-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RO3Ix1ZirbQYiLLcau/g7UAEKcB+N/WWZhNJUuLj+Bn1Kv+m7o3fNz+Uvopja2JD Bv7HS6aoeTL7wH4lu/6g6Q== 0000914317-03-001586.txt : 20030515 0000914317-03-001586.hdr.sgml : 20030515 20030515152228 ACCESSION NUMBER: 0000914317-03-001586 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030509 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WVS FINANCIAL CORP CENTRAL INDEX KEY: 0000910679 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 251710500 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22444 FILM NUMBER: 03704517 BUSINESS ADDRESS: STREET 1: 9001 PERRY HIGHWAY CITY: PITTSBURGH STATE: PA ZIP: 15237 BUSINESS PHONE: 4123641911 MAIL ADDRESS: STREET 1: 9001 PERRY HIGHWAY CITY: PITTSBURG STATE: PA ZIP: 15237 10-Q 1 form10q-wvs_52012.txt 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, 2003 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number: 0-22444 WVS Financial Corp. -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1710500 - -------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9001 Perry Highway Pittsburgh, Pennsylvania 15237 - ----------------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) (412) 364-1911 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES X NO --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act). YES NO X ---- ---- Shares outstanding as of May 12, 2003: 2,582,259 shares common Stock, $.01 par value. 26 WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- INDEX ----- PART I. Financial Information Page - ------- --------------------- ---- Item 1. Financial Statements Consolidated Balance Sheet as of March 31, 2003 and June 30, 2002 (Unaudited) 3 Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2003 and 2002 (Unaudited) 4 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2003 and 2002 (Unaudited) 5 Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended March 31, 2003 (Unaudited) 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended March 31, 2003 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 Item 4. Controls and Procedures 26 PART II. Other Information Page - -------- ----------------- ---- Item 1. Legal Proceedings 27 Item 2. Changes in Securities and Use of Proceeds 27 Item 3. Defaults upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 Certification of Chief Executive Officer 29 Certification of Chief Accounting Officer 30 2
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands) March 31, 2003 June 30, 2002 ------------------- -------------- Assets ------ Cash and due from banks $ 988 $ 879 Interest-earning demand deposits 3,372 2,298 Investment securities available-for-sale (amortized cost of $4,077 and $8,375) 4,274 8,426 Investment securities held-to-maturity (market value of $134,906 and $146,146) 131,335 142,958 Mortgage-backed securities available-for-sale (amortized cost of $4,637 and $6,196) 4,858 6,450 Mortgage-backed securities held-to-maturity (market value of $101,674 and $76,819) 101,146 76,093 Federal Home Loan Bank stock, at cost 8,688 8,281 Net loans receivable (allowance for loan losses of $2,687 and $2,758) 107,819 152,905 Accrued interest receivable 3,036 3,903 Premises and equipment 1,271 996 Deferred taxes and other assets 1,455 1,722 ------------- -------------- TOTAL ASSETS $ 368,242 $ 404,911 ============= ============== Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Savings Deposits: Non-interest-bearing accounts $ 11,085 $ 12,615 NOW accounts 20,034 20,872 Savings accounts 42,718 41,620 Money market accounts 14,225 14,843 Certificates of deposit 76,953 84,709 ------------- -------------- Total savings deposits 165,015 174,659 Federal Home Loan Bank advances 151,487 159,937 Other borrowings 11,424 33,731 Advance payments by borrowers for taxes and insurance 1,343 3,013 Accrued interest payable 1,479 1,698 Other liabilities 7,369 1,620 ------------- -------------- TOTAL LIABILITIES 338,117 374,658 Stockholders' equity: Preferred stock: 5,000,000 shares, no par value per share, authorized; none outstanding --- --- Common stock: 10,000,000 shares, $.01 par value per share, authorized; 3,733,786 and 3,729,858 shares issued 37 37 Additional paid-in capital 20,083 20,037 Treasury stock: 1,147,316 and 1,051,872 shares at cost, Respectively (16,654) (15,133) Retained earnings, substantially restricted 26,434 25,183 Accumulated other comprehensive income 276 201 Unallocated shares - Recognition and Retention Plans (51) (72) ------------- -------------- TOTAL STOCKHOLDERS' EQUITY 30,125 30,253 ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 368,242 $ 404,911 ============= ==============
See accompanying notes to consolidated financial statements. 3
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, ----------------------------- --------------------------- 2003 2002 2003 2002 INTEREST AND DIVIDEND INCOME: -------------- ----------- ---------- ----------- Loans $ 2,227 $ 3,162 $ 7,617 $ 10,201 Investment securities 1,675 1,613 5,146 5,123 Mortgage-backed securities 663 700 2,115 2,516 Interest-earning deposits with other institutions 1 3 8 11 Federal Home Loan Bank stock 70 96 206 364 ---------- ----------- ---------- ----------- Total interest and dividend income 4,636 5,574 15,092 18,215 ---------- ----------- ---------- ----------- INTEREST EXPENSE: Deposits 752 1,103 2,578 4,035 Borrowings 2,083 2,208 6,454 6,759 Advance payments by borrowers for taxes and insurance 6 10 16 23 ---------- ----------- ---------- ----------- Total interest expense 2,841 3,321 9,048 10,817 ---------- ----------- ---------- ----------- NET INTEREST INCOME 1,795 2,253 6,044 7,398 PROVISION FOR LOAN LOSSES (89) --- (71) 57 ---------- ----------- ---------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,884 2,253 6,115 7,341 ---------- ----------- ---------- ----------- NON-INTEREST INCOME: Service charges on deposits 82 97 278 308 Gain on sale of investments --- --- 64 --- Other 70 69 224 212 ---------- ----------- ---------- ----------- Total non-interest income 152 166 566 520 ---------- ----------- ---------- ----------- NON-INTEREST EXPENSE: Salaries and employee benefits 613 607 1,824 1,852 Occupancy and equipment 107 98 291 281 Deposit insurance premium 8 8 23 25 Data processing 56 49 155 142 Correspondent bank service charges 37 38 113 122 Other 154 178 733 641 ---------- ----------- ---------- ----------- Total non-interest expense 975 978 3,139 3,063 ---------- ----------- ---------- ----------- INCOME BEFORE INCOME TAXES 1,061 1,441 3,542 4,798 INCOME TAXES 329 476 1,029 1,483 ---------- ----------- ---------- ----------- NET INCOME $ 732 $ 965 $ 2,513 $ 3,315 ========== =========== ========== =========== EARNINGS PER SHARE: Basic $ 0.28 $ 0.36 $ 0.96 $ 1.21 Diluted $ 0.28 $ 0.35 $ 0.95 $ 1.21 AVERAGE SHARES OUTSTANDING: Basic 2,593,546 2,714,480 2,629,122 2,736,254 Diluted 2,598,775 2,720,976 2,634,468 2,745,783
See accompanying notes to consolidated financial statements. 4 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended March 31, -------------------------- 2003 2002 OPERATING ACTIVITIES ------------ --------- Net income $ 2,513 $ 3,315 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan and real estate owned losses (71) 57 Gain on sale of investments (64) --- Depreciation and amortization, net 109 92 Amortization of discounts, premiums and deferred loan fees 2,608 61 Amortization of ESOP, RRP and deferred and unearned compensation 21 50 Decrease in accrued interest receivable 867 752 Decrease in accrued interest payable (219) (667) Decrease in accrued and deferred taxes 221 343 Other, net (242) (131) ---------- --------- Net cash used for operating activities 5,743 3,872 ---------- --------- INVESTING ACTIVITIES Available-for-sale: Purchases of investments and mortgage-backed securities (3,481) (19,960) Proceeds from repayments of investments and mortgage-backed securities 8,762 21,375 Proceeds from sale of investments securities 639 --- Held-to-maturity: Purchases of investments and mortgage-backed securities (176,725) (259,520) Proceeds from repayments of investments and mortgage-backed securities 166,702 239,699 Decrease in net loans receivable 44,921 23,241 Sale of real estate owned 220 27 Purchase of Federal Home Loan Bank stock (407) (602) Purchases of premises and equipment (383) (95) ---------- --------- Net cash provided by investing activities 40,248 4,165 ---------- ---------
