WVS FINANCIAL CORP - Quarter Report: 2015 December (Form 10-Q)

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 December 31, 2015

[ ]

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 X 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.


Large accelerated filer		Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)		Smaller reporting company X

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 February 10, 2016: 2,039,129 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 December 31, 2015 and June 30, 2015 (Unaudited)	3

	Consolidated Statement of Income for the Three and Six Months Ended December 31, 2015 and 2014 (Unaudited)	4

	Consolidated Statement of Comprehensive Income for the Three and Six Months Ended December 31, 2015 and 2014 (Unaudited)	5

	Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended December 31, 2015 (Unaudited)	6

	Consolidated Statement of Cash Flows for the Six Months Ended December 31, 2015 and 2014 (Unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2015	42

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50

Item 4.	Controls and Procedures	56

PART II.	Other Information	Page

Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
	Signatures	60

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)


	December 31, 2015			June 30, 2015
Assets
Cash and due from banks		$ 2,594			$ 1,839
Interest-earning demand deposits		280			1,734

Total cash and cash equivalents		2,874			3,573
Certificates of deposit		350			350
Investment securities available-for-sale (amortized cost of $93,074 and $66,968)		92,803			66,916
Investment securities held-to-maturity (fair value of $11,328 and $36,979)		11,029			36,618
Mortgage-backed securities held-to-maturity (fair value of $152,461 and $163,265)		152,038			162,639
Net loans receivable (allowance for loan losses of $351 and $304)		57,784			46,163
Accrued interest receivable		1,433			1,198
Federal Home Loan Bank (FHLB) stock, at cost		6,471			6,619
Premises and equipment, net		588			630
Bank owned life insurance		4,343			4,276
Deferred tax assets (net)		563			524
Other assets		142			210

TOTAL ASSETS		$ 330,418			$ 329,716


Liabilities and Stockholders’ Equity
Liabilities:
Deposits
Non-interest-bearing accounts		$ 19,776			$ 17,806
NOW accounts		22,628			20,238
Savings accounts		44,824			45,092
Money market accounts		23,752			23,601
Certificates of deposit		29,558			31,326
Advance payments by borrowers for taxes and insurance		918			865

Total deposits		141,456			138,928
Federal Home Loan Bank advances: long-term – fixed rate		12,500			12,500
Federal Home Loan Bank advances: long-term – variable rate		105,305			105,305
Federal Home Loan Bank advances: short-term		35,133			37,830
Accrued interest payable		168			156
Other liabilities		3,527			2,954

TOTAL LIABILITIES		298,089			297,673


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 shares issued; 2,039,129 and 2,040,719 shares outstanding		38			38
Additional paid-in capital		21,485			21,485
Treasury stock: 1,766,507 and 1,764,917 shares at cost, respectively		(26,905	)		(26,886	)
Retained earnings, substantially restricted		39,713			39,353
Accumulated other comprehensive loss		(541	)		(461	)
Unallocated Employee Stock Ownership Plan (“ESOP”) shares		(1,461	)		(1,486	)

TOTAL STOCKHOLDERS’ EQUITY		32,329			32,043

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$ 330,418			$ 329,716

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except share and per share data)


	Three Months Ended December 31,				Six Months Ended December 31,
	2015		2014		2015		2014
INTEREST AND DIVIDEND INCOME:
Loans, including fees		$ 567		$ 380		$ 1,089		$ 752
Investment securities—taxable		461		336		968		631
Mortgage-backed securities		509		754		1,023		1,549
Certificates of deposit		2		2		3		4
Interest-earning demand deposits		-		-		1		-
FHLB Stock		83		65		174		120

Total interest and dividend income		1,622		1,537		3,258		3,056


INTEREST EXPENSE:
Deposits		54		55		106		114
Federal Home Loan Bank advances – long-term – fixed rate		142		142		284		284
Federal Home Loan Bank advances – long-term – variable rate		91		73		173		143
Federal Home Loan Bank advances – short-term		32		15		60		32
Other short-term borrowings		1		-		8		-

Total interest expense		320		285		631		573


NET INTEREST INCOME		1,302		1,252		2,627		2,483
PROVISION FOR LOAN LOSSES		28		18		47		21

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,274		1,234		2,580		2,462


NON-INTEREST INCOME:
Service charges on deposits		41		44		84		86
Earnings on Bank Owned Life Insurance		33		35		67		70
Investment securities gains		21		-		21		-
Other		61		66		124		128

Total non-interest income		156		145		296		284


NON-INTEREST EXPENSE:
Salaries and employee benefits		565		549		1,108		1,082
Occupancy and equipment		80		78		164		155
Data processing		56		58		114		118
Correspondent bank service charges		10		9		20		19
Federal deposit insurance premium		49		45		98		91
Other		184		249		381		438

Total non-interest expense		944		988		1,887		1,903


INCOME BEFORE INCOME TAXES		486		391		989		843
INCOME TAX EXPENSE		193		125		385		278

NET INCOME		$ 293		$ 266		$ 604		$ 565


EARNINGS PER SHARE:
Basic		$ 0.15		$ 0.14		$ 0.32		$ 0.29
Diluted		$ 0.15		$ 0.14		$ 0.32		$ 0.29

AVERAGE SHARES OUTSTANDING:
Basic		1,910,190		1,949,046		1,909,026		1,954,213
Diluted		1,910,190		1,949,046		1,909,026		1,954,213

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)


	Three Months Ended December 31,						Six Months Ended December 31,
	2015			2014			2015			2014

NET INCOME	$	293		$	266		$	604		$	565

OTHER COMPREHENSIVE INCOME (LOSS)

Investment securities available for sale not other-than-temporarily impaired:
Losses arising during the year		(211	)		(97	)		(199	)		(159	)
Less: Income tax effect		(72	)		(34	)		(68	)		(55	)

		(139	)		(63	)		(131	)		(104	)
Gains recognized in earnings		(21	)		-			(21	)		-
Income tax effect		(7	)		-			(7	)		-

		(14	)		-			(14	)		-


Unrealized holdings losses on securities available for sale not other-than-temporarily impaired, net of tax		(153	)		(63	)		(145	)		(104	)


Investment securities held to maturity other-than-temporarily impaired:
Accretion of other comprehensive loss on other-than-temporarily impaired securities held to maturity		45			39			99			100
Less: Income tax effect		16			14			34			35

		29			25			65			65


Unrealized holding gains on other-than-temporarily impaired securities held to maturity, net of tax		29			25			65			65


Unrealized holdings losses on securities, net		(124	)		(38	)		(80	)		(39	)


Other comprehensive loss		(124	)		(38	)		(80	)		(39	)


COMPREHENSIVE INCOME	$	169		$	228		$	524		$	526

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 Loss			Unallocated ESOP Shares			Total
Balance June 30, 2015		$ 38		$ 21,485		$ (26,886	)		$ 39,353			$ (461	)		$ (1,486	)		$32,043

Net income									604									604

Other comprehensive loss												(80	)					(80	)

Purchase of treasury stock (1,590 shares)						(19	)											(19	)

Release of ESOP shares															25			25

Cash dividends declared ($0.12 per share)									(244	)								(244	)


Balance December 31, 2015		$ 38		$ 21,485		$ (26,905	)		$ 39,713			$ (541	)		$ (1,461	)		$32,329

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Six Months Ended December 31,
	2015			2014
OPERATING ACTIVITIES

Net income	$	604		$	565
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		47			21
Depreciation		49			43
Gain on sale of other real estate owned		-			(5	)
Gain on sale of investment securities		(21	)		-
Amortization of discounts, premiums and deferred loan costs		1,048			196
Deferred income taxes		(39	)		(3	)
Increase (decrease) in prepaid/accrued income taxes		15			(44	)
Earnings on bank owned life insurance		(67	)		(70	)
(Increase) decrease in accrued interest receivable		(235	)		30
Increase (decrease) in accrued interest payable		12			(10	)
Increase in deferred director compensation payable		14			7
Other, net		137			94

Net cash provided by operating activities		1,564			824


INVESTING ACTIVITIES

Available-for-sale:
Purchase of investment securities		(37,399	)		(1,826	)
Proceeds from repayments of investments		9,714			8,333
Sale of investment securities		1,024			-
Held-to-maturity:
Purchases of investment securities		(9,358	)		(26,720	)
Purchases of mortgage-backed securities		(6,750	)		(11,958	)
Proceeds from repayments of investments		34,966			19,688
Proceeds from repayments of mortgage-backed securities		17,473			32,892
Purchase of certificates of deposit		(100	)		(100	)
Maturities/redemptions of certificates of deposit		100			348
Increase in net loans receivable		(11,667	)		(6,058	)
Proceeds from sale of other real estate owned		-			251
Purchase of FHLB stock		(3,167	)		(8,385	)
Redemption of FHLB stock		3,315			9,703
Acquisition of premises and equipment		(7	)		(59	)

Net cash (used for) provided by investing activities		(1,856	)		16,108

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Six Months Ended December 31,
	2015			2014
FINANCING ACTIVITIES

Net increase in transaction and savings accounts	$	4,243		$	1,262
Net decrease in certificates of deposit		(1,768	)		(1,817	)
Net increase in advance payments by borrowers for taxes and insurance		53			125
Proceeds from FHLB long-term advances – variable rate		-			6,109
Net decrease in FHLB short-term advances		(2,697	)		(21,226	)
Purchase of treasury stock		(19	)		(72	)
Increase in unallocated ESOP shares		-			(248	)
Release of ESOP shares		25			-
Cash dividends paid		(244	)		(165	)

Net cash used for financing activities		(407	)		(16,032	)


Increase (decrease) in cash and cash equivalents		(699	)		901

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		3,573			1,360


CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	$	2,874		$	2,261


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:
Interest on deposits and borrowings	$	619		$	583
Income taxes	$	367		$	312

Non-cash items:
Unsettled security purchases	$	549		$	-
Bonds received from issuer exchange offer	$	1,002		$	-
Educational Improvement Tax Credit	$	-		$	33
Mortgage loans transferred to other real estate owned	$	-		$	246

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 (GAAP). 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 six months ended December 31, 2015, are not necessarily indicative of the results which may be expected for the entire fiscal year.

2.	RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. The Company has included the disclosures related to this Update in Note 11.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from U.S. GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-04, Compensation – Retirement Benefits (Topic 715), as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years

beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation And Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.

The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. 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 December 31,						Six Months Ended December 31,
	2015			2014			2015			2014
Weighted average common shares issued		3,805,636			3,805,636			3,805,636			3,805,636
Average treasury stock shares		(1,766,507	)		(1,755,206	)		(1,766,429	)		(1,754,866	)
Average unallocated ESOP shares		(128,939	)		(101,384	)		(129,481	)		(96,557	)


Weighted average common shares and common stock equivalents used to calculate basic earnings per share		1,910,190			1,949,046			1,909,726			1,954,213
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		1,910,190			1,949,046			1,909,726			1,954,213

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 December 31, 2015, and 2014, there were 114,519 options outstanding with an exercise price of $16.20 which were anti-dilutive for the three and six 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 over five years of continuous service and have ten-year contractual terms.

