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, 2006
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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
----------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
----------------------------------- -----------------------------------
(Address of principal (Zip Code)
executive offices)
(412) 364-1911
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(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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12 b-2 of the Exchange Act). YES [_] NO [X]
Shares outstanding as of May 11, 2006: 2,335,332 shares Common Stock,
$.01 par value.
WVS FINANCIAL CORP. AND SUBSIDIARY
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INDEX
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PART I. Financial Information Page
------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheet as of
March 31, 2006 and June 30, 2005
(Unaudited) 3
Consolidated Statement of Income
for the Three and Nine Months Ended
March 31, 2006 and 2005 (Unaudited) 4
Consolidated Statement of Cash Flows
for the Nine Months Ended March 31,
2006 and 2005 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months
Ended March 31, 2006 (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, 2006 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 23
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 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 24
Signatures 25
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
March 31, 2006 June 30, 2005
-------------- -------------
Assets
------
Cash and due from banks $ 699 $ 900
Interest-earning demand deposits 483 2,666
------------- -------------
Total cash and cash equivalents 1,182 3,566
Investment securities available-for-sale (amortized cost of
$ 502 and $9,155) 482 9,155
Investment securities held-to-maturity (market value of
$ 211,763 and $174,323) 212,926 173,911
Mortgage-backed securities available-for-sale (amortized cost of
$ 2,240 and $2,893) 2,329 3,120
Mortgage-backed securities held-to-maturity (market value of
$ 164,618 and $159,566) 164,930 159,031
Net loans receivable (allowance for loan losses of $ 969 and
$ 1,121) 55,793 60,151
Accrued interest receivable 3,180 2,057
Federal Home Loan Bank stock, at cost 7,309 7,769
Premises and equipment 856 939
Other assets 1,246 1,345
------------- -------------
TOTAL ASSETS $ 450,233 $ 421,044
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 10,499 $ 11,926
NOW accounts 19,257 25,396
Savings accounts 38,905 44,323
Money market accounts 15,753 13,625
Certificates of deposit 66,689 68,319
Advance payments by borrowers for taxes and insurance 820 1,117
------------- -------------
Total savings deposits 151,923 164,706
Federal Home Loan Bank advances 152,636 155,036
Other borrowings 113,343 69,680
Accrued interest payable 1,466 1,260
Other liabilities 1,729 1,161
------------- -------------
TOTAL LIABILITIES $ 421,097 $ 391,843
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;
3,769,938 and 3,762,618 shares issued 38 38
Additional paid-in capital 20,817 20,726
Treasury stock: 1,425,167 and 1,368,508 shares at cost,
Respectively (21,516) (20,594)
Retained earnings, substantially restricted 29,755 28,885
Accumulated other comprehensive income 44 149
Unreleased shares - Recognition and Retention Plans (2) (3)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 29,136 $ 29,201
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 450,233 $ 421,044
============= =============
See accompanying notes to unaudited consolidated financial statements.
3
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
INTEREST AND DIVIDEND INCOME:
Loans $ 965 $ 1,029 $ 3,016 $ 3,181
Investment securities 2,520 2,347 6,343 7,299
Mortgage-backed securities 2,404 1,085 6,555 2,738
Interest-earning deposits with other 4 2 11 6
institutions
Federal Home Loan Bank stock 61 46 162 120
----------- ----------- ----------- -----------
Total interest and dividend income 5,954 4,509 16,087 13,344
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 779 559 2,246 1,601
Federal Home Loan Bank advances 1,968 2,010 6,002 6,109
Other borrowings 1,344 449 3,012 1,037
----------- ----------- ----------- -----------
Total interest expense 4,091 3,018 11,260 8,747
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,863 1,491 4,827 4,597
PROVISION (RECOVERY) FOR LOAN LOSSES (38) (5) (149) 66
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
(RECOVERY) FOR LOAN LOSSES 1,901 1,496 4,976 4,531
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Service charges on deposits 96 88 283 273
Investment securities gains -- -- 30 335
Other 75 71 232 224
----------- ----------- ----------- -----------
Total non-interest income 171 159 545 832
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 500 505 1,458 1,504
Occupancy and equipment 91 109 292 328
Data processing 73 68 208 198
Correspondent bank service charges 38 32 105 100
Other 170 177 566 541
----------- ----------- ----------- -----------
Total non-interest expense 872 891 2,629 2,671
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,200 764 2,892 2,692
INCOME TAXES 412 200 886 705
----------- ----------- ----------- -----------
NET INCOME $ 788 $ 564 $ 2,006 $ 1,987
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.34 $ 0.23 $ 0.85 $ 0.81
Diluted $ 0.34 $ 0.23 $ 0.85 $ 0.81
AVERAGE SHARES OUTSTANDING:
Basic 2,346,959 2,430,679 2,363,817 2,443,163
Diluted 2,348,619 2,435,935 2,366,651 2,448,792
See accompanying notes to unaudited consolidated financial statements.
