UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-22444
WVS Financial Corp.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
(Address of principal (Zip Code)
executive offices)
(412) 364-1911
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [ X ] NO [ ]
Shares outstanding as of May 9, 1997: 1,747,160 shares Common Stock,
$.01 par value.
WVS FINANCIAL CORP. AND SUBSIDIARY
INDEX
PART I Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of March 31, 1997
and June 30, 1996 (Unaudited)
Consolidated Statements of Income
for the Three and Nine Months Ended
March 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31,
1997 and 1996 (Unaudited)
Consolidated Statements of Changes in
Stockholders' Equity for the Nine Months
Ended March 31, 1997 (Unaudited)
Notes to Unaudited Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Nine Months
Ended March 31, 1997
PART II Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(in thousands)
March 31, June 30,
1997 1996
--------- ---------
Assets
Cash and due from banks ..................................... $ 551 $ 508
Interest-earning demand deposits ............................ 1,148 2,219
Investment securities available-for-sale
(amortized cost of $3,349 and $2,193) .................. 3,107 1,981
Investment securities held-to-maturity
(market value of $76,332 and $56,671) .................. 77,368 57,237
Mortgage-backed securities available-for-sale
(amortized cost of $19,609 and $22,775) ................ 19,201 22,428
Mortgage-backed securities held-to-maturity
(market value of $19,449 and $19,733) .................. 19,348 19,690
Federal Home Loan Bank stock, at cost ....................... 3,192 1,900
Net loans receivable ........................................ 151,146 149,011
Accrued interest receivable ................................. 2,575 2,373
Real estate owned ........................................... -- --
Premises and equipment ...................................... 1,293 1,327
Deferred taxes and other assets ............................. 965 948
--------- ---------
TOTAL ASSETS ....................................... $ 279,894 $ 259,622
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest-bearing accounts .......................... $ 5,720 $ 6,259
NOW accounts ........................................... 14,440 14,252
Savings accounts ....................................... 36,085 37,976
Money market accounts .................................. 11,984 11,682
Certificates of deposit ................................ 99,829 100,674
--------- ---------
Total deposits ........................................ 168,058 170,843
Federal Home Loan Bank advances ............................. 63,832 38,000
Other borrowings ............................................ 6,531 10,652
Advance payments by borrowers for taxes and insurance ....... 2,537 3,772
Accrued interest payable .................................... 1,946 1,425
Other liabilities ........................................... 1,378 892
--------- ---------
TOTAL LIABILITIES ...................................... 244,282 225,584
--------- ---------
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(in thousands)
(continued)
March 31, June 30,
1997 1996
--------- ---------
Stockholders' equity:
Preferred stock:
5,000,000 shares, no par value per share,
authorized; none outstanding ........................... -- --
Common stock:
10,000,000 shares, $.01 par value per share, authorized;
1,737,250 and 1,736,760 shares issued and outstanding .. 17 17
Additional paid-in-capital .................................. 17,076 16,947
Retained earnings, substantially restricted ................. 20,123 18,861
Unallocated shares - Recognition and Retention Plans ........ (682) (835)
Unallocated shares - Employee Stock Ownership Plan .......... (493) (584)
--------- ---------
36,041 34,406
Unrealized loss on available-for-sale securities ............ (429) (368)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ............................. 35,612 34,038
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 279,894 $ 259,622
========= =========
See accompanying notes to consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ------------
INTEREST AND DIVIDEND INCOME:
Loans ............................................... $ 3,077 $ 2,955 $ 9,240 $ 8,770
Investment securities ............................... 1,412 1,120 4,085 3,674
Mortgage-backed securities .......................... 670 343 2,060 1,015
Interest-earning deposits with other institutions ... 13 19 68 71
Federal Home Loan Bank stock ........................ 49 18 131 58
---------- ---------- ---------- ------------
Total interest and dividend income .............. 5,221 4,455 15,584 13,588
---------- ---------- ---------- ------------
INTEREST EXPENSE:
Deposits .......................................... 1,737 1,844 5,277 5,623
Borrowings ........................................ 913 248 2,666 917
Advance payments by borrowers for taxes and
insurance...................................... 12 15 28 30
---------- ---------- ---------- ------------
Total interest expense ........................ 2,662 2,107 7,971 6,570
---------- ---------- ---------- ------------
NET INTEREST INCOME ................................. 2,559 2,348 7,613 7,018
PROVISION FOR LOAN LOSSES ........................... -- 38 60 113
---------- ---------- ---------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES ....................................... 2,559 2,310 7,553 6,905
---------- ---------- ---------- ------------
NON-INTEREST INCOME:
Service charges on deposits ....................... 48 51 151 149
Investment securities gains ....................... -- -- 26 --
Other ............................................. 30 30 107 99
---------- ---------- ---------- ------------
Total non-interest income ..................... 78 81 284 248
---------- ---------- ---------- ------------
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands)
(continued)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ------------
NON-INTEREST EXPENSE:
Unusual item-Shareholder litigation settlement .... -- -- -- (246)
