-----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, RLYc1ZMoxLBQoTXS3mY7UT3DwWOcHMrVV/MNpT/O3uv4wm7pPRHNiJLhZ3B/zvh1 Ea97DbTFWjZIaV9DNVq3dA== 0000914317-04-002080.txt : 20040517 0000914317-04-002080.hdr.sgml : 20040517 20040517132547 ACCESSION NUMBER: 0000914317-04-002080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 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: 04811157 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-60444_wvs.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, 2004 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 13, 2004: 2,479,822 shares Common Stock, $.01 par value. WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- INDEX ----- PART I. Financial Information Page - ------- --------------------- ---- Item 1. Financial Statements Consolidated Balance Sheet as of March 31, 2004 and June 30, 2003 (Unaudited) 3 Consolidated Statement of Income for the Three and Nine Months Ended March 31, 2004 and 2003 (Unaudited) 4 Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 2004 and 2003 (Unaudited) 5 Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended March 31, 2004 (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, 2004 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 Item 4. Controls and Procedures 22 PART II. Other Information Page - -------- ----------------- ---- Item 1. Legal Proceedings 22 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 23 Item 3. Defaults upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 2 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands)
March 31, 2004 June 30, 2003 -------------- ------------- Assets ------ Cash and due from banks $ 747 $ 921 Interest-earning demand deposits 2,309 1,894 --------- --------- Total cash and cash equivalents 3,056 2,815 Investment securities available-for-sale (amortized cost of $8,864 and $25,310) 9,320 25,641 Investment securities held-to-maturity (market value of $216,228 and $126,036) 212,165 121,841 Mortgage-backed securities available-for-sale (amortized cost of $3,560 and $4,219) 3,714 4,387 Mortgage-backed securities held-to-maturity (market value of $88,791 and $107,914) 88,621 107,492 Federal Home Loan Bank stock, at cost 7,552 7,797 Net loans receivable (allowance for loan losses of $1,235 and $2,530) 70,373 91,669 Accrued interest receivable 2,677 2,800 Premises and equipment 1,115 1,231 Other assets 1,587 1,515 --------- --------- TOTAL ASSETS $ 400,180 $ 367,188 ========= ========= Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Savings Deposits: Non-interest-bearing accounts $ 10,765 $ 11,302 NOW accounts 19,868 19,215 Savings accounts 44,060 44,152 Money market accounts 13,326 14,691 Certificates of deposit 66,298 79,956 Advance payments by borrowers for taxes and insurance 948 1,610 --------- --------- Total savings deposits 155,265 170,926 Federal Home Loan Bank advances 149,736 153,390 Other borrowings 62,718 9,453 Accrued interest payable 1,272 1,449 Other liabilities 1,651 1,352 --------- --------- TOTAL LIABILITIES 370,642 336,570 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; 3,763,088 and 3,736,750 shares issued 38 37 Additional paid-in capital 20,701 20,212 Treasury stock: 1,265,866 and 1,153,591 shares at cost, Respectively (18,813) (16,767) Retained earnings, substantially restricted 27,215 26,857 Accumulated other comprehensive income 403 329 Unreleased shares - Recognition and Retention Plans (6) (50) --------- --------- TOTAL STOCKHOLDERS' EQUITY 29,538 30,618 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 400,180 $ 367,188 ========= =========
See accompanying notes to unaudited 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, --------------------------- --------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- INTEREST AND DIVIDEND INCOME: Loans $ 1,205 $ 2,227 $ 4,063 $ 7,617 Investment securities 2,287 1,675 5,929 5,146 Mortgage-backed securities 540 663 1,739 2,115 Interest-earning deposits with other institutions 1 1 7 8 Federal Home Loan Bank stock 34 70 95 206 ----------- ----------- ----------- ----------- Total interest and dividend income 4,067 4,636 11,833 15,092 ----------- ----------- ----------- ----------- INTEREST EXPENSE: Deposits 544 752 1,804 2,578 Borrowings 2,168 2,083 6,432 6,454 Advance payments by borrowers for taxes and insurance 4 6 9 16 ----------- ----------- ----------- ----------- Total interest expense 2,716 2,841 8,245 9,048 ----------- ----------- ----------- ----------- NET INTEREST INCOME 1,351 1,795 3,588 6,044 PROVISION FOR LOAN LOSSES (14) (89) (771) (71) ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,365 1,884 4,359 6,115 ----------- ----------- ----------- ----------- NON-INTEREST INCOME: Service charges on deposits 91 82 289 278 Gain on sale of investments -- -- -- 64 Other 72 70 230 224 ----------- ----------- ----------- ----------- Total non-interest income 163 152 519 566 ----------- ----------- ----------- ----------- NON-INTEREST EXPENSE: Salaries and employee benefits 494 613 1,511 1,824 Occupancy and equipment 112 107 322 291 Deposit insurance premium 7 8 20 23 Data processing 58 56 171 155 Correspondent bank service charges 32 37 108 113 Other 196 154 598 733 ----------- ----------- ----------- ----------- Total non-interest expense 899 975 2,730 3,139 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 629 1,061 2,148 3,542 INCOME TAXES 165 329 562 1,029 ----------- ----------- ----------- ----------- NET INCOME $ 464 $ 732 $ 1,586 $ 2,513 =========== =========== =========== =========== EARNINGS PER SHARE: Basic $ 0.18 $ 0.28 $ 0.62 $ 0.96 Diluted $ 0.18 $ 0.28 $ 0.62 $ 0.95 AVERAGE SHARES OUTSTANDING: Basic 2,525,612 2,593,546 2,553,860 2,629,122 Diluted 2,533,697 2,598,775 2,562,887 2,634,468
