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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

[X]

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

For the quarterly period ended December 31, 2019

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: 0-22444

 

                           WVS Financial Corp.                          
(Exact name of registrant as specified in its charter)
Pennsylvania        25-1710500

(State or other jurisdiction of

incorporation or organization)

      

(I.R.S. Employer

Identification Number)

9001 Perry Highway

Pittsburgh, Pennsylvania

       15237
    (Address of principal executive offices)            (Zip Code)

Registrant’s telephone number, including area code: (412) 364-1911

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

  

Trading

Symbol(s)

  

Name of each exchange

on which registered

Common Stock, par value $.01    WVFC    NASDAQ Global Market SM

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

Indicate by check mark whether the registrant has submitted electronically 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).      YES  X        NO    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer                Accelerated filer         
Non-accelerated filer                Smaller reporting company   X  
      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        NO X 

Shares outstanding as of February 12, 2020: 1,935,641 shares of Common Stock, $.01 par value.


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX

 

PART I.

       

Financial Information

  

Page

    
Item 1.      Financial Statements      
     Consolidated Balance Sheet as of
December 31, 2019 and June 30, 2019
(Unaudited)
   3   
     Consolidated Statement of Income
for the Three and Six Months Ended
December 31, 2019 and 2018 (Unaudited)
   4   
     Consolidated Statement of Comprehensive
Income (Loss) for the Three and Six Months Ended
December 31, 2019 and 2018 (Unaudited)
   5   
     Consolidated Statement of Changes in
Stockholders’ Equity for the Three and Six Months
Ended December 31, 2019 and 2018 (Unaudited)
   6   
     Consolidated Statement of Cash Flows
for the Six Months Ended December 31, 2019
and 2018 (Unaudited)
   8   
     Notes to Unaudited Consolidated
Financial Statements
   10   
Item 2.      Management’s Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Six Months
Ended December 31, 2019
   40   
Item 3.      Quantitative and Qualitative Disclosures
about Market Risk
   47   
Item 4.      Controls and Procedures    51   

PART II.

        Other Information   

Page

    
Item 1.      Legal Proceedings    52   
Item 1A.      Risk Factors    52   
Item 2.     

Unregistered Sales of Equity Securities

and Use of Proceeds

   52   
Item 3.      Defaults Upon Senior Securities    53   
Item 4.      Mine Safety Disclosures    53   
Item 5.      Other Information    53   
Item 6.      Exhibits    53   
     Signatures    54   

 

2


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)

 

        December 31, 2019             June 30, 2019      

Assets

   

Cash and due from banks

                $       2,766       $       1,849  

Interest-earning demand deposits

    276       2,530  
 

 

 

   

 

 

 

Total cash and cash equivalents

    3,042       4,379  

Certificates of deposit

    1,591       1,843  

Investment securities available-for-sale (amortized cost of $137,541 and $132,673)

    138,060       132,780  

Investment securities held-to-maturity (fair value of $3,578 and $4,080)

    3,495       3,995  

Mortgage-backed securities held-to-maturity (fair value of $104,121 and $108,708)

    103,956       108,331  

Net loans receivable (allowance for loan losses of $530 and $548)

    91,340       90,588  

Accrued interest receivable

    1,052       1,219  

Federal Home Loan Bank (FHLB) stock, at cost

    6,974       7,010  

Premises and equipment, net

    474       346  

Bank owned life insurance

    4,849       4,789  

Deferred tax assets (net)

    262       368  

Other assets

    153       170  
 

 

 

   

 

 

 

TOTAL ASSETS

    $  355,248       $  355,818  
 

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

   

Liabilities:

   

Deposits

   

Non-interest-bearing accounts

    $    18,113       $    19,770  

Interest-earning checking accounts

    22,726       23,541  

Savings accounts

    42,719       43,740  

Money market accounts

    20,238       19,958  

Certificates of deposit

    41,888       37,361  

Advance payments by borrowers for taxes and insurance

    1,447       2,065  
 

 

 

   

 

 

 

Total deposits

    147,131       146,435  

Federal Home Loan Bank advances: short-term

    68,030       70,828  

Federal Home Loan Bank advances: long-term – fixed rate

    15,000       15,000  

Federal Home Loan Bank advances: long-term – variable rate

    85,000       85,000  

Accrued interest payable

    788       823  

Other liabilities

    1,786       1,683  
 

 

 

   

 

 

 

TOTAL LIABILITIES

    317,735       319,769  
 

 

 

   

 

 

 

Stockholders’ equity:

   

Preferred stock:

   

5,000,000 shares, no par value per share, authorized; none issued

    -       -  

Common stock:

   

10,000,000 shares, $.01 par value per share, authorized; 3,805,636 shares issued

    38       38  

Additional paid-in capital

    21,568       21,550  

Treasury stock: 1,869,995 and 1,862,520 shares at cost, respectively

    (28,382     (28,269

Retained earnings, substantially restricted

    45,973       44,807  

Accumulated other comprehensive income

    347       15  

Unallocated Employee Stock Ownership Plan (“ESOP”) shares

    (2,031     (2,092
 

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

    37,513       36,049  
 

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $  355,248       $  355,818  
 

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except share and per share data)

 

         Three Months Ended              Six Months Ended      
     December 31,      December 31,  
     2019     2018      2019     2018  

INTEREST AND DIVIDEND INCOME:

         

Loans, including fees

         $                871           $                825            $                1,754           $              1,628  

Investment securities

     997       1,066        2,078       2,088  

Mortgage-backed securities

     757       927        1,642       1,816  

Certificates of deposit

     15       3        30       5  

Interest-earning demand deposits

     1       6        2       9  

FHLB Stock

     130       116        252       228  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest and dividend income

     2,771       2,943        5,758       5,774  
  

 

 

   

 

 

    

 

 

   

 

 

 

INTEREST EXPENSE:

         

Deposits

     232       129        482       252  

Federal Home Loan Bank advances – long-term – fixed rate

     116       116        232       116  

Federal Home Loan Bank advances – long-term – variable rate

     452       526        967       526  

Federal Home Loan Bank advances – short-term

     310       437        613       1,345  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest expense

     1,110       1,208        2,294       2,239  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME

     1,661       1,735        3,464       3,535  

(CREDIT) PROVISION FOR LOAN LOSSES

     (8     14        (18     33  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

     1,669       1,721        3,482       3,502  
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-INTEREST INCOME:

         

Service charges on deposits

     30       26        60       55  

Earnings on Bank Owned Life Insurance

     29       30        59       61  

Investment securities gains (losses)

     32       -        32       (2

Other than temporary impairment (“OTTI”) losses

     (16     -        (18     -  

Portion of gain recognized in other comprehensive Income (before taxes)

     -       -        -       -  
  

 

 

   

 

 

    

 

 

   

 

 

 

Net impairment loss recognized in earnings

     (16     -        (18     -  

ATM fee income

     36       43        78       85  

Other

     11       11        21       21  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest income

     122       110        232       220  
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-INTEREST EXPENSE:

         

Salaries and employee benefits

     535       565        1,080       1,121  

Occupancy and equipment

     57       58        119       126  

Data processing

     52       58        109       116  

Correspondent bank service charges

     9       7        18       15  

Federal deposit insurance premium

     -       22        (23     50  

ATM network expense

     18       25        41       62  

Other

     199       219        373       365  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest expense

     870       954        1,717       1,855  
  

 

 

   

 

 

    

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES

     921       877        1,997       1,867  

INCOME TAX EXPENSE

     194       192        477       435  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME

     $               727       $               685        $               1,520       $               1,432  
  

 

 

   

 

 

    

 

 

   

 

 

 

EARNINGS PER SHARE:

         

Basic

     $               0.41       $               0.38        $                 0.86       $                 0.80  

Diluted

     $               0.41       $               0.38        $                 0.86       $                 0.80  

AVERAGE SHARES OUTSTANDING:

         

Basic

     1,771,457       1,782,091        1,773,509       1,787,573  

Diluted

     1,771,457       1,782,091        1,773,509       1,787,682  

See accompanying notes to unaudited consolidated financial statements.

 

4


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

 

         Three Months Ended             Six Months Ended      
     December 31,     December 31,  
     2019     2018     2019     2018  

NET INCOME

   $ 727     $ 685     $ 1,520     $ 1,432  

OTHER COMPREHENSIVE INCOME (LOSS)

        

Investment securities available for sale not other-than-temporarily impaired:

        

Gains (losses) arising during the year

     387       (1,992     444       (1,870

Less: Income tax effect

     (81     418       (93     392  
  

 

 

   

 

 

   

 

 

   

 

 

 
     306       (1,574     351       (1,478
  

 

 

   

 

 

   

 

 

   

 

 

 

(Gains) losses recognized in earnings

     (32     -       (32     2  

Less: Income tax effect

     7       -       7       -  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (25     -       (25     2  

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

     281       (1,574     326       (1,476
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment securities held to maturity other-than-temporarily impaired:

        

Total losses

     16       -       18       -  

Losses recognized in earnings

     16       -       18       -  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains (losses) recognized in comprehensive income

     -       -       -       -  

Income tax effect

     -       -       -       -  
  

 

 

   

 

 

   

 

 

   

 

 

 
     -       -       -       -  

Accretion of other comprehensive loss on other-than-temporarily impaired securities held to maturity

     4       12       8       (27

Less: Income tax effect

     (1     (2     (2     6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holding (losses) gains on other-than-temporarily impaired securities held to maturity, net of tax

     3       10       6       (21
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holdings gains (losses) on securities, net

     3       10       6       (21
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     284       (1,564     332       (1,497
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS)

         $   1,011           $   (879         $   1,852           $   (65
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

 

    Common
    Stock    
    Additional
Paid-in
    Capital    
    Treasury
    Stock    
    Retained
Earnings –
    Substantially    
Restricted
    Accumulated
Other
    Comprehensive    
Income
        Unallocated    
ESOP
Shares
          Total        

Balance September 30, 2019

  $     38     $  21,560     $  (28,382     $  45,423       $   63       $     (2,064     $ 36,638  

Net income

          727           727  

Other comprehensive income

            284         284  

Amortization of unallocated ESOP Shares

      8             33       41  

Cash dividends declared ($0.10 per share)

          (177         (177
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance December 31, 2019

  $     38       $  21,568       $  (28,382     $  45,973       $  347       $  (2,031     $ 37,513  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Common
    Stock    
    Additional
Paid-in
    Capital    
    Treasury
    Stock    
    Retained
Earnings –
    Substantially    
Restricted
    Accumulated
Other
    Comprehensive    
Income
        Unallocated    
ESOP
Shares
          Total        

Balance June 30, 2019

  $     38       $  21,550       $  (28,269     $  44,807       $  15       $  (2,092     $  36,049  

Net income

          1,520           1,520  

Other comprehensive income

            332         332  

Purchase of treasury stock (7,475 shares)

        (113           (113

Amortization of unallocated ESOP Shares

      18             61       79  

Cash dividends declared ($0.20 per share)

          (354         (354
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance December 31, 2019

  $     38       $  21,568       $  (28,382     $  45,973       $    347       $  (2,031     $ 37,513  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

 

        Common    
Stock
    Additional
Paid-in
    Capital    
    Treasury
    Stock    
    Retained
Earnings –
    Substantially    
Restricted
    Accumulated
Other
    Comprehensive    
Loss
        Unallocated    
ESOP
Shares
          Total        

Balance September 30, 2018

      $    38         $ 21,525         $ (27,918)         $ 43,400         $    (121)         $    (2,219)         $ 34,705  

