Company Quick10K Filing
Quick10K
Community Savings Bancorp
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
8-K 2018-11-19 Shareholder Vote, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-10-15 Accountant, Exhibits
8-K 2018-02-19 Shareholder Vote, Exhibits
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CCSB 2018-12-31
Part I - Financial Information
Item 1. Interim Financial Statements (Unaudited)
Note 1:	Basis of Presentation
Note 2:	Securities
Note 3:	Loans and Allowance for Loan Losses
Note 4: Regulatory Matters
Note 5: Disclosures About Fair Value of Assets and Liabilities
Note 6: Accumulated Other Comprehensive Income (Loss)
Note 7: Recent Accounting Pronouncements
Note 8: Loss per Share
Note 9: Employee Stock Ownership Plan (Esop)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tv512719_ex31-1.htm
EX-31.2 tv512719_ex31-2.htm
EX-32 tv512719_ex32.htm

Community Savings Bancorp Earnings 2018-12-31

CCSB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv512719_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended December 31, 2018  

 

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 No. 000-55732

 

COMMUNITY SAVINGS BANCORP, INC.

 

(Exact name of registrant as specified in its charter)

 

Maryland   81-3840964
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
     
425 Main Street    
Caldwell, Ohio   43724
(Address of principal   (Zip Code)
executive office)    

 

(740) 732-5678

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

 

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 requirements for the past 90 days.

Yes x     No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x 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. (Check one):

 

Large accelerated filer ¨    Accelerated filer ¨     Non-accelerated filer x     Smaller reporting company x

 

Emerging growth company x

 

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

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).

Yes ¨     No x

 

As of February 13, 2019, the latest practicable date, 419,290 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.

 

 

 

 

 

 

Community Savings Bancorp, Inc.

 

Index to Quarterly Report on Form 10-Q

 

PART I – FINANCIAL INFORMATION  
   
Item 1  Interim Financial Statements (Unaudited)  
   
Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018 3
   
Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2018 and 2017 4
   
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2018 and 2017 5
   
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended December 31, 2018 and 2017 6
   
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2018 and 2017 7
   
Notes to Consolidated Financial Statements 8
   
Item 2  Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
   
Item 3  Quantitative and Qualitative Disclosures About Market Risk 47
   
Item 4  Controls and Procedures 47
   
PART II – OTHER INFORMATION  
   
Item 1  Legal Proceedings 48
   
Item 1A Risk Factors 48
   
Item 2  Unregistered Sales of Equity Securities and Use of Proceeds 48
   
Item 3  Defaults Upon Senior Securities 48
   
Item 4  Mine Safety Disclosures 48
   
Item 5  Other Information 48
   
Item 6  Exhibits 49
   
SIGNATURES 50

 

 2 

 

 

Part I – Financial Information

Item 1. Interim Financial Statements (Unaudited)

Community Savings Bancorp, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

 

   December 31,   June 30, 
   2018   2018 
   (Unaudited)     
Assets          
           
Cash and due from banks  $896   $2,222 
Interest-earning demand deposits in other financial institutions   7,373    2,082 
           
Cash and cash equivalents   8,269    4,304 
           
Interest-earning time deposits in other financial institutions   3,845    4,595 
Investment securities available-for-sale, at fair value   5,797    6,651 
Other investment securities   940    940 
Loans   35,949    31,888 
Less: allowance for loan losses   (253)   (253)
Loans, net   35,696    31,635 
Premises and equipment, net   398    422 
Foreclosed assets, net   88    9 
Accrued interest receivable   134    135 
Bank owned life insurance   781    769 
Other assets   536    508 
           
Total assets  $56,484   $49,968 
           
Liabilities and Shareholders' Equity          
           
Liabilities          
Deposits          
Demand  $9,611   $10,406 
Savings and money market   28,747    22,067 
Time   7,297    7,926 
           
Total deposits   45,655    40,399 
           
Federal Home Loan Bank advances   2,500    1,000 
Payments by borrowers for taxes and insurance   251    92 
Other liabilities   142    190 
           
Total liabilities   48,548    41,681 
           
Shareholders' Equity          
Preferred stock - par value $0.01 per share, 5,000,000 shares authorized, none issued   -    - 
Common stock - par value $0.01 per share, 50,000,000 shares authorized, 419,290 shares issued and outstanding as of December 31, 2018 and 441,290 shares issued and outstanding as of June 30, 2018  4    4 
Additional paid in capital   2,950    3,264 
Unearned employee stock ownership plan (ESOP) shares   (311)   (311)
Retained earnings   5,354    5,424 
Accumulated other comprehensive loss   (61)   (94)
           
Total shareholders' equity   7,936    8,287 
           
Total liabilities and shareholders' equity  $56,484   $49,968 

 

See Notes to Consolidated Financial Statements (unaudited)

 

 3 

 

 

Community Savings Bancorp, Inc.

Consolidated Statements of Operations

(In thousands, except share data)

 

   Three Months Ended December 31,   Six Months Ended December 31, 
   2018   2017   2018   2017 
   (Unaudited) 
Interest Income                    
Loans, including fees  $406   $371   $783   $717 
Taxable securities   24    33    49    64 
Tax exempt securities   10    10    20    20 
Interest-earning deposits   46    39    97    78 
                     
Total interest income   486    453    949    879 
                     
Interest Expense                    
Deposits   31    32    61    64 
Federal Home Loan Bank advances   13    11    23    26 
                     
Total interest expense   44    43    84    90 
                     
Net Interest Income   442    410    865    789 
                     
Provision for Loan Losses   -    -    -    - 
                     
Net Interest Income After Provision for Loan Losses   442    410    865    789 
                     
Noninterest Income                    
Service charges and fees   86    65    167    130 
Gain on sale of foreclosed assets, net   11    -    11    - 
Increase in cash surrender value-bank owned life insurance   6    6    12    7 
Other operating   6    -    10    - 
                     
Total noninterest income   109    71    200    137 
                     
Noninterest Expense                    
Salaries, employee benefits and directors fees   228    215    440    438 
Occupancy and equipment   32    23    66    48 
Data processing   79    77    160    163 
Correspondent bank service charges   61    57    116    111 
Franchise taxes   19    13    37    26 
FDIC insurance premiums   4    4    9    7 
Professional services   65    117    149    197 
Advertising   6    3    13    10 
Office supplies   23    26    45    51 
Other   64    41    115    80 
                     
Total noninterest expense   581    576    1,150    1,131 
                     
Loss Before Federal Income Tax Expense (Benefit)   (30)   (95)   (85)   (205)
                     
Federal Income Tax Expense (Benefit)   (6)   18    (15)   (13)
                     
Net loss  $(24)  $(113)  $(70)  $(192)
                     
Loss per share - basic and diluted  $(0.06)  $(0.28)  $(0.17)  $(0.47)
                     
Weighted-average shares outstanding - basic and diluted   402,903    408,602    406,569    408,602 

 

See Notes to Consolidated Financial Statements (unaudited)

 

 4 

 

 

Community Savings Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

 

   Three Months Ended December 31,   Six Months Ended December 31, 
   2018   2017   2018   2017 
   (Unaudited) 
                 
Net loss  $(24)  $(113)  $(70)  $(192)
                     
Other comprehensive income (loss):                    
Unrealized holding gains (losses) on securities available for sale  $65    (65)   42    (75)
                     
Tax effect   (12)   22    (9)   25 
                     
Total other comprehensive income (loss)   53    (43)   33    (50)
                     
Comprehensive income (loss)  $29   $(156)  $(37)  $(242)

 

See Notes to Consolidated Financial Statements (unaudited)

 

 5 

 

Community Savings Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

 

Six Months Ended December 31, 2018

 

                       Accumulated     
           Additional   Unearned       Other     
   Preferred   Common   Paid in   ESOP   Retained   Comprehensive     
   Stock   Stock   Capital   Shares   Earnings   Income (Loss)   Total 
   (Unaudited) 
                             
