☐☐
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 12, 2023, the registrant had
Table of Contents
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
3 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
42 |
Item 3. |
52 |
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Item 4. |
53 |
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PART II. |
54 |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
54 |
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Item 4. |
54 |
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Item 5. |
54 |
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Item 6. |
55 |
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56 |
2
Item 1. Financial Statements.
CFSB Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets (Unaudited)
(In thousands, except per share data)
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September 30, |
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June 30, |
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2023 |
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2023 |
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Assets: |
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Cash and due from banks |
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$ |
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$ |
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Short-term investments |
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Total cash and cash equivalents |
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Securities available for sale, at fair value |
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Securities held to maturity, at amortized cost, net of allowance for credit loss, |
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Federal Home Loan Bank stock, at cost |
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Loans, net of allowance for credit losses of $ |
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Premises and equipment, net |
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Accrued interest receivable |
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Bank-owned life insurance |
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Deferred tax asset |
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Operating lease right of use asset |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity: |
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Deposits |
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Non-interest bearing |
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$ |
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$ |
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Interest-bearing |
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Total deposits |
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Short-term borrowings |
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Mortgagors' escrow accounts |
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Operating lease liability |
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Accrued expenses and other liabilities |
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Total liabilities |
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Stockholders' Equity |
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Preferred Stock, $ |
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$ |
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$ |
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Common Stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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( |
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Unearned compensation - ESOP, |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
CFSB Bancorp, Inc. and Subsidiary
Consolidated Statements of Net Income (Unaudited)
(In thousands, except per share data)
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For the Three Months Ended |
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September 30, |
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September 30, |
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2023 |
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2022 |
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Interest and dividend income: |
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Interest and fees on loans |
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$ |
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$ |
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Interest and dividends on debt securities: |
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Taxable |
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Tax-exempt |
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Interest on short-term investments and certificates of deposit |
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Total interest and dividend income |
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Interest expense: |
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Deposits |
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Borrowings |
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Total interest expense |
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Net interest income |
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Provision for (reversal of) credit losses |
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Net interest income after provision for (reversal of) credit losses |
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Non-interest income: |
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Customer service fees |
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Income on bank-owned life insurance |
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Other income |
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Total non-interest income |
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Non-interest expenses: |
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Salaries and employee benefits |
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Occupancy and equipment |
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Advertising |
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Data processing |
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Deposit insurance |
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Other general and administrative |
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Total non-interest expenses |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Net income per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
CFSB Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
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For the Three Months Ended |
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September 30, |
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2023 |
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2022 |
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Net income |
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$ |
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$ |
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Other comprehensive loss: |
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Change in unrealized holding losses |
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( |
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Net change in unrealized losses |
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( |
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Tax effect |
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Net-of-tax amount |
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( |
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Comprehensive income |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
CFSB Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(Dollars in thousands)
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Accumulated |
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Additional |
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Other |
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Unearned |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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Compensation |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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ESOP |
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Total |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Cumulative effect accounting adjustment(1) |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
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Net income |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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ESOP shares committed to be released |
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- |
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- |
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( |
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- |
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- |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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( |
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- |
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( |
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ESOP shares committed to be released |
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- |
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- |
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( |
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- |
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- |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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(1) Represents adjustment needed to reflect the cumulative impact on retained earnings pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment presented includes $
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
CFSB Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes of Cash Flows (Unaudited)
(In thousands)
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September 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Provision for (reversal of) credit losses |
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( |
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Amortization of securities, net |
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Net change in deferred loan costs and fees |
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Increase in cash surrender value of bank-owned life insurance |
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( |
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( |
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Depreciation and amortization, net |
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Deferred income tax expense |
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( |
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ESOP expense |
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Stock-based compensation |
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Net increase in accrued interest receivable |
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( |
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( |
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Other, net |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Activity in securities available for sale: |
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Maturities, prepayments and calls |
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Activity in securities held to maturity: |
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Maturities, prepayments and calls |
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Purchases |
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( |
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( |
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Purchases of Federal Home Loan Bank of Boston stock |
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( |
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Loan originations and payments, net |
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( |
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Additions to premises and equipment |
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( |
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Net cash provided by (used in) investing activities |
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( |
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Cash flows from financing activities: |
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Net decrease in deposits |
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( |
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( |
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Net decrease in short-term borrowings |
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( |
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Net increase in mortgagors' escrow accounts |
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Net cash used in financing activities |
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( |
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( |
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Net change in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental information: |
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Interest paid on deposits and short-term borrowings |
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$ |
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$ |
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Income taxes paid |
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$ |
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$ |
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Adoption of ASU 2016-02 |
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$ |
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$ |
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Adoption of ASU 2016-13 |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
Basis of presentation and consolidation
These unaudited consolidated financial statements of CFSB Bancorp, Inc. (the "Company") include the accounts of Colonial Federal Savings Bank (the “Bank”) and its wholly-owned subsidiary, Beach Street Security Corporation, which was established for the purpose of buying, holding and selling securities. All significant intercompany balances and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation are reflected in these unaudited consolidated financial statements, and all adjustments made are of a normal recurring nature. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2023.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
The Bank conducts operations from its three full-service banking offices and one limited-service banking office located in Quincy, Holbrook and Weymouth, Massachusetts, all within Norfolk County. The Bank considers its primary lending market area to be Norfolk and Plymouth Counties; however, the Bank occasionally makes loans secured by properties located outside of its primary lending market. The Bank's business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans and, to a lesser extent, multi-family real estate loans, commercial real estate loans, second mortgage loans and home equity lines of credit, consumer loans and construction loans.
Reorganization and Offering
On January 12, 2022, the Bank reorganized from a federally chartered mutual savings bank to a two-tier mutual holding company structure. As part of the reorganization, a mutual holding company (the “MHC”) was formed as a federal corporation, into which all of the current voting rights of the members of the Bank were transferred. As part of the reorganization, the Bank converted to a federal stock savings bank. A stock holding company (the “Holding Company”) was established as a federal corporation and a majority-owned subsidiary of the MHC at all times so long as the MHC remains in existence. Concurrently with the reorganization, the Holding Company offered for sale
Employee Stock Ownership Plan (the "ESOP")
As part of the reorganization and stock offering, the Bank established the Colonial Federal Savings Bank Employee Stock Ownership Plan to provide eligible employees of the Bank the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Bank employees. The ESOP was funded through the purchase of
8
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
9
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
Stock-based Compensation
The fair value of restricted stock and stock options is determined on the date of grant and amortized to compensation expense with a corresponding increase to additional paid-in capital over the required service period. Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience. The Black Scholes option-pricing model is used to determine the fair value of the stock options granted.
Earnings Per Share
The following table presents the factors used in the earnings per share calculation:
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For the Three Months Ended |
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(Dollars In thousands) |
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September 30, 2023 |
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September 30, 2022 |
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Net income |
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$ |
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$ |
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Weighted average number of common shares outstanding |
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Less: Average unallocated ESOP shares |
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( |
) |
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( |
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Less: Average non-vested restricted shares |
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( |
) |
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Weighted average number of common shares outstanding used to calculate basic earnings per common share |
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Dilutive effect of share-based compensation |
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Weighted average number of common shares outstanding used to calculate diluted earnings per common share |
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Earnings per common share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
|
Use of estimates
In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited consolidated balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the allowance for credit losses and deferred income taxes.
