1) Includes Federal Home Loan Bank stock. General. The $8.5 million or 2.1% increase in total assets was primarily comprised of a $21.9 million increase in investment securities and Federal Home Loan Bank ("FHLB") stock, and a $18.4 million increase in mortgage-backed securities, which was partially offset by a $32.3 million decrease in net loans receivable. The $6.9 million or 1.9% increase in total liabilities was primarily comprised of a $11.5 million increase in FHLB advances and other borrowings, which was partially offset by a $3.7 million decrease in deposits and a $743 thousand decrease in accrued interest payable. Total stockholders' equity increased $1.6 million or 5.6% primarily due to $4.4 million of Company net income, and a $388 thousand increase in capital attributable to stock option exercises and Recognition and Retention Plan ("RRP") equity contributions, which were partially offset by the repurchase of $1.5 million of the Company's own common stock, and $1.7 million of cash dividends paid to stockholders. The Company believes that the repurchase of its common stock represented an attractive investment opportunity and favorably added to secondary market liquidity. Cash on Hand and Interest-earning Deposits. Cash on hand and interest-earning deposits represent cash equivalents. Cash equivalents increased $184 thousand or 6.1% to $3.2 million at June 30, 2002 5 from $3.0 million at June 30, 2001. 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 $40.3 million or 20.0% to $242.2 million at June 30, 2002 from $201.9 million at June 30, 2001. Investment securities increased $21.9 million or 15.9% to $159.7 million at June 30, 2002. This increase was due to purchases of investment grade corporate bonds with maturities generally less than 18 months. Mortgage-backed securities increased $18.4 million or 28.7% to $82.5 million at June 30, 2002. This increase was due primarily to purchases of floating rate mortgage-backed securities which were partially offset by principal repayments on the portfolio. Net Loans Receivable. Net loans receivable decreased $32.3 million or 17.4% to $152.9 million at June 30, 2002. The decrease in loans receivable was principally the result of increased principal repayments on the loan portfolio due to higher levels of refinancing activity. Deposits. Total deposits decreased $3.7 million or 2.0% to $177.7 million at June 30, 2002. Certificates of deposit decreased approximately $14.6 million or 14.7%. Savings accounts increased $5.0 million or 13.8% and money market accounts increased $2.7 million or 22.7%. The Savings Bank believes that these changes in depositor liquidity preferences are due to the relatively low level of market interest rates and due to stock market declines and associated volatility. Borrowed Funds. Borrowed funds increased $11.5 million or 6.3% to $193.7 million at June 30, 2002. The increase is principally the result of borrowing to fund investment purchases. Other short-term borrowings increased $13.1 million or 63.3% to $33.7 million at June 30, 2002, and FHLB advances decreased $1.6 million or 1.0% to $159.9 million at June 30, 2002. Stockholders' Equity. Total stockholders' equity increased $1.6 million or 5.6% to $30.3 million at June 30, 2002. The increase was principally the result of $4.4 million of Company net income and a $338 thousand increase in capital attributable to stock option exercises, and RRP equity contributions, which were partially offset by the repurchase of $1.5 million of the Company's own common stock and $1.7 million of cash dividends paid to stockholders. 6
RESULTS OF OPERATIONS Condensed Statements of Income ------------------------------ June 30, June 30, June 30, 2002 Change 2001 Change 2000 ---- ------ ---- ------ ---- (Dollars in Thousands) Interest income $ 23,760 $ (5,425) $ 29,185 $ 1,198 $ 27,987 -18.6% 4.3% Interest expense $ 14,025 $ (4,536) $ 18,561 $ 1,628 $ 16,933 -24.4% 9.6% Net interest income $ 9,735 $ (889) $10,624 $ (430) $ 11,054 -8.4% -3.9% Provision for loan losses $ 57 $ (731) $ 788 $ 638 $ 150 -92.8% 425.3% Non-interest income $ 687 $ 18 $ 669 $ 99 $ 570 2.7% 17.4% Non-interest expense $ 4,104 $ 317 $ 3,787 $ (839) $ 4,626 8.4% -18.1% Income tax expense $ 1,813 $ (143) $ 1,956 $ (513) $ 2,469 -7.3% -20.8% Net income $ 4,448 $ ( 314) $ 4,762 $ 383 $ 4,379 -6.6% 8.7%
General. WVS reported net income of $4.4 million, $4.8 million and $4.4 million for the fiscal years ended June 30, 2002, 2001 and 2000, respectively. The $314 thousand or 6.6% decrease in net income during fiscal 2002 was primarily the result of a $889 thousand decrease in net interest income, and a $317 thousand increase in non-interest expense, which was partially offset by a $731 thousand decrease in the provision for loan losses, a $143 thousand decrease in income tax expense, and a $18 thousand increase in non-interest income. Earnings per share totaled $1.63 (basic and diluted) for fiscal 2002 as compared to $1.70 (basic) and $1.69 (diluted) for fiscal 2001. The decrease in earnings per share was due to a decrease in net income, which was partially offset by a reduction in the weighted average number of shares outstanding due to the Company's stock repurchases during fiscal 2002. 7 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.
For the Years Ended June 30, ------------------------------------------------------------------------------------------ 2002 2001 2000 ---------------------------- ----------------------------- ----------------------------- Average Average Average Average Average Average Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate ------- -------- ---------- ------- -------- ---------- ------- -------- ---------- (Dollars in Thousands) Interest-earning assets: Net loans receivable(1) $172,824 $13,224 7.65% $185,203 $14,656 7.91% $176,851 $13,840 7.83% Net tax-free loans receivable(2) 199 26 13.28 692 69 9.97 706 71 10.01 Mortgage-backed securities 65,372 3,341 5.11 70,403 4,835 6.87 75,312 5,170 6.86 Investments - taxable 112,948 5,553 4.92 114,000 8,205 7.20 116,500 8,352 7.17 Investments - tax-free(2) 28,543 2,323 8.14 24,785 1,993 8.04 9,901 768 7.76 Interest-bearing deposits 1,766 10 0.57 1,871 38 2.03 1,710 36 2.11 ------- ------ ------- ------ ------- ------ Total interest-earning assets 381,652 24,477 6.41% 396,954 29,796 7.51% 380,980 28,237 7.41% ------ ==== ------ ==== ------ ==== Non-interest-earning assets 3,386 4,148 4,385 -------- -------- -------- Total assets $385,038 $401,102 $385,365 ======== ======== ======== Interest-bearing liabilities: Interest-bearing deposits and escrows $163,338 $5,082 3.11% $161,821 $6,820 4.21% $161,727 $6,375 3.94% Borrowings 176,383 8,943 5.07 194,749 11,741 6.03 182,818 10,558 5.78 -------- ------ -------- ------ -------- ------ Total interest-bearing liabilities 339,721 14,025 4.13% 356,570 18,561 5.21% 344,545 16,933 4.91% ----- ==== ----- ==== ------ ===== Non-interest-bearing accounts 11,814 11,616 10,281 -------- -------- -------- Total interest-bearing liabilities and non-interest-bearing accounts 351,535 368,186 354,826 Non-interest-bearing liabilities 3,547 5,179 3,618 -------- -------- -------- Total liabilities 355,082 373,365 358,444 Retained income 29,956 27,737 26,921 -------- -------- -------- Total liabilities and retained income $385,038 $401,102 $385,365 ======== ======== ======== Net interest income $10,452 $11,235 $11,304 ======= ======= ======= Interest rate spread 2.28% 2.30% 2.50% ==== ==== ==== Net yield on interest-earning assets(3) 2.74% 2.83% 2.97% == ==== ==== ==== Ratio of interest-earning assets to interest-bearing liabilities 112.34% 111.33% 110.57% ====== ====== ======
________________ (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 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.
