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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 September 30, 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 November 9, 2004: 2,445,060 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 September 30, 2004 and June 30, 2004 (Unaudited) 3
Consolidated Statement of Income for the Three Months Ended September 30, 2004 and 2003 (Unaudited) 4
 
                Consolidated Statement of Cash Flows for the Three Months Ended September 30, 2004 and 2003 (Unaudited)       5  
Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended September 30, 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 Months Ended September 30, 2004 		      11  
                 
Item 3. Quantitative and Qualitative Disclosures about Market Risk       16  
                 
Item 4. Controls and Procedures       22  
                 
PART II Other Information       Page  
    
     
 
                 
Item 1. Legal Proceedings       23  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds       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       23  
    Signatures       25  

2


WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)


September 30,
2004
June 30,
2004
          Assets            
Cash and due from banks     $ 1,098   $ 769  
Interest-earning demand deposits       2,772     2,285  
Total cash and cash equivalents       3,870     3,054  
Investment securities available-for-sale (amortized cost of $13,495 and $4,112)       13,581     4,416  
Investment securities held-to-maturity (market value of $203,192 and $271,104)       200,701     269,173  
Mortgage-backed securities available-for-sale (amortized cost of $3,094 and $3,234)       3,208     3,357  
Mortgage-backed securities held-to-maturity (market value of $93,634 and $72,100)       93,365     72,233  
Federal Home Loan Bank stock, at cost       7,582     7,532  
Net loans receivable (allowance for loan losses of $1,423 and $1,370)       63,102     67,968  
Trading assets       —     993  
Accrued interest receivable       2,297     2,456  
Premises and equipment       1,050     1,077  
Other assets       1,422     1,365  
          TOTAL ASSETS     $ 390,178   $ 433,624  
     
          Liabilities and Stockholders’ Equity    
Liabilities:    
Savings Deposits:    
   Non-interest-bearing accounts     $ 11,399   $ 10,996  
   NOW accounts       21,936     22,897  
   Savings accounts       44,868     45,837  
   Money market accounts       13,620     14,226  
   Certificates of deposit       64,335     65,362  
   Advance payments by borrowers for taxes and insurance       363     1,245  
    Total savings deposits       156,521     160,563  
Federal Home Loan Bank advances       151,636     149,736  
Other borrowings       50,263     91,639  
Accrued interest payable       1,218     1,197  
Other liabilities       1,388     1,290  
     TOTAL LIABILITIES     $ 361,026   $ 404,425  
     
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; 3,762,968 and 3,762,968 shares issued       38     38  
Additional paid-in capital       20,727     20,727  
Treasury stock: 1,316,344 and 1,296,544 shares at cost, Respectively       (19,716 )   (19,377 )
Retained earnings, substantially restricted       27,976     27,535  
Accumulated other comprehensive income       132     281  
Unreleased shares - Recognition and Retention Plans       (5 )   (5 )
     TOTAL STOCKHOLDERS’ EQUITY     $ 29,152   $ 29,199  
          TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY     $ 390,178   $ 433,624  

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
September 30,
2004
2003
INTEREST AND DIVIDEND INCOME:            
     Loans     $ 1,095   $ 1,528  
     Investment securities       2,724     1,581  
     Mortgage-backed securities       583     656  
     Interest-earning deposits with other institutions       2     5  
     Federal Home Loan Bank stock       26     41  
          Total interest and dividend income       4,430     3,811  
     
INTEREST EXPENSE:    
     Deposits       515     667  
     Federal Home Loan Bank advances       2,044     2,045  
     Other borrowings       193     57  
          Total interest expense       2,752     2,769  
                 
NET INTEREST INCOME       1,678     1,042  
PROVISION (RECOVERY) FOR LOAN LOSSES       78     (133 )
NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES       1,600     1,175  
     
NON-INTEREST INCOME:    
     Service charges on deposits       95     106  
     Investment securities gains       237     —  
     Other       76     88  
          Total non-interest income       408     194  
     