Management believes that the allowance for credit losses was adequate as of September 30, 2023 and June 30, 2023. While management uses current information and reasonable and supportable forecasts to recognize losses on loans, future additions to the allowance for credit losses may be necessary based on changes in economic conditions or other factors. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews the Bank's allowance for credit losses, and as a result of such reviews, management may have to adjust the allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is management's responsibility and any increase or decrease in the allowance is the responsibility of management.
10
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
Management believes that the deferred tax provision was adequate as of September 30, 2023 and June 30, 2023. In accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes,” management uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require management to make projections of future taxable income. The judgments and estimates management makes in determining the deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory, economic or business factors change. Any reduction in estimated future taxable income may require management to record a valuation allowance against the deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the federal and state portion of its deferred tax asset.
Recent accounting pronouncements
On July 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments, which requires the recognition of the allowance for credit losses to be estimated using the current expected credit loss ("CECL") methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and securities held to maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases (See Notes 3 and 4 to our unaudited consolidated financial statements for further information).
11
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Effective March 26, 2020, the Board of Governors of the Federal Reserve reduced reserve requirement ratios to
12
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The amortized cost and fair value of securities, with gross unrealized gains and losses and allowance for credit losses, follows:
|
|
September 30, 2023 |
|
|||||||||||||||||||||
(In thousands) |
|
Amortized Cost |
|
|
Allowance for Credit Losses |
|
|
Net Carrying Amount |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage-backed securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total securities held to maturity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
June 30, 2023 |
|
|||||||||||||
(In thousands) |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Municipal bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total securities held to maturity |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Securities with an amortized cost of $
13
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The amortized cost and fair value of debt securities, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
September 30, 2023 |
|
|||||||||||||||||||||||||||||||||||||
|
|
Due in One Year or Less |
|
|
Due After One Year to Five Years |
|
|
Due after Five Years to Ten Years |
|
|
Due After 10 Years |
|
|
Total |
|
|||||||||||||||||||||||||
(In thousands) |
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage-backed securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total securities held to maturity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
14
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
|
|
June 30, 2023 |
|
|||||||||||||||||||||||||||||||||||||
|
|
Due in One Year or Less |
|
|
Due After One Year to Five Years |
|
|
Due after Five Years to Ten Years |
|
|
Due After 10 Years |
|
|
Total |
|
|||||||||||||||||||||||||
(In thousands) |
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage-backed securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total securities held to maturity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
15
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
On July 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. In addition, ASC 326 made changes to the accounting for securities available for sale.
Allowance for Credit Losses - Securities Available for Sale
The Company measures expected credit losses on securities available for sale based upon the gain or loss position of the security. For securities available for sale in an unrealized loss position which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost, the Company evaluates qualitative criteria to determine any expected loss. This includes among other items the financial health of, and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. The Company also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows of the security. Securities available for sale which are guaranteed by government agencies do not currently have an allowance for credit loss, as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), or Government National Mortgage Association (“GNMA”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. The Company will evaluate this position no less than annually, however, certain items which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Accrued interest receivable on securities available for sale guaranteed by government agencies totaled $
Allowance for Credit Losses - Securities Held to Maturity
The Company measures expected credit losses on securities held to maturity on a collective basis by security type and risk rating where available. The reserve for each pool is calculated based on a Probability of Default/Loss Given Default basis taking into consideration the expected life of each security. Held-to-maturity securities which are issued by the United States Treasury or are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise FHLMC, FNMA, or GNMA. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. The Company will evaluate this position no less than annually, however, certain items which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Any expected credit losses on held-to-maturity securities would be presented as an allowance for credit loss. Accrued interest receivable on held-to-maturity securities totaled $
16
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table summarizes the activity in the allowance for credit losses for securities held to maturity by security type for the dates indicated:
|
|
Government-sponsored Enterprises |
|
|
|
|
|
|
|
|
|
|
||||||||
(In thousands) |
|
Debt Obligations |
|
|
Mortgage-backed Securities |
|
|
Municipal Bonds |
|
|
Corporate Bonds |
|
|
Total |
|
|||||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Adoption of ASU 2016-13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted beginning balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for (reversal of) credit losses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Information pertaining to securities with gross unrealized losses at September 30, 2023 or June 30, 2023 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
|
September 30, 2023 |
|
|||||||||||||||||||||||||||||
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
||||||||||||||||||||||||||
(In thousands) |
Number of Securities |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Depreciation from Amortized Cost Basis (%) |
|
|
Number of Securities |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Depreciation from Amortized Cost Basis (%) |
|
||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
Total temporarily impaired securities available for sale |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
Debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total temporarily impaired securities held to maturity |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
17
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
|
June 30, 2023 |
|
|||||||||||||||||||||||||||||
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
||||||||||||||||||||||||||
(In thousands) |
Number of Securities |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Depreciation from Amortized Cost Basis (%) |
|
|
Number of Securities |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Depreciation from Amortized Cost Basis (%) |
|
||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
Total temporarily impaired securities available for sale |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
Debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total temporarily impaired securities held to maturity |
|
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
|
|
% |
At September 30, 2023,
18
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Credit Quality Indicators
The Company monitors the credit quality of securities through the use of credit ratings. The Company monitors the credit ratings on a quarterly basis.
|
|
September 30, 2023 |
|
|||||||||||||||||||||||||||||||||
(In thousands) |
|
Aaa |
|
|
Aa1 |
|
|
Aa2 |
|
|
Aa3 |
|
|
A1 |
|
|
A2 |
|
|
A3 |
|
|
Baa2 |
|
|
Total |
|
|||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage-backed securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
June 30, 2023 |
|
|||||||||||||||||||||||||||||||||||||
(In thousands) |
|
Aaa |
|
|
Aa1 |
|
|
Aa2 |
|
|
Aa3 |
|
|
A1 |
|
|
A2 |
|
|
A3 |
|
|
Baa2 |
|
|
Not Rated |
|
|
Total |
|
||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage-backed securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Government-sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Debt obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total securities held to maturity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
There were
19
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
A summary of the balances of loans follows:
(In thousands) |
|
September 30, 2023 |
|
|
June 30, 2023 |
|
||
Mortgage loans on real estate: |
|
|
|
|
|
|
||
Residential: |
|
|
|
|
|
|
||
1-4 family |
|
$ |
|
|
$ |
|
||
Multifamily |
|
|
|
|
|
|
||
Second mortgages and home equity lines of credit |
|
|
|
|
|
|
||
Construction |
|
|
|
|
|
|
||
Commercial |
|
|
|
|
|
|
||
Total mortgage loans on real estate |
|
|
|
|
|
|
||
Consumer loans: |
|
|
|
|
|
|
||
Consumer |
|
|
|
|
|
|
||
Home improvement |
|
|
|
|
|
|
||
Total other loans |
|
|
|
|
|
|
||
Total loans |
|
|
|
|
|
|
||
Allowance for credit losses(1) |
|
|
( |
) |
|
|
( |
) |
Net deferred loan fees |
|
|
( |
) |
|
|
( |
) |
Loans, net |
|
$ |
|
|
$ |
|
Residential loans are subject to a blanket lien securing Federal Home Loan Bank (“FHLB”) advances. See Note 7 of these unaudited consolidated financial statements.
