WVS FINANCIAL CORP.
CORPORATE INFORMATION
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CORPORATE OFFICES
WVS FINANCIAL CORP. o WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
COMMON STOCK BOARD OF DIRECTORS
The common stock of WVS Financial Corp.
is traded on The Nasdaq Global MarketSM David L. Aeberli
under the symbol "WVFC". Funeral Director
McDonald-Aeberli Funeral Home, Inc.
TRANSFER AGENT & REGISTRAR
Registrar and Transfer Company David J. Bursic
10 Commerce Drive President and Chief Executive Officer
Cranford, NJ 07016 WVS Financial Corp. and
1-800-368-5948 West View Savings Bank
CORPORATE SECRETARY AND John W. Grace
INVESTOR RELATIONS President
Pamela M. Tracy G & R Investment Consultants, Inc.
412-364-1911
Donald E. Hook
Chairman
SPECIAL COUNSEL Pittsburgh Cut Flower Co.
Elias, Matz, Tiernan & Herrick L.L.P.
Washington, DC Lawrence M. Lehman
Sole Proprietor
Newton-Lehman Insurance Agency
WEST VIEW SAVINGS BANK
9001 Perry Highway Margaret VonDerau
Pittsburgh, PA 15237 Former Senior Vice President
412-364-1911 and Corporate Secretary
WVS Financial Corp. and
WEST VIEW OFFICE West View Savings Bank
456 Perry Highway
412-931-2171
EXECUTIVE OFFICERS
CRANBERRY OFFICE
20531 Perry Highway Donald E. Hook
412-931-6080/724-776-3480 Chairman
FRANKLIN PARK OFFICE David J. Bursic
2566 Brandt School Road President and
724-935-7100 Chief Executive Officer
BELLEVUE OFFICE Jonathan D. Hoover
572 Lincoln Avenue Senior Vice President
412-761-5595
Bernard P. Lefke
SHERWOOD OAKS OFFICE Vice President of Savings
Serving Sherwood Oaks
Cranberry Twp. Keith A. Simpson
Vice President, Treasurer and
LENDING DIVISION Chief Accounting Officer
2566 Brandt School Road
724-935-7400
The members of the Board of Directors serve in that capacity for both the
Company and the Savings Bank.
TABLE OF CONTENTS
Page
Number
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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
To Our Stockholders:
Fiscal 2008 was another year of growth for WVS Financial Corp. Net
income for fiscal 2008 increased to $3.8 million. Book value, and return on
equity, totaled $14.44 per share and 12.03%. We are pleased to report that net
income, book value and return on equity have grown steadily over the past five
fiscal years.
Our financial results continue to receive national acclaim. In the May
2008 issue of SNL Thrift Investor magazine our Company was ranked #1 in the
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nation among the 104 smallest thrifts by asset size ($93 million - $630 million)
in terms of financial performance. We wish to thank all of our stakeholders -
stockholders, customers, Board members, employees and business partners - for
helping us achieve this milestone.
Fiscal 2008 was also a year of celebration. In January 2008 we began to
celebrate the 100th Anniversary of the founding of West View Savings Bank. As
part of our 100th Anniversary celebration, the Bank offered a variety of
in-branch promotions, special pricing on various product offerings and began to
publish a monthly newsletter. Our customers have responded well to these
initiatives.
The financial markets have been in considerable stress almost since the
beginning of fiscal 2008. Housing remains at the center of the Federal Reserve's
concerns about growth and financial stability. The Fed has pushed the Federal
Funds target rate down 3.25 percentage points in the past fiscal year in an
effort to cushion the blows of a weak housing market, the distressed financial
markets, a weak national economy and rising levels of unemployment. Government
officials expect economic activity to weaken in the second half of calendar year
2008 and only recover slowly next year.
Financial stocks have experienced an unprecedented downward spiral.
While our stock has performed well and maintained its value, most financial
stocks have experienced large declines in earning and stock prices. In early
September 2008, the U.S. government decided to put both the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac) into conservatorship. So far this calendar year, there
1
have been 11 failures of FDIC insured banks. Most of the problem can be traced
to either poor loan underwriting, inadequate loan collateral or lending in
unfamiliar markets. We would like you to know that our Board of Directors sees
each loan that is approved and that our employees work hard each day to make
sure that your hard-earned money is safe at West View Savings Bank.
The Company remains committed to its Capital Management Strategy. The
Capital Management Strategy seeks to maximize stockholder value through a
combination of attractive cash dividends and repurchases of common stock. Our
dividend yield of approximately 4% compares very favorably to short-term money
market yields. Through fiscal year end 2008, the Company has repurchased over
41% of its outstanding shares and in this process has returned over $24 million
to stockholders. We believe that investment in our stock is a good value. In
August 2008, the Company's Board of Directors authorized the repurchase of an
additional 40,000 shares as part of our Ninth Stock Repurchase Program.
At the Board level, we would like to welcome John W. Grace who was
elected as a Director in October 2007. John brings over 39 years of bank
investment and financial management expertise to our Company. The Board would
also like to recognize and thank our current Board Chairman, Donald E. Hook, for
over 22 years of self-less service to the Company and the Bank. Don will retire
from the Board after this year's annual meeting and has offered to continue to
help us in any way that he can.
We thank you for your investment in the Company and for your faith and
trust in West View Savings Bank.
/S/ DAVID J. BURSIC /S/ DONALD E. HOOK /S/ DAVID L. AEBERLI
DAVID J. BURSIC DONALD E. HOOK DAVID L. AEBERLI
President and Chairman of the Board Vice Chairman of the Board
Chief Executive Officer
2
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA
As of or For the Year Ended June 30,
2008 2007 2006 2005 2004
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands, except per share data)
Selected Financial Data:
Total assets $ 423,109 $ 408,076 $ 421,742 $ 421,044 $ 433,624
Net loans receivable 56,477 60,350 55,702 60,151 67,968
Mortgage-backed securities 215,905 121,517 155,753 162,151 75,590
Investment securities 128,537 211,597 196,421 183,066 273,589
Savings deposit accounts 149,218 158,364 150,701 163,589 159,318
FHLB advances 135,579 130,579 161,729 155,036 149,736
Other short-term borrowings 100,600 82,950 76,048 69,680 91,639
Stockholders' equity 32,148 31,293 29,418 29,201 29,199
Non-performing assets, troubled
debt restructurings and potential 1,924 1,574 1,695 2,171 2,171
problem loans(2)
Selected Operating Data:
Interest income $ 23,681 $ 24,310 $ 22,248 $ 17,874 $ 16,006
Interest expense 15,143 15,985 15,460 11,844 10,987
----------- ----------- ----------- ----------- -----------
Net interest income 8,538 8,325 6,788 6,030 5,019
Provision for (Recovery of) loan
losses (123) 13 (161) (46) (794)
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for (recovery of) loan losses 8,661 8,312 6,949 6,076 5,813
Non-interest income 597 626 705 992 715
Non-interest expense 3,636 3,529 3,521 3,532 3,607
----------- ----------- ----------- ----------- -----------
Income before income tax expense 5,622 5,409 4,133 3,536 2,921
Income tax expense 1,850 1,763 1,287 627 619
----------- ----------- ----------- ----------- -----------
Net income $ 3,772 $ 3,646 $ 2,846 $ 2,909 $ 2,302
=========== =========== =========== =========== ===========
Per Share Information:
Basic earnings $ 1.67 $ 1.57 $ 1.21 $ 1.20 $ 0.91
Diluted earnings $ 1.67 $ 1.57 $ 1.21 $ 1.19 $ 0.90
Dividends per share $ 0.64 $ 0.64 $ 0.64 $ 0.64 $ 0.64
Dividend payout ratio 38.32% 46.76% 46.76% 53.33% 52.89%
Book value per share at period end $ 14.44 $ 13.49 $ 12.60 $ 12.20 $ 11.84
Average shares outstanding:
Basic 2,252,604 2,319,928 2,357,217 2,432,267 2,535,796
Diluted 2,252,906 2,321,536 2,359,996 2,437,647 2,544,404
3
As of or For the Year Ended June 30,
2008 2007 2006 2005 2004
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Selected Operating Ratios(1):
Average yield earned on interest-
earning assets(3) 5.72% 6.15% 5.29% 4.61% 4.28%
Average rate paid on interest-
bearing liabilities 4.06 4.46 4.01 3.27 3.13
Average interest rate spread(4) 1.66 1.69 1.28 1.34 1.14
Net interest margin(4) 2.10 2.14 1.67 1.68 1.48
Ratio of interest-earning assets to
interest-bearing liabilities 112.02 111.53 110.48 111.45 111.76
Non-interest expense as a percent of
average assets 0.86 0.87 0.82 0.87 0.91
Return on average assets 0.89 0.90 0.66 0.71 0.58
Return on average equity 12.03 12.14 9.87 10.03 7.64
Ratio of average equity to average
assets 7.43 7.43 6.70 7.10 7.60
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) 3.41% 2.60% 3.03% 3.49% 3.19%
Non-performing assets as a percent
of total assets(2) 0.37 0.30 0.08 0.25 0.19
Non-performing assets, troubled debt
restructurings and potential problem
loans as a percent of total assets 0.45 0.39 0.40 0.52 0.50
Allowance for loan losses as a
percent of total loans receivable 1.66 1.60 1.69 1.83 1.97
Allowance for loan losses as a
percent of non-performing loans 60.43 81.89 310.71 113.58 163.48
Charge-offs to average loans
receivable outstanding during the
period 0.00 0.00 0.01 0.37 0.68
Capital Ratios(1):
Tier 1 risk-based capital ratio 21.71% 22.41% 22.12% 20.99% 18.65%
Total risk-based capital ratio 22.37 23.15 22.88 21.80 19.62
Tier 1 leverage capital ratio 7.75 8.13 6.78 7.14 6.92
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(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
WVS FINANCIAL CORP. AND SUBSIDIARY
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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,
2008.
