UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-22444
WVS Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
- ---------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
- ----------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(412) 364-1911
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES [X] NO [_]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12 b-2 of the Exchange
Act. (Check one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12 b-2 of the Exchange Act).
YES [_] NO [X]
Shares outstanding as of November 13, 2006: 2,309,815 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
September 30, 2006 and June 30, 2006
(Unaudited) 3
Consolidated Statement of Income
for the Three Months Ended
September 30, 2006 and 2005 (Unaudited) 4
Consolidated Statement of Changes in
Stockholders' Equity for the Three Months
Ended September 30, 2006 (Unaudited) 5
Consolidated Statement of Cash Flows
for the Three Months Ended September 30,
2006 and 2005 (Unaudited) 6
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three Months
Ended September 30, 2006 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
Item 4. Controls and Procedures 22
PART II. Other Information Page
- -------- ----------------- ----
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits 24
Signatures 25
2
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
September 30, 2006 June 30, 2006
------------------ ---------------
Assets
------
Cash and due from banks $ 994 $ 1,099
Interest-earning demand deposits 2,033 97
--------------- ---------------
Total cash and cash equivalents 3,027 1,196
Investment securities available-for-sale (amortized cost of
$504 and $8,497) 488 8,469
Investment securities held-to-maturity (market value of
$202,777 and $185,680) 202,309 187,952
Mortgage-backed securities available-for-sale (amortized cost of
$2,219 and $2,229) 2,306 2,292
Mortgage-backed securities held-to-maturity (market value of
$145,793 and $152,706) 145,857 153,461
Net loans receivable (allowance for loan losses of $956 and
$957) 57,224 55,702
Accrued interest receivable 3,410 2,921
Federal Home Loan Bank stock, at cost 6,670 7,861
Premises and equipment 839 864
Other assets 1,053 1,024
--------------- ---------------
TOTAL ASSETS $ 423,183 $ 421,742
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 22,108 $ 11,315
NOW accounts 17,687 18,083
Savings accounts 34,878 36,851
Money market accounts 16,474 16,562
Certificates of deposit 71,192 67,890
Advance payments by borrowers for taxes and insurance 321 1,012
--------------- ---------------
Total savings deposits 162,660 151,713
Federal Home Loan Bank advances: long-term 133,579 138,579
Federal Home Loan Bank advances: short-term -- 23,150
Other borrowings 91,500 76,048
Accrued interest payable 1,600 1,451
Other liabilities 4,116 1,383
--------------- ---------------
TOTAL LIABILITIES 393,455 392,324
--------------- ---------------
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;
3,769,838 and 3,769,838 shares issued 38 38
Additional paid-in capital 20,817 20,817
Treasury stock: 1,449,491 and 1,434,606 shares at cost,
Respectively (21,924) (21,679)
Retained earnings, substantially restricted 30,753 30,221
Accumulated other comprehensive income 46 23
Unreleased shares - Recognition and Retention Plans (2) (2)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 29,728 29,418
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 423,183 $ 421,742
=============== ===============
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
September 30,
--------------------------
2006 2005
----------- -----------
INTEREST AND DIVIDEND INCOME:
Loans $ 1,052 $ 1,052
Investment securities 2,566 1,856
Mortgage-backed securities 2,399 1,882
Interest-earning deposits with other institutions 4 3
Federal Home Loan Bank stock 97 47
----------- -----------
Total interest and dividend income 6,118 4,840
----------- -----------
INTEREST EXPENSE:
Deposits 968 711
Federal Home Loan Bank advances 1,908 2,007
Other borrowings 1,162 667
----------- -----------
Total interest expense 4,038 3,385
----------- -----------
NET INTEREST INCOME 2,080 1,455
RECOVERY FOR LOAN LOSSES (9) (66)
----------- -----------
NET INTEREST INCOME AFTER RECOVERY FOR LOAN LOSSES 2,089 1,521
----------- -----------
NON-INTEREST INCOME:
Service charges on deposits 88 95
Investment securities gains -- 30
Other 64 82
----------- -----------
Total non-interest income 152 207
----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 489 469
Occupancy and equipment 91 101
Data processing 63 67
Correspondent bank service charges 39 36
Other 220 216
----------- -----------
Total non-interest expense 902 889
----------- -----------
INCOME BEFORE INCOME TAXES 1,339 839
INCOME TAXES 435 231
----------- -----------
NET INCOME $ 904 $ 608
=========== ===========
EARNINGS PER SHARE:
Basic $ 0.39 $ 0.25
Diluted $ 0.39 $ 0.25
AVERAGE SHARES OUTSTANDING:
Basic 2,327,183 2,387,653
Diluted 2,329,120 2,391,294
See accompanying notes to unaudited consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Accumulated
Retained Other
Additional Earnings Compre- Unallocated
Common Paid-In Treasury Substantially hensive Shares Held
Stock Capital Stock Restricted Income by RRP Total
----- ------- ----- ---------- ------ ------ -----
Balance at June 30, 2006 $ 38 $ 20,817 $ (21,679) $ 30,221 $ 23 $ (2) $ 29,418
Comprehensive income:
Net Income 904 904
Other comprehensive
income:
Change in unrealized
holding gains on
securities, net of
income tax effect of
$12 23 23
-----------
Comprehensive income 927
Purchase of shares for
treasury stock (245) (245)
Accrued compensation
expense for Recognition
and Retention Plans (RRP) -- --
Exercise of stock options -- -- --
Cash dividends declared
($0.16 per share) (372) (372)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at Sept 30, 2006 $ 38 $ 20,817 $ (21,924) $ 30,753 $ 46 $ (2) $ 29,728
