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, 2013
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.
(Exact name of registrant as specified in its charter)
Pennsylvania | 25-1710500 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
9001 Perry Highway Pittsburgh, Pennsylvania |
15237 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants 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 | The NASDAQ Global Market SM | |
(Title of Class) | (Name of exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act:
None
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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 registrants 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. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | 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, 2012, the aggregate value of the 1,505,596 shares of Common Stock of the registrant issued and outstanding on such date, which excludes 552,334 shares held by all directors and officers of the registrant as a group, was approximately $12.80 million. This figure is based on the last known trade price of $8.50 per share of the registrants Common Stock on December 31, 2012.
Number of shares of Common Stock outstanding as of September 19, 2013: 2,057,930
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, 2013 are incorporated into Part II. |
(2) | Portions of the definitive proxy statement for the 2013 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:
| our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings; |
| general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan and lease losses or a reduced demand for credit or fee-based products and services; |
| changes in the interest rate environment could reduce net interest income and could increase credit losses; |
| the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases; |
| changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations; |
| the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending; |
| competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform; |
| 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. |
WVS Financial Corp. (WVS, the Company, us or we) is the parent holding company of West View Savings Bank (West View or the Savings Bank). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at June 30, 2013.
Lending Activities
General. At June 30, 2013, the Companys net portfolio of loans receivable totaled $31.5 million, as compared to $39.4 million at June 30, 2012. Net loans receivable comprised 11.0% of the Companys total assets at June 30, 2013, as compared to 14.4% at June 30, 2012. The principal categories of loans in the Companys 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 Companys 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 Companys 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.
All of the Companys mortgage loans are secured by properties located in Pennsylvania. Moreover, substantially all of the Companys non-mortgage loan portfolio consists of loans made to residents and businesses located in the Companys 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, 2013, the Savings Banks limit on loans-to-one borrower was approximately $4.8 million. The Companys 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, 2013, the Companys five largest loans or groups of loans-to-one borrower, including related entities, ranged from an aggregate of $1.5 million to $3.0 million, with a $3.0 million group of loans-to-one borrower secured by real estate located in the Companys primary market area and investments pledged by the borrower. Related outstanding disbursed principal balances on the Companys five largest loans or group of loans-to-one borrower, including related entities, ranged from an aggregate of $1.1 million to $2.9 million. The remainder of the groups of loans-to-one borrower are secured primarily by real estate located in the Companys primary market area. Included in this range are undisbursed loan proceeds (i.e. loans in process) ranging from $0 thousand to $1.5 million.
3
Loan Portfolio Composition. The following table sets forth the composition of the Companys net loans receivable portfolio by type of loan at the dates indicated.
At June 30, | ||||||||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
Real estate loans: |
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Single-family |
$ | 13,611 | 42.74 | % | $ | 13,514 | 33.92 | % | $ | 14,984 | 29.60 | % | $ | 17,247 | 30.24 | % | $ | 14,989 | 25.44 | % | ||||||||||||||||||||
Multi-family |
2,780 | 8.73 | 5,083 | 12.76 | 5,365 | 10.60 | 5,636 | 9.88 | 4,814 | 8.17 | ||||||||||||||||||||||||||||||
Commercial |
5,787 | 18.17 | 7,623 | 19.13 | 7,732 | 15.27 | 7,635 | 13.39 | 9,179 | 15.58 | ||||||||||||||||||||||||||||||
Construction |
2,546 | 8.00 | 4,997 | 12.54 | 11,569 | 22.85 | 15,059 | 26.41 | 14,942 | 25.37 | ||||||||||||||||||||||||||||||
Land acquisition and development |
1,407 | 4.42 | 2,029 | 5.09 | 2,947 | 5.82 | 2,718 | 4.77 | 1,439 | 2.44 | ||||||||||||||||||||||||||||||
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Total real estate loans |
26,131 | 82.06 | 33,246 | 83.44 | 42,593 | 84.14 | 48,295 | 84.69 | 45,363 | 77.00 | ||||||||||||||||||||||||||||||
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Consumer loans: |
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Home equity |
3,141 | 9.86 | 3,590 | 9.01 | 4,494 | 8.88 | 4,866 | 8.53 | 8,413 | 14.28 | ||||||||||||||||||||||||||||||
Other |
180 | 0.57 | 286 | 0.72 | 322 | 0.64 | 280 | 0.49 | 1,034 | 1.76 | ||||||||||||||||||||||||||||||
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Total consumer loans |
3,321 | 10.43 | 3,876 | 9.73 | 4,816 | 9.52 | 5,146 | 9.02 | 9,447 | 16.04 | ||||||||||||||||||||||||||||||
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Commercial loans |
1,890 | 5.94 | 2,222 | 5.58 | 3,210 | 6.34 | 3,585 | 6.29 | 4,102 | 6.96 | ||||||||||||||||||||||||||||||
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Obligations (other than securities and leases) of states and political subdivisions |
500 | 1.57 | 500 | 1.25 | | | | | | | ||||||||||||||||||||||||||||||
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31,842 | 100.00 | % | 39,844 | 100.00 | % | 50,623 | 100.00 | % | 57,026 | 100.00 | % | 58,912 | 100.00 | % | ||||||||||||||||||||||||||
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Less: |
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Net deferred loan origination fees |
(4 | ) | (26 | ) | (41 | ) | (66 | ) | (102 | ) | ||||||||||||||||||||||||||||||
Allowance for loan losses |
(307 | ) | (385 | ) | (630 | ) | (645 | ) | (662 | ) | ||||||||||||||||||||||||||||||
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Net loans receivable |
$ | 31,531 | $ | 39,433 | $ | 49,952 | $ | 56,315 | $ | 58,148 | ||||||||||||||||||||||||||||||
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Contractual Maturities. The following table sets forth the scheduled contractual maturities of the Companys loans and mortgage-backed securities at June 30, 2013. The amounts shown for each period do not take into account loan prepayments and normal amortization of the Companys loan portfolio.
Real Estate Loans | ||||||||||||||||||||||||||||||||||||||||
Single- family |
Multi- family |
Commercial | Construction | Land acquisition and development |
Consumer loans |
Commercial loans |
Obligations (other than securities and leases) of states & political subdivisions |
Mortgage- backed securities |
Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
Amounts due in: |
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One year or less |
$ | 816 | $ | | $ | 404 | $ | 1,622 | $ | 473 | $ | 2,172 | $ | 825 | $ | 500 | $ | | $ | 6,812 | ||||||||||||||||||||
After one year through five years |
849 | 1,329 | 1,263 | 924 | 653 | 199 | 6 | | | 5,223 | ||||||||||||||||||||||||||||||
After five years |
11,946 | 1,451 | 4,120 | | 281 | 950 | 1,059 | | 139,268 | 159,075 | ||||||||||||||||||||||||||||||
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Total(1) |
$ | 13,611 | $ | 2,780 | $ | 5,787 | $ | 2,546 | $ | 1,407 | $ | 3,321 | $ | 1,890 | $ | 500 | $ | 139,268 | $ | 171,110 | ||||||||||||||||||||
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Interest rate terms on amounts due after one year: |
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Fixed |
$ | 12,002 | $ | 193 | $ | 2,969 | $ | | $ | 934 | $ | 1,070 | $ | 6 | $ | | $ | | $ | 17,174 | ||||||||||||||||||||
Adjustable |
793 | 2,587 | 2,414 | 924 | | 79 | 1,059 | | 139,268 | 147,124 | ||||||||||||||||||||||||||||||
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Total |
$ | 12,795 | $ | 2,780 | $ | 5,383 | $ | 924 | $ | 934 | $ | 1,149 | $ | 1,065 | $ | | $ | 139,268 | $ | 164,298 | ||||||||||||||||||||
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(1) | Does not include adjustments relating to 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 twelve month term; principal amortization is required. Land acquisition and development loans are generally renewed for an additional twelve month term with monthly payments of interest.
At June 30, 2013, the Company had approximately $1.2 million of renewed commercial real estate and construction loans. The $1.2 million in aggregate disbursed principal that has been renewed is comprised of: single-family speculative construction loans totaling $75 thousand, land acquisition and development loans totaling $932 thousand, and commercial real estate loans totaling $157 thousand. Management believes that the renewed commercial real estate and construction 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 Companys offices. Applications for commercial real estate loans are taken only at the Companys 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 Companys 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 Banks Director of Retail Lending has lending authorities ranging from $5 thousand (unsecured loans) to $300 thousand (loans secured by first mortgage liens). With the approval of the Savings Banks 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 commercial and secured builder lines of credit. All loan applications are required to be ratified by the Companys 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. 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 originated sub-prime, no documentation or limited documentation loans.
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 Companys 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, 2013, $293 thousand or 0.9% of the Companys 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 borrowers ability to repay the obligation, the appraised value 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, 2013, $293 thousand or 0.9% of the Companys 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, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Net loans receivable beginning balance |
$ | 39,433 | $ | 49,952 | $ | 56,315 | ||||||
Real estate loan originations |
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Single-family(1) |
4,556 | 163 | 1,577 | |||||||||
Multi-family |
94 | | | |||||||||
Commercial |
1,060 | 945 | 665 | |||||||||
Construction |
| 3,373 | 1,246 | |||||||||
Land acquisition and development |
| | 1,365 | |||||||||
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Total real estate loan originations |
5,710 | 4,481 | 4,853 | |||||||||
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Home equity |
91 | 766 | 699 | |||||||||
Other |
512 | 534 | 35 | |||||||||
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Total loan originations |
6,313 | 5,781 | 5,587 | |||||||||
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Disbursements against available credit lines: |
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Home equity |
1,849 | 2,048 | 1,897 | |||||||||
Commercial |
1,367 | 373 | 135 | |||||||||
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Total originations and purchases |
9,529 | 8,202 | 7,619 | |||||||||
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Less: |
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Loan principal repayments |
18,794 | 18,555 | 19,906 | |||||||||
Transferred to real estate owned |
| 336 | 235 | |||||||||
Change in loans in process |
(1,442 | ) | 90 | (6,118 | ) | |||||||
Other, net(2) |
(101 | ) | (260 | ) | (41 | ) | ||||||
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Net increase (decrease) |
$ | (7,903 | ) | $ | (10,519 | ) | $ | (6,363 | ) | |||
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Net loans receivable ending balance |
$ | 31,531 | $ | 39,433 | $ | 49,952 | ||||||
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(1) | Consists of loans secured by one-to-four family properties. |
(2) | 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 90% should require appropriate mortgage insurance or readily marketable collateral). Consistent with its conservative lending philosophy, the Companys LTV limits are generally more restrictive than those in the Guidelines: raw land (60%); land development (70%); construction (commercial75%; multi-family75%; speculative residential75%); 1 2 family residential properties (80%); multi-family residential (75%); and commercial real estate (75%).
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, 2013, $13.6 million or 42.7% of the Companys total loan portfolio consisted of single-family residential real estate loans, substantially all of which are conventional loans. The increase of $97 thousand in single-family residential real estate loans during fiscal 2013 was primarily the result of originations in excess of pay downs on single-family residential real estate loans. Single-family loan originations totaled $4.6 million and increased $4.4 million or 2,695.1% during the fiscal year ended June 30, 2013, when compared to fiscal 2012. The Company began to more aggressively originate single-family loans in order to make single-family loans available to the public and in order to generate interest income. All single-family loans originated were portfolioed into the Companys balance sheet. Substantially all of this increased production was attributable to refinance transactions with amortization terms of fifteen years or less. The Company continued to offer shorter duration 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 Companys 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, 2013, approximately $12.7 million or 93.2% of the single-family residential loans in the Companys loan portfolio consisted of loans with 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 Companys 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 90% 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. Prior to the global financial crisis experienced during fiscal 2009 and continued throughout fiscal 2010, 2011, 2012 and 2013, and pursuant to underwriting guidelines adopted by the Board of Directors, private mortgage insurance (PMI) was obtained on residential loans for which loan-to-value ratios exceed 80% according to
7
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. Since the beginning of the global financial crisis of fiscal 2009, the major PMI companies were downgraded by the rating agencies with respect to financial capacity and claims payment ability. Accordingly, the Board of Directors amended the Companys underwriting guidelines to preclude the use of PMI until the PMI companies regain their financial footing. No loans are made in excess of 80% of appraised value.
Property appraisals on the real estate and improvements securing the Companys 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, 2013, $2.8 million or 8.7% of the Companys total loan portfolio consisted of loans secured by existing multi-family residential real estate properties, which represented a decrease of $2.3 million or 45.3% from fiscal 2012. Of the $2.8 million, approximately $2.6 million or 93.1% provide for an adjustable rate of interest, while approximately $193 thousand or 6.9% are fixed rate loans.
At June 30, 2013, $5.8 million or 18.2% of the Companys loan portfolio consisted of loans secured by existing commercial real estate properties, which represented a decrease of $1.8 million or 24.1% from June 30, 2012. Of the $5.8 million, approximately $2.8 million or 48.6% provide for an adjustable rate of interest, while approximately $3.0 million or 51.4% are fixed rate loans. The Company has not emphasized commercial real estate lending due to continued economic weakness in fiscal 2013.
The majority of the Companys multi-family residential loans are secured primarily by 5 to 20 unit apartment buildings, while commercial real estate loans are secured by office buildings, small retail establishments and a church. These types of properties constitute the majority of the Companys commercial real estate loan portfolio. The Companys 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 Companys 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 125%. If the borrower has insufficient stand-alone financial capacity, the Savings Bank will either obtain personal guarantees on its multi-family residential and commercial real estate loans from the principals of the borrower and, if these cannot be obtained, to impose more stringent loan-to-value, debt service and other underwriting requirements.
At June 30, 2013 the Companys multi-family residential and commercial real estate loan portfolio consisted of approximately 36 loans with an average principal balance of $238 thousand. At June 30, 2013, the Company had no multi-family residential real estate or commercial real estate loans that were classified as non-accrual loans.
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 Companys primary market area. At June 30, 2013, construction loans amounted to approximately $2.5 million or 8.0% of the Companys total loan portfolio, which represented a decrease of $2.5 million or 49.1% from June 30, 2012. The decrease was principally due to sales of single-family speculative construction built homes and reduced demand for originations. As of June 30, 2013, the Companys portfolio of construction loans consisted primarily of $1.7 million of loans for the construction of single-family residential real estate, and $849 thousand of loans for the construction of multi-family residential real estate. There were no
8
construction loan originations during the fiscal year ended June 30, 2013, as compared to $3.4 million in construction loan originations in fiscal 2012. Due to the stagnant economy, a number of the Companys small builders had experienced slow sales of their housing inventories during fiscal 2011. During fiscal 2012, many of these small builders were able to liquidate their housing inventories and repay their loans to the Savings Bank. Due to continued economic weaknesses in fiscal 2013, many of the small builders curtailed their building of speculative single-family construction loans. Repayments on construction loans during fiscal 2013 caused a $2.5 million or 49.1% decrease in construction loan balances. Management continues to monitor housing starts both locally and nationally.
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, 2013, approximately 66.7% 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 Companys 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, 2013, the Company also had $1.4 million or 4.4% of the total loan portfolio invested in land development loans, which consisted of 5 loans to 5 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 Companys 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 propertys 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. Depending upon local real estate market conditions, the Company may begin to apply more stringent underwriting criteria on new construction loans and renewals. Specifically the Company may reduce its overall portfolio of construction loans through alteration, reduce loan to value ratios to below 75%, or require higher credit profile of guarantors.
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 Company 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 Company 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, 2013, $3.3 million or 10.4% of the Companys total loan portfolio consisted of consumer loans, which represented a decrease of $555 thousand or 14.3% from fiscal 2012. The $555 thousand decrease was primarily attributable to pay downs on existing consumer loans. 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 94.8% of the Companys consumer loans are secured by real estate and are primarily obtained through existing and walk-in customers.
9
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, 2013, approximately 34.5% of the Companys 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, 2013, $1.9 million or 5.9% of the Companys total loan portfolio consisted of commercial loans, which include loans secured by accounts receivable, marketable investment securities, business inventory and equipment, and similar collateral. The $332 thousand or 14.9% decrease during fiscal 2013 was principally due to the repayments on the Companys commercial loan portfolio. The Company is continuing to selectively 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 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 Companys 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 ASC Topic 310, the Company has recognized $20 thousand, $10 thousand and $30 thousand of deferred loan fees during fiscal 2013, 2012 and 2011, respectively, in connection with loan refinancings, payoffs and ongoing amortization of outstanding loans. Loans previously originated with lower or no loan origination fees will reduce the recognition of associated deferred fee balances while loans originated with higher loan origination fees will increase 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 may 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 Companys 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 Companys non-performing assets, troubled debt restructurings and potential problem loans at the dates indicated.
At June 30, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Non-accruing loans: |
||||||||||||||||||||
Real estate: |
||||||||||||||||||||
Single-family (1) |
$ | 477 | $ | 363 | $ | 784 | $ | 1,018 | $ | 226 | ||||||||||
Commercial |
| | | | | |||||||||||||||
Multi-family |
| | | | 465 | |||||||||||||||
Construction (2) |
701 | 701 | 1,024 | 289 | 235 | |||||||||||||||
Land Acquisition and Development (3) |
280 | 290 | | | | |||||||||||||||
Consumer (4) |
150 | 150 | 358 | 359 | 21 | |||||||||||||||
Commercial loans and leases |
| | | | 6 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-accrual loans |
1,608 | 1,504 | 2,166 | 1,666 | 953 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accruing loans greater than 90 days Delinquent |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-performing loans |
$ | 1,608 | $ | 1,504 | $ | 2,166 | $ | 1,666 | $ | 953 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Real estate owned |
| 235 | 235 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-performing assets |
$ | 1,608 | $ | 1,739 | $ | 2,401 | $ | 1,666 | $ | 953 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Troubled debt restructurings |
$ | 150 | $ | 150 | $ | | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Potential problem loans |
$ | | $ | | $ | | $ | | $ | 315 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-performing loans and potential problem loans and troubled debt restructurings as a percentage of net loans receivable |
5.10 | % | 3.81 | % | 4.34 | % | 2.96 | % | 2.18 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-performing assets to total assets |
0.51 | % | 0.58 | % | 1.05 | % | 0.47 | % | 0.23 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-performing assets, troubled debt restructurings and potential problem loans as a percentage of total assets |
0.56 | % | 0.64 | % | 1.05 | % | 0.47 | % | 0.30 | % | ||||||||||
|
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|
|
|
|
|
|
|
(1) | At June 30, 2013, non-accrual single-family residential real estate loans consisted of three loans. |
(2) | At June 30, 2013, non-accrual construction loans consisted of one loan. |
(3) | At June 30, 2013, non-accrual land acquisition & development loans consisted of one loan. |
(4) | At June 30, 2013, non-accrual consumer loans consisted of one trouble debt restructuring. |
The $131 thousand decrease in non-performing assets during the twelve months ended June 30, 2013 was primarily attributable to the payoff in full of one single-family residential real estate loan totaling $288 thousand, the sale of one single-family residential real estate owned parcel totaling $235 thousand, and the partial charge off of $10 thousand on one land loan, which were partially offset by the classification to non-performing status of two single-family residential real estate loans totaling $408 thousand.
The Company had one non-accrual construction loan totaling $701 thousand, three non-accrual single-family real estate loans totaling approximately $477 thousand, one non-accrual land acquisition and development loan totaling approximately $280 thousand, and one non-accrual home equity line of credit totaling approximately $150 thousand, at June 30, 2013. The loans are all collateral dependent and in various stages of collection.
At June 30, 2013, the Company had three collateral dependent loans, totaling $1.1 million that it considered to be impaired. The Companys impaired loans, at June 30, 2013, were comprised of: one single-family speculative construction loan to a local builder totaling $701 thousand, one land loan totaling $280 thousand, and one owner-occupied home equity line of credit loan totaling $150 thousand.
The impaired single-family speculative construction loan is almost entirely complete and is under agreement of sale with completion related contingencies. The loan was originated as a construction loan to build a spec home with a well known and respected builder within our market. At June 30, 2013, the loan was thirty-six months past due for interest. The loan is considered impaired primarily due to its delinquency status. The propertys appraised value (as completed) is $935 thousand, the current asking price (for backup offers) is approximately $830 thousand, and our book value is $701 thousand. Management weighed several factors in considering whether a discount to the appraised valuation was
11
appropriate. In its analysis, management considered several qualitative factors including the length of time that the property has been on the market, a recent change in real estate agents, the completion related risks with the current sales agreement if the builder is unable to deliver a completed home on time and within budget, and the limited number of buyers for homes in this price range. Based upon the significant difference between the loans $701 thousand book value and the homes current asking price of $830 thousand, management has concluded that a specific allocation of the ALLL in the amount of $107 thousand is needed as of June 30, 2013. The Company will continue to monitor the builder, his new real estate agent, and the builders progress in meeting the buyers terms under the sales agreement.
The impaired land loan was under agreement to be assigned and sold to a third party as of June 30, 2013. The loan is considered impaired because the Company sold the loan for approximately $10 thousand less than its outstanding principal balance. During the quarter ended June 30, 2013, the Company recorded a $10 thousand charge-off related to this credit. The assignment and sale of the mortgage and note of the impaired land loan was completed in July 2013 on a cash basis with no financing provided by the Company.
The home associated with the impaired home equity line of credit has been listed for sale with a well known and respected local realty company for $480 thousand. This loan is considered to be impaired because the loan has matured. The customer continues to make interest only payments on the account.
During fiscal 2013, 2012 and 2011, approximately $59 thousand, $101 thousand and $154 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 Companys 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 $95 thousand, $109 thousand and $17 thousand, respectively.
Allowances for Loan Losses. The allowance for loan losses (ALLL) 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. Managements 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.
The FDICs Revised Interagency Policy Statement on the Allowance for Loan and Lease Losses provides that an institution must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio, and is consistent with generally accepted accounting principles (GAAP). The revised policy statement updates the previous guidance that describes the responsibilities of the board of directors, management, and bank examiners regarding the ALLL, factors to be considered in the estimation of the ALLL, and the objectives and elements of an effective loan review system.
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
12
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 institutions regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital.
The Companys 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 Companys general valuation allowances are within the following general ranges: (1) 0% to 5% of assets subject to special mention; (2) 5.00% 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 Companys past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at June 30, 2013, is adequate.
The allowance for loan losses at June 30, 2013 decreased $78 thousand to $307 thousand, from $385 thousand at June 30, 2012. The decreases in the allowance for loan losses was primarily attributable to a $51 thousand reduction due to the decreases in the loan portfolio, a $43 thousand reduction in the ALLL related to one non-accrual single-family residential real estate loan which paid off, a $3 thousand reduction in the ALLL related to one non-accrual land loan which was partially charged off, and a $2 thousand reduction in the ALLL related to one non-accrual single-family residential real estate loan which paid current, which were partially offset by a $29 thousand increase in the ALLL related to two single-family residential real estate loans which were classified as non-accrual during fiscal 2013. 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 Companys level of performing loans, 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 Companys allowance for loan losses and other selected statistics for the periods indicated.
At June 30, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Average net loans |
$ | 35,398 | $ | 45,767 | $ | 54,276 | $ | 58,241 | $ | 57,776 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance balance (at beginning of period) |
$ | 385 | $ | 630 | $ | 645 | $ | 662 | $ | 956 | ||||||||||
Provision for (Recovery of) loan losses |
(68 | ) | (104 | ) | (15 | ) | (11 | ) | (294 | ) | ||||||||||
Charge-offs: |
||||||||||||||||||||
Real estate: |
||||||||||||||||||||
Single-family |
| | | | | |||||||||||||||
Multi-family |
| | | | | |||||||||||||||
Commercial |
| | | | | |||||||||||||||
Construction |
| 141 | | | | |||||||||||||||
Land acquisition and development |
10 | | | | | |||||||||||||||
Consumer: |
||||||||||||||||||||
Home equity |
| | | | | |||||||||||||||
Education |
| | | | | |||||||||||||||
Other |
| | | | | |||||||||||||||
Commercial loans and leases |
| | | 6 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total charge-offs |
10 | 141 | | 6 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
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Recoveries: |
||||||||||||||||||||
Real estate: |
||||||||||||||||||||
Single-family |
| | | | | |||||||||||||||
Multi-family |
| | | | | |||||||||||||||
Commercial |
| | | | | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land acquisition and development |
| | | | | |||||||||||||||
Consumer: |
||||||||||||||||||||
Home equity |
| | | | | |||||||||||||||
Education |
| | | | | |||||||||||||||
Other |
| | | | | |||||||||||||||
Commercial loans and leases |
| | | | | |||||||||||||||
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Total recoveries |
| | | | | |||||||||||||||
|
|
|
|
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|
|
|
|
|
|||||||||||
Net loans charged-off |
10 | 141 | | 6 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance balance (at end of period) |
$ | 307 | $ | 385 | $ | 630 | $ | 645 | $ | 662 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance for loan losses as a percentage of total loans receivable |
0.96 | % | 0.97 | % | 1.24 | % | 1.13 | % | 1.12 | % | ||||||||||
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|
|
|
|
|
|
|
|
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Net loans charged-off (recovered) as a percentage of average net loans |
0.03 | % | 0.31 | % | 0.00 | % | 0.01 | % | 0.00 | % | ||||||||||
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|
|
|
|
|
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Allowance for loan losses to non-performing loans |
19.09 | % | 25.60 | % | 29.09 | % | 38.72 | % | 69.46 | % | ||||||||||
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|
|
|
|
|
|
|
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Net loans charged-off (recovered) to allowance for loan losses |
3.26 | % | 36.62 | % | 0.00 | % | 0.93 | % | 0.00 | % | ||||||||||
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|
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Recoveries to charge-offs |
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||
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14
The following table presents the allocation of the allowances for loan losses by loan category at the dates indicated.
At June 30, | ||||||||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||
% 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 |
$ | 47 | 42.74 | % | $ | 73 | 33.92 | % | $ | 87 | 29.60 | % | $ | 147 | 30.24 | % | $ | 79 | 25.44 | % | ||||||||||||||||||||
Multi-family |
14 | 8.73 | 26 | 12.76 | 27 | 10.60 | 28 | 9.88 | 45 | 8.17 | ||||||||||||||||||||||||||||||
Commercial |
57 | 18.17 | 76 | 19.13 | 79 | 15.27 | 66 | 13.39 | 81 | 15.58 | ||||||||||||||||||||||||||||||
Construction |
117 | 8.00 | 122 | 12.54 | 243 | 22.85 | 47 | 26.41 | 80 | 25.37 | ||||||||||||||||||||||||||||||
Land acquisition and development |
8 | 4.42 | 21 | 5.09 | 55 | 5.82 | 213 | 4.77 | 180 | 2.44 | ||||||||||||||||||||||||||||||
Unallocated |
| 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | ||||||||||||||||||||||||||||||
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Total real estate Loans |
243 | 82.06 | 318 | 83.44 | 491 | 84.14 | 501 | 84.69 | 465 | 77.00 | ||||||||||||||||||||||||||||||
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Consumer loans: |
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Home equity |
51 | 9.86 | 52 | 9.01 | 84 | 8.88 | 76 | 8.53 | 100 | 14.28 | ||||||||||||||||||||||||||||||
Other |
2 | 0.57 | 1 | 0.72 | 1 | 0.64 | 1 | 0.49 | 3 | 1.76 | ||||||||||||||||||||||||||||||
Unallocated |
| 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | ||||||||||||||||||||||||||||||
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Total consumer loans |
53 | 10.43 | 53 | 9.73 | 85 | 9.52 | 77 | 9.02 | 103 | 16.04 | ||||||||||||||||||||||||||||||
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Commercial loans: |
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Commercial loans |
11 | 5.94 | 14 | 5.58 | 54 | 6.34 | 67 | 6.29 | 94 | 6.96 | ||||||||||||||||||||||||||||||
Unallocated |
| 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | ||||||||||||||||||||||||||||||
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Total commercial loans |
11 | 5.94 | 14 | 5.58 | 54 | 6.34 | 67 | 6.29 | 94 | 6.96 | ||||||||||||||||||||||||||||||
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Obligations (other than securities and leases) of states and political subdivisions |
| 1.57 | | 1.25 | | 0.00 | | 0.00 | | 0.00 | ||||||||||||||||||||||||||||||
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$ | 307 | 100.00 | % | $ | 385 | 100.00 | % | $ | 630 | 100.00 | % | $ | 645 | 100.00 | % | $ | 662 | 100.00 | % | |||||||||||||||||||||
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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, 2013 this accounting reserve totaled $49 thousand.
The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogenous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALLL that is representative of the risk found in the components of the portfolio at any given time.
Management believes that the reserves it has established are adequate to cover potential losses in the Companys loan portfolio. However, future adjustments to these reserves may be necessary, and the Companys results of operations could be adversely affected if circumstances differ substantially from the assumptions used by management in making its determinations in this regard.
15
Private-Label Collateralized Mortgage Obligations. The following table sets forth information with respect to the Companys private-label CMO portfolio as of June 30, 2013. At the time of purchase, all of our private-label CMOs were rated in the highest investment category by at least two ratings agencies.
At June 30, 2013 | ||||||||||||||||||||
Rating | Book Value |
Fair Value1 |
Life to Date Impairment Recorded in Earnings |
|||||||||||||||||
Cusip # |
Security Description |
S&P | Moodys | Fitch | (in thousands) | |||||||||||||||
225458KE7 |
CSFB 2005-3 3A9 | BBB+ | N/A | BBB | $ | 28 | $ | 27 | 2 | $ | | |||||||||
225458KE7 |
CSFB 2005-3 3A9 | BBB+ | N/A | BBB | 83 | 81 | 2 | | ||||||||||||
126694CP1 |
CWHL SER 21 A11 | N/A | Caa2 | C | 2,104 | 2,587 | 201 | |||||||||||||
126694KF4 |
CWHL SER 24 A15 | D | N/A | D | 341 | 383 | 33 | |||||||||||||
126694KF4 |
CWHL SER 24 A15 | D | N/A | D | 683 | 766 | 66 | |||||||||||||
126694MP0 |
CWHL SER 26 1A5 | CC | N/A | C | 408 | 421 | 36 | |||||||||||||
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$ | 3,647 | $ | 4,265 | $ | 336 | |||||||||||||||
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For a detailed discussion of the Companys mortgage-backed securities, including our private-label collateralized mortgage obligations, please see Managements Discussion and Analysis, Investments, in the Companys fiscal year 2013 Annual Report included as Exhibit 13.