NON-INTEREST EXPENSE:    
     Salaries and employee benefits       503     511  
     Occupancy and equipment       105     105  
     Data processing       64     56  
     Correspondent bank service charges       35     38  
     Other       171     182  
          Total non-interest expense       878     892  
                 
INCOME BEFORE INCOME TAXES       1,130     477  
INCOME TAXES       296     125  
NET INCOME     $ 834   $ 352  
     
EARNINGS PER SHARE:    
     Basic     $ 0.34   $ 0.14  
     Diluted     $ 0.34   $ 0.14  
     
AVERAGE SHARES OUTSTANDING:    
     Basic       2,453,189     2,575,242  
     Diluted       2,458,926     2,585,081  

See accompanying notes to unaudited consolidated financial statements.

4


WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)


Three Months Ended
September 30,
2004
2003
OPERATING ACTIVITIES            
                 
Net income     $ 834   $ 352  
Adjustments to reconcile net income to cash provided by operating activities:    
   Provision (recovery) for loan losses       78     (133 )
   Investment securities gains       (237 )   —  
   Depreciation and amortization, net       47     46  
   Amortization of discounts, premiums and deferred loan fees       (179 )   488  
   Sale of trading securities       1,000     —  
   Decrease in accrued interest receivable       159     449  
   Increase in accrued interest payable       21     21  
   Increase in accrued and deferred taxes       217     12  
   Other, net       (97 )   66  
         Net cash provided by operating activities       1,843     1,301  
     
INVESTING ACTIVITIES    
     
Available-for-sale:    
   Purchases of investments and mortgage-backed securities       (13,113 )   (20,290 )
   Proceeds from repayments of investments and mortgage-backed securities       2,975     36,113  
   Proceeds from sale of investments securities       1,127     —  
Held-to-maturity:    
   Purchases of investments and mortgage-backed securities       (95,639 )   (159,770 )
   Proceeds from repayments of investments and mortgage-backed securities       143,175     108,068  
Decrease in net loans receivable       4,769     13,537  
Purchase of Federal Home Loan Bank stock       (1,521 )   (696 )
Redemption of Federal Home Loan Bank stock       1,471     —  
Acquisition of premises and equipment       (21 )   —  
         Net cash provided by (used for) investing activities       43,223     (23,038 )

5


WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)

Three Months Ended
September 30,
2004
2003
FINANCING ACTIVITIES            
                 
Net (decrease) increase in transaction and passbook accounts       (2,133 )   9,540  
Net decrease in certificates of deposit       (1,027 )   (2,292 )
Net increase (decrease) in FHLB short-term advances       1,900     (3,275 )
Net (decrease) increase in other borrowings       (41,376 )   19,123  
Net decrease in advance payments by borrowers for taxes and insurance       (882 )   (1,238 )
Net proceeds from issuance of common stock       —     7  
Funds used for purchase of treasury stock       (339 )   (200 )
Cash dividends paid       (393 )   (410 )
         Net cash (used for) provided by financing activities       (44,250 )   21,255  
                 
        Increase (decrease) in cash and cash equivalents       816     (482 )
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD       3,054     2,815  
                 
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD     $ 3,870   $ 2,333  
     
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION    
     
   Cash paid during the period for:    
      Interest on deposits, escrows and borrowings     $ 2,731   $ 2,748  
      Income taxes     $ 2   $ 107  
     
   Non-cash item:    
      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)


Common
Stock
Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Substantially
Restricted
Unallocated
Shares Held
by RRP
Accumulated
Other
Compre-
hensive
Income
Total
Balance at June 30, 2004     $ 38   $ 20,727   $ (19,377 ) $ 27,535   $ (5 ) $ 281   $ 29,199  
     
Comprehensive income:    
                                               
   Net Income                   834             834  
   Other comprehensive income:    
      Change in unrealized    
          holding gains on    
          securities, net of    
          income tax effect of $77                           (149 )   (149 )
                                         
 
Comprehensive income                               685  
                                               
Purchase of shares for                                  
   treasury stock               (339 )               (339 )
     
Accrued compensation    
   expense for Recognition    
   and Retention Plans (RRP)                       —         —  
                                               
Exercise of stock options       —     —                     —  
     
Cash dividends declared    
   ($0.16 per share)                   (393 )           (393 )
                                               
Balance at Sept 30, 2004     $ 38   $ 20,727   $ (19,716 ) $ 27,976   $ (5 ) $ 132   $ 29,152  

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 months ended September 30, 2004, are not necessarily indicative of the results which may be expected for the entire fiscal year.