See accompanying notes to consolidated financial statements. 4 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended March 31, ----------------------- 2004 2003 --------- --------- OPERATING ACTIVITIES Net income $ 1,586 $ 2,513 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan losses (771) (71) Gain on sale of investments -- (64) Depreciation and amortization, net 141 109 Amortization of discounts, premiums and deferred loan fees 1,052 2,608 Amortization of RRP and deferred and unearned compensation 5 21 Decrease in accrued interest receivable 123 867 Decrease in accrued interest payable (177) (219) Increase in accrued and deferred taxes 340 221 Other, net (66) (242) --------- --------- Net cash provided by operating activities 2,233 5,743 --------- --------- INVESTING ACTIVITIES Available-for-sale: Purchases of investments and mortgage-backed securities (21,861) (3,481) Proceeds from repayments of investments and mortgage-backed securities 38,982 8,762 Proceeds from sale of investment securities -- 639 Held-to-maturity: Purchases of investments and mortgage-backed securities (302,413) (176,725) Proceeds from repayments of investments and mortgage-backed securities 230,043 166,702 Decrease in net loans receivable 21,348 44,921 Sale of real estate owned 500 220 Purchase of Federal Home Loan Bank stock (1,390) (407) Redemption of Federal Home Loan Bank stock 1,635 -- Purchases of premises and equipment (25) (383) Other, net 23 -- --------- --------- Net cash provided by (used for) investing activities (33,158) 40,248 --------- ---------
5 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended March 31, --------------------- 2004 2003 -------- -------- FINANCING ACTIVITIES Net decrease in transaction and passbook accounts (1,341) (1,888) Net decrease in certificates of deposit (13,658) (7,756) Net (decrease) increase in FHLB short-term advances (3,875) 2,550 Net increase (decrease) in other borrowings 53,265 (22,307) Proceeds from FHLB long-term advances 500 -- Repayments of FHLB long-term advances (279) (11,000) Net decrease in advance payments by borrowers for taxes and insurance (662) (1,670) Net proceeds from issuance of common stock 490 46 Funds used for purchase of treasury stock (2,046) (1,521) Cash dividends paid (1,228) (1,262) -------- -------- Net cash provided by (used for) financing activities 31,166 (44,808) -------- -------- Increase in cash and cash equivalents 241 1,183 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,815 3,177 -------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,056 $ 4,360 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest on deposits, escrows and borrowings $ 8,422 $ 9,267 Income taxes $ 550 $ 846 Non-cash items: Pennsylvania Education Tax Credit $ -- $ 100 Cancellation of unallocated RRP shares $ 39 $ -- Mortgage Loans Transferred to Other Assets $ 550 $ --
See accompanying notes to unaudited consolidated financial statements. 6 WVS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands)
Accumulated Retained Other Additional Earnings Compre- Unreleased Unreleased Common Paid-In Treasury Substantially hensive Shares Held Shares Held Stock Capital Stock Restricted Income by ESOP by RRP Total ---------- ---------- ---------- ------------- ------------ ----------- ----------- ---------- Balance at June 30, 2003 $ 37 $ 20,212 $ (16,767) $ 26,857 $ 329 $ -- $ (50) $ 30,618 Comprehensive income: Net Income 1,586 1,586 Other comprehensive income: Change in unrealized holding gains on securities, net of income tax effect of $38 74 74 ---- Comprehensive income 1,660 Purchase of shares for treasury stock (2,046) (2,046) Accrued compensation expense for Recognition and Retention Plans (RRP) 5 5 Cancellation of Unallocated RRP Shares 39 39 Exercise of stock options 1 489 490 Cash dividends declared (1,228) (1,228) ($0.48 per share) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 2004 $ 38 $ 20,701 $ (18,813) $ 27,215 $ 403 $ -- $ (6) $ 29,538 ========== ========== ========== ========== ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements. 7 WVS FINANCIAL CORP. AND SUBSIDIARY ---------------------------------- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. 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, 2004, are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In December 2003, the Financial Accounting Standards Board ("FASB") issued a revision to Interpretation 46, Consolidation of Variable Interest Entities, which established standards for identifying a variable interest entity (VIE) and for determining under what circumstances a VIE should be consolidated with its primary beneficiary. Application of this Interpretation is required in financial statements of public entities that have interests in special-purpose entities for periods ending after December 15, 2003. Application by public entities, other than small business issuers, for all other types of VIEs is required in financial statements for periods ending after March 15, 2004. Small business issuers must apply this Interpretation to all other types of VIEs at the end of the first reporting period ending after December 15, 2004. 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. 8 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, --------------------------- --------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Weighted average common shares outstanding 3,757,062 3,732,233 3,742,789 3,730,790 Average treasury stock shares (1,231,450) (1,138,687) (1,188,929) (1,101,668) Average unearned ESOP shares -- -- -- -- ----------- ----------- ----------- ----------- Weighted average common shares and common stock equivalents used to calculate basic earnings per share 2,525,612 2,593,546 2,553,860 2,629,122 Additional common stock equivalents (stock options) used to calculate diluted earnings per share 8,085 5,229 9,027 5,346 ----------- ----------- ----------- ----------- Weighted average common shares and common stock equivalents used to calculate diluted earnings per share 2,533,697 2,598,775 2,562,887 2,634,468 =========== =========== =========== =========== Net income $ 463,881 $ 731,747 $ 1,586,006 $ 2,513,057 =========== =========== =========== =========== Earnings per share: Basic $ 0.18 $ 0.28 $ 0.62 $ 0.96 Diluted $ 0.18 $ 0.28 $ 0.62 $ 0.95 =========== =========== =========== ===========