Effect of New Financial Accounting Standards
On July 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments, as amended, which requires the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and securities held to maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for securities available for sale. One such change is to require credit losses be presented as an allowance rather than as a write-down on securities available for sale that are determined to have impairment related to credit losses.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning July 1, 2023 are presented under ASC 326 while prior
20
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $
The following table illustrates the impact of ASC 326:
|
|
Pre-ASC Adoption |
|
|
As Reported Under ASC 326 |
|
|
|
|
|||
(In thousands) |
|
June 30, 2023 |
|
|
July 1, 2023 |
|
|
Impact of ASC 326 Adoption |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|||
Allowance for credit losses on securities held to maturity |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Allowance for credit losses on loans |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred tax asset on allowance for credit losses |
|
|
|
|
|
|
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|||
Allowance for credit losses on off-balance sheet exposures |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|||
Retained earnings |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
21
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Allowance for Credit Losses
The allowance for credit losses (“ACL”) is an estimate of expected losses inherent within the Company's existing loan portfolio. The ACL, as reported on our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable on loans was $
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which are disaggregated by call code. For each of these pools, the Company collects historical loss data, dating back to March 2008, from a selection of peer banks and applies the annual historical loss rate over the estimated remaining average life of the loan portfolio segment. The use of peer banks historical loss rates is due to the lack of loss history experienced by the bank. The average remaining life of a loan portfolio segment is adjusted for estimated prepayment and curtailment expectations. The modeling for estimated prepayment speeds and curtailment rates is based on a combination of historical internal estimates and market estimates. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a Weighted Average Remaining Maturity (“WARM”) method, incorporating historical loss data based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considers historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information is collected from a selection of peer banks and is derived from a combination of recessionary and non-recessionary performance periods for which data is available.
Residential one- to four-family: This segment consists of one- to four-family, owner-occupied, residential mortgage loans, virtually all of which are secured by properties in our market area. Generally, mortgages with loan-to-value ratios greater than
Multi-family: This segment consists of real estate loans secured by properties of five or more rental units within our market area. We consider a number of factors in originating multi-family loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality of this segment. Management obtains financial information annually and continually monitors the cash flows of these loans.
Second mortgages and home equity lines of credit: Second mortgage loans and home equity lines of credit are multi-purpose loans used to finance various home or personal needs for which a one- to four-family primary or secondary residence serves as collateral. We generally originate home equity lines of credit with a maximum loan-to-value ratio of
22
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Commercial real estate: This segment consists of real estate loans generally secured by office buildings, small retail facilities, mixed-use facilities and warehouses within our market area. We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications, income level and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy due to diminished cash flows, which in turn, would have an effect on the credit quality of this segment. Management obtains financial information annually and continually monitors the cash flows of these loans.
Consumer and home improvement: We offer a variety of consumer loans to individuals, including home improvement loans, new and used automobile loans. The overall health of the economy, including unemployment rates, will have an effect on the credit quality of this segment.
WARM method
In estimating the component of the ACL for loans that share similar credit characteristics with other loans, such loans are segregated into loan segments. Loans are designated into loan segments based on call code, for ease of use of historical peer bank data. In determining the ACL, we derive an estimated credit loss assumption from a model that categorizes loans to their call codes. The model calculates an expected loss percentage for each loan call code segment by considering the related historical annual net charge-off rate for that segment, based on historical averages from a select group of peer banks dating back to March 2008, and the average remaining life of the loan segment, based on estimated prepayment and curtailment rates. The historical loss rates over the remaining life of the loan segment are adjusted for differences between the historical net charge-off rates and the expected conditions over the remaining lives of the loans related to: (1) national, regional and local economic and business conditions and developments that effect the collectability of the portfolio; (2) changes in the volume and severity of past due loans and adversely classified or graded loans, the volume of nonaccrual loans and trends in charge-offs and recoveries; (3) changes in the nature and volume of the portfolio and the terms of loans; (4) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (5) changes in the experience, ability and depth of lending management and other relevant staff; (6) changes in the quality of the institution's review system; (7) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio; and (8) the existence of any concentrations of credit, and changes in the level of such concentrations. Such factors are used to adjust the historical net charge-off rates so that they reflect management expectations of future conditions based on a reasonable and supportable forecast. The Company uses regression analysis of historical peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime net charge-off rates. This analysis also determines how net charge-off rates will react to forecasted levels of the economic variables.
For all WARM models, management has determined that eight quarters represents a reasonable and supportable forecast period and reverts back to the historical net charge-off rates thereafter. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
Individually evaluated financial assets
For a loan that does not share risk characteristics with other loans, expected credit loss is measured on a net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan costs and fees), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit losses is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than on the operation) of the collateral.
23
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments
The Company maintains a separate allowance for credit losses for off-balance sheet credit exposures, including unfunded loan commitments, which is included in accrued expenses and other liabilities on the balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancelable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No estimate for credit losses is reported for off-balance sheet exposures that are unconditionally cancelable by the Company, such as undrawn amounts under such arrangements that may be drawn prior to the cancellation of the agreement. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. Categories of off-balance sheet credit exposures correspond to the loan portfolio segment described above. Management evaluates the need for a reserve on unfunded loan commitments in a manner consistent with loans. Upon adoption of ASU 2016-13 on July 1, 2023, the Company recorded a transition adjustment related to the reserve for unfunded loan commitments of $
24
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table presents activity in the allowance for credit losses by loan segment for the three months ended September 30, 2023 and for the allowance for loan losses for the three months ended September 30, 2022 is as follows:
(In thousands) |
|
Residential 1-4 Family |
|
|
Multifamily |
|
|
Second Mortgages and Home Equity Lines of Credit |
|
|
Construction |
|
|
Commercial Real Estate |
|
|
Consumer |
|
|
Home Improvement |
|
|
Unallocated |
|
|
Total |
|
|||||||||
Allowance for credit losses for loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Adoption of ASU 2016-13(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
Adjusted beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Provision (benefit) for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Loans charged-off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2023(2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Allowance for credit losses for off-balance sheet exposures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Adoption of ASU 2016-13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Adjusted beginning balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Provision (benefit) for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
Balance at September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Provision (credit) for loan losses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
Loans charged-off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The $
25
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Individually Evaluated Loans
In connection with the adoption of ASU 2016-13, the Company no longer provides information on impaired loans. A loan is considered individually evaluated when, based on current information and events, the loan is rated special mention or worse. At September 30, 2023, the Company had $
The allocation of the allowance for credit losses on loans to each category is presented as of September 30, 2023.