Year Ended June 30, --------------------------------------------------------------------------- 2002 vs. 2001 2001 vs. 2000 ------------------------------------- ------------------------------------ Increase (Decrease) Total Increase (Decrease) Total Due to Increase Due to Increase -------------------- ------------------- Volume Rate (Decrease) Volume Rate (Decrease) ------ ---- ---------- ------ ---- ---------- (Dollars in Thousands) Interest-earning assets: Net loans receivable $(1,008) $ (454) $(1,462) $ 673 $ 142 $ 815 Mortgage-backed securities (325) (1,169) (1,494) (343) 8 (335) Investments - taxable (76) (2,576) (2,652) (182) 35 (147) Investments - tax-free 186 25 211 834 29 863 Interest-bearing deposits 3 (25) (28) 3 (1) 2 ------- ------- ------- ------- ------- ------- Total interest-earning assets (1,226) (4,199) (5,425) 985 213 1,198 Interest-bearing liabilities: Interest-bearing deposits and Escrows (121) (1,617) (1,738) 47 398 445 Other borrowings (1,039) (1,759) (2,798) 714 469 1,183 ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities (1,160) (3,376) (4,536) 761 867 1,628 Increase (decrease) in net interest Income $ (66) $ (823) $ (889) $ 224 $ (654) $ (430) ======= ======= ======= ======= ======= =======
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 decreased by $5.4 million or 18.6% during fiscal 2002 and increased by $1.2 million or 4.3% during fiscal 2001. The decrease in fiscal 2002 was primarily a result of decreases in the weighted average yield earned and the average balances of the investment, mortgage-backed, and loan portfolios during the period. Increase in fiscal 2001 was primarily a result of volume growth in the Company's investment and net loans receivable. Interest income on investment securities and FHLB stock decreased $2.4 million or 25.4% during fiscal 2002 and increased $716 thousand or 8.1% during fiscal 2001. The decrease in fiscal 2002 was primarily attributable to a 178 basis point decrease in the weighted average yield on the Company's investment securities which was partially offset by a $2.7 million increase in the average balance of the investment securities outstanding. The increase in fiscal 2001 was primarily attributable to a $14.9 million increase in the average balance of tax-free investment securities outstanding and a 13 basis point increase in the weighted average yield on the Company's investment securities. Interest income on mortgage-backed securities decreased $1.5 million or 30.9% during fiscal 2002 and decreased $335 thousand or 6.5% during fiscal 2001. The decrease in fiscal 2002 was attributable to a 176 basis point decrease in the weighted average yield on the mortgage-backed securities portfolio and a $5.0 million decrease in the average outstanding balance of mortgage-backed securities. The decrease during fiscal 2001 was attributable to an increase in the average outstanding balance of mortgage-backed securities of $4.9 million, and an increase in the weighted average interest rate yield of 1 basis point. 9 Interest income on net loans receivable decreased $1.5 million or 9.9% during fiscal 2002 and increased $815 thousand or 5.9% during fiscal 2001. The decrease in fiscal 2002 was attributable to a $12.9 million decrease in the average balance of net loans outstanding and a 26 basis point decrease in the weighted average yield on the Company's loan portfolio. The increase in fiscal 2001 was attributable to a $8.3 million increase in the average balance of net loans outstanding and a 8 basis point increase in the weighted average yield on the Company's loan portfolio. Interest Expense. Total interest expense decreased $4.5 million or 24.4% during fiscal 2002 and increased by $1.6 million or 9.6% during fiscal 2001. The decrease during fiscal 2002 was attributable to a decrease of $2.8 million of interest expense on borrowings and a $1.7 million decrease of interest expense on deposits. The increase during fiscal 2001 was attributable to an increase of $1.2 million of interest expense on borrowings and a $445 thousand decrease of interest expense on deposits. Interest expense on borrowings decreased $2.8 million or 23.8% during fiscal 2002 and increased $1.2 million or 11.2% during fiscal 2001. The decrease in fiscal 2002 was attributable to a 96 basis point decrease in the weighted average yield on the Company's borrowings and a $18.4 million decrease in the average balance of borrowings outstanding. The increase for fiscal 2001 was primarily attributable to increases in the average balance of borrowings outstanding totaling $11.9 million and a 25 basis point increase in the weighted average yield on the Company's borrowings. The Company took advantage of a decline in market interest rates during the second half of fiscal year 2001 to reposition the maturity profile of its balance sheet. Interest expense on interest-bearing deposits and escrows decreased $1.7 million or 25.5% in fiscal 2002 and increased $445 thousand or 7.0% in fiscal 2001. The decrease in fiscal 2002 was primarily attributable to a 110 basis point decrease in the weighted average rate paid on the Company's deposits and a $3.9 million increase in the average balance of interest bearing time deposits. The increase in fiscal 2001 was primarily attributable to a decrease of 27 basis points in the weighted average rate paid on the Company's deposits and a $94 thousand increase in the average balance of interest bearing deposits and escrows. 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 $57 thousand provision for loan loss was recorded in fiscal 2002, and a $788 thousand provision for loan loss was recorded in fiscal 2001 to increase the Company's general loan loss reserves. The Company's provision of $57 thousand in fiscal 2002 was comparable to its net charge-offs which totaled $62 thousand. The increase in the provision for loan losses during fiscal 2001 was attributable to a reappraisal of the real estate collateral underlying a non-performing commercial loan relationship. The Company believes that the additional loan loss reserves are prudent and warranted at this time due to the weakening of the national economy and the current work-out of this particular credit. Non-interest Income. Total non-interest income increased by $18 thousand or 2.7% in fiscal 2002 and increased by $99 thousand or 17.4% in fiscal 2001. The increase in fiscal 2002 was primarily attributable to an increase in service charges on deposits. The increase in fiscal 2001 was primarily due to an increase in service charges and ATM fee income. The increase in service charge and ATM fee income for both periods was directly attributable to the Company's checking account promotion marketing strategies. Non-interest Expense. Total non-interest expense increased $317 thousand or 8.4% and decreased $839 thousand or 18.1% during fiscal 2002 and 2001, respectively. The increase in fiscal 2002 was primarily attributable to increases in accrued legal fees, charitable contributions for local educational programs, PA Capital Stock Franchise taxes and other payroll costs. The decrease in fiscal 2001 was principally attributable to the absence of discretionary employee stock ownership plan amortization, and decreases in accrued legal fees and PA Capital Sock Franchise taxes. 10 Income Taxes. Income taxes decreased $143 thousand or 7.3% during fiscal 2002 and decreased $513 thousand or 20.8% during fiscal 2001. Fiscal year 2002 income tax expense was favorably impacted by the higher levels of tax-free bank qualified municipal securities in the Company's investment portfolio and a $100 thousand Pennsylvania tax credit for charitable contributions made in support of local educational programs. The Company's effective tax rate was 29.0% at June 30, 2002 and 29.1% at June 30, 2001. QUANTATIVE 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. 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. During fiscal 2002 the level of market interest rates declined dramatically in response to the weakening national economy and the Federal Reserve Boards easing of interest rates. Additionally, the marked decline in equity market prices and corporate earnings have caused a considerable disinter mediation from the equity to the fixed income markets, further compounding the decline in market interest rates across the yield curve. Due to the rapid decline in market interest rates, the Company's loan, investment and mortgage-backed securities portfolios experienced much higher then anticipated levels of prepayments. Beginning with the terrorist attacks of September 11, 2001 the Federal Reserve further reduced the Federal Funds rate an 11 additional four times for a total of 175 basis points. Principal repayments on the Company's loan, investment and mortgage-backed securities portfolios totaled $66.1 million, $267.3 million and $35.3 million respectively. In response to higher levels of liquidity the Company began to rebalance its loan, investment and mortgage-backed securities portfolios. Due to the low level of market interest rates, the Company began to reduce its originations of long-term fixed rate mortgages while continuing to offer consumer home equity and construction loans. The Company's commercial loan exposure was also reduced in recognition of the weaknesses in the national and local economies. The Company began to purchase investment grade commercial paper and corporate bonds in order to earn a higher return with a shorter maturity profile and to reduce the prepayment risk within the portfolio. Within the mortgage-backed securities portfolio, the Company aggressively purchased floating rate securities in order to provide current income and protection against an eventual rise in market interest rates. Each of the aforementioned strategies also helped to better the interest-rate and liquidity risks associated with the Savings Bank's customers liquidity preference for shorter term deposit products. 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 home equity and small business loans to existing customers and seasoned prospective customers. As of June 30, 2002, the implementation of these asset and liability management initiatives resulted in the following: 1) the Company's liquidity profile has improved by reducing the investment portfolio's stated final maturities as follows: less than 1 year: $55.4 million or 23.7%; 1-3 years: $9.9 million or 4.2%; 3-5 years: $0 million or 0.0%; over 5 years: $168.3 million or 72.1%; 2) $58.5 million or 70.9% of the Company's portfolio of mortgage-backed securities (including collateralized mortgage obligations - "CMOs") were secured by floating rate securities; 3) the maturity distribution of the Company's borrowings is as follows: less than 1 year: $44.7 million or 23.1%; 1-3 years: $279 thousand or 0.1%; 3-5 years: $4.2 million or 2.2%; over 5 years: $144.5 million or 74.6%; and 4) an aggregate of $43.0 million or 28.1% of the Company's net loan portfolio had adjustable interest rates or maturities of less than 12 months. 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. 12 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.