Investment Securities
The Company may invest in various types of securities, including corporate debt (including U.S. dollar denominated foreign 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 Companys investment activities are directly monitored by the Companys Finance Committee under policy guidelines adopted by the Board of Directors. In recent years, the general objective of the Companys investment policy has been to manage the Companys interest rate sensitivity gap and generally to increase interest-earning assets.
1 | Fair value estimate provided by the Companys independent third party valuation consultant, unless otherwise noted. |
2 | Fair value estimate provided by the Companys independent third party accounting service. |
16
The following tables set forth the amortized cost and estimated fair values of the Companys investment securities portfolio at the dates indicated.
2013 | 2012 | 2011 | ||||||||||
Investment Securities Available for Sale at June 30, |
(Dollars in Thousands) | |||||||||||
Corporate debt obligations |
$ | 73,349 | $ | 55,965 | $ | 1,067 | ||||||
Foreign debt securities (1) |
3,718 | 1,671 | | |||||||||
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Total amortized cost |
77,067 | 57,636 | 1,067 | |||||||||
Equity securities |
| | | |||||||||
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Total amortized cost |
$ | 77,067 | $ | 57,636 | $ | 1,067 | ||||||
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Total estimated fair value |
$ | 77,186 | $ | 57,620 | $ | 1,064 | ||||||
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Investment Securities Held to Maturity at June 30, |
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Corporate debt obligations |
$ | 14,425 | $ | 22,810 | $ | 41,227 | ||||||
Foreign debt securities (1) |
2,000 | 2,002 | 3,514 | |||||||||
U.S. Government agency securities |
9,995 | 57,588 | 40,068 | |||||||||
Obligations of states and political subdivisions |
| | 3,565 | |||||||||
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26,420 | 82,400 | 88,374 | ||||||||||
FHLB stock |
5,682 | 7,595 | 9,324 | |||||||||
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Total amortized cost |
$ | 32,102 | $ | 89,995 | $ | 97,698 | ||||||
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Total estimated fair value |
$ | 32,638 | $ | 91,654 | $ | 100,298 | ||||||
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Information regarding the amortized cost, contractual maturities and weighted average yields of the Companys investment portfolio at June 30, 2013 is presented below.
Due in one year or less |
Due after one through two years |
Due after two through three years |
Due after three through five years |
Due after five through ten years |
Due after ten years |
Total | ||||||||||||||||||||||
AVAILABLE FOR SALE |
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Corporate Debt Securities |
$ | 45,782 | $ | 12,081 | $ | 13,491 | $ | 1,005 | $ | 990 | $ | | $ | 73,349 | ||||||||||||||
Foreign Debt Securities (1) |
1,587 | 1,608 | 523 | | | | 3,718 | |||||||||||||||||||||
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Total |
$ | 47,369 | $ | 13,689 | $ | 14,014 | $ | 1,005 | $ | 990 | $ | | $ | 77,067 | ||||||||||||||
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Weighted average yield |
1.58 | % | 1.57 | % | 1.55 | % | 1.33 | % | 1.61 | % | | % | 1.57 | % | ||||||||||||||
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HELD TO MATURITY |
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U.S. Government Agency Securities |
$ | | $ | | $ | | $ | | $ | | $ | 9,995 | $ | 9,995 | ||||||||||||||
Corporate Debt Securities |
8,890 | 999 | | 3,400 | 1,136 | | 14,425 | |||||||||||||||||||||
Foreign Debt Securities (1) |
2,000 | | | | | | 2,000 | |||||||||||||||||||||
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Total |
$ | 10,890 | $ | 999 | $ | | $ | 3,400 | $ | 1,136 | $ | 9,995 | $ | 26,420 | ||||||||||||||
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Weighted average yield |
5.13 | % | 6.44 | % | | % | 6.10 | % | 6.04 | % | 1.24 | % | 3.87 | % | ||||||||||||||
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At June 30, 2013, the Company had no securities classified as trading investment securities.
(1) | U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers. |
17
The following table sets forth information with respect to the investment securities, comprised solely of corporate debt obligations, owned by the Company at June 30, 2013 which had a carrying value greater than 10% of the Companys stockholders equity at such date, other than securities issued by the United States Government and United States Government agencies and corporations. All corporate securities owned by the Company, including those shown below, have been assigned an investment grade rating by at least two national rating services.
Name of Issuer |
Carrying Value |
Estimated Fair Value |
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(Dollars in Thousands) | ||||||||
Dun & Bradstreet Corp. |
$ | 4,619 | $ | 4,619 | ||||
Citigroup Inc. |
4,265 | 4,265 | ||||||
Exelon Generation Co. LLC |
3,420 | 3,420 | ||||||
Nationwide Health Properties Inc. |
3,272 | 3,272 | ||||||
PPL Energy Supply LLC |
3,183 | 3,183 |
For a detailed discussion of the Companys Investment Securities, please see Managements Discussion and Analysis, Investments, in the Companys fiscal year 2013 Annual Report included as Exhibit 13.
Sources of Funds
The Companys principal source of funds for use in lending and for other general business purposes has traditionally come from deposits obtained through the Companys home and branch offices. Funding is also derived from FHLB advances, FRB short-term borrowings, other short-term borrowings, amortization and prepayments of outstanding loans and MBS and from maturing investment securities.
Deposits. 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. The Companys deposit products also include Individual Retirement Account certificates (IRA certificates). In order to attract new and lower cost core deposits, the Company continued to promote a no minimum balance, free, checking account product and Internet Banking. The Companys local 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 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 PULSE® and CIRRUS® 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.
During fiscal 2010, the Company began to utilize wholesale deposits in order to rebalance its short-term liability structure, and to partially finance its holdings of corporate debt and private label CMO securities. The use of wholesale deposits also allowed the Company to better match its corporate bond maturities and cash-flows from its private label CMO securities. During fiscal 2011, the Company entirely repaid certificates of deposit issued through the CDARS One-Way Buy Program totaling $49.5 million and other brokered certificates of deposit totaling $5.6 million. At June 30, 2011, the Company had other brokered CDs totaling $248 thousand which were repaid in July 2011. At June 30, 2012 and June 30, 2013, the Company had no brokered certificates of deposits.
18
The following table sets forth the net deposit flows of the Company during the periods indicated.
Year Ended June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Increase (decrease) before interest credited |
$ | (2,071 | ) | $ | (2,178 | ) | $ | (59,191 | ) | |||
Interest credited |
422 | 585 | 1,035 | |||||||||
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Net deposit increase (decrease) |
$ | (1,649 | ) | $ | (1,593 | ) | $ | (58,156 | ) | |||
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The following table sets forth maturities of the Companys certificates of deposit of $100,000 or more at June 30, 2013, by time remaining to maturity.
Amounts | ||||
(Dollars in Thousands) | ||||
Three months or less |
$ | 1,297 | ||
Over three months through six months |
1,364 | |||
Over six months through twelve months |
1,978 | |||
Over twelve months |
1,542 | |||
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$ | 6,181 | |||
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The following table sets forth the average balances of the Companys deposits and the average rates paid thereon for the past three years. Average balances were derived from daily average balances.
At June 30, | ||||||||||||||||||||||||
2013 | 2012 | 2011 | ||||||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Regular savings and club accounts |
$ | 39,924 | 0.10 | % | $ | 38,577 | 0.16 | % | $ | 35,743 | 0.21 | % | ||||||||||||
NOW accounts |
20,717 | 0.02 | 19,394 | 0.04 | 19,265 | 0.04 | ||||||||||||||||||
Money market deposit accounts |
24,354 | 0.11 | 23,492 | 0.18 | 23,325 | 0.25 | ||||||||||||||||||
Certificate of deposit accounts |
37,739 | 0.76 | 43,630 | 0.97 | 86,148 | 0.89 | ||||||||||||||||||
Escrows |
441 | 0.68 | 495 | 1.41 | 510 | 1.57 | ||||||||||||||||||
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Total interest-bearing deposits and escrows |
125,175 | 0.30 | 125,588 | 0.43 | 164,991 | 0.56 | ||||||||||||||||||
Non-interest-bearing checking accounts |
16,783 | 0.00 | 17,065 | 0.00 | 14,734 | 0.00 | ||||||||||||||||||
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Total deposits and escrows |
$ | 141,958 | 0.27 | % | $ | 142,653 | 0.38 | % | $ | 179,725 | 0.51 | % | ||||||||||||
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For a detailed discussion of the Companys deposits, please see Managements Discussion and Analysis, Deposits, in the Companys fiscal year 2013 Annual Report included as Exhibit 13.
Borrowings. For a detailed discussion of the Companys borrowings and asset and liability management activities, please see Managements Discussion and Analysis, Borrowed Funds and Quantitative and Qualitative Disclosures about Market Risk, in the Companys fiscal year 2013 Annual Report included as Exhibit 13.
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.
19
The Companys 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 32 full-time employees and 13 part-time employees as of June 30, 2013. None of these employees is represented by a collective bargaining agent. The Company believes that it enjoys excellent relations with its personnel.
20
REGULATION AND SUPERVISION
Recently Enacted Regulatory Reform. On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The financial reform and consumer protection act imposes new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. The new law establishes an independent federal consumer protection bureau within the Board of Governors of the Federal Reserve System (the Federal Reserve Board). The following discussion summarizes significant aspects of the new law that may affect WVS and the Savings Bank. Many of the regulations implementing these changes have not been promulgated, so we cannot determine the full impact on our business and operations at this time.
The following aspects of the financial reform and consumer protection act are related to the operations of the Savings Bank:
| A new independent consumer financial protection bureau has been established within the Federal Reserve Board, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. Smaller financial institutions, like West View Savings Bank, are subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws. |
| Tier I capital treatment for hybrid capital items like trust preferred securities is eliminated subject to various grandfathering and transition rules. |
| The prohibition on payment of interest on demand deposits was repealed, effective July 21, 2011. |
| Deposit insurance is permanently increased to $250,000. |
| The deposit insurance assessment base calculation now equals the depository institutions total assets minus the sum of its average tangible equity during the assessment period. |
| The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35 percent of estimated annual insured deposits or assessment base; however, the Federal Deposit Insurance Corporation is directed to offset the effect of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion. |
The following aspects of the financial reform and consumer protection act are related to the operations of the Company:
| The Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries. |
| The Securities and Exchange Commission is authorized to adopt rules requiring public companies to make their proxy materials available to shareholders for nomination of their own candidates for election to the board of directors. |
| Public companies are now required to provide their shareholders with a non-binding vote: (i) at least once every three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they should have a say on pay vote every one, two or three years. |
| A separate, non-binding shareholder vote is now required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments. |
21
| Securities exchanges are now required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain significant matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant. |
| Stock exchanges are prohibited from listing the securities of any issuer that does not have a policy providing for (i) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (ii) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information. |
| Disclosure in annual proxy materials is required concerning the relationship between the executive compensation paid and the issuers financial performance. |
| Item 402 of Regulation S-K was amended to require companies to disclose the ratio of the Chief Executive Officers annual total compensation to the median annual total compensation of all other employees. |
| Smaller reporting companies, such as the Company, are exempt from complying with the internal control auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. |
Recent Regulatory Capital Actions. The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, adopted Basel III in September 2010, which constitutes a strengthened set of capital requirements for banking organizations in the United States and around the world. In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (RWA) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. The new common equity Tier 1 capital component requires capital of the highest quality predominantly composed of retained earnings and common stock instruments. For community banks such as the Savings Bank, a common equity Tier 1 capital ratio 4.5% will become effective on January 1, 2015. The new capital rules will also increase the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, institutions that seek the freedom to make capital distributions and pay discretionary bonuses to executive officers without restriction must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.
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 Federal Reserve Board and the Department.
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.
22
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.
Limitations on Transactions with Affiliates. Transactions between savings banks and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings bank includes any company or entity which controls the savings bank or that, is controlled by a company that controls the savings bank. In a holding company context, the parent holding company of a savings bank (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings bank. Generally, Section 23A (i) limits the extent to which the savings bank or its subsidiaries may engage in covered transactions with any one affiliate to an amount equal to 10% of such banks capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to covered transactions as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least favorable, to the bank or subsidiary as those provided to a non-affiliate. The term covered transaction includes the making of loans to, purchase of assets from, issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also apply to the provision of services and the sale of assets by a savings bank to an affiliate.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings bank, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings banks loans to one borrower limit (generally equal to 15% of the banks unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons and also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings bank to all insiders cannot exceed the banks unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers.
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
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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 level ranging from 20% to 100% in the risk-weighting system. Off-balance sheet items also are adjusted to take into account certain risk characteristics.
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. See the description of the newly promulgated capital requirements above that will be phased in over time.
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. This policy was incorporated into the Federal Deposit Insurance Act as part of legislation enacted in 2010. No regulations implementing that provision have been promulgated.
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.
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.
Insurance of Accounts. The deposits of West View Savings Bank are insured to the maximum extent permitted by the DIF and are backed by the full faith and credit of the U.S. Government. The Dodd-Frank Act permanently increased deposit insurance on most accounts from $100,000 to $250,000. As insurer, the Federal Deposit Insurance Corporation is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the Federal Deposit Insurance Corporation.
The Federal Deposit Insurance Corporations risk-based premium system provides for quarterly assessments. Each insured institution is placed in one of four risk categories depending on supervisory and capital considerations. Within its risk category, an institution is assigned to an initial base assessment rate which is then adjusted to determine its final assessment rate based on its brokered deposits, secured liabilities and unsecured debt. The Federal Deposit Insurance Corporation recently amended its deposit insurance regulations (1) to change the assessment base for insurance from domestic deposits to average assets minus average tangible equity and (2) to lower overall assessment rates. The revised assessments rates are between 2.5 to 9 basis points for banks in the lowest risk category and between 30 to 45 basis points for banks in the highest risk category. The amendments became effective for the quarter beginning April 1, 2011 with the new assessment methodology being reflected in the premium invoices that were due September 30, 2011.
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In addition, all institutions with deposits insured by the Federal Deposit Insurance Corporation are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize the predecessor to the Deposit Insurance Fund. The assessment rate is adjusted quarterly. These assessments will continue until the Financing Corporation bonds mature in 2019.
The Federal Deposit Insurance Corporation may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the Federal Deposit Insurance Corporation. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the Federal Deposit Insurance Corporation. Management is aware of no existing circumstances which would result in termination of the Savings Banks deposit insurance.
On November 12, 2009, the Federal Deposit Insurance Corporation approved a requirement for insured deposit institutions to prepay 13 quarters of estimated insurance assessments. Prepayment of the assessment was included with the December 30, 2009 invoice and totaled approximately $1.2 million. This prepayment did not immediately affect bank earnings. Banks recorded the prepaid assessment as a non-earning asset and amortize the actual risk-based premium payments at the end of each quarter.
The Savings Bank was a well capitalized institution as of June 30, 2013.
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. The FDICs capital regulations establish a minimum of 3.0% 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 4.0% to 5.0% or more. Under the FDICs 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, rated composite 1 under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the sum of common stockholders equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and minority interest in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill, and certain purchased mortgage servicing rights and purchased credit and relationships.
The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based capital standard for savings banks requires the maintenance of total capital which is defined as Tier I capital and supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item.
The components of Tier I capital are equivalent to those discussed above under the 3% leverage standard. The components of supplementary (Tier 2) capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan losses. Allowance for loan losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At June 30, 2013, the Savings Bank met each of its capital requirements. See the description of the newly promulgated capital requirements above that will be phased in over time.
Any savings bank that fails any of the capital requirements is subject to possible enforcement actions by the Federal Deposit Insurance Corporation. Such actions could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institutions operations, termination of federal deposit insurance and the appointment of a conservator or receiver.
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The Savings Bank is also subject to more stringent Department capital guidelines. Although not adopted in regulation form, the Department utilizes capital standards requiring a minimum of 6% leverage capital and 10% risk-based capital. The components of leverage and risk-based capital are substantially the same as those defined by the FDIC.
Prompt Corrective Action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.
Capital Category |
Total Risk-based Capital |
Tier 1 Risk-based Capital |
Tier 1 Leverage Capital | |||
Well capitalized |
10% or more | 6% or more | 5% or more | |||
Adequately capitalized |
8% or more | 4% or more | 4% or more | |||
Undercapitalized |
Less than 8% | Less than 4% | Less than 4% | |||
Significantly undercapitalized |
Less than 6% | Less than 3% | Less than 3% |
In addition, an institution is critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).
An institution generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.
At June 30, 2013, the Savings Bank was deemed a well capitalized institution for purposes of the prompt corrective regulations and as such is not subject to the above mentioned restrictions. The newly promulgated capital requirements described above also will impact the prompt corrective action rules.
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. 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.
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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 Banks 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 Banks 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 ASC Topic 740, 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 Companys 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 Companys financial condition or operations.
Audit by IRS. The Companys consolidated federal income tax returns for taxable years through December 31, 2009, have been closed for the purpose of examination by the Internal Revenue Service. The Companys 2011 federal income tax return is currently being audited by the IRS. The IRS has not completed its audit. The Company is unaware of any proposed adjustments to the 2011 federal tax return.
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 Companys unconsolidated taxable income for federal purposes with certain adjustments. In general, the Capital Stock Tax is a property tax imposed at the rate of 0.189% of a corporations capital stock value, which is determined in accordance with a fixed formula based upon average net income and consolidated net worth.
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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 Banks 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 thrifts 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.
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There are increased risks involved with speculative construction, land acquisition and development, 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 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.
The Company invests in mortgage-backed securities (MBS), including significant legacy positions in private label MBS (PLMBS) which could result in impairment charges.
The Company has investments in MBS, including agency and private label MBS. PLMBS investments carry a significant amount of credit risk, relative to other investments within the Companys portfolio. The PLMBS segment accounts for 1.3% of the Companys total assets and 1.5% of the Companys total interest income.
MBS are secured by mortgage properties that are geographically diverse, but may include exposure in some areas that have experienced rapidly declining property values. The MBS portfolio is also subject to interest rate risk, prepayment risk, operational risk, servicer risk and originator risk, all of which can have a negative impact on the underlying collateral of the MBS investments. The rate and timing of unscheduled payments and collections of principal on mortgage loans serving as collateral for these securities are difficult to predict and can be affected by a variety of factors, including the level of prevailing interest rates, restrictions on voluntary prepayments contained in the mortgage loans, the availability of lender credit, loan modifications and other economic, demographic, geographic, tax and legal factors.
During fiscal 2011, 2012 and 2013, the Company recorded $0, $131 thousand, and $12 thousand, respectively, of credit impairment charges, and $0, $114 thousand, and $0, respectively, to accumulated other comprehensive income (net of income tax effect of $0, $58 thousand, and $0, respectively). During fiscal 2011, 2012, and 2013, the Company was able to accrete back into other comprehensive income $496 thousand, $495 thousand, and $549 thousand, respectively (net of income tax effect of $256 thousand, $255 thousand, and $282 thousand, respectively), based on principal repayments on private-label mortgage-backed securities previously identified with other than temporary impairment (OTTI). Cash repayments on the Companys PLMBS portfolio totaled $22.1 million, $13.4 million and $7.1 million, for fiscal years 2011, 2012 and 2013, respectively.
During fiscal 2013, the level of delinquencies continued at high levels within the PLMBS portfolio. Continued deterioration in the mortgage and credit markets could result in additional other-than-temporary impairment charges in our legacy PLMBS which could negatively affect the Companys financial condition, results of operations, or its capital position. During fiscal 2013, one additional credit impairment was recognized on one private-label mortgage-backed security previously identified with OTTI.
At June 30, 2013, the Company, based on its analysis, has concluded that three PLMBS are other-than-temporarily impaired, as discussed above. The remaining securities portfolio has experienced unrealized losses and a decreased fair value due to interest rate volatility, illiquidity in the market place or credit deterioration in the U.S. mortgage markets.
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The amount of unrealized losses decreased to $1.2 million at June 30, 2013 from $2.1 million at June 30, 2012. The amount of unrealized losses decreased primarily due to cash repayments of principal on the PLMBS, and also due to increases in the estimated fair values of the PLMBS over time.
See Note 6, Unrealized Losses on Securities, of the Notes to Consolidated Financial Statements.
Our financial condition or results of operations may be adversely affected if PLMBS servicers fail to perform their obligations to service mortgage loans as collateral for PLMBS.
PLMBS servicers have a significant role in servicing the mortgage loans that serve as collateral for the Companys PLMBS portfolio, including playing an active role in loss mitigation efforts and making servicer advances. The Companys credit risk exposure to the servicer counterparties includes the risk that they will not perform their obligation to service these mortgage loans, which could adversely affect the Companys financial condition or results or operations. The risk of such failure has increased as deteriorating market conditions have affected the liquidity and financial condition of some of the larger servicers. These risks could result in losses significantly higher than currently anticipated.
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. The newly promulgated capital conversation buffer to be phased in from January 1, 2016 to January 1, 2019 will restrict capital distributions unless the Savings Bank maintains greater than 2.5% in common equity attributable to the buffer.
In connection with a previous regulatory examination of the Savings Bank, including a review of the Savings Bank private label mortgagebacked securities portfolio and the downgrades of certain private label CMOs within the Savings Banks investment portfolio, the Savings Bank previously agreed to take certain actions to monitor and improve asset quality and its regulatory capital. These actions included additional documentation and monitoring procedures relating to its assessment of other than
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temporary impairment and the market (fair) value estimates of its investment securities, the submission of a capital plan to the FDIC and the Pennsylvania Department of Banking (the Department), and a requirement to obtain the prior non-objection from its regulatory banking agencies for any dividends payable by the Savings Bank to the Company. As a result of a recent regulatory examination of the Savings Bank, these requirements have been removed except that the Savings Bank agreed that it will continue to obtain the prior non-objection from the FDIC and the Department for any dividends payable by the Savings Bank to the Company. Similar commitments that the Company agreed to with the Federal Reserve have been removed.
The Company previously announced and reported a reduction of its quarterly cash dividend from $0.16 to $0.04 per share along with the suspension of common stock repurchases under its stock repurchase program. The Company believes that these actions demonstrate its commitment to serve as a source of strength to the Savings Bank and are appropriate in light of todays economic environment. The Company believes that its stand alone liquidity is strong with liquid assets totaling approximately $2.1 million at June 30, 2013. This level of liquidity could support operating expenses and the current dividend for about five years without any dividend income from the Savings Bank. Dividends are subject to declaration by the Board of Directors, which take into account the Companys financial condition, earnings, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the common stock in future periods or that, if paid, such dividends will not be reduced or eliminated.
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.
Continued turmoil in the financial markets could have an adverse effect on our financial position or results of operations.
Beginning in fiscal 2008, United States and global financial markets experienced severe disruption and volatility, and general economic conditions have declined significantly. Adverse developments in credit quality, asset values and revenue opportunities throughout the financial services industry, as well as general uncertainty regarding the economic, industry and regulatory environment, have had a negative impact on the industry. The United States and the governments of other countries have taken steps to try to stabilize the financial system, including investing in financial institutions, and have implemented programs intended to improve general economic conditions. The U.S. Department of the Treasury created the Capital Purchase Program under the Troubled Asset Relief Program, pursuant to which the Treasury Department provided additional capital to participating financial institutions through the purchase of preferred stock or other securities. Other measures include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; regulatory action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. Notwithstanding the actions of the United States and other governments, there can be no assurance that these efforts will be successful in restoring industry, economic or market conditions to their previous levels and that they will not result in adverse unintended consequences. Factors that could continue to pressure financial services companies, including WVS, are numerous and include:
| worsening credit quality, leading among other things to increases in loan losses and reserves, |
| continued or worsening disruption and volatility in financial markets, leading among other things to continuing reductions in asset values, |
| capital and liquidity concerns regarding financial institutions generally, |
| limitations resulting from or imposed in connection with governmental actions intended to stabilize or provide additional regulation of the financial system, or |
| recessionary conditions that are deeper or last longer than currently anticipated. |
31
Regulatory reform may have a material impact on our operations.
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act that, among other things, imposes new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies. Among other things, the law creates a new consumer financial protection bureau that will have the authority to promulgate rules intended to protect consumers in the financial products and services market. The creation of this independent bureau could result in new regulatory requirements and raise the cost of regulatory compliance. The federal preemption of state laws currently accorded federally chartered financial institutions will be reduced. In addition, regulation mandated by the new law could require changes in regulatory capital requirements, loan loss provisioning practices, and compensation practices which may have a material impact on our operations.
32
Item 1B. | Unresolved Staff Comments |
Not applicable. |
Item 2. | Properties. |
The following table sets forth certain information with respect to the offices and other properties of the Company at June 30, 2013.
Description/Address |
Leased/Owned | |
McCandless Office |
Owned | |
West View Boro Office |
Owned | |
Cranberry Township Office |
Owned | |
Sherwood Oaks Office |
Leased(1) | |
Bellevue Boro Office |
Leased(2) | |
Franklin Park Boro Office |
Owned |
(1) | The Company operates this office out of a retirement community. The lease is for a period of 21 months ending in December 2013. |
(2) | The lease is for a period of 10 years ending in November 2016. |
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. | Mine Safety Disclosures. |
Not applicable.
33
PART II.
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
(a) | The information required herein is incorporated by reference from page 76 of the Companys 2013 Annual Report to Stockholders included as Exhibit 13 (2013 Annual Report). |
(b) | Not applicable. |
(c) | Not applicable. |
Item 6. | Selected Financial Data. |
The information required herein is incorporated by reference from pages 3 to 4 of the Companys 2013 Annual Report.
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operation. |
The information required herein is incorporated by reference from pages 5 to 16 of the Companys 2013 Annual Report.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The information required herein is incorporated by reference from pages 16 to 23 of the Companys 2013 Annual Report.
Item 8. | Financial Statements and Supplementary Data. |
The information required herein is incorporated by reference from pages 24 to 75 of the Companys 2013 Annual Report.
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Not applicable.
Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures. As of June 30, 2013, an evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Accounting Officer, on the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Companys management, including the Chief Executive Officer and Chief Accounting Officer, concluded that the Companys disclosure controls and procedures were effective as of June 30, 2013.
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Companys management, including the principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.
34
Management Report on Internal Control over Financial Reporting. Management is responsible for designing, implementing, documenting, and maintaining an adequate system of internal control over financial reporting. An adequate system of internal control over financial reporting encompasses the processes and procedures that have been established by management to:
| maintain records that accurately reflect the companys transactions; |
| prepare financial statement and footnote disclosures in accordance with GAAP that can be relied upon by external users; |
| prevent and detect unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial statements. |
Management conducted an evaluation of the effectiveness of the Companys internal control over financial reporting based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation under the criteria in Internal Control-Integrated Framework, management concluded that internal control over financial reporting was effective as of June 30, 2013. Furthermore, during the conduct of its assessment, management identified no material weakness in its financial reporting control system.
The Board of Directors of the Company, through its Audit Committee, provides oversight to managements conduct of the financial reporting process. The Audit Committee, which is composed entirely of independent directors, is also responsible to recommend the appointment of independent public accountants. The Audit Committee also meets with management, the internal audit staff, and the independent public accountants throughout the year to provide assurance as to the adequacy of the financial reporting process and to monitor the overall scope of the work performed by the internal audit staff and the independent public accountants.
Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls Over Financial Reporting. No change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 9B. | Other Information. |
Not applicable.
35
PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
The information required herein is incorporated by reference from pages 4 to 10 of the Companys Proxy Statement for the 2013 Annual Meeting of Stockholders dated September 19, 2013 (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 Corporate Secretary, WVS Financial Corp., 9001 Perry Highway, Pittsburgh, Pennsylvania 15237.
Set forth below is information with respect to the principal occupation during the last five years for the executive officers of the Company and the Savings Bank who do not serve as directors.
Michael R. Rutan. Age 52. Mr. Rutan has been Senior Vice President of Operations since November 2012. Prior to joining the company, Mr. Rutan had served in various increasing roles of responsibility in the Risk Management, Human Resources, and Finance functions of the PNC Financial Services Group, Inc. beginning in October 1993. Prior thereto, Mr. Rutan served as a bank examiner with the Office of Thrift Supervision (OTS, now the Office of Comptroller of the Currency OCC).
Keith A. Simpson. Age 56. Mr. Simpson has been Treasurer of the Company and the Savings Bank since April 2003 and Vice President and Chief Accounting Officer of the Company and the Savings Bank since November 2002. Previously, Mr. Simpson was Controller and Assistant Treasurer of the Savings Bank since October 1995. In October 2008, Mr. Simpson filed personal bankruptcy under Chapter 7 of the U.S. Bankruptcy Code, which was discharged in February 2009.
Bernard P. Lefke. Age 62. Mr. Lefke has been Vice President of Administration of the Savings Bank since November 2012. Previously, Mr. Lefke was Vice President of Savings of the Savings Bank since February 1991, and an Assistant Vice President and Branch Manager of the Savings Bank since 1981.
Item 11. | Executive Compensation. |
The information required herein is incorporated by reference from pages 12 to 15 of the Companys 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 10 to 11 of the Companys Proxy Statement.
36
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, 2013.
Equity Compensation Plan Information
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted- average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) |
|||||||||
Equity compensation plans approved by security holders |
124,519 | $ | 16.20 | 37,481 | ||||||||
Equity compensation plans not approved by security holders |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
124,519 | $ | 16.20 | 37,481 | ||||||||
|
|
|
|
|
|
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required herein is incorporated by reference from pages 6 and 15 of the Companys Proxy Statement.
Item 14. | Principal Accounting Fees and Services. |
The information required herein is incorporated by reference from pages 16 to 17 of the Companys Proxy Statement.
