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 December 31, 1998
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 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 February 9, 1999 : 3,365,648 shares Common
Stock, $.01 par value.
<PAGE>
WVS FINANCIAL CORP. AND SUBSIDIARY
INDEX
PART I. Financial Information
- ------- ---------------------
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of December 31, 1998
and June 30, 1998 (Unaudited)
Consolidated Statements of Income
for the Three and Six Months Ended
December 31, 1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
1998 and 1997 (Unaudited)
Consolidated Statements of Changes in
Stockholders' Equity for the Six Months
Ended December 31, 1998 (Unaudited)
Notes to Unaudited Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Six Months
Ended December 31, 1998
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
PART II. Other Information
- -------- -----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(in thousands)
December 31, 1998 June 30, 1998
----------------- -------------
<S> <C> <C>
Assets
Cash and due from banks $ 843 $ 699
Interest-earning demand deposits 4,075 1,807
Investment securities available-for-sale (amortized cost of
$14,212 and $17,481) 14,268 17,519
Investment securities held-to-maturity (market value of
$56,889 and $63,996) 56,927 63,749
Mortgage-backed securities available-for-sale (amortized cost of
$12,842 and $18,842) 13,023 19,041
Mortgage-backed securities held-to-maturity (market value of
$68,061 and $27,777) 67,586 27,273
Federal Home Loan Bank stock, at cost 6,195 4,675
Net loans receivable 152,537 157,737
Accrued interest receivable 2,527 2,414
Real estate owned -- --
Premises and equipment 1,165 1,179
Deferred taxes and other assets 1,238 961
--------- ---------
TOTAL ASSETS $ 320,384 $ 297,054
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Savings Deposits:
Non-interest-bearing accounts $ 8,654 $ 7,528
NOW accounts 16,930 15,347
Savings accounts 36,245 37,966
Money market accounts 11,871 13,259
Certificates of deposit 95,088 93,570
--------- ---------
Total savings deposits 168,788 167,670
Federal Home Loan Bank advances 101,500 88,857
Other borrowings 12,150 889
Advance payments by borrowers for taxes and insurance 2,060 3,312
Accrued interest payable 1,845 1,874
Other liabilities 1,450 1,474
--------- ---------
TOTAL LIABILITIES 287,793 264,076
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(in thousands)
(continued)
December 31, 1998 June 30, 1998
----------------- -------------
<S> <C> <C>
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;
3,663,600 and 3,617,120 shares issued, respectively, and
3,539,746 and 3,617,120 outstanding, respectively 37 36
Additional paid-in capital 18,958 18,386
Treasury stock: 123,854 shares at cost (1,893) --
Retained earnings, substantially restricted 15,985 15,143
Unallocated shares - Recognition and Retention Plans (380) (432)
Unallocated shares - Employee Stock Ownership Plan (272) (312)
--------- ---------
32,435 32,821
Unrealized gain (loss) on available-for-sale securities 156 157
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 32,591 32,978
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 320,384 $ 297,054
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans $ 3,189 $ 3,300 $ 6,378 $ 6,565
Investment securities 1,339 1,482 2,820 3,050
Mortgage-backed securities 1,069 623 1,857 1,265
Interest-earning deposits with other
institutions 16 21 32 35
Federal Home Loan Bank stock 97 58 178 119
------------ ----------- ----------- -----------
Total interest and dividend income 5,710 5,484 11,265 11,034
------------ ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 1,662 1,751 3,351 3,535
Borrowings 1,544 1,179 2,886 2,357
Advance payments by borrowers for
taxes and insurance 7 9 15 16
------------ ----------- ----------- -----------
Total interest expense 3,213 2,939 6,252 5,908
------------ ----------- ----------- -----------
NET INTEREST INCOME 2,497 2,545 5,013 5,126
PROVISION FOR LOAN LOSSES -- (120) -- (120)
------------ ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,497 2,665 5,013 5,246
------------ ----------- ----------- -----------
NON-INTEREST INCOME:
Service charges on deposits 75 58 137 110
Investment securities gains, net 36 -- 36 --
Other 51 48 91 86
------------ ----------- ----------- -----------
Total non-interest income 162 106 264 196
------------ ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
NON-INTEREST EXPENSE:
Salaries and employee benefits 717 913 1,408 1,670
Occupancy and equipment 90 104 184 207
Deposit insurance premium 25 28 51 55
Data processing 42 42 88 84
Correspondent bank service charges 32 29 61 60
Other 207 200 382 366
------------ ----------- ----------- -----------
Total non-interest expense 1,113 1,316 2,174 2,442
------------ ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,546 1,455 3,103 3,000
INCOME TAXES 563 459 1,170 1,069
------------ ----------- ----------- -----------
NET INCOME $ 983 $ 996 $ 1,933 $ 1,931
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.28 $ 0.29 $ 0.54 $ 0.57
Diluted $ 0.28 $ 0.28 $ 0.54 $ 0.55
AVERAGE SHARES OUTSTANDING:
Basic 3,514,727 3,419,243 3,548,647 3,413,442
Diluted 3,545,577 3,548,146 3,579,898 3,539,809
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,933 $ 1,931
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for loan and real estate owned losses -- (120)
Gain on sale of investments and mortgage-backed securities (36) --
Depreciation and amortization, net 59 67
Amortization of discounts, premiums and deferred loan fees (6) (29)
Amortization of ESOP, RRP and deferred and unearned
compensation 175 429
(Increase) decrease in accrued interest receivable (113) 360
(Decrease) increase in accrued interest payable (28) 154
Increase in accrued and deferred taxes (141) (119)
Other, net 110 290
--------- ---------
Net cash provided by operating activities 1,953 2,963
--------- ---------
INVESTING ACTIVITIES
Available-for-sale:
Purchases of investments and mortgage-backed securities (26,908) (11,680)