Balance at July 1, 2018  $-   $4   $3,264   $(311)  $5,424   $(94)  $8,287 
                                    
Net loss   -    -    -    -    (70)   -    (70)
                                    
Other comprehensive income   -    -    -    -    -    33    33 
                                    
Stock buyback (22,000 shares)   -    -    (314)   -    -    -    (314)
                                    
Balance at December 31, 2018  $-   $4   $2,950   $(311)  $5,354   $(61)  $7,936 

 

Six Months Ended December 31, 2017

 

                       Accumulated     
           Additional   Unearned       Other     
   Preferred   Common   Paid in   ESOP   Retained   Comprehensive     
   Stock   Stock   Capital   Shares   Earnings   Income (Loss)   Total 
   (Unaudited) 
                             
Balance at July 1, 2017  $-   $4   $3,258   $(327)  $6,433   $25   $9,393 
                                    
Net loss   -    -    -    -    (192)   -    (192)
                                    
Other comprehensive loss   -    -    -    -    -    (50)   (50)
                                    
Balance at December 31, 2017  $-   $4   $3,258   $(327)  $6,241   $(25)  $9,151 

 

See Notes to Consolidated Financial Statements (unaudited)

 

 6 

 

 

Community Savings Bancorp, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

   Six Months Ended December 31, 
   2018   2017 
   (Unaudited) 
Cash Flows from Operating Activities          
Net loss  $(70)  $(192)
Adjustments to reconcile net loss to net cash from operating activities:          
Depreciation and amortization   34    35 
Deferred income tax expense   (15)   (13)
Amortization of premiums and discounts on securities, net   37    64 
Gain on repossession of foreclosed assets   (11)   - 
Net changes in:          
Accrued interest receivable   -    (6)
Bank owned life insurance-cash surrender value   (12)   (7)
Other assets   (10)   104 
Other liabilities   (47)   50 
           
Net cash provided by (used in) operating activities   (94)   35 
           
Cash Flows from Investing Activities          
Net change in interest-earning time deposits in other financial institutions   750    (14)
Proceeds from maturities of available for sale securities   250    555 
Principal repayments of available for sale mortgage-backed securities   608    827 
Net change in loans   (4,140)   (837)
Purchase of premises and equipment   (9)   - 
Purchase of bank owned life insurance   -    (750)
           
Net cash used in investing activities   (2,541)   (219)
           
Cash Flows from Financing Activities          
Net change in deposits   5,255    (2,079)
Proceeds from Federal Home Loan Bank advances   1,500    - 
Repayment of Federal Home Loan Bank advances   -    (3,500)
Payments by borrowers for taxes and insurance   159    145 
Stock buyback   (314)   - 
           
Net cash provided by (used in) financing activities   6,600    (5,434)
           
Net Change in Cash and Cash Equivalents   3,965    (5,618)
           
Beginning Cash and Cash Equivalents   4,304    8,699 
           
Ending Cash and Cash Equivalents  $8,269   $3,081 
           
Supplemental Disclosure of Cash Flow Information          
Cash paid during the period for:          
Interest on deposits and borrowings  $84   $90 

 

See Notes to Consolidated Financial Statements (unaudited)

 

 7 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 1: Basis of Presentation

 

Community Savings Bancorp, Inc. (the “Company”), headquartered in Caldwell, Ohio, was formed to serve as the holding company for Community Savings (the “Bank”) following its mutual-to-stock conversion. The conversion was completed effective January 10, 2017.  In the conversion and concurrent stock offering, the Company issued 441,290 shares at an offering price of $10.00 per share.

 

The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the unaudited financial statements have been included to present fairly the financial position as of December 31, 2018 and the results of operations and cash flows for the three and six months ended December 31, 2018 and 2017. Amounts have not been audited and the results of operations for the three and six months ended December 31, 2018, herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year.

 

The accompanying consolidated balance sheet as of June 30, 2018 has been derived from audited financial statements included in the Company’s Form 10-K. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. Accordingly, these consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company as of and for the year ended June 30, 2018 included in the Company’s Form 10-K.

 

Principles of Consolidation

 

The consolidated financial statements as of and for the periods ended December 31, 2018, include Community Savings Bancorp, Inc. and its wholly-owned subsidiary, Community Savings (the “Bank”), together referred to as the “Company.” Intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of deferred tax assets, and fair values of financial instruments.

 

 8 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 2: Securities

 

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

 

  

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair

Value

 
   (In thousands) 
Available-for-sale Securities:                    
December 31, 2018                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $3,674   $4   $(60)  $3,618 
Collateralized mortgage obligations of government sponsored entities - residential   190    1    (4)   187 
State and political subdivisions                    
Taxable   558    -    (1)   557 
Nontaxable   1,452    2    (19)   1,435 
                     
   $5,874   $7   $(84)  $5,797 
                     
June 30, 2018                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $4,280   $6   $(94)  $4,192 
Collateralized mortgage obligations of government sponsored entities - residential   218    1    (5)   214 
State and political subdivisions                    
Taxable   815    1    (3)   813 
Nontaxable   1,457    1    (26)   1,432 
                     
   $6,770   $9   $(128)  $6,651 

 

 9 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The amortized cost and fair value of available-for-sale securities at December 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

 

   Amortized   Fair 
   Cost   Value 
   (In thousands) 
         
Within one year  $300   $300 
One to five years   -    - 
Five to ten years   288    287 
Beyond ten years   1,422    1,405 
           
    2,010    1,992 
Mortgage-backed securities of U.S. government sponsored entities - residential   3,674    3,618 
Collateralized mortgage obligations of government sponsored entities - residential   190    187 
           
Totals  $5,874   $5,797 

 

The Company had no sales of investment securities during the three and six-month periods ended December 31, 2018 and 2017. One security matured in the amount of $250,000 during the 2018 period and one security was called in the amount of $555,000 during the 2017 period.

 

The Company had pledged $1.6 million and $1.7 million of its investment securities at December 31, 2018 and June 30, 2018, respectively, and $635,000 of interest-earning time deposits at December 31, 2018 and June 30, 2018. The Company also had pledged $125,000 of interest-earning demand deposits at December 31, 2018 and June 30, 2018, primarily to secure public deposits.

 

The Company’s other investment securities consists of $915,000 of stock in the FHLB and $25,000 of stock in the Company’s data service provider at both December 31, 2018 and June 30, 2018.

 

 10 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table shows the Company’s gross unrealized losses in investments and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2018 and June 30, 2018:

 

   Less than 12 Months   12 Months or Longer   Total 
Description of Securities  Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
 
   (In thousands) 
December 31, 2018                              
Available-for-sale Securities:                              
Mortgage-backed securities of U.S. government sponsored entities - residential  $250   $(2)  $2,473   $(58)  $2,723   $(60)
Collateralized mortgage obligations of government sponsored entities - residential   -    -    111    (4)  $111    (4)
State and political subdivisions                              
Taxable   -    -    544    (1)   544    (1)
Nontaxable   -    -    368    (19)   368    (19)
                               
   $250   $(2)  $3,496   $(82)  $3,746   $(84)
June 30, 2018                              
Available-for-sale Securities:                              
Mortgage-backed securities of U.S. government sponsored entities - residential  $1,777   $(31)  $1,568   $(63)  $3,345   $(94)
Collateralized mortgage obligations of government sponsored entities - residential   121    (5)   -    -    121    (5)
State and political subdivisions                              
Taxable   -    -    510    (3)   510    (3)
Nontaxable   531    (3)   363    (23)   894    (26)
                               
   $2,429   $(39)  $2,441   $(89)  $4,870   $(128)

 

Other-than-temporary Impairment

 

At December 31, 2018 and June 30, 2018, the decline in fair value of the Company’s investment securities is attributable to changes in interest rates and not credit quality. At December 31, 2018 there were a total of nineteen securities in a loss position. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before recovery of their amortized cost bases, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2018.