2.  RECENT ACCOUNTING PRONOUNCEMENTS

        In March 2004, the Financial Accounting Standards Board (“FASB”) reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1 (“EITF 03-1”), The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. The guidance is applicable to debt and equity securities that are within the scope of FASB Statement of Financial Accounting Standard (“SFAS”) No. 115, Accounting for Certain Investments In Debt and Equity Securities and certain other investments. EITF 03-1 specifies that an impairment would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. EITF 03-1 cost method investment and disclosure provisions were effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to debt and equity securities have been delayed until the FASB issues additional guidance. The Company adopted cost method investment and disclosure provisions of EITF 03-1 on June 30, 2004. The adoption did not have a material impact on the consolidated financial statements, results of operations or liquidity of the Company.

8


3.  EARNINGS PER SHARE

        The following table sets forth the computation of the weighted-average common shares used to calculate basic and diluted earnings per share.


Three Months Ended
September 30,
2004
2003
Weighted average common shares issued       3,762,968     3,736,645  
Average treasury stock shares       (1,309,779 )   (1,161,403 )
     
Weighted average common shares and common stock equivalents used to calculate basic earnings per share       2,453,189     2,575,243  
Additional common stock equivalents (stock options) used to calculate diluted earnings per share       5,737     9,839  
     
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share       2,458,926     2,585,081  

        All options at September 30, 2004 and September 30, 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 (dollars in thousands):


Three Month Ended September 30,
2004
2003
Net income         $ 834       $ 352  
Other comprehensive (loss) income:    
     Unrealized (losses) gains on available for sale securities     $ (11 )     $ (17 )    
        Less:    
        Reclassification adjustment for gain included in net income       (237 )       —      
Other comprehensive loss before tax           (226 )       (17 )
Income tax benefit related to other comprehensive loss           (77 )       (6 )
 
 
Other comprehensive loss, net of tax           (149 )       (11 )
 
 
Comprehensive income         $ 685       $ 341  
 
 

10


ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 September 30, 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 $390.2 million at September 30, 2004, as compared to $433.6 million at June 30, 2004. The $43.4 million or 10.0% decrease in total assets was primarily comprised of a $60.2 million or 21.4% decrease in investment securities and FHLB stock and a $4.9 million or 7.2% decrease in net loans receivable, which were partially offset by a $21.0 million or 27.8% increase in mortgage-backed securities and a $816 thousand or 26.7% increase in cash and cash equivalents. The decreases in investment securities and loans outstanding were attributable to higher rates of repayments caused by declines in intermediate and long-term market interest rates. The increase in mortgage-backed securities is attributable to purchases of floating rate collateralized mortgage obligations in response to increases in short-term market interest rates. See “Asset and Liability Management”.

11


        The Company’s total liabilities decreased $43.4 million or 10.7% to $361.0 million as of September 30, 2004, from $404.4 million as of June 30, 2004. The $43.4 million decrease in total liabilities was primarily comprised of a $41.4 million or 45.2% decrease in other short-term borrowings and a $4.0 million or 2.5% decrease in total savings deposits, which were partially offset by a $1.9 million or 1.3% increase in FHLB advances. Certificates of deposit decreased $1.0 million, savings accounts decreased $969 thousand, advanced payments by borrowers for taxes and insurance decreased $882 thousand, money market accounts decreases $606 thousand and demand deposits decreased $558 thousand. Management believes that the decreases in savings accounts, advance payments by borrowers for taxes and insurance and demand deposits were primarily attributable to seasonal payments of local and school real estate taxes.

