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| WVFC > SEC Filings for WVFC > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
FORWARD LOOKING STATEMENTS
In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as "anticipated," "believe," "expect," "intend," "plan," "estimate" or similar expressions.
Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:
• our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;
• general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan losses or a reduced demand for credit or fee-based products and services;
• changes in the interest rate environment could reduce net interest income and could increase credit losses;
• the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;
• changes in the extensive laws, regulations and policies governing bank holding companies and their subsidiaries could alter our business environment or affect our operations;
• the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;
• competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform; and
• acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.
You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new or future events except to the extent required by federal securities laws.
GENERAL
WVS Financial Corp. ("WVS" or the "Company") is the parent holding company of West View Savings Bank ("West View" or the "Savings Bank"). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at March 31, 2009.
The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Company's net income is also affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs.
FINANCIAL CONDITION
The Company's assets totaled $444.0 million at March 31, 2009, as compared to $423.1 million at June 30, 2008. The $20.9 million or 4.9% increase in total assets was primarily comprised of a $18.1 million or 193.1% increase in FDIC insured certificates of deposit, an $18.0 million or 14.9% increase in investment securities - held to maturity, a $3.9 million or 56.9% increase in Federal Home Loan Bank ("FHLB") stock, and a $2.5 million or 4.4% increase in net loans receivable, which were partially offset by a $14.1 million or 6.6% decrease in mortgage-backed securities - held to maturity, a $7.5 million or 93.8% decrease in investment securities - available for sale, a $229 thousand or 12.5% decrease in cash and cash equivalents, and a $142 thousand or 12.3% decrease in deferred taxes and other assets. The increase in FDIC insured certificates of deposit was attributable to an increase of $27.1 million in bank certificates of deposit which was partially offset by $8.9 million in maturities and early redemptions of FDIC insured certificates of deposit. The increase in investment securities - held to maturity was primarily attributable to purchases of $89.1 million of short-term investment grade commercial paper, $41.8 million of fixed-rate U.S. Government agency bonds, $17.9 million of investment grade fixed-rate corporate bonds, $13.1 million of investment grade utility first mortgage bonds, and $11.5 million of investment grade floating-rate corporate bonds, which were partially offset by $83.4 million of maturities of short-term investment grade commercial paper, $61.4 million of issuer redemptions prior to maturity (i.e. calls) of fixed-rate U.S. Government agency bonds, and $10.9 million of maturities of investment grade corporate bonds. The increase in FHLB stock was attributable to higher levels of FHLB borrowings during the nine months ended March 31, 2009, and associated FHLB stock purchase requirements. The decrease in investment securities - available for sale was attributable to $7.5 million of maturities of short-term investment grade commercial paper, while the decrease in mortgage-backed securities - held to maturity was attributable primarily to principal payments received. See "Asset and Liability Management".
The Company's total liabilities increased $21.9 million or 5.6% to $412.9 million as of March 31, 2009 from $391.0 million as of June 30, 2008. The $21.9 million increase in total liabilities was primarily comprised of a $47.1 million or 58.4% increase in Federal Reserve Bank short-term borrowings, which was partially offset by a $15.1 million or 75.5% decrease in other short-term borrowings, a $5.5 million or 4.1% decrease in FHLB long-term advances, a $3.4 million or 2.3% decrease in total savings deposits, a $727 thousand or 23.4% decrease in other liabilities, and a $358 thousand or 23.3% decrease in accrued interest payable. The
respective changes in short-term borrowings were primarily due to more competitive Federal Reserve Bank ("FRB") pricing in contrast to the short-term repurchase agreement and FHLB markets, while the decrease in FHLB long-term advances was due to the maturity of two long-term advances. Certificates of deposit decreased $5.5 million, and advance payments by borrowers for taxes and insurance decreased $239 thousand, while money market accounts increased $1.4 million, demand deposits increased $551 thousand and savings accounts increased $255 thousand. The change in money market accounts and certificates of deposit may be in response to lower market yields on certificates of deposit and increased liquidity preferences by depositors in response to unsettled financial markets. Management believes that the change in advance payments by borrowers for taxes and insurance were primarily attributable to seasonal payments of county, local and school real estate taxes, and transactional needs. The change in other liabilities is primarily attributable to decreases in deferred director compensation accounts and clearing balances due to the Federal Reserve, which were partially offset by increases in accrued income taxes payable.
Total stockholders' equity decreased $1.1 million or 3.4% to $31.0 million as of March 31, 2009, from approximately $32.1 million as of June 30, 2008. Capital expenditures for the Company's stock repurchase program and cash dividends totaled $2.4 million and $1.0 million, respectively, which were partially offset by net income of $2.4 million for the nine months ended March 31, 2009. Book value per share increased to $14.94 at March 31, 2009 from $14.44 at June 30, 2008.
