UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 2006
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No.: 0-22444
WVS Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1710500
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9001 Perry Highway
Pittsburgh, Pennsylvania 15237
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (412) 364-1911
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share NASDAQ Global Market
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(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes[_] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes[_] No [X]
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer[_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [_] No [X]
As of December 31, 2005, the aggregate value of the 1,929,265 shares of Common
Stock of the registrant issued and outstanding on such date, which excludes
422,803 shares held by all directors and officers of the registrant as a group,
was approximately $31.3 million. This figure is based on the last known trade
price of $16.21 per share of the registrant's Common Stock on December 31, 2005.
Number of shares of Common Stock outstanding as of September 25, 2006: 2,320,347
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the fiscal year ended June
30, 2006 are incorporated into Part II.
(2) Portions of the definitive proxy statement for the 2006 Annual Meeting of
Stockholders are incorporated into Part III.
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:
o 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;
o 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 and lease losses or a reduced demand for
credit or fee-based products and services;
o changes in the interest rate environment could reduce net interest
income and could increase credit losses;
o 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;
o changes in the extensive laws, regulations and policies governing
financial holding companies and their subsidiaries could alter our
business environment or affect our operations;
o 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;
o 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;
o acquisitions may result in one-time changes to income, may not
produce revenue enhancements or cost savings at levels or within
time frames originally anticipated and may result in unforeseen
integration difficulties; and
o 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.
2
PART I.
Item 1. Business.
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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. The Savings Bank converted to the stock form of ownership in
November 1993. The Savings Bank had no subsidiaries at June 30, 2006.
Lending Activities
General. At June 30, 2006, the Company's net portfolio of loans
receivable totaled $55.7 million, as compared to $60.2 million at June 30, 2005.
Net loans receivable comprised 13.2% of the Company's total assets and 36.7% of
total deposits at June 30, 2006, as compared to 14.3% and 36.6%, respectively,
at June 30, 2005. The principal categories of loans in the Company's portfolio
are single-family and multi-family residential real estate loans, commercial
real estate loans, construction loans, consumer loans, land acquisition and
development loans and commercial loans. Substantially all of the Company's
mortgage loan portfolio consists of conventional mortgage loans, which are loans
that are neither insured by the Federal Housing Administration ("FHA") nor
partially guaranteed by the Department of Veterans Affairs ("VA"). Historically,
the Company's lending activities have been concentrated in single-family
residential and land development and construction loans secured by properties
located in its primary market area of northern Allegheny County, southern Butler
County and eastern Beaver County, Pennsylvania.
On occasion, the Company has also purchased whole loans and loan
participations secured by properties located outside of its primary market area
but predominantly in Pennsylvania. The Company believes that substantially all
of its mortgage loans are secured by properties located in Pennsylvania.
Moreover, substantially all of the Company's non-mortgage loan portfolio
consists of loans made to residents and businesses located in the Company's
primary market area.
Federal regulations impose limitations on the aggregate amount of loans
that a savings institution can make to any one borrower, including related
entities. The permissible amount of loans-to-one borrower follows the national
bank standard for all loans made by savings institutions, which generally does
not permit loans-to-one borrower to exceed 15% of unimpaired capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully secured by readily
marketable securities. At June 30, 2006, the Savings Bank's limit on
loans-to-one borrower was approximately $4.2 million. The Company's general
policy has been to limit loans-to-one borrower, including related entities, to
$2.0 million although this general limit may be exceeded based on the merit of a
particular credit. At June 30, 2006, the Company's five largest loans or groups
of loans-to-one borrower, including related entities, ranged from an aggregate
of $1.6 million to $2.8 million, and are secured primarily by real estate
located in the Company's primary market area.
3
Loan Portfolio Composition. The following table sets forth the
composition of the Company's net loans receivable portfolio by type of loan at
the dates indicated.
At June 30,
-----------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------------ ------------------ ------------------ ------------------ ------------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(Dollars in Thousands)
Real estate loans:
Single-family $17,702 26.72% $20,680 27.86% $25,825 32.52% $43,255 40.91% $89,889 53.69%
Multi-family 4,339 6.55 4,960 6.68 4,761 5.99 5,196 4.92 6,173 3.69
Commercial 7,574 11.43 8,561 11.53 9,950 12.53 17,949 16.98 25,439 15.19
Construction 20,964 31.64 22,065 29.72 18,070 22.76 16,942 16.03 19,965 11.92
Land acquisition
and development 3,221 4.86 5,884 7.93 7,947 10.01 7,437 7.03 6,691 4.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total real estate
Loans 53,800 81.20 62,150 83.72 66,553 83.81 90,779 85.87 148,157 88.49
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Consumer loans:
Home equity 9,444 14.26 10,082 13.58 11,018 13.88 12,374 11.70 16,319 9.75
Education -- 0.00 -- 0.00 -- 0.00 -- 0.00 1 0.00
Other 962 1.45 1,089 1.47 870 1.09 1,069 1.01 1,514 0.90
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total consumer
Loans 10,406 15.71 11,171 15.05 11,888 14.97 13,443 12.71 17,834 10.65
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Commercial loans 2,050 3.09 915 1.23 968 1.22 1,499 1.42 1,447 0.86
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Commercial lease
Financings -- 0.00 -- 0.00 -- 0.00 -- 0.00 -- 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
66,256 100.00% 74,236 100.00% 79,409 100.00% 105,721 100.00% 167,438 100.00%
------- ======= ------- ======= ------- ======= ------- ======= ------- =======
Less:
Undisbursed loan
Proceeds (9,512) (12,882) (9,956) (11,348) (11,311)
Net deferred loan
Origination fees (85) (82) (115) (174) (464)
Allowance for loan
Losses (957) (1,121) (1,370) (2,530) (2,758)
------- ------- ------- ------- -------
Net loans
Receivable $55,702 $60,151 $67,968 $91,669 $152,905
======= ======= ======= ======= ========
Contractual Maturities. The following table sets forth the scheduled
contractual maturities of the Company's loans and mortgage-backed securities at
June 30, 2006. The amounts shown for each period do not take into account loan
prepayments and normal amortization of the Company's loan portfolio.
Real Estate Loans
-------------------------------------------------------------
Land Consumer
acquisition loans and Mortgage
Single- Multi- and commercial -backed
family family Commercial Construction development loans securities Total
------ ------ ---------- ------------ ----------- ----- ---------- -----
(Dollars in Thousands)
Amounts due in:
One year or less $ 32 $ -- $ 235 $ 20,507 $ 2,652 $ 1,485 $ -- $ 24,911
After one year through
five years 1,273 45 1,111 347 491 5,654 -- 8,921
After five years 16,397 4,294 6,228 110 78 5,317 155,753 188,177
-------- -------- -------- -------- -------- -------- -------- --------
Total(1) $ 17,702 $ 4,339 $ 7,574 $ 20,964 $ 3,221 $ 12,456 $155,753 $222,009
======== ======== ======== ======== ======== ======== ======== ========
Interest rate terms on amounts due after one year:
Fixed $ 15,450 $ 28 $ 2,688 $ 457 $ 378 $ 6,861 $ 2,292 $ 28,154
Adjustable 2,220 4,311 4,651 -- 191 4,110 153,461 168,944
-------- -------- -------- -------- -------- -------- -------- --------
Total $ 17,670 $ 4,339 $ 7,339 $ 457 $ 569 $ 10,971 $155,753 $197,098
======== ======== ======== ======== ======== ======== ======== ========
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(1) Does not include adjustments relating to loans in process, the
allowance for loan losses, accrued interest, deferred fee income and
unearned discounts.
4
Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less than
their average contractual terms because of prepayments and due-on-sale clauses.
The average life of mortgage loans tends to increase when current mortgage loan
rates are substantially higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgages are substantially higher
than current mortgage loan rates (due to refinancings of adjustable-rate and
fixed-rate loans at lower rates).
The Company has from time to time renewed commercial real estate loans
and speculative construction (single-family) loans due to slower than expected
sales of the underlying collateral. Commercial real estate loans are generally
renewed at a contract rate that is the greater of the market rate at the time of
the renewal or the original contract rate. Loans secured by speculative
single-family construction or developed lots are generally renewed for an
additional six month term with monthly payments of interest. Subsequent
renewals, if necessary, are generally granted for an additional six month term;
principal amortization may also be required. Land acquisition and development
loans are generally renewed for an additional twelve month term with monthly
payments of interest.
At June 30, 2006, the Company had approximately $4.1 million of renewed
commercial real estate and construction loans. The $4.1 million in aggregate
disbursed principal that has been renewed is comprised of: single-family
speculative construction loans totaling $3.3 million and land acquisition and
development loans totaling $807 thousand. Management believes that the
previously discussed whole loans will self-liquidate during the normal course of
business, though some additional rollovers may be necessary. All of the loans
that have been rolled over are in compliance with all loan terms, including the
receipt of all required payments, and are considered performing loans.
Origination, Purchase and Sale of Loans. Applications for residential
real estate loans and consumer loans are accepted at all of the Company's
offices. Applications for commercial real estate loans are taken only at the
Company's Franklin Park office. Loan applications are primarily attributable to
existing customers, builders, walk-in customers and referrals from both real
estate loan brokers and existing customers.
All processing and underwriting of real estate and commercial business
loans is performed solely at the Company's loan division at the Franklin Park
office. The Company believes this centralized approach to approving such loan
applications allows it to process and approve such applications faster and with
greater efficiency. The Company also believes that this approach increases its
ability to service the loans. The Savings Bank's Director of Retail Lending
authority ranges from $5 thousand (unsecured loans) to $300 thousand (loans
secured by first mortgage liens). With the approval of the Savings Bank's
President, the individual lending authorities range from $25 thousand
(unsecured), $500 thousand (loans secured by non-real estate collateral), $750
thousand (first and second mortgages) and $2 million on secured builder lines of
credit. All loan applications are required to be ratified by the Company's Loan
Committee, comprised of both outside directors and management, which meets at
least monthly.
Historically, the Company has originated substantially all of the loans
retained in its portfolio. Substantially all of the residential real estate
loans originated by the Company have been under terms, conditions and
documentation which permit their sale to the Fannie Mae and other investors in
the secondary market. Although West View has not been a frequent seller of loans
in the secondary market, the Savings Bank is on the Fannie Mae approved list of
sellers/servicers. The Company has held most of the loans it originates in its
own portfolio until maturity, due, in part, to competitive pricing conditions in
the marketplace for origination by nationwide lenders and portfolio lenders.
The Company has not been an aggressive purchaser of loans. However, the
Company may purchase whole loans or loan participations in those instances where
demand for new loan originations in the Company's market area is insufficient or
to increase the yield earned on the loan portfolio. Such loans are generally
presented to the Company from contacts primarily at other financial
institutions, particularly those which have previously done business with the
Company. At June 30, 2006, $763 thousand or 1.4% of the Company's net loans
receivable consisted of single-family mortgage whole loans purchased from
another financial institution.
