TABLE OF CONTENTS
Page
Number
------
Stockholders' Letter 1
Selected Financial and Other Data 3
Management's Discussion and Analysis 5
Report of Independent Registered Public Accounting Firm 19
Consolidated Balance Sheet 20
Consolidated Statement of Income 21
Consolidated Statement of Changes in Stockholders' Equity 22
Consolidated Statement of Cash Flows 23
Notes to the Consolidated Financial Statements 24
Common Stock Market Price and Dividend Information 52
Performance Graphs 53
Corporate Information 55
<page>
To Our Stockholders:
Fiscal 2007 was another strong year for WVS Financial Corp. Net income
for fiscal 2007 totaled $3.6 million - an $800 thousand or 28% increase over
fiscal 2006. The primary driver for our increased net income was a $1.5 million
increase in net interest income which was partially offset by a $476 thousand
increase in income tax expense. Net income before income taxes has grown
steadily over the past four fiscal years. Book value, and return on equity,
totaled $13.49 per share and 12.14%. While these results would be noteworthy
under most economic conditions, we believe that they are especially impressive
in today's volatile financial markets.
Our financial results have been nationally recognized. In the May 2007
issue of SNL Thrift Investor magazine our Company was ranked #6 in the nation
--- ------ --------
among the 110 smallest thrifts by asset size ($104 million - $658 million) in
terms of financial performance. We believe that this national recognition of WVS
Financial Corp. validates the Board's commitment to delivering shareholder
value.
During fiscal 2007, the Federal Reserve was "on hold". The Federal
Funds target rate remained constant at 5.25%. However, due to weakness in the
residential housing sector, the difference between short, intermediate and
long-term market interest rates further narrowed. The Treasury yield curve
"inverted" - with intermediate and long-term interest rates being lower than
short term rates; and then "flattened" - with intermediate and long-term
interest rates about the same as short term rates. These changes to market
rates, sometimes called "volatility", directly impact earnings and financial
stock pricing multiples.
There has been a significant downward pricing adjustment in financial
stocks due to lower industry earnings. We believe that the Company's Capital
Management Strategy has served our stockholders well by consistently paying a
strong current dividend and enhancing stock market liquidity with our stock
buyback programs. Over the past two fiscal years, our Company's common stock has
traded in a range of $15.66 to $18.09 and at all times maintained a market
premium to book value. While it is impossible to predict the future, the Board
of Directors and management are committed to seeking strong returns on invested
capital and growing book value per share.
<page>
The Company's Capital Management Strategy has returned cash to
stockholders in two ways: an above market common dividend yield and through
common stock buybacks. Over the years, the mix between both strategies has
probably been about 50-50. We are pleased to report that the Company's eighth
stock buyback program was completed early in fiscal 2008 and the Board of
Directors also announced its ninth stock buyback program targeting 125,000
shares or approximately 5.5% of our common stock. Through June 30, 2007 our
stock buyback programs have returned about $22.3 million to our stockholders by
repurchasing 1,471,481 shares or about 39% of our issued shares.
People are the life blood of any business. Our management team and
employees strive to serve each customer well, pay competitive rates to our
depositors, provide reasonable terms to our borrowers and invest in technology
to position the Company for the future. We would like to thank you for
continuing to recommend West View Savings Bank with confidence. During 2008, we
will be celebrating our 100th Birthday and a Century of Quality Banking.
We would like to especially recognize and thank a retiring board member
- - Mr. Arthur H. ("Pete") Brandt. Pete began his service on the Board of
Directors of West View Savings and Loan in 1987. As owner of Brandt Excavating
and Paving, Pete was instrumental in helping to build our construction and land
development loan portfolios. Pete's working knowledge of our local markets, and
business contacts, have been invaluable over the years. At the board level, Pete
has chaired our Finance, Asset Classification and Community Reinvestment Act
committees. Pete's commitment to continual process improvement and financial
acumen will be missed. Thank you, Pete, for 20 years of dedicated service.
Please accept our thanks to each stockholder, customer, board member
and employee that helped to make fiscal 2007 successful. We look forward to
celebrating our Century of Quality Banking with each of you in 2008.
/S/ DAVID J. BURSIC /S/ DONALD E. HOOK
DAVID J. BURSIC DONALD E. HOOK
President and Chairman of the Board
Chief Executive Officer
2
<page>
<table>
<caption>
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
As of or For the Year Ended June 30,
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
----------- ----------- ----------- ----------- -----------
<s> <c> <c> <c> <c> <c>
(Dollars in Thousands, except per share data)
Selected Financial Data:
Total assets $ 408,076 $ 421,742 $ 421,044 $ 433,624 $ 367,188
Net loans receivable 60,350 55,702 60,151 67,968 91,669
Mortgage-backed securities 121,517 155,753 162,151 75,590 111,879
Investment securities 211,597 196,421 183,066 273,589 147,482
Savings deposit accounts 158,364 150,701 163,589 159,318 169,316
FHLB advances 130,579 161,729 155,036 149,736 153,390
Other borrowings 82,950 76,048 69,680 91,639 9,453
Stockholders' equity 31,293 29,418 29,201 29,199 30,618
Non-performing assets, troubled
debt restructurings and potential
problem loans(2) 1,574 1,695 2,171 2,171 3,481
Selected Operating Data:
Interest income $ 24,310 $ 22,248 $ 17,874 $ 16,006 $ 19,231
Interest expense 15,985 15,460 11,844 10,987 11,810
----------- ----------- ----------- ----------- -----------
Net interest income 8,325 6,788 6,030 5,019 7,421
Provision (Recovery) for loan losses 13 (161) (46) (794) (228)
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 8,312 6,949 6,076 5,813 7,649
Non-interest income 626 705 992 715 725
Non-interest expense 3,529 3,521 3,532 3,607 3,956
----------- ----------- ----------- ----------- -----------
Income before income tax expense 5,409 4,133 3,536 2,921 4,418
Income tax expense 1,763 1,287 627 619 1,070
----------- ----------- ----------- ----------- -----------
Net income $ 3,646 $ 2,846 $ 2,909 $ 2,302 $ 3,348
=========== =========== =========== =========== ===========
Per Share Information:
Basic earnings $ 1.57 $ 1.21 $ 1.20 $ 0.91 $ 1.28
Diluted earnings $ 1.57 $ 1.21 $ 1.19 $ 0.90 $ 1.28
Dividends per share $ 0.64 $ 0.64 $ 0.64 $ 0.64 $ 0.64
Dividend payout ratio 46.76% 52.89% 53.33% 70.33% 50.00%
Book value per share at period end $ 13.49 $ 12.60 $ 12.20 $ 11.84 $ 11.86
Average shares outstanding:
Basic 2,319,928 2,357,217 2,432,267 2,535,796 2,617,576
Diluted 2,321,536 2,359,996 2,437,647 2,544,404 2,624,395
3
</table>
<page>
<table>
<caption>
As of or For the Year Ended June 30,
----------------------------------------------
2007 2006 2005 2004 2003
------ ------ ------ ------ ------
<s> <c> <c> <c> <c> <c>
Selected Operating Ratios(1):
Average yield earned on interest-
earning assets(3) 6.15% 5.29% 4.61% 4.28% 5.36%
Average rate paid on interest-
bearing liabilities 4.46 4.01 3.27 3.13 3.57
Average interest rate spread(4) 1.69 1.28 1.34 1.14 1.79
Net interest margin(4) 2.14 1.67 1.68 1.48 2.19
Ratio of interest-earning assets to
interest-bearing liabilities 111.53 110.48 111.45 111.76 112.56
Non-interest expense as a percent of
average assets 0.87 0.82 0.87 0.91 1.05
Return on average assets 0.90 0.66 0.71 0.58 0.89
Return on average equity 12.14 9.87 10.03 7.64 10.97
Ratio of average equity to average
assets 7.43 6.70 7.10 7.60 8.10
Full-service offices at end of period 5 5 5 5 5
Asset Quality Ratios(1):
Non-performing and potential problem
loans and troubled debt
restructurings as a percent of net
total loans(2) 2.60% 3.03% 3.49% 3.19% 3.80%
Non-performing assets as a percent
of total assets(2) 0.30 0.08 0.25 0.19 0.95
Non-performing assets, troubled debt
restructurings and potential problem
loans as a percent of total assets 0.39 0.40 0.52 0.50 0.95
Allowance for loan losses as a
percent of total loans receivable 1.60 1.69 1.83 1.97 2.68
Allowance for loan losses as a
percent of non-performing loans 81.89 310.71 113.58 163.48 72.68
Charge-offs to average loans
receivable outstanding during the
period 0.00 0.01 0.37 0.68 0.00
Capital Ratios(1):
Tier 1 risk-based capital ratio 22.41% 22.12% 20.99% 18.65% 14.30%
Total risk-based capital ratio 23.15 22.88 21.80 19.62 15.57
Tier 1 leverage capital ratio 8.13 6.78 7.14 6.92 8.42
</table>
- ----------------
(1) Consolidated asset quality ratios and capital ratios are end of period
ratios, except for charge-offs to average net loans. With the exception of
end of period ratios, all ratios are based on average monthly balances
during the indicated periods.
(2) Non-performing assets consist of non-performing loans and real estate
owned ("REO"). Non-performing loans consist of non-accrual loans and
accruing loans greater than 90 days delinquent, while REO consists of real
estate acquired through foreclosure and real estate acquired by acceptance
of a deed in lieu of foreclosure. Potential problem loans include loans
where management has some doubt as to the ability of the borrower to
comply with present loan repayment terms.
(3) Interest and yields on tax-exempt loans and securities (tax-exempt for
federal income tax purposes) are shown on a fully taxable equivalent
basis.
(4) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities, and net interest margin represents net
interest income as a percent of average interest-earning assets.
4
<page>
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
When used in this Annual Report, or, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to forward
looking statements to reflect events or circumstances after the date of
statements or to reflect the occurrence of anticipated or unanticipated events.
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of
West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings
bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank converted from the mutual to the stock form of
ownership in November 1993. The Savings Bank had no subsidiaries at June 30,
2007.
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.
5
<page>
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
-----------------------
June 30, Change
--------------------------
2007 2006 Dollars Percentage
---- ---- ------- ----------
(Dollars in Thousands)
Cash and interest-earning
Deposits $ 2,675 $ 1,196 $ 1,479 123.7%
Investments (1) 339,454 360,035 (20,581) -5.7
Net loans receivable 60,350 55,702 4,648 8.3
Total assets 408,076 421,742 (13,666) -3.2
Deposits 159,377 151,713 7,664 5.1
Borrowed funds 213,529 237,777 (24,248) -10.2
Total liabilities 376,783 392,324 (15,541) -4.0
Stockholders' equity 31,293 29,418 1,875 6.4
- ---------------
(1) Includes Federal Home Loan Bank stock.
Cash and Interest-Earning Deposits. Cash on hand and interest-earning deposits
represent cash equivalents. Cash equivalents increased $1.5 million or 123.7% to
$2.7 million at June 30, 2007 from $1.2 million at June 30, 2006. Changes in
cash equivalents are influenced by the timing of customer transaction account
deposits, the redeployment of funds into other earning assets such as
investments or loans, and the repayment of Company borrowings.
Investments. The Company's investment and mortgage-backed portfolios decreased
$20.6 million or 5.7% to $339.5 million at June 30, 2007 from $360.0 million at
June 30, 2006. Investment securities increased $13.7 million or 6.7% to $217.9
million at June 30, 2007. This increase was due primarily to purchases of U.S.
Government Agency securities, funded by early redemptions of U.S. Government
Agency securities and cash repayments of principal on floating rate
mortgage-backed securities. Mortgage-backed securities decreased $34.2 million
or 22.0% to $121.5 million at June 30, 2007. This decrease was due primarily to
repayments of floating rate mortgage-backed securities and the redeployment of
those proceeds into investment securities. See "Quantitative and Qualitative
Disclosures about Market Risk" beginning on page 13.
Net Loans Receivable. Net loans receivable increased $4.6 million or 8.3% to
$60.3 million at June 30, 2007. The increase in loans receivable was principally
the result of increases in the Company's construction, non-residential real
estate and commercial loan portfolios, which have been areas the Company has
focused on for the past two fiscal years. The Savings Bank has continued its
partnership with SCORE (Service Corps of Retired Executives) Pittsburgh to
better serve new business owners and existing Bank business customers with
access to business counseling services.
Deposits. Total deposits increased $7.7 million or 5.1% to $159.4 million at
June 30, 2007. Certificates of deposit increased approximately $6.3 million or
9.3%. Transaction accounts increased approximately $1.7 million or 5.8%. Savings
accounts decreased $3.9 million or 10.6% and money market accounts increased
$3.6 million or 21.6%.
6
<page>
Borrowed Funds. Borrowed funds decreased $24.2 million or 10.2% to $213.5
million at June 30, 2007.The Company repaid all of its FHLB short-term advances,
which totaled $23.2 million. FHLB long-term advances decreased $8.0 million or
5.8% to $130.6 million. Other short-term borrowings increased $6.9 million or
9.1% to $82.9 million. The Company repositioned its borrowing mix as part of its
assets/liability management program.
Stockholders' Equity. Total stockholders' equity increased $1.9 million or 6.4%
to $31.3 million at June 30, 2007. Company earnings of $3.6 million were
partially offset by $1.5 million of cash dividends paid on the Company's common
stock and $607 thousand for the repurchase of 36,875 shares of the Company's
common stock. The Company believes that the repurchase of its common stock
represented an attractive investment opportunity and favorably added to
secondary market liquidity.