(In thousands) |
|
Residential Real Estate |
|
|
Commercial Real Estate |
|
|
Consumer |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Allowance for credit losses on loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Individually evaluated for credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Collectively evaluated for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Individually evaluated for credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Collectively evaluated for credit losses |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
The allocation of the allowance for loan losses to each category is presented as of June 30, 2023 under the incurred loss model.
(In thousands) |
|
Residential 1-4 Family |
|
|
Multifamily |
|
|
Second Mortgages and Home Equity Lines of Credit |
|
|
Construction |
|
|
Commercial Real Estate |
|
|
Consumer |
|
|
Home Improvement |
|
|
Unallocated |
|
|
Total |
|
|||||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Allowance for impaired loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Allowance for non-impaired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total allowance for loan losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Impaired loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Non-impaired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
At September 30, 2023 and June 30, 2023, there were
During the three months ended September 30, 2022, there were
Modified Loans
26
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Loans are designated as modified when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Company grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination.
There were
27
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Credit Quality Information
The Bank utilizes an internal loan rating system for residential real estate, commercial real estate and construction loans as follows:
Pass: Loans in this category are considered to pose low to average risk. Passed assets are generally protected by the current net worth and paying capacity of the obligor or by the value of collateral pledged.
Special Mention: Loans in this category possess credit deficiencies or potential weaknesses deserving management’s close attention. If uncorrected, such deficiencies or weaknesses may expose the Bank to an increased risk of loss.
Substandard: Loans in this category are considered to be inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. These assets have a well-defined weakness and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans in this category have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
Loss: Loans in this category are considered uncollectible and continuance as a bankable asset is not warranted. Loans in this category are generally charged-off.
On an annual basis, or more often if needed, the Bank formally reviews the ratings on all commercial real estate and construction loans. On a monthly basis, the Bank reviews the residential and other loan portfolios for credit quality primarily through the use of delinquency reports.
28
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table details the amortized cost balances of the Company's loan portfolio presented by risk rating and origination year as of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving |
|
|
Revolving Loans |
|
|
|
|
|||||||||
|
|
Term Loans at Amortized Cost by Fiscal Origination Year |
|
|
Loans |
|
|
Converted to |
|
|
|
|
||||||||||||||||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Amortized Cost |
|
|
Term Loans |
|
|
Total |
|
|||||||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Residential 1-4 family: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total residential 1-4 family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Multifamily: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total multifamily |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Second mortgages and home equity lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total second mortgages and home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Home improvement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net deferred fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
29
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table presents information on the Company’s loans by risk ratings:
(In thousands) |
|
Residential 1-4 Family |
|
|
Multifamily |
|
|
Second Mortgages and Home Equity Lines of Credit |
|
|
Construction |
|
|
Commercial Real Estate |
|
|
Consumer |
|
|
Home Improvement |
|
|
Total |
|
||||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
At September 30, 2023 and June 30, 2023, there were
30
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
A summary of the cost and accumulated depreciation and amortization of premises and equipment follows:
(In thousands) |
|
September 30, 2023 |
|
|
June 30, 2023 |
|
||
Land |
|
$ |
|
|
$ |
|
||
Bank buildings |
|
|
|
|
|
|
||
Building improvements |
|
|
|
|
|
|
||
Furniture, fixtures and equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
Depreciation and amortization expense for the three months ended September 30, 2023 and 2022 amounted to $
31
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
(In thousands) |
|
September 30, 2023 |
|
|
June 30, 2023 |
|
||
NOW and demand |
|
$ |
|
|
$ |
|
||
Regular and other |
|
|
|
|
|
|
||
Money market deposits |
|
|
|
|
|
|
||
Total non-certificate accounts |
|
|
|
|
|
|
||
Term certificates of $ |
|
|
|
|
|
|
||
Term certificates less than $ |
|
|
|
|
|
|
||
Total certificate accounts |
|
|
|
|
|
|
||
Total deposits |
|
$ |
|
|
$ |
|
A summary of certificate accounts by maturity is as follows:
|
|
September 30, 2023 |
|
|
June 30, 2023 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
Weighted Average Rate |
|
|
Amount |
|
|
Weighted Average Rate |
|
||||
Due within 3 months |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Over 3 months to 1 year |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Over 1 year to 2 years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Over 2 years to 3 years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Over 3 years to 5 years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
32
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Overnight advances or advances having a one-month maturity totaled $
The Bank has an available line of credit in the amount of $
The Bank has an available line of credit under the Federal Reserve Bank Borrower-in-Custody program offered through the Discount Window. Under the terms of the credit line at September 30, 2023 and June 30, 2023, the Bank has pledged certain qualifying securities with a fair market value of $
33
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's unaudited consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Federal banking regulations require minimum capital requirements for community banking institutions as set forth in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than
As of September 30, 2023, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital ratios as set forth in the following table. There are no conditions or events since receiving this notification that management believes has changed the Bank’s categorization.
The Bank’s actual capital amounts and ratios as of September 30, 2023 and June 30, 2023 are also presented in the table below.
|
|
Actual |
|
|
Minimum Capital Requirement |
|
|
Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions |
|
|||||||||||||||
(Dollars in thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total capital (to risk weighted assets) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Common equity Tier 1 capital (to risk weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital (to risk weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital (to adjusted total assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total capital (to risk weighted assets) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Common equity Tier 1 capital (to risk weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital (to risk weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital (to adjusted total assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Loan commitments
The Bank is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and advance funds on lines of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited consolidated balance sheets.
The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments.
At September 30, 2023 and June 30, 2023, the following financial instruments were outstanding:
(In thousands) |
|
September 30, 2023 |
|
|
June 30, 2023 |
|
||
Commitments to grant loans |
|
$ |
|
|
$ |
|
||
Unadvanced funds on equity lines of credit |
|
|
|
|
|
|
||
Unadvanced funds on commercial and other lines of credit |
|
|
|
|
|
|
Operating lease commitments
The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2022 and began recognizing operating leases on its consolidated balance sheet by recording a Right-Of-Use ("ROU") asset, representing the Company's legal right to use the leased assets and a net lease liability, representing the Company's legal obligation to make these lease payments. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are deemed reasonably certain to exercise. At September 30, 2023, the Company had two non-cancelable operating lease agreements for branch locations, one of which contains a renewal option to extend lease payments for a period of five years. At September 30, 2023, the weighted average remaining lease term for operating leases was
35
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Pursuant to the terms of these lease agreements in effect at September 30, 2023 pertaining to premises,
|
|
Years ending |
|
|
(In thousands) |
|
June 30, |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
Less: Imputed interest |
|
|
( |
) |
Total lease liability |
|
$ |
|
The cost of the lease payments is not included above. Total lease expense for the three months ended September 30, 2023 amounted to $
Other contingencies
Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will not have a material effect on the Bank’s unaudited consolidated financial statements.
