Company Quick10K Filing
Community Savings Bancorp
Price14.00 EPS-0
Shares0 P/E-31
MCap6 P/FCF-1
Net Debt-3 EBIT-0
TEV3 TEV/EBIT-103
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-14
10-K 2019-06-30 Filed 2019-09-27
10-Q 2019-03-31 Filed 2019-05-15
10-Q 2018-12-31 Filed 2019-02-14
10-Q 2018-09-30 Filed 2018-11-14
10-K 2018-06-30 Filed 2018-09-28
10-Q 2018-03-31 Filed 2018-05-14
10-Q 2017-12-31 Filed 2018-02-14
10-Q 2017-09-30 Filed 2017-11-14
10-K 2017-06-30 Filed 2017-09-28
10-Q 2017-03-31 Filed 2017-05-15
10-Q 2016-12-31 Filed 2017-02-14
10-Q 2016-09-30 Filed 2016-12-29
8-K 2020-01-21
8-K 2019-11-18
8-K 2019-08-23
8-K 2019-08-01
8-K 2018-11-19
8-K 2018-11-15
8-K 2018-10-15
8-K 2018-02-19

CCSB 10Q Quarterly Report

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: Revenue Recognition
Note 8: Recent Accounting Pronouncements
Note 9:Loss per Share
Note 10:Employee Stock Ownership Plan (Esop)
Note 11:Equity Incentive Plan
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 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6.Exhibits
EX-31.1 tm1919482d1_ex31-1.htm
EX-31.2 tm1919482d1_ex31-2.htm
EX-32 tm1919482d1_ex32.htm

Community Savings Bancorp Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
604836241202015201620182020
Assets, Equity
0.10.10.0-0.0-0.1-0.12016201720182020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02015201620182020
Ops, Inv, Fin

10-Q 1 tm1919482d1_10q.htm FORM 10-Q

 

 

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2019  

 

OR

 

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

 

 For the transition period from ____________ to _______________

 

Commission File 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)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

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 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 November 14, 2019, the latest practicable date, 408,739 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 September 30, 2019 and June 30, 2019 3
   
Consolidated Statements of Operations for the Three Months Ended September 30, 2019 and 2018 4
   
Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2019 and 2018 5
   
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended September 30, 2019 and 2018 6
   
Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2019 and 2018 7
   
Notes to Consolidated Financial Statements 8
   
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 43
 
Item 3 Quantitative and Qualitative Disclosures About Market Risk 49
   
Item 4 Controls and Procedures 49
   
PART II – OTHER INFORMATION
   
Item 1 Legal Proceedings 50
   
Item 1A Risk Factors 50
   
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 50
   
Item 3 Defaults Upon Senior Securities 50
   
Item 4 Mine Safety Disclosures 50
   
Item 5 Other Information 51
   
Item 6 Exhibits 51
   
SIGNATURES 52

 

 2 

 

  

Part I – Financial Information

Item 1. Interim Financial Statements (Unaudited)

 Community Savings Bancorp, Inc.

Consolidated Balance Sheets

 (In thousands, except share data)

 

   September 30,   June 30, 
  2019   2019 
Assets        
Cash and due from banks  $1,030   $1,768 
Interest-earning demand deposits in other financial institutions   1,692    1,075 
           
Cash and cash equivalents   2,722    2,843 
           
Interest-earning time deposits in other financial institutions   3,350    3,595 
Investment securities available-for-sale, at fair value   4,847    5,116 
Restricted Stock   940    940 
Loans held for sale   6,189    7,127 
Loans   31,421    30,912 
Less: allowance for loan losses   (251)   (254)
Loans, net   31,170    30,658 
Premises and equipment, net   381    376 
Foreclosed assets, net   131    131 
Accrued interest receivable   101    125 
Bank owned life insurance   799    793 
Other assets   559    518 
           
Total assets  $51,189   $52,222 
           
Liabilities and Shareholders' Equity          
           
Liabilities          
Deposits          
Demand  $10,614   $9,934 
Savings and money market   21,950    23,641 
Time   8,105    8,176 
           
Total deposits   40,669    41,751 
           
Federal Home Loan Bank advances   2,500    2,500 
Payments by borrowers for taxes and insurance   177    109 
Other liabilities   213    173 
           
Total liabilities   43,559    44,533 
           
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, 408,379 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively   4    4 
Additional paid in capital   2,870    2,859 
Unearned employee stock ownership plan (ESOP) shares   (295)   (295)
Retained earnings   5,022    5,094 
Accumulated other comprehensive income   29    27 
           
Total shareholders' equity   7,630    7,689 
           
Total liabilities and shareholders' equity  $51,189   $52,222 

 

See Notes to Consolidated Financial Statements (unaudited)

 

 3 

 

 

Community Savings Bancorp, Inc.

