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, 2005
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-22444
WVS Financial Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(412) 364-1911
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12 b-2 of the Exchange Act).
YES |_| NO |X|
Shares outstanding as of May 13, 2005: 2,403,235 shares Common Stock, $.01
par value.
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
INDEX
-----
PART I. Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheet as of
March 31, 2005 and June 30, 2004
(Unaudited) 3
Consolidated Statement of Income
for the Three and Nine Months Ended
March 31, 2005 and 2004 (Unaudited) 4
Consolidated Statement of Cash Flows
for the Nine Months Ended March 31,
2005 and 2004 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months
Ended March 31, 2005 (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, 2005 12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 18
Item 4. Controls and Procedures 24
PART II. Other Information Page
- -------- ----------------- ----
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits 26
Signatures 27
2
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
March 31, 2005 June 30, 2004
-------------- -------------
Assets
------
Cash and due from banks $ 793 $ 769
Interest-earning demand deposits 2,994 2,285
------------ ------------
Total cash and cash equivalents 3,787 3,054
Trading assets -- 993
Investment securities available-for-sale (amortized cost of
$2,135 and $4,112) 2,124 4,416
Investment securities held-to-maturity (market value of
$225,154 and $271,104) 225,393 269,173
Mortgage-backed securities available-for-sale (amortized cost of
$2,929 and $3,234) 3,130 3,357
Mortgage-backed securities held-to-maturity (market value of
$118,646 and $72,100) 118,276 72,233
Net loans receivable (allowance for loan losses of $1,229 and
$1,370) 60,622 67,968
Federal Home Loan Bank stock, at cost 8,167 7,532
Accrued interest receivable 2,253 2,456
Premises and equipment 975 1,077
Other assets 1,211 1,365
------------ ------------
TOTAL ASSETS $ 425,938 $ 433,624
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 11,358 $ 10,996
NOW accounts 25,392 22,897
Savings accounts 44,592 45,837
Money market accounts 13,127 14,226
Certificates of deposit 65,168 65,362
Advance payments by borrowers for taxes and insurance 871 1,245
------------ ------------
Total savings deposits 160,508 160,563
Federal Home Loan Bank advances 163,336 149,736
Other borrowings 70,405 91,639
Accrued interest payable 1,270 1,197
Other liabilities 1,595 1,290
------------ ------------
TOTAL LIABILITIES $ 397,114 $ 404,425
Stockholders' equity:
Preferred stock:
5,000,000 shares, no par value per share, authorized; none
outstanding $ -- $ --
Common stock:
10,000,000 shares, $.01 par value per share, authorized;
3,762,743 and 3,762,968 shares issued 38 38
Additional paid-in capital 20,726 20,727
Treasury stock: 1,357,508 and 1,296,544 shares at cost,
Respectively (20,410) (19,377)
Retained earnings, substantially restricted 28,347 27,535
Accumulated other comprehensive income 126 281
Unreleased shares - Recognition and Retention Plans (3) (5)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 28,824 $ 29,199
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 425,938 $ 433,624
============ ============
See accompanying notes to unaudited consolidated financial statements.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- ------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME:
Loans $ 1,029 $ 1,205 $ 3,181 $ 4,063
Investment securities 2,347 2,287 7,299 5,929
Mortgage-backed securities 1,085 540 2,738 1,739
Interest-earning deposits with other
institutions 2 1 6 7
Federal Home Loan Bank stock 46 34 120 95
------------ ------------ ------------ ------------
Total interest and dividend income 4,509 4,067 13,344 11,833
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits 559 548 1,601 1,813
Federal Home Loan Bank advances 2,010 2,017 6,109 6,101
Other borrowings 449 151 1,037 331
------------ ------------ ------------ ------------
Total interest expense 3,018 2,716 8,747 8,245
------------ ------------ ------------ ------------
NET INTEREST INCOME 1,491 1,351 4,597 3,588
PROVISION (RECOVERY) FOR LOAN LOSSES (5) (14) 66 (771)
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
(RECOVERY) FOR LOAN LOSSES 1,496 1,365 4,531 4,359
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Service charges on deposits 88 91 273 289
Investment securities gains -- -- 335 --
Other 71 72 224 230
------------ ------------ ------------ ------------
Total non-interest income 159 163 832 519
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 505 494 1,504 1,511
Occupancy and equipment 109 112 328 322
Data processing 68 58 198 171
Correspondent bank service charges 32 32 100 108
Other 177 203 541 618
------------ ------------ ------------ ------------
Total non-interest expense 891 899 2,671 2,730
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 764 629 2,692 2,148
INCOME TAXES 200 165 705 562
------------ ------------ ------------ ------------
NET INCOME $ 564 $ 464 $ 1,987 $ 1,586
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.23 $ 0.18 $ 0.81 $ 0.62
Diluted $ 0.23 $ 0.18 $ 0.81 $ 0.62
AVERAGE SHARES OUTSTANDING:
Basic 2,430,679 2,525,612 2,443,163 2,553,860
Diluted 2,435,935 2,533,697 2,448,792 2,562,887
See accompanying notes to unaudited consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
-----------------------------
2005 2004
----------- -----------
OPERATING ACTIVITIES
Net income $ 1,987 $ 1,586
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for (recovery of) loan losses 66 (771)
Investment securities gains (335) --
Depreciation and amortization, net 144 141
Amortization of discounts, premiums and deferred loan fees (349) 1,052
Sale of trading securities 1,000 --
Decrease in accrued interest receivable 203 123
Increase (decrease) in accrued interest payable 73 (177)
Increase in accrued and deferred taxes 289 340
Other, net 253 (61)
----------- -----------
Net cash provided by operating activities 3,331 2,233
----------- -----------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities (17,418) (21,861)
Proceeds from repayments of investments and mortgage-backed securities 18,622 38,982
Proceeds from sale of investment securities 1,409 --
Held-to-maturity:
Purchases of investments and mortgage-backed securities (297,995) (302,413)
Proceeds from repayments of investments and mortgage-backed securities 296,127 230,043
Decrease in net loans receivable 7,232 21,348
Purchase of Federal Home Loan Bank stock (5,997) (1,390)
Redemption of Federal Home Loan Bank stock 5,362 1,635
Acquisition of premises and equipment (43) (25)
Other, net -- 523
----------- -----------
Net cash provided by (used for) investing activities 7,299 (33,158)
----------- -----------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
---------------------------
2005 2004
---------- ----------
FINANCING ACTIVITIES
Net (decrease) increase in transaction and passbook accounts 513 (1,341)
Net decrease in certificates of deposit (194) (13,658)
Net increase (decrease) in FHLB short-term advances 20,600 (3,875)
Net (decrease) increase in other borrowings (21,234) 53,265
Proceeds from FHLB long-term advances -- 500
Repayments of FHLB long-term advances (7,000) (279)
Net decrease in advance payments by borrowers for taxes and insurance (374) (662)
Net proceeds from issuance of common stock -- 490
Funds used for purchase of treasury stock (1,033) (2,046)
Cash dividends paid (1,175) (1,228)
---------- ----------
Net cash (used for) provided by financing activities (9,897) 31,166
---------- ----------
Increase in cash and cash equivalents 733 241
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,054 2,815
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,787 $ 3,056
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 8,674 $ 8,422
Income taxes $ 335 $ 550
Non-cash items:
Mortgage Loan Transferred to Other Assets $ -- $ 550
See accompanying notes to unaudited consolidated financial statements.