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
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
-----------------------
June 30, Change
2008 2007 Dollars Percentage
---- ---- ------- ----------
(Dollars in Thousands)
Cash equivalents $ 1,826 $ 2,675 ($ 849) -31.7%
Certificates of deposit 9,398 0 9,398 100.0%
Investments (1) 351,373 339,454 11,919 3.5
Net loans receivable 56,477 60,350 (3,873) -6.4
Total assets 423,109 408,076 15,033 3.7
Deposits 150,142 159,377 (9,235) -5.8
Borrowed funds 236,179 213,529 22,650 10.6
Total liabilities 390,961 376,783 14,178 3.8
Stockholders' equity 32,148 31,293 855 2.7
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(1) Includes Federal Home Loan Bank stock.
Cash Equivalents. Cash on hand and interest-earning deposits represent cash
equivalents. Cash equivalents decreased $849 thousand or 31.7% to $1.8 million
at June 30, 2008 from $2.7 million at June 30, 2007. 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.
Certificates of Deposit. Certificates of deposit increased $9.4 million or
100.0% to $9.4 million at June 30, 2008. As part of our asset liability and
liquidity management strategies, the Company purchased FDIC insured certificates
of deposit with other financial institutions. Contract terms typically ranged
from five to twenty-four months. These purchases were funded primarily from
investment portfolio cash flows.
Investments. The Company's investment portfolio is primarily comprised of U.S.
Government Agency bonds, corporate bonds and commercial paper, FHLB stock and
mortgaged-backed securities issued by U.S. Government Agencies and
private-issuers. See notes 4 and 5 for additional information. The Company's
investment portfolio increased $11.9 million or 3.5% to $351.4 million at June
30, 2008 from $339.5 million at June 30, 2007. Mortgage-backed securities
increased $94.4 million or 77.7% to $215.9 million at June 30, 2008. This
increase was due primarily to purchases of U.S. Government Agency floating rate
mortgage-backed securities, funded by early redemptions of U.S. Government
Agency securities and cash repayments of principal on mortgage-backed
securities. Investment securities decreased $83.1 million or 36.3% to $128.5
million at June 30, 2008. This decrease was due primarily to early redemptions
of callable U.S. Government Agency securities. See "Quantitative and Qualitative
Disclosures about Market Risk" beginning on page 13.
Net Loans Receivable. Net loans receivable decreased $3.9 million or 6.4% to
$56.5 million at June 30, 2008. The decrease in net loans receivable during
fiscal 2008 was due to lower loan originations and normal principal repayments.
Loan originations were soft in fiscal 2008 due to the weak economic environment,
an increase in the inventory of existing houses for sale and fewer construction
loan starts.
6
We expect these trends to continue into fiscal 2009. 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 decreased $9.2 million or 5.8% to $150.1 million at
June 30, 2008. Certificates of deposit decreased approximately $9.9 million or
13.4%. Transaction accounts decreased approximately $1.8 million or 5.6%.
Savings accounts decreased $912 thousand or 2.8% and money market accounts
increased $3.4 million or 17.1%.
Borrowed Funds. Borrowed funds include FHLB short and long term advances,
Federal Reserve Bank borrowings and short-term broker repurchase agreements.
Borrowed funds increased $22.7 million or 10.6% to $236.2 million at June 30,
2008. FHLB long-term advances increased $5.0 million or 3.8% to $135.6 million.
FRB short-term borrowings increased $80.6 million or 100.0% to $80.6 million.
Other short-term borrowings decreased $63.0 million or 75.9% to $20.0 million.
The Company repositioned its borrowing mix as part of its assets/liability
management program.
Stockholders' Equity. Total stockholders' equity increased $855 thousand or 2.7%
to $32.1 million at June 30, 2008. Company earnings of $3.8 million were
partially offset by $1.4 million of cash dividends paid on the Company's common
stock and $1.8 million for the repurchase of 107,376 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. Book value per share increased $0.95 or 7.0% to
$14.44 at June 30, 2008.
RESULTS OF OPERATIONS
Condensed Statements of Income
------------------------------
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
2008 Change 2007 Change 2006
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Interest income $ 23,681 ($ 629) $ 24,310 $ 2,062 $ 22,248
-2.6% 9.3%
Interest expense $ 15,143 ($ 842) $ 15,985 $ 525 $ 15,460
-5.3% 3.4%
Net interest income $ 8,538 213 $ 8,325 $ 1,537 $ 6,788
2.6% 22.6%
Provision (recovery) for loan $ (123) ($ 136) $ 13 $ 174 ($ 161)
losses -$1046.2% 108.1%
Non-interest income $ 597 ($ 29) $ 626 ($ 79) $ 705
-4.6% -11.2%
Non-interest expense $ 3,636 $ 107 $ 3,529 $ 8 $ 3,521
3.0% 0.2%
Income tax expense $ 1,850 $ 87 $ 1,763 $ 476 $ 1,287
4.9% 37.0%
Net income $ 3,772 $ 126 $ 3,646 $ 800 $ 2,846
3.5% 28.1%
7
General. WVS reported net income of $3.8 million, $3.6 million and $2.8 million
for the fiscal years ended June 30, 2008, 2007 and 2006, respectively. The $126
thousand or 3.5% increase in net income during fiscal 2008 was primarily the
result of a $213 thousand increase in net interest income, and a $136 thousand
change in provision for loan losses which were partially offset by a $107
thousand increase in non-interest expense, a $87 thousand increase in income tax
expense and a $29 thousand decrease in non-interest income. Earnings per share
totaled $1.67 (basic and diluted) for fiscal 2008 as compared to $1.57 (basic
and diluted) for fiscal 2007. 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 2008.
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.
For the Years Ended June 30,
-------------------------------------------------------------------------------------------
2008 2007 2006
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable(1) $ 59,437 $ 4,298 7.23% $ 59,030 $ 4,350 7.37% $ 58,274 $ 4,009 6.88%
Mortgage-backed securities 168,124 8,518 5.07 139,683 8,748 6.26 169,844 8,919 5.25
Investments - taxable 169,019 9,861 5.83 183,143 10,276 5.61 177,031 8,292 4.68
Investments - tax-free(2) 8,575 480 8.06 10,359 556 7.67 13,276 737 8.00
FHLB stock 9,506 433 4.56 6,815 370 5.43 7,033 276 3.92
Interest-bearing deposits 422 4 0.95 459 10 2.18 924 15 1.62
Certificates of deposits 2,468 87 3.53 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-earning assets 417,551 23,681 5.72% 399,489 24,310 6.15% 426,382 22,248 5.29%
-------- ======== -------- ======== -------- ========
Non-interest-earning assets 4,239 4,485 3,897
-------- -------- --------
Total assets $421,790 $403,974 $430,279
======== ======== ========
Interest-bearing liabilities:
Interest-bearing deposits and
escrows $140,875 $ 3,927 2.79% $143,406 $ 4,190 2.92% $142,327 $ 3,123 2.19%
FHLB long-term advances 134,937 7,397 5.48 133.532 7.409 5.55 141,558 7,828 5.53
FHLB short-term advances 52,440 1,902 3.63 6,596 354 5.37 2,421 106 4.38
Other short-term borrowings 44,488 1,917 4.31 74,659 4,032 5.40 99,634 4,403 4.42
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 372,740 15,143 4.06% 358,193 15,985 4.46% 385,940 15,460 4.01%
-------- ======== -------- ======== -------- ========
Non-interest-bearing accounts 13,787 12,927 12,513
-------- -------- --------
Total interest-bearing
liabilities and
non-interest-bearing accounts 386,527 371,120 398,453
Non-interest-bearing liabilities 3,915 2,829 2,976
-------- -------- --------
Total liabilities 390,442 373,949 141,558
Equity 31,348 30,025 28,850
-------- -------- --------
Total liabilities and equity $421,790 $403,974 $430,279
======== ======== ========
Net interest income $ 8,538 $ 8,325 $ 6,788
======== ======== ========
Interest rate spread 1.66% 1.69% 1.28%
======== ======== ========
Net yield on interest-earning assets(3) 2.10% 2.14% 1.67%
======== ======== ========
Ratio of interest-earning assets to
interest-bearing liabilities 112.02% 111.53% 110.48%
======== ======== ========
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(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
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.
