<PAGE>
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 SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-22444
WVS FINANCIAL CORP.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1710500
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9001 PERRY HIGHWAY
PITTSBURGH, PENNSYLVANIA 15237
------------------------------- -------------------
(Address of principal (Zip Code)
executive offices)
(412)364-1911
---------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. YES X NO
--- ---
Shares outstanding as of November 7, 1996: 1,736,960 shares Common
Stock, $.01 par value.
<PAGE>
WVS FINANCIAL CORP. AND SUBSIDIARY
----------------------------------
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
------- --------------------- ----
<C> <S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of September 30, 1996
and June 30, 1996 (Unaudited) 3
Consolidated Statements of Income
for the Three Months Ended
September 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
1996 and 1995 (Unaudited) 5
Consolidated Statements of Changes in
Stockholders' Equity for the Three Months
Ended September 30, 1996 (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 Months Ended
September 30, 1996 10
PART II. OTHER INFORMATION PAGE
-------- ----------------- ----
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
2
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WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- --------
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 541 $ 508
Interest-earning demand deposits 708 2,219
Investment securities available-for-sale
(amortized cost of $2,682 and $2,193) 2,471 1,981
Investment securities held-to-maturity
(market value of $65,084 and $56,671) 65,543 57,237
Mortgage-backed securities available-for-sale
(amortized cost of $20,698 and $22,775) 20,395 22,428
Mortgage-backed securities held-to-maturity
(market value of $19,579 and $19,733) 19,580 19,690
Federal Home Loan Bank stock, at cost 2,368 1,900
Net loans receivable 149,318 149,011
Accrued interest receivable 2,138 2,373
Real estate owned 26 ---
Premises and equipment 1,312 1,327
Deferred taxes and other assets 1,420 948
--------- ---------
TOTAL ASSETS $ 265,820 $ 259,622
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 5,685 $ 6,259
NOW accounts 13,830 14,252
Savings accounts 36,445 37,976
Money market accounts 11,698 11,682
Certificates of deposit 100,075 100,674
--------- ---------
Total savings deposits 167,733 170,843
Federal Home Loan Bank advances 47,357 38,000
Other borrowings 11,794 10,652
Advance payments by borrowers for taxes and insurance 1,262 3,772
Accrued interest payable 1,533 1,425
Other liabilities 1,891 892
--------- ---------
TOTAL LIABILITIES 231,570 225,584
--------- ---------
Stockholders' equity:
Preferred stock:
5,000,000 shares, no par value per share,
authorized; none outstanding --- ---
Common stock:
10,000,000 shares, $.01 par value per share, authorized;
1,736,960 and 1,736,760 shares issued and outstanding 17 17
Additional paid-in capital 16,971 16,947
Retained earnings, substantially restricted 18,949 18,861
Unallocated shares - Recognition and Retention Plans (784) (835)
Unallocated shares - Employee Stock Ownership Plan (564) (584)
--------- ---------
34,589 34,406
Unrealized loss on available-for-sale securities (339) (368)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 34,250 34,038
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 265,820 $ 259,622
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans $ 3,083 $ 2,849
Investment securities 1,210 1,273
Mortgage-backed securities 711 342
Interest-earning deposits with other institutions 28 26
Federal Home Loan Bank stock 33 20
------- -------
Total interest and dividend income 5,065 4,510
------- -------
INTEREST EXPENSE:
Deposits 1,773 1,871
Borrowings 747 316
Advance payments by borrowers for taxes and insurance 8 7
------- -------
Total interest expense 2,528 2,194
------- -------
NET INTEREST INCOME 2,537 2,316
PROVISION FOR LOAN LOSSES 30 37
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,507 2,279
------- -------
NON-INTEREST INCOME:
Service charges on deposits 48 49
Investment securities gains 26 ---
Other 36 31
------- -------
Total non-interest income 110 80
------- -------
NON-INTEREST EXPENSE:
Unusual item - shareholder litigation costs --- 1
Salaries and employee benefits 636 619
Occupancy and equipment 100 103
Deposit insurance premium 1,239 100
Data processing 42 43
Correspondent bank service charges 28 27
Other 158 138
------- -------
Total non-interest expense 2,203 1,031
------- -------
INCOME BEFORE INCOME TAXES 414 1,328
INCOME TAXES 164 553
------- -------
NET INCOME $ 250 $ 775
------- -------
------- -------
EARNINGS PER SHARE:
Primary $0.14 $0.45
Fully Diluted $0.14 $0.45
AVERAGE SHARES OUTSTANDING:
Primary 1,741,995 1,722,803
Fully Diluted 1,743,938 1,728,920
</TABLE>
See accompanying notes to consolidated financial statements.