During the six month periods ended December 31, 2015 and 2014, the Company recorded $0 in compensation expense related to our share-based compensation awards. As of December 31, 2015, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009.

The Company had no non-vested stock options outstanding at December 31, 2015 and 2014. There were no stock options exercised or issued during the six months ended December 31, 2015 and 2014.

5.	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)
December 31, 2015

AVAILABLE FOR SALE
Corporate debt securities	$		86,670	$		11	$		(271	)	$		86,410
Foreign debt securities ¹			5,702			-			(12	)			5,690
Obligations of states and political subdivisions			702			1			-				703


Total	$		93,074	$		12	$		(283	)	$		92,803


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
		(Dollars in Thousands)
December 31, 2015

HELD TO MATURITY
U.S. government agency securities	$		2,127	$		3	$		-	$		2,130
Corporate debt securities			3,547			251			-			3,798
Obligations of states and political subdivisions			5,355			45			-			5,400


Total	$		11,029	$		299	$		-	$		11,328


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
		(Dollars in Thousands)
June 30, 2015

AVAILABLE FOR SALE
Corporate debt securities	$		60,968	$		63	$		(93	)	$		60,938
Foreign debt securities ¹			5,298			-			(17	)			5,281
Obligations of states and political subdivisions			702			-			(5	)			697


Total	$		66,968	$		63	$		(115	)	$		66,916

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



		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
		(Dollars in Thousands)
June 30, 2015

HELD TO MATURITY
U.S. government agency securities	$		27,395	$		5	$		(94	)	$		27,306
Corporate debt securities			3,868			371			-				4,239
Obligations of states and political subdivisions ²			5,355			79			-				5,434


Total	$		36,618	$		455	$		(94	)	$		36,979

During the three and six months ended December 31, 2015, the Company recorded gross realized investment securities gains of $21 thousand. Proceeds from sales of investment during the three and six months ended December 31, 2015 were $1.0 million. There were no sales of investment securities for the three and six months ended December 31, 2014.

The amortized cost and fair values of debt securities at December 31, 2015, 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 two years				Due after two through three years				Due after three through five years				Due after five through ten years				Due after ten years				Total
		(Dollars in Thousands)
AVAILABLE FOR SALE
Amortized cost	$		48,229		$		43,852		$		-		$		993		$		-		$		-		$		93,074
Fair value			48,145				43,669				-				989				-				-				92,803
Weighted average yield			1.43	%			1.60	%			-	%			1.87	%			-	%			-	%			1.51	%

HELD TO MATURITY
Amortized cost	$		524		$		2,338		$		2,045		$		1,250		$		2,745		$		2,127		$		11,029
Fair value			539				2,413				2,206				1,260				2,780				2,130				11,328
Weighted average yield			6.15	%			4.54	%			5.22	%			2.77	%			3.34	%			1.84	%			3.72	%

At December 31, 2015, investment securities with amortized costs of $3.5 million, and fair values of $3.5 million were pledged to secure borrowings with the Federal Home Loan Bank (“FHLB”). At June 30, 2015, no investment securities were pledged to secure public deposits, repurchase agreements, or borrowings with the Federal Home Loan Bank.

6.	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.

²	U.S. dollar denominated investment-grade corporate bonds of large foreign corporate issuers.

The Company’s CMO portfolio is comprised of two segments: CMOs backed by U.S. Government Agencies (“Agency CMOs”) and CMOs backed by single-family whole loans not guaranteed by a U.S. Government Agency (“private-label CMOs”).

At December 31, 2015, the Company’s Agency CMOs totaled $150.3 million as compared to $160.6 million at June 30, 2015. The Company’s private-label CMOs totaled $1.7 million at December 31, 2015 as compared to $2.0 million at June 30, 2015. The $10.6 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $17.1 million and $383 thousand, respectively, which were partially offset by purchases of U.S. Government agency CMOs totaling $6.7 million. During the six months ended December 31, 2015, the Company received principal payments totaling $383 thousand on its private-label CMOs. At December 31, 2015, approximately $152.0 million or 100.0% (book value) of the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments, as compared to $162.6 million or 100.0% at June 30, 2015. 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 Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. The private-label CMO portfolio had three previously recorded other-than-temporary impairments at December 31, 2015. During the six months ending December 31, 2015, the Company reversed $99 thousand of non-credit unrealized holding losses on its three private-label CMOs with OTTI due to principal repayments. During the six months ended December 31, 2015, the Company recorded no additional credit impairment charges on its private-label CMO portfolio.

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 following table sets forth information with respect to the Company’s private-label CMO portfolio as of December 31, 2015. At the time of purchase, all of our private-label CMOs were rated in the highest investment category by at least two ratings agencies.


		At December 31, 2015
		Rating			Book Value		Fair Value³		Life to Date Impairment Recorded in Earnings
Cusip #	Security Description	S&P	Moody’s	Fitch	(in thousands)
126694CP1	CWHL SER 21 A11	N/A	Caa2	D	$	920	$	1,183	$	201
126694KF4	CWHL SER 24 A15	D	N/A	D		625		653		118
126694MP0	CWHL SER 26 1A5	D	N/A	D		195		204		36

					$	1,740	$	2,040	$	355

³	Fair value estimate provided by the Company’s independent third party valuation consultant.

The amortized cost and fair values of the Company’s mortgage-backed securities are as follows:


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

		(Dollars in Thousands)
December 31, 2015
HELD TO MATURITY

Collateralized mortgage obligations:
Agency	$		150,298	$		1,002	$		(879	)	$		150,421
Private-label			1,740			300			-				2,040


Total	$		152,038	$		1,302	$		(879	)	$		152,461


		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

		(Dollars in Thousands)
June 30, 2015
HELD TO MATURITY

Collateralized mortgage obligations:
Agency	$		160,614	$		1,130	$		(909	)	$		160,835
Private-label			2,025			405			-				2,430


Total	$		162,639	$		1,535	$		(909	)	$		163,265

The amortized cost and fair value of the Company’s mortgage-backed securities at December 31, 2015, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Due in one year or less				Due after one through five years				Due after five through ten years				Due after ten years				Total
										(Dollars in Thousands)

HELD TO MATURITY
Amortized cost	$		-		$		-		$		-		$		152,038		$		152,038
Fair value			-				-				-				152,461				152,461
Weighted average yield			-	%			-	%			-	%			1.40	%			1.40	%

At December 31, 2015, mortgage-backed securities with amortized costs of $150.3 million and fair values of $150.4 million were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $32.2 million of fair value was excess collateral. At June 30, 2015 mortgage-backed securities with an amortized cost of $144.1 million and fair values of $144.2 million, were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $6.7 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

7.	ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in accumulated other comprehensive loss by component, for the three and six months ended December 31, 2015 and 2014.


	Three Months Ended December 31, 2015
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – September 30, 2015	$	(27	)	$	(390	)	$	(417	)

Other comprehensive income (loss) before reclassifications		(139	)		29			(110	)

Amounts reclassified from accumulated other comprehensive loss		(14	)		-			(14	)


Net current-period other comprehensive income (loss)		(153	)		29			(124	)


Ending Balance – December 31, 2015	$	(180	)	$	(361	)	$	(541	)


	Six Months Ended December 31, 2015
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – June 30, 2015	$	(35	)	$	(426	)	$	(461	)

Other comprehensive income (loss) before reclassifications		(131	)		65			(66	)

Amounts reclassified from accumulated other comprehensive loss		(14	)		-			(14	)


Net current-period other comprehensive income (loss)		(145	)		65			(80	)


Ending Balance – December 31, 2015	$	(180	)	$	(361	)	$	(541	)

The following table presents the amounts reclassified out of accumulated other comprehensive income for the three and six months ended December 31, 2015.


	Amount Reclassified from Accumulated Other Comprehensive Income
Details About Accumulated Other Comprehensive Income Components:	Three months ended December 31, 2015			Six months ended December 31, 2015			Affected Line Item in the Statement Where Net Income is Presented
	(Dollars in Thousands)
Unrealized gains and losses on available-for-sale securities	$	(21	)	$	(21	)	Investment security gains

		(21	)		(21	)	Total before tax
		(7	)		(7	)	Income tax expense

		(14	)		(14	)	Net of tax

Total reclassifications for the period	$	(14	)	$	(14	)	Net of tax


	Three Months Ended December 31, 2014
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – September 30, 2014	$	89		$	(510	)	$	(421	)

Other comprehensive income (loss) before reclassifications		(63	)		25			(38	)

Amounts reclassified from accumulated other comprehensive income (loss)		-			-			-


Net current-period other comprehensive income (loss)		(63	)		25			(38	)


Ending Balance – December 31, 2014	$	26		$	(485	)	$	(459	)


	Six Months Ended December 31, 2014
	(Dollars in Thousands – net of tax)

	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Gains and Losses on Held-to-Maturity Securities			Total

Beginning Balance – June 30, 2014	$	130		$	(550	)	$	(420	)

Other comprehensive income (loss) before reclassifications		(104	)		65			(39	)

Amounts reclassified from accumulated other comprehensive income (loss)		-			-			-


Net current-period other comprehensive income (loss)		(104	)		65			(39	)


Ending Balance – December 31, 2014	$	26		$	(485	)	$	(459	)

There were no amounts reclassified out of accumulated other comprehensive income for the three and six months ended December 31, 2014.

8. UNREALIZED LOSSES ON SECURITIES

The following tables show 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 December 31, 2015 and June 30, 2015.


		December 31, 2015

		Less Than Six Months							Six through Twelve Months						Twelve Months or Greater							Total

		Fair Value			Gross Unrealized Losses				Fair Value		Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses

			(Dollars in Thousands)

Corporate debt securities	$		48,814	$		(135	)	$	24,884	$		(136	)	$		-	$		-		$		73,698	$		(271	)
Foreign Debt Securities ⁴			5,691			(12	)		-			-				-			-				5,691			(12	)
Collateralized mortgage obligations:
Agency			13,590			(49	)		3,899			(5	)			32,059			(825	)			49,548			(879	)


Total	$		68,095	$		(196	)	$	28,783	$		(141	)	$		32,059	$		(825	)	$		128,937	$		(1,162	)


		June 30, 2015

		Less Than Six Months							Six through Twelve Months						Twelve Months or Greater							Total

		Fair Value			Gross Unrealized Losses				Fair Value		Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses

			(Dollars in Thousands)

Corporate debt securities	$		28,284	$		(88	)	$	1,285	$		(5	)	$		-	$		-		$		29,569	$		(93	)
Foreign Debt Securities ⁴			4,780			(16	)		501			(1	)			-			-				5,281			(17	)
U.S. government agency securities			21,318			(94	)		-			-				-			-				21,318			(94	)
Obligations of states and political subdivisions			697			(5	)		-			-				-			-				697			(5	)
Collateralized mortgage obligations:
Agency			22,504			(121	)		21,243			(663	)			16,092			(125	)			59,839			(909	)


Total	$		77,583	$		(324	)	$	23,029	$		(669	)	$		16,092	$		(125	)	$		116,704	$		(1,118	)

For debt securities, impairment is considered to be other than temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its amortized cost basis, or (3) does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell the security). In addition, impairment is considered to be other than temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security (any such shortfall is referred to as a credit loss).