Year Ended June 30,
2008 vs. 2007 2007 vs. 2006
-------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
-------------------- Increase -------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Interest-earning assets:
Net loans receivable $ 32 $ (84) $ (52) $ 52 $ 289 $ 341
Mortgage-backed securities 1,500 (1,730) (230) (1,727) 1,556 (171)
Investments - taxable (1,051) 636 (415) 289 1,695 1,984
Investments - tax-free (114) 38 (76) (139) (42) (181)
FHLB stock 129 (66) 63 (9) 103 94
Interest-bearing deposits -- (6) (6) (9) 4 (5)
Certificates of deposit 87 -- 87 -- -- --
-------- -------- -------- -------- -------- --------
Total interest-earning assets 583 (1,212) (629) (1,543) 3,605 2,062
Interest-bearing liabilities:
Interest-bearing deposits and
Escrows (31) (232) (263) 278 789 1,067
FHLB long-term borrowings 82 (94) (12) (447) 28 (419)
FHLB short-term borrowings 1,699 (151) 1,548 219 29 248
Other short-term borrowings (1,507) (608) (2,115) (1,232) 861 (371)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 243 (1,085) (842) (1,182) 1,707 525
-------- -------- -------- -------- -------- --------
Change in net interest income $ 340 $ (127) $ 213 $ (361) $ 1,898 $ 1,537
======== ======== ======== ======== ======== ========
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 $213 thousand or 2.6% in fiscal
2008 and $1.5 million or 22.6% in fiscal 2007. The increase in fiscal 2008 was
the result of a decrease in interest expense of $842 thousand or 5.3%, which was
partially offset by a decrease in interest and dividend income of $629 thousand
or 2.6%. 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%.
Interest Income. Total interest income decreased by $629 thousand or 2.6% during
fiscal 2008 and increased by $2.1 million or 9.3% during fiscal 2007. The
decrease in fiscal 2008 was primarily the result of decreased yields on the
Company's interest-earning assets which more than offset the increase in total
interest-earning assets. 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 changes in the U. S.
Treasury yield curve, weakness in the economy, rising inventories of existing
homes available for sale and lower construction starts, the Company adjusted its
asset mix to maintain net interest income. Within the Company's investment
portfolio, proceeds from repayments on taxable investment securities were
partially redeployed to U.S. Government Agency floating rate mortgage-backed
securities.
Interest income on investment securities decreased $491 thousand or 4.5% during
fiscal 2008 and increased $1.8 million or 20.0% during fiscal 2007. The decrease
in fiscal 2008 was primarily attributable to a $15.9 million decrease in the
average balance of investments outstanding which was partially offset by a 22
basis point increase in the weighted average yield on the Company's investment
securities portfolio. 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.
9
Interest income on mortgage-backed securities decreased $230 thousand or 2.6%
during fiscal 2008 and decreased $171 thousand or 1.9% during fiscal 2007. The
decrease in fiscal 2008 was primarily attributable to a 119 basis point decrease
in the weighted average yield on the Company's mortgage-backed securities
portfolio which was partially offset by a $28.4 million increase in the average
balance of mortgage-backed securities portfolio. 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.
Interest income on net loans receivable decreased $52 thousand or 1.2% during
fiscal 2008 and increased $341 thousand or 8.5% during fiscal 2007. The decrease
in fiscal 2008 was primarily the result of a 14 basis point decrease in the
yield earned on the Company's loan portfolio which was partially offset by a
$407 thousand increase in the average balance of net loans outstanding. 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. As part of its asset/liability
management strategy, weakness in the economy, rising inventories of existing
homes available for sale, and lower construction starts the Company 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 2008 and 2007, 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. Management anticipates weakness in the real estate market to continue
into fiscal 2009.
Dividend income on FHLB stock increased $63 thousand or 17.0% during fiscal 2008
and $94 thousand or 34.1% during fiscal 2007. The increase in fiscal 2008 was
primarily attributable to a $2.7 million increase in the average balance of FHLB
stock outstanding which was partially offset by a 87 basis point decrease in the
weighted average yield earned on the Company's holdings of FHLB stock
outstanding. 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.
Interest income on certificates of deposit increased $87 thousand or 100.0%
during fiscal 2008. The increase during 2008 was attributable to a $2.5 million
increase in the average balance of the Company's holdings of FDIC insured
certificates of deposit.
Interest Expense. Total interest expense decreased $842 thousand or 5.3% during
fiscal 2008 and increased by $525 thousand or 3.4% during fiscal 2007. The
decrease in fiscal 2008 was primarily attributable to lower rates paid on
interest-bearing liabilities due to lower market interest rates which more than
offset a $14.5 million increase in total interest-bearing liabilities. 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.
Interest expense on interest-bearing deposits and escrows decreased $263
thousand or 6.3% in fiscal 2008 and increased $1.1 million or 34.2% in fiscal
2007. The decrease in fiscal 2008 was primarily attributable to lower rates paid
on money market and time deposits and decreased average balances of time
deposits and passbook accounts, which were partially offset by increased average
balances of money market accounts. Average rates on money market and time
deposits decreased by 71 and 13 basis points respectively, while average
balances of time deposits and passbook savings decreased by $3.5 million and
$2.8 million, respectively. Average balances of money market accounts increased
$4.7 million. 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
during fiscal 2007 increased by ninety-two and eighty basis points,
respectively.
Interest expense on FHLB advances increased $1.5 million or 19.8% during fiscal
2008 and decreased $171 thousand or 2.2% during fiscal 2007. The increase in
fiscal 2008 was primarily attributable to increases in
10
the average balances of FHLB short-term advances and FHLB long-term advances of
$45.8 million and $1.4 million, respectively, which were partially offset by
decreases in the weighted average rate paid on FHLB short-term advances and FHLB
long-term advances of 174 and 7 basis points respectively. The decrease in the
average rate on FHLB short-term advances reflects lower short-term market
interest rates. 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.
Interest expense on other short-term borrowings decreased $2.1 million or 52.5%
during fiscal 2008 and decreased $371 thousand or 8.4% during fiscal 2007. The
decrease in fiscal 2008 was primarily attributable to a $33.4 million decrease
in the average balance of other short-term borrowings outstanding and a 93 basis
point decrease in the weighted average rate paid on other short-term borrowings,
which were partially offset by a $3.2 million increase in the average balance of
FRB short-term borrowings outstanding. The decrease in the average rate on other
short-term borrowings reflects lower short-term market interest rates. 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.
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 recovery of
$123 thousand in fiscal 2008 compared to a provision for loan losses of $13
thousand in fiscal 2007. The credit provision for fiscal 2008 was primarily
attributable to recoveries on previously charged-off commercial real estate
loans.
Non-interest Income. Total non-interest income decreased by $29 thousand or 4.6%
in fiscal 2008 and decreased by $79 thousand or 11.2% in fiscal 2007. The
decrease in fiscal 2008 was primarily attributable to a $34 thousand decrease in
deposit account fee income and a $7 thousand increase in pre-tax gains on the
sale of investment securities. 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.
Non-interest Expense. Total non-interest expense increased $107 thousand or 3.0%
in fiscal 2008, and increased $8 thousand or 0.2% during fiscal 2007. The
increase in fiscal 2008 was primarily attributable to increases in charitable
contributions eligible for PA tax credits and increases in employee related
costs, which were partially offset by decreases in fixed asset depreciation,
data processing costs and correspondent bank service charges. 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.
Income Taxes. Income taxes increased $87 thousand or 4.9% during fiscal 2008 and
increased $476 thousand or 37.0% during fiscal 2007. The increases in both
fiscal year 2008 and 2007 were primarily attributable to higher levels of
taxable income. State mutual thrift tax expense for fiscal 2008 was favorably
impacted by $145 thousand of PA Education Improvement tax credits. For fiscal
2007, PA Mutual Thrift tax expense was reduced by higher proportional holdings
of state tax-exempt FHLB bonds. The Company's combined effective tax rate was
32.9% at June 30, 2008 and 32.6% at June 30, 2007.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash
equivalents decreased by $849 thousand during fiscal 2008 primarily due to $16.1
million of net cash used for investing activities which was partially offset by
$11.1 million provided by financing activities and $4.2 million provided by
operating activities.
11
Funds provided by operating activities totaled $4.2 million during fiscal 2008
as compared to $3.2 million during fiscal 2007. Net cash provided by operating
activities was primarily comprised of $3.8 million of net income and a $1.6
million decrease in accrued interest receivable, which were partially offset by
$1.2 million of amortization and accretion of discounts, premiums and deferred
loan fees.
Funds used for investing activities totaled $16.1 million during fiscal 2008 as
compared to $16.0 million provided by investing activities during fiscal 2007.
Primary uses of funds during fiscal 2008 included purchases of investment
securities, mortgage-backed securities, FHLB stock and certificates of deposit
totaling $230.2 million, $117.6 million, $19.5 million and $9.4 million
respectively, which were partially offset by repayments of investment
securities, mortgage-backed securities, FHLB Stock totaling $314.2 million,
$23.6 million and $18.9 million, respectively, and a $4.0 million decrease in
net loans receivable. Investment purchases were comprised primarily of fixed
rate callable U.S. Government Agency bonds and investment grade corporate debt
obligations including short-term commercial paper. The mortgage-backed
securities purchases were U.S. Government Agency floating rate instruments that
reprice on a monthly basis. Certificates of deposits purchased ranged in term
from five to twenty-four months.
Funds provided by financing activities totaled $11.1 million for fiscal 2008 as
compared to $17.8 million used for financing activities in fiscal 2007. Primary
sources of funds for fiscal 2008 were a $80.6 million increase in FRB short-term
borrowings and a $5.0 million increase in FHLB long-term advances which were
partially offset by a $62.9 million decrease in other short-term borrowings, a
$8.6 million decrease in total deposits, $1.8 million in treasury stock
purchases and $1.4 million in cash dividends paid on the Company's common stock.
The $8.6 million decrease in total deposits consisted of a $9.9 million decrease
in certificates of deposit primarily due to accounts not renewed by a local
county government, a $1.8 million decrease in transaction accounts and a $912
thousand decrease in passbook accounts, which were partially offset by a $3.4
million increase in money market accounts. During fiscal 2008, the Company
purchased 107,376 shares of Company common stock for approximately $1.8 million.
