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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 December 31, 2015

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      YES  X   NO     

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

Large accelerated filer                Accelerated filer         
Non-accelerated filer          (Do not check if a smaller reporting company)       Smaller reporting company   X  

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 

Shares outstanding as of February 10, 2016: 2,039,129 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
December 31, 2015 and June 30, 2015
(Unaudited)
   3   
     Consolidated Statement of Income
for the Three and Six Months Ended
December 31, 2015 and 2014 (Unaudited)
   4   
     Consolidated Statement of Comprehensive
Income for the Three and Six Months Ended
December 31, 2015 and 2014 (Unaudited)
   5   
     Consolidated Statement of Changes in
Stockholders’ Equity for the Six Months
Ended December 31, 2015 (Unaudited)
   6   
     Consolidated Statement of Cash Flows
for the Six Months Ended December 31, 2015
and 2014 (Unaudited)
   7   
     Notes to Unaudited Consolidated
Financial Statements
   9   
Item 2.      Management’s Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and Six Months
Ended December 31, 2015
   42   
Item 3.      Quantitative and Qualitative Disclosures
about Market Risk
   50   
Item 4.      Controls and Procedures    56   

PART II.

       

Other Information

  

Page

    
Item 1.      Legal Proceedings    57   
Item 1A.      Risk Factors    57   
Item 2.      Unregistered Sales of Equity Securities and
Use of Proceeds
   57   
Item 3.      Defaults Upon Senior Securities    58   
Item 4.      Mine Safety Disclosures    58   
Item 5.      Other Information    58   
Item 6.      Exhibits    59   
     Signatures    60   

 

2


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)

 

         December 31, 2015                 June 30, 2015          

Assets

    

Cash and due from banks

                 $      2,594        $      1,839   

Interest-earning demand deposits

     280        1,734   
  

 

 

   

 

 

 

Total cash and cash equivalents

     2,874        3,573   

Certificates of deposit

     350        350   

Investment securities available-for-sale (amortized cost of $93,074 and $66,968)

     92,803        66,916   

Investment securities held-to-maturity (fair value of $11,328 and $36,979)

     11,029        36,618   

Mortgage-backed securities held-to-maturity (fair value of $152,461 and $163,265)

     152,038        162,639   

Net loans receivable (allowance for loan losses of $351 and $304)

     57,784        46,163   

Accrued interest receivable

     1,433        1,198   

Federal Home Loan Bank (FHLB) stock, at cost

     6,471        6,619   

Premises and equipment, net

     588        630   

Bank owned life insurance

     4,343        4,276   

Deferred tax assets (net)

     563        524   

Other assets

     142        210   
  

 

 

   

 

 

 

TOTAL ASSETS

                 $  330,418                    $  329,716   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits

    

Non-interest-bearing accounts

     $    19,776        $    17,806   

NOW accounts

     22,628        20,238   

Savings accounts

     44,824        45,092   

Money market accounts

     23,752        23,601   

Certificates of deposit

     29,558        31,326   

Advance payments by borrowers for taxes and insurance

     918        865   
  

 

 

   

 

 

 

Total deposits

     141,456        138,928   

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

     12,500        12,500   

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

     105,305        105,305   

Federal Home Loan Bank advances: short-term

     35,133        37,830   

Accrued interest payable

     168        156   

Other liabilities

     3,527        2,954   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     298,089        297,673   
  

 

 

   

 

 

 

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; 2,039,129 and 2,040,719 shares outstanding

     38        38   

Additional paid-in capital

     21,485        21,485   

Treasury stock: 1,766,507 and 1,764,917 shares at cost, respectively

     (26,905     (26,886

Retained earnings, substantially restricted

     39,713        39,353   

Accumulated other comprehensive loss

     (541     (461

Unallocated Employee Stock Ownership Plan (“ESOP”) shares

     (1,461     (1,486
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     32,329        32,043   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

     $  330,418        $  329,716   
  

 

 

   

 

 

 

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    
December 31,
         Six Months Ended    
December 31,
 
     2015      2014      2015      2014  

INTEREST AND DIVIDEND INCOME:

           

Loans, including fees

         $          567             $          380             $          1,089             $          752   

Investment securities—taxable

     461         336         968         631   

Mortgage-backed securities

     509         754         1,023         1,549   

Certificates of deposit

     2         2         3         4   

Interest-earning demand deposits

     -         -         1         -   

FHLB Stock

     83         65         174         120   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividend income

     1,622         1,537         3,258         3,056   
  

 

 

    

 

 

    

 

 

    

 

 

 

INTEREST EXPENSE:

           

Deposits

     54         55         106         114   

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

     142         142         284         284   

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

     91         73         173         143   

Federal Home Loan Bank advances – short-term

     32         15         60         32   

Other short-term borrowings

     1         -         8         -   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     320         285         631         573   
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INTEREST INCOME

     1,302         1,252         2,627         2,483   

PROVISION FOR LOAN LOSSES

     28         18         47         21   
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

     1,274         1,234         2,580         2,462   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST INCOME:

           

Service charges on deposits

     41         44         84         86   

Earnings on Bank Owned Life Insurance

     33         35         67         70   

Investment securities gains

     21         -         21         -   

Other

     61         66         124         128   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest income

     156         145         296         284   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST EXPENSE:

           

Salaries and employee benefits

     565         549         1,108         1,082   

Occupancy and equipment

     80         78         164         155   

Data processing

     56         58         114         118   

Correspondent bank service charges

     10         9         20         19   

Federal deposit insurance premium

     49         45         98         91   

Other

     184         249         381         438   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest expense

     944         988         1,887         1,903   
  

 

 

    

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     486         391         989         843   

INCOME TAX EXPENSE

     193         125         385         278   
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME

     $          293         $          266         $          604         $          565   
  

 

 

    

 

 

    

 

 

    

 

 

 

EARNINGS PER SHARE:

           

Basic

     $         0.15         $         0.14         $         0.32         $         0.29   

Diluted

     $         0.15         $         0.14         $         0.32         $         0.29   

AVERAGE SHARES OUTSTANDING:

           

Basic

     1,910,190         1,949,046         1,909,026         1,954,213   

Diluted

     1,910,190         1,949,046         1,909,026         1,954,213   

See accompanying notes to unaudited consolidated financial statements.

