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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 March 31, 2018

or

 

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

For the transition period from               to               

Commission File 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

 

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

Shares outstanding as of May 11, 2018: 2,008,144 shares Common Stock, $.01 par value.


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX

 

PART I.

       

Financial Information

  

Page

    
Item 1.      Financial Statements      
     Consolidated Balance Sheet as of
March 31, 2018 and June 30, 2017
(Unaudited)
   3   
     Consolidated Statement of Income
for the Three and Nine Months Ended
March 31, 2018 and 2017 (Unaudited)
   4   
         Consolidated Statement of Comprehensive
Income for the Three and Nine Months Ended
March 31, 2018 and 2017 (Unaudited)
   5     
     Consolidated Statement of Changes in
Stockholders’ Equity for the Nine Months
Ended March 31, 2018 (Unaudited)
   6   
     Consolidated Statement of Cash Flows
for the Nine Months Ended March 31, 2018
and 2017 (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 Nine Months
Ended March 31, 2018
   40   
Item 3.      Quantitative and Qualitative Disclosures
about Market Risk
   47   
Item 4.      Controls and Procedures    51   

PART II.

        Other Information   

Page

    
Item 1.      Legal Proceedings    52   
Item 1A.      Risk Factors    52   
Item 2.      Unregistered Sales of Equity Securities and
Use of Proceeds
   52   
Item 3.      Defaults Upon Senior Securities    53   
Item 4.      Mine Safety Disclosures    53   
Item 5.      Other Information    53   
Item 6.      Exhibits    54   
     Signatures    55   

 

2


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)

 

        March 31, 2018             June 30, 2017      

Assets

   

Cash and due from banks

                $       2,362       $       1,944  

Interest-earning demand deposits

    4,501       328  
 

 

 

   

 

 

 

Total cash and cash equivalents

    6,863       2,272  

Certificates of deposit

    598       10,380  

Investment securities available-for-sale (amortized cost of $128,760 and $108,380)

    128,725       108,449  

Investment securities held-to-maturity (fair value of $6,163 and $8,815)

    6,186       8,678  

Mortgage-backed securities held-to-maturity (fair value of $120,966 and $130,181)

    119,747       129,321  

Net loans receivable (allowance for loan losses of $440 and $418)

    80,195       77,455  

Accrued interest receivable

    1,162       1,206  

Federal Home Loan Bank (FHLB) stock, at cost

    7,370       7,062  

Premises and equipment, net

    404       454  

Bank owned life insurance

    4,636       4,541  

Deferred tax assets (net)

    346       437  

Other assets

    209       1,354  
 

 

 

   

 

 

 

TOTAL ASSETS

                $  356,441                   $  351,609  
 

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

   

Liabilities:

   

Deposits

   

Non-interest-bearing accounts

    $    18,525       $    19,396  

Interest-earning checking accounts

    24,181       23,787  

Savings accounts

    44,331       45,524  

Money market accounts

    21,340       22,484  

Certificates of deposit

    30,737       32,313  

Advance payments by borrowers for taxes and insurance

    1,491       1,785  
 

 

 

   

 

 

 

Total deposits

    140,605       145,289  

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

    -       10,000  

Federal Home Loan Bank advances: long-term – variable

    -       6,109  

Federal Home Loan Bank advances: short-term

    179,791       155,799  

Accrued interest payable

    317       247  

Other liabilities

    1,558       1,122  
 

 

 

   

 

 

 

TOTAL LIABILITIES

    322,271       318,566  
 

 

 

   

 

 

 

Stockholders’ equity:

   

Preferred stock:

   

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

    -       -  

Common stock:

   

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

    38       38  

Additional paid-in capital

    21,507       21,485  

Treasury stock: 1,797,492 and 1,797,492 shares at cost, respectively

    (27,264     (27,264

Retained earnings, substantially restricted

    42,465       41,344  

Accumulated other comprehensive loss

    (256     (188

Unallocated Employee Stock Ownership Plan (“ESOP”) shares

    (2,320     (2,372
 

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

    34,170       33,043  
 

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $  356,441       $  351,609  
 

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except share and per share data)

 

         Three Months Ended              Nine Months Ended      
     March 31,      March 31,  
     2018      2017      2018     2017  

INTEREST AND DIVIDEND INCOME:

          

Loans, including fees

       $           748          $           699        $           2,222         $           2,002  

Investment securities - taxable

     766        553        2,085       1,564  

Mortgage-backed securities

     800        582        2,250       1,652  

Certificates of deposit

     16        40        70       82  

Interest-earning demand deposits

     3        -        7       2  

FHLB Stock

     149        81        322       243  

Trading Securities

     -        3        -       5  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total interest and dividend income

     2,482        1,958        6,956       5,550  
  

 

 

    

 

 

    

 

 

   

 

 

 

INTEREST EXPENSE:

          

Deposits

     102        74        268       183  

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

     -        107        32       325  

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

     -        13        11       41  

Federal Home Loan Bank advances – short-term

     716        294        1,827       708  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total interest expense

     818        488        2,138       1,257  
  

 