RESULTS OF OPERATIONS
Condensed Statements of Income
------------------------------
<table>
<caption>
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
2007 Change 2006 Change 2005
-------- -------- -------- -------- --------
<s> <c> <c> <c> <c> <c>
(Dollars in Thousands)
Interest income $ 24,310 $ 2,062 $ 22,248 $ 4,374 $ 17,874
9.3% 24.5%
Interest expense $ 15,985 $ 525 $ 15,460 $ 3,616 $ 11,844
3.4% 30.5%
Net interest income $ 8,325 $ 1,537 $ 6,788 $ 758 $ 6,030
22.6% 12.6%
Provision (recovery) for loan $ 13 $ 174 ($ 161) ($ 115) ($ 46)
losses 108.1% -250.0%
Non-interest income $ 626 ($ 79) $ 705 ($ 287) $ 992
-11.2% -28.9%
Non-interest expense $ 3,529 $ 8 $ 3,521 ($ 11) $ 3,532
0.2% -0.3%
Income tax expense $ 1,763 $ 476 $ 1,287 $ 660 $ 627
37.0% 105.3%
Net income $ 3,646 $ 800 $ 2,846 ($ 63) $ 2,909
28.1% -2.2%
</table>
General. WVS reported net income of $3.6 million, $2.8 million and $2.9 million
for the fiscal years ended June 30, 2007, 2006 and 2005, respectively. The $800
thousand or 28.1% increase in net income during fiscal 2007 was primarily the
result of a $1.5 million increase in net interest income, which was partially
offset by a $476 thousand increase in income tax expense, a $174 thousand
increase in provisions for loan losses, a $79 thousand decrease in non-interest
income and a $8 thousand increase in non-interest expense. Earnings per share
totaled $1.57 (basic and diluted) for fiscal 2007 as compared to $1.21 (basic
and diluted) for fiscal 2006. The increase in earnings per share was due to an
increase in net income and a reduction in the weighted average number of shares
outstanding due to the Company's stock repurchases during fiscal 2007.
7
<page>
Average Balances, Net Interest Income and Yields Earned and Rates Paid. The
following average balance sheet table sets forth at and for the periods
indicated, information on the Company regarding: (1) the total dollar amounts of
interest income on interest-earning assets and the resulting average yields; (2)
the total dollar amounts of interest expense on interest-bearing liabilities and
the resulting average costs; (3) net interest income; (4) interest rate spread;
(5) net interest-earning assets (interest-bearing liabilities); (6) the net
yield earned on interest-earning assets; and (7) the ratio of total
interest-earning assets to total interest-bearing liabilities.
<table>
<caption>
For the Years Ended June 30,
-----------------------------------------------------------------------------------------
2007 2006 2005
---------------------------- ---------------------------- ----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- ------- -------- -------- --------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable(1) $ 59,030 $ 4,350 7.37% $ 58,274 $ 4,009 6.88% $ 63,725 $ 4,206 6.60%
Mortgage-backed securities 139,683 8,748 6.26 169,844 8,919 5.25 103,307 3,981 3.85
Investments - taxable 183,143 10,276 5.61 177,031 8,292 4.68 200,688 7,873 3.92
Investments - tax-free(2) 10,359 556 7.67 13,276 737 8.00 27,142 1,626 8.74
FHLB stock 6,815 370 5.43 7,033 276 3.92 7,594 178 2.34
Interest-bearing deposits 459 10 2.18 924 15 1.62 1,818 10 0.55
-------- -------- ------- -------- -------- ------- -------- -------- --------
Total interest-earning assets 399,489 24,310 6.15% 426,382 22,248 5.29% 404,274 17,874 4.61%
-------- ======= -------- ======= -------- ========
Non-interest-earning assets 4,485 3,897 3,849
-------- -------- --------
Total assets $403,974 $430,279 $408,123
======== ======== ========
Interest-bearing liabilities:
Interest-bearing deposits and $143,406 $ 4,190 2.92% $142,327 $ 3,123 2.19% $146,366 $ 2,238 1.53%
escrows
FHLB long-term advances 133.532 7.409 5.55 141,558 7,828 5.53 147,780 8,040 5.44
FHLB short-term advances 6,596 354 5.37 2,421 106 4.38 3,021 79 2.62
Other short-term borrowings 74,659 4,032 5.40 99,634 4,403 4.42 65,579 1,487 2.27
-------- -------- ------- -------- -------- ------- -------- -------- --------
Total interest-bearing
liabilities 358,193 15,985 4.46% 385,940 15,460 4.01% 362,746 11,844 3.27%
-------- ======= -------- ======= -------- ========
Non-interest-bearing accounts 12,927 12,513 12,774
-------- -------- --------
Total interest-bearing liabilities
and non-interest-bearing accounts 371,120 398,453 375,520
Non-interest-bearing liabilities 2,829 2,976 3,609
-------- -------- --------
Total liabilities 373,949 141,558 379,129
Equity 30,025 28,850 28,994
-------- -------- --------
Total liabilities and equity $403,974 $430,279 $408,123
======== ======== ========
Net interest income $ 8,325 $ 6,788 $ 6,030
======== ======== ========
Interest rate spread 1.69% 1.28% 1.34%
======== ======== ========
Net yield on interest-earning assets(3) 2.14% 1.67% 1.68%
======== ======== ========
Ratio of interest-earning assets to
interest-bearing liabilities 111.53% 110.48% 111.45%
======== ======== ========
</table>
- ----------------
(1) Includes non-accrual loans.
(2) Yields on tax-exempt securities (tax-exempt for federal income tax purposes)
are shown on a fully taxable equivalent basis utilizing a calculation that
reflects the tax-exempt coupon, a 20% interest expense disallowance and a
federal tax rate of 34%.
(3) Net interest income divided by average interest-earning assets.
8
<page>
Rate/Volume Analysis. The following table describes the extent to which changes
in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to: (1) changes in volume (change in volume multiplied by prior year rate), (2)
changes in rate (change in rate multiplied by prior year volume), and (3) total
change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume.
<table>
<caption>
Year Ended June 30,
--------------------------------------------------------------------------------
2007 vs. 2006 2006 vs. 2005
-------------------------------------- --------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
------------------------ Increase ------------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- ---------- ---------- ---------- ---------- ----------
<s> <c> <c> <c> <c> <c> <c>
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable $ 52 $ 289 $ 341 $ (370) $ 173 $ (197)
Mortgage-backed securities (1,727) 1,556 (171) 3,156 1,782 4,938
Investments - taxable 289 1,695 1,984 (994) 1,413 419
Investments - tax-free (139) (42) (181) (709) (180) (889)
FHLB stock (9) 103 94 (14) 112 98
Interest-bearing deposits (9) 4 (5) (6) 11 5
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets (1,543) 3,605 2,062 1,063 3,311 4,374
Interest-bearing liabilities:
Interest-bearing deposits and
Escrows 278 789 1,067 28 857 885
FHLB long-term borrowings (447) 28 (419) (343) 131 (212)
FHLB short-term borrowings 219 29 248 (17) 44 27
Other short-term borrowings (1,232) 861 (371) 1,033 1,883 2,916
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities (1,182) 1,707 525 701 2,915 3,616
---------- ---------- ---------- ---------- ---------- ----------
Change in net interest income $ (361) $ 1,898 $ 1,537 $ 362 $ 396 $ 758
========== ========== ========== ========== ========== ==========
</table>
Net Interest Income. Net interest income is determined by the Company's interest
rate spread (i.e. the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income increased by $1.5 million or 22.6% in fiscal
2007 and $758 thousand or 12.6% in fiscal 2006. The increase in fiscal 2007 was
the result of an increase in interest and dividend income of $2.1 million or
9.3%, which was partially offset by an increase in interest expense of $525
thousand or 3.4%. The increase in fiscal 2006 was the result of an increase in
interest and dividend income of $4.4 million or 24.5%, which was partially
offset by an increase in interest expense of $3.6 million or 30.5%.
Interest Income. Total interest income increased by $2.1 million or 9.3% during
fiscal 2007 and increased by $4.4 million or 24.5% during fiscal 2006. The
increase in fiscal 2007 was primarily the result of increased yields on the
Company's interest-earning assets which more than offset the decrease in total
interest earning assets. Due to the relatively "flat" U. S. Treasury yield
curve, the Company adjusted its asset mix to improve net interest income. Cash
repayments on interest earning assets were redeployed to repay Company
borrowings. Within the Company's investment portfolio, proceeds from repayments
on mortgage-backed securities were partially redeployed to taxable investment
securities. The increase in fiscal 2006 was primarily the result of increased
yields on the Company's interest-earning assets and increases in the average
balances of the mortgage-backed securities portfolio which were partially offset
by decreases in the average balances of the investment and loan portfolios.
Interest income on investment securities increased $1.8 million or 20.0% during
fiscal 2007 and decreased $470 thousand or 4.9% during fiscal 2006. The increase
in fiscal 2007 was primarily attributable to an 81 basis point increase in the
weighted average yield on the Company's investment securities portfolio and a
$3.2 million increase in the average balance of investments outstanding. The
decrease in fiscal 2006 was primarily the result of a $37.5 million decrease in
the average balance of investments outstanding which was
9
<page>
partially offset by a 42 basis point increase in the weighted average yield on
the Company's investment securities portfolio.
Interest income on mortgage-backed securities decreased $171 thousand or 1.9%
during fiscal 2007 and increased $4.9 million or 124.06% during fiscal 2006. The
decrease in fiscal 2007 was primarily attributable to a $30.2 million decrease
in the average balance of the mortgage-backed securities portfolio, which was
partially offset by a 101 basis point increase in the weighted average yield on
the Company's mortgage-backed securities portfolio. The increase in fiscal 2006
was primarily attributable to a $66.5 million increase in the average balance of
the mortgage-backed securities portfolio and a 140 basis point increase in the
weighted average yield on the mortgage-backed securities portfolio.
Interest income on net loans receivable increased $341 thousand or 8.5% during
fiscal 2007 and decreased $197 thousand or 4.7% during fiscal 2006. The increase
in fiscal 2007 was primarily the result of a 49 basis point increase in the
yield earned on the Company's loan portfolio, and a $756 thousand increase in
the average balance of net loans outstanding. The decrease in fiscal 2006 was
primarily attributable to a $5.6 million decrease in the average balance of net
loans outstanding which was partially offset by a 28 basis point increase in the
yield earned on the Company's loan portfolio. As part of its asset/liability
management strategy, the Company previously limited its origination of
longer-term fixed rate loans to mitigate its exposure to a rise in market
interest rates. The Company continued to offer longer-term fixed rate loans on a
correspondent basis during fiscal 2007 and 2006, as well as focusing on
multi-family and commercial real estate loans, construction loans, land
acquisition and development loans, consumer loans, small business and commercial
loans.
Dividend income on FHLB stock increased $94 thousand or 34.1% during fiscal 2007
and $98 thousand or 55.1% during fiscal 2006. The increase in fiscal 2007 was
primarily attributable to a 151 basis point increase in the weighted average
yield earned on the Company's holdings of FHLB stock which was partially offset
by a $218 thousand decrease in the average balance of FHLB stock outstanding.
The increase during fiscal 2006 was primarily attributable to a 158 basis point
increase in the weighted average yield earned on the Company's holdings of FHLB
stock which was partially offset by a $561 thousand decrease in the average
balance of FHLB stock outstanding.
Interest Expense. Total interest expense increased $525 thousand or 3.4% during
fiscal 2007 and increased by $3.6 million or 30.5% during fiscal 2006. The
increase in fiscal 2007 was primarily attributable to higher rates paid on
interest-bearing liabilities due to higher market interest rates which were
partially offset by decreases in the average balances of borrowed funds
outstanding. The increase in fiscal 2006 was primarily attributable to higher
rates paid on interest-bearing liabilities due to the Federal Reserve's
continued tightening of monetary policy and higher levels of interest-bearing
liabilities.
Interest expense on interest-bearing deposits and escrows increased $1.1 million
or 34.2% in fiscal 2007 and increased $885 thousand or 39.5% in fiscal 2006. The
increase in fiscal 2007 was primarily the result of higher average rates paid
on, and higher average balances outstanding, of time deposits and money market
accounts which were partially offset by lower average balances in passbook
accounts. Average rates paid on time and money market deposits increased by
ninety-two and eighty basis points, respectively. The increase in fiscal 2006
was primarily attributable to a 66 basis point increase in the weighted average
yield paid on deposits and a $3.0 million increase in the average balances of
money market and time deposits, which were partially offset by a $7.1 million
decrease in the average balance of savings accounts and interest-bearing
checking accounts.
Interest expense on FHLB advances decreased $171 thousand or 2.2% during fiscal
2007 and $185 thousand or 2.3% during fiscal 2006. The decrease in fiscal 2007
was primarily attributable to an $8.0 million decrease in the average balances
of FHLB long-term advances outstanding which was partially offset by a $4.2
million increase in the average balance of FHLB short-term advances outstanding,
a 99 basis point increase in the weighted average rate paid on FHLB short-term
advances and a 2 basis point increase in the weighted average rate paid on FHLB
long-term advances. The decrease in fiscal 2006 was primarily attributable to a
$6.2 million decrease in the average balance of FHLB long-term advances
outstanding and a $600 thousand decrease in the average balance of FHLB
short-term advances outstanding, which were
10
<page>
partially offset by a 9 basis point increase in the weighted average rate of
FHLB long-term advances and a 176 basis point increase in the weighted average
rate of FHLB short-term advances. The increase in the average rate on FHLB
short-term advances reflects higher short-term interest rates.
