WVS FINANCIAL CORP - Quarter Report: 2011 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-22444

WVS Financial Corp.

(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)

(412) 364-1911

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 ¨ NO ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12 b-2 of the Exchange Act). YES ¨ NO x

Shares outstanding as of May 13, 2011: 2,057,930 shares Common Stock, $.01 par value.

WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX


PART I.	Financial Information	Page

Item 1.	Financial Statements

	Consolidated Balance Sheet as of March 31, 2011 and June 30, 2010 (Unaudited)		3

	Consolidated Statement of Income for the Three and Nine Months Ended March 31, 2011 and 2010 (Unaudited)		4

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended March 31, 2011 (Unaudited)		5

	Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 2011 and 2010 (Unaudited)		6

	Notes to Unaudited Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended March 31, 2011		31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		39

Item 4.	Controls and Procedures		47

PART II.	Other Information	Page

Item 1.	Legal Proceedings		48
Item 1A.	Risk Factors		48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3.	Defaults Upon Senior Securities		49
Item 4.	(Removed and Reserved)		49
Item 5.	Other Information		49
Item 6.	Exhibits		49
	Signatures		50

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands)


	March 31, 2011			June 30, 2010
Assets
Cash and due from banks	$	668		$	438
Interest-earning demand deposits		4,618			1,760

Total cash and cash equivalents		5,286			2,198
Certificates of deposit		6,159			8,605
Investment securities available-for-sale (amortized cost of $100 and $0)		100			—
Investment securities held-to-maturity (fair value of $112,889 and $157,379)		110,120			153,193
Mortgage-backed securities available-for-sale (amortized cost of $1,985 and $2,019)		2,115			2,146
Mortgage-backed securities held-to-maturity (fair value of $57,975 and $110,443)		57,346			114,986
Net loans receivable (allowance for loan losses of $663 and $645)		52,167			56,315
Accrued interest receivable		1,418			2,430
Federal Home Loan Bank stock, at cost		9,815			10,875
Premises and equipment		609			679
Prepaid FDIC insurance premium		544			855
Deferred tax assets (net)		1,329			1,533
Other assets		411			853

TOTAL ASSETS	$	247,419		$	354,668


Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing accounts	$	12,412		$	14,828
NOW accounts		19,880			18,792
Savings accounts		36,649			35,137
Money market accounts		23,797			22,797
Certificates of deposit		84,321			109,624
Advance payments by borrowers for taxes and insurance		501			744

Total savings deposits		177,560			201,922
Federal Home Loan Bank advances: long-term		39,500			109,500
Other short-term borrowings		—			12,510
Accrued interest payable		476			837
Other liabilities		1,518			2,104

TOTAL LIABILITIES		219,054			326,873


Stockholders’ equity:
Preferred stock:
5,000,000 shares, no par value per share, authorized; none Issued		—			—
Common stock:
10,000,000 shares, $.01 par value per share, authorized; 3,805,636 and 3,805,636 shares issued		38			38
Additional paid-in capital		21,432			21,415
Treasury stock: 1,747,706 and 1,747,706 shares at cost, respectively		(26,690	)		(26,690	)
Retained earnings, substantially restricted		35,402			35,270
Accumulated other comprehensive loss		(1,817	)		(2,238	)

TOTAL STOCKHOLDERS’ EQUITY		28,365			27,795

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	247,419		$	354,668

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except per share data)


	Three Months Ended March 31,					Nine Months Ended March 31,
	2011		2010			2011		2010
INTEREST AND DIVIDEND INCOME:
Loans	$	808	$	969		$	2,526	$	2,996
Investment securities		1,082		1,436			3,454		4,260
Mortgage-backed securities		246		507			995		1,618
Certificates of deposit		29		52			101		364
Interest-earning demand deposits		1		1			3		3

Total interest and dividend income		2,166		2,965			7,079		9,241


INTEREST EXPENSE:
Deposits		218		260			755		952
Federal Home Loan Bank advances		587		1,761			2,854		5,353
Federal Reserve Bank short-term borrowings		—		51			—		136
Other short-term borrowings		5		2			20		6

Total interest expense		810		2,074			3,629		6,447


NET INTEREST INCOME		1,356		891			3,450		2,794
PROVISION (RECOVERY) FOR LOAN LOSSES		2		(4	)		17		(10	)

NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES		1,354		895			3,433		2,804


NON-INTEREST INCOME:
Service charges on deposits		54		63			175		209
Gains on trading assets		—		9			—		10
Investment securities gains		—		—			—		1
Other than temporary impairment (“OTTI”) losses		—		(2,202	)		—		(2,202	)
Portion of loss recognized in other comprehensive income (before taxes)		—		2,107			—		2,107

Net impairment loss recognized in earnings		—		(95	)		—		(95	)
Other		62		62			219		200

Total non-interest income		116		39			394		325


NON-INTEREST EXPENSE:
Salaries and employee benefits		486		492			1,430		1,466
Occupancy and equipment		82		88			243		241
Data processing		61		61			186		181
Correspondent bank service charges		22		22			65		68
Deposit insurance premium		118		82			325		234
Other		158		135			623		525

Total non-interest expense		927		880			2,872		2,715


INCOME BEFORE INCOME TAXES (BENEFIT)		543		54			955		414
INCOME TAX EXPENSE (BENEFIT)		190		(20	)		329		36

NET INCOME	$	353	$	74		$	626	$	378


EARNINGS PER SHARE:
Basic	$	0.17	$	0.04		$	0.30	$	0.18
Diluted	$	0.17	$	0.04		$	0.30	$	0.18

AVERAGE SHARES OUTSTANDING:
Basic		2,057,930		2,065,027			2,057,930		2,068,036
Diluted		2,057,930		2,065,027			2,057,930		2,068,036

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)


	Common Stock		Additional Paid-In Capital		Treasury Stock			Retained Earnings Substantially Restricted			Accumulated Other Comprehensive Income (loss)			Total
Balance at June 30, 2010	$	38	$	21,415	$	(26,690	)	$	35,270		$	(2,238	)	$	27,795

Comprehensive income:

Net Income									626						626
Other comprehensive income:
Accretion of other-than- temporary impairment on securities held to maturity, net of income tax effect of $ 216												419			419
Change in unrealized holding gains on securities, net of income tax effect of $ 1												2			2


Comprehensive income															1,047

Expense of stock options awarded				17											17

Cash dividends declared ($0.24 per share)									(494	)					(494	)


Balance at March 31, 2011	$	38	$	21,432	$	(26,690	)	$	35,402		$	(1,817	)	$	28,365

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended March 31,
	2011			2010
OPERATING ACTIVITIES

Net income	$	626		$	378
Adjustments to reconcile net income to cash provided by operating activities:
Provision (recovery) for loan losses		17			(10	)
Net impairment loss recognized in earnings		—			95
Depreciation		79			76
Investment securities gains		—			(1	)
Accretion of discounts, premiums and deferred loan fees		1,158			1,099
Trading gains		—			(10	)
Purchase of trading securities		—			(1,954	)
Proceeds from sale of trading securities		—			1,964
Decrease (increase) in deferred income taxes		204			(701	)
Decrease in prepaid/accrued income taxes		327			37
Decrease in accrued interest receivable		1,012			240
Decrease in accrued interest payable		(361	)		(202	)
(Decrease) increase in deferred director compensation payable		(61	)		9
Decrease (increase) of prepaid federal deposit insurance premium		311			(958	)
Decrease in Transaction Account Clearing Balance payable to Federal Reserve		(602	)		(267	)
Other, net		(6	)		891

Net cash provided by operating activities		2,704			686


INVESTING ACTIVITIES

Available-for-sale:
Purchase of investment securities		(9,347	)		—
Proceeds from repayments of investments and mortgage-backed securities		9,274			31
Proceeds from sales of investments		—			501
Held-to-maturity:
Purchases of investment securities		(51,203	)		(75,393	)
Purchases of mortgage-backed securities		—			(15,451	)
Proceeds from repayments of investments		93,141			56,941
Proceeds from repayments of mortgage-backed securities		58,287			50,321
Purchases of certificates of deposit		(2,981	)		(9,755	)
Maturities/redemptions of certificates of deposit		5,420			25,159
Decrease (increase) in net loans receivable		4,108			(725	)
Redemption of FHLB stock		1,060			—
Acquisition of premises and equipment		(9	)		(80	)

Net cash provided by investing activities		107,750			31,549

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended March 31,
	2011			2010
FINANCING ACTIVITIES

Net increase in transaction and savings accounts		1,184			1,775
Net decrease in certificates of deposit		(8,991	)		(2,495	)
Net decrease in advance payments by borrowers for taxes and insurance		(243	)		(234	)
Net (decrease) increase in brokered CDs		(5,324	)		4,872
Net decrease in CDARS one-way buy CDs		(10,988	)		—
Repayments of Federal Home Loan Bank long-term advances		(70,000	)		—
Net increase in FHLB short-term advances		—			10,000
Net decrease in Federal Reserve Bank short-term borrowings		—			(53,900	)
Net decrease in other short-term borrowings		(12,510	)		—
Cash dividends paid		(494	)		(992	)
Funds used for purchase of treasury stock		—			(124	)

Net cash used for financing activities		(107,366	)		(41,098	)


Increase (decrease) in cash and cash equivalents		3,088			(8,863	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		2,198			21,828


CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	$	5,286		$	12,965


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:
Interest on deposits, escrows and borrowings	$	3,990		$	6,649
Income taxes	$	15		$	38

Non-cash items:
Due to Federal Reserve Bank	$	528		$	557
Educational Improvement Tax Credit	$	—		$	32

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three and nine months ended March 31, 2011, are not necessarily indicative of the results which may be expected for the entire fiscal year.