4
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
March 31,
----------------------
2006 2005
--------- ---------
OPERATING ACTIVITIES
Net income $ 2,006 $ 1,987
Adjustments to reconcile net income to cash provided by operating
activities:
(Recovery of) provision for loan losses (149) 66
Depreciation and amortization, net 119 144
Investment securities gains (30) (335)
Amortization of discounts, premiums and deferred loan fees (161) (349)
Sale of trading securities -- 1,000
Increase in accrued and deferred taxes 509 289
(Increase) decrease in accrued interest receivable (1,123) 203
Increase in accrued interest payable 206 73
Other, net 162 253
--------- ---------
Net cash provided by operating activities 1,539 3,331
--------- ---------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities (700) (17,418)
Proceeds from repayments of investments and mortgage-backed securities 9,384 18,622
Proceeds from sale of investment securities 1,016 1,409
Held-to-maturity:
Purchases of investments (111,348) (186,955)
Purchases of mortgage-backed securities (86,461) (111,040)
Proceeds from repayments of investments 72,416 231,032
Proceeds from repayments of mortgage-backed securities 80,289 65,095
Decrease in net loans receivable 4,484 7,232
Purchase of Federal Home Loan Bank stock (4,677) (5,997)
Redemption of Federal Home Loan Bank stock 5,137 5,362
Acquisition of premises and equipment (36) (43)
Other, net 60 --
--------- ---------
Net cash (used for) provided by investing activities (30,436) 7,299
--------- ---------
5
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months
Ended March 31,
--------------------
2006 2005
-------- --------
FINANCING ACTIVITIES
Net (decrease) increase in transaction and passbook accounts (10,856) 513
Net decrease in certificates of deposit (1,630) (194)
Net increase in FHLB short-term advances 1,600 20,600
Net increase (decrease) in other borrowings 43,663 (21,234)
Repayments of FHLB long-term advances (4,000) (7,000)
Net decrease in advance payments by borrowers for taxes and insurance (297) (374)
Net proceeds from exercise of stock options 91 --
Funds used for purchase of treasury stock (922) (1,033)
Cash dividends paid (1,136) (1,175)
-------- --------
Net cash provided by (used for) financing activities 26,513 (9,897)
-------- --------
(Decrease) increase in cash and cash equivalents (2,384) 733
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,566 3,054
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,182 $ 3,787
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 11,054 $ 8,674
Income taxes $ 332 $ 335
Non-cash items:
Mortgage Loan Transferred to Other Assets $ 10 $ --
See accompanying notes to unaudited consolidated financial statements.
6
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Accumulated
Retained Other
Additional Earnings Compre- Unallocated
Common Paid-In Treasury Substantially hensive Shares Held
Stock Capital Stock Restricted Income by RRP Total
----- ------- ----- ---------- ------ ------ -----
Balance at June 30, 2005 $ 38 $ 20,726 $ (20,594) $ 28,885 $ 149 $ (3) $ 29,201
Comprehensive income:
Net Income 2,006 2,006
Other comprehensive
income:
Change in unrealized
holding gains on
securities, net of
income tax effect
of $54 (105) (105)
-----------
Comprehensive income 1,901
Purchases of
treasury stock (922) (922)
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 1 1
Exercise of stock options 91 91
Cash dividends declared
($0.48 per share) (1,136) (1,136)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2006 $ 38 $ 20,817 $ (21,516) $ 29,755 $ 44 $ (2) $ 29,136
=========== =========== =========== =========== =========== =========== ===========
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
U.S. 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, 2006, are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In February 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting ("FAS") No. 155, Accounting for Certain
Hybrid Instruments, as an amendment of FASB Statements No. 133 and 140. FAS No.
155 allows financial instruments that have embedded derivatives to be accounted
for as a whole (eliminating the need to bifurcate the derivative from its host)
if the holder elects to account for the whole instrument on a fair value basis.
This statement is effective for all financial instruments acquired or issued
after the beginning of an entity's first fiscal year that begins after September
15, 2006. The adoption of this standard is not expected to have a material
effect on the Company's results of operations or financial position.
In March 2006, the FASB issued FAS No. 156, Accounting for Servicing of
Financial Assets. This Statement, which is an amendment to FAS No. 140, will
simplify the accounting for servicing assets and liabilities, such as those
common with mortgage securitization activities. Specifically, FAS No. 156
addresses the recognition and measurement of separately recognized servicing
assets and liabilities and provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. FAS No. 156 also clarifies when an obligation to
service financial assets should be separately recognized as a servicing asset or
a servicing liability, requires that a separately recognized servicing asset or
servicing liability be initially measured at fair value, if practicable, and
permits an entity with a separately recognized servicing asset or servicing
liability to choose either of the amortization or fair value methods for
subsequent measurement. The provisions of FAS No. 156 are effective as of the
beginning of the first fiscal year that begins after September 15, 2006. The
adoption of this standard is not expected to have a material effect on the
Company's results of operations or financial position.