37
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 Companys 2013 Annual Report. |
Report of Independent Registered Public Accounting Firm. |
||
Consolidated Balance Sheet at June 30, 2013 and 2012. |
||
Consolidated Statement of Income for the Years Ended June 30, 2013, 2012 and 2011. |
||
Consolidated Statement of Comprehensive Income for the Years Ended June 30, 2013, 2012 and 2011. |
||
Consolidated Statement of Changes in Stockholders Equity for the Years Ended June 30, 2013, 2012 and 2011. |
||
Consolidated Statement of Cash Flows for the Years Ended June 30, 2013, 2012 and 2011. |
||
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. |
(3) | The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index. |
No. |
Description |
Location | ||
3.1 | Amended and Restated Articles of Incorporation | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on August 1, 2007. | ||
3.2 | Amended and Restated By-Laws | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on August 28, 2009. | ||
4 | Stock Certificate of WVS Financial Corp. | 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. | ||
10.1 | WVS Financial Corp. Amended and Restated Recognition Plans and Trusts for Executive Officers, Directors and Key Employees * | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on November 28, 2008. | ||
10.2 | WVS Financial Corp. Employee Stock Ownership Plan * | 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. | ||
10.3 | Amended West View Savings Bank Employee Profit Sharing Plan * | 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. | ||
10.4 | Amended and Restated Employment Agreement between WVS Financial Corp., West View Savings Bank and David Bursic * | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on November 28, 2008. |
38
No. |
Description |
Location | ||
10.5 | Amended and Restated Directors Deferred Compensation Program * | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on November 28, 2008. | ||
10.6 | WVS Financial Corp. 2008 Stock Incentive Plan * | Incorporated by reference from the Definitive Proxy Statement filed by the Company with the SEC on September 26, 2008. | ||
10.7 | Supplemental Executive Retirement Plan effective September 1, 2013 by and between West View Savings Bank and David Bursic* | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on August 30, 2013. | ||
10.8 | Split Dollar Life Insurance Agreement effective September 1, 2013 by and between West View Savings Bank and David Bursic* | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on August 30, 2013. | ||
10.9 | Form of Split Dollar Life Insurance Agreement effective September 1, 2013 by and between West View Savings Bank and each of Keith Simpson and Michael Rutan* | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on August 30, 2013. | ||
13 | 2013 Annual Report to Stockholders | Filed herewith | ||
14.1 | Ethics Policy | Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on September 24, 2004. | ||
14.2 | Code of Ethics for Senior Financial Officers | Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on September 24, 2004. | ||
21 | Subsidiaries of the Registrant Reference is made to Item 1. Business for the required information | | ||
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 | ||
101.INS | XBRL Instance Document** | |||
101.SCH | XBRL Taxonomy Extension Schema Document** | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document** |
39
No. |
Description |
Location | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** | |||
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document** |
* | Management contract or compensatory plan or arrangement. |
** | These interactive data files shall not be deemed filed for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. |
40
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 19, 2013 |
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 Chief Executive Officer (Principal Executive Officer) |
September 19, 2013 | |||
/s/ Keith A. Simpson |
||||
Keith A. Simpson, Vice President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) |
September 19, 2013 | |||
/s/ David L. Aeberli |
||||
David L. Aeberli, | September 19, 2013 | |||
Chairman of the Board of the Directors | ||||
/s/ John W. Grace |
||||
John W. Grace, Director | September 19, 2013 | |||
/s/ Lawrence M. Lehman |
||||
Lawrence M. Lehman, Director | September 19, 2013 | |||
/s/ Margaret VonDerau |
||||
Margaret VonDerau, Director | September 19, 2013 |
41
EXHIBIT 13
FINANCIAL
CORP.
- THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK-
Over 100 Years of Quality Banking
2013
ANNUAL REPORT
Page Number |
||||
1 | ||||
3 | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
5 | |||
24 | ||||
25 | ||||
26 | ||||
27 | ||||
28 | ||||
29 | ||||
30 | ||||
76 | ||||
![]() |
(412)364-1911 |
- THE HOLDING COMPANY OF WEST VIEW SAVINGS BANK-
To Our Shareholders:
During fiscal 2013, your Company continued to increase its balance sheet from a Great Recession low point in fiscal 2011 of $228.9 million to $287.6 million at June 30, 2013. During this same time period, shareholders equity increased from $28.9 million to $31.9 million, and book value per share increased from $14.03 to $15.47. Both the Company and the Bank continued to be well capitalized under current regulatory capital standards and we expect that this will continue to be true under the new Basel III capital requirements that go into effect in January 2015.
Net income during fiscal 2013 was constrained due to record low market interest rates. The Federal Reserve announced its third bond purchase program during the fall of 2012. This program purchases about $85 billion per month of U.S. Treasury bonds and Agency mortgage-backed securities in an attempt to foster higher levels of economic growth. These purchases have artificially reduced market interest rates particularly in the intermediate and long maturity tenors of the yield curve. While academics debate the effectiveness of the Federal Reserves actions, lower market interest rates continue to negatively affect interest rate margins across most of the banking sector and punish savers particularly senior citizens who rely on interest income to supplement their retirement incomes. Low market interest rates reduced the yields earned on the Companys investment and loan portfolios. The Federal Reserve is now actively considering how to wind down this third bond purchase program. The markets have already begun to react with interest rates edging up in June 2013.
Low market interest rates also present an unacceptable level of risk in the Companys residential lending operations. As market interest rates rise over time, fixed rate loans held on the balance sheet will lose market value and net interest income will likely compress. While we have no control over market interest rates, we have tried to position the Company to earn higher levels of net interest income and net income over time as market interest rates begin to increase. Specifically the Board and Senior Management:
| Increased liquidity through a higher available for sale allocation in our investment portfolio. |
| Increased common equity capital, primarily through earnings retention, to exceed the Basel III capital guidelines without issuing any additional equity securities. |
| Reduced non-interest expenses over the past three fiscal years. |
Town of McCandless 9001 Perry Highway, Pittsburgh, Pennsylvania 15237
1
Looking ahead, as the Federal Reserve begins to reduce its current $85 billion per month bond purchase program, we believe that market interest rates will continue to increase particularly intermediate and long-term market interest rates. Short-term market interest rates will likely increase more slowly since the Federal Reserve has indicated that it will likely keep the targeted federal funds rate low for an extended period of time. In summary, we believe that market rates should increase and the difference between short and long-term interest rates may widen. Under this scenario, both the Companys net interest income and net income should improve.
As market interest rates increase, we intend to increase the volume of residential loan originations. Some of these loans may be retained on the balance sheet, while others may be sold to the Federal Home Loan Banks Mortgage Partnership Finance (MPF) program. Loans retained on the balance sheet should provide higher levels of interest income while loans assigned to the MPF program will generate loan origination fee income. In order to support the anticipated higher volumes of loan originations, the Bank is evaluating additional investments in loan origination technology.
As shareholders, we believe that the market for bank stocks has improved. Our stock price has increased from $7.35 to $11.40 during fiscal 2013. As market conditions improve, and interest rates increase, we believe that our net income, and stock price, will also continue to improve.
In the meantime, we thank our customers, employees, and shareholders for your continued patience and support.
![]() |
![]() | |
David J. Bursic | David L. Aeberli | |
President and | Chairman of the Board | |
Chief Executive Officer | of Directors |
Town of McCandless 9001 Perry Highway, Pittsburgh, Pennsylvania 15237
2
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED
As of or For the Year Ended June 30, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
(Dollars in Thousands, except per share data) | ||||||||||||||||||||
Selected Financial Data: |
||||||||||||||||||||
Total assets |
$ | 287,576 | $ | 273,341 | $ | 228,888 | $ | 354,668 | $ | 419,434 | ||||||||||
Net loans receivable |
31,531 | 39,433 | 49,952 | 56,315 | 58,148 | |||||||||||||||
Mortgage-backed securities |
139,268 | 79,086 | 70,568 | 117,132 | 176,204 | |||||||||||||||
Investment securities |
103,606 | 140,020 | 89,438 | 153,193 | 123,621 | |||||||||||||||
Deposit accounts Retail |
140,524 | 142,173 | 143,518 | 146,584 | 146,315 | |||||||||||||||
Deposit accounts Wholesale |
| | 248 | 55,338 | | |||||||||||||||
FHLB advances long-term |
17,500 | 17,500 | 22,500 | 109,500 | 130,079 | |||||||||||||||
FHLB advances short-term |
96,712 | 79,270 | 32,059 | | | |||||||||||||||
FRB short-term borrowings |
| | | | 108,800 | |||||||||||||||
Other short-term borrowings |
| | | 12,510 | | |||||||||||||||
Stockholders equity |
31,828 | 30,413 | 28,878 | 27,795 | 31,123 | |||||||||||||||
Non-performing assets, troubled debt restructurings and potential problem loans(1) |
1,608 | 1,739 | 2,401 | 1,666 | 1,268 | |||||||||||||||
Selected Operating Data: |
||||||||||||||||||||
Interest income |
$ | 5,959 | $ | 7,053 | $ | 9,225 | $ | 12,083 | $ | 17,438 | ||||||||||
Interest expense |
1,407 | 1,544 | 4,220 | 8,481 | 10,311 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income |
4,552 | 5,509 | 5,005 | 3,602 | 7,127 | |||||||||||||||
Provision for loan losses |
(68 | ) | (104 | ) | (15 | ) | (11 | ) | (294 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after recovery of loan losses |
4,620 | 5,613 | 5,020 | 3,613 | 7,421 | |||||||||||||||
Non-interest income |
573 | 349 | 514 | 370 | 604 | |||||||||||||||
Non-interest expense |
3,571 | 3,658 | 3,846 | 3,624 | 3,795 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income tax expense |
1,622 | 2,304 | 1,688 | 359 | 4,230 | |||||||||||||||
Income tax expense (benefit) |
542 | 902 | 462 | (13 | ) | 1,352 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 1,080 | $ | 1,402 | $ | 1,226 | $ | 372 | $ | 2,878 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Per Share Information: |
||||||||||||||||||||
Basic earnings |
$ | 0.52 | $ | 0.68 | $ | 0.60 | $ | 0.18 | $ | 1.35 | ||||||||||
Diluted earnings |
$ | 0.52 | $ | 0.68 | $ | 0.60 | $ | 0.18 | $ | 1.35 | ||||||||||
Dividends per share |
$ | 0.16 | $ | 0.16 | $ | 0.28 | $ | 0.64 | $ | 0.64 | ||||||||||
Dividend payout ratio |
30.77 | % | 23.53 | % | 46.67 | % | 355.56 | % | 47.41 | % | ||||||||||
Book value per share at period end: |
||||||||||||||||||||
Common Equity |
$ | 15.47 | $ | 14.78 | $ | 14.03 | $ | 13.51 | $ | 15.03 | ||||||||||
Tier I Equity |
$ | 15.83 | $ | 15.45 | $ | 14.92 | $ | 14.59 | $ | 15.03 | ||||||||||
Average shares outstanding: |
||||||||||||||||||||
Basic |
2,057,930 | 2,057,930 | 2,057,930 | 2,066,335 | 2,133,234 | |||||||||||||||
Diluted |
2,057,930 | 2,057,930 | 2,057,930 | 2,066,335 | 2,133,308 |
3
As of or For the Year Ended June 30, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Selected Operating Ratios(2): |
||||||||||||||||||||
Average yield earned on interest-earning assets(3) |
2.22 | % | 2.85 | % | 3.30 | % | 3.27 | % | 4.16 | % | ||||||||||
Average rate paid on interest-bearing liabilities |
0.63 | 0.75 | 1.76 | 2.56 | 2.72 | |||||||||||||||
Average interest rate spread(4) |
1.59 | 2.11 | 1.58 | 0.71 | 1.44 | |||||||||||||||
Net interest margin(4) |
1.69 | 2.24 | 1.83 | 1.00 | 1.73 | |||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities |
119.61 | 120.72 | 116.43 | 113.27 | 111.82 | |||||||||||||||
Non-interest expense as a percent of average assets |
1.30 | 1.44 | 1.35 | 0.96 | 0.89 | |||||||||||||||
Return on average assets |
0.39 | 0.55 | 0.43 | 0.10 | 0.67 | |||||||||||||||
Return on average equity |
3.45 | 4.75 | 4.38 | 1.22 | 9.15 | |||||||||||||||
Ratio of average equity to average assets |
11.42 | 11.64 | 9.85 | 8.04 | 7.37 | |||||||||||||||
Full-service offices at end of period |
5 | 5 | 5 | 5 | 5 | |||||||||||||||
Asset Quality Ratios(2): |
||||||||||||||||||||
Non-performing and potential problem loans and troubled debt restructurings as a percent of net total loans(1) |
5.10 | % | 3.81 | % | 4.34 | % | 2.96 | % | 2.18 | % | ||||||||||
Non-performing assets as a percent of total assets(1) |
0.51 | 0.58 | 1.05 | 0.47 | 0.23 | |||||||||||||||
Non-performing assets, troubled debt restructurings and potential problem loans as a percent of total assets(1) |
0.56 | 0.64 | 1.05 | 0.47 | 0.30 | |||||||||||||||
Allowance for loan losses as a percent of total loans receivable |
0.96 | 0.97 | 1.24 | 1.13 | 1.12 | |||||||||||||||
Allowance for loan losses as a percent of non-performing loans |
19.09 | 25.60 | 29.09 | 38.72 | 69.46 | |||||||||||||||
Charge-offs to average loans receivable outstanding during the period |
0.03 | 0.30 | 0.00 | 0.01 | 0.00 | |||||||||||||||
Capital Ratios(2): |
||||||||||||||||||||
Tier 1 risk-based capital ratio |
20.02 | % | 20.43 | % | 21.57 | % | 14.10 | % | 14.18 | % | ||||||||||
Total risk-based capital ratio |
20.24 | 20.69 | 22.03 | 14.41 | 14.50 | |||||||||||||||
Tier 1 leverage capital ratio |
11.88 | 11.14 | 13.12 | 8.21 | 7.35 |
(1) | Non-performing assets consist of non-performing loans and real estate owned (REO). Non-performing loans consist of non-accrual loans and accruing loans greater than 90 days delinquent, while REO consists of real estate acquired through foreclosure and real estate acquired by acceptance of a deed in lieu of foreclosure. Potential problem loans include loans where management has some doubt as to the ability of the borrower to comply with present loan repayment terms. |
(2) | Consolidated asset quality ratios and capital ratios are end of period ratios, except for charge-offs to average net loans. With the exception of end of period ratios, all ratios are based on average monthly balances during the indicated periods. |
(3) | Interest and yields on tax-exempt loans and securities (tax-exempt for federal income tax purposes) are shown on a fully taxable equivalent basis. |
(4) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities, and net interest margin represents net interest income as a percent of average interest-earning assets. |
4
WVS FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as anticipated, believe, expect, intend, plan, estimate or similar expressions.
Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:
| our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings; |
| general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan losses or a reduced demand for credit or fee-based products and services; |
| changes in the interest rate environment could reduce net interest income and could increase credit losses; |
| the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases; |
| changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations; |
| the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending; |
| competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform; and |
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| acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock. |
You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new or future events except to the extent required by federal securities laws.
GENERAL
WVS Financial Corp. (the Company) is the parent holding company of West View Savings Bank (West View or the Savings Bank). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at June 30, 2013.
The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Companys net income is also affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs.
CHANGES IN FINANCIAL CONDITION
Condensed Balance Sheet
June 30, | Change | |||||||||||||||
2013 | 2012 | Dollars | Percentage | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Cash equivalents |
$ | 1,927 | $ | 2,506 | $ | (579 | ) | -23.1 | % | |||||||
Certificates of deposit |
598 | 846 | (248 | ) | -29.3 | |||||||||||
Investments (1) |
248,556 | 226,701 | 21,855 | 9.6 | ||||||||||||
Net loans receivable |
31,531 | 39,433 | (7,902 | ) | -20.0 | |||||||||||
Total assets |
287,576 | 273,341 | 14,235 | 5.2 | ||||||||||||
Deposits |
140,524 | 142,173 | (1,649 | ) | -1.2 | |||||||||||
Borrowed funds |
114,212 | 96,770 | 17,442 | 18.0 | ||||||||||||
Total liabilities |
255,748 | 242,928 | 12,820 | 5.3 | ||||||||||||
Stockholders equity |
31,828 | 30,413 | 1,415 | 4.7 |
(1) | Includes mortgage-backed securities and Federal Home Loan Bank (FHLB) stock. |
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Cash Equivalents. Cash on hand and due from banks, and interest-earning demand deposits represent cash equivalents. Cash equivalents decreased $579 thousand or 23.1% to $1.9 million at June 30, 2013 from $2.5 million at June 30, 2012. Changes in cash equivalents are influenced by the timing of customer transaction account deposits, the redeployment of funds into other earning assets such as investments or loans, and the repayment of Company borrowings.
Certificates of Deposit. Certificates of deposit decreased $248 thousand or 29.3% to $598 thousand at June 30, 2013. As part of our asset liability and liquidity management strategies, the Company continued to redeem maturing FDIC insured certificates of deposit with other financial institutions. Contract terms typically range from five to twenty-seven months. At various times, risk-adjusted rates earned on certificates of deposit are higher than other investment alternatives at the time of investment and contribute to net interest income. Proceeds from certificates of deposit were primarily used to fund investment purchases.
Investments. The Companys investment portfolio is primarily comprised of U.S. Government Agency bonds, corporate bonds, FHLB stock and mortgaged-backed securities issued by U.S. Government Agencies and private-issuers. See Notes 3 and 4 to the Consolidated Financial Statements for additional information. The Companys investment portfolio increased $21.9 million or 9.6% to $248.6 million at June 30, 2013 from $226.7 million at June 30, 2012.
Mortgage-backed securities increased $60.2 million or 76.1% to $139.3 million at June 30, 2013 from $79.0 million at June 30, 2012. This increase was due primarily to $135.3 million in purchases of U.S. Government Agency floating-rate mortgage-backed securities, which was partially offset by cash repayments on U.S. Government Agency floating rate mortgage-backed securities totaling $68.9 million and $7.1 million in cash repayments on the Companys private-label floating-rate mortgage-backed securities portfolio.
Investment securities decreased $36.4 million or 26.0% to $103.6 million at June 30, 2013 from $190.0 million at June 30, 2012. This decrease was due primarily to purchases of U.S. Government Agency securities totaling $994 thousand, investment grade corporate bonds totaling $47.6 million, $1.2 million of investment grade corporate utility first mortgage bonds, and U.S. dollar denominated investment grade foreign bonds totaling $2.2 million, which were more than offset by early issuer redemptions and maturities totaling $57.6 million of U.S. Government Agency securities, $29.9 million of investment grade corporate bonds, $4.9 million of investment grade corporate utility first mortgage bonds, and $1.2 million of U.S. dollar denominated investment grade foreign bonds. Our investment in Federal Home Loan Bank stock decreased $1.9 million or 25.2% to $5.7 million at June 30, 2013 due to partial redemptions of excess stock by the FHLB. Investment purchases were primarily funded with borrowed funds and cash flows from the loan and certificate of deposit portfolios. See Quantitative and Qualitative Disclosures about Market Risk beginning on page 16.
Net Loans Receivable. Net loans receivable decreased $7.9 million or 20.0% to $31.5 million at June 30, 2013, compared to June 30, 2012. The decrease in net loans is primarily attributable to: lower net balances of construction and land development loans ($3.1 million) due to soft demand for new speculative construction loans by local builders, and repayments on the Companys multi-family, consumer and commercial loan portfolios ($5.1 million). Due to the stagnant economy, a number of the Companys small builders have experienced slow sales of their housing inventories. This slow down in sales also caused a substantially reduced number of new home starts which adversely impacted originations of new speculative construction loans. Record low interest rates for fixed rate permanent mortgage loans caused further levels of refinance activity on the Companys 1-4 family loan portfolio. The Company does not believe that it can effectively hedge the interest rate risk inherent in new fixed rate originations, especially on thirty year fixed rate mortgages. Consumer acceptance of fifteen and twenty-year fixed rate mortgages has been limited due to the small rate differential between these products and fixed rate thirty year mortgage loans. Historically, adjustable rate mortgage loans have not been popular in the Companys local market area because of the low rate of housing turnover. During fiscal 2013, the
7
Company retained all of its loan originations. The Company also partnered with the FHLBs Mortgage Partnership Finance® (MPF) Program to make purchase money and refinancing mortgages available to the public. These loans are originated through the Company who then assigns the loans to the MPF Program. This MPF Program relationship allows the Company to earn loan origination fee income and avoid the interest rate risk of retaining long-term fixed rate mortgages with low interest rates on the Companys balance sheet. Residential loan originations remained soft in fiscal 2013 due to the continued weak economic environment, an increase in the inventory of existing houses for sale and fewer construction loan starts. We expect these trends to continue into fiscal 2014.
Deposits. Total deposits decreased approximately $1.6 million or 1.2% during the year ended June 30, 2013. The Companys customers primarily reduced CD holdings by transferring funds to more liquid short-term holdings (primarily savings accounts). Certificates of deposit decreased $2.7 million or 6.5%. Money market and savings accounts grew by $2.0 million or 3.1%, while demand deposits decreased $911 thousand or 2.5%. See Note 12 to the Consolidated Financial Statements and Quantitative and Qualitative Disclosures on Market Risk.
Borrowed Funds. Borrowed funds increased $17.4 million or 18.0% to $114.2 million during fiscal 2013. The Companys borrowed funds are comprised of two components: legacy FHLB long-term advances and short-term borrowings. Short-term borrowings include FHLB short-term advances, other short-term borrowings, and FRB short-term borrowings.
At June 30, 2013, our remaining legacy FHLB long-term advances totaled $17.5 million with a weighted-average interest rate of 4.72%. Approximately $5.0 million of legacy FHLB long-term advances, with a weighted interest rate of 5.41%, will mature in April 2014.
The Company also uses a variety of short-term borrowing sources as part of its asset/liability management program. The actual short-term funding source used, at any given point in time, depends upon factors such as cost, terms, maturity terms and general market conditions. During fiscal 2013, we increased our FHLB short-term borrowings by $17.4 million or 22.0%. We had no other short-term borrowings or FRB short-term borrowings at June 30, 2013.
Stockholders Equity. Total stockholders equity increased $1.4 million or 4.7% to $31.8 million at June 30, 2013, compared to June 30, 2012. The increase in stockholders equity was primarily attributable to Company net income of $1.1 million and other comprehensive income, net of tax, totaling $643 thousand, which was partially offset by $328 thousand of cash dividends paid on the Companys common stock. See the Consolidated Statement of Comprehensive Income and Note 5 to the Consolidated Financial Statements for a discussion of the components of other comprehensive income. Book value per share (tier 1 equity basis) grew from $15.45 at June 30, 2012 to $15.83 at June 30, 2013. On a common equity basis, book value per share increased from $14.78 at June 30, 2012 to $15.47 at June 30, 2013. The Company also maintained strong capital ratios during fiscal 2013 to further bolster its balance sheet. Our tier 1 leverage ratio was 11.88% at June 30, 2013. Our total risk-based capital ratio was 20.24% at June 30, 2013.
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RESULTS OF OPERATIONS
Condensed Statements of Income | ||||||||||||||||||||
Year Ended June 30, 2013 |
Change | Year Ended June 30, 2012 |
Change | Year Ended June 30, 2011 |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Interest income |
$ | 5,959 | ($ | 1,094 | ) | $ | 7,053 | ($ | 2,172 | ) | $ | 9,225 | ||||||||
-15.5 | % | -23.5 | % | |||||||||||||||||
Interest expense |
$ | 1,407 | ($ | 137 | ) | $ | 1,544 | ($ | 2,676 | ) | $ | 4,220 | ||||||||
-8.9 | % | -63.4 | % | |||||||||||||||||
Net interest income |
$ | 4,552 | ($ | 957 | ) | $ | 5,509 | $ | 504 | $ | 5,005 | |||||||||
-17.4 | % | 10.1 | % | |||||||||||||||||
Provision for loan losses |
$ | (68 | ) | ($ | 36 | ) | ($ | 104 | ) | $ | 89 | ($ | 15 | ) | ||||||
-34.6 | % | 593.3 | % | |||||||||||||||||
Non-interest income |
$ | 573 | $ | 224 | $ | 349 | ($ | 165 | ) | $ | 514 | |||||||||
64.2 | % | -32.1 | % | |||||||||||||||||
Non-interest expense |
$ | 3,571 | ($ | 87 | ) | $ | 3,658 | ($ | 188 | ) | $ | 3,846 | ||||||||
-2.4 | % | -4.9 | % | |||||||||||||||||
Income tax expense |
$ | 542 | ($ | 360 | ) | $ | 902 | $ | 440 | $ | 462 | |||||||||
-39.9 | % | 95.2 | % | |||||||||||||||||
Net income |
$ | 1,080 | ($ | 322 | ) | $ | 1,402 | $ | 176 | $ | 1,226 | |||||||||
-23.0 | % | 14.4 | % |
General. The Company reported net income of $1.1 million, $1.4 million and $1.2 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively. The $322 thousand decrease in net income during fiscal 2013 was primarily the result of a $957 thousand decrease in net interest income and a $36 thousand decrease in recoveries of loan losses, which were partially offset by a $360 thousand decrease in income tax expense, a $224 thousand increase in non-interest income, and an $87 thousand decrease in non-interest expense. Earnings per share totaled $0.52 (basic and diluted) for fiscal 2013 as compared to $0.68 (basic and diluted) for fiscal 2012. The $176 thousand increase in net income during fiscal 2012 was primarily the result of a $504 thousand increase in net interest income, a $188 thousand decrease in non-interest expense, and a $89 thousand increase in recoveries of loan losses, which were partially offset by a $440 thousand increase in income tax expense and a $165 thousand decrease in non-interest income. Earnings per share totaled $0.68 (basic and diluted) for fiscal 2012 as compared to $0.60 (basic and diluted) for fiscal 2011.
9
Average Balances, Net Interest Income and Yields Earned and Rates Paid. The following average balance sheet table sets forth at and for the periods indicated information on the Company regarding: (1) the total dollar amounts of interest income on interest-earning assets and the resulting average yields; (2) the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs; (3) net interest income; (4) interest rate spread; (5) net interest-earning assets (interest-bearing liabilities); (6) the net yield earned on interest-earning assets; and (7) the ratio of total interest-earning assets to total interest-bearing liabilities.
For the Years Ended June 30, | ||||||||||||||||||||||||||||||||||||
2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
Average Balance |
Interest | Average Yield/Rate |
Average Balance |
Interest | Average Yield/Rate |
Average Balance |
Interest | Average Yield/Rate |
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(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: |
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Net loans receivable(1),(2) |
$ | 35,745 | $ | 2,027 | 5.67 | % | $ | 46,264 | $ | 2,892 | 6.25 | % | $ | 54,932 | $ | 3,297 | 6.00 | % | ||||||||||||||||||
Mortgage-backed securities |
92,979 | 1,162 | 1.25 | 69,834 | 929 | 1.33 | 82,284 | 1,196 | 1.45 | |||||||||||||||||||||||||||
Investments - taxable |
132,813 | 2,743 | 2.07 | 118,233 | 3,109 | 2.63 | 117,849 | 4,395 | 3.73 | |||||||||||||||||||||||||||
Investments - tax-free(2) |
| | 0.00 | 1,819 | 88 | 7.25 | 4,213 | 211 | 7.41 | |||||||||||||||||||||||||||
FHLB stock |
6,093 | 19 | 0.31 | 8,379 | 4 | 0.05 | 10,245 | | 0.00 | |||||||||||||||||||||||||||
Interest-bearing deposits |
441 | 1 | 0.23 | 661 | 1 | 0.15 | 2,707 | 3 | 0.11 | |||||||||||||||||||||||||||
Certificates of deposits |
649 | 7 | 1.08 | 2,685 | 30 | 1.12 | 6,945 | 123 | 1.77 | |||||||||||||||||||||||||||
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Total interest-earning assets |
268,720 | 5,959 | 2.22 | % | 247,875 | 7,053 | 2.85 | % | 279,175 | 9,225 | 3.30 | % | ||||||||||||||||||||||||
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Non-interest-earning assets |
5,472 | 5,848 | 4,753 | |||||||||||||||||||||||||||||||||
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Total assets |
$ | 274,192 | $ | 253,723 | $ | 283,928 | ||||||||||||||||||||||||||||||
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Interest-bearing liabilities: |
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Interest-earning checking accounts |
$ | 20,717 | $ | 5 | 0.02 | % | $ | 19,394 | $ | 8 | 0.04 | % | $ | 19,265 | $ | 8 | 0.04 | % | ||||||||||||||||||
Savings accounts |
39,924 | 39 | 0.10 | 38,577 | 61 | 0.16 | 35,743 | 76 | 0.21 | |||||||||||||||||||||||||||
Money market accounts |
24,354 | 28 | 0.11 | 23,492 | 42 | 0.18 | 23,325 | 58 | 0.25 | |||||||||||||||||||||||||||
Savings certificates |
39,739 | 303 | 0.76 | 43,630 | 425 | 0.97 | 86,148 | 768 | 0.89 | |||||||||||||||||||||||||||
Advance payments by borrowers for taxes and insurance |
441 | 3 | 0.68 | 495 | 7 | 1.41 | 510 | 8 | 1.57 | |||||||||||||||||||||||||||
FHLB long-term advances |
17,500 | 837 | 4.78 | 18,142 | 871 | 4.80 | 62,626 | 3,265 | 5.21 | |||||||||||||||||||||||||||
FHLB short-term advances |
81,995 | 192 | 0.23 | 61,515 | 129 | 0.21 | 1,603 | 4 | 0.25 | |||||||||||||||||||||||||||
FRB short-term borrowings |
| | 0.00 | 4 | | 0.00 | | | 0.00 | |||||||||||||||||||||||||||
Other short-term borrowings |
| | 0.00 | 90 | 1 | 1.11 | 10,553 | 33 | 0.31 | |||||||||||||||||||||||||||
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Total interest-bearing liabilities |
224,670 | 1,407 | 0.63 | % | 205,339 | 1,544 | 0.75 | % | 239,773 | 4,220 | 1.76 | % | ||||||||||||||||||||||||
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Non-interest-bearing accounts |
16,783 | 17,065 | 14,734 | |||||||||||||||||||||||||||||||||
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Total interest-bearing liabilities and non-interest-bearing accounts |
241,453 | 222,404 | 254,507 | |||||||||||||||||||||||||||||||||
Non-interest-bearing liabilities |
1,439 | 1,788 | 1,459 | |||||||||||||||||||||||||||||||||
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Total liabilities |
242,892 | 224,192 | 255,966 | |||||||||||||||||||||||||||||||||
Equity |
31,300 | 29,531 | 27,962 | |||||||||||||||||||||||||||||||||
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Total liabilities and equity |
$ | 274,192 | $ | 253,723 | $ | 283,928 | ||||||||||||||||||||||||||||||
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Net interest income |
$ | 4,552 | $ | 5,509 | $ | 5,005 | ||||||||||||||||||||||||||||||
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Interest rate spread |
1.59 | % | 2.10 | % | 1.54 | % | ||||||||||||||||||||||||||||||
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Net yield on interest-earning assets(3) |
1.70 | % | 2.24 | % | 1.83 | % | ||||||||||||||||||||||||||||||
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Ratio of interest-earning assets to interest-bearing liabilities |
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119.61 | % | 120.72 | % | 116.43 | % | |||||||||||||||||||||||||||||
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(1) | Includes non-accrual and tax-exempt loans. |
(2) | Yields on tax-exempt loans and tax-exempt securities (tax-exempt for federal income tax purposes) are shown on a fully taxable equivalent basis utilizing a calculation that reflects the tax-exempt coupon, a 20% interest expense disallowance and a federal tax rate of 34%. |
(3) | Net interest income divided by average interest-earning assets. |
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Rate/Volume Analysis. The following table describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected the Companys interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume (change in volume multiplied by prior year rate), (2) changes in rate (change in rate multiplied by prior year volume), and (3) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
Year Ended June 30, | ||||||||||||||||||||||||
2013 vs. 2012 | 2012 vs. 2011 | |||||||||||||||||||||||
Increase (Decrease) Due to |
Total Increase (Decrease) |
Increase (Decrease) Due to |
Total Increase (Decrease) |
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Volume | Rate | Volume | Rate | |||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
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Net loans receivable |
$ | (627 | ) | $ | (238 | ) | $ | (865 | ) | $ | (548 | ) | $ | 143 | $ | (405 | ) | |||||||
Mortgage-backed securities |
265 | (32 | ) | 233 | (190 | ) | (77 | ) | (267 | ) | ||||||||||||||
Investments - taxable |
649 | (1,015 | ) | (366 | ) | (198 | ) | (1,088 | ) | (1,286 | ) | |||||||||||||
Investments - tax-free |
(35 | ) | (53 | ) | (88 | ) | (116 | ) | (7 | ) | (123 | ) | ||||||||||||
FHLB stock |
(1 | ) | 16 | 15 | | 4 | 4 | |||||||||||||||||
Interest-bearing deposits |
(1 | ) | 1 | | (3 | ) | 1 | (2 | ) | |||||||||||||||
Certificates of deposit |
(22 | ) | (1 | ) | (23 | ) | (58 | ) | (35 | ) | (93 | ) | ||||||||||||
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Total interest-earning assets |
228 | (1,322 | ) | (1,094 | ) | (1,113 | ) | (1,059 | ) | (2,172 | ) | |||||||||||||
Interest-bearing liabilities: |
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Interest-earning checking accounts |
$ | 1 | $ | (4 | ) | $ | (3 | ) | $ | | $ | | $ | | ||||||||||
Savings accounts |
2 | (24 | ) | (22 | ) | 4 | (19 | ) | (15 | ) | ||||||||||||||
Money market accounts |
3 | (17 | ) | (14 | ) | | (16 | ) | (16 | ) | ||||||||||||||
Savings certificates |
(36 | ) | (86 | ) | (122 | ) | (407 | ) | 64 | (343 | ) | |||||||||||||
Advance payments by borrowers for taxes and insurance |
| (4 | ) | (4 | ) | | (1 | ) | (1 | ) | ||||||||||||||
FHLB long-term borrowings |
(30 | ) | (4 | ) | (34 | ) | (2,155 | ) | (239 | ) | (2,394 | ) | ||||||||||||
FHLB short-term borrowings |
50 | 13 | 63 | 126 | (1 | ) | 125 | |||||||||||||||||
FRB short-term borrowings |
| | | | | | ||||||||||||||||||
Other short-term borrowings |
(1 | ) | | (1 | ) | (55 | ) | 23 | (32 | ) | ||||||||||||||
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Total interest-bearing liabilities |
(11 | ) | (126 | ) | (137 | ) | (2,487 | ) | (189 | ) | (2,676 | ) | ||||||||||||
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Change in net interest income |
$ | 239 | $ | (1,196 | ) | $ | (957 | ) | $ | 1,374 | $ | (870 | ) | $ | 504 | |||||||||
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Net Interest Income. Net interest income is determined by the Companys interest rate spread (i.e. the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Net interest income decreased by $957 thousand or 17.4% in fiscal 2013 and increased $504 thousand or 10.1% in fiscal 2012. The decrease in fiscal 2013 was the result of a $1.1 million or 15.5% decrease in interest and dividend income, which was partially offset by a $137 thousand or 8.9% decrease in interest expense. The increase in fiscal 2012 was the result of a $2.7 million or 63.4% decrease in interest expense, which was partially offset by a decrease in interest and dividend income of $2.2 million or 23.5%. Fiscal 2013 and 2012 were favorably impacted by the reduction of fixed interest costs associated with the repayments on our legacy FHLB long-term advances. We expect fiscal 2014 fixed rate interest costs associated with legacy FHLB long-term advances to fall slightly, when compared to fiscal 2013, due to slightly lower average outstanding balances.