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Accumulated
Retained Other
Additional Earnings Unallocated Compre-
Common Paid-In Treasury Substantially Shares Held hensive
Stock Capital Stock Restricted by RRP Income Total
----- ------- ----- ---------- ------ ------ -----
Balance at June 30, 2004 $ 38 $ 20,727 $(19,377) $27,535 $ (5) $ 281 $29,199
Comprehensive income:
Net Income 1,987 1,987
Other comprehensive
income:
Change in unrealized
holding gains on
securities, net of
income tax effect of $80 (155) (155)
-------
Comprehensive income 1,832
Purchase of treasury stock (1,033) (1,033)
Accrued compensation
expense for Recognition
and Retention Plans (RRP) (1) 2 1
Exercise of stock options -- -- --
Cash dividends declared
($0.48 per share) (1,175) (1,175)
------- -------- -------- ------- ------- ------- -------
Balance at March 31, 2005 $ 38 $ 20,726 $(20,410) $28,347 $ (3) $ 126 $28,824
======= ======== ======== ======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
7
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
U.S. 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, 2005, are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In April 2005, the Securities and Exchange Commission adopted a new rule
that amends the compliance dates for Financial Accounting Standards Board's
("FASB") Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (FAS No. 123R). The Statement requires that compensation
cost relating to share-based payment transactions be recognized in financial
statements and that this cost be measured based on the fair value of the equity
or liability instruments issued. FAS No. 123 (Revised 2004) covers a wide range
of share-based compensation arrangements including share options, restricted
share plans, performance-based awards, share appreciation rights, and employee
share purchase plans. The Company will adopt FAS No. 123 (Revised 2004) on July
1, 2005 and is currently evaluating the impact the adoption of the standard will
have on the Company's results of operations.
In December 2004, FASB issued FAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29". The guidance in APB Opinion No.
29, "Accounting for Nonmonetary Transactions", is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. FAS No. 153 amends Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of FAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early
application is permitted and companies must apply the standard prospectively.
The adoption of this standard is not expected to have a material effect on the
Company's results of operations or financial position.
In March 2004, the Financial Accounting Standards Board ("FASB") reached
consensus on the guidance provided by Emerging Issues Task Force Issue 03-1
("EITF 03-1"), The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments. The guidance is applicable to debt and
equity securities that are within the scope of FASB Statement of Financial
Accounting Standard ("SFAS") No. 115, Accounting for Certain Investments In Debt
and Equity Securities and certain other investments. EITF 03-1 specifies that an
impairment would be considered other-than-temporary unless (a) the investor has
the ability and intent to hold an investment for a reasonable period of time
sufficient for the recovery of the fair value up to (or beyond) the cost of the
investment and (b) evidence indicating the cost of the investment is recoverable
within a reasonable period of time outweighs evidence to the contrary. EITF 03-1
cost method investment and disclosure provisions were effective for reporting
periods ending after June 15, 2004. The measurement and recognition provisions
relating to debt and equity securities have been delayed until the FASB issues
additional guidance. The Company adopted cost method investment and disclosure
provisions of EITF 03-1 on June 30, 2004. The adoption did not have a material
impact on the consolidated financial statements, results of operations or
liquidity of the Company.
8
In October 2003, the American Institute of Certified Public Accountants
issued SOP 03-3, "Accounting for Loans or Certain Debt Securities Acquired in a
Transfer." SOP 03-3 applies to a loan that is acquired where it is probable, at
acquisition, that a transferee will be unable to collect all contractually
required payments receivable. SOP 03-3 requires the recognition, as accretable
yield, the excess of all cash flows expected at acquisition over the investor's
Initial investment in the loan as interest income on a level-yield basis over
the life of the loan. The amount by which the loan's contractually required
payments exceed the amount of its expected cash flows at acquisition may not be
recognized as an adjustment to yield, a loss accrual or a valuation allowance
for credit risk. SOP 03-3 is effective for loans acquired in fiscal years
beginning after December 31, 2004. Early adoption is permitted. The adoption of
SOP 03-3 is not expected to have a material impact on the consolidated financial
statements.