Net income

          685           685  

Other comprehensive loss

            (1,564       (1,564

Purchase of treasury stock (23,717 shares)

        (340           (340

Amortization of unallocated ESOP Shares

      5             40       45  

Cash dividends declared ($0.08 per share)

          (144         (144
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance December 31, 2018

      $    38         $ 21,530         $ (28,258)         $ 43,941         $    (1,685)         $    (2,179)         $ 33,387  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Common
Stock
    Additional
Paid-in
Capital
    Treasury
Stock
    Retained
Earnings –
Substantially
Restricted
    Accumulated Other
Comprehensive
Loss
    Unallocated
ESOP
Shares
    Total  

Balance June 30, 2018

      $    38         $ 21,516         $ (27,886)         $ 42,795         $ (188)         $ (2,258)         $ 34,017  

Net income

          1,432           1,432  

Other comprehensive loss

            (1,497       (1,497

Purchase of treasury stock (25,717 shares)

        (372           (372

Amortization of unallocated ESOP Shares

      14             79       93  

Cash dividends declared ($0.16 per share)

          (286         (286
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance December 31, 2018

    $    38         $ 21,530         $ (28,258)         $ 43,941         $ (1,685)         $ (2,179)         $ 33,387  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

7


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
December 31,
 
           2019                 2018        

OPERATING ACTIVITIES

    

Net income

   $ 1,520     $ 1,432  

Adjustments to reconcile net income to cash provided by operating activities:

    

(Credit) provision for loan losses

     (18     33  

Depreciation

     15       29  

Net impairment loss recognized in earnings

     18       -  

(Gain) loss on sale of investments

     (32     2  

Amortization of discounts, premiums and deferred loan costs

     50       111  

Amortization of unallocated ESOP shares

     79       93  

Deferred income taxes

     18       (27

Increase in prepaid/accrued income taxes

     74       33  

Earnings on bank owned life insurance

     (59     (61

Decrease in accrued interest receivable

     167       39  

(Decrease) increase in accrued interest payable

     (35     406  

Increase in deferred director compensation payable

     25       22  

Other, net

     18       22  
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,840       2,134  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Available-for-sale:

    

Purchase of investment securities

     (17,324     (24,782

Proceeds from sale of investments

     9,055       1,364  

Proceeds from repayments of investments

     3,330       22,705  

Held-to-maturity:

    

Proceeds from repayments of investments

     500       2,180  

Proceeds from repayments of mortgage-backed securities

     4,374       5,918  

Purchase of certificates of deposit

     (1,340     (1,096

Maturities/redemptions of certificates of deposit

     1,593       100  

Purchase of loans

     (6,266     (5,102

Net decrease in net loans receivable

     5,577       1,364  

Purchase of FHLB stock

     (6,974     (3,043

Redemption of FHLB stock

     7,010       3,217  

Acquisition of premises and equipment

     (143     -  
  

 

 

   

 

 

 

Net cash (used for) provided by investing activities

     (608     2,825  
  

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
December 31,
 
           2019                 2018        

FINANCING ACTIVITIES

    

Net (decrease) increase in transaction and savings accounts

   $ (3,213   $ 361  

Net increase (decrease) in certificates of deposit

     4,527       (1,751

Net decrease in advance payments by borrowers for taxes and insurance

     (618     (388

Proceeds from FHLB long-term advances – fixed rate

     -       15,000  

Proceeds from FHLB long-term advances – variable rate

     -       85,000  

Net decrease in FHLB short-term advances

     (2,798     (101,336

Purchases of treasury stock

     (113     (372

Cash dividends paid

     (354     (286
  

 

 

   

 

 

 

Net cash used for financing activities

     (2,569     (3,772
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (1,337     1,187  

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

     4,379       2,441  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

   $ 3,042     $ 3,628  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest on deposits and borrowings

   $ 2,329     $ 1,833  

Income taxes

   $ 386     $ 430  

Non-cash items:

    

Educational Improvement Tax Credit

   $ 45     $ 45  

 

See accompanying notes to unaudited consolidated financial statements.

 

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WVS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three and six months ended December 31, 2019, are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

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 effected 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 June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for

 

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Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. 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 August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This standard is not expected to have a significant impact on the Company’s financial position or results of operations.

In November, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which amended the effective date of ASU 2016-13 for entities other than public business entities (PBEs), by requiring non-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU 2016-13 for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities (non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within those years. The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19. In November, 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The 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. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. 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. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

 

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In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been 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). The 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. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

In November 2019, the FASB issued ASU 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which requires entities to measure and classify share-based payments to a customer, in accordance with the guidance in ASC 718, Compensation – Stock Compensation. The amendments in that Update expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and, in doing so, superseded guidance in Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The amount that would be recorded as a reduction in revenue would be measured based on the grant date fair value of the share-based payment, in accordance with Topic 718. The grant date is the date at which a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The award’s classification and subsequent measurement would be subject to ASC 718 unless the award is modified or the grantee is no longer a customer. For entities that have not yet adopted the amendments in Update 2018-07, the amendments in this Update are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. For entities that have adopted the amendments in Update 2018-07, the amendments in this Update are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity may early adopt the amendments in this Update, but not before it adopts the amendments in Update 2018-07. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates 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. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles – Goodwill and Other

 

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(Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 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.

 

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3.

REVENUE RECOGNITION

Effective July 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09, Revenue from contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. 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. As a result, no changes were made during the period related to these sources of revenue. 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      Six Months Ended  
     December 31,      December 31,  
             2019                      2018                      2019                      2018          

Weighted average common shares issued

     3,805,636        3,805,636        3,805,636        3,805,636  

Average treasury stock shares

     (1,869,995      (1,849,437      (1,866,704      (1,843,161

Average unallocated ESOP shares

     (164,184      (174,108      (165,423      (174,902
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares and common stock equivalents used to calculate basic earnings per share

     1,771,457        1,782,091        1,773,509        1,787,573  

Additional common stock equivalents (stock options) used to calculate diluted earnings per share

     -        -        -        109  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares and common stock equivalents used to calculate diluted earnings per share

     1,771,457        1,782,091        1,773,509        1,787,682  
  

 

 

    

 

 

    

 

 

    

 

 

 

There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used.

