WVS FINANCIAL CORP - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - WVS FINANCIAL CORP	Financial_Report.xls
EX-99 - EX-99 - WVS FINANCIAL CORP	d897386dex99.htm
EX-31.2 - EX-31.2 - WVS FINANCIAL CORP	d897386dex312.htm
EX-32.1 - EX-32.1 - WVS FINANCIAL CORP	d897386dex321.htm
EX-32.2 - EX-32.2 - WVS FINANCIAL CORP	d897386dex322.htm
EX-31.1 - EX-31.1 - WVS FINANCIAL CORP	d897386dex311.htm

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, 2015

[ ]

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 incorporation or organization)						(I.R.S. Employer 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES X NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer		Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)		Smaller reporting company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12 b-2 of the Exchange Act). YES NO X

Shares outstanding as of May 14, 2015: 2,050,430 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, 2015 and June 30, 2014 (Unaudited)	3

	Consolidated Statement of Income for the Three and Nine Months Ended March 31, 2015 and 2014 (Unaudited)	4

	Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended March 31, 2015 and 2014 (Unaudited)	5

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended March 31, 2015 (Unaudited)	6

	Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 2015 and 2014 (Unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended March 31, 2015	41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4.	Controls and Procedures	55

PART II.	Other Information	Page

Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signatures	59

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)


	March 31, 2015			June 30, 2014
Assets
Cash and due from banks		$ 2,133			$ 1,088
Interest-earning demand deposits		369			272

Total cash and cash equivalents		2,502			1,360
Certificates of deposit		350			598
Investment securities available-for-sale (amortized cost of $57,879 and $28,189)		57,966			28,387
Investment securities held-to-maturity (fair value of $35,302 and $22,480)		34,684			22,047
Mortgage-backed securities held-to-maturity (fair value of $173,353 and $215,016)		172,586			215,335
Net loans receivable (allowance for loan losses of $286 and $234)		38,097			29,724
Accrued interest receivable		1,215			638
Federal Home Loan Bank stock, at cost		6,274			6,440
Premises and equipment, net		628			615
Bank owned life insurance		4,241			4,136
Deferred tax assets (net)		508			512
Other assets		2,168			148

TOTAL ASSETS		$ 321,219			$ 309,940


Liabilities and Stockholders’ Equity
Liabilities:
Deposits
Non-interest-bearing accounts		$ 18,796			$ 16,300
NOW accounts		21,707			21,077
Savings accounts		44,036			44,428
Money market accounts		24,594			24,730
Certificates of deposit		32,027			34,833
Advance payments by borrowers for taxes and insurance		578			491

Total deposits		141,738			141,859
Federal Home Loan Bank advances: long-term – fixed rate		12,500			12,500
Federal Home Loan Bank advances: long-term – variable rate		105,305			99,196
Federal Home Loan Bank advances: short-term		28,424			23,626
Accrued interest payable		155			170
Other liabilities		1,017			801

TOTAL LIABILITIES		289,139			278,152


Stockholders’ equity:
Preferred stock:
5,000,000 shares, no par value per share, authorized; none Issued		-			-
Common stock:
10,000,000 shares, $.01 par value per share, authorized; 3,805,636 and 3,805,636 shares issued; 2,050,430 and 2,056,975 shares outstanding		38			38
Additional paid-in capital		21,485			21,485
Treasury stock: 1,755,206 and 1,748,661 shares at cost, respectively		(26,772	)		(26,700	)
Retained earnings, substantially restricted		39,113			38,335
Accumulated other comprehensive loss		(406	)		(420	)
Unallocated Employee Stock Ownership Plan (“ESOP”) shares		(1,378	)		(950	)

TOTAL STOCKHOLDERS’ EQUITY		32,080			31,788

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$ 321,219			$ 309,940

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except share and per share data)


	Three Months Ended March 31,					Nine Months Ended March 31,
	2015		2014			2015		2014
INTEREST AND DIVIDEND INCOME:
Loans, including fees		$ 430		$ 388			$ 1,182		$ 1,217
Investment securities—taxable		382		318			1,013		1,214
Mortgage-backed securities		670		707			2,219		1,769
Certificates of deposit		1		3			5		7
Interest-earning demand deposits		1		-			1		1
FHLB Stock		256		31			376		65

Total interest and dividend income		1,740		1,447			4,796		4,273


INTEREST EXPENSE:
Deposits		52		85			166		253
Federal Home Loan Bank advances – long-term – fixed rate		138		207			422		628
Federal Home Loan Bank advances – long-term – variable rate		76		-			219		-
Federal Home Loan Bank advances – short-term		16		56			48		165
Other short-term borrowings		2		3			2		4

Total interest expense		284		351			857		1,050


NET INTEREST INCOME		1,456		1,096			3,939		3,223
PROVISION FOR LOAN LOSSES		31		5			52		(82	)

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,425		1,091			3,887		3,305


NON-INTEREST INCOME:
Service charges on deposits		33		40			119		142
Earnings on Bank Owned Life Insurance		35		37			105		99
Other than temporary impairment (“OTTI”) losses		-		43			-		43
Portion of loss (gain) recognized in other comprehensive income (before taxes)		-		(62	)		-		(62	)

Net impairment loss recognized in earnings		-		(19	)		-		(19	)

Other		64		54			192		174

Total non-interest income		132		112			416		396


NON-INTEREST EXPENSE:
Salaries and employee benefits		532		538			1,614		1,581
Occupancy and equipment		90		83			245		252
Data processing		62		64			180		183
Correspondent bank service charges		10		10			29		33
Federal deposit insurance premium		40		49			131		144
Other		160		169			598		538

Total non-interest expense		894		913			2,797		2,731


INCOME BEFORE INCOME TAXES		663		290			1,506		970
INCOME TAX EXPENSE		203		92			481		329

NET INCOME		$ 460		$ 198			$ 1,025		$ 641


EARNINGS PER SHARE:
Basic		$ 0.22		$ 0.10			$ 0.50		$ 0.31
Diluted		$ 0.22		$ 0.10			$ 0.50		$ 0.31

AVERAGE SHARES OUTSTANDING:
Basic		2,050,430		2,057,930			2,050,658		2,057,930
Diluted		2,050,430		2,057,930			2,050,658		2,057,930

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)


	Three Months Ended March 31,					Nine Months Ended March 31,
	2015		2014			2015			2014

NET INCOME	$	460	$	198		$	1,025		$	641

OTHER COMPREHENSIVE INCOME

Securities available for sale not other-than-temporarily impaired:
Gains (losses) arising during the year		48		40			(111	)		52
Income tax effect		17		14			(38	)		18

		31		26			(73	)		34

Unrealized holdings gains (losses) on securities available for sale not other-than-temporarily impaired, net of tax		31		26			(73	)		34


Securities held to maturity other-than-temporarily impaired:
Total losses		-		43			-			43
Losses recognized in earnings		-		(19	)		-			(19	)

Gains (losses) recognized in comprehensive income		-		62			-			62
Income tax effect		-		21			-			21

		-		41			-			41

Accretion of other comprehensive loss on other-than-temporarily impaired securities held to maturity		31		38			131			294
Income tax effect		9		13			44			100

		22		25			87			194


Unrealized holding gains on other-than-temporarily impaired securities held to maturity, net of tax		22		66			87			235


Other comprehensive income		53		92			14			269


TOTAL COMPREHENSIVE INCOME	$	513	$	290		$	1,039		$	910

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)


	Common Stock		Additional Paid-in Capital		Treasury Stock			Retained Earnings – Substantially Restricted			Accumulated Other Comprehensive Loss			Unallocated ESOP Shares			Total
Balance June 30, 2014		$ 38		$ 21,485		$(26,700	)		$ 38,335			$ (420	)		$ (950	)		$31,788

Net income									1,025									1,025

Other comprehensive income												14						14

Purchase of treasury stock (6,545 shares)						(72	)											(72	)

Purchase of ESOP shares															(428	)		(428	)

Cash dividends declared ($0.12 per share)									(247	)								(247	)


Balance March 31, 2015		$ 38		$ 21,485		$(26,772	)		$ 39,113			$ (406	)		$ (1,378	)		$32,080

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended March 31,
	2015			2014
OPERATING ACTIVITIES

Net income		$ 1,025			$ 641
Adjustments to reconcile net income to cash provided by (used for) operating activities:
Provision for loan losses		52			(82	)
Net impairment loss recognized in earnings		-			19
Depreciation		67			81
Gain on sale of other real estate owned		(5	)		-
Amortization of discounts, premiums and deferred loan fees		411			1,416
Deferred income taxes		4			207
Increase (decrease) in prepaid/accrued income taxes		134			(23	)
Earnings on bank owned life insurance		(105	)		(99	)
(Increase) decrease in accrued interest receivable		(577	)		183
Decrease in accrued interest payable		(15	)		(9	)
Increase (decrease) in deferred director compensation payable		7			(12	)
Other, net		(1,982	)		(124	)

Net cash (used for) provided by operating activities		(984	)		2,198


INVESTING ACTIVITIES

Available-for-sale:
Purchase of investment securities		(38,625	)		-
Proceeds from repayments of investments		9,341			35,566
Held-to-maturity:
Purchases of investment securities		(36,300	)		(8,743	)
Purchases of mortgage-backed securities		(14,623	)		(86,212	)
Proceeds from repayments of investments		22,688			12,142
Proceeds from repayments of mortgage-backed securities		57,667			17,084
Purchase of certificates of deposit		(100	)		-
Maturities/redemptions of certificates of deposit		348			-
Purchase of bank owned life insurance		-			(2,000	)
Net (increase) decrease in net loans receivable		(8,570	)		578
Proceeds from sale of other real estate owned		251			-
Purchase of FHLB stock		(10,561	)		(5,992	)
Redemption of FHLB stock		10,727			6,162
Acquisition of premises and equipment		(80	)		(53	)

Net cash used for investing activities		(7,837	)		(31,468	)

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended March 31,
	2015			2014
FINANCING ACTIVITIES

Net increase in transaction and savings accounts		$ 2,598			$ 4,687
Net decrease in certificates of deposit		(2,806	)		(2,939	)
Net decrease in advance payments by borrowers for taxes and insurance		(21	)		(133	)
Proceeds from FHLB long-term advances		6,109			-
Net increase in FHLB short-term advances		4,798			11,741
Net increase in other short-term advances		-			15,692
Purchase of treasury stock		(72	)		-
Increase in Unallocated ESOP shares		(396	)		-
Cash dividends paid		(247	)		(247	)

Net cash provided by financing activities		9,963			28,801


Increase (decrease) in cash and cash equivalents		1,142			(469	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		1,360			1,927


CASH AND CASH EQUIVALENTS AT END OF THE PERIOD		$ 2,502			$ 1,458


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:
Interest on deposits, escrows and borrowings		$ 872			$ 1,059
Income taxes		$ 357			$ 296

Non-cash items:
Educational Improvement Tax Credit		$ 33			$ 47
Mortgage loans transferred to other real estate owned		$ 246			$ -
Capitalization of interest on loan to ESOP		$ 32			$ -

See accompanying notes to unaudited consolidated financial statements.

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 U.S. generally accepted accounting principles (GAAP). 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, 2015, are not necessarily indicative of the results which may be expected for the entire fiscal year.

2.	RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-10, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the

amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-04, Compensation-Retirement Benefits (Topic 715), as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-05, Intangible – Goodwill and Other Internal Use Software (Topic 350-40), as part of its initiative to reduce complexity in accounting standards. This guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public business entities, the Board decided that the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. This Update is not expected to have a significant impact on the Company’s financial statements.

