UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-22444
WVS Financial Corp.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
- ---------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
- ---------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(412) 364-1911
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES X NO __
Shares outstanding as of November 9, 2000: 2,826,008 shares Common Stock,
$.01 par value.
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
INDEX
-----
PART I. Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of September 30, 2000
and June 30, 2000 (Unaudited) 3
Consolidated Statements of Income
for the Three Months Ended
September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
2000 and 1999 (Unaudited) 5
Consolidated Statements of Changes in
Stockholders' Equity for the Three Months
Ended September 30, 2000 (Unaudited) 7
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three Months
Ended September 30, 2000 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
PART II. Other Information Page
- -------- ------------------ ----
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
-- Signatures 21
2
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(In thousands)
September 30, 2000 June 30, 2000
----------------------------- ----------------------------
Assets
------
Cash and due from banks $ 898 $ 788
Interest-earning demand deposits 2,218 2,127
Investment securities available-for-sale (amortized cost of
$1,380 and $1,380) 1,324 1,296
Investment securities held-to-maturity (market value of
$130,820 and $129,272) 136,305 136,206
Mortgage-backed securities available-for-sale (amortized cost of
$9,764 and $10,150) 9,652 9,936
Mortgage-backed securities held-to-maturity (market value of
$61,037 and $61,943) 62,166 63,737
Federal Home Loan Bank stock, at cost 6,772 5,225
Net loans receivable (allowance for loan losses of $1,985) 183,949 183,295
Accrued interest receivable 3,383 4,375
Premises and equipment 1,026 1,050
Deferred taxes and other assets 1,217 1,583
----------------------------- ----------------------------
TOTAL ASSETS $ 408,910 $ 409,618
============================= ============================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 12,053 $ 10,485
NOW accounts 17,561 18,158
Savings accounts 36,281 36,995
Money market accounts 11,416 12,802
Certificates of deposit 91,703 91,068
----------------------------- ----------------------------
Total savings deposits 169,014 169,508
Federal Home Loan Bank advances 135,450 104,500
Other borrowings 70,652 101,025
Advance payments by borrowers for taxes and insurance 1,135 3,350
Accrued interest payable 3,889 2,704
Other liabilities 1,510 1,620
----------------------------- ----------------------------
TOTAL LIABILITIES 381,650 382,707
Stockholders' equity:
Preferred stock:
5,000,000 shares, no par value per share, authorized; none
outstanding --- ---
Common stock:
10,000,000 shares, $.01 par value per share, authorized;
3,689,480 and 3,685,280 shares issued 37 37
Additional paid-in capital 19,569 19,548
Treasury stock: 843,272 and 808,444 shares at cost, respectively (12,194) (11,770)
Retained earnings, substantially restricted 20,156 19,513
Accumulated other comprehensive loss (111) (197)
Unallocated shares - Recognition and Retention Plans (197) (220)
Unallocated shares - Employee Stock Ownership Plan --- ---
----------------------------- ----------------------------
TOTAL STOCKHOLDERS' EQUITY 27,260 26,911
----------------------------- ----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 408,910 $ 409,618
============================= ============================
See accompanying notes to consolidated financial statements.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended
September 30,
-------------------------------------------
2000 1999
---- ----
INTEREST AND DIVIDEND INCOME:
Loans $ 3,701 $ 3,417
Investment securities 2,414 1,853
Mortgage-backed securities 1,290 1,215
Interest-earning deposits with other institutions 8 8
Federal Home Loan Bank stock 104 116
-------- --------
Total interest and dividend income 7,517 6,609
-------- --------
INTEREST EXPENSE:
Deposits 1,673 1,582
Borrowings 3,309 2,181
Advance payments by borrowers for taxes and insurance 6 6
-------- --------
Total interest expense 4,988 3,769
-------- --------
NET INTEREST INCOME 2,529 2,840
PROVISION FOR LOAN LOSSES --- ---
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,529 2,840
-------- --------
NON-INTEREST INCOME:
Service charges on deposits 91 76
Other 82 59
-------- --------
Total non-interest income 173 135
-------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 608 756
Occupancy and equipment 87 91
Deposit insurance premium 9 25
Data processing 58 44
Correspondent bank service charges 38 35
Other 156 160
-------- --------
Total non-interest expense 956 1,111
-------- --------
INCOME BEFORE INCOME TAXES 1,746 1,864
INCOME TAXES 646 727
-------- --------
NET INCOME $ 1,100 $ 1,137
======== ========
EARNINGS PER SHARE:
Basic $ 0.39 $ 0.37
Diluted $ 0.38 $ 0.37
AVERAGE SHARES OUTSTANDING:
Basic 2,858,302 3,056,406
Diluted 2,873,787 3,084,253
See accompanying notes to consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended September 30,
--------------------------------
2000 1999
----- ----
OPERATING ACTIVITIES
Net income $ 1,100 $ 1,137
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization, net 27 29
Amortization of discounts, premiums and deferred loan fees (48) ---
Amortization of ESOP, RRP and deferred and unearned
compensation 23 146
Decrease in accrued interest receivable 992 251
Increase in accrued interest payable 1,185 495
Increase in accrued and deferred taxes 229 74
Other, net (17) 199
--------- --------
Net cash provided by operating activities 3,491 2,331
--------- --------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities --- ---
Proceeds from repayments of investments and mortgage-backed securities 386 869
Proceeds from sale of investments and mortgage-backed securities --- ---
Held-to-maturity:
Purchases of investments and mortgage-backed securities --- (32,913)
Proceeds from repayments of investments and mortgage-backed securities 1,570 6,611
Increase in net loans receivable (704) (5,325)
Increase in FHLB stock (1,547) (1,430)
Other, net --- (18)
Purchases of premises and equipment (3) ---
--------- --------
Net cash used for investing activities (298) (32,206)
--------- --------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended September 30,
--------------------------------
2000 1999
---- ----
FINANCING ACTIVITIES
Net decrease in transaction and passbook accounts (1,129) (2,477)
Net increase in certificates of deposit 635 454
Net increase in FHLB advances 30,950 35,600
Net (decrease) increase in other borrowings (30,373) 998
Net decrease in advance payments by borrowers for taxes and insurance (2,215) (1,907)
Net proceeds from issuance of common stock 21 1
Funds used for purchase of treasury stock (424) (2,042)
Cash dividends paid (457) (491)
--------- ---------
Net cash (used for) provided by financing activities (2,992) 30,136
--------- ---------
Increase in cash and cash equivalents 201 261
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,915 1,893
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,116 $ 2,154
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 3,803 $ 3,274
Income taxes $ 462 $ 625
See accompanying notes to consolidated financial statements.
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Add'l. Unallocated Unallocated
Common Stock Paid-In Treasury Shares Held Shares Held
Capital Stock by ESOP by RRP
------------ ------- -------- ------------ -------------
Balance at June 30,2000 $ 37 $19,548 $(11,770) $ --- $ (220)
Comprehensive income:
Net Income
Other comprehensive
income:
Change in unrealized
holding losses on
securities, net of
income tax benefit
of $44
Comprehensive income
Purchase of shares for
treasury stock (424)
Release of earned
Employee Stock
Ownership Plan (ESOP)
shares --- ---
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 23
Exercise of stock options 21
Cash dividends declared
($0.16 per share)
------------ ------- -------- ------------ -------------
Balance at Sept. 30, 2000 $ 37 $19,569 $(12,194) $ --- $ (197)
============ ======= ======== ============ =============
Accum.