Unusual item-Shareholder litigation costs ......... -- 3 -- (137)
Salaries and employee benefits .................... 748 639 2,077 1,884
Occupancy and equipment ........................... 101 100 310 306
Deposit insurance premium ......................... 28 100 1,266 301
Data processing ................................... 45 42 130 130
Correspondent bank service charges ................ 27 27 85 82
Other ............................................. 177 183 539 528
---------- ---------- ---------- ------------
Total non-interest expense .................... 1,126 1,094 4,407 2,848
---------- ---------- ---------- ------------
INCOME BEFORE INCOME TAXES .......................... 1,511 1,297 3,430 4,305
INCOME TAXES ........................................ 597 504 1,354 1,504
---------- ---------- ---------- ------------
NET INCOME .......................................... $ 914 $ 793 $ 2,076 $ 2,801
========== ========== ========== ============
EARNINGS PER SHARE:
Primary ........................................... $ 0.52 $ 0.46 $ 1.19 $ 1.62
Fully Diluted ..................................... $ 0.52 $ 0.46 $ 1.19 $ 1.62
AVERAGE SHARES OUTSTANDING:
Primary ........................................... 1,756,228 1,737,602 1,749,071 1,730,053
Fully Diluted ..................................... 1,757,428 1,739,105 1,751,447 1,732,855
See accompanying notes to consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended March 31,
---------------------------
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income .......................................... $ 2,076 $ 2,801
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for loan and real estate owned losses 60 118
Gain on sale of Real Estate Owned .............. (8) --
Gain on sale of investment securities .......... (26) --
Depreciation and amortization, net ............. 102 101
Amortization of discounts, premiums and deferred
loan fees .................................. 66 (92)
Amortization of ESOP, RRP and deferred and
unearned compensation ...................... 368 269
Increase in accrued interest receivable ........ (202) (53)
Increase in accrued interest payable ........... 521 155
Decrease in accrued and deferred taxes ......... 322 287
Other, net ..................................... 178 (211)
-------- --------
Net cash provided by operating activities .. 3,457 3,375
-------- --------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-
backed securities .......................... (1,158) (10,490)
Proceeds from repayments of investments
and mortgage-backed securities ............. 1,519 4,793
Proceeds from sale of investments and
mortgage-backed securities ................. 1,665 --
Held-to-maturity:
Purchases of investments and mortgage-
backed securities .......................... (59,887) (50,270)
Proceeds from repayments of investments
and mortgage-backed securities ............. 40,211 49,205
Increase in net loans receivable .................... (2,430) (7,355)
Sale of real estate owned ........................... 73 --
Increase in FHLB stock .............................. (1,292) (190)
Purchases of premises and equipment ................. (68) (6)
-------- --------
Net cash used for investing activities ..... (21,367) (14,313)
-------- --------
See accompanying notes to consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended March 31,
---------------------------
1997 1996
-------- --------
FINANCING ACTIVITIES
Net decrease in transaction and passbook accounts ...... (1,940) (3,151)
Net (decrease) increase in certificates of deposit ..... (845) 5,338
Net increase in Federal Home Loan Bank Advances ........ 25,832 11,866
Net decrease in other borrowings ....................... (4,121) (3,886)
Net (decrease) increase in advance payments by borrowers
for taxes and insurance ........................... (1,235) 112
Net proceeds from issuance of common stock ............. 5 --
Cash dividends paid .................................... (814) (421)
-------- --------
Net cash provided by financing activities ......... 16,882 9,858
-------- --------
Decrease in cash and cash equivalents ............. (1,028) (1,080)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD .......................................... 2,727 4,218
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF THE PERIOD .......................................... $ 1,699 $ 3,138
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ...................................... $ 7,450 $ 6,416
Income taxes .................................. 986 1,010
Noncash item:
Foreclosed mortgage loans transferred
to real estate owned ..................... 64 35
See accompanying notes to consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Retained
Additional Unallocated Unallocated Net Unrealized Earnings-
Common Paid-in Shares Held Shares Held Loss on Substantially
Stock Capital by ESOP by RRP Securities Restricted Total
----- ------- ------- ------ ---------- ---------- -----
Balance at June 30, 1996 $ 17 $ 16,947 $ (584) $ (835) $ (368) $ 18,861 $34,038
Release of earned
Employee Stock Ownership 124 91 215
Plan (ESOP) shares
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 153 153
Exercise of Stock Options 5 5
Change in unrealized
loss, net of income
taxes of $ (32) (61) (61)
Cash dividends declared
($0.50 per share) (814) (814)
Net income 2,076 2,076
----- --------- --------- --------- --------- --------- -------
Balance at
March 31, 1997 $ 17 $ 17,076 $ (493) $ (682) $ (429) $ 20,123 $ 35,612
===== ========= ========== ========== ========== ========= ========
See accompanying notes to consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and
therefore do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations,
and cash flows in conformity with generally accepted accounting
principles. However, all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are
necessary for a fair presentation have been included. The results of
operations for the three and nine months ended March 31, 1997 are not
necessarily indicative of the results which may be expected for the
entire fiscal year.
