UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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 May 9, 2001: 2,764,906 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 March 31, 2001
and June 30, 2000 (Unaudited) 3
Consolidated Statements of Income
for the Three and Nine Months Ended
March 31, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31,
2001 and 2000 (Unaudited) 5
Consolidated Statements of Changes in
Stockholders' Equity for the Nine Months
Ended March 31, 2001 (Unaudited) 7
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Nine Months
Ended March 31, 2001 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 and Use of Proceeds 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
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(In thousands)
March 31, 2001 June 30, 2000
-------------- --------------
Assets
------
Cash and due from banks $ 664 $ 788
Interest-earning demand deposits 3,340 2,127
Investment securities available-for-sale (amortized cost of
$1,380 and $1,380) 1,389 1,296
Investment securities held-to-maturity (market value of
$119,528 and $129,272) 117,617 136,206
Mortgage-backed securities available-for-sale (amortized cost of
$8,982 and $10,150) 9,200 9,936
Mortgage-backed securities held-to-maturity (market value of
$59,914 and $61,943) 59,172 63,737
Federal Home Loan Bank stock, at cost 8,907 5,225
Net loans receivable (allowance for loan losses of $2,125
and $1,973) 184,934 183,295
Accrued interest receivable 2,955 4,375
Premises and equipment 985 1,050
Deferred taxes and other assets 1,128 1,583
--------- ---------
TOTAL ASSETS $ 390,291 $ 409,618
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 10,722 $ 10,485
NOW accounts 18,839 18,158
Savings accounts 34,848 36,995
Money market accounts 13,031 12,802
Certificates of deposit 97,024 91,068
--------- ---------
Total savings deposits 174,464 169,508
Federal Home Loan Bank advances 174,350 104,500
Other borrowings 6,529 101,025
Advance payments by borrowers for taxes and insurance 2,397 3,350
Accrued interest payable 2,350 2,704
Other liabilities 2,357 1,620
--------- ---------
TOTAL LIABILITIES 362,447 382,707
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;
3,702,930 and 3,685,280 shares issued 37 37
Additional paid-in capital 19,639 19,548
Treasury stock: 935,904 and 808,444 shares at cost, respectively (13,333) (11,770)
Retained earnings, substantially restricted 21,503 19,513
Accumulated other comprehensive gain (loss) 150 (197)
Unallocated shares - Recognition and Retention Plans (152) (220)
Unallocated shares - Employee Stock Ownership Plan -- --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 27,844 26,911
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 390,291 $ 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 Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME:
Loans $ 3,666 $ 3,421 $ 11,029 $ 10,318
Investment securities 2,212 2,215 7,072 6,060
Mortgage-backed securities 1,194 1,333 3,744 3,860
Interest-earning deposits with other
institutions 9 8 31 29
Federal Home Loan Bank stock 146 117 386 367
---------- ---------- ---------- ----------
Total interest and dividend income 7,227 7,094 22,262 20,634
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits 1,704 1,573 5,094 4,711
Borrowings 2,748 2,747 9,337 7,432
Advance payments by borrowers for taxes
and insurance 11 11 25 25
---------- ---------- ---------- ----------
Total interest expense 4,463 4,331 14,456 12,168
---------- ---------- ---------- ----------
NET INTEREST INCOME 2,764 2,763 7,806 8,466
PROVISION FOR LOAN LOSSES 150 -- 150 --
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,614 2,763 7,656 8,466
---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Service charges on deposits 86 69 278 218
Other 76 63 244 194
---------- ---------- ---------- ----------
Total non-interest income 162 132 522 412
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 637 676 1,867 2,236
Occupancy and equipment 94 88 277 266
Deposit insurance premium 8 9 26 60
Data processing 46 44 140 132
Correspondent bank service charges 39 36 113 107
Other 165 188 529 553
---------- ---------- ---------- ----------
Total non-interest expense 989 1,041 2,952 3,354
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,787 1,854 5,226 5,524
INCOME TAXES 643 723 1,881 2,076
---------- ---------- ---------- ----------
NET INCOME $ 1,144 $ 1,131 $ 3,345 $ 3,448
========== ========== ========== ==========
EARNINGS PER SHARE:
Basic $ 0.41 $ 0.39 $ 1.19 $ 1.16
Diluted $ 0.41 $ 0.39 $ 1.18 $ 1.15