4
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WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 250 $ 775
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for loan and real estate owned losses 30 37
Gain on sale of Real Estate Owned (8) ---
Gain on sale of mortgage-backed securities (26) ---
Depreciation and amortization, net 33 34
Amortization of discounts, premiums and deferred
loan fees 17 7
Amortization of ESOP, RRP and deferred and
unearned compensation 93 87
Decrease (increase) in accrued interest receivable 234 (338)
Increase in accrued interest payable 108 252
Decrease in accrued and deferred taxes (479) (105)
Other, net 991 (212)
------- --------
Net cash provided by operating activities 1,243 537
-------- --------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-
backed securities (490) (247)
Proceeds from repayments of investments
and mortgage-backed securities 432 ---
Proceeds from sale of investments and
mortgage-backed securities 1,665 ---
Held-to-maturity:
Purchases of investments and mortgage-
backed securities (18,183) (27,474)
Proceeds from repayments of investments
and mortgage-backed securities 10,033 18,871
Increase in net loans receivable (459) (2,142)
Sale of real estate owned 47 ---
Increase in FHLB stock (468) (147)
Purchases of premises and equipment (18) (1)
-------- --------
Net cash used for investing activities (7,441) (11,140)
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES
Net decrease in transaction and passbook accounts (2,511) (1,272)
Net (decrease) increase in certificates of deposit (598) 5,076
Net increase in borrowings 10,499 9,022
Net decrease in advance payments by borrowers
for taxes and insurance (2,510) (2,062)
Net proceeds from issuance of common stock 2 ---
Cash dividends paid (162) (97)
------- ------
Net cash provided by financing activities 4,720 10,667
------- ------
(Decrease) increase in cash and cash equivalents (1,478) 64
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD 2,727 4,218
------- ------
CASH AND CASH EQUIVALENTS AT END
OF THE PERIOD $ 1,249 $ 4,282
------- ------
------- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and
borrowings $ 2,420 $ 2,064
Income taxes 655 413
Noncash item:
Foreclosed mortgage loans transferred
to real estate owned 64 15
</TABLE>
See accompanying notes to consolidated financial statements.
6
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WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Retained
Additional Unallocated Unallocated Net Unrealized Earnings-
Common Paid-in Shares Held Shares Held Loss on Substantially
Stock Capital by ESOP by RRP Securities Restricted Total
------- ---------- ----------- ----------- -------------- ------------- -------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 $17 $16,947 $(584) $(835) $(368) $18,861 $34,038
Release of earned
Employee Stock Ownership
Plan (ESOP) shares 22 20 42
Accrued compensation
expense for Recognition
and Retention Plans (RRP) 51 51
Exercise of Stock Options 2 2
Change in unrealized
loss, net of income
taxes of $15 29 29
Cash dividends declared
($0.10 per share) (162) (162)
Net income 250 250
------- ---------- ----------- ----------- -------------- ------------- -------
Balance at
September 30, 1996 $17 $16,971 $(564) $(784) $(339) $18,949 $34,250
------- ---------- ----------- ----------- -------------- ------------- -------
------- ---------- ----------- ----------- -------------- ------------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
WVS FINANCIAL CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do
not include information or footnotes necessary for a complete presentation
of financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. However, all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation have been included. The
results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. EARNINGS PER SHARE
Primary earnings per share amounts are calculated based on the weighted
average number of shares actually outstanding, less average unearned ESOP
shares, plus the shares that would be outstanding assuming the exercise of
dilutive stock options which are considered to be common stock equivalents.
The number of shares that would be issued from the exercise of the stock
options has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the Company's
common stock. The number of shares used in the computation of primary
earnings per share totaled 1,741,995 for the three months ended September
30, 1996.
Fully diluted earnings per share amounts are calculated based on an
increased number of shares that would be outstanding assuming the exercise
of dilutive stock options. The number of additional shares that would be
issued from the exercise of the stock options has been reduced by the
number of shares that could have been purchased from the proceeds at the
end of period market price of the Company's common stock. The number of
shares used in the computation of fully diluted earnings per share totaled
1,743,938 for the three months ended September 30, 1996.