8
3. EARNINGS PER SHARE
------------------
The following table sets forth the computation of the weighted-average
common shares used to calculate basic and diluted earnings per share.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ ------------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Weighted average common shares
outstanding 3,767,010 3,762,891 3,764,061 3,762,943
Average treasury stock shares (1,420,051) (1,332,212) (1,400,244) (1,319,780)
---------- ---------- ---------- ----------
Weighted average common shares
and common stock equivalents
used to calculate basic earnings
per share 2,346,959 2,430,679 2,363,817 2,443,163
Additional common stock
equivalents (stock options) used
to calculate diluted earnings per
share 1,660 5,256 2,834 5,629
---------- ---------- ---------- ----------
Weighted average common shares
and common stock equivalents
used to calculate diluted earnings
per share 2,348,619 2,435,935 2,366,651 2,448,792
========== ========== ========== ==========
All options at March 31, 2006 and March 31, 2005 were included in the
computation of diluted earnings per share.
9
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.
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,
-------------------------------------- --------------------------------------
2006 2005 2006 2005
----------------- ----------------- ----------------- -----------------
(Dollars in Thousands)
Net income $ 788 $ 564 $ 2,006 $ 1,987
Other comprehensive
income (loss):
Unrealized gains
(losses) on
available for sale
securities $ (40) $ 76 $ (129) $ 100
Less:
Reclassification
adjustment for gain
included in net
income -- -- (30) (335)
------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
(loss) income before tax (40) 76 (159) (235)
Income tax
(benefit)
expense related to other
comprehensive income
(loss) (7) 26 (54) (80)
------- ------- ------- -------
Other comprehensive
(loss) income, net of tax (33) 50 (105) (155)
------- ------- ------- -------
Comprehensive income $ 755 $ 614 $ 1,901 $ 1,832
======= ======= ======= =======
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006
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, FDIC-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, 2006.
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 $450.2 million at March 31, 2006, as
compared to $421.0 million at June 30, 2005. The $29.2 million or 6.9% increase
in total assets was primarily comprised of a $29.9 million or 15.7% increase in
investment securities including FHLB stock, a $5.1 million or 3.2% increase in
mortgage-backed securities, and a $1.1 million or 54.6% increase in accrued
interest receivable, which were partially offset by a $4.4 million or 7.2%
decrease in net loans receivable and a $2.4 million or 66.9% decrease in cash
and cash equivalents. The increases in investment securities and mortgage-backed
securities were attributable to purchases of callable fixed rate U.S. Government
Agency bonds and floating rate collateralized mortgage obligations. The increase
in accrued interest receivable was primarily attributable to these higher levels
of investment and mortgage-backed securities. The decrease in net loans
11
receivable was attributable to the seasonal nadir of builder speculative
construction loans and repayments caused by continued low intermediate and
long-term market interest rates. See "Asset and Liability Management".
The Company's total liabilities increased $29.3 million or 7.5% to
$421.1 million as of March 31, 2006, from $391.8 million as of June 30, 2005.
The $29.3 million increase in total liabilities was primarily comprised of a
$43.7 million or 62.7% increase in other short-term borrowings which was
partially offset by a $12.8 million or 7.8% decrease in total savings deposits
and a $2.4 million or 1.5% decrease in FHLB advances. Total deposits decreased
$12.8 million to $151.9 million as a result of the following: demand deposits
decreased $7.6 million, savings accounts decreased $5.4 million, certificates of
deposit decreased $1.6 million and advanced payments by borrowers for taxes and
insurance decreased $297 thousand, while money market accounts increased $2.1
million.
Total stockholders' equity decreased $65 thousand or 0.2% to $29.1
million as of March 31, 2006, from approximately $29.2 million as of June 30,
2005. Company net income of $2.0 million was offset by cash dividends and
capital expenditures for the Company's stock repurchase program of $1.1 million
and $922 thousand, respectively, and accumulated other comprehensive income
decreased $105 thousand for the nine months ended March 31, 2006.
RESULTS OF OPERATIONS
General. WVS reported net income of $788 thousand or $0.34 diluted
earnings per share and $2.0 million or $0.85 diluted earnings per share for the
three and nine months ended March 31, 2006, respectively. Net income increased
by $224 thousand or 39.7% and diluted earnings per share increased $0.11 or
47.8% for the three months ended March 31, 2006, when compared to the same
period in 2005. The increase in net income was primarily attributable to a $372
thousand increase in net interest income, a $33 thousand increase in credit
provision for loan losses, a $19 thousand decrease in non-interest expense and a
$12 thousand increase in non-interest income, which were partially offset by a
$212 thousand increase in income tax expense. For the nine months ended March
31, 2006, net income increased by $19 thousand or 1.0% and diluted earnings per
share increased $0.04 or 4.9% when compared to the same period in 2005. The
increase for the nine month period was principally the result of a $230 thousand
increase in net interest income, a $215 thousand change in the provision for
loan losses and a $42 thousand decrease in non-interest expense, which were
partially offset by a $287 thousand decrease in the non-interest income and a
$181 thousand increase in income tax expense.