Interest expense on other short-term borrowings decreased $371 thousand or 8.4%
during fiscal 2007 and increased $2.9 million or 196.1% during fiscal 2006. The
decrease during fiscal 2007 was primarily attributable to a $25.0 million
decrease in the average balance of other short-term borrowings outstanding which
was partially offset by a 98 basis point increase in the weighted average rate
paid on other short-term borrowings. The increase in fiscal 2006 was primarily
attributable to a 215 basis point increase in the weighted average rate paid on
other short-term borrowings and a $34.1 million increase in the average balance
of other short-term borrowings outstanding. The increase in the average rate on
other short-term borrowings reflects higher short-term interest rates.
Recovery for Loan Losses. A provision for loan losses is charged to earnings to
bring the total allowance to a level considered adequate by management to absorb
potential losses in the portfolio. Management's determination of the adequacy of
the allowance is based on periodic evaluations of the loan portfolio considering
past experience, current economic conditions, volume, growth, composition of the
loan portfolio and other relevant factors. The Company recorded a provision for
loan losses of $13 thousand in fiscal 2007, compared to a recovery of $161
thousand in fiscal 2006. The provision for loan loss recorded in fiscal 2007 was
primarily attributable to increased loan balances outstanding. The credit
provision for fiscal 2006 was primarily attributable to continued paydowns of
non-accrual loans and a reallocation of $35 thousand of its allowance for loan
loss attributable to off-balance sheet liabilities (builder letters of credit
and undisbursed lines of credit) to a separate reserve account for financial
reporting purposes.
Non-interest Income. Total non-interest income decreased by $79 thousand or
11.2% in fiscal 2007 and decreased by $287 thousand or 28.9% in fiscal 2006. The
decrease in fiscal 2007 was primarily attributable to the absence of a $30
thousand pre-tax gain on the sale of mortgage-backed securities in fiscal 2006,
a decrease of deposit fee income and decreases in ATM and debit card fee income.
The decrease in fiscal 2006 was primarily attributable to a $306 thousand
decrease in pre-tax securities gains, which was partially offset by a $19
thousand increase in deposit account fee income.
Non-interest Expense. Total non-interest expense increased $8 thousand or 0.2%
in fiscal 2007, and decreased $11 thousand or 0.3% during fiscal 2006. The
increase in fiscal 2007 was primarily attributable to increases in employee
related costs which were partially offset by decreases in correspondent bank
service charges and other operating costs. The decrease in fiscal 2006 was
primarily attributable to a decrease in fixed asset depreciation which was
partially offset by a reallocation of a portion of the Company's allowance for
loan loss attributable to off-balance sheet liabilities as discussed above.
Income Taxes. Income taxes increased $476 thousand or 37.0% during fiscal 2007
and increased $660 thousand or 105.3% during fiscal 2006. The increase in fiscal
year 2007 was primarily attributable to higher levels of taxable income. The
increase for fiscal year 2006 was primarily attributable to higher levels of
taxable income and lower levels of tax-exempt interest income. State mutual
thrift tax expense for both fiscal years 2007 and 2006 continued to be favorably
impacted by state tax-exempt holdings of FHLB bonds. The Company's effective tax
rate was 32.6% at June 30, 2007 and 31.1% at June 30, 2006.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash
equivalents increased by $1.5 million during fiscal 2007 primarily due to $16.0
million of net cash provided by investing activities and $3.2 million of net
cash provided by operating activities, which were partially offset by $17.7
million of net cash used for financing activities.
Funds provided by operating activities totaled $3.2 million during fiscal 2007
as compared to $2.5 million during fiscal 2006. Net cash provided by operating
activities was primarily comprised of $3.6 million of net
11
<page>
income, a $218 thousand increase in accrued interest payable and a $137 thousand
in fixed asset depreciation which were partially offset by a $793 thousand
increase in accrued interest receivable.
Funds provided by investing activities totaled $16.0 million during fiscal 2007
as compared to $2.4 million used for investing activities during fiscal 2006.
Primary sources of funds during fiscal 2007 included repayments of investment,
mortgage-backed securities, and FHLB Stock totaling $130.7 million, $39.3
million, and $5.7 million, respectively, which were partially offset by
purchases of investments, mortgage-backed securities and FHLB Stock totaling
$145.7 million, $5.0 million, and $4.2 million, respectively, and a $4.7 million
increase in net loans receivable. Investment purchases were comprised primarily
of fixed rate callable U.S. Government agency bonds and short-term commercial
paper. The mortgage-backed securities purchases were floating rate instruments
that reprice on a monthly basis.
Funds used for financing activities totaled $17.8 million for fiscal 2007 as
compared to $2.4 million in fiscal 2006. Primary uses of funds for fiscal 2007
were a $23.2 million decrease in short-term FHLB advances, a $8.0 million
decrease in long-term FHLB advances, $1.5 million in cash dividends paid on the
Company's common stock and $607 thousand of treasury stock purchases, which were
partially offset by a $8.3 million increase in total deposits and a $6.9 million
increase in other short-term borrowings. The $8.3 million increase in total
deposits consisted of a $6.3 million increase in certificates of deposit
primarily due to accounts opened by local county municipal governments, a $3.6
million increase in money market accounts and a $1.7 million increase in
transaction accounts, which were partially offset by a $3.9 million decrease in
passbook accounts. During fiscal 2007 the Company purchased 36,875 shares of
Company common stock for approximately $607 thousand. Management has determined
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, repayments on existing
loans, mortgage-backed securities and investment securities, funds from
operations, and funds obtained through deposits, FHLB advances and other
borrowings. At June 30, 2007, the total approved loan commitments outstanding
amounted to $1.2 million. At the same date, commitments under unused letters and
lines of credit amounted to $7.4 million and the unadvanced portion of
construction loans approximated $12.1 million. Certificates of deposit scheduled
to mature in one year or less at June 30, 2007, totaled $56.6 million.
Management believes that a significant portion of maturing deposits will remain
with the Company.
The Company's contractual obligations at June 30, 2007 were as follows:
<table>
<caption>
Contractual Obligations
(Dollars in Thousands)
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
---------- ---------- ---------- ---------- ----------
<s> <c> <c> <c> <c> <c>
Long-term debt $ 130,579 $ -- $ 26,079 $ 97,000 $ 7,500
Operating lease obligations 392 50 85 80 177
---------- ---------- ---------- ---------- ----------
$ 130,971 $ 50 $ 26,164 $ 97,080 $ 7,677
</table>
See also Note 13 of the Company's Consolidated Financial Statements.
Historically, the Company used its sources of funds primarily to meet its
ongoing commitments to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a substantial portfolio of
investment securities. The Company has been able to generate sufficient cash
through FHLB advances and other borrowings and through the retail deposit market
to provide the cash utilized in investing activities. The Company 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 July 31, 2007, the Company's Board of Directors declared a cash dividend of
$0.16 per share payable on August 23, 2007 to shareholders of record at the
close of business on August 13, 2007. 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 the future or that, if paid, such dividends
will not be reduced or eliminated in future periods.
12
<page>
As of June 30, 2007, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier I and total risk-based capital equal to $31.3
million or 22.4% and $32.3 million or 23.2%, respectively, of total
risk-weighted assets; and Tier I leverage capital of $31.3 million or 8.1% of
average total assets.
Non-performing assets consist of non-accrual loans and real estate owned. A loan
is placed on non-accrual 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 non-accrual 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
non-performing assets at June 30, 2007 totaled approximately $1.2 million or
0.3% of total assets compared to $318 thousand or 0.08% of total assets at June
30, 2006. Non-performing assets at June 30, 2007 consisted of one commercial
real estate loan totaling $972 thousand, three single-family real estate loans
totaling $214 thousand, two lines of credit totaling $18 thousand, and one
single-family real estate owned property with a book value of approximately $2
thousand. Non-performing assets increased $888 thousand or 279.2% to $1.2
million of total assets, at June 30, 2007. The increase was primarily the result
of $972 thousand in loans classified as non-performing during the quarter ended
March 31, 2007, which were partially offset by $75 thousand in loans
reclassified as performing due to improved economic performance.
Impact of Inflation and Changing Prices. The consolidated financial statements
of the Company and related notes presented herein have been prepared in
accordance with U.S. generally accepted accounting principles which require the
measurement of financial condition and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services since such prices are affected by inflation to a
larger degree than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels.
Recent Accounting and Regulatory Pronouncements. The Company's discussion of
recent accounting and regulatory pronouncements can be found in Note 1 of the
Company's Consolidated Financial Statements.
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Company's transactions are denominated
in 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
13
<page>
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 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 fiscal 2007, the Federal Open Market Committee held its targeted federal
funds rate at 5.25%. The table below shows the targeted federal funds rate and
the benchmark two and ten year treasury yields at June 30, 2006, December 31,
2006, March 31, 2007 and June 30, 2007. The difference in yields on the ten year
and two year Treasury's is often used to determine the steepness of the yield
curve and to assess the term premium of market interest rates.
Yield on:
------------------------
Targeted Two (2) Ten (10) Shape of
Federal Year Year Yield
Funds Treasury Treasury Curve
---------- -------------------------------------------
June 30, 2006 5.25% 5.16% 5.15% Flat
December 31, 2006 5.25% 4.82% 4.71% Inverted
March 31, 2007 5.25% 4.58% 4.65% Slightly Positive
June 30, 2007 5.25% 4.87% 5.03% Slightly Positive
These changes in intermediate and long-term market interest rates, the changing
slope of the Treasury yield curve, and continued high levels of interest rate
volatility have impacted prepayments on the Company's loan, investment and
mortgage-backed securities portfolios and have caused a marked compression of
industry-wide net interest margins. Due to its asset/liability management
initiatives, the Company was able to increase both its interest rate spread and
net interest margin during fiscal 2007.
The term premium of market interest rates is often used to determine the
relative merits of taking on additional interest rate risk and to gauge the
market's expectation of future interest rates. Due to changes in the term
premium of market interest rates experienced in fiscal year 2007, the Company
adjusted its asset/liability strategy in several ways. The Company's proceeds
from repayments on mortgage-backed securities were used primarily to reduce
short-term borrowings and, to a lesser extent, purchase U. S. Government agency
bonds and investment grade short-term commercial paper. The Company believes
that by strategically reducing the balance sheet, it was able to substantially
improve net interest income, various capital ratios and better position itself
in light of high levels of interest rate volatility.
Principal repayments on the Company's loan, investment and mortgage-backed
securities portfolios for the fiscal year ended June 30, 2007, totaled $20.6
million, $130.7 million and $39.3 million, respectively. Due to a marked
compression of Treasury yields, high market volatility and the changing spreads
available on mortgage-backed and investment securities, the Company chose to use
some principal
14
<page>
repayments to reduce short and long-term debt during most of fiscal 2007. This
strategy has allowed the Company to increase operating margins and capital
ratios while reducing overall interest rate risk.
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 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), and
commercial loans on business assets to partially increase interest income while
limiting interest rate risk. The Company has also emphasized higher yielding
commercial 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, and investment
grade short-term commercial paper, to limit interest rate risk within the
portfolio. Within the mortgage-backed securities portfolio, the Company
redeployed repayments to reduce short-term borrowings, and augment investment
purchases in order to provide current income and in response to changing term
premiums of 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 fiscal 2007 principal investment purchases were comprised of: callable
fixed rate government agency bonds with initial lock-out periods as follows: 0 -
12 months - $87.6 million with a weighted average yield to call of approximately
6.06%, 13 - 24 months - $39.4 million with a weighted average yield to call of
approximately 6.01%; short-term commercial paper - $18.6 million with a weighted
average yield of approximately 5.57%; 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 fiscal 2007
were: callable government agency bonds - $115.5 million with a weighted average
yield of approximately 4.90%; mortgage-backed securities - $39.3 million;
short-term commercial paper - $12.0 million with a weighted average yield of
5.54%; tax-free municipal bonds - $2.3 million with a weighted average yield of
approximately 5.61%; and taxable municipal bonds - $135 thousand with a weighted
average yield of 6.61%.
As of June 30, 2007, the implementation of these asset and liability management
initiatives resulted in the following:
1) $119.3 million or 98.2% 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) $25.0 million or 11.8% 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 - $10.0 million; and 6 - 12
months - $15.0 million. Management currently believes that these bonds
are likely to be repaid during the intervals shown.
3) $156.5 million or 74.0% 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 - $25.7 million; 3 - 6 months -
$17.0 million; 6 - 12 months - $52.3 million; 1 - 2 years - $58.5
million; and over 2 years - $3.0 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) $14.6 million or 6.9% of the Company's investment portfolio was
comprised of investment grade commercial paper with maturities of less
than thirty days.
5) $4.7 million or 2.2% of the Company's investment portfolio was
comprised of U.S. Government Agency Step-up bonds which will reprice as
follows: 6 - 12 months - $4.7 million from 4.70% to 6.00%. These bonds
may or may not actually be redeemed prior to maturity depending upon
the level of market interest rates at their respective step-up dates.
6) An aggregate of $35.0 million or 57.0% of the Company's net loan
portfolio had adjustable interest rates or maturities of less than 12
months; and
15
<page>
7) The maturity distribution of the Company's borrowings is as follows: 1
month or less - $66.3 million or 31.1%; 2 - 3 months - $13.6 million or
6.4%; 3 - 12 months - $3.0 million or 1.4%; 1 - 3 years - $26.1 million
or 12.2%; 3 - 5 years - $97.0 million or 45.4%; and over 5 years - $7.5
million or 3.5%.
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.
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.