 

 11 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 3: Loans and Allowance for Loan Losses

 

Loans at December 31, 2018 and June 30, 2018 include:

 

   December 31,   June 30, 
   2018   2018 
   (In thousands) 
Real estate          
One- to four-family residential  $25,228   $25,127 
Home equity lines of credit   2,002    1,979 
Commercial and multi-family   1,894    1,927 
Consumer and other   6,825    2,855 
           
Total loans   35,949    31,888 
           
Allowance for loan losses   (253)   (253)
           
Net loans  $35,696   $31,635 

 

 

The risk characteristics applicable to each segment of the loan portfolio are described below:

 

Residential Real Estate and Home Equity Lines of Credit

 

Residential mortgage loans and home equity lines of credit are secured by one-to four-family residences and are comprised of owner-occupied and non-owner-occupied loans. Construction real estate loans (immaterial for the periods presented) are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. The Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values or residential properties. Risk is mitigated by the fact that loans are of smaller individual amounts and spread over a large number of borrowers.

 

Multi-family Residential Real Estate

 

Multi-family real estate loans generally involve a greater degree of credit risk than one-to four- family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

 

 12 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Commercial Real Estate

 

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk.

 

Consumer Loans

 

Consumer loans entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the lack of demand for used automobiles.

 

 13 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three and six months ended December 31, 2018 and the loans by impairment method as of December 31, 2018:

 

   Real Estate             
           Commercial             
   1-4 Family   Home Equity   and Multi-   Consumer         
   Residential   Lines of Credit   Family   and Other   Unallocated   Total 
   (In thousands) 
Three Months Ended December 31, 2018                              
Allowance for loan losses:                              
Balance, October 1, 2018  $158   $13   $10   $47    25   $253 
Provision for loan losses   2    -    (1)   6    (7)   - 
Charge-offs   -    -    -    -    -    - 
Recoveries   -    -    -    -    -    - 
                               
Balance, December 31, 2018  $160   $13   $9   $53   $18   $253 
                               
Six Months Ended December 31, 2018                              
Allowance for loan losses:                              
Balance, July 1, 2018  $171   $13   $10   $23   $36   $253 
Provision for loan losses   (11)   -    (1)   30    (18)   - 
Charge-offs   -    -    -    -    -    - 
Recoveries   -    -    -    -    -    - 
                               
Balance, December 31, 2018  $160   $13   $9   $53   $18   $253 
                               
Allowance for loan losses:                              
Ending balance, individually evaluated for impairment  $6   $-   $-   $-   $-   $6 
                               
Ending balance, collectively evaluated for impairment  $154   $13   $9   $53   $18   $247 
                               
Loans:                              
Ending balance  $25,228   $2,002   $1,894   $6,825        $35,949 
                               
Ending balance; individually evaluated for impairment  $650   $5   $82   $-        $737 
                               
Ending balance; collectively evaluated for impairment  $24,578   $1,997   $1,812   $6,825        $35,212 

 

 14 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three and six months ended December 31, 2017:

 

   Real Estate             
           Commercial             
   1-4 Family   Home Equity   and Multi-   Consumer         
   Residential   Lines of Credit   Family   and Other   Unallocated   Total 
   (In thousands) 
Three Months Ended December 31, 2017                              
Allowance for loan losses:                              
Balance, October 1, 2017  $172   $15   $9   $20   $37   $253 
Provision for loan losses   3    1    1    (3)   (2)   - 
Charge-offs   -    -    -    -    -    - 
Recoveries   -    -    -    -    -    - 
                               
Balance, December 31, 2017  $175   $16   $10   $17   $35   $253 
                               
Six Months Ended December 31, 2017                              
Allowance for loan losses:                              
Balance, July 1, 2017  $162   $21   $8   $20   $42   $253 
Provision for loan losses   13    (5)   2    (3)   (7)   - 
Charge-offs   -    -    -    -    -    - 
Recoveries   -    -    -    -    -    - 
                               
Balance, December 31, 2017  $175   $16   $10   $17   $35   $253 

 

 15 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents, by portfolio segment, the allowance for loan losses, the recorded investment in loans and impairment method as of June 30, 2018:

  

   June 30, 2018 
   Real Estate             
           Commercial             
   1-4 Family   Home Equity   and Multi-   Consumer         
   Residential   Lines of Credit   Family   and Other   Unallocated   Total 
   (In thousands) 
                         
Allowance for loan losses:                              
Ending balance, individually evaluated for impairment  $7   $-   $-   $-   $-   $7 
                               
Ending balance, collectively evaluated for impairment  $164   $13   $10   $23   $36   $246 
                               
Loans:                              
Ending balance  $25,127   $1,979   $1,927   $2,855        $31,888 
                               
Ending balance; individually evaluated for impairment  $374   $5   $87   $-        $466 
                               
Ending balance; collectively evaluated for impairment  $24,761   $1,974   $1,840   $2,855        $31,422 

 

 16 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Internal Risk Categories

 

The Company has adopted a standard loan grading system for all loans. Loans are selected for a grading review based on certain characteristics, including credit concentrations, subprime criteria, and delinquency of 90 days or more. Definitions are as follows:

 

Pass: These are higher quality loans that do not fit any of the other categories described below.

 

Special Mention: The loans identified as special mention have an obvious flaw or a potential weakness that deserves special management attention, but which has not yet impacted collectability. These flaws or weaknesses, if left uncorrected, may result in the deterioration of the prospects of repayment or the deterioration of the Company’s credit position.

 

Substandard: These are loans with a well-defined weakness, where the Company has a serious concern about the borrower’s ability to make full repayment if the weaknesses are not corrected. The loan may contain a flaw, which could impact the borrower’s ability to repay, or the borrower’s continuance as a “going concern.” When collateral values are not sufficient to secure the loan and other weaknesses are present, the loan may be rated substandard. A loan will also be rated substandard when full repayment is expected, but it must come from the liquidation of collateral.

 

One-to-four family residential real estate loans and home equity loans that are past due 90 days or more with loan to value ratios greater than 60 percent are classified as substandard.

 

Doubtful: These are loans with major defined weaknesses, where future charge-off of a part of the credit is highly likely. The primary repayment source is no longer viable and the viability of the secondary source of repayment is in doubt. The amount of loss is uncertain due to circumstances within the credit that are not yet fully developed and the loan is rated “Doubtful” until the loss can be accurately estimated.

 

Loss: These are near term charge-offs. Loans classified as loss are considered uncollectible and of such little value that it is not desirable to continue carrying them as assets on the Company’s financial statements, even though partial recovery may be possible at some future time.

 

 17 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of December 31, 2018 and June 30, 2018. There were no loans classified as doubtful or loss for the periods presented.

 

   Real Estate         
           Commercial         
   1-4 Family   Home Equity   and Multi-   Consumer     
   Residential   Lines of Credit   Family   and Other   Total 
December 31, 2018   (In thousands) 
Pass  $24,497   $1,953   $1,812   $6,825   $35,087 
Special mention   -    -    -    -    - 
Substandard   731    49    82    -    862 
                          
Total  $25,228   $2,002   $1,894   $6,825   $35,949 
                          
June 30, 2018                         
Pass  $24,507   $1,941   $1,840   $2,855   $31,143 
Special mention   -    -    -    -    - 
Substandard   620    38    87    -    745 
                          
Total  $25,127   $1,979   $1,927   $2,855   $31,888 

  

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the past year.