Other Retained
Compre- Earnings
hensive Substantially
Loss Restricted Total
---------- ------------- -------
Balance at June 30,2000 $ (197) $19,513 $26,911
Comprehensive income:
Net Income 1,100 1,100
Other comprehensive
income:
Change in unrealized
holding losses on
securities, net of
income tax benefit
of $44 86 86
--------
Comprehensive income 1,186
Purchase of shares for
treasury stock (424)
Release of earned
Employee Stock
Ownership Plan (ESOP)
shares ---
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 23
Exercise of stock options 21
Cash dividends declared
($0.16 per share) (457) (457)
---------- ------------- -------
Balance at Sept. 30, 2000 $ (111) $20,156 $27,260
========== ============= =======
See accompanying notes to consolidated financial statements.
7
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do
not include information or footnotes necessary for a complete presentation
of financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. However, all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation have been included. The
results of operations for the three months ended September 30, 2000, are
not necessarily indicative of the results which may be expected for the
entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement provides accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring the
recognition of those items as assets or liabilities in the statement of
financial position, recorded at fair value. Statement No. 133 precludes a
held-to-maturity security from being designated as a hedged item, however,
at the date of initial application of this statement, an entity is
permitted to transfer any held-to-maturity security into the
available-for-sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Such transfers do not raise an issue regarding
an entity's intent to hold other debt securities to maturity in the future.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133." This statement
delayed the effective date of Statement No. 133 for one year, to fiscal
years beginning after June 15, 2000. Earlier adoption is permitted for any
fiscal quarter that begins after the issue date of this statement.
The Company does not believe the effect of the adoption of this accounting
statement will be material.
8
3. EARNINGS PER SHARE
------------------
The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended
September 30,
--------------------------------------------
2000 1999
---------------- ----------------
Weighted average common shares outstanding 3,688,078 3,668,110
Average treasury stock shares (829,776) (566,794)
Average unearned ESOP shares --- (44,910)
--------------- ---------------
Weighted average common shares and common stock equivalents
used to calculate basic earnings per share 2,858,302 3,056,406
Additional common stock equivalents (stock options) used to
calculate diluted earnings per share 15,485 27,847
--------------- ---------------
Weighted average common shares and common stock equivalents
used to calculate diluted earnings per share 2,873,787 3,084,253
=============== ===============
Net income $1,100,472 $1,136,861
=============== ===============
Earnings per share:
Basic $ 0.39 $ 0.37
Diluted $ 0.38 $ 0.37
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, or, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to
forward-looking statements to reflect events or circumstances after the date of
statements or to reflect the occurrence of anticipated or unanticipated events.
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company
of West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank converted to the stock form of ownership in
November 1993. The Savings Bank had no subsidiaries at September 30, 2000.
The operating results of the Company depend primarily upon its net interest
income, which is determined by the difference between income on interest-earning
assets, principally loans, mortgage-backed securities and investment securities,
and interest expense on interest-bearing liabilities, which consist primarily of
deposits and borrowings. The Company's net income is also affected by its
provision for loan losses, as well as the level of its non-interest income,
including loan fees and service charges, and its non-interest expenses, such as
compensation and employee benefits, income taxes, deposit insurance and
occupancy costs.
The Company's strategy focuses on community-based lending, growth of core
deposits, generating consistent earnings growth, capital management and
maintaining strong non-interest expense ratios.
10
FINANCIAL CONDITION
The Company's assets totaled $408.9 million at September 30, 2000, as
compared to $409.6 million at June 30, 2000. The $708 thousand or 0.17% decrease
in total assets was primarily comprised of a $992 thousand or 22.7% decrease in
accrued interest receivable and a $366 thousand or 23.1% decrease in deferred
taxes and other assets, which were partially offset by a $654 thousand or 0.4%
increase in net loans receivable.
The Company's total liabilities decreased $1.1 million or 0.3% to $381.6
million as of September 30, 2000, from $382.7 million as of June 30, 2000. The
$1.1 million decrease in total liabilities was primarily comprised of a $2.2
million or 66.1% decrease in advance payments by borrowers for taxes and
insurance due to the seasonal payment of local real estate taxes, which was
partially offset by a $1.2 million increase in accrued interest payable.