The Company evaluates outstanding available-for-sale and held-to-maturity securities in an unrealized loss position (i.e., impaired securities) for Other than temporary impairment (“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

⁴	U.S. dollar denominated investment-grade corporate bonds of large foreign corporate issuers.

the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In the case of its private label residential MBS, the Company also considers prepayment speeds, the historical and projected performance of the underlying loans and the credit support provided by the subordinate securities. These evaluations are inherently subjective and consider a number of quantitative and qualitative factors.

The following table presents a roll-forward of the credit loss component of the amortized cost of mortgage-backed securities that we have written down for OTTI and the credit component of the loss that is recognized in earnings. OTTI recognized in earnings for credit impaired mortgage-backed securities is presented as additions in two components based upon whether the current period is the first time the mortgage-backed security was credit-impaired (initial credit impairment) or is not the first time the mortgage-backed security was credit impaired (subsequent credit impairments). The credit loss component is reduced if we sell, intend to sell or believe that we will be required to sell previously credit-impaired mortgage-backed securities. Additionally, the credit loss component is reduced if we receive cash flows in excess of what we expected to receive over the remaining life of the credit impaired mortgage-backed securities, the security matures or is fully written down.


	Three Months Ended December 31,						Six Months Ended December 31,

	2015			2014			2015			2014
	(Dollars in Thousands)
Beginning balance		$234			$292			$248			$302
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 actual realized losses		(3	)		(19	)		(17	)		(29	)
Reduction for increase in cash flows expected to be collected		-			-			-			-

Ending Balance		$231			$273			$231			$273

During the three and six months ended December 31, 2015, the Company recorded no credit impairment charge and no non-credit unrealized holding loss to accumulated other comprehensive income. During the three and six months ended December 31, 2015, the Company accreted back into other comprehensive income $29 thousand and $65 thousand, respectively, (net of income tax effect of $16 thousand and $34 thousand, respectively), based on principal repayments on private-label CMOs previously identified with OTTI.

In the case of its private-label residential CMOs that exhibit adverse risk characteristics, the Company employs models to determine the cash flows that it is likely to collect from the securities. These models consider borrower characteristics and the particular attributes of the loans underlying the securities, in conjunction with assumptions about future changes in home prices and interest rates, to predict the likelihood a loan will default and the impact on default frequency, loss severity and remaining credit enhancement. A significant input to these models is the forecast of future housing price changes for the relevant states and metropolitan statistical areas, which are based upon an assessment of the various housing markets. In general, since the ultimate receipt of contractual payments on these securities will depend upon the credit and prepayment performance of the underlying loans and, if needed, the credit enhancements for the senior securities owned by the Company, the Company uses these models to assess whether the credit enhancement associated with each security is sufficient to protect against likely losses of principal and interest on the underlying mortgage loans. The development of the modeling assumptions requires significant judgment.

In conjunction with our adoption of ASC Topic 820 effective June 30, 2009, the Company retained an independent third party to assist it with assessing its investments within the private-label CMO portfolio. 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 December 31, 2015 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 no additional private-label CMOs in the portfolio had an other-than-temporary impairment at December 31, 2015, keeping the total at three private-label CMOs with OTTI at December 31, 2015.

If the Company intends to sell an impaired debt security, or more likely than not will be required to sell the security before recovery of its amortized cost basis, the impairment is other-than-temporary and is recognized currently in earnings in an amount equal to the entire difference between fair value and amortized cost. The Company does not anticipate selling its private-label CMO portfolio, nor does Management believe that the Company will be required to sell these securities before recovery of this amortized cost basis.

In instances in which the Company determines that a credit loss exists but the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, the OTTI is separated into (1) the amount of the total impairment related to the credit loss and (2) the amount of the total impairment related to all other factors (i.e., the noncredit portion). The amount of the total OTTI related to the credit loss is recognized in earnings and the amount of the total OTTI related to all other factors is recognized in accumulated other comprehensive loss. The total OTTI is presented in the Consolidated Statement of Income with an offset for the amount of the total OTTI that is recognized in accumulated other comprehensive loss. Absent the intent or requirement to sell a security, if a credit loss does not exist, any impairment is considered to be temporary.

Regardless of whether an OTTI is recognized in its entirety in earnings or if the credit portion is recognized in earnings and the noncredit portion is recognized in other comprehensive income (loss), the estimation of fair values has a significant impact on the amount(s) of any impairment that is recorded.

The noncredit portion of any OTTI losses on securities classified as available-for-sale is adjusted to fair value with an offsetting adjustment to the carrying value of the security. The fair value adjustment could increase or decrease the carrying value of the security. All of the 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 had investments in 64 positions that were impaired at December 31, 2015. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

9.	LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of December 31, 2015 and June 30, 2015.


		December 31, 2015									June 30, 2015
		Total Loans				Individually evaluated for impairment			Collectively evaluated for impairment			Total Loans				Individually evaluated for impairment			Collectively evaluated for impairment

			(Dollars in Thousands)
First mortgage loans:
1 – 4 family dwellings	$		39,328		$		-	$		39,328	$		28,620		$		-	$		28,620
Construction			4,892				-			4,892			3,032				-			3,032
Land acquisition & development			831				-			831			653				-			653
Multi-family dwellings			5,900				-			5,900			6,084				-			6,084
Commercial			2,853				-			2,853			3,395				49			3,346

Consumer Loans
Home equity			833				-			833			1,175				-			1,175
Home equity lines of credit			1,897				-			1,897			1,917				-			1,917
Other			178				-			178			211				-			211

Commercial Loans			1,177				-			1,177			1,251				-			1,251

Obligations (other than securities and leases) of states and political subdivisons			-				-			-			-				-			-

	$		57,889		$		-	$		57,889	$		46,338		$		49	$		46,289

Plus: Deferred loan costs			246										129
Allowance for loan losses			(351	)									(304	)

Total	$		57,784								$		46,163

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 tables are a summary of the loans considered to be impaired as of December 31, 2015 and June 30, 2015, and the related interest income recognized for the three and six months ended December 31, 2015 and December 31, 2014:


		December 31, 2015			June 30, 2015
		(Dollars in Thousands)
Impaired loans with an allocated allowance:
Home equity lines of credit	$		-	$		-
Impaired loans without an allocated allowance:
Commercial real estate loans			-			49

Total impaired loans	$		-	$		49

Allocated allowance on impaired loans:
Home equity lines of credit	$		-	$		-
Commercial real estate loans			-			-

Total	$		-	$		-


		Three Months Ended						Six Months Ended
		December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
		(Dollars in Thousands)
Average impaired loans
Construction loans	$		-	$		-	$		-	$		-
Land acquisition & development loans			-			-			-			-
Commercial real estate loans			-			49			24			49
Home equity lines of credit			-			150			-			150

Total	$		-	$		199	$		24	$		199


Income recognized on impaired loans
Construction loans	$		-	$		-	$		-	$		-
Land acquisition & development loans			-			-			-			-
Commercial real estate loans			-			1			1			1
Home equity lines of credit			-			-			-			1

Total	$		-	$		1	$		1	$		2

Total nonaccrual loans as of December 31, 2015 and June 30, 2015 and the related interest income recognized for the three and six months ended December 31, 2015 and December 31, 2014 are as follows:


		December 31, 2015			June 30, 2015
		(Dollars in Thousands)
Principal outstanding
1 – 4 family dwellings	$		257	$		260
Construction			-			-
Land acquisition & development			-			-
Commercial real estate			-			49
Home equity lines of credit			-			-

Total	$		257	$		309


		Three Months Ended						Six Months Ended
		December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
		(Dollars in Thousands)
Average nonaccrual loans
1 – 4 family dwellings	$		258	$		265	$		259	$		316
Construction			-			-			-			-
Land acquisition & development			-			-			-			-
Commercial real estate			-			49			24			49
Home equity lines of credit			-			150			-			150

Total	$		258	$		464	$		283	$		515


Income that would have been recognized	$		4	$		7	$		9	$		14

Interest income recognized	$		5	$		7	$		11	$		14

Interest income foregone	$		-	$		2	$		-	$		4

The Company’s loan portfolio also includes troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

During the three and six months ended December 31, 2015, there were no trouble debt restructurings, and no trouble debt restructurings that subsequently defaulted. One previously modified TDR, secured by commercial real estate, was paid off in full during the six months ended December 31, 2015.

The following tables include the recorded investment and number of modifications for modified loans, as of December 31, 2014. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

For the Three Months Ended

December 31, 2014

Number

Contracts

Pre-Modification

Outstanding

Recorded

Investment

Post-Modification

Outstanding

Recorded

Investment

(Dollars in Thousands)

Troubled debt restructurings:

Commercial real estate

Troubled debt restructurings that subsequently defaulted:

Commercial real estate


	For the Six Months Ended
		December 31, 2014


	Number of Contracts			Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment

	(Dollars in Thousands)
Troubled debt restructurings:
Commercial real estate		1	$		49	$		49

Troubled debt restructurings that subsequently defaulted:
Commercial real estate		-	$		-	$		-

One loan secured by commercial real estate was modified by reducing its required payment for a nine month period during the six months ended December 31, 2014.

