UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission File Number:
WVS Financial Corp.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
|
|
|
| |
|
| (Address of principal executive offices) | (Zip Code) |
| ( | |
| (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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☐ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
Shares outstanding as of May 3, 2022:
WVS FINANCIAL CORP. AND SUBSIDIARY
INDEX
| Page |
||
| PART I. | ||
| Item 1. | ||
| Consolidated Balance Sheet as of March 31, 2022 and June 30, 2021 (Unaudited) |
||
| Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 2022 and 2021 (Unaudited) |
||
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk |
|
| Item 4 | ||
|
|
||
| PART II. | Page | |
| Item 1. | ||
| Item 1A. | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
|
| Item 3. | ||
| Item 4. | ||
| Item 5. | ||
| Item 6. | ||
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
| March 31, 2022 | June 30, 2021 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-earning demand deposits | ||||||||
| Total cash and cash equivalents | ||||||||
| Certificates of deposit | ||||||||
| Investment securities available-for-sale (amortized cost of $ and $) | ||||||||
| Investment securities held-to-maturity (fair value of $ and $) | ||||||||
| Mortgage-backed securities held-to-maturity (fair value of $ and $) | ||||||||
| Net loans receivable (allowance for loan losses of $ and $) | ||||||||
| Accrued interest receivable | ||||||||
| Federal Home Loan Bank (FHLB) stock, at cost | ||||||||
| Premises and equipment | ||||||||
| Deferred tax assets (net) | ||||||||
| Bank owned life insurance | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ) | |||||||
| LIABILITIES | ||||||||
| Savings Deposits: | ||||||||
| Non-interest-bearing accounts | $ | $ | ||||||
| NOW accounts | ||||||||
| Savings accounts | ||||||||
| Money market accounts | ||||||||
| Certificates of deposit | ||||||||
| Advance payments by borrowers for taxes and insurance | ||||||||
| Total Savings Deposits | ||||||||
| Federal Home Loan Bank advances: long-term – fixed rate | ||||||||
| Federal Home Loan Bank advances: long-term – variable rate | ||||||||
| Federal Home Loan Bank advances: short-term | ||||||||
| Total Federal Home Loan Bank advances | ||||||||
| Accrued interest payable | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock: authorized, outstanding | ||||||||
| Common stock: authorized, shares issued; | ||||||||
| Additional paid in capital | ||||||||
| Treasury stock: and shares at cost, respectively | ( | ) | ( | ) | ||||
| Retained earnings, substantially restricted | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Unallocated Employee Stock Ownership Plan (“ESOP”) shares | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share data)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| March 31, |
March 31, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| INTEREST AND DIVIDEND INCOME: |
||||||||||||||||
| Loans, including fees |
$ | $ | $ | $ | ||||||||||||
| Investment securities |
||||||||||||||||
| Mortgage-backed securities |
||||||||||||||||
| Certificates of deposit |
||||||||||||||||
| FHLB Stock |
||||||||||||||||
| Total interest and dividend income |
||||||||||||||||
| INTEREST EXPENSE: |
||||||||||||||||
| Deposits |
||||||||||||||||
| Federal Home Loan Bank advances – long-term – fixed rate |
||||||||||||||||
| Federal Home Loan Bank advances – long-term – variable rate |
||||||||||||||||
| Federal Home Loan Bank advances – short-term |
||||||||||||||||
| Other short-term borrowings |
||||||||||||||||
| Total interest expense |
||||||||||||||||
| NET INTEREST INCOME |
||||||||||||||||
| (CREDIT) PROVISION FOR LOAN LOSSES |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| NET INTEREST INCOME AFTER (CREDIT) PROVISION FOR LOAN LOSSES |
||||||||||||||||
| NON-INTEREST INCOME: |
||||||||||||||||
| Service charges on deposits |
||||||||||||||||
| Earnings on Bank Owned Life Insurance |
||||||||||||||||
| Investment securities gains |
||||||||||||||||
| Other than temporary impairment (“OTTI”) losses |
( |
) | ||||||||||||||
| Portion of loss (gain) recognized in other comprehensive income (before taxes) |
||||||||||||||||
| Net impairment loss recognized in earnings |
( |
) | ||||||||||||||
| ATM fee income |
||||||||||||||||
| Other |
||||||||||||||||
| Total non-interest income |
||||||||||||||||
| NON-INTEREST EXPENSE: |
||||||||||||||||
| Salaries and employee benefits |
||||||||||||||||
| Occupancy and equipment |
||||||||||||||||
| Data processing |
||||||||||||||||
| Correspondent bank service charges |
||||||||||||||||
| Federal deposit insurance premium |
||||||||||||||||
| ATM Network expense |
||||||||||||||||
| Other |
||||||||||||||||
| Total non-interest expense |
||||||||||||||||
| INCOME BEFORE INCOME TAXES |
||||||||||||||||
| INCOME TAX EXPENSE |
||||||||||||||||
| NET INCOME |
$ | $ | $ | $ | ||||||||||||
| EARNINGS PER SHARE: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| AVERAGE SHARES OUTSTANDING: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| March 31, |
March 31, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| NET INCOME |
$ | $ | $ | $ | ||||||||||||
| OTHER COMPREHENSIVE INCOME |
||||||||||||||||
| Investment securities available for sale not other-than-temporarily impaired: |
||||||||||||||||
| (Losses) gains arising during the year |
( |
) | ( |
) | ( |
) | ||||||||||
| Less: Income tax effect |
( |
) | ||||||||||||||
| ( |
) | ( |
) | ( |
) | |||||||||||
| (Gains) recognized in earnings |
( |
) | ( |
) | ( |
) | ||||||||||
| Less: Income tax effect |
||||||||||||||||
| ( |
) | ( |
) | ( |
) | |||||||||||
| Unrealized holding (losses) gains on investment securities available for sale not other-than-temporarily impaired, net of tax |
( |
) | ( |
) | ( |
) | ||||||||||
| Investment securities held to maturity other-than-temporarily impaired: |
||||||||||||||||
| Total losses |
||||||||||||||||
| Losses recognized in earnings |
||||||||||||||||
| Gains (losses) recognized in comprehensive income |
||||||||||||||||
| Income tax effect |
||||||||||||||||
| - | - | - | - | |||||||||||||
| Accretion of other comprehensive gain on other-than-temporarily impaired securities held to maturity |
||||||||||||||||
| Less: Income tax effect |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Unrealized holding gains on other-than-temporarily impaired securities held to maturity, net of tax |
||||||||||||||||
| Other comprehensive (loss) income |
( |
) | ( |
) | ( |
) | ||||||||||
| COMPREHENSIVE (LOSS) INCOME |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
See accompanying notes to unaudited consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except per share data)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings – Substantially Restricted | Accumulated Other Comprehensive (Loss) Income | Unallocated ESOP Shares | Total | ||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchase of treasury stock ( shares) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Amortization of unallocated ESOP shares | ||||||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings – Substantially Restricted | Accumulated Other Comprehensive (Loss) Income | Unallocated ESOP Shares | Total | ||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchase of treasury stock ( shares) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Amortization of unallocated ESOP shares | ||||||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except per share data)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings – Substantially Restricted | Accumulated Other Comprehensive (Loss) Income | Unallocated ESOP Shares | Total | ||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Amortization of unallocated ESOP shares | ||||||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings – Substantially Restricted | Accumulated Other Comprehensive (Loss) Income | Unallocated ESOP Shares | Total | ||||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||
