Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-22444
WVS Financial Corp.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(412) 364-1911
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES |X| NO |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12 b-2 of the Exchange Act). YES |_| NO |X|
Shares outstanding as of February 12, 2004: 2,547,322 shares Common Stock,
$.01 par value.
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
INDEX
-----
PART I. Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
- ------- --------------------
Consolidated Balance Sheet as of
December 31, 2003 and June 30, 2003
(Unaudited) 3
Consolidated Statement of Income
for the Three and Six Months Ended
December 31, 2003 and 2002 (Unaudited) 4
Consolidated Statement of Cash Flows
for the Six Months Ended December 31,
2003 and 2002 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Six Months
Ended December 31, 2003 (Unaudited) 7
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Six Months
Ended December 31, 2003 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
Item 4. Controls and Procedures 23
PART II. Other Information Page
- -------- ----------------- ----
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
2
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
December 31, June 30,
2003 2003
------------ ------------
Assets
------
Cash and due from banks $ 915 $ 921
Interest-earning demand deposits 2,861 1,894
------------ ------------
Total cash and cash equivalents 3,776 2,815
Investment securities available-for-sale (amortized cost of
$8,305 and $25,310) 8,717 25,641
Investment securities held-to-maturity (market value of
$253,527 and $126,036) 249,799 121,841
Mortgage-backed securities available-for-sale (amortized cost of
$3,777 and $4,219) 3,928 4,387
Mortgage-backed securities held-to-maturity (market value of
$66,428 and $107,914) 66,401 107,492
Federal Home Loan Bank stock, at cost 7,554 7,797
Net loans receivable (allowance for loan losses of $1,285 and
$2,530) 71,894 91,669
Accrued interest receivable 2,559 2,800
Premises and equipment 1,148 1,231
Other assets 1,529 1,515
------------ ------------
TOTAL ASSETS $ 417,305 $ 367,188
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 12,148 $ 11,302
NOW accounts 21,936 19,215
Savings accounts 43,550 44,152
Money market accounts 13,457 14,691
Certificates of deposit 74,865 79,956
Advance payments by borrowers for taxes and insurance 811 1,610
------------ ------------
Total savings deposits 166,767 170,926
Federal Home Loan Bank advances 149,236 153,390
Other borrowings 67,848 9,453
Accrued interest payable 1,379 1,449
Other liabilities 1,631 1,352
------------ ------------
TOTAL LIABILITIES 386,861 336,570
Stockholders' equity:
Preferred stock:
5,000,000 shares, no par value per share, authorized; none
outstanding -- --
Common stock:
10,000,000 shares, $.01 par value per share, authorized;
3,738,928 and 3,736,750 shares issued 37 37
Additional paid-in capital 20,331 20,212
Treasury stock: 1,193,023 and 1,153,591 shares at cost,
Respectively (17,449) (16,767)
Retained earnings, substantially restricted 27,159 26,857
Accumulated other comprehensive income 372 329
Unreleased shares - Recognition and Retention Plans (6) (50)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 30,444 30,618
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 417,305 $ 367,188
============ ============
See accompanying notes to unaudited consolidated financial statements.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
INTEREST AND DIVIDEND INCOME:
Loans $ 1,331 $ 2,580 $ 2,858 $ 5,389
Investment securities 2,061 1,728 3,642 3,470
Mortgage-backed securities 543 644 1,199 1,452
Interest-earning deposits with other
institutions 1 3 6 7
Federal Home Loan Bank stock 20 68 61 137
----------- ----------- ----------- -----------
Total interest and dividend income 3,956 5,023 7,766 10,455
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 598 870 1,265 1,835
Borrowings 2,162 2,148 4,264 4,371
----------- ----------- ----------- -----------
Total interest expense 2,760 3,018 5,529 6,206
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,196 2,005 2,237 4,249
PROVISION FOR LOAN LOSSES (624) -- (757) 18
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,820 2,005 2,994 4,231
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Service charges on deposits 104 96 198 196
Gain on sale of investments, net -- 1 -- 64
Other 57 75 158 154
----------- ----------- ----------- -----------
Total non-interest income 161 172 356 414
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 505 609 1,016 1,211
Occupancy and equipment 106 95 211 183
Deposit insurance premium 6 8 13 15
Data processing 57 50 113 98
Correspondent bank service charges 37 37 76 77
Other 227 246 401 580
----------- ----------- ----------- -----------
Total non-interest expense 938 1,045 1,830 2,164
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,043 1,132 1,520 2,481
INCOME TAXES 273 351 398 701
----------- ----------- ----------- -----------
NET INCOME $ 770 $ 781 $ 1,122 $ 1,780
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.30 $ 0.30 $ 0.44 $ 0.67
Diluted $ 0.30 $ 0.30 $ 0.44 $ 0.67
AVERAGE SHARES OUTSTANDING:
Basic 2,560,420 2,631,112 2,567,831 2,646,522
Diluted 2,569,578 2,636,633 2,577,330 2,651,926
See accompanying notes to unaudited consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
December 31,
-----------------------
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net income $ 1,122 $ 1,780
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for loan losses (757) 18
Gain on sale of investments -- (64)
Depreciation and amortization, net 94 62
Amortization of discounts, premiums and deferred loan fees 814 1,761
Amortization of ESOP, RRP and deferred and unearned
