Company Quick10K Filing
Quick10K
WVS Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$17.20 2 $33
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-07-29 Other Events, Exhibits
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-29 Other Events, Exhibits
8-K 2019-04-29 Other Events, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2019-01-28 Other Events, Exhibits
8-K 2018-10-30 Shareholder Vote
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-30 Other Events, Exhibits
8-K 2018-07-27 Earnings, Exhibits
8-K 2018-04-27 Earnings, Exhibits
8-K 2018-04-23 Other Events, Exhibits
8-K 2018-01-29 Other Events, Exhibits
8-K 2018-01-26 Earnings, Exhibits
NEWR New Relic 6,140
AN Autonation 3,580
MTRN Materion 1,400
PVBC Provident Bancorp 221
ROSE Rosehill Resources 194
GLAC Greenland Acquisition 59
CTIB CTI Industries 12
NHMD Nate's Food 0
ELON Echelon 0
WGTG Wings & Things 0
WVFC 2019-03-31
Item 2.
Item 3.
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 d734601dex311.htm
EX-31.2 d734601dex312.htm
EX-32.1 d734601dex321.htm
EX-32.2 d734601dex322.htm
EX-99 d734601dex99.htm

WVS Financial Earnings 2019-03-31

WVFC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d734601d10q.htm FORM 10-Q Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

[X]

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

For the quarterly period ended March 31, 2019

or

 

[  ]

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

For the transition period from                to               

Commission File Number: 0-22444

 

                           WVS Financial Corp.                          
(Exact name of registrant as specified in its charter)

Pennsylvania

      

25-1710500

 

(State or other jurisdiction of

incorporation or organization)

      

(I.R.S. Employer

Identification Number)

 

9001 Perry Highway

Pittsburgh, Pennsylvania

      

15237

 
    (Address of principal executive offices)            (Zip Code)  

                                     (412) 364-1911                                     

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      YES  X   NO     

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

 

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

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

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

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

 

Title of each class

  

Trading

Symbol(s)

  

Name of each exchange

on which registered

Common Stock    WVFC    NASDAQ

Shares outstanding as of May 10, 2019: 1,943,796 shares Common Stock, $.01 par value.

 


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX

 

PART I.

       

Financial Information

  

Page

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

PART II.

        Other Information   

Page

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

Unregistered Sales of Equity Securities

and Use of Proceeds

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

 

2


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)

 

         March 31, 2019             June 30, 2018      

Assets

    

Cash and due from banks

                 $       2,387       $       2,099  

Interest-earning demand deposits

     1,817       342  
  

 

 

   

 

 

 

Total cash and cash equivalents

     4,204       2,441  

Certificates of deposit

     1,346       350  

Investment securities available-for-sale (amortized cost of $135,007 and $128,824)

     134,605       128,811  

Investment securities held-to-maturity (fair value of $4,031 and $6,125)

     3,995       6,181  

Mortgage-backed securities held-to-maturity (fair value of $109,919 and $116,844)

     109,270       115,857  

Net loans receivable (allowance for loan losses of $510 and $468)

     88,846       84,675  

Accrued interest receivable

     1,279       1,225  

Federal Home Loan Bank (FHLB) stock, at cost

     7,060       7,161  

Premises and equipment, net

     355       392  

Bank owned life insurance

     4,759       4,668  

Deferred tax assets, net

     462       359  

Other assets

     177       168  
  

 

 

   

 

 

 

TOTAL ASSETS

                 $  356,358                   $  352,288  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits

    

Non-interest-bearing accounts

     $    20,563       $    18,436  

Interest-earning checking accounts

     24,512       24,459  

Savings accounts

     44,113       44,727  

Money market accounts

     20,114       21,087  

Certificates of deposit

     34,924       34,376  

Advance payments by borrowers for taxes and insurance

     1,706       1,938  
  

 

 

   

 

 

 

Total deposits

     145,932       145,023  

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

     15,000       -  

Federal Home Loan Bank advances: long-term – variable

     85,000       -  

Federal Home Loan Bank advances: short-term

     71,922       171,403  

Accrued interest payable

     799       380  

Other liabilities

     2,409       1,465  
  

 

 

   

 

 

 

TOTAL LIABILITIES

     321,062       318,271  
  

 

 

   

 

 

 

Stockholders’ equity:

    

Preferred stock:

    

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

issued

     -       -  

Common stock:

    

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

     38       38  

Additional paid-in capital

     21,545       21,516  

Treasury stock: 1,861,840 and 1,836,123 shares at cost, respectively

     (28,258     (27,886

Retained earnings, substantially restricted

     44,511       42,795  

Accumulated other comprehensive loss

     (390     (188

Unallocated Employee Stock Ownership Plan (“ESOP”) shares

     (2,150     (2,258
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     35,296       34,017  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

     $  356,358       $  352,288  
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except share and per share data)

 

         Three Months Ended              Nine Months Ended      
     March 31,      March 31,  
     2019     2018      2019     2018  

INTEREST AND DIVIDEND INCOME:

         

Loans, including fees

         $                847           $                748            $                2,475           $                2,222  

Investment securities

     1,188       766        3,276       2,085  

Mortgage-backed securities

     973       800        2,789       2,250  

Certificates of deposit

     7       16        12       70  

Interest-earning demand deposits

     1       3        10       7  

FHLB Stock

     142       149        370       322  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest and dividend income