Consolidated Statements of Operations

  (In thousands, except share data)

 

   Three Months Ended September 30, 
   2019   2018 
Interest Income          
Loans, including fees  $440   $377 
Taxable securities   21    25 
Tax exempt securities   10    10 
Interest-earning deposits   37    51 
           
Total interest income   508    463 
           
Interest Expense          
Deposits   40    30 
Federal Home Loan Bank advances   18    10 
           
Total interest expense   58    40 
           
Net Interest Income   450    423 
           
Provision for Loan Losses   5    - 
           
Net Interest Income After Provision for Loan Losses   445    423 
           
Noninterest Income          
Service charges and fees   75    81 
Gain on loans sold   13    - 
Increase in cash surrender value-bank owned life insurance   6    6 
Other operating   2    4 
           
Total noninterest income   96    91 
           
Noninterest Expense          
Salaries, employee benefits and directors fees   245    212 
Occupancy and equipment   28    34 
Data processing   89    81 
Correspondent bank service charges   67    55 
Franchise taxes   16    18 
FDIC insurance premiums   (9)   5 
Professional services   81    84 
Advertising   8    7 
Office supplies   23    22 
Other   86    52 
           
Total noninterest expense   634    570 
           
Loss Before Federal Income Tax Benefit   (93)   (55)
           
Federal Income Tax Benefit   (21)   (9)
           
Net loss  $(72)  $(46)
           
Loss per share - basic and diluted  $(0.19)  $(0.11)
           
Weighted-average shares outstanding - basic and diluted   370,735    410,236 

  

See Notes to Consolidated Financial Statements (unaudited)

 

 4 

 

  

Community Savings Bancorp, Inc.

Consolidated Statements of Comprehensive Loss

 (In thousands)

 

   Three Months Ended September 30, 
   2019   2018 
Net loss  $(72)  $(46)
           
Other comprehensive income (loss):          
Unrealized holding gains (losses) on securities available for sale  $3    (25)
           
Tax effect   (1)   5 
           
Total other comprehensive income (loss)   2    (20)
           
Comprehensive loss  $(70)  $(66)

 

See Notes to Consolidated Financial Statements (unaudited)

 

 5 

 

 

Community Savings Bancorp, Inc.

 Consolidated Statements of Changes in Shareholders’ Equity

 (In thousands, except share data)

  

Three Months Ended September 30, 2019

 

                       Accumulated     
           Additional   Unearned       Other     
   Preferred   Common   Paid in   ESOP   Retained   Comprehensive     
   Stock   Stock   Capital   Shares   Earnings   Income (Loss)   Total 
Balance at July 1, 2019  $          -   $           4   $2,859   $(295)  $5,094   $         27   $7,689 
                                    
Net loss   -    -    -    -    (72)   -    (72)
                                    
Equity incentive shares vested   -    -    11    -    -    -    11 
                                    
Other comprehensive income   -    -    -    -    -    2    2 
                                    
Balance at September 30, 2019  $-   $4   $2,870   $(295)  $5,022   $29   $7,630 

 

 

Three Months Ended September 30, 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   -    -    -    -    (46)   -    (46)
                                    
Other comprehensive loss   -    -    -    -    -    (20)   (20)
                                    
Balance at September 30, 2018  $-   $4   $3,264   $(311)  $5,378   $(114)  $8,221 

 

See Notes to Consolidated Financial Statements (unaudited)

 

 6 

 

  

Community Savings Bancorp, Inc.

Consolidated Statements of Cash Flows

 (In thousands)

  

   Three Months Ended September 30, 
   2019   2018 
Cash Flows from Operating Activities          
Net loss  $(72)  $(46)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation and amortization   15    17 
Deferred income tax benefit   (21)   (35)
Amortization of premiums and discounts on securities, net   11    21 
Provision for loan loss   5    - 
Stock awards   11    - 
Bank owned life insurance-cash surrender value   (6)   (6)
Originations of loans held for sale   (787)   (2,655)
Proceeds from sales and principal collected on loans held for sale   1,750    62 
Gain on loans sold   (13)   - 
Net changes in:          
Accrued interest receivable   24    (6)
Other assets   (38)   60 
Other liabilities   40    43 
           
Net cash provided by (used in) operating activities   919    (2,545)
           
Cash Flows from Investing Activities          
Maturities in interest-earning time deposits in other financial institutions   245    - 
Principal repayments of available for sale mortgage-backed securities   261    399 
Net loan (originations) repayment   (512)   365 
Purchase of premises and equipment   (20)   (9)
           
Net cash (used in) provided by investing activities   (26)   755 
           
Cash Flows from Financing Activities          
Net change in deposits   (1,082)   (278)
Payments by borrowers for taxes and insurance   68    63 
           