Total stockholders' equity increased $349 thousand or 1.3% to $27.3 million
as of September 30, 2000, from $26.9 million as of June 30, 2000. Capital
expenditures for the Company's stock repurchase program and cash dividends
totaled $424 thousand and $457 thousand, respectively, which were partially
funded by Company net income of $1.1 million for the three months ended
September 30, 2000.
RESULTS OF OPERATIONS
General. WVS reported net income of $1.1 million, or $0.38 diluted earnings
per share for the three months ended September 30, 2000. Net income decreased by
$37 thousand or 3.3% and diluted earnings per share increased $0.01 or 2.7% for
the three months ended September 30, 2000, when compared to the same period in
1999. The decrease in net income was primarily attributable to a $311 thousand
decrease in net interest income which was partially offset by a $155 thousand
decrease in non-interest expense, a $38 thousand increase in non-interest
income, and a $81 thousand decrease in income tax expense.
Net Interest Income. The Company's net interest income decreased by $311
thousand or 11.0% for the three months ended September 30, 2000, when compared
to the same period in 1999. The decrease was principally attributable to
increases in the Company's wholesale borrowing costs which was partially offset
by an increase in interest on investment securities.
Interest Income. Interest and dividend income on interest-bearing deposits
with other institutions, investment securities and FHLB stock ("other investment
securities") increased by $549 thousand or 27.8% for the three months ended
September 30, 2000, when compared to the same period in 1999. The increase was
primarily attributable to a $29.9 million increase in the average balance of
investment securities outstanding and a 9 basis point increase in the weighted
average yield earned on investment securities for the three months ended
September 30, 2000, when compared to the same period in 1999. The increase in
the average balance of investment securities during the three month period ended
September 30, 2000, was principally attributable to purchases of investment
securities under the Company's investment growth program. The increase in the
weighted average yield earned was consistent with market conditions for the
three months ended September 30, 2000.
Interest on net loans receivable increased by $284 thousand or 8.3% for the
three months ended September 30, 2000, when compared to the same period in 1999.
The increase was attributable to an increase of $11.2 million in the average
balance of net loans receivable outstanding and an increase of 14 basis points
in the weighted average yield earned on net loans receivable for the three
months ended September 30, 2000, when compared to the same period in 1999. The
increases in the average loan balance outstanding for the three months ended
September 30, 2000, was primarily attributable to an increased level of mortgage
originations due to a stronger local demand for permanent mortgage financing and
an emphasis on multi-family, commercial and consumer loan products in order to
earn returns greater than those offered in the single-family residential
mortgage market. The Company's weighted average loan yield was impacted by a
$3.8 million increase in nonaccrual commercial real estate loans during the
quarter ended March 31, 2000.
11
Interest on mortgage-backed securities increased by $75 thousand or 6.2%
for the three months ended September 30, 2000, when compared to the same period
in 1999. The increase was attributable to a 47 basis point increase in the
weighted average yield earned on mortgage-backed securities, which was partially
offset by a $597 thousand decrease in the average balance of mortgage-backed
securities for the three months ended September 30, 2000, when compared to the
same period in 1999.
Interest Expense. Interest expense on deposits and escrows increased by $91
thousand or 5.7% for the three months ended September 30, 2000, when compared to
the same period in 1999. The increase in interest expense on deposits and
escrows was principally attributable to a 34 basis point increase in the average
yield paid on deposits and escrows, which was partially offset by a $4.7 million
decrease in the average balance of interest-bearing deposits and escrows for the
three months ended September 30, 2000, when compared to the same period in 1999.
The average yield paid on interest-bearing deposits and escrows increased due to
higher rates paid on time deposits.
Interest expense on FHLB advances and other borrowings increased by $1.1
million for the three months ended September 30, 2000, when compared to the same
period in 1999. The increase was primarily attributable to a $42.1 million or
26.3% increase in the average balance of such borrowings outstanding, and a 110
basis point increase in the weighted average rate paid on such borrowings for
the three months ended September 30, 2000. The increased amount of borrowings
outstanding was used to fund the Company's loan originations and purchases of
investment securities.