     3,158       2,482        8,932       6,956  
  

 

 

   

 

 

    

 

 

   

 

 

 

INTEREST EXPENSE:

         

Deposits

     253       102        505       268  

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

     114       -        348       32  

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

     586       -        993       11  

Federal Home Loan Bank advances – short-term

     373       716        1,719       1,827  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest expense

     1,326       818        3,565       2,138  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME

     1,832       1,664        5,367       4,818  

PROVISION FOR LOAN LOSSES

     10       10        42       22  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

     1,822       1,654        5,325       4,796  
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-INTEREST INCOME:

         

Service charges on deposits

     30       32        86       95  

Earnings on Bank Owned Life Insurance

     30       31        91       95  

Investment securities gains/(losses)

     -       2        (2     2  

Other than temporary impairment losses

     122       -        122       41  

Portion of loss recognized in other comprehensive income

     (148     -        (148     (49
  

 

 

   

 

 

    

 

 

   

 

 

 

Net impairment loss recognized in earnings

     (26     -        (26     (8

ATM fee income

     38       43        123       137  

Other

     15       12        36       39  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest income

     87       120        307       360  
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-INTEREST EXPENSE:

         

Salaries and employee benefits

     575       546        1,695       1,631  

Occupancy and equipment

     66       80        192       228  

Data processing

     56       60        171       163  

Correspondent bank service charges

     9       10        24       30  

Federal deposit insurance premium

     24       27        75       83  

ATM network expense

     21       25        83       74  

Other

     147       159        512       530  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest expense

     897       907        2,752       2,739  
  

 

 

   

 

 

    

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES

     1,012       867        2,880       2,417  

INCOME TAX EXPENSE

     265       233        701       884  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME

     $               747       $              634        $            2,179       $            1,533  
  

 

 

   

 

 

    

 

 

   

 

 

 

EARNINGS PER SHARE:

         

Basic

     $              0.42       $              0.35        $              1.22       $              0.84  

Diluted

     $              0.42       $              0.35        $              1.22       $              0.84  

AVERAGE SHARES OUTSTANDING:

         

Basic

     1,772,165       1,828,283        1,782,512       1,826,568  

Diluted

     1,772,165       1,829,750        1,782,584       1,827,057  

See accompanying notes to unaudited consolidated financial statements.

 

4


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)

 

         Three Months Ended             Nine Months Ended      
     March 31,     March 31,  
     2019     2018     2019     2018  

NET INCOME

         $ 747           $ 634           $  2,179           $  1,533  

OTHER COMPREHENSIVE INCOME (LOSS)

        

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

        

Gains (losses) arising during the year

     1,479       (222     (392     (100

Less: Income tax effect

     (311     47       82       5  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,168       (175     (310     (95

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

     1,168       (175     (310     (95
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment securities (gains)/losses

     -       (2     2       (2

Less: Income tax effect

     -       1       -       1  
  

 

 

   

 

 

   

 

 

   

 

 

 
     -       (1     2       (1

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

        

Total losses

     122       -       122       41  

Losses recognized in earnings

     26       -       26       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains (losses) recognized in comprehensive income

     148       -       148       49  

Income tax effect

     (31     -       (31     (17
  

 

 

   

 

 

   

 

 

   

 

 

 
     117       -       117       32  

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

     12       16       (14     13  

Less: Income tax effect

     (2     (3     3       (2
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     10       13       (11     11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holdings (losses) gains on securities, net

     127       (163     106       43  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     1,295       (163     (202     (53
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME

         $   2,042           $   471           $   1,977           $   1,480  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

 

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

Balance December 31, 2018

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

Net income

          747           747  

Other comprehensive income

            1,295         1,295  

Amortization of unallocated ESOP Shares

      15             29       44  

Cash dividends declared ($0.10 per share)

          (177         (177
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2019

    $    38         $ 21,545         $ (28,258       $ 44,511         $ (390       $ (2,150       $ 35,296  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Balance June 30, 2018

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

Net income

          2,179           2,179  

Other comprehensive loss

            (202       (202

Purchase of treasury stock (25,717 shares)

        (372           (372

Amortization of unallocated ESOP shares

      29             108       137  

Cash dividends declared ($0.26 per share)

          (463         (463
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2019

    $    38         $ 21,545         $ (28,258       $ 44,511         $   (390       $ (2,150       $ 35,296  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

6


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

 

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

Balance December 31, 2017

      $    38         $ 21,500         $ (27,264       $ 42,000         $    (93       $    (2,316       $ 33,865  

Net income

          634           634  

Other comprehensive loss

            (163       (163

Amortization of unallocated ESOP shares

      7             (4     3  

Cash dividends declared ($0.08 per share)

          (169         (169
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2018

      $    38         $ 21,507         $ (27,264       $ 42,465         $    (256       $    (2,320       $ 34,170  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Balance June 30, 2017

      $    38         $ 21,485         $ (27,264       $ 41,344         $ (188       $ (2,372)         $ 33,043  

Reclassification due to change in federal income tax rate

          15       (15       -  

Net income

          1,533           1,533  

Other comprehensive loss

            (53       (53

Amortization of unallocated ESOP shares

      22             52       74  

Cash dividends declared ($0.20 per share)

