UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

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

For the quarterly period ended December 31, 2017September 30, 2022

OR

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

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: 001-38065

 

PCSB Financial Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

81-4710738

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

2651 Strang Blvd, Suite 100

Yorktown Heights, NY

10598

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (914) (914) 248-7272

N/A

(Former name, former address and former fiscal year, if changed since last report)

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, $0.01 par value per share

PCSB

The NASDAQ Stock Market, LLC

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

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

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

 

Large accelerated filer

 

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

(Do not check if a small reporting company)

 

Small reporting company

 

 

 

 

 

 

 

 

 

 

 

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 completing with any or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

18,165,11015,334,323 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of February 9, 2018.November 4, 2022.

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

23

 

Consolidated Balance Sheets

23

 

Consolidated Statements of Operations

34

 

Consolidated Statements of Comprehensive Income

45

 

Consolidated Statements of Changes in Shareholders’ Equity

56

 

Consolidated Statements of Cash Flows

67

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3128

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3637

Item 4.

Controls and Procedures

4137

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

4237

Item 1A.

Risk Factors

4238

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4238

Item 3.

Defaults Upon Senior Securities

4238

Item 4.

Mine Safety Disclosures

4238

Item 5.

Other Information

4238

Item 6.

Exhibits

4338

Signatures

4439

 

 

 

12


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PCSB Financial Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)

(amountsDollars in thousands, except per share data)

 

 

December 31,

 

 

June 30,

 

 

September 30,

 

June 30,

 

 

2017

 

 

2017

 

 

2022

 

 

2022

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

75,778

 

 

$

59,115

 

 

$

48,747

 

 

$

116,522

 

Federal funds sold

 

 

1,328

 

 

 

1,371

 

 

 

2,006

 

 

 

1,935

 

Total cash and cash equivalents

 

 

77,106

 

 

 

60,486

 

 

 

50,753

 

 

 

118,457

 

Investment Securities:

 

 

 

 

 

 

 

 

Held to maturity investment securities, at amortized cost (fair value of

$363,457 and $383,588, respectively)

 

 

367,646

 

 

 

383,551

 

Available for sale securities, at fair value

 

 

102,714

 

 

 

111,889

 

Held to maturity debt securities, at amortized cost (fair value of $339,143 and
$
361,608 as of September 30, 2022 and June 30, 2022, respectively)

 

 

406,250

 

 

 

412,449

 

Available for sale debt securities, at fair value

 

 

32,431

 

 

 

34,621

 

Total investment securities

 

 

470,360

 

 

 

495,440

 

 

 

438,681

 

 

 

447,070

 

Loans receivable, net of allowance for loan losses of $4,471 and

$5,150, respectively

 

 

838,120

 

 

 

809,648

 

Loans receivable, net of allowance for loan losses of $9,048 and
$
8,927 as of September 30, 2022 and June 30, 2022, respectively

 

 

1,350,197

 

 

 

1,329,372

 

Accrued interest receivable

 

 

4,001

 

 

 

3,693

 

 

 

7,074

 

 

 

6,396

 

Federal Home Loan Bank stock

 

 

2,395

 

 

 

3,132

 

FHLB stock

 

 

2,865

 

 

 

3,766

 

Premises and equipment, net

 

 

12,625

 

 

 

12,959

 

 

 

19,084

 

 

 

19,358

 

Deferred tax asset, net

 

 

2,832

 

 

 

4,770

 

 

 

4,403

 

 

 

4,132

 

Foreclosed real estate

 

 

-

 

 

 

977

 

Bank-owned life insurance

 

 

23,473

 

 

 

23,179

 

 

 

36,513

 

 

 

36,322

 

Goodwill

 

 

6,106

 

 

 

6,106

 

 

 

6,106

 

 

 

6,106

 

Other intangible assets

 

 

495

 

 

 

559

 

 

 

77

 

 

 

89

 

Other assets

 

 

5,755

 

 

 

5,509

 

 

 

24,816

 

 

 

18,064

 

Total assets

 

$

1,443,268

 

 

$

1,426,458

 

 

$

1,940,569

 

 

$

1,989,132

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

963,495

 

 

$

952,109

 

 

$

1,365,631

 

 

$

1,380,953

 

Non-interest bearing deposits

 

 

150,834

 

 

 

136,352

 

 

 

227,635

 

 

 

245,297

 

Total deposits

 

 

1,114,329

 

 

 

1,088,461

 

 

 

1,593,266

 

 

 

1,626,250

 

Mortgage escrow funds

 

 

8,229

 

 

 

8,084

 

 

 

7,302

 

 

 

11,173

 

Advances from Federal Home Loan Bank

 

 

30,720

 

 

 

42,598

 

Advances from FHLB

 

 

28,288

 

 

 

48,323

 

Other liabilities

 

 

7,579

 

 

 

7,469

 

 

 

30,576

 

 

 

26,224

 

Total liabilities

 

 

1,160,857

 

 

 

1,146,612

 

 

 

1,659,432

 

 

 

1,711,970

 

Commitments and contingencies

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares

issued or outstanding as of December 31, 2017 and June 30, 2017)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized,

18,165,110 shares issued and outstanding as of December 31, 2017 and

June 30, 2017)

 

 

182

 

 

 

182

 

Shareholders' equity:

 

 

 

 

 

Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2022 and June 30, 2022)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized, 18,703,577 shares issued as of both September 30, 2022 and June 30, 2022, and 15,334,323 and 15,334,857 shares outstanding as of September 30, 2022 and June 30, 2022, respectively)

 

 

187

 

 

 

187

 

Additional paid in capital

 

 

178,556

 

 

 

177,993

 

 

 

194,935

 

 

 

193,893

 

Retained earnings

 

 

122,906

 

 

 

121,148

 

 

 

166,033

 

 

 

162,262

 

Unallocated common stock of Employee Stock Ownership Plan ("ESOP")

 

 

(13,563

)

 

 

(14,262

)

Unearned compensation - ESOP

 

 

(8,963

)

 

 

(9,208

)

Accumulated other comprehensive loss, net of income taxes

 

 

(5,670

)

 

 

(5,215

)

 

 

(9,702

)

 

 

(8,629

)

Treasury stock, at cost (3,369,254 and 3,368,720 shares as of September 30, 2022 and June 30, 2022, respectively)

 

 

(61,353

)

 

 

(61,343

)

Total shareholders' equity

 

 

282,411

 

 

 

279,846

 

 

 

281,137

 

 

 

277,162

 

Total liabilities and shareholders' equity

 

$

1,443,268

 

 

$

1,426,458

 

 

$

1,940,569

 

 

$

1,989,132

 

 

See accompanying notes to the consolidated financial statements (unaudited)

23


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

(amountsDollars in thousands, except share and per share data)

 

 

Three Months Ended

 

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2022

 

 

2021

 

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

9,171

 

 

$

8,238

 

 

$

17,989

 

 

$

16,763

 

 

$

13,849

 

 

$

12,107

 

 

Investment securities

 

 

2,269

 

 

 

1,530

 

 

 

4,514

 

 

 

3,010

 

 

 

2,420

 

 

 

2,011

 

 

Federal funds and other

 

 

217

 

 

 

82

 

 

 

451

 

 

 

186

 

 

 

487

 

 

 

109

 

 

Total interest and dividend income

 

 

11,657

 

 

 

9,850

 

 

 

22,954

 

 

 

19,959

 

 

 

16,756

 

 

 

14,227

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,307

 

 

 

1,292

 

 

 

2,574

 

 

 

2,576

 

Deposits and escrow interest

 

 

1,664

 

 

 

1,354

 

 

FHLB advances

 

 

164

 

 

 

31

 

 

 

318

 

 

 

81

 

 

 

235

 

 

 

338

 

 

Total interest expense

 

 

1,471

 

 

 

1,323

 

 

 

2,892

 

 

 

2,657

 

 

 

1,899

 

 

 

1,692

 

 

Net interest income

 

 

10,186

 

 

 

8,527

 

 

 

20,062

 

 

 

17,302

 

 

 

14,857

 

 

 

12,535

 

 

Provision for loan losses

 

 

200

 

 

 

562

 

 

 

335

 

 

 

588

 

 

 

82

 

 

 

13

 

 

Net interest income after provision for loan losses

 

 

9,986

 

 

 

7,965

 

 

 

19,727

 

 

 

16,714

 

 

 

14,775

 

 

 

12,522

 

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

293

 

 

 

360

 

 

 

569

 

 

 

602

 

 

 

453

 

 

 

401

 

 

Gain on sale of securities, net

 

 

-

 

 

 

-

 

 

 

173

 

 

 

-

 

Bank-owned life insurance

 

 

145

 

 

 

160

 

 

 

294

 

 

 

328

 

 

 

191

 

 

 

192

 

 

Settlement on acquired loan

 

 

-

 

 

 

1,615

 

 

 

-

 

 

 

1,615

 

Swap income

 

 

141

 

 

 

-

 

 

Other

 

 

254

 

 

 

124

 

 

 

370

 

 

 

266

 

 

 

8

 

 

 

20

 

 

Total noninterest income

 

 

692

 

 

 

2,259

 

 

 

1,406

 

 

 

2,811

 

 

 

793

 

 

 

613

 

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,823

 

 

 

4,444

 

 

 

9,636

 

 

 

8,694

 

 

 

5,985

 

 

 

5,773

 

 

Occupancy and equipment

 

 

1,296

 

 

 

1,844

 

 

 

2,578

 

 

 

3,135

 

 

 

1,403

 

 

 

1,353

 

 

Communication and data processing

 

 

610

 

 

 

527

 

 

Professional fees

 

 

379

 

 

 

276

 

 

 

792

 

 

 

585

 

 

 

335

 

 

 

393

 

 

Merger-related expenses

 

 

311

 

 

 

-

 

 

Postage, printing, stationery and supplies

 

 

174

 

 

 

143

 

 

Advertising

 

 

179

 

 

 

90

 

 

 

344

 

 

 

229

 

 

 

128

 

 

 

100

 

 

Postage, printing, stationary and supplies

 

 

142

 

 

 

131

 

 

 

274

 

 

 

264

 

FDIC assessment

 

 

64

 

 

 

106

 

 

 

142

 

 

 

321

 

 

 

125

 

 

 

125

 

 

Amortization of intangible assets

 

 

33

 

 

 

37

 

 

 

65

 

 

 

73

 

 

 

12

 

 

 

16

 

 

Other operating expenses

 

 

1,209

 

 

 

866

 

 

 

2,188

 

 

 

1,691

 

 

 

474

 

 

 

194

 

 

Total noninterest expense

 

 

8,125

 

 

 

7,794

 

 

 

16,019

 

 

 

14,992

 

 

 

9,557

 

 

 

8,624

 

 

Net income before income tax expense

 

 

2,553

 

 

 

2,430

 

 

 

5,114

 

 

 

4,533

 

 

 

6,011

 

 

 

4,511

 

 

Income tax expense

 

 

2,551

 

 

 

758

 

 

 

3,356

 

 

 

1,405

 

 

 

1,235

 

 

 

897

 

 

Net income

 

$

2

 

 

$

1,672

 

 

$

1,758

 

 

$

3,128

 

 

$

4,776

 

 

$

3,614

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

 

n/a

 

 

$

0.10

 

 

n/a

 

 

$

0.34

 

 

$

0.25

 

 

Diluted

 

$

0.00

 

 

n/a

 

 

$

0.10

 

 

n/a

 

 

 

0.33

 

 

 

0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

16,791,305

 

 

n/a

 

 

 

16,773,883

 

 

n/a

 

Weighted average common shares outstanding:

Weighted average common shares outstanding:

 

 

 

 

Basic

 

 

14,214,313

 

 

 

14,337,543

 

 

Diluted

 

 

14,301,600

 

 

 

14,405,816

 

 

 

See accompanying notes to the consolidated financial statements (unaudited)

34


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(amountsDollars in thousands)

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

Net Income

 

$

2

 

 

$

1,672

 

 

$

1,758

 

 

$

3,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,776

 

 

$

3,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

Unrealized (losses) gains on available for sale debt securities:

 

 

 

 

 

Net change in unrealized gains/losses before reclassification adjustment

 

 

(717

)

 

 

(1,262

)

 

 

(930

)

 

 

(1,109

)

 

 

(1,519

)

 

 

(187

)

Reclassification adjustment for gains realized in net income

 

 

-

 

 

 

-

 

 

 

(139

)

 

 

-

 

 

 

-

 

 

 

-

 

Net change in unrealized gains/losses

 

 

(717

)

 

 

(1,262

)

 

 

(1,069

)

 

 

(1,109

)

 

 

(1,519

)

 

 

(187

)

Tax effect

 

 

243

 

 

 

429

 

 

 

363

 

 

 

377

 

 

 

319

 

 

 

40

 

Net of tax

 

 

(474

)

 

 

(833

)

 

 

(706

)

 

 

(732

)

 

 

(1,200

)

 

 

(147

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain arising during the period

 

 

-

 

 

 

-

 

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

181

 

 

 

577

 

 

 

362

 

 

 

577

 

 

 

141

 

 

 

38

 

Net change in unrealized gains/losses

 

 

141

 

 

 

38

 

Tax effect

 

 

(61

)

 

 

(196

)

 

 

(123

)

 

 

(196

)

 

 

(30

)

 

 

(9

)

Net of tax

 

 

120

 

 

 

381

 

 

 

239

 

 

 

381

 

 

 

111

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental retirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain arising during the period

 

 

-

 

 

 

-

 

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

8

 

 

 

47

 

 

 

16

 

 

 

47

 

 

 

20

 

 

 

16

 

Net change in unrealized gains/losses

 

 

20

 

 

 

16

 

Tax effect

 

 

(2

)

 

 

(16

)

 

 

(4

)

 

 

(16

)

 

 

(4

)

 

 

(3

)

Net of tax

 

 

6

 

 

 

31

 

 

 

12

 

 

 

31

 

 

 

16

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss)

 

 

(348

)

 

 

(421

)

 

 

(455

)

 

 

(320

)

Total other comprehensive loss

 

 

(1,073

)

 

 

(105

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

$

(346

)

 

$

1,251

 

 

$

1,303

 

 

$

2,808

 

Comprehensive income

 

$

3,703

 

 

$

3,509

 

 

See accompanying notes to the consolidated financial statements (unaudited)

45


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

(amountsDollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Unallocated

 

 

Other

 

 

 

 

 

 

Number of

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Common Stock

 

 

Comprehensive

 

 

Total

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

of ESOP

 

 

Loss

 

 

Equity

 

Balance at July 1, 2017

 

18,165,110

 

 

$

182

 

 

$

177,993

 

 

$

121,148

 

 

$

(14,262

)

 

$

(5,215

)

 

$

279,846

 

Net Income

 

-

 

 

 

-

 

 

 

-

 

 

 

1,758

 

 

 

-

 

 

 

-

 

 

 

1,758

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(455

)

 

 

(455

)

Issuance of common stock(1)

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

ESOP shares committed to be released (69,906 shares)

 

-

 

 

 

-

 

 

 

580

 

 

 

-

 

 

 

699

 

 

 

-

 

 

 

1,279

 

Balance at December 31, 2017

 

18,165,110

 

 

$

182

 

 

$

178,556

 

 

$

122,906

 

 

$

(13,563

)

 

$

(5,670

)

 

$

282,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 1, 2016

 

-

 

 

$

-

 

 

$

-

 

 

$

117,919

 

 

$

-

 

 

$

(7,970

)

 

$

109,949

 

Net Income

 

-

 

 

 

-

 

 

 

-

 

 

 

3,128

 

 

 

-

 

 

 

-

 

 

 

3,128

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(320

)

 

 

(320

)

Balance at December 31, 2016

 

-

 

 

$

-

 

 

$

-

 

 

$

121,047

 

 

$

-

 

 

$

(8,290

)

 

$

112,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents costs incurred in connection with the Company's initial public offering completed in the prior period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Unallocated

 

Other

 

Treasury

 

Total

 

 

Common

 

Common

 

Paid-In

 

Retained

 

Common Stock

 

Comprehensive

 

Stock,

 

Shareholders'

 

 

Shares

 

Stock

 

Capital

 

Earnings

 

of ESOP

 

Loss

 

at cost

 

Equity

 

Balance at July 1, 2022

 

15,334,857

 

$

187

 

$

193,893

 

$

162,262

 

$

(9,208

)

$

(8,629

)

$

(61,343

)

$

277,162

 

Net income

 

-

 

 

-

 

 

-

 

 

4,776

 

 

-

 

 

-

 

 

-

 

 

4,776

 

Other comprehensive loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,073

)

 

-

 

 

(1,073

)

Common stock dividends declared ($0.07 per share)

 

-

 

 

-

 

 

-

 

 

(1,005

)

 

-

 

 

-

 

 

-

 

 

(1,005

)

Shares withheld related to income tax withholding

 

(534

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(10

)

 

(10

)

Stock-based compensation

 

-

 

 

-

 

 

820

 

 

-

 

 

-

 

 

-

 

 

-

 

 

820

 

ESOP shares committed to be released (24,419 shares)

 

-

 

 

-

 

 

222

 

 

-

 

 

245

 

 

-

 

 

-

 

 

467

 

Balance at September 30, 2022

 

15,334,323

 

$

187

 

$

194,935

 

$

166,033

 

$

(8,963

)

$

(9,702

)

$

(61,353

)

$

281,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Unallocated

 

Other

 

Treasury

 

Total

 

 

Common

 

Common

 

Paid-In

 

Retained

 

Common Stock

 

Comprehensive

 

Stock,

 

Shareholders'

 

 

Shares

 

Stock

 

Capital

 

Earnings

 

of ESOP

 

Loss

 

at cost

 

Equity

 

Balance at July 1, 2021

 

15,770,645

 

$

187

 

$

189,926

 

$

150,987

 

$

(10,176

)

$

(3,099

)

$

(53,265

)

$

274,560

 

Net income

 

-

 

 

-

 

 

-

 

 

3,614

 

 

-

 

 

-

 

 

-

 

 

3,614

 

Other comprehensive income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(105

)

 

-

 

 

(105

)

Common stock dividends declared ($0.06 per share)

 

-

 

 

-

 

 

-

 

 

(876

)

 

-

 

 

-

 

 

-

 

 

(876

)

Repurchase of common stock

 

(204,261

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,720

)

 

(3,720

)

Restricted stock awards granted

 

8,000

 

 

-

 

 

(145

)

 

-

 

 

-

 

 

-

 

 

145

 

 

-

 

Shares withheld related to income tax withholding

 

(74

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

(1

)

Stock-based compensation

 

-

 

 

-

 

 

810

 

 

-

 

 

-

 

 

-

 

 

-

 

 

810

 

ESOP shares committed to be released (24,419 shares)

 

-

 

 

-

 

 

202

 

 

-

 

 

244

 

 

-

 

 

-

 

 

446

 

Balance at September 30, 2021

 

15,574,310

 

$

187

 

$

190,793

 

$

153,725

 

$

(9,932

)

$

(3,204

)

$

(56,841

)

$

274,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

56


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(amountsDollars in thousands)

 

 

 

Six Months Ended December 31,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

1,758

 

 

$

3,128

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Provision for loan loss

 

 

335

 

 

 

588

 

Depreciation and amortization

 

 

760

 

 

 

705

 

Amortization of net premiums on securities and net deferred loan

   origination costs

 

 

941

 

 

 

607

 

Net (increase) decrease in accrued interest receivable

 

 

(308

)

 

 

65

 

Net loss (gain) on sale of foreclosed real estate

 

 

21

 

 

 

(30

)

Net gains on sales of securities

 

 

(173

)

 

 

-

 

ESOP Compensation

 

 

1,279

 

 

 

-

 

Earnings from cash surrender value of BOLI

 

 

(294

)

 

 

(328

)

Net accretion of purchase account adjustments

 

 

(361

)

 

 

(438

)

Other adjustments, principally net changes in other assets and liabilities

 

 

2,416

 

 

 

(3,106

)

Net cash provided by operating activities

 

 

6,374

 

 

 

1,191

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

(27,463

)

 

 

(52,229

)

Available for sale

 

 

(15,651

)

 

 

(9,073

)

Sales of investment securities available for sale

 

 

6,100

 

 

 

-

 

Maturities and calls of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

43,060

 

 

 

50,043

 

Available for sale

 

 

17,603

 

 

 

24,816

 

Principal repayments net of disbursement for loan originations

 

 

17,792

 

 

 

19,715

 

Purchase of loans

 

 

(46,657

)

 

 

(6,041

)

Net redemption of FHLB stock

 

 

737

 

 

 

723

 

Purchase of bank premises and equipment

 

 

(362

)

 

 

(1,431

)

Proceeds from sale of foreclosed real estate

 

 

956

 

 

 

254

 

Net cash (used in) provided by investing activities

 

 

(3,885

)

 

 

26,777

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

25,881

 

 

 

(4,874

)

Net decrease in short-term FHLB advances

 

 

(11,818

)

 

 

-

 

Repayment of long-term FHLB advances

 

 

(60

)

 

 

(16,059

)

Net increase (decrease) in mortgage escrow funds

 

 

145

 

 

 

(286

)

Issuance of common stock

 

 

(17

)

 

 

-

 

Net cash provided by (used in) financing activities

 

 

14,131

 

 

 

(21,219

)

Net increase in cash and cash equivalents

 

 

16,620

 

 

 

6,749

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

60,486

 

 

 

41,578

 

Cash and cash equivalents at end of period

 

$

77,106

 

 

$

48,327

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

4,776

 

 

$

3,614

 

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

 

 

 

 

 

 

Provision for loan losses

 

 

82

 

 

 

13

 

Depreciation and amortization

 

 

749

 

 

 

738

 

Amortization of net premiums on securities and net deferred loan origination costs

 

 

237

 

 

 

20

 

Net increase in accrued interest receivable

 

 

(678

)

 

 

(152

)

Stock-based compensation

 

 

820

 

 

 

810

 

ESOP compensation

 

 

467

 

 

 

446

 

Earnings from cash surrender value of BOLI

 

 

(191

)

 

 

(192

)

Net accretion of purchase accounting adjustments

 

 

(19

)

 

 

(35

)

Other adjustments, principally net changes in other assets and liabilities

 

 

(2,224

)

 

 

(1,080

)

Net cash provided by operating activities

 

 

4,019

 

 

 

4,182

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of investment securities held to maturity

 

 

(1,500

)

 

 

(75,504

)

Maturities, calls and amortization of investment securities:

 

 

 

 

 

 

Held to maturity

 

 

7,579

 

 

 

24,415

 

Available for sale

 

 

641

 

 

 

12,134

 

Loan (originations) repayments, net

 

 

(20,975

)

 

 

19,021

 

Net redemption of FHLB stock

 

 

901

 

 

 

1

 

Net purchase of bank premises and equipment

 

 

(464

)

 

 

(159

)

Net cash used in investing activities

 

 

(13,818

)

 

 

(20,092

)

FINANCING ACTIVITIES

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(32,984

)

 

 

12,955

 

Repayment of long-term FHLB advances

 

 

(20,035

)

 

 

(33

)

Net decrease in mortgage escrow funds

 

 

(3,871

)

 

 

(3,708

)

Common stock dividends paid

 

 

(1,005

)

 

 

(876

)

Repurchase of shares from employees for income tax withholding purpose

 

 

(10

)

 

 

(1

)

Repurchase of common stock

 

 

-

 

 

 

(3,720

)

Net cash (used in) provided by financing activities

 

 

(57,905

)

 

 

4,617

 

Net decrease in cash and cash equivalents

 

 

(67,704

)

 

 

(11,293

)

Cash and cash equivalents at beginning of period

 

 

118,457

 

 

 

159,305

 

Cash and cash equivalents at end of period

 

$

50,753

 

 

$

148,012

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest

 

$

1,940

 

 

$

1,694

 

Income taxes

 

 

1,160

 

 

 

917

 

 

See accompanying notes to the consolidated financial statements (unaudited)

67


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited) - (Continued)

(amounts in thousands)

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

2,844

 

 

$

2,671

 

Income taxes

 

 

2,010

 

 

 

134

 

Loans transferred to foreclosed real estate and other assets

 

 

-

 

 

 

1,533

 

See accompanying notes to the consolidated financial statements (unaudited)

7


PCSB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (unaudited)

Note 1. Basis of Presentation

Nature of Operations: PCSB Financial Corporation (the “Holding Company” and together with its direct and indirect subsidiaries, the “Company”) is a Maryland corporation organized by PCSB Bank (the “Bank”) for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on April 20, 2017. At December 31, 2017,September 30, 2022, the significant assets of the Holding Company were the capital stock of the Bank, investments retained bycash deposited in the Holding Company,Bank, and a loan to the PCSB Bank Employee Stock Ownership Plan (“ESOP”). The liabilities of the Holding Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended. The Company is subject toamended, and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area of Putnam, Southern Dutchess, Rockland and Westchester Counties in New York. The Bank is a state-chartered stock savingscommercial bank, and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary regulators are the FDIC and the New York State Department of Financial Services.NYSDFS.