Interest Income. Total interest income decreased by $1.1 million or 15.5% during fiscal 2013 and $2.2 million or 23.5% during fiscal 2012. The decrease in fiscal 2013 was primarily the result of a 63 basis point decrease in the overall yield on interest earning assets, which was partially offset by higher average balances of interest earning assets. The decrease in fiscal 2012 was primarily the result of lower average balances of interest earning assets and a 45 basis point decrease in the overall yield on interest earning assets. During fiscal 2009, the global economy went into a deep recession and this weakness continued through fiscal 2010, fiscal 2011, fiscal 2012 and fiscal 2013. In response to the weak global economy, the worlds central banks implemented a variety of programs including lowering short-term interest rates and various liquidity programs to help restore investor confidence. The overall impact of the global recession, central bank intervention
11
efforts and market disruptions was markedly lower interest rates, especially in the short and intermediate term bond markets. Management continuously evaluates market opportunities, and associated borrowing costs, to contribute to net interest income. The Company believes that it has sufficient capital to grow its balance sheet as opportunities become available.
Interest income on net loans receivable decreased $865 thousand or 29.9% during fiscal 2013 and decreased $405 thousand or 12.3% during fiscal 2012. The decrease in fiscal 2013 was primarily attributable to a $10.5 million decrease in the average balance of net loans outstanding, and a 58 basis point decrease in the weighted average yield earned on the Companys loan portfolio. The decrease in the weighted average yield earned was primarily due to the absence of payoffs of, and collection of past due interest on non-accrual loans which was recognized during fiscal 2012. The decrease in fiscal year 2012 was primarily attributable to an $8.7 million decrease in the average balance of net loans outstanding, which was partially offset by a 25 basis point increase in the weighted average yield earned on the Companys loan portfolio. The increase in the weighted average yield earned was primarily due to payoff of, and collection of past due interest on, one single family non-accrual loan and two home equity lines of credit during fiscal 2012. As part of its asset/liability management strategy, historically low long-term mortgage rates, weakness in the economy, rising inventories of existing homes available for sale, and lower construction starts throughout our lending area, the Company limited its portfolio origination of longer-term fixed rate loans to mitigate its exposure to a rise in market interest rates and credit risk. The Company continued to offer longer-term fixed rate loans on a correspondent basis during fiscal 2013 and 2012, as well as offering multi-family and commercial real estate loans, construction loans, land acquisition and development loans, consumer loans, small business and commercial loans. Overall loan demand, and borrower financial capacity were constrained during both fiscal 2013 and 2012 due to weakness in the national economy. Management anticipates weakness in the real estate market to continue into fiscal 2014.
Interest income on investment securities decreased $454 thousand or 14.2% during fiscal 2013 and $1.4 million or 30.6% during fiscal 2012. The decrease in fiscal 2013 was primarily attributable to a 59 basis point decrease in the weighted average yield on the Companys investment portfolio, which was partially offset by a $12.8 million increase in the average balance of the Companys investment portfolio. The decrease in fiscal 2012 was primarily attributable to a 111 basis point decrease in the weighted average yield on the Companys investment portfolio and a $2.0 million decrease in the average balance of the Companys investment portfolio. Investment securities purchases were primarily funded with borrowed funds and cash flows from the mortgage-backed securities, loan and certificate of deposit portfolios.
Interest income on mortgage-backed securities increased $233 thousand or 25.1% during fiscal 2013 and decreased $267 thousand or 22.3% during fiscal 2012. The increase in fiscal 2013 was primarily attributable to a $23.1 million increase in the average balance of the Companys mortgage-backed securities portfolio, which was partially offset by an 8 basis point decrease in the weighted average yield on the Companys mortgage-backed securities portfolio. The decrease in fiscal 2012 was primarily attributable to a $12.4 million decrease in the average balance of the Companys mortgage-backed securities portfolio and a 12 basis point decrease in the weighted average yield on the Companys mortgage-backed securities portfolio. The average balances associated with the Companys private label mortgage-backed securities declined $11.2 million and $15.5 million, during fiscal 2013 and fiscal 2012, respectively. For the fiscal years 2013 and 2012, the Company reduced its exposure to private-label mortgage-backed securities due to the substandard investment performance associated with this segment. Proceeds from repayments on the mortgage-backed securities were primarily used to fund investment purchases during fiscal 2013.
Interest income on certificates of deposit decreased $23 thousand or 76.7% during fiscal 2013 and decreased $93 thousand or 75.6% during fiscal 2012. The decrease in fiscal 2013 was primarily attributable to a $2.0 million decrease in the average balance of the Companys holdings of FDIC insured certificates of deposit and a 4 basis point decrease in the weighted average yield earned on the Companys certificate of deposit holdings. The decrease in fiscal year 2012 was primarily attributable to a $4.3 million decrease in the average balance of the Companys holdings of FDIC insured certificates of deposit and a 65 basis point decrease in the weighted average yield earned on the Companys certificate of deposit holdings. Proceeds from maturing CDs were primarily used to fund investment purchases during fiscal 2013.
12
Dividend income on FHLB stock increased $15 thousand or 375.0% during fiscal 2013, and increased $4 thousand or 100.0% during fiscal 2012. The increase in fiscal 2013 was primarily attributable to a 26 basis point increase in the weighted average yield earned on the Companys holdings of FHLB stock, which was partially offset by a $2.3 million decrease in the average balance on the Companys holdings of FHLB stock.
During fiscal 2013, approximately $1.9 million (net) of the Companys FHLB stock was redeemed by the FHLB. The increase in fiscal 2012 was due to the FHLB reinstating dividends on FHLB stock held during fiscal 2012. No dividend income on FHLB stock was received during fiscal 2011. The lack of a dividend in fiscal 2011 was due to the December 2008 announcement by the FHLB of Pittsburgh suspending the payment of dividends and redemptions of excess capital stock from members. The FHLBs stated purpose of the 2008 decision was to rebuild retained earnings to ensure adequate regulatory capital.
Interest Expense. Total interest expense decreased $137 thousand or 8.9% during fiscal 2013 and decreased $2.7 million or 63.4% during fiscal 2012. The decrease in fiscal 2013 was primarily attributable to a 12 basis point decrease in the weighted average rate paid on interest-bearing liabilities, a $3.9 million decrease in the average balance of time deposits, and a $642 thousand decrease in the average balance of FHLB long-term advances, which were partially offset by a $20.5 million increase in the average balance of FHLB short-term advances. The decrease in fiscal 2012 was primarily attributable to a $34.4 million decrease in the average balances of interest-bearing liabilities and a 101 basis point decrease in the weighted average rate paid on interest-bearing liabilities. The repayment of $5.0 million of legacy FHLB advances during fiscal 2012 materially reduced the average balance of, and rates paid on, the Companys interest-bearing liabilities.
Interest expense on legacy FHLB long-term borrowings decreased by $34 thousand or 3.9% during fiscal 2013, and decreased $2.4 million or 73.3% during fiscal 2012. During fiscal 2013, approximately $30 thousand of the decrease in interest expense was due to the $642 thousand decrease in average balances of legacy FHLB long-term advances, and approximately $4 thousand of the decrease in interest expense was attributable to a 2 basis point reduction in weighted average rates paid. During fiscal 2012, approximately $2.2 million of the decrease in interest expense was due to the $44.5 million decrease in average balances of legacy FHLB long-term advances, and approximately $239 thousand of the decrease in interest expense was due to a 41 basis point reduction in weighted average rates paid.
Interest expense on interest-bearing deposits and escrows decreased $165 thousand or 30.4% in fiscal 2013 and decreased $375 thousand or 40.8% in fiscal 2012. The decrease in fiscal 2013 was primarily attributable to a decrease in the weighted average rates paid on interest-bearing deposits and escrows, and a decrease in the average balance of time deposits. Average rates paid on time deposits, passbooks, money market accounts, demand deposits and escrow accounts decreased 21, 6, 7, 2, and 73 basis points, respectively. Average balances of time deposits decreased $3.9 million. The decrease in fiscal 2012 was primarily attributable to decreased average balances of time deposits which were partially offset by an increase on rates paid on time deposits. Average balances of time deposits decreased $42.5 million while average balances of passbooks increased $2.8 million. Average rates on time deposits increased 8 basis points, while average rates on passbooks and money market accounts decreased by 5 and 7 basis points respectively. The decrease in average balances of time deposits and increase in rates paid on time deposits during fiscal 2012 was primarily attributable to the repayment of wholesale CDs in the second and fourth quarter of fiscal 2011.
Interest expense on other short-term borrowings decreased $1 thousand or 100.0% during fiscal 2013, and decreased $32 thousand or 97.0% during fiscal 2012. The decrease in fiscal 2013 was primarily attributable to a $90 thousand decrease in the average balance of other short-term borrowings outstanding. The decrease in fiscal 2012 was primarily attributable to a $10.5 million decrease in the average balance of other short-term borrowings outstanding, which was partially offset by an 80 basis point increase in the weighted average rate paid on other short-term borrowings. The decrease in the average balance of other short-term borrowings reflects a funding shift from other borrowings to FHLB short-term borrowings due to lower short-term borrowing rates available through the FHLB.
Interest expense on FHLB short-term borrowings increased $63 thousand or 48.8% during fiscal 2013, and increased $125 thousand or 3,125.0% during fiscal 2012. The increase in fiscal 2013 was primarily
13
attributable to a $20.5 million increase in the average balance of FHLB short-term borrowings and a 2 basis point increase in the weighted average rate paid on FHLB short-term borrowings. The increase in fiscal 2012 was primarily attributable to a $59.9 million increase in the average balance of FHLB short-term borrowings outstanding, which was partially offset by a 4 basis point decrease in the weighted average rate paid on FHLB short-term borrowings. The increase in the average balance of FHLB short-term borrowings during 2013 and 2012 reflects managements decision to increase FHLB short-term borrowings because of lower rates charged by the FHLB when compared to other short-term rates charged by brokers and the FRB.
Provision for Loan Losses. A provision for loan losses is charged to earnings (while recoveries of loan losses are accretive to earnings) to bring the total allowance to a level considered adequate by management to absorb potential losses in the portfolio. Managements determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio considering past experience, current economic conditions, volume, growth, composition of the loan portfolio and other relevant factors. The Company recorded recoveries of loan losses totaling $68 thousand and $104 thousand in fiscal 2013 and 2012, respectively. The recovery for 2013 was primarily attributable to reduced loan receivable balances and reduced provisions for non-performing loans. The recovery for fiscal 2012 was primarily attributable to lower levels of non-performing loans.
Non-interest Income. Total non-interest income increased by $224 thousand or 64.2% in fiscal 2013 and decreased by $165 thousand or 32.1% in fiscal 2012. The increase in fiscal 2013 was primarily attributable to a $119 thousand decrease in net impairment losses recognized in earnings due to other-than-temporary impairment credit losses recorded on the Companys private-label mortgage-backed securities portfolio, a $101 thousand net gain recognized on the sale of other real estate-owned, and a $42 thousand increase in gains recognized on the sale of investment securities, which were partially offset by a $13 thousand decrease in service charges on deposits. The decrease in fiscal 2012 was primarily attributable to $131 thousand of other-than-temporary impairment credit losses on two private-label mortgage-backed securities, and a decrease in service charges on deposits.
Non-interest Expense. Total non-interest expense decreased $87 thousand or 2.4% in fiscal 2013, and decreased $188 thousand or 4.9% during fiscal 2012. The decrease in fiscal 2013 was primarily attributable to decreases in federal deposit insurance expense and correspondent bank service charges, which were partially offset by increases in ATM related expenses, provisions for off-balance sheet commitments, legal expenses and employee related expenses. The decrease in fiscal 2012 was primarily attributable to decreases in federal deposit insurance expense, correspondent bank service charges, ATM related expenses, and legal expenses, which were partially offset by increases in charitable contributions eligible for PA tax credits and employee related expenses.
Income Taxes. Income taxes decreased $360 thousand during fiscal 2013 and increased $440 thousand during fiscal 2012. The decrease for fiscal 2013 was primarily attributable to lower levels of taxable income. The increase in fiscal 2012 was primarily attributable to higher levels of taxable income. The Companys combined effective tax rate was 33.4% for the year ended June 30, 2013 and 39.1% for the year ended June 30, 2012.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is often analyzed by reviewing the cash flow statement. Cash and cash equivalents decreased by $579 thousand during fiscal 2013 primarily due to $20.2 million of net cash used for investing activities, which was partially offset by $15.5 million of net cash provided by financing activities, and $4.1 million provided by operating activities.
Funds provided by operating activities totaled $4.1 million during fiscal 2013 as compared to $1.9 million during fiscal 2012. Net cash provided by operating activities was primarily comprised of $1.1 million of net income, $2.9 million of amortization and accretion of discounts, premiums and deferred loan fees, a $163 thousand decrease in prepaid FDIC insurance, and a $252 thousand decrease in deferred income taxes, which were partially offset by a $101 thousand gain on the sale of other real estate owned.
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Funds used for investing activities totaled $20.2 million during fiscal 2013 as compared to $41.7 million used for investing activities during fiscal 2012. Primary uses of funds during fiscal 2013 included purchases of investments, mortgage-backed securities, and certificates of deposit totaling $62.9 million, $135.3 million and $250 thousand, respectively, which were partially offset by repayments of investments, mortgage-backed securities and certificates of deposit totaling $86.7 million, $83.2 million and $497 thousand, respectively, a decrease in net loans receivable of $8.0 million, proceeds from the sale of investments totaling $7.2 million and net redemptions of FHLB stock totaling $1.9 million. Investment purchases were comprised primarily of U.S. Government Agency mortgage-backed securities and debentures, and investment grade corporate debt obligations.
Funds provided by financing activities totaled $15.5 million for fiscal 2013 as compared to $40.3 million provided by financing activities in fiscal 2012. Primary sources of funds for fiscal 2013 were a $17.4 million increase in FHLB short-term advances, which were partially offset by a $1.6 million decrease in total deposits and $328 thousand in cash dividends paid on the Companys common stock. Management has determined that it currently is maintaining adequate liquidity and continues to match funding sources with lending and investment opportunities.
The Companys primary sources of funds are deposits, repayments on existing loans, investment portfolio cash flow, funds from operations and funds obtained through various borrowings. At June 30, 2013, the total approved loan commitments outstanding amounted to $4.6 million. At the same date, commitments under unused letters and lines of credit amounted to $5.7 million and the unadvanced portion of construction loans approximated $2.8 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2013, totaled $29.2 million. Management believes that a significant portion of our local maturing deposits will remain with the Company.
The Companys contractual obligations at June 30, 2013 were as follows:
Contractual Obligations (Dollars in Thousands) |
||||||||||||||||||||
Total | Less than 1 year |
1-3 years | 3-5 years | More than 5 years |
||||||||||||||||
Long-term debt |
$ | 17,500 | $ | 5,000 | $ | 2,500 | $ | 10,000 | $ | | ||||||||||
Operating lease obligations |
153 | 53 | 86 | 17 | | |||||||||||||||
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$ | 17,653 | $ | 5,053 | $ | 2,586 | $ | 10,017 | $ | |
See also Note 13 of the Companys Consolidated Financial Statements.
Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing certificates of deposit and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. The Company has been able to generate sufficient cash through FHLB advances, other borrowings and through the retail and broker deposit market to provide the cash utilized in investing and financing activities. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.
On July 30, 2013, the Companys Board of Directors declared a cash dividend of $0.04 per share payable on August 22, 2013 to shareholders of record at the close of business on August 12, 2013. Dividends are subject to determination and declaration by the Board of Directors, which take into account the Companys financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the common stock in the future or that, if paid, such dividends will not be reduced or eliminated in future periods.
The Companys ratio of total capital to risk weighted assets and Tier 1 capital to risk weighted assets were 20.24% and 20.02%, respectively, at June 30, 2013. The Companys ratio of Tier 1 capital to average total assets was 11.88% at June 30, 2013.
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Non-performing assets consist of non-accrual loans and real estate owned. A loan is placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan.
The Companys non-performing assets at June 30, 2013 totaled approximately $1.6 million or 0.5% of total assets compared to $1.7 million or 0.6% of total assets at June 30, 2012. The $131 thousand decrease in non-performing assets during the twelve months ended June 30, 2013 was primarily attributable to the payoff in full of one single-family real estate loan totaling $289 thousand, the sale of one single-family real estate owned property totaling $235 thousand, a partial charge-off on one land loan totaling $10 thousand, and paydowns on one single-family real estate loan totaling $4 thousand, which were partially offset by the addition of two single-family real estate loans totaling $408 thousand. Non-performing assets at June 30, 2013 consisted of one single-family construction loan totaling $701 thousand, three single-family real estate loans totaling $477 thousand, one land loan totaling $280 thousand, and one home equity line of credit totaling $150 thousand.
Impact of Inflation and Changing Prices. The consolidated financial statements of the Company and related notes presented herein have been prepared in accordance with U.S. generally accepted accounting principles which require the measurement of financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institutions performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services since such prices are affected by inflation to a larger degree than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Companys assets and liabilities are critical to the maintenance of acceptable performance levels.
Recent Accounting and Regulatory Pronouncements. The Companys discussion of recent accounting and regulatory pronouncements can be found in Note 1 to the Companys Consolidated Financial Statements.
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Companys transactions are denominated in US dollars with no specific foreign exchange exposure. The Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be exogenous and will be analyzed on an ex post basis.
Interest rate risk (IRR) is the exposure of a banking organizations financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value, however excessive levels of IRR can pose a significant threat to the Companys earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Companys safety and soundness.
Evaluating a financial institutions exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organizations quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR
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exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality.
Since December 2007 and throughout fiscal 2013, the global economy remained in the worst recession since the end of World War II. Many factors contributed to the recession, including: the failure, or near failure, of major financial institutions, marked declines in housing sales and prices, significant defaults in mortgage payments (particularly in the subprime sector), disruptions in global financial market liquidity, declining stock markets and increased volatility in the bond, commodity and equity markets.
As the various markets began to unravel, historical relationships between bonds, commodities and equities continued to diverge. This divergence created additional market volatility as market participants attempted to rebalance their portfolios. The worlds central banks continued to intervene in order to stabilize markets, at varying times and with varying degrees of success. The degree of co-ordination and timing between central banks varied due to differing perceptions of the problem and disparate impacts within a particular countrys economy. For example, the U.S. economy began to recover at a very slow and uneven rate. Domestic unemployment remained high which continued to impact the housing markets. Several governments within the Eurozone have experienced difficulty in managing their fiscal budgets.
On September 13, 2012, the FOMC issued a press release indicating that economic activity has continued to expand at a moderate pace, growth in employment has been slow and the unemployment rate remains elevated. The FOMC noted its concern that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The FOMC also anticipates that inflation over the medium term likely would run at or below its 2 percent objective. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate to foster maximum employment and price stability, the FOMC agreed to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The FOMC also indicated that it would continue through the end of calendar year 2012 a program to extend the average maturity of its holdings of securities announced in June 2012, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and mortgage-backed securities into mortgage-backed securities. These actions, which together will increase the FOMCs holdings of longer-term securities by about $85 billion each month through the end of calendar year 2012, is expected to put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
On December 12, 2012, the FOMC issued a press release outlining its plans for securities purchases in calendar year 2013 and provided additional guidance for the targeted federal funds rate and the expected duration of the highly accommodative stance of monetary policy. The FOMC also indicated that it expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable period of time after the economic recovery strengthens. The FOMC decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate to be warranted at least through mid-2015. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the FOMC will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The FOMC also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The FOMC is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The FOMC will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the FOMC will continue its
17
purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the FOMC will take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the FOMC expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the FOMC decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the FOMCs 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The FOMC views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the FOMC will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the FOMC decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
The FOMC has continued to purchase additional mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The FOMC also maintained its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
Throughout fiscal year 2013, the Company continued to adjust its asset/liability management tactics in two ways. First, the Company increased total assets by about $14.2 million while continuing to manage its Tier 1 capital. The primary segments of asset growth for fiscal year 2013 were: mortgage-backed securities held to maturity, $60.2 million, and investment securities available for sale - $19.6 million, which were partially offset by decreases in investment securities held to maturity - $56.0 million, net loans receivable - $7.9 million, and FHLB stock - $1.9 million. We increased Tier 1 capital primarily through earnings retention. Second, we substantially increased the available for sale classification of the Companys investment portfolio from $57.6 million at June 30, 2012 to $77.2 million at June 30, 2013. This allowed us to substantially bolster balance sheet liquidity while earning additional net interest income. We anticipate maintaining our asset base in the range of $285 - $300 million for the remainder of calendar year 2013, subject to economic and market conditions.
Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institutions assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institutions interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institutions profits could decrease on existing assets because the institution will either have lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.
During the fiscal year 2013, intermediate and long-term market interest rates fluctuated considerably. Many central banks, including the Federal Reserve, continued above normal levels of monetary accommodation including quantitative easing and targeted asset purchase programs. The desired outcomes of these programs are to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates.
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The table below shows the targeted federal funds rate and the benchmark two and ten year treasury yields at quarter ends beginning in June 30, 2007, and extending through June 30, 2013. The difference in yields on the two year and ten year Treasurys is often used to determine the steepness of the yield curve and to assess the term premium of market interest rates.
Yield on: | ||||||||||||
Targeted Federal Funds |
Two (2) Year |
Ten (10) Year |
Shape of Yield Curve | |||||||||
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|
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June 30, 2007 |
5.25% | 4.87 | % | 5.03 | % | Slightly positive | ||||||
September 30, 2007 |
4.75% | 3.97 | % | 4.59 | % | Moderately positive | ||||||
December 31, 2007 |
4.25% | 3.05 | % | 4.04 | % | Positive | ||||||
March 31, 2008 |
2.25% | 1.62 | % | 3.45 | % | Positive | ||||||
June 30, 2008 |
2.00% | 2.63 | % | 3.99 | % | Positive | ||||||
September 30, 2008 |
2.00% | 2.00 | % | 3.85 | % | Positive | ||||||
December 31, 2008 |
0.00% to 0.25% | 0.76 | % | 2.25 | % | Positive | ||||||
March 31, 2009 |
0.00% to 0.25% | 0.81 | % | 2.71 | % | Positive | ||||||
June 30, 2009 |
0.00% to 0.25% | 1.11 | % | 3.53 | % | Positive | ||||||
September 30, 2009 |
0.00% to 0.25% | 0.95 | % | 3.31 | % | Positive | ||||||
December 31, 2009 |
0.00% to 0.25% | 1.14 | % | 3.85 | % | Positive | ||||||
March 31, 2010 |
0.00% to 0.25% | 1.02 | % | 3.84 | % | Positive | ||||||
June 30, 2010 |
0.00% to 0.25% | 0.61 | % | 2.97 | % | Positive | ||||||
September 30, 2010 |
0.00% to 0.25% | 0.42 | % | 2.53 | % | Positive | ||||||
December 31, 2010 |
0.00% to 0.25% | 0.61 | % | 3.30 | % | Positive | ||||||
March 31, 2011 |
0.00% to 0.25% | 0.80 | % | 3.47 | % | Positive | ||||||
June 30, 2011 |
0.00% to 0.25% | 0.45 | % | 3.18 | % | Positive | ||||||
September 30, 2011 |
0.00% to 0.25% | 0.25 | % | 1.92 | % | Positive | ||||||
December 31, 2011 |
0.00% to 0.25% | 0.25 | % | 1.89 | % | Positive | ||||||
March 31, 2012 |
0.00% to 0.25% | 0.33 | % | 2.23 | % | Positive | ||||||
June 30, 2012 |
0.00% to 0.25% | 0.33 | % | 1.67 | % | Positive | ||||||
September 30, 2012 |
0.00% to 0.25% | 0.23 | % | 1.65 | % | Positive | ||||||
December 31, 2012 |
0.00% to 0.25% | 0.24 | % | 1.85 | % | Positive | ||||||
March 31, 2013 |
0.00% to 0.25% | 0.25 | % | 1.87 | % | Positive | ||||||
June 30, 2013 |
0.00% to 0.25% | 0.36 | % | 2.52 | % | Positive |
These changes in intermediate and long-term market interest rates, the changing slope of the Treasury yield curve, and higher levels of interest rate volatility have impacted prepayments on the Companys loan, investment and mortgage-backed securities portfolios. Principal repayments on the Companys loan, investment, mortgage-backed securities and CD portfolios for the twelve months ended June 30, 2013, totaled $19.0 million, $93.8 million, $76.0 million and $497 thousand, respectively. Despite stagnant global interest rates and Treasury yields the Company continued to grow its balance sheet and used proceeds from calls of U.S. Government agency bonds, repayments on its mortgage-backed securities, maturities of bank certificates of deposit, and borrowings to purchase U.S. Government agency bonds, investment grade corporate bonds and U.S. Government agency CMOs. In particular, the Company increased its available for sale portfolio allocation from $57.6 million at June 30, 2012 to $77.2 million at June 30, 2013. This strategy has allowed the Company to substantially improve its liquidity posture while managing overall interest rate risk and strengthen our regulatory capital ratios.
Due to the term structure of market interest rates, historically low long-term mortgage interest rates, weakness in the economy, an excess supply of existing homes available for sale, and lower levels of housing starts, the Company continued to reduce its portfolio originations of long-term fixed rate mortgages while continuing to offer such loans on a correspondent basis. The Company also makes available for origination residential mortgage loans with interest rates which adjust pursuant to a designated index, although customer acceptance has been somewhat limited in the Savings Banks
19
market area. We expect that the housing market will continue to be weak throughout fiscal 2014. The Company will continue to selectively offer commercial real estate, land acquisition and development, and shorter-term construction loans (primarily on residential properties), and commercial loans on business assets to partially increase interest income while limiting credit and interest rate risk. The Company has also offered higher yielding commercial and small business loans to existing customers and seasoned prospective customers.