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 March 31,						Nine Months Ended March 31,
	2015			2014			2015			2014
Weighted average common shares outstanding		3,805,636			3,805,636			3,805,636			3,805,636

Average treasury stock shares		(1,755,206	)		(1,747,706	)		(1,754,978	)		(1,747,706	)

Weighted average common shares and common stock equivalents used to calculate basic earnings per share		2,050,430			2,057,930			2,050,658			2,057,930

Additional common stock equivalents (stock options) used to calculate diluted earnings per share		-			-			-			-


Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		2,050,430			2,057,930			2,050,658			2,057,930

There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used.

At March 31, 2015, and 2014, there were 114,519 options outstanding with an exercise price of $16.20 which were anti-dilutive for the three and nine month periods.

4.	STOCK BASED COMPENSATION DISCLOSURE

The Company’s 2008 Stock Incentive Plan (the “Plan”), which was approved by shareholders in October 2008, permits the grant of stock options or restricted shares to its directors and employees for up to 152,000 shares (up to 38,000 restricted shares may be issued). Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest over five years of continuous service and have ten-year contractual terms.

During the nine month periods ended March 31, 2015 and 2014, the Company recorded $0 and $7 thousand, respectively, in compensation expense related to our share-based compensation awards. As of March 31, 2015, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009.

The Company had no non-vested stock options outstanding at March 31, 2015, and no unvested stock options outstanding at March 31, 2014. There were no stock options exercised or issued during the nine months ended March 31, 2015 and 2014.

5.	INVESTMENT SECURITIES

The amortized cost and fair values of investments are as follows:


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
March 31, 2015		(Dollars in Thousands)

AVAILABLE FOR SALE
Corporate debt securities	$		52,634	$		91	$		(13	)	$		52,711
Foreign debt securities ¹			5,245			11			(2	)			5,255


Total	$		57,879	$		102	$		(15	)	$		57,966


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
March 31, 2015		(Dollars in Thousands)

HELD TO MATURITY
U.S. government agency securities	$		25,459	$		65	$		(4	)	$		25,520
Corporate debt securities			3,870			412			-				4,282
Obligations of states and political subdivisions			5,355			145			-				5,500


Total	$		34,684	$		622	$		(4	)	$		35,302


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
June 30, 2014		(Dollars in Thousands)

AVAILABLE FOR SALE
Corporate debt securities	$		26,123	$		188	$		-		$		26,311
Foreign debt securities ¹			2,066			10			-				2,076


Total	$		28,189	$		198	$		-		$		28,387


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
June 30, 2014		(Dollars in Thousands)

HELD TO MATURITY
U.S. government agency securities	$		16,848	$		11	$		(118	)	$		16,741
Corporate debt securities			5,199			540			-				5,739


Total	$		22,047	$		551	$		(118	)	$		22,480

There were no sales of investment securities for the three and nine months ended March 31, 2015 and 2014.

¹	U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

The amortized cost and fair values of debt securities at March 31, 2015, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.


		Due in one year or less				Due after one through two years				Due after two through three years				Due after three through five years				Due after five through ten years				Due after ten years				Total
		(Dollars in Thousands)
AVAILABLE FOR SALE
Amortized cost	$		15,382		$		30,949		$		10,555		$		-		$		993		$		-		$		57,879
Fair value			15,410				30,981				10,580				-				995				-				57,966
Weighted average yield			1.23	%			1.24	%			1.54	%			-	%			1.67	%			-	%			1.30	%

HELD TO MATURITY
Amortized cost	$		-		$		524		$		3,094		$		3,412		$		3,495		$		24,159		$		34,684
Fair value			-				559				3,321				3,584				3,621				24,217				35,302
Weighted average yield			-	%			6.10	%			4.96	%			3.25	%			3.23	%			1.84	%			2.46	%

At March 31, 2015, and June 30, 2014, no investment securities were pledged to secure public deposits, repurchase agreements, or borrowings with the Federal Home Loan Bank.

6.	MORTGAGE-BACKED SECURITIES

Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (“FHLMC”), Fannie Mae (“FNMA”) and the Government National Mortgage Association (“GNMA”). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called traunches) with varying stated maturities, estimated average lives, coupon rates and prepayment characteristics.

The Company’s CMO portfolio is comprised of two segments: CMOs backed by U.S. Government Agencies (“Agency CMOs”) and CMOs backed by single-family whole loans not guaranteed by a U.S. Government Agency (“Private-Label CMOs”).

At March 31, 2015, the Company’s Agency CMOs totaled $170.4 million as compared to $212.8 million at June 30, 2014. The Company’s private-label CMOs totaled $2.2 million at March 31, 2015 as compared to $2.5 million at June 30, 2014. The $42.7 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $57.2 million and $500 thousand, respectively, which were partially offset by purchases of U.S. Government Agency CMOs totaling $14.6 million. During the nine months ended March 31, 2015, the Company received principal payments totaling $500 thousand on its private-label CMOs. At March 31, 2015, approximately $172.6 million or 100.0% (book value) of the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments, as compared to $215.3 million or 100.0% at June 30, 2014. Substantially all of the Company’s floating rate MBS adjust monthly based upon changes in the one month LIBOR. The Company has no investment in multi-family or commercial real estate based MBS.

Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO traunches, the actual maturities of the Company’s MBS are expected to be substantially less than the scheduled maturities.

The Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. The private-label CMO portfolio had three previously recorded other-than-temporary impairments at March 31, 2015. During the nine months ending March 31, 2015, the Company reversed $131 thousand of non-credit unrealized holding losses on its three private-label CMOs with OTTI due to principal repayments. During the nine months ended March 31, 2015, the Company recorded no additional credit impairment charges on its private-label CMO portfolio.

The Company believes that the data and assumptions used to determine the fair values are reasonable. The fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the valuation date could have a material effect on the private-label CMO segment’s fair value.

The following table sets forth information with respect to the Company’s private-label CMO portfolio as of March 31, 2015. At the time of purchase, all of our private-label CMOs were rated in the highest investment category by at least two ratings agencies.


		At March 31, 2015
		Rating			Book Value		Fair Value²		Life to Date Impairment Recorded in Earnings
Cusip #	Security Description	S&P	Moody’s	Fitch	(in thousands)
126694CP1	CWHL SER 21 A11	N/A	Caa2	D	$	1,201	$	1,529	$	201
126694KF4	CWHL SER 24 A15	D	N/A	D		244		268		40
126694KF4	CWHL SER 24 A15	D	N/A	D		490		536		79
126694MP0	CWHL SER 26 1A5	D	N/A	D		250		275		36

					$	2,185	$	2,608	$	356

The amortized cost and fair values of the Company’s mortgage-backed securities are as follows:


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

		(Dollars in Thousands)
March 31, 2015
HELD TO MATURITY

Collateralized mortgage obligations:
Agency	$		170,401	$		1,073	$		(729	)	$		170,745
Private-label			2,185			423			-				2,608


Total	$		172,586	$		1,496	$		(729	)	$		173,353

²	Fair value estimate provided by the Company’s independent third party valuation consultant.


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

		(Dollars in Thousands)
June 30, 2014
HELD TO MATURITY

Collateralized mortgage obligations:
Agency	$		212,781	$		1,370	$		(2,097	)	$		212,054
Private-label			2,554			408			-				2,962


Total	$		215,335	$		1,778	$		(2,097	)	$		215,016

The amortized cost and fair value of the Company’s mortgage-backed securities at March 31, 2015, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Due in one year or less				Due after one through five years				Due after five through ten years				Due after ten years				Total
										(Dollars in Thousands)

HELD TO MATURITY
Amortized cost	$		-		$		-		$		477		$		172,109		$		172,586
Fair value			-				-				494				172,859				173,353
Weighted average yield			-	%			-	%			1.61	%			1.44	%			1.44	%

At March 31, 2015, mortgage-backed securities with amortized costs of $142.4 million and fair values of $142.8 million were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $13.5 million of fair value was excess collateral. At June 30, 2014 mortgage-backed securities with an amortized cost of $148.3 million and fair values of $147.0 million, were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $16.5 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

7.	ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in accumulated other comprehensive loss by component, for the three and nine months ended March 31, 2015 and 2014.


	Three Months Ended March 31, 2015
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities		Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – December 31, 2014	$	26	$	(485	)	$	(459	)

Other comprehensive income before reclassifications		31		22			53

Amounts reclassified from accumulated other comprehensive income		-		-			-


Net current-period other comprehensive income		31		22			53


Ending Balance – March 31, 2015	$	57	$	(463	)	$	(406	)


	Nine Months Ended March 31, 2015
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – June 30, 2014	$	130		$	(550	)	$	(420	)

Other comprehensive income (loss) before reclassifications		(73	)		87			14

Amounts reclassified from accumulated other comprehensive income (loss)		-			-			-


Net current-period other comprehensive income (loss)		(73	)		87			14


Ending Balance – March 31, 2015	$	57		$	(463	)	$	(406	)


	Three Months Ended March 31, 2014
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities		Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – December 31, 2013	$	86	$	(651	)	$	(565	)

Other comprehensive income before reclassifications		26		107			133

Amounts reclassified from accumulated other comprehensive income		-		(41	)		(41	)


Net current-period other comprehensive income		26		66			92


Ending Balance – March 31, 2014	$	112	$	(585	)	$	(473	)


	Nine Months Ended March 31, 2014
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities		Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – June 30, 2013	$	78	$	(820	)	$	(742	)

Other comprehensive income before reclassifications		34		276			310

Amounts reclassified from accumulated other comprehensive income (loss)		-		(41	)		(41	)


Net current-period other comprehensive income		34		235			269


Ending Balance – March 31, 2014	$	112	$	(585	)	$	(473	)

The following tables present the amounts reclassified out of accumulated other comprehensive loss for the three and nine months ended March 31, 2015 and 2014.


	Amount Reclassified from Accumulated Other Comprehensive Loss
Details About Accumulated Other Comprehensive loss Components		Three Months Ended March 31, 2015		Nine Months Ended March 31, 2015	Affected Line Item in the Statement Where Net Income is Presented

		(Dollars in Thousands)

Unrealized gains and losses on available-for-sale securities	$	-	$	-	Realized gains on sale of securities

		-		-	Total before tax
		-		-	Tax expense

		-		-	Net of tax


Unrealized gains and losses on held-to-maturity securities		-		-	Impairment reclassification

		-		-	Total before tax
		-		-	Tax expense

		-		-	Net of tax


Total reclassifications for the period	$	-	$	-	Net of tax


	Amount Reclassified from Accumulated Other Comprehensive Loss
Details About Accumulated Other Comprehensive loss Components		Three Months Ended March 31, 2014			Nine Months Ended March 31, 2014		Affected Line Item in the Statement Where Net Income is Presented

		(Dollars in Thousands)

Unrealized gains and losses on available-for-sale securities	$	-		$	-		Realized gains on sale of securities

		-			-		Total before tax
		-			-		Tax expense

		-			-		Net of tax


Unrealized gains and losses on held-to-maturity securities		(62	)		(62	)	Impairment reclassification

		(62	)		(62	)	Total before tax
		(21	)		(21	)	Tax expense

		(41	)		(41	)	Net of tax


Total reclassifications for the period	$	(41	)	$	(41	)	Net of tax

8. UNREALIZED LOSSES ON SECURITIES

The following tables show the Company’s gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2015 and June 30, 2014.