5
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended March 31, --------------------------- 2003 2002 FINANCING ACTIVITIES --------- ---------- Net increase (decrease) in transaction and passbook accounts (1,888) 8,116 Net decrease in certificates of deposit (7,756) (14,247) Net increase (decrease) in FHLB short-term advances 2,550 (986) Net increase in other borrowings (22,307) (11,582) Proceeds from FHLB long-term advances --- 23,279 Repayments of FHLB long-term advances (11,000) (10,000) Net decrease in advance payments by borrowers for taxes and insurance (1,670) (755) Net proceeds from issuance of common stock 46 159 Funds used for purchase of treasury stock (1,521) (1,130) Cash dividends paid (1,262) (1,315) --------- ---------- Net cash used for financing activities (44,808) (8,461) --------- ---------- Increase (decrease) in cash and cash equivalents 1,183 (424) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,177 2,993 --------- ---------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,360 $ 2,569 ========= ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest on deposits, escrows and borrowings $ 9,267 $ 11,484 Income taxes $ 846 $ 1,160 Non-cash item: Pennsylvania Education Tax Credit $ 100 $ 100 Mortgage Loan Transferred to Other Real Estate Owned --- $ 388
See accompanying notes to consolidated financial statements. 6
WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands) Additional Unallocated Common Paid-In Treasury Shares Held Stock Capital Stock by ESOP ---------- ---------- ---------- ---------- Balance at June 30, 2002 $ 37 $ 20,037 $ (15,133) $ --- Comprehensive income: Net Income Other comprehensive income: Change in unrealized holding gains on securities, net of income tax effect of $38 Comprehensive income Purchase of shares for treasury stock (1,521) Accrued compensation expense for Recognition and Retention Plans (RRP) Exercise of stock options 46 Cash dividends declared ($0.48 per share) ---------- ---------- ---------- ------------ Balance at March 31, 2003 $ 37 $ 20,083 $ (16,654) $ --- ========== ========== ========== ============ WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands) Retained Unallocated Accumulated Earnings Shares Held Other Compre- Substantially by RRP hensive Income Restricted Total - ------------ --------------- ------------- ------- Balance at June 30, 2002 $ $ (72) $ 201 $ 25,183 $30,253 Comprehensive income: Net Income 2,513 2,513 Other comprehensive income: Change in unrealized holding gains on securities, net of income tax effect of $38 75 75 ------- Comprehensive income 2,588 Purchase of shares for treasury stock (1,521) Accrued compensation expense for Recognition and Retention Plans (RRP) 21 21 Exercise of stock options 46 Cash dividends declared (1,262) (1,262) ($0.48 per share) - ------------ --------------- ------------- ------- Balance at March 31, 2003 $ $ (51) $ 276 $ 26,434 $30,125 = ============ =============== ============= =======
See accompanying notes to consolidated financial statements. 7 .. WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with 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, 2003, are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- On October 1, 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 147, Acquisitions of Certain Financial Institutions, effective for all business combinations initiated after October 1, 2002. This Statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. This Statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method. The acquisition of all or part of a financial institution that meets the definition of a business combination shall be accounted for by the purchase method in accordance with FAS No. 141, Business Combinations, and FAS No. 142, Goodwill and Other Intangible Assets. This Statement also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets (such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets), including those acquired in transactions between two or more mutual enterprises. The adoption of FAS No. 147 is not expected to have a material effect on the Company's financial position or results of operations. On December 31, 2002, the FASB issued FAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, which amends FAS No. 123, Accounting for Stock-Based Compensation. FAS No. 148 amends the disclosure requirements of FAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. Under the provisions of FAS No. 123, companies that adopted the preferable, fair value based method were required to apply that method prospectively for new stock option awards. This contributed to a "ramp-up" effect on stock-based compensation expense in the first few years following adoption, which caused concern for companies and investors because of the lack of consistency in reported results. To address that concern, FAS No. 148 provides two additional methods of transition that reflect an entity's full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect. FAS No. 148 also improves the clarity and prominence of disclosures about the pro forma effects of using the fair value based method of accounting for stock-based compensation for all companies-regardless of the accounting method used-by requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements. In addition, the statement improves the timeliness of those disclosures by requiring that this information be included in interim as well as annual financial statements. 8 The transition guidance and annual disclosure provisions of FAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. See Note 4 of this Form 10-Q. In April 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133. The amendments set forth in FAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in FAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. FAS No. 149 amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. This statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The provisions of this statement that relate to FAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. In November 2002, the FASB issued Interpretation No.45, Guarantor's Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. This interpretation clarifies that a guarantor is required to disclose (a) the nature of the guarantee, including the approximate term of the guarantee, how the guarantee arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability, if any, for the guarantor's obligations under the guarantee; and (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee. This interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of that liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. In January, 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. The objective of this interpretation is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. This interpretation changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of this interpretation apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of this interpretation has not and is not expected to have a material effect on the Company's financial position or results of operations. 9 3. EARNINGS PER SHARE ------------------ The following table sets forth the computation of basic and diluted earnings per share.