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, investment portfolio cash flow, funds from operations and funds obtained
through various borrowings. At June 30, 2008, the total approved loan
commitments outstanding amounted to $237 thousand. At the same date, commitments
under unused letters and lines of credit amounted to $5.7 million and the
unadvanced portion of construction loans approximated $10.8 million.
Certificates of deposit scheduled to mature in one year or less at June 30,
2008, totaled $50.7 million. Management believes that a significant portion of
maturing deposits will remain with the Company.
The Company's contractual obligations at June 30, 2008 were as follows:
Contractual Obligations
(Dollars in Thousands)
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
---------- ---------- ---------- ---------- ----------
Long-term debt $ 135,579 $ 5,500 $ 107,579 $ 5,000 $ 17,500
Operating lease obligations 343 49 81 80 133
---------- ---------- ---------- ---------- ----------
$ 135,922 $ 5,549 $ 107,660 $ 5,080 $ 17,633
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, the Federal Reserve Bank Primary Credit Program, and
other borrowings and through the retail deposit market to provide the cash
utilized in investing activities. Management believes that the Company currently
has adequate liquidity available to respond to liquidity demands.
12
On July 21, 2008, the Company's Board of Directors declared a cash dividend of
$0.16 per share payable on August 21, 2008 to shareholders of record at the
close of business on August 11, 2008. 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.
As of June 30, 2008, WVS Financial Corp. exceeded all regulatory capital
requirements and maintained Tier I and total risk-based capital equal to $32.1
million or 21.7% and $33.1 million or 22.4%, respectively, of total
risk-weighted assets; and Tier I leverage capital of $32.1 million or 7.8% 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, 2008 totaled approximately $1.6 million or
0.4% of total assets compared to $1.2 million or 0.03% of total assets at June
30, 2007. Non-performing assets at June 30, 2008 consisted of one commercial
real estate loan totaling $972 thousand, one speculative construction loan
totaling $356 thousand (which was paid off in full during July 2008), four
single-family real estate loans totaling $232 thousand. Non-performing assets
increased $378 thousand or 31.4% to $1.6 million or 0.4% of total assets, at
June 30, 2008. The increase was primarily the result of $453 thousand in loans
classified as non-performing during the year ended June 30, 2008, which were
partially offset by $75 thousand in repayments on loans classified as
non-performing at June 30, 2007.
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 to 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
13
earnings and capital base. Accordingly, effective risk management that maintains
IRR at prudent levels is essential to the Company's safety and soundness.
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organization's quantitative level of exposure. When assessing the
IRR management process, the Company seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistency and continuity. Evaluating the
quantitative level of IRR exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
Financial institutions derive their income primarily from the excess of interest
collected over interest paid. The rates of interest an institution earns on its
assets and owes on its liabilities generally are established contractually for a
period of time. Since market interest rates change over time, an institution is
exposed to lower profit margins (or losses) if it cannot adapt to interest-rate
changes. For example, assume that an institution's assets carry intermediate- or
long-term fixed rates and that those assets were funded with short-term
liabilities. If market interest rates rise by the time the short-term
liabilities must be refinanced, the increase in the institution's interest
expense on its liabilities may not be sufficiently offset if assets continue to
earn 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 2008, the Federal Open Market Committee reduced its targeted
federal funds rate from 5.25% to 2.00%. The table below shows the targeted
federal funds rate and the benchmark two and ten year treasury yields at June
30, 2007, September 30, 2007, December 31, 2007, March 31, 2008 and June 30,
2008. The difference in yields on the two year and ten 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, 2007 5.25% 4.87% 5.03% Slightly positive
September 30, 2007 4.75% 3.97% 4.59% Moderately positive
December 31, 2007 4.25% 3.05% 4.04% Positive
March 31, 2008 2.25% 1.62% 3.45% Positive
June 30, 2008 2.00% 2.63% 3.99% 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 substantially maintain both its interest
rate spread and net interest margin during fiscal 2008.
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 2008, the Company
adjusted its asset/liability strategy in several ways. The Company's proceeds
from repayments on investment securities were used primarily to purchase U. S.
Government agency bonds and floating-rate mortgage-backed securities. The
Company believes that by strategically increasing the balance sheet, it was able
to
14
substantially maintain net interest income, various capital ratios and better
position its interest rate and liquidity risks in light of high levels of
interest rate volatility.
Principal repayments on the Company's loan, investment and U.S. Government
Agency mortgage-backed securities portfolios for the fiscal year ended June 30,
2008, totaled $21.5 million, $314.2 million and $23.6 million, respectively. Due
to a marked reduction of Treasury yields, high market volatility and the
changing spreads available on mortgage-backed and investment securities, the
Company chose to rebalance its investment portfolio during fiscal 2008 by
reinvestments proceeds from calls of U.S. Government Agency bonds into U.S.
Government Agency floating rate mortgage-backed securities, investment grade
corporate obligations (including short-term commercial paper) and FDIC insured
certificates of deposit. A portion of these cash flows were also reinvested back
into callable U.S. Government Agency bonds with maturities generally less than
ten years. This strategy has allowed the Company to maintain operating margins
and capital ratios while managing overall interest rate risk.
Due to the term structure of market interest rates, weakness in the economy, an
excess supply of existing homes available for sale, and lower levels of housing
starts, 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.
We expect that the housing market may continue to be weak into fiscal 2009. 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.
Within the investment and mortgage-backed securities portfolio, the Company used
cash flow from maturities, early redemptions and repayments of investments and
mortgage-backed securities to purchase new fixed rate U.S. Government Agency
bonds, intermediate-term corporate bonds, investment grade short-term commercial
paper and floating rate mortgage-backed securities in order to provide current
income and in response to changing term premiums of market interest rates. This
strategy has 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 2008 principal investment purchases were comprised of: callable
fixed rate government agency bonds with initial lock-out periods as follows: 0 -
3 months - $16.9 million with a weighted average yield to call of approximately
6.15%; 3 - 6 months - $15.0 million with a weighted average yield to call of
approximately 5.95%; 6 - 12 months - $20.0 million with a weighted average yield
to call of approximately 5.61%; short-term commercial paper - $157.2 million
with a weighted average yield of approximately 4.85%; U.S. Government Agency
floating rate collateralized mortgage obligations which reprice monthly - $117.6
million with an original weighted average yield of 5.33%; fixed-rate investment
grade corporate bonds - $15.4 million with a weighted average yield of 4.38%;
floating-rate investment grade corporate bonds - $5.7 million with a weighted
average yield of 5.04%; and bank certificates of deposit - $9.4 million with a
weighted average yield of 3.56%. Major investment proceeds received during
fiscal 2008 were: callable government agency bonds - $145.2 million with a
weighted average yield of approximately 5.85%; mortgage-backed securities -
$23.6 million; short-term commercial paper - $165.1 million with a weighted
average yield of 5.02%; tax-free municipal bonds - $1.7 million with a weighted
average taxable equivalent yield of approximately 6.13%; taxable municipal bonds
- - $140 thousand with a weighted average yield of 6.63%; and fixed-rate
investment grade corporate bonds - $2.0 million with a weighted average yield of
3.58%.
As of June 30, 2008, the implementation of these asset and liability management
initiatives resulted in the following:
1) $213.7 million or 99.0% 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.
15
2) $93.0 million or 72.4% 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 - $35.9
million; 3 - 6 months - $23.8 million; 6 - 12 months - $30.3
million; and over 1 year - $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.
3) $7.5 million or 5.8% of the Company's investment portfolio was
comprised of investment grade commercial paper with maturities
of less than thirty days.
4) $13.4 million or 10.4% of the Company's investment portfolio
consisted of investment grade fixed-rate corporate bonds with
remaining maturities between one and fifteen months;
5) $5.7 million or 4.4% of the Company's investment portfolio
consisted of investment grade floating-rate corporate bonds
which will reprice within three months and will mature within
six to eleven months;
6) $9.2 million or 2.2% of the Company's total assets consisted
of FDIC insured bank certificates of deposit with remaining
maturities ranging from two to twenty-one months;
7) An aggregate of $32.0 million or 55.7% of the Company's net
loan portfolio had adjustable interest rates or maturities of
less than 12 months; and
8) The maturity distribution of the Company's borrowings is as
follows: 1 month or less - $100.6 million or 42.6%; 3 - 12
months - $5.5 million or 2.3%; 1 - 3 years - $107.6 million or
45.6%; 3 - 5 years - $5.0 million or 2.1%; and over 5 years -
$17.5 million or 7.4%.
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.
As part of its asset/liability management strategy, the Company maintained an
asset sensitive financial position. An asset sensitive financial position may
benefit earnings during a period of rising interest rates and reduce earnings
during a period of declining interest rates.
The following table sets forth certain information at the dates indicated
relating to the Company's interest-earning assets and interest-bearing
liabilities which are estimated to mature or are scheduled to reprice within one
year.
June 30,
--------------------------------
2008 2007 2006
-------- -------- --------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $377,916 $206,136 $273,884
Interest-bearing liabilities maturing or
repricing within one year 207,133 187,494 194,509
-------- -------- --------
Interest sensitivity gap $170,783 $ 18,642 $ 79,375
======== ======== ========
Interest sensitivity gap as a percentage of
total assets 40.36% 4.57% 18.82%
Ratio of assets to liabilities
maturing or repricing within one year 182.45% 109.94% 140.81%
During fiscal 2008, the Company managed its one year interest sensitivity gap
by: (1) limiting the portfolio origination of long-term fixed rate mortgages;
(2) emphasizing loans with shorter terms or repricing frequencies; (3)
purchasing floating rate U.S. Government Agency CMO's which reprice on a monthly
basis; (4) adjusting its investment portfolio to include investment grade fixed
and floating rate corporate bonds; (5)
16
higher average holdings of short-term investment grade commercial paper; and (6)
investing in shorter-term FDIC insured certificates of deposit.