9
3. EARNINGS PER SHARE
------------------
The following table sets forth the computation of the weighted-average
common shares used to calculate basic and diluted earnings per share.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Weighted average common shares
outstanding 3,762,891 3,757,062 3,762,943 3,742,789
Average treasury stock shares (1,332,212) (1,231,450) (1,319,780) (1,188,929)
------------ ------------ ------------ ------------
Weighted average common shares
and common stock equivalents
used to calculate basic earnings
per share 2,430,679 2,525,612 2,443,163 2,553,860
Additional common stock
equivalents (stock options) used
to calculate diluted earnings per
share 5,256 8,085 5,629 9,027
------------ ------------ ------------ ------------
Weighted average common shares
and common stock equivalents
used to calculate diluted earnings
per share 2,435,935 2,533,697 2,448,792 2,562,887
============ ============ ============ ============
All options at March 31, 2005 and March 31, 2004 were included in the
computation of diluted earnings per share.
4. STOCK BASED COMPENSATION DISCLOSURE
-----------------------------------
As permitted under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-based Compensation," the Company has elected to continue
following Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized in the Company's
financial statements. Had compensation expense included stock option plan costs
determined based on the fair value at the grant dates for options granted under
these plans consistent with Statement No. 123, pro forma net income and earnings
per share would not have been materially different than that presented on the
Consolidated Statement of Income.
10
5. COMPREHENSIVE INCOME
--------------------
Other comprehensive income primarily reflects changes in net unrealized
gains/losses on available-for-sale securities. Total comprehensive income is
summarized as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------------------------- ---------------------------------------------
2005 2004 2005 2004
----------------------- --------------------- --------------------- ---------------------
(Dollars in Thousands)
Net income $ 564 $ 464 $ 1,987 $ 1,586
Other comprehensive
income:
Unrealized gains on
available for sale
securities $ 76 $ 47 $ 100 $ 112
Less:
Reclassification
adjustment for gain
included in net
income -- -- (335) --
--------- --------- --------- --------- --------- --------- --------- ---------
Other comprehensive
(loss) income before tax 76 47 (235) 112
Income tax (benefit)
expense related to other
comprehensive income 26 16 (80) 38
--------- --------- --------- ---------
Other comprehensive
(loss) income, net of tax 50 31 (155) 74
--------- --------- --------- ---------
Comprehensive income $ 614 $ 495 $ 1,832 $ 1,660
========= ========= ========= =========
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2005
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to forward
looking statements to reflect events or circumstances after the date of
statements or to reflect the occurrence of anticipated or unanticipated events.
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company
of West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank converted to the stock form of ownership in
November 1993. The Savings Bank had no subsidiaries at March 31, 2005.
The operating results of the Company depend primarily upon its net
interest income, which is determined by the difference between income on
interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities,
which consist primarily of deposits and borrowings. The Company's net income is
also affected by its provision for loan losses, as well as the level of its
non-interest income, including loan fees and service charges, and its
non-interest expenses, such as compensation and employee benefits, income taxes,
deposit insurance and occupancy costs.
FINANCIAL CONDITION
The Company's assets totaled $425.9 million at March 31, 2005, as compared
to $433.6 million at June 30, 2004. The $7.7 million or 1.8% decrease in total
assets was primarily comprised of a $46.4 million or 16.5% decrease in
investment securities and FHLB stock, a $7.3 million or 10.8% decrease in net
loans receivable, and a $203 thousand or 8.3% decrease in accrued interest
receivable, which were partially offset by a $45.8 million or 60.6% increase in
mortgage-backed securities and a $733 thousand or 24.0% increase in cash and
cash equivalents. The decreases in investment securities and loans outstanding
were attributable to higher rates of repayments caused by changes in short,
intermediate and long-term market interest rates, the flattening of the Treasury
yield curve and continued high levels of interest rate volatility.
12
The increase in mortgage-backed securities is attributable to purchases of
floating rate collateralized mortgage obligations in response to increases in
short-term market interest rates. See "Asset and Liability Management".
The Company's total liabilities decreased $7.3 million or 1.8% to $397.1
million as of March 31, 2005, from $404.4 million as of June 30, 2004. The $7.3
million decrease in total liabilities was primarily comprised of a $21.2 million
or 23.2% decrease in other short-term borrowings and a $7.0 million or 4.7%
decrease in long-term FHLB advances, which were partially offset by a $20.6
million or 100.0% increase in short-term FHLB advances. Total deposits decreased
$55 thousand to $160.5 million as a result of the following: savings accounts
decreased $1.2 million, money market accounts decreased $1.1 million,
certificates of deposit decreased $194 thousand and advanced payments by
borrowers for taxes and insurance decreased $374 thousand, while demand deposits
increased $2.9 million.
Total stockholders' equity decreased $375 thousand or 1.3% to $28.8
million as of March 31, 2005, from approximately $29.2 million as of June 30,
2004. Company net income of $2.0 million was offset by cash dividends and
capital expenditures for the Company's stock repurchase program of $1.2 million
and $1.0 million, respectively, and accumulated other comprehensive income
decreased $155 thousand for the nine months ended March 31, 2005.
RESULTS OF OPERATIONS
General. WVS reported net income of $564 thousand or $0.23 diluted
earnings per share and $2.0 million or $0.81 diluted earnings per share for the
three and nine months ended March 31, 2005, respectively. Net income increased
by $100 thousand or 21.6% and diluted earnings per share increased $0.05 or
27.8% for the three months ended March 31, 2005, when compared to the same
period in 2004. The increase in net income was primarily attributable to a $140
thousand increase in net interest income and a $8 thousand decrease in
non-interest expense, which were partially offset by a $35 thousand increase in
income tax expense, a $9 thousand decrease in credit provision for loan losses
and a $4 thousand decrease in non-interest income. For the nine months ended
March 31, 2005, net income increased by $401 thousand or 25.3% and diluted
earnings per share increased $0.19 or 30.6% when compared to the same period in
2004. The increase for the nine month period was principally the result of a
$1.0 million increase in net interest income, a $313 thousand increase in
non-interest income and a $59 thousand decrease in non-interest expense, which
were partially offset by a $837 thousand change in the provision for loan losses
and a $143 thousand increase in income tax expense.