5
The Company requires that all purchased loans be underwritten in
accordance with its underwriting guidelines and standards. The Company reviews
loans, particularly scrutinizing the borrower's ability to repay the obligation,
the appraisal and the loan-to-value ratio. Servicing of loans or loan
participations purchased by the Company generally is performed by the seller,
with a portion of the interest being paid by the borrower retained by the seller
to cover servicing costs. At June 30, 2006, $763 thousand or 1.4% of the
Company's net loans receivable were being serviced for the Company by others.
The following table shows origination, purchase and sale activity of
the Company with respect to loans on a consolidated basis during the periods
indicated.
At or For the Year Ended June 30,
---------------------------------
2006 2005 2004
---- ---- ----
(Dollars in Thousands)
Net loans receivable beginning balance $ 60,151 $ 67,968 $ 91,669
Real estate loan originations
Single-family(1) 1,349 890 2,202
Multi-family(2) -- 495 1,319
Commercial 325 2,002 1,433
Construction 8,932 12,307 10,730
Land acquisition and development 299 353 982
-------- -------- --------
Total real estate loan originations 10,905 16,047 16,666
-------- -------- --------
Home equity 2,088 1,680 3,186
Education -- -- --
Commercial 480 100 --
Other 179 303 258
-------- -------- --------
Total loan originations 13,652 18,130 20,110
-------- -------- --------
Disbursements against available credit lines:
Home equity 2,554 2,848 3,215
Other 9 6 7
Commercial 1,638 725 459
Purchase of whole loans and participations -- -- 388
-------- -------- --------
Total originations and purchases 17,853 21,709 24,179
-------- -------- --------
Less:
Loan principal repayments 25,527 28,378 47,376
Sales of whole loans (3) -- 4 17
Sales of participation interests (4) -- -- 979
Transferred to real estate owned 10 70 550
Change in loans in process (3,074) 1,355 179
Other, net(5) (161) (281) (1,221)
-------- -------- --------
Net decrease $ (4,449) $ (7,817) $(23,701)
-------- -------- --------
Net loans receivable ending balance $ 55,702 $ 60,151 $ 67,968
======== ======== ========
--------------
(1) Consists of loans secured by one-to-four family properties.
(2) Consists of loans secured by five or more family properties.
(3) Loans sold included servicing rights.
(4) As of June 30, 2006, loans serviced for others totaled approximately $767
thousand.
(5) Includes reductions for net deferred loan origination fees and the allowance
for loan losses.
6
Real Estate Lending Standards. All financial institutions are required
to adopt and maintain comprehensive written real estate lending policies that
are consistent with safe and sound banking practices. These lending policies
must reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies ("Guidelines") adopted by the federal banking agencies in December
1992. The Guidelines set forth uniform regulations prescribing standards for
real estate lending. Real estate lending is defined as an extension of credit
secured by liens on interests in real estate or made for the purpose of
financing the construction of a building or other improvements to real estate,
regardless of whether a lien has been taken on the property.
The policies must address certain lending considerations set forth in
the Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards, and
documentation, approval and reporting requirements. These policies must also be
appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the Board of Directors at least
annually. The LTV ratio framework, with a LTV ratio being the total amount of
credit to be extended divided by the appraised value of the property at the time
the credit is originated, must be established for each category of real estate
loans. If not a first lien, the lender must combine all senior liens when
calculating this ratio. The Guidelines, among other things, establish the
following supervisory LTV limits: raw land (65%); land development (75%);
construction (commercial, multi-family and non-residential) (80%); improved
property (85%); and one-to-four family residential (owner-occupied) (no maximum
ratio; however any LTV ratio in excess of 80% should require appropriate
mortgage insurance or readily marketable collateral). Consistent with its
conservative lending philosophy, the Company's LTV limits are generally more
restrictive than those in the Guidelines: raw land (60%); land development
(70%); construction (commercial - 70%; multi-family - 75%; speculative
residential - 80%); and residential properties (80%).
Single-Family Residential Real Estate Loans. Historically, savings
institutions such as the Company have concentrated their lending activities on
the origination of loans secured primarily by first mortgage liens on existing
single-family residences. At June 30, 2006, $17.7 million or 26.7% of the
Company's total loan portfolio consisted of single-family residential real
estate loans, substantially all of which are conventional loans. Single-family
loan originations totaled $1.3 million and increased $459 thousand or 51.6%
during the fiscal year ended June 30, 2006, when compared to the same period in
2005. Due to low levels of market interest rates, the Company continued to
reduce its portfolio originations of long-term fixed rate mortgages, while
continuing to offer consumer, home equity, construction loans, land acquisition
and development loans and commercial loans.
The Company historically has originated fixed-rate loans with terms of
up to 30 years. Although such loans are originated with the expectation that
they will be maintained in the portfolio, these loans are originated generally
under terms, conditions and documentation that permit their sale in the
secondary market. The Company also makes available single-family residential
adjustable-rate mortgages ("ARMs"), which provide for periodic adjustments to
the interest rate, but such loans have never been as widely accepted in the
Company's market area as the fixed-rate mortgage loan products. The ARMs
currently offered by the Company have up to 30-year terms and an interest rate,
which adjusts in accordance with one of several indices.
At June 30, 2006, approximately $15.5 million or 87.6% of the
single-family residential loans in the Company's loan portfolio consisted of
loans which provide for fixed rates of interest. Although these loans generally
provide for repayments of principal over a fixed period of 15 to 30 years, it is
the Company's experience that because of prepayments and due-on-sale clauses,
such loans generally remain outstanding for a substantially shorter period of
time.
The Company is permitted to lend up to 100% of the appraised value of
real property securing a residential loan; however, if the amount of a
residential loan originated or refinanced exceeds 95% of the appraised value,
the Company is required by state banking regulations to obtain private mortgage
insurance on the portion of the principal amount that exceeds 75% of the
appraised value of the security property. Pursuant to underwriting guidelines
adopted by the Board of Directors, private mortgage insurance is obtained on
residential loans for which loan-to-value ratios exceed 80% according to the
following schedule: loans exceeding 80% but less than 90% - 25% coverage; loans
exceeding 90% but less than 95% - 30% coverage; and loans exceeding 95% through
100% - 35% coverage. No loans are made in excess of 100% of appraised value.
7
Property appraisals on the real estate and improvements securing the
Company's single-family residential loans are made by independent appraisers
approved by the Board of Directors. Appraisals are performed in accordance with
federal regulations and policies. The Company obtains title insurance policies
on most of the first mortgage real estate loans originated. If title insurance
is not obtained or is unavailable, the Company obtains an abstract of title and
a title opinion. Borrowers also must obtain hazard insurance prior to closing
and, when required by the United States Department of Housing and Urban
Development, flood insurance. Borrowers may be required to advance funds, with
each monthly payment of principal and interest, to a loan escrow account from
which the Company makes disbursements for items such as real estate taxes and
mortgage insurance premiums as they become due.
Multi-Family Residential and Commercial Real Estate Loans. The Company
originates mortgage loans for the acquisition and refinancing of existing
multi-family residential and commercial real estate properties. At June 30,
2006, $4.3 million or 6.5% of the Company's total loan portfolio consisted of
loans secured by existing multi-family residential real estate properties, which
represented a decrease of $621 thousand or 12.5% from fiscal 2005. Of the $4.3
million, approximately $4.3 million or 99.4% provide for an adjustable rate of
interest, while approximately $28 thousand or 0.6% are fixed rate loans.
At June 30, 2006, $7.6 million or 11.4% of the Company's loan portfolio
consisted of loans secured by existing commercial real estate properties, which
represented a decrease of $987 thousand or 11.5% from fiscal 2005. Of the $7.6
million, approximately $4.7 million or 61.8% provide for an adjustable rate of
interest, while approximately $2.9 million or 38.2% are fixed rate loans.
The majority of the Company's multi-family residential loans are
secured primarily by 5 to 20 unit apartment buildings, while commercial real
estate loans are secured by office buildings, hotels, small retail
establishments and churches. These types of properties constitute the majority
of the Company's commercial real estate loan portfolio. The Company's
multi-family residential and commercial real estate loan portfolio consists
primarily of loans secured by properties located in its primary market area.
Although terms vary, multi-family residential and commercial real
estate loans generally are amortized over a period of up to 15 years (although
some loans amortize over a 20 year period) and mature in 5 to 15 years. The
Company will originate these loans either with fixed or adjustable interest
rates which generally is negotiated at the time of origination. Loan-to-value
ratios on the Company's commercial real estate loans are currently limited to
75% or lower. As part of the criteria for underwriting multi-family residential
and commercial real estate loans, the Company generally imposes a debt coverage
ratio (the ratio of net cash from operations before payment of the debt service
to debt service) of at least 100%. It is also the Savings Bank's general policy
to obtain personal guarantees on its multi-family residential and commercial
real estate loans from the principals of the borrower and, when this cannot be
obtained, to impose more stringent loan-to-value, debt service and other
underwriting requirements.
At June 30, 2006, the Company's multi-family residential and commercial
real estate loan portfolio consisted of approximately 43 loans with an average
principal balance of $277 thousand. At June 30, 2006, the Company had one
commercial real estate loan, totaling $984 thousand that was classified as a
potential problem loan. During the year ended June 30, 2006, $77 thousand of
interest was collected and recognized.
Construction Loans. For many years, the Company has been active in
originating loans to construct primarily single-family residences, and, to a
much lesser extent, loans to acquire and develop real estate for construction of
residential properties. These construction lending activities generally are
limited to the Company's primary market area. At June 30, 2006, construction
loans amounted to approximately $21.0 million or 31.6% of the Company's total
loan portfolio, which represented a decrease of $1.1 million or 5.0% from fiscal
2005. The decrease was principally due to decreased levels of new home
construction. As of June 30, 2006, the Company's portfolio of construction loans
consisted primarily of $20.7 million of loans for the construction of
single-family residential real estate. Construction loan originations totaled
$8.9 million and decreased by $3.4 million or 27.6% during the fiscal year ended
June 30, 2006, when compared to the same period in 2005.
Construction loans are made for the purpose of constructing a
single-family residence. The Company will underwrite such loans to individuals
on a construction/permanent mortgage loan basis or to a builder/developer on a
speculative (not pre-sold) construction mortgage loan basis. At June 30, 2006,
8
approximately 98.8% of total outstanding construction loans were made to local
real estate builders and developers with whom the Company has worked for a
number of years for the purpose of constructing primarily single-family
residences. Upon application, credit review and analysis of personal and
corporate financial statements, the Company may grant local builders lines of
credit up to designated amounts. These credit lines may be used for the purpose
of construction of speculative residential properties. In some instances, lines
of credit will also be granted for purposes of acquiring finished residential
lots and developing speculative residential properties thereon. Such lines
generally have not exceeded $1.0 million, with the largest line totaling
approximately $1.2 million. Once approved for a construction line, a developer
must still submit plans and specifications and receive the Company's
authorization, including an appraisal of the collateral satisfactory to the
Company, in order to begin utilizing the line for a particular project. As of
June 30, 2006, the Company also had $3.2 million or 4.9% of the total loan
portfolio invested in land development loans, which consisted of 18 loans to 14
developers.
