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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31, 2021

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)

(412) 364-1911

(Registrant’s telephone number, including area code)

 

 

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

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.  ☐

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

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   WVFC   NASDAQ

Shares outstanding as of May 07, 2021: 1,902,690 shares Common Stock, $.01 par value.

 

 

 


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX

 

         Page  
PART I.   Financial Information   
Item 1.  

Financial Statements

  
 

Consolidated Balance Sheet as of March 31, 2021 and June  30, 2020 (Unaudited)

     3  
 

Consolidated Statement of Income for the Three and Nine Months Ended March 31, 2021 and 2020 (Unaudited)

     4  
 

Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended March 31, 2021 and 2020 (Unaudited)

     5  
 

Consolidated Statement of Changes in Stockholders’ Equity for the Three and Nine Months Ended March 31, 2021 and 2020 (Unaudited)

     6  
 

Consolidated Statement of Cash Flows for the Nine Months Ended March  31, 2021 and 2020 (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 Nine Months Ended March 31, 2021

     39  
Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

     47  
Item 4.  

Controls and Procedures

     51  
         Page  
PART II.   Other Information   
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

     52  
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)

 

     March 31, 2021     June 30, 2020  

Assets

    

Cash and due from banks

   $ 1,892     $ 2,488  

Interest-earning demand deposits

     2,088       12  
  

 

 

   

 

 

 

Total cash and cash equivalents

     3,980       2,500  
  

 

 

   

 

 

 

Certificates of deposit

     350       1,840  

Investment securities available-for-sale (amortized cost of $150,003 and $148,271)

     150,636       147,639  

Investment securities held-to-maturity (fair value of $2,859 and $3,622)

     2,745       3,495  

Mortgage-backed securities held-to-maturity (fair value of $58,316 and $96,649)

     58,453       97,106  

Net loans receivable (allowance for loan losses of $603 and $618)

     86,300       91,032  

Accrued interest receivable

     762       744  

Federal Home Loan Bank (FHLB) stock, at cost

     4,849       6,564  

Premises and equipment, net

     653       574  

Bank owned life insurance

     4,992       4,907  

Deferred tax assets, net

     254       548  

Other assets

     259       152  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 314,233     $ 357,101  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits

    

Non-interest-bearing accounts

   $ 25,228     $ 22,657  

Interest-earning checking accounts

     27,499       25,075  

Savings accounts

     47,781       44,541  

Money market accounts

     21,243       21,743  

Certificates of deposit

     31,783       35,063  

Advance payments by borrowers for taxes and insurance

     1,680       2,256  
  

 

 

   

 

 

 

Total deposits

     155,214       151,335  

Federal Home Loan Bank advances: short-term

     82,093       59,159  

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

     10,000       15,000  

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

     25,000       85,000  

Other short-term borrowings

     1,200       7,000  

Accrued interest payable

     161       487  

Other liabilities

     2,059       2,207  
  

 

 

   

 

 

 

TOTAL LIABILITIES

     275,727       320,188  
  

 

 

   

 

 

 

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

     21,588       21,577  

Treasury stock: 1,902,946 and 1,898,932 shares at cost, respectively

     (28,827     (28,775

Retained earnings, substantially restricted

     47,106       46,590  

Accumulated other comprehensive (loss) income

     454       (556

Unallocated Employee Stock Ownership Plan (“ESOP”) shares

     (1,853     (1,961
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     38,506       36,913  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 314,233     $ 357,101  
  

 

 

   

 

 

 

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     Nine Months Ended  
     March 31,     March 31,  
     2021     2020     2021     2020  

INTEREST AND DIVIDEND INCOME:

        

Loans, including fees

   $ 753     $ 875     $ 2,422     $ 2,629  

Investment securities

     370       941       1,205       3,018  

Mortgage-backed securities

     149       685       623       2,327  

Certificates of deposit

     3       7       13       38  

Interest-earning demand deposits

     —         1       —         3  

FHLB Stock

     38       131       174       383  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     1,313       2,640       4,437       8,398  
  

 

 

   

 

 

   

 

 

   

 

 

 

INTEREST EXPENSE:

        

Deposits

     61       224       257       705  

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

     76       116       269       342  

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

     19       402       111       1,376  

Federal Home Loan Bank advances – short-term

     25       247       85       860  

Other short-term borrowings

     —         1       1       1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     181       990       723       3,284  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INTEREST INCOME

     1,132       1,650       3,714       5,114  

(CREDIT) PROVISION FOR LOAN LOSSES

     (8     (7     (15     (25
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

     1,140       1,657       3,729       5,139  
  

 

 

   

 

 

   

 

 

   

 

 

 

NON-INTEREST INCOME:

        

Service charges on deposits

     22       25       63       85  

Earnings on Bank Owned Life Insurance

     28       29       85       89  

Investment securities gains

     56       —         93       32  

Other than temporary impairment losses

     —         (32     (13     (50

Portion of loss recognized in other comprehensive income

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net impairment loss recognized in earnings

     —         (32     (13     (50

ATM fee income

     35       38       109       116  

Other

     11       10       30       30  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

     152       70       367       302  
  

 

 

   

 

 

   

 

 

   

 

 

 

NON-INTEREST EXPENSE:

        

Salaries and employee benefits

     632       559       1,726       1,638  

Occupancy and equipment

     71       63       208       183  

Data processing

     60       55       181       164  

Correspondent bank service charges

     10       7       29       25  

Federal deposit insurance premium

     8       9       62       (14

ATM network expense

     21       24       64       64  

Other

     134       167       422       541  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expense

     936       884       2,692       2,601  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES

     356       843       1,404       2,840  

INCOME TAX EXPENSE

     91       218       363       695  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 265     $ 625     $ 1,041     $ 2,145  
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE:

        

Basic

   $ 0.15     $ 0.35     $ 0.59     $ 1.21  

Diluted

   $ 0.15     $ 0.35     $ 0.59     $ 1.21  

AVERAGE SHARES OUTSTANDING:

        

Basic

     1,751,849       1,771,722       1,749,739       1,772,918  

Diluted

     1,751,849       1,771,722       1,749,739       1,772,918  

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     Nine Months Ended  
     March 31,     March 31,  
     2021     2020     2021     2020  

NET INCOME

   $ 265     $ 625     $ 1,041     $ 2,145  

OTHER COMPREHENSIVE INCOME (LOSS)

        

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

        

Gains (losses) arising during the year

     (19     (6,961     1,358       (6,518

Less: Income tax effect

     4       1,462       (285     1,370  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (15     (5,499     1,073       (5,148
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains recognized in earnings

     (56     —         (93     (32

Less: Income tax effect

     12       —         20       7  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (44     —         (73     (25

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

     (59     (5,499     1,000       (5,173
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Total losses

     —         32       13       50  

Losses recognized in earnings

     —         32       13       50  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains (losses) recognized in comprehensive income

     —         —         —         —    

Income tax effect

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     —         —         —         —    

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

     4       4       12       12  

Less: Income tax effect

     (1     (1     (2     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     3       3       10       9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (56     (5,496     1,010       (5,164
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS)

   $ 209     $ (4,871   $ 2,051     $ (3,019
  

 

 

   

 

 

   

 

 

   

 

 

 

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 (Loss)
    Unallocated
ESOP
Shares
    Total  

Balance December 31, 2020

   $  38      $  21,581      $  (28,827   $  47,016     $  510     $  (1,891   $  38,427  

Net income

             265           265  

Other comprehensive loss

               (56       (56

Amortization of unallocated ESOP shares

        7              38       45  

Cash dividends declared ($0.10 per share)

             (175         (175
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2021

   $ 38      $ 21,588      $  (28,827   $ 47,106     $ 454     $  (1,853   $ 38,506  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Balance June 30, 2020

   $  38      $  21,577      $  (28,775   $  46,590     $  (556   $  (1,961   $  36,913  

Net income

             1,041           1,041  

Other comprehensive income

               1,010         1,010  

Purchase of treasury stock (4,014 shares)

           (52           (52

Amortization of unallocated ESOP shares

        11              108       119  

Cash dividends declared ($0.30 per share)

             (525         (525
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2021

   $ 38      $ 21,588      $  (28,827   $ 47,106     $ 454     $  (1,853   $ 38,506  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 December 31, 2019

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

Net income

             625           625  

Other comprehensive loss

               (5,496       (5,496

Purchase of treasury stock (16,801 shares)

           (234           (234

Amortization of unallocated ESOP Shares

        7              35       42  

Cash dividends declared ($0.10 per share)

             (178         (178
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2020

   $ 38      $ 21,575      $  (28,616   $ 46,420     $  (5,149   $  (1,996   $ 32,272  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Balance June 30, 2019

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

Net income

             2,145           2,145  

Other comprehensive loss

               (5,164       (5,164

Purchase of treasury stock (24,276 shares)

           (347           (347

Amortization of unallocated ESOP shares

        25              96       121  

Cash dividends declared ($0.30 per share)

             (532         (532
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2020

   $ 38      $ 21,575      $ (28,616   $ 46,420     $ (5,149   $ (1.996   $ 32,272  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine Months Ended  
     March 31,  
     2021     2020  

