UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

 

[X]

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

For the quarterly period endedMarchDecember 31, 2019

or

 

[  ]

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

For the transition period from              to              

Commission File Number:0-22444

 

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

Pennsylvania

    

25-1710500

(State or other jurisdiction of

incorporation or organization)

    

(I.R.S. Employer

Identification Number)

9001 Perry Highway

Pittsburgh, Pennsylvania

    

15237

    (Address of principal executive offices)        (Zip Code)

                                     (412)364-1911                                     

(Registrant’s telephone number, including area code)code: (412)364-1911

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $.01WVFCNASDAQ Global MarketSM

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer” and “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

 

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act).      YES        NOX

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common StockWVFCNASDAQ

Shares outstanding as of May 10, 2019: 1,943,796February 12, 2020: 1,935,641 shares of Common Stock, $.01 par value.


WVS FINANCIAL CORP. AND SUBSIDIARY

INDEX

 

PART I.

     

Financial Information

  

Page

   
Item 1.   Financial Statements    
   Consolidated Balance Sheet as of
MarchDecember 31, 2019 and June 30, 20182019
(Unaudited)
  3  
   Consolidated Statement of Income
for the Three and NineSix Months Ended
MarchDecember 31, 2019 and 2018 (Unaudited)
  4  
   Consolidated Statement of Comprehensive
Income (Loss) for the Three and NineSix Months Ended
MarchDecember 31, 2019 and 2018 (Unaudited)
  5  
   Consolidated Statement of Changes in
Stockholders’ Equity for the Three and NineSix Months
Ended MarchDecember 31, 2019 and 2018 (Unaudited)
  6  
   Consolidated Statement of Cash Flows
for the NineSix Months Ended MarchDecember 31, 2019
and 2018 (Unaudited)
  8  
   Notes to Unaudited Consolidated
Financial Statements
  10  
Item 2.   Management’s Discussion and Analysis of
Financial Condition and Results of
Operations for the Three and NineSix Months
Ended MarchDecember 31, 2019
  40  
Item 3.   Quantitative and Qualitative Disclosures
about Market Risk
  47  
Item 4.   Controls and Procedures  51  

PART II.

     Other Information  

Page

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

Unregistered Sales of Equity Securities

and Use of Proceeds

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

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(In thousands, except share and per share data)

 

      March 31, 2019         June 30, 2018          December 31, 2019         June 30, 2019     

Assets

     

Cash and due from banks

               $       2,387  $       2,099              $       2,766  $       1,849 

Interest-earning demand deposits

   1,817  342  276  2,530 
  

 

  

 

  

 

  

 

 

Total cash and cash equivalents

   4,204  2,441  3,042  4,379 

Certificates of deposit

   1,346  350  1,591  1,843 

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

   134,605  128,811 

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

   3,995  6,181 

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

   109,270  115,857 

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

   88,846  84,675 

Investment securitiesavailable-for-sale (amortized cost of $137,541 and $132,673)

 138,060  132,780 

Investment securitiesheld-to-maturity (fair value of $3,578 and $4,080)

 3,495  3,995 

Mortgage-backed securitiesheld-to-maturity (fair value of $104,121 and $108,708)

 103,956  108,331 

Net loans receivable (allowance for loan losses of $530 and $548)

 91,340  90,588 

Accrued interest receivable

   1,279  1,225  1,052  1,219 

Federal Home Loan Bank (FHLB) stock, at cost

   7,060  ��7,161  6,974  7,010 

Premises and equipment, net

   355  392  474  346 

Bank owned life insurance

   4,759  4,668  4,849  4,789 

Deferred tax assets, net

   462  359 

Deferred tax assets (net)

 262  368 

Other assets

   177  168  153  170 
  

 

  

 

  

 

  

 

 

TOTAL ASSETS

               $  356,358              $  352,288  $  355,248  $  355,818 
  

 

  

 

  

 

  

 

 

Liabilities and Stockholders’ Equity

     

Liabilities:

     

Deposits

     

Non-interest-bearing accounts

   $    20,563  $    18,436  $    18,113  $    19,770 

Interest-earning checking accounts

   24,512  24,459  22,726  23,541 

Savings accounts

   44,113  44,727  42,719  43,740 

Money market accounts

   20,114  21,087  20,238  19,958 

Certificates of deposit

   34,924  34,376  41,888  37,361 

Advance payments by borrowers for taxes and insurance

   1,706  1,938  1,447  2,065 
  

 

  

 

  

 

  

 

 

Total deposits

   145,932  145,023  147,131  146,435 

Federal Home Loan Bank advances: short-term

 68,030  70,828 

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

   15,000   -  15,000  15,000 

Federal Home Loan Bank advances: long-term – variable

   85,000   - 

Federal Home Loan Bank advances: short-term

   71,922  171,403 

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

 85,000  85,000 

Accrued interest payable

   799  380  788  823 

Other liabilities

   2,409  1,465  1,786  1,683 
  

 

  

 

  

 

  

 

 

TOTAL LIABILITIES

   321,062  318,271  317,735  319,769 
  

 

  

 

  

 

  

 

 

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  38  38 

Additionalpaid-in capital

   21,545  21,516  21,568  21,550 

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

   (28,258 (27,886

Treasury stock: 1,869,995 and 1,862,520 shares at cost, respectively

 (28,382 (28,269

Retained earnings, substantially restricted

   44,511  42,795  45,973  44,807 

Accumulated other comprehensive loss

   (390 (188

Accumulated other comprehensive income

 347  15 

Unallocated Employee Stock Ownership Plan (“ESOP”) shares

   (2,150 (2,258 (2,031 (2,092
  

 

  

 

  

 

  

 

 

TOTAL STOCKHOLDERS’ EQUITY

   35,296  34,017  37,513  36,049 
  

 

  

 

  

 

  

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $  356,358  $  352,288  $  355,248  $  355,818 
  

 

  

 

  

 

  

 

 

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

(In thousands, except share and per share data)

 

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

INTEREST AND DIVIDEND INCOME:

            

Loans, including fees

       $                847      $                748        $                2,475      $                2,222        $                871      $                825        $                1,754      $              1,628 

Investment securities

   1,188  766    3,276  2,085    997  1,066    2,078  2,088 

Mortgage-backed securities

   973  800    2,789  2,250    757  927    1,642  1,816 

Certificates of deposit

   7  16    12  70    15  3    30  5 

Interest-earning demand deposits

   1  3    10  7    1  6    2  9 

FHLB Stock

   142  149    370  322    130  116    252  228 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Total interest and dividend income

   3,158  2,482    8,932  6,956    2,771  2,943    5,758  5,774 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

INTEREST EXPENSE:

            

Deposits

   253  102    505  268    232  129    482  252 

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

   114   -    348  32    116  116    232  116 

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

   586   -    993  11    452  526    967  526 

Federal Home Loan Bank advances – short-term

   373  716    1,719  1,827    310  437    613  1,345 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Total interest expense

   1,326  818    3,565  2,138    1,110  1,208    2,294  2,239 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

NET INTEREST INCOME

   1,832  1,664    5,367  4,818    1,661  1,735    3,464  3,535 

PROVISION FOR LOAN LOSSES

   10  10    42  22 

(CREDIT) PROVISION FOR LOAN LOSSES

   (8 14    (18 33 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

   1,822  1,654    5,325  4,796    1,669  1,721    3,482  3,502 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

NON-INTEREST INCOME:

            

Service charges on deposits

   30  32    86  95    30  26    60  55 

Earnings on Bank Owned Life Insurance

   30  31    91  95    29  30    59  61 

Investment securities gains/(losses)

   -  2    (2 2 

Other than temporary impairment losses

   122   -    122  41 

Portion of loss recognized in other comprehensive income

   (148  -    (148 (49

Investment securities gains (losses)

   32   -    32  (2

Other than temporary impairment (“OTTI”) losses

   (16  -    (18  - 

Portion of gain recognized in other comprehensive Income (before taxes)

   -   -    -   - 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Net impairment loss recognized in earnings

   (26  -    (26 (8   (16  -    (18  - 

ATM fee income

   38  43    123  137    36  43    78  85 

Other

   15  12    36  39    11  11    21  21 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Totalnon-interest income

   87  120    307  360    122  110    232  220 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

NON-INTEREST EXPENSE:

            

Salaries and employee benefits

   575  546    1,695  1,631    535  565    1,080  1,121 

Occupancy and equipment

   66  80    192  228    57  58    119  ��126 

Data processing

   56  60    171  163    52  58    109  116 

Correspondent bank service charges

   9  10    24  30    9  7    18  15 

Federal deposit insurance premium

   24  27    75  83    -  22    (23 50 

ATM network expense

   21  25    83  74    18  25    41  62 

Other

   147  159    512  530    199  219    373  365 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Totalnon-interest expense

   897  907    2,752  2,739    870  954    1,717  1,855 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

INCOME BEFORE INCOME TAXES

   1,012  867    2,880  2,417    921  877    1,997  1,867 

INCOME TAX EXPENSE

   265  233    701  884    194  192    477  435 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

NET INCOME

   $               747  $              634    $            2,179  $            1,533    $               727  $               685    $               1,520  $               1,432 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

EARNINGS PER SHARE:

            

Basic

   $              0.42  $              0.35    $              1.22  $              0.84    $               0.41  $               0.38    $                 0.86  $                 0.80 

Diluted

   $              0.42  $              0.35    $              1.22  $              0.84    $               0.41  $               0.38    $                 0.86  $                 0.80 

AVERAGE SHARES OUTSTANDING:

            

Basic

   1,772,165  1,828,283    1,782,512  1,826,568    1,771,457  1,782,091    1,773,509  1,787,573 

Diluted

   1,772,165  1,829,750    1,782,584  1,827,057    1,771,457  1,782,091    1,773,509  1,787,682 

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

 

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

NET INCOME

        $747        $634        $ 2,179        $ 1,533   $727  $685  $1,520  $1,432 

OTHER COMPREHENSIVE INCOME (LOSS)

          

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

          

Gains (losses) arising during the year

   1,479  (222 (392 (100   387  (1,992 444  (1,870

Less: Income tax effect

   (311 47  82  5    (81 418  (93 392 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 
   1,168  (175 (310 (95   306  (1,574 351  (1,478
  

 

  

 

  

 

  

 

 

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

   1,168  (175 (310 (95

(Gains) losses recognized in earnings

   (32  -  (32 2 

Less: Income tax effect

   7   -  7   - 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 
   (25  -  (25 2 

Investment securities (gains)/losses

   -  (2 2  (2

Less: Income tax effect

   -  1   -  1 
  

 

  

 

  

 

  

 

 

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

   281  (1,574 326  (1,476
   -  (1 2  (1  

 

  

 

  

 

  

 

 

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

          

Total losses

   122   -  122  41    16   -  18   - 

Losses recognized in earnings

   26   -  26  8    16   -  18   - 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Gains (losses) recognized in comprehensive income

   148   -  148  49    -   -   -   - 

Income tax effect

   (31  -  (31 (17   -   -   -   - 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 
   117   -  117  32    -   -  -   - 

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

   12  16  (14 13    4  12  8  (27

Less: Income tax effect

   (2 (3 3  (2   (1 (2 (2 6 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

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

   10  13  (11 11 

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

   3  10  6  (21
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Unrealized holdings (losses) gains on securities, net

   127  (163 106  43 

Unrealized holdings gains (losses) on securities, net

   3  10  6  (21
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Other comprehensive income (loss)

   1,295  (163 (202 (53   284  (1,564 332  (1,497
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

COMPREHENSIVE INCOME

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

COMPREHENSIVE INCOME (LOSS)

        $  1,011        $  (879       $  1,852        $  (65
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

 

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

Balance December 31, 2018

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

Net income

     747     747 

Other comprehensive income

      1,295    1,295 

Amortization of unallocated ESOP Shares

   15      29   44 

Cash dividends declared ($0.10 per share)

     (177    (177
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance March 31, 2019

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

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

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

Balance June 30, 2018

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

Net income

     2,179     2,179 

Other comprehensive loss

      (202   (202

Purchase of treasury stock (25,717 shares)

    (372     (372

Amortization of unallocated ESOP shares

   29      108   137 

Cash dividends declared ($0.26 per share)

     (463    (463
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance March 31, 2019

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

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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

Balance September 30, 2019

 $    38  $ 21,560  $ (28,382   $ 45,423    $  63    $    (2,064   $36,638 

Net income

     727     727 

Other comprehensive income

      284    284 

Amortization of unallocated ESOP Shares

   8      33   41 

Cash dividends declared ($0.10 per share)

     (177    (177
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance December 31, 2019

 $    38    $ 21,568    $ (28,382   $ 45,973    $ 347    $ (2,031   $37,513 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

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

Balance June 30, 2019

 $    38    $ 21,550    $ (28,269   $ 44,807    $ 15    $ (2,092   $ 36,049 

Net income

     1,520     1,520 

Other comprehensive income

      332    332 

Purchase of treasury stock (7,475 shares)

    (113     (113

Amortization of unallocated ESOP Shares

   18      61   79 

Cash dividends declared ($0.20 per share)

     (354    (354
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance December 31, 2019

 $    38    $ 21,568    $ (28,382   $ 45,973    $   347    $ (2,031   $37,513 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to unaudited consolidated financial statements.

