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 March 31, 2004
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 May 13, 2004: 2,479,822 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
March 31, 2004 and June 30, 2003
(Unaudited) 3
Consolidated Statement of Income
for the Three and Nine Months Ended
March 31, 2004 and 2003 (Unaudited) 4
Consolidated Statement of Cash Flows
for the Nine Months Ended March 31,
2004 and 2003 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months
Ended March 31, 2004 (Unaudited) 7
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Nine Months
Ended March 31, 2004 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
Item 4. Controls and Procedures 22
PART II. Other Information Page
- -------- ----------------- ----
Item 1. Legal Proceedings 22
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
2
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
March 31, 2004 June 30, 2003
-------------- -------------
Assets
------
Cash and due from banks $ 747 $ 921
Interest-earning demand deposits 2,309 1,894
--------- ---------
Total cash and cash equivalents 3,056 2,815
Investment securities available-for-sale (amortized cost of
$8,864 and $25,310) 9,320 25,641
Investment securities held-to-maturity (market value of
$216,228 and $126,036) 212,165 121,841
Mortgage-backed securities available-for-sale (amortized cost of
$3,560 and $4,219) 3,714 4,387
Mortgage-backed securities held-to-maturity (market value of
$88,791 and $107,914) 88,621 107,492
Federal Home Loan Bank stock, at cost 7,552 7,797
Net loans receivable (allowance for loan losses of $1,235 and
$2,530) 70,373 91,669
Accrued interest receivable 2,677 2,800
Premises and equipment 1,115 1,231
Other assets 1,587 1,515
--------- ---------
TOTAL ASSETS $ 400,180 $ 367,188
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 10,765 $ 11,302
NOW accounts 19,868 19,215
Savings accounts 44,060 44,152
Money market accounts 13,326 14,691
Certificates of deposit 66,298 79,956
Advance payments by borrowers for taxes and insurance 948 1,610
--------- ---------
Total savings deposits 155,265 170,926
Federal Home Loan Bank advances 149,736 153,390
Other borrowings 62,718 9,453
Accrued interest payable 1,272 1,449
Other liabilities 1,651 1,352
--------- ---------
TOTAL LIABILITIES 370,642 336,570
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;
3,763,088 and 3,736,750 shares issued 38 37
Additional paid-in capital 20,701 20,212
Treasury stock: 1,265,866 and 1,153,591 shares at cost,
Respectively (18,813) (16,767)
Retained earnings, substantially restricted 27,215 26,857
Accumulated other comprehensive income 403 329
Unreleased shares - Recognition and Retention Plans (6) (50)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 29,538 30,618
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 400,180 $ 367,188
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
INTEREST AND DIVIDEND INCOME:
Loans $ 1,205 $ 2,227 $ 4,063 $ 7,617
Investment securities 2,287 1,675 5,929 5,146
Mortgage-backed securities 540 663 1,739 2,115
Interest-earning deposits with other
institutions 1 1 7 8
Federal Home Loan Bank stock 34 70 95 206
----------- ----------- ----------- -----------
Total interest and dividend income 4,067 4,636 11,833 15,092
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 544 752 1,804 2,578
Borrowings 2,168 2,083 6,432 6,454
Advance payments by borrowers for taxes
and insurance 4 6 9 16
----------- ----------- ----------- -----------
Total interest expense 2,716 2,841 8,245 9,048
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,351 1,795 3,588 6,044
PROVISION FOR LOAN LOSSES (14) (89) (771) (71)
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,365 1,884 4,359 6,115
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Service charges on deposits 91 82 289 278
Gain on sale of investments -- -- -- 64
Other 72 70 230 224
----------- ----------- ----------- -----------
Total non-interest income 163 152 519 566
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 494 613 1,511 1,824
Occupancy and equipment 112 107 322 291
Deposit insurance premium 7 8 20 23
Data processing 58 56 171 155
Correspondent bank service charges 32 37 108 113