 

    

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME

     1,664        1,470        4,818       4,293  

PROVISION FOR LOAN LOSSES

     10        15        22       50  
  

 

 

    

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

     1,654        1,455        4,796       4,243  
  

 

 

    

 

 

    

 

 

   

 

 

 

NON-INTEREST INCOME:

          

Service charges on deposits

     32        31        95       103  

Earnings on Bank Owned Life Insurance

     31        32        95       99  

Investment securities gains

     2        -        2       -  

Market gain (loss) on trading assets

     -        9        -       (31

Other than temporary impairment losses

     -        -        41       -  

Portion of loss recognized in other comprehensive income

     -        -        (49     -  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net impairment loss recognized in earnings

     -        -        (8     -  

ATM fee income

     43        46        137       143  

Other

     12        12        39       53  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total non-interest income

     120        130        360       367  
  

 

 

    

 

 

    

 

 

   

 

 

 

NON-INTEREST EXPENSE:

          

Salaries and employee benefits

     546        555        1,631       1,639  

Occupancy and equipment

     80        82        228       245  

Data processing

     60        58        163       168  

Correspondent bank service charges

     10        9        30       29  

Federal deposit insurance premium

     27        22        83       83  

ATM network expense

     25        31        74       95  

Other

     159        139        530       487  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total non-interest expense

     907        896        2,739       2,746  
  

 

 

    

 

 

    

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES

     867        689        2,417       1,864  

INCOME TAX EXPENSE

     233        263        884       645  
  

 

 

    

 

 

    

 

 

   

 

 

 

NET INCOME

   $ 634      $ 426      $ 1,533     $ 1,219  
  

 

 

    

 

 

    

 

 

   

 

 

 

EARNINGS PER SHARE:

          

Basic

   $ 0.35      $ 0.23      $ 0.84     $ 0.65  

Diluted

   $ 0.35      $ 0.23      $ 0.84     $ 0.65  

AVERAGE SHARES OUTSTANDING:

          

Basic

     1,828,283        1,882,593        1,826,568       1,879,927  

Diluted

     1,829,750        1,882,593        1,827,057       1,879,927  

See accompanying notes to unaudited consolidated financial statements.

 

4


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)

 

     Three Months Ended
March 31,
    Nine Months Ended
March 31,
 
         2018             2017             2018             2017      

NET INCOME

         $ 634           $ 426           $ 1,533           $ 1,219  

OTHER COMPREHENSIVE INCOME (LOSS)

        

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

        

Gains (losses) arising during the year

     (222     58       (100     (81

Less: Income tax effect

     47       (19     5       28  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (175     39       (95     (53

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

     (175     39       (95     (53
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment securities gains

     (2     -       (2     -  

Less: Income tax effect

     1       -       1       -  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1     -       (1     -  

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

        

Total losses

     -       -       41       -  

Losses recognized in earnings

     -       -       8       -  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains (losses) recognized in comprehensive income

     -       -       49       -  

Income tax effect

     -       -       (17     -  
  

 

 

   

 

 

   

 

 

   

 

 

 
     -       -       32       -  

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

     16       25       13       94  

Less: Income tax effect

     (3     (8     (2     (32
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     13       17       11       62  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holdings (losses) gains on securities, net

     (163     56       43       9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (163     56       (53     9  
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME

         $   471           $   482             $   1,480             $   1,228  
  

 

 

   

 

 

   

 

 

   

 

 

 

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, 2017

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

Reclassification due to change in federal income tax rate

             15       (15       -  

Net income

             1,533           1,533  

Other comprehensive loss

               (53       (53

Increase in Unallocated ESOP shares

                 (32     (32

Amortization of unallocated ESOP shares

        22              84       106  

Cash dividends declared ($0.20 per share)

             (427         (427
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2018

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended
March 31,
 
           2018                 2017        

OPERATING ACTIVITIES

    

Net income

   $ 1,533     $ 1,219  

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

    

Provision for loan losses

     22       50  

Depreciation

     59       73  

Gain on sale of investment securities

     (2     -  

Amortization of discounts, premiums and deferred loan costs, net

     481       1,487  

Amortization of unallocated ESOP shares

     106       -  

Trading losses

     -       31  

Purchase of trading securities

     -       (961

Sale of trading securities

     -       960  

Deferred income taxes

     92       (30

Increase in prepaid/accrued income taxes

     228       261  

Earnings on bank owned life insurance

     (95     (99

Decrease (increase) in accrued interest receivable

     44       298  

Increase in accrued interest payable

     70       9  

Increase in deferred director compensation payable

     29       26  

Decrease in cash items in the process of collection

     1,230       -  

Other, net

     50       (190
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,847       3,134  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Available-for-sale:

    

Purchases of investment securities

     (47,425     (73,408

Proceeds from repayments of investments

     25,271       78,335  

Sale of investment securities

     1,257       -  

Held-to-maturity:

    