2. EARNINGS PER SHARE
Primary earnings per share amounts are calculated based on the weighted
average number of shares actually outstanding, less average unearned
ESOP shares, plus the shares that would be outstanding assuming the
exercise of dilutive stock options which are considered to be common
stock equivalents. The number of shares that would be issued from the
exercise of the stock options has been reduced by the number of shares
that could have been purchased from the proceeds at the average market
price of the Company's common stock. The number of shares used in the
computation of primary earnings per share totaled 1,756,228 and
1,749,071, respectively, for the three and nine months ended March 31,
1997.
Fully diluted earnings per share amounts are calculated based on an
increased number of shares that would be outstanding assuming the
exercise of dilutive stock options. The number of additional shares
that would be issued from the exercise of the stock options has been
reduced by the number of shares that could have been purchased from the
proceeds at the end of period market price of the Company's common
stock. The number of shares used in the computation of fully diluted
earnings per share totaled 1,757,428 and 1,751,447, respectively, for
the three and nine months ended March 31, 1997.
3. LITIGATION
A settlement was entered into during the fourth quarter of fiscal 1995
in connection with the class action lawsuit filed by Jeffrey Carberry,
et. al., in the United States District Court for the Western District
of Pennsylvania against the Company and the Savings Bank. The lawsuit
alleged, among other things, antitrust and securities laws violations
in connection with the Savings Bank's mutual - to - stock conversion.
The Company entered into the settlement to, among other reasons, avoid
the cost of and disruption of the continuing litigation. During the
quarter and fiscal year ended June 30, 1995, the Company established a
provision for the settlement of litigation totaling $491,000. On
January 16, 1996, the Company received an executed Release of Claims
(the "Release") in connection with this lawsuit. The Release fully and
finally discharged all Defendants from all claims, causes of action and
disputes of any kind that the class members directly or indirectly had
with respect to the Plaintiff's claims. Also on January 16, 1996, the
Company's insurance carrier entered into a settlement with regard to
coverage for claims and costs of defense arising from the previously
settled class action lawsuit. The insurance carrier agreed to pay the
Savings Bank, as designee of the officers and directors, the sum of
approximately $391,000 to reimburse the Company and the Savings Bank
for litigation defense and settlement costs incurred or accrued through
December 1, 1995. In addition, the insurance carrier agreed to pay 50%
of the amount of future defense costs and expenses relating to the
Carberry lawsuit that may arise after December 1, 1995, for a one year
period beginning January 15, 1996.
On March 27, 1995, the United States District Court for the Western
District of Pennsylvania entered an Opinion and Orders dismissing in
its entirety a lawsuit brought by Plaintiff William S. Karn, who is a
depositor of the Savings Bank and a shareholder of the Company, which
alleged, among other things, antitrust and securities laws violations
in connection with the Savings Bank's mutual - to - stock conversion.
The court also dismissed this same Plaintiff's federal claims in a
second and substantially similar lawsuit while remanding to the Court
of Common Pleas of Allegheny County any cognizable state law claims.
This Plaintiff has filed Motion to Amend Judgment with the Court on the
Opinion and Orders and a Memorandum Response in Opposition has been
filed. On August 28, 1995, the Court denied the Plaintiff's motion to
Amend Judgment.
The Company is involved with various other legal actions arising in the
ordinary course of business. Management believes the outcome of these
matters will have no material effect on the consolidated operations or
consolidated financial condition of WVS.
4. PENDING ACCOUNTING STANDARDS
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share." Statement No. 128 will become effective for the Company
beginning in fiscal 1998. This statement re-defines the standards for
computing earnings per share (EPS) previously found in Accounting
Principles Board Opinion No. 15, Earnings Per Share. Statement No. 128
establishes new standards for computing and presenting EPS and requires
dual presentation of "basic" and "diluted" EPS on the face of the
income statement for all entities with complex capital structures.
Under Statement No. 128, basic EPS is to be computed based upon income
available to common shareholders and the weighted average number of
common shares outstanding for the period. Diluted EPS is to reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Company. Statement No. 128 also requires the
restatement of all prior-period EPS data presented. The Company will
adopt Statement No. 128 on December 31, 1997 and based on current
estimates, does not believe the effect of adoption will have a
significant impact on the Company's financial position or results of
operations.