RESULTS OF OPERATIONS
General. WVS reported net income of $582 thousand or $0.28 earnings per share (basic and diluted) and $2.4 million or $1.09 earnings per share (basic and diluted) for the three and nine months ended March 31, 2009, respectively. Net income decreased by $380 thousand or 39.5% and earnings per share (basic and diluted) decreased $0.15 or 34.9% for the three months ended March 31, 2009, when compared to the same period in 2008. The decrease in net income was primarily attributable to a $513 thousand decrease in net interest income and a $71 thousand increase in the provision for loan losses, which were partially offset by a $185 thousand decrease in income tax expense, a $16 thousand decrease in non-interest expense, and a $3 thousand increase in non-interest income. For the nine months ended March 31, 2009, net income decreased $683 thousand or 22.6% when compared to the same period in 2008. The decrease in net income was primarily attributable to a $954 thousand decrease in net interest income, a $99 thousand increase in the provision for loan losses, and a $20 thousand increase in non-interest expense, which were partially offset by a $366 thousand decrease in income tax expense and a $24 thousand increase in non-interest income.
Net Interest Income. The Company's net interest income decreased by $513 thousand or 24.6% and $954 thousand or 14.2% for the three and nine months ended March 31, 2009, respectively, when compared to the same periods in 2008. For the three months ended March 31, 2009, approximately $1.0 million of the decrease in net interest income can be attributed to the impact of declining market interest rates on the Company's financial assets and liabilities, which was partially offset by a $510 thousand increase in net interest income attributable to higher overall balances in the Company's financial assets and liabilities when compared to the same period in 2008. For the nine months ended March 31, 2009, approximately $1.2 million of the decrease in net interest income can primarily be attributed to the impact of declining market interest rates on the Company's financial assets and liabilities which was partially offset by a $244 thousand increase in net interest income attributable to higher overall balances in the Company's financial assets and liabilities when compared to the same period in 2008.
During the nine months ended March 31, 2009, the Federal Open Market Committee (FOMC) reduced its targeted federal funds level from 2.00% to a range of 0.00% to 0.25%. See also "Asset and Liability Management."
Interest Income. Interest on investment securities decreased by $569 thousand or 25.3% and $3.4 million or 39.9% for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The decreases for the three and nine months ended March 31, 2009, were primarily attributable to a $641 thousand and $3.6 million decrease, respectively, in interest income on callable U.S. Government Agency bonds (principally due to issuer redemptions of securities prior to scheduled maturities). The changes in interest income on the various segments of the investment portfolio are primarily attributable to changes in the average balances of the respective segments.
Interest on mortgage-backed securities decreased $1.2 million or 54.4% and $1.5 million or 22.6% for the three and nine months ended March 31, 2009, respectively, when compared to the same periods in 2008. The decreases for the three and nine months ended March 31, 2009 were primarily attributable to decreases of 289 basis points and 235 basis points, respectively, in the weighted average yield earned on U.S. government agency floating-rate mortgage-backed securities for the three and nine months, decreases of 288 basis points and 277 basis points, respectively, in the weighted-average yield earned on private label mortgage-backed securities for the three and nine months, which were partially offset by $23.8 million and $88.3 million increases in the average balance outstanding of U.S. Government floating-rate agency mortgage-backed securities for the three and nine months ended March 31, 2009, respectively, when compared to the same periods in 2008. The decrease in the weighted average yield earned on mortgage-backed securities was consistent with lower short-term market interest rates for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The increase in the average balances of U.S. government agency mortgage-backed securities during the three and nine months ended March 31, 2009 was primarily attributable to purchases of floating rate U.S. government agency mortgage-backed securities during the period. All mortgage-backed securities purchased during the period were guaranteed by agencies of the U.S. government.
Interest on FDIC insured bank certificates of deposit increased $244 thousand and $481 thousand for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The Company continued to purchase FDIC insured certificates of deposit due to favorable funding spreads and lower levels of suitable other investments due to distressed market conditions. The certificates have original maturity terms from five to twenty-four months.