Other 196 154 598 733
----------- ----------- ----------- -----------
Total non-interest expense 899 975 2,730 3,139
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 629 1,061 2,148 3,542
INCOME TAXES 165 329 562 1,029
----------- ----------- ----------- -----------
NET INCOME $ 464 $ 732 $ 1,586 $ 2,513
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.18 $ 0.28 $ 0.62 $ 0.96
Diluted $ 0.18 $ 0.28 $ 0.62 $ 0.95
AVERAGE SHARES OUTSTANDING:
Basic 2,525,612 2,593,546 2,553,860 2,629,122
Diluted 2,533,697 2,598,775 2,562,887 2,634,468
See accompanying notes to consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
-----------------------
2004 2003
--------- ---------
OPERATING ACTIVITIES
Net income $ 1,586 $ 2,513
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for loan losses (771) (71)
Gain on sale of investments -- (64)
Depreciation and amortization, net 141 109
Amortization of discounts, premiums and deferred loan fees 1,052 2,608
Amortization of RRP and deferred and unearned
compensation 5 21
Decrease in accrued interest receivable 123 867
Decrease in accrued interest payable (177) (219)
Increase in accrued and deferred taxes 340 221
Other, net (66) (242)
--------- ---------
Net cash provided by operating activities 2,233 5,743
--------- ---------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities (21,861) (3,481)
Proceeds from repayments of investments and mortgage-backed securities 38,982 8,762
Proceeds from sale of investment securities -- 639
Held-to-maturity:
Purchases of investments and mortgage-backed securities (302,413) (176,725)
Proceeds from repayments of investments and mortgage-backed securities 230,043 166,702
Decrease in net loans receivable 21,348 44,921
Sale of real estate owned 500 220
Purchase of Federal Home Loan Bank stock (1,390) (407)
Redemption of Federal Home Loan Bank stock 1,635 --
Purchases of premises and equipment (25) (383)
Other, net 23 --
--------- ---------
Net cash provided by (used for) investing activities (33,158) 40,248
--------- ---------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
---------------------
2004 2003
-------- --------
FINANCING ACTIVITIES
Net decrease in transaction and passbook accounts (1,341) (1,888)
Net decrease in certificates of deposit (13,658) (7,756)
Net (decrease) increase in FHLB short-term advances (3,875) 2,550
Net increase (decrease) in other borrowings 53,265 (22,307)
Proceeds from FHLB long-term advances 500 --
Repayments of FHLB long-term advances (279) (11,000)
Net decrease in advance payments by borrowers for taxes and insurance (662) (1,670)
Net proceeds from issuance of common stock 490 46
Funds used for purchase of treasury stock (2,046) (1,521)
Cash dividends paid (1,228) (1,262)
-------- --------
Net cash provided by (used for) financing activities 31,166 (44,808)
-------- --------
Increase in cash and cash equivalents 241 1,183
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,815 3,177
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,056 $ 4,360
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 8,422 $ 9,267
Income taxes $ 550 $ 846
Non-cash items:
Pennsylvania Education Tax Credit $ -- $ 100
Cancellation of unallocated RRP shares $ 39 $ --
Mortgage Loans Transferred to Other Assets $ 550 $ --
See accompanying notes to unaudited consolidated financial statements.
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT 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 1,586 1,586
Other comprehensive
income:
Change in unrealized
holding gains on
securities, net of
income tax effect of
$38 74 74
----
Comprehensive income 1,660
Purchase of shares for
treasury stock (2,046) (2,046)
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 5 5
Cancellation of Unallocated
RRP Shares 39 39
Exercise of stock options 1 489 490
Cash dividends declared (1,228) (1,228)
($0.48 per share)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2004 $ 38 $ 20,701 $ (18,813) $ 27,215 $ 403 $ -- $ (6) $ 29,538
========== ========== ========== ========== ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
7
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
accounting principles generally accepted in the United States of America.