		March 31, 2015

		Less Than Six Months							Six through Twelve Months							Twelve Months or Greater							Total

		Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses

			(Dollars in Thousands)

Corporate bonds	$		7,992	$		(13	)	$		-	$		-		$		-	$		-		$		7,992	$		(13	)
Foreign Debt Securities ¹			502			(2	)			-			-				-			-				502			(2	)
U.S. government agency securities			2,996			(4	)			-			-				-			-				2,996			(4	)
Collateralized mortgage obligations:
Agency			31,007			(587	)			22,032			(111	)			6,350			(31	)			59,389			(729	)


Total	$		42,497	$		(606	)	$		22,032	$		(111	)	$		6,350	$		(31	)	$		70,879	$		(748	)


		June 30, 2014

		Less Than Six Months							Six through Twelve Months						Twelve Months or Greater							Total

		Fair Value			Gross Unrealized Losses				Fair Value		Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses

			(Dollars in Thousands)
U.S. government agency securities	$		-	$		-		$	-	$		-		$		9,882	$		(118	)	$		9,882	$		(118	)
Collateralized mortgage obligations:
Agency			73,738			(1,133	)		30,320			(643	)			12,668			(321	)			116,726			(2,097	)


Total	$		73,738	$		(1,133	)	$	30,320	$		(643	)	$		22,550	$		(439	)	$		126,608	$		(2,215	)

U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

For debt securities, impairment is considered to be other than temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its amortized cost basis, or (3) does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell the security). In addition, impairment is considered to be other than temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security (any such shortfall is referred to as a credit loss).

The Company evaluates outstanding available-for-sale and held-to-maturity securities in an unrealized loss position (i.e., impaired securities) for Other-than-temporary-impairment (“OTTI”) on a quarterly basis. In doing so, the Company considers many factors including, but not limited to: the credit ratings assigned to the securities by the Nationally Recognized Statistical Rating Organizations (NRSROs); other indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of time and extent that fair value has been less than amortized cost; and whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In the case of its private label residential MBS, the Company also considers prepayment speeds, the historical and projected performance of the underlying loans and the credit support provided by the subordinate securities. These evaluations are inherently subjective and consider a number of quantitative and qualitative factors.

The following table presents a roll-forward of the credit loss component of the amortized cost of mortgage-backed securities that we have written down for OTTI and the credit component of the loss that is recognized in earnings. OTTI recognized in earnings for credit impaired mortgage-backed securities is presented as additions in two components based upon whether the current period is the first time the mortgage-backed security was credit-impaired (initial credit impairment) or is not the first time the mortgage-backed security was credit impaired (subsequent credit impairments). The credit loss component is reduced if we sell, intend to sell or believe that we will be required to sell previously credit-impaired mortgage-backed securities. Additionally, the credit loss component is reduced if we receive cash flows in excess of what we expected to receive over the remaining life of the credit impaired mortgage-backed securities, the security matures or is fully written down.


	Three Months Ended March 31,						Nine Months Ended March 31,

	2015			2014			2015			2014
	(Dollars in Thousands)
Beginning balance		$273			$304			$302			$316
Initial credit impairment		-			-			-			-
Subsequent credit impairment		-			19			-			19
Reductions for amounts recognized in earnings due to intent or requirement to sell		-			-			-			-
Reductions for securities sold		-			-			-			-
Reduction for actual realized losses		(10	)		(13	)		(39	)		(25	)
Reduction for increase in cash flows expected to be collected		-			-			-			-

Ending Balance		$263			$310			$263			$310

During the three and nine months ended March 31, 2015, the Company recorded no credit impairment charge and no non-credit unrealized holding loss to accumulated other comprehensive income. During the three and nine months ended March 31, 2015, the Company accreted back into other comprehensive income $22 thousand and $87 thousand, respectively (net of income tax effect of $9 thousand and $44 thousand, respectively), based on principal repayments on private-label CMOs previously identified with OTTI.

In the case of its private-label residential CMOs that exhibit adverse risk characteristics, the Company employs models to determine the cash flows that it is likely to collect from the securities. These models consider borrower characteristics and the particular attributes of the loans underlying the securities, in conjunction with assumptions about future changes in home prices and interest rates, to predict the likelihood a loan will default and the impact on default frequency, loss severity and remaining credit enhancement. A significant input to these models is the forecast of future housing price changes for the relevant states and metropolitan statistical areas, which are based upon an assessment of the various housing markets. In general, since the ultimate receipt of contractual payments on these securities will depend upon the credit and prepayment performance of the underlying loans and, if needed, the credit enhancements for the senior securities owned by the Company, the Company uses these models to assess whether the credit enhancement associated with each security is sufficient to protect against likely losses of principal and interest on the underlying mortgage loans. The development of the modeling assumptions requires significant judgment.

In conjunction with our adoption of ASC Topic 820 effective June 30, 2009, the Company retained an independent third party to assist it with assessing its investments within the private-label CMO portfolio. The independent third party utilized certain assumptions for producing the cash flow analyses used in the OTTI assessment. Key assumptions would include interest rates, expected market participant spreads and discount rates, housing prices, projected future delinquency levels and assumed loss rates on any liquidated collateral.

The Company reviewed the independent third party’s assumptions used in the March 31, 2015 OTTI process. Based on the results of this review, the Company deemed the independent third party’s assumptions to be reasonable and adopted them. However, different assumptions could produce materially different results, which could impact the Company’s conclusions as to whether an impairment is considered other-than-temporary and the magnitude of the credit loss. Management believes that no additional private-label CMOs in the portfolio had an other-than-temporary impairment at March 31, 2015, keeping the total at three private-label CMOs with OTTI at March 31, 2015.

If the Company intends to sell an impaired debt security, or more likely than not will be required to sell the security before recovery of its amortized cost basis, the impairment is other-than-temporary and is recognized currently in earnings in an amount equal to the entire difference between fair value and amortized cost. The Company does not anticipate selling its private-label CMO portfolio, nor does Management believe that the Company will be required to sell these securities before recovery of this amortized cost basis.

In instances in which the Company determines that a credit loss exists but the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, the OTTI is separated into (1) the amount of the total impairment related to the credit loss and (2) the amount of the total impairment related to all other factors (i.e., the noncredit portion). The amount of the total OTTI related to the credit loss is recognized in earnings and the amount of the total OTTI related to all other factors is recognized in accumulated other comprehensive loss. The total OTTI is presented in the Consolidated Statement of Income with an offset for the amount of the total OTTI that is recognized in accumulated other comprehensive loss. Absent the intent or requirement to sell a security, if a credit loss does not exist, any impairment is considered to be temporary.

Regardless of whether an OTTI is recognized in its entirety in earnings or if the credit portion is recognized in earnings and the noncredit portion is recognized in other comprehensive income (loss), the estimation of fair values has a significant impact on the amount(s) of any impairment that is recorded.

The noncredit portion of any OTTI losses on securities classified as available-for-sale is adjusted to fair value with an offsetting adjustment to the carrying value of the security. The fair value adjustment could increase or decrease the carrying value of the security. All of the Company’s private-label CMOs were originally, and continue to be classified, as held to maturity.

In periods subsequent to the recognition of an OTTI loss, the other-than-temporarily impaired debt security is accounted for as if it had been purchased on the measurement date of the OTTI at an amount equal to the previous amortized cost basis less the credit-related OTTI recognized in earnings. For debt securities for which credit-related OTTI is recognized in earnings, the difference between the new cost basis and the cash flows expected to be collected is accreted into interest income over the remaining life of the security in a prospective manner based on the amount and timing of future estimated cash flows.

The Company had investments in 23 positions that were impaired at March 31, 2015. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

9.	LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of March 31, 2015 and June 30, 2014.


		March 31, 2015									June 30, 2014
		Total Loans				Individually evaluated for impairment			Collectively evaluated for impairment			Total Loans				Individually evaluated for impairment			Collectively evaluated for impairment

			(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings	$		21,514		$		-	$		21,514	$		15,634		$		-	$		15,634
Construction			4,373				-			4,373			1,872				-			1,872
Land acquisition & development			707				-			707			573				-			573
Multi-family dwellings			3,986				-			3,986			2,327				-			2,327
Commercial			3,470				49			3,421			4,523				49			4,474

Consumer Loans
Home equity			848				-			848			849				-			849
Home equity lines of credit			1,884				-			1,884			1,985				150			1,835
Other			184				-			184			221				-			221

Commercial Loans			1,357				-			1,357			1,584				-			1,584

Obligations (other than securities and leases) of states and political subdivisons			-				-			-			400				-			400

	$		38,323		$		49	$		38,274	$		29,968		$		199	$		29,769

Less: Deferred loan fees			60										(10	)
Allowance for loan losses			(286	)									(234	)

Total	$		38,097								$		29,724

Impaired loans are loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The following loan categories are collectively evaluated for impairment. First mortgage loans: 1 – 4 family dwellings and all consumer loan categories (home equity, home equity lines of credit, and other). The following loan categories are individually evaluated for impairment. First mortgage loans: construction, land acquisition and development, multi-family dwellings, and commercial. The Company evaluates commercial loans not secured by real property individually for impairment.

The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower, including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.

The following tables are a summary of the loans considered to be impaired as of March 31, 2015 and June 30, 2014, and the related interest income recognized for the three and nine months ended March 31, 2015 and March 31, 2014:


		March 31, 2015			June 30, 2014
		(Dollars in Thousands)
Impaired loans with an allocated allowance:
Home equity lines of credit	$		-	$		150
Impaired loans without an allocated allowance:
Commercial real estate loans			49			49

Total impaired loans	$		49	$		199

Allocated allowance on impaired loans:
Home equity lines of credit	$		-	$		15

Total	$		-	$		15


		Three Months Ended						Nine Months Ended
		March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014
		(Dollars in Thousands)
Average impaired loans
Construction loans	$		-	$		-	$		-	$		316
Land acquisition & development loans			-			-			-			19
Commercial real estate loans			49			-			49			-
Home equity lines of credit			128			150			143			150

Total	$		177	$		150	$		192	$		485


Income recognized on impaired loans
Construction loans	$		-	$		-	$		-	$		-
Land acquisition & development loans			-			-			-			-
Commercial real estate loans			2			-			2			-
Home equity lines of credit			4			2			5			5

Total	$		6	$		2	$		7	$		5

Total nonaccrual loans as of March 31, 2015 and June 30, 2014 and the related interest income recognized for the three and nine months ended March 31, 2015 and March 31, 2014 are as follows:


		March 31, 2015			June 30, 2014
		(Dollars in Thousands)
Principal outstanding
1 – 4 family dwellings	$		262	$		408
Construction			-			-
Land acquisition & development			-			-
Commercial real estate			49			49
Home equity lines of credit			-			150

Total	$		311	$		607


		Three Months Ended						Nine Months Ended
		March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014
		(Dollars in Thousands)
Average nonaccrual loans
1 – 4 family dwellings	$		263	$		474	$		298	$		476
Construction			-			-			-			316
Land acquisition & development			-			-			-			19
Commercial real estate			49			-			49			-
Home equity lines of credit			128			150			143			150

Total	$		440	$		624	$		490	$		961


Income that would have been recognized	$		6	$		9	$		20	$		43

Interest income recognized	$		12	$		4	$		26	$		11

Interest income foregone	$		-	$		6	$		1	$		34

The Company’s loan portfolio also includes troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

The following tables include the recorded investment and number of modifications for modified loans for the three and nine months ended March 31, 2015 and 2014. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

For the Three Months Ended

March 31, 2015

Number

of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded

Investment

(Dollars in Thousands)

Troubled debt restructurings:

Commercial real estate

Troubled debt restructurings that subsequently defaulted:

Commercial real estate


	For the Nine Months Ended March 31, 2015
	Number of Contracts			Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment

	(Dollars in Thousands)
Troubled debt restructurings:
Commercial real estate		1	$		49	$		49

Troubled debt restructurings that subsequently defaulted:
Commercial real estate		-	$		-	$		-

One loan secured by commercial real estate was modified by reducing its required payment for a nine month period during the nine months ended March 31, 2015.

For the Three Months Ended

March 31, 2014

Number

Contracts

Pre-Modification

Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

(Dollars in Thousands)

Troubled debt restructurings:

Home equity lines of credit

Troubled debt restructurings that subsequently defaulted:

Home equity lines of credit

For the Nine Months Ended

March 31, 2014

Number

Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

(Dollars in Thousands)

Troubled debt restructurings:

Home equity lines of credit

Troubled debt restructurings that subsequently defaulted:

Home equity lines of credit

There was one previously modified TDR, secured by a home equity line of credit, which paid off in full during the quarter ended March 31, 2015.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or

liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance. The allowance is maintained at a level believed adequate by management to absorb estimated potential loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio considering past experience, current economic conditions, composition of the loan portfolio and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change.