Net Interest Income. The Company's net interest income increased by
$372 thousand or 24.9% for the three months ended March 31, 2006, when compared
to the same period in 2005. The increase in net interest income was principally
attributable to higher overall yields earned on Company assets and higher
overall levels of floating rate assets which more than offset higher rates paid
on deposits and borrowings in fiscal 2006 when compared to the same period in
fiscal 2005. The Company's net interest income increased $230 thousand or 5.0%
for the nine months ended March 31, 2006. The increase in net interest income
was principally attributable to higher overall levels of Company assets, a shift
in Company assets from lower yielding fixed rate investment securities to
floating rate mortgage-backed securities and higher short-term market interest
rates which offset increases in rates paid on deposits and borrowings in fiscal
2006 when compared to the same period in fiscal 2005.
Interest Income. Total interest and dividend income increased $1.4
million or 32.0% and $2.7 million or 20.6% for the three and nine months ended
March 31, 2006, respectively, when compared to the same periods in 2005.
Interest on mortgage-backed securities increased $1.3 million or 121.6%
for the three months ended March 31, 2006, when compared to the same period in
2005. The increase for the three months ended March 31, 2006 was primarily
attributable to a $65.6 million increase in the average balance of
mortgage-backed securities outstanding for the period and a 152 basis point
increase in the average yield earned on mortgage-backed securities for the three
months ended March 31, 2006 when compared to the same period in 2005. Interest
on mortgage-backed securities increased $3.8 million or 139.4% for the nine
12
months ended March 31, 2006, when compared to the same period in 2005. The
increases for the nine months ended March 31, 2006 was primarily attributable to
a $73.8 million increase in the average balance of mortgage-backed securities
outstanding for the period and a 137 basis point increase in the average yield
earned on mortgage-backed securities outstanding for the nine months ended March
31, 2006 when compared to the same period in 2005. The increase in the weighted
average yield earned on mortgage-backed securities was consistent with market
conditions for the three and nine months ended March 31, 2006. The increase in
the average balances of mortgage-backed securities during the three and nine
months ended March 31, 2006 was primarily attributable to purchases of floating
rate mortgage-backed securities.
Interest and dividend income on interest-bearing deposits with other
institutions, investment securities including FHLB stock ("other investment
securities") increased by $190 thousand or 7.9% for the three months ended March
31, 2006 when compared to the same period in 2005. The increase was principally
attributable to a 75 basis point increase in the weighted average yield earned
on other investment securities which was partially offset by a $29.0 million
decrease in the average balance outstanding of other investment securities for
the three months ended March 31, 2006 when compared to the same period in 2005.
Interest and dividend income on other investment securities decreased $909
thousand or 12.2% for the nine months ended March 31, 2006, when compared to the
same period in 2005. The decrease for the nine months ended March 31, 2006 was
primarily attributable to a $47.7 million decrease in the average balance
outstanding of other investment securities for the nine months ended March 31,
2006 which was partially offset by a 25 basis point increase in the weighted
average yield earned on other investment securities outstanding for the nine
months ended March 31, 2006, when compared to the same period in 2005. The
increase in the weighted average yields earned for the three and nine months
ended March 31, 2006 were a result of purchases of higher yielding fixed rate
callable Agency bonds funded by issuer redemptions of lower yielding
fixed-to-floating rate callable Agency bonds.
Interest on net loans receivable decreased $64 thousand or 6.2% for the
three months ended March 31, 2006, when compared to the same period in 2005. The
decrease for the three months ended March 31, 2006 was attributable to a
decrease of $5.9 million in the average balance of net loans receivable
outstanding which was partially offset by an increase of 23 basis points in the
weighted average yield earned on net loans receivable for the three months ended
March 31, 2006, when compared to the same period in 2005. Interest on net loans
receivable decreased $165 thousand or 5.2% for the nine months ended March 31,
2006, when compared to the same period in 2005. The decrease for the nine months
ended March 31, 2006 was attributable to a $5.7 million decrease in the average
balance of net loans receivable outstanding which was partially offset by an
increase of 27 basis points in the weighted average yield earned on net loans
receivable for the nine months ended March 31, 2006. The decrease in the average
loan balance outstanding for the three and nine months ended March 31, 2006 was
primarily attributable to increased levels of mortgage prepayments and
refinancings due to low market rates on mortgages. As part of its
asset/liability management strategy, the Company has limited its portfolio
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.
Interest Expense. Total interest expense increased $1.1 million or
35.6% and $2.5 million or 28.7% for the three and nine months ended March 31,
2006, respectively, when compared to the same period in 2005.
Interest on FHLB advances and other borrowings increased $853 thousand
or 34.7% for the three months ended March 31, 2006 when compared to the same
period in 2005. The increase for the three months ended March 31, 2006 was
attributable to a 65 basis point increase in the weighted average rate paid on
FHLB advances and other borrowings for the period and a $38.9 million increase
in the average balance of such borrowings when compared to the same period in
2005. The increase in the weighted average rate paid was consistent with market
conditions for the three months ended March 31, 2006. Interest on FHLB advances
and other borrowings increased $1.9 million or 26.1% for the nine months ended
March 31, 2006, when compared to the same period in 2005. The increase for the
nine months ended March 31, 2006 was attributable to a 63 basis point increase
in the weighted average rate paid on FHLB advances and other borrowings for the
period and a $21.3 million increase in the average balance of such borrowings
when
13
compared to the same period in 2005. The weighted average rate paid on FHLB
advances and other borrowings increased due to increases in short-term market
interest rates.