Provision for Loan Losses. A provision for loan losses is charged to
earnings to maintain the total allowance to a level considered adequate by
management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio considering past experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors.
The Company did not record a provision for possible losses on loans for the
three months ended September 30, 2000. At both September 30, 2000 and June 30,
2000, the Company's total allowance for loan losses amounted to $2.0 million or
1.1% and 1.0% of the Company's total loan portfolio, respectively.
Non-Interest Income. Total non-interest income increased by $38 thousand
for the three months ended September 30, 2000, when compared to the same period
in 1999. The increase in non-interest income for the three months ended
September 30, 2000, was primarily attributable to a $23 thousand increase in
other income, including ATM fee and loan late charge income, and a $15 thousand
increase in service charges on deposits during the three months ended September
30, 2000.
Non-Interest Expense. Total non-interest expense decreased $155 thousand or
14.0% for the three months ended September 30, 2000 when compared to the same
period in 1999.
Compensation and employee benefits expense decreased $148 thousand or 19.6%
for the three months ended September 30, 2000, when compared to the same period
in 1999. The decrease for the three months ended September 30, 2000 was
primarily attributable to the elimination of employee stock ownership plan
amortization.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $3.5 million during the
three months ended September 30, 2000. Net cash provided by operating activities
was primarily comprised of a $1.2 million increase in accrued interest payable,
$1.1 million of net income and a $1.0 million decrease in accrued interest
receivable.
12
Funds used by investing activities totaled $298 thousand during the three
months ended September 30, 2000. Primary uses of funds during the three months
ended September 30, 2000, included $1.5 million for purchases of Federal Home
Loan Bank stock and a $704 thousand increase in net loans receivable which were
partially offset by $2.0 million of proceeds from repayments of investment and
mortgage-backed securities.
Funds used for financing activities totaled $3.0 million for the three
months ended September 30, 2000. The primary financial use included a $30.4
million decrease in other borrowings, a $2.7 million decrease in deposits and
escrows, $457 thousand in cash dividends paid on the Company's common stock and
$424 thousand in purchases of treasury stock, which were partially offset by a
$31.0 million increase in FHLB advances. During the three months ended September
30, 2000, the Company repurchased 34,828 shares of common stock. Management
believes that it currently is maintaining adequate liquidity and continues to
better match funding sources with lending and investment opportunities.
The Company's primary sources of funds are deposits, amortization,
prepayments and maturities of existing loans, mortgage-backed securities and
investment securities, funds from operations, and funds obtained through
short-term borrowings. At September 30, 2000, the total approved loan
commitments outstanding amounted to $2.3 million. At the same date, commitments
under unused lines of credit amounted to $10.7 million and the unadvanced
portion of construction loans approximated $19.1 million. Certificates of
deposit scheduled to mature in one year or less at September 30, 2000, totaled
$59.9 million. Management believes that a significant portion of maturing
deposits will remain with the Company.
Historically, the Company used its sources of funds primarily to meet its
ongoing commitments to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain a substantial portfolio of
investment securities. The Company has been able to generate sufficient cash
through the retail deposit market, its traditional funding source, and through
FHLB advances and other borrowings, to provide the cash utilized in investing
activities. The Company has access to the Federal Reserve Bank discount window.
Management believes that the Company currently has adequate liquidity available
to respond to liquidity demands.
On October 31, 2000, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable November 16, 2000, to shareholders of record
at the close of business on November 6, 2000. 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 or that, if paid, such
dividends will not be reduced or eliminated in future periods.