All options at March 31, 2004 and March 31, 2003 were included in the computation of diluted earnings per share. 4. STOCK BASED COMPENSATION DISCLOSURE ----------------------------------- As permitted under Statement of Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation," the Company has elected to continue following Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations, in accounting for stock-based awards to employees. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized in the Company's financial statements. Had compensation expense included stock option plan costs determined based on the fair value at the grant dates for options granted under these plans consistent with Statement No. 123, pro forma net income and earnings per share would not have been materially different than that presented on the Consolidated Statement of Income. 9 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:
Three Months Ended Nine Months Ended March 31, March 31, -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- (Dollars in Thousands) Net income $ 464 $ 732 $1,586 $2,513 Other comprehensive income (loss): Unrealized gains (losses) on available for sale securities $ 47 $(37) $112 $177 Less: Reclassification adjustment for gain included in net income -- -- -- 64 ---- ------ ---- ------ ---- ------ ---- ------ Other comprehensive income (loss) before tax 47 (37) 112 113 Income tax expense (benefit) related to other comprehensive income (loss) 16 (13) 38 38 ------ ------ ------ ------ Other comprehensive income (loss), net of tax 31 (24) 74 75 ------ ------ ------ ------ Comprehensive income $ 495 $ 708 $1,660 $2,588 ====== ====== ====== ======
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004 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, 2004. The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Company's net income is also affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs. FINANCIAL CONDITION The Company's assets totaled $400.2 million at March 31, 2004, as compared to $367.2 million at June 30, 2003. The $33.0 million or 9.0% increase in total assets was primarily comprised of a $73.8 million or 47.6% increase in investment securities and FHLB stock and a $415 thousand or 21.9% increase in interest-bearing demand deposits, which were partially offset by a $21.3 million or 23.2% decrease in net loans receivable, a $19.5 million or 17.5% decrease in mortgage-backed securities, a $174 thousand or 18.9% decrease in cash and due from banks, and a $123 thousand or 4.4% decrease in accrued interest receivable. 11 The Company's total liabilities increased $34.0 million or 10.1% to $370.6 million as of March 31, 2004, from $336.6 million as of June 30, 2003. The $34.0 million increase in total liabilities was primarily comprised of a $53.3 million or 563.5% increase in other short-term borrowings and a $300 thousand or 22.2% increase in other liabilities, which were partially offset by a $15.7 million or 9.2% decrease in total savings deposits and a $3.7 million or 2.4% decrease in FHLB advances. Certificates of deposit decreased $13.7 million, money market accounts decreased $1.4 million, advance payments by borrowers for taxes and insurance decreased $662 thousand and passbook accounts decreased $92 thousand while demand deposits increased $116 thousand. Total stockholders' equity decreased $1.1 million or 3.5% to $29.5 million as of March 31, 2004, from approximately $30.6 million as of June 30, 2003. Capital expenditures for the Company's stock repurchase program and cash dividends totaled $2.0 million and $1.2 million, respectively, which were partially funded by net income of $1.6 million for the nine months ended March 31, 2004, and stock option proceeds of $490 thousand. RESULTS OF OPERATIONS General. WVS reported net income of $464 thousand or $0.18 diluted earnings per share and $1.6 million or $0.62 diluted earnings per share for the three and nine months ended March 31, 2004, respectively. Net income decreased by $268 thousand or 36.6% and diluted earnings per share decreased $0.10 or 35.7% for the three months ended March 31, 2004, when compared to the same period in 2003. The decrease in net income for the three month period was primarily attributable to a $444 thousand decrease in net interest income and a $75 thousand decrease in credit provisions for loan losses, which were partially offset by a $164 thousand decrease in income tax expense, a $76 thousand decrease in non-interest expense and a $11 thousand increase in non-interest income. For the nine months ended March 31, 2004, net income decreased by $927 thousand or 36.9% and diluted earnings per share decreased $0.33 or 34.7% when compared to the same period in 2003. The decrease for the nine month period was principally the result of a $2.5 million decrease in net interest income and a $47 thousand decrease in non-interest income, which were partially offset by a $700 thousand increase in credit provisions for loan losses, a $467 thousand decrease in income tax expense, and a $409 thousand decrease in non-interest expense. Net Interest Income. The Company's net interest income decreased by $444 thousand or 24.7% and $2.5 million or 40.6% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The decrease in net interest income for both the three and nine month periods were principally attributable to lower rates earned on Company assets due to historically low market interest rates, lower average balances of net loans receivable, the rendered effects of higher cost long -term fixed rate borrowings and lower overall yields on earning assets, which were partially offset by lower rates paid on deposits and increased average balances of the Company's investment securities portfolio. The Company experienced higher levels of repayments on its loan, investment and mortgage-backed securities portfolios due to refinancing activities for the three and nine months ended March 31, 2004. Interest Income. Interest on net loans receivable decreased $1.0 million or 45.9% and $3.6 million or 46.7% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The decrease for the three months ended March 31, 2004 was attributable to a decrease of $46.5 million in the average balance of net loans receivable outstanding and a decrease of 84 basis points in the weighted average yield earned on net loans receivable for the three months ended March 31, 2004, when compared to the same period in 2003. The decrease for the nine months ended March 31, 2004 was attributable to a decrease of $57.3 million in the average balance of net loans receivable outstanding and a decrease of 59 basis points on the weighted average yield earned for the nine months ended March 31, 2004, when compared to the same period in 2003. The decreases in the average loan balance outstanding for the three and nine months ended March 31, 2004, 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 continue to originate longer-term fixed rate loans for sale on a correspondent basis to increase non-interest income and to contribute to net income. 