compensation 5 18
Decrease (increase) in accrued interest receivable 241 (284)
(Decrease) increase in accrued interest payable (70) 5
Increase (decrease) in accrued and deferred taxes 180 (29)
Other, net 101 130
--------- ---------
Net cash provided by operating activities 1,730 3,397
--------- ---------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities (20,828) (2,381)
Proceeds from repayments of investments and mortgage-backed securities 38,291 8,093
Proceeds from sale of investment securities -- 639
Held-to-maturity:
Purchases of investments and mortgage-backed securities (250,708) (109,876)
Proceeds from repayments of investments and mortgage-backed securities 163,133 73,241
Decrease in net loans receivable 19,912 25,884
Sale of real estate owned 500 220
Purchase of Federal Home Loan Bank stock (967) (407)
Redemption of Federal Home Loan Bank stock 1,210 --
Purchases of premises and equipment (11) (288)
--------- ---------
Net cash used for investing activities (49,468) (4,875)
--------- ---------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
December 31,
---------------------
2003 2002
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in transaction and passbook accounts 1,731 (2,305)
Net decrease in certificates of deposit (5,091) (6,494)
Net (decrease) increase in FHLB short-term advances (3,875) 14,350
Net increase in other borrowings 58,395 4,453
Repayments of FHLB long-term advances (279) (5,000)
Net decrease in advance payments by borrowers for taxes and insurance (799) (1,645)
Net proceeds from issuance of common stock 119 2
Funds used for purchase of treasury stock (682) (1,218)
Cash dividends paid (820) (846)
-------- --------
Net cash provided by financing activities 48,699 1,297
-------- --------
Increase (decrease) in cash and cash equivalents 961 (181)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,815 3,177
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,776 $ 2,996
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 5,599 $ 6,201
Income taxes $ 240 $ 780
Non-cash items:
Pennsylvania Education Tax Credit $ -- $ 100
Cancellation of unallocated RRP shares $ 39 $ --
Mortgage Loan Transferred to Other Assets $ 500 $ --
See accompanying notes to unaudited consolidated financial statements.
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Accumulated
Retained Other
Additional Earnings Compre- Unreleased Unreleased
Common Paid-In Treasury Substantially hensive Shares Held Shares Held
Stock Capital Stock Restricted Income by ESOP by RRP Total
----- ------- ----- ---------- ------ ------- ------ -----
Balance at June 30, 2003 $ 37 $ 20,212 $ (16,767) $ 26,857 $ 329 $ -- $ (50) $ 30,618
Comprehensive income:
Net Income 1,122 1,122
Other comprehensive
income:
Change in unrealized
holding gains on
securities, net of
income tax effect
of $22 43 43
--------
Comprehensive income 1,165
Purchase of shares for
treasury stock (682) (682)
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 5 5
Cancellation of Unallocated
RRP Shares 39 39
Exercise of stock options 119 119
Cash dividends declared
($0.32 per share) (820) (820)
------ -------- --------- -------- -------- -------- -------- --------
Balance at Dec. 31, 2003 $ 37 $ 20,331 $ (17,449) $ 27,159 $ 372 $ -- $ (6) $ 30,444
====== ======== ========= ======== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
7
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments (consisting
only of normal recurring adjustments) which, in the opinion of management, are
necessary for a fair presentation have been included. The results of operations
for the three and six months ended December 31, 2003, are not necessarily
indicative of the results which may be expected for the entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In December 2003, the Financial Accounting Standards Board ("FASB") issued
a revision to Interpretation 46, Consolidation of Variable Interest Entities,
which established standards for identifying a variable interest entity (VIE) and
for determining under what circumstances a VIE should be consolidated with its
primary beneficiary. Application of this Interpretation is required in financial
statements of public entities that have interests in special-purpose entities
for periods ending after December 15, 2003. Application by public entities,
other than small business issuers, for all other types of VIEs is required in
financial statements for periods ending after March 15, 2004. Small business
issuers must apply this Interpretation to all other types of VIEs at the end of
the first reporting period ending after December 15, 2004. The adoption of this
Interpretation has not and is not expected to have a material effect on the
Company's financial position or results of operations.
8
3. EARNINGS PER SHARE
------------------
The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 3,734,816 3,730,258 3,735,731 3,730,084
Average treasury stock shares (1,174,396) (1,099,146) (1,167,900) (1,083,562)
Average unearned ESOP shares -- -- -- --
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate basic earnings
per share 2,560,420 2,631,112 2,567,831 2,646,522
Additional common stock
equivalents (stock options) used
to calculate diluted earnings per
share 9,158 5,521 9,499 5,404
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate diluted earnings
per share 2,569,578 2,636,633 2,577,330 2,651,926
=========== =========== =========== ===========
Net income $ 770,260 $ 781,465 $ 1,122,125 $ 1,781,310
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.30 $ 0.30 $ 0.44 $ 0.67
Diluted $ 0.30 $ 0.30 $ 0.44 $ 0.67
=========== =========== =========== ===========
All options at December 31, 2003 and December 31, 2002 were included in
the computation of diluted earnings per share.