As of September 30, 2000, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$27.3 million or 14.2% and $29.3 million or 15.2%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $27.3 million or 6.68% 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 both September 30, 2000 and June 30,
2000, totaled approximately $4.1 million or 1.0% of total assets. Nonperforming
assets at September 30, 2000, consisted of $3.9 million in commercial real
estate loans, $81 thousand in single-family loans, and $124 thousand in consumer
loans. One commercial real estate loan and two construction loans to a
retirement village and personal care home located within the North Hills area,
became delinquent during fiscal 2000. The outstanding balances total $4.78
million of which $3.60 million is owned by the Company and the remaining $1.18
million is serviced by the Company for four participating lenders. During the
three months ended September 30, 2000, the Company collected and recognized
approximately $93 thousand in past due interest on these loans. The Company is
working with the borrowers in an attempt to cure the defaults. The Company is
also pursuing various legal avenues in order to collect on the loans.
Approximately $27 thousand of additional interest income would have been
recorded during the three months ended September 30, 2000, if the Company's
nonaccrual and restructured loans had been current in accordance with their
original loan terms and outstanding throughout the three months ended September
30, 2000.
13
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Company's transactions are denominated
in U.S. 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 Reserve Board, together with the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation, adopted a Joint
Agency Policy Statement on Interest Rate Risk, effective June 26, 1996. The
policy statement provides guidance to examiners and bankers on sound practices
for managing interest rate risk, which will form the basis for ongoing
evaluation of the adequacy of interest rate risk management at supervised
institutions. The policy statement also outlines fundamental elements of sound
management that have been identified in prior Federal Reserve guidance and
discusses the importance of these elements in the context of managing interest
rate risk. Specifically, the guidance emphasizes the need for active board of
director and senior management oversight and a comprehensive risk-management
process that effectively identifies, measures, and controls interest rate risk.
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.
An institution may use several techniques to manage interest rate risk. One
approach used by the Company is to periodically analyze its assets and
liabilities and make future financing and investment decisions based on payment
streams, interest rates, contractual maturities, and estimated sensitivity to
actual or potential changes in market interest rates. Such activities fall under
the broad definition of asset/liability management. The Company's primary
asset/liability management technique is the monitoring of the Company's
asset/liability gap.
14
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 when the amount of rate sensitive assets
exceeds the amount of rate sensitive liabilities. A gap is considered negative
when the amount of interest sensitive liabilities exceeds the amount of interest
sensitive assets. During a period of falling interest rates, a positive gap
would tend to adversely affect net interest income, while 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, while a negative gap would tend to adversely affect net
interest income.
The Company's one year cumulative interest rate sensitivity gap is
estimated at a negative 33.3% of total assets at September 30, 2000, as compared
to a negative 46.3% at June 30, 2000, in each instance, based on certain
assumptions by management with respect to the repricing of certain assets and
liabilities. At September 30, 2000, the Company's interest-earning assets
maturing or repricing within one year totaled $87.4 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$223.6 million, providing an excess of interest-earning liabilities over
interest-bearing assets of $136.2 million. At September 30, 2000, the percentage
of the Company's assets to liabilities maturing or repricing within one year was
39.1%. Accordingly, due to the Company's high negative gap, rising interest
rates would most likely adversely affect the Company's net interest income.
During fiscal 2001, the Company anticipates reducing its one year interest
sensitivity gap by: (1) reducing the amount of incremental wholesale borrowing;
(2) limiting future investment purchases; and (3) extending the term structure
of a portion of the Company's borrowings as market conditions permit.
During the three months ended September 30, 2000, the Company decreased its
mortgage-backed securities portfolio by $1.9 million or 2.58%. The decrease for
the three months was attributable to principal repayments. At September 30,
2000, the Company held $71.8 million of mortgage-backed securities with an
approximate yield of 7.11%.
During the three months ended September 30, 2000, the Company borrowed
approximately $227.7 million in various advances from the FHLB with a weighted
average rate of 6.52% and incurred $221.3 million in other borrowings with a
weighted average rate of 6.58%. During the three months ended September 30,
2000, the Company repaid $196.7 million of FHLB advances and $251.7 million of
other borrowings.
The Company also makes available for origination residential mortgage loans
with interest rates which adjust pursuant to a designated index, although
customer acceptance has been somewhat limited in the Savings Bank's market area.