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, 2008. The table estimates the impact of an upward or downward change in
market interest rates of 100 and 200 basis points.
Cumulative Stressed Repricing Gap
---------------------------------
Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term
------- ------- -------- -------- -------- -------- ---------
(Dollars in Thousands)
Base Case Up 200 bp
- -------------------
Cummulative
Gap ($'s) 101,393 84,651 77,794 50,552 (37,976) (43,110) 33,078
% of Total
Assets 24.0% 20.0% 18.4% 11.9% -9.0% -10.2% 7.8%
Base Case Up 100 bp
- -------------------
Cummulative
Gap ($'s) 101,803 85,362 78,827 51,517 (36,850) 24,633 33,078
% of Total
Assets 24.1% 20.2% 18.6% 12.2% -8.7% 5.8% 7.8%
Base Case No Change
- -------------------
Cummulative
Gap ($'s) 137,291 145,387 170,783 149,612 61,785 57,081 33,078
% of Total
Assets 32.4% 34.4% 40.4% 35.4% 14.6% 13.5% 7.8%
Base Case Down 100 bp
- ---------------------
Cummulative
Gap ($'s) 140,390 149,756 176,927 157,315 69,605 62,762 33,078
% of Total
Assets 33.2% 35.4% 41.8% 37.2% 16.5% 14.8% 7.8%
Base Case Down 200 bp
- ---------------------
Cummulative
Gap ($'s) 140,909 150,706 178,491 159,019 71,136 63,228 33,078
% of Total
Assets 33.3% 35.6% 42.2% 37.6% 16.8% 14.9% 7.8%
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
The following table presents the simulated impact of a 100 and 200 basis point
upward or downward (parallel) shift in market interest rates on net interest
income, return on average equity, return on average assets and the market value
of portfolio equity at June 30, 2008. This analysis was done assuming that the
interest-earning assets will average approximately $408 million over a projected
twelve month period for the estimated impact on change in net interest income,
return on average equity and return on average assets. The estimated changes in
market value of equity were calculated using balance sheet levels at June 30,
2008.
Analysis of Sensitivity to Changes in Market Interest Rates
-----------------------------------------------------------
Modeled Change in Market Interest Rates
---------------------------------------------------------------------------------------------------------
June 30, 2008 June 30, 2007
-------------------------------------------------- ---------------------------------------------------
Estimated impact on: -200 -100 0 +100 +200 -200 -100 0 +100 +200
- -------------------- ---- ---- - ---- ---- ---- ---- - ---- ----
Change in net
interest income -4.8% -4.9% 0.00% 13.5% 27.8% -16.6% -6.0% 0.00% 1.8% -7.4%
Return on average 7.91% 7.87% 8.47% 10.22% 12.05% 9.31% 11.07% 12.05% 12.31% 10.86%
equity
Return on average 0.61% 0.61% 0.66% 0.80% 0.96% 0.70% 0.83% 0.92% 0.93% 0.81%
assets
Market value of
equity (in thousands) $21,224 $25,327 $28,671 $30,605 $27,457 $31,575 $36,391 $36,168 $24,967 $8,142
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,
2008.
Anticipated Transactions
---------------------------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and development loans
Fixed rate $ 4,359
7.40%
Adjustable rate $ 6,454
5.78%
Undisbursed lines of credit
Adjustable rate $ 5,109
6.25%
Loan origination commitments
Fixed rate $ 237
7.26%
Adjustable rate $ 0
Letters of credit
Adjustable rate $ 594
6.00%
----------
$ 16,753
==========
18
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, 2008 and 2007, 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, 2008. 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, 2008 and 2007, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2008, in conformity with U.S. generally accepted accounting principles.
We were not engaged to examine management's assertion about the effectiveness of
WVS Financial Corp.'s internal control over financial reporting as of June 30,
2008, which is included in Item 9A(T) of Form 10-K and, accordingly, we do not
express an opinion thereon.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
September 8, 2008
19
WVS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
June 30,
2008 2007
--------- ---------
ASSETS
Cash and due from banks $ 628 $ 630
Interest-earning demand deposits 1,198 2,045
--------- ---------
Total cash and cash equivalents 1,826 2,675
Certificates of deposit 9,398 --
Investment securities available for sale (amortized
cost of $7,994 and $8,957) 7,978 8,933
Investment securities held to maturity (market value
of $122,055 and $201,510) 120,559 202,664
Mortgage-backed securities available for sale
(amortized cost of $2,101 and $2,186) 2,215 2,246
Mortgage-backed securities held to maturity
(market value of $211,113 and $119,646) 213,690 119,271
Net loans receivable (allowance for loan losses of
$956 and $986) 56,477 60,350
Accrued interest receivable 2,117 3,714
Federal Home Loan Bank stock, at cost 6,931 6,340
Premises and equipment 766 813
Other assets 1,152 1,070
--------- ---------
TOTAL ASSETS $ 423,109 $ 408,076
========= =========
LIABILITIES
Deposits $ 150,142 $ 159,377
Federal Home Loan Bank advances: long-term 135,579 130,579
Federal Home Loan Bank advances: short-term -- --
Federal Reserve Bank short-term borrowings 80,600 --
Other short-term borrowings 20,000 82,950
Accrued interest payable 1,539 1,669
Other liabilities 3,101 2,208
--------- ---------
TOTAL LIABILITIES 390,961 376,783
--------- ---------
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;
3,805,636 and 3,790,336 shares issued 38 38
Additional paid-in capital 21,376 21,137
Treasury stock (1,578,857 and 1,471,481 shares at cost) (24,041) (22,286)
Retained earnings - substantially restricted 34,712 32,382
Accumulated other comprehensive income 64 23
Unallocated shares - Recognition and Retention Plans (1) (1)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 32,148 31,293
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 423,109 $ 408,076
========= =========
See accompanying notes to the consolidated financial statements.
20
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
Year Ended June 30,
2008 2007 2006
----------- ----------- -----------
INTEREST AND DIVIDEND INCOME
Loans $ 4,298 $ 4,350 $ 4,009
Investment securities 10,341 10,832 9,029
Mortgage-backed securities 8,518 8,748 8,919
Certificates of deposit 87 -- --
Interest-earning demand deposits 4 10 15
Federal Home Loan Bank stock 433 370 276
----------- ----------- -----------
Total interest and dividend income 23,681 24,310 22,248
----------- ----------- -----------
INTEREST EXPENSE
Deposits 3,927 4,190 3,123
Federal Home Loan Bank advances 9,299 7,763 7,934
Federal Reserve Bank short-term borrowings 72 -- --
Other short-term borrowings 1,845 4,032 4,403
----------- ----------- -----------
Total interest expense 15,143 15,985 15,460
----------- ----------- -----------
NET INTEREST INCOME 8,538 8,325 6,788
(Recovery) provision for loan losses (123) 13 (161)
----------- ----------- -----------
NET INTEREST INCOME AFTER (RECOVERY)
PROVISION FOR LOAN LOSSES 8,661 8,312 6,949
----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposits 325 359 380
Investment securities gains 7 -- 30
Other 265 267 295
----------- ----------- -----------
Total noninterest income 597 626 705
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,090 2,011 1,970
Occupancy and equipment 351 380 387
Data processing 252 270 271
Correspondent bank charges 103 118 132
Other 840 750 761
----------- ----------- -----------
Total noninterest expense 3,636 3,529 3,521
----------- ----------- -----------
Income before income taxes 5,622 5,409 4,133
Income taxes 1,850 1,763 1,287
----------- ----------- -----------
NET INCOME $ 3,772 $ 3,646 $ 2,846
=========== =========== ===========
EARNINGS PER SHARE:
Basic $ 1.67 $ 1.57 $ 1.21
Diluted 1.67 1.57 1.21
AVERAGE SHARES OUTSTANDING:
Basic 2,252,604 2,319,928 2,357,217
Diluted 2,252,906 2,321,536 2,359,996
See accompanying notes to the consolidated financial statements.
21
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Retained Accumulated
Additional Earnings- Other Unallocated
Common Paid-in Treasury Substantially Comprehensive Shares Held
Stock Capital Stock Restricted Income (Loss) By RRP Total
---------- ---------- ---------- ---------- ------------ ---------- ----------
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
Net income 3772 3,646
Unrealized gain on available-
for-sale securities, net of taxes of $21 41 41
Exercise of stock options (15,300 235 235
Purchase of treasury stock (107,376) (1,755) (1,755)
Cash dividends declared ($0.64 per share) (1,442) (1,442)
Other, net 4 4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance June 30, 2008 $ 38 $ 21,376 $ (24,041) $ 34,712 $ 64 $ (1) $ 32,148
========== ========== ========== ========== ========== ========== ==========
See accompanying notes to the consolidated financial statements.