 

 18 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2018 and June 30, 2018:

 

           90 Days and             
   30-59 Days   60-89 Days   Greater   Total       Total Loans 
   Past Due   Past Due   Past Due   Past Due   Current   Receivable 
   (In thousands) 
December 31, 2018                              
Real estate                              
1-4 family residential  $151   $349   $98   $598   $24,630   $25,228 
Home equity lines of credit   5    -    -    5    1,997    2,002 
Commercial and multi-family   -    -    -    -    1,894    1,894 
Consumer and other   40    -    -    40    6,785    6,825 
                               
Total  $196   $349   $98   $643   $35,306   $35,949 
                               
June 30, 2018                              
Real estate                              
1-4 family residential  $271   $3   $65   $339   $24,788   $25,127 
Home equity lines of credit   -    4    -    4    1,975    1,979 
Commercial and multi-family   74    -    13    87    1,840    1,927 
Consumer and other   12    34    -    46    2,809    2,855 
                               
Total  $357   $41   $78   $476   $31,412   $31,888 

 

 

A loan is considered impaired when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans, but also include loans modified in troubled debt restructurings.

 

 19 

 

  

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents impaired loan information as of and for the three and six months ended December 31, 2018:

 

               For the Three Months Ended   For the Six Months Ended 
   As of December 31, 2018   December 31, 2018   December 31, 2018 
       Unpaid   Allowance
for Loan
   Average   Interest   Average   Interest 
   Recorded
Investment
   Principal
Balance
   Losses
Allocated
   Recorded
Investment
   Income
Recognized
   Recorded
Investment
   Income
Recognized
 
   (In thousands) 
Loans with no related allowance recorded:                                   
Real estate                                   
1-4 family residential  $583   $583   $-   $581   $-   $404   $- 
Home equity lines of credit   5    5    -    5    -    5    - 
Commercial and multi-family   82    82    -    83    -    84    - 
Consumer and other   -    -    -    -    -    -    - 
                                    
Loans with an allowance recorded:                                   
Real estate                                   
1-4 family residential   67    69    6    69    1    69    3 
Home equity lines of credit   -    -    -    -    -    -    - 
Commercial and multi-family   -    -    -    -    -    -    - 
Consumer and other   -    -    -    -    -    -    - 
                                    
Totals  $737   $739   $6   $738   $1   $562   $3 

 

 20 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents impaired loan information as of June 30, 2018 and for the three and six months ended December 31, 2017:

 

               For the Three Months Ended   For the Six Months Ended 
   As of June 30, 2018   December 31, 2017   December 31, 2017 
       Unpaid   Allowance
for Loan
   Average   Interest   Average   Interest 
   Recorded
Investment
   Principal
Balance
   Losses
Allocated
   Recorded
Investment
   Income
Recognized
   Recorded
Investment
   Income
Recognized
 
   (In thousands) 
Loans with no related allowance recorded:                                   
Real estate                                   
1-4 family residential  $305   $305   $-   $311   $-    313   $- 
Home equity lines of credit   5    5    -    6    -    6    - 
Commercial and multi-family   87    87    -    91    -    65    - 
Consumer and other   -    -    -    9    -    6    - 
                                    
Loans with an allowance recorded:                                   
Real estate                                   
1-4 family residential   69    71    7    89    1    90    2 
Home equity lines of credit   -    -    -    -    -    -    - 
Commercial and multi-family   -    -    -    -    -    -    - 
Consumer and other   -    -    -    -    -    -    - 
                                    
Totals  $466   $468   $7   $506   $1   $480   $2 

 

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.  Interest income recognized on a cash basis was not materially different than interest income recognized. 

 

 21 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents the Company’s nonaccrual loans at December 31, 2018 and June 30, 2018. The table excludes performing troubled debt restructurings.

 

   December 31,   June 30, 
   2018   2018 
   (In thousands) 
Real estate          
1-4 family residential  $583   $305 
Home equity lines of credit   5    5 
Commercial and multi-family   82    87 
Consumer and other   -    - 
           
Total nonaccrual  $670   $397 

 

At December 31, 2018 and June 30, 2018, the Company had certain loans that were modified in previous years in troubled debt restructurings and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate, or a permanent reduction of the recorded investment in the loan. The Company had loans modified, in previous years, in a troubled debt restructuring totaling $66,000 and $69,000 at December 31, 2018 and June 30, 2018, respectively. Troubled debt restructured loans had specific allowances totaling $6,000 and $7,000 at December 31, 2018 and June 30, 2018, respectively. At December 31, 2018, the Company had no commitments to lend additional funds to borrowers with troubled debt restructured loans.

 

No loans were modified as troubled debt restructurings during the three and six months ended December 31, 2018 or 2017.

 

The Company had no troubled debt restructurings modified during the three and six months prior to December 31, 2018 or 2017 that subsequently defaulted during the six-month periods ended December 31, 2018 or 2017. A troubled debt restructured loan is considered to be in payment default once it is 30 days contractually past due under the loan’s modified terms.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

 

 22 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 4: Regulatory Matters

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier I capital, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of leverage capital to adjusted average total assets (as defined).

 

Management believes, as of December 31, 2018 and June 30, 2018, that the Bank meets all capital adequacy requirements to which it is subject.

 

Basel III requires the Bank to maintain minimum amounts and ratios of common equity Tier 1 capital to risk-weighted assets, as defined in the regulation. Under the Basel III rules, in order to avoid limitations on capital distributions, including dividends, the Bank must hold a capital conservation buffer above the adequately capitalized common equity Tier 1 capital to risk-weighted assets ratio. The capital conservation buffer is being phased in from zero percent to 2.50 percent by 2019. Under Basel III, the Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital.

 

As of December 31, 2018 and June 30, 2018, the most recent notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total capital, Tier I capital, common equity Tier I capital and leverage capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 

 23 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The Company’s and the Bank’s actual capital amounts and ratios are presented in the following table:

 

   Actual   For Capital Adequacy
Purposes
   To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
   (Dollars in thousands) 
As of December 31, 2018                        
Total Capital                              
(to Risk-Weighted Assets)                              
Company  $8,250    29.1%  $2,268    8.0%           N/A          N/A  
Bank  $7,843    27.7%  $2,268    8.0%  $2,836    10.0%
                               
Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $7,997    28.2%  $1,701    6.0%           N/A          N/A  
Bank  $7,590    26.8%  $1,701    6.0%  $2,268    8.0%
                               
Common Equity Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $7,997    28.2%  $1,276    4.5%           N/A          N/A  
Bank  $7,590    26.8%  $1,276    4.5%  $1,843    6.5%
                               
Leverage Capital                              
(to Adjusted Average Total Assets)                              
Company  $7,997    15.7%  $2,033    4.0%           N/A          N/A  
Bank  $7,590    15.0%  $2,033    4.0%  $2,542    5.0%
                               
As of June 30, 2018                              
Total Capital                              
(to Risk-Weighted Assets)                              
Company  $8,634    37.0%  $1,868    8.0%           N/A          N/A  
Bank  $7,849    33.6%  $1,868    8.0%  $2,335    10.0%
                               
Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $8,381    35.9%  $1,401    6.0%           N/A          N/A  
Bank  $7,596    32.5%  $1,401    6.0%  $1,868    8.0%
                               
Common Equity Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $8,381    35.9%  $1,051    4.5%           N/A          N/A  
Bank  $7,596    32.5%  $1,051    4.5%  $1,517    6.5%
                               
Leverage Capital                              
(to Adjusted Average Total Assets)                              
Company  $8,381    16.4%  $2,047    4.0%           N/A          N/A  
Bank  $7,596    14.8%  $2,047    4.0%  $2,559    5.0%

 

 24 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 5: Disclosures about Fair Value of Assets and Liabilities

 

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

 

Level 1Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

 25 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Recurring Measurements

 

The following table presents the fair value measurement of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2018 and June 30, 2018:

 

       Fair Value Measurement Using 
   Fair
Value
   Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant Other
Observable Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
   (In thousands) 
December 31, 2018                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $3,618   $-   $3,618   $- 
Collateralized mortgage obligations of government sponsored entities - residential   187    -    187    - 
State and political subdivisions                    
Taxable   557    -    557    - 
Nontaxable   1,435    -    1,435    - 
                     
   $5,797   $-   $5,797   $- 
                     
June 30, 2018                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $4,192   $-   $4,192   $- 
Collateralized mortgage obligations of government sponsored entities - residential   214    -    214    - 
State and political subdivisions                    
Taxable   813    -    813    - 
Nontaxable   1,432    -    1,432    - 
                     
   $6,651   $-   $6,651   $- 

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There were no assets classified within Level 3 of the fair value hierarchy measured on a recurring basis. There were no transfers between Level 1 and Level 2 during the six-month periods ended December 31, 2018 and 2017.