 

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Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)

 

     Three Months Ended
December 31,
    Six Months Ended
December 31,
 
         2015             2014             2015             2014      

NET INCOME

           $ 293              $ 266              $ 604              $ 565   

OTHER COMPREHENSIVE INCOME (LOSS)

        

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

        

Losses arising during the year

     (211     (97     (199     (159

Less: Income tax effect

     (72     (34     (68     (55
  

 

 

   

 

 

   

 

 

   

 

 

 
     (139     (63     (131     (104

Gains recognized in earnings

     (21     -        (21     -   

Income tax effect

     (7     -        (7     -   
  

 

 

   

 

 

   

 

 

   

 

 

 
     (14     -        (14     -   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (153     (63     (145     (104
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

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

     45        39        99        100   

Less: Income tax effect

     16        14        34        35   
  

 

 

   

 

 

   

 

 

   

 

 

 
     29        25        65        65   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     29        25        65        65   
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holdings losses on securities, net

     (124     (38     (80     (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss

     (124     (38     (80     (39
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME

           $   169              $   228              $   524              $   526   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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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 June 30, 2015

    $    38        $ 21,485          $ (26,886       $ 39,353          $ (461       $    (1,486       $32,043   

Net income

          604            604   

Other comprehensive loss

            (80       (80

Purchase of treasury stock (1,590 shares)

        (19           (19

Release of ESOP shares

              25        25   

Cash dividends declared ($0.12 per share)

          (244         (244
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance December 31, 2015

        $    38          $ 21,485          $ (26,905       $ 39,713          $ (541       $ (1,461       $32,329   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
December 31,
 
           2015                 2014        

OPERATING ACTIVITIES

    

Net income

       $       604          $        565   

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

    

Provision for loan losses

     47        21   

Depreciation

     49        43   

Gain on sale of other real estate owned

     -        (5

Gain on sale of investment securities

     (21     -   

Amortization of discounts, premiums and deferred loan costs

     1,048        196   

Deferred income taxes

     (39     (3

Increase (decrease) in prepaid/accrued income taxes

     15        (44

Earnings on bank owned life insurance

     (67     (70

(Increase) decrease in accrued interest receivable

     (235     30   

Increase (decrease) in accrued interest payable

     12        (10

Increase in deferred director compensation payable

     14        7   

Other, net

     137        94   
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,564        824   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Available-for-sale:

    

Purchase of investment securities

     (37,399     (1,826

Proceeds from repayments of investments

     9,714        8,333   

Sale of investment securities

     1,024        -   

Held-to-maturity:

    

Purchases of investment securities

     (9,358     (26,720

Purchases of mortgage-backed securities

     (6,750     (11,958

Proceeds from repayments of investments

     34,966        19,688   

Proceeds from repayments of mortgage-backed securities

     17,473        32,892   

Purchase of certificates of deposit

     (100     (100

Maturities/redemptions of certificates of deposit

     100        348   

Increase in net loans receivable

     (11,667     (6,058

Proceeds from sale of other real estate owned

     -        251   

Purchase of FHLB stock

     (3,167     (8,385

Redemption of FHLB stock

     3,315        9,703   

Acquisition of premises and equipment

     (7     (59
  

 

 

   

 

 

 

Net cash (used for) provided by investing activities

     (1,856     16,108   
  

 

 

   

 

 

 

 

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WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
December 31,
 
           2015                 2014        

FINANCING ACTIVITIES

    

Net increase in transaction and savings accounts

   $ 4,243      $ 1,262   

Net decrease in certificates of deposit

     (1,768     (1,817

Net increase in advance payments by borrowers for taxes and insurance

     53        125   

Proceeds from FHLB long-term advances – variable rate

     -        6,109   

Net decrease in FHLB short-term advances

     (2,697     (21,226

Purchase of treasury stock

     (19     (72

Increase in unallocated ESOP shares

     -        (248

Release of ESOP shares

     25        -   

Cash dividends paid

     (244     (165
  

 

 

   

 

 

 

Net cash used for financing activities

     (407     (16,032
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (699     901   

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

     3,573        1,360   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

   $   2,874      $   2,261   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest on deposits and borrowings

   $      619      $      583   

Income taxes

   $      367      $      312   

Non-cash items:

    

Unsettled security purchases

   $      549      $           -   

Bonds received from issuer exchange offer

   $   1,002      $           -   

Educational Improvement Tax Credit

   $           -      $        33   

Mortgage loans transferred to other real estate owned

   $           -      $      246   

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 six months ended December 31, 2015, are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

 

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In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. The Company has included the disclosures related to this Update in Note 11.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

 

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In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from U.S. GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-04, Compensation – Retirement Benefits (Topic 715), as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years

 

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beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

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

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation And Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.

 

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The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) 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 (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company 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. 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
December 31,
    Six Months Ended
December 31,
 
             2015                     2014                     2015                     2014          

Weighted average common shares issued

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

Average treasury stock shares

     (1,766,507     (1,755,206     (1,766,429     (1,754,866

Average unallocated ESOP shares

     (128,939     (101,384     (129,481     (96,557
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     1,910,190        1,949,046        1,909,726        1,954,213   

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

     -        -        -        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     1,910,190        1,949,046        1,909,726        1,954,213   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 December 31, 2015, and 2014, there were 114,519 options outstanding with an exercise price of $16.20 which were anti-dilutive for the three and six month periods.

 

4. STOCK BASED COMPENSATION DISCLOSURE

The Company’s 2008 Stock Incentive Plan (the “Plan”), which was approved by shareholders in October 2008, permits 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 are 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 vest over five years of continuous service and have ten-year contractual terms.

During the six month periods ended December 31, 2015 and 2014, the Company recorded $0 in compensation expense related to our share-based compensation awards. As of December 31, 2015, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009.

The Company had no non-vested stock options outstanding at December 31, 2015 and 2014. There were no stock options exercised or issued during the six months ended December 31, 2015 and 2014.