Purchases of mortgage-backed securities

     -       (21,954

Proceeds from repayments of investments

     2,483       833  

Proceeds from repayments of mortgage-backed securities

     9,646       26,331  

Purchase of certificates of deposit

     (348     (10,033

Maturities/redemptions of certificates of deposit

     10,125       100  

Increase in net loans receivable

     (2,718     (10,258

Purchase of FHLB stock

     (5,113     (5,878

Redemption of FHLB stock

     4,805       5,531  

Acquisition of premises and equipment

     (11     (9
  

 

 

   

 

 

 

Net cash used for investing activities

     (2,028     (10,410
  

 

 

   

 

 

 

 

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Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended
March 31,
 
           2018                 2017        

FINANCING ACTIVITIES

    

Net increase (decrease) in transaction and savings accounts

   $ (2,814   $ 2,903  

Net (decrease) increase in certificates of deposit

     (1,576     973  

Net decrease in advance payments by borrowers for taxes and insurance

     (294     (20

Repayments of FHLB long-term advances — fixed rate

     (10,000     -  

Repayments of FHLB long-term advances — variable rate

     (6,109     -  

Net increase in FHLB short-term advances

     23,992       4,528  

Purchase of treasury stock

     -       (359

Cash dividends paid

     (427     (281
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,772       7,744  
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     4,591       468  

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

     2,272       2,343  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

   $ 6,863     $ 2,811  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest on deposits and borrowings

   $ 2,068     $ 1,248  

Income taxes

   $      567     $      412  

Non-cash items:

    

Educational Improvement Tax Credit

   $ 50     $ 50  

See accompanying notes to unaudited consolidated financial statements.

 

8


Table of Contents

WVS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation have been included. The results of operations for the three and nine months ended March 31, 2018, are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). 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 currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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

 

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

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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

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

 

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers “ASU 2016-20”. This Update, among others things, clarifies that guarantee fees within the scope of Topic 460, Guarantees, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in the Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after

 

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December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2018, the FASB issued ASU 2018-1, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Upon adoption on December 31, 2017, the Company made a one-time cumulative effect adjustment from accumulated other comprehensive income to retained earnings of $15 thousand.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10), to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging – Embedded Derivatives, or 825-10, Financial Instruments – Overall. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944, Financial Services – Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are

 

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effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01. 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      Nine Months Ended  
     March 31,      March 31,  
             2018                      2017                      2018                      2017          

Weighted average common shares issued

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

Average treasury stock shares

     (1,797,492      (1,797,492      (1,797,492      (1,794,991

Average unallocated ESOP shares

     (179,861      (125,551      (181,576      (130,718
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     1,828,283        1,882,593        1,826,568        1,879,927  

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

     1,467        -        489        -  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     1,829,750        1,882,593        1,827,057        1,879,927  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

At March 31, 2018 and 2017, there were 114,519 options outstanding with an exercise price of $16.20.

 

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 three and nine month periods ended March 31, 2018 and 2017, the Company recorded no compensation expense related to our share-based compensation awards. As of March 31, 2018, there was no unrecognized compensation cost related to unvested share-based compensation awards granted in fiscal 2009.

All of the Company’s outstanding stock options were vested at March 31, 2018 and 2017. There were no stock options exercised or issued during the nine months ended March 31, 2018 and 2017.

 

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5. INVESTMENT SECURITIES

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

 

                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                Fair  
            Cost             Gains             Losses                Value      
            (Dollars in Thousands)  
March 31, 2018                                                       

AVAILABLE FOR SALE

                      

Corporate debt securities

   $        101,394      $        215      $        (241   $        101,368  

Foreign debt securities 1

        25,736           24           (20        25,740  

Obligations of states and political subdivisions

        1,630           -           (13        1,617  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $        128,760      $        239      $        (274   $        128,725  
     

 

 

       

 

 

       

 

 

      

 

 

 
                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                Fair  
            Cost             Gains             Losses                Value      
            (Dollars in Thousands)  
March 31, 2018                                                       

HELD TO MATURITY

                      

U.S. government agency securities

   $        625      $        1      $        -     $        626  

Corporate debt securities

        1,066           23           -          1,089  

Obligations of states and political subdivisions

        4,495           -           (47        4,448  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $        6,186      $        24      $        (47   $        6,163  
     

 

 

       

 

 

       

 

 

      

 

 

 
                          Gross             Gross               
                Amortized                     Unrealized                     Unrealized                Fair  
            Cost             Gains             Losses                Value      
            (Dollars in Thousands)  
June 30, 2017                                                       

AVAILABLE FOR SALE

                      

Corporate debt securities

   $        92,576      $        144      $        (84   $        92,636  

Foreign debt securities 1

        14,474           12           -          14,486  

Obligations of states and political subdivisions

        1,330           -           (3        1,327  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $        108,380      $        156      $        (87   $        108,449  
     

 

 

       

 

 

       

 

 

      

 

 

 

 

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, 2017                                                       

HELD TO MATURITY

                      

U.S. government agency securities

   $        625      $        6      $        -     $        631  

Corporate debt securities

        2,698           91           -          2,789  

Obligations of states and political subdivisions 2

        5,355           41           (1        5,395  
     

 

 

       

 

 

       

 

 

      

 

 

 

Total

   $        8,678      $        138      $        (1   $        8,815  
     

 

 

       

 

 

       

 

 

      

 

 

 

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

There were no sales of investment securities for the three and nine months ended March 31, 2017.

