UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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.
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(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
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(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 February 8, 2001: 2,783,608 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 December 31, 2000
and June 30, 2000 (Unaudited) 3
Consolidated Statements of Income
for the Three and Six Months Ended
December 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
2000 and 1999 (Unaudited) 5
Consolidated Statements of Changes in
Stockholders' Equity for the Six Months
Ended December 31, 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 and Six Months
Ended December 31, 2000 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 16
PART II. Other Information Page
- -------- ----------------- ----
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
-- Signatures 22
2
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(In thousands)
December 31, 2000 June 30, 2000
----------------- ---------------
Assets
------
Cash and due from banks $ 920 $ 788
Interest-earning demand deposits 1,842 2,127
Investment securities available-for-sale (amortized cost of
$1,380 and $1,380) 1,337 1,296
Investment securities held-to-maturity (market value of
$139,915 and $129,272) 140,447 136,206
Mortgage-backed securities available-for-sale (amortized cost of
$9,431 and $10,150) 9,537 9,936
Mortgage-backed securities held-to-maturity (market value of
$60,985 and $61,943) 60,837 63,737
Federal Home Loan Bank stock, at cost 8,882 5,225
Net loans receivable (allowance for loan losses of $1,985
and $1,973) 184,603 183,295
Accrued interest receivable 4,612 4,375
Premises and equipment 1,012 1,050
Deferred taxes and other assets 1,202 1,583
--------- ---------
TOTAL ASSETS $ 415,231 $ 409,618
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 11,928 $ 10,485
NOW accounts 17,849 18,158
Savings accounts 34,802 36,995
Money market accounts 12,488 12,802
Certificates of deposit 92,405 91,068
--------- ---------
Total savings deposits 169,472 169,508
Federal Home Loan Bank advances 176,780 104,500
Other borrowings 32,803 101,025
Advance payments by borrowers for taxes and insurance 2,201 3,350
Accrued interest payable 4,889 2,704
Other liabilities 1,837 1,620
--------- ---------
TOTAL LIABILITIES 387,982 382,707
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: 911,572 and 808,444 shares at cost, respectively (13,030) (11,770)
Retained earnings, substantially restricted 20,805 19,513
Accumulated other comprehensive gain (loss) 42 (197)
Unallocated shares - Recognition and Retention Plans (174) (220)
Unallocated shares - Employee Stock Ownership Plan -- --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 27,249 26,911
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 415,231 $ 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 Six Months Ended
December 31, December 31,
--------------------------------- ----------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME:
Loans $ 3,662 $ 3,481 $ 7,363 $ 6,897
Investment securities 2,446 1,992 4,860 3,845
Mortgage-backed securities 1,260 1,311 2,549 2,527
Interest-earning deposits with other
institutions 13 13 22 20
Federal Home Loan Bank stock 137 134 241 251
------------ ------------ ------------ ------------
Total interest and dividend income 7,518 6,931 15,035 13,540
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits 1,717 1,555 3,390 3,138
Borrowings 3,280 2,504 6,588 4,684
Advance payments by borrowers for taxes
and insurance 8 8 14 14
------------ ------------ ------------ ------------
Total interest expense 5,005 4,067 9,992 7,836
------------ ------------ ------------ ------------
NET INTEREST INCOME 2,513 2,864 5,043 5,704
PROVISION FOR LOAN LOSSES --- --- --- ---
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,513 2,864 5,043 5,704
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Service charges on deposits 100 72 191 148
Other 85 72 168 131
------------ ------------ ------------ ------------
Total non-interest income 185 144 359 279
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 621 804 1,230 1,560
Occupancy and equipment 96 87 183 178
Deposit insurance premium 9 26 18 51
Data processing 36 45 94 88
Correspondent bank service charges 36 36 74 71
Other 208 205 364 366
------------ ------------ ------------ ------------
Total non-interest expense 1,006 1,203 1,963 2,314
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,692 1,805 3,439 3,669
INCOME TAXES 591 625 1,238 1,352
------------ ------------ ------------ ------------
NET INCOME $ 1,101 $ 1,180 $ 2,201 $ 2,317
============== ============== ============= =============
EARNINGS PER SHARE:
Basic $0.39 $0.40 $0.78 $0.77
Diluted $0.39 $0.39 $0.78 $0.76
AVERAGE SHARES OUTSTANDING:
Basic 2,814,033 2,977,411 2,816,167 3,016,909
Diluted 2,829,455 3,004,701 2,831,621 3,044,478
See accompanying notes to consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
December 31,
-------------------------
2000 1999
---- ----
OPERATING ACTIVITIES
Net income $ 2,201 $ 2,317
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization, net 56 58
Amortization of discounts, premiums and deferred loan fees (113) (32)
Amortization of ESOP, RRP and deferred and unearned
compensation 46 280
Increase in accrued interest receivable (237) (671)
Increase in accrued interest payable 2,185 416
Increase (decrease) in accrued and deferred taxes 199 (84)
Other, net 276 (6)
-------- --------
Net cash provided by operating activities 4,613 2,278
-------- --------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities -- (1,351)
Proceeds from repayments of investments and mortgage-backed securities 721 1,375
Held-to-maturity:
Purchases of investments and mortgage-backed securities (10,617) (33,464)
Proceeds from repayments of investments and mortgage-backed securities 9,489 10,001
Increase in net loans receivable (1,409) (6,008)
Increase in FHLB stock (3,657) (1,710)
Purchases of premises and equipment (18) (6)
Other, net -- (21)
-------- --------
Net cash used for investing activities (5,491) (31,184)
-------- --------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months
Ended December 31,
-----------------------------
2000 1999
---- ----
FINANCING ACTIVITIES
Net decrease in transaction and passbook accounts (1,373) (219)
Net increase(decrease) in certificates of deposit 1,337 (2,337)
Net increase in FHLB borrowings 72,280 12,100
Net (decrease)increase in other borrowings (68,222) 24,385
Net decrease in advance payments by borrowers for taxes and insurance (1,149) (970)
Net proceeds from issuance of common stock 21 1
Funds used for purchase of treasury stock (1,260) (2,898)
Cash dividends paid (909) (967)
-------- --------
Net cash provided by financing activities 725 29,095
-------- --------
(Decrease)increase in cash and cash equivalents (153) 189
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,915 1,893
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 2,762 $ 2,082
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 7,807 $ 7,420
Income taxes $ 933 $ 1,366
See accompanying notes to consolidated financial statements.
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Accum.
Other
Compre- Retained
Add'l. Unallocated Unallocated hensive Earnings
Common Paid-In Treasury Shares Held Shares Held Income Substantially
Stock Capital Stock by ESOP by RRP (Loss) Restricted Total
----- ------- ----- ------- ------ ------ ---------- -----
Balance at June 30, 2000 $ 37 $19,548 $(11,770) $ --- $ (220) $ (197) $19,513 $26,911
Comprehensive income:
Net Income 2,201 2,201
Other comprehensive
income:
Change in unrealized
holding losses on
securities, net of
income tax benefit
of $123 239 239
--------
Comprehensive income 2,440
Purchase of shares for
treasury stock (1,260) (1,260)
Release of earned
Employee Stock
Ownership Plan (ESOP)
shares --- --- ---
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 46 46
Exercise of stock options 21 21
Cash dividends declared
($0.32 per share) (909) (909)
------- ------- -------- ------ ------ ------ ------- -------
Balance at Dec. 31, 2000 $ 37 $19,569 $(13,030) $ --- $ (174) $ 42 $20,805 $27,249
======= ======= ======== ====== ====== ====== ======= =======
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 and six months ended December 31, 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 Six Months Ended
December 31, December 31,
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 3,689,480 3,668,220 3,668,779 3,668,165
Average treasury stock shares (875,447) (653,964) (852,612) (610,379)
Average unearned ESOP shares -- (36,845) -- (40,877)
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate basic earnings
per share 2,814,033 2,977,411 2,816,167 3,016,909
Additional common stock
equivalents (stock options) used
to calculate diluted earnings per
share 15,422 27,290 15,454 27,569
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate diluted earnings
per share 2,829,455 3,004,701 2,831,621 3,044,478
=========== =========== =========== ===========
Net income $ 1,100,552 $ 1,180,008 $ 2,201,024 $ 2,316,869
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.39 $ 0.40 $ 0.78 $ 0.77
Diluted $ 0.39 $ 0.39 $ 0.78 $ 0.76
=========== =========== =========== ===========
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 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 December 31, 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,
maintaining asset quality and generating consistent earnings growth.