Net cash used in financing activities   (1,014)   (215)
           
Net Change in Cash and Cash Equivalents   (121)   (2,005)
           
Beginning Cash and Cash Equivalents   2,843    4,304 
           
Ending Cash and Cash Equivalents  $2,722   $2,299 
           
Supplemental Disclosure of Cash Flow Information          
Cash paid during the period for:          
Interest on deposits and borrowings  $59   $40 

  

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”) as part of the Bank’s mutual-to-stock conversion. The conversion was 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 September 30, 2019 and the results of operations for the three months ended September 30, 2019 and 2018. Amounts have not been audited and the results of operations for the three months ended September 30, 2019, 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, 2019 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, 2019 included in the Company’s Form 10-K.

 

In May 2014,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company's consolidated financial statements and related disclosures as the Company's primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. See Note 7 for additional information related to the adoption of this standard. In January 2016, the FASB finalized ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires 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 the accompanying notes to the financial statements; and (g) clarifies 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.

 

  

 8 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 5 to the financial statements. The September 30, 2019 fair value of each class of financial instruments disclosure did utilize the exit price notion when measuring fair value and, therefore, may not be comparable to the June 30, 2019 disclosure.

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on July 1, 2019. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary source of revenues are derived from interest and dividends on earned loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. See note 7 for additional information related to the adoption of this standard.

 

Principles of Consolidation

 

The consolidated financial statements as of and for the periods ended September 30, 2019, 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 foreclosed assets, valuation of deferred tax assets, and fair values of financial instruments.

 

 9 

 

 

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:                    
September 30, 2019                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $2,954   $     29   $       (5)  $2,978 
Collateralized mortgage obligations of government sponsored entities - residential   157    2    -    159 
State and political subdivisions                    
Taxable   254    2    -    256 
Nontaxable   1,445    9    -    1,454 
                     
   $4,810   $42   $(5)  $4,847 
                     
June 30, 2019                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $3,210   $38   $(14)  $3,234 
Collateralized mortgage obligations of government sponsored entities - residential   169    2    -    171 
State and political subdivisions                    
Taxable   256    1    -    257 
Nontaxable   1,447    7    -    1,454 
                     
   $5,082   $48   $(14)  $5,116 

 

 10 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The amortized cost and fair value of available-for-sale securities at September 30, 2019, 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) 
Five to ten years  $286   $287 
Beyond ten years   1,413    1,423 
           
    1,699    1,710 
Mortgage-backed securities of U.S. government sponsored entities - residential   2,954    2,978 
Collateralized mortgage obligations of government sponsored entities- residential   157    159 
           
Totals  $4,810   $4,847 

 

The Company had no sales of investment securities during the three-month periods ended September 30, 2019 and 2018.

 

The Company had pledged $1.4 million and $1.3 million of its investment securities at September 30, 2019 and June 30, 2019, respectively, to secure public deposits.

 

 11 

 

 

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 September 30, 2019 and June 30, 2019:

 

   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) 
September 30, 2019                              
Available-for-sale Securities:                              
Mortgage-backed securities of U.S. government sponsored entities - residential  $      -   $         -   $966   $     (5)  $966   $        (5)
                               
   $-   $-   $966   $(5)  $966   $(5)
June 30, 2019                              
Available-for-sale Securities:                              
Mortgage-backed securities of U.S. government sponsored entities - residential  $-   $-   $1,212   $(14)  $1,212   $(14)
                               
   $-   $-   $1,212   $(14)  $1,212   $(14)

 

Other-than-temporary Impairment

 

At September 30, 2019 and June 30, 2019, the decline in fair value of the Company’s investment securities available-for-sale is attributable to changes in interest rates and not credit quality. At September 30, 2019 there were a total of three securities in a loss position. At June 30, 2019 there were a total of four 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 basis 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 basis, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

 

 12 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 3:Loans and Allowance for Loan Losses

 

Loans at September 30, 2019 and June 30, 2019 include:

 

   September 30,   June 30, 
   2019   2019 
   (In thousands) 
Real estate          
Residential  $25,767   $25,249 
Home equity lines of credit   2,386    2,176 
Commercial and multi-family   1,178    1,269 
Consumer and other   2,090    2,218 
           
Total loans   31,421    30,912 
           
Allowance for loan losses   (251)   (254)
           
Net loans  $31,170   $30,658 

 

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 Real Estate

 

Multi-family real estate loans generally involve a greater degree of credit risk than 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.

 

 13 

 

 

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 and Other Loans

 

Consumer and other loans entail greater credit risk than residential real estate 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.