AVERAGE SHARES OUTSTANDING:
Basic 2,778,839 2,915,300 2,817,336 2,983,285
Diluted 2,787,946 2,936,508 2,830,674 3,008,733
See accompanying notes to consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
----------------------
2001 2000
---- ----
OPERATING ACTIVITIES
Net income $ 3,345 $ 3,448
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for loan losses 150 --
Depreciation and amortization, net 83 87
Amortization of discounts, premiums and deferred loan fees (181) (71)
Amortization of ESOP, RRP and deferred and unearned
compensation 68 355
Decrease (increase) in accrued interest receivable 1,420 (183)
Decrease in accrued interest payable (354) (138)
Increase in accrued and deferred taxes 953 548
Other, net 58 (40)
-------- --------
Net cash provided by operating activities 5,542 4,006
-------- --------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities -- (2,932)
Proceeds from repayments of investments and mortgage-backed securities 1,170 1,618
Held-to-maturity:
Purchases of investments and mortgage-backed securities (22,856) (53,880)
Proceeds from repayments of investments and mortgage-backed securities 46,337 11,345
Increase in net loans receivable (1,934) (8,820)
(Increase) decrease in FHLB stock (3,682) 1,576
Purchases of premises and equipment (18) (10)
Other, net -- (17)
-------- --------
Net cash provided by (used for) investing activities 19,017 (51,120)
-------- --------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
-----------------
2001 2000
---- ----
FINANCING ACTIVITIES
Net (decrease) increase in transaction and passbook accounts (1,000) 2,341
Net increase (decrease) in certificates of deposit 5,956 (2,158)
Net increase (decrease) in FHLB borrowings 69,850 (24,516)
Net (decrease) increase in other borrowings (94,496) 77,431
Net decrease in advance payments by borrowers for taxes and insurance (953) (706)
Net proceeds from issuance of common stock 91 34
Funds used for purchase of treasury stock (1,563) (3,814)
Cash dividends paid (1,355) (1,435)
-------- --------
Net cash (used for) provided by financing activities (23,470) 47,177
-------- --------
Increase in cash and cash equivalents 1,089 63
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,915 1,893
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,004 $ 1,956
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 14,810 $ 12,306
Income taxes $ 1,106 $ 1,427
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 3,345 3,345
Other comprehensive
income:
Change in unrealized
holding losses on
securities, net of
income tax benefit of
$179 347 347
------
Comprehensive income 3,692
Purchase of shares for
treasury stock (1,563) (1,563)
Release of earned
Employee Stock
Ownership Plan (ESOP)
shares -- -- --
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 68 68
Exercise of stock options 91 91
Cash dividends declared
($0.48 per share) (1,355) (1,355)
------ ------- -------- ------- ------- -------- ------- -------
Balance at Mar. 31, 2001 $ 37 $19,639 $(13,333) $ -- $ (152) $ 150 $21,503 $27,844
====== ======= ======== ======= ======= ======== ======= =======
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 nine months ended March 31, 2001, are not
necessarily indicative of the results which may be expected for the
entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Financial Accounting Standards Board Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (Statement No.
133), as amended by Financial Accounting Standards Board Statement No.
138, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of Statement No. 133" (Statement No.
138), is effective in 2001, and requires measuring and recording the
change in fair value of derivative instruments. Statement No. 133 is
not expected to materially affect the Company's financial position or
results of operations.
In September 2000, the FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". The Statement replaces FASB Statement No. 125 and
provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings based on a control-oriented "Financial-components"
approach. Under this approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls
and liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when
extinguished. The provisions of Statement No. 140 are effective for
transactions occurring after March 31, 2001. This Statement is
effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. The adoption of the
provisions of Statement No. 140 is not expected to have a material
impact on financial position or results of operations.