Basis of Presentation: The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Holding Company, the Bank and the Bank's threetwo subsidiaries – PCSB Funding Corp., PCSB Commercial Bank and UpCounty Realty Corp. (formerly PCSB Realty Ltd.). PCSB Funding Corp. is a real estate investment trust that holds certain mortgage assets.  PCSB Commercial Bank is a state-chartered commercial bank authorized to accept the deposits of local governments in New York State. UpCounty Realty Corp. is a corporation that holds certain properties foreclosed upon by the Bank. All intercompany transactions and balances have been eliminated in consolidation. Financial information for the periods before the Company’s initial public offering (“IPO”) on April 20, 2017 is that of the Bank only.    

The unaudited consolidated financial statements contained herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments reflected in the consolidated financial statements contained herein. The annualized results of operations for the current period presented are not necessarily indicative of the results of operations that may be expected for the entire current fiscal year. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2017,2022, included in the Company's annual reportAnnual Report on Form 10-K.10-K for the fiscal year ended June 30, 2022.

Certain prior period amounts have been reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or equity.

Risks and Uncertainties:

In preparing these consolidated financial statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events, such as continued interest rate volatility, prolonged periods of inflation, continued trade and supply chain disruptions, economic recession and increased unemployment. Such conditions could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include, but are not limited to, the valuation impairments of the Company’s intangible assets, investments, loans receivable, or deferred tax assets. Additionally, it is reasonably possible that the Company’s allowance for loan loss estimate as of September 30, 2022 could change in the near term and could result in a material change to the Company’s provision for loan losses, earnings and capital.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America,GAAP management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

8


Note 2.2. Recent Accounting Pronouncements

The pronouncements discussed below are not intended to be an all-inclusive list, but rather only those pronouncements that the Company has determined could potentially have a material impact on ourits consolidated financial position and results of operations or on its disclosures.

There were no accounting standards adopted in the current period.

Future Application of Accounting Pronouncements Previously Issued

In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 provide a comprehensive framework for addressing revenue recognition issues that can be applied to all contracts with customers. The amendments in ASU 2014-09 also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. For public entities, ASU 2014-09, as amended, is effective for interim and annual reporting periods beginning after December 15, 2017. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of PCSB Bank’s revenue comes from financial instruments such as debt securities and loans that are outside the scope of the guidance. ASU 2014-09 is not expected to have a material impact on the Company’s consolidated financial position or results of operations. The impact on disclosures is currently being evaluated by management.

8


In January 2016, the FASB issued ASU 2016-01 “Financial Instruments – Overall.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that is more useful for decision-making purposes. Among other changes, ASU 2016-01 would require equity securities to be measured at fair value with changes in fair value recognized through net income but would allow equity securities that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments would simplify the impairment assessment of such equity securities and would require enhanced disclosure about these investments. ASU 2016-01 would also require separate presentation of financial assets and liabilities by measurement category and type of instrument, such as securities or loans, on the balance sheet or in the notes, and would eliminate certain other disclosures relating to the methods and assumptions used to estimate fair value. For public entities, the amendments in ASU 2016-01 are effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. ASU 2016-01 is not expected to have a material impact on the Company’s consolidated financial position or results of operations. The impact on disclosures is currently being evaluated by management.

In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU would also require entities to disclose key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company currently leases eleven branches and two administrative offices. ASU 2016-02 will result in the establishment of a right to use asset and corresponding lease obligation, the materiality of which has yet to be determined by management, however the ASU is not expected to have a material impact on the Company’s consolidated results of operations or disclosures.

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 which affects entities holding financial assets that are not accounted for at fair value through net income, including loans, debt securities, and other financial assets. The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for current expected credit losses. ASU 2016-13In October 2019, the FASB unanimously voted to delay the implementation of the standard for three years for certain companies, including small reporting companies (as defined by the SEC), non-SEC public companies and private companies. The Company currently qualifies as a small reporting company and is subject to the delayed implementation. Therefore, the amendments in this update will be effective for interim and annual reporting periodsthe Company for the fiscal year beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018,on July 1, 2023, including interim periods within thosethat fiscal years.year. The Company is actively working through the provisions of the Update. Management has established a steering committee which is identifying the methodologies and the additional data requirements necessary to implement the Update and has engaged a third-party software service provider to assist in the Company's implementation. On March 31, 2022 the FASB issued ASU 2022-02 "Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures." The ASU eliminates the current accounting guidance on troubled debt restructurings ("TDRs") for creditors, enhances disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty and amends the guidance on vintage disclosures with respect to current period gross charge-offs. For entities that have not yet adopted ASU 2016-13, the amendments in ASU 2022-02 are effective upon the adoption of ASU 2016-13. Management is currently evaluating the impact that ASU 2016-13 and ASU 2022-02 will have on the Company’s consolidated financial position, results of operations and disclosures.

In January 2017, theThe FASB issued ASU 2017-04 “Intangibles – Goodwill2020-04 “Reference Rate Reform” and Other (Topic 350).” ASU 2017-04 simplifies2021-01 “Reference Rate Reform Scope” which collectively address accounting considerations related to the testexpected discontinuation of LIBOR as a reference rate for goodwill impairment, which eliminates the second stepfinancial contracts. These Updates provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform (codified in the goodwill impairment test which requiresASC 848). They include optional expedients related to contract modifications that allow an entity to determineaccount for modifications (if certain criteria are met) as if the implied fair valuemodifications were only minor (assets within the scope of ASC 310, Receivables), were not substantial (assets within the scope of ASC 470, Debt) and/or did not result in remeasurements or reclassifications (assets within the scope of ASC 842, Leases, and other Topics) of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss ifexisting contract. They also include optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments impacted by the carrying valuemarket-wide discounting transition. The Updates also allow for a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The guidance in these ASUs are effective as of March 12, 2020 through December 31, 2022. The Company has not yet elected to apply the net assets assignedpractical expedients contained in these Updates and does not expect significant impact to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. ASU 2017-14 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted for interim or annual goodwill impairment testing performed on testing dates after January 1, 2017. Management expects ASU 2017-04 will not have a significant impact on its consolidated financial statements.statements upon adoption.

In March 2017, the FASB issued ASU 2017-08 "Receivables - Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires premiums on callable debt securities to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2017-08 will not have a material impact on the Company’s consolidated financial position, results of operations or disclosures.

9


Note 3. Shareholders' Equity

The Company completed its initial public offering (“IPO”) on April 20, 2017, in connection with the Bank’s mutual-to-stock conversion, resulting in gross proceeds of $178.3 million, through the sale of 17,826,408 shares, including 1,453,209 shares sold to the PCSB Bank Employee Stock Ownership Plan (ESOP), at the offering price of $10.00 per share. In addition, the Company also contributed 338,702 shares of its common stock and $1.6 million in cash to the PCSB Community Foundation. Expenses related to the offering were $3.7 million, which resulted in net proceeds of $174.6 million prior to the contribution to PCSB Community Foundation. The Company lent $14.5 million to the ESOP and contributed $87.3 million to the Bank, with the remainder of the net proceeds of the offering prior to the contribution to PCSB Community Foundation being retained at the holding company.

Prior to the IPO, the Company had no outstanding shares.

Note 4. Investment Securities

The amortized cost, gross unrealized/unrecognized gains and losses and fair value of available for sale and held to maturity debt securities at December 31, 2017September 30, 2022 and June 30, 20172022 were as follows:follows (in thousands):

 

 

 

December 31, 2017

 

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

55,569

 

 

$

-

 

 

$

(545

)

 

$

55,024

 

Corporate and other debt securities

 

 

8,433

 

 

 

6

 

 

 

(77

)

 

 

8,362

 

Mortgage-backed securities – residential

 

 

39,692

 

 

 

134

 

 

 

(530

)

 

 

39,296

 

Equity securities

 

 

32

 

 

 

-

 

 

 

-

 

 

 

32

 

Total available for sale

 

$

103,726

 

 

$

140

 

 

$

(1,152

)

 

$

102,714

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

136,060

 

 

$

-

 

 

$

(1,377

)

 

$

134,683

 

Corporate and other debt securities

 

 

4,000

 

 

 

-

 

 

 

(129

)

 

 

3,871

 

Mortgage-backed securities – residential

 

 

140,411

 

 

 

141

 

 

 

(1,771

)

 

 

138,781

 

Mortgage-backed securities – collateralized

   mortgage obligations

 

 

55,829

 

 

 

4

 

 

 

(892

)

 

 

54,941

 

Mortgage-backed securities – commercial

 

 

31,346

 

 

 

166

 

 

 

(331

)

 

 

31,181

 

Total held to maturity

 

$

367,646

 

 

$

311

 

 

$

(4,500

)

 

$

363,457

 

 

 

September 30, 2022

 

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

10,945

 

 

$

-

 

 

$

(1,502

)

 

$

9,443

 

Corporate

 

 

5,000

 

 

 

-

 

 

 

(235

)

 

 

4,765

 

State and municipal

 

 

7,040

 

 

 

-

 

 

 

(2,706

)

 

 

4,334

 

Mortgage-backed securities – residential

 

 

13,695

 

 

 

2

 

 

 

(2,074

)

 

 

11,623

 

Mortgage-backed securities – commercial

 

 

2,398

 

 

 

-

 

 

 

(132

)

 

 

2,266

 

Total available for sale debt securities

 

$

39,078

 

 

$

2

 

 

$

(6,649

)

 

$

32,431

 

Held to maturity debt securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

59,995

 

 

$

-

 

 

$

(5,088

)

 

$

54,907

 

Corporate

 

 

52,068

 

 

 

-

 

 

 

(3,558

)

 

 

48,510

 

State and municipal

 

 

88,490

 

 

 

64

 

 

 

(27,580

)

 

 

60,974

 

Mortgage-backed securities – residential

 

 

97,886

 

 

 

-

 

 

 

(13,727

)

 

 

84,159

 

Mortgage-backed securities – collateralized
mortgage obligations

 

 

22,916

 

 

 

-

 

 

 

(3,047

)

 

 

19,869

 

Mortgage-backed securities – commercial

 

 

84,895

 

 

 

-

 

 

 

(14,171

)

 

 

70,724

 

Total held to maturity debt securities

 

$

406,250

 

 

$

64

 

 

$

(67,171

)

 

$

339,143

 

 

 

June 30, 2022

 

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

10,942

 

 

$

-

 

 

$

(1,014

)

 

$

9,928

 

Corporate

 

 

5,000

 

 

 

4

 

 

 

(150

)

 

 

4,854

 

State and municipal

 

 

7,040

 

 

 

-

 

 

 

(2,244

)

 

 

4,796

 

Mortgage-backed securities – residential

 

 

14,351

 

 

 

5

 

 

 

(1,644

)

 

 

12,712

 

Mortgage-backed securities – commercial

 

 

2,416

 

 

 

-

 

 

 

(85

)

 

 

2,331

 

Total available for sale debt securities

 

$

39,749

 

 

$

9

 

 

$

(5,137

)

 

$

34,621

 

Held to maturity debt securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

59,995

 

 

$

6

 

 

$

(3,046

)

 

$

56,955

 

Corporate

 

 

52,076

 

 

 

111

 

 

 

(2,796

)

 

 

49,391

 

State and municipal

 

 

87,111

 

 

 

-

 

 

 

(22,307

)

 

 

64,804

 

Mortgage-backed securities – residential

 

 

101,525

 

 

 

4

 

 

 

(9,746

)

 

 

91,783

 

Mortgage-backed securities – collateralized
 mortgage obligations

 

 

24,198

 

 

 

-

 

 

 

(2,124

)

 

 

22,074

 

Mortgage-backed securities – commercial

 

 

87,544

 

 

 

-

 

 

 

(10,943

)

 

 

76,601

 

Total held to maturity debt securities

 

$

412,449

 

 

$

121

 

 

$

(50,962

)

 

$

361,608

 

 

 

 

June 30, 2017

 

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

63,630

 

 

$

31

 

 

$

(216

)

 

$

63,445

 

Corporate and other debt securities

 

 

8,460

 

 

 

58

 

 

 

(36

)

 

 

8,482

 

Mortgage-backed securities – residential

 

 

39,710

 

 

 

363

 

 

 

(143

)

 

 

39,930

 

Equity securities

 

 

32

 

 

 

-

 

 

 

-

 

 

 

32

 

Total available for sale

 

$

111,832

 

 

$

452

 

 

$

(395

)

 

$

111,889

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

155,559

 

 

$

23

 

 

$

(574

)

 

$

155,008

 

Corporate and other debt securities

 

 

999

 

 

 

-

 

 

 

-

 

 

 

999

 

Mortgage-backed securities – residential

 

 

143,452

 

 

 

828

 

 

 

(497

)

 

 

143,783

 

Mortgage-backed securities – collateralized

   mortgage obligations

 

 

59,476

 

 

 

146

 

 

 

(235

)

 

 

59,387

 

Mortgage-backed securities – commercial

 

 

24,065

 

 

 

412

 

 

 

(66

)

 

 

24,411

 

Total held to maturity

 

$

383,551

 

 

$

1,409

 

 

$

(1,372

)

 

$

383,588

 

10


DuringNo securities were sold during the sixthree months ended December 31, 2017, the Company sold securities with a carrying amount of $6.6 million, resulting in $173,000 of net realized gains. Included was the disposal of $681,000 of securities classified as held to maturity, resulting in net realized gains of $34,000. These securities were comprised of seasoned mortgage-backed securities where the Company collected a substantial portion (at least 85%) of the principal outstanding at acquisition due to prepaymentsSeptember 30, 2022 or scheduled payments payable in equal installments, comprising both principal and interest, over the terms. There was no sales of or realized gains or losses on investment securities for the three or six months ended December 31, 2016.2021.

The following table presents the fair value and carrying amount of debt securities at December 31, 2017,September 30, 2022, by contractual maturity.maturity (in thousands). Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

10

 

 

Held to maturity

 

 

Available for sale

 

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

 

 

(in thousands)

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 year or less

 

$

37,492

 

 

$

37,402

 

 

$

11,018

 

 

$

10,981

 

1 to 5 years

 

 

98,568

 

 

 

97,280

 

 

 

50,984

 

 

 

50,444

 

5 to 10 years

 

 

-

 

 

 

-

 

 

 

2,000

 

 

 

1,961

 

Mortgage-backed securities and other

 

 

231,586

 

 

 

228,775

 

 

 

39,692

 

 

 

39,296

 

Total

 

$

367,646

 

 

$

363,457

 

 

$

103,694

 

 

$

102,682

 


 

 

Held to maturity

 

 

Available for sale

 

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

1 year or less

 

$

5,280

 

 

$

5,265

 

 

$

-

 

 

$

-

 

1 to 5 years

 

 

66,230

 

 

 

60,805

 

 

 

12,944

 

 

 

11,440

 

5 to 10 years

 

 

45,100

 

 

 

41,303

 

 

 

3,001

 

 

 

2,768

 

over 10 years

 

 

80,102

 

 

 

53,753

 

 

 

7,040

 

 

 

4,334

 

Mortgage-backed securities and other

 

 

209,538

 

 

 

178,017

 

 

 

16,093

 

 

 

13,889

 

Total

 

$

406,250

 

 

$

339,143

 

 

$

39,078

 

 

$

32,431

 

 

Securities pledged had carrying amounts of $78.2$211.4 million and $95.5$202.9 million at December 31, 2017September 30, 2022 and June 30, 2017,2022, respectively, and were pledged principally to secure FHLB advances and public deposits.

The following table provides information regarding investment securities with unrealized/unrecognized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position at December 31, 2017September 30, 2022 and June 30, 20172022 (in thousands):

 

 

 

December 31, 2017

 

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

 

(in thousands)

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

34,231

 

 

$

(267

)

 

$

20,793

 

 

$

(278

)

 

$

55,024

 

 

$

(545

)

Corporate and other debt securities

 

 

6,336

 

 

 

(77

)

 

 

-

 

 

 

-

 

 

 

6,336

 

 

 

(77

)

Mortgage-backed securities – residential

 

 

20,847

 

 

 

(300

)

 

 

10,604

 

 

 

(230

)

 

 

31,451

 

 

 

(530

)

Total available for sale

 

$

61,414

 

 

$

(644

)

 

$

31,397

 

 

$

(508

)

 

$

92,811

 

 

$

(1,152

)

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

60,450

 

 

$

(587

)

 

$

67,232

 

 

$

(790

)

 

$

127,682

 

 

$

(1,377

)

Corporate and other debt securities

 

 

3,871

 

 

 

(129

)

 

 

-

 

 

 

-

 

 

 

3,871

 

 

 

(129

)

Mortgage-backed securities – residential

 

 

95,903

 

 

 

(993

)

 

 

27,052

 

 

 

(778

)

 

 

122,955

 

 

 

(1,771

)

Mortgage-backed securities – collateralized

   mortgage obligations

 

 

41,965

 

 

 

(561

)

 

 

11,973

 

 

 

(331

)

 

 

53,938

 

 

 

(892

)

Mortgage-backed securities – commercial

 

 

11,089

 

 

 

(126

)

 

 

8,887

 

 

 

(205

)

 

 

19,976

 

 

 

(331

)

Total held to maturity

 

$

213,278

 

 

$

(2,396

)

 

$

115,144

 

 

$

(2,104

)

 

$

328,422

 

 

$

(4,500

)


 

June 30, 2017

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

September 30, 2022

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

 

Unrealized/

 

 

 

 

Unrealized/

 

 

 

 

Unrealized/

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Fair

 

Unrecognized

 

 

Fair

 

Unrecognized

 

 

Fair

 

Unrecognized

 

 

(in thousands)

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

41,900

 

 

$

(200

)

 

$

3,993

 

 

$

(16

)

 

$

45,893

 

 

$

(216

)

 

$

-

 

 

$

-

 

 

$

9,443

 

 

$

(1,502

)

 

$

9,443

 

 

$

(1,502

)

Corporate and other debt securities

 

 

1,964

 

 

 

(36

)

 

 

-

 

 

 

-

 

 

 

1,964

 

 

 

(36

)

Corporate

 

 

4,765

 

 

 

(235

)

 

 

-

 

 

 

-

 

 

 

4,765

 

 

 

(235

)

State and municipal

 

 

2,563

 

 

 

(1,460

)

 

 

1,771

 

 

 

(1,246

)

 

 

4,334

 

 

 

(2,706

)

Mortgage-backed securities – residential

 

 

18,861

 

 

 

(111

)

 

 

3,200

 

 

 

(32

)

 

 

22,061

 

 

 

(143

)

 

 

3,624

 

 

 

(104

)

 

 

7,822

 

 

 

(1,970

)

 

 

11,446

 

 

 

(2,074

)

Mortgage-backed securities – commercial

 

 

2,266

 

 

 

(132

)

 

 

-

 

 

 

-

 

 

 

2,266

 

 

 

(132

)

Total available for sale

 

$

62,725

 

 

$

(347

)

 

$

7,193

 

 

$

(48

)

 

$

69,918

 

 

$

(395

)

 

$

13,218

 

 

$

(1,931

)

 

$

19,036

 

 

$

(4,718

)

 

$

32,254

 

 

$

(6,649

)

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

113,511

 

 

$

(531

)

 

$

5,981

 

 

$

(43

)

 

$

119,492

 

 

$

(574

)

 

$

31,488

 

 

$

(2,012

)

 

$

23,419

 

 

$

(3,076

)

 

$

54,907

 

 

$

(5,088

)

Corporate and other debt securities

 

 

999

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

999

 

 

 

-

 

Corporate

 

 

48,510

 

 

 

(3,558

)

 

 

-

 

 

 

-

 

 

 

48,510

 

 

 

(3,558

)

State and municipal

 

 

26,953

 

 

 

(9,722

)

 

 

32,457

 

 

 

(17,858

)

 

 

59,410

 

 

 

(27,580

)

Mortgage-backed securities – residential

 

 

39,754

 

 

 

(467

)

 

 

1,626

 

 

 

(30

)

 

 

41,380

 

 

 

(497

)

 

 

62,389

 

 

 

(8,570

)

 

 

21,770

 

 

 

(5,157

)

 

 

84,159

 

 

 

(13,727

)

Mortgage-backed securities – collateralized

mortgage obligations

 

 

26,622

 

 

 

(141

)

 

 

4,444

 

 

 

(94

)

 

 

31,066

 

 

 

(235

)

 

 

10,344

 

 

 

(717

)

 

 

9,525

 

 

 

(2,330

)

 

 

19,869

 

 

 

(3,047

)

Mortgage-backed securities – commercial

 

 

9,092

 

 

 

(66

)

 

 

-

 

 

 

-

 

 

 

9,092

 

 

 

(66

)

 

 

27,763

 

 

 

(3,546

)

 

 

42,961

 

 

 

(10,625

)

 

 

70,724

 

 

 

(14,171

)

Total held to maturity

 

$

189,978

 

 

$

(1,205

)

 

$

12,051

 

 

$

(167

)

 

$

202,029

 

 

$

(1,372

)

 

$

207,447

 

 

$

(28,125

)

 

$

130,132

 

 

$

(39,046

)

 

$

337,579

 

 

$

(67,171

)

11


 

 

June 30, 2022

 

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

2,774

 

 

$

(226

)

 

$

7,154

 

 

$

(788

)

 

$

9,928

 

 

$

(1,014

)

Corporate

 

 

2,850

 

 

 

(150

)

 

 

-

 

 

 

-

 

 

 

2,850

 

 

 

(150

)

State and municipal

 

 

2,860

 

 

 

(1,162

)

 

 

1,936

 

 

 

(1,082

)

 

 

4,796

 

 

 

(2,244

)

Mortgage-backed securities – residential

 

 

3,616

 

 

 

(81

)

 

 

8,394

 

 

 

(1,563

)

 

 

12,010

 

 

 

(1,644

)

Mortgage-backed securities – commercial

 

 

2,331

 

 

 

(85

)

 

 

-

 

 

 

-

 

 

 

2,331

 

 

 

(85

)

Total available for sale

 

$

14,431

 

 

$

(1,704

)

 

$

17,484

 

 

$

(3,433

)

 

$

31,915

 

 

$

(5,137

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

39,883

 

 

$

(2,616

)

 

$

5,066

 

 

$

(430

)

 

$

44,949

 

 

$

(3,046

)

Corporate

 

 

39,758

 

 

 

(2,796

)

 

 

-

 

 

 

-

 

 

 

39,758

 

 

 

(2,796

)

State and municipal

 

 

61,847

 

 

 

(20,696

)

 

 

2,957

 

 

 

(1,611

)

 

 

64,804

 

 

 

(22,307

)

Mortgage-backed securities – residential

 

 

87,364

 

 

 

(9,063

)

 

 

3,994

 

 

 

(683

)

 

 

91,358

 

 

 

(9,746

)

Mortgage-backed securities – collateralized
mortgage obligations

 

 

13,611

 

 

 

(642

)

 

 

8,390

 

 

 

(1,482

)

 

 

22,001

 

 

 

(2,124

)

Mortgage-backed securities – commercial

 

 

50,434

 

 

 

(5,515

)

 

 

26,166

 

 

 

(5,428

)

 

 

76,600

 

 

 

(10,943

)

Total held to maturity

 

$

292,897

 

 

$

(41,328

)

 

$

46,573

 

 

$

(9,634

)

 

$

339,470

 

 

$

(50,962

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017,September 30, 2022, the Company’s securitysecurities portfolio consisted of $470.4$438.7 million in securities, of which 227314 securities with a fair value of $421.2$369.8 million were in an unrealizedunrealized/unrecognized loss position. Non-U.S. government and agency obligations are internally pass rated and are subject to quarterly credit monitoring.