Three Months Ended Nine Months Ended March 31, March 31, -------------------------------- ---------------------------------- 2003 2002 2003 2002 -------------- --------------- ---------------- ---------------- Weighted average common shares outstanding 3,732,233 3,722,989 3,730,790 3,715,153 Average treasury stock shares (1,138,687) (1,008,509) (1,101,668) (978,899) Average unearned ESOP shares --- --- --- --- -------------- --------------- ---------------- ---------------- Weighted average common shares and common stock equivalents used to calculate basic earnings per share 2,593,546 2,714,480 2,629,122 2,736,254 Additional common stock equivalents (stock options) used to calculate diluted earnings per share 5,229 6,496 5,346 9,529 -------------- --------------- ---------------- ---------------- Weighted average common shares and common stock equivalents used to calculate diluted earnings per share 2,598,775 2,720,976 2,634,468 2,745,783 ============== =============== ================ ================ Net income $ 731,747 $ 965,123 $ 2,513,057 $ 3,314,490 ============== =============== ================ ================ Earnings per share: Basic $ 0.28 $ 0.36 $ 0.96 $ 1.21 Diluted $ 0.28 $ 0.35 $ 0.95 $ 1.21 ============== =============== ================ ================
All options at March 31, 2003 and March 31, 2002 were included in the computation of diluted earnings per share. 10 4. STOCK BASED COMPENSATION DISCLOSURE ----------------------------------- Pro forma information regarding net income and earnings per share as required by FAS No.123, has been determined as if the Company had accounted for its stock options using that method. The fair value for these options was estimated at the date of the grants using the Black-Scholes option pricing model. In management's opinion, existing stock option valuation models do not provide a reliable single measure of the fair value of employee stock options that have vesting provisions and are not transferable. In addition, option valuation models require input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of its employee stock options. For the purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The following table represents the effect on net income and earnings per share had the stock-based employee compensation expense been recognized:
Three Months Ended March 31, Nine Months Ended March 31, 2003 2002 2003 2002 --------- ------------ --------- --------- Net income, as reported: $ 732 $ 965 $ 2,513 $ 3,315 Less proforma expense related to stock options --- --- 10 31 -------- ------------ --------- ---------- Proforma net income $ 732 $ 965 $ 2,503 $ 3,284 ======= ============ ========= ========== Basic net income per common share: As reported $ 0.28 $ 0.36 $ 0.96 $ 1.21 Pro forma 0.28 0.36 0.95 1.20 Diluted net income per common share: As reported $ 0.28 $ 0.35 $ 0.95 $ 1.21 Pro forma 0.28 0.35 0.95 1.20
11
5. COMPREHENSIVE INCOME -------------------- Other comprehensive income primarily reflects changes in net unrealized gains/losses on available-for-sale securities. Total comprehensive income is summarized as follows (dollars in thousands): Three Months Ended March 31, Nine Months Ended March 31, 2003 2002 2003 2002 ------------------ --------------------- --------------------- -------------------- Net income $732 $965 $2,513 $3,315 Other comprehensive income (loss) before tax: Unrealized gains (losses) on available for sale securities $(37) $(68) $177 $56 Less: Reclassification adjustment for gain included in net income --- --- 64 --- ------- ------- ------- --------- ------- --------- ---------- ---------- Other comprehensive income (loss) before tax (37) (68) 113 56 Income tax expense (benefit) related to other comprehensive income (loss) (13) (23) 38 19 ------- --------- --------- ---------- Other comprehensive income (loss), net of tax (24) (45) 75 37 ------- --------- --------- ---------- Comprehensive income $708 $920 $2,588 $3,352 ======= ========= ========= ==========
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003 FORWARD LOOKING STATEMENTS When used in this Form 10-Q, in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to forward looking statements to reflect events or circumstances after the date of statements or to reflect the occurrence of anticipated or unanticipated events. GENERAL WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of West View Savings Bank ("West View" or the "Savings Bank"). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993. West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at March 31, 2003. 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. The Company's strategy focuses on community-based lending, growth of core deposits, capital management, maintaining strong non-interest expense ratios, and steadily increasing book value per share. FINANCIAL CONDITION The Company's assets totaled $368.2 million at March 31, 2003, as compared to $404.9 million at June 30, 2002. The $36.7 million or 9.1% decrease in total assets was primarily comprised of a $45.1 million or 29.5% decrease in net loans receivable, and a $15.4 million or 9.6% decrease in investment securities, including FHLB stock, which were partially offset by a $23.5 million or 28.4% increase in mortgage-backed securities. 13 The Company's total liabilities decreased $36.6 million or 9.8% to $338.1 million as of March 31, 2003, from $374.7 million as of June 30, 2002. The $36.5 million decrease in total liabilities was primarily comprised of a $22.3 million or 66.2% decrease in other short-term borrowings, a $9.6 million or 5.5% decrease in total savings deposits, a $8.4 million or 5.3% decrease in FHLB advances, and a $1.7 million or 55.4% decrease in advance payments by borrowers for taxes and insurance due to the seasonal payment of county real estate taxes, which were partially offset by a $5.7 million increase in other liabilities. The increase in other liabilities was primarily attributable to unfunded security purchase commitments that were funded in April 2003. During the nine months ended March 31, 2003, time deposits decreased $7.8 million due to seasonal withdrawals of municipal time deposits. Transaction and passbook accounts decreased $1.9 million. Management believes that the decrease in transaction and savings balances were also primarily attributable to seasonal withdrawals and draw downs of tax collector and builder accounts. Total stockholders' equity decreased $128 thousand or 0.4% to $30.1 million as of March 31, 2003, from approximately $30.3 million as of June 30, 2002. Capital expenditures for the Company's stock repurchase program and cash dividends totaled $1.5 million and $1.3 million, respectively, which were primarily funded by net income of $2.5 million for the nine months ended March 31, 2003. RESULTS OF OPERATIONS General. WVS reported net income of $732 thousand, or $0.28 diluted earnings per share, and $2.5 million or $0.95 diluted earnings per share, for the three and nine months ended March 31, 2003, respectively. Net income decreased by $233 thousand or 24.1% and diluted earnings per share decreased $0.07 or 20.0% for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease in net income was primarily attributable to a $458 thousand decrease in net interest income and a $14 thousand decrease in non-interest income, which were partially offset by a $147 thousand decrease in income tax expense, a $89 thousand decrease in provision for loan losses , and a $3 thousand decrease in non-interest expense. For the nine months ended March 31, 2003, net income decreased by $802 thousand or 24.2% and diluted earnings per share decreased $0.26 or 21.5% when compared to the same period in 2002. The decrease was principally the result of a $1.4 