6


WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

 

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

Balance December 31, 2017

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

Net income

     634     634 

Other comprehensive loss

      (163   (163

Amortization of unallocated ESOP shares

   7      (4  3 

Cash dividends declared ($0.08 per share)

     (169    (169
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance March 31, 2018

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

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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

Balance June 30, 2017

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

Reclassification due to change in federal income tax rate

     15   (15   - 

Net income

     1,533     1,533 

Other comprehensive loss

      (53   (53

Amortization of unallocated ESOP shares

   22      52   74 

Cash dividends declared ($0.20 per share)

     (427    (427
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance March 31, 2018

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

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

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

Balance September 30, 2018

    $    38     $ 21,525     $ (27,918)     $ 43,400     $    (121)     $    (2,219)     $ 34,705 

Net income

     685     685 

Other comprehensive loss

      (1,564   (1,564

Purchase of treasury stock (23,717 shares)

    (340     (340

Amortization of unallocated ESOP Shares

   5      40   45 

Cash dividends declared ($0.08 per share)

     (144    (144
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance December 31, 2018

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

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

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

Balance June 30, 2018

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

Net income

     1,432     1,432 

Other comprehensive loss

      (1,497   (1,497

Purchase of treasury stock (25,717 shares)

    (372     (372

Amortization of unallocated ESOP Shares

   14      79   93 

Cash dividends declared ($0.16 per share)

     (286    (286
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance December 31, 2018

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

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

   Nine Months Ended 
   March 31, 
         2019              2018       

OPERATING ACTIVITIES

   

Net income

  $2,179  $1,533 

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

   

Provision for loan losses

   42   22 

Depreciation

   38   59 

Losses (gains) on sale of investment securities

   2   (2

Net impairment loss recognized in earnings

   26   8 

Amortization of discounts, premiums and deferred loan costs, net

   130   481 

Amortization of unallocated ESOP shares

   137   106 

Deferred income taxes

   (49  92 

Increase in prepaid/accrued income taxes

   271   228 

Earnings on bank owned life insurance

   (91  (95

(Increase) decrease in accrued interest receivable

   (54  44 

Increase in accrued interest payable

   419   70 

Increase in deferred director compensation payable

   33   29 

Increase in cash items in the process of collection

   -   1,230 

Other, net

   112   42 
  

 

 

  

 

 

 

Net cash provided by operating activities

   3,195   3,847 
  

 

 

  

 

 

 

INVESTING ACTIVITIES

   

Available-for-sale:

   

Purchases of investment securities

   (40,658  (47,425

Proceeds from repayments of investments

   33,450   25,271 

Sale of investment securities

   1,364   1,257 

Held-to-maturity:

   

Proceeds from repayments of investments

   2,180   2,483 

Proceeds from repayments of mortgage-backed securities

   6,706   9,646 

Purchase of certificates of deposit

   (1,096  (348

Maturities/redemptions of certificates of deposit

   100   10,125 

Purchase of loans

   (7,208  (6,989

Net decrease in net loans receivable

   3,037   4,271 

Purchase of FHLB stock

   (5,537  (5,113

Redemption of FHLB stock

   5,638   4,805 

Acquisition of premises and equipment

   (1  (11
  

 

 

  

 

 

 

Net cash used for investing activities

   (2,025  (2,028
  

 

 

  

 

 

 

   Six Months Ended
December 31,
 
         2019              2018       

OPERATING ACTIVITIES

   

Net income

  $1,520  $1,432 

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

   

(Credit) provision for loan losses

   (18  33 

Depreciation

   15   29 

Net impairment loss recognized in earnings

   18   - 

(Gain) loss on sale of investments

   (32  2 

Amortization of discounts, premiums and deferred loan costs

   50   111 

Amortization of unallocated ESOP shares

   79   93 

Deferred income taxes

   18   (27

Increase in prepaid/accrued income taxes

   74   33 

Earnings on bank owned life insurance

   (59  (61

Decrease in accrued interest receivable

   167   39 

(Decrease) increase in accrued interest payable

   (35  406 

Increase in deferred director compensation payable

   25   22 

Other, net

   18   22 
  

 

 

  

 

 

 

Net cash provided by operating activities

   1,840   2,134 
  

 

 

  

 

 

 

INVESTING ACTIVITIES

   

Available-for-sale:

   

Purchase of investment securities

   (17,324  (24,782

Proceeds from sale of investments

   9,055   1,364 

Proceeds from repayments of investments

   3,330   22,705 

Held-to-maturity:

   

Proceeds from repayments of investments

   500   2,180 

Proceeds from repayments of mortgage-backed securities

   4,374   5,918 

Purchase of certificates of deposit

   (1,340  (1,096

Maturities/redemptions of certificates of deposit

   1,593   100 

Purchase of loans

   (6,266  (5,102

Net decrease in net loans receivable

   5,577   1,364 

Purchase of FHLB stock

   (6,974  (3,043

Redemption of FHLB stock

   7,010   3,217 

Acquisition of premises and equipment

   (143  - 
  

 

 

  

 

 

 

Net cash (used for) provided by investing activities

   (608  2,825 
  

 

 

  

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

WVS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

  Nine Months Ended 
  March 31,   Six Months Ended
December 31,
 
        2019             2018               2019             2018       

FINANCING ACTIVITIES

      

Net increase (decrease) in transaction and savings accounts

  $593  $ (2,814

Net (decrease) increase in transaction and savings accounts

  $(3,213 $361 

Net increase (decrease) in certificates of deposit

   548  (1,576   4,527  (1,751

Net decrease in advance payments by borrowers for taxes and insurance

   (232 (294   (618 (388

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

   15,000  (10,000

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

   85,000  (6,109

Net (decrease) increase in FHLB short-term advances

   (99,481 23,992 

Purchase of treasury stock

   (372  - 

Proceeds from FHLB long-term advances – fixed rate

   -  15,000 

Proceeds from FHLB long-term advances – variable rate

   -  85,000 

Net decrease in FHLB short-term advances

   (2,798 (101,336

Purchases of treasury stock

   (113 (372

Cash dividends paid

   (463 (427   (354 (286
  

 

  

 

   

 

  

 

 

Net cash provided by financing activities

   593  2,772 

Net cash used for financing activities

   (2,569 (3,772
  

 

  

 

   

 

  

 

 

Increase in cash and cash equivalents

   1,763  4,591 

(Decrease) increase in cash and cash equivalents

   (1,337 1,187 

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

   2,441  2,272    4,379  2,441 
  

 

  

 

   

 

  

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

  $4,204  $6,863   $3,042  $3,628 
  

 

  

 

   

 

  

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

      

Cash paid during the period for:

      

Interest on deposits and borrowings

  $3,146  $2,068   $2,329  $1,833 

Income taxes

  $478  $567   $386  $430 

Non-cash items:

      

Educational Improvement Tax Credit

  $45  $50   $45  $45 

Unfunded securities commitments

  $519  $- 

 

See accompanying notes to unaudited consolidated financial statements.

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 Form10-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 ninesix months ended MarchDecember 31, 2019, are not necessarily indicative of the results which may be expected for the entire fiscal year.

 

2.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (a new revenue recognition standard). This Update requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on July 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements other than additional disclosures in Note 3 as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09.

In January 2016, the FASB issued ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

The Company adopted ASU2016-01 during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes in Note 13 to the financial statements. The June 30, 2018, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the December 31, 2018 disclosure. The Company estimated the fair value based on guidance from ASC820-10,Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and, thus, Level 3 fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. The fair value of loans held for investment, excluding impaired loans measured at fair value on anon-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification.

In February 2016, the FASB issued ASU2016-02,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 aright-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU2016-13,Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments(“ASU2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU2016-13 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. In November 2019, the FASB issued ASU2019-10,Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU2016-13 for SEC filers that are eligible to be smaller reporting companies,non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize aone-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any suchone-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2018, the FASB issued ASU2018-01,Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU2016-02. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2018, the FASB issued ASU2018-07,Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic

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

In July 2018, the FASB issued ASU2018-09,Codification Improvements, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU2018-10,Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU2018-11,Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840,Leases. In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606,Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for

Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2018, the FASB issued ASU2018-14,Compensation – Retirement Benefits (Topic715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of aone-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This standard is not expected to have a significant impact on the Company’s financial position or results of operations.

In November, 2018, the FASB issued ASU2018-19,Codification Improvements to Topic 326, Financial Instruments—Instruments – Credit Losses,which amended the effective date of ASU2016-13 for entities other than public business entities (PBEs), by requiringnon-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU2016-13 for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities(non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within those years. The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic326-20. Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842,Leases. The effective date and transition requirements for ASU2018-19 are the same as those in ASU2016-13, as amended by ASU2018-19. In November, 2019, the FASB issued ASU2019-10,Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU2016-13 for SEC filers that are eligible to be smaller reporting companies,non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2018, the FASB issued ASU2018-20,Leases (Topic 842), which addressed implementation questions arising from stakeholders in regard to ASU2016-02,Leases. Specifically addressed in this Update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components. The amendments in this Update affect the amendments in Update2016-02, which are not yet effective but can be early adopted. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Update2016-02 (for example, January 1, 2019, forcalendar-year-end public business entities). This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2019, the FASB issued ASU2019-01,Leases (Topic 842): Codification Improvements,which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In April 2019, the FASB issued ASU2019-04,Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, whichwhich affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021.Topic 815, Derivatives and Hedgingamendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update.Topic 825, Financial Instrumentsamendmentsare effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU2019-10,Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU2016-13 for SEC filers that are eligible to be smaller reporting companies,non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides aone-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In May 2019, the FASB issued ASU2019-05,Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC825-10.3. The election must be applied on aninstrument-by-instrument basis and is not available for eitheravailable-for-sale orheld-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU2016-13, the effective dates and transition requirements are the same as those in ASU2016-13. For entities that have adopted ASU2016-13, ASU2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU2016-13 has been adopted. In November 2019, the FASB issued ASU2019-10,Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU2016-13 for SEC filers that are eligible to be smaller reporting companies,non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU2016-13.

In July 2019, the FASB issued ASU2019-07,Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos.33-10231 and33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates.This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule ReleasesNo. 33-10532,Disclosure Update and Simplification, and Nos.33-10231 and33-10442,Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

In November 2019, the FASB issued ASU2019-08,Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606),which requires entities to measure and classify share-based payments to a customer, in accordance with the guidance in ASC 718,Compensation – Stock Compensation. The amendments in that Update expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and, in doing so, superseded guidance in Subtopic505-50,Equity – Equity-Based Payments to Non-Employees. The amount that would be recorded as a reduction in revenue would be measured based on the grant date fair value of the share-based payment, in accordance with Topic 718. The grant date is the date at which a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The award’s classification and subsequent measurement would be subject to ASC 718 unless the award is modified or the grantee is no longer a customer. For entities that have not yet adopted the amendments in Update2018-07, the amendments in this Update are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. For entities that have adopted the amendments in Update2018-07, the amendments in this Update are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity may early adopt the amendments in this Update, but not before it adopts the amendments in Update2018-07. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2019, the FASB issued ASU2019-10,Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU2016-13 for SEC filers that are eligible to be smaller reporting companies,non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASUNo. 2017-04,Intangibles – Goodwill and Other

(Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill),to align with those used for credit losses. Furthermore, the ASU provides aone-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In November 2019, the FASB issued ASU2019-11,Codification Improvements to Topic 326, Financial Instruments—Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU2019-10. 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 December 2019, the FASB issued ASU2019-12,Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether astep-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes andyear-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

3.

REVENUE RECOGNITION

Effective July 1, 2018, the Company adopted Accounting Standards Update ASU2014-09,Revenue from contracts with Customers – Topic 606,and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue. The main types of noninterest income within the scope of the standard are as follows: Service Charges on deposit accounts—the Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

 

4.

EARNINGS PER SHARE

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

 

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

Weighted average common shares issued

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

Average treasury stock shares

   (1,861,840   (1,797,492   (1,849,296   (1,797,492   (1,869,995   (1,849,437   (1,866,704   (1,843,161

Average unallocated ESOP shares

   (171,631   (179,861   (173,828   (181,576   (164,184   (174,108   (165,423   (174,902
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

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

   1,772,165    1,828,283    1,782,512    1,826,568    1,771,457    1,782,091    1,773,509    1,787,573 

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

   -    1,467    72    489    -    -    -    109 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

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

   1,772,165    1,829,750    1,782,584    1,827,057    1,771,457    1,782,091    1,773,509    1,787,682 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

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 MarchDecember 31, 2019, all options outstanding had expired. At December 31, 2018, there were 114,51927,019 options outstanding with an exercise price of $16.20. All outstanding options$16.20 which were expired at March 31, 2019.anti-dilutive for the three month period and dilutive for the six month period.

5.

STOCK BASED COMPENSATION DISCLOSURE

The Company’sCompany previously maintained 2008 Stock Incentive Plan (the “Plan”), which was approved by shareholders in October 2008, permitted the grant of stock options or restricted shares to its directors and employees for up to 152,000 shares (up to 38,000 restricted shares may be issued). Option awards were generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vested over five years of continuous service and hadhaveten-year contractual terms. The Plan expired by its terms in September 2018.

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

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

 

6.

INVESTMENT SECURITIES

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

 

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

AVAILABLE FOR SALE

                              

Corporate debt securities

  $     106,785   $     212   $     (467 $     106,530   $     109,701   $     524   $     (121 $     110,104 

Foreign debt securities1

     26,592      13      (157    26,448      27,840      126      (10    27,956 

Obligations of states and political subdivisions

     1,630      -      (3    1,627 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Total

  $     135,007   $     225   $     (627 $     134,605   $     137,541   $     650   $     (131 $     138,060 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

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

HELD TO MATURITY

                              

Obligations of states and political subdivisions

  $     3,995   $     36   $     -  $     4,031   $     3,495   $     83   $     -  $     3,578 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Total

  $     3,995   $     36   $     -  $     4,031   $     3,495   $     83   $     -  $     3,578 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

 

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

              Gross       Gross                     Gross       Gross       
          Amortized               Unrealized               Unrealized             Fair               Amortized               Unrealized               Unrealized             Fair     
      Cost       Gains       Losses         Value           Cost       Gains       Losses         Value     
      (Dollars in Thousands)       (Dollars in Thousands) 
June 30, 2018                              
June 30, 2019                              

AVAILABLE FOR SALE

                              

Corporate debt securities

  $     104,316   $     204   $     (181 $     104,339   $     104,760   $     355   $     (207 $     104,908 

Foreign debt securities1

     22,878      11      (38    22,851      26,583      35      (75    26,543 

Obligations of states and political subdivisions

     1,630      -      (9    1,621      1,330      -      (1    1,329 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Total

  $     128,824   $     215   $     (228 $     128,811   $     132,673   $     390   $     (283 $     132,780 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 
              Gross       Gross                     Gross       Gross       
          Amortized               Unrealized               Unrealized             Fair           Amortized       Unrealized       Unrealized     Fair 
      Cost       Gains       Losses         Value           Cost       Gains       Losses     Value 
      (Dollars in Thousands)       (Dollars in Thousands) 
June 30, 2018                              
June 30, 2019                              

HELD TO MATURITY

                              

U.S. government agency securities

  $     625   $     -   $     (1 $     624 

Corporate debt securities

     1,061      13      -     1,074 

Obligations of states and political subdivisions

     4,495      -      (68    4,427   $     3,995   $     85   $     -  $     4,080 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Total

  $     6,181   $     13   $     (69 $     6,125   $     3,995   $     85   $     -  $     4,080 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Proceeds from sales of investments during the ninethree and six month periods ended December 31, 2019 were $9.1 million and the Company recorded gross realized investment gains of $32 thousand during these same periods.

Proceeds from sales of investments during the six month period ending Marchended December 31, 20192018 were $1.4 million and the Company recorded gross realized investment losses of $2 thousand during this same period. There were no sales of investment securities during the quarter ended MarchDecember 31, 2019.2018.

During the quarter and nine months ended March 31, 2018, the Company recorded gross realized investment securities gains

1 U.S. dollar denominated investment-grade corporate bonds of $2 thousand. Proceeds from sales of investment securities during the three and nine months ended March 31, 2018 were $1.3 million.large foreign corporate issuers.