2.	RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-05, Compensation – Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation. ASU 2010-05 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and did not have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan is a Part of a Pool That is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 clarifies the treatment for a modified loan that was acquired as part of a pool of assets. Refinancing or restructuring the loan does not make it eligible for removal from the pool, the FASB said. The amendment will be effective for loans that are part of an asset pool and are modified during financial reporting periods that end July 15, 2010 or later and did not have a significant impact on the Company’s financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company has presented the necessary disclosures in Note 9 herein.

In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules, and Codification of Financial Reporting Policies and is not expected to have a significant impact on the Company’s financial statements.

In August 2010, the FASB issued ASU 2010-22, Technical Corrections to SEC Paragraphs – An announcement made by the staff of the U.S. Securities and Exchange Commission. This ASU amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics and is not expected to have a significant impact on the Company’s financial statements.

In September 2010, the FASB issued ASU 2010-25, Plan Accounting – Defined Contribution Pension Plans. The amendments in this ASU require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. The amendments in this update are effective for fiscal years ending after December 15, 2010 and are not expected to have a significant impact on the Company’s financial statements.

In October 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. This ASU addresses the diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2011 and are not expected to have a significant impact on the Company’s financial statements.

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for

business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In January 2011, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20, enabling public-entity creditors to provide those disclosures after the FASB clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the FASB proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted.

In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this Update provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this Update are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

3.	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.


	Three Months Ended March 31,						Nine Months Ended March 31,
	2011			2010			2011			2010
Weighted average common shares outstanding		3,805,636			3,805,636			3,805,636			3,805,636

Average treasury stock shares		(1,747,706	)		(1,740,609	)		(1,747,706	)		(1,737,600	)

Weighted average common shares and common stock equivalents used to calculate basic earnings per share		2,057,930			2,065,027			2,057,930			2,068,036

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			2,065,027			2,057,930			2,068,036

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 March 31, 2011, there were 124,824 options outstanding with an average exercise price of $16.20 which were anti-dilutive for the three and nine month periods. At March 31, 2010 there were 125,127 options outstanding with an average exercise price of $16.20 which were anti-dilutive for the three and nine month periods.

4.	STOCK BASED COMPENSATION DISCLOSURE

The Company’s 2008 Stock Incentive Plan (the “Plan”), which was approved by shareholders in October 2008, 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 Company’s 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 nine month periods ended March 31, 2011 and 2010, the Company recorded $17 thousand and $17 thousand, respectively, in compensation expense related to our share-based compensation awards. As of March 31, 2011, there was approximately $55 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 three years.

In accordance with generally accepted accounting principles (GAAP), the cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as financing cash flows.

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 72,551 non-vested stock options outstanding at March 31, 2011, and 98,535 unvested stock options outstanding at March 31, 2010. There were no stock options issued during the six months ended March 31, 2011 and 2010.

5.	COMPREHENSIVE INCOME

Other comprehensive income primarily reflects changes in net unrealized gains/losses on available-for-sale securities. Total comprehensive income is summarized as follows (dollars in thousands):


	Three Months Ended March 31,											Nine Months Ended March 31,
	2011					2010						2011					2010

Net income				$	353				$	74					$	626				$	378
Other comprehensive income (loss):
Accretion of other-than-temporary impairment on securities held to maturity	$	(1	)			$	167					$	3				$	157
Unrealized gains (losses) on securities with OTTI – Held to maturity		289					(2,202	)					635					(2,202	)
Less:
Reclassification adjustment for gain included in net income		—					(95	)					—					(95	)

Other comprehensive income (loss) before tax		288					(1,940	)					638					(1,950	)
Income tax (expense) benefit related to other comprehensive income (loss)		(98	)				660						(217	)				662

Other comprehensive income (loss) net of tax					190					(1,280	)					421					(1,288	)

Comprehensive income (loss)				$	543				$	(1,206	)				$	1,047				$	(910	)

6.	INVESTMENT SECURITIES

The amortized cost and fair values of investments are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
March 31, 2011
AVAILABLE FOR SALE
Obligations of states and political subdivisions	$	100	$	—	$	—		$	100


Total	$	100	$	—	$	—		$	100


HELD TO MATURITY
U.S. government agency securities	$	50,811	$	91	$	(158	)	$	50,744
Corporate debt securities		48,237		2,278		—			50,515
Foreign debt securities ⁽¹⁾		6,661		452		—			7,113
Obligations of states and political subdivisions		4,411		106		—			4,517


Total	$	110,120	$	2,927	$	(158	)	$	112,889

⁽¹⁾	U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
June 30, 2010

HELD TO MATURITY
U.S. government agency securities	$	55,002	$	403	$	(5	)	$	55,400
Corporate debt securities		83,710		3,090		(6	)		86,794
Foreign debt securities ⁽¹⁾		9,711		482		—			10,193
Obligations of states and political subdivisions		4,770		222		—			4,992


Total	$	153,193	$	4,197	$	(11	)	$	157,379

⁽¹⁾	U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

During the nine months ended March 31, 2011, and March 31, 2010, realized investment securities gains totaled $0 thousand and $1 thousand, respectively. The $1 thousand gain realized in 2010 resulted from the sale of an investment security classified as available for sale, with an amortized cost of $500 thousand, for proceeds of $501 thousand.

The amortized cost and fair values of debt securities at March 31, 2011, 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 one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
	(Dollars in Thousands)
AVAILABLE FOR SALE
Amortized cost	$	100	$	—	$	—	$	—	$	100
Fair value		100		—		—		—		100

HELD TO MATURITY
Amortized cost	$	20,923	$	47,928	$	14,238	$	27,031	$	110,120
Fair value		21,194		49,886		14,775		27,034		112,889

Investment securities with amortized costs of $390 thousand and $28.7 million and fair values of $388 thousand and $29.0 million at March 31, 2011 and June 30, 2010, respectively, were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

7.	MORTGAGE-BACKED SECURITIES

Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by 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 Company’s CMO portfolio is comprised of two segments: CMO’s backed by U.S. Government Agencies (“Agency CMO’s”) and CMO’s backed by single-family whole loans not guaranteed by a U.S. Government Agency (“Private-Label CMO’s”).

At March 31, 2011, the Company’s Agency CMO’s totaled $32.7 million as compared to $70.9 million at June 30, 2010. The Company’s private-label CMO’s totaled $24.6 million at March 31, 2011 as compared to $44.1 million at June 30, 2010. The $57.7 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency CMO’s totaling $38.2 million and $20.1 million in repayments on our private-label CMO’s which were partially offset by a $635 thousand reversal of non-credit unrealized holding losses on private-label CMO’s with Other-than-temporary impairment (“OTTI”). During the nine months ended March 31, 2011, the Company received principal payments totaling $20.1 million on its private-label CMO’s. At March 31, 2011, approximately $57.3 million or 96.4% (book value) of the Company’s MBS portfolio, including CMO’s, were comprised of adjustable or floating rate investments, as compared to $115.0 million or 98.2% at June 30, 2010. Substantially all of the Company’s 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 Company’s MBS are expected to be substantially less than the scheduled maturities.

The following table sets forth information with respect to the Company’s private-label CMO portfolio as of March 31, 2011. At the time of purchase, all of our private-label CMO’s were rated in the highest investment category by at least two ratings agencies.

At March 31, 2011

Rating

Book Value

Fair Value

Cusip #

Security Description

S&P

Moody’s

Fitch

(in thousands)

05949AN63

BOAMS 2005-1 1A7

N/A

Ba1

AAA

929

913

36242DE25

GSR 2005-3F 1A11

N/A

Baa3

1,165

1,150

05949A2H2

BOAMS 2005-3 1A6

N/A

Ba2

439

430

05949A2H2

BOAMS 2005-3 1A6

N/A

Ba2

559

548

225458JZ2

CSFB 05-3 3A4

AAA

N/A

2,840

2,783

225458KE7

CSFB 2005-3 3A9

AAA

N/A

223

217

225458KE7

CSFB 2005-3 3A9

AAA

N/A

673

656

12669G3A7

CWHL 2005 16 A8

N/A

680

649

12669G3A7

CWHL 2005 16 A8

N/A

1,237

1,180

12669G3A7

CWHL 2005 16 A8

N/A

1,694

1,615

12669G3A7

CWHL 2005 16 A8

N/A

1,856

1,769

126694CP1

CWHL SER 21 A11

N/A

Caa1

CCC

4,727

5,438

126694KF4

CWHL SER 24 A15

CCC

N/A

CCC

1,092

1,229

126694KF4

CWHL SER 24 A15

CCC

N/A

CCC

2,183

2,456

16162WLW7

CHASE SER S2 A10

N/A

BBB

1,367

1,313

16162WLW7

CHASE SER S2 A10

N/A

BBB

1,913

1,838

126694MP0

CWHL SER 26 1A5

CCC

N/A

1,040

871

24,617

25,055

The Company retains an independent third party to assist it in the determination of a fair value for each of its private-label CMO’s. 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 CMO’s and there can be no assurance that any secondary market for private-label CMO’s will develop. The private-label CMO portfolio had two previously recorded Other Than Temporary Impairments at March 31, 2011. During the three and nine months ending March 31, 2011, the Company reversed $288 thousand and $635 thousand, respectively, of non-credit unrealized holding losses on two of its private-label CMO’s with OTTI due to principal repayments. No additional other than temporary impairments were identified during the quarter ended March 31, 2011.

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 segment’s fair value.