Interest on net loans receivable decreased $88 thousand or 8.2% and $282 thousand or 8.5% for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The decreases for the three and nine months ended March 31, 2009 were primarily attributable to decreases of 50 and 46 basis points, respectively, in the weighted average yield earned on net loans receivable for the three and nine months ended March 31, 2009, when compared to the same periods in 2008, and a $731 thousand and $1.5 million decrease, respectively, in the average balance of net loans receivable outstanding, when compared to the same periods in 2008. The decrease in the weighted average yield earned on net loans receivable for the three and six months ended March 31, 2009, was primarily attributable to rate reductions on the adjustable rate portion of the loan portfolio due to lower market rates on which the adjustments are based. The decrease in the average loan balances outstanding for the three and nine months ended March 31, 2009 were attributable to decreased demand for mortgages as a result of low levels of consumer confidence, rising levels of unemployment, continued and deepening weakness in the economy, an excess supply of existing homes available for sale, and lower levels of housing starts. The Company continues to offer competitively priced mortgages through its correspondent lending program, however, consumer demand has been very weak.
Dividends on FHLB stock decreased $119 thousand or 100.0% and $205 thousand or 59.9% for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The decreases for the three and nine months ended March 31, 2009 were attributable to 483 and 310 basis point decreases, respectively, in the average yield earned on FHLB stock when compared to the same periods in 2008, which were partially offset by increases in the average balance of FHLB stock held for the three and nine months ended March 31, 2009 of $1.1 million and $640 thousand, respectively, when compared to the same periods in 2008. The increases in average balances of FHLB stock held resulted from increased levels of FHLB borrowings and associated FHLB stock purchase requirements during the periods. In December 2008, the FHLB of Pittsburgh announced that it was suspending the payment of dividends and redemptions of excess capital stock from members. The FHLB's stated purpose of these actions is to build retained earnings to ensure adequate regulatory capital.
Interest Expense. Interest paid on other short-term borrowings decreased $266 thousand or 95.7% and $1.4 million or 82.0%, respectively, for the three and nine months ended March 31, 2009 when compared to the same periods in 2008. The decrease for the three months ended March 31, 2009 was primarily attributable to a 359 basis point decrease in rates paid on other short-term
borrowings and a $17.2 million decrease in average balances of other short-term borrowings during the period when compared to the same period in 2008. The decrease for the nine months ended March 31, 2009, was primarily attributable to a 301 basis point decrease in rates paid on other short-term borrowings and a $24.8 million decrease in average balances of other short-term borrowings during the period when compared to the same period in 2008. The decrease in rates paid reflect lower short-term market interest rates while the decrease in average balances of other short-term borrowings is attributable to more favorable short-term borrowing rates offered by the Federal Reserve Bank.
Interest expense on deposits and escrows decreased $490 thousand or 51.7% and $1.4 million or 44.1% for the three and nine months ended March 31, 2009, when compared to the same period in 2008. The decrease in interest expense on deposits for the three months ended March 31, 2009 was primarily attributable to a 187 basis point decrease in the weighted average rate paid on time deposits, a 188 basis point decrease in the weighted average rate paid on money market accounts, and a $9.6 million decrease in the average balance of time deposits, which were partially offset by a $1.9 million increase in the average balance of money market accounts, when compared to the same period in 2008. The decrease for the nine months ended March 31, 2009, was primarily attributable to a 161 basis point decrease in the weighted average rate paid on time deposits, a 209 basis point decrease in the weighted average rate paid on money market accounts, and a $9.4 million decrease in the average balance of time deposits, which were partially offset by a $3.1 million increase in the average balance of money market accounts, when compared to the same period in 2008. The decrease in average yields of time deposits and money market accounts reflects lower market rates for the three and nine months ended March 31, 2009 while the change in average balances for time deposits and money market accounts may be in response to increased liquidity preferences by depositors in response to unsettled financial markets.
Interest paid on FHLB advances decreased $559 thousand or 23.5% and $1.4 million or 19.3% for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The decrease for the three months ended March 31, 2009 was attributable to a 304 basis point decrease in rates paid on FHLB short-term advances, and a $69.4 million decrease in the average balance of FHLB short-term advances when compared to the same period in 2008. The decrease for the nine months ended March 31, 2009, was primarily attributable to a 299 basis point decrease in rates paid on short-term FHLB advances and a $26.8 million decrease in the average balance of short-term FHLB advances, when compared to the same period in 2008. The decrease in rates paid reflect lower short-term market interest rates.
Interest paid on FRB short-term borrowings increased $82 thousand or 100% and $232 thousand or 100% for the three and nine months ended March 31, 2009, when compared to the same periods in 2008. The increase for the three and nine months ended March 31, 2009 was attributable to increases of $121.3 million and $61.1 million, respectively, in the average balances of FRB short-term borrowings. The increase in average balances of FRB short-term borrowings is attributable to more favorable short-term borrowing rates offered by the Federal Reserve Bank, when compared to other short-term funding sources.