June 30,
--------------------------------
2007 2006 2005
-------- -------- --------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $206,136 $273,884 $318,015
Interest-bearing liabilities maturing or
repricing within one year 187,494 194,509 181,085
-------- -------- --------
Interest sensitivity gap $ 18,642 $ 79,375 $136,930
======== ======== ========
Interest sensitivity gap as a percentage of
total assets 4.57% 18.82% 32.5%
Ratio of assets to liabilities
maturing or repricing within one year 109.94% 140.81% 175.6%
During fiscal 2007, the Company managed its one year interest sensitivity gap
by: (1) limiting the portfolio origination of long-term fixed rate mortgages;
(2) emphasizing loans with shorter terms or repricing frequencies; (3) reducing
its short and long-term borrowings with repayments from mortgage-backed
securities; and (4) adjusting its investment portfolio to include U. S.
Government Agency bonds, with more varied call dates, and to include modestly
higher holdings of investment grade commercial paper.
16
<page>
The following table illustrates the Company's estimated stressed cumulative
repricing gap - the difference between the amount of interest-earning assets and
interest-bearing liabilities expected to reprice at a given point in time - at
June 30, 2007. The table estimates the impact of an upward or downward change in
market interest rates of 100 and 200 basis points.
<table>
<caption>
Cumulative Stressed Repricing Gap
---------------------------------
Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term
------- ------- -------- -------- -------- -------- ---------
<s> <c> <c> <c> <c> <c> <c> <c>
(Dollars in Thousands)
Base Case Up 200 bp
- -------------------
Cummulative
Gap ($'s) 35,215 22,436 16,865 (195) (21,631) (119,128) 29,898
% of Total
Assets 8.6% 5.3% 4.1% 0.0% -5.3% -29.2% 7.3%
Base Case Up 100 bp
- -------------------
Cummulative
Gap ($'s) 35,393 22,768 17,445 570 (20,823) (118,296) 29,898
% of Total
Assets 8.7% 5.6% 4.3% 0.1% -5.1% -29.0% 7.3%
Base Case No Change
- -------------------
Cummulative
Gap ($'s) 35,995 23,662 18,642 5,904 (12,396) (93,338) 29,898
% of Total
Assets 8.8% 5.8% 4.6% 1.4% -3.0% -22.9% 7.3%
Base Case Down 100 bp
- ---------------------
Cummulative
Gap ($'s) 61,155 66,607 115,978 159,883 144,972 47,514 29,898
% of Total
Assets 15.0% 16.3% 28.4% 39.2% 35.5% 11.6% 7.3%
Base Case Down 200 bp
- ---------------------
Cummulative
Gap ($'s) 69,857 72,450 121,289 166,457 151,117 50,149 29,898
% of Total
Assets 17.1% 17.8% 29.7% 40.8% 37.0% 12.3% 7.3%
</table>
The Company utilizes 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.
17
<page>
The following table presents the simulated impact of a 100 and 200 basis point
upward or downward shift in market interest rates and the estimated impact on
net interest income, return on average equity, return on average assets and the
market value of portfolio equity. This analysis was done assuming that the
interest-earning asset and interest-bearing liability levels at the end of each
fiscal year remained constant.
<table>
<caption>
Analysis of Sensitivity to Changes in Market Interest Rates
-----------------------------------------------------------
Modeled Change in Market Interest Rates
-------------------------------------------------------------------------------------------------
June 30, 2007 June 30, 2006
------------------------------------------------ -----------------------------------------------
Estimated impact on: -200 -100 0 +100 +200 -200 -100 0 +100 +200
- -------------------- ---- ---- - ---- ---- ---- ---- - ---- ----
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Change in net
interest income -16.6% -6.0% 0.00% 1.8% -7.4% -28.0% -11.0% 0.00% -11.4% -46.1%
Return on average 9.31% 11.07% 12.05% 12.31% 10.86% 7.83% 10.74% 12.59% 10.69% 4.65%
equity
Return on average
assets 0.70% 0.83% 0.92% 0.93% 0.81% 0.59% 0.78% 0.92% 0.78% 0.32%
Market value of
equity (in thousands) $31,575 $36,391 $36,168 $24,967 $8,142 $28,869 $33,371 $33,690 $25,363 $5,881
</table>
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 June 30,
2007.
Anticipated Transactions
--------------------------------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and development loans
Fixed rate $ 6,608
8.15%
Adjustable rate $ 5,482
8.81%
Undisbursed lines of credit
Adjustable rate $ 6,457
8.48%
Loan origination commitments
Fixed rate $ 296
8.25%
Adjustable rate $ 900
8.75%
Letters of credit
Adjustable rate $ 990
9.26%
----------
$ 20,733
==========
18
<page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
WVS Financial Corp.
We have audited the accompanying consolidated balance sheet of WVS Financial
Corp. and subsidiary as of June 30, 2007 and 2006, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended June 30, 2007. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WVS Financial Corp.
and subsidiary as of June 30, 2007 and 2006, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
August 22, 2007
19
<page>
<table>
<caption>
WVS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
June 30,
2007 2006
--------- ---------
<s> <c> <c>
ASSETS
Cash and due from banks $ 630 $ 1,099
Interest-earning demand deposits 2,045 97
--------- ---------
Total cash and cash equivalents 2,675 1,196
Investment securities available for sale (amortized
cost of $8,957 and $8,497) 8,933 8,469
Investment securities held to maturity (market value
of $201,510 and $185,680) 202,664 187,952
Mortgage-backed securities available for sale
(amortized cost of $2,186 and $2,229) 2,246 2,292
Mortgage-backed securities held to maturity
(market value of $119,646 and $152,706) 119,271 153,461
Net loans receivable (allowance for loan losses of
$986 and $957) 60,350 55,702
Accrued interest receivable 3,714 2,921
Federal Home Loan Bank stock, at cost 6,340 7,861
Premises and equipment 813 864
Other assets 1,070 1,024
--------- ---------
TOTAL ASSETS $ 408,076 $ 421,742
========= =========
LIABILITIES
Deposits $ 159,377 $ 151,713
Federal Home Loan Bank advances: long-term 130,579 138,579
Federal Home Loan Bank advances: short-term -- 23,150
Other borrowings 82,950 76,048
Accrued interest payable 1,669 1,451
Other liabilities 2,208 1,383
--------- ---------
TOTAL LIABILITIES 376,783 392,324
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000 shares authorized;
none outstanding -- --
Common stock, par value $0.01; 10,000,000 shares authorized;
3,790,336 and 3,769,838 shares issued 38 38
Additional paid-in capital 21,137 20,817
Treasury stock (1,471,481 and 1,434,606 shares at cost) (22,286) (21,679)
Retained earnings - substantially restricted 32,382 30,221
Accumulated other comprehensive income 23 23
Unallocated shares - Recognition and Retention Plans (1) (2)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 31,293 29,418
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 408,076 $ 421,742
========= =========
See accompanying notes to the consolidated financial statements.
20
</table>
<page>
<table>
<caption>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
Year Ended June 30,
2007 2006 2005
----------- ----------- -----------
<s> <c> <c> <c>
INTEREST AND DIVIDEND INCOME
Loans $ 4,350 $ 4,009 $ 4,206
Investment securities 10,832 9,029 9,499
Mortgage-backed securities 8,748 8,919 3,981
Interest-earning demand deposits 10 15 10
Federal Home Loan Bank stock 370 276 178
----------- ----------- -----------
Total interest and dividend income 24,310 22,248 17,874
----------- ----------- -----------
INTEREST EXPENSE
Deposits 4,190 3,123 2,238
Federal Home Loan Bank advances 7,763 7,934 8,119
Other borrowings 4,032 4,403 1,487
----------- ----------- -----------
Total interest expense 15,985 15,460 11,844
----------- ----------- -----------
NET INTEREST INCOME 8,325 6,788 6,030
Provision (recovery) for loan losses 13 (161) (46)
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
(RECOVERY) FOR LOAN LOSSES 8,312 6,949 6,076
----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposits 359 380 361
Investment securities gains -- 30 336
Other 267 295 295
----------- ----------- -----------
Total noninterest income 626 705 992
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,011 1,970 1,971
Occupancy and equipment 380 387 438
Data processing 270 271 267
Correspondent bank charges 118 132 134
Other 750 761 722
----------- ----------- -----------
Total noninterest expense 3,529 3,521 3,532
----------- ----------- -----------
Income before income taxes 5,409 4,133 3,536
Income taxes 1,763 1,287 627
----------- ----------- -----------
NET INCOME $ 3,646 $ 2,846 $ 2,909
=========== =========== ===========
EARNINGS PER SHARE:
Basic $ 1.57 $ 1.21 $ 1.20
Diluted 1.57 1.21 1.19
AVERAGE SHARES OUTSTANDING:
Basic 2,319,928 2,357,217 2,432,267
Diluted 2,321,536 2,359,996 2,437,647
See accompanying notes to the consolidated financial statements.
21
</table>
<page>
<table>
<caption>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Retained
Earnings- Accumulated
Additional Substan- Other Unallocated
Common Paid-in Treasury tially Comprehensive Shares Held
Stock Capital Stock Restricted Income (Loss) by RRP Total
--------- ---------- ---------- ----------- ------------ ------------ ---------
<s> <c> <c> <c> <c> <c> <c> <c>
Balance June 30, 2004 $ 38 $ 20,727 $ (19,377) $ 27,535 $ 281 $ (5) $ 29,199
Net income 2,909 2,909
Unrealized loss on available-
for-sale securities, net of taxes of $68 (132) (132)
Purchase of treasury stock (71,964) (1,217) (1,217)
Cash dividends declared ($0.64 per share) (1,559) (1,559)
Other, net (1) 2 1
--------- ---------- ---------- ----------- ------------ ------------ ---------
Balance June 30, 2005 38 20,726 (20,594) 28,885 149 (3) 29,201
Net income 2,846 2,846
Unrealized loss on available-
for-sale securities, net of taxes of $65 (126) (126)
Exercise of stock options (7,320) 91 91
Purchase of treasury stock (66,098) (1,085) (1,085)
Cash dividends declared ($0.64 per share) (1,510) (1,510)
Other, net 1
--------- ---------- ---------- ----------- ------------ ------------ ---------
Balance June 30, 2006 38 20,817 (21,679) 30,221 23 (2) 29,418
Net income 3,646 3,646
Exercise of stock options (20,498) 320 320
Purchase of treasury stock (36,875) (607) (607)
Cash dividends declared ($0.64 per share) (1,485) (1,485)
Other, net 1 1
--------- ---------- ---------- ----------- ------------ ------------ ---------
Balance June 30, 2007 $ 38 $ 21,137 $ (22,286) $ 32,382 $ 23 $ (1) $ 31,293
========= ========== ========== =========== ============ ============ =========
See accompanying notes to the consolidated financial statements.
22
</table>
<page>
<table>
<caption>
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended June 30,
2007 2006 2005
--------- --------- ---------
<s> <c> <c> <c>
OPERATING ACTIVITIES
Net income $ 3,646 $ 2,846 $ 2,909
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision (recovery) for loan losses 13 (161) (46)
Depreciation 137 154 193
Investment securities gains -- (30) (336)
Amortization (accretion) of discounts, premiums, and
deferred loan fees (188) (234) (415)
Sale of trading securities -- -- 1,000
Deferred income taxes (26) 181 73
Decrease (increase) in accrued interest receivable (793) (864) 399
Increase in accrued interest payable 218 191 63
Other, net 211 377 (43)
--------- --------- ---------
Net cash provided by operating activities 3,218 2,460 3,797
--------- --------- ---------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and mortgage-backed
securities (12,440) (8,690) (26,145)
Proceeds from repayments of investment and
mortgage-backed securities 12,042 9,395 20,364
Proceeds from sales of investment and
mortgage-backed securities -- 1,016 1,409
Held to maturity:
Purchase of investment and mortgage-backed
securities (138,272) (202,891) (368,064)
Proceeds from repayments of investment and
mortgage-backed securities 157,938 194,306 377,002
Net (increase) decrease in net loans receivable (4,681) 4,581 7,733
Purchase of Federal Home Loan Bank stock (4,227) (5,994) (8,761)
Redemption of Federal Home Loan Bank stock 5,748 5,902 8,524
Acquisition of premises and equipment (86 (79) (55)
Other, net -- 60 --
--------- --------- ---------
Net cash provided by (used for) investing activities 16,022 (2,394) 12,007
--------- --------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,259 (12,993) 4,143
Net increase (decrease) in Federal Home Loan Bank short-term advances (23,150) 10,850 12,300
Net increase (decrease) in other borrowings 6,902 6,368 (21,959)
Proceeds from Federal Home Loan Bank long-term advances -- -- --
Repayments of Federal Home Loan Bank long-term advances (8,000) (4,157) (7,000)
Net proceeds from exercise of stock options 320 91 --
Cash dividends paid (1,485) (1,510) (1,559)
Purchase of treasury stock (607) (1,085) (1,217)
--------- --------- ---------
Net cash used for financing activities (17,761) (2,436) (15,292)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,479 (2,370) 512
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,196 3,566 3,054
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,675 $ 1,196 $ 3,566
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 15,767 $ 15,269 $ 11,782
Taxes 1,764 915 655
Non cash item
Due to Federal Reserve Bank 595 -- --
See accompanying notes to the consolidated financial statements.
23
</table>
<page>
WVS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
WVS Financial Corp. ("WVS" or the "Company") is a
Pennsylvania-chartered unitary bank holding company which owns 100
percent of the common stock of West View Savings Bank ("West View" or
the "Savings Bank"). The operating results of the Company depend
primarily upon the operating results of the Savings Bank and, to a
lesser extent, income from interest-earning assets such as investment
securities.
West View is a Pennsylvania-chartered, FDIC-insured stock savings bank
conducting business from six offices in the North Hills suburbs of
Pittsburgh. The Savings Bank's principal sources of revenue originate
from its portfolio of residential real estate and commercial mortgage
loans as well as income from investment and mortgage-backed securities.