As of June 30, 2017, the Company’s security portfolio consisted of $495.4 million in securities, of which 156 securities with a fair value of $271.9 million were in an unrealized loss position.

There were no securities for which the Company believes it is not probable that it will collect all amounts due according to the contractual terms of the security as of December 31, 2017 andSeptember 30, 2022 or June 30, 2017.2022. Management believes the unrealized losses are primarily a result of changes in market interest rates. The Company has determined that it does not intend to sell, or it is not more likely than not that it will be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. Therefore, the Company did not consider any securities to be other-than-temporarily impaired as of December 31, 2017 andSeptember 30, 2022 or June 30, 2017.2022.

12


Note 5.4. Loans Receivable

Loans receivable are summarized as follows (in thousands):

 

 

December 31,

 

 

June 30,

 

September 30,

 

 

June 30,

 

 

2017

 

 

2017

 

2022

 

 

2022

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

213,716

 

 

$

217,778

 

$

214,586

 

 

$

214,167

 

Commercial

 

 

481,169

 

 

 

437,651

 

 

953,539

 

 

 

942,130

 

Construction

 

 

16,379

 

 

 

22,404

 

 

25,307

 

 

 

20,896

 

Net deferred loan origination costs

 

 

210

 

 

 

397

 

Total mortgages

 

 

711,474

 

 

 

678,230

 

Net deferred loan origination fees

 

(145

)

 

 

(100

)

Total mortgage loans

 

1,193,287

 

 

 

1,177,093

 

Commercial and consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

31,276

 

 

 

33,297

 

 

141,902

 

 

 

136,304

 

Other loans secured

 

 

46,056

 

 

 

46,802

 

Home equity lines of credit

 

 

40,158

 

 

 

41,927

 

 

22,955

 

 

 

23,688

 

Consumer and installment loans

 

 

12,860

 

 

 

13,765

 

Consumer and overdrafts

 

508

 

 

 

594

 

Net deferred loan origination costs

 

 

767

 

 

 

777

 

 

593

 

 

 

620

 

Total commercial and consumer loans

 

 

131,117

 

 

 

136,568

 

 

165,958

 

 

 

161,206

 

Total loans receivable

 

 

842,591

 

 

 

814,798

 

 

1,359,245

 

 

 

1,338,299

 

Allowance for loan losses

 

 

(4,471

)

 

 

(5,150

)

 

(9,048

)

 

 

(8,927

)

Loans receivable, net

 

$

838,120

 

 

$

809,648

 

$

1,350,197

 

 

$

1,329,372

 

 

In 2015, the Company completed a merger with CMS Bancorp and its wholly owned subsidiary, CMS Bank. References to acquired loans in this note pertain only to those loans acquired as part of the merger.

13


The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six months ended December 31, 2017September 30, 2022 and 20162021 (in thousands):

12


 

Three Months Ended September 30, 2022

 

 

Beginning
Allowance

 

 

Provision
(benefit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending
Allowance

 

Residential mortgages

$

323

 

 

$

(3

)

 

$

-

 

 

$

2

 

 

$

322

 

Commercial mortgages

 

7,351

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

7,356

 

Construction

 

209

 

 

 

25

 

 

 

-

 

 

 

-

 

 

 

234

 

Commercial loans

 

982

 

 

 

32

 

 

 

(15

)

 

 

74

 

 

 

1,073

 

Home equity lines of credit

 

51

 

 

 

(9

)

 

 

-

 

 

 

1

 

 

 

43

 

Consumer and overdrafts

 

11

 

 

 

32

 

 

 

(24

)

 

 

1

 

 

 

20

 

Total

$

8,927

 

 

$

82

 

 

$

(39

)

 

$

78

 

 

$

9,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2021

 

 

Beginning
Allowance

 

 

Provision
(benefit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending
Allowance

 

Residential mortgages

$

337

 

 

$

(13

)

 

$

-

 

 

$

2

 

 

$

326

 

Commercial mortgages

 

6,435

 

 

 

134

 

 

 

-

 

 

 

-

 

 

 

6,569

 

Construction

 

102

 

 

 

25

 

 

 

-

 

 

 

-

 

 

 

127

 

Commercial loans

 

948

 

 

 

(143

)

 

 

(100

)

 

 

367

 

 

 

1,072

 

Home equity lines of credit

 

54

 

 

 

(3

)

 

 

-

 

 

 

2

 

 

 

53

 

Consumer and overdrafts

 

5

 

 

 

13

 

 

 

(7

)

 

 

1

 

 

 

12

 

Total

$

7,881

 

 

$

13

 

 

$

(107

)

 

$

372

 

 

$

8,159

 

13


 

 

 

Three Months Ended December 31, 2017

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

407

 

 

$

(5

)

 

$

-

 

 

$

-

 

 

$

402

 

Commercial

 

 

2,709

 

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

2,686

 

Construction

 

 

1,160

 

 

 

237

 

 

 

(997

)

 

 

-

 

 

 

400

 

Commercial loans

 

 

345

 

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

322

 

Other loans secured

 

 

404

 

 

 

(15

)

 

 

-

 

 

 

-

 

 

 

389

 

Home equity lines of credit

 

 

77

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

74

 

Consumer and installment loans

 

 

140

 

 

 

(7

)

 

 

-

 

 

 

-

 

 

 

133

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

26

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

65

 

Total

 

$

5,268

 

 

$

200

 

 

$

(997

)

 

$

-

 

 

$

4,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2016

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

238

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

238

 

Commercial

 

 

2,121

 

 

 

909

 

 

 

-

 

 

 

1

 

 

 

3,031

 

Construction

 

 

302

 

 

 

34

 

 

 

-

 

 

 

-

 

 

 

336

 

Commercial loans

 

 

559

 

 

 

(458

)

 

 

-

 

 

 

400

 

 

 

501

 

Other loans secured

 

 

361

 

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

339

 

Home equity lines of credit

 

 

70

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

70

 

Consumer and installment loans

 

 

414

 

 

 

97

 

 

 

(398

)

 

 

-

 

 

 

113

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

-

 

 

 

2

 

 

 

(2

)

 

 

-

 

 

 

-

 

Total

 

$

4,065

 

 

$

562

 

 

$

(400

)

 

$

401

 

 

$

4,628

 

14


 

 

Six Months Ended December 31, 2017

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

360

 

 

$

59

 

 

$

(17

)

 

$

-

 

 

$

402

 

Commercial

 

 

2,589

 

 

 

97

 

 

 

-

 

 

 

-

 

 

 

2,686

 

Construction

 

 

1,150

 

 

 

247

 

 

 

(997

)

 

 

-

 

 

 

400

 

Commercial loans

 

 

440

 

 

 

(118

)

 

 

-

 

 

 

-

 

 

 

322

 

Other loans secured

 

 

365

 

 

 

24

 

 

 

-

 

 

 

-

 

 

 

389

 

Home equity lines of credit

 

 

76

 

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

74

 

Consumer and installment loans

 

 

144

 

 

 

(11

)

 

 

-

 

 

 

-

 

 

 

133

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

26

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

65

 

Total

 

$

5,150

 

 

$

335

 

 

$

(1,014

)

 

$

-

 

 

$

4,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31, 2016

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

237

 

 

$

(69

)

 

$

-

 

 

$

70

 

 

$

238

 

Commercial

 

 

2,149

 

 

 

863

 

 

 

-

 

 

 

19

 

 

 

3,031

 

Construction

 

 

269

 

 

 

67

 

 

 

-

 

 

 

-

 

 

 

336

 

Commercial loans

 

 

604

 

 

 

(676

)

 

 

-

 

 

 

573

 

 

 

501

 

Other loans secured

 

 

397

 

 

 

168

 

 

 

(324

)

 

 

98

 

 

 

339

 

Home equity lines of credit

 

 

73

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

70

 

Consumer and installment loans

 

 

313

 

 

 

198

 

 

 

(398

)

 

 

-

 

 

 

113

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Residential

 

 

-

 

 

 

38

 

 

 

(38

)

 

 

-

 

 

 

-

 

Commercial loans

 

 

-

 

 

 

2

 

 

 

(2

)

 

 

-

 

 

 

-

 

Total

 

$

4,042

 

 

$

588

 

 

$

(762

)

 

$

760

 

 

$

4,628

 

15


The following tables present the balance in the allowance for loan losses and the recorded investment in loans, excluding net deferred fees and accrued interest, by portfolio segment, and based on impairment method as of December 31, 2017September 30, 2022 and June 30, 20172022 (in thousands):

 

 

December 31, 2017

 

 

 

Loans

 

 

Allowance for Loan Losses

 

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

Residential

 

$

3,499

 

 

$

208,900

 

 

$

1,317

 

 

$

213,716

 

 

$

190

 

 

$

212

 

 

$

65

 

 

$

467

 

Commercial

 

 

2,438

 

 

 

477,238

 

 

 

1,493

 

 

 

481,169

 

 

 

-

 

 

 

2,686

 

 

 

-

 

 

 

2,686

 

Construction

 

 

2,260

 

 

 

14,119

 

 

 

-

 

 

 

16,379

 

 

 

276

 

 

 

124

 

 

 

-

 

 

 

400

 

Commercial loans

 

 

351

 

 

 

30,925

 

 

 

-

 

 

 

31,276

 

 

 

75

 

 

 

247

 

 

 

-

 

 

 

322

 

Other loans secured

 

 

4,165

 

 

 

41,891

 

 

 

-

 

 

 

46,056

 

 

 

2

 

 

 

387

 

 

 

-

 

 

 

389

 

Home equity lines of credit

 

 

480

 

 

 

39,505

 

 

 

173

 

 

 

40,158

 

 

 

5

 

 

 

69

 

 

 

-

 

 

 

74

 

Consumer and installment loans

 

 

-

 

 

 

12,840

 

 

 

20

 

 

 

12,860

 

 

 

-

 

 

 

133

 

 

 

-

 

 

 

133

 

Total

 

$

13,193

 

 

$

825,418

 

 

$

3,003

 

 

$

841,614

 

 

$

548

 

 

$

3,858

 

 

$

65

 

 

$

4,471

 

 

 

June 30, 2017

 

 

Loans

 

 

Allowance for Loan Losses

 

 

September 30, 2022

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Loans

 

 

Allowance for Loan Losses

 

Residential

 

$

4,471

 

 

$

211,983

 

 

$

1,324

 

 

$

217,778

 

 

$

131

 

 

$

229

 

 

$

26

 

 

$

386

 

Commercial

 

 

2,411

 

 

 

433,416

 

 

 

1,824

 

 

 

437,651

 

 

 

-

 

 

 

2,589

 

 

 

-

 

 

 

2,589

 

 

Individually
Evaluated for
Impairment

 

 

Collectively
Evaluated for
Impairment

 

 

Acquired With
Deteriorated
Credit Quality

 

 

Total

 

 

Individually
Evaluated for
Impairment

 

 

Collectively
Evaluated for
Impairment

 

 

Acquired With
Deteriorated
Credit Quality

 

 

Total

 

Residential mortgages

 

$

1,664

 

 

$

212,704

 

 

$

218

 

 

$

214,586

 

 

$

109

 

 

$

213

 

 

$

-

 

 

$

322

 

Commercial mortgages

 

 

3,504

 

 

 

949,185

 

 

 

850

 

 

 

953,539

 

 

 

-

 

 

 

7,356

 

 

 

-

 

 

 

7,356

 

Construction

 

 

3,661

 

 

 

18,743

 

 

 

-

 

 

 

22,404

 

 

 

997

 

 

 

153

 

 

 

-

 

 

 

1,150

 

 

 

2,792

 

 

 

22,515

 

 

 

-

 

 

 

25,307

 

 

 

-

 

 

 

234

 

 

 

-

 

 

 

234

 

Commercial loans

 

 

356

 

 

 

32,941

 

 

 

-

 

 

 

33,297

 

 

 

7

 

 

 

433

 

 

 

-

 

 

 

440

 

 

 

781

 

 

 

141,121

 

 

 

-

 

 

 

141,902

 

 

 

-

 

 

 

1,073

 

 

 

-

 

 

 

1,073

 

Other loans secured

 

 

5,813

 

 

 

40,989

 

 

 

-

 

 

 

46,802

 

 

 

2

 

 

 

363

 

 

 

-

 

 

 

365

 

Home equity lines of credit

 

 

610

 

 

 

41,140

 

 

 

177

 

 

 

41,927

 

 

 

5

 

 

 

71

 

 

 

-

 

 

 

76

 

 

 

400

 

 

 

22,469

 

 

 

86

 

 

 

22,955

 

 

 

2

 

 

 

41

 

 

 

-

 

 

 

43

 

Consumer and installment loans

 

 

-

 

 

 

13,723

 

 

 

42

 

 

 

13,765

 

 

 

-

 

 

 

144

 

 

 

-

 

 

 

144

 

Consumer and overdrafts

 

 

-

 

 

 

508

 

 

 

-

 

 

 

508

 

 

 

-

 

 

 

20

 

 

 

-

 

 

 

20

 

Total

 

$

17,322

 

 

$

792,935

 

 

$

3,367

 

 

$

813,624

 

 

$

1,142

 

 

$

3,982

 

 

$

26

 

 

$

5,150

 

 

$

9,141

 

 

$

1,348,502

 

 

$

1,154

 

 

$

1,358,797

 

 

$

111

 

 

$

8,937

 

 

$

-

 

 

$

9,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Individually
Evaluated for
Impairment

 

 

Collectively
Evaluated for
Impairment

 

 

Acquired With
Deteriorated
Credit Quality

 

 

Total

 

 

Individually
Evaluated for
Impairment

 

 

Collectively
Evaluated for
Impairment

 

 

Acquired With
Deteriorated
Credit Quality

 

 

Total

 

Residential mortgages

 

$

1,613

 

 

$

212,333

 

 

$

221

 

 

$

214,167

 

 

$

110

 

 

$

213

 

 

$

-

 

 

$

323

 

Commercial mortgages

 

 

4,778

 

 

 

936,493

 

 

 

859

 

 

 

942,130

 

 

 

-

 

 

 

7,351

 

 

 

-

 

 

 

7,351

 

Construction

 

 

2,792

 

 

 

18,104

 

 

 

-

 

 

 

20,896

 

 

 

-

 

 

 

209

 

 

 

-

 

 

 

209

 

Commercial loans

 

 

783

 

 

 

135,521

 

 

 

-

 

 

 

136,304

 

 

 

-

 

 

 

982

 

 

 

-

 

 

 

982

 

Home equity lines of credit

 

 

452

 

 

 

23,147

 

 

 

89

 

 

 

23,688

 

 

 

9

 

 

 

42

 

 

 

-

 

 

 

51

 

Consumer and overdrafts

 

 

-

 

 

 

594

 

 

 

-

 

 

 

594

 

 

 

-

 

 

 

11

 

 

 

-

 

 

 

11

 

Total

 

$

10,418

 

 

$

1,326,192

 

 

$

1,169

 

 

$

1,337,779

 

 

$

119

 

 

$

8,808

 

 

$

-

 

 

$

8,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14


 


The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by class of loansportfolio segment as of December 31, 2017September 30, 2022 and June 30, 20172022 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

September 30, 2022

 

 

June 30, 2022

 

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

Unpaid
Principal
Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

 

Unpaid
Principal
Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

2,940

 

 

$

2,721

 

 

$

-

 

Commercial

 

 

2,948

 

 

 

2,438

 

 

 

-

 

Other loans secured

 

 

7,558

 

 

 

3,088

 

 

 

-

 

Home equity lines of credit

 

 

473

 

 

 

469

 

 

 

-

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

747

 

 

 

778

 

 

 

190

 

Residential mortgages

$

1,382

 

 

$

1,313

 

 

$

-

 

 

$

1,262

 

 

$

1,197

 

 

$

-

 

Commercial mortgages

 

3,582

 

 

 

3,504

 

 

 

-

 

 

 

4,789

 

 

 

4,778

 

 

 

-

 

Construction

 

 

3,257

 

 

 

2,260

 

 

 

276

 

 

2,792

 

 

 

2,792

 

 

 

-

 

 

 

2,792

 

 

 

2,792

 

 

 

-

 

Commercial loans

 

 

351

 

 

 

351

 

 

 

75

 

 

793

 

 

 

781

 

 

 

-

 

 

 

795

 

 

 

783

 

 

 

-

 

Other loans secured

 

 

1,077

 

 

 

1,077

 

 

 

2

 

Home equity lines of credit

 

383

 

 

 

376

 

 

 

-

 

 

 

379

 

 

 

399

 

 

 

-

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

351

 

 

 

351

 

 

 

109

 

 

 

353

 

 

 

416

 

 

 

110

 

Home equity lines of credit

 

 

11

 

 

 

11

 

 

 

5

 

 

31

 

 

 

24

 

 

 

2

 

 

 

60

 

 

 

53

 

 

 

9

 

Total

 

$

19,362

 

 

$

13,193

 

 

$

548

 

$

9,314

 

 

$

9,141

 

 

$

111

 

 

$

10,430

 

 

$

10,418

 

 

$

119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

4,216

 

 

$

4,014

 

 

$

-

 

Commercial

 

 

2,935

 

 

 

2,411

 

 

 

-

 

Construction

 

 

404

 

 

 

404

 

 

 

-

 

Commercial loans

 

 

276

 

 

 

277

 

 

 

-

 

Other loans secured

 

 

9,157

 

 

 

4,702

 

 

 

-

 

Home equity lines of credit

 

 

599

 

 

 

599

 

 

 

-

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

395

 

 

 

457

 

 

 

131

 

Construction

 

 

3,257

 

 

 

3,257

 

 

 

997

 

Commercial loans

 

 

79

 

 

 

79

 

 

 

7

 

Other loans secured

 

 

1,111

 

 

 

1,111

 

 

 

2

 

Home equity lines of credit

 

 

11

 

 

 

11

 

 

 

5

 

Total

 

$

22,440

 

 

$

17,322

 

 

$

1,142

 


The tabletables below presentspresent the average recorded investment and interest income recognized on loans individually evaluated for impairment, by class of loans,portfolio segment, for the three and six months ended December 31, 2017September 30, 2022 and 20162021 (in thousands):

 

Three months ended

 

 

Three months ended

 

December 31, 2017

 

 

December 31, 2016

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

3,027

 

 

$

124

 

 

$

3,725

 

 

$

3

 

Commercial

 

2,454

 

 

 

27

 

 

 

2,303

 

 

 

31

 

Commercial loans

 

-

 

 

 

-

 

 

 

91

 

 

 

1

 

Other loans secured

 

3,488

 

 

 

77

 

 

 

5,489

 

 

 

66

 

Home equity lines of credit

 

571

 

 

 

20

 

 

 

551

 

 

 

-

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

778

 

 

 

3

 

 

 

-

 

 

 

-

 

Commercial

 

-

 

 

 

-

 

 

 

3,132

 

 

 

25

 

Construction

 

3,008

 

 

 

-

 

 

 

131

 

 

 

-

 

Commercial loans

 

352

 

 

 

-

 

 

 

-

 

 

 

-

 

Other loans secured

 

1,087

 

 

 

13

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

11

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

$

14,776

 

 

$

264

 

 

$

15,422

 

 

$

126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

 

 

 

December 31, 2017

 

 

December 31, 2016

 

September 30, 2022

 

 

September 30, 2021

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

3,431

 

 

$

166

 

 

$

3,753

 

 

$

6

 

Commercial

 

2,447

 

 

 

54

 

 

 

2,311

 

 

 

63

 

Residential mortgages

$

1,318

 

 

$

9

 

 

$

1,936

 

 

$

7

 

Commercial mortgages

 

3,543

 

 

 

-

 

 

 

3,582

 

 

 

-

 

Construction

 

173

 

 

 

17

 

 

 

-

 

 

 

-

 

 

2,792

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial loans

 

-

 

 

 

-

 

 

 

92

 

 

 

2

 

 

782

 

 

 

4

 

 

 

980

 

 

 

191

 

Other loans secured

 

4,002

 

 

 

160

 

 

 

5,513

 

 

 

134

 

Home equity lines of credit

 

593

 

 

 

20

 

 

 

551

 

 

 

(2

)

 

378

 

 

 

-

 

 

 

350

 

 

 

2

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

686

 

 

 

7

 

 

 

-

 

 

 

-

 

Commercial

 

-

 

 

 

-

 

 

 

3,141

 

 

 

52

 

Construction

 

3,115

 

 

 

-

 

 

 

131

 

 

 

-

 

Commercial loans

 

353

 

 

 

4

 

 

 

-

 

 

 

-

 

Other loans secured

 

1,095

 

 

 

27

 

 

 

-

 

 

 

-

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Residential mortgages

 

352

 

 

 

3

 

 

 

424

 

 

 

3

 

Home equity lines of credit

 

11

 

 

 

-

 

 

 

-

 

 

 

-

 

 

27

 

 

 

-

 

 

 

33

 

 

 

-

 

Total

$

15,906

 

 

$

455

 

 

$

15,492

 

 

$

255

 

$

9,192

 

 

$

16

 

 

$

7,305

 

 

$

203

 

 


The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by class of loansportfolio segment, as of December 31, 2017September 30, 2022 and June 30, 20172022 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Loans Past Due Over 90 Days

 

 

 

Nonaccrual

 

 

and Still Accruing

 

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

 

2017

 

 

2017

 

 

2017

 

 

2017

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,772

 

 

$

2,581

 

 

$

-

 

 

$

-

 

Commercial

 

 

258

 

 

 

-

 

 

 

-

 

 

 

-

 

Construction

 

 

2,260

 

 

 

3,661

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

275

 

 

 

-

 

 

 

-

 

 

 

-

 

Other loans secured

 

 

1,368

 

 

 

2,959

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

100

 

 

 

302

 

 

 

-

 

 

 

-

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,281

 

 

 

1,776

 

 

 

-

 

 

 

-

 

Commercial

 

 

508

 

 

 

497

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

369

 

 

 

296

 

 

 

-

 

 

 

-

 

Total

 

$

8,191

 

 

$

12,072

 

 

$

-

 

 

$

-

 

 

 

 

 

Loans Past Due Over 90 Days

 

 

Nonaccrual

 

 

and Still Accruing

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

June 30,

 

 

2022

 

 

2022

 

 

2022

 

 

2022

 

Residential mortgages

$

791

 

 

$

671

 

 

$

-

 

 

$

-

 

Commercial mortgages

 

3,504

 

 

 

4,778

 

 

 

-

 

 

 

-

 

Construction

 

2,792

 

 

 

2,792

 

 

 

-

 

 

 

-

 

Commercial loans

 

534

 

 

 

539

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

368

 

 

 

416

 

 

 

-

 

 

 

-

 

Consumer and overdrafts

 

-

 

 

 

-

 

 

 

-

 

 

 

39

 

Total

$

7,989

 

 

$

9,196

 

 

$

-

 

 

$

39

 

 

Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes nonaccrual acquired loans that are accounted for as purchased credit impaired loans totaling $1.8 million$133,000 and $2.7 million$137,000 as of December 31, 2017September 30, 2022 and June 30, 2017,2022, respectively. Such loans are excluded because the loans are in pools that are considered performing. The discounts arising from recording these loans at fair value upon acquisition were due in part to credit quality and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows.