 

 26 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Available-for-sale Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flow. Such securities are classified within Level 2 of the valuation hierarchy.

 

Nonrecurring Measurements

 

The following table presents fair value measurements of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which fair value measurements fall at December 31, 2018 and June 30, 2018:

 

       Fair Value Measurement Using 
   Fair
Value
   Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant Other
Observable Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
   (In thousands) 
December 31, 2018                    
Impaired loans                    
Real estate                    
1-4 family residential  $61   $-   $-   $61 
Forclosed assets                    
Residential real estate  $88   $-   $-   $88 
                     
June 30, 2018                    
Impaired loans                    
Real estate                    
1-4 family residential  $62   $-   $-   $62 
Foreclosed assets                    
Residential real estate  $9   $-   $-   $9 

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

 

 27 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Impaired Loans (Collateral Dependent)

 

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the borrower and borrower’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Foreclosed Assets

 

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Appraisals for collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

 

 28 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Unobservable (Level 3) Inputs

 

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements:

 

   Fair Value   Valuation Technique  Unobservable Inputs  Range
(Weighted
Average)
 
    (In thousands)            
December 31, 2018                
Impaired loans (collateral dependent) - residential real estate  $61   Sales comparison approach  Adjustment for differences between the comparable real estate sales   13%
Foreclosed assets - residential real estate  $88   Sales comparison approach  Adjustment for differences between the comparable real estate sales   14%
                 
June 30, 2018                
Impaired loans (collateral dependent) - residential real estate  $62   Sales comparison approach  Adjustment for differences between the comparable real estate sales   13%
Foreclosed assets - residential real estate  $9   Sales comparison approach  Adjustment for differences between the comparable real estate sales   52%

 

 29 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Fair Value of Financial Instruments

 

The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2018 and June 30, 2018.

 

       Fair Value Measurement Using     
   Carrying
Amount
   Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
   Significant Other
Observable Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Fair
Value
 
   (In thousands) 
December 31, 2018                         
Financial assets                         
Cash and cash equivalents  $8,269   $8,269   $-   $-   $8,269 
Interest-earning time deposits   3,845    3,845    -    -    3,845 
Investments securities available-for-sale   5,874    -    5,797    -    5,797 
Other investment securities   940    -    -    940    940 
Loans, net   35,696    -    -    36,598    36,598 
Accrued interest receivable   134    134    -    -    134 
Bank owned life insurance   781    781    -    -    781 
Financial liabilities                         
Deposits   45,654    38,358    7,111    -    45,469 
Federal Home Loan Bank advances   2,500    -    2,503    -    2,503 
Payments by borrowers for taxes and insurance   251    251    -    -    251 
                          
June 30, 2018                         
Financial assets                         
Cash and cash equivalents  $4,304   $4,304   $-   $-   $4,304 
Interest-earning time deposits   4,595    4,595    -    -    4,595 
Other investment securities   940    -    -    940    940 
Loans, net   31,635    -    -    32,195    32,195 
Accrued interest receivable   135    -    135    -    135 
Bank owned life insurance   769    -    769    -    769 
Financial liabilities                         
Deposits   40,399    32,473    7,682    -    40,155 
Federal Home Loan Bank advances   1,000    -    1,008    -    1,008 
Payments by borrowers for taxes and insurance   92    -    92    -    92 

 

 30 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.

 

Cash and Cash Equivalents and Interest-earning Time Deposits

 

The carrying amount of cash, short-term instruments and time deposits approximate fair value and are classified as Level 1.

 

Investment Securities Available-for-Sale

 

The carrying amount of investment securities available-for-sale and time deposits approximate fair value and are classified as Level 2.

 

Other Investment Securities

 

Due to restrictions placed on their transferability, the FHLB and COCC stock are carried at cost, which approximates fair value based on redemption provisions resulting in a Level 3 classification.

 

Loans

 

Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values, resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value of collateral as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

 

Accrued Interest Receivable and Payable

 

The carrying amounts of accrued interest approximate fair value, resulting in a Level 1 classification.

 

Bank Owned Life Insurance

 

The fair value of bank owned life insurance approximates the cash surrender value of the policies, resulting in a level 1 classification.

 

Deposits

 

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.

 

 31 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Federal Home Loan Bank Advances

 

The fair values of FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification.

 

Payments by Borrowers for Taxes and Insurance

 

The fair value of escrow accounts is estimated to approximate the carrying amount resulting in a Level 1 classification.

 

Off-Balance Sheet Instruments

 

Fair values of off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

 

 32 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 6: Accumulated Other Comprehensive Income (Loss)

 

Changes in accumulated other comprehensive loss by component, net of tax, for the three and six months ended December 31, 2018 and 2017 are as follows:

 

         
   Three Months Ended December 31, 
   2018   2017 
   (In thousands) 
Balance, October 1  $(114)  $18 
           
Other comprehensive income (loss)   53    (43)
Balance, December 31  $(61)  $(25)

 

   Six Months Ended December 31, 
   2018   2017 
   (In thousands) 
Balance, July 1  $(94)  $25 
           
Other comprehensive income (loss)   33    (50)
Balance, December 31  $(61)  $(25)

 

There were no material items reclassified from accumulated other comprehensive income (loss) to the condensed consolidated statement of operations for the three and six months ended December 31, 2018 and 2017.

 

Note 7: Recent Accounting Pronouncements

 

FASB ASU 2014-09, Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance on revenue recognition from contracts with customers. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most contract revenue recognition guidance, including industry-specific guidance. The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended guidance is effective, as to the Company, for annual reporting periods beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019, and should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. Early adoption is prohibited. ASU 2014-09 may require the Company to change how it recognizes certain components of noninterest income, but the Company does not believe it will have a material impact on the Company’s financial statements or disclosures.

 

 33 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

 

The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption of the amendments in this update is not permitted, except that early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance are permitted as of the beginning of the fiscal year of adoption for the following amendment: An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company does not believe it will have a material impact on the Company’s financial statements or disclosures.

 

FASB ASU 2016-02, Leases. In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

 

  A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

 

  A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

 

 34 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.

 

The amendments in ASU 2016-02 are effective, as to the Company, for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently evaluating the impact of adopting this guidance on the Company’s financial statements.

 

FASB ASU 2016-13, Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU 2016-13. The amendments in this ASU replace the incurred loss model for recognition of credit losses with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. The amendments are effective, as to the Company, for annual reporting periods beginning after December 15, 2020 and for interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations.

 

FASB ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

 

 35 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs. In March 2017, the FASB issued ASU 2017-08. The amendment shortens the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. This ASU will become effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. Management has not determined the expected effect of the adoption of ASU 2017-08 on the Company’s financial statements.

 

FASB ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value. In August, 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which changes the fair value measurement disclosure requirements of ASC 820. The ASU amends ASC 820 to add, remove, and modify certain fair value measurement disclosure requirements, primarily related to Level 3 fair value measurements. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. Management is evaluating the new ASU, but does not expect the ASU to have a material effect on the Company's financial position or results of operations.