8
3. EARNINGS PER SHARE
------------------
The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 3,698,581 3,670,583 3,691,998 3,668,965
Average treasury stock shares (919,742) (726,444) (874,662) (648,786)
Average unearned ESOP shares -- (28,839) -- (36,894)
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate basic earnings
per share 2,778,839 2,915,300 2,817,336 2,983,285
Additional common stock
equivalents (stock options) used
to calculate diluted earnings per
share 9,107 21,208 13,338 25,448
----------- ----------- ----------- -----------
Weighted average common shares
and common stock equivalents
used to calculate diluted earnings
per share 2,787,946 2,936,508 2,830,674 3,008,733
=========== =========== =========== ===========
Net income $ 1,143,570 $ 1,131,119 $ 3,344,595 $ 3,447,987
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.41 $ 0.39 $ 1.19 $ 1.16
Diluted $ 0.41 $ 0.39 $ 1.18 $ 1.15
=========== =========== =========== ===========
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2001
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 March 31, 2001.
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 $390.3 million at March 31, 2001, as
compared to $409.6 million at June 30, 2000. The $19.3 million or 4.7% decrease
in total assets was primarily comprised of a $14.8 million or 10.4% decrease in
investment securities, including Federal Home Loan Bank ("FHLB") stock, a $5.3
million or 7.2% decrease in mortgage-backed securities, and a $1.4 million or
32.5% decrease in accrued interest receivable, which were partially offset by a
$1.6 million or 0.9% increase in net loans receivable. The Company's investment
securities decreased due to calls of callable investment securities. The
Company's mortgage-backed securities decreased due to principal amortization.
The Company's total liabilities decreased $20.3 million or 5.3%
to $362.4 million as of March 31, 2001, from $382.7 million as of June 30, 2000.
The $20.3 million decrease in total liabilities was primarily comprised of a
$94.5 million or 93.6% decrease in other borrowings (primarily broker repurchase
agreements) which was partially offset by a $69.9 million or 66.8% increase in
FHLB advances and a $5.0 million or 2.9% increase in savings deposits. The
Company utilized both short-term and intermediate-term FHLB advances and
proceeds from called investment securities to reduce short-term borrowings
during the quarter ended March 31, 2001.
Total stockholders' equity increased $933 thousand or 3.5% to
$27.8 million as of March 31, 2001, from $26.9 million as of June 30, 2000.
Capital expenditures for the Company's stock repurchase program and cash
dividends totaled $1.6 million and $1.4 million, respectively, which were
primarily funded by Company net income of $3.3 million for the nine months ended
March 31, 2001.
11
RESULTS OF OPERATIONS
General. WVS reported net income of $1.1 million, or $0.41
diluted earnings per share, and $3.3 million, or $1.18 diluted earnings per
share, for the three and nine months ended March 31, 2001, respectively. For the
three months ended March 31, 2001, net income increased by $13 thousand or 1.1%
and diluted earnings per share increased $0.02 or 5.1% when compared to the same
period in 2000. The increase in net income was primarily attributable to a $80
thousand decrease in income tax expense, a $52 thousand decrease in non-interest
expense and a $30 thousand increase in non-interest income, which were partially
offset by a $150 thousand provision for loan losses. For the nine months ended
March 31, 2001, net income decreased by $103 thousand or 3.0% and diluted
earnings per share increased $0.03 or 2.6% when compared to the same period in
2000. The decrease was principally the result of a $660 thousand decrease in net
interest income and a $150 thousand increase in the provision for loan losses,
which were partially offset by a $402 thousand decrease in non-interest expense,
a $195 thousand decrease in income tax expense, and a $110 thousand increase in
non-interest income.
Net Interest Income. The Company's net interest income
increased by $1 thousand for the three months ended March 31, 2001, when
compared to the same period in 2000. For the nine months ended March 31, 2001,
net interest income decreased by $660 thousand or 7.8%, when compared to the
same period in 2000. The nine month decrease was 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 $27 thousand or 1.2% for
the three months ended March 31, 2001, when compared to the same period in 2000.
The increase was primarily attributable to a $4.5 million increase in the
average balance of investment securities outstanding and a 12 basis point
increase in the weighted average yield earned on investment securities for the
three months ended March 31, 2001, when compared to the same period in 2000.
Interest on other investment securities increased $1.0 million or 15.4% for the
nine months ended March 31, 2001, when compared to the same period in 2000. The
increase in interest income on investment securities was attributable to a $20.6
million increase in the average balance of investment securities outstanding and
a 20 basis point increase in the weighted average yield earned on investment
securities for the nine months ended March 31, 2001, when compared to the same
period in 2000. The increases in the average balance of investment securities
during both the three and nine month periods ended March 31, 2001, 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 nine months ended
March 31, 2001.