        Total stockholders’ equity decreased $47 thousand or 0.2% to $29.2 million as of September 30, 2004, from approximately $29.2 million as of June 30, 2004. Capital expenditures for the Company’s stock repurchase program and cash dividends totaled $339 thousand and $393 thousand, respectively, and accumulated other comprehensive income decreased $149 thousand, which were partially offset by net income of $834 thousand for the three months ended September 30, 2004.

RESULTS OF OPERATIONS

        General. WVS reported net income of $834 thousand or $0.34 diluted earnings per share for the three months ended September 30, 2004. Net income increased by $482 thousand or 136.9% and diluted earnings per share increased $0.20 or 142.9% for the three months ended September 30, 2004, when compared to the same period in 2003. The increase in net income was primarily attributable to a $636 thousand increase in net interest income, a $214 thousand increase in non-interest income and a $14 thousand decrease in non-interest expense, which were partially offset by a $211 thousand change in the provision for loan losses and a $171 thousand increase in income tax expense.

        Net Interest Income. The Company’s net interest income increased by $636 thousand or 61.0% for the three months ended September 30, 2004, when compared to the same period in 2003. The increase in net interest income for the three month period was principally attributable to higher yields earned on Company assets due to higher levels of discount accretion on called U.S. Government Agency bonds, lower levels of premium amortization on matured corporate bonds, increases in short-term market interest rates, higher average balances of investment securities, lower rates paid on deposits and lower average balances of time deposits, which were partially offset by increased average balances of the Company’s borrowings outstanding and lower average balances of net loans receivable. The Company continued to experience high levels of repayments on its loan and mortgage-backed securities portfolios due to refinancing activities for the three months ended September 30, 2004.

        Interest Income. Interest on net loans receivable decreased $433 thousand or 28.3% for the three months ended September 30, 2004, when compared to the same period in 2003. The decrease for the three months ended September 30, 2004 was attributable to a decrease of $19.6 million in the average balance of net loans receivable outstanding and a decrease of 50 basis points in the weighted average yield earned on net loans receivable for the three months ended September 30, 2004, when compared to the same period in 2003. The decrease in the average loan balance outstanding for the three months ended September 30, 2004 was 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 portfolio 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 decreased $73 thousand or 11.1% for the three months ended September 30, 2004, when compared to the same period in 2003. The decrease for the three months ended September 30, 2004 was primarily attributable to a $31.1 million decrease in the average balance of mortgage-backed securities outstanding for the period, which was partially offset by a 72 basis point increase in the average yield earned on mortgage-backed securities for the three months ended September 30, 2004 when compared to the same period in 2003. The increase in the weighted average yield earned on mortgage-backed securities was consistent with market conditions for the three months ended September 30, 2004. The decrease in the average balances of mortgage-backed securities during the three months ended September 30, 2004 was primarily attributable to the repayment of a portion of the Company’s floating rate mortgage-backed securities portfolio.

        Interest and dividend income on interest-bearing deposits with other institutions, investment securities and FHLB stock (“other investment securities”) increased by $1.1 million or 69.1% for the three months ended September 30, 2004 when compared to the same period in 2003 and includes a $576 thousand change in recognized discounts/premiums on investment securities. The increase was principally attributable to a $72.7 million increase in the average balance outstanding of other investment securities for the three months ended September 30, 2004 when compared to the same period in 2003 and a 67 basis point increase in the weighted average yield earned on other investment securities outstanding when compared to the same period in 2003. The increase in the weighted average yield earned was consistent with market conditions for the three months ended September 30, 2004. The increase in the average balance of other investment securities outstanding during the three months ended September 30, 2004 was principally attributable to the reinvestment of a portion of the Company’s loan payment proceeds and repayments on the Company’s mortgage-backed securities portfolio into callable floating rate U.S. government sponsored agency bonds.