During fiscal 2013, principal investment purchases were comprised of: floating rate U.S. Government agency CMOs - $135.3 million with a weighted average yield of 1.20%; fixed rate investment grade corporate bonds - $40.9 million with a weighted average yield of 1.44%; floating rate investment grade corporate bonds - $6.8 million with a weighted average yield of 1.59%; fixed rate investment grade foreign bonds - $2.2 million with a weighted average yield of 1.33%; fixed rate investment grade corporate utility first mortgage bonds - $1.9 million with a weighted average yield of 1.68%; floating-rate investment-grade foreign bonds - $1.2 million with a yield of 0.64%; and callable U.S. Government agency multiple step-up bonds with initial lock out periods of 1 12 months - $994 thousand with a weighted average yield to call of 1.25%. The Company also invested in FDIC bank insured certificates of deposit totaling $250 thousand with a weighted average yield of 2.45%. Single step-up bonds have one step or increase in coupon. Multiple step-up bonds have more than one step or increase in coupon. All of the corporate bond purchases were classified as available for sale for accounting purposes. The Company believes that this classification bolsters asset based liquidity while earning a return above the Companys cost of funds.
Major investment proceeds received during fiscal 2013 were: callable U.S. Government agency bonds - $57.3 million with a weighted average yield of approximately 1.39%; investment grade corporate bonds - $29.9 million with a weighted average yield of approximately 1.63%; investment grade corporate utility first mortgage bonds - $4.9 million with a weighted average yield of 3.48%; and investment grade foreign bonds - $1.2 million with a weighted average yield of 1.12%. The Company also had $497 thousand in FDIC insured bank certificates of deposit redeemed with a weighted average yield of approximately 1.57%.
As of June 30, 2013, the implementation of these asset and liability management initiatives resulted in the following:
1) | $149.0 million or 51.5% of the Companys assets were comprised of floating rate investment and mortgage-backed securities. Of this $149.0 million, approximately $139.3 million float on a monthly basis based upon changes in the one-month London Interbank Offered Rate (LIBOR) and about $8.7 million reprice on a quarterly basis based upon the three-month LIBOR. |
2) | $139.3 million or 57.4% of the Companys investment portfolio was comprised of floating rate mortgage-backed securities (including collateralized mortgage obligations CMOs) that reprice on a monthly basis; |
3) | $79.0 million or 32.5% of the Companys investment portfolio consisted of investment grade fixed-rate corporate bonds with remaining maturities as follows: 3 months or less - $10.8 million or 13.6%; 3 12 months - $30.2 million or 38.3%; 1 2 years - $13.1 million or 16.6%; 2 3 years - $13.5 million or 17.1%; 3 5 years - $10.3 million or 13.0%; and over 5 years - $1.1 million or 1.4%; |
4) | $10.0 million or 4.1% of the Companys investment portfolio was comprised of callable U.S. Government Agency multiple step-up bonds which are callable as follows: 7 12 months - $10.0 million or 100.0%. These bonds may or may not actually be redeemed prior to maturity (i.e. called) depending upon the level of market interest rates at their respective call dates; |
5) | $77.1 million or 26.8% of the Companys assets were comprised of investment securities classified as available for sale; |
6) | An aggregate of $14.2 million or 45.0% of the Companys net loan portfolio had adjustable interest rates or maturities of less than 12 months; and |
7) | The maturity distribution of the Companys borrowings is as follows: 3 months or less - $96.7 million or 84.7%; 1 2 years - $5.0 million or 4.4%; 2 3 years - $2.5 million or 2.2%; and over 3 years - $10.0 million or 8.7%. |
The effect of interest rate changes on a financial institutions assets and liabilities may be analyzed by examining the interest rate sensitivity of the assets and liabilities and by monitoring an institutions interest
20
rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within a given time period. A gap is considered positive (negative) when the amount of rate sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities (assets). During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income.
As part of its asset/liability management strategy, the Company maintained an asset sensitive financial position due to unusually low market interest rates. An asset sensitive financial position may benefit earnings during a period of rising interest rates and reduce earnings during a period of declining interest rates.
The following table sets forth certain information at the dates indicated relating to the Companys interest-earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within one year.
June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Interest-earning assets maturing or repricing within one year |
$ | 236,125 | $ | 180,617 | $ | 178,738 | ||||||
Interest-bearing liabilities maturing or repricing within one year |
188,841 | 165,879 | 128,811 | |||||||||
|
|
|
|
|
|
|||||||
Interest sensitivity gap |
$ | 47,284 | $ | 14,738 | $ | 49,927 | ||||||
|
|
|
|
|
|
|||||||
Interest sensitivity gap as a percentage of total assets |
16.44 | % | 5.39 | % | 21.8 | % | ||||||
Ratio of assets to liabilities maturing or repricing within one year |
125.04 | % | 108.88 | % | 138.76 | % |
During fiscal 2013, the Company increased its one-year interest sensitivity gap primarily by: (1) increasing the Companys floating rate mortgage-backed securities by approximately $60 million; and (2) reducing the amount of interest-earning assets maturing or repricing beyond one year through principal amortization or early payoffs.
21
The following table illustrates the Companys estimated stressed cumulative repricing gap the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time at June 30, 2013. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points.
Cumulative Stressed Repricing Gap
Month 3 | Month 6 | Month 12 | Month 24 | Month 36 | Month 60 | Long Term | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Base Case Up 200 bp |
||||||||||||||||||||||||||||
Cumulative Gap ($s) |
$ | 37,237 | $ | 42,828 | $ | 44,490 | $ | 45,198 | $ | 53,026 | $ | 39,501 | $ | 28,183 | ||||||||||||||
% of Total Assets |
12.9 | % | 14.9 | % | 15.5 | % | 15.7 | % | 18.4 | % | 13.7 | % | 9.8 | % | ||||||||||||||
Base Case Up 100 bp |
||||||||||||||||||||||||||||
Cumulative Gap ($s) |
$ | 37,726 | $ | 43,719 | $ | 45,987 | $ | 47,432 | $ | 55,551 | $ | 41,724 | $ | 28,183 | ||||||||||||||
% of Total Assets |
13.1 | % | 15.2 | % | 16.0 | % | 16.5 | % | 19.3 | % | 14.5 | % | 9.8 | % | ||||||||||||||
Base Case No Change |
||||||||||||||||||||||||||||
Cumulative Gap ($s) |
$ | 37,968 | $ | 44,389 | $ | 47,284 | $ | 49,363 | $ | 57,489 | $ | 42,183 | $ | 28,183 | ||||||||||||||
% of Total Assets |
13.2 | % | 15.4 | % | 16.4 | % | 17.2 | % | 20.0 | % | 14.7 | % | 9.8 | % | ||||||||||||||
Base Case Down 100 bp |
||||||||||||||||||||||||||||
Cumulative Gap ($s) |
$ | 38,505 | $ | 45,067 | $ | 48,178 | $ | 50,361 | $ | 58,389 | $ | 42,481 | $ | 28,183 | ||||||||||||||
% of Total Assets |
13.4 | % | 15.7 | % | 16.8 | % | 17.5 | % | 20.3 | % | 14.8 | % | 9.8 | % | ||||||||||||||
Base Case Down 200 bp |
||||||||||||||||||||||||||||
Cumulative Gap ($s) |
$ | 38,508 | $ | 45,067 | $ | 48,178 | $ | 50,361 | $ | 58,389 | $ | 42,481 | $ | 28,183 | ||||||||||||||
% of Total Assets |
13.4 | % | 15.7 | % | 16.8 | % | 17.5 | % | 20.3 | % | 14.8 | % | 9.8 | % |
The Company utilizes an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to better estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Companys loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Companys borrowings.
22
The following table presents the simulated impact of a 100 and 200 basis point upward or downward (parallel) shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at June 30, 2013. This analysis was done assuming that the interest-earning assets will average approximately $299.522 million and $338.007 million over a projected twelve and twenty-four month period, respectively, for the estimated impact on change in net interest income, return on average equity and return on average assets. The estimated changes in market value of equity were calculated using balance sheet levels at June 30, 2013. Actual future results could differ materially from our estimates primarily due to unknown future interest rate changes and the level of prepayments on our investment and loan portfolios and future FDIC regular and special assessments.
Analysis of Sensitivity to Changes in Market Interest Rates
Twelve Month Forward Modeled Change in Market Interest Rates | ||||||||||||||||||||||||||||||||||||||||
June 30, 2014 | June 30, 2013 | |||||||||||||||||||||||||||||||||||||||
Estimated impact on: |
-200 | -100 | 0 | +100 | +200 | -200 | -100 | 0 | +100 | +200 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Change in net interest income |
-23.3 | % | -4.8 | % | | +18.0 | % | +37.3 | % | -11.1 | % | -2.3 | % | | +14.2 | % | +29.9 | % | ||||||||||||||||||||||
Return on average equity |
1.84 | % | 3.70 | % | 4.18 | % | 5.90 | % | 7.65 | % | 1.86 | % | 2.65 | % | 2.85 | % | 4.12 | % | 5.49 | % | ||||||||||||||||||||
Return on average assets |
0.21 | % | 0.35 | % | 0.40 | % | 0.58 | % | 0.76 | % | 0.21 | % | 0.28 | % | 0.30 | % | 0.43 | % | 0.58 | % | ||||||||||||||||||||
Market value of equity (in thousands) |
$ | 34,325 | $ | 34,904 | $ | 35,165 | $ | 35,040 | $ | 34,710 |
The table below provides information about the Companys anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed letters and lines of credit. The Company used no derivative financial instruments to hedge such anticipated transactions as of June 30, 2013.
Anticipated Transactions |
||||
(Dollars in Thousands) | ||||
Undisbursed construction and development loans |
||||
Fixed rate |
$ | 1,141 | ||
6.50 | % | |||
Adjustable rate |
$ | 1,672 | ||
4.89 | % | |||
Undisbursed lines of credit |
||||
Adjustable rate |
$ | 5,569 | ||
3.70 | % | |||
Loan origination commitments |
||||
Fixed rate |
$ | 4,588 | ||
4.03 | % | |||
Letters of credit |
||||
Adjustable rate |
$ | 148 | ||
4.25 | % | |||
|
|
|||
$ | 13,118 | |||
|
|
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
WVS Financial Corp.
We have audited the accompanying consolidated balance sheet of WVS Financial Corp. and subsidiary as of June 30, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders equity, and cash flows for each of the years in the three-year period ended June 30, 2013. These consolidated financial statements are the responsibility of WVS Financial Corp.s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. WVS Financial Corp. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of WVS Financial Corp.s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WVS Financial Corp. and subsidiary as of June 30, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2013, in conformity with U.S. generally accepted accounting principles.
Wexford, Pennsylvania
September 19, 2013
S.R. Snodgrass, A.C. * 2100 Corporate Drive, Suite 400 * Wexford, Pennsylvania 15090-8399 * Phone: (724) 934-0344 * Facsimile: (724) 934-0345
24
WVS FINANCIAL CORP.
(In thousands)
June 30, | ||||||||
2013 | 2012 | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 1,603 | $ | 2,314 | ||||
Interest-earning demand deposits |
324 | 192 | ||||||
|
|
|
|
|||||
Total cash and cash equivalents |
1,927 | 2,506 | ||||||
Certificates of deposit |
598 | 846 | ||||||
Investment securities available for sale (amortized cost of $77,067 and $57,636) |
77,186 | 57,620 | ||||||
Investment securities held to maturity (fair value of $26,956 and $84,059) |
26,420 | 82,400 | ||||||
Mortgage-backed securities held to maturity (fair value of $139,998 and $79,813) |
139,268 | 79,086 | ||||||
Net loans receivable (allowance for loan losses of $307 and $385) |
31,531 | 39,433 | ||||||
Accrued interest receivable |
1,371 | 1,621 | ||||||
Federal Home Loan Bank stock, at cost |
5,682 | 7,595 | ||||||
Premises and equipment |
614 | 583 | ||||||
Deferred tax assets (net) |
748 | 1,047 | ||||||
Other assets |
2,231 | 604 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 287,576 | $ | 273,341 | ||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Deposits |
$ | 140,524 | $ | 142,173 | ||||
Federal Home Loan Bank advances: long-term |
17,500 | 17,500 | ||||||
Federal Home Loan Bank advances: short-term |
96,712 | 79,270 | ||||||
Accrued interest payable |
210 | 257 | ||||||
Other liabilities |
802 | 3,728 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES |
255,748 | 242,928 | ||||||
|
|
|
|
|||||
STOCKHOLDERS EQUITY |
||||||||
Preferred stock, no par value; 5,000,000 shares authorized; none outstanding |
| | ||||||
Common stock, par value $0.01; 10,000,000 shares authorized; 3,805,636 shares issued |
38 | 38 | ||||||
Additional paid-in capital |
21,478 | 21,458 | ||||||
Treasury stock (1,747,706 shares at cost) |
(26,690 | ) | (26,690 | ) | ||||
Retained earnings - substantially restricted |
37,744 | 36,992 | ||||||
Accumulated other comprehensive loss |
(742 | ) | (1,385 | ) | ||||
|
|
|
|
|||||
TOTAL STOCKHOLDERS EQUITY |
31,828 | 30,413 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 287,576 | $ | 273,341 | ||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
25
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
Year Ended June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
INTEREST AND DIVIDEND INCOME |
||||||||||||
Loans, including fees |
$ | 2,027 | $ | 2,892 | $ | 3,297 | ||||||
Investment securities taxable |
2,743 | 3,109 | 4,395 | |||||||||
Investment securities non-taxable |
| 88 | 211 | |||||||||
Mortgage-backed securities |
1,162 | 929 | 1,196 | |||||||||
Certificates of deposit |
7 | 30 | 123 | |||||||||
Interest-earning demand deposits |
1 | 1 | 3 | |||||||||
Federal Home Loan Bank stock |
19 | 4 | | |||||||||
|
|
|
|
|
|
|||||||
Total interest and dividend income |
5,959 | 7,053 | 9,225 | |||||||||
|
|
|
|
|
|
|||||||
INTEREST EXPENSE |
||||||||||||
Deposits |
378 | 543 | 918 | |||||||||
Federal Home Loan Bank advances long-term |
837 | 871 | 3,265 | |||||||||
Federal Home Loan Bank advances short-term |
192 | 129 | 4 | |||||||||
Other short-term borrowings |
| 1 | 33 | |||||||||
|
|
|
|
|
|
|||||||
Total interest expense |
1,407 | 1,544 | 4,220 | |||||||||
|
|
|
|
|
|
|||||||
NET INTEREST INCOME |
4,552 | 5,509 | 5,005 | |||||||||
Provision for loan losses |
(68 | ) | (104 | ) | (15 | ) | ||||||
|
|
|
|
|
|
|||||||
NET INTEREST INCOME AFTER RECOVERY OF LOAN LOSSES |
4,620 | 5,613 | 5,020 | |||||||||
|
|
|
|
|
|
|||||||
NONINTEREST INCOME |
||||||||||||
Service charges on deposits |
189 | 202 | 232 | |||||||||
Investment securities gains |
46 | 4 | | |||||||||
Other than temporary impairment losses |
(4 | ) | (303 | ) | | |||||||
Portion of loss recognized in other comprehensive income (before taxes) |
(8 | ) | 172 | | ||||||||
|
|
|
|
|
|
|||||||
Net impairment loss recognized in earnings |
(12 | ) | (131 | ) | | |||||||
|
|
|
|
|
|
|||||||
Gain on sale of OREO |
101 | | | |||||||||
Other |
350 | 274 | 282 | |||||||||
|
|
|
|
|
|
|||||||
Total noninterest income |
573 | 349 | 514 | |||||||||
|
|
|
|
|
|
|||||||
NONINTEREST EXPENSE |
||||||||||||
Salaries and employee benefits |
1,996 | 1,981 | 1,964 | |||||||||
Occupancy and equipment |
310 | 301 | 316 | |||||||||
Data processing |
245 | 243 | 246 | |||||||||
Correspondent bank charges |
49 | 61 | 89 | |||||||||
Federal deposit insurance premium |
160 | 306 | 419 | |||||||||
Other |
811 | 766 | 812 | |||||||||
|
|
|
|
|
|
|||||||
Total noninterest expense |
3,571 | 3,658 | 3,846 | |||||||||
|
|
|
|
|
|
|||||||
INCOME BEFORE INCOME TAXES |
1,622 | 2,304 | 1,688 | |||||||||
INCOME TAX EXPENSE |
542 | 902 | 462 | |||||||||
|
|
|
|
|
|
|||||||
NET INCOME |
$ | 1,080 | $ | 1,402 | $ | 1,226 | ||||||
|
|
|
|
|
|
|||||||
EARNINGS PER SHARE: |
||||||||||||
Basic |
$ | 0.52 | $ | 0.68 | $ | 0.60 | ||||||
Diluted |
0.52 | 0.68 | 0.60 | |||||||||
AVERAGE SHARES OUTSTANDING: |
||||||||||||
Basic |
2,057,930 | 2,057,930 | 2,057,930 | |||||||||
Diluted |
2,057,930 | 2,057,930 | 2,057,930 |
See accompanying notes to the consolidated financial statements.
26
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Year Ended June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
NET INCOME |
$ | 1,080 | $ | 1,402 | $ | 1,226 | ||||||
OTHER COMPREHENSIVE INCOME |
||||||||||||
Investment securities available for sale not other-than-temporarily impaired: |
||||||||||||
Gains (losses) arising during the year |
90 | (18 | ) | (130 | ) | |||||||
Income tax effect |
31 | (6 | ) | (44 | ) | |||||||
|
|
|
|
|
|
|||||||
59 | (12 | ) | (86 | ) | ||||||||
Gains recognized in earnings |
(46 | ) | (4 | ) | | |||||||
Income tax effect |
(16 | ) | (1 | ) | | |||||||
|
|
|
|
|
|
|||||||
(30 | ) | (3 | ) | | ||||||||
Unrealized holding gains (losses) on investment securities available for sale not other-than-temporarily impaired, net of tax |
89 | (9 | ) | (86 | ) | |||||||
|
|
|
|
|
|
|||||||
Investment securities held to maturity other-than-temporarily impaired: |
||||||||||||
Total losses |
(4 | ) | (303 | ) | | |||||||
Losses recognized in earnings |
(12 | ) | (131 | ) | | |||||||
|
|
|
|
|
|
|||||||
Gains (losses) recognized in comprehensive income |
8 | (172 | ) | | ||||||||
Income tax effect |
3 | (58 | ) | | ||||||||
|
|
|
|
|
|
|||||||
5 | (114 | ) | | |||||||||
Accretion of other comprehensive loss on other-than-temporarily impaired securities held to maturity |
831 | 855 | 752 | |||||||||
Income tax effect |
282 | 290 | 255 | |||||||||
|
|
|
|
|
|
|||||||
549 | 565 | 497 | ||||||||||
Unrealized holding gains on other-than-temporarily impaired securities held to maturity, net of tax |
554 | 451 | 497 | |||||||||
|
|
|
|
|
|
|||||||
Other comprehensive income |
643 | 442 | 411 | |||||||||
|
|
|
|
|
|
|||||||
NET COMPREHENSIVE INCOME |
$ | 1,723 | $ | 1,844 | $ | 1,637 | ||||||
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
27
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands, except per share data)
Common Stock |
Additional Paid-In Capital |
Treasury Stock |
Retained Earnings- Substantially Restricted |
Accumulated Other Comprehensive Income (Loss) |
Total | |||||||||||||||||||
Balance June 30, 2010 |
$ | 38 | $ | 21,415 | $ | (26,690 | ) | $ | 35,270 | $ | (2,238 | ) | $ | 27,795 | ||||||||||
Net income |
1,226 | 1,226 | ||||||||||||||||||||||
Other comprehensive income |
411 | 411 | ||||||||||||||||||||||
Expense of stock options awarded |
22 | 22 | ||||||||||||||||||||||
Cash dividends declared ($0.28 per share) |
(576 | ) | (576 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance June 30, 2011 |
38 | 21,437 | (26,690 | ) | 35,920 | (1,827 | ) | 28,878 | ||||||||||||||||
Net income |
1,402 | 1,402 | ||||||||||||||||||||||
Other comprehensive income |
442 | 442 | ||||||||||||||||||||||
Expense of stock options awarded |
21 | 21 | ||||||||||||||||||||||
Cash dividends declared ($0.16 per share) |
(330 | ) | (330 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance June 30, 2012 |
38 | 21,458 | (26,690 | ) | 36,992 | (1,385 | ) | 30,413 | ||||||||||||||||
Net income |
1,080 | 1,080 | ||||||||||||||||||||||
Other comprehensive income |
643 | 643 | ||||||||||||||||||||||
Expense of stock options awarded |
20 | 20 | ||||||||||||||||||||||
Cash dividends declared ($0.16 per share) |
(328 | ) | (328 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance June 30, 2013 |
$ | 38 | $ | 21,478 | $ | (26,690 | ) | $ | 37,744 | $ | (742 | ) | $ | 31,828 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
28
WVS FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net income |
$ | 1,080 | $ | 1,402 | $ | 1,226 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Provision for loan losses |
(68 | ) | (104 | ) | (15 | ) | ||||||
Net impairment loss recognized in earnings |
12 | 131 | | |||||||||
Depreciation |
90 | 84 | 100 | |||||||||
Gain on sale of other real estate owned |
(101 | ) | | | ||||||||
Investment securities gains |
(46 | ) | (4 | ) | | |||||||
Amortization of discounts, premiums, and deferred loan fees, net |
2,861 | 1,106 | 932 | |||||||||
Deferred income taxes |
252 | 251 | 269 | |||||||||
Decrease (increase) in accrued interest receivable |
250 | (432 | ) | 1,241 | ||||||||
Decrease in accrued interest payable |
(47 | ) | (65 | ) | (515 | ) | ||||||
Decrease in deferred director compensation payable |
(29 | ) | (30 | ) | (368 | ) | ||||||
Decrease in prepaid federal deposit insurance |
163 | 293 | 399 | |||||||||
Other, net |
(311 | ) | (684 | ) | 45 | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
4,106 | 1,948 | 3,314 | |||||||||
|
|
|
|
|
|
|||||||
INVESTING ACTIVITIES |
||||||||||||
Available for sale: |
||||||||||||
Purchase of investment securities |
(52,876 | ) | (63,416 | ) | (10,416 | ) | ||||||
Proceeds from repayments of investment securities |
21,057 | 6,389 | 9,340 | |||||||||
Proceeds from repayments of mortgage-backed securities |
| | 2,018 | |||||||||
Proceeds from sales of investment securities |
6,825 | 2,102 | | |||||||||
Held to maturity: |
||||||||||||
Purchase of investment securities |
(9,994 | ) | (101,666 | ) | (61,189 | ) | ||||||
Purchase of mortgage-backed securities |
(135,304 | ) | (57,386 | ) | (17,757 | ) | ||||||
Proceeds from repayments of investment securities |
65,606 | 107,633 | 125,108 | |||||||||
Proceeds from repayments of mortgage-backed securities |
75,989 | 49,456 | 62,941 | |||||||||
Proceeds from sales of investment securities |
337 | | | |||||||||
Purchase of bank owned life insurance |
(2,000 | ) | | | ||||||||
Purchase of certificates of deposit |
(250 | ) | (947 | ) | (3,817 | ) | ||||||
Maturities/redemptions of certificates of deposit |
497 | 3,766 | 8,747 | |||||||||
Net decrease in net loans receivable |
7,951 | 10,729 | 6,114 | |||||||||
Purchase of Federal Home Loan Bank stock |
(998 | ) | | | ||||||||
Redemption of Federal Home Loan Bank stock |
2,911 | 1,729 | 1,551 | |||||||||
Acquisition of premises and equipment |
(121 | ) | (79 | ) | (9 | ) | ||||||
Sale of other real estate owned |
225 | | | |||||||||
Capital improvements to other real estate owned |
(5 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net cash (used for) provided by investing activities |
(20,150 | ) | (41,690 | ) | 122,631 | |||||||
|
|
|
|
|
|
|||||||
FINANCING ACTIVITIES |
||||||||||||
Net decrease in deposits |
(1,649 | ) | (1,593 | ) | (58,156 | ) | ||||||
Net decrease in other short-term borrowings |
| | (12,510 | ) | ||||||||
Repayments of Federal Home Loan Bank long-term advances |
| (5,000 | ) | (87,000 | ) | |||||||
Net increase in Federal Home Loan Bank short-term advances |
17,442 | 47,211 | 32,059 | |||||||||
Cash dividends paid |
(328 | ) | (330 | ) | (576 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used for) financing activities |
15,465 | 40,288 | (126,183 | ) | ||||||||
|
|
|
|
|
|
|||||||
Increase (decrease) in cash and cash equivalents |
(579 | ) | 546 | (238 | ) | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
2,506 | 1,960 | 2,198 | |||||||||
|
|
|
|
|
|
|||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
$ | 1,927 | $ | 2,506 | $ | 1,960 | ||||||
|
|
|
|
|
|
|||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||||||
Cash paid during the year for: |
||||||||||||
Interest |
$ | 1,454 | $ | 1,609 | $ | 4,735 | ||||||
Taxes |
578 | 782 | 212 | |||||||||
Non-cash items: |
||||||||||||
Due to Federal Reserve Bank |
| | 733 | |||||||||
Mortgage loans transferred to other real estate owned |
| 182 | 235 | |||||||||
Educational Improvement Tax Credits |
107 | 98 | | |||||||||
Neighborhood Assistance Act Tax Credit |
| 1 | | |||||||||
Loan to facilitate sale of real estate owned |
| 364 | | |||||||||
Commitment to purchase investment securities available for sale |
| 2,782 | |
See accompanying notes to the consolidated financial statements.
29
WVS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization
WVS Financial Corp. (WVS or the Company) is a Pennsylvania-chartered unitary bank holding company which owns 100 percent of the common stock of West View Savings Bank (West View or the Savings Bank). The operating results of the Company depend primarily upon the operating results of the Savings Bank and, to a lesser extent, income from interest-earning assets such as investment securities.
West View is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Banks principal sources of revenue originate from its portfolio of residential real estate and commercial mortgage loans as well as income from investment and mortgage-backed securities.
The Company is supervised by the Board of Governors of the Federal Reserve System, while the Savings Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation (FDIC) and the Pennsylvania Department of Banking.
Basis of Presentation
The consolidated financial statements include the accounts of WVS and its wholly owned subsidiary, West View. All intercompany transactions have been eliminated in consolidation. The accounting and reporting policies of WVS and West View conform to U.S. generally accepted accounting principles. The Companys fiscal year-end for financial reporting is June 30. For regulatory and income tax reporting purposes, WVS reports on a December 31 calendar year basis.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and revenues and expenses for that period. Actual results could differ significantly from those estimates.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities are classified at the time of purchase as securities held to maturity or securities available for sale based on managements ability and intent. Investment and mortgage-backed securities acquired with the ability and intent to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are computed using the level-yield method and recognized as adjustments of interest income. Amortization rates for mortgage-backed securities are periodically adjusted to reflect changes in the prepayment speeds of the underlying mortgages. Certain other investment and equity securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment and mortgage-backed securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank (the FHLB) represents ownership in an institution which is wholly owned by other financial institutions. This equity security is accounted for at cost and reported separately on the accompanying Consolidated Balance Sheet.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Investment and Mortgage-Backed Securities (Continued)
Management systematically evaluates investment securities for other-than-temporary declines in fair value on at least a quarterly basis. This analysis requires management to consider various factors, which include: (1) duration and magnitude of the decline in value; (2) the credit rating of the issuer or issuers; (3) structure of the security; and (4) the Companys intent to sell the security or whether its more likely than not that the Company would be required to sell the security before its anticipated recovery in market value.
The Company retained an independent third party to assist it in the determination of a fair value for three of its four private-label collateralized mortgage obligations (CMOs). This valuation is meant to be a Level Three valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. Of the one private-label CMO not evaluated by the independent third party, it has a balance of less than $115 thousand, and the Company decided that the possibility of an other-than-temporary impairment is remote. The Company believes that the private-label CMO portfolio had three other than temporary impairments at June 30, 2013.
The Company believes that the data and assumptions used to determine the fair values are reasonable. The fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the valuation date could have a material effect on the private-label CMO segments fair value.
Net Loans Receivable
Net loans receivable are reported at their principal amount, net of the allowance for loan losses and deferred loan fees. Interest on mortgage, consumer, and commercial loans is recognized on the accrual method. The Companys general policy is to stop accruing interest on loans when, based upon relevant factors, the collection of principal or interest is doubtful, regardless of the contractual status. Interest received on nonaccrual loans is recorded as income or applied against principal according to managements judgment as to the collectability of such principal.
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.
Allowance for Loan Losses
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on managements periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued)
Impaired loans are commercial and commercial real estate loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of impaired loans is not the same as the definition of nonaccrual loans, although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower, including the length of the delay, the borrowers prior payment record, and the amount of shortfall in relation to the principal and interest owed.
Real Estate Owned
Real estate owned acquired through foreclosure is carried at the lower of cost or fair value minus estimated costs to sell. Costs relating to development and improvement of the property are capitalized, whereas costs of holding such real estate are expensed as incurred. Valuation allowances for estimated losses are provided when the carrying value of the real estate acquired exceeds the fair value.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is principally computed on the straight-line method over the estimated useful lives of the related assets, which range from 3 to 10 years for furniture and equipment and 25 to 50 years for building premises. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease terms, which range from 7 to 15 years. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized.
Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statement and the income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income taxes or benefits are based on the changes in the deferred tax asset or liability from period to period.
The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which such items are expected to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Earnings Per Share
The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share are calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are calculated by dividing net income available to common stockholders, adjusted for the effects of any dilutive securities, by the weighted-average number of common shares outstanding, adjusted for the effects of any dilutive securities.
Stock Options
The Company accounts for stock compensation based on the grant-date fair value of all share-based payment awards that are expected to vest, including employee share options to be recognized as employee compensation expense over the requisite service period.
The Companys 2008 Stock Incentive Plan (the Plan) permits the grant of stock options or restricted shares to its directors and employees for up to 152,000 shares (up to 38,000 restricted shares may be issued). Option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant; those option awards generally vest based on five years of continuous service and have ten-year contractual terms.