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

 

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

AVAILABLE FOR SALE

                    

Amortized cost

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

Fair value

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

HELD TO MATURITY

                    

Amortized cost

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

Fair value

     500      3,531      -      -      4,031 

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

       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

  $     17,528   $     119,373   $     640   $     -   $     137,541 

Fair value

     17,514      119,902      644      -      138,060 

HELD TO MATURITY

                    

Amortized cost

  $     750   $     2,745   $     -   $     -   $     3,495 

Fair value

     757      2,821      -      -      3,578 

At MarchDecember 31, 2019, investment securities with amortized costscost of $3.5 million, and fair valuesvalue of $3.5$3.6 million were pledged to secure borrowings with the Federal Home Loan Bank (“FHLB”).

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

7.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities (“MBS”) include mortgage pass-through certificates (“PCs”) and collateralized mortgage obligations (“CMOs”). With a pass-through security, investors own an undivided interest in the pool of mortgages that collateralize the PCs. Principal and interest is passed through to the investor as it is generated by the mortgages underlying the pool. PCs and CMOs may be insured or guaranteed by Freddie Mac (“FHLMC”), Fannie Mae (“FNMA”) and the Government National Mortgage Association (“GNMA”). CMOs may also be privately issued with varying degrees of credit enhancements. A CMO reallocates mortgage pool cash flow to a series of bonds (called traunches)tranches) 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 MarchDecember 31, 2019, the Company’s Agency CMOs totaled $108.4$103.2 million as compared to $114.9$107.4 million at June 30, 2018.2019. The Company’s private-label CMOs totaled $936$785 thousand at MarchDecember 31, 2019 as compared to $958$883 thousand at June 30, 2018.2019. The $6.5$4.4 million decrease in the CMO segment of our MBS portfolio was primarily due to repayments on our Agency and private-label CMOs which totaled $6.6$4.3 million and $130$87 thousand, respectively, which were partially offset by a $133 thousand decrease in the noncredit impairment component of other than temporary impairment (“OTTI”) associated with our private-label CMOs.respectively. At MarchDecember 31, 2019 and June 30, 2018,2019, all of the Company’s MBS portfolio, including CMOs, were comprised of adjustable or floating rate investments. Substantially allAll of the Company’s floating rate MBSsMBS adjust monthly based upon changes in the one month LIBOR.London Interbank Offered Rate (“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,tranches, the actual maturities of the Company’s MBSsMBS are expected to be substantially less than the scheduled maturities.

The Company retains an independent third party to assist it in the determination of a fair value for its three private-label CMOs. This valuation is meant to be a “Level Three” valuation as defined by ASC Topic 820,Fair Value Measurements and Disclosures. The valuation does not represent the actual terms or prices at which any party could purchase the securities. There is currently no active secondary market for private-label CMOs and there can be no assurance that any secondary market for private-label CMOs will develop. The private-label CMO portfolio had three previously recorded other-than-temporary impairments at March 31, 2019. During the nine months ending March 31, 2019, the Company reversed $14 thousand ofnon-credit unrealized holding losses on its three private-label CMOs with OTTI due to principal repayments. During the three months ended March 31, 2019, the Company recorded $26 thousand ofan additional credit impairment chargescharge of $16 thousand on its private-label CMO portfolio.portfolio during the quarter ended December 31, 2019.

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

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

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

Cusip #

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

126694CP1

   CWHL SER 21 A11    N/A    Caa2    D           $ 532           $ 532           $ 214    CWHL SER 21 A11    WR    WR    D       $449       $443           $224 

126694KF4

   CWHL SER 24 A15    D    N/A    D    308    308    146    CWHL SER 24 A15    NR    NR    D    173    173    51 

126694KF4

   CWHL SER 24 A15    NR    NR    D    87    86    101 

126694MP0

   CWHL SER 26 1A5    D    N/A    D    96    101    36    CWHL SER 26 1A5    NR    NR    D    76    79    41 
          

 

   

 

   

 

           

 

   

 

   

 

 
                  $ 936           $ 941           $ 396               $785       $781           $417 
          

 

   

 

   

 

           

 

   

 

   

 

 

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    

           Amortized    
Cost
       Gross
    Unrealized    
Gains
       Gross
    Unrealized    
Losses
     

Fair

    Value    

 
    

 

 

     

 

 

 
      (Dollars in Thousands)       (Dollars in Thousands) 

March 31, 2019

               

December 31, 2019

               

HELD TO MATURITY

                              

Collateralized mortgage obligations:

                              

Agency

  $     108,334   $     1,123   $     (479 $     108,978   $     103,171   $     761   $     (592 $     103,340 

Private-label

     936      128      -     941      785      3      (7    781 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Total

  $     109,270   $     1,128   $     (479 $     109,919   $     103,956   $     764   $     (599 $     104,121 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 
      

Amortized

Cost

       

Gross

Unrealized

Gains

       

Gross

Unrealized

Losses

     

Fair

Value

       Amortized
Cost
       Gross
Unrealized
Gains
       Gross
Unrealized
Losses
     

Fair

Value

 
    

 

 

     

 

 

 
      (Dollars in Thousands)       (Dollars in Thousands) 

June 30, 2018

               

June 30, 2019

               

HELD TO MATURITY

                              

Collateralized mortgage obligations:

                              

Agency

  $     114,899   $     1,260   $     (426 $     115,733   $     107,448   $     954   $     (570 $     107,832 

Private-label

     958      153      -     1,111      883      5      (12    876 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

Total

  $     115,857   $     1,413   $     (426 $     116,844   $     108,331   $     959   $     (582 $     108,708 
    

 

     

 

     

 

    

 

     

 

     

 

     

 

    

 

 

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

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

 

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

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

HELD TO MATURITY

                                        

Amortized cost

  $     -   $     -   $     152   $     109,118   $     109,270   $     -   $     -   $     103   $     103,853   $     103,956 

Fair value

     -      -      154      109,765      109,919      -      -      103      104,018      104,121 

At MarchDecember 31, 2019, mortgage-backed securities with amortized costs of $108.3$103.2 million and fair values of $109.0$103.3 million were pledged to secure public deposits and borrowings with the FHLB. Of the securities pledged, $8.2$8.3 million of fair value was excess collateral. At June 30, 2018, mortgage-backed securities with an amortized cost of $114.9$107.4 million and fair values of $115.7$107.8 million, were pledged to secure public deposits and borrowings with the FHLB. Of the mortgage-backed securities pledged, $13.1$2.4 million of amortized costfair value was excess collateral at the FHLB.collateral. Excess collateral is maintained to support future borrowings and may be withdrawn by the Company at any time.

8.

ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)INCOME

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

 

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

Beginning Balance – December 31, 2018

    $ (1,486   $(199   $ (1,685) 

Beginning Balance – September 30, 2019

    $129    $(66   $63 

Other comprehensive income before reclassifications

   1,168  127  1,295    306  3  309 

Amounts reclassified from accumulated other comprehensive loss

   -   -   -    (25  -  (25
  

 

  

 

  

 

   

 

  

 

  

 

 

Net current-period other comprehensive income

   1,168  127  1,295    281  3  284 
  

 

  

 

  

 

   

 

  

 

  

 

 

Ending Balance – March 31, 2019

    $(318   $(72   $(390

Ending Balance – December 31, 2019

    $410    $(63   $347 
  

 

  

 

  

 

   

 

  

 

  

 

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

Beginning Balance – June 30, 2019

    $85    $(70)    $15 

Other comprehensive income before reclassifications

   351  6  357 

Amounts reclassified from accumulated other comprehensive loss

   (25  -  (25
  

 

  

 

  

 

 

Net current-period other comprehensive income

   326  6  332 
  

 

  

 

  

 

 

Ending Balance – December 31, 2019

    $411    $(64   $347 
  

 

  

 

  

 

 

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

Beginning Balance – June 30, 2018

  $(10 $(178 $ (188) 

Other comprehensive income (loss) before reclassifications

   (310  106   (204

Amounts reclassified from accumulated other comprehensive loss

   2   -   2 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive Income (loss)

   (308  106   (202
  

 

 

  

 

 

  

 

 

 

Ending Balance – March 31, 2019

  $(318 $(72 $(390
  

 

 

  

 

 

  

 

 

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

Beginning Balance – December 31, 2017

    $148    $(241)    $(93) 

Other comprehensive income before reclassifications

   (175  13   (162

Amounts reclassified from accumulated other comprehensive loss

   (1  -   (1
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income

   (176  13   (163
  

 

 

  

 

 

  

 

 

 

Ending Balance – March 31, 2018

    $(28   $(228   $(256
  

 

 

  

 

 

  

 

 

 
   Three Months Ended December 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 – September 30, 2018

    $88    $(209   $(121) 

Other comprehensive income (loss) before reclassifications

   (1,574  10   (1,564

Amounts reclassified from accumulated other comprehensive income (loss)

   -   -   - 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   (1,574  10   (1,564
  

 

 

  

 

 

  

 

 

 

Ending Balance – December 31, 2018

    $(1,486   $(199   $(1,685
  

 

 

  

 

 

  

 

 

 
   Six Months Ended December 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, 2018

    $(10   $(178)    $(188) 

Other comprehensive loss before reclassifications

   (1,478  (21  (1,499

Amounts reclassified from accumulated other comprehensive income

   2   -   2 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive loss

   (1,476  (21  (1,497
  

 

 

  

 

 

  

 

 

 

Ending Balance – December 31, 2018

    $(1,486   $(199   $(1,685
  

 

 

  

 

 

  

 

 

 

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

Beginning Balance – June 30, 2017

    $44    $(232   $(188

Other comprehensive income before reclassifications

   (95  37   (58

Amounts reclassified from accumulated other comprehensive loss

   (1  6   5 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income

   (96  43   (53
  

 

 

  

 

 

  

 

 

 

Reclassification for the change in corporate tax rate

   24   (39  (15

Ending Balance – March 31, 2018

    $(28   $(228   $(256
  

 

 

  

 

 

  

 

 

 

9.

UNREALIZED LOSSES ON SECURITIES

The following tables show the Company’s gross unrealized losses and fair value, aggregated by category and length of time that the individual securities have been in a continuous unrealized loss position, at MarchDecember 31, 2019 and June 30, 2018.2019.

 

         March 31, 2019 
  

 

 
         Less Than Twelve Months     Twelve Months or Greater     Total 
  

 

 
   

Fair

Value

   

Gross

Unrealized

Losses

  

Fair

Value

   

Gross

Unrealized

Losses

  

Fair

Value

   

Gross

Unrealized

Losses

 
  

 

 
       (Dollars in Thousands) 

Corporate debt securities

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

Foreign debt securities1

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

Obligations of state and political subdivisions

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

Collateralized mortgage obligations:

                        

Agency

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

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

 

Total

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

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

 

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

        June 30, 2018    December 31, 2019 
  

 

   

 

 

 
        Less Than Twelve Months   Twelve Months or Greater   Total    Less Than Twelve Months   Twelve Months or Greater   Total 
  

 

   

 

 

 
  

Fair

Value

   

Gross

Unrealized

Losses

 

Fair

Value

   

Gross

Unrealized

Losses

 

Fair

Value

   

Gross

Unrealized

Losses

  

Fair

Value

 

Gross

Unrealized

Losses

 

Fair
Value

 

Gross

Unrealized

Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 
  

 

   

 

 

 
       (Dollars in Thousands)    (Dollars in Thousands) 

U.S. government agency securities

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

Corporate debt securities

       56,714      (169    3,028      (12    59,742      (181  $   5,018  $ (4 $   13,950  $ (117 $   18,968  $ (121

Foreign debt securities1

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

Foreign debt securities3

   3,276   (1  1,994   (9  5,270   (10

Collateralized mortgage Obligations:

             

Agency

   18,954   (214  23,161   (385  42,115   (599
   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $   27,248  $ (219 $   39,105  $ (511 $   66,353  $ (730
   

 

   

 

   

 

   

 

   

 

   

 

 
   June 30, 2019 
  

 

 

 
   Less Than Twelve Months   Twelve Months or Greater   Total 
  

 

 

 
 

Fair

Value

 

Gross

Unrealized

Losses

 

Fair
Value

 

Gross

Unrealized

Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 
  

 

 

 
   (Dollars in Thousands) 

Corporate debt securities

  $   11,728  $ (86 $   17,077  $ (121 $   28,805  $ (207

Foreign debt securities³

   2,004   (2  5,699   (73  7,703   (75

Obligations of states and political subdivisions

       5,048      (77    -      -     5,048      (77    -    -   1,329   (1  1,329   (1

Collateralized mortgage obligations:

                                     

Agency

       7,600      (12    21,424      (414    29,024      (426   24,368   (182  18,614   (400  42,982   (582
      

 

     

 

    

 

     

 

    

 

     

 

    

 

   

 

   

 

   

 

   

 

   

 

 

Total

    $   83,747   $   (297 $   24,452   $   (426 $   108,199   $   (723  $   38,100  $ (270 $   42,719  $ (595 $   80,819  $ (865
      

 

     

 

    

 

     

 

    

 

     

 

    

 

   

 

   

 

   

 

   

 

   

 

 

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 outstandingavailable-for-sale andheld-to-maturity securities in an unrealized loss position (i.e., impaired securities) for other than temporaryother-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)(“NRSROs”); other indicators of the credit quality of the issuer; the strength of the provider of any guarantees; the length of time and extent that fair value has been less than amortized cost; and whether

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

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,MBSs, the Company also considers prepayment speeds, the historical and projected performance of the underlying loans and the credit support provided by the subordinate securities. These evaluations are inherently subjective and consider a number of quantitative and qualitative factors.

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

 

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

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

Beginning balance

  $ 229  $ 248  $ 239  $ 259   $239  $236  $248  $239 

Initial credit impairment

   -   -   -   -    -   -   -   - 

Subsequent credit impairment

   26   -  26  8    16   -  18  8 

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

   -   -   -   -    -   -   -   - 

Reductions for securities sold

   -   -   -   -    -   -   -   - 

Reduction for actual realized losses

   (5 (5 (15 (24   (13 (7 (24 (10

Reduction for increase in cash flows expected to be collected

   -   -   -   -    -   -   -   - 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Ending Balance

  $250  $243  $250  $243 

Ending balance

  $242  $229  $242  $229 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

During the three months and six months ended MarchDecember 31, 2019, the Company recorded a $26 thousandsubsequent credit impairment chargecharges of $16 thousand and no$2 thousand, respectively. Nonon-credit unrealized holding losses to accumulated other comprehensive income.income were recorded during these same periods. During the three and ninesix months ended MarchDecember 31, 2019, the Company accreted back into (out of) other comprehensive income $10$3 thousand and $(14)$6 thousand, respectively (net of income tax effect of $2$1 thousand and $(3)$2 thousand, respectively), based on principal repayments on private-label CMOs previously identified with OTTI.