        Interest Expense. Interest expense on deposits and escrows decreased $152 thousand or 22.8% for the three months ended September 30, 2004 when compared to the same period in 2003. The decrease in interest expense on deposits and escrows for the three months ended September 30, 2004 was attributable to a $9.4 million decrease in the average balance of interest-bearing deposits and escrows for the period, and a 31 basis point decrease in the weighted average yield paid on interest-bearing deposits and escrows for the three months ended September 30, 2004, when compared to the same period in 2003. The average yield paid on interest-bearing deposits reflects decreases in rates paid on deposits for the three months ended September 30, 2004.

        Interest on FHLB advances and other borrowings increased $135 thousand or 6.4% for the three months ended September 30, 2004 when compared to the same period in 2003. The increase for the three months ended September 30, 2004 was attributable to a $32.6 million increase in the average balance of FHLB advances and other borrowings for the period which was partially offset by a 52 basis point decrease in the weighted average rate paid on such borrowings when compared to the same period in 2003. The weighted average rate paid on FHLB advances and other borrowings declined in contrast to increases in market interest rates due to longer average maturity of the Company’s fixed-rate FHLB advances outstanding.

        Provision for Loan Losses. A provision for loan losses is charged to earnings to maintain the total allowance at a level considered adequate by management to absorb potential losses in the portfolio. Management’s determination of the adequacy of the allowance is based on an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors.

        The Company recorded a provision for loan losses of $78 thousand for the three months ended September 30, 2004 compared to a $133 thousand credit provision for the same period in 2003. At September 30, 2004, the Company’s total allowance for loan losses amounted to $1.4 million or 1.8% of the Company’s total loan portfolio, as compared to $2.4 million or 3.0% at September 30, 2003. The increase in the provision for loan losses is primarily the result of the Company recording an additional general valuation allowance of approximately $116 thousand, or 15% of the outstanding balance on an accruing commercial loan participation interest collateralized by a first mortgage loan on a full-service hotel located within the Company’s market area. The Company took this action as a result of a reduction in the appraised value of the property from $20.2 million (at April 1999) to approximately $12.0 million (at March 2003), subsequent declines in room rentals and operating income, and reduced debt coverage ratios since the March 2003 appraisal.

13


        Non-Interest Income. Non-interest income increased by $214 thousand or 110.3% for the three months ended September 30, 2004 when compared to the same period in 2003. The increase was primarily attributable to $237 thousand of pre-tax securities gains, which were partially offset by an $11 thousand decrease in service charge income earned on deposits, a $8 thousand decrease in correspondent mortgage application fee income and a $3 thousand decrease in other real estate owned gross income.

        Non-Interest Expense. Non-interest expense decreased $14 thousand or 1.6% for the three months ended September 30, 2004 when compared to the same period in 2003. The decrease was principally attributable to an $8 thousand decrease in legal expenses associated with the work-out of non-performing assets and a $3 thousand decrease in correspondent bank service charges when compared to the same period on 2003.

LIQUIDITY AND CAPITAL RESOURCES

        Net cash provided by operating activities totaled $1.8 million during the three months ended September 30, 2004. Net cash provided by operating activities was primarily comprised of $1.0 million from the sale of trading assets and $834 thousand of net income.

        Funds provided by investing activities totaled $43.2 million during the three months ended September 30, 2004. Primary sources of funds during the three months ended September 30, 2004, included $147.6 million from repayments of investment and mortgage-backed securities and including Federal Home Loan Bank stock, a $4.8 million decrease in net loans receivable and $1.1 million from the sale of investments from the Company’s investment portfolio, which were partially offset by $110.3 million for purchases of investments and mortgage-backed securities including Federal Home Loan Bank stock.

        Funds used for financing activities totaled $44.2 million for the three months ended September 30, 2004. The primary uses included a $41.4 million decrease in other short-term borrowings, a $4.0 million decrease in deposits and escrows, a $393 thousand in cash dividends paid on the Company’s common stock and $339 thousand in purchased treasury stock, which were partially offset by a $1.9 million increase in short-term FHLB advances. Management believes that it currently is maintaining adequate liquidity and continues to match funding sources with lending and investment opportunities.