Proceeds from repayments of investments and mortgage-backed
securities 35,235 4,707
Proceeds from sale of investments and mortgage-backed securities 905 2,192
Held-to-maturity:
Purchases of investments and mortgage-backed securities (116,596) (47,620)
Proceeds from repayments of investments and mortgage-backed
securities 83,317 57,052
Decrease (increase) in net loans receivable 5,066 (2,842)
Sale of Real Estate Owned -- --
(Increase) decrease in FHLB stock (1,520) 55
Purchases of premises and equipment (45) (7)
--------- ---------
Net cash (used for) provided by investing activities (20,546) 1,857
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
FINANCING ACTIVITIES
Net (decrease) increase in transaction and passbook accounts (400) 499
Net increase (decrease) in certificates of deposit 1,518 (4,246)
Net increase (decrease) in FHLB borrowings 12,643 (425)
Net increase in other borrowings 11,260 388
Net decrease in advance payments by borrowers for taxes and
insurance (1,251) (1,297)
Net proceeds from issuance of common stock 232 63
Funds used for purchase of treasury stock (1,893) --
Cash dividends paid (1,104) (839)
-------- --------
Net cash provided by (used for) financing activities 21,005 (5,857)
-------- --------
Increase (decrease) in cash and cash equivalents 2,412 (1,037)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,506 2,570
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,918 $ 1,533
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits, escrows and borrowings $ 6,281 $ 5,752
Income taxes $ 1,368 $ 1,181
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Accum.
Unallocated Other Retained
Additional Unallocated Shares Compre- Earnings-
Common Paid-In Treasury Shares Held Held by hensive Substantially
Stock Capital Stock by ESOP RRP Income Restricted Total
----- ------- ----- ------- --- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 $ 36 $18,386 $ --- $ (312) $ (432) $ 157 $15,143 $32,978
Comprehensive income:
Net Income 1,933 1,933
Other comprehensive
income:
Change in unrealized
holding gains on
securities (1) (1)
-------
Comprehensive income 1,932
Purchase of shares for
treasury stock (1,893) (1,893)
Release of earned
Employee Stock
Ownership Plan (ESOP)
shares 84 40 124
Accrued compensation
expense for Recognition
And Retention Plans
(RRP) 52 52
Exercise of stock options 1 231 232
Tax benefit from exercise
of stock options 257 257
Cash dividends declared
($0.32 per share) (1,091) (1,091)
------ ------- -------- ----------- ---------- -------- ------- -------
Balance at December 31,
1998 $ 37 $18,958 $ (1,893) $ (272) $ (380) $ 156 $15,985 $32,591
====== ======= ======== =========== ========== ======== ======= =======
Components of
comprehensive income:
Change in net unrealized
gain on investment
securities held for sale (13)
Realized losses included
in net income, net of tax 12
--------
Total (1)
========
</TABLE>
See accompanying notes to consolidated financial statements.
<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 and six months ended December 31, 1998, are
not necessarily indicative of the results which may be expected for the
entire fiscal year.
<PAGE>
2. EARNINGS PER SHARE
------------------
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 3,663,204 3,496,574 3,660,162 3,496,013
Average treasury stock
shares (91,465) -- (52,482) --
Average unearned ESOP
shares (57,012) (77,331) (59,033) (82,571)
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents used to
calculate basic earnings per
share 3,514,727 3,419,243 3,548,647 3,413,442
Additional common stock
equivalents (stock options)
used to calculate
diluted earnings per share 30,850 128,903 31,251 126,367
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents used to calculate
diluted earnings per share 3,545,577 3,548,146 3,579,898 3,539,809
=========== =========== =========== ===========
Net income $ 983,321 $ 996,073 $ 1,933,443 $ 1,930,764
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.28 $ 0.29 $ 0.54 $ 0.57
Diluted $ 0.28 $ 0.28 $ 0.54 $ 0.55
=========== =========== =========== ===========
</TABLE>
<PAGE>
3. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". Statement No. 130 is effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for
reporting and presentation of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. It requires that all items are required to be
recognized under accounting standards as components of comprehensive
income to be reported in a financial statement that is presented with
the same prominence as other financial statements. Statement No. 130
requires that companies (1) classify items of other comprehensive
income by their nature in a financial statement and (2) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of the statement of financial condition. Reclassification of financial
statements for earlier periods provided for comprehensive purposes is
required.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement provides accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring the
recognition of those items as assets or liabilities in the statement of
financial position, recorded at fair value. Statement No. 133 precludes
a held-to-maturity security from being designated as a hedged item,
however, at the date of initial application of this statement, an
entity is permitted to transfer any held-to-maturity security into the
available-for-sale or trading categories. The unrealized holding gain
or loss on such transferred securities shall be reported consistent
with the requirements of Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Such transfers do not raise
an issue regarding an entity's intent to hold other debt securities to
maturity in the future. This statement applies prospectively for all
fiscal quarters of all years beginning after June 15, 1999. Earlier
adoption is permitted for any fiscal quarter that begins after the
issue date of this statement.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998
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 December 31, 1998.