Speculative construction loans generally have maturities of 18 months,
including one 6 month extension, with payments being made monthly on an
interest-only basis. Thereafter, the permanent financing arrangements will
generally provide for either an adjustable or fixed interest rate, consistent
with the Company's policies with respect to residential and commercial real
estate financing.
The Company intends to maintain its involvement in construction lending
within its primary market area. Such loans afford the Company the opportunity to
increase the interest rate sensitivity of its loan portfolio. Commercial real
estate and construction lending is generally considered to involve a higher
level of risk as compared to single-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developers and managers.
Moreover, a construction loan can involve additional risks because of the
inherent difficulty in estimating both a property's value at completion of the
project and the estimated cost (including interest) of the project. The nature
of these loans is such that they are generally more difficult to evaluate and
monitor. In addition, speculative construction loans to a builder are not
necessarily pre-sold and thus pose a greater potential risk to the Company than
construction loans to individuals on their personal residences.
The Company has attempted to minimize the foregoing risks by, among
other things, limiting the extent of its commercial real estate lending
generally and by limiting its construction lending to primarily residential
properties. In addition, the Savings Bank has adopted underwriting guidelines
which impose stringent loan-to-value, debt service and other requirements for
loans which are believed to involve higher elements of credit risk, by generally
limiting the geographic area in which the Savings Bank will do business to its
primary market area and by working with builders with whom it has established
relationships.
Consumer Loans. The Company offers consumer loans, although such
lending activity has not historically been a large part of its business. At June
30, 2006, $10.4 million or 15.7% of the Company's total loan portfolio consisted
of consumer loans, which represented a decrease of $765 thousand or 6.8% from
fiscal 2005. The consumer loan portfolio, like the mortgage loan portfolio,
decreased due to the low levels of market interest rates and an increase in loan
refinances. The consumer loans offered by the Company include home equity loans,
home equity lines of credit, automobile loans, loans secured by deposit accounts
and personal loans. Approximately 90.8% of the Company's consumer loans are
secured by real estate and are primarily obtained through existing and walk-in
customers.
The Company will originate either a fixed-rate, fixed term home equity
loan, or a home equity line of credit with a variable rate. At June 30, 2006,
approximately 68.6% of the Company's home equity loans were at a fixed rate for
a fixed term. Although there have been a few exceptions with greater
loan-to-value ratios, substantially all of such loans are originated with a
loan-to-value ratio which, when coupled with the outstanding first mortgage
loan, does not exceed 80%.
Commercial Loans. At June 30, 2006, $2.1 million or 3.1% of the
Company's total loan portfolio consisted of commercial loans, which include
loans secured by accounts receivable, business inventory and equipment, and
similar collateral. The $1.1 million or 124.0% increase from fiscal 2005 was
principally due to the Company's emphasis in making these types of loans. The
Company is continuing to develop this line of business in order to increase
interest income and to attract compensating deposit account balances.
Loan Fee Income. In addition to interest earned on loans, the Company
may receive income from fees in connection with loan originations, loan
modifications, late payments, prepayments and for
9
miscellaneous services related to its loans. Income from these activities varies
from period to period with the volume and type of loans made and competitive
conditions.
The Company's loan origination fees are generally calculated as a
percentage of the amount borrowed. Loan origination and commitment fees and all
incremental direct loan origination costs are deferred and recognized over the
contractual remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are accreted and amortized in the same
manner. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 91, the Company has recognized $19 thousand, $61 thousand and $172 thousand
of deferred loan fees during fiscal 2006, 2005 and 2004, respectively, in
connection with loan refinancings, payoffs and ongoing amortization of
outstanding loans. The decreases in loan origination fee income for fiscal year
2006 was principally attributable to a higher volume of loan refinancings with
lower or no loan origination fees. Loans previously originated with lower or no
loan origination fees will reduce the recognition of associated deferred fee
balances.
Non-Performing Loans, Real Estate Owned, Troubled Debt Restructurings
and Potential Problem Loans. When a borrower fails to make a required payment on
a loan, the Company attempts to cure the deficiency by contacting the borrower
and seeking payment. Contacts are generally made on the fifteenth day after a
payment is due. In most cases, deficiencies are cured promptly. If a delinquency
extends beyond 15 days, the loan and payment history is reviewed and efforts are
made to collect the loan. While the Company generally prefers to work with
borrowers to resolve such problems, when the account becomes 90 days delinquent,
the Company does institute foreclosure or other proceedings, as necessary, to
minimize any potential loss.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Company normally does not accrue interest on loans past due 90 days or more.
The Company may continue to accrue interest if, in the opinion of management, it
believes it will collect on the loan.
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired, it is recorded at the lower of cost or fair value at
the date of acquisition. Any subsequent write-down, if necessary, is charged to
the allowance for losses on real estate owned. All costs incurred in maintaining
the Company's interest in the property are capitalized between the date the loan
becomes delinquent and the date of acquisition. After the date of acquisition,
all costs incurred in maintaining the property are expensed and costs incurred
for the improvement or development of such property are capitalized.
Potential problem loans are loans where management has some doubt as to
the ability of the borrower to comply with present loan repayment terms.
10
The following table sets forth the amounts and categories of the
Company's non-performing assets at the dates indicated.
At June 30,
------------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
(Dollars in Thousands)
Non-accruing loans:
Real estate:
Single-family(1) $ 291 $ 58 $ 281 $ 59 $ 582
Commercial -- -- 4 3,342 3,267
Construction -- 456 -- -- 520
Land Acquisition and Development -- 387 427 58 477
Consumer (2) 17 86 71 -- --
Commercial loans and leases -- -- 45 22 198
--------- --------- --------- --------- ---------
Total non-accrual loans 308 987 828 3,481 5,044
--------- --------- --------- --------- ---------
Accruing loans greater than 90 days
Delinquent -- -- -- -- --
--------- --------- --------- --------- ---------
Total non-performing loans $ 308 $ 987 $ 828 $ 3,481 $ 5,044
--------- --------- --------- --------- ---------
Real estate owned (3) 10 70 -- -- 235
--------- --------- --------- --------- ---------
Total non-performing assets $ 318 $ 1,057 $ 828 $ 3,481 $ 5,279
========= ========= ========= ========= =========
Troubled debt restructurings $ -- $ 1,114 $ 1,343 $ 2,497 $ --
========= ========= ========= ========= =========
Potential problem loans (4) $ 1,377 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Total non-performing loans and potential
problem loans and troubled debt restructurings
as a percentage of net loans receivable 3.03% 3.49% 3.19% 4.36 % 3.30 %
========= ========= ========= ========= =========
Total non-performing assets to total assets 0.08% 0.25% 0.19% 0.95 % 1.30 %
========= ========= ========= ========= =========
Total non-performing assets, troubled debt
restructurings and potential problem loans
as a percentage of total assets 0.40% 0.52% 0.50% 1.09 % 1.30 %
========= ========= ========= ========= =========
----------------
(1) At June 30, 2006, non-accrual single-family residential real estate loans
consisted of five loans.
(2) At June 30, 2006, non-accrual consumer loans consisted of one loan.
(3) At June 30, 2006, real estate owned consisted of one single-family
residential dwelling.
(4) At June 30, 2006, potential problem loans consisted of three loans.
The $739 thousand decrease in non-performing assets during the twelve
months ended June 30, 2006 was primarily attributable to: the payoff in full of
one non-performing speculative construction loan totaling approximately $456
thousand; the reclassification of two claims related to a bankruptcy discussed
below totaling approximately $446 thousand from non-performing to potential
problem loans; the sale of a single-family home with a carrying value of
approximately $70 thousand; the reclassification of an $11 thousand home equity
line of credit loan from non-performing to performing status; and a $7 thousand
partial charge off and transfer to other assets of a home equity loan, which
were partially offset by the addition to non-accrual status of one line of
credit loan secured by real property totaling approximately $17 thousand, and
four single-family real estate loans totaling approximately $234 thousand.
The Company has one restructured and potential problem commercial real
estate loan to a retirement village located in the North Hills. The Savings
Bank's outstanding principal balance totaled $2.0 million at June 30, 2003.
During the quarter ended September 30, 2003, the Savings Bank redeemed $388
thousand of participating interests. During the quarter ended December 31, 2003,
the Bank sold a forty percent participating interest to another financial
institution at par resulting in proceeds totaling $979 thousand. The Savings
Bank's outstanding principal balance totaled $984 thousand at June 30, 2006. The
Company had recorded interest received on this credit on a cost recovery basis
until September 30, 2003 and is now recording interest income.
At June 30, 2006, the Company had one restructured loan secured by
undeveloped land totaling $347 thousand and one restructured unsecured loan
totaling $46 thousand to two borrowers. These potential problem loans represent
two adjudicated Bankruptcy Court Claims in connection with a previously reported
loan to a personal care home. During fiscal 2004, the personal care home was
sold for net proceeds of approximately $50 thousand. During the fourth quarter
of fiscal 2004, the Bankruptcy Court approved a secured claim totaling $440
thousand, and an unsecured claim totaling $76 thousand, be paid in
11
accordance with a Bankruptcy Plan of Reorganization. All Court ordered Plan
payments have been received in a timely manner. In accordance with generally
accepted accounting principles, the Company had recorded interest payments
received on a cost recovery basis until June 30, 2006 and is now recording
interest income.
The Company had one non-accrual single-family real estate loan totaling
approximately $58 thousand at June 30, 2006. This loan is being serviced by
another financial institution, who is proceeding with collection activities.
During fiscal 2006, 2005 and 2004, approximately $23 thousand, $150
thousand and $123 thousand, respectively, of interest would have been recorded
on loans accounted for on a non-accrual basis and troubled debt restructurings
if such loans had been current according to the original loan agreements for the
entire period. These amounts were not included in the Company's interest income
for the respective periods. The amount of interest income on loans accounted for
on a non-accrual basis and troubled debt restructurings that was included in
income during the same periods amounted to approximately $10 thousand, $99
thousand and $94 thousand, respectively.
Allowances for Loan Losses. The allowance for loan losses is
established through provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance account. Subsequent
recoveries, if any, are credited to the allowance. The allowance is maintained
at a level believed adequate by management to absorb estimated potential loan
losses. Management's determination of the adequacy of the allowance is based on
periodic evaluations of the loan portfolio considering past experience, current
economic conditions, composition of the loan portfolio and other relevant
factors. This evaluation is inherently subjective, as it requires material
estimates that may be susceptible to significant change.