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
September 30,
--------------------
2006 2005
-------- --------
OPERATING ACTIVITIES
Net income $ 904 $ 608
Adjustments to reconcile net income to cash provided by operating
activities:
Recovery for loan losses (9) (66)
Depreciation 32 46
Investment securities gains -- (30)
Amortization of discounts, premiums and deferred loan fees (51) (61)
Increase in accrued and deferred taxes 27 161
Increase in accrued interest receivable (489) (281)
Increase in accrued interest payable 149 116
Other, net 673 91
-------- --------
Net cash provided by operating activities 1,236 584
-------- --------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities -- (687)
Proceeds from repayments of investments and mortgage-backed securities 8,009 1,080
Proceeds from sale of investment and mortgage-backed securities -- 1,016
Held-to-maturity:
Purchases of investments (18,331) (24,997)
Purchases of mortgage-backed securities (4,998) (61,159)
Proceeds from repayments of investments 6,009 39,966
Proceeds from repayments of mortgage-backed securities 12,617 39,887
(Increase) decrease in net loans receivable (1,527) 1,110
Purchase of Federal Home Loan Bank stock (753) (2,049)
Redemption of Federal Home Loan Bank stock 1,944 2,354
Acquisition of premises and equipment (7) (14)
-------- --------
Net cash provided by (used for) investing activities 2,963 (3,493)
-------- --------
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
September 30,
--------------------
2006 2005
-------- --------
FINANCING ACTIVITIES
Net increase in transaction and passbook accounts 8,336 1,433
Net increase in certificates of deposit 3,302 731
Net (decrease) increase in FHLB short-term advances (23,150) 1,875
Net increase (decrease) in other borrowings 15,452 (475)
Repayments of Federal Home Loan Bank long-term advances (5,000) --
Net decrease in advance payments by borrowers for taxes and insurance (691) (700)
Cash dividends paid (372) (383)
Funds used for purchase of treasury stock (245) (614)
-------- --------
Net cash (used for) provided by financing activities (2,368) 1,867
-------- --------
Increase (decrease) in cash and cash equivalents 1,831 (1,042)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 1,196 3,566
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,027 $ 2,524
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 3,889 $ 3,269
Income taxes $ 420 $ 40
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 months ended September 30, 2006, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In September 2006, the FASB issued FAS No. 157, Fair Value
Measurements, which provides enhanced guidance for using fair value to measure
assets and liabilities. The standard applies whenever other standards require or
permit assets or liabilities to be measured at fair value. The Standard does not
expand the use of fair value in any new circumstances. FAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. Early adoption is permitted.
The adoption of this standard is not expected to have a material effect on the
Company's results of operations or financial position.
In September 2006, the FASB issued FAS No. 158, Employers' Accounting
for Defined Benefit Pension and Other Post Retirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 132(R). FAS No. 158 requires that a company
recognize the overfunded or underfunded status of its defined benefit post
retirement plans (other than multiemployer plans) as an asset or liability in
its statement of financial position and that it recognize changes in the funded
status in the year in which the changes occur through other comprehensive
income. FAS No. 158 also requires the measurement of defined benefit plan assets
and obligations as of the fiscal year end, in addition to footnote disclosures.
FAS No. 158 is effective for fiscal years ending after December 15, 2006. The
Company is currently evaluating the impact the adoption of the standard will
have on the Company's financial position.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108
("SAB 108"), Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements, providing
guidance on quantifying financial statement misstatement and implementation when
first applying this guidance. Under SAB No. 108, companies should evaluate a
misstatement based on its impact on the current year income statement, as well
as the cumulative effect of correcting such misstatements that existed in prior
years existing in the current year's ending balance sheet. SAB 108 is effective
for fiscal years ending after November 15, 2006. The Company is currently
evaluating the impact the adoption of the standard will have on the Company's
results of operations.
In September 2006, the FASB reached consensus on the guidance provided
by Emerging Issues Task Force Issue 06-4 ("EITF 06-4"), Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements. The guidance is applicable to endorsement split-dollar
life insurance arrangements, whereby the employer owns and controls the
insurance policy, that are associated with a postretirement benefit. EITF 06-4
requires that for a split-dollar life insurance arrangement within the scope of
the Issue, an employer should recognize a liability for future benefits in
accordance with FAS No. 106 (if, in substance, a postretirement benefit plan
exists) or Accounting Principles Board Opinion No. 12 (if the arrangement is, in
substance, an individual
8
deferred compensation contract) based on the substantive agreement with the
employee. EITF 06-4 is effective for fiscal years beginning after December 15,
2007. The Company is currently evaluating the impact the adoption of the
standard will have on the Company's results of operations or financial
condition.