Net Interest Income. The Company's net interest income increased by $140
thousand or 10.4% for the three months ended March 31, 2005, when compared to
the same period in 2004. The increase in net interest income for the three month
period was principally attributable to higher yields earned on Company assets
due to higher levels of discount accretion on called U.S. Government Agency
bonds, lower levels of premium amortization on matured corporate bonds,
increases in short-term market interest rates, higher average balances of
mortgage-backed securities and lower average balances of time deposits, which
were partially offset by increased average balances of the Company's borrowings
outstanding, lower average balances of net loans receivable and investment
securities and higher rates paid on Company borrowings, time deposits and
money-market accounts. The Company continued to experience high levels of
repayments on its mortgage-backed securities portfolio due to refinancing
activities for the three months ended March 31, 2005. The Company's net interest
income increased $1.0 million or 28.1% for the nine months ended March 31, 2005.
The increase in net income for the nine months ended March 31, 2005 was
primarily attributable to higher yields earned on Company assets due to higher
levels of discount accretion on called U.S. Government Agency bonds, lower
levels of premium amortization on matured corporate bonds, increases in
short-term market interest rates, higher average balances of investment and
mortgage-backed securities, lower rates paid on NOW accounts, savings accounts
and Company borrowings and lower average balances of time deposits, which were
partially offset by higher average balances of Company borrowings outstanding
and lower average balances of net loans receivable.
13
Interest Income. Total interest and dividend income increased $442
thousand or 10.9% and $1.5 million or 12.8% for the three and nine months ended
March 31, 2005, respectively, when compared to the same periods in 2004.
Interest on mortgage-backed securities increased $545 thousand or 100.9%
for the three months ended March 31, 2005, when compared to the same period in
2004. The increase for the three months ended March 31, 2005 was primarily
attributable to a $35.0 million increase in the average balance of
mortgage-backed securities outstanding for the period and a 106 basis point
increase in the average yield earned on mortgage-backed securities for the three
months ended March 31, 2005 when compared to the same period in 2004. Interest
on mortgage-backed securities increased $999 thousand or 57.4% for the nine
months ended March 31, 2005, when compared to the same period in 2004. The
increases for the nine months ended March 31, 2005 was primarily attributable to
a 89 basis point increase in the average yield earned on mortgage-backed
securities and a $16.3 million increase in the average balance of
mortgage-backed securities outstanding for the nine months ended March 31, 2005
when compared to the same period in 2004. The increase in the weighted average
yield earned on mortgage-backed securities was consistent with market conditions
for the three and nine months ended March 31, 2005. The increase in the average
balances of mortgage-backed securities during the three and nine months ended
March 31, 2005 was primarily attributable to purchases of floating rate
mortgage-backed securities.
Interest and dividend income on interest-bearing deposits with other
institutions, investment securities and FHLB stock ("other investment
securities") increased by $73 thousand or 3.1% for the three months ended March
31, 2005 when compared to the same period in 2004. The increase was principally
attributable to a 24 basis point increase in the weighted average yield earned
on other investment securities which was partially offset by a $7.9 million
decrease in the average balance outstanding of other investment securities for
the three months ended March 31, 2005 when compared to the same period in 2004.
Interest and dividend income on other investment securities increased $1.4
million or 23.1% for the nine months ended March 31, 2005, when compared to the
same period in 2004. The increase for the nine months ended March 31, 2005 was
primarily attributable to a 48 basis point increase in the weighted average
yield earned on other investment securities outstanding and a $18.4 million
increase in the average balance of other investment securities outstanding for
the nine months ended March 31, 2005, when compared to the same period in 2004.
The increase in the weighted average yields earned for the three and nine months
ended March 31, 2005 were favorably impacted by decreased net amortization of
investment premiums of $259 thousand and $1.2 million respectively, when
compared to the same period in 2004.
Interest on net loans receivable decreased $176 thousand or 14.6% for the
three months ended March 31, 2005, when compared to the same period in 2004. The
decrease for the three months ended March 31, 2005 was attributable to a
decrease of $10.0 million in the average balance of net loans receivable
outstanding and a decrease of 6 basis points in the weighted average yield
earned on net loans receivable for the three months ended March 31, 2005, when
compared to the same period in 2004. Interest on net loans receivable decreased
$882 thousand or 21.7% for the nine months ended March 31, 2005, when compared
to the same period in 2004. The decrease for the nine months ended March 31,
2005 was attributable to a $14.3 million decrease in the average balance of net
loans receivable outstanding and a decrease of 30 basis points in the weighted
average yield earned on net loans receivable for the nine months ended March 31,
2005. The decrease in the average loan balance outstanding for the three and
nine months ended March 31, 2005 was primarily attributable to increased levels
of mortgage prepayments and refinancings due to lower market rates on mortgages.
As part of its asset/liability management strategy, the Company has limited its
portfolio origination of longer-term fixed rate loans to mitigate its exposure
to a rise in market interest rates. The Company will continue to originate
longer-term fixed rate loans for sale on a correspondent basis to increase
non-interest income and to contribute to net income.
Interest Expense. Total interest expense increased $302 thousand or 11.1%
and $502 thousand or 6.1% for the three and nine months ended March 31, 2005,
respectively, when compared to the same period in 2004.