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)
March 31, 2011
AVAILABLE FOR SALE

Government National Mortgage Association certificates	$	1,985	$	130	$	—		$	2,115


Total	$	1,985	$	130	$	—		$	2,115


HELD TO MATURITY

Collateralized mortgage obligations:
Agency	$	32,729	$	203	$	(12	)	$	32,920
Private-label		24,617		1,120		(682	)		25,055


Total	$	57,346	$	1,323	$	(694	)	$	57,975


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
June 30, 2010
AVAILABLE FOR SALE

Government National Mortgage Association certificates	$	2,019	$	127	$	—		$	2,146


Total	$	2,019	$	127	$	—		$	2,146


HELD TO MATURITY

Collateralized mortgage obligations:
Agency	$	70,899	$	71	$	(376	)	$	70,594
Private-label		44,087		—		(4,238	)		39,849


Total	$	114,986	$	71	$	(4,614	)	$	110,443

The amortized cost and fair value of mortgage-backed securities at March 31, 2011, 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)

AVAILABLE FOR SALE
Amortized cost	$	—	$	—	$	—	$	1,985	$	1,985
Fair value		—		—		—		2,115		2,115

HELD TO MATURITY
Amortized cost	$	—	$	—	$	—	$	57,346	$	57,346
Fair value		—		—		—		57,975		57,975

At March 31, 2011 and June 30, 2010, mortgage-backed securities with an amortized cost of $12.8 million and $81.4 million and fair values of $12.9 million and $80.8 million, were pledged to secure borrowings with the Federal Home Loan Bank and public deposits.

8.	UNREALIZED LOSSES ON SECURITIES

The following table shows the Company’s 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 March 31, 2011 and June 30, 2010.


	March 31, 2011
	Less Than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(Dollars in Thousands)

U.S. government agencies securities	$	17,953	$	(156	)	$	388	$	(2	)	$	18,341	$	(158	)
Collateralized mortgage obligations:
Agency		—		—			11,264		(12	)		11,264		(12	)
Private-label		—		—			15,933		(682	)		15,933		(682	)


Total	$	17,953	$	(156	)	$	27,585	$	(696	)	$	45,538	$	(852	)


	June 30, 2010
	Less Than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(Dollars in Thousands)

U.S. government agencies securities	$	—	$	—		$	404	$	(5	)	$	404	$	(5	)
Corporate debt securities		3,893		(6	)		—		—			3,893		(6	)
Collateralized mortgage obligations:
Agency		15,607		(116	)		33,065		(260	)		48,672		(376	)
Private-label		—		—			39,849		(4,238	)		39,849		(4,238	)


Total	$	19,500	$	(122	)	$	73,318	$	(4,503	)	$	92,818	$	(4,625	)

In accordance with ASC Topic 820, revisions were made to the recognition and reporting requirements for Other-Than-Temporary-Impairments (“OTTI”) of debt securities classified as available-for-sale and held-to-maturity.

For debt securities, the “ability and intent to hold” provision was eliminated, and impairment is now 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 security’s entire amortized cost basis (even if the entity does not intend to sell the security). In addition, the probability standard relating to the collectability of cash flows was eliminated, and impairment is now 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. The beginning balance represents the credit loss component for mortgage-backed securities for which OTTI occurred prior to adoption of the guidance of ASC Topic 320-10-69. OTTI recognized in earnings for credit impaired mortgage-back 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 the Company sells, intends to sell or believes that the Company will be required to sell previously credit-impaired mortgage-backed securities. Additionally, the credit loss component is reduced if the Company receives cash flows in excess of what the Company expected to receive over the remaining life of the credit impaired mortgage-backed securities, the security matures or is fully written down. Changes in the credit loss component of credit impaired mortgage-backed securities were as follows for the three and nine month periods ended March 31, 2011:


	Three Months Ended March 31, 2011		Nine Months Ended March 31, 2011
	(In thousands)
Beginning balance	$	194	$	194
Initial credit impairment		—		—
Subsequent credit impairment		—		—
Reductions for amounts recognized in earnings due to intent or requirement to sell		—		—
Reductions for securities sold		—		—
Reduction for increase in cash flows expected to be collected		—		—

Ending Balance	$	194	$	194

During the quarter ended March 31, 2011, the Company recorded no credit impairment charge and no non-credit unrealized holding loss to accumulated other comprehensive income.

In the case of its private label residential MBS 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 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 the adoption of ASC Topic 820 effective June 30, 2009, the Company retained an independent third party to assist it with the private label CMO portfolio OTTI assessment. 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 party’s assumptions used in the March 31, 2011 OTTI process. Based on the results of this review, the Company deemed the independent third party’s assumptions to be reasonable and adopted them. However, different assumptions could produce materially different results, which could impact the Company’s conclusions as to whether an impairment is considered other-than-temporary and the magnitude of the credit loss. Management believes that two private-label CMO’s in the portfolio had an OTTI at March 31, 2011. During the three and nine months ending March 31, 2011, the Company reversed $288 thousand and $635 thousand, respectively, of non-credit unrealized holding losses on the two private-label CMO’s with OTTI due to principal repayments.

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 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 Company’s private-label CMOs were originally, and continue to be classified, as held to maturity.

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 has investments in 23 positions that are impaired at March 31, 2011, including 10 positions in private-label collateralized mortgage obligations. Based on its analysis, management has concluded that two private-label CMO’s remain 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.

9.	LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of March 31, 2011 and June 30, 2010 (in thousands).


	March 31, 2011						June 30, 2010
	Total Loans		Individually evaluated for impairment		Collectively evaluated for impairment		Total Loans		Individually evaluated for impairment		Collectively evaluated for impairment
March 31, 2011
First mortgage loans:
1 – 4 family dwellings	$	15,803	$	—	$	15,803	$	17,247	$	—	$	17,247
Construction		13,190		1,024		12,166		15,059		—		15,059
Land acquisition & development		2,470		—		2,470		2,718		—		2,718
Multi-family dwellings		5,432		—		5,432		5,636		—		5,636
Commercial		7,757		—		7,757		7,635		—		7,635

Consumer Loans
Home equity		1,959		—		1,959		2,190		—		2,190
Home equity lines of credit		2,641		—		2,641		2,676		—		2,676
Other		343		—		343		280		—		280

Commercial Loans		3,280		—		3,280		3,585		—		3,585

	$	52,875	$	1,024	$	51,851	$	57,026	$	—	$	57,026


Less: Deferred loan fees		45						66

Total	$	52,830					$	56,960

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 the length of the delay, the borrower’s 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 March 31, 2011 and March 31, 2010 (in thousands):


	Three Months Ended				Nine Months Ended
	March 31, 2011		March 31, 2010		March 31, 2011		March 31, 2010
Impaired loans with an allocated allowance	$	323	$	—	$	323	$	—
Impaired loans without an allocated allowance		701		—		701		—

Total impaired loans	$	1,024	$	—	$	1,024	$	—


Allocated allowance on impaired loans	$	67	$	—	$	67	$	—
Average impaired loans		1,024		—		1,024		471
Income recognized on impaired loans		—		—		9		37

Total nonaccrual loans and the related interest income recognized for the three and nine months ended March 31, 2011 and March 31, 2010 are as follows (in thousands):


	Three Months Ended				Nine Months Ended
	March 31, 2011		March 31, 2010		March 31, 2011		March 31, 2010
Principal outstanding	$	2,402	$	1,622	$	2,402	$	1,622

Interest income that would have been recognized		41		35		122		83
Interest income recognized		2		13		15		25


Interest income foregone	$	39	$	22	$	107	$	58

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance. The allowance is maintained at a level believed adequate by management to absorb estimated potential loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio considering past experience, current economic conditions, composition of the loan portfolio and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change.

Effective December 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 institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital.

The Company’s general policy is to internally classify its assets on a regular basis and establish prudent general valuation allowances that are adequate to absorb losses that have not been identified but that are inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are adequate to absorb losses in its loan portfolio that are not clearly attributable to specific loans. The Company’s general valuation allowances are within the following 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 Company’s past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at March 31, 2011, is adequate.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2011 and June 30, 2010 (in thousands):


	Current		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days + Past Due		Total Past Due		Non-Accrual		Total Loans
March 31, 2011
First mortgage loans:
1 – 4 family dwellings	$	14,007	$	777	$	—	$	—	$	777	$	1,019	$	15,803
Construction		12,166		—		—		—		—		1,024		13,190
Land acquisition & development		2,470		—		—		—		—		—		2,470
Multi-family dwellings		5,432		—		—		—		—		—		5,432
Commercial		7,757		—		—		—		—		—		7,757

Consumer Loans
Home equity		1,959		—		—		—		—		—		1,959
Home equity lines of credit		2,282		—		—		—		—		359		2,641
Other		343		—		—		—		—		—		343

Commercial Loans		3,280		—		—		—		—		—		3,280

	$	46,696	$	777	$	—	$	—	$	777	$	2,402		52,875

Less: Deferred loan fees														45

Total													$	52,830


	Current		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days + Past Due		Total Past Due		Non-Accrual		Total Loans
June 30, 2010
First mortgage loans:
1 – 4 family dwellings	$	15,884	$	56	$	—	$	—	$	56	$	1,307	$	17,247
Construction		15,059		—		—		—		—		—		15,059
Land acquisition & development		2,718		—		—		—		—		—		2,718
Multi-family dwellings		5,636		—		—		—		—		—		5,636
Commercial		7,635		—		—		—		—		—		7,635

Consumer Loans
Home equity		2,156		34		—		—		34		—		2,190
Home equity lines of credit		2,167		150		—		—		150		359		2,676
Other		280		—		—		—		—		—		280

Commercial Loans		3,585		—		—		—		—		—		3,585

	$	55,120	$	240	$	—	$	—	$	240	$	1,666		57,026

Less: Deferred loan fees														66

Total													$	56,960

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 management’s 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 table summarizes the primary segments of the ALLL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2011 and June 30, 2010. Activity in the allowance is presented for the nine months ended March 31, 2011 (in thousands).