WVS FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding
company of West View Savings Bank ("West View" or the "Savings Bank"). The
Company was organized in July 1993 as a Pennsylvania-chartered unitary bank
holding company and acquired 100% of the common stock of the Savings Bank in
November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. Originally organized under Pennsylvania law in 1908 as West View
Building Loan Association, West View changed its name to West View Savings and
Loan Association in 1954. In June 1992, West View converted from a
Pennsylvania-chartered mutual savings and loan association to a
Pennsylvania-chartered mutual savings bank. The Savings Bank converted to the
stock form of ownership in November 1993. The Savings Bank had no subsidiaries
at March 31, 1997.
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. The Company's net income is also affected
by its provision for loan losses, as well as the level of its non-interest
income, including loan fees and service charges, and its non-interest expenses,
such as compensation and employee benefits, income taxes, deposit insurance and
occupancy costs.
The Company's strategy focuses on traditional thrift lending,
maintaining asset quality and increasing core earnings.
FINANCIAL CONDITION
The Company's assets totaled $279.9 million at March 31, 1997 as
compared to $259.6 million at June 30, 1996. The $20.3 million or 7.8% increase
in total assets was accompanied by an $18.7 million increase in total
liabilities and a $1.6 million increase in stockholders' equity for the nine
months ended March 31, 1997. The growth in total assets of $20.3 million was
primarily comprised of a $19.0 million or 18.4% increase in investment and
mortgage-backed securities (including Federal Home Loan Bank ("FHLB") stock) and
a $2.1 million or 1.4% increase in net loans receivable which was partially
offset by a $1.1 million or 50.0% decrease in interest-earning demand deposits.
The Company's total liabilities increased $18.7 million or 8.3% to $244.3
million as of March 31, 1997 from $225.6 million as of June 30, 1996. The $18.7
million increase in total liabilities was primarily comprised of a $21.7 million
or 44.6% increase in FHLB advances and other borrowings which was partially
offset by a $2.7 million or 1.6% decrease in deposits. Total stockholders'
equity increased $1.6 million or 4.7% to $35.6 million as of March 31, 1997 from
$34.0 million as of June 30, 1996, primarily due to $2.1 million of Company net
income which was partially offset by $0.8 million of cash dividends paid during
the nine months ended March 31, 1997.
ASSET AND LIABILITY MANAGEMENT. The Company continued a strategy
designed to manage the interest rate sensitivity of its financial assets to its
financial liabilities. The primary elements of this strategy include: (i)
expanding the Company's investment arbitrage program in order to enhance net
interest income; (ii) reducing the Company's level of short-term liquid
investments by funding loan commitments and purchasing longer-term investment
securities; (iii) emphasizing the retention of lower-cost savings accounts and
other core deposits; (iv) pricing the Company's certificates of deposit and loan
products nearer to the market average rate as opposed to the upper range of
market offered rates.
The Company has expanded its investment arbitrage program, originally
initiated in the third quarter of fiscal 1994, throughout fiscal 1997 in order
to realize additional net interest income. Under this strategy, a longer-term
callable or noncallable investment security, or mortgage-backed security, is
purchased and funded through the use of non-deposit liabilities, such as FHLB
advances or other borrowings. With this strategy, the Company increases its net
interest income, but also faces the risk, during periods of rising market
interest rates, such as have been experienced during the quarter ending March
31, 1997, that it may experience a decline in net interest income if the rate
paid on its borrowings rises above the rate earned on the investment security
purchased. In order to mitigate this exposure, the Board has placed certain
restrictions on the investment arbitrage program, including: (i) the average
outstanding daily balance of borrowings, computed quarterly, may not exceed
$85.0 million; (ii) suitable investments shall be confined to those meeting the
credit quality criteria outlined in the Company's investment policy; and (iii)
each security purchased shall initially yield a minimum of seventy-five basis
points above the incremental rate paid on short-term borrowings, at the time of
purchase.
The Company has continued to aggressively purchase bonds with optional
principal redemption features ("callable bonds") in order to capture additional
net interest income. Callable bonds generally provide investors with higher
rates of return than noncallable bonds because the issuer has the option to
redeem the bonds before maturity. While this strategy affords WVS the current
opportunity to improve its net interest income, during a period of declining
interest rates, such as has been experienced during the nine months ended March
31, 1997, the Company would be exposed to the risk that the investment will be
redeemed prior to its final stated maturity. In order to mitigate this risk, the
Company has funded its purchases of callable bonds primarily with short-term
borrowings. Approximately $4.0 million of callable agency bonds with an
estimated weighted average rate of 7.9% were called during the quarter ended
March 31, 1997. During the quarter ended March 31, 1997, the Company purchased
approximately $12.3 million of callable bonds with an approximate weighted
average yield to call and maturity of 8.4% and 7.9%, respectively. The callable
agency bond purchases, totaling $12.3 million, are summarized by initial term to
call as follows: $8.3 million within three months, $3.5 million with greater
than three months and within six months and $0.5 million within twelve months.