There was one previously modified TDR, secured by a home equity line of credit, in default as of December 31, 2014.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

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) 1.00% 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 December 31, 2015, 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 December 31, 2015 and June 30, 2015:


		Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days + Past Due Accruing			90 Days + Past Due Non-accrual			Total Past Due			Total Loans

		(Dollars in Thousands)
December 31, 2015
First mortgage loans:
1 – 4 family dwellings	$		39,071	$		-	$		-	$		-	$		257	$		257	$		39,328
Construction			4,892			-			-			-			-			-			4,892
Land acquisition & development			831			-			-			-			-			-			831
Multi-family dwellings			5,900			-			-			-			-			-			5,900
Commercial			2,853			-			-			-			-			-			2,853

Consumer Loans:
Home equity			833			-			-			-			-			-			833
Home equity lines of credit			1,897			-			-			-			-			-			1,897
Other			178			-			-			-			-			-			178

Commercial Loans			1,177			-			-			-			-			-			1,177

Obligations (other than securities and leases) of states and political subdivisions			-			-			-			-			-			-			-

	$		57,632	$		-	$		-	$		-	$		257	$		257			57,889

Plus: Deferred loan fees																					246
Allowance for loan losses																					(351	)

Net Loans Receivable																			$		57,784


		Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days + Past Due Accruing			90 Days + Past Due Non-accrual			Total Past Due			Total Loans

		(Dollars in Thousands)
June 30, 2015
First mortgage loans:
1 – 4 family dwellings	$		28,327	$		-	$		33	$		-	$		260	$		293	$		28,620
Construction			3,032			-			-			-			-			-			3,032
Land acquisition & development			653			-			-			-			-			-			653
Multi-family dwellings			6,084			-			-			-			-			-			6,084
Commercial			3,335			11			-			-			49			60			3,395

Consumer Loans
Home equity			1,175			-			-			-			-			-			1,175
Home equity lines of credit			1,917			-			-			-			-			-			1,917
Other			211			-			-			-			-			-			211

Commercial Loans			1,251			-			-			-			-			-			1,251

Obligations (other than securities and leases) of states and political subdivisions			-			-			-			-			-			-			-

	$		45,985	$		11	$		33	$		-	$		309	$		353			46,338

Plus: Deferred loan fees																					129
Allowance for loan losses																					(304	)

Net Loans Receivable																			$		46,163

Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended December 31, 2015. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and can be characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard loan. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as loss are considered uncollectible, or of such value that continuance as a loan is not warranted.

The primary credit quality indicator used by management in the 1 – 4 family and consumer loan portfolios is the performance status of the loans. Payment activity is reviewed by Management on a monthly basis to determine how loans are performing. Loans are considered to be non-performing when they become 90 days delinquent, have a history of delinquency, or have other inherent characteristics which Management deems to be weaknesses.

The following tables present the Company’s internally classified construction, land acquisition and development, multi-family residential, commercial real estate and commercial (not secured by real estate) loans at December 31, 2015 and June 30, 2015.


		December 31, 2015
		Construction			Land Acquisition & Development Loans			Multi-family Residential			Commercial Real Estate			Commercial			Obligations (other than securities and leases) of States and Political Subdivisions

		(Dollars in Thousands)

Pass	$		4,892	$		680	$		5,900	$		2,853	$		1,177	$		-
Special Mention			-			-			-			-			-			-
Substandard			-			151			-			-			-			-
Doubtful			-			-			-			-			-			-

Ending Balance	$		4,892	$		831	$		5,900	$		2,853	$		1,177	$		-


		June 30, 2015
		Construction			Land Acquisition & Development Loans			Multi-family Residential			Commercial Real Estate			Commercial			Obligations (other than securities and leases) of States and Political Subdivisions

		(Dollars in Thousands)

Pass	$		3,032	$		445	$		6,084	$		3,346	$		1,251	$		-
Special Mention			-			-			-			-			-			-
Substandard			-			208			-			49			-			-
Doubtful			-			-			-			-			-			-

Ending Balance	$		3,032	$		653	$		6,084	$		3,395	$		1,251	$		-

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended December 31, 2015 and June 30, 2015.


		December 31, 2015

		1 – 4 Family			Consumer

		(Dollars in Thousands)

Performing	$		39,071	$		2,908
Non-performing			257			-

Total	$		39,328	$		2,908


		June 30, 2015

		1 – 4 Family			Consumer

		(Dollars in Thousands)

Performing	$		28,360	$		3,303
Non-performing			260			-

Total	$		28,620	$		3,303

The Company determines its allowance for loan losses in accordance with generally accepted accounting principles. The Company uses a systematic methodology as required by Financial Reporting Release No. 28 and the various Federal Financial Institutions Examination Council guidelines. The Company also endeavors to adhere to SEC Staff Accounting Bulletin No. 102 in connection with loan loss allowance methodology and documentation issues.

Our methodology used to determine the allocated portion of the allowance is as follows. For groups of homogenous loans, we apply a loss rate to the groups’ aggregate balance. Our group loss rate reflects our historical loss experience. We may adjust these group rates to compensate for changes in environmental factors; but our adjustments have not been frequent due to a relatively stable charge-off experience. The Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans for individual evaluation under ASC Topic 310. If the individually identified loans are performing, we apply a segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed individually and considered individually impaired, we use one of the three methods for measuring impairment mandated by ASC Topic 310. Generally the fair value of collateral is used since our impaired loans are generally real estate based. In connection with the fair value of collateral measurement, the Company generally uses an independent appraisal and determines costs to sell. The Company’s appraisals for commercial income based loans, such as multi-family and commercial real estate loans, assess value based upon the operating cash flows of the business as opposed to merely “as built” values. The Company then validates the reasonableness of our calculated allowances by: (1) reviewing trends in loan volume, delinquencies, restructurings and concentrations; (2) reviewing prior period (historical) charge-offs and recoveries; and (3) presenting the results of this process, quarterly, to the Asset Classification Committee and the Savings Bank’s Board of Directors. We then tabulate, format and summarize the current loan loss allowance balance for financial and regulatory reporting purposes.

The Company had no unallocated loss allowance balance at December 31, 2015.

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 tables summarize the primary segments of the allowance for loan losses (“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2015 and 2014. Activity in the allowance is presented for the three and six months ended December 31, 2015 and 2014.


		As of December 31, 2015
		First Mortgage Loans
		1 – 4 Family			Construction			Land Acquisition & Development				Multi- family				Commercial				Consumer Loans				Commercial Loans			Total

		(Dollars in Thousands)
Beginning ALLL Balance at September 30, 2015	$		143	$		72	$		9		$		30		$		31		$		32		$		6	$		323
Charge-offs			-			-			-				-				-				-				-			-
Recoveries			-			-			-				-				-				-				-			-
Provisions			19			12			(1	)			(1	)			(2	)			-				1			28

Ending ALLL Balance at December 31, 2015	$		162	$		84	$		8		$		29		$		29		$		32		$		7	$		351

Individually evaluated for impairment	$		-	$		-	$		-		$		-		$		-		$		-		$		-	$		-
Collectively evaluated for impairment			162			84			8				29				29				32				7			351

	$		162	$		84	$		8		$		29		$		29		$		32		$		7	$		351


		As of December 31, 2015
		First Mortgage Loans
		1 – 4 Family			Construction			Land Acquisition & Development				Multi- family				Commercial				Consumer Loans				Commercial Loans			Total

		(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2015	$		125	$		63	$		9		$		30		$		34		$		37		$		6	$		304
Charge-offs			-			-			-				-				-				-				-			-
Recoveries			-			-			-				-				-				-				-			-
Provisions			37			21			(1	)			(1	)			(5	)			(5	)			1			47

Ending ALLL Balance at December 31, 2015	$		162	$		84	$		8		$		29		$		29		$		32		$		7	$		351

Individually evaluated for impairment	$		-	$		-	$		-		$		-		$		-		$		-		$		-	$		-
Collectively evaluated for impairment			162			84			8				29				29				32				7			351

	$		162	$		84	$		8		$		29		$		29		$		32		$		7	$		351


		As of December 31, 2014
		First Mortgage Loans
		1 – 4 Family				Construction			Land Acquisition & Development			Multi- family			Commercial				Consumer Loans				Commercial Loans			Total

		(Dollars in Thousands)
Beginning ALLL Balance at September 30, 2014	$		75		$		21	$		10	$		11	$		43		$		69		$		8	$		237
Charge-offs			-				-			-			-			-				-				-			-
Recoveries			-				-			-			-			-				-				-			-
Provisions			8				5			-			9			(2	)			(2	)			-			18

Ending ALLL Balance at December 31, 2014	$		83		$		26	$		10	$		20	$		41		$		67		$		8	$		255

Individually evaluated for impairment	$		-		$		-	$		-	$		-	$		-		$		37		$		-	$		37
Collectively evaluated for impairment			83				26			-			-			41				30				8			218

	$		83		$		26	$		10	$		20	$		41		$		67		$		8	$		255


		As of December 31, 2014
		First Mortgage Loans
		1 – 4 Family				Construction			Land Acquisition & Development			Multi- family			Commercial				Consumer Loans				Commercial Loans			Total

		(Dollars in Thousands)
Beginning ALLL Balance at June 30, 2014	$		103		$		14	$		5	$		12	$		45		$		47		$		8	$		234
Charge-offs			-				-			-			-			-				-				-			-
Recoveries			-				-			-			-			-				-				-			-
Provisions			(20	)			12			5			8			(4	)			20				-			21

Ending ALLL Balance at December 31, 2014	$		83		$		26	$		10	$		20	$		41		$		67		$		8	$		255

Individually evaluated for impairment	$		-		$		-	$		-	$		-	$		-		$		37		$		-	$		37
Collectively evaluated for impairment			83				26			-			-			41				30				8			218

	$		83		$		26	$		10	$		20	$		41		$		67		$		8	$		255

During the three months ended December 31, 2015, the ALLL associated with the 1 – 4 family and construction loan portfolios increased by $19 thousand and $12 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments were the increases in associated loan balances. The ALLL for commercial real estate loans decreased $2 thousand. The decrease in the ALLL associated with commercial real estate loans was primarily due to lower loan balances within this segment. The increase in the ALLL associated with the commercial (non-real estate) loan segment was primarily related to the higher loan balances within this segment.

During the six months ended December 31, 2015, the ALLL associated with the 1-4 family and construction loan portfolios increased by $37 thousand and $21 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments were the increases in associated loan balances. The ALLL associated with the commercial real estate loans and consumer loans decreased $5 thousand and $5 thousand, respectively. The decrease in the ALLL associated with

commercial real estate loans was primarily due to the payoff of one non-performing loan in this segment, while the decrease in the ALLL associated with consumer loans was primarily due to lower loan balances within this segment.

During the fiscal year ended June 30, 2015, the Company also increased its ALLL reserve factors, due to increases in associated loan balances and qualitative factors throughout fiscal 2015, for the following loan segments:


Loan Segment	12/31/2015 Factor	12/31/2014 Factor
1 – 4 family	0.35%	0.25%
Construction:
1 – 4 family	0.75%	0.25%
5+ family	1.00%	0.50%

During the three months ended December 31, 2014, the ALLL associated with multi-family residential real estate loans, 1 – 4 family real estate loans, and construction loans increased $9 thousand, $8 thousand, and $5 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments, were the increases in associated loan balances.

During the six months ended December 31, 2014, the ALLL associated with the consumer, construction, multi-family residential and land loans increased $20 thousand, $12 thousand, $8 thousand, and $5 thousand, respectively. The primary reason for the increases in the ALLL associated with the construction, multi-family residential, and land segments were the increases in associated loan balances. The increase in the ALLL associated with the consumer loan segment was primarily due to an increase in the ALLL associated with one non-performing home equity line of credit within this segment. During the six months ended December 31, 2014, the ALLL associated with 1-4 family real estate loans decreased $20 thousand. The primary reason for the decrease in the ALLL associated with the 1-4 family real estate loan was the transfer of one non-performing 1-4 family real estate loan to real estate owned.