4. STOCK BASED COMPENSATION DISCLOSURE
-----------------------------------
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.
9
5. COMPREHENSIVE INCOME
--------------------
Other comprehensive income primarily reflects changes in net unrealized
gains/losses on available-for-sale securities. Total comprehensive income is
summarized as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------ ------------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands)
Net income $ 770 $ 781 $1,122 $1,780
Other comprehensive
income:
Unrealized gains on
available for sale
securities $ 82 $ 44 $ 65 $ 214
Less:
Reclassification
adjustment for gain
included in net
income -- 1 -- 64
------ ------ ------ ------ ------ ------ ------ ------
Other comprehensive
income before tax 82 43 65 150
Income tax expense
related to other
comprehensive income 28 15 22 51
------ ------ ------ ------
Other comprehensive
income, net of tax 54 28 43 99
------ ------ ------ ------
Comprehensive income $ 824 $ 809 $1,165 $1,879
====== ====== ====== ======
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to forward
looking statements to reflect events or circumstances after the date of
statements or to reflect the occurrence of anticipated or unanticipated events.
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company
of West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in 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 December 31, 2003.
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.
FINANCIAL CONDITION
The Company's assets totaled $417.3 million at December 31, 2003, as
compared to $367.2 million at June 30, 2003. The $50.1 million or 13.6% increase
in total assets was primarily comprised of a $110.8 million or 71.3% increase in
investment securities and FHLB stock, and a $967 thousand or 51.1% increase in
interest-bearing demand deposits, which were partially offset by a $41.5 million
or 37.1% decrease in mortgage-backed securities, a $19.8 million or 21.6%
decrease in net loans receivable, and a $241 thousand or 8.6% decrease in
accrued interest receivable.
11
The Company's total liabilities increased $50.3 million or 14.9% to $386.9
million as of December 31, 2003, from $336.6 million as of June 30, 2003. The
$50.3 million increase in total liabilities was primarily comprised of a $58.4
million or 617.7% increase in other short-term borrowings, and a $280 thousand
or 20.7% increase in other liabilities, which were partially offset by a $4.2
million or 2.7% decrease in FHLB advances, and a $4.2 million or 2.4% decrease
in total savings deposits. Certificates of deposit decreased $5.1 million, money
market accounts decreased $1.2 million, advance payments by borrowers for taxes
and insurance decreased $799 thousand and passbook accounts decreased $602
thousand while demand deposits increased $3.6 million.
Total stockholders' equity decreased $174 thousand or 0.6% to $30.4 million
as of December 31, 2003, from approximately $30.6 million as of June 30, 2003.
Capital expenditures for the Company's stock repurchase program and cash
dividends totaled $682 thousand and $820 thousand, respectively, which were
partially funded by net income of $1.1 million for the six months ended December
31, 2003.
RESULTS OF OPERATIONS
General. WVS reported net income of $770 thousand or $0.30 diluted earnings
per share and $1.1 million or $0.44 diluted earnings per share for the three and
six months ended December 31, 2003, respectively. Net income decreased by $11
thousand or 1.4% and diluted earnings per share remained constant for the three
months ended December 31, 2003, when compared to the same period in 2002. The
decrease in net income was primarily attributable to a $809 thousand decrease in
net interest income and a $11 thousand decrease in non-interest income, which
were partially offset by a $624 thousand decrease in provision for loan losses,
a $107 thousand decrease in non-interest expense, and a $78 thousand decrease in
income tax expense. For the six months ended December 31, 2003, net income
decreased by $658 thousand or 37.0% and diluted earnings per share decreased
$0.23 or 34.3% when compared to the same period in 2002. The decrease was
principally the result of a $2.0 million decrease in net interest income and a
$58 thousand decrease in non-interest income, which were partially offset by a
$775 thousand decrease in provision for loan losses, a $334 thousand decrease in
non-interest expense, and a $303 thousand decrease in income tax expense.
Net Interest Income. The Company's net interest income decreased by $809
thousand or 40.3% and $2.0 million or 47.4% for the three and six months ended
December 31, 2003, respectively, when compared to the same periods in 2002. The
decrease in net interest income for both the three and six month periods were
principally attributable to lower rates earned on Company assets due to
historically low market interest rates, lower average balances of net loans
receivable, and higher average balances of longer-term fixed rate borrowings
outstanding, which were partially offset by lower rates paid on deposits and
increased average balances of the Company's mortgage-backed and investment
securities portfolios. The Company experienced higher levels of repayments on
its loan portfolio due to refinancing activities for the three and six months
ended December 31, 2003.