Interest on FHLB advances and other borrowings increased $291 thousand or
13.4% for the three months ended March 31, 2005 when compared to the same period
in 2004. The increase for the three
14
months ended March 31, 2005 was attributable to a $20.0 million increase in the
average balance of FHLB advances and other borrowings for the period and a 14
basis point increase in the weighted average rate paid on such borrowings when
compared to the same period in 2004. The increase in the weighted average rate
paid was consistent with market conditions for the three months ended March 31,
2005. Interest on FHLB advances and other borrowings increased $714 thousand or
11.1% for the nine months ended March 31, 2005, when compared to the same period
in 2004. The increase for the nine months ended March 31, 2005 was attributable
to a $29.3 million increase in the average balance of FHLB advances and other
borrowings for the period which was partially offset by a 17 basis point
decrease in the weighted average rate paid on such borrowings when compared to
the same period in 2004. The weighted average rate paid on FHLB advances and
other borrowings declined due to the higher proportion of lower cost short-term
advances and borrowings to total Company borrowings for the nine months ended
March 31, 2005.
Interest expense on deposits and escrows increased $11 thousand or 2.0%
for the three months ended March 31, 2005 when compared to the same period in
2004. The increase in interest expense on deposits and escrows for the three
months ended March 31, 2005 was attributable to a 27 basis point increase in the
weighted average yield paid on money market and time deposits for the period,
which was partially offset by a $5.5 million decrease in the average balance of
time deposits for the three months ended March 31, 2005, when compared to the
same period in 2004. Interest expense on deposits and escrows decreased $212
thousand or 11.7% for the nine months ended March 31, 2005 when compared to the
same period in 2004. The decrease in interest expense on deposits and escrows
for the nine months ended March 31, 2005 was primarily attributable to a $7.3
million decrease in the average balance of interest-bearing deposits and escrows
for the period and a 8 basis point decrease in the weighted average yield paid
on interest-bearing deposit and escrows for the nine months ended March 31,
2005, when compared to the same period in 2004.
Provision for Loan Losses. A provision for loan losses is charged to
earnings to maintain the total allowance at a level considered adequate by
management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio considering past experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors.
The Company recorded a credit provision for loan losses of $5 thousand for
the three months ended March 31, 2005 compared to a $14 thousand credit
provision for the same period in 2004. For the nine months ended March 31, 2005,
the Company recorded a $66 thousand provision for loan losses compared to
recording a credit provision of $771 thousand for the same period in 2004. At
March 31, 2005, the Company's total allowance for loan losses amounted to $1.2
million or 2.0% of the Company's total loan portfolio, as compared to $1.4
million or 2.0% at June 30, 2004. The decrease in the total allowance for loan
losses is primarily the result of the Company charging off approximately $186
thousand of a commercial loan participation interest collateralized by a first
mortgage loan on a full-service hotel located within the Company's market area
during the quarter ended December 31, 2004. The Company took this charge-off due
to the sale of the loan by the lead lender over the Company's objection. The
Company is pursuing further recovery options with the lead lender which include
the filing of a civil complaint in April 2005.
Non-Interest Income. Non-interest income decreased $4 thousand or 2.5% and
increased $313 thousand or 60.3% for the three and nine months ended March 31,
2005, respectively, when compared to the same periods in 2004. The increase for
the nine month period was primarily attributable to pre-tax securities gains of
$335 thousand.
Non-Interest Expense. Non-interest expense decreased $8 thousand or 0.9%
and $59 thousand or 2.2% for the three and nine months ended March 31, 2005,
respectively, when compared to the same periods in 2004. The decrease for the
three months ended March 31, 2005 was primarily attributable to a $18 thousand
decrease in legal expenses and costs associated with the work-out of
non-performing assets and a $6 thousand decrease other real estate owned
expense, which were partially offset by a $11 thousand increase in payroll
related costs and $10 thousand increase in data processing expense. The decrease
for the nine months ended March 31, 2005 was primarily attributable to $60
thousand decrease in legal expenses and costs, a $8 thousand decrease in
correspondent bank service charges and a $7 thousand
15
decrease in payroll related costs which were partially offset by a $27 thousand
increase in data processing expense.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $3.3 million during the
nine months ended March 31, 2005. Net cash provided by operating activities was
primarily comprised of $2.0 million of net income, $1.0 million from the sale of
trading assets, a $289 thousand increase in accrued and deferred taxes and a
$203 thousand decrease in accrued interest receivables, which were partially
offset by $349 thousand in amortization / accretion of premiums / discounts on
investments, mortgage-backed securities and deferred loan fees and $335 thousand
of pre-tax gains on the sale of investments from the Company's investment
portfolio.
Funds provided by investing activities totaled $7.3 million during the
nine months ended March 31, 2005. Primary sources of funds during the nine
months ended March 31, 2005, included $320.1 million from repayments of
investment and mortgage-backed securities including Federal Home Loan Bank
stock, a $7.2 million decrease in net loans receivable and $1.4 million from the
sale of investments from the Company's investment portfolio, which were
partially offset by $321.4 million of purchases of investments and
mortgage-backed securities including Federal Home Loan Bank stock.
Funds used for financing activities totaled $9.9 million for the nine
months ended March 31, 2005. The primary uses included a $21.2 million decrease
in other short-term borrowings, a $7.0 million repayment of a long-term FHLB
advance, $1.2 million in cash dividends paid on the Company's common stock and
$1.0 million in purchased treasury stock, which were partially offset by a $20.6
million increase in short-term FHLB advances. Management believes that it
currently is maintaining adequate liquidity and continues to match funding
sources with lending and investment opportunities.
During the quarter ended March 31, 2005, the Company incurred $842.0
million in other short-term borrowings with a weighted average rate of 2.50% and
incurred approximately $33.3 million in various short-term borrowings from the
FHLB with a weighted average rate of 2.68%. During the three months ended March
31, 2005 the Company repaid $820.6 million of other short-term borrowings with
weighted average rates of 2.46%, $48.1 million of various short-term borrowings
from the FHLB with weighted average rates of 2.30% and $7.0 million of a
long-term borrowing from the FHLB with a rate of 2.86%.