10.

FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of December 31, 2015 and June 30, 2015.


	Maturity range		Weighted- average			Stated interest rate range							December 31,			June 30,
Description	from	to	interest rate ⁵			from			to				2015			2015
													(Dollars in Thousands)

Convertible	06/22/16	07/27/17		4.44	%		4.26	%		5.16	%	$		12,500	$		12,500
Adjustable	05/06/16	09/01/17		0.49	%		0.38	%		0.58	%			105,305			105,305


Total												$		117,805	$		117,805

⁵	As of December 31, 2015.

Maturities of FHLB long-term advances at December 31, 2015, are summarized as follows:


Maturing During Fiscal Year Ended June 30:		Amount	Weighted- Average Interest Rate
		(Dollars in Thousands)

2016	$	101,696		0.61	%
2017		-		-
2018		16,109		2.81	%
2019		-		-
2020 and thereafter		-		-


Total	$	117,805		0.91	%

The terms of the convertible advances reset to the three-month London Interbank Offered Rate (“LIBOR”) and have various spreads and call dates of three months. The FHLB has the right to convert from a fixed rate to a predetermined floating rate on its conversion date or quarterly thereafter. Should the advance be converted, the Company has the right to pay off the advance without penalty. The adjustable rate advances adjust either monthly or quarterly, based on the one-month or three-month LIBOR index, and have various spreads to the LIBOR index. The spreads to the applicable LIBOR index range from 0.05% to 0.17%. The adjustable rate advances are not convertible or callable. The FHLB advances are secured by the Company’s FHLB stock, mortgage-backed and investment securities, and loans, and are subject to substantial prepayment penalties.

The Company also utilized revolving and short-term FHLB advances. Short-term FHLB advances generally mature within 90 days, while revolving FHLB advances may be repaid by the Company without penalty. The following table presents information regarding such advances as of December 31, 2015 and June 30, 2015:


		December 31, 2015				June 30, 2015

		(Dollars in Thousands)
FHLB revolving and short-term advances:
Ending balance	$		35,133		$		37,830
Average balance			32,410				23,496
Maximum month-end balance			41,489				37,830
Average interest rate			0.31	%			0.31	%
Weighted-average rate			0.43	%			0.32	%

At December 31, 2015, the Company had remaining borrowing capacity with the FHLB of approximately $10.4 million.

The FHLB advances are secured by the Company’s FHLB stock, loans, and mortgage-backed and investment securities held in safekeeping at the FHLB. FHLB advances are subject to substantial prepayment penalties.

11.

OTHER BORROWINGS

Other borrowings include securities sold under agreements to repurchase with securities brokers (“repurchase agreements”). These borrowings generally mature within 1 to 90 days from the transaction date and require a collateral pledge. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

The following table presents information regarding other borrowings as of December 31, 2015 and June 30, 2015:


		December 31, 2015				June 30, 2015

		(Dollars in Thousands)
Other short-term borrowings:
Ending balance	$		-		$		-
Average balance			3,906				1,378
Maximum month-end balance			9,700				9,464
Average interest rate			0.41	%			0.36	%
Weighted-average rate			-	%			-	%

The remaining contractual maturity of repurchase agreements in the consolidated balance sheet as of December 31, 2015 is presented in the following table.

Remaining Contractual Maturity of the Repurchase Agreements

Overnight and
Continuous

Up to
30 Days

30 – 90
Days

Greater than
90 Days

Total

September 30, 2015

Repurchase agreements:

Total borrowings

Gross amount of recognized liabilities for repurchase agreements

Amounts related to agreements not included in offsetting disclosures above

12.

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:


Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:		Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III:		Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Assets Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

Fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The

Company has no Level I or Level III investment securities. Level II investment securities were primarily comprised of investment-grade corporate bonds and U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of December 31, 2015 and June 30, 2015, 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.


		December 31, 2015
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a recurring basis:
Investment securities – available for sale:
Obligations of states and political subdivisions	$		-	$		703	$		-	$		703
Corporate securities			-			86,410			-			86,410
Foreign debt securities ⁶			-			5,690			-			5,690

	$		-	$		92,803	$		-	$		92,803


		June 30, 2015
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a recurring basis:
Investment securities – available for sale:
Obligations of states and political subdivisions	$		-	$		697	$		-	$		697
Corporate securities			-			60,938			-			60,938
Foreign debt securities ⁶			-			5,281			-			5,281

	$		-	$		66,916	$		-	$		66,916

Assets Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.

Impaired Loans

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information. The Company has no Level I or Level II impaired loans. Level III impaired loans were primarily comprised of one single-family residential construction loan, one land loan, and one home equity line of credit.

⁶

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

The following tables present the assets reported on a non-recurring basis on the consolidated balance sheet at their fair values as of December 31, 2015 and June 30, 2015, 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.


		December 31, 2015
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a non-recurring basis:
Impaired loans	$		-	$		-	$		-	$		-


Total	$		-	$		-	$		-	$		-


		June 30, 2015
		Level I			Level II			Level III			Total
		(Dollars in Thousands)
Assets measured on a non-recurring basis:
Impaired loans	$		-	$		-	$		49	$		49


Total	$		-	$		-	$		49	$		49

For Level III assets measured at fair value on a recurring and non-recurring basis as of December 31, 2015 and June 30, 2015, the significant observable inputs used in the fair value measurements were as follows:

Fair Value at

December 31,

2015

June 30,

2015

Valuation
Technique

Significant
Unobservable
Inputs

Significant Unobservable
Input Range (Weighted
Average)

(Dollars in Thousands)

Impaired loans

Appraisal of
collateral⁷

Discounted
appraisal⁸

0%/0%

When evaluating the value of the collateral on impaired loans, the Company will consider the age of the most current appraisal, and may discount the appraised value from 0.0% to 15.0%.

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.

⁷

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

⁸

Appraisals may be adjusted by management for qualitative factors such as economic conditions. The range and weighted average of appraisal adjustments are presented as a percentage of the appraisals.

13.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:


		December 31, 2015
		Carrying Amount			Fair Value			Level I			Level II			Level III
		(Dollars in Thousands)

FINANCIAL ASSETS
Cash and cash equivalents	$		2,874	$		2,874	$		2,874	$		-	$		-
Certificates of deposit			350			350			350			-			-
Investment securities – available for sale			92,803			92,803			-			92,803			-
Investment securities – held to maturity			11,029			11,328			-			11,328			-
Mortgage-backed securities – held to maturity:
Agency			150,298			150,421			-			150,421			-
Private-label			1,740			2,040			-			-			2,040
Net loans receivable			57,784			58,133			-			-			58,133
Accrued interest receivable			1,433			1,433			1,433			-			-
FHLB stock			6,471			6,471			6,471			-			-
Bank owned life insurance			4,343			4,343			4,343			-			-

FINANCIAL LIABILITIES
Deposits:
Non-interest bearing deposits	$		19,776	$		19,776	$		19,776	$		-	$		-
NOW accounts			22,628			22,628			22,628			-			-
Savings accounts			44,824			44,824			44,824			-			-
Money market accounts			23,752			23,752			23,752			-			-
Certificates of deposit			29,558			29,447			-			-			29,447
Advance payments by borrowers for taxes and insurance			918			918			918			-			-
FHLB long-term advances – fixed rate			12,500			13,001			-			-			13,001
FHLB long-term advances – variable rate			105,305			105,305			105,305			-			-
FHLB short-term advances			35,133			35,133			35,133			-			-
Accrued interest payable			168			168			168			-			-


		June 30, 2015
		Carrying Amount			Fair Value			Level I			Level II			Level III
		(Dollars in Thousands)

FINANCIAL ASSETS
Cash and cash equivalents	$		3,573	$		3,573	$		3,573	$		-	$		-
Certificates of deposit			350			350			350			-			-
Investment securities – available for sale			66,916			66,916			-			66,916			-
Investment securities – held to maturity			36,618			36,979			-			36,979			-
Mortgage-backed securities – held to maturity:
Agency			160,614			160,835			-			160,835			-
Private-label			2,025			2,430			-			-			2,430
Net loans receivable			46,163			46,897			-			-			46,897
Accrued interest receivable			1,198			1,198			1,198			-			-
FHLB stock			6,619			6,619			6,619			-			-
Bank owned life insurance			4,276			4,276			4,276			-			-

FINANCIAL LIABILITIES
Deposits:
Non-interest bearing deposits	$		17,806	$		17,806	$		17,806	$		-	$		-
NOW accounts			20,238			20,238			20,238			-			-
Savings accounts			45,092			45,092			45,092			-			-
Money market accounts			23,601			23,601			23,601			-			-
Certificates of deposit			31,326			31,267			-			-			31,267
Advance payments by borrowers for taxes and insurance			865			865			865			-			-
FHLB long-term advances – fixed rate			12,500			13,174			-			-			13,174
FHLB long-term advances – variable rate			105,305			105,305			105,305			-			-
FHLB short-term advances			37,830			37,830			37,830			-			-
Accrued interest payable			156			156			156			-			-

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 the Company, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.

Estimated fair values have been determined by the Company using the best available data, as generally provided in internal Savings Bank regulatory, or third party valuation reports, using an estimation methodology suitable for each category of financial instruments. The estimation methodologies used are as follows:

Cash and Cash Equivalents, Certificates of Deposit, Accrued Interest Receivable and Payable, FHLB Short-term Advances, and Other Short-term Borrowings

The fair value approximates the current carrying value.

Investment Securities, Mortgage-Backed Securities, and FHLB Stock

The fair value of investment and mortgage-backed securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. For discussion of valuation of private-label CMOs, see Note 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, Deposits, and Advance Payments by Borrowers for Taxes and Insurance

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, money market deposit accounts, and advance payments by borrowers for taxes and insurance 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.

Bank Owned Life Insurance (“BOLI”)

The fair value of BOLI approximates the cash surrender value of the policies at these dates.

FHLB Long-term Advances

The fair values of fixed-rate advances are estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount on variable rate advances approximates their fair value.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2015

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

West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at December 31, 2015.