        During the quarter ended September 30, 2004, the Company incurred $378.2 million in other short-term borrowings with a weighted average rate of 1.49% and incurred approximately $1.9 million in various short-term borrowings from the FHLB with a weighted average rate of 1.79%. During the three months ended September 30, 2004, the Company repaid $419.6 million of other short-term borrowings with weighted average rates of 1.41%.

        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 September 30, 2004, the total approved loan commitments outstanding amounted to $1.9 million. At the same date, commitments under unused lines of credit amounted to $6.0 million, the unadvanced portion of construction loans approximated $10.7 million and commitments to fund security purchases totaled $26.6 million. Certificates of deposit scheduled to mature in one year or less at September 30, 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.

14


        On October 26, 2004, the Company’s Board of Directors declared a cash dividend of $0.16 per share payable November 18, 2004, to shareholders of record at the close of business on November 8, 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 September 30, 2004, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $29.0 million or 20.9% and $30.5 million or 21.9%, respectively, of total risk-weighted assets, and Tier I leverage capital of $29.0 million or 7.27% of average quarterly assets.

        Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan.

        The Company’s nonperforming assets at September 30, 2004 totaled approximately $729 thousand or 0.19% of total assets as compared to $828 thousand or 0.19% of total assets at June 30, 2004. Nonperforming assets at September 30, 2004 consisted of: one land loan totaling $418 thousand, two commercial loans totaling $61 thousand, two single-family real estate loans totaling $141 thousand, two home equity loans totaling $41 thousand, and one unsecured consumer loan totaling $68 thousand.

        The $99 thousand decrease in nonperforming assets during the three months ended September 30, 2004 was primarily attributable to the payoff in full of two mortgages secured by single-family real estate totaling approximately $140 thousand, the payoff in full of a $4 thousand loan secured by commercial real estate and principal paydowns totaling approximately $13 thousand on two loans related to a bankruptcy discussed below, which were partially offset by the addition to non-accrual status of two home equity loans totaling approximately $41 thousand and one commercial loan totaling approximately $16 thousand. These loans are in various stages of collection activity.

        At September 30, 2004, the Company had one loan secured by undeveloped land totaling $417 thousand and one unsecured loan totaling $68 thousand to two borrowers. During the fourth quarter of fiscal 2004, the Bankruptcy Court approved a secured claim totaling $440 thousand and an unsecured claim totaling $76 thousand be paid in accordance with a Bankruptcy Plan of Reorganization. All Court ordered plans have been received in a timely manner. In accordance with generally accepted accounting principles, payments received are being applied on a cost recovery basis.

        During the three months ended September 30, 2004, approximately $11 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 quarter ended September 30, 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.

15


ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET AND LIABILITY MANAGEMENT

        The Company’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in US dollars with no specific foreign exchange exposure. The Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be exogenous and will be analyzed on an ex post basis.

        Interest rate risk (“IRR”) is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value, however, excessive levels of IRR can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company’s safety and soundness.

        Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization’s quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality.

        Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn 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 three months ended September 30, 2004, the level of short-term market interest rates began to increase. The Federal Open Market Committee increased its intended federal funds rate by twenty-five basis points at both their August 10 and September 20, 2004 meetings. This followed a twenty-five basis point increase at their June 30, 2004 meeting. As economic conditions continue to improve, we anticipate continued increases in short-term market interest rates. Intermediate and longer-term yields fell, however, due to rising oil prices and weakness in some sectors of the economy. The benchmark ten year treasury yield declined forty-eight basis points from 4.62% at June 30, 2004 to 4.14% at September 30, 2004. This decline precipitated additional prepayments in the Company’s loan, investment and mortgage-backed securities portfolios.

        Principal repayments on the Company’s loan, investment and mortgage-backed securities portfolios for the three months ended September 30, 2004, totaled $10.3 million, $137.2 million and $10.8 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 to reduce its portfolio originations of long-term fixed rate mortgages while continuing to offer consumer home equity and construction loans. The Company continues to purchase callable U. S. Government Agency bonds that reprice within twelve to fifteen months in order to earn a higher return while limiting interest rate risk within the portfolio. Within the mortgage-backed securities portfolio, the Company continued to aggressively purchase floating rate securities in order to provide current income and protection against eventual rises 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.