Interest expense on deposits and escrows increased $220 thousand or
39.4% for the three months ended March 31, 2006 when compared to the same period
in 2005. The increase in interest expense on deposits and escrows for the three
months ended March 31, 2006 was attributable to a 110 basis point increase in
the weighted average yield paid on money market and time deposits for the period
ended March 31, 2006, when compared to the same period in 2005. Interest expense
on deposits and escrows increased $645 thousand or 40.3% for the nine months
ended March 31, 2006 when compared to the same period in 2005. The increase in
interest expense on deposits and escrows for the nine months ended March 31,
2006 was primarily attributable to a 101 basis point increase in the weighted
average yield paid on time deposits and money markets for the period and a $2.0
million increase in the average balance of time deposits for the nine months
ended March 31, 2006, when compared to the same period in 2005, which were
partially offset by a $4.0 million decrease in the average balance of savings
deposits for the period when compared to the same period in 2005. The weighted
average yield paid on interest-bearing deposits reflects increases in market
interest rates.
Provision (Recovery) for Loan Losses. A provision for loan losses is
charged, and a recovery for loan losses is credited, 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 $38 thousand
for the three months ended March 31, 2006 compared to a $5 thousand credit
provision for the same period in 2005. The $38 thousand credit provision during
the quarter ended March 31, 2006 was primarily attributable to paydowns of
non-accrual loans. For the nine months ended March 31, 2006, the Company
recorded a $149 thousand credit provision for loan losses compared to recording
a provision of $66 thousand for the same period in 2005. The $149 thousand
credit provision for loan losses for the nine months ending March 31, 2006 is
primarily the result of the Company reallocating $35 thousand of its allowance
for loan loss attributable to off balance sheet liabilities (builder letters of
credit and undisbursed lines of credit) to a separate reserve account for
financial reporting purposes during the first quarter of fiscal 2006 and a $92
thousand reduction due to continued paydowns of non-accrual loans. At March 31,
2006, the Company's total allowance for loan losses amounted to $969 thousand or
1.4% of the Company's total loan portfolio, as compared to $1.1 million or 1.5%
at June 30, 2005.
Non-Interest Income. Non-interest income increased $12 thousand or 7.5%
and decreased $287 thousand or 34.5% for the three and nine months ended March
31, 2006, respectively, when compared to the same periods in 2005. The decrease
for the nine month period was primarily attributable to pre-tax securities gains
of $335 thousand recognized in fiscal 2005.
Non-Interest Expense. Non-interest expense decreased $19 thousand or
2.1% and $42 thousand or 1.6% for the three and nine months ended March 31,
2006, respectively, when compared to the same periods in 2005. The decrease for
the three months ended March 31, 2006 was primarily attributable to a $18
thousand decrease in fixed asset depreciation, a $7 thousand decrease in postage
expense and a $5 thousand decrease in employee related costs, which were
partially offset by a $6 thousand increase in correspondent bank service charges
and $5 thousand increase in data processing expense. The decrease for the nine
months ended March 31, 2006 was primarily attributable to $46 thousand decrease
in employee related costs and a $36 thousand decrease in fixed asset
depreciation which were partially offset by a reallocation of a portion of the
Company's allowance for loan loss attributable to off-balance sheet liabilities
as discussed above, a $10 thousand increase in data processing expense and a $5
thousand increase in correspondent bank service charges.
14
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1.5 million during
the nine months ended March 31, 2006. Net cash provided by operating activities
was primarily comprised of $2.0 million of net income, a $509 thousand increase
in accrued and deferred taxes and a $206 thousand increase in accrued interest
payables, which were partially offset by a $1.1 million decrease in accrued
interest receivables.
Funds used for investing activities totaled $30.4 million during the
nine months ended March 31, 2006. Primary uses of funds during the nine months
ended March 31, 2006, were purchases of $111.0 million of investment securities,
$86.5 million of floating rate mortgage-backed securities and $4.7 million of
FHLB stock, which were partially offset by repayments of $81.8 million of
investment securities, $80.3 million of mortgage-backed securities and $5.1
million of FHLB stock, a $4.5 million decrease in net loans receivable and $1.0
million from the sale of fixed-rate mortgage-backed securities from the
Company's portfolio.
Funds provided by financing activities totaled $26.5 million for the
nine months ended March 31, 2006. The primary sources of funds included a $43.7
million increase in other short-term borrowings and a $1.6 million increase in
short-term FHLB advances which were partially offset by a $12.8 million decrease
in deposits and escrows, a $4.0 million decrease in long-term FHLB advances,
$1.1 million in cash dividends paid on the Company's common stock and $922
thousand in purchased treasury stock. Management believes that it currently is
maintaining adequate liquidity and continues to match funding sources with
lending and investment opportunities.