Effective December 13, 2006, the FDIC, in conjunction with the other federal banking agencies adopted a Revised Interagency Policy Statement on the Allowance for Loan and Lease Losses (“ALLL”). The revised policy statement revised and replaced the banking agencies’ 1993 policy statement on the ALLL. The revised policy statement provides that an institution must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The banking agencies also revised the policy to ensure consistency with generally accepted accounting principles (“GAAP”). The revised policy statement updates the previous guidance that describes the responsibilities of the board of directors, management, and bank examiners regarding the ALLL, factors to be considered in the estimation of the ALLL, and the objectives and elements of an effective loan review system.

Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard”, “doubtful” and “loss”. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “asset watch” is also utilized by the Bank for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital.

The Company’s general policy is to internally classify its assets on a regular basis and establish prudent general valuation allowances that are adequate to absorb losses that have not been identified but that are inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are adequate to absorb losses in its loan portfolio that are not clearly attributable to specific loans. The Company’s general valuation allowances are within the following general ranges: (1) 0% to 5% of assets subject to special mention; (2) 1% to 100% of assets classified substandard; and (3) 50% to 100% of assets classified doubtful. Any loan classified as loss is charged-off. To further monitor and assess the risk characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem loans. Based upon the procedures in place, considering the Company’s past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at March 31, 2015, is adequate.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2015 and June 30, 2014:


		Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days + Past Due Accruing			90 Days + Past Due Non-accrual			Total Past Due			Total Loans

		(Dollars in Thousands)
March 31, 2015
First mortgage loans:
1 – 4 family dwellings	$		21,203	$		26	$		23	$		-	$		262	$		311	$		21,514
Construction			4,373			-			-			-			-			-			4,373
Land acquisition & development			707			-			-			-			-			-			707
Multi-family dwellings			3,986			-			-			-			-			-			3,986
Commercial			3,421			-			-			-			49			49			3,470

Consumer Loans:
Home equity			820			28			-			-			-			28			848
Home equity lines of credit			1,884			-			-			-			-			-			1,884
Other			184			-			-			-			-			-			184

Commercial Loans			1,357			-			-			-			-			-			1,357

	$		37,935	$		54	$		23	$		-	$		311	$		388			38,323

Less: Deferred loan fees																					60
Allowance for loan loss																					(286	)

Net Loans Receivable																			$		38,097


		Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days + Past Due Accruing			90 Days + Past Due Non-accrual			Total Past Due			Total Loans

		(Dollars in Thousands)
June 30, 2014
First mortgage loans:
1 – 4 family dwellings	$		15,068	$		122	$		36	$		-	$		408	$		566	$		15,634
Construction			1,872			-			-			-			-			-			1,872
Land acquisition & development			573			-			-			-			-			-			573
Multi-family dwellings			2,327			-			-			-			-			-			2,327
Commercial			4,474			-			-			-			49			49			4,523

Consumer Loans:
Home equity			849			-			-			-			-			-			849
Home equity lines of credit			1,835			-			-			-			150			150			1,985
Other			221			-			-			-			-			-			221

Commercial Loans			1,584			-			-			-			-			-			1,584

Obligations (other than securities and leases) of states and political subdivisions			400			-			-			-			-			-			400

	$		29,203	$		122	$		36	$		-	$		607	$		765			29,968

Less: Deferred loan fees																					(10	)
Allowance for loan loss																					(234	)

Net Loans Receivable																			$		29,724

Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended March 31, 2015. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and can be characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard loan. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as loss are considered uncollectible, or of such value that continuance as a loan is not warranted.

The primary credit quality indicator used by management in the 1 – 4 family and consumer loan portfolios is the performance status of the loans. Payment activity is reviewed by Management on a monthly basis to determine how loans are performing. Loans are considered to be non-performing when they become 90 days delinquent, have a history of delinquency, or have other inherent characteristics which Management deems to be weaknesses.

The following tables presents the Company’s internally classified construction, land acquisition and development, multi-family residential, commercial real estate and commercial (not secured by real estate) loans at March 31, 2015 and June 30, 2014.


		March 31, 2015
		Construction			Land Acquisition & Development Loans			Multi-family Residential			Commercial Real Estate			Commercial

		(Dollars in Thousands)

Pass	$		4,373	$		396	$		3,986	$		3,421	$		1,357
Special Mention			-			-			-			-			-
Substandard			-			311			-			49			-
Doubtful			-			-			-			-			-

Ending Balance	$		4,373	$		707	$		3,986	$		3,470	$		1,357


		June 30, 2014
		Construction			Land Acquisition & Development Loans			Multi-family Residential			Commercial Real Estate			Commercial			Obligations (other than securities and leases) of States and Political Subdivisions

		(Dollars in Thousands)

Pass	$		1,872	$		258	$		2,327	$		4,474	$		1,584	$		400
Special Mention			-			-			-			-			-			-
Substandard			-			315			-			49			-			-
Doubtful			-			-			-			-			-			-

Ending Balance	$		1,872	$		573	$		2,327	$		4,523	$		1,584	$		400

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended March 31, 2015 and June 30, 2014.


		March 31, 2015

		1 – 4 Family			Consumer

		(Dollars in Thousands)

Performing	$		21,229	$		2,916
Non-performing			285			-

Total	$		21,514	$		2,916


		June 30, 2014

		1 – 4 Family			Consumer

		(Dollars in Thousands)

Performing	$		15,160	$		2,905
Non-performing			474			150

Total	$		15,634	$		3,055

The Company determines its allowance for loan losses in accordance with generally accepted accounting principles. The Company uses a systematic methodology as required by Financial Reporting Release No. 28 and the various Federal Financial Institutions Examination Council guidelines. The Company also endeavors to adhere to SEC Staff Accounting Bulletin No. 102 in connection with loan loss allowance methodology and documentation issues.

Our methodology used to determine the allocated portion of the allowance is as follows. For groups of homogenous loans, we apply a loss rate to the groups’ aggregate balance. Our group loss rate reflects our historical loss experience. We may adjust these group rates to compensate for changes in environmental factors; but our adjustments have not been frequent due to a relatively stable charge-off experience. The Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans for individual evaluation under ASC Topic 310. If the individually identified loans are performing, we apply a segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed individually and considered individually impaired, we use one of the three methods for measuring impairment mandated by ASC Topic 310. Generally the fair value of collateral is used since our impaired loans are

generally real estate based. In connection with the fair value of collateral measurement, the Company generally uses an independent appraisal and determines costs to sell. The Company’s appraisals for commercial income based loans, such as multi-family and commercial real estate loans, assess value based upon the operating cash flows of the business as opposed to merely “as built” values. The Company then validates the reasonableness of our calculated allowances by: (1) reviewing trends in loan volume, delinquencies, restructurings and concentrations; (2) reviewing prior period (historical) charge-offs and recoveries; and (3) presenting the results of this process, quarterly, to the Asset Classification Committee and the Savings Bank’s Board of Directors. We then tabulate, format and summarize the current loan loss allowance balance for financial and regulatory reporting purposes.

The Company had no unallocated loss allowance balance at March 31, 2015 and June 30, 2014.

The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on management’s periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term.

The following table presents the activity in the allowance for loan losses for the three months ended March 31, 2015.


		As of March 31, 2015
		First Mortgage Loans
		1 – 4 Family			Construction			Land Acquisition & Development			Multi- family			Commercial				Consumer Loans				Commercial Loans				Total

		(Dollars in Thousands)
Beginning ALLL Balance at December 31, 2014	$		83	$		26	$		10	$		20	$		41		$		67		$		8		$		255
Charge-offs			-			-			-			-			-				-				-				-
Recoveries			-			-			-			-			-				-				-				-
Provisions			19			52			-			-			(4	)			(35	)			(1	)			31

Ending ALLL Balance at March 31, 2015	$		102	$		78	$		10	$		20	$		37		$		32		$		7		$		286

During the three months ended March 31, 2015, the allowance for loan losses (“ALL”) associated with 1 – 4 family permanent loans and the construction loan portfolio increased by $19 thousand and $52 thousand, respectively. The primary reason for the increases in the ALL associated with these segments was the increases in associated loan balances. The ALL for consumer loans decreased by $35 thousand primarily due to the payoff of one non-performing home equity line of credit. The decrease in the ALL for commercial real estate loans and commercial loans totaled $4 thousand and $1 thousand, respectively. The reason for these decreases was primarily attributable to lower loan balances in these loan segments. During the quarter ended March 31, 2015, the Company also increased its ALL reserve factors, due to increases in associated loan balances throughout fiscal 2015, for the following loan segments:


Loan Segment	12/31/2014 factor	03/31/2015 factor
1 – 4 family	0.25%	0.35%
Construction:
1 – 4 family	0.25%	0.75%
5+ family	0.50%	1.00%

The following table presents the activity in the ALL for the nine months ended March 31, 2015.


		As of March 31, 2015
		First Mortgage Loans
		1 – 4 Family				Construction			Land Acquisition & Development			Multi- family			Commercial				Consumer Loans				Commercial Loans				Total

		(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2014	$		103		$		14	$		5	$		12	$		45		$		47		$		8		$		234
Charge-offs			-				-			-			-			-				-				-				-
Recoveries			-				-			-			-			-				-				-				-
Provisions			(1	)			64			5			8			(8	)			(15	)			(1	)			52

Ending ALLL Balance at March 31, 2015	$		102		$		78	$		10	$		20	$		37		$		32		$		7		$		286

During the nine months ended March 31, 2015, the ALL associated with the construction loan portfolio, multi-family loans, and land acquisition and development loans increased by $64 thousand, $8 thousand and $5 thousand, respectively. The primary reason for the increases in the ALL associated with these segments was the increases in associated loan balances. The ALL for consumer loans decreased primarily due to the payoff of one non-performing home equity line of credit. The decrease in the ALL associated with 1 – 4 family permanent loans was primarily associated with a decrease in the ALL associated with the non-performing segment of 1 – 4 family permanent loans, which more than offset the ALL associated with new loans booked within this segment. The decrease in the ALL associated with the commercial real estate and commercial (non-real estate) segments was primarily related to the lower loan balances within these segments. During the nine months ended March 31, 2015, the Company also increased its ALL reserve factors, due to increases in associated loan balances throughout fiscal 2015, for the following loan segments:


Loan Segment	06/30/2014 factor	03/31/2015 factor
1 – 4 family	0.15%	0.35%
Construction:
1 – 4 family	0.15%	0.75%
5+ family	0.50%	1.00%
Land acquisition and development	0.75%	1.00%


		As of March 31, 2014
		First Mortgage Loans
		1 – 4 Family			Construction				Land Acquisition & Development				Multi- family				Commercial				Consumer Loans				Commercial Loans			Total

		(Dollars in Thousands)
Beginning ALLL Balance at December 31, 2013	$		64	$		20		$		10		$		14		$		51		$		52		$		9	$		220
Charge-offs			-			-				-				-				-				-				-			-
Recoveries			-			-				-				-				-				-				-			-
Provisions			19			(4	)			(2	)			(2	)			(1	)			(5	)			-			5

Ending ALLL Balance at March 31, 2014	$		83	$		16		$		8		$		12		$		50		$		47		$		9	$		225


		As of March 31, 2014
		First Mortgage Loans
		1 – 4 Family			Construction				Land Acquisition & Development			Multi- family				Commercial				Consumer Loans				Commercial Loans				Total

		(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2013	$		47	$		117		$		8	$		14		$		57		$		53		$		11		$		307
Charge-offs			-			-				-			-				-				-				-				-
Recoveries			-			-				-			-				-				-				-				-
Provisions			36			(101	)			-			(2	)			(7	)			(6	)			(2	)			(82	)

Ending ALLL Balance at March 31, 2014	$		83	$		16		$		8	$		12		$		50		$		47		$		9		$		225

The $101 thousand credit provision on construction loans for the nine months ended March 31, 2014 was primarily due to the payoff in full of one single-family construction loan during fiscal 2014.