The amortized cost and fair values of debt securities at March 31, 2018, by contractual maturity, are shown below. Expected maturities may differ from the contractual maturities because issuers may have the right to call securities prior to their final maturities.

 

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

AVAILABLE FOR SALE

                             

Amortized cost

   $        51,013      $        70,676      $        7,071      $        -      $        128,760  

Fair value

        50,937           70,691           7,097           -           128,725  

HELD TO MATURITY

                             

Amortized cost

   $        1,566      $        2,975      $        1,645      $        -      $        6,186  

Fair value

        1,589           2,944           1,630           -           6,163  

At March 31, 2018, investment securities with amortized costs and fair values of $4.1 million were pledged to secure borrowings with the Federal Home Loan Bank (“FHLB”).

As of March 31, 2018, investment securities with amortized costs and fair values of $1.4 million were pledged to secure future borrowings with the Federal Reserve Bank of Cleveland (FRBC). Since the Company had no FRBC borrowings outstanding on March 31, 2018, all FRBC collateral pledges may be withdrawn by the Company at any time.

 

  

 

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

 

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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.

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

At March 31, 2018, the Company’s Agency CMOs totaled $118.8 million as compared to $128.2 million at June 30, 2017. The Company’s private-label CMOs totaled $941 thousand at March 31, 2018 as compared to $1.1 million at June 30, 2017. The $9.4 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $9.4 million and $236 thousand, respectively. At March 31, 2018 and June 30, 2017, the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments. Substantially all of the Company’s floating rate MBSs adjust monthly based upon changes in the one month LIBOR. The Company has no investment in multi-family or commercial real estate based MBS.

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

The Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. The private-label CMO portfolio had three previously recorded other-than-temporary impairments at March 31, 2018. During the nine months ending March 31, 2018, the Company reversed $61 thousand of non-credit unrealized holding losses on its three private-label CMOs with OTTI due to principal repayments. During the nine months ended March 31, 2018, the Company recorded an $8 thousand 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.

 

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The following table sets forth information with respect to the Company’s private-label CMO portfolio as of March 31, 2018. 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 March 31, 2018  
            Rating    Amortized
Cost
     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            $  504              $  657              $  201  

126694KF4

     CWHL SER 24 A15        D        N/A      D      325        374        126  

126694MP0

     CWHL SER 26 1A5        D        N/A      D      112        124        36  
              

 

 

    

 

 

    

 

 

 
                       $  941              $  1,155              $  363  
              

 

 

    

 

 

    

 

 

 

 

 

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

 

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

 

               Amortized    
Cost
            Gross
    Unrealized    
Gains
            Gross
    Unrealized    
Losses
           Fair
    Value    
 
    

 

 

 
           (Dollars in Thousands)  

March 31, 2018

                     

HELD TO MATURITY

                     

Collateralized mortgage obligations:

                     

Agency

  $        118,806      $        1,457      $        (452   $        119,811  

Private-label

       941           214           -          1,155  
    

 

 

       

 

 

       

 

 

      

 

 

 

Total

  $        119,747      $        1,671      $        (452   $        120,966  
    

 

 

       

 

 

       

 

 

      

 

 

 
               Amortized    
Cost
            Gross
    Unrealized    
Gains
            Gross
    Unrealized    
Losses
           Fair
    Value    
 
    

 

 

 
           (Dollars in Thousands)  

June 30, 2017

    

HELD TO MATURITY

                     

Collateralized mortgage obligations:

                     

Agency

  $        128,201      $        1,076      $        (437   $        128,840  

Private-label

       1,120           221           -          1,341  
    

 

 

       

 

 

       

 

 

      

 

 

 

Total

  $        129,321      $        1,297      $        (437   $        130,181  
    

 

 

       

 

 

       

 

 

      

 

 

 

The amortized cost and fair value of the Company’s mortgage-backed securities at March 31, 2018, 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

   $        -      $        -      $        211      $        119,536      $        119,747  

Fair value

        -           -           215           133,777           120,966  

At March 31, 2018, mortgage-backed securities with amortized costs of $118.8 million and fair values of $119.8 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $3.9 million of fair value was excess collateral. At June 30, 2017 mortgage-backed securities with an amortized cost of $128.2 million and fair values of $128.8 million, were pledged to secure public deposits and borrowings with the FHLB. Of the mortgage-backed securities pledged, $13.1 million of amortized cost was excess collateral at the FHLB. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

 

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7. ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)

The following tables present the changes in accumulated other comprehensive gain (loss) by component, for the three and nine months ended March 31, 2018 and 2017.