The Company's primary sources of funds are deposits, amortization,
repayments and maturities of existing loans, mortgage-backed securities and
investment securities, funds from operations, and funds obtained through FHLB
advances and other borrowings. At March 31, 2005, the total approved loan
commitments outstanding amounted to $2.0 million. At the same date, commitments
under unused lines of credit amounted to $6.3 million and the unadvanced portion
of construction loans approximated $9.5 million. Certificates of deposit
scheduled to mature in one year or less at March 31, 2005 totaled $41.7 million.
Management believes that a significant portion of maturing deposits will remain
with the Company.
Historically, the Company used its sources of funds primarily to meet its
ongoing commitments to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain a substantial portfolio of
investment securities. The Company has been able to generate sufficient cash
through the retail deposit market, its traditional funding source, and through
FHLB advances and other borrowings, to provide the cash utilized in investing
activities. The Company also has access to the Federal Reserve Bank Primary
Credit Program. Management believes that the Company currently has adequate
liquidity available to respond to liquidity demands.
On April 26, 2005, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable May 19, 2005, to shareholders of record at
the close of business on May 9, 2005. 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.
16
There can be no assurance that dividends will in fact be paid on the Common
Stock in future periods or that, if paid, such dividends will not be reduced or
eliminated.
As of March 31, 2005, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier I and total risk-based capital equal to $28.7
million or 21.5% and $29.9 million or 22.4%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $28.7 million or 6.95% 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, 2005 totaled approximately
$1.2 million or 0.31% of total assets as compared to $828 thousand or 0.19% of
total assets at June 30, 2004. Nonperforming assets at March 31, 2005 consisted
of: one speculative construction loan totaling $454 thousand, one land loan
totaling $397 thousand, five single-family real estate loans totaling $240
thousand, one unsecured consumer loan totaling $62 thousand, one commercial loan
totaling $45 thousand and one home equity loan totaling $17 thousand.
The $376 thousand increase in nonperforming assets during the nine months
ended March 31, 2005 was primarily attributable to the addition to non-accrual
status of four mortgages secured by single-family real estate totaling
approximately $554 thousand and the addition of one home equity loan totaling
approximately $17 thousand which were partially offset by the payoff in full of:
two mortgages secured by single-family real estate totaling approximately $140
thousand, a $4 thousand loan secured by commercial real estate and principal
paydowns totaling approximately $49 thousand on two loans related to a
bankruptcy discussed below.
At March 31, 2005, the Company had one loan secured by undeveloped land
totaling $397 thousand and one unsecured loan totaling $62 thousand to two
borrowers. During the fourth quarter of fiscal 2004, the Bankruptcy Court
approved a secured claim totaling $440 thousand and an unsecured claim totaling
$76 thousand to be paid in accordance with a Bankruptcy Plan of Reorganization.
All Court ordered plans have been received in a timely manner. In accordance
with generally accepted accounting principles, payments received are being
applied on a cost recovery basis.
During the nine months ended March 31, 2005, approximately $52 thousand of
interest income would have been recorded on loans accounted for on a non-accrual
basis and troubled debt restructurings if such loans had been current according
to the original loan agreements for the entire period. These amounts were not
included in the Company's interest income for the nine months ended March 31,
2005. The Company continues to work with the borrowers in an attempt to cure the
defaults and is also pursuing various legal avenues in order to collect on these
loans.
17
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Company's transactions are denominated
in US dollars with no specific foreign exchange exposure. The Savings Bank has
no agricultural loan assets and therefore would not have a specific exposure to
changes in commodity prices. Any impacts that changes in foreign exchange rates
and commodity prices would have on interest rates are assumed to be exogenous
and will be analyzed on an ex post basis.
-- ----
Interest rate risk ("IRR") is the exposure of a banking organization's
financial condition to adverse movements in interest rates. Accepting this risk
can be an important source of profitability and shareholder value, however,
excessive levels of IRR can pose a significant threat to the Company's earnings
and capital base. Accordingly, effective risk management that maintains IRR at
prudent levels is essential to the Company's safety and soundness.
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organization's quantitative level of exposure. When assessing the
IRR management process, the Company seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistency and continuity. Evaluating the
quantitative level of IRR exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
Financial institutions derive their income primarily from the excess of
interest collected over interest paid. The rates of interest an institution
earns on its assets and owes on its liabilities generally are established
contractually for a period of time. Since market interest rates change over
time, an institution is exposed to lower profit margins (or losses) if it cannot
adapt to interest-rate changes. For example, assume that an institution's assets
carry intermediate- or long-term fixed rates and that those assets were funded
with short-term liabilities. If market interest rates rise by the time the
short-term liabilities must be refinanced, the increase in the institution's
interest expense on its liabilities may not be sufficiently offset if assets
continue to earn interest at the long-term fixed rates. Accordingly, an
institution's profits could decrease on existing assets because the institution
will either have lower net interest income or, possibly, net interest expense.
Similar risks exist when assets are subject to contractual interest-rate
ceilings, or rate sensitive assets are funded by longer-term, fixed-rate
liabilities in a decreasing-rate environment.
During the nine months ended March 31, 2005, the level of short-term
market interest rates began to increase. The Federal Open Market Committee
increased its intended federal funds rate by twenty-five basis points at their
August 10, September 21, November 10, December 14, 2004 and February 2 and March
22, 2005 meetings. This followed a twenty-five basis point increase at their
June 30, 2004 meeting. As economic conditions continue to improve, we anticipate
continued increases in short-term market interest rates. Longer-term yields
fell, however, due to rising oil prices and weakness in some sectors of the
economy. The benchmark ten year treasury yield continued to experience market
volatility and declined twelve basis points from 4.62% at June 30, 2004 to 4.50%
at March 31, 2005. These changes in short, intermediate and long-term market
interest rates, the flattening of the Treasury yield curve and continued high
levels of interest rate volatility have precipitated continued prepayments in
the Company's loan, investment and mortgage-backed securities portfolios.