The following tables summarize the primary segments of the ALLL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2015 and June 30, 2014.


		As of March 31, 2015
		First Mortgage Loans
		1 – 4 Family			Construction			Land Acquisition & Development			Multi- family			Commercial			Consumer Loans			Commercial Loans			Total

		(Dollars in Thousands)
Individually evaluated for impairment	$		-	$		-	$		-	$		-	$		-	$		-	$		-	$		-
Collectively evaluated for impairment			102			78			10			20			37			32			7			286

	$		102	$		78	$		10	$		20	$		37	$		32	$		7	$		286


		As of June 30, 2014
		First Mortgage Loans
		1 – 4 Family			Construction			Land Acquisition & Development			Multi- family			Commercial			Consumer Loans			Commercial Loans			Total

		(Dollars in Thousands)
Individually evaluated for impairment	$		-	$		-	$		-	$		-	$		-	$		15	$		-	$		15
Collectively evaluated for impairment			103			14			5			12			45			32			8			219

	$		103	$		14	$		5	$		12	$		45	$		47	$		8	$		234

10.

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:


Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:		Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III:		Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Assets Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

Fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The Company has no Level I or Level III investment securities. Level II investment securities were primarily comprised of investment-grade corporate bonds and U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of March 31, 2015 and June 30, 2014, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


		March 31, 2015
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a recurring basis:
Investment securities – available for sale:
Corporate securities	$		-	$		52,711	$		-	$		52,711
Foreign debt securities ⁽¹⁾			-			5,255			-			5,255


Total	$		-	$		57,966	$		-	$		57,966


		June 30, 2014
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a recurring basis:
Investment securities – available for sale:
Corporate securities	$		-	$		26,311	$		-	$		26,311
Foreign debt securities ⁽¹⁾			-			2,076			-			2,076


Total	$		-	$		28,387	$		-	$		28,387

(1)

U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.

Impaired Loans

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information. The Company has no Level I or Level II impaired loans. Level III impaired loans at March 31, 2015 were primarily comprised of one commercial real estate loan. Level III impaired loans at June 30, 2014 were primarily comprised of one home equity line of credit and one commercial real estate loan.

The following tables present the assets reported on a non-recurring basis on the consolidated balance sheet at their fair values as of March 31, 2015 and June 30, 2014, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


		March 31, 2015
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a non-recurring basis:
Impaired loans	$		-	$		-	$		49	$		49


Total	$		-	$		-	$		49	$		49


		June 30, 2014
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a non-recurring basis:
Impaired loans	$		-	$		-	$		184	$		184


Total	$		-	$		-	$		184	$		184

For Level III assets measured at fair value on a recurring and non-recurring basis as of March 31, 2015 and June 30, 2014, the significant observable inputs used in the fair value measurements were as follows:

Fair Value at

March 31,
2015

June 30,
2014

Valuation
Technique

Significant
Unobservable
Inputs

Significant Unobservable
Input Range (Weighted
Average)

(Dollars in Thousands)

Impaired loans

184

Appraisal of
collateral⁽¹⁾

Discounted
appraisal⁽²⁾

0%/0%

⁽¹⁾

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs which are not identifiable.

⁽²⁾

Appraisals may be adjusted by management for qualitative factors such as economic conditions. The range and weighted average of appraisal adjustments are presented as a percentage of the appraisals.

When evaluating the value of the collateral on impaired loans, the Company will consider the age of the most current appraisal, and may discount the appraised value from 0.0% to 15.0%.

The Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation model for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly.

11.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:


		March 31, 2015
		Carrying Amount			Fair Value			Level I		Level II		Level III
		(Dollars in Thousands)

FINANCIAL ASSETS
Cash and cash equivalents	$		2,502	$		2,502	$		2,502	$	-	$	-
Certificates of deposit			350			350			350		-		-
Investment securities – available for sale			57,966			57,966			-		57,966		-
Investment securities – held to maturity			34,684			35,302			-		35,302		-
Mortgage-backed securities – held to maturity:
Agency			170,401			170,745			-		170,745		-
Private-label			2,185			2,608			-		-		2,608
Net loans receivable			38,097			39,527			-		-		39,527
Accrued interest receivable			1,215			1,215			1,215		-		-
FHLB stock			6,274			6,274			6,274		-		-
Bank owned life insurance			4,241			4,241			4,241		-		-

FINANCIAL LIABILITIES
Deposits:
Non-interest bearing deposits	$		18,796	$		18,796	$		18,796	$	-	$	-
NOW accounts			21,707			21,707			21,707		-		-
Savings accounts			44,036			44,036			44,036		-		-
Money market accounts			24,594			24,594			24,594		-		-
Certificates of deposit			32,027			31,999			-		-		31,999
Advance payments by borrowers for taxes and insurance			578			578			578		-		-
FHLB long-term advances			117,805			118,625			-		-		118,625
FHLB short-term advances			28,424			28,424			28,424		-		-
Accrued interest payable			155			155			155		-		-


		June 30, 2014
		Carrying Amount			Fair Value			Level I			Level II			Level III
		(Dollars in Thousands)

FINANCIAL ASSETS
Cash and cash equivalents	$		1,360	$		1,360	$		1,360	$		-	$		-
Certificates of deposit			598			598			598			-			-
Investment securities – available for sale			28,387			28,387			-			23,387			-
Investment securities – held to maturity			22,047			22,480			-			22,480			-
Mortgage-backed securities – held to maturity:
Agency			212,781			212,054			-			212,054			-
Private-label			2,554			2,962			-			-			2,962
Net loans receivable			29,724			30,966			-			-			30,966
Accrued interest receivable			638			638			638			-			-
FHLB stock			6,440			6,440			6,440			-			-
Bank owned life insurance			4,136			4,136			4,136			-			-

FINANCIAL LIABILITIES
Deposits:
Non-interest bearing deposits	$		16,300	$		16,300	$		16,300	$		-	$		-
NOW accounts			21,077			21,077			21,077			-			-
Savings accounts			44,428			44,428			44,428			-			-
Money market accounts			24,730			24,730			24,730			-			-
Certificates of deposit			34,833			34,795			-			-			34,795
Advance payments by borrowers for taxes and insurance			491			491			491			-			-
FHLB long-term advances			111,696			112,518			-			-			112,518
FHLB short-term advances			23,626			23,626			23,626			-			-
Accrued interest payable			170			170			170			-			-

Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from or to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates, which are inherently uncertain, the resulting estimated values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated values are based may have a significant impact on the resulting estimated values.

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.

Estimated fair values have been determined by the Company using the best available data, as generally provided in internal Savings Bank regulatory, or third party valuation reports, using an estimation methodology suitable for each category of financial instruments. The estimation methodologies used are as follows:

Cash and Cash Equivalents, Certificates of Deposit, Accrued Interest Receivable and Payable, and FHLB Short-term Advances

The fair value approximates the current carrying value.

Investment Securities, Mortgage-Backed Securities, and FHLB Stock

The fair value of investment and mortgage-backed securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. For discussion of valuation of private-label CMOs, see Note 8 “Unrealized Losses on Securities”. Since the FHLB stock is not actively traded on a secondary market and held exclusively by member financial institutions, the estimated fair market value approximates the carrying amount.

Net Loans Receivable, Deposits, and Advance Payments by Borrowers for Taxes and Insurance

Fair value for consumer mortgage loans is estimated using market quotes or discounting contractual cash flows for prepayment estimates. Discount rates were obtained from secondary market sources, adjusted to reflect differences in servicing, credit, and other characteristics.

The estimated fair values for consumer, fixed-rate commercial, and multi-family real estate loans are estimated by discounting contractual cash flows for prepayment estimates. Discount rates are based upon rates generally charged for such loans with similar credit characteristics.

The estimated fair value for nonperforming loans is the appraised value of the underlying collateral adjusted for estimated credit risk.

Demand, savings, money market deposit accounts, and advance payments by borrowers for taxes and insurance are reported at book value. The fair value of certificates of deposit is based upon the discounted value of the contractual cash flows. The discount rate is estimated using average market rates for deposits with similar average terms.

Bank Owned Life Insurance (“BOLI”)

The fair value of BOLI approximates the cash surrender value of the policies at these dates.

FHLB Long-term Advances

The fair values of fixed-rate advances are estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount on variable rate advances approximates their fair value.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015

FORWARD LOOKING STATEMENTS

In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipated,” “believe,” “expect,” “intend,” “plan,” “estimate” or similar expressions.

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:

•

our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;

•

general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan losses or a reduced demand for credit or fee-based products and services;

•

changes in the interest rate environment could reduce net interest income and could increase credit losses;

•

the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;

•

changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations;

•

the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;

•

competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform; and

•

acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.

You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new or future events except to the extent required by federal securities laws.

GENERAL

WVS Financial Corp. (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, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at March 31, 2015.

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 $321.2 million at March 31, 2015, as compared to $309.9 million at June 30, 2014. The $11.3 million or 3.6% increase in total assets was primarily comprised of a $29.6 million increase in investment securities – available for sale, a $12.6 million increase in investment securities – held to maturity, an $8.4 million increase in net loans receivable, a $2.0 million increase in other assets, a $1.1 million increase in cash and due from banks, and a $577 thousand increase in accrued interest receivable, which were partially offset by a $42.7 million decrease in mortgage-backed securities - held to maturity, and a $166 thousand decrease in FHLB stock. The increase in investment securities – available for sale was primarily due to purchases of investment-grade corporate bonds totaling $38.6 million, which was partially offset by maturities and early redemptions of investment-grade corporate bonds totaling $9.3 million. The increase in investment securities – held to maturity was primarily attributable to purchases of U.S. Government agency multiple step-up bonds totaling $30.9 million, and purchases of taxable municipal bonds totaling $5.4 million, which were partially offset by maturities and redemptions of U.S. Government agency multiple step-up bonds totaling $22.4 million, and maturities and early redemptions of investment-grade corporate bonds totaling $1.0 million. The decrease in mortgage-backed securities – held to maturity was primarily due to repayments of floating rate U.S. Government agency CMOs and floating rate private-label CMOs totaling $57.2 million and $500 thousand, respectively, which were partially offset by purchases of floating rate U.S. Government agency CMOs totaling $14.6 million. The investment-grade corporate bonds and U.S. Government agency bonds purchased were primarily used to offset maturities and early redemptions of investment securities, and repayments of mortgage-backed securities and to bolster interest revenue. See “Asset and Liability Management”.

The Company’s total liabilities increased $10.9 million or 3.9% to $289.1 million as of March 31, 2015 from $278.2 million as of June 30, 2014. The $10.9 million increase in total liabilities was primarily comprised of a $6.1 million increase in FHLB long-term variable rate advances, and a $4.8 million increase in FHLB short-term borrowings, which were partially offset by a $121 thousand decrease in total deposits. The increases in FHLB long-term variable rate and FHLB short-term borrowings were used to fund the increase in total assets. The decrease in total deposits was primarily attributable to a decrease in certificates of deposits, savings accounts, and money market accounts totaling $2.8 million, $392 thousand, and $136 thousand, respectively, which were partially offset by increases in non-interest bearing accounts, NOW accounts and advance payments by borrowers for real estate taxes of $2.5 million, $630 thousand, and $87 thousand, respectively. See also “Asset and Liability Management”.