However, all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary for a fair presentation have
been included. The results of operations for the three and nine months ended
March 31, 2004, 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 Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 3,757,062 3,732,233 3,742,789 3,730,790
Average treasury stock shares (1,231,450) (1,138,687) (1,188,929) (1,101,668)
Average unearned ESOP shares -- -- -- --
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate basic earnings
per share 2,525,612 2,593,546 2,553,860 2,629,122
Additional common stock
equivalents (stock options) used
to calculate diluted earnings per
share 8,085 5,229 9,027 5,346
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate diluted earnings
per share 2,533,697 2,598,775 2,562,887 2,634,468
=========== =========== =========== ===========
Net income $ 463,881 $ 731,747 $ 1,586,006 $ 2,513,057
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.18 $ 0.28 $ 0.62 $ 0.96
Diluted $ 0.18 $ 0.28 $ 0.62 $ 0.95
=========== =========== =========== ===========
All options at March 31, 2004 and March 31, 2003 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 Nine Months Ended
March 31, March 31,
-------------------------------- --------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- --------------
(Dollars in Thousands)
Net income $ 464 $ 732 $1,586 $2,513
Other comprehensive
income (loss):
Unrealized gains
(losses) on available for
sale securities $ 47 $(37) $112 $177
Less:
Reclassification
adjustment for gain
included in net income -- -- -- 64
---- ------ ---- ------ ---- ------ ---- ------
Other comprehensive
income (loss) before tax 47 (37) 112 113
Income tax expense
(benefit) related to other
comprehensive income (loss) 16 (13) 38 38
------ ------ ------ ------
Other comprehensive
income (loss), net of tax 31 (24) 74 75
------ ------ ------ ------
Comprehensive income $ 495 $ 708 $1,660 $2,588
====== ====== ====== ======
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
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 March 31, 2004.
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 $400.2 million at March 31, 2004, as compared
to $367.2 million at June 30, 2003. The $33.0 million or 9.0% increase in total
assets was primarily comprised of a $73.8 million or 47.6% increase in
investment securities and FHLB stock and a $415 thousand or 21.9% increase in
interest-bearing demand deposits, which were partially offset by a $21.3 million
or 23.2% decrease in net loans receivable, a $19.5 million or 17.5% decrease in
mortgage-backed securities, a $174 thousand or 18.9% decrease in cash and due
from banks, and a $123 thousand or 4.4% decrease in accrued interest receivable.
11
The Company's total liabilities increased $34.0 million or 10.1% to $370.6
million as of March 31, 2004, from $336.6 million as of June 30, 2003. The $34.0
million increase in total liabilities was primarily comprised of a $53.3 million
or 563.5% increase in other short-term borrowings and a $300 thousand or 22.2%
increase in other liabilities, which were partially offset by a $15.7 million or
9.2% decrease in total savings deposits and a $3.7 million or 2.4% decrease in
FHLB advances. Certificates of deposit decreased $13.7 million, money market
accounts decreased $1.4 million, advance payments by borrowers for taxes and
insurance decreased $662 thousand and passbook accounts decreased $92 thousand
while demand deposits increased $116 thousand.
Total stockholders' equity decreased $1.1 million or 3.5% to $29.5 million
as of March 31, 2004, from approximately $30.6 million as of June 30, 2003.
Capital expenditures for the Company's stock repurchase program and cash
dividends totaled $2.0 million and $1.2 million, respectively, which were
partially funded by net income of $1.6 million for the nine months ended March
31, 2004, and stock option proceeds of $490 thousand.
RESULTS OF OPERATIONS
General. WVS reported net income of $464 thousand or $0.18 diluted earnings
per share and $1.6 million or $0.62 diluted earnings per share for the three and
nine months ended March 31, 2004, respectively. Net income decreased by $268
thousand or 36.6% and diluted earnings per share decreased $0.10 or 35.7% for
the three months ended March 31, 2004, when compared to the same period in 2003.