10
FINANCIAL CONDITION
The Company's assets totaled $415.2 million at December 31, 2000, as
compared to $409.6 million at June 30, 2000. The $5.6 million or 1.4% increase
in total assets was primarily comprised of a $7.9 million or 5.6% increase in
investment securities, including Federal Home Loan Bank ("FHLB") stock, and a
$1.3 million or 0.7% increase in net loans receivable, which were partially
offset by a $3.3 million or 4.5% decrease in mortgage-backed securities. The
Company's investment securities increased due to increased purchases of bank
qualified municipal bonds. The Company's mortgage-backed securities decreased
due to principal amortization.
The Company's total liabilities increased $5.3 million or 1.4% to
$388.0 million as of December 31, 2000, from $382.7 million as of June 30, 2000.
The $5.3 million increase in total liabilities was primarily comprised of a
$72.3 million or 69.2% increase in FHLB advances and a $2.2 million or 80.8%
increase in accrued interest payable which were partially offset by a $68.2
million or 67.5% decrease in other borrowings and a $1.1 million decrease in
advance payments by borrowers for taxes and insurance. The Company utilized both
short-term and intermediate-term FHLB advances to reduce short-term borrowings
during the quarter ended December 31, 2000.
Total stockholders' equity increased $338 thousand or 1.3% to $27.2
million as of December 31, 2000, from $26.9 million as of June 30, 2000. Capital
expenditures for the Company's stock repurchase program and cash dividends
totaled $1.3 million and $909 thousand, respectively, which were primarily
funded by Company net income of $2.2 million for the six months ended December
31, 2000.
11
RESULTS OF OPERATIONS
General. WVS reported net income of $1.1 million, or $0.39 diluted
earnings per share, and $2.2 million, or $0.78 diluted earnings per share, for
the three and six months ended December 31, 2000, respectively. For the three
months ended December 31, 2000, net income decreased by $79 thousand or 6.7% and
diluted earnings per share remained the same when compared to the same period in
1999. The decrease was primarily attributable to a $351 thousand decrease in net
interest income which was partially offset by a $197 thousand decrease in
non-interest expense, a $41 thousand increase in non-interest income and a $34
thousand decrease in income tax expense. For the six months ended December 31,
2000, net income decreased by $116 thousand or 5.0% and diluted earnings per
share increased $0.02 or 2.6% when compared to the same period in 1999. The
decrease was principally the result of a $661 thousand decrease in net interest
income, which was partially offset by a $351 thousand decrease in non-interest
expense, a $114 thousand decrease in income tax expense, and a $80 thousand
increase in non-interest income.
Net Interest Income. The Company's net interest income decreased
by $351 thousand or 12.3% for the three months ended December 31, 2000, when
compared to the same period in 1999. For the six months ended December 31, 2000,
net interest income decreased by $661 thousand or 11.6%, when compared to the
same period in 1999. Both decreases were principally attributable to increased
wholesale borrowing costs due to increases in both the volume and rates paid on
borrowings which was partially offset by increases in interest income associated
with the Company's investment, mortgage-backed securities and loan portfolios.
Interest Income. Interest and dividend income on interest-bearing
deposits with other institutions, investment securities and FHLB stock ("other
investment securities") increased by $457 thousand or 21.4% for the three months
ended December 31, 2000, when compared to the same period in 1999. The increase
was primarily attributable to a $27.6 million increase in the average balance of
investment securities outstanding and a 15 basis point increase in the weighted
average yield earned on investment securities for the three months ended
December 31, 2000, when compared to the same period in 1999. Interest on other
investment securities increased $1.0 million or 24.5% for the six months ended
December 31, 2000, when compared to the same period in 1999. The increase in
interest income on investment securities was attributable to a $28.7 million
increase in the average balance of investment securities outstanding and a 26
basis point increase in the weighted average yield earned on investment
securities for the six months ended December 31, 2000, when compared to the same
period in 1999. The increases in the average balance of investment securities
during both the three and six month periods ended December 31, 2000, were
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 and six months ended
December 31, 2000.