22
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended June 30,
2008 2007 2006
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 3,772 $ 3,646 $ 2,846
Adjustments to reconcile net income to net cash
provided by operating activities:
(Recovery) provision for loan losses (123) 13 (161)
Depreciation 124 137 154
Investment securities gains (7) -- (30)
Amortization (accretion) of discounts, premiums, and
deferred loan fees (1,180) (188) (234)
Deferred income taxes (70) (26) 181
Decrease (increase) in accrued interest receivable 1,597 (793) (864)
Increase (decrease) in accrued interest payable (130) 218 191
Other, net 234 211 377
--------- --------- ---------
Net cash provided by operating activities 4,217 3,218 2,460
--------- --------- ---------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and mortgage-backed
securities (157,231) (12,440) (8,690)
Proceeds from repayments of investment and
mortgage-backed securities 158,664 12,042 9,395
Proceeds from sales of investment and
mortgage-backed securities 326 -- 1,016
Held to maturity:
Purchase of investment and mortgage-backed
securities (190,620) (138,272) (202,891)
Proceeds from repayments of investment and
mortgage-backed securities 178,820 157,938 194,306
Purchase of certificates of deposit (9,401) -- --
Net (increase) decrease in net loans receivable 3,962 (4,681) 4,581
Purchase of Federal Home Loan Bank stock (19,504) (4,227) (5,994)
Redemption of Federal Home Loan Bank stock 18,913 5,748 5,902
Acquisition of premises and equipment (77) (86) (79)
Other, net 2 -- 60
--------- --------- ---------
Net cash (used for) provided by investing activities (16,146) 16,022 (2,394)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (8,608) 8,259 (12,993)
Net increase (decrease) in Federal Home Loan Bank short-term advances -- (23,150) 10,850
Net increase in Federal Reserve Bank short-term borrowings 80,600 -- --
Net increase (decrease) in other short-term borrowings (62,950) 6,902 6,368
Proceeds from Federal Home Loan Bank long-term advances 10,000 -- --
Repayments of Federal Home Loan Bank long-term advances (5,000) (8,000) (4,157)
Net proceeds from exercise of stock options 235 320 91
Cash dividends paid (1,442) (1,485) (1,510)
Purchase of treasury stock (1,755) (607) (1,085)
--------- --------- ---------
Net cash provided by (used for) financing activities 11,080 (17,761) (2,436)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (849) 1,479 (2,370)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 2,675 1,196 3,566
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,826 $ 2,675 $ 1,196
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 15,273 $ 15,767 $ 15,269
Taxes 1,902 1,764 915
Non cash item
Due to Federal Reserve Bank 1,221 595 --
See accompanying notes to the consolidated financial statements.
23
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 that 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
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
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, 2008, 2007, and
2006. There were no options issued during the periods ended June 30,
2008, 2007, and 2006.
26
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 December 2007, the FASB issued FAS No. 141 (revised 2007),
Business Combinations ("FAS 141(R)), which establishes principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in an acquiree, including the
recognition and measurement of goodwill acquired in a business
combination. FAS No. 141(R) is effective for fiscal years beginning on
or after December 15, 2008. Earlier adoption is prohibited. The
adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
In December 2007, the FASB issued FAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements -- an amendment of ARB
No. 51. FAS No. 160 amends ARB No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary, which is sometimes referred to
as minority interest, is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Among other requirements, this statement requires
consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated
income statement, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. FAS No.
160 is effective for fiscal years beginning on or after December 15,
2008. Earlier adoption is prohibited. 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 2008, the FASB issued FAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities, to require enhanced
disclosures about derivative instruments and hedging activities. The
new standard has revised financial reporting for derivative instruments
and hedging activities by requiring more transparency about how and why
an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for under FAS No. 133, Accounting
for Derivative Instruments and Hedging Activities; and how derivative
instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. FAS No. 161 requires
disclosure of the fair values of derivative instruments and their gains
and losses in a tabular format. It also requires entities to provide
more information about their liquidity by requiring disclosure of
derivative features that are credit risk-related. Further, it requires
cross-referencing within footnotes to enable financial statement users
to locate important information about derivative instruments. FAS No.
161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early
application encourage. The adoption of this standard is not expected to
have a material effect on the Company's results of operations or
financial position.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
--------------------------------
In May 2008, the FASB issued FAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles. FAS No. 162 identifies the
sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
generally accepted accounting principles (the GAAP hierarchy). FAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company does not expect the adoption of FAS
No. 162 to have a material effect on its results of operations and
financial position.
In April 2008, the FASB issued FASB Staff Position No. 142-3,
Determination of the Useful Life of Intangible Assets ("FSP 142-3").
FSP 142-3 amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the useful
life of a recognized intangible asset under FAS No. 142, Goodwill and
Other Intangible Assets. This standard is intended to improve the
consistency between the useful life of a recognized intangible asset
under FAS No. 142 and the period of expected cash flows used to measure
the fair value of the asset under FAS No. 141R and other GAAP. FSP
142-3 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement provisions of this
standard will apply only to intangible assets of the Company acquired
after the effective date.
In June 2008, the FASB issued FASB Staff Position (FSP) No.
EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, to clarify that
instruments granted in share-based payment transactions can be
participating securities prior to the requisite service having been
rendered. A basic principle of the FSP is that unvested share-based
payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating
securities and are to be included in the computation of EPS pursuant to
the two-class method. The provisions of this FSP are effective for
financial statements issued for fiscal years beginning after December
15, 2008, and interim periods within those years. All prior-period EPS
data presented (including interim financial statements, summaries of
earnings, and selected financial data) are required to be adjusted
retrospectively to conform with the provisions of the FSP. The adoption
of this FSP is not expected to have a material effect on the Company's
results of operations or financial position.
28
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.
2008 2007 2006
---------- ---------- ----------
Weighted-average common shares
issued 3,799,015 3,778,561 3,765,511
Average treasury stock shares (1,546,411) (1,458,633) (1,408,294)
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 2,252,604 2,319,928 2,357,217
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 302 1,608 2,779
---------- ---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 2,252,906 2,321,536 2,359,996
========== ========== ==========
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:
2008 2007 2006
------- ------- -------
Net Income $ 3,772 $ 3,646 $ 2,846
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities 55 -- (221)
Reclassification adjustment for gains included
in net income 7 -- 30
------- ------- -------
Other comprehensive income (loss) before tax 62 -- (191)
Income tax effect related to other
comprehensive income (loss) 21 -- (65)
------- ------- -------
Other comprehensive income (loss), net of tax 41 -- (126)
------- ------- -------
Comprehensive income $ 3,813 $ 3,646 $ 2,720
======= ======= =======
29
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:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
2008
----
AVAILABLE FOR SALE
Corporate debt securities $ 7,494 $ -- $ -- $ 7,494
Equity securities 500 -- (16) 484
---------- ---------- ---------- ----------
Total $ 7,994 $ -- $ (16) $ 7,978
========== ========== ========== ==========
HELD TO MATURITY
U.S. government agency securities $ 93,414 $ 1,159 $ -- $ 94,573
Corporate debt securities 19,092 56 (177) 18,971
Obligations of states and political
subdivisions 8,053 458 -- 8,511
---------- ---------- ---------- ----------
Total $ 120,559 $ 1,673 $ (177) $ 122,055
========== ========== ========== ==========
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
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
========== ========== ========== ==========
In 2008, 2007, and 2006, the Company recorded realized investment
security gains, and unrealized holding gains and losses for trading
securities of $7, $0, and $30. Proceeds from sales of investment
securities and mortgage-backed securities during 2008, 2007, and 2006
were $326, $0, and $1,016.
30
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, 2008,
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.
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
------------ ------------ ------------ ------------ ------------
AVAILABLE FOR SALE
Amortized cost $ 7,494 $ -- $ -- $ -- $ 7,494
Fair value 7,494 -- -- -- 7,494
HELD TO MATURITY
Amortized cost $ 17,815 2,575 $ 69,411 $ 30,758 $ 120,559
Fair value 17,703 2,642 70,273 31,437 122,055
Investment securities with amortized costs of $59,430 and $96,460 and fair
values of $59,872 and $95,797 at June 30, 2008 and 2007, 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:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
2008
----
AVAILABLE FOR SALE
Government National Mortgage
Association certificates $ 2,101 $ 114 $ -- $ 2,215
------------ ------------ ------------ ------------
Total $ 2,101 $ 114 $ -- $ 2,215
============ ============ ============ ============
HELD TO MATURITY
Collateralized mortgage obligations $ 213,690 $ 523 $ (3,100) $ 211,113
------------ ------------ ------------ ------------
Total $ 213,690 $ 523 $ (3,100) $ 211,113
============ ============ ============ ============
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
5. MORTGAGE-BACKED SECURITIES (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
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
Collateralized mortgage obligations $ 119,271 $ 582 $ (207) $ 119,646
------------ ------------ ------------ ------------
Total $ 119,271 $ 582 $ (207) $ 119,646
============ ============ ============ ============
The amortized cost and fair value of mortgage-backed securities at June
30, 2008, 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.
Due in Due after Due after
one year one through five through Due after
or less five years ten years ten years Total
-------------- -------------- -------------- -------------- --------------
AVAILABLE FOR SALE
Amortized cost $ -- $ -- $ -- $ 2,101 $ 2,101
Fair value -- -- -- 2,215 2,215
HELD TO MATURITY
Amortized cost $ -- $ -- $ -- $ 213,690 $ 213,690
Fair value -- -- -- 211,113 211,113
At June 30, 2008 and 2007, mortgage-backed securities with an amortized
cost of $208,382 and $120,435 and fair values of $205,920 and $120,873,
were pledged to secure borrowings with the Federal Home Loan Bank and
the Federal Reserve.