At December 31, 2019, all options outstanding had expired. At December 31, 2018, there were 27,019 options outstanding with an exercise price of $16.20 which were anti-dilutive for the three month period and dilutive for the six month period.

 

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5.

STOCK BASED COMPENSATION DISCLOSURE

The Company previously maintained 2008 Stock Incentive Plan (the “Plan”), which was approved by shareholders in October 2008, permitted the grant of stock options or restricted shares to its directors and employees for up to 152,000 shares (up to 38,000 restricted shares may be issued). Option awards were generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vested over five years of continuous service and have ten-year contractual terms. The Plan expired by its terms in September 2018.

During the six month periods ended December 31, 2019 and 2018, the Company recorded no compensation expense related to our share-based compensation awards. As of December 31, 2019, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009.

There were no stock options exercised or issued during the six months ended December 31, 2019 and 2018.

 

6.

INVESTMENT SECURITIES

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

 

                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                    Fair      
            Cost             Gains             Losses            Value  
     (Dollars in Thousands)  
December 31, 2019                                                       

AVAILABLE FOR SALE

                      

Corporate debt securities

   $          109,701      $          524      $          (121   $          110,104  

Foreign debt securities 1

        27,840           126           (10        27,956  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          137,541      $          650      $          (131   $          138,060  
     

 

 

       

 

 

       

 

 

      

 

 

 
                          Gross             Gross               
            Amortized             Unrealized             Unrealized            Fair  
            Cost             Gains             Losses            Value  
     (Dollars in Thousands)  
December 31, 2019                                                       

HELD TO MATURITY

                      

Obligations of states and political subdivisions

   $          3,495      $          83      $          -     $          3,578  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          3,495      $          83      $          -     $          3,578  
     

 

 

       

 

 

       

 

 

      

 

 

 

 

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

 

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                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                    Fair      
            Cost             Gains             Losses                Value      
            (Dollars in Thousands)  
June 30, 2019                                                       

AVAILABLE FOR SALE

                      

Corporate debt securities

   $          104,760      $          355      $          (207   $          104,908  

Foreign debt securities 1

        26,583           35           (75        26,543  

Obligations of states and political subdivisions

        1,330           -           (1        1,329  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          132,673      $          390      $          (283   $          132,780  
     

 

 

       

 

 

       

 

 

      

 

 

 
                          Gross             Gross               
            Amortized             Unrealized             Unrealized            Fair  
            Cost             Gains             Losses            Value  
            (Dollars in Thousands)  
June 30, 2019                                                       

HELD TO MATURITY

                      

Obligations of states and political subdivisions

   $          3,995      $          85      $          -     $          4,080  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          3,995      $          85      $          -     $          4,080  
     

 

 

       

 

 

       

 

 

      

 

 

 

Proceeds from sales of investments during the three and six month periods ended December 31, 2019 were $9.1 million and the Company recorded gross realized investment gains of $32 thousand during these same periods.

Proceeds from sales of investments during the six month period ended December 31, 2018 were $1.4 million and the Company recorded gross realized investment losses of $2 thousand during this same period. There were no sales of investment securities during the quarter ended December 31, 2018.

 

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

 

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The amortized cost and fair values of debt securities at December 31, 2019, 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

   $          17,528      $          119,373      $          640      $          -      $          137,541  

Fair value

        17,514           119,902           644           -           138,060  

HELD TO MATURITY

                             

Amortized cost

   $          750      $          2,745      $          -      $          -      $          3,495  

Fair value

        757           2,821           -           -           3,578  

At December 31, 2019, investment securities with amortized cost of $3.5 million, and fair value of $3.6 million were pledged to secure borrowings with the Federal Home Loan Bank (“FHLB”).

 

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7.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (“FHLMC”), Fannie Mae (“FNMA”) and the Government National Mortgage Association (“GNMA”). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called tranches) 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 December 31, 2019, the Company’s Agency CMOs totaled $103.2 million as compared to $107.4 million at June 30, 2019. The Company’s private-label CMOs totaled $785 thousand at December 31, 2019 as compared to $883 thousand at June 30, 2019. The $4.4 million decrease in the CMO portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $4.3 million and $87 thousand, respectively. At December 31, 2019 and June 30, 2019, all of the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments. All of the Company’s floating rate MBS adjust monthly based upon changes in the one month London Interbank Offered Rate (“LIBOR”). The Company has no investment in multi-family or commercial real estate based MBS.

Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO tranches, 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 Company recorded an additional credit impairment charge of $16 thousand on its private-label CMO portfolio during the quarter ended December 31, 2019.

The Company believes that the data and assumptions used to determine the fair values are reasonable. The fair value calculations reflect relevant facts and market conditions. Events and conditions occurring after the valuation date could have a material effect on the private-label CMO segment’s fair value.

 

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The following table sets forth information with respect to the Company’s private-label CMO portfolio as of December 31, 2019. At the time of purchase, all of our private-label CMOs were rated in the highest investment category by at least two ratings agencies.