Interest on net loans receivable increased by $181 thousand or
5.2% for the three months ended December 31, 2000, when compared to the same
period in 1999. The increase was attributable to an increase of $11.4 million in
the average balance of net loans receivable outstanding, which was partially
offset by a decrease of 10 basis points in the weighted average yield earned on
net loans receivable for the three months ended December 31, 2000, when compared
to the same period in 1999. Interest on net loans receivable increased by $466
thousand or 6.8% for the six months ended December 31, 2000, when compared to
the same period in 1999. The increase was attributable to a $11.3 million
increase in the average balance of outstanding loans, and a 2 basis point
increase in the weighted average yield earned on outstanding loans for the six
months ended December 31, 2000. The increases in the average loan balance
outstanding for the three and six months ended December 31, 2000, were 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 continued to be impacted by $3.8 million of
previously disclosed in prior filings nonaccrual real estate loans to a
retirement village.
12
Interest on mortgage-backed securities decreased by $51 thousand
or 3.9% for the three months ended December 31, 2000, when compared to the same
period in 1999. The decrease was attributable to a $5.1 million decrease in the
average balance of mortgage-backed securities, which was partially offset by a
21 basis point increase in the weighted average yield earned on mortgage-backed
securities for the three months ended December 31, 2000, when compared to the
same period in 1999. Interest on mortgage-backed securities increased $22
thousand or 0.9% for the six months ended December 31, 2000. The increase was
primarily attributable to a 32 basis point increase in the weighted average
yield earned on mortgage-backed securities which was partially offset by a $2.8
million decrease in the average balance of mortgage-backed securities
outstanding for the six months ended December 31, 2000, when compared to the
same period in 1999.
Interest Expense. Interest expense on deposits and escrows
increased by $162 thousand or 10.4% and by $252 thousand or 8.0% for the three
and six months ended December 31, 2000, respectively, when compared to the same
periods in 1999. The increase in interest expense on deposits and escrows was
principally attributable to a 39 basis point increase in the average yield paid
on deposits and escrows, and a $473 thousand increase in the average balance of
interest-bearing deposits and escrows for the three months ended December 31,
2000, when compared to the same period in 1999. For the six months ended
December 31, 2000, the increase in interest expense on deposits and escrows was
primarily attributable to a 37 basis point increase in the average yield paid on
deposits and escrows which was partially offset by a $2.1 million decrease in
the average balance of interest-bearing deposits and escrows. 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 $776 thousand and $1.9 million for the three and six months ended December
31, 2000, respectively, when compared to the same periods in 1999. The increases
were primarily attributable to $29.0 million or 16.3% and $35.6 million or 21.0%
increases in the average balance of such borrowings outstanding, and 71 and 89
basis point increases in the weighted average rate paid on such borrowings for
the three and six months ended December 31, 2000, respectively. The increased
amount of FHLB advances outstanding was used to fund the repayment of other
short-term borrowings, 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 and six months ended December 31, 2000, respectively. At
both December 31, 2000 and June 30, 2000, the Company's total allowance for loan
losses amounted to $2.0 million or 1.0% of the Company's total loan portfolio.
Non-Interest Income. Total non-interest income increased by $41
thousand and $80 thousand for the three and six months ended December 31, 2000,
respectively, when compared to the same periods in 1999. The increase in
non-interest income for the three months ended December 31, 2000, was primarily
attributable to a $28 thousand increase in service charges on deposits and a $13
thousand increase in other income, including ATM fee and loan late charge income
during the three months ended December 31, 2000. The increase in non-interest
income for the six months ended December 31, 2000, was principally attributable
to a $43 thousand increase in service charges on deposits and a $37 thousand
increase in other income including ATM fee and loan late charge income.
Non-Interest Expense. Total non-interest expense decreased $197
thousand or 16.4% and $351 thousand or 15.2% for the three and six months ended
December 31, 2000, respectively, when compared to the same periods in 1999.