 

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5. INVESTMENT SECURITIES

The amortized cost and fair values of investments are as follows:

 

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

December 31, 2015

     

AVAILABLE FOR SALE

                      

Corporate debt securities

   $           86,670       $           11       $           (271   $           86,410   

Foreign debt securities 1

        5,702            -            (12        5,690   

Obligations of states and political subdivisions

        702            1            -           703   
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $           93,074       $           12       $           (283   $           92,803   
     

 

 

       

 

 

       

 

 

      

 

 

 

 

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

December 31, 2015

     

HELD TO MATURITY

                       

U.S. government agency securities

   $           2,127       $           3       $           -       $           2,130   

Corporate debt securities

        3,547            251            -            3,798   

Obligations of states and political subdivisions

        5,355            45            -            5,400   
     

 

 

       

 

 

       

 

 

       

 

 

 

Total

   $           11,029       $           299       $           -       $           11,328   
     

 

 

       

 

 

       

 

 

       

 

 

 

 

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

June 30, 2015

     

AVAILABLE FOR SALE

                      

Corporate debt securities

   $           60,968       $           63       $           (93   $           60,938   

Foreign debt securities 1

        5,298            -            (17        5,281   

Obligations of states and political subdivisions

        702            -            (5        697   
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $           66,968       $           63       $           (115   $           66,916   
     

 

 

       

 

 

       

 

 

      

 

 

 

 

 

 

 

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

 

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

June 30, 2015

     

HELD TO MATURITY

                      

U.S. government agency securities

   $           27,395       $           5       $           (94   $           27,306   

Corporate debt securities

        3,868            371            -           4,239   

Obligations of states and political subdivisions 2

        5,355            79            -           5,434   
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $           36,618       $           455       $           (94   $           36,979   
     

 

 

       

 

 

       

 

 

      

 

 

 

During the three and six months ended December 31, 2015, the Company recorded gross realized investment securities gains of $21 thousand. Proceeds from sales of investment during the three and six months ended December 31, 2015 were $1.0 million. There were no sales of investment securities for the three and six months ended December 31, 2014.

The amortized cost and fair values of debt securities at December 31, 2015, 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
two years
         Due after
two through
three years
         Due after
three through
five years
         Due after
five through
ten years
         Due after
ten years
         Total  
         (Dollars in Thousands)  

AVAILABLE FOR SALE

                                  

Amortized cost

  $      48,229      $      43,852      $      -      $      993      $      -      $      -      $      93,074   

Fair value

       48,145           43,669           -           989           -           -           92,803   

Weighted average yield

       1.43        1.60        -        1.87        -        -        1.51

HELD TO MATURITY

                                  

Amortized cost

  $      524      $      2,338      $      2,045      $      1,250      $      2,745      $      2,127      $      11,029   

Fair value

       539           2,413           2,206           1,260           2,780           2,130           11,328   

Weighted average yield

       6.15        4.54        5.22        2.77        3.34        1.84        3.72

At December 31, 2015, investment securities with amortized costs of $3.5 million, and fair values of $3.5 million were pledged to secure borrowings with the Federal Home Loan Bank (“FHLB”). At June 30, 2015, no investment securities were pledged to secure public deposits, repurchase agreements, or borrowings with the Federal Home Loan Bank.

 

6. MORTGAGE-BACKED SECURITIES

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

 

 

 

 

 

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

 

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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 December 31, 2015, the Company’s Agency CMOs totaled $150.3 million as compared to $160.6 million at June 30, 2015. The Company’s private-label CMOs totaled $1.7 million at December 31, 2015 as compared to $2.0 million at June 30, 2015. The $10.6 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $17.1 million and $383 thousand, respectively, which were partially offset by purchases of U.S. Government agency CMOs totaling $6.7 million. During the six months ended December 31, 2015, the Company received principal payments totaling $383 thousand on its private-label CMOs. At December 31, 2015, approximately $152.0 million or 100.0% (book value) of the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments, as compared to $162.6 million or 100.0% at June 30, 2015. Substantially all of the Company’s floating rate MBS 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 MBS 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 December 31, 2015. During the six months ending December 31, 2015, the Company reversed $99 thousand of non-credit unrealized holding losses on its three private-label CMOs with OTTI due to principal repayments. During the six months ended December 31, 2015, the Company recorded no additional credit impairment charges on its private-label CMO portfolio.

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

The following table sets forth information with respect to the Company’s private-label CMO portfolio as of December 31, 2015. At the time of purchase, all of our private-label CMOs were rated in the highest investment category by at least two ratings agencies.

 

          At December 31, 2015  
          Rating    Book
     Value     
     Fair
  Value3  
    

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            $ 920               $ 1,183                   $  201   

126694KF4

   CWHL SER 24 A15    D    N/A    D      625         653         118   

126694MP0

   CWHL SER 26 1A5    D    N/A    D      195         204         36   
              

 

 

    

 

 

    

 

 

 
                       $  1,740               $  2,040                   $ 355   
              

 

 

    

 

 

    

 

 

 

 

 

 

 

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

 

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The amortized cost 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)  

December 31, 2015

                    

HELD TO MATURITY

                    

Collateralized mortgage obligations:

                    

Agency

  $          150,298       $           1,002       $           (879   $           150,421   

Private-label

      1,740            300            -           2,040   
   

 

 

       

 

 

       

 

 

      

 

 

 

Total

  $          152,038       $           1,302       $           (879   $           152,461   
   

 

 

       

 

 

       

 

 

      

 

 

 
         

   Amortized   

Cost

           

Gross

  Unrealized  

Gains

           

Gross

  Unrealized  

Losses

          

Fair

    Value    

 
   

 

 

 
          (Dollars in Thousands)  

June 30, 2015

   

HELD TO MATURITY

                    

Collateralized mortgage obligations:

                    

Agency

  $          160,614       $           1,130       $           (909   $           160,835   

Private-label

      2,025            405            -           2,430   
   

 

 

       

 

 

       

 

 

      

 

 

 

Total

  $          162,639       $           1,535       $           (909   $           163,265   
   

 

 

       

 

 

       

 

 

      

 

 

 

The amortized cost and fair value of the Company’s mortgage-backed securities at December 31, 2015, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

        Due in
     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

  $     -      $     -      $     -      $     152,038      $     152,038   

Fair value

      -          -          -          152,461          152,461   

Weighted average yield

      -       -       -       1.40       1.40

At December 31, 2015, mortgage-backed securities with amortized costs of $150.3 million and fair values of $150.4 million were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $32.2 million of fair value was excess collateral. At June 30, 2015 mortgage-backed securities with an amortized cost of $144.1 million and fair values of $144.2 million, were pledged to secure public deposits and borrowings with the Federal Home Loan Bank. Of the securities pledged, $6.7 million of fair value was excess collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

 

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7. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in accumulated other comprehensive loss by component, for the three and six months ended December 31, 2015 and 2014.