Total stockholders’ equity increased $292 thousand or 0.9% to $32.1 million as of March 31, 2015, from $31.8 million as of June 30, 2014. The increase was primarily attributable to Company net income of $1.0 million, which was partially offset by an increase of $428 thousand of unallocated ESOP shares, $247 thousand of cash dividends paid on the Company’s common stock, $72 thousand paid for the acquisition of Treasury stock. The increase to other comprehensive income was primarily attributable to an $87 thousand (net of tax effect) reversal of unrealized holding losses on three private-label CMOs with previously identified OTTI, which was partially offset by $73 thousand (net of tax effect) of unrealized holding losses on the Company’s available for sale investment portfolio.

RESULTS OF OPERATIONS

General. WVS reported net income of $460 thousand or $0.22 earnings per share (basic and diluted), and $1.0 million or $0.50 earnings per share (basic and diluted), for the three and nine months ended March 31, 2015, respectively. Net income increased $262 thousand or 132.3% and earnings per share (basic and diluted) increased $0.12 or 120.0% for the three months ended March 31, 2015, when compared to the same period in 2014. The increase in net income for the three months ended March 31, 2015 was primarily attributable to a $360 thousand increase in net-interest income, a $20 thousand increase in non-interest income, and a $19 thousand decrease in non-interest expense, which were partially offset by a $111 thousand increase in income tax expense, and a $26 thousand increase in provisions for loan losses. For the nine months ended March 31, 2015, net income increased $384 thousand or 59.9% and earnings per share (basic and diluted) increased $0.19 or 61.3%, when compared to the same period in 2014. The increase in net income for the nine months ended March 31, 2015, was primarily attributable to a $716 thousand increase in net interest income, and a $20 thousand increase in non-interest income, which were partially offset by a $152 thousand increase in income tax expense, a $134 thousand increase in provisions for loan losses, and a $66 thousand increase in non-interest expense.

Net Interest Income. The Company’s net interest income increased by $360 thousand or 32.8% for the three months ended March 31, 2015, when compared to the same period in 2014. The increase in net interest income is attributable to a $293 thousand increase in interest income, and a $67 thousand decrease in interest expense. The increase in interest income was primarily due to higher yields earned on FHLB stock and U.S. Government agency CMOs, and higher average balances of net loans receivable, U.S. Government agency bonds, and taxable municipal bonds, which were partially offset by decreases in the average balances of U.S. Government agency CMOs and investment-grade corporate bonds, and lower yields earned on the Company’s loan portfolio during the quarter ended March 31, 2015, when compared to the same period in 2014. The decrease in interest expense was primarily attributable to lower average balances of FHLB long-term fixed rate and short-term advances, and time deposits, and lower rates paid on FHLB long-term fixed rate advances during the three months ended March 31, 2015, which were partially offset by higher average balances of FHLB long-term variable rate advances, and higher rates paid on FHLB short-term advances, when compared to the same period in 2014. For the nine months ended March 31, 2015, net interest income increased $716 thousand or 22.2% when compared to the same period in 2014. The increase in net-interest income was primarily attributable to a $523 thousand increase in interest income, and a $193 thousand decrease in interest expense. The increase in interest income was primarily due to higher average balances and yields earned on the Company’s U.S. Government agency mortgage-backed securities and U.S. Government agency bonds, and higher yields earned on the Company’s corporate bond portfolio and FHLB stock, and higher average balances of net loans receivable and taxable municipal bonds, for the nine months ended March 31, 2015, which were partially offset by lower average balances of corporate bonds and lower yields earned on the Company’s loan portfolio. The decrease in interest expense was primarily due to lower average balances of FHLB long-term fixed rated advances, FHLB short-term advances, and time deposits, and lower rates paid on FHLB long-term fixed rate advances, which were partially offset by higher average balances of FHLB long-term variable rate advances and higher rates paid on FHLB short-term advances, during the nine months ended March 31, 2015, when compared to the same period in 2014.

Interest and Dividend Income. Dividend income on FHLB stock increased $225 thousand or 725.8%, and $311 thousand or 478.5% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The increases in income for the three and nine months ended March 31, 2015, were primarily attributable to a $145 thousand special dividend paid by FHLB Pittsburgh during the quarter ended March 31, 2015. The Company’s average balance of FHLB stock held increased $508 thousand and $817 thousand, respectively, for the three and nine months ended March 31, 2015 when compared to the same periods in 2014.

Interest income on investment securities increased $64 thousand or 20.1% and decreased $201 thousand or 16.6% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended March 31, 2015 was primarily attributable to an $11.3 million increase in the average balance of investment securities outstanding, and a 4 basis point increase in the weighted average yield on investment securities, when compared to the same period in 2014. The decrease for the nine months ended March 31, 2015 was primarily attributable to a $15.7 million decrease in the average balance of investment securities outstanding, which was partially offset by an 8 basis point increase in the weighted average yield on investment securities, when compared to the same period in 2014.

Interest income on net loans receivable increased $42 thousand or 10.8% and decreased $35 thousand or 2.9% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended March 31, 2015 was primarily attributable to a $6.1 million increase in the average balance of net loans receivable outstanding, which was partially offset by a decrease of 36 basis points in the weighted average yield earned on net loans receivable for the three months ended March 31, 2015, when compared to the same period in 2014. The increase in the average balance of loans outstanding was primarily attributable to originations in excess of repayments. The decrease in the yield on loans was primarily attributable to lower rates on new loans originated. The decrease for the nine months ended March 31, 2015, was primarily attributable to a 21 basis point decrease in the weighted average yield earned on net loans receivable, which was partially offset by a $441 thousand increase in the average balance of net loans receivable outstanding for the nine months ended March 31, 2015, when compared to the same period in 2014.

Interest income on mortgage-backed securities decreased $37 thousand or 5.2% and increased $450 thousand or 25.4% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the three months ended March 31, 2015 was primarily attributable to a $12.4 million decrease in the average balance of U.S. Government agency mortgage-backed securities outstanding, and a $496 thousand decrease in the average balance of private-label mortgage-backed securities outstanding, which were partially offset by a 2 basis point increase in the weighted average yield earned on U.S. Government agency mortgage-backed securities, and a 15 basis point increase in the weighted average yield earned on private-label mortgage-backed securities outstanding, for the three months ended March 31, 2015, when compared to the same period in 2014. The increase for the nine months ended March 31, 2015 was primarily attributable to a $27.0 million increase in the average balance of U.S. Government agency mortgage-backed securities outstanding, and a 12 basis point increase in the weighted average yield earned on U.S. Government agency mortgage-backed securities, which were partially offset by a $645 thousand decrease in the average balance of, and a 4 basis point decrease in the weighted average yield earned on private-label mortgage-backed securities outstanding for the nine months ended March 31, 2015, when compared to the same period in 2014. The decrease in the average balances of private-label mortgage-backed securities during the three and nine months ended March 31, 2015 was attributable to principal paydowns of private-label mortgage-backed securities during the periods. The changes in the average balance of U.S. Government agency mortgage-backed securities for the three and nine months ended March 31, 2015, was primarily attributable to purchases of U.S. Government agency mortgage-backed securities totaling $2.7 million and $14.6 million, respectively, during the three and nine months, which were offset by repayments of $24.7 million and $57.2 million, respectively, on the U.S. Government agency mortgage-backed securities portfolio, during the three and nine months ended March 31, 2015. The mortgage-backed securities purchased during both periods were primarily used to offset maturities and early calls of securities within the investment portfolio and to bolster interest revenue.

Interest income on FDIC insured bank certificates of deposit decreased $2 thousand or 66.7% and $2 thousand or 28.6% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the three months ended March 31, 2015 was primarily attributable to a $248 thousand decrease in the average portfolio balance of certificates of deposit, and an 87 basis point decrease in the weighted average yield earned on certificates of deposit, when compared to the same period in 2014. The decrease for the nine months ended March 31, 2015 was primarily attributable to a $215 thousand decrease in the average portfolio balance of certificates of deposit, which was partially offset by an 18 basis point increase in the weighted average yield earned on certificates of deposit, when compared to the same period in 2014. The certificates have remaining maturities ranging from six to ninety-seven months. Due to decreases in market yields in this investment sector, the Company has decided to limit reinvestments in certificates of deposit and to redeploy maturities and early issuer redemptions to other investment portfolio segments.

Interest Expense. Interest paid on FHLB fixed-rate long term advances decreased by $69 thousand, or 33.3% and $206 thousand, or 32.8% respectively, for the three and nine months ended March 31, 2015 when compared to the same periods in 2014. The decrease in interest expense on FHLB fixed-rate long term advances for the three months ended March 31, 2015 was primarily attributable to a $5.0 million decrease in the average balance of such advances and a 31 basis point decrease in the weighted average rate paid when compared to the same period in 2014. The decrease in interest expense on FHLB fixed-rate long term advances for the nine months ended March 31, 2015 was primarily attributable to a $5.0 million decrease in the average balance of such advances and a 29 basis point decrease in the weighted average rate paid when compared to the same period in 2014.

Interest paid on FHLB short-term advances decreased $40 thousand or 71.4% and $117 thousand or 70.9% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the three months ended March 31, 2015 was primarily attributable to a $66.5 million decrease in the average balance of FHLB short-term advances outstanding, which was partially offset by a 6 basis point increase in the weighted average rate paid on FHLB short-term advances, for the three months ended March 31, 2015, when compared to the same period in 2014. The decrease for the nine months ended March 31, 2015, was primarily attributable to a $67.5 million decrease in the average balance of short-term FHLB advances, which was partially offset by a 6 basis point increase in the weighted average rate paid on FHLB short-term advances, for the nine months ended March 31, 2015, when compared to the same period in 2014.

Interest expense on deposits decreased $33 thousand or 38.8% and $87 thousand or 34.4% for the three and nine months ended March 31, 2015, when compared to the same periods in 2014. The decrease in interest expense on deposits for the three months ended March 31, 2015 was primarily attributable to a $29.0 million decrease in the average balance of time deposits, which was partially offset by a 4 basis point increase in the weighted average rate paid on time deposits for the three months ended March 31, 2015, when compared to the same period in 2014. The decrease in interest expense on deposits for the nine months ended March 31, 2015 was primarily attributable to a $20.9 million decrease in the average balance of time deposits, and a 2 basis point decrease in the weighted average rate paid on savings accounts, for the nine months ended March 31, 2015, when compared to the same period in 2014.

Interest paid on FHLB variable-rate long term advances increased by $76 thousand and $219 thousand, respectively, for the three and nine months ended March 31, 2015 when compared to the same periods in 2014. The increase in interest expense on FHLB variable-rate long term advances for the three months ended March 31, 2015 was primarily attributable to a $105.3 million increase in the average balance of such advances and a 29 basis point increase in the weighted average rate paid when compared to the same period in 2014. The increase in interest expense on FHLB variable-rate long term advances for the nine months ended March 31, 2015 was primarily attributable to a $104.1 million increase in the average balance of such advances and a 28 basis point increase in the weighted average rate paid when compared to the same period in 2014. The Company utilized this funding source in both periods to pay down FHLB short-term advances and to lock in longer-term variable rate funding for its variable rate mortgage-backed securities.

Provision for Loan Losses. A provision for loan losses is charged to earnings (while a credit provision for loan losses is accretive 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.

Provisions for loan losses increased $26 thousand and $134 thousand for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The increase in the provision for loan losses for the three months ended March 31, 2015, was primarily attributable to an increase in the Company’s loan portfolio during the three months ended March 31, 2015. The increase in the provision for loan losses for the nine months ended March 31, 2015, was primarily attributable to an increase in the Company’s loan portfolio during the nine months ended March 31, 2015, and the absence of a $109 credit provision on a paid off non-performing loan which was recorded in the nine months ended March 31, 2014. At March 31, 2015, the Company’s total allowance for loan losses amounted to $286 thousand or 0.75% of the Company’s total loan portfolio, as compared to $234 thousand or .78% at June 30, 2014. At March 31, 2015, the Company’s total allowance for loan losses of $286 thousand was allocated as follows: $255 thousand for the performing loan segment and $31 thousand for the nonperforming loan segment. In comparison, at June 30, 2014, the Company’s total allowance for loan losses of $234 thousand was allocated as follows: $134 thousand for the performing loan segment and $100 thousand for the nonperforming loan segment. At March 31, 2015, the Company’s non-performing loans totaled $311 thousand as compared to $604 thousand at June 30, 2014.