In September 2006, the FASB reached consensus on the guidance provided
by Emerging Issues Task Force Issue 06-5("EITF 06-5"), Accounting for Purchases
of Life Insurance--Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance. EITF 06-5 states that a policyholder should consider any additional
amounts included in the contractual terms of the insurance policy other than the
cash surrender value in determining the amount that could be realized under the
insurance contract. EITF 06-5 also states that a policyholder should determine
the amount that could be realized under the life insurance contract assuming the
surrender of an individual-life by individual-life policy (or certificate by
certificate in a group policy). EITF 06-5 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating the
impact the adoption of the standard will have on the Company's results of
operations or financial condition.
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
September 30,
------------------------
2006 2005
---------- ----------
Weighted average common shares issued 3,769,838 3,762,618
Average treasury stock shares (1,442,655) (1,374,965)
---------- ----------
Weighted average common shares and common stock equivalents
used to calculate basic earnings per share 2,327,183 2,387,653
Additional common stock equivalents (stock options) used to
calculate diluted earnings per share 1,937 3,641
---------- ----------
Weighted average common shares and common stock equivalents
used to calculate diluted earnings per share 2,329,120 2,391,294
========== ==========
All options at September 30, 2006 and September 30, 2005 were included
in the computation of diluted earnings per share.
4. STOCK BASED COMPENSATION DISCLOSURE
-----------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (FAS No. 123R). FAS No. 123R revised FAS No. 123, Accounting
for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and its related implementation guidance. FAS No. 123R
requires compensation costs related to share-based payment transactions to be
recognized in the financial statement (with limited exceptions). The amount of
compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
In April 2005, the Securities and Exchange Commission adopted a new
rule that amends the compliance dates for FAS No. 123R. The Statement requires
that compensation cost relating to share-based
9
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. 123R 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 adopted FAS
No. 123R on July 1, 2005. Management has determined that unless additional
options are granted, there will be no impact on future earnings as a result of
the adoption.
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 (dollars in thousands):
Three Month Ended September 30,
---------------------------------
2006 2005
--------------- ---------------
Net income $ 904 $ 608
Other comprehensive
(loss) income:
Unrealized gains
(losses) on available
for sale securities $ 35 $ (58)
Less:
Reclassification
adjustment for
gain included in
net income -- (30)
------ ------ ------ ------
Other comprehensive gain
(loss), before tax 35 (88)
Income tax expense
(benefit) related to other
comprehensive gain (loss) 12 (30)
------ ------
Other comprehensive gain
(loss), net of tax 23 (58)
------ ------
Comprehensive income $ 927 $ 550
====== ======
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
FORWARD LOOKING STATEMENTS
In the normal course of business, we, in an effort to help keep our
shareholders and the public informed about our operations, may from time to time
issue or make certain statements, either in writing or orally, that are or
contain forward-looking statements, as that term is defined in the U.S. federal
securities laws. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits from acquisitions made by or to be
made by us, projections involving anticipated revenues, earnings, profitability
or other aspects of operating results or other future developments in our
affairs or the industry in which we conduct business. Forward-looking statements
may be identified by reference to a future period or periods or by the use of
forward-looking terminology such as "anticipated," "believe," "expect,"
"intend," "plan," "estimate" or similar expressions.
Although we believe that the anticipated results or other expectations
reflected in our forward-looking statements are based on reasonable assumptions,
we can give no assurance that those results or expectations will be attained.
Forward-looking statements involve risks, uncertainties and assumptions (some of
which are beyond our control), and as a result actual results may differ
materially from those expressed in forward-looking statements. Factors that
could cause actual results to differ from forward-looking statements include,
but are not limited to, the following, as well as those discussed elsewhere
herein:
o our investments in our businesses and in related technology could
require additional incremental spending, and might not produce
expected deposit and loan growth and anticipated contributions to
our earnings;
o general economic or industry conditions could be less favorable
than expected, resulting in a deterioration in credit quality, a
change in the allowance for loan losses or a reduced demand for
credit or fee-based products and services;
o changes in the interest rate environment could reduce net
interest income and could increase credit losses;
o the conditions of the securities markets could change, which
could adversely affect, among other things, the value or credit
quality of our assets, the availability and terms of funding
necessary to meet our liquidity needs and our ability to
originate loans and leases;
o changes in the extensive laws, regulations and policies governing
financial holding companies and their subsidiaries could alter
our business environment or affect our operations;
o the potential need to adapt to industry changes in information
technology systems, on which we are highly dependent, could
present operational issues or require significant capital
spending;
o competitive pressures could intensify and affect our
profitability, including as a result of continued industry
consolidation, the increased availability of financial services
from non-banks, technological developments such as the internet
or bank regulatory reform;
o acquisitions may result in one-time changes to income, may not
produce revenue enhancements or cost savings at levels or within
time frames originally anticipated and may result in unforeseen
integration difficulties; and
11
o acts or threats of terrorism and actions taken by the United
States or other governments as a result of such acts or threats,
including possible military action, could further adversely
affect business and economic conditions in the United States
generally and in our principal markets, which could have an
adverse effect on our financial performance and that of our
borrowers and on the financial markets and the price of our
common stock.
You should not put undue reliance on any forward-looking statements.
