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| WVFC > SEC Filings for WVFC > Form 10-Q on 11-May-2012 | All Recent SEC Filings |
11-May-2012
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 financial 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", the "Company", "us" or "we") 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, 2012.
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 $306.7 million at March 31, 2012, as compared to $228.9 million at June 30, 2011. The $77.8 million or 34.0% increase in total assets was primarily comprised of a $42.4 million increase in investment securities - available for sale, a $41.0 million increase in investment securities - held to maturity, a $1.8 million increase in cash and cash equivalents, and a $1.2 million increase in mortgage-backed securities-held to maturity, which were partially offset by a $6.1 million decrease in net loans receivable, a $1.3 million decrease in Federal Home Loan Bank Stock, and a $1.3 million decrease in FDIC insured bank certificates of deposit. The increase in investment securities - available for sale was primarily due to purchases of fixed-rate investment grade corporate bonds totaling $41.0 million and floating-rate investment grade corporate bonds totaling $4.4 million to bolster overall liquidity. The increase in investment securities - held to maturity was primarily due to purchases of U.S. Government Agency multiple step-up bonds totaling $100.6 million, which was partially offset by $42.2 million in early redemptions (i.e. calls) of U.S. Government Agency step-up notes. The increase in mortgage-backed securities held to maturity was primarily due to purchases of U.S. Government Agency CMO's totaling $36.0 million, which was partially offset by repayments on our Agency and private-label CMO portfolios totaling $25.2 million and $9.8 million, respectively. The decrease in Federal Home Loan Bank stock was due to the continued redemption of excess stock by the FHLB Pittsburgh. The decrease in certificates of deposit was primarily due to $2.0 million in maturities of certificates of deposit which were partially offset by purchases totaling $946 thousand of FDIC insured bank certificates of deposit. See "Asset and Liability Management".
The Company's total liabilities increased $76.7 million or 38.4% to $276.7 million as of March 31, 2012 from $200.0 million as of June 30, 2011. The $76.7 million increase in total liabilities was primarily comprised of a $74.7 million or 233.1% increase in short-term FHLB advances, and a $9.6 million increase in other liabilities, which were partially offset by a $5.0 million or 22.2% decrease in legacy high-cost long-term FHLB advances, and a $2.5 million or 1.8% decrease in total savings deposits. The increase in other liabilities was primarily due to a $10.0 million commitment to purchase two U.S. Government Agency floating-rate CMO's. The increase in FHLB short-term advances was primarily a result of funding needs for the purchase of investments securities. The decrease in total of deposits was due primarily to the maturity of a $4.0 million cash management CD related to a local government unit, which was partially offset by a $2.8 million increase in demand deposits. See also "Asset and Liability Management".
Total stockholders' equity increased $1.1 million or 3.9% to $30.0 million as of March 31, 2012, from approximately $28.9 million as of June 30, 2011. The increase was primarily attributable to Company net income of $996 thousand and other comprehensive income totaling $351 thousand, which were partially offset by cash dividends totaling $247 thousand. The other comprehensive income was primarily attributable to a $338 thousand reversal of unrealized holding losses on three private-label CMO's with previously identified OTTI, and a $70 thousand OTTI reclassified and recognized in earnings, which were partially offset by $114 thousand OTTI other impairment on one private-label CMO.
RESULTS OF OPERATIONS
General. WVS reported net income of $382 thousand or $0.19 earnings per share (basic and diluted) and $996 thousand or $0.48 earnings per share (basic and diluted) for the three and nine months ended March 31, 2012, respectively. Net income increased by $29 thousand or 8.2% and earnings per share (basic and diluted) increased $0.02 or 11.8% for the three months ended March 31, 2012, when compared to the same period in 2011. The increase in net income was primarily attributable to a $49 thousand decrease in non-interest expense, a $13 thousand change in the provision for loan losses, and a $7 thousand increase in net interest income, which were partially offset by a $25 thousand increase in income tax expense and a $15 thousand decrease in non-interest income. For the nine months ended March 31, 2012 net income increased $370 thousand or 59.1% and earnings per share (basic and diluted) increased $0.18 or 60.0% when compared to the same period in 2011. The increase in net income was primarily attributable to a $648 thousand increase in net interest income, a $135 thousand decrease in non-interest expense, and a $67 thousand change in the provision for loan losses, which were partially offset by a $305 thousand increase in income tax expense, and a $175 thousand decrease in non-interest income.