 

Note 8: Loss Per Share

 

Basic loss per share (“LPS”) is calculated by dividing net loss applicable to common stock by the weighted-average number of shares of common stock outstanding during the period. Unallocated common shares held by the Company’s Employee Stock Ownership Plan (the “ESOP”) are shown as a reduction in stockholders’ equity and are excluded from weighted-average common shares outstanding for basic and diluted LPS calculations until they are committed to be released.

 

Loss per share for the three months ended December 31, 2018 was $(.06), calculated using 433,957 average shares outstanding less 31,054 unallocated shares held by the ESOP. Loss per share for the six months ended December 31, 2018 was $(0.17), calculated using 437,623 average shares outstanding, less 31,054 unallocated shares held by the ESOP. The Company had no dilutive or potentially dilutive securities at December 31, 2018. Loss per share for the three and six months ended December 31, 2017 was $(0.28) and $(0.47) respectively, calculated using 441,290 shares issued, less 32,688 unallocated shares held by the ESOP. The Company had no dilutive or potentially dilutive securities at December 31, 2017.

 

 36 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 9: Employee Stock Ownership Plan (ESOP)

 

As part of the Company’s stock conversion, shares were purchased by the ESOP with a loan from Community Savings Bancorp, Inc. All employees of the Bank meeting certain tenure requirements are entitled to participate in the ESOP. Compensation expense related to the ESOP was $6,000 and $12,000 for the three and six months ended December 31, 2018. Compensation expense related to the ESOP was $6,000 and $23,000 for the three and six months ended December 31, 2017.

 

The stock price at the formation date was $10.00. The aggregate fair value of the 31,054 unallocated shares was $408,000 based on the $13.15 closing price of our common stock on December 31, 2018.

 

 37 

 

 

Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s discussion and analysis of the financial condition at December 31, 2018 and results of operations for the three and six months ended December 31, 2018 and 2017, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

 

Forward-Looking Statements

 

This document contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and similar expressions. These forward-looking statements include: statements of goals, intentions and expectations, statements regarding prospects and business strategy, statements regarding asset quality and market risk, and estimates of future costs, benefits and results.

 

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following: (1) general economic conditions, (2) competitive pressure among financial services companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand, (6) changes in legislation or regulation, (7) changes in accounting principles, policies and guidelines and (8) other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

 

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. We have no obligation to update or revise any forward-looking statements to reflect any changed assumptions, any unanticipated events or any changes in the future.

 

Comparison of Financial Condition at December 31, 2018 and June 30, 2018

 

Total Assets. Total assets increased $6.5 million, or 13.0%, to $56.5 million at December 31, 2018 from $50.0 million at June 30, 2018. The increase was due primarily to an increase in cash and cash equivalents of $4.0 million and an increase in net loans of $4.1 million, which were partially offset by an $853,000 decrease in investment securities available-for-sale and a decrease in interest-earning time deposits in other institutions of $749,000.

 

Cash and Cash Equivalents. Cash and cash equivalents increased $4.0 million, or 93.0%, to $8.3 million at December 31, 2018 from $4.3 million at June 30, 2018. The increase in cash and cash equivalents was due primarily to a $5.3 million increase in deposits, an increase of $1.5 million in FHLB advances, and an $853,000 decrease in investment securities available for sale, partially offset by a $4.1 million increase in net loans.

 

Investment Securities available-for-sale. Investment securities available-for-sale decreased $853,000, or 17.3%, to $5.8 million at December 31, 2018 from $6.7 million at June 30, 2018. The decrease in investment securities available-for-sale was primarily due to principal repayments on mortgage-backed securities totaling $608,000 and the maturity of a municipal bond in the amount of $250,000.

 

 38 

 

 

Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Net Loans. Net loans increased $4.1 million, or 13.0%, to $35.7 million at December 31, 2018 compared to June 30, 2018. The increase in net loans was due primarily to an increase of $4.0 million, or 137.9%, in consumer and other loans to $6.8 million at December 31, 2018 from $2.9 million at June 30, 2018, and an increase of $101,000, or 0.4%, in one- to four-family residential mortgages to $25.2 million from $25.1 million. Loans originated during the six months ended December 31, 2018 totaled $6.3 million, of which $4.9 million were consumer and other loans.

 

Deposits. Deposits increased $5.3 million, or 13.1%, to $45.7 million at December 31, 2018 from $40.4 million at June 30, 2018. The increase resulted primarily from an increase in savings and money market accounts of $6.7 million, or 30.4%, partially offset by a decrease in demand deposits of $794,000, or 7.6%, and a decrease in time deposits of $628,000, or 7.9%.

 

Bank Owned Life Insurance. Cash surrender value of Bank Owned Life Insurance increased $12,000, or 1.6%, to $781,000 at December 31, 2018 from $769,000 at June 30, 2018.

 

FHLB Advances. FHLB advances increased $1.5 million, or 150.0%, to $2.5 million at December 31, 2018 from $1.0 million at June 30, 2018, as we utilized certain FHLB advances to partially fund the increase in consumer and other loans.

 

Shareholders’ Equity. Shareholders’ equity decreased $350,000, or 4.2%, to $7.9 million at December 31, 2018 from $8.3 million at June 30, 2018. The decrease was due primarily to a net loss of $70,000 during the six months ended December 31, 2018 and a $314,000 stock buyback, partially offset by an increase in accumulated other comprehensive income of $33,000 during the period.

 

Comparison of Operating Results for the Three-Month Periods Ended December 31, 2018 and 2017

 

General. For the three months ended December 31, 2018, we had a net loss of $24,000 compared to a net loss of $113,000 for the three months ended December 31, 2017, an increase in income of $89,000. The increase in income resulted primarily from an increase in net interest income of $32,000, an increase in noninterest income of $38,000, and decrease of $24,000 in federal income expense, which were partially offset by an increase of $4,000 in non-interest expense.

 

Average Balance Sheets. The following table sets forth average balance sheets, average yields and costs, and certain other information for the three-month periods ended December 31, 2018 and 2017. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are accreted to interest income.

 

 39 

 

 

Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

   For the Three Months Ended December 31, 
   2018   2017 
                         
   Average
Outstanding
Balance
   Interest   Yield/Rate   Average
Outstanding
Balance
   Interest   Yield/Rate 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans  $35,027   $406    4.64%  $32,756   $371    4.53%
Investment securities   6,050    34    2.28%   7,976    43    2.16%
Other interest-earning assets (1)   6,713    46    2.72%   7,671    39    2.03%
Total interest-earning assets   47,790    486    4.06%   48,403    453    3.74%
Noninterest-earning assets   3,170              2,140           
Allowance for loan losses   (253)             (253)          
Total assets  $50,707             $50,290           
                               
Interest-bearing liabilities:                              
Demand accounts  $2,403    1    0.17%  $2,209    1    0.18%
Savings and money market accounts   23,128    16    0.28%   22,444    16    0.29%
Certificates of deposit   7,224    14    0.78%   8,135    15    0.74%
Total deposits   32,755    31    0.38%   32,788    32    0.39%
FHLB advances   1,750    13    2.97%   1,073    11    4.10%
Total interest-bearing liabilities   34,505    44    0.51%   33,861    43    0.51%
Noninterest-bearing liabilities   8,289              7,176           
Total liabilities   42,794              41,037           
Equity   7,913              9,253           
Total liabilities and equity  $50,707             $50,290           
                               
Net interest income       $442             $410      
Net interest rate spread (2)             3.55%             3.24%
Net interest-earning assets (3)  $13,285             $14,542           
Net interest margin (4)             3.70%             3.39%
Average interest-earning assets to interest-bearing liabilities   138.50%             142.95%          

 

 

(1) Consists of stock in the FHLB and interest-bearing deposits in other banks.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

 

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Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Interest Income. Interest income increased $33,000, or 7.3%, to $486,000 for the three months ended December 31, 2018 from $453,000 for the three months ended December 31, 2017. The increase resulted primarily from a $35,000 increase in loan interest income. The average balance of loans receivable increased $2.2 million, or 6.7%, to $35.0 million during the three months ended December 31, 2018 from $32.8 million during the three months ended December 31, 2017, while the average yield on loans increased 11 basis points to 4.64% during the three months ended December 31, 2018 from 4.53% during the year earlier period, reflecting higher market interest rates. The average balance of investment securities decreased $1.9 million, or 23.8%, to $6.1 million during the three months ended December 31, 2018 from $8.0 million during the three months ended December 31, 2017, which was partially offset by an increase in the average yield on investment securities of 12 basis points to 2.28% for the 2018 period from 2.16% for the 2017 period.