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

In conjunction with our adoption of ASC Topic 820, effective June 30, 2009, the Company retained an independent third party to assist it with assessing its investments within the private-label CMO portfolio. The independent third party utilized certain assumptions for producing the cash flow analysisanalyses 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 MarchDecember 31, 2019 OTTI process. Based on the results of this review, the Company deemed the independent third party’s assumptions to be reasonable and adopted them. However, different assumptions could produce materially different results, which could impact the Company’s conclusions as to whether an impairment is considered other-than-temporary and the magnitude of the credit loss. The Company had three private-label CMOs with OTTI at December 31, 2019.

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 asavailable-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 6737 positions that were impaired at MarchDecember 31, 2019. Based on its analysis, management has concluded that three private-label CMOs are other-than-temporarily impaired, while the remaining securities portfolio has experienced unrealized losses and a decrease in fair value due to interest rate volatility, illiquidity in the marketplace, or credit deterioration in the U.S. mortgage markets.

10.

LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the primary segments of the loan portfolio as of MarchDecember 31, 2019 and June 30, 2018.2019.

 

      March 31, 2019   June 30, 2018       December 31, 2019   June 30, 2019 
      

Total

        Loans        

     

Individually

evaluated
for
impairment

       Collectively
evaluated
for
impairment
       

Total

Loans

     

Individually

evaluated
for
impairment

       

Collectively
evaluated

for

impairment

       

Total

Loans

     

Individually

evaluated

for
impairment

       

Collectively

evaluated

for

impairment

       

Total

Loans

     

Individually

evaluated

for

impairment

       

Collectively

evaluated

for

impairment

 
    

 

 

     

 

 

 
      (Dollars in Thousands)       (Dollars in Thousands) 

First mortgage loans:

                                            

1 – 4 family dwellings

  $     75,918    $-     $75,918     $72,237    $-     $72,237   $     79,778    $-     $79,778     $76,789    $-     $76,789 

Construction

     2,108     -      2,108      1,769     -      1,769      1,605     -      1,605      2,907     -      2,907 

Land acquisition & development

     384     -      384      -     -      -      246     -      246      694     -      694 

Multi-family dwellings

     3,191     -      3191      3,390     -      3,390      2,341     -      2,341      3,123     -      3,123 

Commercial

     3,800     -      3,800      3,482     -      3,482      4,284     -      4,284      3,727     -      3,727 

Consumer loans

                      

Consumer Loans

                      

Home equity

     911     -      911      861     -      861      1,095     -      1,095      906     -      906 

Home equity lines of credit

     1,956     -      1,956      2,177     -      2,177      1,910     -      1,910      1,953     -      1,953 

Other

     133     -      133      125     -      125      112     -      112      112     -      112 

Commercial loans

     475     -      475      633     -      633 

Commercial Loans

     6     -      6      418     -      418 
    

 

    

 

     

 

     

 

    

 

     

 

     

 

    

 

     

 

     

 

    

 

     

 

 
  $     88,876    $            -     $        88,876     $        84,674    $                -     $            84,674   $     91,377    $            -     $        91,377     $        90,629    $                -     $            90,629 
       

 

     

 

        

 

     

 

        

 

     

 

        

 

     

 

 

Plus: Deferred loan costs

     480             469             493             507        

Allowance for loan losses

     (510            (468            (530            (548       
    

 

            

 

            

 

            

 

        

Total

  $             88,846            $84,675          $             91,340            $90,588        
    

 

            

 

            

 

            

 

        

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 areCompany collectively evaluatedevaluates for impairment. First mortgage loans:impairment 1 – 4 family dwellingsfirst mortgage loans and all consumer loan categories (home equity, home equity lines of credit, and other).loans. The following loan categories are individually evaluated for impairment. Firstimpairment: first mortgage loans:loans – construction, land acquisition and development, multi-family dwellings, and commercial. The Company evaluates commercial loans not secured by real property individually for impairment.

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

Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on acase-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 MarchAs of December 31, 2019 and June 30, 20182019 there were no loans considered to be impaired.

Total nonaccrual loans as of MarchDecember 31, 2019 and June 30, 20182019 and the related interest income recognized for the three and ninesix months ended MarchDecember 31, 2019 and MarchDecember 31, 2018 are as follows:

 

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

Principal outstanding

        

1 – 4 family dwellings

  $     229   $     235 

Construction

     -      - 

Land acquisition & development

     -      - 

Commercial real estate

     -      - 

Home equity lines of credit

     -      - 
        
    

 

 

     

 

 

 

Total

  $     229   $     235 
    

 

 

     

 

 

 
        December 31,        
2019
        June 30,        
2019
(Dollars in Thousands)

Principal outstanding

1 – 4 family dwellings

$-$225

Construction

--

Land acquisition & development

--

Commercial real estate

--

Home equity lines of credit

--

Total

$-$225

 

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

Average nonaccrual loans

                                

1 – 4 family dwellings

  $     230   $     241   $     232   $     243   $     -   $     233   $     93   $     234 

Construction

     -      -      -      -      -      -      -      - 

Land acquisition & development

     -      -      -      -      -      -      -      - 

Commercial real estate

     -      -      -      -      -      -      -      - 

Home equity lines of credit

     -      -      -      -      -      -      -      - 
    

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

 

Total

  $     230   $     241   $     232   $     243   $     -   $     233   $     93   $     234 
    

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

 

Income that would have been recognized

  $     5   $     4   $     11   $     13   $     -   $     4   $     6   $     9 

Interest income recognized

  $     5   $     7   $     11   $     17   $     -   $     3   $     6   $     6 

During the quarter ended September 30, 2019, the Company’s onenon-performing asset consisting of a single-family real estate loan was discharged from bankruptcy and was not delinquent at December 31, 2019.

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 ninesix months ended MarchDecember 31, 2019, and MarchDecember 31, 2018, there were no troubled debt restructurings, and no troubled debt restructurings that subsequently defaulted.TDRs.

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 acharge-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, orcharge-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 ischarged-off. To further monitor and assess the risk characteristics of the loan portfolio, loan delinquencies are reviewed to consider any developing problem loans. Based upon the procedures in place, considering the Company’s past charge-offs and recoveries and assessing the current risk elements in the portfolio, management believes the allowance for loan losses at MarchDecember 31, 2019, 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 MarchDecember 31, 2019 and June 30, 2018:2019:

 

   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

    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)    (Dollars in Thousands) 

March 31, 2019

              

December 31, 2019

              

First mortgage loans:

                            

1 – 4 family dwellings

 $     75,689  $      -  $      -  $      -  $     229  $     229  $     75,918  $     79,778  $      -  $      -  $      -  $      -  $      -  $     79,778 

Construction

  2,108    -    -    -    -    -   2,108   1,605    -    -    -    -    -   1,605 

Land acquisition & development

  384    -    -    -    -    -   384   246    -    -    -    -    -   246 

Multi-family dwellings

  3,191    -    -    -    -    -   3,191   2,341    -    -    -    -    -   2,341 

Commercial

  3,800    -    -    -    -    -   3,800   4,284    -    -    -    -    -   4,284 

Consumer Loans:

                            

Home equity

  911    -    -    -    -    -   911   1,095    -    -    -    -    -   1,095 

Home equity lines of credit

  1,956    -    -    -    -    -   1,956   1,910    -    -    -    -    -   1,910 

Other

  133    -    -    -    -    -   133   112    -    -    -    -    -   112 

Commercial Loans

  475    -    -    -    -    -   475   6    -    -    -    -    -   6 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
 $     88,647  $      -  $      -  $      -  $     229  $     229   88,876  $     91,377  $      -  $      -  $      -  $      -  $      -   91,377 
  

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

   

 

   

Plus: Deferred loan fees

              480 

Plus: Deferred loan costs

              493 

Allowance for loan losses

              (510              (530
              

 

               

 

 

Net Loans Receivable

             $     88,846              $     91,340 
              

 

               

 

 
   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

    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)    (Dollars in Thousands) 

June 30, 2018

              

June 30, 2019

              

First mortgage loans:

                            

1 – 4 family dwellings

 $     72,002  $    -  $    -  $    -  $   235  $   235  $   72,237  $     76,564  $      -  $      -  $      -  $     225  $     225  $     76,789 

Construction

  1,769    -    -    -    -    -   1,769   2,907    -    -    -    -    -   2,907 

Land acquisition & development

   -    -    -    -    -    -    -   694    -    -    -    -    -   694 

Multi-family dwellings

  3,390    -    -    -    -    -   3,390   3,123    -    -    -    -    -   3,123 

Commercial

  3,482    -    -    -    -    -   3,482   3,727    -    -    -    -    -   3,727 

Consumer Loans:

              

Consumer Loans

              

Home equity

  861    -    -    -    -    -   861   906    -    -    -    -    -   906 

Home equity lines of credit

  2,177    -    -    -    -    -   2,177   1,953    -    -    -    -    -   1,953 

Other

  125    -    -    -    -    -   125   112    -    -    -    -    -   112 

Commercial Loans

  633    -    -    -    -    -   633   418    -    -    -    -    -   418 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
 $     84,439  $      -  $      -  $      -  $     235  $     235   84,674  $   90,404  $    -  $    -  $    -  $   225  $   225   90,629 
  

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

   

 

   

Plus: Deferred loan fees

              469 

Plus: Deferred loan costs

              507 

Allowance for loan losses

              (468              (548
              

 

               

 

 

Net Loans Receivable

             $     84,675              $     90,588 
              

 

               

 

 

Credit quality information

The following tables represent credit exposure by internally assigned grades for the period ended MarchDecember 31, 2019 and June 30, 2019. The grading system analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or not at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

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

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

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

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

The primary credit quality indicator used by management in the 1 – 4 family and consumer loan portfolios is the performance status of the loans. Payment activity is reviewed by Management on a monthly basis to determine how loans are performing. Loans are considered to benon-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,residential, commercial real estate and commercial (not secured by real estate) loans at MarchDecember 31, 2019 and June 30, 2018.2019.

 

      March 31, 2019       December 31, 2019 
      Construction       

Land

Acquisition

&

Development

       

Multi-
family

dwellings

       

Commercial
Real

Estate

       Commercial       (Dollars in Thousands) 
    

 

 

       Construction       

Land

Acquisition

&

Development

Loans

       

Multi-

family

Residential

       

Commercial

Real

Estate

       Commercial 
      (Dollars in Thousands)     

 

 

 

Pass

  $     2,108   $     384   $     3,191   $     3,800   $     475   $     1,605   $     246   $     2,341   $     4,284   $     6 
Special Mention      -       -       -       -       -      -      -      -      -      - 

Substandard

     -      -      -      -      -      -      -      -      -      - 

Doubtful

     -      -      -      -      -      -      -      -      -      - 
    

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

 

Ending Balance

  $     2,108   $     384   $     3,191   $     3,800   $     475 �� $     1,605   $     246   $     2,341   $     4,284   $     6 
    

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

 

      June 30, 2018       June 30, 2019 
  

  Construction  

       

Land

Acquisition

&

  Development  

Loans

       

  Multi-family  

Residential

       

  Commercial  
Real

Estate

         Commercial         (Dollars in Thousands) 
  

 

 

     Construction         

Land

Acquisition

&

  Development  

Loans

       

  Multi-family  

Residential

       

  Commercial  
Real

Estate

         Commercial   
      (Dollars in Thousands)   

 

 

 

Pass

  $     1,769   $     -   $     3,390   $     3,482   $     633   $     2,907   $     694   $     3,123   $     3,727   $     418 

Special Mention

     -      -      -      -      -      -      -      -      -      - 

Substandard

     -      -      -      -      -      -      -      -      -      - 

Doubtful

     -      -      -      -      -      -      -      -      -      - 
    

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

 

Ending Balance

  $     1,769   $     -   $     3,390   $     3,482   $     633   $     2,907   $     694   $     3,123   $     3,727   $     418 
    

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

     

 

 

The following table presents performing andnon-performing 1 – 4 family residential and consumer loans based on payment activity for the periods ended MarchDecember 31, 2019 and June 30, 2018.2019.

 

      March 31, 2019       December 31, 2019 
    

 

 

     

 

 

 
          1 – 4 Family               Consumer               1 – 4 Family               Consumer     
    

 

 

     

 

 

 
      (Dollars in Thousands)       (Dollars in Thousands) 

Performing

      $       75,689   $     3,000       $       79,778   $     3,117 

Non-performing

     229      -      -      - 
    

 

     

 

     

 

     

 

 

Total

      $               75,918   $                 3,000       $               79,778   $                 3,117 
    

 

     

 

     

 

     

 

 
      June 30, 2018       June 30, 2019 
    

 

 

     

 

 

 
          1 – 4 Family               Consumer               1 – 4 Family               Consumer     
    

 

 

     

 

 

 
      (Dollars in Thousands)       (Dollars in Thousands) 

Performing

      $       72,002   $     3,163       $       76,564   $     2,971 

Non-performing

     235      -      225      - 
    

 

     

 

     

 

     

 

 

Total

      $       72,237   $     3,163       $       76,789   $     2,971 
    

 

     

 

     

 

     

 

 

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 stablecharge-off experience. The Company also monitors industry loss experience on similar loan portfolio segments. We then identify loans for individual evaluation under ASC Topic 310. If the individually identified loans are performing, we apply a segment specific loss rate adjusted for relevant environmental factors, if necessary, for those loans reviewed individually and considered individually impaired, we use one of the three methods for measuring impairment mandated by ASC Topic 310. Generally the fair value of collateral is used since our impaired loans are generally real estate based. In connection with the fair value of collateral measurement, the Company generally uses an independent appraisal and determines costs to sell. The Company’s appraisals for commercial income based loans, such as multi-family and commercial real estate loans, assess value based

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

The Company had no unallocated loss allowance balancesbalance at MarchDecember 31, 2019 and June 30, 2018.2019.

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 MarchDecember 31, 2019 and 2018. Activity in the allowance is presented for the three and ninesix months ended MarchDecember 31, 2019 and 2018.