32
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, 2008 and 2007.
2008
-----------------------------------------------------------------------------
Less Than Twelve Months Twelve Months or Greater Total
-----------------------------------------------------------------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
---------- ---------- ---------- ---------- ---------- ----------
U.S. government agencies
securities $ -- $ -- $ -- $ -- $ -- $ --
Obligations of states and
political subdivisions -- -- -- -- -- --
Corporate debt securities 12,593 (177) -- -- 12,593 (177)
Corporate equity securities -- -- 484 (16) 484 (16)
Collateralized mortgage
obligations 97,644 (1,418) 53,531 (1,682) 151,175 (3,100)
---------- ---------- ---------- ---------- ---------- ----------
Total $ 110,237 $ (1,595) $ 54,015 $ (1,698) $ 164,252 $ (3,293)
========== ========== ========== ========== ========== ==========
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
---------- ---------- ---------- ---------- ---------- ----------
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 equity 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)
========== ========== ========== ========== ========== ==========
The policy of the Company is to recognize an other-than-temporary
impairment of equity 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 48 positions that are temporarily impaired at June
30, 2008. The Company reviews its position quarterly and has asserted
that at June 30, 2008, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
7. NET LOANS RECEIVABLE
Major classifications of loans are summarized as follows:
2008 2007
-------- --------
First mortgage loans:
1 - 4 family dwellings $ 16,020 $ 17,102
Construction 23,012 25,679
Land acquisition and development 1,992 2,195
Multi-family dwellings 6,897 6,458
Commercial 6,622 7,699
-------- --------
54,543 59,133
-------- --------
Consumer loans:
Home equity 6,223 6,852
Home equity lines of credit 2,509 3,006
Other 737 551
-------- --------
9,469 10,409
-------- --------
Commercial loans 4,328 3,988
-------- --------
Less:
Undisbursed construction and land development 10,813 12,090
Net deferred loan fees 94 104
Allowance for loan losses 956 986
-------- --------
11,863 13,180
-------- --------
Net loans receivable $ 56,477 $ 60,350
======== ========
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, 2008 and 2007, the Company had
approximately $15 million and $17 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, 2008
and 2007, loans outstanding to individuals and businesses are dependent
upon the local economic conditions in its immediate trade area.
34
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:
2008 2007 2006
------ ------ ------
Principal outstanding $1,582 $1,204 $ 308
------ ------ ------
Interest income that would
have been recognized 117 82 23
Interest income recognized 70 81 10
------ ------ ------
Interest income foregone $ 47 $ 1 $ 13
====== ====== ======
The following table is a summary of the loans considered to be impaired
as of June 30:
2008 2007 2006
--------- --------- ---------
Impaired loans with an allocated allowance $ 972 $ 972 $ --
Impaired loans without an allocated allowance -- -- --
--------- --------- ---------
Total impaired loans $ 972 $ 972 $ --
========= ========= =========
Allocated allowance on impaired loans $ 340 $ 341 $ --
Average impaired loans 972 245 --
Income recognized on impaired loans 34 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:
2008 2007
------- -------
Balance, July 1 $ 2,455 $ 373
Additions 436 2,163
Amounts collected (507) (81)
------- -------
Balance, June 30 $ 2,384 $ 2,455
======= =======
8. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
2008 2007 2006
------- ------- -------
Balance, July 1 $ 986 $ 957 $ 1,121
Add:
(Recovery) provision for loan losses (123) 13 (161)
Recoveries 93 16 4
Less:
Loans charged off -- -- 7
------- ------- -------
Balance, June 30 $ 956 $ 986 $ 957
======= ======= =======
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
9. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
2008 2007
------ ------
Investment and mortgage-backed securities $1,834 $3,398
Loans receivable 283 316
------ ------
Total $2,117 $3,714
====== ======
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 0.75 percent of the outstanding unused FHLB
borrowing capacity and 4.75 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:
2008 2007
------ ------
Land and improvements $ 246 $ 246
Buildings and improvements 1,995 2,015
Furniture, fixtures, and equipment 1,044 993
------ ------
3,285 3,254
Less accumulated depreciation 2,519 2,441
------ ------
Total $ 766 $ 813
====== ======
Depreciation charged to operations was $124, $137, and $154, for the
years ended June 30, 2008, 2007, and 2006, respectively.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
12. DEPOSITS
Deposit accounts are summarized as follows:
2008 2007
--------------------------- ---------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------------ ------------ ------------ ------------
Non-interest-earning checking $ 11,780 7.9% $ 12,363 7.8%
Interest-earning checking 17,569 11.7 18,741 11.8
Savings accounts 32,025 21.3 32,937 20.7
Money market accounts 23,593 15.7 20,146 12.6
Advance payments by borrowers
for taxes and insurance 924 0.6 1,013 0.6
------------ ------------ ------------ ------------
85,891 57.2 85,200 53.5
------------ ------------ ------------ ------------
Savings certificates:
2.00% or less 9,288 6 -- --
2.01 - 4.00% 26,359 17.5 11,815 7.4
4.01 - 6.00% 28,547 19.0 62,277 39.0
6.01 - 6.95% 57 0.1 85 0.1
------------ ------------ ------------ ------------
64,251 42.8 74,177 46.5
------------ ------------ ------------ ------------
Total $ 150,142 100.0% $ 159,377 100.0%
============ ============ ============ ============
The maturities of savings certificates at June 30, 2008, are summarized
as follows:
Within one year $50,671
Beyond one year but within two years 8,335
Beyond two years but within three years 2,908
Beyond three years 2,337
-------
Total $64,251
=======
The aggregate amount of time certificates of deposit with a minimum
denomination of $100,000 and individual retirement accounts with a
minimum denomination of $250,000 was $6,918 and $318 at June 30, 2008,
respectively. Time certificates of deposit in excess of $100,000 and
individual retirement accounts in excess of $250,000 are not federally
insured.
Interest expense by deposit category for the years ended June 30 are as
follows:
2008 2007 2006
------ ------ ------
Interest-earning checking accounts $ 10 $ 11 $ 11
Savings accounts 217 236 280
Money market accounts 633 624 413
Savings certificates 3,056 3,308 2,408
Advance payments by borrowers for taxes
and insurance 11 11 11
------ ------ ------
Total $3,927 $4,190 $3,123
====== ====== ======
37
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:
Weighted- Stated interest
Maturity range average rate range
Description from to interest rate from to 2008 2007
- ----------------- ------------ ------------ ----------------- ------- ------- ---------- ----------
Convertible 03/19/09 07/27/17 5.40% 4.26% 6.10% $ 134,500 $ 129,500
Fixed rate 03/12/09 05/03/10 3.24 2.91 3.53 1,079 1,079
---------- ----------
Total $ 135,579 $ 130,579
========== ==========
Maturities of FHLB long-term advances at June 30, 2008, are summarized
as follows:
Weighted-
Maturing During Average
Fiscal Year Ended Interest
June 30: Amount Rate
----------------------- -------------- ---------------
2009 $ 5,500 4.99%
2010 20,579 5.86
2011 87,000 5.45
2012 5,000 5.03
2013 and thereafter 17,500 4.72
--------------
Total $ 135,579 5.39%
==============
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:
2008 2007
-------- --------
FHLB revolving and short-term advances:
Ending balance $ -- $ --
Average balance during the year 52,440 6,598
Maximum month-end balance during the year 114,325 67,235
Average interest rate during the year 3.63% 5.37%
Weighted-average rate at year-end --% --%
At June 30, 2008, the Company had remaining borrowing capacity with the
FHLB of approximately $150 million.
38
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 and Federal Reserve Bank Borrowings. These
borrowings 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 $20,647 and $83,564 at
June 30, 2008 and 2007, respectively, as collateral for the repurchase
agreements, and investment securities and mortgage-backed securities
with carrying values of $21,476 and $73,146 at June 30, 2008,
respectively, as collateral for the Federal Reserve Bank Borrowings as
explained in Notes 4 and 5. The following tables present information
regarding other borrowings as of June 30:
OTHER SHORT-TERM BORROWINGS
2008 2007
------- -------
Ending balance $20,000 $82,950
Average balance during the year 41,293 74,659
Maximum month-end balance during the year 75,950 92,900
Average interest rate during the year 4.47% 5.40%
Weighted-average rate at year-end 2.16% 5.30%
FEDERAL RESERVE BANK BORROWINGS
2008 2007
------- -------
Ending balance $80,600 $ --
Average balance during the year 3,195 --
Maximum month-end balance during the year 80,600 --
Average interest rate during the year 2.25% --%
Weighted-average rate at year-end 2.25% --%
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 $16,753 and $20,733 at June 30, 2008
and 2007, respectively, represent financial instruments with
off-balance sheet risk. The commitments outstanding at June 30, 2008,
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.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
15. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Loan Commitments (Continued)
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.
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, 2008 and 2007, 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.