Non-Interest Income. Non-interest income increased by $20 thousand or 17.9%, and $20 thousand or 5.1% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended March 31, 2015 was primarily attributable to the absence of $19 thousand of impairment losses on private-label mortgage-backed securities recognized in the three months ended March 31, 2014, a $6 thousand increase in ATM and debit card fee income, and a $4 thousand increase in other miscellaneous operating income, which were partially offset by a $7 thousand decrease in service charges on deposits, and a $2 thousand decrease in earnings on banked-owned life insurance for the three months ended March 31, 2015, when compared to the same period in 2014. The increase for the nine months ended March 31, 2015 was primarily attributable to the absence of $19 thousand of impairment losses on private-label mortgage-backed securities recognized in the nine months ended March 31, 2014, a $16 thousand increase in ATM and debit card fee income, a $6 thousand increase in earnings on bank-owned life insurance, a $5 thousand increase in other miscellaneous operating income, and a $5 thousand gain on the sale of one real estate owned property, which was partially offset by a $23 thousand decrease in service charges on deposits during the nine months ended March 31, 2015, when compared to the same period in 2014.

Non-Interest Expense. Non-interest expense decreased $19 thousand or 2.1% and increased $66 thousand or 2.4% for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the three months ended March 31, 2015 was principally attributable to recoveries of legal fees totaling $26 thousand related to a paid off non-performing home equity line of credit, a $9 thousand decrease in federal deposit insurance premiums, and a $6 thousand decrease in employee related expenses, which were partially offset by a $13 thousand increase in ATM and debit card related expenses, and a $7 thousand increase in occupancy and equipment costs, when compared to the same period in 2014. The increase for the nine months ended March 31, 2015 was primarily attributable to a $43 thousand increase in ATM and debit card related expenses, a $33 thousand increase in employee related costs, and a $24 thousand increase in provisions for losses on off-balance sheet (loan origination) commitments, which were partially offset by recoveries of legal fees totaling $26 thousand related to a paid off non-performing home equity line of credit, a $13 thousand decrease in federal deposit insurance premiums, a $15 thousand decrease in charitable contributions eligible for PA tax credits, and a $7 thousand decrease in occupancy and equipment costs during the nine months ended March 31, 2015, when compared to the same period in 2014.

Income Tax Expense. Income tax expense increased $111 thousand and $152 thousand for the three and nine months ended March 31, 2015, respectively, when compared to the same periods in 2014. The increases for the three and nine months ended March 31, 2015 were primarily due to increased levels of taxable income, during the three and nine months ended March 31, 2015, when compared to the same periods in 2014.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used for operating activities totaled $984 thousand during the nine months ended March 31, 2015. Net cash used for operating activities was primarily comprised of $2.0 million increase in other assets relating to two customer checks returned by the Savings Bank due to the absence of payee endorsements, a $577 thousand increase in accrued interest receivable, and $105 thousand of earnings on bank-owned life insurance, which were partially offset by net income of $1.0 million, $411 thousand of amortization of investment premiums, a $134 thousand increase in accrued/prepaid income taxes, $67 thousand of depreciation expense, and a $52 thousand provision for loan losses.

Funds used for investing activities totaled $7.8 million during the nine months ended March 31, 2015. Primary uses of funds during the nine months ended March 31, 2015 included purchases of investment and mortgage-backed securities in the held-to-maturity portfolio totaling $36.3 million and $14.6 million, respectively, an increase in net loans receivable totaling $8.6 million, purchases of investment securities in the available-for-sale portfolio totaling $38.6 million, and acquisitions of equipment totaling $80 thousand. Primary sources of funds during the nine months ended March 31, 2015 included proceeds from repayments of mortgage-backed and investment securities held to maturity totaling $57.7 million, and $22.7 million, respectively, proceeds from maturities and early redemptions of investment securities available for sale totaling $9.3 million, net redemptions of FHLB stock totaling $116 thousand, and maturities of certificates of deposit totaling $348 thousand.

Funds provided by financing activities totaled $10.0 million for the nine months ended March 31, 2015. The primary sources included a $6.1 million increase in FHLB long-term variable-rate advances, a $4.8 million increase in FHLB short-term advances, and a $2.6 million increase in transaction and savings accounts, which were partially offset by a $2.8 million decrease in certificates of deposit, a $396 thousand increase in unallocated ESOP shares, $247 thousand in cash dividends paid on the Company’s common stock, and $72 thousand in purchases of treasury stock. Management believes that a significant portion of our maturing deposits will remain with the Company.

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. Certificates of deposit scheduled to mature in one year or less at March 31, 2015 totaled $23.4 million.

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. At March 31, 2015, total approved loan commitments outstanding were $4.3 million. At the same date, commitments under unused lines of credit amounted to $6.1 million and the unadvanced portion of construction loans approximated $5.6 million. 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’s available for sale segment of the investment portfolio totaled $58.0 million at March 31, 2015. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.

On April 27, 2015, the Company’s Board of Directors declared a cash dividend of $0.04 per share payable May 21, 2015, to shareholders of record at the close of business on May 11, 2015. 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, 2015, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $32.5 million or 23.5% and $32.8 million or 23.8% respectively, of total risk-weighted assets, and Tier I leverage capital of $32.5 million or 10.3% of average quarterly assets.

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

The Company’s nonperforming assets at March 31, 2015 totaled $311 thousand or 0.1% of total assets as compared to $607 thousand or 0.2% of total assets at June 30, 2014. Nonperforming assets at March 31, 2015 consisted of: one single-family real estate loan totaling $262 thousand, and one commercial real estate loan totaling $49 thousand. The loans are in various stages of collection activity.

The $296 thousand decrease in nonperforming assets during the nine months ended March 31, 2015 was primarily attributable to the payoff in full of one non-accrual home equity line of credit totaling $150 thousand, the transfer to real estate owned and subsequent sale of one non-accrual single-family construction loan totaling $139 thousand, and principal repayments on one non-accrual single-family real estate loan totaling $6 thousand.

During the three and nine months ended March 31, 2015, the Company collected $12 thousand and $26 thousand, respectively, of interest income on non-accrual loans. Approximately $6 thousand and $20 thousand of interest income would have been recorded during the three and nine months ended March 31, 2015, on non-accrual loans if such loans had been current according to the original loan agreements for the entire periods. These amounts were not included in the Company’s interest income for the three and nine months ended March 31, 2015. 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.

The Federal Open Market Committee (“Committee” or “FOMC”) issued a press release on October 29, 2014 which announced the Committee’s current assessments of the U.S. economy and the FOMC’s decision to conclude its Asset Purchase Program (“Program”). The Program included purchases of U.S. Government bonds and U.S. Government Agency mortgage-backed securities. The Committee further decided to maintain its present policy of reinvesting principal payments from its securities holdings and to rollover maturing U.S. Treasury securities at auction. The FOMC believes that the policy of keeping its holdings of longer-term securities at sizeable levels should help maintain accommodative financial conditions.

The Committee further stated that it will likely be appropriate to maintain the 0 to ¹⁄₄ percent target range for the federal funds rate for a considerable time following the end of its Asset Purchase Program – especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal and provided that the longer-term inflation expectations remain well anchored.

During the nine months ended March 31, 2015, the Company continued to adjust its asset/liability management tactics. We increased our FHLB long-term variable rate advance balances to $105.3 million at March 31, 2015 as compared to $99.2 million at June 30, 2014. $100.3 million of the FHLB long-term variable rate advances float on a monthly basis based upon the one-month LIBOR, while $5.0 million of the FHLB long-term variable rate advances float on a quarterly basis based upon the three-month LIBOR. The Company believes that these FHLB long-term variable rate advances complement our holdings of floating rate MBS and provide an attractive funding spread.

Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the

increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will either have lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

During the fiscal years 2013, 2014 and into fiscal year 2015, intermediate and long-term market interest rates fluctuated considerably. Many central banks, including the Federal Reserve, continued above normal levels of monetary accommodation including quantitative easing and targeted asset purchase programs. The desired outcomes of these programs are to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates.

The table below shows the targeted federal funds rate and the benchmark two and ten year treasury yields at quarter ends beginning in June 30, 2007, and extending through March 31, 2015. The difference in yields on the two year and ten year Treasury’s is often used to determine the steepness of the yield curve and to assess the term premium of market interest rates.


		Yield on:
	Targeted Federal Funds	Two (2) Year Treasury	Ten (10) Year Treasury	Shape of Yield Curve

June 30, 2007	5.25%	4.87%	5.03%	Slightly Positive
September 30, 2007	4.75%	3.97%	4.59%	Moderately Positive
December 31, 2007	4.25%	3.05%	4.04%	Positive
March 31, 2008	2.25%	1.62%	3.45%	Positive
June 30, 2008	2.00%	2.63%	3.99%	Positive
September 30, 2008	2.00%	2.00%	3.85%	Positive
December 31, 2008	0.00% to 0.25%	0.76%	2.25%	Positive
March 31, 2009	0.00% to 0.25%	0.81%	2.71%	Positive
June 30, 2009	0.00% to 0.25%	1.11%	3.53%	Positive
September 30, 2009	0.00% to 0.25%	0.95%	3.31%	Positive
December 31, 2009	0.00% to 0.25%	1.14%	3.85%	Positive
March 31, 2010	0.00% to 0.25%	1.02%	3.84%	Positive
June 30, 2010	0.00% to 0.25%	0.61%	2.97%	Positive
September 30, 2010	0.00% to 0.25%	0.42%	2.53%	Positive
December 31, 2010	0.00% to 0.25%	0.61%	3.30%	Positive
March 31, 2011	0.00% to 0.25%	0.80%	3.47%	Positive
June 30, 2011	0.00% to 0.25%	0.45%	3.18%	Positive
September 30, 2011	0.00% to 0.25%	0.25%	1.92%	Positive
December 31, 2011	0.00% to 0.25%	0.25%	1.89%	Positive
March 31, 2012	0.00% to 0.25%	0.33%	2.23%	Positive
June 30, 2012	0.00% to 0.25%	0.33%	1.67%	Positive
September 30, 2012	0.00% to 0.25%	0.23%	1.65%	Positive
December 31, 2012	0.00% to 0.25%	0.24%	1.85%	Positive
March 31, 2013	0.00% to 0.25%	0.25%	1.87%	Positive
June 30, 2013	0.00% to 0.25%	0.36%	2.52%	Positive
September 30, 2013	0.00% to 0.25%	0.33%	2.64%	Positive
December 31, 2013	0.00% to 0.25%	0.30%	2.84%	Positive
March 31, 2014	0.00% to 0.25%	0.44%	2.73%	Positive
June 30, 2014	0.00% to 0.25%	0.47%	2.53%	Positive
September 30, 2014	0.00% to 0.25%	0.58%	2.52%	Positive
December 31, 2014	0.00% to 0.25%	0.53%	1.90%	Positive
March 31, 2015	0.00% to 0.25%	0.56%	1.99%	Positive

These changes in intermediate and long-term market interest rates, the changing slope of the Treasury yield curve, and higher levels of interest rate volatility have impacted prepayments on 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 nine months ended March 31, 2015, totaled $7.2 million, $32.0 million, and $57.7 million, respectively. Despite stagnant global interest rates and Treasury yields the Company used proceeds from maturities and corporate calls of bonds, repayments on its mortgage-backed securities, and borrowings to purchase investment-grade corporate bonds, U.S. Government agency bonds, U.S. Government agency floating rate CMOs, and obligations of state and political subdivisions.