 

    Three Months Ended December 31, 2015  
    (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 – September 30, 2015

    $ (27     $ (390     $ (417

Other comprehensive income (loss) before reclassifications

      (139     29        (110

Amounts reclassified from accumulated other comprehensive loss

    (14     -        (14
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    (153     29        (124
 

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2015

    $ (180     $ (361     $ (541
 

 

 

   

 

 

   

 

 

 
    Six Months Ended December 31, 2015  
    (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, 2015

    $ (35     $ (426     $ (461

Other comprehensive income (loss) before reclassifications

    (131     65        (66

Amounts reclassified from accumulated other comprehensive loss

    (14     -        (14
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    (145     65        (80
 

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2015

    $ (180     $ (361     $ (541
 

 

 

   

 

 

   

 

 

 

 

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The following table presents the amounts reclassified out of accumulated other comprehensive income for the three and six months ended December 31, 2015.

 

     Amount Reclassified from Accumulated Other
Comprehensive Income
     

Details About Accumulated

    Other Comprehensive Income Components:

   Three months ended
December 31, 2015
    Six months ended
December 31, 2015
   

Affected Line Item in the

Statement Where Net

Income is Presented

     (Dollars in Thousands)      

Unrealized gains and losses on available-for-sale securities

     $ (21     $ (21   Investment security gains
  

 

 

   

 

 

   
     (21     (21   Total before tax
     (7     (7   Income tax expense
  

 

 

   

 

 

   
     (14     (14   Net of tax
  

 

 

   

 

 

   

Total reclassifications for the period

     $ (14     $ (14   Net of tax
  

 

 

   

 

 

   

 

    Three Months Ended December 31, 2014  
    (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 – September 30, 2014

  $ 89      $ (510   $ (421

Other comprehensive income (loss) before reclassifications

    (63     25        (38

Amounts reclassified from accumulated other comprehensive income (loss)

    -        -        -   
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    (63     25        (38
 

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2014

  $ 26      $ (485   $ (459
 

 

 

   

 

 

   

 

 

 
    Six Months Ended December 31, 2014  
    (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, 2014

  $ 130      $ (550   $ (420

Other comprehensive income (loss) before reclassifications

    (104     65        (39

Amounts reclassified from accumulated other comprehensive income (loss)

    -        -        -   
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    (104     65        (39
 

 

 

   

 

 

   

 

 

 

Ending Balance – December 31, 2014

  $ 26      $ (485   $ (459
 

 

 

   

 

 

   

 

 

 

 

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There were no amounts reclassified out of accumulated other comprehensive income for the three and six months ended December 31, 2014.

8. UNREALIZED LOSSES ON SECURITIES

The following tables show the Company’s gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2015 and June 30, 2015.

 

            December 31, 2015  
 

 

 
            Less Than Six Months         Six through Twelve Months         Twelve Months or Greater         Total  
 

 

 
           

Fair

Value

       

Gross

Unrealized

Losses

       

Fair

Value

     

Gross

Unrealized

Losses

       

Fair

Value

       

Gross

Unrealized

Losses

       

Fair

Value

       

Gross

Unrealized

Losses

 
 

 

 
        (Dollars in Thousands)          

Corporate debt securities

    $     48,814      $     (135   $   24,884   $     (136   $     -      $     -      $     73,698      $     (271

Foreign Debt Securities 4

        5,691          (12     -       -          -          -          5,691          (12

Collateralized mortgage obligations:

                                 

Agency

        13,590          (49     3,899       (5       32,059          (825       49,548          (879
     

 

 

     

 

 

     

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

    $     68,095      $     (196   $   28,783   $     (141   $     32,059      $     (825   $     128,937      $     (1,162
     

 

 

     

 

 

     

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

            June 30, 2015  
 

 

 
            Less Than Six Months         Six through Twelve Months         Twelve Months or Greater         Total  
 

 

 
           

Fair

Value

       

Gross

Unrealized

Losses

       

Fair

Value

     

Gross

Unrealized

Losses

       

Fair

Value

       

Gross

Unrealized

Losses

       

Fair

Value

       

Gross

Unrealized

Losses

 
 

 

 
        (Dollars in Thousands)          

Corporate debt securities

    $     28,284      $     (88   $   1,285   $     (5   $     -      $     -      $     29,569      $     (93

Foreign Debt Securities 4

        4,780          (16     501       (1       -          -          5,281          (17

U.S. government agency securities

        21,318          (94     -       -          -          -          21,318          (94

Obligations of states and political subdivisions

        697          (5     -       -          -          -          697          (5

Collateralized mortgage obligations:

                                 

Agency

        22,504          (121     21,243       (663       16,092          (125       59,839          (909
     

 

 

     

 

 

     

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

    $     77,583      $     (324   $   23,029   $     (669   $     16,092      $     (125   $     116,704      $     (1,118
     

 

 

     

 

 

     

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

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

 

 

 

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

 

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

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

 

     Three Months Ended
December 31,
    Six Months Ended
December 31,
 
  

 

 

 
             2015                     2014                     2015                     2014          
     (Dollars in Thousands)  

Beginning balance

     $234        $292        $248        $302   

Initial credit impairment

     -        -        -        -   

Subsequent credit impairment

     -        -        -        -   

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

     -        -        -        -   

Reductions for securities sold

     -        -        -        -   

Reduction for actual realized losses

     (3     (19     (17     (29

Reduction for increase in cash flows expected to be collected

     -        -        -        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

     $231        $273        $231        $273   
  

 

 

   

 

 

   

 

 

   

 

 

 

During the three and six months ended December 31, 2015, the Company recorded no credit impairment charge and no non-credit unrealized holding loss to accumulated other comprehensive income. During the three and six months ended December 31, 2015, the Company accreted back into other comprehensive income $29 thousand and $65 thousand, respectively, (net of income tax effect of $16 thousand and $34 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.

 

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Table of Contents

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 analyses 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 December 31, 2015 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. Management believes that no additional private-label CMOs in the portfolio had an other-than-temporary impairment at December 31, 2015, keeping the total at three private-label CMOs with OTTI at December 31, 2015.

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

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

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

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 64 positions that were impaired at December 31, 2015. 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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Table of Contents
9. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of December 31, 2015 and June 30, 2015.