Interest on net loans receivable increased by $245 thousand or
7.2% for the three months ended March 31, 2001, when compared to the same period
in 2000. The increase was attributable to an increase of $6.5 million in the
average balance of net loans receivable outstanding and an increase of 27 basis
points in the weighted average yield earned on net loans receivable for the
three months ended March 31, 2001, when compared to the same period in 2000.
Interest on net loans receivable increased by $711 thousand or 6.9% for the nine
months ended March 31, 2001, when compared to the same period in 2000. The
increase was attributable to a $9.7 million increase in the average balance of
outstanding loans, and a 10 basis point increase in the weighted average yield
earned on outstanding loans for the nine months ended March 31, 2001. The
increases in the average loan balance outstanding for the three and nine months
ended March 31, 2001 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 $3.6 million of previously disclosed nonaccrual real estate
loans to a retirement village.
12
Interest on mortgage-backed securities decreased by $139
thousand or 10.4% for the three months ended March 31, 2001, when compared to
the same period in 2000. The decrease was attributable to a $6.8 million
decrease in the average balance of mortgage-backed securities, and a 12 basis
point decrease in the weighted average yield earned on mortgage-backed
securities for the three months ended March 31, 2001, when compared to the same
period in 2000. Interest on mortgage-backed securities decreased $116 thousand
or 3.0% for the nine months ended March 31, 2001. The decrease was primarily
attributable to a $4.2 million decrease in the average balance of
mortgage-backed securities outstanding which was partially offset by an 18 basis
point increase in the weighted average yield earned on mortgage-backed
securities for the nine months ended March 31, 2001, when compared to the same
period in 2000.
Interest Expense. Interest expense on deposits and escrows
increased by $131 thousand or 8.3% and by $383 thousand or 8.1% for the three
and nine months ended March 31, 2001, respectively, when compared to the same
periods in 2000. The increase in interest expense on deposits and escrows was
principally attributable to a 31 basis point increase in the average yield paid
on deposits and escrows, and a $417 thousand increase in the average balance of
interest-bearing deposits and escrows for the three months ended March 31, 2001,
when compared to the same period in 2000. For the nine months ended March 31,
2001, the increase in interest expense on deposits and escrows was primarily
attributable to a 35 basis point increase in the average yield paid on deposits
and escrows which was partially offset by a $1.3 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 $1 thousand and $1.9 million for the three and nine months ended
March 31, 2001, respectively, when compared to the same periods in 2000. The
increase in interest expense on FHLB advances and other borrowings was
principally attributable to a 4 basis point increase in the average yield paid
on FHLB advances and other borrowings, which was mostly offset by a $1.2 million
decrease in the average balance of FHLB advances and other borrowings for the
three months ended March 31, 2001, when compared to the same period in 2000. For
the nine months ended March 31, 2001, the increase in interest expense on FHLB
advances and other borrowings was primarily attributable to a $23.3 million
increase in the average balance of FHLB advances and other borrowings, and a 62
basis point increase in the average yield paid on FHLB advances and other
borrowings. The increase in FHLB advances and other borrowings during the nine
months ended March 31, 2001, was primarily used to fund increases in the
Company's investment and loan portfolios.
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 recorded a $150 thousand pre-tax provision for loan
losses during the three months ended March 31, 2001 in connection with a
previously disclosed non-performing commercial loan and based upon comments
received in connection with the Bank's recent regulatory examination. The
Company believed that additional loan loss reserves were prudent at this time
due to the weakening national economy and the current work-out of this
particular credit.
Non-Interest Income. Total non-interest income increased by $30
thousand and $110 thousand for the three and nine months ended March 31, 2001,
respectively, when compared to the same periods in 2000. The increase in
non-interest income for the three months ended March 31, 2001, was primarily
attributable to a $17 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 March 31, 2001. The increase in non-interest
income for the nine months ended March 31, 2001, was principally attributable to
a $60 thousand increase in service charges on deposits and a $50 thousand
increase in other income including ATM fee and loan late charge income.
13
Non-Interest Expense. Total non-interest expense decreased $52
thousand or 5.0% and $402 thousand or 12.0% for the three and nine months ended
March 31, 2001, respectively, when compared to the same periods in 2000.