12 Interest on mortgage-backed securities ("MBS") decreased $123 thousand or 18.6% and $376 thousand or 17.8% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The decrease for the three months ended March 31, 2004 was primarily attributable to a $12.1 million decrease in the average balance of MBS outstanding and a 16 basis point decrease in the weighted average yield earned on MBS, when compared to the same period in 2003. The decrease for the nine months ended March 31, 2004 was attributable to a decrease of 89 basis points in the weighted average yield earned on MBS for the period which was partially offset by a $6.4 million increase in the average balance of MBS outstanding. The decrease in the weighted average yield earned on MBS was consistent with market conditions for the three and nine months ended March 31, 2004. The decrease in the average balances of MBS during the three months ended March 31, 2004 was primarily attributable to increased levels of refinancings due to lower market rates on mortgages, while the increase in the average balance of MBS during the nine months ended March 31, 2004 was 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 $576 thousand or 33.0% and $671 thousand or 12.5% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The increase for the three months ended March 31, 2004 was principally attributable to a $80.5 million increase in the average balance of other investment securities outstanding for the three months ended March 31, 2004, when compared to the same period in 2003, which was partially offset by a 57 basis point decrease in the weighted average yield earned on other investment securities when compared to the same period in 2003. The increase for the nine months ended March 31, 2004 was primarily attributable to a $56.6 million increase in the average balance of other investment securities outstanding for the nine months ended March 31, 2004, which was partially offset by a 129 basis point decrease in the weighted average yield earned on other investment securities when compared to the same period in 2003. The decrease in the weighted average yield earned was consistent with market conditions and the increased proportion of other investment securities comprised of floating rate obligations for the three and nine months ended March 31, 2004. The increase in the average balance of other investment securities outstanding during the three and nine months ended March 31, 2004, was principally attributable to the reinvestment of a portion of the Company's loan payment proceeds into callable floating rate U.S. government sponsored agency bonds. Interest Expense. Interest expense on deposits and escrows decreased $210 thousand or 27.7% and $781 thousand or 30.1% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The decrease in interest expense on deposits and escrows for the three months ended March 31, 2004, was attributable to a 50 basis point decrease in the weighted average yield paid on interest-bearing deposits and escrows, and a $5.0 million decrease in the weighted average balance of interest-bearing deposits and escrows, when compared to the same period in 2003. The decrease for the nine months ended March 31, 2004 was primarily attributable to a 61 basis point decrease in the weighted average yield paid on interest-bearing deposits and escrows, when compared to the same period in 2003, and a $5.4 million decrease in the average balance of interest-bearing deposits and escrows when compared to the same period in 2003. The average yield paid on interest-bearing deposits was consistent with market conditions for the three and nine months ended March 31, 2004. Interest on FHLB advances and other borrowings increased $85 thousand or 4.1% and decreased $22 thousand or 0.3% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The increase for the three months ended March 31, 2004, was attributable to a $27.5 million increase in the average balance of FHLB advances and other borrowings for the period which was partially offset by a 46 basis point decrease in the weighted average rate paid on such borrowings when compared to the same period in 2003. The decrease for the nine months ended March 31, 2004 was principally attributable to a 30 basis point decease in the weighted average rate paid on FHLB advances and other borrowings when compared to the same period in 2003, which was partially offset by a $11.3 million increase in the average balance of such borrowings when compared to the same period in 2003. The weighted average rate paid on FHLB advances and other borrowings declined less than the decline in market 13 interest rates due to the longer average maturity of the Company's fixed-rate FHLB advances outstanding and a higher proportion of long-term borrowings to total borrowings. 