million decrease in net interest income and a $76 thousand increase in non-interest expense, which were partially offset by a $454 thousand decrease in income tax expense, a $128 thousand decrease in provision for loan losses, and a $46 thousand increase in non-interest expense. Net Interest Income. The Company's net interest income decreased by $458 thousand or 20.3% and $1.4 million or 18.3% for the three and nine months ended March 31, 2003, respectively, when compared to the same periods in 2002. The decrease in net interest income for both the three and nine month periods was principally attributable to lower rates earned on Company assets due to lower market interest rates, and lower average balances of net loans receivable, which were partially offset by lower rates paid on deposits and borrowings. The Company experienced higher levels of repayments on its loan, investment, and mortgage-backed securities portfolios due to refinancing activities for both the three and nine months ended March 31, 2003. Interest Income. Interest on net loans receivable decreased $935 thousand or 29.6% and $2.6 million or 25.3% for the three and nine months ended March 31, 2003, respectively, when compared to the same periods in 2002. The decrease for the three months ended March 31, 2003 was attributable to a decrease of $49.3 million in the average balance of net loans receivable outstanding and a decrease of 2 basis points in the weighted average yield earned on net loans receivable for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease for the nine months ended March 31, 2003, was attributable to a decrease of $41.7 million in the average balance of net loans receivable outstanding and a 19 basis point decrease in the weighted average yield earned on net loans receivable for the nine months ended March 31, 2003, when compared to the same period in 2002. The decreases in the average loan balance outstanding for both the three and nine months ended March 31, 2003, were primarily attributable to increased levels of mortgage prepayments and refinancings due to lower market rates on mortgages. As part of its asset/liability management strategy, the Company has limited its origination of longer-term fixed rate loans to mitigate its exposure to a rise in market interest rates. The Company will begin to originate longer-term fixed rate loans for sale on a correspondent basis to increase non-interest income and to contribute to net income. 14 Interest on mortgage-backed securities ("MBS") decreased $37 thousand or 5.3% and $401 thousand or 15.9% for the three and nine months ended March 31, 2003, respectively, when compared to the same periods in 2002. The decrease for the three months ended March 31, 2003 was primarily attributable to a 155 basis point decrease in the weighted average yield earned on mortgage-backed securities for the period, which was partially offset by a $24.9 million increase in the average balance of mortgage-backed securities outstanding for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease for the nine months ended March 31, 2003, was principally attributable to a 184 basis point decrease in the weighted average yield earned on mortgage-backed securities for the period, which was partially offset by a $16.0 million increase in the average balance of mortgage-backed securities outstanding for the nine months ended March 31, 2003, when compared to the same period in 2002. The decrease in the weighted average yield earned on mortgage-backed securities was consistent with market conditions for the three and nine months ended March 31, 2003, and reflects the higher proportion of floating rate MBS in the portfolio. The increases in the average balances of mortgage-backed securities during the three and nine months ended March 31, 2003 were primarily attributable to the reinvestment of a portion of the Company's loan payment proceeds into floating rate MBS. Interest and dividend income on interest-bearing deposits with other institutions, investment securities, and FHLB stock ("other investment securities") increased by $34 thousand or 2.0% for the three months ended March 31, 2003, when compared to the same period in 2002. The increase was principally attributable to a $13.5 million increase in the average balance of other investment securities outstanding for the three months ended March 31, 2003, when compared to the same period in 2002, which was partially offset by a 32 basis point decrease on the weighted average yield earned on other investment securities when compared to the same period in 2002. Interest on other investment securities decreased $138 thousand or 2.5% for the nine months ended March 31, 2003, when compared to the same period in 2002. The decrease for the nine months ended March 31, 2003, was primarily attributable to a 92 basis point decrease in the weighted average yield earned on other investment securities for the period, which was partially offset by a $24.2 million increase in the average balance of other investment securities outstanding for the nine months ended March 31, 2003, when compared to the same period in 2002. The decrease in the weighted average yield earned was consistent with market conditions for the three and nine months ended March 31, 2003. The increase in the average balance of other investment securities outstanding during the three and nine months ended March 31, 2003, was principally attributable to the reinvestment of a portion of the Company's loan payment proceeds into shorter-term corporate bonds. Interest Expense. Interest expense on deposits and escrows decreased $355 thousand or 31.9% and $1.5 million or 36.1% for the three and nine months ended March 31, 2003, respectively, when compared to the same period in 2002. The decrease in interest expense on deposits and escrows for the three months ended March 31, 2003, was attributable to a 75 basis point decrease in the weighted average yield paid on deposits and escrows for the period, and a $9.7 million decrease in the average balance of interest-bearing deposits and escrows for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease in interest expense on deposits and escrows for the nine months ended March 31, 2003, was attributable to a 112 basis point decrease in the weighted average yield paid on deposits and escrows for the period and a $5.4 million decrease in the average balance of interest-bearing deposits and escrows for the nine months ended March 31, 2003, when compared to the same period in 2002. The average yield paid on interest-bearing deposits was consistent with market conditions for the three and nine months ended March 31, 2003. The decrease in the average balance of interest-bearing deposits and escrows for the three and nine months ended March 31, 2003 was primarily due to seasonal withdrawals of municipal time deposits and seasonal withdrawals and draw downs of transaction and savings balances by local tax collectors and builders. Interest on FHLB advances and other borrowings decreased $125 thousand or 5.7% and $305 thousand or 4.5% for the three and nine months ended March 31, 2003, respectively, when compared to the same periods in 2002. The decrease for the three months ended March 31, 2003, was attributable to a 28 basis point decrease in the weighted average rate paid on FHLB advances and other borrowings 15 for the period, and a $429 thousand decrease in the average balance of such borrowings for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease for the nine months ended March 31, 2003, was principally attributable to a 34 basis point decrease in the weighted average rate paid on FHLB advances and other borrowings for the nine months ended March 31, 2003 when compared to the same period in 