Forward-looking statements speak only as of the date they are made, and we
undertake no obligation to update them in light of new or future events except
to the extent required by federal securities laws.
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding
company of West View Savings Bank ("West View" or the "Savings Bank"). The
Company was organized in July 1993 as a Pennsylvania-chartered unitary bank
holding company and acquired 100% of the common stock of the Savings Bank in
November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank converted to the stock form of ownership in
November 1993. The Savings Bank had no subsidiaries at September 30, 2006.
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 $423.2 million at September 30, 2006, as
compared to $421.7 million at June 30, 2006. The $1.5 million or 0.3% increase
in total assets was primarily comprised of a $6.4 million or 3.2% increase in
investment securities, a $1.8 million or 153.1% increase in cash and cash
equivalents, a $1.5 million or 2.7% increase in net loans receivable and a $489
thousand or 16.7% increase in accrued interest receivable, which were partially
offset by a $7.6 million or 4.9% decrease in mortgage-backed securities and a
$1.2 million or 15.2% decrease in FHLB stock. The increase in investment
securities is attributable to purchases of fixed-rate callable U.S. government
agency bonds, while the decrease in mortgage-backed securities was attributable
to repayments on the Company's portfolio of floating rate collateralized
mortgage obligations. See "Asset and Liability Management".
The Company's total liabilities increased $1.2 million or 0.3% to
$393.5 million as of September 30, 2006, from $392.3 million as of June 30,
2006. The $1.2 million increase in total liabilities was primarily comprised of
a $15.5 million or 20.3% increase in other short-term borrowings, a $10.9
million or 7.2% increase in total savings deposits, and a $2.7 million or 197.6%
increase in other liabilities, which were partially offset by a $23.2 million or
100.0% decrease in short-term FHLB advances and a $5.0 million or 3.6% decrease
in long-term FHLB advances. Demand deposits increased $10.4 million,
certificates of deposit increased $3.3 million while savings accounts decreased
$2.0 million and advanced payments by borrowers for taxes and insurance
decreased $691 thousand. The increase in demand deposits was principally
attributable to seasonal increases in local real estate tax collector accounts.
Management believes that the changes in savings accounts and advance payments by
borrowers for taxes and insurance were primarily attributable to seasonal
payments of local and school real estate taxes.
12
Total stockholders' equity increased $310 thousand or 1.1% to $29.7
million as of September 30, 2006, from approximately $29.4 million as of June
30, 2006. Capital expenditures for the Company's stock repurchase program and
cash dividends totaled $245 thousand and $372 thousand, respectively, which were
more than offset by net income of $904 thousand and a $23 thousand increase in
accumulated other comprehensive income for the three months ended September 30,
2006.
RESULTS OF OPERATIONS
General. WVS reported net income of $904 thousand or $0.39 diluted
earnings per share for the three months ended September 30, 2006. Net income
increased by $296 thousand or 48.7% and diluted earnings per share increased
$0.14 or 56.0% for the three months ended September 30, 2006, when compared to
the same period in 2005. The increase in net income was primarily attributable
to a $625 thousand increase in net interest income, which was partially offset
by a $204 thousand increase in income tax expense, a $57 thousand decrease in
credit provisions for loan losses, a $55 thousand decrease in non-interest
income, and an $13 thousand increase in non-interest expense.
Net Interest Income. The Company's net interest income increased by
$625 thousand or 43.0% for the three months ended September 30, 2006, when
compared to the same period in 2005. The increase in net interest income for the
three month period was primarily attributable to higher rates received on the
Company's interest-earning assets, which more than offset higher rates paid on
other short-term borrowings and time deposits. The increases in both rates
earned on interest-earning assets and rates paid on interest-bearing liabilities
reflects the higher levels of short and intermediate term market interest rates
fueled by the Federal Reserve Board's increases in its targeted Federal Funds
Rate.
Interest Income. Interest on net loans receivable was unchanged for the
three months ended September 30, 2006, when compared to the same period in 2005.
An increase of 47 basis points in the weighted average yield earned on net loans
receivable was offset by a decrease of $3.9 million in the average balance of
net loans receivable outstanding for the three months ended September 30, 2006,
when compared to the same period in 2005. The decrease in the average loan
balance outstanding for the three months ended September 30, 2006 was
attributable in part to the Company's 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 on mortgage-backed securities increased $517 thousand or 27.5%
for the three months ended September 30, 2006, when compared to the same period
in 2005. The increase for the three months ended September 30, 2006 was
primarily attributable to a 173 basis point increase in the average yield earned
on mortgage-backed securities outstanding for the period, which was partially
offset by a $12.6 million decrease in the average balance of mortgage-backed
securities outstanding for the period for the three months ended September 30,
2006 when compared to the same period in 2005. The increase in the weighted
average yield earned on mortgage-backed securities was consistent with higher
market interest rates for the three months ended September 30, 2006. The
decrease in the average balances of mortgage-backed securities during the three
months ended September 30, 2006 was primarily attributable to paydowns on the
floating rate mortgage-backed securities in the Company's portfolio.