Effective December 21, 1993, the FDIC, in conjunction with the Office
of the Comptroller of the Currency, the Office of Thrift Supervision and the
Federal Reserve Board, adopted an Interagency Policy Statement on the Allowance
for Loan and Lease Losses ("Policy Statement"). The Policy Statement, which
effectively supersedes previous FDIC proposed guidance, includes guidance (1) on
the responsibilities of management for the assessment and establishment of an
adequate allowance and (2) for the agencies' examiners to use in evaluating the
adequacy of such allowance and the policies utilized to determine such
allowance. The Policy Statement also sets forth quantitative measures for the
allowance with respect to assets classified substandard and doubtful, described
below, and with respect to the remaining portion of an institution's loan
portfolio. Specifically, the Policy Statement sets forth the following
quantitative measures which examiners may use to determine the reasonableness of
an allowance: (1) 50% of the portfolio that is classified doubtful; (2) 15% of
the portfolio that is classified substandard; and (3) for the portions of the
portfolio that have not been classified (including loans designated special
mention), estimated credit losses over the upcoming twelve months based on facts
and circumstances available on the evaluation date. While the Policy Statement
sets forth this quantitative measure, such guidance is not intended as a "floor"
or "ceiling".
Federal regulations require that each insured savings institution
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard", "doubtful" and "loss".
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of those
classified as substandard with the added characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Another
category designated "asset watch" is also utilized by the Bank for assets which
do not currently expose an insured institution to a sufficient degree of risk to
warrant classification as substandard, doubtful or loss. Assets classified as
substandard or doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified as loss, the
insured institution must either establish specific allowances for loan losses in
the amount of 100% of the portion of the asset classified loss, or charge-off
such amount. General loss allowances established to cover possible losses
related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses do not qualify as regulatory capital.
12
The Company's general policy is to internally classify its assets on a
regular basis and establish prudent general valuation allowances that are
adequate to absorb losses that have not been identified but that are inherent in
the loan portfolio. The Company maintains general valuation allowances that it
believes are adequate to absorb losses in its loan portfolio that are not
clearly attributable to specific loans. The Company's general valuation
allowances are within the following ranges: (1) 0% to 5% of assets subject to
special mention; (2) 5% to 100% of assets classified substandard; and (3) 50% to
100% of assets classified doubtful. Any loan classified as loss is charged-off.
To further monitor and assess the risk characteristics of the loan portfolio,
loan delinquencies are reviewed to consider any developing problem loans. Based
upon the procedures in place, considering the Company's past charge-offs and
recoveries and assessing the current risk elements in the portfolio, management
believes the allowance for loan losses at June 30, 2006, is adequate.
The allowance for loan losses at June 30, 2006 decreased $164 thousand
to $957 thousand. The decrease in the allowance for loan losses was primarily
the result of the Company reallocating $35 thousand of its allowance for loan
loss attributable to off balance sheet liabilities (builder letters of credit
and undisbursed lines of credit) to a separate reserve account for financial
reporting purposes during the first quarter of fiscal 2006 and a $103 thousand
reduction due to continued paydowns of classified loans. The Company believes
that the loan loss reserve levels are prudent and warranted at this time due to
the weakness of the national economy. The changes in prior years reflected a
number of factors, the most significant of which were the changes in the
Company's level of non-performing assets and the industry trend towards greater
emphasis on the allowance method of providing for loan losses.
13
The following table summarizes changes in the Company's allowance for
loan losses and other selected statistics for the periods indicated.
At June 30,
-----------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
(Dollars in Thousands)
Average net loans $ 55,881 $ 62,410 $ 74,656 $125,221 $173,023
======== ======== ======== ======== ========
Allowance balance (at beginning of period) $ 1,121 $ 1,370 $ 2,530 $ 2,758 $ 2,763
Provision for loan losses (161) (46) (794) (228) 57
Charge-offs:
Real estate:
Single-family 7 15 -- -- --
Multi-family -- -- -- -- --
Commercial -- 186 524 -- --
Construction -- -- -- -- --
Land acquisition and development -- -- -- -- --
Consumer:
Home equity -- 25 -- -- 25
Education -- -- -- -- --
Other -- -- -- -- 43
Commercial loans and leases -- 11 -- -- --
-------- -------- -------- -------- --------
Total charge-offs 7 237 524 -- 68
-------- -------- -------- -------- --------
Recoveries:
Real estate:
Single-family -- -- -- -- --
Multi-family -- -- -- -- --
Commercial 4 4 158 -- --
Construction -- 30 -- -- --
Land acquisition and development -- -- -- -- --
Consumer:
Home equity -- -- -- -- --
Education -- -- -- -- --
Other -- -- -- -- 6
Commercial loans and leases -- -- -- -- --
-------- -------- -------- -------- --------
Total recoveries 4 34 158 -- 6
-------- -------- -------- -------- --------
Net loans charged-off 3 203 366 -- 62
Transfer to real estate owned loss reserve -- -- -- -- --
-------- -------- -------- -------- --------
Allowance balance (at end of period) $ 957 $ 1,121 $ 1,370 $ 2,530 $ 2,758
======== ======== ======== ======== ========
Allowance for loan losses as a percentage of
total loans receivable 1.69% 1.83% 1.97% 2.68% 1.77%
======== ======== ======== ======== ========
Net loans charged-off as a percentage of
average net loans 0.01% 0.33% 0.49% 0.00% 0.04%
======== ======== ======== ======== ========
Allowance for loan losses to non-performing
Loans 310.71% 113.58% 165.46% 72.68% 54.68%
======== ======== ======== ======== ========
Net loans charged-off to allowance for loan
Losses 0.31% 18.11% 26.72% 0.00% 2.25%
======== ======== ======== ======== ========
Recoveries to charge-offs 57.14% 14.35% 30.15% 0.00% 8.82%
======== ======== ======== ======== ========
14
The following table presents the allocation of the allowances for loan
losses by loan category at the dates indicated.
At June 30,
-----------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
% of Total Loans by % of Total Loans by % of Total Loans by % of Total Loans by % of Total Loans by
Amount Category Amount Category Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Real estate loans:
Single-family $ 54 26.72% $ 52 27.86% $ 82 32.52% $ 75 40.91% $ 191 53.69%
Multi-family 22 6.55 26 6.68 18 5.99 26 4.92 31 3.69
Commercial 420 11.43 465 11.53 597 12.53 1,944 16.98 1,745 15.19
Construction 32 31.64 54 29.72 30 22.76 33 16.03 300 11.92
Land acquisition
and development 218 4.86 262 7.93 302 10.01 73 7.03 66 4.00
Unallocated -- 0.00 -- 0.00 -- 0.00 -- 0.00 10 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total real estate
Loans 746 81.20 859 83.72 1,029 83.81 2,151 85.87 2,343 88.49
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Consumer loans:
Home equity 103 14.26 128 13.58 117 13.88 124 11.70 165 9.75
Education -- 0.00 -- 0.00 -- 0.00 -- 0.00 -- 0.00
Other 50 1.45 61 1.47 78 1.09 22 1.01 28 0.90
Unallocated -- 0.00 -- 0.00 -- 0.00 -- 0.00 -- 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total consumer
loans 153 15.71 189 15.05 195 14.97 146 12.71 193 10.65
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Commercial loans:
Commercial loans 58 3.09 35 1.23 116 1.22 200 1.42 187 0.86
Unallocated -- 0.00 -- 0.00 -- 0.00 -- 0.00 -- 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total commercial
loans 58 3.09 35 1.23 116 1.22 200 1.42 187 0.86
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Commercial lease
financings -- 0.00 -- 0.00 -- 0.00 -- 0.00 -- 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Off balance-sheet
Items (1) -- 0.00 38 0.00 30 0.00 33 0.00 35 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$ 957 100.00% $ 1,121 100.00% $ 1,370 100.00% $ 2,530 100.00% $ 2,758 100.00%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
-----
(1) In accordance with generally accepted accounting principles, the Company
established a separate reserve for off-balance sheet items beginning in fiscal
2006. At June 30, 2006 this accounting reserve totaled $48 thousand.
The Company determines its allowance for loan losses in accordance with
generally accepted accounting principles. The Company uses a systematic
methodology as required by Financial Reporting Release No. 28 and the various
Federal Financial Institutions Examination Council guidelines. The Company also
endeavors to adhere to SEC Staff Accounting Bulletin No. 102 in connection with
loan loss allowance methodology and documentation issues.
Our methodology used to determine the allocated portion of the
allowance is as follows. For groups of homogenous loans, we apply a loss rate to
the groups' aggregate balance. Our group loss rate reflects our historical loss
experience. We may adjust these group rates to compensate for changes in
environmental factors; but our adjustments have not been frequent due to a
relatively stable charge-off experience. The Company also monitors industry loss
experience on similar loan portfolio segments. We then identify loans for
individual evaluation under SFAS 114. If the individually identified loans are
performing, we apply a segment specific loss rate adjusted for relevant
environmental factors, if necessary, for those loans reviewed individually and
considered individually impaired, we use one of the three methods for measuring
impairment mandated by SFAS 114. Generally the fair value of collateral is used
since our impaired loans are generally real estate based. In connection with the
fair value of collateral measurement, the Company generally uses an independent
appraisal and determines costs to sell. The Company's appraisals for commercial
income based loans, such as multi-family and commercial real estate loans,
assess value based upon the operating cash flows of the business as opposed to
merely "as built" values. The Company then validates the reasonableness of our
calculated allowances by: (1) reviewing trends in loan volume, delinquencies,
restructurings and concentrations; (2) reviewing prior period (historical)
charge-offs and recoveries; and (3) presents the results of this process,
quarterly, to the Asset Classification Committee and the Savings Bank's Board of
Directors. We then tabulate, format and summarize the current loan loss
allowance balance for financial and regulatory reporting purposes.
The Company had no unallocated loss allowance balance at June 30, 2006.
In prior fiscal years, an unallocated loss allowance balance was maintained for
real estate, consumer and small commercial loans.
15
With respect to real estate loans, the Company believed that it was prudent to
maintain a certain level of unallocated loss allowances as the Savings Bank grew
its commercial real estate and construction segments. At the time the Company's
historical loss experience with these two segments was somewhat limited.
Management believed that risks were inherent within those segments but was
uncertain as to the degree of loss. A reasonable estimate, using industry loss
factors, was utilized. The same rationale applied to the unallocated allowance
for consumer loans. The Company had no unallocated consumer loan allowances for
the past five fiscal years.
The following table summarizes the calculations of required allowance
for loan losses by loan category as of June 30, 2006.
Allowance
for
Group Rate Loan Loss
----------------- ---------
Homogenous loans:
Single-family 0.0015 $ 26
Multi-family 0.0050 22
Commercial real estate 0.0100 64
Construction/land acquisition
and development 0.0015 - 0.0100(1) 59
Secured consumer 0.0100 102
Unsecured consumer 0.0500 4
Commercial loans 0.0500 58
Unallocated -
Individually evaluated loans:
Single-family 28
Multi-family -
Commercial real estate 356
Construction/land acquisition
and development 191
Secured consumer 1
Unsecured consumer 46
Commercial loans -
Total allowance for loan losses:
Single-family 54
Multi-family 22
Commercial real estate 420
Construction/land acquisition
and development 250
Secured consumer 103
Unsecured consumer 50
Commercial loans 58
Unallocated -
---------
Total allowance for loan losses $ 957
=========
-----------------------
(1) The rate applied ranges from 0.0015 to 0.0100 depending upon the underlying
collateral, loan type (permanent vs. construction), historical loss experience,
industry loss experience on similar loan segments, delinquency trends, loan
volumes and concentrations, and other relevant economic and environmental
factors.