June 30, --------------------------------------------------- 2002 2001 2000 ------------- ------------------- --------------- (Dollars in Thousands) Interest-earning assets maturing or repricing within one year $ 252,467 $ 155,928 $ 86,215 Interest-bearing liabilities maturing or repricing within one year 142,823 137,232 275,814 ------------- ------------------- --------------- Interest sensitivity gap $ 109,644 $ 18,696 $(189,599) ============= =================== =============== Interest sensitivity gap as a percentage of total assets 27.1% 4.7% (46.3)% Ratio of assets to liabilities maturing or repricing within one year 176.8% 113.6% 31.3%
During fiscal 2002, the Company markedly improved its one year interest sensitivity gap by: (1) limiting the origination of long-term fixed rate mortgages; (2) emphasizing loans with shorter terms or repricing frequencies; (3) purchasing investments with shorter terms to maturity; and (4) purchasing floating rate mortgage-backed securities. 13 The following table illustrates the Company's estimated stressed cumulative repricing gap - the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time - at June 30, 2002. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points.
Cummulative Stressed Repricing Gap ---------------------------------- Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term ------- ------- -------- -------- -------- -------- --------- (Dollars in Thousands) Base Case Up 200 bp - ------------------- Cummulative Gap($'s) 55,334 45,136 50,337 51,837 34,024 36,445 25,014 % of Total Assets 13.6% 11.1% 12.4% 12.7% 8.4% 8.9% 6.1% Base Case Up 100 bp - ------------------- Cummulative Gap($'s) 59,181 49,919 92,975 95,865 88,311 75,492 25,014 % of Total Assets 14.5% 12.3% 22.8% 23.5% 21.7% 18.5% 6.1% Base Case No Change - ------------------- Cummulative Gap($'s) 65,760 64,073 109,644 108,765 103,645 99,876 27,735 % of Total Assets 16.1% 15.7% 27.1% 26.7% 25.4% 24.5% 6.8% Base Case Down 100 bp - --------------------- Cummulative Gap($'s) 67,066 66,243 110,807 108,477 103,715 98,406 25,014 % of Total Assets 16.5% 16.3% 27.2% 26.6% 25.5% 24.2% 6.1% Base Case Down 200 bp - --------------------- Cummulative Gap($'s) 68,970 67,812 112,095 109,970 104,954 99,254 25,014 % of Total Assets 16.9% 16.6% 27.5% 27.0% 25.8% 24.4% 6.1%
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 better 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. 14 The following table presents the simulated impact of a 100 and 200 basis point upward or downward shift in market interest rates and the estimated impact on net interest income, return on average equity, return on average assets and the market value of portfolio equity at June 30, 2002 and June 30, 2001.
Analysis of Sensitivity to Changes in Market Interest Rates ----------------------------------------------------------- Modeled Change in Market Interest Rates ---------------------------------------------------------------------------------------------------------- June 30, 2002 June 30, 2001 ------------------------------------------------------ ------------------------------------------------- Estimated impact on: -200 -100 0 +100 +200 -200 -100 0 +100 +200 - -------------------- ---- ---- --- ---- ---- ---- ---- -- ---- ---- Change in net -18.7% -10.1% 0.00% 8.5% 24.2% -29.9% -8.4% 0.0% 0.6% 1.4% interest income Return on average 8.70% 10.37% 12.32% 13.94% 16.83% 10.24% 15.45% 17.43% 17.5% 17.76% equity Return on average 0.66% 0.79% 0.95% 1.08% 1.32% 0.76% 1.17% 1.33% 1.34% 1.35% assets Market value of equity $21,523 $25,461 $28,182 $28,529 $28,793 $24,416 $37,962 $44,330 $40,681 $36,178 (in thousands)
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, 2002. Anticipated Transactions ------------------------------------------------------------------ (Dollars in Thousands) Undisbursed construction and land development loans Fixed rate $ 5,585 7.08% Adjustable rate $ 5,726 5.97% Undisbursed lines of credit Adjustable rate $ 7,065 5.52% Loan origination commitments Fixed rate $ 947 6.84% Adjustable rate $ 112 7.50% Letters of credit Adjustable rate $ 107 7.75% ------- $19,542 ======= 15 LIQUIDITY AND CAPITAL RESOURCES Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash equivalents increased by $184 thousand during fiscal 2002 primarily due to $4.8 million of net cash provided by financing activities and $4.5 million of net cash provided by operating activities. These increases were offset by $9.1 million of net cash used for investing activities. Funds provided by operating activities totaled $4.5 million during fiscal 2002 as compared to $6.0 million during fiscal 2001. Net cash provided by operating activities was primarily comprised of $4.4 million of net income. Funds used for investing activities totaled $9.1 million during fiscal 2002 as compared to $12.5 million provided by investing activities during fiscal 2001. Primary uses of funds during fiscal 2002 include $326.3 million in purchases of investment and mortgage-backed securities, which were partially offset by $285.8 million in repayments of investment and mortgage-backed securities, and a $31.5 million decrease in net loans receivable. Funds provided by financing activities totaled $4.8 million for fiscal 2002 as compared to $18.4 million used for financing activities in fiscal 2001. Primary sources of funds for fiscal 2002 were a $11.5 million increase in FHLB and other borrowings used to fund investment and mortgage-backed security purchases, which was partially offset by a $3.7 million decrease in deposits, $1.7 million of cash dividends and $1.5 million in common stock repurchases. During fiscal 2002, the Company purchased 96,728 shares of common stock for approximately $1.5 million. Management has determined that it currently is maintaining adequate liquidity and continues to better match funding sources with lending and investment opportunities. The Company's primary sources of funds are deposits, amortization, prepayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. At June 30, 2002, the total approved loan commitments outstanding amounted to $1.1 million. At the same date, commitments under unused letters and lines of credit amounted to $7.2 million and the unadvanced portion of construction loans approximated $11.3 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2002, totaled $53.5 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 29, 2002, the Company's Board of Directors declared a cash dividend of $0.16 per share payable on August 15, 2002 to shareholders of record at the close of business on August 5, 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 the future or that, if paid, such dividends will not be reduced or eliminated in future periods. As of June 30, 2002, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $30.1 million or 13.4% and $32.8 million or 14.7%, respectively, of total risk-weighted assets, and Tier I leverage capital of $30.1 million or 7.7% of average total assets. 16 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 $263 thousand or 5.2% to $5.3 million, or 1.3% of total assets, at June 30, 2002. The increase was primarily the result of a $235 thousand increase in real estate owned. 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. 17 REPORT OF INDEPENDENT AUDITORS ------------------------------ Board of Directors and Stockholders WVS Financial Corp. We have audited the accompanying consolidated balance sheet of WVS Financial Corp. and subsidiary as of June 30, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ S.R. Snodgrass A.C. - ---------------------- Wexford, PA July 26, 2002 18
WVS FINANCIAL CORP. CONSOLIDATED BALANCE SHEET (In thousands, except per share data) June 30, 2002 2001 --------- --------- ASSETS Cash and due from banks $ 879 $ 696 Interest-earning demand deposits 2,298 2,297 Investment securities available for sale (amortized cost of $8,375 and $1,380) (Note 3) 8,426 1,380 Investment securities held to maturity (market value of $146,146 and $129,191) (Note 3) 142,958 128,213 Mortgage-backed securities available for sale (amortized cost of $6,196 and $8,386) (Note 4) 6,450 8,551 Mortgage-backed securities held to maturity (market value of $76,819 and $56,082) (Note 4) 76,093 55,581 Net loans receivable (allowance for loan losses of $2,758 and $2,763) (Note 5) 152,905 185,179 Accrued interest receivable (Note 7) 3,903 3,837 Federal Home Loan Bank stock, at cost (Note 8) 8,281 8,150 Premises and equipment (Note 9) 996 1,001 Deferred taxes and other assets 1,722 1,555 --------- --------- TOTAL ASSETS $ 404,911 $ 396,440 ========= ========= LIABILITIES Deposits (Note 10) $ 177,672 $ 181,339 Federal Home Loan Bank advances (Note 11) 159,937 161,494 Other borrowings (Note 12) 33,731 20,660 Accrued interest payable 1,698 2,441 Other liabilities 1,620 1,861 --------- --------- TOTAL LIABILITIES 374,658 367,795 --------- --------- 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; 3,729,858 and 3,708,590 shares issued 37 37 Additional paid-in capital 20,037 19,742 Treasury stock (1,051,872 and 955,144 shares at cost) (15,133) (13,589) Retained earnings - substantially restricted 25,183 22,478 Accumulated other comprehensive income 201 108 Unallocated shares - Recognition and Retention Plans (72) (131) --------- --------- TOTAL STOCKHOLDERS' EQUITY 30,253 28,645 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 404,911 $ 396,440 ========= =========