 

            At December 31, 2019  
                       Rating      Amortized
Cost
     Fair
  Value2  
     Life to Date
Impairment
  Recorded in  
Earnings
 

      Cusip #      

         Security Description                S&P              Moody’s              Fitch          (in thousands)  

126694CP1

     CWHL SER 21 A11        WR        WR        D          $ 449          $ 443              $ 224  

126694KF4

     CWHL SER 24 A15        NR        NR        D        173        173        51  

126694KF4

     CWHL SER 24 A15        NR        NR        D        87        86        101  

126694MP0

     CWHL SER 26 1A5        NR        NR        D        76        79        41  
              

 

 

    

 

 

    

 

 

 
                   $ 785          $ 781              $ 417  
              

 

 

    

 

 

    

 

 

 

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

 

                Amortized    
Cost
            Gross
    Unrealized    
Gains
            Gross
    Unrealized    
Losses
          

Fair

    Value    

 
     

 

 

 
            (Dollars in Thousands)  

December 31, 2019

                      

HELD TO MATURITY

                      

Collateralized mortgage obligations:

                      

Agency

   $          103,171      $          761      $          (592   $          103,340  

Private-label

        785           3           (7        781  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          103,956      $          764      $          (599   $          104,121  
     

 

 

       

 

 

       

 

 

      

 

 

 
            Amortized
Cost
            Gross
Unrealized
Gains
            Gross
Unrealized
Losses
          

Fair

Value

 
     

 

 

 
            (Dollars in Thousands)  

June 30, 2019

                      

HELD TO MATURITY

                      

Collateralized mortgage obligations:

                      

Agency

   $          107,448      $          954      $          (570   $          107,832  

Private-label

        883           5           (12        876  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          108,331      $          959      $          (582   $          108,708  
     

 

 

       

 

 

       

 

 

      

 

 

 

 

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

 

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The amortized cost and fair value of the Company’s mortgage-backed securities at December 31, 2019, 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

   $          -      $          -      $          103      $          103,853      $          103,956  

Fair value

        -           -           103           104,018           104,121  

At December 31, 2019, mortgage-backed securities with amortized costs of $103.2 million and fair values of $103.3 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $8.3 million of fair value was excess collateral. At June 30, 2018, mortgage-backed securities with an amortized cost of $107.4 million and fair values of $107.8 million, were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $2.4 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

 

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8.

ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income by component, for the three and six months ended December 31, 2019 and 2018.

 

     Three Months Ended December 31, 2019  
     (Dollars in Thousands – net of tax)  
         Unrealized Gains    
and Losses on
Available-for-Sale
Securities
        Unrealized Gains    
and Losses on
Held-to-Maturity
Securities
                Total              

Beginning Balance – September 30, 2019

     $ 129       $ (66     $ 63  

Other comprehensive income before reclassifications

     306       3       309  

Amounts reclassified from accumulated other comprehensive loss

     (25     -       (25
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

     281       3       284  
  

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2019

     $ 410       $ (63     $ 347  
  

 

 

   

 

 

   

 

 

 
     Six Months Ended December 31, 2019  
     (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, 2019

     $ 85       $ (70)       $ 15  

Other comprehensive income before reclassifications

     351       6       357  

Amounts reclassified from accumulated other comprehensive loss

     (25     -       (25
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

     326       6       332  
  

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2019

     $ 411       $ (64     $ 347  
  

 

 

   

 

 

   

 

 

 

 

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     Three Months Ended December 31, 2018  
     (Dollars in Thousands – net of tax)  
         Unrealized Gains    
and Losses on
Available-for-Sale
Securities
        Unrealized Gains    
and Losses on
Held-to-Maturity
Securities
                Total              

Beginning Balance – September 30, 2018

     $ 88       $ (209     $ (121)  

Other comprehensive income (loss) before reclassifications

     (1,574     10       (1,564

Amounts reclassified from accumulated other comprehensive income (loss)

     -       -       -  
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (1,574     10       (1,564
  

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2018

     $ (1,486     $ (199     $ (1,685
  

 

 

   

 

 

   

 

 

 
     Six Months Ended December 31, 2018  
     (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, 2018

     $ (10     $ (178)       $ (188)  

Other comprehensive loss before reclassifications

     (1,478     (21     (1,499

Amounts reclassified from accumulated other comprehensive income

     2       -       2  
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive loss

     (1,476     (21     (1,497
  

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2018

     $ (1,486     $ (199     $ (1,685
  

 

 

   

 

 

   

 

 

 

 

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9.

UNREALIZED LOSSES ON SECURITIES

The following tables show the Company’s gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2019 and June 30, 2019.

 

              December 31, 2019  
   

 

 

 
              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)  

Corporate debt securities

    $         5,018     $     (4   $         13,950     $     (117   $         18,968     $     (121

Foreign debt securities3

        3,276         (1       1,994         (9       5,270         (10

Collateralized mortgage Obligations:

                         

Agency

        18,954         (214       23,161         (385       42,115         (599
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

    $         27,248     $     (219   $         39,105     $     (511   $         66,353     $     (730
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
              June 30, 2019  
   

 

 

 
              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)  

Corporate debt securities

    $         11,728     $     (86   $         17,077     $     (121   $         28,805     $     (207

Foreign debt securities³

        2,004         (2       5,699         (73       7,703         (75

Obligations of states and political subdivisions

        -         -         1,329         (1       1,329         (1

Collateralized mortgage obligations:

                         

Agency

        24,368         (182       18,614         (400       42,982         (582
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

    $         38,100     $     (270   $         42,719     $     (595   $         80,819     $     (865
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

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

The Company evaluates outstanding available-for-sale and held-to-maturity securities in an unrealized loss position (i.e., impaired securities) for other-than-temporary impairment (“OTTI”) on a quarterly basis. In doing so, the Company considers many factors including, but not limited to: the credit ratings assigned to the securities by the Nationally Recognized Statistical Rating Organizations (“NRSROs”); other indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of time and extent that fair value has been less than amortized cost; and whether

 

 

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

 

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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 MBSs, 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     Six Months Ended  
     December 31,     December 31,  
             2019                     2018                     2019                     2018          
     (Dollars in Thousands)  