Management believes that the reserves it has established are adequate
to cover potential losses in the Company's loan portfolio. However, future
adjustments to these reserves may be necessary, and the Company's results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used by management in making its determinations in this
regard.
16
Mortgage-Backed Securities
Mortgage-backed securities ("MBS") include mortgage pass-through
certificates ("PCs") and collateralized mortgage obligations ("CMOs"). With a
pass-through security, investors own an undivided interest in the pool of
mortgages that collateralize the PCs. Principal and interest is passed through
to the investor as it is generated by the mortgages underlying the pool. PCs and
CMOs may be insured or guaranteed by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Fannie Mae ("FNMA") and the Government National Mortgage
Association ("GNMA"). CMOs may also be privately issued with varying degrees of
credit enhancements. A CMO reallocates mortgage pool cash flow to a series of
bonds (called traunches) with varying stated maturities, estimated average
lives, coupon rates and prepayment characteristics. All of the Company's CMOs
are rated in the highest category by at least two national rating services.
At June 30, 2006, the Company's MBS portfolio totaled $155.8 million as
compared to $162.2 million at June 30, 2005. The $6.4 million or 3.9% decrease
in MBS balances outstanding during fiscal 2006 was primarily attributable to
principal repayments on floating rate CMOs which were partially offset by
purchases of floating rate CMOs. At June 30, 2006, approximately $153.5 million
or 98.5% (book value) of the Company's portfolio of MBS, including CMOs, were
comprised of adjustable or floating rate instruments, as compared to $158.4
million or 97.7% at June 30, 2005. Substantially all of the Company's floating
rate MBS adjust monthly based upon changes in certain short-term market indices
(e.g. LIBOR, Prime, etc.).
The following tables set forth the amortized cost and estimated market
values of the Company's MBSs available for sale and held to maturity as of the
periods indicated.
2006 2005 2004
---- ---- ----
MBS Available for Sale at June 30, (Dollars in Thousands)
----------------------------------
FHLMC PCs $ -- $ 44 $ 45
GNMA PCs 2,171 2,333 2,411
FNMA PCs -- 449 686
CMOs - agency collateral 58 67 92
-------- -------- --------
Total amortized cost $ 2,229 $ 2,893 $ 3,234
======== ======== ========
Total estimated market value $ 2,292 $ 3,120 $ 3,357
======== ======== ========
MBS Held to Maturity at June 30,
--------------------------------
FHLMC PCs $ -- $ 9 $ 17
GNMA PCs -- 370 591
FNMA PCs -- 16 19
CMOs - agency collateral 85,436 127,915 57,131
CMOs - single-family whole loan collateral 68,025 30,721 14,475
-------- -------- --------
Total amortized cost $153,461 $159,031 $ 72,233
======== ======== ========
Total estimated market value $152,706 $159,566 $ 72,099
======== ======== ========
The Company believes that its present MBS available for sale allocation
of $2.3 million or 1.5% of the carrying value of the MBS portfolio, is adequate
to meet anticipated future liquidity requirements and to reposition its balance
sheet and asset/liability mix should it wish to do so in the future.
17
The following table sets forth the amortized cost, contractual
maturities and weighted average yields of the Company's MBSs, including CMOs, at
June 30, 2006.
One Year After One to After Five to Over Ten
or Less Five Years Ten Years Years Total
------- ---------- --------- ----- -----
(Dollars in Thousands)
MBS Available for Sale $ -- $ -- $ -- $ 2,229 $ 2,229
0.00% 0.00% 0.00% 7.73% 7.73%
MBS Held to Maturity $ -- $ -- $ -- $ 153,461 $ 153,461
0.00% 0.00% 0.00% 6.16% 6.16%
------------ ------------ ------------ ------------ ------------
Total $ -- $ -- $ -- $ 155,690 $ 155,690
============ ============ ============ ============ ============
Weighted average yield 0.00% 0.00% 0.00% 6.18% 6.18%
============ ============ ============ ============ ============
Due to prepayments of the underlying loans, and the prepayment
characteristics of the CMO traunches, the actual maturities of the Company's MBS
are expected to be substantially less than the scheduled maturities.
The following table sets forth information with respect to the MBS
owned by the Company at June 30, 2006, which had a carrying value greater than
10% of the Company's stockholders' equity at such date, other than securities
issued by the United States Government or United States Government agencies and
corporations. All MBS owned by the Company have been assigned a triple A
investment grade rating.
Number of Estimated
Name of Issuer Securities Carrying Value Market Value
-------------- ---------- -------------- ------------
(Dollars in Thousands)
Countrywide Home Loans 8 $ 35,867 $ 35,846
Chase Mortgage Finance Corp. 2 11,151 11,156
Credit Suisse First Boston Mortgage Securities Corp. 3 10,440 10,445
Bank of America Mortgage Securities 3 6,758 6,811
GSR Mortgage Loan Trust 1 3,809 3,808
-------------- ------------
$ 68,025 $ 68,066
============== ============
Investment Securities
The Company may invest in various types of securities, including
corporate debt and equity securities, U.S. Government and U.S. Government agency
obligations, securities of various federal, state and municipal agencies, FHLB
stock, commercial paper, bankers' acceptances, federal funds and
interest-bearing deposits with other financial institutions.
The Company's investment activities are directly monitored by the
Company's Finance Committee under policy guidelines adopted by the Board of
Directors. In recent years, the general objective of the Company's investment
policy has been to manage the Company's interest rate sensitivity gap and
generally to increase interest-earning assets. As reflected in the table below,
the Company increased its position of U.S. Government Agency obligations while
decreasing its portfolio of floating rate CMO's. The Company purchased
approximately $111.3 million of U.S. Government Agency obligations during fiscal
2006. Outstanding balances totaled $175.8 million or 86.0% of the total
investment portfolio at June 30, 2006, as compared to $149.4 million or 78.3% of
the total investment portfolio at June 30, 2005. At June 30, 2006, approximately
$174.6 million or 99.3% of the Company's U.S. Government Agency portfolio was
comprised of U.S. Government Agency securities with longer-terms to maturity and
optional principal redemption features ("callable bonds").
18
The following tables set forth the amortized cost and estimated market
values of the Company's investment securities portfolio at the dates indicated.
2006 2005 2004
---- ---- ----
Investment Securities Available for Sale at June 30, (Dollars in Thousands)
----------------------------------------------------
Corporate debt obligations $ 4 $ 8,655 $ 2,032
Commercial paper 7,993 -- --
Obligations of states and political subdivisions -- -- --
-------- -------- --------
Total amortized cost 7,997 8,655 2,032
Equity securities 500 500 2,081
-------- -------- --------
Total amortized cost $ 8,497 $ 9,155 $ 4,113
======== ======== ========
Total estimated market value $ 8,469 $ 9,155 $ 4,416
======== ======== ========
Investment Securities Held to Maturity at June 30,
--------------------------------------------------
Corporate debt obligations $ -- $ -- $ 13,772
U.S. Government agency securities 175,755 149,360 223,808
Obligations of states and political subdivisions 12,197 24,551 31,593
-------- -------- --------
187,952 173,911 269,173
FHLB stock 7,861 7,769 7,532
-------- -------- --------
Total amortized cost $195,813 $181,680 $276,705
======== ======== ========
Total estimated market value $193,541 $182,092 $278,635
======== ======== ========
Information regarding the amortized cost, contractual maturities and
weighted average yields of the Company's investment portfolio at June 30, 2006
is presented below.
Investment Securities One Year After One to After Five to Over Ten
Available for Sale or Less Five Years Ten Years Years Total
------------------ ------- ---------- --------- ----- -----
(Dollars in Thousands)
Corporate debt obligations $ 4 $ -- $ -- $ -- $ 4
5.77% 0.00% 0.00% 0.00% 5.77%
Commercial paper $ 7,993 $ -- $ -- $ -- $ 7,993
5.51% 0.00% 0.00% 0.00% 5.51%
---------- ---------- ---------- ---------- ----------
Total $ 7,997 $ -- $ -- $ -- $ 7,997
========== ========== ========== ========== ==========
Weighted average yield 5.51% 0.00% 0.00% 0.00% 5.51%
========== ========== ========== ========== ==========
Investment Securities One Year After One to After Five to Over Ten
Held to Maturity or Less Five Years Ten Years Years Total
---------------- ------- ---------- --------- ----- -----
U.S. Government Agency
securities $ -- $ -- $ 48,360 $ 127,395 $ 175,755
0.00% 0.00% 5.99% 5.20% 5.42%
Obligations of states and political
subdivisions (1) $ -- $ 854 $ 734 $ 10,609 $ 12,197
0.00% 6.55% 8.44% 8.15% 8.06%
---------- ---------- ---------- ---------- ----------
Total $ -- $ 854 $ 49,094 $ 138,004 $ 187,952
========== ========== ========== ========== ==========
Weighted average yield 0.00% 6.55% 6.03% 5.43% 5.59%
========== ========== ========== ========== ==========
-----------------
(1) Tax exempt obligations of states and political subdivisions are calculated
on a taxable equivalent basis utilizing a calculation that reflects the
tax-exempt coupon, a 20% interest expense disallowance and a federal tax rate of
34%.
19
Information regarding the amortized cost, earliest call dates and
weighted average yield of the Company's investment portfolio at June 30, 2006,
is presented below. All Company investments in callable U.S. Government Agency
bonds were classified as held to maturity at June 30, 2006.
One Year After One to After Five to Over Ten
or Less Five Years Ten Years Years Total
------- ---------- --------- ----- -----
Corporate debt obligations $ 4 $ -- $ -- $ -- $ 4
5.77% 0.00% 0.00% 0.00% 5.77%
Commercial paper $ 7,993 $ -- $ -- $ -- $ 7,993
5.51% 0.00% 0.00% 0.00% 5.51%
U.S. Government Agency
securities $ 138,859 $ 35,645 $ -- $ 1,251 $ 175,755
5.27% 6.02% 0.00% 5.38% 5.42%
Obligations of states and political
subdivisions (1) $ 2,295 $ 7,081 $ 2,821 $ -- $ 12,197
8.74% 7.89% 7.91% 0.00% 8.05%
----------- ----------- ----------- ----------- -----------
Total $ 149,151 $ 42,726 $ 2,821 $ 1,251 $ 195,949
=========== =========== =========== =========== ===========
Weighted average yield 5.34% 6.33% 7.91% 5.38% 5.59%
=========== =========== =========== =========== ===========
--------------
(1) Tax exempt obligations of states and political subdivisions are calculated
on a taxable equivalent basis utilizing a calculation that reflects the
tax-exempt coupon, a 20% interest expense disallowance and a federal tax rate of
34%.
At June 30, 2006, the Company had no securities classified as trading
investment securities.