Compensation and employee benefits expense decreased $39
thousand or 5.8% and $369 thousand or 16.5% for the three and nine months ended
March 31, 2001, respectively, when compared to the same periods in 2000. The
decreases for the three and nine months ended March 31, 2001 were primarily
attributable to the absence of employee stock ownership plan amortization
expenses recorded in the 2000 periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $5.5 million
during the nine months ended March 31, 2001. Net cash provided by operating
activities was primarily comprised of the $3.3 million of net income, a $1.4
million decrease in accrued interest receivable and a $953 thousand increase in
accrued and deferred taxes.
Funds provided by investing activities totaled $19.0 million
during the nine months ended March 31, 2001. Primary sources of funds during the
nine months ended March 31, 2001, included $47.5 million of proceeds from
repayments of investment and mortgage-backed securities, which was partially
offset by $22.9 million for purchases of investment and mortgage-backed
securities, a $3.7 million increase in FHLB stock, and a $1.9 million increase
in net loans receivable.
Funds used by financing activities totaled $23.5 million for the
nine months ended March 31, 2001. The primary uses of funds included a $94.5
million decrease in other borrowings, $1.6 million in purchases of treasury
stock and $1.4 million of cash dividends paid on the Company's common stock,
which were partially offset by a $69.8 million increase in FHLB advances, a $5.0
million increase in total savings deposits, and a $953 thousand decrease in
advance payments by borrowers for taxes and insurance. During the nine months
ended March 31, 2001, the Company repurchased 127,460 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 March 31, 2001, the total approved loan
commitments outstanding amounted to $495 thousand. At the same date, commitments
under unused lines of credit amounted to $7.8 million and the unadvanced portion
of construction loans approximated $15.8 million. Certificates of deposit
scheduled to mature in one year or less at March 31, 2001, totaled $69.6
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 April 24, 2001, the Company's Board of Directors declared a
cash dividend of $0.16 per share payable May 17, 2001, to shareholders of record
at the close of business on May 7, 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
14
fact be paid on the Common Stock or that, if paid, such dividends will not be
reduced or eliminated in future periods.
As of March 31, 2001, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$27.7 million or 14.6% and $29.8 million or 15.7%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $27.7 million or 6.93% of
average quarterly assets.
Nonperforming assets consist of nonaccrual loans and real estate
owned. A loan is placed on nonaccrual status when, in the judgment of
management, the probability of collection of interest is deemed insufficient to
warrant further accrual. When a loan is placed on nonaccrual status, previously
accrued but uncollected interest is deducted from interest income. The Company
normally does not accrue interest on loans past due 90 days or more, however,
interest may be accrued if management believes that it will collect on the loan.
The Company's nonperforming assets at March 31, 2001, totaled
approximately $4.1 million or 1.05% of total assets as compared to $4.1 million
or 1.00% of total assets as of June 30, 2000. Nonperforming assets at March 31,
2001, 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 $114 thousand of additional interest income would have been
recorded during the nine months ended March 31, 2001, if the Company's
nonaccrual and restructured loans had been current in accordance with their
original loan terms and outstanding throughout the nine months ended March 31,
2001.
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
16
asset/liability management technique is the monitoring of the Company's
asset/liability gap.
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 14.9% of total assets at March 31, 2001, 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 March 31, 2001, the Company's interest-earning assets maturing
or repricing within one year totaled $110.5 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$168.8 million, providing an excess of interest-earning liabilities over
interest-bearing assets of $58.3 million. At March 31, 2001, the percentage of
the Company's assets to liabilities maturing or repricing within one year was
65.5%. 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 nine months ended March 31, 2001, the Company
decreased its mortgage-backed securities portfolio by $5.3 million or 7.19%. The
decrease for the nine months was attributable to principal repayments. At March
31, 2001, the Company held $68.4 million of mortgage-backed securities with an
approximate yield of 6.79%.
During the nine months ended March 31, 2001, the Company borrowed
approximately $472.2 million in various advances from the FHLB with a weighted
average rate of 6.13% and incurred $341.2 million in other borrowings with a
weighted average rate of 6.49%. During the nine months ended March 31, 2001, the
Company repaid $402.4 million of FHLB advances and $435.7 million of other
borrowings.