Principal repayments on the Company's loan, investment and mortgage-backed
securities portfolios for the nine months ended March 31, 2005, totaled $22.0
million, $251.4 million and $65.4 million, respectively. In response to higher
levels of liquidity the Company rebalanced its loan, investment and
mortgage-backed securities portfolios. Due to the low level of market interest
rates, the Company continued to reduce its portfolio originations of long-term
fixed rate mortgages while continuing to offer consumer home
18
equity and construction loans. The Company continues to purchase callable U. S.
Government Agency bonds that reprice within twelve to twenty-four months in
order to earn a higher return while limiting interest rate risk within the
portfolio. Within the mortgage-backed securities portfolio, the Company
continued to aggressively purchase floating rate securities in order to provide
current income and protection against eventual rises in market interest rates.
Each of the aforementioned strategies also helped to improve the interest-rate
and liquidity risks associated with the Savings Bank's customers' liquidity
preference for shorter term deposit products.
The Company also makes available for origination residential mortgage
loans with interest rates which adjust pursuant to a designated index, although
customer acceptance has been somewhat limited in the Savings Bank's market area.
The Company will continue to selectively offer commercial real estate, land
acquisition and development, and shorter-term construction loans, primarily on
residential properties, to partially increase interest income while limiting
interest rate risk. The Company has also emphasized higher yielding home equity
and small business loans to existing customers and seasoned prospective
customers.
During the quarter ended March 31, 2005, principal investment purchases
were comprised of: floating rate collateralized mortgage obligations which
reprice monthly - $32.2 million with an original weighted average yield of
approximately 3.85%; callable floating rate government agency bonds which will
reprice within twenty-four months - $15.0 million with an original weighted
average yield of approximately 4.15%; and government agency step-up bonds which
will reprice within two years - $10.5 million with a weighted average yield of
approximately 4.25%. Major investment proceeds received during the quarter ended
March 31, 2005 were: callable government agency bonds - $20.2 million with a
weighted average yield of approximately 4.29%; and tax-free municipal bonds -
$525 thousand with a weighted average yield of approximately 2.10%.
As of March 31, 2005, the implementation of these asset and liability
management initiatives resulted in the following:
1) the Company's liquidity profile remains strong with $198.1 million of U.S.
Government Agency securities that were callable within 3 months. Based
upon current market conditions, management anticipates that a portion of
the investments will be called within the above time interval;
2) $117.2 million or 96.5% of the Company's portfolio of mortgage-backed
securities (including collateralized mortgage obligations - "CMOs") were
comprised of floating rate instruments that reprice on a monthly basis;
3) $60.1 million or 25.5% of the Company's investment portfolio (including
FHLB stock) was comprised of U.S. Government Agency Step-up bonds which
will reprice from initial rates of 3.35% - 4.70% and increase to 6.00% -
7.50% within thirty-three months;
4) $137.9 million or 58.5% of the Company's investment portfolio (including
FHLB stock) was comprised of floating rate bonds which will reprice
quarterly within twenty-two months;
5) $1.6 million or 0.7% of the Company's investment portfolio (including FHLB
stock) was comprised of investment grade corporate demand notes;
6) the maturity distribution of the Company's borrowings is as follows: 8
days or less: $91.0 million or 38.9%; 1 year or less: $4.0 million or
1.7%; 1-3 years: $3.2 million or 1.4%; 3-5 years: $10.5 million or 4.5%;
over 5 years: $125.1 million or 53.5%; and
7) an aggregate of $32.8 million or 54.1% of the Company's net loan portfolio
had adjustable interest rates or maturities of less than 12 months.
The effect of interest rate changes on a financial institution's assets
and liabilities may be analyzed by examining the "interest rate sensitivity" of
the assets and liabilities and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within a given time
period. A gap is considered positive (negative) when the amount of rate
sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities
(assets). During a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income.
19
The following table sets forth certain information at the dates indicated
relating to the Company's interest-earning assets and interest-bearing
liabilities which are estimated to mature or are scheduled to reprice within one
year.
March 31, June 30,
-------- --------------------
2005 2004 2003
-------- -------- --------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $285,583 $288,451 $262,782
Interest-bearing liabilities maturing or
repricing within one year 192,662 171,655 133,418
-------- -------- --------
Interest sensitivity gap $ 92,921 $116,796 $129,364
======== ======== ========
Interest sensitivity gap as a percentage of
total assets 21.8% 26.9% 35.2%
Ratio of assets to liabilities
maturing or repricing within one year 148.2% 168.0% 197.0%
During the quarter ended March 31, 2005, the Company managed its one year
interest sensitivity gap by: (1) purchasing floating rate CMO's which reprice on
a monthly basis; (2) purchasing investments with maturities / repricing dates
within twenty-four months; (3) limiting the portfolio origination of long-term
fixed rate mortgages; and (4) emphasizing loans with shorter-terms or repricing
frequencies.
20
The following table illustrates the Company's estimated stressed
cumulative repricing gap - the difference between the amount of interest-earning
assets and interest-bearing liabilities expected to reprice at a given point in
time - at March 31, 2005. The table estimates the impact of an upward or
downward change in market interest rates of 100 and 200 basis points.