 

 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 months ended September 30, 2019 and the loans by impairment method as of September 30, 2019:

 

   September 30, 2019 
   Real Estate             
           Commercial             
       Home Equity   and Multi-   Consumer         
   Residential   Lines of Credit   Family   and Other   Unallocated   Total 
   (In thousands) 
Allowance for loan losses:                              
Balance, July 1, 2019  $173   $14   $6   $13   $48   $254 
Provision for loan losses   (6)   2    -    2    7    5 
Charge-offs   -    -    -    (8)   -    (8)
Recoveries   -    -    -    -    -    - 
                               
Balance, September 30, 2019  $167   $16   $             6   $             7   $       55   $251 
                               
Allowance for loan losses:                              
Ending balance, individually evaluated for impairment  $11   $-   $-   $-   $-   $11 
                               
Ending balance, collectively evaluated for impairment  $156   $16   $6   $7   $55   $240 
                               
Loans:                              
Ending balance  $25,767   $2,386   $1,178   $2,090        $31,421 
                               
Ending balance; individually evaluated for impairment  $691   $5   $-   $-        $696 
                               
Ending balance; collectively evaluated for impairment  $25,076   $2,381   $1,178   $2,090        $30,725 

 

 15 

 

 

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 nine months ended September 30, 2018:

 

   September 30, 2018 
   Real Estate             
           Commercial             
       Home Equity   and Multi-   Consumer         
   Residential   Lines of Credit   Family   and Other   Unallocated   Total 
   (In thousands) 
Three Months Ended September 30, 2018                        
Allowance for loan losses:                              
Balance, July 1, 2018  $      171   $    13   $      10   $       23   $36   $     253 
Provision for loan losses   (13)   -    -    24             (11)   - 
Charge-offs   -    -    -    -    -    - 
Recoveries   -    -    -    -    -    - 
                               
Balance, September 30, 2018  $158   $13   $10   $47   $25   $253 

 

 16 

 

 

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, 2019:

 

   June 30, 2019 
   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  $8   $-   $-   $-   $-   $8 
                               
Ending balance, collectively evaluated for impairment  $165   $14   $6   $13   $       48   $246 
                               
Loans:                              
Ending balance  $25,249   $2,176   $       1,269   $2,218        $30,912 
                               
Ending balance; individually evaluated for impairment  $605   $5   $-   $-        $610 
                               
Ending balance; collectively evaluated for impairment  $24,644   $2,171   $1,269   $2,218        $30,302 

 

 17 

 

  

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.

 

 18 

 

  

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 September 30, 2019 and June 30, 2019. There were no loans classified as doubtful or loss for the periods presented.

 

   Real Estate         
           Commercial         
       Home Equity   and Multi-   Consumer     
   Residential   Lines of Credit   Family   and Other   Total 
September 30, 2019  (In thousands) 
Pass  $24,824   $2,381   $1,178   $2,090   $30,473 
Special mention   -    -    -    -    - 
Substandard   943    5    -    -    948 
                          
Total  $25,767   $2,386   $1,178   $2,090   $31,421 
                          
June 30, 2019                         
Pass  $24,391   $2,171   $1,269   $2,218   $30,049 
Special mention   -    -    -    -    - 
Substandard   858    5    -    -    863 
                          
Total  $25,249   $2,176   $1,269   $2,218   $30,912 

 

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. 

 

 19 

 

 

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 September 30, 2019 and June 30, 2019:

 

           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) 
September 30, 2019    
Real estate                              
Residential  $272   $-   $55   $327   $25,440   $25,767 
Home equity lines of credit   12    15    -    27    2,359    2,386 
Commercial and multi-family   -    -    -    -    1,178    1,178 
Consumer and other   30    40    -    70    2,020    2,090 
                               
Total  $314   $55   $55   $424   $30,997   $31,421 
                               
                               
June 30, 2019                              
Real estate                              
Residential  $250   $-   $55   $305   $24,944   $25,249 
Home equity lines of credit   6    -    -    6    2,170    2,176 
Commercial and multi-family   -    -    -    -    1,269    1,269 
Consumer and other   29    22    -    51    2,167    2,218 
                               
Total  $285   $22   $55   $362   $30,550   $30,912 

 

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.

 

 20 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

  

The following table presents impaired loan information as of and for the three months ended September 30, 2019:

 

               For the Three Months Ended 
   As of September 30, 2019   September 30, 2019 
       Unpaid   Allowance
for Loan
   Average   Interest 
   Recorded
Investment
   Principal
Balance
   Losses
Allocated
   Recorded
Investment
   Income
Recognized
 
   (In thousands) 
Loans with no related allowance recorded:                         
Real estate                         
Residential  $627   $627   $-   $629   $      - 
Home equity lines of credit   5    5    -    5    - 
                          
Loans with an allowance recorded:                         
Real estate                         
Residential   64    66    11    66    1 
Home equity lines of credit   -    -    -    -    - 
                          