15


The following tables present the aging of the recorded investment in past due loans by class of loansportfolio segment as of December 31, 2017September 30, 2022 and June 30, 20172022 (in thousands):

 

 

 

December 31, 2017

 

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

-

 

 

$

-

 

 

$

1,632

 

 

$

1,632

 

 

$

153,476

 

 

$

155,108

 

Commercial

 

 

-

 

 

 

-

 

 

 

258

 

 

 

258

 

 

 

404,223

 

 

 

404,481

 

Construction

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

2,260

 

 

 

14,119

 

 

 

16,379

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

275

 

 

 

275

 

 

 

30,412

 

 

 

30,687

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

544

 

 

 

544

 

 

 

45,344

 

 

 

45,888

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

100

 

 

 

100

 

 

 

34,306

 

 

 

34,406

 

Consumer and installment loans

 

 

10

 

 

 

-

 

 

 

-

 

 

 

10

 

 

 

12,661

 

 

 

12,671

 

Total originated

 

 

10

 

 

 

-

 

 

 

5,069

 

 

 

5,079

 

 

 

694,541

 

 

 

699,620

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

-

 

 

 

-

 

 

 

1,778

 

 

 

1,778

 

 

 

56,830

 

 

 

58,608

 

Commercial

 

 

-

 

 

 

-

 

 

 

1,087

 

 

 

1,087

 

 

 

75,601

 

 

 

76,688

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

589

 

 

 

589

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

��

 

168

 

 

 

168

 

Home equity lines of credit

 

 

46

 

 

 

-

 

 

 

296

 

 

 

342

 

 

 

5,410

 

 

 

5,752

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

189

 

 

 

189

 

Total acquired

 

 

46

 

 

 

-

 

 

 

3,161

 

 

 

3,207

 

 

 

138,787

 

 

 

141,994

 

Total

 

$

56

 

 

$

-

 

 

$

8,230

 

 

$

8,286

 

 

$

833,328

 

 

$

841,614

 


 

September 30, 2022

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Residential mortgages

$

-

 

 

$

104

 

 

$

427

 

 

$

531

 

 

$

214,055

 

 

$

214,586

 

Commercial mortgages

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

953,539

 

 

 

953,539

 

Construction

 

-

 

 

 

-

 

 

 

2,792

 

 

 

2,792

 

 

 

22,515

 

 

 

25,307

 

Commercial loans

 

-

 

 

 

51

 

 

 

533

 

 

 

584

 

 

 

141,318

 

 

 

141,902

 

Home equity lines of credit

 

-

 

 

 

-

 

 

 

296

 

 

 

296

 

 

 

22,659

 

 

 

22,955

 

Consumer and overdrafts

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

508

 

 

 

508

 

Total

$

-

 

 

$

155

 

 

$

4,048

 

 

$

4,203

 

 

$

1,354,594

 

 

$

1,358,797

 

 

June 30, 2022

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Residential mortgages

$

-

 

 

$

-

 

 

$

367

 

 

$

367

 

 

$

213,800

 

 

$

214,167

 

Commercial mortgages

 

-

 

 

 

-

 

 

 

1,197

 

 

 

1,197

 

 

 

940,933

 

 

 

942,130

 

Construction

 

-

 

 

 

-

 

 

 

1,113

 

 

 

1,113

 

 

 

19,783

 

 

 

20,896

 

Commercial loans

 

-

 

 

 

16

 

 

 

400

 

 

 

416

 

 

 

135,888

 

 

 

136,304

 

Home equity lines of credit

 

-

 

 

 

-

 

 

 

399

 

 

 

399

 

 

 

23,289

 

 

 

23,688

 

Consumer and overdrafts

 

-

 

 

 

-

 

 

 

39

 

 

 

39

 

 

 

555

 

 

 

594

 

Total

$

-

 

 

$

16

 

 

$

3,515

 

 

$

3,531

 

 

$

1,334,248

 

 

$

1,337,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

94

 

 

$

275

 

 

$

1,973

 

 

$

2,342

 

 

$

153,390

 

 

$

155,732

 

Commercial

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

355,247

 

 

 

355,247

 

Construction

 

 

-

 

 

 

-

 

 

 

3,661

 

 

 

3,661

 

 

 

18,743

 

 

 

22,404

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31,613

 

 

 

31,613

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

544

 

 

 

544

 

 

 

43,612

 

 

 

44,156

 

Home equity lines of credit

 

 

-

 

 

 

199

 

 

 

103

 

 

 

302

 

 

 

35,246

 

 

 

35,548

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,435

 

 

 

13,435

 

Total originated

 

 

94

 

 

 

474

 

 

 

6,281

 

 

 

6,849

 

 

 

651,286

 

 

 

658,135

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

237

 

 

 

463

 

 

 

1,472

 

 

 

2,172

 

 

 

59,874

 

 

 

62,046

 

Commercial

 

 

-

 

 

 

-

 

 

 

1,054

 

 

 

1,054

 

 

 

81,350

 

 

 

82,404

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,684

 

 

 

1,684

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,646

 

 

 

2,646

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

296

 

 

 

296

 

 

 

6,083

 

 

 

6,379

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

330

 

 

 

330

 

Total acquired

 

 

237

 

 

 

463

 

 

 

2,822

 

 

 

3,522

 

 

 

151,967

 

 

 

155,489

 

Total

 

$

331

 

 

$

937

 

 

$

9,103

 

 

$

10,371

 

 

$

803,253

 

 

$

813,624

 

Troubled Debt Restructurings

The terms of certain loans werehave been modified as troubled debt restructurings.restructurings (“TDRs”). The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. All TDRs are considered impaired loans.

As of December 31, 2017both September 30, 2022 and June 30, 2017,2022, the Company had 17 and 209 loans, classified as troubled debt restructuringsTDRs totaling $7.1$1.4 million, and $9.9including $1.2 million respectively.of loans still accruing interest. The Company has allocated $211,000$111,000 and $145,000,$119,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructuringsTDRs as of December 31, 2017September 30, 2022 and June 30, 2017, and2022. As of September 30, 2022, the Company has not committedno commitments to lend additional amountsfunds to customers with outstanding loans that are classified as troubled debt restructurings.TDRs.

The Company did notnot modify any loans as troubled debt restructuring during the three or six months ended December 31, 2017September 30, 2022 or 2016.2021 that were classified as TDRs.

The Company had two troubled debt restructurings with a total carrying amountThere were no defaults of $1.1 million at December 31, 2017 for which there was a payment defaultTDRs occurring in the sixthree months ended December 31, 2017September 30, 2022 or 2021 that were modified in the twelve months prior to default, resulting in a $66,000 increase to the allowance for loan loss. One default, with a carrying amount of $0.8 million, has been cured as of December 31, 2017. There were no such defaults during the three months ended December 31, 2017 or the three or six months ended December 31, 2016.default.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law. Section 541 of this legislation, “Extension of Temporary Relief From Troubled Debt Restructurings and Insurer Clarification,” extends Section 4013 of the CARES Act to the earlier of January 1, 2022 or 60 days after the termination of the national emergency declared relating to COVID-19. This extension expired as of January 1, 2022. Additionally, on April 7, 2020, the banking agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement”), to encourage banks to work prudently with borrowers

16


and to describe the agencies’ interpretation of how accounting rules under ASC 310-40, “Troubled Debt Restructurings by Creditors,” apply to certain COVID-19-related modifications.

During the three months ended September 30, 2022, no loan payment deferrals were granted or extended by the Company. During the three months ended September 30, 2021, the Company granted or extended loan payment deferrals for 5 residential mortgage, construction and commercial loans totaling $3.7 million. In accordance with either the CARES Act (as amended) or Interagency Statement, these modifications are not considered TDRs. The Company had no loans on loan payment deferral as of September 30, 2022 nor June 30, 2022.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company utilizedutilizes the same grading


process for acquired loans as it does for originated loans. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in 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, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process and loans in groups of homogenous loans are considered to be pass rated loans. These loans are monitored based on delinquency and performance. Based on the most recent analysis performed, the risk category of loans by class of loansportfolio segment is as follows (in thousands):

 

September 30, 2022

 

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Total

 

Residential mortgages

$

213,581

 

 

$

383

 

 

$

622

 

 

$

214,586

 

Commercial mortgages

 

944,482

 

 

 

1,538

 

 

 

7,519

 

 

 

953,539

 

Construction

 

22,515

 

 

 

1,679

 

 

 

1,113

 

 

 

25,307

 

Commercial loans

 

141,295

 

 

 

145

 

 

 

462

 

 

 

141,902

 

Home equity lines of credit

 

22,587

 

 

 

-

 

 

 

368

 

 

 

22,955

 

Consumer and overdrafts

 

508

 

 

 

-

 

 

 

-

 

 

 

508

 

Total

$

1,344,968

 

 

$

3,745

 

 

$

10,084

 

 

$

1,358,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

Pass

 

 

Special
Mention

 

 

Substandard

 

 

Total

 

Residential mortgages

$

212,810

 

 

$

154

 

 

$

1,203

 

 

$

214,167

 

Commercial mortgages

 

931,178

 

 

 

1,548

 

 

 

9,404

 

 

 

942,130

 

Construction

 

18,104

 

 

 

1,679

 

 

 

1,113

 

 

 

20,896

 

Commercial loans

 

135,725

 

 

 

156

 

 

 

423

 

 

 

136,304

 

Home equity lines of credit

 

23,220

 

 

 

43

 

 

 

425

 

 

 

23,688

 

Consumer and overdrafts

 

594

 

 

 

-

 

 

 

-

 

 

 

594

 

Total

$

1,321,631

 

 

$

3,580

 

 

$

12,568

 

 

$

1,337,779

 

17

 

 

December 31, 2017

 

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

152,995

 

 

$

271

 

 

$

1,842

 

 

$

-

 

 

$

155,108

 

Commercial

 

 

401,371

 

 

 

-

 

 

 

3,110

 

 

 

-

 

 

 

404,481

 

Construction

 

 

14,119

 

 

 

-

 

 

 

2,260

 

 

 

-

 

 

 

16,379

 

Commercial loans

 

 

28,024

 

 

 

-

 

 

 

2,663

 

 

 

-

 

 

 

30,687

 

Other loans secured

 

 

40,657

 

 

 

-

 

 

 

5,231

 

 

 

-

 

 

 

45,888

 

Home equity lines of credit

 

 

34,306

 

 

 

55

 

 

 

45

 

 

 

-

 

 

 

34,406

 

Consumer and installment loans

 

 

12,661

 

 

 

10

 

 

 

-

 

 

 

-

 

 

 

12,671

 

Total originated

 

 

684,133

 

 

 

336

 

 

 

15,151

 

 

 

-

 

 

 

699,620

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

57,864

 

 

 

109

 

 

 

635

 

 

 

-

 

 

 

58,608

 

Commercial

 

 

74,687

 

 

 

-

 

 

 

2,001

 

 

 

-

 

 

 

76,688

 

Commercial loans

 

 

589

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

589

 

Other loans secured

 

 

168

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

168

 

Home equity lines of credit

 

 

5,286

 

 

 

-

 

 

 

466

 

 

 

-

 

 

 

5,752

 

Consumer and installment loans

 

 

189

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

189

 

Total acquired

 

 

138,783

 

 

 

109

 

 

 

3,102

 

 

 

-

 

 

 

141,994

 

Total

 

$

822,916

 

 

$

445

 

 

$

18,253

 

 

$

-

 

 

$

841,614

 



 

 

June 30, 2017

 

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

153,165

 

 

$

-

 

 

$

2,567

 

 

$

-

 

 

$

155,732

 

Commercial

 

 

352,203

 

 

 

134

 

 

 

2,910

 

 

 

-

 

 

 

355,247

 

Construction

 

 

18,743

 

 

 

-

 

 

 

3,661

 

 

 

-

 

 

 

22,404

 

Commercial loans

 

 

28,944

 

 

 

-

 

 

 

2,669

 

 

 

-

 

 

 

31,613

 

Other loans secured

 

 

37,267

 

 

 

-

 

 

 

6,889

 

 

 

-

 

 

 

44,156

 

Home equity lines of credit

 

 

35,246

 

 

 

58

 

 

 

244

 

 

 

-

 

 

 

35,548

 

Consumer and installment loans

 

 

13,405

 

 

 

-

 

 

 

30

 

 

 

-

 

 

 

13,435

 

Total originated

 

 

638,973

 

 

 

192

 

 

 

18,970

 

 

 

-

 

 

 

658,135

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

58,665

 

 

 

-

 

 

 

3,381

 

 

 

-

 

 

 

62,046

 

Commercial

 

 

80,082

 

 

 

-

 

 

 

2,322

 

 

 

-

 

 

 

82,404

 

Commercial loans

 

 

1,684

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,684

 

Other loans secured

 

 

2,646

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,646

 

Home equity lines of credit

 

 

5,906

 

 

 

-

 

 

 

473

 

 

 

-

 

 

 

6,379

 

Consumer and installment loans

 

 

330

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

330

 

Total acquired

 

 

149,313

 

 

 

-

 

 

 

6,176

 

 

 

-

 

 

 

155,489

 

Total

 

$

788,286

 

 

$

192

 

 

$

25,146

 

 

$

-

 

 

$

813,624

 

 

Purchased Credit Impaired Loans

The Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of December 31, 2017September 30, 2022 and June 30, 20172022 is as follows (in thousands):

 

September 30,

 

 

June 30,

 

 

2022

 

 

2022

 

Residential mortgages

$

218

 

 

$

221

 

Commercial mortgages

 

850

 

 

 

859

 

Home equity lines of credit

 

86

 

 

 

89

 

Carrying amount, net of allowance of $0

$

1,154

 

 

$

1,169

 

 

 

December 31,

 

 

June 30,

 

 

 

2017

 

 

2017

 

Residential

 

$

1,252

 

 

$

1,298

 

Commercial

 

 

1,493

 

 

 

1,824

 

Home equity lines of credit

 

 

173

 

 

 

177

 

Consumer and installment loans

 

 

20

 

 

 

42

 

Carrying amount, net of allowance of $65 and $26, respectively

 

$

2,938

 

 

$

3,341

 

The allowanceThere was no provision for loan losslosses on purchased credit impaired loans increased $39,000 during the three and six months ended December 31, 2017.September 30, 2022 or 2021.

Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands):

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

Three Months Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2022

 

 

2021

 

Beginning balance

 

$

375

 

 

$

532

 

 

$

403

 

 

$

578

 

$

89

 

 

$

130

 

New loans acquired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accretion income

 

 

(24

)

 

 

(46

)

 

 

(52

)

 

 

(92

)

 

(3

)

 

 

(10

)

Reclassification from non-accretable difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Disposals

 

 

(113

)

 

 

-

 

 

 

(113

)

 

 

-

 

Ending balance

 

$

238

 

 

$

486

 

 

$

238

 

 

$

486

 

$

86

 

 

$

120

 

 


Note 6.5. Accumulated Other Comprehensive (Loss) Income (Loss)

The following is a summary of the accumulated other comprehensive income (loss) balances, net of tax (in thousands):

 

 

Net unrealized

gain (loss) on

available for

sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized
gain (loss) on
available
for sale
securities
(1)

 

 

Unrealized loss
on pension
benefits
(2)

 

 

Unrealized loss
on SERP
benefits
(2)

 

 

Total

 

Balance at October 1, 2017

 

$

(195

)

 

$

(4,883

)

 

$

(244

)

 

$

(5,322

)

Balance at July 1, 2022

$

(4,052

)

 

$

(4,452

)

 

$

(125

)

 

$

(8,629

)

Other comprehensive loss before reclassifications

 

 

(717

)

 

 

-

 

 

 

-

 

 

 

(717

)

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

181

 

 

 

8

 

 

 

189

 

 

(1,519

)

 

 

141

 

 

 

20

 

 

 

(1,358

)

Tax effect

 

 

243

 

 

 

(61

)

 

 

(2

)

 

 

180

 

 

319

 

 

 

(30

)

 

 

(4

)

 

 

285

 

Net other comprehensive (loss) income

 

 

(474

)

 

 

120

 

 

 

6

 

 

 

(348

)

 

(1,200

)

 

 

111

 

 

 

16

 

 

 

(1,073

)

Balance at December 31, 2017

 

$

(669

)

 

$

(4,763

)

 

$

(238

)

 

$

(5,670

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for

sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 1, 2016

 

$

624

 

 

$

(7,683

)

 

$

(810

)

 

$

(7,869

)

Other comprehensive loss before reclassifications

 

 

(1,262

)

 

 

-

 

 

 

-

 

 

 

(1,262

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

577

 

 

 

47

 

 

 

624

 

Tax effect

 

 

429

 

 

 

(196

)

 

 

(16

)

 

 

217

 

Net other comprehensive (loss) income

 

 

(833

)

 

 

381

 

 

 

31

 

 

 

(421

)

Balance at December 31, 2016

 

$

(209

)

 

$

(7,302

)

 

$

(779

)

 

$

(8,290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2017

 

$

37

 

 

$

(5,002

)

 

$

(250

)

 

$

(5,215

)

Other comprehensive loss before reclassifications

 

 

(930

)

 

 

-

 

 

 

-

 

 

 

(930

)

Amounts reclassified from accumulated other comprehensive (loss) income

 

 

(139

)

 

 

362

 

 

 

16

 

 

 

239

 

Tax effect

 

 

363

 

 

 

(123

)

 

 

(4

)

 

 

236

 

Net other comprehensive (loss) income

 

 

(706

)

 

 

239

 

 

 

12

 

 

 

(455

)

Balance at December 31, 2017

 

$

(669

)

 

$

(4,763

)

 

$

(238

)

 

$

(5,670

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2016

 

$

523

 

 

$

(7,683

)

 

$

(810

)

 

$

(7,970

)

Other comprehensive loss before reclassifications

 

 

(1,109

)

 

 

-

 

 

 

-

 

 

 

(1,109

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

577

 

 

 

47

 

 

 

624

 

Tax effect

 

 

377

 

 

 

(196

)

 

 

(16

)

 

 

165

 

Net other comprehensive (loss) income

 

 

(732

)

 

 

381

 

 

 

31

 

 

 

(320

)

Balance at December 31, 2016

 

$

(209

)

 

$

(7,302

)

 

$

(779

)

 

$

(8,290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2022

$

(5,252

)

 

$

(4,341

)

 

$

(109

)

 

$

(9,702

)

 

Net unrealized
gain (loss) on
available
for sale
securities

 

 

Unrealized loss
on pension
benefits

 

 

Unrealized loss
on SERP
benefits

 

 

Total

 

Balance at July 1, 2021

$

137

 

 

$

(3,055

)

 

$

(181

)

 

$

(3,099

)

Other comprehensive loss before reclassifications

 

(187

)

 

 

-

 

 

 

-

 

 

 

(187

)

Amounts reclassified from accumulated other
   comprehensive income

 

-

 

 

 

38

 

 

 

16

 

 

 

54

 

Tax effect

 

40

 

 

 

(9

)

 

 

(3

)

 

 

28

 

Net other comprehensive (loss) income

 

(147

)

 

 

29

 

 

 

13

 

 

 

(105

)

Balance at September 30, 2021

$

(10

)

 

$

(3,026

)

 

$

(168

)

 

$

(3,204

)

 

18



Note 7.6. Post-Retirement Benefits

Employee Pension Plan:

The Company maintains a non-contributory defined benefit pension plan that covers employees meeting specific requirements as to age and length of service. The Company’s contributions to this qualified plan are determined on the basis of (i) the maximum amount that can be deducted for federal income tax purposes, and (ii) the amount determined by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”). Contributions are intended to provide for benefits attributed to service to date. date but also those expected to be earned in the future.On February 15, 2017, the Board of Directors approved the freezing of the defined benefit pension plan effective May 1, 2017.2017.

Supplemental Executive Retirement Plans:

The Company also maintains unfunded and non-qualified supplemental executive retirement plans ("SERP") to provide pension benefits in addition to those provided under the qualified pension plan.