See accompanying notes to the consolidated financial statements. 19
WVS FINANCIAL CORP. CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data) Year Ended June 30, 2002 2001 2000 --------------- ---------------- ---------------- INTEREST AND DIVIDEND INCOME Loans $ 13,242 $ 14,704 $ 13,889 Investment securities 6,735 9,075 8,428 Mortgage-backed securities 3,341 4,835 5,170 Interest-earning demand deposits 10 38 36 Federal Home Loan Bank stock 432 533 464 --------------- ---------------- ---------------- Total interest and dividend income 23,760 29,185 27,987 -------------- ---------------- ---------------- INTEREST EXPENSE Deposits (Note 10) 5,082 6,820 6,375 Borrowings 8,943 11,741 10,558 Total interest expense 14,025 18,561 16,933 --------------- ---------------- ---------------- NET INTEREST INCOME 9,735 10,624 11,054 Provision for loan losses (Note 6) 57 788 150 --------------- ---------------- ---------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,678 9,836 10,904 --------------- ---------------- ---------------- NONINTEREST INCOME Service charges on deposits 403 348 312 Other 284 321 258 --------------- ---------------- ---------------- Total noninterest income 687 669 570 --------------- ---------------- ---------------- NONINTEREST EXPENSE Salaries and employee benefits 2,448 2,415 3,095 Occupancy and equipment 375 367 354 Deposit insurance premium 33 35 69 Data processing 190 186 179 Correspondent bank charges 163 153 144 Other 895 631 785 --------------- ---------------- ---------------- Total noninterest expense 4,104 3,787 4,626 --------------- ---------------- ---------------- Income before income taxes 6,261 6,718 6,848 Income taxes (Note 17) 1,813 1,956 2,469 --------------- ---------------- ---------------- NET INCOME $ 4,448 $ 4,762 $ 4,379 =============== ================ ================ EARNINGS PER SHARE: Basic $ 1.63 $ 1.70 $ 1.48 Diluted 1.63 1.69 1.47 AVERAGE SHARES OUTSTANDING (Note 2): Basic 2,723,891 2,804,125 2,953,720 Diluted 2,732,491 2,815,867 2,977,089
See accompanying notes to the consolidated financial statements. 20
WVS FINANCIAL CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except per share data) Retained Additional Earnings- Unallocated Unallocated Common Paid-in Treasury Substantially Shares Held Shares Held Stock Capital Stock Restricted by ESOP by RRP --------- ---------- --------- ------------ ------------ ------------ Balance, June 30, 1999 $ 37 $ 19,062 $ (7,596) $ 17,024 $ (232) $ (326) Comprehensive income: Net income 4,379 Unrealized loss on available for sale securities, net of tax benefit of $86 Total comprehensive income Release of earned ESOP shares 345 232 Tax benefit from stock grants issued under RRPs 50 Accrued compensation expense for RRPs 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 37 19,548 (11,770) 19,513 - (220) Comprehensive income: Net income 4,762 Unrealized gain on available for sale securities, net of taxes of $157 Total comprehensive income Tax benefit from stock grants issued under RRPs 39 Accrued compensation expense for RRPs 89 Exercise of stock options 119 Tax benefit from exercise of stock options 36 Purchase of treasury stock (1,819) Cash dividends declared ($0.64 per share) (1,797) -------- --------- --------- ---------- -------- --------- Balance June 30, 2001 37 19,742 (13,589) 22,478 - (131) Comprehensive income: Net income 4,448 Unrealized gain on available for sale securities, net of taxes of $48 Total comprehensive income Tax benefit from stock grants issued under RRPs 54 Accrued compensation expense for RRPs 59 Exercise of stock options 212 Tax benefit from exercise of stock options 29 Purchase of treasury stock (1,544) Cash dividends declared ($0.64 per share) (1,743) -------- --------- --------- ---------- -------- --------- Balance June 30, 2002 $ 37 $ 20,037 $(15,133) $25,183 - $(72) ========= ========= ========= ========== ======== =========
WVS FINANCIAL CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except per share data) Accumulated Other Comprehensive Income (Loss) Total -------------- -------- Balance, June 30, 1999 $ (31) $ 27,938 Comprehensive income: Net income 4,379 Unrealized loss on available for sale securities, net of tax benefit (166) (166) of $86 ----- Total comprehensive income 4,213 Release of earned ESOP shares 577 Tax benefit from stock grants issued under RRPs 50 Accrued compensation expense for RRPs 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 (197) 26,911 Comprehensive income: Net income 4,762 Unrealized gain on available for sale securities, net of taxes of $157 305 305 -------- Total comprehensive income 5,067 Tax benefit from stock grants issued under RRPs 39 Accrued compensation expense for RRPs 89 Exercise of stock options 119 Tax benefit from exercise of stock options 36 Purchase of treasury stock (1,819) Cash dividends declared ($0.64 per share) (1,797) -------- -------- Balance June 30, 2001 108 28,645 Comprehensive income: Net income 4,448 Unrealized gain on available for sale securities, net of taxes of $48 93 93 -------- Total comprehensive income 4,541 Tax benefit from stock grants issued under RRPs 54 Accrued compensation expense for RRPs 59 Exercise of stock options 212 Tax benefit from exercise of stock options 29 Purchase of treasury stock (1,544) Cash dividends declared ($0.64 per share) (1,743) -------- -------- Balance June 30, 2002 $ 201 $30,253 ======== ========
See accompanying notes to the consolidated financial statements. 21
WVS FINANCIAL CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Year Ended June 30, 2002 2001 2000 --------- --------- --------- OPERATING ACTIVITIES Net income $ 4,448 $ 4,762 $ 4,379 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 57 788 150 Depreciation and amortization, net 123 111 115 Amortization of discounts, premiums, and deferred loan fees 766 (225) (120) Amortization of ESOP and RRP deferred compensation 59 89 683 Deferred income taxes (93) (370) (121) Decrease (increase) in accrued interest receivable (66) 538 (1,270) Increase (decrease) in accrued interest payable (743) (263) 774 Other, net (48) 555 (328) --------- --------- --------- Net cash provided by operating activities 4,503 5,985 4,262 --------- --------- --------- INVESTING ACTIVITIES Available for sale: Purchase of investment and mortgage-backed securities (29,454) - (2,932) Proceeds from repayments of investment and mortgage-backed securities 24,793 1,767 2,114 Held to maturity: Purchase of investment and mortgage-backed securities (296,854) (36,865) (58,774) Proceeds from repayments of investment and mortgage-backed securities 260,973 53,438 13,045 Net decrease (increase) in net loans receivable 31,520 (2,873) (13,353) Decrease (increase) in Federal Home Loan Bank stock (131) (2,925) 970 Acquisition of premises and equipment (118) (62) (10) Other, net 180 - 253 --------- --------- --------- Net cash provided by (used for) investing activities (9,091) 12,480 (58,687) --------- --------- --------- FINANCING ACTIVITIES Net increase (decrease) in deposits (3,667) 8,481 (1,385) Net decrease in Federal Home Loan Bank short-term advances (14,836) (1,663) (23,500) Net increase (decrease) in other borrowings 13,071 (80,365) 86,305 Proceeds from Federal Home Loan Bank long-term advances 23,279 108,657 - Repayments of Federal Home Loan Bank long-term advances (10,000) (50,000) - Net proceeds from issuance of common stock 212 119 91 Cash dividends paid (1,743) (1,797) (1,890) Purchase of treasury stock (1,544) (1,819) (4,174) --------- --------- --------- Net cash provided by (used for) financing activities 4,772 (18,387) 55,447 --------- --------- --------- Increase in cash and cash equivalents 184 78 1,022 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,993 2,915 1,893 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,177 $ 2,993 $ 2,915 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Interest $ 14,768 $ 18,823 $ 16,159 Taxes 1,735 2,140 2,668