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 consists primarily of deposits and borrowings. The Company's net income is
also affected by its provision for loan losses, as well as the level of its
non-interest income, including loan fees and service charges, and its
non-interest expenses, such as compensation and employee benefits, income taxes,
deposit insurance and occupancy costs.
The Company's strategy focuses on traditional thrift lending,
maintaining asset quality and increasing core earnings.
FINANCIAL CONDITION
The Company's assets totaled $320.4 million at December 31, 1998, as
compared to $297.1 million at June 30, 1998. The $23.3 million or 7.9% increase
in total assets was primarily comprised of a $24.2 million or 19.0% increase in
investment and mortgage-backed securities, including Federal Home Loan Bank
("FHLB") stock and a $2.3 million increase in interest-earning demand deposits,
which were partially offset by a $5.2 million or 3.3% decrease in net loans
receivable. The Company's investment securities decreased from $85.9 million to
$77.4 million while mortgage-backed securities increased from $46.3 million to
$80.6 million from June 30 to December 31, 1998. These changes were primarily
attributable to higher interest yields on mortgage-backed securities over other
investment securities. The Company's loans receivable decreased from $157.7
million at June 30, 1998, to $152.5 million at December 31, 1998. The $5.2
million decrease was primarily due to lower levels of loan originations and
increased volumes of refinancings as a result of lower market interest rates on
loans.
<PAGE>
The Company's total liabilities increased $23.7 million or 8.9% to
$287.8 million as of December 31, 1998, from $264.1 million as of June 30, 1998.
The $23.7 million increase in total liabilities was primarily comprised of a
$23.9 million increase in Federal Home Loan Bank advances and other borrowings
and a $1.1 million or 0.7% increase in deposits which were partially offset by a
$1.3 million decrease in advance payments by borrowers for taxes and insurance.
The Savings Bank's interest-bearing deposits increased from $167.7 million at
June 30, 1998, to $168.8 million at December 31, 1998. FHLB advances and other
borrowings increased from $89.7 million at June 30, 1998, to $113.6 million at
December 31, 1998, primarily as a result of the Company's investment growth
program.
Total stockholders' equity decreased $387 thousand or 1.2% to $32.6
million as of December 31, 1998, from $33.0 million as of June 30, 1998,
primarily due to $1.1 million in cash dividends declared on the Company's common
stock which was partially offset by proceeds from stock option exercises and
ESOP plan share releases. Company net income of $1.9 million was used to fund
common stock repurchases of approximately $1.9 million.
ASSET AND LIABILITY MANAGEMENT. The Company continued a strategy
designed to better match the interest rate sensitivity of its financial assets
to its financial liabilities. The primary elements of this strategy include: (1)
expanding the Company's investment growth program in order to enhance net
interest income; (2) maintaining the Company's level of short-term liquid
investments by funding loan commitments and purchasing longer-term investment
securities; (3) emphasizing the retention of lower-cost savings accounts and
other core deposits; and (4) 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 continued its investment growth program, originally
initiated in the third quarter of fiscal 1994, 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 FHLB advances and
short-term borrowings. With this strategy, the Company increases its net
interest income, but also faces the risk, during periods of rising market
interest rates, that it may experience a decline in net interest income if the
rate paid on its various 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 growth program, including: (1) the
average outstanding daily balance of total borrowings, computed quarterly, may
not exceed approximately $125.0 million; (2) suitable investments shall be
restricted to those meeting the credit quality criteria outlined in the
Company's investment policy; (3) 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 and (4) the Company's total
borrowed funds position may not exceed $150.0 million. In most cases, the
initial yield spread earned on investment security purchases exceeded
approximately one hundred and thirty basis points.
During the six months ended December 31, 1998, the Company increased
its mortgage-backed securities holdings by $34.3 million. At December 31, 1998,
the Company held $80.1 million of mortgage-backed securities with an approximate
yield of 6.71%. The mortgage-backed securities purchases were made in order to
mitigate the principal calls on the Company's callable bond portfolio and earn a
higher yield with an expected average life profile comparable to longer-term
callable agency bonds.
<PAGE>
During the three months ended December 31, 1998, the Company increased
its fixed-rate mortgage-backed securities portfolio by $32.7 million or 107.6%.
Mortgage-backed securities purchases during the quarter ended December 31, 1998,
totaled approximately $40.6 million with an estimated weighted average purchase
yield of 6.48% and an estimated weighted average life of approximately 3.5
years. The Company believes that the mortgage-backed securities sector provided
the best relative value, as compared to other investment alternatives, due to
the high degree of interest rate volatility during the quarter. Yields on the
Company's mortgage-backed security purchases generally exceeded yields on
comparable mortgage products in the local market area with shorter projected
average lives and durations.
During the six months ended December 31, 1998, the Company increased
its commercial paper holdings by $10.4 million. At December 31, 1998, the
Company held $12.8 million of commercial paper with an approximate yield of
6.2%. The commercial paper purchases were made in order to capitalize on
seasonally high calendar year end commercial paper rates and for liquidity
management.