3. LITIGATION
A settlement was entered into during the fourth quarter of fiscal 1995 in
connection with the class action lawsuit filed by Jeffrey Carberry, ET.
AL., in the United States District Court for the Western District of
Pennsylvania against the Company and the Savings Bank. The lawsuit
alleged, among other things, antitrust and securities laws violations in
connection
8
<PAGE>
with the Savings Bank's mutual - to - stock conversion. The
Company entered into the settlement to, among other reasons, avoid the cost
of and disruption of the continuing litigation. During the quarter and
fiscal year ended June 30, 1995, the Company established a provision for
the settlement of litigation totaling $491,000. On January 16, 1996, the
Company received an executed Release of Claims (the "Release") in
connection with this lawsuit. The Release fully and finally discharged all
Defendants from all claims, causes of action and disputes of any kind that
the class members directly or indirectly had with respect to the
Plaintiff's claims. Also on January 16, 1996, the Company's insurance
carrier entered into a settlement with regard to coverage for claims and
costs of defense arising from the previously settled class action lawsuit.
The insurance carrier agreed to pay the Savings Bank, as designee of the
officers and directors, the sum of approximately $391,000 to reimburse the
Company and the Savings Bank for litigation defense and settlement costs
incurred or accrued through December 1, 1995. In addition, the insurance
carrier agreed to pay 50% of the amount of future defense costs and
expenses relating to the Carberry lawsuit that may arise after December 1,
1995, for a one year period beginning January 15, 1996.
On March 27, 1995, the United States District Court for the Western
District of Pennsylvania entered an Opinion and Orders dismissing in its
entirety a lawsuit brought by Plaintiff William S. Karn, who is a depositor
of the Savings Bank and a shareholder of the Company, which alleged, among
other things, antitrust and securities laws violations in connection with
the Savings Bank's mutual - to - stock conversion. The court also
dismissed this same Plaintiff's federal claims in a second and
substantially similar lawsuit while remanding to the Court of Common Pleas
of Allegheny County any cognizable state law claims. This Plaintiff has
filed Motion to Amend Judgment with the Court on the Opinion and Orders and
a Memorandum Response in Opposition has been filed. On August 28, 1995,
the Court denied the Plaintiff's motion to Amend Judgment.
The Company is involved with various other legal actions arising in the
ordinary course of business. Management believes the outcome of these
matters will have no material effect on the consolidated operations or
consolidated financial condition of WVS.
9
<PAGE>
WVS FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company
of West View Savings Bank ("West View" or the "Savings Bank"). The Company was
organized in July 1993 as a Pennsylvania-chartered unitary bank holding company
and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, SAIF-insured stock
savings bank conducting business from six offices in the North Hills suburbs of
Pittsburgh. Originally organized under Pennsylvania law in 1908 as West View
Building Loan Association, West View changed its name to West View Savings and
Loan Association in 1954. In June 1992, West View converted from a
Pennsylvania-chartered mutual savings and loan association to a
Pennsylvania-chartered mutual savings bank. The Savings Bank converted to the
stock form of ownership in November 1993. The Savings Bank had no subsidiaries
at June 30, 1996.
The operating results of the Company depend primarily upon its net interest
income, which is determined by the difference between income on interest-earning
assets, principally loans, mortgage-backed securities and investment securities,
and interest expense on interest-bearing liabilities, which consist primarily of
deposits. The Company's net income is also affected by its provision for loan
losses, as well as the level of its non-interest income, including loan fees and
service charges, and its non-interest expenses, such as compensation and
employee benefits, income taxes, deposit insurance and occupancy costs.
The Company's strategy focuses on traditional thrift lending, maintaining
asset quality and increasing core earnings.