36
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Employee Stock Ownership Plan
As part of the stock offering, the Bank established the Colonial Federal Savings Bank Employee Stock Ownership Plan ("ESOP") to provide eligible employees of the Bank the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Bank employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal limits. The number of shares committed to be released per year is
The ESOP funded its purchase of
|
|
September 30, 2023 |
|
|
Shares held by the ESOP include the following: |
|
|
|
|
Committed to be allocated |
|
|
|
|
Unallocated |
|
|
|
|
Total |
|
|
|
Defined benefit plan
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (the "Pentegra DB Plan"), a tax-qualified defined benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
Pension expense under the Pentegra DB Plan amounted to $
401(k) plan
The Bank has a savings plan which is intended to qualify under Section 401(k) of the Internal Revenue Code. The plan provides for voluntary contributions by participating employees ranging from
Supplemental compensation plan
The Bank has entered into a Supplemental Executive Retirement Plan (the “SERP”) with certain officers, which provides for payments upon attaining the retirement age noted in the SERP. The present value of these future payments is provided over the remaining terms of the officers’ employment and at September 30, 2023 and June 30, 2023, the accrued liability amounted to $
In addition, the Bank provides death benefits for officers and directors of the Bank under the terms of Split Dollar Agreements. The Bank has purchased life insurance contracts in connection with these agreements and the cash surrender value of the policies at September 30, 2023 and June 30, 2023 amounted to $
37
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Determination of fair value
The Bank uses fair value measurements to record fair value adjustments to certain assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, quoted market prices may not be available. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques, including collateral value. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Fair value hierarchy
The Bank groups its assets that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on quoted prices in active exchange markets for identical assets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Assets and liabilities measured at fair value on a recurring basis
At September 30, 2023 and June 30, 2023, securities available for sale were measured at Level 2 with a fair value of $
There are
Assets and liabilities measured at fair value on a non-recurring basis
The Bank may also be required, from time to time, to measure certain other financial assets on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There are
38
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and June 30, 2023.
|
|
September 30, 2023 |
|
|||||||||||||||||
(In thousands) |
|
Carrying |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|||
Securities available for sale |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Securities held to maturity |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Federal Home Loan Bank of Boston stock |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Loans, net |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Short-term borrowings |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, 2023 |
|
|||||||||||||||||
(In thousands) |
|
Carrying |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|||
Securities available for sale |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Securities held to maturity |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Federal Home Loan Bank of Boston stock |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Loans, net |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Short-term borrowings |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
39
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
Under the CFSB Bancorp, Inc. 2023 Equity Incentive Plan (the "2023 Equity Plan"), the Company may grant options, restricted stock, restricted stock units or performance awards to its directors, officers and employees. Both incentive stock options and nonqualified stock options may be granted under the 2023 Equity Plan with
Stock Options
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:
There were
40
CFSB Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements (Continued)
A summary of stock option activity for the three months ended September 30, 2023 is presented in the table below:
|
|
Stock Option Grants |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
Balance at July 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
$ |
|
|
|
- |
|
|
|
|
|||
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|||
Exercisable at September 30, 2023 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Unrecognized compensation cost |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
Weighted average remaining recognition period (years) |
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2023, stock-based compensation expense applicable to stock options was $
Restricted Stock
Shares issued may be either authorized but unissued shares or reacquired shares held by the Company. Any shares forfeited because vesting requirements are not met will become available for reissuance under the 2023 Equity Plan. The fair market value of shares awarded, based on the market price at the date of the grant, is amortized over the applicable vesting period. Restricted stock awarded to date has been at no cost to the awardee.
|
|
Restricted Stock Awards |
|
|
Weighted Average Grant Price |
|
||
Restricted stock awards at July 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
- |
|
|
|
- |
|
Vested |
|
|
- |
|
|
|
- |
|
Forfeited |
|
|
- |
|
|
|
- |
|
Restricted stock awards at September 30, 2023 |
|
|
|
|
$ |
|
||
Unrecognized compensation cost |
|
$ |
|
|
|
|
||
Weighted average remaining recognition period (years) |
|
|
|
|
|
|
For the three months ended September 30, 2023, stock-based compensation applicable to restricted stock was $
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion and analysis reflects our unaudited consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements, which appear beginning on page F-1 of Annual Report on Form 10-K for the year ended June 30, 2023.
Overview
Our results of operations depend primarily on our net interest income and, to a lesser extent, non-interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting of deposits and, to a lesser extent, borrowings. Non-interest income consists primarily of earnings on bank-owned life insurance, service charges on deposit accounts and other income. Our results of operations also are affected by our provision for loan losses and non-interest expense. Non-interest expense consists primarily of salaries and employee benefits, occupancy and equipment, data processing costs, advertising, Federal Deposit Insurance Corporation deposit insurance premiums and other expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
These forward-looking statements are based on our current beliefs and expectations 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. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.
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:
42
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations are based on our unaudited consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policy discussed below to be a critical accounting policy. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our unaudited consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.
On July 1, 2023, the Company adopted Accounting Standards Update (ASU) 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities that are determined to have impairment related to credit losses. For further discussion related to the implementation of CECL please refer to Notes 1, 3 and 4 of the unaudited consolidated financial statements.
43
There have been no additional material changes to our critical accounting policies during the three months ended September 30, 2023. For additional information on our significant accounting policies, please refer to Note 1 of the audited consolidated financial statements within our Annual Report on Form 10-K for the year ended June 30, 2023.
Comparison of Financial Condition at September 30, 2023 and June 30, 2023
Total Assets. Total assets decreased $2.8 million, or 0.8%, to $346.2 million at September 30, 2023 from $349.0 million at June 30, 2023. The decrease resulted primarily from decreases in cash and cash equivalents of $743,000, or 10.8%, decreases in securities held to maturity of $365,000, or 0.2%, and decreases in loans of $1.8 million, or 1.0%.
Cash and Cash Equivalents. Cash and cash equivalents decreased $743,000, or 10.8%, to $6.1 million at September 30, 2023 from $6.9 million at June 30, 2023, as the funding of deposit outflows and a reduction in short-term borrowings were partially offset by reduced funding obligations in securities held to maturity and loans.
Net Loans. Net loans decreased $1.8 million, or 1.0%, to $174.1 million at September 30, 2023 from $175.9 million at June 30, 2023. The decrease was due primarily to a decrease in one-to four- family residential real estate loans of $2.4 million, or 1.7%, partially offset by increases of $430,000, or 15.9%, in second mortgages and home equity lines of credit, and an increase of $245,000, or 1.9%, in multi-family real estate loans. The decrease in one-to four- family residential real estate loans was the result of borrower prepayments exceeding new originations.
Securities Available for Sale. Securities available for sale decreased $7,000, or 4.8%, to $139,000 at September 30, 2023 from $146,000 at June 30, 2023. The decrease was due to prepayments.
Securities Held to Maturity. Securities held to maturity decreased $365,000, or 0.2%, to $147.5 million at September 30, 2023 from $147.9 million at June 30, 2023, as prepayments of securities exceeded new purchases of securities and the addition of an allowance for credit losses for securities held to maturity, which totaled $233,000 at September 30, 2023.
Total Liabilities. Total liabilities decreased $2.8 million, or 1.0%, to $270.3 million at September 30, 2023 from $273.1 million at June 30, 2023. The decrease was the result of decreases in deposits of $2.7 million, or 1.0% and decreases in short-term borrowings of $425,000, or 11.6%.