During the six months ended December 31, 1998, the Company borrowed
approximately $62.4 million in various short-term borrowings from the FHLB with
a weighted average rate of 5.14% and incurred $49.1 million in other borrowings
with a weighted average rate of 5.22%. During the six months ended December 31,
1998, the Company repaid $49.8 million of FHLB advances and $37.9 million of
other borrowings. Due to a decline in market interest rates during the six
months ended December 31, 1998, the Company shortened the maturity structure of
its incremental borrowings to reduce its cost of funds and to better match the
maturities of its borrowings with the possible early repayment of a portion of
its investment portfolio.
The Company also makes available for origination residential mortgage
loans with interest rates which adjust pursuant to a designated index, although
customer acceptance has been somewhat limited in the Savings Bank's market area.
The Company will continue to selectively offer commercial real estate, land
acquisition and development and shorter-term construction loans, primarily on
residential properties, to partially increase its loan asset sensitivity. Due to
relatively low fifteen and thirty year mortgage loan yields, the Company intends
to emphasize higher yielding home equity and small business loans to existing
customers and seasoned prospective customers.
As of December 31, 1998, the implementation of these asset and
liability management initiatives resulted in the following: (1) an aggregate of
$50.8 million or 33.3% of the Company's net loan portfolio had adjustable
interest rates or maturities of less than 12 months; (2) $17.3 million or 21.4%
of the Company's portfolio of mortgage-backed securities (including
collateralized mortgage obligations - "CMOs") were secured by floating rate
securities; (3) $13.1 million or 18.4% of the Company's investment securities
portfolio had scheduled maturities of one year or less; and (4) $58.0 million or
81.9% 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 "interest rate sensitivity" of
the assets and liabilities and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is 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
<PAGE>
amount of rate sensitive liabilities. A gap is considered negative when the
amount of interest sensitive liabilities exceeds the amount of interest
sensitive assets. During a period of falling interest rates, a positive gap
would tend to adversely affect net interest income, while a negative gap would
tend to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income, while a negative gap would tend to adversely affect net
interest income.
The Company's one year cumulative interest rate sensitivity gap is
estimated at a positive 0.7% of total assets at December 31, 1998, as compared
to a negative 13.3% at June 30, 1998, in each instance, based on certain
assumptions by management with respect to the repricing of certain assets and
liabilities. At December 31, 1998, the Company's interest-earning assets
maturing or repricing within one year totaled $127.1 million while the Company's
interest-bearing liabilities maturing or repricing within one year totaled
$124.7 million, providing an excess of interest-earning assets over
interest-bearing liabilities of $2.4 million. At December 31, 1998, the
percentage of the Company's assets to liabilities maturing or repricing within
one year was 1.02%.
RESULTS OF OPERATIONS
General. WVS reported net income of $983 thousand and $1.9 million for
the three and six months ended December 31, 1998. Net income decreased by $13
thousand or 1.3% for the three months ended December 31, 1998, when compared to
the same period in 1997. The decrease was primarily attributable to the absence
of a $120 thousand recovery in the provision for loan losses due to the payoff
of a commercial loan participation in the quarter ended December 31, 1997, a
$104 thousand increase in income tax expense and a $48 thousand decrease in net
interest income, which was partially offset by a $203 thousand decrease in
non-interest expense and a $56 thousand increase in non-interest income. Net
income increased by $2 thousand or 0.1% for the six months ended December 31,
1998, when compared to the same period in 1997. The $2 thousand or 0.1% increase
in net income was principally the result of the absence of a $120 thousand
recovery in the provision for loan losses due to the payoff of a commercial loan
participation in December 1997, a $113 thousand decrease in net interest income,
and a $101 thousand increase in income tax expense which partially offset a $264
thousand decrease in non-interest expense and a $72 thousand increase in
non-interest income. The decrease in non-interest expense for the six months
ended December 31, 1998, was primarily attributable to reduced discretionary
Employee Stock Ownership Plan ("ESOP") contributions and lower Recognition and
Retention Plan ("RRP") expenses. The $72 thousand increase in non-interest
income for the six months ended December 31, 1998, was principally due to a $27
thousand increase in service charges on deposits and a $36 thousand net gain on
the sale of investment securities. The $113 thousand decrease in net interest
income was primarily attributable to lower yields on interest-earning assets due
to sharply reduced long-term market interest rates and a less than proportional
reduction in short-term rates paid on borrowings.
<PAGE>
Net Interest Income. The Company's net interest income decreased by
$48 thousand or 1.9% for the three months ended December 31, 1998, when compared
to the same period in 1997. The decrease resulted from a $226 thousand or 4.1%
increase in interest income which was offset by a $274 thousand or 9.3% increase
in interest expense. For the six months ended December 31, 1998, net interest
income decreased by $113 thousand or 2.2%, when compared to the same period in
1997. The decrease resulted from a $231 thousand or 2.1% increase in interest
income which was offset by a $344 thousand or 5.8% increase in interest expense.