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 probable 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 increased its provision for loan losses by $75 thousand for the three months ended March 31, 2004, and decreased its provision for loan losses by $700 thousand for the nine months ended March 31, 2004, when compared to the same periods in 2003. At March 31, 2004, the Company's total allowance for loan losses amounted to $1.2 million or 1.7% of the Company's total loan portfolio, as compared to $2.5 million or 2.7% at June 30, 2003. The decrease in the provision for loan losses is primarily the result of reduced levels of net loans receivable, the sale of a participating interest in a restructured commercial real estate loan during the quarter ended December 31, 2003 and collections on past due loans. Non-Interest Income. Non-interest income increased by $11 thousand or 7.2% and decreased by $47 thousand or 8.3% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The increase for the three months ended March 31, 2004 was primarily attributable to a $9 thousand increase in deposit account fee income and a $2 thousand increase in other operating income. The decrease for the nine months ended March 31, 2004 was primarily attributable to the absence of $64 thousand in pre-tax gains recognized in the comparable quarter of fiscal 2003 on the sale of investments from the Company's investment portfolio, which was partially offset by a $11 thousand increase in deposit account fee income, and a $3 thousand increase in other real estate owned gross income. Non-Interest Expense. Non-interest expense decreased $76 thousand or 7.8% and $409 thousand or 13.0% for the three and nine months ended March 31, 2004, respectively, when compared to the same periods in 2003. The decrease for the three months ended March 31, 2004 was principally attributable to a $119 thousand decrease in payroll related costs which was partially offset by a $21 thousand increase in legal expenses and costs associated with the work-out of non-performing assets, a $13 thousand increase in NOW account expenses, and a $6 thousand increase in other real estate owned expense, when compared to the same period in 2003. The decrease for the nine months ended March 31, 2004 was principally attributable to a $313 thousand decrease in payroll and benefit related costs, a $111 thousand decrease in charitable contributions eligible for Pennsylvania Education Tax Credits, a $18 thousand decrease in legal expenses and costs associated with the work-out of non-performing assets and a $15 thousand decrease in provisions for loan loss on other real estate owned which were partially offset by a $31 thousand increase in equipment expense incurred to upgrade the Savings Bank's technology platform and a $16 thousand increase in data processing expense, when compared to the same period in 2003. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaled $2.2 million during the nine months ended March 31, 2004. Net cash provided by operating activities was primarily comprised of $1.6 million of net income, $1.1 million in amortization of discounts, premiums and deferred loan fees, a $340 thousand increase in accrued and deferred taxes, and a $123 thousand decrease in accrued interest receivables, which were partially offset by a $771 thousand decrease in the provision for loan losses and a $177 thousand decrease in accrued interest payable. Funds used for investing activities totaled $33.2 million during the nine months ended March 31, 2004. Primary uses of funds during the nine months ended March 31, 2004, included $325.7 million for purchases of investment, mortgage-backed securities, and Federal Home Loan Bank stock, which were partially offset by $270.7 million from repayments of investment, mortgage-backed securities and Federal Home Loan Bank stock, a $21.3 million decrease in net loans receivable, and $500 thousand from the sale of other real estate owned. 14 Funds provided by financing activities totaled $31.2 million for the nine months ended March 31, 2004. The primary sources included a $53.3 million increase in other short-term borrowings, $500 thousand proceeds from long-term FHLB advances, and $490 thousand in stock option proceeds, which were partially offset by a $13.7 million decrease in certificates of deposit, a $3.9 million decrease in short-term FHLB advances, $2.0 million in purchased treasury stock, a $1.3 million decrease in transaction and passbook accounts, $1.2 million in cash dividends paid on the Company's common stock, a $662 thousand decrease in escrow accounts, and a $279 thousand repayment of FHLB long-term 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, 2004, the Company incurred approximately $201.9 million in other short-term borrowings with a weighted average rate of 1.10%, and incurred $500 thousand in FHLB long-term borrowings with a weighted average rate of 2.91%. During the three months ended March 31, 2004, the Company repaid $207.0 million of other short-term borrowings with weighted average rates of 1.10%. 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, 2004, the total approved loan commitments outstanding amounted to $80 thousand. At the same date, commitments under unused lines of credit amounted to $6.1 million, the unadvanced portion of construction loans approximated $12.0 million and commitments to fund security purchases totaled $16.4 million. Certificates of deposit scheduled to mature in one year or less at March 31, 2004, totaled $41.3 million. Management believes that a significant portion of maturing deposits will remain with the Company. Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances and other borrowings, to provide the cash utilized in investing activities. The Company also has access to the Federal Reserve Bank Primary Credit Program. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands. On February 24, 2004 the Company's Board of Directors authorized its Seventh Stock Buyback Program totaling 125,000 shares, or approximately 5%, of the Company's outstanding common stock. On April 27, 2004, the Company's Board of Directors declared a cash dividend of $0.16 per share payable May 20, 2004, to shareholders of record at the close of business on May 10, 2004. 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, 2004, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $29.1 million or 17.8% and $30.6 million or 18.7%, respectively, of total risk-weighted assets, and Tier I leverage capital of $29.1 million or 7.35% of average quarterly assets. Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan. 15 The Company's nonperforming assets at March 31, 2004, totaled approximately $722 thousand or 0.18% of total assets as compared to $3.5 million or 0.95% of total assets at June 30, 2003. Nonperforming assets at March 31, 2004 consisted of: one commercial real estate loan totaling $277 thousand, one construction and land development loan totaling $58 thousand, two commercial loans totaling $66 thousand, four single-family real estate loans totaling $268 thousand, one consumer loan totaling $3 thousand and one parcel of commercial real estate owned with a carrying value of $50 thousand. The $2.8 million decrease in nonperforming assets during the nine months ended March 31, 2004 was primarily attributable to: the $1.4 million reclassification of a commercial real estate loan from non-performing to restructured, a $591 thousand net reduction from the purchase and subsequent resale of related participating interests, a $509 thousand reduction related to the sale of a personal care home and a $489 thousand charge off related to a bankruptcy discussed below, which was partially offset by a $124 thousand increase in non-performing single-family real estate loans. The Company has one non-accruing commercial real estate loan relationship, with an outstanding balance of approximately $767 thousand, to a personal care home that was originally part of the restructured retirement village loan discussed below. 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 two other loans, totaling $81 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 Savings Bank obtained title to the personal care home and related real property during the quarter ended September 30, 2003 and sold such property during the quarter ended December 31, 2003, with proceeds of approximately $509 thousand applied to the loan balance. During the quarter ended December 31, 2003 the Company charged off approximately $488 thousand in connection with this relationship based upon estimated liquidation values of the remaining underlying collateral. The Company and its legal counsel are also investigating other claims and remedies against the obligors and other properties pledged as collateral for these loans. During the quarter ended March 31, 2004, the Savings Bank obtained title to an office building with a market value of approximately $52 thousand. The property is currently under a sales agreement, with anticipated proceeds of approximately $50 thousand, and is expected to close during the quarter ended June 30, 2004. As of December 31, 2003, the Company had one non-accruing commercial real estate loan, secured by a small store front and three apartment units, with an outstanding balance of $122 thousand. The obligors had 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. The Company had collected nominal rent on a sporadic basis. The property was bought back at a Sheriff's Sale in December 2003 and the Company sold such property during the quarter ended March 31, 2004 with proceeds of approximately $90 thousand. The Company has one restructured commercial real estate loan to a retirement village located in the North Hills. The Savings Bank's outstanding principal balance totaled $2.0 million at June 30, 2003. During the quarter ended September 30, 2003 the Savings Bank redeemed $388 thousand of participating interests. During the quarter ended December 31, 2003 the Bank sold a forty percent participating interest to another financial institution at par for proceeds totaling $979 thousand. The Savings Bank's outstanding principal balance totaled $1.4 million at March 31, 2004. The Company had recorded interest received on this credit on a cost recovery basis until September 30, 2003 and is now recording interest income on a cash basis. During the nine months ended March 31, 2004, approximately $73 thousand of interest income would have been recorded on loans accounted for on a non-accrual basis and troubled debt restructurings if such loans had been current according to the original loan agreements for the entire period. These amounts 16 were not included in the Company's interest income for the nine months ended March 31, 2004. 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. 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, 2004, 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. Due to the rapid and sustained 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, 2004, totaled $38.5 million, $178.2 million and $90.8 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 17 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 Company purchased callable floating rate government agency bonds and floating rate CMOs in order to provide current income and protection against an eventual rise in market interest rates. 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, 2004, principal investment purchases were comprised of: floating rate collateralized mortgage obligations - $34.5 million with an original weighted average yield of approximately 2.61%; government agency step-up bonds which will reprice within 2 years - $15.0 million with a weighted average yield of approximately 4.00%; tax-free municipal bonds with a weighted average taxable equivalent yield of approximately 3.92%; and a corporate demand note - $1.0 million with an initial rate of approximately 2.62%. Major investment proceeds received during the quarter ended March 31, 2004 were: government agency bonds - $44.7 million with a weighted average yield of approximately 3.09%; and investment grade corporate bonds - $9.5 million with a weighted average yield of approximately 2.99%. As of March 31, 2004, the implementation of these asset and liability management initiatives resulted in the following: 1) the Company's liquidity profile remains high with the investment and mortgage-backed securities portfolio's stated final maturities as follows: less than 1 year: $31.4 million or 10.0%; 1-3 years: $0.0 million or 0.0%; 3-5 years: $44 thousand or 0.01%; over 