Totals  $696   $698   $11   $700   $1 

 

 21 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents impaired loan information as of June 30, 2019 and for the three months ended September 30, 2018:

 

               For the Three Months Ended 
   As of June 30, 2019   September 30, 2018 
       Unpaid   Allowance
for Loan
   Average   Interest 
   Recorded Investment   Principal Balance   Losses
Allocated
   Recorded
Investment
   Income
Recognized
 
   (In thousands) 
Loans with no related allowance recorded:                         
Real estate                         
Residential  $540   $540   $    -   $328   $     - 
Home equity lines of credit   5    5    -    5    - 
Commercial and multi-family   -    -    -    85    - 
                          
Loans with an allowance recorded:                         
Real estate                         
Residential   65    67    8    71    1 
Home equity lines of credit   -    -    -    -    - 
                          
Totals  $610   $612   $8   $489   $1 

 

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. 

 

 22 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents the Company’s nonaccrual loans at September 30, 2019 and June 30, 2019. The table excludes performing troubled debt restructurings.

 

   September 30,   June 30, 
   2019   2019 
   (In thousands) 
Real estate          
Residential  $627   $540 
Home equity lines of credit   5    5 
           
Total nonaccrual  $632   $545 

 

No loans were modified as troubled debt restructurings during the three months ended September 30, 2019 or 2018. The Company had loans modified, in previous years, in a troubled debt restructuring totaling $63,000 and $64,000 at September 30, 2019 and June 30, 2019, respectively. Troubled debt restructured loans had specific allowances totaling $11,000 and $8,000 at September 30, 2019 and June 30, 2019, respectively. At September 30, 2019, the Company had no commitments to lend additional funds to borrowers with troubled debt restructured loans.

 

The Company had no troubled debt restructurings modified in the 12 months prior to September 30, 2019 or 2018 that subsequently defaulted during the three-month periods ended September 30, 2019 or 2018. 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.

 

 23 

 

 

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 September 30, 2019 and June 30, 2019, 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 2.50 percent. Under Basel III, the Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital.

 

As of September 30, 2019 and June 30, 2019, 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.

 

 24 

 

 

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 September 30, 2019                              
Total Capital                              
(to Risk-Weighted Assets)                              
Company  $7,843    27.9%  $2,246    8.0%           N/A          N/A  
Bank  $7,512    26.8%  $2,246    8.0%  $2,807    10.0%
                               
Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $7,592    27.0%  $1,684    6.0%           N/A          N/A  
Bank  $7,261    25.9%  $1,684    6.0%  $2,246    8.0%
                               
Common Equity Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $7,592    27.1%  $1,263    4.5%           N/A          N/A  
Bank  $7,261    25.9%  $1,263    4.5%  $1,825    6.5%
                               
Leverage Capital                              
(to Adjusted Average Total Assets)                              
Company  $7,592    14.5%  $2,090    4.0%           N/A          N/A  
Bank  $7,261    13.9%  $2,090    4.0%  $2,612    5.0%
                               
As of June 30, 2019                              
Total Capital                              
(to Risk-Weighted Assets)                              
Company  $7,916    27.4%  $2,314    8.0%           N/A          N/A  
Bank  $7,545    26.1%  $2,314    8.0%  $2,892    10.0%
                               
Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $7,662    26.5%  $1,735    6.0%           N/A          N/A  
Bank  $7,291    25.2%  $1,735    6.0%  $2,314    8.0%
                               
Common Equity Tier I Capital                              
(to Risk-Weighted Assets)                              
Company  $7,662    26.5%  $1,301    4.5%           N/A          N/A  
Bank  $7,291    25.2%  $1,301    4.5%  $1,880    6.5%
                               
Leverage Capital                              
(to Adjusted Average Total Assets)                              
Company  $7,662    14.7%  $2,090    4.0%           N/A          N/A  
Bank  $7,291    14.0%  $2,090    4.0%  $2,612    5.0%

 

 25 

 

 

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.

 

 26 

 

 

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 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 September 30, 2019 and June 30, 2019:

 

       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) 
September 30, 2019                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $2,978   $        -   $2,978   $           - 
Collateralized mortgage obligations of government sponsored entities - residential   159    -    159    - 
State and political subdivisions                    
Taxable   256    -    256    - 
Nontaxable   1,454    -    1,454    - 
                     
   $4,847   $-   $4,847   $- 
                     
June 30, 2019                    
Mortgage-backed securities of U.S. government sponsored entities - residential  $3,234   $-   $3,234   $- 
Collateralized mortgage obligations of government sponsored entities - residential   171    -    171    - 
State and political subdivisions                    
Taxable   257    -    257    - 
Nontaxable   1,454    -    1,454    - 
                     
   $5,116   $-   $5,116   $- 

 

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 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.