          (427         (427
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2018

    $    38         $ 21,507         $ (27,264       $ 42,465         $    (256       $ (2,320       $ 34,170  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended  
     March 31,  
           2019                 2018        

OPERATING ACTIVITIES

    

Net income

   $ 2,179     $ 1,533  

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

    

Provision for loan losses

     42       22  

Depreciation

     38       59  

Losses (gains) on sale of investment securities

     2       (2

Net impairment loss recognized in earnings

     26       8  

Amortization of discounts, premiums and deferred loan costs, net

     130       481  

Amortization of unallocated ESOP shares

     137       106  

Deferred income taxes

     (49     92  

Increase in prepaid/accrued income taxes

     271       228  

Earnings on bank owned life insurance

     (91     (95

(Increase) decrease in accrued interest receivable

     (54     44  

Increase in accrued interest payable

     419       70  

Increase in deferred director compensation payable

     33       29  

Increase in cash items in the process of collection

     -       1,230  

Other, net

     112       42  
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,195       3,847  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Available-for-sale:

    

Purchases of investment securities

     (40,658     (47,425

Proceeds from repayments of investments

     33,450       25,271  

Sale of investment securities

     1,364       1,257  

Held-to-maturity:

    

Proceeds from repayments of investments

     2,180       2,483  

Proceeds from repayments of mortgage-backed securities

     6,706       9,646  

Purchase of certificates of deposit

     (1,096     (348

Maturities/redemptions of certificates of deposit

     100       10,125  

Purchase of loans

     (7,208     (6,989

Net decrease in net loans receivable

     3,037       4,271  

Purchase of FHLB stock

     (5,537     (5,113

Redemption of FHLB stock

     5,638       4,805  

Acquisition of premises and equipment

     (1     (11
  

 

 

   

 

 

 

Net cash used for investing activities

     (2,025     (2,028
  

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended  
     March 31,  
           2019                 2018        

FINANCING ACTIVITIES

    

Net increase (decrease) in transaction and savings accounts

   $ 593     $  (2,814

Net increase (decrease) in certificates of deposit

     548       (1,576

Net decrease in advance payments by borrowers for taxes and insurance

     (232     (294

Proceeds (repayments) of FHLB long-term advances – fixed rate

     15,000       (10,000

Proceeds (repayments) of FHLB long-term advances – variable rate

     85,000       (6,109

Net (decrease) increase in FHLB short-term advances

     (99,481     23,992  

Purchase of treasury stock

     (372     -  

Cash dividends paid

     (463     (427
  

 

 

   

 

 

 

Net cash provided by financing activities

     593       2,772  
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     1,763       4,591  

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

     2,441       2,272  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

   $ 4,204     $ 6,863  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest on deposits and borrowings

   $ 3,146     $ 2,068  

Income taxes

   $ 478     $ 567  

Non-cash items:

    

Educational Improvement Tax Credit

   $ 45     $ 50  

Unfunded securities commitments

   $ 519     $ -  

 

See accompanying notes to unaudited consolidated financial statements.

 

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WVS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

BASIS OF PRESENTATION

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

 

2.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). This Update 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, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements other than additional disclosures in Note 3 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.

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 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.

The Company adopted ASU 2016-01 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 in Note 13 to the financial statements. The June 30, 2018, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the December 31, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and, thus, Level 3 fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. The fair value of loans held for investment, excluding impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification.

 

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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. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

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

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic

 

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entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s financial statements.

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.

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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

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In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This standard is not expected to have a significant impact on the Company’s financial position or results of operations.

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

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.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

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3.

REVENUE RECOGNITION

Effective July 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09, Revenue from contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue. The main types of noninterest income within the scope of the standard are as follows: Service Charges on deposit accounts—the Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

 

4.

EARNINGS PER SHARE

The following table sets forth the computation of the weighted-average common shares used to calculate basic and diluted earnings per share.

 

     Three Months Ended      Nine Months Ended  
     March 31,      March 31,  
             2019                      2018                      2019                      2018          

Weighted average common shares issued

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

Average treasury stock shares

     (1,861,840      (1,797,492      (1,849,296      (1,797,492

Average unallocated ESOP shares

     (171,631      (179,861      (173,828      (181,576
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     1,772,165        1,828,283        1,782,512        1,826,568  

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

     -        1,467        72        489  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     1,772,165        1,829,750        1,782,584        1,827,057  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

At March 31, 2018, there were 114,519 options outstanding with an exercise price of $16.20. All outstanding options were expired at March 31, 2019.

 

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5.

STOCK BASED COMPENSATION DISCLOSURE

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

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

All of the Company’s outstanding stock options were vested at March 31, 2018 and were expired as of March 31, 2019. There were no stock options exercised or issued during the nine months ended March 31, 2019 and 2018.

 

6.