During the periods ended June 30, 2013, 2012, and 2011, the Company recorded $20 thousand, $21 thousand, and $22 thousand, respectively, in compensation expense related to our share-based compensation awards. As of June 30, 2013, there was approximately $7 thousand of unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009. That cost is expected to be recognized over the next year.
For purposes of computing results, the Company estimated the fair values of stock options using the Black-Scholes option-pricing model. The model requires the use of subjective assumptions that can materially affect fair value estimates. The fair value of each option is amortized into compensation expense on a straight line basis between the grant date for the option and each vesting date. The fair value of each stock option granted was estimated using the following weighted-average assumptions:
Assumptions |
||
Volatility |
7.49% to 11.63% | |
Interest Rates |
2.59% to 3.89% | |
Dividend Yields |
3.94% to 4.02% | |
Weighted Average Life (in years) |
10 |
The Company had 27,229, 51,502 and 70,550 non-vested stock options outstanding at June 30, 2013, 2012, and 2011, respectively.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Comprehensive Income (Loss)
The Company is required to present comprehensive income (loss) and its components in a full set of general-purpose financial statements for all periods presented. Other comprehensive income (loss) is composed exclusively of net unrealized holding gains (losses) on its available-for-sale securities portfolio, and the net non-credit component of other-than-temporary impairment on its held-to-maturity private-label CMO portfolio.
Cash Flow Information
Cash and cash equivalents include cash and due from banks and interest-earning deposits with original maturities of 90 days or less. Cash flow from loans, deposits, and short-term borrowings are reported net.
Reclassification of Comparative Figures
Certain comparative amounts for prior years have been reclassified to conform to current-year presentations. Such reclassifications did not affect net income or stockholders equity.
Recent Accounting Pronouncements
In April 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entitys governing documents from the entitys inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entitys inception. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with other Topics (for example, terminating employee benefit plans) are not required to apply the amendments. Instead, those entities should continue to apply the guidance in those other Topics until they have completed liquidation.
In June 2013, the FASB issued ASU 2013-08, Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entitys status as an investment company, and (c) information
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Recent Accounting Pronouncements (Continued)
about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entitys interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited.
In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | EARNINGS PER SHARE |
The following table sets forth the computation of the weighted-average common shares used to calculate basic and diluted earnings per share.
2013 | 2012 | 2011 | ||||||||||
Weighted-average common shares issued |
3,805,636 | 3,805,636 | 3,805,636 | |||||||||
Average treasury stock shares |
(1,747,706 | ) | (1,747,706 | ) | (1,747,706 | ) | ||||||
|
|
|
|
|
|
|||||||
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share |
2,057,930 | 2,057,930 | 2,057,930 | |||||||||
Additional common stock equivalents (stock options) used to calculate diluted earnings per share |
| | | |||||||||
|
|
|
|
|
|
|||||||
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share |
2,057,930 | 2,057,930 | 2,057,930 | |||||||||
|
|
|
|
|
|
There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used.
At June 30, 2013, there were 114,519 options with an exercise price of $16.20 which were anti-dilutive. At June 30, 2012, there were 124,519 options with an exercise price of $16.20 which were anti-dilutive. At June 30, 2011, there were 124,824 options with an exercise price ranging from $15.77 to $16.20 which were anti-dilutive.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | INVESTMENT SECURITIES |
The amortized cost and fair values of investments are as follows:
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
2013 |
||||||||||||||||
AVAILABLE FOR SALE |
||||||||||||||||
Corporate debt securities |
$ | 73,349 | $ | 223 | $ | (107 | ) | $ | 73,465 | |||||||
Foreign debt securities 1 |
3,718 | 8 | (5 | ) | 3,721 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 77,067 | $ | 231 | $ | (112 | ) | $ | 77,186 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
2013 |
||||||||||||||||
HELD TO MATURITY |
||||||||||||||||
U.S. government agency securities |
$ | 9,995 | $ | | $ | (328 | ) | $ | 9,667 | |||||||
Corporate debt securities |
14,425 | 853 | | 15,278 | ||||||||||||
Foreign debt securities 1 |
2,000 | 11 | | 2,011 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 26,420 | $ | 864 | $ | (328 | ) | $ | 26,956 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
2012 |
||||||||||||||||
AVAILABLE FOR SALE |
||||||||||||||||
Corporate debt securities |
$ | 55,965 | $ | 116 | $ | (129 | ) | $ | 55,952 | |||||||
Foreign debt securities 1 |
1,671 | | (3 | ) | 1,668 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 57,636 | $ | 116 | $ | (132 | ) | $ | 57,620 | |||||||
|
|
|
|
|
|
|
|
1 | U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers. |
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | INVESTMENT SECURITIES (Continued) |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
2012 |
||||||||||||||||
HELD TO MATURITY |
||||||||||||||||
U.S. government agency securities |
$ | 57,588 | $ | 131 | $ | (4 | ) | $ | 57,715 | |||||||
Corporate debt securities |
22,810 | 1,442 | | 24,252 | ||||||||||||
Foreign debt securities 1 |
2,002 | 90 | | 2,092 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 82,400 | $ | 1,663 | $ | (4 | ) | $ | 84,059 | |||||||
|
|
|
|
|
|
|
|
In fiscal years 2013, 2012, and 2011, the Company recorded gross realized investment security gains of $46 thousand, $4 thousand, and $0 and there were no gross losses for any period. Proceeds from sales of investment securities during fiscal 2013, 2012, and 2011 were $7.2 million, $2.1 million, and $0.
The amortized cost and fair values of investment securities at June 30, 2013, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.
Due in | Due after | Due after | Due after | Due after | ||||||||||||||||||||||||
one year | one through | two through | three through | five through | Due after | |||||||||||||||||||||||
or less | two years | three years | five years | ten years | ten years | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
AVAILABLE FOR SALE |
||||||||||||||||||||||||||||
Amortized cost |
$ | 47,369 | $ | 13,689 | $ | 14,014 | $ | 1,005 | $ | 990 | $ | | $ | 77,067 | ||||||||||||||
Fair value |
47,486 | 13,764 | 13,965 | 998 | 973 | | 77,186 | |||||||||||||||||||||
HELD TO MATURITY |
||||||||||||||||||||||||||||
Amortized cost |
$ | 10,890 | $ | 999 | $ | | $ | 3,400 | $ | 1,136 | $ | 9,995 | $ | 26,420 | ||||||||||||||
Fair value |
11,052 | 1,089 | | 3,808 | 1,340 | 9,667 | 26,956 |
At June 30, 2013, no investment securities were pledged to secure repurchase agreements and borrowings with the Federal Home Loan Bank. At June 30, 2012, investment securities with amortized costs of $27.8 million and fair values of $27.9 million were pledged to secure public deposits, repurchase agreements and borrowings with the Federal Home Loan Bank. Of the securities pledged, $19.0 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.
1 | U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers. |
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. | 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 are passed through to the investor as they are generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (FHLMC), 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.
The Companys CMO portfolio is comprised of two segments: CMOs backed by U.S. Government Agencies (Agency CMOs) and CMOs backed by single-family whole loans not guaranteed by a U.S. Government Agency (Private-Label CMOs).
At June 30, 2013, the Companys Agency CMOs totaled $135.6 million as compared to $69.1 million at June 30, 2012. The Companys private-label CMOs totaled $3.7 million at June 30, 2013 as compared to $9.9 million at June 30, 2012. The $60.3 million increase in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency CMOs totaling $68.9 million and $7.1 million in repayments on our private-label CMOs which were more than offset by purchases of U.S. Government Agency CMOs totaling $135.3 million, and $839 thousand in amortization of non-credit unrealized holding losses on private-label CMOs with other-than-temporary impairment. During the fiscal year ended June 30, 2013 the Company received principal payments totaling $7.1 million on its private-label CMOs. At June 30, 2013, approximately $139.3 million or 100.0% (book value) of the Companys MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments, as compared to $79.0 million or 100.0% at June 30, 2012. Substantially all of the Companys floating rate MBS adjust monthly based upon changes in the one month LIBOR. The Company has no investment in multi-family or commercial real estate based MBS.
Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO traunches, the actual maturities of the Companys MBS are expected to be substantially less than the scheduled maturities.
The Company retains an independent third party to assist it in the determination of a fair value for three of its private-label CMOs. This valuation is meant to be a Level Three valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. Of the one private-label CMO not evaluated by the independent third party, it had a balance of less than $115 thousand and the Company decided that the possibility of an other-than-temporary impairment is remote. The private-label CMO portfolio had three previously recorded other-than-temporary impairments at June 30, 2013. During the fiscal year ending June 30, 2013, the Company reversed $839 thousand of non-credit unrealized holding losses on three of its private-label CMOs with OTTI due to principal repayments. During the twelve months ended June 30, 2013, the Company recorded a $12 thousand credit impairment charge on one private-label CMO.
The Company believes that the data and assumptions used to determine the fair values are reasonable. The fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the valuation date could have a material effect on the private-label CMO segments fair value.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. | MORTGAGE-BACKED SECURITIES (Continued) |
For one other private-label CMO, the Company used the fair value estimates provided by its independent third party investment accounting service. There was no OTTI associated with this security as of June 30, 2013 or in the past.
The amortized cost and fair values of mortgage-backed securities are as follows:
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
2013 |
||||||||||||||||
HELD TO MATURITY |
||||||||||||||||
Collateralized mortgage obligations: |
||||||||||||||||
Agency |
$ | 135,621 | $ | 368 | $ | (256 | ) | $ | 135,733 | |||||||
Private-label |
3,647 | 621 | (3 | ) | 4,265 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 139,268 | $ | 989 | $ | (259 | ) | $ | 139,998 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
2012 |
||||||||||||||||
HELD TO MATURITY |
||||||||||||||||
Collateralized mortgage obligations: |
||||||||||||||||
Agency |
$ | 69,146 | $ | 99 | $ | (24 | ) | $ | 69,221 | |||||||
Private-label |
9,940 | 740 | (88 | ) | 10,592 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 79,086 | $ | 839 | $ | (112 | ) | $ | 79,813 | |||||||
|
|
|
|
|
|
|
|
The amortized cost and fair value of mortgage-backed securities at June 30, 2013, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due in one year or less |
Due after one through five years |
Due after five through ten years |
Due after ten years |
Total | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
HELD TO MATURITY |
||||||||||||||||||||
Amortized cost |
$ | | $ | | $ | 47 | $ | 139,221 | $ | 139,268 | ||||||||||
Fair value |
| | 47 | 139,951 | 139,998 | |||||||||||||||
Weighted average yield |
| % | | % | 1.41 | % | 1.21 | % | 1.21 | % |
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. | MORTGAGE-BACKED SECURITIES (Continued) |
At June 30, 2013, mortgage-backed securities with amortized costs of $123.7 million and fair values of $123.8 million were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $20.9 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time. At June 30, 2012 mortgage-backed securities with an amortized cost of $67.0 million and fair values of $67.0 million, were pledged to secure borrowings with the Federal Home Loan Bank and public deposits.
5. | ACCUMULATED OTHER COMPREHENSIVE INCOME |
The following tables present the changes in accumulated other comprehensive income by component for the three years ended June 30, 2013, 2012, and 2011.
Unrealized Gains and Losses on Available- for-sale Securities |
Unrealized Gains and Losses on Held-to- maturity Securities |
Total | ||||||||||
|
|
|||||||||||
(Dollars in Thousands net of tax) | ||||||||||||
Balance June 30, 2010 |
$ | 84 | $ | (2,322 | ) | $ | (2,238 | ) | ||||
Other comprehensive income (loss) before reclassifications |
(86 | ) | 497 | 411 | ||||||||
Net current-period other comprehensive income (loss) |
(86 | ) | 497 | 411 | ||||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2011 |
(2 | ) | (1,825 | ) | (1,827 | ) | ||||||
Other comprehensive income (loss) before reclassifications |
(6 | ) | 565 | 559 | ||||||||
Amounts reclassified from accumulated other comprehensive income |
(3 | ) | (114 | ) | (117 | ) | ||||||
|
|
|
|
|
|
|||||||
Net current-period other comprehensive income (loss) |
(9 | ) | 451 | 442 | ||||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2012 |
(11 | ) | (1,374 | ) | (1,385 | ) | ||||||
Other comprehensive income before reclassifications |
119 | 549 | 668 | |||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
(30 | ) | 5 | (25 | ) | |||||||
|
|
|
|
|
|
|||||||
Net current-period other comprehensive income |
89 | 554 | 643 | |||||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2013 |
$ | 78 | $ | (820 | ) | $ | (742 | ) | ||||
|
|
|
|
|
|
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. | ACCUMULATED OTHER COMPREHENSIVE INCOME (Continued) |
The following table presents the amounts reclassified out of accumulated other comprehensive income.
Amount Reclassified from Accumulated Other Comprehensive Income |
||||||||||||||
Details About Accumulated Other Comprehensive Income Components: |
2013 | 2012 | 2011 | Affected Line Item in the Statement Where Net Income is Presented | ||||||||||
|
|
| ||||||||||||
(Dollars in Thousands) | ||||||||||||||
Unrealized gains and losses on available-for-sale securities |
$ | (46 | ) | $ | (4 | ) | $ | | Investment security gains | |||||
|
|
|
|
|
|
|||||||||
(46 | ) | (4 | ) | | Total before tax | |||||||||
(16 | ) | (1 | ) | | Income tax expense | |||||||||
|
|
|
|
|
|
|||||||||
(30 | ) | (3 | ) | | Net of tax | |||||||||
|
|
|
|
|
|
|||||||||
Unrealized gains and losses on held-to-maturity securities |
8 | (172 | ) | Gains recognized in comprehensive income | ||||||||||
|
|
|
|
|
|
|||||||||
8 | (172 | ) | | Total before tax | ||||||||||
3 | (58 | ) | | Income tax expense (benefit) | ||||||||||
|
|
|
|
|
|
|||||||||
5 | (114 | ) | | Net of tax | ||||||||||
|
|
|
|
|
|
|||||||||
Total reclassifications for the period |
$ | (25 | ) | $ | (117 | ) | $ | | Net of tax | |||||
|
|
|
|
|
|
6. | UNREALIZED LOSSES ON SECURITIES |
The following table shows the Companys gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2013 and 2012.
2013 | ||||||||||||||||||||||||||||||||
Less Than Six Months | Six through Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
U.S. government agencies securities |
$ | 9,667 | $ | (328 | ) | $ | | $ | | $ | | $ | | $ | 9,667 | $ | (328 | ) | ||||||||||||||
Corporate debt securities |
15,042 | (78 | ) | 2,322 | (29 | ) | | | 17,364 | (107 | ) | |||||||||||||||||||||
Foreign debt securities1 |
| | 518 | (5 | ) | | | 518 | (5 | ) | ||||||||||||||||||||||
Collateralized mortgage obligations: |
||||||||||||||||||||||||||||||||
Agency |
49,176 | (235 | ) | 782 | (13 | ) | 4,900 | (8 | ) | 54,858 | (256 | ) | ||||||||||||||||||||
Private-label |
| | | | 109 | (3 | ) | 109 | (3 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 73,885 | $ | (641 | ) | $ | 3,622 | $ | (47 | ) | $ | 5,009 | $ | (11 | ) | $ | 82,516 | $ | (699 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. | UNREALIZED LOSSES ON SECURITIES (Continued) |
2012 | ||||||||||||||||||||||||||||||||
Less Than Six Months | Six through Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
U.S. government agencies securities |
$ | 7,725 | $ | (2 | ) | $ | | $ | | $ | 357 | $ | (2 | ) | $ | 8,082 | $ | (4 | ) | |||||||||||||
Corporate debt securities |
17,670 | (61 | ) | 2,001 | (68 | ) | | | 19,671 | (129 | ) | |||||||||||||||||||||
Foreign debt securities1 |
1,093 | (2 | ) | 575 | (1 | ) | | | 1,668 | (3 | ) | |||||||||||||||||||||
Collateralized mortgage obligations: |
||||||||||||||||||||||||||||||||
Agency |
11,279 | (12 | ) | 272 | (1 | ) | 11,260 | (11 | ) | 22,811 | (24 | ) | ||||||||||||||||||||
Private-label |
624 | (4 | ) | | | 3,838 | (84 | ) | 4,462 | (88 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 38,391 | $ | (81 | ) | $ | 2,848 | $ | (70 | ) | $ | 15,455 | $ | (97 | ) | $ | 56,694 | $ | (248 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For debt securities, impairment is considered to be other than temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its amortized cost basis, or (3) does not expect to recover the securitys entire amortized cost basis (even if the entity does not intend to sell the security). In addition, impairment is considered to be other than temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security (any such shortfall is referred to as a credit loss).
The Company evaluates outstanding available-for-sale and held-to-maturity securities in an unrealized loss position (i.e., impaired securities) for OTTI on a quarterly basis. In doing so, the Company considers many factors including, but not limited to: the credit ratings assigned to the securities by the Nationally Recognized Statistical Rating Organizations (NRSROs); other indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of time and extent that fair value has been less than amortized cost; and whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In the case of its private-label residential MBS, the Company also considers prepayment speeds, the historical and projected performance of the underlying loans and the credit support provided by the subordinate securities. These evaluations are inherently subjective and consider a number of quantitative and qualitative factors.
The following table presents a roll-forward of the credit loss component of the amortized cost of mortgage-backed securities that we have written down for OTTI and the credit component of the loss that is recognized in earnings. OTTI recognized in earnings for credit impaired mortgage-backed securities is presented as additions in two components based upon whether the current period is the first time the mortgage-backed security was credit-impaired (initial credit impairment) or is not the first time the mortgage-backed security was credit impaired (subsequent credit impairments). The credit loss component is reduced if we sell, intend to sell or believe that we will be required to sell previously credit-impaired mortgage-backed securities. Additionally, the credit loss component is reduced if we receive cash flows in excess of what we expected to receive over the remaining life of the credit impaired mortgage-backed securities, the security matures or is fully written down.
1 | U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers. |
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. | UNREALIZED LOSSES ON SECURITIES (Continued) |
Changes in the credit loss component of credit impaired mortgage-backed securities were as follows for the twelve month periods ended June 30, 2013 and 2012:
Twelve Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Beginning balance |
$ | 324 | $ | 194 | ||||
Initial credit impairment |
| 24 | ||||||
Subsequent credit impairment |
12 | 106 | ||||||
Reductions for amounts recognized in earnings due to intent or requirement to sell |
| | ||||||
Reductions for securities sold |
| | ||||||
Reduction for actual realized losses |
(20 | ) | | |||||
Reduction for increase in cash flows expected to be collected |
| | ||||||
|
|
|
|
|||||
Ending Balance |
$ | 316 | $ | 324 | ||||
|
|
|
|
During the twelve months ended June 30, 2013, the Company recorded one credit impairment charge, and one non-credit unrealized holding gain to accumulated other comprehensive income. The Company was able to accrete back into other comprehensive income $549 thousand (net of income tax effect of $282 thousand), based on principal repayments on private-label CMOs previously identified with OTTI.
In the case of its private-label residential CMOs that exhibit adverse risk characteristics, the Company employs models to determine the cash flows that it is likely to collect from the securities. These models consider borrower characteristics and the particular attributes of the loans underlying the securities, in conjunction with assumptions about future changes in home prices and interest rates, to predict the likelihood a loan will default and the impact on default frequency, loss severity and remaining credit enhancement. A significant input to these models is the forecast of future housing price changes for the relevant states and metropolitan statistical areas, which are based upon an assessment of the various housing markets. In general, since the ultimate receipt of contractual payments on these securities will depend upon the credit and prepayment performance of the underlying loans and, if needed, the credit enhancements for the senior securities owned by the Company, the Company uses these models to
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. | UNREALIZED LOSSES ON SECURITIES (Continued) |
assess whether the credit enhancement associated with each security is sufficient to protect against likely losses of principal and interest on the underlying mortgage loans. The development of the modeling assumptions requires significant judgment.
In conjunction with our adoption of ASC Topic 820 effective June 30, 2009, the Company retained an independent third party to assist it with assessing three investments within the private-label CMO portfolio. For the other one private-label CMO, the Company used the fair value estimates provided by its independent third party investment accounting service. There was no OTTI associated with this security at June 30, 2013 or in the past. The independent third party utilized certain assumptions for producing the cash flow analyses used in the OTTI assessment. Key assumptions would include interest rates, expected market participant spreads and discount rates, housing prices, projected future delinquency levels and assumed loss rates on any liquidated collateral.
The Company reviewed the independent third partys assumptions used in the June 30, 2013 OTTI process. Based on the results of this review, the Company deemed the independent third partys assumptions to be reasonable and adopted them. However, different assumptions could produce materially different results, which could impact the Companys conclusions as to whether an impairment is considered other-than-temporary and the magnitude of the credit loss. Management believes that no additional private-label CMOs in the portfolio had an other-than-temporary impairment at June 30, 2013, keeping the total at three private-label CMOs with OTTI at June 30, 2013.
If the Company intends to sell an impaired debt security, or more likely than not will be required to sell the security before recovery of its amortized cost basis, the impairment is other-than-temporary and is recognized currently in earnings in an amount equal to the entire difference between fair value and amortized cost. The Company does not anticipate selling its private-label CMO portfolio, nor does Management believe that the Company will be required to sell these securities before recovery of this amortized cost basis.
In instances in which the Company determines that a credit loss exists but the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, the OTTI is separated into (1) the amount of the total impairment related to the credit loss and (2) the amount of the total impairment related to all other factors (i.e., the noncredit portion). The amount of the total OTTI related to the credit loss is recognized in earnings and the amount of the total OTTI related to all other factors is recognized in accumulated other comprehensive loss. The total OTTI is presented in the Consolidated Statement of Income with an offset for the amount of the total OTTI that is recognized in accumulated other comprehensive loss. Absent the intent or requirement to sell a security, if a credit loss does not exist, any impairment is considered to be temporary.
Regardless of whether an OTTI is recognized in its entirety in earnings or if the credit portion is recognized in earnings and the noncredit portion is recognized in other comprehensive income (loss), the estimation of fair values has a significant impact on the amount(s) of any impairment that is recorded.
The noncredit portion of any OTTI losses on securities classified as available-for-sale is adjusted to fair value with an offsetting adjustment to the carrying value of the security. The fair value adjustment could increase or decrease the carrying value of the security. All of the Companys private-label CMOs were originally, and continue to be classified, as held to maturity.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. | UNREALIZED LOSSES ON SECURITIES (Continued) |
In periods subsequent to the recognition of an OTTI loss, the other-than-temporarily impaired debt security is accounted for as if it had been purchased on the measurement date of the OTTI at an amount equal to the previous amortized cost basis less the credit-related OTTI recognized in earnings. For debt securities for which credit-related OTTI is recognized in earnings, the difference between the new cost basis and the cash flows expected to be collected is accreted into interest income over the remaining life of the security in a prospective manner based on the amount and timing of future estimated cash flows.
The Company had investments in 29 positions that were impaired at June 30, 2013, including 1 position in private-label collateralized mortgage obligations. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.
7. | NET LOANS RECEIVABLE |
The Companys primary business activity is with customers located within its local trade area of Northern Allegheny and Southern Butler counties within the state of Pennsylvania. The Company has concentrated its lending efforts by granting residential and construction mortgage loans to customers throughout its immediate trade area. The Company also selectively funds and participates in commercial and residential mortgage loans outside of its immediate trade area, provided such loans meet the Companys credit policy guidelines. At June 30, 2013 and 2012, the Company had approximately $4 million and $7 million, respectively, of outstanding loans for land development and construction in the local trade area. Although the Company had a diversified loan portfolio at June 30, 2013 and 2012, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area.
Certain officers, directors, and their associates were customers of, and had transactions with, the Company in the ordinary course of business. There were no loans for those directors, executive officers, and their associates with aggregate loan balances outstanding of at least $60 thousand during the fiscal years ended June 30, 2013 and 2012.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
The following table summarizes the primary segments of the loan portfolio as of June 30, 2013 and June 30, 2012.
June 30, 2013 | June 30, 2012 | |||||||||||||||||||||||
Total Loans |
Individually evaluated |
Collectively evaluated for impairment |
Total Loans |
Individually evaluated |
Collectively evaluated for impairment |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
First mortgage loans: |
||||||||||||||||||||||||
1 4 family dwellings |
$ | 13,611 | $ | | $ | 13,611 | $ | 13,514 | $ | | $ | 13,514 | ||||||||||||
Construction |
2,546 | 701 | 1,845 | 4,997 | 701 | 4,296 | ||||||||||||||||||
Land acquisition & development |
1,407 | 280 | 1,127 | 2,029 | | 2,029 | ||||||||||||||||||
Multi-family dwellings |
2,780 | | 2,780 | 5,083 | | 5,083 | ||||||||||||||||||
Commercial |
5,787 | | 5,787 | 7,623 | | 7,623 | ||||||||||||||||||
Consumer Loans |
||||||||||||||||||||||||
Home equity |
1,085 | | 1,085 | 1,402 | | 1,402 | ||||||||||||||||||
Home equity lines of credit |
2,056 | 150 | 1,906 | 2,188 | 150 | 2,038 | ||||||||||||||||||
Other |
180 | | 180 | 286 | | 286 | ||||||||||||||||||
Commercial Loans |
1,890 | | 1,890 | 2,222 | | 2,222 | ||||||||||||||||||
Obligations (other than securities and leases) of states and political subdivisions |
500 | | 500 | 500 | | 500 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 31,842 | $ | 1,131 | $ | 30,711 | $ | 39,844 | $ | 851 | $ | 38,993 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Less: Deferred loan fees |
(4 | ) | (26 | ) | ||||||||||||||||||||
Allowance for loan losses |
(307 | ) | (385 | ) | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total |
$ | 31,531 | $ | 39,433 | ||||||||||||||||||||
|
|
|
|
Impaired loans are loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The following loan categories are collectively evaluated for impairment. First mortgage loans: 1 4 family dwellings and all consumer loan categories (home equity, home equity lines of credit, and other). The following loan categories are individually evaluated for impairment. First mortgage loans: construction, land acquisition and development, multi-family dwellings, and commercial. The Company evaluates commercial loans not secured by real property individually for impairment.
The definition of impaired loans is not the same as the definition of nonaccrual loans, although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower, including
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
the length of the delay, the borrowers prior payment record, and the amount of shortfall in relation to the principal and interest owed.
The following table is a summary of the loans considered to be impaired as of June 30, 2013 and June 30, 2012, and the related interest income recognized for the twelve months ended June 30, 2013 and June 30, 2012:
June 30, | June 30, | |||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Impaired loans with an allocated allowance: |
||||||||
Construction loans |
$ | 701 | $ | 701 | ||||
Impaired loans without an allocated allowance: |
||||||||
Construction loans |
| | ||||||
Land Acquisition & development loans |
280 | | ||||||
Home equity lines of credit |
150 | 150 | ||||||
|
|
|
|
|||||
Total impaired loans |
$ | 1,131 | $ | 851 | ||||
|
|
|
|
|||||
Allocated allowance on impaired loans: |
||||||||
Construction loans |
$ | 107 | $ | 105 | ||||
|
|
|
|
|||||
Average impaired loans: |
||||||||
Construction loans |
$ | 701 | $ | 1,020 | ||||
Land Acquisition & development loans |
290 | | ||||||
Home equity lines of credit |
150 | 501 | ||||||
|
|
|
|
|||||
Total |
$ | 1,141 | $ | 1,521 | ||||
|
|
|
|
|||||
Income recognized on impaired loans: |
||||||||
Construction loans |
$ | | $ | | ||||
Land Acquisition & development loans |
36 | | ||||||
Home equity lines of credit |
6 | 6 | ||||||
|
|
|
|
|||||
Total |
$ | 42 | $ | 6 | ||||
|
|
|
|
Total nonaccrual loans as of June 30, 2013 and June 30, 2012 and the related interest income recognized for the twelve months ended June 30, 2013 and June 30, 2012 are as follows:
June 30, 2013 |
June 30, 2012 |
|||||||
(Dollars in Thousands) | ||||||||
Principal outstanding: |
||||||||
1 4 family dwellings |
$ | 477 | $ | 363 | ||||
Construction |
701 | 701 | ||||||
Land acquisition & development |
280 | 290 | ||||||
Home equity lines of credit |
150 | 150 | ||||||
|
|
|
|
|||||
Total |
$ | 1,608 | $ | 1,504 | ||||
|
|
|
|
|||||
Average nonaccrual loans: |
||||||||
1 4 family dwellings |
$ | 532 | $ | 364 | ||||
Construction |
802 | 1,020 | ||||||
Land acquisition & development |
290 | 449 | ||||||
Home equity lines of credit |
150 | 346 | ||||||
|
|
|
|
|||||
Total |
$ | 1,774 | $ | 2,179 | ||||
|
|
|
|
|||||
Income that would have been recognized |
$ | 118 | $ | 116 | ||||
Interest income recognized |
95 | 115 | ||||||
|
|
|
|
|||||
Interest income foregone |
$ | 59 | $ | 101 | ||||
|
|
|
|
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
The Companys loan portfolio also includes troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Companys loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrowers sustained repayment performance for a reasonable period, generally six months.
When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loans classification at origination.
The following table includes the recorded investment and number of modifications for modified loans, as of June 30, 2013 and 2012. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.
June 30, 2013 | ||||||||||||
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||
|
|
|||||||||||
(Dollars in Thousands) | ||||||||||||
Troubled debt restructurings |
||||||||||||
Home equity lines of credit |
| $ | | $ | | |||||||
Troubled debt restructurings that subsequently defaulted |
||||||||||||
Home equity lines of credit |
| $ | | $ | | |||||||
June 30, 2012 | ||||||||||||
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||
|
|
|||||||||||
(Dollars in Thousands) | ||||||||||||
Troubled debt restructurings |
||||||||||||
Home equity lines of credit |
1 | $ | 150 | $ | 150 | |||||||
Troubled debt restructurings that subsequently defaulted |
||||||||||||
Home equity lines of credit |
| $ | | $ | |
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
No previously modified TDRs are in default as of June 30, 2013.
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. Managements 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 13, 2006, the FDIC, in conjunction with the other federal banking agencies adopted a Revised Interagency Policy Statement on the Allowance for Loan and Lease Losses (ALLL). The revised policy statement revised and replaced the banking agencies 1993 policy statement on the ALLL. The revised policy statement provides that an institution must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The banking agencies also revised the policy to ensure consistency with generally accepted accounting principles (GAAP). The revised policy statement updates the previous guidance that describes the responsibilities of the board of directors, management, and bank examiners regarding the ALLL, factors to be considered in the estimation of the ALLL, and the objectives and elements of an effective loan review system.