Interest Income. Interest on mortgage-backed securities increased by
$446 thousand or 71.6% for the three months ended December 31, 1998, when
compared to the same period in 1997. The increase was attributable to a $31.2
million increase in the average balance of mortgage-backed securities
outstanding, partially offset by a 53 basis point decrease in the weighted
average yield earned on mortgage-backed securities for the three months ended
December 31, 1998, when compared to the same period in 1997. Interest on
mortgage-backed securities increased $592 thousand or 46.8% for the six months
ended December 31, 1998. The increase was primarily attributable to a $20.8
million increase in the average balance of mortgage-backed securities
outstanding partially offset by a 45 basis point decrease in the weighted
average yield earned on mortgage-backed securities for the six months ended
December 31, 1998, when compared to the same period in 1997. During the quarter
ended December 31, 1998, the Company increased its mortgage-backed securities
portfolio to capitalize on attractive sector yield levels in comparison to other
investment securities.
Interest and dividend income on interest-bearing deposits with other
institutions, investment securities and FHLB stock ("other investment
securities") decreased by $109 thousand or 7.0% for the three months ended
December 31, 1998, when compared to the same period in 1997. The decrease was
primarily attributable to a $5.1 million increase in the average balance of
investment securities outstanding which was offset by a 92 basis point decrease
in the weighted average yield earned on investment securities for the three
months ended December 31, 1998, when compared to the same period in 1997.
Interest on other investment securities decreased $174 thousand or 5.4% for the
six months ended December 31, 1998, when compared to the same period in 1997.
The decrease in interest income on investment securities was attributable to a
$6.2 million increase in the average balance of investment securities
outstanding which was offset by a 90 basis point decrease in the weighted
average yield earned on investment securities for the six months ended December
31, 1998, when compared to the same period in 1997. The increases in the average
balance of investment securities during both the three and six month periods
ended December 31, 1998, were principally attributable to purchases of
investment securities under the Company's investment growth program, and
purchases of commercial paper which were made in order to capitalize on
seasonally high calendar year end commercial paper rates and liquidity
management. The decrease in the weighted average yield earned on investment
securities was a result of the reduced long-term market interest rates.
Interest on net loans receivable decreased by $111 thousand or 3.4%
for the three months ended December 31, 1998, when compared to the same period
in 1997. The decrease was attributable to a decrease of $8.0 million in the
average balance of net loans receivable outstanding, which was partially offset
by an increase of 13 basis points in the weighted average yield earned on net
loans receivable for the three months ended December 31, 1998, when compared to
the same period in 1997. Interest on net loans receivable decreased by $187
<PAGE>
thousand or 2.9% for the six months ended December 31, 1998, when compared to
the same period in 1997. The decrease was attributable to a $5.9 million
decrease in the average balance of outstanding loans which was partially offset
by a 7 basis point increase in the weighted average yield earned on outstanding
loans for the six months ended December 31, 1998. The decreases in the average
loan balance outstanding for the three and six months ended December 31, 1998,
were primarily attributable to lower levels of mortgage loan originations and
higher levels of loan prepayments due to a marked decline in long-term interest
rates.
Interest Expense. Interest expense on deposits and escrows decreased
by $91 thousand or 5.2% and decreased by $185 thousand or 5.2% for the three and
six months ended December 31, 1998, respectively, when compared to the same
periods in 1997. The decrease in interest expense on deposits and escrows was
principally attributable to a $1.6 million and $1.7 million decrease in the
average balance of interest-bearing deposits and escrows and a 30 and 32 basis
point decrease in the average yield paid on deposits and escrows for the three
and six months ended December 31, 1998, respectively, when compared to the same
period in 1997. The decrease in the average yield paid on deposits and escrows
was due to lower market interest rates, when compared to the same period in
1997.
Interest expense on FHLB advances and other borrowings increased by
$365 thousand and $529 thousand for the three and six months ended December 31,
1998, respectively, when compared to the same periods in 1997. The increase
associated with both periods is primarily attributable to funding the Company's
investment growth program.
Provision for Loan Losses. A provision for loan losses is charged to
earnings to bring the total allowance to a level considered adequate by
management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors.
The Company did not record a provision for possible losses on loans
for the three and six months ended December 31, 1998, respectively. At December
31 and June 30, 1998, the Company's total allowance for loan losses amounted to
$1.9 million or 1.2% of the Company's total loan portfolio.
Non-Interest Income. Total non-interest income increased by $56
thousand and $68 thousand for the three and six months ended December 31, 1998,
respectively, when compared to the same periods in 1997. The increase in
non-interest income for the three months ended December 31, 1998, was primarily
attributable to $36 thousand in net gains on the sale of investment securities
and a $17 thousand increase in service charges on deposits. The increase in
non-interest income for the six months ended December 31, 1998, was principally
attributable to $36 thousand of net gains on the sale of investment securities
and a $27 thousand increase in service charges on deposits.
Non-Interest Expense. Total non-interest expense decreased $203
thousand or 15.4% and decreased $268 thousand or 11.0% for the three and six
months ended December 31, 1998, respectively, when compared to the same periods
in 1997.
<PAGE>
Compensation and employee benefits expense decreased $196 thousand or
21.5% and $262 thousand or 15.7% for the three and six months ended December 31,
1998, respectively, when compared to the same periods in 1997. The decrease was
primarily attributable to reduced discretionary ESOP contributions and lower RRP
expenses in 1998.