Net Interest Income. The Company's net interest income increased by $7 thousand or 0.5% for the three months ended March 31, 2012, when compared to the same period in 2011. The increase in net interest income is attributable to a $425 thousand decrease in interest expense, which more than offset a $418 thousand decrease in interest income. The decrease in interest expense was primarily attributable to the payoff of legacy high-cost FHLB long-term advances and lower average balances of wholesale deposits during the quarter ended March 31, 2012, when compared to the same period in 2011. The decrease in interest income was primarily due to lower average balances of, and lower realized yields on the Company's investment and mortgage-backed securities portfolios for the quarter ended March 31, 2012 when compared to the same period in 2011. For the nine months ended March 31, 2012, net interest income increased $648 thousand or 18.8% when compared to the same period in 2011. The increase in net interest income is attributable to a $2.5 million decrease in interest expense, which was partially offset by a $1.8 million decrease in interest income. The decrease in interest expense was primarily due to the payoff of fixed rate legacy FHLB long-term advances, and wholesale time deposits during the nine months ended March 31, 2012, when compared to the same period in 2011. The decrease in interest income was primarily attributable to lower average balances of, and lower yields earned on the Company's investment portfolio during the nine months ended March 31, 2012, when compared to the same period in 2011.
Interest Income. Interest on investment securities decreased $257 thousand or 23.8% and $1.2 million or 34.1% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was primarily attributable to a 141 basis point decrease in the weighted average yield on investment securities which was partially offset by a $27.9 million increase in the average balance of investment securities outstanding, when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012 was primarily attributable to a $21.5 million decrease in the average balance of investment securities and a 74 basis point decrease in the weighted average yield on investment securities outstanding, when compared to the same period in 2011.
Interest on mortgage-backed securities decreased $27 thousand or 11.0% and $309 thousand or 31.1% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was primarily attributable to a 30 basis point decrease in the weighted average yield earned on U.S. Government agency mortgage-backed securities, and to
a $11.6 million decrease in the average balance of private label mortgage-backed securities outstanding, which were partially offset by an $11.9 million increase in the average balance of U.S. Government agency mortgage-backed securities outstanding, and a 4 basis point increase in the weighted average yield earned on private label mortgage-backed securities for the three months ended March 31, 2012, when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012, was primarily attributable to a $16.8 million decrease in the average balance of private label mortgage-backed securities outstanding, a $3.1 million decrease in the average balance of U.S. Government agency mortgage-backed securities outstanding, a 26 basis point decrease in the weighted average yield earned on U.S. Government agency mortgage-backed securities and a 3 basis point decrease in the weighted average yield earned on private label mortgage-backed securities outstanding for the nine months ended March 31, 2012, when compared to the same period in 2011. The decrease in the average balances of private-label mortgage-backed securities during the three and nine months ended March 31, 2012 was attributable to principal paydowns of private-label mortgage-backed securities during the periods. The increase in the average balance of U.S. Government agency mortgage-backed securities for the three months ended March 31, 2012, was primarily attributable to $14.4 million in purchases of U.S. Government agency mortgage-backed securities during the quarter, which was partially offset by $86 million in repayments on the U.S. Government agency mortgage-backed securities portfolio. The decrease in the average balance of U.S. Government agency mortgage-backed securities for the nine months ended March 31, 2012, was primarily due to $25.2 million in repayments on the U.S. Government agency mortgage-backed securities portfolio. The decrease in yield is attributable to slightly lower LIBOR interest rates in the nine months ended March 31, 2012 when compared to the same period in 2011.
Interest on net loans receivable decreased $113 thousand or 14.0% and $258 thousand or 10.2% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was primarily attributable to a $8.9 million decrease in the average balance of net loans receivable outstanding, which was partially offset by an increase of 14 basis points in the weighted average yield earned on net loans receivable for the three months ended March 31, 2012, when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012, was primarily attributable to an $8.4 million decrease in the average balance of net loans receivable outstanding, when compared to the same period in 2011, which was partially offset by an increase of 34 basis points in the weighted average yield earned on net loans receivable for the nine months ended March 31, 2012, when compared to the same period in 2011. The increase in yield for the three and nine months ended March 31, 2012 was favorably impacted by $3 thousand and $104 thousand, respectively, of interest income collected on nonaccrual loans. The decrease in the average loan balance of net loans receivable outstanding for the three and nine months ended March 31, 2012 was attributable in part to increased levels of loan payoffs on single-family first mortgage loan and construction loan products. The Company has limited its origination of longer-term fixed rate loans for its portfolio to mitigate its exposure to a rise in market interest rates. The Company will continue to originate longer-term fixed rate loans for sale on a correspondent basis to increase non-interest income and to contribute to net income.