In addition, during the nine months ended March 31, 1997, the Company sold
approximately $1.7 million of adjustable rate mortgage-backed securities with an
approximate weighted average yield of 6.6% at a gain of $26 thousand.
The Company also makes available for origination residential mortgage
loans with interest rates which adjust pursuant to a designated index, although
customer acceptance has been somewhat limited in the Savings Bank's market area.
The Company will continue to offer land acquisition and development and
shorter-term construction loans, primarily on residential properties, to
partially increase its loan asset sensitivity.
During the nine months ended March 31, 1997, the Company lengthened the
maturity structure of a portion of its borrowings in order to lock in a
favorable cost of funds on a longer term basis. The Company borrowed
approximately $59.4 million from the FHLB as follows: $50.5 million of
convertible advances, with terms ranging from three years to five years at a
weighted average rate of 5.63%, $6.4 million of various fixed rate advances with
terms ranging from eighteen to twenty-four months with a weighted average rate
of 6.08%, and various short-term borrowings totaling approximately $2.5 million.
During the nine months ended March 31, 1997, the Company repaid $33.6 million of
FHLB advances and $4.2 million of other borrowings. Convertible advances
generally provide for a fixed rate of interest for a portion of the term of the
advance, an ability for the FHLB to convert the advance from a fixed rate to an
adjustable rate at some predetermined time during the remaining term of advance
(the "conversion" feature), and a concurrent opportunity for the Company to
prepay the advance with no prepayment penalty in the event that the FHLB elects
to exercise the conversion feature.
As of March 31, 1997, the implementation of these asset and liability
management initiatives resulted in the following: (i) an aggregate of $48.3
million or 32.0% of the Company's net loan portfolio had adjustable interest
rates or maturities of less than 12 months; (ii) $19.1 million or 49.6% of the
Company's portfolio of mortgage-backed securities (including CMOs) were secured
by floating rate securities; (iii) $2.2 million or 2.7% of the Company's
investment securities portfolio had scheduled maturities of one year or less;
and (iv) $75.2 million or 93.4% of the Company's investment securities portfolio
was comprised of callable bonds.
The effect of interest rate changes on a financial institution's assets
and liabilities may be analyzed by examining the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
a given time period. A gap is considered positive when the amount of rate
sensitive assets exceeds the amount of rate sensitive liabilities. A gap is
considered negative when the amount of interest sensitive liabilities exceeds
the amount of interest sensitive assets. During a period of falling interest
rates, a positive gap would tend to adversely affect net interest income, while
a negative gap would tend to result in an increase in net interest income.
During a period of rising interest rates, a positive gap would tend to result in
an increase in net interest income, while a negative gap would tend to adversely
affect net interest income.
The Company's one year cumulative interest rate sensitivity gap
amounted to a negative 13.5% of total assets at March 31, 1997 as compared to a
negative 18.0% at June 30, 1996, in each instance, based on certain assumptions
by management with respect to the repricing of certain assets and liabilities.
At March 31, 1997, the Company's interest-earning assets maturing or repricing
within one year totaled $86.1 million while the Company's interest-bearing
liabilities maturing or repricing within one year totaled $123.8 million,
providing a deficiency of interest-earning assets over interest-bearing
liabilities of $37.7 million. At March 31, 1997, the percentage of the Company's
assets to liabilities maturing or repricing within one year was 69.5%.
RESULTS OF OPERATIONS
General. WVS reported net income of $914 thousand and $2.1 million
for the three and nine months ended March 31, 1997, respectively. Net income
increased by $121 thousand or 15.3% for the three months ended March 31, 1997
when compared to the same period in 1996. The increase was primarily the result
of a $211 thousand increase in net interest income and a $38 thousand decrease
in the provision for loan losses, which was offset by a $93 thousand increase in
income tax expense, a $32 thousand increase in non-interest expense and a $3
thousand decrease in non-interest income. Net income decreased by $725 thousand
or 25.9% for the nine months ended March 31, 1997 when compared to the same
period in 1996. The decrease was principally the result of a $1.6 million or
54.7% increase in non-interest expense, which was partially offset by a $595
thousand or 8.5% increase in net interest income and a $150 thousand decrease in
income tax expense. The increase in non-interest expense for the nine months
ended March 31, 1997 was primarily attributable to one-time items, including a
$1.0 million net increase in federal deposit premiums to recapitalize the
Savings Association Insurance Fund ("SAIF"), and insurance recoveries in 1995
totaling $391 thousand for litigation settlement and defense costs. The $595
thousand increase in net interest income for the nine months ended March 31,
1997 was chiefly attributable to increases in interest earned on investment and
mortgage-backed securities and net loans receivable of $1.5 million and $470
thousand, respectively, and a $346 thousand decrease in interest expense on
deposits, partially offset by a $1.7 million increase in interest expense on
Federal Home Loan Bank Advances and other borrowings.