The Company is supervised by the Board of Governors of the Federal
Reserve System, while the Savings Bank is subject to regulation and
supervision by the Federal Deposit Insurance Corporation ("FDIC") and
the Pennsylvania Department of Banking.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of WVS and
its wholly owned subsidiary, West View. All intercompany transactions
have been eliminated in consolidation. The accounting and reporting
policies of WVS and West View conform to U.S. generally accepted
accounting principles. The Company's fiscal year-end for financial
reporting is June 30. For regulatory and income tax reporting purposes,
WVS reports on a December 31 calendar year basis.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the balance sheet date and
revenues and expenses for that period. Actual results could differ
significantly from those estimates.
Investment and Mortgage-Backed Securities
-----------------------------------------
Investment securities are classified at the time of purchase as
securities held to maturity or securities available for sale based on
management's ability and intent. Debt and mortgage-backed securities
acquired with the ability and intent to hold to maturity are stated at
cost adjusted for amortization of premium and accretion of discount,
which are computed using the level-yield method and recognized as
adjustments of interest income. Amortization rates for mortgage-backed
securities are periodically adjusted to reflect changes in the
prepayment speeds of the underlying mortgages. Certain other debt,
equity, and mortgage-backed securities have been classified as
available for sale to serve principally as a source of liquidity.
Unrealized holding gains and losses for available-for-sale securities
are reported as a separate component of stockholders' equity, net of
tax, until realized. Realized securities gains and losses are computed
using the specific identification method. Interest and dividends on
investment and mortgage-backed securities are recognized as income when
earned.
Common stock of the Federal Home Loan Bank (the "FHLB") represents
ownership in an institution, which is wholly owned by other financial
institutions. This equity security is accounted for at cost and
reported separately on the accompanying Consolidated Balance Sheet.
24
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trading Securities
------------------
Trading securities are held for resale in anticipation of short-term
(generally 90 days or less) fluctuations in market prices. Trading
securities are stated at fair value. Realized and unrealized gains and
losses are included in noninterest income as investment securities
gains.
Net Loans Receivable
--------------------
Net loans receivable are reported at their principal amount, net of the
allowance for loan losses and deferred loan fees. Interest on mortgage,
consumer, and commercial loans is recognized on the accrual method. The
Company's general policy is to stop accruing interest on loans when,
based upon relevant factors, the collection of principal or interest is
doubtful, regardless of the contractual status. Interest received on
nonaccrual loans is recorded as income or applied against principal
according to management's judgment as to the collectibility of such
principal.
Loan origination and commitment fees, and all incremental direct loan
origination costs, are deferred and recognized over the contractual
remaining lives of the related loans on a level-yield basis.
Allowance for Loan Losses
-------------------------
The allowance for loan losses represents the amount which management
estimates is adequate to provide for probable losses inherent in its
loan portfolio. The allowance method is used in providing for loan
losses. Accordingly, all loan losses are charged to the allowance, and
all recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses charged to operations.
The provision for loan losses is based on management's periodic
evaluation of individual loans, economic factors, past loan loss
experience, changes in the composition and volume of the portfolio, and
other relevant factors. The estimates used in determining the adequacy
of the allowance for loan losses, including the amounts and timing of
future cash flows expected on impaired loans, are particularly
susceptible to changes in the near term.
Impaired loans are commercial and commercial real estate loans for
which it is probable the Company will not be able to collect all
amounts due according to the contractual terms of the loan agreement.
The Company individually evaluates such loans for impairment and does
not aggregate loans by major risk classifications. The definition of
"impaired loans" is not the same as the definition of "nonaccrual
loans," although the two categories overlap. The Company may choose to
place a loan on nonaccrual status due to payment delinquency or
uncertain collectibility, while not classifying the loan as impaired if
the loan is not a commercial or commercial real estate loan. Factors
considered by management in determining impairment include payment
status and collateral value. The amount of impairment for these types
of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the
original interest rate, and its recorded value, or as a practical
expedient in the case of collateralized loans, the difference between
the fair value of the collateral and the recorded amount of the loans.
When foreclosure is probable, impairment is measured based on the fair
value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans
are large groups of smaller-balance homogeneous loans and are measured
for impairment collectively. Loans that experience insignificant
payment delays, which are defined as 90 days or less, generally are not
classified as impaired. Management determines the significance of
payment delays on a case-by-case basis taking into consideration all
circumstances surrounding the loan and the borrower, including the
length of the delay, the borrower's prior payment record, and the
amount of shortfall in relation to the principal and interest owed.
25
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Owned
-----------------
Real estate owned acquired through foreclosure is carried at the lower
of cost or fair value minus estimated costs to sell. Costs relating to
development and improvement of the property are capitalized, whereas
costs of holding such real estate are expensed as incurred. Valuation
allowances for estimated losses are provided when the carrying value of
the real estate acquired exceeds the fair value.
Premises and Equipment
----------------------
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is principally computed on the straight-line
method over the estimated useful lives of the related assets, which
range from 3 to 10 years for furniture and equipment and 25 to 50 years
for building premises. Leasehold improvements are amortized over the
shorter of their estimated useful lives or their respective lease
terms, which range from 7 to 15 years. Expenditures for maintenance and
repairs are charged against income as incurred. Costs of major
additions and improvements are capitalized.
Income Taxes
------------
Deferred tax assets and liabilities are computed based on the
difference between the financial statement and the income tax basis of
assets and liabilities using the enacted marginal tax rates. Deferred
income taxes or benefits are based on the changes in the deferred tax
asset or liability from period to period.
The Company files a consolidated federal income tax return. Deferred
tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which such items are expected to
be realized or settled. As changes in tax rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for
income taxes.
Earnings Per Share
------------------
The Company provides dual presentation of basic and diluted earnings
per share. Basic earnings per share are calculated by dividing net
income available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted earnings per
share are calculated by dividing net income available to common
stockholders, adjusted for the effects of any dilutive securities, by
the weighted-average number of common shares outstanding, adjusted for
the effects of any dilutive securities.
Stock Options
-------------
The Company accounts for stock-based compensation in accordance with
Financial Accounting Standard (FAS) No. 123R. FAS 123R requires
compensation costs related to share-based payment transactions to be
recognized in the financial statements (with limited exceptions). The
amount of compensation cost is measured based on the grant-date fair
value of the equity or liability instruments issued. Compensation cost
is recognized over the period that an employee provides service in
exchange for the award. The Company did not have any non-vested stock
options outstanding during the periods ended June 30, 2007, 2006, and
2005. There were no options issued during the periods ended June 30,
2007, 2006, and 2005.
26
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
--------------------
The Company is required to present comprehensive income and its
components in a full set of general- purpose financial statements for
all periods presented. Other comprehensive income is composed
exclusively of net unrealized holding gains (losses) on its
available-for-sale securities portfolio. The Company has elected to
report the effects of its other comprehensive income as part of Note 3.
Cash Flow Information
---------------------
Cash and cash equivalents include cash and due from banks and
interest-earning demand deposits.
Reclassification of Comparative Figures
---------------------------------------
Certain comparative amounts for prior years have been reclassified to
conform to current-year presentations. Such reclassifications did not
affect net income or stockholders' equity.
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
adoption of this standard is not expected to have a material effect on
the Company's financial position.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an amendment
of FASB Statement No. 115, which provides all entities with an option
to report selected financial assets and liabilities at fair value. The
objective of the FAS No. 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in
earnings caused by measuring related assets and liabilities differently
without having to apply the complex provisions of hedge accounting. FAS
No. 159 is effective as of the beginning of an entity's first fiscal
year beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15,
2007 provided the entity also elects to apply the provisions of FAS No.
157, Fair Value Measurements. The adoption of this standard is not
expected to have a material effect on the Company's results of
operations or financial position.
27
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
--------------------------------
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 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 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 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 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 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 adoption of this standard is not expected to
have a material effect on the Company's results of operations or
financial position.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No.
06-10 ("EITF 06-10"), Accounting for Collateral Assignment Split-Dollar
Life Insurance Agreements. EITF 06-10 provides guidance for determining
a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the
terms of the collateral assignment agreement. EITF 06-10 is effective
for fiscal years beginning after December 15, 2007. The adoption of
this standard is not expected to have a material effect on the
Company's results of operations or financial position.
In June 2007, the FASB ratified Emerging Issues Task Force Issue No.
06-11 ("EITF 06-11"), Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards. EITF 06-11 applies to share-based
payment arrangements with dividend protection features that entitle
employees to receive (a) dividends on equity-classified nonvested
shares, (b) dividend equivalents on equity-classified nonvested share
units, or (c) payments equal to the dividends paid on the underlying
shares while an equity-classified share option is outstanding, when
those dividends or dividend equivalents are charged to retained
earnings under FAS No. 123R, Share-Based Payment, and result in an
income tax deduction for the employer. A consensus was reached that a
realized income tax benefit from dividends or dividend equivalents that
are charged to retained earnings and are paid to employees for
equity-classified nonvested equity shares, nonvested equity share
units, and outstanding equity share options should be recognized as an
increase in additional paid-in capital. EITF 06-11 is effective for
fiscal years beginning after December 15, 2007, and interim periods
within those fiscal years. The adoption of this standard is not
expected to have a material effect on the Company's results of
operations or financial position.
28
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
2. 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.
<table>
<caption>
2007 2006 2005
---------- ---------- ----------
<s> <c> <c> <c>
Weighted-average common shares
issued 3,778,561 3,765,511 3,762,892
Average treasury stock shares (1,458,633) (1,408,294) (1,330,625)
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 2,319,928 2,357,217 2,432,267
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 1,608 2,779 5,380
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 2,321,536 2,359,996 2,437,647
========== ========== ==========
</table>
There are no convertible securities that would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income
as presented on the Consolidated Statement of Income is used.
3. COMPREHENSIVE INCOME
Other comprehensive income primarily reflects changes in net unrealized
gains (losses) on available-for-sale securities. Total comprehensive
income for the years ended June 30 is summarized as follows:
<table>
<caption>
2007 2006 2005
------- ------- -------
<s> <c> <c> <c>
Net Income $ 3,646 $ 2,846 $ 2,909
Other comprehensive income:
Unrealized losses on available-for-sale securities -- (221) (536)
Reclassification adjustment for gains included
in net income -- 30 336
------- ------- -------
Other comprehensive loss before tax -- (191) (200)
Income tax benefit related to other
comprehensive loss -- (65) (68)
------- ------- -------
Other comprehensive loss, net of tax -- (126) (132)
------- ------- -------
Comprehensive income $ 3,646 $ 2,720 $ 2,777
======= ======= =======
</table>
29
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. INVESTMENT SECURITIES
The amortized cost and fair values of investments are as follows:
<table>
<caption>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
2007
----
AVAILABLE FOR SALE
Corporate debt securities $ 8,402 $ -- $ -- $ 8,402
Equity securities 555 -- (24) 531
------------ ------------ ------------ ------------
Total $ 8,957 $ -- $ (24) $ 8,933
============ ============ ============ ============
HELD TO MATURITY
U.S. government agency securities $ 186,667 $ 17 $ (1,567) $ 185,117
Corporate debt securities 6,198 -- -- 6,198
Obligations of states and political
subdivisions 9,799 399 (3) 10,195
------------ ------------ ------------ ------------
Total $ 202,664 $ 416 $ (1,570) $ 201,510
============ ============ ============ ============
<caption>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
2006
----
AVAILABLE FOR SALE
Corporate debt securities $ 7,997 $ -- $ -- $ 7,997
Equity securities 500 -- (28) 472
------------ ------------ ------------ ------------
Total $ 8,497 $ -- $ (28) $ 8,469
============ ============ ============ ============
HELD TO MATURITY
U.S. government agency securities $ 175,755 $ 21 $ (2,771) $ 173,005
Obligations of states and political
subdivisions 12,197 482 (4) 12,675
------------ ------------ ------------ ------------
Total $ 187,952 $ 503 $ (2,775) $ 185,680
============ ============ ============ ============
</table>
In 2007, 2006, and 2005, the Company recorded realized investment security
gains, and unrealized holding gains and losses for trading securities of $0,
$30, and $336. Proceeds from sales of investment securities during 2007, 2006,
and 2005 were $0, $1,016, and $1,409.
30
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
4. INVESTMENT SECURITIES (Continued)
The amortized cost and fair values of debt securities at June 30, 2007,
by contractual maturity, are shown below. Expected maturities may
differ from the contractual maturities because issuers may have the
right to call securities prior to their final maturities.
<table>
<caption>
Due in Due after Due after
One year one through five through Due after
or less five years ten years ten years Total
------------ ------------ ------------ ------------ ------------
<s> <c> <c> <c> <c> <c>
AVAILABLE FOR SALE
Amortized cost $ 8,402 $ -- $ -- $ -- $ 8,402
Fair value 8,402 -- -- -- 8,402
HELD TO MATURITY
Amortized cost $ 6,298 $ 1,395 $ 118,497 $ 76,474 $ 202,664
Fair value 6,297 1,466 117,681 76,066 201,510
</table>
Investment securities with amortized costs of $96,460 and $88,229 and
fair values of $95,797 and $86,703 at June 30, 2007 and 2006,
respectively, were pledged to secure public deposits, repurchase
agreements, and for other purposes as required by law.