	First Mortgage Loans
	1 – 4 Family		Construction		Land Acquisition & Development			Multi-family			Commercial		Consumer Loans		Commercial Loans			Total
ALLL balance at June 30, 2010	$	147	$	47	$	213		$	28		$	66	$	77	$	67		$	645
Charge-offs		—		—		—			—			—		—		—			—
Recoveries		—		—		—			—			—		—		—			—
Provisions		9		158		(158	)		(1	)		14		6		(10	)		18

ALLL balance at March 31, 2011	$	156	$	205	$	55		$	27		$	80	$	83	$	57		$	663

Individually evaluated for impairment		—		67		—			—			—		—		—			67
Collectively evaluated for impairment		156		138		55			27			80		83		57			596

	$	156	$	205	$	55		$	27		$	80	$	83	$	57		$	663


ALLL balance at June 30, 2010	$	147	$	47	$	213		$	28		$	66	$	77	$	67		$	645

Individually evaluated for impairment		—		—		—			—			—		—		—			—
Collectively evaluated for impairment		147		47		213			28			66		77		67			645

	$	147	$	47	$	213		$	28		$	66	$	77	$	67		$	645

During the nine months ended March 31, 2011, the Company reversed $158 thousand of previously recorded provisions for loan losses related to one Land Acquisition & Development loan.

The reason for reversing the provision on this particular credit is that the borrower has made every required payment for about the last seven years. During the first five years, payments were regularly made under provisions of the U.S. bankruptcy code. After the borrower exited from bankruptcy the Company agreed to amortize his remaining balance over fifteen years. The new loan was made at prevailing market rates and terms. The loan’s appraised value was less than our carrying value when the new loan was made. However when we discounted the loan’s cash flows at the effective rate, no impairment was noted. We, and our banking regulators, continued to classify the loan as substandard. The Company’s Asset Classification and Review Committee adopted a conservative accounting posture on this credit and directed management to maintain a specific loan loss allowance for a period of approximately two years after the borrowers completed their bankruptcy reorganization to allow the loan’s balance to amortize below appraised value. Due to the fact that we have been paid for seven years, including two years’ post – bankruptcy, and the fact that this loan is successfully amortizing over a fifteen year amortization period, the Company’s Asset Classification and Review Committee felt that the $158 thousand allowance for loan losses on this particular credit was no longer justified. The appraised (e.g. fair) value of the real estate collateral also exceeds the principal balance by approximately $14 thousand at March 31, 2011.

During the nine months ended March 31, 2011, the Company increased the ALLL for construction loans by $158 thousand. The increase was primarily attributable to a $91 thousand increase to the ALLL attributable to the qualitative considerations within the unimpaired construction loan portfolio, and a $67 thousand increase to the ALLL for one impaired construction loan. The increase in the ALLL for the Company’s unimpaired construction loan portfolio, related to the qualitative considerations, is attributable to the following factors: (1) a $1.024 million increase in impaired construction loans and the possibility that similar factors could begin to affect the unimpaired construction loan portfolio; (2) the continued impact of a slow economic recovery, particularly as it relates to the housing market; (3) the slowdown in local real estate sales for both new and existing homes in the Company’s lending areas; (4) longer than usual selling cycles experienced by the Company’s builders; and (5) lower than normal levels of local housing starts due to longer selling cycles and higher than normal levels of completed but unsold new home inventories.

At March 31, 2010, the Company had two collateral dependent non-accrual construction loans totaling $1,024 that were considered to be impaired.

The first impaired construction loan is almost entirely complete and currently being marketed for sale. The loan was originated as a construction loan to build a spec home with a well known and respected builder within our market. At March 31, 2011, the loan was nine months past due for interest. The borrower is working closely with management of the Company and recently agreed to change the listing real estate agency. Management has interviewed several real estate agencies as part of this process and they all have indicated that sales of similar properties in this market support the asking price and that the property is in an affluent market that tends to take a little longer to sell. The loan’s appraised value is $950 thousand, the current listing price is $925 thousand, and our book value is $701 thousand. The loan is considered impaired primarily due to its delinquency status. Management weighed several factors in considering whether a discount to the appraised valuation was appropriate. In its analysis, Management considered several qualitative factors including the length of time that the property has been on the market, the recent change in real estate agents and the associated $25 thousand reduction in the listing price, and the limited number of buyers for homes in this price range. Based upon the significant difference between the loan’s $701 thousand book value and the home’s current listing price of $925 thousand, Management has concluded that no specific allocation of the ALLL is needed as of March 31, 2011. The Company will continue to monitor marketing efforts with the builder and his new real estate agent.

The second impaired construction loan is substantially completed. The loan was originated as a construction loan to build a spec home with a builder that has had a long relationship with the Company. The builder began to experience financial difficulties during the quarter ended December 31, 2010 which called into question his ability to complete the house. The Company offered to work with the builder by paying his subcontractors directly. If the builder and his subcontractors would have agreed to this arrangement, management believed the house could be completed and sold. This loan was less than thirty days delinquent as to interest at December 31, 2010. During the quarter ended March 31, 2011, the loan was three months delinquent as to interest and it became apparent to the Company that the builder was unable or unwilling to complete the project and no payments were received on this account, and the builder has become less cooperative. The Company began foreclosure proceedings against this builder during the quarter ended March 31, 2011. The loan’s original “As Completed” appraised value was $420 thousand and our book value at March 31, 2011 is $323 thousand. The Company is trying to negotiate interior access to the property to better assess what work remains to be completed and to obtain a new appraised valuation. If negotiations for access are not successful, the Company will obtain access after the foreclosure process is completed. Based on the inspections performed by the Company related to construction draw requests, management believes the property to be in excess of 75% completed. Discussions with real estate sales professionals indicate that newly constructed homes in the area are generally selling in a range of $360 - $400+ thousand. We currently anticipate a July 2011 sheriff’s sale date. Management weighed several factors in considering whether a discount to the appraised valuation was appropriate. In its assessment, Management placed considerable weight on the limited market for partially completed homes. In addition, Management consulted with a local real estate agent who confirmed a limited market segment for partially completed homes and the need for a higher than customary real estate commission to support the increased marketing efforts. In addition, buyers such as other builders or contractors typically require a market discount in order to compensate them to complete construction and provide an acceptable profit margin. Finally, Management had to use its best business judgment to assess finishing costs to determine whether it would be better for the Company to finish the house and market the property to the consumer market segment and to gauge the reasonableness of any purchase offer from a builder or contractor. Based upon these qualitative factors, Management believes that is possible to receive less than its recorded book value of $323 thousand. Accordingly, the Company recorded a specific allocation of the ALLL to this particular credit totaling $67 thousand. Management may adjust this specific ALLL allocation once the Company obtains internal access to the property for a new real estate appraisal and to better gauge buyer interest, including other builders and contractors.

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.

10.	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 quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include 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 management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets reported on a recurring basis on the consolidated balance sheet at their fair value as of March 31, 2011 and June 30, 2010, 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.


	March 31, 2011
	Level I		Level II		Level III		Total
Assets Measured on a Recurring Basis:
Investment securities	$	—	$	100	$	—	$	100
Mortgage-backed securities available for sale:
Government National Mortgage Association (GNMA) certificates	$	—	$	2,115	$	—	$	2,115


Total	$	—	$	2,215	$	—	$	2,215


	June 30, 2010
	Level I		Level II		Level III		Total
Assets Measured on a Recurring Basis:
Mortgage-backed securities available for sale:
GNMA certificates	$	—	$	2,146	$	—	$	2,146


Total	$	—	$	2,146	$	—	$	2,146

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.

The following tables present the assets reported on a non-recurring basis on the consolidated balance sheet at their fair value as of March 31, 2011 and June 30, 2010, 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.


	March 31, 2011
	Level I		Level II		Level III		Total
Assets Measured on a Non-recurring Basis:
Impaired loans	$	—	$	—	$	957	$	957
Mortgage-backed securities held to maturity:
Collateralized mortgage obligations – private-label		—		—		8,003		8,003


Total	$	—	$	—	$	8,960	$	8,960


	June 30, 2010
	Level I		Level II		Level III		Total
Assets Measured on a Non-recurring Basis:
Mortgage-backed securities held to maturity:
Collateralized mortgage obligations – private-label	$	—	$	—	$	9,935	$	9,935


Total	$	—	$	—	$	9,935	$	9,935

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 2 inputs based on observable market data or Level 3 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.

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 following table represents the changes in the Level III fair-value category for the nine month period ended March 31, 2011. 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.

Changes in fair value measurements using significant unobservable inputs (Level III) during the nine months ended March 31, 2011 are detailed in the following table.


	Private-label Mortgage-backed securities Held-to-maturity March 31, 2011			Impaired Loans March 31, 2011
Beginning balance – July 1, 2010	$	9,935		$	—
Total net realized/unrealized gains (losses)
Included in earnings
Net realized losses on securities held-to-maturity		—			—
Included in other comprehensive income
Net unrealized gains on securities held-to-maturity		635			—
Transfers into Level III		—			957
Other – paydowns received		(2,567	)		—

Ending balance – March 31, 2011	$	8,003		$	957

11.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:


	March 31, 2011				June 30, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in Thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	5,286	$	5,286	$	2,198	$	2,198
Certificates of deposit		6,159		6,159		8,605		8,605
Investment securities		110,220		112,989		153,193		157,379
Mortgage-backed securities		59,461		60,090		117,132		112,589
Net loans receivable		52,167		55,256		56,315		60,403
Accrued interest receivable		1,418		1,418		2,430		2,430
FHLB stock		9,815		9,815		10,875		10,875

FINANCIAL LIABILITIES
Deposits	$	177,560	$	177,653	$	201,922	$	202,275
FHLB advances – long term		39,500		40,756		109,500		113,721
Other short-term borrowings		—		—		12,510		12,510
Accrued interest payable		476		476		837		837

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 management’s 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 WVS, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of WVS.