Cumulative Stressed Repricing Gap
---------------------------------
Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term
------- ------- -------- -------- -------- -------- ---------
(Dollars in Thousands)
Base Case Up 200 bp
- -------------------
Cummulative
Gap ($'s) 14,547 21,549 75,893 155,889 151,608 137,814 26,862
% of Total
Assets 3.4% 5.1% 17.8% 36.6% 35.5% 32.3% 6.3%
Base Case Up 100 bp
- -------------------
Cummulative
Gap ($'s) 26,960 34,999 89,557 159,767 165,869 152,358 26,862
% of Total
Assets 6.3% 8.2% 21.0% 37.5% 38.9% 35.7% 6.3%
Base Case No Change
- -------------------
Cummulative
Gap ($'s) 28,352 37,454 92,921 174,265 172,450 162,530 26,862
% of Total
Assets 6.6% 8.8% 21.8% 40.9% 40.4% 38.1% 6.3%
Base Case Down 100 bp
- ---------------------
Cummulative
Gap ($'s) 31,456 42,305 99,493 182,562 180,375 166,183 26,862
% of Total
Assets 7.4% 9.9% 23.3% 42.8% 42.3% 39.0% 6.3%
Base Case Down 200 bp
- ---------------------
Cummulative
Gap ($'s) 56,514 68,873 127,411 192,144 182,383 166,329 26,862
% of Total
Assets 13.3% 16.1% 29.9% 45.1% 42.8% 39.0% 6.3%
Beginning in the third quarter of fiscal 2001, the Company began to
utilize an income simulation model to measure interest rate risk and to manage
interest rate sensitivity. The Company believes that income simulation modeling
may enable the Company to better estimate the possible effects on net interest
income due to changing market interest rates. Other key model parameters
include: estimated prepayment rates on the Company's loan, mortgage-backed
securities and investment portfolios; savings decay rate assumptions; and the
repayment terms and embedded options of the Company's borrowings.
21
The following table presents the simulated impact of a 100 and 200 basis
point upward or downward shift in market interest rates on net interest income,
return on average equity, return on average assets and the market value of
portfolio equity at March 31, 2005.
Analysis of Sensitivity to Changes in Market Interest Rates
-----------------------------------------------------------
Modeled Change in Market Interest Rates
----------------------------------------------------------------
Estimated impact on: -200 -100 0 +100 +200
- --------------------
Change in net interest income -37.9% -16.7% 0.00% 9.2% 18.3%
Return on average equity 2.05% 5.42% 7.98% 9.35% 10.70%
Return on average assets 0.14% 0.36% 0.54% 0.64% 0.75%
Market value of equity (in
thousands) $14,661 $22,881 $29,446 $23,497 $10,157
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,
2005.
Anticipated Transactions
-----------------------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and
land development loans
Fixed rate $ 3,089
6.04%
Adjustable rate $ 6,384
6.40%
Undisbursed lines of credit
Adjustable rate $ 6,328
6.18%
Loan origination commitments
Fixed rate $ 1,645
6.18%
Adjustable rate $ 394
6.66%
Letters of credit
Adjustable rate $ 1,383
6.76%
---------
$ 19,223
=========
In the ordinary course of its construction lending business, the Savings
Bank enters into performance standby letters of credit. Typically, the standby
letters of credit are issued on behalf of a builder to a third
22
party to ensure the timely completion of a certain aspect of a construction
project or land development. At March 31, 2005, the Savings Bank had six
performance standby letters of credit outstanding totaling approximately $1.4
million. One letter of credit is secured by deposits with the Savings Bank,
three letters of credit are secured by undisbursed construction loan funds and
two letters of credit are secured by developed property. All six letters of
credit will mature within fifteen months. In the event that the obligor is
unable to perform its obligations as specified in the standby letter of credit
agreement, the Savings Bank would be obligated to disburse funds up to the
amount specified in the standby letter of credit agreement. The Savings Bank
maintains adequate collateral that could be liquidated to fund this contingent
obligation.
23
ITEM 4.
CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of March 31, 2005. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and regulations and are
operating in an effective manner.
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934)
occurred during the third fiscal quarter of fiscal 2005 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
24
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
The Company is involved with various legal actions arising in the ordinary
course of business. Management believes the outcome of these matters will have
no material effect on the consolidated operations or consolidated financial
condition of WVS Financial Corp.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) The following table sets forth information with respect to purchases
of common stock of the Company made by or on behalf of the Company
during the three months ended March 31, 2005.
-------------------------------------------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------------------------------------------------------------------------------------
Total Number of Shares Maximum Number of Shares
Total Number Purchased as Part of that May Yet Be
of Shares Average Price Paid Publicly Announced Repurchased Under the
Period Purchased per Share ($) Plans or Programs (1) Plans or Programs (2)
-------------------------------------------------------------------------------------------------------------------
01/01/05 - 01/31/05 0 0.00 0 75,543
-------------------------------------------------------------------------------------------------------------------
02/01/05 - 02/28/05 15,200 16.97 15,200 60,343
-------------------------------------------------------------------------------------------------------------------
03/01/05 - 03/31/05 24,400 16.79 24,400 35,943
-------------------------------------------------------------------------------------------------------------------
Total 39,600 16.86 39,600 35,943
-------------------------------------------------------------------------------------------------------------------
- --------------------
(1) All shares indicated were purchased under the Company's Seventh
Stock Repurchase Program.
(2) Seventh Stock Repurchase Program
(a) Announced February 24, 2004.
(b) 125,000 common shares approved for repurchase.
(c) No fixed date of expiration.
(d) This Program has not expired and has 35,943 shares remaining
to be purchased at March 31, 2005.
(e) Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
ITEM 5. Other Information
-----------------
Not applicable.
25
ITEM 6. Exhibits
--------
The following exhibits are filed as part of this Form 10-Q, and this list
includes the Exhibit Index.
Number Description Page
------ ---------------------------------------------------------- ----
31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief E-1
Executive Officer
31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief E-2
Accounting Officer
32.1 Section 1350 Certification of the Chief Executive Officer E-3
32.2 Section 1350 Certification of the Chief Accounting Officer E-4
99 Report of Independent Registered Public Accounting Firm E-5
26
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 16, 2005 BY: /s/ David J. Bursic
Date --------------------------------------------
David J. Bursic
President and Chief Executive Officer
(Principal Executive Officer)
May 16, 2005 BY: /s/ Keith A. Simpson
Date --------------------------------------------
Keith A. Simpson
Vice-President, Treasurer and
Chief Accounting Officer
(Principal Accounting Officer)
27