 

 27 

 

 

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 September 30, 2019 and June 30, 2019:

 

       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) 
September 30, 2019                    
Impaired loans                    
Real estate                    
1-4 family residential  $53   $      -   $         -   $53 
Forclosed assets                    
Residential real estate  $131   $-   $-   $131 
                     
June 30, 2019                    
Impaired loans                    
Real estate                    
1-4 family residential  $57   $-   $-   $57 
Foreclosed assets                    
Residential real estate  $131   $-   $-   $131 

 

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 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.

 

 28 

 

 

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.

 

 29 

 

 

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)            
September 30, 2019                
Impaired loans (collateral dependent) - residential real estate  $53   Sales comparison approach  Adjustments for selling cost and holding period   10%
Foreclosed assets - residential real estate  $131   Sales comparison approach  Adjustments for selling cost and discount for time since appraisal   13%
                 
June 30, 2019                
Impaired loans (collateral dependent) - residential real estate  $57   Sales comparison approach  Adjustments for selling cost and holding period   10%
Foreclosed assets - residential real estate  $131   Sales comparison approach  Adjustments for selling cost and discount for time since appraisal   13%

 

 30 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Fair Value of Financial Instruments

 

The following table presents the carrying amount and fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2019 and June 30, 2019.

 

       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) 
September 30, 2019                         
Financial assets                         
Cash and cash equivalents  $2,722   $2,722   $       -   $-   $2,722 
Interest-earning time deposits   3,350    3,350    -    -    3,350 
Restricted Stock   940    940    -    -    940 
Loans, net   31,170    -    -    32,628    32,628 
Loans held for sale   6,189    -    -    6,469    6,469 
Accrued interest receivable   101    101    -    -    101 
Bank owned life insurance   799    799    -    -    799 
Financial liabilities                         
Deposits   40,669    32,564    -    8,093    40,657 
Federal Home Loan Bank advances   2,500    -    -    2,527    2,527 
Payments by borrowers for taxes and insurance   134    134    -    -    134 
Accrued interest payable   -    -    -    -    - 
                          
June 30, 2019                         
Financial assets                         
Cash and cash equivalents  $2,843   $2,843   $-   $-   $2,843 
Interest-earning time deposits   3,595    3,595    -    -    3,595 
Restricted Stock   940    940    -    -    940 
Loans, net   30,658    -    -    32,142    32,142 
Loans held for sale   7,127    -    -    7,327    7,327 
Accrued interest receivable   125    125    -    -    125 
Bank owned life insurance   793    793    -    -    793 
Financial liabilities                         
Deposits   41,751    33,574    -    8,135    41,709 
Federal Home Loan Bank advances   2,500    -    -    2,527    2,527 
Payments by borrowers for taxes and insurance   109    109    -    -    109 
Accrued interest payable   1    1    -    -    1 

 

 31 

 

 

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 months ended September 30, 2019 and 2018 are as follows:

 

   Three Months Ended September 30, 
   2019   2018 
   (In thousands) 
Beginning balance  $27   $(94)
           
Net current period other comprehensive income (loss)   2    (20)
           
           
Ending balance  $29   $(114)

 

There were no material items reclassified from accumulated other comprehensive income (loss) to the consolidated statement of operations for the three months ended September 30, 2019 and 2018.

 

Note 7: Revenue Recognition

 

ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASUs that modified ASC 606. Effective January 1, 2018 the Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts at the date of adoption. The adoption of this guidance did not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustments were recorded.

 

Management determined that the primary sources of revenue emanating from interest and dividend income on loans and securities along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, fees from financial guarantees, certain credit cards fees, and income on bank-owned life insurance are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 85 percent of the total revenue of the Company. Services within the scope of ASC 606 include income from fiduciary activities, brokerage fees, service charges on deposit accounts, other service income, ATM fees, interchange fees, and gain on sale of OREO, net. For these accounts, fees are related to specific customer transactions are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.

 

Note 8: Recent Accounting Pronouncements

 

FASB ASU 2014-09, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). Effective January 1, 2018 the Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts at the date of adoption. The adoption of this guidance did not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustments were recorded.

 

Management determined that the primary sources of revenue emanating from interest and dividend income on loans and securities along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, fees from financial guarantees, certain credit cards fees, and income on bank-owned life insurance are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 88 percent of the total revenue of the Company. Services within the scope of ASC 606 include income from fiduciary activities, brokerage fees, service charges on deposit accounts, other service income, ATM fees, interchange fees, and gain on sale of OREO, net. For these accounts, fees are related to specific customer transactions are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.

 

FASB ASU 2015-14, Revenue from Contracts with Customers In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company has adopted this new accounting Update.

 

 32 

 

 

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 ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires 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 the accompanying notes to the financial statements; and (g) clarifies 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. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, 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. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has adopted this new accounting Update.