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 $330.4 million at December 31, 2015, as compared to $329.7 million at June 30, 2015. The $702 thousand or 0.2% increase in total assets was primarily comprised of a $25.9 million increase in investment securities – available for sale, an $11.6 million increase in net loans receivable, a $235 thousand increase in accrued interest receivable, and a $67 thousand increase in bank owned life insurance, which were partially offset by a $25.6 million decrease in investment securities - held to maturity, a $10.6 million decrease in mortgage-backed securities – held to maturity, and a $699 thousand decrease in cash and cash equivalents. The increase in investment securities available for sale was primarily due to purchases of investment-grade corporate bonds totaling $37.9 million, which were partially offset by repayments on investment-grade fixed-rate corporate bonds totaling $10.2 million. The investment-grade fixed rate corporate bonds purchased were primarily used to offset maturities and repayments of U.S. Government agency multiple step-up and mortgage-backed securities (discussed below) and to bolster interest revenue and liquidity. The increase in net loans receivable was primarily attributable to increases in single-family real estate loans, construction loans, and land loans totaling $10.7 million, $1.9 million, and $178 thousand, respectively, which were partially offset by decreases in home equity loans, commercial real estate loans, multi-family real estate loans, commercial loans, and other consumer loans, totaling $362 thousand, $493 thousand, $184 thousand, $74 thousand, and $33 thousand, respectively. The decrease in investment securities held to maturity was primarily due to early redemptions of U.S. Government agency multi-step up bonds totaling $34.6 million, which were partially offset by purchases of U.S. Government agency multi step-up bonds totaling $9.4 million. The decrease in mortgage-backed securities held to maturity was primarily due to repayments on floating rate U.S. Government agency CMOs and floating rate private-label CMOs totaling $17.1 million and $383 thousand, respectively. See “Quantitative and Qualitative Disclosures About Market Risk—Asset and Liability Management”.

The Company’s total liabilities increased $416 thousand or 0.1% to $298.1 million as of December 31, 2015 from $297.7 million as of June 30, 2015. The $416 thousand increase in total liabilities was primarily comprised of a $2.5 million or 1.8% increase in total deposits, and a $573 thousand or 19.4% increase in other liabilities, which were partially offset by a $2.7 million or 7.1% decrease in FHLB short-term advances. The increase in total deposits was primarily attributable to increases in NOW accounts, non-interest bearing accounts, and money market accounts, totaling $2.4 million, $2.0 million, and $151 thousand, respectively, which were partially offset by decreases in time deposits and savings accounts, totaling $1.8

million and $268 thousand, respectively. The $573 thousand increase in other liabilities was primarily due to an increase in security purchase commitments. The decrease in FHLB short-term advances were primarily a result of repayments using the increases in total deposits. See also “Quantitative and Qualitative Disclosures About Market Risk—Asset and Liability Management”.

Total stockholders’ equity increased $286 thousand or 0.9% to $32.3 million as of December 31, 2015, from $32.0 million as of June 30, 2015. The increase was primarily attributable to Company net income of $604 thousand, which was partially offset by $244 thousand of cash dividends paid on the Company’s common stock, other comprehensive losses of $80 thousand, and $19 thousand paid for the acquisition of Treasury stock. The other comprehensive loss was primarily attributable to a $145 thousand (net of tax effect) of unrealized holding losses on the Company’s available for sale investment portfolio, which was partially offset by a $65 thousand (net of tax effect) reversal of unrealized holding losses on three private-label CMOs with previously identified OTTI.

RESULTS OF OPERATIONS

General. WVS reported net income of $293 thousand or $0.15 earnings per share (basic and diluted), and $604 thousand or $0.32 earnings per share (basic and diluted), for the three and six months ended December 31, 2015, respectively. Net income increased $27 thousand or 10.2% and earnings per share (basic and diluted) increased $0.01 or 7.1% for the three months ended December 31, 2015, when compared to the same period in 2014. The increase in net income for the three months ended December 31, 2015 was primarily attributable to a $50 thousand increase in net-interest income, a $44 thousand decrease in non-interest expense, and an $11 thousand increase in non-interest income, which were partially offset by a $68 thousand increase in income tax expense, and a $10 thousand increase in provisions for loan losses. For the six months ended December 31, 2015, net income increased $39 thousand or 6.9% and earnings per share (basic and diluted) increased $0.03 or 10.3%, when compared to the same period in 2014. The increase in net income for the six months ended December 31, 2015, was primarily attributable to a $144 thousand increase in net interest income, a $16 thousand decrease in non-interest expense, and a $12 thousand increase in non-interest income, which were partially offset by a $107 thousand increase in income tax expense, and a $26 thousand increase in provisions for loan losses.

Net Interest Income. The Company’s net interest income increased by $50 thousand or 4.0% for the three months ended December 31, 2015, when compared to the same period in 2014. The increase in net interest income is attributable to an $85 thousand increase in interest income, which was partially offset by a $35 thousand increase in interest expense. The increase in interest income was primarily due to higher average balances of the Company’s corporate bond and loan portfolios, and higher yields earned on, and average balances of the Company’s FHLB stock, which were partially offset by lower average balances and lower yields earned on the Company’s U.S. Government agency bonds and mortgage-backed securities portfolios, and lower yields earned on the Company’s loan portfolio, during the quarter ended December 31, 2015, when compared to the same period in 2014. The increase in interest expense was primarily attributable to higher rates paid on FHLB long-term variable rate advances, and higher average balances of FHLB short-term advances, during the three months ended December 31, 2015, when compared to the same period in 2014. For the six months ended December 31, 2015, net interest income increased $144 thousand or 5.8% when compared to the same period in 2014. The increase in net-interest income was primarily attributable to a $202 thousand increase in interest income, which was partially offset by a $58 thousand increase in interest expense. The increase in interest income was primarily due to higher average balances of the Company’s corporate bond and loan portfolios, and higher yields earned on the Company’s FHLB stock for the six months ended December 31, 2015, which were partially offset by lower average balances of and lower yields earned on U.S. Government agency bonds and mortgage-backed securities, and lower yields earned on the Company’s corporate bond and loan portfolios, when compared to the same period in 2014. The increase in interest expense was primarily due to higher rates paid on FHLB long-term variable rate and FHLB short-term advances, and lower average balances of FHLB short-term advances.

Interest Income. Interest income on net loans receivable increased $187 thousand or 49.2% and $337 thousand or 44.8% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended December 31, 2015 was primarily attributable to a $22.5 million increase in the average balance of net loans receivable outstanding,

which was partially offset by a decrease of 58 basis points in the weighted average yield earned on net loans receivable for the three months ended December 31, 2015, when compared to the same period in 2014. The increase for the six months ended December 31, 2015 was primarily attributable to a $20.7 million increase in the average balance of net loans receivable outstanding, which was partially offset by a decrease of 61 basis points in the weighted average yield earned on net loans receivable for the six months ended December 31, 2015, when compared to the same period in 2014. For the three and six months ended December 31, 2015, the increase in the average balance of loans outstanding was primarily attributable to loan originations in excess of repayments, while the decrease in the average yield earned on net loans receivable was primarily attributable to lower rates on new loans originated. During fiscal 2015 and into fiscal 2016, the Company enjoyed higher demand for single-family home purchase loans. Substantially all of our loan originations and purchases were fixed-rate with a mix of 15, 20, and 30 year terms.

Interest income on investment securities increased $125 thousand or 37.2% and $337 thousand or 53.4% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended December 31, 2015 was primarily attributable to a $65.1 million increase in the average balance of investment securities outstanding, which was partially offset by a 75 basis point decrease in the weighted average yield on investment securities, when compared to the same period in 2014. The increase for the six months ended December 31, 2015 was primarily attributable to a $60.0 million increase in the average balance of investment securities outstanding, which was partially offset by a 57 basis point increase in the weighted average yield on investment securities, when compared to the same period in 2014.

Interest income on FHLB stock increased $18 thousand or 27.7%, and $54 thousand or 45.0% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increase in dividends on FHLB stock for the three months ended December 31, 2015 was attributable to an 86 basis point increase in the yield earned on FHLB stock, and a $385 thousand increase in the average balance of FHLB stock held during the three months ended December 31, 2015, when compared to the same period in 2014. The increase in dividends on FHLB stock for the six months ended December 31, 2015 was attributable to a 163 basis point increase in the yield earned on FHLB stock, and a $125 thousand increase in the average balance of FHLB stock held during the six months ended December 31, 2015, when compared to the same period in 2014.

Interest income on mortgage-backed securities decreased $245 thousand or 32.5% and $526 thousand or 34.0% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the three months ended December 31, 2015 was primarily attributable to a $50.7 million decrease in the average balance of U.S. Government agency mortgage-backed securities outstanding, a 14 basis point decrease in the weighted average yield earned on U.S. Government agency mortgage-backed securities, and a $518 thousand decrease in the average balance of private-label mortgage-backed securities outstanding, for the three months ended December 31, 2015, when compared to the same period in 2014. The decrease for the six months ended December 31, 2015 was primarily attributable to a $53.4 million decrease in the average balance of U.S. Government agency mortgage-backed securities outstanding, a 17 basis point decrease in the weighted average yield earned on U.S. Government agency mortgage-backed securities, and a $516 thousand decrease in the average balance of private-label mortgage-backed securities, which were partially offset by a 9 basis point increase in the weighted average yield earned on private-label mortgage-backed securities outstanding for the six months ended December 31, 2015, when compared to the same period in 2014. The decrease in the average balances of private-label mortgage-backed securities during the three and six months ended December 31, 2015 was attributable to principal paydowns of private-label mortgage-backed securities during the periods. The decrease in the average balance of U.S. Government agency mortgage-backed securities for the three and six months ended December 31, 2015, was primarily attributable to repayments of $6.0 million and $17.1 million, respectively, on the U.S. Government agency mortgage-backed securities portfolio, during the three and six months ended December 31, 2015, which were partially offset by purchases of U.S. Government agency mortgage-backed securities totaling $6.8 million during the three and six months ended December 31, 2015. The mortgage-backed securities purchased during both periods were primarily used to offset maturities and early calls of securities within the investment portfolio and to bolster interest revenue.

Interest income on FDIC insured bank certificates of deposit decreased $0 thousand or 0.0% and $1 thousand or 100.0% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the six months ended December 31, 2015 was primarily attributable to a $50 thousand decrease in the average portfolio balance of certificates of deposit, and a 29 basis point decrease in the weighted average yield earned on certificates of deposit, when compared to the same period in 2014. The certificates have remaining maturities ranging from nine to eighty-eight months. Due to decreases in market yields in this investment sector, the Company has decided to limit reinvestments in certificates of deposit and to redeploy maturities and early issuer redemptions to other investment portfolio segments.

Interest Expense. Interest paid on FHLB variable-rate long term advances increased by $18 thousand and $30 thousand, respectively, for the three and six months ended December 31, 2015 when compared to the same periods in 2014. The increase in interest expense on FHLB variable-rate long term advances for the three months ended December 31, 2015 was primarily attributable to a 7 basis point increase in the weighted average rate paid on such advances, when compared to the same period in 2014. The increase in interest expense on FHLB variable-rate long term advances for the six months ended December 31, 2015 was primarily attributable to a $1.7 million increase in the average balance of such advances and a 5 basis point increase in the weighted average rate paid when compared to the same period in 2014. The Company utilized this funding source in both periods to pay down FHLB short-term advances and to lock in longer-term variable rate funding for its variable rate mortgage-backed securities.