Interest Income. Interest on net loans receivable decreased $1.2 million or
48.4% and $2.5 million or 47.0% for the three and six months ended December 31,
2003, respectively, when compared to the same periods in 2002. The decrease for
the three months ended December 31, 2003 was attributable to a decrease of $70.0
million in the average balance of net loans receivable outstanding and a
decrease of 58 basis points in the weighted average yield earned on net loans
receivable for the three months ended December 31, 2003, when compared to the
same period in 2002. The decreased for the six months ended December 31, 2003
was attributable to a decrease of $62.7 million in the average balance of net
loans receivable outstanding and a decrease of 47 basis points on the weighted
average yield earned for the six months ended December 31, 2003, when compared
to the same period in 2002. The decreases in the average loan balance
outstanding for the three and six months ended December 31, 2003, were primarily
attributable to increased levels of mortgage prepayments and refinancings due to
lower market rates on mortgages. As part of its asset/liability management
strategy, the Company has limited its origination of longer-term fixed rate
loans to mitigate its exposure to a rise in market interest rates. The Company
will continue to originate longer-term fixed rate loans for sale on a
correspondent basis to increase non-interest income and to contribute to net
income.
12
Interest on mortgage-backed securities ("MBS") decreased $101 thousand or
15.7% and $253 thousand or 17.4% for the three and six months ended December 31,
2003, respectively, when compared to the same periods in 2002. The decrease for
the three months ended December 31, 2003 was primarily attributable to a 95
basis point decrease in the weighted average yield earned on MBS for the period,
which was partially offset by a $8.0 million increase in the average balance of
MBS outstanding for the three months ended December 31, 2003, when compared to
the same period in 2002. The decrease for the six months ended December 31, 2003
was attributable to a decrease of 131 basis points in the weighted average yield
earned on MBS for the period which was partially offset by a $16.6 million
increase in the average balance of MBS outstanding for the six months ended
December 31, 2003. The decrease in the weighted average yield earned on MBS was
consistent with market conditions for the three and six months ended December
31, 2003, and reflects the higher proportion of floating rate MBS in the
portfolio. The increase in the average balances of MBS during the three and six
months ended December 31, 2003 was primarily attributable to the reinvestment of
a portion of the Company's loan payment proceeds into floating rate MBS.
Interest and dividend income on interest-bearing deposits with other
institutions, investment securities and FHLB stock ("other investment
securities") increased by $283 thousand or 15.7% and $95 thousand or 2.6% for
the three and six months ended December 31, 2003, respectively, when compared to
the same periods in 2002. The increase for the three months ended December 31,
2003 was principally attributable to a $68.8 million increase in the average
balance of other investment securities outstanding for the three months ended
December 31, 2003, when compared to the same period in 2002, which was partially
offset by a 90 basis point decrease in the weighted average yield earned on
other investment securities when compared to the same period in 2002. The
increase for the six months ended December 31, 2003 was primarily attributable
to a $43.9 million increase in the average balance of other investment
securities outstanding for the six months ended December 31, 2003, which was
partially offset by a 135 basis point decrease in the weighted average yield
earned on other investment securities when compared to the same period in 2002.
The decrease in the weighted average yield earned was consistent with market
conditions and the increased proportion of other investment securities comprised
of floating rate obligations for the three and six months ended December 31,
2003. The increase in the average balance of other investment securities
outstanding during the three and six months ended December 31, 2003, was
principally attributable to the reinvestment of a portion of the Company's loan
payment proceeds into callable floating rate U.S. government sponsored agency
bonds.
Interest Expense. Interest expense on deposits and escrows decreased $272
thousand or 31.3% and $570 thousand or 31.1% for the three and six months ended
December 31, 2003, respectively, when compared to the same periods in 2002. The
decrease in interest expense on deposits and escrows for the three months ended
December 31, 2003, was attributable to a 64 basis point decrease in the weighted
average yield paid on interest-bearing deposits and escrows for the three months
ended December 31, 2003, and a $4.6 million decrease in the weighted average
balance of interest-bearing deposits and escrows for the three months ended
December 31, 2003, when compared to the same period in 2002. The decrease for
the six months ended December 31, 2003 was primarily attributable to a 66 basis
point decrease in the weighted average yield paid on interest-bearing deposits
and escrows for the six months ended December 31, 2003, when compared to the
same period in 2002, and a $5.7 million decrease in the average balance of
interest-bearing deposits and escrows for the six months ended December 31, 2003
when compared to the same period in 2002. The average yield paid on
interest-bearing deposits was consistent with market conditions for the three
and six months ended December 31, 2003.
Interest on FHLB advances and other borrowings increased $14 thousand or
0.7% and decreased $107 thousand or 2.4% for the three and six months ended
December 31, 2003, respectively, when compared to the same periods in 2002. The
increase for the three months ended December 31, 2003, was attributable to a
$20.7 million increase in the average balance of FHLB advances and other
borrowings for the period which was partially offset by a 50 basis point
decrease in the weighted average rate paid on such borrowings when compared to
the same period in 2002. The decrease for the six months ended December 31, 2003
was principally attributable to a 21 basis point decease in the weighted average
rate paid on FHLB advances and other borrowings for the six month period ended
December 31, 2003 when compared to the same period in 2002, which was partially
offset by a $3.3 million increase in the average balance of such
13
borrowings when compared to the same period in 2002. The weighted average rate
paid on FHLB advances and other borrowings declined less than the decline in
market interest rates due to the longer average maturity of the Company's
fixed-rate FHLB advances outstanding and a higher proportion of long-term
borrowings to total borrowings.
Provision for Loan Losses. A provision for loan losses is charged to
earnings to maintain the total allowance at a level considered adequate by
management to absorb probable losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio considering past experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors.