Estimated fair values have been determined by WVS 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 Other Short-term Borrowings

The fair value approximates the current book 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 8 “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 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.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2011

FORWARD LOOKING STATEMENTS

In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipated,” “believe,” “expect,” “intend,” “plan,” “estimate” or similar expressions.

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:

•

our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;

•

general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan losses or a reduced demand for credit or fee-based products and services;

•

changes in the interest rate environment could reduce net interest income and could increase credit losses;

•

the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;

•

changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations;

•

the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;

•

competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform; and

•

acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.

You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new or future events except to the extent required by federal securities laws.

GENERAL

WVS Financial Corp. (“WVS”, the “Company”, “us” or “we”) is the parent holding company of West View Savings Bank (“West View” or the “Savings Bank”). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993.

West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at March 31, 2011.

The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Company’s net income is also affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs.

FINANCIAL CONDITION

The Company’s assets totaled $247.4 million at March 31, 2011, as compared to $354.7 million at June 30, 2010. The $107.3 million or 30.3% decrease in total assets was primarily comprised of a $57.6 million or 50.1% decrease in mortgage-backed securities (MBS) - held to maturity, a $43.1 million or 28.1% decrease in investment securities held to maturity, a $4.1 million or 7.4% decrease in net loans receivable, and a $2.4 million or 28.4% decrease in FDIC insured certificates of deposit. The decrease in mortgage-backed securities – held to maturity was primarily due to paydowns on the Company’s mortgage-backed securities portfolio. The decrease in investment securities- held to maturity was primarily due to $52.0 million of issuer redemptions prior to maturity (i.e., calls) of U.S. Government agency bonds, $35.4 million of maturities/calls of investment grade corporate bonds, $6.6 million of maturities/calls of investment grade foreign bonds, $5.5 million of maturities of investment grade short-term commercial paper, $1.6 million of maturities of investment grade corporate utility first mortgage bonds and $900 thousand of maturities/redemptions of tax free municipal bonds, which were partially offset by purchases of $47.7 million of callable U.S. Government agency step-up bonds, $5.5 million of investment grade short-term commercial paper, $3.7 million of investment grade foreign bonds, $3.0 million of investment grade corporate bonds, and $600 thousand of tax free municipal bonds. The decrease in FDIC insured certificates of deposit was due to $5.4 million in redemptions of bank certificates of deposit which was partially offset by $3.0 million in investments in bank certificates of deposit. The Company has reduced its overall investment portfolio due to a marked decline in market interest rates and a narrowing of investment spreads. See “Asset and Liability Management”.

The Company’s total liabilities decreased $107.8 million or 33.0% to $219.1 million as of March 31, 2011 from $326.9 million as of June 30, 2010. The $107.8 million decrease in total liabilities was primarily comprised of a $70.0 million or 63.9% decrease in maturing legacy high-cost long-term FHLB advances, a $24.4 million or 12.1% decrease in total savings deposits, and a $12.5 million or 100.0% decrease in other short-term borrowings. The decrease in fixed rate legacy long–term FHLB advances was funded primarily by investment cash flows received during the nine months ended March 31, 2011. Certificates of deposit decreased $25.3 million, demand and NOW deposits decreased $1.3 million, and advance payments by borrowers for taxes and insurance decreased $243 thousand, while savings accounts increased $1.5 million and money market accounts increased $1.0 million. The decrease in certificates of deposits is primarily the result of a $10.75 million early partial repayment of a CDARS One Way Buy CD, $5.6 million of maturing brokered deposits, and a $4 million matured

cash management CD related to a local government unit. Management believes that the changes in demand deposits, and advance payments by borrowers for taxes and insurance were primarily attributable to seasonal payments of local, county and school real estate taxes. See also “Asset and Liability Management”.

Total stockholders’ equity increased $570 thousand or 2.1% to $28.4 million as of March 31, 2011, from approximately $27.8 million as of June 30, 2010. The increase was primarily attributable to Company net income of $626 thousand and other comprehensive income totaling $421 thousand, which were partially offset by cash dividends totaling $494 thousand. Other comprehensive income was principally attributable to reversals of unrealized holding losses on two private label mortgage backed securities totaling $419 thousand.

RESULTS OF OPERATIONS

General. WVS reported net income of $353 thousand or $0.17 earnings per share (basic and diluted) and $626 thousand or $0.30 earnings per share (basic and diluted) for the three and nine months ended March 31, 2011, respectively. Net income increased by $279 thousand or 377.0% and earnings per share (basic and diluted) increased $0.13 or 325.0% for the three months ended March 31, 2011, when compared to the same period in 2010. The increase in net income was primarily attributable to a $465 thousand increase in net interest income, and a $77 thousand increase in non-interest income, which were partially offset by a $210 thousand increase in income tax expense, a $47 thousand increase in non-interest expense, and a $6 thousand increase in provisions for loan losses. For the nine months ended March 31, 2011, net income increased $248 thousand or 65.6% and earnings per share (basic and diluted) increased $0.12 or 66.7% when compared to the same period in 2010. The increase in net income was primarily attributable to a $656 thousand increase in net interest income, and a $69 thousand increase in non-interest income, which were partially offset by a $293 thousand increase in income tax expense, a $157 thousand increase in non-interest expense, and a $27 thousand increase in provisions for loan losses.

Net Interest Income. The Company’s net interest income increased by $465 thousand or 52.2% for the three months ended March 31, 2011, when compared to the same period in 2010. The increase in net interest income is attributable to a $1.3 million decrease in interest expense, which more than offset a $799 thousand decrease in interest income. The decrease in interest expense was primarily attributable to the payoff of FHLB long-term, FRB and other short-term borrowings and lower rates paid on interest-bearing liabilities during the quarter ended March 31, 2011, when compared to the same period in 2010. The decrease in interest income was primarily due to lower average balances of, and lower rates of interest earned on, financial assets during the quarter ended March 31, 2011 when compared to the same period in 2010. For the nine months ended March 31, 2011, net interest income increased $656 thousand or 23.5% when compared to the same period in 2010. The increase in net interest income is attributable to a $2.8 million decrease in interest expense, which was partially offset by a $2.2 million decrease in interest income. The decrease in interest expense was primarily due to the payoff of FHLB long-term, and FRB and other short-term borrowings, and lower rates paid on interest-bearing liabilities during the nine months ended March 31, 2011, when compared to the same period in 2010. The decrease in interest income was primarily attributable to lower rates earned on, and lower average balances of, financial assets during the nine months ended March 31, 2011, when compared to the same period in 2010.

Interest Income. Interest on investment securities decreased $354 thousand or 24.7% and $806 thousand or 18.9% for the three and nine months ended March 31, 2011, respectively, when compared to the same period in 2010. The decrease for the three months ended March 31, 2011 was primarily attributable to a $29.0 million decrease in the average balance of investment securities and a 24 basis point decrease in the weighted average yield on investment securities outstanding, when compared to the same period in 2010. The decrease for the nine months ended March 31, 2011 was primarily attributable to a 66 basis point decrease in the weighted average yield on investment securities outstanding, and a $5.3 million decrease in the average balance of investment securities when compared to the same period in 2010.

Interest on mortgage-backed securities decreased $261 thousand or 51.5% and $623 thousand or 38.5% for the three and nine months ended March 31, 2011, respectively, when compared to the same periods in 2010. The decrease for the three months ended March 31, 2011 was primarily attributable to a $58.8 million decrease in the average balance of U.S. Government agency mortgage-backed securities outstanding and a

$22.5 million decrease in the average balance of private label mortgage-backed securities outstanding, which were partially offset by a 15 basis point increase in the weighted average yield earned on U.S. Government agency mortgage-backed securities and an 8 basis point increase in the weighted average yield earned on private label mortgage-backed securities for the three months ended March 31, 2011, when compared to the same period in 2010. The decrease for the nine months ended March 31, 2011, was primarily attributable to a $48.9 million decrease in the average balance of U.S. Government agency mortgage-backed securities outstanding and a $16.8 million decrease in the average balance of private-label mortgage-backed securities outstanding, which were partially offset by a 10 basis point increase in the weighted average yield earned on U.S. Government agency mortgage-backed securities and a 10 basis point increase in the weighted average yield earned on private-label mortgage-backed securities outstanding for the nine months ended March 31, 2011, when compared to the same period in 2010. The decrease in the average balances of mortgage-backed securities during the three and nine months ended March 31, 2011 was attributable to principal paydowns of mortgage-backed securities during the periods. The increase in yield is attributable to slightly higher LIBOR interest rates in the three and nine months ended March 31, 2011 when compared to the same periods in 2010.

Interest on net loans receivable decreased $161 thousand or 16.6% and $470 thousand or 15.7% for the three and nine months ended March 31, 2011, respectively, when compared to the same periods in 2010. The decrease for the three months ended March 31, 2011 was primarily attributable to a $5.8 million decrease in the average balance of net loans receivable outstanding and a decrease of 50 basis points in the weighted average yield earned on net loans receivable for the three months ended March 31, 2011, when compared to the same period in 2010. The decrease for the nine months ended March 31, 2011, was primarily attributable to a decrease of 72 basis points in the weighted average yield earned on net loans receivable for the nine months ended March 31, 2011, when compared to the same period in 2010, and a $3.3 million decrease in the average balance of net loans receivable outstanding, when compared to the same period in 2010. The decrease in the average loan balance of net loans receivable outstanding for the three and nine months ended March 31, 2011 was attributable in part to increased levels of loan payoffs on single-family first mortgage loan and construction loan products. The Company has limited its origination of longer-term fixed rate loans for its portfolio to mitigate its exposure to a rise in market interest rates. The Company will continue to originate longer-term fixed rate loans for sale on a correspondent basis to increase non-interest income and to contribute to net income.