| Purchase of treasury stock ( shares) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Amortization of unallocated ESOP shares | ||||||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Nine Months Ended |
||||||||
| March 31, |
||||||||
| 2022 |
2021 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to cash (used for) provided by operating activities: |
||||||||
| (Credit) Provision for loan losses |
( |
) | ( |
) | ||||
| Depreciation |
||||||||
| Investment securities gains |
( |
) | ( |
) | ||||
| Net impairment loss recognized in earnings |
||||||||
| Amortization of discounts, premiums and deferred loan fees, net |
||||||||
| Amortization of unallocated ESOP shares |
||||||||
| Deferred income taxes |
||||||||
| Increase (decrease) in accrued income taxes |
( |
) | ||||||
| Earnings on bank owned life insurance |
( |
) | ( |
) | ||||
| Increase in accrued employee benefits |
||||||||
| Increase in accrued interest receivable |
( |
) | ( |
) | ||||
| Decrease in accrued interest payable |
( |
) | ( |
) | ||||
| Increase in deferred director compensation payable |
||||||||
| Other, net |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| INVESTING ACTIVITIES |
||||||||
| Available-for-sale: |
||||||||
| Purchases of investment securities |
( |
) | ( |
) | ||||
| Proceeds from sale of investments |
||||||||
| Proceeds from repayments of investment securities |
||||||||
| Held-to-maturity: |
||||||||
| Purchase of mortgage-backed securities |
( |
) | ( |
) | ||||
| Proceeds from repayments of investment securities |
||||||||
| Proceeds from repayments of mortgage-backed securities |
||||||||
| Purchases of certificates of deposit |
( |
) | ( |
) | ||||
| Maturities/redemptions of certificates of deposit |
||||||||
| Purchase of loans |
( |
) | ( |
) | ||||
| Net decrease in net loans receivable |
||||||||
| Purchase of FHLB stock |
( |
) | ( |
) | ||||
| Redemption of FHLB stock |
||||||||
| Acquisition of premises and equipment |
( |
) | ( |
) | ||||
| Net cash (used for) provided by investing activities |
( |
) | ||||||
WVS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Nine Months Ended |
||||||||
| March 31, |
||||||||
| 2022 |
2021 |
|||||||
| FINANCING ACTIVITIES |
||||||||
| Net increase in transaction and savings accounts |
$ | $ | ||||||
| Net increase (decrease) in certificates of deposit |
( |
) | ||||||
| Net decrease in advance payments by borrowers for taxes and insurance |
( |
) | ( |
) | ||||
| Repayments of Federal Home Loan Bank long-term advances |
( |
) | ( |
) | ||||
| Net increase in FHLB short-term advances |
||||||||
| Repayments of other short-term borrowings |
( |
) | ||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||
| Cash dividends paid |
( |
) | ( |
) | ||||
| Net cash provided by (used for) financing activities |
( |
) | ||||||
| Increase in cash and cash equivalents |
||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD |
||||||||
| CASH AND CASH EQUIVALENTS AT END OF THE PERIOD |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||
| Cash paid during the period for: |
||||||||
| Interest on deposits and borrowings |
$ | $ | ||||||
| Income taxes |
||||||||
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 of WVS Financial Corp. (the Company) and subsidiary 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 nine months ended March 31, 2022, are not necessarily indicative of the results which may be expected for the entire fiscal year.
The coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering-in-place policies has and may continue to impact many of the Company’s customers. While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time. The Company has given hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. The pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States. Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by COVID-19. Under these provisions, loan modifications deemed to be COVID-19 related would not be considered a troubled debt restructuring (TDR) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or January 1, 2022. The banking regulators issued similar guidance, which also clarified that a COVID-19-related modification should not be considered a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term. As of January 1, 2022, West View Savings Bank (the Savings Bank) had no loans remaining in deferral.
| 2. | RECENT ACCOUNTING PRONOUNCEMENTS |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. This Update is not expected to have a significant impact on the Company’s financial statements, OR the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. This Update is not expected to have a significant impact on the Company’s financial statements, OR 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. | REVENUE RECOGNITION |
The Company recognizes revenue in accordance with ASC 606, Revenue from contracts with Customers – Topic 606. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, and earnings on bank owned life insurances are not within the scope of ASC 606. The main types of noninterest income within the scope of the standard are as follows: Service Charges on deposit accounts - the Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.
| 4. | 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 | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Average treasury stock shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Average unallocated ESOP shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average common shares and common stock equivalents used to calculate basic earnings per share | ||||||||||||||||
| Weighted average common shares and common stock equivalents used to calculate diluted earnings per share | ||||||||||||||||
There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used.
The unallocated shares controlled by the ESOP are not considered in the weighted-average shares outstanding until the shares are committed for allocation to an employee’s individual account.
| 5. | INVESTMENT SECURITIES |
The amortized cost, gross unrealized gains and losses, and fair values of investments are as follows:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| March 31, 2022 | ||||||||||||||||
| AVAILABLE FOR SALE | ||||||||||||||||
| U.S. government agency securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| Foreign debt securities1 | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| March 31, 2022 | ||||||||||||||||
| HELD TO MATURITY | ||||||||||||||||
| U.S. government agency securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| June 30, 2021 | ||||||||||||||||
| AVAILABLE FOR SALE | ||||||||||||||||
| U.S. government agency securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| Foreign debt securities1 | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| June 30, 2021 | ||||||||||||||||
| HELD TO MATURITY | ||||||||||||||||
| U.S. government agency securities | $ | $ | $ | $ | ||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
1 U.S. dollar denominated investment-grade corporate bonds of large foreign corporate issuers.
The Company recorded gross realized investment security gains of $
The Company recorded gross realized investment security gains of $
The amortized cost and fair values of debt securities at March 31, 2022, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.
| Due in one year or less | Due after one through five years | Due after five through ten years | Due after ten years | Total | ||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| AVAILABLE FOR SALE | ||||||||||||||||||||
| Amortized cost | $ | $ | $ | $ | $ | |||||||||||||||
| Fair value | ||||||||||||||||||||
| HELD TO MATURITY | ||||||||||||||||||||
| Amortized cost | $ | $ | $ | $ | $ | |||||||||||||||
| Fair value | ||||||||||||||||||||
At March 31, 2022 investment securities with amortized costs of $
| 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.