FINANCIAL CONDITION
The Company's assets totaled $265.8 million at September 30, 1996 as
compared to $259.6 million at June 30, 1996. The $6.2 million or 2.4% increase
in total assets was accompanied by a $6.0 million increase in total liabilities
and a $212 thousand increase in stockholders' equity for the quarter ended
September 30, 1996. The growth in total assets of $6.2 million was primarily
comprised of a $6.7 million or 6.6% increase in investment and mortgage-backed
securities which
10
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was partially offset by a $235 thousand or 9.9% decrease in
accrued interest receivable. The Company's total liabilities increased $6.0
million or 2.7% to $231.6 million as of September 30, 1996 from $225.6 million
as of June 30, 1996. The $6.0 million increase in total liabilities was
primarily comprised of a $10.5 million or 21.6% increase in Federal Home Loan
Bank advances and other borrowings which was partially offset by a $3.1 million
or 1.8% decrease in deposits. Total stockholders' equity increased $212
thousand or 0.6% to $34.2 million as of September 30, 1996 from $34.0 million as
of June 30, 1996, primarily due to $250 thousand of Company net income for the
quarter ended September 30, 1996.
ASSET AND LIABILITY MANAGEMENT. The Company continued a strategy designed
to reduce the interest rate sensitivity of its financial assets to its financial
liabilities. The primary elements of this strategy include: (i) expanding the
Company's investment arbitrage program in order to enhance net interest income;
(ii) reducing the Company's level of short-term liquid investments by funding
loan commitments and purchasing longer-term investment securities; (iii)
emphasizing the retention of lower-cost savings accounts and other core
deposits; (iv) pricing the Company's certificates of deposit and loan products
nearer to the market average rate as opposed to the upper range of market
offered rates.
The Company has expanded its investment arbitrage program, originally
initiated in the third quarter of fiscal 1994, throughout fiscal 1997 in order
to realize additional net interest income. Under this strategy, a longer-term
callable or noncallable investment security, or mortgage-backed security, is
purchased and funded through the use of short-term non-deposit liabilities, such
as Federal Home Loan Bank ("FHLB") of Pittsburgh advances or other borrowings.
With this strategy, the Company increases its net interest margin, but also
faces the risk, during periods of rising market interest rates, such as has been
experienced during the second half of fiscal 1996 and the first quarter of
fiscal 1997, that it may experience a decline in net interest income if the rate
paid on its short-term borrowings rises above the rate earned on the investment
security purchased. In order to mitigate this exposure, the Board has placed
certain restrictions on the investment arbitrage program, including: (i) the
average outstanding daily balance of short-term borrowings, computed quarterly,
may not exceed approximately $75.0 million; (ii) suitable investments shall be
confined to those meeting the credit quality criteria outlined in the Company's
investment policy; and (iii) each security purchased shall initially yield a
minimum of seventy-five basis points above the incremental rate paid on
short-term borrowings, at the time of purchase.
The Company has continued to aggressively purchase bonds with optional
principal redemption features ("callable bonds") in order to capture
additional net interest income. Callable bonds generally provide investors
with higher rates of return than noncallable bonds because the issuer has the
option to redeem the bonds before maturity. While this strategy affords WVS
the current opportunity to improve its net interest income, during a period
of declining interest rates the
11
<PAGE>
Company would be exposed to the risk that the investment will
be redeemed prior to its final stated maturity. In order to mitigate this risk,
the Company has funded its purchases of callable bonds primarily with short-term
borrowings. During the quarter ended September 30, 1996, the Company purchased
approximately $9.6 million of callable bonds with an approximate weighted
average yield to call and maturity of 9.4% and 8.4%, respectively. In addition,
the Company sold approximately $1.7 million of adjustable rate mortgage-backed
securities with an approximate weighted average yield of 6.6% at a gain of $26
thousand.
The Company also makes available for origination residential mortgage
loans with interest rates which adjust pursuant to a designated index,
although customer acceptance has been somewhat limited in the Savings Bank's
market area. The Company will continue to offer land acquisition and
development and shorter-term construction loans, primarily on residential
properties, to partially increase its loan asset sensitivity.
During the quarter ended September 30, 1996, the Company lengthened the
maturity structure of a portion of its borrowings in order to lock in a
favorable cost of funds on a longer term basis. The Company borrowed
approximately $19.4 million from the FHLB as follows: $13.0 million of
convertible advances, with terms ranging from three years to five years, at a
weighted average rate of 5.88% and $6.4 million of various fixed rate advances
with terms ranging from eighteen to twenty-four months with a weighted average
rate of 6.08%. Convertible advances generally provide for a fixed rate of
interest for a portion of the term of the advance, an ability for the FHLB to
convert the advance from a fixed rate to an adjustable rate at some
predetermined time during the remaining term of advance (the "conversion"
feature), and a concurrent opportunity for the Company to prepay the advance
with no prepayment penalty in the event that the FHLB elects to exercise the
conversion feature.