The Company reduced its provision for loan losses by $624 thousand and $775
thousand for the three and six months ended December 31, 2003, respectively,
when compared to the same periods in 2002. At December 31, 2003, the Company's
total allowance for loan losses amounted to $1.3 million or 1.8% of the
Company's total loan portfolio, as compared to $2.5 million or 2.7% at June 30,
2003. The decrease in the provision for loan losses is primarily the result of
reduced levels of net loans receivable, the sale of a participating interest in
a restructured commercial real estate loan during the quarter ended December 31,
2003 and collections on past due loans.
Non-Interest Income. Non-interest income decreased by $11 thousand or 6.4%
and $58 thousand or 14.0% for the three and six months ended December 31, 2003,
respectively, when compared to the same periods in 2002. The decrease for the
three months ended December 31, 2003 was primarily attributable to a $12
thousand decrease in miscellaneous operating income and a $9 thousand decrease
in ATM fee income, which were partially offset by a $8 thousand increase in
service charge income earned on deposits. The decrease for the six months ended
December 31, 2003 was primarily attributable to the absence of $64 thousand in
pre-tax gains recognized in the comparable quarter of fiscal 2002 on the sale of
investments from the Company's investment portfolio and a $15 thousand decrease
in ATM fee income, which were partially offset by a $14 thousand increase in
correspondent mortgage application fee income, a $2 thousand increase in service
charge income earned on deposits, a $3 thousand increase in other real estate
owned gross income, and $2 thousand increase in credit card fee income.
Non-Interest Expense. Non-interest expense decreased $107 thousand or 10.2%
and $334 thousand or 15.4% for the three and six months ended December 31, 2003,
respectively, when compared to the same periods in 2002. The decrease for the
three months ended December 31, 2003 was principally attributable to a $104
thousand decrease in payroll related costs and a $15 thousand decrease in legal
expenses and costs associated with the work-out of non-performing assets which
were partially offset by a $11 thousand increase in equipment expenses incurred
to upgrade the Savings Bank's technology platform and a $7 thousand increase in
data processing expenses, when compared to the same period in 2002. The decrease
for the six months ended December 31, 2003 was principally attributable to a
$195 thousand decrease in payroll related costs, a $111 thousand decrease in
charitable contributions eligible for Pennsylvania Education Tax Credits, a $48
thousand decrease in legal expenses and costs associated with the work-out of
non-performing assets and a $15 thousand decrease in provisions for loan loss on
other real estate owned which were partially offset by a $28 thousand increase
in equipment expense incurred to upgrade the Savings Bank's technology platform
and a $15 thousand increase in data processing expense, when compared to the
same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1.7 million during the
six months ended December 31, 2003. Net cash provided by operating activities
was primarily comprised of $1.1 million of net income, $814 thousand in
amortization of discounts, premiums and deferred loan fees, a $241 thousand
decrease in accrued interest receivables, $180 thousand decrease in accrued and
deferred taxes, which were partially offset by a $757 thousand decrease in the
provision for loan losses.
14
Funds used for investing activities totaled $49.4 million during the six
months ended December 31, 2003. Primary uses of funds during the six months
ended December 31, 2003, included $271.5 million for purchases of investment and
mortgage-backed securities, which was partially offset by $201.7 million from
repayments of investment and mortgage-backed securities and including Federal
Home Loan Bank stock, and a $19.9 million decrease in net loans receivable.
Funds provided by financing activities totaled $48.7 million for the six
months ended December 31, 2003. The primary sources included a $58.4 million
increase in other short-term borrowings and a $1.7 million increase in
transaction and passbook accounts, which were partially offset by a $5.1 million
decrease in certificates of deposit, a $3.9 million decrease in short-term FHLB
advances, $820 thousand in cash dividends paid on the Company's common stock, a
$799 thousand decrease in escrow accounts and $682 thousand in purchased
treasury stock. Management believes that it currently is maintaining adequate
liquidity and continues to better match funding sources with lending and
investment opportunities.
During the quarter ended December 31, 2003, the Company incurred
approximately $259.5 million in other short-term borrowings with a weighted
average rate of 1.10%. During the three months ended December 31, 2003, the
Company repaid $220.2 million of other short-term borrowings and $600 thousand
of various short-term FHLB borrowings with weighted average rates of 1.10% and
1.26%, respectively.
The Company's primary sources of funds are deposits, amortization,
repayments and maturities of existing loans, mortgage-backed securities and
investment securities, funds from operations, and funds obtained through FHLB
advances and other borrowings. At December 31, 2003, the total approved loan
commitments outstanding amounted to $2.4 million. At the same date, commitments
under unused lines of credit amounted to $6.4 million, the unadvanced portion of
construction loans approximated $11.5 million and commitments to fund security
purchases totaled $300 thousand. Certificates of deposit scheduled to mature in
one year or less at December 31, 2003, totaled $50.3 million. Management
believes that a significant portion of maturing deposits will remain with the
Company.
Historically, the Company used its sources of funds primarily to meet its
ongoing commitments to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain a substantial portfolio of
investment securities. 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 also has access to the Federal Reserve Bank Primary
Credit Program. Management believes that the Company currently has adequate
liquidity available to respond to liquidity demands.