See accompanying notes to the consolidated financial statements. 22 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 accounting principles generally accepted in the United States of America. 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. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Loans Receivable - -------------------- Net loans receivable are reported at their principal amount, net of the allowance for loan losses and deferred loan fees. Interest on mortgage, consumer, and commercial loans is recognized on the accrual method. The Company's general policy is to stop accruing interest on loans when, based upon relevant factors, the collection of principal or interest is doubtful, regardless of the contractual status. Interest received on nonaccrual loans is recorded as income or applied against principal according to management's judgment as to the collectibility of such principal. Loan origination and commitment fees, and all incremental direct loan origination costs, are deferred and recognized over the contractual remaining lives of the related loans on a level yield basis. Allowance for Loan Losses - ------------------------- The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent 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. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Real Estate Owned - ----------------- Real estate owned acquired through foreclosure is carried at the lower of cost or fair value minus estimated costs to sell. Costs relating to development and improvement of the property are capitalized, whereas costs of holding such real estate are expensed as incurred. Valuation allowances for estimated losses are provided when the carrying value of the real estate acquired exceeds the fair value. Premises and Equipment - ---------------------- Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is principally computed on the straight-line method over the estimated useful lives of the related assets, which range from three to ten years for furniture and equipment and 25 to 50 years for building premises. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease terms, which range from seven to fifteen years. 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 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 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. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 or stockholders' equity. 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. This 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, this 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 undertaken a limited scope project to reconsider the provisions of FAS No. 72 in 2002 and has issued an exposure draft of a proposed statement, Acquisitions of Certain Financial Statements, that would remove acquisitions of financial institutions from the scope of FAS No. 72. The adoption of the proposed statement would require all goodwill originating from acquisitions that meet the definition of a business combination as defined in Emerging Issues Task Force Issue ("EITF") No. 98-3 to be discontinued. The adoption of FAS No. 142 is not expected to have any effect on the Company's financial position or results of operations, as the Company does not currently have goodwill or any other intangible assets. 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 new statement takes effect for fiscal years beginning after June 15, 2002. The adoption of this statement, which is effective July 1, 2002, 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 Accounting Principles Bulletin 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. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (Continued) - -------------------------------------------- In April 2002, the FASB issued FAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". FAS No. 145 rescinds FAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Opinion 30 will now be used to classify those gains and losses. This statement also amends FAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This statement also makes technical corrections to existing pronouncements, which are not substantive but in some cases may change accounting practice. FAS No. 145 is effective for transactions occurring after May 15, 2002. The adoption of FAS No. 145 did not have a material effect on the Company's financial position or results of operations. In July 2002, the FASB issue FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather that at the date of a commitment to an exit or disposal plan. This statement replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). The new statement will be effective for exit or disposal activities initiated after December 31, 2002, the adoption of which is not expected to have a material effect on the Company's financial statements. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share.
2002 2001 2000 ---------------- ---------------- ---------------- Weighted-average common shares outstanding 3,718,640 3,695,294 3,672,506 Average treasury stock shares (994,749) (891,169) (684,957) Average unearned ESOP shares - - (33,829) ---------------- ---------------- ---------------- Weighted-average common shares and common stock equivalents used to calculate basic earnings per share 2,723,891 2,804,125 2,953,720 Additional common stock equivalents (stock options) used to calculate diluted earnings per share 8,600 11,742 23,369 ---------------- ---------------- ---------------- Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share 2,732,491 2,815,867 2,977,089 ================ ================ ================
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. Options to purchase 76,600 shares of common stock at prices from $14.00 to $15.625 were outstanding during 2001 and 93,746 shares at price from $11.59 to $15.625 were outstanding during 2000, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. 27 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:
--------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- --------- --------- --------- 2002 - ---- AVAILABLE FOR SALE Preferred trust securities $ 860 $ 17 $ (3) $ 874 Commercial paper 6,495 - - 6,495 Equity securities 1,020 38 (1) 1,057 --------- --------- --------- --------- Total $ 8,375 $ 55 $ (4) $ 8,426 ========= ========= ========= ========= HELD TO MATURITY U.S. Government agency securities $ 55,216 $ 1,016 $ (22) $ 56,210 Corporate debt securities 58,415 193 (51) 58,557 Obligations of states and political subdivisions 29,327 2,052 - 31,379 --------- --------- --------- --------- Total $ 142,958 $ 3,261 $ (73) $ 146,146 ========= ========= ========= ========= 2001 - ---- AVAILABLE FOR SALE Preferred trust securities $ 161 $ - $ (13) $ 148 Equity securities 1,219 27 (14) 1,232 --------- --------- --------- --------- Total $ 1,380 $ 27 $ (27) $ 1,380 ========= ========= ========= ========= HELD TO MATURITY U.S. Government agency securities $ 87,927 $ 593 $ (928) $ 87,592 Corporate debt securities 10,520 - (1) 10,519 Obligations of states and political subdivisions 29,766 1,367 (53) 31,080 --------- --------- --------- --------- Total $ 128,213 $ 1,960 $ (982) $ 129,191 ========= ========= ========= =========
The amortized cost and estimated market values of debt securities at June 30, 2002, 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.
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 Amortized cost $ 6,495 $ - $ - $ 860 $ 7,355 Estimated market value 6,495 - - 874 7,369 HELD TO MATURITY Amortized cost $48,479 $9.936 $ 1,461 $ 83,082 $ 142,958 Estimated market value 48,606 9,951 1,583 86,006 146,146
28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 3. INVESTMENT SECURITIES (Continued) Investment securities with amortized cost of $41,219 and $35,228 and estimated market values of $41,956 and $34,954 at June 30, 2002 and 2001, 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:
-------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------- -------- -------- -------- 2002 - ---- AVAILABLE FOR SALE Federal National Mortgage Association certificates $ 3,228 $ 106 $ - $ 3,334 Government National Mortgage Association certificates 2,627 128 - 2,755 Federal Home Loan Mortgage Corporation certificates 48 1 - 49 Collateralized mortgage obligations 293 19 - 312 -------- -------- -------- -------- Total $ 6,196 $ 254 $ - $ 6,450 ======== ======== ======== ======== HELD TO MATURITY Federal National Mortgage Association certificates $ 35 $ 3 $ - $ 38 Government National Mortgage Association certificates 4,069 190 - 4,259 Federal Home Loan Mortgage Corporation certificates 60 5 - 65 Collateralized mortgage obligations 71,929 615 (87) 72,457 -------- -------- -------- -------- Total $ 76,093 $ 813 $ (87) $ 76,819 ======== ======== ======== ======== 2001 - ---- AVAILABLE FOR SALE Federal National Mortgage Association certificates $ 4,840 $ 25 $ (8) $ 4,857 Government National Mortgage Association certificates 2,777 130 - 2,907 Federal Home Loan Mortgage Corporation certificates 49 1 - 50 Collateralized mortgage obligations 720 18 (1) 737 -------- -------- -------- -------- Total $ 8,386 $ 174 $ (9) $ 8,551 ======== ======== ======== ======== HELD TO MATURITY Federal National Mortgage Association certificates $ 27 $ 1 $ - $ 28 Government National Mortgage Association certificates 7,413 171 (9) (7,575) Federal Home Loan Mortgage Corporation certificates 74 5 - 79 Collateralized mortgage obligations 48,067 456 (123) 48,400 -------- -------- -------- -------- Total $ 55,581 $ 633 $ (132) $ 56,082 ======== ======== ======== ========
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 4. MORTGAGE-BACKED SECURITIES (Continued) The amortized cost and estimated market values of mortgage-backed securities at June 30, 2002, 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.