2002, which was partially offset by a $3.8 million increase in the average balance of such borrowings outstanding for the nine months ended March 31, 2003, when compared to the same period in 2002. The increase in the average balance of FHLB advances and other borrowings for the nine months ended March 31, 2003, was primarily used to fund purchases of investments and mortgage-backed securities. The weighted average rate paid on FHLB advances and other borrowings declined less than deposits due to longer average maturity of the Company's FHLB advances outstanding. Provision for Loan Losses. A provision for loan losses is charged to earnings to maintain the total allowance at a level considered adequate by management to absorb potential losses in the portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors. The Company recorded a credit provision for loan losses of $89 thousand for the three months ended March 31, 2003, compared to no provision for the same period in 2002. For the nine months ended March 31, 2003, the Company reduced provisions for loan loss by $71 thousand compared to a $57 thousand provision for the same period in 2002. The decrease in the provision for loan losses is due to reduced levels of net loans receivable and collections on past due loans. At March 31, 2003, the Company's total allowance for loan losses amounted to $2.7 million or 2.4% of the Company's total loan portfolio, as compared to $2.8 million or 1.7% at March 31, 2002. The Company believes that its loan loss reserves are prudent and warranted at this time due to the weakening of the national economy. Non-Interest Income. Non-interest income decreased by $14 thousand or 8.4% for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease was primarily attributable to decreases in service charge income earned on transaction accounts. For the nine months ended March 31, 2003, non-interest income increased $46 thousand or 8.8% when compared to the same period in 2002. The increase was primarily attributable to a $64 thousand gain on sale of investments from the Company's investment portfolio, and a $13 thousand increase in ATM fee income, which was partially offset by a $31 thousand decrease in service charge income earned on transaction accounts. Non-Interest Expense. Non-interest expense decreased $3 thousand or 0.3% for the three months ended March 31, 2003, when compared to the same period in 2002. The decrease was principally attributable to a $18 thousand decrease in expenses on transaction accounts and a $16 thousand decrease in legal and disposition costs associated with collecting past due loans and liquidating collateral, which were partially offset by a $9 thousand increase in depreciation expense relating to the Company's purchases to upgrade the Bank's technology platform in December 2002, and a $6 thousand increase in employee health insurance and training expense, when compared to the same period on 2002. For the nine months ended March 31, 2003, non-interest expense increased $76 thousand or 2.5%, when compared to the same period in 2002. The increase was principally attributable to a $66 thousand increase in legal and disposition costs associated with collections, past due loans, and liquidation collateral, a $13 thousand increase in data processing expense, and a $10 thousand increase in depreciation expense, which were partially offset by a $28 thousand decrease in employee recognition and retention plan expense. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaled $5.7 million during the nine months ended March 31, 2003. Net cash provided by operating activities was primarily comprised of $2.6 million in amortization of discounts, premiums and deferred loan fees, $2.5 million of net income, and a $867 thousand decrease in accrued interest receivables, which were partially offset by a $219 thousand decrease in accrued interest payables, a $64 thousand gain on sale of investments, and a $71 thousand decrease in provision for loan losses. 16 Funds provided by investing activities totaled $40.2 million during the nine months ended March 31, 2003. Primary sources of funds during the nine months ended March 31, 2003, included $176.1 million from repayments and sales of investment and mortgage-backed securities, and a $44.9 million decrease in net loans receivable, which were partially offset by $180.6 million for purchases of investment and mortgage-backed securities, including Federal Home Loan Bank stock and $383 thousand for purchases of equipment to upgrade the Bank's technology platform, and $220 thousand of proceeds from the sale of other real estate owned. Funds used for financing activities totaled $44.8 million for the nine months ended March 31, 2003. The primary uses included a $22.3 million decrease in other short-term borrowings, a $11.3 million decrease in deposits and escrows, an $11.0 million repayment of long-term FHLB advances, $1.5 million in purchased treasury stock, and $1.3 million in cash dividends paid on the Company's common stock, which were offset by a $2.6 million increase in short-term FHLB advances. Management believes that it currently is maintaining adequate liquidity and continues to better match funding sources with lending and investment opportunities. During the quarter ended March 31, 2003, the Company repaid approximately $11.8 million in various short-term borrowings from the FHLB with a weighted average rate of 1.66%, and incurred $152.5 million in other short-term borrowings with a weighted average rate of 1.31%. During the three months ended March 31, 2003, the Company repaid $6.0 million of long-term FHLB advances and $179.3 million of other short-term borrowings with weighted average rates of 2.49% and 1.32%, respectively. The Company's primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. At March 31, 2003, the total approved loan commitments outstanding amounted to $806 thousand. At the same date, commitments under unused lines of credit amounted to $6.7 million, the unadvanced portion of construction loans approximated $9.4 million and commitments to fund security purchases totaled $5.8 million. Certificates of deposit scheduled to mature in one year or less at March 31, 2003, totaled $53.6 million. Management believes that a significant portion of maturing deposits will remain with the Company. Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances and other borrowings, to provide the cash utilized in investing activities. The Company also has access to the Federal Reserve Bank discount window. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands. On January 2, 2003 the Company announced its Sixth Stock Buyback Program totaling 130,000, or approximately 5%, of the Company's common shares. The Company intends to fund this buyback primarily from internally generated cash flow. On April 29, 2003, the Company's Board of Directors declared a cash dividend of $0.16 per share payable May 22, 2003, to shareholders of record at the close of business on May 12, 2003. Dividends are subject to determination and declaration by the Board of Directors, which take into account the Company's financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the Common Stock in future periods or that, if paid, such dividends will not be reduced or eliminated. As of March 31, 2003, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $29.8 million or 14.5% and $32.5 million or 15.6%, respectively, of total risk-weighted assets, and Tier I leverage capital of $29.8 million or 7.97% of average quarterly assets. 