 

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

Beginning Balance – December 31, 2017

    $ 148       $ (241     $ (93

Other comprehensive income before reclassifications

    (175     13       (162

Amounts reclassified from accumulated other comprehensive loss

    (1     -       (1
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

    (176     13       (163
 

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2018

    $ (28     $ (228     $ (256
 

 

 

   

 

 

   

 

 

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

Beginning Balance – June 30, 2017

    $ 44       $ (232     $ (188

Other comprehensive income (loss) before reclassifications

    (95     37       (58

Amounts reclassified from accumulated other comprehensive loss

    (1     6       5  
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive Income (loss)

    (96     43       (53
 

 

 

   

 

 

   

 

 

 

Reclassification for the change in corporate tax rate

    24       (39     (15
 

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2018

    $ (28     $ (228     $ (256
 

 

 

   

 

 

   

 

 

 

 

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    Three Months Ended March 31, 2017  
    (Dollars in Thousands – net of tax)  
        Unrealized Gains    
    and Losses on    
    Available-for-Sale    
    Securities    
        Unrealized Gains    
    and Losses on    
    Held-to-Maturity    
    Securities    
                Total              

Beginning Balance – December 31, 2016

    $ (13     $ (272     $ (285

Other comprehensive income before reclassifications

    39       17       56  

Amounts reclassified from accumulated other comprehensive income

    -       -       -  
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

    39       17       56  
 

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2017

    $ 26       $ (255     $ (229
 

 

 

   

 

 

   

 

 

 
    Nine Months Ended March 31, 2017  
    (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, 2016

    $ 78       $ (316     $ (238

Other comprehensive income before reclassifications

    (53     62       9  

Amounts reclassified from accumulated other comprehensive loss

    -       -       -  
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income

    (53     62       9  
 

 

 

   

 

 

   

 

 

 

Ending Balance – March 31, 2017

    $ 25       $ (254     $ (229
 

 

 

   

 

 

   

 

 

 

 

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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 March 31, 2018 and June 30, 2017.

 

                   March 31, 2018  
  

 

 

 
                   Less Than Twelve Months            Twelve Months or Greater            Total  
  

 

 

 
                  

Fair

Value

           

Gross

Unrealized

Losses

          

Fair

Value

           

Gross

Unrealized

Losses

          

Fair

Value

           

Gross

Unrealized

Losses

 
  

 

 

 
           (Dollars in Thousands)  

Corporate debt securities

      $        47,459      $        (226   $        3,029      $        (15   $        50,488      $        (241

Foreign Debt Securities 4

           7,774           (20        -           -          7,774           (20

Obligations of state and political subdivisions

           8,509           (60        -           -          8,509           (60

Collateralized mortgage obligations:

                                    

Agency

           1,376           (3        22,494           (449        23,870           (452
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

Total

      $        65,118      $        (309   $        25,523      $        (464   $        90,641      $        (773
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 
                   June 30, 2017  
  

 

 

 
                   Less Than Twelve Months            Twelve Months or
Greater
           Total  
  

 

 

 
                  

Fair

Value

           

Gross

Unrealized

Losses

          

Fair

Value

           

Gross

Unrealized

Losses

          

Fair

Value

           

Gross

Unrealized

Losses

 
  

 

 

 
           (Dollars in Thousands)  

Corporate debt securities

      $        37,965      $        (83   $        994      $        (1   $        38,959      $        (84

Foreign Debt Securities 4

           1,827           (4        -           -          1,827           (4

Collateralized mortgage obligations:

                                    

Agency

           23,724           (69        22,949           (368        46,673           (437
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

Total

      $        63,516      $        (156   $        23,943      $        (369   $        87,459      $        (525
        

 

 

       

 

 

      

 

 

       

 

 

      

 

 

       

 

 

 

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

 

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

 

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

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

 

     Three Months Ended
March 31,
     Nine Months Ended
March 31,
 
             2018                      2017                      2018                      2017          
     (Dollars in Thousands)  

Beginning balance

   $ 248      $ 279      $ 259      $ 299  

Initial credit impairment

     -        -        -        -  

Subsequent credit impairment

     -        -        8        -  

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

     -        -        -        -  

Reductions for securities sold

     -        -        -        -  

Reduction for actual realized losses

     (5      (11      (24      (31

Reduction for increase in cash flows expected to be collected

     -        -        -        -  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 243      $ 268      $ 243      $ 268  
  

 

 

    

 

 

    

 

 

    

 

 

 

During the three months ended March 31, 2018, the Company recorded no credit impairment charge and no non-credit unrealized holding loss to accumulated other comprehensive income. During the nine months ended March 31, 2018, the Company recorded an $8 thousand credit impairment charge and no non-credit unrealized holding loss to accumulated other comprehensive income. During the three and nine months ended March 31, 2018, the Company accreted back into other comprehensive income $13 thousand and $11 thousand, respectively, (net of income tax effect of $3 thousand and $18 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

 

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losses of principal and interest on the underlying mortgage loans. The development of the modeling assumptions requires significant judgment.

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

The Company reviewed the independent third party’s assumptions used in the March 31, 2018 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 March 31, 2018, keeping the total at three private-label CMOs with OTTI at March 31, 2018.