Net periodic benefit cost and other amounts recognized in other comprehensive income for the three and six months ended December 31, 2017September 30, 2022 and 20162021 (in thousands):

 

 

Three Months Ended

 

 

Three Months Ended

 

 

December 31, 2017

 

 

December 31, 2016

 

 

Defined

Benefit

Plan

 

 

Supplemental

Retirement

Plans

 

 

Defined

Benefit

Plan

 

 

Supplemental

Retirement

Plans

 

Service cost

 

$

-

 

 

$

107

 

 

$

184

 

 

$

81

 

Interest cost

 

 

242

 

 

 

25

 

 

 

253

 

 

 

29

 

Expected return on plan assets

 

 

(503

)

 

 

-

 

 

 

(464

)

 

 

-

 

Amortization of prior net loss

 

 

-

 

 

 

-

 

 

 

361

 

 

 

23

 

Amortization of prior service cost

 

 

181

 

 

 

8

 

 

 

(72

)

 

 

-

 

Net periodic (benefit) cost

 

$

(80

)

 

$

140

 

 

$

262

 

 

$

133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

Three Months Ended

 

 

Three Months Ended

 

 

December 31, 2017

 

 

December 31, 2016

 

 

September 30, 2022

 

 

September 30, 2021

 

 

Defined Benefit Plan

 

 

Supplemental Retirement Plan

 

 

Defined Benefit Plan

 

 

Supplemental Retirement Plan

 

 

Defined
Benefit
Plan

 

 

Supplemental
Retirement
Plans

 

 

Defined
Benefit
Plan

 

 

Supplemental
Retirement
Plans

 

Service cost

 

$

-

 

 

$

220

 

 

$

369

 

 

$

161

 

 

$

-

 

 

$

82

 

 

$

-

 

 

$

131

 

Interest cost

 

 

484

 

 

 

50

 

 

 

507

 

 

 

58

 

 

 

196

 

 

 

26

 

 

 

149

 

 

 

17

 

Expected return on plan assets

 

 

(1,006

)

 

 

-

 

 

 

(962

)

 

 

-

 

 

 

(410

)

 

 

-

 

 

 

(510

)

 

 

-

 

Amortization of prior net loss

 

 

-

 

 

 

-

 

 

 

721

 

 

 

47

 

 

 

141

 

 

 

20

 

 

 

38

 

 

 

16

 

Amortization of prior service cost

 

 

362

 

 

 

16

 

 

 

(144

)

 

 

-

 

Net periodic cost

 

$

(160

)

 

$

66

 

 

$

491

 

 

$

266

 

Settlement charges

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net periodic (benefit) cost

 

$

(73

)

 

$

128

 

 

$

(323

)

 

$

164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company made no contributions to the defined benefit plan during the three and six months ended December 31, 2017 and expects to make no contributions to the plan for the year ending JuneSeptember 30, 2018.2022.

Employee Stock Ownership Plan

On January 1, 2017, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The planESOP is a tax-qualified retirement plan for the benefit of Company employees. TheOn April 20, 2017, the Holding Company granted a loan to the ESOP in the amount of $14.5 million for the purchase of 1,453,209 shares of the Company’s common stock at a price of $10.00$10.00 per share. The loan obtained by the ESOP from the Holding Company to purchase the common stock is payable annually over 15 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (4.00% at December 31, 2017)(3.25% for 2022). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at December 31, 2017September 30, 2022 was $13.6$9.7 million. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 96,881 through 2032. Dividends on allocated shares increase participant accounts and are used to purchase additional shares of stock. Participants receive the shares at the end of employment.


Shares held by the ESOP include the following:following (Dollars in thousands):

 

 

 

December 31, 2017

 

 

June 30, 2017

 

Allocated

 

 

96,881

 

 

 

-

 

Committed to be allocated

 

 

-

 

 

 

26,975

 

Unallocated

 

 

1,356,328

 

 

 

1,426,234

 

Total shares

 

 

1,453,209

 

 

 

1,453,209

 

 

September 30, 2022

 

 

June 30, 2022

 

Allocated to participants

 

541,097

 

 

 

518,371

 

Unearned

 

896,348

 

 

 

920,767

 

Total ESOP shares

 

1,437,445

 

 

 

1,439,138

 

 

 

 

 

 

 

Fair value of unearned shares

$

16,072

 

 

$

17,577

 

 

 

 

 

 

 

The fair value of unallocated shares was $25.8 million at December 31, 2017.

Total compensation expense recognized in connection with the ESOP for the three and six months ended December 31, 2017September 30, 2022 and 2021 was $672,000$467,000 and $1.3 million, respectively. There was no ESOP compensation expense for the three or six months ended December 31, 2016.$446,000, respectively.

19


Note 8.7. Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Investment Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), 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 (Level 2 inputs), or a broker's opinion of value (Level 3 inputs).

Impaired Loans: The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Appraisals are generally obtained annually and may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Management performs a review of all appraisals, including any such adjustments. The fair value of uncollateralized or non-collateral-dependent loans are generally based on discounted cash flows which utilize management’s assumption of discount rates and expected future cash flows, resulting in a Level 3 classification.

Foreclosed Real Estate: Assets acquired through or instead of loan foreclosure are initially recorded at fair value, less estimated costs to sell, when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value, less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.


Real estate ownedForeclosed properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Credit Department, as well as a third-party specialist, where deemed appropriate, reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Once appraisals are considered appropriate, management discounts the appraised value for estimated selling costs, such as legal, broker, and property maintenance and insurance costs. The most recent analysis performed indicated discount rates ranging between 10%10% and 20%20% should be applied to properties with appraisals performed.

Derivatives: The Company’s derivative assets and liabilities consist of transactions undertaken as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of eachderivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest

20


rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.

Assets and liabilities measured at fair value are summarized below (in thousands):

 

 

Fair Value Measurements

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Fair Value Measurements

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2022

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

55,024

 

 

$

-

 

 

$

55,024

 

$

-

 

 

$

9,443

 

 

$

-

 

 

$

9,443

 

Corporate and other debt securities

 

 

-

 

 

 

8,362

 

 

 

-

 

 

 

8,362

 

Corporate

 

-

 

 

 

1,997

 

 

 

2,768

 

 

 

4,765

 

State and municipal

 

-

 

 

 

4,334

 

 

 

-

 

 

 

4,334

 

Mortgage-backed securities – residential

 

 

-

 

 

 

39,296

 

 

 

-

 

 

 

39,296

 

 

-

 

 

 

11,623

 

 

 

-

 

 

 

11,623

 

Equity securities

 

 

-

 

 

 

32

 

 

 

-

 

 

 

32

 

Mortgage-backed securities – commercial

 

-

 

 

 

2,266

 

 

 

-

 

 

 

2,266

 

Derivatives – interest rate contracts

 

-

 

 

 

14,774

 

 

 

-

 

 

 

14,774

 

Total assets at fair value

 

$

-

 

 

$

102,714

 

 

$

-

 

 

$

102,714

 

$

-

 

 

$

44,437

 

 

$

2,768

 

 

$

47,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives – interest rate contracts

$

-

 

 

$

14,774

 

 

$

-

 

 

$

14,774

 

Total liabilities at fair value

$

-

 

 

$

14,774

 

 

$

-

 

 

$

14,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

-

 

 

$

-

 

 

$

265

 

 

$

265

 

$

-

 

 

$

-

 

 

$

242

 

 

$

242

 

Construction

 

 

-

 

 

 

-

 

 

 

1,984

 

 

 

1,984

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

206

 

 

 

206

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

500

 

 

 

500

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

72

 

 

 

72

 

 

-

 

 

 

-

 

 

 

22

 

 

 

22

 

Total assets at fair value

 

$

-

 

 

$

-

 

 

$

3,027

 

 

$

3,027

 

$

-

 

 

$

-

 

 

$

264

 

 

$

264

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

$

-

 

 

$

9,928

 

 

$

-

 

 

$

9,928

 

Corporate

 

-

 

 

 

2,004

 

 

 

2,850

 

 

 

4,854

 

State and municipal

 

-

 

 

 

4,796

 

 

 

-

 

 

 

4,796

 

Mortgage-backed securities – residential

 

-

 

 

 

12,712

 

 

 

-

 

 

 

12,712

 

Mortgage-backed securities – commercial

 

-

 

 

 

2,331

 

 

 

-

 

 

 

2,331

 

Derivatives – interest rate contracts

 

-

 

 

 

8,223

 

 

 

-

 

 

 

8,223

 

Total assets at fair value

$

-

 

 

$

39,994

 

 

$

2,850

 

 

$

42,844

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives – interest rate contracts

$

-

 

 

$

8,223

 

 

$

-

 

 

$

8,223

 

Total liabilities at fair value

$

-

 

 

$

8,223

 

 

$

-

 

 

$

8,223

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

$

-

 

 

$

-

 

 

$

306

 

 

$

306

 

Home equity lines of credit

 

-

 

 

 

-

 

 

 

44

 

 

 

44

 

Total assets at fair value

$

-

 

 

$

-

 

 

$

350

 

 

$

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

63,445

 

 

$

-

 

 

$

63,445

 

Corporate and other debt securities

 

 

-

 

 

 

8,482

 

 

 

-

 

 

 

8,482

 

Mortgage-backed securities – residential

 

 

-

 

 

 

39,930

 

 

 

-

 

 

 

39,930

 

Equity securities

 

 

-

 

 

 

32

 

 

 

-

 

 

 

32

 

Total assets at fair value

 

 

-

 

 

$

111,889

 

 

$

-

 

 

$

111,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

-

 

 

$

-

 

 

$

1,126

 

 

$

1,126

 

Construction

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

2,260

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

72

 

 

 

72

 

Other loans secured

 

 

 

 

 

 

 

 

 

 

1,609

 

 

 

1,609

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Foreclosed real estate

 

 

-

 

 

 

-

 

 

 

977

 

 

 

977

 

Total assets at fair value

 

$

-

 

 

$

-

 

 

$

6,049

 

 

$

6,049

 


There were no transfers between levels within the fair value hierarchy during the three or six months ended December 31, 2017.September 30, 2022 or 2021.

 

Impaired loans in the preceding table above had a carrying amount of $3.4 million,$375,000 and a remaining valuation allowance of $405,000$111,000, at December 31, 2017,September 30, 2022, as compared to $6.3 million$469,000 and $1.1 million,$119,000, respectively, as of June 30, 2017.2022. Impaired loans measured at fair value incurred $997,000 ofno net charge-offs and resulted in an additional provisiona benefit for loan losses of $405,000$2,000 during the sixthree months ended December 31, 2017.September 30, 2022. Impaired loans measured at fair value as of December 31, 2016September 30, 2021 incurred $38,000 ofno net charge-offs and resulted in an additional provisiona credit for loan losses of $814,000$2,000 during the three months ended December 31, 2016.September 30, 2021.

21


The following tables present quantitative information about Level 3 fair value measurements for selected financial instruments measured at fair value on a non-recurring basis at December 31, 2017September 30, 2022 and June 30, 2017 (dollars2022 (Dollars in thousands):

 

 

 

 

 

 

 

Valuation

 

Unobservable

 

Range or

 

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Rate Used

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

265

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

4.2% to 21.1%

 

Impaired loans - construction

 

 

1,984

 

 

Sales contract

 

n/a

 

n/a

 

Impaired loans - commercial loans

 

 

206

 

 

Discounted cash flow

 

Discount rate

 

6.0%

 

Impaired loans - other loans secured

 

 

500

 

 

Sales contract

 

n/a

 

n/a

 

Impaired loans - home equity lines of credit

 

 

72

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

4.2% to 21.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

1,126

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

-5.1% to 7.8%

 

 

 

 

 

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

Impaired loans - construction

 

 

2,260

 

 

Cost approach

 

Discount for distressed property

 

 

50.0%

 

Impaired loans - commercial

 

 

72

 

 

Discounted cash flow

 

Adjustments for

differences in sales

comparables

 

7.0% to 7.5%

 

Impaired loans - other loans secured

 

 

1,609

 

 

Discounted cash flow

 

Discount rate

 

 

6.0%

 

 

 

 

 

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

 

0.0%

 

Impaired loans - home equity lines of credit

 

 

5

 

 

Discounted cash flow

 

Discount rate

 

 

6.3%

 

Foreclosed real estate

 

 

977

 

 

Sales comparison

 

Adjustments for

differences in

sales comparables

 

-23.4% to 7.2%

 

 

 

 

 

Valuation

 

Unobservable

 

Range or

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Rate Used

September 30, 2022

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

$

242

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

Impaired loans - home equity lines of credit

 

22

 

 

Discounted cash flow

 

Discount rate

 

4.8% to 6.3%

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

$

306

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

Impaired loans - home equity lines of credit

 

44

 

 

Discounted cash flow

 

Discount rate

 

4.8% to 6.3%

 


The following is a summary of the carrying amounts and estimated fair values of the Company’s financial assets and liabilities, (in thousands) (nonenone of which are held for trading purposes)purposes (in thousands):

 

 

Carrying

 

 

Fair Value Measurements

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Carrying

 

 

Fair Value Measurements

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,106

 

 

$

77,106

 

 

$

-

 

 

$

-

 

 

$

77,106

 

$

50,753

 

 

$

50,753

 

 

$

-

 

 

$

-

 

 

$

50,753

 

Investment securities held to maturity

 

 

367,646

 

 

 

-

 

 

 

363,253

 

 

 

204

 

 

 

363,457

 

Investment securities available for sale

 

 

102,714

 

 

 

-

 

 

 

102,714

 

 

 

-

 

 

 

102,714

 

Held to maturity debt securities

 

406,250

 

 

 

-

 

 

 

307,553

 

 

 

31,590

 

 

 

339,143

 

Available for sale debt securities

 

32,431

 

 

 

-

 

 

 

29,663

 

 

 

2,768

 

 

 

32,431

 

Loans receivable, net

 

 

838,120

 

 

 

-

 

 

 

-

 

 

 

834,729

 

 

 

834,729

 

 

1,350,197

 

 

 

-

 

 

 

-

 

 

 

1,280,789

 

 

 

1,280,789

 

Accrued interest receivable

 

 

4,001

 

 

 

-

 

 

 

1,291

 

 

 

2,710

 

 

 

4,001

 

 

7,074

 

 

 

-

 

 

 

1,845

 

 

 

5,229

 

 

 

7,074

 

Federal Home Loan Bank stock

 

 

2,395

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

FHLB stock

 

2,865

 

 

N/A

 

N/A

 

N/A

 

N/A

 

Derivative assets - interest rate contracts

 

14,774

 

 

 

-

 

 

 

14,774

 

 

 

-

 

 

 

14,774

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and savings accounts

 

 

802,782

 

 

 

802,782

 

 

 

-

 

 

 

-

 

 

 

802,782

 

 

1,269,942

 

 

 

1,269,942

 

 

 

-

 

 

 

-

 

 

 

1,269,942

 

Time deposits

 

 

311,547

 

 

 

-

 

 

 

314,386

 

 

 

-

 

 

 

314,386

 

 

323,324

 

 

 

-

 

 

 

324,778

 

 

 

-

 

 

 

324,778

 

Mortgage escrow funds

 

 

8,229

 

 

 

8,229

 

 

 

-

 

 

 

-

 

 

 

8,229

 

 

7,302

 

 

 

7,302

 

 

 

-

 

 

 

-

 

 

 

7,302

 

FHLB advances

 

 

30,720

 

 

 

-

 

 

 

30,633

 

 

 

-

 

 

 

30,633

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,486

 

 

$

60,486

 

 

$

-

 

 

$

-

 

 

$

60,486

 

Investment securities held to maturity

 

 

383,551

 

 

 

-

 

 

 

383,318

 

 

 

270

 

 

 

383,588

 

Investment securities available for sale

 

 

111,889

 

 

 

-

 

 

 

111,889

 

 

 

-

 

 

 

111,889

 

Loans receivable, net

 

 

809,648

 

 

 

-

 

 

 

-

 

 

 

817,814

 

 

 

817,814

 

Accrued interest receivable

 

 

3,693

 

 

 

-

 

 

 

1,243

 

 

 

2,450

 

 

 

3,693

 

Federal Home Loan Bank stock

 

 

3,132

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and savings accounts

 

 

793,681

 

 

 

793,681

 

 

 

-

 

 

 

-

 

 

 

793,681

 

Time deposits

 

 

294,780

 

 

 

-

 

 

 

297,508

 

 

 

-

 

 

 

297,508

 

Mortgage escrow funds

 

 

8,084

 

 

 

8,084

 

 

 

-

 

 

 

-

 

 

 

8,084

 

FHLB advances

 

 

42,598

 

 

 

-

 

 

 

45,504

 

 

 

-

 

 

 

45,504

 

Advances from FHLB

 

28,288

 

 

 

-

 

 

 

27,347

 

 

 

-

 

 

 

27,347

 

Accrued interest payable

 

53

 

 

 

-

 

 

 

53

 

 

 

-

 

 

 

53

 

Derivative liabilities - interest rate contracts

 

14,774

 

 

 

-

 

 

 

14,774

 

 

 

-

 

 

 

14,774

 

 

Carrying

 

 

Fair Value Measurements

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

118,457

 

 

$

118,457

 

 

$

-

 

 

$

-

 

 

$

118,457

 

Held to maturity debt securities

 

412,449

 

 

 

-

 

 

 

331,262

 

 

 

30,346

 

 

 

361,608

 

Available for sale debt securities

 

34,621

 

 

 

-

 

 

 

31,771

 

 

 

2,850

 

 

 

34,621

 

Loans receivable, net

 

1,329,372

 

 

 

-

 

 

 

-

 

 

 

1,261,035

 

 

 

1,261,035

 

Accrued interest receivable

 

6,396

 

 

 

-

 

 

 

1,751

 

 

 

4,645

 

 

 

6,396

 

FHLB stock

 

3,766

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Derivative assets - interest rate contracts

 

8,223

 

 

 

-

 

 

 

8,223

 

 

 

-

 

 

 

8,223

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and savings accounts

 

1,298,661

 

 

 

1,298,661

 

 

 

-

 

 

 

-

 

 

 

1,298,661

 

Time deposits

 

327,589

 

 

 

-

 

 

 

329,885

 

 

 

-

 

 

 

329,885

 

Mortgage escrow funds

 

11,173

 

 

 

11,173

 

 

 

-

 

 

 

-

 

 

 

11,173

 

Advances from FHLB

 

48,323

 

 

 

-

 

 

 

48,094

 

 

 

-

 

 

 

48,094

 

Accrued interest payable

 

94

 

 

 

1

 

 

 

93

 

 

 

-

 

 

 

94

 

Derivative liabilities - interest rate contracts

 

8,223

 

 

 

-

 

 

 

8,223

 

 

 

-

 

 

 

8,223

 

 

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Loans Receivable, Net: For valuation purposes, the loan portfolio was segregated into its significant categories such as one-to-four family residential mortgage loans, other mortgage loans, consumer loans and commercial loans.  These categories were further analyzed, where appropriate, into components based on significant financial characteristics such as type of interest rate (adjustable or fixed). For adjustable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimatedetermining the fair value of loans do not necessarily represent an exit price. The fair value of loans is considered Level 3.

FHLB Stock: It is not practical to determineassets and liabilities presented in the fair value of FHLB stock due to restrictions placed on its transferability.

Accrued Interest Receivable/Payable: The carrying amount of accrued interest approximates fair value.


Deposits: The fair valuestable above are consistent with our methodologies disclosed for demand deposits (e.g., non-interest-bearing demand, NOW, money market, savings deposits and escrow accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) and are considered Level 1. Fair values for time deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.

FHLB Advances: Fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to the Company's current advances maturities schedule, resultingConsolidated Financial Statements included in a Level 2 classification.the Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

22


Note 9.8. Regulatory CapitalMatters

The following is a summary of the Company’s and Bank’s actual capital amounts and ratios as of December 31, 2017September 30, 2022 and June 30, 2017,2022, compared to the required ratios for minimum capital adequacy and for classification as well capitalized (dollars(Dollars in thousands):.

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under Prompt

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

For Capital Adequacy

 

 

Corrective Action

 

 

 

 

 

 

For Capital

 

 

Under Prompt

 

 

Bank Actual

 

 

Purposes

 

 

Provisions

 

 

 

 

Adequacy

 

 

Corrective Action

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Bank Actual

 

 

Purposes

 

 

Provisions

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCSB Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

195,169

 

 

 

13.8

%

 

$

56,400

 

 

 

4.0

%

 

$

70,500

 

 

 

5.0

%

$

256,469

 

 

 

13.0

%

 

$

78,658

 

 

 

4.0

%

 

$

98,323

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

195,169

 

 

 

21.6

 

 

 

40,591

 

 

 

4.5

 

 

 

58,632

 

 

 

6.5

 

 

256,469

 

 

 

17.3

 

 

 

66,842

 

 

 

4.5

 

 

 

96,549

 

 

 

6.5

 

Tier 1

 

 

195,169

 

 

 

21.6

 

 

 

54,122

 

 

 

6.0

 

 

 

72,162

 

 

 

8.0

 

 

256,469

 

 

 

17.3

 

 

 

89,122

 

 

 

6.0

 

 

 

118,829

 

 

 

8.0

 

Total

 

 

199,640

 

 

 

22.1

 

 

 

72,162

 

 

 

8.0

 

 

 

90,203

 

 

 

10.0

 

 

265,517

 

 

 

17.9

 

 

 

118,829

 

 

 

8.0

 

 

 

148,537

 

 

 

10.0

 

PCSB Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

282,716

 

 

 

19.9

%

 

$

56,713

 

 

 

4.0

%

 

N/A

 

 

N/A

 

$

251,144

 

 

 

12.8

%

 

$

78,490

 

 

 

4.0

%

 

$

98,112

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

282,716

 

 

 

31.3

 

 

 

40,632

 

 

 

4.5

 

 

N/A

 

 

N/A

 

 

251,144

 

 

 

17.2

 

 

 

65,630

 

 

 

4.5

 

 

 

94,799

 

 

 

6.5

 

Tier 1

 

 

282,716

 

 

 

31.3

 

 

 

54,176

 

 

 

6.0

 

 

N/A

 

 

N/A

 

 

251,144

 

 

 

17.2

 

 

 

87,507

 

 

 

6.0

 

 

 

116,676

 

 

 

8.0

 

Total

 

 

287,187

 

 

 

31.8

 

 

 

72,234

 

 

 

8.0

 

 

N/A

 

 

N/A

 

 

260,071

 

 

 

17.8

 

 

 

116,676

 

 

 

8.0

 

 

 

145,845

 

 

 

10.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCSB Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

190,990

 

 

 

13.7

%

 

$

55,949

 

 

 

4.0

%

 

$

69,936

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

190,990

 

 

 

21.7

 

 

 

39,631

 

 

 

4.5

 

 

 

57,245

 

 

 

6.5

 

Tier 1

 

 

190,990

 

 

 

21.7

 

 

 

52,841

 

 

 

6.0

 

 

 

70,455

 

 

 

8.0

 

Total

 

 

196,140

 

 

 

22.3

 

 

 

70,455

 

 

 

8.0

 

 

 

88,069

 

 

 

10.0

 

PCSB Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

278,528

 

 

 

20.0

%

 

$

55,839

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

278,528

 

 

 

31.6

 

 

 

39,631

 

 

 

4.5

 

 

N/A

 

 

N/A

 

Tier 1

 

 

278,528

 

 

 

31.6

 

 

 

52,841

 

 

 

6.0

 

 

N/A

 

 

N/A

 

Total

 

 

283,678

 

 

 

32.2

 

 

 

70,455

 

 

 

8.0

 

 

N/A

 

 

N/A

 

 

In addition to the ratios above, the Basel III Capital Rules have established that community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5%2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).


Management believes that as of December 31, 2017September 30, 2022 and June 30, 2017,2022, the Bank and Company met all capital adequacy requirements to which they wereit was subject, including the capital conservation buffer of 1.250% as of both December 31, 2017 and June 30, 2017.buffer. Further, the most recent FDIC notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank’s capital classification.