Deposits. Deposits decreased $2.7 million, or 1.0%, to $260.7 million at September 30, 2023 from $263.4 million at June 30, 2023. The decrease was primarily due to decreases of $3.8 million, or 5.9%, in savings accounts and $2.1 million, or 7.8%, in money market accounts, partially offset by an increase of $2.9 million, or 2.6%, in term certificates. The decrease reflects management's decision not to increase interest rates for savings and money market accounts. Since the second quarter of the previous fiscal year, the Bank held term certificate promotions, which contributed to the increase in the balance of term certificates.
Borrowings. Borrowings, consisting entirely of Federal Home Loan Bank advances, were $3.3 million at September 30, 2023 compared to $3.7 million at June 30, 2023. The decrease was primarily due to a reduction of deposit outflows during the quarter ended September 30, 2023.
Stockholders' Equity. Total stockholders' equity increased $8,000, to $75.9 million at September 30, 2023 from $75.9 million at June 30, 2023. The increase was primarily due to net income of $123,000, the change in unearned ESOP compensation of $18,000, and stock-based compensation of $90,000, partially offset by the adoption of ASU 2016-13, net of taxes, of $223,000 for the three months ended September 30, 2023.
Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022
General. We reported net income of $123,000 for the three months ended September 30, 2023, compared to net income of $645,000 for the three months ended September 30, 2022, a decrease of $522,000, or 80.9%. Net interest income decreased $557,000, or 23.6%, non-interest expense increased by $168,000, or 9.6%, and non-interest income decreased $40,000, or 20.0%.
Interest and Dividend Income. Interest and dividend income increased $127,000, or 4.9%, to $2.7 million for the three months ended September 30, 2023 from $2.6 million for the three months ended September 30, 2022. The increase was attributable to an increase of $106,000, or 12.3%, in interest on securities and an increase of $103,000, or 6.4%, in interest on loans, partially offset by a decrease of $82,000, or 64.6%, in interest on short-term investments and certificates of deposit. Interest income on securities primarily increased due to an increase in the average balance of securities of $485,000 to $149.3 million for the three months ended September 30, 2023, from $148.8 million for the three months ended September 30, 2022, and an increase in the average yield on securities of 27 basis points to 2.66% for the three months ended September 30, 2023 from 2.39% for the three months ended September 30, 2022. Interest income on loans increased due to an increase in the average yield of 23 basis points to 3.90% for the three months ended September 30, 2023
44
from 3.67% for the three months ended September 30, 2022, and an increase in the average balance of loans of $30,000 to $176.7 million for the three months ended September 30, 2023 from $176.6 million for the three months ended September 30, 2022. Interest income on short-term investments decreased due to a decrease in the average balance of short-term investments of $17.9 million to $3.9 million for the three months ended September 30, 2023, from $21.7 million for the three months ended September 30, 2022, partially offset by an increase in the average yield on short-term investments of 233 basis points to 4.67% for the three months ended September 30, 2023 from 2.34% for the three months ended September 30, 2022. The increase in the average yields on interest-earning assets resulted from the higher interest rate environment.
Interest Expense. Interest expense increased $684,000, or 282.6%, to $926,000 for the three months ended September 30, 2023 from $242,000 for the three months ended September 30, 2022. The increase was due to an increase in the average rate paid on certificates of deposit of 223 basis points, to 3.00% for the three months ended September 30, 2023, from 0.77% for the three months ended September 30, 2022 due to the higher interest rate environment, partially offset by a decrease in the average balance of interest-bearing deposits of $20.8 million, or 8.3% to $230.4 million for the three months ended September 30, 2023, from $251.2 million for the three months ended September 30, 2022. The decrease in the average balance of interest-bearing deposits reflected management's decision not to raise interest rates on non-maturity deposits in the high interest rate environment.
Net Interest Income. Net interest income decreased $557,000, or 23.6%, to $1.8 million for the three months ended September 30, 2023, from $2.4 million for the three months ended September 30, 2022. The decrease was due to an increase in average rate paid on interest-bearing liabilities of 119 basis points, which contributed to a decrease in the net interest rate spread of 88 basis points to 1.77% for the three months ended September 30, 2023, from 2.65% for the three months ended September 30, 2022. The net interest margin decreased 54 basis points to 2.22% for the three months ended September 30, 2023 compared to 2.76% for the three months ended September 30, 2022. The decrease in the net interest rate spread was a result of the increase in the average rate paid on interest-bearing liabilities exceeding the increase in the average yield on interest-bearing assets.
Provision for Credit Losses. A reversal of credit losses of $166,000 was recorded for the three months ended September 30, 2023, due to improvements in forecasted economic conditions. No provision for loan losses was recorded for the three months ended September 30, 2022. The absence of a provision for the three months ended September 30, 2022 reflected continued strong asset quality. The allowance for credit losses was $1.6 million, or 0.94% of total loans, at September 30, 2023, compared to $1.7 million, or 0.99% of total loans, at September 30, 2022. The allowance for credit losses was $1.7 million, or 0.98% of total loans at June 30, 2023. At September 30, 2023, we had four one- to four-family loans totaling $1.4 million designated as special mention. We had no loans categorized as substandard, doubtful or loss at September 30, 2023 or 2022. We did not have any non-performing loans at either September 30, 2023 or 2022. We had no charge-offs or recoveries for the three months ended September 30, 2023 or 2022. There were no loans past due 30 days or more at September 30, 2023 and 2022.
Non-Interest Income. Non-interest income information is as follows.
|
|
Three Months Ended |
|
|||||||||||||
|
|
September 30, |
|
|
Change |
|
||||||||||
(Dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
Percent |
|
||||
Customer service fees |
|
$ |
40 |
|
|
$ |
37 |
|
|
$ |
3 |
|
|
|
8.1 |
% |
Income on bank-owned life insurance |
|
|
66 |
|
|
|
64 |
|
|
|
2 |
|
|
|
3.1 |
% |
Other income |
|
|
54 |
|
|
|
99 |
|
|
|
(45 |
) |
|
|
(45.5 |
%) |
Total non-interest income |
|
$ |
160 |
|
|
$ |
200 |
|
|
$ |
(40 |
) |
|
|
(20.0 |
%) |
Non-interest income decreased $40,000, or 20.0%, to $160,000 for the three months ended September 30, 2023 from $200,000 for the three months ended September 30, 2022. The decrease was primarily due to an $45,000 decrease in other income, primarily related to safe deposit box fees.