5 years: $282.4 million or 90.0%; 2) $55.0 million or 24.0% of the Company's investment portfolio (including FHLB stock) was comprised of floating rate bonds which will reprice quarterly within one year; 3) $95.0 million or 41.5% of the Company's investment portfolio (including FHLB stock) was comprised of U.S. Government Agency Step-up bonds which will reprice from initial rates of 3.00% - 4.50% up to 7.00% within two years; 4) $31.1 million or 13.6% of the Company's investment portfolio (including FHLB stock) was comprised of investment grade corporate bonds with remaining maturities of less than one year; 5) $83.6 million or 90.5% of the Company's portfolio of mortgage-backed securities (including collateralized mortgage obligations - "CMOs") were comprised of floating rate instruments; 6) the maturity distribution of the Company's borrowings is as follows: less than 1 year: $62.7 million or 29.5%; 1-3 years: $4.2 or 2.0%; 3-5 years: $13.5 million or 6.3%; over 5 years: $132.1 million or 62.6%; and 7) an aggregate of $33.7 million or 47.9% 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. 18 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, --------- ------------------- 2004 2003 2002 ---- ---- ---- (Dollars in Thousands) Interest-earning assets maturing or repricing within one year $254,256 $262,782 $252,467 Interest-bearing liabilities maturing or repricing within one year 140,292 133,418 142,823 -------- -------- -------- Interest sensitivity gap $113,964 $129,364 $109,644 ======== ======== ======== Interest sensitivity gap as a percentage of total assets 28.5% 35.2% 27.1% Ratio of assets to liabilities maturing or repricing within one year 181.23% 197.0% 176.8%
During the quarter ended March 31, 2004, the Company managed its one year interest sensitivity gap by: (1) purchasing floating rate CMO's which reprice on a monthly basis; and (2) purchasing U.S. Government Agency Step-up bonds which will reprice from an initial rate of 4% to 7% within two years. 19 The following table illustrates the Company's estimated stressed cumulative repricing gap - the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time - at March 31, 2004. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points. Cumulative Stressed Repricing Gap ---------------------------------
Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term ------- ------- -------- -------- -------- -------- --------- (Dollars in Thousands) Base Case Up 200 bp - ------------------- Cummulative Gap ($'s) 27,921 93,136 90,239 76,215 59,033 54,842 26,449 % of Total Assets 7.0% 23.2% 22.5% 19.0% 14.7% 13.7% 6.6% Base Case Up 100 bp - ------------------- Cummulative Gap ($'s) 33,718 99,485 106,764 183,264 171,420 156,062 26,449 % of Total Assets 8.4% 24.8% 26.6% 45.7% 42.8% 38.9% 6.6% Base Case No Change - ------------------- Cummulative Gap ($'s) 35,786 103,981 113,964 192,928 182,049 165,154 26,449 % of Total Assets 8.9% 25.9% 28.4% 48.1% 45.4% 41.2% 6.6% Base Case Down 100 bp - --------------------- Cummulative Gap ($'s) 38,612 108,774 151,020 201,414 188,596 167,727 26,449 % of Total Assets 9.6% 27.1% 37.7% 50.3% 47.1% 41.8% 6.6% Base Case Down 200 bp - --------------------- Cummulative Gap ($'s) 85,869 177,421 212,474 205,613 190,937 168,125 26,449 % of Total Assets 21.4% 44.3% 53.0% 51.3% 47.6% 41.9% 6.6%
Beginning in the third quarter of fiscal 2001, the Company began to utilize an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to better estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company's loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company's borrowings. 20 The following table presents the simulated impact of a 100 and 200 basis point upward or downward 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, 2004. 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 -26.3% -17.2% 0.00% 16.1% 58.7% Return on average equity 3.61% 5.14% 7.93% 10.46% 16.83% Return on average assets 0.24% 0.34% 0.53% 0.71% 1.19% Market value of equity (in thousands) $8,521 $9,844 $17,553 $19,257 $16,068
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, 2004. Anticipated Transactions ----------------------------------------------------------------------- (Dollars in Thousands) Undisbursed construction and land development loans Fixed rate $ 3,741 5.71% Adjustable rate $ 8,302 5.02% Undisbursed lines of credit Adjustable rate $ 6,092 4.71% Loan origination commitments Fixed rate $ 30 6.00% Adjustable rate $ 50 2.99% Letters of credit Adjustable rate $ 5 7.00% Commitments to purchase CMO's Adjustable rate $16,365 2.59% ------- $34,585 ======= 21 In the ordinary course of its construction lending business, the Savings Bank enters into performance standby letters of credit. Typically, the standby letters of credit are issued on behalf of a builder to a third party to ensure the timely completion of a certain aspect of a construction project or land development. At March 31, 2004, the Savings Bank had one performance standby letter of credit outstanding totaling approximately $5 thousand. The performance standby letter of credit is secured by deposits with the Savings Bank, and will mature within six 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. 22 ITEM 4. CONTROLS AND PROCEDURES Our management evaluated, with the participation of our Chief Executive Officer and Chief Accounting Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31, 2004. Based on such evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations and are operating in an effective manner. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the third fiscal quarter of fiscal 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 23 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, Use of Proceeds and Issuer Purchases of Equity --------------------------------------------------------------------- Securities ---------- (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) The following table sets forth information with respect to purchases of common stock of the Company made by or on behalf of the Company during the three months ended march 31, 2004.