5. MORTGAGE-BACKED SECURITIES
The amortized cost and fair values of mortgage-backed securities are as
follows:
<table>
<caption>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
2007
----
AVAILABLE FOR SALE
Government National Mortgage
Association certificates $ 2,137 $ 58 $ -- $ 2,195
Collateralized mortgage obligations 49 2 -- 51
------------ ------------ ------------ ------------
Total $ 2,186 $ 60 $ -- $ 2,246
============ ============ ============ ============
HELD TO MATURITY
Government National Mortgage
Association certificates $ -- $ -- $ -- $ --
Collateralized mortgage obligations 119,271 582 (207) 119,646
------------ ------------ ------------ ------------
Total $ 119,271 $ 582 $ (207) $ 119,646
============ ============ ============ ============
</table>
31
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. MORTGAGE-BACKED SECURITIES (Continued)
<table>
<caption>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
2006
----
AVAILABLE FOR SALE
Government National Mortgage
Association certificates $ 2,171 $ 61 $ -- $ 2,232
Collateralized mortgage obligations 58 2 -- 60
------------ ------------ ------------ ------------
Total $ 2,229 $ 63 $ -- $ 2,292
============ ============ ============ ============
HELD TO MATURITY
Government National Mortgage
Association certificates $ -- $ -- $ -- $ --
Collateralized mortgage obligations 153,461 216 (971) 152,706
------------ ------------ ------------ ------------
Total $ 153,461 $ 216 $ (971) $ 152,706
============ ============ ============ ============
</table>
The amortized cost and fair value of mortgage-backed securities at June
30, 2007, by contractual maturity, are shown below. Expected maturities
may differ from the contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
<table>
<caption>
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
------------ ------------ ------------ ------------ ------------
<s> <c> <c> <c> <c> <c>
AVAILABLE FOR SALE
Amortized cost $ -- $ -- $ -- $ 2,186 $ 2,186
Fair value -- -- -- 2,246 2,246
HELD TO MATURITY
Amortized cost $ -- $ -- $ -- $ 119,271 $ 119,271
Fair value -- -- -- 119,646 119,646
</table>
At June 30, 2007 and 2006, mortgage-backed securities with an amortized
cost of $120,435 and $138,349 and fair values of $120,873 and $137,827,
were pledged to secure borrowings with the Federal Home Loan Bank.
32
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
6. UNREALIZED LOSSES ON SECURITIES
The following table shows the Company's gross unrealized losses and
fair value, aggregated by category and length of time that the
individual securities have been in a continuous unrealized loss
position, at June 30, 2007 and 2006.
<table>
<caption>
2007
-----------------------------------------------------------------------------------------
Less Than Twelve Months Twelve Months or Greater Total
--------------------------- --------------------------- ---------------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------------ ------------ ------------ ------------ ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
U.S. government agencies
securities $ 102,015 $ (817) $ 59,108 $ (750) $ 161,123 $ (1,567)
Obligations of states and
political subdivisions 99 (1) 1,300 (2) 1,399 (3)
Corporate debt securities -- -- 476 (24) 476 (24)
Collateralized mortgage
obligations 10,108 (35) 53,415 (172) 63,523 (207)
------------ ------------ ------------ ------------ ------------ ------------
Total $ 112,222 $ (853) $ 114,299 $ (948) $ 226,521 $ (1,801)
============ ============ ============ ============ ============ ============
<caption>
2006
-----------------------------------------------------------------------------------------
Less Than Twelve Months Twelve Months or Greater Total
--------------------------- --------------------------- ---------------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------------ ------------ ------------ ------------ ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
U.S. government agencies
securities $ 104,620 $ (1,929) $ 38,389 $ (842) $ 143,009 $ (2,771)
Obligations of states and
political subdivisions -- -- 1,315 (4) 1,315 (4)
Corporate debt securities 472 (28) -- -- 472 (28)
Collateralized mortgage
obligations 101,260 (648) 18,316 (323) 119,576 (971)
------------ ------------ ------------ ------------ ------------ ------------
Total $ 206,352 $ (2,605) $ 58,020 $ (1,169) $ 264,372 $ (3,774)
============ ============ ============ ============ ============ ============
</table>
The policy of the Company is to recognize an other-than-temporary
impairment of securities where the fair value has been significantly
below cost for three consecutive quarters. For fixed-maturity
investments with unrealized losses due to interest rates where the
Company has the positive intent and ability to hold the investment for
a period of time sufficient to allow a market recovery, declines in
value below cost are not assumed to be other than temporary. There are
68 positions that are temporarily impaired at June 30, 2007. The
Company reviews its position quarterly and has asserted that at June
30, 2007, the declines outlined in the above table represent temporary
declines and the Company does have the intent and ability to hold those
securities to maturity or to allow a market recovery.
The Company has concluded that any impairment of its investment
securities portfolio is not other than temporary but is the result of
interest rate changes, sector credit changes, or Company-specific
rating changes that are not expected to result in the noncollection of
principal and interest during the period.
33
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
7. NET LOANS RECEIVABLE
Major classifications of loans are summarized as follows:
2007 2006
------- -------
First mortgage loans:
1 - 4 family dwellings $17,102 $17,702
Construction 25,679 20,964
Land acquisition and development 2,195 3,221
Multi-family dwellings 6,458 4,339
Commercial 7,699 7,574
------- -------
59,133 53,800
------- -------
Consumer loans:
Home equity 6,852 6,483
Home equity lines of credit 3,006 2,961
Other 551 962
------- -------
10,409 10,406
------- -------
Commercial loans 3,988 2,050
------- -------
Less:
Undisbursed construction and land development 12,090 9,512
Net deferred loan fees 104 85
Allowance for loan losses 986 957
------- -------
13,180 10,554
------- -------
Net loans receivable $60,350 $55,702
======= =======
The Company's primary business activity is with customers located
within its local trade area of Northern Allegheny and Southern Butler
counties. The Company has concentrated its lending efforts by granting
residential and construction mortgage loans to customers throughout its
immediate trade area. The Company also selectively funds and
participates in commercial and residential mortgage loans outside of
its immediate trade area, provided such loans meet the Company's credit
policy guidelines. At June 30, 2007 and 2006, the Company had
approximately $17 million and $15 million, respectively, of outstanding
loans for land development and construction in the local trade area.
Although the Company had a diversified loan portfolio at June 30, 2007
and 2006, loans outstanding to individuals and businesses are dependent
upon the local economic conditions in its immediate trade area.
34
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
7. NET LOANS RECEIVABLE (Continued)
Total nonaccrual loans and troubled debt restructurings and the related
interest income recognized for the years ended June 30 are as follows:
2007 2006 2005
------ ------ ------
Principal outstanding $1,204 $ 308 $2,101
------ ------ ------
Interest income that would
have been recognized 82 23 150
Interest income recognized 81 10 99
------ ------ ------
Interest income foregone $ 1 $ 13 $ 51
====== ====== ======
The following table is a summary of the loans considered to be impaired
as of June 30:
2007 2006 2005
------ ------ ------
Impaired loans with an allocated allowance $ 972 $ -- $ --
Impaired loans without an allocated allowance -- -- --
------ ------ ------
Total impaired loans $ 972 $ -- $ --
====== ====== ======
Allocated allowance on impaired loans $ 341 $ -- $ --
Average impaired loans 245 -- --
Income recognized on impaired loans 23 -- --
Certain officers, directors, and their associates were customers of,
and had transactions with, the Company in the ordinary course of
business. A summary of loan activity for those directors, executive
officers, and their associates with aggregate loan balances outstanding
of at least $120,000 during the years ended June 30 are as follows:
2007 2006
------- -------
Balance, July 1 $ 373 $ 512
Additions 2,163 152
Amounts collected (81) (291)
------- -------
Balance, June 30 $ 2,455 $ 373
======= =======
8. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
2007 2006 2005
------- ------- -------
Balance, July 1 $ 957 $ 1,121 $ 1,370
Add:
Provision (recovery) for loan losses 13 (161) (46)
Recoveries 16 4 34
Less:
Loans charged off -- 7 237
------- ------- -------
Balance, June 30 $ 986 $ 957 $ 1,121
======= ======= =======
35
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
9. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
2007 2006
------ ------
Investment and mortgage-backed securities $3,398 $2,633
Loans receivable 316 288
------ ------
Total $3,714 $2,921
====== ======
10. FEDERAL HOME LOAN BANK STOCK
The Savings Bank is a member of the FHLB System. As a member, West View
maintains an investment in the capital stock of the FHLB of Pittsburgh
in an amount not less than 0.65 percent of the outstanding unused FHLB
borrowing capacity and 4.65 percent of its outstanding FHLB borrowings,
as calculated throughout the year.
11. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as
follows:
2007 2006
------ ------
Land and improvements $ 246 $ 246
Buildings and improvements 2,015 1,994
Furniture, fixtures, and equipment 993 928
------ ------
3,254 3,168
Less accumulated depreciation 2,441 2,304
------ ------
Total $ 813 $ 864
====== ======
Depreciation charged to operations was $137, $154, and $193, for the
years ended June 30, 2007, 2006, and 2005, respectively.
36
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
12. DEPOSITS
Deposit accounts are summarized as follows:
<table>
<caption>
2007 2006
--------------------------- ---------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
Non-interest-earning checking $ 12,363 7.8% $ 11,315 7.5%
Interest-earning checking 18,741 11.8 18,083 11.9
Savings accounts 32,937 20.7 36,851 24.3
Money market accounts 20,146 12.6 16,562 10.9
Advance payments by borrowers
for taxes and insurance 1,013 0.6 1,012 0.7
------------ ------------ ------------ ------------
85,200 53.5 83,823 55.3
------------ ------------ ------------ ------------
Savings certificates:
2.00% or less -- -- -- --
2.01 - 4.00% 11,815 7.4 31,786 20.9
4.01 - 6.00% 62,277 39.0 35,945 23.7
6.01 - 6.95% 85 0.1 159 0.1
------------ ------------ ------------ ------------
74,177 46.5 67,890 44.7
------------ ------------ ------------ ------------
Total $ 159,377 100.0% $ 151,713 100.0%
============ ============ ============ ============
</table>
The maturities of savings certificates at June 30, 2007, are summarized
as follows:
Within one year $56,626
Beyond one year but within two years 9,907
Beyond two years but within three years 4,124
Beyond three years 3,520
-------
Total $74,177
=======
Savings certificates with balances of $100,000 or more amounted to
$15,937 and $10,999 on June 30, 2007 and 2006, respectively.
Interest expense by deposit category for the years ended June 30 are as follows:
2007 2006 2005
------ ------ ------
Interest-earning checking accounts $ 11 $ 11 $ 14
Savings accounts 236 280 311
Money market accounts 624 413 166
Savings certificates 3,308 2,408 1,734
Advance payments by borrowers for taxes
and insurance 11 11 13
------ ------ ------
Total $4,190 $3,123 $2,238
====== ====== ======
37
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
13. FEDERAL HOME LOAN BANK ADVANCES
The following table presents contractual maturities of FHLB long-term
advances as of June 30:
<table>
<caption>
Weighted- Stated interest
Maturity range average rate range
Description from to interest rate from to 2007 2006
----------------- ------------ ------------ ---------------- -------- -------- ----------- -----------
<s> <c> <c> <c> <c> <c> <c> <c>
Convertible 03/19/09 06/22/16 5.49% 4.96% 6.10% $ 129,500 $ 137,500
Fixed rate 03/12/09 05/03/10 3.24 2.91 3.53 1,079 1,079
----------- -----------
Total $ 130,579 $ 138,579
=========== ===========
</table>
Maturities of FHLB long-term advances at June 30, 2007, are summarized
as follows:
Weighted-
Maturing During Average
Fiscal Year Ended Interest
June 30: Amount Rate
------------------- ------------ ------------
2008 $ -- --%
2009 5,500 4.99
2010 20,579 5.86
2011 92,000 5.45
2012 5,000 5.03
2013 and thereafter 7,500 5.32
------------
Total $ 130,579 5.47%
============
The terms of the convertible advances reset to the three-month London
Interbank Offered Rate ("LIBOR") and have various spreads and call
dates ranging from three months to seven years. The FHLB has the right
to convert from a fixed rate to a predetermined floating rate on its
conversion date or quarterly thereafter. Should the advance be
converted, the Company has the right to pay off the advance without
penalty. The FHLB advances are secured by the Company's FHLB stock and
investment securities and are subject to substantial prepayment
penalties.
The Company also utilized revolving and short-term FHLB advances.
Short-term FHLB advances generally mature within 90 days, while
revolving FHLB advances may be repaid by the Company without penalty.
The following table presents information regarding such advances as of
June 30:
2007 2006
------- -------
FHLB revolving and short-term advances:
Ending balance $ -- $23,150
Average balance during the year 6,598 2,421
Maximum month-end balance during the year 67,235 24,800
Average interest rate during the year 5.37% 4.37%
Weighted-average rate at year-end --% 5.32%
At June 30, 2007, the Company had remaining borrowing capacity with the
FHLB of approximately $108 million.
The FHLB advances are secured by the Company's FHLB stock and
investment and mortgage-backed securities held in safekeeping at the
FHLB, and are subject to substantial prepayment penalties.
38
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
14. OTHER BORROWINGS
Other borrowings include securities sold under agreements to repurchase
with securities brokers. The outstanding repurchase agreements
generally mature within 1 to 90 days from the transaction date and
qualifying collateral has been delivered. The Company pledged
investment securities with a carrying value of $83,564 and $78,259 at
June 30, 2007 and 2006, respectively, as collateral for the repurchase
agreements as explained in Note 4. The following table presents
information regarding other borrowings as of June 30:
2007 2006
-------- --------
Ending balance $ 82,950 $ 76,048
Average balance during the year 74,659 99,633
Maximum month-end balance during the year 92,900 122,185
Average interest rate during the year 5.40% 4.42%
Weighted-average rate at year-end 5.30% 5.35%
15. COMMITMENTS AND CONTINGENT LIABILITIES
Loan Commitments
In the normal course of business, there are various commitments that
are not reflected in the Bank's financial statements. These instruments
involve, to varying degrees, elements of credit and interest rate risk
in excess of the amount recognized in the consolidated balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other parties to the financial instruments is represented by the
contractual amounts as disclosed. Losses, if any, are charged to the
allowance for loan losses. Management minimizes its exposure to credit
loss under these commitments by subjecting them to credit approval,
review procedures, and collateral requirements as deemed necessary.