During the nine months ended March 31, 2015, the Company increased its portfolio of: single-family mortgages by approximately $5.9 million, multi-family real estate loans by $1.7 million, and construction loans by $2.5 million, which were partially offset by a $1.1 million decrease in commercial real estate loans, $400 thousand decrease in loans to state and political subdivisions, a $227 thousand decrease in commercial loans, and a $139 thousand decrease in consumer loans. The Company continued to more aggressively pursue 15, 20, 30 year fixed-rate single-family residential real estate loans. 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. We expect that the housing market will modestly grow throughout fiscal 2015. The Company will continue to selectively offer commercial real estate, land acquisition and development, and shorter-term construction loans (primarily on residential properties), and commercial loans on business assets to partially increase interest income while managing credit and interest rate risk. The Company also offers higher yielding multi-family loans to existing, and seasoned prospective, customers.

During the nine months ended March 31, 2015, principal investment purchases were comprised of: $35.4 million of investment-grade corporate bonds available for sale with a weighted yield of 1.49%. The Company also purchased $30.9 million of callable U.S. Government agency multiple step-up bonds with initial lock out periods from 1 to 4 months and with a weighted average yield to first call of 3.98% and a weighted average yield to maturity of 3.01%. Single step-up bonds have one “step” or increase in coupon. Multiple step-up bonds have more than one “step” or increase in coupon. The Company also purchased $14.60 million of floating-rate U.S. Government agency CMOs with a weighted average yield of 1.81%, and $5.4 million of taxable municipal bonds with a weighted average yield of 2.86%, and $3.3 million of U.S. dollar denominated investment-grade corporate bonds of large foreign issuers with a weighted yield of 1.53%. All of the purchases were classified as held to maturity for accounting purposes, with the exception of the investment-grade corporate bonds, which were classified as available for sale. The Company believes that the purchases will earn a return above the Company’s cost of funds.

Major investment proceeds received during the nine months ended March 31, 2015 were: U.S. Government agency multi step-up bonds - $22.4 million with a weighted average yield of 1.65%; investment grade corporate bonds - $9.3 million with a weighted average yield of 2.02%; and investment grade corporate utility first mortgage bonds - $323 thousand with a weighted average yield of 5.83%.

As of March 31, 2015, the implementation of these asset and liability management initiatives resulted in the following:

$174.6 million or 61.2% of the Company’s assets were comprised of floating rate investment and mortgage-backed securities. Of this $174.6 million, approximately $172.6 million float on a monthly basis based upon changes in the one-month London Interbank Offered Rate (LIBOR) and about $2.0 million reprice on a quarterly basis based upon the three-month LIBOR.

$172.6 million or 70.4% of the Company’s total investment portfolio was comprised of floating rate mortgage-backed securities (including collateralized mortgage obligations – “CMOs”) that reprice on a monthly basis;

$56.5 million or 21.3% of the Company’s investment portfolio consisted of investment grade fixed-rate corporate bonds with remaining maturities as follows: 3 months or less - $3.0 million or 5.3%; 3 – 12 months - $10.4 million or 18.4%; 1 – 2 years - $28.2 million or 49.9%; 2 – 3 years - $12.8 million or 22.7%; 3 – 5 years - $1.1 million or 1.9% and over 5 years - $1.0 million or 1.8%;

$24.6 million or 9.6% of the Company’s investment portfolio was comprised of callable U.S. Government Agency multiple step-up bonds which are callable in less than 3 months. These bonds may or may not actually be redeemed prior to maturity (i.e. called) depending upon the level of market interest rates at their respective call dates;

$58.0 million or 18.0% of the Company’s assets were comprised of investment securities classified as available for sale;

$5.4 million or 2.0% of the Company’s investment portfolio was comprised of obligations of state and political subdivisions located within the Commonwealth of Pennsylvania;

An aggregate of $13.7 million or 35.8% of the Company’s net loan portfolio had adjustable interest rates or maturities of less than 12 months;

Approximately $100.3 million of the Company’s total FHLB long-term advances of $117.8 million are comprised of floating rate instruments which adjust on a monthly basis based upon changes in the one-month LIBOR;

Approximately $5.0 million of the Company’s total FHLB long-term advances of $117.8 million are comprised of floating rate instruments which adjust on a quarterly basis based upon changes in the three-month LIBOR; and

10)

The maturity distribution of the Company’s borrowings is as follows: 3 months or less - $28.4 million or 19.4%; 1 – 2 years - $101.7 million or 69.6%; and 2 - 3 years - $16.1 million or 11.0%.

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.

As part of its asset/liability management strategy, the Company maintained an asset sensitive financial position due to unusually low market interest rates. An asset sensitive financial position may benefit earnings during a period of rising interest rates and reduce earnings during a period of declining interest rates.

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, 2015			June 30,
	March 31, 2015			2014			2013
				(Dollars in Thousands)
Interest-earning assets maturing or repricing within one year		$225,059			$256,902			$236,125
Interest-bearing liabilities maturing or repricing within one year		217,256			209,986			188,841

Interest sensitivity gap		$7,803			$ 46,916			$ 47,284

Interest sensitivity gap as a percentage of total assets		2.43	%		15.14	%		16.44	%
Ratio of assets to liabilities maturing or repricing within one year		103.59	%		122.34	%		125.04	%

During the nine months ended March 31, 2015, the Company managed its one-year interest sensitivity gap by: (1) purchasing $14.6 million of floating-rate U.S. Government agency CMOs which reprice monthly; (2) increasing by approximately $6.1 million the Company’s long-term variable rate borrowings that reprice within three months. All of the referenced purchases were designated as held to maturity for accounting purposes. At March 31, 2015, investments available for sale totaled $58.0 million or 18.0% of total assets.

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, 2015. 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
Cumulative Gap ($’s)		$15,815			$11,046			$5,158			$34,771			$35,674			$31,868			$23,195
% of Total Assets		4.9	%		3.4	%		1.6	%		10.8	%		11.1	%		9.9	%		7.2	%
Base Case Up 100 bp
Cumulative Gap ($’s)		$16,108			$11,595			$6,136			$36,357			$37,592			$33,902			$23,195
% of Total Assets		5.0	%		3.6	%		1.9	%		11.3	%		11.7	%		10.6	%		7.2	%
Base Case No Change
Cumulative Gap ($’s)		$16,656			$12,578			$7,803			$38,900			$40,551			$36,769			$23,195
% of Total Assets		5.2	%		3.9	%		2.4	%		12.1	%		12.6	%		11.4	%		7.2	%
Base Case Down 100 bp
Cumulative Gap ($’s)		$16,955			$13,116			$8,719			$40,248			$42,053			$38,064			$23,195
% of Total Assets		5.3	%		4.1	%		2.7	%		12.5	%		13.1	%		11.8	%		7.2	%
Base Case Down 200 bp
Cumulative Gap ($’s)		$17,286			$13,724			$9,743			$41,691			$43,560			$39,218			$23,195
% of Total Assets		5.4	%		4.3	%		3.0	%		13.0	%		13.6	%		12.2	%		7.2	%

The Company utilizes 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.

The following table presents the simulated impact of a 100 and 200 basis point upward or downward (parallel) 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, 2015. This analysis was done assuming that the interest-earning assets will average approximately $326 million and $345 million over a projected twelve and twenty-four month period, respectively, for the estimated impact on change in net interest income, return on average equity and return on average assets. The estimated changes in market value of equity were calculated using balance sheet levels at March 31, 2015. Actual future results could differ materially from our estimates primarily due to unknown future interest rate changes and the level of prepayments on our investment and loan portfolios and future FDIC regular and special assessments.

Analysis of Sensitivity to Changes in Market Interest Rates


	Twelve Month Forward Modeled Change in Market Interest Rates
	March 31, 2016															March 31, 2017
Estimated impact on:	-200			-100			0			+100			+200			-200			-100			0			+100			+200
Change in net interest income		-5.7	%		-3.5	%		-			9.3	%		17.4	%		-11.5	%		-6.7	%		-			19.2	%		30.6	%
Return on average equity		3.32	%		3.55	%		3.93	%		4.92	%		5.78	%		3.95	%		4.51	%		5.28	%		7.43	%		8.65	%
Return on average assets		0.32	%		0.34	%		0.38	%		0.47	%		0.56	%		0.37	%		0.43	%		0.50	%		0.68	%		0.80	%
Market value of equity (in thousands)	$	35,882		$	36,584			$37,810			$38,394			$36,605

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, at March 31, 2015. The Company used no derivative financial instruments to hedge such anticipated transactions as of March 31, 2015.


Anticipated Transactions

(Dollars in Thousands)
Undisbursed construction and land development loans
Fixed rate	$	3,827
		4.03	%

Adjustable rate	$	1,804
		4.88	%

Undisbursed lines of credit
Adjustable rate	$	6,075
		3.67	%

Loan origination commitments
Fixed rate	$	3,628
		3.77	%

Adjustable rate	$	630
		3.27	%

Letters of credit
Adjustable rate	$	130
		4.25	%


	$	16,094

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, 2015, the Savings Bank had two performance standby letters of credit outstanding totaling approximately $130 thousand. Both performance letters of credit are secured by developed property. The letters of credit will mature within eighteen months. In the event that the obligor is unable to perform its obligations as specified in the applicable letter of credit agreement, the Savings Bank would be obligated to disburse funds up to the amount specified in the letter of credit agreement. The Savings Bank maintains adequate collateral that could be liquidated to fund these contingent obligations.

ITEM 4. CONTROLS AND PROCEDURES

As of March 31, 2015, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2015.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2015, no change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has occurred that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

(a)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.

(b)Not applicable.

ITEM 1A. Risk Factors

There are no material changes to the risk factors included in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

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 the WVS Financial Corp. Employee Stock Ownership Plan (ESOP) during the three months ended March 31, 2015.


AFFILIATE PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share ($)		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs⁽²⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽³⁾
01/01/15 – 01/31/15		3,028		10.81		3,026	$	268,900
02/01/15 – 02/28/15		-		-		-	$	268,900
03/01/15 – 03/31/15		10,330		11.13		10,330	$	153,980
Total		13,358		11.05		13,356	$	153,980

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

(2)	Shares purchased using funds borrowed from the Company.

(3)	ESOP Stock Purchase Program

(a)

Announced March 31, 2014.

(b)

$1,500,000 of common shares approved for purchase.

(c)

No fixed date of expiration.

(d)

This Program has not expired and has $153,980 of shares remaining to be purchased at March 31, 2015.

(e)

Not applicable.

The following table sets forth information with respect to purchases of common stock of the Company made by WVS Financial Corp. during the three months ended March 31, 2015.


COMPANY PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased⁽¹⁾	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⁾
01/01/15 – 01/31/15	-	-	-		34,425
02/01/15 – 02/28/15	-	-	-		34,425
03/01/15 – 03/31/15	-	-	-		34,425
Total	-	-	-		34,425

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

(2)	Tenth Stock Repurchase Program

(a)

Announced April 30, 2014.

(b)

41,745 common shares approved for repurchase.

(c)

No fixed date of expiration.

(d)

This Program has not expired and has 34,425 shares remaining to be purchased at March 31, 2015.

(e)

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

(a) Not applicable.

(b) Not applicable.

ITEM 6. Exhibits

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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WVS FINANCIAL CORP.

May 14, 2015	BY:	/s/ David J. Bursic
Date		David J. Bursic President and Chief Executive Officer (Principal Executive Officer)

May 14, 2015	BY:	/s/ Keith A. Simpson
Date		Keith A. Simpson Vice-President, Treasurer and Chief Accounting Officer (Principal Accounting Officer)

WVS FINANCIAL CORP - FORM 10-Q - May 14, 2015

Attached files

Stock widget

Investing forum

WVS FINANCIAL CORP Reports

Also read