-------------------------------------------------------------------------------------------------------------- ISSUER PURCHASES OF EQUITY SECURITIES -------------------------------------------------------------------------------------------------------------- Total Number of Maximum Number of Total Shares Purchased Shares that May Yet Number of as Part of Publicly Be Repurchased Shares Average Price Announced Plans or Under the Plans or Period Purchased Paid per Share ($) Programs (1) Programs (2,3) -------------------------------------------------------------------------------------------------------------- 01/01/04 - 01/31/04 6,079 17.64 6,079 69,349 -------------------------------------------------------------------------------------------------------------- 02/01/04 - 02/29/04 64,264 18.83 64,264 130,085 -------------------------------------------------------------------------------------------------------------- 03/01/04 - 03/31/04 2,500 18.85 2,500 127,585 -------------------------------------------------------------------------------------------------------------- Total 72,843 18.73 72,843 127,585 --------------------------------------------------------------------------------------------------------------
- ---------- (1) All shares indicated were purchased under the Company's Sixth Stock Repurchase Program. (2) Sixth Stock Repurchase Program (a) Announced January 2, 2003. (b) 130,000 common shares approved for repurchase. (c) No fixed date of expiration. (d) This Program has not expired and has 2,585 shares remaining to be purchased at March 31, 2004. (e) Not applicable. (3) Seventh Stock Repurchase Program (a) Announced February 24, 2004. (b) 125,000 common shares approved for repurchase. (c) No fixed date of expiration. (d) This Program has not expired and has 125,000 shares remaining to be purchased at March 31, 2004. (e) Not applicable. ITEM 3. Defaults Upon Senior Securities ------------------------------- Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. 24 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 ------ ---------------------------------------------------------- ---- 31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief E-1 Executive Officer 31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief E-2 Accounting Officer 32.1 Section 1350 Certification of the Chief Executive Officer E-3 32.2 Section 1350 Certification of the Chief Accounting Officer E-4 99 Independent Accountants' Report E-5
(b) The Company filed a Current Report on Form 8-K dated January 30, 2004, reporting under Item 12 earnings for the three and six months ending December 31, 2003. The Company included as an exhibit to the Form 8-K the press release dated January 30, 2004. The Company filed a Current Report on Form 8-K dated February 24, 2004, reporting under Item 5, that the Company's Board of Directors authorized the repurchase of up to 125,000 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 February 24, 2004. 25 SIGNATURES Pursuant tos 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 17, 2004 BY: /s/ David J. Bursic Date ------------------------------------------- David J. Bursic President and Chief Executive Officer (Principal Executive Officer) May 17, 2004 BY: /s/ Keith A. Simpson Date ------------------------------------------- Keith A. Simpson Vice-President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) 26 EX-31.1 2 ex31-1.txt EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 /s/ David J. Bursic ------------------- David J. Bursic President and Chief Executive Officer E-1 EX-31.2 3 ex31-2.txt EXHIBIT 31.2 CERTIFICATION OF CHIEF ACCOUNTING OFFICER Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 /s/ Keith A. Simpson -------------------- Keith A. Simpson Vice-President and Chief Accounting Officer E-2 EX-32.1 4 ex32-1.txt Exhibit 32.1 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 three months ended March 31, 2004 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. /s/ David J. Bursic ---------------------------------------- David J. Bursic President and Chief Executive Officer Date: May 17, 2004 Note: 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. E-3 EX-32.2 5 ex32-2.txt Exhibit 32.2 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 three months ended March 31, 2004 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. /s/ Keith A. Simpson ---------------------------------------- Keith A. Simpson Vice-President and Chief Accounting Officer Date: May 17, 2004 Note: 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. E-4 EX-99 6 ex99.txt Exhibit 99 INDEPENDENT ACCOUNTANTS' 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, 2004, and the related consolidated statement of income for the three and nine-month periods ended March 31, 2004 and 2003, the consolidated statement of changes in stockholders' equity for the nine-month period ended March 31, 2004, and the consolidated statement of cash flows for the nine-month periods ended March 31, 2004 and 2003. 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, 2003, 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 August 1, 2003, we expressed an unqualified opinion on those consolidated financial statements. /s/ S.R. Snodgrass, A.C. Wexford, PA April 30, 2004 E-5 -----END PRIVACY-ENHANCED MESSAGE-----