The decrease in net income for the three month period was primarily attributable
to a $444 thousand decrease in net interest income and a $75 thousand decrease
in credit provisions for loan losses, which were partially offset by a $164
thousand decrease in income tax expense, a $76 thousand decrease in non-interest
expense and a $11 thousand increase in non-interest income. For the nine months
ended March 31, 2004, net income decreased by $927 thousand or 36.9% and diluted
earnings per share decreased $0.33 or 34.7% when compared to the same period in
2003. The decrease for the nine month period was principally the result of a
$2.5 million decrease in net interest income and a $47 thousand decrease in
non-interest income, which were partially offset by a $700 thousand increase in
credit provisions for loan losses, a $467 thousand decrease in income tax
expense, and a $409 thousand decrease in non-interest expense.
Net Interest Income. The Company's net interest income decreased by $444
thousand or 24.7% and $2.5 million or 40.6% for the three and nine months ended
March 31, 2004, respectively, when compared to the same periods in 2003. The
decrease in net interest income for both the three and nine 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, the rendered effects of higher cost long -term fixed rate borrowings
and lower overall yields on earning assets, which were partially offset by lower
rates paid on deposits and increased average balances of the Company's
investment securities portfolio. The Company experienced higher levels of
repayments on its loan, investment and mortgage-backed securities portfolios due
to refinancing activities for the three and nine months ended March 31, 2004.
Interest Income. Interest on net loans receivable decreased $1.0 million or
45.9% and $3.6 million or 46.7% for the three and nine months ended March 31,
2004, respectively, when compared to the same periods in 2003. The decrease for
the three months ended March 31, 2004 was attributable to a decrease of $46.5
million in the average balance of net loans receivable outstanding and a
decrease of 84 basis points in the weighted average yield earned on net loans
receivable for the three months ended March 31, 2004, when compared to the same
period in 2003. The decrease for the nine months ended March 31, 2004 was
attributable to a decrease of $57.3 million in the average balance of net loans
receivable outstanding and a decrease of 59 basis points on the weighted average
yield earned for the nine months ended March 31, 2004, when compared to the same
period in 2003. The decreases in the average loan balance outstanding for the
three and nine months ended March 31, 2004, 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 $123 thousand or
18.6% and $376 thousand or 17.8% for the three and nine months ended March 31,
2004, respectively, when compared to the same periods in 2003. The decrease for
the three months ended March 31, 2004 was primarily attributable to a $12.1
million decrease in the average balance of MBS outstanding and a 16 basis point
decrease in the weighted average yield earned on MBS, when compared to the same
period in 2003. The decrease for the nine months ended March 31, 2004 was
attributable to a decrease of 89 basis points in the weighted average yield
earned on MBS for the period which was partially offset by a $6.4 million
increase in the average balance of MBS outstanding. The decrease in the weighted
average yield earned on MBS was consistent with market conditions for the three
and nine months ended March 31, 2004. The decrease in the average balances of
MBS during the three months ended March 31, 2004 was primarily attributable to
increased levels of refinancings due to lower market rates on mortgages, while
the increase in the average balance of MBS during the nine months ended March
31, 2004 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 $576 thousand or 33.0% and $671 thousand or 12.5% for
the three and nine months ended March 31, 2004, respectively, when compared to
the same periods in 2003. The increase for the three months ended March 31, 2004
was principally attributable to a $80.5 million increase in the average balance
of other investment securities outstanding for the three months ended March 31,
2004, when compared to the same period in 2003, which was partially offset by a
57 basis point decrease in the weighted average yield earned on other investment
securities when compared to the same period in 2003. The increase for the nine
months ended March 31, 2004 was primarily attributable to a $56.6 million
increase in the average balance of other investment securities outstanding for
the nine months ended March 31, 2004, which was partially offset by a 129 basis
point decrease in the weighted average yield earned on other investment
securities when compared to the same period in 2003. 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 nine months ended March 31, 2004. The increase in
the average balance of other investment securities outstanding during the three
and nine months ended March 31, 2004, 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 $210
thousand or 27.7% and $781 thousand or 30.1% for the three and nine months ended
March 31, 2004, respectively, when compared to the same periods in 2003. The
decrease in interest expense on deposits and escrows for the three months ended
March 31, 2004, was attributable to a 50 basis point decrease in the weighted
average yield paid on interest-bearing deposits and escrows, and a $5.0 million
decrease in the weighted average balance of interest-bearing deposits and
escrows, when compared to the same period in 2003. The decrease for the nine
months ended March 31, 2004 was primarily attributable to a 61 basis point
decrease in the weighted average yield paid on interest-bearing deposits and
escrows, when compared to the same period in 2003, and a $5.4 million decrease
in the average balance of interest-bearing deposits and escrows when compared to
the same period in 2003. The average yield paid on interest-bearing deposits was
consistent with market conditions for the three and nine months ended March 31,
2004.