 

         December 31, 2015         

June 30, 2015

 
        

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

  $      39,328      $      -      $      39,328         $      28,620      $      -      $      28,620   

Construction

       4,892           -           4,892              3,032           -           3,032   

Land acquisition & development

       831           -           831              653           -           653   

Multi-family dwellings

       5,900           -           5,900              6,084           -           6,084   

Commercial

       2,853           -           2,853              3,395           49           3,346   

Consumer Loans

                                

Home equity

       833           -           833              1,175           -           1,175   

Home equity lines of credit

       1,897           -           1,897              1,917           -           1,917   

Other

       178           -           178              211           -           211   

Commercial Loans

       1,177           -           1,177              1,251           -           1,251   

Obligations (other than securities and leases) of states and political subdivisons

       -           -           -              -           -           -   
    

 

 

      

 

 

      

 

 

         

 

 

      

 

 

      

 

 

 
  $      57,889      $                         -      $      57,889         $              46,338      $                      49      $                  46,289   
         

 

 

      

 

 

              

 

 

      

 

 

 

Plus: Deferred loan costs

       246                        129             

  Allowance for loan losses

       (351                     (304          
    

 

 

                   

 

 

           

Total

  $              57,784                   $      46,163             
    

 

 

                   

 

 

           

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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Table of Contents

The following tables are a summary of the loans considered to be impaired as of December 31, 2015 and June 30, 2015, and the related interest income recognized for the three and six months ended December 31, 2015 and December 31, 2014:

 

                 December 31,        
2015
                 June 30,        
2015
 
         (Dollars in Thousands)  

Impaired loans with an allocated allowance:

         

Home equity lines of credit

  $      -      $      -   

Impaired loans without an allocated allowance:

         

Commercial real estate loans

           -           49   
    

 

 

      

 

 

 

Total impaired loans

  $      -      $      49   
    

 

 

      

 

 

 

Allocated allowance on impaired loans:

         

Home equity lines of credit

  $      -      $      -   

Commercial real estate loans

       -           -   
    

 

 

      

 

 

 

Total

  $      -      $      -   
    

 

 

      

 

 

 

 

            Three Months Ended             Six Months Ended  
                December 31,    
2015
                December 31,    
2014
                December 31,    
2015
                December 31,    
2014
 
            (Dollars in Thousands)  

Average impaired loans

                       

Construction loans

   $           -       $           -       $           -       $           -   

Land acquisition & development loans

        -            -            -            -   

Commercial real estate loans

        -            49            24            49   

Home equity lines of credit

        -            150            -            150   
     

 

 

       

 

 

       

 

 

       

 

 

 

Total

   $             -       $             199       $             24       $             199   
     

 

 

       

 

 

       

 

 

       

 

 

 

Income recognized on impaired loans

                       

Construction loans

   $           -       $           -       $           -       $           -   

Land acquisition & development loans

        -            -            -            -   

Commercial real estate loans

        -            1            1            1   

Home equity lines of credit

        -            -            -            1   
     

 

 

       

 

 

       

 

 

       

 

 

 

Total

   $           -       $           1       $           1       $           2   
     

 

 

       

 

 

       

 

 

       

 

 

 

Total nonaccrual loans as of December 31, 2015 and June 30, 2015 and the related interest income recognized for the three and six months ended December 31, 2015 and December 31, 2014 are as follows:

 

                   December 31,        
2015
                    June 30,        
2015
 
           (Dollars in Thousands)  

Principal outstanding

          

1 – 4 family dwellings

  $           257       $           260   

Construction

       -            -   

Land acquisition &

development

       -            -   

Commercial real estate

       -            49   

Home equity lines of credit

       -            -   
    

 

 

       

 

 

 

Total

  $           257       $           309   
    

 

 

       

 

 

 

 

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Table of Contents
          Three Months Ended           Six Months Ended  
              December 31,
2015
              December 31,    
2014
              December 31,    
2015
              December 31,    
2014
 
         

(Dollars in Thousands)

 

Average nonaccrual loans

               

1 – 4 family dwellings

  $          258      $          265      $          259      $          316   

Construction

      -          -          -          -   

Land acquisition & development

      -          -          -          -   

Commercial real estate

      -          49          24          49   

Home equity lines of credit

      -          150          -          150   
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

  $          258      $          464      $          283      $          515   
   

 

 

     

 

 

     

 

 

     

 

 

 

Income that would have been recognized

  $          4      $          7      $          9      $          14   

Interest income recognized

  $          5      $          7      $          11      $          14   

Interest income foregone

  $          -      $          2      $          -      $          4   

The Company’s loan portfolio also includes 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 six months ended December 31, 2015, there were no trouble debt restructurings, and no trouble debt restructurings that subsequently defaulted. One previously modified TDR, secured by commercial real estate, was paid off in full during the six months ended December 31, 2015.

The following tables include the recorded investment and number of modifications for modified loans, as of December 31, 2014. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.

 

     For the Three Months Ended  
     December 31, 2014  
  

 

 

 
    

Number

of

    Contracts    

         

    Pre-Modification    

Outstanding

Recorded

Investment

        

    Post-Modification    

Outstanding

Recorded

Investment

 
  

 

 

 
     (Dollars in Thousands)  

Troubled debt restructurings:

             

Commercial real estate

     -          $ -         $ -   

Troubled debt restructurings that subsequently defaulted:

             

Commercial real estate

     -          $ -         $ -   

 

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Table of Contents
     For the Six Months Ended  
     December 31, 2014   
  

 

 

 
    

Number

of
    Contracts    

             Pre-Modification    
Outstanding
Recorded
Investment
        

    Post-Modification    
Outstanding
Recorded

Investment

 
  

 

 

 
     (Dollars in Thousands)  

Troubled debt restructurings:

            

Commercial real estate

     1      $      49              $      49   

Troubled debt restructurings that subsequently defaulted:

            

Commercial real estate

     -      $      -              $      -     

One loan secured by commercial real estate was modified by reducing its required payment for a nine month period during the six months ended December 31, 2014.

There was one previously modified TDR, secured by a home equity line of credit, in default as of December 31, 2014.

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.