Interest on investment securities increased by $710 thousand or 38.3%
for the three months ended September 30, 2006 when compared to the same period
in 2005. The increase was attributable to a 117 basis point increase in the
weighted average yield earned on the Company's investment securities and a $14.3
million increase in associated average balances. The increase in yields earned
were consistent with increases in market interest rates. The increases in
average balances were associated with the Company's reinvestment of proceeds
into fixed rate callable U.S. Government Agency securities.
Dividends received on FHLB stock increased by $50 thousand or 106.4%.
The increase was primarily attributable to a 302 basis point increase in the
dividend rate received.
13
Interest Expense. Interest expense on deposits and escrows increased
$257 thousand or 36.1% for the three months ended September 30, 2006 when
compared to the same period in 2005. The increase in interest expense on
deposits for the three months ended September 30, 2006 was attributable to a 82
basis point increase in the weighted average rate paid on interest-bearing
deposits and a $3.6 million increase in the average balance of money markets and
certificates of deposit for the three months ended September 30, 2006, when
compared to the same period in 2005. The average yield paid on interest-bearing
deposits reflects higher market interest rates for time and money market
deposits for the three months ended September 30, 2006.
Interest paid on FHLB advances decreased $99 thousand or 4.9% for the
three months ended September 30, 2006 when compared to the same period in 2005.
The decrease for the three months ended September 30, 2006 was primarily
attributable to a $8.2 million decrease in the average balances of FHLB
long-term advances.
Interest paid on other borrowings increased $495 thousand or 74.2% for
the three months ended September 30, 2006 when compared to the same period in
2005. The increase for the three months ended September 30, 2006 was
attributable to a 188 basis point increase in rates paid and a $10.5 million
increase in associated average balances. The increase in rates paid was
consistent with increases in short-term market interest rates. The increase in
average balances is attributable to shortening a portion of the Company's
liability structure as part of its asset/liability management strategy.
Recovery for Loan Losses. A provision (recovery) for loan losses is
charged (credited) 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 recovery for loan losses of $9 thousand for the
three months ended September 30, 2006 compared to a recovery for loan loss of
$66 thousand for the same period in 2005. The $66 thousand recovery during the
quarter ended September 30, 2005 was primarily attributable to the $35 thousand
allowance reallocation and a $23 thousand reduction due to the payoff of one
non-accrual loan. During the quarter ended September 30, 2005, the Company
reallocated a portion of its allowance for loan and lease losses attributable to
off-balance sheet liabilities (builder letters of credit) to a separate reserve
account for financial reporting purposes. The provision for loan losses was
reduced by, and a non-interest expense was charged, $35 thousand in connection
with this reallocation of allowances. At September 30, 2006, the Company's total
allowance for loan losses amounted to $956 thousand or 1.6% of the Company's
total loan portfolio, as compared to $957 thousand or 1.7% at June 30, 2006.
Non-Interest Income. Non-interest income decreased by $55 thousand or
26.6% for the three months ended September 30, 2006 when compared to the same
period in 2005. The decrease was primarily attributable to a decrease of $30
thousand in pre-tax gains on the sale of investment securities, a $7 thousand
decrease in fees earned on mortgage applications taken on a correspondent basis,
a $7 thousand decrease in service charges on deposits and a $5 thousand decrease
in ATM and debit card fee income.
Non-Interest Expense. Non-interest expense increased $13 thousand or
1.5% for the three months ended September 30, 2006 when compared to the same
period in 2005. The increase was principally attributable to a $20 thousand
increase in payroll and benefit related costs, which were partially offset by a
$10 thousand decrease in occupancy and equipment costs when compared to the same
period in 2005.
Income Tax Expense. Income tax expense increased $204 thousand or 88.3%
for the three months ended September 30, 2006 when compared to the same period
in 2005. The increase was primarily attributable to an increased level of
taxable income for the three months ended September 30, 2006 when compared to
the same period in 2005 and a higher effective tax rate. The Company's effective
tax rate increased primarily due to issued redemptions of tax-exempt municipal
securities prior to maturity,
14
corresponding lower levels of tax-exempt income as well as a lower percentage of
tax-exempt income to total interest income for the period ended September 30,
2006 when compared to the same period in 2005.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1.2 million during
the three months ended September 30, 2006. Net cash provided by operating
activities was primarily comprised of $904 thousand of net income, a $149
thousand increase in accrued interest payable and $32 thousand in fixed asset
depreciation.
Funds provided by investing activities totaled $3.0 million during the
three months ended September 30, 2006. Primary sources of funds during the three
months ended September 30, 2006, included maturities and repayments of
investment, mortgage-backed securities and FHLB Stock totaling $14.0 million,
$12.6 million and $1.9 million, respectively, which were partially offset by
purchases of investments, mortgage-backed securities and FHLB Stock totaling
$18.3 million, $5.0 million and $753 thousand, respectively, and a $1.5 million
increase in net loans receivable.