Interest on FDIC insured bank certificates of deposit decreased $22 thousand or 75.9% and $75 thousand or 74.3% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was primarily attributable to a $4.0 million decrease in the average portfolio balance of certificates of deposit and a 69 basis point decrease in the weighted average yield earned when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012 was primarily attributable to a $4.3 million decrease in the weighted average portfolio balance of certificates of deposit and a 69 basis point decrease in the weighted average yield earned when compared to the same periods in 2011. The certificates have remaining maturities ranging from one to thirty months. Due to decreases in yields in this investment sector, the Company has decided to limit reinvestments in certificates of deposit and to redeploy maturities and early issuer redemptions to other investment portfolio segments.
Interest on FHLB stock totaled $2 thousand for both the three and nine months ended March 31, 2012. This is the first dividend payment received on the FHLB stock since November 2008. This was attributable to the Federal Home Loan Bank of Pittsburgh's payment of a dividend on its common stock during the quarter ended March 31, 2012. In December 2008, the FHLB of Pittsburgh announced that it was suspending payments of dividends and redemptions of excess capital stock from members. The FHLB's stated purpose of these actions
was to build retained earnings to ensure adequate regulatory capital. Beginning in the December 2010 quarter, the FHLB began redeeming excess capital stock from members. Redemptions of $421 thousand and $1.3 million were recorded for the three and nine months ended March 31, 2012.
Interest Expense. Interest paid on FHLB advances decreased $334 thousand or 56.9% and $2.1 million or 74.2% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was primarily attributable to a $29.4 million decrease in the average balance of fixed rate legacy FHLB long-term advances and a 21 basis point decrease in the weighted average yield paid on fixed rate legacy FHLB long-term advances, which were partially offset by a $86.2 million increase in the average balance of short-term FHLB advances, when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012 was primarily attributable to a $54.2 million decrease in the average balance of fixed rate legacy FHLB long-term advances and a 43 basis point decrease in the weighted average yield paid on fixed rate legacy FHLB long-term advances, which was partially offset by a $50.4 million increase in the average balance of short-term FHLB advances when compared to the same period in 2011. The decreases in the average balances of fixed-rate legacy long-term FHLB advances during the three and nine months ended March 31, 2012 were due to repayments at maturity, when compared to the same period in 2011. Sources of funds for the repayments were primarily cash flows from the Company's investment portfolio.
Interest expense on deposits and escrows decreased $86 thousand or 39.5% and $332 thousand or 44.0% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease in interest expense on deposits for the three months ended March 31, 2012 was primarily attributable to a $40.7 million decrease in the average balance of whole-sale time deposits, which was partially offset by a 12 basis point increase on the weighted average rate paid on time deposits, when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012 was primarily attributable to a $48.9 million decrease in the average balance of whole-sale time deposits, which was partially offset by a 13 basis point increase in the weighted average rate paid on time deposits, when compared to the same period in 2011. The change in average balances of whole-sale time deposits is a result of the Savings Bank's exit from wholesale brokered CD programs, including the CDARS One Way Buy transactions and to a lesser extent, brokered deposits, when compared to the same periods in 2011.
Interest paid on other short-term borrowings decreased $5 thousand or 100.0% and $19 thousand or 95.0% for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The decrease for both the three and nine months ended March 31, 2012, was attributable to the Company's migration to FHLB short-term borrowings, and away from other short-term borrowings, during the three and nine months ended March 31, 2012. The migration is attributable to more favorable short-term borrowing rates offered by the FHLB when compared to brokers' repurchase agreements.
Provision for (Recovery of) Loan Losses. A provision for loan losses is charged to earnings to maintain the total allowance at a level considered adequate by management to absorb potential losses in the 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.