As of September 30, 1996, the implementation of these asset and liability
management initiatives resulted in the following: (i) an aggregate of $47.6
million or 31.9% of the Company's net loan portfolio had adjustable interest
rates or maturities of less than 12 months; (ii) $18.7 million or 46.8% of the
Company's portfolio of mortgage-backed securities (including CMOs) were secured
by floating rate securities; (iii) $5.8 million or 8.5% of the Company's
investment securities portfolio had scheduled maturities of one year or less;
and (iv) $59.8 million or 87.9% of the Company's investment securities portfolio
was comprised of callable bonds.
The effect of interest rate changes on a financial institution's assets and
liabilities may be analyzed by examining the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
a given time period. A gap is considered positive when the amount of rate
sensitive assets exceeds the amount of rate sensitive liabilities. A gap is
considered negative when the amount of interest sensitive liabilities exceeds
the amount of interest sensitive assets. During a period of falling interest
rates, a positive gap would tend to adversely affect net interest income,
while a negative gap would tend to
12
<PAGE>
result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income, while a negative gap would tend to adversely affect net
interest income.
The Company's one year cumulative interest rate sensitivity gap amounted to
a negative 16.9% of total assets at September 30, 1996 as compared to a
negative 18.0% at June 30, 1996, in each instance, based on certain assumptions
by management with respect to the repricing of certain assets and liabilities.
At September 30, 1996, the Company's interest-earning assets maturing or
repricing within one year totaled $87.3 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$132.2 million, providing a deficiency of interest-earning assets over
interest-bearing liabilities of $44.9 million. At September 30, 1996, the
percentage of the Company's assets to liabilities maturing or repricing within
one year was 66.0%.
RESULTS OF OPERATIONS
GENERAL. WVS reported net income of $250 thousand, or $0.14 per share
(primary and fully diluted), for the three months ended September 30, 1996 as
compared to $775 thousand or $0.45 per share for the same period in 1995. Net
income decreased $525 thousand or 67.7% for the three months ended September 30,
1996 when compared to the same period in 1995. The decrease was primarily
attributable to $1.2 million increase in non-interest expense associated with a
$1.1 million one-time charge to recapitalize the Savings Association Insurance
Fund ("SAIF") as required by federal law, which more than offset a $389 thousand
increase in net interest income, a $221 thousand decrease in income tax expense,
and a $30 thousand increase in non-interest income which includes a $26 thousand
gain on the sale of investment securities. Excluding the one-time SAIF charge,
first quarter net income would have increased approximately 21.4% to $941
thousand or $0.54 per share on both a primary and fully diluted basis. The SAIF
recapitalization charge is expected to significantly reduce future FDIC
insurance costs.
NET INTEREST INCOME. The Company's net interest income increased by $221
thousand or 9.5% during the three months ended September 30, 1996, when compared
to the same period in 1995. The increase resulted from a $555 thousand or 12.3%
increase in total interest income which was partially offset by a $334 thousand
or 15.2% increase in total interest expense for the three months ended September
30, 1996, when compared to the same period in the prior year.
INTEREST INCOME. Interest on net loans receivable increased by $234
thousand or 8.2% for the three months ended September 30, 1996 when compared
with the same period in 1995. The increase was attributable to an increase of
$15.9 million in the average balance of loans receivable outstanding which more
than offset a decrease in the weighted average yield earned on loans receivable
of 26 basis points for the three months ended September 30, 1996 when compared
to the
13
<PAGE>
same period in 1995. The increase in the average loan balance
outstanding was attributable to higher levels of real estate and consumer loan
originations during the peak summer lending season.
Interest on mortgage-backed securities increased by $369 thousand or 107.9%
for the three months ended September 30, 1996 when compared with the same period
in 1995. The increase was attributable to an increase of $20.3 million in the
average balance of mortgage-backed securities outstanding and an increase in the
weighted average yield earned on mortgage-backed securities of 35 basis points
for the three months ended September 30, 1996 when compared to the same period
in 1995. The increase in the average balance of mortgage-backed securities
outstanding was due to purchases of both adjustable and fixed rate mortgage
pass-through securities and collateralized mortgage obligations under the
Company's investment arbitrage program. The increase in the weighted average
yield earned during the period was principally attributable to higher yields
earned on the adjustable rate portion of the mortgage-backed securities
portfolio that repriced to higher market-based interest rates, and, to a lesser
extent, lower levels of premium amortization due to slower rates of principal
repayment, when compared to the same period in 1995.