Interest on FHLB advances and other borrowings increased $85 thousand or
4.1% and decreased $22 thousand or 0.3% for the three and nine months ended
March 31, 2004, respectively, when compared to the same periods in 2003. The
increase for the three months ended March 31, 2004, was attributable to a $27.5
million increase in the average balance of FHLB advances and other borrowings
for the period which was partially offset by a 46 basis point decrease in the
weighted average rate paid on such borrowings when compared to the same period
in 2003. The decrease for the nine months ended March 31, 2004 was principally
attributable to a 30 basis point decease in the weighted average rate paid on
FHLB advances and other borrowings when compared to the same period in 2003,
which was partially offset by a $11.3 million increase in the average balance of
such borrowings when compared to the same period in 2003. The weighted average
rate paid on FHLB advances and other borrowings declined less than the decline
in market
13
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 increased its provision for loan losses by $75 thousand for the
three months ended March 31, 2004, and decreased its provision for loan losses
by $700 thousand for the nine months ended March 31, 2004, when compared to the
same periods in 2003. At March 31, 2004, the Company's total allowance for loan
losses amounted to $1.2 million or 1.7% 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 increased by $11 thousand or 7.2%
and decreased by $47 thousand or 8.3% for the three and nine months ended March
31, 2004, respectively, when compared to the same periods in 2003. The increase
for the three months ended March 31, 2004 was primarily attributable to a $9
thousand increase in deposit account fee income and a $2 thousand increase in
other operating income. The decrease for the nine months ended March 31, 2004
was primarily attributable to the absence of $64 thousand in pre-tax gains
recognized in the comparable quarter of fiscal 2003 on the sale of investments
from the Company's investment portfolio, which was partially offset by a $11
thousand increase in deposit account fee income, and a $3 thousand increase in
other real estate owned gross income.
Non-Interest Expense. Non-interest expense decreased $76 thousand or 7.8%
and $409 thousand or 13.0% for the three and nine months ended March 31, 2004,
respectively, when compared to the same periods in 2003. The decrease for the
three months ended March 31, 2004 was principally attributable to a $119
thousand decrease in payroll related costs which was partially offset by a $21
thousand increase in legal expenses and costs associated with the work-out of
non-performing assets, a $13 thousand increase in NOW account expenses, and a $6
thousand increase in other real estate owned expense, when compared to the same
period in 2003. The decrease for the nine months ended March 31, 2004 was
principally attributable to a $313 thousand decrease in payroll and benefit
related costs, a $111 thousand decrease in charitable contributions eligible for
Pennsylvania Education Tax Credits, a $18 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 $31 thousand increase in equipment expense incurred
to upgrade the Savings Bank's technology platform and a $16 thousand increase in
data processing expense, when compared to the same period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $2.2 million during the
nine months ended March 31, 2004. Net cash provided by operating activities was
primarily comprised of $1.6 million of net income, $1.1 million in amortization
of discounts, premiums and deferred loan fees, a $340 thousand increase in
accrued and deferred taxes, and a $123 thousand decrease in accrued interest
receivables, which were partially offset by a $771 thousand decrease in the
provision for loan losses and a $177 thousand decrease in accrued interest
payable.
Funds used for investing activities totaled $33.2 million during the nine
months ended March 31, 2004. Primary uses of funds during the nine months ended
March 31, 2004, included $325.7 million for purchases of investment,
mortgage-backed securities, and Federal Home Loan Bank stock, which were
partially offset by $270.7 million from repayments of investment,
mortgage-backed securities and Federal Home Loan Bank stock, a $21.3 million
decrease in net loans receivable, and $500 thousand from the sale of other real
estate owned.