 

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

Multi-

  family  

       Commercial           Consumer  
Loans
         Commercial  
Loans
       Total   
  

 

 

     

 

 

 
   (Dollars in Thousands)       (Dollars in Thousands) 

Beginning ALLL Balance at December 31, 2018

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

Beginning ALLL Balance at September 30, 2019

  $     412  $     29   $     6  $     17  $     42   $     30   $     2  $     538 

Charge-offs

   -    -    -    -    -    -    -    -      -     -      -     -     -      -      -     - 

Recoveries

   -    -    -    -    -    -    -    -      -     -      -��    -     -      -      -     - 

Provisions

  6   8    -   (1  (1  (3   -   9      (14    8      (2    (4    3      2      (1    (8
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

    

 

     

 

    

 

    

 

     

 

     

 

    

 

 

Ending ALLL Balance at March 31, 2019

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

Ending ALLL Balance at December 31, 2019

  $     398  $     37   $     4  $     13  $     45   $     32   $     1  $     530 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

    

 

     

 

    

 

    

 

     

 

     

 

    

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

  379   33   10   17   38   30   3   510      398     37      4     13     45      32      1     530 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

    

 

     

 

    

 

    

 

     

 

     

 

    

 

 
 $   379  $   33  $   10  $   17  $   38  $   30  $   3  $   510   $     398  $     37   $     4  $     13  $     45   $     32   $     1  $     530 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

    

 

     

 

    

 

    

 

     

 

     

 

    

 

 

     As of December 31, 2019 
     First Mortgage Loans                
     1 – 4
  Family  
       Construction       Land
  Acquisition &  
Development
     

Multi-

  family  

       Commercial         Consumer  
Loans
       Commercial  
Loans
       Total   
  

 

 

 
     (Dollars in Thousands) 

Beginning ALLL Balance at June 30, 2019

 $    405  $    46  $    10  $    17  $    37  $    30  $    3  $    548 

Charge-offs

   -    -    -    -    -    -    -    - 

Recoveries

   -    -    -    -    -    -    -    - 

Provisions

   (7   (9   (6   (4   8    2    (2   (18
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALLL Balance at December 31, 2019

 $    398  $    37  $    4  $    13  $    45  $    32  $    1  $    530 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

   398    37    4    13    45    32    1    530 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 $    398  $    37  $    4  $    13  $    45  $    32  $    1  $    530 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

 
           (Dollars in Thousands) 

Beginning ALLL Balance at June 30, 2018

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

Charge-offs

   -    -    -    -    -    -    -    - 

Recoveries

   -    -    -    -    -    -    -    - 

Provisions

   23    9    10    (1   3    (1   (1   42 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALLL Balance at March 31, 2019

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

   379    33    10    17    38    30    3    510 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

 
           (Dollars in Thousands) 

Beginning ALLL Balance at December 31, 2017

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

Charge-offs

   -    -    -    -    -    -    -    - 

Recoveries

   -    -    -    -    -    -    -    - 

Provisions

   13    (1   -    -    -    (2   -    10 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending ALLL Balance at March 31, 2018

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

   340    25    -    19    20    32    4    440 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

 

   

 

 

 
   (Dollars in Thousands)        (Dollars in Thousands) 

Beginning ALLL Balance at June 30, 2017

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

Beginning ALLL Balance at September 30, 2018

 $   363  $   29  $   10  $   18  $   32  $   32  $   3  $   487 

Charge-offs

   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 

Recoveries

   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 

Provisions

  35   (5  (5  (1   -   (2   -   22   10   (4   -    -   7   1    -   14 
  

 

   

 

   

 

   

 

   

 

   

��

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Ending ALLL Balance at March 31, 2018

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

Ending ALLL Balance at December 31, 2018

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

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

  340   25    -   19   20   32   4   440   373   25   10   18   39   33   3   501 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
 $   340  $   25  $    -  $   19  $   20  $   32  $   4  $   440  $   373  $   25  $   10  $   18  $   39  $   33  $   3  $   501 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
   As of December 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, 2018

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

Charge-offs

   -    -    -    -    -    -    -    - 

Recoveries

   -    -    -    -    -    -    -    - 

Provisions

  17   1   10    -   4   2   (1  33 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Ending ALLL Balance at December 31, 2018

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

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

  373   25   10   18   39   33   3   501 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

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

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

During the three months and six months ended MarchDecember 31, 2019, the primary changes to the ALLL were comprised of a $6 thousand increase attributable to1-4 family loans and andecreased $8 thousand increase attributable to construction loans which were partially offset by a $3and $18 thousand, decrease attributable to consumer loans.

Duringrespectively. For the ninethree months ended MarchDecember 31, 2019, the ALLL associated with the1-4 family real estate loan portfolio decreased $14 thousand and was partially offset by an $8 thousand increase in the ALLL associated with construction loans. During the six months ended December 31, 2019, the ALLL associated with 1 - 4 family real estate loans, construction and land acquisition and development loans increased $23decreased by $7 thousand, $9 thousand and $10$6 thousand, respectively. The primary reason for the changes in the ALLL balance forbalances, both periods of 2019, in total, and within the identified segments, are volume relatedis changes in applicable loan balances and the return of onenon-performing loan to performing status.

During the three and six months ending December 31, 2018, the ALLL increased $14 thousand and $33 thousand, respectively. For the three months ended December 31, 2018, the ALLL associated with 1 - 4 family real estate loans increased $10 thousand and the ALLL associated with commercial loans increased $7 thousand. These increases were partially offset by a decrease of $4 thousand in the ALLL associated with the construction loan segment. During the six months ended December 31, 2018, the ALLL associated with 1 - 4 family real estate loans, land acquisition and development loans and commercial loans increased by $17 thousand, $10 thousand and $4 thousand, respectively. The primary reason for the changes in the ALLL balances, both in total, and within the identified segments, is changes in applicable loan balances.

For the three and nine month periods ended March 31, 2018, the ALLL associated with the1-4 family loan portfolio increased by $13 thousand and $35 thousand, respectively, primarily due to an increase in the Company’s reserve factor on the1-4 family permanent loan segment. Additionally, the1-4 family loan balances increased during these periods. For both periods of 2018, the changes in the ALLL balances associated with the other loan segments were driven by changes in the applicable loan balances.

Loan Segment

 

03/31/2019 Factor

 

06/30/2018 Factor

1 – 4 family-permanent 0.47% 0.46%

11.

FEDERAL HOME LOAN BANK (FHLB) ADVANCES

The following table presents contractual maturities of FHLB long-term advances as of MarchDecember 31, 2019 and June 30, 2018.2019.

 

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

Description

        from         to           interest rate3         from         to         2019        2018         from         to           interest rate 4     from     to         2019       2019 
                    (Dollars in Thousands)                     (Dollars in Thousands) 

Fixed

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

Adjustable

   10/01/20    10/01/21    2.47%  2.62%  2.86%     85,000      -    10/01/20    10/01/21    2.02 1.85 2.16    85,000      85,000 
           

 

     

 

            

 

     

 

 

Total

         $     100,000   $     -          $     100,000   $     100,000 
           

 

     

 

            

 

     

 

 

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

 

Maturing During

Fiscal Year Ended

June 30:

                    Amount                  Weighted-
      Average      
Interest
Rate
                     Amount                  Weighted-
      Average      
Interest
Rate(4)
 
   (Dollars in Thousands)             (Dollars in Thousands)         

2019

  $     -      - 

2020

     -      -   $     -      - 

2021

     65,000      2.73%      65,000      2.04% 

2022

     30,000      2.89%      30,000      2.31% 

2023

     5,000      3.09%      5,000      3.09% 

2024 and thereafter

     -      - 

2024

     -      - 
    

 

         

 

     

2025 and thereafter

     -     
    

 

     

Total

  $     100,000      2.80%   $     100,000      2.17% 
    

 

         

 

     

4

As of December 31, 2019.

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

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

 

             March 31,        
2019
             June 30,        
2018
 
   

 

 

 
     (Dollars in Thousands) 

FHLB revolving and short-term advances:

      

Ending balance

 $   71,922  $   171,403 

Average balance

    94,806     167,306 

Maximummonth-end balance

    161,289     179,791 

Average interest rate

    2.42    1.60

Weighted-average rate

    2.70    2.12

³

As of March 31, 2019

             December 31,        
2019
             June 30,        
2019
 
   

 

 

 
     (Dollars in Thousands) 

FHLB revolving and short-term advances:

      

Ending balance

 $   68,030  $   70,828 

Average balance

    55,900     81,556 

Maximummonth-end balance

    68,030     161,289 

Average interest rate

    2.19    2.45

Weighted-average rate

    1.81    2.46

At MarchDecember 31, 2019, the Company had remaining borrowing capacity with the FHLB of approximately $2.5$2.9 million.

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

The Company also has a $5 million unsecured line of credit with a regional bank. Borrowings under this line of credit generally are repayable within seven days. At December 31, 2019, no borrowings were outstanding on this unsecured line.

 

12.

FAIR VALUE MEASUREMENTS

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

 

Level I:  

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

Level II:  

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

Level III:  

Assets and liabilities that have little to no pricing observability as of the reported date. These items do not havetwo-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 SecuritiesAvailable-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 MarchDecember 31, 2019 and June 30, 2018,2019, 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, 2019 
             Level I                   Level II                   Level III                   Total       
       (Dollars in Thousands) 

Assets measured on a recurring basis:

                

Investment securities – available for sale:

                

Corporate securities

  $     -   $     106,530   $     -   $     106,530 

Foreign debt securities(1)

     -      26,448      -      26,448 

Obligations of states and political subdivisions

     -      1,627      -      1,627 
    

 

 

     

 

 

     

 

 

     

 

 

 
  $     -   $     134,605   $     -   $     134,605 
    

 

 

     

 

 

     

 

 

     

 

 

 
       June 30, 2018 
             Level I                   Level II                   Level III                   Total       
       (Dollars in Thousands) 

Assets measured on a recurring basis:

                

Investment securities – available for sale:

                

Corporate securities

  $     -   $     104,339   $     -   $     104,339 

Foreign debt securities(1)

     -      22,851      -      22,851 

Obligations of states and political subdivisions

     -      1,621      -      1,621 
    

 

 

     

 

 

     

 

 

     

 

 

 
  $     -   $     128,811   $     -   $     128,811 
    

 

 

     

 

 

     

 

 

     

 

 

 

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, 2019 and June 30, 2018.

       December 31, 2019 
             Level I                   Level II                   Level III                 Total       
       (Dollars in Thousands) 

Assets measured on a recurring basis:

                

Investment securities – available for sale:

                

Corporate securities

  $     -   $     110,104   $     -   $     110,104 

Foreign debt securities5

     -      27,956      -      27,956 
    

 

 

     

 

 

     

 

 

     

 

 

 
  $     -   $     138,060   $     -   $     138,060 
    

 

 

     

 

 

     

 

 

     

 

 

 
       June 30, 2019 
       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

  $     -   $     1,329   $     -   $     1,329 

Corporate securities

     -      104,908      -      104,908 

Foreign debt securities5

     -      26,543      -      26,543 
    

 

 

     

 

 

     

 

 

     

 

 

 
  $     -   $     132,780   $     -   $     132,780 
    

 

 

     

 

 

     

 

 

     

 

 

 

 

 

¹5

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

13.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values are as follows:

 

   December 31, 2019 
   March 31, 2019    Carrying
Amount
       Fair
Value
           Level I               Level II               Level III     
   Carrying
Amount
       Fair
Value
          Level I              Level II                  Level III        (Dollars in Thousands) 
   (Dollars in Thousands) 

FINANCIAL ASSETS

                                      

Cash and cash equivalents

 

$

   4,204   $     4,204   $   4,204   $   -   $   -  $   3,042   $     3,042   $     3,042   $     -   $     - 

Certificates of deposit

    1,346      1,346      1,346      -      -    1,591      1,591      1,591      -      - 

Investment securities – available for sale

    134,605      134,605      134,605      134,605      - 

Investment securities – held to maturity

    3,995      4,031      -      4,031      -     3,495      3,578      -      3,578      - 

Mortgage-backed securities – held to maturity:

                                      

Agency

    108,334      108,978      -      108,978      -     103,171      103,340      -      103,340      - 

Private-label

    936      941      -      -      941     785      781      -      -      781 

Net loans receivable

    88,846      88,395      -      -      88,395     91,340      93,414      -      -      93,414 

Accrued interest receivable

    1,279      1,279      1,279      -      -     1,052      1,052      1,052      -      - 

FHLB stock

    7,060      7,060      7,060      -      -     6,974      6,974      6,974      -      - 

Bank owned life insurance

    4,759      4,759      4,759      -      -     4,849      4,849      4,849      -      - 

FINANCIAL LIABILITIES

                                      

Deposits:

                                      

Non-interest bearing deposits

 $   20,563   $     20,563   $   20,563   $   -   $   - 

Interest-earning checking accounts

    24,512      24,512      24,512      -      - 

Non-interest earning checking

 $   18,113   $     18,113   $     18,113   $     -   $     - 

Interest-earning checking

    22,726      22,726      22,726      -      - 

Savings accounts

    44,113      44,113      44,113      -      -     42,719      42,719      42,719      -      - 

Money market accounts

    20,114      20,114      20,114      -      -     20,238      20,238      20,238      -      - 

Certificates of deposit

    34,924      34,824      -      -      34,824     41,888      41,922      -      -      41,922 

Advance payments by borrowers for taxes and insurance

    1,706      1,706      1,706      -      -     1,447      1,447      1,447      -      - 

FHLB advances – fixed rate

    15,000      14,168      -      -      14,168     15,000      14,357      -      -      14,357 

FHLB advances – variable rate

    85,000      85,000      85,000      -      -     85,000      85,000      85,000      -      - 

FHLB short-term advances

    71,922      71,922      71,922      -      -     68,030      68,030      68,030      -      - 

Accrued interest payable

    799      799      799      -      -     788      788      788      -      - 

   June 30, 2018    June 30, 2019 
   Carrying
Amount
       Fair
Value
           Level I               Level II               Level III        Carrying
Amount
       Fair
Value
           Level I               Level II               Level III     
   (Dollars in Thousands)    (Dollars in Thousands) 

FINANCIAL ASSETS

                                      

Cash and cash equivalents

 

$

   2,441   $     2,441   $     2,441   $     -   $     -  $   4,379   $     4,379   $     4,379   $     -   $     - 

Certificates of deposit

    350      350      350      -      -     1,843      1,843      1,843      -      - 

Investment securities – available for sale

    128,811      128,811      -      128,811      - 

Investment securities – held to maturity

    6,181      6,125      -      6,125      -     3,995      4,080      -      4,080      - 

Mortgage-backed securities – held to maturity:

                                      

Agency

    114,899      115,733      -      115,733      -     107,448      107,832      -      107,832      - 

Private-label

    958      1,111      -      -      1,111     883      876      -      -      876 

Net loans receivable

    84,675      84,319      -      -      84,319     90,588      92,062      -      -      92,062 

Accrued interest receivable

    1,225      1,225      1,225      -      -     1,219      1,219      1,219      -      - 

FHLB stock

    7,161      7,161      7,161      -      -     7,010      7,010      7,010      -      - 

Bank owned life insurance

    4,668      4,668      4,668      -      -     4,789      4,789      4,789      -      - 

FINANCIAL LIABILITIES

                                      

Deposits:

                                      

Non-interest earning checking

 

$

   18,436   $     18,436   $     18,436   $     -   $     -  $   19,770   $     19,770   $     19,770   $     -   $     - 

Interest-earning checking

    24,459      24,459      24,459      -      -     23,541      23,541      23,541      -      - 

Savings accounts

    44,727      44,727      44,727      -      -     43,740      43,740      43,740      -      - 

Money market accounts

    21,087      21,087      21,087      -      -     19,958      19,958      19,958      -      - 

Certificates of deposit

    34,376      34,053      -      -      34,053     37,361      37,359      -      -      37,359 

Advance payments by borrowers for taxes and insurance

    1,938      1,938      1,938      -      -     2,065      2,065      2,065      -      - 

FHLB advances – fixed rate

    15,000      14,323      -      -      14,323 

FHLB advances – variable rate

    85,000      85,000      85,000      -      - 

FHLB short-term advances

    171,403      171,403      171,403      -      -     70,828      70,828      70,828      -      - 

Accrued interest payable

    380      380      380      -      -     823      823      823      -      - 

FinancialAll financial instruments included in the above tables, with the exception of net loans receivable, certificates of deposit liabilities, and FHLB advances – fixed rate, are defined as cash, evidence of an ownership interest in an entity, or a contractcarried at cost, which creates an obligation or right to receive or deliver cash or another financial instrument from or to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists,approximates the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates, which are inherently uncertain, the resulting estimated values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated values are based may have a significant impact on the resulting estimated values.