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 56 positions that were impaired at March 31, 2018. 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

 

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fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

 

9. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of March 31, 2018 and June 30, 2017.

 

            March 31, 2018             June 30, 2017  
           

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

   $        68,817        $ -         $ 68,817         $ 65,153        $ -         $ 65,153  

Construction

        1,972          -           1,972           1,866          -           1,866  

Land acquisition & development

        12          -           12           462          -           462  

Multi-family dwellings

        3,456          -           3,456           3,653          -           3,653  

Commercial

        1,983          -           1,983           2,033          -           2,033  

Consumer Loans

                                 

Home equity

        903          -           903           1,017          -           1,017  

Home equity lines of credit

        2,176          -           2,176           2,275          -           2,275  

Other

        177          -           177           139          -           139  

Commercial Loans

        685          -           685           841          -           841  
     

 

 

      

 

 

       

 

 

       

 

 

      

 

 

       

 

 

 
   $        80,181        $             -         $ 80,181         $         77,439        $                 -         $             77,439  
          

 

 

       

 

 

            

 

 

       

 

 

 

Plus: Deferred loan costs

        454                      434             

  Allowance for loan losses

        (440                    (418           
     

 

 

                  

 

 

            

Total

   $                80,195                    $ 77,455             
     

 

 

                  

 

 

            

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.

 

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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.

At March 31, 2018 and June 30, 2017 there were no loans considered to be impaired.

Total nonaccrual loans as of March 31, 2018 and June 30, 2017 and the related interest income recognized for the three and nine months ended March 31, 2018 and March 31, 2017 are as follows:

 

                    March 31,        
2018
                    June 30,        
2017
 
            (Dollars in Thousands)  

Principal outstanding

           

1 – 4 family dwellings

   $        240      $        246  

Construction

        -           -  

Land acquisition & development

        -           -  

Commercial real estate

        -           -  

Home equity lines of credit

        -           -  
     

 

 

       

 

 

 

Total

   $        240      $        246  
     

 

 

       

 

 

 

 

            Three Months Ended      Nine Months Ended  
                March 31,    
2018
                March 31,    
2017
                March 31,    
2018
                March 31,    
2017
 
            (Dollars in Thousands)  

Average nonaccrual loans

                       

1 – 4 family dwellings

   $        241      $        249      $        243      $        251  

Construction

        -           -           -           -  

Land acquisition & development

        -           -           -           -  

Commercial real estate

        -           -           -           -  

Home equity lines of credit

        -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

 

Total

   $        241      $        249      $        243      $        251  
     

 

 

       

 

 

       

 

 

       

 

 

 

Income that would have been recognized

   $        4      $        5      $        13      $        11  

Interest income recognized

   $        7      $        3      $        17      $        13  

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

During the three and nine months ended March 31, 2018 and March 31, 2017, there were no troubled debt restructurings, and no troubled debt restructurings that subsequently defaulted.

 

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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 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

 

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assessing the current risk elements in the portfolio, management believes the allowance for loan losses at March 31, 2018, 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 March 31, 2018 and June 30, 2017:

 

          Current          

30 – 59

  Days Past  

Due

         

  60 – 89  

  Days Past  
Due

         

  90 Days +  

Past Due

Accruing

         

  90 Days +  

Past Due

Non-accrual

         

Total  

Past  

Due  

         

Total

Loans

 
   

 

 

 
          (Dollars in Thousands)  

March 31, 2018

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $          68,577     $          -     $          -     $          -     $          240     $          240     $          68,817  

Construction

      1,972         -         -         -         -         -         1,972  

Land acquisition & development

      12         -         -         -         -         -         12  

Multi-family dwellings

      3,456         -         -         -         -         -         3,456  

Commercial

      1,983         -         -         -         -         -         1,983  

Consumer Loans:

                           

Home equity

      903         -         -         -         -         -         903  

Home equity lines of credit

      2,176         -         -         -         -         -         2,176  

Other

      177         -         -         -         -         -         177  

Commercial Loans

      685         -         -         -         -         -         685  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $                  79,955     $          -     $          -     $          -     $                  240     $                  240         80,181  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan fees

                              454  

  Allowance for loan losses

                              (440
                           

 

 

 

Net Loans Receivable

                          $          80,195  
                           

 

 

 
          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, 2017

                           

First mortgage loans:

                           

1 – 4 family dwellings

  $          64,907     $          -     $          -     $          -     $          246     $          246     $          65,153  

Construction

      1,866         -         -         -         -         -         1,866  

Land acquisition & development

      462         -         -         -         -         -         462  

Multi-family dwellings

      3,653         -         -         -         -         -         3,653  

Commercial

      2,033         -         -         -         -         -         2,033  

Consumer Loans:

                           

Home equity

      1,017         -         -         -         -         -         1,017  

Home equity lines of credit

      2,275         -         -         -         -         -         2,275  

Other

      139         -         -         -         -         -         139  

Commercial Loans

      841         -         -         -         -         -         841  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $          77,193     $          -     $          -     $          -     $          246     $          246         77,439  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

Plus: Deferred loan fees

                              434  

  Allowance for loan losses

                              (418
                           

 

 

 

Net Loans Receivable

                          $          77,455  
                           

 

 

 

 

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Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended March 31, 2018. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

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

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

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

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

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

The following tables present the Company’s internally classified construction, land acquisition and development, multi-family dwellings, commercial real estate and commercial (not secured by real estate) loans at March 31, 2018 and June 30, 2017.