13
Compensation and employee benefits expense decreased $183 thousand
or 22.8% and $330 thousand or 21.2% for the three and six months ended December
31, 2000, respectively, when compared to the same periods in 1999. The decreases
for the three and six months ended December 31, 2000 were primarily attributable
to the absence of employee stock ownership plan amortization expenses recorded
in the 1999 periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $4.6 million
during the six months ended December 31, 2000. Net cash provided by operating
activities was primarily comprised of the $2.2 million of net income, and a $2.2
million increase in interest payable.
Funds used by investing activities totaled $5.5 million during the
six months ended December 31, 2000. Primary uses of funds during the six months
ended December 31, 2000, included $14.3 million for purchases of investment and
mortgage-backed securities and a $1.4 million increase in net loans receivable
which were partially offset by $10.2 million of proceeds from repayments of
investment and mortgage-backed securities.
Funds provided by financing activities totaled $725 thousand for the
six months ended December 31, 2000. The primary financial source included a
$72.3 million increase in FHLB advances, which were partially offset by a $68.2
million decrease in other borrowings, $1.3 million in purchases of treasury
stock, a $1.1 million decrease in advance payments by borrowers for taxes and
insurance and $909 thousand of cash dividends paid on the Company's common
stock. During the six months ended December 31, 2000, the Company repurchased
103,128 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 December 31, 2000, the total approved loan commitments
outstanding amounted to $757 thousand. At the same date, commitments under
unused lines of credit amounted to $10.3 million and the unadvanced portion of
construction loans approximated $18.2 million. Certificates of deposit scheduled
to mature in one year or less at December 31, 2000, totaled $62.8 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 January 30, 2001, the Company's Board of Directors declared a
cash dividend of $0.16 per share payable February 15, 2001, to shareholders of
record at the close of business on February 5, 2001. 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 December 31, 2000, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$27.2 million or 14.1% and $29.2 million or 15.1%, respectively, of total
14
risk-weighted assets, and Tier I leverage capital of $27.2 million or 6.60% 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 December 31, 2000, totaled
approximately $4.1 million or 0.99% of total assets as compared to $4.1 million
or 1.00% of total assets as of June 30, 2000. Nonperforming assets at December
31, 2000, consisted of $3.9 million in commercial real estate loans, $127
thousand in consumer loans, and $81 thousand in single-family real estate loans.
During the quarter ended March 31, 2000, a commercial real estate loan
participation totaling $3.6 million was classified as nonaccrual. The
participation loan is secured by a first mortgage lien on real property located
in Allegheny County and the Company has commenced foreclosure and confession of
judgment actions. The Company continues to work with the borrower to work-out
this credit. Approximately $65 thousand of additional interest income would have
been recorded during the six months ended December 31, 2000, if the Company's
nonaccrual and restructured loans had been current in accordance with their
original loan terms and outstanding throughout the six months ended December 31,
2000.
15
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.
16
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 18.7% of total assets at December 31, 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 December 31, 2000, the Company's interest-earning assets
maturing or repricing within one year totaled $119.6 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$197.2 million, providing an excess of interest-earning liabilities over
interest-bearing assets of $77.6 million. At December 31, 2000, the percentage
of the Company's assets to liabilities maturing or repricing within one year was
60.6%. 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 six months ended December 31, 2000, the Company
decreased its mortgage-backed securities portfolio by $3.3 million or 4.48%. The
decrease for the six months was attributable to principal repayments. At
December 31, 2000, the Company held $70.4 million of mortgage-backed securities
with an approximate yield of 7.13%.
During the six months ended December 31, 2000, the Company borrowed
approximately $347.7 million in various advances from the FHLB with a weighted
average rate of 6.42% and incurred $303.5 million in other borrowings with a
weighted average rate of 6.57%. During the six months ended December 31, 2000,
the Company repaid $275.5 million of FHLB advances and $368.7 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.
17
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
December 31, 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 December 31, 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.