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments, but have value, this estimated fair value of financial instruments would not represent the full market value of the Company.

Estimated fair values have been determined by the Company using the best available data, as generally provided in internal Savings Bank regulatory, or third party valuation reports, using an estimation methodology suitable for each category of financial instruments. The estimation methodologies used are as follows:

Cash and Cash Equivalents, Certificates of Deposit, Accrued Interest Receivable and Payable, and FHLB Short-term Advances

The fair value approximates the current carrying value.

Investment Securities, Mortgage-Backed Securities, and FHLB Stock

The fair value of investment and mortgage-backed securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. For discussion of valuation of private-label CMOs, see Note 8 “Unrealized Losses on Securities”. Since the FHLB stock is not actively traded on a secondary market and held exclusively by member financial institutions, the estimated fair market value approximates the carrying amount.

Net Loans Receivable, Deposits, and Advance Payments by Borrowers for Taxes and Insurance

Fair value for consumer mortgage loans is estimated using market quotes or discounting contractual cash flows for prepayment estimates. Discount rates were obtained from secondary market sources, adjusted to reflect differences in servicing, credit, and other characteristics.

The estimated fair values for consumer, fixed-rate commercial, and multi-family real estate loans are estimated by discounting contractual cash flows for prepayment estimates. Discount rates are based upon rates generally charged for such loans with similar credit characteristics.

The estimated fair value for nonperforming loans is the appraised value of the underlying collateral adjusted for estimated credit risk.

Demand, savings, money market deposit accounts, and advance payments by borrowers for taxes and insurance are reported at book value. The fair value of certificates of deposit is based upon the discounted value of the contractual cash flows. The discount rate is estimated using average market rates for deposits with similar average terms.

Bank Owned Life Insurance (“BOLI”)

The fair value of BOLI approximates the cash surrender value of the policies at these dates.

FHLB Advances – Fixed and Variable Rate

The fair values of fixed-rate advances are estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount on variable rate advances approximates their fair value.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINESIX MONTHS ENDED MARCHDECEMBER 31, 2019

FORWARD LOOKING STATEMENTS

In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipated,” “believe,” ”expect,” ”intend,” “plan,” “estimate” or similar expressions.

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:

 

our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;

 

general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan losses or a reduced demand for credit orfee-based products and services;

 

changes in the interest rate environment could reduce net interest income and could increase credit losses;

 

the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;

 

changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations;

 

the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;

 

competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services fromnon-banks, technological developments such as the internet or bank regulatory reform; and

 

acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.

You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new or future events except to the extent required by federal securities laws.

GENERAL

WVS Financial Corp. (the “Company”) is the parent holding company of West View Savings Bank (“West View” or the “Savings Bank”). The Company was organized in July 1993 as a Pennsylvania-chartered unitary bank holding company and acquired 100% of the common stock of the Savings Bank in November 1993.

West View Savings Bank is a Pennsylvania-chartered, FDIC-insured stock savings bank conducting business from six offices in the North Hills suburbs of Pittsburgh. The Savings Bank converted from the mutual to the stock form of ownership in November 1993. The Savings Bank had no subsidiaries at MarchDecember 31, 2019.

The operating results of the Company depend primarily upon its net interest income, which is determined by the difference between income on interest-earning assets, principally loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities, which consist primarily of deposits and borrowings. The Company’s net income is also affected by its provision for loan losses, as well as the level of itsnon-interest income, including loan fees and service charges, and itsnon-interest expenses, such as compensation and employee benefits, income taxes, deposit insurance and occupancy costs.

FINANCIAL CONDITION

The Company’s assets totaled $356.4$355.2 million at MarchDecember 31, 2019, as compared to $352.3$355.8 million at June 30, 2018.2019. The $4.1 million$570 thousand or 1.2% increase0.2% decrease in total assets was primarily comprised ofprincipally due to a $5.8 million increase in investment securities available for sale, a $4.1 million increase in net loans receivable, a $1.8 million increase in cash and cash equivalents and a $996 thousand increase in certificates of deposit, which were partially offset by a $6.6$4.4 million decrease in mortgage-backed securities and a $2.2$2.3 million decrease in investment securitiesheld-to-maturity. Theinterest-earning demand deposits, partially offset by a $5.3 million increase in investment securities available for sale was the result of purchases of corporateavailable-for-sale and foreign bonds which more than offset the maturities and calls of this category of securities.a $752 thousand increase in net loans receivable. The decrease in mortgage-backed securities was principally due to repayments of principal totaling $6.7$4.4 million and the decrease in investmentinterest-earning demand deposits is associated with changing liquidity needs of the Company. The increase in securitiesheld-to-maturityavailable-for-sale was primarily the result of purchases of floating rate investment-grade corporate bonds totaling $17.3 million, partially offset by securities sales of $9.1 million and $3.3 million of maturities and calls. The increase in net loans receivable was primarily attributable to an increase in the purchase of single-family owner occupied homes segment of the loan portfolio.

The Company’s total liabilities increased $2.8decreased $2.0 million or 0.9%0.6% to $321.1$317.7 million as of MarchDecember 31, 2019 from $318.3$319.8 million as of June 30, 2018.2019. The $2.8 million increasedecrease in total liabilities was primarily comprised of a $909$2.8 million or 4.0% decrease in FHLB short-term advances, which was partially offset by a $700 thousand increase in total deposits, a $519 thousand net increase in FHLB advances, a $519 thousand increase in unfunded securities commitments, a $419 thousand increase in accrued interest payabledeposits. Certificates of deposit (“CDs”) increased by $4.5 million and a $338 thousand increase in accrued income taxes.Non-interestnon-interest bearing transaction accountsdemand and certificates ofsavings deposit increased $5.5declined $1.7 million and $548 thousand,$1.0 million, respectively, as of MarchDecember 31, 2019 from June 30, 2018. Partially offsetting2019. Management believes that the increasesdecrease innon-interest bearing transaction accounts anddemand deposits was primarily the result of seasonal fluctuations related to local real estate tax collectors’ deposits. The increase in certificates of deposit was a $3.3 million or 13.5% decrease in interest bearing transaction accounts, a $614 thousand decrease in savings accounts and a $973 thousand decrease in money market transaction accounts. Thelargely due to higher levels of brokered CDs as part of the Company’s overall increase in FHLB advances was the result of $15 million in long-term fixed rate and $85 million long-term variable rate FHLB advances partially offsetting a $99.5 million decrease in FHLB short-term advances.funding strategy. See also Quantitative and Qualitative Disclosures About Market Risk “Asset and Liability Management”.

Total stockholders’ equity increased $1.3$1.5 million or 3.76%4.1% to $35.3$37.5 million as of MarchDecember 31, 2019, from $34.0$36.0 million as of June 30, 2018.2019. The change toincrease in stockholders’ equity was primarily attributable to net income of $2.2$1.5 million, which was partially offset by cash dividends paid totaling $463 thousand and Treasury share purchases of $372$354 thousand.

RESULTS OF OPERATIONS

General. WVS Financial Corp. reported net income of $747$727 million or $0.42$0.41 per share (diluted and basic) for the three months ended MarchDecember 31, 2019 as compared to $634$685 thousand or $0.35$0.38 per share for the same period in 2018. The $113$42 thousand or 17.8%6.1% increase in net income during the three months ended MarchDecember 31, 2019 was primarily attributable to a $168$12 thousand increase in net interestnon-interest income, and a $10 thousand decrease innon-interest expense of $84 thousand and a $22 thousand decrease in the provision for loan losses, which were partially offset by a $33$74 thousand decrease in othernon-interest income, and a $32 thousand increase in income tax expense. The increase in net interest income during the three months ended March 31, 2019 was attributable to a $676 thousand increase in interest income, which was partially offset by a $508 thousand increase in interest expense. The decrease innon-interest income for the three months ended March 31, 2019 was primarily attributable to a $26 thousand increase in impairment charges related to the Company’s private label mortgage-backed securities portfolio when compared to the same period in 2018. The increase in income tax expense for the quarter ended March 31, 2019 was primarily attributable to higher levels of taxable income, when compared to the same period inof 2018.

Net income for the ninesix months ended MarchDecember 31, 2019 totaled $2.2$1.5 million or $1.22$0.86 per diluted share (diluted and basic) as compared to $1.5$1.4 million or $0.84$0.80 per diluted share for the same period in 2018. The $646$88 thousand or 42.1%6.1% increase in net income during the ninesix months ended MarchDecember 31, 2019 was primarily attributable to a $549$138 thousand increasedecrease innon-interest expense and a $51 thousand decrease in the provision for loan losses, partially offset by a $71 thousand decrease in net interest income and a $183$42 thousand decreaseincrease in income tax expense, which were partially offset by a $20 thousand increase in the provision for loan losses and a $13 thousand increase innon-interest expense, when compared to the same period of 2018. The increase in net interest income during the nine month period was attributable to a $2.0 million increase in interest income, which was partially offset by a $1.4 million increase in interest expense. The decrease innon-interest income for the quarter ended March 31, 2019 was primarily attributable to higher impairment charges on the Company’s private label mortgage-backed securities portfolio, and lower revenues from ATM fee income, service charges on deposit accounts, and bank-owned life insurance, when compared to the same period in 2018. The increase in the provision for loan losses was primarily attributable to higher levels of loans for land acquisition and development, and commercial real estate, during the nine months ended March 31, 2019 compared to the same period of 2018. The decrease in income tax expense for the nine months ended March 31, 2019 was primarily the result of the absence of an additional $133 thousand federal income tax expense during the nine months ended March 31, 2018 due to the write down of the Company’s net deferred tax assets associated with the Tax Cuts and Jobs Act of 2017, which was partially offset by higher taxable income and the reduced corporate federal tax rate effective January 1, 2018.

Net Interest Income. The Company’s net interest income increaseddecreased by $168$74 thousand or 10.1%4.3% for the three months ended MarchDecember 31, 2019, when compared to the same period in 2018. The increasedecrease in net interest income was primarily attributable to a $676 thousand increase in interest income which was partially offset by a $508 thousand increase in interest expense. The $676 thousand increase in interest income during the three months ended MarchDecember 31, 2019 was primarily attributable to higher average yields ona $172 thousand decrease in interest income, partially offset by a $98 thousand decrease in interest expense for the Company’s mortgage-backed securities, and higher average balances and yields on the Company’s investment and loan portfoliosthree months ended December 31, 2019, when compared to the same period in 2018. The $508 thousand increasedecrease in interest income for the three months ended December 31, 2019 was primarily attributable to lower market yields earned on the Company’s floating rate investment and mortgage-backed securities portfolio and lower average balances of mortgage-backed securities outstanding which were partially offset by higher yields on Federal Home Loan Bank (“FHLB”) stock, and higher average balances of investment securities, loans and certificates of deposit when compared to the same period in 2018. The decrease in interest expense for the three months ended MarchDecember 31, 2019 was primarily attributable to higher average marketlower rates paid on FHLB short-term and variable rate long-term borrowings and lower average balances of FHLB short-term borrowings, which were partially offset by higher average balances of wholesale time deposits and higher rates paid on time deposits when compared to the same period in 2018.

For the ninesix months ended MarchDecember 31, 2019, net interest income increased $549decreased $71 thousand or 11.4%2.0% when compared to the same period in 2018. The increasedecrease in net interest income was primarily attributable to a $2.0 million$16 thousand decrease in interest income and a $55 thousand increase in interest income, which was partially offset by a $1.4 million increaseexpense for the six months ended December 31, 2019, when compared to the same period in interest expense.2018. The increasedecrease in interest income was primarily the result of higherlower average yields on the Company’s floating rate investment and mortgage-backed securities, FHLB stock and loans andlower outstanding balances of floating rate mortgage-backed securities partially offset by higher average outstanding balances of loans and investment securities, outstanding, which were partially offset by lower average balances of mortgage-backed securities, certificates of deposit and higher yields earned on FHLB stock, when compared to the same period in 2018. The increase in interest expense was primarily attributable to higher average market ratesbalances outstanding of wholesale time deposits and higher yields paid on time deposits which were partially offset by lower yields paid on FHLB borrowingsadvances and time deposits.lower average balances of FHLB advances outstanding during the six months ended December 31, 2019, when compared to the same period of 2018.

Interest Income.Interest income on net loans receivable increased $99$46 thousand or 13.2%5.6% and $253$126 thousand or 11.4%7.7% for the three and ninesix months ended MarchDecember 31, 2019, respectively, when compared to the same periods in 2018. The increase for the quarterthree and six months ended MarchDecember 31, 2019 was primarily attributable to a $7.1increases of $5.1 million increaseand $5.4 million, respectively, in the average balance of net loans receivable and an increase of 15 basis points in the weighted average yield earned on net loans receivable compared to the same period in 2018. The increase for the nine months ended March 31, 2019 was primarily attributable to a $6.4 million increase in the average balance of net loans receivable and an increase of 11 basis points in the weighted average yield earned on net loans receivable when compared to the same periodperiods in 2018. For both the threequarter and ninesix months ended MarchDecember 31, 2019, the increase in the average balance of loans outstanding was primarily attributable to loan originations and purchases in excess of repayments while the increase in the average yield earned on net loans receivable was primarily attributable to higher market rates on new loans originated.originated when compared to the same periods in 2018. During fiscal 2017, 2018, 2019 and into fiscal 2019,2020, the Company enjoyed higher demand for single-family home purchase loans. Substantially all of our loan originations and purchases were fixed-rate loans with a mix of 15, 20, and 30 year terms.