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 March 31, 2022, the Company’s Agency CMOs totaled $
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 six previously recorded other-than-temporary impairments at March 31, 2022. During the three and nine months ended March 31, 2022, the Company recorded
The Company believes that the data and assumptions used to determine the fair values of its securities 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 March 31, 2022. 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 March 31, 2022 | ||||||||||||||||||||
| Rating | Book Value | Fair Value2 | Life to Date Impairment Recorded in Earnings | |||||||||||||||||
| Cusip # | Security Description | S&P | Moody’s | Fitch | (Dollars in Thousands) | |||||||||||||||
| 126694CP1 | CWHL SER 21 A11 | NR | WR | D | $ | $ | $ | |||||||||||||
| 126694KF4 | CWHL SER 24 A15 | NR | NR | D | ||||||||||||||||
| 126694MP0 | CWHL SER 26 1A5 | NR | NR | WD | ||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
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) | ||||||||||||||||
| March 31, 2022 | ||||||||||||||||
| HELD TO MATURITY | ||||||||||||||||
| Collateralized mortgage obligations: | ||||||||||||||||
| Agency | $ | $ | $ | ( | ) | $ | ||||||||||
| Private-label | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| June 30, 2021 | ||||||||||||||||
| HELD TO MATURITY | ||||||||||||||||
| Collateralized mortgage obligations: | ||||||||||||||||
| Agency | $ | $ | $ | ( | ) | $ | ||||||||||
| Private-label | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
The amortized cost and fair value of the Company’s mortgage-backed securities at March 31, 2022, 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Fair value | ||||||||||||||||||||
At March 31, 2022, mortgage-backed securities with amortized costs of $
2 Fair value estimate provided by the Company’s independent third-party valuation consultant.
| 7. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
The following tables present the changes in accumulated other comprehensive income (loss) by component, for the three and nine months ended March 31, 2022 and 2021.
| Three Months Ended March 31, 2022 | ||||||||||||
| (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 – December 31, 2021 | $ | $ | ( | ) | $ | |||||||
| Other comprehensive (loss) before reclassifications | ( | ) | ( | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ||||||||||||
| Net current-period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| Ending Balance – March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Nine Months Ended March 31, 2022 | ||||||||||||
| (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, 2021 | $ | $ | ( | ) | $ | |||||||
| Other comprehensive (loss) before reclassifications | ( | ) | ( | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| Net current-period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| Ending Balance – March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Three Months Ended March 31, 2021 | ||||||||||||
| (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 – December 31, 2020 | $ | $ | ( | ) | $ | |||||||
| Other comprehensive (loss) income before reclassifications | ( | ) | ( | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| Net current-period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| Ending Balance – March 31, 2021 | $ | $ | ( | ) | $ | |||||||
| Nine Months Ended March 31, 2021 | ||||||||||||
| (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, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income before reclassifications | ||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| Net current-period other comprehensive income | ||||||||||||
| Ending Balance – March 31, 2021 | $ | $ | ( | ) | $ | |||||||
| 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 March 31, 2022 and June 30, 2021.
| March 31, 2022 | ||||||||||||||||||||||||
| Less Than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||
| U.S. government securities | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| Corporate debt securities | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign debt securities3 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Collateralized mortgage obligations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| June 30, 2021 | ||||||||||||||||||||||||
| Less Than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||
| U.S. government agency securities | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| Corporate debt securities | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign debt securities3 | ( | ) | ( | ) | ||||||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ||||||||||||||||||||
| Collateralized mortgage obligations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
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 (“NRSRO”); other indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of time and extent that fair value has been less than amortized cost; and whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In the case of its Private-Label residential MBS, the Company also considers prepayment speeds, the historical and projected performance of the underlying loans and the credit support provided by the subordinate securities. These evaluations are inherently subjective and consider a number of quantitative and qualitative factors.
The following table presents a roll-forward of the credit loss component of the amortized cost of mortgage-backed securities that we have written down for OTTI and the credit component of the loss that is recognized in earnings. OTTI recognized in earnings for credit impaired mortgage-backed securities is presented as additions in two components based upon whether the current period is the first time the mortgage-backed security was credit-impaired (initial credit impairment) or is not the first time the mortgage-backed security was credit impaired (subsequent credit impairments). The credit loss component is reduced if we sell, intend to sell or believe that we will be required to sell previously credit-impaired mortgage-backed securities. Additionally, the credit loss component is reduced if we receive cash flows in excess of what we expected to receive over the remaining life of the credit impaired mortgage-backed securities, the security matures or is fully written down.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | (Dollars in Thousands) | |||||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| 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 | ( | ) | ( | ) | ||||||||||||
| Reduction for increase in cash flows expected to be collected | ||||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
3 U.S. dollar denominated investment-grade corporate bonds of large foreign corporate issuers.
During the three and nine months ended March 31, 2022, the Company did record any subsequent credit impairment charge and non-credit unrealized holding losses to accumulated other comprehensive income. During the three and nine months ended March 31, 2022, the Company accreted back out of othercomprehensive income $
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 accordance with ASC Topic 820, 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 March 31, 2022 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.
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 88 positions that were temporarily impaired at March 31, 2022. Based on its analysis, management has concluded that three Private-Label CMOs are OTTI, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.
| 9. | LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES |
The following table summarizes the primary segments of the loan portfolio as of March 31, 2022 and June 30, 2021.
| March 31, 2022 | June 30, 2021 | |||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Land acquisition & development | ||||||||||||||||||||||||
| Multi-family dwellings | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Consumer Loans: | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial Loans | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Plus: Deferred loan costs | ||||||||||||||||||||||||
| Allowance for loan losses | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||
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.
As of March 31, 2022 and June 30, 2021, there were
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, 2022 | March 31, 2021 | March 31, 2022 | March 31, 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Average nonaccrual loans | ||||||||||||||||
| 1 – 4 family dwellings | $ | $ | $ | $ | ||||||||||||
| Construction | ||||||||||||||||
| Land acquisition & development | ||||||||||||||||
| Commercial real estate | ||||||||||||||||
| Home equity lines of credit | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Income that would have been recognized | $ | $ | $ | $ | ||||||||||||
| Interest income recognized | $ | $ | $ | $ | ||||||||||||
| Interest income foregone | $ | $ | $ | $ | ||||||||||||
The Company’s loan portfolio may also include 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 nine months ended March 31, 2022 and 2021, there were
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.
The Federal Deposit Insurance Corporation (“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 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 principals (“GAAP”). The revised policy statement updates 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 March 31, 2022, is adequate.
The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2022 and June 30, 2021:
| 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) | ||||||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||
| First mortgage loans: | ||||||||||||||||||||||||||||
| 1 – 4 family dwellings | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||
| Land acquisition & development | ||||||||||||||||||||||||||||
| Multi-family dwellings | ||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||
| Consumer Loans: | ||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| Commercial Loans | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Deferred loan costs | ||||||||||||||||||||||||||||
| Allowance for loan losses | ( | ) | ||||||||||||||||||||||||||
| Net Loans Receivable | $ | |||||||||||||||||||||||||||
| 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, 2021 | ||||||||||||||||||||||||||||
| First mortgage loans: | ||||||||||||||||||||||||||||
| 1 – 4 family dwellings | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||
| Land acquisition & development | ||||||||||||||||||||||||||||
| Multi-family dwellings | ||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||
| Consumer Loans | - | |||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| Commercial Loans | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | - | $ | $ | |||||||||||||||||||||
| Deferred loan costs | ||||||||||||||||||||||||||||
| Allowance for loan losses | ( | ) | ||||||||||||||||||||||||||
| Net Loans Receivable | $ | |||||||||||||||||||||||||||
Credit quality information
The following tables represent credit exposure by internally assigned grades for the periods ended March 31, 2022 and June 30, 2021. 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 March 31, 2022 and June 30, 2021.