 

            March 31, 2018  
            Construction            

Land

Acquisition

&

Development

           

Multi-
family

dwellings

           

Commercial

Real

Estate

            Commercial  
     

 

 

 
            (Dollars in Thousands)  

Pass

   $        1,972      $        12      $        3,456      $        1,983      $        685  

Special Mention

        -           -           -           -           -  

Substandard

        -           -           -           -           -  

Doubtful

        -           -           -           -           -  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

Ending Balance

   $        1,972      $        12      $        3,456      $        1,983      $        685  
     

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

 

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           June 30, 2017  
             Construction       

Land

Acquisition

&

  Development  

Loans

           

  Multi-family  

Residential

           

  Commercial  
Real

Estate

              Commercial    
    

 

 

 
           (Dollars in Thousands)  

Pass

  $        1,866      $        462      $        3,653      $        2,033      $        841  

Special Mention

       -           -           -           -           -  

Substandard

       -           -           -           -           -  

Doubtful

       -           -           -           -           -  
    

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

Ending Balance

  $        1,866      $        462      $        3,653      $        2,033      $        841  
    

 

 

       

 

 

       

 

 

       

 

 

       

 

 

 

The following table presents performing and non-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended March 31, 2018 and June 30, 2017.

 

            March 31, 2018  
     

 

 

 
                1 – 4 Family                     Consumer      
     

 

 

 
            (Dollars in Thousands)  

Performing

       $           68,577      $        3,256  

Non-performing

        240           -  
     

 

 

       

 

 

 

Total

       $                   68,817      $                    3,256  
     

 

 

       

 

 

 
            June 30, 2017  
     

 

 

 
                1 – 4 Family                     Consumer        
     

 

 

 
            (Dollars in Thousands)  

Performing

       $           64,907      $        3,431  

Non-performing

        246           -  
     

 

 

       

 

 

 

Total

       $                   65,153      $                    3,431  
     

 

 

       

 

 

 

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

 

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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 balances at March 31, 2018 and June 30, 2017.

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

The following tables summarize the primary segments of the allowance for loan losses (“ALLL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2018 and 2017. Activity in the allowance is presented for the three and nine months ended March 31, 2018 and 2017.

 

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

 

 

 
          (Dollars in Thousands)  

Beginning ALLL Balance at December 31, 2017

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

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      13         (1       -         -         -         (2       -         10  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2018

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

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      340         25         -         19         20         32         4         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

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

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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

 

 

 
                      (Dollars in Thousands)  

Beginning ALLL Balance at June 30, 2017

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

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

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

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2018

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

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      340         25         -         19         20         32         4         440  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

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

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
          For the three months ended March 31, 2017  
          First Mortgage Loans                                
          1 – 4
    Family  
            Construction             Land
  Acquisition &  
Development
          Multi-
  family  
            Commercial               Consumer  
Loans
            Commercial  
Loans
            Total    
   

 

 

 
                      (Dollars in Thousands)  

Beginning ALLL Balance at December 31, 2016

  $       261     $       51     $       7     $       21     $       17     $       33     $       5     $       395  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      27         (15       (1       (1       5         1         (1       15  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2017

  $       288     $       36     $       6     $       20     $       22     $       34     $       4     $       410  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      288         36         6         20         22         34         4         410  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $       288     $       36     $       6     $       20     $       22     $       34     $       4     $       410  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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          For the nine months ended
March 31, 2017
 
          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, 2016

  $       222     $       57     $       7     $       22     $       16     $       29     $       7     $       360  

Charge-offs

      -         -         -         -         -         -         -         -  

Recoveries

      -         -         -         -         -         -         -         -  

Provisions

      66         (21       (1       (2       6         5         (3       50  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Ending ALLL Balance at March 31, 2017

  $       288     $       36     $       6     $       20     $       22     $       34     $       4     $       410  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

      288         36         6         20         22         34         4         410  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
  $       288     $       36     $       6     $       20     $       22     $       34     $       4     $       410  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

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

During the three months ended March 31, 2017, the primary changes to the ALLL were comprised of a $27 thousand increase attributable to 1-4 family loans and a $5 thousand increase attributable to commercial real estate loans which were partially offset by a $15 thousand decrease attributable to construction loans.

During the nine months ended March 31, 2017, the ALLL associated with 1-4 family loans increased $66 thousand, while the ALLL associated with construction loans decreased $21 thousand.

The primary reason for the changes in the ALLL balance for both periods of 2018, in total, and within the identified segments, is changes in applicable loan balances.

 

Loan Segment

   03/31/2018 Factor   06/30/2017 Factor

1 – 4 family-permanent

   0.46%   0.43%

 

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10. FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of March 31, 2018 and June 30, 2017.