INVESTMENT SECURITIES

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

 

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

AVAILABLE FOR SALE

                      

Corporate debt securities

   $          106,785      $          212      $          (467   $          106,530  

Foreign debt securities 1

        26,592           13           (157        26,448  

Obligations of states and political subdivisions

        1,630           -           (3        1,627  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          135,007      $          225      $          (627   $          134,605  
     

 

 

       

 

 

       

 

 

      

 

 

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

HELD TO MATURITY

                      

Obligations of states and political subdivisions

   $          3,995      $          36      $          -     $          4,031  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          3,995      $          36      $          -     $          4,031  
     

 

 

       

 

 

       

 

 

      

 

 

 

 

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

 

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                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                    Fair      
            Cost             Gains             Losses                Value      
            (Dollars in Thousands)  
June 30, 2018                                                       

AVAILABLE FOR SALE

                      

Corporate debt securities

   $          104,316      $          204      $          (181   $          104,339  

Foreign debt securities 1

        22,878           11           (38        22,851  

Obligations of states and political subdivisions

        1,630           -           (9        1,621  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          128,824      $          215      $          (228   $          128,811  
     

 

 

       

 

 

       

 

 

      

 

 

 
                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                    Fair      
            Cost             Gains             Losses                Value      
            (Dollars in Thousands)  
June 30, 2018                                                       

HELD TO MATURITY

                      

U.S. government agency securities

   $          625      $          -      $          (1   $          624  

Corporate debt securities

        1,061           13           -          1,074  

Obligations of states and political subdivisions

        4,495           -           (68        4,427  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          6,181      $          13      $          (69   $          6,125  
     

 

 

       

 

 

       

 

 

      

 

 

 

Proceeds from sales of investments during the nine month period ending March 31, 2019 were $1.4 million and the Company recorded gross realized investment losses of $2 thousand during this same period. There were no sales of investment securities during the quarter ended March 31, 2019.

During the quarter and nine months ended March 31, 2018, the Company recorded gross realized investment securities gains of $2 thousand. Proceeds from sales of investment securities during the three and nine months ended March 31, 2018 were $1.3 million.

The amortized cost and fair values of debt securities at March 31, 2019, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.

 

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

AVAILABLE FOR SALE

                             

Amortized cost

   $          6,264      $          127,238      $          1,505      $          -      $          135,007  

Fair value

        6,262           126,855           1,488           -           134,605  

HELD TO MATURITY

                             

Amortized cost

   $          500      $          3,495      $          -      $          -      $          3,995  

Fair value

        500           3,531           -           -           4,031  

 

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

 

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

As of March 31, 2019, investment securities with amortized costs and fair values of $13.4 million were pledged to secure future borrowings with the Federal Reserve Bank of Cleveland (FRBC). Since the Company had no FRBC borrowings outstanding on March 31, 2019, all FRBC collateral pledges may be withdrawn by the Company at any time.

 

7.

MORTGAGE-BACKED SECURITIES

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

The Company’s CMO portfolio is comprised of two segments: CMOs backed by U.S. Government Agencies (“Agency CMOs”) and CMOs backed by single-family whole loans not guaranteed by a U.S. Government Agency (“private-label CMOs”).

At March 31, 2019, the Company’s Agency CMOs totaled $108.4 million as compared to $114.9 million at June 30, 2018. The Company’s private-label CMOs totaled $936 thousand at March 31, 2019 as compared to $958 thousand at June 30, 2018. The $6.5 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $6.6 million and $130 thousand, respectively, which were partially offset by a $133 thousand decrease in the noncredit impairment component of other than temporary impairment (“OTTI”) associated with our private-label CMOs. At March 31, 2019 and June 30, 2018, the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments. Substantially all of the Company’s floating rate MBSs adjust monthly based upon changes in the one month LIBOR. The Company has no investment in multi-family or commercial real estate based MBS.

Due to prepayments of the underlying loans, and the prepayment characteristics of the CMO traunches, the actual maturities of the Company’s MBSs are expected to be substantially less than the scheduled maturities.

The Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. The private-label CMO portfolio had three previously recorded other-than-temporary impairments at March 31, 2019. During the nine months ending March 31, 2019, the Company reversed $14 thousand of non-credit unrealized holding losses on its three private-label CMOs with OTTI due to principal repayments. During the three months ended March 31, 2019, the Company recorded $26 thousand of additional credit impairment charges on its private-label CMO portfolio.

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

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

 

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

      Cusip #      

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

126694CP1

     CWHL SER 21 A11        N/A        Caa2        D              $  532              $  532              $  214  

126694KF4

     CWHL SER 24 A15        D        N/A        D        308        308        146  

126694MP0

     CWHL SER 26 1A5        D        N/A        D        96        101        36  
              

 

 

    

 

 

    

 

 

 
                       $  936              $  941              $  396  
              

 

 

    

 

 

    

 

 

 

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

 

           

    Amortized    

Cost

           

Gross

    Unrealized    

Gains

           

Gross

    Unrealized    

Losses

          

Fair

    Value    

 
     

 

 

 
            (Dollars in Thousands)  

March 31, 2019

                      

HELD TO MATURITY

                      

Collateralized mortgage obligations:

                      

Agency

   $          108,334      $          1,123      $          (479   $          108,978  

Private-label

        936           128           -          941  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          109,270      $          1,128      $          (479   $          109,919  
     

 

 

       

 

 

       

 

 

      

 

 

 
           

Amortized

Cost

           

Gross

Unrealized

Gains

           

Gross

Unrealized

Losses

          

Fair

Value

 
     

 

 

 
            (Dollars in Thousands)  

June 30, 2018

                      