The following table sets forth information with respect to the
investment securities owned by the Company at June 30, 2006 which had a carrying
value greater than 10% of the Company's stockholders' equity at such date, other
than securities issued by the United States Government and United States
Government agencies and corporations. All Pennsylvania school district bonds
securities owned by the Company, including those shown below, have been assigned
an investment grade rating by at least two national rating services.
Estimated
Name of Issuer Carrying Value Market Value
-------------- -------------- ------------
(Dollars in Thousands)
Puget Sound Energy $ 3,997 $ 3,997
Viacom Inc. 3,996 3,996
New Castle PA School District 2,979 3,130
------- -------
$10,972 $11,123
======= =======
Sources of Funds
The Company's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Company's home and branch offices. Funding is also derived from FHLB
advances, short-term borrowings, amortization and prepayments of outstanding
loans and MBS and from maturing investment securities.
Deposits. The Company's deposits totaled $151.7 million at June 30,
2006, as compared to $164.7 million at June 30, 2005. Transaction accounts
decreased approximately $7.9 million or 21.2%. Certificates of deposit increased
approximately $429 thousand or 0.6%. Savings accounts decreased $7.5 million or
16.9% and money market accounts increased $2.9 million or 21.6%. In order to
attract new and lower cost core deposits, the Company continued to promote a no
minimum balance, "free", checking
20
account product and Internet Banking. Current deposit products include regular
savings accounts, demand accounts, negotiable order of withdrawal ("NOW")
accounts, money market deposit accounts and certificates of deposit ranging in
terms from 30 days to 10 years. Included among these deposit products are
certificates of deposit with negotiable interest rates and balances of $100,000
or more, which amounted to $11.0 million or 7.3% of the Company's total deposits
at June 30, 2006, as compared to $13.5 million or 8.2% at June 30, 2005. The
Company's deposit products also include Individual Retirement Account
certificates ("IRA certificates").
The Company's deposits are obtained primarily from residents of
northern Allegheny, southern Butler and eastern Beaver counties, Pennsylvania.
The Company utilizes various marketing methods to attract new customers and
savings deposits, including print media advertising and direct mailings. The
Company does not advertise for deposits outside of its local market area or
utilize the services of deposit brokers, and management believes that an
insignificant number of deposit accounts were held by non-residents of
Pennsylvania at June 30, 2006. The Company has drive-up banking facilities and
automated teller machines ("ATMs") at its McCandless, Franklin Park, Bellevue
and Cranberry Township offices. The Company also has an ATM machine at its West
View Office. The Company participates in the STAR(R) and CIRRUS(R) ATM networks.
The Company also participates in an ATM program called the Freedom ATM
AllianceSM. The Freedom ATM AllianceSM allows West View Savings Bank customers
to use other Pittsburgh area Freedom ATM AllianceSM affiliates' ATMs without
being surcharged and vice versa. The Freedom ATM AllianceSM was organized to
help smaller local banks compete with larger national banks that have large ATM
networks.
The Company has been competitive in the types of accounts and in
interest rates it has offered on its deposit products and continued to price its
savings products nearer to the market average rate as opposed to the upper range
of market offering rates. The Company has continued to emphasize the retention
and growth of core deposits, particularly demand deposits. 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.
The following table sets forth the average balance of the Company's
deposits and the average rates paid thereon for the past three years. Average
balances were derived from daily average balances.
At June 30,
----------------------------------------------------------------
2006 2005 2004
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ----- ----
(Dollars in Thousands)
Regular savings and club
accounts $ 39,877 0.70% $ 44,479 0.70% $ 44,091 0.76%
NOW accounts 20,023 0.06 22,516 0.06 19,948 0.16
Money market deposit
accounts 15,024 2.75 13,538 1.23 13,839 0.79
Certificate of deposit accounts 66,599 3.62 65,036 2.67 72,800 2.52
Escrows 804 1.37 797 1.63 899 1.67
-------- -------- -------- -------- -------- --------
Total interest-bearing
deposits and escrows 142,327 2.19 146,366 1.53 151,577 1.53
Non-interest-bearing checking
accounts 12,513 0.00 12,774 0.00 12,542 0.00
-------- -------- -------- -------- -------- --------
Total deposits and escrows $154,840 2.01% $159,140 1.41% $164,119 1.42%
======== ======== ======== ======== ======== ========
The following table sets forth the net deposit flows of the Company
during the periods indicated.
Year Ended June 30,
-------------------------------
2006 2005 2004
---- ---- ----
(Dollars in Thousands)
Increase (decrease) before interest
credited $(15,947) $ 1,976 $(12,952)
Interest credited 2,954 2,167 2,589
-------- -------- --------
Net deposit increase (decrease) $(12,993) $ 4,143 $(10,363)
======== ======== ========
21
The following table sets forth maturities of the Company's certificates
of deposit of $100,000 or more at June 30, 2006, by time remaining to maturity.
Amounts
-------
(Dollars in Thousands)
Three months or less $ 2,972
Over three months through six months 3,551
Over six months through twelve months 1,572
Over twelve months 2,904
-------
$10,999
=======
Borrowings. Borrowings are comprised of FHLB advances with various
terms and repurchase agreements with securities brokers with original maturities
of ninety-two days or less. At June 30, 2006, borrowings totaled $237.8 million
as compared to $224.7 million at June 30, 2005. The $13.1 million or 5.8%
increase was primarily due to purchases of investments and mortgage-backed
securities and decreases in deposits, which were partially offset by repayments
on the Company's investment, mortgage-backed and loan portfolios. For a detailed
discussion of the Company's asset and liability management activities, please
see the "Quantitative and Qualitative Disclosures about Market Risk" section of
the Company's fiscal year 2006 Annual Report included as Exhibit 13. Wholesale
funding also provides the Company with a larger degree of control with respect
to the term structure of its liabilities than traditional retail deposits. By
utilizing borrowings, as opposed to retail certificates of deposit, the Company
also avoids the additional operating costs associated with increasing its branch
network and associated federal deposit insurance premiums.
Competition
The Company faces significant competition in attracting deposits. Its
most direct competition for deposits has historically come from commercial banks
and other savings institutions located in its market area. The Company also
faces additional significant competition for investors' funds from other
financial intermediaries. The Company competes for deposits principally by
offering depositors a variety of deposit programs, competitive interest rates,
convenient branch locations, hours and other services. The Company does not rely
upon any individual group or entity for a material portion of its deposits.
The Company's competition for real estate loans comes principally from
mortgage banking companies, other savings institutions, commercial banks and
credit unions. The Company competes for loan originations primarily through the
interest rates and loan fees it charges, the efficiency and quality of services
it provides borrowers, referrals from real estate brokers and builders, and the
variety of its products. Factors which affect competition include the general
and local economic conditions, current interest rate levels and volatility in
the mortgage markets.
Employees
The Company had 36 full-time employees and 14 part-time employees as of
June 30, 2006. None of these employees is represented by a collective bargaining
agent. The Company believes that it enjoys excellent relations with its
personnel.
22
REGULATION AND SUPERVISION
The Company
General. The Company, as a bank holding company, is subject to
regulation and supervision by the Federal Reserve Board and by the Pennsylvania
Department of Banking (the "Department"). The Company is required to file
annually a report of its operations with, and is subject to examination by, the
Board of Governors of the Federal Reserve System ("Federal Reserve Board") and
the Department.
Sarbanes-Oxley Act of 2002. On July 3, 2002, President George W. Bush
signed into law the Sarbanes-Oxley Act of 2002, which generally establishes a
comprehensive framework to modernize and reform the oversight of public company
auditing, improve the quality and transparency of financial reporting by those
companies and strengthen the independence of auditors.
BHCA Activities and Other Limitations. The Bank Holding Company Act of
1956, as amended ("BHCA") prohibits a bank holding company from acquiring direct
or indirect ownership or control of more than 5% of the voting shares of any
bank, or increasing such ownership or control of any bank, without prior
approval of the Federal Reserve Board. The BHCA also generally prohibits a bank
holding company from acquiring any bank located outside of the state in which
the existing bank subsidiaries of the bank holding company are located unless
specifically authorized by applicable state law.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefit to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include operating a mortgage company, finance company, credit card
company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full-payout, non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal Reserve Board also has determined that certain other activities,
including real estate brokerage and syndication, land development, property
management and underwriting of life insurance not related to credit
transactions, are not closely related to banking and a proper incident thereto.
Capital Requirements. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the BHCA. The Federal Reserve Board capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount consisting of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill. Tier II capital
generally consists of hybrid capital instruments; perpetual preferred stock
which is not eligible to be included as Tier I capital; term subordinated debt
and intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics, with the categories ranging
from 0% (requiring no additional capital) for assets such as cash to 100% for
the bulk of assets which are typically held by a bank holding company, including
multi-family residential and commercial real estate loans, commercial business
loans and consumer loans. Single-family residential first mortgage loans which
are not (90 days or more) past-due or non-performing and which have been made in
accordance with prudent underwriting standards are assigned a 50% level in the
risk-weighting system, while certain privately-issued MBS representing indirect
ownership of such loans are assigned a 20% level in the risk-weighting system.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.
23
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital to total assets of 3%. Total assets for this purpose
does not include goodwill and any other intangible assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies will be expected to maintain Tier I leverage capital ratios of at
least 4% to 5% or more, depending on their overall condition.
The Company is in compliance with the above-described Federal Reserve
Board regulatory capital requirements.
Commitments to Affiliated Institutions. Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to the
Savings Bank and to commit resources to support the Savings Bank in
circumstances when it might not do so absent such policy. The legality and
precise scope of this policy is unclear.
The Savings Bank
General. The Savings Bank is subject to extensive regulation and
examination by the Department and by the FDIC, which insures its deposits to the
maximum extent permitted by law, and is subject to certain requirements
established by the Federal Reserve Board. The federal and state laws and
regulations which are applicable to banks regulate, among other things, the
scope of their business, their investments, their reserves against deposits, the
timing of the availability of deposited funds and the nature and amount of and
collateral for certain loans. The laws and regulations governing the Savings
Bank generally have been promulgated to protect depositors and not for the
purpose of protecting stockholders.
FDIC Insurance Premiums. The Savings Bank currently pays deposit
insurance premiums to the FDIC on a risk-based assessment system established by
the FDIC. Under applicable regulations, institutions are assigned to one of
three capital groups which is based solely on the level of an institution's
capital - "well capitalized", "adequately capitalized" and "undercapitalized"-
which is defined in the same manner as the regulations establishing the prompt
corrective action system under Section 38 of the Federal Deposit Insurance Act
("FDIA"), as discussed below. These three groups are then divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging from 0.00% for well capitalized, healthy
institutions to 0.27% for undercapitalized institutions with substantial
supervisory concerns. The Savings Bank is a "well capitalized" institution as of
June 30, 2006.
Capital Requirements. The FDIC has promulgated regulations and adopted
a statement of policy regarding the capital adequacy of state-chartered banks
which, like the Savings Bank, are not members of the Federal Reserve System.
These requirements are substantially similar to those adopted by the Federal
Reserve Board regarding bank holding companies, as described above.