Interest income on investment securities increased $422decreased $69 thousand or 55.1%6.5% and $1.2 million$10 thousand or 57.1%0.5% for the three and ninesix months ended MarchDecember 31, 2019, respectively, when compared to the same periods in 2018. The increasedecrease for the three months ended MarchDecember 31, 2019 was primarily attributable to a $5.537 basis point decrease in the weighted average yield on investment securities, partially offset by a $7.5 million increase in the average balance of investment securities outstanding, and a 115 basis point increase in the weighted average yield on investment securities, when compared to the same period in 2018. The increasedecrease for the ninesix months ended MarchDecember 31, 2019 was primarily attributable to an $8.5a decrease in the weighted average yield of 13 basis points, partially offset by a $5.0 million increase in the average balance of investment securities outstanding, and an increase in the weighted average yield on investment securities of 104 basis points, when compared to the same period in 2018. The increase in the average balance of investments outstanding during both periods is attributable to the redeployment of mortgage-backed securities cash flows into floating rate corporate bonds. The increasedecrease in weighted average yields in 2019 was principally attributable to higherone-monthlower three-month dollar London Interbank Offered Rates (“LIBOR”) when compared to the same periods in 2018.

Interest income on mortgage-backed securities increased $173decreased $170 thousand or 21.6%18.3% and $539$174 thousand or 24.0%9.6% for the three and ninesix months ended MarchDecember 31, 2019, respectively, when compared to the same periods in 2018. The increasedecrease for the three months ended MarchDecember 31, 2019 was primarily attributable to a 90 basis point increase in the weighted average yield earned on U.S. Government agency mortgage-backed securities, which more than offset a $10.9$5.3 million decrease in the average balance of U.S. Government agency mortgage-backed securities when compared toand a 47 basis point decrease in the same period in 2018.weighted average yield earned on these securities. The increasedecrease for the ninesix months ended MarchDecember 31, 2019 was also primarily attributable to a 94 basis point increase in the weighted average yield earned on U.S. Government agency mortgage-backed securities, which more than offset a $13.2$5.6 million decline in the average balance of U.S. Government agency mortgage-backed securities and a 15 basis point decrease in the weighted average yield earned on these mortgage-backed securities, when compared to the same period in 2018. The decrease in the average balances of U.S. Government and agency private-label mortgage-backed securities during the three and ninesix months ended MarchDecember 31, 2019 was attributable to principal paydownspay downs during the periods. The mortgage-backed securities proceeds during both periods were primarily used to fund loan originations and purchases of floating rate corporate bonds in the investment portfolio.portfolio and loan originations and purchases. The increasedecrease in weighted average yields in 2019 was primarily attributable to higher three-monthone-month LIBOR when compared to the same periods in 2018.

Dividend income on FHLB stock decreased $7increased $14 thousand or 4.7%12.1% and increased $48$24 thousand or 14.9%10.5% for the three and ninesix months ended MarchDecember 31, 2019, respectively, when compared to the same periods in 2018. The decreasechange in dividends on FHLB stock for both the three and six months ended December 31, 2019 was primarily attributable by a 96 basis point increase in the average yield on FHLB stock held during the three and six months ended December 31, 2019, when compared to the same periods in 2018.

Interest income on bank certificates of deposit increased $12 thousand and $25 thousand for the three and six months ended December 31, 2019, respectively, when compared to the same period in 2018. The increases in both periods of 2019 were primarily attributable to increases in the average portfolio balances of certificates of deposit of approximately $2.0 million.

Interest Expense.Interest paid on FHLB variable-rate long-term advances and FHLB short-term advances decreased by $74 thousand and $127 thousand, respectively, for the three months ended March 31, 2019 was primarily attributable to a $552 decrease in the average balance of FHLB stock which was partially offset by a 28 basis point increase in the weighted average yield earned. The increase for the nine months ended March 31, 2019 was primarily attributable to a 122 basis point increase in the weighted average yield earned which was partially offset by a $302 decrease in the average balance of FHLB stock.

Interest income on certificates of deposit decreased $9 thousand or 56.3% for the three months ended MarchDecember 31, 2019, when compared to the same period in 2018. The decrease forFor the quarterthree months ended MarchDecember 31, 2019, was primarily the result of a decrease in interest expense on the average portfolio balance of certificates of deposit of $1.7 million. For the nine months ended March 31, 2019,FHLB variable-rate long-term advances was principally due to lower market interest income on certificates of deposits decreased by $58 thousand or 82.9% primarily as a result of a decrease in the average portfolio balance of certificates of deposit of $4.3 million, which was partially offset by a 60 basis point increase in the weighted average yield earnedrates, when compared to the same period in 2018. During the three and nine months ended March 31, 2018, the Company redeployed maturing large dollar floating rate certificates of deposit to fund loan originations and purchases of floating rate corporate bonds in the investment portfolio.

Interest Expense.Interest paid on FHLB fixed-rate and variable-rate long term advances increased by $700 thousand and $1.3 million, respectively, for the three and nine months ended March 31, 2019 when compared to the same periods in 2018. The increases were primarily due to increases in the average balances of FHLB long-term advances during the three and nine months ended March 31, 2019 of $100 million and $64.0 million, respectively, when compared to the same periods in 2018. The decrease in interest expense on FHLB short-term FHLB advances for the three months ended MarchDecember 31, 2019 was primarily attributable toreflects lower market interest rates as well as a $116.2$5.5 million decrease in the average balance of FHLB short-term advances outstanding, when compared to the same period in 2018. Interest expense on FHLB short-term borrowings during the ninesix months ended MarchDecember 31, 2019 decreased by $108$732 thousand or 5.9%54.4% primarily due to a decrease of $116.2$57.9 million in the average balance of these obligations, partially offset by a 96 basis point increase in rates paidadvances outstanding, when compared to the same period of 2018. The Company reduced this funding source duringFor the ninesix months ended MarchDecember 31, 2019, periods by increasinginterest expense on both FHLB long-term fixed and long-term variable FHLB advances increased by $116 thousand or 100.0% and $441 thousand or 83.8%, respectively, when compared to better match expected cash flows from the Company’s investment, MBS and loan portfolios.same period in 2018. These increases were primarily due to higher average balances of FHLB long-term advances outstanding during the six months ended December 31, 2019, when compared to the same period in 2018.

Interest expense on deposits increased $151$103 thousand or 79.8% and $237$230 thousand or 91.3% for the three and ninesix months ended MarchDecember 31, 2019, respectively, when compared to the same periods in 2018. The increase in interest expense on deposits for the three months ended MarchDecember 31, 2019 was primarily attributable to a 9359 basis point increase in the weighted average rate paid on time deposits and a $14.4$14.3 million increase in the average balancesbalance of time deposits, outstanding for the quarter ended March 31, 2019, when compared to the same period in 2018. For the ninesix months ended MarchDecember 31, 2019, the $237$230 thousand increase in interest expense was primarily due to a $2.8 million increase in the average balance of time deposits outstanding and an 8255 basis point increase in the weighted average rate paid on thesetime deposits and a $14.6 million increase in the average balance of the time deposits, when compared to the same period in 2018. The increaseincreases in the average balances of time deposits duringfor both the three and ninesix months ended MarchDecember 31, 2019, waswere primarily attributable to higher levels of short-term brokered deposits when compared to the same periods of 2018. From time to time the Company uses brokered deposits to fund investment purchases or as an alternative to FHLB borrowings if the cost of such deposits is less than other wholesale funding options.

Provision for Loan Losses. A provision for loan losses is charged or accreted to earnings to bring the total allowance to a level considered adequate by management to absorb potential losses in the portfolio. Management’s determination of the adequacy of the allowance is based on an evaluation of the portfolio considering past experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors.

During the three and ninesix months ending MarchDecember 31, 2019, the ALLL increased $10allowance for loan losses (“ALLL”) decreased $8 thousand and $42$18 thousand, respectively. For the three months ended MarchDecember 31, 2019, the ALLL associated with 1 - 4 family real estate loans increased $6decreased $14 thousand and the ALLL associated with construction loans increased $8 thousand, which were partially offset by a decrease of $2 thousand in the ALLL associated with the consumer loan segment.thousand. During the ninesix months ended MarchDecember 31, 2019, the ALLL associated with 1 - 4 family real estate loans, construction and land acquisition and development loans increaseddecreased by $23$7 thousand, $9 thousand and $10$6 thousand, respectively. The primary reason for the changes in the ALLL balances, both in total, and within the identified segments, are changes in applicable loan balances.balances and the return of onenon-performing loan to performing status.

At MarchDecember 31, 2019, the Company’s total allowance for loan losses amounted to $510$530 thousand or 0.57%0.58% of the Company’s total loan portfolio, as compared to $468$548 thousand or 0.55%0.60% at June 30, 2018.2019. At MarchDecember 31, 2019, the Company’sCompany had nonon-performing loans totaled $229 thousand as compared to $235$225 thousand at June 30, 2018.2019.

Non-Interest Income. The decreases in thenon-interestNon-interest income for the three and nine months ended March 31, 2019 were primarily attributable to a $26 thousand impairment charge related to the Company’s private label mortgage-backed securities portfolio recorded during the quarter ended March 31, 2019. In addition,non-interest income for the nine month period ended March 31, 2019 was impacted by lower revenues from ATM fee income and lower service charges on deposits, when compared to the same period of 2018.

Non-Interest Expense.Non-interest expense decreased $10increased $12 thousand or 1.1%10.9% for the three months ended MarchDecember 31, 2019, when compared to the same period in 2018. This decreaseThe increase for the three months ended December 31, 2019 was principallyprimarily attributable to lower occupancya $32 thousand gain on the sale of investment securities and equipmenta $4 thousand increase in service charges on deposits which were offset by a $16 thousand increase in other than temporary impairment losses on private label mortgage-backed securities, a $7 thousand decrease in automated teller machine (ATM) program income and lowera $1 thousand decrease in earnings on Bank-owned life insurance, when compared to the same period in 2018.

For the six months ended December 31, 2019,non-interest income increased $12 thousand or 5.5%, when compared to the same period in 2018. The increase innon-interest income for the six months ended December 31, 2019 was primarily attributable to a $34 thousand gain on the sale of investment securities and a $5 thousand increase in service charges on deposits, which were offset by an $18 thousand increase in other than temporary impairment losses on private label mortgage-backed securities, a $7 thousand decrease in ATM program income and a $2 thousand decrease in earnings on Bank-owned life insurance, when compared to the same period in 2018.

Non-Interest Expense.Non-interest expense decreased $84 thousand or 8.8% for the three months ended December 31, 2019, when compared to the same period in 2018. The decrease innon-interest expense for the three months ended December 31, 2019 was primarily attributable to a $30 thousand decrease in employee benefit costs, a $22 thousand decrease in federal deposit insurance expense, $20 thousand decrease in a variety of other operating costs, which were partially offset by higher employee related costsexpenses and a $7 thousand decrease in ATM network expenses, when compared to the same period in 2018.Non-interest expense increased $13decreased $138 thousand or 0.5%7.4% for the ninesix months ended MarchDecember 31, 2019, when compared to the same period in 2018. This increaseThe decrease innon-interest expense for the six months ended December 31, 2019 was dueprimarily attributable to higher employee related costs, data processing costs and ATM network expenses, which were partially offset by lower occupancy and equipment,a

$73 thousand decrease in federal deposit insurance premiums, correspondent bank service charges,expense, a $41 thousand decrease in employee benefit expense and other operating expensesa $21 thousand decrease in ATM network expense, when compared to the same period in 2018. The decrease in federal deposit insurance expense for both periods in 2019 was primarily attributable to the application of Small Bank Assessment Credits by the Federal Deposit Insurance Corporation.

Income Tax Expense.Income tax expense increased $32$2 thousand and $42 thousand for the three and six months ended MarchDecember 31, 2019, respectively, when compared to the same periodperiods in 20182018. The increases for both periods ended December 31, 2019, were primarily as a result of thedue higher levels of taxable income. The decrease in income tax expense for the nine months ended March 31, 2019 was primarily the result of the absence of an additional $133 thousand federal income tax expense during the nine months ended March 31, 2018 duewhen compared to the write downsame periods of the Company’s net deferred tax assets associated with the Tax Cuts and Jobs Act of 2017, which was partially offset by higher taxable income and the reduced corporate federal tax rate effective January 1, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled $3.2$1.8 million during the ninesix months ended MarchDecember 31, 2019. Net cash provided by operating activities was primarily comprised of net income of $2.2$1.5 million and a $419$167 thousand increasedecrease in accrued interest payable and a $271 thousand increase in accrued income taxes.receivable.

Funds used for investing activities totaled $2.0 million$608 thousand during the ninesix months ended MarchDecember 31, 2019. Primary uses of funds during the nine months ended March 31, 2019this period were purchases of investment securities available for sale totaling $40.7$17.3 million, purchases of loans totaling $7.2$6.3 million and purchases of certificates of deposit totaling $1.1$1.3 million. Primary sources of funds during the six months ended December 31, 2019 included proceeds from repayments of investment securities and mortgage-backed securities in theheld-to-maturity portfolio totaling $2.2 million$500 thousand and $6.7$4.4 million, respectively, proceeds from repayments of investment securities in theavailable-for-sale portfolio totaling $33.5$3.3 million, and $1.4$9.1 million of proceeds on sales of investment securities available for sale and repayments of loans in excess of originations of $3.0 million.$5.6 million and $1.6 million of proceeds from maturing certificates of deposit.

Funds provided byused for financing activities totaled $593 thousand$2.6 million for the ninesix months ended MarchDecember 31, 2019. The primary sourcesuses were a $100.0$2.8 million increasedecrease in FHLB long-term advances, a $593 thousand increase in savings and transaction accounts and a $548 thousand increase in certificates of deposits. These sources were partially offset by decreases of FHLB short-term advances, totaling $99.5a $3.2 million cash dividends paid of $463 thousand, treasury stock purchases totaling $372 thousanddecrease in transaction and savings accounts, a $232$618 thousand decrease in advance payments by borrowers for taxes and insurance.insurance and $354 thousand in cash dividends paid on the Company’s common stock, which were partially offset by increases in certificates of deposits totaling $4.5 million. Management believes that a significant portion of our local maturing deposits will remain with the Company. Management has determined that it currently is maintaining adequate liquidity and continues to match funding sources with lending and investment opportunities.

The Company’s primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. Certificates of deposit scheduled to mature in one year or less at MarchDecember 31, 2019 totaled $23.1 million.$38.7 million including $14.7 million of maturing wholesale time deposits.

Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. At MarchDecember 31, 2019, total approved loan commitments outstanding were $2.5$2.6 million. At the same date, commitments under unused lines of credit amounted to $6.0$5.1 million and the unadvanced portion of construction loans approximated $3.0$3.6 million. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances, and other borrowings,wholesale funding sources, to provide the cash utilized in investing activities. The Company’s available for sale segment of the investment portfolio totaled $134.6$138.1 million at MarchDecember 31, 2019. In addition the Company had $1.3$1.6 million of certificates of deposit at MarchDecember 31, 2019. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.