OPERATING ACTIVITIES

    

Net income

   $ 1,041     $ 2,145  

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

    

(Credit) provision for loan losses

     (15     (25

Depreciation

     53       26  

Gains on sale of investment securities

     (93     (32

Net impairment loss recognized in earnings

     13       50  

Amortization of discounts, premiums and deferred loan costs, net

     208       85  

Amortization of unallocated ESOP shares

     119       121  

Deferred income taxes

     26       104  

(Decrease) increase in prepaid/accrued income taxes

     (280     226  

Earnings on bank owned life insurance

     (85     (89

(Increase) decrease in accrued interest receivable

     (18     174  

Decrease in accrued interest payable

     (326     (162

Increase in deferred director compensation payable

     40       40  

Other, net

     (12     (32
  

 

 

   

 

 

 

Net cash provided by operating activities

     671       2,631  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Available-for-sale:

    

Purchases of investment securities

     (70,843     (45,268

Proceeds from repayments of investments

     60,797       3,980  

Proceeds from sale of investment securities

     8,082       9,055  

Held-to-maturity:

    

Proceeds from repayments of investments

     750       500  

Purchases of mortgage-backed securities

     (13,163     —    

Proceeds from repayments of mortgage-backed securities

     51,835       5,996  

Purchase of certificates of deposit

     (100     (2,334

Maturities/redemptions of certificates of deposit

     1,590       2,585  

Purchase of loans

     (7,950     (8,056

Net decrease in net loans receivable

     12,792       8,083  

Purchase of FHLB stock

     (12,058     (5,420

Redemption of FHLB stock

     13,773       5,541  

Acquisition of premises and equipment

     (132     (215
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     45,373       (25,553
  

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

8


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended  
     March 31,  
     2021     2020  

FINANCING ACTIVITIES

    

Net increase (decrease) in transaction and savings accounts

   $ 7,735   $ (2,183

Net (decrease) increase in certificates of deposit

     (3,280     9,488  

Net decrease in advance payments by borrowers for taxes and insurance

     (576     (285

Repayments of FHLB long-term advances – fixed rate

     (5,000     —    

Repayments of FHLB long-term advances – variable rate

     (60,000     —    

Net decrease in other short-term borrowings

     (5,800     24,800  

Net increase (decrease) in FHLB short-term advances

     22,934       (10,026

Purchase of treasury stock

     (52     (347

Cash dividends paid

     (525     (532
  

 

 

   

 

 

 

Net cash (used for) provided by financing activities

     (44,564     20,915  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     1,480       (2,007

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

     2,500       4,379  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

   $ 3,980     $ 2,372  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest on deposits and borrowings

   $ 1,049     $ 3,446  

Income taxes

   $ 653     $ 461  

Non-cash items:

    

Educational Improvement Tax Credit

   $ —       $ 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 nine months ended March 31, 2021, are not necessarily indicative of the results which may be expected for the entire fiscal year.

The coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering-in-place policies has and may continue to impact many of the Company’s customers. While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time. The Company has given hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. The pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States. Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by COVID-19. Under these provisions, loan modifications deemed to be COVID-19 related would not be considered a troubled debt restructuring (TDR) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020. The banking regulators issued similar guidance, which also clarified that a COVID-19-related modification should not be considered a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term. As of March 31, 2021, the number of loans in deferral totaled 12 with an aggregate balance of $4.7 million and an aggregate appraised value of $10.1 million. Effective July 1, 2020 these loans were given a twelve month catch-up period to repay any previously due deferred amounts. As of March 31, 2021 all of these loans were current with the terms of their deferral agreements.

 

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

 

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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 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. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and 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. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. 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. 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 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

 

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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. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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 qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

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 intra-period 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.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted

 

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that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

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3.

REVENUE RECOGNITION

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      Nine Months Ended  
     March 31,      March 31,  
     2021      2020      2021      2020  

Weighted average common shares issued

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

Average treasury stock shares

     (1,902,946      (1,872,228      (1,902,562      (1,868,532

Average unallocated ESOP shares

     (150,841      (161,686      (153,335      (164,186
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     1,751,849        1,771,722        1,749,739        1,772,918  

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

     1,751,849        1,771,722        1,749,739        1,772,918  
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

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5.

INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of investments are as follows:

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

March 31, 2021

           

AVAILABLE FOR SALE

           

Corporate debt securities

   $ 117,155      $ 505      $ (36    $ 117,624  

Foreign debt securities 1

     32,115        186        (14      32,287  

Obligations of states and political subdivisions

     733        —          (8      725  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 150,003      $ 691      $ (58    $ 150,636  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

March 31, 2021

           

HELD TO MATURITY

           

Obligations of states and political subdivisions

   $ 2,745      $ 114      $ —        $ 2,859  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,745      $ 114      $ —        $ 2,859  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

June 30, 2020

           

AVAILABLE FOR SALE

           

Corporate debt securities

   $ 115,710      $ 163      $ (774    $ 115,099  

Foreign debt securities 1

     32,561        42        (63      32,540  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 148,271      $ 205      $ (837    $ 147,639  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

June 30, 2020

           

HELD TO MATURITY

           

Obligations of states and political subdivisions

   $ 3,495      $ 127      $ —        $ 3,622  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,495      $ 127      $ —        $ 3,622  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

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

 

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Proceeds from sales of investments during the nine month period ending March 31, 2021 were $8.1 million and the Company recorded gross realized investment gains of $93 thousand during this same period. During the quarter ended March 31, 2021, the company received proceeds from sales of investment securities of $1.0 million and recorded gross realized investment gains of $56 thousand.

Proceeds from sales of investments during the nine month period ending March 31, 2020 were $9.1 million and the Company recorded gross realized investment gains of $32 thousand during this same period. There were no sales of investment securities during the quarter ended March 31, 2020.

The amortized cost and fair values of debt securities at March 31, 2021, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.

 

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

AVAILABLE FOR SALE

              

Amortized cost

   $ 37,906      $ 111,626      $ 471      $ —        $ 150,003  

Fair value

     38,002        112,169        465        —          150,636  

HELD TO MATURITY

              

Amortized cost

   $ 540      $ 2,205      $ —        $ —        $ 2,745  

Fair value

     548        2,311        —          —          2,859  

At March 31, 2021, investment securities with amortized costs of $2.8 million and fair values of $2.9 million were pledged to secure borrowings with the Federal Home Loan Bank (“FHLB”).

As of March 31, 2021, investment securities with amortized costs of $42.2 million and fair values of $42.6 million were pledged to secure borrowings with the Federal Reserve Bank of Cleveland (“FRBC”).

Of the investment securities pledged, $41.0 million of amortized costs, and $41.4 million of fair value was excess collateral at the FRBC. Excess collateral is used to support future borrowings and may be withdrawn at any time.

 

6.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (“FHLMC”), Fannie Mae (“FNMA”) and the Government National Mortgage Association (“GNMA”). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called 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”).

 

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At March 31, 2021, the Company’s Agency CMOs totaled $58.0 million as compared to $96.5 million at June 30, 2020. The Company’s private-label CMOs totaled $456 thousand at March 31, 2021 as compared to $618 thousand at June 30, 2020. The $38.5 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $51.7 million and $161 thousand, respectively. At March 31, 2021 and June 30, 2020, the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments. All of the Company’s floating rate MBSs adjust monthly based upon changes in the one-month LIBOR. The Company has no investment in multi-family or commercial real estate based MBS.

Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO tranches, the actual maturities of the Company’s MBSs 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. During the three months ended March 31, 2021, the Company recorded no additional credit impairment charges on its private-label CMO portfolio.

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

The following table sets forth information with respect to the Company’s private-label CMO portfolio as of March 31, 2021. At the time of purchase, all of our private-label CMOs were rated in the highest investment category by at least two ratings agencies.

 

          At March 31, 2021  
          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      NR        WR        D      $ 279      $ 306      $ 271  

126694KF4

   CWHL SER 24 A15      NR        NR        D        130        155        180  

126694MP0

   CWHL SER 26 1A5      NR        NR        WD        47        53        48  
              

 

 

    

 

 

    

 

 

 
               $ 456      $ 514      $ 499  
              

 

 

    

 

 

    

 

 

 

 

2 

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

 

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The amortized cost, gross unrealized gains and losses, and fair values of the Company’s mortgage-backed securities are as follows:

 

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

March 31, 2021

           

HELD TO MATURITY

           

Collateralized mortgage obligations:

           

Agency

   $ 57,997      $ 245      $ (440    $ 57,802  

Private-label

     456        58        —          514  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 58,453      $ 303      $ (440    $ 58,316  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

June 30, 2020

           

HELD TO MATURITY

           

Collateralized mortgage obligations:

           

Agency

   $ 96,488      $ 486      $ (932    $ 96,042  

Private-label

     618        3        (14      607  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 97,106      $ 489      $ (946    $ 96,649  
  

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost and fair value of the Company’s mortgage-backed securities at March 31, 2021, 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      Due after      Due after                
     one year      one through      five through      Due after         
     or less      five years      ten years      ten years      Total  
     (Dollars in Thousands)  

HELD TO MATURITY

              

Amortized cost

   $ —        $ 60      $ —        $ 58,393      $ 58,453  

Fair value

     —          61        —          58,255        58,316  

 

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At March 31, 2021, mortgage-backed securities with amortized costs of $48.0 million and fair values of $47.8 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $104 thousand of fair value was excess collateral. At June 30, 2020 mortgage-backed securities with an amortized cost of $96.5 million and fair values of $96.0 million, were pledged to secure public deposits and borrowings with the FHLB. Of the mortgage-backed securities pledged, $10.0 million of fair value was excess collateral at the FHLB. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

 

7.

ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)

The following tables present the changes in accumulated other comprehensive gain (loss) by component, for the three and nine months ended March 31, 2021 and 2020.

 

     Three Months Ended March 31, 2021  
     (Dollars in Thousands – net of tax)  
     Unrealized Gains
and Losses on
Available-for-Sale
Securities
     Unrealized Gains
and Losses on
Held-to-Maturity
Securities
     Total  

Beginning Balance – December 31, 2020

   $ 561      $ (51    $ 510  

Other comprehensive (loss) income before reclassifications

     (15      3        (12

Amounts reclassified from accumulated other comprehensive loss

     (44      —          (44
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss) income

     (59      3        (56
  

 

 

    

 

 

    

 

 

 

Ending Balance – March 31, 2021

   $ 502      $ (48    $ 454  
  

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended March 31, 2021  
     (Dollars in Thousands – net of tax)  
     Unrealized Gains
and Losses on
Available-for-Sale
Securities
     Unrealized Gains
and Losses on
Held-to-Maturity
Securities
     Total  

Beginning Balance – June 30, 2020

   $ (499    $ (57    $ (556

Other comprehensive (loss) income before reclassifications

     1,073        10        1,083  

Amounts reclassified from accumulated other comprehensive loss

     (73      —          (73
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss) Income

     1,000        10        1,010  
  

 

 

    

 

 

    

 

 

 

Ending Balance – March 31, 2021

   $ 501      $ (47    $ 454  
  

 

 

    

 

 

    

 

 

 

 

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     Three Months Ended March 31, 2020  
     (Dollars in Thousands – net of tax)  
     Unrealized Gains
and Losses on
Available-for-Sale
Securities
     Unrealized Gains
and Losses on
Held-to-Maturity
Securities
     Total  

Beginning Balance – December 31, 2019

   $ 411      $ (64    $ 347  

Other comprehensive income before reclassifications

     (5,499      3        (5,496

Amounts reclassified from accumulated other comprehensive loss

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income

     (5,499      3        (5,496
  

 

 

    

 

 

    

 

 

 

Ending Balance – March 31, 2020

   $ (5,088    $ (61    $ (5,149
  

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended March 31, 2020  
     (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 (loss) before reclassifications

     (5,148      9        (5,139

Amounts reclassified from accumulated other comprehensive loss

     (25      —          (25
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss) Income

     (5,173      9        (5,164
  

 

 

    

 

 

    

 

 

 

Ending Balance – March 31, 2020

   $ (5,088    $ (61    $ (5,149
  

 

 

    

 

 

    

 

 

 

 

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8.

UNREALIZED LOSSES ON SECURITIES

The following tables show the Company’s gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2021 and June 30, 2020.

 

     March 31, 2021  
     Less Than Twelve Months     Twelve Months or Greater     Total  
            Gross            Gross            Gross  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  
     (Dollars in Thousands)  

Corporate debt securities

   $ 19,100      $ (34   $ 3,818      $ (2   $ 22,918      $ (36

Foreign debt securities 1

     5,604        (14     —          —       $ 5,604        (14

Obligations of states and political subdivisions

   $ 733      $ (8     —          —       $ 733        (8

Collateralized mortgage obligations

     —          —         21,898        (440     21,898        (440
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 25,437      $ (56   $ 25,716      $ (442   $ 51,153      $ (498
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

     June 30, 2020  
     Less Than Twelve Months     Twelve Months or Greater     Total  
            Gross            Gross            Gross  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  
     (Dollars in Thousands)  

Corporate debt securities

   $ 50,115      $ (509   $ 8,550      $ (265   $ 58,665      $ (774

Foreign debt securities1

     13,970        (63     —          —         13,970        (63

Collateralized mortgage obligations

     13,782        (348     26,919        (598     40,701        (946
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 77,867      $ (920   $ 35,469      $ (863   $ 113,336      $ (1,783
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

1 

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

 

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

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

 

     Three Months Ended      Nine Months Ended  
     March 31,      March 31,  
     2021      2020      2021      2020  
     (Dollars in Thousands)  

Beginning balance

   $ 324      $ 242      $ 311      $ 248  

Initial credit impairment

     —          —          —          —    

Subsequent credit impairment

     —          32        13        50  

Reductions for amounts recognized

in earnings due to intent or requirement to sell

     —          —          —          —    

Reductions for securities sold

     —          —          —          —    

Reduction for actual realized recoveries (losses)

     (2      4        (2      (20

Reduction for increase in cash flows

expected to be collected

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 322      $ 278      $ 322      $ 278  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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During the three months ended March 31, 2021, the Company recorded no additional credit impairment charge and no non-credit unrealized holding losses to accumulated other comprehensive income. During the three and nine months ended March 31, 2021, the Company accreted back into other comprehensive income $4 thousand and $12 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.

In conjunction with our adoption of ASC Topic 820 effective June 30, 2009, the Company retained an independent third party to assist it with assessing its investments within the private-label CMO portfolio. The independent third party utilized certain assumptions for producing the cash flow analysis used in the OTTI assessment. Key assumptions would include interest rates, expected market participant spreads and discount rates, housing prices, projected future delinquency levels and assumed loss rates on any liquidated collateral.

The Company reviewed the independent third party’s assumptions used in the March 31, 2021 OTTI process. Based on the results of this review, the Company deemed the independent third party’s assumptions to be reasonable and adopted them. However, different assumptions could produce materially different results, which could impact the Company’s conclusions as to whether an impairment is considered other-than-temporary and the magnitude of the credit loss.

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

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

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

 

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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 29 positions that were impaired at March 31, 2021. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

 

9.

LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of March 31, 2021 and June 30, 2020.

 

     March 31, 2021      June 30, 2020  
    

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

   $ 72 612     $ —        $ 72,612      $ 78,077     $ —        $ 78,077  

Construction

     2,727       —          2,727        1,.868       —          1,868  

Land acquisition &

development

     666       —          666        446       —          446  

Multi-family dwellings

     3,536       —          3,536        3,755       —          3,755  

Commercial

     4,046       —          4,046        4,132       —          4,132  

Consumer loans

               

Home equity

     1,329       —          1,329        1,137       —          1,137  

Home equity lines of

credit

     1,642       —          1,642        1,729       —          1,729  

Other

     28       —          28        79       —          79  

Commercial loans

     —         —          —          11       —          11  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 86,586     $ —        $ 86,586      $ 91,234     $ —        $ 91,234  
    

 

 

    

 

 

      

 

 

    

 

 

 

Plus: Deferred loan costs

     317             416       

Allowance for loan losses

     (603           (618     
  

 

 

         

 

 

      

Total

   $ 86,300           $ 91,032       
  

 

 

         

 

 

      

Impaired loans are loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The following loan categories are collectively evaluated for impairment, First mortgage loans: 1-4 family dwellings and all consumer loan categories (home equity, home equity lines of credit, and other). The following loan categories are individually evaluated for impairment, First mortgage loans: construction, land acquisition and development, multi-family dwellings, and commercial. The Company evaluates commercial loans not secured by real property individually for impairment.

 

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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.    

At March 31, 2021 and June 30, 2020 there were no loans considered to be impaired and no nonaccrual loans. During the nine months ended March 31, 2020, the Company’s one nonperforming asset consisting of a single-family real estate loan was discharged from bankruptcy and has been current since that time.

 

     Three Months Ended      Nine Months Ended  
     March 31,      March 31,      March 31,      March 31,  
     2021      2020      2021      2020  
     (Dollars in Thousands)  

Average nonaccrual loans

           

1 – 4 family dwellings

   $ —        $ —        $ —        $ 62  

Construction

     —          —          —          —    

Land acquisition & development

     —          —          —          —    

Commercial real estate

     —          —          —          —    

Home equity lines of credit

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ —        $ 62  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income that would have been recognized

   $ —        $ —        $ —        $ 8  

Interest income recognized

   $ —        $ —        $ —        $ 8  

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

During the three and nine months ended March 31, 2021 and March 31, 2020, there were no troubled debt restructurings, and no troubled debt restructurings that subsequently defaulted. See COVID-19 disclosures in NOTE 1 BASIS OF PRESENTATION.

