MBS are secured by mortgage properties that are geographically diverse, but may include
exposure in some areas that have experienced rapidly declining property values. The MBS portfolio is also subject to interest rate risk, prepayment risk, operational risk, servicer risk and originator risk, all of which can have a negative impact on
the underlying collateral of the MBS investments. The rate and timing of unscheduled payments and collections of principal on mortgage loans serving as collateral for these securities are difficult to predict and can be affected by a variety of
factors, including the level of prevailing interest rates, restrictions on voluntary prepayments contained in the mortgage loans, the availability of lender credit, loan modifications and other economic, demographic, geographic, tax and legal
During fiscal 2021, 2020, and 2019, the Company recorded $13 thousand, $88 thousand, and $28 thousand,
respectively, of credit impairment charges, and $0 thousand, $0 thousand, and $117 thousand, respectively, to accumulated other comprehensive income (net of income tax effect of $0 thousand, $0 thousand, and
$31 thousand, respectively) related to non-credit other than temporary impairments. During fiscal years 2021, 2020 and 2019, the Company was able to accrete back into / (out of)
other comprehensive income $13 thousand, $13 thousand, and ($9) thousand, respectively (net of income tax effect of $3 thousand, $3 thousand, and ($3) thousand, respectively), based on principal repayments on private-label
mortgage-backed securities previously identified with other than temporary impairment (OTTI). Cash repayments on the Companys PLMBS portfolio totaled $221 thousand, $192 thousand, and $185 thousand, for fiscal years
2021, 2020, and 2019, respectively.
During fiscal 2021, the level of delinquencies continued at high levels within the PLMBS portfolio.
The Company attributes this increase due to COVID-19 related disruptions in loan payments and loan repayment deferrals by certain borrowers. Continued deterioration in the mortgage and credit markets could
result in additional other-than-temporary impairment charges in our legacy PLMBS which could negatively affect the Companys financial condition, results of operations, or its capital position.
At June 30, 2021, the Company, based on its analysis, has concluded that its three PLMBS are other-than-temporarily impaired, as
discussed above. The remaining securities portfolio has experienced unrealized losses and a decreased fair value due to interest rate volatility, illiquidity in the market place or credit deterioration in the U.S. mortgage markets.
Our financial condition or results of operations may be adversely affected if PLMBS servicers fail to perform their obligations to service
mortgage loans as collateral for PLMBS.
PLMBS servicers have a significant role in servicing the mortgage loans that serve as
collateral for the Companys PLMBS portfolio, including playing an active role in loss mitigation efforts and making servicer advances. The Companys credit risk exposure to the servicer counterparties includes the risk that they will not
perform their obligation to service these mortgage loans, which could adversely affect the Companys financial condition or results of operations. The risk of such failure has increased as deteriorating market conditions have affected the
liquidity and financial condition of some of the larger servicers. These risks could result in losses significantly higher than currently anticipated.
Our allowance for losses on loans and leases may not be adequate to cover probable losses.
We have established an allowance for loan losses which we believe is adequate to offset probable losses on our existing loans and leases.
There can be no assurance that any future declines in real estate market conditions, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan and lease losses, which would adversely affect
our results of operations.
We are subject to extensive regulation which could adversely affect our business and operations.
We and our subsidiaries are subject to extensive federal and state governmental supervision and regulation, which are intended primarily for
the protection of depositors. In addition, we and our subsidiaries are subject to changes in federal and state laws, as well as changes in regulations, governmental policies and accounting principles. The effects of any such potential changes cannot
be predicted but could adversely affect the business and operations of us and our subsidiaries in the future.
We face strong
competition which may adversely affect our profitability.