In order to reduce the Company's interest rate sensitivity, the
Company began to extend the term structure of its borrowed funds. During the
quarter ended March 31, 2001, the Company repositioned approximately $14.0
million of short-term borrowings to longer-term FHLB advances with repricing
terms from three to five years.
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
17
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.
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
March 31, 2001, 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 March 31, 2001. 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 MARCH 31,
----------------------------------------------
There- Fair
2002 2003 2004 2005 2006 after Total Value
---- ---- ---- ---- ---- ---- ----- -----
ON-BALANCE SHEET FINANCIAL INSTRUMENTS (Dollars in thousands)
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $29,483 $17,735 $13,987 $13,499 $9,918 $59,216 $143,838 $153,193
Average interest rate 8.01% 7.67% 7.63% 7.63% 7.56% 7.49%
Adjustable rate 13,020 6,689 5,221 4,412 3,722 10,848 43,912 45,708
Average interest rate(5) 8.20% 8.44% 8.45% 8.46% 8.47% 8.30%
Mortgage-backed securities
Fixed rate 12 651 408 -- -- 51,094 52,165 52,889
Average interest rate 8.00% 5.97% 6.11% 0.00% 0.00% 6.93%
Adjustable rate -- -- -- -- -- 15,989 15,989 16,225
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 6.39%
Investments(7)
Fixed rate 19,622 7,616 -- -- -- 97,782 125,020 126,946
Average interest rate 7.29% 8.23% 0.00% 0.00% 0.00% 7.64%
Adjustable rate -- -- -- -- -- 2,884 2,884 2,878
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 7.13%
Interest-bearing deposits 4,004 -- -- -- -- -- 4,004 4,004
Average interest rate 5.27% 0.00% 0.00% 0.00% 0.00% 0.00%
---------- --------- -------- -------- -------- -------- -------- --------
Total 66,141 32,691 19,616 17,911 13,640 237,813 387,812 401,843
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) 99,906 20,018 20,018 7,218 7,218 22,483 176,861 177,638
Average interest rate 4.64% 3.49% 3.49% 3.15% 3.15% 2.06%
Borrowings
Fixed rate 66,050 -- -- 4,000 5,000 103,000 178,050 179,871
Average interest rate 5.37% 0.00% 0.00% 5.43% 4.98% 5.56%
Adjustable rate 2,829 -- -- -- -- -- 2,829 2,829
Average interest rate 5.29% 0.00% 0.00% 0.00% 0.00% 0.00%
---------- --------- -------- -------- -------- -------- -------- --------
Total $168,785 $20,018 $20,018 $11,218 $12,218 $125,483 $357,740 $360,338
(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 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.
Amounts adjusted to reflect investment securities totaling approximately $15,600
expected to be called by December 31, 2003.
(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.
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
March 31, 2001.
Anticipated Transactions
------------------------------------------------------------------
(Dollars in thousands)
Undisbursed construction and
land development loans
Fixed rate $ 5,531
8.60%
Adjustable rate $10,261
9.23%
Undisbursed lines of credit
Adjustable rate $ 7,760
8.06%
Loan origination commitments
Fixed rate $ 412
8.06%
Adjustable rate $ 83
7.25%
Letters of credit
Adjustable rate $ 297
11.00%
--------
$24,344
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 and Use of Proceeds
-----------------------------------------
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
------ ----------- ----
99 Independent Accountant's Report E-1
(b) The Company filed a Current Report on Form 8-K, dated
March 22, 2001, reporting under Item 5 that the Company's
Board of Directors authorized the repurchase of up to
200,000 shares, or approximately 7.24% of the Company's
outstanding common stock. Repurchases are authorized to be
made during the next twelve months as market conditions
warrant. All repurchase shares will be held as treasury
stock and may be reserved for issuance pursuant to the
Company's stock benefit plans.
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.
May 10, 2001 BY:
-----------------------------------------------
Date David J. Bursic
President and Chief Executive Officer
(Principal Executive and Financial Officer)
May 10, 2001 BY:
-----------------------------------------------
Date Keith A. Simpson
Controller
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
May 10, 2001 BY: /s/ David J. Bursic
----------------------------------------------
Date David J. Bursic
President and Chief Executive Officer
(Principal Executive and Financial Officer)
May 10, 2001 BY: /s/ Keith A. Simpson
----------------------------------------------
Date Keith A. Simpson
Controller