Interest and dividend income on interest-bearing deposits with other
institutions, investment securities and Federal Home Loan Bank stock ("other
investment securities") decreased $48 thousand or 3.6% for the three months
ended September 30, 1996 when compared to the same period in 1995. The decrease
was attributable to a decrease of $3.0 million in the average balance of other
investment securities outstanding which more than offset an increase in the
weighted average yield earned on other investment securities of 3 basis points
for the three months ended September 30, 1996 when compared to the same period
in 1995. The decrease in the average balance of other investment securities was
principally attributable to funding the Company's net loan organizations.
INTEREST EXPENSE. Interest expense on deposits and escrows decreased by
$97 thousand or 5.2% for the three months ended September 30, 1996 when compared
with the same period in 1995. The decrease was principally attributable to a
decrease in the weighted average yield paid of 16 basis points and a decrease of
$2.9 million in the average balance of deposits and escrows outstanding for the
three months ended September 30, 1996 when compared to the same period in 1995.
The average yield paid on deposits decreased due to lower rates paid on
checking, money market and time deposits.
Interest expense on FHLB advances and other borrowings increased by $431
thousand or 136.4% for the three months ended September 30, 1996 when compared
to the same period in 1995. The increase was primarily attributable to a $33.3
million or 145.4% increase in the average balance of such borrowings
outstanding. The increased amount of borrowings outstanding was used to fund
Company's investment arbitrage program.
PROVISION FOR LOAN LOSSES. A provision for loan losses is charged to
earnings to maintain the total allowance at a level considered adequate by
management to absorb potential losses in the
14
<PAGE>
portfolio. Management's determination of the adequacy of the allowance is
based on an evaluation of the portfolio, past loan loss experience, current
economic conditions, volume, growth and composition of the loan portfolio,
and other relevant factors.
The Company established a provision for possible losses on loans of $30
thousand for the three months ended September 30, 1996 as compared to $37
thousand for the comparable 1995 period. As a result of the provision during
the three months ended September 30, 1996, the Company's total allowance for
loan losses at September 30, 1996 amounted to $2.0 million or 1.19% of the
Company's total loan portfolio, as compared to $1.964 million or 1.17% at June
30, 1996.
NON-INTEREST INCOME. Total non-interest income increased $30 thousand or
37.5% during the three months ended September 30, 1996 when compared to the same
period in 1995, primarily due to a $26 thousand gain from the sale of
securities.
NON-INTEREST EXPENSE. Total non-interest expense increased $1.2 million or
113.7% during the three months ended September 30, 1996 when compared to the
same period in 1995.
Federal deposit insurance premiums increased $1.1 million during the
quarter ended September 30, 1996 when compared to the same period in 1995. The
increase was attributable to a $1.1 million one-time charge to recapitalize the
SAIF as required by federal law.
Compensation and employee benefits increased $17 thousand or 2.7% during
the quarter ended September 30, 1996 when compared to the same period in 1995.
The increase was primarily attributable to a $16 thousand increase relating to
employee compensation adjustments.
Other non-interest expense (e.g. director's compensation expense,
advertising, provision for loss on real estate owned, legal expense, transfer
agent expense, etc.) increased $20 thousand or 14.5% during the quarter ended
September 30, 1996 when compared to the same period in 1995. The increase was
primarily due to a $7 thousand increase in checking account promotion and
automated teller machine network expenses.
INCOME TAX EXPENSE. Income tax expense decreased by $389 thousand or 70.3%
during the three months ended September 30, 1996, when compared to the same
period in 1995. The decrease in income tax expense is primarily attributable to
a $914 thousand or 68.8% decrease in income before taxes.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1.2 million during the
three months ended September 30, 1996. Net cash provided by operating
activities was primarily comprised of a $1.1 million increase in accrued Savings
Association Insurance Fund (SAIF) premiums associated with the special SAIF
insurance assessment discussed herein and $250 thousand of net income.
Funds used for investing activities totaled $7.4 million during the three
months ended September 30, 1996. Primary uses of funds during the three months
ended September 30, 1996 include $9.2 million used for net purchases of
investment securities and FHLB stock, and a $453 thousand increase in net loans
receivable partially offset by $2.2 million of principal repayments of
mortgage-backed securities.