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

 

25


Table of Contents

liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

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

Effective December 13, 2006, the FDIC, in conjunction with the other federal banking agencies adopted a Revised Interagency Policy Statement on the Allowance for Loan and Lease Losses (“ALLL”). The revised policy statement revised and replaced the banking agencies’ 1993 policy statement on the ALLL. The revised policy statement provides that an institution must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The banking agencies also revised the policy to ensure consistency with generally accepted accounting principles (“GAAP”). The revised policy statement updates the previous guidance that describes the responsibilities of the board of directors, management, and bank examiners regarding the ALLL, factors to be considered in the estimation of the ALLL, and the objectives and elements of an effective loan review system.

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

The Company’s general policy is to internally classify its assets on a regular basis and establish prudent general valuation allowances that are adequate to absorb losses that have not been identified but that are inherent in the loan portfolio. The Company maintains general valuation allowances that it believes are adequate to absorb losses in its loan portfolio that are not clearly attributable to specific loans. The Company’s general valuation allowances are within the following general ranges: (1) 0% to 5% of assets subject to special mention; (2) 1.00% to 100% of assets classified substandard; and (3) 50% to 100% of assets classified doubtful. Any loan classified as loss is charged-off. To further monitor and assess the risk characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem loans. Based upon the procedures in place, considering the Company’s past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at March 31, 2021, is adequate.

 

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Table of Contents

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2021 and June 30, 2020:

 

     Current      30 – 59
Days Past
Due
     60 – 89
Days Past
Due
    

90 Days +
Past Due

Accruing

    

90 Days +
Past Due

Non-accrual

     Total
Past
Due
    

Total

Loans

 
     (Dollars in Thousands)  

March 31, 2021

                    

First mortgage loans:

                    

1 – 4 family dwellings

   $ 72,612      $ —        $ —        $ —        $ —        $ —        $ 72,612  

Construction

     2,727        —          —          —          —          —          2,727  

Land acquisition & development

     666        —          —          —          —          —          666  

Multi-family dwellings

     3,536        —          —          —          —          —          3,536  

Commercial

     4,046        —          —          —          —          —          4,046  

Consumer Loans:

                    

Home equity

     1,329        —          —          —          —          —          1,329  

Home equity lines of credit

     1,642        —          —          —          —          —          1,642  

Other

     28        —          —          —          —          —          28  

Commercial Loans

     —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 86,586      $ —        $ —        $ —        $ —        $ —          86,586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Plus: Deferred loan fees

                       317  

Allowance for loan losses

                       (603
                    

 

 

 

Net Loans Receivable

                     $ 86,300  
                    

 

 

 

 

     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, 2020

                    

First mortgage loans:

                    

1 – 4 family dwellings

   $ 78,077      $ —        $ —        $ —        $ —        $ —        $ 78,077  

Construction

     1,868        —          —          —          —          —          1,868  

Land acquisition & development

     446        —          —          —          —          —          446  

Multi-family dwellings

     3,755        —          —          —          —          —          3,755  

Commercial

     4,132        —          —          —          —          —          4,132  

Consumer Loans

                    

Home equity

     1,137        —          —          —          —          —          1,137  

Home equity lines of credit

     1,729        —          —          —          —          —          1,729  

Other

     79        —          —          —          —          —          79  

Commercial Loans

     11        —          —          —          —          —          11  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 91,234      $ —        $ —        $ —        $ —        $ —          91,234  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Plus: Deferred loan costs

                       416  

Allowance for loan losses

                       (618
                    

 

 

 

Net Loans Receivable

                     $ 91,032  
                    

 

 

 

 

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Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended March 31, 2021. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

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

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

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

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

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

The following tables present the Company’s internally classified construction, land acquisition and development, multi-family dwellings, commercial real estate and commercial (not secured by real estate) loans at March 31, 2021 and June 30, 2020.

 

     March 31, 2021  
     Construction     

Land

Acquisition

&

Development

    

Multi-family

Residential

    

Commercial
Real

Estate

     Commercial  
     (Dollars in Thousands)  

Pass

   $ 2,727      $ 666      $ 3,536      $ 4,046      $ —    

Special Mention

     —          —          —          —          —    

Substandard

     —          —          —          —          —    

Doubtful

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 2,727      $ 666      $ 3,536      $ 4,046      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     June 30, 2020  
     Construction     

Land

Acquisition

&

Development

    

Multi-family

Residential

    

Commercial
Real

Estate

     Commercial  
     (Dollars in Thousands)  

Pass

   $ 1,868      $ 446      $ 3,755      $ 4,132      $ 11  

Special Mention

     —          —          —          —          —    

Substandard

     —          —          —          —          —    

Doubtful

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 1,868      $ 446      $ 3,755      $ 4,132      $ 11  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended March 31, 2021 and June 30, 2020.

 

     March 31, 2021  
     1 – 4 Family      Consumer  
     (Dollars in Thousands)  

Performing

   $ 72,612      $ 2,999  

Non-performing

     —          —    
  

 

 

    

 

 

 

Total

   $ 72,612      $ 2,999  
  

 

 

    

 

 

 

 

     June 30, 2020  
     1 – 4 Family      Consumer  
     (Dollars in Thousands)  

Performing

   $ 78,077      $ 2,945  

Non-performing

     —          —    
  

 

 

    

 

 

 

Total

   $ 78,077      $ 2,945  
  

 

 

    

 

 

 

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

Our methodology used to determine the allocated portion of the allowance is as follows. For groups of homogenous loans, we apply a loss rate to the groups’ aggregate balance. Our group loss rate reflects our historical loss experience. We may adjust these group rates to compensate for changes in environmental factors; but our adjustments have not been frequent due to a relatively stable charge-off experience. The Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans for individual evaluation under ASC Topic 310. If the individually identified loans are performing, we apply a segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed individually and considered individually impaired, we use one of the three methods for measuring impairment mandated by ASC Topic 310. Generally the fair value of collateral is used since our impaired loans are generally real estate based. In connection with the fair value of collateral measurement, the Company generally uses an independent appraisal and determines costs to sell. The Company’s appraisals for commercial income based loans, such as multi-family and commercial real estate loans, assess value based upon the operating cash flows of the business as opposed to merely “as built” values. The Company then

 

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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 balances at March 31, 2021.

The allowance for loan losses (“ALLL”) represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on management’s periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term.

The following tables summarize the primary segments of the ALLL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2021 and 2020. Activity in the allowance is presented for the three and nine months ended March 31, 2021 and 2020.

 

     For the three months ended March 31, 2021  
     First Mortgage Loans                    
     1 – 4
Family
    Construction      Land
Acquisition &
Development
     Multi-
family
     Commercial     Consumer
Loans
    Commercial
Loans
    Total  
     (Dollars in Thousands)  

Beginning ALLL Balance at December 31, 2020

   $ 446     $ 34      $ 6      $ 25      $ 62     $ 36     $ 2     $ 611  

Charge-offs

     —         —          —          —          —         —         —         —    

Recoveries

     —         —          —          —          —         —         —         —    

Provisions

     (29     22        5        —          (1     (3     (2     (8
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALLL Balance at March 31, 2021

   $ 417     $ 56      $ 11      $ 25      $ 61     $ 33     $ —       $ 603  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

   $ —       $ —        $ —        $ —        $ —       $ —       $ —       $ —    

Collectively evaluated for impairment

     417       56        11        25        61       33       —         603  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 417     $ 56      $ 11      $ 25      $ 61     $ 33     $ —       $ 603  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     For the nine months ended March 31, 2021  
     First Mortgage Loans                     
     1 – 4
Family
    Construction      Land
Acquisition &
Development
     Multi-
family
    Commercial     Consumer
Loans
     Commercial
Loans
    Total  
     (Dollars in Thousands)  

Beginning ALLL Balance at June 30, 2020

   $ 449     $ 38      $ 6      $ 26     $ 66     $ 32      $ 1     $ 618  

Charge-offs

     —         —          —          —         —         —          —         —    

Recoveries

     —         —          —          —         —         —          —         —    

Provisions

     (32     18        5        (1     (5     1        (1     (15
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending ALLL Balance at March 31, 2021

   $ 417     $ 56      $ 11      $ 25     $ 61     $ 33      $ —       $ 603  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Individually evaluated for impairment

   $ —       $ —        $ —        $ —       $ —       $ —        $ —       $ —    

Collectively evaluated for impairment

     417       56        11        25       61       33        —         603  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 417     $ 56      $ 11      $ 25     $ 61     $ 33      $ —       $ 603  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     For the three months ended March 31, 2020  
     First Mortgage Loans                      
     1 – 4
Family
    Construction     Land
Acquisition &
Development
     Multi-
family
     Commercial      Consumer
Loans
    Commercial
Loans
     Total  
     (Dollars in Thousands)  

Beginning ALLL Balance at December 31, 2019

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

Charge-offs

     —         —         —          —          —          —         —          —    

Recoveries

     —         —         —          —          —          —         —          —    

Provisions

     (2     (5     —          —          2        (2     —          (7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ending ALLL Balance at March 31, 2020

   $ 396     $ 32     $ 4      $ 13      $ 47      $ 30     $ 1      $ 523  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Individually evaluated for impairment

   $ —       $ —       $ —        $ —        $ —        $ —       $ —        $ —    

Collectively evaluated for impairment

     396       32       4        13        47        30       1        523  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 396     $ 32     $ 4      $ 13      $ 47      $ 30     $ 1      $ 523  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

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     For the nine months ended March 31, 2020  
     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

     (9     (14     (6     (4     10        —          (2     (25
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Ending ALLL Balance at March 31, 2020

   $ 396     $ 32     $ 4     $ 13     $ 47      $ 30      $ 1     $ 523  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Individually evaluated for impairment

   $ —       $ —       $ —       $ —       $ —        $ —        $ —       $ —    

Collectively evaluated for impairment

     396       32       4       13       47        30        1       523  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 396     $ 32     $ 4     $ 13     $ 47      $ 30      $ 1     $ 523  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

During the three months ended March 31, 2021, the primary changes to the ALLL were comprised of a $29 thousand decrease attributable to 1-4 family loans and a $3 thousand decrease attributable to consumer loans which were partially offset by a $22 thousand increase attributable to construction loans. During the nine months ended March 31, 2021, the ALLL associated with 1-4 family and commercial real estate loans decreased by $32 thousand and $5 thousand, respectively, which was partially offset by increases in the ALLL for construction and land acquisition and development loans of $18 thousand and $5 thousand, respectively. The primary reason for the changes in the ALLL balance for both periods of 2021, in total, and within the identified segments are volume related changes in applicable loan balances.