On January 26, 2004, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable February 19, 2004, to shareholders of record
at the close of business on February 9, 2004. Dividends are subject to
determination and declaration by the Board of Directors, which take into account
the Company's financial condition, statutory and regulatory restrictions,
general economic conditions and other factors. There can be no assurance that
dividends will in fact be paid on the Common Stock in future periods or that, if
paid, such dividends will not be reduced or eliminated.
As of December 31, 2003, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$30.1 million or 17.7% and $31.5 million or 18.5%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $30.1 million or 7.65% of
average quarterly assets.
Nonperforming assets consist of nonaccrual loans and real estate owned. A
loan is placed on nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed insufficient to warrant further
accrual. When a loan is placed on nonaccrual status, previously accrued but
uncollected interest is deducted from interest income. The Company normally does
not accrue interest on loans past due 90 days or more, however, interest may be
accrued if management believes that it will collect on the loan.
15
The Company's nonperforming assets at December 31, 2003, totaled
approximately $716 thousand or 0.17% of total assets as compared to $3.5 million
or 0.95% of total assets at June 30, 2003. Nonperforming assets at December 31,
2003 consisted of: two commercial real estate loans totaling $2.3 million, one
construction and land development loan totaling $58 thousand, two commercial
loans totaling $64 thousand, two single-family real estate loans totaling $144
thousand, one home equity line of credit totaling $13 thousand, and one consumer
loan totaling $3 thousand.
The $2.8 million decrease in nonperforming assets during the six months
ended December 31, 2003 was primarily attributable to: the $1.4 million
reclassification of a commercial real estate loan from nonperforming to
restructured, a $591 thousand net reduction from the purchase and subsequent
resale of related participating interests, a $509 thousand reduction related to
the sale of a personal care home and a $488 thousand charge off related to a
bankruptcy discussed below.
The Company has one non-accruing commercial real estate loan relationship,
with an outstanding balance of approximately $818 thousand, to a personal care
home that was originally part of the restructured retirement village loan
discussed below. 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 two other loans,
totaling $81 thousand, secured by pledges of various real estate and chattel, to
this same borrower which were non-accrual as of September 30, 2002. During the
quarter ended December 31, 2002, the obligor filed for bankruptcy protection
under Chapter 11 of the Federal Bankruptcy Code. The Savings Bank obtained title
to the personal care home and related real property during the quarter ended
September 30, 2003 and sold such property during the quarter ended December 31,
2003, with proceeds of approximately $509 thousand applied to the loan balance.
During the quarter ended December 31, 2003 the Company charged off approximately
$488 thousand in connection with this relationship based upon estimated
liquidation values of the remaining underlying collateral. The Company and its
legal counsel are also investigating other claims and remedies against the
obligors and other properties pledged as collateral for these loans.
As of December 31, 2003, the Company has one non-accruing commercial real
estate loan, secured by a small store front and three apartment units, with an
outstanding balance of $122 thousand. The obligors have filed for bankruptcy
under Chapter 7 of the Federal Bankruptcy Code. In January 2003 the Bankruptcy
Court entered an Order authorizing the listing for sale of the real property
securing the loan, ordered interest only payments to begin in February 2003 and
granted Relief from the Automatic Stay to Foreclosure effective June 2003. The
Company has collected nominal rent on a sporadic basis. The property was bought
back at a Sheriff's Sale in December 2003 and the Company anticipates the sale
of such property during the third quarter of fiscal 2004 with anticipated
proceeds of approximately $90 thousand.
The Company has one restructured commercial real estate loan to a
retirement village located in the North Hills. The Savings Bank's outstanding
principal balance totaled $2.0 million at June 30, 2003. During the quarter
ended September 30, 2003 the Savings Bank redeemed $388 thousand of
participating interests. During the quarter ended December 31, 2003 the Bank
sold a forty percent participating interest to another financial institution at
par for proceeds totaling $979 thousand. The Savings Bank's outstanding
principal balance totaled $1.4 million at December 31, 2003. The Company had
recorded interest received on this credit on a cost recovery basis until
September 30, 2003 and is now recording interest income on a cash basis.
During the six months ended December 31, 2003, approximately $69 thousand
of interest income 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 six months
ended December 31, 2003. The Company continues to work with the borrowers in an
attempt to cure the defaults and is also pursuing various legal avenues in order
to collect on these loans.
16
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Company's transactions are denominated
in US dollars with no specific foreign exchange exposure. The Savings Bank has
no agricultural loan assets and therefore would not have a specific exposure to
changes in commodity prices. Any impacts that changes in foreign exchange rates
and commodity prices would have on interest rates are assumed to be exogenous
and will be analyzed on an ex post basis.
-- ----
Interest rate risk ("IRR") is the exposure of a banking organization's
financial condition to adverse movements in interest rates. Accepting this risk
can be an important source of profitability and shareholder value, however,
excessive levels of IRR can pose a significant threat to the Company's earnings
and capital base. Accordingly, effective risk management that maintains IRR at
prudent levels is essential to the Company's safety and soundness.