The Company will continue to selectively offer commercial real estate, land
acquisition and development, and shorter-term construction loans, primarily on
residential properties, to partially increase its loan asset sensitivity. The
Company continues to emphasize higher yielding commercial real estate, home
equity and small business loans to existing customers and seasoned prospective
customers.
An institution could also manage interest rate risk by selling existing
assets, repaying certain liabilities or matching repricing periods for new
assets and liabilities (for example, by shortening terms of new loans or
investments). A large portion of an institution's liabilities may be short-term
or due on demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, the Company seeks to have in place sources of cash to
meet short-term demands. These funds can be obtained by increasing deposits,
borrowing, or selling assets. Also, FHLB advances and wholesale borrowings have
become increasingly important sources of liquidity for the Company. Financial
institutions are also subject to prepayment risk in falling rate environments.
For example, mortgage loans and other financial assets may be prepaid by a
debtor so that the debtor may refund its obligations at new, lower rates.
Prepayments of assets carrying higher rates reduce the Company's interest income
and overall asset yields.
15
An institution might also invest in more complex financial instruments
intended to hedge, or otherwise change the interest rate risk of existing
assets, liabilities, or anticipated transactions. Interest rate swaps, futures
contracts, options on futures, and other such derivative financial instruments
often are used for this purpose. Because these instruments are sensitive to
interest rate changes, they require management expertise to be effective. The
Company has not purchased derivative financial instruments in the past and does
not presently intend to purchase such instruments in the near future.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of September 30,
2000, based on the information and assumptions in the notes. The Company's
assumptions are based on statistical data provided by a federal regulatory
agency in the Company's market area, and are believed to be reasonable. The
Company had no derivative financial instruments or trading portfolio as of
September 30, 2000. The expected maturity date values for loans receivable,
mortgage-backed securities, and investment securities were calculated by
adjusting the instrument's contractual maturity date for expectations of
prepayments. Similarly, expected maturity date values for interest-bearing core
deposits were calculated based upon estimates of the period over which the
deposits would be outstanding. With respect to the Company's adjustable rate
instruments, expected maturity date values were measured by adjusting the
instrument's contractual maturity date for expectations of prepayments.
Substantially all of the Company's investment securities portfolio is comprised
of callable government agency securities. From a risk management perspective,
the Company believes that repricing dates, as opposed to expected maturity
dates, may be a more relevant metric in analyzing the value of such instruments.
Company borrowings were tabulated by contractual maturity dates and without
regard to any conversion or repricing dates.
16
EXPECTED MATURITY DATE-QUARTER ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------
2001 2002 2003 2004 2005
---------------- --------------- -------------- --------------- --------------
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $26,951 $16,511 $13,201 $12,928 $9,427
Average interest rate 7.95% 7.66% 7.62% 7.70% 7.55%
Adjustable rate 13,647 6,499 6,018 4,645 3,916
Average interest rate(5) 8.63% 8.35% 8.54% 8.37% 8.38%
Mortgage-backed securities
Fixed rate --- 49 1,141 --- ---
Average interest rate 0.00% 6.92% 6.02% 0.00% 0.00%
Adjustable rate --- --- --- --- ---
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00%
Investments(7) 8,452 --- --- --- ---
Average interest rate 7.23% 0.00% 0.00% 0.00% 0.00%
Cash and interest-bearing deposits 3,116 --- --- --- ---
Average interest rate 6.51% 0.00% 0.00% 0.00% 0.00%
---------------- --------------- -------------- --------------- --------------
Total 52,166 23,059 20,360 17,573 13,343
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) 88,495 21,347 21,347 8,293 8,293
Average interest rate 4.17% 3.71% 3.71% 3.42% 3.42%
Borrowings
Fixed rate 83,472 8,000 --- --- ---