Funds used for financing activities totaled $2.4 million for the three
months ended September 30, 2006. The primary uses included a $23.2 million
decrease in short-term FHLB advances, a $5.0 million decrease in long-term FHLB
advances, $372 thousand in cash dividends paid on the Company's common stock and
$245 thousand in treasury stock purchases, which were partially offset by a
$15.5 million increase in other short-term borrowings and a $10.9 million
increase in deposits. The $10.9 million increase in total deposits consisted of
a $10.4 million increase in demand deposits as a result of increases in balances
for local tax collectors and a $3.3 million increase in time deposits primarily
due to accounts opened by local and county municipal governments, which were
partially offset by a $2.0 million decrease in passbook accounts and a $691
thousand decrease in mortgage escrow accounts. The decreases in passbook and
escrow accounts are due primarily to the payments of property taxes by and for
customers. Management believes that it currently is maintaining adequate
liquidity and continues to match funding sources with lending and investment
opportunities.
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 September 30, 2006, the total approved loan
commitments outstanding amounted to approximately $1.1 million. At the same
date, commitments under unused lines of credit amounted to $7.2 million and the
unadvanced portion of construction loans approximated $10.5 million.
Certificates of deposit scheduled to mature in one year or less at September 30,
2006 totaled $47.9 million. Management believes that a significant portion of
maturing deposits will remain with the Company.
Historically, the Company used its sources of funds primarily to meet
its ongoing commitments to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain a substantial portfolio of
investment securities. The Company has been able to generate sufficient cash
through the retail deposit market, its traditional funding source, and through
FHLB advances and other borrowings, to provide the cash utilized in investing
activities. The Company 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 October 31, 2006, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable November 16, 2006, to shareholders of record
at the close of business on November 6, 2006. Dividends are subject to
determination and declaration by the Board of Directors, which take into account
the Company's financial condition, statutory and regulatory restrictions,
general economic conditions and other factors. There can be no assurance that
dividends will in fact be paid on the Common Stock in future periods or that, if
paid, such dividends will not be reduced or eliminated.
15
As of September 30, 2006, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$29.7 million or 23.1% and $30.7 million or 23.9%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $29.7 million or 7.19% 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 September 30, 2006 totaled
approximately $293 thousand or 0.07% of total assets as compared to $318
thousand or 0.08% of total assets at June 30, 2006. Nonperforming assets at
September 30, 2006 consisted of: four single-family real estate loans totaling
$262 thousand, one line of credit secured by single-family real estate totaling
$17 thousand, one secured consumer loan totaling $8 thousand and one
single-family real estate owned property with a book value of approximately $6
thousand.
The $25 thousand decrease in nonperforming assets during the three
months ended September 30, 2006 was primarily attributable to the
reclassification of a $29 thousand single-family real estate loan from
non-performing to performing and $3 thousand charge off related to the
single-family real estate owned property which were partially offset by the
addition to non-accrual status of one secured consumer loan totaling
approximately $8 thousand. These loans are in various stages of collection
activity.
At September 30, 2006, the Company had one previously restructured and
potential problem commercial real estate loan to a retirement village located in
the North Hills totaling $973 thousand. The Savings Bank's outstanding principal
balance totaled $2.0 million at June 30, 2003. During the quarter ended
September 30, 2003, the Savings Bank redeemed $388 thousand of participating
interests. During the quarter ended December 31, 2003, the Bank sold a forty
percent participating interest to another financial institution at par resulting
in proceeds totaling $979 thousand. The Savings Bank's outstanding principal
balance totaled $984 thousand at June 30, 2006. The Company had recorded
interest received on this credit on a cost recovery basis until September 30,
2003 and is now recording interest income. At September 30, 2006, this credit
was less than one payment past due.
At September 30, 2006, the Company had one previously restructured loan
secured by undeveloped land totaling $344 thousand and one previously
restructured unsecured loan totaling $43 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 be paid in
accordance with a Bankruptcy Plan of Reorganization. All Court ordered plan
payments have been received in a timely manner. In accordance with generally
accepted accounting principles, the Company had recorded interest payments
received on a cost recovery basis until June 30, 2006 and is now recording
interest income.
During the three months ended September 30, 2006, approximately $3
thousand of interest income would have been recorded on loans accounted for on a
non-accrual basis 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 quarter ended September 30, 2006. 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.
16
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 quarter ended September 30, 2006, the Federal Open Market
Committee held its targeted federal funds rate at 5.25%. The benchmark two and
ten year treasury yields were 4.71% and 4.64%, respectively, at September 30,
2006 as compared to 5.16% and 5.15%, respectively, at June 30, 2006. These
changes in short, intermediate and long-term market interest rates, the
inversion of the Treasury yield curve and continued high levels of interest rate
volatility have impacted prepayments in the Company's loan, investment and
mortgage-backed securities portfolios and a marked compression of industry-wide
net interest margins.
Principal repayments on the Company's loan, investment and
mortgage-backed securities portfolios for the three months ended September 30,
2006, totaled $14.0 million, $12.6 million and $6.4 million, respectively. In
response to higher levels of liquidity the Company continued to rebalance its
loan, investment and mortgage-backed securities portfolios.
Due to the term structure of market interest rates, the Company
continued to reduce its portfolio originations of long-term fixed rate mortgages
while continuing to offer such loans on a correspondent basis. The Company also
makes available for origination residential mortgage loans with interest rates
which adjust
17
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.