Various loan commitments totaling $20,733 and $18,630 at June 30, 2007
and 2006, respectively, represent financial instruments with
off-balance sheet risk. The commitments outstanding at June 30, 2007,
contractually mature in less than one year.
Loan commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
Consolidated Balance Sheet. The same credit policies are used in making
commitments and conditional obligations as for on-balance sheet
instruments. Generally, collateral, usually in the form of real estate,
is required to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the loan
agreement. These commitments are composed primarily of the undisbursed
portion of construction and land development loans (Note 7),
residential, commercial real estate, and consumer loan originations.
The exposure to loss under these commitments is limited by subjecting
them to credit approval and monitoring procedures. Substantially all
commitments to extend credit are contingent upon customers maintaining
specific credit standards at the time of the loan funding. Management
assesses the credit risk associated with certain commitments to extend
credit in determining the level of the allowance for loan losses.
Litigation
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
financial condition of WVS.
39
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. REGULATORY CAPITAL
Federal regulations require the Company and Savings Bank to maintain
minimum amounts of capital. Specifically, each is required to maintain
certain minimum dollar amounts and ratios of Total and Tier I Capital
to Risk-Weighted Assets and of Tier I Capital to Average Total Assets.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital
categories ranging from well capitalized to critically
undercapitalized. Should any institution fail to meet the requirements
to be considered adequately capitalized, it would become subject to a
series of increasingly restrictive regulatory actions.
As of June 30, 2007 and 2006, the FDIC categorized the Savings Bank as
well capitalized under the regulatory framework for prompt corrective
action. To be classified as a well capitalized financial institution,
Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Capital Ratios
must be at least 10 percent, 6 percent, and 5 percent, respectively.
The Company's and Savings Bank's actual capital ratios are presented in
the following tables, which show that both met all regulatory capital
requirements.
<table>
<caption>
June 30, 2007
--------------------------------------
WVS West View
----------------- -----------------
Amount Ratio Amount Ratio
------- ------- ------- -------
<s> <c> <c> <c> <c>
Total Capital (to Risk-Weighted Assets)
---------------------------------------
Actual $32,282 23.15% $29,786 21.69%
To Be Well Capitalized 13,943 10.00 13,734 10.00
For Capital Adequacy Purposes 11,155 8.00 10,987 8.00
Tier I Capital (to Risk-Weighted Assets)
----------------------------------------
Actual $31,254 22.41% $28,758 20.94%
To Be Well Capitalized 8,366 6.00 8,241 6.00
For Capital Adequacy Purposes 5,577 4.00 5,494 4.00
Tier I Capital (to Average Total Assets)
----------------------------------------
Actual $31,254 8.13% $28,758 7.48%
To Be Well Capitalized 19,214 5.00 19,224 5.00
For Capital Adequacy Purposes 15,371 4.00 15,379 4.00
</table>
40
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. REGULATORY CAPITAL (Continued)
<table>
<caption>
June 30, 2006
--------------------------------------
WVS West View
----------------- -----------------
Amount Ratio Amount Ratio
------- ------- ------- -------
<s> <c> <c> <c> <c>
Total Capital (to Risk-Weighted Assets)
---------------------------------------
Actual $30,382 22.88% $28,786 21.69%
To Be Well Capitalized 13,279 10.00 13,273 10.00
For Capital Adequacy Purposes 10,623 8.00 10,619 8.00
Tier I Capital (to Risk-Weighted Assets)
----------------------------------------
Actual $29,377 22.12% $27,781 20.93%
To Be Well Capitalized 7,967 6.00 7,964 6.00
For Capital Adequacy Purposes 5,311 4.00 5,309 4.00
Tier I Capital (to Average Total Assets)
----------------------------------------
Actual $29,377 6.78% $27,781 6.40%
To Be Well Capitalized 21,679 5.00 21,713 5.00
For Capital Adequacy Purposes 17,343 4.00 17,370 4.00
</table>
Prior to the enactment of the Small Business Job Protection Act, the
Company accumulated approximately $3.9 million of retained earnings,
which represent allocations of income to bad debt deductions for tax
purposes only. Since there is no amount that represents the accumulated
bad debt reserves subsequent to 1987, no provision for federal income
tax has been made for such amount. If any portion of this amount is
used other than to absorb loan losses (which is not anticipated), the
amount will be subject to federal income tax at the current corporate
rate.
17. STOCK BENEFIT PLANS
Stock Option Plan
The Company maintains a Stock Option Plan for the directors, officers,
and employees. The stock options typically have an expiration term of
ten years, subject to certain extensions and early terminations. The
per share exercise price of an incentive stock option shall at a
minimum equal the fair market value of a share of common stock on the
date the option is granted. The per share exercise price of a
compensatory stock option granted shall at least equal the greater of
par value or 85 percent of the fair market value of a share of common
stock on the date the option is granted. Proceeds from the exercise of
the stock options are credited to common stock for the aggregate par
value and the excess is credited to paid-in capital.
41
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
17. STOCK BENEFIT PLANS (Continued)
Stock Option Plan (Continued)
The following table presents information related to the outstanding
options:
Officers' and Weighted-
Employees' Directors' Average
Stock Stock Exercise
Options Options Price
---------- ---------- ----------
Outstanding, June 30, 2004 39,312 4,414 $ 14.99
Granted -- --
Exercised -- --
Forfeited -- --
---------- ----------
Outstanding, June 30, 2005 39,312 4,414 $ 14.99
Granted -- --
Exercised (7,320) -- 12.41
Forfeited -- --
---------- ----------
Outstanding, June 30, 2006 31,992 4,414 $ 15.51
Granted -- --
Exercised (19,698) (800) 15.61
Forfeited -- --
---------- ----------
Outstanding, June 30, 2007 12,294 3,614 $ 15.39
========== ==========
Exercisable at year-end 12,294 3,614 $ 15.39
========== ==========
Available for future grant -- --
========== ==========
At June 30, 2007, for officers and employees there were 12,294 options
outstanding, exercisable at a weighted-average exercise price of
$15.63, and a weighted-average remaining contractual life of 0.42
years.
There were also 3,614 options outstanding and exercisable for directors
with a weighted-average exercise price of $14.59, and a
weighted-average remaining contractual life of 2.83 years.
42
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
17. STOCK BENEFIT PLANS (Continued)
Recognition and Retention Plans ("RRP")
---------------------------------------
The Company also maintains an RRP for substantially all officers,
employees, and directors of the Company. The objective of the RRPs is
to enable the Company to retain its corporate officers, key employees,
and directors who have the experience and ability necessary to manage
WVS and the Savings Bank. Officers and key employees of the Company who
were selected by members of a Board-appointed committee are eligible to
receive benefits under the RRPs. Non-employee directors of the Company
are eligible to participate in the RRP for directors.
An aggregate of 300,000 shares of common stock of WVS was acquired at
conversion for future issuance under these plans, of which 60,000
shares are subject to the RRP for directors and 240,000 shares are
subject to the RRP for officers and key employees.
The RRP expired during 2004, and all unissued shares were retired. RRP
costs are accrued to operations and added back to stockholders' equity
over a four- to ten-year vesting period. Net compensation expense
attributed to the RRPs amounted to $1 for each of the years ended June
30, 2007, 2006, and 2005.
Employee Stock Ownership Plan ("ESOP")
--------------------------------------
WVS maintains an ESOP for the benefit of officers and Savings Bank
employees who have met certain eligibility requirements related to age
and length of service. Compensation expense for the ESOP was $113,
$100, and $100 for the years ended June 30, 2007, 2006, and 2005,
respectively. Total ESOP shares as of June 30, 2007 and 2006, were
227,113 and 220,264, respectively.
18. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a non-contributory profit sharing 401(k) plan
(the "Plan") for its officers and employees who have met the age and
length of service requirements. The Plan is a defined contribution plan
with the contributions based on a percentage of salaries of the Plan
participants. The Company made no contributions to the Plan for the
three years ended June 30, 2007, 2006, and 2005.
Directors' Deferred Compensation Plan
The Company maintains a deferred compensation plan (the "Plan") for
directors who elect to defer all or a portion of their directors' fees.
Deferred fees are paid to the participants in installments commencing
in the year following the year the individual is no longer a member of
the Board of Directors.
The Plan allows for the deferred amounts to be paid in shares of common
stock at the prevailing market price on the date of distribution. For
fiscal years ended June 30, 2007, 2006, and 2005, 29,341, 25,841, and
29,979 shares, respectively, were held by the Plan.
43
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
19. INCOME TAXES
The provision for income taxes consists of:
2007 2006 2005
------- ------- -------
Currently payable:
Federal $ 1,644 $ 978 $ 475
State 145 128 79
------- ------- -------
1,789 1,106 554
Deferred (26) 181 73
------- ------- -------
Total $ 1,763 $ 1,287 $ 627
======= ======= =======
The following temporary differences gave rise to the net deferred tax
assets at June 30:
<table>
<caption>
2007 2006
------ ------
<s> <c> <c>
Deferred tax assets:
Allowance for loan losses $ 335 $ 325
Deferred compensation 339 324
Reserve for uncollected interest 187 183
Reserve for off-balance sheet commitments 14 16
Other 63 60
------ ------
Total gross deferred tax assets 938 908
------ ------
Deferred tax liabilities:
Net unrealized gain on securities available for sale 12 35
Deferred origination fees, net 177 188
Depreciation reserve 57 42
Other 1 1
------ ------
Total gross deferred tax liabilities 247 266
------ ------
Net deferred tax assets $ 691 $ 642
====== ======
</table>
No valuation allowance was established at June 30, 2007 and 2006, in
view of the Company's ability to carryback to taxes paid in previous
years, future anticipated taxable income, which is evidenced by the
Company's earnings potential, and deferred tax liabilities at June 30.
44
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
19. INCOME TAXES (Continued)
The following is a reconciliation between the actual provision for
income taxes and the amount of income taxes which would have been
provided at federal statutory rates for the years ended June 30:
<table>
<caption>
2007 2006 2005
-------------------- -------------------- --------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
-------- -------- -------- -------- -------- --------
<s> <c> <c> <c> <c> <c> <c>
Provision at statutory rate $ 1,839 34.0% $ 1,405 34.0% $ 1,202 34.0%
State income tax, net of federal
tax benefit 96 1.8 84 2.0 52 1.5
Tax exempt income (189) (3.5) (251) (6.1) (553) (15.6)
Other, net 17 0.3 49 1.2 (74) (2.2)
-------- -------- -------- -------- -------- --------
Actual tax expense and
effective rate $ 1,763 32.6% $ 1,287 31.1% $ 627 17.7%
======== ======== ======== ======== ======== ========
</table>
The Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax,
which is calculated at 11.5 percent of earnings.
20. REGULATORY MATTERS
Cash and Due From Banks
The Federal Reserve requires the Savings Bank to maintain certain
reserve balances. The required reserves are computed by applying
prescribed ratios to the Savings Bank's average deposit transaction
account balances. As of June 30, 2007 and 2006, the Savings Bank had
required reserves of $669 and $667, respectively. The required reserves
are held in the form of vault cash and a non-interest-bearing
depository balance maintained directly with the Federal Reserve.
Loans
Federal law prohibits the Company from borrowing from the Savings Bank
unless the loans are secured by specific obligations. Further, such
secured loans are limited in amount to 10 percent of the Savings Bank's
capital surplus.
Dividend Restrictions
The Savings Bank is subject to the Pennsylvania Banking Code, which
restricts the availability of surplus for dividend purposes. At June
30, 2007, surplus funds of $3,363 were not available for dividends.
45
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at June 30 are as
follows:
<table>
<caption>
2007 2006
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
<s> <c> <c> <c> <c>
FINANCIAL ASSETS
Cash and cash equivalents $ 2,675 $ 2,675 $ 1,196 $ 1,196
Investment securities 211,597 210,443 196,421 194,149
Mortgage-backed securities 121,517 121,892 155,753 154,998
Net loans receivable 60,350 61,399 55,702 54,280
Accrued interest receivable 3,714 3,714 2,921 2,921
FHLB stock 6,340 6,340 7,861 7,861
FINANCIAL LIABILITIES
Deposits $ 159,377 $ 159,224 $ 151,713 $ 151,263
FHLB advances 130,579 131,582 161,729 161,748
Other borrowings 82,950 82,950 76,048 76,048
Accrued interest payable 1,669 1,669 1,451 1,451
</table>
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract which creates an obligation or
right to receive or deliver cash or another financial instrument from
or to a second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. If a quoted market price is
available for a financial instrument, the estimated fair value would be
calculated based upon the market price per trading unit of the
instrument.
If no readily available market exists, the fair value estimates for
financial instruments should be based upon management's judgment
regarding current economic conditions, interest rate risk, expected
cash flows, future estimated losses, and other factors, as determined
through various option pricing formulas or simulation modeling. As many
of these assumptions result from judgments made by management based
upon estimates, which are inherently uncertain, the resulting estimated
values may not be indicative of the amount realizable in the sale of a
particular financial instrument. In addition, changes in the
assumptions on which the estimated values are based may have a
significant impact on the resulting estimated values.
As certain assets and liabilities, such as deferred tax assets,
premises and equipment, and many other operational elements of WVS, are
not considered financial instruments, but have value, this estimated
fair value of financial instruments would not represent the full market
value of WVS.