Beginning balance

   $ 239     $ 236     $ 248     $ 239  

Initial credit impairment

     -       -       -       -  

Subsequent credit impairment

     16       -       18       8  

Reductions for amounts recognized in earnings due to intent or requirement to sell

     -       -       -       -  

Reductions for securities sold

     -       -       -       -  

Reduction for actual realized losses

     (13     (7     (24     (10

Reduction for increase in cash flows expected to be collected

     -       -       -       -  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 242     $ 229     $ 242     $ 229  
  

 

 

   

 

 

   

 

 

   

 

 

 

During the three months and six months ended December 31, 2019, the Company recorded subsequent credit impairment charges of $16 thousand and $2 thousand, respectively. No non-credit unrealized holding losses to accumulated other comprehensive income were recorded during these same periods. During the three and six months ended December 31, 2019, the Company accreted back into other comprehensive income $3 thousand and $6 thousand, respectively (net of income tax effect of $1 thousand and $2 thousand, respectively), based on principal repayments on private-label CMOs previously identified with OTTI.

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

 

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In conjunction with our adoption of 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 December 31, 2019 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. The Company had three private-label CMOs with OTTI at December 31, 2019.

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 37 positions that were impaired at December 31, 2019. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

 

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10.

LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of December 31, 2019 and June 30, 2019.

 

            December 31, 2019      June 30, 2019  
           

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

   $          79,778        $ -         $ 79,778         $ 76,789        $ -         $ 76,789  

Construction

        1,605          -           1,605           2,907          -           2,907  

Land acquisition & development

        246          -           246           694          -           694  

Multi-family dwellings

        2,341          -           2,341           3,123          -           3,123  

Commercial

        4,284          -           4,284           3,727          -           3,727  

Consumer Loans

                                 

Home equity

        1,095          -           1,095           906          -           906  

Home equity lines of

credit

        1,910          -           1,910           1,953          -           1,953  

Other

        112          -           112           112          -           112  

Commercial Loans

        6          -           6           418          -           418  
     

 

 

      

 

 

       

 

 

       

 

 

      

 

 

       

 

 

 
   $          91,377        $             -         $         91,377         $         90,629        $                 -         $             90,629  
          

 

 

       

 

 

            

 

 

       

 

 

 

Plus: Deferred loan costs

        493                      507             

Allowance for loan losses

        (530                    (548           
     

 

 

                  

 

 

            

Total

   $                  91,340                    $ 90,588             
     

 

 

                  

 

 

            

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 Company collectively evaluates for impairment 1 – 4 family first mortgage loans and all consumer loans. 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 December 31, 2019 and June 30, 2019 there were no loans considered to be impaired.

 

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Total nonaccrual loans as of December 31, 2019 and June 30, 2019 and the related interest income recognized for the three and six months ended December 31, 2019 and December 31, 2018 are as follows:

 

                    December 31,        
2019
                    June 30,        
2019
 
            (Dollars in Thousands)  

Principal outstanding

           

1 – 4 family dwellings

   $          -      $          225  

Construction

        -           -  

Land acquisition & development

        -           -  

Commercial real estate

        -           -  

Home equity lines of credit

        -           -  
     

 

 

       

 

 

 

Total

   $          -      $          225  
     

 

 

       

 

 

 

 

            Three Months Ended      Six Months Ended  
              December 31,                 December 31,                 December 31,                 December 31,    
            2019             2018             2019             2018  
            (Dollars in Thousands)  

Average nonaccrual loans

                       

1 – 4 family dwellings

   $          -      $          233      $          93      $          234  

Construction

        -           -           -           -  

Land acquisition & development

        -           -           -           -  

Commercial real estate

        -           -           -           -  

Home equity lines of credit

        -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

 

Total

   $          -      $          233      $          93      $          234  
     

 

 

       

 

 

       

 

 

       

 

 

 

Income that would have been recognized

   $          -      $          4      $          6      $          9  

Interest income recognized

   $          -      $          3      $          6      $          6  

During the quarter ended September 30, 2019, the Company’s one non-performing asset consisting of a single-family real estate loan was discharged from bankruptcy and was not delinquent at December 31, 2019.

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 six months ended December 31, 2019, and December 31, 2018, there were no TDRs.

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

 

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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.

Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard”, “doubtful” and “loss”. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “asset watch” is also utilized by the Bank for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital.

The Company’s general policy is to internally classify its assets on a regular basis and establish prudent general valuation allowances that are adequate to absorb losses that have not been identified but that are inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are adequate to absorb losses in its loan portfolio that are not clearly attributable to specific loans. The Company’s general valuation allowances are within the following general ranges: (1) 0% to 5% of assets subject to special mention; (2) 1.00% to 100% of assets classified substandard; and (3) 50% to 100% of assets classified doubtful. Any loan classified as loss is charged-off. To further monitor and assess the risk characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem loans. Based upon the procedures in place, considering the Company’s past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at December 31, 2019, is adequate.

 

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The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2019 and June 30, 2019:

 

          Current          

30 – 59

  Days Past  

Due

         

60 – 89

  Days Past  

Due

         

  90 Days +  

Past Due

Accruing

         

  90 Days +  

Past Due

Non-accrual

         

Total  

Past  

Due  

         

Total

Loans

 
   

 

 

 
          (Dollars in Thousands)  

December 31, 2019

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $           79,778     $           -     $           -     $           -     $           -     $           -     $           79,778  

Construction

      1,605         -         -         -         -         -         1,605  

Land acquisition & development

      246         -         -         -         -         -         246  

Multi-family dwellings

      2,341         -         -         -         -         -         2,341  

Commercial

      4,284         -         -         -         -         -         4,284  

Consumer Loans:

                           

Home equity

      1,095         -         -         -         -         -         1,095  

Home equity lines of credit

      1,910         -         -         -         -         -         1,910  

Other

      112         -         -         -         -         -         112  

Commercial Loans

      6         -         -         -         -         -         6  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $           91,377     $           -     $           -     $           -     $           -     $           -         91,377  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan costs