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 Amortized cost $ 433 $ - $ 35 $ 5,728 $ 6,196 Estimated market value 443 - 37 5,970 6,450 HELD TO MATURITY Amortized cost $ - $ - $ 58 $76,035 $76,093 Estimated market value - - 62 76,757 76,819
At June 30, 2002 and 2001, mortgage-backed securities with an amortized cost of $48,161 and $42,669 and estimated market values of $49,099 and $43,062, were pledged to secure borrowings with the Federal Home Loan Bank. 5. NET LOANS RECEIVABLE Major classifications of loans are summarized as follows:
2002 2001 -------- -------- First mortgage loans: 1 - 4 family dwellings $ 89,889 $105,623 Construction 19,965 28,157 Land acquisition and development 6,691 6,343 Multi-family dwellings 6,173 6,920 Commercial 25,439 34,269 -------- -------- 148,157 181,312 -------- -------- Consumer loans: Home equity 11,352 13,660 Home equity lines of credit 4,967 5,482 Education loans 1 31 Other 1,514 2,092 -------- -------- 17,834 21,265 -------- -------- Commercial loans 1,447 1,819 -------- -------- Obligations of state and political subdivisions - 686 -------- -------- Less: Undisbursed construction and land development 11,311 16,481 Net deferred loan fees 464 659 Allowance for loan losses 2,758 2,763 -------- -------- 14,533 19,903 -------- -------- Net loans receivable $ 152,905 $ 185,179 ======== ========
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 5. NET LOANS RECEIVABLE (Continued) 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, 2002 and 2001, 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: 2002 2001 2000 ------ ------ ------ Principal outstanding $5,044 $5,016 $4,050 ------ ------ ------ Interest income that would have been recognized $ 408 $ 422 $ 357 Interest income recognized 162 296 180 ------ ------ ------ Interest income foregone $ 246 $ 126 $ 177 ====== ====== ====== Included in total nonaccrual loans are impaired loans of approximately $3,600 at June 30, 2002 and 2001. A related allowance for loan losses of $1,764 and $1,624 has been reserved for these impaired loans, respectively. During the years, the Company had an average balance of $3,586 and $3,600, and recognized $116 and $181 in interest income on these loans, respectively. 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: 2002 2001 ----- ----- Balance, July 1 $ 894 $ 881 Additions 370 207 Amounts collected (442) (194) ----- ----- Balance, June 30 $ 822 $ 894 ===== ===== 6. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses are as follows:
2002 2001 2000 ------ ------ ------ Balance, July 1 $2,763 $1,973 $1,842 Add: Provision charged to operations 57 788 150 Recoveries 6 19 - Less loans charged off 68 17 19 ------ ------ ------ Balance, June 30 $2,758 $2,763 $1,973 ====== ====== ======
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 7. ACCRUED INTEREST RECEIVABLE Accrued interest receivable consists of the following:
2002 2001 ----- ----- Investment and mortgage-backed securities $2,996 $2,696 Loans receivable 907 1,141 ------- ----- Total $3,903 $3,837 ======= ======
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. 9. PREMISES AND EQUIPMENT Major classifications of premises and equipment are summarized as follows: 2002 2001 ------ ------ Land and improvements $ 264 $ 264 Buildings and improvements 1,996 1,906 Furniture, fixtures, and equipment 1,035 1,007 ------ ------ 3,295 3,177 Less accumulated depreciation 2,299 2,176 ------ ------ Total $ 996 $1,001 ====== ====== Depreciation charged to operations was $123, $111, and $115, for the years ended June 30, 2002, 2001, and 2000, respectively. 10. DEPOSITS Deposit accounts are summarized as follows:
2002 2001 --------------------------- ------------------------------- Percent of Percent of Amount Portfolio Amount Portfolio -------- ---------- ---------- ----------- Noninterest-earning checking $ 12,615 7.0% $ 11,634 6.4% Interest-earning checking 20,872 11.8 18,411 10.2 Savings accounts 41,620 23.4 36,589 20.2 Money market accounts 14,843 8.4 12,095 6.7 Advance payments by borrowers for taxes and insurance 3,013 1.7 3,310 1.8 -------- -------- ---------- ------- 92,963 52.3 82,039 45.3 -------- -------- ---------- ------- Savings certificates: 2.00% or less 7,726 4.3 - - 2.01 - 4.00% 49,500 27.9 12,938 7.1 4.01 - 6.00% 23,955 13.5 54,919 30.3 6.01 - 8.00% 3,528 2.0 31,443 17.3 -------- -------- ---------- ------- 84,709 47.7 99,300 54.7 -------- -------- ---------- ------- Total $177,672 100.0% $ 181,339 100.0% ======== ======== ========== =======
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 10. DEPOSITS (Continued) The maturities of savings certificates at June 30, 2002, are summarized as follows: Within one year $ 53,547 Beyond one year but within two years 19,672 Beyond two years but within three years 5,076 Beyond three years 6,414 ----------- Total $ 84,709 =========== Savings certificates with balances of $100,000 or more amounted to $12,277 and $16,364 on June 30, 2002 and 2001, respectively. The Company does not have any brokered deposits. Interest expense by deposit category for the years ended June 30, are as follows:
2002 2001 2000 ----- ----- ----- Checking accounts $ 94 $ 135 $ 139 Savings accounts 735 893 915 Money market accounts 257 329 340 Savings certificates 3,996 5,463 4,981 ----- ----- ----- Total $5,082 $6,820 $6,375 ===== ===== =====
11. FEDERAL HOME LOAN BANK ADVANCES The following table presents contractual maturities of FHLB long-term advances as of June 30:
Weighted- Weighted- Maturing During average average Fiscal Year Ended Interest Interest June 30: 2002 Rate 2001 Rate --------------------- ----------- ----------- ---------- ---------- 2002 $ - -% $ 10,000 6.17% 2003 11,000 2.47 - - 2004 280 3.36 - - 2005 - - - - 2006 4,157 5.42 4,157 5.42 2007 - - - - 2008 and thereafter 144,500 5.35 132,500 5.49 -------- ---------- Total $159,937 5.15% $ 146,657 5.53% ======== ==========
The advances maturing in 2008 and thereafter are convertible to variable rate advances on specific dates at the discretion of the FHLB. Should the FHLB convert these advances, the Bank has the option of accepting the variable rate or repaying the advance without penalty. 33 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:
2002 2001 ------------ ------------- FHLB revolving and short-term advances: Ending balance $ - $ 14,837 Average balance during the year 5,814 52,350 Maximum month-end balance during the year 13,850 19,264 Average interest rate during the year 2.92% 6.02% Weighted-average rate at year-end -% 3.92%
At June 30, 2002, WVS had an unused borrowing capacity of approximately $34,930. The FHLB advances are secured by the Company's FHLB stock and investment and mortgage-backed securities held in safekeeping at the FHLB, and are subject to substantial prepayment penalties. 12. OTHER BORROWINGS Other borrowings include securities sold under agreements to repurchase with securities brokers. The outstanding repurchase agreements generally mature within one to ninety days from the transaction date and qualifying collateral has been delivered. The Company pledged investment securities with a carrying value of $33,075 and $19,693 at June 30, 2002 and 2001, respectively, as collateral for the repurchase agreements as explained in Notes 3 and 4. The following table presents information regarding other borrowings as of June 30: 2002 2001 -------- -------- Ending balance $33,731 $20,660 Average balance during the year 13,179 96,457 Maximum month-end balance during the year 33,731 46,589 Average interest rate during the year 2.34% 6.47% Weighted-average rate at year-end 1.84% 4.27% 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 sheet. Various loan commitments totaling $19,542 and $25,294 at June 30, 2002 and 2001, 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. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Loan commitments (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, 2002 and 2001, 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. 35 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.