Net Interest Income. The Company's net interest income increased by
$211 thousand or 9.0% for the three months ended March 31, 1997 when compared to
the same period in 1996. The increase resulted from a $766 thousand or 17.2%
increase in interest income which was offset by a $555 thousand or 26.3%
increase in interest expense. For the nine months ended March 31, 1997, net
interest income increased by $595 thousand or 8.5%, when compared to the same
period in 1996. The increase resulted from a $2.0 million or 14.7% increase in
interest income which was offset by an $1.4 million or 21.2% increase in
interest expense.
Interest Income. Interest on net loans receivable increased by $122
thousand or 4.1% for the three months ended March 31, 1997 when compared to the
same period in 1996. The increase was attributable to an increase of $9.7
million in the average balance of net loans receivable outstanding which was
partially offset by a decrease in the weighted average yield earned on net loans
receivable of 21 basis points for the three months ended March 31, 1997 when
compared to the same period in 1996. Interest on net loans receivable increased
by $470 thousand or 5.4% for the nine months ended March 31, 1997 when compared
to the same period in 1996. The increase was attributable to a $12.1 million
increase in the average balance of outstanding loans which was partially offset
by a 26 basis point decrease in the weighted average yield earned on outstanding
loans for the nine months ended March 31, 1997. The increases in the average
loan balance outstanding for the three and nine months ended March 31, 1997 were
primarily attributable to higher levels of real estate and consumer loan
originations.
Interest on mortgage-backed securities increased by $327 thousand or
95.3% for the three months ended March 31, 1997 when compared to the same period
in 1996. The increase was attributable to a $16.7 million increase in the
average balance of mortgage-backed securities outstanding and to a 73 basis
point increase in the weighted average yield earned on mortgage-backed
securities for the three months ended March 31, 1997 when compared to the same
period in 1996. Interest on mortgage-backed securities increased $1.045 million
or 103.0% for the nine months ended March 31, 1997. The increase was primarily
attributable to an $18.9 million increase in the average balance of
mortgage-backed securities outstanding and to a 26 basis point increase in the
weighted average yield earned on mortgage-backed securities for the nine months
ended March 31, 1997 when compared to the same period in 1996. The increase in
the average balance of mortgage-backed securities outstanding was due to
purchases of both adjustable and fixed rate mortgage pass-through securities and
collateralized mortgage obligations under the Company's investment arbitrage
program. The increase in the weighted average yield earned, during both periods,
was principally attributable to higher yields earned on the adjustable rate
portion of the mortgage-backed securities portfolio that repriced to higher
market-based interest rates, and, to a lesser extent, lower levels of premium
amortization due to slower rates of principal repayment, when compared to the
same period in 1996.
Interest and dividend income on interest-bearing deposits with other
institutions, investment securities and FHLB Stock ("other investment
securities") increased by $317 thousand or 27.4% for the three months ended
March 31, 1997 when compared to the same period in 1996. The increase was
attributable to a $16.7 million increase in the average balance of other
investment securities outstanding which more than offset a 7 basis point
decrease in the weighted average yield earned on other investment securities for
the three months ended March 31, 1997 when compared to the same period in 1996.
Interest on other investment securities increased $481 thousand or 12.6% for the
nine months ended March 31, 1997 when compared to the same period in 1996. The
increase in interest income on other investment securities was attributable to a
$9.8 million increase in the average balance of other investment securities
outstanding which more than offset an 11 basis point decrease in the weighted
average yield earned on other investment securities for the nine months ended
March 31, 1997 when compared to the same period in 1996. The increases in the
average balance of other investment securities during both three and nine month
periods ended March 31, 1997 was principally attributable to purchases of
callable government agency securities associated with the Company's investment
arbitrage program. The decrease in the weighted average yield on other
investment securities was primarily attributable to lower market interest rates
during both periods.
Interest Expense. Interest expense on deposits and escrows decreased
by $110 thousand or 5.9% and decreased by $348 thousand or 6.2% for the three
and nine months ended March 31, 1997, respectively, when compared to the same
periods in 1996. The decrease in interest expense on deposits and escrows was
principally attributable to a $123 thousand decrease in interest paid on the
Savings Bank's NOW deposits, due to changes in product pricing, for the three
months ended March 31, 1997 when compared to the same period in 1996. For the
nine months ended March 31, 1997, the decrease in interest expense on deposits
and escrows was primarily attributable to a $4.1 million decrease in the average
balance of interest-bearing deposits and escrows when compared to the same
period in 1996.