The Company purchased fixed rate callable U. S. Government Agency bonds
in order to earn a spread against the Company's long-term FHLB advances while
limiting interest rate risk within the portfolio. To a lesser extent, the
Company continued to purchase floating rate securities in order to provide
current income and in response to higher short-term market interest rates. Each
of the aforementioned strategies also helped to better match the interest-rate
and liquidity risks associated with the Savings Bank's customers' liquidity
preference for shorter term deposit products.
During the quarter ended September 30, 2006, principal investment
purchases were comprised of callable fixed rate government agency bonds with ten
year final maturities and initial lock-out periods as follows: 24 months - $18.3
million with weighted average yields to call of approximately 6.04%; and
floating rate collateralized mortgage obligations which reprice monthly - $5.0
million with an original weighted average yield of 6.19%. Major investment
proceeds received during the quarter ended September 30, 2006 were:
mortgage-backed securities - $12.6 million; corporate commercial paper - $8.0
million with a weighted average yield of 5.59%; callable government agency bonds
- - $5.0 million with a weighted average yield of approximately 3.66%; and
tax-free municipal bonds - $1.0 million with a weighted average yield of
approximately 5.35%.
As of September 30, 2006, the implementation of these asset and
liability management initiatives resulted in the following:
1) $145.9 million or 98.5% 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.
2) $68.0 million or 32.5% of the Company's investment portfolio was
comprised of fixed to floating rate U.S. Government Agency bonds which
will reprice as follows: 3 months or less - $28.0 million; 3 - 6
months - $15.0 million; 6 - 12 months - $10.0 million; and over 1 year
- $15.0 million. Management currently believes that these bonds are
likely to be repaid during the intervals shown.
3) $104.7 million or 50.0% of the Company's investment portfolio was
comprised of fixed-rate callable U.S. Government Agency bonds which
are callable as follows: 3 months or less - $30.1 million; 3 - 6
months - $5.6 million; 6 - 12 months - $15.0 million; 1 - 2 years -
$36.9 million; and over 2 years - $17.1 million. These bonds may or
may not actually be redeemed prior to maturity (i.e. called) depending
upon the level of market interest rates at their respective call
dates.
4) $15.2 million or 7.3% of the Company's investment portfolio was
comprised of U.S. Government Agency Step-up bonds which will reprice
as follows: 6 - 12 months - $8.5 million from 4.00% to 7.00%, $2.0
million from 4.40% to 7.00%; and 1 - 2 years - $4.7 million from 4.70%
to 6.00%. Management believes that substantially all of these bonds
are likely to be repaid during the intervals shown.
5) An aggregate of $34.0 million or 59.4% of the Company's net loan
portfolio had adjustable interest rates or maturities of less than 12
months; and
6) The maturity distribution of the Company's borrowings is as follows: 1
month or less - $91.5 million or 40.7%; 1 - 3 years - $8.5 million or
3.8%; 3 - 5 years - $117.6 million or 52.2%; and over 5 years - $7.5
million or 3.3%.
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.
18
During a period of rising interest rates, a positive gap would tend to result in
an increase in net interest income.
As part of its asset/liability management strategy, the Company
maintained an asset sensitive financial position. An asset sensitive financial
position may benefit earnings during a period of rising interest rates and
reduce earnings during a period of declining interest rates.
The following table sets forth certain information at the dates
indicated relating to the Company's interest-earning assets and interest-bearing
liabilities which are estimated to mature or are scheduled to reprice within one
year.
September 30, June 30,
------------ ----------------------------
2006 2006 2005
------------ ------------ ------------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $ 306,350 $ 273,884 $ 318,015
Interest-bearing liabilities maturing or
repricing within one year 183,632 194,509 181,085
------------ ------------ ------------
Interest sensitivity gap $ 122,718 $ 79,375 $ 136,930
============ ============ ============
Interest sensitivity gap as a percentage of
total assets 29.00% 18.82% 32.5%
Ratio of assets to liabilities
maturing or repricing within one year 166.83% 140.81% 175.6%
During the quarter ended September 30, 2006, the Company managed its
one year interest sensitivity gap by: (1) limiting the portfolio origination of
long-term fixed rate mortgages; (2) emphasizing loans with shorter-terms or
repricing frequencies; (3) purchasing investments with call protection of 2
years or more; and (4) purchasing floating rate CMO's which reprice on a monthly
basis.
19
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 September 30, 2006. 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 ($'s) (48,394) (36,580) (46,982) (55,560) (56,479) (68,672) 27,255
% of Total
Assets -11.4% -8.6% -11.1% -13.1% -13.3% -16.2% 6.4%
Base Case Up 100 bp
- -------------------
Cummulative
Gap ($'s) 804 12,776 2,583 (5,668) (6,518) (67,600) 27,255
% of Total
Assets 0.2% 3.0% 0.6% -1.3% -1.5% -16.0% 6.4%
Base Case No Change
- -------------------
Cummulative
Gap ($'s) 104,467 116,950 122,718 138,176 133,279 52,488 27,255
% of Total
Assets 24.7% 27.6% 29.0% 32.7% 31.5% 12.4% 6.4%
Base Case Down 100 bp
- ---------------------
Cummulative
Gap ($'s) 109,395 128,626 135,384 163,360 172,744 58,200 27,255
% of Total
Assets 25.9% 30.4% 32.0% 38.6% 40.8% 13.8% 6.4%
Base Case Down 200 bp
- ---------------------
Cummulative
Gap ($'s) 111,518 131,961 139,280 167,893 176,502 58,870 27,255
% of Total
Assets 26.4% 31.2% 32.9% 39.7% 41.7% 13.9% 6.4%
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.