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

 

27


Table of Contents

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 December 31, 2015, is adequate.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2015 and June 30, 2015:

 

        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)  

December 31, 2015

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $       39,071      $       -      $       -      $       -      $       257      $       257      $       39,328   

Construction

      4,892          -          -          -          -          -          4,892   

Land acquisition & development

      831          -          -          -          -          -          831   

Multi-family dwellings

      5,900          -          -          -          -          -          5,900   

Commercial

      2,853          -          -          -          -          -          2,853   

Consumer Loans:

                           

Home equity

      833          -          -          -          -          -          833   

Home equity lines of credit

      1,897          -          -          -          -          -          1,897   

Other

      178          -          -          -          -          -          178   

Commercial Loans

      1,177          -          -          -          -          -          1,177   

Obligations (other than securities and leases) of states and political subdivisions

      -          -          -          -          -          -          -   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $               57,632      $       -      $       -      $       -      $       257      $               257          57,889   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan fees

                              246   

  Allowance for loan losses

                              (351
                           

 

 

 

Net Loans Receivable

                          $               57,784   
                           

 

 

 

 

28


Table of Contents
        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, 2015

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $       28,327      $       -      $       33      $       -      $       260      $       293      $       28,620   

Construction

      3,032          -          -          -          -          -          3,032   

Land acquisition & development

      653          -          -          -          -          -          653   

Multi-family dwellings

      6,084          -          -          -          -          -          6,084   

Commercial

      3,335          11          -          -          49          60          3,395   

Consumer Loans

                           

Home equity

      1,175          -          -          -          -          -          1,175   

Home equity lines of credit

      1,917          -          -          -          -          -          1,917   

Other

      211          -          -          -          -          -          211   

Commercial Loans

      1,251          -          -          -          -          -          1,251   

Obligations (other than securities and leases) of states and political subdivisions

      -          -          -          -          -          -          -   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $               45,985      $       11      $       33      $       -      $       309      $       353          46,338   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan fees

                              129   

  Allowance for loan losses

                              (304
                           

 

 

 

Net Loans Receivable

                          $               46,163   
                           

 

 

 

Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended December 31, 2015. 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.

 

29


Table of Contents

The following tables present the Company’s internally classified construction, land acquisition and development, multi-family residential, commercial real estate and commercial (not secured by real estate) loans at December 31, 2015 and June 30, 2015.

 

         December 31, 2015  
           Construction           

Land

Acquisition

&

  Development  

Loans

        

  Multi-family  

Residential

        

  Commercial  
Real

Estate

           Commercial           

Obligations
(other than

securities

and leases)

of States

and Political

  Subdivisions  

 
 

 

 
         (Dollars in Thousands)  

Pass

  $      4,892      $      680      $      5,900      $      2,853      $      1,177      $      -   

Special Mention

       -           -           -           -           -           -   

Substandard

       -           151           -           -           -           -   

Doubtful

       -           -           -           -           -           -   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Ending Balance

  $      4,892      $      831      $      5,900      $      2,853      $      1,177      $      -   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 
         June 30, 2015  
         Construction         

Land

Acquisition

&

Development

Loans

        

Multi-family

Residential

        

Commercial
Real

Estate

         Commercial         

Obligations
(other than

securities

and leases)

of States

and Political

Subdivisions

 
 

 

 
         (Dollars in Thousands)  

Pass

  $      3,032      $      445      $      6,084      $      3,346      $      1,251      $      -   

Special Mention

       -           -           -           -           -           -   

Substandard

       -           208           -           49           -           -   

Doubtful

       -           -           -           -           -           -   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Ending Balance

  $      3,032      $      653      $      6,084      $      3,395      $      1,251      $      -   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended December 31, 2015 and June 30, 2015.

 

         December 31, 2015  
 

 

 
             1 – 4 Family                    Consumer        
    

 

 

 
         (Dollars in Thousands)  

Performing

      $        39,071      $           2,908   

Non-performing

       257           -   
    

 

 

      

 

 

 

Total

  $                    39,328      $                       2,908   
    

 

 

      

 

 

 

 

         June 30, 2015  
 

 

 
             1 – 4 Family                    Consumer        
    

 

 

 
         (Dollars in Thousands)  

Performing

      $        28,360      $           3,303   

Non-performing

       260           -   
    

 

 

      

 

 

 

Total

  $                    28,620      $           3,303   
    

 

 

      

 

 

 

 

30


Table of Contents

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

Our methodology used to determine the allocated portion of the allowance is as follows. For groups of homogenous loans, we apply a loss rate to the groups’ aggregate balance. Our group loss rate reflects our historical loss experience. We may adjust these group rates to compensate for changes in environmental factors; but our adjustments have not been frequent due to a relatively stable charge-off experience. The Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans for individual evaluation under ASC Topic 310. If the individually identified loans are performing, we apply a segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed individually and considered individually impaired, we use one of the three methods for measuring impairment mandated by ASC Topic 310. Generally the fair value of collateral is used since our impaired loans are generally real estate based. In connection with the fair value of collateral measurement, the Company generally uses an independent appraisal and determines costs to sell. The Company’s appraisals for commercial income based loans, such as multi-family and commercial real estate loans, assess value based upon the operating cash flows of the business as opposed to merely “as built” values. The Company then 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 balance at December 31, 2015.

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 December 31, 2015 and 2014. Activity in the allowance is presented for the three and six months ended December 31, 2015 and 2014.

 

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Table of Contents
        As of December 31, 2015  
        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 September 30, 2015

  $     143      $          72      $     9      $     30      $     31      $     32      $     6      $     323   

Charge-offs

      -          -          -          -          -          -          -          -   

Recoveries

      -          -          -          -          -          -          -          -   

Provisions

      19          12          (1       (1       (2       -          1          28   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2015

  $     162      $          84      $     8      $     29      $     29      $     32      $     7      $     351   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      162          84          8          29          29          32          7          351   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $     162      $          84      $     8      $     29      $     29      $     32      $     7      $     351   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
        As of December 31, 2015  
        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, 2015

  $     125      $          63      $     9      $     30      $     34      $     37      $     6      $     304   

Charge-offs

      -          -          -          -          -          -          -          -   

Recoveries

      -          -          -          -          -          -          -          -   

Provisions

      37          21          (1       (1       (5       (5       1          47   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2015

  $     162      $          84      $     8      $     29      $     29      $     32      $     7      $     351   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      162          84          8          29          29          32          7          351   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $     162      $          84      $     8      $     29      $     29      $     32      $     7      $     351   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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Table of Contents
        As of December 31, 2014  
        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 September 30, 2014