Funds provided by financing activities totaled $4.7 million for the three
months ended September 30, 1996. Primary sources of funding include a $10.5
million increase in Federal Home Loan Bank advances and other borrowings used to
fund loan commitments and investment security purchases partially offset by a
$3.1 million decrease in deposits and a $2.5 million decrease in advance
payments by borrowers for taxes and insurance. Financial institutions
generally, including the Company, have experienced a certain degree of depositor
disintermediation to other investment alternatives. Management believes that
the degree of disintermediation experienced by the Company has not had a
material impact on overall liquidity. As of September 30, 1996, $67.7 million
or 40.4% of the Company's total deposits consisted of core deposits. Management
has determined that it currently is maintaining adequate liquidity and is
seeking to better match funding sources with lending and investment
opportunities.
The Company's primary sources of funds are deposits, amortization,
prepayments and maturities of existing loans, mortgage-backed securities and
investment securities, funds from operations, and funds obtained through
short-term borrowings. At September 30, 1996, the total approved loan
commitments outstanding amounted to $1.3 million. At the same date commitments
under unused lines of credit amounted to $6.0 million and the unadvanced portion
of construction loans approximated $16.6 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 1996 totaled $58.2
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 has established a $12.0 million line of credit with the
FHLB, which is scheduled to mature on March 25, 1997 and subject to various
conditions, including the pledging and delivery of acceptable collateral. The
primary purpose of the line of credit is to serve as a back-up liquidity
16
<PAGE>
facility for the Company, however, the Company may from time to time utilize the
line of credit to purchase investment securities and fund other commitments. In
addition, the Company has access to the Federal Reserve Bank discount window.
Management believes that the Company currently has adequate liquidity available
to respond to liquidity demands.
On October 29, 1996 the Company's Board of Directors declared a cash
dividend of $0.20 per share payable November 25, 1996 to shareholders of
record at the close of business on November 11, 1996. Dividends will be subject
to determination and declaration by the Board of Directors, which will take into
account the Company's financial condition, statutory and regulatory
restrictions, general economic conditions and other factors. There can be no
assurance that dividends will in fact be paid on the Common Stock or that, if
paid, such dividends will not be reduced or eliminated in future periods.
As of September 30, 1996, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$34.6 million or 27.0% and $36.2 million or 28.3%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $34.6 million or 13.0% of
average quarterly assets.
Effective July 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure". SFAS No. 114
provides guidelines for measuring impairment losses on loans. A loan is
considered impaired when, based upon current information and events, it is
possible that the Company will be unable to collect all principal and interest
amounts due according to the contractual terms of a loan agreement. SFAS No.
118 amends SFAS No. 114 to permit a creditor to use existing methods for
recognizing interest income on impaired loans. At September 30, 1996, impaired
loans totaled $876 thousand of which $274 thousand was considered nonaccrual.
Approximately $131 thousand of the related allowance for loan losses has been
allocated to the impaired loans. The average recorded investment in impaired
loans during the three months ended September 30, 1996 was approximately $876
thousand. For the three months ended September 30, 1996, interest income
totaling $17 thousand was recognized on impaired loans on both the accrual and
cash basis of income recognition.
Nonperforming assets consist of nonaccrual loans and real estate owned. A
loan is placed on nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed insufficient to warrant further
accrual. When a loan is placed on nonaccrual status, previously accrued but
uncollected interest is deducted from interest income. The Company normally
does not accrue interest on loans past due 90 days or more, however, interest
may be accrued if management believes that it will collect on the loan.
The Company's nonperforming assets at September 30, 1996 totaled
approximately $367 thousand or 0.14% of total assets as compared to $377
thousand or 0.15% of total assets as of June 30, 1996. Nonperforming assets at
September 30, 1996 consisted of $274 thousand in commercial
17
<PAGE>
real estate loans, $66 thousand in single-family loans, and $27 thousand in
other real estate owned. Approximately $3 thousand of additional interest
income would have been recorded during the three months ended September 30,
1996, if the Company's nonaccrual and restructured loans had been current in
accordance with their original loan terms and outstanding throughout the
quarter year ended September 30, 1996.