Provisions for loan losses decreased $13 thousand and $67 thousand for the three and nine months ended March 31, 2012, when compared to the same periods in 2011. The change in the provision for loan losses was primarily attributable to lower levels of non-performing loans. At March 31, 2012, the Company's total allowance for loan losses amounted to $440 thousand or 1.0% of the Company's total loan portfolio, as compared to $630 thousand or 1.2% at June 30, 2011. At March 31, 2012, the Company's nonperforming loans totaled $1.4 million as compared to $2.2 million at June 30, 2011.
Non-Interest Income. Non-interest income decreased by $15 thousand or 12.9% for the three months ended March 31, 2012, and decreased $175 thousand or 44.4% for the nine months ended March 31, 2012, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was primarily attributable to a $14 thousand decrease in service charges on deposits, when compared to the same period in 2011. The decrease for the nine months ended March 31, 2012 was primarily due to a $131 thousand
other-than-temporary impairment loss recognized in earnings on two private-label mortgage-backed securities and decreases in correspondent loan origination, ATM, credit card and deposit fee income, when compared to the same period in 2011.
Non-Interest Expense. Non-interest expense decreased $49 thousand or 5.3% and $135 thousand or 4.7% for the three and nine months ended March 31, 2012, when compared to the same periods in 2011. The decrease for the three months ended March 31, 2012 was principally attributable to a $28 thousand decrease in Federal Deposit Insurance Corporation (FDIC) deposit insurance expense, a decrease of $13 thousand in correspondent bank service charges, and an $8 thousand decrease in occupancy and equipment expenses. The decrease for the nine months ended March 31, 2012 was primarily attributable to an $115 thousand decrease in FDIC insurance expense, an $18 thousand decrease in correspondent bank service charges and a $16 thousand decrease in occupancy and equipment expenses.
Income Tax Expense. Income tax expense increased $25 thousand and $305 thousand for the three and nine months ended March 31, 2012, respectively, when compared to the same periods in 2011. The increase for the three and nine months ended March 31, 2012 was primarily due to higher levels of taxable income, when compared to the same periods in 2011.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $932 thousand during the nine months ended March 31, 2012. Net cash provided by operating activities was primarily comprised of Company net income of $996 thousand, $758 thousand of amortization of investment premiums, a $201 thousand decrease in prepaid federal deposit insurance premiums, a $131 thousand net impairment loss recognized in earnings, a $178 thousand decrease in deferred income taxes, and $62 thousand in depreciation of the Company's fixed assets, which were partially offset by a $733 thousand decrease in transaction account clearing balance payable to the Federal Reserve, a $445 thousand decrease in accrued interest receivable, a $63 thousand decrease in accrued interest payable, and a $50 thousand recovery of loan losses.
Funds used for investing activities totaled $66.1 million during the nine months ended March 31, 2012. Primary uses of funds during the nine months ended March 31, 2012 were purchases of: investment securities held to maturity of $101.7 million, investment securities available for sale totaling $45.0 million and mortgage-backed securities held to maturity of $26.0 million. Primary sources of funds during the nine months ended March 31, 2012 consisted of proceeds from investments and mortgage-backed securities within the held to maturity portfolio totaling $60.6 million and $35.1 million, respectively, $5.9 million of net loan repayments, $2.3 million of certificate of deposit net redemptions and $1.3 million of FHLB stock redemptions. During the nine months ended March 31, 2012, the Company has substantially increased the available for sale allocation to bolster balance sheet liquidity due to turmoil in the global financial markets while seeking to earn additional net interest income.
Funds provided by financing activities totaled $66.9 million for the nine months ended March 31, 2012. The primary sources included a $74.7 million increase in FHLB short-term borrowings, and a $3.6 million increase in transaction and savings deposits, which were partially offset by a $5.8 million decrease in retail certificates of deposit, a $5.0 million decrease in legacy FHLB long-term advances, a $248 thousand decrease in whole-sale certificates of deposit, a $68 thousand decrease in escrow accounts, and $247 thousand in cash dividends paid on the Company's common stock. The $5.0 million decrease in FHLB long-term advances reflects paydowns on matured high cost FHLB legacy advances using cash flow from the Company's investment portfolio. The $5.8 million decrease in retail time deposits was primarily attributable to a matured $4 million cash management CD for a local government unit and seasonal withdrawals for the payment of local, county and school taxes by depositors. Management believes that a significant portion of our local maturing deposits will remain with the Company.
The Company's primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and . . .
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