HELD TO MATURITY

                      

Collateralized mortgage obligations:

                      

Agency

   $          114,899      $          1,260      $          (426   $          115,733  

Private-label

        958           153           -          1,111  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $          115,857      $          1,413      $          (426   $          116,844  
     

 

 

       

 

 

       

 

 

      

 

 

 

The amortized cost and fair value of the Company’s mortgage-backed securities at March 31, 2019, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

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

 

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

HELD TO MATURITY

                             

Amortized cost

   $          -      $          -      $          152      $          109,118      $          109,270  

Fair value

        -           -           154           109,765           109,919  

At March 31, 2019, mortgage-backed securities with amortized costs of $108.3 million and fair values of $109.0 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $8.2 million of fair value was excess collateral. At June 30, 2018 mortgage-backed securities with an amortized cost of $114.9 million and fair values of $115.7 million, were pledged to secure public deposits and borrowings with the FHLB. Of the mortgage-backed securities pledged, $13.1 million of amortized cost was excess collateral at the FHLB. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

 

8.

ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)

The following tables present the changes in accumulated other comprehensive gain (loss) by component, for the three and nine months ended March 31, 2019 and 2018.

 

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

Beginning Balance – December 31, 2018

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

Other comprehensive income before reclassifications

     1,168       127       1,295  

Amounts reclassified from accumulated other comprehensive loss

     -       -       -  
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

     1,168       127       1,295  
  

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2019

     $ (318     $ (72     $ (390
  

 

 

   

 

 

   

 

 

 

 

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

Beginning Balance – June 30, 2018

   $ (10   $ (178   $  (188)  

Other comprehensive income (loss) before reclassifications

     (310     106       (204

Amounts reclassified from accumulated other comprehensive loss

     2       -       2  
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive Income (loss)

     (308     106       (202
  

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2019

   $ (318   $ (72   $ (390
  

 

 

   

 

 

   

 

 

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

Beginning Balance – December 31, 2017

     $ 148       $ (241)       $ (93)  

Other comprehensive income before reclassifications

     (175     13       (162

Amounts reclassified from accumulated other comprehensive loss

     (1     -       (1
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

     (176     13       (163
  

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2018

     $ (28     $ (228     $ (256
  

 

 

   

 

 

   

 

 

 

 

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

Beginning Balance – June 30, 2017

     $ 44       $ (232     $ (188

Other comprehensive income before reclassifications

     (95     37       (58

Amounts reclassified from accumulated other comprehensive loss

     (1     6       5  
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

     (96     43       (53
  

 

 

   

 

 

   

 

 

 

Reclassification for the change in corporate tax rate

     24       (39     (15

Ending Balance – March 31, 2018

     $ (28     $ (228     $ (256
  

 

 

   

 

 

   

 

 

 

 

9.

UNREALIZED LOSSES ON SECURITIES

The following tables show the Company’s gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2019 and June 30, 2018.

 

               March 31, 2019  
  

 

 
               Less Than Twelve Months          Twelve Months or Greater          Total  
  

 

 
    

Fair

Value

    

Gross

Unrealized

Losses

   

Fair

Value

    

Gross

Unrealized

Losses

   

Fair

Value

    

Gross

Unrealized

Losses

 
  

 

 
           (Dollars in Thousands)  

Corporate debt securities

   $         39,252      $      (302   $      15,468      $      (165   $      54,720      $      (467

Foreign debt securities 1

           16,418           (145        1,225           (12        17,643           (157

Obligations of state and political subdivisions

           1,327           (3        -           -          1,327           (3

Collateralized mortgage obligations:

                                    

Agency

           19,228           (129        21,475           (350        40,703           (479
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

Total

   $         76,225      $      (579   $      38,168      $      (527   $      114,393      $      (1,106
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

 

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

 

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Table of Contents
               June 30, 2018  
  

 

 
               Less Than Twelve Months          Twelve Months or Greater          Total  
  

 

 
    

Fair

Value

    

Gross

Unrealized

Losses

   

Fair

Value

    

Gross

Unrealized

Losses

   

Fair

Value

    

Gross

Unrealized

Losses

 
  

 

 
           (Dollars in Thousands)  

U.S. government agency securities

      $      624      $      (1   $      -      $      -     $      624      $      (1

Corporate debt securities

           56,714           (169        3,028           (12        59,742           (181

Foreign debt securities1

           13,761           (38        -           -          13,761           (38

Obligations of states and political subdivisions

           5,048           (77        -           -          5,048           (77

Collateralized mortgage obligations:

                                    

Agency

           7,600           (12        21,424           (414        29,024           (426
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

Total

      $      83,747      $      (297   $      24,452      $      (426   $      108,199      $      (723
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

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

The Company evaluates outstanding available-for-sale and held-to-maturity securities in an unrealized loss position (i.e., impaired securities) for other than temporary impairment (“OTTI”) on a quarterly basis. In doing so, the Company considers many factors including, but not limited to: the credit ratings assigned to the securities by the Nationally Recognized Statistical Rating Organizations (NRSROs); other indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of time and extent that fair value has been less than amortized cost; and whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In the case of its private label residential MBS, the Company also considers prepayment speeds, the historical and projected performance of the underlying loans and the credit support provided by the subordinate securities. These evaluations are inherently subjective and consider a number of quantitative and qualitative factors.