For the three month period ended March 31, 2020, the ALLL associated with the 1-4 family permanent and construction loan portfolios decreased by $2 thousand and $5 thousand, respectively. During the nine months ended March 31, 2020, the ALLL associated with the 1-4 family permanent and construction, land acquisition and development and multi-family loan segments decreased by $9 thousand, $14 thousand, $6 thousand and $4 thousand, respectively. These decreases were partially offset by a $10 thousand increase in the ALLL associated with the commercial real estate loan segment. For both periods of 2020, the changes in the ALLL balances associated with the other loan segments were driven by changes in the applicable loan balances.

 

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10.

FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of March 31, 2021 and June 30, 2020.

 

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

Description

   from      to      interest rate3     from     to     2021      2020  
                                     (Dollars in Thousands)  

Fixed

     10/01/21        10/03/22        3.07     3.04     3.09   $ 10,000      $ 15,000  

Adjustable

     10/01/21        10/01/21        0.30     0.30     0.30     25,000        85,000  
              

 

 

    

 

 

 

Total

               $ 35,000      $ 100,000  
              

 

 

    

 

 

 

Maturities of FHLB long-term advances at March 31, 2021, are summarized as follows:

 

            Weighted-  
Maturing During           Average  
Fiscal Year Ended           Interest  

June 30:

   Amount      Rate  
     (Dollars in Thousands)  

2021

   $ —          —    

2022

     30,000        0.75

2023

     5,000        3.09

2024

     —          —    

2025

     —          —    

2026 and thereafter

     —          —    
  

 

 

    

Total

   $ 35,000        1.09
  

 

 

    

The 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 March 31, 2021 and June 30, 2020:

 

     March 31,     June 30,  
     2021     2020  
     (Dollars in Thousands)  

FHLB revolving and short-term advances:

    

Ending balance

   $ 82,093     $ 59,159  

Average balance

     31,495       58,146  

Maximum month-end balance

     92,681       68,030  

Average interest rate

     0.36     1.57

Weighted-average rate

     0.29     0.39

 

3 

As of March 31, 2021

 

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Table of Contents

At March 31, 2021, the Company had remaining borrowing capacity with the FHLB of approximately $82 thousand.

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 March 31, 2021, no borrowings were outstanding on this unsecured line.

 

11.

OTHER SHORT-TERM BORROWINGS

The Company also utilized other short-term borrowings comprised of FRBC discount window borrowings. FRBC discount window borrowings mature within 90 days and may be repaid prior to maturity without penalty, in whole or in part, plus accrued interest. The following table presents information regarding the FRBC borrowings as of March 31, 2021 and June 30, 2020:

FRBC Discount Window Borrowings:    

 

     March 31,     June 30,  
     2021     2020  
     (Dollars in Thousands)  

Ending balance

   $ 1,200     $ 7,000  

Average balance

     608       2,592  

Maximum month-end balance

     5,875       24,800  

Average interest rate

     0.25     0.25

Weighted-average rate

     0.25     0.25

 

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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Table of Contents

Assets Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

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

The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of March 31, 2021 and June 30, 2020, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

     March 31, 2021  
     Level I      Level II      Level III      Total  
     (Dollars in Thousands)  

Assets measured on a recurring basis:

           

Investment securities – available for sale:

           

Corporate securities

   $ —        $ 117,624      $ —        $ 117,624  

Foreign debt securities (1)

     —          32,287        —          32,287  

Obligations of states and political subdivisions

     —          725        —          725  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 150,636      $ —        $ 150,636  
  

 

 

    

 

 

    

 

 

    

 

 

 
     June 30, 2020  
     Level I      Level II      Level III      Total  
     (Dollars in Thousands)  

Assets measured on a recurring basis:

           

Investment securities – available for sale:

           

Corporate securities

   $ —        $ 115,099      $ —        $ 115,099  

Foreign debt securities (1)

     —          32,540        —          32,540  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 147,639      $ —        $ 147,639  
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. The Company had no assets measured at fair value on a nonrecurring basis.

 

1 

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

 

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Table of Contents

Impaired Loans

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information. The Company had no Level I, Level II or Level III impaired loans at March 31, 2021 and June 30, 2020.

 

13.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:

 

     March 31, 2021  
     Carrying      Fair                       
     Amount      Value      Level I      Level II      Level III  
     (Dollars in Thousands)  

FINANCIAL ASSETS

              

Cash and cash equivalents

   $ 3,980      $ 3,980      $ 3,980      $ —        $ —    

Certificates of deposit

     350        350        350        —          —    

Investment securities – held to maturity

     2,745        2,869        —          2,869        —    

Mortgage-backed securities – held to maturity:

              

Agency

     57,997        57,802        —          57,802        —    

Private-label

     456        514        —          —          514  

Net loans receivable

     86,300        87,444        —          —          87,444  

Accrued interest receivable

     762        762        762        —          —    

FHLB stock

     4,849        4,849        4,849        —          —    

Bank owned life insurance

     4,992        4,992        4,992        —          —    

FINANCIAL LIABILITIES

              

Deposits:

              

Non-interest earning checking

   $ 25,228      $ 25,228      $ 25,228      $ —        $ —    

Interest-earning checking

     27,499        27,499        27,499        —          —    

Savings accounts

     47,781        47,781        47,781        —          —    

Money market accounts

     21,243        21,243        21,243        —          —    

Certificates of deposit

     31,783        32,253        —          —          32,253  

Advance payments by borrowers for taxes and insurance

     1,680        1,680        1,680        —          —    

FHLB advances – fixed rate

     10,000        9,771        —          —          9,771  

FHLB advances – variable rate

     25,000        25,000        25,000        —          —    

FHLB short-term advances

     82,093        82,093        82,093        —          —    

Other short-term borrowings

     1,200        1,200        1,200        —          —    

Accrued interest payable

     161        161        161        —          —    

 

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     June 30, 2020  
     Carrying      Fair                       
     Amount      Value      Level I      Level II      Level III  
     (Dollars in Thousands)  

FINANCIAL ASSETS

              

Cash and cash equivalents

   $ 2,500      $ 2,500      $ 2,500      $ —        $ —    

Certificates of deposit

     1,840        1,840        1,840        —          —    

Investment securities – held to maturity

     3,495        3,622        —          3,622        —    

Mortgage-backed securities – held to maturity:

              

Agency

     96,488        96,042        —          96,042        —    

Private-label

     618        607        —          —          607  

Net loans receivable

     91,032        98,700        —          —          98,700  

Accrued interest receivable

     744        744        744        —          —    

FHLB stock

     6,564        6,564        6,564        —          —    

Bank owned life insurance

     4,907        4,907        4,907        —          —    

FINANCIAL LIABILITIES

              

Deposits:

              

Non-interest earning checking

   $ 22,657      $ 22,657      $ 22,657      $ —        $ —    

Interest-earning checking

     25,075        25,075        25,075        —          —    

Savings accounts

     44,541        44,541        44,541        —          —    

Money market accounts

     21,743        21,743        21,743        —          —    

Certificates of deposit

     35,063        35,237        —          —          35,237  

Advance payments by borrowers for taxes and insurance

     2,256        2,256        2,256        —          —    

FHLB advances – fixed rate

     15,000        14,818        —          —          14,818  

FHLB advances – variable rate

     85,000        85,000        85,000        —          —    

FHLB short-term advances

     59,159        59,159        59,159        —          —    

Other short-term borrowings

     7,000        7,000        7,000        —          —    

Accrued interest payable

     487        487        487        —          —    

Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from or to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates, which are inherently uncertain, the resulting estimated values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated values are based may have a significant impact on the resulting estimated values.

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.

 

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

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

The fair value approximates the current carrying value.

Investment Securities, Mortgage-Backed Securities, and FHLB Stock

The fair value of investment and mortgage-backed securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. For discussion of valuation of private-label CMOs, see Note 8 “Unrealized Losses on Securities”. Since the FHLB stock is not actively traded on a secondary market and held exclusively by member financial institutions, the estimated fair market value approximates the carrying amount.