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organization's quantitative level of exposure. When assessing the
IRR management process, the Company seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistency and continuity. Evaluating the
quantitative level of IRR exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
Financial institutions derive their income primarily from the excess of
interest collected over interest paid. The rates of interest an institution
earns on its assets and owes on its liabilities generally are established
contractually for a period of time. Since market interest rates change over
time, an institution is exposed to lower profit margins (or losses) if it cannot
adapt to interest-rate changes. For example, assume that an institution's assets
carry intermediate- or long-term fixed rates and that those assets were funded
with short-term liabilities. If market interest rates rise by the time the
short-term liabilities must be refinanced, the increase in the institution's
interest expense on its liabilities may not be sufficiently offset if assets
continue to earn interest 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 the six months ended December 31, 2003, the level of market interest
rates remained at relatively low levels due to the Federal Reserve's
accommodative monetary policy and the weakness in the national economy.
Due to the rapid and sustained decline in market interest rates, the
Company's loan, investment and mortgage-backed securities portfolios experienced
much higher than anticipated levels of prepayments. Principal repayments on the
Company's loan, investment and mortgage-backed securities portfolios for the six
months ended December 31, 2003, totaled $35.4 million, $123.1 million and $78.3
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 continued 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 purchased callable floating rate government
17
agency bonds and floating rate CMOs in order to provide current income and
protection against an eventual rise in market interest rates. Each of the
aforementioned strategies also helped to improve 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.
During the quarter ended December 31, 2003, principal investment purchases
were comprised of: government agency step-up bonds which will reprice within 2
years - $66.5 million with a weighted average yield of approximately 4.81%;
callable floating rate government agency bonds which will reprice quarterly
within one year - $20.0 million with a weighted average yield of approximately
3.02%; and floating rate collateralized mortgage obligations - $4.4 million with
an original weighted average yield of approximately 2.65%. Major investment
proceeds received during the quarter ended December 31, 2003 were: investment
grade corporate bonds - $19.6 million with a weighted average yield of
approximately 3.78%; government agency bonds - $18.0 million with a weighted
average yield of approximately 2.74%; investment grade commercial paper - $2.0
million with a weighted average yield of approximately 1.55%; and tax-free
municipal bonds - $300 thousand with a weighted average yield of approximately
1.88%.
As of December 31, 2003, the implementation of these asset and liability
management initiatives resulted in the following:
1) the Company's liquidity profile remains high with the investment
portfolio's stated final maturities as follows: less than 1 year:
$40.2 million or 12.2%; 1-3 years: $0.0 million or 0.0%; 3-5 years:
$47 thousand or 0.02%; over 5 years: $288.6 million or 87.8%;
2) $90.8 million or 34.1% of the Company's investment portfolio
(including FHLB stock) was comprised of floating rate bonds which will
reprice quarterly within one year;
3) $87.9 million or 33.0% of the Company's investment portfolio
(including FHLB stock) was comprised of U.S. Government Agency Step-up
bonds which will reprice from initial rates of 3.00% - 4.50% up to
7.00% within two years;
4) $40.2 million or 15.1% of the Company's investment portfolio
(including FHLB stock) was comprised of investment grade corporate
bonds with remaining maturities of less than one year;
5) $60.4 million or 86.1% of the Company's portfolio of mortgage-backed
securities (including collateralized mortgage obligations - "CMOs")
were comprised of floating rate instruments;
6) the maturity distribution of the Company's borrowings is as follows:
less than 1 year: $67.8 million or 31.3%; 1-3 years: $4.2 or 1.9%; 3-5
years: $3.0 million or 1.4%; over 5 years: $142.1 million or 65.4%;
and
7) an aggregate of $33.6 million or 46.7% 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.
18
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.
December 31, June 30,
------------ ---------------------------
2003 2003 2002
------------ ----------- -----------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $ 266,026 $ 262,782 $ 252,467
Interest-bearing liabilities maturing or
repricing within one year 207,733 133,418 142,823
----------- ----------- -----------
Interest sensitivity gap $ 58,293 $ 129,364 $ 109,644
=========== =========== ===========
Interest sensitivity gap as a percentage of
total assets 14.0% 35.2% 27.1%
Ratio of assets to liabilities
maturing or repricing within one year 128.1% 197.0% 176.8%
During the quarter ended December 31, 2003, the Company managed its one
year interest sensitivity gap by: (1) purchasing U.S. Government Agency Step-up
bonds which will reprice from initial rates of 4% - 4.5 % up to 7% within two
years; (2) purchasing floating rate U.S. Government Agency bonds which will
reprice quarterly beginning within one year; and (3) purchasing floating rate
CMO's which reprice on a monthly basis.
19
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
December 31, 2003. The table estimates the impact of an upward or downward
change in market interest rates of 100 and 200 basis points.