On September 30, 1996 the President signed the Deposit Insurance Funds Act
of 1996 (the "Funds Act") into law. The Funds Act calls for a Special
Assessment on SAIF-assessable deposits as of March 31, 1995 to capitalize the
SAIF to its designated reserve ratio of 1.25%. The Company recorded a pre-tax
charge of approximately $1.1 million during the quarter ended September 30, 1996
using an FDIC estimated assessment rate of $.657 for every $100 of assessable
deposits. On or about November 13, 1996 the FDIC will determine any final SAIF
Special Assessment rate change, if any, with payment due on November 27, 1996.
The Company intends to fund its Special Assessment obligation in the normal
course of business.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion contained in Note 3 of Notes to Unaudited Consolidated
Financial Statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders was held on October 29, 1996.
(b) Not applicable.
(c) Two matters were voted upon at the annual
stockholder meeting held on October 29, 1996: Item 1:
Proposal to elect two directors for a four-year term or
until their successors are elected and qualified; Item 2:
Proposal to ratify the appointment by the Board of
Directors of S. R. Snodgrass, A.C. as the Company's
independent auditors for the fiscal year ending June 30,
1997.
Each of the two proposals received stockholder approval. The
voting record with respect to each item voted upon is
enumerated below:
<TABLE>
<CAPTION>
Item Nominee
Number (If Applicable) FOR AGAINST ABSTAIN
------ --------------- --------- ------- -------
<S> <C> <C>
1 Donald E. Hook 1,482,563 3,327 0
Robert C. Sinewe 1,482,463 3,427 0
2 Election of Auditors 1,479,597 3,190 3,103
</TABLE>
There were no broker non-votes cast with respect to any matter voted
upon.
(d) Not applicable.
19
<PAGE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this form 10-Q, and
this list includes the Exhibit Index.
Number Description Page
------ ----------- ----
11 Statement re E-1
computation of
per share earnings
(b) Not applicable.
20
<PAGE>
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.
November 7, 1996 BY: /s/Robert C. Sinewe
- ---------------- --------------------
Date Robert C. Sinewe
President and Chief
Executive Officer
November 7, 1996 BY: /s/David J. Bursic
- ----------------- --------------------
Date David J. Bursic
Vice President, Treasurer
and Chief Financial Officer
21
<PAGE>
Exhibit 11
WVS Financial Corp.
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Weighted average common shares outstanding 1,736,830 1,736,400
Average unearned ESOP shares (57,677) (65,726)
Common stock equivalents:
stock options 62,842 52,129
--------- ---------
Weighted average common shares and
common stock equivalents used to
calculate primary earnings per share 1,741,995 1,722,803
Additional common stock equivalents:
stock options used to calculate
fully diluted earnings per share 1,943 6,117
--------- ---------
Weighted average common shares and
common stock equivalents used to
calculate fully diluted earnings per share 1,743,938 1,728,920
--------- ---------
--------- ---------
Net Income $ 250,258 $ 775,166
--------- ---------
--------- ---------
Earnings per share:
Primary $0.14 $0.45
Fully diluted $0.14 $0.45
</TABLE>
E-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION, INCOME, CHANGES IN STOCKHOLDERS' EQUITY AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AT, OR FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 541
<INT-BEARING-DEPOSITS> 708
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,866
<INVESTMENTS-CARRYING> 87,491
<INVESTMENTS-MARKET> 87,031
<LOANS> 149,318
<ALLOWANCE> 1,977
<TOTAL-ASSETS> 265,820
<DEPOSITS> 168,995
<SHORT-TERM> 39,794
<LIABILITIES-OTHER> 3,424
<LONG-TERM> 19,357
0
0
<COMMON> 17
<OTHER-SE> 34,233
<TOTAL-LIABILITIES-AND-EQUITY> 265,820
<INTEREST-LOAN> 3,083
<INTEREST-INVEST> 1,954
<INTEREST-OTHER> 28
<INTEREST-TOTAL> 5,065
<INTEREST-DEPOSIT> 1,781
<INTEREST-EXPENSE> 2,528
<INTEREST-INCOME-NET> 2,537
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 2,203
<INCOME-PRETAX> 414
<INCOME-PRE-EXTRAORDINARY> 414
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 3.85
<LOANS-NON> 340
<LOANS-PAST> 36
<LOANS-TROUBLED> 602
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,964
<CHARGE-OFFS> 18
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,977
<ALLOWANCE-DOMESTIC> 1,033
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 944
</TABLE>