 

FASB ASU 2016-02, Leases. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 33 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2016-08, Revenue from Contracts with Customers. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

FASB ASU 2016-10, Revenue from Contracts with Customers. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

FASB ASU 2016-12, Revenue from Contracts with Customers. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 34 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

 

FASB ASU 2017-04, Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November.  This Update is not expected to have a significant impact on the Company’s financial statements.

 

 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, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, and Derivative and Hedging. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt ‒ Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, 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. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 36 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2017-12, Derivatives and Hedging. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. This Update is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU 2018-03, Technical Corrections and Improvements to Financial Instruments ‒ Overall. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments ‒ Overall (Subtopic 825-10), to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging ‒ Embedded Derivatives, or 825-10, Financial Instruments ‒ Overall. (5)

Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944, Financial Services ‒ Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01. This Update is not expected to have a significant impact on the Company’s financial statements.

 

 37 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

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

 

FASB ASU 2018-11, Leases (Topic 842): Targeted Improvements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases. In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

  

 38 

 

 

Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software. In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This Update addresses customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This Update is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments in this Update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November.  This Update is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU 2018-16, Derivatives and Hedging. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815). The amendments in this Update permit use of the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. For entities that have not already adopted Update 2017-12, the amendments in this Update are required to be adopted concurrently with the amendments in Update 2017-12. For public business entities that already have adopted the amendments in Update 2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities that already have adopted the amendments in Update 2017-12, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this Update if an entity already has adopted Update 2017-12. This Update is not expected to have a significant impact on the Company’s financial statements.

  

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Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments ‒ Credit Losses. In November, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments ‒ Credit Losses, which amended the effective date of ASU 2016-13 for entities other than public business entities (PBEs), by requiring non-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU 2016-13 for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities (non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within those years.

 

The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. This Update is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU 2018-20, Leases. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which addressed implementation questions arising from stakeholders in regard to ASU 2016-02, Leases. Specifically addressed in this Update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components. The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Update 2016-02 (for example, January 1, 2019, for calendar-year-end public business entities). This Update is not expected to have a significant impact on the Company’s financial statements.

 

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Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

FASB ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASU 2019-05, Financial Instruments – Credit Losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

Note 9: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 shareholders’ 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 September 30, 2019 was $(0.19), calculated using 408,739 average shares outstanding less 29,420 unallocated shares held by the ESOP. The Company had no dilutive or potentially dilutive securities at September 30, 2019. Loss per share for the three months ended September 30, 2018 was $(0.11), calculated using 441,290 shares issued, less 31,054 unallocated shares held by the ESOP. The Company had no dilutive or potentially dilutive securities at September 30, 2018.

 

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Community Savings Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Note 10: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 for the three months ended September 30, 2019. Compensation expense related to the ESOP was $6,000 for the three months ended September 30, 2018.

 

The stock price at the formation date was $10.00. The aggregate fair value of the 29,420 unallocated shares was $425,119 based on the $14.45 closing price of our common stock on September 30, 2019.

 

Note 11:Equity Incentive Plan

 

On February 19, 2018, the Board of Directors adopted the Community Savings Bancorp, Inc. 2018 Equity Incentive Plan (the “Equity Incentive Plan”), which was approved by shareholders at the Company’s Annual Meeting held on February 19, 2018. The Equity Incentive Plan reserves for issuance 61,780 shares of the Company’s common stock pursuant to grants of restricted stock awards, restricted stock unit awards, incentive stock options, and non-qualified stock options. Of this number, the maximum number of shares of Company common stock that may be issued under the Equity Incentive Plan pursuant to the exercise of stock options is 44,129 shares, and the maximum number of shares of Company common stock that may be issued as restricted stock awards or restricted stock units is 17,651 shares. As of September 30, 2019, 9,710 shares of restricted stock have been awarded. The Company recognized $11,000 in expense related to the Equity Incentive Plan during the quarter ended September 30, 2019.

 

   September 30,     
   2019     
   Shares   Weighted average market price 
Non-vested  $-   $- 
Granted   9,710    13.30 
Vested   -    - 
Non-vested  $9,710   $13.30 

 

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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 September 30, 2019 and results of operations for the three months ended September 30, 2019 and 2018, 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 September 30, 2019 and June 30, 2019

 

 

Total Assets. Total assets decreased $1.0 million, or 2.0%, to $51.2 million at September 30, 2019 from $52.2 million at June 30, 2019. The decrease was due primarily to a decrease of $938,000 in loans held for sale, a decrease of $269,000 in investment securities available-for-sale, and a decrease of $245,000 in interest-earning time deposits in other institutions, partially offset by an increase in net loans of $512,000.