45
Non-Interest Expense. Non-interest expense information is as follows.
|
|
Three Months Ended |
|
|||||||||||||
|
|
September 30, |
|
|
Change |
|
||||||||||
(Dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
Percent |
|
||||
Salaries and employee benefits |
|
$ |
1,144 |
|
|
|
1,018 |
|
|
$ |
126 |
|
|
|
12.4 |
% |
Occupancy and equipment |
|
|
254 |
|
|
|
243 |
|
|
|
11 |
|
|
|
4.5 |
% |
Advertising |
|
|
38 |
|
|
|
39 |
|
|
|
(1 |
) |
|
|
(2.6 |
%) |
Data processing |
|
|
89 |
|
|
|
94 |
|
|
|
(5 |
) |
|
|
(5.3 |
%) |
Deposit insurance |
|
|
33 |
|
|
|
21 |
|
|
|
12 |
|
|
|
57.1 |
% |
Other |
|
|
358 |
|
|
|
333 |
|
|
|
25 |
|
|
|
7.5 |
% |
Total non-interest expense |
|
$ |
1,916 |
|
|
$ |
1,748 |
|
|
$ |
168 |
|
|
|
9.6 |
% |
Non-interest expense increased $168,000, or 9.6%, to $1.9 million for the three months ended September 30, 2023 from $1.7 million for the three months ended September 30, 2022. The increase was due a $126,000 increase in salaries and employee benefit expense due to normal employee annual merit salary benefit increases, an increase in headcount, and stock-based compensation expenses, an $11,000 increase in occupancy and equipment expenses due primarily to service contracts expenses, and a $25,000 increase in other expenses due primarily to stock-based compensation expenses paid to the board of directors.
Provision for Income Taxes. The Company recorded a provision for income taxes of $93,000 for the three months ended September 30, 2023, which was a $77,000, or 45.3% decrease from a provision for income taxes of $170,000 for the three months ended September 30, 2022. The decrease in the provision for income taxes for the three months ended September 30, 2023 was due to the decrease in income before income taxes.
46
Average Balance and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Tax-equivalent adjustments have been made for tax-advantaged municipal securities income. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $381,000 and $351,000 at September 30, 2023 and 2022, respectively.
|
|
For the Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans |
|
$ |
176,668 |
|
|
$ |
1,722 |
|
|
|
3.90 |
% |
|
$ |
176,638 |
|
|
$ |
1,619 |
|
|
|
3.67 |
% |
Securities(1) |
|
|
149,259 |
|
|
|
991 |
|
|
|
2.66 |
% |
|
|
148,774 |
|
|
|
888 |
|
|
|
2.39 |
% |
Other |
|
|
3,852 |
|
|
|
45 |
|
|
|
4.67 |
% |
|
|
21,717 |
|
|
|
127 |
|
|
|
2.34 |
% |
Total interest-earning assets |
|
|
329,779 |
|
|
|
2,758 |
|
|
|
3.35 |
% |
|
|
347,129 |
|
|
|
2,634 |
|
|
|
3.04 |
% |
Non-interest-earning assets |
|
|
16,655 |
|
|
|
|
|
|
|
|
|
15,933 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
346,434 |
|
|
|
|
|
|
|
|
$ |
363,062 |
|
|
|
|
|
|
|
||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing demand deposits |
|
$ |
29,912 |
|
|
$ |
4 |
|
|
|
0.05 |
% |
|
$ |
33,133 |
|
|
$ |
4 |
|
|
|
0.05 |
% |
Savings deposits |
|
|
62,446 |
|
|
|
16 |
|
|
|
0.10 |
% |
|
|
75,444 |
|
|
|
19 |
|
|
|
0.10 |
% |
Money market deposits |
|
|
26,271 |
|
|
|
17 |
|
|
|
0.26 |
% |
|
|
45,493 |
|
|
|
31 |
|
|
|
0.27 |
% |
Certificates of deposit |
|
|
111,812 |
|
|
|
839 |
|
|
|
3.00 |
% |
|
|
97,153 |
|
|
|
188 |
|
|
|
0.77 |
% |
Total interest-bearing deposits |
|
|
230,441 |
|
|
|
876 |
|
|
|
1.52 |
% |
|
|
251,223 |
|
|
|
242 |
|
|
|
0.39 |
% |
FHLB advances |
|
|
3,571 |
|
|
|
50 |
|
|
|
5.60 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
% |
Total interest-bearing liabilities |
|
|
234,012 |
|
|
|
926 |
|
|
|
1.58 |
% |
|
|
251,223 |
|
|
|
242 |
|
|
|
0.39 |
% |
Noninterest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-interest-bearing demand deposits |
|
|
30,971 |
|
|
|
|
|
|
|
|
|
32,522 |
|
|
|
|
|
|
|
||||
Other non-interest-bearing liabilities |
|
|
5,740 |
|
|
|
|
|
|
|
|
|
3,195 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
|
270,723 |
|
|
|
|
|
|
|
|
|
286,940 |
|
|
|
|
|
|
|
||||
Stockholders' equity |
|
|
75,711 |
|
|
|
|
|
|
|
|
|
76,122 |
|
|
|
|
|
|
|
||||
Total liabilities and stockholders' equity |
|
$ |
346,434 |
|
|
|
|
|
|
|
|
$ |
363,062 |
|
|
|
|
|
|
|
||||
Net interest income - FTE |
|
|
|
|
$ |
1,832 |
|
|
|
|
|
|
|
|
$ |
2,392 |
|
|
|
|
||||
Net interest rate spread(2) |
|
|
|
|
|
|
|
|
1.77 |
% |
|
|
|
|
|
|
|
|
2.65 |
% |
||||
Net interest-earning assets(3) |
|
$ |
95,767 |
|
|
|
|
|
|
|
|
$ |
95,906 |
|
|
|
|
|
|
|
||||
Net interest margin - FTE(4) |
|
|
|
|
|
|
|
|
2.22 |
% |
|
|
|
|
|
|
|
|
2.76 |
% |
||||
Average interest-bearing assets to interest-bearing liabilities |
|
|
|
|
|
|
|
|
140.92 |
% |
|
|
|
|
|
|
|
|
138.18 |
% |
47
A reconciliation of income presented on a GAAP basis as compared to a fully tax-equivalent basis is below:
|
|
For the Three Months Ended |
|
|||||
|
|
September 30, |
|
|
September 30, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Securities interest income (no tax adjustment) |
|
$ |
965 |
|
|
$ |
859 |
|
Tax-equivalent adjustment |
|
|
26 |
|
|
|
29 |
|
Securities (tax-equivalent basis) |
|
$ |
991 |
|
|
$ |
888 |
|
Net interest income (no tax adjustment) |
|
|
1,806 |
|
|
|
2,363 |
|
Tax-equivalent adjustment |
|
|
26 |
|
|
|
29 |
|
Net interest income (tax-equivalent adjustment) |
|
$ |
1,832 |
|
|
$ |
2,392 |
|
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income on a fully tax-equivalent basis for the periods indicated. 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 total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
|
|
For the Three Months Ended |
|
|||||||||
|
|
September 30, 2023 vs. 2022 |
|
|||||||||
(In thousands) |
|
Increase (Decrease) Due to Volume |
|
|
Increase (Decrease) Due to Rate |
|
|
Total Increase (Decrease) |
|
|||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|||
Loans |
|
$ |
- |
|
|
$ |
103 |
|
|
$ |
103 |
|
Securities |
|
|
3 |
|
|
|
100 |
|
|
|
103 |
|
Other |
|
|
(104 |
) |
|
|
22 |
|
|
|
(82 |
) |
Total interest-earning assets |
|
|
(101 |
) |
|
|
225 |
|
|
|
124 |
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|||
Interest-bearing demand deposits |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Savings deposits |
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Money market deposits |
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(14 |
) |
Certificates of deposit |
|
|
28 |
|
|
|
623 |
|
|
|
651 |
|
Total deposits |
|
|
12 |
|
|
|
622 |
|
|
|
634 |
|
FHLB advances |
|
|
- |
|
|
|
50 |
|
|
|
50 |
|
Total interest-bearing liabilities |
|
|
12 |
|
|
|
672 |
|
|
|
684 |
|
Change in net interest income |
|
$ |
(113 |
) |
|
$ |
(447 |
) |
|
$ |
(560 |
) |
48
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 mortgage loans and investment securities, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage the impact of changes in market interest rates on net interest income and capital. We have an Asset/Liability Committee that is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The Asset/Liability Committee establishes and monitors the amount, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.