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

 

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

 

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     Three Months Ended     Nine Months Ended  
     March 31,     March 31,  
             2019                     2018                     2019                     2018          
     (Dollars in Thousands)  

Beginning balance

   $  229     $  248     $  239     $  259  

Initial credit impairment

     -       -       -       -  

Subsequent credit impairment

     26       -       26       8  

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

     -       -       -       -  

Reductions for securities sold

     -       -       -       -  

Reduction for actual realized losses

     (5     (5     (15     (24

Reduction for increase in cash flows expected to be collected

     -       -       -       -  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 250     $ 243     $ 250     $ 243  
  

 

 

   

 

 

   

 

 

   

 

 

 

During the three months ended March 31, 2019, the Company recorded a $26 thousand credit impairment charge and no non-credit unrealized holding losses to accumulated other comprehensive income. During the three and nine months ended March 31, 2019, the Company accreted back into (out of) other comprehensive income $10 thousand and $(14) thousand, respectively, (net of income tax effect of $2 thousand and $(3) thousand, respectively), based on principal repayments on private-label CMOs previously identified with OTTI.

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

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

The Company reviewed the independent third party’s assumptions used in the March 31, 2019 OTTI process. Based on the results of this review, the Company deemed the independent third party’s assumptions to be reasonable and adopted them. However, different assumptions could produce materially different results, which could impact the Company’s conclusions as to whether an impairment is considered other-than-temporary and the magnitude of the credit loss.

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

 

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

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

The noncredit portion of any OTTI losses on securities classified as available-for-sale is adjusted to fair value with an offsetting adjustment to the carrying value of the security. The fair value adjustment could increase or decrease the carrying value of the security. All of the Company’s private-label CMOs were originally, and continue to be classified, as held to maturity.

In periods subsequent to the recognition of an OTTI loss, the other-than-temporarily impaired debt security is accounted for as if it had been purchased on the measurement date of the OTTI at an amount equal to the previous amortized cost basis less the credit-related OTTI recognized in earnings. For debt securities for which credit-related OTTI is recognized in earnings, the difference between the new cost basis and the cash flows expected to be collected is accreted into interest income over the remaining life of the security in a prospective manner based on the amount and timing of future estimated cash flows.

The Company had investments in 67 positions that were impaired at March 31, 2019. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

 

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10.

LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of March 31, 2019 and June 30, 2018.

 

            March 31, 2019      June 30, 2018  
           

Total

        Loans        

          

Individually

evaluated
for
impairment

            Collectively
evaluated
for
impairment
           

Total

Loans

          

Individually

evaluated
for
impairment

           

Collectively
evaluated

for

impairment

 
     

 

 

 
            (Dollars in Thousands)  

First mortgage loans:

                                 

1 – 4 family dwellings

   $          75,918        $ -         $ 75,918         $ 72,237        $ -         $ 72,237  

Construction

        2,108          -           2,108           1,769          -           1,769  

Land acquisition & development

        384          -           384           -          -           -  

Multi-family dwellings

        3,191          -           3191           3,390          -           3,390  

Commercial

        3,800          -           3,800           3,482          -           3,482  

Consumer loans

                                 

Home equity

        911          -           911           861          -           861  

Home equity lines of credit

        1,956          -           1,956           2,177          -           2,177  

Other

        133          -           133           125          -           125  

Commercial loans

        475          -           475           633          -           633  
     

 

 

      

 

 

       

 

 

       

 

 

      

 

 

       

 

 

 
   $          88,876        $             -         $         88,876         $         84,674        $                 -         $             84,674  
          

 

 

       

 

 

            

 

 

       

 

 

 

Plus: Deferred loan costs

        480                      469             

Allowance for loan losses

        (510                    (468           
     

 

 

                  

 

 

            

Total

   $                  88,846                    $ 84,675             
     

 

 

                  

 

 

            

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

The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower, including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.    

 

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At March 31, 2019 and June 30, 2018 there were no loans considered to be impaired.

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

 

                    March 31,        
2019
                    June 30,        
2018
 
            (Dollars in Thousands)  

Principal outstanding

           

1 – 4 family dwellings

   $          229      $          235  

Construction

        -           -  

Land acquisition & development

        -           -  

Commercial real estate

        -           -  

Home equity lines of credit

        -           -  
           
     

 

 

       

 

 

 

Total

   $          229      $          235  
     

 

 

       

 

 

 

 

            Three Months Ended      Nine Months Ended  
                March 31,                     March 31,                     March 31,                     March 31,      
            2019             2018             2019             2018  
            (Dollars in Thousands)  

Average nonaccrual loans

                       

1 – 4 family dwellings

   $          230      $          241      $          232      $          243  

Construction

        -           -           -           -  

Land acquisition & development

        -           -           -           -  

Commercial real estate

        -           -           -           -  

Home equity lines of credit

        -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

 

Total

   $          230      $          241      $          232      $          243  
     

 

 

       

 

 

       

 

 

       

 

 

 

Income that would have been recognized

   $          5      $          4      $          11      $          13  

Interest income recognized

   $          5      $          7      $          11      $          17  

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

During the three and nine months ended March 31, 2019 and March 31, 2018, there were no troubled debt restructurings, and no troubled debt restructurings that subsequently defaulted.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