14
Funds provided by financing activities totaled $31.2 million for the nine
months ended March 31, 2004. The primary sources included a $53.3 million
increase in other short-term borrowings, $500 thousand proceeds from long-term
FHLB advances, and $490 thousand in stock option proceeds, which were partially
offset by a $13.7 million decrease in certificates of deposit, a $3.9 million
decrease in short-term FHLB advances, $2.0 million in purchased treasury stock,
a $1.3 million decrease in transaction and passbook accounts, $1.2 million in
cash dividends paid on the Company's common stock, a $662 thousand decrease in
escrow accounts, and a $279 thousand repayment of FHLB long-term advances.
Management believes that it currently is maintaining adequate liquidity and
continues to better match funding sources with lending and investment
opportunities.
During the quarter ended March 31, 2004, the Company incurred approximately
$201.9 million in other short-term borrowings with a weighted average rate of
1.10%, and incurred $500 thousand in FHLB long-term borrowings with a weighted
average rate of 2.91%. During the three months ended March 31, 2004, the Company
repaid $207.0 million of other short-term borrowings with weighted average rates
of 1.10%.
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 March 31, 2004, the total approved loan
commitments outstanding amounted to $80 thousand. At the same date, commitments
under unused lines of credit amounted to $6.1 million, the unadvanced portion of
construction loans approximated $12.0 million and commitments to fund security
purchases totaled $16.4 million. Certificates of deposit scheduled to mature in
one year or less at March 31, 2004, totaled $41.3 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 February 24, 2004 the Company's Board of Directors authorized its
Seventh Stock Buyback Program totaling 125,000 shares, or approximately 5%, of
the Company's outstanding common stock.
On April 27, 2004, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable May 20, 2004, to shareholders of record at
the close of business on May 10, 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 March 31, 2004, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier I and total risk-based capital equal to $29.1
million or 17.8% and $30.6 million or 18.7%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $29.1 million or 7.35% 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 March 31, 2004, totaled approximately
$722 thousand or 0.18% of total assets as compared to $3.5 million or 0.95% of
total assets at June 30, 2003. Nonperforming assets at March 31, 2004 consisted
of: one commercial real estate loan totaling $277 thousand, one construction and
land development loan totaling $58 thousand, two commercial loans totaling $66
thousand, four single-family real estate loans totaling $268 thousand, one
consumer loan totaling $3 thousand and one parcel of commercial real estate
owned with a carrying value of $50 thousand.
The $2.8 million decrease in nonperforming assets during the nine months
ended March 31, 2004 was primarily attributable to: the $1.4 million
reclassification of a commercial real estate loan from non-performing 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 $489 thousand charge off related to a
bankruptcy discussed below, which was partially offset by a $124 thousand
increase in non-performing single-family real estate loans.
The Company has one non-accruing commercial real estate loan relationship,
with an outstanding balance of approximately $767 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. During the
quarter ended March 31, 2004, the Savings Bank obtained title to an office
building with a market value of approximately $52 thousand. The property is
currently under a sales agreement, with anticipated proceeds of approximately
$50 thousand, and is expected to close during the quarter ended June 30, 2004.
As of December 31, 2003, the Company had 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 had 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 had collected nominal rent on a sporadic basis. The property was bought
back at a Sheriff's Sale in December 2003 and the Company sold such property
during the quarter ended March 31, 2004 with 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 March 31, 2004. 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 nine months ended March 31, 2004, approximately $73 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
16
were not included in the Company's interest income for the nine months ended
March 31, 2004. 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.