  $     75      $          21      $     10      $     11      $     43      $     69      $     8      $     237   

Charge-offs

      -          -          -          -          -          -          -          -   

Recoveries

      -          -          -          -          -          -          -          -   

Provisions

      8          5          -          9          (2       (2       -          18   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2014

  $     83      $          26      $     10      $     20      $     41      $     67      $     8      $     255   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

  $     -      $          -      $     -      $     -      $     -      $     37      $     -      $     37   

Collectively evaluated for impairment

      83          26          -          -          41          30          8          218   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $     83      $          26      $     10      $     20      $     41      $     67      $     8      $     255   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
        As of December 31, 2014  
        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, 2014

  $     103      $          14      $     5      $     12      $     45      $     47      $     8      $     234   

Charge-offs

      -          -          -          -          -          -          -          -   

Recoveries

      -          -          -          -          -          -          -          -   

Provisions

      (20       12          5          8          (4       20          -          21   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at December 31, 2014

  $     83      $          26      $     10      $     20      $     41      $     67      $     8      $     255   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

  $     -      $          -      $     -      $     -      $     -      $     37      $     -      $     37   

Collectively evaluated for impairment

      83          26          -          -          41          30          8          218   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $     83      $          26      $     10      $     20      $     41      $     67      $     8      $     255   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

During the three months ended December 31, 2015, the ALLL associated with the 1 – 4 family and construction loan portfolios increased by $19 thousand and $12 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments were the increases in associated loan balances. The ALLL for commercial real estate loans decreased $2 thousand. The decrease in the ALLL associated with commercial real estate loans was primarily due to lower loan balances within this segment. The increase in the ALLL associated with the commercial (non-real estate) loan segment was primarily related to the higher loan balances within this segment.

During the six months ended December 31, 2015, the ALLL associated with the 1-4 family and construction loan portfolios increased by $37 thousand and $21 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments were the increases in associated loan balances. The ALLL associated with the commercial real estate loans and consumer loans decreased $5 thousand and $5 thousand, respectively. The decrease in the ALLL associated with

 

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commercial real estate loans was primarily due to the payoff of one non-performing loan in this segment, while the decrease in the ALLL associated with consumer loans was primarily due to lower loan balances within this segment.

During the fiscal year ended June 30, 2015, the Company also increased its ALLL reserve factors, due to increases in associated loan balances and qualitative factors throughout fiscal 2015, for the following loan segments:

 

Loan Segment

   12/31/2015 Factor   12/31/2014 Factor

1 – 4 family

   0.35%   0.25%

Construction:

    

1 – 4 family

   0.75%   0.25%

5+ family

   1.00%   0.50%

During the three months ended December 31, 2014, the ALLL associated with multi-family residential real estate loans, 1 – 4 family real estate loans, and construction loans increased $9 thousand, $8 thousand, and $5 thousand, respectively. The primary reason for the increases in the ALLL associated with these segments, were the increases in associated loan balances.

During the six months ended December 31, 2014, the ALLL associated with the consumer, construction, multi-family residential and land loans increased $20 thousand, $12 thousand, $8 thousand, and $5 thousand, respectively. The primary reason for the increases in the ALLL associated with the construction, multi-family residential, and land segments were the increases in associated loan balances. The increase in the ALLL associated with the consumer loan segment was primarily due to an increase in the ALLL associated with one non-performing home equity line of credit within this segment. During the six months ended December 31, 2014, the ALLL associated with 1-4 family real estate loans decreased $20 thousand. The primary reason for the decrease in the ALLL associated with the 1-4 family real estate loan was the transfer of one non-performing 1-4 family real estate loan to real estate owned.

 

10. FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of December 31, 2015 and June 30, 2015.

 

     Maturity range    Weighted-
average
   

Stated interest

rate range

        December 31,         June 30,  

Description

         from          to        interest rate 5         from     to         2015          2015  
                          (Dollars in Thousands)  

Convertible

   06/22/16        07/27/17          4.44     4.26     5.16         $     12,500      $     12,500   

Adjustable

   05/06/16    09/01/17      0.49     0.38     0.58       105,305          105,305   
                

 

 

     

 

 

 

Total

          $                 117,805      $         117,805   
                

 

 

     

 

 

 

 

 

 

5  As of December 31, 2015.

 

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Maturities of FHLB long-term advances at December 31, 2015, are summarized as follows:

 

Maturing During

Fiscal Year Ended

                     June 30:                    

       

         Amount          

  

Weighted-

Average

Interest

        Rate        

 
         (Dollars in Thousands)       

2016

  $    101,696      0.61

2017

     -      -   

2018

     16,109      2.81

2019

     -      -   

2020 and thereafter

     -      -   
    

 

  

Total

  $    117,805      0.91
    

 

  

The terms of the convertible advances reset to the three-month London Interbank Offered Rate (“LIBOR”) and have various spreads and call dates of three months. The FHLB has the right to convert from a fixed rate to a predetermined floating rate on its conversion date or quarterly thereafter. Should the advance be converted, the Company has the right to pay off the advance without penalty. The adjustable rate advances adjust either monthly or quarterly, based on the one-month or three-month LIBOR index, and have various spreads to the LIBOR index. The spreads to the applicable LIBOR index range from 0.05% to 0.17%. The adjustable rate 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 December 31, 2015 and June 30, 2015:

 

        

        December 31,        

2015

        

        June 30,        

2015

 
    

 

 

 
         (Dollars in Thousands)  

FHLB revolving and short-term advances:

         

Ending balance

  $      35,133      $      37,830   

Average balance

       32,410           23,496   

Maximum month-end balance

       41,489           37,830   

Average interest rate

       0.31        0.31

Weighted-average rate

       0.43        0.32

At December 31, 2015, the Company had remaining borrowing capacity with the FHLB of approximately $10.4 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.

 

11. OTHER BORROWINGS

Other borrowings include securities sold under agreements to repurchase with securities brokers (“repurchase agreements”). These borrowings generally mature within 1 to 90 days from the transaction date and require a collateral pledge. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

 

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Table of Contents

The following table presents information regarding other borrowings as of December 31, 2015 and June 30, 2015:

 

                 December 31,        
2015
                 June 30,        
2015
 
    

 

 

 
         (Dollars in Thousands)  

Other short-term borrowings:

         

Ending balance

  $      -      $      -   

Average balance

       3,906           1,378   

Maximum month-end balance

       9,700           9,464   

Average interest rate

       0.41        0.36

Weighted-average rate

       - %           - %   

The remaining contractual maturity of repurchase agreements in the consolidated balance sheet as of December 31, 2015 is presented in the following table.