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 institutions regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital.
The Companys 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 Companys general valuation allowances are within the following general ranges: (1) 0% to 5% of assets subject to special mention; (2) 5.00% 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 Companys past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at June 30, 2013, is adequate.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2013 and June 30, 2012:
Current | 30 59 Days Past Due |
60 89 Days Past Due |
90 Days + Accruing |
90 Days + Past Due Non-accrual |
Total Past Due |
Total Loans |
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
June 30, 2013 |
||||||||||||||||||||||||||||
First mortgage loans: |
||||||||||||||||||||||||||||
1 4 family dwellings |
$ | 13,089 | $ | 45 | $ | | $ | | $ | 477 | $ | 522 | $ | 13,611 | ||||||||||||||
Construction |
1,845 | | | | 701 | 701 | 2,546 | |||||||||||||||||||||
Land acquisition & development |
1,127 | | | | 280 | 280 | 1,407 | |||||||||||||||||||||
Multi-family dwellings |
2,780 | | | | | | 2,780 | |||||||||||||||||||||
Commercial |
5,787 | | | | | | 5,787 | |||||||||||||||||||||
Consumer Loans |
||||||||||||||||||||||||||||
Home equity |
1,085 | | | | | | 1,085 | |||||||||||||||||||||
Home equity lines of credit |
1,906 | | | | 150 | 150 | 2,056 | |||||||||||||||||||||
Other |
180 | | | | | | 180 | |||||||||||||||||||||
Commercial Loans |
1,884 | 6 | | | | 6 | 1,890 | |||||||||||||||||||||
Obligations (other than securities and leases) of states and political subdivisions |
500 | | | | | | 500 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 30,183 | $ | 51 | $ | | $ | | $ | 1,608 | $ | 1,659 | 31,842 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Less: Deferred loan fees |
(4 | ) | ||||||||||||||||||||||||||
Allowance for loan loss |
(307 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Net Loans Receivable |
$ | 31,531 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Current | 30 59 Days Past Due |
60 89 Days Past Due |
90 Days + Accruing |
90 Days + Non-accrual |
Total Past Due |
Total Loans |
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
June 30, 2012 |
||||||||||||||||||||||||||||
First mortgage loans: |
||||||||||||||||||||||||||||
1 4 family dwellings |
$ | 13,151 | $ | | $ | | $ | | $ | 363 | $ | 363 | $ | 13,514 | ||||||||||||||
Construction |
4,296 | | | | 701 | 701 | 4,997 | |||||||||||||||||||||
Land acquisition & development |
1,739 | | | | 290 | 290 | 2,029 | |||||||||||||||||||||
Multi-family dwellings |
5,083 | | | | | | 5,083 | |||||||||||||||||||||
Commercial |
7,623 | | | | | | 7,623 | |||||||||||||||||||||
Consumer Loans |
||||||||||||||||||||||||||||
Home equity |
1,402 | | | | | | 1,402 | |||||||||||||||||||||
Home equity lines of credit |
2,038 | | | | 150 | 150 | 2,188 | |||||||||||||||||||||
Other |
286 | | | | | | 286 | |||||||||||||||||||||
Commercial Loans |
2,219 | | 3 | | | 3 | 2,222 | |||||||||||||||||||||
Obligations (other than securities and leases) of states and political subdivisions |
500 | | | | | | 500 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 38,337 | $ | | $ | 3 | $ | | $ | 1,504 | $ | 1,507 | 39,844 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Less: Deferred loan fees |
(26 | ) | ||||||||||||||||||||||||||
Allowance for loan loss |
(385 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Net Loans Receivable |
$ | 39,433 | ||||||||||||||||||||||||||
|
|
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
Credit Quality Information |
The following tables represent credit exposure by internally assigned grades for the fiscal years ended June 30, 2013 and 2012. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Companys internal credit risk grading system is based on experiences with similarly graded loans.
The Companys internally assigned grades are as follows:
Pass loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
Special Mention loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
Substandard loans that have a well-defined weakness based on objective evidence and can be characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful loans classified as doubtful have all the weaknesses inherent in a substandard loan. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.
Loss loans classified as loss are considered uncollectible, or of such value that continuance as a loan is not warranted.
The primary credit quality indicator used by management in the 1 4 family and consumer loan portfolios is the performance status of the loans. Payment activity is reviewed by Management on a monthly basis to determine how loans are performing. Loans are considered to be non-performing when they become 90 days delinquent, have a history of delinquency, or have other inherent characteristics which Management deems to be weaknesses.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
Credit Quality Information (Continued)
The following tables presents the Companys internally classified construction, land acquisition and development, multi-family residential, commercial real estate and commercial (not secured by real estate) loans at June 30, 2013 and June 30, 2012.
June 30, 2013 | ||||||||||||||||||||||||
Construction | Land Acquisition & Development Loans |
Multi-family Residential |
Commercial Estate |
Commercial | Obligations securities and
leases) and Political Subdivisions |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Pass |
$ | 1,845 | $ | 1,127 | $ | 2,780 | $ | 5,787 | $ | 1,889 | $ | 500 | ||||||||||||
Special Mention |
| | | | | | ||||||||||||||||||
Substandard |
701 | 280 | | | 1 | | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending Balance |
$ | 2,546 | $ | 1,407 | $ | 2,780 | $ | 5,787 | $ | 1,890 | $ | 500 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 | ||||||||||||||||||||||||
Construction | Land Acquisition & Development Loans |
Multi-family Residential |
Commercial Estate |
Commercial | Obligations securities and
leases) and Political Subdivisions |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Pass |
$ | 4,296 | $ | 1,739 | $ | 5,083 | $ | 7,623 | $ | 2,219 | $ | 500 | ||||||||||||
Special Mention |
| | | | | | ||||||||||||||||||
Substandard |
701 | 290 | | | | | ||||||||||||||||||
Doubtful |
| | | | 3 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending Balance |
$ | 4,997 | $ | 2,029 | $ | 5,083 | $ | 7,623 | $ | 2,222 | $ | 500 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | NET LOANS RECEIVABLE (Continued) |
Credit Quality Information (Continued)
The following table presents performing and non-performing 1 4 family residential and consumer loans based on payment activity for the periods ended June 30, 2013 and June 30, 2012.
June 30, 2013 | ||||||||
1 4 Family | Consumer | |||||||
|
|
|||||||
(Dollars in Thousands) | ||||||||
Performing |
$ | 13,134 | $ | 3,171 | ||||
Non-performing |
477 | 150 | ||||||
|
|
|
|
|||||
Total |
$ | 13,611 | $ | 3,321 | ||||
|
|
|
|
June 30, 2012 | ||||||||
1 4 Family | Consumer | |||||||
|
|
|||||||
(Dollars in Thousands) | ||||||||
Performing |
$ | 13,151 | $ | 3,726 | ||||
Non-performing |
363 | 150 | ||||||
|
|
|
|
|||||
Total |
$ | 13,514 | $ | 3,876 | ||||
|
|
|
|
8. | ALLOWANCE FOR LOAN LOSSES |
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 ASC Topic 310. 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 ASC Topic 310. 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 Companys 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) presenting the results of this process, quarterly, to the Asset Classification Committee and the Savings Banks 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, 2013 and 2012.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | ALLOWANCE FOR LOAN LOSSES (Continued) |
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on managements periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term.
The following is a summary of the changes in the allowance for loan losses:
2013 | 2012 | 2011 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Balance, July 1 |
$ | 385 | $ | 630 | $ | 645 | ||||||
Add: |
||||||||||||
Provision for loan losses |
(68 | ) | (104 | ) | (15 | ) | ||||||
Less: |
||||||||||||
Loans charged off |
10 | 141 | | |||||||||
|
|
|
|
|
|
|||||||
Balance, June 30 |
$ | 307 | $ | 385 | $ | 630 | ||||||
|
|
|
|
|
|
The following table summarizes the primary segments of the allowance for loan losses (ALLL), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2013 and June 30, 2012. Activity in the allowance is presented for the fiscal years ended June 30, 2013 and 2012.
As of June 30, 2013 | ||||||||||||||||||||||||||||||||
First Mortgage Loans | ||||||||||||||||||||||||||||||||
1 4 Family |
Construction | Land Acquisition & Development |
Multi- family |
Commercial | Consumer Loans |
Commercial Loans |
Total | |||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
Beginning ALLL Balance at June 30, 2012 |
$ | 73 | $ | 122 | $ | 21 | $ | 26 | $ | 76 | $ | 53 | $ | 14 | $ | 385 | ||||||||||||||||
Charge-offs |
| | (10 | ) | | | | | (10 | ) | ||||||||||||||||||||||
Recoveries |
| | | | | | | | ||||||||||||||||||||||||
Provisions |
(26 | ) | (5 | ) | (3 | ) | (12 | ) | (19 | ) | | (3 | ) | (68 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending ALLL Balance at June 30, 2013 |
$ | 47 | $ | 117 | $ | 8 | $ | 14 | $ | 57 | $ | 53 | $ | 11 | $ | 307 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Individually evaluated for impairment |
$ | | $ | 107 | $ | | $ | | $ | | $ | | $ | | $ | 107 | ||||||||||||||||
Collectively evaluated for impairment |
47 | 10 | 8 | 14 | 57 | 53 | 11 | 200 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 47 | $ | 117 | $ | 8 | $ | 14 | $ | 57 | $ | 53 | $ | 11 | $ | 307 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | ALLOWANCE FOR LOAN LOSSES (Continued) |
As of June 30, 2012 | ||||||||||||||||||||||||||||||||
First Mortgage Loans | ||||||||||||||||||||||||||||||||
1 4 Family |
Construction | Land Acquisition & Development |
Multi- family |
Commercial | Consumer Loans |
Commercial Loans |
Total | |||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||
Beginning ALLL Balance at June 30, 2011 |
$ | 87 | $ | 243 | $ | 55 | $ | 27 | $ | 79 | $ | 85 | $ | 54 | $ | 630 | ||||||||||||||||
Charge-offs |
| (141 | ) | | | | | | (141 | ) | ||||||||||||||||||||||
Recoveries |
| | | | | | | | ||||||||||||||||||||||||
Provisions |
(14 | ) | 20 | (34 | ) | (1 | ) | (3 | ) | (32 | ) | (40 | ) | (104 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Ending ALLL Balance at June 30, 2012 |
$ | 73 | $ | 122 | $ | 21 | $ | 26 | $ | 76 | $ | 53 | $ | 14 | $ | 385 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Individually evaluated for impairment |
$ | | $ | 105 | $ | | $ | | $ | | $ | | $ | | $ | 105 | ||||||||||||||||
Collectively evaluated for impairment |
73 | 17 | 21 | 26 | 76 | 53 | 14 | 280 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 73 | $ | 122 | $ | 21 | $ | 26 | $ | 76 | $ | 53 | $ | 14 | $ | 385 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. | ACCRUED INTEREST RECEIVABLE |
Accrued interest receivable consists of the following:
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Investment and mortgage-backed securities |
$ | 1,256 | $ | 1,440 | ||||
Loans receivable |
115 | 181 | ||||||
|
|
|
|
|||||
Total |
$ | 1,371 | $ | 1,621 | ||||
|
|
|
|
10. | FEDERAL HOME LOAN BANK STOCK |
The Companys subsidiary bank is a member of the FHLB system. As a member, the Savings Bank maintains an investment in the capital stock of the FHLB of Pittsburgh, at cost, in an amount not less than 1.0% of the unpaid principal balances of residential mortgage loans, 0.3% of total assets or approximately 5.0% of outstanding advances, if any due to the FHLB, whichever is greater, as calculated periodically by the FHLB. Purchases and redemptions of FHLB stock are made directly with the FHLB at par. In 2008, the FHLB suspended both the payment of dividends and the repurchase of excess capital stock. Beginning in the fourth quarter of calendar year 2010, the FHLB partially lifted the suspension with limited repurchases of excess stock. Beginning in the first quarter of calendar year 2012, the FHLB began paying dividends at an annualized rate of 0.10% on the average balance of stock held in the prior quarter. In subsequent quarters, the FHLB paid dividends at annualized rates between 0.10% and 0.43%. During fiscal years 2013 and 2012, the Bank received $19 thousand and $4 thousand, respectively, in dividends on its holdings of FHLB stock. This repurchase restriction could result in the Savings Banks investment in FHLB stock being greater than 5.0% of its outstanding notes payable to the FHLB.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. | PREMISES AND EQUIPMENT |
Major classifications of premises and equipment are summarized as follows:
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Land and improvements |
$ | 246 | $ | 246 | ||||
Buildings and improvements |
2,142 | 2,064 | ||||||
Furniture, fixtures, and equipment |
998 | 955 | ||||||
|
|
|
|
|||||
3,386 | 3,265 | |||||||
Less accumulated depreciation |
2,772 | 2,682 | ||||||
|
|
|
|
|||||
Total |
$ | 614 | $ | 583 | ||||
|
|
|
|
Depreciation charged to operations was $90 thousand, $84 thousand, and $100 thousand for the years ended June 30, 2013, 2012, and 2011, respectively.
12. | DEPOSITS |
Retail deposit accounts are summarized as follows:
2013 | 2012 | |||||||||||||||
Percent of | Percent of | |||||||||||||||
Amount | Portfolio | Amount | Portfolio | |||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Non-interest earning checking |
$ | 14,911 | 10.6 | % | $ | 15,642 | 11.0 | % | ||||||||
Interest-earning checking |
20,654 | 14.7 | 20,834 | 14.6 | ||||||||||||
Savings accounts |
41,808 | 29.8 | 39,770 | 28.0 | ||||||||||||
Money market accounts |
23,772 | 16.9 | 23,837 | 16.8 | ||||||||||||
Savings certificates |
38,829 | 27.6 | 41,508 | 29.2 | ||||||||||||
Advance payments by borrowers for taxes and insurance |
550 | 0.4 | 582 | 0.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 140,524 | 100.0 | % | $ | 142,173 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
The maturities of savings certificates at June 30, 2013, are summarized as follows:
(Dollars in Thousands) | |||||
Within one year |
$ | 29,231 | |||
Beyond one year but within two years |
4,998 | ||||
Beyond two years but within three years |
1,854 | ||||
Beyond three years but within four years |
1,661 | ||||
Beyond four years but within five years |
853 | ||||
Beyond five years |
232 | ||||
|
|
||||
Total |
$ | 38,829 | |||
|
|
Savings certificates with balances of $100 thousand or more amounted to $6.2 million and $5.4 million on June 30, 2013 and 2012, respectively.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. | DEPOSITS (Continued) |
At June 30, 2013 and June 30, 2012, the Savings Bank had no brokered CDs.
Interest expense by deposit category for the years ended June 30 is as follows:
2013 | 2012 | 2011 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Interest-earning checking |
$ | 5 | $ | 8 | $ | 8 | ||||||
Savings accounts |
39 | 61 | 76 | |||||||||
Money market accounts |
28 | 42 | 58 | |||||||||
Savings certificates |
303 | 425 | 768 | |||||||||
Advance payments by borrowers for taxes and insurance |
3 | 7 | 8 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 378 | $ | 543 | $ | 918 | ||||||
|
|
|
|
|
|
13. | FEDERAL HOME LOAN BANK ADVANCES |
The following table presents contractual maturities of FHLB long-term advances as of June 30:
Weighted- | Stated interest | |||||||||||||||||||||||||||
Maturity range | average | rate range | ||||||||||||||||||||||||||
Description |
from | to | interest rate 1 | from | to | 2013 | 2012 | |||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Convertible |
04/23/14 | 07/27/17 | 4.72 | % | 4.26 | % | 5.41 | % | $ | 17,500 | $ | 17,500 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total |
$ | 17,500 | $ | 17,500 | ||||||||||||||||||||||||
|
|
|
|
Maturities of FHLB long-term advances at June 30, 2013, are summarized as follows:
Maturing During Fiscal Year Ended June 30: |
Amount | Weighted- Average Interest Rate |
||||||
(Dollars in Thousands) | ||||||||
2014 |
$ | 5,000 | 5.41 | % | ||||
2015 |
| | ||||||
2016 |
2,500 | 5.16 | ||||||
2017 |
| | ||||||
2018 and thereafter |
10,000 | 4.26 | ||||||
|
|
|||||||
Total |
$ | 17,500 | 4.72 | % | ||||
|
|
The terms of the convertible advances reset to the three-month London Interbank Offered Rate (LIBOR) and have various spreads and call dates of three months. The FHLB has the right to convert from a fixed
1 | For fiscal year ended 2013. |
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. | FEDERAL HOME LOAN BANK ADVANCES (Continued) |
rate to a predetermined floating rate on its conversion date or quarterly thereafter. Should the advance be converted, the Company has the right to pay off the advance without penalty. The FHLB advances are secured by the Companys FHLB stock, investment securities and loans, and are subject to substantial prepayment penalties.
The Company also utilized revolving and short-term FHLB advances. Short-term FHLB advances generally mature within 90 days, while revolving FHLB advances may be repaid by the Company without penalty. The following table presents information regarding such advances as of June 30:
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
FHLB revolving and short-term advances: |
||||||||
Ending balance |
$ | 96,712 | $ | 79,270 | ||||
Average balance during the year |
81,995 | 61,515 | ||||||
Maximum month-end balance during the year |
105,438 | 106,795 | ||||||
Average interest rate during the year |
0.23 | % | 0.21 | % | ||||
Weighted-average rate at year-end |
0.23 | % | 0.22 | % |
At June 30, 2013, the Company had remaining borrowing capacity with the FHLB of approximately $20.1 million.
The FHLB advances are secured by the Companys FHLB stock, loans, and mortgage-backed securities held in safekeeping at the FHLB. FHLB advances are subject to substantial prepayment penalties.
14. | OTHER BORROWINGS |
Other borrowings include securities sold under agreements to repurchase with securities brokers and Federal Reserve Bank short-term borrowings. These borrowings generally mature within 1 to 90 days from the transaction date and require a collateral pledge. The following tables present information regarding other borrowings as of June 30:
OTHER SHORT-TERM BORROWINGS
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Ending balance |
$ | | $ | | ||||
Average balance during the year |
| 90 | ||||||
Maximum month-end balance during the year |
| | ||||||
Average interest rate during the year |
| % | 0.35 | % | ||||
Weighted-average rate at year-end |
| % | | % |
FEDERAL RESERVE BANK SHORT-TERM BORROWINGS
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Ending balance |
$ | | $ | | ||||
Average balance during the year |
| 4 | ||||||
Maximum month-end balance during the year |
| | ||||||
Average interest rate during the year |
| % | 0.75 | % | ||||
Weighted-average rate at year-end |
| % | | % |
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. | COMMITMENTS AND CONTINGENT LIABILITIES |
Loan Commitments
In the normal course of business, there are various commitments that are not reflected in the Companys financial statements. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The Companys exposure to credit loss in the event of nonperformance by the other parties to the financial instruments is represented by the contractual amounts as disclosed. Losses, if any, are charged to the allowance losses on off-balance sheet items. Management minimizes its exposure to credit loss under these commitments by subjecting them to credit approval, review procedures, and collateral requirements, as deemed necessary. Various loan commitments totaling $13.1 million and $11.5 million at June 30, 2013 and 2012, respectively, represent financial instruments with off-balance sheet risk. The commitments outstanding at June 30, 2013, contractually mature in less than one year.
Loan commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The same credit policies are used in making commitments and conditional obligations as for on-balance sheet instruments. Generally, collateral, usually in the form of real estate, is required to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. These commitments are composed primarily of the undisbursed portion of construction and land development loans (Note 7), residential, commercial real estate, and consumer loan originations.
The exposure to loss under these commitments is limited by subjecting them to credit approval and monitoring procedures. Substantially all commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of the loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses.
Litigation
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 financial condition of WVS.
16. | REGULATORY CAPITAL |
Federal regulations require the Company and Savings Bank to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Total and Tier I Capital to Risk-Weighted Assets and of Tier I Capital to Average Total Assets.
In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) established five capital categories ranging from well capitalized to critically undercapitalized. Should any institution fail to meet the requirements to be considered adequately capitalized, it would become subject to a series of increasingly restrictive regulatory actions.
As of June 30, 2013 and 2012, the FDIC categorized the Savings Bank as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Capital Ratios must be at least 10 percent, 6 percent, and 5 percent, respectively.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. | REGULATORY CAPITAL (Continued) |
The Companys and Savings Banks actual capital ratios are presented in the following tables, which show that both met all regulatory capital requirements.
June 30, 2013 | ||||||||||||||||
WVS | West View | |||||||||||||||
Amount | Ratio | Amount | Ratio | |||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Total Capital (to Risk-Weighted Assets) |
||||||||||||||||
Actual |
$ | 32,926 | 20.24 | % | $ | 30,807 | 19.33 | % | ||||||||
To Be Well Capitalized |
16,266 | 10.0 | 15,936 | 10.0 | ||||||||||||
For Capital Adequacy Purposes |
13,013 | 8.0 | 12,749 | 8.0 | ||||||||||||
Tier I Capital (to Risk-Weighted Assets) |
||||||||||||||||
Actual |
$ | 32,570 | 20.02 | % | $ | 30,451 | 19.11 | % | ||||||||
To Be Well Capitalized |
9,759 | 6.0 | 9,562 | 6.0 | ||||||||||||
For Capital Adequacy Purposes |
6,506 | 4.0 | 6,374 | 4.0 | ||||||||||||
Tier I Capital (to Average Total Assets) |
||||||||||||||||
Actual |
$ | 32,570 | 11.88 | % | $ | 30,451 | 11.11 | % | ||||||||
To Be Well Capitalized |
13,712 | 5.0 | 13,707 | 5.0 | ||||||||||||
For Capital Adequacy Purposes |
10,970 | 4.0 | 10,966 | 4.0 | ||||||||||||
June 30, 2012 | ||||||||||||||||
WVS | West View | |||||||||||||||
Amount | Ratio | Amount | Ratio | |||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Total Capital (to Risk-Weighted Assets) |
||||||||||||||||
Actual |
$ | 32,211 | 20.69 | % | $ | 30,803 | 19.80 | % | ||||||||
To Be Well Capitalized |
15,566 | 10.00 | 15,559 | 10.00 | ||||||||||||
For Capital Adequacy Purposes |
12,405 | 8.00 | 12,447 | 8.00 | ||||||||||||
Tier I Capital (to Risk-Weighted Assets) |
||||||||||||||||
Actual |
$ | 31,798 | 20.43 | % | $ | 30,390 | 19.53 | % | ||||||||
To Be Well Capitalized |
9,339 | 6.00 | 9,335 | 6.00 | ||||||||||||
For Capital Adequacy Purposes |
6,202 | 4.00 | 6,224 | 4.00 | ||||||||||||
Tier I Capital (to Average Total Assets) |
||||||||||||||||
Actual |
$ | 31,798 | 11.14 | % | $ | 30,390 | 10.67 | % | ||||||||
To Be Well Capitalized |
14,272 | 5.00 | 14,244 | 5.00 | ||||||||||||
For Capital Adequacy Purposes |
11,418 | 4.00 | 11,395 | 4.00 |
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. | STOCK BENEFIT PLANS |
Stock Option Plan
The Company maintains the 2008 Stock Incentive Plan for the directors, officers, and employees. The stock options granted typically have an expiration term of ten years, subject to certain extensions and early terminations. The per share exercise price of an incentive stock option shall at a minimum equal the fair market value of a share of common stock on the date the option is granted. The per share exercise price of a compensatory stock option granted shall at least equal the greater of par value or 100 percent of the fair market value of a share of common stock on the date the option is granted. Proceeds from the exercise of the stock options are credited to common stock for the aggregate par value and the excess is credited to paid-in capital.
The following table presents information related to the outstanding options:
Officers and | Weighted- | |||||||||||
Employees | Directors | Average | ||||||||||
Stock | Stock | Exercise | ||||||||||
Options | Options | Price | ||||||||||
Outstanding, June 30, 2010 |
87,019 | 38,108 | $ | 16.20 | ||||||||
Granted |
| | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
| 303 | ||||||||||
|
|
|
|
|||||||||
Outstanding, June 30, 2011 |
87,019 | 37,805 | $ | 16.20 | ||||||||
Granted |
| | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
| 305 | ||||||||||
|
|
|
|
|||||||||
Outstanding, June 30, 2012 |
87,019 | 37,500 | $ | 16.20 | ||||||||
Granted |
| | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
10,000 | | ||||||||||
|
|
|
|
|||||||||
Outstanding, June 30, 2013 |
77,019 | 37,500 | $ | 16.20 | ||||||||
|
|
|
|
|||||||||
Exercisable at year-end |
57,290 | 30,000 | $ | 16.20 | ||||||||
|
|
|
|
|||||||||
Available for future grant |
36,981 | 500 | ||||||||||
|
|
|
|
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. | STOCK BENEFIT PLANS (Continued) |
Stock Option Plan (Continued)
At June 30, 2013, for officers and employees there were 77,019 options outstanding and 57,290 options exercisable, with a weighted-average exercise price of $16.20, and a weighted-average remaining contractual life of 5.42 years. At June 30, 2012 there were 87,019 options outstanding and 50,967 options exercisable for officers and employees, with a weighted-average price of $16.20, and a weighted-average remaining contractual life of 6.49 years.
There were also 37,500 options outstanding and 30,000 options exercisable for directors with a weighted-average exercise price of $16.20, and a weighted-average remaining contractual life of 5.25 years. At June 30, 2012 there were 37,500 options outstanding and 22,500 options exercisable for directors, with a weighted-average price of $16.20, and a weighted-average remaining contractual life of 6.25 years.
Employee Stock Ownership Plan (ESOP)
WVS maintains an ESOP for the benefit of officers and Savings Bank employees who have met certain eligibility requirements related to age and length of service. Compensation expense for the ESOP was $115 thousand, $152 thousand, and $150 thousand for the years ended June 30, 2013, 2012, and 2011, respectively. Total ESOP shares as of June 30, 2013 and 2012, were 259,456 and 258,706, respectively.
18. | DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS |
Profit Sharing Plan
The Company maintains a non-contributory profit sharing 401(k) plan (the Plan) for its officers and employees who have met the age and length of service requirements. The Plan is a defined contribution plan with the contributions based on a percentage of salaries of the Plan participants. The Company made no contributions to the Plan for the three years ended June 30, 2013, 2012, and 2011.
Directors Deferred Compensation Plan
The Company maintains a deferred compensation plan (the Plan) for directors who elect to defer all or a portion of their directors fees. Deferred fees are paid to the participants in installments commencing in the year following the year the individual is no longer a member of the Board of Directors.
The Plan allows for the deferred amounts to be paid in shares of common stock at the prevailing market price on the date of distribution. For fiscal years ended June 30, 2013, 2012, and 2011, 1,731, 1,731, and 1,731 shares, respectively, were held by the Plan.
19. | INCOME TAXES |
The provision for income taxes consists of:
2013 | 2012 | 2011 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Currently payable: |
||||||||||||
Federal |
$ | 284 | $ | 575 | $ | 59 | ||||||
State |
6 | 76 | 134 | |||||||||
|
|
|
|
|
|
|||||||
290 | 651 | 193 | ||||||||||
Deferred |
252 | 251 | 269 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 542 | $ | 902 | $ | 462 | ||||||
|
|
|
|
|
|
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. | INCOME TAXES (Continued) |
In addition to income taxes applicable to income before taxes in the Consolidated Statement of Income, the following income tax amounts were recorded to stockholders equity during the years ended June 30:
2013 | 2012 | 2011 | ||||||||||
|
|
|||||||||||
(Dollars in Thousands) | ||||||||||||
Net unrealized gain on securities available for sale |
$ | (47 | ) | $ | 4 | $ | 44 | |||||
Net non-credit losses on securities with OTTI |
(285 | ) | (232 | ) | (256 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | (332 | ) | $ | (228 | ) | $ | (212 | ) | ||||
|
|
|
|
|
|
The following temporary differences gave rise to the net deferred tax assets at June 30:
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 108 | $ | 131 | ||||
Deferred compensation |
87 | 91 | ||||||
Reserve for uncollected interest |
62 | 62 | ||||||
Reserve for off-balance sheet commitments |
17 | 10 | ||||||
OTTI other impairment |
423 | 708 | ||||||
OTTI credit impairment |
115 | 111 | ||||||
Net unrealized loss on securities available for sale |
| 6 | ||||||
Other |
82 | 50 | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
894 | 1,169 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Net unrealized gain on securities available for sale |
41 | | ||||||
Deferred origination fees, net |
81 | 94 | ||||||
Depreciation reserve |
23 | 27 | ||||||
Other |
1 | 1 | ||||||
|
|
|
|
|||||
Total gross deferred tax liabilities |
146 | 122 | ||||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 748 | $ | 1,047 | ||||
|
|
|
|
No valuation allowance was established at June 30, 2013 and 2012, in view of the Companys ability to carryback to taxes paid in previous years, future anticipated taxable income, which is evidenced by the Companys earnings potential, and deferred tax liabilities at June 30.
The Company and its subsidiary file a consolidated federal income tax return. Prior to 1996, the Savings Bank was permitted under the Internal Revenue Code to establish a tax reserve for bad debts, and to make annual additions within specified limitations which may have been deducted in arriving at its taxable income. Subsequent to 1995, the Savings Banks bad debt deduction may be computed using an amount based on its actual loss experience (the experience method).
U.S. generally accepted accounting principles prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. | INCOME TAXES (Continued) |
50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statement of Income. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2009.
The following is a reconciliation between the actual provision for income taxes and the amount of income taxes which would have been provided at federal statutory rates for the years ended June 30:
2013 | 2012 | 2011 | ||||||||||||||||||||||
Amount | % of Pretax Income |
Amount | % of Pretax |
Amount | % of Pretax Income |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Provision at statutory rate |
$ | 551 | 34.0 | % | $ | 783 | 34.0 | % | $ | 574 | 34.0 | % | ||||||||||||
State income tax, net of federal tax benefit |
4 | 0.2 | 50 | 2.2 | 88 | 5.2 | ||||||||||||||||||
Tax exempt income |
(2 | ) | (0.1 | ) | (31 | ) | (1.3 | ) | (72 | ) | (4.3 | ) | ||||||||||||
Other, net |
(11 | ) | (0.7 | ) | 100 | 4.3 | (128 | ) | (7.5 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Actual tax expense and effective rate |
$ | 542 | 33.4 | % | $ | 902 | 39.1 | % | $ | 462 | 27.4 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Savings Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax, which is calculated at 11.5 percent of earnings.