 

Interest Expense. Interest expense increased $1,000, or 2.3%, to $44,000 for the three months ended December 31, 2018 from $43,000 for the three months ended December 31, 2017. Interest expense on deposits decreased $1,000, or 3.1%, to $31,000 for the three months ended December 31, 2018 from $32,000 for the three months ended December 31, 2017. The average cost of deposits decreased one basis point to 0.38% from 0.39% for the three months ended December 31, 2018 and 2017, respectively. There was a decrease in average total deposits of $33,000, or 0.1%, to $32.8 million for the three months ended December 31, 2018, compared to $32.8 million for the three months ended December 31, 2017. Interest expense on borrowings increased $2,000, or 18.2%, to $13,000 for the three months ended December 31, 2018 from $11,000 for the three months ended December 31, 2017. The average balance of FHLB advances increased $677,000 to $1.8 million for the three months ended December 31, 2018 from $1.1 million for the three months ended December 31, 2017, while the average cost of these advances decreased 113 basis points to 2.97% from 4.10% period-to-period.

 

Net Interest Income. Net interest income increased $32,000, or 7.8%, to $442,000 for the three months ended December 31, 2018 from $410,000 for the three months ended December 31, 2017. Our net interest rate spread increased to 3.55% for the three months ended December 31, 2018 from 3.24% for the three months ended December 31, 2017, and our net interest margin increased to 3.70% for the three months ended December 31, 2018 from 3.39% for the comparable three-month period in 2017.

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies – Allowance for Loan Losses,” we did not record a provision for loan losses for either of the three months ended December 31, 2018 or 2017. The allowance for loan losses was $253,000, or 0.70%, of total loans at December 31, 2018, compared to $253,000, or 0.77%, of total loans at December 31, 2017. Total nonperforming loans were $670,000 at December 31, 2018, compared to $422,000 at December 31, 2017. Classified (substandard, doubtful and loss) loans were $862,000 at December 31, 2018, compared to $883,000 at December 31, 2017, and total loans past due greater than 30 days were $643,000 and $303,000 at December 31, 2018 and 2017, respectively. The Bank had no net charge-offs during either of the three months ended December 31, 2018 and 2017. As a percentage of nonperforming loans, the allowance for loan losses was 37.8% at December 31, 2018 compared to 60.0% at December 31, 2017.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, 2018 and 2017. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations.

 

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Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Noninterest Income. Noninterest income increased $38,000, or 53.5%, to $109,000 for the three months ended December 31, 2018 from $71,000 for the three months ended December 31, 2017. The increase was due primarily to an increase of $21,000 in service charges and fees, and a gain on sale of foreclosed assets of $11,000, in the period ended December 31, 2018.

 

Noninterest Expense. Noninterest expense increased $4,000, or 0.7%, to $580,000 for the three months ended December 31, 2018 compared to $576,000 for the three months ended December 31, 2017. Other expense increased $22,000, or 53.7%, due to a $22,000 increase in loan expense directly related to our indirect auto lending program. Salaries and benefits increased $13,000, or 6.0%, and occupancy expense increased $9,000, or 39.1%, primarily due to the hiring of an office cleaning service, and increased utility cost. Professional services decreased $52,000, or 44.4%, primarily because accounting cost had been under accrued for during the 2017 period, resulting in a one-time charge of $43,000 for the 2017 period.

 

Federal Income Taxes. We recognized a federal income tax benefit of $6,000 for the three months ended December 31, 2018, compared to tax expense of $18,000 during the three months ended December 31, 2017, a decrease in expense of $24,000.

 

Comparison of Operating Results for the Six-Month Periods Ended December 31, 2017 and 2018

 

General. For the six months ended December 31, 2018, we had a net loss of $70,000 compared to a net loss of $192,000 for the six months ended December 31, 2017, an increase in income of $122,000. The increased income resulted primarily from an increase in net interest income of $76,000 and an increase in noninterest income of $63,000, which were partially offset by an increase of $19,000 in noninterest expense.

 

Average Balance Sheets. The following table sets forth average balance sheets, average yields and costs, and certain other information for the six-month periods ended December 31, 2018 and 2017. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are accreted to interest income.

 

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Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

   For the Six Months Ended December 31, 
   2018   2017 
                         
   Average
Outstanding
Balance
   Interest   Yield/Rate   Average
Outstanding
Balance
   Interest   Yield/Rate 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans  $33,793   $783    4.63%  $32,516   $717    4.41%
Investment securities   6,271    69    2.21%   8,271    84    2.04%
Other interest-earning assets (1)   7,241    97    2.66%   8,169    78    1.91%
Total interest-earning assets   47,305    949    4.01%   48,956    879    3.59%
Noninterest-earning assets   3,296              2,603           
Allowance for loan losses   (253)             (253)          
Total assets  $50,348             $51,306           
                               
Interest-bearing liabilities:                              
Demand accounts  $2,346    2    0.17%  $2,219    2    0.18%
Savings and money market accounts   22,719    31    0.27%   22,651    31    0.27%
Certificates of deposit   7,427    28    0.75%   8,169    31    0.76%
Total deposits   32,492    61    0.38%   33,039    64    0.39%
FHLB advances   1,375    23    3.38%   1,607    26    3.24%
Total interest-bearing liabilities   33,867    84    0.50%   34,646    90    0.52%
Noninterest-bearing liabilities   8,582              7,344           
Total liabilities   42,449              41,990           
Equity   7,899              9,316           
Total liabilities and equity  $50,348             $51,306           
                               
Net interest income       $865             $789      
Net interest rate spread (2)             3.51%             3.07%
Net interest-earning assets (3)  $13,438             $14,310           
Net interest margin (4)             3.66%             3.22%
Average interest-earning assets to interest-bearing liabilities   139.68%             141.30%          

 

 

(1) Consists of stock in the FHLB and interest-bearing deposits in other banks.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

 

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Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Interest Income. Interest income increased $70,000, or 8.0%, to $949,000 for the six months ended December 31, 2018 from $879,000 for the six months ended December 31, 2017. The increase resulted primarily from a $66,000 increase in interest on loans receivable and a $19,000 increase in other interest earning assets, offset by a $15,000 decrease in interest on investment securities. The increase in interest income on loans was due to an increase in the average balance of loans receivable of $1.3 million, or 4.0%, to $33.8 million during the six months ended December 31, 2018 from $32.5 million during the six months ended December 31, 2017, and an increase in the average yield on loans, which increased 22 basis points to 4.63% during the six months ended December 31, 2018 from 4.41% during the year earlier period, reflecting higher market interest rates. The increase in interest on other interest earning assets was due to a 75 basis point increase in average yield to 2.66% for the six months ended December 31, 2018, partially offset by a $928,000, or 11.3%, decrease in the average balance to $7.2 million. The average balance of investment securities decreased $2.0 million, or 24.4%, to $6.3 million during the six months ended December 31, 2018 from $8.3 million during the six months ended December 31, 2017, and the average yield on investment securities increased 17 basis points to 2.21% for the 2018 period from 2.04% for the 2017 period.