| March 31, 2022 | ||||||||||||||||||||
| Construction | Land Acquisition & Development Loans | Multi-family Residential | Commercial Real Estate | Commercial | ||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | |||||||||||||||
| Special Mention | ||||||||||||||||||||
| Substandard | ||||||||||||||||||||
| Doubtful | ||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | |||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Construction | Land Acquisition & Development Loans | Multi-family Residential | Commercial Real Estate | Commercial | ||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | |||||||||||||||
| Special Mention | ||||||||||||||||||||
| Substandard | ||||||||||||||||||||
| Doubtful | ||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | |||||||||||||||
The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended March 31, 2022 and June 30, 2021.
| March 31, 2022 | ||||||||
| 1 – 4 Family | Consumer | |||||||
| (Dollars in Thousands) | ||||||||
| Performing | $ | $ | ||||||
| Non-performing | ||||||||
| Total | $ | $ | ||||||
| June 30, 2021 | ||||||||
| 1 – 4 Family | Consumer | |||||||
| (Dollars in Thousands) | ||||||||
| Performing | $ | $ | ||||||
| Non-performing | ||||||||
| Total | $ | $ | ||||||
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 March 31, 2022.
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, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2022 and 2021. Activity in the allowance is presented for the three and nine months ended March 31, 2022 and 2021.
| As of March 31, 2022 | ||||||||||||||||||||||||||||||||
| 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 December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Ending ALLL Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| As of March 31, 2022 | ||||||||||||||||||||||||||||||||
| 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, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Ending ALLL Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| As of March 31, 2021 | ||||||||||||||||||||||||||||||||
| 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 December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Ending ALLL Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| As of March 31, 2021 | ||||||||||||||||||||||||||||||||
| 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, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provisions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Ending ALLL Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
During the three and nine months ended March 31, 2022, the Company’s ALLL decreased by $
The decrease in the ALLL for the nine months ended March 31, 2022 was primarily attributable to a $
| 10. | FEDERAL HOME LOAN BANK (FHLB) ADVANCES |
The following table presents contractual maturities of FHLB long-term advances as of March 31, 2022 and June 30, 2021.
| Maturity range | Weighted-average | Stated interest rate range | March 31, | June 30, | ||||||||||||||||||||||
| Description | from | to | interest rate4 | from | to | 2022 | 2021 | |||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||
| Fixed | 10/1/2021 | 10/3/2022 | % | % | % | $ | $ | |||||||||||||||||||
| Adjustable | 10/1/2021 | 10/1/2021 | N/A | % | % | |||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
| __________________________ |
| 4 As of March 31, 2022 |
Maturities of FHLB long-term advances at March 31, 2022, are summarized as follows:
| Maturing During | Weighted- | |||||||
| Fiscal Year Ended | Average | |||||||
| June 30: | Amount | Interest Rate5 | ||||||
| (Dollars in Thousands) | ||||||||
| 2022 | $ | |||||||
| 2023 | % | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2026 and thereafter | ||||||||
| Total | $ | % | ||||||
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 March 31, 2022 and June 30, 2021:
| March 31, 2022 | June 30, 2021 | |||||||
| (Dollars in Thousands) | ||||||||
| FHLB revolving and short-term advances: | ||||||||
| Ending balance | $ | $ | ||||||
| Average balance | ||||||||
| Maximum month-end balance | ||||||||
| Average interest rate | % | % | ||||||
| Weighted-average rate at period end | % | % | ||||||
At March 31, 2022, the Company had remaining borrowing capacity with the FHLB of approximately $
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 SHORT-TERM BORROWINGS |
The Company periodically utilizes other short-term borrowings comprised of FRB discount window borrowings. FRB discount window borrowings mature within 90 days and may be repaid prior to maturity without penalty, in whole or in part, plus accrued interest. The following table presents information regarding the FRBC borrowings as of March 31, 2022 and June 30, 2021:
FRBC Discount Window Borrowings:
| March 31, | June 30, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in Thousands) | ||||||||
| Ending balance | $ | $ | ||||||
| Average balance | ||||||||
| Maximum month-end balance | ||||||||
| Average interest rate | % | % | ||||||
| Weighted-average rate at period end | % | % | ||||||
At March 31, 2022 the Company had remaining borrowing capacity with the FRB of approximately $
|
5 As of March 31, 2022. |
| 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 March 31, 2022 and June 30, 2021, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| March 31, 2022 | ||||||||||||||||
| Level I | Level II | Level III | Total | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Assets measured on a recurring basis: | ||||||||||||||||
| Investment securities – available for sale: | ||||||||||||||||
| U.S. government agency securities | $ | $ | $ | $ | ||||||||||||
| Corporate debt securities | ||||||||||||||||
| Foreign debt securities6 | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
6 U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers. |
| June 30, 2021 | ||||||||||||||||
| Level I | Level II | Level III | Total | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Assets measured on a recurring basis: | ||||||||||||||||
| Investment securities – available for sale: | ||||||||||||||||
| U.S. government agency securities | $ | $ | $ | $ | ||||||||||||
| Corporate securities | ||||||||||||||||
| Foreign debt securities7 | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 13. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The carrying amounts and estimated fair values of financial instruments are as follows:
| March 31, 2022 | ||||||||||||||||||||
| Carrying Amount | Fair Value | Level I | Level II | Level III | ||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| FINANCIAL ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Investment securities – held to maturity | ||||||||||||||||||||
| Mortgage-backed securities – held to maturity: | ||||||||||||||||||||
| Agency | ||||||||||||||||||||
| Private-label | ||||||||||||||||||||
| Net loans receivable | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| FHLB stock | ||||||||||||||||||||
| Bank owned life insurance | ||||||||||||||||||||
| FINANCIAL LIABILITIES | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Non-interest bearing deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Interest-earning checking | ||||||||||||||||||||
| Savings accounts | ||||||||||||||||||||
| Money market accounts | ||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Advance payments by borrowers for taxes and insurance | ||||||||||||||||||||
| FHLB advances – fixed rate | ||||||||||||||||||||
| FHLB advances – variable rate | ||||||||||||||||||||
| FHLB short-term advances | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
7 U.S. dollar-denominated investment-grade corporate bonds of large foreign corporate issuers.
| June 30, 2021 | ||||||||||||||||||||
| Carrying | Fair Value | Level I | Level II | Level III | ||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| FINANCIAL ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Investment securities – held to maturity | ||||||||||||||||||||
| Mortgage-backed securities – held to maturity: | ||||||||||||||||||||
| Agency | ||||||||||||||||||||
| Private-label | ||||||||||||||||||||
| Net loans receivable | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| FHLB stock | ||||||||||||||||||||
| Bank owned life insurance | ||||||||||||||||||||
| FINANCIAL LIABILITIES | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Non-interest bearing deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Interest-earning checking | ||||||||||||||||||||
| Savings accounts | ||||||||||||||||||||
| Money market accounts | ||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Advance payments by borrowers for taxes and insurance | ||||||||||||||||||||
| FHLB advances – fixed rate | ||||||||||||||||||||
| FHLB advances – variable rate | ||||||||||||||||||||
| FHLB short-term advances | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
All financial instruments included in the above tables, with the exception of net loans receivable, certificates of deposit liabilities, and FHLB advances – fixed rate, are carried at cost, which approximates the fair value of the instruments.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED March 31, 2022
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; |
| • |
the effects and extent of the coronavirus (COVID-19) pandemic on the global economy, and its impact on the Company’s operations and financial condition, including the granting of various loan payment deferral and fee waivers, the possibility of credit losses in our loan portfolios and increases in our allowance for credit losses as well as possible impairments on the securities we hold; |
| • |
changes in the interest rate environment could reduce net interest income and could increase credit losses; |
| • |
the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases; |
| • |
changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations; |
| • |
the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending; |
| • |
competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform; and |
| • |
acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock. |
You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new or future events except to the extent required by federal securities laws.