 

                         Remaining Contractual Maturity of the  Repurchase Agreements                  
         Overnight and
Continuous
         Up to
30 Days
         30 – 90
Days
         Greater than
90 Days
               Total        

September 30, 2015

                        

Repurchase agreements:

  $              -      $                  -      $      -      $      -      $      -   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total borrowings

  $      -      $      -      $            -      $            -      $      -   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Gross amount of recognized liabilities for repurchase agreements

  

  $      -   
                        

 

 

 

Amounts related to agreements not included in offsetting disclosures above

  

  $      -   
                        

 

 

 

 

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

 

36


Table of Contents

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 December 31, 2015 and June 30, 2015, 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.

 

        December 31, 2015  
              Level I                     Level II                     Level III                     Total        
        (Dollars in Thousands)  

Assets measured on a recurring basis:

               

Investment securities – available for sale:

               

Obligations of states and political subdivisions

  $     -      $     703      $     -      $     703   

Corporate securities

      -          86,410          -          86,410   

Foreign debt securities 6

      -          5,690          -          5,690   
   

 

 

     

 

 

     

 

 

     

 

 

 
  $     -      $     92,803      $     -      $     92,803   
   

 

 

     

 

 

     

 

 

     

 

 

 
        June 30, 2015  
        Level I         Level II         Level III         Total  
        (Dollars in Thousands)  

Assets measured on a recurring basis:

               

Investment securities – available for sale:

               

Obligations of states and political subdivisions

  $     -      $     697      $     -      $     697   

Corporate securities

      -          60,938          -          60,938   

Foreign debt securities 6

      -          5,281          -          5,281   
   

 

 

     

 

 

     

 

 

     

 

 

 
  $     -      $     66,916      $     -      $     66,916   
   

 

 

     

 

 

     

 

 

     

 

 

 

Assets Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.

Impaired Loans

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

 

 

  6 

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

 

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Table of Contents

The following tables present the assets reported on a non-recurring basis on the consolidated balance sheet at their fair values as of December 31, 2015 and June 30, 2015, 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.

 

          December 31, 2015  
                Level I                       Level II                       Level III                       Total        
          (Dollars in Thousands)  

Assets measured on a non-recurring basis:

               

Impaired loans

  $          -      $          -      $          -      $          -   
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

  $          -      $          -      $          -      $          -   
   

 

 

     

 

 

     

 

 

     

 

 

 
          June 30, 2015  
          Level I           Level II           Level III           Total  
          (Dollars in Thousands)  

Assets measured on a non-recurring basis:

               

Impaired loans

  $          -      $          -      $          49      $          49   
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

  $          -      $          -      $          49      $          49   
   

 

 

     

 

 

     

 

 

     

 

 

 

For Level III assets measured at fair value on a recurring and non-recurring basis as of December 31, 2015 and June 30, 2015, the significant observable inputs used in the fair value measurements were as follows:

 

          Fair Value at                         
         

        December 31,        

2015

        

    June 30,    

2015

              Valuation
      Technique      
      Significant
    Unobservable    
Inputs
            Significant Unobservable      
Input Range (Weighted
Average)
   

 

 

    

 

   

 

   

 

          (Dollars in Thousands)                         

Impaired loans

  $          -         $             49            Appraisal of
collateral7
    Discounted
appraisal8
    0%/0%

When evaluating the value of the collateral on impaired loans, the Company will consider the age of the most current appraisal, and may discount the appraised value from 0.0% to 15.0%.

The Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation model for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly.

 

 

 

  7 

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

  8 

Appraisals may be adjusted by management for qualitative factors such as economic conditions. The range and weighted average of appraisal adjustments are presented as a percentage of the appraisals.

 

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Table of Contents
13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:

 

                   December 31, 2015                                             
         Carrying
Amount
         Fair
Value
             Level I                  Level II                  Level III      
         (Dollars in Thousands)  

FINANCIAL ASSETS

                        

Cash and cash equivalents

  $      2,874      $      2,874      $      2,874      $      -      $      -   

Certificates of deposit

       350           350           350           -           -   

Investment securities – available for sale

       92,803           92,803           -                   92,803           -   

Investment securities – held to maturity

       11,029           11,328           -           11,328           -   

Mortgage-backed securities – held to maturity:

                        

Agency

       150,298           150,421           -           150,421           -   

Private-label

       1,740           2,040           -           -                   2,040   

Net loans receivable

       57,784           58,133           -           -           58,133   

Accrued interest receivable

       1,433           1,433           1,433           -           -   

FHLB stock

       6,471           6,471           6,471           -           -   

Bank owned life insurance

       4,343           4,343           4,343           -           -   

FINANCIAL LIABILITIES

                        

Deposits:

                        

Non-interest bearing deposits

  $      19,776      $      19,776      $      19,776      $      -      $      -   

NOW accounts

       22,628           22,628           22,628           -           -   

Savings accounts

       44,824           44,824           44,824           -           -   

Money market accounts

       23,752           23,752           23,752           -           -   

Certificates of deposit

       29,558           29,447           -           -           29,447   

Advance payments by borrowers for taxes and insurance

       918           918           918           -           -   

FHLB long-term advances – fixed rate

       12,500           13,001           -           -           13,001   

FHLB long-term advances – variable rate

       105,305           105,305           105,305           -           -   

FHLB short-term advances

       35,133           35,133           35,133           -           -   

Accrued interest payable

       168           168           168           -           -   

 

39


Table of Contents
                     June 30, 2015                                             
           Carrying
Amount
         Fair
Value
             Level I                  Level II                  Level III      
           (Dollars in Thousands)  

FINANCIAL ASSETS

                        

Cash and cash equivalents

  $           3,573      $      3,573      $      3,573      $      -      $      -   

Certificates of deposit

       350           350           350           -           -   

Investment securities – available for sale

       66,916           66,916           -           66,916           -   

Investment securities – held to maturity

       36,618           36,979           -           36,979           -   

Mortgage-backed securities – held to maturity:

                      &nb