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 nine months ended March 31, 2004, 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
nine months ended March 31, 2004, totaled $38.5 million, $178.2 million and
$90.8 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
17
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 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 March 31, 2004, principal investment purchases
were comprised of: floating rate collateralized mortgage obligations - $34.5
million with an original weighted average yield of approximately 2.61%;
government agency step-up bonds which will reprice within 2 years - $15.0
million with a weighted average yield of approximately 4.00%; tax-free municipal
bonds with a weighted average taxable equivalent yield of approximately 3.92%;
and a corporate demand note - $1.0 million with an initial rate of approximately
2.62%. Major investment proceeds received during the quarter ended March 31,
2004 were: government agency bonds - $44.7 million with a weighted average yield
of approximately 3.09%; and investment grade corporate bonds - $9.5 million with
a weighted average yield of approximately 2.99%.
As of March 31, 2004, the implementation of these asset and liability
management initiatives resulted in the following:
1) the Company's liquidity profile remains high with the investment and
mortgage-backed securities portfolio's stated final maturities as follows:
less than 1 year: $31.4 million or 10.0%; 1-3 years: $0.0 million or 0.0%;
3-5 years: $44 thousand or 0.01%; over 5 years: $282.4 million or 90.0%;
2) $55.0 million or 24.0% of the Company's investment portfolio (including
FHLB stock) was comprised of floating rate bonds which will reprice
quarterly within one year;
3) $95.0 million or 41.5% 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) $31.1 million or 13.6% 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) $83.6 million or 90.5% 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: $62.7 million or 29.5%; 1-3 years: $4.2 or 2.0%; 3-5 years:
$13.5 million or 6.3%; over 5 years: $132.1 million or 62.6%; and
7) an aggregate of $33.7 million or 47.9% 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.
March 31, June 30,
--------- -------------------
2004 2003 2002
---- ---- ----
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $254,256 $262,782 $252,467
Interest-bearing liabilities maturing or
repricing within one year 140,292 133,418 142,823
-------- -------- --------
Interest sensitivity gap $113,964 $129,364 $109,644
======== ======== ========
Interest sensitivity gap as a percentage of
total assets 28.5% 35.2% 27.1%
Ratio of assets to liabilities
maturing or repricing within one year 181.23% 197.0% 176.8%
During the quarter ended March 31, 2004, the Company managed its one year
interest sensitivity gap by: (1) purchasing floating rate CMO's which reprice on
a monthly basis; and (2) purchasing U.S. Government Agency Step-up bonds which
will reprice from an initial rate of 4% to 7% within two years.
19
The following table illustrates the Company's estimated stressed cumulative
repricing gap - the difference between the amount of interest-earning assets and
interest-bearing liabilities expected to reprice at a given point in time - at
March 31, 2004. The table estimates the impact of an upward or downward change
in market interest rates of 100 and 200 basis points.
Cumulative Stressed Repricing Gap
---------------------------------
Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term
------- ------- -------- -------- -------- -------- ---------
(Dollars in Thousands)
Base Case Up 200 bp
- -------------------
Cummulative
Gap ($'s) 27,921 93,136 90,239 76,215 59,033 54,842 26,449
% of Total
Assets 7.0% 23.2% 22.5% 19.0% 14.7% 13.7% 6.6%
Base Case Up 100 bp
- -------------------
Cummulative
Gap ($'s) 33,718 99,485 106,764 183,264 171,420 156,062 26,449
% of Total
Assets 8.4% 24.8% 26.6% 45.7% 42.8% 38.9% 6.6%
Base Case No Change
- -------------------
Cummulative
Gap ($'s) 35,786 103,981 113,964 192,928 182,049 165,154 26,449
% of Total
Assets 8.9% 25.9% 28.4% 48.1% 45.4% 41.2% 6.6%
Base Case Down 100 bp
- ---------------------
Cummulative
Gap ($'s) 38,612 108,774 151,020 201,414 188,596 167,727 26,449
% of Total
Assets 9.6% 27.1% 37.7% 50.3% 47.1% 41.8% 6.6%
Base Case Down 200 bp
- ---------------------
Cummulative
Gap ($'s) 85,869 177,421 212,474 205,613 190,937 168,125 26,449
% of Total
Assets 21.4% 44.3% 53.0% 51.3% 47.6% 41.9% 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 March 31, 2004.