GENERAL
WVS Financial Corp. (WVS or the “Company”) is the parent holding company of West View Savings Bank (“West View” or the “Savings Bank”). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993.
West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from five 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 March 31, 2022.
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.
Effects of COVID-19 Pandemic
The Company’s business is dependent upon the willingness and ability of our employees and clients to conduct banking and other financial transactions. The persistence of the novel coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time. The Company has given hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. The pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses were to close once again, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.
The Company has responded to the circumstances surrounding the pandemic to support the safety and well-being of the employees, customers and shareholders by enacting the following measures:
| • |
Modified branch business hours Monday through Thursday to close at 4:00 pm (no change), Friday close at 5:00 pm (as opposed to 6:00 pm) and Saturday close at 12:00 pm (no change); |
| • |
Monitor federal, state and local COVID-19 websites and adopt guidance as appropriate and feasible; |
| • |
Encourage customers to use our various on-line portals (e.g. internet banking, online bill pay service), automated teller machines and night depositories to redirect routine transactions away from our branch staff as much as possible; and |
| • |
Non-branch banking services (e.g. lending, accounting, check and electronic processing) continue to be offered consistent with COVID-19 guidelines. |
Branch Closure
On December 17, 2021, the Company closed its leased branch office located at 572 Lincoln Avenue, Bellevue, PA (Bellevue Branch). Upon closing the Bellevue Branch, associated deposits totaling approximately $11.9 million were transferred to our West View Borough branch. Management anticipates that a significant portion of the transferred deposits will remain with the West View Borough branch.
FINANCIAL CONDITION
The Company’s assets totaled $368.8 million at March 31, 2022, as compared to $346.1 million at June 30, 2021. The $22.7 million, or 6.6%, increase in total assets was primarily due to a $47.0 million increase in floating rate U.S. Government Agency MBS, which was partially offset by a $16.3 million decrease in available-for-sale investment securities, a $5.5 million decrease in held-to-maturity investment securities, and a $4.5 million decrease in net loans receivable. The decreases in investment securities available-for-sale and held-to-maturity were primarily the result of maturities and early issuer redemptions of $49.1 million and $9.1 million, respectively, partially offset by purchases of investment securities totaling $38.7 million. The increase in mortgage-backed securities was due primarily to purchases of floating rate U.S. Government Agency mortgage-backed securities totaling approximately $79.2 million, partially offset by repayments of $32.3 million on mortgage-backed securities. The decrease in net loans receivable was attributable to repayments in excess of originations.
The Company’s total liabilities increased $23.4 million, or 7.6%, to $331.1 million as of March 31, 2022 from $307.7 million as of June 30, 2021. The increase in total liabilities was primarily comprised of a $48.7 million increase in FHLB short-term advances and a $4.5 million increase in deposits, partially offset by a $30.0 million decrease in FHLB long-term advances. The increase in total deposits was primarily attributable to increases in non-interest bearing accounts, NOW accounts and money market accounts of $2.3 million, $1.3 million, $1.1 million and $241 thousand respectively, partially offset by advance payments by borrowers for taxes and insurance of $590 thousand. The increase in non-interest bearing and NOW accounts were primarily the result of normal fluctuations in such accounts. A significant portion of retail time deposits were transferred into savings accounts. The increase FHLB short-term borrowings and brokered deposits primarily funded purchases of mortgage-backed securities and available-for-sale investment securities. See also Quantitative and Qualitative Disclosures About Market Risk “Asset and Liability Management”.
Total stockholders’ equity decreased $729 thousand, or 1.9%, to $37.7 million as of March 31, 2022, from $38.4 million as of June 30, 2021. The decrease in stockholders’ equity was primarily attributable to a decrease in accumulated other comprehensive income of $1.2 million and cash dividends paid totaling$522 thousand, which were partially offset by net income totaling $939 thousand and an increase in amortization of unallocated ESOP shares of $101 thousand. The decrease in accumulated other comprehensive income was primarily the result of an increase in the unrealized loss on the Company’s available-for-sale investment portfolio.
RESULTS OF OPERATIONS
General. WVS reported net income of $338 thousand, or $0.19 earnings per share (basic and diluted), for the three months ended March 31, 2022 as compared to $265 thousand, or $0.15 per share (basic and diluted), for the same period in 2021. The $73 thousand increase in net income for the for the three monthsended March 31, 2022 was primarily attributable to a $84 thousand increase in net interest income, a $63 thousand decrease in non-interest expense and a $7 thousand decrease in the provision for loan losses, which were offset by a $25 thousand increase in income tax expense and a $56 thousand decrease in non-interest income, when compared to the same period in 2021.
Net income for the nine months ended March 31, 2022 totaled $939 thousand, or $0.54 per share (diluted and basic), as compared to $1.0 million, or $0.59 per diluted share for the same period in 2021. The $102 thousand, or 9.8%, decrease in net income during the nine months ended March 31, 2022 was primarilyattributable to a $152 thousand decrease in net interest income and a $32 thousand increase in non-interest expense, offset by a $41 thousand decline in income tax expense, a $4 thousand increase in non-interest income and a $36 thousand reduction in provision for loan losses, when compared to the same period in 2021.
Net Interest Income. The Company’s net interest income increased by $84 thousand, or 7.4%, for the three months ended March 31, 2022, when compared to the same period in 2021. The increase in net interest income is attributable to a $68 thousand increase in interest and dividend income and a $16 thousand decreasein interest expense. The increase in interest and dividend income during the three months ended March 31, 2022 was primarily attributable to higher average balances of floating rate MBS and higher yields on loans and investment securities (other than MBS) which were offset by lower average balances of loans and investment securities outstanding and lower yields on the floating rate MBS portfolio, when compared to the same period in 2021. The decrease in interest expense during the three months ended March 31, 2022 was primarily attributable to lower average balances of brokered certificates of deposits (CDs) and lower yields paid on FHLB advances and money market accounts offset by higher average balances of FHLB advances outstanding and higher yields paid on brokered CDs, when compared to the same period in 2021.