 

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Table of Contents

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

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

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

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

 

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Table of Contents

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2019 and June 30, 2018:

 

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

  90 Days +  
Past Due

Accruing

         

  90 Days +  
Past Due

Non-accrual

          Total  
Past  
Due  
         

Total

Loans

 
   

 

 

 
          (Dollars in Thousands)  

March 31, 2019

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $           75,689     $           -     $           -     $           -     $           229     $           229     $           75,918  

Construction

      2,108         -         -         -         -         -         2,108  

Land acquisition & development

      384         -         -         -         -         -         384  

Multi-family dwellings

      3,191         -         -         -         -         -         3,191  

Commercial

      3,800         -         -         -         -         -         3,800  

Consumer Loans:

                           

Home equity

      911         -         -         -         -         -         911  

Home equity lines of credit

      1,956         -         -         -         -         -         1,956  

Other

      133         -         -         -         -         -         133  

Commercial Loans

      475         -         -         -         -         -         475  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $           88,647     $           -     $           -     $           -     $           229     $           229         88,876  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan fees

                              480  

  Allowance for loan losses

                              (510
                           

 

 

 

Net Loans Receivable

                          $           88,846  
                           

 

 

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

  90 Days +  
Past Due

Accruing

         

  90 Days +  
Past Due

Non-accrual

         

Total  
Past  

Due  

         

Total

Loans

 
   

 

 

 
          (Dollars in Thousands)  

June 30, 2018

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $           72,002     $         -     $         -     $         -     $         235     $         235     $         72,237  

Construction

      1,769         -         -         -         -         -         1,769  

Land acquisition & development

      -         -         -         -         -         -         -  

Multi-family dwellings

      3,390         -         -         -         -         -         3,390  

Commercial

      3,482         -         -         -         -         -         3,482  

Consumer Loans:

                           

Home equity

      861         -         -         -         -         -         861  

Home equity lines of credit

      2,177         -         -         -         -         -         2,177  

Other

      125         -         -         -         -         -         125  

Commercial Loans

      633         -         -         -         -         -         633  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $           84,439     $           -     $           -     $           -     $           235     $           235         84,674  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan fees

                              469  

  Allowance for loan losses

                              (468
                           

 

 

 

Net Loans Receivable

                          $           84,675  
                           

 

 

 

 

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Table of Contents

Credit quality information

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

The Company’s internally assigned grades are as follows:

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

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

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

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

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

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

The following tables present the Company’s internally classified construction, land acquisition and development, multi-family dwellings, commercial real estate and commercial (not secured by real estate) loans at March 31, 2019 and June 30, 2018.

 

            March 31, 2019  
            Construction            

Land

Acquisition

&

Development

           

Multi-
family

dwellings

           

Commercial
Real

Estate

            Commercial  
     

 

 

 
            (Dollars in Thousands)  

Pass

   $          2,108      $          384      $          3,191      $          3,800      $          475  
Special Mention           -             -             -             -             -  

Substandard

        -           -           -           -           -  

Doubtful

        -           -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

Ending Balance

   $          2,108      $          384      $          3,191      $          3,800      $          475  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

 

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Table of Contents
            June 30, 2018  
    

  Construction  

           

Land

Acquisition

&

  Development  

Loans

           

  Multi-family  

Residential

           

  Commercial  
Real

Estate

              Commercial    
  

 

 

 
            (Dollars in Thousands)  

Pass

   $          1,769      $          -      $          3,390      $          3,482      $          633  

Special Mention

        -           -           -           -           -  

Substandard

        -           -           -           -           -  

Doubtful

        -           -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

Ending Balance

   $          1,769      $          -      $          3,390      $          3,482      $          633  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended March 31, 2019 and June 30, 2018.

 

            March 31, 2019  
     

 

 

 
                1 – 4 Family                     Consumer      
     

 

 

 
            (Dollars in Thousands)  

Performing

       $            75,689      $          3,000  

Non-performing

        229           -  
     

 

 

       

 

 

 

Total

       $                    75,918      $                      3,000  
     

 

 

       

 

 

 
            June 30, 2018  
     

 

 

 
                1 – 4 Family                     Consumer      
     

 

 

 
            (Dollars in Thousands)  

Performing

       $            72,002      $          3,163  

Non-performing

        235           -  
     

 

 

       

 

 

 

Total

       $            72,237      $          3,163  
     

 

 

       

 

 

 

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

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

 

30


Table of Contents

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

The Company had no unallocated loss allowance balances at March 31, 2019 and June 30, 2018.