Note 10.9. Earnings Per Share (“EPS”)

Basic earnings per share representsEPS is calculated by dividing net income available to common stockholders dividedshareholders by the weighted-averageweighted average number of common shares outstanding during the period. Unallocated ESOP

Diluted EPS is calculated in a similar matter, except that the denominator includes the number of additional common shares are not deemedthat would have been outstanding forif potentially dilutive common shares were issued using the treasury stock method. Dilutive financial instruments include stock options and unvested restricted stock. The following table provides factors used in the earnings per share calculations. There were no potentially dilutivecomputation for the three months ended September 30, 2022 and 2021:

 

 

2022

 

 

2021

 

 

 

(Dollars in thousands, except per share data)

 

Net income applicable to common stock

 

$

4,776

 

 

$

3,614

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

15,122,732

 

 

 

15,342,975

 

Less: Average unallocated ESOP shares

 

 

(908,419

)

 

 

(1,005,432

)

Average number of common shares outstanding used to calculate basic earnings per common share

 

 

14,214,313

 

 

 

14,337,543

 

 

 

 

 

 

 

 

Effect of equity-based awards

 

 

87,287

 

 

 

68,273

 

Average number of common shares outstanding used to calculate diluted earnings per common share

 

 

14,301,600

 

 

 

14,405,816

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

Basic

 

$

0.34

 

 

$

0.25

 

Diluted

 

$

0.33

 

 

$

0.25

 

Stock options for 1,314,963 and 1,325,935 shares of common stock equivalents duringwere not considered in computing diluted earnings per common share for the sixthree months ended December 31, 2017. Earnings per share dataSeptember 30, 2022 and 2021, respectively, because they were antidilutive.

23


Note 10. Derivatives and Hedging

Derivatives not designated as hedges may be used to manage the Company’s exposure to interest rate movements or to provide service to customers. The Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize the net risk exposure resulting from such transactions. The Company presents interest rate swap assets and liabilities in other assets and other liabilities, respectively, in the Consolidated Balance Sheets. These interest rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in current period earnings.

The following table presents summary information about the interest rate swaps as of September 30, 2022 and June 30, 2022 (Dollars in thousands).

 

September 30, 2022

 

 

June 30, 2022

 

Notional amounts

$

287,485

 

 

$

264,462

 

Weighted average pay rates

 

4.31

%

 

 

3.57

%

Weighted average receive rates

 

4.31

%

 

 

3.57

%

Weighted average maturity

8.14 years

 

 

8.22 years

 

Fair value of combined interest rate swaps

$

-

 

 

$

-

 

Note 11. Revenue From Contracts With Customers

In accordance with ASC 606, revenue is not applicablerecognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company applies the following five steps to properly recognize revenue:

1.
Identify the contract with a customer.
2.
Identify the performance obligations in the contract.
3.
Determine the transaction price.
4.
Allocate the transaction price to performance obligations in the contract.
5.
Recognize revenue when (or as) the Company satisfies a performance obligation.

The following table presents summary information about sources of revenue from contracts with customers for the periods ended December 31, 2016 becauseindicated (in thousands).

 

Three months ended September 30,

 

 

2022

 

 

2021

 

Noninterest income:

 

 

 

 

 

Service charges on deposits

$

234

 

 

$

183

 

Interchange fees

 

153

 

 

 

156

 

Other fees and service charges (1)

 

66

 

 

 

62

 

Fees and service charges

 

453

 

 

 

401

 

 

 

 

 

 

 

Swap income (1)

 

141

 

 

 

-

 

Bank-owned life insurance (1)

 

191

 

 

 

192

 

Other noninterest income (1)

 

8

 

 

 

20

 

Total noninterest income

$

793

 

 

$

613

 

 

 

 

 

 

 

(1)
Not within the scope of ASC 606.

Fees and Service Charges on Deposit Accounts. The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company had not yet been formed and had no shares outstanding at a Company or Bank level.

 

 

Three months ended

December 31, 2017

 

 

Six months ended

December 31, 2017

 

 

 

(amounts in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

2

 

 

$

1,758

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

18,165,110

 

 

 

18,165,110

 

Less: Average unallocated ESOP shares

 

 

1,373,805

 

 

 

1,391,227

 

Average number of common shares outstanding used to calculate basic earnings per common share

 

 

16,791,305

 

 

 

16,773,883

 

 

 

 

 

 

 

 

 

 

Earnings per Common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

 

$

0.10

 

Diluted

 

$

0.00

 

 

$

0.10

 

Note 11. Income Taxes

On December 22, 2017, as partfulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the Tax Cutsmonth, representing the period over which the Company satisfied the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

24


Interchange Income. The Company earns interchange fees from debit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and Jobs Act,are recognized daily, concurrently with the federal government enacted comprehensive tax reform containing provisions withtransaction processing services provided to the cardholder.

Gain on Sales of Foreclosed Real Estate. The Company records a gain or loss from the sale of foreclosed real estate when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of foreclosed real estate to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed real estate asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Note 12. Stock-Based Compensation

On October 24, 2018, the Company’s shareholders approved the PCSB Financial Corporation 2018 Equity Incentive Plan (the “Plan”), which permits the grant of stock options and restricted stock and/or restricted stock units. The total number of impacts on corporate income taxes,shares that may be granted under the most significantPlan is 2,543,115, of which provides1,816,511 shares may be granted as stock options and 726,604 shares may be granted as restricted stock and restricted stock units. Total compensation cost that has been charged against income for the Plan was $820,000 and $810,000 for the three months ended September 30, 2022 and 2021, respectively.

Restricted Stock Awards (“RSAs”)

RSAs awarded under the Plan provide for the issuance of shares to both employees and non-employee directors. These awards generally vest over a decrease in5-year period, with 20% vesting each year on the corporate income tax rate from 34%anniversary of the award. All awards were made at the fair value of common stock on the grant date. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock was determined to 21%be the closing price of the stock on the NASDAQ exchange. Total shares available for tax years beginning on or after January 1, 2018. The Company is required to re-measuregrant under the Plan are 726,000, of which 549,467 shares were granted as of September 30, 2022.

The following table presents a summary of RSA activity during the dateperiod ended September 30, 2022.

 

Number of
Shares

 

 

Weighted-Average
Grant Date
Fair Value

 

Unvested granted shares outstanding at July 1, 2022

 

223,450

 

 

$

18.89

 

Shares granted

 

-

 

 

 

-

 

Shares vested

 

(2,200

)

 

 

16.21

 

Shares forfeited

 

-

 

 

 

-

 

Unvested granted shares at September 30, 2022

 

221,250

 

 

$

18.92

 

As of September 30, 2022, there was $2.4 million of total unrecognized compensation cost related to non-vested shares granted under the lawPlan. The cost is enacted, its net deferred tax assets to reflect the income tax rate expected to be effective when deferred tax positions will be realized. Asrecognized over a result,weighted-average period of 1.4 years.

Stock Option Awards

Stock options awarded to employees under the Plan are considered incentive stock options (ISOs), up to applicable limits. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. Those issued to non-employee directors, as well as those exceeding ISO limitations, are considered non-qualified stock options (NQSOs). Options generally vest over a 5-year period, with 20% vesting each year on the anniversary of the award, however, may not vest more rapidly than over a three-year period, and have a contractual term of 10 years. The Company has a policy of using shares held as a treasury stock to satisfy share option exercises. Currently, the Company recordedhas a re-measurement charge throughsufficient number of treasury shares to satisfy the current level of exercisable share options.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatilities of a peer group of publicly traded financial institutions. The expected term of options granted is based on the simplified

25


“mid-point” approach which utilizes the weighted average vesting period and contractual term. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

Total options available for grant under the Plan are 1,816,511, of which 1,320,963 options were granted as of September 30, 2022. The following table presents a summary of activity related to stock options granted under the Plan, and changes during the period then ended:

 

Number of
Options

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Years

 

 

Aggregate
Intrinsic
Value

 

 

(Dollars in thousands, except per share data)

 

Options outstanding at July 1, 2022

 

1,320,963

 

 

$

18.98

 

 

 

6.4

 

 

$

411

 

Options granted

 

-

 

 

 

-

 

 

 

 

 

 

 

Options expired

 

-

 

 

 

-

 

 

 

 

 

 

 

Options forfeited

 

-

 

 

 

-

 

 

 

 

 

 

 

Options exercised

 

-

 

 

 

-

 

 

 

 

 

 

 

Options outstanding at September 30, 2022

 

1,320,963

 

 

$

18.98

 

 

 

6.1

 

 

$

37

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2022

 

786,578

 

 

$

19.00

 

 

 

6.1

 

 

$

14

 

As of September 30, 2022, there was $1.4 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.4 years.

Note 13. Leases

As of September 30, 2022, the Company leases real estate for eleven branch offices and one administrative office, including its corporate headquarters, under various operating lease agreements. The Company’s leases have maturities which range from 2023 to 2041, some of which include lessee options to extend the lease term. The weighted average remaining life of the lease terms for these leases was 9.4 years as of September 30, 2022.

The operating lease asset and lease liability are determined at the commencement date of the lease based on the present value of the lease payments. As most of our leases do not provide an implicit rate, the Company used its incremental borrowing rate, the rate of interest to borrow on a collateralized basis for a similar term, at the lease commencement date. The Company utilized a weighted average discount rate of 2.49% in determining the lease liability as of September 30, 2022.

The Company made a policy election to exclude the recognition requirements of ASC 842 to short-term leases, those leases with original terms of 12 months or less. Short-term lease payments are recognized in the income tax expense of $1.8 millionstatement on a straight-line basis over the lease term. The Company had no short-term lease cost for the three and six months ended December 31, 2017.

Although managementSeptember 30, 2022 or 2021. Certain leases may include one or more options to renew. The exercise of lease renewal options is typically at the Company’s discretion and are included in the operating lease liability if it is reasonably certain that the renewal option will be exercised. Certain real estate leases may contain lease and non-lease components, such as common area maintenance charges, real estate taxes, and insurance, which are generally accounted for separately and are not included in the measurement of the lease liability since they are generally able to be segregated. The Company does not expectsublease any of its leased properties. There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the $1.8three months ended September 30, 2022 or 2021.

Total operating lease cost was $505,000 for the three months ended September 30, 2022 and 2021, respectively. The right-of-use asset, included in premises and equipment, net, was $8.1 million re-measurement chargeand the corresponding lease liability, included in other liabilities was $8.4 million as of September 30, 2022.

Future minimum lease payments for the fiscal years ending June 30th and a reconciliation of undiscounted lease cash flows and the lease liability recognized in the consolidated balance sheet as of September 30, 2022 is shown below (in thousands):

26


2023

$

1,550

 

2024

 

1,719

 

2025

 

1,426

 

2026

 

907

 

2027

 

547

 

Thereafter

 

3,442

 

Total future minimum lease payments (undiscounted)

 

9,591

 

Discounting effect on cash flows

 

(1,228

)

Lease liability (discounted)

$

8,363

 

Note 14. Pending Merger With and Into Brookline Bancorp, Inc.

On May 23, 2022, the Company and Brookline Bancorp, Inc (“Brookline”), the holding company of Brookline Bank and Bank Rhode Island, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to change materially, the charge is provisionalMerger Agreement, the Company will merge with and into Brookline, with Brookline as the Company continuessurviving corporation (the “Merger”). Following the Merger, PCSB Bank will operate as a separate bank subsidiary of Brookline. Pursuant to finalize its analysisthe terms of the Company’s deferred tax inventory, as well as other facts and circumstances that existed asMerger Agreement, at the effective time of the law’s enactment date that is neededMerger, each stockholder of PCSB will receive, at the holder’s election, either $22.00 in order to complete the accounting requirements under ASC Topic 740 Income Taxes; and iscash consideration or 1.3284 shares of Brookline common stock for each share of PCSB common stock, subject to revision during the measurement period for upallocation procedures to one year from the dateensure that 60% of the tax law change.outstanding shares of PCSB common stock will be converted to Brookline common stock. On September 21, 2022, the Company's shareholders approved the Merger Agreement. The consummation of the Merger remains subject to customary closing conditions, including the receipt of regulatory approvals. The Merger is currently expected to be completed in the fourth calendar quarter of 2022.


For the three months ended September 30, 2022, the Company recognized $311,000 of merger-related expenses. No merger-related expenses were recognized for the three months ended September 30, 2021.

27


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

General

Management’s discussion and analysis of financial condition at December 31, 2017September 30, 2022 and June 30, 2017,2022, and results of operations for the three and six months ended December 31, 2017September 30, 2022 and 20162021 is intended to assist in understanding the consolidated financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and with the audited consolidated financial statements included in the annual report on Form 10-K for the fiscal year ended June 30, 2017.2022.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;

statements regarding our business plans, prospects, growth and operating strategies;

statements regarding the quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

extent, duration and severity of the COVID-19 pandemic and government action in response to the pandemic, including their impact on our business and operations, including the impact on lost fee revenue and operating expenses, as well as their effects on our customers and issuers of securities, including their ability to make timely payments on obligations, service providers, and on economies and markets more generally;

general economic conditions, either nationally or in our market areas, that are worse than expected;

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

our ability to access cost-effective funding;

fluctuations in real estate values and both residential and commercial real estate market conditions;

demand for loans and deposits in our market area;

our ability to continue to implement our business strategies;

competition among depository and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

adverse changes in the securities or credit markets;

changes in laws or government regulations or policies affecting financial institutions, including changes in tax laws, regulatory fees and capital requirements, including as a result of Basel III;

requirements;

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

our ability to enter new markets successfully and capitalize on growth opportunities;

28


our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

changes in consumer spending, borrowing and savings habits;


changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, or the Securities and Exchange Commission;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

our ability to retain key employees;

our compensation expense associated with equity allocated or awarded to our employees; and

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Additional factors that may affect our results are discussed in the Prospectusannual report on Form 10-K for the fiscal year ended June 30, 2022, under the heading “Risk Factors.”Factors” and in this quarterly report on Form 10-Q under Part II, Item 1A.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

Critical Accounting Policies and Critical Accounting Estimates

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments, estimates and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the mostFor additional information regarding critical accounting policies, refer to the section captioned “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the June 30, 2022 Form 10-K. There have been no significant changes in our application of critical accounting policies for the three months ended September 30, 2022.

Overview

PCSB Financial Corporation (the “Holding Company” and together with its direct and indirect subsidiaries, the “Company”) is a Maryland corporation organized by PCSB Bank (the “Bank”) for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on April 20, 2017. At September 30, 2022, the significant assets of the Holding Company were the capital stock of the Bank, cash deposited in the Bank, and a loan to the PCSB Bank Employee Stock Ownership Plan (“ESOP”). The liabilities of the Holding Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended, and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area of Putnam, Southern Dutchess, Rockland and Westchester Counties in New York. The Bank is a state-chartered commercial bank, and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary regulators are the FDIC and the NYSDFS.

The Company's primary market area encompasses all of Putnam and Westchester Counties and parts of Dutchess and Rockland Counties in New York, which involveare the most complexcounties in which our offices are located, and the surrounding areas. It is considered a primary area for growth, particularly for commercial lending and deposit opportunities. Westchester County includes a high concentration of office, medical, retail, industrial, mixed use and multi-family real estate buildings and businesses. Our primary focus in this marketplace is small to middle market businesses in these segments. Rising real estate values and lack of available commercial space in Brooklyn and Manhattan have caused businesses to migrate to central and lower Westchester County, which has increased the demand for flex-industrial and multi-family property loans in our market area. Dutchess, Putnam and Rockland Counties offer similar commercial opportunities to Westchester County, but on a significantly smaller scale, and provide greater opportunities in residential mortgage lending and consumer lending and in retail deposit gathering. The close proximity of Bronx County, New York City, Fairfield County, Connecticut, and Bergen County, New Jersey, to our market area also creates a secondary area of opportunity for office, industrial and multi-family property loans.

29


Selected Financial Ratios

The summary information presented below as of and for the three months ended September 30, 2022 and 2021 is derived in part from and should be read in conjunction with the consolidated financial statements of the Company presented in Part I (Dollars in thousands, except per share data).

 

 

Three Months Ended

 

 

 

September 30,
2022

 

 

September 30,
2021

 

Performance Ratios (1):

 

 

 

 

Return on average assets

 

 

0.98

%

 

 

0.78

%

Return on average equity

 

 

6.90

%

 

 

5.29

%

Interest rate spread

 

 

3.06

%

 

 

2.71

%

Net interest margin

 

 

3.19

%

 

 

2.82

%

Efficiency ratio

 

 

61.07

%

 

 

65.59

%

 

 

 

 

 

 

 

Noninterest income to average assets

 

 

0.16

%

 

 

0.13

%

Noninterest expense to average assets

 

 

1.96

%

 

 

1.85

%

 

 

 

 

 

 

 

Average interest-earning assets to average interest-bearing liabilities

 

 

131.62

%

 

 

131.14

%

Average equity to average assets

 

 

14.17

%

 

 

14.66

%

Dividend payout ratio (2)

 

 

21.04

%

 

 

24.24

%

 

 

As of or for the three months ended

 

 

 

September 30,
2022

 

 

September 30,
2021

 

Loans to deposits

 

 

84.74

%

 

 

80.46

%

 

 

 

 

 

 

 

Share Data:

 

 

 

 

 

 

Shares outstanding

 

 

15,334,323

 

 

 

15,574,310

 

Book value per common share

 

$

18.33

 

 

$

17.64

 

Tangible book value per common share (3)

 

$

17.93

 

 

$

17.24

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

Non-performing loans receivable

 

$

7,989

 

 

$

5,732

 

Non-performing assets

 

$

7,989

 

 

$

5,732

 

Allowance for loan losses as a percent of total loans receivable (4)

 

 

0.67

%

 

 

0.68

%

Allowance for loan losses as a percent of non-performing loans receivable

 

 

113.26

%

 

 

142.34

%

Non-performing loans as a percent of total loans receivable, net (4)

 

 

0.59

%

 

 

0.48

%

Non-performing assets as a percent of total assets

 

 

0.41

%

 

 

0.31

%

Net recoveries

 

$

(39

)

 

$

(265

)

Net recoveries to average outstanding loans during the period (1)

 

 

(0.01

%)

 

 

(0.09

%)

 

 

 

 

 

 

 

Capital Ratios (5):

 

 

 

 

 

 

Tier 1 capital (to adjusted total assets)

 

 

13.02

%

 

 

12.72

%

Common equity Tier 1 capital (to risk-weighted assets)

 

 

17.27

%

 

 

17.84

%

Tier 1 capital (to risk-weighted assets)

 

 

17.27

%

 

 

17.84

%

Total capital (to risk-weighted assets)

 

 

17.88

%

 

 

18.46

%

(1)
Performance ratios are annualized.
(2)
Dividends declared per share divided by net income per share.
(3)
Tangible book value per share is a non-GAAP measure and equals total shareholders' equity, less goodwill and other intangible assets, divided by shares outstanding. We believe this disclosure may be meaningful to those investors who seek to evaluate our equity without giving effect to goodwill and other intangible assets. Reconciliations of GAAP to non-GAAP measures appear below this table.
(4)
Total loans receivable excludes PPP loans.
(5)
Represents Bank ratios.

30


Non-GAAP Financial Measures

The following table is a reconciliations of book value per share (GAAP measure) to tangible book value per share (non-GAAP measure) (Dollars in thousands, except share and per share data).

 

 

As of

 

 

 

September 30,
2022

 

 

June 30,
2022

 

Computation of Tangible Book Value per Common Share

 

 

Total shareholders' equity (GAAP)

 

$

281,137

 

 

$

277,162

 

Adjustments:

 

 

 

 

 

 

Goodwill

 

 

(6,106

)

 

 

(6,106

)

Other intangible assets

 

 

(77

)

 

 

(89

)

Tangible common shareholders' equity (Non-GAAP)

 

$

274,954

 

 

$

270,967

 

 

 

 

 

 

 

 

Common shares outstanding

 

 

15,334,323

 

 

 

15,334,857

 

 

 

 

 

 

 

 

Book value per share (GAAP)

 

$

18.33

 

 

$

18.07

 

Adjustments:

 

 

 

 

 

 

Effects of intangible assets

 

 

(0.40

)

 

 

(0.40

)

 

 

 

 

 

 

 

Tangible book value per common share (Non-GAAP)

 

$

17.93

 

 

$

17.67

 

Financial Condition

Cash and Cash Equivalents. Cash and cash equivalents decreased $67.7 million, or subjective decisions or assessments, are57.2%, to $50.8 million at September 30, 2022 from $118.5 million at June 30, 2022. The decrease is primarily due to a $33.0 million decrease in deposits, a $20.8 million increase in net loans receivable, and a $20.0 million decrease in FHLB advances, partially offset by an $8.4 million decrease in total investment securities.

Investment Securities Portfolio. The following table is a summary of the Company's investment securities portfolio, at carrying value, as follows:of September 30, 2022 and June 30, 2022 (Dollars in thousands):

 

 

September 30,

 

 

June 30,

 

 

Increase / (Decrease)

 

 

 

2022

 

 

2022

 

 

$

 

%

 

Available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

9,443

 

 

$

9,928

 

 

$

(485

)

 

-4.9

%

Corporate

 

 

4,765

 

 

 

4,854

 

 

 

(89

)

 

-1.8

 

State and municipal

 

 

4,334

 

 

 

4,796

 

 

 

(462

)

 

-9.6

 

Mortgage-backed securities – residential

 

 

11,623

 

 

 

12,712

 

 

 

(1,089

)

 

-8.6

 

Mortgage-backed securities – commercial

 

 

2,266

 

 

 

2,331

 

 

 

(65

)

 

-2.8

 

Total available for sale debt securities

 

$

32,431

 

 

$

34,621

 

 

$

(2,190

)

 

-6.3

%

Held to maturity debt securities

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

59,995

 

 

$

59,995

 

 

$

-

 

 

0.0

%

Corporate

 

 

52,068

 

 

 

52,076

 

 

 

(8

)

 

0.0

 

State and municipal

 

 

88,490

 

 

 

87,111

 

 

 

1,379

 

 

1.6

 

Mortgage-backed securities – residential

 

 

97,886

 

 

 

101,525

 

 

 

(3,639

)

 

-3.6

 

Mortgage-backed securities – collateralized
mortgage obligations

 

 

22,916

 

 

 

24,198

 

 

 

(1,282

)

 

-5.3

 

Mortgage-backed securities – commercial

 

 

84,895

 

 

 

87,544

 

 

 

(2,649

)

 

-3.0

 

Total held to maturity debt securities

 

$

406,250

 

 

$

412,449

 

 

$

(6,199

)

 

-1.5

%

The decrease in investment securities was primarily the result of principal payments in mortgage-backed securities.