Interest paid on FHLB short-term advances increased $17 thousand or 113.3% and $28 thousand or 87.5% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended December 31, 2015 was primarily attributable to a $12.7 million increase in the average balance of FHLB short-term advances outstanding, and a 10 basis point increase in the weighted average rate paid on FHLB short-term advances, for the three months ended December 31, 2015, when compared to the same period in 2014. The increase for the six months ended December 31, 2015, was primarily attributable to a $10.9 million increase in the average balance of short-term FHLB advances, and a 7 basis point increase in the weighted average rate paid on FHLB short-term advances, for the six months ended December 31, 2015, when compared to the same period in 2014.

Interest paid on other short-term borrowings increased by $1 thousand and $8 thousand, respectively, for the three and six months ended December 31, 2015, when compared to the same periods in 2014. The increase in interest expense on other short-term borrowings for the three months ended December 31, 2015 was primarily attributable to a $1.5 million increase in the average balance of other short-term borrowings when compared to the same period in 2014. The increase in interest expense on other short-term borrowings for the six months ended December 31, 2015 was primarily attributable to a $3.9 million increase in the average balance of other short-term borrowings when compared to the same period in 2014.

Interest expense on deposits decreased $1 thousand or 1.8% and $8 thousand or 7.0% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The decrease in interest expense on deposits for the three months ended December 31, 2015 was primarily attributable to a 3 basis point decrease in the weighted average rate paid on time deposits, which was partially offset by a $1.1 million increase in the average balance of time deposits for the three months ended December 31, 2015, when compared to the same period in 2014. The decrease in interest expense on deposits for the six months ended December 31, 2015 was primarily attributable to a 4 basis point decrease in the weighted average rate paid on time deposits, and a $376 thousand decrease in the average balance of time deposits for the six months ended December 31, 2015, when compared to the same period in 2014.

Provision for Loan Losses. A provision for loan losses is charged to earnings (while credit provision for loan losses are accretive 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 $10 thousand and $26 thousand for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increase in the provisions for loan losses for the three and six months ended December 31, 2015, was primarily attributable to an increase in the Company’s loan portfolio and increases in qualitative factors for 1-4 family first mortgages, and 1-4 family and multi-family construction loans when compared to the same periods in 2014. At December 31, 2015, the Company’s total allowance for loan losses amounted to $351 thousand or 0.61% of the Company’s total loan portfolio, as compared to $304 thousand or 0.65% at June 30, 2015. At December 31, 2015, the Company’s non-performing loans totaled $257 thousand as compared to $309 thousand at June 30, 2015.

Non-Interest Income. Non-interest income increased by $11 thousand or 7.6%, and $12 thousand or 4.2% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increase for the three months ended December 31, 2015 was primarily attributable to a $21 thousand gain on the sale of one investment security, which was partially offset by decreases in ATM and debit card income, service charges on deposits, and earnings on bank-owned life insurance, totaling $7 thousand, $3 thousand, and $2 thousand, respectively, for the three months ended December 31, 2015, when compared to the same period in 2014. The increase for the six months ended December 31, 2015 was primarily attributable to a $21 thousand gain on the sale of one investment security, which was partially offset by the absence of a $5 thousand gain on the sale of real estate owned, and decreases in service charges on deposits, and earnings on the Company’s bank-owned life insurance, totaling $2 thousand and $3 thousand, respectively, during the six months ended December 31, 2015, when compared to the same period in 2014.

Non-Interest Expense. Non-interest expense decreased $44 thousand or 4.5% and $16 thousand or 1.0% for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The decrease for the three months ended December 31, 2015 was principally attributable to decreases in charitable contributions eligible for PA tax credits, ATM network expense, and provisions for off-balance sheet (loan origination) commitments totaling $25 thousand, $24 thousand, and $10 thousand, respectively, which were partially offset by $16 thousand increase in employee related expenses, when compared to the same period in 2014. The decrease for the six months ended December 31, 2015 was primarily attributable to decreases in charitable contributions eligible for PA tax credits, ATM network expense, and legal expenses totaling $36 thousand, $7 thousand, and $10 thousand, respectively, which were partially offset by increases in employee related costs, occupancy and equipment costs, and federal deposit insurance premiums, totaling $26 thousand, $9 thousand, and $7 thousand, respectively, during the six months ended December 31, 2015, when compared to the same period in 2014.

Income Tax Expense. Income tax expense increased $68 thousand and $107 thousand for the three and six months ended December 31, 2015, respectively, when compared to the same periods in 2014. The increases for the three and six months ended December 31, 2015 were primarily due to increased levels of taxable income, and the absence of PA tax credits for charitable contributions made during the three and six months ended December 31, 2015, when compared to the same periods in 2014.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled $1.6 million during the six months ended December 31, 2015. Net cash provided by operating activities was primarily comprised of net income of $604 thousand, $1.0 million of amortization of discounts, premiums and deferred loan costs, a $549 thousand increase in unsettled security purchases, and $49 thousand of depreciation expense, which were partially offset by a $235 thousand increase in accrued interest receivable, $67 thousand of earnings on bank owned life insurance, and a $39 thousand increase in deferred tax assets.

Funds used for investing activities totaled $1.9 million during the six months ended December 31, 2015. Primary uses of funds during the six months ended December 31, 2015 included purchases of investment securities available for sale totaling $37.4 million, purchases of investment securities held to

maturity totaling $9.4 million, an increase in net loans receivable totaling $11.7 million, and purchases of mortgage-backed securities totaling $6.8 million. Primary sources of funds during the six months ended December 31, 2015 included proceeds from repayments of investments and mortgage-backed securities in the held-to-maturity portfolio totaling $35.0 million and $17.5 million, respectively, proceeds from repayments of investment securities in the available-for-sale portfolio totaling $9.7 million, proceeds from sales of investments totaling $1.0 million and net redemptions of FHLB stock totaling $147 thousand. The mortgage-backed securities repayments were primarily used to offset purchases of securities in the investment portfolio.

Funds used for financing activities totaled $407 thousand for the six months ended December 31, 2015. The primary uses included a $2.7 million decrease in FHLB short-term advances, a $1.8 million decrease in retail certificates of deposit, and $244 thousand in cash dividends paid on the Company’s common stock, which were partially offset by a $4.2 million increase in transaction and savings deposits. Management believes that a significant portion of our local maturing deposits will remain with the Company. Management has determined that it currently is maintaining adequate liquidity and continues to match funding sources with lending and investment opportunities.

The Company’s primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. Certificates of deposit scheduled to mature in one year or less at December 31, 2015 totaled $22.7 million.

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 December 31, 2015, total approved loan commitments outstanding were $2.9 million. At the same date, commitments under unused lines of credit amounted to $6.5 million and the unadvanced portion of construction loans approximated $6.3 million. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances, and other borrowings, to provide the cash utilized in investing activities. The Company’s available for sale segment of the investment portfolio totaled $92.8 million at December 31, 2015. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.

On January 25, 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share, payable on February 18, 2016, to shareholders of record at the close of business on February 8, 2016. 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.

As of December 31, 2015, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Common Equity Tier I Capital, Tier I, and total risk-based capital equal to $32.9 million or 19.0%, $32.9 million or 19.0%, and $33.3 million or 19.2%, respectively, of total risk-weighted assets, and Tier I leverage capital of $32.9 million or 10.0% 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 December 31, 2015 totaled $257 thousand or 0.08% of total assets as compared to $309 thousand or 0.09% of total assets at June 30, 2015. Nonperforming assets at December 31, 2015 consisted of one single-family real estate loan totaling $257 thousand. The loan is currently under a bankruptcy order and making payments as agreed.

The $52 thousand decrease in nonperforming assets during the six months ended December 31, 2015 was primarily attributable to the payoff in full of one non-accrual commercial real estate loan totaling $49 thousand, and principal repayments on one non-accrual single-family real estate loan totaling $3 thousand.

During the three and six months ended December 31, 2015, the Company collected $5 thousand and $11 thousand, respectively, of interest income on non-accrual loans. Approximately $4 thousand and $9 thousand, respectively, of interest income would have been recorded during the three and six months ended December 31, 2015, on non-accrual loans if such loans had been current according to the original loan agreements for the entire periods. These amounts were not included in the Company’s interest income for the three and six months ended December 31, 2015. 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.

On December 16, 2015 the Federal Reserve Open Market Committee (FOMC or the Committee) issued a press release to announce its current economic assessment and to announce an increase to the target rate for the federal funds rate to ¹⁄₄ to ¹⁄₂ percent from the previous range of 0 to ¹⁄₄ percent. In a related action, the Federal Reserve Board raised the interest rate paid on required and excess reserves to 0.50 percent, effective December 17, 2015. The Federal Reserve Board of Governors also approve a ¹⁄₄ percentage point increase in the discount rate (the primary credit rate) to 1.00 percent.

On January 27, 2016 the FOMC issued a press release indicating that given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee further indicated that the stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. The Committee also indicated that it expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

The Committee, at both meetings, also maintained its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities and rolling over maturing Treasury securities at auction.

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 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 fiscal years 2013, 2014, 2015 and into fiscal year 2016, intermediate and long-term market interest rates fluctuated considerably. Many central banks, including the Federal Reserve, continued above normal levels of monetary accommodation including quantitative easing and targeted asset purchase programs. The desired outcomes of these programs are to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates.

The table below shows the targeted federal funds rate and the benchmark two and ten year treasury yields at quarter ends beginning in June 30, 2007, and extending through December 31, 2015. 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%	3.47%	Positive
June 30, 2011	0.00% to 0.25%	0.45%	3.18%	Positive
September 30, 2011	0.00% to 0.25%	0.25%	1.92%	Positive
December 31, 2011	0.00% to 0.25%	0.25%	1.89%	Positive
March 31, 2012	0.00% to 0.25%	0.33%	2.23%	Positive
June 30, 2012	0.00% to 0.25%	0.33%	1.67%	Positive
September 30, 2012	0.00% to 0.25%	0.23%	1.65%	Positive
December 31, 2012	0.00% to 0.25%	0.24%	1.85%	Positive
March 31, 2013	0.00% to 0.25%	0.25%	1.87%	Positive
June 30, 2013	0.00% to 0.25%	0.36%	2.52%	Positive
September 30, 2013	0.00% to 0.25%	0.33%	2.64%	Positive
December 31, 2013	0.00% to 0.25%	0.30%	2.84%	Positive
March 31, 2014	0.00% to 0.25%	0.44%	2.73%	Positive
June 30, 2014	0.00% to 0.25%	0.47%	2.53%	Positive
September 30, 2014	0.00% to 0.25%	0.58%	2.52%	Positive
December 31, 2014	0.00% to 0.25%	0.53%	1.90%	Positive
March 31, 2015	0.00% to 0.25%	0.56%	1.99%	Positive
June 30, 2015	0.00% to 0.25%	0.64%	2.33%	Positive
September 30, 2015	0.00% to 0.25%	0.64%	2.06%	Positive
December 31, 2015	0.25% to 0.50%	1.06%	2.27%	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 six months ended December 31, 2015, totaled $7.3 million, $45.7 million, and $17.5 million, respectively. Despite stagnant global interest rates and Treasury yields the Company continued to grow its balance sheet and used proceeds from maturities and calls of bonds, repayments on its mortgage-backed securities, and borrowings to purchase investment and mortgage-backed securities and to fund loan growth.