The FDIC's capital regulations establish a minimum 3% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively will increase the minimum
Tier I leverage ratio for such other banks to 4% to 5% or more. Under the FDIC's
regulation, highest-rated banks are those that the FDIC determines are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, which are considered a strong banking
organization and rated composite 1 under the Uniform Financial Institutions
Rating System.
A bank which has less than the minimum leverage capital requirement
shall, within 60 days of the date as of which it fails to comply with such
requirement, submit to its FDIC regional director for review and approval, a
reasonable plan describing the means and timing by which the bank shall achieve
its minimum leverage capital requirement. A bank which fails to file such plan
with the FDIC is deemed to be operating in an unsafe and unsound manner, and
could subject the bank to a cease-and-desist order from the FDIC. The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total
24
assets that is less than 2% is deemed to be operating in an unsafe or unsound
condition pursuant to Section 8(a) of the FDIA and is subject to potential
termination of deposit insurance. However, such an institution will not be
subject to an enforcement proceeding thereunder solely on account of its capital
ratios if it has entered into and is in compliance with a written agreement with
the FDIC to increase its Tier I leverage capital ratio to such level as the FDIC
deems appropriate and to take such other action as may be necessary for the
institution to be operated in a safe and sound manner. The FDIC capital
regulation also provides, among other things, for the issuance by the FDIC or
its designee(s) of a capital directive, which is a final order issued to a bank
that fails to maintain minimum capital to be restored to the minimum leverage
capital requirement within a specified time period. Such directive is
enforceable in the same manner as a final cease-and-desist order.
Miscellaneous
The Savings Bank is subject to certain restrictions on loans to the
Company, on investments in the stock or securities thereof, on the taking of
such stock or securities as collateral for loans to any borrower, and on the
issuance of a guarantee or letter of credit on behalf of the Company. The
Savings Bank is also subject to certain restrictions on most types of
transactions with the Company, requiring that the terms of such transactions be
substantially equivalent to terms of similar transactions with non-affiliated
firms. In addition, there are various limitations on the distribution of
dividends to the Company by the Savings Bank.
The foregoing references to laws and regulations which are applicable
to the Company and the Savings Bank are brief summaries thereof which do not
purport to be complete and which are qualified in their entirety by reference to
such laws and regulations.
25
FEDERAL AND STATE TAXATION
General. The Company and the Savings Bank are subject to the generally
applicable corporate tax provisions of the Internal Revenue Code of 1986 (the
"Code"), as well as certain provisions of the Code which apply to thrift and
other types of financial institutions. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Company and the Savings Bank.
Fiscal Year. The Company currently files a consolidated federal income
tax return on the basis of the calendar year ending on December 31.
Method of Accounting. The Company maintains its books and records for
federal income tax purposes using the accrual method of accounting. The accrual
method of accounting generally requires that items of income be recognized when
all events have occurred that establish the right to receive the income and the
amount of income can be determined with reasonable accuracy and that items of
expense be deducted at the later of (1) the time when all events have occurred
that establish the liability to pay the expense and the amount of such liability
can be determined with reasonable accuracy or (2) the time when economic
performance with respect to the item of expense has occurred.
Bad Debt Reserves. Historically under Section 593 of the Code, thrift
institutions such as the Savings Bank, which met certain definitional tests
primarily relating to their assets and the nature of their business, were
permitted to establish a tax reserve for bad debts and to make annual additions
within specified limitations which may have been deducted in arriving at their
taxable income. The Savings Bank's deduction with respect to "qualifying loans",
which are generally loans secured by certain interests in real property, may
currently be computed using an amount based on the Savings Bank's actual loss
experience (the "experience method").
The Small Business Job Protection Act of 1996, adopted in August 1996,
generally (1) repealed the provision of the Code which authorized use of the
percentage of taxable income method by qualifying savings institutions to
determine deductions for bad debts, effective for taxable years beginning after
1995, and (2) required that a savings institution recapture for tax purposes
(i.e. take into income) over a six-year period its applicable excess reserves.
For a savings institution such as West View which is a "small bank", as defined
in the Code, generally this is the excess of the balance of its bad debt
reserves as of the close of its last taxable year beginning before January 1,
1996, over the balance of such reserves as of the close of its last taxable year
beginning before January 1, 1988. Any recapture would be suspended for any tax
year that began after December 31, 1995, and before January 1, 1998 (thus a
maximum of two years), in which a savings institution originated an amount of
residential loans which was not less than the average of the principal amount of
such loans made by a savings institution during its six most recent taxable
years beginning before January 1, 1996. The amount of tax bad debt reserves
subject to recapture was approximately $1.2 million, which was recaptured
ratably over a six-year period ending December 31, 2003. In accordance with FASB
No. 109, deferred income taxes have previously been provided on this amount,
therefore no financial statement expense has been recorded as a result of this
recapture. The Company's supplemental bad debt reserve of approximately $3.8
million is not subject to recapture.
The above-referenced legislation also repealed certain provisions of
the Code that only apply to thrift institutions to which Section 593 applies:
(1) the denial of a portion of certain tax credits to a thrift institution; (2)
the special rules with respect to the foreclosure of property securing loans of
a thrift institution; (3) the reduction in the dividends received deduction of a
thrift institution; and (4) the ability of a thrift institution to use a net
operating loss to offset its income from a residual interest in a real estate
mortgage investment conduit. The repeal of these provisions did not have a
material adverse effect on the Company's financial condition or operations.
Audit by IRS. The Company's consolidated federal income tax returns for
taxable years through December 31, 2002, have been closed for the purpose of
examination by the Internal Revenue Service.
State Taxation. The Company is subject to the Pennsylvania Corporate
Net Income Tax and Capital Stock and Franchise Tax. The Pennsylvania Corporate
Net Income Tax rate is 9.99% and is imposed on the Company's unconsolidated
taxable income for federal purposes with certain adjustments. In general, the
Capital Stock Tax is a property tax imposed at the rate of 0.489% of a
corporation's capital stock
26
value, which is determined in accordance with a fixed formula based upon average
net income and consolidated net worth.
The Savings Bank is taxed under the Pennsylvania Mutual Thrift
Institutions Tax Act (enacted on December 13, 1988, and amended in July 1989)
(the "MTIT"), as amended to include thrift institutions having capital stock.
Pursuant to the MTIT, the Savings Bank's current tax rate is 11.5%. The MTIT
exempts the Savings Bank from all other taxes imposed by the Commonwealth of
Pennsylvania for state income tax purposes and from all local taxation imposed
by political subdivisions, except taxes on real estate and real estate
transfers. The MTIT is a tax upon net earnings, determined in accordance with
generally accepted accounting principles ("GAAP") with certain adjustments. The
MTIT, in computing GAAP income, allows for the deduction of interest earned on
state and federal securities, while disallowing a percentage of a thrift's
interest expense deduction in the proportion of those securities to the overall
investment portfolio. Net operating losses, if any, thereafter can be carried
forward three years for MTIT purposes.
Item 1A. Risk Factors.
-------- -------------
In analyzing whether to make or to continue an investment in our
securities, investors should consider, among other factors, the following risk
factors.
Our results of operations are significantly dependent on economic
conditions and related uncertainties.
Commercial banking is affected, directly and indirectly, by domestic
and international economic and political conditions and by governmental monetary
and fiscal policy. Conditions such as inflation, recession, unemployment,
volatile interest rates, real estate values, government monetary policy,
international conflicts, the actions of terrorists and other factors beyond our
control may adversely affect our results of operations. Changes in interest
rates, in particular, could adversely affect our net interest income and have a
number of other adverse effects on our operations, as discussed in the
immediately succeeding risk factor. Adverse economic conditions also could
result in an increase in loan delinquencies, foreclosures and non-performing
assets and a decrease in the value of the property or other collateral which
secures our loans, all of which could adversely affect our results of
operations. We are particularly sensitive to changes in economic conditions and
related uncertainties in Western Pennsylvania because we derive substantially
all of our loans, deposits and other business from this area. Accordingly, we
remain subject to the risks associated with prolonged declines in national or
local economies.
Changes in interest rates could have a material adverse effect on our
operations.
The operations of financial institutions such as us are dependent to a
large extent on net interest income, which is the difference between the
interest income earned on interest-earning assets such as loans and investment
securities and the interest expense paid on interest-bearing liabilities such as
deposits and borrowings. Changes in the general level of interest rates can
affect our net interest income by affecting the difference between the weighted
average yield earned on our interest-earning assets and the weighted average
rate paid on our interest-bearing liabilities, or interest rate spread, and the
average life of our interest-earning assets and interest-bearing liabilities.
Changes in interest rates also can affect our ability to originate loans; the
value of our interest-earning assets and our ability to realize gains from the
sale of such assets; our ability to obtain and retain deposits in competition
with other available investment alternatives; the ability of our borrowers to
repay adjustable or variable rate loans; and the fair value of the derivatives
carried on our balance sheet, derivative hedge effectiveness testing and the
amount of ineffectiveness recognized in our earnings. Interest rates are highly
sensitive to many factors, including governmental monetary policies, domestic
and international economic and political conditions and other factors beyond our
control. Although we believe that the estimated maturities of our
interest-earning assets currently are well balanced in relation to the estimated
maturities of our interest-bearing liabilities (which involves various estimates
as to how changes in the general level of interest rates will impact these
assets and liabilities), there can be no assurance that our profitability would
not be adversely affected during any period of changes in interest rates.
There are increased risks involved with multi-family residential,
commercial real estate, commercial business and consumer lending activities.
Our lending activities include loans secured by speculative
construction, land acquisition and development and commercial real estate. In
addition, from time to time we originate loans for the purchase
27
or refinancing of multi-family residential real estate. Speculative residential
construction, land acquisition and development, multi-family residential and
commercial real estate lending generally is considered to involve a higher
degree of risk than single-family residential lending due to a variety of
factors, including generally larger loan balances, the dependency on successful
completion or operation of the project for repayment, the difficulties in
estimating construction costs and loan terms which often do not require full
amortization of the loan over its term and, instead, provide for a balloon
payment at stated maturity. Our lending activities also include commercial
business loans to small to medium businesses, which generally are secured by
various equipment, machinery and other corporate assets, and a variety of
consumer loans, including home improvement loans, home equity loans and loans
secured by automobiles and other personal property. Although commercial business
loans and leases and consumer loans generally have shorter terms and higher
interest rates than mortgage loans, they generally involve more risk than
mortgage loans because of the nature of, or in certain cases the absence of, the
collateral which secures such loans.
Our allowance for losses on loans and leases may not be adequate to
cover probable losses.
We have established an allowance for loan losses which we believe is
adequate to offset probable losses on our existing loans and leases. There can
be no assurance that any future declines in real estate market conditions,
general economic conditions or changes in regulatory policies will not require
us to increase our allowance for loan and lease losses, which would adversely
affect our results of operations.
We are subject to extensive regulation which could adversely affect our
business and operations.
We and our subsidiaries are subject to extensive federal and state
governmental supervision and regulation, which are intended primarily for the
protection of depositors. In addition, we and our subsidiaries are subject to
changes in federal and state laws, as well as changes in regulations,
governmental policies and accounting principles. The effects of any such
potential changes cannot be predicted but could adversely affect the business
and operations of us and our subsidiaries in the future.