17 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, 2003, totaled approximately $4.2 million or 1.1% of total assets as compared to $5.3 million or 1.3% of total assets at June 30, 2002. Nonperforming assets at March 31, 2003, consisted of: five commercial real estate loans totaling $3.6 million, two construction and land development loans totaling $578 thousand, one commercial loan totaling $22 thousand, and one consumer loan totaling $1 thousand. The $1.1 million decrease in nonperforming assets during the nine months ended March 31, 2003 was comprised of a $582 thousand decrease in single-family loans, a $419 thousand decrease in construction and land development loans, a $176 thousand decrease in commercial loans, and a $235 thousand decrease in other real estate owned, which were partially offset by a $329 thousand increase in commercial real estate loans and a $1 thousand increase in consumer loans. The land acquisition and development loan classified as non-accrual at June 30, 2002 was released by the Bankruptcy Court and sold in July 2002. The Savings Bank recovered the full principal balance plus approximately $36 thousand in previously unaccrued interest. As of June 30, 2002, the Company had one non-accruing commercial loan with a principal balance of $198 thousand. The loan is secured by various commercial business assets including photographic equipment and a truck, along with the personal guarantees of both owners. In July 2002, the Company entered into a loan work-out that provided for reduced monthly loan payments in exchange for the pledging of additional unrelated business assets. The revised payment plan went into effect in August 2002. As of March 31, 2003, the borrowers were performing under the modified terms, and the loan was no longer classified as non-accrual. As of March 31, 2003, the Company had five commercial real estate loans classified as non-accrual loans. One of the commercial real estate loans is secured by a restaurant and real estate located in Wexford, PA. The outstanding principal balance of this loan totals $172 thousand and is part of a court supervised bankruptcy plan. In brief, the original bankruptcy plan in November 1995 called for payments in excess of the original loan terms to cure the deficiency within the next three years. During the quarter ended June 30, 2002, the original court appointed dispersing agent stopped making payments and is being investigated by the U.S. Attorney's Office for bankruptcy fraud and money laundering. On July 31, 2002, the United States Bankruptcy Court for the Western District of Pennsylvania appointed a successor disbursing agent for the limited purpose of disbursing funds currently held in escrow (rent payments) as well as regularly scheduled payments due under the plan. The Savings Bank has not modified the original terms of this loan, and has been collecting payments since August 2002. The Company has one non-accrual commercial real estate loan and one construction loan that was returned to accrual status, to a retirement village located in the North Hills area. Both loans became delinquent in fiscal 2000. The outstanding principal balances total $3.8 million, of which $2.6 million is owned by the Company and the remaining $1.2 million is serviced by the Company for four participating lenders. During the quarter ended December 31, 2002 the Savings Bank entered into Loan Modification Agreements with respect to these credits. Among other things the obligor agreed to (i) resume monthly interest-only payments on the $1.3 million loan and to secure third-party refinancing on or before July 1, 2003; (ii) resume monthly principal and interest payments on the $2.5 million loan; (iii) consent to Judgment in Mortgage Foreclosure which will be discontinued upon payment of the $1.3 million loan; and (iv) to release the Savings Bank from any and all claims - including the litigation referenced in "Part II - Other Information - Item #1, Litigation". Among other things, the Savings Bank agreed to (i) modify certain 18 interest rates, and (ii) forgive accrued and uncollected interest, late charges and legal fees if the modified payments are received and the full principal balance on both loans are repaid according to their modified terms. During the quarter ended March 31, 2003, the Company returned the construction loan to accrual status due to timely repayments under the modified terms and its first lien position. The Company is recording its share of interest received on the non-accrual commercial real estate loan on a cost recovery basis. The Company has one non-accruing commercial real estate loan, with a principal balance of $980 thousand, to a personal care home that was originally part of the two retirement village loans discussed above. Due to the low occupancy of the personal care home, and the related cash drain on the retirement village, the Savings Bank "carved out" approximately $1 million of loan debt from the retirement village, assigned that $1 million in debt to the personal care home, and allowed one of the obligors - a geriatric physician - to separately own and operate the personal care home as a separate facility. The borrower was in compliance with a written loan work-out agreement until February 2002. Sporadic payments have been received since March 2002. The borrower alleges insufficient operating cash, along with the loss of other income, to service the debt. The Savings Bank also holds three other loans, totaling $362 thousand, secured by pledges of various real estate and chattel, to this same borrower which were non-accrual as of September 30, 2002. During the quarter ended December 31, 2002, the obligor filed for bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code. The Company has retained legal counsel, has obtained possession of the personal care home and related real property, and anticipates a foreclosure sale in July 2003. The Company and its legal counsel are also investigating other claims and remedies against other properties pledged as collateral for these loans. As of March 31, 2003, the Company has one non-accruing commercial real estate loan with a principal balance of $103 thousand. The obligors have filed for bankruptcy under Chapter 7 of the Federal Bankruptcy Code. In January 2003 the Bankruptcy Court entered an Order authorizing the listing for sale of the real property securing the loan, ordered interest only payments to begin in February 2003 and granted Relief from the Automatic Stay to Foreclosure effective June 2003. As of March 31, 2003, the Savings Bank had yet to receive the specified interest-only payments ordered by the Bankruptcy Court and is pursuing those monies due through counsel. During the nine months ended March 31, 2003, the Company collected and recognized approximately $56 thousand in past due interest on its nonperforming loans. Approximately $177 thousand of additional interest income would have been recorded during the nine months ended March 31, 2003, 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, 2003. The Company continues to work with the borrowers in an attempt to cure the defaults and is also pursuing various legal avenues in order to collect on these loans. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ASSET AND LIABILITY MANAGEMENT The Company's primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Company's transactions are denominated in US dollars with no specific foreign exchange exposure. The Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be exogenous and will be analyzed on an ex post basis. -- ---- Interest rate risk ("IRR") is the exposure of a banking organization's financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value, however, excessive levels of IRR can pose a significant threat to the Company's earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company's safety and soundness. Evaluating a financial institution's exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization's quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution's assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution's interest expense on its liabilities may not be sufficiently offset if assets continue to earn interest at the long-term fixed rates. Accordingly, an institution's profits could decrease on existing assets because the institution will either have lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment. During the nine months ended March 31, 2003, the level of market interest rates remained at relatively low levels due to the Federal Reserve's accommodative monetary policy and the weakness in the national economy. The marked decline in equity market prices and reduced corporate earnings have caused a considerable disintermediation from the equity to the fixed income markets, further compounding the decline in market interest rates across the yield curve. Due to the rapid decline in market interest rates, the Company's loan, investment and mortgage-backed securities portfolios experienced much higher than anticipated levels of prepayments. Principal repayments on the Company's loan, investment and mortgage-backed securities portfolios for the nine months ended March 31, 2003, totaled $56.5 million, $106.1 million and $69.7 million respectively. In response to higher levels of liquidity the Company began to rebalance its loan, investment and mortgage-backed securities portfolios. Due to the low level of market interest rates, the Company continued to reduce its originations of long-term fixed rate mortgages while continuing to offer consumer home equity and construction loans. The Company's commercial loan exposure was also reduced in recognition of the weaknesses in the national and local economies. The 20 Company continued to purchase investment grade corporate bonds and floating rate CMOs in order to earn a higher return with a shorter maturity profile and to reduce the prepayment risk within the portfolio. Each of the aforementioned strategies also helped to improve the interest-rate and liquidity risks associated with the Savings Bank's customers' liquidity preference for shorter term deposit products. The Company also makes available for origination residential mortgage loans with interest rates which adjust pursuant to a designated index, although customer acceptance has been somewhat limited in the Savings Bank's market area. The Company will continue to selectively offer commercial real estate, land acquisition and development, and shorter-term construction loans, primarily on residential properties, to partially increase its loan asset sensitivity. The Company intends to emphasize higher yielding home equity and small business loans to existing customers and seasoned prospective customers. During the quarter ended March 31, 2003, principal investment purchases were comprised of: investment grade corporate bonds - $14.5 million with a weighted average yield of approximately 4.18%; callable government agency bonds - - $12.0 million with a weighted average yield of approximately 2.98%; investment grade commercial paper - $1.1 million with a weighted average yield of approximately 1.80%; tax-free municipal bonds - $300 thousand with a weighted average yield of approximately 2.71%;and collateralized mortgage obligations - $40.1 million with an original weighted average yield of approximately 2.71%. Major investment proceeds received during the quarter ended March 31, 2003 were: investment grade corporate bonds - $34.1 million with a weighted average yield of approximately 3.49%; and callable government agency bonds - $28.9 million with a weighted average rate of approximately 8.06%. In most cases, the initial spread earned on government agency and investment grade corporate bond purchases averaged approximately 220 basis points. As of March 31, 2003, the implementation of these asset and liability management initiatives resulted in the following: 1) the Company's liquidity profile remains high with the investment portfolio's stated final maturities as follows: less than 1 year: $56.7 million or 23.5%; 1-3 years: $20.5 million or 8.4%; over 5 years: $164.4 million or 68.1%; 2) $89.0 million or 83.9% of the Company's portfolio of mortgage-backed securities (including collateralized mortgage obligations - "CMOs") were comprised of floating rate instruments; 3) the maturity distribution of the Company's borrowings is as follows: less than 1 year: $14.3 million or 8.7%; 1-3 years: $4.0 or 2.5%; 3-5 years: $3.2 million or 1.9%; over 5 years: $141.5 million or 86.9%; and 4) an aggregate of $37.8 million or 35.1% of the Company's net loan portfolio had adjustable interest rates or maturities of less than 12 months. The effect of interest rate changes on a financial institution's assets and liabilities may be analyzed by examining the "interest rate sensitivity" of the assets and liabilities and by monitoring an institution's interest rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within a given time period. A gap is considered positive (negative) when the amount of rate sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities (assets). During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income. 21
The following table sets forth certain information at the dates indicated relating to the Company's interest-earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within one year. March 31, June 30, -------- -------- 2003 2002 2001 ---- ---- ---- (Dollars in Thousands) Interest-earning assets maturing or repricing within one year $253,187 $252,467 $155,928 Interest-bearing liabilities maturing or repricing within one year 129,168 142,823 137,232 -------- ---------- --------- Interest sensitivity gap $124,019 $109,644 $ 18,696 ========= ========== ========= Interest sensitivity gap as a percentage of total assets 33.6% 27.1% (4.7)% Ratio of assets to liabilities maturing or repricing within one year 196.0% 176.8% 113.6%
During the quarter ended March 31, 2003, the Company managed its one year interest sensitivity gap by: (1) generally limiting incremental corporate bond purchases to those with repricing dates within 2 years; and (2) purchasing floating rate CMO's which reprice on a monthly basis. 22 The following table illustrates the Company's estimated stressed cumulative repricing gap - the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time - at March 31, 2003. 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 ($'s) 105,100 101,333 93,709 109,694 119,578 129,647 34,004 % of Total Assets 28.5% 27.4% 25.4% 29.7% 32.4% 35.1% 9.2% Base Case Up 100 bp - ------------------- Cummulative Gap ($'s) 109,720 109,486 106,559 139,167 156,536 163,740 34,004 % of Total Assets 29.7% 29.7% 28.9% 37.7% 42.4% 44.3% 9.2% Base Case No Change - ------------------- Cummulative Gap ($'s) 121,383 124,139 124,019 161,087 174,649 175,846 34,004 % of Total Assets 32.9% 33.6% 33.6% 43.6% 47.3% 47.6% 9.2% Base Case Down 100 bp - ------------------- Cummulative Gap ($'s) 123,956 128,107 128,984 167,499 178,802 178,471 34,004 % of Total Assets 33.6% 34.7% 34.9% 45.4% 48.4% 48.3% 9.2% Base Case Down 200 bp - ------------------- Cummulative Gap ($'s) 124,619 133,082 134,139 169,065 179,663 178,885 34,004 % of Total Assets 33.8% 36.0% 36.3% 45.8% 48.7% 48.4% 9.2%
Beginning in the third quarter of fiscal 2001, the Company began to utilize an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to better estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company's loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company's borrowings. 23 The following table presents the simulated impact of a 100 and 200 basis point upward or downward shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at March 31, 2003.