Income Tax Expense. Income tax expense increased by $104 thousand or
22.7% and $101 thousand or 9.5% for the three and six months ended December 31,
1998, respectively, when compared to the same periods in 1997. The change in
income tax expense, for both periods, was attributable to increased taxable
income during the three and six months ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $2.0 million during
the six months ended December 31, 1998. Net cash provided by operating
activities was primarily comprised of $1.9 million of net income.
Funds used by investing activities totaled $20.5 million during the six
months ended December 31, 1998. Primary uses of funds during the six months
ended December 31, 1998, included $143.5 million for purchases of investment and
mortgage-backed securities which was partially offset by $118.6 million of
proceeds from repayments of investment and mortgage-backed securities and a $5.1
million decrease in net loans receivable.
Funds provided by financing activities totaled $21.0 million for the
six months ended December 31, 1998. Primary financial sources included a $23.9
million increase in FHLB advances and other borrowings and a $1.1 million
increase in deposits which were partially offset by $1.9 million in purchases of
treasury stock, a $1.3 million decrease in advance payments by borrowers for
taxes and insurance and $1.1 million of cash dividends paid on the Company's
common stock. 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 December 31, 1998, $73.7 million or 43.7% 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 December 31, 1998, the total approved loan commitments
outstanding amounted to $3.5 million. At the same date, commitments under unused
lines of credit amounted to $8.0 million and the unadvanced portion of
construction loans approximated $12.2 million. Certificates of deposit scheduled
to mature in one year or less at December 31, 1998, totaled $65.6 million.
Management believes that a significant portion of maturing deposits will remain
with the Company.
<PAGE>
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 $25.0 million line of credit with the
FHLB, which is scheduled to mature on February 9, 2000, and is subject to
various conditions, including the pledging and delivery of acceptable
collateral. The primary purpose of the line of credit is to serve as a back-up
liquidity facility for the Company, however, the Company may from time to time
utilize the line of credit to purchase investment securities and fund other
commitments. In addition, the Company has access to the Federal Reserve Bank
discount window. Management believes that the Company currently has adequate
liquidity available to respond to liquidity demands.
On July 28, 1998, the Board of Directors authorized the repurchase of
up to 183,156 shares, or approximately five percent, of the Company's
outstanding common stock during the next twelve months. During the six months
ended December 31, 1998, 123,854 shares of common stock were repurchased for
approximately $1.9 million. The repurchased shares will be held in treasury
stock and may be reserved for issuance pursuant to the Company's stock benefit
plans.
On December 23, 1998, the Company entered into an agreement with a
shareholder to repurchase 197,478 shares of the Company's common stock. The
Company anticipates purchasing 147,078 shares by the quarter ended March 31,
1999, and the remaining 50,400 shares no later than the quarter ended September
30, 1999. Aggregate consideration to be paid totals approximately $3.1 million.
These shares are in addition to the stock buyback referenced above.
On January 26, 1999, the Company's Board of Directors declared a cash
dividend of $0.16 per share payable February 18, 1999, to shareholders of record
at the close of business on February 8, 1999. Dividends will be 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 or that, if paid, such
dividends will not be reduced or eliminated in future periods.
As of December 31, 1998, WVS Financial Corp. exceeded all regulatory
capital requirements and maintained Tier I and total risk-based capital equal to
$32.4 million or 19.3% and $34.3 million or 20.4%, respectively, of total
risk-weighted assets, and Tier I leverage capital of $32.4 million or 10.3% of
average quarterly assets.
Nonperforming assets consist of nonaccrual loans and real estate owned.
A loan is placed on nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed insufficient to warrant further
accrual. When a loan is placed on nonaccrual status, previously accrued but
uncollected interest is deducted from interest income. The Company normally does
not accrue interest on loans past due 90 days or more, however, interest may be
accrued if management believes that it will collect on the loan.
The Company's nonperforming assets at December 31, 1998, totaled
approximately $685 thousand or 0.2% of total assets as compared to $603 thousand
or 0.2% of total assets as of June 30, 1998. Nonperforming assets at December
31, 1998, consisted of $480 thousand in commercial real estate loans, $92
<PAGE>
thousand in single-family loans, $74 thousand in consumer loans, $23 thousand in
land loans and $15 thousand in lines of credit. Approximately $13 thousand of
additional interest income would have been recorded during the six months ended
December 31, 1998, if the Company's nonaccrual and restructured loans had been
current in accordance with their original loan terms and outstanding throughout
the six months ended December 31, 1998.
YEAR 2000 COMPLIANCE
The Company outsources substantially all of its data processing
requirements and it is to a large extent dependent upon vendor cooperation for
systems used in its day-to-day business. The Company, in conjunction with its
vendors, is testing its computer systems and requiring representations from its
vendors that the products provided are or will be year 2000 compliant. The
Company has developed a plan of action to help ensure that its operational and
financial systems will not be adversely affected by year 2000 software/hardware
failures due to processing errors arising from calculations using the year 2000
date. Substantially all hardware and software products were compliant at
December 31, 1998. In the unlikely event that the systems tested do not, in
fact, operate properly when the year 2000 does arrive, all customer accounts,
deposits and loans, as well as accounting systems, will be maintained manually
to ensure business continuation while systems are being corrected. The Company
has not and does not expect to incur material expenditures to address the year
2000 issue. Based upon current estimates, the Company does not expect to incur
more than $75 thousand (pre-tax) in year 2000 remediation expenses. Any year
2000 compliance failures, which are currently unknown, could result in
additional expenses or business disruption to the Company.