                              493  

  Allowance for loan losses

                              (530
                           

 

 

 

Net Loans Receivable

                          $           91,340  
                           

 

 

 
          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, 2019

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $           76,564     $           -     $           -     $           -     $           225     $           225     $           76,789  

Construction

      2,907         -         -         -         -         -         2,907  

Land acquisition & development

      694         -         -         -         -         -         694  

Multi-family dwellings

      3,123         -         -         -         -         -         3,123  

Commercial

      3,727         -         -         -         -         -         3,727  

Consumer Loans

                           

Home equity

      906         -         -         -         -         -         906  

Home equity lines of credit

      1,953         -         -         -         -         -         1,953  

Other

      112         -         -         -         -         -         112  

Commercial Loans

      418         -         -         -         -         -         418  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         90,404     $         -     $         -     $         -     $         225     $         225         90,629  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan costs

                              507  

  Allowance for loan losses

                              (548
                           

 

 

 

Net Loans Receivable

                          $           90,588  
                           

 

 

 

 

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Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended December 31, 2019 and June 30, 2019. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

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

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

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

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

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

The following tables present the Company’s internally classified construction, land acquisition and development, multi-family residential, commercial real estate and commercial (not secured by real estate) loans at December 31, 2019 and June 30, 2019.

 

            December 31, 2019  
            (Dollars in Thousands)  
            Construction            

Land

Acquisition

&

Development

Loans

           

Multi-

family

Residential

           

Commercial

Real

Estate

            Commercial  
     

 

 

 

Pass

   $          1,605      $          246      $          2,341      $          4,284      $          6  

Special Mention

        -           -           -           -           -  

Substandard

        -           -           -           -           -  

Doubtful

        -           -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

Ending Balance

   $          1,605      $          246      $          2,341      $          4,284      $          6  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

 

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Table of Contents
            June 30, 2019  
            (Dollars in Thousands)  
       Construction              

Land

Acquisition

&

  Development  

Loans

           

  Multi-family  

Residential

           

  Commercial  
Real

Estate

              Commercial    
  

 

 

 

Pass

   $          2,907      $          694      $          3,123      $          3,727      $          418  

Special Mention

        -           -           -           -           -  

Substandard

        -           -           -           -           -  

Doubtful

        -           -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

Ending Balance

   $          2,907      $          694      $          3,123      $          3,727      $          418  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended December 31, 2019 and June 30, 2019.

 

            December 31, 2019  
     

 

 

 
                1 – 4 Family                     Consumer      
     

 

 

 
            (Dollars in Thousands)  

Performing

       $            79,778      $          3,117  

Non-performing

        -           -  
     

 

 

       

 

 

 

Total

       $                    79,778      $                      3,117  
     

 

 

       

 

 

 
            June 30, 2019  
     

 

 

 
                1 – 4 Family                     Consumer      
     

 

 

 
            (Dollars in Thousands)  

Performing

       $            76,564      $          2,971  

Non-performing

        225           -  
     

 

 

       

 

 

 

Total

       $            76,789      $          2,971  
     

 

 

       

 

 

 

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

 

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upon the operating cash flows of the business as opposed to merely “as built” values. The Company then validates the reasonableness of our calculated allowances by: (1) reviewing trends in loan volume, delinquencies, restructurings and concentrations; (2) reviewing prior period (historical) charge-offs and recoveries; and (3) presenting the results of this process, quarterly, to the Asset Classification Committee and the Savings Bank’s Board of Directors. We then tabulate, format and summarize the current loan loss allowance balance for financial and regulatory reporting purposes.

The Company had no unallocated loss allowance balance at December 31, 2019.

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.

 

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The following tables summarize the primary segments of the allowance for loan losses (“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2019 and 2018. Activity in the allowance is presented for the three and six months ended December 31, 2019 and 2018.

 

            As of December 31, 2019  
            First Mortgage Loans                                    
                1 – 4
    Family
             Construction               Land
  Acquisition &  
Development
          

Multi-

  family  

             Commercial                 Consumer  
Loans
              Commercial  
Loans
             Total    
     

 

 

 
            (Dollars in Thousands)  

Beginning ALLL Balance at September 30, 2019

   $          412     $          29      $          6     $          17     $          42      $          30      $          2     $          538  

Charge-offs

        -          -           -          -          -           -           -          -  

Recoveries

        -          -           -          -          -           -           -          -  

Provisions

        (14        8           (2        (4        3           2           (1        (8
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

       

 

 

      

 

 

 

Ending ALLL Balance at December 31, 2019

   $          398     $          37      $          4     $          13     $          45      $          32      $          1     $          530  
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

       

 

 

      

 

 

 

Individually evaluated for impairment

   $          -     $          -      $          -     $          -     $          -      $          -      $          -     $          -  

Collectively evaluated for impairment

        398          37           4          13          45           32           1          530  
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

       

 

 

      

 

 

 
   $          398     $          37      $          4     $          13     $          45      $          32      $          1     $          530  
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

       

 

 

      

 

 

 

 

          As of December 31, 2019  
          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, 2019

  $         405     $         46     $         10     $         17     $         37     $         30     $         3     $         548  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      (7       (9       (6       (4       8         2         (2       (18
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2019

  $         398     $         37     $         4     $         13     $         45     $         32     $         1     $         530  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

  $         -     $         -     $         -     $         -     $         -     $         -     $         -     $         -  

Collectively evaluated for impairment

      398         37         4         13         45         32         1         530  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         398     $         37     $         4     $         13     $         45     $         32     $         1     $         530  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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Table of Contents
          As of December 31, 2018  
          First Mortgage Loans                                
          1 – 4
  Family  
            Construction             Land
  Acquisition &  
Development
          Multi-
  family  
            Commercial               Consumer  
Loans
            Commercial  
Loans
            Total    
   