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 -26.3% -17.2% 0.00% 16.1% 58.7%
Return on average equity 3.61% 5.14% 7.93% 10.46% 16.83%
Return on average assets 0.24% 0.34% 0.53% 0.71% 1.19%
Market value of equity (in
thousands) $8,521 $9,844 $17,553 $19,257 $16,068
The table below provides information about the Company's anticipated
transactions comprised of firm loan commitments and other commitments, including
undisbursed letters and lines of credit. The Company used no derivative
financial instruments to hedge such anticipated transactions as of March 31,
2004.
Anticipated Transactions
-----------------------------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and
land development loans
Fixed rate $ 3,741
5.71%
Adjustable rate $ 8,302
5.02%
Undisbursed lines of credit
Adjustable rate $ 6,092
4.71%
Loan origination commitments
Fixed rate $ 30
6.00%
Adjustable rate $ 50
2.99%
Letters of credit
Adjustable rate $ 5
7.00%
Commitments to purchase CMO's
Adjustable rate $16,365
2.59%
-------
$34,585
=======
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 March 31, 2004, 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 six 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 Accounting 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 March 31, 2004. Based on such evaluation, our Chief
Executive Officer and Chief Accounting 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 third 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, Use of Proceeds and Issuer Purchases of Equity
---------------------------------------------------------------------
Securities
----------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) The following table sets forth information with respect to purchases
of common stock of the Company made by or on behalf of the Company
during the three months ended march 31, 2004.
--------------------------------------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------------------------------------------------------------------------------
Total Number of Maximum Number of
Total Shares Purchased Shares that May Yet
Number of as Part of Publicly Be Repurchased
Shares Average Price Announced Plans or Under the Plans or
Period Purchased Paid per Share ($) Programs (1) Programs (2,3)
--------------------------------------------------------------------------------------------------------------
01/01/04 - 01/31/04 6,079 17.64 6,079 69,349
--------------------------------------------------------------------------------------------------------------
02/01/04 - 02/29/04 64,264 18.83 64,264 130,085
--------------------------------------------------------------------------------------------------------------
03/01/04 - 03/31/04 2,500 18.85 2,500 127,585
--------------------------------------------------------------------------------------------------------------
Total 72,843 18.73 72,843 127,585
--------------------------------------------------------------------------------------------------------------
- ----------
(1) All shares indicated were purchased under the Company's Sixth Stock
Repurchase Program.
(2) Sixth Stock Repurchase Program
(a) Announced January 2, 2003.
(b) 130,000 common shares approved for repurchase.
(c) No fixed date of expiration.
(d) This Program has not expired and has 2,585 shares remaining to
be purchased at March 31, 2004.
(e) Not applicable.
(3) Seventh Stock Repurchase Program
(a) Announced February 24, 2004.
(b) 125,000 common shares approved for repurchase.
(c) No fixed date of expiration.
(d) This Program has not expired and has 125,000 shares remaining
to be purchased at March 31, 2004.
(e) Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
24
ITEM 5. Other Information
-----------------
Not applicable.
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 E-1
Executive Officer
31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief E-2
Accounting Officer
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 January 30,
2004, reporting under Item 12 earnings for the three and six
months ending December 31, 2003. The Company included as an
exhibit to the Form 8-K the press release dated January 30,
2004.
The Company filed a Current Report on Form 8-K dated February
24, 2004, reporting under Item 5, that the Company's Board of
Directors authorized the repurchase of up to 125,000 shares, or
approximately 5% of the Company's outstanding common stock. The
Company included as an exhibit to the Form 8-K the press release
issued February 24, 2004.
25
SIGNATURES
Pursuant tos the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
May 17, 2004 BY: /s/ David J. Bursic
Date -------------------------------------------
David J. Bursic
President and Chief Executive Officer
(Principal Executive Officer)
May 17, 2004 BY: /s/ Keith A. Simpson
Date -------------------------------------------
Keith A. Simpson
Vice-President, Treasurer and Chief
Accounting Officer
(Principal Accounting Officer)
26