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, or, 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.
<PAGE>
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 U.S. 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 and net interest income 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.
The Federal Reserve Board, together with the Office of the Comptroller
of the Currency and the Federal Deposit Insurance Corporation, adopted a Joint
Agency Policy Statement on Interest Rate Risk, effective June 26, 1996. The
policy statement provides guidance to examiners and bankers on sound practices
for managing interest rate risk, which will form the basis for ongoing
evaluation of the adequacy of interest rate risk management at supervised
institutions. The policy statement also outlines fundamental elements of sound
management that have been identified in prior Federal Reserve guidance and
discusses the importance of these elements in the context of managing interest
rate risk. Specifically, the guidance emphasizes the need for active board of
director and senior management oversight and a comprehensive risk-management
process that effectively identifies, measures, and controls interest rate risk.
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
<PAGE>
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 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.
Several techniques might be used by an institution to minimize interest
rate risk. One approach used by the Company is to periodically analyze its
assets and liabilities and make future financing and investment decisions based
on payment streams, interest rates, contractual maturities, and estimated
sensitivity to actual or potential changes in market interest rates. Such
activities fall under the broad definition of asset/liability management. The
Company's primary asset/liability management technique is the measurement of the
Company's asset/liability gap - that is, the difference between the cash flow
amounts of interest-sensitive assets and liabilities that will be refinanced (or
repriced) during a given period. For example, if the asset amount to be repriced
exceeds the corresponding liability amount for a certain day, month, year, or
longer period, the institution is in an asset-sensitive gap position. In this
situation, net interest income would increase if market interest rates rose or
decrease if market interest rates fell. If, alternatively, more liabilities than
assets will reprice, the institution is in a liability-sensitive position.
Accordingly, net interest income would decline when rates rose and increase when
rates fell. Also, these examples assume that interest-rate changes for assets
and liabilities are of the same magnitude, whereas actual interest rate changes
generally differ in magnitude for assets and liabilities.
An institution could also manage interest rate risk by selling existing
assets, repaying certain liabilities or matching repricing periods for new
assets and liabilities (for example, by shortening terms of new loans or
investments). A large portion of an institution's liabilities may be short-term
or due on demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, the Company seeks to have in place sources of cash to
meet short-term demands. These funds can be obtained by increasing deposits,
borrowing, or selling assets. Also, FHLB advances and wholesale borrowings have
become increasingly important sources of liquidity for the Company. Financial
institutions are also subject to prepayment risk in falling rate environments.
For example, mortgage loans and other financial assets may be prepaid by a
debtor so that the debtor may refund its obligations at new, lower rates.
Prepayments of assets carrying higher rates reduce the Company's interest income
and overall asset yields. An institution might also invest in more complex
financial instruments intended to hedge, or otherwise change the interest rate
risk of existing assets, liabilities, or anticipated transactions. Interest rate
swaps, futures contracts, options on futures, and other such derivative
financial instruments often are used for this purpose. Because these instruments
are sensitive to interest rate changes, they require management expertise to be
effective. The Company has not purchased derivative financial instruments in the
past and does not presently intend to purchase such instruments in the near
future.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1998, based on the information and assumptions in the notes. The Company's
assumptions are based on statistical data provided by a federal regulatory
agency in the Company's market area, and are believed to be reasonable. The
<PAGE>
Company had no derivative financial instruments or trading portfolio as of
December 31, 1998. The expected maturity date values for loans receivable,
mortgage-backed securities, and investment securities were calculated by
adjusting the instrument's contractual maturity date for expectations of
prepayments. Similarly, expected maturity date values for interest-bearing core
deposits were calculated based upon estimates of the period over which the
deposits would be outstanding. With respect to the Company's adjustable rate
instruments, expected maturity date values were measured by adjusting the
instrument's contractual maturity date for expectations of prepayments.
Substantially all of the Company's investment securities portfolio is comprised
of callable government agency securities. From a risk management perspective,
the Company believes that repricing dates, as opposed to expected maturity
dates, may be a more relevant metric in analyzing the value of such instruments.
Company borrowings were tabulated by contractual maturity dates and without
regard to any conversion or repricing dates.