For the nine months ended March 31, 2022, net interest income decreased $152 thousand, or 4.1%, when compared to the same period in 2021. The decrease in net interest income was attributable to a $391 thousand decrease in interest and dividend income, which was offset by a $239 thousand decrease in interest expense when compared to the same period in 2021. The decrease in interest and dividend income for the nine months ended March 31, 2022, was primarily the result of lower average balances of loans outstanding and lower average yields on investment and floating rate MBS offset by higher average balances of investment and floating rate MBS outstanding and higher average yields earned on the loan portfolio, when compared to the same period in 2021. The decrease in interest expense for the nine months ended March 31, 2022was primarily attributable to lower average rates paid on savings deposits (including brokered CDs) and FHLB advances offset by higher outstanding balances of FHLB advances and savings deposits (including brokered CDs), when compared to the same period in 2021.
Interest Income. Interest income on net loans receivable decreased $53 thousand, or 7.0%, and $309 thousand, or 12.8%, for the three and nine months ended March 31, 2022, respectively, when compared to the same periods in 2021. The decrease for the three and nine months ended March 31, 2022 was primarily attributable to a $11.1 million and $11.6 million decrease in the average balance of net loans receivable, respectively, partially offset by a 22 and 1 basis point increase in the average loan portfolio, respectively, when compared to the same periods in 2021. The decrease in the average balance of loans outstanding in both periods was primarily attributable to decreased loan originations and purchases.
Interest income on investment securities decreased $36 thousand or 9.7% and $178 thousand or 14.8% for the three and nine months ended March 31, 2022, respectively, when compared to the same periods in 2021. The decrease for the three months ended March 31, 2022 was primarily attributable to a $16.4 million decrease in the average balance of these investment securities, partially offset by a 209 basis point increase in the weighted-average yield on the available-for-sale portfolio when compared to the same period in 2021. The decrease for the nine months ended March 31, 2022 was primarily attributable to a 6 basis point decrease in weighted-average yield on the available-for-sale portfolio, partially offset by a $522 thousand increase in the average balance of these investment securities when compared to the same period in 2021.
Interest income on mortgage-backed securities increased $127 thousand or 85.2% for the three months ended March 31, 2022, when compared to the same period in 2021. The increase for the three months ended March 31, 2022 was primarily attributable to an increase of $78.8 million in average balances of U.S.Government agency mortgage-backed securities partially offset by a decrease of 29 basis points in the weighted-average yield earned on U.S. Government agency mortgage-backed securities when compared to the same period in 2021. The increase in the average balances of U.S. Government agency mortgage-backed securitiesduring the three months ended March 31, 2022 was attributable to purchases of $79.2 million of floating rate U.S. Government agency mortgage-backed securities, partially offset by principal paydowns of $32.3 million, when compared to the same period in 2021. The $32.3 million in principal paydowns was used to purchase floating rate U.S. Government agency mortgage-backed securities. Interest income on mortgage-backed securities increased $91 thousand or 14.6% for the nine months ended March 31, 2022, when compared to the same period in 2021. The increase for the nine months ended March 31, 2022 was primarily attributable to a $35.3 million increase in such average balances, partially offset by a decrease of 27 basis points in the weighted-average yield earned on U.S. Government agency mortgage-backed securities, when compared to the same period in 2021.
Interest income on bank certificates of deposit decreased $2 thousand and $8 thousand for the three and nine months ended March 31, 2022 respectively, when compared to the same periods in 2021. The decrease for the three months ended March 31, 2022 was attributable to a $262 thousand decrease in the average balances of bank time deposits and an 82 basis point decrease in average yield earned on bank time deposits when compared to the same period in 2021. The decrease for the nine months ended March 31, 2022 was attributable to a $716 thousand decrease in the average balances of bank time deposits, partially offset by a 27 basis point increase in average yield earned on bank time deposits when compared to the same period in 2021.
Dividend income on FHLB stock increased $32 thousand or 84.2% for the three months ended March 31, 2022 when compared to the same period in 2021. The increase for the three months ended March 31, 2022 was primarily attributable to a $3.6 million increase in the average balance of FHLB stock held, partiallyoffset by 78 basis point decrease in the weighted-average yield earned. For the nine months ended March 31, 2022, dividend income on FHLB stock increased $13 thousand or 7.5%, when compared to the same period in 2021. The increase for the nine months ended March 31, 2022 was primarily attributable to a $988 thousand increase in the average balance of FHLB stock held, partially offset by a 82 basis point decrease in the weighted -average yield earned.
Interest Expense. Interest paid on FHLB short-term advances increased $68 thousand or 272.0% for the three months ended March 31, 2022, when compared to the same period in 2021. The increase for the three months ended March 31, 2022 was primarily attributable to a $124.3 million increase in the average balanceof FHLB short-term advances outstanding, partially offset by a 8 basis point decrease in the weighted-average rate paid on FHLB short-term balances outstanding. Interest paid on FHLB short-term advances increased $123 thousand or 144.7% for the nine months ended March 31, 2022, when compared to the same period in2021. The increase for the nine months ended March 31, 2022 was primarily attributable to a $33.6 million increase in the average balance of FHLB short-term advances outstanding and a 7 basis point increase in the weighted-average rate paid on FHLB short-term balances outstanding. The decrease in rates paid on FHLB short-term borrowings were consistent with decreases in short-term market interest rates.
Interest paid on FHLB long-term fixed rate advances decreased $38 thousand for the three months ended March 31, 2022, when compared to the same period in 2021. The $134 thousand decrease for the three months ended March 31, 2022 was primarily attributable to a $5.0 million decrease in the average balance of FHLB long-term fixed rate advances, when compared to the same period in 2021. The decrease for the nine months ended March 31, 2022 as primarily attributable to a $5.0 million decrease in the average balance on FHLB long-term fixed rate advances and a 37 basis point decrease in the weighted average rate paid on such advances. The decrease in average balances of FHLB long-term fixed rate advances outstanding was due to better rates and terms in FHLB short-term advances and wholesale time deposits.
Interest paid on FHLB long-term variable rate advances decreased $19 thousand for the three months ended March 31, 2022, when compared to the same period in 2021. The decrease for the three months ended March 31, 2022 was primarily attributable to a $25.0 million decrease in the average balance of FHLB long-term variable rate advances and a 30 basis point decrease in the weighted-average rate paid on FHLB long-term variable rate advances. Interest paid on FHLB long-term variable rate advances decreased $76 thousand for the nine months ended March 31, 2022, when compared to the same period in 2021. The decrease for thenine months ended March 31, 2022 was primarily attributable to a $1.9 million decrease in the average balance of FHLB long-term variable rate advances and a 21 basis point decrease in the weighted-average rate paid in FHLB long-term variable rate advances.
Interest expense on deposits decreased $27 thousand, or 44.3%, for the three months ended March 31, 2022, when compared to the same period in 2021. The decrease in interest expense on deposits for the three months ended March 31, 2022 was primarily attributable to a decrease of $46.2 million in the average balanceof time deposits and NOW accounts, partially offset by a 4 basis point increase in the weighted-average rate paid on time deposits when compared the same period in the prior year. Interest expense on deposits decreased $151 thousand or 58.8% for the nine months ended March 31, 2022, when compared to the same period in 2021. The decrease in interest expense on deposits for the nine months ended March 31, 2022 was primarily attributable to a decrease of 41 basis point decrease in the weighted-average rate paid on time deposits partially offset by a $15.6 million in the average balance of time deposits, when compared to the same period in the prior year.