20
The following table presents the simulated impact of a 100 and 200
basis point upward or downward (parallel) shift in market interest rates on net
interest income, return on average equity, return on average assets and the
market value of portfolio equity at September 30, 2006. This analysis was done
assuming that the interest-earning asset and interest-bearing liability levels
at September 30, 2006 remained constant.
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 -22.7% -8.0% 0.00% -2.9% -26.6%
Return on average equity 8.43% 10.93% 12.22% 11.55% 7.44%
Return on average assets 0.58% 0.76% 0.85% 0.81% 0.52%
Market value of equity (in
thousands) $25,342 $26,439 $29,047 $24,373 $10,843
The table below provides information about the Company's anticipated
transactions comprised of firm loan commitments and other commitments, including
undisbursed letters and lines of credit. The Company used no derivative
financial instruments to hedge such anticipated transactions as of September 30,
2006.
Anticipated Transactions
-----------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and
land development loans
Fixed rate $ 3,546
8.10%
Adjustable rate $ 6,963
8.85%
Undisbursed lines of credit
Adjustable rate $ 7,190
8.31%
Loan origination commitments
Fixed rate $ 885
8.19%
Adjustable rate $ 200
6.00%
Letters of credit
Adjustable rate $ 702
9.27%
$19,486
=======
21
In the ordinary course of its construction lending business, the
Savings Bank enters into performance standby letters of credit. Typically, the
standby letters of credit are issued on behalf of a builder to a third party to
ensure the timely completion of a certain aspect of a construction project or
land development. At September 30, 2006, the Savings Bank had ten performance
standby letters of credit outstanding totaling approximately $702 thousand. Four
letters of credit are secured by deposits with the Savings Bank and six letters
of credit are secured by developed property. Seven of the letters of credit will
mature within twelve months, two will mature within twenty four months, and one
letter of credit is open-ended. 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.
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 September 30, 2006. 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 first quarter of fiscal 2007 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
22
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 1A. Risk Factors
------------
There are no material changes to the risk factors included in Item 1A
of the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2006.
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 September 30, 2006.
- -----------------------------------------------------------------------------------------------------------------
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 Publicly Announced Repurchased Under the
Purchased Average Price Paid Plans or Programs (1) Plans or Programs (2)
Period per Share ($)
- -----------------------------------------------------------------------------------------------------------------
07/01/06 - 07/31/06 5,000 16.50 5,000 78,845
- -----------------------------------------------------------------------------------------------------------------
08/01/06 - 08/31/06 9,885 16.46 9,885 68,960
- -----------------------------------------------------------------------------------------------------------------
09/01/06 - 09/30/06 -- 0.00 -- 68,960
- -----------------------------------------------------------------------------------------------------------------
Total 14,885 16.47 14,885 68,960
- -----------------------------------------------------------------------------------------------------------------
- --------------------
(1) All shares indicated were purchased under the Company's Eighth
Stock Repurchase Program.
(2) Eighth Stock Repurchase Program
(a) Announced September 27, 2005.
(b) 125,000 common shares approved for repurchase.
(c) No fixed date of expiration.
(d) This program has not expired and has 68,960 shares
remaining to be purchased at September 30, 2006.
(e) Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
23
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company's 2006 Annual Meeting of Stockholders was held on
October 31, 2006.
(b) Not applicable.
(c) Two matters were voted upon at the annual meeting held on October
31, 2006: Item 1: Proposal to elect one director for a four-year
term or until his successor is elected and qualified; Item 2:
Proposal to ratify the appointment by the Board of Directors of
S.R. Snodgrass, A.C. as the Company's Independent Registered Public
Accounting Firm for the fiscal year ending June 30, 2007.
Each of the two proposals received stockholder approval. There were
2,320,347 shares outstanding on the record date eligible to vote at
the meeting and 1,925,125 shares were present in person or by proxy
at the meeting. The voting record with respect to each item voted
upon is enumerated below:
Item Nominee
Number (if Applicable) For Against Abstain
------ --------------- --- ------- -------
1 David L. Aeberli 1,856,269 68,856
2 Ratification of Auditors 1,894,868 6,240 24,017
There were no broker non-votes with respect to any matter voted upon.
(d) Not applicable.
ITEM 5. Other Information
-----------------
Not applicable.
ITEM 6. Exhibits
--------
The following exhibits are filed as part of this Form 10-Q, and this
list includes the Exhibit Index.
Number Description Page
- ------ ----------- ----
31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive E-1
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
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
November 14, 2006 BY: /s/ David J. Bursic
-------------------------------------
Date David J. Bursic
President and Chief Executive Officer
(Principal Executive Officer)
November 14, 2006 BY: /s/ Keith A. Simpson
-------------------------------------
Date Keith A. Simpson
Vice-President, Treasurer and Chief
Accounting Officer
(Principal Accounting Officer)
25