 

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

Description

   from      to    interest rate 5   from     to         2018            2017  
                                     (Dollars in Thousands)  

Convertible

     07/27/17      07/27/17    4.26%     4.26     4.26         $     -     $       10,000  

Adjustable

     08/11/17      09/01/17    1.25%     1.23     1.27       -         6,109  
                

 

 

     

 

 

 

Total

                     $     -     $       16,109  
                

 

 

     

 

 

 

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 had 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 had the right to pay off the advance without penalty.

The adjustable rate advances adjusted either monthly or quarterly, based on the one-month or three-month LIBOR index, and had various spreads to the LIBOR index. The spreads to the applicable LIBOR index ranged from 0.05% to 0.16%. The adjustable rate advances were not convertible or callable. The FHLB advances were secured by the Company’s FHLB stock, mortgage-backed and investment securities, and loans, and were subject to substantial prepayment penalties.

The Company also utilized revolving and short-term FHLB advances. Short-term FHLB advances generally mature within 90 days, while revolving FHLB advances may be repaid by the Company without penalty. The following table presents information regarding such advances as of March 31, 2018 and June 30, 2017:

 

                 March 31,        
2018
                 June 30,        
2017
 
    

 

 

 
         (Dollars in Thousands)  

FHLB revolving and short-term advances:

         

Ending balance

  $      179,791     $      155,799  

Average balance

       166,641          144,258  

Maximum month-end balance

       179,791          155,799  

Average interest rate

       1.46        0.78

Weighted-average rate

       1.87        1.24

At March 31, 2018, the Company had remaining borrowing capacity with the FHLB of approximately $64 thousand.

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.

 

5  As of June 30, 2017.

 

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11. FAIR VALUE MEASUREMENTS

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

 

Level I:   

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

Level II:   

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

Level III:   

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

Assets Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

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

The following tables present the assets reported on a recurring basis on the Consolidated Balance Sheet at their fair value as of March 31, 2018 and June 30, 2017, 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.

 

           March 31, 2018  
                 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

  $        -     $        1,617     $        -     $        1,617  

Corporate securities

       -          101,368          -          101,368  

Foreign debt securities 6

       -          25,740          -          25,740  
    

 

 

      

 

 

      

 

 

      

 

 

 
  $        -     $        128,725     $        -     $        128,725  
    

 

 

      

 

 

      

 

 

      

 

 

 

 

 

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

 

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Table of Contents
           June 30, 2017  
                 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

  $        -     $        1,327     $        -     $        1,327  

Corporate securities

       -          92,636          -          92,636  

Foreign debt securities 6

       -          14,486          -          14,486  
    

 

 

      

 

 

      

 

 

      

 

 

 
  $        -     $        108,449     $        -     $        108,449  
    

 

 

      

 

 

      

 

 

      

 

 

 

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. The Company had no assets measured at fair value on a nonrecurring basis.

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 had no Level I, Level II or Level III impaired loans at March 31, 2018 and June 30, 2017.

 

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12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:

 

        March 31, 2018  
        Carrying
Amount
        Fair
Value
            Level I                   Level II                       Level III      
        (Dollars in Thousands)  

FINANCIAL ASSETS

                   

Cash and cash equivalents

  $     6,863     $     6,863     $     6,863     $       -     $       -  

Certificates of deposit

      598         598         598         -         -  

Investment securities – available for sale

      128,725         128,725         -         128,725         -  

Investment securities – held to maturity

      6,186         6,163         -         6,163         -  

Mortgage-backed securities – held to maturity:

                   

Agency

      118,806         119,811         -         119,811         -  

Private-label

      941         1,155         -         -         1,155  

Net loans receivable

      80,195         79,706         -         -         79,906  

Accrued interest receivable

      1,162         1,162         1,162         -         -  

FHLB stock

      7,370         7,370         7,370         -         -  

Bank owned life insurance

      4,636         4,636         4,636         -         -  

FINANCIAL LIABILITIES

                   

Deposits:

                   

Non-interest bearing deposits

 

$

    18,525    

$

    18,525    

$

    18,525     $       -     $       -  

NOW accounts

      24,181         24,181         24,181         -         -  

Savings accounts

      44,331         44,331         44,331         -         -  

Money market accounts

      21,340         21,340         21,340         -         -  

Certificates of deposit

      30,737         30,487         -         -         30,487  

Advance payments by borrowers for taxes and insurance

      1,491         1,491         1,491         -         -  

FHLB short-term advances

      179,791         179,791         179,791         -         -  

Accrued interest payable

      317         317         317         -         -  

 

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Table of Contents
                     June 30, 2017            
           Carrying
Amount
           Fair
Value
               Level I                    Level II                    Level III      
           (Dollars in Thousands)  

FINANCIAL ASSETS

                        

Cash and cash equivalents

  $        2,272     $        2,272     $        2,272     $        -     $        -  

Certificates of deposit

       10,380          10,380          10,380          -          -  

Investment securities – available for sale

       108,449