Interest expense on other borrowings increased by $665 thousand and
increased by $1.749 million for the three and nine months ended March 31, 1997,
respectively, when compared to the same periods in 1996. The increase associated
with both periods is primarily attributable to funding the Company's investment
arbitrage program.
Provision 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 an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors.
The Company's provision for loan losses decreased by $38 thousand and
$53 thousand for the three and nine months ended March 31, 1997, respectively,
when compared to the same periods in 1996. Primarily as a result of the
provision during the nine months ended March 31, 1997, the Company's total
allowance for loan losses amounted to $2.0 million or 1.19% of the Company's
total loan portfolio as compared to $1.964 million, or 1.17% at June 30, 1996.
Non-Interest Income. Total non-interest income decreased by $3
thousand and increased $36 thousand for the three and nine months ended March
31, 1997, respectively, when compared to the same periods in 1996. The decrease
in non-interest income for the three months ended March 31, 1997 was
attributable to decreased service charges on transaction accounts. The increase
in non-interest income for the nine months ended March 31, 1997 was principally
attributable to a $26 thousand gain from the sale of securities.
Non-Interest Expense. Total non-interest expense increased $32
thousand or 2.9% and increased $1.6 million or 57.1% for the three and nine
months ended March 31, 1997, respectively, when compared to the same periods in
1996.
Shareholder litigation settlement and defense costs decreased $3
thousand and $383 thousand for the three and nine months ended March 31, 1997,
respectively, when compared to the same periods in 1996. The decrease for the
nine months ended March 31, 1997 was primarily attributable to the receipt of
$391 thousand of non-taxable insurance proceeds resulting from previously
disclosed and settled shareholder litigation and defense costs accrued during
the nine months ended March 31, 1996.
Federal deposit insurance premiums decreased $72 thousand or 72.0%
and increased $965 thousand or 320.6% for the three and nine months ended March
31, 1997, respectively, when compared to the same periods in 1996. The decrease
for the quarter ended March 31, 1997 was primarily attributable to reduced SAIF
rates. The increase for the nine months ended March 31, 1997 was principally
attributable to a $1.1 million one-time charge to recaptialize the SAIF as
required by federal law.
Compensation and employee benefits expense increased $109 thousand or
17.1% and increased $193 thousand or 10.2% for the three and nine months ended
March 31, 1997, respectively, when compared to the same periods in 1996. The
increase for the three months ended March 31, 1997 was primarily attributable to
a $90 thousand increase in Employee Stock Ownership Plan ("ESOP") amortization
and an $11 thousand increase in employee profit sharing plan expense. The
increase for the nine months ended March 31, 1997 was principally attributable
to a $112 thousand increase in ESOP amortization, a $46 thousand increase in
employee profit sharing plan expense, and a $40 thousand increase in employee
compensation.
Income Tax Expense. Income tax expense increased by $93 thousand or
18.5% and decreased by $150 thousand or 10.0% for the three and nine months
ended March 31, 1997, respectively, when compared to the same periods in 1996.
The change in income tax expense, for both periods, was attributable to varying
levels of taxable income during the three and nine months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $3.5 million during
the nine months ended March 31, 1997. Net cash provided by operating activities
was primarily comprised of $2.1 million of net income.
Funds used for investing activities totaled $21.4 million during the
nine months ended March 31, 1997. Primary uses of funds during the nine months
ended March 31, 1997 include $18.9 million used for net purchases of investment
securities and FHLB stock, and a $2.4 million increase in net loans receivable.
Funds provided by financing activities totaled $16.9 million for the
nine months ended March 31, 1997. Primary sources of funding include a $21.7
million increase in Federal Home Loan Bank advances and other borrowings used to
fund loan commitments and investment security purchases which was partially
offset by a $2.8 million decrease in deposits and a $1.2 million decrease in
advance payments by borrowers for taxes and insurance and $814 thousand in cash
dividends paid. Financial institutions generally, including the Company, have
experienced a certain degree of depositor disintermediation to other investment
alternatives. Management believes that the degree of disintermediation
experienced by the Company has not had a material impact on overall liquidity.
As of March 31, 1997, $68.2 million or 40.6% of the Company's total deposits
consisted of core deposits. Management has determined that it currently is
maintaining adequate liquidity and is seeking to better match funding sources
with lending and investment opportunities.