Net Loans Receivable, Deposits, and Advance Payments by Borrowers for Taxes and Insurance

Fair value for consumer mortgage loans is estimated using market quotes or discounting contractual cash flows for prepayment estimates. Discount rates were obtained from secondary market sources, adjusted to reflect differences in servicing, credit, and other characteristics.

The estimated fair values for consumer, fixed-rate commercial, and multi-family real estate loans are estimated by discounting contractual cash flows for prepayment estimates. Discount rates are based upon rates generally charged for such loans with similar credit characteristics.

The estimated fair value for nonperforming loans is the appraised value of the underlying collateral adjusted for estimated credit risk.

Demand, savings, money market deposit accounts, and advance payments by borrowers for taxes and insurance are reported at book value. The fair value of certificates of deposit is based upon the discounted value of the contractual cash flows. The discount rate is estimated using average market rates for deposits with similar average terms.

Bank Owned Life Insurance (“BOLI”)

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

FHLB Advances – Fixed and Variable Rate

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

Other Short-Term Borrowings

The carrying amount of other short-term borrowings approximates their fair value.

Commitments to Extend Credit

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

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2021

FORWARD LOOKING STATEMENTS

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

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

GENERAL

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

West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at March 31, 2021.

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

Effects of COVID-19 Pandemic

The Company’s business is dependent upon the willingness and ability of our employees and clients to conduct banking and other financial transactions. The outbreak of the novel coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time. The Company has given hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. The pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

The Company has responded to the circumstances surrounding the pandemic to support the safety and well-being of the employees, customers and shareholders by enacting the following measures:

 

   

Modified branch business hours Monday through Thursday to close at 4:00 pm (no change), Friday close at 4:00 pm (as opposed to 6:00 pm), and Saturday close at 12:00 pm (no change).

 

   

Monitor federal, state and local COVID-19 websites and adopt guidance as appropriate and feasible.

 

   

Encourage customers to use our various on-line portals (e.g. internet banking, online bill pay service), automated teller machines and night depositories to redirect routine transactions away from our branch staff as much as possible.

 

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Non-branch banking services (e.g. lending, accounting, check and electronic processing) continue to be offered consistent with COVID-19 guidelines.

FINANCIAL CONDITION

The Company’s assets totaled $314.2 million at March 31, 2021, as compared to $357.1 million at June 30, 2020. The $42.9 million or 12.0% decrease in total assets was principally due to a $38.7 million decrease in mortgage-backed securities, a $4.7 million decrease in net loans receivable, a $1.7 million decrease in Federal Home Loan Bank (“FHLB”) stock and a $1.5 million decrease in certificates of deposits (“CDs”), partially offset by a $3.0 million increase in investment securities available-for-sale and a $1.5 million increase in cash and cash equivalents. The decrease in mortgage-backed securities was principally due to repayments of principal totaling $51.8 million which was partially offset by recent purchases of $13.2 million. The decrease in net loans receivable was primarily due to loan payoffs and the decrease in FHLB stock is associated with changes in the levels of the Company’s FHLB advances outstanding. The decrease in certificates of deposits was due to reinvestment of maturities into other investments with comparatively higher yields. The increase in securities available-for-sale was primarily the result of purchases of investment-grade corporate bonds and commercial paper totaling $41.3 million and $29.5 million, respectively, partially offset by securities sales of $8.1 million and $60.8 million of maturities and early issuer redemptions.

The Company’s total liabilities decreased $44.5 million or 13.9% to $275.7 million as of March 31, 2021 from $320.2 million as of June 30, 2020. The decrease in total liabilities was primarily comprised of a $65.0 million or 65.0% decrease in FHLB long-term advances and a $5.8 million decrease in Federal Reserve Bank (“FRB”) short-term borrowings, which was partially offset by a $22.9 million increase in FHLB short-term advances and a $3.9 million increase in deposit accounts. Transaction and savings accounts increased by $7.7 million as of March 31, 2021 from June 30, 2020 while certificates of deposits decreased by $3.3 million. Management believes that the increase in checking and savings accounts is partially due to COVID-19 stimulus payments and customers preference for more liquid deposit products due to the low market interest environment. See also Quantitative and Qualitative Disclosures About Market Risk “Asset and Liability Management”.

Total stockholders’ equity increased $1.6 million or 4.3% to $38.5 million as of March 31, 2021, from $36.9 million as of June 30, 2020. The increase in stockholders’ equity was primarily attributable to net income of $1.0 million and an increase in accumulated other comprehensive income of $1.0 million, which was partially offset by cash dividends paid totaling $525 thousand and the purchase of $52 thousand of Treasury shares. The increase in accumulated other comprehensive income was primarily the result of an unrealized gain on the Company’s available-for-sale investment portfolio.

RESULTS OF OPERATIONS

General. WVS Financial Corp. reported net income of $265 thousand or $0.15 per diluted share, for the three months ended March 31, 2021 as compared to $625 thousand or $0.35 per diluted share for the same period in 2020. The $360 thousand decrease in net income during the three months ended March 31, 2021 was primarily attributable to a $518 thousand decrease in net interest income and a $52 thousand increase in non-interest expense, which were partially offset by an $82 thousand increase in non-interest income and a $127 thousand decrease in income tax expense.

Net income for the nine months ended March 31, 2021 totaled $1.0 million or $0.59 per diluted share, as compared to $2.1 million or $1.21 per diluted share for the same period in 2020. The $1.1 million decrease in net income during the nine months ended March 31, 2021 was primarily attributable to a $1.4 million decrease in net interest income and a $91 thousand increase in non-interest expense, which were partially offset by an increase of $65 thousand in non-interest income and a decrease in income tax expense of $332 thousand, when compared to the same period of 2020.

 

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Net Interest Income. The Company’s net interest income decreased by $518 thousand or 31.4% for the three months ended March 31, 2021, when compared to the same period in 2020. The decrease in net interest income was primarily attributable to a $1.3 million decrease in interest income, which was partially offset by an $809 thousand decrease in interest expense. The $1.3 million decrease in interest income during the three months ended March 31, 2021 was primarily attributable to lower average yields on the Company’s floating rate investment and mortgage-backed securities portfolios, Federal Home Loan Bank (“FHLB”) stock and loan portfolio along with lower average balances of mortgage-backed agency securities, FHLB stock and loans outstanding, when compared to the same period in 2020. The decline in interest expense was primarily attributable to lower average balances of FHLB advances outstanding and lower market rates paid on FHLB borrowings and time deposits, which were partially offset by higher average balances of wholesale time deposits during the three months ended March 31, 2021 compared to the same period of the prior year.

For the nine months ended March 31, 2021, net interest income decreased $1.4 million or 27.4% when compared to the same period in 2020. The decrease in net interest income was primarily attributable to a $4.0 million decrease in interest income, which was partially offset by a $2.6 million decrease in interest expense. The decrease in interest income for the nine months ended March 31, 2021 was primarily attributable to lower average yields on the Company’s floating rate investment and mortgage-backed securities, loans and FHLB stock, and lower average balances of mortgage-backed and investment securities and FHLB stock when compared to the same period in 2020. The decrease in interest expense was primarily attributable to lower average market rates paid on FHLB borrowings and time deposits during the nine months ended March 31, 2021, when compared to the same period of 2020.

Interest Income. Interest income on net loans receivable decreased $122 thousand or 13.9% and $207 thousand or 7.9% for the three and nine months ended March 31, 2021, respectively, when compared to the same periods in 2020. The decrease for the three and nine months ended March 31, 2021 was primarily attributable to lower average yields of 46 basis points and 29 basis points, respectively, on the average balance of net loans receivable when compared to the same periods in 2020. The decrease in the average balance of loans outstanding during the three and nine months ended March 31, 2021, was primarily attributable to loan repayments in excess of originations and purchases, when compared to the same periods in 2020.

Interest income on investment securities available-for-sale decreased $571 thousand or 60.7% and $1.8 million or 60.0% for the three and nine months ended March 31, 2021, respectively, when compared to the same periods in 2020. The decrease for the three months ended March 31, 2020 was primarily attributable to a 160 basis point decrease in the weighted average yield on investment securities, partially offset by a $6.0 million increase in the average balance of investment securities outstanding, when compared to the same period in 2020. The decrease for the nine months ended March 31, 2021 was primarily attributable to a decrease of 178 basis points in the weighted average yield on investment securities, partially offset by an $8.5 million increase in the average balance of investment securities outstanding, when compared to the same period in 2020. The increase in the average balance of investments available-for-sale outstanding during both periods is attributable to increased purchases of such securities funded with a combination of repayments of principal from the Company’s mortgage-backed securities portfolio. The decrease in weighted average yields in 2021 was principally attributable to lower one-month London Interbank Offered Rates (“LIBOR”) when compared to the same periods in 2020.