16


        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 interest income while limiting interest rate risk. The Company has also emphasized higher yielding home equity and small business loans to existing customers and seasoned prospective customers.

        During the quarter ended September 30, 2004, principal investment purchases were comprised of: callable floating rate government agency bonds which will reprice within fifteen months — $60.0 million with a weighted average yield of approximately 3.03%; floating rate collateralized mortgage obligations which reprice monthly - $31.8 million with an original weighted average yield of approximately 3.11%; investment grade commercial paper - $6.0 million with a weighted average yield of approximately 1.81%; and government agency step-up bonds which will reprice within one year - $3.9 million with a weighted average yield of approximately 4.66%. Major investment proceeds received during the quarter ended September 30,2004 were: callable government agency bonds - $117.9 million with a weighted average yield of approximately 4.11%; investment grade corporate bonds - $13.7 million with a weighted average yield of approximately 3.27%; investment grade commercial paper - $2.7 million with a weighted average yield of approximately 1.77%; and tax-free municipal bonds - $835 thousand with a weighted average yield of approximately 3.99%.

As of September 30, 2004, the implementation of these asset and liability management initiatives resulted in the following:

  1)

the Company’s liquidity profile remains strong with $108.3 million of U.S. Government Agency securities were callable within 3 months, $20.2 million being callable with 3 to 6 months and $56.4 million being callable with 6 to 12 months. Based upon current market conditions, management anticipates that a substantial portion of the investments will be called within the above time intervals;


  2)

$91.2 million or 94.5% of the Company’s portfolio of mortgage-backed securities (including collateralized mortgage obligations – “CMOs”) were comprised of floating rate instruments that reprice on a monthly basis;


  3)

$83.4 million or 37.6% 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 3.35% - 4.50% and increase to 7.00% - 7.50% within twenty months;


  4)

$65.0 million or 29.3% of the Company’s investment portfolio (including FHLB stock) was comprised of floating rate bonds which will reprice quarterly within fifteen months;


  5)

$4.3 million or 1.9% of the Company’s investment portfolio (including FHLB stock) was comprised of investment grade corporate bonds with remaining maturities of less than one year;


  6)

the maturity distribution of the Company’s borrowings is as follows: less than 1 year: $52.2 million or 25.8%; 1-3 years: $4.2 or 2.1%; 3-5 years: $13.5 million or 6.7%; over 5 years: $132.1 million or 65.4%; and


  7)

an aggregate of $32.6 million or 51.7% 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.

17


        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.

September 30,
June 30,
2004
2004
2003
(Dollars in Thousands)
Interest-earning assets maturing or                
   repricing within one year     $ 274,010   $ 288,451   $ 262,782  
Interest-bearing liabilities maturing or    
   repricing within one year       132,158     171,655     133,418  
     
Interest sensitivity gap     $ 141,852   $ 116,796   $ 129,364  
Interest sensitivity gap as a percentage of    
   total assets       36.4 %   26.9 %   35.2 %
Ratio of assets to liabilities    
   maturing or repricing within one year       207.3 %   168.0 %   197.0 %

        During the quarter ended September 30, 2004, the Company managed its one year interest sensitivity gap by: (1) limiting the portfolio origination of long-term fixed rate mortgages; (2) emphasizing loans with shorter-terms or repricing frequencies; (3) purchasing investments with maturities/repricing dates within fifteen months; and (4) purchasing floating rate CMO’s which reprice on a monthly basis.