The Company's primary sources of funds are deposits, amortization,
prepayments and maturities of existing loans, mortgage-backed securities and
investment securities, funds from operations, and funds obtained through Federal
Home Loan Bank advances and other borrowings. At March 31, 1997, the total
approved loan commitments outstanding amounted to $3.7 million. At the same
date, commitments under unused letters and lines of credit amounted to $6.5
million, the unadvanced portion of construction loans approximated $14.0
million, and commitments to purchase when-issued investments totaled $1.1
million. Certificates of deposit scheduled to mature in one year or less at
March 31, 1997 totaled $63.8 million. Management believes that a significant
portion of maturing deposits will remain with the Company.
Historically, the Company used its sources of funds primarily to meet
its ongoing commitments to pay maturing 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 the retail deposit market, its traditional funding source, and through
FHLB advances and other borrowings, to provide the cash utilized in investing
activities. The Company has established a $15.0 million line of credit with the
FHLB, which is scheduled to mature on March 25, 1998 and is subject to various
conditions, including the pledging and delivery of acceptable collateral. The
primary purpose of the line of credit is to serve as a back-up liquidity
facility for the Company, however, the Company may from time to time utilize the
line of credit to purchase investment securities and fund other commitments. In
addition, the Company has access to the Federal Reserve Bank discount window.
Management believes that the Company currently has adequate liquidity available
to respond to liquidity demands.
On April 29, 1997 the Company's Board of Directors declared a cash
dividend of $0.20 per share , and a special cash dividend of $2.30 per share,
both payable on May 22, 1997 to shareholders of record at the close of business
on May 12, 1997. Dividends will be subject to determination and declaration by
the Board of Directors, which will 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 or that, if paid, such dividends will not be reduced or
eliminated in future periods.
As of March 31, 1997, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$36.0 million or 28.0% and $37.7 million or 29.2%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $36.0 million or 13.1% of
average quarterly assets.
Effective July 1, 1995, the Company adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure". SFAS No. 114
provides guidelines for measuring impairment losses on loans. A loan is
considered impaired when, based upon current information and events, it is
possible that the Company will be unable to collect all principal and interest
amounts due according to the contractual terms of a loan agreement. SFAS No. 118
amends SFAS No. 114 to permit a creditor to use existing methods for recognizing
interest income on impaired loans. At March 31, 1997, impaired loans totaled
$874 thousand of which $274 thousand was considered nonaccrual. Approximately
$130 thousand of the related allowance for loan losses has been allocated to the
impaired loans. The average recorded investment in impaired loans during the
nine months ended March 31, 1997 was approximately $875 thousand. For the nine
months ended March 31, 1997, interest income totaling $55 thousand was
recognized on impaired loans on both the accrual and cash basis of income
recognition.
Nonperforming assets consist of nonaccrual loans and real estate owned.
A loan is placed on nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed insufficient to warrant further
accrual. When a loan is placed on nonaccrual status, previously accrued but
uncollected interest is deducted from interest income. The Company normally does
not accrue interest on loans past due 90 days or more, however, interest may be
accrued if management believes that it will collect on the loan.
The Company's nonperforming assets at March 31, 1997 totaled
approximately $274 thousand or 0.10% of total assets as compared to $377
thousand or 0.15% of total assets as of June 30, 1996. Nonperforming assets at
March 31, 1997 consisted of $274 thousand in commercial real estate loans.
Approximately $1 thousand of additional interest income would have been recorded
during the nine months ended March 31, 1997, if the Company's nonaccrual and
restructured loans had been current in accordance with their original loan terms
and outstanding throughout the nine months ended March 31, 1997.
On September 30, 1996 the President signed the Deposit Insurance Funds
Act of 1996 (the "Funds Act") into law. The Funds Act calls for a Special
Assessment on SAIF-assessable deposits as of March 31, 1995 to capitalize the
SAIF to its designated reserve ratio of 1.25%. The Company recorded a pre-tax
charge of approximately $1.1 million during the quarter ended September 30, 1996
using an FDIC estimated assessment rate of $.657 for every $100 of assessable
deposits. During the quarter ended December 31, 1996, the Company accrued a $102
thousand refund of prepaid federal deposit insurance premiums as a result of the
capitalization of the SAIF. For the three months ended June 30, 1997, the
Company anticipates that its Financing Corporation ("FICO") quarterly payment
will total $28 thousand.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See discussion contained in Note 3 of Notes to Unaudited
Consolidated Financial Statements.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this form 10-Q,
and this list includes the Exhibit Index.
Number Description Page
------ ----------- ----
11 Statement re E-1
computation of
per share earnings
(b) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WVS FINANCIAL CORP.
May 9, 1997 BY:/s/Robert C. Sinewe
Date ------------------
Robert C. Sinewe
President and
Chief Executive Officer
May 9, 1997 BY:/s/David J. Bursic
Date ------------------
David J. Bursic
Vice President, Treasurer and
Chief Financial Officer