June 30, 2002 ------------------------------------------------------------------------- WVS West View -------------------------------- ------------------------------------ Amount Ratio Amount Ratio ---------------- -------------- ---------------- ------------------ Total Capital (to Risk-weighted Assets) - --------------------------------------- Actual $ 32,826 14.66 % $ 27,119 12.25 % To Be Well Capitalized 22,400 10.00 22,144 10.00 For Capital Adequacy Purposes 17,920 8.00 17,715 8.00 Tier I Capital (to Risk-weighted Assets) - ---------------------------------------- Actual $ 30,052 13.42 % $ 24,360 11.00 % To Be Well Capitalized 13,440 6.00 13,286 6.00 For Capital Adequacy Purposes 8,960 4.00 8,857 4.00 Tier I Capital (to Average Total Assets) - ---------------------------------------- Actual $ 30,052 7.69 % $ 24,360 6.29 % To Be Well Capitalized 19,519 5.00 19,361 5.00 For Capital Adequacy Purposes 15,615 4.00 15,489 4.00
June 30, 2001 ------------------------------------------------------------------------- WVS West View -------------------------------- ------------------------------------ Amount Ratio Amount Ratio ---------------- -------------- ---------------- ------------------ Total Capital (to Risk-weighted Assets) - --------------------------------------- Actual $ 31,066 15.40 % $ 26,284 13.27 % To Be Well Capitalized 20,171 10.00 19,813 10.00 For Capital Adequacy Purposes 16,137 8.00 15,850 8.00 Tier I Capital (to Risk-weighted Assets) - ---------------------------------------- Actual $ 28,537 14.15 % $ 23,803 12.01 % To Be Well Capitalized 12,103 6.00 11,888 6.00 For Capital Adequacy Purposes 8,068 4.00 7,925 4.00 Tier I Capital (to Average Total Assets) - ---------------------------------------- Actual $ 28,537 7.35 % $ 23,803 6.15 % To Be Well Capitalized 19,408 5.00 15,476 5.00 For Capital Adequacy Purposes 15,526 4.00 19,345 4.00
36 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:
Officers' and Weighted- Employees' Directors' average Stock Stock Exercise Options Options Price ---------------- ---------------- ---------------- Outstanding, June 30, 2000 110,866 16,400 $ 11.56 Granted 4,000 2,000 12.73 Exercised (16,310) (7,000) 5.1 Forfeited (160) - 5.00 ---------------- ------------- Outstanding, June 30, 2001 98,396 11,400 13.89 Granted - 1,214 15.77 Exercised (15,068) (6,200) 9.96 Forfeited (4,916) - 15.63 ---------------- ------------- Outstanding, June 30, 2002 78,412 6,414 14.80 ================ ============= Exercisable at year-end 70,878 6,414 14.29 ================ ============= Available for future grant 5,174 - ================ =============
At June 30, 2002, for officers and employees there were 78,412 options outstanding, of which 70,878 were exercisable at a weighted-average exercise price of $14.85, and a weighted-average remaining contractual life of 5.76 years. There were also 6,414 options outstanding for directors with a weighted-average exercise price of $14.07, and a weighted-average remaining contractual life of 7.05 years. All of these options are exercisable. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 15. STOCK BENEFIT PLANS (Continued) Stock Option Plan (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. Recognition and Retention 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. 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, 2002, 6,510 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. Net compensation expense attributed to the RRPs amounted to $59, $89, and $106 for the years ended June 30, 2002, 2001, and 2000. 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. The Savings Bank makes discretionary contributions to the Trust to allow the Trust to purchase additional shares to be allocated to eligible employees. The Company reports compensation expense based upon the amounts contributed or committed to be contributed each year and the shares become outstanding for earnings per share computations. Dividends paid on allocated ESOP shares are recorded as a reduction of retained earnings. Compensation expense for the ESOP was $200, $200, and $627, for the years ended June 30, 2002, 2001, and 2000, respectively. Total ESOP shares as of June 30, 2002 and 2001 were 220,806 and 212,553, respectively. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 16. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS Profit Sharing Plan The Company maintains a non-contributory profit sharing 401(k) 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. The Company's contributions to the Plan, which were charged to expense, was $200 for the year ended June 30, 2000. 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, 2002, 2001, and 2000; 48,311, 46,961, and 44,318 shares respectively, were held by the Plan. 17. INCOME TAXES The provision for income taxes consists of: 2002 2001 2000 -------- -------- -------- Currently payable: Federal $ 1,667 $ 2,086 $ 2,364 State 239 240 226 -------- -------- -------- 1,906 2,326 2,590 Deferred (93) (370) (121) -------- -------- -------- Total $ 1,813 $ 1,956 $ 2,469 ======== ======== ======== The following temporary differences gave rise to the net deferred tax assets at June 30: 2002 2001 ------ ------ Deferred tax assets: Allowance for loan losses $ 937 $ 956 Deferred compensation 297 288 Other 228 160 ------ ------ Total gross deferred tax assets 1,462 1,404 ------ ------ Deferred tax liabilities: Bad debt reserve for tax reporting purposes 85 151 Net unrealized gain on securities available for sale 104 56 Deferred origination fees, net 176 146 Other 56 55 ------ ------- Total gross deferred tax liabilities 421 408 ------ ------- Net deferred tax assets $1,041 $ 996 ====== ======= No valuation allowance was established at June 30, 2002 and 2001, 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. 39 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:
2002 2001 2000 --------------------- ---------------------- ---------------------- % of % of % of Pre-tax Pre-tax Pre-tax Amount Income Amount Income Amount Income --------------------- ---------------------- ---------------------- Provision at statutory rate $ 2,129 34.0% $ 2,284 34.0% $ 2,328 34.0% State income tax, net of federal tax benefit 158 2.5 158 2.4 149 2.2 Tax exempt income (555) (8.9) (493) (7.3) (201) (2.9) Other, net 81 1.4 7 - 193 2.8 -------- ------- -------- ------- ------- ------ Actual tax expense and effective rate $ 1,813 29.0% $ 1,956 29.1% $ 2,469 36.1% ======== ======= ======== ======= ======= ======
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, 2002 and 2001, the Savings Bank had required reserves of $809 and $717, 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, 2002, 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. 40 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:
2002 2001 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- --------- ---------- --------- FINANCIAL ASSETS Cash, due from banks, and interest- earning demand deposits $ 3,177 $ 3,177 $ 2,993 $ 2,993 Investment securities 151,384 154,572 129,593 130,571 Mortgage-backed securities 82,543 83,269 64,132 64,633 Net loans receivable 152,905 160,517 185,179 193,374 Accrued interest receivable 3,903 3,903 3,837 3,837 FHLB stock 8,281 8,281 8,150 8,150 --------- --------- --------- --------- Total financial assets $402,193 $413,719 $393,884 $403,558 ========= ========= ========= ========= FINANCIAL LIABILITIES Deposits $177,672 $178,357 $181,339 $182,047 FHLB advances 159,937 162,928 161,494 161,024 Other borrowings 33,731 33,731 20,660 20,660 Accrued interest payable 1,698 1,698 2,441 2,441 --------- --------- --------- --------- Total financial liabilities $373,038 $376,714 $365,934 $366,172 ========= ========= ========= =========