On April 29, 2019,January 27, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share, and a special cash dividend of $0.08 per share, both payable on May 23, 2019,February 20, 2020, to shareholders of record at the close of business on May 13, 2019.February 10, 2020. Dividends are subject to determination and declaration by the Board of Directors, which take into

account the Company’s financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the Common Stock in future periods or that, if paid, such dividends will not be reduced or eliminated.

As of MarchDecember 31, 2019, WVS Financial Corp. maintained Common Equity Tier I Capital, Tier I, and total risk-based capital equal to $35.7$37.2 million or 18.71%19.1%, $35.7$37.2 million or 18.71%19.1%, and $36.2$37.7 million or 19.00%19.4%, respectively, of total risk-weighted assets, and Tier I leverage capital of $35.7$37.2 million or 10.15%10.4% of average quarterly assets.

Nonperforming assets consist of nonaccrual loans and real estate owned. A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company normally does not accrue interest on loans past due 90 days or more, however, interest may be accrued if management believes that it will collect on the loan.

The Company’sCompany had no nonperforming assets at MarchDecember 31, 2019 totaled $229compared to $225 thousand or 0.06% of total assets as compared to $235 thousand or 0.07% of total assets at June 30, 2018. Nonperforming assets at March 31,2019.

During the quarter ended September 30, 2019, consisted ofthe Company’s one nonperforming single-family real estate loan. The loan is currently under awas discharged from bankruptcy order and making payments as agreed.

The $6 thousand decrease in nonperforming assets during the nine months ended March 31, 2019 was primarily attributable to principal repayments.

During the three and nine months ended March 31, 2019, the Company collected $5 thousand and $11 thousand, respectively, of interest income onnon-accrual loans. Approximately $5 thousand and $11 thousand, respectively, of interest income would havesince that time has been recorded during the three and nine months ended March 31, 2019, onnon-accrual loans if such loans had been current according to the original loan agreements for the entire periods. The Company continues to work with the borrowers in an attempt to cure the default and is also pursuing various legal avenues in order to collect on this loan.current.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET AND LIABILITY MANAGEMENT

The Company’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in US dollars with no specific foreign exchange exposure. The Savings Bank has no agricultural loan assets and therefore would not have a specific exposure to changes in commodity prices. Any impacts that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be exogenous and will be analyzed on anexpost basis.

Interest rate risk (“IRR”) is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value, however excessive levels of IRR can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains IRR at prudent levels is essential to the Company’s safety and soundness.

Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control IRR and the organization’s quantitative level of exposure. When assessing the IRR management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain IRR at prudent levels with consistency and continuity. Evaluating the quantitative level of IRR exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity, and, where appropriate, asset quality.

Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will either have lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

During the fiscal years2013-2018 2014 - 2019 and into fiscal year 2019,2020, intermediate and long-term market interest rates fluctuated considerably. Many central banks, including the Federal Reserve, continued above normal levels of monetary accommodation including quantitative easing and targeted asset purchase programs. The desired outcomes of these programs are to stimulate aggregate demand, reduce high levels of unemployment and to further lower market interest rates.

The effect of interest rate changes on a financial institution’s assets and liabilities may be analyzed by examining the “interest rate sensitivity” of the assets and liabilities and by monitoring an institution’s interest rate sensitivity “gap”. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within a given time period. A gap is considered positive (negative) when the amount of rate sensitive assets (liabilities) exceeds the amount of rate sensitive liabilities (assets). During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income.

As part of its asset/liability management strategy, the Company maintained an asset sensitive financial position due to unusually low market interest rates. An asset sensitive financial position may benefit earnings during a period of rising interest rates and reduce earnings during a period of declining interest rates.

The following table sets forth certain information at the dates indicated relating to the Company’s interest-earning assets and interest-bearing liabilities which are estimated to mature or are scheduled to reprice within one year.

 

  March 31, June 30,   December 31, June 30, 
  2019           2018                     2017             2019           2019                     2018           
  (Dollars in Thousands)   (Dollars in Thousands) 

Interest-earning assets maturing or repricing within one year

       $277,303    $270,356    $257,808        $279,078    $282,429    $270,356 

Interest-bearing liabilities maturing or repricing within one year

   212,612  229,231  228,616    221,983  214,916  229,231 
  

 

  

 

  

 

   

 

  

 

  

 

 

Interest sensitivity gap

       $  64,691    $  41,125    $  29,192        $  57,095    $  67,513    $  41,125 
  

 

  

 

  

 

   

 

  

 

  

 

 

Interest sensitivity gap as a percentage of total assets

   18.15 11.67 8.30   16.07 18.97 11.67

Ratio of assets to liabilities maturing or repricing within one year

   130.43 117.94 112.77   125.72 131.41 117.94

The following table illustrates the Company’s estimated stressed cumulative repricing gap – the difference between the amount of interest-earning assets and interest-bearing liabilities expected to reprice at a given point in time – at MarchDecember 31, 2019. The table estimates the impact of an upward or downward change in market interest rates of 100 and 200 basis points.

Cumulative Stressed Repricing Gap

 

    Month 3     Month 6     Month 12     Month 24     Month 36     Month 60     Long Term       Month 3     Month 6     Month 12     Month 24     Month 36     Month 60     Long Term   
  (Dollars in Thousands)   (Dollars in Thousands) 

Base Case Up 200 bp

        

Base Case Up 200 bp

 

      

Cumulative Gap ($’s)

  $59,199  $59,201  $59,276  $51,445  $46,057  $42,828  $32,075   $61,406  $57,549  $49,521  $44,400  $40,908  $43,645  $33,871 

% of Total
Assets

   16.6 16.6 16.6 14.4 12.9 12.0 9.0   17.3 16.2 13.9 12.5 11.5 12.3 9.5

Base Case Up 100 bp

Base Case Up 100 bp

 

      

Base Case Up 100 bp

 

      

Cumulative Gap ($’s)

  $59,456  $59,692  $60,196  $53,060  $48,191  $45,369  $32,075   $61,964  $58,622  $51,459  $47,721  $45,192  $48,456  $33,871 

% of Total
Assets

   16.7 16.8 16.9 14.9 13.5 12.7 9.0   17.4 16.5 14.5 13.4 12.7 13.6 9.5

Base Case No Change

Base Case No Change

 

      

Base Case No Change

 

     

Cumulative Gap ($’s)

  $60,731  $62,139  $64,691  $60,535  $57,636  $54,718  $32,075   $63,628  $61,782  $57,096  $56,885  $56,372  $60,104  $33,871 

% of Total
Assets

   17.0 17.4 18.2 17.0 16.2 15.4 9.0   17.9 17.4 16.1 16.0 15.9 16.9 9.5

Base Case Down 100 bp

Base Case Down 100 bp

 

      

Base Case Down 100 bp

 

      

Cumulative Gap ($’s)

  $62,252  $65,009  $69,784  $68,419  $66,718  $64,698  $32,075   $65,090  $64,506  $61,761  $63,873  $64,238  $67,005  $33,871 

% of Total
Assets

   17.5 18.2 19.6 19.2 18.7 18.2 9.0   18.3 18.2 17.4 18.0 18.1 18.9 9.5

Base Case Down 200 bp

Base Case Down 200 bp

 

      

Base Case Down 200 bp

 

      

Cumulative Gap ($’s)

  $64,213  $68,627  $75,916  $76,974  $75,765  $72,225  $32,075   $65,632  $65,508  $63,431  $66,268  $66,803  $68,894  $33,871 

% of Total
Assets

   18.0 19.3 21.3 21.6 21.3 20.3 9.0   18.5 18.4 17.9 18.7 18.8 19.4 9.5

The Company utilizes an income simulation model to measure interest rate risk and to manage interest rate sensitivity. The Company believes that income simulation modeling may enable the Company to better estimate the possible effects on net interest income due to changing market interest rates. Other key model parameters include: estimated prepayment rates on the Company’s loan, mortgage-backed securities and investment portfolios; savings decay rate assumptions; and the repayment terms and embedded options of the Company’s borrowings.

The following table presents the simulated impact of a 100 and 200 basis point upward or downward (parallel) shift in market interest rates on net interest income, return on average equity, return on average assets and the market value of portfolio equity at MarchDecember 31, 2019. This analysis was done assuming that the interest-earning assets will average approximately $349$348 million and $351$350 million over a projected twelve and twenty-four month period, respectively, for the estimated impact on change in net interest income, return on average equity and return on average assets. The estimated changes in market value of equity were calculated using balance sheet levels at MarchDecember 31, 2019. Actual future results could differ materially from our estimates primarily due to unknown future interest rate changes and the level of prepayments on our investment and loan portfolios and future FDIC regular and special assessments.portfolios.

Analysis of Sensitivity to Changes in Market Interest Rates

 

  Twelve Month Forward Modeled Change in Market Interest Rates   Twelve Month Forward Modeled Change in Market Interest Rates 
  March 31, 2020 March 31, 2021   December 31, 2020 December 31, 2021 

Estimated impact on:

     -200       -100           0           +100       +200       -200       -100           0           +100       +200         -200       -100           0             +100       +200       -200           -100               0           +100       +200    

Change in net interest income

   -22.7 -10.8  -  6.5 13.8 -30.7 -14.4  -  9.1 19.0   -22.3 -11.5  -  6.9 14.2 -29.1 -14.6  -  9.1 18.1

Return on average equity

   4.50 6.26 7.84 8.79 9.84 3.32 5.63 7.55 8.72 9.95   3.37 4.77 6.25 7.13 8.05 2.74 4.60 6.38 7.45 8.48

Return on average assets

   0.45 0.63 0.80 0.90 1.01 0.34 0.59 0.81 0.95 1.10   0.36 0.51 0.67 0.77 0.87 0.29 0.51 0.72 0.85 0.98

Market value of equity (in thousands)

  $39,026  $43,255  $46,360  $46,991  $47,436        $39,328  $42,175  $45,378  $46,325  $46,662      

The table below provides information about the Company’s anticipated transactions comprised of firm loan commitments and other commitments, including undisbursed letters and lines of credit, at MarchDecember 31, 2019. The Company used no derivative financial instruments to hedge such anticipated transactions as of MarchDecember 31, 2019.

 

Anticipated Transactions 

 

 
   (Dollars in Thousands) 

Undisbursed construction and land development loans

           $ 2,9233,573 

Undisbursed lines of credit

           $6,0135,119 

Loan origination commitments

           $2,4782,593

Letters of credit

         $- 
  

 

 

 
           $  11,41411,285 
  

 

 

 

In the ordinary course of its construction lending business, the Savings Bank may enterenters into performance standby letters of credit. Typically, the standby letters of credit are issued on behalf of a builder to a third party to ensure the timely completion of a certain aspect of a construction project or land development. At MarchDecember 31, 2019, the Savings Bank had no performance standby letters of credit outstanding. In the event that an obligor is unable to perform its obligations as specified in the applicable letter of credit agreement, the Savings Bank would be obligated to disburse funds up to the amount specified in the letter of credit agreement. The Savings Bank maintains adequate collateral that could be liquidated to fund these contingent obligations.

ITEM 4. CONTROLS AND PROCEDURES

As of MarchDecember 31, 2019, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Accounting Officer, concluded that the Company’s disclosure controls and procedures were effective as of MarchDecember 31, 2019.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended MarchDecember 31, 2019, no change in the Company’s internal controls over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) has occurred that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.Legal Proceedings

(a)The Company is involved with various legal actions arising in the ordinary course of business. Management believes the outcome of these matters will have no material effect on the consolidated operations or consolidated financial condition of WVS Financial Corp.

(b)Not applicable.

ITEM 1A.Risk Factors

There are no material changes to the risk factors included in Item 1A of the Company’s Annual Report on Form10-K for the fiscal year ended June 30, 2018.2019.

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

(a) Not applicable.

(b) Not applicable.

(c) The following table sets forth information with respect to purchases of common stock of the Company made by WVS Financial Corp. during the three months ended MarchDecember 31, 2019.

 

COMPANY PURCHASES OF EQUITY SECURITIES

 

Period 

Total


Number of
Shares
  Purchased(1)  

 

  Average

  Price Paid per Share ($)  

  

Total Number of


Shares


Purchased as


part of Publicly


  Announced Plans  

or Programs(1)

 

Maximum Number


of Shares

that May Yet Be


Repurchased
  Under the Plans or  


Programs(2)

 

01/10/01/19 – 01/10/31/19  

 -  $        -          -  28,41120,256         

02/11/01/19 – 02/28/11/30/19

 -  $-          -  28,41120,256         

03/12/01/19 – 03/12/31/19

 -  $-          -  28,41120,256         

Total

 -  $-          -  28,41120,256         

 

(1)

All shares indicated were purchased under the Company’s reopened Eleventh Stock Repurchase Program.

(2)

Eleventh Stock Repurchase Program

 (a)

Announced October 27, 2015.

 (b)

100,800 common shares approved for repurchase.

 (c)

No fixed date of expiration.

 (d)

This Programprogram has not expired and has 28,411 common20,256 of shares remaining to be purchased at MarchDecember 31, 2019.

 (e)

Not applicable.

ITEM 3.Defaults Upon Senior Securities

Not applicable.

ITEM 4.Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

(a) Not applicable.

(b) Not applicable.

ITEM 6.Exhibits

The following exhibits are filed as part of this Form10-Q, and this list includes the Exhibit Index.

 

Number

     

Description

Page   
31.1    Rule13a-14(a) /15d-14(a) Certification of the Chief Executive Officer  E-1
31.2    Rule13a-14(a) /15d-14(a) Certification of the Chief Accounting Officer  E-2
32.1    Section 1350 Certification of the Chief Executive OfficerE-3  
32.2    Section 1350 Certification of the Chief Accounting Officer  E-4
99    Report of Independent Registered Public Accounting Firm  E-5
101.INS    XBRL Instance Document  
101.SCH    XBRL Taxonomy Extension Schema Document  
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document  
101.LAB    XBRL Taxonomy Extension Label Linkbase Document  
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document  
101.DEF    XBRL Taxonomy Extension Definitions Linkbase Document  

SIGNATURES

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

 

 

 

           WVS FINANCIAL CORP. 
 February 13, 2020 BY:    /s/ David J. Bursic           
 Date: May 14, 2019Date  

  David J. Bursic

  President and Chief Executive Officer

  (Principal Executive Officer)

 
 February 13, 2020 BY:    /s/ Linda K. Butia 
 Date: May 14, 2019Date  

  Linda K. Butia

  Vice-President, Treasurer and Chief Accounting Officer

  (Principal Accounting Officer)

 

 

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