Provision for Loan Losses. A provision for loan losses is charged to earnings (while a credit provision for loan losses is 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 decreased $7 thousand and $36 thousand for the three and nine months ended March 31, 2022, respectively, when compared to the same period in 2021. The decrease in the provision for loan losses for the three and nine months ended March 31, 2022 was primarily due to decreased reserve factors related to the COVID-19 pandemic totaling $22 thousand and $63 thousand, respectively, which were partially offset by changes in average balance of net loans outstanding, when compared to the same periods in 2021. At March 31, 2022, the Company’s total allowance for loan losses amounted to $513 thousand or 0.67% of the Company’s total loan portfolio, as compared to $565 thousand and 0.70% at June 30, 2021. At March 31, 2022 and June 30, 2021, the Company had no non-performing loans or any loans in COVID-19 deferral status.
The Company anticipates continuing to reverse the COVID-19 portion of the allowance for loan and leases throughout fiscal 2022 assuming continued favorable trends in the COVID-19 pandemic, which totaled $22 thousand at March 31, 2022.
Non-Interest Income. For the three and nine months ended March 31, 2022, non-interest income decreased $56 thousand or 36.8% and increased $5 thousand or 1.40% compared to the same periods in 2021, respectively. For the quarter ended March 31, 2022, the decrease was attributable to a $56 thousand decrease ingains on investments, when compared to the same period in 2021. For the nine months ended March 31, 2022, the increase was attributable to a $13 thousand decrease in other than temporary impairment losses and an $11 thousand increase in service charges on deposits, partially offset by a $19 thousand decrease in gains on investments, when compared to the same period in 2021.
Non-Interest Expense. Non-interest expense decreased $63 thousand or 6.7% and increased $32 thousand or 1.2% for the three and nine months ended March 31, 2022, when compared to the same period in 2021. The decrease for the three months ended March 31, 2022, was primarily due to a $10 thousand decrease inoccupancy and equipment expenses and a $84 thousand decrease in employee compensation and benefits expense, which were partially offset by a $17 thousand increase in the federal deposit insurance premium expense and a $12 thousand increase in the provision for off-balance sheet commitments (primarily unfunded loan commitments), when compared to the same period of 2021. The increase for the nine months ended March 31, 2022, was primarily due to a $44 thousand increase in provision for losses on off balance sheet commitments, $17 thousand increase in occupancy and equipment expense and a $9 thousand increase in the federal deposit insurance premium expense, partially offset by a $35 thousand decrease in salaries and employee benefits, $2 thousand decrease in data processing expense and a $2 thousand decrease in ATM network expense, when compared to the same period of 2021.
Income Tax Expense. Income tax expense increased $25 thousand and decreased $41 thousand for the three and nine months ended March 31, 2022, when compared to the same periods in 2021, respectively. The increase for the three and the decrease for the nine months ended March 31, 2022 was primarily due to fluctuations of taxable income, when compared to the same periods in 2021.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1.8 million during the nine months ended March 31, 2022. Net cash provided by operating activities was primarily attributable to $939 thousand of Company net income and $941 thousand of amortization of discounts, premiums and deferred loan fees.
Net cash used for investing activities totaled $23.7 million for the nine months ended March 31, 2022. Primary uses of funds for investing activities during the nine months ended March 31, 2022 included purchases of investment securities available-for-sale totaling $38.7 million, purchases of mortgage-backed securitiesand loans totaling $79.2 million and $3.7 million, respectively. Primary sources of funds from investing activities during the nine months ended March 31, 2022 included proceeds from repayments of investment securities of $43.6 million, proceeds from early issuer redemptions of investment securities of $9.1 million,$32.3 million of repayments of mortgage-backed securities, $5.5 million of proceeds from repayments of held-to-maturity investment securities, a decrease in loans receivable of $8.2 million.
Funds provided by financing activities totaled $22.7 million for the nine months ended March 31, 2022. Primary sources of funds from financing activities were increases in NOW accounts, money market accounts, certificates of deposits transaction and savings account and FHLB short-term advances of $3.6 million, $1.1 million, $241 thousand, $235 thousand and $48.7 million, respectively. Primary uses of funds by financing activities were decreases in FHLB long-term advances totaling $30.0 million, advance payments by borrowers for taxes and insurance of $590 thousand, $522 thousand of cash dividends paid and purchases of treasury stock of $66 thousand.
The decrease in advance payments by borrowers for taxes and insurance were primarily attributable to seasonal withdrawals for the payment of local real estate taxes. The increase in certificates of deposit at March 31, 2022 was due principally to a $1.5 million increase in brokered deposits, which was partially offset by a$1.3 million decrease in retail time deposits. The increase in transaction and savings accounts were primarily attributable to normal calendar year end fluctuations of transaction account balances and transfers of maturing time deposits into savings accounts due to the small yield differential in rates paid on time versus savings deposits. 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 atMarch 31, 2022 totaled $26.5 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. The Company's available-for-sale portfolio totaled $135.3 million at March 31, 2022. In addition, the Company had $350 thousand of certificates of deposit and $3.3 million of cash and cash equivalents at March 31, 2022. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.
On April 25, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share, on the common stock payable on May 19, 2022, to shareholders of record at the close of business on May 19, 2022. 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 March 31, 2022, WVS Financial Corp. exceeded all regulatory capital requirements and maintained Common Equity Tier I Capital, Tier I, and total risk-based capital equal to $38.4 million or 19.14%, $38.4 million or 19.14%, and $38.9 million or 19.42%, respectively, of total risk-weighted assets, and Tier I leverage capital of $38.4 million or 10.58% 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 had no non-performing assets at March 31, 2022 or June 30, 2021.
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.
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 2013-2021 and into fiscal year 2022, short 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 were to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates. Beginning during the quarter ended March 31, 2022, many central banks, including the Federal Reserve, began to reduce the level of monetary accomodation through rate increases and reduced levels of targeted asset prchases.