Interest on FDIC insured bank certificates of deposit decreased $23 thousand or 44.2% and $263 thousand or 72.3% for the three and nine months ended March 31, 2011, respectively, when compared to the same period in 2010. The decrease for the three months ended March 31, 2011 was primarily attributable to a $4.0 million decrease in the average portfolio balance of certificates of deposit and a 20 basis point decrease in the weighted average yield earned when compared to the same period in 2010. The decrease for the nine months ended March 31, 2011 was primarily attributable to a $9.1 million decrease in the weighted average portfolio balance certificates of deposit and a 112 basis point decrease in the weighted average yield earned when compared to the same period in 2010. The certificates have remaining maturities ranging from two to fifteen months. Due to decreases in yields in this investment sector, the Company has decided to limit reinvestments in certificates of deposit and to let the portfolio decrease through maturities and early issuer redemptions.

Dividends on FHLB stock were $0 for the three and nine months ended March 31, 2011 and March 31, 2010. This was attributable to the Federal Home Loan Bank of Pittsburgh’s suspension of dividends on its common stock. In December 2008, the FHLB of Pittsburgh announced that it was suspending payments of dividends and redemptions of excess capital stock from members. The FHLB’s stated purpose of these actions is to build retained earnings to ensure adequate regulatory capital. Beginning in the December 2010 quarter, the FHLB began redeeming excess capital stock from members. Redemptions of $517 thousand and $1.1 million were recorded for the three and nine months ended March 31, 2011.

Interest Expense. Interest paid on FHLB advances decreased $1.2 million or 66.7% and $2.5 million or 46.7% for the three and nine months ended March 31, 2011, respectively, when compared to the same periods in 2010. The decrease for the three months ended March 31, 2011 was primarily attributable to an $83.1 million decrease in the average balance of fixed rate legacy FHLB long-term advances and a 41 basis point decrease in the weighted average yield paid on fixed rate legacy FHLB long-term advances when compared to the same period in 2010. The decrease for the nine months ended March 31, 2011 was primarily attributable to a $57.6

million decrease in the average balance of fixed rate legacy FHLB long-term advances and a 23 basis point decrease in the weighted average yield paid on fixed rate legacy FHLB long-term advances when compared to the same period in 2010. The decreases in the average balances of fixed rate legacy FHLB long-term borrowings were due to the maturity of nine fixed rate legacy FHLB long-term borrowings totaling $70.0 million during the nine months ended March 31, 2011.

Interest expense on deposits and escrows decreased $42 thousand or 16.2% and $197 thousand or 20.7% for the three and nine months ended March 31, 2011, respectively, when compared to the same period in 2010. The decrease in interest expense on deposits for the three months ended March 31, 2011 was primarily attributable to a 73 basis point decrease in the weighted average rate paid on time deposits, which was partially offset by a $33.0 million increase in the average balance of time deposits when compared to the same period in 2010. The decrease for the nine months ended March 31, 2011 was primarily attributable to a 103 basis point decrease in the weighted average rate paid on time deposits, which was partially offset by a $42.7 million increase in the average balance of time deposits, when compared to the same period in 2010. The decrease in average yields of time deposits reflects lower market rates for the three and nine months ended March 31, 2011 while the change in average balances for time deposits is a result of the Savings Bank’s participation in brokered CD programs. The increase in the average balance of time deposits in both the three and nine months ended March 31, 2011 was primarily attributable to an increase in wholesale deposits including CDARS One Way Buy transactions and to a lesser extent, brokered deposits, when compared to the same periods in 2010.

Interest paid on Federal Reserve Bank (FRB) short-term borrowings decreased $51 thousand or 100.0% and $136 thousand or 100.0% for the three and nine months ended March 31, 2011, respectively, when compared to the same periods in 2010. The decrease for the three and nine months ended March 31, 2011 was attributable to the payoff of all FRB Term Auction Facility borrowings. The FRB terminated the Term Auction Facility in April 2010.

Interest paid on other short-term borrowings increased $3 thousand or 150.0% and $14 thousand or 233.3% for the three and nine months ended March 31, 2011, respectively, when compared to the same periods in 2010. The increase for the three months ended March 31, 2011 was primarily attributable to a $3.9 million increase in average balances of other short-term borrowings during the period. The increase for the nine months ended March 31, 2011 was primarily attributable to a $5.1 million increase in the average balances of other short-term borrowings outstanding when compared to the same period in 2010. The increase in average balances of other short-term borrowings is attributable to more favorable short-term borrowing rates offered by brokers for comparable FHLB short-term borrowings.

Provision for Loan Losses. A provision for loan losses is charged to earnings to maintain the total allowance at a level considered adequate by management to absorb potential losses in the portfolio. Management’s determination of the adequacy of the allowance is based on an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors.

Provisions for loan losses increased $6 thousand or 150.0% and $27 thousand or 270.0% for the three and nine months ended March 31, 2011, when compared to the same periods in 2010. At March 31, 2011, the Company’s total allowance for loan losses amounted to $663 thousand or 1.3% of the Company’s total loan portfolio, as compared to $645 thousand or 1.1% at June 30, 2010.

Non-Interest Income. Non-interest income increased by $77 thousand or 197.4% for the three months ended March 31, 2011, and increased $69 thousand or 21.2% for the nine months ended March 31, 2011, when compared to the same periods in 2010. The increase for the three months ended March 31, 2011 was primarily attributable to the absence of a $95 thousand other-than-temporary impairment loss recognized in earnings during the quarter ended March 31, 2010, which was partially offset by decreases in service charges on deposits and market gains on trading assets, when compared to the same period in 2010. The increase for the nine months ended March 31, 2011 was primarily due to the absence of a $93 thousand other-than-temporary impairment loss recognized in earnings during the nine months ended March 31, 2011 and an increase in correspondent loan fees, which were partially offset by a decrease in service charges on deposit accounts, and the absence of gains on trading assets during the nine months ended March 31, 2011 when compared to the same period in 2010.

Non-Interest Expense. Non-interest expense increased $47 thousand or 5.3% and $157 thousand or 5.8% for the three and nine months ended March 31, 2011, when compared to the same periods in 2010. The increase for the three months ended March 31, 2011 was principally attributable to a $36 thousand increase in Federal Deposit Insurance Corporation (FDIC) insurance expense. The increase for the nine months ended March 31, 2011 was primarily attributable to a $90 thousand increase in ATM related expenses and a $91 thousand increase in FDIC insurance expense, which were partially offset by a $36 thousand decrease in employee related expenses. The increase in ATM related expenses, for the nine months ended March 31, 2011 were primarily attributable to the settlement of ATM litigation. See Part II, Item 1, Legal Proceedings, in this Form 10-Q.

Income Tax Expense. Income tax expense increased $210 thousand and $293 thousand for the three and nine months ended March 31, 2011, respectively, when compared to the same periods in 2010. The increase for the three and nine months ended March 31, 2011 was primarily due to higher levels of taxable income and the absence of PA tax credits when compared to the same periods in 2010.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled $2.7 million during the nine months ended March 31, 2011. Net cash provided by operating activities was primarily comprised of $1.2 million in amortizations of investment premiums, a $1.1 million decrease in accrued interest receivable, $626 thousand of Company net income, and a $327 thousand decrease in prepaid or accrued income taxes, which were partially offset by a $602 thousand decrease in transaction account clearing balance payable to the Federal Reserve.

Funds provided by investing activities totaled $107.8 million during the nine months ended March 31, 2011. Primary sources of funds during the nine months ended March 31, 2011, included maturities and repayments of investment securities, mortgage-backed securities and certificates of deposit totaling $102.4 million, $58.3 million, $5.4 million, respectively, a $4.1 million decrease in net loans receivable, and redemptions of FHLB stock totaling $1.1 million, which were partially offset by purchases of investment securities and certificates of deposit totaling $60.6 million and $3.0 million, respectively.

Funds used for financing activities totaled $107.4 million for the nine months ended March 31, 2011. The primary uses included a $70.0 million decrease in fixed rate legacy FHLB long-term advances, a $16.3 million decrease in wholesale time deposits, a $12.5 million decrease in other short-term borrowings, and an $8.0 million decrease in retail certificates of deposit. The decrease in FHLB long-term advances reflects paydowns on matured high cost FHLB legacy advances using cash flow from the Company’s investment portfolio. The Company chose to repay $16.3 million of wholesale time deposits and $12.5 million of other short-term borrowings using cash flow from repayments on mortgage-backed securities. The $8.0 million decrease in retail time deposits was primarily attributable to a matured $4 million cash management CD for a local government unit and seasonal withdrawals for the payment of local, county and school taxes by depositors. Management believes that a significant portion of our local maturing deposits will remain with the Company.

The Company’s primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. Certificates of deposit scheduled to mature in one year or less at March 31, 2011 totaled $72.6 million. At March 31, 2011, the Company had outstanding $38.5 million of certificates of deposits (CD’s) issued through the CDARS One-Way Buy Program. CDARS CD’s totaling $32.0 million reprice on a monthly basis at LIBOR plus 14 basis points and mature on April 7, 2011. CDARS CD’s totaling $6.5 million mature on April 14, 2011 and carry a fixed rate of interest at 0.60%. The Company intends to repay the maturing wholesale CD’s with investment and MBS cash flows and an increase in other short-term borrowings during fiscal 2011.

At March 31, 2011, the Company also had $496 thousand of other brokered CD’s which carried fixed rates of interest ranging from 0.50% to 0.60% with various maturities through July 19, 2011. During the nine months ended March 31, 2011, approximately $5.6 million of other brokers CD’s matured and were repaid.

Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. At March 31, 2011, total approved loan commitments outstanding amounted to approximately $36 thousand. At the same date, commitments under unused lines of credit amounted to $5.1 million and the unadvanced portion of construction loans approximated $5.8 million. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances, and FRB and other borrowings, to provide the cash utilized in investing activities. During the quarter ended March 31, 2010, the Company began to utilize whole-sale deposits in order to rebalance its short-term liability structure. The use of whole-sale deposits also allows the Company to match its corporate bond maturities and cash-flows from its private-label CMO securities. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.

On April 26, 2011, the Company’s Board of Directors declared a cash dividend of $0.04 per share payable May 26, 2011, to shareholders of record at the close of business on May 9, 2011. Dividends are subject to determination and declaration by the Board of Directors, which take into account the Company’s financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the Common Stock in future periods or that, if paid, such dividends will not be reduced or eliminated.

Recently, the Savings Bank learned the results of a targeted regulatory visitation and review of the Savings Bank’s asset quality, earnings performance and capital protection. The review was primarily related to the Savings Bank’s private label mortgage-backed securities portfolio as a result of the previously reported downgrades of certain private-label CMO’s within the Savings Bank’s investment portfolio by one or more national rating agencies. In connection with the regulatory review, the Savings Bank agreed to take certain actions to monitor and improve related asset quality in relation to regulatory capital. These actions include: additional documentation and monitoring procedures relating to its assessment of other than temporary impairment and market (fair) value estimates, the submission of a capital plan to its regulators, and to seek prior non-objection from its banking regulators for any dividends payable by the Savings Bank to the Company. The Company has made similar commitments to the Federal Reserve. 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 today’s economic environment. The Company believes that its liquidity is strong with liquid assets totaling approximately $1.2 million. This level of liquidity could support operating expenses and the current dividend for about two years without any dividend income from the Savings Bank. Dividends are subject to declaration by the Board of Directors, which take into account the Company’s 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.

As of March 31, 2011, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Tier I and total risk-based capital equal to $30.2 million or 20.4% and $30.9 million or 20.9%, respectively, of total risk-weighted assets, and Tier I leverage capital of $30.2 million or 11.50% of average quarterly assets.

Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan.

The Company’s nonperforming assets at March 31, 2011 totaled approximately $2.4 million or 1.0% of total assets as compared to $1.7 million or 0.5% of total assets at June 30, 2010. Nonperforming assets at March 31, 2011 consisted of: four single-family real estate loans totaling $1.0 million, two single-family construction loans totaling $1.0 million, and two home equity lines of credit totaling $359 thousand. These loans are in various stages of collection activity.

The $736 thousand increase in nonperforming assets during the nine months ended March 31, 2011 was attributable to the classification to non-performing status of two single-family construction loans totaling $1.0 million, which were partially offset by the reclassification to performing status of one single family real estate loan totaling $286 thousand.

During the nine months ended March 31, 2011, approximately $107 thousand of interest income would have been recorded on loans accounted for on a non-accrual basis if such loans had been current according to the original loan agreements for the entire period. These amounts were not included in the Company’s interest income for the nine months ended March 31, 2011. The Company continues to work with the borrowers in an attempt to cure the defaults and is also pursuing various legal avenues in order to collect on these loans.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET AND LIABILITY MANAGEMENT

The Company’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in 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 organization’s 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 Company’s earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company’s safety and soundness.

Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization’s quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality.

Since December 2007 and into fiscal 2011, 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 world’s 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 country’s 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 November 3, 2010, the Federal Open Market Committee (FOMC) decided to expand the Federal Reserve’s holdings of securities to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. In particular, the FOMC decided to purchase an additional $600 billion of longer-term U.S. Treasury securities by June 30, 2011. The Federal Reserve will also continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term U.S. Treasury securities. Based on its estimates at the time, the Federal Reserve expected to reinvest about $250 - $300 billion of principal repayments. Taken together, the Federal Reserve anticipates purchasing approximately $850 - $900 billion of longer-term U.S. Treasury securities through June 30, 2011.

Throughout the nine months ended March 31, 2011, the Company continued to adjust its asset/liability management tactics in two ways. First, we substantially increased our Tier 1 capital to average assets ratio from 8.21% at June 30, 2010 to 11.50% at March 31, 2011. We accomplished this primarily by reducing both Company assets and borrowings. With market interest rates at historical lows, we believed that the risks of maintaining a leveraged balance sheet far exceed the additional potential income that could be

earned. Second, we reduced overall borrowings and changed the composition of our wholesale funding sources. We reduced our overall borrowings by $82.5 million. Legacy FHLB long-term borrowings were reduced by $70.0 million, while short-term borrowings decreased $12.5 million. We also utilized two sources of wholesale funding: the CDARS One-Way Buy Program and the limited use of other deposit brokers. We believe that the CDARS One-Way Buy Program makes financial sense because it allows us to issue CDs that price monthly using the same LIBOR index used by our floating-rate MBS. The CDARS CD’s, along with the other brokered CD’s, also allow us to better match cash flow from our maturing corporate bond investments and monthly principal repayments from the MBS portfolio.

Looking ahead, we continue to believe that our net interest income will improve in fiscal year 2011 primarily through the reduction of interest expense on long-term fixed rate legacy FHLB advances. Our legacy long-term fixed rate FHLB advances, taken out a number of years ago when interest rates were higher, will mature as shown below.


Quarter Ended	Amount/$MM	Weighted Avg. Rate
06/30/11	$17.0	5.28%

We expect to repay a substantial portion of these legacy long-term FHLB advances as they mature, and to reprice any amounts not repaid at much lower rates of interest.

Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn interest at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will either have lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

During the nine months ended March 31, 2011, intermediate and long-term market interest rates fluctuated considerably. Many central banks, including the Federal Reserve began a second phase of quantitative easing to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates. In response to these market conditions, the Company reduced the overall level of both assets and liabilities. Asset levels were reduced in light of considerably lower market yields and narrowing credit spreads. Borrowings were reduced by utilizing investment cash flow and to lower related interest expense. These actions also allowed us to increase our Tier 1 leverage and risk-based capital ratios. In the December 2010 quarter, intermediate and long-term market interest rates began to rise, when compared to the quarter ended September 30, 2010. This enabled the Company to begin to buy callable U.S. Government agency step-up notes in the December 2010 and March 2011 quarters.

The table below shows the quarterly targeted federal funds rate and the benchmark two and ten year treasury yields from June 30, 2007 through March 31, 2011. The difference in yields on the two year and ten year Treasury’s 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 Treasury	Ten (10) Year Treasury	Shape of Yield Curve

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%	3.46%	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 Company’s loan, investment and mortgage-backed securities portfolios. Principal repayments on the Company’s loan, investment and mortgage-backed securities portfolios for the nine months ended March 31, 2011, totaled $14.7 million, $102.4 million and $58.3 million, respectively. Due to stagnant global interest rates and Treasury yields we continued to reduce our overall borrowed funds position. The Company continued to rebalance its investment portfolio by using proceeds from calls of U.S. Government agency bonds, repayments on its mortgage-backed securities and maturities of bank certificates of deposit to pay down borrowings. This strategy has allowed the Company to improve its liquidity posture while managing overall interest rate risk and strengthening 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 Bank’s market area. We expect that the housing market will continue to be weak throughout fiscal 2011. 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 the nine months ended March 31, 2011, principal investment purchases were comprised of: callable U.S. Government agency single and multiple step-up bonds with initial lock-out periods ranging from 3 to 6 months - $47.7 million with a weighted average yield to call of 1.61%; short-term investment grade commercial paper - $5.5 million with a weighted average yield of 0.56%; fixed rate investment grade foreign bonds - $3.7 million with a weighted average yield of 1.13%; floating rate investment grade corporate bonds - $3.0 million with a weighted average yield of 1.16%; and tax free municipal bonds - $600 thousand with a yield of 1.43%. The

Company also invested in FDIC bank insured certificates of deposit totaling $3.0 million with a weighted average yield of 1.06%. Single step-up bonds have one “step” or increase in coupon. Multiple step-up bonds have more than one step or increase in coupon.

Major investment proceeds received during the nine months ended March 31, 2011 were: callable U.S. Government agency bonds - $52.0 million with a weighted average yield of approximately 2.41%; investment grade corporate bonds - $35.4 million with a weighted average yield of approximately 3.07%; investment grade foreign bonds - $6.6 million with a weighted average yield of 1.62%; short-term investment grade commercial paper - $5.5 million with a weighted average yield of 0.56%; investment grade corporate utility first mortgage bonds - $1.6 million with a weighted average yield of 5.99%; and tax free municipal bonds - $900 thousand with a weighted average taxable equivalent yield to maturity of 2.21%. The Company also had $5.4 million in FDIC insured bank certificates of deposit redeemed with a weighted average yield of approximately 1.72%.

As of March 31, 2011, the implementation of these asset and liability management initiatives resulted in the following:

$57.3 million or 33.8% of the Company’s investment portfolio was comprised of floating rate mortgage-backed securities (including collateralized mortgage obligations – “CMOs”) that reprice on a monthly basis;

$44.3 million or 26.1% of the Company’s investment portfolio consisted of investment grade fixed-rate corporate bonds with remaining maturities as follows: 3 months or less - $8.0 million or 18.1%; 3 – 12 months - $8.8 million or 19.9%; 1 – 2 years - $8.8 million or 19.9%; 2 – 3 years - $11.4 million or 25.7%; 3 – 5 years - $2.0 million or 4.5%; and over 5 years - $5.3 million or 11.9%;

$47.8 million or 28.2% of the Company’s investment portfolio was comprised of callable U.S. Government Agency single step-up or multiple step-up bonds which are callable within 1 – 5 months. 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;

$6.2 million or 2.5% of the Company’s total assets consisted of FDIC insured bank certificates of deposit with remaining maturities ranging from two to fifteen months;

$2.6 million or 1.5% of the Company’s investment portfolio was comprised of fixed-rate callable U.S. Government Agency bonds which are callable as follows: 6 months or less - $2.6 million. 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;

$4.0 million or 2.4% of the Company’s investment portfolio consisted of investment grade floating-rate corporate bonds which will reprice within three months and will mature within ten to twenty two months;

An aggregate of $30.0 million or 57.5% of the Company’s net loan portfolio had adjustable interest rates or maturities of less than 12 months; and

The maturity distribution of the Company’s borrowings is as follows: 3 months or less - $17.0 million or 43.0%; 3 – 12 months - $5.0 million or 12.7%; 3 – 5 years - $5.0 million or 12.7%; and over 5 years - $12.5 million or 31.6%.