As part of our ongoing asset-liability management, we use the following strategies to manage our interest rate risk:
We do not engage in hedging activities, such as engaging in futures, options or interest rate swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.
We consider two types of simulations impacted by changes in interest rates, which are (1) net interest income and (2) changes in the economic value of equity.
Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model, the results of which are provided to us by an independent third party. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning September 30, 2023 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.
Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.
Change in Interest Rates (basis points)(1) |
|
Net Interest Income |
|
|
Year 1 Change from Level |
|
||
+400 |
|
$ |
5,057 |
|
|
|
(29.2 |
%) |
+300 |
|
|
5,573 |
|
|
|
(22.0 |
%) |
+200 |
|
|
6,090 |
|
|
|
(14.8 |
%) |
+100 |
|
|
6,620 |
|
|
|
(7.3 |
%) |
Level |
|
|
7,144 |
|
|
|
- |
|
-100 |
|
|
7,431 |
|
|
|
4.0 |
% |
-200 |
|
|
7,658 |
|
|
|
7.2 |
% |
-300 |
|
|
7,830 |
|
|
|
9.6 |
% |
-400 |
|
|
7,982 |
|
|
|
11.7 |
% |
49
Economic Value of Equity. We monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within our policy guidelines.
The table below sets forth, as of September 30, 2023, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.
As of September 30, 2023 |
|
|||||||||||||||||||
|
|
|
|
|
Estimated Increase (Decrease) in EVE |
|
|
EVE as a Percentage of Present Value of Assets(3) |
|
|||||||||||
Change in Interest Rates (basis points)(1) |
|
Estimated EVE(2) |
|
|
Amount |
|
|
Percent |
|
|
EVE Ratio(4) |
|
|
Decrease |
|
|||||
+400 |
|
$ |
27,104 |
|
|
$ |
(20,708 |
) |
|
|
(43.3 |
%) |
|
|
10.2 |
% |
|
|
(540 |
) |
+300 |
|
|
31,894 |
|
|
|
(15,918 |
) |
|
|
(33.3 |
%) |
|
|
11.6 |
% |
|
|
(400 |
) |
+200 |
|
|
36,978 |
|
|
|
(10,834 |
) |
|
|
(22.7 |
%) |
|
|
13.0 |
% |
|
|
(260 |
) |
+100 |
|
|
42,424 |
|
|
|
(5,388 |
) |
|
|
(11.3 |
%) |
|
|
14.4 |
% |
|
|
(120 |
) |
Level |
|
|
47,812 |
|
|
|
- |
|
|
|
- |
|
|
|
15.6 |
% |
|
|
- |
|
-100 |
|
|
52,768 |
|
|
|
4,956 |
|
|
|
10.4 |
% |
|
|
16.6 |
% |
|
|
100 |
|
-200 |
|
|
57,251 |
|
|
|
9,439 |
|
|
|
19.7 |
% |
|
|
17.4 |
% |
|
|
180 |
|
-300 |
|
|
61,180 |
|
|
|
13,368 |
|
|
|
28.0 |
% |
|
|
18.0 |
% |
|
|
240 |
|
-400 |
|
|
63,979 |
|
|
|
16,167 |
|
|
|
33.8 |
% |
|
|
18.3 |
% |
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above indicates that at September 30, 2023, in the event of an instantaneous 200 basis point increase in interest rates, we would experience a 22.7% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 19.7% increase in EVE.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE 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 EVE and will differ from actual results.
EVE calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.
50
Liquidity and Capital Resources
Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities and calls of securities. We also have the ability to borrow from the Federal Home Loan Bank of Boston and the Federal Reserve Bank of Boston. At September 30, 2023, we had $3.3 million of outstanding advances from the Federal Home Loan Bank of Boston. At September 30, 2023, we had the ability to borrow $61.2 million in Federal Home Loan Bank of Boston advances. Additionally, at September 30, 2023, we had $2.4 million and $12.5 million under available lines of credit with the Federal Home Loan Bank of Boston and Federal Reserve Bank of Boston, respectively, none of which was drawn at September 30, 2023.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $436,000 and $730,000 for the three months ended September 30, 2023 and 2022, respectively. Net cash provided by (used in) investing activities, which consists primarily of disbursements for loan originations and the purchase of investment securities, offset by principal collections on loans, proceeds from maturing securities and pay downs on securities, was $1.9 million and $(9.7) million for the three months ended September 30, 2023 and 2022, respectively. Net cash used in financing activities was $3.1 million and $7.0 million for the three months ended September 30, 2023 and 2022, respectively. Changes in net cash related to financing activities were primarily related to changes in deposit balances for the three months ended September 30, 2023.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments based on our current strategy to increase loans with an increase in core deposits as supplemented by the use of Federal Home Loan Bank of Boston advances as needed.
Capital Resources. At September 30, 2023 and June 30, 2023, the Bank exceeded all of its regulatory capital requirements. See Note 8 of the unaudited consolidated financial statements of this quarterly report.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. The financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.
At September 30, 2023, we had $215,000 of commitments to originate loans, $4.0 million of unadvanced funds under home equity lines of credit and $389,000 of unadvanced funds under commercial and other lines of credit. See Note 9 in the Notes to the unaudited consolidated financial statements for further information.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.
51
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 in the Notes to the unaudited consolidated financial statements and note 1 of the notes to our consolidated financial statements beginning on page F-1 of our Annual Report on Form 10-K for the year ended June 30, 2023. As an emerging growth company, we have elected to use the extended transition period to delay the adoption of new or re-issued accounting pronouncements applicable to public companies until such pronouncements are applicable to non-public companies.
Impact of Inflation and Changing Prices
The unaudited financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
52
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Treasurer and Chief Operating Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures as of September 30, 2023, the Company’s Chief Executive Officer and Treasurer and Chief Operating Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
53
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2023, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
54
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.0 |
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101 |
|
The following materials for the three months ended September 30, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements * |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
|
|
|
*Furnished, not filed.
55
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.
|
|
CFSB BANCORP, INC.
|
|
|
|
|
|
Date: November 14, 2023 |
|
By: |
/s/ Michael E. McFarland |
|
|
|
Michael E. McFarland |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 14, 2023 |
|
By: |
/s/ Susan Shea |
|
|
|
Susan Shea |
|
|
|
Treasurer and Chief Operating Officer |
|
|
|
(Principal Financial and Accounting Officer) |
56