Estimated fair values have been determined by WVS using the best
available data, as generally provided in internal Savings Bank reports
and regulatory reports, using an estimation methodology suitable for
each category of financial instruments. The estimation methodologies
used are as follows:
46
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Cash and Cash Equivalents, Accrued Interest Receivable and Payable, and
-----------------------------------------------------------------------
Other Borrowings
----------------
The fair value approximates the current book value.
Investment Securities, Mortgage-Backed Securities, and FHLB Stock
-----------------------------------------------------------------
The fair value of investment and mortgage-backed securities is equal to
the available quoted market price. If no quoted market price is
available, fair value is estimated using the quoted market price for
similar securities. Since the FHLB stock is not actively traded on a
secondary market and held exclusively by member financial institutions,
the estimated fair market value approximates the carrying amount.
Net Loans Receivable and Deposits
---------------------------------
Fair value for consumer mortgage loans is estimated using market quotes
or discounting contractual cash flows for prepayment estimates.
Discount rates were obtained from secondary market sources, adjusted to
reflect differences in servicing, credit, and other characteristics.
The estimated fair values for consumer, fixed-rate commercial, and
multi-family real estate loans are estimated by discounting contractual
cash flows for prepayment estimates. Discount rates are based upon
rates generally charged for such loans with similar credit
characteristics.
The estimated fair value for nonperforming loans is the appraised value
of the underlying collateral adjusted for estimated credit risk.
Demand, savings, and money market deposit accounts are reported at book
value. The fair value of certificates of deposit is based upon the
discounted value of the contractual cash flows. The discount rate is
estimated using average market rates for deposits with similar average
terms.
FHLB Advances
-------------
The fair values of fixed-rate advances are estimated using discounted
cash flows, based on current incremental borrowing rates for similar
types of borrowing arrangements. The carrying amount on variable rate
advances approximates their fair value.
Commitments to Extend Credit
----------------------------
These financial instruments are generally not subject to sale, and
estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized
commitment, and the fair value, determined by discounting the remaining
contractual fee over the term of the commitment using fees currently
charged to enter into similar agreements with similar credit risk, are
not considered material for disclosure. The contractual amounts of
unfunded commitments are presented in Note 15 to these financial
statements.
47
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. PARENT COMPANY
Condensed financial information of WVS Financial Corp. is as follows:
CONDENSED BALANCE SHEET
June 30,
2007 2006
------- -------
ASSETS
Interest-earning deposits with subsidiary bank $ 424 $ 1,561
Investment securities available for sale 57 2
Investment securities held to maturity 2,000 --
Investment in subsidiary bank 28,800 27,822
Accrued interest receivable and other assets 58 53
------- -------
TOTAL ASSETS $31,339 $29,438
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 46 $ 20
Stockholders' equity 31,293 29,418
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,339 $29,438
======= =======
<table>
<caption>
CONDENSED STATEMENT OF INCOME
Year Ended June 30,
2007 2006 2005
------- ------- -------
<s> <c> <c> <c>
INCOME
Investment and mortgage-backed securities $ 1 $ 16 $ 52
Dividend from subsidiary 2,700 2,400 1,600
Investment securities gains, net -- -- 332
Interest-earning deposits with subsidiary bank 58 27 3
------- ------- -------
Total income 2,759 2,443 1,987
------- ------- -------
OTHER OPERATING EXPENSE 98 98 101
------- ------- -------
Income before equity in undistributed
earnings of subsidiary 2,661 2,345 1,886
Equity in undistributed earnings of subsidiary 978 501 1,114
------- ------- -------
Income before income taxes 3,639 2,846 3,000
Income tax expense (benefit) (7) -- 91
------- ------- -------
NET INCOME $ 3,646 $ 2,846 $ 2,909
======= ======= =======
</table>
48
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
22. PARENT COMPANY (Continued)
<table>
<caption>
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30,
2007 2006 2005
-------- -------- --------
<s> <c> <c> <c>
OPERATING ACTIVITIES
Net income $ 3,646 $ 2,846 $ 2,909
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary (978) (501) (1,114)
Investment securities gains -- -- (332)
Other, net 21 (13) 62
-------- -------- --------
Net cash provided by operating activities 2,689 2,332 1,525
-------- -------- --------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and
mortgage-backed securities (55) (611) (1,550)
Proceeds from repayments of investment and
mortgage-backed securities -- 1,942 1,422
Proceeds from sales of investment securities -- -- 913
Held to maturity:
Purchases of investment and mortgage-backed
securities (1,999) -- --
-------- -------- --------
Net cash provided by (used for) investing activities (2,054) 1,331 785
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from exercise of stock options 320 91 --
Cash dividends paid (1,485) (1,510) (1,559)
Purchases of treasury stock (607) (1,085) (1,217)
-------- -------- --------
Net cash used for financing activities (1,772) (2,504) (2,776)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,137) 1,159 (466)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 1,561 402 868
-------- -------- --------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 424 $ 1,561 $ 402
======== ======== ========
</table>
49
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<table>
<caption>
Three Months Ended
------------------------------------------------------
September December March June
2006 2006 2007 2007
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
Total interest and dividend income $ 6,118 $ 6,230 $ 6,051 $ 5,911
Total interest expense 4,038 4,322 3,867 3,758
----------- ----------- ----------- -----------
Net interest income 2,080 1,908 2,184 2,153
Provision (recovery) for loan losses (9) -- 34 (12)
----------- ----------- ----------- -----------
Net interest income after
provision (recovery) for loan losses 2,089 1,908 2,150 2,165
Total noninterest income 152 161 152 161
Total noninterest expense 902 890 832 905
----------- ----------- ----------- -----------
Income before income taxes 1,339 1,179 1,470 1,421
Income taxes 435 342 515 471
----------- ----------- ----------- -----------
Net income $ 904 $ 837 $ 955 $ 950
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.39 $ 0.36 $ 0.41 $ 0.41
Diluted 0.39 0.36 0.41 0.41
Average shares outstanding
Basic 2,327,183 2,310,596 2,322,962 2,322,962
Diluted 2,329,120 2,312,838 2,324,278 2,324,278
</table>
50
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
<table>
<caption>
Three Months Ended
--------------------------------------------------------
September December March June
2005 2005 2006 2006
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
Total interest and dividend income $ 4,840 $ 5,293 $ 5,954 $ 6,162
Total interest expense 3,385 3,784 4,091 4,200
----------- ----------- ----------- -----------
Net interest income 1,455 1,509 1,863 1,962
Recovery for loan losses (66) (45) (38) (12)
----------- ----------- ----------- -----------
Net interest income after
recovery for loan losses 1,521 1,554 1,901 1,974
Total noninterest income 207 167 171 160
Total noninterest expense 889 868 872 893
----------- ----------- ----------- -----------
Income before income taxes 839 853 1,200 1,241
Income taxes 231 243 412 401
----------- ----------- ----------- -----------
Net income $ 608 $ 610 $ 788 $ 840
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.25 $ 0.26 $ 0.34 $ 0.36
Diluted 0.25 0.26 0.34 0.36
Average shares outstanding
Basic 2,387,653 2,356,470 2,346,959 2,337,349
Diluted 2,391,294 2,359,671 2,348,619 2,339,962
</table>
51
<page>
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
WVS Financial Corp.'s common stock is traded on the Nasdaq Global MarketSM under
the symbol "WVFC".
The following table sets forth the high and low market prices of a share of
common stock, and cash dividends declared per share, for the periods indicated.
Market Price
--------------------------- Cash Dividends
Quarter Ended High Low Declared
------------------ ------------ ------------ ------------
June 2007 $ 17.200 16.400 $ 0.16
March 2007 17.200 16.330 0.16
December 2006 17.950 16.300 0.16
September 2006 16.990 16.190 0.16
June 2006 $ 18.080 $ 16.400 $ 0.16
March 2006 17.750 16.000 0.16
December 2005 16.870 16.000 0.16
September 2005 17.000 15.660 0.16
There were eight Nasdaq Market Makers in the Company's common stock as of June
30, 2007: Boenning & Scattergood Inc.; Sandler O'Neill & Partners; Ryan Beck &
Co., Inc.; Morgan Stanley & Co., Inc; UBS Securities LLC; Ferris, Baker Watts,
Inc.; Citigroup Global Markets and Knight Equity Markets, L.P.
According to the records of the Company's transfer agent, there were
approximately 677 shareholders of record at September 12, 2007. This does not
include any persons or entities who hold their stock in nominee or "street name"
through various brokerage firms.
Dividends are subject to determination and declaration by the Board of
Directors, which takes into account the Company's financial condition, statutory
and regulatory restrictions, general economic condition and other factors.
52
<page>
Performance Graphs
The following graphs compare the yearly cumulative total return on the common
stock over the fourteen and five years ended June 30, 2007 with (i) the NASDAQ
Stock Market Bank Stocks Total Return index, (ii) the NASDAQ Stock Market
Financial Stocks Total Return Index, and (iii) the CRSP Total Return Index for
the NASDAQ Stock Market (for United States companies). The NASDAQ Financial
Stocks index was added in order to include a broader range of financial service
companies, such as savings institutions that are not commercial banks. All of
these cumulative returns are computed assuming the reinvestment of dividends at
the frequency with which dividends were paid during the applicable years.
WVS FINANCIAL CORP.
Comparative Performance Graph
[GRAPH OMITTED]
<table>
<caption>
PERIOD ENDING
INDEX 11/30/1993 6/30/1994 6/30/1995 6/30/1996 6/30/1997 6/30/1998 6/30/1999 6/30/2000
- ----------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
WVS FINANCIAL CORP. 100.00 155.44 170.78 235.27 326.33 430.73 419.68 332.35
NASDAQ FINANCIAL STOCKS 100.00 107.50 122.98 160.16 234.56 305.16 314.50 247.75
NASDAQ BANK STOCKS 100.00 109.99 124.25 161.86 253.05 351.03 346.73 284.42
CRSP TOTAL NASDAQ (US) 100.00 93.91 125.31 160.87 195.66 257.60 369.92 546.87
<caption>
PERIOD ENDING
INDEX 6/30/2001 6/30/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006 06/30/07
- ---------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
WVS FINANCIAL CORP. 416.60 483.51 564.29 564.38 546.14 551.81 563.22
NASDAQ FINANCIAL STOCKS 334.40 374.07 393.12 483.03 535.39 589.46 639.13
NASDAQ BANK STOCKS 394.95 443.12 449.75 539.03 575.54 614.26 625.52
CRSP TOTAL NASDAQ (US) 296.92 202.26 224.56 283.05 286.12 304.24 362.66
</table>
53
<page>
WVS FINANCIAL CORP.
Comparative Performance Graph
[GRAPH OMITTED]
<table>
<caption>
PERIOD ENDING
---------------------------------------------------------------------------
INDEX 6/30/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006 6/30/2007
- ----------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
WVS FINANCIAL CORP. 100.00 118.25 119.58 116.99 119.52 123.26
NASDAQ FINANCIAL STOCKS 100.00 105.09 129.13 143.13 157.58 170.86
NASDAQ BANK STOCKS 100.00 101.50 121.65 129.88 138.62 141.16
CRSP TOTAL NASDAQ (US) 100.00 111.02 139.94 141.46 150.42 179.30
</table>
54
<page>
<table>
<caption>
WVS FINANCIAL CORP.
CORPORATE INFORMATION
- -------------------------------------------------------------------------------------------------------
CORPORATE OFFICES
WVS FINANCIAL CORP. o WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
<s> <c>
COMMON STOCK BOARD OF DIRECTORS
The common stock of WVS Financial Corp. is traded on
The Nasdaq Global MarketSM under the symbol "WVFC". David L. Aeberli
Funeral Director
TRANSFER AGENT & REGISTRAR McDonald-Aeberli Funeral Home, Inc.
Registrar and Transfer Company
10 Commerce Drive Arthur H. Brandt
Cranford, NJ 07016 Former President and CEO
1-800-368-5948 Brandt Excavating, Inc. and
Brandt Paving, Inc.
CORPORATE SECRETARY AND
INVESTOR RELATIONS David J. Bursic
Pamela M. Tracy President and Chief Executive Officer
412-364-1911 WVS Financial Corp. and
West View Savings Bank
SPECIAL COUNSEL Donald E. Hook
Elias, Matz, Tiernan & Herrick L.L.P. Chairman
Washington, DC Pittsburgh Cut Flower Co.
Lawrence M. Lehman
WEST VIEW SAVINGS BANK Sole Proprietor
9001 Perry Highway Newton-Lehman Insurance Agency
Pittsburgh, PA 15237
412-364-1911 Margaret VonDerau
Former Senior Vice President
WEST VIEW OFFICE and Corporate Secretary
456 Perry Highway WVS Financial Corp. and
412-931-2171 West View Savings Bank
CRANBERRY OFFICE
20531 Perry Highway EXECUTIVE OFFICERS
412-931-6080/724-776-3480
Donald E. Hook
FRANKLIN PARK OFFICE Chairman
2566 Brandt School Road
724-935-7100 David J. Bursic
President and
BELLEVUE OFFICE Chief Executive Officer
572 Lincoln Avenue
412-761-5595 Jonathan D. Hoover
Senior Vice President
SHERWOOD OAKS OFFICE
Serving Sherwood Oaks Bernard P. Lefke
Cranberry Twp. Vice President of Savings
LENDING DIVISION Keith A. Simpson
2566 Brandt School Road Vice President, Treasurer and
724-935-7400 Chief Accounting Officer
The members of the Board of Directors serve in that capacity for both the Company and the Savings Bank.
</table>
55