 

Interest Expense. Interest expense decreased $6,000, or 6.7%, to $84,000 for the six months ended December 31, 2018 from $90,000 for the six months ended December 31, 2017. Interest expense on deposits decreased $3,000, or 4.7%, to $61,000 for the six months ended December 31, 2018 from $64,000 for the six months ended December 31, 2017. The decrease was primarily due to a $547,000, or 1.7%, decrease in the average balance of deposits during the 2018 period and a one basis point decrease in the average yield on deposits to 0.38% for the six months ended December 31, 2018, from 0.39% for the six months ended December 31, 2017. Interest expense on borrowings decreased $3,000 to $23,000 for the six months ended December 31, 2018 from $26,000 for the six months ended December 31, 2017. The average balance of FHLB advances decreased $232,000 to $1.4 million for the six months ended December 31, 2018 from $1.6 million for the six months ended December 31, 2017, while the average cost of these advances increased 14 basis points to 3.38% from 3.24% period-to-period.

 

Net Interest Income. Net interest income increased $76,000, or 9.6%, to $865,000 for the six months ended December 31, 2018 from $789,000 for the six months ended December 31, 2017. Our net interest rate spread increased to 3.51% for the six months ended December 31, 2018 from 3.07% for the six months ended December 31, 2017, and our net interest margin increased to 3.66% for the six months ended December 31, 2018 from 3.22% for the comparable six-month period in 2017.

 

Provision for Loan Losses. The Company did not record a provision for loan losses for either of the six months ended December 31, 2018 or 2017. The allowance for loan losses was $253,000, or 0.70% of total loans, at December 31, 2018, compared to $253,000, or 0.77% of total loans, at December 31, 2017. Total nonperforming loans were $670,000 at December 31, 2018, compared to $422,000 at December 31, 2017. Classified (substandard, doubtful and loss) loans were $862,000 at December 31, 2018, compared to $883,000 at December 31, 2017, and total loans past due greater than 30 days were $643,000 and $303,000 at December 31, 2018 and 2017, respectively. The Bank had no net charge-offs during the six months ended December 31, 2018 or 2017. As a percentage of nonperforming loans, the allowance for loan losses was 37.8% at December 31, 2018 compared to 60.0% at December 31, 2017.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, 2018. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations.

 

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Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Noninterest Income. Noninterest income increased $63,000, or 46.0%, to $200,000 for the six months ended December 31, 2018 from $137,000 for the six months ended December 31, 2017. Service charges and fees increased $37,000, or 28.5%, for the six months ended December 31, 2018, compared to the 2017 period. Income from the increase in cash surrender value of bank owned life insurance increased $12,000 and other operating income increased $10,000 in the six months ended December 31, 2018, compared to the 2017 period. Also, there was a nonrecurring gain on the sale of foreclosed assets of $11,000 realized during the 2018 period.

 

Noninterest Expense. Noninterest expense increased $19,000, or 1.7%, to $1.2 million for the six months ended December 31, 2018 compared to $1.1 million for the six months ended December 31, 2017. Other expenses increased by $35,000, or 43.8%, primarily due to increased loan expense associated with our new indirect auto lending program. Salaries and benefits remained steady period to period. Financial institution taxes increased $11,000, or 42.3%, primarily due to the increase in capital as a result of the initial stock offering. Professional services decreased $48,000, 24.4%, to $149,000 for the six months ended December 31, 2018 from $197,000 for the six months ended December 31, 2017, primarily because accounting cost had been under accrued for during the 2017 period, resulting in a one-time charge of $43,000 for the 2017 period.

 

Federal Income Taxes. We recognized a federal income tax benefit of $15,000 for the six months ended December 31, 2018, compared to a $13,000 federal income tax benefit during the six months ended December 31, 2017.

 

Liquidity and Capital Resources

 

Our primary sources of funds are deposits, principal and interest payments on loans, and advances from the FHLB-Cincinnati. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-earning demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

 

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was $(174,000) and $35,000 for the six months ended December 31, 2018 and 2017, respectively. Net cash used in investing activities was $(2.5 million) and $(219,000) for the six months ended December 31, 2018 and 2017, respectively. The change in cash flows in investing activities resulted primarily from the net increase in loans of $4.1 million, partially offset by maturities of time deposits in other institutions. Cash provided by (used in) by financing activities was $6.6 million and $(5.4 million) for the six months ended December 31, 2018 and 2017, respectively. The change is largely due to the fact that we had a net increase in deposits of $5.3 million, period-to-period, and we borrowed $1.5 million in FHLB advances in the six months ending December 31, 2018, compared to the pay down of $3.5 million in FHLB advances in the same period 2017.

 

Community Savings is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2018, Community Savings exceeded all regulatory capital requirements and was categorized as “well-capitalized” under regulatory guidelines.

 

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Community Savings Bancorp, Inc.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

 

Commitments. At December 31, 2018, we had $152,000 in outstanding commitments to originate loans, we had commitments under undisbursed construction loans of $299,000 and commitments under home equity lines of credit of $1.6 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments.

 

Certificates of deposit that are scheduled to mature in less than one year from December 31, 2018 totaled $3.7 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB-Cincinnati advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

 

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for equipment, and agreements with respect to borrowed funds and deposit liabilities.

 

 46 

 

 

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

ITEM 4.Controls and Procedures

 

  (a) Evaluation of disclosure controls and procedures.

 

Under the supervision and with the participation of the Registrant’s management, including our Chief Executive Officer and Principal Financial Officer, the Registrant evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures were effective.

 

  (b) Changes in internal controls.

 

There has been no change made in the Registrant’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

 47 

 

Community Savings Bancorp, Inc.

Part II

Other Information

 

ITEM 1.Legal Proceedings

 

We are not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. At December 31, 2017, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

 

ITEM 1A.Risk Factors

 

Not applicable.

 

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

 

(a)There were no sales of unregistered securities during the period covered by this report.

 

(b)Not applicable.

 

(c)On November 15, 2018, the Board of Directors authorized a stock repurchase program pursuant to which the Company may repurchase 45,000 shares, or approximately 10.2%, of its outstanding common stock as of September 30, 2018.

 

The following table presents for the periods indicated a summary of the purchases made by or on behalf of the company of shares of its common stock.

 

           Total Number of   Total Number of 
   Total       Shares Purchased as   Shares Purchased as 
   Number of   Average  Price   Part of Publicly   Part of Publicly 
   Shares   Paid   Announced Plans or   Announced Plans or 
Period  Purchased   per Share   Programs   Programs 
                 
October 1 through October 31, 2018   -   $-    -    - 
                     
November 1 through November 30, 2018   22,000   $14.28    22,000    23,000 
                     
December 1 through December 31, 2018   -   $-    -    - 

 

ITEM 3.Defaults Upon Senior Securities

 

None.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable.

 

ITEM 5.Other Information

 

None.

 

 48 

 

  

ITEM 6.Exhibits

 

Exhibit    
Number   Description
     
3.1   Articles of Incorporation of Community Savings Bancorp, Inc. (incorporated by reference to Registrant’s Form S-1 filed on September 9, 2016, Exhibit 3.1 (File No. 333-213561))
     
3.2   Bylaws of Community Savings Bancorp, Inc. (incorporated by reference to Registrant’s Form S-1 filed on September 9, 2016, Exhibit 3.2 (File No. 333-213561))
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32   Certification of Chief Executive Officer and Principal Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

  

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Community Savings Bancorp, Inc.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

        Community Savings Bancorp, Inc. 
         
Date: February 14, 2019   By: /s/Alvin B. Parmiter
        Alvin B. Parmiter
        President and Chief Executive Officer
         
         
         
Date: February 14, 2019   By: /s/Sherman E. Crum
        Sherman E. Crum
        Controller and Principal Financial Officer
         

 

 50