The effect of interest rate changes on a financial institution’s assets and liabilities may be analyzed by examining the “interest rate sensitivity” of the assets and liabilities and by monitoring an institution’s interest rate sensitivity “gap”. An asset or liability is 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. 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 Company’s interest-earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within one year.


	March 31,			June 30,
	2011			2010			2009
	(Dollars in Thousands)
Interest-earning assets maturing or repricing within one year	$	184,622		$	243,519		$	326,316
Interest-bearing liabilities maturing or repricing within one year		148,901			248,813			228,295


Interest sensitivity gap	$	35,721		$	(5,294	)	$	98,021

Interest sensitivity gap as a percentage of total assets		14.44	%		-1.49	%		23.37	%
Ratio of assets to liabilities maturing or repricing within one year		123.99	%		97.87	%		142.94	%

During the nine months ended March 31, 2011, the Company managed its one year interest sensitivity gap by: (1) Repaying $70.0 million of maturing legacy FHLB long-term debt; and (2) Repaying $10.7 million of floating rate and $2.0 million of fixed rate CDARS CDs; and (3) Repaying $5.6 million of fixed rate other brokered CD’s.

The following table illustrates the Company’s 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 March 31, 2011. 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
Cummulative Gap ($’s)	$	30,538		$	29,489		$	31,955		$	38,556		$	52,626		$	42,751		$	28,724
% of Total Assets		12.3	%		11.9	%		12.9	%		15.6	%		21.3	%		17.3	%		11.6	%
Base Case Up 100 bp
Cummulative Gap ($’s)	$	30,911		$	30,156		$	33,084		$	40,222		$	54,615		$	44,928		$	28,724
% of Total Assets		12.5	%		12.2	%		13.4	%		16.3	%		22.1	%		18.2	%		11.6	%
Base Case No Change
Cummulative Gap ($’s)	$	31,762		$	31,707		$	35,721		$	43,437		$	57,922		$	47,824		$	28,724
% of Total Assets		12.8	%		12.8	%		14.4	%		17.6	%		23.4	%		19.3	%		11.6	%
Base Case Down 100 bp
Cummulative Gap ($’s)	$	41,167		$	44,842		$	44,014		$	46,071		$	60,642		$	49,165		$	28,724
% of Total Assets		16.6	%		18.1	%		17.8	%		18.6	%		24.5	%		19.9	%		11.6	%
Base Case Down 200 bp
Cummulative Gap ($’s)	$	41,215		$	44,928		$	44,145		$	46,219		$	60,760		$	49,165		$	28,724
% of Total Assets		16.7	%		18.2	%		17.8	%		18.7	%		24.6	%		19.9	%		11.6	%

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 Company’s loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company’s borrowings.

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 March 31, 2011. This analysis was done assuming that the interest-earning assets will average approximately $237 million and $275 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 March 31, 2011. 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
	March 31, 2012											March 31, 2011
Estimated impact on:		-200		-100		0		+100		+200			-200			-100			0			+100			+200

Change in net interest income		-6.8	%	-5.4	%	-		5.5	%	12.4	%		-8.3	%		-7.8	%		-			3.3	%		8.0	%
Return on average equity		5.09	%	5.29	%	5.98	%	6.69	%	7.58	%		3.68	%		3.75	%		4.73	%		5.16	%		5.75	%
Return on average assets		0.55	%	0.57	%	0.65	%	0.74	%	0.84	%		0.46	%		0.46	%		0.57	%		0.63	%		0.70	%
Market value of equity (in thousands)												$	30,474		$	30,679		$	31,032		$	30,730		$	27,906

The Company’s third quarter and fiscal year to date earnings were positively impacted by lower interest expenses associated with repaying the Bank’s fixed rate legacy long-term FHLB advances. During the quarter and nine months ended March 31, 2011, we repaid $10 million and $70 million, respectively, of long-term FHLB advances, which had average rates of 4.99% and 5.49%, respectively.

Market interest rates continued to remain low by historical standards throughout the nine months ended March 31, 2011. In response to this environment, we continued to reduce our balance sheet by repaying fixed rate legacy long-term FHLB advances and wholesale deposits. These actions allowed us to further strengthen our Tier 1 leverage capital ratio from 8.21% at June 30, 2010 to 11.50% at March 31, 2011. As market conditions improve, we may begin to grow our asset base.

The table below provides information about the Company’s anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed letters and lines of credit, at March 31, 2011. The Company used no derivative financial instruments to hedge such anticipated transactions as of March 31, 2011.


Anticipated Transactions
	(Dollars in Thousands)
Undisbursed construction and land development loans
Fixed rate	$	1,793
		6.60	%

Adjustable rate	$	4,036
		4.30	%
Undisbursed lines of credit
Adjustable rate	$	5,059
		3.78	%

Loan origination commitments
Fixed rate	$	36
		5.75	%

Letters of credit
Adjustable rate	$	142
		4.25	%


	$	11,066

In the ordinary course of its construction lending business, the Savings Bank enters into performance standby letters of credit. Typically, the standby letters of credit are issued on behalf of a builder to a third party to ensure the timely completion of a certain aspect of a construction project or land development. At March 31, 2011, the Savings Bank had one performance standby letter of credit outstanding totaling approximately $142 thousand. The performance letter of credit is secured by developed property. The letter of credit will mature within six months. In the event that the obligor is unable to perform its obligations as specified in the applicable letter of credit agreement, the Savings Bank would be obligated to disburse funds up to the amount specified in the letter of credit agreement. The Savings Bank maintains adequate collateral that could be liquidated to fund these contingent obligations.

ITEM 4.

CONTROLS AND PROCEDURES

As of March 31, 2011, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Accounting Officer, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2011.

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 Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s 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 Company’s management, including the principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2011, no change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

Legal Proceedings

The Company previously reported, under Item 3(a) of its Annual Report on Form 10-K for the fiscal year ended June 30, 2009, a lawsuit filed by Plaintiff Matthew Dragotta against West View Savings Bank. The Plaintiff alleged that West View Savings Bank failed to comply with the notification requirements of the Electronic Funds Transfer Act, 15 U.S.C.§ 1693 et. Seq. before a bank can impose a transaction fee for the use of an automated teller machine. On August 24, 2009 U.S. District Judge, Terrance P. McVerry issued an order granting the Bank’s motion to Dismiss the lawsuit.

On September 3, 2009, the Plaintiff filed a motion for Reconsideration of Judge McVerry’s order granting the Bank’s motion to Dismiss the lawsuit.

On October 16, 2009, Judge McVerry denied the Plaintiff’s Motion for Reconsideration.

On November 4, 2009, the Plaintiff provided a Notice of Appeal to the United States Court of Appeals for the Third Circuit appealing Judge McVerry’s orders of September 3 and October 16, 2009.

On September 28, 2010 the United States Court of Appeals for the Third Circuit vacated Judge McVerry’s orders and remanded the case to the U.S. District Court for further proceedings.

During the quarter ended December 31, 2010, the Plaintiff and the Savings Bank agreed to settle this lawsuit. The settlement will be structured as a class action. In connection with the settlement, the Savings Bank agreed to refund ATM fees collected and to pay a negotiated amount of the Plaintiff’s attorney’s fees and litigation costs. The Savings Bank decided to settle this lawsuit for $81 thousand in order to avoid the costs of protracted litigation. In connection with the settlement, the Savings Bank recorded a non-recurring charge of $81 thousand during the quarter ended December 31, 2010.

On March 7, 2011, U.S. District Judge Terrence F. McVerry issued an order preliminarily approving a class action settlement, directed the dissemination of notice and set a final settlement hearing date for June 16, 2011.

The Company is involved with various legal actions arising in the ordinary course of business. Management believes the outcome of these matters will have no material effect on the consolidated operations or consolidated financial condition of WVS Financial Corp.

ITEM 1A.

Risk Factors

There are no material changes to the risk factors included in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

ITEM 3.

Defaults Upon Senior Securities

Not applicable.

ITEM 4.

(Removed and Reserved)

ITEM 5.

Other Information

(a) Not applicable.

(b) Not applicable.

ITEM 6.

Exhibits

The following exhibits are filed as part of this Form 10-Q, and this list includes the Exhibit Index.


Number	Description	Page

31.1	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer	E-1

31.2	Rule 13a-14(a) / 15d-14(a) Certification of the Chief Accounting Officer	E-2

32.1	Section 1350 Certification of the Chief Executive Officer	E-3

32.2	Section 1350 Certification of the Chief Accounting Officer	E-4

99	Report of Independent Registered Public Accounting Firm	E-5

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WVS FINANCIAL CORP.

May 13, 2011	BY:	/s/ David J. Bursic
Date		David J. Bursic President and Chief Executive Officer (Principal Executive Officer)

May 13, 2011	BY:	/s/ Keith A. Simpson
Date		Keith A. Simpson Vice-President, Treasurer and Chief Accounting Officer (Principal Accounting Officer)