18


        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 September 30, 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 ($’s)       1,305     669     53,359     16,174     3,752     (7,226 )   26,378  
% of Total    
  Assets       0.3 %   0.2 %   13.7 %   4.1 %   1.0 %   -1.8 %   6.7 %
Base Case Up 100 bp    
Cummulative    
  Gap ($’s)       58,292     58,047     117,037     160,119     148,049     136,659     26,378  
% of Total    
  Assets       14.9 %   14.9 %   29.9 %   41.0 %   37.9 %   35.0 %   6.7 %
Base Case No Change    
Cummulative    
  Gap ($’s)       80,113     81,316     141,852     196,226     184,497     166,589     26,378  
% of Total    
  Assets       20.5 %   20.8 %   36.3 %   50.2 %   47.2 %   42.6 %   6.7 %
Base Case Down 100 bp    
Cummulative    
  Gap ($’s)       113,731     117,469     179,917     205,157     192,213     169,488     26,378  
% of Total    
  Assets       29.1 %   30.1 %   46.0 %   52.5 %   49.2 %   43.4 %   6.7 %
Base Case Down 200 bp    
Cummulative    
  Gap ($’s)       117,291     122,390     215,482     208,802     193,586     169,577     26,378  
% of Total    
  Assets       30.0 %   31.3 %   55.1 %   53.4 %   49.5 %   43.4 %   6.7 %

        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.

19


        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 September 30, 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 -68.4% -33.7%  0.00% 28.9% 79.2%
 
   Return on average equity -2.82% 3.14% 8.58% 13.0%  20.25%
 
   Return on average assets -0.16% 0.19% 0.54% 0.83% 1.35%
 
   Market value of equity (in
      thousands) $ 7,852 $16,344  $23,788  $27,428  $26,668 

        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 September 30, 2004.

Anticipated Transactions
     (Dollars in Thousands)
Undisbursed construction and land development loans          
        Fixed rate     $ 2,964  
        5.77 %
           
      Adjustable rate     $ 7,754  
        5.37 %
Undisbursed lines of credit    
      Adjustable rate     $ 6,017  
        5.27 %
Loan origination commitments    
      Fixed rate     $ 1,660  
        6.22 %
           
      Adjustable rate     $ 275  
        5.29 %
Letters of credit    
      Adjustable rate     $ 1,069  
        5.76 %
Commitments to purchase mortgage-backed securities    
      Adjustable rate     $ 26,615  
        3.18 %
      $ 46,354  

20


        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 September 30, 2004, the Savings Bank had three performance standby letters of credit outstanding totaling approximately $1.1 million. One letter of credit is secured by deposits with the Savings Bank, and the two letters of credit are secured by undisbursed construction loan funds. All three letters of credit will mature within twelve 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.

21


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 September 30, 2004. 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 first fiscal quarter of fiscal 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

22


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.  Unregistered Sales of Equity Securities and Use of Proceeds

  (a) Not applicable.

  (b) Not applicable.

  (c)

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 September 30, 2004.


 
ISSUER PURCHASES OF EQUITY SECURITIES  
  
            Period Total Number
of Shares
Purchased 		Average Price Paid
per Share ($) 		Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs(1) 		Maximum Number of Shares
that May Yet Be
Repurchased Under the
Plans or Programs(2)
07/01/04 – 07/31/04       9,800     17.25     9,800     87,107  
08/01/04 – 08/31/04       10,000     16.95     10,000     77,107  
09/01/04 – 09/30/04       0     0.00     0     77,107  
     Total       19,800     17.10     19,800     77,107  

  (1) All shares indicated were purchased under the Company’s Seventh Stock Repurchase Program.

  (2) 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 77,107 shares remaining to be purchased at September 30, 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.

ITEM 5.  Other Information

  Not applicable.

ITEM 6.  Exhibits

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(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     Report of Independent Registered Public Accounting Firm     E-5    

24


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.


November 10, 2004
Date 		           WVS FINANCIAL CORP.


BY:      /s/ David J. Bursic
            ——————————————
            David J. Bursic
            President and Chief Executive Officer
            (Principal Executive Officer)
November 10, 2004
Date

BY:      /s/ Keith A. Simpson
            ——————————————
            Keith A. Simpson
            Vice-President, Treasurer and Chief Accounting Officer
            (Principal Accounting Officer)

25