June 30, 2008
--------------------------------------------------
West View West View
----------------------- -----------------------
Amount Ratio Amount Ratio
---------- ---------- ---------- ----------
Total Capital (to Risk-Weighted Assets)
---------------------------------------
Actual $ 33,059 22.37% $ 30,647 20.82%
To Be Well Capitalized 14,776 10.00 14,720 10.00
For Capital Adequacy Purposes 11,821 8.00 11,776 8.00
Tier I Capital (to Risk-Weighted Assets)
----------------------------------------
Actual $ 32,073 21.71% $ 29,661 20.15%
To Be Well Capitalized 8,866 6.00 8,832 6.00
For Capital Adequacy Purposes 5,911 4.00 5,888 4.00
Tier I Capital (to Average Total Assets)
----------------------------------------
Actual $ 32,073 7.75% $ 29,661 7.17%
To Be Well Capitalized 20,683 5.00 20,672 5.00
For Capital Adequacy Purposes 16,547 4.00 16,538 4.00
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
16. REGULATORY CAPITAL (Continued)
June 30, 2007
--------------------------------------------------
West View West View
----------------------- -----------------------
Amount Ratio Amount Ratio
---------- ---------- ---------- ----------
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
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
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, 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
Granted -- --
Exercised (12,294) (3,006) 15.37
Forfeited -- --
------------ ------------
Outstanding, June 30, 2008 -- 608 $ 15.77
============ ============
Exercisable at year-end -- 608 $ 15.77
============ ============
Available for future grant -- --
============ ============
At June 30, 2008, for officers and employees there were no options
outstanding.
There were also 608 options outstanding and exercisable for directors
with a weighted-average exercise price of $15.77, and a
weighted-average remaining contractual life of 3.42 years.
42
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, 2008, 2007, and 2006.
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,
$113, and $100 for the years ended June 30, 2008, 2007, and 2006,
respectively. Total ESOP shares as of June 30, 2008 and 2007, were
237,255 and 227,113, respectively.
18. DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a non-contributory profit sharing 401(k) 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, 2008, 2007, and 2006.
Directors' Deferred Compensation Plan
The Company maintains a deferred compensation 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, 2008, 2007, and 2006, 17,842, 29,341, and
25,841 shares, respectively, were held by the plan.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
19. INCOME TAXES
The provision for income taxes consists of:
2008 2007 2006
------- ------- -------
Currently payable:
Federal $ 1,767 $ 1,644 $ 978
State 153 145 128
------- ------- -------
1,920 1,789 1,106
Deferred (70) (26) 181
------- ------- -------
Total $ 1,850 $ 1,763 $ 1,287
======= ======= =======
The following temporary differences gave rise to the net deferred tax
assets at June 30:
2008 2007
------ ------
Deferred tax assets:
Allowance for loan losses $ 293 $ 335
Deferred compensation 415 339
Reserve for uncollected interest 207 187
Reserve for off-balance sheet commitments 10 14
Other 60 63
------ ------
Total gross deferred tax assets 985 938
------ ------
Deferred tax liabilities:
Net unrealized gain on securities available for sale 33 12
Deferred origination fees, net 161 177
Depreciation reserve 50 57
Other 1 1
------ ------
Total gross deferred tax liabilities 245 247
------ ------
Net deferred tax assets $ 740 $ 691
====== ======
No valuation allowance was established at June 30, 2008 and 2007, 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
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:
2008 2007 2006
---------------------- ---------------------- ----------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
--------- --------- --------- --------- --------- ---------
Provision at statutory rate $ 1,911 34.0% $ 1,839 34.0% $ 1,405 34.0%
State income tax, net of federal
tax benefit 101 1.8 96 1.8 84 2.0
Tax exempt income (163) (2.9) (189) (3.5) (251) (6.1)
Other, net 1 -- 17 0.3 49 1.2
--------- --------- --------- --------- --------- ---------
Actual tax expense and
effective rate $ 1,850 32.9% $ 1,763 32.6% $ 1,287 31.1%
========= ========= ========= ========= ========= =========
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, 2008 and 2007, the Savings Bank had
required reserves of $578 and $669, 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, 2008, surplus funds of $3,363 were not available for dividends.
45
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:
2008 2007
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
FINANCIAL ASSETS
Cash and cash equivalents $ 1,826 $ 1,826 $ 2,675 $ 2,675
Certificates of deposit 9,398 9,392 -- --
Investment securities 128,537 130,033 211,597 210,443
Mortgage-backed securities 215,905 213,328 121,517 121,892
Net loans receivable 56,477 58,722 60,350 61,399
Accrued interest receivable 2,117 2,117 3,714 3,714
FHLB stock 6,931 6,931 6,340 6,340
FINANCIAL LIABILITIES
Deposits $ 150,142 $ 150,497 $ 159,377 $ 159,224
FHLB advances 135,579 141,345 130,579 131,582
Federal Reserve Bank short-term borrowings 80,600 80,600 -- --
Other short-term borrowings 20,000 20,000 82,950 82,950
Accrued interest payable 1,539 1,539 1,669 1,669
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
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, Certificates of Deposit Owned, and Customer
-----------------------------------------------------------------------
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 owned and customer
time deposits 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
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,
2008 2007
-------- --------
ASSETS
Interest-earning deposits with subsidiary bank $ 1,696 $ 424
Certificates of deposit 198 --
Investment securities available for sale 501 57
Investment securities held to maturity -- 2,000
Investment in subsidiary bank 29,736 28,800
Accrued interest receivable and other assets 21 58
-------- --------
TOTAL ASSETS $ 32,152 $ 31,339
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 4 $ 46
Stockholders' equity 32,148 31,293
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,152 $ 31,339
======== ========
CONDENSED STATEMENT OF INCOME
Year Ended June 30,
2008 2007 2006
-------- -------- --------
INCOME
Investment and mortgage-backed securities $ 20 $ 1 $ 16
Certificates of deposit 3 -- --
Dividend from subsidiary 2,900 2,700 2,400
Investment securities gains, net 6 -- --
Interest-earning deposits with subsidiary bank 42 58 27
-------- -------- --------
Total income 2,971 2,759 2,443
-------- -------- --------
OTHER OPERATING EXPENSE 116 98 98
-------- -------- --------
Income before equity in undistributed
earnings of subsidiary 2,855 2,661 2,345
Equity in undistributed earnings of subsidiary 895 978 501
-------- -------- --------
Income before income taxes 3,750 3,639 2,846
Income tax expense (benefit) (22) (7) --
-------- -------- --------
NET INCOME $ 3,772 $ 3,646 $ 2,846
======== ======== ========
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
21. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30,
2008 2007 2006
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 3,772 $ 3,646 $ 2,846
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary (895) (978) (501)
Investment securities gains (6) -- --
Other, net (14) 21 (13)
-------- -------- --------
Net cash provided by operating activities 2,857 2,689 2,332
-------- -------- --------
INVESTING ACTIVITIES
Available for sale:
Purchase of investment and
mortgage-backed securities (4,556) (55) (611)
Proceeds from repayments of investment and
mortgage-backed securities 4,070 -- 1,942
Proceeds from sales of investment securities 61 -- --
Held to maturity:
Purchases of investment and mortgage-backed
securities -- (1,999) --
Proceeds from repayment of investment and
mortgage-backed securities 2,000 -- --
Purchases of certificates of deposit (198)
-------- -------- --------
Net cash provided by (used for) investing activities 1,377 (2,054) 1,331
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from exercise of stock options 235 320 91
Cash dividends paid (1,442) (1,485) (1,510)
Purchase of treasury stock (1,755) (607) (1,085)
-------- -------- --------
Net cash used for financing activities (2,962) (1,772) (2,504)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,272 (1,137) 1,159
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 424 1,561 402
-------- -------- --------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 1,696 $ 424 $ 1,561
======== ======== ========
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Three Months Ended
-------------------------------------------------------
September December March June
2007 2007 2008 2008
----------- ----------- ----------- -----------
Total interest and dividend income $ 6,537 $ 6,497 $ 5,690 $ 4,957
Total interest expense 4,234 4,165 3,600 3,144
----------- ----------- ----------- -----------
Net interest income 2,303 2,332 2,090 1,813
(recovery) provision for loan losses (17) 11 (57) (60)
----------- ----------- ----------- -----------
Net interest income after
(recovery) provision for loan losses 2,320 2,321 2,147 1,873
Total noninterest income 157 145 138 157
Total noninterest expense 942 955 848 891
----------- ----------- ----------- -----------
Income before income taxes 1,535 1,511 1,437 1,139
Income taxes 512 463 475 400
----------- ----------- ----------- -----------
Net income $ 1,023 $ 1,048 $ 962 $ 739
=========== =========== =========== ===========
Per share data:
Net income
Basic $ 0.45 $ 0.46 $ 0.43 $ 0.33
Diluted 0.45 0.46 0.43 0.33
Average shares outstanding
Basic 2,283,510 2,261,544 2,238,670 2,226,254
Diluted 2,284,384 2,261,783 2,238,758 2,226,260
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
23. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
Three Months Ended
------------------------------------------------------
September December March June
2006 2006 2007 2007
----------- ----------- ----------- -----------
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
Recovery for loan losses (9) -- 34 (12)
----------- ----------- ----------- -----------
Net interest income after
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
51
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 2008 $16.250 $15.900 $0.16
March 2008 16.470 15.800 0.16
December 2007 17.190 16.000 0.16
September 2007 16.600 15.770 0.16
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
There were ten Nasdaq Market Makers in the Company's common stock as of June 30,
2008: Boenning & Scattergood Inc.; Sandler O'Neill & Partners; Citadel
Derivatives Group LLC; Ryan Beck & Co., Inc.; Morgan Stanley & Co., Inc; UBS
Securities LLC; Ferris, Baker Watts, Inc.; Citigroup Global Markets; Stifel
Nicolaus & Co. and Knight Equity Markets, L.P.
According to the records of the Company's transfer agent, there were
approximately 644 shareholders of record at September 10, 2008. 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