Average interest rate 6.59% 6.66% 0.00% 0.00% 0.00%
Adjustable rate(11) 51,630 --- --- --- ---
Average interest rate 6.58% 0.00% 0.00% 0.00% 0.00%
---------------- --------------- -------------- --------------- --------------
Total $223,597 $29,347 $21,347 $8,293 $8,293
There- Fair
after Total Value
------------- ---------------- ----------------
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $61,725 $140,743 $143,678
Average interest rate 7.47%
Adjustable rate 11,247 45,972 46,649
Average interest rate(5) 8.29%
Mortgage-backed securities
Fixed rate 54,647 55,837 54,391
Average interest rate 6.94%
Adjustable rate 16,093 16,093 16,298
Average interest rate(6) 7.76%
Investments(7) 136,005 144,457 138,916
Average interest rate 7.76%
Cash and interest-bearing deposits --- 3,116 3,116
Average interest rate 0.00%
---------------- ---------------- ----------------
Total 279,717 406,218 403,049
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) 22,374 170,149 170,001
Average interest rate 2.04%
Borrowings
Fixed rate --- 91,472 91,445
Average interest rate 0.00%
Adjustable rate(11) 63,000 114,630 113,509
Average interest rate 5.67%
---------------- ---------------- ----------------
Total $85,374 $376,251 $374,955
(1) Net of undisbursed loan proceeds and does not include net deferred loan
fees or the allowance for loan losses.
(2) For single-family residential loans, assumes annual amortization and
prepayment rate at 18% for adjustable rate loans, and 8% to 38% for fixed
rate loans. For multi-family residential loans and other loans, assumes
amortization and prepayment rate of 12%.
(3) For second mortgage loans, assumes annual amortization and prepayment rate
of 18%.
(4) Consumer loans assumes amortization and prepayment rate of 13%.
(5) Substantially all of the Company's adjustable rate loans reprice on an
annual basis based upon changes in the one-year constant maturity treasury
index with various market based annual and lifetime interest rate caps and
floors.
(6) Substantially all of the Company's adjustable rate mortgage-backed
securities reprice on a monthly basis based upon changes in the one month
LIBOR index with various lifetime caps and floors.
(7) Totals include the Company's investment in Federal Home Loan Bank stock.
(8) For regular savings accounts, assumes an annual decay rate of 17% for three
years or less, 16% for more than three through five years and 14% for more
than five years.
(9) For NOW accounts, assumes an annual decay rate of 37% for one year or less,
32% for more than one through three years and 17% for more than three
years.
(10) For money market deposit accounts, assumes an annual decay rate of 79% for
one year or less and 31% for more than one year.
(11) Includes a $50 million FHLB advance that reprices monthly based upon
changes in the one month LIBOR index.
17
The table below provides information about the Company's anticipated
transactions comprised of firm loan commitments and other commitments, including
undisbursed letters and lines of credit. The Company used no derivative
financial instruments to hedge such anticipated transactions as of September 30,
2000.
Anticipated Transactions
- -----------------------------------------------------
Undisbursed construction and
land development loans
Fixed rate $9,511
8.54%
Adjustable rate $9,585
10.01%
Undisbursed lines of credit
Adjustable rate $10,665
9.36%
Loan origination commitments
Fixed rate $2,243
8.90%
Adjustable rate $50
8.40%
Letters of credit
Adjustable rate $236
11.16%
--------
$32,290
18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
The Company is involved with various legal actions arising in the
ordinary course of business. Management believes the outcome of
these matters will have no material effect on the consolidated
operations or consolidated financial condition of WVS Financial
Corp.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
ITEM 5. Other Information
-----------------
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibit is filed as part of this Form 10-Q, and this
list includes the Exhibit Index.
Number Description Page
------ ----------- ----
27 Financial Data Schedule E-1
99 Independent Accountant's Report E-2
19
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.
November 9, 2000 BY: /s/ David J. Bursic
Date ----------------------------------------------
David J. Bursic
President and Chief Executive Officer
(Principal Executive and Financial Officer)
November 9, 2000 BY: /s/ Keith A. Simpson
Date ----------------------------------------------
Keith A. Simpson
Controller
20