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.
| March 31, |
June 30, |
|||||||||||
| 2022 |
2021 |
2020 |
||||||||||
| (Dollars in Thousands) |
||||||||||||
| Interest-earning assets maturing or repricing within one year |
$ | 254,387 | $ | 222,105 | $ | 289,076 | ||||||
| Interest-bearing liabilities maturing or repricing within one year |
228,583 | 201,614 | 218,272 | |||||||||
| Interest sensitivity gap |
$ | 25,804 | $ | 20,491 | $ | 70,804 | ||||||
| Interest sensitivity gap as a percentage of total assets |
7.00 | % | 5.92 | % | 19.83 | % | ||||||
| Ratio of assets to liabilities maturing or repricing within one year |
111.29 | % | 110.16 | % | 132.44 | % | ||||||
The following table illustrates the Company’s estimated stressed cumulative repricing gap – the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time – at March 31, 2022. 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) |
$ | 5,863 | $ | 11,402 | $ | 23,513 | $ | 58,664 | $ | 57,340 | $ | 52,989 | $ | 35,474 | ||||||||||||||
| % of Total Assets |
1.6 | % | 3.1 | % | 6.4 | % | 15.9 | % | 15.5 | % | 14.4 | % | 9.6 | % | ||||||||||||||
| Base Case Up 100 bp |
||||||||||||||||||||||||||||
| Cumulative Gap ($’s) |
$ | 6,115 | $ | 11,888 | $ | 24,418 | $ | 60,082 | $ | 58,976 | $ | 54,801 | $ | 35,474 | ||||||||||||||
| % of Total Assets |
1.7 | % | 3.2 | % | 6.6 | % | 16.3 | % | 16.0 | % | 14.9 | % | 9.6 | % | ||||||||||||||
| Base Case No Change |
||||||||||||||||||||||||||||
| Cumulative Gap ($’s) |
$ | 6,501 | $ | 12,634 | $ | 25,805 | $ | 62,197 | $ | 61,493 | $ | 57,644 | $ | 35,474 | ||||||||||||||
| % of Total Assets |
1.8 | % | 3.4 | % | 7.0 | % | 16.9 | % | 16.7 | % | 15.6 | % | 9.6 | % | ||||||||||||||
| Base Case Down 100 bp |
||||||||||||||||||||||||||||
| Cumulative Gap ($’s) |
$ | 6,954 | $ | 13,513 | $ | 27,419 | $ | 64,631 | $ | 64,411 | $ | 60,893 | $ | 35,474 | ||||||||||||||
| % of Total Assets |
1.9 | % | 3.7 | % | 7.4 | % | 17.5 | % | 17.5 | % | 16.5 | % | 9.6 | % | ||||||||||||||
| Base Case Down 200 bp |
||||||||||||||||||||||||||||
| Cumulative Gap ($’s) |
$ | 7,444 | $ | 14,449 | $ | 29,114 | $ | 67,163 | $ | 67,438 | $ | 64,053 | $ | 35,474 | ||||||||||||||
| % of Total Assets |
2.0 | % | 3.9 | % | 7.9 | % | 18.2 | % | 18.3 | % | 17.4 | % | 9.6 | % | ||||||||||||||
The Company utilizes an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to better estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company’s loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company’s borrowings.
The following table presents the simulated impact of a 100 and 200 basis point upward or downward (parallel) shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at March 31, 2022. This analysis was done assuming that the interest-earning assets will average approximately $365 million and $366 million over a projected twelve and twenty-four month period, respectively, for the estimated impact on change in net interest income, return on average equity and return on average assets. The estimated changes in market value of equity were calculated using balance sheet levels at March 31, 2022. Actual future results could differ materially from our estimates primarily due to unknown future interest rate changes and the level of prepayments on our investment and loan portfolios and future FDIC regular and special assessments.
Analysis of Sensitivity to Changes in Market Interest Rates
| Twelve Month Forward Modeled Change in Market Interest Rates |
||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 |
March 31, 2024 |
|||||||||||||||||||||||||||||||||||||||
| Estimated impact on: |
-200 |
-100 |
0 |
+100 |
+200 |
-200 |
-100 |
0 |
+100 |
+200 |
||||||||||||||||||||||||||||||
| Change in net interest income |
-22.3 | % | -17.2 | % | 0 | % | 1.4 | % | 3.8 | % | 0 | % | 0 | % | 0 | % | 9.0 | % | 18.8 | % | ||||||||||||||||||||
| Return on average equity |
2.07 | % | 2.63 | % | 4.45 | % | 4.60 | % | 4.85 | % | 0.83 | % | 2.33 | % | 5.16 | % | 6.14 | % | 7.18 | % | ||||||||||||||||||||
| Return on average assets |
0.21 | % | 0.27 | % | 0.46 | % | 0.48 | % | 0.50 | % | 0.08 | % | 0.24 | % | 0.55 | % | 0.65 | % | 0.77 | % | ||||||||||||||||||||
| Market value of equity (in thousands) |
$ | 40,801 | $ | 43,823 | $ | 46,300 | $ | 46,563 | $ | 46,888 | ||||||||||||||||||||||||||||||
The table below provides information about the Company’s anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed letters and lines of credit, at March 31, 2022. The Company used no derivative financial instruments to hedge such anticipated transactions as of March 31, 2022.
| Anticipated Transactions |
||||
| (Dollars in Thousands) |
||||
| Undisbursed construction and development loans |
$ | 7,272 | ||
| Undisbursed lines of credit |
4,947 | |||
| Loan origination commitments |
3,906 | |||
| $ | 16,125 | |||
In the ordinary course of its construction lending business, the Savings Bank enters into performance standby letters of credit. Typically, the standby letters of credit are issued on behalf of a builder to a third party to ensure the timely completion of a certain aspect of a construction project or land development. At March 31, 2022, the Savings Bank had no performance standby letters of credit outstanding. In the event that an 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’s policy is to maintain adequate collateral that could be liquidated to fund such contingent obligations.
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2022, 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 March 31, 2022.
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 March 31, 2022, 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.
(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.
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, 2021.
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 WVS Financial Corp. during the three months ended March 31, 2022.
| COMPANY PURCHASES OF EQUITY SECURITIES |
||||||||||||||||
| Period |
Total Number of Shares Purchased | 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) | ||||||||||||
| 01/01/22 – 01/31/22 |
- | - | - | 68,729 | ||||||||||||
| 02/01/22 – 02/28/22 |
3,087 | $ | 15.27 | - | 65,642 | |||||||||||
| 03/01/22 – 03/31/22 |
1,245 | $ | 15.14 | - | 64,397 | |||||||||||
| Total |
4,332 | $ | 15.23 | - | 64,397 | |||||||||||
| (1) |
All shares indicated were purchased under the Company’s Twelfth Stock Repurchase Program. |
|
| (2) |
Twelfth Stock Repurchase Program |
|
| (a) |
The Program was announced March 24, 2020. |
|
| (b) |
The Program has 100,000 common shares approved for repurchase. |
|
| (c) |
The Program has no fixed date of expiration. |
|
| (d) |
The Program has not expired and has 64,397 common shares remaining to be purchased at March 31, 2022. |
|
| (e) |
Not applicable. |
|
| Defaults Upon Senior Securities |
Not applicable.
| Mine Safety Disclosures |
Not applicable.
| Other Information |
(a) Not applicable.
(b) Not applicable.
| Exhibits |
The following exhibits are filed as part of this Form 10-Q, and this list includes the Exhibit Index.
| Number |
Description |
| 31.1 |
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Accounting Officer |
| 31.2 |
Rule 13a-14(a) / 15d-14(a) Certification of the Chief Accounting Officer |
| 32.1 |
|
| 32.2 |
|
| 99 |
|
| 101.INS |
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definitions Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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. |
||||
|
|
||||
| Date: |
May 13, 2022 | BY: |
/s/ David J. Bursic |
|
| David J. Bursic President and Chief Executive Officer (Principal Executive Officer) |
||||
| Date: |
May 13, 2022 |
BY: |
/s/ Mary Magestro-Johnston |
|
| Mary Magestro-Johnston Vice-President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) |
||||