During the quarter ended March 31, 2006, the Company incurred $756.5
million in other short-term borrowings with weighted average rates of 4.58% and
incurred approximately $13.9 million in various short-term borrowings from the
FHLB with weighted average rates of 4.70%. During the three months ended March
31, 2006 the Company repaid $737.2 million of other short-term borrowings with
weighted average rates of 4.52%, $24.8 million of various short-term FHLB
borrowings with weighted average rates of 4.33% and $4.0 million of a long-term
FHLB borrowing with a rate of 5.43%.
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, 2006, total approved loan
commitments outstanding amounted to $614 thousand. At the same date, commitments
under unused lines of credit amounted to $8.1 million and the unadvanced portion
of construction loans approximated $10.6 million. Certificates of deposit
scheduled to mature in one year or less at March 31, 2006 totaled $44.1 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 April 25, 2006, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable May 18, 2006, to shareholders of record at
the close of business on May 8, 2006. 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, 2006, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$29.1 million or 21.6% and $30.1 million or 22.3%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $29.1 million or 6.55% of
average quarterly assets.
15
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, 2006 totaled
approximately $653 thousand or 0.15% of total assets as compared to $1.1 million
or 0.25% of total assets at June 30, 2005. Nonperforming assets at March 31,
2006 consisted of: one land loan totaling $357 thousand, three single-family
real estate loans totaling $216 thousand, one unsecured bankruptcy claim
totaling $49 thousand, one home equity loan totaling $17 thousand, one
non-residential real estate loan totaling $4 thousand and one single-family
property subject to redemption totaling $10 thousand.
The $447 thousand decrease in nonperforming assets during the nine
months ended March 31, 2006 was primarily attributable to the payoff in full of
one non-performing speculative construction loan totaling approximately $456
thousand, the sale of a single-family home with a carrying value of
approximately $70 thousand, principal paydowns totaling approximately $39
thousand on two claims related to a bankruptcy discussed below, the
reclassification of an $11 thousand home equity line of credit loan from
non-performing to performing status and a $7 thousand partial charge off and
transfer to other assets of a home equity loan which were partially offset by
the addition to non-accrual status of one line of credit secured by real
property totaling approximately $17 thousand, two single-family real estate
loans totaling approximately $159 thousand and one non-residential real estate
loan totaling approximately $4 thousand.
At March 31, 2006, the Company had one non-performing loan secured by
undeveloped land totaling $357 thousand and one unsecured bankruptcy claim
totaling $49 thousand to two borrowers. During the fourth quarter of fiscal
2004, the Bankruptcy Court approved a secured claim totaling $440 thousand and
an unsecured claim totaling $76 thousand be paid in accordance with a Bankruptcy
Plan of Reorganization. All Court ordered plan payments have been received in a
timely manner. In accordance with generally accepted accounting principles,
payments received are being applied on a cost recovery basis.
During the nine months ended March 31, 2006, approximately $29 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 were not included in the Company's interest income for the nine months
ended March 31, 2006. 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.
16
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, 2006, the Federal Open Market
Committee increased its targeted federal funds rate by one-hundred fifty basis
points from 3.25% at June 30, 2005 to 4.75% at March 31, 2006. The benchmark two
and ten year treasury yields were 4.82% and 4.86% respectively at March 31,
2006, as compared to 3.66% and 3.94% respectively at June 30, 2005. These
changes in short, intermediate and long-term market interest rates and the
flattening of the Treasury yield curve have precipitated continued prepayments
in the Company's loan, investment and mortgage-backed securities portfolios and
a marked compression of industry-wide net interest margins.
Principal repayments on the Company's loan, investment and
mortgage-backed securities portfolios for the nine months ended March 31, 2006,
totaled $19.5 million, $81.8 million and $80.3 million, respectively. In
response to higher levels of liquidity the Company rebalanced its loan,
investment and mortgage-backed securities portfolios.
Due to the term structure of market interest rates, the Company
continued to reduce its portfolio originations of long-term fixed rate mortgages
while continuing to offer such loans on a correspondent basis. The Company also
makes available for origination residential mortgage loans with interest rates
which adjust pursuant to a designated index, although customer acceptance has
been somewhat limited in the Savings Bank's market area. The Company will
continue to selectively offer commercial real estate, land acquisition
17
and development, and shorter-term construction loans, primarily on residential
properties, to partially increase interest income while limiting interest rate
risk. The Company has also emphasized higher yielding home equity and small
business loans to existing customers and seasoned prospective customers.
The Company began to purchase fixed rate callable U. S. Government
Agency bonds in order to earn a spread against the Company's long-term FHLB
advances while limiting interest rate risk within the portfolio. Within the
mortgage-backed securities portfolio, the Company continued to purchase floating
rate securities in order to provide current income and in response to rising
short-term market interest rates. Each of the aforementioned strategies also
helped to better match the interest-rate and liquidity risks associated with the
Savings Bank's customers' liquidity preference for shorter term deposit
products.