Analysis of Sensitivity to Changes in Market Interest Rates ----------------------------------------------------------- Modeled Change in Market Interest Rates ---------------------------------------------------------------- Estimated impact on: -200 -100 0 +100 +200 - -------------------- Change in net interest income -38.5% -27.2% 0.0% 19.1% 38.6% Return on average equity 1.97% 3.53% 7.21% 9.72% 12.26% Return on average assets 0.16% 0.28% 0.59% 0.80% 1.02% Market value of equity (in thousands) $(1,200) $7,515 $15,157 $20,391 $22,870
The table below provides information about the Company's anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed letters and lines of credit. The Company used no derivative financial instruments to hedge such anticipated transactions as of March 31, 2003. Anticipated Transactions - ------------------------------------------------------------------ (Dollars in Thousands) Undisbursed construction and land development loans Fixed rate $ 2,347 4.35% Adjustable rate $ 7,026 5.31% Undisbursed lines of credit Adjustable rate $ 6,683 4.83% Loan origination commitments Fixed rate $ 646 5.75% Adjustable rate $ 160 4.02% Letters of credit Adjustable rate $ 51 7.25% ----------- $ 16,913 =========== 24 In the ordinary course of its construction lending business, the Savings Bank enters into performance standby letters of credit. Typically, the standby letters of credit are issued on behalf of a builder to a third party to ensure the timely completion of a certain aspect of a construction project or land development. At March 31, 2003 the Savings Bank had three performance standby letters of credit outstanding totaling approximately $51 thousand. Two of the performance standby letters of credit are secured by deposits with the Savings Bank, and the other is secured by real estate. All three performance standby letters of credit will mature within twelve months. In the event that the obligor is unable to perform its obligations as specified in the standby letter of credit agreement, the Savings Bank would be obligated to disburse funds up to the amount specified in the standby letter of credit agreement. The Savings Bank maintains adequate collateral that could be liquidated to fund this contingent obligation. 25 ITEM 4. CONTROLS AND PROCEDURES Within 90 days prior to the date of this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the Company's disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are the controls and other procedures of the Company that are designed to ensure that the information required to be disclosed by the Company in its reports filed or submitted under the Securities Exchange Act of 1934, as amended ("Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company's management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 26 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- The Company is involved with various legal actions arising in the ordinary course of business. Management believes the outcome of these matters will have no material effect on the consolidated operations or consolidated financial condition of WVS Financial Corp. ITEM 2. Changes in Securities and Use of Proceeds ----------------------------------------- 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 exhibits are filed as part of this Form 10-Q, and this list includes the Exhibit Index.
Number Description Page ------ ---------------------------------------------------------------- ---- 99-1 Sarbanes-Oxley Act Certification of Chief Executive Officer E-1 99-2 Sarbanes-Oxley Act Certification of Chief Accounting Officer E-2 99-3 Independent Accountant's Report E-3 (b) The Company filed a Current Report on Form 8-K dated January 2, 2003, reporting under Item 5 that the Company's Board of Directors authorized the repurchase of up to 130,000 shares, or approximately 5%, of the Company's outstanding common stock. The Company included as an exhibit to the Form 8-K the press release issued January 2, 2003.
27 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 15, 2003 BY: /s/ David J. Bursic ---------------------------------------- Date David J. Bursic President and Chief Executive Officer (Principal Executive Officer) May 15, 2003 BY: /s/ Keith A. Simpson ----------------------------------------- Date Keith A. Simpson Vice-President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) 28 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER I, David J. Bursic, certify that: 1. I have reviewed this quarterly report on Form 10-Q of WVS Financial Corp. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and Audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ David J. Bursic -------------------------------------- David J. Bursic President and Chief Executive Officer 29 SECTION 302 CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER I, Keith A. Simpson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of WVS Financial Corp. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and Audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Keith A. Simpson --------------------------------------------- Keith A. Simpson Vice-President and Chief Accounting Officer 30 EX-99.1 3 exhibit99-1.txt Exhibit 99-1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) The undersigned executive officer of WVS Financial Corp. (the "Registrant") hereby certifies that the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to WVS Financial Corp. and will be retained by WVS Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request. /s/ David J. Bursic -------------------------------- David J. Bursic President and Chief Executive Officer Date: May 15, 2003 E-1 EX-99.2 4 exhibit99-2.txt Exhibit 99-2 CERTIFICATION OF CHIEF ACCOUNTING OFFICER Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) The undersigned executive officer of WVS Financial Corp. (the "Registrant") hereby certifies that the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to WVS Financial Corp. and will be retained by WVS Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Keith A. Simpson -------------------------------- Keith A. Simpson Vice-President and Chief Accounting Officer Date: : May 15, 2003 E-2 EX-99.3 5 exhibit99-3.txt Exhibit 99-3 INDEPENDENT ACCOUNTANT'S REPORT ------------------------------- Board of Directors and Stockholders WVS Financial Corp. We have reviewed the accompanying consolidated balance sheet of WVS Financial Corp. and subsidiary as of March 31, 2003, and the related consolidated statement of income for the three and nine-month periods ended March 31, 2003 and 2002, the consolidated statement of changes in stockholders' equity for the nine-month period ended March 31, 2003, and the consolidated statement of cash flows for the nine-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of June 30, 2002, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated July 26, 2002, we expressed an unqualified opinion on those consolidated financial statements. /s/S.R. Snodgrass, A.C. Wexford, PA May 15, 2003 E-3 -----END PRIVACY-ENHANCED MESSAGE-----