Loans Receivable Portfolio. The following table is a summary of the Company's loan portfolio, as of September 30, 2022 and June 30, 2022 (Dollars in thousands):

31


 

 

September 30,

 

 

June 30,

 

 

Increase / (Decrease)

 

 

 

2022

 

 

2022

 

 

$

 

%

 

Mortgage loans

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

214,586

 

 

$

214,167

 

 

$

419

 

 

0.2

%

Commercial

 

 

953,539

 

 

 

942,130

 

 

 

11,409

 

 

1.2

 

Construction

 

 

25,307

 

 

 

20,896

 

 

 

4,411

 

 

21.1

 

Net deferred loan origination (fees) costs

 

 

(145

)

 

 

(100

)

 

 

(45

)

 

45.0

 

Total mortgage loans

 

 

1,193,287

 

 

 

1,177,093

 

 

 

16,194

 

 

1.4

 

Commercial and consumer loans:

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

141,902

 

 

 

136,304

 

 

 

5,598

 

 

4.1

 

Home equity lines of credit

 

 

22,955

 

 

 

23,688

 

 

 

(733

)

 

-3.1

 

Consumer and overdrafts

 

 

508

 

 

 

594

 

 

 

(86

)

 

-14.5

 

Net deferred loan origination costs (fees)

 

 

593

 

 

 

620

 

 

 

(27

)

 

-4.4

 

Total commercial and consumer loans

 

 

165,958

 

 

 

161,206

 

 

 

4,752

 

 

2.9

 

Total loans receivable

 

 

1,359,245

 

 

 

1,338,299

 

 

 

20,946

 

 

1.6

 

Allowance for loan losses

 

 

(9,048

)

 

 

(8,927

)

 

 

(121

)

 

1.4

 

Loans receivable, net

 

$

1,350,197

 

 

$

1,329,372

 

 

$

20,825

 

 

1.6

%

Allowance for Loan Losses.Losses. The allowance for loan losses is established asmaintained at a level considered adequate by management to provide for probable incurred loan losses are estimated to have occurred through a provisioninherent in the loan portfolio at the consolidated balance sheet reporting dates. The allowance for loan losses charged to earnings. Loan losses are charged againstis based on management’s assessment of various factors affecting the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

Income Taxes. We recognize income taxes under the assetportfolio, including portfolio composition, delinquent and liability method. Under this method, deferred tax assetsnon-accrual loans, national and liabilities are established for the temporary differences between the accounting basislocal business conditions, loss experience and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled.

Goodwill. Goodwill resulting from business combination transactions is generally determined as the excessan overall evaluation of the fair valuequality of the consideration transferred, plus the fair value of any non-controlling interests in the acquired, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. We recognized goodwill in connection with our acquisition of CMS Bancorp, Inc.underlying collateral.

 

Comparison of Financial Condition at December 31, 2017 and June 30, 2017

Total Assets. Total assetsThe allowance for loan losses increased $16.8 million,$121,000, or 1.2%1.4%, to $1.44 billion at December 31, 2017 from $1.43 billion at June 30, 2017. The increase is primarily the result of increases of $28.5 million in net loans and $16.6 million in cash and cash equivalents, partially offset by decreases of $25.1 million in total investment securities, $1.9 million in deferred tax assets, and $977,000 in foreclosed real estate.

Cash and Cash Equivalents. Cash and cash equivalents increased $16.6 million, or 27.5%, to $77.1$9.0 million at December 31, 2017September 30, 2022 from $60.5$8.9 million at June 30, 2017. The increase was primarily attributable to a $25.1 million decrease in total investment securities and a $14.2 million increase in liabilities, partially offset by a $28.5 million increase in net loans and a $3.4 million decrease in all other assets.

Securities Held-to-Maturity. Total securities held to maturity decreased $15.9 million, or 4.1%, to $367.7 million at December 31, 2017 from $383.6 million at June 30, 2017. This decrease was primarily caused by $19.5 million of net maturities of U.S. government and agency obligations, partially offset by net purchases of $3.0 million of corporate and other debt securities and $593,000 of mortgage-backed securities.

Securities Available for Sale. Total securities available for sale decreased $9.2 million, or 8.2%, to $102.7 million at December 31, 2017 from $111.9 million at June 30, 2017. This decline was primarily due to $8.1 million of net


maturities of U.S. government and agency obligations, $6.0 million in sales of mortgage backed securities, and a $1.1 million increase in net unrealized losses driven primarily by an increase in market interest rates, partially offset by $6.0 million of net purchases of mortgage backed securities.

Net Loans Receivable. Net loans receivable increased $28.5 million, or 3.5%, to $838.1 million at December 31, 2017 from $809.6 million at June 30, 2017.2022. The increase is primarily due to an increaseloan portfolio growth. Non-performing loans as a percent of $43.5 million in commercial mortgagetotal loans partially offset by decreasesreceivable were 0.59% as of $6.0 million in construction loans, $4.1 million in residential mortgage loans, $2.0 million in commercial loans and $1.8 million in home equity credit lines. The Company purchased $46.7 millionSeptember 30, 2022, a decrease from 0.69% as of commercial mortgage loans during the six months ended December 31, 2017.

Deposits. Total deposits increased $25.9 million, or 2.4%, to $1.11 billion at December 31, 2017 from $1.09 billion at June 30, 2017. This increase primarily reflects2022.

Deposits. Deposits have traditionally been our primary source of funds for our lending and investment activities. The substantial majority of our deposits are from depositors who reside in our primary market area. Deposits are attracted through the offering of a $16.8 million increasebroad selection of deposit instruments for both individuals and businesses.

The following table is a summary of the Company's deposits, as of September 30, 2022 and June 30, 2022 (Dollars in time deposits and a $17.4 million increase in demand deposits and NOW accounts, partially offset by an $8.3 million decrease in savings and money market accounts.thousands):

 

 

 

September 30,

 

 

June 30,

 

 

Increase / (Decrease)

 

 

 

2022

 

 

2022

 

 

$

 

%

 

Demand

 

$

227,635

 

 

$

245,297

 

 

$

(17,662

)

 

-7.2

%

NOW accounts

 

 

253,857

 

 

 

243,006

 

 

 

10,851

 

 

4.5

 

Money market accounts

 

 

385,470

 

 

 

399,026

 

 

 

(13,556

)

 

-3.4

 

Savings

 

 

402,980

 

 

 

411,332

 

 

 

(8,352

)

 

-2.0

 

Time deposits

 

 

323,324

 

 

 

327,589

 

 

 

(4,265

)

 

-1.3

 

Total deposits

 

$

1,593,266

 

 

$

1,626,250

 

 

$

(32,984

)

 

-2.0

%

Federal Home Loan Bank Advances. Federal Home Loan Bank FHLB advances decreased $11.9$20.0 million, or 27.9%41.5%, to $30.7$28.3 million at December 31, 2017 from $42.6September 30, 2022 as compared to $48.3 million at June 30, 2017, primarily2022. This decrease is due to $11.8 million in maturities of short-term advances.and principal paydowns.

 

Total Shareholder’sShareholders’ Equity. Total shareholders’ equity increased $2.6$3.9 million, or 0.9%1.4%, to $282.4$281.1 million at December 31, 2017September 30, 2022 from $279.8$277.2 million at June 30, 2017.2022. This increase was primarily due to net income of $1.8$4.8 million and a $1.3 million of stock-based compensation and reduction in unearned ESOP shares for plan shares earned during the period.period, partially offset by $1.1 million of other comprehensive losses related primarily to unrealized losses on available for sale investment securities driven by higher market interest rates and $1.0 million of cash dividends declared and paid. We would expect that further increases in market interest rates would lead to additional unrealized losses on available for sale investment securities. At December 31, 2017, the Company’s book value per share was $15.55, compared to $15.41 at JuneSeptember 30, 2017. At December 31, 2017,2022, the Bank was considered “well capitalized” under applicable regulatory guidelines.

 

32


 

ComparisonResults of Operating ResultsOperations for the Three Months Ended December 31, 2017September 30, 2022 and 2016September 30, 2021

General.Net Income. Net income decreased $1.7increased $1.2 million, or 99.9%32.2%, to $2,000 for the three months ended December 31, 2017 compared to $1.7$4.8 million for the three months ended December 31, 2016. The decrease was primarily dueSeptember 30, 2022 compared to a $1.8 million increase in income tax expense, a $1.6 million decrease in non-interest income, and a $331,000 increase in non-interest expenses, partially offset by $1.7 million increase in net interest income and a $362,000 decrease in the provision for loan losses.

Net Interest Income. Net interest income increased $1.7 million, or 19.5%, to $10.2$3.6 million for the three months ended December 31, 2017 compared to a $8.5 million for the three months ended December 31, 2016.September 30, 2021. The increase primarily reflects a $170.4 million increase in average net interest-earning assets and an 11-basis point increase in the net interest margin to 3.00% for the three months ended December 31, 2017 compared to 2.89% for the three months ended December 31, 2016. The increase in average net interest-earning assets primarily reflects the investment of the net proceeds received in the Company’s initial public offering completed in April 2017.

Interest and Dividend Income. Interest and dividend income increased $1.8 million, or 18.3%, to $11.7 million for the three months ended December 31, 2017 compared to a $9.9 million for the three months ended December 31, 2016. The increase primarily reflects a $174.1 million increase in total average interest-earning assets and an 11-basis point increase in the yield on total interest-earning assets.

Interest income on loans receivable increased $933,000, or 11.3%, primarily due to a $65.1 million increase in the average balance of loans receivable to $827.6 million for the three months ended December 31, 2017 from $762.5 million for the same period last year, and an 11-basis point increase in the average yield on loans to 4.43% for the three months ended December 31, 2017 from 4.32% for the same period last year.

Interest income on securities increased $739,000, or 48.3%, primarily due to a $110.7 million increase in the average balance of securities and a 23-basis point increase in the average yield on securities to 1.92% for the current-year period from 1.69% for the same period last year. The increase in the yield on securities was due primarily to an increase in market interest rates as well as an increase in the percentage of the portfolio being invested in generally higher-yielding mortgage-backed securities.

Interest income on other interest-earning assets increased $135,000, or 164.6%, primarily due to a 100-basis point increase in the average yield on other interest-earning assets to 1.58% for the three months ended December 31,


2017 from 0.58% for the same period last year, partially offset by a $1.7 million decrease in the average balance to $54.3 million for the three months ended December 31, 2017 compared to a $56.0 million for the same period last year. The increase in the yield on other interest-earning assets was due primarily to an increase in market interest rates.

Interest Expense. Interest expense increased $148,000, or 11.2%, to $1.5 million for the three months ended December 31, 2017 compared to $1.3 million for the three months ended December 31, 2016. The increase primarily reflects a $3.7 million increase in the average balance on interest bearing liabilities and a 6-basis point increase in the average cost to 0.59% for the three months ended December 31, 2017 from 0.53% for the same period last year.

Interest expense on interest-bearing deposits increased $15,000, or 1.2%, primarily due to a 2-basis point increase in the average cost of deposits to 0.54% for the three months ended December 31, 2017 from 0.52% for the same period last year, partially offset by a $25.3 million decrease in the average balance to $957.8 million for the three months ended December 31, 2017 from $983.1 million for the three months ended December 31, 2016. The increase in the average rate paid on interest-bearing deposits was caused primarily by an 8-basis point increase in the average rate paid on time deposits as the Bank offered special rates and terms to attract customers.

Interest expense on Federal Home Loan Bank advances increased $133,000, or 429.0%, primarily due to a $28.9 million increase in the average balance to $35.3 million for the three months ended December 31, 2017 from $6.4 million for the same period last year, partially offset by an 11-basis point decrease in the average cost to 1.85% for the three months ended December 31, 2017 from 1.96% for the same period last year. The decrease in the average cost is primarily due to a shorter average term on advances in the current year compared to the same period last year.

Provision for Loan Losses. The provision for loan losses decreased by $362,000 to $200,000 for the three months ended December 31, 2017, compared to $562,000 for the three months ended December 31, 2016 primarily due to increases in specific reserves on impaired loans in the prior year period. Charge-offs, net of recoveries, were $997,000 for the three months ended December 31, 2017 compared to net recoveries of $1,000 for the three months ended December 31, 2016. In the current period, the Company recorded a $997,000 charge-off of a specific reserve recorded in a prior period on a construction loan.

Non-Interest Income. Non-interest income decreased $1.6 million, or 69.4% to $692,000 for the three months ended December 31, 2017 compared to a $2.3 million for the three months ended December 31, 2016. The decrease was caused primarily by a one-time settlement on an acquired loan of $1.6 million in the prior year.

Non-Interest Expense. Non-interest expense increased $331,000, or 4.2%, to $8.1 million for the three months ended December 31, 2017 compared to $7.8 million for the three months ended December 31, 2016. The increase was caused primarily by increases of $379,000 in salaries and benefits, $343,000 in other operating expenses, $103,000 in professional fees, and $89,000 in advertising expense, partially offset by a $548,000 decrease in occupancy and equipment expense and a $42,000 decrease in FDIC assessment. The increase in salaries and benefits was due primarily to a $301,000 increase in retirement expenses, resulting primarily from ESOP compensation expense not incurred in the prior period, and a $159,000 increase due to increased staffing, partially offset by a $97,000 decrease in benefits expense due primarily to lower health care costs. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees. The increase in professional fees was due primarily to expenses related to being a public company. The decrease in occupancy and equipment expense was due primarily to a $521,000 lease obligation write-off recorded in the prior year.

Income Tax Expense. Income tax expense increased $1.8 million, or 236.5%, to $2.6 million for the three months ended December 31, 2017 from $758,000 for the three months ended December 31, 2016. The increase was caused primarily by the $1.8 million estimated re-measurement charge recorded in the current quarter required in connection with tax law changes contained in the Tax Cuts and Jobs Act, however the Company expects to benefit in the future from the decrease in the federal corporate tax rate from 34% to 21%. The effective income tax rate was 99.9% for the three months ended December 31, 2017 compared to 31.2% for the three months ended December 31, 2016.


Comparison of Operating Results for the Six Months Ended December 31, 2017 and 2016

General. Net income decreased $1.4 million, or 43.8%, to $1.8 million for the six months ended December 31, 2017 compared to $3.1 million for the six months ended December 31, 2016. The decrease was primarily due to a $2.0increases of $2.3 million increase in income tax expense, a $1.4 million decrease in non-interest income, and a $1.0 million increase in non-interest expenses, partially offset by a $2.8 million increase in net interest income and a $253,000 decrease$180,000 in thenoninterest income, partially offset by increases of $933,000 in noninterest expense, $338,000 in income tax expense and $69,000 in provision for loan losses.

Net Interest Income. Net interest income increased $2.8 million, or 16.0%, to $20.1 million for the six months ended December 31, 2017 compared to a $17.3 million for the six months ended December 31, 2016. The increase primarily reflects a $167.0 million increase in average net interest-earning assets and a 6-basis point increase in the net interest margin to 2.95% for the six months ended December 31, 2017 compared to 2.89% for the six months ended December 31, 2016. The increase in average net interest-earning assets primarily reflects the investment of the net proceeds received in the Company’s initial public offering completed in April 2017.

Interest and Dividend Income. Interest and dividend income increased $3.0 million, or 15.0%, to $23.0 million for the six months ended December 31, 2017 compared to $20.0 million for the six months ended December 31, 2016. The increase primarily reflects a $164.1 million increase in total average interest-earning assets and a 4-basis point increase in the yield on total interest-earning assets.

Interest income on loans receivable increased $1.2 million, or 7.3%, primarily due to a $51.1 million increase in the average balance of loans receivable to $820.4 million for the six months ended December 31, 2017 from $769.3 million for the same period last year, and a 3-basis point increase in the average yield on loans to 4.38% for the six months ended December 31, 2017 from 4.35% for the same period last year.

Interest income on securities increased $1.5 million, or 50.0%, primarily due to a $111.0 million increase in the average balance of securities and a 25-basis point increase in the average yield on securities to 1.88% for the current-year period from 1.63% for the same period last year. The increase in the yield on securities was due primarily to an increase in market interest rates as well as an increase in the percentage of the portfolio being invested in generally higher-yielding mortgage-backed securities.

Interest income on other interest-earning assets increased $265,000, or 142.5%, primarily due to a $2.0 million increase in the average balance and an 83-basis point increase in the average yield on other interest-earning assets to 1.45% for the six months ended December 31, 2017 from 0.62% for the same period last year. The increase in the yield on other interest-earning assets was due primarily to an increase in market interest rates.

Interest Expense. Interest expense increased $235,000, or 8.8%, to $2.9 million for the six months ended December 31, 2017 compared to $2.7 million for the six months ended December 31, 2016. The increase primarily reflects a 5-basis point increase in the average cost of interest-bearing liabilities to 0.58% for the three months ended December 31, 2017 from 0.53% for the same period last year, partially offset by a $2.9 million decrease in the average balance on interest-bearing liabilities.

Interest expense on interest-bearing deposits decreased $2,000, or 0.1%, primarily due to a $30.3 million decrease in the average balance to $959.5 million for the six months ended December 31, 2017 from a $989.8 million for the six months ended December 31, 2016, partially offset by a 1-basis point increase in the average cost of deposits to 0.53% for the six months ended December 31, 2017 from 0.52% for the same period last year. The decrease in the average balance of interest-bearing deposits primarily reflects lower average savings and time deposit balances. The increase in the average rate paid on interest-bearing deposits was caused primarily by an 8-basis point increase in the average rate paid on time deposits as the Bank offered special rates and terms to attract customers.

Interest expense on Federal Home Loan Bank advances increased $237,000, or 292.6%, primarily due to a $27.4 million increase in the average balance to $38.3 million for the six months ended December 31, 2016 from $10.9 million for the same period last year, and a 17-basis point increase in the average cost to 1.65% for the six months ended December 31, 2017 from 1.48% for the same period last year. The increase in the average cost is primarily due to a longer average term on advances in the current year compared to the same period last year.

Provision for Loan Losses. The provision for loan losses decreased by $253,000 to $335,000 for the six months ended December 31, 2017, compared to $588,000 for the six months ended December 31, 2016 primarily due to


increases in specific reserves on impaired loans in the prior year period. Charge-offs, net of recoveries, were $1.0 million and $70,000 for the six months ended December 31, 2017 and 2016, respectively.

Non-Interest Income. Non-interest income decreased $1.4 million, or 50.0% to $1.4 million for the six months ended December 31, 2017 compared to $2.8 million for the six months ended December 31, 2016. The decrease was caused primarily by a one-time settlement on an acquired loan of $1.6 million in the prior year partially offset by a $173,000 gain on the sale of securities recognized in the current year.

Non-Interest Expense. Non-interest expense increased $1.0 million, or 6.9%, to $16.0 million for the six months ended December 31, 2017 compared to $15.0 million for the six months ended December 31, 2016. The increase was primarily caused by increases of $942,000 in salaries and benefits, $497,000 in other operating expenses, $207,000 in professional fees and $115,000 in advertising expense, partially offset by a $557,000 decrease in occupancy and equipment expense and a $179,000 decrease in FDIC assessment. The increase in salaries and benefits was due primarily to a $591,000 net increase in retirement expenses and a $385,000 increase due to increased staffing. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees. The increase in professional fees was due primarily to expenses related to being a public company. The decrease in occupancy and equipment expense was caused primarily by a $521,000 lease obligation write-off recorded in the prior year.

Income Tax Expense. Income tax expense increased $2.0 million, or 138.9%, to $3.4 million for the six months ended December 31, 2017 from $1.4 million for the six months ended December 31, 2016. The increase was caused primarily by the $1.8 million estimated re-measurement charge recorded in the current quarter required in connection with tax law changes contained in the Tax Cuts and Jobs Act, however the Company expects to benefit in the future from the decrease in the federal corporate tax rate from 34% to 21%. The effective income tax rate was 65.6% for the six months ended December 31, 2017 as compared to 31.0% for the six months ended December 31, 2016.


Net Interest Income

Average Balance Sheet and Interest Rates. The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average tax equivalent yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Amortization of loanLoan fees isare included in interest income on loans.loans and are not material (Dollars in thousands).

 

 

 

Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

Average
Balance

 

 

Interest/
Dividends

 

 

Average
Rate

 

 

Average
Balance

 

 

Interest/
Dividends

 

 

Average
Rate

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (1)

 

$

1,346,194

 

 

$

13,849

 

 

 

4.12

%

 

$

1,223,532

 

 

$

12,107

 

 

 

3.96

%

Investment securities (1)

 

 

445,231

 

 

 

2,420

 

 

 

2.26

 

 

 

404,565

 

 

 

2,011

 

 

 

2.07

 

Other interest-earning assets

 

 

85,377

 

 

 

487

 

 

 

2.26

 

 

 

160,659

 

 

 

109

 

 

 

0.27

 

Total interest-earning assets

 

 

1,876,802

 

 

 

16,756

 

 

 

3.59

 

 

 

1,788,756

 

 

 

14,227

 

 

 

3.20

 

Non-interest-earning assets

 

 

78,342

 

 

 

 

 

 

 

 

 

76,375

 

 

 

 

 

 

 

Total assets

 

$

1,955,144

 

 

 

 

 

 

 

 

$

1,865,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

243,354

 

 

 

250

 

 

 

0.41

 

 

$

182,531

 

 

 

70

 

 

 

0.15

 

Money market accounts

 

 

390,619

 

 

 

376

 

 

 

0.38

 

 

 

350,575

 

 

 

186

 

 

 

0.21

 

Savings accounts and escrow

 

 

422,178

 

 

 

186

 

 

 

0.18

 

 

 

397,292

 

 

 

113

 

 

 

0.11

 

Time deposits

 

 

323,219

 

 

 

852

 

 

 

1.05

 

 

 

367,641

 

 

 

985

 

 

 

1.06

 

Total interest-bearing deposits

 

 

1,379,370

 

 

 

1,664

 

 

 

0.48

 

 

 

1,298,039

 

 

 

1,354

 

 

 

0.41

 

FHLB advances

 

 

46,522

 

 

 

235

 

 

 

2.00

 

 

 

65,935

 

 

 

338

 

 

 

2.03

 

Total interest-bearing liabilities

 

 

1,425,892

 

 

 

1,899

 

 

 

0.53

 

 

 

1,363,974

 

 

 

1,692

 

 

 

0.49

 

Non-interest-bearing deposits

 

 

230,076

 

 

 

 

 

 

 

 

 

207,806

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

22,180

 

 

 

 

 

 

 

 

 

19,943

 

 

 

 

 

 

 

Total liabilities

 

 

1,678,148

 

 

 

 

 

 

 

 

 

1,591,723

 

 

 

 

 

 

 

Total shareholders' equity

 

 

276,996

 

 

 

 

 

 

 

 

 

273,408

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

1,955,144

 

 

 

 

 

 

 

 

$

1,865,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

14,857

 

 

 

 

 

 

 

 

$

12,535

 

 

 

 

Interest rate spread - tax equivalent (2)

 

 

 

 

 

 

 

 

3.06

 

 

 

 

 

 

 

 

 

2.71

 

Net interest margin - tax equivalent (3)

 

 

 

 

 

 

 

 

3.19

 

 

 

 

 

 

 

 

 

2.82

 

Average interest-earning assets to interest-bearing liabilities

 

 

131.62

%

 

 

 

 

 

 

 

 

131.14

%

 

 

 

 

 

 

 

 

Three months ended December 31,

 

 

 

2017

 

 

2016

 

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

827,614

 

 

$

9,171

 

 

 

4.43

%

 

$

762,538

 

 

$

8,238

 

 

 

4.32

%

Securities

 

 

473,641

 

 

 

2,269

 

 

 

1.92

 

 

 

362,954

 

 

 

1,530

 

 

 

1.69

 

Other interest-earning assets

 

 

54,388

 

 

 

217

 

 

 

1.58

 

 

 

56,045

 

 

 

82

 

 

 

0.58

 

Total interest-earning assets

 

 

1,355,643

 

 

 

11,657

 

 

 

3.44

 

 

 

1,181,537

 

 

 

9,850

 

 

 

3.33

 

Non-interest-earning assets

 

 

58,665

 

 

 

 

 

 

 

 

 

 

 

58,604

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,414,308

 

 

 

 

 

 

 

 

 

 

$

1,240,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

112,147

 

 

 

48

 

 

 

0.17

 

 

$

105,647

 

 

 

44

 

 

 

0.16

 

Money market accounts

 

 

29,014

 

 

 

22

 

 

 

0.30

 

 

 

31,874

 

 

 

21

 

 

 

0.26

 

Savings accounts and escrow

 

 

509,888

 

 

 

309

 

 

 

0.24

 

 

 

527,779

 

 

 

327

 

 

 

0.25

 

Time deposits

 

 

306,756

 

 

 

928

 

 

 

1.20

 

 

 

317,757

 

 

 

900

 

 

 

1.12

 

Total interest-bearing deposits

 

 

957,805

 

 

 

1,307

 

 

 

0.54

 

 

 

983,057

 

 

 

1,292

 

 

 

0.52

 

Federal Home Loan Bank advances

 

 

35,293

 

 

 

164

 

 

 

1.85

 

 

 

6,354

 

 

 

31

 

 

 

1.96

 

Total interest-bearing liabilities

 

 

993,098

 

 

 

1,471

 

 

 

0.59

 

 

 

989,411

 

 

 

1,323

 

 

 

0.53

 

Non-interest-bearing deposits

 

 

130,614

 

 

 

 

 

 

 

 

 

 

 

123,135

 

 

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

7,765

 

 

 

 

 

 

 

 

 

 

 

15,101

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,131,477

 

 

 

 

 

 

 

 

 

 

 

1,127,647

 

 

 

 

 

 

 

 

 

Total equity

 

 

282,831

 

 

 

 

 

 

 

 

 

 

 

112,494

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,414,308

 

 

 

 

 

 

 

 

 

 

$

1,240,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

10,186

 

 

 

 

 

 

 

 

 

 

$

8,527

 

 

 

 

 

Interest rate spread (1)

 

 

 

 

 

 

 

 

 

 

2.85

 

 

 

 

 

 

 

 

 

 

 

2.80

 

Net interest margin (2)

 

 

 

 

 

 

 

 

 

 

3.00

 

 

 

 

 

 

 

 

 

 

 

2.89

 

Average interest-earning assets to interest-bearing liabilities

 

 

136.51

%

 

 

 

 

 

 

 

 

 

 

119.42

%

 

 

 

 

 

 

 

 

(1)
Tax exempt yield is shown on a tax equivalent basis for proper comparison using statutory federal income tax rate of 21% for all periods presented. See reconciliation of GAAP to non-GAAP measures in the table below.
(2)
Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.
(3)
Net interest margin represents annualized net interest income divided by average interest-earning assets. See reconciliation of GAAP to non-GAAP measures in the table below.