During the quarter ended March 31, 2006, principal investment purchases
were comprised of: callable fixed rate government agency bonds with initial
lock-out periods as follows:0 - 12 months - $7.0 million with a weighted average
yield to call of approximately 9.37%, 13 - 24 months - $13.6 million with a
weighted average yield to call of approximately 6.05%, 25 - 36 months - $12.3
million with a weighted average yield to call of approximately 6.08% and over 36
months - $3.0 million with a weighted average yield to call of approximately
6.0%; and floating rate collateralized mortgage obligations which reprice
monthly - $1.9 million with an original weighted average yield of approximately
5.62%. Major investment proceeds received during the quarter ended March 31,
2006 were: mortgage-backed securities - $14.3 million; callable government
agency bonds - $15.0 million with a weighted average yield of approximately
3.70%, and tax-free municipal bonds - $425 thousand with a weighted average
yield of approximately 5.35%.
During the nine months ended March 31, 2006 principal investment
purchases were comprised of: floating rate collateralized mortgage obligations
which reprice monthly - $86.5 million with an original weighted average yield of
4.53%; callable fixed rate government agency bonds with initial lock-out periods
as follows: 0 - 12 months - $35.7 million with a weighted average yield to call
of approximately 6.76%, 13 - 24 months - $28.6 million with a weighted average
yield to call of approximately 6.04%, 25 - 36 months - $19.0 million with a
weighted average yield to call of approximately 6.11% and over 36 months - $3.0
million with a weighted average yield to call of approximately 6.0%; and
callable fixed to floating rate government agency bonds which will reprice
within twenty-four to thirty-three months - $25.0 million with a weighted
average yield of approximately 5.07%. Major investment proceeds received during
the nine months ended March 31, 2005 were: mortgage-backed securities - $80.3
million; callable floating rate government agency bonds - $60.0 million with a
weighted average yield of approximately 3.40%; tax-free municipal bonds - $12.4
million with a weighted average yield of approximately 5.89%; and corporate
demand notes - $7.3 million with a weighted average semiannual yield of 4.34%.
As of March 31, 2006, the implementation of these asset and liability
management initiatives resulted in the following:
1) $164.9 million or 98.6% of the Company's portfolio of mortgage-backed
securities (including collateralized mortgage obligations - "CMOs")
were comprised of floating rate instruments that reprice on a monthly
basis.
2) $83.0 million or 38.9% of the Company's investment portfolio was
comprised of fixed to floating rate U.S. Government Agency bonds which
will reprice as follows: 3 months or less - $10.0 million; 3 - 6 months
- $5.0 million; 6 - 12 months - $43.0 million; and over 1 year - $25.0
million. Management currently believes that these bonds are likely to
be repaid during the intervals shown.
3) $86.4 million or 40.5% of the Company's investment portfolio was
comprised of fixed-rate callable U.S. Government Agency bonds which are
callable as follows: 3 months or less - $11.8 million; 6 - 12 months -
$23.9 million; 1 - 2 years - $28.6 million; and over 2 years - $22.1
million. These bonds may or may not actually be redeemed prior to
maturity (i.e. called) depending upon the level of market interest
rates at their respective call dates.
4) $30.1 million or 14.1% of the Company's investment portfolio was
comprised of U.S. Government Agency Step-up bonds which will reprice as
follows: 3 months or less - $15.0 million from 4.00% to 7.00%; 6 - 12
months - $8.5 million from 4.00% to 7.00%, $2.0 million from 4.40% to
7.00%; and 1 - 2 years - $4.7 million from 4.70% to 6.00%. Management
believes that substantially all of these bonds are likely to be repaid
during the intervals shown.
18
5) An aggregate of $30.1 million or 52.9% of the Company's net loan
portfolio had adjustable interest rates or maturities of less than 12
months.
6) The maturity distribution of the Company's borrowings is as follows: 1
month or less - $127.2 million or 47.8%; 1 - 6 months - $157 thousand
or .01%; 1 - 3 years - $13.5 million or 5.1%; 3 - 5 years - $90.6
million or 34.0%; and over 5 years - $34.5 million or 13.0%.
The effect of interest rate changes on a financial institution's assets
and liabilities may be analyzed by examining the "interest rate sensitivity" of
the assets and liabilities and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within a given time
period. A gap is considered positive (negative) when the amount of rate
sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities
(assets). During a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income.
The following table sets forth certain information at the dates
indicated relating to the Company's interest-earning assets and interest-bearing
liabilities which are estimated to mature or are scheduled to reprice within one
year.
March 31, June 30,
-------- --------------------
2006 2005 2004
-------- -------- --------
(Dollars in Thousands)
Interest-earning assets maturing or
repricing within one year $295,620 $318,015 $288,451
Interest-bearing liabilities maturing or
repricing within one year 218,211 181,085 171,655
-------- -------- --------
Interest sensitivity gap $ 77,409 $136,930 $116,796
======== ======== ========
Interest sensitivity gap as a percentage of
total assets 17.2% 32.5% 26.9%
Ratio of assets to liabilities
maturing or repricing within one year 135.5% 175.6% 168.0%
19
The following table illustrates the Company's estimated stressed
cumulative repricing gap - the difference between the amount of interest-earning
assets and interest-bearing liabilities expected to reprice at a given point in
time - at March 31, 2006. The table estimates the impact of an upward or
downward change in market interest rates of 100 and 200 basis points.