18
EXPECTED MATURITY DATE-QUARTER ENDED DECEMBER 31,
-------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
-------- -------- -------- -------- -------- -------- -------- --------
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $27,945 $17,505 $14,024 $13,530 $9,925 $59,541 $142,470 $150,343
Average interest rate 7.98% 7.66% 7.62% 7.61% 7.55% 7.48%
Adjustable rate 13,599 6,448 5,952 4,571 3,837 10,443 44,850 46,148
Average interest rate(5) 8.65% 8.40% 8.41% 8.42% 8.44% 8.30%
Mortgage-backed securities
Fixed rate --- 42 1,092 --- --- 53,113 54,247 54,289
Average interest rate 0.00% 6.75% 6.02% 0.00% 0.00% 6.94%
Adjustable rate --- --- --- --- --- 16,021 16,021 16,233
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 7.83%
Investments(7) 39,921 --- --- --- --- 110,788 150,709 150,134
Average interest rate 8.29% 0.00% 0.00% 0.00% 0.00% 7.63%
Interest-bearing deposits 2,762 --- --- --- --- --- 2,762 2,762
Average interest rate 5.70% 0.00% 0.00% 0.00% 0.00% 0.00%
-------- ------- ------- ------ ------- -------- -------- --------
Total 84,227 23,995 21,068 18,101 13,762 249,906 411,059 419,909
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) 92,585 20,667 20,667 7,755 7,755 22,244 171,673. 171,933
Average interest rate 4.71% 3.68% 3.68% 3.29% 3.29% 2.02%
Borrowings
Fixed rate 54,535 7,000 --- --- --- --- 61,535 61,590
Average interest rate 6.50% 6.66% 0.00% 0.00% 0.00% 0.00%
Adjustable rate(11) 50,048 --- --- --- --- 98,000 148,048 148,578
Average interest rate 6.59% 0.00% 0.00% 0.00% 0.00% 5.59%
-------- ------- ------- ------ ------- -------- -------- --------
Total $197,168 $27,667 $20,667 $7,755 $ 7,755 $120,244 $381,256 $382,101
(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 9% to 39% 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.
Amounts adjusted to reflect investment securities called through January
31, 2001 totaling approximately $16,176 and $13,483 expected to be called
by December 31, 2001.
(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.
19
The table below provides information about the Company's anticipated
transactions comprised of firm loan commitments and other commitments, including
undisbursed letters and lines of credit. The Company used no derivative
financial instruments to hedge such anticipated transactions as of December 31,
2000.
Anticipated Transactions
- ---------------------------------------------------------
Undisbursed construction and
land development loans
Fixed rate $8,445
8.59%
Adjustable rate $9,798
9.74%
Undisbursed lines of credit
Adjustable rate $10,305
9.37%
Loan origination commitments
Fixed rate $757
9.23%
Unfunded security commitments
Fixed rate (1) $1,427
7.54%
Letters of credit
Adjustable rate $232
12.50%
--------
$30,964
(1) Taxable equivalent yield.
20
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
---------------------------------------------------
(a) An annual meeting of stockholders was held on October 31,
2000.
(b) Not applicable.
(c) Two matters were voted upon at the annual stockholder meeting
held on October 31, 2000: Item 1: Proposal to elect two
directors for a four-year term or until their successors are
elected and qualified; Item 2: Proposal to ratify the
appointment by the Board of Directors of S.R. Snodgrass, A.C.
as the Company's independent auditors for the fiscal year
ending June 30, 2001.
Each of the two proposals received stockholder approval. The
voting record with respect to each item voted upon is
enumerated below:
Item Nominee
Number (if Applicable) For Against Abstain
------ --------------- --- ------- -------
1 David J. Bursic 2,406,556 50,434
Donald E. Hook 2,430,593 26,397
2 Election of Auditors 2,438,269 8,836 9,885
There were no broker non-votes cast with respect to any matter
voted upon.
(d) 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
------ ------------------------------- ----
99 Independent Accountant's Report E-1
(b) Not applicable.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
February 12, 2001 BY: /s/ David J. Bursic
-------------------------------------------
Date David J. Bursic
President and Chief Executive Officer
(Principal Executive and Financial Officer)
February 12, 2001 BY: /s/ Keith A. Simpson
-------------------------------------------
Date Keith A. Simpson
Controller
22