<PAGE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE-QUARTER ENDED DECEMBER 31,
--------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
------- ------- ------- ------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest-earning assets:
Loans receivable (1)(2)(3)(4)
Fixed rate $28,815 $18,097 $12,957 $10,602 $7,738 $31,833 $110,042 $120,533
Average interest rate 8.14% 7.89% 7.79% 7.74% 7.64% 7.45%
Adjustable rate 14,126 9,565 6,717 4,893 3,687 5,437 44,425 47,723
Average interest rate(5) 7.94% 8.02% 8.12% 8.21% 8.29% 8.33%
Mortgage-backed securities
Fixed rate 159 --- --- 153 1,868 60,988 63,168 63,510
Average interest rate 6.41% 0.00% 0.00% 7.22% 6.02% 6.75%
Adjustable rate --- --- --- --- --- 17,259 17,259 17,574
Average interest rate(6) 0.00% 0.00% 0.00% 0.00% 0.00% 6.65%
Investments(7) 37,758 --- --- --- --- 39,577 77,335 77,352
Average interest rate 6.31% 0.00% 0.00% 0.00% 0.00% 6.58%
Interest-bearing deposits 4,075 --- --- --- --- --- 4,075 4,075
Average interest rate 4.74% 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------- ------ ------- -------- --------
Total $84,933 $27,662 $19,674 $15,648 $13,293 $155,094 $316,304 $330,767
Interest-bearing liabilities:
Interest-bearing deposits
and escrows(8)(9)(10) $94,588 $19,695 $19,695 $7,486 $7,486 $21,898 $170,848 $171,380
Average interest rate 4.36% 3.67% 3.67% 3.34% 3.34% 2.13%
Borrowings 30,150 --- 30,000 21,500 --- 32,000 113,650 115,085
Average interest rate 5.43% 0.00% 5.75% 5.80% 0.00% 5.06%
------- ------- ------- ------- ------ ------- -------- --------
Total $124,738 $19,695 $49,695 $28,986 $ 7,486 $53,898 $284,498 $286,465
</TABLE>
(1) Net of undisbursed loan proceeds and does not include net deferred loan fees
or the allowance for loan losses.
(2) For single-family residential loans, assumes annual amortization and
prepayment rate at 15% for adjustable rate loans, and 14% to 39% for fixed rate
loans. For multi-family residential loans and other loans, assumes amortization
and prepayment rate of 12%.
(3) For second mortgage loans, assumes annual amortization and prepayment rate
of 18%.
(4) Consumer loans assumes amortization and prepayment rate of 13%.
(5) Substantially all of the Company's adjustable rate loans reprice on an
annual basis based upon changes in the one-year constant maturity treasury index
with various market based annual and lifetime interest rate caps and floors.
<PAGE>
(6) Substantially all of the Company's adjustable rate mortgage-backed
securities reprice on a monthly basis based upon changes in the one month LIBOR
index with various lifetime caps and floors.
(7) Totals include the Company's investment in Federal Home Loan Bank stock.
Amounts adjusted to reflect investment securities called through December 31,
1998, totaling approximately $2.4 million and $22.6 million expected to be
called by December 31, 1999.
(8) For regular savings accounts, assumes an annual decay rate of 17% for three
years or less, 16% for more than three through five years and 14% for more than
five years.
(9) For NOW accounts, assumes an annual decay rate of 37% for one year or less,
32% for more than one through three years and 17% for more than three years.
(10) For money market deposit accounts, assumes an annual decay rate of 79% for
one year or less and 31% for more than one year.
<PAGE>
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 December 31,
1998.
<TABLE>
<CAPTION>
Anticipated Transactions
-----------------------------------------
<S> <C>
Undisbursed construction and
land development loans
Fixed rate $ 4,027
8.87%
Adjustable rate $ 8,166
8.76%
Undisbursed lines of credit
Adjustable rate $ 8,002
8.43%
Loan origination commitments
Fixed rate $ 1,743
7.43%
Adjustable rate $ 1,718
8.25%
Unfunded security commitments
Fixed rate $ 3,000
6.75%
Letters of credit
Adjustable rate $ 45
11.50%
-------
$26,701
</TABLE>
The Company believes that there were no material changes to the
Company's anticipated transactions during the six months ended December 31,
1998.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
-----------------
The Company is involved with various legal actions arising in the
ordinary course of business. Management believes the outcome of these
matters will have no material effect on the consolidated operations
or consolidated financial condition of WVS Financial Corp.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The information required by this item is incorporated by reference to
the Company's SEC Form 10-Q for the quarterly period ended September
30, 1998.
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
------ ----------- ----
27 Financial Data Schedule E-1
(b) Not applicable.
<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.
February 9, 1999 BY: /s/David J. Bursic
- ---------------- ------------------
Date David J. Bursic
President and Chief Executive Officer
(Principal Executive and Financial Officer)
<TABLE> <S> <C>
<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 SIX MONTHS
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 843
<INT-BEARING-DEPOSITS> 4,075
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,291
<INVESTMENTS-CARRYING> 124,513
<INVESTMENTS-MARKET> 124,950
<LOANS> 152,537
<ALLOWANCE> 1,856
<TOTAL-ASSETS> 320,384
<DEPOSITS> 168,788
<SHORT-TERM> 22,150
<LIABILITIES-OTHER> 3,295
<LONG-TERM> 91,500
0
0
<COMMON> 37
<OTHER-SE> 32,554
<TOTAL-LIABILITIES-AND-EQUITY> 320,384
<INTEREST-LOAN> 6,378
<INTEREST-INVEST> 4,855
<INTEREST-OTHER> 32
<INTEREST-TOTAL> 11,265
<INTEREST-DEPOSIT> 3,351
<INTEREST-EXPENSE> 6,252
<INTEREST-INCOME-NET> 5,013
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 2,174
<INCOME-PRETAX> 3,103
<INCOME-PRE-EXTRAORDINARY> 3,103
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,933
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 3.21
<LOANS-NON> 685
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,856
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,856
<ALLOWANCE-DOMESTIC> 1,113
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 743
</TABLE>