Cumulative Stressed Repricing Gap
---------------------------------
Month 3 Month 6 Month 12 Month 24 Month 36 Month 60 Long Term
------- ------- -------- -------- -------- -------- ---------
(Dollars in Thousands)
Base Case Up 200 bp
-------------------
Cummulative
Gap ($'s) 37,933 24,616 54,794 49,721 52,118 (43,773) 27,337
% of Total
Assets 8.4% 5.5% 12.2% 11.0% 11.6% (9.7)% 6.1%
Base Case Up 100 bp
-------------------
Cummulative
Gap ($'s) 45,160 32,053 67,569 62,858 65,488 (30,353) 27,337
% of Total
Assets 10.0% 7.1% 15.0% 14.0% 14.5% (6.7)% 6.1%
Base Case No Change
-------------------
Cummulative
Gap ($'s) 53,942 41,225 77,409 74,976 93,014 21,104 27,337
% of Total
Assets 12.0% 9.2% 17.2% 16.7% 20.7% 4.7% 6.1%
Base Case Down 100 bp
---------------------
Cummulative
Gap ($'s) 58,769 47,290 108,950 122,719 145,044 54,476 27,337
% of Total
Assets 13.1% 10.5% 24.2% 27.3% 32.2% 12.1% 6.1%
Base Case Down 200 bp
---------------------
Cummulative
Gap ($'s) 129,289 119,540 139,310 144,385 150,817 56,053 27,337
% of Total
Assets 28.7% 26.6% 30.9% 32.1% 33.5% 12.4% 6.1%
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, 2006.
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 -46.4% -19.6% 0.00% 4.2% -9.6%
Return on average equity 4.03% 8.93% 12.38% 13.09% 10.76%
Return on average assets 0.27% 0.60% 0.84% 0.89% 0.71%
Market value of equity (in
thousands) $27,123 $31,958 $32,210 $23,003 $5,375
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,
2006.
Anticipated Transactions
--------------------------------------------------
(Dollars in Thousands)
Undisbursed construction and
land development loans
Fixed rate $ 5,199
6.85%
Adjustable rate $ 5,435
8.20%
Undisbursed lines of credit
Adjustable rate $ 8,120
7.65%
Loan origination commitments
Fixed rate $ 455
7.75%
Adjustable rate $ 159
8.00%
Letters of credit
Adjustable rate $ 815
8.76%
---------
$ 20,183
=========
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, 2006, the Savings Bank had ten performance
standby letters of credit outstanding totaling approximately $815 thousand. Four
letters of credit are secured by deposits with the Savings Bank, four letters of
credit are secured by undisbursed construction loan funds, and two letters of
credit are secured by developed property. Eight of the letters of credit will
mature within nine months, one will mature within fifteen months, and one letter
of credit is open-ended. 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 these contingent obligations.
ITEM 4.
CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial 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, 2006. Based on such evaluation,
our Chief Executive Officer and Chief Financial 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 quarter of fiscal 2006 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
22
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 1A. Risk Factors
------------
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) 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, 2006.
--------------------------------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------------------------------------------------------------------------
Total Number of Maximum Number of
Shares Purchased Shares that May Yet
Total Number as Part of Publicly Be Repurchased
of Shares Average Price Announced Plans or Under the Plans or
Period Purchased Paid per Share ($) Programs (1) Programs (2)
--------------------------------------------------------------------------------------------------------
01/01/06 - 01/31/06 7,779 16.17 7,779 100,122
--------------------------------------------------------------------------------------------------------
02/01/06 - 02/28/06 5,638 16.10 5,638 94,484
--------------------------------------------------------------------------------------------------------
03/01/06 - 03/31/06 1,200 16.18 1,200 93,284
--------------------------------------------------------------------------------------------------------
Total 14,617 16.15 14,617 93,284
--------------------------------------------------------------------------------------------------------
--------------------
(1) All shares indicated were purchased under the Company's Eighth
Stock Repurchase Program
(2) Eighth Stock Repurchase Program
(a) Announced September 27, 2005.
(b) 125,000 common shares approved for repurchase.
(c) No fixed date of expiration.
(d) This program has not expired and has 93,284 shares remaining to
be purchased at March 31, 2006.
(e) 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.
23
ITEM 6. Exhibits
--------
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 Executive E-1
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 Report of Independent Registered Public Accounting Firm E-5
24
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, 2006 BY: /s/ David J. Bursic
------------------------------------------------------
Date David J. Bursic
President and Chief Executive Officer
(Principal Executive Officer)
May 15, 2006 BY: /s/ Keith A. Simpson
------------------------------------------------------
Date Keith A. Simpson
Vice-President, Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
25