 

 

 
                      (Dollars in Thousands)  

Beginning ALLL Balance at September 30, 2018

  $         363     $         29     $         10     $         18     $         32     $         32     $         3     $         487  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      10         (4       -         -         7         1         -         14  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2018

  $         373     $         25     $         10     $         18     $         39     $         33     $         3     $         501  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

  $         -     $         -     $         -     $         -     $         -     $         -     $         -     $         -  

Collectively evaluated for impairment

      373         25         10         18         39         33         3         501  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         373     $         25     $         10     $         18     $         39     $         33     $         3     $         501  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
          As of December 31, 2018  
          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, 2018

  $         356     $         24     $         -     $         18     $         35     $         31     $         4     $         468  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      17         1         10         -         4         2         (1       33  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2018

  $         373     $         25     $         10     $         18     $         39     $         33     $         3     $         501  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

  $         -     $         -     $         -     $         -     $         -     $         -     $         -     $         -  

Collectively evaluated for impairment

      373         25         10         18         39         33         3         501  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         373     $         25     $         10     $         18     $         39     $         33     $         3     $         501  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

During the three months and six months ended December 31, 2019, the ALLL decreased $8 thousand and $18 thousand, respectively. For the three months ended December 31, 2019, the ALLL associated with the 1-4 family real estate loan portfolio decreased $14 thousand and was partially offset by an $8 thousand increase in the ALLL associated with construction loans. During the six months ended December 31, 2019, the ALLL associated with 1 - 4 family real estate loans, construction and land acquisition and development loans decreased by $7 thousand, $9 thousand and $6 thousand, respectively. The primary reason for the changes in the ALLL balances, both in total, and within the identified segments, is changes in applicable loan balances and the return of one non-performing loan to performing status.

 

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During the three and six months ending December 31, 2018, the ALLL increased $14 thousand and $33 thousand, respectively. For the three months ended December 31, 2018, the ALLL associated with 1 - 4 family real estate loans increased $10 thousand and the ALLL associated with commercial loans increased $7 thousand. These increases were partially offset by a decrease of $4 thousand in the ALLL associated with the construction loan segment. During the six months ended December 31, 2018, the ALLL associated with 1 - 4 family real estate loans, land acquisition and development loans and commercial loans increased by $17 thousand, $10 thousand and $4 thousand, respectively. The primary reason for the changes in the ALLL balances, both in total, and within the identified segments, is changes in applicable loan balances.

 

11.

FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of December 31, 2019 and June 30, 2019.

 

                   Weighted-     Stated interest                               
     Maturity range      average     rate range              December 31,             June 30,  

    Description    

         from            to              interest rate 4         from         to                2019             2019  
                                            (Dollars in Thousands)  

Fixed

     10/01/20        10/03/22        3.03     2.95     3.09   $          15,000      $          15,000  

Adjustable

     10/01/20        10/01/21        2.02     1.85     2.16        85,000           85,000  
                 

 

 

       

 

 

 

Total

               $          100,000      $          100,000  
                 

 

 

       

 

 

 

Maturities of FHLB long-term advances at December 31, 2019, are summarized as follows:

 

Maturing During

Fiscal Year Ended

                         June 30:                        

                        Amount                        Weighted-
      Average      
Interest
Rate(4)
 
            (Dollars in Thousands)                

2020

   $          -           -  

2021

        65,000           2.04%  

2022

        30,000           2.31%  

2023

        5,000           3.09%  

2024

        -           -  
     

 

 

       

2025 and thereafter

        -        
     

 

 

       

Total

   $          100,000           2.17%  
     

 

 

       

 

 

4 

As of December 31, 2019.

 

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The adjustable rate advances are not convertible or callable. The FHLB advances are secured by the Company’s FHLB stock, mortgage-backed and investment securities, and loans, and are subject to substantial prepayment penalties.

The Company also utilized revolving and short-term FHLB advances. Short-term FHLB advances generally mature within 90 days, while revolving FHLB advances may be repaid by the Company without penalty. The following table presents information regarding such advances as of December 31, 2019 and June 30, 2019:

 

                 December 31,        
2019
                 June 30,        
2019
 
    

 

 

 
         (Dollars in Thousands)  

FHLB revolving and short-term advances:

         

Ending balance

  $      68,030     $      70,828  

Average balance

       55,900          81,556  

Maximum month-end balance

       68,030          161,289  

Average interest rate

       2.19        2.45

Weighted-average rate

       1.81        2.46

At December 31, 2019, the Company had remaining borrowing capacity with the FHLB of approximately $2.9 million.

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

The Company also has a $5 million unsecured line of credit with a regional bank. Borrowings under this line of credit generally are repayable within seven days. At December 31, 2019, no borrowings were outstanding on this unsecured line.

 

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.

 

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Assets Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

Fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The Company has no Level I or Level III investment securities. Level II investment securities were primarily comprised of investment-grade corporate bonds and U.S. dollar-denominated investment-grade corporate bonds of large foreign issuers.

The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of December 31, 2019 and June 30, 2019, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

            December 31, 2019  
                  Level I                         Level II                         Level III                       Total        
            (Dollars in Thousands)  

Assets measured on a recurring basis:

                       

Investment securities – available for sale:

                       

Corporate securities

   $          -      $          110,104      $          -      $          110,104  

Foreign debt securities 5

        -           27,956           -           27,956  
     

 

 

       

 

 

       

 

 

       

 

 

 
   $          -      $          138,060      $          -      $          138,060  
     

 

 

       

 

 

       

 

 

       

 

 

 
            June 30, 2019  
            Level I             Level II             Level III             Total  
            (Dollars in Thousands)  

Assets measured on a recurring basis:

                       

Investment securities – available for sale:

                       

Obligations of states and political subdivisions

   $          -      $          1,329      $          -      $