Prior to the enactment of the Small Business Job Protection Act, the Company accumulated approximately $3.9 million of retained earnings, which represent allocations of income to bad debt deductions for tax purposes only. Since there is no amount that represents the accumulated bad debt reserves subsequent to 1987, no provision for federal income tax has been made for such amount. If any portion of this amount is used other than to absorb loan losses (which is not anticipated), the amount will be subject to federal income tax at the current corporate rate.
20. | REGULATORY MATTERS |
Cash and Due From Banks
The Federal Reserve requires the Savings Bank to maintain certain reserve balances. The required reserves are computed by applying prescribed ratios to the Savings Banks average deposit transaction account balances. As of June 30, 2013 and 2012, the Savings Bank had required reserves of $171 thousand and $237 thousand, respectively. The required reserves are held in the form of vault cash and an interest-bearing depository balance maintained directly with the Federal Reserve.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. | REGULATORY MATTERS (Continued) |
Loans
Federal law prohibits the Company from borrowing from the Savings Bank unless the loans are secured by specific obligations. Further, such secured loans are limited in amount to 10 percent of the Savings Banks capital surplus.
Dividend Restrictions
The Savings Bank is subject to the Pennsylvania Banking Code, which restricts the availability of surplus for dividend purposes. At June 30, 2013, surplus funds of $3.4 million were not available for dividends.
21. | FAIR VALUE MEASUREMENTS |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:
Level I: |
Quoted prices are available in active markets for identical assets or liabilities as of the reported date. | |
Level II: |
Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed. | |
Level III: |
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using managements best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
Assets Measured at Fair Value on a Recurring Basis
Investment Securities Available-for-Sale
Fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities relationship to other benchmark quoted securities. The Company has no Level I or Level III investment securities. Level II investment securities were primarily comprised of investment-grade corporate bonds and U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.
The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of June 30, 2013 and June 30, 2012, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. | FAIR VALUE MEASUREMENTS (Continued) |
Assets Measured at Fair Value on a Recurring Basis (Continued)
June 30, 2013 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets measured on a recurring basis: |
||||||||||||||||
Investment securities available for sale: |
||||||||||||||||
Corporate securities |
$ | | $ | 73,465 | $ | | $ | 73,465 | ||||||||
Foreign debt securities (1) |
| 3,721 | | 3,721 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | 77,186 | $ | | $ | 77,186 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
June 30, 2012 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets measured on a recurring basis: |
||||||||||||||||
Investment securities available for sale: |
||||||||||||||||
Corporate securities |
$ | | $ | 55,952 | $ | | $ | 55,952 | ||||||||
Foreign debt securities (1) |
| 1,668 | | 1,668 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | 57,620 | $ | | $ | 57,620 | |||||||||
|
|
|
|
|
|
|
|
(1) | U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers. |
Assets Measured at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.
Impaired Loans
Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information. The Company has no Level I or Level II impaired loans. Level III impaired loans were primarily comprised of one single-family residential construction loan, one land loan, and one home equity line of credit.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. | FAIR VALUE MEASUREMENTS (Continued) |
Assets Measured at Fair Value on a Nonrecurring Basis (Continued)
Real Estate Owned
Real estate acquired through foreclosure or deed in lieu of foreclosure is carried at fair value less estimated costs to sell. Any reduction from the carrying value of the related loan to fair value at the time of acquisition is accounted for as a loan loss. Any subsequent reduction in fair market value is reflected as a valuation allowance through a charge to income. Costs of significant property improvements are capitalized, whereas costs relating to holding and maintaining the property, are charged to expense. The Company has no Level I, Level II, or Level III real estate owned at June 30, 2013.
The following tables present the assets reported on a non-recurring basis on the consolidated balance sheet at their fair value as of June 30, 2013 and June 30, 2012, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
June 30, 2013 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets measured on a non-recurring basis: |
||||||||||||||||
Impaired loans |
$ | | $ | | $ | 1,024 | $ | 1,024 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | | $ | 1,024 | $ | 1,024 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
June 30, 2012 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets measured on a non-recurring basis: |
||||||||||||||||
Impaired loans |
$ | | $ | | $ | 746 | $ | 746 | ||||||||
Real estate owned |
| | 235 | 235 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | | $ | 981 | $ | 981 | ||||||||
|
|
|
|
|
|
|
|
For Level III assets measured at fair value on a recurring and non-recurring basis as of June 30, 2013 and 2012, the significant observable inputs used in the fair value measurements were as follows:
Fair Value at | Valuation Technique |
Significant Unobservable Inputs |
Significant Unobservable Input Value | |||||||||||
June 30, 2013 |
June 30, 2012 |
|||||||||||||
|
|
|
|
| ||||||||||
(Dollars in Thousands) | ||||||||||||||
Impaired loans |
$ | 1,024 | $ | 746 | Appraisal of collateral | Discounted appraisal | 1.0% to 15.0% | |||||||
Real estate owned |
$ | | $ | 235 | Appraisal of collateral | Estimated costs to sell |
20% |
When evaluating the value of the collateral on impaired loans, the Company will consider the age of the most current appraisal, and discount the appraised value from 1.0% to 15.0%.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. | FAIR VALUE MEASUREMENTS (Continued) |
Assets Measured at Fair Value on a Nonrecurring Basis (Continued)
The Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation model for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly.
22. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The carrying amounts and estimated fair values at June 30 are as follows:
June 30, 2013 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
Amount | Value | Level I | Level II | Level III | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 1,927 | $ | 1,927 | $ | 1,927 | $ | | $ | | ||||||||||
Certificates of deposit |
598 | 598 | 598 | | | |||||||||||||||
Investment securities available for sale |
77,186 | 77,186 | | 77,186 | | |||||||||||||||
Investment securities held to maturity |
26,420 | 26,956 | | 26,956 | | |||||||||||||||
Mortgage-backed securities held to maturity: |
||||||||||||||||||||
Agency |
135,621 | 135,733 | | 135,733 | | |||||||||||||||
Private-label |
3,647 | 4,265 | | 109 | 4,156 | |||||||||||||||
Net loans receivable |
31,531 | 33,194 | | | 33,194 | |||||||||||||||
Accrued interest receivable |
1,371 | 1,371 | 1,371 | | | |||||||||||||||
FHLB stock |
5,682 | 5,682 | 5,682 | | | |||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||
Deposits: |
||||||||||||||||||||
Non-interest bearing deposits |
$ | 14,911 | $ | 14,911 | $ | 14,911 | $ | | $ | | ||||||||||
NOW accounts |
20,654 | 20,654 | 20,654 | | | |||||||||||||||
Savings accounts |
41,808 | 41,808 | 41,808 | | | |||||||||||||||
Money market accounts |
23,772 | 23,772 | 23,772 | | | |||||||||||||||
Certificates of deposit |
38,829 | 38,885 | | | 38,885 | |||||||||||||||
Advance payments by borrowers for taxes and insurance |
550 | 550 | 550 | | | |||||||||||||||
FHLB long-term advances |
17,500 | 18,525 | | | 18,525 | |||||||||||||||
FHLB short-term advances |
96,712 | 96,712 | 96,712 | | | |||||||||||||||
Accrued interest payable |
210 | 210 | 210 | | |
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) |
June 30, 2012 | ||||||||||||||||||||
Carrying Amount |
Fair Value |
Level I | Level II | Level III | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 2,506 | $ | 2,506 | $ | 2,506 | $ | | $ | | ||||||||||
Certificates of deposit |
846 | 846 | 846 | | | |||||||||||||||
Investment securities available for sale |
57,620 | 57,620 | | 57,620 | | |||||||||||||||
Investment securities held to maturity |
82,400 | 84,059 | | 84,059 | | |||||||||||||||
Mortgage-backed securities held to maturity: |
| |||||||||||||||||||
Agency |
69,146 | 69,221 | | 69,221 | | |||||||||||||||
Private-label |
9,940 | 10,592 | | 1,148 | 9,444 | |||||||||||||||
Net loans receivable |
39,443 | 43,942 | | | 43,942 | |||||||||||||||
Accrued interest receivable |
1,621 | 1,621 | 1,621 | | | |||||||||||||||
FHLB stock |
7,595 | 7,595 | 7,595 | | | |||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||
Deposits: |
||||||||||||||||||||
Non-interest bearing deposits |
$ | 15,642 | $ | 15,642 | $ | 15,642 | $ | | $ | | ||||||||||
NOW accounts |
20,834 | 20,834 | 20,834 | | | |||||||||||||||
Savings accounts |
39,770 | 39,770 | 39,770 | | | |||||||||||||||
Money market accounts |
23,837 | 23,837 | 23,837 | | | |||||||||||||||
Certificates of deposit |
41,508 | 41,805 | | | 41,805 | |||||||||||||||
Advance payments by borrowers for taxes and insurance |
582 | 582 | 582 | | | |||||||||||||||
FHLB long-term advances |
17,500 | 19,187 | | | 19,187 | |||||||||||||||
FHLB short-term advances |
79,270 | 79,270 | 79,270 | | | |||||||||||||||
Accrued interest payable |
257 | 257 | 257 | | |
Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from or to a second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial instruments should be based upon managements judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates, which are inherently uncertain, the resulting estimated values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated values are based may have a significant impact on the resulting estimated values.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) |
Estimated fair values have been determined by the Company using the best available data, as generally provided in internal Savings Bank regulatory, or third party valuation reports, using an estimation methodology suitable for each category of financial instruments. The estimation methodologies used are as follows:
Cash and Cash Equivalents, Certificates of Deposit, Accrued Interest Receivable and Payable, and FHLB Short-term Advances
The fair value approximates the current carrying value.
Investment Securities, Mortgage-Backed Securities, and FHLB Stock
The fair value of investment and mortgage-backed securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. For discussion of valuation of private-label CMOs, see Note 6 Unrealized Losses on Securities. Since the FHLB stock is not actively traded on a secondary market and held exclusively by member financial institutions, the estimated fair market value approximates the carrying amount.
Net Loans Receivable and Deposits
Fair value for consumer mortgage loans is estimated using market quotes or discounting contractual cash flows for prepayment estimates. Discount rates were obtained from secondary market sources, adjusted to reflect differences in servicing, credit, and other characteristics.
The estimated fair values for consumer, fixed-rate commercial, and multi-family real estate loans are estimated by discounting contractual cash flows for prepayment estimates. Discount rates are based upon rates generally charged for such loans with similar credit characteristics.
The estimated fair value for nonperforming loans is the appraised value of the underlying collateral adjusted for estimated credit risk.
Demand, savings, and money market deposit accounts are reported at book value. The fair value of certificates of deposit is based upon the discounted value of the contractual cash flows. The discount rate is estimated using average market rates for deposits with similar average terms.
FHLB Long-term Advances
The fair values of fixed-rate advances are estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount on variable rate advances approximates their fair value.
Commitments to Extend Credit
These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. | PARENT COMPANY |
Condensed financial information of WVS Financial Corp. is as follows:
CONDENSED BALANCE SHEET
June 30, | ||||||||
2013 | 2012 | |||||||
|
|
|||||||
(Dollars in Thousands) | ||||||||
ASSETS |
||||||||
Interest-earning deposits with subsidiary bank |
$ | 2,052 | $ | 1,341 | ||||
Investment in subsidiary bank |
29,708 | 29,005 | ||||||
Other assets |
80 | 73 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 31,840 | $ | 30,419 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Other liabilities |
$ | 12 | $ | 6 | ||||
Stockholders equity |
31,828 | 30,413 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 31,840 | $ | 30,419 | ||||
|
|
|
|
CONDENSED STATEMENT OF INCOME
Year Ended June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
|
|
|||||||||||
(Dollars in Thousands) | ||||||||||||
INCOME |
||||||||||||
Investment and mortgage-backed securities |
$ | 2 | $ | 1 | $ | | ||||||
Dividend from subsidiary |
1,085 | 637 | | |||||||||
Interest-earning deposits with subsidiary bank |
2 | 2 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total income |
1,089 | 640 | 4 | |||||||||
|
|
|
|
|
|
|||||||
OTHER OPERATING EXPENSE |
120 | 102 | 100 | |||||||||
|
|
|
|
|
|
|||||||
Income (loss) before equity in undistributed earnings of subsidiary |
969 | 538 | (96 | ) | ||||||||
Equity in undistributed earnings of subsidiary |
60 | 812 | 1,327 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
1,029 | 1,351 | 1,231 | |||||||||
Income tax expense (benefit) |
(51 | ) | (51 | ) | 5 | |||||||
|
|
|
|
|
|
|||||||
NET INCOME |
$ | 1,080 | $ | 1,402 | $ | 1,226 | ||||||
|
|
|
|
|
|
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. | PARENT COMPANY (Continued) |
Year Ended June 30, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
|
|
|||||||||||
(Dollars in Thousands) | ||||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net income |
$ | 1,080 | $ | 1,402 | $ | 1,226 | ||||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
||||||||||||
Equity in undistributed earnings of subsidiary |
(60 | ) | (812 | ) | (1,327 | ) | ||||||
Other, net |
19 | (5 | ) | 32 | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used for) operating activities |
1,039 | 585 | (69 | ) | ||||||||
|
|
|
|
|
|
|||||||
INVESTING ACTIVITIES |
||||||||||||
Available for sale: |
||||||||||||
Purchases of investment and mortgage-backed securities |
(460 | ) | (999 | ) | | |||||||
Proceeds from repayments of investment and mortgage-backed securities |
460 | 1,000 | | |||||||||
Purchases of certificates of deposit |
| (349 | ) | | ||||||||
Maturities of certificates of deposit |
| 349 | | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by investing activities |
| 1 | | |||||||||
|
|
|
|
|
|
|||||||
FINANCING ACTIVITIES |
||||||||||||
Cash dividends paid |
(328 | ) | (330 | ) | (576 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used for financing activities |
(328 | ) | (330 | ) | (576 | ) | ||||||
|
|
|
|
|
|
|||||||
Increase (decrease) in cash and cash equivalents |
711 | 256 | (645 | ) | ||||||||
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR |
1,341 | 1,085 | 1,730 | |||||||||
|
|
|
|
|
|
|||||||
CASH AND CASH EQUIVALENTS END OF YEAR |
$ | 2,052 | $ | 1,341 | $ | 1,085 | ||||||
|
|
|
|
|
|
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24. | SELECTED QUARTERLY FINANCIAL DATA (unaudited) |
Three Months Ended | ||||||||||||||||
September | December | March | June | |||||||||||||
2012 | 2012 | 2013 | 2013 | |||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands, except per share data) | ||||||||||||||||
Total interest and dividend income |
$ | 1,617 | $ | 1,554 | $ | 1,370 | $ | 1,418 | ||||||||
Total interest expense |
372 | 365 | 331 | 339 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
1,245 | 1,189 | 1,039 | 1,079 | ||||||||||||
Provision for (recovery of) loan losses |
(24 | ) | (25 | ) | (24 | ) | 5 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for (recovery of) loan losses |
1,269 | 1,214 | 1,063 | 1,074 | ||||||||||||
Total noninterest income |
130 | 225 | 74 | 144 | ||||||||||||
Total noninterest expense |
933 | 913 | 868 | 857 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
466 | 526 | 269 | 361 | ||||||||||||
Income taxes |
81 | 201 | 130 | 130 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 385 | $ | 325 | $ | 139 | $ | 231 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Per share data: |
||||||||||||||||
Net income |
||||||||||||||||
Basic |
$ | 0.19 | $ | 0.16 | $ | 0.07 | $ | 0.10 | ||||||||
Diluted |
0.19 | 0.16 | 0.07 | 0.10 | ||||||||||||
Average shares outstanding |
||||||||||||||||
Basic |
2,057,930 | 2,057,930 | 2,057,930 | 2,057,930 | ||||||||||||
Diluted |
2,057,930 | 2,057,930 | 2,057,930 | 2,057,930 |
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24. | SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued) |
Three Months Ended | ||||||||||||||||
September 2011 |
December 2011 |
March 2012 |
June 2012 |
|||||||||||||
|
|
|||||||||||||||
(Dollars in Thousands, except per share data) | ||||||||||||||||
Total interest and dividend income |
$ | 1,867 | $ | 1,643 | $ | 1,748 | $ | 1,795 | ||||||||
Total interest expense |
407 | 369 | 385 | 383 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
1,460 | 1,274 | 1,363 | 1,412 | ||||||||||||
Provision for (recovery of) loan losses |
(19 | ) | (20 | ) | (11 | ) | (54 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for (recovery of) loan losses |
1,479 | 1,294 | 1,374 | 1,466 | ||||||||||||
Total noninterest income |
101 | 18 | 101 | 129 | ||||||||||||
Total noninterest expense |
977 | 882 | 878 | 921 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
603 | 430 | 597 | 674 | ||||||||||||
Income taxes |
193 | 226 | 215 | 268 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 410 | $ | 204 | $ | 382 | $ | 406 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Per share data: |
||||||||||||||||
Net income |
||||||||||||||||
Basic |
$ | 0.20 | $ | 0.10 | $ | 0.19 | $ | 0.19 | ||||||||
Diluted |
0.20 | 0.10 | 0.19 | 0.19 | ||||||||||||
Average shares outstanding |
||||||||||||||||
Basic |
2,057,930 | 2,057,930 | 2,057,930 | 2,057,930 | ||||||||||||
Diluted |
2,057,930 | 2,057,930 | 2,057,930 | 2,057,930 |
75
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
WVS Financial Corp.s common stock is traded on the Nasdaq Global MarketSM under the symbol WVFC.
The following table sets forth the high and low market prices of a share of common stock, and cash dividends declared per share, for the periods indicated.
Market Price | Cash
Dividends Declared |
|||||||||||
Quarter Ended |
High | Low | ||||||||||
June 2013 |
$ | 13.63 | $ | 10.25 | $ | 0.04 | ||||||
March 2013 |
11.00 | 8.48 | 0.04 | |||||||||
December 2012 |
8.98 | 6.76 | 0.04 | |||||||||
September 2012 |
8.86 | 6.82 | 0.04 | |||||||||
June 2012 |
$ | 8.42 | $ | 6.63 | $ | 0.04 | ||||||
March 2012 |
9.00 | 8.10 | 0.04 | |||||||||
December 2011 |
10.51 | 8.03 | 0.04 | |||||||||
September 2011 |
9.95 | 8.37 | 0.04 |
There were seven Nasdaq Market Makers in the Companys common stock as of June 30, 2013: Knight Execution & Clearing Services, LLC; UBS Securities LLC; Stifel Nicolaus & Co.; Credit Suisse Securities USA; Automated Trading Desk; Citadel Deriviatives Group LLC.; and Susquehanna Capital Securities.
According to the records of the Companys transfer agent, there were approximately 514 shareholders of record at August 30, 2013. This does not include any persons or entities who hold their stock in nominee or street name through various brokerage firms.
Dividends are subject to determination and declaration by the Board of Directors, which takes into account the Companys financial condition, statutory and regulatory restrictions, general economic condition and other factors.
76
WVS FINANCIAL CORP.
CORPORATE OFFICES
WVS FINANCIAL CORP. WEST VIEW SAVINGS BANK
9001 Perry Highway Pittsburgh, PA 15237
412-364-1911
The members of the Board of Directors serve in that capacity for both the Company and the Savings Bank.
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 33-91684 and 333-155647 of WVS Financial Corp. on Form S-8 of our report dated September 19, 2013, relating to our audit of the consolidated financial statements, which appear in the Annual Report on Form 10-K of WVS Financial Corp. for the year ended June 30, 2013.
/s/ S.R. Snodgrass, A.C. |
Wexford, Pennsylvania |
September 19, 2013 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
and Section 302 of the Sarbanes-Oxley Act of 2002
I, David J. Bursic, certify that:
1. | I have reviewed this annual report on Form 10-K of WVS Financial Corp. (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 19, 2013 | /s/ David J. Bursic | |||
David J. Bursic | ||||
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
and Section 302 of the Sarbanes-Oxley Act of 2002
I, Keith A. Simpson, certify that:
1. | I have reviewed this annual report on Form 10-K of WVS Financial Corp. (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 19, 2013 | /s/ Keith A. Simpson | |||
Keith A. Simpson | ||||
Vice-President and Chief Accounting Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
The undersigned executive officer of WVS Financial Corp. (the Registrant) hereby certifies that the Registrants Annual Report on Form 10-K for the year ended June 30, 2013 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ David J. Bursic |
David J. Bursic |
President and Chief Executive Officer |
Date: September 19, 2013
Note: | A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to WVS Financial Corp. and will be retained by WVS Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request. |
EXHIBIT 32.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
The undersigned executive officer of WVS Financial Corp. (the Registrant) hereby certifies that the Registrants Annual Report on Form 10-K for the year ended June 30, 2013 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ Keith A. Simpson |
Keith A. Simpson |
Vice-President and Chief Accounting Officer |
Date: September 19, 2013
Note: | A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to WVS Financial Corp. and will be retained by WVS Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request. |
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FEDERAL HOME LOAN BANK ADVANCES (Schedule of Federal Home Loan Bank Short-Term Advances) (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
FHLB revolving and short-term advances: | ||
Ending balance | $ 96,712 | $ 79,270 |
Average balance during the year | 81,995 | 61,515 |
Maximum month-end balance during the year | 105,438 | 106,795 |
Average interest rate during the year | 0.23% | 0.21% |
Weighted-average rate at year-end | 0.23% | 0.22% |
Remaining borrowing capacity | $ 20,100 |
ALLOWANCE FOR LOAN LOSSES (Schedule of Primary Segments of Allowance for Loan Losses) (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2013
1 - 4 Family [Member]
|
Jun. 30, 2012
1 - 4 Family [Member]
|
Jun. 30, 2010
1 - 4 Family [Member]
|
Jun. 30, 2013
Construction [Member]
|
Jun. 30, 2012
Construction [Member]
|
Jun. 30, 2010
Construction [Member]
|
Jun. 30, 2013
Land Acquisition & Development [Member]
|
Jun. 30, 2012
Land Acquisition & Development [Member]
|
Jun. 30, 2010
Land Acquisition & Development [Member]
|
Jun. 30, 2013
Multi-family [Member]
|
Jun. 30, 2012
Multi-family [Member]
|
Jun. 30, 2010
Multi-family [Member]
|
Jun. 30, 2013
Commercial [Member]
|
Jun. 30, 2012
Commercial [Member]
|
Jun. 30, 2010
Commercial [Member]
|
Jun. 30, 2013
Consumer Loans [Member]
|
Jun. 30, 2012
Consumer Loans [Member]
|
Jun. 30, 2010
Consumer Loans [Member]
|
Jun. 30, 2013
Commercial Loans [Member]
|
Jun. 30, 2012
Commercial Loans [Member]
|
Jun. 30, 2010
Commercial Loans [Member]
|
|
Summary of the changes in the allowance for loan losses: | ||||||||||||||||||||||||
ALLL balance at June 30 | $ 385 | $ 630 | $ 645 | $ 73 | $ 87 | $ 147 | $ 122 | $ 243 | $ 47 | $ 21 | $ 55 | $ 213 | $ 26 | $ 27 | $ 28 | $ 76 | $ 79 | $ 66 | $ 53 | $ 85 | $ 77 | $ 14 | $ 54 | $ 67 |
Charge-offs | (10) | (141) | (141) | (10) | ||||||||||||||||||||
Recoveries | ||||||||||||||||||||||||
Provisions | (68) | (104) | (15) | (26) | (14) | (5) | 20 | (3) | (34) | (12) | (1) | (19) | (3) | (32) | (3) | (40) | ||||||||
ALLL balance at June 30 | 307 | 385 | 630 | 47 | 73 | 147 | 117 | 122 | 47 | 8 | 21 | 213 | 14 | 26 | 28 | 57 | 76 | 66 | 53 | 53 | 77 | 11 | 14 | 67 |
Individually evaluated for impairment | 107 | 105 | 107 | 105 | ||||||||||||||||||||
Collectively evaluated for impairment | 200 | 280 | 47 | 73 | 10 | 17 | 8 | 21 | 14 | 26 | 57 | 76 | 53 | 53 | 11 | 14 | ||||||||
Total ALLL balance | $ 307 | $ 385 | $ 630 | $ 47 | $ 73 | $ 147 | $ 117 | $ 122 | $ 47 | $ 8 | $ 21 | $ 213 | $ 14 | $ 26 | $ 28 | $ 57 | $ 76 | $ 66 | $ 53 | $ 53 | $ 77 | $ 11 | $ 14 | $ 67 |
FEDERAL HOME LOAN BANK STOCK (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
FEDERAL HOME LOAN BANK STOCK [Abstract] | |||
Investment percentage in capital stock of FHLB, residential mortgage loans | 1.00% | ||
Investment percentage in capital stock of FHLB, total assets | 0.30% | ||
Investment percentage in capital stock of FHLB, outstanding advances | 5.00% | ||
Interest Income, Federal Home Loan Bank Advances | $ 19 | $ 4 | |
Minimum [Member]
|
|||
Statement [Line Items] | |||
Dividend annualized rate | 0.10% | ||
Maximum [Member]
|
|||
Statement [Line Items] | |||
Dividend annualized rate | 0.43% |
DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS (Details)
|
12 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
DIRECTOR, OFFICER, AND EMPLOYEE BENEFITS [Abstract] | |||
Number of shares held under the Directors' deferred compensation plan | 1,731 | 1,731 | 1,731 |
FAIR VALUE MEASUREMENTS (Schedule of Significant Observable Inputs) (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Impaired Loans [Member]
|
||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Fair value | $ 1,024 | $ 746 |
Impaired Loans [Member] | Minimum [Member]
|
||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Significant Unobservable Input Value | 1.00% | |
Impaired Loans [Member] | Maximum [Member]
|
||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Significant Unobservable Input Value | 15.00% | |
Real Estate Owned [Member]
|
||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Fair value | $ 235 | |
Significant Unobservable Input Value | 20.00% |
ACCRUED INTEREST RECEIVABLE
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
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ACCRUED INTEREST RECEIVABLE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED INTEREST RECEIVABLE |
Accrued interest receivable consists of the following:
|
SELECTED QUARTERLY FINANCIAL DATA (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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SELECTED QUARTERLY FINANCIAL DATA (unaudited) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Selected Quarterly Financial Data |
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Schedule of Quarterly Common Stock Market Price and Dividend Information |
|
EARNINGS PER SHARE
|
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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EARNINGS PER SHARE [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE |
The following table sets forth the computation of the weighted-average common shares used to calculate basic and diluted earnings per share.
There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used. At June 30, 2013, there were 114,519 options with an exercise price of $16.20 which were anti-dilutive. At June 30, 2012, there were 124,519 options with an exercise price of $16.20 which were anti-dilutive. At June 30, 2011, there were 124,824 options with an exercise price ranging from $15.77 to $16.20 which were anti-dilutive.
|
REGULATORY CAPITAL
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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REGULATORY CAPITAL [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REGULATORY CAPITAL |
Federal regulations require the Company and Savings Bank to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Total and Tier I Capital to Risk-Weighted Assets and of Tier I Capital to Average Total Assets. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") established five capital categories ranging from well capitalized to critically undercapitalized. Should any institution fail to meet the requirements to be considered adequately capitalized, it would become subject to a series of increasingly restrictive regulatory actions. As of June 30, 2013 and 2012, the FDIC categorized the Savings Bank as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Capital Ratios must be at least 10 percent, 6 percent, and 5 percent, respectively. The Company's and Savings Bank's actual capital ratios are presented in the following tables, which show that both met all regulatory capital requirements.
|
INVESTMENT SECURITIES (Narrative) (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2011
|
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INVESTMENT SECURITIES [Abstract] | |||
Realized investment security gains | $ 46 | $ 4 | |
Proceeds from sales of investment securities | 6,825 | 2,102 | |
Investment securities pledged, amortized costs | 27,845 | ||
Investment securities pledged | 27,891 | ||
Investment securities pledged, excess collateral amount | $ 18,993 |
FEDERAL HOME LOAN BANK STOCK
|
12 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
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FEDERAL HOME LOAN BANK STOCK [Abstract] | |||
FEDERAL HOME LOAN BANK STOCK |
The Company's subsidiary bank is a member of the FHLB system. As a member, the Savings Bank maintains an investment in the capital stock of the FHLB of Pittsburgh, at cost, in an amount not less than 1.0% of the unpaid principal balances of residential mortgage loans, 0.3% of total assets or approximately 5.0% of outstanding advances, if any due to the FHLB, whichever is greater, as calculated periodically by the FHLB. Purchases and redemptions of FHLB stock are made directly with the FHLB at par. In 2008, the FHLB suspended both the payment of dividends and the repurchase of excess capital stock. Beginning in the fourth quarter of calendar year 2010, the FHLB partially lifted the suspension with limited repurchases of excess stock. Beginning in the first quarter of calendar year 2012, the FHLB began paying dividends at an annualized rate of 0.10% on the average balance of stock held in the prior quarter. In subsequent quarters, the FHLB paid dividends at annualized rates between 0.10% and 0.43%. During fiscal years 2013 and 2012, the Bank received $19 thousand and $4 thousand, respectively, in dividends on its holdings of FHLB stock. This repurchase restriction could result in the Savings Bank's investment in FHLB stock being greater than 5.0% of its outstanding notes payable to the FHLB. |
OTHER BORROWINGS (Details) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Short-term Debt [Line Items] | ||
The minimum maturity period for securities sold under agreements to repurchase with securities brokers and Federal Reserve borrowings | 1 day | |
The maximum maturity period for securities sold under agreements to repurchase with securities brokers and Federal Reserve borrowings | 90 days | |
Other Short Term Borrowings [Member]
|
||
Short-term Debt [Line Items] | ||
Ending balance | ||
Average balance during the year | 90 | |
Maximum month-end balance during the year | ||
Average interest rate during the year | 0.00% | 0.35% |
Weighted-average rate at year-end | 0.00% | 0.00% |
Federal Reserve Bank Short-term Borrowings [Member]
|
||
Short-term Debt [Line Items] | ||
Ending balance | ||
Average balance during the year | 4 | |
Maximum month-end balance during the year | ||
Average interest rate during the year | 0.00% | 0.75% |
Weighted-average rate at year-end | 0.00% | 0.00% |
STOCK BENEFIT PLANS (Tables)
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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STOCK BENEFIT PLANS [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Information Related to Outstanding Options |
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