Interest income on mortgage-backed securities decreased $536 thousand or 78.3% and $1.7 million or 73.2% for the three and nine months ended March 31, 2021, respectively, when compared to the same periods in 2020. The decrease for the three months ended March 31, 2021 was primarily attributable to a 152 basis point decrease in the weighted average yield earned on U.S. Government agency mortgage-backed securities, as well as a $49.9 million decrease in the average balance of U.S. Government agency mortgage-backed securities, when compared to the same period in 2020 The decrease for the nine months ended March 31, 2021 was also primarily attributable to a 177 basis point decrease in the weighted average yield earned on U.S. Government agency mortgage-backed securities and a $34.4 million decline in the average balance of U.S. Government agency mortgage-backed securities, when compared to the same period in 2020. The decrease in the average balances of U.S. Government and agency private-label mortgage-backed securities during the three and nine months ended March 31, 2021 was attributable to

 

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principal paydowns during the periods. The mortgage-backed securities proceeds during both periods were primarily used to fund purchases of commercial paper and fixed rate corporate bonds in the investment portfolio and to pay down FHLB borrowings. The decrease in weighted average yields in 2021 was primarily attributable to lower three-month LIBOR when compared to the same periods in 2020.

Dividend income on FHLB stock decreased $93 thousand or 71.0% and $209 thousand or 54.6% for the three and nine months ended March 31, 2021, respectively, when compared to the same periods in 2020. The decrease for the three months ended March 31, 2020 was primarily attributable to a 278 basis point decrease in the weighted average yield earned and by a $3.7 million decrease in the average balance of FHLB stock held. The decrease for the nine months ended March 31, 2021 was primarily attributable to a 186 basis point decline in the weighted average yield earned and by a $2.7 million decrease in the average balance of FHLB stock held. The decrease in the average balance of FHLB stock for the three and nine months ended March 31, 2021, was primarily attributable to pay downs of FHLB advances when compared to the same periods in 2020.

Interest income on certificates of deposit decreased $4 thousand and $25 thousand for the three and nine months ended March 31, 2021, respectively, when compared to the same period in 2020. The decrease for the quarter ended March 31, 2021 was primarily the result of a $980 thousand decrease in the average portfolio balance of certificates of deposit and a 20 basis point decrease in the weighted average yield earned, when compared to the same period of 2020. The decrease in interest income on certificates of deposit during the nine months ended March 31, 2021, compared to the same period of the prior year, was the result of a $1.1 million decrease in the average portfolio as well as a 75 basis point decrease in the weighted average yield earned. Proceeds from maturing certificates were redeployed into comparatively higher yielding investment securities.

Interest Expense. Interest expense on deposits decreased $163 thousand or 72.8% for the three months ended March 31, 2021 due to a 152 basis point decrease in the weighted average rate paid on time deposits, partially offset by a $25.4 million increase in the average balance of time deposits and a $9.7 million increase in the average balance of interest-earning demand deposits, when compared to the same period in 2020. For the nine months ended March 31, 2021, the $448 thousand or 63.6% decrease in interest expense on deposits was primarily due to a 132 basis point decrease in the weighted average rate paid on time deposits partially offset by a $3.4 million increase in the average balance of time deposits outstanding, when compared to the same period of the prior year. The increase in the average balances of time deposits during both the three and nine months ended March 31, 2021 was primarily attributable to higher levels of short-term brokered deposits when compared to the same periods of 2020. From time to time the Company uses brokered deposits to fund investment purchases, or as an alternative to FHLB borrowings, if the cost of such deposits is less than other wholesale funding options.

Interest paid on FHLB variable-rate long term advances totaled $19 thousand, a decrease of $383 thousand for the three months ended March 31, 2021 when compared to the same period in 2020 primarily as the result of a decrease of $65.0 million in the average balance outstanding as well as a 159 basis point decline in the average rates paid. For the nine months ended March 31, 2021, interest expense on FHLB variable-rate long term advances totaled $111 thousand, a decrease of $1.3 million compared to the same period of the prior year. The $1.3 million decrease was primarily due to a $39.4 million decrease in the average balance outstanding as well as a 184 basis point decrease in the average rates paid during the nine month period ending March 31, 2021 compared to the same period of 2020. Interest paid on FHLB fixed-rate advances decreased by $40 thousand and $73 thousand, for the three and nine month periods ended March 31, 2021, respectively, when compared to the same periods of 2020. The reason for the decreases in both periods of 2021 was primarily due to lower average levels of fixed-rate long term FHLB advances outstanding.

Interest expense on short-term FHLB borrowings during the three and nine months ended March 31, 2021 totaled $25 thousand and $85 thousand, respectively, a decrease of $222 thousand and $775 thousand, respectively, compared to the same periods of 2020. The decrease for the quarter ended March 31, 2021 was due largely to a decrease of $31.5 million in the average balances of advances outstanding as

 

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well as a 126 basis point decrease in the weighted average rate paid, when compared to the same period of 2020. The decrease for the nine months ended March 31, 2021 was primarily due to a $26.6 million decrease in the average balance of these obligations, as well as a 161 basis point decrease in rates paid compared to the same period of 2020.

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

For the three months ended March 31, 2021, the provision for loan losses decreased by $1 thousand compared to the three months ended March 31, 2020. The decrease was primarily attributable to an $8 thousand credit provision in the three months ended March 31, 2021 as compared to a $7 thousand credit provision in the same period in 2020. During the nine months ending March 31, 2021, the credit provision for loan losses decreased $10 thousand. During the nine month period ending March 31, 2021, there was a credit to the allowance for loan losses (“ALLL”) of $15 thousand compared to a credit of $25 thousand during the same period of 2020. For both the three and nine month periods of 2021, the changes in the ALLL balances associated with our loan portfolio were driven by changes in the applicable loan balances and the addition of a COVID-19 qualitative reserve factor to the ALLL calculation.

At March 31, 2021, the Company’s total allowance for loan losses amounted to $603 thousand or 0.70% of the Company’s net loans receivable, as compared to $618 thousand or 0.68% at June 30, 2020. At March 31, 2021 and June 30, 2020, the Company had no non-performing loans.

Non-Interest Income. Non-interest income increased $82 thousand for the three months ended March 31, 2021, when compared to the same period in 2020. This increase was primarily attributable to a $56 thousand increase in investment securities gains and a decrease of $32 thousand in impairment charges related to the Company’s private label mortgage-backed portfolio, partially offset by a $3 thousand decrease in service charges on deposits and a $3 thousand decrease in automated teller machine (“ATM”) income.

For the nine months ended March 31, 2021, non-interest income increased $65 thousand, when compared to the same period in 2020. The increase in non-interest income for the nine months ended March 31, 2021 was primarily attributable to a $61 thousand increase in investment securities gains and a decrease of $37 thousand in impairment charges related to the Company’s private label mortgage-backed portfolio partially offset by a $22 thousand decrease in service charges on deposits, a $7 thousand decline in ATM fee income and a $4 thousand decrease in earnings on Bank-owned life insurance when compared to the nine months ended March 31, 2020.

Non-Interest Expense. Non-interest expense increased $52 thousand or 5.9% for the three months ended March 31, 2021, when compared to the same period in 2020. The increase in non-interest expense for the three months ended March 31, 2021 was primarily attributable to higher employee compensation and recruitment costs of $73 thousand and an $8 thousand increase in occupancy and equipment expense, which were partially offset by lower legal fees of $15 thousand and lower provisions for off balance sheet reserves on loan commitments outstanding of $14 thousand, when compared to the same period in 2020.

Non-interest expense increased $91 thousand or 3.5% for the nine months ended March 31, 2021, when compared to the same period in 2020. The increase in non-interest expense for the nine months ended March 31, 2021 was primarily attributable to higher employee compensation and recruitment costs of $88 thousand, higher occupancy and equipment related costs of $25 thousand and higher FDIC deposit insurance expense of $76 thousand, which were partially offset by lower legal fees of $21 thousand, lower provisions for off balance sheet reserves on loan commitments outstanding of $45 thousand and lower charitable contributions of $50 thousand, when compared to the same period in 2020. The increase in federal deposit insurance expense for the nine months ended March 31, 2021 was primarily the result of the absence of the Small Bank Assessment Credits applied by the Federal Deposit Insurance Corporation during the nine months ended March 31, 2020.

 

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Income Tax Expense. Income tax expense decreased $127 thousand and $332 thousand for the three and nine months ended March 31, 2021, respectively, when compared to the same periods in 2020. The decreases for both periods ended March 31, 2021, were primarily due to lower levels of taxable income when compared to the same periods of 2020.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled $671 thousand during the nine months ended March 31, 2021. Net cash provided by operating activities was primarily comprised of net income of $1.0 million, $208 thousand of net amortization of discounts, premiums and deferred loan costs and $53 thousand of depreciation, which were partially offset by a $326 thousand decrease in accrued interest payable and a $280 thousand decrease in accrued income taxes.    