 

Cash and Cash Equivalents. Cash and cash equivalents decreased $121,000, or 4.3%, to $2.7 million at September 30, 2019 from $2.8 million at June 30, 2019. The decrease in cash and cash equivalents was due primarily to a $1.1 million decrease in deposits, partially offset by a $938,000 decrease in loans held for sale.

 

Investment Securities available-for-sale. Investment securities available-for-sale decreased $269,000, or 5.3%, to $4.8 million at September 30, 2019 from $5.1 million at June 30, 2019. The decrease in investment securities available-for-sale was primarily due to principal repayments on mortgage-backed securities totaling $261,000.

 

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Community Savings Bancorp, Inc.

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

 

Net Loans. Net loans increased $512,000, or 1.7%, to $31.1 million at September 30, 2019 from $30.7 million at June 30, 2019. The increase in net loans was due primarily to an increase of $518,000, or 2.1%, in one- to four-family residential loans to $25.8 million at September 30, 2019 from $25.2 million at June 30, 2019. Loans originated during the three months ended September 30, 2019 totaled $1.3 million, of which $1.1 million were one- to four-family residential loans and $146,000 were consumer and other loans.

 

Loans Held for Sale. Loans held for sale decreased $938,000, or 13.2%, to $6.2 million at September 30, 2019 from $7.1 million at June 30, 2019. Loans held for sale originated during the three months ended September 30, 2019 totaled $780,000. The substantial decrease in loans held for sale was due to sales of loans held for sale of $1.3 million during the three months ended September 30, 2019.

 

Deposits. Deposits decreased $1.1 million, or 2.6%, to $40.7 million at September 30, 2019 from $41.8 million at June 30, 2019. The decrease resulted primarily from a $1.7 million, or 7.2%, decrease in savings and money market accounts, and a decrease in time deposits of $71,000, or 0.9%, partially offset by an increase in demand deposits of $680,000, or 6.9%.

 

Bank Owned Life Insurance. Cash surrender value of Bank Owned Life Insurance increased $6,000, or 0.8%, to $799,000 at September 30, 2019 from $793,000 at June 30, 2019.

 

FHLB Advances. FHLB advances totaled $2.5 million at September 30, 2019 and June 30, 2019.

 

Shareholders’ Equity. Shareholders’ equity decreased $59,000, or 0.8%, to $7.6 million at September 30, 2019 from $7.7 million at June 30, 2019. The decrease was due primarily to a net loss of $72,000 during the three months ended September 30, 2019, partially offset by an increase in additional paid in capital of $11,000, and an increase in accumulated other comprehensive income of $2,000 during the period.

 

Comparison of Operating Results for the Three-Month Periods Ended September 30, 2019 and 2018

  

General. For the three months ended September 30, 2019, we had a net loss of $72,000 compared to a net loss of $46,000 for the three months ended September 30, 2018, a decrease in income of $26,000. The decrease in income resulted primarily from an increase of $64,000 in noninterest expense, and an increase of $5,000 in provision for loan loss, partially offset by an increase of $27,000 in net interest income, an increase in federal income tax benefits of $12,000, and an increase of $5,000 in noninterest income

 

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 September 30, 2019 and 2018. 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 Three Months Ended September 30, 
   2019   2018 
   Average
Outstanding
Balance
   Interest   Yield/Rate   Average
Outstanding
Balance
   Interest   Yield/Rate 
   (Dollars in thousands) 
Interest-earning assets:                              
Loans  $32,559   $440    5.41%  $32,560   $377    4.63%
Investment securities   4,986    31    2.49%   6,515    35    2.15%
Other interest-earning assets (1)   11,856    37    1.24%   7,769    51    2.62%
   Total interest-earning assets   49,401    508    4.11%   46,844    463    3.96%
Noninterest-earning assets   2,774              4,143           
Allowance for loan losses   (253)             (253)          
   Total assets  $51,922             $50,734           
                               
Interest-bearing liabilities:                              
Demand accounts  $2,767    1    0.14%  $2,288    1    0.17%
Savings and money market accounts   22,897    15    0.26%   22,446    15    0.27%
Certificates of deposit   8,088    24    1.19%   7,630    14    0.73%
   Total deposits   33,752    40    0.47%   32,364    30    0.37%
FHLB advances   2,500    18    2.88%   1,000    10    4.00%
   Total interest-bearing liabilities   36,252    58    0.64%   33,364    40    0.48%
Noninterest-bearing liabilities   8,018              9,107           
     Total liabilities   44,270              42,471           
Equity   7,652              8,263           
   Total liabilities and equity  $51,922             $50,734           
                               
Net interest income       $450             $423      
Net interest rate spread (2)             3.47%             3.48%
Net interest-earning assets (3)  $13,149             $13,480           
Net interest margin (4)             3.65%             3.62%
Average interest-earning assets