Cumulative 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 ($'s) (77,893) (50,866) 13,663 30,114 (2,522) 1,689 27,386
% of Total
Assets -18.7% -12.2% 3.3% 7.2% -0.6% 0.4% 6.6%
Base Case Up 100 bp
- -------------------
Cummulative
Gap ($'s) (44,961) (17,166) 48,967 125,942 152,089 158,049 27,386
% of Total
Assets -10.8% -4.1% 11.7% 30.2% 36.4% 37.8% 6.6%
Base Case No Change
- -------------------
Cummulative
Gap ($'s) (42,302) (12,363) 58,293 166,118 164,380 168,260 27,386
% of Total
Assets -10.1% -3.0% 14.0% 39.8% 39.4% 40.3% 6.6%
Base Case Down 100 bp
- ---------------------
Cummulative
Gap ($'s) (37,531) (4,234) 71,241 176,234 171,154 170,850 27,386
% of Total
Assets -9.0% -1.0% 17.1% 42.2% 41.0% 40.9% 6.6%
Base Case Down 200 bp
- ---------------------
Cummulative
Gap ($'s) (35,465) 14,346 120,090 179,036 172,161 170,991 27,386
% of Total
Assets -8.5% 3.4% 28.8% 42.9% 41.2% 40.9% 6.6%
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.
20
The following table presents the simulated impact of a 100 and 200 basis
point upward or downward shift in market interest rates on net interest income,
return on average equity, return on average assets and the market value of
portfolio equity at December 31, 2003.
Analysis of Sensitivity to Changes in Market Interest Rates
-----------------------------------------------------------
Modeled Change in Market Interest Rates
------------------------------------------------------
Estimated impact on: -200 -100 0 +100 +200
Change in net interest income -22.7% -13.8% 0.00% 9.7% 34.4%
Return on average equity -3.62% -4.90% 6.83% 8.16% 11.47%
Return on average assets -0.26% -0.35% 0.49% 0.59% 0.85%
Market value of equity (in
thousands) $17,041 $14,204 $19,113 $17,841 $10,719
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 December 31,
2003.
Anticipated Transactions
-----------------------------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and
land development loans
Fixed rate $ 3,374
5.47%
Adjustable rate $ 8,133
4.99%
Undisbursed lines of credit
Adjustable rate $ 6,375
4.61%
Loan origination commitments
Fixed rate $ 2,306
6.11%
Adjustable rate $ 113
4.57%
Letters of credit
Adjustable rate $ 5
7.00%
Commitments to purchase tax-free municipal bonds
Fixed rate $ 300
1.70%
-------
$20,606
=======
21
In the ordinary course of its construction lending business, the Savings
Bank enters into performance standby letters of credit. Typically, the standby
letters of credit are issued on behalf of a builder to a third party to ensure
the timely completion of a certain aspect of a construction project or land
development. At December 31, 2003, the Savings Bank had one performance standby
letter of credit outstanding totaling approximately $5 thousand. The performance
standby letter of credit is secured by deposits with the Savings Bank, and will
mature within nine months. In the event that the obligor is unable to perform
its obligations as specified in the standby letter of credit agreement, the
Savings Bank would be obligated to disburse funds up to the amount specified in
the standby letter of credit agreement. The Savings Bank maintains adequate
collateral that could be liquidated to fund this contingent obligation.
22
ITEM 4.
CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2003. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and regulations and are
operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred
during the second fiscal quarter of fiscal 2004 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
23
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
The Company is involved with various legal actions arising in the ordinary
course of business. Management believes the outcome of these matters will
have no material effect on the consolidated operations or consolidated
financial condition of WVS Financial Corp.
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) An annual meeting of stockholders was held on October 28, 2003.
(b) Not applicable.
(c) Two matters were voted upon at the annual meeting held on October 28,
2003: Item 1: Proposal to elect two directors for a four-year term or
until their successors are elected and qualified; Item 2: Proposal to
ratify the appointment by the Board of Directors of S.R. Snodgrass,
A.C. as the Company's independent auditors for the fiscal year ending
June 30, 2004.
Each of the two proposals received stockholder approval. The voting
record with respect to each item voted upon is enumerated below:
Item Nominee
Number (if Applicable) For Against Abstain
------ --------------- --- ------- -------
1 Arthur H. Brandt 2,071,309 80,752
Lawrence M. Lehman 2,074,109 77,952
2 Ratification of Auditors 2,138,429 8,767 4,865
There were no broker non-votes cast with respect to any matter voted
upon.
(d) Not applicable.
ITEM 5. Other Information
-----------------
Not applicable.
24
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed as part of this Form 10-Q, and this
list includes the Exhibit Index.
Number Description Page
------ ---------------------------------------------------------- ----
31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief
Executive Officer E-1
31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief
Accounting Officer E-2
32.1 Section 1350 Certification of the Chief Executive Officer E-3
32.2 Section 1350 Certification of the Chief Accounting Officer E-4
99 Independent Accountants' Report E-5
(b) The Company filed a Current Report on Form 8-K dated October 22, 2003,
reporting under Item 12 earnings for the three months ending September
30, 2003. The Company included as an exhibit to the Form 8-K the press
release dated October 22, 2003.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
February 17, 2004 BY: /s/ David J. Bursic
Date -------------------------------------
David J. Bursic
President and Chief Executive Officer
(Principal Executive Officer)
February 17, 2004 BY: /s/ Keith A. Simpson
Date -------------------------------------
Keith A. Simpson
Vice-President, Treasurer and
Chief Accounting Officer
(Principal Accounting Officer)
26