During the six months ended December 31, 2015, the Company increased its portfolio of: single-family mortgages by approximately $10.7 million, and construction loans by $1.9 million, which were partially offset by a $542 thousand decrease in commercial real estate loans, and a $362 thousand decrease in home equity loans. The Company continued to more aggressively pursue 15, 20, 30 year fixed-rate single-family residential real estate loans. 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 modestly grow throughout fiscal 2016. 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 managing credit and interest rate risk. The Company also offers higher yielding multi-family loans to existing, and seasoned prospective, customers.

During the six months ended December 31, 2015, principal investment purchases were comprised of: $37.9 million of investment grade fixed-rate corporate bonds with a weighted average yield to maturity of 1.52%; $9.4 million of U.S. Government agency multiple step-up bonds with initial lock out periods from 1 – 7 months and a weighted average yield to first call of 1.35%, and a weighted average yield to maturity of 3.97%. Single step-up bonds have one “step” or increase in coupon. Multiple step-up bonds have more than one “step” or increase in coupon. All of the corporate bond purchases were classified as available for sale for accounting purposes, while the U.S. Government agency bonds were classified as held to maturity. The Company believes that the purchases will earn a return above the Company’s cost of funds.

Major investment proceeds received during the six months ended December 31, 2015 were: U.S. Government agency multi step-up bonds - $30.6 million with a weighted average yield of 1.49%; investment grade corporate bonds - $10.2 million with a weighted average yield of 1.35%; and U.S. dollar denominated investment grade corporate bonds of large foreign issuers - $500 thousand with a weighted average yield of 1.12%. The Company also sold $1.0 million of corporate bonds classified as available for sale during the six months ended December 31, 2015.

As of December 31, 2015, the implementation of these asset and liability management initiatives resulted in the following:

$153.0 million or 46.3% of the Company’s assets were comprised of floating rate investment and mortgage-backed securities. Of this $153.0 million, approximately $151.8 million float on a monthly basis based upon changes in the one-month London Interbank Offered Rate (LIBOR) and about $1.0 million reprice on a quarterly basis based upon the three-month LIBOR.

$152.0 million or 59.4% of the Company’s total investment portfolio was comprised of floating rate mortgage-backed securities (including collateralized mortgage obligations – “CMOs”) that reprice on a monthly basis;

$90.2 million or 27.3% of the Company’s investment portfolio consisted of investment grade fixed-rate corporate bonds with remaining maturities as follows: 3 months or less - $1.0 million or 1.1%; 3 – 12 months - $44.5 million or 49.3%; 1 – 2 years - $42.2 million or 46.8%; 2 – 3 years - $1.5 million or 1.7% and 3 – 5 years - $1.0 million or 1.1%;

$2.1 million or 0.6% of the Company’s investment portfolio was comprised of callable U.S. Government Agency multiple step-up bonds with call features. Approximately $500 thousand are

callable within three months, and the remainder are callable within thirty-two 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;

$92.8 million or 28.1% of the Company’s assets were comprised of investment securities classified as available for sale;

An aggregate of $15.7 million or 27.1% of the Company’s net loan portfolio had adjustable interest rates or maturities of less than 12 months;

Approximately $100.3 million of the Company’s total FHLB long-term advances of $117.8 million are comprised of floating rate instruments which adjust on a monthly basis based upon changes in the one-month LIBOR;

Approximately $5.0 million of the Company’s total FHLB long-term advances of $117.8 million are comprised of floating rate instruments which adjust on a quarterly basis based upon changes in the three-month LIBOR; and

The maturity distribution of the Company’s borrowings is as follows: 3 months or less - $35.1 million or 23.0%; 3 – 12 months - $101.7 million or 66.5%; and over 1 year - $16.1 million or 10.5%.

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 due to unusually low market interest rates. An asset sensitive financial position may benefit earnings during a period of rising interest rates and reduce earnings during a period of declining interest rates.

The following table sets forth certain information at the dates indicated relating to the Company’s interest-earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within one year.


	December 31, 2015			June 30,
	December 31, 2015			2015			2014
				(Dollars in Thousands)
Interest-earning assets maturing or repricing within one year		$231,771			$227,461			$256,902
Interest-bearing liabilities maturing or repricing within one year		226,164			228,335			209,986

Interest sensitivity gap		$ 5,607			$ (874	)		$ 46,916

Interest sensitivity gap as a percentage of total assets		1.70	%		-0.27	%		15.14	%
Ratio of assets to liabilities maturing or repricing within one year		102.48	%		99.62	%		122.34	%

At December 31, 2015, investments available for sale totaled $92.8 million or 28.1% of total assets.

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 December 31, 2015. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points.

Cumulative Stressed Repricing Gap


	Month 3			Month 6			Month 12			Month 24			Month 36			Month 60			Long Term
	(Dollars in Thousands)
Base Case Up 200 bp
Cumulative Gap ($’s)	$	(15,834	)	$	(29,876	)	$	2,481		$	27,607		$	28,765		$	26,035		$	27,287
% of Total Assets		-4.8	%		-9.0	%		0.8	%		8.4	%		8.7	%		7.9	%		8.3	%
Base Case Up 100 bp
Cumulative Gap ($’s)	$	(15,658	)	$	(29,538	)	$	3,100		$	28,632		$	30,081		$	27,662		$	27,287
% of Total Assets		-4.7	%		-8.9	%		0.9	%		8.7	%		9.1	%		8.4	%		8.3	%
Base Case No Change
Cumulative Gap ($’s)	$	(14,935	)	$	(28,158	)	$	5,607		$	32,794		$	35,326		$	33,802		$	27,287
% of Total Assets		-4.5	%		-8.5	%		1.7	%		9.9	%		10.7	%		10.2	%		8.3	%
Base Case Down 100 bp
Cumulative Gap ($’s)	$	(14,362	)	$	(27,089	)	$	7,461		$	35,699		$	38,769		$	37,312		$	27,287
% of Total Assets		-4.3	%		-8.2	%		2.3	%		10.8	%		11.7	%		11.3	%		8.3	%
Base Case Down 200 bp
Cumulative Gap ($’s)	$	(13,779	)	$	(26,001	)	$	9,353		$	38,547		$	41,964		$	40,196		$	27,287
% of Total Assets		-4.2	%		-7.9	%		2.8	%		11.7	%		12.7	%		12.2	%		8.3	%

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 December 31, 2015. This analysis was done assuming that the interest-earning assets will average approximately $338 million and $360 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 December 31, 2015. 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
	December 31, 2016															December 31, 2017
Estimated impact on:	-200			-100			0			+100			+200			-200			-100			0			+100			+200
Change in net interest income		-5.1	%		-2.1	%		-			0.9	%		3.4	%		-15.1	%		-8.2	%		-			10.5	%		22.9	%
Return on average equity		3.97	%		4.29	%		4.51	%		4.61	%		4.88	%		4.23	%		5.05	%		6.01	%		7.25	%		8.66	%
Return on average assets		0.38	%		0.41	%		0.43	%		0.44	%		0.46	%		0.39	%		0.47	%		0.56	%		0.68	%		0.82	%
Market value of equity (in thousands)		$37,621			$37,858			$38,066			$37,662			$36,839

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 December 31, 2015. The Company used no derivative financial instruments to hedge such anticipated transactions as of December 31, 2015.


Anticipated Transactions

(Dollars in Thousands)
Undisbursed construction and land development loans
Fixed rate	$	5,056
		3.58	%
Adjustable rate	$	1,200
		5.00	%
Undisbursed lines of credit
Adjustable rate	$	6,498
		3.85	%
Loan origination commitments
Fixed rate	$	2,924
		3.77	%
Letters of credit
Adjustable rate	$	130
		4.50	%


	$	15,808

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 December 31, 2015, the Savings Bank had two performance standby letters of credit outstanding totaling approximately $130 thousand. Both performance letters of credit are secured by developed property. The letters of credit will mature within eight 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 December 31, 2015, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and 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). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2015.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange 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 December 31, 2015, 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 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

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

(b) Not applicable.

ITEM 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, 2015.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) The following table sets forth information with respect to purchases of common stock of the Company made by the WVS Financial Corp. Employee Stock Ownership Plan (ESOP) during the three months ended December 31, 2015.


AFFILIATE PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share ($)		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs⁽²⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽³⁾
10/01/15 – 10/31/15		-		-		-	$	630,400
11/01/15 – 11/30/15		-		-		-	$	630,400
12/01/15 – 12/31/15		-		-		-	$	630,400
Total		-		-		-	$	630,400

(1)	All shares indicated were purchased under the Company’s ESOP Stock Purchase Program.

(2)	Shares purchased using funds borrowed from the Company.

(3)	ESOP Stock Purchase Program

(a)

Announced March 31, 2015.

(b)

$750,000 of common shares approved for purchase.

(c)

No fixed date of expiration.

(d)

This Program has not expired and has $630,400 of shares remaining to be purchased at December 31, 2015.

(e)

Not applicable.

The following table sets forth information with respect to purchases of common stock of the Company made by WVS Financial Corp. during the three months ended December 31, 2015.


COMPANY PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share ($)		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that May Yet Be Repurchased Under the Plans or Programs^(2),(3)
10/01/15 – 10/31/15		-		-		-		123,744
11/01/15 – 11/30/15		-		-		-		123,744
12/01/15 – 12/31/15		-		-		-		123,744
Total		-		-		-		123,744

(1)	All shares indicated were purchased under the Company’s reopened Tenth Stock Repurchase Program.

(2)	Tenth Stock Repurchase Program

(a)

Announced April 30, 2014.

(b)

41,745 common shares approved for repurchase.

(c)

No fixed date of expiration.

(d)

This Program has not expired and has 22,944 shares remaining to be purchased at December 31, 2015.

(e)

Not applicable.

(3)	Eleventh Stock Repurchase Program

(a)

Announced October 27, 2015.

(b)

100,800 common shares approved for repurchase.

(c)

No fixed date of expiration.

(d)

This Program has not expired and has 100,800 common shares remaining to be purchased at December 31, 2015.

(e)

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document

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.

February 12, 2016	BY:	/s/ David J. Bursic
Date		David J. Bursic President and Chief Executive Officer (Principal Executive Officer)

February 12, 2016	BY:	/s/ Keith A. Simpson
Date		Keith A. Simpson Vice-President, Treasurer and Chief Accounting Officer (Principal Accounting Officer)