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: 41 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. 42 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 SHEET June 30, 2002 2001 ---------- ---------- ASSETS Interest-earning deposits with subsidiary bank $ 3,065 $ 1,127 Investment securities available for sale 2,179 1,128 Investment and mortgage-backed securities held to maturity - 2,503 Investment in subsidiary bank 24,457 23,781 Loan Receivable 463 - Accrued interest receivable and other assets 125 111 ---------- ---------- TOTAL ASSETS $30,289 $28,650 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 36 $ 5 Stockholders' equity 30,253 28,645 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30,289 $28,650 ========== ==========
CONDENSED STATEMENT OF INCOME Year Ended June 30, 2002 2001 2000 ---------- ----------- ---------- INCOME Loans $ 45 $ - $ 16 Investment and mortgage-backed securities 118 84 83 Dividend from subsidiary 3,800 4,549 7,429 Interest-earning deposits with subsidiary bank 50 76 32 ---------- ----------- ---------- Total income 4,013 4,709 7,560 ---------- ----------- ---------- OTHER OPERATING EXPENSE 96 51 104 ---------- ----------- ---------- Income before equity in undistributed earnings of subsidiary 3,917 4,658 7,456 Equity in undistributed earnings of subsidiary 558 136 (3,081) ---------- ----------- ---------- Income before income taxes 4,475 4,794 4,375 Income taxes 27 32 (4) ---------- ----------- ---------- NET INCOME $ 4,448 $ 4,762 $ 4,379 ========== =========== ==========
43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 21. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS Year Ended June 30, 2002 2001 2000 ---------- ----------- ---------- OPERATING ACTIVITIES Net income $ 4,448 $ 4,762 $ 4,379 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of subsidiary (558) (136) 3,081 Amortization of investment discounts and premiums (23) - - Amortization of ESOP and RRP deferred compensation 59 75 345 Other 20 143 (124) ---------- ----------- ---------- Net cash provided by operating activities 3,946 4,844 7,681 ---------- ----------- ---------- INVESTING ACTIVITIES Available for sale: Purchase of investment and mortgage-backed securities (9,148) (2,503) - Proceeds from repayments of investment and mortgage-backed securities 8,159 - - Held to maturity: Purchases of investment and mortgage-backed securities (7,789) - - Proceeds from repayments of investment and mortgage-backed securities 10,304 - 18 Net increase in loans (469) - - ESOP loan - - 232 ---------- ----------- ---------- Net cash provided by (used for) investing activities 1,057 (2,503) 250 ---------- ----------- ---------- FINANCING ACTIVITIES Net proceeds from issuance of common stock 212 119 91 Cash dividends paid (1,743) (1,797) (1,890) Purchases of treasury stock (1,544) (1,819) (4,174) ---------- ----------- ---------- Net cash used for financing activities (3,075) (3,497) (5,973) ---------- ----------- ---------- Increase (decrease) in cash and cash equivalents 1,928 (1,156) 1,958 CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 1,127 2,283 325 ---------- ----------- ---------- CASH AND CASH EQUIVALENTS END OF YEAR $ 3,055 $ 1,127 $ 2,283 ========== =========== ==========
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 22. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Three Months Ended ------------------------------------------------------------- September December March June 2001 2001 2002 2002 ---------- ---------- ---------- ---------- Total interest and dividend income $ 6,551 $ 6,091 $ 5,574 $ 5,544 Total interest expense 3,859 3,637 3,321 3,208 ---------- ---------- ---------- ---------- Net interest income 2,692 2,454 2,253 2,336 Provision for loan losses 37 20 - - ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 2,655 2,434 2,253 2,336 Total noninterest income 173 181 166 167 Total noninterest expense 976 1,109 978 1,041 ---------- ---------- ---------- ---------- Income before income taxes 1,852 1,506 1,441 1,462 Income taxes 611 397 476 329 ---------- ---------- ---------- ---------- Net income $ 1,241 $ 1,109 $ 965 $ 1,133 ========== ========== ========== ========== Per share data: Net income Basic $ 0.45 $ 0.40 $ 0.36 $ 0.42 Diluted 0.45 0.40 0.35 0.42 Average shares outstanding Basic 2,753,358 2,740,451 2,714,480 2,686,663 Diluted 2,763,744 2,752,157 2,720,976 2,692,474
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data) 22 . SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
Three Months Ended ------------------------------------------------------------- September December March June 2000 2000 2001 2001 ---------- ---------- ---------- ---------- Total interest and dividend income $ 7,526 $ 7,534 $ 7,234 $ 6,891 Total interest expense 4,988 5,005 4,463 4,105 ---------- ---------- ---------- ---------- Net interest income 2,538 2,529 2,771 2,786 Provision for loan losses - - 150 638 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 2,538 2,529 2,621 2,148 Total noninterest income 164 169 155 181 Total noninterest expense 956 1,006 989 836 ---------- ---------- ---------- ---------- Income before income taxes 1,746 1,692 1,787 1,493 Income taxes 646 591 643 76 ---------- ---------- ---------- ---------- Net income $ 1,100 $ 1,101 $ 1,144 $ 1,417 ========== ========== ========== ========== Per share data: Net income Basic $ 0.39 $ 0.39 $ 0.41 $ 0.51 Diluted 0.38 0.39 0.41 0.51 Average shares outstanding Basic 2,858,302 2,814,033 2,778,839 2,764,345 Diluted 2,873,787 2,829,455 2,787,946 2,771,297
46 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 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 02 $16.200 $13.990 $0.16 March 02 16.250 14.130 0.16 December 01 16.250 15.700 0.16 September 01 17.450 13.750 0.16 June 01 $14.000 $12.550 $0.16 March 01 12.938 12.188 0.16 December 00 12.500 12.000 0.16 September 00 13.000 11.563 0.16 There were five Nasdaq Market Makers in the Company's common stock as of June 30, 2002: F. J. Morrissey & Co., Inc.; Herzog, Heine, Geduld, Inc.; Ryan Beck & Co., Inc.; Spear, Leeds & Kellogg and Knight Securities L.P. According to the records of the Company's transfer agent, there were approximately 868 shareholders of record at September 11, 2002. 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. 47 WVS FINANCIAL CORP. CORPORATE INFORMATION - --------------------------------------------------------------------------------
CORPORATE OFFICES WVS FINANCIAL CORP. o WEST VIEW SAVINGS BANK 9001 Perry Highway Pittsburgh, PA 15237 412-364-1911 COMMON STOCK BOARD OF DIRECTORS The common stock of WVS Financial Corp. is traded on The Nasdaq Stock MarketSM under the symbol "WVFC". David L. Aeberli President TRANSFER AGENT & REGISTRAR McDonald-Aeberli Funeral Home, Inc. Registrar and Transfer Company 10 Commerce Drive Arthur H. Brandt Cranford, NJ 07016 Retired - Former President and CEO 1-800-368-5948 Brandt Excavating, Inc. and Retired - Former President and CEO INVESTOR RELATIONS Brandt Paving, Inc. Pamela M. Tracy 412-364-1911 David J. Bursic President and Chief Executive Officer COUNSEL WVS Financial Corp. and Bruggeman & Linn West View Savings Bank SPECIAL COUNSEL Donald E. Hook Elias, Matz, Tiernan & Herrick L.L.P. Chairman Washington, DC Pittsburgh Cut Flower Co. WEST VIEW SAVINGS BANK Lawrence M. Lehman 9001 Perry Highway Sole Proprietor Pittsburgh, PA 15237 Newton-Lehman Insurance Agency 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 Donald E. Hook 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
The members of the Board of Directors serve in that capacity for both the Company and the Savings Bank. 48 A Tradition of Quality Banking EX-23 4 exhibit23.txt Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 33-91684 of WVS Financial Corp. on Form S-8 of our report dated July 26, 2002, appearing in the Annual Report on Form 10-K of WVS Financial Corp. for the year ended June 30, 2002. /s/ S.R. Snodgrass, A.C. - ------------------------ S.R. Snodgrass, A.C. Wexford, PA September 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----