 

(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents annualized net interest income divided by average interest-earning assets.

33


 

The following table presents information regarding tax equivalent adjustment used in the calculation of certain financial metrics (Dollars in thousands).

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

2022

 

 

2022

 

 

Total interest income

 

$

16,756

 

 

$

14,227

 

 

Total interest expense

 

 

1,899

 

 

 

1,692

 

 

Net interest income (GAAP)

 

 

14,857

 

 

 

12,535

 

 

Tax equivalent adjustment

 

 

116

 

 

 

89

 

 

Net interest income - tax equivalent (non-GAAP)

 

$

14,973

 

 

$

12,624

 

 

 

 

 

 

 

 

 

 


 

 

Six months ended December 31,

 

 

 

2017

 

 

2016

 

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

820,429

 

 

$

17,989

 

 

 

4.38

%

 

$

769,340

 

 

$

16,763

 

 

 

4.35

%

Securities

 

 

479,833

 

 

 

4,514

 

 

 

1.88

 

 

 

368,855

 

 

 

3,010

 

 

 

1.63

 

Other interest-earning assets

 

 

61,822

 

 

 

451

 

 

 

1.45

 

 

 

59,800

 

 

 

186

 

 

 

0.62

 

Total interest-earning assets

 

 

1,362,084

 

 

 

22,954

 

 

 

3.37

 

 

 

1,197,995

 

 

 

19,959

 

 

 

3.33

 

Non-interest-earning assets

 

 

58,453

 

 

 

 

 

 

 

 

 

 

 

56,929

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,420,537

 

 

 

 

 

 

 

 

 

 

$

1,254,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

113,458

 

 

 

97

 

 

 

0.17

 

 

$

107,803

 

 

 

88

 

 

 

0.16

 

Money market accounts

 

 

29,557

 

 

 

43

 

 

 

0.29

 

 

 

31,642

 

 

 

42

 

 

 

0.26

 

Savings accounts and escrow

 

 

514,102

 

 

 

633

 

 

 

0.25

 

 

 

528,580

 

 

 

654

 

 

 

0.25

 

Time deposits

 

 

302,382

 

 

 

1,801

 

 

 

1.18

 

 

 

321,775

 

 

 

1,792

 

 

 

1.10

 

Total interest-bearing deposits

 

 

959,499

 

 

 

2,574

 

 

 

0.53

 

 

 

989,800

 

 

 

2,576

 

 

 

0.52

 

Federal Home Loan Bank advances

 

 

38,346

 

 

 

318

 

 

 

1.65

 

 

 

10,914

 

 

 

81

 

 

 

1.48

 

Total interest-bearing liabilities

 

 

997,845

 

 

 

2,892

 

 

 

0.58

 

 

 

1,000,714

 

 

 

2,657

 

 

 

0.53

 

Non-interest-bearing deposits

 

 

132,491

 

 

 

 

 

 

 

 

 

 

 

126,951

 

 

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

8,026

 

 

 

 

 

 

 

 

 

 

 

15,394

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,138,362

 

 

 

 

 

 

 

 

 

 

 

1,143,059

 

 

 

 

 

 

 

 

 

Total equity

 

 

282,175

 

 

 

 

 

 

 

 

 

 

 

111,865

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,420,537

 

 

 

 

 

 

 

 

 

 

$

1,254,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

20,062

 

 

 

 

 

 

 

 

 

 

$

17,302

 

 

 

 

 

Interest rate spread (1)

 

 

 

 

 

 

 

 

 

 

2.79

 

 

 

 

 

 

 

 

 

 

 

2.80

 

Net interest margin (2)

 

 

 

 

 

 

 

 

 

 

2.95

 

 

 

 

 

 

 

 

 

 

 

2.89

 

Average interest-earning assets to interest-bearing liabilities

 

 

136.50

%

 

 

 

 

 

 

 

 

 

 

119.71

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents annualized net interest income divided by average interest-earning assets.

Rate/Volume Analysis.The following tables settable sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.volume (Dollars in thousands).


 

 

Three months ended December 31,

2017 versus 2016

 

 

Three Months Ended September 30,

 

 

Rate

 

 

Volume

 

 

Net

 

 

2022 versus 2022

 

 

(in thousands)

 

 

Rate

 

 

Volume

 

 

Net

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

169

 

 

$

764

 

 

$

933

 

 

$

440

 

 

$

1,302

 

 

$

1,742

 

Securities

 

 

127

 

 

 

612

 

 

 

739

 

Investment securities

 

 

224

 

 

 

185

 

 

 

409

 

Other interest-earning assets

 

 

136

 

 

 

(1

)

 

 

135

 

 

 

452

 

 

 

(74

)

 

 

378

 

Total interest-earning assets

 

 

432

 

 

 

1,375

 

 

 

1,807

 

 

 

1,116

 

 

 

1,413

 

 

 

2,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

2

 

 

 

2

 

 

 

4

 

 

 

150

 

 

 

30

 

 

 

180

 

Money market accounts

 

 

2

 

 

 

(1

)

 

 

1

 

 

 

166

 

 

 

24

 

 

 

190

 

Savings and escrow accounts

 

 

(9

)

 

 

(9

)

 

 

(18

)

 

 

66

 

 

 

7

 

 

 

73

 

Time deposits

 

 

62

 

 

 

(34

)

 

 

28

 

 

 

(16

)

 

 

(117

)

 

 

(133

)

Federal Home Loan Bank advances

 

 

(2

)

 

 

135

 

 

 

133

 

FHLB advances

 

 

(5

)

 

 

(98

)

 

 

(103

)

Total interest-bearing liabilities

 

 

55

 

 

 

93

 

 

 

148

 

 

 

361

 

 

 

(154

)

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in net interest income

 

$

377

 

 

$

1,282

 

 

$

1,659

 

 

$

755

 

 

$

1,567

 

 

$

2,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended December 31,

2017 versus 2016

 

 

 

Rate

 

 

Volume

 

 

Net

 

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

50

 

 

$

1,176

 

 

$

1,226

 

Securities

 

 

277

 

 

 

1,227

 

 

 

1,504

 

Other interest-earning assets

 

 

252

 

 

 

13

 

 

 

265

 

Total interest-earning assets

 

 

579

 

 

 

2,416

 

 

 

2,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

4

 

 

 

5

 

 

 

9

 

Money market accounts

 

 

4

 

 

 

(3

)

 

 

1

 

Savings and escrow accounts

 

 

(9

)

 

 

(12

)

 

 

(21

)

Time deposits

 

 

120

 

 

 

(111

)

 

 

9

 

Federal Home Loan Bank advances

 

 

10

 

 

 

227

 

 

 

237

 

Total interest-bearing liabilities

 

 

129

 

 

 

106

 

 

 

235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in net interest income

 

$

450

 

 

$

2,310

 

 

$

2,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Loan Losses. The provision for loan losses increased for the three months ended September 30, 2022, compared to the same period last year. The increase is primarily due to higher loan portfolio growth in the current period. Recoveries net of charge-offs were $39,000 for the three months ended September 30, 2022, compared to recoveries, net of charge-offs of $265,000 for the same period last year.

Noninterest Income. The following table displays noninterest income for the three months ended September 30, 2022 and 2021 (Dollars in thousands).

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Net Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Fees and service charges

 

$

453

 

 

$

401

 

 

$

52

 

 

 

13.0

%

Bank-owned life insurance

 

 

191

 

 

 

192

 

 

 

(1

)

 

 

-0.5

%

Swap income

 

 

141

 

 

 

-

 

 

 

141

 

 

 

100.0

%

Other

 

 

8

 

 

 

20

 

 

 

(12

)

 

 

-60.0

%

Total noninterest income

 

$

793

 

 

$

613

 

 

$

180

 

 

 

29.4

%

The increase in fees and service charges for the three months ended September 30, 2022 compared to the same period last year was primarily the result of increases in deposit and loan processing fees.

34


Noninterest Expense. The following table displays noninterest expense for the three months ended September 30, 2022 and 2021 (Dollars in thousands).

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

Net Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Salaries and employee benefits

 

$

5,985

 

 

$

5,773

 

 

$

212

 

 

 

3.7

%

Occupancy and equipment

 

 

1,403

 

 

 

1,353

 

 

 

50

 

 

 

3.7

%

Communication and data processing

 

 

610

 

 

 

527

 

 

 

83

 

 

 

15.7

%

Professional fees

 

 

335

 

 

 

393

 

 

 

(58

)

 

 

-14.8

%

Merger-related expenses

 

 

311

 

 

 

-

 

 

 

311

 

 

 

100.0

%

Postage, printing, stationery and supplies

 

 

174

 

 

 

143

 

 

 

31

 

 

 

21.7

%

Advertising

 

 

128

 

 

 

100

 

 

 

28

 

 

 

28.0

%

FDIC assessment

 

 

125

 

 

 

125

 

 

 

-

 

 

 

0.0

%

Amortization of intangible assets

 

 

12

 

 

 

16

 

 

 

(4

)

 

 

-25.0

%

Other operating expenses

 

 

474

 

 

 

194

 

 

 

280

 

 

 

144.3

%

Total noninterest expense

 

$

9,557

 

 

$

8,624

 

 

$

933

 

 

 

10.8

%

The increase in salaries and employee benefits for the three months ended September 30, 2022 compared to the same period last year is primarily driven by higher salary and benefit costs. Merger-related expenses associated with the pending Brookline Bancorp merger largely include professional services fees. The increase in other operating expenses for the three months ended September 30, 2022 compared to the same period last year is primarily due to higher pension costs in the current period.

Income Tax Expense. The effective income tax rate was 20.5% for the three months ended September 30, 2022 as compared to 19.9% for the same period last year.

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, and investment securities, have longer maturities than our liabilities, consisting primarily of deposits and FHLB advances.deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, we have established a management-level Asset/Liability Management Committee, which takes initial responsibility for developing an asset/liability management process and related procedures, establishing and monitoring reporting systems and developing asset/liability strategies. On at least a quarterly basis, the Asset/Liability Management Committee reviews asset/liability management with the Investment Asset/Liability Committee that has been established byof the Board of Directors. This committeeCommittee also reviews any changes in strategies as well as the performance of any specific asset/liability management actions that have been implemented previously. On a quarterly basis, an outside consulting firm provides us with detailed information and analysis as to asset/liability


management, including our interest rate risk profile. Ultimate responsibility for effective asset/liability management rests with our Board of Directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. The net proceeds fromWe have implemented the offering have increased our capital and provided management with greater flexibilityfollowing strategies to manage our interest rate risk, including the following strategies:risk: originating loans with adjustable interest rates; utilizing interest rate swaps, promoting core deposit products; and adjusting the interest rates and maturities of funding sources, as necessary. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of capitalequity ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100 and 200 basis points from current market rates and that interest rates decrease 50 and 100 basis points from current market rates.

35


The following table presents the estimated changes in our NPV that would result from changes in market interest rates at December 31, 2017September 30, 2022 and June 30, 2017.2022 (Dollars in thousands). All estimated changes presented in the table are within the policy limits approved by our Board of Directors.

 

 

NPV

 

 

NPV as Percent of Portfolio

Value of Assets

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

NPV

 

 

NPV as Percent of Portfolio
Value of Assets

 

Basis Point Change in Interest Rates

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

 

EVE

Ratio

 

 

Change

(in bps)

 

 

Dollar
Amount

 

 

Dollar
Change

 

 

Percent
Change

 

 

NPV
Ratio

 

 

Change
(in bps)

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

$

289,504

 

 

$

(38,771

)

 

 

(11.8

)

%

 

21.83

%

 

 

(148

)

 

$

256,664

 

 

$

(47,850

)

 

 

(15.7

%)

 

 

15.06

%

 

 

(188

)

100

 

 

311,392

 

 

 

(16,883

)

 

 

(5.1

)

 

 

22.77

 

 

 

(54

)

 

 

281,394

 

 

 

(23,120

)

 

 

(7.6

)

 

 

16.07

 

 

 

(87

)

-

 

 

328,275

 

 

-

 

 

-

 

 

 

23.31

 

 

-

 

 

 

304,514

 

 

 

-

 

 

 

-

 

 

 

16.94

 

 

 

-

 

(100)

 

 

336,479

 

 

 

8,204

 

 

 

2.5

 

 

 

23.28

 

 

 

(3

)

 

 

335,857

 

 

 

31,343

 

 

 

10.3

 

 

 

18.09

 

 

 

115

 

(200)

 

 

366,247

 

 

 

61,733

 

 

 

20.3

 

 

 

19.10

 

 

 

216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

$

290,781

 

 

$

(35,848

)

 

 

(11.0

)

%

 

21.62

%

 

 

(130

)

 

$

267,563

 

 

$

(50,616

)

 

 

(19.9

%)

 

 

14.94

%

 

 

(187

)

100

 

 

311,728

 

 

 

(14,901

)

 

 

(4.6

)

 

 

22.49

 

 

 

(42

)

 

 

294,042

 

 

 

(24,137

)

 

 

(7.6

)

 

 

15.96

 

 

 

(85

)

-

 

 

326,629

 

 

-

 

 

-

 

 

 

22.92

 

 

-

 

 

 

318,179

 

 

-

 

 

 

-

 

 

 

16.81

 

 

 

-

 

(100)

 

 

331,139

 

 

 

4,510

 

 

 

1.4

 

 

 

22.69

 

 

 

(22

)

 

 

349,957

 

 

 

31,778

 

 

 

10.0

 

 

 

17.90

 

 

 

109

 

(200)

 

 

382,642

 

 

 

64,463

 

 

 

20.3

 

 

 

18.96

 

 

 

215

 

 

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes requiresrequire making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

Liquidity and Capital Resources

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.


We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and shortshort- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets dependare dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2017,September 30, 2022, cash and cash equivalents totaled $77.1$50.8 million, an increasea decrease from $60.5$118.5 million as of June 30, 2017. Securities2022. Unpledged securities classified as available for sale, which provide an additional source of liquidity, totaled $102.7 $9.5million at December 31, 2017,September 30, 2022, a decrease from $111.9$18.5 million as of June 30, 2017.2022.

We had the ability to borrow up to $332.2 million and $350.7$223.0 million from the Federal Home Loan BankFHLB of New York, at December 31, 2017 and JuneSeptember 30, 2017, $30.7 million and $42.6 million2022 of which $28.3 million was outstanding as of December 31, 2017 and JuneSeptember 30, 2017, respectively. We also2022. Additionally, as of September 30, 2022, we had an available line of credit with the Federal Reserve BankFRB of New York’s discount window program of $87.0$102.8 million, and $85.9$25.0 million of fed funds lines of credit, neither of which had outstanding balances as of December 31, 2017 and JuneSeptember 30, 2017, respectively, none of which was outstanding at either date.2022.

We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. If loan demand was to increase faster than expected, or any unforeseen demand or commitment was to occur, we could access our borrowing capacity with the Federal Home Loan Bank of New York or the Federal Reserve Bank of New York.sources detailed above.

We had $91.4 million and $77.6$14.4 million of loan commitments outstanding as of December 31, 2017September 30, 2022 and June 30, 2017, respectively, and $36.6$171.2 million and $45.4 million as of December 31, 2017 and June 30, 2017, respectively, of approved, but unadvanced, funds to borrowers. We also had $750,000 and $705,000$2.9 million in outstanding letters of credit at December 31, 2017 and JuneSeptember 30, 2017, respectively.  2022.

36


Time deposits due within one year of December 31, 2017September 30, 2022 totaled $116.8 million, an increase of $9.7 million from $107.1 million as of June 30, 2017.$203.0 million. If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and Federal Home Loan BankFHLB of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits at December 31, 2017.September 30, 2022. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The Holding Company is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its stockholdersshareholders, to repurchase shares of its common stock and for other corporate purposes. The Holding Company’s primary source of liquidity is dividend payments it may receive from the Bank. The Bank’s ability to pay dividends to the Holding Company is governed by applicable lawslaw and regulations. At December 31, 2017,September 30, 2022, the Holding Company (on an unconsolidated, stand-alone basis) had liquid assets of $72.8$18.0 million.

Capital Resources. The Company and Bank areis subject to various regulatory capital requirements administered by the New York State Department of Financial ServicesNYSDFS and the Federal Deposit Insurance Corporation.FDIC. At December 31, 2017,September 30, 2022, the Bank exceeded all applicable regulatory capital requirements, and the Bank was considered “well capitalized” under applicable regulatory guidelines. See Note 98 to the accompanying unaudited consolidated financial statementsstatements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is included in Part I, Item 2 of this report under "Management of Market Risk".Risk."

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2017.September 30, 2022. Based on that evaluation, the


Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’sCompany’s disclosure controls and procedures were effective.

During the quarter ended December 31, 2017,September 30, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business.

In addition, the Company has received demand letters from putative stockholders of the Company regarding the pending merger between the Company and Brookline Bancorp, Inc. In addition, on August 25, 2022, a complaint captioned Stephen Bushansky v. PCSB Financial Corporation et al. was filed in the United States District Court, Southern District of New York, naming as defendants the Company and the members of the Company’s board of directors (the “Complaint”). The complaint and the demand letters allege, among other things, that the proxy statement/prospectus contains materially incomplete and misleading information regarding the process that culminated in the merger agreement and the proposed transaction, the valuation analyses performed by the Company’s financial advisor, and potential conflicts of interest in connection with the proposed merger. The relief sought includes enjoining the consummation of the merger unless and until certain additional and allegedly material information is disclosed to the Company’s stockholders, rescinding and setting aside the merger to the extent already implemented, or granting rescissory damages, and awarding the plaintiff the cost of the action, including reasonable attorneys’ and experts’ fees. The Company believes that all allegations in the demand letters and complaint are without merit and intends to defend against them as appropriate.

We aredo not involved inbelieve that any pending legal proceedings aswould have a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At December 31, 2017, we were not involved in any legal proceedings the outcome of which we believe would be material toadverse effect on our consolidated financial condition, or results of operations.operations or cash flows.

37


Item 1A. Risk Factors

For information regarding the Company’s risk factors, see Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017,2022, filed with the Securities and Exchange Commission. As of December 31, 2017, except for the additional risk factor described below,September 30, 2022, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2022.


We may be adversely affected by recent changes in U.S. tax laws and regulations.

Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. Included in this legislation is a reduction of the corporate income tax rate from 34% to 21%. In addition, other changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes. These recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as New York. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities

(a)
Not applicable
(b)
Not applicable
(c)
On February 3, 2021, a repurchase program was authorized by the Board of Directors to repurchase up to 801,856 shares, or 5.0% of the Company’s then outstanding common stock. As of September 30, 2022, the Company repurchased 682,561 shares at an average cost of $18.23 per share.

NoneThere were no repurchases of PCSB Financial Corporation common stock during the quarter ended September 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.


Item 6. Exhibits

 

Exhibit

Number

 

Description

 

 

 

   3.1

 

Articles of Incorporation of PCSB Financial Corporation (1)(1)

 

 

 

   3.2

 

Amended and Restated Bylaws of PCSB Financial Corporation (2)(2)

 

 

 

  31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

   32

 

Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(3)

 

 

 

  101

 

The following materials for the quarter ended December 31, 2017,September 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income,Operations, (iii) Consolidated Statements of Comprehensive Income, (Loss), (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements(3)

  104

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101.

(1)
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).
(2)
Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on June 24, 2021.

38

(1)

Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).

(3)

Furnished, not filed.



SIGNATURES

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.

 

 

 

PCSB FINANCIAL CORPORATION

 

 

 

Date: February 9, 2018November 4, 2022

 

/s/ Joseph D. Roberto

 

 

Joseph D. Roberto

 

 

Chairman, President and Chief Executive Officer

 

 

 

Date: February 9, 2018November 4, 2022

 

/s/ Scott D. NoglesJeffrey M. Helf

 

 

Scott D. NoglesJeffrey M. Helf

 

 

ExecutiveSenior Vice President and Chief Financial Officer

 

 

4439