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

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

 

          For the three months ended
March 31, 2019
 
          First Mortgage Loans                                
              1 – 4
    Family
            Construction             Land
  Acquisition &  
Development
          Multi-
  family  
            Commercial               Consumer  
Loans
            Commercial  
Loans
            Total    
   

 

 

 
          (Dollars in Thousands)  

Beginning ALLL Balance at December 31, 2018

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

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      6         8         -         (1       (1       (3       -         9  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2019

  $         379     $         33     $         10     $         17     $         38     $         30     $         3     $         510  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      379         33         10         17         38         30         3         510  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         379     $         33     $         10     $         17     $         38     $         30     $         3     $         510  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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          For the nine months ended
March 31, 2019
 
          First Mortgage Loans                                
          1 – 4
  Family  
            Construction             Land
  Acquisition &  
Development
          Multi-
  family  
            Commercial               Consumer  
Loans
            Commercial  
Loans
            Total    
   

 

 

 
                      (Dollars in Thousands)  

Beginning ALLL Balance at June 30, 2018

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

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      23         9         10         (1       3         (1       (1       42  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2019

  $         379     $         33     $         10     $         17     $         38     $         30     $         3     $         510  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      379         33         10         17         38         30         3         510  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         379     $         33     $         10     $         17     $         38     $         30     $         3     $         510  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
          For the three months ended
March 31, 2018
 
          First Mortgage Loans                                
          1 – 4
  Family  
            Construction             Land
  Acquisition &  
Development
          Multi-
  family  
            Commercial               Consumer  
Loans
            Commercial  
Loans
            Total    
   

 

 

 
                      (Dollars in Thousands)  

Beginning ALLL Balance at December 31, 2017

  $         327     $         26     $         -     $         19     $         20     $         34     $         4     $         430  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      13         (1       -         -         -         (2       -         10  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2018

  $         340     $         25     $         -     $         19     $         20     $         32     $         4     $         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      340         25         -         19         20         32         4         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         340     $         25     $         -     $         19     $         20     $         32     $         4     $         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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Table of Contents
          For the nine months ended
March 31, 2018
 
          First Mortgage Loans                                
          1 – 4
    Family  
            Construction             Land
  Acquisition &  
Development
          Multi-
  family  
            Commercial               Consumer  
Loans
            Commercial  
Loans
            Total    
   

 

 

 
          (Dollars in Thousands)  

Beginning ALLL Balance at June 30, 2017

  $         305     $         30     $         5     $         20     $         20     $         34     $         4     $         418  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      35         (5       (5       (1       -         (2       -         22  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2018

  $         340     $         25     $         -     $         19     $         20     $         32     $         4     $         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      340         25         -         19         20         32         4         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $         340     $         25     $         -     $         19     $         20     $         32     $         4     $         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

During the three months ended March 31, 2019, the primary changes to the ALLL were comprised of a $6 thousand increase attributable to 1-4 family loans and an $8 thousand increase attributable to construction loans which were partially offset by a $3 thousand decrease attributable to consumer loans.

During the nine months ended March 31, 2019, the ALLL associated with 1-4 family, construction and land acquisition and development loans increased $23 thousand, $9 thousand and $10 thousand, respectively. The primary reason for the changes in the ALLL balance for both periods of 2019, in total, and within the identified segments are volume related changes in applicable loan balances.

For the three and nine month periods ended March 31, 2018, the ALLL associated with the 1-4 family loan portfolio increased by $13 thousand and $35 thousand, respectively, primarily due to an increase in the Company’s reserve factor on the 1-4 family permanent loan segment. Additionally, the 1-4 family loan balances increased during these periods. For both periods of 2018, the changes in the ALLL balances associated with the other loan segments were driven by changes in the applicable loan balances.

 

Loan Segment

 

03/31/2019 Factor

 

06/30/2018 Factor

1 – 4 family-permanent   0.47%   0.46%

 

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Table of Contents
11.

FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of March 31, 2019 and June 30, 2018.

 

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

    Description    

         from            to              interest rate3             from             to                2019              2018  
                                            (Dollars in Thousands)  

Fixed

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

Adjustable

     10/01/20        10/01/21        2.47%       2.62%       2.86%          85,000           -  
                 

 

 

       

 

 

 

Total

               $          100,000      $          -  
                 

 

 

       

 

 

 

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

 

Maturing During

                Fiscal Year Ended                

                        June 30:                        

                        Amount                        Weighted-
      Average      
Interest
Rate
 
     (Dollars in Thousands)         

2019

   $          -           -  

2020

        -           -  

2021

        65,000           2.73%  

2022

        30,000           2.89%  

2023

        5,000           3.09%  

2024 and thereafter

        -           -  
     

 

 

       

Total

   $          100,000           2.80%  
     

 

 

       

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

The Company also utilized revolving and short-term FHLB advances. Short-term FHLB advances generally mature within 90 days, while revolving FHLB advances may be repaid by the Company without penalty. The following table presents information regarding such advances as of March 31, 2019 and June 30, 2018:

 

                 March 31,        
2019
                 June 30,        
2018
 
    

 

 

 
         (Dollars in Thousands)  

FHLB revolving and short-term advances:

         

Ending balance

  $      71,922     $      171,403  

Average balance

       94,806          167,306  

Maximum month-end balance

       161,289          179,791  

Average interest rate

       2.42        1.60

Weighted-average rate

       2.70        2.12

 

 

³

As of March 31, 2019

 

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At March 31, 2019, the Company had remaining borrowing capacity with the FHLB of approximately $2.5 million.

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

 

12.

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

 

Level I:   

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:   

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III:   

Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Assets Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

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

The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of March 31, 2019 and June 30, 2018, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

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Table of Contents
            March 31, 2019  
                  Level I                         Level II                         Level III                         Total        
            (Dollars in Thousands)  

Assets measured on a recurring basis:

                       

Investment securities – available for sale:

                       

Corporate securities

   $