Provision (Recovery) for Loan Losses. A provision (recovery) for loan losses is charged (credited) to earnings to maintain the total allowance at a level considered adequate by management to absorb potential losses in the portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors.
The Company recorded provisions for loan losses of $14 thousand and $35 thousand for the three and nine months ended March 31, 2009, respectively, compared to recoveries for loan losses of $57 thousand and $64 thousand for the same periods in 2008. The increases for both periods in fiscal 2009 can be primarily attributable to higher average loan balances recorded in fiscal 2009, while the comparable period in fiscal 2008 included a recovery on a commercial real estate loan of approximately $55 thousand. At March 31, 2009, the Company's total allowance for loan losses amounted to $991 thousand or 1.7% of the Company's total loan portfolio, as compared to $956 thousand or 1.7% at June 30, 2008.
Non-Interest Income. Non-interest income increased by $3 thousand or 2.2% and $24 thousand or 5.5% for the three and nine months ended March 31, 2009, respectively, when compared to the same periods in 2008. The increase was primarily attributable to increased levels of ATM and debit card fee income.
Non-Interest Expense. Non-interest expense decreased $16 thousand or 1.9% and increased $20 thousand or 0.7% for the three and nine months ended March 31, 2009, respectively, when compared to the same periods in 2008. The decrease for the three months ended March 31, 2009 was principally attributable to a $24 thousand decrease in employee related costs, when compared to the same period in 2008. The increase for the nine months ended March 31, 2009 was primarily attributable to increases in employee related costs, when compared to the same period in 2008.
Income Tax Expense. Income tax expense decreased $185 thousand or 38.9% and $366 thousand or 25.2% for the three and nine months ended March 31, 2009, respectively, when compared to the same periods in 2008. The decrease for the three months ended March 31, 2008 was primarily due to lower levels of taxable income, while the decrease for the nine months ended March 31, 2009 was due primarily to a decrease in the Company's deferred tax assets attributable to the deferred director compensation plan and lower levels of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $543 thousand during the nine months ended March 31, 2009. Net cash provided by operating activities was primarily comprised of $2.4 million of net income, which was partially offset by a $798 thousand decrease in deferred director compensation accounts, a $358 thousand decrease in accrued interest payable, $353 thousand in accretion of discounts on commercial paper, and $337 thousand in accretion of discounts, premiums and deferred loan fees.
Funds used for investing activities totaled $20.3 million during the nine months ended March 31, 2009. Primary uses of funds during the nine months ended March 31, 2009, included purchases of investments, certificates of deposit and FHLB stock totaling $173.3 million, $27.1 million and $13.2 million, respectively, and a $2.5 million increase in net loans receivable, which were partially offset by maturities and repayments of investment securities, mortgage-backed securities, FHLB stock and certificates of deposit totaling $163.2 million, $14.5 million, $9.3 million, and $8.9 million, respectively. Short-term investment grade commercial paper purchases, included in investment securities purchases, totaled $85.1 million; and maturities of short-term commercial paper totaled $90.9 million. Fixed rate U.S. Government agency bonds purchased during the period totaled $41.8 million, while early redemptions by issuers of fixed-rate callable U.S. Government agency bonds during the nine months totaled $61.4 million.
Funds provided by financing activities totaled $19.5 million for the nine months ended March 31, 2009. The primary sources included a $47.1 million increase in FRB short-term borrowings which was partially offset by a $15.1 million decrease in other short-term borrowings, a $5.5 million decrease in FHLB long-term advances, a $3.6 million decrease in deposits, $2.4 million in treasury stock purchases and $1.0 million in cash dividends paid on the Company's common stock. The increase in FRB short-term borrowings reflects lower short-term rates available through the FRB compared to other short-term funding sources. The $3.6 million decrease in total deposits consisted of a $5.4 million decrease in time deposits, and a $239 thousand decrease in mortgage escrow accounts, which were partially offset by a $1.4 million increase in money market deposits, a $551 thousand increase in demand deposits and a $255 thousand increase in passbook accounts. The decrease in time deposits may be attributable to customer transfers into money market accounts and to possible other financial alternatives. The increase in money market balances may be attributable to lower market yields on certificates of deposits and increased liquidity preferences by depositors in response to unsettled financial markets. The decrease in escrow accounts was due primarily to the payments of local property taxes by and for customers. Management believes that it currently is maintaining adequate liquidity and continues to match funding sources with lending and investment opportunities.
The Company's primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances, the FRB and other short-term borrowings. At March 31, 2009, total approved loan commitments outstanding amounted to approximately $2.1 million. At the same date, commitments under unused lines of credit amounted to $4.9 million and the unadvanced portion of construction
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