Funds provided by investing activities totaled $45.4 million during the nine months ended March 31, 2021. Primary sources of funds included proceeds from repayments of investment securities and mortgage-backed securities in the held-to-maturity portfolio totaling $750 thousand and $51.8 million, respectively, proceeds from repayments of investment securities in the available-for-sale portfolio totaling $60.8 million and $8.1 million of proceeds on sales of investment securities available-for-sale, repayments of loans in excess of originations of $12.8 million and $1.6 million of proceeds from maturing certificates of deposit. Primary uses of funds during this period were purchases of investment securities available-for-sale, including commercial paper totaling $70.8 million, purchases of mortgage-backed securities held-to-maturity totaling $13.2 million and purchases of loans totaling $8.0 million.

Funds used in financing activities totaled $44.6 million for the nine months ended March 31, 2021. The primary uses of funds for financing activities were a $65.0 million decrease in FHLB long-term advances, a $5.8 million decrease in FRBC short-term borrowings, a $3.3 million decrease in certificates of deposit, a decrease of $576 thousand in advance payments by borrowers for taxes and insurance and $525 thousand in cash dividends paid on the Company’s common stock. The primary sources of funds from financing activities were an increase in FHLB short-term borrowings of $22.9 million and a $7.7 million increase in transaction and savings accounts. Management believes that a significant portion of our local maturing deposits will remain with the Company and that it currently is maintaining adequate liquidity and continues to match funding sources with lending and investment opportunities.

The Company’s primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and FRBC discount window borrowings. Certificates of deposit scheduled to mature in one year or less at March 31, 2021 totaled $27.1 million including $10.2 million of maturing wholesale time deposits.

Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. At March 31, 2021, total approved loan commitments outstanding were $53 thousand. At the same date, commitments under unused lines of credit amounted to $5.0 million and the unadvanced portion of construction loans approximated $4.2 million. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, through FHLB advances and other wholesale funding sources to provide the cash utilized in investing activities. The Company’s available-for-sale segment of the investment portfolio totaled $150.6 million, including $9.0 million of commercial paper, at March 31, 2021. In addition, the Company had $350 thousand of certificates of deposit at March 31, 2021. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.

On April 26, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share, payable on May 20, 2021, to shareholders of record at the close of business on May 10, 2021.

 

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Dividends are subject to determination and declaration by the Board of Directors, which take into account the Company’s financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the Common Stock in future periods or that, if paid, such dividends will not be reduced or eliminated.

As of March 31, 2021, WVS Financial Corp. maintained Common Equity Tier I Capital, Tier I, and total risk-based capital equal to $38.1 million or 19.2%, $38.1 million or 19.2%, and $38.7 million or 19.5%, respectively, of total risk-weighted assets, and Tier I leverage capital of $38.1 million or 12.4% of average quarterly assets.

Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan. The Company had no nonperforming assets at March 31, 2021 or at June 30, 2020.

 

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET AND LIABILITY MANAGEMENT

The Company’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. The Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be exogenous and will be analyzed on an ex post basis.

Interest rate risk (“IRR”) is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value, however excessive levels of IRR can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company’s safety and soundness.

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

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

During the fiscal years 2015 - 2020 and into fiscal year 2021, intermediate and long-term market interest rates fluctuated considerably. Many central banks, including the Federal Reserve, continued above normal levels of monetary accommodation including quantitative easing and targeted asset purchase programs. The desired outcomes of these programs are to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates.

The effect of interest rate changes on a financial institution’s assets and liabilities may be analyzed by examining the “interest rate sensitivity” of the assets and liabilities and by monitoring an institution’s interest rate sensitivity “gap”. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within a given time period. A gap is considered positive (negative) when the amount of rate sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities (assets). During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income.

 

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As part of its asset/liability management strategy, the Company maintained an asset sensitive financial position due to unusually low market interest rates. An asset sensitive financial position may benefit earnings during a period of rising interest rates and reduce earnings during a period of declining interest rates.

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

 

     March 31,     June 30,  
     2021     2020     2019  
     (Dollars in Thousands)  

Interest-earning assets maturing or repricing within one year

   $ 209,568     $ 289,076     $ 282,429  

Interest-bearing liabilities maturing or repricing within one year

     172,268       218,272       214,916  
  

 

 

   

 

 

   

 

 

 

Interest sensitivity gap

   $ 37,300     $ 70,804     $ 67,513  
  

 

 

   

 

 

   

 

 

 

Interest sensitivity gap as a percentage of total assets

     11.87     19.83     18.97

Ratio of assets to liabilities maturing or repricing within one year

     121.65     132.44     131.41

 

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The following table illustrates the Company’s estimated stressed cumulative repricing gap – the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time – at March 31, 2021. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points.

Cumulative Stressed Repricing Gap

 

     Month 3     Month 6     Month 12     Month 24     Month 36     Month 60     Long Term  
     (Dollars in Thousands)  

Base Case Up 200 bp

 

           

Cumulative Gap ($’s)

   $ 30,196     $ 30,430     $ 29,116     $ 43,237     $ 62,223     $ 59,935     $ 32,003  

% of Total Assets

     9.6     9.7     9.3     13.8     19.8     19.1     10.2

Base Case Up 100 bp

 

           

Cumulative Gap ($’s)

   $ 31,094     $ 32,139     $ 32,217     $ 48,361     $ 67,776     $ 65,288     $ 32,003  

% of Total Assets

     9.9     10.2     10.3     15.4     21.6     20.8     10.2

Base Case No Change

 

           

Cumulative Gap ($’s)

   $ 32,636     $ 35,026     $ 37,301     $ 56,232     $ 76,379     $ 73,078     $ 32,003  

% of Total Assets

     10.4     11.1     11.9     17.9     24.3     23.3     10.2

Base Case Down 100 bp

 

           

Cumulative Gap ($’s)

   $ 33,352     $ 36,347     $ 39,546     $ 59,470     $ 79,699     $ 75,703     $ 32,003  

% of Total Assets

     10.6     11.6     12.6     18.9     25.4     24.1     10.2

Base Case Down 200 bp

 

           

Cumulative Gap ($’s)

   $ 33,667     $ 36,923     $ 40,509     $ 60,815     $ 81,455     $ 77,203     $ 32,003  

% of Total Assets

     10.7     11.8     12.9     19.4     25.9     24.6     10.2

The Company utilizes an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to better estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company’s loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company’s borrowings.

 

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The following table presents the simulated impact of a 100 and 200 basis point upward or downward (parallel) shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at March 31, 2021. This analysis was done assuming that the interest-earning assets will average approximately $303 million and $304 million over a projected twelve and twenty-four month period, respectively, for the estimated impact on change in net interest income, return on average equity and return on average assets. The estimated changes in market value of equity were calculated using balance sheet levels at March 31, 2021. Actual future results could differ materially from our estimates primarily due to unknown future interest rate changes and the level of prepayments on our investment and loan portfolios and future FDIC regular and special assessments.

Analysis of Sensitivity to Changes in Market Interest Rates

     Twelve Month Forward Modeled Change in Market Interest Rates  
     March 31, 2022     March 31, 2023  

Estimated impact on:

   -200     -100     0     +100     +200     -200     -100     0     +100     +200  

Change in net interest income

     -13.8     -9.2     —         4.5     9.7     -29.6     -20.3     —         11.0     21.5

Return on average equity

     1.57     2.01     2.89     3.32     3.81     -0.10     0.79     2.67     3.67     4.61

Return on average assets

     0.19     0.25     0.36     0.41     0.47     -0.01     0.10     0.33     0.46     0.58

Market value of equity (in thousands)

   $ 43,001     $ 42,629     $ 44,527     $ 46,257     $ 47,453            

The table below provides information about the Company’s anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed lines of credit, at March 31, 2021. The Company used no derivative financial instruments to hedge such anticipated transactions as of March 31, 2021.

 

Anticipated Transactions

 
     (Dollars in Thousands)  

Undisbursed construction and land development loans

   $ 4,214  

Undisbursed lines of credit

     5,045  

Loan origination commitments

     53  
  

 

 

 
  

 

 

 
   $ 9,312  
  

 

 

 

In the ordinary course of its construction lending business, the Savings Bank may enter into performance standby letters of credit. Typically, the performance standby letters of credit are issued on behalf of a builder to a third party to ensure the timely completion of a certain aspect of a construction project or land development. At March 31, 2021, the Savings Bank had no performance standby letters of credit outstanding. In the event that an obligor is unable to perform its obligations as specified in the applicable letter of credit agreement, the Savings Bank would be obligated to disburse funds up to the amount specified in the letter of credit agreement. The Savings Bank maintains adequate collateral that could be liquidated to fund these contingent obligations.

 

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ITEM 4.

CONTROLS AND PROCEDURES

As of March 31, 2021, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2021, no change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has occurred that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

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

(b) Not applicable.

 

ITEM 1A.

Risk Factors

There are no material changes to the factors included in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2020.

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) The following table sets forth information with respect to purchases of common stock of the Company made by WVS Financial Corp. during the three months ended March 31, 2021.

 

COMPANY PURCHASES OF EQUITY SECURITIES

 

Period

   Total
Number of
Shares
Purchased(1)
     Average Price
Paid per Share ($)
     Total Number of
Shares
Purchased as
part of Publicly
Announced
Plans or
Programs(1)
     Maximum Number
of Shares that May
Yet Be
Repurchased
Under the Plans or
Programs(2)
 

01/01/21 – 01/31/21