We face strong competition which may adversely affect our
profitability.
We are subject to vigorous competition in all aspects and areas of our
business from banks and other financial institutions, including savings and loan
associations, savings banks, finance companies, credit unions and other
providers of financial services, such as money market mutual funds, brokerage
firms, consumer finance companies and insurance companies. We also compete with
non-financial institutions, including retail stores that maintain their own
credit programs and governmental agencies that make available low cost or
guaranteed loans to certain borrowers. Certain of our competitors are larger
financial institutions with substantially greater resources, lending limits,
larger branch systems and a wider array of commercial banking services.
Competition from both bank and non-bank organizations will continue.
We and our banking subsidiary are subject to capital and other
requirements which restrict our ability to pay dividends.
Our ability to pay dividends to our shareholders depends to a large
extent upon the dividends we receive from West View Savings Bank. Dividends paid
by the Savings Bank are subject to restrictions under Pennsylvania and federal
laws and regulations. In addition, West View Savings Bank must maintain certain
capital levels, which may restrict the ability of the Bank to pay dividends to
us and our ability to pay dividends to our shareholders.
Holders of our common stock have no preemptive right and are subject to
potential dilution.
Our articles of incorporation do not provide any shareholder with a
preemptive right to subscribe for additional shares of common stock upon any
increase thereof. Thus, upon issuance of any additional shares of common stock
or other voting securities of the Company or securities convertible into common
stock or other voting securities, shareholders may be unable to maintain their
pro rata voting or ownership interest in us.
Item 1B. Unresolved Staff Comments
-------- -------------------------
Not applicable.
28
Item 2. Properties.
------- -----------
The following table sets forth certain information with respect to the
offices and other properties of the Company at June 30, 2006.
Description/Address Leased/Owned
------------------- ------------
McCandless Office Owned
9001 Perry Highway
Pittsburgh, PA 15237
West View Boro Office Owned
456 Perry Highway
Pittsburgh, PA 15229
Cranberry Township Office Owned
20531 Perry Highway
Cranberry Township, PA 16066
Sherwood Oaks Office Leased(1)
100 Norman Drive
Cranberry Township, PA 16066
Bellevue Boro Office Leased(2)
572 Lincoln Avenue
Pittsburgh, PA 15202
Franklin Park Boro Office Owned
2566 Brandt School Road
Wexford, PA 15090
--------
(1) The Company operates this office out of a retirement community. The lease
expired in June 2006. Negotiations are in process to extend the lease.
(2) The lease was for a period of 15 years ending in September 2006. The
Company has renewed the lease for an additional ten years.
Item 3. Legal Proceedings.
------ -----------------
(a) 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.
(b) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
------ ---------------------------------------------------
Not applicable.
29
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
------ --------------------------------------------------------------------
and Issuer Purchases of Equity Securities.
------------------------------------------
(a) The information required herein is incorporated by reference
on page 50 of the Company's 2006 Annual Report to
Stockholders included as Exhibit 13 ("2006 Annual Report").
(b) Not applicable.
(c) The following table sets forth information with respect to
purchases of common stock of the Company made by or on behalf
of the Company during the three months ended June 30, 2006.
------------------------------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
------------------------------------------------------------------------------------------------------
Total Number of
Total Shares Purchased as Maximum Number of
Number of part of Publicly Shares that may yet be
Shares Average Price Announced Plans or Repurchased Under the
Period Purchased Paid per Share ($) Programs (1) Plans or Programs (2)
------------------------------------------------------------------------------------------------------
04/01/06 - 04/30/06 9,439 17.25 9,439 83,845
------------------------------------------------------------------------------------------------------
05/01/06 - 05/31/06 0 - 0 83,845
------------------------------------------------------------------------------------------------------
06/01/06 - 06/30/06 0 - 0 83,845
------------------------------------------------------------------------------------------------------
Total 9,439 17.25 9,439 83,845
------------------------------------------------------------------------------------------------------
------------
(1) All shares indicated were purchased under the Company's
Eighth Stock Repurchase Program.
(2) Eighth Stock Repurchase Program
(a) Announced September 27, 2005.
(b) 125,000 common shares approved for repurchase.
(c) No fixed date of expiration.
(d) This Program has not expired and has 83,845 shares
remaining to be purchased at June 30, 2006.
(e) Not applicable.
Item 6. Selected Financial Data.
------ -----------------------
The information required herein is incorporated by reference from
pages 2 to 3 of the Company's 2006 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
------ --------------------------------------------------------------------
Results of Operations.
---------------------
The information required herein is incorporated by reference from
pages 4 to 13 of the Company's 2006 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
------- ----------------------------------------------------------
The information required herein is incorporated by reference from
pages 13 to 17 of the Company's 2006 Annual Report.
Item 8. Financial Statements and Supplementary Data.
------ -------------------------------------------
The information required herein is incorporated by reference from
pages 18 to 49 of the Company's 2006 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
------ --------------------------------------------------------------------
Financial Disclosure.
--------------------
Not applicable.
30
Item 9A. Controls and Procedures.
------- -----------------------
Our management evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness of
our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
as of June 30, 2006. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and regulations and are operating in an
effective manner.
No change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities
Exchange Act of 1934) occurred during the fourth fiscal quarter of
fiscal 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information.
------- -----------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
------- --------------------------------------------------
The information required herein is incorporated by reference from
pages 2 to 8 of the Company's Proxy Statement for the 2006 Annual
Meeting of Stockholders dated September 29, 2006 ("Proxy
Statement").
The Company has adopted a Code of Ethics for its employees and
directors and executive officers. See Exhibits 14.1 and 14.2 to this
Annual Report on Form 10-K. Upon receipt of a written request, the
Company will furnish to any person, without charge, a copy of its
Code of Ethics for its employees and directors and executive
officers. Such written requests should be directed to WVS Financial
Corp., 9001 Perry Highway, Pittsburgh, Pennsylvania 15237,
attention: Corporate Secretary.
Item 11. Executive Compensation.
------- ----------------------
The information required herein is incorporated by reference from
pages 10 to 15 of the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
------- --------------------------------------------------------------------
Related Stockholder Matters.
---------------------------
The security ownership of certain beneficial owners and management
information required herein is incorporated by reference from pages
8 to 9 of the Company's Proxy Statement. The following table sets
forth certain information for all equity compensation plans and
individual compensation arrangements (whether with employees or
non-employees, such as directors) in effect as of June 30, 2006.
Equity Compensation Plan Information
===================================================================================================================
Number of securities remaining
Number of securities to be Weighted-average available for future issuance
issued upon exercise of exercise price of under equity compensation plans
outstanding options, outstanding options, (excluding securities reflected
Plan Category warrants and rights warrants and rights in the first column)
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 36,406 $15.51 --
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders -- -- --
-------------------------------------------------------------------------------------------------------------------
Total 36,406 $15.51 --
===================================================================================================================
31
Item 13. Certain Relationships and Related Transactions.
------- ----------------------------------------------
The information required herein is incorporated by reference on page
15 of the Company's Proxy Statement.
Item 14. Principal Accountant Fees and Services.
------- --------------------------------------
The information required herein is incorporated by reference on page
6 of the Company's Proxy Statement.
PART IV.
Item 15. Exhibits and Financial Statement Schedules.
------- ------------------------------------------
(a) Documents filed as part of this report.
(1)The following documents are filed as part of this report and
are incorporated herein by reference from the Company's 2006
Annual Report.
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheet at June 30, 2006 and 2005.
Consolidated Statement of Income for the Years Ended June 30,
2006, 2005 and 2004.
Consolidated Statement of Changes in Stockholders' Equity for
the Years Ended June 30, 2006, 2005 and 2004.
Consolidated Statement of Cash Flows for the Years Ended June
30, 2006, 2005 and 2004.
Notes to the Consolidated Financial Statements.
(2)All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange
Commission ("SEC") are omitted because they are not applicable
or the required information is included in the Consolidated
Financial Statements or notes thereto.
32
(3)The following exhibits are filed as part of this Form 10-K,
and this list includes the Exhibit Index.
No. Description Page
--- ------------------------- ----
3.1 Articles of Incorporation *
3.2 Amended and Restated By-Laws **
4 Stock Certificate of WVS Financial Corp. *
10.1 WVS Financial Corp. Recognition Plans and Trusts for
Executive Officers, Directors and Key Employees*** *
10.2 WVS Financial Corp. 1993 Stock Incentive Plan*** *
10.3 WVS Financial Corp. 1993 Directors' Stock Option Plan*** *
10.4 WVS Financial Corp. Employee Stock Ownership Plan and Trust*** *
10.5 Amended West View Savings Bank Employee Profit Sharing Plan*** *
10.6 Employment Agreements between WVS Financial Corp. and
David Bursic *** ****
10.7 Directors Deferred Compensation Program*** *
13 2006 Annual Report to Stockholders filed herewith
14.1 Ethics Policy *****
14.2 Code of Ethics for Senior Financial Officers *****
21 Subsidiaries of the Registrant - Reference is made to
Item 1. "Business" for the required information 2
23 Consent of Independent Registered Public Accounting Firm filed herewith
31.1 Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive
Officer filed herewith
31.2 Rule 13a-14(a) / 15d-14(a) Certification of the Chief Accounting
Officer filed herewith
32.1 Section 1350 Certification of the Chief Executive Officer filed herewith
32.2 Section 1350 Certification of the Chief Accounting Officer filed herewith
* Incorporated by reference from the Registration Statement on
Form S-1 (Registration No. 33-67506) filed by the Company with
the SEC on August 16, 1993, as amended.
** Incorporated by reference from the Current Report on Form 8-K
filed by the Company with the SEC on August 24, 2005.
*** Management contract or compensatory plan or arrangement.
**** Incorporated by reference from the Form 10-Q for the quarter
ended September 30, 1998 filed by the Company with the SEC on
November 13, 1998.
***** Incorporated by reference from the Annual report on Form 10-K
filed by the Company with the SEC on September 24, 2004.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
September 25, 2006 By: /s/ David J. Bursic
-------------------------------------
David J. Bursic
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ David J. Bursic
-----------------------------------------
David J. Bursic, Director, President and September 25, 2006
Chief Executive Officer
(Principal Executive Officer)
/s/ Keith A. Simpson
-----------------------------------------
Keith A. Simpson, Vice President, September 25, 2006
Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Donald E. Hook
-----------------------------------------
Donald E. Hook, September 25, 2006
Chairman of the Board of Directors
/s/ David L. Aeberli
-----------------------------------------
David L. Aeberli, Director September 25, 2006
/s/ Arthur H. Brandt
-----------------------------------------
Arthur H. Brandt, Director September 25, 2006
/s/ Lawrence M. Lehman
-----------------------------------------
Lawrence M. Lehman, Director September 25, 2006
/s/ Margaret VonDerau
-----------------------------------------
Margaret VonDerau, Director September 25, 2006
34